A while back, I took fire for defending death taxes. My failure to enthusiastically decry inheritance taxes was seen as something close to a mortal sin. Maybe just a severe wounding sin. Still, it was a reminder that taxes have become freighted with emotion, particularly outside the Cult of Modern Liberalism. My sense is most liberals think very little about taxes these days. They are the people in charge and therefore take a managerial view of government revenues.
But, the people outside the Cult are another matter. As best I can tell, libertarians imagine a world of no taxes. The respectable libertarians, from what I gather, like the idea of a simple flat tax paid by all citizens. All income is taxed at 15% with no exceptions. I’m sure there are variations on this from other respectable libertarians, but the gist of it seems to be simplicity, but also a minimalist approach. Set the rate low and leave it low to force austerity on Washington.
Conservative Inc. is all over the map when it comes to taxes. The so-called Reformicons imagine all sorts of social engineering that can and should be done through the tax code. Ramesh Ponnuru has been obsessing over child tax credits for years. That’s the heart of the GOP view on taxes. Instead of spending on social programs, they create them in the tax code. They sell them the same way Democrats sell spending programs – free stuff for their voters.
At the heart of all of it is the belief that we can move closer to the promised land if we just arrange tax policy a certain way.
My Tax Philosophy
My first rule on taxes is they must be high enough to pay for government. Borrowing to finance current spending is just taxing the unborn – at best. In most cases it is damaging to the middle-class because excessive borrowing warps credit markets. That quickly leads to the sorts of logrolling shenanigans we see today where banks churn credit activity to skim a profit without providi9ng services.
Pegging tax collection to spending has a clarifying effect on public policy as the bill comes with the services. If everyone’s current tax bill suddenly jumped 50% to close the budget gap, we would be having a different debate about the size and scope of government. Everyone is always in favor of spending the other guy’s money, especially when the other guy has not been born yet.
Of course, the traveling partner with the first principle is transparency. Hidden taxes are a crime against the citizen.The reason governments hide their tax schemes is they know the public would not be happy. If we are going to have self-government, the self better have all the information. Otherwise, the citizens, as well as the rulers, are guessing at public policy.
The most obvious example of this is the business tax. These taxes are always passed onto the employees or their customers. Payroll taxes come out of wages. Corporate taxes show up in the price of the goods and services. If employees saw all of the taxes on their pay stub each week, there would be riots in the streets.
There’s another piece to this puzzle. Taxes are not voluntary. They are collected by force. That’s why the power to tax is the power to destroy. It’s also why powerful people grease politicians to avoid paying taxes. Corporate giants spend millions lobbying Washington and every other Western capital for tax breaks. You can’t have self-government if the rich guys are bribing their way out of their obligations.
Corruption is always a part of human affairs. That’s never going to change no matter how you arrange things. You can limit corruption by removing the temptations that come with the power to exempt some citizens from taxes, regulations or laws. You can’t sell favors if you have no favors to sell. A sensible tax code removes, as much as possible, the favors the pols can sell to their rich friends.
Who Gets Taxed
More than half of Americans avoid paying federal taxes. They pay sales taxes, payroll taxes, fuel taxes and so on, but they avoid incomes taxes, despite having income. This is often pointed out by Conservatives and libertarians as a defect in the current tax code. Liberals, of course, argue that any tax on the poor is unfair because the poor are, well, poor.
What’s missing from tax discussions is who gets taxed and why. The egalitarian fantasy is that every man gets a vote and therefore has an equal stake in society. No such society has ever existed or ever could exist. Human societies are hierarchical. At the top you have the people in charge. At the bottom you have the people who do as they’re told. To pretend otherwise is self-delusion.
The people at the top have the most to lose if things fall apart which is another way of saying they have the greatest investment in the complex social arrangements paid for by taxes. At the other end of the social order, the people at the bottom have the least to lose. Being a peasant for one king is no different, in general, than being a peasant for some other king. The people in a typical American ghetto don’t care who is in charge, just as long as the EBT is charged on time.
Anthropologists have long noted that it is the wealthy who bear the bulk of the costs of social complexity. This spans all cultures and all times. The mathematics of social organization are immutable. In order to have a wealthy ruling class, you need a complex social structure. That social structure will always cost more than you can tax the peasantry – vastly more. That’s why the rich pay the bulk of taxes.
Taxing the rich at higher rates and higher amounts is inevitable, but the poorest of the poor have some stake in society. Taxes are the cost of citizenship. If you are not paying taxes, you are not a citizen. This has been true in all times and all places. No one taxes slaves or beggars. You simply cannot be considered a citizen in a modern society unless you pay taxes and you can’t have non optimo jure cives in a modern society so everyone pays something.
As you can see, I’m amenable to estate taxes because they are transparent, simple and fall predominantly on the rich. The trouble here is the pols can easily auction off exceptions and loopholes. Warren Buffet has been preying on family business for decades, mainly due to the inheritance tax and the many loopholes created in the tax code.
Otherwise, I’m open to any tax scheme that is clear, simple and difficult to corrupt. Government is not free so we have to pay taxes. Taxing food, children, dead people, kittens or whatever is not a moral issue, it is a math issue for me, just as long as the tax is clear, simple, applied to everyone and most important, pays for all of government today.