Tax System in the Faroe Islands
prospect.org> THE FAROES ARE ONE OF THE RICHEST COUNTRIES in the world by per capita GDP—even slightly richer than Denmark itself.
The Faroe Islands are a strange place. There aren't many people, yet you'll see huge infrastructure projects to literally drill tunnels through mountains to connect at 2-3 families with the main roads. A gigantic amount of public money gets pumped into every part of their industry and infrastructure, funded by Denmark.
On a completely unrelated note, the the wife of the previous prime minister is from the Faroe Islands, and he has been known for being bad at separating private and public interests, and for cases of pumping money into specific monopolistic fishermens pockets while taking huge donations from the same to his own funds. The two of them also own a company that plans tours from Denmark to the Faroe Islands.
He's no longer prime minister but managed to create a central party that was key in establishing the current government. I'm sure we'll see a continuation of pumping money into the Faroe Islands.
All that said, it's a lovely place to visit, especially for people who enjoy hiking and don't mind damp weather, and there's some cool places to see puffins.
I think the Faroes being a country with high levels of evenly-distributed wealth and a profitable but not-very-diverse business sector is why they get the luxury of having a simple tax system with limited pressure to add deductions (that and taxes not actually needing to be high enough to cover government spending). Certainly the wealth is more a cause of the tax simplicity than the other way round.
Back of the math envelope suggests the overheads of running their system aren't that low either (the 70m krone budget serves a population of just 54000 people). The IRS budget is closer to $14bn a year, but it serves around 330m people, and nobody accuses the US of being a model of efficiency.
They're subsidized by Denmark. They wouldn't be able to support their infrastructure projects without outside money.
About the budgets. Certainly the cost of this kind of systems scales sub-linearly with population size?
Not sure there are massive economies of scale in tax collection (and probably some diseconomies of scale too from scaling up from the Faroe Islands to a region/nation too big for a single official to know every accountant personally!). Auditing and providing specific advice on compliance is pretty hands on stuff, and as the population size grows, so does the size, variety and geographical dispersal of the entities being taxed, the range of possible avoidance measures, the complexity of legal actions etc. And inevitably, the complexity of the tax code...
Software systems generally benefit from economies of scale. So do financial institutions. Their tax system is simple enough to be automated to a larger extent than the IRS.
Not sure why this would be controversial at all. You're basically arguing that the more complex system of the IRS is 10x more efficient (population/budget) at 1000x the scale, but that the efficiency is unrelated to economies of scale. It just makes no sense to me. Would the costs go down if the Faroe islands adopted the American tax system?
I'm not actually arguing the IRS is 10x more efficient at all (the Faroes' costs are in krone), I'm arguing that its per head spend isn't that much larger considering it handles a lot more complexity and it's seldom regarded as an efficient organization. It's also fairly uncontroversial that labour intensive stuff like auditing businesses and running helpdesks doesn't benefit from particularly significant economies of scale (you spread some software maintenance costs but as you necessarily massively scale up your workforce you acquire inefficiencies from diffusion of knowledge and accountability across a larger, more unwieldy organization and increased management overhead).
> I'm not actually arguing the IRS is 10x more efficient at all (the Faroes' costs are in krone), I'm arguing that its per head spend isn't that much larger
According to the numbers mentioned above the per head spend of IRS is 3-5x smaller than the Faroe island equivalent. (Taking into account the currency difference.)
That despite the IRS handling a much more complex system.
How do you explain that?
I think I read that they are planning to start lowering the financial support from Denmark this year. But only by a small bit. With no concrete plan of weaning fully of it. So the end of the union still is far off it seems. As long as Greenland wants support they should get it, as they really need it, but the Faroe Islands should have been on-track for independence a long time ago imo.
> As long as Greenland wants support they should get it, as they really need it
What is the reasoning there?
Greenland is a massive untapped mineral resource and important geostrategic asset that Denmark owns and having a few small-ish settlements there costing them very little money helps maintain sovereignty.
https://www.nytimes.com/2021/10/01/business/greenland-minera...
Taxing businesses on gross revenues (what “no deductions” means) is a huge bias in favor of vertical integration and large conglomerates.
If I’m a small company and participate in a chain of 8 companies providing a good or service, there is a large multiple of tax paid on that good as compared to a competitor who manages to do all 8 things in a single company. (This is why VAT taxation works better and is more common than a gross receipts tax.)
Here's the English part of the Faroese government's website on tax: https://www.taks.fo/en/individuals/tax/
And for businesses: https://www.taks.fo/en/business/starting-a-business/starting...
I think "no deductions" means there aren't hundreds of complicated rules like the USA has. The page says "Operational costs should be deducted from the taxable income. Operational costs are the expenses that are necessary for the business to operate, such as rent, electricity, maintenance, furniture, equipment, transportation, insurance, bookkeeping, telephone expenses etc."
VAT is 25%.
i guess that in a very strict sense “no deductions” might mean you can’t deduct business expenses, but I doubt that the tax code ACTUALLY works that way. I think the article is talking about individual, not business deductions.
If you taxed revenues, some businesses would just be impossible to run. I have to imagine that there are grocery stores and pharmacies in the Faroe Islands.
I think the article was talking about tax incentives and social spending when they say deductions
I wonder if the article perpetuates the confusion about "deductions." I run a small business and use Schedule C on my tax return. Basically, Schedule C has you write down your revenues, and subtract your costs. The difference is what ends up in the income section of your main form. "Deductions" come later in the form.
Those subtractions of your costs are deductions.
Costs of Goods Sold are deductible: https://www.irs.gov/publications/p535#en_US_2021_publink1000...
VAT is called indirect TAx. Income tax is called direct tax.
The author means to say income tax deductions for employees on their earned wages during the year.
They did not explain if they charge any sales tax (vat) on export of fish or locally or any import duty on imported goods so this is very specific about its explanation
I think you misunderstood how their system for business taxation works. They don't have a revenue tax. And they do have deductions, only fewer than in most other countries.
VAT artificially inflate prices and is often a hard hit to the economy because of reduced demand. Also the cost is generally transferred to the end user, which screws up the lower and middle class. I believe profit tax is the best model, the riches are paying more out of their profits while still not hurting operations.
They could send that journalist to almost any country and experience a better tax system than the US. Although it sounds like a nice trip and he got some hikes in.
> Filing taxes takes up an estimated 6.5 billion hours each year—as the right-leaning Tax Foundation points out, the equivalent of 3.1 million people working full-time for the whole year.
It's just a staggering level of waste. But hey, keep shuffling stuff around until that ”obnoxious paperwork” is technically only one piece of paper (except for all the schedules you need to also include). It's beyond dumb. Sort yourselves out, America.
Turbo tax and H&R Block, companies that produce software for filling taxes, lobby to keep taxes complex and non-easy (unless you pay for their software)
I read theory a lot and I can see it as an argument that the filing process for Americans with reasonably simple situations are painful and difficult (ie that there’s no government website[1] to file for free, or that the IRS can’t fill in details for you). But I would think tax companies are not hugely important in the grand scheme of things and that the actual reason that tax is so complicated is more broad, eg:
- many layers of taxation due to the political structure of the US – federal, state, city, county, maybe also school/water board?
- lots of different deductions exist, and probably for any deduction there are politicians who want it to stay. Each individual deduction may be well meaning (or the result of fraught negotiations) but the whole is undesirably complicated and hard to fix. The rich also have an advantage in a more complicated system but AMT was created so presumably this advantage has limits.
While the first point seems to somewhat naturally fall out of the US political system, I don’t have a great explanation for why the second should apply in the US but not other countries? E.g the U.K. tax system has a few special cases (something to do with child care, some married couples things, some ability for farmers to carry losses forward, maybe some special rules for reverends or Lloyds underwriters?) but nowhere near as many as the US. I think both tax systems are quite old but maybe some U.K. government in the 20th century decided to simplify it a bunch? Certainly a bunch of old taxes like rates don’t really exist for individuals anymore.
[1] presumably the US government have been terrified of launching big websites since healthcare.gov too.
Taxation in the US in general does not become more complex as you move to smaller governments.
For example, my local appraisal district just sends me a notice (which I am free to dispute if I wish) for my property tax each year. If they don't manage to send it, I don't owe anything.
I guess it depends a lot on where you are. My real estate tax bill has separate rates and line items for town, school district, county, and state. Some places have separate assessments on each district within a municipality. Some cities have their own sales and/or income tax. And then there can be local use fees, vehicle registration, and all sorts of other state/local taxes.
Yes, I have all that. My point is, if the appraisal district can't explain it to me & back up their math I don't have to pay it.
Contrast that with the bizarre game the IRS plays where your are basically expected to somehow prove you have paid your lot. Despite the IRS damn well having all the information about what you owe anyways.
Well, the easy part of tax filing is easy: yes, it's a bit tedious in a sense that you have to copy some stuff from your W2 to 1040, but that's it.
Calculating part time rental property depreciation is complicated, but that's because it IS complicated.
Exactly. The ordinary earned income portion of our income is 80% or more of our income and 1-2% of the tax filing burden/complexity.
The imbalance is that it's more like 2% of tax complexity but 80% (made up numbers) of time spent.
Assuming no submission is equivalent to a submission with earned income only (standard in Europe) would save an incredible amount of time.
I think ordinary income is < 5% of the burden (not just complexity). Think about where the time is spent on your own return: it’s not copying 10 numbers from your W-2 or counting your kids, but rather figuring your investment gains/losses, K-1s, Schedule C for your side work or app.
People with only earned income already have a very easy time of it here as well.
This isn't true. Lower income people are more likely to work more than one job simultaneously, or to do casual work or a string of jobs, or be 'contractors' than have a single W2 with accurate numbers. Only 20% of taxpayers who qualify for free direct filing use it - mostly because they don't even know it exists. Many Americans are challenged by even the process of completing the form.
The W-2 case with maybe a 1099 and standard deduction is pretty simple. And should probably be even simpler by autofilling a "Here's what we think you owe/are owed" return. But you get into complex returns pretty quickly for the reasons you describe. I don't even have that complex a return and what I got from my accountant was probably a 1/2 inch thick last year.
This is why I still do taxes myself, including itemization and SE. Free fillable forms gets me e-file.
If there's ever anything in unsure of, I hire an independent tax person to do it. Then if I have to do it again, I use that as a template.
Another option is a lot of these places allow you to compute the results without paying, and you can use that to check your work.
Overall, a royal pain in the ass, but at least those fuckers don't get a dime out of me.
in most cases it's pointless for people to file their own taxes. governments already n ke their income streams and can tax appropriately at the source. just the idea of people having to do their own taxes represents those "fuckers" taking your time away
Oh, I agree. But at least they can't bottom-line my time.
> Although it sounds like a nice trip and he got some hikes in.
Getting the boss to pay for your vacation is a time-honored tradition in all fields.
If I was a government body responsible for setting tax rules after reading the article I still haven't learned anything.
First of all, tax systems are typically result of huge forces within the country and represent history of negotiating between parties or other groups of people that each tries to get something for themselves while the government needs to deal with finite budget and groups of people dissatisfied that somebody else got something but not them.
Second, Faroe Island is a tiny, tiny country. With any kind of organisation, as the organisation grows things get more and more complicated.
And third, they point out Faroe Island has a huge GDP that comes from a fortunate resource. Countries that are in this position tend to have simpler tax systems because they do not need to rely on their citizens. Citizens rightly assume that if the country has a national resource they are entitled to have the resource pay for the infrastructure and government and not them. There is no need to fight to figure out where the money will come for this or that project -- the answer is always pretty much the same and it is not to put a levy on citizens but rather on the resource the country has.
Here in New Zealand this all looks very familiar - we too have NO deductions for most tax payers - I run a small company, do the payroll and tax stuff in a spreadsheet - one simple line per employee.
Most people who have just one job end up paying exactly the right amount of tax (that 1 line in my spreadsheet) and don't need to file - if you have multiple jobs you may get money back (depending on how you registered your second job) if you don't file the IRD will send you a cheque (we don't do cheques any more, they'll drop it in your bank account).
It doesn't have anything to do with GDP, we used to have that complex tax system, about 30 years ago we chose to change it - what it takes is politicians with the political will to change things
…Australia looks on confused… what you’re saying mass resource extractors should pay tax for that…
As someone who does Indian direct and indirect taxes as my day job, I can comfortably say it is "fucked up".
The problem starts small. They introduced a new indirect tax act in 2017 (gst) and it was fine for a couple of weeks but suddenly every business user was supposed to get registered at a centralized portal. Cool but there was penalty for delay and penalty for filing returns late. Cool. So they got an amendment. Fine. Next day a notification. Next day a circular.
In the last 5-6 years, they have changed the act in like 1200-1300 times by way of various amendments, rules, notifications, orders, not to talk about court judgments.
You are NEVER sure if you know something to be a fact when in fact 2 years ago a particular notification amended the act to be read in a certain way. Then another amended it further. Then again.
All the while the govt accepts the fact that all taxpayers are not paying govt their dues so they treat them as such, Financial criminals so there is jail provisions even.
Direct tax is no different. You annual " income tax return" is to be prepared in 1 our of 7 forms. Cool. Then you have to see various schedules and time limits and audits and compliances and other stuff. A lot of stuff DOES MAKE SENSE but you have to have practiced for 5-12 years before saying that. Then it kinda makes sense on an overall level. For everyone else, go fuck yourself.
> “When the year is over, almost everybody ends up with ‘Oh, it’s correct. I don’t have to pay any more, and I don’t get any money back,’” said Mørkøre. Continuous collection also eliminates the time risk of the government losing out on tax payments if companies go bankrupt before TAKS could cash their checks.
Is this not normal in most of Europe? In Ireland, I've found it's usually only off by a few cent at most, which is then adjusted for in the next calendar year by automatically reducing tax credits appropriately.
In Germany it’s a complicated bureaucratic mess and people often get can get a lot back but of course not always.
If you're employed and only have one job, it's actually pretty easy - in fact you don't have to do anything. For many if not most people in Germany, filing taxes is pretty much optional.
Yeah I think so. Often time it's invalid if you have periods without a job. So you paid too much in advance. Then you get it back.
Let's list out a partial list of major US tax problems:
1. As we all know, tax preparation is intentionally complicated and hard thanks to lobbying by the tax preparation industry;
2. Access to the financial system should be a right. This article correctly points out there are ~6 million "unbanked" individuals. I haven't actually seen this problem in other developed countries. People will quite literally take their paycheck and cash it;
3. Also noted here: decades of Republicans starving the IRS (and pretty much everything else the government does bar the military of course). This creates a cycle where a starved government is then used as an argument to further starve the government. It's not surprising the Republicans are so incensed at last year's bill to fund the IRS and paint it as armed IRS officers coming and seizing your mobile home to try and rally support for it. It's the same reason the 15% minimum corporate tax was opposed even though the nominal corporate tax rate is 21%: to benefit the ultra-wealthy and corporations;
4. Deductions. Honestly pretty much everything should be gotten rid of for personal income other than maybe retirement saving. But there are simply way too many vested interests here for this to ever happen;
5. We need to annually tax unrealized capital gains;
6. Stop double taxing dividends. This leads to a lot of unnecessary complexity (eg passthrough corporation tax benefits). Dividend tax imputation is not hard;
7. Tax trusts as we do estates;
8. Tax land use based on assessed value, particularly for single-family houses. A $1 million house should pay higher property tax than a $1 million apartment.
The US really is a dystopian hellscape.
>As we all know, tax preparation is intentionally complicated and hard thanks to lobbying by the tax preparation industry;
That ignores the lobbying by other industries for their favorite loopholes: mortgage interest, like kind exchanges, carried interest, R&D credits, and so on. Much of the complexity in the tax code is actually to close the loopholes that taxpayers are always finding, which has nothing to do with the tax prep industry.
> Deductions. Honestly pretty much everything should be gotten rid of for personal income other than maybe retirement saving.
This ignores the sizable impact of tax credits -- are you proposing those all eliminated also? Currently there is only a deferral of tax on qualified retirement savings, except for Roth IRA earnings (not contributions). There should also be tax free/deferred savings allowed for health care, so that it is not tied only to employment.
>We need to annually tax unrealized capital gains;
Even on someone's primary residence or other personal-use property? How do you determine fair market value? And it would only make sense if paired with annual deduction of unrealized capital losses.
>Tax trusts as we do estates;
This makes little sense. For income tax, trusts and estates are already taxed essentially the same. If you are referring to the estate/gift tax, the assets in a trust after death already go through the estate tax regime, why would you do it twice?
I was just thinking while reading this that with a country with a small population like the Faroe Islands, it is a bit harder to do regulatory capture. The impact is far greater and the established legacy is one towards simplicity than complexity. Changes are just felt more.
In my case, I think my taxes in Norway are easier to deal with as compared to filing US taxes just because there isn't much incentive to take advantage of the bureaucracy and procedures around it like in the US. It's a little complex in Norway, but I can and have guessed correctly what my tax burden would be outside what was directly reported to Skattetaten. I imagine it is even easier for tiny countries (or semi-autonomous regions) like what the Faroese have.
For several years now I've been wondering about a couple of things.
One would be to come up with a simple taxation formula for individual income.
(1) No deductions.
(2) Peg the tax rate to a formula, something like tax = 1% per $10,000 of income. (These specific numbers would not work very well.)
This would be simple, absolutely predictable, and would set a maximum income at whatever the culture decided was right.
And/Or: eliminate inheritance.
This could replace a maximum income because no one could pass along a fortune to heirs, and wealth would be automatically recycled on death.
(1) Set up a citizen's commission that selects members at random for a three-year term, 1/3 of members to be replaced each year.
(2) The commission decides what entities are worthwhile. (Charitable, non-profit, humanitarian, research, whatever.)
(3) At death, any remaining funds belonging to a person are disbursed.
(4) Disbursed funds go to eligible entities selected by the deceased, or to the U.S. Treasury as a default.
(5) Wealthy individuals can support their children through college up to age 25 or so, after which the kids are on their own.
(6) Not necessarily any limit on how much wealth a person could accumulate because it would be impossible to develop a hereditary plutocratic class.
That sounds like a dystopian nightmare that is incompatible with private ownership of anything.
Why is that a more dystopian nightmare than rich people owning all the private property and leaving nothing for you?
The suggestion above guarantees exactly the opposite of what you want to achieve.
Corporations and other legal entities that are not individuals don’t die so there is no inheritance to steal sorry to tax so they’ll end up owning everything.
Oh and foreign investors since when a Japanese billionaire dies his ownership in US assets is governed by Japanese inheritance law not by US one.
It would be also interesting how you’ll deal with various indigenous people and ancestral lands too ;)
Maybe because a hope to become rich from the poor supports the "rich owns everything" nightmare?
> leaving nothing for you?
You assume the world is a zero sum game.
You have what you make. Why would you need anyone to "leave" something for you?
To be fair: I didn't mind my free healthcare, education, and the educational support that allowed me to study without loans, saving or a job.
But you don't have to do a full communist to fund a wealth fare state.
I don't think the scheme proposed by OP is a good idea, but it's not communist in any meaningful sense. It's not even anti-private-property. It's very specifically against inheritance.
Which is very much against private ownership of property or at least individual ownership which is even worse.
It’s just blatantly stupid as it favors ownership under entities other than individuals such as corporations and trusts over individual ownership.
This move from an ownership model to a beneficiary one is already how the wealthiest amongst us avoid paying inheritance tax since if a family trust owns everything and you just get to benefit from those assets there is nothing to tax when a trustee dies.
And ofc corporations don’t die so no inheritance there which means the farmer’s kids are fucked whilst some mega agrocorp is laughing all the way to the bank waiting for Old McDonald to die…
All of these schemes that attempt to make inheritance costlier just make it worse for everyone other the richest of the rich.
People might take an issue with Bezos leaving billions to his survivors but what about farmland that has been in a family for generations? or an ancestral home? Or heck you don’t need to even to get to Amazon levels can someone leave to their kids a chain of 4 dry cleaners in some small city without it being taken away by the taxman?
And if that isn’t enough then it puts the residents of a country that has such a tax policy or any substantial inheritance taxation at a massive disadvantage against foreign investors and owners.
People would just find ways of giving the money to their children, e.g. cash, or setting up a company and employing them at ridiculous salaries. When you have money there are always ways around things. It's an arms race and unfortunately they rich are winning it.
> Peg the tax rate to a formula
Never going to fly as most of the population does not understand math and will think you are cheating them.
Many can't even understand progressive taxation.
Is equality a goal in its own?
Think of the incentives you setup. People won't be build large long lasting corporate institutions.
Also "disbursing funds", sounds an awful lot like liquidate investments. Is that a good idea?
Worst of all, whatever commissions you create will be corrupted, because so much money is involved. The commissions will make bad decisions, etc.
Centralized decision making faces many of the same problems as plan economics / communism. You simply can't know what is good/bad idea at scale.
Sure, privately owned corporations make bad decisions too -- but it's more distributed. And the government isn't incentivized to cover it up.
Note. I'm not saying we shouldn't have a decent estate tax. Or that the wealthiest shouldn't pay more in taxes... Just that there things worse than private ownership :)
Why not just transfer all wealth and private property to the Treasury today? I only need 1 bullet point for that.
In Portugal, if you are an employee or pensioner and have no other sources of income, the tax form is filled in automatically for you. Just confirm if you want, and hit 'send'.
This is the case in almost all European countries nowadays.
The US tax and banking systems are so bad that it’s genuinely hard to understand from the Euro perspective.
US system is difficult by design. Automation would make filing less painful, and one party dislikes taxes so prefers people feel the pain.
The IRS could do a simple automatic return for the vast majority of Americans. Lobbying from intuit prevents it.
While Intuit and their friends do lobby, the US tax code was fiendishly complex long before Intuit was even a thing.
"The income tax has made more liars out of the American people than golf has. Even when you make a tax form out on the level, you don't know when it's through, if you are a crook or a martyr." -- Will Rogers
Will Rogers died in 1935.
They already do your taxes for you. This is how they know if your returns are off or not.
The only difference is that in the rest of the world, they show you the calculation the government came up with first.
> They already do your taxes for you.
They have no way of knowing what all your business expenses are (especially ones that don't require sending the recipient one of the various Form 1099s). They can look at what you claim as business expenses and retroactively require you to show proof of those expenses (i.e., audit you) if they seem unreasonable, but that's an entirely different thing.
But the majority of Americans have only w2 income and no deductions
Their taxes are easy, too. Just a handful of clicks through a free e-filing system. Most can also use a free in-person filing service (VITA.)
Most of the thousands of hours you hear about comes from working through legitimate complexity (complicated assets, stock splits, self-employment, etc.)
That’s not to say it wouldn’t be good to have more computing thrown at automating the rules for that complexity.
Right. Even a paper 1040EZ doesn't take more than a few minutes... probably even less online.
The 1040EZ was eliminated I believe. But the same applies to the 1040 if you're just basically entering W2 info.
If you're an American and have 0 deductions you're seriously incompetent as an adult. The standard deduction is available to almost all taxpayers and requires no evidence, documentation, or proof of any kind:
https://apps.irs.gov/app/vita/content/00/00_13_005.jsp#:~:te...
In the UK, less than 10% of the population even file a tax return. For 90% of people tax is just taken at source. Unless you have a small business, rent out properties or work abroad, HMRC already knows what you needed to pay and get's it right 99% of the time and your employer/pension provider just withholds as required. It's always baffled me that so many rich countries don't operate like this...
I do my own taxes on the UK, it is not complicated, but it would be everything a billion time easier if all brokerage accounts [1]and banks had a simple way to get all transactions in a tax year in a single csv file instead if having to do a billion clicks and having to parse dozens of pdf files!
Also can I have everything in a single unified gui?
[1] especially those barebone accounts used for employee stock grants.
That would be perfect. It would be so much better if they just sent you a form with a few numbers on. And the maths and format were the same irrespective of the firm. One from each of your brokers, add the numbers together, put onto tax return, submit and sleep soundly.
Heh.
The thing I find astonishing about the UK is the sheer number of tax-advantaged savings schemes. Half a dozen different types of pensions. Several different types of ISAs (tax-advantaged savings accounts). And we haven’t even mentioned the wonderful world of offshore bonds…
Without a doubt, the US tax system is broken in mumerous ways. To a close approximation, everyone agrees on that.
But the OP's notion makes about as much sense as asking if Amazon can somehow draw lessons for improving the efficiency and simplicity of its global software and hardware infrastructure by studying the super-simple software and hardware infrastructure of some tiny company. It strikes me as... highly unlikely.
The economy of the Faroe Islands is both very, very small (annual GDP is 166x smaller than Amazon's annual revenues) and very, very simple (45% of exports are salmon fish), making it much easier to find a really simple system that works reasonably well for everyone. A quick comparison is instructive:
Population GDP
--------------------------------------
United States 333,287,000 $25,035.0B
Faroe Islands 54,000 $3.1B
--------------------------------------
I don’t think bigger always needs to be more complex.
For simplicity sake, a 10% tax on income would scale infinitely, no matter how big an economy grows (I’m not arguing in favor of this tax).
But the point of the article, in my opinion, is that US has a large problem, costing tax payers an estimated 40 billion in labor figuring out their taxes, where other countries have almost automated the entire process.
I think there is something to be learned from there, as most people would agree that the US tax system is a mess.
> I don’t think bigger always needs to be more complex.
And yet, the bigger a software company gets, the more labyrinthine its systems get. Ask any software or IT engineer who was at, say, Amazon, Facebook, or Google, as the company grew from serving a few hundred thousand customers to hundreds of millions of customers.
Similarly, the bigger a country is, the more labyrinthine its systems are (tax, legal, regulatory, etc.). Large distributed systems tend to become very complex, even though no one wants them to be. There are always many competing interests negotiating with each other and reaching compromises that no one likes.
> Ask any software or IT engineer who was at, say, Amazon, Facebook, or Google, as the company grew from serving a few hundred thousand customers to hundreds of millions of customers.
It's not the number of customers so much as the number of diverse things they do. Ditto for a country's taxes. I expect the Faroe islands' industry is fairly limited compared to the US, so they may not need as many exemptions, tax credits, deductions, etc. No doubt there's still considerable room for streamlining though.
What percent of that $40B is relating to “taxes other than ordinary earned income” (the part that the Faroes have simplified)?
I suspect it’s very high 90s of percent.
Maybe the US could stop taxing labor and investment and simply tax consumption (sales tax). That would simplify everything.
This is simpler but tends to favor the wealthy because such taxes do not impose the same burden proportionately. Moreover the poor rarely invest--I think 401k uptake is only 50% in the US?--and would in present circumstances be challenged to do so. Maybe incentives would change for them under a new system. Another difficulty is that investment income grows over time and governments stand to lose a great deal if they don't tax it.
1. some basic needs like food and clothing could be exempt from sales taxes, like it is today in many US states.
2. Taxes should only grow in relation to the growth of identifiable government needs. There is no reason that the government ought to grow linearly in proportion to the net wealth of the country.
Most of the benefits listed, apart from the extremely simple tax code, exists in all modern countries country (here I use the tautological definition of “modern” as meaning somewhere where everyone has a bank account and “doing your taxes” is typically less cumbersome than accepting a cookie banner).
Always useful when you can define 'modern' to preclude the major economies of america. Which is beside the point the article is making.
In a diverse economy with many sectors, having a tax system that incentivizes participation and capital movement towards some sectors is beneficial.
velocity within an economy is more important than public coffers, especially when the attempts at management are distributed to the private sector, compared to a single flawed attempt centralized at the public sector. In systems like the US, the distributed risk takers compete with the centralized attempt or simultaneously collaborate with it.
The "loopholes", some of which are indeed loop holes, function to incentivize certain behaviors. In almost all cases, someone that wants to simply accumulate cash will be taxed the heaviest, the entire system is saying move it around in specific ways, keep the velocity high. create, invest, hire.
Well,
1. the tax rate is high (50%)
2. resources (fish) is widely corrupt and just a few billioners reap the benefits (proportionally)
3. there are loopholes. Shippers who work for a faroe islands company, work abroad, has their residence in an other country pay 0% tax (something like that)
4. the tax code has not much less complexity than say norway.
All that and yet not a word on actual tax rates, unless I missed it.
Faroe Islands is a tiny speck. Countries are a cross between oil tankers and nuclear power plants.
There's nothing to learn politicians have debated every single tax system known to human civilization. But even small changes are Herculean tasks.
I always find "but they're small" to be a lazy argument for things like this - I heard it recently in regards to Estonia's digital services also.
"It's easy for them to do, but we're a huge country with near-infinite resources, we couldn't possibly". I mean sure, it means you have to scale the operation to match, which is why the IRS has more staff than the Faroes have population. But "we can't take on these projects, we're too big" makes it sound like we should have expected Belgium to land on the moon instead of the US.
Landing a man on the moon is not a problem that increases in complexity with population size, taxation is. "Things like this" are exactly where "but they're small" is a perfectly legitimate response. To say "oh just scale the operation" ignores the fact that scaling is just about one of the hardest problems we face in human organisations.
I think there’s a difference though when a country has a population less than a typical large corporation and no major industry whatsoever. It’s at a scale where everyone knows somebody who can help you get things done.
What I'm not convinced of is that complexity is actually a necessity.
For example, what's the real difference between operating a fire department in a town on the Faroes, vs a town in the Mid-west? It seems like a fairly cookie-cutter operation where requiring more of them in total does not add complexity to each operation.
Possibly even the opposite, where the scale of the US turns into a net benefit, so you can support your own industries building and providing tenders/appliances - where the Faroes are (I assume) more likely to ship one from Germany.
So I'm not clear why taxation within a single state has to be more complex than taxation within a small nation. I'm not going to deny that it probably is, and probably will be, but I'm less comfortable with the assumption that it must be.
tl;dr simple tax system with no deductions
Taxation is theft, with extra steps.
It's completely irrational but any mention of this place is tainted by their dolphin hunts. How about learn about their taxes and they learn about PR.
The article has a good point from a few Faroese guys about how the mass inhumane US harvesting of beef, chicken, and pigs, is probably very similar in aggregate.
But when the food item is something Americans culturally eat, it becomes difficult for animal rights activists to push on because they get labeled as crazy immediately. Whereas food items Americans are not used to eating like whale or snake gets a round of applause from Americans and justifies a bit of underlying racism about how that other culture is simply an inhuman culture.
Its a bad comparison. Breeding or harvesting an animal is not the same. They provide different suffering for the animals and different pressures on different biotopes. Its very much like the old soviet whataboutism when pressured on their domestic suppression: "well in the US they lynch people". Meat production in US might be bad, but its not a defense for overfishing the Atlantic.
It's the intelligence of the animal that's the issue. Not some cultural bias.
Pigs are widely considered pretty intelligent, but I don't think the median American thinks of then as more wrong to eat than say chicken.
> Please don't pick the most provocative thing in an article or post to complain about in the thread. Find something interesting to respond to instead.