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Democracy 3 Income Tax Question

Arqade Asked on June 11, 2021

I want to adjust USA’s income tax to reflect Sander’s proposed income tax brackets, but there is only one slider for income tax. This leads me to my question: what does the income tax percentage actually represent? Is it the rate that the top bracket is taxed at, or is it some sort of aggregate of all the tax brackets. If it is the later, what math must one do to arrive at the initial income tax percentage?

One Answer

While you cannot actually set specific policy1 in Democracy 3, the model isn't as sophisticated as a real-life economy so it would not be very interesting. In this game, all people are split into 3 groups. Essentially: $, $$, $$$; low, medium, high income. $ people only pay half your income tax, while $$$ pays the full amount I.e. there are only three possible levels of both wealth and earnings, while in the real world, there are billions of possible values for each. So, if you say set it to 40%, then this is the resulting bracket:

+===============+
| group |   pay |
+-------+-------+
|     $ |   20% |
|    $$ |   30% |
|   $$$ |   40% |
+=======+=======+

If you wanted to change how progressive that bracket is (relatively) you could do so by adding a flat income tax as well. Let's say we don't want such a big difference between how much the wealthy and poor pay, and reduce the gap by half. If we had a 20% income tax, and a 15% flat tax, that would be the result:

+================+======+=======+
| group | income | flat | total |
+-------+--------+------+-------+
|     $ |    10% |  15% |   25% |
|    $$ |    15% |  15% |   30% |
|   $$$ |    20% |  15% |   35% |
+=======+========+======+=======+

So within the game's framework you can go anywhere from a 0% to a 100% difference in rate of taxation between poor and rich.

It's also even possible to get effectively lower rates (or higher) by enacting more specific kinds of taxes: The estate tax would hit the wealthy even harder than an income tax, while a sales tax would effectively tax the poor at a higher rate (they need to spend more of their income on things like food and rent).

1: By this I mean the exact monetary income figures at which each income tax bracket would be positioned.

Correct answer by aphid on June 11, 2021

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