Guest Blog - In defense of taxes
I haven't had much time to blog recently, so I'm posting an article written by a friend, Bart Wright, who is far more thoughtful and persuasive than I could ever dream of being. -Alec
Consider how many times have you read or heard this basic message:
Taxes are too high. The government is a bungling if not crooked bureaucracy that takes our money and wastes it. The government can't do anything right.
I think taxes are great. They're wonderful. We need taxes. We need to pay more taxes, not less. Everybody with me so far?
Of course everybody hates taxes. Why not keep the money for yourself? It's convenient to forget, when thinking about your own wallet, that taxes pay for things. They pay for government services. When forced to think about it, everyone admits that courts, police, firefighters, airports and highways are worth their taxes. But taxes do pay for a great deal more.
Sure, there's corruption and inefficiency in government, but compared to other places and other times in history, it is very low. (Many of those who ridicule government waste suddenly fall silent on the subject when the military is under discussion.) Inefficiency seems to be a necessary part of large organizations run by fallible humans, a few of whom are always dishonest and unethical. The other large organizations in our world are corporations, and there is no end of inefficiency and waste there. Their employees see this all the time. It only occasionally comes to the attention of the public when some corporate giant fails or some little clump of executives is prosecuted for wrongdoing.
If you want highways and not potholes, someone has to pay for it. If you want decent health care available to everyone in society, someone has to pay for it. If you want a cleaner environment, someone has to pay for it. The same goes for national parks, safe food and drugs, and some protection for the unemployed, the old, and the sick. And, if you want a huge military whose best justification is to allow us to get into quagmires like Iraq (I certainly don't), someone has to pay for that too.
Taxes need to be progressive, and they need to be more progressive than they are. I don't understand how anyone can swallow Bush's offhand sound-bite "argument" that taxing the rich more heavily is class warfare. Class warfare would be if the poorer classes were uniting to violently seize the economy from the rich with the goal of owning it themselves, and only the tiniest fringe in this country wants that. Asking that the rich get rich a little less quickly is hardly class warfare.
I found an article on the web a while ago, though it seems to have disappeared. This is the old URL:
http://www.tcf.org/Publications/Basics/Tax/History.html
It explores tax issues in depth and contains a great deal of data. What I really liked in this article is Figure 6, which tells us that there is a big difference between how income taxes were levied in the period from 1944 through 1980 on the one hand, and the period since 1986 on the other. In the 1944-80 period --
a period which was generally marked by great prosperity in this country -- taxes were notably progressive. The more you earned, the greater percentage of what you earned was owed in taxes. Today, as then, if you earn $25,000 and get a $1000 bonus, you pay something like 33% of that bonus in tax. Today, if you earn a very handsome $1,000,000 and get a $1000 bonus, you pay the same 33%, but back then you paid about 70% of your bonus. Whether that's fair or not (I will argue its fairness below), our society was prosperous. The idea that raising taxes on the rich will somehow ruin the economy is just a self-serving lie by the rich. Returning to the tax structure of 1980 would raise a great deal of revenue which could be used for various good purposes.
Moving back from the current political picture to look at our basic values, here are some thoughts on why progressive taxation is a good idea and a fair one too.
Pure free-market capitalism is all about dollars being the basic unit of power. Through investment, dollars make more dollars, and if you own those dollars, you can become fabulously wealthy and wield enormous power. If you can do useful work, and trade your work for dollars, you can live. However, if you have no dollars and cannot earn any, you have no place in the system, which is perfectly content to let you die. The Irish potato famine of 1847 was close to this, since throughout the period of mass starvation the landowners of Ireland were exporting grain for a profit.
At the other extreme from pure capitalism is the idea that all wealth and income should be divided equally among everyone, regardless of how much they work. Most of us think this is not fair, since hard work deserves to be rewarded. It has most certainly proven to be a disaster in practical terms, since societies that come anywhere near this system fail because there is not enough incentive to work (the USSR comes to mind). People need to be able to see that their work benefits them directly.
Each person is a mixture of things they can control, such as their willingness to work hard, character, a positive attitude and determination; and traits they cannot control, such as genetic endowment, family structure, early experiences, prejudice, accidents and illness. Both parts weigh heavily in one's ability to work in a way that society values.
Since we cannot tell for each individual how to separate these controllable and uncontrollable factors, the best society can do is to let people have things/money/care partly based on how much they contribute effectively to our economy to make money and partly on their status as human beings. Their direct contributions come to them in money. Their status as human beings produces not only "welfare" but social security, Medicaid, Medicare, food stamps, and unemployment insurance.
The rule in private life in general is that people pay for what they get. It's part of our basic ideas of fairness. The same idea carries over to government programs like social security and unemployment insurance. If you take from the government at some point, it's because you paid your dues earlier. But when we are dealing with those struggling to get by, they can't afford to pay for what they need. As people go up the scale in income, they need less and less of the extra money as they move from just getting by to living comfortably to living opulently. This is the idea behind the progressive income tax. The rich are always allowed to keep a whole lot of money, including a significant proportion of their excess income (excess in the sense of being more than other people earn). I don't think fair-minded people assume rich people have done something wrong and deserve high taxes -- it's just that the money has to come from somewhere, and the richer you are, the more you can afford to part with.
A basic argument of the anti-tax position is "I earned the money, therefore I deserve it and it's mine." The assumption is that whatever you were able to trade your labor for in the marketplace is in some fundamental God-given sense what you deserve. Aside from ignoring the significant factors in earning potential that people have no control over, and ignoring luck (did you happen to pick the right stock?), and ignoring unethical practices (did your grandfather swindle someone?), it assumes the present system is the only way things could be (or should be).
Suppose you didn't inherit wealth or have many early advantages, but you through your own efforts have made yourself successful. Even so, your success started with the innate underpinnings of the skills that are valued in today's economy. Intellectual gifts and the power of persuasion are good examples. Not long ago, the strength required for manual labor was valued much more. In other times, the ability to persist in agricultural work in cold conditions may have been what brought you success. In others, it might have been acute vision to help with hunting or finding the scarce wild plants that could yield food, or in others, military skill. Is intellectual prowess inherently worth more than any of these? I say it's not; it's a function of the society and economy of which you are a part. Successful people are not islands unto themselves; they benefit from and are part of an entire system. Part of their success they owe to the system which happens to value their skills. It is fair that they pay more to keep that system running.
It's a natural tendency for people to take a position which benefits them. Rich people are likely to find rationalizations for why they should pay as little as possible in taxes. What I find more perplexing and sad is how many poorer people and working people do not see the bigger picture, but also accept that their income reflects a divine decree on what they deserve.
We must never forget the other side of the issue. People who are successful have done better than many others who started with the same native abilities because they have forgone pleasures of the moment, persisted through adversity, worked harder, and worked longer. We should honor and respect them and what they have done. Their desire for more money, perhaps a great deal more money, may have been what motivated them. They should be able to enjoy it, even to be fabulously rich. All progressive taxation asks is that they be a little less rich for the sake of all.
Consider how many times have you read or heard this basic message:
Taxes are too high. The government is a bungling if not crooked bureaucracy that takes our money and wastes it. The government can't do anything right.
I think taxes are great. They're wonderful. We need taxes. We need to pay more taxes, not less. Everybody with me so far?
Of course everybody hates taxes. Why not keep the money for yourself? It's convenient to forget, when thinking about your own wallet, that taxes pay for things. They pay for government services. When forced to think about it, everyone admits that courts, police, firefighters, airports and highways are worth their taxes. But taxes do pay for a great deal more.
Sure, there's corruption and inefficiency in government, but compared to other places and other times in history, it is very low. (Many of those who ridicule government waste suddenly fall silent on the subject when the military is under discussion.) Inefficiency seems to be a necessary part of large organizations run by fallible humans, a few of whom are always dishonest and unethical. The other large organizations in our world are corporations, and there is no end of inefficiency and waste there. Their employees see this all the time. It only occasionally comes to the attention of the public when some corporate giant fails or some little clump of executives is prosecuted for wrongdoing.
If you want highways and not potholes, someone has to pay for it. If you want decent health care available to everyone in society, someone has to pay for it. If you want a cleaner environment, someone has to pay for it. The same goes for national parks, safe food and drugs, and some protection for the unemployed, the old, and the sick. And, if you want a huge military whose best justification is to allow us to get into quagmires like Iraq (I certainly don't), someone has to pay for that too.
Taxes need to be progressive, and they need to be more progressive than they are. I don't understand how anyone can swallow Bush's offhand sound-bite "argument" that taxing the rich more heavily is class warfare. Class warfare would be if the poorer classes were uniting to violently seize the economy from the rich with the goal of owning it themselves, and only the tiniest fringe in this country wants that. Asking that the rich get rich a little less quickly is hardly class warfare.
I found an article on the web a while ago, though it seems to have disappeared. This is the old URL:
http://www.tcf.org/Publications/Basics/Tax/History.html
It explores tax issues in depth and contains a great deal of data. What I really liked in this article is Figure 6, which tells us that there is a big difference between how income taxes were levied in the period from 1944 through 1980 on the one hand, and the period since 1986 on the other. In the 1944-80 period --
a period which was generally marked by great prosperity in this country -- taxes were notably progressive. The more you earned, the greater percentage of what you earned was owed in taxes. Today, as then, if you earn $25,000 and get a $1000 bonus, you pay something like 33% of that bonus in tax. Today, if you earn a very handsome $1,000,000 and get a $1000 bonus, you pay the same 33%, but back then you paid about 70% of your bonus. Whether that's fair or not (I will argue its fairness below), our society was prosperous. The idea that raising taxes on the rich will somehow ruin the economy is just a self-serving lie by the rich. Returning to the tax structure of 1980 would raise a great deal of revenue which could be used for various good purposes.
Moving back from the current political picture to look at our basic values, here are some thoughts on why progressive taxation is a good idea and a fair one too.
Pure free-market capitalism is all about dollars being the basic unit of power. Through investment, dollars make more dollars, and if you own those dollars, you can become fabulously wealthy and wield enormous power. If you can do useful work, and trade your work for dollars, you can live. However, if you have no dollars and cannot earn any, you have no place in the system, which is perfectly content to let you die. The Irish potato famine of 1847 was close to this, since throughout the period of mass starvation the landowners of Ireland were exporting grain for a profit.
At the other extreme from pure capitalism is the idea that all wealth and income should be divided equally among everyone, regardless of how much they work. Most of us think this is not fair, since hard work deserves to be rewarded. It has most certainly proven to be a disaster in practical terms, since societies that come anywhere near this system fail because there is not enough incentive to work (the USSR comes to mind). People need to be able to see that their work benefits them directly.
Each person is a mixture of things they can control, such as their willingness to work hard, character, a positive attitude and determination; and traits they cannot control, such as genetic endowment, family structure, early experiences, prejudice, accidents and illness. Both parts weigh heavily in one's ability to work in a way that society values.
Since we cannot tell for each individual how to separate these controllable and uncontrollable factors, the best society can do is to let people have things/money/care partly based on how much they contribute effectively to our economy to make money and partly on their status as human beings. Their direct contributions come to them in money. Their status as human beings produces not only "welfare" but social security, Medicaid, Medicare, food stamps, and unemployment insurance.
The rule in private life in general is that people pay for what they get. It's part of our basic ideas of fairness. The same idea carries over to government programs like social security and unemployment insurance. If you take from the government at some point, it's because you paid your dues earlier. But when we are dealing with those struggling to get by, they can't afford to pay for what they need. As people go up the scale in income, they need less and less of the extra money as they move from just getting by to living comfortably to living opulently. This is the idea behind the progressive income tax. The rich are always allowed to keep a whole lot of money, including a significant proportion of their excess income (excess in the sense of being more than other people earn). I don't think fair-minded people assume rich people have done something wrong and deserve high taxes -- it's just that the money has to come from somewhere, and the richer you are, the more you can afford to part with.
A basic argument of the anti-tax position is "I earned the money, therefore I deserve it and it's mine." The assumption is that whatever you were able to trade your labor for in the marketplace is in some fundamental God-given sense what you deserve. Aside from ignoring the significant factors in earning potential that people have no control over, and ignoring luck (did you happen to pick the right stock?), and ignoring unethical practices (did your grandfather swindle someone?), it assumes the present system is the only way things could be (or should be).
Suppose you didn't inherit wealth or have many early advantages, but you through your own efforts have made yourself successful. Even so, your success started with the innate underpinnings of the skills that are valued in today's economy. Intellectual gifts and the power of persuasion are good examples. Not long ago, the strength required for manual labor was valued much more. In other times, the ability to persist in agricultural work in cold conditions may have been what brought you success. In others, it might have been acute vision to help with hunting or finding the scarce wild plants that could yield food, or in others, military skill. Is intellectual prowess inherently worth more than any of these? I say it's not; it's a function of the society and economy of which you are a part. Successful people are not islands unto themselves; they benefit from and are part of an entire system. Part of their success they owe to the system which happens to value their skills. It is fair that they pay more to keep that system running.
It's a natural tendency for people to take a position which benefits them. Rich people are likely to find rationalizations for why they should pay as little as possible in taxes. What I find more perplexing and sad is how many poorer people and working people do not see the bigger picture, but also accept that their income reflects a divine decree on what they deserve.
We must never forget the other side of the issue. People who are successful have done better than many others who started with the same native abilities because they have forgone pleasures of the moment, persisted through adversity, worked harder, and worked longer. We should honor and respect them and what they have done. Their desire for more money, perhaps a great deal more money, may have been what motivated them. They should be able to enjoy it, even to be fabulously rich. All progressive taxation asks is that they be a little less rich for the sake of all.
posted by Alec Wysoker at 8:39 AM
2 Comments:
The tax history article Bart mentions can be found in the Internet Archive:
http://web.archive.org/web/20030301063746/www.tcf.org/Publications/Basics/Tax/History.html
Capitalism embeds a process of natural selection, like evolution. Taxes, and other attempts to redistribute wealth, distort that process, with the intent of achieving social goals.
Taxes in many forms can blunt and distort the selection of the fittest which create the best economy resulting in waste and ineffective distribution of wealth. We do need to protect that in our society which we value that is not driven by money like minimum health and safety standards, education, human rights etc. The downside is the development of ineffective beauracrcies.
There has always been discussion on whether income should be taxed, or whether use of money should be taxed.
I believe that use taxes make more sense, even though they are harder to collect. Graduated income taxes seem always to be rigged so that those who can afford tax lawyers and accountants find the loopholes and avoid paying taxes. Consumption (use) taxes result in those who enjoy their wealth by buying lots of things, contributing the most to the cost of government.
Estate taxes capture wealth that accumulates and concentrates generation by generation; but unfortunately estate taxes also tend to break up farms and large propererties to raise money to pay them, leading to development of farmland and rural areas.
Worst of all is how tax money is how wastefully tax money spent when it creates its own sub-economy through the military and poorly managed institutions. In many cases privatization, letting competition and private enterprise manage and implement the projects and services, should be encouraged to reduce the evolution of in-bred government inefficient beauracracies that reward the well-connected politicians and their friends. Use of tax money has always been the currency of political power.
Reiner
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