Will Capitalism Survive/Fix This?

[piezoe]

My understanding of UBI is that its in place of a welfare system, so saves money on the bureaucracy and inefficiency of taking money off people just to hand it back.

But this misses out the one huge issue no politician or liberal seems to address. Human nature.

Despite the narrative of all poor people are just hard done by and no fault of their own. A lot of them are in that place because of bad decisions they made and which they will make again. If you give everyone an extra $15k a year or whatever just for being part of a society you will get a large proportion of those people spending it on tv's and holidays and cars because they dont know how to handle money. Then when they get sick/face an emergency they will have spent all their money and the state will rescue them.. again. So you are paying 2 bailouts instead of one.

Here in the UK they love to talk about what percentage of people in the UK living in poverty.. it isnt poverty.. its "relative poverty". Huge difference. Anyway, a recent study showed a THIRD of these people living in "poverty" income's went on cigarettes! I'm sorry but if you arent willing to help yourself the state isnt going to be able to help you.

I wish I could by you a drink. And thank you. My idea is that one has to know someone personally on "permanent welfare" of one kind or another to really understand the issue in some depth. I think you must have either personal experience or have been very close to it at some point to understand this business as well as you do.

I do know personally 2nd generation "permanent welfare" people, and it has given me insight I could never have got indirectly.

 

[piezoe]

We are doing some things wrong. But it takes an observant person with the guts to call out "the Emperor has no clothes". But that's not all it takes. It takes the right messenger. We have an abundance of those with guts who call out the right message, but none are yet the right messenger. When the right messenger comes along, we well pay attention.

This is a favorite example of this phenomenon. I have used it many times before. How many times have you sat idling your engine, wasting gas and time, at a red light when there is not another vehicle in sight in all possible approaching directions? I know the answer. It is an interminable number of times. You may even have thought, this is incredibly stupid! Why am I wasting time and money when the obvious purpose of red lights is to determine who has the right-of-way at this intersection? I don't have the right-of-way, so I should stop and give way. But if there is no one coming, I should proceed instead of sitting here. You might even suggest to a friend that we should have two kinds of red lights: those that stay solid red indicating that it is not safe to proceed, and those that stay solid red for a few seconds and then start flashing indicating that if you don't see anyone near, you should proceed, after stopping to look of course. Your friend will say, " but people will be killed" if you start allowing people to make decisions like that. (Ignoring of course that we have been letting people decide whether it is OK to turn right on Red ever since the 1950s. And because of that we've only killed a handful of people ever since .)

The reason you friend reacts that way is because you are the wrong messenger. On the other hand if a handsome, articulate, charismatic movie star, a Ronald Reagan perhaps, or a self confident, rude, obnoxious, assertive, narcisisstic vacuum cleaner salesman that is nice to you brings you the same message, a Donald Trump perhaps, you accept it as reasonable. Why is that? I don't know.

In the one example case I give, I do know exactly the right messenger, a lobbyist representing the traffic light manufacturing industry to the DOT!

 

[Ed Breen]

Exactly, most people i know earning "good" salaries (by that i mean 80-150k) are only about 2 months of savings away from going into arrears on their mortgage/debt obligations. Yet according to governments people earning 50k+ are considered "rich" and have to start giving up almost half their salaries.

Id struggle to argue against people earning millions a year not paying more to be honest. My issue is more that people that are clearly working hard to afford a middleclass lifestyle are the ones getting clobbered most in taxes.

Personally i think consumption taxes are probably fairer than income taxes. People should be encouraged to save. You cant do that when half of its siphoned off before it reaches your pocket. But sales taxes on areas that are overheating could "possibly" be a way to raise revenues, increase savings and divert money into other areas.

But to be honest all taxes that are not on a pay as you use basis make me very uncomfortable.. and im not a millionaire. I just think the fairest system is one where you use it, you pay for it. You dont use it, its not on your wallet that the burden falls

The Federal income tax, that we are talking about here, is not as big a deal for people who you say are middle class, earning between $80,000 and $150,000.

A married couple earning $80,000 will likely pay a Federal income tax of $3,908 (assuming 1 child ($1,000 tax credit), 2 personal exemptions, they own a house with a mortgage interest payment 12,000 per year, property taxes of $10,000 per year, Social Security, Medicare and other Employee Taxes of $8,000 per year and a State Tax of $3,000 per year).

The same couple earning $150,000 will likely pay a Federal income tax of $10,768 (assuming 1 child ($0 tax credit), 2 personal exemptions, they own a house with a mortgage interest payment of $24,000 per year, property taxes of $15,000 per year, Social Security, Medicare and other Employee Taxes of $15,000 per year, a State Tax of $6,000 per year and IRA contributions of $6,000 per year).

You can see that the real issue of middle class taxation lies in Property Tax and Employment Taxes, not in the Federal Tax.

Do you think your defined "middle class" will pay less, as a percent of their gross income, if you instead levy a Fed consumption tax (what rate?)....say on gas, heat, electric, groceries, cloths, entertainment, cars, tires, insurance, furniture, services, etc.?

 

[Ed Breen]

In my above comment, I model Fed tax for $80,000 earning couple with child at $3,908 (4.9% average tax rate; 15% marginal rate; combined Fed and State tax rate of 8.6%), and

$150,000 earning couple with child at $10,768 (7.2% average rate; 25% marginal rate; combined Fed and State tax rate of 11.2%).

Consider now what a rich couple might pay, say someone who reports gross earnings of $1,200,000.

This will be a little more complicated. Assume they own half of a family business that they run (other family members own the rest (typical of this income group demographic); the business enterprise is a Sub-S form, they draw a salary of $200,000 per year and the profit of the company increases their income by $1,000,000 but they must leave 30% of the profit in the business to insure its continued operation and growth (they only distribute $700,000. They own a house, and have one child as the model above.

This couple will pay a Federal Tax of $327,131 (assuming 1 child ($0 Credit); 2 personal exemptions; mortgage interest of $50,000 per year; property taxes of $25,000 per year; Employee taxes of $15,000 per year (Same as couple that makes $150,000); State Tax of $110,000 per year, and IRA contributions of $35,000 per year).

That is an average tax on earnings of 27.3% and a marginal tax of 39.6%, however, they have to leave 30% of profit in the business ($300,000), so the average Fed tax rate on the money they actually get paid is higher; 36.0%. The actual combined Fed and State tax levy on the money they actually get paid is 53%.

So, with this in mind, do you want to revisit notions of charging the rich more and giving more Federal Tax breaks to the 'middle-class'?

Do you begin to see that if you raise the tax on the 'Rich' they will have to reinvest less in their business to maintain the same income for them selves and they already pay tax on more that 50% of what they receive.

Or they might say 'screw it' and sell to a private equity firm doing a roll up, or a public company looking to control its supply chain or drive scale...in either case most of the employees would lose their jobs, but they would buy tax free muni's with their sale proceeds and move to Naples, Fla, no state tax, no fed tax, play golf.

A business like this likely employees >100 people, who pay tax on what they earn, Labor cost that ends up becoming the Employees taxable income is likely $7,000,000 per year, yielding a tax to the Fed calculated at the rate of the $80,000 earning couple above of about $350,000; oddly about equal to the tax paid by the owner alone.

Is that fair? Is it good growth policy? Is it good for the middle class workers?

 

[tommo]

In my above comment, I model Fed tax for $80,000 earning couple with child at $3,908 (4.9% average tax rate; 15% marginal rate; combined Fed and State tax rate of 8.6%), and

$150,000 earning couple with child at $10,768 (7.2% average rate; 25% marginal rate; combined Fed and State tax rate of 11.2%).

Consider now what a rich couple might pay, say someone who reports gross earnings of $1,200,000.

This will be a little more complicated. Assume they own half of a family business that they run (other family members own the rest (typical of this income group demographic); the business enterprise is a Sub-S form, they draw a salary of $200,000 per year and the profit of the company increases their income by $1,000,000 but they must leave 30% of the profit in the business to insure its continued operation and growth (they only distribute $700,000. They own a house, and have one child as the model above.

This couple will pay a Federal Tax of $327,131 (assuming 1 child ($0 Credit); 2 personal exemptions; mortgage interest of $50,000 per year; property taxes of $25,000 per year; Employee taxes of $15,000 per year (Same as couple that makes $150,000); State Tax of $110,000 per year, and IRA contributions of $35,000 per year).

That is an average tax on earnings of 27.3% and a marginal tax of 39.6%, however, they have to leave 30% of profit in the business ($300,000), so the average Fed tax rate on the money they actually get paid is higher; 36.0%. The actual combined Fed and State tax levy on the money they actually get paid is 53%.

So, with this in mind, do you want to revisit notions of charging the rich more and giving more Federal Tax breaks to the 'middle-class'?

Do you begin to see that if you raise the tax on the 'Rich' they will have to reinvest less in their business to maintain the same income for them selves and they already pay tax on more that 50% of what they receive.

Or they might say 'screw it' and sell to a private equity firm doing a roll up, or a public company looking to control its supply chain or drive scale...in either case most of the employees would lose their jobs, but they would buy tax free muni's with their sale proceeds and move to Naples, Fla, no state tax, no fed tax, play golf.

A business like this likely employees >100 people, who pay tax on what they earn, Labor cost that ends up becoming the Employees taxable income is likely $7,000,000 per year, yielding a tax to the Fed calculated at the rate of the $80,000 earning couple above of about $350,000; oddly about equal to the tax paid by the owner alone.

Is that fair? Is it good growth policy? Is it good for the middle class workers?

I didn't advocate any tax rises. I hate tax. But is a neccesity. So my issue is addressing people that pay large amounts for services they don't use. I am advocating an approach where people pay for what they use. And a consumption tax would be more in line to that. Not saying it's ideal. Just a different approach.

Also, I'm from the uk. I wasn't referring to 'federal' taxes. I was referring to the total tax bill an individual pays. So in the UK we have income tax and national insurance deducted from pay before it even hits your bank account. In America you have federal tax, state tax, not sure at what stage your medical cover comes out. But same point.

Also I was talking about individuals earnings and tax bills. Not couples.

I would personally far rather have more income up front and then know certain products I spend money on with that money have various tax rates on it.

That way I can save and invest with a larger capital base

 

[java]

Consumption tax would be good for me. I'm consuming way less than I did when I had a family even though I was poor as a mouse. So less tax and now way more money. I suppose you could rebate young people with children, but where would the money come from since I'm not paying much consumption tax. I suppose you could impose a tax on people who don't consume enough. I'd like to be the bookie on that spread.

 

[Ed Breen]

I didn't advocate any tax rises. I hate tax. But is a neccesity. So my issue is addressing people that pay large amounts for services they don't use. I am advocating an approach where people pay for what they use. And a consumption tax would be more in line to that. Not saying it's ideal. Just a different approach.

Also, I'm from the uk. I wasn't referring to 'federal' taxes. I was referring to the total tax bill an individual pays. So in the UK we have income tax and national insurance deducted from pay before it even hits your bank account. In America you have federal tax, state tax, not sure at what stage your medical cover comes out. But same point.

Also I was talking about individuals earnings and tax bills. Not couples.

I would personally far rather have more income up front and then know certain products I spend money on with that money have various tax rates on it.

That way I can save and invest with a larger capital base

I thought the context of discussion before your comment was about U.S. domestic tax policy; if you wanted to talk about U.K. policy then maybe a new thread.

The principles don't change in either national case; I gave you the combined Fed and State numbers if you want to look that way. Medical is in the employment wage as a benefit and in the Employment Tax referred to.

The same general rates will apply to individuals at the different incomes and the inequities will be the same, so that distinction doesn't matter.

Don't know what you want to do about property tax, you have that in UK too, along with VAT and we have State Sales Tax that is not considered either, shouldn't matter to the substantive point of the comparisons that should be clear.

With regard to preferring that people pay for the services they receive, understand that people below the middle class in U.S. can't now pay for the services they receive and most in the middle can't either...they are just getting by.

You and Java seem to think you can fund the government by increasing the costs on the people who are already broke. I don't argue that the lower taxes on production would be positive in the aggregate and in time; but you understand that vulnerable and discrete people will be hurt.

This is the kind of consideration that you have to consider the practical translation of theory into policy into effect.

You won't be more wealthy, even if your tax is decreased, if in turn your house is burned down.

 

[java]

I think you can fund the government by taxing people with income. If you have income I'd hardly call you broke. I like income tax because you don't owe any if you have no income. You got a better idea?

 

[CyJackX]

I think you can fund the government by taxing people with income. If you have income I'd hardly call you broke. I like income tax because you don't owe any if you have no income. You got a better idea?

I don't think he's saying eliminate income tax, but increasing it on the strained won't help.
After all, income is only one variable in determining how broke someone is.
A person can have high income, but what are their expenses, debt, networth?

A consumption tax affects lower earners because they have to use a greater percentage of their income on expenses.

I'd personally favor a modified flat tax.

 

[java]

I don't think he's saying eliminate income tax, but increasing it on the strained won't help.
After all, income is only one variable in determining how broke someone is.
A person can have high income, but what are their expenses, debt, networth?

A consumption tax affects lower earners because they have to use a greater percentage of their income on expenses.

I'd personally favor a modified flat tax.

What is a modified flat tax?