Improving Income Tax

Democracy 4 Alpha Feedback
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I’ve mentioned before that I feel there should be more flexibility re tax bands. I’ve done a little modelling and have come up with an alternative option and thorough explanation.

Instead of “Flat Tax” and “Income Tax” policies, I’d replace them with “Income Tax” and an uncancellable “Income Tax Ratio” policies.

Within the new “Income Tax” policy, the formulae for the taxes of each income group would be as follows (with ‘x’ being the value for “Income Tax”, and ‘ITR’ being the “Income Tax Ratio” policy:

“_HighIncome,0-x”
“_MiddleIncome,0-(ITR^0.5)*x”
“_LowIncome,0-(ITR^1.5)*x”

Not only is this not a huge change from the current formula, in terms of how final income is calculated, it allows all the range from 100%-0% flat tax, to a 100%:1% tax rate.

Using more reasonable values for ITR and “Income Tax” (0.3~0.8), I found this gave pretty reasonable tax bands. I did consider including a multiplier for ITR to allow for inverted taxes (i.e. poor have higher tax rates than wealthy), but I didn’t because hassle.

The effects of the current tax policies, would be combinations of the two policies. E.g. “Equality” would have an inverse relationship to ITR, but would still increase a little with higher “Income Tax”. “Capitalists” would be happy with a higher ITR and lower “Income Tax”. All other effects, like GDP and other groups’ happiness would fall somewhere between the bounds of current “Flat Tax” and “Income Tax” policies.

The big benefit (aside from the greater flexibility) would be that you can increase happiness of an income group without reducing total tax intake; increasing “Income Tax” and lowering ITR would please Middle Income as their taxes would drop, but this would be covered by a larger take from High Income. Alternatively, lowering “Income Tax” and raising ITR would please the Wealthy, but be partially covered by gains from the Low Income.

Looking purely at the .csv files for policies, simulations, and situations, I can’t see what problems this may cause. Maybe there’s something in the background code that makes this impractical, but it isn’t immediately obvious.

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Agreed; the Income Tax policies never sat quite rite with me. I’m not code-savvy enough to recommend changes beyond the general idea tho!

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It could certainly be cool to see more slot-based sliders with real-world tax bands to jump between. I know around 40% is the highest many western states go to, but they’ve definitely been higher in less neoliberal climates. America had a 94% top bracket in 1944 due to the war, which remained above 90 for the following decade.

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The UK has had history with insane high income tax rates. The Beatles even wrote a song about it :smiley:

I am sympathetic to the idea of having a separate policy for tax-progressiveness, instead of flat tax. I think a flat tax policy and a punitive wealth tax both become kinda redundant policies once you have control over the progressiveness of the tax system.

This is something that I need to do some serious thinking about because there are so many ways to implement it. One way would be to actually just have 3 income tax policies, one for the Poor, one for middle income, and one for the wealthy. That would possibly be clearer because then they map directly onto actual voting groups.

That doesn’t give you super-fine control, but it possible maps much more clearly into the other mechanics in the game?

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I did notice there were a few mods for Dem3 which brought in high/middle/low tax policies, so I probably wouldn’t be the only one in favour of something like that for Dem4. In terms of control, I think that it would bring a lot of flexibility, certainly enough for a dictatorship democracy game (It’s not as though IRL governments are going to use it to model policy decisions! :grin: :grin:).

Regardless, I’m happy to keep having a play around, try different things, take notes, and see what happens.

EDIT: Just had a thought that income reduction could have a multiplier for low/middle/high income groups to account for the personal allowance. e.g.:

“_HighIncome,0-x” → “_HighIncome,0-(x*0.9)”
“_MiddleIncome,0-(ITR^0.5)*x” → “_MiddleIncome,0-(ITR^0.5)*0.75*x”
“_LowIncome,0-(ITR^1.5)*x” → “_LowIncome,0-(ITR^1.5)*0.5*x”

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The exact values are kinda by the by. The point in my suggestion is that you can make the tax band ratios almost anything you want.

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The change wouldn’t make a punitive wealth tax redundant, taxing wealth is different than taxing income and both have different effects on both the economy and the perceptions.

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Yes that true I was probably thinking more of the luxury goods tax.

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I was just thinking about how to do this: I cannot quite follow what you are trying to say.

It seems like you’re trying for a super elegant solution when maybe it would be best to remain user friendly in terms of the math.

It would be significantly better if there were individual “Income Tax” bubbles for each wealth bracket in-game. “Poor Income Tax” , … , “Wealthy Income Tax”. This would allow for ease of use. Perhaps inside the “Income Tax” bubble they could implement several sliders instead of just the one. Though, I imagine that one slider is what their UI is limited to. If they aren’t limited to a single slider, then it would be better to separate them out since “Income Tax” first effects middle-income earners for some reason in the game.

Additionally, a policy such as: “Capital gains taxed as income” would be interesting to see.

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