> The pandemic and federal stimulus led to a huge spike in the number of Americans who either owed no federal income tax or received tax credits from the government. According to the Urban-Brookings Tax Policy Center, 107 million households owed no income taxes in 2020, up from 76 million — or 44% of all taxpayers — in 2019.
It is disturbing that there are enough people making just above what the IRS considers the poverty line that a couple thousand dollars of tax stimulus should have such a profound effect.
It's regressive because pretty much every tax other than income tax is regressive. the 61% that didn't pay income taxes spend all the money they make, so they pay a much higher percentage of their income on sales tax, property tax (through rent), social security, gas taxes, tolls and stuff like that.
Also having capitol gains taxed at a lower rate than income is regressive. Rich people aren't rich because they work. They're rich because they have money to invest. Our tax system should benefit people who work for a living over people that just pay other people to turn their money into more money.
You're taxed when you earn the money already. Taxing again at the point you deploy it is double taxation. Many countries don't tax capital gains at all because of this fact.
Moreover, you want people to deploy their capital in the economy. Hiking taxes on capital gains would massively disincentivize people. Unlike other taxes, capital deployment is a risk based economic activity: if you raise taxes, people will be less inclined to invest it on risky ventures as opposed to keeping it in very safe assets (e.g. bank accounts or real estate).
They're only regressive if you're not considering what people are getting out of their taxes. Gas taxes pay for highways. Social security taxes pay for your retirement. The US has one of the most progressive tax systems in the world. The only benefit we seem to get out of it is that the poor and middle class end up spending more money on consumer goods.
In the US, property taxes are so low such that they are uncorrelated with rent. The properties with the lowest tax rates thanks to Prop 13 also have some of the highest rents.
Property taxes are almost nonexistent in other countries normally thought of as having very high taxes (e.g. Sweden). [1]
You may be thinking in California terms where property taxes are very low because of Prop 13. I can most assure you that this is not the case in New Jersey or New York.
Nobody is saying that. Income tax is progressive -- some say not progressive enough but still progressive. Sales tax is regressive.
Saying "half of all Americans don't pay taxes" is just wrong. The statement is "half of Americans don't owe any federal income tax". We all pay different taxes like sales tax, property tax (either directly or via rent), payroll tax, capital gains tax, state taxes, local taxes, etc, etc.
No, that's not really fair. Someone poor might spend all their income on consumption to stay alive. Someone rich is going to save a lot of their income. Effective tax rates would be higher the poorer you are.
I don't want a just tax I want a tax system that is effective. When vast amounts of wealth continually become concentrated in the hands of a tiny amount of people, the only effective tax regime is one that extracts wealth from the people who have all the wealth.
Obviously that depends on which level of government we are talking about. Local governments are usually not funded by income taxes, same with a lot of state governments. They are almost entirely funded by more regressive taxes.
Children are taxed through their parents much as renters pay the property taxes of property owners. The difference is that children are taxed without representation since the vote is withheld from them and their stewards.
This article is doing some really funny accounting. Like I get it but it's also conflating two things that most people probably don't.
The headline should be: 61% of Americans have a federal income tax burden which is less than $1800 and so with the federal stimulus program they are net positive from Uncle Sam (kinda, assuming you only pay income tax and nothing else).
FICA is a payroll tax, not an income tax. You don't pay FICA on dividends, capital gains, interest, rental income, pensions, Social Security, etc. But they are subject to the federal income tax.
Because you get a refund for taxes paid which you didn’t owe. You pay an estimate over the course of the year based on how much your employer thinks you’ll make, then they (the IRS) refund you the difference if you make too little, or have sufficient deductions to further lower your tax bill.
1. Refunds if you were overtaxed during the year. For instance, someone making $100k/year but was laid off in March or April when COVID closures started hitting may have had a large amount withheld that was refunded if they remained unemployed the rest of the year.
2. Your income is sufficiently low. If your income is below a certain threshold (or you just claim a lot of credits on your W-4) then nothing will be withheld. Common with minimum wage part-time jobs.
Part of the article's point was that so fewer people even got paychecks in 2020. That, and pandemic relief in the form of tax credits, which reduced people's tax liability.
But also keep in mind: not everyone who has income gets it from a paycheck; plenty of self-employed or small business people don't get paychecks; when they're paid, it's up to them to put money aside all year to pay taxes at tax time.
Federal income tax on your paycheck is based on an estimate that you're responsible to calculate when you file the w-4 when you start working at a new employer (it can be amended at any time). Those paycheck estimated payments are added up and deducted from what you actually owe at the end of the year and result in either a refund (you overestimated) or taxes due (you underestimated).
If your net federal income tax is $0 there is an exemption box on the w-4 you can check. That causes no federal income tax to be withheld, but the same end of year calculation may find you owe money if you made more than expected.
Meanwhile, I still haven't gotten my tax refund for 2020. Mind you, I am in no hurry, it isn't like I am desperate for that amount. Aside from a very slight anxiety that my paperwork (and it was paper) got lost, getting last year's refund in the month of December (yes, the last one of the year) was an interesting if small indicator of just how poorly the federal government was doing at the time.
Check your refund status. If you haven't received it yet then you might be a victim of tax fraud. Or the IRS is reviewing your return for possible audit.
I check that weekly, as I did last year. And I would be one of the last people reviewed, my taxes are dead simple and I use TurboTax anyway because I am a coward.
Have you checked your tax transcript? When you go to that page on your IRS account, you get 4 boxes to choose from. 2020 should be in all boxes by now. I think it is the top left one, but once that is populated your refund has been put in the queue.
My data showed up there about a week and a half ago, and I got the direct deposit yesterday (with interest). A coworker had his data show up at the same time but he is still waiting on the paper check.
It's probably worth setting one up. The tax transcript page lets you see all the forms that they've received and attributed to you (W-2s, 1099s, etc) as well as the machine-read values of all the filings you've sent them.
I see now why I have not done this before. I do not understand anything related to taxes in the slightest. The Record of Account Transcript has "N/A" for this year, while the column to the left of it, headed Return Transcript, has 2020 with a star by it, which "Indicates the availability of a Verification of Non-Filing letter for the year." This does not make sense to me, since the instructions on the refund checking page say to not send a second return if they haven't gotten to yours yet.
I didn't receive my 2021 tax refund for a few weeks and gave them a call. It turned out that something had gotten stuck and they pushed it through. Got it a week later.
The paper returns were taking forever last year due to COVID, but I filed my 2020 refund by paper and got that last summer as well. If you haven't already, call them and figure out what happened.
Important to note to non Americans that this does not mean that 61% paid no taxes, it’s that they didn’t pay a specific type of tax (income at the federal level).
Individuals likely still paid Social Security taxes, Medicare taxes, and potentially state and local taxes (which vary wildly). Most states also have sales taxes as well, and some local municipalities have surcharges as well.
And, lastly, we do have property taxes, which can be quite significant in large parts of the country. Even if you’re a renter, these costs are often indirectly passed on to you.
So, while federal income tax may have been less of a burden last year, there was likely still lots of taxes that each of these individuals paid.
Disclaimer: This post isn’t meant to be a statement of support or criticism of taxes. Just trying to highlight the many ways we pay taxes beyond federal income tax.
To build off your details, many Americans also received a net payment back for federal taxes through the Earned Income Tax Credit (effectively a negative income tax).
This is probably because the top 10% earns almost half of income in America, the next 40% of America shares about 38% and the bottom HALF of Americans share less than 12% between them.
As far as wealth this bottom half also holds 2% of the net worth.
It should be unsurprising that people who have nothing aren't paying much.
Sure, but you’re ignoring just how progressive the US federal tax system is.
And in fact, many of the state income taxes are too. A few states have flat taxes (but with healthy exemption), the other have brackets that steeply increase.
You mean except for all the taxes other than income tax such that people making french fries often pay a bigger percentage of their incomes to taxes than billionaires?
> You mean except for all the taxes other than income tax such that people making french fries often pay a bigger percentage of their incomes to taxes than billionaires?
That's a false claim. The recent propaganda being pushed - eg by ProPublica - about billionaires supposedly paying low income taxes, of course, didn't center on income taxes at all. It intentionally reframed the premise to be that billionaires weren't paying enough taxes on their wealth (assets).
For example this article con line from ProPublica:
Headline: "You May Be Paying a Higher Tax Rate Than a Billionaire"
Summary: "A new ProPublica analysis of a trove of IRS documents revealed that the richest 25 Americans pay a tiny fraction of their wealth in taxes."
So I might be paying higher taxes on my unsold stock holdings than Bezos is on his unsold stock holdings? Of course not. ProPublic is being intentionally deceptive.
The billionaires are paying a small share of their wealth in taxes every year. They pay high income taxes, when they generate high incomes. Wealth isn't income. ProPublica knows that separation, they know how the tax system works, they spun the con regardless for propaganda points. ProPublica is trying to argue in favor of wealth confiscation policies, while lying and pretending they're arguing in favor of the billionaires paying higher taxes akin to paying higher income taxes. The spin is remarkable for just how disingenuous it is.
Bezos isn't paying enough income tax on his unsold Amazon stock holdings? Golly gee.
The ProPublica article examined effective income tax rates. It just mentioned wealth briefly. You left out the next sentence. "But even if you use the most conventional yardstick — income — the wealthiest still pay low rates."[1]
Long term capital gains are taxed less than all but the lowest income brackets. Social Security tax is capped. And the article used the IRS definition of total income tax. So it ignored taxes on goods and services.
> They avoid forms of income, like wages, that are taxed at a high rate, 37%, and instead make most of their money via capital gains and dividends from investments, most of which is taxed at 20%
> Large charitable donations reduce taxable income.
So they reduce income by having investments and donating money. Sounds pretty nefarious.
> But now add payroll taxes. The worker paid a bit more than $3,400 directly over the course of the year; in addition, the worker’s employer paid an equivalent amount as their share of the worker’s Social Security and Medicare taxes. Government agencies and most economists typically count both contributions — a total of nearly $6,900 in this instance — as a tax that is effectively borne by workers since it’s part of the cost of paying their wages. The logic is that employers consider those costs when hiring and would hire fewer people or pay them less because of the tax burden.
> All in, our worker paid $10,700 in taxes. Taken as a percentage of the worker’s full compensation (including a typical health plan), this comes out to a rate of 19%.
Riiight.. if you include money which they aren't actually paying, then they are paying more.
Part of the point is they don't have to do anything nefarious specifically. Taxing earned income more than investments is a choice. Billionaires aren't especially charitable proportionally as far as I know. It isn't self evident giving to favorite causes should substitute for paying taxes. And you left out the other deductions and credits.
Splitting payroll taxes is just sleight of hand. Changing who pays nominally doesn't change the fact an employer budgets a specific amount for payroll, the government gets a specific portion, and the employee gets a certain portion. The equivalence isn't even controversial in economics. And the article said full compensation including a typical health plan. So the calculation included money they aren't actually being paid too.
Taxing earned income is double taxation because corporations are taxed. Corporate tax is double taxation because sales are taxed. Sales tax is double taxation because income is taxed.
Federal income tax is somewhat progressive. All of the state taxes, last time I checked, are regressive. For a while the least regressive was Oregon (which has a progressive income tax) and the most regressive was next door, Washington, which uses a sales/use tax instead.
>> All of the state taxes, last time I checked, are regressive
Wait, what? The state tax in New York State is certainly progresive: it starts at 4% if you earn less than $8k, and goes up to 10.9% on incomes above $25 MM [1]. California is much more progressive: 1% for less than $9k, 13.3% above $1 MM [2].
Well, at least in New York City, there's a city tax and that is progressive too. There are property taxes, and they are progressive as well. Property sales taxes are also progressive. Not sure how those ITEP guys did their analysis, but for NYC at least, it is way off. There's no way that the top 1% of the people in NYC pay only 7.4% in (non-federal) income tax. You could say that their analysis is for the state as a whole, but it's virtually guaranteed that the vast majority of the top 1% earners live in NYC.
I wonder if you are saying the top 1% as far as making income, or if you mean the top 1% making money - like income vs capital gains.
Not sure if there is an official nomenclature for such, but I often wonder as I get into threads / discussions like these if people are taking into consideration these things or not - are they lumping them together, or is it a different thing.
If I was totally guessing, I would think the top 3% who sleep in NY probably pay no more than a poor school teacher - but if we were talking about the top 1% of people who actually get a paycheck with taxes taken out - then sure - but I think that ignores the bigger money that is moved around in other ways aside from a paycheck / w2s.
This is something that I am not sure if people in other countries would be taking into consideration as well, no idea if they tax the same / don't tax the same.
There have been millions of people on SNAP & HUD & Medicaid with no income for a long time. There's just more programs and a lot more people now.
This time, however, it seems like these new programs are quite massive and are more "want" based than "need" based.
It's quite obvious people with no income and kids "need" money. It's less obvious to me that people who had kids for years, and still have their jobs, suddenly need $1k per month. I don't think anyone would debate whether this $1k is improving their lives.
Of those 61% that paid no taxes, I am willing to bet a vast majority of them will take more benefit out of Social Security and Medicare/Medicaid than they ever put it. Even looking at the total tax burden the US and states barely take anything from the lowest two quintiles.
Thank you for this. This is often positioned as "paid no tax" and often people in these categories paid a very large percentage of their incomes in sales and other taxes.
Maybe Medicare since what you contribute is only partially linked to the benefit.
But social security is basically a public pension plan. What you contribute determines your benefit. You can even calculate the benefit yourself. No different than a private pension plan.
Although there is a "social security trust fund," it's an accounting fiction. Functionally the money you contribute goes to the general US treasury fund and payments to beneficiaries come from the general US treasury fund. It's really just a pay as you go entitlement.
I think Medicare is clearly a tax, it can't be an insurance program because there's no connection between 'premiums' and benefits.
Social security is nominally a government sponsored pension, but the payout ratios are weird, and it's compulsory, so I feel it's fair to call it a tax.
Same with at least the employee portion of compulsory unemployment insurance. Maybe that's generally an actuaraily sound program (I think the employer contributions may be), but in times of economic stress, payments increase and I don't think that's covered by premiums. I know there's a cap on benefits, but I'm not sure if there's a cap on contributions? Anyway, seems similar to Medicare and I'd call it a tax, too.
>> Important to note to non Americans that this does not mean that 61% paid no taxes
"Federal income taxes do not include payroll taxes. The Tax Policy Center estimates that only 20% of households paid neither federal income taxes nor payroll taxes. And “nearly everyone” paid some other form of taxes, including state and local sales taxes, excise taxes, property taxes and state income taxes, according to the report."
People don't realize that when the Income Tax was first proposed it was predicated on the idea that most Americans would not end up paying it. As you can imagine, it was only for 'the rich' to pay.
The first tax bracket was a measly 1% on income over $3,000 at the time, which WolframAlpha says is about $80,500 today.
EDIT: I needed to correct myself, according to the IRS "Congress adopted a 1 percent tax on net personal income of more than $3,000 with a surtax of 6 percent on incomes of more than $500,000."
If you break down what the US gov spends money on it is absolutely not those things. The US is mostly in the business of insurance (welfare, healthcare) and "education". Defense and infrastructure come some time after those.
Of the things they could fathom, they might have even been better at them. Certainly better per dollar spent.
Hardly, those things are parasitic load that prevents the platform from growing and prospering.
They also breed dependence and servitude to the centralized authority, many of which are even designed such that working and earning income puts you in a worse spot than not.
The people in charge aren’t stupid, it works this way by design.
Not sure that's all that meaningful though? I mean, the inflation rate is effectively an average of the increase in costs across a variety of goods. Either that average is non-representative of the actual increase in costs (so meaningless), or that average is representative, but still an average, in which case you would still expect outliers, both above and below the average inflation rate.
You would need the second derivative to be meaningful (and maybe that's what you mean), the percentage increase compared to the percentage increase in inflation (i.e., if in one year inflation is 2% and healthcare costs increase 4%, and the next year inflation is 2%, and healthcare costs are > 4%, and this trend continues, that would be concerning)
This isn't accurate if you are talking about the federal level. A better model in terms of spending is that the federal government is an insurance company with an army.
The federal government spends something like 10 times as much on defense as direct educational expenditures and it's still significantly more than education if you include things like loan financing in education.
Given that education funding is done by the states, that's like saying the Federal government spends 10 times as much on welfare as on police and firefighting.
I mean, OK, but that's only because the second part of your comparison isn't a federal government responsibility and there are only certain targeted initiatives (mostly pork-barrel) that fall into that category. Same for federal spending on education.
But when you look at all government spending on education, it's very clear that we spend more on education (5% of GDP, not counting loan guarantees) than on defense (3.7% of GDP). Except education is funded by local government whereas defense is funded by the federal government.
OP was correctly refuting the prior post which claimed "US govt" (that means federal) is "mostly in the business of insurance (welfare, healthcare) and 'education'. Defense and infrastructure come some time after those."
It's just not true that the federal government spends more on education than defense, in fact it's very lopsided in the other direction.
The context is a thread on the federal income tax specifically, and someone said the federal govt used to be not very technologically ambitious, and someone else says, essentially, it still isn't technologically ambitious, it spends most of its money on education and social welfare. OP corrected that. The social welfare part has some validity but federal education spending is quite minor.
Yes the total spending by all govts in the US including state + local has a lot more education spending but the thread and the whole article are focused on federal taxes.
My initial reaction is to disagree with this statement and to point out that I think the parent comment is sorting the issue well.
As I think about more though, I must wonder if this could be a regional thing and varies.. and or if that is relevant to the specifics in this thread.
The more I think about it, I wonder if places like Cali and NY would think of things in that manner.. with places like Texas and TN thinking very differently.
It's an interesting thought, and wonder if there is data / polls out there for something seemingly basic like this.
Totally incorrect. The most cursory research (e.g. a Google for “US government”, a search on the nytimes, lookup in the AP style guide) will refute this.
Anyway, regardless of your personal definition of the term, the intent of communication of the person you are replying to is crystal clear and in obvious contradiction to your analysis. (That person expressly uses the word “federal.”)
It serves as a cautionary tale. Just keep in mind that whenever some politician proposes a tax only on the richest Americans, and that tax is very very small, it won't stay that way.
The highest rate in 1913 was 7%. Today the lowest rate is 10%.
> The highest rate in 1913 was 7%. Today the lowest rate is 10%.
Those rates seem selected to support your point. For example, you left out that highest rate in 1944 was 94%.
There is also quite a bit of historical context that you are omitting. In 1913, without social security, common people in the US were impoverished in old age. The country had little infrastructure.
I didn't include the 1944 rates because I only wanted to mention the top rate at the time of the adoption/passage of the 16th amendment and the income tax. My point was, at the time, the public was told the rates would be low and only on top earners. Then overtime, the rates rose while the brackets kept expanding downwards to include more and more of the middle and lower class. My point was not 'taxes never go down' but rather, taxes expand to include more and more people, despite originally being told they would not.
> taxes expand to include more and more people, despite originally being told they would not.
And with them, the country's population, infrastructure, and economy expanded and transformed. Some may argue for the better, others for the worse, but taxes and societal development are intrinsically linked.
My point was not to refute that taxes went up, but rather that they didn't go up in a vacuum.
Wars were financed, population and productivity increased by huge amounts, and the entire economy shifted from an agrarian to an industrial one. The country's massive physical, social and and human infrastructure was built, one that the current high standard of living is still largely dependent on.
It is highly motivated reasoning to only highlight the tax rate increases without the sweeping societal changes that accompanied them.
> 1862 - President Lincoln signed into law a revenue-raising measure to help pay for Civil War expenses. The measure created a Commissioner of Internal Revenue and the nation's first income tax. It levied a 3 percent tax on incomes between $600 and $10,000 and a 5 percent tax on incomes of more than $10,000.
> 1909 - President Taft recommended Congress propose a constitutional amendment that would give the government the power to tax incomes without apportioning the burden among the states in line with population. Congress also levied a 1 percent tax on net corporate incomes of more than $5,000.
> 1913 - As the threat of war loomed, Wyoming became the 36th and last state needed to ratify the 16th Amendment. The amendment stated, "Congress shall have the power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several states, and without regard to any census or enumeration." Later, Congress adopted a 1 percent tax on net personal income of more than $3,000 with a surtax of 6 percent on incomes of more than $500,000. It also repealed the 1909 corporate income tax. The first Form 1040 was introduced.
> 1918 - The Revenue Act of 1918 raised even greater sums for the World War I effort. It codified all existing tax laws and imposed a progressive income-tax rate structure of up to 77 percent.
Also something many people don't realize is that in the '50s the highest marginal tax rate was 91%, for $4M or more. (The lowest was 20% for $40K or less.) So I don't totally see how your comment relates to the article. You can draw diverse conclusions looking backwards.
While I appreciate your perspective, you seem to have cherry-picked a particular instantiation of the income tax to make a point, which I think dovetails with the last sentence in my original post. You can draw lots of conclusions by looking backwards.
"Also something many people don't realize is that in the '50s the highest marginal tax rate was 91%, for $4M or more. (The lowest was 20% for $40K or less.) So I don't totally see how your comment relates to the article. You can draw diverse conclusions looking backwards. "
This gets mentioned frequently and it always bothers me.
The tax code was so utterly different back then that you're comparing apples and oranges with it. Consider that the like-for-like transaction qualification was much larger and loopholes (aka deductions) were more common. In practice, nobody paid the 91% rate.
If you don't believe me, look up the bipartisan Tax Reform Act of 1986, which lowered the top marginal tax rate from 91%, was revenue neutral. [0]
Also note that state & local taxes were very little. New Jersey, which today boasts a very high income tax, did not have one until 1976. [1] New York City did not have one until 1966. [2] Despite this, both states have higher sales taxes than Florida with roughly similar property taxes (though property is much cheaper in Florida). Florida, of course, has no income tax.
I got downvoted last time I said this, but with fiat money there is no reason for anyone to pay income taxes. Obviously there is no correlation between income tax revenue and government spending. They just create the money they need, the never-to-be-paid-off deficit grows, the value of the dollar shrinks, and we move on.
Taxes serve as a means of coercing the behavior of the citizens, in the sense that certain things are rewarded with tax deductions or credits, and other things are punitively taxed. That is the reason they still exist.
We should just do away with taxes. People's work and business activity, conducted in terms of US dollars, creates value. The government takes some of that value by simply creating more dollars. Why do we need a huge, complicated taxing bureaucracy in the middle of it?
The point of income tax isn't revenue - that comes from printing money, or from corporate taxes.
Income tax is basically a surveillance tool - it forces you to declare all your income sources, and a large part of spending (if you want to claim some tax breaks).
This is a shit take. Please refrain from commenting on things you are clueless about. I don't have time to explain macroeconomics to you, although I'd encourage you to study yourself. Suffice to say the government can not, and does not pay for itself by endlessly expanding the money supply. That is one tool it has, but if overused causes severe inflationary problems. One of the US's biggest strengths is the reliability of its currency to inflate at 2-3% a year.
The low inflation in the US before income taxes were introduced falsifies the argument, no? No other currency was widespread in the US prior to income taxes. I still don't actually understand the argument, to be frank.
The US used to exchange gold for dollars which gave them inherent value.
That is no longer the policy and other currently existing currencies do posses the potential to compete with USD. Why would I choose to settle my debts in a rapidly-inflating currency that is backed by nothing?
Well, I agree that the combination of printing money with no taxation isn't going to work due to inflation.
I just didn't understand the statement that a currency's value "derives largely from the ability to pay [income] taxes with them". That statement by itself is historically false, as the gold-backed currency shows. It still makes no sense to me even without gold-backing. As long as the money supply is kept relatively stable, all you need is for a few government services to operate exclusively in USD (e.g. welfare, where funds are raised via land tax or carbon tax for example), and for a reasonable amount of trust in the government, and to perhaps kickstart the group delusion of trust with initial gold-backing, and you're all set. I can make sense of the statement strictly in the context of money printing, where you need the offsetting deflationary impact from taxation (not necessarily income taxation), but that meaning wasn't so clear from the original statement that I was responding to.
It's true that it's not strictly necessary that the "backing taxation" for this scheme be specifically on income, but due to historical circumstance this the largest pillar currently supporting the US system. Theoretically income should be related to productivity so it is a reasonable backing to balance against inflation. The onus is on those who'd like to replace the system to justify a better alternative.
Government debt; so long as that exists then the value of the currency will be derived from the ability to fund that debt through raising revenue - i.e. taxation. Without governement debt, different story.
> to prevent upper middle class from the type of long term wealth accumulation that allows the plebs to enter (and challenge) the elite
The capitalist middle class (the petit bourgeoisie, the thing thar Americans tend to call the upper middle class because Americans refer to a very large segment of the working classc , including the whole of the proletarian intelligentsia, as “middle class”) aren't plebs, they are, more like the equites.
Back then we had a LOT more tariffs. Free trade is a new thing. Tariffs are taxes too, just way more regressive since they raise the prices of almost everything.
> The US managed to fund a military, roads, bridges, schools, hospitals, and other good stuff before that year, right?
Mostly, no, the United States did not. The states did some (less than they alone, ignoring the feds, do now), the US did a little (far less than now, and funded by extensive use of simultaneously regressive and contractionary tariffs and excise taxes) at normal times and when it scaled up imposed special taxes for the purpose (including, starting in the Civil War, income taxes.) For the military part specifically, prior to WWI (and, to—IIRC—a lesser extent between WWI and WWII), the US had (especially aside from the Navy) very little standing military, relying on expanding out from a small cadre via conscription and rushed training in crises.
How are those concepts related? Currently I fund, under threat of armed men coming to my house to arrest me, a framework that largely aims to undermine, regulate, and eliminate my rights.
The states unconditional right to your labor has no mechanism to encourage preservation of rights.
If there was no taxation, there would be no "compelling" reason for anyone to keep using the currency (which would be also losing value directly by the increase in money supply from government spending).
In other words, even under MMT taxation is necessary to limit inflation.
That's fair enough, I was more referring to overall taxation in the economy creating a stable demand for the currency, it doesn't have to be levied on personal income specifically.
Because you likely made a million dollars using the benefits of the government. I.e. you had an educated workforce who drove on government roads to get to the factory, you were able to protect your ideas via copyright with the threat of government enforcement, etc.
Nobody gets rich by themselves unless they are a pirate.
> Nobody gets rich by themselves unless they are a pirate.
Is your claim that pirates generate economic value even in the absence of other people?
Or is it a claim that pirates lived in anarchical democratic communities whose thriving in the absence of government exemplifies Taleb's idea of anti-fragile?
Sure, how about they can send me a bill for my share of roads and educated workforce (granted, this could be provided much cheaper via selective immigration while the US still has the leverage of being attractive to immigrants)? I'd like to not pay my share of e.g. invading far-away countries, or supporting those not paying taxes, or many other such things.
"If there was no taxation, there would be no "compelling" reason for anyone to keep using the currency ..."
This is correct.
Remember: no matter what you have and no matter how valuable it is - you cannot pay your taxes with anything but your local currency. This is not a coincidence.
You cannot pay your taxes with gold bricks or with diamonds or with the Mona Lisa. You cannot trade highly liquid stocks or valuable real estate. You must sell those things to buy dollars.
It will never be otherwise. The point of the dollars is to have something that you must buy in order to pay your tax dues.
This actually expands further than taxes and expands to all government services. Water bill, inspections, sewer. Those institutions will always only accept dollars, and that backstops the value.
Thought experiment: rampant inflation happens and the dollar inflates 10x. My $1M house is now worth $10M. It's reassessed (because I don't live in California) and now my tax bill is suddenly $100,000 / year instead of $10,000! I need to acquire $100,000 or I go to jail. So I start selling assets into dollars. This deflates the dollar. Everyone does this simultaneously and the dollar goes back to its natural value.
I believe all US debts to private creditors can be settled in dollars. Any debtor can take a creditor to court if the creditor tries to demand payment in other forms.
No it's not a thesis, it's how modern government (and accounting) works.
Back in the day when money was a hard asset that could not be easily created (copper, silver, gold), you paid your coin dues to the regional king, and in turn he paid for security/services over the land. That was taxation.
We eventually stored our precious metal in banks, and traded paper coupons representing those metals. We formed governments, who decided one day to revoke the ability for people to redeem their paper coupons for their gold. Now we still had to pay taxes with paper money, but it was no longer attached to gold's value.
The government/central bank now had the ability to create money at will, and does not physically need to rely on tax dollars coming in: it can create the money, pay for services, and collect taxes later. If it spends more than it collects, it has a deficit. This deficit can be funded by creating new money (in turn devaluing it, aka inflation), or by borrowing money that already exists (raising money through bonds).
So every year, when you wire your tax money to the government, bits of data are simply written to a database, indicating money removed from your account. There is no physical transfer of assets to the government; remember, the money that was paper is now digital. Money is numbers in a database.
Management of money at the macro level is now just balancing accounting inflows and outflows, surplus and deficit. Debt can be infinitely be paid off (create more money) at the consequence of devaluation of course.
> So every year, when you wire your tax money to the government, bits of data are simply written to a database, indicating money removed from your account. There is no physical transfer of assets to the government
But there is.The government uses the tax money (plus extra money that they create out of nothing) to buy goods and services. Lots of them. Physical assets such as roads. F-35 fighters. Aircraft carriers. Schools. Services such as file clerks. Accountants. Public health doctors.
All of those things represent increased demand, which in turn result in net price increases (i.e., inflation). The money goes right back into circulation, rather than being removed from it, as you claim.
The government could spend less and tax more, but this is politically and socially unpopular, so unlikely to happen.
But its not like its not possible. Some countries have fiscal surpluses. Canada had a surplus in 2018 [1].
I don't see what I'm arguing, and none of it is hypothetical, this is just basic economic theory. It is possible for government spending to be financed by borrowing rather than money creation, resulting in no change in the monetary base. Those mechanics I'm less educated about.
Under Modern Monetary Theory, it doesn't sit on the tax money, it burns it. The money just disappears into a black hole.
And it can invent money from the same black hole, but they don't have to balance. The money spent and money taken in are completely independent. That's the joy of running your own currency.
The downside of running your own currency is that it will inflate. So you have to take some out of the system. Which you can do in any number of ways, but the most obvious is taxation: you take money and burn it. Not the physical notes, obviously, but rather the line in an account book somewhere.
We've actually been doing something a lot like that for a long time. The US government hasn't had balanced books in forever, and consumer inflation during most of that time has been low. It may be doing messed up stuff to the asset markets and may be reaching its limits, but MMT prescribes a smooth slowing of the market rather than a crash.
Some economists suggest just doing away with the fig leaf and stop trying to balance the budget, but rather just keep an eye on inflation and set policy (both tax and spend) accordingly. That's considered a fringe movement at the moment, but even mainstream economists will say that it's not as far removed from reality as you'd expect from a comparison to a non-currency-making entity like a person or business.
Yeah, I understand how it works. But you yourself admit that the government ALWAYS spends more than it takes in, thus ALWAYS trending toward inflation, not deflation.
Printing the money would create uncertainty - how much will the government print? How much will inflation be? How will the dollar fluctuate against currencies of trading partners? Uncertainty kills business and this plan would hurt every aspect of trade and manufacturing.
The Fed has a 2% inflation target (used to be their only stated target, now they balance unemployment in their target numbers as well). This allows companies to plan ahead knowing with a fair degree of accuracy the expected change in purchasing power year to year.
That sounds like the answer to your own question, no?
The root comment proposes that "They just create the money they need, the never-to-be-paid-off deficit grows, the value of the dollar shrinks, and we move on." How is that incompatible with an inflation target that "allows companies to plan ahead?"
No, not at all. How much will they print? 23% of GDP? 18% of GDP? That’s $1T difference in cash. How will that affect inflation? Who knows, no one can predict that. A shrinking dollar is bad for imports and America has a huge trade deficit right now, it would cripple international trade.
Tough luck that until some months ago, USA was a net energy exporter. Definitely do not want to ask why energy exports flipped to energy imports. Recall that a few days ago Joe asked Saudis to help out by pumping more oil.
Congress created the private contactor known as Federal Reserve with mandate for employment and stable prices. 2% inflation, which violates the mandate and Congress does not care, compounded every year is why purchasing power since 1913 is aiming for the dirt.
You just need to account for jurisdictional apportionment. Only the fed can print money. How does that get allocated? Sales tax and property taxes, which presumably would continue to exist in under this scheme, would do some I suppose. Would there still be jurisdictional income taxes?
The feds could be funded by inflation as you describe, in fact they already are to a large extent. State and local govs that do not print money should be funded by land value tax, as it is the least bad option.
Taxes create civilization and they power most of the things we love about society... roads, infrastructure, retirement, keeping the environment protected, keeping food safe, keeping restaurants from giving us all rat poop, etc etc... the list is very long. I never understood people who don't like taxes. I totally get not liking how much they are or where the spending is going, but they literally are civilization.
To your 2nd point, money is psychological, that model might happen one day but right now that is not something lenders can get behind. Although you could argue MMT and the current system is headed that way. Taxes are also psychological to help you feel like you are part of the system, and not outside of it.
The people create government which creates a platform that creates greater wealth, which the government gets a percentage of through taxes to further improve the platform... repeat.. repeat...
> Taxes create civilization and they power most of the things we love about society... roads, infrastructure, retirement, keeping the environment protected, keeping food safe, keeping restaurants from giving us all rat poop, etc etc...
If those things are important, citizens would fund these with or without government coercion through violence. Keeping food and restaurants safe is a function of a free market -- nobody would buy from a business that routinely tries to poison their patrons. These arguments are old and they don't hold up.
Hah nah, that just isn't true, look at history at any point. By enforcing regulations to ensure clean restaurants and food, that market has grown so much bigger because people trust eating out by default.Don't overestimate the power of trust in growing a platform. If AirBNB poisoned you every 6th stay, how long would you use them?
Sometimes I am stunned with how libertarian some of these comments are. Government is just us, and it is a amazing because it isn't free market. The free market only works when given strong bumer rails to stay between, otherwise it starts taking advantage of the system and causing environmental damage, damage to labor, etc...
The free market can't do a lot of things. It can't provide high quality health care, it can't provide economic protections, it doesn't provide protections for labor, so many things.
I don't think you read his post very closely. His first point was that the government has the ability to print money to pay for what it needs which is effectively "taxing" everyone equally across the board (which we feel as inflation).
The government doesn't just print money to pay for what it needs. It also takes money from it's citizens so that we all pay for what it provides us with.
Inflation isn't controlled by the government anyway, it is also psychological with consumers. There is no group in the government who can set inflation to x, there is a fed that tries to move it the right direction based on what smart people think.
This is effectively arguing that because the eventual end state is the same, it doesn't matter what path we take to get there. But that's not true, it matters a lot, and there's a universe of externalities to what you suggest.
Deciding we're just not going to collect taxes anymore and that we'll pay off debts by printing out extra dollars would have enormous effects on bond prices, international trade, the US dollar benefiting from being the premiere currency of the world, etc.
To be slightly pedantic, the US system of government is a federal republic[1] that includes some democratic concepts. An example of those concepts is the democratic election of representatives at a state and federal level.
Prior to the mid 20th century, a poll tax was implemented in some U.S. state and local jurisdictions and paying it was a requirement before one could exercise one's right to vote. After this right was extended to all races by the Fifteenth Amendment to the Constitution, many Southern states enacted poll taxes as a means of excluding African-American voters, most of whom were poor and unable to pay a tax.
People would move their income streams into non-$ denominations, keep their bank accounts in foreign currencies and so on to avoid the inflationary effect.
Further, it would be a regressive tax, not even flat, in practice: poor people are more reliant on cash and short term income which can't be diverted to a different currency. And even if high income people couldn't switch currency, flat taxes are already regressive on a marginal utility basis. Every extra dollar of income or wealth has less utility, because you no longer need to cover essentials like shelter and food, but are spending on entertainment, higher and higher quality, or Veblen goods, etc.
Taxes are hugely complicated because they are trying to do two different things at the same time: combat inflation and enact policy.
If we just printed dollars to pay for all gov expenses, we would probably have a lot of inflation. Inflation hits all holders of dollars equally (on a percentage basis). Taxes allow us to spread the burden of shared costs (like infrastructure) in a different way.
Additionally, taxes act as a feedback mechanism on behavior. We can incentivize some things by giving tax credits for doing them, and we can disincentivize other things by charging higher taxes on them.
Balancing these two effects of taxes: inflation and policy, is hard. If the gov. wants to encourage everyone to buy an electric vehicle, we could give a big tax incentive to do so, but that reduces overall taxes, which means more inflation. To combat this, we have to print fewer new dollars or increase taxes somewhere else.
This is one of the big challenges for the Federal Reserve, they don't get to pick how much tax is collected, just how many new dollars are printed. If congress doesn't collect enough tax, there's only so much the Fed can do to balance things.
>> with fiat money there is no reason for anyone to pay income taxes
Well you immediately give one reason people pay income taxes, so government can control behavior. Another is that the current income tax regulations provide the government with a justification for massive invasions of your privacy. These are both compelling features of an income tax.
Even with an accurate tittle, I think the whole story is based on a rando stat without much context...
Taxes is such a big topic and here we are where everyone is going to talk about that topic, when the story really only informs (a little...) about a small piece of it.
Meta: I feel like HN has rapidly turned a corner where the title is driving clicks and up-votes and the content of the article is not. To some extent that is always the problem but the scale seems to be moving rapidly :(
I wonder what % of people don't file taxes. And what % of those, are owed a refund? That would skew these stats a lot if people aren't claiming what they're owed.
This is a big reason we have two Americas. It's well past time to ditch this, and just move to a consumption based tax everywhere. The current system is just a tool for the parties to target money at their own constinuencies, and is almost impossible to manage or stay compliant with. The poor don't pay it a all while the hyper rich can afford the tricks and lawyers to not pay it.
The only ones who pay income tax are the middle class and the lower upper class (IE, not the 1%).
Reminder that the bottom 50% of the population by income pays 3% of federal tax receipts. Collecting tax from them is theater designed to make taxation seem more fair, but after frictional costs of collection + deadweight losses are accounted for this is likely net negative.
At the end of day, what's not super helpful is a bunch of "Actually ..." comments in a disjointed thread on a clickbait article from a biased (pro-business class) source.
It would be a lot more helpful to just have some Snopes.com-style primer on "how Americans pay taxes."
Here are some examples - though I have not personally vetted any of these for bias, they seem to be based on a shared set of facts and designations, and are, if not neutral, then also not clearly pushing a particular agenda.
At some point we'll realize that all income tax is regressive, and that property/wealth taxes (including on owned stocks, crypto, etc.) are the only thing that makes sense.
Cash, frankly, doesn't matter at this stage of capitalism. Equity and assets do.
196 comments
[ 105 ms ] story [ 2824 ms ] threadYes, the answer is in the article, it’s up 38%.
Never understood how people can say that with a straight face knowing that more than _half of all Americans don't pay taxes_.
Moreover, you want people to deploy their capital in the economy. Hiking taxes on capital gains would massively disincentivize people. Unlike other taxes, capital deployment is a risk based economic activity: if you raise taxes, people will be less inclined to invest it on risky ventures as opposed to keeping it in very safe assets (e.g. bank accounts or real estate).
In the US, property taxes are so low such that they are uncorrelated with rent. The properties with the lowest tax rates thanks to Prop 13 also have some of the highest rents.
You may be thinking in California terms where property taxes are very low because of Prop 13. I can most assure you that this is not the case in New Jersey or New York.
[1]: see point #3 -- https://www.vox.com/2016/4/8/11380356/swedish-taxes-love
Saying "half of all Americans don't pay taxes" is just wrong. The statement is "half of Americans don't owe any federal income tax". We all pay different taxes like sales tax, property tax (either directly or via rent), payroll tax, capital gains tax, state taxes, local taxes, etc, etc.
Rich people consume more, so it makes sense and is fair to pay more to a society you consume more from.
If you make a lot of money and live frugally why should you pay more?
I don't want a just tax I want a tax system that is effective. When vast amounts of wealth continually become concentrated in the hands of a tiny amount of people, the only effective tax regime is one that extracts wealth from the people who have all the wealth.
I think the only Americans without a real tax burden are children. Even someone destitute who spends $5 on a fast food meal may pay taxes on it.
Taxation is a complex topic, and reducing it to statements like CNBC's headline is not very helpful.
The headline should be: 61% of Americans have a federal income tax burden which is less than $1800 and so with the federal stimulus program they are net positive from Uncle Sam (kinda, assuming you only pay income tax and nothing else).
I hate articles like this.
1. Refunds if you were overtaxed during the year. For instance, someone making $100k/year but was laid off in March or April when COVID closures started hitting may have had a large amount withheld that was refunded if they remained unemployed the rest of the year.
2. Your income is sufficiently low. If your income is below a certain threshold (or you just claim a lot of credits on your W-4) then nothing will be withheld. Common with minimum wage part-time jobs.
Doesn't the US have a 0% tax bracket?
And even if it didn't, whatever% of $0 income is $0.
But also keep in mind: not everyone who has income gets it from a paycheck; plenty of self-employed or small business people don't get paychecks; when they're paid, it's up to them to put money aside all year to pay taxes at tax time.
If your net federal income tax is $0 there is an exemption box on the w-4 you can check. That causes no federal income tax to be withheld, but the same end of year calculation may find you owe money if you made more than expected.
Check your refund status. If you haven't received it yet then you might be a victim of tax fraud. Or the IRS is reviewing your return for possible audit.
My guess is that it will be late again.
Have you checked your tax transcript? When you go to that page on your IRS account, you get 4 boxes to choose from. 2020 should be in all boxes by now. I think it is the top left one, but once that is populated your refund has been put in the queue.
My data showed up there about a week and a half ago, and I got the direct deposit yesterday (with interest). A coworker had his data show up at the same time but he is still waiting on the paper check.
So I am more in the dark than when I started.
Once they start processing it, the N/A and the "Verification of Non-Filing" disappear. When they are done, the real data appears in the N/A spot.
Basically, don't bother checking the refund status until the N/A goes away.
From [1] > As of August 13, 2021, we had 11.1 million unprocessed individual returns.
You are one of them :(
[1] https://www.irs.gov/newsroom/irs-operations-during-covid-19-...
The paper returns were taking forever last year due to COVID, but I filed my 2020 refund by paper and got that last summer as well. If you haven't already, call them and figure out what happened.
Individuals likely still paid Social Security taxes, Medicare taxes, and potentially state and local taxes (which vary wildly). Most states also have sales taxes as well, and some local municipalities have surcharges as well.
And, lastly, we do have property taxes, which can be quite significant in large parts of the country. Even if you’re a renter, these costs are often indirectly passed on to you.
So, while federal income tax may have been less of a burden last year, there was likely still lots of taxes that each of these individuals paid.
Disclaimer: This post isn’t meant to be a statement of support or criticism of taxes. Just trying to highlight the many ways we pay taxes beyond federal income tax.
I have family members that pay a total of $400 in tax yet receive a $9,000 or more “refund” due to various credits.
So yes, there is a sizable portion of the population that literally pays a negative tax rate even when factoring in all of the taxes you mentioned.
As far as wealth this bottom half also holds 2% of the net worth.
It should be unsurprising that people who have nothing aren't paying much.
And in fact, many of the state income taxes are too. A few states have flat taxes (but with healthy exemption), the other have brackets that steeply increase.
That's a false claim. The recent propaganda being pushed - eg by ProPublica - about billionaires supposedly paying low income taxes, of course, didn't center on income taxes at all. It intentionally reframed the premise to be that billionaires weren't paying enough taxes on their wealth (assets).
For example this article con line from ProPublica:
Headline: "You May Be Paying a Higher Tax Rate Than a Billionaire"
Summary: "A new ProPublica analysis of a trove of IRS documents revealed that the richest 25 Americans pay a tiny fraction of their wealth in taxes."
So I might be paying higher taxes on my unsold stock holdings than Bezos is on his unsold stock holdings? Of course not. ProPublic is being intentionally deceptive.
The billionaires are paying a small share of their wealth in taxes every year. They pay high income taxes, when they generate high incomes. Wealth isn't income. ProPublica knows that separation, they know how the tax system works, they spun the con regardless for propaganda points. ProPublica is trying to argue in favor of wealth confiscation policies, while lying and pretending they're arguing in favor of the billionaires paying higher taxes akin to paying higher income taxes. The spin is remarkable for just how disingenuous it is.
Bezos isn't paying enough income tax on his unsold Amazon stock holdings? Golly gee.
Long term capital gains are taxed less than all but the lowest income brackets. Social Security tax is capped. And the article used the IRS definition of total income tax. So it ignored taxes on goods and services.
[1] https://www.propublica.org/article/you-may-be-paying-a-highe...
> Large charitable donations reduce taxable income.
So they reduce income by having investments and donating money. Sounds pretty nefarious.
> But now add payroll taxes. The worker paid a bit more than $3,400 directly over the course of the year; in addition, the worker’s employer paid an equivalent amount as their share of the worker’s Social Security and Medicare taxes. Government agencies and most economists typically count both contributions — a total of nearly $6,900 in this instance — as a tax that is effectively borne by workers since it’s part of the cost of paying their wages. The logic is that employers consider those costs when hiring and would hire fewer people or pay them less because of the tax burden.
> All in, our worker paid $10,700 in taxes. Taken as a percentage of the worker’s full compensation (including a typical health plan), this comes out to a rate of 19%.
Riiight.. if you include money which they aren't actually paying, then they are paying more.
Splitting payroll taxes is just sleight of hand. Changing who pays nominally doesn't change the fact an employer budgets a specific amount for payroll, the government gets a specific portion, and the employee gets a certain portion. The equivalence isn't even controversial in economics. And the article said full compensation including a typical health plan. So the calculation included money they aren't actually being paid too.
Wait, what? The state tax in New York State is certainly progresive: it starts at 4% if you earn less than $8k, and goes up to 10.9% on incomes above $25 MM [1]. California is much more progressive: 1% for less than $9k, 13.3% above $1 MM [2].
[1] https://www.nerdwallet.com/article/taxes/new-york-state-tax
[2] https://www.hrblock.com/tax-center/filing/states/california-...
https://itep.org/whopays/
Not sure if there is an official nomenclature for such, but I often wonder as I get into threads / discussions like these if people are taking into consideration these things or not - are they lumping them together, or is it a different thing.
If I was totally guessing, I would think the top 3% who sleep in NY probably pay no more than a poor school teacher - but if we were talking about the top 1% of people who actually get a paycheck with taxes taken out - then sure - but I think that ignores the bigger money that is moved around in other ways aside from a paycheck / w2s.
This is something that I am not sure if people in other countries would be taking into consideration as well, no idea if they tax the same / don't tax the same.
There have been millions of people on SNAP & HUD & Medicaid with no income for a long time. There's just more programs and a lot more people now.
This time, however, it seems like these new programs are quite massive and are more "want" based than "need" based.
It's quite obvious people with no income and kids "need" money. It's less obvious to me that people who had kids for years, and still have their jobs, suddenly need $1k per month. I don't think anyone would debate whether this $1k is improving their lives.
As another commenter said they also receive federal and other benefits and almost invariably take more than they contribute. They're takers.
Maybe Medicare since what you contribute is only partially linked to the benefit.
But social security is basically a public pension plan. What you contribute determines your benefit. You can even calculate the benefit yourself. No different than a private pension plan.
There's some correlation between in and out but the government isn't figuratively putting the money into a savings account for you.
That simply can’t be because what you get out is based on how long you live, which is a ‘known, unknown’
Social security is nominally a government sponsored pension, but the payout ratios are weird, and it's compulsory, so I feel it's fair to call it a tax.
Same with at least the employee portion of compulsory unemployment insurance. Maybe that's generally an actuaraily sound program (I think the employer contributions may be), but in times of economic stress, payments increase and I don't think that's covered by premiums. I know there's a cap on benefits, but I'm not sure if there's a cap on contributions? Anyway, seems similar to Medicare and I'd call it a tax, too.
"Federal income taxes do not include payroll taxes. The Tax Policy Center estimates that only 20% of households paid neither federal income taxes nor payroll taxes. And “nearly everyone” paid some other form of taxes, including state and local sales taxes, excise taxes, property taxes and state income taxes, according to the report."
-- https://www.cnbc.com/2021/08/18/61percent-of-americans-paid-...
The first tax bracket was a measly 1% on income over $3,000 at the time, which WolframAlpha says is about $80,500 today.
https://www.wolframalpha.com/input/?i=%243%2C001+in+1913+USD https://en.wikipedia.org/wiki/Income_tax_in_the_United_State...
EDIT: I needed to correct myself, according to the IRS "Congress adopted a 1 percent tax on net personal income of more than $3,000 with a surtax of 6 percent on incomes of more than $500,000."
Thank you to alecst for correcting me.
Good thing we learned better :)
Of the things they could fathom, they might have even been better at them. Certainly better per dollar spent.
They also breed dependence and servitude to the centralized authority, many of which are even designed such that working and earning income puts you in a worse spot than not.
The people in charge aren’t stupid, it works this way by design.
The people in charge are just like you and me, they are trying to improve things and work really hard.
You would need the second derivative to be meaningful (and maybe that's what you mean), the percentage increase compared to the percentage increase in inflation (i.e., if in one year inflation is 2% and healthcare costs increase 4%, and the next year inflation is 2%, and healthcare costs are > 4%, and this trend continues, that would be concerning)
The federal government spends something like 10 times as much on defense as direct educational expenditures and it's still significantly more than education if you include things like loan financing in education.
I mean, OK, but that's only because the second part of your comparison isn't a federal government responsibility and there are only certain targeted initiatives (mostly pork-barrel) that fall into that category. Same for federal spending on education.
But when you look at all government spending on education, it's very clear that we spend more on education (5% of GDP, not counting loan guarantees) than on defense (3.7% of GDP). Except education is funded by local government whereas defense is funded by the federal government.
It's just not true that the federal government spends more on education than defense, in fact it's very lopsided in the other direction.
The context is a thread on the federal income tax specifically, and someone said the federal govt used to be not very technologically ambitious, and someone else says, essentially, it still isn't technologically ambitious, it spends most of its money on education and social welfare. OP corrected that. The social welfare part has some validity but federal education spending is quite minor.
Yes the total spending by all govts in the US including state + local has a lot more education spending but the thread and the whole article are focused on federal taxes.
As I think about more though, I must wonder if this could be a regional thing and varies.. and or if that is relevant to the specifics in this thread.
The more I think about it, I wonder if places like Cali and NY would think of things in that manner.. with places like Texas and TN thinking very differently.
It's an interesting thought, and wonder if there is data / polls out there for something seemingly basic like this.
Anyway, regardless of your personal definition of the term, the intent of communication of the person you are replying to is crystal clear and in obvious contradiction to your analysis. (That person expressly uses the word “federal.”)
The highest rate in 1913 was 7%. Today the lowest rate is 10%.
Those rates seem selected to support your point. For example, you left out that highest rate in 1944 was 94%.
There is also quite a bit of historical context that you are omitting. In 1913, without social security, common people in the US were impoverished in old age. The country had little infrastructure.
It's not as simple as "taxes only go up".
And with them, the country's population, infrastructure, and economy expanded and transformed. Some may argue for the better, others for the worse, but taxes and societal development are intrinsically linked.
Wars were financed, population and productivity increased by huge amounts, and the entire economy shifted from an agrarian to an industrial one. The country's massive physical, social and and human infrastructure was built, one that the current high standard of living is still largely dependent on.
It is highly motivated reasoning to only highlight the tax rate increases without the sweeping societal changes that accompanied them.
https://www.irs.gov/newsroom/historical-highlights-of-the-ir...
Some highlights:
> 1862 - President Lincoln signed into law a revenue-raising measure to help pay for Civil War expenses. The measure created a Commissioner of Internal Revenue and the nation's first income tax. It levied a 3 percent tax on incomes between $600 and $10,000 and a 5 percent tax on incomes of more than $10,000.
> 1909 - President Taft recommended Congress propose a constitutional amendment that would give the government the power to tax incomes without apportioning the burden among the states in line with population. Congress also levied a 1 percent tax on net corporate incomes of more than $5,000.
> 1913 - As the threat of war loomed, Wyoming became the 36th and last state needed to ratify the 16th Amendment. The amendment stated, "Congress shall have the power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several states, and without regard to any census or enumeration." Later, Congress adopted a 1 percent tax on net personal income of more than $3,000 with a surtax of 6 percent on incomes of more than $500,000. It also repealed the 1909 corporate income tax. The first Form 1040 was introduced.
> 1918 - The Revenue Act of 1918 raised even greater sums for the World War I effort. It codified all existing tax laws and imposed a progressive income-tax rate structure of up to 77 percent.
Also something many people don't realize is that in the '50s the highest marginal tax rate was 91%, for $4M or more. (The lowest was 20% for $40K or less.) So I don't totally see how your comment relates to the article. You can draw diverse conclusions looking backwards.
This gets mentioned frequently and it always bothers me.
The tax code was so utterly different back then that you're comparing apples and oranges with it. Consider that the like-for-like transaction qualification was much larger and loopholes (aka deductions) were more common. In practice, nobody paid the 91% rate.
If you don't believe me, look up the bipartisan Tax Reform Act of 1986, which lowered the top marginal tax rate from 91%, was revenue neutral. [0]
Also note that state & local taxes were very little. New Jersey, which today boasts a very high income tax, did not have one until 1976. [1] New York City did not have one until 1966. [2] Despite this, both states have higher sales taxes than Florida with roughly similar property taxes (though property is much cheaper in Florida). Florida, of course, has no income tax.
[0]: https://en.wikipedia.org/wiki/Tax_Reform_Act_of_1986
[1]: https://en.wikipedia.org/wiki/State_income_tax
[2]: https://en.wikipedia.org/wiki/John_Lindsay#Labor_issues
Taxes serve as a means of coercing the behavior of the citizens, in the sense that certain things are rewarded with tax deductions or credits, and other things are punitively taxed. That is the reason they still exist.
We should just do away with taxes. People's work and business activity, conducted in terms of US dollars, creates value. The government takes some of that value by simply creating more dollars. Why do we need a huge, complicated taxing bureaucracy in the middle of it?
Income tax is basically a surveillance tool - it forces you to declare all your income sources, and a large part of spending (if you want to claim some tax breaks).
From the GP...
> The government takes some of that value by simply creating more dollars.
OP's comment makes no sense.
That is no longer the policy and other currently existing currencies do posses the potential to compete with USD. Why would I choose to settle my debts in a rapidly-inflating currency that is backed by nothing?
I just didn't understand the statement that a currency's value "derives largely from the ability to pay [income] taxes with them". That statement by itself is historically false, as the gold-backed currency shows. It still makes no sense to me even without gold-backing. As long as the money supply is kept relatively stable, all you need is for a few government services to operate exclusively in USD (e.g. welfare, where funds are raised via land tax or carbon tax for example), and for a reasonable amount of trust in the government, and to perhaps kickstart the group delusion of trust with initial gold-backing, and you're all set. I can make sense of the statement strictly in the context of money printing, where you need the offsetting deflationary impact from taxation (not necessarily income taxation), but that meaning wasn't so clear from the original statement that I was responding to.
The US managed to fund a military, roads, bridges, schools, hospitals, and other good stuff before that year, right?
The truth is the tax system has two primary objectives:
1) to prevent upper middle class from the type of long term wealth accumulation that allows the plebs to enter (and challenge) the elite
2) To fund a hyper scale bureaucracy that constantly seeks the lower bound on the efficiency curve
The capitalist middle class (the petit bourgeoisie, the thing thar Americans tend to call the upper middle class because Americans refer to a very large segment of the working classc , including the whole of the proletarian intelligentsia, as “middle class”) aren't plebs, they are, more like the equites.
Mostly, no, the United States did not. The states did some (less than they alone, ignoring the feds, do now), the US did a little (far less than now, and funded by extensive use of simultaneously regressive and contractionary tariffs and excise taxes) at normal times and when it scaled up imposed special taxes for the purpose (including, starting in the Civil War, income taxes.) For the military part specifically, prior to WWI (and, to—IIRC—a lesser extent between WWI and WWII), the US had (especially aside from the Navy) very little standing military, relying on expanding out from a small cadre via conscription and rushed training in crises.
The states unconditional right to your labor has no mechanism to encourage preservation of rights.
Having to pay taxes in US dollars or go to jail is a strong incentive for people to continue their business operations with US dollars.
Some estimate maybe only 10% of Chinese individuals pay tax. Individual taxes account only about 8% of China's tax revenues.
Bulk of the tax burden comes from consumption and business.
I'm all for that. If I make a million dollars but I live frugally and invest my money, why should I pay 50%?
Sure the argument for individual taxes are about social wellness but how do you justify that when businesses are avoiding billions of tax legally.
Make no sense.
Nobody gets rich by themselves unless they are a pirate.
Is your claim that pirates generate economic value even in the absence of other people?
Or is it a claim that pirates lived in anarchical democratic communities whose thriving in the absence of government exemplifies Taleb's idea of anti-fragile?
This is correct.
Remember: no matter what you have and no matter how valuable it is - you cannot pay your taxes with anything but your local currency. This is not a coincidence.
You cannot pay your taxes with gold bricks or with diamonds or with the Mona Lisa. You cannot trade highly liquid stocks or valuable real estate. You must sell those things to buy dollars.
It will never be otherwise. The point of the dollars is to have something that you must buy in order to pay your tax dues.
Thought experiment: rampant inflation happens and the dollar inflates 10x. My $1M house is now worth $10M. It's reassessed (because I don't live in California) and now my tax bill is suddenly $100,000 / year instead of $10,000! I need to acquire $100,000 or I go to jail. So I start selling assets into dollars. This deflates the dollar. Everyone does this simultaneously and the dollar goes back to its natural value.
Back in the day when money was a hard asset that could not be easily created (copper, silver, gold), you paid your coin dues to the regional king, and in turn he paid for security/services over the land. That was taxation.
We eventually stored our precious metal in banks, and traded paper coupons representing those metals. We formed governments, who decided one day to revoke the ability for people to redeem their paper coupons for their gold. Now we still had to pay taxes with paper money, but it was no longer attached to gold's value.
The government/central bank now had the ability to create money at will, and does not physically need to rely on tax dollars coming in: it can create the money, pay for services, and collect taxes later. If it spends more than it collects, it has a deficit. This deficit can be funded by creating new money (in turn devaluing it, aka inflation), or by borrowing money that already exists (raising money through bonds).
So every year, when you wire your tax money to the government, bits of data are simply written to a database, indicating money removed from your account. There is no physical transfer of assets to the government; remember, the money that was paper is now digital. Money is numbers in a database.
Management of money at the macro level is now just balancing accounting inflows and outflows, surplus and deficit. Debt can be infinitely be paid off (create more money) at the consequence of devaluation of course.
But there is.The government uses the tax money (plus extra money that they create out of nothing) to buy goods and services. Lots of them. Physical assets such as roads. F-35 fighters. Aircraft carriers. Schools. Services such as file clerks. Accountants. Public health doctors.
All of those things represent increased demand, which in turn result in net price increases (i.e., inflation). The money goes right back into circulation, rather than being removed from it, as you claim.
What I mean by "physical transfer" is literally that if you mailed a brick of cash to the federal government, they would just burn it.
Taxation = money out of the system
Money printing/spending = money into the system
The difference causes inflation or deflation.
Ever?
You are arguing a hypothetical case where the government takes in more in taxes than it spends, thus creating a trend toward deflation.
But that never happens. Like, ever.
But its not like its not possible. Some countries have fiscal surpluses. Canada had a surplus in 2018 [1].
I don't see what I'm arguing, and none of it is hypothetical, this is just basic economic theory. It is possible for government spending to be financed by borrowing rather than money creation, resulting in no change in the monetary base. Those mechanics I'm less educated about.
[1] https://www150.statcan.gc.ca/n1/daily-quotidien/201118/dq201...
And it can invent money from the same black hole, but they don't have to balance. The money spent and money taken in are completely independent. That's the joy of running your own currency.
The downside of running your own currency is that it will inflate. So you have to take some out of the system. Which you can do in any number of ways, but the most obvious is taxation: you take money and burn it. Not the physical notes, obviously, but rather the line in an account book somewhere.
We've actually been doing something a lot like that for a long time. The US government hasn't had balanced books in forever, and consumer inflation during most of that time has been low. It may be doing messed up stuff to the asset markets and may be reaching its limits, but MMT prescribes a smooth slowing of the market rather than a crash.
Some economists suggest just doing away with the fig leaf and stop trying to balance the budget, but rather just keep an eye on inflation and set policy (both tax and spend) accordingly. That's considered a fringe movement at the moment, but even mainstream economists will say that it's not as far removed from reality as you'd expect from a comparison to a non-currency-making entity like a person or business.
But yeah, the US government has invented so much money in the last decade that they're worried about why there isn't more inflation than we've seen.
The root comment proposes that "They just create the money they need, the never-to-be-paid-off deficit grows, the value of the dollar shrinks, and we move on." How is that incompatible with an inflation target that "allows companies to plan ahead?"
https://en.wikipedia.org/wiki/Land_value_tax
To your 2nd point, money is psychological, that model might happen one day but right now that is not something lenders can get behind. Although you could argue MMT and the current system is headed that way. Taxes are also psychological to help you feel like you are part of the system, and not outside of it.
The people create government which creates a platform that creates greater wealth, which the government gets a percentage of through taxes to further improve the platform... repeat.. repeat...
If those things are important, citizens would fund these with or without government coercion through violence. Keeping food and restaurants safe is a function of a free market -- nobody would buy from a business that routinely tries to poison their patrons. These arguments are old and they don't hold up.
Sometimes I am stunned with how libertarian some of these comments are. Government is just us, and it is a amazing because it isn't free market. The free market only works when given strong bumer rails to stay between, otherwise it starts taking advantage of the system and causing environmental damage, damage to labor, etc...
The free market can't do a lot of things. It can't provide high quality health care, it can't provide economic protections, it doesn't provide protections for labor, so many things.
The government doesn't just print money to pay for what it needs. It also takes money from it's citizens so that we all pay for what it provides us with.
Inflation isn't controlled by the government anyway, it is also psychological with consumers. There is no group in the government who can set inflation to x, there is a fed that tries to move it the right direction based on what smart people think.
Deciding we're just not going to collect taxes anymore and that we'll pay off debts by printing out extra dollars would have enormous effects on bond prices, international trade, the US dollar benefiting from being the premiere currency of the world, etc.
Stupid idea.
[1] https://en.wikipedia.org/wiki/Federal_government_of_the_Unit...
It is therefore consistent that the moral basis for our unjust society is itself unjust.
https://en.wikipedia.org/wiki/Poll_tax
Further, it would be a regressive tax, not even flat, in practice: poor people are more reliant on cash and short term income which can't be diverted to a different currency. And even if high income people couldn't switch currency, flat taxes are already regressive on a marginal utility basis. Every extra dollar of income or wealth has less utility, because you no longer need to cover essentials like shelter and food, but are spending on entertainment, higher and higher quality, or Veblen goods, etc.
If we just printed dollars to pay for all gov expenses, we would probably have a lot of inflation. Inflation hits all holders of dollars equally (on a percentage basis). Taxes allow us to spread the burden of shared costs (like infrastructure) in a different way.
Additionally, taxes act as a feedback mechanism on behavior. We can incentivize some things by giving tax credits for doing them, and we can disincentivize other things by charging higher taxes on them.
Balancing these two effects of taxes: inflation and policy, is hard. If the gov. wants to encourage everyone to buy an electric vehicle, we could give a big tax incentive to do so, but that reduces overall taxes, which means more inflation. To combat this, we have to print fewer new dollars or increase taxes somewhere else.
This is one of the big challenges for the Federal Reserve, they don't get to pick how much tax is collected, just how many new dollars are printed. If congress doesn't collect enough tax, there's only so much the Fed can do to balance things.
Well you immediately give one reason people pay income taxes, so government can control behavior. Another is that the current income tax regulations provide the government with a justification for massive invasions of your privacy. These are both compelling features of an income tax.
Even with an accurate tittle, I think the whole story is based on a rando stat without much context...
Taxes is such a big topic and here we are where everyone is going to talk about that topic, when the story really only informs (a little...) about a small piece of it.
Meta: I feel like HN has rapidly turned a corner where the title is driving clicks and up-votes and the content of the article is not. To some extent that is always the problem but the scale seems to be moving rapidly :(
The only ones who pay income tax are the middle class and the lower upper class (IE, not the 1%).
It would be a lot more helpful to just have some Snopes.com-style primer on "how Americans pay taxes."
Here are some examples - though I have not personally vetted any of these for bias, they seem to be based on a shared set of facts and designations, and are, if not neutral, then also not clearly pushing a particular agenda.
* https://www.pgpf.org/budget-basics/who-pays-taxes
* https://en.wikipedia.org/wiki/Progressivity_in_United_States...
* https://itep.org/who-pays-taxes-in-america-in-2019/
* https://www.cbpp.org/research/misconceptions-and-realities-a... (This one is the closest to a Snopes-style "debunking" of the "61% paid no income taxes" headline)
Cash, frankly, doesn't matter at this stage of capitalism. Equity and assets do.