November 2, 2008

No Taxation Without Rumination

In England, there is a legend about a hood by the name of Robin who lived in the forest and took money from the rich aristocrats and distributed it among the poor and needy. Many liberals today see themselves in a similar light: taking money from the greedy aristocrats of our society and redistributing it among the poor.

However, have they really thought about whether or not this will actually help the poor, or is it merely assumed? I'm sure there are some who do both. But before you cast your vote on Tuesday, please consider some of the thoughts that I have on this subject. I do not believe that increasing taxes of the rich and big business will help the poor at all. Instead I believe it will lead to instability in the overall economy, keep the poor poor, and slowly erode the middle class. Here are some of my reasons why:

Taxing Businesses Which Sell Needs

There are some businesses which sell things that will be bought, no matter what the condition of the economy is. Due to anti-monopoly laws (which are good things. I'm not against regulation entirely), there are usually competing businesses who sell these commodities. Due to the basic laws of competition, because they all sell the same basic product, these products tend to be the same price. The prices fluctuate due to conditions in the market, and changes in the ability to produce the product, but they tend to fluctuate across the whole market. An excellent example of this is gas, since Americans are so fuel dependent.

The problem with increasing the taxes of these kinds of products is that it is seen as just a change in the market. You see, people who run businesses are greedy, but they are also predictable because of it. They are not going to see the increase of taxes as a burden on themselves, but as part of the cost of producing and selling their product.

Therefore, what do they do? They include it in the price. They are not going to take a personal hit when every other company is experiencing the same increase in taxes. They all will put it into the price of gas so that they will be making consistent profits. Demand already keeps the prices down because the high competition has pushed them as low as they will go. So the rich won't pay for the increase of taxes, we will.

Taxing Businesses Which Sell Luxuries

There are some things we buy that we don't really need. One reason why the market will respond the way I described above with needed products is that there always will be a demand, regardless of price. This is not true with luxuries. With luxuries, if the price goes too far up, people will just stop buying them. Therefore, the prices will remain fairly constant even if taxes go up. Well, at least initially.

Because, at first, the prices will remain the same, and the expense to the business itself has just gone up, the result is that many businesses will not be able to stay in business. And which companies do you think will go out of business? It won't be the really big ones, but the smaller ones. The result is a decrease in small business, causing a fewer amount of businesses controlling the market. This to will lead to a decrease in competition and self regulation.

One may respond that I am assuming that all businesses will get the same increase in taxes. A tiered tax plan will avoid this. Well... yes and no. With a tiered tax plan, to some degree, the smaller businesses within each tier will go under, still decreasing the overall amount of competition. Also, tiers cause a barrier of improvement. If a company starts to make a slightly higher gross income, their taxes significantly increase, meaning that they will be making a lower net income, and it is the net income that marks a business's success. The result is that they will try to remain in the lower tier. So the higher tiers are not only weeding out the weaker companies within the tier, but new companies are also not coming up into it. So the amount of large businesses are decreasing, meaning less competition, meaning less regulation, meaning more money for those companies.

Also, a lack of competition also means that the businesses will be less affected by demand. They will now be able to afford loosing some costumers. This now means an increase in price. This also means that less Americans will be able to afford such a luxury (like eating out for instance), which means a change in the American lifestyle. This change will amount to a social blurring between the middle and lower classes.

Taxing The Individual Rich

One of the great things about this country is that we are very charitable. Even the greediest among us tend to give a lot in charity. Like I said before, the rich are greedy, but very predictable.

Let's say that Bob makes $10 million a year. Now, let's say out of that $10,000,000, he gives away $200,000: 2%. Now, someone may comment about that $9,800,000 that Bob is keeping, and says that he doesn't need all of that, and the poor should have it. This would be true. Bob could, and therefore should, be giving away more. Bob is greedy.

Now, let's say that the government significantly increases Bob's taxes. Indeed, the government targets Bob due to the amount of money he makes. So now, Bob is losing another $100,000 to the government than he was before. Remembering that Bob is greedy, which do you think will get a bigger cut? The amount that he gives away or the amount that he keeps? That's right, the amount that he gives away, and to that, I might add that, in general, charities do a better job at helping the poor than the government does. So money will be taken away from the competent helpers. Good plan.

Now, after a few years, this issue will iron itself out. Bob will probably eventually settle back to about 2% of his income, after he adjusts to the pay cut (if he manages to adjust that is). But it will probably settle out back to 2%, which will be less money total, and it will be a while before this occurs anyway. Overall, we will seeing a decrease in the amount of care that the poor is receiving.

Is It Really Moral?

If you recall the tale of Robin Hood, he stole from rich individuals, and gave to the needy. What many liberals forget is that he stole from the government who was overtaxing the people. Using Prince John's methods to achieve Robin Hood's goals is kind of iffy (if you don't want to admit that the whole idea of robbing was iffy to start with).

What exactly is the proposal here. Let us try to think this out. Let's take Bob again. Bob has a lot of money. Then over here we have Darrel. Darrel has barely any money. Now, it makes sense, given this problem, that some of Bob's money can be given to Darrel, then the problem will be solved. Therefore we should take Bob's money and give it to Darrel.

Wait, hold up. Let me rethink that. Are we sure we can take Bob's money? I mean ethically speaking. We've already established that Bob is immoral, so that's not the issue here. Is it right for us to take Bob's money? It is Bob's after all, not ours.

Well, maybe we can. I mean, if we are the government, right? The government has a right to tax, and it is the government which decides the taxes, not Bob. So the government has a right to take as much of Bob's money as it wants. Right?

Well... why does the government have that right? Indeed, is it a right? If we think of the government as a service, as it is providing security and stability within our society, then it makes sense that the consumers of that service, i.e. citizens, are charged a fee. Indeed, the government also has a lot, and I mean a lot, of overhead. Therefore, it actually needs to charge a fee for it's citizens. Thus the government needs to charge taxes. But it doesn't really have a right to. By that, I mean that the word 'right' isn't the correct term to describe it. It is more that we, as citizens, if we want the stable society that the government is offering us, then we need to pay it, and if we choose not to, then, naturally, the government can remove us from that society. But, if it isn't a right, but merely a fee for service, than does the government have the right to set the amount for taxes? Well, yes for the service sure.

However, and this is key, does the government have the right to charge one class of people differently than another? Is that moral? Can the government charge this class differently than this one? I mean, they are both getting the same product, aren't they? That is the stable society. Sure, they have different places within that society, but that's always going to be true. In the end we are talking about treating one class of people differently than another.

Also, one of the fundamental rights granted to us by this nation, at least originally, was the right to property. My property is mine, not the government's. Regardless of whether or not you agree with that philosophy, it is one of a basic right that was meant to be protected by the Bill of Rights (hence no illegal search and seizures, among other things). We are talking about the government singling out a particular group of people, and taking away their property for the government's own use.

Tax Breaks for the Rich?

Often I hear the conservative view on taxes as "tax breaks for the rich" but that isn't really true, not if you look at the philosophy behind it. The view is really equal treatment under the law, a.k.a. a flat tax. Now, it doesn't have to be perfectly flat, but I think rolling hills is better than the jagged mountains that Obama's proposing. It is not that conservatives are for "tax breaks for the rich", but more that conservatives are against "tax penalties for the rich". From the conservative perspective, the rich are being punished for being rich, and that just sound unethical to us.

And, no, I'm not saying, "oh poor persecuted millionares. Whatever will they do?" Nah, many of them are incredibly greedy. But doing an unethical thing, even if it is against bad people, is still the wrong thing to do in my book. I do believe that two wrongs don't make a right. Combine this with the more practical reasons that I gave above, as well my overall cynical view in that I doubt that the democrat poloticians are any less greedy or power hungry, and you get the result of me siding with the conservatives on this one.


Jc_Freak: said...

And another thing I should probably mention, and this is more about Obama: how can you lament over the condition of our economy and still propose providing universal health care? That just doesn't make sense to me. Having universal health care as an eventual goal after you repare the economy... eh, you still gotta show me it'll work, but having that as one of your first objectives sounds foolish to me.

Martin said...

Very good.

Your comment about the sudden increase in taxes due to upward movement in tax tiers is overstated. Do an example in Excel. The overall tax rate is continuous (it is piecewise linear), although the first derivative is not. The overall tax rate increases monotonically in every bracket. The effect you describe is still felt, just not to the degree you suggest. I've always thought that the marginal tax rate should be continuous, but most people feel that doing so would make the math too difficult for the average person to calculate their taxes, so we have this system.

It sounds like I would support a more progressive tax system than you would. The fundamental argument is "what would you do with the next dollar you get". The lower class (economically speaking) would spend it on support (food, clothing, medicine), the middle class would spend it on culture (nicer clothes, a show, a vacation), the upper class would spend it on luxury (a yacht, jewels, servants). Yes, it's their money, and I respect property rights, but they CAN afford it.

On the other hand, the system is called captialism for a reason. It is accumulations of capital that make the system work. Money has to move to accompish anything. If everyone has exactly the same resourses, nothing happens. Do not kill the goose that laid the golden egg.

One of the problems with progressive taxes that you did not mention is investment flight. Severely progressive taxes worked in the 50's and early 60's because investors still made more money here than anywhere else. That is no longer true, and has not been for some time. Another is simple incentive. Most income producing activities come with risk; at the very least, of your time. People take that risk for the reward of improving their lives and of the lives of the ones that they love. Remove the incentive and people will no longer take the risks, and the inventiveness of society will diminish.

It has been said that it is not unreasonable to judge a society by how it treats its weakest members. There is a place for subsistence level charity enforced by statute.

There are three big problems with charity by statute, however. The first is dependence, the second is fraud (and its cousin, inefficiency), and the third is division. The first two are obvious, the third may require some explanation. When you receive charity from a person, or from a local organization whose members are observable, you also receive a service. This service comes from identifiable people and, as a result, a binding, a sense of interest, appreciation, and caring (and gratitude) is engendered. There is a recognition of responsibility towards those less fortunate (there, but for the grace of God, go I). There is also (usually) a responding responsiblity to make do with the gifts you receive and to attempt to make your own way. With charity by statue the givers and receivers become "others" - "they"; impersonal sources or sinks of goods and services to be handled and dealt with in a way to best suit your individual circumstances.

The bottom line is that both political extremes are wrong. It's not that the middle way is always right, but that there must be a balance. That balance will not be static, it will shift with times and circumstances. The more extreme a measure that is employed, the shorter the time should be for it's use. Also, enter into entrenched positions with great trepidation. The more power you have to enforce your position (i.e. the federal government) the slower you should be to create immovable objects.

I'm sorry that there is no cohesive organization to the above; I just don't have time for more right now. I look forward to reading some of your other thoughts.

Jc_Freak: said...

Thanks, Dad, youg gave me a lot to think of there.

I've heard people talk about division before, but never by that word. I want to see if I understand the concept right. But having the process of charity become institutionalized, the recipients of that charity cease seeing it as a gift and start saying as part of the context of their lives. This makes them less likely to view it as a way out of their situation, and this causes them to use the funds differently. Am I following?

Martin said...

That is part of it. The idea is not new, but is difficult to coalesce into a single noun. The terms entitlement and victimization have been used to attempt to grasp the concept; the notion that some people have that society “owes” them a better standard of living than they are able to earn for themselves. But even that is an effect, I think, of the division concept I am using. You can see it in the very sentence that I used; that society owes them something – society, not individual people, not people who are themselves going to work, buying food for their families, and paying a portion of their earnings towards government funded programs. The knife cuts both ways. Taxpayers can come to view the “needy” as a steady drain on their resources rather than fellow children of God who are suffering. Again, balance is the key. When you know someone you can distinguish between, say, the dreamer who took too big a chance and missed, and the indolent vagrant. Institutions have difficulty with this distinction. On the other hand, it takes institutional qualities to be reliable and identifiable.

Jc_Freak: said...

Exactly. THat is why FBO generally do a better job at helping the poor than the government does. As institutions, they are more volunteer based, and are also independent.

THat doesn't mean that it is wrong for the gov't to do anything. I'm not actually against social security. But it is better to invest in FBOs than social security since they tend to do more good in the long run.