Comment by indubitable | Hacker News Reader

Comment by indubitable | Hacker News Reader

Something I always founds surprising is that so few people seem to consider effective tax rate on disposable income as an indicator of fairness. For instance many people think a flat tax would be, even if undesirable, fair. Everybody pays let's say 10% tax so it must be fair. But individuals aren't taxed like companies, they're [generally] taxed on their gross income.

So let's say a person is spending $2k a month on their basic necessities - housing, healthcare, insurance, transportation, and a little bit of entertainment. And now consider two people who spend the exact same amount. One earns $30k and the other earns $90k. The person earning $90k has $66k left at the end of the year after accounting for 12 months * 2k of spending. The person earning $30k has $6k left. The $90k earner is left to pay $9k in taxes. That's 9/66 = 13.6% of his disposable income. Pretty close to the nominal 10% rate. But the person earning $30k has to pay $3k. That's 50% of his disposable income! That 10% for all isn't exactly fair, in effect.

I think this disparity is a much easier way to consider tax brackets. And I think it's a politically easier sell to both sides of the aisle, than the more abstract notions of this article. Citizen A earns $x and citizen B earns $y. They both, on average, pay the exact same share of their disposable income in tax. I think it's pretty hard to argue against that, yet the tax brackets this implies would also help inherently tackle extreme levels of inequality.

In general, a reasonable axiom of public policy is to focus on correcting negative externalities and unjust outcomes while minimizing interference in well-functioning free markets. Your idea is nice, but we already have mortgage tax credits and have seen the negative effect that has had on the economy.

What's more, is who gets to decide what is a necessity. Once upon a time I flew to Australia, bought a commercial van, a surf board, and converted it into a camper and travelled a loop around the country. I was by definition poor and homeless, but I was in heaven. I don't think this would qualify for any tax breaks under your plan. In this way your plan creates a complex tax code that does not align with me maximizing my utility function.

There are vast benefits to simplifying the tax code, and I would argue a better version of your idea is to guarantee a basic income to everyone.

BI won't work for everyone, such as the truly disabled, but it's a more efficient way of reducing inequality for the truly poor, and more capable of maximizing individual utility functions.

I know you will say "but who will produce useful goods and services," but at the moment I would wager far less than 30% of the population produces useful commerce. The labor participation rate is only about 60%, and many jobs don't produce anything useful. For example, police officers in Utah that settle for 0.5MM for unconstitutional injustices are draining taxpayer funds. Wall St is completely out-of-control. Bureaucracy, military-congressional-contractor-complex, healthcare insurance companies... There is an extroardinary amount of waste.

BI would also benefit the economy by increasing aggregate demand. It would stimulate investment by providing a safety net for indivisuals deciding to retrain or invest in education.

It could be argued that the whole concept of "basic income" is very much a "rent-seeking" behavior, as receivers are not technically producing anything of their own while relying on someone's else "surplus".

And nearly every living person on earth has been profiting from rent-seeking from the second they are born into a world with food, medicine, water, maths and science, etc that has been created and improved-upon by people long-dead now.

If all people benefit from something then it's hard to find a problem with it. That's presumably not the case for someone who is a high level producer comparing a UBI world to a non-UBI world and seeing only an outflow.

I'm curious how that's wrong.

> BI would also benefit the economy by increasing aggregate demand.

That would require that taking something from A and giving it to B would increase aggregate demand. I don't see how that can be.

> It would stimulate investment by providing a safety net for indivisuals deciding to retrain or invest in education.

This safety net may encourage people to drive around Australia in a van who would otherwise work, reducing investment.

> That would require that taking something from A and giving it to B would increase aggregate demand. I don't see how that can be.

Differing marginal behavior between A and B.

Please explain what marginal things A spends/invests money in that does not produce aggregate demand.

Rent-seeking behaviors. Speculative investing.

What do you define as "speculative investing" versus "investing"? And why would the former mean less demand?

In terms of aggregate demand in the domestic economy, anything that either is not purchased from the domestic economy or which produces a lower velocity in the domestic economy has less induced aggregate demand.

To simplify and focus on simple consumption, spending that occurs on locally-produced goods during foreign travel has does nearly nothing to increase domestic aggregate demand in the travellers home country.

The thing about trade with foreign countries is that equal value flows both ways. This means that money spent in foreign countries winds up getting spent domestically, one way or another.

>That would require that taking something from A and giving it to B would increase aggregate demand. I don't see how that can be.

It has been observed in historical data that the MPC for the poor is higher than for the rich--who are more likely to engage rent-seeking behaviors--which increases AD.

>This safety net may encourage people to drive around Australia in a van who would otherwise work, reducing investment.

Once in France I observed toll workers who take a euro from you to use the toilet were often of quite unhappy appearance. I heard "well its good because it gives them a job."

If you truly believe spending a year doing a mundane job that could easily be automated, or long-hours in MS Excel making "fat stacks" on Wall St, much of the lawyering, tax accounting, lobbying, etc, has more inherent virtue than surfing in Australia than we disagree on first-principles about human dignity.

What is the point of doing anything if it does not make people able to be happy, avoid suffering, and live into the future?

If your concern is that nobody will produce anything useful: I would really bet that more than 30% of the population would want to live on more than a basic income for their entire life.

While I agree with you about the human dignity issue, I believe that a horrible, really bad paid job is an incredible, underestimated motivator.

A basic income which allows me to do something fun is quite the demotivator for doing anything more.

The problem is that improving yourself in order to raise you place in society usually sucks: endless learning, boring repetition, countless tired, lonely evenings.

Why would anyone go through all that when they can surf in Australia living in a van off basic income?!

Most people probably want to live on more than just a basic income. And assuming we cleaned up the waste and fraud in the economy, it is reasonable to assume we would only need around 1 in 3 people to maintain current economic growth. Like I said, way less than 50% really do much of any useful commerce at the moment. A lot are making things worse.

I disagree on both counts.

First, I believe that most people would rather relax and take it easy as long as their basic needs are covered (food, shelter, porn, games and some weed).

Secondly I think that we need SO much more work done around us, and of so much better quality. Everywhere I look I see crumbling cities, broken infrastructure, decaying building and wild nature reclaiming areas that used to be domesticated and manicured. The work being done is crappy, substandard and simply done badly. It's like nobody even thinks anymore.

Business are crying for better, smarter employees but they are unable to get them no matter the cost. Consumers are crying for better services and products but are facing a race to the bottom everywhere we look. Markets are failing everywhere due to the massive governmental interventions.

Maybe all this will be solved when robots appear, but for right now there is a lot of work to be done...

> Business are crying for better, smarter employees but they are unable to get them no matter the cost.

If this is true, it's because the existing system actually locks people in place rather than enabling improvement. Willingness to pay more once a state is achieved doesn't actually free people to achieve it. Doing what work one can for now to survive competes with investing time into self-improvement, which is literally a luxury many cannot afford.

> A basic income which allows me to do something fun is quite the demotivator for doing anything more.

I disagree that this is generally true (all of human history shows that humans generally want to continually gain both improved material position over time and more than those they see around them if there is an avenue to do so.)

Moreover, that's a rather distant theoretical complaint, anyway, because a basic income that provides anything more than the kind of marginal existence provided by American public welfare programs now (but with fewer disincentives to work) is probably far outside the ability of the economy to sustain without enormous technological progress.

>is probably far outside the ability of the economy to sustain without enormous technological progress.

FWIW we already spend nearly $10,000/person on transfer payments, welfare, housing, health, etc.

Yes, people getting that much in outside income annually are usually still recieving some of those payments and subsidies, and still living pretty marginally. The idea of a sustainable, near term, more-than-marginal UBI is a pipe dream.

Nobody has managed to automate janitorial services yet. There are a LOT of boring, unpleasant jobs that need doing. I doubt the economy can be sustained by only happy jobs. There are only so many astronomy, forest ranger, and talk show host jobs.

I know, and have known, quite a lot of people who would be happy to do nothing productive and have someone else provide their needs.

In a way, it's a bit like college. How many people learn something by auditing a course? Not many - it's the pressure of exams and grades that provides the motivation for most students. All you have to do is look at their study habits - procrastinate until the last moment and then cram.

Rather than taxing individuals like companies, which would create an even more intangible tax code, I was suggesting a more precise way of determining "fair" tax brackets -- similar to the article. Right now tax brackets seem to be determined more or less arbitrarily with a healthy dose of single sided lobbying.

If we set the goal of defining tax brackets such that they affect any given person in any given bracket in a comparable way, it gives them meaning and inherent fairness. The measurement of real disposable income could be determined by aggregating costs across representative demographics. It's similar to the minimum wage. Right now so many things in our law are just magic numbers. Giving them actual meaning would likely not only make the law more fair, but also make it more transparent and difficult for special interests to lobby against.

I imagine we're headed inevitably towards a basic income thanks to automation. I just don't see any other way around it from either the consumer or the producer side. Companies need to earn money. Companies earn money from people who generally work to earn money in a very circular system. Take mass employment out of the picture and the whole system starts to break down. But I think that's beyond the scope of this post.

I don't think I've ever seen any "flat tax" advocate actually advocate a flat tax. They always seem to actually do a progressive tax with two brackets, with the lower bracket being wide and having a rate of 0%. For example, Ted Cruz's flat tax proposal a couple years ago had a $36k 0% bracket, and Rand Paul's had a $50k 0% bracket.

NOTE: my referencing Cruz and Paul should in no way be taken as any endorsement or approval of their tax plans on my part. I just used them because they are fairly typical for recent flat tax proposals.

For a lot of people the main selling point of a flat tax is its supposed simplicity. They have fantasies of spending two minutes a year doing their taxes. I say "supposed simplicity" because many of these proposals still include numerous deductions and exclusions, and THAT is where 99.99% of the complexity of the tax system resides.

Once you have figured out your taxable income the actual computation of the tax is close to trivial under both the current system and the two bracket "flat" tax systems. All that changing from the former to the later does is shorten the Internal Revenue Code by about 5 lines.

If a flat tax proposal does actually eliminate all the deductions and exclusions, so that your taxable income really is trivial to compute, then it would greatly simplify doing your taxes--but that has nothing whatsoever to do with it being flat. Such a simplification works just as well for a tax with several progressive brackets.

> For a lot of people the main selling point of a flat tax is its supposed simplicity. They have fantasies of spending two minutes a year doing their taxes. I say "supposed simplicity" because many of these proposals still include numerous deductions and exclusions, and THAT is where 99.99% of the complexity of the tax system resides.

Exactly, no matter how many tax brackets you have, without the miscellaneous deductions, calculating your total amount of tax to pay involves simply looking at a table of income ranges for a set of three numbers that applies to you and then doing the calculation top_marginal_tax_rate*(income - top_tax_bracket_lower_bound)+tax_on_income_in_lower_brackets. So the entire work to calculate your tax burden is one table lookup, one addition, one subtraction and one multiplication.

The flat tax proposals simplify that by getting rid of the addition (by making tax_on_income_in_lower_brackets zero) and making the table lookup only contain two rows instead of many. So you have removed one arithmetic operation(or three if you are under the 0% bracket cutoff), and cut down on the number of rows you have to scan through by a single digit number. That is completely negligible to dozens of pages of reading you would have to do if you have even relatively simple deductions.

You correctly point out that individuals are taxed on gross income, while corporations are taxed on profits. I think it's wrong and everybody should be taxed on gross income, it's simpler and harder to avoid through loopholes.

Consider a simple supply chain of mining -> transport -> refining -> transport -> assembly -> transport -> retail

The reason prices are able to stay relatively low is because players able to get by with very little profit made up for by enormous quantity. Tax on gross and suddenly you send the profit requirements at every link in that chain way up, and that's going to be reflected (strongly) in the price of the final products.

Even take Amazon as an example as just one link in the chain - the retail. Their total revenue is $136 billion, but their net income is less than $3 billion. Even if they're playing fast and loose with operating expenses, their margins are not huge. Change to gross taxation and they'd have to be. Just to get into the black, you'd see prices raise dramatically from them. And of course the same would be true of all of their suppliers, producers, and so on - which means they'd be increasing not only to compensate for their own increase in costs, but for all the increases that go all the way up the development chain of every product you buy. It wouldn't be pretty.

And corporations, unlike individuals, have another option. They can simply move. Citizens can't do this. Even if they move, they're unbelievably required to continue paying US tax - we're the only nation in the world that requires this of nonresidents. This idea would be devastating to the US.

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