Tax Cut/Tax Increase

Remove all ads!

First poll in a while: I have a suspicion regarding human nature that I would like to confirm:

 

More taxes on the people! Sure, governments are no geniuses but the average joe is even more stupid and the money is better spent by others. Reminds of me my friend who last autumn got his first real job when he saw his tax papers he was dismayed. He would get almost everything he had paid back, he wanted to finally take part and contribute and they just sent his money back.

 

The only problem with that is its means are defined in terms of its tax revenues. So you could cut taxes, and its means are now reduced, so presumably you would argue that should result in spending cuts. And if taxes are cut further, then spending would have to be cut further as well. Personally, I think its means should be defined in terms of what society as a whole wants it to spend, and taxation policies should be set accordingly. Of course, there is the problem that many taxpayers ignore the reality that providing services comes at a cost, but that's a separate issue. And this is all slightly off-topic, because this poll is about debt reduction, not spending, but the two go hand in hand.

I chose the second option, but I would want the increases to be limited to those who could afford them.

 

I don't disagree with you in general, BTA. But I think you'd have to agree that there is a certain amount of spending that is necessary, and another level that is desirable. The questions become (1) how to determine what is necessary, and what is desirable, (2) how much taxation is needed to support the former, and (3) how much taxation do you want in order to support the latter?

 

I picked the first option -- I'm willing to pay what I believe is my fair share, but if I'm going to take a hit (by not getting a tax break) then others are going to have to take a hit as well -- the government should budget within its means. That means no frivolous budget items, and pare back on the necessities where possible. That's what a household must do when times are econimically tough -- no more trips top McDonalds, each kid gets one sport per year, and buy generic brands -- that sort of thing. People who sponge off the government for no good reason should be cut off at the knees and forced to start working for a living instead of chilling at the working man's/woman's expense. (note the emphasis)

Of course, one theory is to lower income taxes for everyone (particularly the middle class) and then raise the sales taxes on all non-necessary items. Then the companies that are well managed will probably see an increase in sales, those that do poorly are removed from the playing field, and their workers are hired by the good companies. In the meantime, the government gets a decent revenue stream from the sales taxes and more jobs are provided because Joe Consumer is spending more.

I'm sure that any flaws with my logic will be pointed out by all and sundry.

 

I meant it to include any and all possibilities other than increasing taxes or forgoing a tax break (including the possibility that you don't see the need to pay down the debt at all).

 

From my point of view, I want both tax increases and spending decreases. The Irish finances are in a shocking state at the moment. Actually that's not true, we've very little debt at the moment but we're racking it up amazingly quickly as government expenditure is way over government income. At the moment all we're getting is more taxes though. Most of the spending isn't even useful, the public sector pay scales and social welfare are simply way above the norm for Europe. How do we have cabinet members earning more than the German chancellor?

To point out the flaws in LKD's sales taxes over income taxes idea:

A) Very vulnerable to people simply spending their untaxed money in other states. For example, over the border in Canada. You're still left with the bill for providing services to these people.

B) Sales will fluctuate a lot more than income, I think. I'm pretty sure this is cited as a maxim but can't remember where to get the data. Some people may lose their jobs in a recession but everyone will spend less just in case they lose theirs. Consumer confidence will hammer sales even if the drop in income hasn't happened yet.

C) Sales taxes hit the poor the hardest. If you're on the breadline you'll spend whatever you have. If you're a millionaire you can hardly spend it and will be ploughing most of it into savings and investments. While I know some disagree that the rich should pay more than the poor (in %) I don't think anyone suggests the poor should pay more.

 

I'm willing to pay more for taxes if they nationalize healthcare. Otherwise, forget it. I'm not paying for anymore stupid wars, and I'm not bank rolling the failure of big business through fraud, greed and incompetence.

If big business takes the risk then they should fail if they screw-up. They certainly take the gains when their "risk taking" pays off (and see if they pay any taxes on their capital gains). So why the hell should the tax payer make those bastards any richer than they already are when THEY lose out? It's just because the government guarantees their success? But if you get sick? Screw you, you poor bastard. You're cooked.

 

Well, as for A: You just tax them when they bring their goods into the country. Both the US and Canada already do this, I believe.

B is true enough, but if the people have more money they are going to spend it and increase sales. People are not going to stop buying stuff. They're addicted to purchasing. They'll just spend more carefully.

C is true if the government tax law authors are morons (wait . .. oh, well, I'll keep going anyhow) in that you don't tax necessities like groceries. You tax luxury items. People who can't afford those items pay no tax and can use their money to provide themselves with necessities. Also, you increase the tax on interest so that the rich do not get away scot free by just squirelling their money away in investments. You don't raise the tax too high or that'll discourage investment, but you make it high enough that the government gets a decent amount of money.

Then, of course, the government must tighten its own belt and curtail the frivolous spending.

 

A) I see this in the EU, where you've free movement of goods and people. I didn't consider other countries. I'm still not sure how far you can push this though. Big ticket items ok but groceries and refilling your car? It's still an issue but it depends to what extent you tax goods in and how easy it is to travel.

B) Spending depends a lot on consumer confidence. This can change drastically and won't necessarily change rationally. Try asking a car salesman.

C) The distinction between luxuries and necessities can become very blurred. How expensive do food and clothes have to be to be luxuries? When does a small shoe become a child's shoe as opposed to a shoe for a woman with small feet? That's not frivolous, a government actually collapsed in Ireland in the 80s because of it. What about things you need for work but others don't? Also, I've taken the two extremes but savings taxes will generally take a lower % the poorer you get.

A tax on interest is an income tax, though you could target it specially. In this scenario I'd see a lot of people investing in businesses that they take a hand in running. If they derive an income from it, doesn't that mean it's taxed lowly? That could skew the type of businesses that get investment and lead to inefficient ones where people need to show they're doing enough work to qualify as income rather than passive dividends.

 

Here:

http://www.msnbc.msn.com/id/21134540/vp/30216544#30216544

 

The credit card companies have always been bastards Chandos, so I'm not really surprised. It is disappointing, to say the least, that after bailing out these banks like Bank of America, Citibank, et al, they turn around and give us a kick in the crotch by raising the rates on their credit cards. Never mind that it was these very consumers that bailed out the banks in the first place.

 

Re: the dialogue between LKD and Deise:

A) The problem I see for Canada and the US is the North American Free Trade Agreement (which also includes Mexico). Most goods can be brought across the border duty-free. In order to tax them in the way LKD suggests, there might have to be an amendment to NAFTA, but those counties that didn't change their taxation system would not likely be in favor of such an amendment. (Although I could be wrong here - cross border shopping in excess of a certain limits does trigger GST in Canda, but that's only at 7%.)

B) I tend to agree with Deise here. Plus consumer income is a lot more predictable than consumer spending, so governments would have a trickier job of setting budgets.

C) Exempting basics is a nice idea in principle, but in practice, it's more complicated. Just look at our current GST - simple theory, but actually very complex. And this tax is only 7% - make it considerably higher, and the complexity is only going to become greater to ensure low income earners aren't adversely affected.

I'm not saying LKD's idea is unworkable, but it would involve a lot of effort to ensure it's implemented properly, and I don't know that the effort would be worth it, unless there was a general movement towards that system amongst all countries.

 

I guess that my point is that there is very little wiggle room with an income tax -- you pay it no matter what. In addition, you pay the whole enchilada up front, and then when you file your income tax return the government deigns to return that money to you. That's fine if you're middle or upper class, but if you are lower class, every penny counts, and it counts right effing now. Having to pay into a tax and getting the promise "you'll get this back in 8 months" doesn't pay the rent and feed the kids this month.

With sales taxes, a poor person can simply choose to not buy the items that are taxed -- difficult but possible. Then they can keep more of their income to pay for the necessities that they are struggling to pay. They don't pay as much tax.

I agree that the GST attempts to do this, but to be honest when I am grocery shopping I don't know which grocery items are and are not taxed. There oughta be a list that is readily available.

I fully acknowledge that the level of complication that follows this sort of thing is stunning, and may not be worth the red tape costs.

 

Well, today is tax day. And fitting with the topic, today is the big "Tea Protest" by the floundering Republican Party. The idea is to "mimic" the famous Boston Tea Party, which was one of the events that led to the Revolution. So a bunch of historical know-nothings have gone to Walmart and are dumping consumer bought products where they are gathering. They are claiming that they don't want "their children to be saddled with our debt" and that Obama is a big fat communist/socialist, big-spending, blah, blah, blah...you get the picture. This is supposed to be the big launching point for the return of the "Ronald Reagan" Republican Party.

These are generally the same bunch of conservative groupies who had no problem "saddling our children" with the trillion dollar debt from the Iraq War, and running the huge deficits during the previous Republican Congress and GWB years, so it's hard to take them seriously even from their own rhetoric, let alone the historical inaccuracies of their protest.

I'm sure the real beneficiaries will be the tea companies, (like Lipton) unlike what happened to the East India Company in the days of the real Boston Tea Party. The crux of the Tea Act of 1773 was to help out the East India Company which was struggling financially, and had too great an inventory of tea. The Tea Act removed the duties paid by that particular company to the exclusion of the other tea companies, which included colonial companies and merchants. The tax on tea was a penny a pound and was really nothing more than a token tax left after the much hated Stamp Act, which was a tax on a variety of consumer goods, like glass and paint, besides notary stamps. The criux of the problem was not the tax, which was light, but the notion that the colonists were still being taxed without representation in Parliament.

But who came up with the bright idea of removing the duty tax from the tea imported by the East India Company, which led to the Boston Tea Party?

http://www.ushistory.org/declaration/related/teaact.htm
http://www.msnbc.msn.com/id/30227452/

EDIT: A correction: I had thought that I remembered the Stamp Act as a part of the Townshend Acts, but it was repealed the year before the Townshends were enacted.

 

Raising taxes in the middle of a global recession is generally a very bad idea, we tried that during the Finnish depression in the 90'ies and it made things worse since the confidence of consumers collapsed and the deflation spiral worsened.

Raising taxes is generally a very tough position for a politician to take, not only are citizen quite unwilling to let go of a bigger part of their income but usually tax raises kill growth in the short term, and since politicians sadly usually think about the next elections, they also too often only think of the short term. Hence when taxes are raised they need to make it sound like the majority of population won't actually lose any money, which may or may not be true.

Personally I usually don't think that a tax increase is a good idea, since as was pointed out earlier if the population pays more tax it means that the government has expanded, or is paying for an earlier expansion it obviously could not afford. During a downturn in economy it's a lot better to take debt than start make drastic cuts or tax changes. After the downturn cuts or tax increases might become necessary to pay off the debt and at that point I'd much prefer cuts. Tax increases might also eventually become necessary and increasing some indirect taxes could be a good idea in order to balance the national budget. In the end the national debt will have to be paid eventually and somehow. Allthough I fear that the current national debt might be a bit too much for the US to handle.

 

LKD, are you suggesting people will really take that much notice how much tax is on an item when they buy it? They will decide if they want it at the price it's at. They won't care if some of the money goes to the government or not.

Ireland does reasonably close to what you want I'd say. The bottom 30 or 40% of earners are out of the income tax loop. Employees' taxes are collected during the year and a 'return' is only needed to claim very small reliefs on things like medical expenses (the self employed do have the annual return with lump sum). The standard sales tax is 21% and extra taxes are applied on a sliding scale to cars and property, which would hit the rich more. Since the bubble burst these taxes have collapsed. Our budget has gone from a small surplus to a deficit of 15% of GDP or so (ignoring the new taxes introduced) each year. It's a good thing that income tax has to be paid. A country needs a broad tax base to be balanced and this means income taxes making up the bulk of it (I don't think anyone has ever found a way to tax wealth that works).

I would go along with what Morgoroth said. Our main problem is trying to pay for a government expansion that we were never going to be able to afford once the good times ended. Cutting spending is more important than tax increases but we're only getting increases for now.

I've answered the poll from my viewpoint. I'm against tax increases in general but I think they are needed at the moment. I'd have a different view if I lived in the US at present.