[Jeroen]

Originally Posted by DigitalOne

The problem I see with progressive tax rates is that people start resorting to loopholes and workarounds to save up on tax. For e.g. in India there is a different tax slab for personal income tax - 20% below 1,000,000 INR, and 30% above 1,000,000 INR. People at the threshold levels now do workarounds to get below threshold levels - leads to corruption, inefficiency..

In most western countries the tax collection system is very effective and that is just not possible. Income tax is deducted by your employer at the appropiate tax bracket. In a country such as the Netherlands you might be eligble for certain tax deductions, e.g. mortgage interest is usually deductable. But those rules apply to all and are usually retrospective. I.e. you claim those reduction through your tax return.

The tax system here in the Netherlands is very effective. The Dutch tax authorities fill out your tax form with a lot of information they get from your employer, pension funds, social security/premiums paid, outstanding mortgage, interest paid, bank balance on all your accounts, interest paid/received, certain deductions such as single parent, other investments. So effectively for most people is just a quick check and that is it.

From what I know/understand one of the biggest challenges in India when it comes to tax is to get more people to pay tax in the first place.

Jeroen

[sunilch]

Originally Posted by DigitalOne

The problem I see with progressive tax rates is that people start resorting to loopholes and workarounds to save up on tax. For e.g. in India there is a different tax slab for personal income tax - 20% below 1,000,000 INR, and 30% above 1,000,000 INR. People at the threshold levels now do workarounds to get below threshold levels - leads to corruption, inefficiency. Same for corporate taxes. Companies create subsidiaries only to get into lower tax slabs. Only the lawyers and accountants are benefited.

Any and every tax or law will result in some folks trying to game the system and take the benefit home. This is applicable not just to direct tax rates. Direct Tax rates are the most commonly visible rules that people analyze and try to reduce their tax outgo with the numerous exemptions that we have available in India or any other country for that matter. Take any rule or law and you will notice some folks doing the same to it. Taxes or Alcohol or Fuel (Petrol) for example. Folks from a state such as MH will got to UTs and/or Goa to purchase the same at a cheaper rate if they live in close proximity. Duties on imported items or luxury items - folks buy those at duty free shops or in other countries and try to bring in more than they need. Again luxury watches or alcohol or even laptops, people ask their relatives to get it for them during their international trip.

There was a time when the maximum area that a particular apartment could have was limited by the local municipal body in Mumbai. Builders would game this system by allocating two flat numbers to one unit and also having two sale agreement between different family members (say husband and wife, or father and son) and eventually sell a larger unit.

There are agents who try to gain from the system by gaming it. Examples include Alcohol, Gold and imported cars (in earlier decades primarily). Import of endangered animals is banned in many countries/regions such as US, EU, etc. Still you find many rich people keeping those as pets. Examples include large number of Lions or Tigers or even Snakes found in US ranches or farmhouses.

Any high direct and indirect tax will result into this. It is upto to enforcing agencies to take care of those who game the system and the deciding bodies (governments or committees) to decide what is a fair rate of progressive or even flat tax for that matter which will discourage the general populace from taking the loophole route. After all if the incentives to game the system are far less than the punishment when caught, it will automatically lead to reduced number of people who will try to avoid those taxes.

It is again economics at play here

[Jeroen]

Originally Posted by sunilch

. After all if the incentives to game the system are far less than the punishment when caught, it will automatically lead to reduced number of people who will try to avoid those taxes.

It is again economics at play here

There is such a thing as a moral Compass irrespective of punishment be it On taxation or other social responsibilities and or responsibilities.

An interesting article:

https://www.google.nl/amp/wap.busine...1700706_1.html

In the Netherlands the fines for private individuals are usually a 100% over the amount of tax not paid. And you could end up in jail too.

If you would been caught cheating the tax authority can look at all preceding years as well even if those had been closed and settled already.

Jeroen

Jeroen

[sunilch]

Originally Posted by Jeroen

There is such a thing as a moral Compass irrespective of punishment be it On taxation or other social responsibilities and or responsibilities.

Moral compass for sure holds true for many and hence you see societies that have had a high moral compass culturally being more progressed and having a better quality of life along with a sense of pride and care for the surroundings/environment/national identity/etc.

The same holds true for India too - high fines (200% in some cases), possibility of prison term and re-opening of old submissions.

All societies do have a certain number of folks who lack the said morality or are at a lower level than their peers.

It then drills down to effectiveness of the enforcement agencies that plays a part in decision making for folks who do decide to play with the system. Political will also plays a part here (but that then is again partly related to the moral compass of the said society and what kind of leaders they choose).

At places such as Netherlands, it is easy to get caught due to high levels of traceability and accountability and also the higher powers that the enforcement agencies might have. Backlash from the society, when caught, can also contribute to reducing the number of people who might think about gaming on their taxes

[Jeroen]

Originally Posted by sunilch

. Backlash from the society, when caught, can also contribute to reducing the number of people who might think about gaming on their taxes

To your point, whether society frowns on these things is a huge thing. Nobody in the Netherlands likes paying taxes, but cheating with your tax is widely condemned.

On similar level, campaings against smoking and drinking/driving have really made a difference. These days you are seen as socially inept, if not to say anti-social, if you are still smoking.

Drinking and driving is something you just don't do. It's not about the fine/loosing your license (although both are real when caught) it is just not accepted any more.

Even your own family and friends would not take kindly.

But on both topics the authorities have been running campaigns for several decades. Takes a long time to change perception/behaviour/acceptance

Jeroen

[JohnyBoy]

Originally Posted by Jeroen

To your point, whether society frowns on these things is a huge thing. Nobody in the Netherlands likes paying taxes, but cheating with your tax is widely condemned.

People do what their society rewards them to do. If the society rewards trust, people will be trusting - Amish Tripathi

[alpha1]

Originally Posted by JohnyBoy

People do what their society rewards them to do. If the society rewards trust, people will be trusting - Amish Tripathi

The funny / sad (depending on your way of looking at life) part is that the same people comprise the society.
So if society rewards trust - it means the people reward trust.
And therefore the people will be trusting.

Catch-22

[Samurai]

We often see ruling party politicians in any country, claiming how wages have increased during in their tenure. Unfortunately, they are pointing to a numerical increase in wages. What is useful is real wages, which take consumer price index into account. Real wages refer to affordability of goods and services. Let's say today you need to spend ₹50,000 to live in the same standard you enjoyed 10 years ago at ₹25000. Let's also assume your salary has doubled since 10 years ago.

Your wage increase over 10 years is 100%. (perception)
Your real wage increase over 10 years is 0. (reality)

Let's take a real example of US wages between 2006-2018.

This is what politicians want to brag about:



This is the reality:



source

[tsk1979]

Originally Posted by Samurai

We often see ruling party politicians in any country, claiming how wages have increased during in their tenure. Unfortunately, they are pointing to a numerical increase in wages. What is useful is real wages, which take consumer price index into account. Real wages refer to affordability of goods and services. Let's say today you need to spend ₹50,000 to live in the same standard you enjoyed 10 years ago at ₹25000. Let's also assume your salary has doubled since 10 years ago.

Your wage increase over 10 years is 100%. (perception)
Your real wage increase over 10 years is 0. (reality)

Let's take a real example of US wages between 2006-2018.

This is what politicians want to brag about:

Attachment 1784410

This is the reality:

Attachment 1784409

source

This has been known to happen since the 1970s.
Infact, there is a very strong correlation in this graph with CEO/Employee pay ratio which is going going gone...

[Samurai]

As social democrats doing better in the recent US primary elections, a Fox Business News host went on the offensive to prove why socialism is bad compared to capitalism. But she made a mistake of picking on a socialist democratic country which is doing rather well.

https://www.youtube.com/watch?v=JXecLXlzEXE

[nikhilck]

I think it's important to get a historical background of how the economic system came to be to better understand it today. Here are some books which I think are good in this regard (I haven't read all of them because I haven't found the time, but I think they're good - they've got good reviews):

1. Sapiens by Yuval noah harari. Now I know this isn't an economics books but it provides a very over the surface picture of how and why the stock market started out and some basic information of how and why money came to be tied to gold etc... I recommend you start with this. You don't have to read the previous, non economics chapters in this book if you aren't interested in them.

2. Wealth and poverty of nations - David Landes. I've read one of his free papers about why China fell behind Europe starting around the 16th century and I found it fascinating. I highly recommend this free read: https://www.jstor.org/stable/3003364...n_tab_contents

Some of his other books seem to good too so check them out.

3. Mystery of capital by hernando de soto. This is recommended by Jordan peterson. I haven't read this too but I guess it's good.

[Samurai]

According to the Bob Woodward book, Trump thought money can be printed to take care of deficit.



Of course, his economic adviser Gary Cohn told him it doesn't work like that.

[aaggoswami]

Not sure if my logic is right or not : Can we say that at 5% inflation and 8% GDP growth, the actual growth is 8-5 = 3% ?
My logic (which could be absolutely horrendous).
Today I have 100 Rs. which could buy me goods/services of similar amount.
Next Year, my Rs.100 is, lets say, Rs.108 but the goods/services that used to cost Rs.100 are now holding a price tag of Rs.105. So actually, I am able to buy only 2.78% good/services more despite having 8% growth. Is my logic correct ?

[Samurai]

GDP is not your income. So your ₹100 doesn't become ₹108 next year. It is gross income of the entire nation.

If gross (un-adjusted) GDP went up by 8%, and inflation is 5%, then you could say GDP grew up 3%.

This is macro economics, and it is no simple math. So simplistic examples don't really work.

1) Increase in inflation can reduce purchase power, that means less consumption, which means GDP goes down.
2) If GDP goes down, jobs will be lost, wages will drop, can reduce inflation. But job loss also means less consumption, so GDP will further go down. This can lead to deflation. No, that's not a good thing.
3) So the government intervenes using monetary and fiscal policies to raise the GDP. Doesn't always work.
3) If GDP goes up, it means less unemployment, which means wages will go, which means inflation. Which will takes us to step 1.

So it is a delicate balance.

[Samurai]

This is scary, let's hope it doesn't happen. We are yet to fully recover from the 2008 disaster.

https://www.msn.com/en-in/money/news...BNE8Lq?ocid=sw