Modeling the tax burden on reduced GDP

I suppose that’s right, but honestly I’m also not sure that’s realistic.
In particular, aclohol tax ought to be quite avoidable. It’s not actually that hard to make your own blackmarket moonshine. Tobacco would be harder since you gotta have access to the crop.

But anyway, even if those examples work, income tax is a very different manner and all sorts of complicated variables play into how exactly this hypothetical curve ought to look. Models seem to vary wildly from suggesting an optimal tax rate as low as in the 30s to one as high as in the 70s, and it’s affected by how strongly companies would react, how easily labor can move around, how separable a public good is from labor supply, etc. etc.

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The tobacco tax example isnt that people grow their wn, but that people are way more motivated to try to give up smoking when it costs them $100 a week than when it costs them $20 :smiley: (also the ROI on aids to quit smoking like vaping / patches etc goes up).

I’m definitely talking about the laffer curve, and I think its a good point that the alcohol and tobacco axes (also actually car/gas tax) already effectivey model this in the game without complaint.

I think adding a simple exponential curved reduction in GDP with higher income and corp tax is worth doing, and justifiable. I just dont relish arguing about it on steam forums, because its almost a meme that ‘the laffer curve has been disproven’, whereas I think in practice, its just that people disagree on where the curve lies (and it depends on so many factors that its like nailing jelly to a wall trying to find it).

Income tax already scales its revenue by GDP, so hopefully most players can look at the fancy new chart hen hovering over the income tax->GDP effect and see that there are diminishing returns here.

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I think high taxes should reduce productivity but should not directly impact GDP. Productivity then reduces GDP correct?

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Nah. Less overall production if anything increases individual productivity. Unemployment shows the same effect.

I know, yes. My point was more so, that, if people could grow their own, they could literally circumvent this tax by, well, making their own for private use.

With alcohol this is, in fact, very straight forward with tools almost anybody could get their hands on. Just need sugary water and a distillery. Which is can also be cobbled together from other stuff.
Heck, even aged alcohol is possible to mimic in a fraction of the time if you go for the expense of getting an ultrasonic cleaner which can, it turns out, speed up the good part of the aging process, letting you make liquids taste in minutes like they’ve been stored in wooden barrels for a hundred years. That’s less of a thing people have around, but it’s not exactly unaffordable for a middleclass person.

Effectively, you can thus pretty much entirely circumvent alcohol tax, and a high alc tax would certainly mean a blackmarket for people selling this stuff under the shelf, much like prohibition would cause.
Tobacco, at a reasonable scale, would be more difficult, because it requires a specific plant that requires specific climate and large plants could be spotted from space etc. - For personal use a small treehouse might be enough though.

Exactly. Any choice you make here would be quite arbitrary, and either barely move the needle in terms of difficulty, or just make things more difficult for unclear reasons.

The laffer curve has in a sense been disproven: It’s meant to be a simple pedagogical example with way too many simplifying assumptions. In truth such a relationship surely exists, but the exact shape depends on lots and lots of factors and, in fact, some policies, some of which might be considered socialist, may well push up the ideal tax cap. And it’s probably not at all straight forward to figure out which policies ought to change that curve.

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Well the thing is, the game has to (in order to be fun and playable) be a game of very simple examples and simplified relationships. I think its clear that raising taxes forever is not a free lunch, and ultimately creates disincentives. We can cal that a laffer curve, or something else, and maybe say it need additional multipleirs or inputs, but I think putting in an approximation of it right now will make the game better because currently we have… nothing :smiley:

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That is fair. It certainly is too easy, currently.

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I have found that obscenely high tax rates have no drawbacks, to the point where it’s just plain silly NOT to institute heavy taxes. In my most recent game I had:

Income Tax 65%
Sales Tax 20%
Cap Gains 50% (Max)
Corporate Tax 25%
Inheritance Tax 30%
Automation Tax 75% (Max)
Punitive Wealth Tax 25%
Punitive Superstore Tax High (Max)
Junk Food Tax 90% (Max)
Drug Tax 75% (Max)
Tobacco Tax 50%
Alcohol Tax 75% (Max)
Internet Tax 40%
Grad Tax 75% (Max)
Mansion Tax 40%
Property Tax 25%
Luxury Tax 20%
Payroll Tax “High”
Diverted Profits Tax (Max)
Frequent Flier Tax (Max)

With maxed out public tax returns and tax shelters I had all those taxes running with no drawbacks whatsoever. No tax evasion, corporate exodus, brain drain, ect. It generated enough income to basically fund anything I wanted and still run a surplus, and I won 100% of the vote.

Changing the tax system would definitely fundamentally change how the game is played. As it stands, the most effective strategy is to just immediately raise taxes as high as possible and then raise enough political capital to instill max policy after max policy and you’re guaranteed to win every time.

On the flip side I’d argue that very high taxes on alcohol, tabacco, junk food, and C02 shouldn’t completely end their use like they do. There are countries in real life that have car taxes of 100+%, but lo and behold, people still buy cars their. Sure, fewer people can afford them, but not everyone is going to suddenly give up a vice they’ve been enjoying their whole lives simply because it’s more expensive.

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Another place taxes could be given some more bite is in the personal income system. I suspect that as the system stands now the tax->policy loop is positive sum. Which is to say, a program will boost a voter’s income more than the tax required to pay for it costs that voter. So a massively overtaxed society will be very rich rather than very poor.

I think the biggest issue is that tax evasion is an all-or-nothing red bubble scenario, which doesn’t really make sense. Tax evasion should be an always-present blue-bubble metric. It stands to reason that there will always be at least a small level of tax evasion even in low-tax countries. As income and payroll taxes increase more people will work under the table to avoid paying them. As sales taxes increase more people will trade informally rather than through merchants. Tax evasion isn’t something that either happens or doesn’t, it’s a metric.

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Was going to make a post about this, actually. It would be a sim value which actually made sense to go in the tax area. I’d also say the membership of the self-employed group should increase tax evasion too.

Yes the tax evasion point is true. I am considering a change where we model tax evasion as a blue bubble but we have ‘mass tax evasion’ as a red situation when it gets too bad, and it becomes one of those things that everybody does. Thoughts?

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I think you should have it as a blue bubble that adds a red situation - in Greece for example, tax dodging is highly done, ‘nearly everyone’ did it a few years ago because they were to do their own tax returns, whilst being taxed hugely and earning little through a huge reccession. Lots of under-the-table cash-in-hand situations ocurred as well as ‘forged’ tax returns.

The government has spent a lot of money and effort to clamp down on this (this would be a good policy to have) and this could all be modelled more easily with a blue bubble as well as a red situation.

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And maybe it could be nice bring back informal economy and revenue administration from Democracy 3: Africa

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that makes more sense to me than the laffer curve. Seems pretty straight forward. Various taxes are differently avoidable, and people will try. Public Tax Returns and some sort of fraud department help, but zeroing it out would be impossible.

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Well I think we need both (currently testing some laffer curve effects). The laffer curve equations are to model the legitimate and legal changes in behavior that result from the disincentives to economic activity caused by higher taxes. Tax evasion would be separate, and something that could be arguably cracked down on by law enforcement. The laffer curve stuff could only be fixed by lowering the rates, because you cannot force anybody to work overtime or start a new business :smiley:

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Hahaha Forced Labor Maxed = Forced Business - that would be fun

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Also, most governments have some form of tax audit office. If you spend money on enforcement, that could lessen tax avoidance (and also reclaim potentially income). Or you could be more lax for overall everyone happiness.

Good idea.

When a player is paying down debts and cutting services to create a surplus. People should be doubly upset, as they are being taxed and not even getting a service in exchange.

I have also noticed that when I turn political capital off, cut taxes to zero for a short period of time, while increasing expenditures, my gdp shoots up sky-high in one turn, is this realistic? Having both extreme supply and demand policies at once, would it boost my gdp through the roof in real life?