So what would an NDP government do?

-1=e^ipi · June 23, 2015

A single rate charged to everyone no matter their income.

But once you increase the tax rate on any other portion of income, does it not effectively become a progressive tax system?

Yes, keepitsimple was advocating a type of progressive tax (exemption on first $x of income then flat tax after that). Provided that we use the definition that a progressive tax is a tax such that the proportion of income people pay as tax is a non-decreasing function of income (as opposed to increasing as I mentioned earlier).

Edit: but if we use this definition, then a flat tax counts as progressive.

Edited June 23, 2015 by -1=e^ipi

Argus · June 23, 2015

Incredibly steep exit taxes. In fact we should have exit taxes on corporations too. You want to leave, pony up.

And the inevitable response from the corporations would be that they would not come here to begin with.

Argus · June 23, 2015

Coupled with some of the lowest corprate tax rates in the world, sure they would.

We don't have anywhere near the lowest corporate tax rates in the world. And it still wouldn't matter if the profit can't be fed back to them.

-1=e^ipi · June 23, 2015

Are you just going to give them all money for free?

I think we should. Guaranteed income + flat tax. Far more preferable and less distortionary than welfare + minimum wage + tiered tax system + employment insurance.

Edited June 23, 2015 by -1=e^ipi

PrimeNumber · June 23, 2015

We don't have anywhere near the lowest corporate tax rates in the world. And it still wouldn't matter if the profit can't be fed back to them.

I was refering to my original tax post. After we lower corporate taxes even more from this point while raising many others. At that point we would have the lowest in the developed World by a wide margin.

Edited June 23, 2015 by PrimeNumber

PrimeNumber · June 23, 2015

I think we should. Guaranteed income + flat tax. Far more preferable and less distortionary than welfare + minimum wage + tiered tax system + employment insurance.

So you're talking about a basic guaranteed income to go along with a flat tax?

Edited June 23, 2015 by PrimeNumber

Argus · June 23, 2015

I was refering to my original tax post. After we lower corporate taxes even more from this point while raising many others.

Still doesn't matter if the money is of no value to them because they can't get it out of Canada. I'm speaking here of foreign investment, which is critical to this country's economy.

PrimeNumber · June 23, 2015

Still doesn't matter if the money is of no value to them because they can't get it out of Canada. I'm speaking here of foreign investment, which is critical to this country's economy.

Why can't they get any money out of Canada?

Argus · June 23, 2015

Why can't they get any money out of Canada?

You said "incredibly steep exit taxes' on money, did you not?

I can tell you as an investor who invests money in the US that if there were "incredibly steep exit taxes" on that money I would no longer invest money in US companies. I have no reason to think the reverse would not also be true to American, British, German or Saudi investors.

Edited June 24, 2015 by Argus

-1=e^ipi · June 23, 2015

So you're talking about a basic guaranteed income to go along with a flat tax?

Yes. You could set both the guaranteed income at 0 and the flat tax and 0 and you basically have extreme libertarianism. Or you could set the tax rate to 100% and redistribute all the income evenly to everyone and you basically have communism. Or you can do anything in between. It has the advantages of being simpler and of satisfying that fisherman fairness property. It reduces the problem of developing an optimal tax system to a single dimension (trying to find the optimal flat tax, because if you wish to satisfy revenue-neutrality, the guaranteed income is determined by the flat tax). As for the socially optimal flat tax, it might be possible to find it using empirical data.

PrimeNumber · June 23, 2015

You said "incredibly steep exit taxes' on money, did you not?

I can tell you as an investor who invests money in the US that if there were "incredibly steep exit taxes" on that money I would no longer invest money in US companies. I have no reason to think the reserve would not also be true to American, British, German or Saudi investors.

If I'm not mistaken exit tax only refers to residents of this country who wish to take their millions or billions eslewhere when a tax system changes. Keeping them from doing so. I don't think it would affect foreign investment. Or you could work it not too.

Edited June 23, 2015 by PrimeNumber

PrimeNumber · June 23, 2015

Yes. You could set both the guaranteed income at 0 and the flat tax and 0 and you basically have extreme libertarianism. Or you could set the tax rate to 100% and redistribute all the income evenly to everyone and you basically have communism. Or you can do anything in between. It has the advantages of being simpler and of satisfying that fisherman fairness property. It reduces the problem of developing an optimal tax system to a single dimension (trying to find the optimal flat tax, because if you wish to satisfy revenue-neutrality, the guaranteed income is determined by the flat tax). As for the socially optimal flat tax, it might be possible to find it using empirical data.

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?

Edited June 23, 2015 by PrimeNumber

-1=e^ipi · June 23, 2015

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?

You can design it such that it's revenue neutral. The larger the flat tax, the larger the guaranteed income.

Evening Star · June 23, 2015

Let's go with the definition that a tax is progressive if the proportion of income a person pays as tax is an strictly increasing function of income (though I suspect many in this thread may have different definitions).

Let's take an individual earning $80,000 per year in Ontario. Here are the relevant tax rates:

Ontario:

5.05% on the first $40,922 of taxable income, +

9.15% on the next $40,925, +

National:

15% on the first $44,701 of taxable income, +

22% on the next $44,700 of taxable income (on the portion of taxable income over $44,701 up to $89,401), +

The individual pays 25.14% of their tax as income but their marginal tax rate is 31.15%. So the individual's incentive to work is (1-0.2514)/(1-0.3115) -1 = 8.7% higher under a flat tax system that taxed this individual at the same rate compared to the progressive system.

See, I'm with you on the mathematical definition of "progressive tax". However, I'm having trouble with this last statistic, although I'll admit that I'm not well-versed in the field. The "incentive to work" is a psychological phenomenon, right? A feeling, more or less? (I felt a strong incentive to work on preparing next semester's classes last evening when I saw how much fun some of the assignments could be.) I don't see how it could be quantified to one decimal place. What would an 8.5% higher incentive to work look like as opposed to an 8.7% higher incentive? I have to think that at most this is a model or estimate? Moreover, I don't see why people would stop working or work less if they slip into a higher tax bracket, as long as they are still earning more money for their work. Do you think that teachers will put extra time into prep and marking if we switch to a flat tax? The links I gave argue that there is little evidence of decreased labour force participation in Nordic countries with highly progressive tax structure; quite the opposite.

Okay, I'll give you another example. Let's say you have two otherwise identical fishermen who live next door. The fishermen both earn $200,000 dollars in two years. One fisherman earns $100,000 each year and the other fisherman earns $50,000 in one year and $150,000 in the following year. Under the progressive tax system, the second fisherman has to pay more in taxes than the first, even though they both have earned the same amount of money. How is that fair?

Well, in the year that Fisherman 2 made $50K, it would have been a greater burden on him to pay 25% of his income in tax than it would be for Fisherman 1, given his expenses during that year. In the year that he made $150K, it would have been much easier for him to do so. He may have incurred debts during the first year, which he might be able to claim against his taxes in the second year to some extent. You could extend this to a 10-year period and say that over 10 years, both fishermen made the same total number of dollars but Fisherman 2's income fluctuated more widely, and thus a social injustice has been perpetrated against the fisherman who had to pay more. However, that seems a little silly to me, since it is easier for people to budget for a year at a time than for 10 years (unless their income is rather stable, in which case the point is moot).

TimG's point about government benefits does seem fair to me, though. I'll consider that.

Edited June 23, 2015 by Evening Star

Evening Star · June 23, 2015

This Friedmanite idea of eliminating the minimum wage and moving to a flat tax + GAI just seems to me like it would relieve employers of any expectation of having to pay a living wage. That burden would be shifted to the government that would now be responsible for providing a GAI to everyone who falls below the line. Assuming that the GAI was set at a liveable level, I also don't see how this would promote the incentive to work. It seems like it could have the opposite effect, since you would be guaranteed a decent liveable income by the government and low-end wages for working could be quite low. (I suppose one could argue that this would encourage employers to raise wages?)

Evening Star · June 23, 2015

dp

Edited June 23, 2015 by Evening Star

PrimeNumber · June 23, 2015

I think I read somwhere that a basic income would have to be at least $25,000/year to be considered liveable. So does everyone recieve $25,000/year or just those below a certain threshold? I imagine if this was implemented you would see a lowering of wages across the board over time. Which in turn means less government revenue coming in. Unless you tax the crap out of corporations.

Evening Star · June 23, 2015

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. Whatever the difference between your income and the GAI, the government makes it up. If you make over $25K, the portion of your income above the GAI starts getting taxed at a flat rate. (I don't agree with the idea, if it wasn't clear. I'm trying to explain it as I understand it.)

-1=e^ipi · June 23, 2015

The "incentive to work" is a psychological phenomenon, right? A feeling, more or less?

I guess so. I should have specified the monetary incentive to work. Obviously there are other factors in determining if a person decides to work or not.

Do you think that teachers will put extra time into prep and marking if we switch to a flat tax?

People in general, yes. Teachers specifically? That's harder to say given that it has a government employer and is heavily unionized.

The links I gave argue that there is little evidence of decreased labour force participation in Nordic countries with highly progressive tax structure; quite the opposite.

Participation rate is not the same thing as how many hours per week people decide to work (or if they decide to work more stressful jobs).

Well, in the year that Fisherman 2 made $50K, it would have been a greater burden on him to pay 25% of his income in tax than it would be for Fisherman 1, given his expenses during that year.

I'm not sure how you quantify 'burden', so I cannot verify your claim.

You could extend this to a 10-year period and say that over 10 years, both fishermen made the same total number of dollars but Fisherman 2's income fluctuated more widely, and thus a social injustice has been perpetrated against the fisherman who had to pay more.

I am not sure what your definition of social injustice is, but I do think it is unfair.

However, that seems a little silly to me, since it is easier for people to budget for a year at a time than for 10 years (unless their income is rather stable, in which case the point is moot).

People can plan 10+ years in advance. How else do you explain people retiring, people having children and saving money so they can go to university, people obtaining mortgages, etc.? Also, if people have an unstable income, they can always use a bank to save/borrow money so that their consumption is smooth over time.

Evening Star · June 23, 2015

I'm kind of curious, though, if proponents of this idea can give some hypothetical numbers: what would be a liveable GAI in your opinion and what flat tax rate would be needed to support the social services that we have today in this country? My suspicion is that this would be quite unworkable if we saw the numbers and that this is actually going to lead to a second argument that we need to start cutting these services in order to reduce the tax burden.

xp to PrimeNumber

Edited June 23, 2015 by Evening Star

-1=e^ipi · June 23, 2015

This Friedmanite idea of eliminating the minimum wage and moving to a flat tax + GAI just seems to me like it would relieve employers of any expectation of having to pay a living wage.

And why should there be this artificial expectation? I certainly don't have it. People should earn what they produce. If the economic value of someone's work isn't adequate to obtain a 'living wage' (maybe they are disabled for example) then they shouldn't obtain it. All you achieve with this expectation of yours is put people out of work and increase unemployment (as well as increase prices on goods and services). Since companies won't generally hire someone if they don't earn them at least as much money as they cost. If you want people to have enough money to live off of, give it to them via a guaranteed income.

Assuming that the GAI was set at a liveable level, I also don't see how this would promote the incentive to work. It seems like it could have the opposite effect

It would change the incentives to work; there are tradeoffs. For example, the extreme poor might have a lower incentive to work but the extreme rich might have a higher incentive to work. But given that richer people generally produce more goods and services than poorer people per unit time, this can result in more goods and services being produced. So by going to the flat tax + guaranteed income it might be possible to get a society that both produces more goods and services and has a more equitable distribution of those goods and services.

Also, if the poor people aren't working, they might be doing something else productive with their time (such as acquiring skills). Having the extreme poor spend all their time working in low skill employment means that they can't spend time to improve their skills and thus you create a poverty trap where the extreme poor remain poor.

It seems like it could have the opposite effect, since you would be guaranteed a decent liveable income by the government and low-end wages for working could be quite low.

If a person can only produce $2 per hour working, then that is what they should get paid. If their wage accurately reflects the value of their work then the individual will make decisions about how to spend their time that maximize the social welfare of society. If the individual finds that they'd rather spend an additional hour playing video games than earning $2 working and they only produce $2 when working, then the individual should play video games because that is what maximizes the social welfare of society.

-1=e^ipi · June 23, 2015

I think I read somwhere that a basic income would have to be at least $25,000/year to be considered liveable.

Really? I live off of ~ $10,000 per year. I'm poor.

So does everyone recieve $25,000/year or just those below a certain threshold?

Everyone. Even if they earn $100 trillion dollars. Using a threshold creates a severe disincentive to work for the people around the threshold, so doesn't maximize social welfare. People should earn what they produce.

I imagine if this was implemented you would see a lowering of wages across the board over time.

Maybe at the lower end. Is that an issue? You would get lower unemployment.

Which in turn means less government revenue coming in.

And some people would work more, and some people would not be unemployed. Given that we aren't comparing a specific flat tax + guaranteed income with a specific 'progressive' tax system, I don't think one can determine a priori if more or less government revenue is coming in. Also, whether the size of government increases or decreases shouldn't trump whether a tax system increases the social welfare of society.

-1=e^ipi · June 23, 2015

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.

You should give it to everyone; because otherwise there is little incentive for people below the guaranteed income level to work.

PrimeNumber · June 23, 2015

If it lowers wages but in turn allows for more jobs than it would be worth giving a shot. Though you can't expect companies to automatically give more jobs, as the bottom line is typically to fill shareholders pockets. You may have to encourage them to do so along with the new system. The ability to opt out of the basic income should also be allowed, as some at the top of the income scale may opt out for the sake of being good people. Almost like a box on your tax return that when checked allows you to opt out of the GI for the next year.
Though do we only have a flat tax + GI, or is this coupled with many other excise taxes? I mean we still need some way to fund healthcare and other government services.
An option might be to leave healthcare entirely up to the Provinces at this point. Drop many other Federal Taxes and have the Provinces tax their own population to come up with their own healthcare budgets.

Edited June 24, 2015 by PrimeNumber

PrimeNumber · June 23, 2015

Really? I live off of ~ $10,000 per year. I'm poor.

How do you manage that? I know people who live in barebone one/two bedroom apartments whose rent alone is higher than $10,000/year not to mention food, clothing, transportation and utilities. Furthermore having any disposable income for entertainment, leisure and relaxation purposes. Heck $25,000/yer might not even cut it in many cities.

Edited June 23, 2015 by PrimeNumber