On “Fair” Taxes
Taxes are the means through which we pay for the infrastructure of civilization. While I can’t exactly say I’m happy to pay them, I understand, expect and accept that I will always pay a big chunk of my wages out in taxes each year. I believe in community, taxes come with it.
Nancy Folbre, an economics professor at the University of Massachusetts Amherst, has a piece on the NYTimes’ Economix blog that makes a bunch of great points. Here are a few I particularly like:
We live in a country where the most visible support for raising taxes on the rich comes from … the rich. So much for the seeming dictates of economic rationality and the logic of class war.
The Wealth for the Common Good Web site features pictures of some of our most economically successful citizens calling for higher taxes on themselves.
Reed Hastings, chief executive of Netflix, published an commentary in this paper calling for an increase in the top federal marginal tax rate to 50 percent on all income over $1 million per year. He insisted it would not reduce his incentive to work.
At the opposite end of the income spectrum, passionate opposition to the estate tax is expressed by men and women who face no risk of ever paying it. The progressive group Citizens for Tax Justice observes that the percentage of households with income under $30,000 complaining that federal income taxes are too high exceeds the percentage even paying federal income taxes.
Misrepresentation?
The Center on Budget and Policy Priorities points to superficial reporting on Tax Freedom Day, a term copyrighted by the Tax Foundation to describe the day by which the average taxpayer has earned enough money to cover his or her tax liability for the year. About 80 percent of Americans pay less than the average, which is pulled up by a relatively small number of very high payers. As a result Tax Freedom Day comes earlier in the year for most Americans than for the average.
Differences in federal income tax rates are greater in theory than in practice. Warren Buffett famously observed that he paid a lower percentage of his income in federal taxes than his office staff in 2007, largely because income from capital in the form of dividends and capital gains is taxed at a lower rate than income from labor in the form of earnings.
Warren Buffet, my hero:
Mr. Buffett offered to wager $1 million with anyone on the Forbes’ richest 400 individuals list that the average share of their income paid in taxes was lower than the average share paid by their receptionists and secretaries. He got no takers.
Mr. Buffett has peeved many of his fellow billionaires by giving much of his money away as well as advocating higher taxes for the rich. The man has so much class that he can talk about class war. (He explained, in 2006, that his class was winning).
RELATED: Where I live they had to cancel summer school because of budget cuts. Which budget cuts? Across the board for all schools in Georgia? NO! Budget cuts that affect ONLY the poorest schools in the state. And while our pols blather on about holding the line on taxes, they authorize unjust and unneccessary rate hikes for regulated utilities. One man’s fee is another man’s tax…
21 Responses to “On “Fair” Taxes”
It's typical to rely on euphemistic, even smarmy, and deceptive (though unsuccessful among the more intelligent and moral) words to paper over with the word “fairness” what typically is sought, a justification for what is inherently unjust, taxation that isn't merely based on the ability-to-pay principle (which is not inherently good, as fools would believe, but cold, hard, and straightforwardly, brutally logical, for it merely is _logistical_ at its core), but progressive (which normally is based on envy and resentment). This can't be defended but so many dishonest, uncomfortable, or inwardly-guilty people continue this failed quest.
Some liberal books on tax policy, including one or two I've acquired from MIT Press (no surprise there) go to substantial lengths to try (though they fail, as always happens) to justify this and one of the books even has a chapter, if I recall, explicitly devoted to “Fairness” [sic].
Taxes, like government, are a necessary evil, and are properly viewed this way and no other. It's offensive to see taxes and tax policy tainted by base motives, or corrupted in other sinister ways such as to be an instrument for social engineering if not merely to express the whims of those who have power over others.
We should eliminate income taxes eventually in favor of consumption taxes (which should _not_ mean the development of the personal expenditure tax), once the economy improves, but I doubt Washington and the special interests beholden to it will accept or tolerate such a superior reform. I wouldn't be surprised if the income tax were increased _and_ new consumption taxes were levied in order to pay for the vast new health care entitlements that are almost certain to be created before 2012 and likely before next year. (Don't be surprised to see additional taxes such as one on stock and bond transactions, likely in place of a wealth tax, at least for now, in the next few months, promoted to discourage “speculation.”)
I noticed the start of this thread relies on well-left “think” [sic] tanks. Fine. You could also proceed to quote from “Responsible Wealth” if you wished to be even more creative. But you'll still fail to address the real resentment among decent, normal people who don't like seeing their taxes raised to high for the purpose of the money often, routinely, being misspent and over-spent, routinely to buy the votes of others who pay less. It's no secret what is being done, even if you try to fool people by misnaming it warm and fuzzy things like “civilization.”
Taxes, like government, are a necessary evil. Get back to reality — figure out to pluck feathers from the goose while _minimizing_ the hissing. (Some on the left apparently seek to maximize it, pathologically.)
I have to agree with DLS that this article presents an economically naïve view of taxes along with leftist rationalization of childish envy.
As New York, Maryland and California are now learning, once people believe the taxes they are paying exceed what they feel is necessary and patriotic, methods are devised to circumvent the process to the loss of the treasury. Many people and corporations keep as much capital offshore because of the onerous taxes already imposed.
The Fair Tax Plan (http://www.fairtax.org/site/PageServer) would bring in more money than the current income tax, instantly make the U.S. the best place to locate a manufacturing or financial services company, eliminate the illegal immigration problem and give people an incentive to save. The only thing it doesn’t do is provide a mechanism to punish success and hard work.
J. West — people who vote with their feet are resented by the losers. What do we see? We see attempts to levy taxes and coerce others outside territorial jurisdictions (California taxing retirees in other states; Obama appealing to losers by demanding tax havens comply with the feds and be assumed to be criminals if they refuse*). Here in the USA lefties want to federalize everything not only to centralize it but to make escape via voting-with-the-feet impractical (something long known). In the EU there has for some time been griping about “unfair [lower] tax competition” and the need for “harmonization” of taxes within it. Expect the same approach (with a federalization angle) here in the USA to be even more sought now that the Dems are in charge and ambitious. Coordination with the EU eventually, for example, obviously follows from this. This applies not only to taxes but regulations and laws — and to left-political objectives.
* I expected the tax havens to be attacked some years from now, when the retirement-program deficits begin to harm government finances and eventually the governments become desperate as well as angry. Obama was early, appealing to losers here with the tax-haven-bashing, but also may have done this to deflect criticism of his Treasury and other people involved in the financial industry and its problems here.
jwest – how do you propose to make the US a better place for manufacturing, while at the same time raising taxes?
Ryan,
The Fair Tax Plan eliminates all corporate income taxes. Not only does that reduce the cost of manufacturing, but it also reduces the cost of items brought in from other U.S. based suppliers.
When these products are sold overseas, the U.S. manufactured goods would have a price advantage due to absence of these taxes.
Also, instead of trying to shift money to offshore subsidiaries, all businesses would bring their capital to the U.S., thus providing a greatly increased pool of capital for investment.
Ryan,
If your question was more general about increasing manufacturing in the U.S. than simply taxes, the best way is energy.
Obama’s natural tendency to nationalize something missed the boat when it came to energy. He could use his stimulus money to build 600 identical nuclear plants, pre-approved in design and ready to go. These would supply basically free power in a business/social trade off.
If the manufacturing sector was supplied with free power, it could compete successfully throughout the world regardless of the higher wages here. Everything from steel mills to machining, paper making, glass, etc. has its highest costs centered around energy.
Conversely, free power could be supplied to homes for free (or nearly free) heating and cooling.
These two examples are just for those who are “vision” challenged.
The true beauty of this plan is that it opens a new era. Instead of concentrating on reduction and conservation, think about a new age of free, unlimited energy. Think about the new businesses that would be created, the suffering that would be eliminated and possibilities it creates.
“Instead of concentrating on reduction and conservation, think about a new age of free, unlimited energy.”
Many are obscessed with reduction and conservation, though, not only because so many are naive or unrealistic about what conservation can or should be expected to achieve, but because (since the 1960s and advent of radicalism and self-loathing) many want “social controls” and seek a deliberate lowering of our standard of living.
What you say is related to an example as easy to grasp as street lighting. Inductive lighting is now available and more in the news these days is the burgeoning use of LEDs, including LED street lighting. These use much less energy than conventional or “old-fashioned” lighting. A great cost (energy) savings can be achieved as a result, but the childish and naive fail to see what we _can_ do, or worse, reject and resent what can do as a result. We can not merely save costs by replacing what quality and level of illumination we have now, but we needn't limit ourselves to those levels, but instead now change from roads lit at a number of point sources by linear or “area” lighting over roadways, putting much more light on them than ever conceived before as practical or even achieveable. We can light roadways fully, to a much higher level than before, and can now light roadways and other places that didn't make practical or economic sense before. We'd be using more energy and more lighting, but (as with health care, for example, something the typical lefty conservationists want _more_ rather than less of) more is a good, not a bad or wrong, thing.
Imagine your (J. West's) scenario applied here. With so much “social” power at hand, we could fully light our Interstate highways at night. Imagine what that would do for safety improvement and reduced stress levels driving at night. Imagine something else related to roads. With effectively unlimited power, in the Snowbelt and other affected places we could embed resistance heating in roadways and keep roadways free of snow and ice in winter by melting it. Not that we'll ever do it, but this is another suitable illustration.
DLS,
Lighting and especially heating the roads is exactly the type of thinking that is needed to promote a true stimulus plan like this.
Things that would be inconceivable to minds locked in the depravation mode are achievable by having unlimited power. The same amount of money already pegged to be spent on foolish projects could be focused on something like this that everyone can draw hope from.
jwest – all right, but then you have to factor in the increased wages that all the corporations will have to pay to balance the massive tax hike on the workers.
Ryan,
If you are saying that using the stimulus money in a focused program to build 600 new reactors would increase taxes, I disagree.
The stimulus of offering free unlimited power would boost the economy to such a level that taxes could probably be reduced.
If you are saying that instituting the Fair Tax Plan (FTP) would put an additional tax burden on workers, I would disagree. Under the FTP, a worker gets his full pay, with no deductions taken out, plus (most likely) the employer’s share of the old social security payment (about an additional 7%). On top of that, every U.S. citizen would receive a “prebate” check each month, which is equal to the tax on spending at double the poverty line.
Items would not necessarily cost any more due to the savings by companies on their taxes and that of their suppliers.
Hundreds of billions would be collect by the taxes paid by non-citizens on their purchase of items in the U.S. The underground economy would be eliminated because regardless of how money is made, at some point it will be spent. Even if someone cheats on a portion of their spending with a crooked merchant, the majority of their spending will still be taxed elsewhere.
No – I'm saying the Fair Tax fails its sanity check. So far you've said that a) all non-sales taxes will be eliminated; b) the Fair Tax will rake in as much money as the current system, and c) prices will not go up. This effectively increases everyone's real income by 30% overnight. If the tax is revenue-neutral (and assuming someone's tax level changes) then necessarily there are going to be winners, who pay less in taxes, and losers, who pay more. You can't just wave a magic wand and have everyone get richer.
With a fair tax, the people who would not get richer are the tax attorneys, tax preparers, accountants, IRS employees, etc that currently siphon off a large section of the economy. The remainder theoretically could get richer.
I think people overlook the extent that a fair tax protects the lower wage-earners. As jwest notes people get a check back to offset their taxes.
The one group that would pay a lot more are the wealthy that currently claim no or little income. Since they are often high consumers they will be paying much more than they do now.
Ryan,
You’ve asked a logical question.
“…….then necessarily there are going to be winners, who pay less in taxes, and losers, who pay more.”
Naturally, you’re thinking it is the rich who will be the winners and poor who will lose. With the FTP, that’s not the case. Everyone (here) wins.
The large amount of new money comes from sources who never paid taxes to the treasury before. One source is the 26 million tourists who come to the U.S. every year. They haven’t paid any taxes here previously (except for some state of local sales taxes), now they will pay 23% more for products and services. Illegal aliens, regardless of income sources, will pay the same, but without the benefit of being a U.S. citizen, they will not receive the prebate.
All illegal activities that generate money will eventually have to spend it, resulting in a vast income stream to the government.
One of the largest new sources is Chinese, Japanese, European, Indian and other corporations who have never paid any U.S. tax. Every time a foreign product is sold, the U.S. government gets it’s 23%. Think of all the sales at WalMart, Toyota, BMW, etc. and how much this tax on their products will bring in.
No, we don’t need a magic wand to find new money, just a system that makes the U.S. the most desirable place to do business instead of envy/punish-the-rich based system.
Sounds like a great way to execute the tourism industry. And free trade, come to think of it. And create a massive incentive to cheat the system, since you're losing 23% on every transaction. Sounds great.
Ryan,
Florida does not have any income tax – their main source of revenue is the sales tax – and they haven’t destroyed the tourist industry.
Free trade thrives with this type of system. It places all producers on a level playing field by making the governmental cost equal between domestic and foreign suppliers.
Over 80% of retail sales are done through (in one form or another) major corporations. These are the easiest to monitor. Even the smallest of retail outlets would have a hard time avoiding taxes because the calculation is a simple percentage of gross sales, as opposed to a complex conflagration of costs, deductions, carry overs, etc.
Simple, transparent, equal, fair. It doesn’t get any better.
“Lighting and especially heating the roads is exactly the type of thinking that is needed to promote a true stimulus plan like this.”
That means more, not less, energy use (as is true with higher, respectable speeds for high-speed rail).
Of course, more energy use (growing orders of magnitude) is historically associated with progress. You can't get something for nothing.
“Things that would be inconceivable to minds locked in the depravation mode are achievable by having unlimited power.”
Yep — the depraved believe we in the USA (especially) and the rest of the West should deprive ourselves.
“No, we don’t need a magic wand to find new money, just a system that makes the U.S. the most desirable place to do business instead of envy/punish-the-rich based system.”
I asked a friend once in Seattle what it would have been like, a) if New York City (apex of liberalism, the city bankrupted itself as a result) had been like classic Hong Kong instead; and the b) what if the entire long-Democratic-and-liberal Northeast Corridor were like classic Hong Kong instead.
jwest – it wouldn't make the cost equal, it would make imports 30% more expensive, since the foreign companies would be paying double taxes – first in their home country which hasn't adopted the sales tax, and second when they sell in the US. That seems like a pretty miserable way of taking on the trade deficit. Same deal on tourism, or cross-border shopping. Speaking of which, if you live in North Dakota, all of a sudden there's a 23% discount on anything you buy in Canada (and a 30% hike on anything they want to buy from you.)
I also note the immediate reduction in the value of any savings you have, which would get double-taxed. I'm not sure this really qualifies as 'equal' or 'fair'. Wishful thinking, maybe.
Ryan,
You’re kind of “glass half empty” kind of guy, aren’t you?
As far as double taxing of any savings when the program is instituted, you’re right. It’s one of those unavoidable things, but luckily, most Americans have no savings.
Yes, imports would be 23% more expensive, less whatever the retailer used to figure in for their income taxes and employer contribution to social security. But, isn’t this what we’re trying to do – encourage domestic production, reduce the cost benefit of low-wage country competition and open a revenue stream from foreign companies that are making billions in the U.S. without paying any taxes?
There is no one more free market oriented than I, so trust me when I say that this plan encourages foreign investment and competition. Every U.S. citizen will be better off with the Fair Tax Plan as opposed to the current income tax.
“Every US citizen will be better off…” Really. Every last one of them? Even the ones who are currently paying < 23% of their income in taxes?
See, one of the first points I made was that as a revenue-neutral program, someone is necessarily going to get hosed, and considering that part of the plan is abolishing corporate income tax, a lot of someones are going to have to pick up the slack. This plan also heavily subsidizes running over the border to buy cheap stuff, and god help you if you're trying to compete with someone 100 miles away who doesn't have to put a 30% markup on everything, so American loses, Canadian / Mexican wins.
Ryan,
I see the problem.
You believe that corporations pay taxes with money that comes from some source other than private individuals. The reality is that regardless if the individual pays or the corporation passes it through in the price of goods or services, it all comes from the consumers.
This is one of the reasons companies will be able to lower their sales prices so that once the Fair Tax is added, the difference will be small.
Read through the plan at the website I provided above, or better yet, buy the book. Once you spend some time getting all the details, I think you’ll find the FTP is the best way to revise the tax code, stimulate the economy and bring manufacturing back to the U.S.