Progressive Taxation Act (Failed)

[Southern Senator North Carolina Yankee]

There is a certain point beyond which a tax rate is completely inneffective and innefficient. 75% is completely insane.

[Southern Senator North Carolina Yankee]

Even I have to admit that 75% is too high.  Bring it down to 60-65.

     I'm pretty sure that the marginal rate on the highest bracket is already 60%.

Yes, the top rate is 60%. So its not like its the Bush 2003 rates we are talking about raising here. Considering how progressive our tax code is now in Atlasia, you have to ask the question why is 75% better then 60%?

Well, I am not an economist and I don't really know how much impact this bill will have on tax revenues, but I really don't know what leads you to say it can't work. Raising taxes to fix our budget is a possibility that people seem to dismiss far too easily. I am not a taxation integrist but I don't see why tax hike wouldn't be as effective, if not more, than spending cuts.

1. You aren't an economist
2. You aren't sure what impact this will have on revenues.

Yet you are sure that passing this will help the deficit. Hypothetically speaking then, suppose this actually caused revenue to fall, would you still push it "to fix the deficit"? I mean if you don't know what impact on the deficit, then its possible that it could even make it worse, correct?

[Southern Senator North Carolina Yankee]

Yet you are sure that passing this will help the deficit. Hypothetically speaking then, suppose this actually caused revenue to fall, would you still push it "to fix the deficit"? I mean if you don't know what impact on the deficit, then its possible that it could even make it worse, correct?

I fail to see how it could. People are attracted by tax evasion whatever the rates are, and raising them somewhat wouldn't certainly lead to a massive emigration movement.

I don't know how much revenue it will raise, but I know for sure it will.

But doesn't the incentive increase with the level of taxation? Each man has a threshold, that once pushed or exceeded could drive them to engaged in such illegal behavior. And plus, there are different forms of what is essentially tax evasion and what is tax avoidance. You could have people use legal means to avoid this tax rate, either by shifting income through some other means or what not to avoid it.

Okay. What if it doesn't raise that much? Suppose the benefit on the deficit is barely noticeable. Would the mal effects of such a high rate outweight such a tiny increase in revenue?

[Southern Senator North Carolina Yankee]

Yet you are sure that passing this will help the deficit. Hypothetically speaking then, suppose this actually caused revenue to fall, would you still push it "to fix the deficit"? I mean if you don't know what impact on the deficit, then its possible that it could even make it worse, correct?

I fail to see how it could. People are attracted by tax evasion whatever the rates are, and raising them somewhat wouldn't certainly lead to a massive emigration movement.

I don't know how much revenue it will raise, but I know for sure it will.

But doesn't the incentive increase with the level of taxation? Each man has a threshold, that once pushed or exceeded could drive them to engaged in such illegal behavior. And plus, there are different forms of what is essentially tax evasion and what is tax avoidance. You could have people use legal means to avoid this tax rate, either by shifting income through some other means or what not to avoid it.

Okay. What if it doesn't raise that much? Suppose the benefit on the deficit is barely noticeable. Would the mal effects of such a high rate outweight such a tiny increase in revenue?

I don't beliveve fiscal evasion works that way. I think most people would either try to do whatever they can to reduce their taxes, and other people (a majority) would accept taxes as they are and enjoy their still considerable wealth. In France a formidable "fiscal shelter" bill was passed, aimed to reduce the taxes for the wealthier, and thus with the goal of limiting fiscal exile. And yet, fiscal exiles continued as they went year after years, and the State lost milions of euros for nothing.

Of course, if I thought the risks were lower than the benefits, I wouldn't support this bill. If this is you only concern, why not giving it a try and after a couple of months ask the GM if this has worked well or not ?

I don't know the specifics of the bill in France to which you speak or when it was enacted. If it was enacted in say 2007, of course revenue would drop in the immediate aftermath of the bills passage and it would be because of the global recession, not the bill itself.

There have been cases, in which success has been hit by lowering and simplifying rates in terms of reducing tax sheltering etc. Of course there is more to tax avoidance then just sheltering.

[Southern Senator North Carolina Yankee]

There is a tax on capital gains, Antonio, its just lower than regular income tax.

So we basically take more money from people who actually earn their living by doing something, than from people who merely use their money to gain money ? Congratulation, Atlasia, you win the first prize for fiscal silliness !

Everybody uses money to gain money. Thats the dumbest line of pseudo populism I have ever heard. Capital gains are the ROI for private sector investment. I consider investing not only doing something, but doing something pretty damn important. And lets not forget that we aren't talking about just rich folks and hedge funds here. We are talking about retirement accounts and pension funds which are often invested in a variety of assets. Not only are your taxing the ROI they accrue directly, but indirectly by the collective cummulative effect of a higher cap gains tax on the value of the assets in which they are invested (Simple economics 101, less ROI will lead to less demand for the assets, thus the assets decline in value).

Its not a casino. It is not a game of black jack (more populist bs which I can't stand, comparing it to gambling to demonize it). They serve an important purpose. Unless you think all investment in the economy can and should be from the gov't (which is both ridiculous and impossible), then I would encourage you to reach a greater understanding of their purpose and importance to the economy. 

If you guys change the capital gains tax, make sure it's in line with the rest of the world. We don't want to discourage foreign investment in our equity markets.

Who do you want to copy? Every country has a different rate, some have none.

[Southern Senator North Carolina Yankee]

Without commenting for or against this bill, if I wanted to make a case for or against this bill's economic and budgetary impact I would go back to historical periods in time when we had higher marginal income tax rates (90% rates in the 50's have been mentioned thus far; the top rate was 70% for a decade until Kemp-Roth passed in 1981), and then make arguments as to what effect, if any, those higher marginal rates--as well as getting rid of them--had both on economic growth and budget revenues.

That's quite likely what the GM's office is going to do if this bill passes (amended or otherwise). As I'm not really sure right now exactly what the effects of raising top rates would be, I suggest making the case now.

As an economics student...the reason why these rates are history is not a neoliberal conspiracy like Antonio thinks, it's the fact that politicians realized they could scrap them without losing any revenue.

People with incomes on these levels already have people working for them on tax avoidance. It's a good example of a tax that is unlikely to be paid by everyone and leads to waste of resources on manipulating the tax system.

There is a reason for why no Western country today has a rate higher than about 55% or so.

Interesting. FWIW everyone here's some tables of relative tax rates worldwide (capital gains and corporate tax rates are not included, however). It's Wikipedia, so caveat emptor).

http://en.wikipedia.org/wiki/Tax_rates_around_the_world

In what in Sweden is called "the tax reform of the century" a bipartisan deal on taxes was struck in 1990. Some of the cornerstones were cutting the highest marginal tax rate from 75% to 50%, cutting the corporate tax in half (from 56% to 28% or something like that), introducing a unified tax on all capital gains (30%), a unified VAT of around 25% and eliminating all sorts of loopholes and deductions. It didn't cause any loss in revenue and is generally hailed as a large step forward.

It should also be noted that when capital gains taxes are considered you have to remember that these often come from owning stock and then you have to take into account the "double taxation" effect coming from the fact that dividends distributed to stock holders come from corporate earnings that have already been taxed once. Also, one usually doesn't compare the highest marginal tax rate for working with the (usually) flat rate on capital gains, but rather the standard, low rate. In Sweden that would be 30% for both.

The basic economic principle is really to have a flat tax. I mean that in the sense that from the perspective of revenue raising that is probably optimal. The problem is that it isn't feasible from the perspective of income distribution, because it would be too burdensome for those with low incomes and if spending is too high it will tend to punish certain economic activities too harshly (such as corporate investment). For those reasons certain deviations from a flat rate have to be allowed for (and these can often be pretty large) but one should be wary of going too far. A complex tax system tends to give rise to a lot of unforeseen problems.

Yes. The best situation for both revenue and for growth is to be as flat as possible. While the best one for income distribution/social engineering is to have it as progressive as possible. Thus why you need a realistic balance between the two and that is what was done in Sweden and most western countries in the 1980's, 1990's and 2000's. They moved away from the economically foolish, ideologically driven tax rates of the previous era towards what is essentially a "compromise" between growth and redistribution. This bill before us, crosses the line back into those ideologically driven rates which ignores economic realism. 

What's the Atlasian corporate tax rate? As I recall the US one is about 40%. So in order for a stockholder to get $10 he has to get $10/0.85 (going off of Badger's numbers for the medium and higher income brackets) which is equal to 11.76. Assuming a 40% corporate tax rate the corporation then must earn 11.76/0.6 which is equal to 19.6. Thus, the total amount of tax paid is nearly 50%.

This can become especially relevant for one-man companies, since the owner can then choose between paying himself a salary or paying out dividends to himself as a stockholder.

This is also true. You can't look at the tax on dividends in isolation from the corporate tax.

I think the capital gains tax should be higher than that.  Maybe more like 40% for the top gain income bracket.

While that is pretty high, it is also significantly lower than the top earned income bracket which still gives the wealthy an incentive to invest.

I'd support no capital gains tax on more modest incomes or on business owners investing in their own businesses.

I would want to keep the Capital gains rate as a low as possible. My preferred option would be to maintain the current rate of 15% for those that make $250,000 a year or more and institute a 0% for those below that amount.

Considering the highest bracked is like 1,000,000 or something like that, yours would give more people 0% but on the flip side that 40% that top group is just too high.

[Southern Senator North Carolina Yankee]

And hey we lured the Swede back into Atlasian political debate, DON'T LET HIM ESCAPE!!!

[Southern Senator North Carolina Yankee]

Yes. The best situation for both revenue and for growth is to be as flat as possible. While the best one for income distribution/social engineering is to have it as progressive as possible.

<Dropping the gloves like Brent Johnson>

Okay, I'm still not taking sides in this debate, but that, Yank, is the stupidest thing I've read in a while. Maybe I'm drunk--OK, more than maybe--but kindly explain where how that piece of drek doesn't cross the line from hard-headed fiscal realism into ideological silliness.

Such a sweeping statement just makes no sense, mathematically or otherwise.

You shouldn't drink to excess, its bad for your health.

I suggest you first sober up. Then re-examine the post again and see if you were in fact assuming an exaggerated meaning for my broad statement. If not, we can talk. If so, I doubt we will speak much again.

I am really sick and tired of this liberal tactic. It is okay to not know what someone means or to have multiple "potential meanings" in mind for what a person said, which you can then seek to get clarified. In fact I would prefer that as it is far more respectfull and far less insulting then to assume the worst and fly off the handle in a drunken rage.

In general, the lower and flatter the taxes are made, the better for growth and revenue as a result, however you have diminishing returns. Cutting from 70% to 40% has more impact then a 40% to 35%. Also, there are numerous other considerations including "stability and sustainability long term of the growth and revenue. Nobody said anything about a "flat" tax, no one said anything about top tax rates in the teens. So please put the your ideologically driven hysteria out to pasture, badger. I do suggest you also reread the third sentence which you conveniently cut out of the quote.  It calls for "balance".


And, one more thing.

"Drop the bottle."

[Southern Senator North Carolina Yankee]

I can give up on the increase in the income tax if we agree to increase the capital gains tax. The latter is just too low compared to the first. Anybody willing to discuss that ?

And how much would you increase the Cap gains tax? For matters of practicality, and unintended consequences, sudden large increases (say from 15% to 40%) would not be wise, unless one enjoys crashes. 

[Southern Senator North Carolina Yankee]

Yes. The best situation for both revenue and for growth is to be as flat as possible. While the best one for income distribution/social engineering is to have it as progressive as possible.

<Dropping the gloves like Brent Johnson>

Okay, I'm still not taking sides in this debate, but that, Yank, is the stupidest thing I've read in a while. Maybe I'm drunk--OK, more than maybe--but kindly explain where how that piece of drek doesn't cross the line from hard-headed fiscal realism into ideological silliness.

Such a sweeping statement just makes no sense, mathematically or otherwise.

You shouldn't drink to excess, its bad for your health.

I suggest you first sober up. Then re-examine the post again and see if you were in fact assuming an exaggerated meaning for my broad statement. If not, we can talk. If so, I doubt we will speak much again.

I am really sick and tired of this liberal tactic. It is okay to not know what someone means or to have multiple "potential meanings" in mind for what a person said, which you can then seek to get clarified. In fact I would prefer that as it is far more respectfull and far less insulting then to assume the worst and fly off the handle in a drunken rage.

In general, the lower and flatter the taxes are made, the better for growth and revenue as a result, however you have diminishing returns. Cutting from 70% to 40% has more impact then a 40% to 35%. Also, there are numerous other considerations including "stability and sustainability long term of the growth and revenue. Nobody said anything about a "flat" tax, no one said anything about top tax rates in the teens. So please put the your ideologically driven hysteria out to pasture, badger. I do suggest you also reread the third sentence which you conveniently cut out of the quote.  It calls for "balance".


And, one more thing.

"Drop the bottle."

I wasn't that drunk Yankee.

I'm sober now, and your comment about flatter tax rates being better for economic groth and revenue still make zero sense. Could you elaborate?

groth? That sure is some wicked sobreity you got there.


I don't see how I can explain such a clear and concise statement any further. Perhaps you are inquiring for something else but "elaborate" was the only such request you could make. You sure you aren't drunk?

[Southern Senator North Carolina Yankee]

Nay

[Southern Senator North Carolina Yankee]

lol, Gustaf has now posted more in the Senate then half of the actual Senators have since this session began.