What It Takes to Be in the 1% Around the World

[valhalla360]

Originally Posted by goboatingnow

In a fair progressive system , all gains , should be taxed the same , irrespective of wether it’s comes from wages, salaries , investments or capital gains. The fact that you already paid tax to buy the investment is irrelevant, you are only taxed on the “ gain “.

But most tax systems , want to encourage asset transfer , and high gains taxes discourage this. So capital gains is usually a bit lower then income tax.

I’m a fan of overarching flat rate taxes , tax absolutely all income from any source at a fixed rate, with a tax free allowance at lower incomes to accommodate the lower paid

You lost me after the oxymoronic statement "fair progressive system". A fair system is neither progressive or regressive.

There is no perfect system but progressive systems by nature are not fair. They punish success and reward sloth.

The flaw is you are discouraging people with capital from investing it and generating economic benefits for the larger economy.
- If you fail, you lose your investment.
- If you win, the govt punishes you with higher tax rates negating much of your win (doubly so with a progressive system because a big win draws bigger taxes).

If capital sits on the sidelines, the economy slows down and there are fewer hourly wage jobs which reinforces the slow down which causes more capital to sit on the sidelines...and the spiral continues downward.

[valhalla360]

Originally Posted by goboatingnow

That is not really a consideration. People employ people cause if makes them money.

But if the govt punishes those making money, this doesn't work.

[Tellie]

Originally Posted by goboatingnow

That is not really a consideration. People employ people cause if makes them money.

Maybe I count tax income differently.

[danstanford]

Originally Posted by goboatingnow

That is not really a consideration. People employ people cause if makes them money.

I am not sure how this is relevant to the question. I could easily make a similar statement like people go to work so they will get paid, or people invest in companies hoping to make a profit. In all of these cases there is hopefully a return for work or risk otherwise the system would grind to a halt.

The author of the post you were referring to was making the point that the tax codes are meant to encourage investment in particular sectors many of which stimulate more jobs and more taxation.

[letsgetsailing3]

Originally Posted by valhalla360

So how far does the carve out go? What about family businesses? This is the problem with our tax code, there are literally thousands of carve outs until it's so convoluted that it's easy for inappropriate carve outs to find their way into the system.

You were responding to a sales tax solution, so... As I said in my original post, the politicians want nothing to do with it because it's hard to build in those carve outs that they use to buy their next election.

I was responding to this: Estate taxes often kill off moderately prosperous family farms and businesses because there is enough "capital gain" that gets heavily taxed at the original owners death that the kids can't come up with the cash to pay the taxes without liquidating. So don't forget the unintended consequences.

My position is that we shouldn't offer a stepped up cost basis for inheritances, because that's a part of the tax code that gets abused by the uber wealthy in order to permanently avoid tax on their capital gains.

This was discussed in a different ProPublica article.

The top 1% can borrow money against their stock holdings, and avoid EVER paying taxes on their capital gains. They simply leave unrealized gains to their inheritors, who get a stepped up cost basis, which means they NEVER EVER pay taxes on the gains. I mean, why would they? They can borrow against them. Again, they NEVER have to pay the capital gains on these earnings.

I'm pointing out that this is basic tax evasion, is a well-known problem, and Congress is complicit in this because they know about it and don't fix it. It's a completely legal way for Bill Gates or Warren Buffet or Jeff Bezos or Elon Musk to never pay taxes on billions in gains.

It would be easy enough to put limits on this stepped-up cost basis, but most people who know about it don't want it fixed.

[bgallinger]

I think we can all agree that the tax code is 1) Unfair to almost everyone 2) A bloated bureaucracy 3) A blessing for the tax attorney/accountant industry.

So here's an idea....why don't we ALL pay the same rate of tax and get rid of ALL the tax breaks? Problems 1), 2) and 3) solved.
The end.

[danstanford]

Originally Posted by bgallinger

I think we can all agree that the tax code is 1) Unfair to almost everyone 2) A bloated bureaucracy 3) A blessing for the tax attorney/accountant industry.

So here's an idea....why don't we ALL pay the same rate of tax and get rid of ALL the tax breaks? Problems 1), 2) and 3) solved.
The end.

What kind of rate are you thinking here? I have been paying roughly half my income and my kids are paying way less than 10%. I wonder what the modelling would look like if we picked a number like 25%?

[Overdue]

VAT May Not Be So Fair and "Tax Shelters" of Yesteryear.

Tax Shelters of the 70s and early 80s (for individuals) were basically eliminated by the "Tax Equity & Fiscal Responsibility Act" of 1982-ish, creating the "at-risk" rule, meaning you could not write-off more than you were "at-risk" in the "investment". Prior to the Act, there were many tax attorneys/CPAs/others selling shares in shelters where "investors' could easily get 10-1 write-off (invest $10,000, get a K-1 giving you a $100,000 paper loss, all completely legal. The $10k initial investment would often become insolvent, but nobody ever cared, they got a huge write-off) allowing high-earning taxpayers to legally pay zero tax year-after-year. An entire tax-shelter cottage industry collapsed when that Act was passed. They even made a movie about it, "The Boost", starring Jame Woods.

As far as the "fairness" of the VAT, be aware that converting to a VAT (national sales tax) will clobber those living at the poverty level, and those living off of gov't subsidies will need their subsidies increased, just to maintain the same buying power. If someone is receiving X$ in subsidies, and everything suddenly costs 18-20% more, they will either skip meals or lobby for increases. As far as the middle-class, the VAT will have minimal effect. Many in the middle class spend most if not all of their take-home earnings, so the increase in their paycheck (no payroll tax deductions) will be spent on increased prices for consumer goods, basically a wash. Some do believe, though, that the VAT will essentially tax the illegals working in the country, under the radar, and often not paying any income tax. Will the rich pay more with a VAT? Only if they spend everything they make, and most do not.

There is no easy solution.

[bgallinger]

Originally Posted by danstanford

What kind of rate are you thinking here? I have been paying roughly half my income and my kids are paying way less than 10%. I wonder what the modelling would look like if we picked a number like 25%?

That's a shame you pay so much in tax, BUT... Canadian tax rates are high.
A number of studies in past years indicate that tax rates of 15% to 20% would work. Just think...no more need to hire someone (and pay them) to do your tax return!

[Mike OReilly]

Here are the Canadian tax brackets for 2022:

• 15% on the first $50,197 of taxable income, plus
• 20.5% on the next $50,195 of taxable income (on the portion of taxable income over 50,197 up to $100,392), plus
• 26% on the next $55,233 of taxable income (on the portion of taxable income over $100,392 up to $155,625), plus
• 29% on the next $66,083 of taxable income (on the portion of taxable income over 155,625 up to $221,708), plus
• 33% of taxable income over $221,708
• In addition, Ontarians paid a tax rate of 5.05% on the first $45,142 and 13.16% on all portions above $220,000 in 2021.

No one is paying 50%.

[AKA-None]

Remember that there are people who make money by making money
They produce nothing

[Anders]

Originally Posted by Mike OReilly

Here are the Canadian tax brackets for 2022:

• 15% on the first $50,197 of taxable income, plus
• 20.5% on the next $50,195 of taxable income (on the portion of taxable income over 50,197 up to $100,392), plus
• 26% on the next $55,233 of taxable income (on the portion of taxable income over $100,392 up to $155,625), plus
• 29% on the next $66,083 of taxable income (on the portion of taxable income over 155,625 up to $221,708), plus
• 33% of taxable income over $221,708
• In addition, Ontarians paid a tax rate of 5.05% on the first $45,142 and 13.16% on all portions above $220,000 in 2021.

No one is paying 50%.

Any state taxes on top of that?
I worked for a year in Montreal 20 years ago on a net pay salary and I did not pay much attention to tax but I thought the tax rates were much higher than that.

[valhalla360]

Originally Posted by bgallinger

I think we can all agree that the tax code is 1) Unfair to almost everyone 2) A bloated bureaucracy 3) A blessing for the tax attorney/accountant industry.

So here's an idea....why don't we ALL pay the same rate of tax and get rid of ALL the tax breaks? Problems 1), 2) and 3) solved.
The end.

The problem is defining what is income...most of the bloated bureaucracy and loopholes are related to defining income.

Replacing income tax with a sales tax solves this because it's much easier to define what a sale is.

[valhalla360]

Originally Posted by Overdue

VAT May Not Be So Fair ......

As far as the "fairness" of the VAT, be aware that converting to a VAT (national sales tax) will clobber those living at the poverty level, and those living off of gov't subsidies will need their subsidies increased, just to maintain the same buying power. If someone is receiving X$ in subsidies, and everything suddenly costs 18-20% more, they will either skip meals or lobby for increases. As far as the middle-class, the VAT will have minimal effect. Many in the middle class spend most if not all of their take-home earnings, so the increase in their paycheck (no payroll tax deductions) will be spent on increased prices for consumer goods, basically a wash. Some do believe, though, that the VAT will essentially tax the illegals working in the country, under the radar, and often not paying any income tax. Will the rich pay more with a VAT? Only if they spend everything they make, and most do not.

Already solved.
- Most states exempt food and medical purchases from sales taxes. So the poor effectively pay less but if they want to spend on the latest iphone or a $300 pair of sneakers, they can pay the tax on them.
- As you indicate, illegal aliens will have a harder time avoiding paying at least some taxes.
- The rich spend far more and the exemptions for food/medicine are a much smaller percentage of their spending, so they effectively pay a higher rate on much larger purchases. In the long run, their money gets spent. It might take a 20-30yrs when it gets passed on to the next generation to be squandered but it's very rare for wealth to last more than 2-3 generations, so in the big picture, it gets taxed (no worse than capital gains taxes, trust funds and other tax loopholes but certainly simpler and cheaper to administer)

It would also make it much more difficult for those "evil capitalist" business owners to cheat on your taxes. Even at lower income levels, it's incredibly easy for business owners to cheat on their taxes....something as simple as office cleaning supplies that find their way home, restaurant "meetings" and variety of other items that show up as business expenses even though they have nothing to do with business but it's too much hassle for the IRS to chase them down and prove they are illegitimate.

A large percentage of super yachts are owned by companies to "entertain clients"...it would be fun to see how many companies continue to purchase them if there was no tax benefits.

[Mike OReilly]

Originally Posted by Anders

Any state taxes on top of that?
I worked for a year in Montreal 20 years ago on a net pay salary and I did not pay much attention to tax but I thought the tax rates were much higher than that.

The last bullet is Ontario (provincial) tax. I didn't want to list all 13 province/territorial rates, but they are similar.

I can't say what it was like two decades ago Anders -- not without doing some historic research. I do know Canada's tax brackets have been greatly reduced in number over recent years. Perhaps if you were in a very high income bracket in the past, this has now been rolled into the current top level.

Getting a complete effective tax rate for any individual is actually quite hard, because there are other taxes like sales (VAT ... HST/GST in Canada), and then specialized taxes like import taxes, other special sin taxes (booze, cannabis, tobacco), gas taxes, travel taxes, etc... But since we're looking at income tax, it's important to stay grounded in reality. In Canada, you'd have to be pretty unusual to be paying 50% of your income in taxes.

We all pay a lot of taxes, and few like it. But despite the myth, Canada is not a high-tax country. Most other developed countries have higher effective tax rates. But of course we mostly only compare ourselves to the USA. While it's hard to compare these two countries, it's not hard to find analysis which indicate Canada's effective tax rate is lower.