Taxing Families Like Companies
americancompass.org
americancompass.org
This is simply because companies pay money to individuals who then pay taxes. This is a feature not a bug as taxing companies is less efficient from just having employee pay as a deduction that gets taxed downstream. Trying to tax this money before it gets to employees would result in double taxation as the company would pay and the individual would then pay again.
Also, labor is an expense so it’s logical with the reasoning of only taxing profits.
People who complain about “companies not paying taxes” are like the “47% don’t pay taxes” people in that they don’t understand the principles behind taxation very well, or are trying to deceive, or for some reason care about a specific tax.
This article would be impossible to implement since even simple things like being able to deduct food would favor the rich deducting foie gras over the poor deducting oats.
However the combination will never happen as it doesn’t allow politicians to play favorites and reward their buddies.
For example:
- Exclude the first $50,000
- Tax the rest at 25%
- Eliminate deductions (this will never happen). This includes the standard deduction.
- Make efforts to also stop companies to shift profits to low or no tax jurisdictions.
- Get rid of double taxation on dividends.
And we'd all be a lot better off.
But I remember having a long conversation with a friend who was an economist on why corporations were able to deduct things they needed to provide their services, but I as an individual couldn't do the same. It's a valid and interesting topic to discuss, imo.
How far from flat does it have to be to stop being regressive?
We had a nanny for a year. She made about $50k, but I had to pay her with after-tax income so the actual cost of the nanny was closer to $70k of my pretax income. This is the precise double taxation you’re talking about.
Yes, higher income people have more deductions, but that’s what AMT is for.
Personally, I don’t think people should be paying a cent of income tax until they’re well on their way to an upper-middle class income. Taxes should always be taken out of surpluses, and never make it harder to achieve a baseline level of comfort and stability. The same should apply to new businesses—not a cent of taxes or fees until revenue is sufficient to support its owner(s), and perhaps even a few employees. If you tax something, you get less of it, so we should be very deliberate about what we’re taxing. If we tax the road to the “American dream”, a lot less people will arrive there.
Whatever tax increases are required on the wealthy and larger businesses to accomplish this would be well worth it imo. A big, healthy middle class with lots of new business formation benefits everyone, including and especially the wealthy.
That's just payroll taxes, which fund things like your nanny's social security and Medicare, and corporations have to pay them too.
If the nanny was on a corporation's payroll it would cost them 70k too, so if you paid the corporation for her services, you'd still have to pay more than 70k for that corporation to make a profit.
One way to fix it is simply to let families use their SSN as the EIN for the employee, and remove that from your adjusted gross income.
Taxes aren't just about fairness, they're about setting the right incentives. Do you think discouraging saving is a good incentive?
You actually can deduct some childcare costs with a Dependent Care Flexible Savings Account. It's only up to 5k a year though which is lower than the cost of even the cheapest daycares in many areas.
There is a deduction for child care and it should be higher, but there’s no reason why your $50k nanny expenditure should be tax exempt.
This is what I meant by tax policies that would favor the rich. You’re trying to figure out how to deduct a larger amount than millions of people make. That wouldn’t be fair would it?
You don’t pay tax on your super cool vacation either. Even though it releases stress and is quite nice.
It would be impossible to figure out a fair amount. Instead they just give a standard deduction and incentivize certain things like charities.
It’s like saying having an office janitor is a luxury.
It’s just a function, like any other, that leverages time.
The difference between childcare and nanny is huge. Treating individuals like companies for tax purposes would be super regressive and a benefit to the rich that would not apply to the poor.
Daycare costs $5-25k/year and that’s lots less than a nanny. Why should other taxpayers subsidize your nanny preference?
First, taxing companies is not "double taxation". Companies are taxed on profits. Paying taxes on behalf of employees and paying taxes on profits are mutually exclusive.
Second, not taxing companies allows the rich to disproportionately avoid paying any taxes.
Person A earns $50,000pa and gets taxed on all of it.
Person B earns $5m but is paid through a company but "only" spends $1m/year. So $1m is distributed as effectively as possible through dividends and income and the rest taxed as profits, deferring a portion of their taxes possibly indefinitely.
But it gets worse: getting paid in a company now allows the person to take advantage of transfer pricing and shift profits (and thus any corporate taxes) to a low or zero tax jurisdiction.
And it doesn't end there. Instead of distributing income, the company borrows against those profits and distributes that. Loan interest is near zero so this also defers taxes, possibly indefinitely.
Some argue it's inefficient to tax companies and we should just tax individuals. The flaw should be clear: at best, for the rich who have this option, you're now taxing their spending instead of their earnings (ie distribute what you need to spend, retain the rest as undistributed profits).
I'm a big fan taxing profits based on revenue, which is to say that if 60% of a company's revenues are sourced in the US, then the US gets to tax 60% of your profits. And I'm completely fine with every country doing this if they want.
The current way is done to prevent double taxation.
So if a company has a large revenue that it mostly reinvests and pays low salaries, very little tax would be paid on this revenue, and that seems okay to you?
> People who complain about “companies not paying taxes” are like the “47% don’t pay taxes” people in that they don’t understand the principles behind taxation very well
Are you sure about that? Amazon paid a federal income tax of 1.2% in 2019 on 13B of U.S. income. I think this is what people complain about when they talk about companies not paying taxes.
Certainly, of course. If they reinvest then they are spending capital on something so that company so taxes are eventually paid.
This is meant, I think, to encourage growth with the intent that there will be an eventual taxable event at a higher amount than if tax was paid earlier in the stream. I think this is why tax revenues continue to grow. The intent is to maximize tax revenue. There’s no reason to worry about companies like in your scenario because it doesn’t negatively impact taxes.
What might be good is to setup thresholds for deductible expenses to prevent corporate expense that are clearly luxuries. For example, meals are only 50% deductible. I could see setting up different classifications for private jets over commercial, country club dues, luxury hotels, etc.
It doesn’t seem fair that taxpayers subsidize corporations claiming expenses and offsetting taxes on country club dues and whatnot. Pretty bizarre and there are lots of setasides that clearly benefit rich people who work for corporations.
[1] https://www.statista.com/statistics/819966/mcdonald-s-number...
1000% yes; I work in industrial mobile robots and it's obvious that governments need to find a way to capture some of the value which is being created there, particular when it's a more-or-less direct trade of a wage-earning employee for a one-off capital investment.
Are there are any major proposals yet for how this might work, or has already worked? The "existing" section on this suspiciously-OR Wikipedia article is pretty scant:
I don't know of any direct proposals, but I know of one thought: if you look at it, tax on fuels is partially a tax on automation already - machines use energy (be it electricity, heat or pressure), so there's a tax here that is proportional to use of machines. Of course it seems very low if treated as "tax on automation", and it's going to be easy to work around with off-the-grid, local power generation.
There are good reasons to tax energy and carbon, but critics are right that it ultimately is a tax on everything. An automation tax needs to find a way to specifically tax the gains made by putting humans out of a job, similar to what organized labour achieved for a generation of longshoreman when containerization killed their industry in the 60s and 70s (as documented in Marc Levinson's excellent book The Box).
There has to be a domestic market of people buying stuff for the rest of the economy to exist. If all the people are automated out of jobs, then that domestic market has to be provided by UBI. The funds for that provision have to come from corporate taxes. Probably a tax on capital spending or depreciation - if you're replacing labour with capital and the government relies on taxes on labour for its revenue, then the government has to switch to taxing capital.
If there was a way of not involving the government in this, that would probably work better. The dream, of course, being The Culture - no government at all, just people acting in their enlightened self-interest in a post-scarcity world.
If it is direct employees, some of the explanation would be that they sold locations to franchisees https://www.wsj.com/articles/mcdonalds-revenue-falls-as-comp...
Tough to implement.
Ok radical idea - I'm starting to think of these ever larger/automated companies as having "won" the capitalism game or discovered a fundamental solution to some problem. But the economy doesn't have a great endgame scenario for such entities. One option might be regulating them as public utilities instead of corporate entities. i.e. The point of making a huge corporation changes from eternally extracting rent to becoming so ubiquitous that society adopts it as a fundamental exercise like Fire Departments or roadways.
Special taxes are dumb because of the overhead and externalities.
Automation is already covered in that it results in either greater profits or greater payroll through higher wages, so either way it’s already taxed.
The incentive is for companies to be efficient by increasing productivity. This productivity is taxed through existing means. So unless you want to disincentive automation a special tax for it is bad.
So the corporation gets to enjoy low tax obligation, and push that obligation onto their employees. And that's a feature?
The system is truly fucked.
If a company creates jobs because good/services were purchased, then why not empower the purchaser with more purchasing power? In a supply/demand economy, the supply side is reaping the benefits...if you give benefits to the demand side then that's labeled as making people lazy LOL.
70% of the GPD is driven by personal consumption but we're often told that we are meaningless to the economy and should give tax benefits to companies to "create" jobs.
(https://www.thebalance.com/personal-consumption-expenditures...)
As long as taxes are paid the calculus should be in what’s most efficient. I don’t care if the company pays it directly or indirectly through people.
What’s actually stupid is that dividends are taxable. Since they are after tax the company pays taxes, sends the remaining money to shareholders as dividends. Then then the dividends are taxed at the individual level.
What’s even stupider is that is a company is a shareholder. It pays taxes on that dividend income, then distributes to shareholders.
It’s not the system that’s fucked, it’s your understanding of the principles of the system. I suggest a microeconomics 101 MOOC.
It's true that people don't understand the principles or details very well, but it's also true that the principles are just a starting point on a convoluted road to a working understanding.
Corporate income taxes are paid on profits. Individual income tax is on revenue. That's the principle. Square that principle with the amount of tax paid over time by the most profitable companies, say amazon. Square the idea of individual income tax with the actual amount paid by Bezos.
On the individual side I would expand schedule C to all income-producing activities--what it cost to make the money comes off the top rather than the current mess (especially as unreimbursed business expense isn't even deductible at present.) This would include all hobby activities, the only difference being a zero floor for hobby "income"--you can't write off hobby losses against other income.
Obviously, individual tax rates would have to go up, but so long as it was revenue neutral I think America would benefit.
That said, the tax code for people makes assumptions based on the world that existed in 1970 and is heavily optimized for that. It is a poor fit and creates onerous burdens for the increasing percentage of the population whose lives look nothing like those assumptions. I'd start reform by revisiting the assumptions about peoples' working lives baked into the tax code.
I’m not surprised that during a worldwide pandemic, our birthrate fell in a society marked by ready access to effective contraception. I don’t think it’s reasonable to draw a straight line through that and worry about declining population, but I suspect this was written to be read about as reasonably as “A Modest Proposal” was.
See, for instance, this post on the upcoming issues for China due to demographic difficulties: https://zeihan.com/the-end-of-the-last-best-chance/
It takes 20 years to make a 20 year old, and economies, especially those like the USA where consumer spending drives most of GDP, need to adjust if there's changes in birth rates. We did it one way with the boomers, will have to do it again in a different way if there's a bust.
If it was simply a matter of "running out of new people" it might be OK -- a gradual decrease in population of 50% over a few generation could be sustainable. That's not the issue
The core problem is long lifespans creating a massively inverted age pyramid. At the extreme, the emerging pattern in urban China is 1 child supporting 2 parents supporting 4 grandparents supporting 8 great-grandparents. This isn't a smooth transition to a smaller population; it means that the young are crushed under the burden of supporting a huge population of the elderly.
It crushes dynamicism. It crushes innovation. Crushes education, and depresses fertility _further_, because the kids are too indebted and overtaxed (emotionally -- family care) and literally to ever have children of their own.
It's a death spiral, and a real problem.
What is crushing us is economic inequality - that change is geometric and has been the real driver of anemic fertility. Who wants to start a family under mountains of debt on a gig job wage?
Not to put too fine a point on it, but the media we consume is largely owned by people who would prefer we believed we were getting crushed under a self created demographic time bomb rather than their greed.
It's a death spiral, and a real problem.
Considering how the working class is treated while our labor is essential for the economy, I highly doubt we will get better treatment after full automation. When we are "useless eaters".
Presumably the typical period of economic support is around 25 years, meaning the 2 30 year-old parents and 4 55 year-old grandparents of the perhaps 5 year-old child would be supporting the 8 80 year-old great-grandparents (or the subset of them that are still alive).
6 adults supporting <= 8 seems much less dire than 1 supporting 14.
Raising children as it is, is expensive and time-consuming, to the point that adults feel incapable of doing so. Bundling that many adults onto the care model is absolutely insane.
https://www.sciencedirect.com/science/article/abs/pii/S01602....
"There were strong negative correlations found between national IQ and three national indicators of fertility."
In many parts of the world, the primary occupation has been, is, and forever will be - subsistence agriculture, with a typical IQ of the country in the 60s/70s. In these countries the fertility rate is ~6.0.
In many European and East Asian countries, responsible for essentially all of mankind's technological achievement over the past centuries, the fertility rate is typically 1.50 or lower.
As the age pyramid flips, more of the productive effort of these latter countries goes towards funding the welfare state, and the capacity for development and advancement is limited. The burden of maintaining this welfare state further diminishes fertility. Many countries are now in death spirals: https://en.wikipedia.org/wiki/Death_spiral_(insurance)
The idea that we should limit the taxation of families - the fundamental basis of civilization - is totally valid.
The idea to solve that - make families into corporations - is ludicrous. Instead, we should raise taxes on corporations.
Much more tax income would be generated and auditing these firms would uncover a whole host of criminal operations. Non-profits have been extremely lax with their bookkeeping b/c they aren't taxed. Their immigrant assistant programs are shady and some probably illegal. But w/o auditing its hard to get a conviction.
The Roman Catholic Church in the USA relocates/hides priests accused of pedophilia or other sexual activity. That is certainly socially unacceptable and may be criminal yet the Church merely writes it off as an expense. You pay for this with your weekly/monthly tithe/donation to the Church. The government grants them monies that are used to support all of their activities, these included.
Examples:
- network industries (railroads, pipes, energy) will always be naturally monopolistic. There can't ever be efficient competition. So embrace the monopoly and make the receivers pay. Nice example is AT&T monopoly and a "monopoly research" tax imposed on it, resulting in Bell labs and great innovations of 2nd half of 20th century
- Exclusive access to electromagnetic spectrum. It has to be regulated to monopolistic access, otherwise congestion. Companies with access pay for privilege in an auction repeating after several years
- Exclusive access to natural resources. Why should a mining company have indefinite access to some portion of land, just because it was there first? Let them participate in a recurring auction, which would maintain proper pricing for the exclusive mining rights when there are many other such companies competing for it
- Land ownership. Similarly, why should someone have the privilege to exclusively own a parcel in prime area without paying, just because he was there first. Inefficient allocation. Actually - unfair at that. Infrastructure buildout in the area paid by income taxes of people increases value of his exclusive ownership rights. The result is redistribution of income of people who are prevented from accessing that parcel to the one receiving the privilege of exclusive parcel use. Shouldn't it be the exact opposite?
This is not new by any means. This idea was supported by one of the most influential economic movement of 19th century - single taxers. Every time it has been implemented it brought the promised results, because it hits the heart of the wealth inequality problem. It always ceased to function long term due to politics of people who got more well off because of it and didn't want to share the wealth with others - namely with future generations.
Singapore, Hong Kong and sudden growth of other asian tigers in 20th century can be considered the movement's largest documented success. China missed its chance of lifetime with Mao's cultural revolution. Sun Yat-sen was a huge fan.
The monopoly-busting progressive movement of early 20th century can also be considered its influence. It perhaps is not a coincidence that the original progressivists were fans of the pivotal book Progress and Poverty by Henry George. Shame that "progressive" drifted with its meaning somewhere else, similar to words "liberal" or "agile".
Then you're missing an opportunity.
The main benefit of non-flat tax is you can shape behavior by offering tax incentives. But I don’t think those work anymore. I think flat tax needs to be tried and everyone including corporations should do it.
UBI needs to be combined with taxes and tax exemptions on things that are essential to life like housing and healthy food,healthcare and some other things I cant think of right now.Everything else can be treated as a luxury and can be achieved through conventional capitalist methods.
It would eliminate many classes of fraud, government spending on administration of social services, and also the tax preparation industry. I think those are the main reasons it doesn’t happen.
I don’t subscribe to the view that this is necessary to support UBI though. Most of it, outside of the well off will get spend on basics anyway. More of a concern for me would be employers cutting wages.
UBI needs to be coupled with progressive thinking.Simply build more houses and tax NIMBY or find a way to build more houses quickly. The same applies to food.
I worry that it can distort the way the economy works in a way that prioritises appealing to businesses as they pay less for things. For example if you want to spend $200 at a restaurant then you need to generate (say) $400 gross income which means generating (say) $1000 of value for your employer. Whereas if that employer wants to spend $200 at that restaurant then they must forego $200 of profit which means they must forgo (say) $160 of post-tax profits. This massively incentives that restaurant to appeal to companies because it is cheaper for them.
While companies are in some sense made of people, I think their spending is unrepresentative because it has less variance. Companies tend to like boring things (often there might not be much they can do about it) so if their willingness to buy things is so important, we will also get more boring things. (Consider charities: if your company decides to give 1% of profits/revenue/whatever to charity, they will probably have to give to some extremely generic charity that many people don’t particularly like. If instead they allocate that 1% between employees to choose how it is distributed, you would expect to see money going to a wider variety of charities. I claim that is better for the people in the company and for charities in general.)
It also doesn’t feel particularly capitalist that companies are incentivised to not have profits. Maybe you just think capitalism is bad but I don’t think it’s better for companies to stash profits than to give up the capital to be allocated to better things, whatever they may be.
I don’t really have a good answer. Georgism doesn’t seem like a great answer to me. Even the very wealthy don’t need to own a particularly large amount of land. The main use is for farming and it feels regressive to put almost all taxation into the price of food. It seems like too much value isn’t derived from the land itself anymore.
Taxing other exclusive rights (eg patents) from which value can be derived also doesn’t feel great as plenty of profitable businesses don’t need patents (including plenty who have many patents).
I think I’d want some kind of scheme where Amazon would have to pay an amount of tax that would feel fair to someone who ran a high-street shop, rather than paying a tax on the size of their warehouses.
Maybe the solution is a regressive tax like a high vat in combination with some measure to counter the regressiveness like UBI, but I’m not very convinced of the real-world merits of UBI.
Maybe the solution is just to have company spending dominate our economy.
I don’t know about the 2020 unemployment benefits as I don’t live in the US.
I don't think that's the message of UBI. While one could view it somewhat as a charitable policy, with a more cold outlook it's a good policy as a mechanism to make free-market capitalism function more robustly. Think of it like re-balancing your portfolio. Some people don't like calling humans capital or assets, saying that's cold-hearted. If you don't mind that word choice, then it's relatively easy to explain UBI as promoting the long-term health of the economy. Contrary to the message of "unnecessary to the economy," UBI is important precisely because the recipients are critical to the health of the economy.
> assuming it will work for everyone
I don't think most people think it will work for everyone. Almost no policy is perfect.
> It’d surely be hard to build a democracy on such a divide
Yes, that's what people were discovering in the late 19th century and early 20th century, and why many capitalist democracies began adopting anti-trust laws and social programs. For example, the Sherman Antitrust Act and the Social Security Act in the US. I expect that UBI will have the opposite effect that you expect, helping alleviate inequality.
> I don’t know about the 2020 unemployment benefits as I don’t live in the US.
They turned out to be a good policy. Despite fears that people would choose to not work, because they were receiving more money to stay at home, wages did not rise and job openings did not spike. On average. Some differences across industries and locations, of course.