Worst tax ever

Someone in another forum proposed to me the worst tax idea ever.

They proposed a tax on businesses where their tax rate would be a percentage of their revenues. Each business's tax-rate would be equal to their profit-margin times their expenses. So, firms with high profit margins and high spending would pay more tax than firms with low profit margins and low spending. In other words, it's a progressive tax on productivity with a complete exemption on taxing consumption.

I know that you all hate taxes, even the fairtax. But if you were to be asked which tax you think is least undesirable and which is most undesirable, what would your answer be?

 Until now, I would've thought that tariffs were the worst, but a "progressive tax on business productivity" takes the cake. I'd say that the taiff comes in second, then, followed by the corporate tax.

As for my favorite tax, I lean towards progressive income taxation, but I acknowledge its drawbacks and the efficiency of consumption taxation. While you all think taxation should be abolished, I believe the best way to mitigate the distributional impacts of taxation is through diversity in the means of taxation. Since even consumption taxes favor production over consumption (and consumption is just as much a part of the production process), only through some ambiguous diversity of taxation could taxes be truly "temporally neutral."

This brings to mind a debate I had in high school (so ages ago...) with our philosophy teacher. I argued (my mental processes are quite simply) "if, according to the law, we are equal why progressive taxation? Shouldn't everyone pay the same "flat" tariff? 10%? 20% 30%? Why higher wage earners are to be punished?" The reply didn't convince me one bit but it made me perfectly aware of the ideological basis of progressive taxation "From everyone according to his means, to everyone according to his needs". Karl Marx is alive and well in the school system.

Moreover during recent years I became convinced that progressive taxation is really a mean to punish middle-class wage earners and investors, the "salt of the earth". Marx's ferocious hatred of the "bourgeoise" is still alive and well: lower brackets will always see progressive taxation as a struggle towards "equality" while top brackets usually don't care. They are either so wealthy that they do not care how much they pay or they can easily relocate to lower-taxation havens. In Europe the phenomenon is particulary felt, with many billionaires relocating to England and Switzerland and many businesses moving to Slovakia, Ireland and other tax haven.

Middle-class wage earners usually cannot move around that freely or find such "easy" ways to reduce taxation so are particulary easy targets for a rapacious State.

Here's a chart the person made of their proposal:

See what I mean? 

Kakugo:

This brings to mind a debate I had in high school (so ages ago...) with our philosophy teacher. I argued (my mental processes are quite simply) "if, according to the law, we are equal why progressive taxation? Shouldn't everyone pay the same "flat" tariff? 10%? 20% 30%? Why higher wage earners are to be punished?" The reply didn't convince me one bit but it made me perfectly aware of the ideological basis of progressive taxation "From everyone according to his means, to everyone according to his needs". Karl Marx is alive and well in the school system.

Moreover during recent years I became convinced that progressive taxation is really a mean to punish middle-class wage earners and investors, the "salt of the earth". Marx's ferocious hatred of the "bourgeoise" is still alive and well: lower brackets will always see progressive taxation as a struggle towards "equality" while top brackets usually don't care. They are either so wealthy that they do not care how much they pay or they can easily relocate to lower-taxation havens. In Europe the phenomenon is particulary felt, with many billionaires relocating to England and Switzerland and many businesses moving to Slovakia, Ireland and other tax haven.

Middle-class wage earners usually cannot move around that freely or find such "easy" ways to reduce taxation so are particulary easy targets for a rapacious State.

 

Kakugo, quality-of-life is determined by consumption. Reduction in savings for people, for instance, only reduces their quality of life because they can't consume later in life, such as when they retire.

And a tax which is progressive according to the marginal propensity to consume would have no impact on anyone's spending habits. In this regard, it wouldn't impact their lives at all, except for their ability to save, which the poor and middle-class tend to do very little of.

So, it depends on how progressive it is. If it's more progressive than the MPC, you're right, it makes it almost impossible for a person to move from the second to the third or fourth quartile. On the other hand, if it's a flat tax, people who are hard workers can advance much more quickly, but the quality of life of low and middle income workers is reduced, as they aren't able to have the same amount of disposable income each month. Their lack of disposable income may also make it difficult to pay for education, which is the key to higher earnings.

Furthermore, the progressive tax is favored because it acts as an automatic stabilizer in the business-cycle. With a progressive tax, the government doesn't need to raise or lower taxes to address rising and falling aggregate demand, but can just let the progressive tax work its magic.

 To name the worst tax ever, I must say, that it has to be inflation. In a way this too is a progressive tax making its biggest effect on the poor with steady income. Another thing it does is of course the instability in the business-cycle. As noted abov, to encounter that the progressive income tax on workers gets implemented. But perhaps the worst thing about inflation is that it's almost entirely out of the control of the public and is seen as something that just is around and can't be gotten rid of.

 About the progressive income tax on companies. Isn't that actually opposite to the one put on individuals? I mean it supports engagement in sectors with low profit-margins and therefore causes over-production there. This seems very similar to the malinvestments caused by inflation in the business-cycle. On the other hand it would provide some more stability to the economy by eliminating the most adventures industries with high risks, but then again wouldn't that start to hamper innovation and progress alltogether? It just seems to be another thing that gives an edge to multi-million companies that can bear the risks of mixed activities more easily.

Don Roberto:

 To name the worst tax ever, I must say, that it has to be inflation.

Exactly how does inflation generate revenue?

And if an inflation is a tax, what does that make deflation? Free money?

 

Don Roberto:

About the progressive income tax on companies. Isn't that actually opposite to the one put on individuals? I mean it supports engagement in sectors with low profit-margins and therefore causes over-production there. This seems very similar to the malinvestments caused by inflation in the business-cycle. On the other hand it would provide some more stability to the economy by eliminating the most adventures industries with high risks, but then again wouldn't that start to hamper innovation and progress alltogether? It just seems to be another thing that gives an edge to multi-million companies that can bear the risks of mixed activities more easily.

The business tax he proposes is progressive up to the point of businesses that make 50% net profit or less. It's regressive from that point onward.

I don't think very many (if any) businesses make more than 50% net profit. So, it's basically just a progressive business tax. And yes, that means it would prevent smaller businesses from growing, which is what makes it so ridiculously stupid.

Nathyn:

Exactly how does inflation generate revenue?

 

Since it takes time for the new money to spread around the economy it gives an advantage to those who get it first. The burst of fresh money changes the relative amounts held by different individuals. As the prices change thanks to the inflates supply of money the ones whos relative share increases get an advantage on the expense of those whose share decreases. The ones closer to the fresh money get to know of the bigger supply earlier and can adjust their prices/wages faster than the ones further away.

At least, that's the way I've understood the business cycle, if I'm a bit incorrect somewhere please do correct me.

Nathyn:

And if an inflation is a tax, what does that make deflation? Free money?

 Deflation, if infact caused by decreasing the money supply, could easily be called a tax return (not sure about the term in englsih). But that of course would require that the money leaves the economy in the same order it came in.

Don Roberto:

Nathyn:

Exactly how does inflation generate revenue?

 

Since it takes time for the new money to spread around the economy it gives an advantage to those who get it first. The burst of fresh money changes the relative amounts held by different individuals. As the prices change thanks to the inflates supply of money the ones whos relative share increases get an advantage on the expense of those whose share decreases. The ones closer to the fresh money get to know of the bigger supply earlier and can adjust their prices/wages faster than the ones further away.

 

I would just add that what makes inflation a tax is that it is the government who are the first holders of the new money. The benefactors of this new money get to consume wealth that they did not create which implies that someone else will have to consume less. It is a transfer of wealth away from real wealth creators to the holders of the new money.i.e. It is, in effect, a tax.

 Taxation is theft. Is there a thing as "good" theft? I don't think I ever heard of one. There is no such thing as a "good" disease, either. Some kill, some don't, but I see no "good" in sniffles only because the sniffels don't kill me.

 

Don Roberto:

Nathyn:

Exactly how does inflation generate revenue?

Since it takes time for the new money to spread around the economy it gives an advantage to those who get it first.

If they spend it on tangible assets, which banks usually don't, then yes.

If they don't, then the real return on investment of inflated money is not higher, no matter when they get it, because any return would be in inflated dollars. If inflation is high, banks would have to invest the money heavily in high risk, high return projects, just to keep up with inflation. Most of their investments would fail, leading to more of them losing money than gaining.

Meanwhile, banks themselves are hurt because:

-Their reserve ratios become worthless

-Debts owed to them drop in value

-People stop borrowing

-People stop depositing money and even withdraw all of their money, out of fear of bank runs

For all of these reasons, banks do not profit from inflation. Another thing to consider is rational expectations. If people expect that government expansion of the money supply is going to cause inflation, they will pull their money out of banks and put it into tangible assets, like gold, thus effectively destroying money equal to the amount of money created.

And then there's the fact that no actual "physical" money is necessarily created. The Fed funds itself based on the buying and selling of securities. It buys and sells securities it already owns, not securities it creates out of thin-air. And banks, the federal reserve, and people themselves will only purchase treasury securities if they have some confidence that the government's monetary system isn't going to collapse or be unstable.

On the contrary, banks because they are financial institutions that derive their income from savings and loaning, benefit far more from financial stability. 

Don Roberto:

The burst of fresh money changes the relative amounts held by different individuals. As the prices change thanks to the inflates supply of money the ones whos relative share increases get an advantage on the expense of those whose share decreases. The ones closer to the fresh money get to know of the bigger supply earlier and can adjust their prices/wages faster than the ones further away.

They're called "open market operations" because we know what the Fed does and when. Every week, they meet and give us a report, and congress has oversight. The chairman of the Fed is required to disclose all of his investments, to make sure he isn't engaging in any insider trading.

I prefer to look at the question in terms of what effect each tax method has on liberty. Historically, if you didn't pay an excise tax the authorities would usually seize your goods. And If you didn't pay a property tax they would take your property. But with an income tax the only thing the tax police can seize is your person. So I think the income tax, whether progressive or not, is the worst form of tax. Import tariffs are probably the least intrusive since only a small number of people ever have to deal with the tax police.

DBratton:

I prefer to look at the question in terms of what effect each tax method has on liberty. Historically, if you didn't pay an excise tax the authorities would usually seize your goods. And If you didn't pay a property tax they would take your property. But with an income tax the only thing the tax police can seize is your person. So I think the income tax, whether progressive or not, is the worst form of tax. Import tariffs are probably the least intrusive since only a small number of people ever have to deal with the tax police.

 

Take into account the tariff's effect on prices and unemployment. You say that "tariffs are probably the least intrusive" but then the Smoot-Hawley Act was a contributor to the Great Depression, which affected everyone.

Nathyn:

Meanwhile, banks themselves are hurt because:

-Their reserve ratios become worthless

-Debts owed to them drop in value

-People stop borrowing

-People stop depositing money and even withdraw all of their money, out of fear of bank runs

For all of these reasons, banks do not profit from inflation. Another thing to consider is rational expectations. If people expect that government expansion of the money supply is going to cause inflation, they will pull their money out of banks and put it into tangible assets, like gold, thus effectively destroying money equal to the amount of money created.

Let's not forget that banks have repeatedly been in trouble and government has always come to their rescue with different measures. There are also many points in legislations that give banks an upper-hand in comparison to other industries and this is where their profit begins. What the've learned is that today they do not loan-out to maximum just to keep some kind of a buffer in order if something happens. Yet once in a while they run into trouble.

Nathyn:

Take into account the tariff's effect on prices and unemployment. You say that "tariffs are probably the least intrusive" but then the Smoot-Hawley Act was a contributor to the Great Depression, which affected everyone.

 

 

Yes, destructive economic effects can be traced to every type of tax. But my point was they don't need to put ordinary people in jail to enforce an import tariff, whereas income taxes cannot be enforced any other way.

Don Roberto:

Nathyn:

Meanwhile, banks themselves are hurt because:

-Their reserve ratios become worthless

-Debts owed to them drop in value

-People stop borrowing

-People stop depositing money and even withdraw all of their money, out of fear of bank runs

For all of these reasons, banks do not profit from inflation. Another thing to consider is rational expectations. If people expect that government expansion of the money supply is going to cause inflation, they will pull their money out of banks and put it into tangible assets, like gold, thus effectively destroying money equal to the amount of money created.

Let's not forget that banks have repeatedly been in trouble and government has always come to their rescue with different measures. There are also many points in legislations that give banks an upper-hand in comparison to other industries and this is where their profit begins. What the've learned is that today they do not loan-out to maximum just to keep some kind of a buffer in order if something happens. Yet once in a while they run into trouble.

 

Banks face more restrictions on them that help savers and borrowers.

They aren't subsidized, protected from competition, or deregulated. And before you mention FDIC, banks by law must pay fa premium or it.

Nathyn:

-People stop borrowing

 

 

I think you have that backwards. During inflation people will want to borrow more since they will be paying back less real value than they are borrowing. Your next point that people stop saving (ie. lending to the bank) reflects this. 

 

DBratton:

Nathyn:

Take into account the tariff's effect on prices and unemployment. You say that "tariffs are probably the least intrusive" but then the Smoot-Hawley Act was a contributor to the Great Depression, which affected everyone.

 

 

Yes, destructive economic effects can be traced to every type of tax. But my point was they don't need to put ordinary people in jail to enforce an import tariff, whereas income taxes cannot be enforced any other way.

 

Certain forms of tax are more destructive than others. I'd rather that income tax dodgers be put in jail than everyone in America be substantially poor due to tariffs.

 

Nathyn:

And before you mention FDIC, banks by law must pay fa premium or it.

 

It's not really a premium though because it isn't set by the market. It's a rate set by the government for a service to be determined by the government. In other words, it's a tax.

 

Nathyn:

Certain forms of tax are more destructive than others. I'd rather that income tax dodgers be put in jail than everyone in America be substantially poor due to tariffs.

 

I don't agree that an import tariff is necessarily more destructive to the economy than the income tax. I think the rates have more to do with economic harm than the type of tax. I think the more important issue is that in order to enforce any tax you first have to create a state with that capability. An import tariff just requires a relatively few customs officials. The income tax requires a vast bureaucracy capable of tracking down every form of income for every inhabitant.

Nathyn:

Another thing to consider is rational expectations. If people expect that government expansion of the money supply is going to cause inflation, they will pull their money out of banks and put it into tangible assets, like gold, thus effectively destroying money equal to the amount of money created.

 And then there's the fact that no actual "physical" money is necessarily created. The Fed funds itself based on the buying and selling of securities. It buys and sells securities it already owns, not securities it creates out of thin-air. And banks, the federal reserve, and people themselves will only purchase treasury securities if they have some confidence that the government's monetary system isn't going to collapse or be unstable.

 For one thing, the government does all in it's power to disguise the true extent of inflation. By discontinuing certain measures of money supply growth, by creating bogus measures of "overall price levels", by excluding as many things as they can that would push up these figures, they hide from all but the most astute observers the true extent of inflation.

 For another money is created "out of thin air" when the government issues t-bonds.

Whether or not banks profit from inflation is neither here nor there really, is it? We are talking about whether inflation works like a tax. We only need to demonstrate that the government benefits to make our case.

1.  Inflation

2.  Property taxes <of any kind>

Probably the two worst.  But most are very bad.  Let's rephrase the original topic.  What would be the LEAST destructive tax <assuming we must engage in taxation at all>

I would go with a flat income tax, based on earned income only.  Pick your percentage rate.  It would be the same tax rate from $1.00 to $1 Trillion.  No deductions.  No credits.  No exemptions.

the best tax is no tax. 

Nathyn, there's more than one point I do not understand about your theory.

First: how do you propose applying a progressive consumption tax? Will people be forced to go around with some kind of ID card which will be slipped in a credit-card like device at the moment of purchase? Will they have to carry a "mark of the Beast" like in the Apocalypse? How about foreigners?

Second: it's obvious that you live in the US, where the evil of heavy taxation is less felt than in Europe and tax dodging is still considered an "extraordinary" offense. I suggest you spend a few months in a small town in Catalunya or Lombardy to see how widespread this phenomenon is and why people think it a necessary "self-defense" measure and tend to tolerate tax-dodgers or even (privately) defend them. Sweden's largest employer is the local IRS: there must be a reason to this.

Third: I remember that I once heard a conservative English economist (don't ask who he was) proposing a progressive consumption tax to substitute for the present income taxation. On the paper it sounds great but there's a small catch. Which guarantees will be given that the progressive consumption tax will not simply be piled on top of the income tax or that, when money will not be enough to pay for all expenses, the income tax will not be reintroduced? He was asked this question but he was unable to answer properly.

Sorry to be a thorn in the side but I am very "down to earth" on economical matters.

 

 

It probably has something to do with taxes being sticky.

The worst tax is the income tax.  As in a previous post, if all men are created equal, then why the graduated tax?  Pinkos, hypocrites, all of them.  If we are taught to believe in America that every body has a right to vote, that everybody has rights in the Bill of Rights, then why are people discriminated against?  We are slaves to fiat and social welfare, and when it will all come down, there will be no difference between America and Nazi Germany, and the numbers will just not add up. 

WARREN G. HOMEBOY:

The worst tax is the income tax.  As in a previous post, if all men are created equal, then why the graduated tax?

 

I agree that the income tax is the worst type of tax. But your argument only addresses the progressive income tax. All income taxes, whether progressive or "regressive" are worse than other forms of tax because the means required to enforce an income tax are more severe and intrusive than the means needed to enforce other forms of tax.

My response was geared only toward progressive income tax, because it was the direction where some other posts were going toward, and as of now, "progressives" are a larger problem at hand that has to be stopped.  If the so called "progressives" are stopped, then you can go from there, but considering that we have an income tax in America right now, the first thing that must be stopped are "millionaire" and other taxes against the middle and upper classes.  The income tax as a whole is the worst, but the worst of that is the "progressive" ideal.

The worse taxes for the poor are the "monopoly tax", the inflation tax, and the corporate income tax. The poor has to pay more taxes for the embedded corporate income tax than income taxes.

Here's a what percentage of their income has to be paid in taxes and hidden taxes by GDP per capita quintile:

	Quintiles of Household Cash Money Income, Calendar Year 2004
	Bottom 20 Percent|	Second 20 Percent|	Third 20 Percent|	Fourth 20 Percent|	Top 20 Percent
Total Federal Taxes	38.9%	55.7%	61.5%	64.4%	70.2%
Income	4.0%	12.0%	17.6%	22.6%	35.7%
Payroll	21.2%	30.6%	32.0%	30.4%	22.5%
Corporate Income	6.3%	8.4%	8.2%	8.2%	8.1%
Gasoline	1.6%	1.2%	1.0%	0.8%	0.6%
Alcoholic Beverages	0.8%	0.4%	0.4%	0.3%	0.2%
Tobacco	1.2%	0.6%	0.3%	0.2%	0.1%
Diesel Fuel	0.2%	0.3%	0.3%	0.3%	0.3%
Air Transport	0.5%	0.4%	0.4%	0.4%	0.4%
Other Excise	1.0%	0.6%	0.4%	0.4%	0.2%
Customs, Duties, etc.	2.2%	1.2%	0.9%	0.8%	0.5%
Estate & Gift	0.0%	0.0%	0.0%	0.0%	1.7%

 

Source: http://www.taxfoundation.org/news/show/22694.html

To create a value - any value - consumes time. Lifetime. To steal part of the values I create means to steal part of my life. Taxation is piecemeal murder. Progressive taxation steals more time from people who are more productive, that's why it is more destructive than flat taxation. "Just" taxation is a sick joke as would be "just" murder or "just" theft.

So let us call a spade a spade. Any way of taxation is evil. It does not matter which way. 

Taxes on production are the worst.

 

Edit: i got rid of my comment on land value taxeslest I be called a socialist or a statist... 

Terilien:

Taxes on land values are the best sicne they're not destructive and indeed tend to encourage production(they discorurage absentee landlordship and speculation).

What is bad about speculation? Stock and other speculation is basically the same as entrepreneurship, it's predicting the uncertain future. Why should predicting only be left to the producers of goods?

I would tend to agree with Inflation as #1 on the worst tax list.  I do not care for the so-called "progressive" income tax either.  Besides it's Marxist origins, I see no "progress" associated with such taxation.  It's simply part of the old marxist axiom: "From each according to his ability, to each according to his need", although I may not have recalled marx verbatim.  I would certainly agree that the current "progressive" income tax has been quite successful when it comes to setting one class of individuals against another, even going so far as to idealize the concept of envy, and serving as a means by which the larger mob (at the ballot box) can punish smaller mobs.  This is after all just what Marx predicted.  Just because something is claimed to be "progressive" does not mean that it is either desirable or even genuinely progressive. 

 I would prefer an entirely regressive tax system that does not ask a man's occupation or anything regarding his economic station in life, his domestic relationship with another individual, his success (or failure) in bringing forth offspring into this world, questions regarding any physical disabilities that he may or may not have, his inclinations toward charity, his religious affiliation(s) or any other personal information that the government desires, not to simply collect a tax, but to provide information needed by government in order to better manage more and more of the details of our lives. 

If I make a purchase at, say, Wal-Mart, I hand over legal tender, in the form of Federal Reserve Notes, in order to cover the cost of the items I desire plus an additional amount, as a fixed percentage, which is turned over to the State treasury.  The more I purchase, the more I pay.  I receive any change due and leave with my purchased goods.  I do not fill out any forms, engage in any copious record-keeping or forced regurgitation of personal economic data (for which I cannot receive compensation).  How I came about the possession of that legal tender is never a subject of the transaction nor should it be.  When I hand over my legal tender, I do not have to swear, under penalty of perjury, as to information submitted to the retailer because no such information is required.  It is a tax which hears no evil, sees no evil and speaks no evil. 

The current system is simply a legal snare which, according to testimony from the IRS' own lawyers, can get any individual taxpayer prosecuted (whether guilty or not) anytime the government chooses to do so, and has been an excellent servant to various presidents who have sought to punish their political enemies.  Surely one, who advocates genuine freedom for all citizens, cannot genuinely lend support to such a system.

Best regards.

 You are right about that, the income tax is so invasive to personal liberty, so fundamentally unfair (loopholes can be bought for the right price), and such a burden on trying to enforce (is there such a thing such as the "income tax industrial complex"?) It has to be the worst tax EVAH.

I'm obligated by all common standards of decency to preface this reply with the following: All forcible expropriate of private property is theft, taxation is forcible expropriation of private property, ergo taxation is theft. Now, what is the "best" tax? I'd say it is the POLL TAX. If we are to be taxed for anything it should be for exercising our so-called "right" to coerce others into submitting to the arbitrary will of the majority.