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> why are individuals taxed rather than businesses?

The big question to me is, why do we tax production rather than consumption? We shouldn't have income taxes at all. We should have sales taxes. Make basic necessities like food exempt.

I've always heard that consumption taxes are regressive because poor people consume 100%+ of their income while rich people consume e.g. 1% of their income.

Bad logic, if u dont consume then who cares if u have money.

>who cares

The people who maintain the infrastructure which enables you to have that money.

The people who don't have money because you have it and won't spend it. The dragon's hoard is bad for everyone (including the dragon, ultimately).

You need to start thinking about the economy in terms of goods and services instead of money. Hoarded money is dead money, it's actually anti inflationary. If there are 100 apples and everyone can afford 1 apple except for a rich person who can buy it all, it's actually a good thing that the rich person doesnt spend their money to buy the apples, thus driving up the price and depleting supply.

You are conflating macro- and micro- economics a bit in that statement. Entities accumulating wealth incrementing towards infinity contributes to inflation, e.g. My family can spend 1 trillion to out-bid my competitor for ownership of a villa worth 1 billion for bragging rights.

Commodity pricing may contribute to inflation over time. But commodity prices go down, whereas currency tends to move in one direction until the civilization backing it collapses, or the specie changes.

I'm more talking about how hoarded money has no effect until its spent, at which point the consumption tax kicks in. I.e. it's not really a regressive tax because you are taxed based on how you live, not how you can live.

It would not be called "The Paradox of Saving" if that statement was true! =)

You're assuming all economic activity is good activity. Billionaire spend allocates capital to frivolous garbage that does not improve human experience.

I'm not sure it's true that rich people, on average, consume such a small percentage of their income. Think of all the rich people who end up having to declare bankruptcy--because they've spent so much on consumption that they've used up all their riches.

It's true, though, that on average, rich people consume less of their income than poor people, because they save or invest a portion of it instead, simply because they can. That's a good thing. Our current tax system discourages people from saving and investing, and encourages them to consume. Then something bad happens and we wonder why there's nothing saved to tide us over.

Exempting basic necessities from sales tax is how you prevent it from putting too much of a burden on poor people; most of what they consume is going to be basic necessities (or at least it should be, if they're rational), so it wouldn't be taxed.

Because that would incentivize sitting on money, and the economy works better when people spend money.

So does taxing income, since we don't let people deduct most of their expenses. If you want to make people spend money, you'd implement a wealth tax.

Every time we try to institute a wealth tax, billionaires get antsy and start supporting fascism.

Yeah, that's why we don't have one. :)

> that would incentivize sitting on money

No, it would incentivize investing, since if you just leave money sitting under a mattress, it loses buying power over time because of inflation.

> the economy works better when people spend money

The economy works better when people create wealth through cooperation, specialization, and trade. Taxing production reduces the incentive for people to do that.

Investing doesn't require people to save money; it causes money to be saved

> Investing doesn't require people to save money

It requires people to not consume; any money that is put towards investment is not put towards consumption.

But most things that you invest in are productive too. In general, the better the returns for the investment, the more productive they are (stocks>bonds>banks)

> most things that you invest in are productive too

Sure. But they aren't consumption. The whole point of investing is to forgo consumption now in order to put those resources to use for something else, something that will improve the situation in the future. That's where the returns on the investment come from.

It's somewhat easier to administer an income tax. It's (more) counter cyclical due to bracket creep. it might help deal with internal trade imbalances.

And it might be good to try and limit accumulation even if the accumulation doesn't have real economic effects; it can still create resentment or bestow power.

> It's somewhat easier to administer an income tax.

Um, what? It requires huge government agencies, a ton of impenetrable regulations, and a lot of bother for people who have to file.

Whereas we already have a much simpler system for assessing sales tax whenever people make purchases.

> why are individuals taxed rather than businesses

Because rich people would find ways for all their income to be realized by businesses they control, resulting in zero personal tax liability.

> particularly if VAT is a tax, which it isn't in America

America has sales tax, which is functionally the same as VAT. It's levied at the state level, and some states have a zero rate at present. We also have high import tariffs now, which again work like VAT.

> I have to say that the American tax system sounds like hell, compared to what we have in the UK.

True.

I don't get the first counterargument, since the OP is proposing taxing businesses. So the hypothetical rich guy here would want all the income to go to themselves, rather than the business.

Anyways, something something Georgism something something.

> it would make much more sense to just tax companies and not individuals

Sure, but taxes are applied due to political feasibility, not because they "make sense".

The most sensible approach is to tax natural resources (land, carbon, mines, wells, electromagnetic spectrum) and other forms of economic rent, but that is politically infeasible (edit: or more accurately, very challenging) in a capitalist democracy.

Back when the federal government was constrained to that permitted within the 10th amendment, the average person paid taxes almost exclusively through indirect tariffs, property taxes, and some levies (effectively sales tax) on purchased goods. But back then the non-wartime spend of the federal government was like 2-4% of GDP

I don't follow you or the GP - all of these (and more) are taxed. I'm in Alberta, Canada where we pay property (land) tax, personal income tax, corporate income tax, consumption tax, payroll tax, wealth tax, estate transfer tax, mineral taxes (often in-kind), and (until recently) a direct carbon tax. And that's not nearly all of them. I can't imagine the US is much different.

Sorry, I should have been more specific.

From an economic standpoint, the most "sensible" (i.e. most efficient and least distortionary) tax is one that relies primarily on natural resources and other forms of economic rent instead of taxing labor, businesses, non-land property, wealth, or the creation of value. However, these rent-based taxes would need to be set very high to fully replace income, corporate, payroll, sales, property, VAT, wealth, estate, etc taxes.

Switching to such a system would be painful for people whose net worth is disproportionately invested in land or who consume significant resources relative to their income. If the majority of the population fall into this category (as is not uncommon in capitalist democracies) then such taxes would be broadly unpopular, making them politically infeasible.

> that is politically infeasible in a capitalist democracy.

It’s more accurate to say it it’s politically infeasible in our capitalist oligarchy.

Just because this is the way our society works now, we shouldn’t be duped into thinking this is the natural order of things. It’s not. A democratic society with a free market economy could work very differently.

I agree that it's more "difficult" than "infeasible" so I've corrected above.

But I'm not sure I agree that the difficulty is due to being an oligarchy. In a democracy where the majority of citizens have the majority of their capital tied up in land (as is the case in the US and many capitalist democracies), shifting the tax burden onto land seems like it would be broadly unpopular.

I do agree with your main point though that a democratic society with a free market economy could work very differently, it's really the transition that would be broadly unpopular, and therefore politically difficult in a democracy.

Even a theocratic ~monarchy with a ~free market could work very differently. Dubai has minimal tax burden, with normally 0 income tax and a 0 or 9% corporate tax.