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I'm not talking about income tax in general, or even Social Security/Medicare, but strictly federal taxes on wages. By my estimates, taxes on wages represent only 16% of the total tax receipts. Surely that could be accomodated by other means.
Income in general would still be taxed (corporate earnings, interest, dividends, capital gains, rents, etc.), and SS and Medicare would still be collected as they are today, but the Federal tax on wages (and only wages) would be abolished. Thoughts?
Your position suggests a beleif that tax revenues are essentially created out of thin air with no consequence to the citizenry. Any increase in business taxes in any form will be reflected in increased costs to consumers--hence the pass through effect.
Moving on to the other issue:
There are really only three means that people support themselves. They choose to be in business (self-employed), or choose to be work for others (an employee), or they depend on private (family) or state (entitlement) charity. The choice an individual makes is based on a variety of personal temperments and abilities. Those who chose self employment are willing to undertake the risk and variability of income for a chance at a better lifestyle. Those that are risk averse and prefer a defined income stream choose to be employees and accept a modest lifestyle commensurate with their ability and effort. The remainder, for whatever reason, accept what family or entitlements provide.
This choice is made without the coersion implied in slavery.
Corporations, by definition, are artificial persons created by the state and subject to the same duties and possessed of the same rights as natural persons. The purpose of corporate creation is loss limitation. There are many activities a prudent person would not undertake because of the risk attached--the corporate entity makes these possible by spreading the risk across a large number of investors. The corporation is functionally equivalent to self employment with risk limitation.
The taxes paid by the shareholders (investors) are essentially identical to those paid by the individual citizen. Those earnings are simply aggregated with their earned income in determining individual taxes. Other than semantics, there is little difference between earned versus investment income at this level. It would be patently inequitable to exempt earned income from taxes while taxing only investment income. Moreover, it would reflect poor public policy as most people tend to be tax averse and would be disincented to invest (necessary to fund retirement).
The other corporate taxes are simply cost of doing business and are factored into the pricing models as previously discussed.
The idea behind duties (taxes on imported goods) is to protect the higher prices charged by domestic producers with respect to foreign producers so again this is passed through to consumers.
Presently approximate 30% of the price of everything consumers pay for are taxes in one form or another.
These taxes are extremely inefficient with respect to the individual. By inefficient I mean that they have greater effect in reducing the purchasing power of the consumer's Dollar. The get less for more. This is because of the cumulative effect of compound taxation.
On the other hand, Individual taxes on earnings are very efficient as they have much less effect on purchasing power. While you have less to spend, you get to buy more with it.
Ultimately, the effect of individual taxation is to "buy down" the tax burden that negatively impacts the individual's purchasing power. The more the tax burden shifts from business to the individual, the individual ultimately benefits by their increase in purchasing power. Yes, they have less to spend, but can buy more of the lower priced goods reflected in elimination of pass thru taxes.
Your position simply deflects the blame of the absurdly high cost of government to the business sector and serves to conceal the true costs. I see this as highly deceptive. It encourages the populace to demand more and more of government to counter the continuing reduction of purchasing power allegedly due to corporate "gouging" and, frankly, is a race to the bottom.
Putting things in perspective, while there are notable exceptions, average businesses earn from five to ten percent of sales while embedded taxes represent approximately thirty percent (and rising).
Toadaly, while I realize you will never accept this argument, elmination of business taxes would ultimately benefit the individual directly due to the increased tax efficiency.
The "Fair Tax" value added tax seeks to solve the tax inefficency by a different approach. It eliminates the compounded tax effects of the present model to increase efficiency using a direct pass through approach. Ultimately, though, consumers pay 100% of the tax although it is built into the price they pay. It is a 'feel good" form of taxation, since the tax cost is shielded from the public. Here, the public "feels" like they get the benefit of government provided services for free. The problem with this is that distancing the public from the cost will likely promote greater demands from the government due to that disconnect. This, I think, is the biggest counter argument to the Fair Tax model, though I do think there is merit to it.
Toadaly-- your position is correct only when the corporation is failing and on the path to dissolution. Successful corporations treat all taxes as a cost of doing business and factor them into their pricing models. They have to as a practical matter. What management seeks to do is produce an adequate return, typically around 5-10% of sales, which will satisfy current investors and attract new investment money. This is the single most important component of a successful business. The role of competition in tax models is that corporations simply don't care what the tax cost is as long as their competitors are paying the same so that they are not being disadvantaged. I'm not sure what you are referring to as "lame brained diversification schemes" but it is important to understand that the execs have two primary roles: managing the upside when times are good, and reducing losses when times are bad. Most executive compensation captures this concept--its why logically CEOs get bonuses when the company is having hard times--because but for their contribution, the company would have lost even more. As a business owner, I can assure you that any moron can run a company when times are good, but it takes tremendous skill to run it when times are bad. Most people simply don't grasp that concept, but when Boards choose their officers, they look at both aspects. Corporate officers don't work for the company, they work for the Board who is chosen by the shareholders. They are valued not on the time they spend (as employees are compensated) but rather on their economic contribution to corporate profits. Where one person might produce a 5% profit, another might earn 6,7, or 8%. or cut losses by a similar amount. That's the basis they are paid. Its really that simple.
The argument that a wage tax is a form of slavery is simply nuts. Taxes represent a sharing of the common costs of society because some (not all) services are more efficient to provide by the government. This is the legitimate purpose. The other purpose of taxes is redistribution of wealth from one group to another. This one isn't so legit but its the way it is. But that's a different issue.
Another aspect to consider in you "diversification" argument is that when times are good, companies tend to make poorer decisions. This is because when business is booming, companies expand. If some of this expansion doesn't work out - companies are more likely to "carry" unprofitable operations by factoring their losses into the pricing model because it is felt that closing stores, layoffs etc send a negative message to the investors and the market in general. Then when times are slow, like now, management cleans up its house and eliminates those aspects of the company that don't contribute to the its profit model, hence it becomes more efficient and poised for the eventual upturn. It is true that those who lose their jobs are a bit annoyed by it, but should the public at large pay higher prices as the alternative? Obviously not. The public wants to get the most value for its spending dollar and inefficent operations don't provide that.
More than anything else, consumers drive business decisions. When the public chooses not to support American businesses, then American employees must lose their jobs--and possiblly their own.
People are funny creatures. They think it is perfectly OK to pay over $12 a gallon for bottled water to a business that is nearly all profit yet complain bitterly about paying $3.50 a gallon for gasoline from a company that makes only 8% or the price of food which is only a 5% industry. Or, even nuttier, pay $3 for a 12 ounce cup of starbucks coffee-a company that returns a 25% profit margin.
I never said it would collapse. My point is that it is not in the best interest of the individual to shift from direct personal income tax to exclusively corporate. As I stated before--compared with direct taxation, corporate taxation REDUCES the individuals purchasing power--(that is how much they can actually buy with their earned dollars)--more than the dollar taxed. It's clearly a race to the bottom and I think that is much more oppressive and perhaps more tantamount to slavery as you so eloquently put it. The harder the poor fellow works the less he has to show for it and the more dependent he becomes on corporate largesse to survive...
As for my lawn guy, he is in business for himself--legitimately, insured, bonded, tax id and all that. He is never my employee, I have no duty to withhold taxes on him. He sends me a bill each month and I send him a check. He is simply an individual that chose to work for himself. As a business owner, he is taxed on his net profits and those are not treated as wages and are subject to different rules. I offered him as an example that one is never forced to work for wages, it is simply an option of several. (By the way, he is awesome at his craft, I reccommend him unreservdedly) Another fellow I know makes his living buying and selling on ebay and the flea markets. Do you consider him in business or employed? If the latter, who exactly is he working for? How about the guy downtown that leases his taxi from the cab stand?
In my 35 year career, I've worked for other people because I chose to and I've had several businesses, sometimes with people working for me, sometimes not. Frankly, I never felt any more oppressed whether I was being taxed on my profits or my wages. Actually, it feels exactly the same to tell the truth. I don't care for it any more than the next guy. Pragmatically, it could be said that if you are lucky enough to have to pay taxes, you're living ok. Taxes, such as they are, are the cost of living in a civilized society.
In any event, I'm not sure that it would even be possible to distinguish between one form of taxation or another in a practical sense. I would imagine that if wages were exempt, coporations would simply pay everything out that way and thus there'd be no taxes to collect at all. This, by the way, is exactly how non-profit corporations work--all the profit gets paid out in salaries so there is nothing left to tax corporately.
By the way, I assume you know there is somewhat flaky tax protestor theory that argues essentially this thesis, however, that argument has never held any water. I sure wouldn't try it. I don't think you are trying to make that case, however...
Likewise, if you still consider taxation of wages as tanatamount to slavery, I doubt that anything I offer will pursuede you either.
I realize that you are attempting to make a more ideological argument but I remain convinced that macroeconomics provide a better, more rational answer here.
In any event, I've enjoyed the discussion--though I don't think the half a sentence devoted to making your case much to go on.
Actually, in about ten minutes with a spread sheet you can build a model both ways. When you eliminate all taxes except individual taxes, the person comes out quite a bit better. The math isn't complicated at all. What you'll find is that while he or she pays more in taxes, they actually can buy more with their after tax earnings.
The reason why the present system of tiered taxes is popular is that it allows the government to extract quite a bit more from individual taxpayers without triggering a tax revolt. It also aids in cutting down on noncompliance because it's easier to collect.
My principal objection is that it is a horribly regressive tax policy. Most economists who deal with tax policy hold that the present embedded tax load is about 30% of every Dollar spent. That includes food, medicine, housing, water, clothing -- everything -- without exception.
It is generally assumed that the poor spend 100% of their income for basic living expenses, the middle class about 80%, and the upper class less than 5%. These figures are readily available numerous places around the Internet.
Simply stated, the poor pay a 30% INDIRECT consumption tax, the middleclass about 24%, and the upper class less than 1%. And guess what? the poor and middleclass think this is a great plan!
If we abolished all business taxes and went to a plan where the indivduals paid all of it at a flat 20% or so, the poor gain 10% purchasing power, the middeclass about 4%, and the upperclass would probably wouldn't realize a gain. But I'm ok with that.
I'll flat out tell you, its a tough argument to sell but the figures are convincing when you lay them out. Another advantage, in my opinion, is that the people come to understand exactly what government costs.
Now then, going back to our model, if we did as you propose, eliminate wage taxes, the difference would get made up in increased business taxes that drive prices up that amount plus multiple layers of overhead and profit. Yep. Your're right, they have more to spend, trouble is, it won't buy as much. Since it's regressive by design, the poor get to buy even less, the middleclass slightly less, and the rich, well who cares about a fraction of a percent when you make six figures.
This is why I don't agree with your position because it isn't in the person's interest to do what you propose--even if the idea had some theoretical merit. As a matter of philosopy, I think its so abstract few would grasp it outside of the context of perhaps paying less Direct taxes.
I did research the slavery question a bit last evening. I found essentially two general approaches--one being a completely discredited tax avoidance theory and the other one I felt a bit of a stretch. Not sure exactly where you are coming from on this.
Back to you...
Toadaly,
I realize you're argument is ideological, nonetheless, I disagree that working for wages is sufficiently coercive to justify attaching the concept of slavery to it. As I discussed previously, we have choices--working for wages is simply one choice. The fellow that mows my yard does so because he prefers to work for himself, set his own hours, rate of pay etc. He is not my employee, but rather a self-employed individual. He is truly his own man--an equal among his peers.
While you state an ideologic proposition, you've not supported it that I can see. Make your case.
What I've sought to do is demonstrate, not necessarily to you, but to others who might wander across our discussion, is that the original proposition -- abolition of wage taxes -- would be to the disadvantage of the individual because wage taxes diminish the effect of the loss of purchasing power inherent in business taxation.
It is true that tax policy is extremely difficult for many people to get their brain wrapped around, indeed the experts seldom agree on what is the best public policy.
It seems to me that your proposition is akin to cutting off one's nose to spite one's face. What is gained by it?
Let's say you are correct in your proposition that wage taxes are akin to involuntary servitude (this sounds waaay like Karl Marx) and we enitirely shift the tax burden to the corporation. Ok? While the individual would presumably have more to spend, what (s)he could buy with it would be much less.
Finally, a fine point I wish to clarify--it is completely irrelevant that the investors/shareholders might receive a smaller return from taxation effects. The bottom line is that 100% of the revenue came from the end consumer. No matter how you craft it, the consumer is the source of the tax revenues and bears all of the brunt of it. Moreover, a dollar's worth of change in tax policy has significantly more than a dollar's worth of effect on the end user's purchasing power-- the only way to eliminate that effect is total elimination of all business taxes.
The argument FOR shifting tax burden onto business is solely because the government can get away with "really" soaking the citizenry with the added bonus that everyone else in the chain profits by it since the true tax cost is buried in the purchase price of the goods. Wow, this is more devious than anything the Bush administration has come up with--so terribly ironic since GWB has tried to cut business taxes to give us common folks a break. BTW, it was the dems who came up with scheme...
I agree with you with respect to the compliance issue, in fact, I mentioned that one of the principal reasons for the present system is that it is easier to control.
I suppose anyone can prove anything playing around with numbers. I ran across this pheomenon some years ago when I was working on a software project for a client. The model had a variety of tunable factors in it and we were looking to see what effect different business factors had on the pricing model. I ran into a problem when we played with the business tax factor and discovered the particularly regressive effect on purchasing power with a slight increase in tax burden. When we increased the number of iterations a little bit, purchasing power actually regressed to approaching zero (doesn't quite get there, after a certain point, it just kept adding decimal places for each iteration. This phenomenon did not occur with other variables. It has to do with compounded effects when the tax is passed from tier to tier. The more tiers, the greater the impact. If you build the model, you'll see what I mean.
Anyway to make a long story short, to get the final model to work, we had to add a variable factor in to compensate for the regressive behavior to stabilize the model.
If you think about it for a moment, doesn't it seem rather obvious that anything that increases the cost of doing business will ultimately drive up the price and that higher prices affect lower income families more than it does higher income ones? Who's screaming the loudest about the price of gas these day?
As I said earlier, my yard guy is a reputable businessman, not an underground type. I work with a quite a few independent small contractors that run legitimate businesses--as did I. I really don't understand your unwillingness to accept the notion of occupational choice as so many examples abound.
I think you underestimate the ability of taxpayers to arrange their affairs to minimalize their tax burden.
Essentially, what you propose is to create a new "loophole" and the effect of the loophole would be to drive profits down, wages up, and tax revenues become extinct. Meanwhile, since the cost of government is borne on the back of profits, the workers would demand more from government. This would continue in a downward spiral until the whole thing collapsed.
The actual Federal tax code is quite simple--and only one sentence in length. It says: "All income, other than that specifically excepted, is subject to tax." The rest of it is what they call the "voluntary compliance" component. Those are the "tax breaks" everyone takes advantage of to reduce their tax load I.e. deductions, exemptions, credits. Most of those you don't get unless you declare it--which is what "filing a return" is about, asserting the breaks you are entitled to but don't get unless you file. The purpose of these so called "tax breaks" is nothing but social policy--the only effective tool the fedral government has to compel the public to do its bidding.
One of the hardest concepts the average person has to grasp is that the only real tool the government has to regulate anything is by making it more expensive in some way. There are many ways to do that and each causes costs to rise and purchasing power to drop.
Back to you--
Yet another reason to eliminate all taxation other than on the individuals. Of course, it wouldn't be popular. The central thesis in any tax scheme is to make it seem like someone else is paying it.
Since he is self-employed, the tax is on his profits--that is gross receipts less cost of doing business. He doesn't have wages in the since that you describe it--it's more akin to the tax liability of a corporation. And I'm quite sure he pays taxes because we both have the same CPA doing them--in fact, the CPA is who hooked us up.
In fact, his profit may only be partially from services, he could be getting rents or selling objects too.
The original starting point of this was whether taxes on wages ought to be done away with. The point I was trying to make was that it isn't a good idea since it buys down the regressive characteristic of indirect taxation and increases purchasing power somewhat. You were trying to make a case, as I understand it, that mandatory "wage" taxes were somehow a form of slavery prohibited under the thirteenth amendment--though I don't really get the connection. However, other forms of taxation don't seem to have that problem. It seems to me that working for wages is simply a choice a person makes, why that particular choice should be exempt while every other choice isn't makes no sense to me. The work is essentially the same, its just the arrangement between the parties that differs.
*** "My point is that it is not in the best interest of the individual to shift from direct personal income tax to exclusively corporate."
I didn't propose shifting to exclusively corporate taxes. There's no way to make more clear what I've already stated a dozen times in this thread, so I'll resort to yelling.
I am referring EXCLUSIVELY to the ending of the WAGE tax. Nothing more. This is not a proposal to end all personal taxation, nor is it a proposal to end all forms of income tax. It addresses ONLY taxes on wages, and even then, does not address wage assurance programs such as SSI.
I doubt there's a wage earner in existence who would buy the argument that they are somehow better off by paying a wage tax, and I'm certain you could not really demonstrate such a thing in any rigorous fashion. For example, we could compare states that have a wage tax to states that do not, and see if the cost of living is lower in the states with a wage tax. I think you'll find you're argument fails that test miserably.
I would suggest that the 25% of noncompliant taxpayers are technically not 'wage" earners but, rather, are more in the character self-employed. In doing what they do, they are cheating themselves out of benefits and privileges they would entitiled to as wage earners. For example, under the table workers don't get half of their Soc Sec paid for them nor are entitled to unemployment benefits. The loss in the eventual reduced SS benefit will far exceed the small amount of money they get under the table. Most people don't realize that of their SS benefit, only 15% represents return of investment, the other 85% is earnings on their ss payments. Further, if they receive any entitlement money at all and get caught, they get to pay it all back with interest and penalties--that is, assuming they don't get a jail sentence as well.
It's a short sighted strategy--gain a small bit now, lose a great deal later.
Taxes fall into two broad categories: direct taxes such as those on wages and indirect, such as those assessed on corporations. Aggregate corporate taxes represent about 30% of the price of all the goods and services you consume so, really you pay them without realizing it. What is not generally understood is that corporations really don't pay taxes, what they do is collect taxes from consumers and forward them on to Washington. So, when people say tax corporations more, what they are really saying is tax ME more just don't tell me about it. The difference is that ALL taxes are paid by the "last" person in the chain (that's us), everyone who is a "middleman" is simply treating it as a cost of doing business and passing it along to the next guy. This system works because the average person simply has no concept of how business really works.
I made the case in the OP. It's absurd to think the country would collapse if tax receipts dropped 20%.
You say we have a choice to be a wage earner or not. That isn't really true for most people. In the example you gave of the guy mowing your yard, he is legally required to report his wages too. Sure, he probably doesn't, but he's legally required to. ...and, YOU'RE legally required to withold Social Security for him. I bet you're not doing that either. Business owners are not exempt from the wage tax.
If you don't consider taxation of wages tantamount to slavery, then it's not likely anything would convince you that it is.
If there's competition in the market, then corporate taxes do not just get passed onto consumers. Some of it certainly would be, but some of it also comes out of the pockets of stockholders, and some of it would come out of lame brained diversification schemes almost all CEOs partake in when they have money burning a hole in their pocket.
The idea of ending wage taxes is based on the argument that a wage tax is a form of slavery, since wage earners can not realistically choose not to work. That isn't true of income tax in general, but it is true of wage taxes. Macro-economic arguments don't address the underlying issue.
actually, I believe in taxes. I just DON"T believe that the wealthiest should have the major tax breaks. every country must have some way to get money. it is needed for highways, education, healthcare, and so on. some countries have a flat percentage taken out of your pay. lets say 10%. well, if your check is for $100 you pay$10. if your check is for $1000 you pay $100. that is a fair system, no loopholes for the wealthy. I think that we need a better system for the distribution of the taxes we pay. and it is not just the government getting theirs...it is ours. our government, our programs.
I'm quite certain I could build a spread sheet that demonstrates the exact opposite.
In regards to compliance, are you really arguing that it's easier to enforce compliance onto 100,000,000 individuals rather than perhaps 10,000,000 legal persons (individuals with unearned income + corporations)? Estimates by economists are that nearly 25% of individuals earn wages in the underground economy. These people are not being taxed at all at present. The example you gave earlier of the guy mowing your lawn comes to mind.
There are certain types of income are not subject to income tax at all. The single best way to avoid taxes is to earn as much tax-free income as possible. There are many ways to do this. Some of the most common are selling your home , saving money for your children's education, contributing to a health savings account, receiving health insurance and certain other employee benefits from your employer, spending some of your salary on out of pocket health costs, and giving some investments to your children.
*** "I think you underestimate the ability of taxpayers to arrange their affairs to minimalize their tax burden."
I don't underestimate that at all, I do it the extent I can too. But you're basing your objections around a minority of taxpayers who are mostly already falling through the cracks. Do you deny the government's own estimates that 25% of wager earners presently get paid under the table and are paying no taxes at all?
No system, including the current one, can possibly be perfect.
I never stated any consequences, so I don't know where you get the idea I've failed to consider them. I'm not attempting to make a macroeconomic argument. The argument is based on ideology, not economics.
Tax policy is always based on ideology. Economic arguments are used to justify the policies, not to determine them.
I'm nor arguing for whether it's wise or not to lie to the IRS, I'm arguing that the current system is already horribly flawed in it's goal of universal income taxation, and so, ending the wage tax - though it would certainly still have cheaters - should not be worse than what we already have in terms of compliance.
I think your underestimating the ability of the IRS to make determinations between what actually is wages and what is actually profit. New rules would be needed for the self employed. So what a few more rules added to a tax code that would clear the Amazon if you actually printed it out?
No, because that is how we get highways, standing armed forces, education and bunches of very neccessary things that help make this country great. I don't think that there should be major tax breaks for mega-companies, and better oversite would be a good thing
hell ya man, the feds took almost 3 grand from me, just in federal. Ill get mabey a little over 500 dollars of it back but thats it. all together I was taxed about 5 grand which is about 20% of my yealy income. Thats more than I can save in the bank.
*** "The argument that a wage tax is a form of slavery is simply nuts. "
No, your absurdly simplistic model that taxes just pass right through is nuts. I understand macro-economics, so please spare the sophomoric explanations.
I accept occupational choice, but don't you agree that your yard guy is still legally required to pay taxes on his wages? I don't understand the point you are trying to make.
Doesn't really matter what lipstick you put on that pig - the government WILL get theirs.
Read the details before you respond, please. They're there for a reason.
