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.
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.
What is the reasoning there?
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.)
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%.
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.
Costs of Goods Sold are deductible: https://www.irs.gov/publications/p535#en_US_2021_publink1000...
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
> 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.
- 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.
Calculating part time rental property depreciation is complicated, but that's because it IS complicated.
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.
Getting the boss to pay for your vacation is a time-honored tradition in all fields.
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.
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
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.
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.
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.
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?
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.
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.
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.
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 :)
The US tax and banking systems are so bad that it’s genuinely hard to understand from the Euro perspective.
Also can I have everything in a single unified gui?
[1] especially those barebone accounts used for employee stock grants.
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
--------------------------------------
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.
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.
I suspect it’s very high 90s of percent.
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.
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.
There's nothing to learn politicians have debated every single tax system known to human civilization. But even small changes are Herculean tasks.
"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.
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.