> I'm using total government revenue over total personal income as a proxy for the tax rate.
Which is absurd because about half of US govt income comes from "not personal income tax" sources.
> That includes some taxes ... like sales tax
hold that thought.
> If you live in Taxtopia, the story ends there, but on average if you're a US citizen you're paying another 19% in local, property, and sales taxes, for a total of 38%.
You're double-counting sales taxes....
And, your computation for 70% is missing those local, property, and sales taxes, which puts your number at closer to 90%. (Since those state and local taxes actually pay for a significant fraction of the income assistance that you're advocating, it's curious that you think that they'd go away.)
However, your 19% "other" is also high.
The highest sales tax is over 9% but most states are considerably less. However, sales tax only applies to post-tax income and doesn't apply to all purchases. For example, it typically excludes food and housing, which is 20-30% for most people. Higher income folks spend a smaller fraction of their income on food&housing, but they more than make up for that by spending their money on other things that aren't sales-taxed. As a result, sales tax as a fraction of income is at most 5%.
The highest state&local income tax marginal rates may be 15%, but typical is closer to 5%.
Do you really think that the average property tax burden is anywhere near 9%? (I'm very property-heavy and my property taxes are less than 5% of my income.)
Note that a significant fraction of the property taxes are paid from income that you excluded above, namely biz income.
I'm going to step back and try a different angle, because a certain fraction of my numbers are indefensible, as you pointed out above.
In the post above that started all this, I made two basic claims.
1. The inverted population pyramid (a mountain of elderly supported on a tiny point of young, productive workers) was unlikely to happen because of immigration.
2. Even if we did end up with an inverted population pyramid, it probably wouldn't matter.
To support #2, I relied upon the following assumption, which was hidden in my numbers:
2a. The US GDP will continue to grow, even with a reduced workforce.
#2a is really the taken-for-faith axiom at the heart of my argument. If the US GDP increases faster than population, then the per-capita income will always increase as well, even if the employment-population ratio plummets. If the per-capita income increases, then the standard of living increases for everyone, employed or unemployed. In the end, that is what separates a utopian future from a dystopian future. All the rest of my numbers were just me playing with the math to see how the redistribution might look. They don't do anything to prove #2a.
Now, since it's bad form to abandon an argument in progress, I'll try to defend my math a little, or at least extend it where it is lacking.
I am seeing three basic arguments in your post:
1. A claim that I am double-counting sales tax.
2. A rejection of the way I just lumped business taxes in with personal income taxes.
3. A claim that I am not counting non-federal taxes in the 2050 tax rate.
First, all of my numbers are coming from http://www.usgovernmentrevenue.com/, for 2012. I have two additional numbers to enter into record, $13 trillion (total US personal income) and $15 trillion (US GDP).
Regarding sales tax, I merely phrased things poorly. The first mention, I was using sales tax as an example of something which is not considered an income tax but most certainly comes out of person income. The second mention, I was using sales tax as an example of something not levied at a federal level. My $5.1 trillion number is someone else's total, so I at least did not double count anything going into it.
Regarding personal versus business taxes, this is a very legitimate criticism. The best argument I could make is that the burden of business taxes ultimately fall on individuals, either the customers or on the owners and employees. This isn't quite sufficient: while business taxes which fall upon customers are ultimately paid out of their already reported personal income, but the business taxes which fall upon owners and employees come out of money which is never reported as personal income. This would make the tax rate $5.1 trillion / ($13 trillion + $X), where $X is the subset of taxes which are paid by businesses.
I am going to make the claim that $13 trillion + $X is roughly $15 trillion, the US GDP. From one angle, it makes sense. The US GDP is $15 trillion, the US gov't takes $2 trillion off the top in corporate income taxes, property taxes paid by business, the employer contribution to payroll taxes, and other business taxes, and the other $13 trillion ends up as personal income. From another angle, eyeballing the breakdown of taxes (income, payroll, ad-valorem, fees, business) it looks like something like $1.5-$2.5 trillion are paid by business instead of individuals.
So taking the tax base to be the GDP instead of the total personal income, taxes right now are 33% (5.1 / 15) of the US GDP. Taxes paid by individuals are 23.8% (3.1 / 13). Average post-tax income is $53,000 (76% * $70,000).
In the future I described, the US GDP (2% growth) is $31.8 trillion. Total US tax revenue is still $19 trillion. Taxes are then 60% of the US GDP. Business taxes are $4.8 trillion (US GDP - payroll, 31.8 - 27), so personal taxes are $14.2 trillion dollars. Taxes paid by individuals in 2050 are 52.6%. Average post-tax income is $128,000 in 2050 (47.4% * $270,000).
So shifting taxes from individuals to businesses makes the future even brighter than previously described: personal post-tax income is now more than double 2012, instead of nearly double.
Regarding state and local taxes in 2050, they are included in the $19 trillion figure. I started with the $5.1 trillion 2012 figure and grew from there. Since the 2012 figure included state and local taxes, the 2050 figure does as well.
> If the US GDP increases faster than population, then the per-capita income will always increase as well, even if the employment-population ratio plummets.
Yes, but irrelevant because GDP is not produced by non-workers, it's produced by workers.
GDP is #workers * output per worker. If the former decreases more than the latter increases, GDP goes down. Even if GDP goes up, GDP per capita can go down.
Suppose we start with 100% workers and then double the population while keeping the number of workers constant AND making them 25% more productive. The result is 25% more GDP but less GDP per person because there are twice as many people.
> Regarding state and local taxes in 2050, they are included in the $19 trillion figure.
In other words, they're part of the 19%. Which means that the current average rate is no where near 38%.
You're claiming that nearly doubling the average tax burden will have no effect. I'm pointing out that you're actually proposing something closer to 3.5x.
Even if we assume that you're correct, why do you think that Americans will pay those taxes? Note that your "the numbers work for the economy as a whole" argument is irrelevant to what an individual does.
The Clinton welfare reforms as well as current experience with unemployment benefits shows that legal employment is sensitive to fairly small amounts of money. How likely is it that it's insensitive to large amounts of money?
Yes, an interesting fraction of folks will go off book. They'll contribute to GDP but they won't be paying taxes. So, you'll need even higher rates on the "taxed GDP" which will push more folks off the book.
Yes, I realize that you're claiming that the remaining workers will have more after-tax than they have today but that's not how people think. High tax rates make evasion more profitable and generous payments to non-workers make not working more attractive.
Speaking of tax rates, the economist claims that the median federal tax rate, including all payroll taxes, is 11%. Yes, median is not average, but the relevant question is how individuals respond to the proposed 70% tax rate.
Also, note that some jobs don't scale much regardless of technology. To significantly reduce employment, work that doesn't scale places huge reqts on work that does.
Which is absurd because about half of US govt income comes from "not personal income tax" sources.
> That includes some taxes ... like sales tax
hold that thought.
> If you live in Taxtopia, the story ends there, but on average if you're a US citizen you're paying another 19% in local, property, and sales taxes, for a total of 38%.
You're double-counting sales taxes....
And, your computation for 70% is missing those local, property, and sales taxes, which puts your number at closer to 90%. (Since those state and local taxes actually pay for a significant fraction of the income assistance that you're advocating, it's curious that you think that they'd go away.)
However, your 19% "other" is also high.
The highest sales tax is over 9% but most states are considerably less. However, sales tax only applies to post-tax income and doesn't apply to all purchases. For example, it typically excludes food and housing, which is 20-30% for most people. Higher income folks spend a smaller fraction of their income on food&housing, but they more than make up for that by spending their money on other things that aren't sales-taxed. As a result, sales tax as a fraction of income is at most 5%.
The highest state&local income tax marginal rates may be 15%, but typical is closer to 5%.
Do you really think that the average property tax burden is anywhere near 9%? (I'm very property-heavy and my property taxes are less than 5% of my income.)
Note that a significant fraction of the property taxes are paid from income that you excluded above, namely biz income.