Before I go into progressive taxation, I want to state that I really do not know the ideal form of taxation. Each one has their own problems. The income tax and sales tax are intrusive, because it requires paperwork on every financial transaction made. The income tax has become very complicated, in which vast amounts of money and time are spent just trying to figure it out. The sales tax, I admit, is somewhat regressive, because it does hit the poor the hardest. Now, that statement may make me sound like a Democrat, but I think there is a difference between choosing a type of tax that does not provide extra burden on the lower classes, and engineering a tax system specifically to provide extra burden on the rich. The property tax has issues because it can still tax people who make little to no income. Some old lady that has vast amounts of land can still be taxed on it, even if she is living only on Social Security. Unless it is a couple decades in the future, then she won't have any Social Security.
So, the income tax is probably the fairest form of taxation, simply because those who make little, pay little, those who make much, pay much. I do believe the income tax should be simplified. Despite being somewhat conservative in many things, I do not believe in social engineering through taxes. I do not believe I should have gotten a tax credit (which I still accepted) for moving to a different state to get a job. It is not the government's role to spur individuals (or corporations) to make economic decisions. I should make a decision on a job based on what is best for me and my family, not because I get some tax credit. Corporations spend countless man power deciding on things such as profit-sharing plans, which are made extremely complicated by tax codes.
I also do not believe I should get a tax credit for getting a more efficient water heater. Shouldn't the fact that I spend less in energy bills be proper motivation? That's like me asking my next door neighbor "Hey Bill, I got a more efficient water heater, now give me some cash because of my good efforts in saving money." Of course, I know there are differing opinions on this, by those who believe government should take an active role in conserving resources, and their opinion is understandable.
The overall point is, Congress keeps saying they want to simplify the tax codes. Then, they pass some new legislation giving exemptions or credits to individuals or corporations for doing certain things. The income tax should be simple. Instead of passing a 25% tax on a certain group with exemptions, simply pass a 20% tax without exemptions, except for charity.
Now, concerning the tax rate. Sometimes, I think the high tax rates are a symptom of big government. At the same time, however, I believe that government does get extra money at times, and simply just finds ways to spend it.
There is a view that tax rates should be no more than 10%. After all, 10% is good enough for God, why not the government? Granted, God does expect and sometimes ask more than what a person gives in tithe to their church, but the idea common in modern day Christianity is that there is a 10% tithe to the church that is expected, and anything beyond that is between them and God. What if the same idea was mirrored with giving in general? Ten percent, at the most, expected in taxes, and anything else that a person wants to give, whether to their church or some other charity, is voluntary.
What about progressive tax rates? That is, tax rates that increase, based on how much income one makes. The common argument is that the rich can afford to pay more in taxes, the poor cannot. Of course, I would just say, "Find the rate that the poor can afford, then have everyone pay it. " I like that idea, but people's ideal governments are bigger than my own.
I had this discussion with Michael the Leveller concerning his post on Economic Justice. For a liberal perspective on taxes, give his blog a visit. His post kind of inspired mine, which is really probably the opposite of his. I guess you could call me Bizarro Michael.
I could probably go to the Cato website and find data showing that progressive taxes don't work, but I feel like that has less meaning if I have an idea, then look up a random site to support my thoughts. I typically like to read an article, and if it makes sense to me, post on that. Anyway, my empirical argument against progressive taxation is this. The rich are typically the most productive concerning the economy. Their investments and personal spending spur job creation. In addition, the rich have more room to give to charitable work, Bill Gates being the example. High tax rates diminish this. Part of the argument concerns the size of government in general. I, being limited government, do not believe that this money is productive in the first place.
From a philosophical standpoint, I do not have much ammunition, other than "it just does not feel right." Or actually, it seems too easy. Taxing the rich more because they can afford it just seems like a solution that is too simple. Schools need more money? The rich have some money to spare! Health care too expensive? Need preschool for the kids? Notice that I use examples that are really good things. I feel that the philosophy behind progressive taxation is that the many benefits so much, with so little cost to the few. To the economically liberal, I feel that it's like "the rich don't need that money anyway", or "it costs so little to them." And I apologize if I am putting words in the liberals' mouths. This is just the devil's advocate viewpoint I come up with when trying to view things from another perspective. Here's the thing though. For one, there are no easy, intuitive solutions. I believe freedom is a easy solution in the sense that it is a simple concept, but it is not always the immediately easy solution. It is not intuitive, but actually counter-intuitive on many occasions. Progressive taxation seems too easy.
Also, the laws of nature typically state that something that benefits a lotwill cost a lot. Nothing is for free. Energy is conserved. However you want to look at it. The thing with progressive taxation is that people believe they have a situation in which so much is gained for so little. The "so much" being the billions of dollars that mean so much to the poor. The "so little" meaning the thousands or millions of dollars of one individual, who has a lot of money anyway. The idea I have here is that something that seems to come so cheaply will end up biting people back. Yeah, Bill Gates has so much money, so he can afford to be taxed millions of dollars. Right? Like I said, nothing is for free. How does that bite people back? I believe in the examples that I gave. Less money given to effective charity, and less job creation.
Another situation with progressive taxation is that it can set up a system of envy. With flat taxation, everyone pours into the pot and get something out. With progressive taxation, it sets up an "us" vs. "them" situation. If something is needed, like a new government program, we do not chip in and all make the sacrifice. We ask others (the rich) to make the sacrifice. Democracy can become a tool for personal gain. Instead of working harder for college money or health insurance, one can simply legislate money from the rich. I am not saying all Democrats are looters, but it sets up a system in which looting becomes possible.
In summary, income tax is probably the way to go, concerning the forms of taxation. However, I believe this tax should be simplified. I am not necessarily advocating one tax bracket for all people, but I do not believe that we should set up a system in which there is such a large discrepancy between the tax brackets. Such a solution may seem easy, but I do not believe there are any easy answers.
9 comments:
"Taxing the rich more because they can afford it just seems like a solution that is too simple"
Maybe you're looking at it the wrong way?
If our schools flounder, our workforce is under- or uneducated, our homeless population is swelling, our air is less-breathe-able, our water is undrinkable, etc, etc, etc...IF this is the case, then the economy is hurting, too. Which hurts the rich, who can't make as much profit (to give to charity or spend or whatever - and I'll say you're more generous in your expectation that the rich will give more if they're not taxed than I am).
A cleaner environment, healthier homes and educated population helps everyone, the rich included. And it is a common philosophy in most religions and ethics that "To whom much has been given, much will be expected."
What do you think?
"To whom much has been given, much will be expected." True. But even with a flat income tax, the rich do pay more than the poor. That's actually why I like the income tax, because the rich automatically pay more.
You have a good argument, in that underfunding programs taxes are used for will end up costing the rich more anyway.
Concerning schools, the argument is typically, "we need more money." The amount per student is increasing at an alarming rate. In my view, the problem is the gov't monopoly in which one court makes decisions for all schools under its thumb. My ideal solution is actually less government.
And concerning the homeless, air, and water, those are legitimate reasons for taxation, but I don't think they are legimate reasons for progressive taxation, other than, of course, the government has more money. But again, this is a question of how big gov't should be.
"and I'll say you're more generous in your expectation that the rich will give more if they're not taxed than I am"
lol, I totally understand. And I don't want to be naive and say, "oh, all these rich people are going to start giving money if they are not taxed so much." That is like saying, "I'll actually give tithe, when I get a raise." People that are not generous with some, are not going to be necessarily generous with more (this has elastic limits of course, like the dirt poor.) But, those who are generous with some, can afford to be generous with even more. Bill Gates gives x % to his charities. What if that amount was x % of 80% of his income, instead of 60%?
I need to bookmark this post, Chance, because I will come back to taxes on my blog. For now, I have to say that some wealthy people don't see progressive taxation as evil, but as part of their responsibility. They are part of a movement called "Responsible Wealth" whose members are actually frustrated at being given tax "breaks" they don't need and don't want.
I think of taxes as a form of civic tithe which buys me, hopefully, a decent society.
By the way, the 10% is good enough for God part doesn't really work. As you and I have discussed, the tithe was only 1 part of the Old Testament's programs for eliminating poverty. And, in the NT, the standard is much higher: We owe God everything, not 10%.
So, the early church in Acts pooled its resources and Paul told the church at Corinth to give "as the Lord has prospered you," which for some members could be less than 10% and for others far more.
The practice of the early church was quite radical. If they had people with economic needs, they sold property to meet them. If that wasn't enough, they fasted to give extra money to eliminate the problem.
The ENEMIES of the early church admitted "they feed not only their own poor, but ours also." Today's mega church pastors with diamond pinky rings, Hummers, or limosines, etc. sure don't lead to THAT conclusion.
That's off the subject of taxation, though. Except, by analogy, Christians advocating greater economic justice by churches have proposed "graduated tithes." There is a chart for one and explanation in _Rich Christians in an Age of Hunger_.
My attitude is that taxes are to be used for the common good. We should be hawkish on waste, etc. and just in making sure that everyone pays their fair share.
What irritates me is that I am not getting my money's worth for my taxes. When I have been in Canada or Europe, the taxation was much higher (and FAR more progressive--the current taxes in the U.S. are nearly flat compared to either our own past or other industrial nations), but few people complained. Why? Because they didn't have to purchase health care, worry about retirement (this is changing--the Europeans are also having older populations and needing to readjust),etc. They had good schools, excellent public transportation, fewer guns-- a better quality of life.
Instead our taxes go to ungodly military budgets, waste, fraud, and corporate giveaways.
I'm glad you are trying to figure out your principles instead of just going to the Cato Institute. Like Grover Norquist's anti-tax group, Libertarians in general think of taxes as theft. If that's one's overall premise, then one has a very different perspective than if one sees taxes as part of the social contract: a user fee for a good and decent society.
"Taxing the rich is too easy." Funny, I tend to think that expecting markets to take care of everything is too easy. We used to tax the rich MUCH more--and the economy was better off.
Remember everyone predicting that when Clinton increased taxes he would create a recession? Didn't work that way because he paid down the national debt--which lowered interest rates and spurred incredible economic growth.
More on this later.
Hey Michael,
I wish I had more time to have an in depth discussion about this, and maybe later, but I'll touch on a few things.
"Funny, I tend to think that expecting markets to take care of everything is too easy."
Well, in a way. The free market solution is simplistic, in a way, and that is part of its appeal. In concept, it is simple. However, I would not say that it is an easy solution, because the natural tendency of people is to trust in more government. We can see this on a large-scale, or a small scale. On the large scale, our economy has become more progressive and socialist as a whole, with certain spikes in the other direction, like with Reagan. I can picture us becoming like France before too long. And that is in every area. The natural tendency of society is to become less and less free, in general. And this is done little by little. Look at the oil price situation. The easy answer is to say "gas prices too high. Pass a windfall profits tax." This is the "quick, easy" solution, when in reality, I do not believe it is a solution at all. The fact is, oil prices are just climbing, and we have to suck it up.
On the individual level, which is easier? Doing good in high school, going to college in a difficult major, so that I can get a decent job and afford health insurance and college for my kids, OR just having a law passed so that I can get health insurance and college taken care of for my kids? This is not to imply that Dems are lazy bums or anything, but that the free market is not always "easy."
"We used to tax the rich MUCH more--and the economy was better off."
I'm curious which time period you are talking about.
"Remember everyone predicting that when Clinton increased taxes he would create a recession?"
I also remember people predicting disaster when Bush cut taxes, but tax receipts grew this year. Granted, one must prove cause and effect, but one cannot give all the credit to one, and not the other. And, there are many numbers that are similar between the Bush II and Clinton presidencies.
"I'm glad you are trying to figure out your principles instead of just going to the Cato Institute. Like Grover Norquist's anti-tax group, Libertarians in general think of taxes as theft. If that's one's overall premise, then one has a very different perspective than if one sees taxes as part of the social contract: a user fee for a good and decent society."
I still refer to the Cato website frequently and sometimes post on articles there; I just sometimes have a tendency to form an opinion then simply look for articles supporting my view. Cato takes a reasonable approach in which they dump the "taxation is theft" idea, and they start out saying "okay, taxation is a fact of life. What types of taxes are the most fair. What can we do to reduce taxes."
The "taxation is theft" idea is bunk anyway to almost anyone who is a Christian, since Jesus and Paul supported the paying of taxes.
Chance, Good Post. You bring up very good points.
One of my biggest problems with taxes is the Estate Tax, otherwise known as the Death Tax. Many farmers after they pass away have to sell their farms, where there is much sentimental value to the rest of the family, simply because they can't afford to pay Estate Tax on the property.
May bro-in-law is a multi-millionaire as well as all of his family and many of his friends. There's one problem with taxing the rich at a higher percentage than the poor. Many millionaires can afford to put large sums of money into offshore accounts and municipal (I think that's the right word) bonds that don't get taxed at all, or at the most, a very drastically reduced rate. This isn't fairness as the left claim it to be. When you have more money, you have more options as to where to put that money, and many times that money gets put where it doesn't get taxed very much at all.
Again, good post, Chance.
One quick point. You mentioned the 10 percent tithe in the Old Testament as perhaps being a good model for taxation today. However, there are actually three different tithes in the Old Testament, which makes the "income tax" in the Old Testament a rate of 23.3 percent per year, not 10 percent.
The first annual tithe is the Levitical Tithe, in which 10 percent of everything earned or grown is given to the Levites and priests (Num. 18:21).
The second tithe is the festival tithe, in which ten percent was to be set apart and eaten at the yearly religious festivals in Jerusalem (Deut. 14:22-23).
The third tithe was collected every third year and was kept to feed the poor. It is basically a welfare program. (Deut. 14:28, 29)
Given that, it seems that God in the Old Testament actually requires a pretty high rate of taxation. I wonder how, or if, that changes your position.
"You mentioned the 10 percent tithe in the Old Testament as perhaps being a good model for taxation today."
Not to mention all the Jubilee laws that were instituted as a way to prevent the rich from getting too rich and powerful. Those laws are referenced throughout the OT and the NT and demonstrate God's initiative towards the poor to protect from unjust systems.
What does the Christian Libertarian do with those laws, I wonder (besides ignore them, which is what MOST Christians do, left or right...)?
All bring up good points. I forgot about the other tithes brought up, and I was reminded of the Jubilee laws as Michael reminded me on his blog.
I ponder 2 different ideas of government. One, is to try to mimic the form of rule established in the OT, and although there cannot be a direct correlation, of course, perhaps try to model its example of concerning for the poor. I think though, that if this is the case, we should be consistent and apply this to personal behavior as well. God did have demands as far as helping the poor, and he also had demands for our personal lives as well.
The 2nd view is that the law of Israel was a situation in which God directly ruled. We have imperfect, sinful people ruling us today. That typically leads me to the belief of limited gov't.
Nevertheless, if there is a basic welfare system, I think we can apply the principles of the OT, and I'll do my next post on that.
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