The Tax Man Cometh
A couple of things here.
First, note the lyrics “There’s one for you/Nineteen for me,” and “Should five percent/Appear too small/Be thankful I don’t/Take it all.” Unbelievable as it may now seem, the marginal tax rate in Britain at the time was 95% (and the American rate wasn’t much lower). Today no country has marginal rates anywhere near that high (so quit yer complainin’ – things could be a lot worse!)
Though the numbers differ somewhat depending on the source, somewhere around half of Americans don’t pay any income taxes on net (they do pay other taxes). Lately, some conservatives have become troubled by this phenomenon, arguing that having most people not pay taxes is bad for democracy (taken to its logical extreme, of course, this sort of argument would apply to all progressive taxation, if not the very existence of an income tax in the first place; the fact that top marginal rates have fallen in tandem so much even as the ranks of the untaxed have been rising also tends to undercut the argument empirically).
Robin Hood is generally known for the fact that he “stole from the rich and gave to the poor.” But apparently the earliest stories about Robin Hood didn’t contain any “gave to the poor” element. It was only later, after he was an established character, that this was added as a rationalization for his actions. You can see something similar with the James-Younger gang, who managed to become folk heroes who were thought to be sticking up for the little guy, even though in reality they were just thieves and murderers.
Comments are closed.
Around this time of year, there is an upward spike in violence against front-line civil service workers at the IRS. Please, in your prayers, ask that their Patron, St. Matthew, might intercede for their protection.
First, this argument is not “conservative”, it is classic laissez-faire liberalism — the notion that the state has no right to expropriate private wealth.
Second, the WSJ argument is being very disingenious– if the top x percent pay so much of the taxes, it is because the top x percent owns so much of the wealth.
One more point: the Church teaches that the true wealth of an economy depends on how resources are distributed, which calls for a progressive taxation.
if the top x percent pay so much of the taxes, it is because the top x percent owns so much of the wealth.
Given that we have a progressive income tax, one has to assume that this isn’t correct. If it were correct, then to my mind this would be a fairly persuasive argument for the futility of having a progressive income tax.
First, this argument is not “conservative”, it is classic laissez-faire liberalism — the notion that the state has no right to expropriate private wealth.
The linked editorial does not at all make the argument that the state has no right to expropriate private wealth, MM. Indeed, he suggests an alternate progressive taxation model, with the primary distinction being that everyone pays at least some income tax (which given that he’s rolling social security and medicare into this, they do already):
I favor the abolition of all Social Security, Medicare and estate taxes. In their place, we should create a simple income tax system that has no deductions or credits at all. The result would be a progressive, multitiered income tax in which everyone pays. The bottom 50% won’t be excused from paying the cost of government and top earners will no longer have the loopholes they’re used to.
I don’t know if that’s precisely the right answer, but I do see a certain virtue in having everyone pay at least some taxes even if they are poor enough that at the same time they’re receiving government assistance. I think there’s at least some merit to the argument that if we reach the point where only the top 30-40% of the population are paying taxes, that creates problems for a democratic republic.
(Whether it’s “unconservative” to want a healthily functioning democratic republic is, I suppose, a much wider question.)
Ezra Klein has the best response to this (typical) WSJ editorial page economic illiteracy. These guys love talking about how the rich pay so much — the top quintile pays 70 percent of federal taxes. In fact, this group accounts for 60 percent of national income. Their average federal tax rate is about 26 percent.
Now, the federal tax system is progressive, in that the average tax rate is higher for the higher quintiles. But the total tax system is not, for state and local taxes are regressive. When you take this into account, the share in taxes is very close to the share in income, so no progressivity.
BA:
Keep in mind that many of those who do not pay any income tax do as a result of filing receive an Earned Income Credit. So, for some April 15th is a joyous day.
But again: what the editorial proposes is a progressive system, and indeed one which rolls in medicare and social security, which are currently un-progressive taxes which hit the working poor hard. Arguably, what he’s arguing for would be overall a more progressive system than we have now.
The difference is that he’s arguing it’s unhealthy for ~50% of the population to pay absolutely no income taxes at all. (It’s also deceptive because they _do_ pay social security and medicare, but those don’t appear on your tax forms, they just vanish from your paycheck never to be seen again.)
To the extent that he’s arguing that “the rich” are paying _more_ than their fair share, I’m not sure that I agree with him. But what I do think is problematic is when our most visible and discussed tax system is _only_ paid by those in the top 50%.
Franky, I would think that someone like you, MM, would welcome Fleischer’s proposal since incorporating the federal payroll taxes into a single progressive tax system would in fact make it possible to lighten the overall load on the poor while increasing the sense of civic solidarity which comes from all dealing with the some tax system. As it is, lower middle-class fury over how low their take-home pay is mostly feeds right into the GOP recommendations for lowering income taxes — which don’t necessarily help the average American that much because they no longer pay them.
Perhaps I’ll offer a post on this in my own right. Originally when the income tax was set up, oh so long ago, it was purposefully designed to capture passive income and not wages. This has become distorted in the present day as people walk around thinking their work is bringing them $150,000 or $300,000 a year, let alone those accruing $1 mil or $3 mil yearly. I think the Joe the Plumber fiasco amply demonstrates people have no concept of money or income.
There happen to be very good reasons to tax passive income in particular progressively. For one, it provides a disincentive for front loading risk. Secondly, it causes the capitalist to concentrate more on maintaining his income stream than pushing forward future gains. (Yes, it is kind of repeat of one.) Given the opportunity to make $20,000 for the next 30 years or make $300,000 this year with only $1,000 residuals, the progressivity of the tax will have an influence on the decision.
state has no right to expropriate private wealth
I agree. A democratic state has the right to tax in order to pay for the costs of government. It has no right to simply expropriate money from citizens simply because it is believed they have too much money.
medicare and social security, which are currently un-progressive taxes…
I would say the insurance contributions to OASDI and HI fund what is a progressive social insurance system. You would likely disagree, but that is why your statement is a point of discussion rather than an established fact.
Minion, I’d be curious to read your take on behavioral economics. This article on the Obama administration embracing it is quite interesting, it sounds like lessons have been learned from the old-school ‘social engineering’. I particularly found achieving goals via banking on people’s laziness intriguing – say, if one has to opt out of something rather than sign up for it.
I don’t know much about economics, but that the Republican way ain’t it, and the American way in general needs some adjusting should be pretty clear by now. There has to be something between tax cuts for the rich and punitive taxation. The very rich I don’t shed many tears over, they outsourced the jobs and offshored the money.