> As a result, families pay a disproportionate share of federal tax receipts
This is simply because companies pay money to individuals who then pay taxes. This is a feature not a bug as taxing companies is less efficient from just having employee pay as a deduction that gets taxed downstream. Trying to tax this money before it gets to employees would result in double taxation as the company would pay and the individual would then pay again.
Also, labor is an expense so it’s logical with the reasoning of only taxing profits.
People who complain about “companies not paying taxes” are like the “47% don’t pay taxes” people in that they don’t understand the principles behind taxation very well, or are trying to deceive, or for some reason care about a specific tax.
This article would be impossible to implement since even simple things like being able to deduct food would favor the rich deducting foie gras over the poor deducting oats.
I don't think the flat tax is a good idea, but I would love a simpler tax code.
But I remember having a long conversation with a friend who was an economist on why corporations were able to deduct things they needed to provide their services, but I as an individual couldn't do the same. It's a valid and interesting topic to discuss, imo.
You’re talking about why we can’t treat corporations like families with higher tax rates. To me the more interesting question is more about treating families like corporations.
We had a nanny for a year. She made about $50k, but I had to pay her with after-tax income so the actual cost of the nanny was closer to $70k of my pretax income. This is the precise double taxation you’re talking about.
Yes, higher income people have more deductions, but that’s what AMT is for.
Fair. However, because marginal rate differs by year, now we need to know what year's money that nanny's wage is being paid out of to make that 50 vs 70 calculation.
I'm not familiar with that. Sounds like more complexity for my taxes. I'd rather things get simpler. My proposal is a flat federal value-added tax, its revenue distributed weekly in uniform amounts to each domestically-residing citizen's federal debit card account.
Exactly. I feel like a lot of people here either didn't pay attention to the article or are using it as an opportunity to go on a tangent about corporate/family taxes. The disconnect between the two is listed clearly in the second sentence of the article. Companies are predominately taxed on profit. Families are predominately taxed on revenue. That drastically decreases the tax burden for high revenue businesses and drastically increases the tax burden for families that are barely getting by (i.e. low profit).
I agree with correcting that discrepancy - but why stop at just families? I know society loves to say it's incentivizing family building - but it also creates scenarios adverse to society. Just make the tax code treat everyone the same and tax everyone on revenue minus costs.
I don't think we want that extreme either because not all costs are equal. It is entirely different equation for a family making $50k to write off their groceries versus Jeff Bezos writing off a $400m superyacht.
The standard deduction seems like a nod in this direction. Perhaps it could be increased to be in line with the average expenses of a middle class family.
Personally, I don’t think people should be paying a cent of income tax until they’re well on their way to an upper-middle class income. Taxes should always be taken out of surpluses, and never make it harder to achieve a baseline level of comfort and stability. The same should apply to new businesses—not a cent of taxes or fees until revenue is sufficient to support its owner(s), and perhaps even a few employees. If you tax something, you get less of it, so we should be very deliberate about what we’re taxing. If we tax the road to the “American dream”, a lot less people will arrive there.
Whatever tax increases are required on the wealthy and larger businesses to accomplish this would be well worth it imo. A big, healthy middle class with lots of new business formation benefits everyone, including and especially the wealthy.
I'd abolish the standard deduction. Rather, move it into the tax brackets. At an absolute minimum the 0% bracket should extend to the poverty line, I think 150% of the poverty line would be a better fence. The standard deduction basically says you don't get to deduct many things you should be able to deduct. All the games we play with deductions are a shell game by Congress to stealthily raise taxes on the poor/middle class.
> She made about $50k, but I had to pay her with after-tax income so the actual cost of the nanny was closer to $70k of my pretax income. This is the precise double taxation you’re talking about.
That's just payroll taxes, which fund things like your nanny's social security and Medicare, and corporations have to pay them too.
If the nanny was on a corporation's payroll it would cost them 70k too, so if you paid the corporation for her services, you'd still have to pay more than 70k for that corporation to make a profit.
No, payroll tax is a separate issue. What the grandparent post is talking about is that a company can deduct its expenses and only pay tax on net income but a family can’t. I’m not sure there’s a way to fix that—the concept of profit doesn’t really apply to a family—but it isn’t a reasonable thing to point out.
So you think hiring a nanny should have special tax benefits vs e.g. paying a daycare? You realize daycares also pay the same payroll tax, should daycare patrons be able to deduct the daycare's taxes too?
Also, everyone pays the daycare with post-tax dollars, caveat the spending account deduction, the same way they'd pay the nanny. The nanny is a red herring.
I agree it would be problematic to tax savings. However, if you have a two earner household a nanny is arguably a cost of revenue. I could imagine a system that allowed cost of revenue expenses to be deducted but not, say, a trip to bora bora.
Okay, but saying there should be more tax incentives for childcare is different to saying you should be able to deduct all your workers' payroll taxes (which could equally apply to someone in a mansion whose staff includes a cook, a butler, and a pilot who flies them to Bora Bora every year).
You actually can deduct some childcare costs with a Dependent Care Flexible Savings Account. It's only up to 5k a year though which is lower than the cost of even the cheapest daycares in many areas.
How about domestic help/childcare/dogwalking etc is deductible up to 50% or perhaps 33% of what you would reasonably would make in the time it would take you to provide whatever service they are providing. (Divide your employment income by the hours you typically spend in a year doing that job to get an hourly rate. You can't deduct such expenses on days you aren't working except if the nature of their pay means it continues anyway. Your taking a day off work doesn't mean you get to not pay your nanny, thus that expense remains deductible.)
That’s because a nanny is a luxury, not a necessity. There’s lots of people who figure it out without a nanny.
There is a deduction for child care and it should be higher, but there’s no reason why your $50k nanny expenditure should be tax exempt.
This is what I meant by tax policies that would favor the rich. You’re trying to figure out how to deduct a larger amount than millions of people make. That wouldn’t be fair would it?
You don’t pay tax on your super cool vacation either. Even though it releases stress and is quite nice.
It would be impossible to figure out a fair amount. Instead they just give a standard deduction and incentivize certain things like charities.
And I was using it to illustrate the problem of treating individuals like corporations for this purposes. A company is not allowed to hire a nanny for an individual because it’s not essential, but an office janitor is.
The difference between childcare and nanny is huge. Treating individuals like companies for tax purposes would be super regressive and a benefit to the rich that would not apply to the poor.
Daycare costs $5-25k/year and that’s lots less than a nanny. Why should other taxpayers subsidize your nanny preference?
First, taxing companies is not "double taxation". Companies are taxed on profits. Paying taxes on behalf of employees and paying taxes on profits are mutually exclusive.
Second, not taxing companies allows the rich to disproportionately avoid paying any taxes.
Person A earns $50,000pa and gets taxed on all of it.
Person B earns $5m but is paid through a company but "only" spends $1m/year. So $1m is distributed as effectively as possible through dividends and income and the rest taxed as profits, deferring a portion of their taxes possibly indefinitely.
But it gets worse: getting paid in a company now allows the person to take advantage of transfer pricing and shift profits (and thus any corporate taxes) to a low or zero tax jurisdiction.
And it doesn't end there. Instead of distributing income, the company borrows against those profits and distributes that. Loan interest is near zero so this also defers taxes, possibly indefinitely.
Some argue it's inefficient to tax companies and we should just tax individuals. The flaw should be clear: at best, for the rich who have this option, you're now taxing their spending instead of their earnings (ie distribute what you need to spend, retain the rest as undistributed profits).
I'm a big fan taxing profits based on revenue, which is to say that if 60% of a company's revenues are sourced in the US, then the US gets to tax 60% of your profits. And I'm completely fine with every country doing this if they want.
> This is simply because companies pay money to individuals who then pay taxes. This is a feature not a bug as taxing companies is less efficient from just having employee pay as a deduction that gets taxed downstream.
So if a company has a large revenue that it mostly reinvests and pays low salaries, very little tax would be paid on this revenue, and that seems okay to you?
> People who complain about “companies not paying taxes” are like the “47% don’t pay taxes” people in that they don’t understand the principles behind taxation very well
Are you sure about that? Amazon paid a federal income tax of 1.2% in 2019 on 13B of U.S. income. I think this is what people complain about when they talk about companies not paying taxes.
13B in revenue or profit? That is, after paying their employees, the cost of buildings and equipment, capital costs, etc. how much was left over? What percentage of that did they pay in taxes?
Are you suggesting that Amazon's revenue from customers in the United States was $13 billion in all of 2019? That's a fraction of AWS revenue, let alone their retail business.
> So if a company has a large revenue that it mostly reinvests and pays low salaries, very little tax would be paid on this revenue, and that seems okay to you?
Certainly, of course. If they reinvest then they are spending capital on something so that company so taxes are eventually paid.
This is meant, I think, to encourage growth with the intent that there will be an eventual taxable event at a higher amount than if tax was paid earlier in the stream. I think this is why tax revenues continue to grow. The intent is to maximize tax revenue. There’s no reason to worry about companies like in your scenario because it doesn’t negatively impact taxes.
What might be good is to setup thresholds for deductible expenses to prevent corporate expense that are clearly luxuries. For example, meals are only 50% deductible. I could see setting up different classifications for private jets over commercial, country club dues, luxury hotels, etc.
It doesn’t seem fair that taxpayers subsidize corporations claiming expenses and offsetting taxes on country club dues and whatnot. Pretty bizarre and there are lots of setasides that clearly benefit rich people who work for corporations.
Don’t non-US national owners of companies doing business in the United States benefit from goods and services provided by US governments? Ought they contribute? How do you tax them if the system only taxes individuals?
I think a big problem is that the number of employees required to run many types of businesses has been steadily decreasing over time as technology improves. McDonald's for example went from 440,000 employees to 205,000 from 2012 to 2019 [1]. Multiply that out to include manufacturing companies and it's pretty easy to find the reason governments are strapped for cash. Maybe it's time to tax automation?
1000% yes; I work in industrial mobile robots and it's obvious that governments need to find a way to capture some of the value which is being created there, particular when it's a more-or-less direct trade of a wage-earning employee for a one-off capital investment.
Are there are any major proposals yet for how this might work, or has already worked? The "existing" section on this suspiciously-OR Wikipedia article is pretty scant:
> Are there are any major proposals yet for how this might work, or has already worked?
I don't know of any direct proposals, but I know of one thought: if you look at it, tax on fuels is partially a tax on automation already - machines use energy (be it electricity, heat or pressure), so there's a tax here that is proportional to use of machines. Of course it seems very low if treated as "tax on automation", and it's going to be easy to work around with off-the-grid, local power generation.
Interesting idea, but I don't think that's a realistic proxy, particularly when you look at the automation-per-dollar "efficiency" of computers relative to other industrial processes— like, how much compute do you get for the power that it takes to boil water or weld together a car or something? Or what about a case like a self-serve till at the grocery store? The power those consume is probably actually comparable to the power consumed by a till with a person operating it.
There are good reasons to tax energy and carbon, but critics are right that it ultimately is a tax on everything. An automation tax needs to find a way to specifically tax the gains made by putting humans out of a job, similar to what organized labour achieved for a generation of longshoreman when containerization killed their industry in the 60s and 70s (as documented in Marc Levinson's excellent book The Box).
There has to be a domestic market of people buying stuff for the rest of the economy to exist. If all the people are automated out of jobs, then that domestic market has to be provided by UBI. The funds for that provision have to come from corporate taxes. Probably a tax on capital spending or depreciation - if you're replacing labour with capital and the government relies on taxes on labour for its revenue, then the government has to switch to taxing capital.
If there was a way of not involving the government in this, that would probably work better. The dream, of course, being The Culture - no government at all, just people acting in their enlightened self-interest in a post-scarcity world.
Maybe not automation, but it is reasonable to tax the externality, which is disruption. Taxing the speed of change of number of employees commensurate to the difficulty those employees have in finding new employment. Then pump the proceeds of that tax into unemployment benefits and training.
There could easily be a tax for eliminating someone's position entirely. i.e. Incentivize having way more people than needed to watch the machine do its thing.
Ok radical idea - I'm starting to think of these ever larger/automated companies as having "won" the capitalism game or discovered a fundamental solution to some problem. But the economy doesn't have a great endgame scenario for such entities. One option might be regulating them as public utilities instead of corporate entities. i.e. The point of making a huge corporation changes from eternally extracting rent to becoming so ubiquitous that society adopts it as a fundamental exercise like Fire Departments or roadways.
McDonalds employs fewer people but now we have jobs making and maintaining that automation and those jobs pay an awful lot better than do-you-want-fries-with-that. I don't believe taxing automation is a good thing in the long run.
Special taxes are dumb because of the overhead and externalities.
Automation is already covered in that it results in either greater profits or greater payroll through higher wages, so either way it’s already taxed.
The incentive is for companies to be efficient by increasing productivity. This productivity is taxed through existing means. So unless you want to disincentive automation a special tax for it is bad.
>This is a feature not a bug as taxing companies is less efficient from just having employee pay as a deduction that gets taxed downstream. Trying to tax this money before it gets to employees would result in double taxation as the company would pay and the individual would then pay again.
So the corporation gets to enjoy low tax obligation, and push that obligation onto their employees. And that's a feature?
Yep....the claim is companies create jobs thus should have tax benefits. But I'm pretty sure the only reason that company can create job is because I purchased items from them.
If a company creates jobs because good/services were purchased, then why not empower the purchaser with more purchasing power? In a supply/demand economy, the supply side is reaping the benefits...if you give benefits to the demand side then that's labeled as making people lazy LOL.
70% of the GPD is driven by personal consumption but we're often told that we are meaningless to the economy and should give tax benefits to companies to "create" jobs.
Companies are owned by people. The idea is companies push all profits to shareholders and employees. It’s fucked that people don’t understand this and think that taxing companies is somehow different than taxing people.
As long as taxes are paid the calculus should be in what’s most efficient. I don’t care if the company pays it directly or indirectly through people.
What’s actually stupid is that dividends are taxable. Since they are after tax the company pays taxes, sends the remaining money to shareholders as dividends. Then then the dividends are taxed at the individual level.
What’s even stupider is that is a company is a shareholder. It pays taxes on that dividend income, then distributes to shareholders.
It’s not the system that’s fucked, it’s your understanding of the principles of the system. I suggest a microeconomics 101 MOOC.
>People who complain about “companies not paying taxes...” don’t understand the principles behind taxation very well
It's true that people don't understand the principles or details very well, but it's also true that the principles are just a starting point on a convoluted road to a working understanding.
Corporate income taxes are paid on profits. Individual income tax is on revenue. That's the principle. Square that principle with the amount of tax paid over time by the most profitable companies, say amazon. Square the idea of individual income tax with the actual amount paid by Bezos.
>Trying to tax this money before it gets to employees would result in double taxation as the company would pay and the individual would then pay again.
The author specifically said that they don’t think that’s the answer
And note that taxing companies is inherently a regressive tax. America would be better served by abolishing corporate tax entirely.
On the individual side I would expand schedule C to all income-producing activities--what it cost to make the money comes off the top rather than the current mess (especially as unreimbursed business expense isn't even deductible at present.) This would include all hobby activities, the only difference being a zero floor for hobby "income"--you can't write off hobby losses against other income.
Obviously, individual tax rates would have to go up, but so long as it was revenue neutral I think America would benefit.
How about we just ensure everyone has enough by implementing UBI or a negative tax rate, combined with medicare for all? Then everyone has what they need without the complexity of turning humans into financial objects.
This would not work.UBI would raise inflation to sky high level making basic utilities and products super expensive.
UBI needs to be combined with taxes and tax exemptions on things that are essential to life like housing and healthy food,healthcare and some other things I cant think of right now.Everything else can be treated as a luxury and can be achieved through conventional capitalist methods.
UBI + a flat tax with no exemptions can be tuned so that the UBI covers everything welfare programs currently provide, the middle class pays about the same, and all of the wealthy pay their fair share.
It would eliminate many classes of fraud, government spending on administration of social services, and also the tax preparation industry. I think those are the main reasons it doesn’t happen.
It sounds like you’re suggesting preemptively increasing sales taxes on luxuries to prevent richer people buying them with their UBI and thus pushing the prices up. The net is the same, prices including sales tax (which everyone pays anyway) go up.
If this is an attempt to fund UBI with sales taxes on luxuries (and I’m speculating here) then this could be achieved with progressive taxation - cut income tax for the poor and increase it for those who would be buying the luxuries.
I don’t subscribe to the view that this is necessary to support UBI though. Most of it, outside of the well off will get spend on basics anyway. More of a concern for me would be employers cutting wages.
My idea is not to tax luxuries to finance UBI.The point is to make UBI a sustainable thing not just a flat income that still plays according to the the market rules (inflation).
UBI needs to be coupled with progressive thinking.Simply build more houses and tax NIMBY or find a way to build more houses quickly.
The same applies to food.
The system is based on Scarcity and Inflation. There can never be abundance. A good example is the US has wasted 10 Trillion plus (since 2008) fighting Deflation and hasn't made the slightest difference, Technological Deflation continues to eat the world at an exponential rate.
Of all the potential problems facing our species, running out of new people does not seem to be a concern at all.
I’m not surprised that during a worldwide pandemic, our birthrate fell in a society marked by ready access to effective contraception. I don’t think it’s reasonable to draw a straight line through that and worry about declining population, but I suspect this was written to be read about as reasonably as “A Modest Proposal” was.
It takes 20 years to make a 20 year old, and economies, especially those like the USA where consumer spending drives most of GDP, need to adjust if there's changes in birth rates. We did it one way with the boomers, will have to do it again in a different way if there's a bust.
You only feel this way because you aren't paying attention to the demographics of eastern europe and east asia.
If it was simply a matter of "running out of new people" it might be OK -- a gradual decrease in population of 50% over a few generation could be sustainable. That's not the issue
The core problem is long lifespans creating a massively inverted age pyramid. At the extreme, the emerging pattern in urban China is 1 child supporting 2 parents supporting 4 grandparents supporting 8 great-grandparents. This isn't a smooth transition to a smaller population; it means that the young are crushed under the burden of supporting a huge population of the elderly.
It crushes dynamicism. It crushes innovation. Crushes education, and depresses fertility _further_, because the kids are too indebted and overtaxed (emotionally -- family care) and literally to ever have children of their own.
If you look at dependency ratios since the 1950s they really haven't changed a massive amount (the elderly and children both need to be cared for) and the change has been linear and largely compensated for by economic growth.
What is crushing us is economic inequality - that change is geometric and has been the real driver of anemic fertility. Who wants to start a family under mountains of debt on a gig job wage?
Not to put too fine a point on it, but the media we consume is largely owned by people who would prefer we believed we were getting crushed under a self created demographic time bomb rather than their greed.
While full automation might not happen in my lifetime, it will for sure happen in my theoretical children's life.
Considering how the working class is treated while our labor is essential for the economy, I highly doubt we will get better treatment after full automation. When we are "useless eaters".
It would be exceedingly rare for 1 child to be economically supporting 14 ancestors.
Presumably the typical period of economic support is around 25 years, meaning the 2 30 year-old parents and 4 55 year-old grandparents of the perhaps 5 year-old child would be supporting the 8 80 year-old great-grandparents (or the subset of them that are still alive).
6 adults supporting <= 8 seems much less dire than 1 supporting 14.
That is still incredibly dire, given the very important point you're omitting -- that 6 adults need to be supporting children!
Raising children as it is, is expensive and time-consuming, to the point that adults feel incapable of doing so. Bundling that many adults onto the care model is absolutely insane.
"There were strong negative correlations found between national IQ and three national indicators of fertility."
In many parts of the world, the primary occupation has been, is, and forever will be - subsistence agriculture, with a typical IQ of the country in the 60s/70s. In these countries the fertility rate is ~6.0.
In many European and East Asian countries, responsible for essentially all of mankind's technological achievement over the past centuries, the fertility rate is typically 1.50 or lower.
As the age pyramid flips, more of the productive effort of these latter countries goes towards funding the welfare state, and the capacity for development and advancement is limited. The burden of maintaining this welfare state further diminishes fertility. Many countries are now in death spirals: https://en.wikipedia.org/wiki/Death_spiral_(insurance)
The idea that we should limit the taxation of families - the fundamental basis of civilization - is totally valid.
This isn't a new idea, the major complication is that the definition of "family" is much more fluid and fuzzy, both in practice and legally, than a corporation. When you create a corporation, there are bright lines as to what is inside the box and what is outside, plus a large number of rules as to how corporate structures can be composed and decomposed in virtually all cases.
That said, the tax code for people makes assumptions based on the world that existed in 1970 and is heavily optimized for that. It is a poor fit and creates onerous burdens for the increasing percentage of the population whose lives look nothing like those assumptions. I'd start reform by revisiting the assumptions about peoples' working lives baked into the tax code.
The starting idea - federal tax share has shifted to individuals from corporations - is true, because of a long-term intentional shift to do that by successive governments. Once upon a time, corporations paid taxes. No longer.
The idea to solve that - make families into corporations - is ludicrous. Instead, we should raise taxes on corporations.
In the UK, I get a little frustrated there is such a focus on an individual's income rather than a family's income - if you consider the tax paid by a pair of working parents each earning £50k vs a family where 1 person earns 100k and the other does not work, the pair earning £50k each are much better off. (Child tax credits are removed gradually as the higher earner exceeds £50k, as well as the tax bands meaning someone on £100k pays more tax proportionally than someone on £50k.)
Yeah, which is why it's a bad idea. The cost of living should be considered static (or possibly location-dependent), what should be fully deductible is the cost of making the money.
Fuhgeddaboudit! Simply begin taxing non-profit corporations.
Much more tax income would be generated and auditing these firms would uncover a whole host of criminal operations. Non-profits have been extremely lax with their bookkeeping b/c they aren't taxed. Their immigrant assistant programs are shady and some probably illegal. But w/o auditing its hard to get a conviction.
The Roman Catholic Church in the USA relocates/hides priests accused of pedophilia or other sexual activity. That is certainly socially unacceptable and may be criminal yet the Church merely writes it off as an expense. You pay for this with your weekly/monthly tithe/donation to the Church. The government grants them monies that are used to support all of their activities, these included.
Here are a few simpler ideas: have a progressive income tax system, tax wealth rather than income, reduce the gap between the capital gains tax rate and income tax rates
In some sense it is reasonable to tax companies on profit rather than revenue as there are plenty of intermediaries who are good for the economy but who make tiny margins and therefore couldn’t survive if they were taxed on revenue. On the other hand, it seems there are insufficient incentives for companies to make a profit which then gets taxed rather than stashing cash in various ways or busting back stock (I think this is taxes but less than profits but I might be wrong). It also feels reasonable to tax people on income rather than some kind of profit analogue because, frankly, many people don’t make much profit and it doesn’t really make sense to talk of profit: if people are their own shareholders then is buying a house an expense or a profit distributed to the shareholders in kind?
I worry that it can distort the way the economy works in a way that prioritises appealing to businesses as they pay less for things. For example if you want to spend $200 at a restaurant then you need to generate (say) $400 gross income which means generating (say) $1000 of value for your employer. Whereas if that employer wants to spend $200 at that restaurant then they must forego $200 of profit which means they must forgo (say) $160 of post-tax profits. This massively incentives that restaurant to appeal to companies because it is cheaper for them.
While companies are in some sense made of people, I think their spending is unrepresentative because it has less variance. Companies tend to like boring things (often there might not be much they can do about it) so if their willingness to buy things is so important, we will also get more boring things. (Consider charities: if your company decides to give 1% of profits/revenue/whatever to charity, they will probably have to give to some extremely generic charity that many people don’t particularly like. If instead they allocate that 1% between employees to choose how it is distributed, you would expect to see money going to a wider variety of charities. I claim that is better for the people in the company and for charities in general.)
It also doesn’t feel particularly capitalist that companies are incentivised to not have profits. Maybe you just think capitalism is bad but I don’t think it’s better for companies to stash profits than to give up the capital to be allocated to better things, whatever they may be.
I don’t really have a good answer. Georgism doesn’t seem like a great answer to me. Even the very wealthy don’t need to own a particularly large amount of land. The main use is for farming and it feels regressive to put almost all taxation into the price of food. It seems like too much value isn’t derived from the land itself anymore.
Taxing other exclusive rights (eg patents) from which value can be derived also doesn’t feel great as plenty of profitable businesses don’t need patents (including plenty who have many patents).
I think I’d want some kind of scheme where Amazon would have to pay an amount of tax that would feel fair to someone who ran a high-street shop, rather than paying a tax on the size of their warehouses.
Maybe the solution is a regressive tax like a high vat in combination with some measure to counter the regressiveness like UBI, but I’m not very convinced of the real-world merits of UBI.
Maybe the solution is just to have company spending dominate our economy.
I think it is untenable to basically tell great swathes of the population that they are unnecessary to the economy but here’s some cash for you. I don’t think it is good for the psyche to be put in such a position. I’m sure proponents of UBI have claims that it will provide a safety net allowing people to start businesses or do what they want with their lives but I think assuming it will work for everyone is wishful thinking. I worry it would lead to a situation where the wealthy educated people living in major cities are ok and employed as before while many others are left with nothing but handouts. It’d surely be hard to build a democracy on such a divide—just look at America already.
I don’t know about the 2020 unemployment benefits as I don’t live in the US.
I don't think that's the message of UBI. While one could view it somewhat as a charitable policy, with a more cold outlook it's a good policy as a mechanism to make free-market capitalism function more robustly. Think of it like re-balancing your portfolio. Some people don't like calling humans capital or assets, saying that's cold-hearted. If you don't mind that word choice, then it's relatively easy to explain UBI as promoting the long-term health of the economy. Contrary to the message of "unnecessary to the economy," UBI is important precisely because the recipients are critical to the health of the economy.
> assuming it will work for everyone
I don't think most people think it will work for everyone. Almost no policy is perfect.
> It’d surely be hard to build a democracy on such a divide
Yes, that's what people were discovering in the late 19th century and early 20th century, and why many capitalist democracies began adopting anti-trust laws and social programs. For example, the Sherman Antitrust Act and the Social Security Act in the US. I expect that UBI will have the opposite effect that you expect, helping alleviate inequality.
> I don’t know about the 2020 unemployment benefits as I don’t live in the US.
They turned out to be a good policy. Despite fears that people would choose to not work, because they were receiving more money to stay at home, wages did not rise and job openings did not spike. On average. Some differences across industries and locations, of course.
Much better taxing solution: Single monopoly tax. Make companies/individuals pay proportionally for monopolistic privileges they get from rest of the society.
Examples:
- network industries (railroads, pipes, energy) will always be naturally monopolistic. There can't ever be efficient competition. So embrace the monopoly and make the receivers pay. Nice example is AT&T monopoly and a "monopoly research" tax imposed on it, resulting in Bell labs and great innovations of 2nd half of 20th century
- Exclusive access to electromagnetic spectrum. It has to be regulated to monopolistic access, otherwise congestion. Companies with access pay for privilege in an auction repeating after several years
- Exclusive access to natural resources. Why should a mining company have indefinite access to some portion of land, just because it was there first? Let them participate in a recurring auction, which would maintain proper pricing for the exclusive mining rights when there are many other such companies competing for it
- Land ownership. Similarly, why should someone have the privilege to exclusively own a parcel in prime area without paying, just because he was there first. Inefficient allocation. Actually - unfair at that. Infrastructure buildout in the area paid by income taxes of people increases value of his exclusive ownership rights. The result is redistribution of income of people who are prevented from accessing that parcel to the one receiving the privilege of exclusive parcel use. Shouldn't it be the exact opposite?
This is not new by any means. This idea was supported by one of the most influential economic movement of 19th century - single taxers. Every time it has been implemented it brought the promised results, because it hits the heart of the wealth inequality problem. It always ceased to function long term due to politics of people who got more well off because of it and didn't want to share the wealth with others - namely with future generations.
Singapore, Hong Kong and sudden growth of other asian tigers in 20th century can be considered the movement's largest documented success. China missed its chance of lifetime with Mao's cultural revolution. Sun Yat-sen was a huge fan.
The monopoly-busting progressive movement of early 20th century can also be considered its influence. It perhaps is not a coincidence that the original progressivists were fans of the pivotal book Progress and Poverty by Henry George. Shame that "progressive" drifted with its meaning somewhere else, similar to words "liberal" or "agile".
The main benefit of non-flat tax is you can shape behavior by offering tax incentives. But I don’t think those work anymore. I think flat tax needs to be tried and everyone including corporations should do it.
I think this is a very interested observation. It's not very practical however. I have some first hand experience with the rediculos amount of paperwork involved with book-keeping. This is not something I would like to deal with as a private citizens. There must be a better way to normalize the tax system that involves less bureaucracy and paperwork.
99 comments
[ 3.1 ms ] story [ 171 ms ] threadThis is simply because companies pay money to individuals who then pay taxes. This is a feature not a bug as taxing companies is less efficient from just having employee pay as a deduction that gets taxed downstream. Trying to tax this money before it gets to employees would result in double taxation as the company would pay and the individual would then pay again.
Also, labor is an expense so it’s logical with the reasoning of only taxing profits.
People who complain about “companies not paying taxes” are like the “47% don’t pay taxes” people in that they don’t understand the principles behind taxation very well, or are trying to deceive, or for some reason care about a specific tax.
This article would be impossible to implement since even simple things like being able to deduct food would favor the rich deducting foie gras over the poor deducting oats.
However the combination will never happen as it doesn’t allow politicians to play favorites and reward their buddies.
For example:
- Exclude the first $50,000
- Tax the rest at 25%
- Eliminate deductions (this will never happen). This includes the standard deduction.
- Make efforts to also stop companies to shift profits to low or no tax jurisdictions.
- Get rid of double taxation on dividends.
And we'd all be a lot better off.
But I remember having a long conversation with a friend who was an economist on why corporations were able to deduct things they needed to provide their services, but I as an individual couldn't do the same. It's a valid and interesting topic to discuss, imo.
How far from flat does it have to be to stop being regressive?
We had a nanny for a year. She made about $50k, but I had to pay her with after-tax income so the actual cost of the nanny was closer to $70k of my pretax income. This is the precise double taxation you’re talking about.
Yes, higher income people have more deductions, but that’s what AMT is for.
Personally, I don’t think people should be paying a cent of income tax until they’re well on their way to an upper-middle class income. Taxes should always be taken out of surpluses, and never make it harder to achieve a baseline level of comfort and stability. The same should apply to new businesses—not a cent of taxes or fees until revenue is sufficient to support its owner(s), and perhaps even a few employees. If you tax something, you get less of it, so we should be very deliberate about what we’re taxing. If we tax the road to the “American dream”, a lot less people will arrive there.
Whatever tax increases are required on the wealthy and larger businesses to accomplish this would be well worth it imo. A big, healthy middle class with lots of new business formation benefits everyone, including and especially the wealthy.
That's just payroll taxes, which fund things like your nanny's social security and Medicare, and corporations have to pay them too.
If the nanny was on a corporation's payroll it would cost them 70k too, so if you paid the corporation for her services, you'd still have to pay more than 70k for that corporation to make a profit.
One way to fix it is simply to let families use their SSN as the EIN for the employee, and remove that from your adjusted gross income.
Taxes aren't just about fairness, they're about setting the right incentives. Do you think discouraging saving is a good incentive?
You actually can deduct some childcare costs with a Dependent Care Flexible Savings Account. It's only up to 5k a year though which is lower than the cost of even the cheapest daycares in many areas.
There is a deduction for child care and it should be higher, but there’s no reason why your $50k nanny expenditure should be tax exempt.
This is what I meant by tax policies that would favor the rich. You’re trying to figure out how to deduct a larger amount than millions of people make. That wouldn’t be fair would it?
You don’t pay tax on your super cool vacation either. Even though it releases stress and is quite nice.
It would be impossible to figure out a fair amount. Instead they just give a standard deduction and incentivize certain things like charities.
It’s like saying having an office janitor is a luxury.
It’s just a function, like any other, that leverages time.
The difference between childcare and nanny is huge. Treating individuals like companies for tax purposes would be super regressive and a benefit to the rich that would not apply to the poor.
Daycare costs $5-25k/year and that’s lots less than a nanny. Why should other taxpayers subsidize your nanny preference?
First, taxing companies is not "double taxation". Companies are taxed on profits. Paying taxes on behalf of employees and paying taxes on profits are mutually exclusive.
Second, not taxing companies allows the rich to disproportionately avoid paying any taxes.
Person A earns $50,000pa and gets taxed on all of it.
Person B earns $5m but is paid through a company but "only" spends $1m/year. So $1m is distributed as effectively as possible through dividends and income and the rest taxed as profits, deferring a portion of their taxes possibly indefinitely.
But it gets worse: getting paid in a company now allows the person to take advantage of transfer pricing and shift profits (and thus any corporate taxes) to a low or zero tax jurisdiction.
And it doesn't end there. Instead of distributing income, the company borrows against those profits and distributes that. Loan interest is near zero so this also defers taxes, possibly indefinitely.
Some argue it's inefficient to tax companies and we should just tax individuals. The flaw should be clear: at best, for the rich who have this option, you're now taxing their spending instead of their earnings (ie distribute what you need to spend, retain the rest as undistributed profits).
I'm a big fan taxing profits based on revenue, which is to say that if 60% of a company's revenues are sourced in the US, then the US gets to tax 60% of your profits. And I'm completely fine with every country doing this if they want.
The current way is done to prevent double taxation.
So if a company has a large revenue that it mostly reinvests and pays low salaries, very little tax would be paid on this revenue, and that seems okay to you?
> People who complain about “companies not paying taxes” are like the “47% don’t pay taxes” people in that they don’t understand the principles behind taxation very well
Are you sure about that? Amazon paid a federal income tax of 1.2% in 2019 on 13B of U.S. income. I think this is what people complain about when they talk about companies not paying taxes.
Certainly, of course. If they reinvest then they are spending capital on something so that company so taxes are eventually paid.
This is meant, I think, to encourage growth with the intent that there will be an eventual taxable event at a higher amount than if tax was paid earlier in the stream. I think this is why tax revenues continue to grow. The intent is to maximize tax revenue. There’s no reason to worry about companies like in your scenario because it doesn’t negatively impact taxes.
What might be good is to setup thresholds for deductible expenses to prevent corporate expense that are clearly luxuries. For example, meals are only 50% deductible. I could see setting up different classifications for private jets over commercial, country club dues, luxury hotels, etc.
It doesn’t seem fair that taxpayers subsidize corporations claiming expenses and offsetting taxes on country club dues and whatnot. Pretty bizarre and there are lots of setasides that clearly benefit rich people who work for corporations.
[1] https://www.statista.com/statistics/819966/mcdonald-s-number...
1000% yes; I work in industrial mobile robots and it's obvious that governments need to find a way to capture some of the value which is being created there, particular when it's a more-or-less direct trade of a wage-earning employee for a one-off capital investment.
Are there are any major proposals yet for how this might work, or has already worked? The "existing" section on this suspiciously-OR Wikipedia article is pretty scant:
https://en.wikipedia.org/wiki/Robot_tax#Existing_laws
I don't know of any direct proposals, but I know of one thought: if you look at it, tax on fuels is partially a tax on automation already - machines use energy (be it electricity, heat or pressure), so there's a tax here that is proportional to use of machines. Of course it seems very low if treated as "tax on automation", and it's going to be easy to work around with off-the-grid, local power generation.
There are good reasons to tax energy and carbon, but critics are right that it ultimately is a tax on everything. An automation tax needs to find a way to specifically tax the gains made by putting humans out of a job, similar to what organized labour achieved for a generation of longshoreman when containerization killed their industry in the 60s and 70s (as documented in Marc Levinson's excellent book The Box).
There has to be a domestic market of people buying stuff for the rest of the economy to exist. If all the people are automated out of jobs, then that domestic market has to be provided by UBI. The funds for that provision have to come from corporate taxes. Probably a tax on capital spending or depreciation - if you're replacing labour with capital and the government relies on taxes on labour for its revenue, then the government has to switch to taxing capital.
If there was a way of not involving the government in this, that would probably work better. The dream, of course, being The Culture - no government at all, just people acting in their enlightened self-interest in a post-scarcity world.
If it is direct employees, some of the explanation would be that they sold locations to franchisees https://www.wsj.com/articles/mcdonalds-revenue-falls-as-comp...
Tough to implement.
Ok radical idea - I'm starting to think of these ever larger/automated companies as having "won" the capitalism game or discovered a fundamental solution to some problem. But the economy doesn't have a great endgame scenario for such entities. One option might be regulating them as public utilities instead of corporate entities. i.e. The point of making a huge corporation changes from eternally extracting rent to becoming so ubiquitous that society adopts it as a fundamental exercise like Fire Departments or roadways.
Special taxes are dumb because of the overhead and externalities.
Automation is already covered in that it results in either greater profits or greater payroll through higher wages, so either way it’s already taxed.
The incentive is for companies to be efficient by increasing productivity. This productivity is taxed through existing means. So unless you want to disincentive automation a special tax for it is bad.
So the corporation gets to enjoy low tax obligation, and push that obligation onto their employees. And that's a feature?
The system is truly fucked.
If a company creates jobs because good/services were purchased, then why not empower the purchaser with more purchasing power? In a supply/demand economy, the supply side is reaping the benefits...if you give benefits to the demand side then that's labeled as making people lazy LOL.
70% of the GPD is driven by personal consumption but we're often told that we are meaningless to the economy and should give tax benefits to companies to "create" jobs.
(https://www.thebalance.com/personal-consumption-expenditures...)
As long as taxes are paid the calculus should be in what’s most efficient. I don’t care if the company pays it directly or indirectly through people.
What’s actually stupid is that dividends are taxable. Since they are after tax the company pays taxes, sends the remaining money to shareholders as dividends. Then then the dividends are taxed at the individual level.
What’s even stupider is that is a company is a shareholder. It pays taxes on that dividend income, then distributes to shareholders.
It’s not the system that’s fucked, it’s your understanding of the principles of the system. I suggest a microeconomics 101 MOOC.
It's true that people don't understand the principles or details very well, but it's also true that the principles are just a starting point on a convoluted road to a working understanding.
Corporate income taxes are paid on profits. Individual income tax is on revenue. That's the principle. Square that principle with the amount of tax paid over time by the most profitable companies, say amazon. Square the idea of individual income tax with the actual amount paid by Bezos.
The author specifically said that they don’t think that’s the answer
On the individual side I would expand schedule C to all income-producing activities--what it cost to make the money comes off the top rather than the current mess (especially as unreimbursed business expense isn't even deductible at present.) This would include all hobby activities, the only difference being a zero floor for hobby "income"--you can't write off hobby losses against other income.
Obviously, individual tax rates would have to go up, but so long as it was revenue neutral I think America would benefit.
UBI needs to be combined with taxes and tax exemptions on things that are essential to life like housing and healthy food,healthcare and some other things I cant think of right now.Everything else can be treated as a luxury and can be achieved through conventional capitalist methods.
It would eliminate many classes of fraud, government spending on administration of social services, and also the tax preparation industry. I think those are the main reasons it doesn’t happen.
I don’t subscribe to the view that this is necessary to support UBI though. Most of it, outside of the well off will get spend on basics anyway. More of a concern for me would be employers cutting wages.
UBI needs to be coupled with progressive thinking.Simply build more houses and tax NIMBY or find a way to build more houses quickly. The same applies to food.
I’m not surprised that during a worldwide pandemic, our birthrate fell in a society marked by ready access to effective contraception. I don’t think it’s reasonable to draw a straight line through that and worry about declining population, but I suspect this was written to be read about as reasonably as “A Modest Proposal” was.
See, for instance, this post on the upcoming issues for China due to demographic difficulties: https://zeihan.com/the-end-of-the-last-best-chance/
It takes 20 years to make a 20 year old, and economies, especially those like the USA where consumer spending drives most of GDP, need to adjust if there's changes in birth rates. We did it one way with the boomers, will have to do it again in a different way if there's a bust.
If it was simply a matter of "running out of new people" it might be OK -- a gradual decrease in population of 50% over a few generation could be sustainable. That's not the issue
The core problem is long lifespans creating a massively inverted age pyramid. At the extreme, the emerging pattern in urban China is 1 child supporting 2 parents supporting 4 grandparents supporting 8 great-grandparents. This isn't a smooth transition to a smaller population; it means that the young are crushed under the burden of supporting a huge population of the elderly.
It crushes dynamicism. It crushes innovation. Crushes education, and depresses fertility _further_, because the kids are too indebted and overtaxed (emotionally -- family care) and literally to ever have children of their own.
It's a death spiral, and a real problem.
What is crushing us is economic inequality - that change is geometric and has been the real driver of anemic fertility. Who wants to start a family under mountains of debt on a gig job wage?
Not to put too fine a point on it, but the media we consume is largely owned by people who would prefer we believed we were getting crushed under a self created demographic time bomb rather than their greed.
It's a death spiral, and a real problem.
Considering how the working class is treated while our labor is essential for the economy, I highly doubt we will get better treatment after full automation. When we are "useless eaters".
Presumably the typical period of economic support is around 25 years, meaning the 2 30 year-old parents and 4 55 year-old grandparents of the perhaps 5 year-old child would be supporting the 8 80 year-old great-grandparents (or the subset of them that are still alive).
6 adults supporting <= 8 seems much less dire than 1 supporting 14.
Raising children as it is, is expensive and time-consuming, to the point that adults feel incapable of doing so. Bundling that many adults onto the care model is absolutely insane.
https://www.sciencedirect.com/science/article/abs/pii/S01602....
"There were strong negative correlations found between national IQ and three national indicators of fertility."
In many parts of the world, the primary occupation has been, is, and forever will be - subsistence agriculture, with a typical IQ of the country in the 60s/70s. In these countries the fertility rate is ~6.0.
In many European and East Asian countries, responsible for essentially all of mankind's technological achievement over the past centuries, the fertility rate is typically 1.50 or lower.
As the age pyramid flips, more of the productive effort of these latter countries goes towards funding the welfare state, and the capacity for development and advancement is limited. The burden of maintaining this welfare state further diminishes fertility. Many countries are now in death spirals: https://en.wikipedia.org/wiki/Death_spiral_(insurance)
The idea that we should limit the taxation of families - the fundamental basis of civilization - is totally valid.
That said, the tax code for people makes assumptions based on the world that existed in 1970 and is heavily optimized for that. It is a poor fit and creates onerous burdens for the increasing percentage of the population whose lives look nothing like those assumptions. I'd start reform by revisiting the assumptions about peoples' working lives baked into the tax code.
The idea to solve that - make families into corporations - is ludicrous. Instead, we should raise taxes on corporations.
2020/21, GME stock, Censorship of the truth all show us that our system is rigged and corrupt.
Better to start making plans to be rid of it.
Get some crypto, get some gold/silver, grow your own food, become self-sufficient.
Much more tax income would be generated and auditing these firms would uncover a whole host of criminal operations. Non-profits have been extremely lax with their bookkeeping b/c they aren't taxed. Their immigrant assistant programs are shady and some probably illegal. But w/o auditing its hard to get a conviction.
The Roman Catholic Church in the USA relocates/hides priests accused of pedophilia or other sexual activity. That is certainly socially unacceptable and may be criminal yet the Church merely writes it off as an expense. You pay for this with your weekly/monthly tithe/donation to the Church. The government grants them monies that are used to support all of their activities, these included.
I worry that it can distort the way the economy works in a way that prioritises appealing to businesses as they pay less for things. For example if you want to spend $200 at a restaurant then you need to generate (say) $400 gross income which means generating (say) $1000 of value for your employer. Whereas if that employer wants to spend $200 at that restaurant then they must forego $200 of profit which means they must forgo (say) $160 of post-tax profits. This massively incentives that restaurant to appeal to companies because it is cheaper for them.
While companies are in some sense made of people, I think their spending is unrepresentative because it has less variance. Companies tend to like boring things (often there might not be much they can do about it) so if their willingness to buy things is so important, we will also get more boring things. (Consider charities: if your company decides to give 1% of profits/revenue/whatever to charity, they will probably have to give to some extremely generic charity that many people don’t particularly like. If instead they allocate that 1% between employees to choose how it is distributed, you would expect to see money going to a wider variety of charities. I claim that is better for the people in the company and for charities in general.)
It also doesn’t feel particularly capitalist that companies are incentivised to not have profits. Maybe you just think capitalism is bad but I don’t think it’s better for companies to stash profits than to give up the capital to be allocated to better things, whatever they may be.
I don’t really have a good answer. Georgism doesn’t seem like a great answer to me. Even the very wealthy don’t need to own a particularly large amount of land. The main use is for farming and it feels regressive to put almost all taxation into the price of food. It seems like too much value isn’t derived from the land itself anymore.
Taxing other exclusive rights (eg patents) from which value can be derived also doesn’t feel great as plenty of profitable businesses don’t need patents (including plenty who have many patents).
I think I’d want some kind of scheme where Amazon would have to pay an amount of tax that would feel fair to someone who ran a high-street shop, rather than paying a tax on the size of their warehouses.
Maybe the solution is a regressive tax like a high vat in combination with some measure to counter the regressiveness like UBI, but I’m not very convinced of the real-world merits of UBI.
Maybe the solution is just to have company spending dominate our economy.
I don’t know about the 2020 unemployment benefits as I don’t live in the US.
I don't think that's the message of UBI. While one could view it somewhat as a charitable policy, with a more cold outlook it's a good policy as a mechanism to make free-market capitalism function more robustly. Think of it like re-balancing your portfolio. Some people don't like calling humans capital or assets, saying that's cold-hearted. If you don't mind that word choice, then it's relatively easy to explain UBI as promoting the long-term health of the economy. Contrary to the message of "unnecessary to the economy," UBI is important precisely because the recipients are critical to the health of the economy.
> assuming it will work for everyone
I don't think most people think it will work for everyone. Almost no policy is perfect.
> It’d surely be hard to build a democracy on such a divide
Yes, that's what people were discovering in the late 19th century and early 20th century, and why many capitalist democracies began adopting anti-trust laws and social programs. For example, the Sherman Antitrust Act and the Social Security Act in the US. I expect that UBI will have the opposite effect that you expect, helping alleviate inequality.
> I don’t know about the 2020 unemployment benefits as I don’t live in the US.
They turned out to be a good policy. Despite fears that people would choose to not work, because they were receiving more money to stay at home, wages did not rise and job openings did not spike. On average. Some differences across industries and locations, of course.
Examples:
- network industries (railroads, pipes, energy) will always be naturally monopolistic. There can't ever be efficient competition. So embrace the monopoly and make the receivers pay. Nice example is AT&T monopoly and a "monopoly research" tax imposed on it, resulting in Bell labs and great innovations of 2nd half of 20th century
- Exclusive access to electromagnetic spectrum. It has to be regulated to monopolistic access, otherwise congestion. Companies with access pay for privilege in an auction repeating after several years
- Exclusive access to natural resources. Why should a mining company have indefinite access to some portion of land, just because it was there first? Let them participate in a recurring auction, which would maintain proper pricing for the exclusive mining rights when there are many other such companies competing for it
- Land ownership. Similarly, why should someone have the privilege to exclusively own a parcel in prime area without paying, just because he was there first. Inefficient allocation. Actually - unfair at that. Infrastructure buildout in the area paid by income taxes of people increases value of his exclusive ownership rights. The result is redistribution of income of people who are prevented from accessing that parcel to the one receiving the privilege of exclusive parcel use. Shouldn't it be the exact opposite?
This is not new by any means. This idea was supported by one of the most influential economic movement of 19th century - single taxers. Every time it has been implemented it brought the promised results, because it hits the heart of the wealth inequality problem. It always ceased to function long term due to politics of people who got more well off because of it and didn't want to share the wealth with others - namely with future generations.
Singapore, Hong Kong and sudden growth of other asian tigers in 20th century can be considered the movement's largest documented success. China missed its chance of lifetime with Mao's cultural revolution. Sun Yat-sen was a huge fan.
The monopoly-busting progressive movement of early 20th century can also be considered its influence. It perhaps is not a coincidence that the original progressivists were fans of the pivotal book Progress and Poverty by Henry George. Shame that "progressive" drifted with its meaning somewhere else, similar to words "liberal" or "agile".
The main benefit of non-flat tax is you can shape behavior by offering tax incentives. But I don’t think those work anymore. I think flat tax needs to be tried and everyone including corporations should do it.
Then you're missing an opportunity.