A Philosopher's Blog

Incentives, Taxes, & Inequality

Posted in Uncategorized by Michael LaBossiere on January 15, 2016

One stock argument against increasing taxes on the rich in order to address income inequality is a disincentive argument. The gist of the argument is that if taxes are raised on the rich, then they will lose the incentive to invest, innovate, create jobs and so on.  Most importantly, in regards to addressing the income inequality problem, the consequences of this disincentive will have the greatest impact on those who are not rich. For example, it has been claimed that the job creators will create less jobs and pay lower wages if they are taxed more to address income inequality. As such, the tax increase will be both harmful and self-defeating: the less rich will be no better off than they were before (and perhaps even worse off). As such, there would seem to be good utilitarian moral grounds for not increasing taxes on the rich.

Naturally, there is the question of whether or not this disincentive effect would be warranted or not. If the rich simply retaliated from spite, then the moral argument would fall apart—while there would be negative consequences for such a tax increase, these consequences would be harms intentionally inflicted. As such, not increasing taxes because of fear of retaliation would be morally equivalent to paying protection money so that criminals elect to not break things in one’s business or home.

If, however, the rich act because the tax increase is not fair, then the ethics of the situation would be different. To use an obvious analogy, if wealthy customers at a restaurant were forced to pay some of the bills for the less wealthy customers by the management, it would be hard to fault them for leaving smaller tips on the table. While the matter of what counts as a fair tax is rather controversial, it is certainly easy enough to accept an unfair increase would be unfair by definition. One approach would be to define unfairness in terms of the taxes cutting too much into what the person is entitled to in dint of her efforts, ability and productivity relative to what she owes to the country. This seems reasonable in that it provides considerable room for argumentation and does not beg and obvious questions (after all, the amount one owes one’s country could be as low as nothing).

Interestingly, the fairness argument would also apply to workers in regards to their salary. When a worker produces value, the employer pays the worker some of that value and keeps some of it. What the employer keeps can be seen as analogous to the tax imposed by the state on the rich person. As with the taxes on the rich person, there is the general question of what is fair to take from workers. Bringing in the disincentive argument, if it works to justify imposing only a fair tax on the rich, it should also do the same for the less rich. That is, those who argue against raising taxes on the rich to address income inequality by using the disincentive argument should also accept that the less rich should be paid in accord with the same principles used to judge how much income should be taken from the rich.

The obvious counter to this approach is to endeavor to break the analogy between the two situations: this would involve showing that the rich differ from the less rich in relevant ways or that taking income by taxes is relevantly different from taking money from employees. The challenge is, of course, to show that the differences really are relevant.

 

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Expatriation & Crito

Posted in Business, Ethics, Law, Philosophy, Politics by Michael LaBossiere on November 18, 2013
Biometric United States passport issued in 2007

 (Photo credit: Wikipedia)

An American citizen can voluntarily renounce his citizenship and a permanent resident can “turn in” her green card—this is known as expatriation. Interestingly, there has been a 33% increase in expatriations since 2011 with a total of 2,369 people doing so as of the third quarter. The main reason for this seems to be for the wealthy to avoid paying American taxes.  This does raise an interesting moral issue.

In the case of permanent residents who turn in their green cards, this would seem to clearly be morally acceptable. After all, being a permanent resident and not a citizen is most likely a matter of convenience or advantage for the person in question. As such, they would seem to have no special moral obligation to the United States. To use an analogy, if I rent a house from a family, this creates no special obligation to that family beyond paying my rent and taking reasonable care of their property. If I wish to end my tenancy and move somewhere else, then that would be my right—provided that I settled my debt before leaving.

The case of citizens is a bit more complicated. On the one hand, it can be argued that a person has a moral right to give up his citizenship for any reason. This would seem to apply whether the person received his citizenship by being born a citizen or by being nationalized. A person who was born a citizen did not chose to be a citizen and thus would seem to have the right to make that choice as an adult. To use an analogy, a person does not pick his birth family, but he can later elect to not be a part of that family.

A person who decided to be a citizen and then elects to cease to be a citizen would seem to have as much right to make that choice as she did when she decided to become a citizen. To use an analogy, just as a person has a right to enter into a marriage she has a right to leave that marriage.

Another avenue of argumentation is to focus on the right of a person to act in ways that are to her advantage. In the case of the wealthy renouncing their citizenship for tax purposes, it can be contended that they have the right to act in their self-interest and avoiding taxes in this manner is a rational calculation. While they do give up the advantages of being a United States citizen, the tax savings could be well worth it—especially if the wealthy person has little need of the advantages of being a United States citizen or can get comparable advantages by being a citizen of a state that will not tax her to the degree that the United States does. Of course, it is worth noting that the wealthy generally do not suffer under severe tax burdens in the United States and they are generally adept at using the arcane tax laws to their advantage. However, a wealthy person might regard even these taxes as too burdensome relative to the advantages she gains from her citizenship.

On the other hand, renouncing citizenship for the tax advantages seems, at least to me, like an act that is morally dubious. Laying aside the appeals to patriotism and the condemnation of selfishness, I will instead borrow and rework Socrates’ approach in the Crito.

The Crito takes place after Socrates trial (as recounted in the Apology) and involves Socrates addressing the question of whether or not fleeing Athens to avoid death would be unjust. While the matter at hand is not about death, it is a similar matter: would a citizen renouncing his citizenship to avoid taxes be unjust? I believe that it would be and offer the following argument (stolen from Socrates).

For the sake of the argument, I will assume that the citizen was not compelled to be or remain a citizen and that the citizen was not tricked into being or remaining a citizen. That is, the citizen was not trapped by fraud or force. A person who is forced or tricked would have a legitimate claim to renouncing such a compulsive or fraudulent relationship.

A person who was born a citizen or became a citizen enjoyed the advantages of being a citizen. The person very likely was educated by the country (by the public school system). Even if the person did not receive a public education, she did receive the protection and goods of citizenship. If the person is renouncing her citizenship solely for tax reasons, this would indicate that she does not have a profound disagreement with American values or the other aspects of citizenship. As such, the person would be renouncing her citizenship solely for the financial advantage. This would seem to be unjust—to repay the country by renouncing her for the sake of money. To use an analogy, this would similar to a person renouncing membership in the family that raised and took care of her because now her parents are old and require the support they once gave their child. This would seem to be an act of profound ingratitude and shameful in its base selfishness.

The obvious counter to this is to contend that the relationship between the citizen and the state is not analogous to that of a family or even a community. Rather the relationship is one defined purely in terms of self-interest and assessed in terms of the advantages and disadvantages to the individual. On this view, a person would ask not what he can do for his country. Rather, his question would be to ask what his country can do for him. And if it is not doing enough, then he should end that relationship.

Taking this view does come with a price: it must be applied consistently to all relationships to the state. For example, a citizen who sells secrets to another country or merely leaks them because he sees it as being to his advantage cannot be accused of a betrayal. After all, he is doing what the wealthy renouncers are doing: acting for his own advantage. As another example, to expect citizens to make sacrifices by serving the country would be an unreasonable expectation. Citizens should only do what is to their advantage and be properly compensated for this. In short, this view is that the relationship between citizen and country is a business one and that a citizen is essentially a customer. Interestingly enough, some people want to have it both ways: using the idea of nationalism when it is to their advantage and treating citizenship as a business relationship when doing so is to their advantage.

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