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.
Conclusion
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.
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“…………My first rule on taxes is they must be high enough to pay for government…..”
Well, this is your first mistake.
There are many elected officials and probably just about ALL employees of federal agencies that believe our govt. should be many time larger than it now is.
Prior to 1913 – the imposition of the federal income tax via a constitutional amendment – the sleazy, corrupt, rotten, crooked politicians could not get their sticky hands of the wages of the the productive citizenry and businesses. As a result, the politicians could not STEAL the people’s money and use it for vote buying in a major way; that is, STEALING the money from one group of citizens and giving it to another for the express purpose of buying their votes. This is simply a “legal” form of bribery.
Yes, crooked politicians have always been around, but prior to the income tax, they did not have access to an unlimited stream of revenue to further their own crooked ambitions.
This unlimited stream of revenue also allowed our ruling elites to establish dozens of federal agencies that enact laws and rules and regulations without the consent of the people nor with oversight from a feckless congress. As a result we now live in a tyranny of the bureaucracy accountable to nobody.
The ONLY way to correct this is for a new constitutional amendment that totally strips the federal govt. from its ability to STEAL the earning of the people and productive enterprises – that is, prohibits the federal govt. from taxing anybody or anything – and turning over to the states, individually – the decision how much, if any, of the earnings of their citizens will be turned over to the federal govt. Each state legislature will make this determination based on a “budget” put forth by the federal govt.
Each state will have a right to determine how much and to which programs their citizen’s revenue will be spent by the federal govt.
Our govt. is out of control. The numerous federal agencies have allowed Congress to to abdicate, to abrogate, their fiduciary responsibilities to the people. And clearly , this will NOT change unless the federal govt. is stripped of its revenue gathering ability.
We have 100 years of experience of allowing the federal govt. to confiscate the wages of the productive sector. The results are massive spending, deficits and a massive, out of control bureaucracy.
ENOUGH !!
You’re confusing yourself. The size and scope of government is one discussion and it has little to do with taxes.
No, I am not confusing myself.
We have all heard the phrase, ” work expands to meet the time.”
Well, analagous to that is that ” government will expand to meet its revenue.” Just compare the “role” of government considered normal today, with that , say, prior to the imposition of the federal income tax.
The revenue stream that government bureaucrats see available, will DETERMINE to a very large extent, the ROLE and size of government.
Why should this be? Because our elected officials can use these revenues- properly distributed- to ensure their re-election.
To believe that the amount of revenue available to the politicians has no affect on their concept of what government should do , and thus stronly influence the size of government, is simply naive.
The power to tax is the power to destroy, someone once said. And it is this very reason that the those who founded this nation did not provide for the federal government to directly tax the earnings of the citizenry.
The last 80 years proves that to be false. Borrowing and credit creation is what has allowed government to expand beyond all imagining. Take that away by making taxes match spending and you get a smaller state.
The last 100 years proves that to be false. Borrowing and credit creation began in 1913, just in time to fuel WW1 and then the Roaring 20’s, lending foreign borrowers the money to pay the interest on those loans they could not repa, and create new ones. It wasn’t until 1933 that government jumped the shark, from 4% of GDP to 19%. This is a political problem, fueled by three wrong turns in the past–the Federal Reserve Act, and the 16th, 17th, and 19th amendments. Balanced budgets would make a dent in our predicament, and only a dent.
No. Debt as a percentage of GDP spiked in the Depression and WW2, but fell steadily until 1980. Interest rates put a natural cap on borrowing. Money printing proved self-defeating. It was only when Reagan ushered in the new monetary arrangements (Louvre Accords) that Federal debt took off again.
The desire to spend in the first cause here.
You say “…. by making taxes match spending and you get a smaller state.”
Implicit in your statement is that spending and taxes and the size of the state are NOT independent, which was my original point.
What is considered an appropriate “size” of the state will be determined to a large degree by the revenues that the ruling elites believe they can confiscate from the citizenry.
When the political ruling class realized they could loot the wages of the citizenry and productive sector (16th Amendment to the Constitution, enacted in 1913), that was the beginning of the death spiral into unlimited spending , TAXATION and the growth of a monster govt.
(check out the tax rates under FDR).
Yes , as you assert, much of it is due to the growth of credit, but this is merely spending today the revenue that will be forthcoming (one hopes or believes) in the future.
It is no coincidence that soon after the income tax was implemented, the size of govt exploded under FDR, and it has gotten ever bigger since then.
There is no way on earth one can believe that the size of govt. is independent of the revenues the ruling political elites believe they can get their stinking, crooked hands on.
I’d get rid of mandatory withholding. (I know, I’m dreaming). Most of us calculate on a net basis- if we all had to pay every year- WOW!
Tax policy is not a big issue for me. Spending is my bugbear.
Yes, complexity is behind much of the increases in taxes, but there is so much needless complexity. A few examples among hundreds I could think of. Do we really need curbs, underground drainage systems (as opposed to simple ditches and culverts) and sidewalks in residential areas and all of the attendant costs? What about the ballooning of extracurricular school programs and lowering of student to teacher ratios that show no increase in productivity? Doing more becomes an end in itself rather than doing enough. The end results are market distortions as resources that could be mobilized on more productive tasks become bogged down on maintaining the complexity.
The other factor that increases spending to far beyond what it should be is what I call bureaucratic hysteresis. Government services just cannot react fast enough to downward changes in demand. Look at fire departments. New construction techniques and smoke alarms have lowered the number of fires by 80% in this country. When have you ever seen a fire station closed? Some of the firemen have been re-purposed as paramedics. That’s a good thing. I get it that distance and density are factors as well so you wouldn’t be able to close 80% of fire stations. But just one is not too hard a task. Likewise, bored cops get re-purposed as SWAT teams and anti-drug task forces (I suppose I will get a no-knock raid for that remark). Many state DMVs do the bulk of their business on line, but the brick and mortar locations are more crowded than ever (mostly by illegals, but it still preserves jobs). I could go on.
Maybe the interaction between complexity and bureaucracy is a social benefit. Maybe it keeps millions of low-productivity people off the streets. If I were king for a day, I would take the risk and cut them loose for the sake of lower spending and lower taxes.
Taxing is the issue, and therefore tax policy. When this country had no means to raise these enormous amounts of money, it didn’t.
The income tax gave them that weapon, and the right, to investigate every aspect of your life, which it now does jealously. The states then jumped into the income tax racket since, and why not, the forms were already being filed. SS piggybacked the income tax machine, which presently equals the income tax in size, and was used for decades as a federal slush fund.
Now a conservative is reduced to desiring that bloated expenditures be equaled by bloated taxes. As George 1 said, it’s the vision thing.
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I think most fair-minded people accept that there is some need for taxation. An even simple society can’t function without a steady stream of revenue, and taxation is a good way to ensure the flow.
I tend to favour a rigid percentage of income tax (not very high at that) and everyone pays. The complexity of tax business means that even the government only has a vague idea of who pays what and loopholes appear with every careful twist and adjustment of the laws. Inland Revenue departments are as bad: they cannot possibly know all the rules so setting a flat rate means the job is easy, or easier. Plus, the government will know very quickly what it can spend.
Right now in the build up to our election-orgasm, Liebore have returned (as they must like birds coming home after the winter) to ‘soaking the rich’ and thus devise complex taxes — not least of which is their panacea for all economic ills, called the Mansion Tax which is going to be interesting as a lot of Liebore nuts live in what many would call a Mansion and those darlings are going to need loopholes aplenty. It follows that soaking the rich has a limited return and once you have soaked and wrung them out there won’t really be much left for another soaking. None of this ever occurs to these tax-craving people.
Once you allow people to spend more of what they have it allows people to purchase more (and government will benefit with the awful but necessary Value Added Tax which is for ‘services rendered’ but is often is a surcharge where there is no value) and in some cases people will save instead of spending which theoretically allows banks to lend more. But while private spending helps generate employment in all sorts of places public spending — the raison d’être of Liebore’s being — tends to be akin to throwing money into large hole with a fierce fire burning at the bottom. It may look spectacular as it burns but creates very few worthwhile jobs.
The one thing I would argue with, Z, is ‘My first rule on taxes is they must be high enough to pay for government.’ How much is enough? The trouble I have is government tends these days to fit the money. Give them more and they expand accordingly and then require more to stay in the same place, so in a way they merely exist at a size and volume that depends on they can squeeze out of their citizens. The one thing that becomes apparent when dealing with government is also that they are unable to buy things they need at everyday prices. Buying a pen isn’t a big job: at my local supermarket they do a bundle for a pound. But purchasers in government, allowed access to unrestrained money (and if it runs low they can demand more from people with ingenious new taxes) they are unable to buy a single pen at less than five pounds each.
A wise manager would send someone out with petty cash to buy a bundle of basic pens. The government has to employs dozens of people to consult catalogues from manufacturers who are well aware that they can ask what they want as they are ‘approved suppliers’ who charge the earth.
As all this government spending and waste is built on tax revenue, it won’t end soon.
If taxes are not sufficient to pay for government, the government either borrows or it prints. Both are just different types of taxes.The former warps credit markets thus compounding the cost of government. The latter robs the people of their savings through inflation. Today, we have a toxic combination of the two. Jack up taxes to pay for government and very quickly we get a rush to slim down the size of the state.
No hidden taxes.
I question that it is more productive for the rich to pay income taxes any more than it is for business to pay them. Worse, if government were to discover 18 trillion under a rock, not only would they not pay off the national debt, they would immediately find ways to steep us in greater poverty and obligation.
The most sensible and productive income tax rate for the rich would be zero, as it is for everybody else and once was. The coming explosion of the federal government waited for the 16th amendment.
Tocqueville
“In France, the state collector receives the taxes of the township; in America, the township collector receives the taxes of the state. Thus, in France, central government lends its officers to the township; in America the township lends its civil servants to the central government, which alone shows how different these two societies are.
In New England, it is the township assessor who fixes the taxes, the collector who raises them, the treasurer of the township forwards the receipts to the public treasury and any claims arising are submitted to ordinary courts. Such a manner of collecting taxes is slow and awkward; it would constantly constrict the progress of any government with extensive financial requirements. But it will always be simple for central government , such as it is organized in America, to introduce, when the need arises, more vigorous and effective methods of action.”
“The overwhelming characteristic of public administration in the United States is its extraordinary decentralization. I have made the distinction between two types of centralization; the one called governmental, the other administrative. The first exists solely in America; the second is almost unknown (there). There is a high level of government centralization in the United states, but we have seen that no administrative centralization existed in the United States. Administrative centralization only serves to weaken those nations who submit to it, because it has the constant effect of diminishing their sense of civic pride. In the United States, the majority, which often has despotic tastes and instincts, still lacks the most developed tools of tyranny. If the direction American societies (took)…combined the right of total command with the capacity of total execution…freedom would soon be obliterated in the New World.”
I guess i fall somewhere between “respectable libertarian” and paleo conservative, although there is not much to conserve these days. I like your visibility requirement and 100% participation for at least some tax. I prefer a consumptive link to taxes, and decoupling from income. That allows more movement up the strata and allows more flexibility of lifestyles. If someone wants to hunker down and live small because they want to save up to start a business or prepare for future problems, they can work harder and consume less and save more. the progressive income tax, doesn’t affect people who are already rich, only people who are trying to get rich and inhibits upward movement. The problem with the inheritance tax is that it doesn’t affect the super rich, only upper middle class and unfortunate people with family assets like farms or land that don’t make a lot money. This is especially bad if the land value is artificially inflated because someone built a subdivision near them.
“My first rule on taxes is they must be high enough to pay for government” Defining what Government should be is the key here.