Monday, March 23, 2009

Arguing for Progressive Taxes

I am a Republican. From the libertarian end of the spectrum, no less. And I support progressive taxation. As a matter of fact, I think that taxes should be changed to be far more progressive than any Democratic party proposal I have heard.

How can this be?

To understand why I see it this way, the absolute first thing you must do is completely forget all the normal arguments. I do not think the wealthy owe anything to the rest. I do think they deserve their money. I do not think we have any right to take their money. From every ethical perspective I see no reason why we deserve what anyone else has.

But...

It is the nature of money to attract more money. This requires no name calling or accusations of greed. I suspect for many of the most wealthy, it is almost an accidental side effect. They just make so much money they can't spend it all, so their wealth (as opposed to income) keeps increasing. Well, and good for them. Thing is, this concentrates more and more of the total wealth of the country into the hands of a very small group. Often this is called the top 1%, but in truth it is a much smaller group than that. I believe that if someone tabulated how much of America was owned or controlled directly by the top 3000 or so richest people (.001% of the population) the number would be... disturbing. And it's growing, constantly. Inevitably.

If this trend is allowed to continue to it's logical conclusion, the end is a handful of people owning everything. Well before that, they will achieve effective control, of everything. At which point the country will effectively have ceased to be a representative democracy, and instead become a feudal society with pretty window dressing.

This requires no greed, no evil intentions, heck, no intent at all. It is just the natural result of the current system.


So, what to do about it?

This of course, brings us back to progressive taxes. But how to apply it? The first thing I think is that the Dems plan to have it kick in too low. I would have it as a separate tax. It would kick in at a million or so, and increase linearly up to 100% at around 20 million, taxing only income over the first million. Understand, this is not in any sense an attempt to gain revenue, it is an unapologetic plan to place a hard limit on how much money any one person can make. In that vein, there would be a 110% deduction for charitable donations. If they donate a million, that makes an extra 1.1 million before the tax starts. So by donating more money, they get to keep more money.

The benefits I would expect from this plan:

1. Containing wealth concentration.

2. Since they can get more by donating, most of these people will probably donate enough so that they don't pay the tax at all. That's fine, it's not like we deserved their money anyways. I think that since they effectively have to donate, they will almost certainly develop a keen interest in finding the best return for their money. By definition, these people are good with money, I think they'd do good things.



Of course, they will look for ways to game the system, and to a certain extent, so what? It's their money. As long as they don't get too blatant, why worry about it? And they will do stuff like 'charitably' widening the road to their business, or other infrastructure to benefit their interests. Again, so what? All that stuff will create jobs, pour money into the community, and in most cases the new infrastructure will still benefit more than just them.

Of course, this will essentially create a class of people who act as a sort of nobility. But really, that ship has sailed. I don't care what the law says, Bill Gates is not the same kind of citizen the rest of us are.

21 comments:

TRUTH 101 March 23, 2009 at 1:16 PM  

Good job OMR. TAO posted his manifesto and lost a bunch of his right wing followers. I'm glad you've seen the danger of excess also Brother. In fact, I'm so impressed that if you want to change your site name to "Open Minder Republican Shall Rule" I would consider it an honor.

(O)CT(O)PUS March 23, 2009 at 2:17 PM  

Well done, OMR, a post to be proud of. As T101 points out, there are risks that go along with this transformation. Other Republicans will call you a RINO (Republican in name only) and subject you to smear and jeer. Witness what happened at Conservative Convicts and how they treated TAO and Jennifer.

Nevertheless, TAO and I have had this discussion before and concluded that political labels may not matter anymore. What remains hard to understand from a political perspective is this: While we may perceive inherent dangers in an unchecked oligarchy, there are still middle income voters who self-identify as "conservative" and yet make the same tired old argument in favor of Bill Gates while ignoring their own self-interests.

Can you explain this?

Time March 23, 2009 at 3:12 PM  

I'm not rich and i don't care if the rich pay more taxes, they can afford it without being left destitute.
I do have a real problem with a minority paying the bills of the majority.
For me it's a fairness issue, not a wealth shifting, socialist, get it where you can issue.
Sin taxes are not the answer to our financial problems, nor is it fair to tax smokers, drinkers, or other minorities to pay for the bills of the majority. The tax system should not be used as some kind of discipline process.
It's more natural, for a capitalistic system to tax what it consumes, not what it earns. Within that system a progressive rate would also be used. Taxes would be higher on luxuries than essentials.
The tax system has gotten way to complicated and unfair. When I pay my telephone bill, there are five different added taxes to my base usage.
We will still have people paying for services they don't use in order to have those services available to the whole nation. People who have no children pay school taxes, people who pay road taxes, but don't own a car, etc., etc...
I want to eliminate the IRS. It's much to complicated and invasive.
It could be replaced by a sales tax, a flat tax, any simpler system.
Any tax system will have inequities, but our current system is outrageous.
If we want to have the rich pay more we could go back to the tax rates before Reagan took office.
In this political time of change, I'm disappointed that getting rid of the IRS is not even mentioned.
What's hurting us most, is the decline of our middle class. The poor don't have the money and the rich shouldn't have to pay for all of us, even if they could.
We have to face the fact that with the decline of our middle class comes a decline of our living standards. Something hard to swallow for Americans, but true, no matter how we tax ourselves.
To compete on a global level (with most people of the World making 30%-80% less than most Americans) we must either help raise the pay and benefits of the workers of the World, or learn to live a much less comfortable lifestyle.

(O)CT(O)PUS March 23, 2009 at 3:39 PM  

Time: "What's hurting us most, is the decline of our middle class. The poor don't have the money and the rich shouldn't have to pay for all of us, even if they could."

But this is a self-contradictory statement. The purpose of a progressive (meaning "graduated") tax table is for citizens to contribute according to their means.

Do you think it fair for a man earning $54 million to pay only 15% on marginal income while someone earning, say, $100K is paying almost double? Ask Warren Buffett who pays less than half what his secretary pays. This situation exists under today's tax code.

You lament the lamentable condition of the middle class, yet advocate tax fairness for the wealthy. Go figure.

Time March 23, 2009 at 4:33 PM  

"Do you think it fair for a man earning $54 million to pay only 15% on marginal income while someone earning, say, $100K is paying almost double? Ask Warren Buffett who pays less than half what his secretary pays."

"This situation exists under today's tax code."

You answer your own question and reinforce my contention that the tax code as it is, should be eliminated.

The kind of situation you describe only exists and could only exist under this IRS tax code system.

The middle class is disappearing and the rich are being asked to pay more, that's what's happening, those are the facts.

"The purpose of a progressive (meaning "graduated") tax table is for citizens to contribute according to their means."

On a fair basis.

It's not fair that the current system allows a person who earns 54 million to be taxed at a lower level than a person that earns 100 thousand.

In a fair system the richer person will and should pay more, but the richer person should not be asked to pay more while everyone else is given a tax break.

If you want the rich people to pay for this financial mess, fine. I think that's unfair.

OpenMindedRepublican March 23, 2009 at 4:41 PM  

Truth - Thanks for the praise, but I think I shall keep the name as is. It still really bothers me that this name was so easily available.

Octo - I could care less what anyone calls me. I am a Republican because of the two major parties, this is the one I most often agree with. I am libertarian because that is the best word to describe my philosophy. But these are not things that define me. Besides, my preference for discussion over debate is a choice, not a character trait. I am evil in an argument, and I do enjoy cutting loose from time to time.

Time - Simple taxes are very attractive, but I do not know of any way to implement them. And I see no way the IRS could be removed. I would like to see less focus on the federal government and more on state and local, primarily because I view numerous small bureacracies as less dangerous than few small ones. Government agencies should not be allowed to become so huge that a private citizen can just be run over by them.

Also, although there are numerous stories about how individual rich people pay no taxes, every set of statistics I have ever seen says that as a group, the top tier pays more then twice the taxes per dollar as the rest of us. Maybe those numbers are wrong, I really need to do more research....

TAO March 23, 2009 at 6:15 PM  

Sorry, OMR, you are a conservative more than a libertarian...

The reality is for the rich to keep being rich we as a society have to find a way to 'recirclate' for a lack of a better word, wealth.

Wealth is like water...if it is allowed to sit in a pool it stagnates.

I make alot of money every year...and I could claim that I struggled and worked hard for it because I did but I also realize that making money involves exchange. Never once have I complained about paying taxes. Since taxes are paid on NET income and with all the damn things that I can deduct prior to coming to NET income...its absurd.

I know business people who brag about all the money they make and the fact that they pay no taxes...and they are always the first to want deductions and bailouts and they are also the first ones to rant about how lazy and overpaid their employees are and they gripe about our borders and at the same time a big percentage of their workforce are illegal aliens.

I marvel sometimes at how the hell such dumbasses got so far in life....

Most folks just talk and don't think at all about what they are saying....Its all talking points without a grasp of reality.

It is obvious that government is not going to get any smaller so we have to figure out a way to make it smarter and more efficient...and less tainted by the stupidity of special interests.

Yeah, no one hates government as much as I do...every single time I get a letter from the State of Kentucky I get so pissed and I haven't even opened the letter yet. Everytime someone from the state calls or comes by I am rude...just plain rude.

When I do vote I vote against the incumbent everytime...even for school board....

Maybe I have an issue with authority! :)

Oh, and dumbasses want to call me a liberal...I just laugh! I can only assume that it is not my opinion but the fact that I can intellectually defend myself that they despise...

Remember than OMR....never lose the ability to think for yourself.

(O)CT(O)PUS March 23, 2009 at 6:46 PM  

If you want the rich people to pay for this financial mess, fine. I think that's unfair.

But the rich people CAUSED this financial mess, and it is only FAIR that THEY should clean it up. Unfortunately, this is not turning out to be the case. We will be the ones cleaning up THEIR mess.

Time March 23, 2009 at 9:30 PM  

If you mean by rich people the bankers, insurers, Wall street types, they certainly had their devious hand in a deception to sell an opportunity for people, that wasn't real.

The fault still lies with people who bought into those opportunities, when they knew they could not afford it.

How much blame do you put on the people selling spray on hair, and how much blame do you put on those who buy into those false dreams?

The basic job of advertising is to make what they are selling seem like a fulfillment of our dreams.

As the President said, one of the problems is that what they did was not illegal.

People need more sales resistance, in all things, including choosing their leaders.

Matt March 23, 2009 at 9:30 PM  

Your argument assumes that it's the same rich people who keep accumulating more and more money -- that is, once wealth accumulates somewhere, it never leaves by "natural causes", and must be forcibly removed. I've seen this stated (or assumed) quite often, and I've seen the opposite asserted, but I haven't seen much evidence either way.

The evidence is interesting because, like the stock market, I suspect that a lot of the statistics used to show a concentration of wealth in a smaller and smaller group are heavily skewed by inflation. I could easily be wrong, but without those stats it's hard to find out.

Also, I can't shake the feeling that your argument treats wealth as a static, zero-sum thing: that there's a set pool of wealth that can never be added to or used up, and once it concentrates in a single point we'll hit equilibrium and it'll never move around again. But wealth can be created (grad students, say, turning coffee and paper into noninvasive medical imaging techniques) or destroyed (if GM goes belly-up, a lot of decrepit but not collectible Chevys will get a whole lot harder to fix and thus less valuable). That seems to me like a process which ought to, by itself, keep wealth moving around (from railroad tycoons to oil barons to Lee Iacocca to Bill Gates, for example) rather than static.

OpenMindedRepublican March 23, 2009 at 10:47 PM  

Matt - Welcome and thanks for contributing!

As fas as the assumption that it is the same few wealthy people... I am not sure how one would track that. Logic would incline me to believe that it will mostly stay the same people. If it was a cycling group of people, the level of wealth would not be growing.

Your point about the way inflation skews income statistics is something I have noted as well; I will probably do a post on that soon. I don't think that is what we are seeing now, however. At least not entirely.

Actually, the 'rising tide raises all boats' theory is largely correct, as far as I can see. My concern is not with amount of wealth however, but with concentration of wealth, and it's attendant political power, which is in a very real sense a zero sum game.

Matt March 23, 2009 at 11:24 PM  

Thanks for the welcome: I commented as 'bluntobject' on your introductory post, but your comments system now seems to prefer my Blogger profile.

As far as as the assumption that it is the same few wealthy people... I am not sure how one would track that. Logic would incline me to believe that it will mostly stay the same people. If it was a cycling group of people, the level of wealth would not be growing.

One way to start is by looking at lists of "the world's richest people", like the List of billionaires (2009) on Wikipedia. (It's not a source I'd care to cite in a research paper, but I'm not an econ grad student so that isn't a problem. :-) Also, looking at raw dollar figures is risky unless we account for inflation.)

Incidentally, only two of the thirty richest people according to that list -- Michael Bloomberg and George Soros -- actually gained wealth last year. I don't want to read too much into that, though; the plural of "anecdote" is not "data", and last year was (we hope!) unusual.

Also, we need to distinguish between personal wealth (which is what I think you're proposing to tax, and from that list looks to be fairly weakly correlated with political influence) and corporate wealth (which I'd expect to be much more strongly correlated with political influence). If the problem is with persistent corporate wealth, taxing "the rich" at far past the Laffer peak isn't going to address it.

Actually, the 'rising tide raises all boats' theory is largely correct, as far as I can see. My concern is not with amount of wealth however, but with concentration of wealth, and it's attendant political power, which is in a very real sense a zero sum game.

Seems to me that the problem is concentration of political power; concentration of wealth can be a red flag (as with corporations like AIG or families like the Kennedys and Bushes) or a red herring (how much political influence does Lawrence Ellison have, anyway? He's apparently the fourth-richest guy in the world). And of course there are plenty of other ways to concentrate political power.

OpenMindedRepublican March 24, 2009 at 12:44 AM  

Matt - bluntobject might work again now, I fiddled a lot with my template and it had some... odd results. Other than the weird dissapearing links on post titles, I think everything works normally now.
(BTW - been a reader of your blog ever since Atomic Nerds pointed you out - good stuff)

What I am proposing is still a tax on income, not wealth. I cannot think of a way to tax wealth that is not pretty horrific. I don't even like property taxes.

And of course, it is an incomplete fix, but hey, if we could solve the worlds problems with a single simple law, somebody would have done it by now.

Mostly this came out of trying to convince myself that an idea I did not like (progressive taxation) was a good idea. Sort of an intellectual excercise.

I think with proper research and a couple of years laying the groundwork, this could be sold to conservatives. I suspect that even the people heavily affected by it would not oppose it entirely. We are talking about income so large that is really just a number, not a quality of life thing. I imagine to a large extent they collect it as a means of 'keeping score'. If that is correct, encouraging an alternate means might sound good to them.
I expect the real resistance would come from the liberal politicians, because this is not designed to create a revenue stream for their preferred public projects.

Matt March 24, 2009 at 1:33 AM  

Mostly this came out of trying to convince myself that an idea I did not like (progressive taxation) was a good idea. Sort of an intellectual exercise.

With respect, I think you have a square peg (progressive tax on personal income) and a round hole (huge disparities in influence or power). Most of the people in Wikipedia's list of billionaires -- at least, those who aren't part of governments -- have little in the way of personal power except within the companies they run, and even then their power is diluted by sheer inertia if nothing else.

You wrote:

If this trend is allowed to continue to it's logical conclusion, the end is a handful of people owning everything. Well before that, they will achieve effective control, of everything.

If this is the case, we're better off worrying about corporations owning or having control over everything, not individual rich folks. Looking at the 2008 Fortune 1000 list and comparing those numbers to the American billionaires on the Wikipedia list suggests that Bill Gates is small potatoes and we should be going after Microsoft if we're concerned about them that has getting more and ever more.

OpenMindedRepublican March 24, 2009 at 2:07 AM  

Meh.
You ever start arguing about something and realize you are just trying to win? I hate when I catch myself doing that.

You are correct about corporations being bigger than any individual; at this point I think that is best addressed by an overhaul of anti-trust laws.

TAO March 24, 2009 at 6:27 AM  

I think competition is a GREAT thing and I believe that it is one of the basic principles of capitalism that makes capitalism successful.

My concern is that the concentration of wealth, power, influence, and control destroys competition...and eventually destroys capitalism.

Trickle down does not work and has not worked; wealth has not trickled down nor has it been shared. We created debt, which created the mirage that wealth has trickled down.

Wealth concentration, and supply side economics creates bubbles and we have experienced three economic bubbles in the last few years and those bubbles have destroyed wealth.

As a society no one benefits from asset bubbles thus we have to ask ourselves why, as a society, we are incapable of dealing with economic bubbles?

OpenMindedRepublican March 24, 2009 at 6:53 AM  

I have a term for this Tao - the Reality Horizon. It is a measure of how far you have to remove something from a persons direct view before it ceases to be real to them.

In some cases it is a shockingly short distance.

A bubble is great fun on the upswing. The downside is simply too far away for most to be concerned about.

TAO March 24, 2009 at 8:27 AM  

Obviously! I had lots of fun daytrading during the internet bubble.

I did not see it as creating wealth but rather more along the line of playing a slot machine.

Sometimes you have to step back and look at something and shake your head alittle bit to get a better grasp of reality.

When you realize that you know nothing but the symbols of a stock and not the company its self you are speculating and not investing.

When people are averaging 3 years in a home on average they are not purchasing an asset but rather speculating on the housing market.

When leasing is advertized more than buying then the concept of ownership means nothing and possessing means everything.

Matt March 24, 2009 at 8:31 PM  

OMR -

Sorry if I took that a little too far. When I get my teeth into one of these issues, I tend to focus on the problem and lose sight of the fact that there's a person behind the other keyboard.

OpenMindedRepublican March 25, 2009 at 1:58 AM  

Matt - Actually, I wasn't talking about you, I was talking about me.

I found myself pouring over articles and doing research to prove you wrong. When I realized what I was doing, I took a deep breath, cleared my mind, and looked at it all again.

I find that we are not so much arguing one point as comparing different points.

Matt March 25, 2009 at 8:47 PM  

I found myself pouring over articles and doing research to prove you wrong.

Don't stop on my account. :-) If I'm wrong, I'd rather be proven so in a friendly place like this as soon as possible, so I can bring my opinions more in line with reality. (When reality proves people wrong, it's usually painful.)

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