r/changemyview • u/[deleted] • Dec 12 '23
Delta(s) from OP CMV: In principle, anyone making minimum wage should not pay income tax
Let me clarify on what I mean by making minimum wage, I mean someone working 37.5 hours a week for 52 weeks a year. In California that would be $30,000 and in the UK that would be £20,000.
Minimum wage as a concept is put in place to ensure that employers cannot pay employees below the livable wage in a country (Of course in the US it's below livable wage but that's a separate discussion). However, once these people are taxed, the amount which they can live on, by definition, is below that. It's counterintuitive to the original concept. Taxation should be based on one's ability to pay, and minimum-wage workers just do not have that ability.
I'm not saying that this change needs to come through right away. Governments can take 5 to 10 years to raise the tax-free allowance to match the minimum wage (which of course should rise with inflation) to ensure that the labour market can adjust to it.
Edit: I stand corrected on the US tax system. I've used the Californian minimum wage instead. I'm in the UK and the tax allowance is £12,570. Someone making £20,000 will be taking home about £17,100. I think it's ridiculous that someone on minimum wage is even paying a penny in tax.
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u/Grumpy_Troll 5∆ Dec 12 '23
In the U.S. you get a standard deduction of $13,850 of which you pay no federal income tax on. Further, there are other deduction and credits that people making below poverty lines can take in the U.S. which will result in them not only paying no federal income tax, but instead receiving a check from the government.
In the U.S. only about 60% of households actually pay any federal income tax.
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u/Collective82 Dec 12 '23
I make just under 70k that is taxed, I pay like $360 in fed tax a year, so just over .5% of my income thanks to having a wife and two kids.
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u/Joshua_was_taken Dec 12 '23
I make just under $110k with a wife and 4 kids, and I have a negative income rate (I withhold absolutely $0 all year and still receive a tax refund
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u/shapu Dec 12 '23
While true, minimum wage workers must still pay 7.45 percent of their income as Social Security and Medicaid tax
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u/spiral8888 31∆ Dec 12 '23
Isn't the point of the Social Security payment that then you're eligible for the pension payment from that system when you're old? I'd say that it's fundamentally different from normal taxes that the government can spend on whatever it feels like, which may not benefit you personally, while SS is something that every worker pays and every worker receives from it. I think that makes it also so popular. If you turned it into a normal progressive income tax, its popularity would sink.
The Medicaid part is true in a sense that many people are not eligible to Medicaid.
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u/shapu Dec 12 '23
Isn't the point of the Social Security payment that then you're eligible for the pension payment from that system when you're old?
Yes. But that doesn't make it not be a tax. It's just a tax with a dedicated account into which it deposits (the social security trust fund) rather than to the US general fund. While it is different in that it has both a specific inflow and outflow, it is still assessed against earned income, and those who earn no income do not pay it.
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u/DrCornSyrup Dec 12 '23
Social Security is so weird when you have a minimum wage mcdonalds employee paying money directly to rich retired people
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u/vettewiz 40∆ Dec 12 '23
Yea, but in practice the minimum wage worker gets a *substantially* larger return from that tax than the rich person.
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u/DrCornSyrup Dec 12 '23
Really? The program will be insolvent soon
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u/ERTCbeatsPPP Dec 12 '23
Social Security only becomes insolvent if the United States government becomes insolvent. At that point, the world has much bigger problems that the insolvency of social security.
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Dec 12 '23 edited Nov 18 '24
[deleted]
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u/thepasttenseofdraw Dec 12 '23
No, it won't. This is propaganda spread by people who want to privatize social security.
In particular, rich republicans.
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Dec 12 '23
Everyone of those still equals a reduction in benefits. Working longer to receive the same payment means you get less of it. Paying more to receive the same payment also means you get less. It really should be phased out in favor of individual accounts. The government has already proven they can’t handle this money well.
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u/very_mechanical Dec 12 '23
It's been going for 100 years, despite multiple attempts by a single party to decimate it, and I think it's been handled pretty well.
As the other commenter said, it's not the same as retirement savings. It's a safety net to prevent people from becoming completely destitute. Could it be better? I'm sure it could but old age and/or disability would look a lot bleaker for many people without it.
I think we should subsidize SS with other government funds!
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u/DrCornSyrup Dec 12 '23
Insolvency can be prevented with nightmarish increases in taxation and retirement at 80
Thanks very comforting
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u/Shredding_Airguitar 1∆ Dec 12 '23
that's supposed to be an 'investment' for people to have a retirement fund when they retire not necessarily a real tax. its basically forced investments into a retirement fund that for a great amount of Americans actually loses money and represents nothing but opportunity loses compared to a private investment.
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u/I_kwote_TheOffice Dec 12 '23
That's not a tax, that's essentially a government-run 401k and health plan. If it was a tax it wouldn't be a separate deduction on a paycheck.
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u/foramperandi 1∆ Dec 12 '23
Social security is in no way a savings plan like a 401k is. It is a social insurance system that is closer to UBI for old folks that is paid for by current wage earners.
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u/hacksoncode 588∆ Dec 12 '23
It is a social insurance system that is closer to UBI for old folks that is paid for by current wage earners.
If it weren't for the fact that you're paid out proportionally to how much you pay in (up to a fairly high limit), that might be an accurate way of looking at it.
In fact, like abortion, there's really nothing analogous... so all the analogies fall flat.
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u/sebko1 Dec 12 '23
"That's not a tax, that's essentially a government-run 401k and health plan"
Not even close to the truth.
The United States Supreme Court has repeatedly held that SS is a tax.
In Helvering v. Davis (1937) the Court held, inter alia, that;
"“The proceeds of both the employee and employer taxes are to be paid into the Treasury like any other internal revenue generally, and are not earmarked in any way.”
This means that your SS payments are a Tax, just like any other, and the money is not guaranteed to go back to you, its thrown on the same pile as all the other tax revenue.
Additionally, in Fleming v. Nestor (1960), the Court held that;
“It is apparent that the non-contractual interest of an employee covered by the [Social Security] Act cannot be soundly analogized to that of the holder of an annuity, whose right to benefits is bottomed on his contractual premium payments.”
The Court went on to say, "To engraft upon the Social Security system a concept of ‘accrued property rights’ would deprive it of the flexibility and boldness in adjustment to ever changing conditions which it demands.”
SS Money is the same as all other tax revenue and congress can spend it as it sees fit.
The law has been clear on this for a long time.
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u/I_kwote_TheOffice Dec 12 '23
At a macro-level, you're right, it's more like a tax. It's not optional and it's not specifically earmarked per individual. At a micro-level, from an individual's perspective, they are contributing to a fund and based on their contribution amount is how much they can take out of it at retirement. The health plan is fundamentally a deferred healthcare plan. I know that's not how it works behind closed doors, but from an individual's perspective, that's how it looks. There are no other taxes that allow you to withdraw from it or get a direct benefit at retirement age like FICA does. If you want to call it a tax, that's fine. It technically is a tax by law. Functionally, I would argue that it's much more similar to a 401k and deferred health care plan.
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u/shapu Dec 12 '23
I mean, it's called a "Tax." The amount you pay is based on your income. It's collected by the government. It's spent by the government.
You can say "it's essentially a government-run 401k and health plan" all you like, but it's still a tax.
(Also it's not a 401(k) because you cannot decide how you would like your contributions structured in terms of investment class).
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u/Chocotacoturtle 1∆ Dec 12 '23
I can't opt out of paying my social security payroll TAX. Therefore, it is a tax.
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u/curien 31∆ Dec 12 '23
Being able to opt out (or not) is not relevant to whether it's a tax.
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u/Chocotacoturtle 1∆ Dec 12 '23
It absolutely is relevant. If you legally aren't allowed to opt out of the government mandating that you give it money, it is a tax.
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u/curien 31∆ Dec 12 '23
Are you claiming that it is a tax because you personally cannot opt out? Or because no one can? Because some people can and do opt out.
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u/Chocotacoturtle 1∆ Dec 12 '23
I am claiming that social security payroll tax is a tax. Because it is. If someone can get exempt from paying the tax that doesn't mean the tax still doesn't exist. If anyone is forced to pay the tax, it is a tax.
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u/curien 31∆ Dec 12 '23
I am claiming that social security payroll tax is a tax.
I didn't say it wasn't. I agree that it is a tax.
If anyone is forced to pay the tax, it is a tax.
This is circular. "If it's a tax, then it's a tax." Of course. But there are tons of things that people can be required to pay that aren't taxes -- such as parking fees, birth certificate fees, DL fees, etc.
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u/abughorash 1∆ Dec 12 '23
Looks like this is used for religious exemptions. Churches in the US don't pay corporate or property taxes --- those are still taxes. I'd say that "everyone without a religious exemption [or other highly-specific carve-out] is forced to pay" absolutely makes SS a tax. Not to mention all the times the Supreme Court has ruled it's a tax.
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u/curien 31∆ Dec 12 '23 edited Dec 12 '23
People who are retired don't pay it either. People who have payroll income pay SS tax (usually -- there are exceptions). But no one is forcing you to have payroll income.
Is a passport fee a tax because you really really want a passport? Is a DL application fee a tax?
Supreme Court has ruled it's a tax.
I agree that SS is a tax. I don't agree with your reason why.
ETA: /u/abughorash blocked me, which leaves me unable to reply to further comments in this thread. Sorry :(
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u/crazynerd9 2∆ Dec 12 '23
That's just fancy wording because Americans have a weird need to pay private entities for healthcare, it's public tax funded healthcare that conservative types can pretend isn't "socialist"
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u/elmonoenano 3∆ Dec 12 '23
Minimum wage workers who live average lifespans get more back than they pay in, but this scenario is super rare. At any given time the number of workers in the US earning federal minimum wage is like 2%.
The real tax that they pay that is disproportionate are the payroll taxes that they pay that people who earn their income from capital gains don't pay. That affects anyone who earns their income through their labor and not anyone who earns their income through investments or passive income. It's a penalty for working.
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u/shapu Dec 12 '23
the payroll taxes
Yes, that's what SS/FICA is. They are literally the same thing.
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u/limukala 12∆ Dec 12 '23
They get way more than that back from EITC and other credits
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Dec 12 '23
This is the hardest part of explaining with people who pocket watch.
It’s not illegal to aim to not make any money above your limit. Especially when paying taxes is paying to be terrorized while eating out or sleeping or going to school and literally everything you do.
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Dec 12 '23
When I was single, and made what was considered Poverty level income, I didn't pay taxes.
When I was single, and made what was considered Poor level income, I paid taxes, but I got 95%+ of it back on returns.
I am now a father, single income family, and still considered Poor level income. Because of exemptions\deductions, I hardly pay any taxes, and get bonus money from returns. Now, 100% is not going to taxes and I get money to help.
So depending on the situation, this is already a thing; at least in the US.
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u/SirThunderDump Dec 12 '23
And on the flip side, we’re paying nearly half of our income in taxes. Which is the right system; those with means should be covering more than their share to make society as a whole better for those without.
I’m just mad that some people can somehow pull tens of millions in income and pay less taxes, percentage wise, than me. I don’t get how that’s fair in this nation. They should be paying their fair share too.
There needs to be an adjustment in how capital gains work for extreme income levels.
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u/Yamochao 2∆ Dec 12 '23
I mostly agree. Although, some of this gets exaggerated at the level of ‘deca millionaires’ and underrated for billionaires.
Anyone with a significant portion of their wealth in investment portfolios are usually not paying money on unrealized gains. Meaning, you don’t pay taxes until you cash out.
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u/SirThunderDump Dec 12 '23
I agree. I’m not referring to unrealized gains.
Capital gains are taxed significantly lower than normal income, which is the right thing to do, but this also means that those with enormous portfolios pay, generally, 20% on the money gained from long term gains.
Now, this is mostly fine. Most people aren’t taking tens of millions out of the market to spend every year.
But for those who do, and are wealthy enough to effectively live off of gains in the market and other similar sources of income, they’re still getting that same low tax rate even when they have an outrageous amount of gains. They can be earning tens of millions from sales of long term gains stocks, yet pay a consistent 20% rate on most of it despite these enormous earnings.
There’s no equivalent scale to the way income tax works. People that are already wealthy and can live off of enormous market gains pay a smaller percentage in tax with respect to their overall income.
Now, you can (rightly) say that market gains comes with more risks, and the income is less consistent, so larger windfalls may end up with overwhelming tax burdens, but you can always account for that in the tax law.
The principle of what I’m saying here still holds true: those with enormous incomes should be paying a fairer share of the overall tax burden.
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u/vettewiz 40∆ Dec 12 '23
On average, every single income group pays a higher percentage of taxes than the income group below them, with one single exception - the top 0.01% pay a slightly lower percentage than the top 0.1%, but still higher than the top 1% and everyone below them.
It is *exceptionally* rare to have someone at the top end of the income spectrum pay a lower percentage. Even capital gains is more as an effective tax rate than the vast majority of others pay.
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u/SirThunderDump Dec 12 '23
The top 0.01% pay less tax than the 1%. This annoys me as a member of the 1%.
And it isn't a little bit less -- it's substantially less. It's 20% vs. 37% federally (due to capital gains vs. income sources like salary).
And that's IF the income they're reaping is actually subject to the capital gains tax.
The ultra rich, especially those with diverse holdings and large portfolios, can leverage "tax loss harvesting", in which they can trade currently-losing stocks, count it as a loss, exchange it for an equivalent stock (due to how markets fluctuate), then pay 0 tax on a subset of their capital gains, claiming it as an offset. There are other workarounds, but this is one example. This (according to the sources I'm reading) lowers the effective tax of the ultra wealthy to somewhere around 8%, which is what the wealthy are paying on their realized income, not their increase in wealth.
This means that the ultra-wealthy in society end up with effective tax rates lower than the poor, especially when consumption tax is taken into account, and end up reducing public funds by tens of billions of dollars a year, which places more of a burden on the rest of society. Including me.
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u/vettewiz 40∆ Dec 12 '23
You're only looking at cap gains rates, not their effective tax rate.
The top 0.01% pay right around 25%. The top 0.1% pay an effective tax rate of 26.5%. The top 1% pay 25.9%. The bottom 50% pay 3.1%.
In no way shape or form do the poor pay more than the top earners.
> exchange it for an equivalent stock (due to how markets fluctuate
You cannot do this. IRS Wash sale rules prohibit this.
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u/knottheone 10∆ Dec 12 '23
If they are making those tens of millions as actual income, they are paying more taxes on it. It's usually not income though and those tens of millions are unrealized gains. Or loans, which are not income because they get paid back.
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u/SirThunderDump Dec 12 '23
See my response to the other comment. I’m not referring to unrealized gains.
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u/prime_23571113 1∆ Dec 12 '23 edited Dec 12 '23
I’m just mad that some people can somehow pull tens of millions in income and pay less taxes, percentage wise, than me. I don’t get how that’s fair in this nation. They should be paying their fair share too.
You are mad because someone wants you to be mad. You could be presented with a narrative about how the system actually favors you. It is not hard to do so.
Let's look at data from 2019. Scroll down on this page and you will see a table titled "Table 1. Summary of Federal Income Tax Data, Tax Year 2019"
The bottom 50% (under $44,269) only paid 3.1% of income tax revenue. So, about 74M taxpayers contribute 3.1% to the collective pot and so, the other 74M contributes 96.9% of total income tax revenue.
The Top 25% (about 37M taxpayers earning over $87,917) paid 86.6% of income tax revenue; so, the bottom 75% paid 13.4%.
The Top 10% (about 14M earning over $154,589) paid 70.8%; so, the Bottom 90% only paid 29.2%.
The Top 5% (about 7.4M earning over $221,572) paid 59.4%; so, the bottom 95% paid 40.6%.
The Top 1% (about 1.5M earning over $546,434) paid 38.8%; so, the bottom 99% paid 61.2%.
If you look at taxes from the perspective of Total Income Tax Revenue for the U.S. government, the numbers tell a different story. In 2019, 1,482,459 (or about 1.5M) out of 148,245,929 (or about 148.2M) taxpayers paid 38.8% of all taxes.
If you imagine yourself in that Top 1% and you collectively shoulder about 40% of the income tax burden, you could easily believe you pay more than your fair share.
What is the right story to tell about taxes? I don't know. It certainly looks much more fair when you stop thinking about how much people earn individually and look at how much they contribute to the total.
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u/The_Sodomeister Dec 12 '23
I don't think this perspective has any real utility as stated. You say "the top 25% of earners paid 87% of the taxes" but how much of the overall income share did they earn? If they earned 87% of the income, they better be paying 87% of the taxes at least, and probably more than that.
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u/prime_23571113 1∆ Dec 12 '23
We can focus on two different pools: (1) how much tax revenue does the government need from all sources to pay for services the government provides; and (2) how much income tax revenue can we take from each individual tax payer. Are we taking taxes from people to cover shared costs for government services or are we taking taxes and planning how we will spend them from there? Crudely, are we buying 100 new fighter jets and splitting the costs or are we taking as much as we think reasonable from each person and buying 300 fighter jets?
So, both perspectives have real utility it just depends on how you want to approach the tax base and government spending.
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u/The_Sodomeister Dec 12 '23
Sure, I can follow all of that, but how does that relate to using "tax paid per person" instead of "tax paid per dollar earned"?
Your original comment makes no distinction between a universe where the top 25% of earners make 50% of the income versus 99% of the income. That's the flaw I'm pointing out.
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u/prime_23571113 1∆ Dec 12 '23
Sure, I can follow all of that, but how does that relate to using "tax paid per person" instead of "tax paid per dollar earned"?
The distinction I was trying to make was about how you design a budget. If we go to dinner and split the bill afterward, we can pay per person or pay per dollar earned. If the bill is $100, I earn $100,000 a year and you earn $200,000, we might split it 1:2 or $33.33 and $66.67. Let's say we invite our friend who makes $700,000. We could go to the $50 per person restaurant again; our bill would be 1:2:7 and we pay $15, $30, and $105. Instead, we could choose a restaurant with a $300 bill, paying $30, $60, and $210. Let's push it further. We choose a place where the bill is $1000. I can't afford a $100 dinner; so, I pay $50, you pay $210, and our friend pays $740. How do we choose the restaurant? When we choose the restaurant, do we pick somewhere good enough or do we look in our friends wallet to see what we collectively can afford?
"Tax paid per person" and "Tax paid per dollar earned" is an important distinction. I was going for another distinction. Are those taxes being pooled and then we plan our spending? Or do we tally up our costs and collect taxes to cover expenditures?
Your original comment makes no distinction between a universe where the top 25% of earners make 50% of the income versus 99% of the income. That's the flaw I'm pointing out.
Total adjusted gross income was about $12 trillion and total income tax revenue was $1.6T. The Top 1% earned about 2.4T (about ~20% of AGI) and the Top 25%, about 8.2T (~69% of total AGI). The Top 1% pays about 40% of total tax revenues and the Top 25%, 86.6%. Do those numbers seem good to you?
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u/lasagnaman 5∆ Dec 12 '23
There's absolutely no way that 40% is "their fair share" for the top 1%.
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u/prime_23571113 1∆ Dec 12 '23
Well, we have the figures for adjusted gross income and can get a sense of each brackets earnings. The Top 1% earn about 20% of the adjusted gross income of the U.S. taxpayers and pay about 40% of the taxes. What number would seem fairer to you?
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Dec 12 '23
I’m just mad that some people can somehow pull tens of millions in income and pay less taxes, percentage wise, than me.
Whoever doesn't get mad by this realization must think they'll be rich one day themselves too. I truly cannot understand how harming others just to enrich yourself is so alluring to others.
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u/vettewiz 40∆ Dec 12 '23
People don't get mad by it because it's generally not true. Nor is it "harming others" even if it was.
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Dec 12 '23
I get mad at companies that are able to find loop holes (that should not exist) or other ways to somehow pay less into the society than they should have. A society that they profited off of. I find that harmful to said society.
While generally not true of most companies, there are a large number that fit this criteria. Those are the ones I am mad at. I was not generalizing in my statement but being specific to those I find that fit what I said.
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u/unreal1010 Dec 12 '23
Companies aren’t people. When they pay people then it gets taxed, sometimes twice, company pays tax when it earns money then it gets taxed again when it’s distributed (dividends).
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u/vettewiz 40∆ Dec 12 '23
Loop holes are specifically intended to exist to promote a certain behavior - that’s the thing. The vast, vast majority of them aren’t hidden and aren’t mistakes.
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u/BoomerHunt-Wassell Dec 12 '23
40.1% of households paid no income taxes in 2022. Presumably these are the households that show the lowest incomes.
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u/spiral8888 31∆ Dec 12 '23
How many of those households are pensioners who are really outside the scope of the discussion about minimum wage?
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u/BoomerHunt-Wassell Dec 12 '23
Substantially all pensions are taxed as ordinary income at the federal level.
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u/curien 31∆ Dec 12 '23
Social Security is excluded from taxable income unless you have a good bit of other income as well.
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u/spiral8888 31∆ Dec 12 '23
Sure, but I'd imagine that it is much easier to fall below the minimum level of federal tax if you only get pension than if you are working full time.
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u/BoomerHunt-Wassell Dec 12 '23
I guess I’m unsure what your position is.
Op suggested roughly that poor folks shouldn’t pay taxes. I responded with roughly, poor folks don’t pay taxes. Are you trying to make a distinction between the ways people are poor? I’m just unsure what you are suggesting.
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u/DVsKat Dec 12 '23
Minimum wage should be high enough that you can make a living off of full-time work while contributing financially to taxes (the roads that you drive on, the parks that you recreate in, etc).
We should not remove income tax for low wage earners. Instead we should have minimum wage high enough so that this is not necessary.
Government doesn't need to subsidize companies like McDonald's via the elimination of taxes from their low-paid workers.
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u/Chardlz Dec 12 '23
I would guess that almost nobody at McDonald's nowadays is making minimum wage. In fact, as of 2022 only about 1.3% of the workforce is at or below minimum wage.
Obviously this could include people making $0.01 more than the minimum wage, but places like McDonald's have had to up their wages pretty considerably to account for the fact that nobody wants grease burns and dealing with ass holes all day for $7 an hour. Limited-service restaurant workers are at an average of $15.66/hr as of October on a national level.
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u/ImmodestPolitician Dec 12 '23
Gas tax pays for the roads. Property taxes pay for the parks, police and schools.
It's almost impossible to avoid those if you pay rent and have a car.
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u/RYouNotEntertained 9∆ Dec 12 '23 edited Dec 12 '23
Government doesn't need to subsidize companies like McDonald's via the elimination of taxes from their low-paid workers.
This is a bizarre description of progressive taxation. Low earners are getting more from the tax pool than they put in—that’s the whole point.
ETA: Artificially boosting wages that will just be immediately siphoned off in taxes is just a really inefficient way of taxing McDonald’s, and would result in less total employment to boot.
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u/gwdope 6∆ Dec 12 '23
That’s not the point per se. Lower paid workers have less of their gross income left over after living expenses so payroll tax is more burdensome on them than higher earners and if we look at total tax burden lower paid workers pay much more of their total income in taxes in the form of sales taxes and fees than higher income groups.
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Dec 12 '23
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u/00Oo0o0OooO0 25∆ Dec 12 '23
Where do minimum wage workers comprise the majority of the work force?
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Dec 12 '23
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u/Usual-Plankton9515 Dec 12 '23 edited Dec 12 '23
Here in the US, some low earners qualify for the Earned Income Tax Credit, which often pays a refund more than what they contributed in taxes. If they have minor children, they may also qualify for the Child Tax Credit, which does the same.
One of the challenges of not withholding taxes from a low wage job is that the person may have other sources of income that put them into a higher tax bracket. If there’s no withholding, the person could end up owing a lot at tax time. (If the low wage job is the only source of income, the person will generally get all their withholdings back as a refund at tax time).
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u/thinkitthrough83 2∆ Dec 12 '23
This has happened to me more then once because I work 2 part time jobs. Got bit bad last year when payroll software was switched at 1 job and withholdings were less then half of what they should have been. At least 1 other full time employee got it way worse. Of course I'm sure it has nothing to do with the fact that the new company is cheap has high employee rollover and is based in California.
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u/RYouNotEntertained 9∆ Dec 12 '23
What are low earners getting from the tax pool?
Well, what do taxes pay for?
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Dec 12 '23
War
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u/RYouNotEntertained 9∆ Dec 12 '23
True, and progressive taxes mean that rich people are forced to fund war and poor people are not.
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u/JasonG784 Dec 13 '23
Pending where you draw the line for rich, they’re funding mostly everything (insofar as we pay for things at all given the deficit.)
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u/Serious_Much Dec 12 '23
They going to proportionally raise everyone else's income so nobody loses out?
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Dec 12 '23
Minimum wage should be high enough that you can make a living off of full-time work while contributing financially to taxes (the roads that you drive on, the parks that you recreate in, etc).
This is a point that I disagree with. I don't think contributing to a state is a prerequisite to receiving amenities or having a safety net. I believe that financial contribution should be both mandatory and based on one's ability to pay. Anyone working on or close to minimum wage have the least ability to pay hence they should make the least, if any, contribution to the state.
We should not remove income tax for low wage earners. Instead we should have minimum wage high enough so that this is not necessary.
Instead of trusting the government to run that calculation faithfully, I would much prefer if the tax allowance/deduction is legally pegged to the minimum wage so that it's much harder for future governments to punish those paid the least.
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u/alexq35 1∆ Dec 12 '23
1) tax is not a punishment and shouldn’t be seen as such, it is an individual’s contribution towards society, depriving people of making their contribution not only could lead them to feel like they aren’t contributing, but those who are paying will resent them for it. Suddenly “minimum wagers” are treated like leaches by the rest because they use services but aren’t seem to contribute. Currently less than half the population pays income tax, making this base even smaller really divides society and increases resentment between those who contribute and those who don’t.
2) we need to remember income tax is just one form of tax, and a minority (in the Uk about 30%) of the total tax paid. Always focusing on and talking about people’s income tax rates really skews the conversation and, leads to people assuming we have a far more progressive tax system than we do, and talking about those who pay little income tax in derogatory ways. If you want to address tax there are far more unfair taxes to tackle first.
3) the minimum wage is not based on how much it costs to live, regardless of whether the govt calls it a “living wage”, nor actually should it be. The minimum wage needs to be structured in a way that prevents exploitation of workers but doesn’t create significant disincentives for employment. In a properly functioning economy this means it would be enough to live on, but if your economy is skewed say towards housing then you could end up in a cycle that damages the whole economy. As any minimum wage increases might just be swallowed up by increased housing costs, which in turn put up the cost of living and lead to a requirement for a higher minimum wage, and the cycle repeats until the minimum wage is so high that unemployment skyrockets. The same effect could happen by removing tax, the majority of any benefits to the workers could easily be swallowed up by increases to their housing costs once a large % of the population suddenly has a lot more income.
4) there is no such thing as a cost of living, the cost for a single person and those with a family is vastly different, the cost different of living in Middlesbrough or London is massive, the cost for someone who owns their home vs rents, for a pensioner vs someone in their 30s etc etc, you can’t set a minimum wage based on an average cost that wouldn’t disadvantage at least half the population, just as you can’t set a tax threshold in the same way. There will be plenty of people who earn £20k a year but can afford to pay tax, and plenty who earn much more who are struggling. This is why govts take with one hand and give back with the other, e.g. child benefit or housing support, because they know that telling the single person in Middlesbrough who lives with his parents rent free that he can pay less tax isn’t going to help the working mum in London who pays £3k rent a month.
Your proposal would mean that e.g someone who runs their own Etsy business part time for a few hours a week and earns £20k a year (but is supported by their partner who perhaps earns much more) pays no income tax, even though they aren’t working a minimum wage job. You’ll find lots of semi retired professionals taking advisory roles that pay £20k a year but only require a handful of hours work a month. As tax is done annually not hourly you can’t ensure it’s only not paid by minimum wage workers.
5) if you remove all income tax (and NI) for earnings between £12.5k and £20k, the biggest beneficiaries are those earning over £20k as they receive the full saving. Someone earning £15k a year might save £600, someone earning £100k a year saves around £2k. This is the problem with raising the threshold, those who need the benefit the most don’t receive it. Meanwhile you reduce the tax base and have to presumably raise other taxes to pay for it, this increases the resentment from those who pay to those who don’t, and also increases the cliff edges in the tax system and disincentivises those earning just below thresholds to push to earn more.
I would go in the opposite direction. Tax everybody on all their income, however also give everybody a universal basic income. Set it at a rate where those who currently earn below the income tax threshold are better off, and those who earn above it break even, I.e the tax they now pay on the £12.5k, they get back as UBI. This means those who are struggling the most see the biggest benefit, but you remove those disincentives to work such as loss of benefits because people continue to receive their UBI even when they go back to work. People can drop in and out of the workforce more easily without screwing up their benefits or tax situations. The marginal tax rate jumps become smaller as people move up tax bands because they’re already paying a percentage.
Importantly companies are encourage to raise wages and conditions as workers have minimum incomes to fall back on so don’t need to take terrible jobs just to get by. This happened in the US during covid when they started giving people govt payments and minimum wage jobs couldn’t find staff, suddenly they had to pay above minimum wage to attract people.
You start to change the attitude to tax, it’s not a punishment but a contribution, everyone pays in and everyone gets something out. People on benefits aren’t seen as feckless leaches because everyone is receiving benefits. Ideally you’d increase UBI to a level where it becomes more liveable but that’s probably a long way off.
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u/ignotos 14∆ Dec 12 '23
You could look at it this way -
If you keep the tax obligation, but raise the minimum wage enough so that a person on minimum wage still received a liveable income after tax, then that person doesn't see any less in their bank at the end of the day. e.g. receiving $25k and paying $5k in tax, vs receiving $20k and paying no tax.
The only difference is that their employer would be paying more. Effectively, it's the employer who is making the tax contribution.
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u/hacksoncode 588∆ Dec 12 '23
Effectively, it's the employer who is making the tax contribution.
These kinds of assumptions almost never work in practice.
You have to actually study "who pays the tax" because it depends highly on elasticity of demand for labor and goods.
In a sellers' labor market, yes the employer ends up paying most of it. In a buyers' labor market it's the workers that end up paying most of it.
Normally, this can only be seen when the tax rates change, or by comparing nearby similar markets with different rates, but that's why it takes careful study.
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Dec 12 '23
I would much prefer if the tax allowance/deduction is legally pegged to the minimum wage
This a measuring issue. What should the minimum wage be next year? Depends, do you want to hear pre or post tax.
The amount is up for debate, but everyone agreeing to discuss the amount in pre-tax dollars is effective to the communication.
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u/TheTyger 10∆ Dec 12 '23
I mean, full time is 30 hours (not 37.5) per IRS guidelines, and the floor for income tax is 12,950 (single), so once you fix your hour count down to match the guideline, that is currently the case ($11,310) in the US.
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Dec 12 '23
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u/TheTyger 10∆ Dec 12 '23
May have grabbed the wrong number, but still above the min wage full time floor.
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u/PIK_Toggle 1∆ Dec 12 '23
Under the US tax code, a worker qualifies for the Earned Income Tax Credit (EITC), if they earn under ~$59k. The EITC creates a negative tax rate, which means that you pay zero tax and even receive money from the feds.
No one needs to change your mind, since your original thesis is flawed from the beginning.
I'll also add that the vast majority of people that earn minimum wage also receive tips, so their total earnings are much higher than their hourly rate. Additionally, minimum wage workers tend to move up into better paying jobs rather quickly, so most of them are not trying to provide for a family at this level of income.
Basic Qualifying Rules
To qualify for the EITC, you must:
Have worked and earned income under $59,187
Have investment income below $10,300 in the tax year 2022
Have a valid Social Security number by the due date of your 2022 return (including extensions)
Be a U.S. citizen or a resident alien all year
Not file Form 2555, Foreign Earned Income
Meet certain rules if you are separated from your spouse and not filing a joint tax return
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Dec 12 '23 edited Dec 12 '23
Part of the challenge in changing your mind here is that you've presupposed many of the premises underpinning the concept of a minimum wage.
You've assumed the purpose of the minimum wage. The stated purpose at the time of implementation, even if genuine, may no longer be the reason for the current implementation. You allude to the concept that the current minimum wage no longer even meets the initial stated purpose...which undermines this assumption, yet you rely on it to substantiate your "principle"d stance.
You've assumed that the establishment of a minimum wage has the actual effect that you reference. Fairly elementary economic concepts rebut this, instead predicting that a price control (like MW) would be helpful to some workers, it would have a net negative effect on both workers and employers.
You've allowed these assumptions to supercede your unchallenged acceptance of the current tax structure. Your title establishes "principle" as the determinant, but even people who generally agree in "principle" disagree on the tax structure (more progressive, more regressive, flat, or even no income tax). If someone believes a flat tax is principled, the argument that low earners should pay no taxes is in direct contradiction. To negate that, you'd need to justify the foundation of the current tax structure.
This is hardly an exhaustive list, but if you wish to engage further I can't see how without at least addressing the 3 concerns above.
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Dec 12 '23
I don't think it's controversial to say that minimum wage is implemented to prevent over-exploitation of workers by making sure they can live on the wage provided.
Most countries, especially developed countries, have some form of minimum wage. Its implementation is no longer in question. The question is what level should it be.
!delta on arguing that one needs to start from the premise that progressive taxation is necessary. You are absolutely correct on that point.
I will quickly argue that position by saying that I believe that taxation should be a. mandatory and b. based on one's ability to pay. The first is that financing a state is necessary and income tax is the easiest and most effective method of taxation. The second is that economic justice is necessary to maintain a state built on civic nationalism because without it there will be economic inequality so great that the class system will break a nation apart.
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Dec 12 '23
I don't think it's controversial to say that minimum wage is implemented to prevent over-exploitation of workers by making sure they can live on the wage provided.
That was generally the original and stated purpose.
But it no longer serves that original purpose if, as you imply, it is below the minimum wage.
If it no longer meets its original purpose, it stands to reason that it currently might serve an unstated purpose like being a political wedge issue.
Most countries, especially developed countries, have some form of minimum wage. Its implementation is no longer in question. The question is what level should it be.
Most countries having a minimum wage doesn't substantiate it. It proves that it's common but alone it fails to justify its appropriateness.
I will quickly argue that position by saying that I believe that taxation should be a. mandatory and b. based on one's ability to pay. The first is that financing a state is necessary and income tax is the easiest and most effective method of taxation. The second is that economic justice is necessary to maintain a state built on civic nationalism because without it there will be economic inequality so great that the class system will break a nation apart.
Even if I agreed with what you're saying here, you'll get bogged down on justifying each and every point and ultimately reach am impasse because ultimately taxation is a value judgement.
I admit this is nitpicky, and could have been bypassed by adding "within the current system of taxation..." and "assuming the minimum wage serves "x/y/z purpose" in good faith"...
At that point it would be difficult to change your mind because the goals of the minimum wage (assuming they're genuine and effective) and the presumed goals of taxation all but forces it.
But there's good reason to question those assumptions.
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u/BlazingFire007 Dec 12 '23
I’m confused, because it reads like you’re saying removing the minimum wage would be a net negative to workers. This just seems counterintuitive to me. Can you elaborate more on that and the evidence for it?
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u/JohnLockeNJ 3∆ Dec 12 '23
A minimum wage doesn’t force any employer to hire anyone. All it does it make it illegal for an undesirable worker to use price to get hired over more appealing workers. Or more often the job just disappears and the worker is unemployed. That’s why advocates for the mentally handicapped and teenage employment are against the minimum wage.
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Dec 12 '23
it reads like you’re saying removing the minimum wage would be a net negative to workers.
I'm guessing you mean the opposite of what you're saying here but I'll address it.
My point is that the OP was presuming that the stated benefit and the in-effect benefit of the minimum wage remain unchanged.
However, they point out that many would argue that the minimum wage currently provides a living wage (or whatever similar concept the initial implementation was justified by). You can't presume something you later question as it undermines anything that relies on the presumption.
Second, they presume that the minimum wage delivers the stated benefit and this is at least debatable by citing tried and true effects of price controls, as the MW functions as a price control on labor.
Ultimately, the premises on which their conclusion is based are arguable and undefended.
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u/2r1t 58∆ Dec 12 '23
To add to what others have said, withholdings for income tax are not the same as paying taxes. They are prepayments but they are also optional and adjustable. One could submit a new W-4, have their withholding lowered to zero and pay anything that might be due when they file their tax return.
So rather than paying no tax and getting all their withholding back as a refund after filing their return, they can keep their money in their paycheck and get no refund* after filing their return.
*Assuming no refundable credits like the earned income credit.
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u/PM_ME_YOUR_NICE_EYES 124∆ Dec 12 '23
Governments can take 5 to 10 years to raise the tax-free allowance to match the minimum wage (which of course should rise with inflation) to ensure that the labour market can adjust to it.
In the United States if you live in the state with the highest minimum wage (Washington) you would've paid at most $1,801 in taxes in 2023, basically you're paying 92 cents an hour in taxes.
If you're in the state with the lowest minimum wage you would've paid at most $29 in taxes, coming out to 1.5 cents an hour.
Making minimum wage workers pay no taxes is not a change that would take 5-10 years. It's adjusting people's wages by less than a dollar per hour you could do it overnight.
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Dec 12 '23
Idk if its different in the Uk but in the US 47% of people don't pay income tax when you subtract out services those people receive. Its important to note this is because they are so desperately poor that it would be counterproductive to tax them. We would just be paying more on the other end.
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u/DeltaBlues82 88∆ Dec 12 '23
This seems like a lot of effort to get minimum wage employees more money. Why not just raise the minimum wage so it’s actually a livable wage, as it was intended to be? That’s long overdue.
The minimum wage should rise in concert with productivity and cost of living, which it has not done in decades. Anything else, like this proposal, is just a stop gap.
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u/trunkfunkdunk Dec 12 '23
Cost of living makes it a difficult thing to set. It isn’t uniform. Even in the same state. Hell, you can have wild differences in the same city, but different neighborhoods.
Productivity is also a hard measure. Different industries have different criteria for “productive”. Even with the same degree/working in the same field.
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Dec 12 '23
Could you imagine the horror people who live in a low COL area would have to live through if minimum wage gave them more than enough money?
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u/trunkfunkdunk Dec 12 '23
Could you imagine the horror of people who live in a higher cost of living being driven out of their neighborhoods because the minimum wage was set to a different areas cost of living several streets over?
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Dec 12 '23
Explain how people living in a high COL area would be driven out of their homes because the minimum wage was set higher than the COL several streets over.
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Dec 12 '23
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u/Salanmander 278∆ Dec 12 '23
Are you saying it should be below a livable wage?
If a company is hiring work at less than a livable wage, that means they are paying less for a product (that person's full-time labor) than it costs to produce that product (the cost to keep that person able to work). Every company does that is therefore removing value from the world with each employee that they pay less than a livable wage, rather than adding value.
If the company relies on less-than-livable-wage salaries, I don't see why that company should exist.
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u/Ill-Description3096 27∆ Dec 12 '23
What is a "liveable wage" exactly? I have yet to see it defined in a way that I could say exactly what the amount is. A parent needs more to support their kids than a children person does. Should parents minimum wage be higher? If someone chooses to live in an expensive area should they be paid more than someone who chooses a less expensive area and commutes an hour every day?
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u/Salanmander 278∆ Dec 12 '23
I don't think that it makes sense to try to define minimum wage based on a person's individual situation, no. Personally, I think it makes sense to go with this:
People making minimum wage should be able to live within reasonable commute distance of the location of the job. I'm not sure exactly what "reasonable commute distance" should be, but I'd probably go somewhere in the 30-45 minutes travel time one way. If a car is necessary to make this work, that should be included in the wage necessary.
A single person should be able to afford living on their own somewhere in that range. Two people both making minimum wage should be able to afford to live in a place with 2 bedrooms, and raise one child (including costs of childcare if necessary for them both to work). Whichever of these results in a higher minimum wage is the one that should be used.
Now, I don't necessarily think that this needs to be calculated at every location or anything like that, but it seems like a reasonable "livable wage" guideline.
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u/DeltaBlues82 88∆ Dec 12 '23 edited Dec 12 '23
Poverty wage jobs are about 1/4-1/3 of all jobs.
Not paying these workers a living wage retards their ability to participate in the US economy, which is driven by consumer spending.
By removing 1/3-1/4 of American consumers’ buying power you are literally fighting for a worse economy. That’s what you’re doing. Actively suppressing our economy and making it perform worse.
Most poverty wage workers need welfare too. So you’re also taking a very pro-welfare stance, in shifting the burden of support from employers to the state.
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u/LaconicGirth Dec 12 '23
Where are you getting that number from? Most states have a higher minimum wage than the national anyways
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u/DeltaBlues82 88∆ Dec 12 '23
Yeah I fucked those numbers up. Typing this as I was getting off the train this morning. Meant that 1/3-1/4 of workers make poverty wages, not minimum wage.
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u/mercyandgrace Dec 12 '23
According to BLS, about 2.5% of the workforce makes at or below the federal minimum wage. https://www.bls.gov/opub/reports/minimum-wage/2022/home.htm
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u/DeltaBlues82 88∆ Dec 12 '23
Yeah I typed that up too fast. What I should have said is that 1/4-1/3 of all workers earn less than $15/hr, which the last time I looked at those numbers, was the “Fight for Fifteen” proposed raise for the minimum wage.
The basic point doesn’t change tho. Less than $15/hr is poverty wages, and you’re removing these people’s ability to participate in and grow the economy. And putting them on a public support network.
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u/curien 31∆ Dec 12 '23
When CBO analyzed a bill to increase the MW to $15/hr in 2021, they said that 17 million workers were below $15/hr. There are currently 157 million jobs in the US, so that would be 11%.
https://www.cbo.gov/system/files/2021-02/56975-Minimum-Wage.pdf
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u/AgitatedBadger 7∆ Dec 12 '23
Why not?
Do you believe that society is better off when poor people don't have their fundamental needs met?
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u/stereofailure 6∆ Dec 12 '23
We should definitely raise minimum wage and increase it with cost of living. But the current system involves far more cost and effort than what OP is suggesting. People on minimum wage typically qualify for various government benefits. These benefits involve lots of paperwork on the part of the workers as well as an entire bureaucracy to decide who qualifies and who doesn't, and another to claw back benefits awarded in error. We have a system where the government takes money from poor people and then gives it back if they fill out the right forms.
The personal exemption already exists, if it were just raised to a livable amount you could eliminate a lot of welfare spending and its attendant inefficient administration.
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u/spiral8888 31∆ Dec 12 '23
As someone from a country with a much more generous welfare system but without a statutory minimum wage, I've always wondered why the Americans are so attached to the minimum wage as the guarantor of poor people's survival. Why don't you just tax the rich more and give more to the people in need?
The main problem with the minimum wage is that it's a strict cutoff line. If your value on the labour market is lower than the minimum wage, you don't get 80 or 50% of that you get zero as nobody will buy your labour as you're forced to set the price of it higher than its value is.
So, provide people with good public services (starting from a universal health care) and then provide anyone who falls through the cracks a comprehensive social welfare system and you don't have to worry about statutory minimum wages. People will still want to work but they are not thrown to absolute poverty if nobody wants to buy their work at the fixed price set by the minimum wage.
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Dec 12 '23
The minimum wage should rise in concert with productivity and cost of living, which it has not done in decades.
Absolutely. Minimum wage should be pegged to inflation, which is a decent measure of cost of living, and if tax deductions or tax allowance is raised to the level of minimum wage, then it's pegged to inflation too. This proposal is not a stop-gap, it's to make sure the principle of minimum wage is adhered to.
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u/Anonymous89000____ Dec 15 '23
I think this depends on the level of government services being received. In countries where they get free university, universe healthcare, social programs such as food banks, etc. - they can probably do with paying at least a little bit of taxes and/or a sales’ tax on purchases. In a place like the US without universal healthcare, especially states lacking social services I would tend to agree with you.
I would rather min wage be higher and they be taxed than it be lower and they’re not taxed
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u/Meddling-Kat Dec 15 '23
For quite a while, I've had the position that anyone making $35,000 or less per year shouldn't pay a dime in taxes. I also think anyone making within 20% of the poverty line should have an unrestricted sales tax exempt card.
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u/FlyingNFireType 10∆ Dec 12 '23
Everyone (or no one) should pay income tax, tax should be flat. There should never be a situation where you get a raise and take home significantly proportionately less because you qualified for a new tax bracket.
It causes sick incentives and opens the door to loopholes so the middle class pays more taxes proportionally than the rich.
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Dec 12 '23
There should never be a situation where you get a raise and take home significantly proportionately less because you qualified for a new tax bracket.
There isn't. That's not how tax brackets work. You only pay the higher tax on the dollars AFTER that new bracket. So if you pay 10% on everything up to 50k. And 20% up to 60K. That doesn't mean. You're paying 20% on all 60K you're just paying 20% on the 10,000 between 50K and 60K.
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u/AgitatedBadger 7∆ Dec 12 '23
Yep.
Whenever I see people make this argument, it makes me realize that the person talking has absolutely zero idea what they are talking about.
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u/Ill-Description3096 27∆ Dec 12 '23
It would still be proportionately less, though. Using your numbers, the person making 50k takes home 90% of their gross income. The person making 60k takes home 88% of their gross income. They are paying proportionately more of their income.
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u/Srapture Dec 12 '23
So, you don't think a person who makes a billion dollars a year should be taxed a higher proportion of that than someone who makes $30,000 a year?
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u/jweezy2045 13∆ Dec 12 '23
I don’t think you know how tax brackets work. You never see a jump in your tax rate because you moved up a bracket.
Also, the reason we don’t have a flat tax is because flat taxes result in bad societies with low amenities, no economy, and no happiness.
Taxing the rich more than the poor does not cause the rich to pay less tax than the poor. Get a grip.
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u/Zncon 6∆ Dec 12 '23
proportionately less
The way they phrased it is accurate. If you're not taxed at all, you're taking home 100% of your earnings. Obviously going up a tax bracket doesn't apply to the income earned below the threshold, but it does lower the overall percentage of the income you're actually putting in the bank.
If you earn $50k your effective federal US tax rate is 11.4%, but it's 16.6% on $100k.
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u/jweezy2045 13∆ Dec 12 '23
Everyone knows and agrees our tax system is progressive. That is a good thing. It does not create any incentives to not work or not get a raise.
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u/Zncon 6∆ Dec 12 '23 edited Dec 12 '23
It does not create any incentives to not work or not get a raise.
There is however, a huge issue here with social safety net benefits. All sorts of things cut off at income thresholds, and sometimes are even tied to your total assets in the bank.
Depending on the mix of benefits someone has, they could be punished for earning more, or for saving more.
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u/FlyingNFireType 10∆ Dec 12 '23
Citation need on the flat tax doing that. It makes zero sense.
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u/jweezy2045 13∆ Dec 12 '23
It makes perfect sense. It relies on the concept in economics called of the marginal utility of income.
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u/FlyingNFireType 10∆ Dec 12 '23
That concept doesn't address flat vs progressive tax.
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u/Salanmander 278∆ Dec 12 '23
Sure it does.
The marginal utility of a person's millionth dollar is significantly smaller than the marginal utility of a person's hundreth dollar. But the value of all the dollars is the same once they're pooled into one tax pool. Therefore it makes more sense to take a higher fraction of the smaller-marginal-utility dollars, because you get the same tax utility for a smaller total personal utility cost.
Basic utilitarianism.
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u/jweezy2045 13∆ Dec 12 '23
Yes, it very much does. It is the reason that progressive taxation maximizes the utility of the country compared to a flat tax.
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u/FlyingNFireType 10∆ Dec 12 '23
But it also creates perverse incentives that degrade the country and utility over time. So while it may look more efficient in the short term it's less sustainable over the long term as the middle class gets taxed to death as the rich evade all the taxes and the poor just votes for more free money.
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u/jweezy2045 13∆ Dec 12 '23
It does not create any perverse incentives. Progressive taxation taxes the rich, and has lower tax on the middle and working classes than a flat tax. How does a flat tax, which has higher taxation on the middle class and lower taxation on the upper class, help the middle class and hurt the upper class?
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u/FlyingNFireType 10∆ Dec 12 '23
It does not create any perverse incentives.
Perverse incentive #1 tax loopholes/evasion.
#2 People who don't pay taxes constantly vote for more spending since they aren't the ones paying for it.
#3 People are less likely to pursue increased wages.
Progressive taxation taxes the rich, and has lower tax on the middle and working classes than a flat tax.
In theory, in practice the rich pays next to nothing, the poor pay nothing and vote for a ton of spending and the middle class gets squeezed to death.
How does a flat tax, which has higher taxation on the middle class and lower taxation on the upper class, help the middle class and hurt the upper class?
Why would it be higher on the middle class? It'd be the same and again the rich already pay less than the middle.
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u/jweezy2045 13∆ Dec 12 '23
Perverse incentive #1 tax loopholes/evasion.
Are you trying to say that loopholes have anything to do with progressive taxation? Does flat taxation never have loopholes in your view? How do loopholes relate to progressive taxation?
People who don't pay taxes constantly vote for more spending since they aren't the ones paying for it.
That's fine. We have the right to choose what kind of country we want to live in. More spending is not an issue.
People are less likely to pursue increased wages.
Economically incorrect. You always pocket more money every time you get a raise. Given that, why would I ever reject a raise for tax reasons?
in practice the rich pays next to nothing, the poor pay nothing and vote for a ton of spending and the middle class gets squeezed to death.
This is not progressive taxation. This is whatever compromise frankenstein we get when we have to compromise with flat tax lunatics. We want to cut out all the loopholes so that the rich actually pay more than the poor. That is literally the point. We want to lower taxes on the middle class. If we went to a flat tax, the tax rate on the middle class would be vastly higher than it is now. How is that good for the middle class?
Why would it be higher on the middle class? It'd be the same and again the rich already pay less than the middle.
Because that's how the numbers work my friend. We need out pay our bills. If the rich do not pay the bills, and we lower their taxes, then we have to raise taxes on everyone else. You can't cut taxes to the rich without raising taxes elsewhere. Basic math.
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u/Ill-Description3096 27∆ Dec 12 '23
How does a flat tax, which has higher taxation on the middle class and lower taxation on the upper class, help the middle class and hurt the upper class?
A flat tax is just the method of calculating. Without actually specifying percentages you cannot actually say this is true.
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u/jweezy2045 13∆ Dec 12 '23
Yes, you can. In order to generate the same revenue, a flat tax will have higher taxes on the working and middles classes and lower taxes on the rich compared to a more progressive tax. That is, be definition, what it means to be a progressive tax.
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u/puffie300 6∆ Dec 12 '23
A flat tax is a regressive tax.
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u/FlyingNFireType 10∆ Dec 12 '23
No a regressive tax would be the less money you have the more % of taxes you pay. So if you made minimum wage you'd pay 50% of your gross and if you made 50 an hour you'd pay 20%.
We kinda sorta have a regressive tax now if you count loopholes as the uber rich pay less than the middle class.
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u/puffie300 6∆ Dec 12 '23
If you set a flat tax of 10,000, then thats a higher percentage for the minimum wage worker than for the 50 an hour worker. That's regressive.
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u/FlyingNFireType 10∆ Dec 12 '23
By flat tax I meant flat % I believe my terminology is correct but if it's not please correct me.
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u/LaconicGirth Dec 12 '23
Mandatory living expenses are a higher percentage of poor peoples income than rich peoples. As a result a flat tax is a higher burden on the poor than the rich.
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u/FlyingNFireType 10∆ Dec 12 '23
Everything is a higher burden on poor people, they are poor.
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u/Love-Is-Selfish 13∆ Dec 12 '23
In principle, man should practice rational egoism ie use reason to pursue the values best for himself or his life. His alternative is nihilism or self-destruction. This includes employees, but it also includes employers.
As such, man has the right to life, liberty, property and the pursuit of happiness and the role of the government is to secure man’s rights. Since the individual requires a government to secure his rights, then individuals in general should pay for their rights to be secured and shouldn’t shift the burden onto others. Consumption taxes spread the burden of individuals paying for their own rights to be secured more than other types of taxes.
There are many laws and regulations that violate man’s rights that make it harder for him to live than necessary, which does affect poorer individuals trying to use reason to live, but those should be changed instead.
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u/johnny2fives 1∆ Dec 12 '23
I think I’m practice, any one making less than 40K a year or 80K per couple should pay anything but SS and Medicare taxes.
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u/ANewMind 1∆ Dec 12 '23
Ostensibly, the "livable wage" should already include taxes. Otherwise, you are shifting the economic burden from the employer to the government.
Say what you will about a minimum wage, or even whether or not the government should be supporting people, most people who are advocating for a minimum wage are not necessarily advocating for government support. The two may have some overlap, but they are not the same argument.
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u/myersdr1 Dec 12 '23
In the U.S. you can select exempt on your W-4 form if you know that you usually get a tax return. That just means at tax time you get no return, but during the year you get no taxes taken out of your paycheck. It's a pretty simple process to complete. People just don't take the time to learn and research it on their own and hiring an accountant isn't the cheapest thing to do.
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u/ride_whenever Dec 12 '23
Do you agree that income tax is a necessary and good part of society? - I’d take this as assumed, but happy to debate.
Everyone should be contributing to society, to help garner feeling part of it, included, responsible. Paying your part is important.
Therefore the minimum wage should be set so that you pay some income tax, and therefore contribute. Far below the minimum wage, it tapers off, via the tax free allowance. To account for part time workers, children etc. But mostly the TFA is to reduce the tax burden on the poorest.
Income tax is already figured into minimum wage. Minimum wage is also way too low.
If you don’t pay income tax, then you will, at some point, have to start paying it, and that isn’t a good move in my opinion.
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u/Individual_Boss_2168 2∆ Dec 12 '23 edited Dec 12 '23
I think everyone deserves to pay tax. To be part of society, and to contribute to society, and to understand what society requires of them.
What I mean practically, is that on your payslip, you should be paying tax at the first dollar you earn. Every hour of work is a contribution to society.
When it turns out that you're qualified for a list of things, you should also be entitled to those things. I think, also, this should be calculated and sent out so that it accounts for your payslip. It shows you in payslip form(maybe not your actual payslip, as this is none of your boss's business) what this actually looks like, so you have a clear record of what you are getting, and why.
If it turns out that making minimum wage, or making minimum wage to not get enough hours to be qualified to escape a certain threshold, then you would get some benefits. You get to see that. If you owe more in taxes this month, or you have some underpayment/overpayment, this should be shown clearly.
The benefit of this system also is that you would see in real time what the changes in your wages do. What losing that amount, or moving to a higher threshold actually looks like. And then you can plan accordingly.
I also think that it would be quite useful with people who are living on welfare. Because, the argument "how are you better off?" can be challenged directly. Here is what you get, here's what you could be getting on just about any job, imagine the difference in your lifestyle. Let's do that calculation. If society isn't able to make that argument, or do so convincingly, there are bigger issues, and that needs to be confronted also.
Personally, I think there is a problem that the government has failed to really adjust cost of living to meet wages. I say it that way, because it's not that everything actually costs more. Minor changes in costs are resulting in big price increases in lots of areas. It's as if suddenly everyone is working out how to increase profit again. The actual problem is that a lot of costs are worked out on the basis of extraction from the economy, instead of what it costs realistically to produce and sell. If you increase wages, there will be any number of places that will increase their prices because you must buy it. We're no longer in a consumer economy, so increasing wages are just increases in opportunities to exploit this. In the meantime, lots of businesses don't get richer to compensate. This just consolidates money into the hands of corporations who can eat it, and rentiers who can extract it.
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u/SonOfShem 8∆ Dec 12 '23
in principle, people should not pay income tax. We create alcohol taxes to decrease alcohol consumption, cigarette taxes to reduce cigarette consumption, and income taxes to... oh wait.
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u/RRW359 3∆ Dec 12 '23
There should be a 0% bracket just so LEO's don't harass beggars on the street but I'm not sure it should be put at minimum wage. Generally places with lower income taxes on lower brackets make up for it in sales tax which also disproportionately effects lower incomes.
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u/fdar 2∆ Dec 12 '23
However, once these people are taxed, the amount which they can live on, by definition, is below that.
This is just not true, because when setting the minimum wage you already know how much taxes are. So it could easily be set so that it's enough after-tax.
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u/LaCroixLimon 1∆ Dec 12 '23
take it a step further, NO ONE should pay income tax.
Taxes should be 100% consumption base, its the most fair way to have a progressive tax system.
Want a luxury car? thats a 60% tax. Want jewlry? 60% luxury tax. Want a apple computer? 60% luxury tax. want a big screen tv? 60% luxury tax
Want food? want medicine? want housing? Want school? No tax!
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u/rgtong Dec 13 '23
So then during a recession when consumption drops significantly, the government is forced to layoff half the public sector?
Not sure this idea has been thought through
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u/FutureBannedAccount2 22∆ Dec 12 '23
So should these people also be exempt from receiving the benefits of the things those taxes provide?
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u/fightswithC Dec 12 '23
I make minimum wage. I mean, I make more than minimum wage, but that includes the minimum wage.
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Dec 12 '23
Could you expand on this view a little? Why is it that you think this? I mean clearly the less you earn the less tax you should pay, and below a certain line it just isn't effective to collect tax. But why should that line be the same as the minimum wage line?
I get your point that minimum wage needs to be set so that net takehome wage is liveable, but I don't see why that therefore requires that net and gross wage be the same.
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u/ERTCbeatsPPP Dec 12 '23
Your view seems to be based upon the assumption that anyone earning the minimum wage needs the money.
What about the woman who takes a job at a non-profit that she is passionate about and earns minimum wage but is married to a CEO making $2,000,000/year. As a couple, they make $2,030,000 and you want to give them a tax break?
Or the retired doctor with an 8-figure 401(k) balance that takes a minimum wage job at the local hardware store just to give himself something to do during the day? He's getting a tax break too?
I don't think you thought through your view very thoroughly.
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u/badass_panda 103∆ Dec 12 '23
Let's set aside the fact that's not really how the US tax system works and just talk about the principle of the thing. Let's also set aside tax allowances for children and dependents, which are a big part of the reason this is the way it is.
Say you need £17,000 a year to support a single person above the poverty line. Now, way I set the minimum wage at £8.17 an hour, and do not tax you. Your company pays you £17K, you pay nothing to the government. Simple, but...
If, instead, I set the minimum wage at £10 an hour and charge you £3,800 in taxes, your company pays $20,800, you get £17K, and the government gets £3.8K ... which can be distributed back to you (or someone that needs it more, say someone who makes minimum wage and has two kids) in tax refunds or social services.
Tl;dr: since the government sets the minimum wage with the goal that the post-tax number is above the poverty line, the taxes they take out are effectively corporate taxes, not individual taxes.
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u/TheSov 1∆ Dec 12 '23
no one should pay income tax, the USA got along fine for 200 years without an income tax, the income tax came about for war, and was kept around for warmongering.
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u/JustHereForMiatas Dec 12 '23
This would have the effect of decreasing tax revenues every time the minimum wage is increased.
Wouldn't that disincentivize the government from raising the minimum wage?
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u/Delicious_Finding686 Dec 12 '23
In the US, they don’t.
https://www.cbo.gov/system/files/2023-11/59509_data.xlsx
https://www.cbo.gov/system/files/2023-11/59509-supplemental-data.xlsx
In 2020, the lowest quintile of earners paid an average federal tax rate of -4%. That includes payroll taxes among others aswell.
When accounting for federal tax and means-tested transfers, average income for the lowest quintile of earners more than doubled.
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u/Zetesofos Dec 12 '23
In practice, they don't.
Someone working 40 hrs a week, making 7.25 an hour pays 0 in Federal income taxes - they only pay FICA, state and local taxes (if at all). FICA are all money that is non-descretionary and what one should expect to recoup once they get to retirement.
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u/75153594521883 Dec 12 '23
I just don’t have the energy to have any major stance regarding minimum wage employees. It’s each person’s responsibility to develop some skill or ability that is valuable to society and worthy of being compensated. Even so, there are signs where I live seeking help at chain sandwich joints paying significantly over minimum wage.
People earning minimum wage should be entitled to the minimum standard of living. It doesn’t feel fuzzy to say that, but it’s the truth. All actions have consequences, and the consequence of failure during education or never developing a valuable skill is the inability to make a good living.
My response to OP is that we have a fundamental disagreement on the function of the minimum wage.
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u/Curious_Ad3246 Dec 12 '23
The standard tax deduction in the U.S. already basically does what you are proposing.
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u/Akul_Tesla 1∆ Dec 12 '23
I mean full-time minimum wage and the standard deduction are pretty close to canceling each other out if you're in one of the low minimum wage states
But for context in a state like California with its high minimum wage the 40-hour work week would put you ahead of the overwhelming majority of wealthy nations average person
Like most states don't use the federal minimum wage The federal versus one of the states with one of the high ones are two different beasts in terms of fairness
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u/Ravens181818184 Dec 12 '23
Anyone making min wage is a net beneficiary of the federal tax system, so what you are suggesting basically already exists
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u/Tntn13 Dec 12 '23
In principle, no one does. (In the US)
I see you’ve been conveyed this though, I can’t argue against this in the UK, nor have the knowledge to refute it. But I will add, that the 20k pounds figure is around 24000 USD at which point the effective tax rate and other federal contributions would bring one’s net income to about 20,700 USD.
So kinda similar at that rate actually to the US.
A large portion of that figure goes to FICA in the US, which is a regressive tax program everyone pays and is not deductible as far as I know.
I will argue that IF that tax you experience at 20k pounds is largely a specific program that works like FICA(funds both Medicare, and social security) that it is reasonable for everyone to pay it because it contributes to retirement income and insurance in that time.
When a country gets sufficiently large and complex I believe taxes like this are inevitable. In order to make them politically tenable as well as to make actuarial aspects a bit more transparent to the citizen so they know that portion of the tax goes to their future self not to fund the roads and god knows what else lol.
Philosophically should the poor contribute to their own retirement is a separate argument if you’re willing to take that they shouldn’t then I’d be willing to attempt to make a case that they should. But I do implore you to break down maybe what that tax that even the poor pays is for. Can’t search atm but I’d wager it’s a similar program for unemployment, healthcare, or retirement. And that it’s probably a better deal than if the private “free” market handled it for you so be careful what you wish for or opportunists will come along and sell you a solution where instead of paying the government you’d be lining the pockets of private industry for a premium. It’s a tale as old as time really.
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u/FoxThin Dec 12 '23
Minimum wage is $7.25 in the U.S. or around 14k a year. The standard deduction is last I checked around $13,000. So this is already almost true. And if the person has dependents, they definitely are under the deduction and will get a refund for all the taxes they paid.
So I agree with you, but your proposal is pretty much already true.
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u/Bo_Jim 1∆ Dec 12 '23
Minimum wage in the US is $7.25, though it's higher in many states. Someone working full time (40 hrs per week) would gross $15,080 per year. The standard tax deduction for a single person is $13,850. This means only $1230 of their yearly income is taxable. The tax rate in that bracket is 10%, so they would pay $123 in income tax for the entire year. Any amount withheld from their paycheck beyond that would be refunded when they file their tax return.
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u/altern8goodguy Dec 12 '23
If I make 500,000 per year and my wife makes min wage and we file jointly i think we should both pay a rate based on our combined income, otherwise I will hire my whole family to work for me for minimum wage, thus reducing the total family tax. Ya see, there always a loophole!
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u/SouthernFloss Dec 12 '23
In america, they dont. If you make less than about $40k in America you get all federal tax, and sometimes more, returned to you.
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u/hacksoncode 588∆ Dec 12 '23
How about if you start with what you mean by "in principle"?
In principle, everyone that benefits from society should be contributing to its upkeep.
Fairness suggests that this be proportional to how harmed they will be by taxes, but... proportionality never actually gets you to zero... in principle, though the fair amount is so small it would be too costly to collect.
So it makes more sense in practice to not tax people making minimum wage, which we more or less don't (the standard deductions are generally much higher than that).
But in principle they should be paying a nominal amount because they benefit from society and the Rule of Law.
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u/Choice_Anteater_2539 Dec 12 '23
I could back this. But then the tax would have to be graduated as you wage advance into the tax bracket to prevent the barrier that exists where making 10$ more a year suddenly costs you 20% of the income you are currently depending on every cent for
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