> The progressive income tax was created by people who are bad at math. What they're trying to create is the effective tax rate curve that you intrinsically get when you combine a flat tax with a UBI. You can make it as progressive as you like; "more progressive" just means a higher flat tax rate which pays for a higher UBI.
If I tax you at 50% on $500k and 10% on anything under $500k, the relative value of $500,001 vs. $500,000 is ~$.40. It really does have an impact on behavior that isn't as simple as a mathematical curve.
Is $600k nice under such an arbitrary set of numbers? Yes.
Would you take $500k for a better working environment? Probably. The utility of those additional before-tax dollars is reduced even before you get into the relative utility of an extra $50k on such a large salary.
Realistically, you want a compensation range between the poverty line of ~$15k (not letting them die and encouraging them to work through a lack of luxuries) and wealthy ($500k or so in annual income) where the additional utility of the dollars simply isn't enough to be worth hoarding for yourself. And yes, if you have income over $500k/year (~10x median household income) you are just running up the score in practical terms and if you want to do that you should be able to...but society should also be able to collect a reasonable amount of that excess money to sustain the society that enabled you to reach that kind of income.
Similarly, lets take the example of a UBI that ignores employment status:
$15,000/year/adult
Let us also posit that the minimum wage is equal to the UBI amount ($15k).
UBI: $15,000
State Minimum Wage: $15,000
You want the UBI to (mostly) focus on the unemployed. So you set a progressive tax rate.
+$15,000 :: The UBI
-$15,000 :: Standard Deduction (the only deduction)
+$15,000 :: The Earned Income
-$6,000 :: 40% Tax Rate (to quickly recover the UBI)
Still progressive, very simple to process, and pretty low overhead.
> And a flat rate eliminates twelve different kinds of tax cheating, and allows you to use a consumption tax that encourages investment over consumption, and eliminates the need for individuals to file tax returns at all because all tax can be collected by businesses, which saves millions of man-hours every year and makes everybody happy.
The cheating comes from the itemized deduction process. If all deductions are the standard deduction of $X for all private citizens in the US and the brackets are standardized, the calculation difference between a flat vs. progressive tax is a toy project any intern could produce and could be publicly available for free for the cost of maybe ~$1k every time they change the tax rates.
I agree the tax cheating is a problem but all that requires to "fix" is the removal of itemized deductions. The points of vulnerability to this approach also exist in a flat-consumption tax model. (i.e. Someone has to collect the tax on behalf of the government and nothing stops them from lying about their income other than criminal penalties)
You don't need this and you don't want it. You have people making $200K paying a lower marginal tax rate than people making $20K. That makes no sense and is anti-progressive. Your highest tax bracket is more than 20% higher than the existing one (and really 40% higher vs. the long term capital gains rate), but you don't need that money unless you want to pay for a higher UBI, and if you did then you could just use a 60% flat tax rate and let the higher UBI make up for it.
Just use a flat tax with a UBI. All of the complexity really is completely unnecessary.
Also, if you have a UBI you don't need a minimum wage.
> The cheating comes from the itemized deduction process.
The cheating comes from not treating similar transactions the same. Part of that is all the deductions, but part of it is that two different people can make the same dollar and pay a different tax rate. So then you get families cheating because dad makes $240K from the family business and the three children are off at college making nothing, so instead they all get nominal jobs in the family business making $60K each and dad is down to $60K and out of the high tax brackets. And so on with a hundred other ways to redistribute income within a family/corporate hierarchy/whatever to arbitrage non-uniform tax rates.
If there is only one tax rate you can't do any of that.
> The points of vulnerability to this approach also exist in a flat-consumption tax model. (i.e. Someone has to collect the tax on behalf of the government and nothing stops them from lying about their income other than criminal penalties)
VAT solves this easily. Every time a business sells something it has to submit VAT and can only deduct the VAT collected by its suppliers if they actually paid it, so now you have every link in the supply chain with a financial incentive to report the others if they haven't paid.
If I tax you at 50% on $500k and 10% on anything under $500k, the relative value of $500,001 vs. $500,000 is ~$.40. It really does have an impact on behavior that isn't as simple as a mathematical curve.
Is $600k nice under such an arbitrary set of numbers? Yes. Would you take $500k for a better working environment? Probably. The utility of those additional before-tax dollars is reduced even before you get into the relative utility of an extra $50k on such a large salary.
Realistically, you want a compensation range between the poverty line of ~$15k (not letting them die and encouraging them to work through a lack of luxuries) and wealthy ($500k or so in annual income) where the additional utility of the dollars simply isn't enough to be worth hoarding for yourself. And yes, if you have income over $500k/year (~10x median household income) you are just running up the score in practical terms and if you want to do that you should be able to...but society should also be able to collect a reasonable amount of that excess money to sustain the society that enabled you to reach that kind of income.
Similarly, lets take the example of a UBI that ignores employment status:
$15,000/year/adult
Let us also posit that the minimum wage is equal to the UBI amount ($15k).
UBI: $15,000 State Minimum Wage: $15,000 You want the UBI to (mostly) focus on the unemployed. So you set a progressive tax rate.
+$15,000 :: The UBI
-$15,000 :: Standard Deduction (the only deduction)
+$15,000 :: The Earned Income
-$6,000 :: 40% Tax Rate (to quickly recover the UBI)
-------------------------------------------------------
$24,000 in actual income (i.e. Tax of +$9k)
+$15,000 :: The UBI
-$15,000 :: Standard Deduction (the only deduction)
+$60,000 :: The Earned Income (Theoretical Median Household Income)
-$30,000 :: 50% Tax Rate (to quickly recover the UBI)
-------------------------------------------------------
$45,000 in actual income (i.e. Tax of -$15k)
+$15,000 :: The UBI
-$15,000 :: Standard Deduction (the only deduction)
+$180,000 :: The Earned Income (~3x median income)
-$30,000 :: 50% Tax Rate (to quickly recover the UBI on the first $60k)
-$36,000 :: 30% Tax Rate (we are no longer recovering UBI)
-------------------------------------------------------
$129,000 in actual income (i.e. Tax of -$51k)
+$15,000 :: The UBI
-$15,000 :: Standard Deduction (the only deduction)
+$1,000,000 :: The Earned Income (~3x median income)
-$30,000 :: 50% Tax Rate (to quickly recover the UBI on the first $60k)
-$132,000 :: 30% Tax Rate (we are no longer recovering UBI, up to $500k)
-$300,000 :: 60% Tax Rate (to discourage excessive compensation)
-------------------------------------------------------
$538,000 in actual income (i.e. Tax of -$462k)
Still progressive, very simple to process, and pretty low overhead.
> And a flat rate eliminates twelve different kinds of tax cheating, and allows you to use a consumption tax that encourages investment over consumption, and eliminates the need for individuals to file tax returns at all because all tax can be collected by businesses, which saves millions of man-hours every year and makes everybody happy.
The cheating comes from the itemized deduction process. If all deductions are the standard deduction of $X for all private citizens in the US and the brackets are standardized, the calculation difference between a flat vs. progressive tax is a toy project any intern could produce and could be publicly available for free for the cost of maybe ~$1k every time they change the tax rates.
I agree the tax cheating is a problem but all that requires to "fix" is the removal of itemized deductions. The points of vulnerability to this approach also exist in a flat-consumption tax model. (i.e. Someone has to collect the tax on behalf of the government and nothing stops them from lying about their income other than criminal penalties)