FAIRNESS IN TAXATION

joefromchicago wrote:

stuh505 wrote:
Touche. In any case, I think it is more fair to tax relative to the amount spent not relative to the amount earned. So I agree with David.

Or, in other words, when the facts and your opinions contradict each other, you'll stick with your opinions.

Excuse me, how do the facts contradict my opinions? In my initial point, my attempt was to show that Mills' statement was false. At this point, I did not state my opinions on anything -- I simply pointed out the error I saw in Mills' logic, based on my assumption that rich and poor people spend the same percentage of their income.

Parados then corrected me, explaining that rich and poor people do not spend exactly the same percentage of their income. While this disproves my statement that rich and poor are taxed EXACTLY the same proportion of their income, it still would support a claim that rich may be taxed roughly proportional to their income.

I am a logical person, and I have no problem admitting when I make a mistake, such as when parados corrected my initial assumption. At this point, I pointed out that it was really a moot point if all peoples taxation was exactly the same relative to their income, because I do not consider that to be the optimal standard.

I have not once contradicted myself. I never once jumped on the bandwagon saying that I think people should be taxed proportional to their income...and this is when I first stated my divergence in opinion. Considering the context, I think that it was an appropriate location to do so.

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stuh505 wrote:

Parados then corrected me, explaining that rich and poor people do not spend exactly the same percentage of their income. While this disproves my statement that rich and poor are taxed EXACTLY the same proportion of their income, it still would support a claim that rich may be taxed roughly proportional to their income.

Only if you define "roughly proportional" as "not at all proportional." Then you'd be correct.

stuh505 wrote:

I am a logical person, and I have no problem admitting when I make a mistake, such as when parados corrected my initial assumption. At this point, I pointed out that it was really a moot point if all peoples taxation was exactly the same relative to their income, because I do not consider that to be the optimal standard.

Why is a regressive tax system optimal?

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joefromchicago wrote:

Quote:
Why is a regressive tax system optimal?

Because no one shud be forced to pay for someone else,
against his will.

Ideally, it shud be the same as when u pay to go to a movie,
or buy a can of beans.
David

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joefromchicago wrote:

Only if you define "roughly proportional" as "not at all proportional." Then you'd be correct.

Hmm...let's take a look at the data that Parados presented once more. Look on page 8, table 2. People are bracketed into 9 income groups, and the mean income and mean expenditures of each group are listed. If they are roughly proportional, this graph should be roughly linear.

First of all, I find these numbers questionable because they state that the group with a mean annual income of $796 has a mean annual expenditure of $19,684...which would mean that they are spending someone else's money, and therefore any estimate on the % of money that they spend is not going to be fair.

http://img127.imageshack.us/img127/5417/linearhe0.jpg

Looks pretty linear aka proportional to me.

joefromchicago wrote:

Why is a regressive tax system optimal?

I didn't say that. I said that the optimal tax would be relative to a person's spending, not their income. By definition, this IS a progressive tax, as opposed to a regressive one:

"A regressive tax is a tax imposed so that the tax rate decreases as the amount to which the rate is applied increases."

The difference is that I am saying a different quantity should be taxed. Spending, not income, should be taxed.

Why do I think this?

a) It more accurately taxes a person based on their ability to spend instead of the government's guess as to how much they are worth...some people who look better on paper might actually be worse off, some people who look worse off might actually be better off (hiding money in offshore accounts, illegal practices, etc). Taxing the spending eliminates all these potential problems.

b) It is easier to enforce, would not require tax filing, would avoid any confusions (unfair losses or gains) due to mistakes in tax filing

b) It is invasive and annoying to have the government constantly butting in and demanding a fee for a service you are not taking advantage of. It would be like making everybody who attends a university pay a monthly fee for books based on the estimated average fee of books, without regard to how many books the student is actually buying, or deal hunting.

So, to wrap up, taxing based on income instead of spending is less accurate, more confusing, and less fair.

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stuh505 wrote:

joefromchicago wrote:
Only if you define "roughly proportional" as "not at all proportional." Then you'd be correct.

Hmm...let's take a look at the data that Parados presented once more. Look on page 8, table 2. People are bracketed into 9 income groups, and the mean income and mean expenditures of each group are listed. If they are roughly proportional, this graph should be roughly linear.

Correct so far.

stuh505 wrote:

Looks pretty linear aka proportional to me.

You're confused. All proportional results may be linear, but not all linear results are proportional. A horizontal line, for instance, would be linear, but it certainly wouldn't depict a proportional increase in expenditures across income brackets. As the raw numbers in this graph show, the lowest five brackets spend more money than they earn. At the top bracket, that percentage is down to about 64%. Ignoring the lowest bracket, the difference is around 321%. If this were a proportional result, in contrast, the difference would be negligible.

Although the result is a nearly straight line, in order for it to be a proportional straight line it would have to show that for every x dollars in additional income there is y dollars in additional expenditures across the income brackets. The figures, however, don't support that result.

stuh505 wrote:

joefromchicago wrote:
Why is a regressive tax system optimal?

I didn't say that. I said that the optimal tax would be relative to a person's spending, not their income. By definition, this IS a progressive tax, as opposed to a regressive one:

"A regressive tax is a tax imposed so that the tax rate decreases as the amount to which the rate is applied increases."

No, it's still a regressive tax. A regressive tax is one that, to put it bluntly, taxes poor people more heavily than rich people. Because poor people spend a greater percentage of their income than do rich people, they bear a heavier burden in sales taxes. I'm not sure where you got your definition, but I think it's wrong.

stuh505 wrote:

The difference is that I am saying a different quantity should be taxed. Spending, not income, should be taxed.

Why do I think this?

a) It more accurately taxes a person based on their ability to spend instead of the government's guess as to how much they are worth...some people who look better on paper might actually be worse off, some people who look worse off might actually be better off (hiding money in offshore accounts, illegal practices, etc). Taxing the spending eliminates all these potential problems.

b) It is easier to enforce, would not require tax filing, would avoid any confusions (unfair losses or gains) due to mistakes in tax filing

The government doesn't guess as to how much people are worth, it receives fairly reliable information as to how much people receive in income. There's no "wealth tax" in the US.

stuh505 wrote:

b) It is invasive and annoying to have the government constantly butting in and demanding a fee for a service you are not taking advantage of. It would be like making everybody who attends a university pay a monthly fee for books based on the estimated average fee of books, without regard to how many books the student is actually buying, or deal hunting.

What does that have to do with taxes?

stuh505 wrote:

So, to wrap up, taxing based on income instead of spending is less accurate, more confusing, and less fair.

Depends on what you mean by "fair."

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joefromchicago wrote:

All proportional results may be linear, but not all linear results are proportional. A horizontal line, for instance, would be linear, but it certainly wouldn't depict a proportional increase in expenditures across income brackets. As the raw numbers in this graph show, the lowest five brackets spend more money than they earn. At the top bracket, that percentage is down to about 64%. Ignoring the lowest bracket, the difference is around 321%. If this were a proportional result, in contrast, the difference would be negligible.

Although the result is a nearly straight line, in order for it to be a proportional straight line it would have to show that for every x dollars in additional income there is y dollars in additional expenditures across the income brackets. The figures, however, don't support that result.

No. The slope of a line is rise/run. With income on the X axis and tax on the Y axis, each unit of additional income gives you "rise/run" additional units in tax. In this particular graph, each 1 unit of income gives approx 0.5465 additional units of taxation. Any line with a positive slope such as this one meets your definition of a "proportional straight line."

If the slope of the line = 0 then there is a flat tax. If the slope of the line is > 0 then there is a progressive tax. If the slope of the line is < 0 then there is a regressive tax.

The definition of progressive tax that I used which you disagree with comes from Wikipedia. It also makes perfect sense.

The only data point that does not fit well is the first data point, for people that have incomes less than $1000 a year, which indicates that they are probably just children living with their parents..

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Proportionality..
k = y/x

In order for numbers to be proportional k must always be the same. If k is NOT the same then the numbers are NOT proportional

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parados wrote:

Proportionality..
k = y/x

In order for numbers to be proportional k must always be the same. If k is NOT the same then the numbers are NOT proportional

Dear God! Either you did not read my post and you are correcting Joefromchicago by repeating exactly what I just said, or you do not understand the equation you just wrote down!!!

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parados wrote:

Proportionality..
k = y/x

In order for numbers to be proportional k must always be the same. If k is NOT the same then the numbers are NOT proportional

Thanks, parados, you explained it much better than I did.

stuh505: The fact that your graph yields a straight line doesn't make the figures proportional, any more than the fact that the line points upward doesn't make it a progressive tax. If people in the upper income brackets are being taxed at a lower percentage than people at the lower end of the income spectrum, then it's not a progressive tax.

But I'll make it easy for you: change the y axis of your graph from "expenditures" to "percent spent" and the graph points downward. Voila! According to your definition, I just made the sales tax into a regressive tax!

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stuh505 wrote:

parados wrote:
Proportionality..
k = y/x

In order for numbers to be proportional k must always be the same. If k is NOT the same then the numbers are NOT proportional

Dear God! Either you did not read my post and you are correcting Joefromchicago by repeating exactly what I just said, or you do not understand the equation you just wrote down!!!

I have read your posts Stuh.

Income is NOT proportional to spending. You can't write the equation as simply as k =spending /income. Nor is k a constant when written that way. Your own data shows that.

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Alright well that's it then, I'm not going to waste my time trying to explain this 4th grade math anymore. If you don't get it, and you aren't willing to listen, then there's no point in me continuing to explain your errors.

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Write the equation that would provide the graph you say is linear. Until you do that you have no math at all, not even 4th grade math.

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Let's go back and look at some of the statements so far.

Quote:

"A regressive tax is a tax imposed so that the tax rate decreases as the amount to which the rate is applied increases."

This statement is accurate. But you applied it innaccurately Stuh. "Tax rate" is the percentage of the amount.

So a regressive tax is one that the percentage of total amount decreases as the amount increases. This is precisely what is shown in the 9 data points on your graph. The lower amounts spend 200% of their income and the higher level only spends 60%. As the total amount of income increases the percent of income spent decreases. Any tax based on that spending would be regressive compared to income without extensive exemptions for lower incomes. The only way to truly make it progressive is to tie sales tax to income which takes us right back to having to show income.

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Quote:

Why do I think this?

a) It more accurately taxes a person based on their ability to spend instead of the government's guess as to how much they are worth...some people who look better on paper might actually be worse off, some people who look worse off might actually be better off (hiding money in offshore accounts, illegal practices, etc). Taxing the spending eliminates all these potential problems.

It taxes people not on their ability to spend but on what they have to spend. As we already see from the data points the lower incomes spend more than they earn. There are a few of possibilities for this. 1. they are spending savings. 2. they are spending money transfers such as government aid. 3. they are borrowing to spend.
That leaves us with this on the lower end
1. You are punishing people that saved and may well be retired.
2. You are increasing the amount of government aid needed in order to pay the taxes. (Essentially the government is paying someone to pay the government. This would increase government costs.)
3. You are increasing the amount of borrowing needed to pay taxes and increased the debt load of people with little income. (Economically this could turn out very bad.)

Quote:

b) It is easier to enforce, would not require tax filing, would avoid any confusions (unfair losses or gains) due to mistakes in tax filing

Sales taxes require tax filing. You don't notice it because you don't have to do the filing yet. If we had a national sales tax all the sales on ebay would require sales tax. All the items sold at your garage sale would require sales tax. The amount of filing wouldn't change. It could well become a nightmare for all the average people that sell small items. Either you have forced tax filings or you encourage an underground economy where no sales tax is paid. Sales tax still requires enforcement and audits. Sales tax filings only apply to businesses so far. Make it our major federal tax vehicle and it would still require enforcement and audits but it would apply to all transactions not just retail outlets.

Quote:

b) It is invasive and annoying to have the government constantly butting in and demanding a fee for a service you are not taking advantage of. It would be like making everybody who attends a university pay a monthly fee for books based on the estimated average fee of books, without regard to how many books the student is actually buying, or deal hunting.

It is nothing like that. Books have no relationship to income.

People that attend a university already do pay fees. Those fees go for university services like health care centers etc. Fees like taxes will always go for items that some people use more than others. Just because you don't use one item that the tax goes for as much as someone else doesn't mean you get less from your taxes. They may not use a different item as much as you do. I usually find that people that complain about how they never get anything from the government have no idea what the government really provides to them.

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stuh505 wrote:

Alright well that's it then, I'm not going to waste my time trying to explain this 4th grade math anymore. If you don't get it, and you aren't willing to listen, then there's no point in me continuing to explain your errors.

Well, considering how badly you're doing explaining your errors, I'm not surprised.

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Just to cloud the issue a little more, the excise taxes on gasoline are regressive as well. Even if a poor man drives the most fuel efficient car he can afford for a 30 mile commute, and his rich fellow citizen drives a hummer which gets 6 miles to the gallon for the same commute, the poor man may still pay a much higher proportion of his income in excise taxes than does the rich man.

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joe wrote:

parados wrote:
Proportionality..
k = y/x

In order for numbers to be proportional k must always be the same. If k is NOT the same then the numbers are NOT proportional

Thanks, parados, you explained it much better than I did.

I don't know what you are smoking, because in my previous post I had just said:

stuh505 wrote:

The slope of a line is rise/run. With income on the X axis and tax on the Y axis, each unit of additional income gives you "rise/run" additional units in tax. In this particular graph, each 1 unit of income gives approx 0.5465 additional units of taxation.

First of all, parados' equation should be dy/dx. dy = rise and dx = run. He is saying the exact same thing as I just said. And you don't seem to get it.

EXACT proportionality can be measured by checking to see if y/x is constant, only because straight lines have constant slopes. However, as this example indicates, it is not a very robust way to check for linearity because it essentially amplifies the noise while canceling out the signal. Linearity on real data should be checked for on the values of Y, not the derivative.

Quote:

But I'll make it easy for you: change the y axis of your graph from "expenditures" to "percent spent" and the graph points downward. Voila! According to your definition, I just made the sales tax into a regressive tax!

Ok, apparently a progressive/regressive tax does refer to the rate. In this data the rate decreases very slightly, so yes that is regressive, although its such a small amount that it could easily just be noise in the data. In fact it is so small and imperceptible relative to the amount that it can be ignored. For all intents and purposes, a straight line and constant slope approximate the data well. It is still proportional.

parados wrote:

You can't write the equation as simply as k =spending /income. Nor is k a constant when written that way. Your own data shows that.

Write the equation that would provide the graph you say is linear. Until you do that you have no math at all, not even 4th grade math.

I have already written the equation in previous posts. I first wrote down the equation for slope, and then I wrote down the value of the slope. I made the assumption that you knew the equation of a line was y=mx+b. I guess you didn't know that, because you are now suggesting that the equation should be written without a b-term (y-intercept = 0), which it shouldn't be.

This is real data, it cannot be expected to be 100% perfect. I said "roughly proportional" which is the same as "roughly linear." That said, this data is almost exactly proportional, meaning that K
is almost exactly constant relative to the size of Y. It is 0.529. The data does support this very well!

Regression analysis gives us the value for m and b:

y = 0.529x + 15247.207

http://img358.imageshack.us/img358/3413/regyp9.jpg

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Therein lies the problem stuh

Tax rate is and must be (amount paid in taxes)/total.

When you use modifiers it is no longer the tax rate. Your equation is not a tax rate and shouldn't be confused with a tax rate. You can't use your equation as support for the statement

Quote:

"A regressive tax is a tax imposed so that the tax rate decreases as the amount to which the rate is applied increases."

A simple example.
if someone makes $1000 and pays $1000 in taxes but someone makes $1,000,0000 and pays $1010 in taxes who has the higher tax rate? We could easily set this up for a straight line graph by adding other points. Would you argue that this shows progressive taxation on incomes or regressive?

An easy way to see this is follow the line out to infinity. As it moves out the tax rate starts to approach zero. Any tax rate that approaches zero on the high end can't be progressive.

I didn't realize where your error in thinking was in my first few posts. Your math is correct just misapplied. There is a proportion for spending vs income but because you were tying it to progressive/regressive I took your proportion to be an attempt to show tax rate as being progressive. When you graph tax rates using the data and any flat sales tax it can not be progressive under the definition.

Quote:

Ok, apparently a progressive/regressive tax does refer to the rate. In this data the rate decreases very slightly, so yes that is regressive, although its such a small amount that it could easily just be noise in the data. In fact it is so small and imperceptible relative to the amount that it can be ignored. For all intents and purposes, a straight line and constant slope approximate the data well. It is still proportional.

So regressive DOES refer to the rate as you now admit. But now you are claiming the rate decreases very slightly? WTF? If the spending rate goes from 200% to 60% that is only a small decrease? In what reality? A 200% to 60% decrease is only noise? But it isn't noise when you wanted the data to show it was progressive? That is complete nonsense Stuh. If the tax rate was 10% on those expenditures it would go from 20% to 6% of income. Hardly an imperceptible amount. (Most sales tax proposals require about 17% to achieve similar revenues for the Federal government.) You are only trying to justify your error at this point by suddenly claiming a large movement is next to nothing.

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Ugh, I wish I didn't have to confess to being wrong but I do. I was wrong. I was thinking that if the slope was constant then the proportion of sales tax was constant...but in fact this is only the case if the y-intercept is 0. By giving a best fit equation with a nonzero intercept I confirmed I therefore confirmed that it is regressive.

I still think it is valid to say "roughly proportional" because the tax rate approaches a constant value (and therefore approaches true proportionality) as income goes to infinity.

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FAIRNESS IN TAXATION

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