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Comment by andsoitis | Hacker News Reader

Income taxes are progressive while tariffs are regressive, so those under $150k are likely to be worse off.

How are tariffs regressive? Income taxes are obviously progressive. If you earn $100,000 you are going to be paying a higher percentage of your earnings compared to someone making $10,000 or $50,000. It's not intuitive that someone who makes $100,000 is going to be paying less in tariffs than someone making $50,000 though. How does that work?

They’re regressive in the sense that people with lower income spend more of it on consumption than people with higher income or wealth, who can save or invest at a higher rate.

He's not particularly intelligent.

On first glance that's the case, in practice they clamp down hardest on middle and professional classes. The rich borrow against gains or pay long term capital gains, or just "re-invest" (no profit) into durable assets for their business that hold value longer than they'll be alive.

The scam of income tax is that it's progressive on paper but not in practice.

You are not wrong, but that situation won't change if you moved to another taxation scheme. The poor are too poor to have much to take from them. So they go after those who are a rung or two above to tax. The dynamic does not change irrespective of taxation system.

"The scam of income tax is that it's progressive on paper but not in practice."

Perfectly put. It's always bothered me that the tax brackets don't continue on in a logarithmic fashion, e.g. new brackets at 1.5 million, 15 million, 150 million, etc.

Focusing on brackets for earned income is a distraction. Those only apply to relatively rare sports stars, actors, etc. The real cheats are things like tax rates being lower for capital gains, and that people receiving rental/royalty income can subtract all of their expenses (whereas wage earners cannot).

Arguably a bigger cheat is that if you have enough wealth tied up in stocks, you can realize capital gains for the sake of taking out loans to live off of without having to realize the gains for the sake of taxes. Then, you can pass those investments onto your inheritors with a stepped-up cost basis so they don't have to pay tax on the gains, either.

Yes even though I'm no fan of taxes, allowing borrowing against gains is clearly "realizing" them, it is an absolutely absurd fiction that allows this to be untaxed.

Ah yes: buy, borrow, and die. It definitely works.

I don't think stepped-up basis should go away though, otherwise it's just the government getting a second cut of the inflation it causes.

The bigger issue for society is that our equity markets just don't have any real risk of losing your lunch anymore, so these strategies emerge.

Sure, that was already mentioned and I skipped mentioning it again because focusing too much on that one thing is likely to distract from the overall problem. It's not bigger, it's just different. It has also been made less attractive now that interest rates exist again (at least for the time being until Krasnov gets his hands on that lever of market manipulation)

(another one in the same vein is that when you donate an appreciated asset, you get a tax deduction of the unrealized value)

> The rich borrow against gains

That they have to pay back with interest. This made a little sense except for short-term loans when one had liquidity issues when interest rates were close to zero or in very, very limited circumstances where someone knew they were close to death - but that more has to do with the broken way we handle taxing inheritance.

With the prime rate is 7.5% today, it makes far less sense.

> "re-invest" (no profit) into durable assets for their business

Capital expenditures aren't subtracted from revenue. They have no effect on profit.

>Capital expenditures aren't subtracted from revenue. They have no effect on profit.

This is a cheap slight of hand to confuse unsophisticated readers. It has effect on taxable profit since much of cap ex is deductible.

> since much of cap ex is deductible

Since when?

Last I checked, capex was not deductible. You can deduct depreciation of assets over time, but that's not going to offset profit to create a loss unless you're spending far more money than you profited (by say, taking out loans).

There is the expiring bonus depreciation provision on a limited limited class of assets which would let you create a loss, but even that's subject to recapture if you sell those assets.

About 3/4 of households make under $150k/year. Having no income tax will be hugely popular with them. It would kill the argument that Trump is only interested tax breaks for the rich.

It would also make it politically untenable to get rid of tariffs and reinstate income tax.

Yea, this is the thing. Can you imagine transitioning over to a 0 income tax situation and then adding all of that infrastructure back? You know DOGE is going to nuke the servers that do it and rm -rf the repositories so if it's ever returned to law, everything will need to be done from scratch (likely making it untenable).

If you're an IT professional in the US Government, I would argue you have an obligation as a concerned citizen to make some local backups of the code powering the systems you work on every day and keep them somewhere safe...

Or it would make it politically quite tenable to get rid of tariffs and greatly raise income taxes on people making over $150k.

They already do pay the vast majority of income taxes.

The main takeaway from this fact being astonishment at just how much the top 1% really earns!

True, they pay around 75-80% of income taxes.

I suppose the good news for them then is that if tariffs fail to replace the 20-25% of income tax that would be lost by eliminating income tax on people making under $150k and it has to come from raising taxes on the folks making over $150k it would only be a 25-33% tax increase on them.

It's a good start, now let's raise capital gains taxes to where they rightly out to be (i.e. more than sweat-of-the-brow income, not less).

That's because they make the vast majority of the income.

People really don't comprehend how much money the top 0.01% makes.

I don't see the numbers though. Tariffs are a compete non-starter as far as government revenue goes, "income from tariffs" on the "countries that have been robbing us" is mere theatrics (those countries only accepted what was given/pushed to them)... Ergo, borrowing remains the only option, with lots and lots of inflation. I'm not sure how popular that will be.

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