Emmanuel Saez on Income Tax - Dictionary of Arguments
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National income tax/Saez/Zucman: The basic idea is simple: the national income tax is a tax on all income, whether it derives from labor or from capital, and whether it originates from the manufacturing sector, finance, nonprofits, or any other sector of the economy. The tax does not exempt saving, which is highly concentrated among the well-off and is more effectively encouraged by government regulations (such as automatic enrollment in pension plans and financial regulation) than tax breaks. To keep administration simple, the national income tax has a single rate and offers no deductions.
(...) the national income tax is certainly not meant to replace the income tax, or any other progressive tax for that matter. It is meant to supplement progressive taxation and to replace regressive taxes that impose an unfairly high burden on the American working class and middle class, chief among which are private insurance premiums - the most regressive levy.
The national income tax is a true flat income tax. >Flat Tax/Saez.
1) For labor income, the national income tax would be administered and remitted by employers. All employers—whether for-profit businesses, not-for-profit organizations, or governments—would pay a tax proportional to the full
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labor cost of all their employees.
2) (...) all businesses (...) would have to pay the national income tax on their profits. The base would be the full amount of profits with no deductions or exemptions. Businesses would depreciate their capital assets to reflect normal wear and tear, but would not be allowed to deduct any tax paid. Business profits are already measured for income tax purposes on corporate or business tax returns.
3) The national income tax would also be levied on interest income. The interest businesses pay on their loans and bonds is deducted from business profits; the corresponding interest received by lenders must be taxed. For businesses, interest received is already included in profits. This leaves only interest received by individuals and nonprofits to be added to the tax base, which does not present any administrative difficulty. Foreign dividends received by individuals and nonprofits,
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nonprofits, as well as other income forms received from abroad, also would be liable for the tax.
Tax avoidance/informal economy: The informal economy, including employees receiving wages off the books or self-employed workers paid in cash, would not be reached, and some businesses would underreport profits. According to the available estimates, these activities would reduce the base by about 7% of national income.(1)
Because it’s so broad, the national income tax could raise substantial revenues with low rates.
Tax competition: If the national income tax is such a great idea, why hasn’t it been proposed and implemented before? Probably because of international tax competition, since the national income tax does increase the taxation of corporate profits. However, with proper taxation of >multinationals (...) concerns about tax competition would fall away.
1. See US Department of Commerce, Bureau of Economic Analysis, National Income and Product Accounts of the United States (2019), Tables 7–14, 7–16, and 7–18. Misreported income in 2015 was $86.2 billion for wage earnings, $672 billion for unincorporated business income, and $367 billion for corporate profits. The total is $1,125 billion or 7.2% of national income in 2015. Complete details are provided in Saez and Zucman (2019c):
-Emmanuel Saez, and Gabriel Zucman. “A National Income Tax.” UC Berkeley Working Paper 2019c._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Author1]Vs[Author2] or [Author]Vs[term] is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition.