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What is the ideal tax paradigm? (ignore OP, see post #33)
Organichu
poopspeesRegistered User regular
poopspeesRegistered User regular
It's been brought to my attention that one of the proposed tax pieces to help fund the administration's lofty spending goals revolves around more taxation on cigarettes. I thought that was pretty interesting and decided to start a discussion on it when I realized that I'm completely unaware of the typical person's opinion on them. I figure that some smokers will resent it, and some people who are against taxation on principle, but in general it seems like a pretty sweet deal. I did think of one con, which is that the government is essentially curbing the profits of an industry. Big tobacco (or in other examples, alcohol, sports cars, whatever the luxury in question may be) might be forced to lay off some workers (assuming increasing taxes like this deprecate profits enough to really hurt them), which could retard economic vitality.
But on the plus side, this seems like a pretty effective response to the two common complaints to progressive and its antithetical paradigm of taxation: this sort of tax doesn't appear to disproportionately target the wealthy or the destitute, thus avoiding corporate retreat to other tax havens, and thus avoiding a more overwhelming tax burden on society's lowest earners.
Thoughts? If this is a commonly agreed upon issue and everyone agrees with me or I'm just terribly wrong, feel free to yell at me I guess for a poor thread. :P
But on the plus side, this seems like a pretty effective response to the two common complaints to progressive and its antithetical paradigm of taxation: this sort of tax doesn't appear to disproportionately target the wealthy or the destitute, thus avoiding corporate retreat to other tax havens, and thus avoiding a more overwhelming tax burden on society's lowest earners.
Thoughts? If this is a commonly agreed upon issue and everyone agrees with me or I'm just terribly wrong, feel free to yell at me I guess for a poor thread. :P
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My opinion is that it makes sense. Nobody is ever going to get rid of smoking or decriminalise it, it's here to stay. You might as well get some gubmnt income off all the people slowly killing themselves who will be a drain on the system later.
One of the common arguments mounted against it in the UK is that the overwhelming majority of smokers are on low incomes.
There's a counterargument from the UK perspective that smokers place an additional burden on the healthcare system (which is paid for from taxes), however the extra tax levied is somewhat disproportionate to the additional costs.
Really it comes down to what you think a government is justified in doing to influence behaviour.
EDIT: Regarding your other examples, Vehicle Excise Duty is calculated on a scale based on emissions and fuel economy, so you pay (a lot) more tax in the UK to run a sports car, and there has been talk of building a tax system for alcohol that places a price floor on booze, the idea being that it shouldn't be possible to spend £3-4 and get a three litre bottle of 9% abv Cider. That's more of a binge drinking thing than a luxury thing, though.
I was thinking about that, too, so I actually Googled it for the accepted definition. It's given as, "any non essential good". I don't know if they mean essential for survival or for an acceptable humane level of existence, whatever, I'm not sure. I've just now started to read on it.
I haven't found a source that delineates it any further than that.
t Marlor: is there a distinguishing term that codifies 'lesser' luxuries from more opulent indulgences like fine jewelry and sports cars and such?
That's the point. If a government wants to revenue-raise using a particular item, there has to be a better justification than "you plebs don't really need it".
I seem to recall hearing taxes on things like booze and cigarettes called "sin taxes" .
Ah, right, I'm not crazy, here we go: http://en.wikipedia.org/wiki/Sin_tax
The wiki article makes the point about sin taxes promoting illegal activity, which is very true. The tobacco companies, for example, have been convicted of being involved in smuggling of cigarettes into Canada (where I'm sure we have much higher taxes) from the USA via some of the reserves on the Great Lakes.
I'm fine with any level of taxation as long as (a) smoking cessation treatment and physicians are affordable, and (b) the taxation doesn't create a black market on cigarettes.
the "no true scotch man" fallacy.
Which is, you know, good if you're taxing it to discourage consumption. But on the other hand if you've come to rely on the revenue you're getting from these goods, it puts you into a bit of a dilemma.
As an aside, I feel like I don't have any sympathy for people who are addicted cigarettes and can't really afford them, but I'll admit to a general lack of knowledge on what a severe addiction constitutes, so maybe I'm being more heartless than I think I am.
On the black screen
One of the buzzwords used when discussing cigarette policy is "de-normalization". In other words, the "demonization" of smokers is intentional policy in many cases. If cigarette use is seen as something vulgar and abnormal, then people will be less likely to take it up.
That's a real downside of the taxes. On the other hand, in countries with universal healthcare, smokers often do incur large healthcare expenses, so the taxes can be justified as a way to offset that.
Making sure that tax money actually goes to health care is a big deal, though. There are a lot of item taxes that are used by governments to fund all kinds of jackassery at the expense of the things they're supposed to be prioritising.
But isn't uniformly intelligent savings also a damper on economic well being for the country? I mean, if everyone saves and no one spends then businesses fail, yes?
What about the people making big screen TVs? And you would honestly be surprised how sensitive the wealthy are to tax hikes. It's not like they're close to perfectly inelastic.
On the black screen
To pick a more real life example, how about all the people who bought SUVs in the 90s? That did fuel business growth, but it was not sustainable growth. A luxury tax on SUVs might have curbed that.
Right, well. I'll see what I can do re; the empathy thing.
@pi-I don't think you're quite getting my point though. Assuming these markets don't have negative externalities, I think it is a very unsmart thing to scare away their customers. I know we're all fairly liberal here and we're all like hells yeah the rich can afford it, but the people making these luxury yachts and whatnot? Usually not very wealthy.
On the black screen
As far as tobacco producers, I'm sympathetic, but ultimately it would be better for everyone if they shifted to producing (and shipping, packaging, and marketing) a different product, so encouraging that through economic means seems quite justified.
That said, the goal should be to discourage use of the product, both by existing addicts and for first-time users, and not to raise revenue.
Too simplistic. It depends how wealth is measured, for one thing. A lot of on-paper rich folk have their money tied up in relatively inaccessible things like property and fancy investment accounts. Its not like they have money bins. This doesn't really apply to the super-rich, but it definitely does to the almost-rich; the professional classes. And the super-rich are at this point such a small percentage of the population that that extra $300 the government gets each time one of them buys a home cinema doesn't actually add up to much.
So, wealth inequality reduces how useful these taxes are as a revenue raiser.
Other thing is that there are other controls on profligate spending. Consumer electronics hike up your power bill, for instance, and this is going to become a much bigger issue in the future - power and water price hikes are already hitting hard here. Again, this is the sort of thing that impacts the almost-rich and the upper middle class but that the super-rich minority don't have to give a shit about.
Basically, you'd have to have a much more equitable distribution of wealth before luxury taxes even became practically useful, leaving aside their justifiability.
And I still think they're basically puritan bullshit.
So I've gathered from browsing this forum over time that most of ya'll support a progressive income tax that draws more heavily from the big earners than from the small earners (and in some cases totally forgiving payment from small earners). I've done some cursory investigation, but this is me totally going "I don't really understand what's happening with all of this". What makes this system best?
My biggest concern is: won't the higher tax burden on the wealthy drive them to make way for higher ground/countries with 'less progressive' tax burdens?
We just had this discussion a couple of weeks ago.
There are two common arguments:
1) The rich benefit more from having a stable government. An entrepreneur who runs a factory benefits from the public education that made his workers literate and the public roads on which his goods are shipped and the regulation of utilities to provide his factory water and power and the cops that keep people from breaking into his factory after hours and stealing his shit. I'm not quite as sympathetic to this argument because I don't believe it's always true and I think it requires some fairly fuzzy notions of "benefit."
2) The rich spend a smaller proportion of their income on basic needs. Consequently, they have more expendable income left to tax, so it is fairer to tax them proportionally more. (Whereas taxing the poor and middle class higher risks cutting into food and housing and transportation budgets.) In addition, the rich save more while the poor spend more, so by allowing the poor to spend more of their income on goods rather than taxation, you're letting them pump more dollars into the economy and therefore keep the economy more active. I'm more sympathetic to this argument because it is both moral and pragmatic
Well, yeah, that does happen. That's why credit card companies and banks like to establish their main headquarters in Delaware, because of the low business taxes. Reinsurance and financial services companies like to headquarter in Bermuda or the Cayman Islands for similar reasons. And then there are industry-specific tax incentives... California and New Jersey give tax breaks to biotech companies, which is why you have biotech centers around San Francisco and Princeton.
Only certain types of businesses can do that, though. You can't exactly pick up a car factory and move it to Bermuda, and you can't really grow bananas in Delaware. A lot of people value personal reasons for staying in a region higher than tax incentives. Or the cost of moving might simply be prohibitive.
This is more of an issue with business tax than income tax though.
the "no true scotch man" fallacy.
Thanks for the answer.
I suspect I didn't understand your question.
the "no true scotch man" fallacy.
Well, you answered it pretty well (you just also included some moral considerations I hadn't meant to imply).
The reason I posed the concern (that this progressive model might alienate the wealthy) is because if enough wealthy folks move their business out of the country, that provides less revenue for us to fund the government. Meaning, let's say our goal is to provide basic health care for every child. That's possible if all the rich allow us to tax them 45% on income, but if half of those folks move away (assuming they're the median trisection of high income earners) then we're essentially left with half the revenue to care for the health of the same number of destitute children, yeah?
That doesn't happen en masse, though.
Lets say you're working a job that makes $250,000/yr and your effective tax rate is 40%. That means you're getting taxed $100,000 per year.
Now let's say you're considering moving to a location where your effective tax rate is 30% instead. That means you'd be taxed $75,000 - saving $25,000 per year by moving.
Here's the problem - rarely will one's income and living expenses stay steady when one moves. The same job that makes $250,000/yr in San Francisco might only make $200,000/yr in Seattle or $150,000/yr in Nebraska. A lot of the time, simply moving to case a lower tax rate isn't worth it in the long run, because you'd be making less money anyway. (And that's assuming that you can find the same job... which you might not be able to.)
Half of those folks won't move away.
the "no true scotch man" fallacy.
Do you allege that the progressive taxation model you support (is this very similar to what's supported by the current administration?) would offer the greatest amount of revenue? I mean, we're undertaking some really awesome shocks of spending (universal health care, tuition credits for student volunteers, etc.), and it'd be nice to know that the proposed tax paradigm would generate the greatest amount of revenue to help realize those goals.
I'm pretty sure the moral considerations were implied by your question of what the 'best' system was. One of the reasons that people here tend to support progressive taxation is not because it enables the government to tax for large amounts (which is the instrumental sense of 'best' you appear to mean), but rather because it is the fairest way to finance the government (which is the ethical, categorical sense of 'best' with which we often guide policy).
Yes, I understand that it was a reasonable inference. I'm just saying that I didn't mean to imply that aspect of the question. It's not a big deal- any relevant information is valuable, I just hadn't expected responses along that line, probably because I didn't think very much on the issue before posing the question.