Money Isn't Everything

I will grant that there's a legitimate argument to be made in favor of taxing people on the basis of the blessings they have been given. For example, the fact that I'm smart enough to make a good living as a computer programmer while most others aren't is a matter of sheer luck; I haven't really done anything to deserve the cognitive advantage I have over someone with an IQ of 90.

Of course, there are also compelling arguments against this. For one, the government isn't really in a good position to decide how much each of us has been blessed. The criteria will be determined by politics rather than science, and whatever the criteria, people will engage in inefficient attempts to game them. And wealth redistribution in general is morally sketchy at best. But I'll grant that the idea is at least somewhat defensible, particularly when it comes to distributing the burden of paying for genuine public goods.

But I make no such concessions for the idea that people should be taxed on the basis of income. Consider two men of roughly equal intelligence, from similar class backgrounds, who go to school together and end up going to the same college—men who have been more or less equally blessed. When they reach college, their paths diverge. One decides to become an artist, the other a doctor. Ten years later, the doctor is paying 10-20 times as much in taxes as the artist.

Becoming a doctor is hard; it involves many years of study and very hard work, with no payoff until age 30 at least, and as late as 35 for some specialties. Ultimately there's a large monetary payoff, but the doctor pays a heavy nonmonetary price (not to mention student loans, which are not tax-deductible). The artist doesn't make much money, but he enjoys the nonmonetary benefits of being an artist, such as leisure, more enjoyable work, and art groupies.

Anyway, if we assume that the artist has made a rational choice, then that means that the net payoff of becoming an artist is roughly equivalent to the net payoff of becoming a doctor. The difference is that the artist's benefits are nonmonetary, while the doctor's benefits are monetary. What moral justification can there be for taxing only the doctor? Why should the artist be excused from his duty to pay his fair share just because he's chosen to take the blessings he was given in nonmonetary form?

Or we could assume that the artist just made a bad choice—that any rational person in his situation would have become a doctor, or a businessman, or perhaps an engineer. In that case, why should the artist be excused from his duty just because he squandered the blessings he was given?

There are many things in life that are at least as important as money. And it's perfectly reasonable to make choices that lead to a lower income, if it pays off in other ways. But when two people have the same opportunities in life, there's no moral justification for taxing the one who chooses monetary rewards more heavily than the one who chooses nonmonetary rewards.

The takeaway lesson: If you're not living up to your earning potential, then you're not paying your fair share, and you have no business accusing people who already pay ten times more in taxes than you do of not paying theirs.

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Great post. Of course

Great post. Of course progressive taxation would simply shift the equilibrium so there are fewer doctors and more artists.

Thanks. To be clear, I'm not

Thanks. To be clear, I'm not talking about progressive taxation; I'm talking about income taxation of any sort. My argument isn't that it's not fair to tax the doctor at 40% and the artist at 10%, but that it's not fair to make the doctor pay $100,000 and the artist pay $3,000.

Money Isn't Everything ....

It't the only thing. That can buy a tank or subsidize an artist. Taxes have nothing at all to do with morality.

Neshobanakni.

Legitimate Argument?

"I will grant that there's a legitimate argument to be made in favor of taxing people on the basis of the blessings they have been given."

Are there?

For example, the fact that I'm smart enough to make a good living as a computer programmer while most others aren't is a matter of sheer luck; I haven't really done anything to deserve the cognitive advantage I have over someone with an IQ of 90."

That's not an argument for taxing those "blessed" with high IQ. That's merely asserting that it is a matter of "blessing".

So you have provided no argument for the first sentence.

If you believe in such things as "blessings" then what gives the government the right to take away or lessen an advantage that God almighty has granted you. One might argue that we do the opposite and listen to gods advice, if one were inclined to such reasoning.

Those of us not inclined to magical thinking understand that any IQ advantage you are born with is not a matter of "sheer luck". If it were about sheer luck then natural selection would not work.

Surely when you use your high IQ to accomplish something it is due to YOU and not sheer luck. You may not be responsible for determining what genes you were born with, but once you have such genes they determine who you are. You can't alienate yourself from this fact.

Your accomplishments are due in part to your genes which are a part of you. Therefore the credit for that part of the accomplishment that is due to your copies of those genes inures to you.

We recognize this fact all the time. If someone is fast then we call them fast, and do not credit it to sheer luck. More than likely the next race he runs he'll beat the slow guy again, because HE is fast.

I think what you are getting confused about here is something completely different, when to apply reward and punishment for behavior. Obviously we don't want to punish stupid people by locking them up in jail just because they are stupid. Nor do we want to actively reward people just for laying about being genetically talented. The reason we don't want to do either is because we don't expect any improvement from either action. Punishing stupid people doesn't make them smart and rewarding smart people doesn't make them smarter.

Vice versa, why reward someone for being stupid, or punish them for being smart.

What they accomplish or don't accomplish by virtue of their own inherent characteristics is another matter altogether. Such differences in accomplishment are strictly neither rewards nor punishments precisely because they are not a incentive applied by an external agent to modify behavior.

We think of the consequences of our actions as their own rewards and punishments, but only by taking into account the fact that all inherent talent can be improved by or wasted by our behaviors. But in this case there is nothing for the government to do. The environment does all the work.

If we truly couldn't modify our inherent talents then I don't think we would view consequences as rewards and punishments. The precise reason being that the whole purpose of our brains viewing things this way is in order to learn new behaviors. If we were truly beings that could not modify our behaviors then we couldn't learn and there would be no need for learning from our actions. Both rewards and punishments would be ineffective. Thus they wouldn't "feel" like either rewards or punishments.

There are good arguments for taxing those who make more a higher amount and even a proportionally higher amount but this isn't one of them, and they are not based on genetic luck.

Same Mistake but Different "Final Solution"


But in this case there is nothing for the government to do. The environment does all the work.

Also along these lines. Both the Nazi and the Liberal make the same mistake here. The Nazi views the Jew as genetically inferior and then goes out of his way to punish this inferiority (with the death penalty), while rewarding the genetically pure Germans with the spoils stolen from the Jew.

However, natural selection already takes care of this. If the Jews were truly inferior then they would be no need to worry, the environment would take care of it.

Some liberals make this mistake in reverse. They seem to think there is something that needs adjusting here, but in reverse. They don't think nature is doing the right job, and try to reward the inferior at the expense of the superior, thus punishing the superior.

This only applies to the argument for redistribution based on the unequal distribution of genetic "blessings". Other arguments for redistribution, such as the belief that the rich steal from the poor, do not make this mistake.

I wouldn't even call other arguments "redistribution" arguments. For example, it is just plain more costly to defend large holdings of assets. One could even argue that such defense scales poorly. Thus if government is providing defense as a basic service then the rich (those with greater property holdings) should pay more, and even more proportionally.

Furthermore, one could argue that during times of war an individuals personal contribution as a soldier is far more valuable than just money.

Since this argument is based a supposedly just allocation of fees based on costs it isn't truly an argument for distributing money from the rich to the poor.

I wouldn't even call other

I wouldn't even call other arguments "redistribution" arguments. For example, it is just plain more costly to defend large holdings of assets. One could even argue that such defense scales poorly. Thus if government is providing defense as a basic service then the rich (those with greater property holdings) should pay more, and even more proportionally.

If you have a detailed version of this argument, I'd be interested in hearing it. It's not at all obvious to me that this is true, and the claim is usually made in a very hand-wavy fashion by people who—purely coincidentally, I'm sure—would support a progressive income tax anyway. As you are not, to the best of my knowledge, so inclined, I'm intrigued. But still skeptical.

That said, given that military spending is only about 20% of federal spending, and on the order of perhaps an eighth of total government spending (federal plus state and local), it's kind of a moot point with respect to our current situation.

Sorry Brandon I don't

Sorry Brandon I don't remember where I saw that argument. I believe it was in a long winded article on why all taxes are unfair.

This argument is mentioned in Wiki on progressive taxation.

"Some believe that the wealthy have a disproportionately greater interest in maintaining societal goods typically supported by taxation such as security of property rights, defense and infrastructure, as they have much more to lose if these fail than do the poor. Public investments in defense and foreign aid often support assets abroad whose expropriation is a far greater risk than is the risk involving domestic investments."

Business of gov't is business; wealth of nations is the wealthy

Some believe that the wealthy have a disproportionately greater interest in maintaining societal goods typically supported by taxation such as security of property rights, defense and infrastructure, as they have much more to lose if these fail than do the poor.

"Civil government, so far as it is instituted for the security of property, is in reality instituted for the defense of the rich against the poor, or of those who have some property against those who have none at all."

Consequentialism

Taxation isn't to be fundamentally justified in terms of "desert" or "fair shares". (Egalitarianism is dopey. Consider utilitarianism, instead.) It's about the consequences. Income tax is worthwhile because this system makes the world a better place than it otherwise would be. People who advocate higher taxes for the rich believe that this policy change would improve human welfare -- if they're right, that's all the "moral justification" one could ask for.

And if you apply...

And if you apply Scott's recent remark about consequentialism?

My desire to see all

My desire to see all advocates of taxation suffer 50 years of torture is soooo strong that the general welfare dictates we should do just that.

Deserve ?

"Deserve’s got nothing to do with it.”

-- William Munny, The Unforgiven

Public finance

1. How should we pay for gov’t services? Arguably the cost of services that can be traced to a specific causer should be assessed to that causer. Arguably a gas tax is a fair way to pay for roads. Arguably admissions fees are a fair way to pay for parks. These are arguably the easy cases – so easy that libertarians will argue that there’s really no need for government to be involved in them at all. Private firms seem to have this whole fee-for-service model worked out pretty well.

The larger problem arises from “overhead” – the cost of defending autonomy, for example – that is, costs that can’t easily be traced to any specific causer.

2. So where are we gonna get the money for gov’t overhead?

One answer is to appropriate the funds from others. That’s how pirates, organized crime syndicates and empires operate: they fund themselves on expropriation from outsiders.

A variation on this theme is to declare certain members of your own society “others,” disenfranchise them, and then appropriate their property. Machievilli remarked that the prince will make fewer, and less powerful, enemies by expropriating all the land from one subject rather than by expropriating a tenth of the land from ten subjects. Similarly, the Nazis were able to fund their operations by disenfranchising a relatively affluent minority and then appropriating their property.

Still another method is to appropriate funds from members without disenfranchising them. To secure the maximum consent of the governed, members will want to have the impression that the burdens are being spread broadly and fairly.

3. Taxing citizens. One such system is a head tax. This system has much to commend it conceptually and administratively.

But civilizations as early as ancient Athens discovered that the practice of expelling citizens who could not afford the head tax was not very productive, and was pretty stressful to the sense of citizenship. Thus by the time of Solon (596 BCE) the Athenians had moved to a progressive tax. Progressive taxes vied with other forms of taxation thereafter. (Athens also had a tradition of wealthy families performing “liturgies” at festivals for the benefit of the state, which functioned much like a tax.) Progressive taxation became more widespread during the Middle Ages, especially in the more democratic merchant city-states such as Florence and Basel, under the theory that the strong carry the weak (“Ita quod pauperes per divites supportentur.” “Le fort portant the faible." “Damit der Arme nicht so hochbeschwert und dem Reichen auch aufgesetzt werde, das entragen moge.”) And Adam Smith famously remarked,

The necessaries of life occasion the great expense of the poor. They find it difficult to get food, and the greater part of their little revenue is spent in getting it. The luxuries and vanities of life occasion the principal expense of the rich, and a magnificent house embellishes and sets off to the best advantage all the other luxuries and vanities which they possess. A tax upon house-rents, therefore, would in general fall heaviest upon the rich; and in this sort of inequality there would not, perhaps, be anything very unreasonable. It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion.

4. Progressive taxes and human welfare

People who advocate higher taxes for the rich believe that this policy change would improve human welfare -- if they're right, that's all the "moral justification" one could ask for.

My desire to see all advocates of taxation suffer 50 years of torture is soooo strong that the general welfare dictates we should do just that.

I understand this last remark to argue, in effect, that there is no interpersonal standard for judging what improves human welfare. Let’s explore that.

The Wikipedia article for “Progressive Tax” lists the traditional arguments for and against progressive taxation. But inexplicably it omits the Willie Sutton argument for taxing affluent people more: “‘Cuz that’s where the money is.” If gov’t is gonna get money, that’s where it is.

I’d invite some discussion about progressive taxation and human welfare. How did we end up with progressive taxation if not for a desire to achieve a better world than the one we’d have without it? Would someone like to nominate a jurisdiction that lacks progressive taxation, but that seems to promote human welfare as you understand it?

It is a problem of scale and of the next generation

Not wanting responsibility over other people's lives, I fund a good city with a good pension and a good briar patch at the bottom of the food chain. The Wife was satisfied with my pay and all the bills got paid.

I am not jealous of anyone making 10 or 20 times more. But the president of the US only makes $200K and no job is worth or should be paid a million times more than the president. That kind of money generally doesn't come from work output but because interlocking boards of directors who vote each other raises. In other words, butt kissing and legal conspiracy.

Doctors and lawyers can pay big income taxes because compared to me the have lots of income. The rich people having a thousand or a million or 100 million times more annual increase in assets than my income don't have "income" except in pocket change (for them) amounts. They pay 15% capital gains on the assets they cash in and spend.

Second, the guy making $250K a year is probably spending 80% of it and half of what he spends is for keeping up appearances because with professional people, income and lifestyle feed on each other. But the guy with 100 million or a billion in assets is probably spending less than 4% of it every year because that is what his CPA recommends. And the guy with 100 million annual asset increase, how much does he spend? (Give him a $10 million bonus - how much will THAT stimulate the economy? ZERO)

Bill Gates says when he dies his kid(s) will not become billionaires. But the rest of the billionaires whom most of us never heard of . . . they are our owners but we don't know it.

My CPA told me about a guy whose name he didn't mention and whom no one ever hear of . . . he and 6 or 8 people whom no one ever heard of just got $50 million each from the break-up of a 100 year old trust that no one ever heard of . . . and there are tens of thousands of billion dollar trusts out there that no one ever heard of and that haven't paid any taxes to speak of in the last 100 years.

My argument for proggressive taxation

Which causes least harm? Stealing $10 from a hungry beggar or stealing $10 from a rich doctor?

Paradox of progressive taxation

You might think that it is always better to steal from the rich than from the poor. However, there's a familiar economic argument against progressive taxation that points out the deleterious effect on the taxpayer's motivation to be productive. To put it crudely, at a certain level of taxation, stealing an additional $10 from a rich doctor may very well be more harmful than stealing an additional $10 a hungry beggar, however you might define and measure "harmful".

This isn't a paradox

Nothing about this argument shows that progressive taxes are wrong, per se. It shows only that excessively high progressive taxes are wrong. You won't find all that many liberals who would argue with that point. The Laffer Curve is real, and anyone but the most radical of egalitarians would acknowledge that. (The dispute, of course, is over where that curve is and whether we're currently on the left or the right side of it.)

But, again, the existence of the curve seems like an argument against really high marginal tax rates. I'm having trouble seeing how it's supposed to function as an argument against progressive taxes. Unless, of course, you think that taking the first $10 from a rich doctor does more harm than taking the first $10 from the hungry beggar.

Paradox in the soft sense

I meant paradox in the soft sense of "seemingly contradictory statement that may nonetheless be true". "Seeming" is relative to audience - I was addressing the commenter named "himm" - I was warning him that he might find what I was about to say counter-intuitive but that he should not reject it out of hand. You, evidently, don't find it counter-intuitive, but I wasn't aiming my comment at you.

I'm having trouble seeing how it's supposed to function as an argument against progressive taxes.

I wasn't arguing against progressive taxes. I was arguing against the blanket implied statement to which I was replying, specifically:

Which causes least harm? Stealing $10 from a hungry beggar or stealing $10 from a rich doctor?

Which I took to be a rhetorical question implying the unqualified, and therefore blanket, statement that stealing $10 from a rich doctor does less harm than stealing $10 from a hungry beggar (since he did, after all, title his comment, "My argument for proggressive taxation" and not "My question about progressive taxation").

I wasn't talking about an

I wasn't talking about an additional $10 at a certain level of taxation and I agree with Trillian.

Then your argument fails trivially and immediately

So you agree with C. J. Trillian. Okay. C. J. Trillian wrote:

Unless, of course, you think that taking the first $10 from a rich doctor does more harm than taking the first $10 from the hungry beggar.

Your [himm] argument for progressive taxation fails if it is as C. J. Trillian portrays it because it does not portray the distinction between a progressive tax and a non-progressive, or flat, tax. Making the poor guy pay $10 while the rich guy pays $0 in taxes is not a flat tax. It's a regressive tax. In fact, in your model not only does the rate go down with wealth, but so does the absolute amount. So it's not even a fair model of a regressive tax.

Moreover

Income taxation makes far less sense from a government-service standpoint than property taxation.

That is,

Government job is not to provide you with a job (or protect said job).
Government's job is to protect your property from violence.

How about taxing good looks

Another point is that one can monetize high IQ and get a lot of benefits from that including some quality tail. However consider a goodlooking person of any gender without ambition to make money -- they have considerable advantage in getting a lot of nonmonetary utility from sex even if they are poor. And they are able to take full advantage of it when they are very young while the smart ugly person hasn't even graduated from high school and hasn't even started paying any taxes. So my point is this: if we tax the income progressively based on the argument that someone has lucked out on the IQ, let's come up with a way to extract some utility out of goodlooking people progressively in accordance with their good looks for the benefit of the ugly brothers and sisters.

Please say it's satire

let's come up with a way to extract some utility out of goodlooking people progressively in accordance with their good looks for the benefit of the ugly brothers and sisters.

I sure do hope these proposals, including the blog entry, are being made tongue in cheek.

The rich doctor is so far down the food chain

that the purpose of taxing him an additional $10 only serves to please the people below him.

Further, the very few people who pay the marginal tax rate only do so because they didn't plan ahead. It isn't because they earned wages but because they have interest income and dividends. The real rich people don't have wage income except maybe for pocket change. Their real spending money comes from cashing in capital gains which is taxed at 15%.

> To put it crudely, at a certain level of taxation, stealing an additional $10 from a rich doctor may very well be more harmful than stealing an additional $10 a hungry beggar, however you might define and measure "harmful".

Sounds like it's vulnerable to a simple exploit

Couldn't you create a company, pay yourself a nominal sum, and plunge the rest of your revenue back into the company, in effect converting your work into almost pure capital gains? And then, at the end, selling the company and paying 15% of that?

Is there something that prevents people from doing this?

That in nickel and dime stuff.

Every years thousands of people start small businesses and 80% of them are broke 5 years later. That has NOTHING to do with the stocks traded on the stock markets except for initial stock offerings. Most of the billions are made and lost trading existing shares. If I buy MS or Ford shares it doesn't give the company more money to buy machiney or whatever. It goes to the guy who sold the shares. I suspect that 90% of capital gains is paid by money/stock traders and less than 10% is paid by the people actually building a new business.

Anyone who thinks owning shares is being an owner in a business . . . take your 100 shares of Boeing stock and wave them at the gate guard at Boeing. Tell the guard you are an owner of this factory and see how far it gets you.