Progressive Taxation Act (Failed)

[Franzl]

Why should people even try to become wealthy if you're just going to take 75 cents of every dollar that they make?

To be fair, that's not quite what this does.

Well yes, I understand what a marginal tax rate is. But we are still disincentivizing success.

Oh I agree. But the very nature of progressive taxation at all disincentivizes success to a certain extent. It's just a matter of how far you're willing to go.

[CatoMinor]

And I guess you guys know that some decades ago the maximum taxation rate was over 90%.

So? I hope you are not trying to justify this legalized theft with that. By that logic one could justify leaving the wealthy and the clergy tax exempt while taxing the middle class and poor  by saying  well it was the policy some time ago. Just because something happened in the past does not mean it was good. Even The Beatles wrote a song on how ridiculous it was, and during that stage of their career if the song had a meaning other than being a love song you know it was important

[Antonio the Sixth]

And I guess you guys know that some decades ago the maximum taxation rate was over 90%.

So? I hope you are not trying to justify this legalized theft with that. By that logic one could justify leaving the wealthy and the clergy tax exempt while taxing the middle class and poor  by saying  well it was the policy some time ago. Just because something happened in the past does not mean it was good. Even The Beatles wrote a song on how ridiculous it was, and during that stage of their career if the song had a meaning other than being a love song you know it was important

It's not meant to justify the legitimacy of my proposal, but it certainly shows how ridiculous it is to call it "insane". Just because the neoliberal dogma has imposed to western countries the idea that taxes are bad, it doesn't mean there is no place for another perspective on the issue. Looking back to history is a good way to adopt a less biased perspective.

[Lief 🗽]

There's very little evidence that high marginal tax rates disincentive success. Some of the countries with the highest amount of entrepreneurs (i.e. people who want to start successful businesses) have very high tax rates. Business people don't think like accountants.

[Badger]

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.

[Marokai Backbeat]

Oh come on now folks. I'm not in love with this bill myself either, but considering the bracket it's actually creating, it's hardly the end of the world. It's not a 75% tax rate on people making 40k.

[Ban my account ffs!]

Antonio,

Don't let my post make you think I'm against progressive income taxes... I am.  But the point of a progressive income tax in a modern capitalist society is not to punish the wealthy.  It is to make things fair.  Government services should benefit all and also serve to redistribute some of the wealth from top to bottom while paying for it in an equitable way that says "you've benefited the most from society's productiveness, so you will pay the most as well".

There is little evidence that having such a high top marginal rate will really bring in the needed revenue to balance the budget.  I would wait until we know better in order to make such a move.

There are other things that could be done to increase revenue without actually raising the rates.  

[Kaine for Senate '18]

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

[Associate Justice PiT]

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%.

[Antonio the Sixth]

Don't let my post make you think I'm against progressive income taxes... I am.  But the point of a progressive income tax in a modern capitalist society is not to punish the wealthy.  It is to make things fair.  Government services should benefit all and also serve to redistribute some of the wealth from top to bottom while paying for it in an equitable way that says "you've benefited the most from society's productiveness, so you will pay the most as well".

I really don't understand how one can even think a high marginal tax rate is a "punishment to to wealthy". Earning $1,000,000 is better than earning $250,000, for sure, but $25,000 is still, by far, better than $0. I have exposed the goal my bill pursues, and punishing anyone isn't among those goals.

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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.

[🐒Gods of Prosperity🔱🐲💸]

the regions must also collect revenues, so if you raise taxes on this money to 75%, it would mean effective marginal income tax rates around ~80%. 

while such a rate could restrict the ability of the regions to raise revenue, you would at least be promoting investment in Panama and the Cayman Islands.

[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?

[Antonio the Sixth]

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.

[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?

[CatoMinor]

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.

if my income tax was set at say 10%, I'd have no problem paying it, if it was 75% on top of what ever the regions have then I would start looking for as many ways to evade paying it as possible. I'm fine with paying my share to fund the government but at a certain point it just becomes robbery.

[Antonio the Sixth]

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 ?

[Fmr. Pres. Duke]

There comes a point where the marginal revenue that comes from each percentage hike on the income tax becomes negative. At 75%, I think it's safe to say we have a negative return without running the math.

If one studied the history of the income tax in the US, they could see that revenues grew under President Johnson after he lowered taxes, and it against happened under Reagan. Raising the rate to 75%, albeit on $4M+, encourages more tax evasion and will most likely have a negative impact on the economy. Now, I'm all for lowering the deficit, and we do need to keep it in check, but there are additional alternatives we can explore opposed to this. I doubt it will raise much revenue and will draw the ire of the public.

[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.

[Antonio the Sixth]

I think this issue mostly comes to personal standards. 75% looks draconian to most of you, while I personally think it's reasonable when it comes to so high incomes. Again, I believe that not so much people would see this as a valid reason to evade, and that those who would are likely to be already evading. But I guess here we can only agree to disagree.

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.

The bill was aimed to stop fiscal exile, ie people who leave the country in order to pay less taxes. Each year, around 500 people do so. 500 per year before 2007, 500 people after 2007. At the same time, the State reimbursed milions of euros to the wealthiest people due to the shelter mechanism. That's why our dear President soon switched his position from the pragmatic one ("bla bla bla we'll stop fiscal exile and gain revenue") to the ideological one ("bla bla bla we have to stop punishing the wealthy"). Fortunately the french people don't buy into that, but the sad thing is that he seems to be sincere.

[Franzl]

I think something you're forgetting, Antonio, is that there isn't necessarily a corelation between tax rates and tax revenue, after a certain point.

I can't say at what level precisely it starts to have a negative fact...but we should all be aware that we're not talking about anything similar to a linear function here.

[Antonio the Sixth]

I've explained my view about tax evasion. I might be wrong, but since these theories can never be proved, I think we can, as I said, agree to disagree.

[Marokai Backbeat]

What we really need here is some good old fashioned legislative analysis by our esteemed GM. PS did the same for tax law, so if Badger could evaluate the effects, perhaps we could all just settle on his view of things instead of one side saying one thing and one side saying another.

In the meantime though, props to you, Antonio, for not going down without a fight. I like that quality.

[Fmr. Pres. Duke]

You guys keep ignoring my post, which Franzl echoed. It'll save you some time. After all, I'm an economics major.

[Badger]

the regions must also collect revenues, so if you raise taxes on this money to 75%, it would mean effective marginal income tax rates around ~80%. 

while such a rate could restrict the ability of the regions to raise revenue, you would at least be promoting investment in Panama and the Cayman Islands.

I'm not taking sides here, but would note that the GM's Office currently assumes the deductability of state regional income tax from federally taxable income applies. Regional rates still increase the overall tax burden of course, but not in direct proportion to simply adding regional rates to federal rates.

What we really need here is some good old fashioned legislative analysis by our esteemed GM. PS did the same for tax law, so if Badger could evaluate the effects, perhaps we could all just settle on his view of things instead of one side saying one thing and one side saying another.

In the meantime though, props to you, Antonio, for not going down without a fight. I like that quality.

Is there a formal request from a member of the Senate? If so, what I'm going to do is request that anyone seeking an analysis start the ball rolling with how you calculate the impact on revenue and/or GDP (whatever you're seeking info on) will be. References to Atlasia's budget and/or historical trends for similar tax rates in the popular government sim known as the USA will be helpful. Don't worry: I will be doing the analysis and research notwithstanding China and the GTO bombing, and the amount (or lack) of detail is up to you, but there should be at least some explanation of how you came up with your numbers. If there are competing proposals, expect that I'll share them among the various authors to be ripped to shreds for further analysis and comment.

All that said, I have a comment to be posted momentarily that may affect this debate.

[Badger]

So, about those tax rates:

When the Budget Process Committee met to determine what the state of Atlasia's current budget is, which was presented to the government and public at large with no resulting objection, the tax rates in place through FY 2010 (which, remember, is based on Atlasia's tax rates for calender year 2009) were essentially those in place in RL 2010 with the 2001 and 2003 Bush tax cuts still in effect (again, just as in RL).

https://uselectionatlas.org/FORUM/index.php?topic=125947.msg2724841#msg2724841

However, under the Fiscal Responsibility Act tax rates increased notably, particularly for higher earners, for personal income earned in 2010, which would accordingly start affecting revenues in FY2011. The Treasury thus began collecting the new increased tax rates for 2010 returns filed in the last month. Yes, I'll be changing the rates listed in the GM's page in the foreseeable future, but not until after this bill is dealt with one way or another.

A minor note: The difference in the dollar figure of tax brackets used by the GM's Office and the FRA is that Marokai Blue used the 2008 tax brackets in his bill while I used the RL 2010 brackets which were increased by two years worth of (low) inflation.

I would note that then GM Purple State estimated the increased tax revenue from the FRA would be approximately $500 Bil. The GM's office currently estimates that those prior estimates will fall somewhat short due to reduced tax receipts resulting from the "double-dip" late year economic downturn which PS of course couldn't forsee 15 months ago. Nor has the GM's Office yet calculated the overall drop tax revenue or the budgetary impact of the recently passed stimulus bill.

My point is I'm not sure to what degree the recently begun impact of these new tax rates will have on the deficit--will they take a notable chunk out of it, or will they merely just break even with the recessionary drop in tax revenue plus new stimulus spending? Regardless I thought it worthwhile to note any increased revenues from the Financial Responsibility Act just started hitting government coffers in the last few weeks.