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Careful. The two articles rely on vastly different cherry-picked definitions of who counts as rich, and neither claim is even remotely true anymore if you use the other definition. The top 1% are indeed audited at about the same rate as the working poor, but they also pay higher taxes than everyone else. This NYT article on the other hand picks out the top 400, who apparently pay lower taxes but are much more aggressively audited by the IRS than less wealthy people even with the funding cuts limiting their ability to do so. (According to the linked letter from the IRS, they heavily audit roughly the top 20,000 most well-off Americans.)

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> The two articles rely on vastly different cherry-picked definitions of who counts as rich, and neither claim is even remotely true anymore if you use the other definition.

One of the most important things to understand about tax discussions is that there are two broad classes of "rich" -- high paid salaried employees vs. wealthy investors.

When you see claims like "the top 20% of people pay most of the taxes", that's mostly the high paid salaried employees. Cardiologists making six figure salaries pay high tax rates, and there are a lot of doctors and lawyers and engineers in the population, so they pay most of the taxes.

When you see claims about rich people paying low tax rates, that's corporations and wealthy investors hiring accountants to minimize their taxable income.

The distinction is really important because it means the problem isn't marginal rates, it's the complexity of the tax code which allows people with large fortunes to game the system. A simple VAT with some kind of dividend/UBI to make it more progressive would eliminate most of those games. It would also mean that individuals wouldn't have to file tax returns at all, which would save hundreds of millions of man hours every year.

The rich spend a smaller share of their income, so a VAT scheme would in practice produce a regressive taxation scheme, with the lowest incomes paying relatively the most, because they have to spend all of their income.

What about a flat transactional tax that occurs any time money changes hands? I found this not too long ago and have been enamored with the idea:

http://apttax.com/execsummary.php

Fuck me, right? Would be nice to know why this is seemingly such a shitty idea, but guess I'll never hear why.

Simple answer? Economies perform better when money changes hands more frequently. Disincentivizing that is generally a bad idea. Additionally, taxes like that disproportionately affect the poor, who often have to spend their income as soon as they get it, and barely affects the rich, who have lots of money sitting around not being spent.

The problem with it is that it creates a powerful incentive for vertical integration and puts everyone else out of business.

If you have a product that goes from mine to mill to factory to wholesaler to retailer to consumer, the tax is paid five times. But if the same company owns the mine as operates the retail store, it's paid only once.

That's an insurmountable advantage for vertically integrated companies, so no others remain and tax-wise you end up with the same result as sales tax or VAT (i.e. the tax is paid on the total final value) except that you've needlessly destroyed every non-vertically integrated business.

That is the problem that VAT solves, by giving longer supply chains the same tax treatment as vertically integrated corporations.

I’m not really understanding how this is different from the VAT taxation scheme.

VAT means Value Added Tax. @Forbo's was talking about a transaction tax.

The difference can be explained by this completely made up example: A steel mill buys iron ore for $1 a kilo and makes steel of that. A nail factory buys steel for $1.50 a kilo and makes nails of that. A distributor buys those nails wholesale for $2 a kilo. A hardware store buys those nails from the wholesaler for $2.50 a kilo. A contractor buys those nails from the hardware store for $3 a kilo. The subcontractor bills $3.50 a kilo for those nails. The general contractor bills you $4 a kilo for those nails.

With VAT you/the general contractor/all businesses involved pay taxes on a total of $4.

With a transaction tax, it would be paid on $17.50.

But the above is a simplified example. In the real world there are probably a lot more businesses (each specializing in their own niche) and therefor transaction involved in getting that nail into your wall.

It's a great idea for the bitcoin and cash community.

What's the possibility of implementing this in combination with a luxury rate adjustment that takes something like median values for product categories and then scales rates as you move above or below that?

Because it would seem to me that consumption of low-income earners will trend toward below-the-median while consumption of the wealthy will trend toward above-the-median, giving you an additional handle to make this taxation progressive.

Well, it all depends on how you define product categories. Is a macbook pro the same product category as a chromebook? You can slice the market in such a way that luxury goods would all be bucketed into “median” price range.

IMHO it’s easier to construct a “fair” tax system on the income side than on the expenditures side, provided you count all income equally. Currently income from labor is usually taxed higher than income from investment, and that’s not fair.

That's why you pair it with a UBI, as the poster above said - if you add in more than the average cost of taxes on the UBI among people making less than, say, $150,000, it becomes significantly more progressive, even if they spend the entirety of the UBI.

Lower tax rates, not necessarily lower taxes.

From TFA:

> They have constructed a historical database that tracks the tax payments of households at different points along the income spectrum going back to 1913, when the federal income tax began.

It may be reading the book for the full detail on methods and results. I plan to.

I was saying that the reason the IRS would audit richer people more is because they would pay more taxes even though they might have lower tax rates.

Lower tax rate is indeed my definition of lower taxes.

A lower tax payment is a different thing.

The problem is that "tax rate" is an ambiguous term because different kinds of income at taxed at different rates.

So, for example, if someone makes most of their money on dividends, then they pay capital gains tax, and it appears like they are unfairly paying a lower rate than everyone else. ...but that's not a fair comparison because it's a different sort of income, with a VASTLY riskier risk profile. Taxing it at the income rate wouldn't make sense.

In the past, in the US, capital gains wasn't taxed at all because it was considered double taxation (since the investment was already taxed). ...and in some other countries, there is no tax on capital gains.

I've seen people claim that country XYZ has higher tax rates than the US, but then when you look closed, they have zero capital gains taxes.

In the end the real tax rate is simply government spending as a percentage of GDP. Everything else is just shifting around who pays what and when not what the average ends up as. In the US that’s 41.6 percent GDP which is in line with Canada at 42%: https://en.m.wikipedia.org/wiki/Government_spending#As_a_per...

PS: Either lower taxes on capital gains or allowing people to deduct losses is reasonable in the name of risk, but we do both.

Really what we should do with capital gains is allow people to deduct losses including inflation, so that we tax the total real value gain at the ordinary rate, and do so when the money is actually divested rather than only moved from one investment security to another (because one of the arguments for lower capital gains rates is that higher rates causes money to be locked into securities the investor wouldn't otherwise continue to hold).

Or just use a consumption tax, which is largely the same thing but a lot less complicated.

> what we should do with capital gains is allow people to deduct losses including inflation

Yes, I've come to this conclusion too. The long-standing argument that capital gains rates should be low is about what happens, for example, if your gain on an investment exactly matches inflation: you'd pay taxes on it, but you haven't made any profit in real dollars. The right fix for that is not to divide your paper gain by some amount before taxing it; it's to subtract the loss due to inflation. In times of low inflation, as we have now, this won't make much difference, but if inflation picks up again at some point, it will make quite a large difference.

Of course, such a plan raises the question of exactly what inflation estimator one should use. I'm not enough of an expert to have a strong opinion, but the T-bill rate [0] seems like a reasonable first cut, since it's a good estimator for the risk-free rate of return. Paper gains from holding T-bills would thus not be taxed at all.

Whatever the inflation estimator used, the more important (and likely more controversial) aspect of the proposal is that gains beyond that amount be taxed as ordinary income. The argument is one of simple fairness: once the inflation problem is handled, how can one justify doing otherwise?

[0] https://www.investopedia.com/terms/t/treasurybill.asp -- Okay, I see there isn't just one rate, since the rate depends on the maturity interval, but we can go with the highest one, which is the one for the 52-week bill. This creates the oddity that holders of shorter-term bills will actually get a tax credit, but it will be small; I think we can live with this.

Continuously compounding the prevailing t-bill rate for the holding duration of any asset is doable but sounds like a mess.

You wouldn't want to do it by hand, but it's straightforward to program.

How about tax only on real terms, but on liquidation taxes are retroactively paid as though you bought and sold the asset each year.

This means you don't get an interest free loan from the government to continue to invest in an asset just because you haven't sold yet.

The problem there is that you effectively force liquidation in order to pay the taxes, even if you wouldn't have sold the asset. Not such a problem for index funds, but a big deal for small business owners who would have to sell a stake in their business as soon as it starts doing well in order to pay the tax on its higher current market value, which includes the net present value of expected future profits that haven't yet been realized and so can't be used to pay the tax today.

Having the government give people de facto interest free loans of their own money in order to continue to investing it is also optimal anyway, because the government borrows at an interest rate significantly lower than the average market rate of return. They actually come out ahead by lending the money to investors who are then collecting taxable interest on it, because the tax on the interest can be more than the rate the government pays to issue bonds in the meantime, not even counting the overall economic benefit of stimulating investment (i.e. more/better jobs for people who are themselves paying taxes).

I'm saying that you do the calculations retroactively on sale. No taxes are due until then. Even if the asset spikes, no taxes are due if ultimately sold at a loss.

Dont tariffs on imports\exports make this not true? Or is simply true enough?

Those are also a tax; if you import a million dollars of something subject to a 10% tariff, you pay 100k to the government for the privilege.

One thing that complicates the above is that the US does tend to run a larger deficit than Canada.

> it's a different sort of income, with a VASTLY riskier risk profile

Yes, earning the money with labor is vastly riskier. Telling a financial advisor where to put money incurs no risk to your life.

Compare that to being a welder, tree feller, home builder, where your health or life is a daily concern.

I really don't understand why those who go out and work hard every day have to pay more in tax (as a percentage) than those that just sit on the couch and watch their wealth grow.

> but that's not a fair comparison because it's a different sort of income, with a VASTLY riskier risk profile. Taxing it at the income rate wouldn't make sense.

Ah yes, the riskiest activities of them all: investing in fortune 500, government bonds, index funds and inflating real-estate prices. They all count as capital gains.

Most of those are higher risk than interest on cash or TIPS (not all government bods are safe) ask the shareholders of Thomas Cook or Going back a bit Enron about risk.

Ask the people who worked for Thomas Cook about risk.

They will in the UK at least get some back pay via RB2 (I have had to fill out one of those).

RB2 Is the form you fill out if an employer goes bust, to get some cash from the government.

Yes, but you now don't have a job, even if you get paid for every hour you worked. Jobseekers is only a partial safety net. On the other hand, nearly everyone who saw their shares in Thomas Cook go to 0 had investments in a number of other things, so only took a minor hit.

The risk of investing is, in the large, "my £10,000 might be worth £9,500 tomorrow", not "tomorrow I might lose my job through no fault of my own and suddenly have to make a major lifestyle change".

Do stunt-men, soldiers, arctic explorers and other jobs with risk to life and limb pay no tax?

> In the past, in the US, capital gains wasn't taxed at all because it was considered double taxation (since the investment was already taxed)

The same thing can be said about every tax ever. Every time you tax money as it changes hands, that same money has changed hands before and was probably taxed then.

This is a very important point. Tax rates and taxes are very different.

We have a marginal tax system so effective rates should be higher for those that make more. Them paying lower tax rates (like Buffet said) is them having more loopholes in the system.

True but all of this tax discussion is about perceived fairness. I may pay a few thousand and a billionaire will pay millions in taxes but if the overall tax rate is lower for the billionaire then I'm going to get upset. It's just human nature.

> The top 1% are indeed audited at about the same rate as the working poor, but they also pay higher taxes than everyone else.

But they don't. That's the point. Your conventional wisdom is wrong.

The USA has a large number of regressive taxes, which tax the poor more heavily than the rich. These have been steadily expanded. And it has one, only one, progressive tax - the federal (not state) income tax - which has been steadily made less progressive in recent years to the point where overall taxation is at best flat and more likely slightly regressive.

The actual article contains charts that seem to support the claim that the top 1% pay higher taxes

barely, and the point of the chart is that over the past 70 years the gap has gone from being being very progressive to almost flat or regressive based on income level.

I think there is a key language ambiguity here. Whatever your position on what the rich should pay, there is a question of what is being paid as a proportional rate of total income, vs what is being paid in absolute terms. Confounding that difference are also issues of income tax rate, vs capital gains rates and wealth vs income.

The wealthy pay in absolute terms, more dollars, but they pay a lower rate than others.

No, according to this article, the 1% continue to pay a larger percent of their income. It is only once you move into the 1% of the 1% that the rate again decreases.

Total income, or "earned income" from a tax perspective?

There's so many technically correct but misleading definitions it's very hard to know what the "real truth" is in these discussions.

All of this is true, but it's beside the point. The perception in America is that the rich pay more in taxes as a percentage of their income than the middle class do. The marginal tax rates imply that, with middle class people paying either the 22% or 24% marginal rate, and rich people paying at at 35%+ rate. Thus, people think that we have a progressive system.

However, if you look at the data in this chart, you can see it's not true any longer. The actual combined rate paid by most Americans is between 22-28%. (It's on the lower end for the poorest Americans, and for the wealthiest as well) Fundamentally, the total taxes paid is flat.

I think most people think that the taxes paid chart looks like what it did in the late 70s/early 80s. In that chart, the poorest Americans pay about 20%, and the richest about 45%. That's where we should be, instead of where we are now.

The percent of all taxes paid by the bottom 50% has been going down for the last few decades.

Is that the case if you include payroll taxes? (We could include sales tax too, but those are usually state and local, so we'd then have to add state income tax, and possibly property tax, and that would get complicated)

That's an indicator of wealth inequality, no? The top 50% are paying less as a % of their income, but because their income is rising faster (relative to the bottom 50%) than their total tax rate is falling, they end up paying more in total, mainly because the bottom 50% have less to give.

I’ll go ahead and preface this by saying “I don’t know” but for people at the very top, are there undisclosed tax incentives to encourage them to spend their money?

By undisclosed I mean negotiated. When you are trying to get somebody to spend a ton of money to open a business, donate to charity, bring a bunch of jobs, etc is there a negotiation that happens to provide lower tax options to encourage that spending?

Evidently, as evidenced by every large spending project since the dawn of time (probably?).

As I posted elsewhere in these comments:

Everyone expects a discount on goods and services when purchase in bulk.

Why should taxes be any different?

The wealthy also receive the lions share of benefits from stability and especially international infrastructure maintained by the US state.

Some would argue that taxes are different because of the issue of fairness in society, and for the fortunate who have vastly more than needed to survive, more should be expected to help everyone else. This is in the self interest of the wealthy, as economic growth is actually stunted by inequality.

There are other ways to balance fairness other than progressive taxation, but those too are often anathema to ruling economic policy makers.

I tend to agree with the idea that the wealthy should be taxed more, in a progressive taxation sense.

Perhaps I should have prefaced by previous comment with “playing devils advocate”.

> The wealthy pay in absolute terms, more dollars, but they pay a lower rate than others.

There’s at least one perspective where this makes sense:

Everyone expects a discount on goods and services when purchased in bulk.

Why should tax be abt different?

Paying taxes is not "buying the government" and paying higher taxes is not buying "more" of it, or buying it in bulk. For starters: bulk rates are lower, in part, as an incentive to get people to buy more of a product at once. Since paying taxes is (ostensibly) mandatory, this doesn't apply.

Ostensibly being the key word here as there appears to be some scenarios where none of those things are true.

2003: The 99.999%ile (?) pays the highest taxes; the Top 400 and the rest pay marginally lower.

2011: The rate is mostly flat, especially above the 80-90%ile. The 99.99%ile pays the highest.

2018: The 99.99%ile pays the highest, the Top 400 appear to be paying a lower rate than almost anyone.

Somewhere between 2003 and 2011, the 0-10%ile began paying more than the immediately higher percentiles.

> The USA has a large number of regressive taxes, which tax the poor more heavily than the rich. These have been steadily expanded. And it has one, only one, progressive tax - the federal (not state) income tax - which has been steadily made less progressive in recent years to the point where overall taxation is at best flat and more likely slightly regressive.

Citation needed. Saying the US has "only one" progressive tax is a bit ridiculous. The income tax is by far the largest tax almost anyone pays. It's certainly the largest tax I, and everyone I know, pay. And that only increases as you get richer.

Most of the bottom ~50% or so of households pay no (or negative) federal income tax, due to low income, EITC, various offsets for children, etc.

At the lower end, you need to factor in payroll taxes as well ( FICA )

Also things like sales taxes or even DMV fees can be significant percentages of lower income's taxes.

> And that only increases as you get richer.

Correct. Which is why income is such a miniscule fraction of the 1% (and above's) earnings. It's all out there in the open. Pick any CEO in the top-100 corporations. Look at their income. Then look at their overall earnings. The bulk falls under capital gains due to stock. Then there is deferred compensation, where taxes are lowered even MORE if you agree to postpone being paid. There are so many clever ways for the very very rich to avoid taxes it boggles the mind.

So go ahead and keep talking about the income tax, they've got you distracted.

> Pick any CEO in the top-100 corporations.

The top is about 3.5 millions people. Being one of the top-100 CEOs is very, very different from being a random one percenter.

> Pick any CEO in the top-100 corporations. Look at their income. Then look at their overall earnings.

Warren Buffet is probably the easiest person to look at here. A quick google says that [0] he made $11m in 2016, and on that he paid $1.85m in federal income tax, and he claims a large portion of the remainder was paid in state tax. Even ignoring his state taxes, yes he paid a marginal rate of 16%, but he still paid more in income tax than the average 1%er's salary. I'm certainly not a right wing advocate, but the spin associated with the "rich are not paying enough tax" doesn't really help the conversation much.

[0] https://fortune.com/2016/10/10/presidential-debate-donald-tr...

>A quick google says that [0] he made $11m in 2016,

The amount he made in 2016 is the point of contention. Sure he made 11m in income, but for that same year, BRK.A increased a staggering 25% in share price. Even if Buffet owns a 1% of BRK.A, that represents a paper gain of 4 Billion dollars.

Now, sure, he might not have sold any stock so that won't count against his capital gains tax, but to me, its a bit deceptive to say that Buffet only made $11M.

when your house goes up by 100k in a year did you “make” 100k?

What's your point? If my house goes up by 100k in a year, in most US states, my property taxes would rise accordingly, whether or not I realized the true value of the home. Housing is a poor analogy as stocks are treated better than housing in this situation.

(California is not one of those states, due to Proposition 13, which is also very controversial and is argued to be one of the causes of California's rising housing costs)

When it comes to "if the rich are being taxed enough", you bring up a good point - if my home rises in value I pay more - however Buffet makes several billion in paper gains, and his taxes are largely unchanged.

The house is a strawman of sorts. The rich pay property taxes too.

CEOs are probably a bad example for your point, because stock awards are generally taxed as income, not capital gains: https://www.forbes.com/sites/antoinegara/2016/09/01/apple-ce...

> However, the day Cook was awarded his multi-year payday Apple immediately withheld and sold 656,117 of Cook’s shares to cover his tax bill. All told, Apple sold $70.9 million in Cook’s stock at a price of $108.03, equivalent to or 52.1% of Cook’s total $135 million performance award.

You’re talking about a relatively small number of investors who derive most of their income from capital gains. (Capital gains account for just about 6% of total personal income.) It just so happens that many prominent examples (Trump, Buffet, Romney) happen to fall into that group. But even among CEOs, professional like Jack Welch (who pays over 30%) will take a lot or most of their compensation as ordinary income.

There are also:

* FICA, which is strongly regressive at the higher end.

* Sales taxes, which are also strongly regressive since (citation needed) the poor likely pay more of their income on taxable goods. ("There's only so much filet mignon you can eat," according to a government professor I once had.)

* Property taxes.

* Fees.

Also, all of our morality or "sin" taxes are highly regressive: tobacco, booze, pot, soda, etc.

Don't forget government run lotteries

Citation?

Try sales taxes. The poor aren't excluded from them, yet someone who is poor is far more likely to spend a larger percentage of their income on them than anyone with enough income to save and invest.

Most of the sales taxes I’ve seen exempt things like food and other necessities.

That doesn't refute anything I said.

> it has one, only one, progressive tax - the federal (not state) income tax

The estate tax is very progressive, at 40% for estates over $11.4m, and 0% for estates worth less.

Many state taxes are progressive as well.

For most taxpayers, social security and medicare payroll taxes (highly regressive) are the largest tax they pay.

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