How do we fix the economy???

The Labour Party after WWII ended up raising the top income tax rate to over 70%, in some cases up to 90%. Result? The rich people noped out of the UK, taking their money with them which combined with several other factors to leave the economy a mess that took several decades to recover (including an IMF bailout).

What many people forget is that even if rich folk do not give away loads of money in charity, they still help (slightly) with the economy. They pay for artists, artisans, mechanics, secretaries... a rich person can easily have a staff of a hundred or more, that's a hundred salaries directly supporting families plus things like yacht buying (keeping shipyards in business), expensive cars, fine food (restaurants, their suppliers etc)... they don't simply do a Scrooge McDuck and keep all their money hidden away in a giant bunker so that they can swim around in it. Sure, many became rich simply because they were lucky or inherited it, but others became rich because of something that they did, invented or made work and many of them created companies which in turn provide employment and a product that people want.

As for the utility of tax, tax is a hammer. Sure, hammers are useful tools, but when all you have is a hammer, every problem is assumed to be a nail. Sometimes you need a screwdriver, pliers or a saw to do the job without significant damage.

Michael, I'm not against rich people and companies making money, and then if it's their money sure they can generally spend it as they wish. I'm a self funded retiree and my portfolio would include shares in many such (I recall Thames Water and Birmingham shopping centre are in there).

What I believe needs fixing is the increasing concentration of wealth in the top few percent. This causes economic inefficiencies,and can end up in a society upheaval like the French Revolution.
Sure yachts and flunkeys need to have money spent on them, but the same money spent on schools, roads, ports, and hospitals would benefit the economy more.

Annachie wrote:You do realize that there were 17 tax brackets for income tax in the US when Reagan was elected, topping out at 70%, just for singles alone. (I just went and checked). Anything that simplifies that mess was good, and 70%really is too high.

I agree that was definitely too high. The law of diminishing returns starts to kick in when taxes get that high. Either people simply quit working extra hours etc, because the return isn't worth it or (and more likely) they start to game the system. So you wind up with highly unequal tax payments from individuals of identical income levels simply based on how good they (or their accountant is) at finding loopholes. It screams unfair.

As for flat tax, technically, a tax free threshold is a deduction not a tax bracket (surprised me) so it's still a flat tax.

I think that's marketing since because of all of the abuse of deductions/exemptions they've gotten a bad rep. And it varies by the proponent. Some individuals call the floor an exemption (or deduction or threshold), it depends on who is doing the talking.

I'd have the tax free threshold at over the minimum wage, actually over the poverty line as well which should be less than the minimum wage but might not be.

That sounds like a reasonable place to start. The numbers and the tax % would have to be tinkered with until they came up with a revenue neutral solution.

Get rid of company tax (the big boys don't pay it anyway) and a bunch of other taxes.

Not that I'm that fond of losing that revenue. But I think that you're right and we're going to have to do it. As you mentioned the big boys ARE NOT PAYING IT. The international nature of business today allows them to hold money off shore as well as play other games to dodge the system. It is extraordinarily unfair to smaller companies that they have to pass on a 20% tax to their customers when GE, Apple etc don't.

The problem it would create is removing some of the economic controls currently available to the government, and a lot of unemployed taxation specialists

I'd love to be able to get it modeled and see where the numbers end up.

They've modeled the number the current batch of presidential candidates are proposing and they come up a bit short (not a surprise, they are politicians after all). But it's not that difficult of a fix. Raise the rate a percent or two and that usually fixes it.



The biggest problem is power hungry politicians. If you get rid of all of the deductions/exemptions except the threshold, there goes a huge portion of their power. They delight in being able to use their power over the tax code to reward friends (and those who donate large sums of money to their campaigns) and punish those they dislike. Which is why the current US Tax code is something like 73,000 pages long!

Michael Everett wrote:The Labour Party after WWII ended up raising the top income tax rate to over 70%, in some cases up to 90%. Result? The rich people noped out of the UK, taking their money with them which combined with several other factors to leave the economy a mess that took several decades to recover (including an IMF bailout).

That eventually happens to all of the tax the rich schemes. When the amount gets too high the rich just move. New York is currently having that problem now.

That's the problem with theory and reality. It sounds good in theory to tax the rich a huge amount. In reality it never works. The rich have resources that they can use to protect themselves. They can move or they can buy a politician or 10 and get deductions/exemptions built into the tax system and start gaming the system. etc etc

As for the utility of tax, tax is a hammer. Sure, hammers are useful tools, but when all you have is a hammer, every problem is assumed to be a nail. Sometimes you need a screwdriver, pliers or a saw to do the job without significant damage.

Excellent point.

What I believe needs fixing is the increasing concentration of wealth in the top few percent. This causes economic inefficiencies,and can end up in a society upheaval like the French Revolution.

I agree. But to Michael's point we need to start finding some screwdrivers, pliers and saws. The tax hammer alone isn't working to solve this problem.

Not an economist, but what if the corporate tax rate was switched for a business tax rate, like a value added tax?
So a business doesnt pay direct tax, but has a non tranferable tax on its goods and services. So a company cant offshore profits, as their moeny as already been taxed at point of sale?


Would this work?

One thing that might work if there is the political will,is to hold people personally liable. We had a tax avoidance scheme here a couple of decades ago (bottom of the harbour scheme), that made the mistake of being just on the wrong side of the legal line. Lots of fancy lawyers, accountants and CEOs ended up behind bars.

If soverign governments were to pass direct and uncomplicated laws forbidding profit exporting to tax havens, along with personal liability, these smart cookies might not do it anymore.

Daryl wrote:One thing that might work if there is the political will,is to hold people personally liable. We had a tax avoidance scheme here a couple of decades ago (bottom of the harbour scheme), that made the mistake of being just on the wrong side of the legal line. Lots of fancy lawyers, accountants and CEOs ended up behind bars.

If soverign governments were to pass direct and uncomplicated laws forbidding profit exporting to tax havens, along with personal liability, these smart cookies might not do it anymore.

That's where the 73000 page tax code is working against us. With that kind of material to work with there is always a loophole.

Actually most of the economic regulations in the USA have the same problem. That's why the guys in Wall Street were able to wreck the economy of the entire world, get super rich doing it and sale off into the sunset with their billions and no criminal charges.

biochem wrote:
That's where the 73000 page tax code is working against us. With that kind of material to work with there is always a loophole.

While the tax code is overly complicated it is not even in the remote neighborhood of 73000 pages. That is just another popular fiction spouted by GOP politicians who know their audience couldn't possibly be bothered to fact check them.

gcomeau wrote:

biochem wrote:
That's where the 73000 page tax code is working against us. With that kind of material to work with there is always a loophole.

While the tax code is overly complicated it is not even in the remote neighborhood of 73000 pages. That is just another popular fiction spouted by GOP politicians who know their audience couldn't possibly be bothered to fact check them.

I admit to curiosity. Assuming a fairly standard font size, spacing and borders, just how many pages of A4 would be required to print out the USA's tax code?

Truth be know, the first line in any realistic taxation reform plan is probably: "After I stage a sucessful coup ..."

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