US Elections 2020

[Stavros]

Just to be clear

You may find this article of interest

https://www.theatlantic.com/magazine...e-city/513857/

[filghy2]

You may find this article of interest

https://www.theatlantic.com/magazine...e-city/513857/

Thanks, it's an interesting issue. The US political system gives significantly more weight to rural voters, so if these trends continue minority rule could become the norm rather than the exception. That's going to raise more issues for social cohesion - how long will the majority continue to accept a system in which that they mostly don't get their way?

[blackchubby38]

Stavros:

What do you think is a fair rate for people to be taxed at? Here is what we pay in taxes here in New York:

http://www.communitytax.com/state-taxes/new-york-taxes/

[blackchubby38]

While I still think Biden will win in November, there is also still a long way to go until then:

[MrFanti]

Stavros:

What do you think is a fair rate for people to be taxed at? Here is what we pay in taxes here in New York:

http://www.communitytax.com/state-taxes/new-york-taxes/

And right there is the problem.
Everyone says "fair share" but when you ask what are the EXACT numbers to be "fair", you get complete silence.....

[filghy2]

Stavros:

What do you think is a fair rate for people to be taxed at? Here is what we pay in taxes here in New York:

http://www.communitytax.com/state-taxes/new-york-taxes/

I think the US is about the only country that has state income and sales taxes. In most countries property tax is the only one levied at state or local level.

Overall the US is very low taxed by developed country standards - about the same as Turkey, which is a developing country.


The issue is about the right balance between private and public sectors. If you want to have developing country tax levels then you are going to have developing country public services. I think most of the benefits of lower taxes are illusory because Americans have to pay a lot more out of their own pockets for things like health and education as a well as putting up with poor infrastructure.

Current US tax levels are clearly unsustainable anyway. Even before the coronavirus the US government was borrowing massively to finance the last round of tax cuts. You also have an ageing population which is going to increase future budgetary pressures. At a minimum, your taxes probably need to rise to around the levels of countries like Australia, which would still be relatively low by international standards.

[Stavros]

Stavros:
What do you think is a fair rate for people to be taxed at? Here is what we pay in taxes here in New York:
/

You raise and important question, but as filghy2 points out the variations in tax that exist in the US and the UK make it a difficult one to answer specifically with regard to numbers, but I will have a go.

In your case, one would need to know what your income is to assess the fairness of tax in New York, but as you pay taxes on other things -I am thinking of your sales taxes, for example- the whole profile of your tax burden is difficult to assess. I make a moral case for taxation at the end.

As a means of comparison, for the UK as a whole, Income Tax is levied at the following levels of income-
-Up to £12,500 pa no tax is paid on income (£12,500=$16,353.87) [today's rates]
-£12,501-£50,000 tax is 20% (£50,000=$65,415.4-eight
-£50,001-£150,000 tax is 40% (£150,000-$196,245.74)
-over £150,000 tax is 45%.

If I were to be in charge, I would revise these rates, because I don't believe in income tax relief, and believe every citizen should pay tax, and though I think that senior citizens should not pay tax, I think we should pay a National Insurance contribution, ie for the NHS.

My rates would look like this
£5,000-£10,000 -3% tax
£10,001-£20,000- 5% tax
£20,001-£35,000- 10% tax
£35,001-£50,000- 25% tax
£50,001-£100,000- 45% tax
£100,001-£300,000- 60% tax
£300,001-£500,000-65%
£500,000+ 70%.
*The higher rate of tax is based on the likelihood that jobs that pay in excess of £100,000 usually include addtional sources of income, such as share options and other perks which can be very generous. It is possible for example, for someone on a salary of £150,000 to be awarded share options worth three times that amount, and that doees not include the alternative sources of income that can be found -many company directors sit on more than one Board, so that the annual tax requirement of say 65% of a salary can be found from the income of directorships and share sales.

Corporation Tax in the UK in general terms is 19%. I would differentiate between the size and value of commercial firms, and while 19% might be fair for small enterprises, for large corporations I would be thinking in terms of 80% to 95% for those with annual profits in excess of £1-5 billion.

National Insurance is based on weekly contributions, with no NI paid up to £183. Earning from £183-962 =NI rate of 12%, above £962 it is 2%, whereas I would charge those earning in excess of £962 a month 20% (retaining most of the exemptions, eg married or pregnant women, but with a nominal 3% charge on annual income from pensions).

In the UK we do not have sales taxes -these existed before the UK joined the European Economic Community in 1973, whereupon the UK replaced its Sales Tax with an EEC-wide Value Added Tax system. In theory, the UK leaving the EU can abolish VAT and revert to the Sales Tax that existed before, indeed, Michael Gove has suggested it can be replaced, whereas the consensus is that VAT is an estabished mode of taxation globally, and that the UK need not replace it -its existence helps assess the relative economic performance of States, offering a common denominator when, for example, the IMF makes calculations. VAT in the UK at 20% raises approx.£125 bn a year, amounting to 18% of tax receipts.

In addition to Income Tax, National Insurance, Corporation Tax and VAT, we pay Customs and Excise Duties on tobacco and alcohol, which is why Wine and Spirits in the UK often cost more than on the Continent, though obviously, if you don't smoke or drink you don't pay these taxes.

The UK also now has a Sugar Tax, or the Soft Drinks Industry Levy -24 pence on drinks with 8 grams of sugar per 100ml; 18 pence a litre if there are 5-8 grams per 100ml.

Local tax is called Council Tax, and varies from one jurisdiction from another. It covers local services from the collection of refuse, care and management of the streets, parks, etc, and services such as council run care homes, libraries, the fire service. There are no uniform figures to offer, Council Tax is assessed on the value of property and income; but for comparison, I pay approx £50 a month in Council Tax.

I am sure Mr Fanti, as a Libertarian, will want to chant that favourite slogan such ideologues have: All Taxation is Theft. I would argue, if I had the time, that Taxation has been one of the most profound inventions of humankind, it is up there with cooked food, the wheel and wellls, musical instruments and computing. It has played a crucial role in the develoment of the State as the primary means of collective identification, becoming intricately woven in with our ideas of freedom, private property, and political representation.

The justification of taxation has evolved over time along with the State, and has often been part of a rebellion against the State, most famously in this counry, the Peasan't Revolt of 1381. If this rebellion was provoked by the unreasonable demands of the State at the time -Richard II's war with France was the occasion for a sudden increase in tax demand- the the growth of first, the mercantile capitalist economy, and then the Industrial, eroded the superior powers of the Monarch and the landed Aristocracy, and forced revisions which depleted the extensive authority of the Crown and the ascendant power of the Merchants and landowners. Taxation thus became a means of prising away the power of the monarchy, being associated with the corruption of that power.

The rebellion against the Crown in British America is a salutory lesson in this regard, but the critical point is that even though George Washington wanted to disband the Continental Army, and in doing so, govern as President of a tax free United States, the practical need to retain a Federal Army meant a tax had to be raised to pay for it -in addition because the British continued to wage war against the US until 1812. Again, the first formal income tax levy in the UK was imposed in 1798 to pay for the war against Napoleon Bonaparte, just as the first Federal Income Taxes in the US were introduced in 1861 duing the Confederate War, the IRS being created in 1862.

What has been important in recent times, has been the way that taxation as a 'war fund' has morphed into the growth of the State, mostly to cope with/pay for the negative social consequences of industrial growth, and in particular the growth of cities. Once 19th century governments realised that to maintain 'social peace' they needed to ameliorate the worst examples of poverty, then the concept of State-as opposed to Religous-based- welfare -Germany being a pioneer of this- became common.
With the exception of those libertarians who are opposed to all forms of taxation and welfare, I think most people accept the State must intervene if markets fail to maintain employment, income and the means that sustain a decent life.

But what has been phenomenal in the last few decades is the use of taxes not to remedy market failure, but to replace markets, taxes being the means whereby the banking system was protected and repaired after 2008, with taxes now funding so much market activity made redundant by Covid 19 it may be the only means by which our economies are prevented from total collapse. The point being that what starts out as the Government borrowing eventually becomes taxation as this is the only secure means of repaying debt. The consumer always pays.

But if this gives taxation a moral as well as economic purpose, the moral argument is that in a liberal market economy, taxation is best justified when being raised to pay for those services markets either do not want to provide, or whose provision is inadequte, the most obvious being health and education.

Taxation also binds the citizen to state in both an individual and collective manner, giving the citizen rights of representation, and also rights to change the government and the system of taxation, and thus is embedded in the idea of the freedom of the individual. To argue that 'all taxation is theft' is to deny the right of the citizen to participate in the State at any level, handing power to an assumed market that is expected to function in place of the State without a single guarantee that the freedom of the indivdual will be protected, and without guaranteeing the protection of the rule of law. Taxes are part of the social contract that exchanges a degree of individual liberty in return for the protection of the State.

These issues aside, if the US is now to be the main employer of the American worker, the main source of revenue for unemployed Americans, retired Americans, and fund American childhood, then it is time to re-think your Tax structures and Tax Commitments.

It is time to offer American Citizens a New Deal, in which you create a Federal Health Service that guarantees free access to health care at the time of need for every citizen from the day they are born to the day they die; and free education for children to the age of 18.

I think it is an election-winning policy, but will Biden be courageous enough to propose it?

[broncofan]

As a means of comparison, for the UK as a whole, Income Tax is levied at the following levels of income-
-Up to £12,500 pa no tax is paid on income (£12,500=$16,353.87) [today's rates]
-£12,501-£50,000 tax is 20% (£50,000=$65,415.4-eight
-£50,001-£150,000 tax is 40% (£150,000-$196,245.74)
-over £150,000 tax is 45%.

Our highest bracket for marginal income tax rate is 37%, kicking in at about 518,000 dollars. People making between 80-160,000 pay about 24%. Of course, their total tax liability is lower because it's a marginal rate (graduated up) and there is also the issue of the standard deduction and personal exemptions that lower the amount of "taxable income". https://www.nerdwallet.com/blog/taxe...-tax-brackets/

One thing I can say looking at Britain's tax brackets is that I'm a bit surprised that the 40% tax starts at as low a level as it does given that the highest rate tops out at 45%. In tax policy they might say there isn't good "vertical equity". People who are not similarly situated should not have similar burdens. The difference in lifestyle and ability to pay taxes between someone making 50,000 pounds and someone making 150,000 pounds is night and day.

So I agree more with your proposed schedule. Even though you have people in a similar bracket at 45%, the rates go up more when someone's income goes from above average to wealthy. I might have people making between 50 and 100,000 pounds paying closer to 35% but then it would rise in a similar manner to the one you propose.

[Stavros]

Our highest bracket for marginal income tax rate is 37%, kicking in at about 518,000 dollars. People making between 80-160,000 pay about 24%. Of course, their total tax liability is lower because it's a marginal rate (graduated up) and there is also the issue of the standard deduction and personal exemptions that lower the amount of "taxable income". https://www.nerdwallet.com/blog/taxe...-tax-brackets/

One thing I can say looking at Britain's tax brackets is that I'm a bit surprised that the 40% tax starts at as low a level as it does given that the highest rate tops out at 45%. In tax policy they might say there isn't good "vertical equity". People who are not similarly situated should not have similar burdens. The difference in lifestyle and ability to pay taxes between someone making 50,000 pounds and someone making 150,000 pounds is night and day.

So I agree more with your proposed schedule. Even though you have people in a similar bracket at 45%, the rates go up more when someone's income goes from above average to wealthy. I might have people making between 50 and 100,000 pounds paying closer to 35% but then it would rise in a similar manner to the one you propose.

The key point in the UK is that our tax policy is based on a mxture of ideology and duplicity. It began with Margaret Thatcher's 1979 campaign in which she argued that by lowering tax you give wage-earners more of their money to spend as they wish, pretty much the same as what Reagan said, but in the the case of the US, something that has been part of the income/tax culture that owes its pedigree to the 1776 Revolution.

I think on balance, and setting aside low-wage earners, the key component of the American work culture compared to Europe, was based on higher than average wages, lower than average taxes, so that the spending power of the American worker was sufficient to meet the costs of housing, transport, health and education, and that it is the stagnation, in some cases the decline of this wage-earning and spending power -since the 1970s or Reagan?- that has been the source of so much anger and discontent. It seems to me the average American is poorer in 2020 than he or she was in 1960.

By contrast, in Europe we have a tax-and-spend culture that is remote from the American idea. If Biden were to propose a tax system of the kind supported for decades in Sweden, he would be dismissed as a Communist. In the UK, what Thatcher did was indeed to cut income tax, the duplicity lay in the increase in supplementary taxes, such as VAT, so that the overall tax burden did not decrease but was increased, particularly in the cases of smokers and drinkers.

The critical point, because it has affected Labour as well as the Conservative Party, is that there is some sort of Concete Block in the schedules of the mind which says Nothing over 50% income tax for the 'Middle Class'. It has become an ideological impasse, a black hole into which nobody intends to step. 50% income tax is as Taboo in tax policy for middle earners as Incest.

On one level I agree with it, on the basis that the service economy we have -pre-Covid, whatever survives after it- needs those spare pounds to thrive, but it is also the case that in the UK, funding for the NHS is taken from wages at the same time as income tax, so that unless people choose to add private health insurance policies to their outgoing expenses, and choose to send their children to privately run, expensive schools, basic costs on health and education are met by the State from taxation. It is in this sense that by paying for crucial services by tax, people are free of the burdens of anxiety falling ill can induce, and know there will always be a school for their children, though quality in all these things varies across the country.

The area which excites a lot of waffle is with high wage earners, who, as I said, often have additional sources of income to their salary. I doubt that taxing the rich helps solve the debt problem, but if I say it produces a more equitable society, then that is seen as some sort of Socialism, which, having in mind a moral economy rather than a market economy makes it a useless argument. For the point is that it has value as a Liberal as well as a Socialist idea, but in a different context: that the distribution of wealth should be more equitable in a capitalist market-based economy, because by sharing wealth more, more consumers are created, and if we are to have service-based rather than manufacturing-based economies, what was once spare cash, is the essential soure of spending that keeps a service economy motoring along, maintaining jobs as well as the perceived quality of life factor, such as pavement cafes in summer, restaurants, bars and clubs, opera and recitals, gigs and festivals.

I don't think people object to people earning millions a year if they have worked for it, because of their hard work, ambition, and creativity. Even in the case of that screeching idiot, Madonna, or for that matter, Barry Manilow (who can at least sing, a skill unknown to Madonna).

The difference between Bill Gates and his President, is that Bill Gates created something, and built a commercial firm with a useful and popular product, whereas the President sat in his father's office earning a handsome sum of money for doing basically nothing. According to his niece, when he showed up in the office, he spent most of the morning reading the newspaper and magazine clippings about himself the staff knew he liked to read. And when he did branch out on his own, he built tall buildings with money borrowed from other sources rather than his own, and when his casinos went bankrupt, he aways got someone else to pay the bills. This is the kind of capitalism that earns resentment and contempt rather than admiration; in the early 1970s when there was a controversy over a notorious asset-stripper in the UK, Capitalist Prime Minister Edward Heath referred to it as 'the unacceptable face of Capitalism'. The money that goes with it appears tainted, and dirty.

Any thoughts on Corporation Tax? It seems everyone now wants to compete in a race to zero tax, Eisenhower had it at 90%. In the case of Covid-sticken economies, I can see the logic of a tax holiday if it helps revive an ailing economy, but as joseph Stiglitz has pointed out before, when artful tax lawyers can reduce Corporation Tax to 10% whatever the headline rate, the tax needs to be reconsidered. By all means have a holiday, but then take a fair share. And with firms like Amazon making billions, what's wrong with 90%. Or maybe in Corporation Tax too, you can't get over 50% without invoking Satan and his wicked works.

But will taxes and the debt be part of the debate from now until November? If the President looks back over the last 4 years, any gains he thinks were made have been wiped out this year, so it doesn't look like a vote winner. As for the debt, which used to be the millstone around Obama's neck, I don't think anyone wants to talk about it, even as it is that other Black Hole toward which the US and the rest of the word is headed.

Crash, bang, wallop what a picture! What a photograph!
They are hiding, and they are scared.

[broncofan]

Very interesting post Stavros. I agree with it though I don't know a lot about corporate tax policy. I don't even know off the top of my head what our corporate tax rate is though I could quickly look it up. Corporate tax is probably easier to dodge than individual income tax as companies can move their headquarters and manufacturing plants to evade tax burdens that might have to be apportioned between different countries. While technically someone can change citizenship to avoid individual income taxes, it seems to me corporate tax is more likely to involve a race to the bottom dynamic in which raising rates won't always result in more tax revenue because companies deliberately choose situs based on tax liability.

While I can see some arguing that raising tax rates for the rich must be based on their ability to help pay for government services rather than to create equity, I don't think we necessarily need to choose. More equity doesn't have to be the direct result of their paying so much in taxes that they're no longer rich but instead be the result of creating the kinds of social programs and opportunities that create social and economic mobility. That may sound idealistic but equity is a good thing as is healthcare, educational opportunities and social safety net.

One question I have is at what point someone is rich. There are many grades along the way in my opinion. Whereas someone is unlikely to become rich with an income of between 50-100,000 pounds, someone making 150,000 to 200,000 pounds has those investment opportunities. I think sparing the middle class makes a lot of sense here where they do not have much of a buffer against catastrophic medical bills....maybe less crucial in Britain where you have NHS, but I can still see an important distinction between doing well and rich.