What should be the threshold on paying income tax?

[zulu9812]

I'm just curious of our US visitors as to their feelings on who should pay income tax. Should there be a limit of income, below which you do not pay income tax? What should that threshold be? Vote, and by all means explain your vote in the thread.

Some explanations behind the choices:

$3700 roughly equivalent to the UK no-tax threshold of £2440

$5000 is not enough to live on

$10,000 also not enough to live on

$15,000 roughly equivalent to £10K: the amount that the Lib Dems have talked about for a no-tax threshold in the UK

$20,000 slightly less than the average Black male over-25 in the US in 2004

$25,000 roughly 47% of US over-25s earn less than this (source)

$30,000

$40,000

$50,000

$100,000

These last four are largely for comparative purposes, although it could throw up some interesting results.

So, what are your thoughts? Non US people feel free to chip in, but try and adjust these dollar figures to be equivalent to your nation's economy.

 

[Camikaze]

Currently in Australia the minimum tax threshold is $6000 ($US5500). That's way too low. $US15 000 ($A16 300) seems much fairer, assuming the rates are much more progressive after that.

 

[bhsup]

Moving target based on poverty level. Course, anyone above that level should be completely ineligible for any sort of government assistance either. Well, that's perhaps a bit harsh, but it should be TIGHTLY regulated, far better than it is now. No buying timeshares in Branson if you get assistance, for example...

 

[Mise]

$3700 roughly equivalent to the UK no-tax threshold of £2440

I think you're getting confused on the UK tax thresholds here.

Currently, earnings up to £6,475 per year are not subject to income tax (at 20%). This is called the Personal Allowance.
Earnings up to £97 per week (about £5k pa) are not subject to National Insurance (at 11%).

So until you earn about £5k annually, you will not be taxed at all. And until you earn £6,475, you won't be subject to income tax. All earnings below £6,475 are free from income tax; earnings below £5k are free from NI. The £2440 you're talking about was the old 10% tax rate: taxable earnings (earnings above the Personal Allowance) up to £2440 were taxed at 10%. The 10% tax rate hasn't existed since April 2008, IIRC.

Raising the minimum tax threshold is not a particularly good way of helping the poor, unless they are also backed up by transfers from the rich to the poor. This is because raising the tax threshold benefits everyone equally, meaning that it costs the government much more than it benefits the poor. Transfers are a more cost-effective way of helping the poor; they can also be targetted better. The downside is that a complicated tax regime carries a high deadweight cost, and is often avoided by the very-rich.

It's pretty much impossible to answer this question in isolation. The minimum income tax threshold is a small part of a much larger tax regime. It's practically meaningless to say "earnings below X should not be taxed", without also saying what else should be taxed. The tax system is a package; you can't pick bits and pieces and focus on that, while ignoring the rest of the package.

 

[downtown]

^^ Exactamundo.

For what its worth, you *can* live on under 10,000 bucks a year if you don't have debt payments. When I was a student, I lived fairly comfortably on about 7,000 bucks a year. I owned my own car, had cheapo insurance, and no debt payments...so my expenses were just rent/utilities, phone, gas and food. With careful budgeting, I took a vacation at the end of the year.

Now, with a car payment, absolutely exorbitant auto insurance, entry fees for work, and a ton of debt payment, I would struggle to make ends meet if I made less than 35,000 a year.

Its hard to say what the cutoff should be in isolation, without knowing the rest of the tax package, and the costs of living. I would imagine somewhere around 10,000 seems fair.

 

[azzaman333]

Everyone earning an income should be paying income tax.

 

[Yeekim]

Over here, its ~ €1725 a year, or rougjly #140 per month.
My last month heating bill (I live in a 3-room apartment) was more than that.

 

[Patroklos]

Everyone should pay some income tax, even if it is just a token. It is your buy into your system, a form of participation in government every bit as important as voting. People without that connection to the government are less concerned with oversight over it.

It also creates a pretty serious divide between supposedly equal citizens, those who contribute and those who don't. I tend not to care about your opinion on government spending if you are not providing any of the money in the first place.

BTW, why are some of you making a connection between taxes and helping the poor? Since when was that the purpose of taxes?

 

[Camikaze]

Assuming you are actually aiming to have some sort of redistribution of income (so assuming you are going to have some sort of welfare given to poorer people and not richer people), then having everyone pay tax is rather pointless, because the bottom of the group will just be getting back what they paid in. So if they have to pay $100 tax, and are getting $200 back, then they may as well be paying nothing and getting $100 back (assuming of course that we're talking strictly of monetary welfare), minimising the cost of paying tax for the individual and government, and of providing as much welfare, for the government.

 

[RedRalph]

BTW, why are some of you making a connection between taxes and helping the poor? Since when was that the purpose of taxes?

What is the purpose of tax?

 

[Patroklos]

What is the purpose of tax?

To pay for government. The purpose of government varies. In the US, it is to provide for the general welfare.

 

[Patroklos]

Double Post

 

[Yeekim]

Assuming you are actually aiming to have some sort of redistribution of income (so assuming you are going to have some sort of welfare given to poorer people and not richer people), then having everyone pay tax is rather pointless, because the bottom of the group will just be getting back what they paid in. So if they have to pay $100 tax, and are getting $200 back, then they may as well be paying nothing and getting $100 back (assuming of course that we're talking strictly of monetary welfare), minimising the cost of paying tax for the individual and government, and of providing as much welfare, for the government.

My bolding of completely unfounded assumption above. Actually, it would quite surely increase the costs of collecting taxes, by making that process inherently more complicated.

 

[Silurian]

If the tax and the welfare system were intergrated then every one could be paying tax starting at $0

The government pays everyone $5000 then taxes all income at 20%

 

[RedRalph]

To pay for government. The purpose of government varies. In the US, it is to provide for the general welfare.

...of the population. Some of whom are poor. You kind of shot yourself in the foot there.

 

[Cutlass]

$15,000-$20,000/year. Because, we should not forget, that income tax is only one of the taxes that people pay. And the other types of taxes, which low income do pay, are generally regressive in nature. So the poor pay higher percentages of their income in the other forms of taxes. Because of that, a high threshold for the income tax makes sense simply to balance the nature of the system as a whole.

@Mise, A high threshold doesn't have to benefit all income brackets all that much. Because what is raised with the bracket can be compensated fro by rate.

As to transfer payments: The more I think on it, the more I want a living wage, so that transfers can be minimized.

 

[Mise]

@Mise, A high threshold doesn't have to benefit all income brackets all that much. Because what is raised with the bracket can be compensated fro by rate.

Yeah, that's why I think it's meaningless to talk about it in isolation.

As to transfer payments: The more I think on it, the more I want a living wage, so that transfers can be minimized.

Really? How come?

 

[emzie]

Poverty line. The poverty line shouldn't be based on national statistics, but local conditions. Earning 15k / year in Toronto isn't the same as earning 15k / year in Pissnowhere, Manitoba.

 

[azzaman333]

...of the population. Some of whom are poor. You kind of shot yourself in the foot there.

You're paying taxes to fund the government.

This is not the same as helping the poor.

 

[RedRalph]

You're paying taxes to fund the government.

This is not the same as helping the poor.

If the goverment look after the poor, then you are.