The Absurdity of Income Tax

https://treeofwoe.substack.com/p/the-absurdity-of-income-tax

by KqAmJQ7 • 3 years ago

38 60 3 years ago

treeofwoe.substack.com

jacooper• 3 years ago

Its better than vat, which increases the price on everyone, without taking their income into consideration.

Axien3• 3 years ago

Higher income people buy more stuff with a higher price tag. VAT is the most fair way to tax. You can reduce it for essentials such as baby formula and increase the rate for luxury cars, etc.

cromwellian• 3 years ago

Consumption does not scale like that. If I consume 30% of my salary under the median income, there’s no way wealthy people making say, $10 million a year are spending 30% of that on consumption. Sure, some might, but many recent 1st generation wealthy are savers and would tend to invest income, not consume it.

VAT is regressive without some kind of subsidy or UBI.

cuchoi• 3 years ago

What is fair? For people that can save most of their money, VAT is a neglible proportion of their income. Poor people which spend all of their money (and more!) will pay a lot of VAT proportional to their income.

The first person might pay more in absolute terms, but that doesn't sound fair to me.

rentfree-media• 3 years ago

There is no arbitrary, technical way to tax that does not impose a value judgment.

"People who have more than they need to live are greedy and need to have their money taken and given to those who do not."

^ That is the most fair way to tax.

johlindenbaum• 3 years ago

Canada has a quarterly “VAT” rebate (technically GST and PST, or HST depending on your province) scheme for lower incomes.

Make below X based on last year’s tax return? Here’s a quarterly cheque to offset the average individual’s sales tax.

happymellon• 3 years ago

That sounds like a particularly bad way to do it, it's cheaper for poor people but only after they have spent the larger amount.

So if price was a barrier before, it will still be a barrier afterwards unless you can afford to loan your money out to the government for 3 months

fabbari• 3 years ago

I see a couple of straw-mans in the reasoning. First is the claim that taxation assumes that working you get paid for nothing - "When I work hard to earn money, I’m not getting something for nothing. I’m getting something for my time and my time has value." - that is not at all the point, the IRS doesn't assume that. You get paid for your time AND your skills AND your willingness to exchange both for value, whatever value you choose to receive.

Which takes us to the barter part of the essay.

There is a major difference between paying someone to do your chores or doing them yourself. What's the difference? The value you are willing to exchange not to do the chores yourself, of course. Be it lack of skills, lack of time or valuing that time spent doing something else more than what you're giving in exchange.

In other words: the IRS recognizes that you own your own time and are free to do with what you want, but when you exchange it for something of value - money, services, goods - you will be taxed on that value.

Not entering the discussion on taxes: both the lawn mowing person and the house cleaning person recognize that there is more value in the other's time for a given task than their own time, if and how much that differential in value should be taxed it's a different conversation.

DarkNova62• 3 years ago

Taxes are the price we have to pay in order to live in a civilised society. Anybody change my mind...

dsr_2• 3 years ago

Taxes are /one of/ the prices we pay to live in a partially-civilized partially-capitalist society.

We are not aware of non-hypothetical long-term widespread high standard of living completely non-capitalist societies (yes, that's a bunch of qualifiers), but there is certainly a range of taxation, legal and social policies that work to varying degrees of success.

_heimdall2• 3 years ago

That leads to a much bigger question. Can human society only be civilized if there's a government drawing boundaries and enforcing laws?

I've never liked the idea that we would devolve into chaos if our government wasn't there keeping us all in line. It assumes that a) there are some people who know what is best for all of us and b) that we're effectively signing up to live as animals in a zoo.

Don't get me wrong this isn't some anarchist dream, I don't want to find out what happens without a government. But I can't sign up for the idea that a government and its taxes are a fundamental requirement for any form of civilized society.

JDEW• 3 years ago

…sure, but the discussion is about _where_ taxes a levied, and _how much_ taxes should be levied.

dennis_jeeves12• 3 years ago

Taxes are not needed for a civilized society, somebody change my mind.

dsr_2• 3 years ago

"You get paid for your time AND your skills AND your willingness to exchange both for value, whatever value you choose to receive."

Still leaving out one major part: the willingness of some other entity to trade your input for money at a mutually agreeable rate. You can be willing to trade 55 hours a week of high-quality work for $3 million a year and not find an employer.

blitzar5• 3 years ago

We should all be taxed like corporations - netting up income and expenses etc.

mantas2• 3 years ago

Taxes is an expense that covers services provided by the government.

blitzar5• 3 years ago

Are you suggesting that corporations don't pay tax, that governments don't provide services to corporations or something else?

rationalist• 3 years ago

May I suggest a science-fiction novel, The Unincorporated Man?

blitzar5• 3 years ago

I might just give it a go, been struggling for interesting reading material.

qwytw2• 3 years ago

So disincentive saving to a ridiculous degree? If you managed to spend every single cent you earned you'd pay no taxes. Save or invest anything for the future pay a 80% tax on it (you have to compensate all the lost revenue somehow...).

It does sound like a great way to increase consumption and short term GDP growth...

Different people have different consumption patterns. Corporations are incentivized to maximize profit (shareholders want a return), individuals are not...

catlifeonmars• 3 years ago

In this hypothetical scenario, the enforcement of saving could be offloaded to the government. I mean, people are already particularly bad at it.

texaslonghorn5• 3 years ago

The truly wealthy are making much of their money passively, income tax isn't really something they think about. The government would need to increase the estate and capital gains taxes to actually balance/unburden things.

Regardless, I found the anecdotes entertaining.

roenxi2• 3 years ago

This article is looking for meaning in the tax system where there was never any to find. Whatever your philosophy, taxes are arbitrary. There is some broad consensus that we can't tax people who have no money. People act as though a lot of questions in the tax system have been settled but it takes very little thought to realise it is a stack of conventions with flimsy justifications and questionable incentives. Nobody with the power to change things seems to have a stack of evidence of why any particular configuration is expected to lead to better outcomes. If they do they really should talk about it more.

There are groups who believe that the tax system should encourage certain objectives. Which specific group has power keeps changing (a much deeper trend than mere political parties). The tax system is a jumble of competing ideas. Sometimes, if something is grossly unfair, the rules change. Other times they don't.

ovidiu• 3 years ago

Not all taxes are arbitrary. You can't argue that taxes on natural resources are arbitrary. Take mineral resources as an example. I think it's very difficult to find the idea of taxing the use of these resources as absurd in a similar fashion to those presented by this article. Same can be said about radio spectrum.

If we applied the same philosophy to land, we'd need much fewer "arbitrary" tax types and percentages.

Our tax systems are indeed deeply flawed and arguing that any system is arbitrary and equally absurd/paradoxical/inefficient is incorrect since there are examples of ethical (and I would argue necessary) taxes.

roenxi2• 3 years ago

You can't argue that taxes on natural resources are arbitrary.

We can swap the Income Tax for an Air Tax if that helps, air is a resource. Charge by lung capacity. Big fellas do tend to make more money so it'd probably be a rough proxy for wealth and class I expect.

Resource taxes:

* Disincentive producing resources.

* Are still arbitrary.

Fundamentally what a tax is recognising is that Entity A did the work, but Entity B should decide who gets the fruit of that work. There is no acknowledgement that Entity A might be better than B at deciding what to do, or mechanism to test it, or even really a jury to decide it in practice (in theory the legislators could, but frankly I don't think any of the legislative bodies I'm aware of could tackle that sort of micromanagement). We don't even have consensus on what value system we should use to decide which entity was going to make a better decision even if we have perfect information about both hypothetical resource allocations. It is all ultimately arbitrary.

Even the no-tax pure free market solution is arbitrary, the argument in favour of it is it has the incentive structure that results in the most production, and big picture history suggests that maximising production will get best overall living standards. But it is clearly arbitrary, people love to point out the wild wealth differences between people who seem pretty similar except for minor differences.

These are not academic or theoretical concerns, this stuff is the meat of most of the big political debates that rage on.

blitzar5• 3 years ago

Calling some of those taxes does distort the reality a little - a natural resources tax for example is really the state selling the resource owned by the state to a third party (which makes not "taxing" it even more offensive to effectively corrupt).

shanebellone• 3 years ago

While societal control is maintained by pushing financial obligation to the masses, both debts and taxes represent the nuclear upgrade to capitalism that unilaterally enforces the system.

Debt grants its users a taste of what they can not yet afford, subsequently reinforcing the notion that work is equal to progress while also ensuring continuous participation within the larger financial system.

Taxes guarantee the debt-free still participate in commerce. One cannot simply be self-sufficient when property taxes are due annually.

Within this system, every citizen must participate in some form of commerce to meet those obligations. Neither goats nor gold can satisfy this bill; hard currency is required.

This construct does not benefit the majority, only those who hold power and seek to keep it. Neither currency nor commerce represent the underlying problem; they are merely instruments designed to thieve power from man.

hourago• 3 years ago

When Professor Cost left his job at Wachtell, Lipton, he took what I estimate to be an 85% pay cut. What would motivate a man to do such a thing? From a government accountant’s point of view, Professor Cost has made a terrible mistake. Whereas before he had earned, say, $2,000,000 in income annually, now he was earning only $300,000 annually. Such irrationality! In a socially just world he would be punished for costing the government $700,000 in tax revenues per year.

What nonsense. The writer assumes that the final goal of the goverment is to increase revenue. That is how corporations work, not governments. The goal of government is to represent its citizens to try to achieve the society that citizens want. The goal is to maximize well-being (whatever is each person definition), not cash.

From there on, everything falls into this kind of missing the point arguments.

ralusek• 3 years ago

Governments become self-interested entities. In fact, when establishing the capabilities of a government, designing around this fact is paramount.

rhaway84773• 3 years ago

Most governments don’t remain in power for more than a few years. They are constantly changing. Which prevents what you’re suggesting from happening.

Unfortunately, many strong men governments around he world have rigged their elections and/or face weak enough oppositions that they have been in power for way too long, in which case this does indeed become a possibility.

KqAmJQ73• 3 years ago

This applies to pretty much any organization imo. From nonprofits to corporations to states.

kaba0• 3 years ago

Hence the thee (four) pillars of democracy.

yucky2• 3 years ago

  > The goal of government is to represent its citizens to try to achieve the society that citizens want.

This is something we tell ourselves even though we know it isn't true. Take something like the Iraq War, which had abysmal support for many years yet continued on for no good reason. Or what percentage of our CIA operations would the general public feel represents their interests? And how many billions of taxpayer money is wasted on special interests that only a tiny fraction of people care about?

leoedin• 3 years ago

It is kind of absurd, especially once you get into the messy bits around bartering and gifting. But then all sorts of elements of modern society are absurd when you look at them closely.

It seems that once you get into the world of macroeconomics, everything is absurd in some way or other. It's all just a great weird fiction that we all buy into because it keeps society running. Money itself is a weird social construct. GDP is completely mad.

What does the author suggest we do instead? Something that isn't as absurd?

pwinnski• 3 years ago

It's a tongue-in-cheek essay, I'm not sure the author intends to suggest an alternative.

The way I think a out the barter rules is that they are there to keep people from using barter terms to describe non-barter economic activity. In other words, if someone lives their entire life avoiding cash or instruments of cash, but trades units of work for goods to deliberately avoid income taxes, the rules allow the IRS to say nope, we see through you, you're putting in 32+ hours and getting what other people pay roughly $50k/year for, so what you really have is a full-time $50k job, and you owe taxes based on that.

A world without such rules might be a world in which many, many more people "barter" time for goods and services in just that way.

anonyfox2• 3 years ago

Taxes don’t really have to be fair or just. In German, the noun for „tax“ is the same as the verb for „steering“ even!

In Order for our societies to work in practice, taxes are needed. What to tax and by how much is up to political debate…

But there is evidence that high taxes combined with a great welfare state and some redistribution allows even capitalist societies to thrive. It even gets better when you specifically use taxes to reduce the difference between rich and poor.

There might be less billionaires in such situations, but everyone else is MUCH happier and well off.

So, from a consequentialist standpoint, more taxes, especially if progressive and hard enforced, are better.

Every counter argument to that seems to construct some reasoning from pure egoism and assuming someone is not a product of his environment - and ignoring the very first thing I said - taxes don’t have to be fair or just

nivenkos2• 3 years ago

But income tax hits workers, not billionaires...

anonyfox2• 3 years ago

No question that of course other taxes are needed with the explicit goal to take it away from billionaires.

Nevertheless, income tax is still needed, too. Usually it is designed progressive so that the lower income spectrum barely pays anything and it can go really high for obscene salaries

nivenkos2• 3 years ago

Income tax is absurd - we should tax wealth not work.

By penalising those who work hard, it destroys social mobility and entrenches the establishment landowners and conservatism.

Income tax and VAT should be replaced with wealth tax, Land Value tax, property tax, inheritance tax, gift tax, etc. - i.e. tax the accumulation of wealth itself and use that to help level the playing field and promote economic activity (startups, technological disruption, etc.).

valenterry• 3 years ago

And wherever possible/feasible, tax should be replaced with fees. A company that uses public streets a lot compared to another one should pay more, even when they have the same revenue/profit.

dennis_jeeves12• 3 years ago

That is a fair way to do it. But it won't work in practice, because they consciously do not want to do it. Hypothetically if they did it that way then their efficiency/capability would be evaluated, which is something that an incompetent or and lazy does not entity wants.

sam_lowry_• 3 years ago

In Europe these are complementary.

morelandjs• 3 years ago

He’s ignoring the important details by using “exchange labor for compensation” in an outdated fashion. Money begets money.

How else does one explain the concentration of wealth over time? Progressive income tax is needed to stabilize wealth from collapsing in on itself.

KqAmJQ73• 3 years ago

Isn't that more of an argument for a higher/progressive capital gains or wealth tax?

ZeroGravitas• 3 years ago

I think of it more as a hack than an absurdity. It's a defined point when a defined amount of cash is transferred from one place to another.

Ideal time to tax.

If you suggest something like a land value tax then people will worry about how you value something without a market price. It is in some senses abitrary what your land is worth (Not actually a problem in practice but makes the point why a hacky system might prevail in the real world).

See also, taxes on purchases, estate taxes etc.

smitty1e• 3 years ago

Taxes are a "Goldilocks" problem, because they are a braking effect.

The correct amount stabilizes a system. Too much kills it; too little lets the system self-immolate.

I was actually thinking of an AskHN just ahead of seeing this item: "Why aren't all the Really Smart People in tech demanding serious tax reform?"

The Absurdity of Income Tax

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