[owyn]

I have this half baked idea that taxation could be "inverted" in a way that would let people actually enjoy the game of taxation in a very capitalist way. Here's the scenario:

Individuals shouldn't pay tax on regular income up to some limit, just pick $1M for now. Corporate tax could also be set at 95% (chosen only because of the beatles tax man song) above some limit, just pick $1B for now. Every individual, whether they work or not could be allocated a $1M tax credit. So every person has $1M of monopoly game "tax credit" money. Anything an individual earns up to that point would be free of tax. Most people don't earn that much, GDP in the US is about 70k. But if you aren't working, or if you make less, you can lend your tax credit to a corporation at some exchange rate on a market. It would work like carbon credits. If the exchange rate was 1% then your individual $1M credit would be worth $10k. That's your basic income problem solved and the corporate sector gets to keep $990k of extra profit from your donated tax credit. Even if you made 500k, you'd still have 500k to play around with on the tax credit market. Maybe you'd donate it to charity, maybe you'd sell it. If you work for a company you could allocate your tax credits to them at a higher than market rate as your salary. Then a raise wouldn't even be cash, it might be a +1% to your exchange rate. Money is a human invention but I feel like since we're pretty much choosing capitalism on this planet, everyone could at least have table stakes in the game.

[moconnor]

Transferable tax credits is the most interesting idea for a universal basic income implementation I’ve come across!

It also has the benefit of appealing more to libertarian thinking (tax reduction and market-determined value!) than traditional UBI government handouts and by tying income to tax breaks looks less inflationary to critics.

[TimPC]

The math on this idea is laughable though. Giving out $1 Million in tax credits per person in the US is $330 trillion dollars. Given that the US Federal Government only collects about $4 trillion in taxes and probably still wants to collect more than $0 then this scheme doesn't really work. Getting a $10,000 tax credit in exchange for nearly completely obliterating the federal budget just doesn't have the same oomph.

[owyn]

At some point I need to do the math and get an economics degree and use this idea to start a think tank.

The standard federal tax deduction is $12.5k and average US income is about $30k and US GDP is around $20 trillion and GDP per capita is about $60k. So you have about 50% of the economic output to work with. And you're right, average income tax per capita is $10k. Maybe $100k or even $10k is a better ball park starting point for a "universal tax credit". I just like the idea of setting the number higher than average earnings. I did hand wave around the assumption that in a scheme like this tax credits wouldn't be worth $1 on the open market but $1M is totally ludicrous I know. It was late and I didn't think anybody would notice haha. Got your attention though!

The general idea is that money could be more productive being added into the economy from the bottom rather than the top. The interesting idea is the marketplace and granting people some intrinsic value and some reason to participate in the economy other than just through labor output. Also not sure how to pay for healthcare, the military, infrastructure and social services if you mostly eliminate the federal budget. If the federal government took a cut of the transaction fees that could be another way to fund it. It's hard to define what "excess" profits are as well, $1B was also a totally arbitrary limit and most businesses don't create that much profit and you could game that system in a lot of ways. It's also difficult for small business to compete with large business in a marketplace for tax credits but I assumed that if you work for a company and also donate your tax credits to your employer that would convert to a cash bonus at some beneficial exchange rate for both. I imagine that's what the think tank would work on. Maybe I'll call it the "Institute for Science Fiction Economics".

[TimPC]

A $100k tax credit means there is such a large surplus of tax credits that not only does the government tax $0 after credits, but also large numbers of credits go completely unpurchased. This doesn't seem like a good system at all.

Corporate tax rates are around 12% after deductions and constitute less than 20% of current taxation. If you raise those corporate tax rates to 96% above a certain threshold you collect less than 8-times the current revenue. Even 8 times current revenue would get you less than $6 trillion in revenue from corporate tax which would let you improve your tax deduction from $10,000 to $20,000 if you wanted all the tax credits to get purchased and government to collect no tax revenue. You've now completely reformulated all of how corporations work and obliterated a large portion of shareholder revenue and you need eight more equally large changes to get to $100k. I don't think you have them.

[owyn]

Just wanted to say thanks again for the detailed and thoughtful response! It was just a thought experiment but thanks for making me think it through a little more. I was originally thinking "hey, some corporations already buy carbon credits, why not give people some tax credits and let the corporations buy those too". But the numbers totally don't make sense. I know it would never be workable, but the napkin math doesn't work either so the whole idea is basically nonsense. I always just sort of assumed that corporations don't pay enough tax and if you tweaked that formula a bit there'd be plenty of money for free health care and ice cream parties.

I do still think it's kind of a neat idea but at lower amounts, as you've pointed out, it also doesn't move the needle much because corporations don't actually pay that much tax in the first place compared to the size of the population of the US. Allocating a chunk of any real money to a 330+ M population really adds up quick too. I think the motivation (as one of the parent comments suggested) was to try and provide some kind of basic income but also to boost the "value" of a worker in some way so we don't all get replaced by robots and GPT3000. The bigger problem right now isn't employment though, it's wages and inflation, and this doesn't really help that much.

I did finally look at some tax revenue numbers instead of just wildly guessing. :) The bottom 50% of taxpayers (75M people) pay on average $650 in taxes and their total contribution is 48 billion, around 3% of the total taxes paid [0]. In 2019 revenue from corporate income tax was $230B, but that looks to be closer to 10% of the total federal revenue from income tax for that year on this other chart [1]. Interestingly those two sources don't match but whatever, it's close enough for government work.

So, even a 3k floating tax credit just for that bottom 50% segment instead of everyone would "cost" the system about $225B for those 75M people which is pretty close to the corporate tax revenue. So let's see what that would look like. If you doubled the corporate tax rate to pay for all this then you'd have $460B from corporate tax to start, then $225B credits are redeemed, leaving $235B. Of course, nobody is going to pay $3k for $3k of credits, so the exchange rate would probably converge to closer to the tax rate something like 10:1, and now you're talking about 300 bucks per person and another $25B in "cost" to the corporations to buy their tax credits back. So then you've effectively increased corporate taxes to $260B which is like +13% after all the credits are redeemed and you've only given half the population 300 bucks.

I think the amounts are definitely too low for anyone to care. Even at 10x it isn't that interesting and as you point out, you could 100x it and tax corporations at a 1000% rate just to get into poverty level universal basic income territory.

It would be a lot easier to just eliminate taxes on that demographic and maybe bump the corporate tax rate by 20% to cover it without all this credit reassignment nonsense.

Maybe the current system isn't the worst after all? Maybe I'll try to come up with a plan to fix the health insurance system in this country instead, it's probably easier. :)

[0] https://taxfoundation.org/publications/latest-federal-income... [1] https://www.taxpolicycenter.org/statistics/amount-revenue-so...