Burden Sharing in Support of the United Nations
III. Exemptions, Allowances, and Special Considerations
The concept of ability to pay and the search for progressivity have aims that are similar to those of special allowances, exemptions, or unusual treatment of particular cases, but the effects on progressivity are indirect, and in this section, we consider direct treatment for alleviation of poverty or general low-level living.
The advocates of a flat tax for the United States or other major countries are attracted to that idea because of its simplicity. If there were a broadly accepted definition of income that could be objectively determined for each tax payer, then each taxable unit would merely estimate total income for an accounting period (one year in most cases), multiply it by the flat rate and submit a simple card or single sheet of paper with an appropriate remittance that would be sent to the appropriate authority for tax collection.
This is an idealistic view of what might take place. In practice there would be many special allowances (family size, age, physical health, unusual economic burden, etc.); there would probably be exemptions for certain kinds of income or certain kinds of occupation. There may also be some consideration of residency. In any event, it is unlikely that ultimate simplicity would ever be realized.
In the parallel or analogous case of assessments for the support of the United Nations, countries would seek exemptions or allowances for
a. demographic composition of the population
b. economic status, especially with regard to the incidence of poverty
c. foreign exchange reserves.
d. debt servicing commitments
e. income distribution.
This is not an exhaustive listing of special treatment for individual assessments, but it is indicative of different approaches towards reaching an "ability-to-pay" system.
The present system of low income allowance produces an assessment function of the shape shown in Figure 3 After the threshold level of $3200, the percent of income assessed is constant for all levels of per capita income. Below $3200 there is a linear growth in the assessed percentage, with a step at the threshold.
If the system is to be one in which everyone contributes, but
at a marginal rate that grows with income per capita, it would
be more straightforward to relate Ti/Ni
to Yi/Ni, with very small positive assessment
for the poorest countries (near $100 per capita) and to
allow Ti/Ni to rise gradually at first, but by progressively larger increments. The marginal rate (slope) is an increasing function of Yi/Ni in Figure 4. The smooth curve shown here could be approximated by a straight line to the threshold point, as in Fig. 3 and then curved upward.
The discussion thus far has recognized income differences among countries within world totals but has not paid attention to within-country differences among families or persons. Demographic distributions affect dependency differences among countries and can justifiably be used in the setting of allowances and exemptions in much the same way that domestic income tax rules take account of dependents, particularly those at both ends of the age scale.
A country in which all inhabitants are at or near a low poverty
line should have favored treatment in comparison with a country
that has a similar average income but some very prosperous citizens
and some (many) impoverished citizens. The former should have
a larger allowance or exemption than the latter.
Allowance for Income Distribution: A methodological digression
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