Which Tax Basis Best Balances Economic Goals?

[CRGreathouse]

Sorry... what I was saying there was that the GST or Luxury Tax is alway added to the price of a luxury item... it shows up on the invoice as a government imposed tax... and is not hidden... unethically... from the consumer.

Ah. I'm not talking about that, though; I'm talking about how prices really change. If a company makes luxury watches which sell for $500 (making a profit of $120 per watch) and suddenly there is a luxury tax of 10% on the watches, I expect the company to lower prices (perhaps to $480, lowering profit per watch to $100) to keep buyers from switching to alternatives that aren't taxed. This is because, in essence, the company can make the watch $22 cheaper by losing only $20 per watch, so there's more benefit from the 'increased sales' (relative to not dropping the prices post-tax) than from the higher margin.

 

[stewartcs]

...(2) the rich do benefit more from government spending than do the poor. While the rich may not drive much more than the middle class, the companies whose stocks they own do benefit from improved roadways. Making it easier for people to get to work makes it easier form companies to make a profit. The rich benefit from government services to people other than themselves.

IMO, I don't think the rich benefit from government services more than anyone else. In fact, using your truck example, passenger vehicles account for 93% of highway usage compared to the 7% of commercial vehicles. Plus commercial vehicles have higher associated fees than passenger vehicles, and the trucking company is providing a job for the driver (who isn't rich).

CS

 

[stewartcs]

Also, the rich directly benefit more because they have more assets that are protected by the police and military. As a Libertarian I disagree that John should pay for a benefit to Fred, regardless of the fact that John, as Fred's employer, gets some indirect benefit, but I think even so that there can be a direct justification for the rich to pay more than the poor.

The military (and police) protect the US as a whole, regardless of how much each individual person makes. I don't see a benefit for the rich here either. I mean, we all live in the same place that needs protecting don't we (i.e. the US)?

CS

 

[Dale]

The military (and police) protect the US as a whole, regardless of how much each individual person makes. I don't see a benefit for the rich here either. I mean, we all live in the same place that needs protecting don't we (i.e. the US)?

Yeah, I see your point. I guess the idea is simply that the rich have a bigger "slice" of the "US as a whole"-pie. So they can be considered to derive more benefit from the same protection. At the same time, that really brings up the issue of income vs. wealth, how do you best measure the slice?

 

[stewartcs]

I guess the idea is simply that the rich have a bigger "slice" of the "US as a whole"-pie. So they can be considered to derive more benefit from the same protection. At the same time, that really brings up the issue of income vs. wealth, how do you best measure the slice?

Do they really have a bigger slice of the pie though as a whole? There are by far less "rich" people than "poor" people in the US. I think they make up something like 1% of the people in the US which would be a rather small slice.

CS

 

[CRGreathouse]

Yeah, I see your point. I guess the idea is simply that the rich have a bigger "slice" of the "US as a whole"-pie. So they can be considered to derive more benefit from the same protection. At the same time, that really brings up the issue of income vs. wealth, how do you best measure the slice?

I think this is a valid point -- the rich do get more benefit. But assuming that the police/military protection applies to both the person and the property, and that both are of positive value (we prefer living to being killed, we prefer having our house to having someone burn it down), even a straight wealth tax (the property tax is a close relative) is 'too progressive', and that the tiered income tax structure is right out.

 

[CRGreathouse]

Do they really have a bigger slice of the pie though as a whole? There are by far less "rich" people than "poor" people in the US. I think they make up something like 1% of the people in the US which would be a rather small slice.

I don't know if that's relevant. DaleSpam was just suggesting that each rich person gets more benefit from government protection than each poor person, which seems reasonable to me. The government doesn't protect my vacation home because I don't have one.

But obviously how many rich people there are depends on your definition of rich. By Victorian standards I'd imagine the majority of people in the US are rich.

 

[CRGreathouse]

IMO, I don't think the rich benefit from government services more than anyone else. In fact, using your truck example, passenger vehicles account for 93% of highway usage compared to the 7% of commercial vehicles. Plus commercial vehicles have higher associated fees than passenger vehicles, and the trucking company is providing a job for the driver (who isn't rich).

I don't know if they benefit a lot more or just a little more -- people have argued both on this thread -- but I do think that they (sensibly) benefit more. But I'm not saying that the total benefit to all rich people is greater than the total benefit to all nonrich people, just that the average rich person gets more gross benefit from the government than the average nonrich person does -- for some reasonable value of 'rich', anyway.

 

[stewartcs]

I don't know if that's relevant. DaleSpam was just suggesting that each rich person gets more benefit from government protection than each poor person, which seems reasonable to me. The government doesn't protect my vacation home because I don't have one.

The government still protects the adjacent/surrounding homes that probably are not vacation homes. It's not like the "rich" people use the government as private security for their vacation homes or whatever other property they own. The security/police/military is already in place and would exist regardless of whether or not the "rich" had the extra home or other property. So I don't see how they benefit more.

But obviously how many rich people there are depends on your definition of rich. By Victorian standards I'd imagine the majority of people in the US are rich.

I agree the definition of rich is quite subjective. Admittedly I'm not familiar with what Victorian standards were like, I imagine if one were to adjust the value of money for inflation, etc. then it wouldn't be too much of a difference in the terms.

CS

 

[stewartcs]

...just that the average rich person gets more gross benefit from the government than the average nonrich person does -- for some reasonable value of 'rich', anyway.

Just out of curiosity, how did you form that opinion? I seem to hear this statement a lot but I've never really heard a reasonable explanation as to why other than that's just the way it is.

CS

 

[D H]

The government still protects the adjacent/surrounding homes that probably are not vacation homes. It's not like the "rich" people use the government as private security for their vacation homes or whatever other property they own. The security/police/military is already in place and would exist regardless of whether or not the "rich" had the extra home or other property. So I don't see how they benefit more.

On that basis, I hereby petition my local government to stop levying property taxes on me (at least the portion that goes to the police department) because the security/police is already in place and would exist regardless of whether or not I personally pay my share of that protection.

 

[CRGreathouse]

I agree the definition of rich is quite subjective. Admittedly I'm not familiar with what Victorian standards were like, I imagine if one were to adjust the value of money for inflation, etc. then it wouldn't be too much of a difference in the terms.

Well, for starters, the Victorians didn't have computers, cars, air conditioning, vaccines, or well-insulated houses. In modern America a person can own a car and live in an insulated apartment with heat and air conditioning while still falling below the poverty line.

The government still protects the adjacent/surrounding homes that probably are not vacation homes. It's not like the "rich" people use the government as private security for their vacation homes or whatever other property they own. The security/police/military is already in place and would exist regardless of whether or not the "rich" had the extra home or other property. So I don't see how they benefit more.

I agree that the security would exist without those homes, but the rich still get that benefit (even if it's totally unintentional).

Just out of curiosity, how did you form that opinion? I seem to hear this statement a lot but I've never really heard a reasonable explanation as to why other than that's just the way it is.

First of all, let me state that this is not a bad state of affairs. If a nonrich person pays $8,000 in taxes and gets $12,000 in government benefits while a rich person pays $100,000 in taxes and gets $10,00 in benefits, that's a pretty unfair situation. Saying that the rich person in this example gets more than $12,000 in benefits (perhaps only $13,000) doesn't seem like much to ask. I'm not saying that they get more proportional benefit -- in fact I feel that this is false.

• Police protection is determined in part by location: better areas get better police protection because local policing is paid for by local taxes. Rich people live in better areas.
• Rich people have more to lose. If the government shuts down and a mob destroys my house, I'm out $**,000. If a mob destroys a rich person's mansion, they're out $*,*00,000.
• Rich people get indirect benefits. If you own stock in any company that uses US infrastructure (that would be pretty much every US company) you benefit from that company's gain.

 

[stewartcs]

On that basis, I hereby petition my local government to stop levying property taxes on me (at least the portion that goes to the police department) because the security/police is already in place and would exist regardless of whether or not I personally pay my share of that protection.

I didn't say that they shouldn't pay their share, I said they shouldn't pay more than their share. They already contribute to the local government's police force (just like everyone else in the neighborhood) with the local taxes they pay on their local property whether it is a vacation home or their primary residence. For example, if they own two homes in two different areas, they will pay two property taxes thus contributing to the system proportionately. My point is that they shouldn't have to pay a higher effective percentage simply because they have two homes. This argument extends to income tax as well.

Sorry DH you still have to pay your taxes!

CS

 

[stewartcs]

I agree that the security would exist without those homes, but the rich still get that benefit (even if it's totally unintentional).

And so do the non-rich.

First of all, let me state that this is not a bad state of affairs. If a nonrich person pays $8,000 in taxes and gets $12,000 in government benefits while a rich person pays $100,000 in taxes and gets $10,00 in benefits, that's a pretty unfair situation. Saying that the rich person in this example gets more than $12,000 in benefits (perhaps only $13,000) doesn't seem like much to ask. I'm not saying that they get more proportional benefit -- in fact I feel that this is false.

That seems pretty unfair for the guy who pays 100,000 in taxes and only gets 13,000 of benefit when the other guy pays 8,000 and gets 12,000.

13,000/100,000 = 0.13

compared to

12,000/8,000 = 1.5

• Police protection is determined in part by location: better areas get better police protection because local policing is paid for by local taxes. Rich people live in better areas.
• Rich people have more to lose. If the government shuts down and a mob destroys my house, I'm out $**,000. If a mob destroys a rich person's mansion, they're out $*,*00,000.
• Rich people get indirect benefits. If you own stock in any company that uses US infrastructure (that would be pretty much every US company) you benefit from that company's gain.

• The rich people in the better areas are paying higher property tax to pay for the better protection.
  
• Although I think the second point is a bit extreme, I can see a somewhat valid argument here. However, one could argue if the government shuts down and no police force were available (no one pays any tax then and it's a free-for-all) one could defend one's property at any cost (i.e. shoot the mob members). But assuming we are talking about a functioning government I don't think the argument works.
  
• The company pays taxes too. An there are taxes on capital gains so there's no free lunch there either.

CS

 

[CRGreathouse]

So, stewartcs, you agree with me that the rich get more benefit, but less proportional benefit, than the middle class.

 

[stewartcs]

So, stewartcs, you agree with me that the rich get more benefit, but less proportional benefit, than the middle class.

Uh, I don't quite understand. How do they get more benefit yet less proportional benefit?

CS

 

[CRGreathouse]

Uh, I don't quite understand. How do they get more benefit yet less proportional benefit?

Let R be rich, N be nonrich, DollarBenefit(x) be the dollars of gross benefit received by x, and DollarTax be the total tax dollars paid by x. My claim:

1. DollarBenefit(R) > DollarBenefit(N)
2. DollarBenefit(R)/DollarTax(R) < DollarBenefit(N)/DollarTax(N)
3. DollarBenefit(R) - DollarTax(R) ? DollarBenefit(N) - DollarTax(N)

For #1, I say "the average rich person gets more gross benefit" (post #68). For #2, I say the average rich person gets "less proportional benefit, than the middle class" (post #75). #3 is net benefit, which I currently have no opinion on. My example in post #72 has greater net benefit to the nonrich person, but I don't know what relation I expect to commonly hold.

 

[stewartcs]

Let R be rich, N be nonrich, DollarBenefit(x) be the dollars of gross benefit received by x, and DollarTax be the total tax dollars paid by x. My claim:

1. DollarBenefit(R) > DollarBenefit(N)
2. DollarBenefit(R)/DollarTax(R) < DollarBenefit(N)/DollarTax(N)
3. DollarBenefit(R) - DollarTax(R) ? DollarBenefit(N) - DollarTax(N)

For #1, I say "the average rich person gets more gross benefit" (post #68). For #2, I say the average rich person gets "less proportional benefit, than the middle class" (post #75). #3 is net benefit, which I currently have no opinion on. My example in post #72 has greater net benefit to the nonrich person, but I don't know what relation I expect to commonly hold.

Yes I agree that this is true of our current system, but the proportion is what really counts in my opinion. What this infers, however, is that R is getting less effective benefit than N. Which doesn't seem fair to me (i.e. they're not getting back their fair share based on what they pay into the system).

As far as #3 goes, I imagine that R > N in order to get the proportions correct (which again seems like the fairest option to me). Not sure though.

CS

 

[CRGreathouse]

Yes I agree that this is true of our current system, but the proportion is what really counts in my opinion. What this infers, however, is that R is getting less effective benefit than N. Which doesn't seem fair to me (i.e. they're not getting back their fair share based on what they pay into the system).

So you think that a good ethical basis for taxation is that
* All taxpayers get a similar return on their taxes ('ROI')
* The total amount of the tax maximizes societal wealth, subject to #1

Standard disclaimer applies: please correct any misunderstanding of mine.

 

[stewartcs]

So you think that a good ethical basis for taxation is that
* All taxpayers get a similar return on their taxes ('ROI')
* The total amount of the tax maximizes societal wealth, subject to #1

Standard disclaimer applies: please correct any misunderstanding of mine.

Yes that sounds correct.

CS

 

[baywax]

The military (and police) protect the US as a whole, regardless of how much each individual person makes. I don't see a benefit for the rich here either. I mean, we all live in the same place that needs protecting don't we (i.e. the US)?

CS

Yes but there is the potential, in a state that doesn't educate or recreate its population with the taxes they pay, for violence directed against the larger homes and properties and there are robberies in rich commercial areas that demand police attention There is white collar crime among the rich that is expensively investigated (we can hope) and a slew of other offences being committed by the spoiled brats of the rich. This places quite a burden on the tax dollars that would normally be spent simply patrolling a neighbourhood or other middle class, low income class duty.

 

[baywax]

So you think that a good ethical basis for taxation is that
* All taxpayers get a similar return on their taxes ('ROI')
* The total amount of the tax maximizes societal wealth, subject to #1

Standard disclaimer applies: please correct any misunderstanding of mine.

What is being missed is where that money the "R" has came from. Let's just use one factor to illustrate what I mean... the R has 50 NRs working for them. The 50 NRs have just gone thorugh 10 - 12 years of free education... the R is benefitting directly from this schooling through the NRs abilities and training picked up, at the Tax Payers expense, in school. There is a responsibility that the R should share for these dollars that went into the training and shaping of Rs employees. There is the infrastructure that they get to work in or on. And there are a slew of other governmental services that have supported these people up until they were able to apply their talents to R's business. Most of these expenses have been paid by property tax, income tax and sales taxes imposed on the parents of these NR employees... but that doesn't mean the R Employer should not acknowledge this benefit by paying a form of taxation... that may or may not seem higher, proportionately, to the percentage a mom and pop operation might pay.

 

[stewartcs]

Yes but there is the potential, in a state that doesn't educate or recreate its population with the taxes they pay, for violence directed against the larger homes and properties and there are robberies in rich commercial areas that demand police attention There is white collar crime among the rich that is expensively investigated (we can hope) and a slew of other offences being committed by the spoiled brats of the rich. This places quite a burden on the tax dollars that would normally be spent simply patrolling a neighbourhood or other middle class, low income class duty.

So your argument is that the rich should pay more taxes since the non-rich will probably attack their property thus causing the police to use more of their resources to defend the rich's property? In other words the rich would have to pay more taxes to prevent the non-rich from committing crimes against them.

What about the delinquents of the non-rich who are out attacking the rich? Surely there are more of those in the general population. Hence, the police would use more of their resources controlling the non-rich delinquents. Based on that logic, the poor should pay more taxes for policing since their delinquent children are out causing the problem...not the other way around.

CS

 

[stewartcs]

What is being missed is where that money the "R" has came from. Let's just use one factor to illustrate what I mean... the R has 50 NRs working for them. The 50 NRs have just gone thorugh 10 - 12 years of free education... the R is benefitting directly from this schooling through the NRs abilities and training picked up, at the Tax Payers expense, in school. There is a responsibility that the R should share for these dollars that went into the training and shaping of Rs employees. There is the infrastructure that they get to work in or on. And there are a slew of other governmental services that have supported these people up until they were able to apply their talents to R's business. Most of these expenses have been paid by property tax, income tax and sales taxes imposed on the parents of these NR employees... but that doesn't mean the R Employer should not acknowledge this benefit by paying a form of taxation... that may or may not seem higher, proportionately, to the percentage a mom and pop operation might pay.

Both R and NR benefit directly from the education of NR. R pays his fair share of tax (proportionately) along the way too...not just NR's parents. R will pay more $'s in tax (not percentage but $'s) than NR's parents since R has a business.

CS

 

[baywax]

Both R and NR benefit directly from the education of NR. R pays his fair share of tax (proportionately) along the way too...not just NR's parents. R will pay more $'s in tax (not percentage but $'s) than NR's parents since R has a business.

CS

Yes, and that's because R is benefiting from the Government system more than the parents or the offspring... by way of profit $ made through the (we can hope again) efficient handling of his affairs by educated NR employees.

What about the delinquents of the non-rich who are out attacking the rich? Surely there are more of those in the general population. Hence, the police would use more of their resources controlling the non-rich delinquents. Based on that logic, the poor should pay more taxes for policing since their delinquent children are out causing the problem...not the other way around.

Of course... the cost of incarcerating or rehabilitating or re-educating the "delinquents" who revolt against the rich in the form of robbery or worse is a direct cause of the disparity between the R and NR... the responsibility to protect the R falls squarely in the lap of the R... and that, I believe, is the American Way.

 

[stewartcs]

Yes, and that's because R is benefiting from the Government system more than the parents or the offspring... by way of profit $ made through the (we can hope again) efficient handling of his affairs by educated NR employees.

R is not benefiting more than NR. Yes, R makes more $'s than NR in the form of a profit. However, R also pays more in taxes so the proportion of benefit to tax is the same (presuming they are taxed at the same rate).

Of course... the cost of incarcerating or rehabilitating or re-educating the "delinquents" who revolt against the rich in the form of robbery or worse is a direct cause of the disparity between the R and NR...

The cost of incarcerating may contribute some to the disparity, but surely it is not the most dominant cause.

...the responsibility to protect the R falls squarely in the lap of the R... and that, I believe, is the American Way.

Again, R pays his proportion for the protection. R shouldn't have to pay more than his proportion.

CS

 

[baywax]

R is not benefiting more than NR. Yes, R makes more $'s than NR in the form of a profit. However, R also pays more in taxes so the proportion of benefit to tax is the same (presuming they are taxed at the same rate).

R benefits from the ability to loop out of taxes by hiring accountants that are good at it. The $ R should be paying to the country goes to the CA.

The cost of incarcerating may contribute some to the disparity, but surely it is not the most dominant cause.

The disparity is caused by the R (after the CA's handy work) paying about as much as the NR... so the R is R'er and the NR is at status quo or Poor'er.

Again, R pays his proportion for the protection. R shouldn't have to pay more than his proportion.

Delinquents are not ran-sacking a modest home. They are after an affluent symbol of oppression and disparity. The R demands more protection and should pay for it. And often do hire private security. But their powers are limited... no private Judges... no private police station... but, I hear there are people making money running prisons in the US, so, the more delinquents (or representations of such)... the better... in their eyes.

 

[CRGreathouse]

So you think that a good ethical basis for taxation is that
* All taxpayers get a similar return on their taxes ('ROI')
* The total amount of the tax maximizes societal wealth, subject to #1

Standard disclaimer applies: please correct any misunderstanding of mine.

What is being missed is where that money the "R" has came from. Let's just use one factor to illustrate what I mean... the R has 50 NRs working for them. The 50 NRs have just gone thorugh 10 - 12 years of free education... the R is benefitting directly from this schooling through the NRs abilities and training picked up, at the Tax Payers expense, in school. There is a responsibility that the R should share for these dollars that went into the training and shaping of Rs employees. There is the infrastructure that they get to work in or on. And there are a slew of other governmental services that have supported these people up until they were able to apply their talents to R's business. Most of these expenses have been paid by property tax, income tax and sales taxes imposed on the parents of these NR employees... but that doesn't mean the R Employer should not acknowledge this benefit by paying a form of taxation... that may or may not seem higher, proportionately, to the percentage a mom and pop operation might pay.

A few points, if I may?

First, remember that this is not my idea but my summary of stewartcs's position. So I'm not missing anything.

Second, this is a summary of an ethical position. I don't think there is anything missing from it in that sense: it's self-consistent. I think that what you mean is 'don't jump from these principles to tax system X without considering ___.'.

Third, not all rich people own or run companies. Under these ethics, it would be wrong to tax a rich person who is not running a company (and doesn't own stock, etc.) for the benefit to 'their workers'.

Fourth, I'm concerned about the impact of a tax like that. Suppose people pay a tax for every domestic employee working for them (if you own 1% of the stock of a company employing a thousand people, you pay the rate for 10 people). Wouldn't this discourage stockholding (generally a negative for the economy) and encourage companies to substitute away from domestic labor to foreign labor or automation?

Fifth, I wonder about how much a tax like that would have its cost passed along through higher prices. (I don't know; I can't think of a good model right now.)

 

[CRGreathouse]

R benefits from the ability to loop out of taxes by hiring accountants that are good at it. The $ R should be paying to the country goes to the CA.

Of course as we are discussing a new system of taxation, mightn't it be one that is less susceptible to manipulation?

 

[baywax]

A few points, if I may?

First, remember that this is not my idea but my summary of stewartcs's position. So I'm not missing anything.

Second, this is a summary of an ethical position. I don't think there is anything missing from it in that sense: it's self-consistent. I think that what you mean is 'don't jump from these principles to tax system X without considering ___.'.

Third, not all rich people own or run companies. Under these ethics, it would be wrong to tax a rich person who is not running a company (and doesn't own stock, etc.) for the benefit to 'their workers'.

Fourth, I'm concerned about the impact of a tax like that. Suppose people pay a tax for every domestic employee working for them (if you own 1% of the stock of a company employing a thousand people, you pay the rate for 10 people). Wouldn't this discourage stockholding (generally a negative for the economy) and encourage companies to substitute away from domestic labor to foreign labor or automation?

Fifth, I wonder about how much a tax like that would have its cost passed along through higher prices. (I don't know; I can't think of a good model right now.)

Yes, sorry to have put it less eloquently. But I think we have to excavate the source of a person's wealth in order to tax them fairly. One does not have 4 billion dollars in the mattress out of the thin blue sky. There are inheritances, stock portfolios, off shore interests, and tonnes of other factors that I have no idea how to tax or if they need taxing. I just speculate that the more money a person has the more government services are in use either helping to generate that money, protect it, bail it out etc... It takes major backtracking to see what helped do what where etc...