Asymmetrical Information

The real measure of "fairness" isn't the tax structure in isolation but a comparison of what you pay to what you get in return. It's not obviously unfair that a billionaire should pay a lot more towards national defense than someone at McDonalds - while they both only have one life, the rich man has a lot more at risk if they both have to flee to exile in another country.

But what we're usually talking about is the welfare/subsidy state. It's not obvious why billionaires must as a matter of "fairness" pay for the greedy middle class's healthcare/retirement just because they don't want to save more and take several less ski trips during their lives.

I think the justification for progressive taxation is that the more powerful the taxpayer, the more likely that he or she is to be able to pass on the cost of taxation. Most taxes are actually paid in the form of higher prices, lower wages, or lost job opportunities. Or in other words, the best way to measure the true cost of taxation is by who's standard of living is reduced by it and by how much. Progressive taxation is the only way to get the most powerful to really pay anything at all. Further, it should be understood that a considerable amount of regressive damage is done before any tax becomes truly progressive.

Fairness is not a word that can be applied to taxation.

The better argument against the 'fairness' of progressive taxation is the life fraction argument. Income costs the earner time, an expenditure of their life. When you decide that low income workers should be taxed at 10% and high income workers should be taxed a 30% you are really saying that the high income worker must sacrifice three times as much of their life to support the state, simply because their time has a higher resale value in the market. This is doubly annoying when you consider that the resale value of the time of high earners is usually higher because they've invested a great deal of time in increasing its value.

The picture becomes even worse when you look at differential hours worked etc, because in many cases high earners work more than the standard number of hours per year, and so their taxes represent the confiscation of an even higher percentage of their life than the rate might indicate.

Oversimple, but: Eliminate all taxes (including FICA) and implement a national sales tax. Exemptions for necessities (food) like most states. The rich buy more stuff, so they pay more tax. Nobody has to fill out a million hours worth of forms, either.

Happy New Year

Larry,

Don't 'execmpt' necessities. That way lies madness. Everywhere that has tried that route at reducing regressivity of the sales tax has ended up with incredibly stupied results. Instead, look at the Fairtax and it's prebate proposal. It proposes to prebate to each household the amount of money that household would pay in sales taxes if it were to spend up to the poverty line for a household of it's size.

"If this were an acceptable meaning for the word than retailers could charge different prices to different people."

well, i am trying to understand why the words "price discriminating" firm doesn't ring a bell here--ever been to a cinema lately to see a film? does that count as a form of "retail" bsiness for the purposes of this discussion. or the offers we get to join bmg or columbia house which can differ from person to person?

Being somewhat of a Libertarian (on SOME issues), my feelings towards taxes of ALL kinds are similar to my attitude towards a gangster extorting "protection" money from me...

Since government MUST be funded somehow, it would be preferable to have as few taxes as possible, and at the lowest possible rate. Concomittant with this would be to have as few government programs as possible, to minimize the NEED for funding!

But, I strongly believe that EVERYONE should pay tax. Even the poorest of the poor. The reason? When you have tens of millions of voting citizens who pay little to no income tax, it's extremely easy for class-divisive politicians to promise them generous programs (fuel assistance, housing, food, healthcare, etc., ) paid for by (of course) THE RICH!

It's extremely easy to get voter support for free stuff that someone else has to pay for. (see Rome, "Bread & Circuses").

On the other hand, if increases (or decreases) in tax rates were significant to EVERYONE, you'd see greater support for budget reductions, tax breaks, lowered rates, et. al. among the significant chunk of the voter base that currently support "More Government giveaways the filthy rich pay for, like they should!"

As Heinlein used to say, "There Ain't No Such Thing As A Free Lunch", although most Liberal politicians depend on the "Free Lunch" philosophy to get elected.

One final thought on progressive rates & differential pricing: When Bill Gates walks into the Starbucks to put a Cappucino, he pays the same as the Stop & Shop bagger in line ahead of him.

Same deal for movie tickets, gasoline, & Big Macs. Nobody would seriously consider paying for goods & services on a sliding scale based on your own gross income, would they? But for income taxes it's somehow "fair"?

Rebates are one example of price discrimination: people can self-select whether they're willing to mutilate the box and fill out all of the paperwork (and guarantee that they can't return the product) for a $10 discount. The same goes for coupons.

Senior discounts, even for seniors who have accumulated wealth over their lifetimes...student discounts...cheaper movie tickets at 11am. Lower prices for flying on Tuesday. Off-peak transit fares.

Just a few points on the topic—the previous poster’s comment on price discrimination is correct. Firms will attempt to price “price along the demand curve”, charging more to those with a higher willingness, and less to those with a lower willingness to pay. This is part of the economic rationale for cents-off coupons, for instance. At some level price discrimination is illegal, but it is not coercive, unlike taxes, so I’m not sure the analogy is valid.

Regarding justifications for progressive taxation, I believe that it goes back to John Stuart Mill. The idea is that:

1. Fairness dictates that people be taxed an equal loss of utility, not money.
2. There is diminishing marginal utility for wealth.
3. Therefore, wealthy people should pay a higher proportion of their wealth in tax.

Now, there are numerous problems with this, such as the impossibility of comparing peoples’ utilities (Jeremy Bentham’s “felicitous calculus” doesn’t exist). Also, our taxes are levied on income, not on wealth, so the connection to the marginal utility of wealth is even more tenuous.

None-the-less, that is the fairness argument for progressive taxation.

Don't forget club cards. At grocery stores, if you're dumb enough to have forgotten your club card or your phone number (or someone else's phone number who has a club card) or too shy to ask the person in front or behind you to swipe their card, or too embarassed to ask for a new club card, you can shell out an extra $5 - $20 on your $100 grocery bill.

As jl pointed out, one huge difference is that companies are offering consumers a choice, whereas the government is forcibly confiscating. Yes, companies may tailor offerings in an attempt to get some to pay more, but if you don't like it, you can buy the cheaper item or go elsewhere.

The term "fair" is almost too subjective to be used in an intellectually honest way (unless one precisely defines the specific use of the concept upfront). It's most often used in the kindergardener's way - fair is that I get what I want!

JL,

Re; John Stuart Mill and utility.

The problem is that the powerful have the ability to collect utility from others before giving up their own. Thus taxes that appear on the surface to be progressive, are usually regressive to some degree before they become progressive. Soaking the rich, always soaks the poor first.

I don't see the analogy between setting high prices at a retail store and confiscating more of someone's income because you've read his confidential financial statements and you know he earns more.

I'd like to see more federal asset taxes. A flat asset tax (with an exemption up to a certain amount) paid yearly on certain hard assets whose value is well known. For example, land tax (land value up to say $50K would be exempt) of say, 1-2% per year. Maybe 0.5-1% per year for houses, cars, boats, planes, etc. (anything that is commonly owned, relatively expensive, and with a known value)

Why? Mostly because it should be relatively straightforward. I'd like to get rid of other taxes that are less straightforward (capital gains, for example).

Keep the income tax for wages, interest, and dividends (anything paid regularly in cash), since that sort of thing is straightforward, but lower the rates to 10-20%. Eliminate all deductions and other complications, keeping only a standard exemption and possibly a very few credits (earned-income?).

A federal sales tax of about 5% would be a good idea since it is straightforward, but no higher or black markets would be too big a problem.

My theory of taxation is that you could argue forever about what is fair or best for growth without reaching a definite conclusion. So, in the absence of knowing what is optimal, just choose something that is not needlessly complex or obviously distorted or unfair (that way at least you know you haven't chosen the worst solution!).

Minimize complicated details while trying to make the tax as broad as possible so that few can avoid the tax. That allows the rate to be as low as possible so to minimize incentive distortions.

The goal is to take in about 15-20% of GDP with as little overhead as possible, spread as broadly as possible, and with minimal distortion to incentives.

Well I think the president had a point about "the rich will find a way not pay taxes." I did my taxes last year and paid about 7% of my income when everything was done. This amounted to $17,000. If you can afford it, you can certainly minimize your tax burden if you take the time to structure thing properly. Does writing a $17,000 check hurt? A little bit, but taken as the gross of my income, it's certainly bearable. People that complain about taxes should probably work to minimize them.

BSD

Eliminating withholding might be an effective way to keep downward pressure on tax rates. If you've got to write a decent size check to the IRS each year it becomes obvious just how much government costs you each year. The withholding/refund system obscures the cost for many people.

I'm serious here, people. Why not dump all federal taxes (and the *&%%&*^$ IRS in the process) and implement a national sales tax? The collection apparatus is in place in most states. Please tell me what's wrong with this idea?

Let's tax wealth. No, let's tax income. No, let's tax assets. All this is band aid stuff.

ErikR, I have no idea why you think more than 5% would make black markets a problem. Care to expand?

It is perhaps a poor analogy on my part. Student, senior abd military discounts are examples of different prices fror a single item. The rub comes when such offerings are mandated by law. Then is when I question the fairness in light of the concept of equality under the law.

Thoughts: (1) Withholding... some people argue it's unconstitutional & should be disposed of. Maybe so, but knowing how most folks "budget", what would happen most of the time is that, when the tax bill is due, there WON'T be any money in the bank to pay it with. Sad, but true. Just look at how much credit card debt people pile up, because it's so easy to do so.

(2) Property Taxes: Ecch! it's a popular way to raise revenue, but relies on the "principle" that for the "privilege" of owning property (house, condo, wooded lot, farm, boat, car, etc., ) the State is free to charge me some fraction of it's assessed value, each year, every year, forever. Basically, I think from a moral standpoint, it stinks! And if I can't (or won't) pay, the State can sieze my property & sell it. Just wonderful.

(3) What would I reasonably replace the revenue stream with? If I knew, I'd probably be President, or at least the next Nobel winner in economics. It grates on me, though.

Just look at what happened in California: after WWII, lots of people bought houses for $15K, $20K or so. Then came the housing boom, aerospace boom, Silicon Valley, etc., and homeowners saw their homes being valued at hundreds of thousands of dollars... just when they began to retire on fixed income. Elderly homeowners began to lose heir homes as the spiraling property taxes sucked up their income - until they managed to get Prop. 13 passed!

(4) Basically, given the opportunity to do so, Government will find a way to get a "piece of the action" by taxing anything they can get away with. No regard is ever given as to whether said taxes are MORAL or even reasonable, jsut how can they be tweaked to provide whatever desirable social good is given to justify them (i.e. redistribution of wealth, discourage alcohol & topbacco use, penalize inefficient gas-guzzlers, etc., etc., )

National sales taxes might be better than the income tax, especially as without the income tax, people would be better able to afford the sales tax bite. Dificult to evade (a plus), simple to administer (another plus), but it would hit lower-income folks harder...

Why do you list wealth and asset taxes as separate things? I thought they were the same. Band-aids? Band-aids are useful! So is medicine. Clothes. Food. I wouldn't want to live without any of them!

Tax anything that can be taxed simply -- anything that has a cash value or market-value or cost that was paid or well-known. The more diverse the taxes, the better, as long as they are simple to calculate and collect. That allows a broad tax base and makes it hard for people to avoid getting taxed.

Why would more than 5% result in diminishing returns due to a black market? Current system needs 15-20% of GDP in tax revenue, but with a flat sales tax you need to collect even more and redistrbute it (to implement something like Megan's negative income tax, or Arnold Kling's similar version) so that you don't price necessities out of reach of those with little or no income. So maybe you need a 40% take in that case.

So, to turn the question around on you, do you really think there would NOT be a significant black market problem with a 40% sales tax? A lot of people would be willing to break the law to save 40%....

Why do I say 5%? It is just a guestimate. I think it is small enough that most people aren't willing to go to the black market to avoid it. But it is large enough to contribute a good chunk of a broad, simple tax that I propose. Maybe you could change the corporate tax to a 5% revenue tax too (instead of a profit tax) which would eliminate a lot of gaming the system, and it would be equivalent to a total of 10% national sales tax (assuming a 5% retail tax and 5% corporate revenue tax). By separating the two bits, essentially implementing the last two stages of a value-added tax, you hopefully raise more revenue than a 10% sale tax (less black market losses), while avoiding most of the complications of a full VAT system.

JohnW: We could argue forever about whether taxing assets is "fair" (the government enforces property rights, and those with more valuable property derive more benefit from property rights, yada yada) but I think it is clear that taxing certain assets is expedient. It is not hard to know the cost of big ticket items such as land, houses, cars, so calculating a tax is straightforward. I think the biggest question is whether to go with cost or market value. I tend to favor cost in most instances, since it is simpler. But perhaps the taxpayer could choose cost or market value at their own option (in case records don't exist for cost and/or the market value is much less than cost)

Anyone care to guess whether Erik is a farmer? Selling off a corner of the family farm each year to keep the king's men at bay? Just curious.

ErikR: On the "fairness" of taxing assets (as in real estate); my issue (and I'm quite powerless to do anything at all about it) is whether it is MORAL for the State to levy a tax on my home/property. I don't think any such tax ability is to be found explicitly anywhere in the Constitution.

On the other hand, a LOT of what we also do or accept as a function of government isn't explicitly in there either. We must live with what our noble, enlightened ("cough, cough") legistators come up with.

Collectively, through our politicians, we have assented to being taxed in various ways on various things. But do you ever recall a referendum or election where our opinion was ever asked on any of these taxes we now have upon us? I know I've never had an opportunity to vote YES/NO on them!!

Can't help but believe somewhere deep down in my neo-Libertarian core, that fewer & smaller taxes are always preferable to more & larger, in the grand scheme of things.

The less "footprint" the State has on my life & business, the freer I am. I'm certain that if we could somehow come up with a short list of revenue streams the State could employ, and apply them to ALL residents (citizens & noncitizens) equally & without variance - and combine them with a trimmed-down list of all the fairy Godmother giveaways that so many people expect the State to supply, we'd all be better off.

I'd be prepared to grit my teeth, but grudgingly accept a mix such as:

Local property taxes (town only) to fund town government.

flat Federal income tax at 10%, no exemptions, no deductions. NO OTHER INCOME TAXES leved by any other entity.

fixed State sales tax - maybe 10%, no other sales taxes. All states to use the SAME rate, to flatten the revenue (i.e. no advantage to shopping in a nearby state w. lower taxes, as happens now).

There. Three simple revenue streams to serve local, state & federal treasuries... and they have to live within their means, just like I have to! :)

BTW; "the government enforces property rights" --- they DO??? I though that my property rights were fundamental inherent rights that no government had the power to abridge... Oh, yeah... wait a minute...

that New London vs. Kelo Supreme Court decision seems to have put paid to that one (at least until it gets overturned or rendered moot by various state legislatures...)

:)

Of course, there's always the 2nd. Amendment, but that only works in practice with large groups dissenting. :)

It's quite moral to levy a tax on land. You don't deserve the land your house sits on any more than I do. The house itself, of course, is yours to keep.

The more I think about it, the closer I come to drinking the LVT Koolaid completely. It all just makes so much sense.

Bob:

when you say: It's quite moral to levy a tax on land. You don't deserve the land your house sits on any more than I do. The house itself, of course, is yours to keep.

I don't quite understand... Can I not buy an acre of land & regard it as my property just like my wristwatch, PC or flashlight? Is ownership of a parcel of ground somehow complex or invalid?

For all of human history, the desire of people to have a plot of ground to live on, to raise crops on, or to use in some other fashion has been so completely & fundamentally a part of the concept of freedom, self-reliance & personal worth that it has become, well, a basic tenet of what it means to be "free". I guess I don't get it.

And, also, just WHY is it moral for the State to levy a tax on the stuff I have bought & paid for? The State does it because it CAN, but what exactly justifies it? And why not also tax my accumulated DVD's, clothes, tools, appliances, etc., ? I have them, too & they're "durable" goods -- would you be pleased if the government tried to implement a version of the "inventory tax" on everyone's personal belongings?

And ask the tax be paid each & every year based on the amount of stuff owned on Jan 1??? Might get a revolution over THAT idea! :) But how different exactly is that from taxing my car, house & land?

BTW, refresh my memory... what's "LVT"??

:)

How about a "head tax"...Take the federal budget and divide that by the number of citizens over 18 and that is the individual tax burden. If one cant afford that amount, one loses citizenship. That is the only "fair" way to raise revenue. It is the only way to free americas working families.

JohnW:

The effects of taxing land values are pretty broad (and, I believe, quite beneficial for the most part) -- click on my name beneath this post for a good jumping off point. Of note, it's one of a very few taxes that does not reduce the quantity supplied.

The morality behind the LVT (land value tax), chiefly, is that a person can own the fruits of his labors-- but only _improvements_ on the land result from labor. The existence of the land itself is the result of either divine providence or dumb luck, not of hard work.

The only reason that you own your land is that you bought it from someone who bought it from someone (and so on) who fought someone else for it, or stole it. It wasn't justly acquired.

And in case I didn't make my point very well, I don't think that the state has any business whatsoever taxing your watch, refrigerator, or house.

SForbes asks "How about a head tax..."

I can't help thinking about why ordinary Nevada residents have such a low tax burden...

I know that Mindles understands the distinction, but there is a difference between charging different prices and charging higher rates. Yes?

To take the coffee example: A flat tax would mean that a $20K/yr earner would pay $2 a cup and a $40k earner would pay $4. A progressive tax would mean that same $40k earner would pay more than $4 (perhaps $6). So a flat income tax would be vastly more progressive than most real-world price discrimination schemes.

The closest thing to progressive taxation in the semi-private sector would be the "fiancial aid" elite colleges provide to different applicants.

At any rate one could consistently attack progressivity in taxation while finding a flat tax consistent with the sort of price discrimination engaged in by retailers, which is often still more regressive than any flat tax.

Just trying to state the obvious for clarity.

Did you go out of your way to misunderstand the analogy?

No one at Starbucks charges you more after looking at your paystub.

Sensitivity pricing isn't the same as making the rich pay more. The rich, like the poor, can decide for themselves to pay more at a Whole Foods than at WalMart. No one asks them for their IRS tax return.

In fact, this is one of the great things about chain stores, rather than the local mom-n-pop store. The local mom-n-pop store often charges the "rich" people in town more for the same goods and services than they do the "normal" people in town. They do this based on address, town locality, or zip code. They do it based on the clothing of the person in the store. WalMart never does that. They charge 7.99 regardless of which street you live on in Anytown, USA. They charge you 7.99 regardless of your clothing or your paystub.

while they both only have one life, the rich man has a lot more at risk if they both have to flee to exile in another country.

Um, that's pretty much the exact opposite of the truth. A rich person can pick up and move to another country with minimal difficulty. A working-class person (a) probably cannot AFFORD to relocate and (b) will have a tough time finding work when he gets there.

The military protects the working class more than it does the rich. The rich can go be rich someplace else.

I'd be opposed to a national sales tax on the grounds that it wouldn't guarantee income tax going away. After all, the infrastructure already exists to tax income, and it isn't as if governments make a habit of giving money back. It seems too likely that we'd be taxed for earning the money then taxed again for spending it, as we already are on the state level. I'd rather stick with the devil we have.

JohnW:

Fewer/smaller vs. more/larger. Ha! You could be one of those (cough, cough) politicians.

That's obviously not what I was talking about. The choice I was discussing was between fewer/larger and more/smaller, surely you realized that and were just trying some propaganda?

Experts who have studied these matters invariably prefer broader tax bases with lower rates, which is just what I was proposing. The main way that I differ from the experts is that they generally use some theory or other to decide what is optimal, but they tend to come up with different answers. I admit that no one knows what is optimal, so instead I just want to tax what is easy to tax. Having a lot of small taxes that are easy to calculate would help to ensure a broad tax base and make it harder for people to avoid paying their taxes.

Sure it would be nice if we had little or no tax. But it ain't gonna happen. For the past 75 years the American federal government has needed 15-20% of GDP to finance its spending. This is one of the lowest rates of all developed countries. It is literally unprecedented to expect a developed country government to run on less than that. Could it happen? Sure, you can dream about it. But I'd rather be practical, assume that 15-20% of GDP is the money that must be raised, and pick the simplest and broadest taxes possible to raise it.

Anyone care to guess whether Wulf or someone in his family is a bad farmer who cannot do a good job of efficiently utilizing the land he squats on to make a living and produce a decent return, and so whines and jumps up and down, demanding ever bigger subsidies and handouts from taxpayers to encourage even more inefficient use of the land that he refuses to allow anyone else to utilize in a more efficient manner?

And, also, just WHY is it moral for the State to levy a tax on the stuff I have bought & paid for? The State does it because it CAN, but what exactly justifies it?

Ownership is a creature of law. Other posessions are tangible. Land is just land.

But the notion of coffee pricing as being directly tied in to sensitivity as an analogy to progressivity is wrong. It's really about the seller's ability to divide you up into groups -- that is, it's about the seller's ability to perceive how sensitive you are at the margin. IN contrast, progressivity makes judgments about both your average and your marginal condition. It makes judgments about your status as a payer and sets rates accordingly. The fundamental idea of progressivity is that a rich man is always rich and to be distinguished from the poor.

Price discrimination of the sort Harford mentions is about how you reveal yourself to be sensitive at this margin without regard to your overall characteristics. I do not view that as progressivity at all. You may choose to make the analogy but the analogy is flawed. Willingness to pay is NOT analogous to some idealized capacity to pay.

"progressivity makes judgments about both your average and your marginal condition. It makes judgments about your status as a payer and sets rates accordingly"

I argue above that it is an imperfect analogy, you argue it is a 'wrong' analogy. Yet your sentence quoted above could easily be applied to targeted pricing schemes from the Starbucks example to student IDs, senior discounts and utility discount programs.

But it is interesting to ask - if we could levy taxes based on willingness to pay (price elasticity of demand for government) the same way Starbucks does, would that be considered progressive? It does seem to jive with Mill's idea of pricing government at its marginal utility (see comments above).

Dan,

You must have skewed notion of what is "rich" for tax purposes. My wife and I are "rich" (top 3%) in income, but certainly not in accumulated assets. We didn't hit jobs paying over $100K until we were in our fifties. We would be far from "rich" if we had to move to another country.

Most of the "rich" are in that category--they are "rich" because of the businesses they have built up, and if they had to flee, they would have to start all over again.

Or do you believe that the majority of the "rich" are trust fund babies? HA!

Incidentally, I take issue with ErikR's idea that the necessary size of government is perfectly correlated to GDP (less than 15-20% would be 'unprecedented'). Why can't government grow more slowly than a rapidly growing economy? Why shouldn't it? Should other countries have the same ratio when we have a) state governments b) a much larger economy? We mustn't let this assumption go unchallenged. It is unsupported nonsense to link government growth to economic growth.

Mindless:

No, you don't. Unless you really are mindless, you don't "take issue" with a fact. Literally, what I said is true. I made no statement about what SHOULD be. Just the facts, ma'am.

If you meant to claim that my factual statement is incorrect, then please point me to the precedent of a developed country with a government running on tax revenues less than 15% GDP per year.

It should be noted that purchasing a $3.20 cup of coffee is a completely voluntary act while paying taxes is done under threat of fine and/or imprisonment.

As to the discussion of who get's more out of the taxes paid, the poor or the rich, consider where the money get's spent. According to the CBO $895 billion was spent in 2004 on 'discretionary' spending, which included defense, law enforcement, homeland security, and all the other things which 'prtect' the assets of the rich. Please note not all of that $895 billion number goes towards things that benefit the rich, but those things which do are contained therein. Then consider that in 2004 entitlement spending was $1,345.7 billion. Entitlement spending is pure transfer of wealth from one group to another. While you do see some benefits to the elderly rich there (medicare, social security) they tend to be very small relative to their contributions, and can easily be done without (by the rich).

Total 2004 expenditures where $2,292.2 billion. So things that might conceivably benefit the rich made up 39% of expenditures, while benefits for the poor made up 58% of expenditures. So I simply don't by that the rich pay more because they get the most out of the system. You could easily trim 58% of the costs out of the system without most of the rich noticing.

Actually, quadropole, law enforcement is at least as important to the poor as to the rich. Lots more muggers and petty burglars here in da 'hood than out in the fancy suburbs. If I lived where I wasn't one of the better off folks around, I wouldn't have to worry about somebody smashing a window to get my change jar.

triticale,

I know thaat law enforcement is at least as important to the poor as the rich. Mine was a back of th envelope calculation. I strongly suspect that when the dust settles, when we aren't actively at war, the feds spend about 20-25% of the budget on things that beneit the rich.

Taxing asset value isn't reasonable because the appreciation of those assets is not always within the control of the owner. A retiree on a fixed income may find that the house he purchased 30 years ago is worth substantially more by virtue of location, but that does not make the person rich. With market value assessment, the value of my house has increased by over 25% in 2 years; my income has not, and I am not rich.

Also, rich people do not necessarily spend more. In some cases it may be that they have become rich by spending less.

And while Starbucks and other retailers may charge differentiated prices, the customer is free to choose which beverage to purchase, or to purchase none. The same choice does not exist for taxes, which must be paid under penalty of law. While there are not may ways to assess taxes fairly, is it reasonable that just because you make more that you should pay more to receive essentially the same services?

In the case of property taxes, is it reasonable that I pay more for the very same services? In fact, if I live on a third tier road I am the last to have my street snowplowed, so I actually pay more to receive less service.

Unfortunately, the "make more/pay more" scenario is one of the few acceptable options available.

Shell, if I gave the impression adding a new tax was a good idea, I'm very sorry. I want to close the IRS, abolish FICA and income tax and replace it with a national sales tax. Nearly foolproof collection apparatus is already in place. Actuaries can set rates, but I'm certain they're well below 40%, probably less than half that.

ErikR, you're the one who says we'll get black market over 5%. I merely ask why you think that and you ask me to prove a negative? Wow! Touchy, touchy! That's not the way it works, pal. Pull something out of an orifice, YOU have to explain it. M'kay?

ErikR
I can't let this go unchallenged.

You made the asertion that the US take of 15-20% of GDP is unprecedented and then challenged others to find you a counterexample.
Since your assertion only touches part of the truth, I'd hope that you could perhaps do a little more of the legwork yourself.

By focusing on the federal government only, you have ignored state income taxes, property taxes and social security taxes that all replace functions that other countries finance out of general taxation.
For example, England pays for its schools out of general taxation, and not from income taxes. They also cover licensing and regulation of motor vehicles, insurance, banking, local road repairs, all welfare etc - much of this is provided by the States (as in NY, NJ, etc).
Also, a higher proportion of older people get welfare (as opposed to the USA where our generous Social Security benefits have substantially eliminated the problem of old age poverty).
Of course, I almost forgot public health systems in most other advanced countries that come out of general government revenues, rather than out of employer health premiums.

So, the challenge is to you to correct for these major differences, or stop making the assertion.

ErikR,
Obviously, I'm not challenging your "fact", just its relevance

Larry, I'm not going to take the time to hunt up a whole lot of historical citations, but every time a tax has been imposed at the sort of rates needed to support our overblown federal government (nearly 20% of the national income), some sort of black market/tax evasion scheme has existed. Heck, there are a few people who would try to evade a 5% sales tax.

However, what difference does this make? The income tax also creates black market. There are mechanics and other service businesses that will give you a discount if you pay cash and don't want a receipt that some IRS auditor might someday compare to their reported income. There are workers paid "off the books". There are back-alley retail sales operations that you can be sure aren't reporting their sales receipts to the IRS; of course, very little of the stock moved by such operations was obtained legally either.

Change to the Fair Tax scheme or another high-rate sales tax, and you'll see similar black market operations to avoid the tax. You'll also see a higher percentage of the tax evaders getting caught, fined, and jailed, because tax auditors will only have some hundreds of thousands of businesses to investigate rather than hundreds of millions of individual tax returns, and because "how much was your gross receipts" is a much, much simpler question than "what was your income".

"The goal is to take in about 15-20% of GDP with as little overhead as possible, spread as broadly as possible, and with minimal distortion to incentives."

"It is literally unprecedented to expect a developed country government to run on less than that. Could it happen? Sure, you can dream about it. But I'd rather be practical, assume that 15-20% of GDP is the money that must be raised, and pick the simplest and broadest taxes possible to raise it."

(Emphasis mine) If it's so difficult or unprecedented to run a government for less than 15-20%, in fact unprecedented for the largest economy, then there must be some rule about the size of the government relative to GDP. You have 'assumed' so and set that number as a 'goal' (perhaps you didn't mean to?). I don't accept it, because I view the proposition that government has to be a certain proportion of the economy, regardless of other variables, as totally unproven.

You must have skewed notion of what is "rich" for tax purposes. My wife and I are "rich" (top 3%) in income, but certainly not in accumulated assets. We didn't hit jobs paying over $100K until we were in our fifties. We would be far from "rich" if we had to move to another country.

So far as I can tell, your entire argument is that you're not actually rich. Well, if you're not actually rich, then my comments about rich people don't apply to you, now do they.

Dan,

To be fair, I think the point Rex was trying to make with that comment is that income definition of "rich" will necessarily include significant numbers of people with little mobility of their status. A middle manager pulling in $100K after 20 years probably wouldn't be able to quickly regain their status if they had to immigrate.

gazzer:

You either need to read more carefully or write more carefully. Your comment on what I wrote is nonsense. Maybe that is why you backpedaled in your next message, but even your backpedaling is unclear -- of COURSE it is relevant that no one can provide an example of a country getting by with lower taxes than 15% of GDP.

I wrote that it is unprecedented for a developed country government to collect less than 15% of GDP per year in taxes. I didn't make this up, I have read about these subjects for years and I have never seen an counter-example. If you know of one, I'd love to hear about it (I don't WANT more taxes :-)

Larry: I didn't ask you to prove anything. Wow, paranoid paranoid. I was just explaining how I guestimated the 5%. Let me try again. I think it is clear that 40% would result in major black market activity. The question is how low does that have to go before black market is minimal? I guess 5%. I can't "prove" it, obviously, but just ask yourself what people are willing to do to save, say 10%, and you can get an idea.

Mindless:

Thanks for the clarification. You said you previously wrote that you were taking issue with my statement that a developed country getting by on less than 15% of GDP in taxes is literally unprecedented. But no one has provided a precedent, so I think my statement stands.

But your clarification is that you don't dispute that there is no precedent. Rather, you apparently want to SET a precedent -- we should be the first to get by on less than 15% of GDP.

Fine sentiment, but in my experience political idealists rarely accomplish anything, especially these sorts of revolutionary changes. I think you'd be better of framing it as "evolutionary" instead. How can we reduce our taxes by 1% of GDP. Then how can we reduce another 1% of GDP. And so on. And find a practical way to do each step. Details matter.

What will it be folks, the Communist Manifesto of "From each according to his ability, to each according to his need" or the Capitalist Manifesto of "From each according to his need, to
each according to his ability?"

How about "From each according to his ability and hard work, to each according to his ability and hard work"?

From each, according to whatever product or service he or she chooses to offer for sale in the market.

To each, according to the value negotiated in the market for the product or service offered - or according to a minimum standard of living negotiated through the socio-political process.

I think that MHD's price sensitivity explanation is a pretty good one.

I've never understood the fairness angle on taxation. The sad fact is that as Willie Sutton said of banks we tax the rich because that's where the money is. For those who are concerned at the plight of the rich, the notion that they got that way through talent and hard work is, frankly, poppycock. There are too many talented people working 50 and 60 hours a week and not getting rich by doing it for that to be credible. I've known quite a few of the super-wealthy over the years and they were all skilled manipulators of the system. “The system” is what the government implements and enforces. The rich are getting what they pay for.

A national sales tax won't work as a substitute for the income tax for one simple reason: compliance. To substitute for the income tax a national sales tax would have to be quite high—upwards of 25%. At that rate people would just evade it. Try a VAT.

Dave,

There is a huge difference between the super-rich and what are usually called the rich. The average millionaire (what I would call the rich, not the super-rich) works 14 hour days at least six days a week. (Source: WSJ from about a decade ago. I vividly remember that statistic because that is when I acknowledged to myself that I was never going to become a millionaire.)

"Retailers do exactly that all the time. Understanding that requesting a balance sheet or a precise measurement of price elasticity of demand at purchase, they use other techniques to sniff out customers who are willing to pay more."

Emphasis on "willing". Your entire arguement breaks down right there. Tax payers must pay, willing or not. Every consumer of every income level can choose to not buy an overpriced Starbucks coffee. A U.S. citizen cannot choose to not purchase Federal 'products' because they cost too much.

What will it be folks, the Communist Manifesto of "From each according to his ability, to each according to his need" or the Capitalist Manifesto of "From each according to his need, to
each according to his ability?"

That's not the Capitalist Manifesto, it's the Dipshit Communist's Capitalist Manifesto.

The Capitalist Manifesto is "from each according to his ability, to each according to his ability to pay what the market will bear". :)

For those who are concerned at the plight of the rich, the notion that they got that way through talent and hard work is, frankly, poppycock. There are too many talented people working 50 and 60 hours a week and not getting rich by doing it for that to be credible.

It is very, very hard to go from "poor" to "rich" in a single generation. It is, however, simple to go from "poor" to "middle class" in a single generation if you are talented and hard-working (in fact it is practically unavoidable). It is also fairly simple to go from "middle class" to "rich" in a single generation. An intelligent middle-class kid willing to bust his ass for 60 hours a week for decades is going to die a multimillionaire unless he gets really unlucky. Most of us just don't want to put in the required work -- we'd rather be middle-class and content than rich and exhausted.

one argument for shifting more of the tax from income to consumption is to encourage earning money and discourage spending money.... i.e. to increase our national savings rate, which has gone negative in the recent past according to commonly reported measurement

practically, it would have to be phased in over decades, however, otherwise you'd completely screw people (like Rex above) who have paid taxes on income and saved the remainder, only to have the remainder taxed all over again.

ErikR,
No, I wasn't backpedalling. I was simply reinforcing the point that your statement may have been factually correct, but it was not useful.
It's as if you said that you could not imagine a State getting by on less income tax than Florida does (it's 0%), but you ignore that fact that the tax came from other sources.
It's as if you had said that you could not imagine the 7-11 giving away free refills for any cheaper. Also true, but not relevant.

I believe I read your assertion correctly.
You stated that the US takes in 15-20%. You then said that no other country comes this close. You then said that you could not imagine a developed country running on less than this.
I took issue with your comparison with other countries. On an apples to apples basis, our actual spending is substantially higher than 15-20%.

If the comparison is not apt, then don't make it.
If your only point was that our government cannot be much smaller, then just say that.

My 'entire argument' was that retailers charge different customers different prices, and they do so on a proxy for means -as a response to an assertion that they can't. The fact that taxes are extracted by force is certainly important, but isn't relevant to my point.

I believe that what's breaking down is this comment thread. Some variation of Dreck's law at work.

gazzer:

You continue to make a mish-mash of things, and I'm not going to bother to correct them all. But a few, at least:

I certainly CAN imagine a developed country with less than 15% of GDP as tax revenue. But unfortunately, wishing does not make it so. And then you switch from taxes to spending. I'm not even going to touch that one.

My point is NOT that the government cannot be smaller -- obviously it could. But it is apparently difficult. I don't see how I can state my point more clearly than I already have: it is literally unprecedented for a developed country government to have tax revenue of less than 15% of GDP.

If you really want to have a productive discussion, it would help if you were more coherent. Your writing jumps around a lot, and you attribute things to me that I did not write.

My 'entire argument' was that retailers charge different customers different prices, and they do so on a proxy for means -as a response to an assertion that they can't.

Is Starbucks really a good example of that, though? They seem to be charging on the basis of aethetics, not perceived customer wealth. I kind of doubt they're using those prices as a proxy for means. Who distinguishes $2.75 from $2.55 when making a purchase?

I don't quite understand... Can I not buy an acre of land & regard it as my property just like my wristwatch, PC or flashlight? Is ownership of a parcel of ground somehow complex or invalid?

It is far easier to defend your wristwatch, PC, and flashlight from the barbarians than your acre of land, because the previous three are portable. Also, those -- much like the highly unportable house and any other structures, outbuildings, or physycal improvements on your land -- are aquired products. None of them were "just there" from time immemorial, sitting idle until the day someone showed up and wrote himself a title.

Maybe you perhaps intend to hire or rent the services of your own personal militia, fire protection, policing, road builders, and various other services assuming they were available, and many of which presently derive some income from state property taxes. I think you would come out at a loss, or else be forced to collaborate with neighbors in order to increase the economies of scale, which then requires some enforcement means of paying dues, adjusted according to the value of the protected property. Hmmm.

Note that all of these protect or enhance the value of your land and the aquired land improvements or property thereon, so you must be joking to demand that a moral case for the taxation be presented. Albeit the joke is not all that funny. Just odd.

'centimillionaire' ? Someone with assets of $10,000 ?
Sure you don't mean a hectomillionaire?

in the differential pricing of coffee, it's worth comparing starbucks with dunkin donuts. the variations within starbucks is a finer mesh of price variation for perceived quality (or status on some subtle level) than the larger price differentials between starbucks and d&d.

they all provide the desired caffeine

to anony-mouse (& others)...

It may be hard (especially in the venue of "comments" ) for me to explain my feelings on taxes in general.

Given that government & its services is a necessity, and that we, collectively as voting citizens have some say in the extent & nature of those services, they must somehow be paid for.

I sometimes feel annoyed at some of the things my government (at all levels) spends money on, & assume that everyone else also has a few thoughts along that line also. Probably different annoyances, too! :)

It is how the money to fund government is assessed from the citizens that I often ponder on. Hundreds of different ideas about how to tax & what to tax are all floating around there, & I really can't decide which hypothetical new idea would really work best.

The interesting question, that few (except the Libertarians) ever address is from where does the moral right to tax derive? A few people feel that the Federal government actually HAS NO right to tax, but, because it's big & strong, it does as it pleases, nevertheless. Just a part of life. :)

But, as to your statement about all those services my taxes on land would supposedly pay for & how would I privately fund them: When I was growing up, I lived in a small rural town in Connecticut. We had a well & septic system (no sewers of public utilities). Our road was unpaved. The fire department was volunteers. There were no police ( a local constable served)...

Of course there were other town services (schools, snowplows), but, as one could imagine, taxes were low! Someone choosing to live in the forests of Northern Vermont, the Arizona desert, or other remote locales could aso expect proportionately lower taxes than someone living in Manhattan or Atlanta.

But, as to your statement about all those services my taxes on land would supposedly pay for & how would I privately fund them: When I was growing up, I lived in a small rural town in Connecticut. We had a well & septic system (no sewers of public utilities). Our road was unpaved. The fire department was volunteers. There were no police ( a local constable served)...

Ironically, that scenario necessarily applies to a rather small segment of the overall population, and one that becomes ever smaller relative to the whole as time passes. Meanwhile, did Connecticuit not have a national guard? If some widespread disaster had come upon your small community, would the state not have stepped in to provide aid services?

If your only purpose in that anecdote was to point out that a few people can live in situations where the property tax (and corresponding services received) is very small, then fine, but that doesn't answer the broader point. If you DID consider yourself to be answering the broader point, then you are probably writing from the proverbial backwoods Montanan shack and stockpiling ammunition.

Anony-mouse: Less than half of government budgets are spent on defense, police and fire departments, water and sewage systems, and roads. And that's with a whole lot of defense and police expenditures on things libertarians will generally disapprove of, like victimless crimes and keeping troops in Germany 17 years after the threat they were there to guard against ended. So I think we could cut taxes to 10% of GDP without losing anything that government actually does better.

Thanks markm, but I think you lost site of where I took JohnW to task. States and counties/parishes/townw/etc. collect property taxes, not the federal government. In fact many counties (at least here in the western US) are almost solely dependent upon property tax revenues for their operating budgets. These, in turn, are converted back to services that greatly enhance the value and protections afforded to properties within that county.

Thus there is no "moral" case against the property tax; that's grandstanding talk. If someone wants to make practical and pragmatic arguments for or against it, then by all means, carry onward.

You may be missing the basic tenets I'm trying to explain:

(1) I really DO recognize that SOMETHING has to fund the things Govt. does. Probably won't be completely happy with whatever techniques end up being used, but nothing in life is ever perfect.

(2) The fewer things we require/expect govt. to do, the less revenue will be required, and the burden lighter on all involved.

(3) No shack in Montana. Upscale elitist neighborhood in very Blue state. No ammo stockpile either, but wife & I are NRA members....

(4) It might be amazing to see how little revenue govt. would really NEED, if there were less "nanny-state" & more reliance on community, private interests, families & churches - Similar as how things were handled in the 1800's, but with the kind of "safety nets" we've become accustomed to, albeit for the special needs, not all-and-sundry.

(5) we LET government tax us because it's the general consensus that it's OK for it to do so (a habit). Plus they have might on their side, which helps compliance! :)

However, I haven't heard anything in this entire thread as to where this ability derives from... :)

P.S. damaged wrist falling in driveway & am writing in a wrist brace + on Vicodan, so I must really be determined to type!

:)

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