[dllthomas]

"As for your other question, I think there is something fundamentally fair about the concept of proportionality."

Proportionality of what, is much of the question. Progressive taxation is often justified by pointing at the fact that money (like most things) has diminishing marginal utility. Taking $10k from someone making $50k is far more of a burden than taking $100k from someone making $500k.

[adam419]

But whose job is that to decide? The arbiters of fairness and marginal utility?

The issue with fairness is that it's impossible to arrive at a definition of fairness without it inevitably just serving the interest of whomever defined it.

[dllthomas]

"But whose job is that to decide? The arbiters of fairness and marginal utility?"

There are a variety of answers to that question, of varying quality.

But take a step back. Do you realize you're responding with a statement that determining fairness is impossible... to an objection to your own attempt to assert something was fair?

[adam419]

Yeah I do, but I'm mostly meaning to point out the epistemological issues with conversations around fairness and to state that to me, proportionatity is the only thing that most resembles fairness

[montbonnot]

I'd push the logic even further. How about taking away $100k from someone who's making $250k per year? If you reach $250k/y you're supposed to make a statement. Someone who studied hard (for example), got into student debt, etc. A doctor, a lawyer, an engineer, etc. You have to give away 2 times the salary of that person making $50K/y. I think it's not far. Progressive taxation should start way higher. If you make 1 million dollars a year you'll never become a millionaire because you'd have to give away %50 of it. You have to make 2 million dollars to earn one million dollars. I think it's unfair at any level. Unless you're a billionaire. Billionaires should get taxed %50. You still have half a billi left in your bank account to live your life like a king... you'll be fine trust me.

[dalke]

> $100k from someone who's making $250k

40% tax? Sounds about right. So long as there are good social services. That's about the taxation level in the Nordic countries, so with that I expect universal health care, 1 year combined parental leave per child, free college tuition to state colleges, state coverage of old age homes, free college, 30 days of holiday, good roads, clean water, etc.

> Someone who studied hard (for example), got into student debt, etc

If tuition is free, there's no need to go into massive student debt. Cuba, with the Latin American School of Medicine, pursues medical diplomacy by providing free medical education to international student, including US citizens. It cost Cuba about $15K/year/student or about $90K total. Some of the US citizens do this so they can return home and worked at a free clinic or volunteer in communities that are underserved by those who go into $100Ks of debt. (See http://www.pbs.org/newshour/rundown/cuba-offers-poor-med-stu... ).

Those medical students are making a statement as well - that $250k/y isn't what drives them to be a medical doctor. (I bring this up to highlight that a lot of people make statements, not just those with high incomes.)

> Billionaires should get taxed %50

Note that "billionaire" refers to wealth, not income. Are you proposing a global wealth tax of 50% of the richest people? Picketty's proposal is only 5 or 10% for billionaires.

FWIW, the highest income tax bracket in the US used to be ~90%.

> If you make 1 million dollars a year you'll never become a millionaire

If you make $1M/year with 50% income taxation and no wealth taxation then you have 500K. If your lifestyle costs $250K/year than you bank $250K/year. It will take 4 years to become a millionaire.

If there is a 50% income tax and 2% wealth tax on $1M/year income and no savings (and the same spend) then you'll have $250K in savings for the first year, $490K the second, $720K the third, $940K the fourth, and by the fifth year you'll have over a million in savings.

[montbonnot]

Regarding your last point, assuming you'd be an employee with a steady income of one million dollars per year. I believe you'd be a CEO in a large corporate or you'd have a very generous employer. Then yeah, you could chill and plan for the next 5 years. What if you're a small business with no regular income? You made a million dollars thanks to your hard work in 2015, which might not happen again in 2016. They took away %50 of that million dollars.

I agree, billionaire refers to wealth not income. At that level your income is the money you generate from your own money. Which is an income, which should be taxed at %50 if your wealth is in the billions of dollars. That's what I was referring to.

[dalke]

Oddly enough, I am a small business with no regular income. (Self-employed. Was an LLC in the US. Now an AB in Sweden.)

Regarding the "You made a million dollars thanks to your hard work" - first, that's misdirection. Don't make the mistake and think that working hard is all that was needed for $1M; many more people work much harder than I do, and make even less. $1 million also requires a non-trivial amount of good fortune. It means I did not get a heart attack, did not get into a car accident, didn't become depressed or burnt out from working too hard, etc. It means I guessed right about where the market was going, and how to reach customers.

Regarding the question of how to handle tax on $1M if I am uncertain about the following years.

First, I can live for 5 years on $100K/year, so 50% tax still leaves a huge amount. My business is little more than me and a few computers, plus conference and customer travel.

Second, quoting http://www.nolo.com/legal-encyclopedia/how-llcs-are-taxed-29... :

> If you will regularly need to keep a substantial amount of profits in your LLC (called "retained earnings"), you might benefit from electing corporate taxation. Any LLC can choose to be treated like a corporation for tax purposes by filing IRS Form 8832, Entity Classification Election, and checking the corporate tax treatment box on the form.

Third, I would look into setting up a Delaware C Corp.

What's wrong with any of these three options?

[montbonnot]

I went over these options when I incorporated. Nevada, Delaware and Wyoming. Unfortunately, I'm the only member of my LLC and my office is my house. For a software company selling online it is not recommended to incorporate in a foreign state with these conditions. Usually more than 5 members and at least a physical office located in Delaware for instance. Otherwise the tax burden can become overwhelming and my tax liability may actually increase because I'd be viewed as a foreign entity operating in these states. It's easy on paper but when you start digging it's not that easy.

Filing as a C-Corp? :) I'd be taxed twice. The LLC would have to pay income tax on its earnings then I'd have to pay taxes during the distribution to all the members (myself). This will be viewed as income tax. Definitely not. Though, filing as an S-Corp would take away the annoying/abusive self-employed tax of %15. Problem, again, the IRS... they hate S-Corps and they will make sure I fail to comply. My problem with filling as an S-Corp is that the LLC wouldn't pay self employment tax but the member would have to. So if I make $1 million, I withdraw $1 million (which is the goal), I'd pay the full self employment tax anyway. Does it make sense?

Last but not least, regarding your 1st point it all depends on your goals. I'm not rich and I'm still alive. Obviously I already know I can survive with $100 k/y not a problem. Now, majority of the people are looking for security first, then comfort and finally, they want to become rich. I personally want to become rich first. Then I'll be looking for comfort then security last. I'm looking for freedom, that's my main goal. We have different goals so we can't argue with each other on that specific point unfortunately. I view taxes as an obstacle... some don't which is fine.

[joshuanomed]

I think you need better tax advice.

An LLC only pays taxes if it has elected to be treated as a C corp by the IRS, otherwise income & losses pass through to the members.

An C or S corp only makes sense as a sole-proprietor if you have substantial other assets to protect, or expect to accept investments from non–individuals.

You need far better tax advice than you're getting, wherever you're getting it from.

If your goal is to pay absolutely no taxes, then that's not going to happen if you want to rely on the systems those taxes pay for in the US.

If your goal is to legitimately reduce taxes and spread income over multiple years, there's legal ways to do so which a proper tax advisor can guide you through.

[dalke]

Are you seriously planning to make $1 million in one year, with the expectation that you would make no income for the following 5 years? That is a very uncommon scenario. I expect you may need to consult a CPA or someone else with specialized knowledge on how to do this most cost effectively.

You say "it's not that easy", but that's besides the point. If you think you can save 10% of $1M than that $100K can buy you a lot of CPA time to make the problem become easy.

"if I make $1 million, I withdraw $1 million (which is the goal),"

Ahh, you want the fantasy of not paying taxes at all. Why should the state limit your liability in exchange for nothing?

If you really have flood/drought income, then talk to a CPA about how to spread your personal tax liability across multiple years. You can't be the first with these problems. Eg, low income people have to deal with capital gains from selling a house.

In that vein, you said nothing about my second point, on retained earnings.

[rayalez]

> You still have half a billi left in your bank account to live your life like a king... you'll be fine trust me.

I notice that people tend to be much more okay with unfairness as long as it doesn't affect them.

Consider that to 99% of the humans having $500k does mean "living like a king", and I bet that Joe who works at the gas station will think "you'll be fine with half a mil, trust me" when he thinks about taking half of your salary.

If you make $1M you are a rich person, if you make $100k you are a rich person, if you make $40k you are still in the top 0.57% of the richest people in the world (http://www.globalrichlist.com).

People who justify taxing people richer than they are seem to forget that there's 6.7 billion people thinking the same way and using the same logic to justify taking their stuff.