Tax Code Reform
 

Fellow Board Members, Glenn has some silly idea about redistribution of wealth in our country, but it reminds me of the lucid and creative ideas I have on this topic, so here goes. How 'bout if the first $50,000 in personal income were tax exempt, and the tax rate on income in excess of that amount were ten percent with no loopholes. This way, taxes paid by ordinary, simple, humble, responsible, modest individuals like myself would pay substantially less in taxes, while the sociopathic, mean spirited, greedy rich folks would have no tax shelters to hide behind. Of course, this assumes that an individual earning, say, a quarter-million dollars a year could afford to pay $20k in taxes. Is that a bad assumption? And isn't this the kind of plan that would actually increase tax revenues, allowing our country to invest in much-needed infrastructure repairs and improvements?

But what about Social Security (Just kidding)(isn't that an oxymoron anyway?)
-Jeremy

Re: Tax Code Reform
 

Uhmm. . . isn't that how it all started, back in WW2?

$50k means different things in different parts of the country.

...you're basically putting a starting point on a Flat tax.

Your idea sounds good, but you're also stereotyping. Robert Kiyosaki states it is wrong to blindly say "The rich are greedy." He promotes "The rich are generous." I grew up in a humble background, and in my experience generosity is repaid well. I am by no means rich, but being in real estate investing, it's just a matter of time. ;)

Wealth does strange things to people, but don't put the wealthy in the same basket.

Sure, tax reform is would be wonderful, but I will go back to another Kiyosaki saying,"Money is power." Those with the green make the rules...

Look at this link:

http://www.irs.ustreas.gov/pub/irs-soi/01in01ts.xls

From the sheet you can see that there were 128,817,051 returns filed for tax year 2001. The top 25% of those taxpayers had an AGI of $56,085 or higher. Now go to the bottom of the table, and note that the same group paid 82.90% of the tax revenue. Note also that this group paid, on average, 18% of AGI in tax. Note that I say on average, because you probably know that the tax code provides for increasing rates as AGI increases.

So my answer is, bring it on! Eliminate progressive tax brackets above the $56k baseline! You lose $151 billion in tax revenue from the people below the line, who don't pay any more federal taxes! You lose another $71 billion by reducing the average rate on the top 25% of filers from 18% to 10%! That's $222 billion you have to make up. That's about 10% of the federal budget. I'll take $50bn from defense if you will take $50bn from entitlement programs, fair?

Now let's look at your supply-side assumption. You have an extra $222 billion that's available for investment and consumption spending. Let's assume that half of that is pure consumption, which yields a net pretax margin of, lets's say, 20%? Assuming you continue the corporate tax at 40%, you just made $9bn back in tax revenue from the effect of additional consumption in that year. Let's assume the other half is invested with a pretax margin of 40%, and you set capital gains taxes at 20%. There's another $9bn. So you make $18bn back the first year in tax revenue, so your annual (additional) deficit drops to $104bn.

What about expansion of the economy and tax base as a result of the reallocation of those dollars to consumption and investment? Do you think that a 5% increase in Gross Domestic Product is reasonable? Can we assume that that increase will be reflected in tax collections? So if tax collections increase by 5% of our now-reduced collection of $1,953 billion, there's $97mm. Dismantle the IRS and you're there.

Ummmmm, so whaddya think, John?

<i>"..... Dismantle the IRS and you're there."</i>

OK, now we're gettin' somewhere! :) But if we have to keep the IRS, I would like to see checkoff boxes on the return. These would allow the person who is having their money stolen from them .... er, I mean "taxpayer" ..... to pick and choose where his dollars go. If you want your money spent on the military, check that box. If you want your money spent on a government bureaucrat, check that box. etc. It would sort of double as a referendum on what we should be spending money on as a country. Vote with your money. ;)

And if you don't check the "transportation infrastructure" box, then you must ride a horse, on private land only?

Super, I think I was pretty unequivocal above. I could dial up some stridency & ad hominem to fit in better here :)

I dont' wish to offend any members of "The Service" as my tax prof used to call it, but the fact is that our economy is saddled by a couple hundred billion dollars of what is referred to as "compliance complexity," from professional fees payable to interpret revenue rulings and the many thousands of pages of The Code (which, by the way, are ALL modifications and exemptions to the fundamental principle of income tax, which is, that every transaction is taxable). The trouble is that any time you try to propose a flat percentage tax on income, everybody has to modify the proposal to suit their particular special interest. Enough modifications and guess what, we're back at the IRC as it stands today. 10% flat tax on income means no itemized deductions, credits, adjustments or otherwise. Income from all sources, broadly defined, all fed in to the top line of a postcard, divide by ten and that's your tax.

Do you know what I would REALLY love to see? A national VAT, a sales tax on all goods and services provided in the economy, at about 17%, coupled with the elimination of the personal income tax. You consume, you pay tax. You save, you invest, you don't. Critics cry foul because it's "regressive" insofar as that 17% represents an unreasonably large chunk of the income of low income persons. What they really mean is that flat taxes eliminate the concept of "fairness," which is to punish with increasing severity the generation of wealth. Why do you think that is? Is it a religious/theological aversion? Guilt? Envy? Fear of individuals accumulating too much power?

No less a personality than V.I. Lenin proposed that imperialism would inevitably result from the need for capital to generate increasingly higher returns. Lenin didn't come up with that idea himself: he borrowed it from Schumpeter, Hilferding, Luxembourg and others, but for an old dead guy he's right: Capital, like electricity, follows the path of least resistance. Do you think it's possible to reverse the export of capital from the United States by reforming the tax climate? Could we lighten the burden on the corporate taxpayer sufficiently to the point where the return on capital was equivalent to the return with outsourced manufacturing and services?

I'm getting off the point here and into the other thread about the perils of outsourcing and protectionism, but the one thing I dont' see anyone in the Bush administration, or the loyal oppostion for that matter, articulating, is that legislation and collective bargaining DON'T work to reverse capital flight. The only thing that guides capitalists are market forces, and if you want to steer commercial activity back home, you have to use market forces to do it.

Wanna hear my theory about the impact of socialized medicine on our civil liberties? It's based on the implied consent doctrine. . .

What about 25% VAT, and progressive tax starting with around 30% for low-income and growing progressivly to around 50% for high-rollers... ?

Is the Swedish tax climate that loose? I thought you had marginal rates as high as 90%? Could you share with us the basic structure?

No reason why, but this raises a flag for me:

Assuming you continue the corporate tax at 40%

I get the feeling there is some negative affect from having such a wide gap between corporate tax and personal tax rates. But I don't know why. I am thinking strange incentives.

Nope, taxes are generally around 34% for normal middle class growing to around 50% for very high incomes.

It's all in the definition. I'll brake it down:

Assume I earn 3000$ a month. My employer will have to pay 32% of 3000$ for social security, so my brutto cost for employer would be around 4000$. Of that 3000$ I would need to pay 36% in taxes (depending on where i live), leaving me 1920$ in my pocket on the end of each month. When I go out to buy a tire for my car, I'll pay 25% VAT on that.

Company that sold me the tire owns goverment that 25% VAT or it can quit scores with VAT it payed to it's suppliers. They have to pay their employes and bills. What is left is profit and is taxed 30%. That's about it. There are intricate tax technicalities but you get the picture.

So in the way, effective taxation is high depending on how you count.

Cam, welcome to the discussion. I agree that it looks a little strange to maintain the top corporate rate at 40% while the income tax rate goes to 10% for 25% of the filers and zero for the other 96 million filers.

The corporate tax has long been a "double" tax: you are taxed first at the entity level, and then, to the extent the corporation generates excess profits and issues a dividend, again at the shareholder level. You bought, with your after-tax dollars, a share of stock in a corporation entitling you to share in the profits of the enterprise, but first you pay the government 40%, and then you pay the government again at the dividend tax rate.

If you eliminate or significantly reduce personal income tax rates on dividends, I would argue that the double taxation either goes away, or is largely alleviated. So the shareholder doesn't feel so aggreived about being soaked on his dividend or any capital gains that result.

The flat tax has implications for corporate governance, also. In the current environment most corporations don't issue dividends, they plow back excess profits as retained earnings and reinvest in the business. You're an investment banker, right? So you have probably run the model that shows the impact on equity value of distributing the dividend vs. retaining it and committing to a positve net present value project. With a tax on dividends, the corporation makes the decision FOR YOU-- the earnings yield on an internal project doesn't have to be as high for you to realize the equivalent return from appreciation of equity value as you would have gotten if the corporation dividended out the excess cash. Does that make sense? (I'm sincerely not sure it does?)

Anyway, consider the effect of a zero tax on dividends in empowering the shareholder to be more active in reviewing the actions of the board, and the activities of management. . . Joe shareholder says, if you can't find a way to increase EPS, then give me my damn money back and I'll go find somebody who will! Management wakes up and realizes that they had better come up with some positive NPV projects or they are going to find the well drying up real fast.

The common shareholder might just start paying attention if he thought he would be getting a check every three months. Might even vote his shares differently, and a shareholder who pays attention is a damn good thing to have in the post-Enron world.

Goran, thanks for that information. With our April 15th tax payment deadline rapidly approaching it eases the pain somewhat to consider the tax climate in the rest of the world. And given what I know you pay for gasoline and the price of a car, a Swedish Porsche owner MUST be a true enthusiast! :)

Yeah...a Swedish owner of rattly 930 is also know as masochist :)

Price of fuel around here is 5 bucks a gallon.

The corporate tax has long been a "double" tax

I was not aware you guys still had the double tax - we have imputation credits (called franking credits in Australia), with any dividends paid being able to carry tax credits up to the rate of the corporate tax (to the extent it was paid by the corporate). In essence, the dividend is tax free (to a level of 33%) to the investor. Probably explains why our market has a gross dividend yield of about 7%.

If you eliminate or significantly reduce personal income tax rates on dividends, I would argue that the double taxation either goes away, or is largely alleviated.

Very true.

The flat tax has implications for corporate governance, also. In the current environment most corporations don't issue dividends, they plow back excess profits as retained earnings and reinvest in the business.

Presumably as (a) there is a double-tax penalty to distributing profits, and (b) lets them build a bigger empire ;)

You're an investment banker, right?

Sorta. Yeah. Just me and another guy now (no more big bank) so I work less. I'm investment banking-lite. I guess I'm writing a prospectus right now (when not reading this, haha), so I must be a big important investment banker ;) Dressed in jeans and a t-shirt.

So you have probably run the model that shows the impact on equity value of distributing the dividend vs. retaining it and committing to a positve net present value project. With a tax on dividends, the corporation makes the decision FOR YOU-- the earnings yield on an internal project doesn't have to be as high

I am pretty sure this is right. Easiest way is to imagine if they instead paid the dividend and asked you to reinvest the funds in the same project (after being clipped for tax). You are obviously worse off.

Anyway, consider the effect of a zero tax on dividends in empowering the shareholder to be more active in reviewing the actions of the board, and the activities of management. . . Joe shareholder says, if you can't find a way to increase EPS, then give me my damn money back and I'll go find somebody who will! Management wakes up and realizes that they had better come up with some positive NPV projects or they are going to find the well drying up real fast.

Interesting line of thought. It could raise the bar for the company WRT to the positive NPV projects. I wonder what it does to expected returns (eg CAPM).

I think it is important to make the distinction as to who actually owns the assets - and in particular who is the marginal investor (the one in the company's mind when it makes its decisions). I see a few possibilities:

- 0% tax payers (unlikely - they don't have the money to be, in aggregate, a material owner of the stock market)
- 10% tax payers - possibly.
- mutual funds etc ----> I don't know what tax they pay? Corporate tax? Tax related to their investors?

This could make mutual funds tax inefficient if they pay the corporate rate. There could be a huge shift in the investment base.

Another thought

I guess I am also thinking about small companies etc too. Is there a strange incentive to avoid company structures to avoid tax? Does an owner/employee just pay themselves a dirty great big wages cheque and reintroduce as capital (if they want to grow the business rather than withdraw cash), rather than have positive profits and retained earnings in the company?

I guess I just get the feeling there would be some unforseen effect causing a dramatic decrease in the amount collected as corporate tax. We all know we'd start looking for loopholes if there was such a huge gap...

Today in the US, corporations pay only about 7.4% of the total federal income taxes collected, as compared with about 1/3rd forty years ago.

As a small business person I can attest to Cam's thought that many/most small corporations pay little or no taxes -- especially when one is on cash-basis accounting, it is simple to manipulate income and (deductible) expenses so as to create no taxable profits at year-end.

However, any excess salary or bonuses paid are taxed as personal income to the payees and the other mechanisms for legally "disposing" of operating profits are long term investment oriented such as Defined-Benefit plans and other tax-deferred pension vehicles.

Personally I would love to see a simplified tax structure based on a flat income tax and some kind of non-regressive consumption tax that is not severe enough to penalize healthy levels of consumer spending.

Above all, I would like to see a clear and honest accounting of where my tax dollars go!!! I paid a huge amount in personal and business/payroll taxes last year and really have no solid grasp of where it ends up, in light of our massively over bloated budgets.

Cam, excellent point about the profile of the equity owner. Something like 75% of all equities in the US are owned not by individuals but by institutions. Most have their own buyside analysts and are light years more sophisticated than the retail investor. But our integrated disclosure system protects everyone despite the compliance costs involved.

You have convinced me on the point that a huge disparity between corporate and personal taxes wouldn't work. Nothing like the tax code to change individual behavior.

Does an owner/employee just pay themselves a dirty great big wages cheque and reintroduce as capital (if they want to grow the business rather than withdraw cash), rather than have positive profits and retained earnings in the company?

There's the rub. The corporation owner pays himself a salary of $49,999, expenses it at the corporate level so he pays no tax, then reintroduces the same dollars in the form of additional equity investment in the company. It only works if he has the control necessary to do it, however. We also have flow-through entities here- the partnership, which "flows through" the profits of the enterprise to be taxed at the marginal rates of the individual members of the partnership-- and our LLP and LLC, and "Subchapter S" corporation qualify for the same tax treatment. We would either have to eliminate those entities from the code, or run the risk that our corporate tax collection would be a lot lower than expected due to the loophole.

Hmm, this flat tax stuff requires quite an overhaul of the way we do things. What started out as a political bait has become a global finance discussion!

Hmm, I'm looking out the window at the Empire State building from 42 floors up wearing a necktie that's too tight, you are writing a prospectus wearing a t-shirt! What does it take to get a Visa to work THERE? :)

Haha - I'm reading this in shorts and cycling shoes. I'll be dressing for the job tomorrow though.

I just want a simple tax system - I don't want excess admin costs for individuals, small businesses, or for the tax dept in respect of those classes of taxpayer.

It is obviously easier for us to try this stuff with only 4 million people and no federal vs state tax distinction.

The problem is that the poor don't pay their "fair" share. If you start with the assumption that the goods and services that you get from the government should be proportionate to the taxes that you pay, then consider a simple example of a family with two kids in public school. In California, the state, on average, pays $7,000/year/kid. So with two kids your fair share of taxes, just to educate your own kids is $14,000, let alone, police, fire, public services, roads, etc. To pay $14,000 income, sales, and property taxes, you need to be earning in the $80,000 range. The average family income in California is, believe it or not, in the $40,000 range. So most people arn't paying anywhere close to their fair share. As previous commenters had indicated, the "rich" are picking up the slack. That's why when liberals say "No tax cuts for the rich" I wonder if they've given any thought to who actually pays most of the taxes.

If you start with the assumption that the goods and services that you get from the government should be proportionate to the taxes that you pay

Why on earth would you start with that assumption? The assumption should be "you get the goods and services from the government in proportion to your need".

I have no problem with the concept of subsidizing those needier than I (although that is hard to swallow at the end of the tougher months ;) ). I do however have a problem sponsoring entitlements to a large number of people whom in my view, should not be "entitled" to government handouts, and also seeing $billions go down the tubes on porkbarrel spending and bureaucratic waste on the part of our beloved government.

We need to stick to the basics: education, financial security, and national defense. Roads and public facilities should be funded via use taxes: you use, you pay. You don't pay, you don't use. Period.

Basically, I feel like I am being robbed every payday, and I'm not complaining about my gross salary...

Yes, though the reality, here is; "you get the goods and services, from the government, as a small percentage of what's left over, after the fat bureaucrats have had their fill"

That was straight out of the Communist Manifesto. They don't even say that in Lenin Square anymore.

Hey, rather than make assertions here and get challenged for proof, I'll just ask a question about which I am curious. This has come up recently in some of my personal conversations. Here is the question: Of the largest American corporations (let's say the 100 largest corporations using gross business volume as the measure since profits can so easily be manipulated), how much tax did they pay last year? Anybody know where to get this information easily?

Your joking I hope... Is New Zealand a big socialist country or is it just you?? If I put myself through undergraduate, and graduate school, started my own business and work 60-70 hours per week, why should I be subsidizing people who make bad choices in their life (and believe me, I've made a few bad choices in my own life, and I had to pay for them). There's people who get rent subsidies here in Los Angeles to the tune of $1,800 (US)/month. This artifically raises the market clearing price of housing. BTW, to be able to pay $1,800/month without subsidies, you need to earn about 2.5 to 3 times that monthly, thats equivalent to earning $55,000 to about $65,000/year. Los Angeles is an expensive place to live, and if you don't have the skills and/or education to live here, you should move to somewhere else (New Zealand comes to mind), and not expect me to subsidize your existance.

Why would that matter? Corporations don't really pay taxes per se, They just pass the cost on by raising the price of whatever they produce and the buyer actually pays or in rare circumstances, decrease the dividend so the shareholders don't get as much. That is why all this silliness about increasing taxes on corporations is just that....silliness. The only time those rates mean anything is when thay drive the price of doing so high that a company can't compete and calls it quits or moves overseas.

Not joking, New Zealand is approximately the same as the US (maybe a touch to the left in respect of welfare and labour rules etc, but a significantly freer economy - no tariffs, minimal govt intervention etc).

And, despite the fact that I appear to be a Communist (what's the full phrase - from each according to his abilities, to each according to his needs), I don't even remotely believe that.

You're confusing the application of the welfare and tax system with the principle underlying it. The principle is to redistribute some wealth in a fair manner - usually to maintain some sort of minimum standard. The outcome is often overly beneficial to some people, but equally some people avoid tax too.

Basically, you object to being taxed on good luck, good choices and hard work, resulting in wealth. I don't know that I can put this in any way that is palatable to you, but put simply, I believe you (and I) have an obligation to those who make poorer choices, have bad luck and don't work as hard. HOWEVER, in respect of poor choices I want a welfare and education system which encourages better choices, and in respect of hard work I don't want to see people slacking off being rewarded.

But I stand by my original comment - the tax dollars should be directed to those who need it. We could embark on a huge debate about what "need" means, but I'd be surprised if we actually disagree.

Alternatively, you really do believe that the more tax you pay, the more you should get from the government, and that you want to have a massive class division and a society predicated on haves and have nots.

Let's not let this degenerate into the whole socialism cross subsidy discussion. Cross subsidy exists, it always will, until you can attach some kind of a meter to people to determine their exact contribution to GDP and consumption of public services and size the tax bill accordingly.

Having said that, what Super failed to mention when he started this discussion with that acrimonious piece about the virtuous middle class was that the current progressive tax code is founded on the principle of "fairness." "Fairness," put another way, means, "to each according to his needs, from each according to his abilities: which, you guessed it, came from Ol' Karl Marx, who was NOT, contrary to what they taught you in school, one of the Marx brothers. Marx ripped it off from Saint-Simon who ripped it off from The Bible but there you go.

Where was I? Oh yes, the fundamental principle of the tax code is to conscript wealth from high-income people (let's not call them "rich" just yet) at a higher rate than lower income people because they "can afford it." Leave aside for now the two significant questions of 1) WHAT tax revenues are being spent on and; 2) the relative efficiency of government bureaucracies in putting those dollars to work.

Let's just consider what is in the mind of somebody who believes you can afford it. Here's what I think the underlying assumptions are:

1) Income generation exists only to support individual consumption, or consumption within one's immediate family, for basic human requirements like shelter, energy, transport and food.

2) Any income above the subsistence level should be redistributed until everyone is at the subsistence level.

Do you see what's missing from those assumptions? Saying that somebody with income above a particular level "can afford" progressively higher payments FOR THE SAME PACKAGE OF ENTITLEMENTS presumes they don't have anything better to spend their money on.

This is a misguided assumption. Ask yourself, "Self, what is the process of capital formation in the United States as opposed to Europe and Japan?"

Give yourself time to answer. My answer was, that we have a tradition going back a couple hundred years of direct equity investment in business ventures. High income people typically reinvest surplus cash in a greedy attempt to earn even more money! This results in all manner of nasty things, like the capitalization of new business ventures, entrepreneurship, "angel funding," people starting small businesses on their own, with the surplus that they have after the children are fed and the firewood is stacked by the back door!

In many of the socialist countries, nobody has any idea that they are supposed to form new businesses, and even if they did, their tax rates are so prohibitively high in a misguided attempt to equalize conditions that there is no money left over to invest in ANYTHING! If you are an entrepreneur in Germany, do you have a number of venture capital firms? NO, you have a German commercial bank as your principal backer, furnishing you with DEBT CAPITAL that is SECURED by whatever personal assets you've been able to squirrel away over the years, and they put three people on your board of directors to oversee their investment! The essence of new business growth is the ability to raise equity capital and put it AT RISK in the hope that the venture will be succesful. 98% of the time it's not, you lose your money! And that 2% of the businesses that are successful are the drivers of the greatest economy in the history of humankind, that of the UNITED STATES OF AMERICA.

Simply put, the fundamental principle of tax fairness assumes that if you have higher income, you will just spend it on candy or cheap foreign-made consumer electronics purchased at your local big-box superstore. It is utterly ignorant of the fact that wealth creation is largely the product of individual Americans putting their surplus capital at risk in an attempt to better themselves.

What about the concept of universal suffrage for men and women (post 1920, Amdt XIX), you only get ONE vote, but depending on your income level you may pay several times the taxes of someone who receives the same package of entitlement as you do. Do you consume, as a high-income taxpayer, so much more civic resources? Do the fire trucks come to your house but not stop in the poor neighborhood? Do the police protect only your property rights but ignore those of the middle class? Do you avail yourself of more air traffic control services because you fly around in a Gulfstream V, or do you beat the roads up more with your Porsche 911 than a low-income person in a beat-up Chevy Nova?

I would argue that you don't consume any more services of government, and in fact you consume less. But what really bakes my noodle is whether your higher tax burden is a reflection of the fact that all of our system of private property rights, law enforcment, civic services, national defense, etc., is intended to protect your LIFE, LIBERTY and PROPERTY. If you are a high-income person, you have more of one. But of the others?

Yeah, but John, the tax system still leaves plenty of private capital for direct investment in business. Income isn't being leveled like in communism, and rightly so.

Besides, if an enormous amount of private capital became available to be invested in private enterprise (as you suggest), I suspect it would end up being invested inefficiently (ie in unproductive assets/ideas). Ultimately there has to be some sort of equilibrium (I haven't thought about it too hard, but I suspect it relates to the level of natural resources - one of the many reasons the US is as wealthy as it is today), and if significant wealth is to be created in the circumstances you suggest, I suspect it is at the expense of "poorer" people - both in the US and in other countries.

"Alternatively, you really do believe that the more tax you pay, the more you should get from the government, and that you want to have a massive class division and a society predicated on haves and have nots."

Actually, I don't believe that since I pay more taxes, that I should get more from the Government. In looking at social programs, I think its important to recognize that a lot of these programs provide people with disincentives to improve their lot in life. Many people stay on unemployment until they run out of benefits, welfare tends to take away the incentive to look for a job. Take the example of the American Indians on reservations. Until they started allowing casinos (and afterwards) the alcoholism and unemployment rates were incredibly high, Why? because they got enough government money to get by... granted not in great luxury, but enough that they didn't have to go find a job for fear of losing their house for not paying the mortgage.

There was a story in the Los Angeles times recently about three illegals from Mexico, their three wives and their 33 children who lived in one Los Angeles house. The house burned down and they got to the top of the waiting list for subsidized housing, three houses at $1,800 per house subsidy/month. They lived in those houses for 20 years and put all 33 kids through the L.A. schools. At $7,000/kid for school times 12 years of school per kid times 33 kids, you get $2.77 million, add in $1,800 x 3 houses times 20 years and throw in another $1.08 million they got in "redistributed wealth". The three fathers worked at car washes and didn't make enough to pay taxes. So three illegal families sucked almost $4 million out of the system without paying any taxes. How many "Rich" taxpayers does it take to support them? BTW, the story in the Times wasn't putting a tax slant on the family, it was that after living here for twenty years they moved to another state because California was too expensive.

I think we need to look at these "Entitlement" programs with a jaundice eye before the people, and the legislatures, start voting on more of them.

Boy is that ever an oxymoron. Taking someone's hard earned money and giving it to another who has not labored a bit for it can hardly be called fair. Theft is more appropriate.

In looking at social programs, I think its important to recognize that a lot of these programs provide people with disincentives to improve their lot in life.

So you have a problem with the welfare system, but attack the taxes which pay for it as being unfair.

The $2.8 million on schooling isn't relevant either - those 33 children are 33 potential future taxpayers.

Boy is that ever an oxymoron. Taking someone's hard earned money and giving it to another who has not labored a bit for it can hardly be called fair. Theft is more appropriate.

You're equating income with hard work - they don't necessarily follow. I earn 3-4 times what a friend of mine who is a social worker earns. He works much harder than I do and it is in a pretty much thankless job. He probably pays 1/6 the tax I do. The inadequate salary he does get comes from my tax, and I am very happy with that.

No I am not, I am making the assumption that one who earns a salary, by definition, must work harder for that money he earns than someone who did not work for it at all.
What you are talking about is the relative value of work, not wealth redistribution. It is certainly no secret that some professions pay less than others...one must choose accordingly or be disappointed.

You make it sounds like paradise here! To be fair, there is probably not a materially different level of crime here overall (except shootings, which we don't really have) but the US has "hot spots".

I think death taxes are stupid too.

Capital gains tax - I'm neutral on that, as long as there is a commensurate deduction for any borrowing against it, and as long as capital tax losses are deductable and accruable. I also think it is far to hard (expensive) for a tax dept to administer for personal tax payers, soI guess I am actually against it.

Fint - I don't like paying for people who aren't working any more than you do, I just prefer it to seeing anyone hungry or begging.

As far as I am aware, there is no death or estate tax, full stop.

I've gone and got a huge warm and fuzzy feeling after you described NZ like that. I guess I am "used to it" which I better get back overseas for a while to get unused to it so I can appreciate it more :D :D.

and had the locals refuse to let me pay for a single Speight or Steiney.

I'm guessing they paid for your Steinlager then bought you Speights to stop you drinking any more Steinlager ;)

The objection to the welfare system, or to national defense, or to national parks, for that matter, is peripheral to the discussion of tax fairness. A lot of people oppose ANY form of taxation when the proceeds are used for entitlement programs. A lot of other people oppose spending on national defense, but in my experience they rarely object to "taxing the rich."

Cam, the fact that we still have money left over after taxes to engage in equity investment doesn't address my point, which is that in a society founded upon the principle of POLITICAL equality under the law, it is fundamentally inconsistent to impose differing tax burdens based on income. If we get drafted to fight in Iraq, the USA doesn't expect me to serve twice as long. I don't get two votes when someone with lower income gets one. The fact that our government CAN impose a higher tax burden doesn't necessarily mean that it SHOULD, I guess.

I don't completely follow your point about inefficiency of private investment if dollars were shifted from taxes to other forms of spending. In fact, with our lower tax rates on capital gains and dividends, the system is encouraging investment in equities. I'm not sure if your point is that retail investors lack the sophistication to differentiate between a good investment and a bad one, or that our consumption of scarce resources is an equilibrium between the availability of capital for investment and taxes.

Hey, taxation can be thought of as a form of consumption spending that's not strictly market driven-- a "command" part of the economy vs. a "demand" part of the economy like the private sector. The decision to spend tax dollars on missile parts or cheese isn't driven by market forces, it's driven by career bureaucrats doing their best to assess forward demand for those things, which by its nature will result in spending on the wrong stuff, allocation of resources where they don't belong, waste and a whole lot of noise. The difference with respect to the private sector is that the decision to TERMINATE an unprofitable activity comes a hell of a lot quicker, e.g., a pharmaceutical company, attempting to develop a blockbuster drug, will terminate their clinical trial and stop wasting money as soon as they fail the primary endpoint. Contrast that with the willingness of government to carry on even when it appears futile. . .

You guys that despise welfare, do you despise progressive taxation because of the disincentive it represents, or would you oppose a flat tax if the proceeds went to welfare, too?

If there was flat tax, I think that there would need to be excessive rebates back to the bottom 75% (or whatever) - this could, IMO, replicate a progressive structure. I totally see your point, and I totally agree about the "career bureaucrats" comment too- the wastage in the system is self-fueling...

What I mean about investment is that I believe there are a finite number of good ideas/investments, and if there is more capital available then either:

(a) expected returns go down (ie you pay more to invest in the same ideas/investments), or:
(b) more crap investments get invested in (with crap returns).

Given that ideas etc can be in primary, secondary or service industry (I think that's how it works!), I just can't see how the service industry can be unbounded (in size and scope) - it has to be related to primary and secondary industry, which are related to raw resources.

Hence, I guess I am hypothesizing that there is only so much capital that the world actually needs.

Did I make more sense that time?