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Comment by throwaway2a02 | Hacker News Reader

> tax progression will be removed, so that people will have a chance of levelling up

Progressive taxation has the exact opposite function to what you're suggesting. It's a mechanism designed to reduce economic inequality and the poverty among the low income workers.

Your comment sounds like a rationalization from a middle/upper income person.

> it is not uncommon to pay over 40% of tax

That figure is misleading, because it includes a set of expenses like social security, health insurance, government pension plans etc. Corporations don't pay that and that's why the difference may seems so big.

But I too am quite unhappy with the way the whole taxation system is constructed. But I would go in the opposite direction to the one you described. More in the way to progressive taxation, even negative taxation for the very low income people, basic income.

I would also work a bit towards making corporation pay more for all their externalities.

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It's a mechanism designed to reduce economic inequality

Income inequality. Totally different thing; really wealthy people can play all sorts of games with income, so it’s not relevant to them. And that’s the way they like this debate framed: ignore their enormous piles of wealth and instead focus on the earnings distribution of ordinary people.

If anything, it just stops you getting anywhere near to joining their ranks on an honest wage.

Really wealthy people are probably not paying much income taxes to begin with

That's his point. The income tax is not as effectively redistributive as a wealth tax would be.

Let me introduce you to the HELOC.

Wealthy people do not take out mortgages. They borrow cash against their existing wealth. They then buy things with that. Then pay back against the loan. Writing it off too (as per tax law). The 'rich' have sold everyone a bill of goods how they are redoing the tax system for 'the people'. When the reality is they are writing a bunch more exemptions for themselves.

You can do the same thing. Many people when they figure it out 'level up'.

> Let me introduce you to the HELOC

Home equity loans are predominantly used by middle income households [0].

The rich can borrow against securities at the call money rate, currently 2% [1]. Much cheaper than borrowing against real estate [2]. The less rich swap it to a fixed rate for added security; the richer take the rate risk. (They likely have natural hedges.) The super rich seek to borrow at or close to the SOFR [3], typically having Treasuries or similar structured products for the purpose. (If they have a business with float, that could be even cheaper than SOFR.)

[0] http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.574...

[1] https://www.bankrate.com/rates/interest-rates/call-money.asp...

[2] https://www.bankrate.com/home-equity/heloc-rates/

[3] https://apps.newyorkfed.org/markets/autorates/SOFR

point taken! I like to use the HELOC as it is something most people can do.

System is screwed, I am paying 40-50% effect tax rate combined. Housing is going up, food is going up, everything is inflating....

This must get fixed or we all screwed. We are at the end of this system. this system is designed to help the rich, the wealthy, not the man or woman working while in middle class... we are getting screwed.

It sounds like both of you want Fair Tax

https://en.wikipedia.org/wiki/FairTax

I very much doubt that the person who wants a progressive tax policy supports a consumption-only tax that disproportionately impacts lower-income earners (well, earners between $40k & $200k) supported primarily by right-wing and libertarian thinkers. I also doubt that poster will be excited by the drastically-reduced revenues likely to result.

This tax proposal makes no sense. It's very easy to dodge sales taxes and VAT taxes by doing under the table deals.

If anything, you want to replace all consumption taxes with a flat income tax (always 40% for example) combined with a flat deduction (first $40k are not taxed).

If you absolutely must replace income taxes, then replace them with land value taxes because it is impossible to avoid them as the owner (who may not be in the country) or as a person living in the country (because all land is taxed).

> Your comment sounds like a rationalization from a middle/upper income person.

In most countries that I am aware of, the tax rate becomes essentially flat at, or relatively close to, a median income.

If you tax people on a lower income at that same rate, then that is highly punitive and is likely to put people into poverty.

It's immediately advantageous for governments to set a "progressive" lower tax rate, to avoid paying the cost of resources dealing with poverty.

Aside from this, governments are continuing to tax people up to and approaching median incomes at the highest rate that they can bear.

It's only once you get significantly above median that the tax rate doesn't continue to be punitive - for example, in terms of young people being able to access security of housing.

I'd argue these [existing tax schemes] aren't therefore progressive at all. It's just a different mechanism to provide minimal/essential support to people in poverty.

> Progressive taxation has the exact opposite function to what you're suggesting. It's a mechanism designed to reduce economic inequality and the poverty among the low income workers.

I am not advocating that low income workers pay higher taxes - in fact they should be exempt. I am saying that if you are from such family, progressive tax ensures you'll stay in your lane.

> That figure is misleading, because it includes a set of expenses like social security, health insurance, government pension plans etc. Corporations don't pay that and that's why the difference may seems so big

My number is based on what you get in your pocket from your salary (plus employer's national insurance that is most of the time hidden from the payslip) I didn't include local taxes (like council tax) and so on. Corporations are supposed to pay Corporation Tax, but they can too easily transfer profits offshore and largely avoid that in contrast to SME who mostly pay this tax.

Progressive tax ensures that person from poor background will stay poor.

> Progressive tax ensures that person from poor background will stay poor.

How so? With progressive tax there is no point at which you make less money than if you had less income.

If you cross a threshold from 20% to 40%, for every £1000 made over that threshold you pay £400 instead of £200. Sure you are still making more money, but suddenly you don't have that £200 that you could save or invest.

A linear tax would mean a person trying to move up the income ladder is more encumbered by tax for the same amount of tax revenue on a given population.

Your suggestion above that low income workers are exempt from taxes, is a description of a progressive tax.

I’m not really sure I understand what you’re suggesting should be done.

Are you saying that 40% of tax is less than 20% of tax? I don't follow. My point is that the tax should be linear with tax free allowance. That is everyone pays 20% on income above tax free allowance. You can call it a progression, but this way anyone can level up if they want to. If you add 40% and more further down the line you are slowing down how people from poor background can improve their living.

Because this 40% of tax only applies to what you earn above a certain threshold, at which point you are no longer considered to be a poor person.

I think what you're missing here is the alternative to progressive tax is all income is taxed at or close to the existing highest rates, as that is where by a very large margin most tax is collected. Ultimately this leads to those poorest in society suffering the most.

For a government to make the same revenue with a linear tax as they do with a progressive tax, this mathematically implies that a tax increase for poorer people and a tax cut for lower people.

Alternatively, you can cut government spending, which normally means cutting services that disproportionately affects the poor.

Either way, moving from a progressive tax to a flat tax is a guaranteed net negative for the poor.

My original point is that corporation do not pay as much tax as they should. The come down from progression should be gradual - as corporate tax holes are plugged, the higher tax rates could be reduced. So that wouldn't affect the poor. It only slightly changes who pays for it.

That's true for all taxes, If tax is at 0%, you'll have all the money. Idea is for a person making 20k, tax is going out of food/shelter money, for someone making 100k, it is going out of vacation/investing, for one making millions, it is going out of extra money.

If you are paying 40%-50% you will never move up classes. It is a tool to prevent the middle class from reaching rich person status.

For the poorest many are paying no or little income taxes so the income is the issue not the taxes.

That makes no sense. How can you do away with progressive taxation without increasing the tax burden on the lower and middle classes?

This statement becomes less true if you take into effect entitlement and assistance programs in the US atleast.

It seems like you don't know what progressive taxation is since it's what you're actually arguing for...

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