Or we can just reject this false notion that people are paying a “penalty” when they’re in fact just not getting a break they shouldn’t get. All of the tax breaks you mentioned should be eliminated. All income should be taxed the same, and at very high rates for wealthy people.
Is there a good economic reason to treat these as different? In particular, the debate about moving from an income tax to a payroll tax is precisely about recategorizing income as not-income under this definition, and you have a problem with that recategorization.
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Yes: the reason is that one has a definite and direct impact on the individual and the other doesn’t.
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I understand the theory, but the fact that the two are so fungible creates a problem for treating them as different from a policy perspective.
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They aren’t nearly as fungible as many economists assume they are. One of the problems with economics as a profession is this sort of assumption about employer taxes and wages. It just doesn’t work the way they think it will in the real world.
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One Democratic justification for the Cadillac Tax - that wages would rise when benefits get scaled back - is a good example of this misguided thinking that doesn’t have good evidence behind it.
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Yeah I don't disagree with this at all. Moving income taxes from employee to employer is fairly un-fungible in one sense: it requires a state tax law change! But on the other hand, if the tax effects are quite different, you would expect that kind of policy effect.
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A good example of this in the real world of today is how much people are willing to reorganize their income into S-corp ("pass thru") form to take advantage of favorable tax treatment (which is why Obama was in favor of normalizing C corp rates closer to individual rates ~28%)
End of conversation
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