Comment by sliverstorm | Hacker News Reader

Comment by sliverstorm | Hacker News Reader

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I will never be wealthy and I will still continue to vote for a fair tax system. A flat tax system. Because everyone should pay the same, regardless of status or income.

Trouble with a flat tax system is the poor can't afford the tax rates the nation's current expenditure would require. It would work O.K. if the expenditure was much lower, but I see no way to get from here to there.

Aside from that, I've come to believe that a flat tax system isn't actually fair. The less income someone has, the more taxes cut into basic living expenses (because a greater portion of that person's income is spent on basic needs). On the other hand, someone with large incomes sees no tightening of basic living expenses because they make enough that the money lost to taxes falls solidly into the "extra income" region.

I'm not very good at describing this idea yet, but I tie it back to the idea I have happened upon that (for example) a 25% raise to a person making $40k is in terms of spending power much more than a 25% raise. This is because discretionary income is much smaller than $40k. The new $10k can be considered added discretionary income (assuming the person was meeting basic needs before) thus making it in effect much larger than a 25% bump.

I am not an economist, but it sounds like you're getting at something similar to the diminishing marginal utility of money. I can't find a good source online that explains this, but the basic idea is that the more money someone has, the less each additional increment is actually worth. For example, a $10,000 raise is a lot more useful to a person that makes $50,000 a year than to one who makes $500,000 a year.

There may be a connection with progressive taxation, in the sense that if money has diminishing marginal utility, then a flat tax on money is actually regressive in terms of utility. So then a progressive tax on money is closer to being "fair" in the sense of being a flatter tax on utility.

That's correct. Alfred Marshall's theories of utility are the basis of modern economic analysis. Todd Buchholz' New Ideas from Dead Economists has a great introduction to these ideas while being more accessible than the typical econ textbook.

http://www.amazon.com/New-Ideas-Dead-Economists-Introduction...

Thanks, this ties in to what I was saying very well.

"The less income someone has, the more taxes cut into basic living expenses (because a greater portion of that person's income is spent on basic needs)."

Covered by Milton Friedman's proposal of a flat tax with a minimum standard of living deductible, e.g. 10k USD. Furthermore, those making less than that 10k would get the 'refund' as some sort of social security. Developed in his book "Capitalism and Freedom".

"I'm not very good at describing this idea yet,"

What your describing is, as far as I can tell, the concept of "marginal utility".

Oh god. Don't give them a refund, just make the first X,000 tax free. That's better than circulating the money through the hands of a bunch of bureaucrats.

I think the act of actually paying a tax is quite important, despite the bureaucratic overhead. For the same reason, I think payroll taxes and the like should be directly paid by checks (not just deducted from pay and handled by the employer). This way, a person would actually have that money and then have to commit the physical act of giving their money to the government instead of just seeing it as money not in their paycheck.

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