Marginal income tax rates for a single California resident (2007)
dbaron.org
dbaron.org
http://upload.wikimedia.org/wikipedia/commons/2/23/UK_tax_NI... (or if your browser won't do SVG, this is almost the same: http://www.reviewmylife.co.uk/data/2008/0901/percentage-of-i...)
It's funny that the UK - being European - has a reputation for high taxes and "socialism." There's a lot I don't like about the UK but the taxes are mostly fair (it's the rules for ancillary tax issues that are messed up). The taxes there even include emergency medical expenses.
Mr. Californian earning $50k would be at ~42% on the main post's graph. Mr. Brit earning £34k (roughly equivalent) would be ~26% on the UK graph (or even less if he were self employed!). Hmm.. perhaps sky high gas taxes and 17.5% VAT are a little more bearable for me now.. :-)
[Note: I ballsed up in that last paragraph. The CA chart was marginal, not total like the UK graph. The UK marginal rate at £34k would be 20% for income tax (http://www.hmrc.gov.uk/rates/it.htm), 11% for NICs. So 31% vs 42%. However, at £35k the marginal rate would be 40% + 11% NIC == 51%. At £40k, however, the marginal rate would be 40% + 1% NIC == 41%. Who said this was easy??]
How would we define fair here? Both of the above options seem somewhat fair: everyone contributes the same amount, or everyone contributes the same percentage of income. Or a third standard for fairness could be that the benefit you get from government programs is equal to what you pay in taxes.
I don't even know which of these I think is best (let alone a hope of ever changing anything). Perhaps the best way to cash out "fair" in this case would be to start with some assumptions about what taxes are supposed to do; eg solve coordination problems, support disadvantaged people, etc; and see what can be derived.
http://en.wikipedia.org/wiki/Flat_tax
You can count me into the people who support flat tax rates, if for no other reason to stop the pointless millions of hours of productive time wasted trying to rort the system. While people will always cheat, if all income is taxed at a flat rate, at the source, then the incentive to spend money on tax accountants falls.
http://en.wikipedia.org/wiki/X_tax http://www.princeton.edu/~ceps/workingpapers/93bradford.pdf
A flat tax is more fair than a progressive one. But it would be more fair with a head-tax aka. poll-tax. Everyone pays the same amount.
1. The 'example' earning of GBP 34k is just below the threshold at which the margin rate switches to 40% (double!)
2. The UK number exlcudes National Insurance payments, whereas the Cali one includes Social Security (the US Equivalent)
3. The UK one does not have Council Tax, but the US one does have State income tax. Whilst council tax is not income based, it does correlate with income, so this the two are more comparable than not.
[UPDATE - looks like my reply crossed in the ether with your update :) when will HN get etherpad commenting ? ;]
Whilst council tax is not income based, it does correlate with income
I don't think that's true. I'm a higher rate taxpayer and I'm in band A, the lowest band, whereas most of the people I know with high council tax bills are retired or otherwise coming to the ends of their career (on not much pay).
That said, council tax isn't relevant here since American homeowners typically pay property taxes as an equivalent (and property taxes tend to be higher than council tax).
But regarding the correlation, I find it very hard to believe that within a borough, those with higher income dont on average pay more council tax, no matter your two exceptions ;) (see my other comment)
In my county, I think my argument stands. Only 6% of the population is 25-35 and 40% is 60+. As a rather work poor area, nearly all of the expensive houses are owned by people who no longer work :-) This is life oop North!
I lived in Westminster, which covers most of the west of inner london. These are wealthy areas covering a lot of expensive real estate, including Buckingham Palace, for one.
My council tax was much lower than friends of mine who lived in commuter suburbs of London. The main reason is that wealthy areas like Westminster contain a lot of businesses, who get slugged with council taxes. They also make a lot of income from parking and things like that.
When you fold in lower transport costs for living in 'Zone 1' it actually makes more sense to live close the centre of London than further out. This is even more so when you start to factor in the value of your time lost sitting on the Tube for hours on end.
Not sure how these factors work out for Council regions in richer non-urban areas, but there's enough evidence to disprove correlation between council tax and income.
So pick any particular borough in the UK that you want for the comparison, but then ask 'in this borough, do those on high incomes pay more council tax, on average?' If the answer is 'yes', then that is effectively part of your marginal tax rate, albeit indirect.
My main point wasn't so much about the magnitude of the taxes, but about the shape of the graph. Most of what gives this graph its bizarre shape is a result of the federal laws, not state ones; I just happened to be computing for a California resident because that's where I live, so I had the tax forms in front of me. (And it's also the largest state by population.)
(I'd also note that state-to-state comparisons of taxes aren't really fair without adding local taxes too, since different states have different relationships between the amount of money spent by the state government and local governments. In California, specifically, it's very hard to raise local (property) taxes, so much of education funding comes from the state government. In many states, education would be funded much more by local taxes.)
Edit: I just moved to CA in 2009, and am now working full time for my own bootstrapped startup. I also happened to get married in 2009, which is an additional tax burden. The taxes are painful. All in all, I feel like there is certainly a negative incentive to work for oneself, especially while bootstrapping and struggling to pull in enough money to pay the bills. We're motivated and are really enjoying it, but I would much rather see tax incentives for founding startups.
With all this in perspective, it's really hard to see why anyone would want to start a business.
Seriously? Without a stable government enforcing property rights and the rule of law you wouldn't be able to conduct business reliably. Government provides the field business is played on, they have every right to a cut to pay for providing that field. Peace isn't free.
It's fair that everyone should pay taxes. It's ridiculous when the productive sectors of the economy get taxed heavily to subsidise non-productive sectors. Too many governments are approaching 50% of GDP - meaning half the country is working just to support the other half. This is madness anyway you cut it.
What? That's not at all what it means.
If half the country is getting paid from the tax receipts of the other half, what other definition can you use?
All government services are paid by taxes of one kind or another, yes? If 50% of the GDP is government spending, therefore, the other 50% is by definition non-government activity.
Half of the population is paying for the other half to live. It matters not that a public servant pays taxes - that money goes straight back into the government, and pays him back.
I disagree with you strongly that wealth distribution is <em>required</em> for a stable society. I would say that forced wealth redistribution leads to unstable societies, as it all degenerates into what is fair and unfair, of which everyones idea is different. As soon as the route to wealth becomes one of obtaining power and influence rather than hard work, you're on the road to Greece and riots in the streets. Or total collapse of government/society such as former communist countries, which were based by definition on wealth redistribution. The concept of fairness should apply only to being able to keep the bulk of the wealth created by onesself.
Government services are necessary for a stable society, no doubt. Government services in a lot of cases increase the wealth of society by providing natural monopolies such as roads, ports, police and defense. We all benefit from government services.
I'll put it into an analogy. 10 people are on a deserted island, and there are tasks to be done to survive, which is fish, collect coconuts and fresh water. If 5 people are collecting coconuts, fish and fresh water, and sharing it to the other 5, then it doesn't matter what the other 5 are doing, whether painting pictures, snoozing in the sun, formulating foreign policy or building rafts to invade the neighbouring island, you can't escape the fact that one half of the island is working to provide for the other half. When they invade the other island and find a fridge full of beer, the total wealth and benefits for the island go up, but 50% of the people are still living off the work of the other 50%.
Anyway you slice it, if you're working for the government in any way, you're getting paid by tax receipts. And when 50% of the economy is government services, one half of the economy is paying for the other half. It's not a perfect analogy but is intended to get people thinking about the size of government. The only exceptions are where governments own money-creating investments like net positive sovereign wealth funds, and they are few and far between, and usually identified by having low or no taxes.
> I didn't say anything about benefits. I was talking about money.
Of course you didn't because you think it's about money, but it isn't. So lets complicate your analogy a bit.
> 10 people are on a deserted island, and there are tasks to be done to survive, which is fish, collect coconuts and fresh water. If 5 people are collecting coconuts, fish and fresh water, and sharing it to the other 5, then it doesn't matter what the other 5 are doing.
It most certainly does matter because reality isn't that simple. If the other 5 people, in exchange for those fish, coconuts, and fresh water, also provide in exchange other necessary services to those workers such as medical care, law enforcement, and education then they most certainly are not parasites living off the backs of the productive as you wrongly imply.
It matters not whether you pay a private company via income or government via taxes if they are providing the same useful services to you; those services don't come free. The difference is a philosophical one of whether you have a choice in the matter. One half is not supporting the other, both halves are mutually supporting each other, the flow of money is irrelevant.
Your mistake is in wrongly saying the government workers are not doing anything productive or contributing in any way and that's simply not the case.
Collectivism tends to benefit the weak the most and the whole group overall while disadvantaging the strong. Individualism benefits the strong the most, benefits the collective some, and disadvantages the weak massively. As the strong are always going to be outnumbered by the average and the weak, it's only natural that any democracy tends to eventually slightly favor the collective rather than let the few dominate. But swing to far to either extreme and everything falls apart. You can't let the strong take too much or the collective rebels and you can't let the collective take too much or the strong rebel.
Redistribution of wealth through social policy maintains this balance and prevents the fall back to serfdom which is what happens when the strong get too much power/money and pass it down one generation to the next. Not taking too much and letting the individuals still accumulate a decent amount of wealth prevents the fall to communism which destroys any incentive to be productive. It's a balancing act, and it's not at all simple.
" they most certainly are not parasites living off the backs of the productive as you wrongly imply"
You have projected speech onto me, probably from what you think my political views are : that's not what I said at all. In my island example, I don't doubt that the other half of the island are doing something productive, I just said that, in order for them to exist, the half collecting the food and water have to provide for them. It's not a chicken and egg situation : the first half have to be productive before the second half can share in the results. The analogy is that one half of the population is creating things, people are paying money for those things, and the other half is living off the excess value or money created. Government services are mostly by definition a net consumer of money, this is obvious otherwise the government would be self-funding by now.
Again, I'm talking about money, not benefits. Of course people benefit from government services, however, I'm talking about the measurement of GDP : which is a measurement of money, not benefits.
At least we agree that you can't just take from the people who produce endlessly and distribute it around. And I'm a big supporter of social safety nets like welfare and medical services. I just don't like to see the government becoming larger than the private sector in any economy.
Some states manage to do those things for a lot less than 9.5% plus income tax.
The US federal, state, and local govts collect more per person than most EU countries (even after you deduct defense) and we don't get anywhere near the services.
You're assuming that the US govt can efficiently provide services. (Its payment systems can cut a check cheaply, which is what the "Medicare overhead" numbers measure, but can be susceptible to fraud. Note that despite rampant fraud, it's harder to win a dispute with Medicare than it is with private insurers.)
The US govt currently spends more per resident than EU countries do on healthcare yet manages to cover a much smaller fraction of the population.
That's why I wanted to give Obama free rein over existing govt healthcare, including all govt employees (state and local too), and maybe even employees of companies that get >80% of their revenues from govt contracts.
That works out to well over twice EU spending (per capita) on covered folk. Since the promise of govt healthcare is cheaper and better, in years 2-4, we cut the per-capita budget by 5% (which is a bit over 20%, or less than the 30% savings promised by single payer advocates). At the end of that time, we'll know whether the US govt can provide healthcare.
After all, it doesn't matter whether other contries can do it, it matters whether the US govt can do it.
If they can do it, we can do it too. The reasons that we're so bad at it now are because we're doing it wrong because so many people are opposed to the very notion of socialism. But I understand your wanting them to prove it first by ramping up slowly.
Actually, no, not for useful values of "can do it".
Consider Microsoft and Google. Microsoft has lots of smart people, but Google can do things that Microsoft can't.
Yes, Microsoft is capable of doing those, but in some very real sense, it can't.
It's sort of like Bill Gates' phone number. I know it in some sense (4 digits of area code, 3 digits of prefix, and then 4 more digitis), but not in any useful sense.
Mostly they have made expensive labor contracts with public sector unions who in turn control the elections.
And by the way, despite the high tax burden California is still close to bankruptcy. They need more. Costs a lot to keep those unions fed.
The politically correct thing to believe is that California's budget woes are caused by those evil right-wingers who have prevented the state from collecting even more taxes. Heh.
This happens already, I believe, as regards families. Employees with families cost more in health-insurance benefits than single employees, if the employer offers to subsidize a percentage of health insurance (as most do). But employers don't pay single employees of equal qualifications commensurately more, despite what economics would predict.
That way government workers might take 50% of my money, but they don't take 50% of my productive time on earth. If they push much harder then of course I will have to move, but so far I'm very happy here.
(If this comment makes absolutely no sense to you, see http://en.wikipedia.org/wiki/Backward_bending_supply_curve_o... and http://en.wikipedia.org/wiki/Supply_and_demand for context).
California had the biggest net exodus of people in 2008 according to the US Census. I doubt that is because of California's great climate, beautiful landscapes, and rich natural resources... I think to the extent high taxes and regulations are responsible for California being what it is, they are no longer serving the people of California's best interests.
While there was a large net exodus in 2008 (and a similar one in 2000-2001) there were also massive inflows prior to the economic downturns associated with those years.
perhaps its just the fact that California is so huge and local control over expenditures is really, really gone. Its much easier to use people when they're far away and not your neighbors. Its a lot harder to see exactly how you're being bled dry when there are 18 layers of obfuscation.
The US is the largest economy in the world and last I checked California is the 5th. Places like Sweden have higher taxes, but they also have a much more manageable task of governance and more efficient public sectors. You put some tax money into the Swedish government and you might get some valuable services out of it. You give some to Uncle Sam or Uncle Arnold, and it is disappearing in some corporate/union/special interest pocket through some thousand-page bill.
its impossible for someone to siphon off resources when the democracy consists of 10 people and almost certain to happen when there's 50 million.
Of course, the naysayers will tell you that complex societies are tough to manage and require more government, but that's bunk. It should require less government, as there is far less border per person to defend.
"I object!"
you'd be surprised at the number of people who think just because you work more, you should pay more. as if one exists for the convenience of others
Its simply crazy unfair that if spend the second 20 hours watching tv, you pay less for your government services AND you pay less per hour.
Personally, I'd prefer if we all paid for the government we used, rather than dumping the costs off on people who are more productive or lucky.
We really do not have the right to other people's property, not matter how much they make.
If we want something we haven't earned, we should try an ancient non-violent method of obtaining something. Its called "asking".
It looks like there would be "income traps", where earning a higher base salary would actually leave you less well off. Good to see the USA rewarding hard workers!
http://4.bp.blogspot.com/_djgssszshgM/SvtscpywvOI/AAAAAAAABD...
There actually is a dead zone. Which is horrible.
There has been some effort to get rid of dead zones by changing thresholds into phase-out zones, but not everything's been changed, and some programs probably need more gradual phase-outs, especially if you consider their impact when taken together. There's an issue though that gradual phase-outs are hard to structure in a way that's politically popular: most people seem to have a mental phase-out that's fairly steep, so it's popular to give food stamps to a family of 4 making, say, $18k, but unpopular to give food stamps to a family of 4 making, say, $30k. But if you phase them out from 100% to 0% within a $12k range, you produce a significant implied tax over that range. Either the phase-out has to start so low that genuinely poor people get <100%, or it has to go up high enough that people who no longer really qualify as poor get some low but non-zero amount.
Harms credibility.