So what would an NDP government do?

[Keepitsimple]

KIS, a flat tax is not tiered by definition: "flat tax" means that everyone pays the same tax rate regardless of their income level, as is the case in AB at the provincial level. You are describing progressive marginal rates, which are what we have now. The difference is that you want to also tax capital gains, savings accounts, interest, inheritance, etc at the same level as earned income, which puts you to the left of the NDP. I lean towards agreeing with you on this, though.

Yes - and that's a BIG difference - AND no tax credits - although as I said, if we start with a clean slate - governments will again start bribing us with our own money. I would call it a Progressive Flat Tax (PFT) - which will of course, be "marketed" as a Progressive "Fair" Tax. I realize it doesn't fit the exact definition of "flat" but I think it's something that people could easily relate to - and it maintains the concept of "progressive" - the more you make, the more you pay.

[overthere]

Coupled with some of the lowest corprate tax rates in the world, sure they would. You can come enjoy our low tax rates, especially for clean companies. But if you leave, you gonna pay. Maybe some of the auto manufacturers would have thought twice about leaving after Harper gave them all that bailout money that still hasnt been repaid.

Is it a full moon or just silly season?

Investors would not come in the first place if their capital was at such severe risk of government caprice. They'd take it somewhere safer like Venzuela or into Nigerian Internet proposals.

You can check out any time you want, but you can never leave.....

[Argus]

I could get behind that depending on how the basic income works out relative to the flat tax. The big question is does this net the government more or less revenue than the current system?

It refers to taxing any money which leaves the country, for any reason. It's the kind of thing Communist countries used to put in place.

[Argus]

I think the idea is that everyone is guaranteed $25K (or whatever the GAI is). So if you only earned $15K, the government hands you $10K for free to bring you up to $25K.

The problem with this is that means the $25k job, which presumably requires more skills and has more responsibilities now pays the same as the $15k job, which means there's no reason for anyone to want to even apply for it.

[Evening Star]

The problem with this is that means the $25k job, which presumably requires more skills and has more responsibilities now pays the same as the $15k job, which means there's no reason for anyone to want to even apply for it.

Yes, I made the same criticism.

Edit: but Euler did clarify that he was in favour of a somewhat different system.

Edited June 24, 2015 by Evening Star

[overthere]

It refers to taxing any money which leaves the country, for any reason. It's the kind of thing Communist countries used to put in place.

Currency controls were not restricted to Communist countries. The UK had strict currency controls as recently as the 60s, and they were not nominally a Communist country.....

After WWII many countries had capital controls until the 70s.

[overthere]

What this country needs is a return to wage and price controls.

First, let's seriously restrict the borders to the movement of goods and services and foreign capital and get this country working again!

[PrimeNumber]

It refers to taxing any money which leaves the country, for any reason. It's the kind of thing Communist countries used to put in place.

A flat tax and Basic Guaranteed Income is the same thing communist countries used to put into place?

[PrimeNumber]

Is it a full moon or just silly season?

Investors would not come in the first place if their capital was at such severe risk of government caprice. They'd take it somewhere safer like Venzuela or into Nigerian Internet proposals.

You can check out any time you want, but you can never leave.....

I wish them luck with their capitol in Venezuala's extremely corrupt system. We don't want those kinds of investors in our country anyways.

[-1=e^ipi]

flat rate (tiered flat rate)

Tiered flat rate isn't a flat tax.

Unless you are giving them back a lump sum every pay period, that would inhibit their ability to pay rent or buy food.

And what prevents you from doing this?

[-1=e^ipi]

Do you think it is always a good thing if people put in more hours and take on more stressful jobs and that we need to develop a tax system to promote this?

Not always. But if the person would get more utility from having the monetary value of an hour's work then they would from having an extra hour of leisure time, then generally it would be preferable if they worked that additional hour.

I'm OK with this slight difference, honestly

I'm not. I think we should have the best tax system possible. And it's unfair if the two fishermen don't pay the same amount in taxes.

[Argus]

What this country needs is a return to wage and price controls.

First, let's seriously restrict the borders to the movement of goods and services and foreign capital and get this country working again!

Speaking of being nominally communist and run by inept financial management....

But I know you're not serious.

Edited June 24, 2015 by Argus

[Keepitsimple]

Tiered flat rate isn't a flat tax.

And what prevents you from doing this?

I gave you that point previously - that it doesn't really fit the precise definition of "flat" - but as a marketing term that everyday Canadians understand, a Progreesive Flat Tax or Progreesive Fair Tax fits the bill. Tell you what.....since we're only speculating.....why don't we do it your way! I was trying to offer some concepts - not get into a contest about the minutiae of implementation. Truth is, neither of us has all the answers. As they say - any battle plan is out the window with the first contact with the enemy.

[-1=e^ipi]

KeepitSimple, a country can only have 1 tax system at one given time, so it makes sense to have the best possible tax system. The set of progressive taxes are infinitely dimensional. Even if you order all the possible progressive taxes by their 'progressiveness' and you wish to implement a tax with a certain level of progressiveness, that only gives you 1 criterion to choose the best tax system, which isn't enough to obtain a unique tax system from the set of progressive taxes.

Truth is, neither of us has all the answers.

No, but I can think of a methodology that obtains a unique tax system (at least in terms of distribution of income tax) using the Pareto principle, the anonymity principle, the Pigou-Dalton principle, Occam's Razor and empirical evidence.

Edited June 25, 2015 by -1=e^ipi

[Keepitsimple]

No, but I can think of a methodology that obtains a unique tax system (at least in terms of distribution of income tax) using the Pareto principle, the anonymity principle, the Pigou-Dalton principle, Occum's Razor and empirical evidence.

Good for you. I'm sure that will be crystal clear to all Canadians.

[-1=e^ipi]

Do you disagree with any of those 3 principles, Occam's Razor or empirical evidence?

Edited June 25, 2015 by -1=e^ipi

[On Guard for Thee]

Good for you. I'm sure that will be crystal clear to all Canadians.

Doubtful if its even partially clear to him. But don't worry it will all be changed tomorrow.

[Evening Star]

-1=e^ipi, which of these would describe your system? (Or is it something entirely different?):

Assuming that the GAI is $25K and the flat tax rate is 25%,

i) Both fishermen receive $25K for free from the government each year. Fisherman 2 pays 25% tax on the $50K he made in Year 1 and 25% tax on the $150K he earned in Year 2 but the $25K grant was tax-free each year.

ii) Both fishermen receive $25K for free from the government each year. Fisherman 2 pays 25% tax on his $75K total income from Year 1 (grant + earned income) and 25% tax on the $175K income from Year 2.

[Evening Star]

I gave you that point previously - that it doesn't really fit the precise definition of "flat" - but as a marketing term that everyday Canadians understand, a Progreesive Flat Tax or Progreesive Fair Tax fits the bill. Tell you what.....since we're only speculating.....why don't we do it your way! I was trying to offer some concepts - not get into a contest about the minutiae of implementation. Truth is, neither of us has all the answers. As they say - any battle plan is out the window with the first contact with the enemy.

KIS, I think "flat tax" would be a disastrous marketing term, especially for something that isn't a flat tax. The term triggers HUGE red flags for anyone who is a centrist, let alone left of centre, on economic policy. -1 has really worked to persuade me to consider his or her version of a flat tax. (And I am at least seriously thinking about it. I'm intrigued by his or her rigour and principle on this!)

(Edited for grammar and gendered language.)

Edited June 25, 2015 by Evening Star

[Keepitsimple]

KIS, I think "flat tax" would be a disastrous marketing term, especially for something that isn't a flat tax. The term triggers HUGE red flags for anyone who is a centrist, let alone left of centre, on economic policy. -1 has really worked to persuade me to consider his or her version of a flat tax. (And I am at least seriously thinking about it. I'm intrigued by his or her rigour and principle on this!)

(Edited for grammar and gendered language.)

That's why I suggested an alternative marketing term called the "Progressive Fair Tax" which more accurately reflects the process.......but hey, I'm just throwing ideas out there - I'm not trying to convince people that mine is the only way - or the best way.

[Evening Star]

Yeah, Progressive Fair Tax is better, although it reminds me of this: https://en.wikipedia.org/wiki/FairTax

[-1=e^ipi]

-1=e^ipi, which of these would describe your system? (Or is it something entirely different?):

Assuming that the GAI is $25K and the flat tax rate is 25%,

i) Both fishermen receive $25K for free from the government each year. Fisherman 2 pays 25% tax on the $50K he made in Year 1 and 25% tax on the $150K he earned in Year 2 but the $25K grant was tax-free each year.

ii) Both fishermen receive $25K for free from the government each year. Fisherman 2 pays 25% tax on his $75K total income from Year 1 (grant + earned income) and 25% tax on the $175K income from Year 2.

The first one, but effectively both systems would be equivalent provided you adjust the guaranteed income and the tax rate accordingly. The first one is just a bit simpler.

[Evening Star]

effectively both systems would be equivalent provided you adjust the guaranteed income and the tax rate accordingly.

Ah, I see that now.

[-1=e^ipi]

For the sake of providing more information to people I'll briefly explain some of the basics of the Solow model and how it relates to optimal savings rates and consumption taxes.

So a very basic idea of an economy is that the economy takes a combination of labour and physical capital to produce goods and services (i.e. if Y is economic output, L is labour and K is physical capital then Y = f(K,L), where f is some function).

- Let's restrict f such that if you have more labour and more physical capital, then you have more goods and services.

- Furthermore, let's restrict f such that if you keep either capital or labour constant and vary the other parameter then there will be decreasing marginal returns (basically, people benefit more from the first $100 of physical capital per capita than the next $100 of physical capital per capita).

- Let's also suppose that there are constant returns to scale (i.e. if you double both K and L then Y will double).

The simplest functional form that satisfies the above 3 properties is Y = A*K^a*L^(1-a), where a and A are constants. Furthermore, this functional form makes the prediction that physical capital's national share of income is roughly constant (this seems to be roughly justified by empirical evidence, see figure 3.3 from https://www2.bc.edu/~murphyro/EC375/PDF/Ch3.pdf).From the empirical evidence, physical capital's share of national income is approximately 1/3 and is equal to a.

So in the very basic Solow model, you have some production function (we will use the one above) and the change in physical capital over a unit of time is going to be equal to the savings rate s, times the economic output Y, minus the depreciation rate d, times the physical capital K. Basically, new physical capital is created due to saving/investment and old physical capital is lost due to things wearing out (hammers, buildings, computers, etc. don't last forever; also the rate of physical capital being lost depends on the depreciation rate and how much physical capital you have).

So in the long run equilibrium, the rate at which new physical capital is being created has to equal the rate at which old physical capital is being lost, so sY = dK. If we substitute in our production function, we get sA*K^a*L^(1-a) = dK.

Now let k be physical capital per capita (i.e. K/L). If we divide both sides by L we get sA*k^a = dk.

Isolating for k gives k = (sA/d)^(1/(1-a)).

Let y be GDP per capita (i.e. Y/L), dividing the production function by L gives y = A*k^a.

Substituting in the above value for k gives y = A*(sA/d)^(a/(1-a)).

Now consumption per capita c is (1-s)*y (what you don't save you consume). So we get c = (1-s)*A*(sA/d)^(a/(1-a)).

If you want to find the value of s that maximizes c, you have to ensure that the derivative of c with respect to s is zero.

This implies 0 = -A*(sA/d)^(a/(1-a)) + (1-s)*A*(sA/d)^(a/(1-a))*(a/(1-a))/s.

Dividing everything by A*(sA/d)^(a/(1-a))/s simplifies this to 0 = -s + (1-s)*a/(1-a).

Isolating for s gives s = a.

Thus to optimize long run consumption per capita, you want the savings rate to be equal to a, physical capital's share of national income, which is approximately 1/3.

So let's look at some developed countries and their savings rate vs their consumption tax rate:

Country: Savings Rate: Sales Tax:

Norway 37% 25%

S. Korea 35% 10%

Taiwan 31% 5%

Hong Kong 26% 0%

Sweden 25% 25%

Denmark 24% 25%

Germany 24% 19%

Canada 21% 5-15%

USA 17% 0-7.5%

UK 11% 20%

South Korea and Taiwan are closest to 33% and have relatively low sales taxes (Hong Kong too), though I think that the main reason for the high savings rates in these countries is culture. Canada doesn't have a comparable savings rate even though it has comparable levels of sales tax. If we restrict ourselves to developed western countries then the 3 closest to the optimal are Norway, Sweden and Denmark, all of which have sales tax rates of 25%. This suggests that Canada should try to go for a ~25% sales tax (also 25% is nice because it is easily invertible).

Edit: Also, the capital gains tax is very relevant here. Taiwan and Hong Kong have no capital gains tax. South Korea's capital gains tax is very low. Another thing to point out is that culturally homogeneous countries tend to have higher savings rates than culturally inhomogeneous countries. So this may be another reason why places like Norway and South Korea have a much higher savings rate than places like the USA or Canada.

Edited June 25, 2015 by -1=e^ipi

[-1=e^ipi]

Randomly skimmed this paper today and thought it was relevant to the discussion:

http://obs.rc.fas.harvard.edu/chetty/files/curvature_aer.pdf

It suggests using empirical evidence that the risk aversive behaviour of people suggests they have a logarithmic utility function.

Edit: Here is something interesting on the biological origin of risk aversion and what it suggests about the functional form of the utility function. http://www.ncbi.nlm.nih.gov/pmc/articles/PMC4273387/

Edited June 25, 2015 by -1=e^ipi