Couple tax questions

[Arrian]

KH, if you're now against progressive income taxes & in favor of "lump sum" per capita redistribution, doesn't that lead us back to the inheritance tax?

-Arrian

[Arrian]

Zkrib,

The worry is about possible deflation, sure. Temporarily. Normally, we have inflation. You don't design tax policy around abnormal conditions.

-Arrian

[KrazyHorse]

Just curious if by this you actually mean an EITC-style thing.

No, I mean universal lump sum.

[KrazyHorse]

KH, if you're now against progressive income taxes & in favor of "lump sum" per capita redistribution, doesn't that lead us back to the inheritance tax?

-Arrian

????

Don't see how.

[Kuciwalker]

No, I mean universal lump sum.

Why? Why does the non-progressiveness of a lump sum outweigh the incentive to actually work of an EITC?

[Arrian]

????

Don't see how.

I was kidding, mostly. Though it seems an elegant solution, to me. One must fund the payment somehow.

-Arrian

[KrazyHorse]

Kuci, an EITC reduces (sometimes to below 0) the marginal tax rate of a certain portion of the income distribution.

However, the EITC is phased out above a certain threshold. So in the phase-out region it INCREASES the marginal tax rate above what it would be without an EITC. In fact, for a couple of 2 with 2 children the marginal tax rate of people earning between 15400 and 37782 (not sure if this is before or after deductions & exemptions) their marginal tax rate is INCREASED BY 21%!

I think that the incentive to work in the phase-in region is outweighed by the disincentive to work in the phase-out region. Having wild swings in the marginal tax rate tends to be more distortionary than a flat tax (this is absolutely true if labor supply&demand elasticities are equal across the distribution).

So the good thing about the EITC is that it is a cash transfer rather than the extremely wasteful transfers in kind governments usually engage in.

Another good thing is that it targets more money at poorer people

A bad thing is that it introduces very high marginal tax rates in a certain part of the distribution (higher than top nominal marginal tax rates)

Unfortunately, there is no way I can figure to target money at poorer people which does not lead to a spike in marginal tax rates in some phase-out region.

[KrazyHorse]

I was kidding, mostly. Though it seems an elegant solution, to me. One must fund the payment somehow.

-Arrian

Unfortunately, I'm of the impression that estate taxes are relatively easy to engineer around, as well as impacting mostly people whose labor elasticity is high.

[The Mad Monk]

It's times like this that I wish that Accounting were a core course in high school.

[Dauphin]

Accounting classes.
Personal finance management classes.

[duke o' york]

Dauphin's opinion.

You don't need any knowledge of accounting to understand how banking or saving works. Sure, that is part of our knowledge, but you don't need to understand accountancy to have a good idea of what happens to investments, whether "passive" or "aggressive", er "active".

KH has given a good explanation of how banks work - this is the kind of thing that should be taught at school, and not how the niceties of the tax system work. Sure, you should understand the basics, but you really don't need to know about dividend tax credits in school. Plus, you'd put us out of a job!