Im looking for ideas on whats the best way to collect taxes in a developed western country. The point here is not to debate how big government should be or what the tax percentage should be, im simply curious how people would like to pay their taxes. Would you tax consumption or work? How about the corporate tax? These are the type of questions i want answered.
Tax transactions on stock. That creates an extra incentive for investors to hold onto their stocks, reducing volatility in the markets, and thus providing another safety measure against economic collapses (by placing self-interest above herd mentality). Don't tax income. If income is spent by the consumer, it positively effects the economy. When income is spent by the government, it might impact the economy positively, but it very often has either negative or no effects. Sales taxes are ok, so long as they aren't scaled to the size of the purchase. That "Fair Tax" scheme prevents large purchases, depressing the economy and artificially locking people into substandard housing or similar scenarios. Corporate taxes should be low to keep jobs in the country. However, it should not be rock bottom; corporations can pay their dues to the society in which they are based. All corporate loopholes need to be closed tight.
If I had my way, I'd institute a land tax, a financial transaction tax, an estate tax and various sin taxes. If I got to set those, I'd be fine with doing away most of the others.
Integration of tax and welfare systems is key. Through a progressive income tax we can ensure a suitably generous social wage that avoids disincentives created through poverty and unemployment traps. I'd therefore take the negative income tax and modernise it, realising that to ensure that the minimum income is suitably high requires a set of increasing marginal rates. And the highest in that set? Determined purely by revenue maximisation and therefore tax evasion and dodging concerns.
It has been known for over 200 years that the fairest and least economically harmful form of taxation is a tax on something that is fixed in supply, and whose value is publicly, not privately created: land.
Good ideas in the main, but if you start taxing financial transactions, they will just disappear. People who advocate taxing financial trades don't seem to understand that the volumes seen are dependent on their not being taxed. Tax them, and volumes will decline by an order of magnitude or more.
Tax all electronic tansactions. Some years ago a few economists proposed this idea and their analysis indicated that an electronic transaction tax of 0.0002% would generate enough revenue to preclude the need for any other tax at every level of government in the US, pay off the national debt within a few years, and provide a large surplus of government revenue for the forseeable future. It would be easily collectible at the point of exchange since only a few firms manage all electronic transactions. A fairly simple computer code change similar to the charges that electronic transaction facilitators collect for banks and credit card companies would enable its implementation. The whole rest of the tax code at every level could be tossed on the scrap heap. They also concluded that it would be counterproductive to attempt imposing such a tax on cash transactions. For one thing cash constitutes only a small percentage of money and cash transactions constitute only a small percentage of the volume of money that changes hands every day and that is almost exclusvely at the small retail level. For another the number of cash transactions is steadily decreasing. The biggest reason is that the cost of enforcement would be prohibitive. The only real objection came from an editorial in the Wall Street Journal where the bankers complained that a $50,000 tax on a $1,000,000,000 transaction would create such an impediment that international trade would grind to a halt. More recently Sarkozi proposed a transaction tax on international bank tansfers to create a permanent funding mechanism for economic development. A small national transaction tax to fund national needs and an international transaction tax to fund international needs is not a bad idea. The biggest problem with taxes today is compliance, enforcement, fairness and the skewing of economic activity. All other taxes have large pitfalls and expenses in these areas. The electronic transaction tax would eliminate these problems to a huge extent while also giving a wink and a nod to those who are determined tax evaders by letting them trundle their wads of cash money about, an increasing impracticality in a world moving away from cash money as a medium of exchange.
I doubt that any economist would make such claims. Even such a small tax would dramatically reduce the volume of such transactions, which are based on much lower transaction costs. That's a 0.005% tax, a rate 25 times higher than you suggested above. Can you provide a reference for your claims?
Actually, the tax would not increase electronic transaction costs by much since current electronic transaction costs are, on average in the 0.1 - 0.01% range. The economists were from Columbia University. I believe that one of them was Sachs. They gained access to information on the number and volume of electronic transactions in the US from the facilitators and drew their conclusions. Their study was commented on widely at the time by many news organizations. I read about it in The Wall Street Journal, The Economist, The New York Times, and other places. If you consider just associated costs of the current tax scheme, which is at least a few percent of GDP and places a huge drag on the economy through compliance and avoidance schemes which would be entirely eliminated, it seems to me that there is no rational argument against it unless you are a tax accountant or tax lawyer or someone who regularly moves huge volumes of money around. A small group who would hold everyone else from the benefits of a vastly simplified way to pay taxes. [/QUOTE] That's a 0.005% tax, a rate 25 times higher than you suggested above. Can you provide a reference for your claims?[/QUOTE] I may have got my numbers wrong, it has been a few years since I read the article. Rest assured though that the economists did publish and the WSJ did have an editorial about their electronic transaction tax proposal.
Can't be true. If the kind of tax you propose were capable of raising the kind of revenue you claim, transaction costs in that range would absorb all of GDP many times over. I know such taxes have been proposed, not least by Nobel economics laureate James Tobin. But it makes no sense that such a tax could raise substantial revenue, because the financial industry doesn't support that many people.
I completely understand that the volume will drop. That's the whole point. People who are serious about owning stock and bonds won't mind paying a miniscule one-time tax to own it. The ones that will minds are the ones engaging in all these financial games. Also, I forgot to mention it earlier. I'd also put in a capital gains tax.
Perhaps you misunderstand the scope of the proposed tax. The proposed electronic transaction tax would tax EVERY ELECTRONIC TRANSACTION from debit card transactions at Starbucks to $Billion overnight bank transfers. It is a tax based on the velocity of money rather than its accumulation. I think that few people have given much thought to the enormous volume of money that changes hands every day through electronic means, mostly in small mundane purchases. The old saying "Fast pennies make more than slow dollars" is the basic rationale behind this tax. Even if a transaction tax slowed money flows among financiers it would likely make financial markets more stable which would attract more investment. The rapid fire computer trading of today has made the equity, bond and commodity markets so improbably unstable that many investors have become wary of investing in them. A small transaction tax levied on trades would slow the sort of rapid trading that upsets markets and causes financial distress among investors. Though the transaction tax would hardly be enough to squeeze the speculators from the commodity markets that would not be a bad thing if it did happen since it would allow commodity prices to be determined between producers and users as they should be.
Abolish corporate, sales, VAT, and property taxes. The only source of income from the public should be a progressive income tax on the top 40%.
Whoops, forgot those. Get rid of them as well; one should be able to fund a reasonably-sized government on the shoulders of the wealthy.
No no no *hits with a newspaper* Capital gains taxes are essential if you're going to tax the rich because of how much revenue they nab via capital gains. In fact, if you want to tax the rich CGT is often better than straight income tax.
Good to see you, dude! I'm still of the opinion that progressive income and asset taxes are the best way to do it. The economists generally agree that the progressive income taxes are best. I'd add unearned income, like dividends, interest, capital gains, to the same rates as earned income. We need to make the inheritance taxes also help to pay down the debt the wealthy have run up for this country.
As all the benefit of government expenditures on services and infrastructure goes to landowners, a property tax to recover publicly created land value for public purposes and benefit is essential to any improved tax system. Such statements are not defensible, as income is not a good measure of either ability to pay or benefits received. Land value owned is a good measure of ability to pay and an excellent measure of benefits received.
I don't believe in private property in the first place and it surely isn't a measure of ability. Not everyone in an apartment is poor.
No, you misunderstand what constitutes a taxable base. The great majority of such transactions, by value, will disappear when they are taxed, because they are only undertaken on the basis of near-zero cost. That's objectively false. The overwhelming majority of such transactions as measured by value are in financial markets, and rely on near-zero cost. The rationale is faulty, because the great majority of electronic transactions by value are ultra-fast billions of dollars. I agree a small transaction tax would greatly reduce volumes and volatility, probably to the public benefit. Just don't expect it to raise significant revenue. I think you underestimate just how great a damping effect even a very small tax would have on such trading.
Assets owned are by definition the exact measure of ability to pay. Being in an apartment is not the same as not owning any real estate, let alone any property. Some people who are in apartments are in them because they own the apartment building.
Source for this claim? The cost of the great bulk of electronic transactions by value, which occur in financial markets, is far lower. Much of this money is being transacted hundreds or thousands of times a day, and such a transaction cost would be far too high to sustain. The money would all go to transaction costs. The main online reference I see is to a recommendation that the G20 implement a Tobin tax at a rate of 0.05%. This is still far too high to maintain the kind of trading volumes seen on financial markets. The argument is not only rational but simple and irrefutable: flows are not funds. Current transaction volumes rely on extremely low, near-zero transaction costs. Impose a tax and they will almost all disappear, leaving very little revenue-generating volume. It may be worthwhile to do it, but it will not and cannot solve revenue problems. It is the facts of economics that prevent high-volume transaction taxes from raising much revenue, not special interests. Sorry, I would need to see some actual numbers or references.
That's probably true, but one would have to tax their assets, not the earned incomes of productive middle-class working people as you propose.
