A Philosopher's Blog

Rambling on Taxes

Posted in Business, Law, Philosophy, Politics by Michael LaBossiere on March 25, 2011
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One of the political themes in the United States has been the matter of taxes. When the Bush tax cuts were set to expire, there was considerable support for keeping the cuts for the less wealthy Americans in place. Then there was an interesting surge to keep the tax cuts in place even for the wealthy and thus the tax cuts remained.

The Tea Party movement also has been involved (or directed to be involved) in pushing for tax cuts-especially for businesses and corporations. The theory is, of course, that tax cuts for corporations will create jobs and tax cuts for the wealthy will create spending (which will create jobs).

There is also a move to cut the size of government, although this seems to be more talk than action and seems to be directed mainly at small ideological targets rather than anything significant. However, there is at least talk of reducing spending. Given that there will be less income for the state, this is clearly a necessity.

Despite the tax cuts and the talk of cuts in spending, there is still clearly a need for taxes. After all, even the most staunch Tea Partier accepts that the state provides goods and services that they simply cannot do without. Since these do not come for free, there would seem to be a necessity for taxes. This raises the question as to what would be a fair tax.

Looked at in a rather simplistic and even naive way, the answer would be based on the business model in which a customer pays for the goods and services they use. For a tax to be fair, it should match the goods and services that a tax payer consumes. This could be called “pay as you go taxation” because it would be similar to pay as you go phone plans.

There are, of course, some obvious major flaws with this view. First, there is the rather practical matter of calculating the goods and services that a person uses. For example, people without children or who send their children to private schools might claim that they should not pay for public schools. However, they would seem to benefit from these schools in various ways-such as the education they provide to people they might hire. As another example, someone who opposes war might claim they should not pay for defense-however, they still receive the benefits of being protected by the state.

Second, there is the fact that some of the people who need these goods and services will be people who cannot afford to pay for them, such as children, the retired, the unemployed, and others. While it could be argued that they are thus not entitled to these services, this would seem to be inconsistent with the idea that the state should provide for the good of the people, even when those who benefit cannot afford to pay for these goods.

Another simplistic option is to tax everyone the same amount, regardless of their income. To use an analogy, this would be like the country going in on a pizza together-everyone has to chip in the same amount.

While this would be fair in one sense, it would seem to place an undue burden on the poor and put relatively little burden on the rich. As such, it would seem to be unfair in that sense. Unless, of course, the weight of the burden has nothing to do with fairness.

Another possibility is to simply have each person pay the same percentage, say 15%, of their income. That would be fair in the sense that each person is thus chipping in the same percentage. This, of course, means that people will be paying more or less in terms of the dollars they are paying in. However, each person will be contributing based on their income and this could be seen as fair. To use an analogy, it would be like people working together to lift a heavy object when some people are stronger than others. As long as each person is giving it their best, then it would seem to be fair.

Of course, this could also be seen as unfair. After all, a person who makes very little might not be left with enough to pay for their basic needs while someone who is very wealthy would still have a significant fortune. To use an analogy, if I have just enough water to survive while Donald has 10,000 times as much water as he needs to survive, giving up 15% would kill me but do nothing to Donald.

This, of course, suggests a variable income tax, in which the % goes up with the income. Sticking with the water analogy, if I have just enough to survive, then I should get to keep that. Donald can give up a lot without any hardship and hence it would not be an unfair burden.

Of course, it can be argued that it is unfair to punish people for their better fortune. If Sally has 100 times the water she needs and Donald has 10,000 times, then why should Donald have to hand over more water simply because he has more?

It might be argued that those who have more are thus under a greater obligation to contribute more both because they do have more and paying more will still leave them quite well off relative to other people.

Anyways, just some rambling on this matter. I’m still thinking about some theories of fair taxes and will put together something more developed soon.

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20 Responses

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  1. Morgan Parker said, on March 25, 2011 at 11:07 am

    Nice to see you’re still talking about taxes.

    “As another example, someone who opposes war might claim they should not pay for defense-however, they still receive the benefits of being protected by the state.”

    An objection that I’m sure you’ve already thought up:
    Someone who opposes war may not oppose it at all costs. He could oppose it except when attacked by another, in which case he shouldn’t be obligated to finance military operations that are not in immediate defense of the sate within its borders.

    • Michael LaBossiere said, on March 25, 2011 at 11:24 am

      Death and taxes never grow old. :)

      That is a reasonable objection and suggests a possibly good idea: foreign wars have to be funded by people (and corporations are people) directly donating money. If the state does not get enough money, then the war is off.

  2. T. J. Babson said, on March 25, 2011 at 12:32 pm

    Facts are stubborn things.

    The US already taxes the rich more heavily than any other nation.

    http://taxprof.typepad.com/taxprof_blog/2011/03/tax-foundation.html

    • frk said, on March 25, 2011 at 1:31 pm

      And we taxed them waaay more in the Fifties. Surprisingly, they survived and prospered.

      • T. J. Babson said, on March 25, 2011 at 1:46 pm

        frk: it makes no sense to compare the post WWII period with the present time. Also, are you so sure that the total tax burden on the rich in the 1950′s was greater than today?

        • frk said, on March 25, 2011 at 2:47 pm

          What I’m sure of is that during most of the Fifties the top marginal tax rate was 94%. Perhaps there are other taxes that adds to the current basic 35% “burden” that would create a burden of 94%. I don’t know all the facts. If you do, present them so I can accept them or refute them. I welcome any facts that might disprove my statement about the marginal tax rate is not a reasonable indication of the total tax burden on the rich at that time. I can always be humble enough to stand corrected.

          Also, to me It makes sense to compare the two periods, if you agree with me that the highly taxed rich during the Fifties “survived and prospered”. Is there any indication in history that proves that anything short of revolution would change that survive/prosper outcome? Again, from my point of view, their survival then should indicate that they can do the same now. Idea isn’t new. William Henry Harrison said, in an October 1, 1840 speech,
          “I believe and I say it is true Democratic feeling, that all the measures of the government are directed to the purpose of making the rich richer and the poor poorer.” Wikipedia

          • frk said, on March 26, 2011 at 9:49 am

            Seriously. ” I can always be humble enough to stand corrected.” If I’m corrected, I’ll admit it. I won’t ignore it.

        • T. J. Babson said, on March 26, 2011 at 9:54 am

          You very well may be right. But one thing to keep in mind is that rich people were a lot more patriotic in the 1950s, and would stick around and pay their taxes. Now the very rich will just pack up and go somewhere else.

          • frk said, on March 26, 2011 at 9:57 am

            Just the kind of rich people we want: the unpatriotic type :(

            • Michael LaBossiere said, on March 26, 2011 at 11:19 am

              Some are probably patriotic or decent (or both). However, there have been claims that the rich Americans are increasingly identifying with other rich people rather than with their fellow Americans. It is tempting to draw parallels with the old European situation in which the crowned heads and nobles of Europe were often related and saw themselves as a group apart from the masses.

              From the standpoint of self interest, it does make more sense for the rich to be unpatriotic and ally themselves with other rich people. After all, being patriotic involves costs and tends to yield little in the way of wealth (this is not to say that one cannot be patriotic and still profit). Also, the rich have more to gain from alliances with other rich people than with the masses. For example, someone like Mubarek was kept in power for decades by his fellows in the United States. His people had little to offer him. Similarly for the other dictators we prop up, especially those who control countries with oil and other resources we want. Their people are mainly just workers and soldiers for them…or sources of problems.

              That said, there is also a practical downside to not being patriotic and contributing to the good of the people. After all, when the empire falls, the rich are not exempt from what follows. As such, wise politicians curb the excesses of the unwise rich so as to protect them from their own lack of wisdom. Foolish politicians give the unwise rich what the rich mistakenly think is best for them, thus damaging the state and hastening its fall.

            • frk said, on March 26, 2011 at 11:51 am

              “Some are probably patriotic or decent (or both). However, there have been claims that the rich Americans are increasingly identifying with other rich people rather than with their fellow Americans.”

              I’ll put aside the whole “What is a Patriot” issue for the moment. TJ seems to imply (with the entirety of his post that ends with ” Now the very rich will just pack up and go somewhere else.”) what you imply with your choice of the word ‘some’ in your first sentence We all seem to be on the same page with our conclusion that there’s a increasing decrease in ‘patriotism’ at the top of the economic laddier.

              If the Tea Partiy’s links to the Koch Brothers are no longer simply alleged, Tea Party members, their closeted sympathizers, and organizations like Tea Party Patriots must be truly conflicted by this. No?

            • Michael LaBossiere said, on March 28, 2011 at 6:15 pm

              People rarely base their politics on reason, so I suspect the Tea Party folks will continue to support certain people who actually seem to be against some core values professed by the Tea Party rank and file.

          • Michael LaBossiere said, on March 26, 2011 at 11:13 am

            One sign of a failing empire is that people begin to “check out” of the system at ever increasing levels.

            • frk said, on March 26, 2011 at 3:42 pm

              Isn’t that,like seemingly any societal change these days, also a sign of the End of Days?

              Who are the first rats off the boat–the rich or the poor? The rich can probably take care of themselves by transferring to another boat. Through governmental largesse are we making it too easy for the underemployed and poor to check out, too?

    • Michael LaBossiere said, on March 25, 2011 at 2:22 pm

      Wow, I’m glad I’m not a rich American! :)

  3. T. J. Babson said, on March 25, 2011 at 1:37 pm

    And yet if you are a politically well connected corporation, you need not pay any taxes:

    G.E.’s Strategies Let It Avoid Taxes Altogether

    http://www.nytimes.com/2011/03/25/business/economy/25tax.html?_r=1&hp

    And who is Obama asking for advice on how to reform the corporate tax code?

    http://aphilosopher.wordpress.com/2011/03/25/rambling-on-taxes/#comments

    He has designated G.E.’s chief executive, Jeffrey R. Immelt, as his liaison to the business community and as the chairman of the President’s Council on Jobs and Competitiveness, and it is expected to discuss corporate taxes.

    Fox, meet hen-house. You betcha.

    • Michael LaBossiere said, on March 25, 2011 at 2:25 pm

      I wonder how Fox and others reconcile this with the narrative that Obama is an anti-business, anti-capitalist socialist?

      Maybe they could reason that because socialism is control of industry by the state and GE controls the state, then GE must be involved in socialism?

      • T. J. Babson said, on March 25, 2011 at 11:45 pm

        QED

      • frk said, on March 26, 2011 at 4:31 pm

        It’s part of the same old story, isn’t it? The decision to save GM and Ford was not made by Obama alone. The onus of this misapplied understanding of the term ‘socialism’ cannot be placed solely at the feet of the Obama Administration.

        http://www.politico.com/news/stories/1208/16523.html
        But by the time Bush had made his shift, his party had already thrown him under the bus.

        Things were moving in the direction of government intervention before Obama took the magic seat in the Oval Office. And, not surprisingly, it seemed that every passing day after the Bush loss, more and more staunch Bush supporters claimed he had never been conservative enough for them. So when the final decision was finally made to save GM, that segment of the Republican right had transparently positioned itself to snipe at Obama’s actions.

        As far as Obama’s appointment of Immelt. . .I don’t particularly like the guy either, perhaps for different reasons than yours. My GE stock lost over half its value under his reign . Of course, that was during the recession; before the recession my GE stock and dividends steadily climbed . Just goes to show. . .

        As far as the Obama/Immelt/business issue, I find it hard to criticize Obama since he was urged strongly by the Chamber of Commerce, a GOP friendly organization, to make a business- oriented choice. As head honcho of a conglomerate like GE, over the years he has done rather well, except iduring the recession. Of course, few did well then. I’d say he is, at base, quite competent.
        http://money.cnn.com/2011/01/21/news/economy/immelt-obama-jobs-council.fortune/index.htm

        The CofC got what it had been asking for and applauded the decision.
        Of course, there will always be those who, not unlike the people who dumped Bush onto the tracks, will spin an entirely different interpretation out of this–even though historically I doubt they had been anti-Immelt or anti CofC before Obama made the choice.
        http://pajamasmedia.com/eddriscoll/2011/01/31/ges-jeff-immelt-and-obamas-antipathy-to-free-markets/

        As I said in my first sentence: “It’s part of the same old story, isn’t it?”

    • frk said, on March 26, 2011 at 4:43 pm

      Sorry for the double post. See the note below.

      It’s part of the same old story, isn’t it? The decision to save GM and Ford was not made by Obama alone. The onus of this misapplied understanding of the term ‘socialism’ cannot be placed solely at the feet of the Obama Administration.

      http://www.politico.com/news/stories/1208/16523.html
      But by the time Bush had made his shift, his party had already thrown him under the bus.

      Things were moving in the direction of government intervention before Obama took the magic seat in the Oval Office. And, not surprisingly, it seemed that every passing day after the Bush loss, more and more staunch Bush supporters claimed he had never been conservative enough for them. So when the final decision was finally made to save GM, that segment of the Republican right had transparently positioned itself to snipe at Obama’s actions.

      As far as Obama’s appointment of Immelt. . .I don’t particularly like the guy either, perhaps for different reasons than yours. My GE stock lost over half its value under his reign . Of course, that was during the recession; before the recession my GE stock and dividends steadily climbed . Just goes to show. . .

      As far as the Obama/Immelt/business issue, I find it hard to criticize Obama since he was urged strongly by the Chamber of Commerce, a GOP friendly organization, to make a business- oriented choice. As head honcho of a conglomerate like GE, over the years he has done rather well, except iduring the recession. Of course, few did well then. I’d say he is, at base, quite competent. There’s a good money/cnn.com article from1/21/2011 about this.

      The CofC got what it had been asking for and applauded the decision.
      Of course, there will always be those who, not unlike the people who dumped Bush onto the tracks, will spin an entirely different interpretation out of this–even though historically I doubt they had been anti-Immelt or anti CofC before Obama made the choice.
      http://pajamasmedia.com/eddriscoll/2011/01/31/ges-jeff-immelt-and-obamas-antipathy-to-free-markets/

      As I said in my first sentence: “It’s part of the same old story, isn’t it?”

      Note: This may post twice. Any time I try to include three links I encounter and “awaiting moderation” notice. That’s somewhat limiting since lilnks are sometimes necessary to support a writer’s position. Better having three links, I say, than having a poster making claiming that can’t be substantiated.
      And sometimes when it’s cut to two I get a notification that it’s been posted before. So.It’s the same old story, isn’t it?


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