*a ‘10% legacy + succession duty impressed duty stamp’ of the ‘united kingdom’*
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*IRS*
(“internal revenue service”)
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*OUR CONCLUSIONS* –>
*tax ‘consumption’*
(not ‘income’)
(so says ‘libertaria’)
(if you have to tax at all…)
(which will encourage ‘saving’ over ‘spending’)
(which will put more money into banks)
(which will allow banks to grant loans at lower interest rates)
(which will fuel economic growth)
*one of the dual certainties of modern existence*
*drives a plethora of pointless political debates*
all this futile fuming lumps together two entirely separate questions:
1. what is appropriate amount of total taxation required to achieve government budget that makes a nation best-off?
2. how should the tax system that raises this amount be structured?
for both these questions, the cost-benefit analysis must be applied.
taxes should equal expenditure and budgets should always balance in present value.
that’s pretty straightfoward.
but what makes this equation imperfect is that taxation inherently distorts incentives in the private sector.
and this in turn affects the national economy so the optimal tax amount for a government is immediately changed as soon as the private sector is affected by the tax implementation. therefore, tax policy requires a great deal of forecasting.
in the current US model, personal income tax is the chief component of the tax system.
to make things simplest, the US government could eliminate all other sources of tax income. streamlining is usually the best approach. because then it’s easier to determine what the optimal rate of taxation really is.
(although i believe that a government should tax consumption instead of income. we’ll get to that later)
currently, corporations pay a given percentage of their profit in tax.
proponents of this tax assert that this contributes to ‘progressivity’ in the tax code (as corporate taxes burden high-income individual taxpayers most). but i don’t believe a government should aim to make a tax code progressive.
even if general redistribution were desirable, it could be accomplished solely via personal income tax (as it is).
i’m against the corporate income tax because of its adverse consequences on the economy at large. these taxes burden corporations with substantial compliance costs (creating an upper-middle class of geeky tax lawyers). the system could be made much simpler with full expensing of investment, but as it is now, corporations must hire teams of lawyers to comply with the IRS tax code.
and a corporate income tax is by definition ‘double taxation’ as dividends paid to shareholders are already taxed by the personal income tax system.
taxing corporate income perpetuates the myth that corporations pay taxes. but only people can pay taxes. this is an important point often conveniently overlooked by proponents of corporate income tax especially in the age of ‘evil wall street’. but the burdens imposed by corporate income tax actually drive corporations to commit evil deeds. induces them to make their accounting less transparent. distorts incentive by encouraging business decisions that lower taxes but are not otherwise profitable/efficient. when every investment has a tax implication, there exists an inherent incentive to cook the books. why not just tax each individual executive’s salary at the end of the day? no need to tax the collective. it’s like putting a collective toll for volvos on a tollbooth over the individual toll that must be paid.
the estate tax is also bogus. at death, a fraction of your estate (your net worth) is taxed by the government. this only applies to estates above $1.5 million, a small fraction really. and with a good team of lawyers, you can escape the estate tax until you reach around $3 million. but it’s still bogus because once you qualify for this tax, half of your estate is taken away upon death.
the main argument for the estate tax is redistribution. by definition, the tax only applies to the wealthiest taxpayers. but the wealthiest taxpayers have already had their income taxed all their life at higher rates than the rest of the schlumps. and after all that, the government comes and takes away half of it?
just like the corporate tax, the estate tax creates an underclass of geeky tax lawyers hired by personal estates. the estate tax code is extremely complicated so that there has become a sprawling market for so-called expert legal bees who can help the wealthy legally avoid the tax with trusts, complicated wills, gifts, government progams (529s), etc. does the world really need this many more lawyers and accountants? it’s like how paul lamented that all the beatles power struggles of the 1970s put scores of lawyer children through private schools.
then there’s those rich people who simply go illegal in avoiding the estate tax with schemes like overstating charitable donations + giving excessive gifts to friends and family. no different from the owner of a cash business hiding money from uncle sam.
overall the estate tax penalizes savings and rewards spending, a policy that should make any economist worth his/her salt cringe. the relatives of the hardworking rich man who saves all his life are in for the rude awakening, while the hedonistic aristocrat actually has it right when he vows to spend all his money before he dies.
then there’s the Pigovian taxes (‘sin tax’). these are the ones that really make my libertarian skin crawl. excise taxes on particular goods in excess of what applies generally. at the state level, there’s a general sales tax but additional taxes on alcohol, tobacco, gasoline, and various luxury items. at the federal level there is no general sales tax but there is another excise tax on alcohol, tobacco, gasoline, and various luxury items.
i guess this means that the government is attempting to create a disincentive for its citizens to consume alcohol and tobacco (for individual health reasons), gasoline (for collective environmental reasons), and luxury items (figuring that those who buy them are financially secure enough to pay the extra few bucks’ tax). sin taxes paint the picture of the government as some sort of omniscient benevolent dictator. but i’m not a fan of paternalistic policy. i like alcohol. i find it to have benefits when used in moderation. and i don’t want to pay more money than the free market asks for a bottle of booze because my government doesn’t think i should be drinking alcohol. the government doesn’t know what’s best. i’d argue that cigarettes curb overpopulation and while disastrous for the individual, this is for the good of the collective. the smokers who check out early won’t be collecting their social security nor medicare, now will they?
because i know at the end of the day, it’s politics (not economics) that determines moral guidelines for the citizens of a nation. who can say for certain whether ice cream is better or worse for a person than alcohol? and once it determines which items to sin tax, a government is implicitly telling its citizens that all other items are ‘good for you’.
(*cue black markets*)
then there’s social security and medicare taxes. under current policy, these taxes go into dedicated trust funds and ‘appear to’ fund only the payouts for current recipients of these programs. but in practice, there is no separate ‘trust fund’ for social security and medicare taxes. this is a myth perpetuated by uncle sam. all tax income is lumped together and used collectively for government expenditure. so this means that your current social security + medicare taxes aren’t really protected. i’m all for eliminating social security and medicare and having it be left to the individual to save for retirement (with all the money he saves from not having to pay social security/medicare taxes over the years), but we’ll get to this at a later date. or maybe we won’t.
how does one design the optimal personal income tax system? there are deductions, exemptions, credits, and myriad features to consider. i believe the tax code should be utterly simplified. as in no deductibility for ‘charitable contributions’. true, this feature probably increases charitable giving. but it also requires the government to define what constitutes a ‘charity’. and this is one of the major reasons why religious institutions continue to exert such a powerful invisible hand in politics even in this supposedly enlightened age. i say keep the tax code neutral. our founding fathers would probably agree with me here.
the personal income tax code can be progressive (wealth flows from rich to poor), proportional (wealth doesn’t flow), or regressive (wealth flows from poor to rich). our current tax code is progressive. tax as a fraction of income increases with income. some, such as steve forbes, call for a flat tax. he has his reasons.
T = tY
(T is total taxes paid)
(t is tax rate)
(Y is total income)
T/Y = t
in a flat tax system, T/Y would be a constant. this is the simplest approach to income tax. and isn’t the simplest approach usually right?
but then low-income individuals are hit hardest. so no political pundit with half a heart actually proposes a flat tax system this ruthless. most usually set a ‘zero-bracket amount’ Z where T = t(Y – Z). therefore, people with incomes of Z or less pay no tax (if you wanted to more explicitly redistribute, you could set policy so that negative tax values equal a government payout). this modified flat tax is actually progressive. it would be better than our current tax code. high marginal tax rates discourage effort + income (why work any harder when uncle sam will just take a larger chunk of your cake at the end of the day?)
there is a well-developed body of economic theory that suggests using consumption as the main tax base. as in, shifting all tax from income tax to sales tax. because taxing the return on savings distorts the relative price of consumption today vs consumption tomorrow. and this is inherently inefficient for any economy.
but taxing consumption is not “progressive” since consumption items would be taxed at the same rates no matter the income of the consumer. so an individual would pay taxes based on how much he consumes, not how much he makes. this makes redistributors nervous. because there seems to be a confusion between ‘efficiency’ and ‘redistribution’ as dual ultimate goals of policy. and i’m all for efficiency.
with a across-the-board libertarian overhaul of US government, the level of government expenditure would drop drastically. therefore, the level of optimal taxation would drop equally. if i were able to, US government expenditure would drop to less than 25% of current expenditure. so the effect on tax rates would be equally dramatic.
as it is now, the US tax code creates confusion because it tries to do too much. it affects incentives in housing, charity (deductions for charitable contributions), and even solar energy (sin tax on gasoline)
united states taxation:
consists of local government, possibly including one or more of municipal, township, district and county governments.
it also includes regional entities such as school and utility, and transit districts as well as state and federal government
tariffs were the largest source of federal revenue from the 1790s to the eve of WWI
(until they were surpassed by income taxes)
internal revenue service:
(800)829-1040
electronic filing pin:
standard federal deduction: $5400
tax forms:
W2
(employment records)
W9:
1099-MISC:
1099-G:
(unemployment benefits)
the federal government taxes unemployment benefits by 10%
the state government taxes unemployment benefits by 2.5%
the first $2800 of unemployment insurance is untaxed
(ironically enough, due to the flawed tax code, one is monetarily worse off if he/she chooses to deduct income tax from unemployment benefits immediately)
“turbotax”:
USER ID: jogajungle@gmail.com
PASSWORD: macca1
(turbo tax is supposed to send out e-mail reminder(s) when taxes are due)
(so why didn’t i receive one in 2013?)
late payments:
5% of balance due for every month tax return is filed late
(good thing i owed nothing in 2012 despite filing several weeks late)
(except $80 payment to “turbotax”)
failure to pay on time
(1% of balance due per month)
tax returns:
2010 tax return
2010 tax return (2)
–
in 2014 i did not submit a tax return
(because i hadn’t made any money all year)
(beginning in september 2013 i began collecting money from princeton township)
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“taxmasters”
TV commercial:
‘we solve your tax problems’
(spoken by red-bearded middle-aged white man)
(another bitter former IRS worker)
i filed started filing my own taxes (via turbotax) in 2010…the old man offered to help but i wanted to learn the “tax code”…the previous year, he was about to get me a ~$1500 rebate…
i began to panick because i thought that i owed thousands of dollars in back taxes after collecting unemployment benefits all year…i ended up paying $882 in taxes…$467 to the federal government…$415 to new york state…$30 to “turbotax” for each state income tax return filed (i lived in new york state from january – april 2009 and new jersey state from may – december 2009 for a total of $60 owed)…
it takes several days for the IRS to deduct the tax payment from the bank account…
in 2011, i owed the IRS even more money due to unemployment benefits collected in 2010…$1617.59…i was unable to pay this in april 2011…so i worked out a deal with an IRS agent and he gave me until august 19th to pay the bill (he seemed to want a written confirmation that i’d pay the bill for legal purposes)…
“retroactive randomness”
the IRS kept me on hold for almost an hour…so i decided to go for a run (to the sounds of elevator music)…
i ran several miles before i was able to get in touch with an agent…
i debated whether or not i should have even paid them off…
at the time, i was also fighting an OUI charge in massachusetts and i knew this would drain my bank account even further…
i mailed the check (paid for by my parents) on august 9th…
in 2012, i paid taxes on one week of unemployment collected in january 2011…
in 2013 i did not submit a tax return
(because i hadn’t made any money all year)
(except a guitar center paycheck + ‘princeton tutoring’ pay-outs)
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*👨🔬🕵️♀️🙇♀️*SKETCHES*🙇♂️👩🔬🕵️♂️*
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💕💝💖💓🖤💙🖤💙🖤💙🖤❤️💚💛🧡❣️💞💔💘❣️🧡💛💚❤️🖤💜🖤💙🖤💙🖤💗💖💝💘
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*🌈✨ *TABLE OF CONTENTS* ✨🌷*
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🔥🔥🔥🔥🔥🔥🔥*we won the war* 🔥🔥🔥🔥🔥🔥🔥