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Comment by basseq | Hacker News Reader

This is true, but it's philosophical. The IRS has finite resources, so it has a fundamental choice:

1. Maximize collections. This is what they're doing: spending their resources on cases with the best expected ROI. If you have $1T in net tax misses, chase the easiest 75% and expect a 90% collection rate.

2. Deter high absolute tax avoidance. This is what you're suggesting: spend their resources to make a statement, even if the ROI isn't there. If you have $1T in net tax misses, chase the hardest 25% and expect a 5% collection rate.

I don't think you're wrong, as there's value in deterrence (i.e., sue the hell out of rich tax evaders, and even if you lose, maybe the next one will be less likely to push it).

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I'm really just advocating for a fair system. I have to wonder if a national sales tax isn't more fair than a national income tax - can we drastically reduce the need for collections?

Edit: really just wondering out loud, I don't have the answers here - our current system needs work

Sales tax is highly regressive because poor people spend most of their money staying alive, while rich people can save and reinvest their pre-tax money. You're just reinventing the current de facto regime, where rich people don't pay taxes on investments through "creative" acounting and poor people have their employer deduct their taxes from their income.

Realistically you need to have an enforcement agency with some teeth because the wealthiest people can afford to move their own money around and skirt the rules, while poor people will be transacting with third parties that have an interest in collecting and remitting taxes. The grocery store would rather be in compliance with tax law, whether it's sales tax or income tax, but your private investment office doesn't have the same incentives.

Fair for whom always needs to be discussed when talking about fairness. I personally like the sales tax idea, or even a flat tax - in the sense that everyone pays the same without all the loops holes, deductions, exemptions, that exist to gain corporate favor, buy votes, or push agendas.

The problem with both of those is it isn't fair for some, specifically folks in the lower income brackets.

I don't have all of the answers but our current system taxes labor at a higher rate than investments, which creates a 'trickle-up' effect because the most wealthy make most of their money from investments. Then enforcement tends to hurt the little guy more. There is not much fair about our current system, so lots of room for improvement.

Sales taxes are regressive. A 10% sales tax is more of a poor person's income than a wealthy person's income.

Flat tax is also funny. Because it doesn't mean getting rid of loopholes and deductions, it means taxing every dollar the same. Effectively raising the taxes on those making less. Right now we have a progressive tax rate. Where the first X dollars are taxed at A%, the next Y dollars at A+5%, and so on.

Deductions would still exist because at some point someone is going to make a good point that that money was just taxed. Or that the money went to the same goal as the tax would have. Deductions are there to find out what your taxable income is. It affects how much you owe because 10% of 900 is not the same as 10% of 1000.

National wealth tax on land (unimproved value only), public goods (electromagnetic spectrum, mineral drilling rights, carbon emissions), network effects (including brands, communication networks, and marketplaces), and IP (patents/copyrights/trademarks).

It's highly progressive: the average person owns zero of these things, and so would pay zero tax. It causes virtually no deadweight loss or economic distortion: the supply of these goods is heavily inelastic, in many cases totally inelastic, and so a tax will not disincentivize firms from producing more. And there's even a moral argument for it: these goods exist out there, in the natural realm, and so when somebody "owns" them it doesn't mean they created them through their own labor, it means that the government has granted them a monopoly to develop and use them, and the government should be compensated for enforcing that right.

The issue with a sales tax is that it taxes on consumption instead of income. Consumption needs (as opposed to wants) stop increasing somewhere at around ~100k/yr (adjust for location). A high earner is incentivized to save most of their money and become wealthy to avoid tax.

Assuming 15% sales tax, no income tax collection.

Someone who makes 100k per year and spends nearly all pays ~15k via this sales tax or 15%.

Someone who makes 500k per year and spends 100k pays ~15k via this sales tax or 3%.

Someone who makes 10mm per year and spends 1mm pays $150k via this sales tax or 1.5%.

The lower income person pays a much higher rate, because they have to.

But don't they have to spend it eventually?

You'd need to also tax gifts and inheritance at the same rate for that to work. Also, because of the time value of money, delaying tax on wealth allows you to grow it more effectively. Even if the money is eventually taxed at X%, you had years or decades for it to compound first while people who need to spend it now don't have that opportunity.

Well, first, no, they don't. Gifts, inheritance, spending it via "charitable" organizations, or better yet spend in lower tax regions. We have multi-generational trust fund families.

Secondly, they can accumulate more wealth much faster than they can spend. Plus they can play with things on a longer time horizon and move internationally. Like, say once the sales tax drops.

Not without an inheritance and gift tax of 100%, and not if they invest it.

High sales taxes tend to spur low-tax zones nearby. The wealthy can use these to get around taxes. For example, border runs for those who live near borders (because custom enforcement is often lax). Or doing purchases of highly expensive items in those low-tax zones and keeping them there -- such is already done now with high-value artworks and vehicles.

Rich people love sales taxes, since their spending is a very small percentage of their net worth.

For example, Bezos's $500M yacht might look expensive in absolute terms, but his net worth went up $74B last year. I'm sure that given the choice, he'd rather pay sales taxes than capital gains taxes.

That $74B isn't cash though, its in stock value. Jeff can hold that stock for a while and only pay long term capital gains. He can probably also make any W2 income like $1, giving him a 0% tax rate on those capital gains. Which means he'll pay more in sales tax than income tax, even under the current system.

The 0% on capital gains is nice, but as he's now single, it's only applicable for his first $40k of taxable income. So, if he can live on $40k in cap gains, and $1 of w-2, he can get off with no taxes. If he cashes in $1M in cap gains, most of that is taxed (about half at 15% and half at 20%, and most of it will also get the 3.8% net investment income tax)

I ignored deductions, including standard deduction. The point is the 0% capital gains rate isn't a magic loophole to channel billions through, it only has a small amount of room.

But you can take a dirt cheap loans due to low interest rates on your stock. The more stock value you have the cheaper interest rate you get. Therefore you don't need to sell your stock as long as it makes more than the <3% interest rate you're being charged. Even if it doesn't, it's still cheaper than paying taxes.

All of this complication is the problem. Jeff ends up getting benefits that most people don't get, at least not most younger people.

15% and/or 20% plus 3.8% is still less than the 22% to 32% range that a lot of people will fall into. And that 22-32% is on 100% of taxable income, there is no break on part of it.

Ok, but you're moving the goalposts a lot.

The government is clearly incentivising long term capital gains here. The nice thing is it's easier than ever to get into a brokerage account and buy sensible funds without paying a lot of fees. Robinhood may have started it, but fidelity and maybe others will let you buy fractional shares in etfs as long as you're putting in at least $1. Mutual funds have let you do fractional shares for a long time too, but minimums are higher and $1,000 to get into a vanguard target date fund might be too much for some people.

That is kinda the point, the current policy helps richer people, and older people that have amassed some investments, but for many and for most younger people there isn't much benefit. Why should the burden be shifted to labor? Wouldn't the investment plan work even better if everyone got the same tax break to say 15-20%? I mean people would have more to invest every year and so compounding works even better. It doesn't make sense to punish labor - its all income, why does the source matter?. Our current system shifts taxes to labor and stifles labor's ability to invest and realize gains.

Point 2 was the reason for the Wesley Snipes prosecution.

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