Greedy Goblin

Friday, July 24, 2009

Tax keeps differences

Socialists claim that taxation of the successful people is needed to "give a chance" to less successful ones, especially those who are disadvantaged because of harmful beliefs about age, race, gender. They believe that starting programmes for the disadvantaged will help them "be competitive".

The main problem with tax+welfare is not that "free" lunch make the welfare-recipients lazy. The main problem is that it makes starting working hard. To have a work, you must be able to create enough product to cover not only your salary, but also your taxes and the loss of the welfare.

As an easy example let's see the following situations:
  • woman doing housework. She cooks dinner to her businessman husband every day and cleans his home. The husband "pays" her by letting her using some of his salary to buy food and clothes for herself and also live in his house for free.
  • same woman have a housework company, she cooks dinner and cleans home of clients, and her current client is a businessman.
She does the very same work for the very same person. Yet in the second case she has her own money, she has paying clients instead of being the "servant" of her husband. Any feminist would say that the second is a free enterpreneur, while the first is subjected to someone. She can switch clients easily if the current is rude to her or not paying enough, or she can have more than one clients for more money if she can handle them.

What is the financial difference?
In the second case she must pay VAT after her services (actually the client have to, but it increases her price), and also income tax after her salary. The first woman is tax free and may even get some kind of welfare as unemployed.

Someone with proper education is capable of creating enough product to cover tax + own income. A lawyer or doctor makes enough to have more income than a housewife even after tax. However someone disadvantaged does not have access to such skills and currently could do only simpler, lowly paying jobs. Later, using his income and freedom he could get these skills, just like the house-cleaner service woman could go to to some college while the housewife cannot as his husband does not let her.

Young people without job experience are typical in this situation. In order to get enough money to live, they must ask for X. However the employer must pay X+tax, and that's more than their work worth, so they keep being unemployed being unable to get the necessary experience.

Taxing the lowly payed jobs keeps exactly those people unemployed who are supposed to be saved by the socialists: the members of disadvantaged groups.


Hirvox said...

..which is where the idea of progressive taxation comes in, although in most countries the "no tax" bracket is way too low to cover basic living expenses.

Brian said...

Gevlon, you're basically arguing for progressive taxation...taxing "those who can afford it" at a great rate than those who cannot. This avoids exactly the problem you mention, that of folks who don't make a lot of money having their income decreased even more by taxes.

The thing is that progressive taxation is what "socialists" argue for, and what conservatives and other "goblins" argue least in the United States. To the's "unfair" if the poor person pays a lower tax rate than the rich person, so progressive taxation itself is dismissed as a tool of socialism. The fact that it's the most practical of all tax solutions hardly seems to matter in most arguments.

frizzl said...

"Re-distribution of wealth" anyone? The problem arises when its taken to the extreme and the "Wealthy" become a target of more and more taxes because they have the money to pay, until you end up with the wealthy minority paying the overwhelming majority of tax dollars. Taken to another extreme, this discourages the free market enterprise as people choose to avoid higher tax brackets. I don't know about you but the idea of giving up over half my wages to taxes (combined state + federal) seems kinda draconian.

Gevlon himself has admitted to settling for a lower amount of money simply to stay out of a higher tax bracket.

Anonymous said...

The very rich don't pay tax. They have clever ways to avoid it, google it.

Gevlon, have you read Rich Dad, Poor Dad?

A book I think is right up your street. A Goblin "must read" in my opinion.

(you can download a less-than-legal pdf version from the usual places)

frizzl said...

I'm not talking billionaires who set up massive charities to write off the bulk of their taxes, I'm referring to the small business owners who qualify for being in the top tax bracket.

Yes there are ways to reduce your taxes through write-offs and depreciation of assets, which really anyone can be doing its just not worth it when you're barely paying any taxes to begin with. Just because you reach the government qualification of being "rich" doesn't mean you suddenly gain the ability to avoid all taxes.

Looks to me like those people aren't avoiding anything.

Stropp said...

You said:

Young people without job experience are typical in this situation. In order to get enough money to live, they must ask for X. However the employer must pay X+tax, and that's more than their work worth, so they keep being unemployed being unable to get the necessary experience.

That's not really how it works, at least in most (if not all) Western countries.

The employer pays a gross salary and the government takes the tax out. If the government chooses to raise or lower the tax rate, the employer isn't affected, the employee is. It may affect how much the employee asks for, and gets, but the employer doesn't pay extra for tax.

As for staying out of a higher tax bracket. That doesn't make any sense.

Think about it, if you are earning $50K and paying 10 cents on the dollar that's $5000 tax and $45K net income. If you move up to $60K and every dollar over 50K is taxed at 20 cents, you're now paying $7000 tax, but you're getting $53K net income. You're $8K better off! Why would you not want to earn more?

BTW, I'm not sure what married couples you know, but if any the husbands of the ones I know tried it on like you're suggesting they'd get a quick clip around the ear. Depends on the marriage, but they tend to be partnerships - and a single income marriage gets tax breaks too!

Eishen said...

Almost too easily rebated by progressive taxation and fixed no-direct taxes umbral.

Additionally I am sure you dont mean taxes are only to produce welfare to lower classes true? you dont have to be a M&S to need public services as military , police, public works, etc.. In doing so you will be thinking in an utopia more fantastic than blind hardcore commies.

As I see them taxes are not the problem , its how goverments spend the money, most precisely how they invest the money in the society vs spending it.

Tilman said...

You really have no idea what "socialists" actually do argue for, do you?
Well to fill you in... exactly the thing you just argued for: progressive taxation.

You should really cut down on using "socialist" or "social" in you posts. Using these words solely as a derogatory term makes you sound like an ignorant raging right-wing politician.
Well you are not. Don't make it so easy for people to discredit you based on that.
You write amazing posts -- don't taint them with ignorance.

Carra said...

I already made a point for progressive tax in this blog. If you get €800 welfare each month, you have to earn around €1500 here in Belgium to get the same amount of money (45% tax ftw). So if you work a whole month for a salary of €1800 you get a profit of around €165. A whole month of working to get that €165? Yeah, it sounds better to just sit at home. However if the tax is at lets say 30% for the first 1500 euros and 45% for tha above you now make €415. Quite the improvement.

Of course, if your progressive tax takes too much from the rich, they might decide to go live somewhere else. Here it's quite easy to just go live 50 km from here in France. Or Germany or the Netherlands or Luxemburg... Living in the Netherlands and working in Belgium does give you a nice extra netto salary at the end of the month.

Joe said...

In the UK we are all fed up of paying tax, because all it does is pay for our leaders party members to buy duck houses at stupid prices like $2000.

Screw tax, if I had my way, i'd keep the money I earnt.

We Fly Spitfires said...

Isn't it the other way around?

Employers pay X and an employee receives X - tax.

Regardless of the tax rate, employers have to pay the same. This amount is determined by supply and demand and miniumum wage.

For instance, it doesn't matter if the tax bracket on a $50k salary changes, the employer always pays $50k, it's just the employee who gains or loses.

2nd Nin said...

I think what Gevlon is trying to say is that the incentive to move from the M&S bracket to the S bracket is a significant hurdle since there is a drop in net income from state benefits until you earn enough. For young / unqualified people the states provision makes them unlikely to ever leave the starting gate.


Once you are earning sufficiently, the path is upwards (with points of inflexion likely where a salary gain is offset by increased taxes [which doesn't really occur in progressive taxation] capped by the 100% tax rate). However for the first section, you are better off doing nothing than something simply because the effort to return cost increases.

M&S is effectively rewarded rather than being discouraged or penalised. Other than that I don't really get the point of this, the taxation system that makes most sense is Right Wing (low taxation to cover mandatory community functionality such as defense, basic education and healthcare, etc) with the ability to expand these through choice using your own wages. Progressive taxation needs to be in place, however without sense it quickly causes the rich to move to places where they can be rich :).

Anonymous said...

You don't need an education to be better off than most. Just look at all the businessmen around the world worth multi millions. They just worked hard. Most people who graduate university these days find it very difficult to get a job. It's easier to be dumber, become an apprentice as a joiner,plumber,bricklayer at 16.

Even if tax doesn't help someone pull themselves up from being on benefits, working gives them self worth which is a lot more valuble than money.

Anonymous said...

"In the UK we are all fed up of paying tax, because all it does is pay for our leaders party members to buy duck houses at stupid prices like $2000.

Screw tax, if I had my way, i'd keep the money I earnt. "

We need tax to keep the country working other wise everything would go tits up, no public transport, no health care, no road maintenace...

Hirvox said...

Even if tax doesn't help someone pull themselves up from being on benefits, working gives them self worth which is a lot more valuble than money.
..unless that job is one of the jobs where customers tend to think that the employee's worth as a human goes hand-in-hand with their income and thus treat them like scum. Say.. entry-level sales jobs or being a janitor. For a social person, that can be a "damned if you do, damned if you don't" situation: Stay unemployed and be called a slacker, or get an entry-level job and be called a moron.

Anonymous said...

The main problem with tax+welfare is not that "free" lunch make the welfare-recipients lazy. The main problem is that it makes starting working hard. To have a work, you must be able to create enough product to cover not only your salary, but also your taxes and the loss of the welfare.

I thought you were going to argue this point. My sister in law was on welfare as the stereotypical unwed teenaged mother.

She was able to get off welfare but it was extraordinarily difficult. Her benefits when she started working dropped faster than her income could make up.

The system needs change. It should in all cases encourage work. People who work should in all cases be better off than people who do not. (Excepting those medically disabled and unable to work.)

Instead of a carrot and stick approach to get people off welfare we have two sticks. One to encourage them to get off, the other to punish them when they do.

Anonymous said...

Its not the progressive taxation that does this. I've studied this for a while now. Its the regressive taxation that does it.
Regressive???? what's regressive?

A regressive tax is one that taxes low income and not high income. FICA is one of these. To fix the problem you need to have everyone pay not just those that don't make much.

Remove the regresive tax or make it so everyone pays it and you'll see a major difference in social mobility.

G0nz0 said...

""In the UK we are all fed up of paying tax, because all it does is pay for our leaders party members to buy duck houses at stupid prices like $2000.

Screw tax, if I had my way, i'd keep the money I earnt. "

We need tax to keep the country working other wise everything would go tits up, no public transport, no health care, no road maintenace..."

Yes I agree we have to pay tax, I am employeed by the tax payer as I work in the education system. However, if the politicens wern't so greedy, and claiming expences for things that they can afford easly on there huge incomes any way, we would either have more income in out pockets as we wouldn't need to pay so much tax for the same emiaites, or better eminaties. I think the idea here is a protest saying, y should I pay tax for something that only one person is benifiting from, and that person isn't me, and nore is society benifiting from it. I and socity could benifit from the money far greater if I just keep it all to my self.

Matt said...

The main problem with progressive taxation is the fact that people are discouraged from exploiting more opportunities. Entrepreneurs are good at creating utility for the overall population. If they weren't creating/transforming/moving a product that people want to buy then they wouldn't be making any money. By taxing their extra efforts you discourage them from further applying their skills, ultimately for the bad of society. It's not different than suppressing new technology. Keeping something out of the marketplace that would otherwise improve the standard of living for everyone.

Thunderhorns said...


That's pretty much rubbish. Taxes will never stop folk from pursuing entrepreneurial ventures unless they make it completely unprofitable which a reasonably designed progressive taxation system does not do.

You will always make more money than Job Blow worker if you launch a successful company, even if they tax you 50% of your wealthy. Why? Easy man. 50% of a 100 million is still 50 million and that is still better than doing nothing with your money or working a $50000 a year job and getting taxed 25% so you make a whopping $37500.

You can extrapolate that to lower and higher earnings. Often times a new venture business that is successful will you earn you a higher rate of return than any other investment even with progressive taxation.

Wooly said...

When you start a business where I live, you get some really nice tax advantages the first few years. This is to give entrepreneurs the chance to get a foot down in the market before they get to carry the full tax weight. For income tax it's different. Even though there's also a progressive taxation system, the differences between low and high income aren't that big, but it's there nonetheless.

The existence of both systems does prove that the government has thought about the situation, yet it's true still that for a starter it's hard to make ends meet, even in high-education jobs (sometimes it's even worse there: lower start, but faster rise).

Then again, I don't know many young people with money problems, unless they're just plain idiots, still wanting the latest mobile phone, clothes and a big car, even though they know they can't afford it, but that's their own choice then.

Personally I always found this a Socialist idea, lower tax from the average Joe, up it on the rich. I'm not a socialist (at all), but I think this is not an bad/unfair system. Low tax on low income means it's also easier to set up something like a small housework business.

I get a mixed standpoint from your post btw. You start by saying that socialists want to tax the successful (rich?) people. And end that starters (not successful?) shouldn't get the tax to get a leg up. I agree, but it almost seems like you're fighting and promoting the same idea to me.

david said...

EVERYONE pays taxes regardless of your income level. For those that think you don't pay more than 50% of your income in taxes, well think again.

EVERYTHING you buy or earn is taxed one way or another, thus causing all prices to be inflated respectively.

Of course I'm speaking from the USA pov but the same concepts apply everywhere, some to a lesser and higher degree.

david said...


Gev is not the smartest most structured of writers and often contradicts himself as you can tell by many of his posts. He usually sums up his point(s) in a sentence or two.

Most of the time I want to rage and literally choke him but then again he maybe doing that on purpose. I personally like reading ppl's responses rather than his posts since I know Gev is really not that bright but tries to sound like he is.

Gibbiex said...

In the U.S. we dont have a VAT and we have a progressive tax; that is people who make a little get tax money back, those who make...30k or so break even, and people who make 100k or so have a porportionally larger chunk of money taken away. Like in europe, our tax is through our employment stream or every year. The notion that 'we get money back' is really bc we paid teh govt too much to begin with during the year. I don't know of anyone who is rich and not taxed heavily (several people in the range of 100-400k). Maybe we are all dumb and let the govt take our money.

I wont argue philosophy just to say it is different here and there is an incentive to work. ALthough all the same trouble applies, right now its incredibly difficult to find a job.

Anonymous said...

One of the most significant reasons to tax those who make the most money is because they tend to use the public services the most.

A business owner will own vastly more than his employees. However, in order to keep his business running:

- He relies on the roads the state maintains.

- He needs a workforce that is educated (paid for by the state)

- He needs a healthy workforce (their healthcare paid for by the state)

- He needs a safe environment to carry out his business transactions (maintained by the state)

And this is over and above all the same use he gets out of the state systems like roads, healthcare etc. that his employees get.

He uses it a lot more, so he is taxed more. The measure of how much he uses it is his income.

Ferathyi - Dreadmaul (US) said...

An issue rises in that the loss of welfare benefits for new entrants to the workforce is a negative income tax - income tax because you lose money as you earn income, and negative because it acts by reducing government benefits rather than increasing the tax payable on income.

An interesting case from Australia. People under 21 who are unemployed receive a benefit worth AUD$350 a fortnight.

Given rent for a single room in an outer suburb of a major city is in the order of $200-300 a fortnight, we quickly come to a situation where a single unemployed person cannot survive on welfare.

So that person goes and gets a job. What does the government do? Their first $62 (nice round number?) in income a fortnight does not affect that person's welfare. But after that, every dollar they earn from employment costs them $0.60 in welfare.

This is equivalent to a 60% income tax, and it is only applied to people who have an income below $650 a fortnight. After that, until they earn $1200 a fortnight, they are taxed at rates varying from 0%-15% (the normal, positive and progressive income tax).

I heard of a worse example in the US, where an old welfare scheme (back around 2000) 'topped up' a person's income to the poverty line, regardless of their income. Which equals a 100% income tax. Ouch. I don't know if that's still kicking around.

It is interesting to watch arguments about how taxing the rich excessively decreases their incentive to work... but the unemployed youth on welfare in Australia bear a 60% income tax on their lowest (and arguably most critical) earnings.

Beyond that, by going off welfare that person loses subsidised health care, concession public transport and any number of other benefits, which lead to even greater disincentive.

Here's an interesting possibility. How about instead of selective welfare with such high effective tax rates, why not give every person (EVERYONE) a subsistence level of 'welfare' regardless of income status, and recover it from higher tax rates along the progressive curve?

This would largely eliminate the initial hurdle for low-income workers, while providing only a slightly greater disincentive to earn for those who already have plenty.

I would be very interested in seeing a calculation on how a country's tax rates would be affected by applying a nation-wide subsistence 'welfare'.

In a similar vein, one could simply set the rate at which benefits decay (60% in the above example) to a much lower figure. A 10% decay would mean a lot more people 'on welfare', it is true, but every additional person who is sufficiently encouraged to get work as a result of this kind of reform pours money back into the government coffers from progressive income taxation.

Post hijack concluded. Discuss. =P

Yaggle said...

In general in the U.S., we always hear businesses asking for tax breaks to encourage them to create more jobs. If we tax the most profitable businesses at a higher rate, they complain that they are being punished for being successful. I think what you are saying, with the VAT taxes, is that businesses there are paying higher taxes when they hire more people. That does sound like poor economic policy.

Matt said...


I'm not saying it removes all incentive, but it gets to the point of creating diminishing returns, to the point where any extra effort to grow a business further simply isn't worth it. They'll let it sit there and milk it.

The state could very likely make more tax revenue if they cut the progressive taxes off at a certain bracket. There would be more incentives to expand. The business owner would make more money per dollar invested, and the government could potentially earn more tax revenue.

Carl Lewis said...

The problem with income taxes period is that it's a penalty for increasing ones wealth. The problem with the progressive tax is it punishes you more the more money you make and for being successful. General income taxes are socialist by their nature. everyone is taxed according to their abilities and that tax is distributed for the need of the collective. Use tax taxes behavior and allows the accumulation of wealth with out being penalized for it. Before the 16th amendment, the constitution required what was known as apportionment. meaning if I wanted to build a road I raised money through a tax specific to the road. after the road was built, the tax would end.

Interestingly enough the 16th ammendment was proposed as a political move by republicans to force rich democrats to stop supporting it... didn't work

Anonymous said...

Let's look at this in a different situation to see why Socialism doesn't work....
In order to teach his class about Socialism, a college professor decides to grade papers on a Socialist scale.
On the first test Everyone receives a "B". Everyone who did not study (the poor) are very happy. They received a good grade, with little or no work. Those who studied hard are upset because they worked much harder than the "poor" yet they received the same grade.
The "poor" decide this is easy and they will continue to receive a good grade with minimal effort. The "rich" (those who studied hard), decided since their was less benefit from studying so hard, they would study less on the next test.
On the next test, everyone receives a "C". The poor are still happy, but not as happy as on the first test, and the rich are not happy at all, yet decide since a "C" is a passing grade, and they cannot get an "A" no matter how hard they work, they will quit studying and just pass the class with a "C".
On the next test, since no one studied, everyone gets an "F". The whole class has failed because of the Socialist approach to grading the tests.
Socialism is doomed to failure because of human nature, whether we apply it to this situation or our government.

Anonymous said...

The problem isn't taxes. Taxes were ALWAYS there. Hence, if the problem was the tax, and it was always, there then no one could have gotten rich. The problem is that everyone thinks that they DESERVE everything to be handed to them. I deserve a raise since I've worked here for a year. I deverse a promotion, I've been here for 5 year now. People don't try hard enough. People make too many excuses.

Unfortunately the problem does not stop there. There are the people that empower them. The ones that say that the tax system is flawed.

Also they are trained from a young age to think that things should be given to them and not earned. They expect to earn a lot of $ right out of college, even without any experience. This is because they are thought that "everybody is a winner" and that "there are no losers". Complete BS.

At least in America anyway.

AND for those of you who beleive "Rich Dad, Poor Dad".

Kiyosaki has some good ideas but it is not gospel. Kiyosaki himslef got LUCKY. He is not successful because of what he wrote in the book, he is successful because he got in with the right crowd (read AmWay). AmWay basically made his book required... well not required but "strongly suggested" reading. And of couse all of the loyal (brain-washed) AmWay Independent business owners bought the book and made it a best seller. Just so happend that what he wrote fit in well with what AmWay was selling to their IDP's. Hmmmm I wonder way all Amway IDP's are millionaires... Maybe because it doesn't work??????

Gev, if you wanna beat up sone someone take a shot at Amway/Quixstar. I'd love to see the comments on a post like that. :D

Sid said...

A couple of things...

@Anonymous: You can't compare socialism in economy with school grades. And you seem to have a wrong concept about what (modern) socialism is. It's not "everybody gets the same money no matter how hard they worked cuz everybody deserves to have the same lol" It's about equality of money, it's about equality of chances. Everybody deserves education and health, not only those who have money to pay a private health service or a private college. Well it goes pretty long so I'll stop there.

@Gevlon: I would like to know what is a "social" person to you? I see you often use that term with a negative meaning, so I'm curious:

It's a person who cares too much about what others ("the society") say? It's a socialist? It's a person who prefers to play with friends rather than play with pro's? It's a casual player? Is a social the same as an M&S?

Sorry if I made it too long.

P.S: Progressive taxation FTW :)

Sid said...

"It's about equality of money, it's about equality of chances"

it should say:

"It's NOT about equality of money, it's about equality of chances"

Sorry for the typo.

WTB Edit button.

Gevlon said...

@people with progressive tax: yes, I support progressive tax, and it's much better than flat, but the right-wing capitalists are also right that high tax on high earnings is harmful because it makes those who could do much more do less. A doctor or engineer working 4 hours instead of 8 is bigger loss to the society than a janitor not working instead of working 8 hours.

@Ferathy: I also loved that idea ... until I multiplied the poverty rate with the population of the country and compared this to the budget :-)


Thunderhorns said...

The main problem with taxation is that the money might be better spent by private citizens who might manage it in a more efficient manner. When you give money to the government, it is still being used in a similar manner to a private citizen, it just may not be used as well.

Alot of people seem to be under the false assumption that taxed money goes into some sort of vacuum and disappears. It does not. It is still be used for the same purposes a private citizen uses money for: the production of goods and services.

It just may not be being used as efficiently as a motivated private citizen, and that is the big argument. Alot of people, myself included, find it poor use of money to pay people to sit on their asses aka welfare. That doesn't mean I consider all uses of government money in such a manner. I do not mind money spent on national defense, roads, police forces, and I understand the need to pay for a certain level of bureauacracy.

But where our tax money is used is so labyrinthine now that I can't even see its movement. That is very worrisome. With all this money the government has been takingin from taxes, why is America in such such debt now? I'd love to know how that happened.

Jeff said...

I hear this argument and it makes me wonder, are regulations and taxation policy that tend to concentrate resources in the hands of a few not redistribution of wealth upwards?

Were consumers better off with JD Rockafeller and Standard Oil? Were the markets better off when a few players were able to move the prices so dramatically they could push a company out of business? No in both cases.

Rockafeller raised prices and controlled the most powerful monopoly in history. If you wanted to buy or sell oil any where in the world you needed his permission. A number of traders in the current crisis decided to stop financing "reckless banks" who borrowed too much of their operating costs, and in the same keystroke shorted every share of stock in the "reckless banks" they could get the option on, causing the market cap to plunge and destroying confidence in the institutions, which sent their value into a tale-spin and so they went out of business. Which is a natural consequence of poor management.

Unfortunately when you are the house, the dealer, and the player you can manipulate the market and cheer when the government bails out the industry you destroyed, using taxpayer money so you win on the up, win on the down, and win on the recovery.

As for small business people who pay taxes? Get a better accountant, if you own your own business in the US there is no reason to pay any taxes, almost ever. A friend who has been self employed for over forty years just payed his first dollar of US taxes, because he decided that perhaps he might want some social security people his age were starting to talk about.

My suggestion Gelvon, put down Rand and the Austrian Economic model and pick up your Hobbes, Locke, and Rousseau.