Which Tax Basis Best Balances Economic Goals?

[CRGreathouse]

By the way I like your approach to separating the "best basis for taxation" into the ethical "why" and the practical "how" questions.

Thanks.

Yes, I see this as an important distinction. The practical issue is something that can be tested with economic theory and (for extant methods) comparative histories. The ethical cannot, but at least ethical issues can be separated out.

I've been looking at Dr Harberger's "Observations on Tax Reform in Colombia" for the last few minutes to see if I can mine it for ideas on the practical side.

 

[CRGreathouse]

the reason that the rich should pay disproportionately more than the middle class who should pay disproportionately more than the poor (who, if they're poor enough, should be in the "zero bracket") is that the collective need for the security and services that comes from government costs a lot of money and that the rich are disproportionately more able to support this expense than the middle class who are disproportionately more able to support it than the poor who cannot really support it at all since they are on (or below) the poverty line and ostensibly cannot even support themselves or their families.

So your ethical stance would be, broadly:
1. Tax should be paid by those most able to pay it.

This would seem to suggest that only people (not corporations) should pay tax, since companies pass along taxes through higher costs to consumers, who may not be the 'most able'.

personal income taxes should be progressive.

Actually, I don't even want to assume that there will be a personal income tax -- I want to leave that for the implementation part. Maybe the best kind of taxation is a land tax, an energy tax, or something even more exotic. Perhaps there should be several taxes, but none on income. Maybe there should be a negative head tax, an energy tax, and a land tax.

 

[rbj]

So your ethical stance would be, broadly:
1. Tax should be paid by those most able to pay it.

that and those that have the most to lose should society slide into anarchism because of a failed government because it could not survive and function without sufficient revenue (e.g. Somalia). but that horse has been beaten quite a bit in this thread and you had your spin on it (that the rich do not benefit in proportion to the taxes they pay - i might agree, but not in the way you meant).

This would seem to suggest that only people (not corporations) should pay tax,

well, ultimately it is only people. my cat doesn't pay taxes (but i pay taxes on my cat's tag and on her cat food and may on the vet bills). people, whether they are individuals making money, or holding stock in a corporation, or buying gasoline, or cigarettes, are who are paying anything for anything. including taxes. this point you seem to be trying to slice and dice is pretty lightweight. not persuasive.

since companies pass along taxes through higher costs to consumers, who may not be the 'most able'.

yah, the trickle-down theory. companies pass along costs (whether they're taxes or something else) they incur and the greed they desire on to their customers to the extent the market allows them to. if the market does not allow it (ask the airline industry), they look for cost reduction elsewhere or get along with a smaller profit margin.

doesn't matter. unless a commodity is subsidized (like food stamps or student financial aid) for the poor, if they get their corn flakes at the same market i do, they can expect to pay for the commodity what i do and we all expect the price we pay for something to cover the costs of manufacture, shipping, and retailing, plus a little extra something ("profit") for everyone along that chain. whether one of the costs is a tax or not does not matter (unless it was a deliberate added tax for the purpose of decreasing consumption, like a carbon tax on gasoline).

corporations can pay a (flat, if i were running things) tax on income (even though that income gets taxed again when it gets distributed into the hands of individuals) because they get extra legal benefits from the law and society that non-corporations, namely all the legal benefits a person gets (to sue and be protected by the law) plus the limited liability of the stock holders. if you own stock in Union Carbide and this company poisons and kills 5000 people, and their survivors come after the company in court, the most you will lose is your holdings in the stock. they can't come after your house. corporations can pay a flat-rate income tax (that should also be small besides flat) that applies only to cash income. no one should be paying tax on anticipated income from the sales of some widgets that are presently in storage. I've been over this in my first post on this thread.

but the trickle-down theory for why we shouldn't call on the rich bear a tax burden that is disproportionate (since they have such a disproportionate piece of the finite wealth in the world) doesn't fly far. i think the middle class and poor would be doing much better if the rich paid a helluva lot more than W made them do, even if a piece of that increased tax burden trickled-down to the middle class and poor.

Actually, I don't even want to assume that there will be a personal income tax -- I want to leave that for the implementation part. Maybe the best kind of taxation is a land tax, an energy tax, or something even more exotic. Perhaps there should be several taxes, but none on income. Maybe there should be a negative head tax, an energy tax, and a land tax.

it's only the personal income tax that can meaningfully be progressive in rates (and maybe residential property tax, but i don't think it would be a good idea to make that progressive). sales tax, sin tax, energy tax (or an extra tax on any depleted resource) cannot be meaningfully applied in a progressive fashion. so the tax on a bag of potato chips should be greater if one buys it in a big bulk shipment than if bought individually? i don't think so.

i don't see any purpose in a negative head tax. we can't all live in Alaska and get pipeline kick-backs.

 

[Dale]

the rich are disproportionately more able to support this expense

So, in your opinion, it is moral for there to be 5 neighbors and for 4 of them to band together and, with guns and violence, to sieze property from the 5th, as long as he is the most able of the 5?

"From each, according to his ability" - Karl Marx

 

[CRGreathouse]

that and those that have the most to lose should society slide into anarchism because of a failed government because it could not survive and function without sufficient revenue (e.g. Somalia).

So you have
1. Tax should be paid by those most able to pay it.
2. Tax should be paid by those who gain the most from the government.

but that horse has been beaten quite a bit in this thread and you had your spin on it (that the rich do not benefit in proportion to the taxes they pay - i might agree, but not in the way you meant).

[...]

this point you seem to be trying to slice and dice is pretty lightweight. not persuasive.

Actually I think you misunderstand me. I'm trying to learn a good ethical basis for taxation on this thread, not to promote one. I came to the thread without any good ideas (and I don't have many ideas now).

I will comment on ethical issues that seem 'perverse' to me, and I speak freely on the economic (*not financial*) issues.

For example, I've said that I think that (in the United States circa 2008) the 'rich' receive less proportional benefit from taxes than the middle class. I haven't argued that they should pay less in taxes. In fact there are some reasonable ethical stances that would have them pay more than they pay now.

yah, the trickle-down theory. companies pass along costs (whether they're taxes or something else) they incur and the greed they desire on to their customers to the extent the market allows them to. if the market does not allow it (ask the airline industry), they look for cost reduction elsewhere or get along with a smaller profit margin.

The airline industry is a good example of one that does not appear able to pass along costs, I agree. I think the solution (not that it's a good one, just what I see happening) is that a major airline or two will fold, increasing the oligopoly power of the remaining airlines and allowing for higher fares.

And for what it's worth, this has nothing to do with "trickle-down". It's basic microeconomic pricing theory accepted by essentially every school of economics, while "trickle-down" is associated with paleo-Keynesians.

doesn't matter. unless a commodity is subsidized (like food stamps or student financial aid) for the poor, if they get their corn flakes at the same market i do, they can expect to pay for the commodity what i do and we all expect the price we pay for something to cover the costs of manufacture, shipping, and retailing, plus a little extra something ("profit") for everyone along that chain. whether one of the costs is a tax or not does not matter (unless it was a deliberate added tax for the purpose of decreasing consumption, like a carbon tax on gasoline).

I agree that prices would be uniform. But I don't think that this shows fairness (automatically).

Suppose the only tax the government levied was on food-producing companies: 1 cent per Calorie of food produced, regardless of what is sold. A 1 cent per Calorie tariff would also be imposed to keep uniformity. Now I may pay $9,000 a year in taxes, a poor person may manage to pay only $5,000, and a rich person may pay $30,000 in taxes (some food is used for entertaining, some food is wasted). But even though we all pay $7.50 for a Big Mac, I assert that the poor person is most hurt by this tax.

 

[Dale]

Yes, I see this as an important distinction. The practical issue is something that can be tested with economic theory and (for extant methods) comparative histories. The ethical cannot, but at least ethical issues can be separated out

Hmm, looking back at my post, I think that I gave an ethical guideline for spending practices rather than for taxation. The two are obviously connected, but not the same.

 

[baywax]

So you believe that you should not pay a tax on a benefit from which you do not profit? In other words the only tax payers will be businesses?

I hope I am misunderstanding.

Yes, my paragraph right after the profit proposal states:

"This would only be one aspect of (an) ethical taxation polic(y). There would have to be other revenue sources and those would also have to have a sound and noticeably fair (ethical) basis."

 

[Dale]

OK, thanks for the clarification.

 

[baywax]

OK, thanks for the clarification.

Thank you for the interest. The tax on profits directly related to govt. service would be one of the more sensible taxes. When the treasury pays for huge expenditures like a bail-out or a 7 year long war, the people directly profiting from those exercises are an obvious target for the tax.

The people who benefit from a guard rail on an over-pass or sidewalks into a commercial area also have a percentage of responsibility to the treasury for those benefits but the increment of percentage would be much lower than for those directly profiting from the huge expenditures that brought them profit. I suppose Lockheed Martin wouldn't like that idea. And their contributions to government actions would also have to be considered when taxing the profit they've made.

 

[Dale]

The people who benefit from a guard rail on an over-pass or sidewalks into a commercial area also have a percentage of responsibility to the treasury for those benefits but the increment of percentage would be much lower than for those directly profiting from the huge expenditures that brought them profit.

To me that sounds more ethical than what I mistakenly thought you were saying originally. Everyone who benefits pays, which seems right to me.

I think you can make a very reasonable argument that someone who profits from it benefits more than someone who makes the same use of it but does not profit. But anyone who uses it benefits and should still pay. Conceptually that would be along the lines of software that charges one fee to a commercial user and another fee for an academic or home user.

 

[rbj]

So, in your opinion, it is moral for there to be 5 neighbors and for 4 of them to band together and, with guns and violence, to sieze property from the 5th, as long as he is the most able of the 5?

"From each, according to his ability" - Karl Marx

sorry Dale, but i don't get the connection at all. saying that the rich should pay disproportionately more than the poor for the expenses of government and infastructure that they all make use of and offers protection to all (but the rich have a lot more to protect) because they are most able to doesn't have much to do with what you suggested above.

 

[Dale]

sorry Dale, but i don't get the connection at all. saying that the rich should pay disproportionately more than the poor for the expenses of government and infastructure that they all make use of and offers protection to all (but the rich have a lot more to protect) because they are most able to doesn't have much to do with what you suggested above.

I agree that people should pay for things that directly benefit them, and I agree that people who benefit more should pay more.

What I disagree with is the moral philosophy that says someone should be taxed more because they are more able. That philosophy leads directly to the scenario I described above.

 

[rbj]

I agree that people should pay for things that directly benefit them, and I agree that people who benefit more should pay more.

What I disagree with is the moral philosophy that says someone should be taxed more because they are more able. That philosophy leads directly to the scenario I described above.

how does it "directly" lead to such a scenario? why not say that neighbors 1, 2, and 3 kick out 4 and 5 and take over their homes? why not say that neighbor 1 kicks everyone else out and takes over their homes? your claim of cause and effect stretch credulity.

a progressive tax does not mean that the rich are taxed at 100% or even approximately that. it does not mean that the income remaining after tax for the rich will be less than the after-tax income of those having lower income (and lower rates). a maximum marginal rate (say 50%) plus the fact that the tax vs. income function is continuous (as income increases, the higher marginal tax rate is applied to the new dollars that were not taxed before at the lower rate). then the richer person continues to be richer after tax than someone with lesser income. profit motive or incentive remains (when you're a zillionaire, a dollar doesn't mean as much to you as if you're at the poverty line). criminal acts of extra-judicially depriving people of their property are still abated. no need to do it like the Bolshevics did in 1917. it's just a progressive income tax. not revolution nor anarchy nor even socialism (where the state owns everything and there is no privately owned property).

 

[Dale]

how does it "directly" lead to such a scenario? ... your claim of cause and effect stretch credulity.

a progressive tax does not mean that the rich are taxed at 100% or even approximately that.

It has nothing to do with the rate. The fact is that taxation is enforced by the police power of government. Payment of taxes is not voluntary, so if you do not pay your taxes then armed police come and sieze your property and deprive you of your liberty. Thus the tax laws are quite literally enforced through guns and violence.

So if "from each acording to his ability" is a correct moral principle for governance, then it must be right for the 4 neighbors to violently sieze property from the 5th, as long as he is the most able of the 5.

Again, I am not arguing against a progressive tax, I am arguing against a specific moral principle that is IMO wrongly used to justify such a tax. I believe that the only correct moral principle on which to base a progressive tax is that the rich get more benefit, not that they are more able to pay.

 

[rbj]

It has nothing to do with the rate.

sure it is! you can't change the subject like that. what was it (from post #100) that you quoted in your response to me?

The fact is that taxation is enforced by the police power of government. Payment of taxes is not voluntary, so if you do not pay your taxes then armed police come and sieze your property and deprive you of your liberty. Thus the tax laws are quite literally enforced through guns and violence.

ultimately all policy of government is upheld by the monopoly of power that a strong government has. if it does not have such a monopoly of power, you have pseudo-governments and civil war. like in the tribal areas of Pakistan. or towns in Columbia controlled by the FARC. this is also non-sequitur, in my opinion.

but even so, before there is "guns and violence", there are other tools of coercion that government uses to get their taxes. this involves registration (licensing and titling). don't pay your taxes (and/or fines and other fees) that is required of you, long before you see guns and violence, your home or paycheck or whatever (assuming you're not a hermit living "off the grid") gets liens attached to it. your paycheck will be garnished before you even see it. you won't be able to sell your house with such liens attached. the buyer won't pay you unless he is satisfied with a clear title to the house which he won't get with liens attached. that's what you will see for not paying taxes, rather than guns and violence. at least while it's still in civil court.

now, deliberate deception to evade taxes, that's another story. doing stuff like that can land you in criminal court (where the level of coercion starts to have things like guns and possible violence involved).

but this causal association of "from each acording to his ability" \Rightarrow "let us proletariat gang up on the bourgeoisie, take it all away from them, and keep it for ourselves" is crap. doesn't persuade at all.

So if "from each acording to his ability" is a correct moral principle for governance, then it must be moral for the 4 neighbors to violently sieze property from the 5th, as long as he is the most able of the 5.

doesn't follow at all. how about the 5 of them agreeing (or even the richest 2 of them, the "leaders" agreeing) that, in order to accomplish some common goal (of all 5) they need resources and they have a problem to solve in how they are going to acquire such resources. if they divided the need equally, as if everyone were peers, the poorest would go broke and still not be able to meet his portion of obligation. the next poorest would just go broke. both would not have the means to live so this common goal would quickly be relegated to a "non-goal" status for them (then little cooperation).

it's a social engineering situation. you don't power the car with the energy that is in the battery for the starter motor. each component provides what they can to the ultimate function of the car. the difference is that these different components in society (working class, professional class, capitalists, warrior class, stay-at-home moms, etc.) contribute to the common welfare what they are capable of and competent of. to not have at least a flat rate tax (where also the rich put in more than the poor) will just not work. you can't make it work without some sort of system of slavery. so you do what you can to make it work. and that means those with more resources commit more into the common welfare than those who have fewer resources. if a flat rate works better than equal-sized "user fee" (without regard to ability to pay), then perhaps a progressive rate will work even better (more revenue for the common good without putting a heavy burden on those who just cannot lift it). i know the John Birchers (and others flat-raters) complain about it, but i am convinced that a progressive income tax works very well as long as the marginal rates for all classes does not become onerous for any class. but progressive taxation doesn't work in other areas of taxation (like sales tax) because the increase of rate with increase of quantity does not get coupled with ability to pay.

Again, I am not arguing against a progressive tax, I am arguing against a specific moral principle that is IMO wrongly used to justify such a tax. I believe that the only correct moral principle on which to base a progressive tax is that the rich get more benefit, not that they are more able to pay.

well, the rich get more benefit in that their greater quantity of wealth is protected by the same laws and structure that protects the the smaller amounts that the poor and middle class also makes use of. but the rich do not benefit more from other protections and functions of government (or, at least, should not). government agencies like the FDA or HEW do not benefit the rich more than they benefit the poor. yet they cost money and the rich have more of it to help pay. it's simply a fact of life that the rich pay more because they can and legislators have recognized that fact. sorry if you think it's immoral.

 

[Dale]

but even so, before there is "guns and violence", there are other tools of coercion that government uses to get their taxes. this involves registration (licensing and titling). don't pay your taxes (and/or fines and other fees) that is required of you, long before you see guns and violence, your home or paycheck or whatever (assuming you're not a hermit living "off the grid") gets liens attached to it. your paycheck will be garnished before you even see it. you won't be able to sell your house with such liens attached. the buyer won't pay you unless he is satisfied with a clear title to the house which he won't get with liens attached. that's what you will see for not paying taxes, rather than guns and violence. at least while it's still in civil court.

Yes, I agree there are intermediate levels of coersion, and the current system is designed to use the minimum level of effective coersion.

now, deliberate deception to evade taxes, that's another story. doing stuff like that can land you in criminal court (where the level of coercion starts to have things like guns and possible violence involved).

So, from this I think that we agree that ultimately the tax law is a criminal matter and so in the end the payment of taxes is enforced by the police.

but this causal association of "from each acording to his ability" \Rightarrow "let us proletariat gang up on the bourgeoisie, take it all away from them, and keep it for ourselves" is crap. doesn't persuade at all.

I never said that they "take it all", again you are focusing on the practical issue of the rate, I am only arguing about the ethical issue of the justification. Whatever amount they take from him is armed robbery if it is for no direct benefit to him and done under threat of violence.

doesn't follow at all. how about the 5 of them agreeing (or even the richest 2 of them, the "leaders" agreeing) that, in order to accomplish some common goal (of all 5) they need resources and they have a problem to solve in how they are going to acquire such resources. if they divided the need equally, as if everyone were peers, the poorest would go broke and still not be able to meet his portion of obligation. the next poorest would just go broke. both would not have the means to live so this common goal would quickly be relegated to a "non-goal" status for them (then little cooperation).

I have no problem with this. As you said it is a common goal and so all of them benifit from the project. Therefore this project can be done and the burden legitimately shared progressively under the "rich get a greater benefit" principle.

so you do what you can to make it work. and that means those with more resources commit more into the common welfare than those who have fewer resources. if a flat rate works better than equal-sized "user fee" (without regard to ability to pay), then perhaps a progressive rate will work even better (more revenue for the common good without putting a heavy burden on those who just cannot lift it). i know the John Birchers (and others flat-raters) complain about it, but i am convinced that a progressive income tax works very well as long as the marginal rates for all classes does not become onerous for any class. but progressive taxation doesn't work in other areas of taxation (like sales tax) because the increase of rate with increase of quantity does not get coupled with ability to pay.

Again, you are focusing on the practical rather than the moral concerns. I have already told you several times I have nothing against a progressive tax, I simply object to the moral principle you cited. It is a wrong principle and not necessary.

well, the rich get more benefit in that their greater quantity of wealth is protected by the same laws and structure that protects the the smaller amounts that the poor and middle class also makes use of. but the rich do not benefit more from other protections and functions of government (or, at least, should not). government agencies like the FDA or HEW do not benefit the rich more than they benefit the poor.

The FDA certainly benefits the rich more than the poor since the rich spend more on medical care than the poor. The FDA protects both the rich and poor from quacks, but if a quack provides a pill that causes a rich man and a poor man to each lose 1 week of work then the rich man has lost much more economically than the poor man. So even for the same illness/treatment the rich derive more economic benefit from the actions of the FDA.

However, the various welfare programs definitely do not directly benefit the rich. That is the kind of thing that I object to. For the welfare programs the rich get no direct benefit and therefore they pay for no reason other than their ability and their desire to stay out of jail. This is the kind of redistribution of wealth that IMO directly correlates to my example above.

yet they cost money and the rich have more of it to help pay. it's simply a fact of life that the rich pay more because they can and legislators have recognized that fact. sorry if you think it's immoral.

Yes, I think it is immoral, and the fact that politicians have done it does not make it moral .

So far I think that we are carrying on two parallel conversations. You seem unwilling to focus on the moral justification question and instead get bogged down in the implementation/practicality issues.

Let me try a new avenue that may help. Let's say we have two neighbors Abe and Bob, they each have a lot of individual goals, and a lot of goals in common. Bob is rich and Abe is armed. In your opinion, under what conditions is it morally justifiable for Abe to sieze a small amount of Bob's property under threat of armed violence?

 

[stewartcs]

that and those that have the most to lose should society slide into anarchism because of a failed government because it could not survive and function without sufficient revenue (e.g. Somalia). but that horse has been beaten quite a bit in this thread and you had your spin on it (that the rich do not benefit in proportion to the taxes they pay - i might agree, but not in the way you meant).

IMO, if society falls into anarchy, everyone on average loses equally, not just those more "able" than others. In a society such as that, the least of anyone's worries would be their vacation home or yacht. I imagine basic things such as shelter, food, security would top everyone’s list including the "less-able". I think it is important to realize that there are things of great value that are not tangible. Namely, one's freedom (which we all have in the US equally). To take the approach that those more able have more to lose simply because they own more "stuff" (property, cars, boats, whatever) if the government falls into anarchy is, in my opinion, misguided.

CS

 

[stewartcs]

yah, the trickle-down theory. companies pass along costs (whether they're taxes or something else) they incur and the greed they desire on to their customers to the extent the market allows them to. if the market does not allow it (ask the airline industry), they look for cost reduction elsewhere or get along with a smaller profit margin.

How does the airline industry not pass along cost again? Last time I flew I had to pay 15$ to check my bag and $5 for a "snack and drink". I didn't have to pay for that in years past.

CS

 

[stewartcs]

I agree that people should pay for things that directly benefit them, and I agree that people who benefit more should pay more.

What I disagree with is the moral philosophy that says someone should be taxed more because they are more able.

I agree with this completely.

CS

 

[stewartcs]

it's simply a fact of life that the rich pay more because they can and legislators have recognized that fact. sorry if you think it's immoral.

Legislators recognize that so they will get elected/re-elected, not necessarily because they believe it to be ethical or moral.

CS

 

[baywax]

Generally, in a tribal setting, those who are more able... give more... it isn't legislated away from them... they give more because their catch needs processing and they can't do the processing themselves so they give a percentage to the people helping to process the catch (buffalo, fish, money (whathaveyou). As I said, a monetary system costs millions if not billions to maintain.

 

[CRGreathouse]

How does the airline industry not pass along cost again? Last time I flew I had to pay 15$ to check my bag and $5 for a "snack and drink". I didn't have to pay for that in years past.

For some years after Sept. 11 the airlines were able to pass along almost none of the cost increases. At the moment they still haven't been able to pass much along. Essentially the only increases have been the surchanges you mention. And there was a good period where they couldn't even manage that.

There's no law stopping them from charging more for fares, they just haven't been able to sell enough tickets when they do. The surcharges allow for second-degree price discrimination which makes raising prices somewhat easier.

 

[CRGreathouse]

To take the approach that those more able have more to lose simply because they own more "stuff" (property, cars, boats, whatever) if the government falls into anarchy is, in my opinion, misguided.

Why?

 

[CRGreathouse]

For an outside perspective:
http://gregmankiw.blogspot.com/2008/01/four-goals-of-tax-policy.html

1. Efficiency: The tax system should distort incentives as little as possible (and, in the case of externalities and Pigovian taxes, correct incentives when necessary).

2. Intergenerational equity: The tax system should raise enough revenue so current generations do not unduly burden future generations.

3. Egalitarianism: The tax system should try to achieve a more equal distribution of after-tax incomes.

4. Stabilization: The tax system should help maintain the economy at full employment.