Author Topic: Brainstorm a better 21st-century tax system  (Read 4184 times)

mrmoonymartian

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Brainstorm a better 21st-century tax system
« on: December 03, 2019, 04:48:51 AM »
If you had absolutely no self-interest or influence from vested interests and were simply trying to design a beautiful, modern tax system for the future prosperity of your fellow countrypeople out of nothing other than your utopian benificence, what would it look like? Or what reforms would you make to the current mess? And why?

Example reform package to get started:

Objectives:
  • Less mindless consumption
  • More efficient use of land
  • More productivity
  • Less labyrinthine bureaucracy
  • Less intergenerational inequality; more meritocracy
  • Reduce environmental buck-passing to future generations

Mechanisms:
  • UBI to replace most other welfare
  • Lower income tax
  • Higher GST
  • No negative gearing
  • No CGT concession
  • Tax super income in retirement phase
  • Higher gift tax
  • Higher inheritance tax
  • Land tax to replace stamp tax
  • Carbon tax

Of course, we all know that being caught naked in a hotel room with a genuine reform list would guarantee instant political death by firing squad. But that's not the point of this thought experiment. Here we are free to dream...

marty998

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Re: Brainstorm a better 21st-century tax system
« Reply #1 on: December 04, 2019, 02:21:32 AM »
Oh boy. Here we go.

Taxes shouldn't be raised just for the sake of raising taxes - you'd need to calibrate how much you need or want to spend and raise or reduce taxes to a level accordingly.

I don't understand how a UBI is sustainable at any level though - there's just  not enough big taxpayers to pay for it..

I also think you need some sort of CGT concession. It's manifestly unfair if you hold an asset for many decades and have to pay tax on sale at marginal rates. Much of the "gain" is actually inflation, which means you not only lose your purchasing power on the eventual sale proceeds, but more as it is also taxed away.

Not really a fan of a gift tax or inheritance tax either - sounds like a wonderful way to punish the millennials you are trying to help :)


mrmoonymartian

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Re: Brainstorm a better 21st-century tax system
« Reply #2 on: December 04, 2019, 05:43:12 AM »
@Marty - I agree we'd need to address both what we want and how we're going to pay for it simultaneously. I disagree that taxation is just about funding spending - it's also about changing behaviour. eg. vice taxes, pollution taxes...

UBI should be sustainable as long as you have other reforms sufficient to pay for it. Firstly, the UBI money doesn't vanish - it has to go somewhere. More GST on consumption would re-capture plenty of it and add fresh funds as well, with added benefit of reducing wasteful consumption. Removing CGT concession would funnel more money into income-producing assets instead of merely speculative ones which don't add to productivity. I would like inflation to be somewhat higher to ensure money doesn't sit in matresses, so we can just print some of the UBI money. More productivity means a bigger pie with a bigger tax slice. I think companies would be pressured by shareholders to distribute more in dividends and less in buy-backs since capitcal gains would be less attractive. They may even put more into capital investment and wage growth competing for top talent - both distinctly lacking in recent years. Workers would be incentivised to chase a higher income by reducing income tax. Tax on retirement super income would add yet more funds, and be progressive. Taxing multinationals on income they make here would be just fine with me too. Reducing inequality will reduce the funding required for medicare.

CGT vs inflation... don't you think loss to inflation would be fine with grandfathering, since you'll be factoring it into all of your buy/sell decisions? It'd be like holding debt, which inflation automatically reduces. Why don't we give creditors a tax concession on their interest income to offset that effect? Why play favourites in favour of capital gains, when doing so increases inequality and inflates asset bubbles?

It's a fact that inheritances mostly go to rich old people. How is that going to help the country move forward this century? Gifts help some young people - those from priveleged families. Again, meritocracy leads to productivity. I'd like the best and brightest to both want and be able to get to the top, regardless of who their parents were.

Anyway, I'm interested to hear other dreams too.

middo

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Re: Brainstorm a better 21st-century tax system
« Reply #3 on: December 04, 2019, 12:57:23 PM »
I'm going to chip in with one idea.  A UBI that is funded by a carbon tax.  The carbon tax would tax fossil fuels where they are dug up (including exported coal and gas), where they are imported, and on any imported product from overseas from a country without a similar carbon tax.  No offsets.

A portion of the tax could also be used to cross subsidise or exports to countries without a similar carbon tax (except fossil fuels.)

A clear market signal, no escaping through offset schemes, and the public directly benefit.

catprog

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Re: Brainstorm a better 21st-century tax system
« Reply #4 on: December 04, 2019, 01:52:14 PM »
I would abolish the lowest two income tax rates replacing them with the 3rd one to fund a UBI.

This means everyone gets the UBI but the rich end up paying about the same in taxes as they get from the UBI.

I think the NDIS should stay as well.

CGT should be tied to inflation rather then a flat rate.

I think super in retirement needs incentives to keep people saving during working life.

Negative gearing should stay for new properties but not existing ones.

A higher GST will affect the lowest paid workers the most.

On the Inheritance/Gift tax I think it should be treated as income above a certain threshold.

As for the carbon tax offset schemes. If someone can reduce their emissions at $10/ton and a company has $100/ton  to reduce (I am thinking things like steel mills and long distance airplanes), why should they not pay the $10 to the other company.

Bloop Bloop

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Re: Brainstorm a better 21st-century tax system
« Reply #5 on: December 04, 2019, 03:40:47 PM »
Objectives: a meritocracy

1. Institute a 50% estate tax (same tax to be applied to any family trust distributions and any transfer of assets between family). Asset base includes the family home. First $500,000 of assets excerpted.

2. Put the proceeds from (1) to providing universal rebate, up to some generous limit, to all parents with an income under $100k (combined) for education, childcare, children's health and tuition expenses.

3. Give financial incentives to schools to accept a higher proportion of children from within their zone.

4. Commonwealth supported (free) places at university for children from poor families, with access to these spots determined by local ranking (i.e. ranking within school cohort) to ensure that children from bad schools aren't disadvantaged.

5. Strip funding for all private schools.

6. Lower income tax by a modest amount.

7. Get rid of luxury car tax and stepped stamp duties.

deborah

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Re: Brainstorm a better 21st-century tax system
« Reply #6 on: December 04, 2019, 09:53:41 PM »
Objectives: To make my life easier

Background: My parents are in their 90s. They have failing health, but insist on being as independent as they can be. Although they are self funded retirees, they need to have interactions with Centrelink because funding for home care is via Centrelink, and when they need to go into a nursing home (probably within a year, as dad has been waiting more than 2 years for a level 4 home care package, and mum is deteriorating), things will become even more difficult. It took several months to get mum to fill out the Centrelink income assessment form, as it required her to tell them her assets rather than her income. She wasted a lot of people's time by sending them her tax return (to show what her income was), refusing to complete the form correctly, and writing to the minister, and other assorted people about how obscure it all was. I live a long way away, and it took a lot of my time too. Since then, she has been refunded money (again an experience where she spent much time contacting the wrong people), and had the amount she needs to pay changed three times in a few months. I strongly suspect that she needs to fill out all the forms again soon.

1. Institute 100% estate tax (as per bloop bloop above) for all people over 90, or who need to go into Aged Care, or onto a level 4 (highest level) home care package. Don't leave anything to be fought over by their children (who should be in their 60s) - this might make for fewer family feuds.

2. Remove all tax and payments for aged care for all the people in 1.

3. Provide enough home care packages for those who need them.

4. Provide enough respite care for those who need it (my parents theoretically have 6 weeks of respite care available to each of them each per year, but no providers in the area have any available when it's required, because they are full of permanent residents), especially during days of total fire ban or extreme weather.

Lukim

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Re: Brainstorm a better 21st-century tax system
« Reply #7 on: December 05, 2019, 12:05:35 AM »
All of these ideas look like costing me (or my heirs) more tax!

I would like to see a simple and fair tax system which in my view consists of;

1. A GST on everything (except for land or lease of land/buildings) - I think a rate of 15%.
2. A personal flat tax of 20% which would cut in at $25,000 and above and would apply to income and profits (including capital gains).
3. A turnover tax of 2.5% on all income of businesses with a turnover of $1m or less.  No deductions, no allowances.
4. A corporate tax on businesses with a turnover of greater than $1m calculated on the greater of 2.5% of income or 20% of profits.
5. An annual land tax based on unimproved value - 0.75% or 1%.

In an ideal system, I would an in a universal income scheme - but have no idea how that would be costed and funded.

I would get rid of all middle class welfare.

Keep it simple is my mantra.

marty998

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Re: Brainstorm a better 21st-century tax system
« Reply #8 on: December 05, 2019, 03:54:09 AM »
All of these ideas look like costing me (or my heirs) more tax!

I would like to see a simple and fair tax system which in my view consists of;

1. A GST on everything (except for land or lease of land/buildings) - I think a rate of 15%.
2. A personal flat tax of 20% which would cut in at $25,000 and above and would apply to income and profits (including capital gains).
3. A turnover tax of 2.5% on all income of businesses with a turnover of $1m or less.  No deductions, no allowances.
4. A corporate tax on businesses with a turnover of greater than $1m calculated on the greater of 2.5% of income or 20% of profits.
5. An annual land tax based on unimproved value - 0.75% or 1%.

In an ideal system, I would an in a universal income scheme - but have no idea how that would be costed and funded.

I would get rid of all middle class welfare.

Keep it simple is my mantra.

I like the idea of most of these but with number 4 you've just made a lot of businesses (including Coles and Woolworths) unprofitable. Lots of retailers (big and small) operate on high volumes and really thin margins.

You want them to pay a turnover tax, then expect the price of your groceries to go up quite a bit.

Agree the GST should be expanded to remove most the current carveouts.

Agree also on middle class welfare. For example, the childcare benefit has gone straight into the pockets of commercial landlords. If you have a look at some of the rents that childcare centres have to pay, and the value of the commercial properties they lease, it's basically been a giant transfer of wealth from the taxpayer to investors.

catprog

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Re: Brainstorm a better 21st-century tax system
« Reply #9 on: December 05, 2019, 05:04:34 AM »

3. A turnover tax of 2.5% on all income of businesses with a turnover of $1m or less.  No deductions, no allowances.

I run a small farm supply store, this means I need to charge 102.5% to the farms of what my products cost.

The farm needs to charge 1.05% to cover their costs.

The wholesaler needs to charge 107%

The supermarket now needs to charge 110% .

Suddenly you are looking at a 10% tax on products for a 4 step process.  If their is more companies involved in the chain it gets bigger.

marty998

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Re: Brainstorm a better 21st-century tax system
« Reply #10 on: December 05, 2019, 01:38:44 PM »

3. A turnover tax of 2.5% on all income of businesses with a turnover of $1m or less.  No deductions, no allowances.

I run a small farm supply store, this means I need to charge 102.5% to the farms of what my products cost.

The farm needs to charge 1.05% to cover their costs.

The wholesaler needs to charge 107%

The supermarket now needs to charge 110% .

Suddenly you are looking at a 10% tax on products for a 4 step process.  If their is more companies involved in the chain it gets bigger.

Ahh well spotted. It penalises industries where firms do not own the entire supply chain....

Fresh Bread

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Re: Brainstorm a better 21st-century tax system
« Reply #11 on: December 08, 2019, 02:03:11 AM »
I'd definitely remove special treatment of property as an investment ie negative gearing. I think this simplifies things a bit which would be one of my goals.

I'd probably replace stamp duty with land tax.

An inheritance tax, for sure. The rate would just be your marginal rate because you'd add into your annual income. It would be applied after a tax free amount - Bloop's $500k sounds about right. There'd have to be some rules around trusts so the very rich don't just bypass this. I don't know how, I know that's what the uber rich in the UK do with their estate and Mayfair properties.

I'm all for a UBI once our robot masters take over so I'd start on the path to that by increasing the tax free threshold to about $35k but removing similar additional $ value of rebates in return. Hopefully my new income streams would pay for this. I'd possibly add another tax tier for incomes above $500k or something, although I imagine everything earned much above $150k is already getting dealt with by those with good accountants.

I'd introduce a carbon tax.

I'd be figuring out how to get companies to pay fair tax on income earned here. No idea how.

There'd be a sugar tax. It would pay for indigenous health programs, nutrition programs.

User pays road tax to replace fuel duties. Incentives for EVs, remove luxury vehicle tax for EVs.

catprog

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Re: Brainstorm a better 21st-century tax system
« Reply #12 on: February 29, 2020, 02:35:48 AM »
I'd definitely remove special treatment of property as an investment ie negative gearing. I think this simplifies things a bit which would be one of my goals.

An inheritance tax, for sure. The rate would just be your marginal rate because you'd add into your annual income. It would be applied after a tax free amount - Bloop's $500k sounds about right. There'd have to be some rules around trusts so the very rich don't just bypass this. I don't know how, I know that's what the uber rich in the UK do with their estate and Mayfair properties.

User pays road tax to replace fuel duties.

I think you can negative gear anything, it is just mostly applied to properties.

Would you be able to spread the inheritance over multiple years? (adding it too your income is a good idea, it works just like the CGT.) . Would treating it as if the new owner brought it when the original owner work?

How would you handle an trust where it pays out 20k per person and if it makes more then it pays out someone else will be added to the list.

How do you see the monitoring of a user pays tax?

catprog

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Re: Brainstorm a better 21st-century tax system
« Reply #13 on: March 09, 2020, 02:51:51 PM »
There'd have to be some rules around trusts so the very rich don't just bypass this.

According to https://www.cleardocs.com/extra-family-trust.html

Any income a person receives from a family trust is taxed as income, and any income in the trust not given out is taxed at the highest marginal rate.