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Comment by donatj | Hacker News Reader

I don't understand why we don't just not tax income below say $20k. It can't be a lot of money for the government even in aggregate, and it would make a huge difference in low income people's lives, arguably larger than any of the government programs their taxes are going to fund.

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This is already the case and has been for quite some time. The table depicted at the link is shows tax rates before deductions. Think of it as a "top line" or "nominal" tax rate. People making under $20k (and more) have an effective tax rate of $0 in the USA.

As Mitt Romney pointed out in 2012 [1]: "Forty-seven percent of Americans pay no income tax."

[1] https://www.politifact.com/factchecks/2012/sep/18/mitt-romne...

With the earned income tax credit, many people at that income level "pay" negative income tax.

It is often negative.

The rates presented are slightly misleading because it's not including the standard deduction. For a single individual in 2021, income below $12,550 is effectively not taxed (or $25,100 for married couples).

The tax brackets are always based on AGI, millions have an effective negative tax rate due to EITC.

That's what the standard deduction does.

For example, 57% of households did not pay any federal income tax in 2021: https://www.cnbc.com/2022/03/25/57percent-of-us-households-p...

That's not even from COVID, the percentages are fairly similar going back a number of years.

If some politician really wanted to make a difference, then move FICA (employee not employer) to start at something like $30k and continue higher before the cutoff, then add a tax after a million to cover the low income folks' FICA. Then make the individual deduction $30k.

I am really opposed to taxing things that aren't actually realized (stock). The number of horror stories on HN about stock options just leads me to believe we do it wrong. I would rather we do a better job on the transaction to cash out.

The key problem for <$20k earners is the constant 7.65% FICA ("Social Security/Medicare") Tax plus any local taxes, not income tax.

After the standard deduction, the net income tax rate for a single filer making $20k is 3.75%. For a couple filing jointly it's 0 up through $25.5k/yr.

In both cases, the EITC guarantees those with at least one child a (substantially) negative effective tax rate, while single child-free filers are left with about a 2.6% effective rate.

$20k x 2 >> $25.5k. Marriage penalty in action.

The post-deduction income tax rate for a MFJ household making $40k is also 3.75%. There are some examples of a marriage penalty -- and others of a marriage benefit -- but this isn't an example of either one of them.

We do this in Australia (($18,200). It largely works well. The downside is people can use others tax free threshold. E.g. If someone is working and is married to housewife plus has a couple kids at uni, if they have a business or assets in trust they can distribute $20k to each person so now they have $80k effectively tax free.

I'm not sure the scale of this being taken advantage off though but it's well know benifit if you situation allows.

This should not be a problem. Basically you are saying each person gets 20k tax free. If one person is earning and supporting the other then yeah they should get 40k tax free. But if they are both working they will still only get 40k tax free.

I don’t disagree. And I think what with various subsidies and whatnot it may be that the effective tax rate for people making that little is zero.

Two theories: 1) Maybe it’s better for everyone to feel like they are ‘chipping in’ … for pride and unity.

2) Maybe the government is really invested in knowing what everyone makes, regardless of the net on it.

Also avoiding the "they don't even pay taxes" talk about people with low incomes.

If you would consider $12,400 a value of "say $20k" this is already the case... and the tax rate on the remaining $7600 is 10%. Someone earning $20k qualifies for other benefits worth more than $760, so their total effective tax rate is already negative.

I mean we basically don't 12% of $20k (ignore marginal rates just taking the top braket) is $2.4k and the standard deduction is $12,400 for single filers.

> I don't understand why we don't just not tax income below say $20k.

Because you want people to feel like they have skin in the game.

I wonder if they'd feel better about that if they could instead earn enough where they actually had to pay income tax. It's not much consolation that you have skin in the game if you can only get 15 bucks an hour.

With the deductions it cost nothing, but it gets then the same feeling, and a visibility of how it works should they start making more money.

This is easy. Because we have a well-established institutional hate for poor people. There is a subconscious belief that poor people are poor solely because of poor decisions. So, it's not our job to improve their lives. It would be 'unfair' for the rest of society to keep these 'freeloaders' afloat. /s

There's gonna be a lot of comments in here saying ^^ but unironically. It's just ingrained in the fabric of our society.

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