I noticed you intentionally cut that quote short, why was that?
So BigT, show me how two people of the same sex getting married hurts someone else and you can win the argument. What would the consequence of allowing SSM be? I’ll wait.
Home ownership has also been linked to higher unemployment. How many people during the past few years have been totally screwed because they lost their job at a time when their tax deductible mortgage was more than the value of their house the government wanted them to own?
So what you did there was cherry-pick a couple of positives while intentionally ignoring the massive negative. As a result, TPTB worked so hard to encourage home ownership they helped distort the markets and drive up home prices until they popped.
Socialist countries like Canada on the other hand don’t encourage home ownership, and continue to enjoy strong and stable housing market. They even go so far as to encourage renting, which benefits the poor instead of the rich.
I get the point that subsidizing something is the same thing as penalizing not doing it. I’m just not getting the math, or the gotcha. What am I doing wrong?
Baseline tax burden
Poor: $1,000
Rich: $20,000
q1. Should the exemption be larger for the rich than for the poor?no, the exemption should be larger for the poor
Poor: 1,000 - 500
Rich: 20,000- 200
The poor guy saves 500 and the rich guy saves 200. Social justice done.
q2. Should the childless poor pay as large a surcharge as the childless rich?no, the poor should pay a smaller surcharge
Poor: 1,000 + 200
Rich: 20,000 + 500
Poor guy gets penalized 200 and the rich guy gets penalized 500. Social justice done.
Seems to me like I answered “no” to both questions with the “social justice” result being the same. What am I missing?
The “gotcha” comes that if a poor person with no kids pays $1,000 in taxes, and a poor person with two kids pays $500 in taxes, there are two ways to interpret that: a) the current tax code gives a $500 credit to poor people with two kids, or b) the current tax code penalizes people without two kids by $500. It’s like asking if the glass is half full or half empty: does the current tax code provide a tax benefit or penalty for having kids/not having kids?
The real “gotcha” is that if a rich person has two kids, they get a $200 credit (because they are less deserving than poor people for tax credits). But if a rich person has no kids, they pay only a $200 penalty. Why should the rich person’s “penalty” for having no kids be less than a poor person’s “penalty” for not having kids when poor people pay a $500 “penalty” under the existing tax code for not having kids?
You just said not getting it means you aren’t qualified to talk about tax policy, even thought the hypo has nothing to do with real tax policy.
Is this a joke? The above was your response to Ravenman’s question about tax credits for certain things. To quote him:
You responded with the above. Yet, you have said the following:
How do you reconcile the two things?
It’s not deceptive, it’s just nonsensical. That’t the thing, it’s not an exercise that illuminates much about real world phenomena, it’s basically a riddle.
Really? Is that why the thread is titled, “Economics/Psychology of Taxation”? You titled it that because you don’t want to talk about tax law? Then, not ever 3 sentences into the OP, you say:
But again, you don’t want to talk about actual tax law, right?
Please just tell me what is the point of the exercise in your estimation? You seem to agree it has nothing to do with real world taxation. Is this just because you think people don’t get framing? Even though people are exposed far more often to it, forcing them to examine things in greater depth. Is it that people fooled by a riddle are not qualified to debate weighty issues?
What are you talking about? Did you quote the right person/passage?
Yes I did. My question is directly relevant to what you said.
You said:
To say that something is “contingent upon … things” is to say that under some circumstances, it holds, and in other circumstances, it does not hold. So then, what you’re saying is that the equivalence holds under some circumstances, and not under others. That implies that the two are not equivalent under some circumstances. And so I was asking, what are some circumstances under which the two are not equivalent?
The purpose of the income tax is to finance the operation of the government.
Have you seen the tax code? That mess is the result of rewarding/punishing behavior.
There is a principle in the law that if it is not understandable, it is not a law, (void, for vagueness I think), but maybe they threw that out with the principle of “with no victim, there can be no crime” Hell, it seems like they threw all the principles out.
Those are the easy ones.
Studies have linked higher gun ownership with less crime too, yet I din’t see the deduction line for all my guns.
Just tie the actual surcharge you get to income level. Let’s say the surcharge is $500. Make it $0 until income level X and then slowly phased in to the full amount when you reach income level Y.
We do this all the time although generally in reverse. Certain deductions are phased out for higher income earners.
I get what your saying, but I don’t think it addresses the paradox (if you can even call it such) in the OP.
Your scenario is equivalent to a credit that is $0 for low income earners and maximum at high income levels. Which is contrary to what the “emotional” response is when asked if credits like this should be progressive.
All the OP is really pointing out is that an incentive to do something is equivalent to a disincentive to not do it. If we reward someone for buying a home we are punishing them for renting. If we reward them for having kids we are punishing them for not having kids. Etc, etc.
And the explicit corollary is that a progressive tax incentive is a regressive tax disincentive. The “nudge”, if you will, is stronger on the poor than it is on the rich (assuming we make the incentive progressive).
If so, perhaps you can address the point I made earlier. Let’s say I pay $10,000 in taxes each year, but I am not able to take a large number of potential credits, exemptions, or deductions because I did not engage in various activity (e.g., make my home more energy efficient, buy an electric car, have large amounts of gambling losses, etc.). If you believe that I am being punished for having inefficient homes and cars and not losing money at casinos, how can one calculate how much I am being punished?
There are surely far more credits and deductions available than my tax bill would indicate: if I just had more children and bought more electric cars, I could easily wipe out my total tax bill and more. It would seem to me that I’m subject to “penalties” in excess of my actual $10,000 tax bill – and yet, my tax bill is only $10,000.
On the other hand, I can easily calculate the ways in which I am rewarded: I have an exemption of this much, I take a deduction of that much for mortgage interest, I take a credit of so much for this other thing, etc.
I would argue that for any particular person, rich or poor, tax benefits are finite and knowable; but tax penalties constitute the entire tax code and are far in excess of most people’s actual tax liabilities. I conclude that tax penalties cannot be equivalent to tax benefits, because the penalties can easily be greater than one’s tax bill.
In response to specific tax proposals, including the one in the OP, sure. It’s not really a question of belief, it’s just math.
I agree that all of these examples are far more complex, and generally can’t even be considered a punishment at all because the tax “reward” is less than the initial expense. But something like a child exemption or home mortgage interest deduction is a bit easier to consider in a vacuum (or as a universe of two distinct choices).
This (and your final comment repeating it) is a great point. There are differences between deductions, exemptions, credits, and penalties in that they are all capped in various ways.
But it still remains that for a particular individual policy (say, a credit to buy CFLs versus a penalty for buying incandescent) you can’t make the math work and support both a progressive credit (i.e. lower income gets a bigger credit) and a progressive penalty (i.e. lower income pays a smaller penalty). If the reward for buying CFL’s is larger for the poor family then so is the penalty for not doing so.
Well, no, it isn’t just math. It’s math abstracted from reality, in which the “gotcha” only exists if the topic is framed in a very particular way. If one expands the question as I’m trying to do, it’s pretty easy to see that there is not a 1:1 trade-off between tax “penalties” and “benefits.”
Am I following you correctly, in that you think that NOT buying a $30,000 car to get a $4,000 tax credit is NOT a punishment. But NOT having a child (and forgoing a few hundred thousand dollars of expenses to get a few tens of thousands of dollars of exemptions) and paying “higher” tax rates IS a penalty? That would make no sense at all.
This is what I mean when I say that the incentive/punishment calculation only makes sense if you look at one particular policy to the exclusion of everything else. Your assertion is predicated on controlling for only one variable: whether its children or CFLs, the “gotcha” falls apart if the analysis has to be done when considering the whole tax code.
Seems to me the OP is saying “Here is how people should think, and here is how they actually think, and we’d be better off if people would undertake the effort involved in getting into the habit of thinking the way they should. This would lead to better understanding of policy, and hence, better policies.”
Meanwhile, those who “disagree” with him (still not clear on what the disagreement actually is tbh) seem to be saying “Nevermind how people should think, we need to deal with how they do think and craft policies accordingly.”
I guess I’m not understanding what the lesson is on how people should think… should we do math problems every time we talk about questions of values? Should view anything that is advantageous to one person as being a penalty to another? Should we heed Karl Pilkington’s maxim, “A problem solved is a problem caused,” so that we just stop trying to do things?
Don’t see anything in the OP to suggest that. He’s (on my reading) suggesting we should do math problems when addition and subtraction are involved. Sounds bleedin’ sensible to me…
I think OP might agree with this. (Assuming there are some people who recieve the penalty and some who don’t.)
No, I think the point is merely that our instinctive preferences even in very narrowly defined circumstances are not always compatible. That our emotional responses can often lead to illogical results. And that understanding the possible outcomes of policy (both intended and unintended) often requires a bit of thought.
That’s all I took from it, at least.
There is perhaps a specific policy point regarding progressive tax credits, but since there really aren’t very many of those it isn’t very illuminating. It’s obvious, for example, that with the ACA tax penalty for remaining uninsured those with higher incomes benefit the most from getting insurance (since their penalty would be larger if they go without). This is perfectly fine, and the semantic game of saying that this is equivalent to a regressive credit (i.e. the poor get no benefit for buying insurance but the rich do) is meaningless since the benefit is the insurance itself, not the credit.
For what it’s worth, I took “I encourage everyone to try their hand at the questions” and the spoiler boxes quite seriously.
After I read the first question, my first impression was “Hm, I have no idea.” Then I spent a lot of time pondering just what the goals of child exemptions in tax policy are, and whether those were rational goals, and, regardless, what the best way to achieve those goals would be, and what differences there might be between the rich and the poor in terms of the goals we should have, the goals we do have, the effectiveness of various methods at achieving them, and so on…
Then I read the first spoiler and thought “Huh, that was anticlimactic. I expected a bit more…”
Then I read the second question and immediately realized “Oh!”.
This thread turned out to not at all be what I prepared for…
I am responding before reading so I hope I am not repeating anyone else’s. My emotional reaction is No to both questions, and despite the leading way it is asked I think I stand by that answer on thinking it through.
The reason is that despite trying to equate the two, they are not effectively the same. Lets take two examples of the effect of these actions:
Couple R: Make 300k per year, with an effective tax rate of 20%.
Effect of $5000 per child exemption: $2000 delta in tax bill (.7% of income)
Effect of $1000 per child surcharge: $2000 delta in tax bill (.7% of income)
Couple P: Makes $25k per year with an effective tax rate of 4%
Effect of $5000 per child exemption: <$1000 delta in tax bill (due to only owing ~$1000 in taxes in the first place)(<4% income)
Effect of $1000 per child surcharge: $2000 delta in tax bill(8% income)
Now there is an obvious difference here. The surcharge has a much larger effect on the low income couple than the exemption while it has the same effect on high income couple. I could change the numbers to have the same effect on the low income couple for both situations, but then then you have:
Couple R: Make 300k per year, with an effective tax rate of 20%.
Effect of $5000 per child exemption: $2000 delta in tax bill (.7% of income)
Effect of $1000 per child surcharge: $950 delta in tax bill (.32% of income)
Couple P: Makes $25k per year with an effective tax rate of 4%
Effect of $5000 per child exemption: <$1000 delta in tax bill (due to only owing ~$1000 in taxes in the first place) (<4% income)
Effect of $450 per child surcharge: $950 delta in tax bill (3.8% of income)
Now the surcharge is actually cheaper for the high income couple than not getting the exemption.
No perhaps the OP meant the exemption to be a tax credit instead of an exemption. Then we would have:
Couple R: Make 300k per year, with an effective tax rate of 20%.
Effect of $1000 per child tax credit: $2000 delta in tax bill (.7% of income)
Effect of $1000 per child surcharge: $2000 delta in tax bill (.7% of income)
Couple P: Makes $25k per year with an effective tax rate of 4%
Effect of $5000 per child tax credit: $2000 delta in tax bill (8% income)
Effect of $1000 per child surcharge: $2000 delta in tax bill (8% income)
Now that seems more fair. But is it?
Think about the point of these programs: They are either to provide incentive to have kids and help take care of kids in the case of the credit/exemption or Just a straight up incentive in the case of surcharge.
If you are trying to help take care of kids with the tax credit/exemption than the Rs need a lot less than the Ps, so it makes sense to give them less.
If you are trying to give couples an incentive to procreate how would that work? The Rs don’t need any extra money to afford kids and have sufficient income to not even notice a surcharge that would cripple the Ps.
Also, think about this. You can construct very specific scenarios, as I have, where the surcharge and credit (but not the exemption from the OP) have an equal cost, but that will never be true for all. What if the Ps only made 10k per year? Or even less. There is a point where any surcharge at all is ruinous. Then you must have a higher rate for those that make more than that point if it is to exist at all. Meanwhile a credit will be more helpful the lower the gross income goes. That breaks the equivalence right there.
Bottom line to me, no one is, or should be having kids just for the tax benefit. That would be a bad thing for society. What should be happening is that the tax code is used to make to less of a burden for those that want children to have them. The best way to do that is with a tax credit. To save federal money, that tax credit should be phased out after a certain income point because it is no longer necessary.
Now to see how many people made my points better first.
Not to skip over to the health care debate, but this is why tax credits versus lower base rates and surcharges are not the same. The default rule is what controls, and it’s there because…human conduct resorts to a naturally defined result.
When you phrase a question so that it is a default position to have two children and those having none or one child are “punished” then you are constructing a situation outside of our known world, even if the math is the same either way.
That’s why saying that not having health insurance but paying a penalty/tax is the same as having a higher base rate with a “credit” for health insurance is NOT THE SAME THING even though it is mathematically. We’ve accepted the “default” as being the government doesn’t care for tax/penalty purposes whether you have health insurance.
Therefore now that it does and places a financial cost for not having the insurance is in no way the same as just assuming that we live in an alternative universe where income taxes where already the (tax/penalty) rate higher and we are happily getting a credit.
I mean, let’s pretend that we live in the world where posters here get to kick me in the testicles 4 times per day. But now you only get to do it once. Should I be happy? Of course not, the default position is zero times per day. I can’t just pretend it was 4.
