The Financial Situation (41 Viewers)
- Thread starter ReBeL
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Dimishining marginal consumption means that people with high income are going to spend a smaller proportion of their income compared to people with lower incomes - who need to spend more simply to satsify basic needs.
As the VAT (and other, though less important taxes) is the same for everyone, people with lower incomes pay a higher proportion of their income as VAT (as they spend more of their money in general), which means that the overall proportion of their income payed to the state rises, even if it's not payed dirctly via an income tax. This has very significant effects, for example here in Austria, the percentage of their income people pay as taxes every months is virtually equal across all levels of income - even though Austria has a rather highly progressive income tax. With a flat tax, people with lower incomes would due to the same reasons actually pay a higher proportion of their income to the state as people with higher incomes. So while a flat tax might seem equal and, well, flat, in practice it turns out to be anything but that.
Of course you can say that poor people are not forced to spend their money and pay VAT, but that's rather cynical in my view. There's not much choice involved in the majority of the expenses they take; not paying rent, not buying food or clothing is not really an option.
The economic efficiency I mentioned has to do with the same reason, though it's certainly more debateable. If you shift a part of the tax burden from low income levels to higher ones with a progressive income tax, poor people will have more money to spend. And as mentioned earlier they spend much more of that money than richer people would (who save substantial amounts of their income), meaning consumption increases, which in turn stimulates the economy.
Additionally, taking a higher percentage from the poor as from the rich is not really just in most people's eyes, including mine, although morality & ethics certainly is a very subjective thing.
I hope my explanation is understandable
As the VAT (and other, though less important taxes) is the same for everyone, people with lower incomes pay a higher proportion of their income as VAT (as they spend more of their money in general), which means that the overall proportion of their income payed to the state rises, even if it's not payed dirctly via an income tax. This has very significant effects, for example here in Austria, the percentage of their income people pay as taxes every months is virtually equal across all levels of income - even though Austria has a rather highly progressive income tax. With a flat tax, people with lower incomes would due to the same reasons actually pay a higher proportion of their income to the state as people with higher incomes. So while a flat tax might seem equal and, well, flat, in practice it turns out to be anything but that.
Of course you can say that poor people are not forced to spend their money and pay VAT, but that's rather cynical in my view. There's not much choice involved in the majority of the expenses they take; not paying rent, not buying food or clothing is not really an option.
The economic efficiency I mentioned has to do with the same reason, though it's certainly more debateable. If you shift a part of the tax burden from low income levels to higher ones with a progressive income tax, poor people will have more money to spend. And as mentioned earlier they spend much more of that money than richer people would (who save substantial amounts of their income), meaning consumption increases, which in turn stimulates the economy.
Additionally, taking a higher percentage from the poor as from the rich is not really just in most people's eyes, including mine, although morality & ethics certainly is a very subjective thing.
I hope my explanation is understandable
Dimishining marginal consumption means that people with high income are going to spend a smaller proportion of their income compared to people with lower incomes - who need to spend more simply to satsify basic needs.
As the VAT (and other, though less important taxes) is the same for everyone, people with lower incomes pay a higher proportion of their income as VAT (as they spend more of their money in general), which means that the overall proportion of their income payed to the state rises, even if it's not payed dirctly via an income tax. This has very significant effects, for example here in Austria, the percentage of their income people pay as taxes every months is virtually equal across all levels of income - even though Austria has a rather highly progressive income tax. With a flat tax, people with lower incomes would due to the same reasons actually pay a higher proportion of their income to the state as people with higher incomes. So while a flat tax might seem equal and, well, flat, in practice it turns out to be anything but that.
Of course you can say that poor people are not forced to spend their money and pay VAT, but that's rather cynical in my view. There's not much choice involved in the majority of the expenses they take; not paying rent, not buying food or clothing is not really an option.
The economic efficiency I mentioned has to do with the same reason, though it's certainly more debateable. If you shift a part of the tax burden from low income levels to higher ones with a progressive income tax, poor people will have more money to spend. And as mentioned earlier they spend much more of that money than richer people would (who save substantial amounts of their income), meaning consumption increases, which in turn stimulates the economy.
Additionally, taking a higher percentage from the poor as from the rich is not really just in most people's eyes, including mine, although morality & ethics certainly is a very subjective thing.
I hope my explanation is understandable
As the VAT (and other, though less important taxes) is the same for everyone, people with lower incomes pay a higher proportion of their income as VAT (as they spend more of their money in general), which means that the overall proportion of their income payed to the state rises, even if it's not payed dirctly via an income tax. This has very significant effects, for example here in Austria, the percentage of their income people pay as taxes every months is virtually equal across all levels of income - even though Austria has a rather highly progressive income tax. With a flat tax, people with lower incomes would due to the same reasons actually pay a higher proportion of their income to the state as people with higher incomes. So while a flat tax might seem equal and, well, flat, in practice it turns out to be anything but that.
Of course you can say that poor people are not forced to spend their money and pay VAT, but that's rather cynical in my view. There's not much choice involved in the majority of the expenses they take; not paying rent, not buying food or clothing is not really an option.
The economic efficiency I mentioned has to do with the same reason, though it's certainly more debateable. If you shift a part of the tax burden from low income levels to higher ones with a progressive income tax, poor people will have more money to spend. And as mentioned earlier they spend much more of that money than richer people would (who save substantial amounts of their income), meaning consumption increases, which in turn stimulates the economy.
Additionally, taking a higher percentage from the poor as from the rich is not really just in most people's eyes, including mine, although morality & ethics certainly is a very subjective thing.
I hope my explanation is understandable
Your analysis of the efficiency assumes a constant marginal propensity to consume, as in the static old fashioned Keynesian framework, which is of course wrong. Income taxes in general are inefficient because they reduce work effort, but particularly so for the rich because the income effect for them is very small. In fact, the hardcore socialist Stiglitz shows here: http://www.nber.org/papers/w2189 that the Paretto optimal income tax is regressive, and the marginal rate for the richest individual is even negative. I still think 0% flat rate is best, though.
I hope my explanation is understandable, bro.
Talking about income tax in complete isolation doesn't make much sense in general, as is the case with many other factors whose consequences depend hugely on other factors.
And while saving usually does result in delayed consumption, this does not mean that there are no drawbacks for the economy associated. With an individual saver this might be the case, but not with a significant segment of the population, as the amount of money not circulating simply increases with the savings rate. Also, the savings rate simply does increase with income, there's more than enough empirical evidence for this (just one example: http://dqydj.net/how-much-do-people-save-by-income/).
Progressive income taxes might implicate a slight deterrent to work, but the cost of not having them is an incredible accumulation of capital in a small portion of society, unless you implement significant taxes on capital or capital gain taxes. I'm going out on a limb here, but I guess you're not in favor of those
The same is of course the case if your argument is that the saved income by higher income levels is used as investment capital.
Also, genuinly being curious, how would you plan on raising revenue without an income tax? Most models I've seen in that regard redirect taxes solely on expenses, and are either going to lead to incredible levels of inequality as well as desastrous public services, health care and education, or the numbers and assumptions are entirely unrealistic.
Also, your statement about income tax being a discentive for the rich disregards the fact that the wealthiest receive the overwhelming majority of their income through capital gains.
And finally, VAT being measured over a lifetime makes it much less regressive than over a limited period of time, but the effect still exists (e.g. http://www.ntanet.org/NTJ/47/4/ntj-v47n04p731-46-value-added-tax-regressive.pdf)
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Next summer? 
You are right about that, but we can still analyse the effects of each tax rate "ceteris paribus."
The bold part is only true if people stash their savings under the mattress. Otherwise increased savings results in more capital accumulation and therefore higher GDP, unless the economy is dynamically inefficient, which is only a theoretical possibility and has never happened in the real world. The relationship between income and saving is much more complicated than that. Check out the permanent income hypothesis for reference. I didn't really read your reference because its not a peer reviewed publication, so it has no merit in a scientific debate.
For high marginal rate the drawback is not slight at all. As to the accumulation of capital in a small portion of society, I have no idea what you base this on. Capital gains and corporate taxes are of course even worse than income taxes, extremely inefficient as they directly disincentive investing.
The only way to raise money without any distortions is a lump sum tax, which is obviously very regressive and unpopular and impossible to implement. The next best thing in terms of efficiency is VAT + other consumption taxes because they promote saving and some pigouvian taxes which are paretto improving anyway. There was a proposal in the USA, called the fair tax or something like that, to replace all taxes with a federal VAT. It didn't pass but it was a very good idea. On top of all the other benefits it simplifies the administration a lot (which is good economically but bad politically because redundant civil servants vote for the opposition). I don't see why a tax policy that raises the same amount of money would lead to worse public services. By the way, a very small percentage of the revenue goes to public services, most of it goes to benefits and redistribution of some sort. The public services, most of which should be private anyway, is just a smokescreen by the politicians.
That is true but also means that a progressive income tax is not that effective in reducing inequality.
The bold part is only true if people stash their savings under the mattress. Otherwise increased savings results in more capital accumulation and therefore higher GDP, unless the economy is dynamically inefficient, which is only a theoretical possibility and has never happened in the real world. The relationship between income and saving is much more complicated than that. Check out the permanent income hypothesis for reference. I didn't really read your reference because its not a peer reviewed publication, so it has no merit in a scientific debate.
For high marginal rate the drawback is not slight at all. As to the accumulation of capital in a small portion of society, I have no idea what you base this on. Capital gains and corporate taxes are of course even worse than income taxes, extremely inefficient as they directly disincentive investing.
The only way to raise money without any distortions is a lump sum tax, which is obviously very regressive and unpopular and impossible to implement. The next best thing in terms of efficiency is VAT + other consumption taxes because they promote saving and some pigouvian taxes which are paretto improving anyway. There was a proposal in the USA, called the fair tax or something like that, to replace all taxes with a federal VAT. It didn't pass but it was a very good idea. On top of all the other benefits it simplifies the administration a lot (which is good economically but bad politically because redundant civil servants vote for the opposition). I don't see why a tax policy that raises the same amount of money would lead to worse public services. By the way, a very small percentage of the revenue goes to public services, most of it goes to benefits and redistribution of some sort. The public services, most of which should be private anyway, is just a smokescreen by the politicians.
That is true but also means that a progressive income tax is not that effective in reducing inequality.
Sorry to interrupt, as I have little to offer to a debate so deep in accounting and finance but I found the bold comment so condescending and disdainful that I had to comment. Funny too because I agree with what you said.
As if the peer review system in terms of scientific papers isn't a deeply flawed system as is; the classic example of "arseniclife" coming to my mind firstly. Also, the idea that if its not peer reviewed it isn't worth reading stifles debate as you've effectively moved the goalposts so that any argument now has to take a specific form.
Bravo...
As if the peer review system in terms of scientific papers isn't a deeply flawed system as is; the classic example of "arseniclife" coming to my mind firstly. Also, the idea that if its not peer reviewed it isn't worth reading stifles debate as you've effectively moved the goalposts so that any argument now has to take a specific form.
Bravo...
The level of scrutiny with which articles in professional journals are reviewed, although not nearly good enough, is much higher than in the popular press or online, where anything can be published. And what I meant by "didn't really read" is that I only looked at the graphs and didn't go into details. I am not saying the data is wrong, it may or may not be, but a simple correlation hardly proves anything.
PS: I am sure that there are many peer reviewed articles that do support Ocelot's view that the rich save more and there probably is such a correlation. My point is that the relationship is a lot more complicated than that and policies should not attempt to exploit it. In any case its an issue that economists disagree on.
PS: I am sure that there are many peer reviewed articles that do support Ocelot's view that the rich save more and there probably is such a correlation. My point is that the relationship is a lot more complicated than that and policies should not attempt to exploit it. In any case its an issue that economists disagree on.
Fair enough.
But sometimes that can be a double-edged sword where a simple article posted online can hardly be given much credit because of its origin whereas a peer reviewed article with false claims can be held up as fact or evidence of something wrong because it has that "peer reviewed" aura to it. The level of scrutiny isn't as high as people give it credit for, in my opinion.
Carry on. I found your posts informative. Cheers.
But sometimes that can be a double-edged sword where a simple article posted online can hardly be given much credit because of its origin whereas a peer reviewed article with false claims can be held up as fact or evidence of something wrong because it has that "peer reviewed" aura to it. The level of scrutiny isn't as high as people give it credit for, in my opinion.
Carry on. I found your posts informative. Cheers.
As the Rogoff/Reinhart incident shows, your are absolutely right, at least in the field of economics. And I agree that my comment was condescending. But I get annoyed when people trust random people with dubious credentials more than the experts. I don't know if Ocelot is an economist, but he seems to be interested in getting deep in the field, so it's better to check google scholar than some random blogs.
Take intelligent design for example. There are hundreds of books, articles and textbooks on the subject, many written by Biology professors. In peer reviewed journals there are 0 publications that support intelligent design. Yet, more than 50% of the population in America thinks there is a real scientific debate on the subject and theory of the evolution is flawed.
Take intelligent design for example. There are hundreds of books, articles and textbooks on the subject, many written by Biology professors. In peer reviewed journals there are 0 publications that support intelligent design. Yet, more than 50% of the population in America thinks there is a real scientific debate on the subject and theory of the evolution is flawed.
Juventus Football Club S.p.A. has reached an agreement with adidas International Marketing B.V. (“adidas”) for a technical sponsorship deal starting from the 2015/2016 campaign.
adidas will be the technical sponsor of all Juventus teams for a fixed consideration of €139.5 million over the six-year term. The consideration does not include the value of adidas products that will be annually supplied to the club or the programme of performance related incentives and bonuses available to the club.
adidas will manage all Juventus’ licensing and merchandising activities for a fixed consideration of €6 million per annum.
The club may also benefit from additional royalty payments upon exceeding a threshold of sales.
For the current season and the 2014/2015 campaign, Nike will continue in its role of technical sponsor and trademark licensee.
23,25 + 6m and an unknown value for yearly supplies
People speculated that sum is around 3-5m per year.
To that you have to add royalties
Oh shit, didn't notice you had replied
It does increase the saved financial capital, theoretically making it cheaper to invest, but usually a lack of saved funds is not the problem in a developed economy at least, not with fractional lending. The Permanent Income Hypothesis also does fill the gap between the Keynesian theory and the empirical evidence, but it doesn't hold true for the entirety of income over the entirety of people. In effect, it's similar to what I said about taking the VAT for people's whole lives (it has a lot to with that after all), the effect is reduced but still exists.
Concerning my source, you are right, it's no real scientific paper. What I was posting it for wasn't the analysis though, but merely the data, which I suppose still holds a risk of being false, though I wouldn't expect it. And yes, it is just a correlation, but that's the only thing I wanted to show - people with higher incomes save proportionally more. They do make up for it with using some of the accumulated savings later in life, as the permanent income hypothesis predicts, but this doesn't account for everything.
A lack of these taxes result in a higher degree of inequality, and that very much so. This in turn damages the economy, and worse, the general living standard, far more than the relatively small disincentive these taxes would result in.
The vast majority of government spending, in general of developed countries, goes to three sectors: Pensions, Education & Health. There might be a lot of spending in defense as well, depending on the country. Classical redistributions, unemployment benefits and the likes, make up relatively little of total spending, not more than 10%
The US for example:
Or in all it's detailed glory: https://www.whitehouse.gov/sites/default/files/omb/budget/fy2016/assets/tables.pdf
Of course, pension are a also a form of redistribution. However, it is by far the best form of financially security for the elderly, private pension funds lack security (as seen 2001 & 2008, and when it comes to pensions, security is far more important than possible greater benifits) and has far higher administrative costs.
And not to open up another huge topic, but privatization of public services usually leads to stark reduction of quality and/or coverage in that sector. They are merit goods after all, pure market mechansims by themselves won't provide them adequately. Health care, education, water, even railways have in most cases deteriorated immensely after their privatization. You can make a case in favor of privatization in the case of industries though, generally speaking.
The only real upside of a lump sum tax is simply the removal of costs in the ministry of finance.
On it's own, no, that's why I've already stressed the importance of taxes on capital or capital gain.
It does increase the saved financial capital, theoretically making it cheaper to invest, but usually a lack of saved funds is not the problem in a developed economy at least, not with fractional lending. The Permanent Income Hypothesis also does fill the gap between the Keynesian theory and the empirical evidence, but it doesn't hold true for the entirety of income over the entirety of people. In effect, it's similar to what I said about taking the VAT for people's whole lives (it has a lot to with that after all), the effect is reduced but still exists.
Concerning my source, you are right, it's no real scientific paper. What I was posting it for wasn't the analysis though, but merely the data, which I suppose still holds a risk of being false, though I wouldn't expect it. And yes, it is just a correlation, but that's the only thing I wanted to show - people with higher incomes save proportionally more. They do make up for it with using some of the accumulated savings later in life, as the permanent income hypothesis predicts, but this doesn't account for everything.
A lack of these taxes result in a higher degree of inequality, and that very much so. This in turn damages the economy, and worse, the general living standard, far more than the relatively small disincentive these taxes would result in.
The vast majority of government spending, in general of developed countries, goes to three sectors: Pensions, Education & Health. There might be a lot of spending in defense as well, depending on the country. Classical redistributions, unemployment benefits and the likes, make up relatively little of total spending, not more than 10%
The US for example:
Or in all it's detailed glory: https://www.whitehouse.gov/sites/default/files/omb/budget/fy2016/assets/tables.pdf
Of course, pension are a also a form of redistribution. However, it is by far the best form of financially security for the elderly, private pension funds lack security (as seen 2001 & 2008, and when it comes to pensions, security is far more important than possible greater benifits) and has far higher administrative costs.
And not to open up another huge topic, but privatization of public services usually leads to stark reduction of quality and/or coverage in that sector. They are merit goods after all, pure market mechansims by themselves won't provide them adequately. Health care, education, water, even railways have in most cases deteriorated immensely after their privatization. You can make a case in favor of privatization in the case of industries though, generally speaking.
The only real upside of a lump sum tax is simply the removal of costs in the ministry of finance.
On it's own, no, that's why I've already stressed the importance of taxes on capital or capital gain.
Ah well when we signed our deal Galliani hurried and claimed that they already get 30m with shirts sold.....
Imo they get 18m and some money from the shirts. But Juventus will as well it's just that we didn't count them as fix income while Milan to keep their status of best serie A commerical team shouted some bullshit.
Imo they get 18m and some money from the shirts. But Juventus will as well it's just that we didn't count them as fix income while Milan to keep their status of best serie A commerical team shouted some bullshit.
