You could argue that the point of creating an oligopoly and then squeezing customers after the fact also is adding friction. All value creation is not great for the people. But it is hidden under the name. Financial engineering and rent-seeking are getting quite advanced nowadays, because of the political class.

I like the idea of classifying it into four buckets: those that are below tax net gains for a country, those who are above and those that are above the tax net gains using just their wealth, and then the government.

There are core features of the state that we have collectively agreed must be provided - social safety (including police and safety nets), infrastructure, defense, core research funding and more.

The cost of providing the basic obligations and debt service of the U.S. amounts to roughly 1/3rd of the U.S. GDP, while taxation on any activity induces friction and higher costs - the bill will need to be paid either via capital markets or taxation. The investment in automation is no more important than food, or my children's education in my view.

Taxation is generally preferable for capital owners compared to currency debasement and forced debt purchases as it maintains boundaries on what the state can and cannot do. If the current trend is towards a greater share of the economy accruing to capital owners is maintained, then capital taxes will eventually need to rise to sustain state obligations.

'taxed fairly'

This could be almost any tax system depending on the what one views as "fair".

Nah, you could reasonably regard a tax system where everybody pays <2% of their income in tax as fair and likewise one where everybody pays 50%, but there is no way to call a system fair where ordinary working people pay higher effective rates than multinational corporations.

The tax rate for corporations should be zero. The need to do tax accounting and associated financial engineering is a deadweight economic loss. Eliminate corporate income tax and raise taxes on the highest income employees and investors to make the change revenue neutral. Ultimately the profits flow to those individuals one way or another so better to collect all the tax revenue from them anyway. This change would increase economic growth and benefit everyone.

That would work if you were going to use VAT for everyone, but as long as you're using income tax for individuals, setting the corporate rate to zero would be an obvious tax dodge. You'd put all your assets and income into a corporation that pays no taxes and then have it loan you money when you want to spend it on something.

> That would work if you were going to use VAT for everyone, but as long as you're using income tax for individuals, setting the corporate rate to zero would be an obvious tax dodge. You'd put all your assets and income into a corporation that pays no taxes and then have it loan you money when you want to spend it on something.

Unfortunately this doesn't work for individuals: tax codes in, well, every first world jurisdiction, are very clear that any money going to an individual for their exclusive use is taxed.

I operate as a consultancy (registered tax-paying business); If I use my revenue to pay my bond or get surgery, that $amount is considered personal income even if the company pays for it.[1]

The real problem is that corporations are taxed on profit and individuals are taxed on revenue!

All the costs that a corporation has to foot just to remain in existence is tax-deductible. All the costs that an individual has to foot to remain in existence is taxed (double-taxed, in some cases).

A corporation that pays $amount for rent won't pay tax on $amount in income, while an individual who pays $amount in rent is taxed on the $amount in income.

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[1] I hear what you are saying about a loan that is paid back, and maybe that is one loophole I can explore, but the revenue services have seen all "hacks" and this is no doubt one of them. This is why the tax codes are so complex and convoluted - each time a hack is discovered, a new code is added to specifically shutdown that loophole. The only remaining "hacks" are those that are allowed anyway by the overall tax policy, like "individuals are taxed on all revenue, corporates are taxed on profits only"

That's not an actual problem. The IRS already has clear rules requiring that certain corporate expenses are treated as taxable individual income if they directly benefit a particular employee or investor.

> The IRS already has clear rules requiring that certain corporate expenses are treated as taxable individual income if they directly benefit a particular employee or investor.

I replied to GP with the same thought as you, but I think there might be some merit in the "loan" angle.

Lets look at the case that you operate as a consultant/contractor/etc. Your "startup" starts making some very large revenue, and you'd like to use that money to pay rent, go on vacation, pay for surgery, etc.

Any money (say, $amount) the business pays on your behalf (hospital, landlord, etc) is considered your personal income and taxed appropriately.

But, if the books reflect that it was given as a loan, and you are now on the books as a debtor (with the business being your creditor), then that specific $amount isn't taxed as your personal income (loans aren't considered income, as far as I know, because they are a liability).

So, as long as you are in control of the business, the business doesn't need to initiate the "pay back now or we start legal proceedings" process. What instead happens is that this loan amount in the business books just grows and grows (interest accumulates) until the business dies/ends/is sold without ever collecting on it.

As long as the business itself does not have outstanding creditors when it eventually comes to an end, that "loan" can be just written off.

What's the revenue service going to do? Claim that businesses can't write off debt anymore?

There's a simple way out of it if you just want to get rid of double taxation though: Make dividends a tax deduction to the corporation. Then if the corporation makes money and doesn't issue it as dividends, they pay tax on it. If they do, the corporation doesn't, but the investor does. And then it gets taxed once one way or another but not twice.

I think each company should pay a low rate on all money passing through. Let’s say 0.1 to 1%. Building huge pyramids of shell companies has probably no economic benefit and is mostly done to evade some regulation or taxes or liability. The ideas how to abuse this are too numerous to count so the government should not try to but simply disincentivize the use of corporations just a little bit. The cost would be borne by the individuals who have the most elaborate company architectures which is probably synonymous with the biggest tax evaders.

> the core benefit of automation

The core benefit of automation is to give back time to humans to free us to do more creative things with our big beautiful brains. At least, that would be the core benefit if humanity was on a positive trajectory.

> what are fair ways to extract value from citizens for the shared value of the state?

The right question is who benefits the most from state’s services. For example if a whole lot of security, legislative or admin services go to protecting the capital, then those who has the most capital need to chip in the most.

> redistribution is usually that “more” people reach a higher standard of living, then adding taxes and friction to processes like automation may conflict with that goal

This is basically a 50 year old trickle down argument. But real wages have not increased in comparison to gdp since 70s, so nothing trickled down. We are demonstratedly bad at sharing what we have achieved together, no reason to believe more tech will magically get better treatment than that.

Besides redistribution is not about shifting the curve up, but making it flatter - see gini coefficient.

> the core benefit of automation, which is to delete non-needed work, make things cheaper, and make the value creator richer.

Except the era of classical capitalism and inventor’s profit is over, since 70s it is rentiers unreciprocated extraction on top of purported value people didn’t necessarily ask for or need in the first place. Likewise most people aren’t dying for AI automation, and not even for structural threats; it is not even proven that it will provide a net total productivity gain when the hype cools down, despite being shoved down people’s throats.

Let’s not kid ourselves, there is little concern for real value creation but a capture-the-flag on a gigantic data-moated compute monopoly. Whatever democratic means enabled proper taxation would have already prevented this type of speculative berserk, failures of which I assure you will be socialized.

So friction = societal consent, internalizing externalized costs, revealing what is actually value versus monopolist’s rent. It is healthy for the society, it is healthy for capitalism.

Actually real wages have increased a lot since the 70s if you count employer contributions to employee heath insurance. The problem is that a lot of that money is being wasted by an inefficient healthcare system, and employers probably shouldn't even be involved in sponsoring group health plans in the first place.

Employers paid for healthcare in 1970s too, and even for higher percentages of the workforce. If there is a premium inflation surpassed the CPI, that is still inflation, not real growth. If there’s an inflation problem in delivering a temporally comparable service, that is not a “real wage” item for the employee [1]. So what the nominal figure today shouldn’t be relevant.

I agree it shouldn’t be an employer item too, but whatever employers lose on premiums, they get more on an overall stickier and cheaper labor supply.

[1] one could argue the productivity of healthcare increased, and the data indeed supports this with the overall life expectancy increase from 70s to now mid 70s plus quality of life treatments. But again most of the spend is actually on the tail end at this age group, which raises the workers’ premium without delivering the benefit. Therefore not much structural gain for the actual working age employee.

I don't understand your point. Very few people in their 70s have employer sponsored group health insurance. Most are only on Medicare, perhaps with a commercial Medicare Advantage or Medicare Supplement plan.

My bad, skipped a chain of thought there. Since medicare pays less than private insurance, hospitals can and do shift costs (which in reality is "opportunity cost of profit") to the latter, which pushes to private premiums up. Regardless, this is a minor effect. Very little of the inflation is justified with productivity gains, as you said it is a very inefficient healthcare system. US prices clock 2x-4x of comparable OPEC peers, admin percent is higher etc.

If you're trying to understand changes in the share of income going to workers versus employers, then you must count those contributions. For the average family, employers pay $20,143 annually in premiums: https://www.kff.org/affordable-care-act/annual-family-premiu....

From the perspective of the employer, that's real money, no different than if they had paid the $20,143 directly to the employee as wages. It's not the employer's concern what happens to that money after they fork it over.

Maybe people would view it more like that if they actually had the option to get paid cash instead of an insurance plan of the same supposed value. With some employees that is possible to negotiate, but for the vast majority of employees with a healthcare plan that is a big no unless they are willing to accept a tiny fraction of the insurance value.

> You shouldn't.

The correct number to use is called "total employee compensation". This includes:

1. salary

2. paid days off

3. health care benefits

4. retirement benefits

5. employer 401k contributions

6. incentive stock plans

7. taxes paid on behalf of the employee (such as the so-called employer's contribution to social security)

8. free food in the company cafeteria

9. any other benefits that cost money

The cost to employers for these benefits adds about 30% to total employee compensation.

Having an office for them to work at is also important and costs money.

That's true, but I only listed things that are part of employee compensation.

Adam Smith and old school Capitalism hate rent seeking though, and when does moving all jobs to AI companies become rent seeking? It definitely destroys the labor/capital relationship part of Capitalism, but it's goal is to also turn the entire economy into rent seeking. Something considered very bad in traditional Capitalist thought. The current path has basically the total destruction of actual Capitalist thought at it's heart.

The problem is that libertarians have been able to retcon their fan fiction into what Capitalism is and gloss over the original anti-rent seeking, anti-monopoly, pro-government oversight parts that Capitalism REQUIRES in order to stay healthy,functioning, and beneficial to society. And people just accept that 'capitalism good' = 'late 20th/early 21st century libertarian fanfiction of what capitalism is' is the definition of Capitalism, when it is very far from it and has zero relation to the functional Capitalism that lifted the world up.

Combining this late 20th/early 21st century fanfiction version of Capitalism with the current tech company goals for AI is something totally new, zero percent Capitalism, and 100% would be hated by original Capitalist thinkers as damaging.

> extract value from citizens for the shared value of the state

This is extremely aggressive framing. It smashes together two wildly different kinds of citizen with wildly different, often opposing incentives and access to power: those who sell their labor for a living and those who literally own the economy. It poses them both in opposition to the government which has 1/5th the revenue of the latter.

If capital is the big bad, this framing is a mind-virus that makes the problem hard to think about and speak about.

> friction

Friction plays a key role in "the unreasonable effectiveness of capitalism." It's a big part of the reason why we can rig the game in favor of capital and not simply have the economy immediately degenerate into "capital rules, labor drools" due to the exponentials inherent in "rich people get paid for being rich in proportion to how rich they are."

Removing friction is not necessarily a net good if it contributes more to distributional problems than it relieves in deadweight loss. Nobody is a fan of deadweight loss, but I'd be a lot more sanguine about eliminating it if I thought we had a credible handle on the distributional problems. But we don't.