This morning, responding to a post complaining about charges of class warfare when the Obama Administration talks about raising the highest tax bracket to just under 40%, James Joyner posted three caveats in debating taxes:
- Some progressivity is fiscally necessary and morally justified
- Cutting taxes generates more revenue . . . but only up to a point
- It’s our money, not the government’s
I agree with the first two of these—in my view they’re simply commonsensical. You can’t have a modern society with the regulations necessary to get above subsistence farming without something other than a head tax. And there’s a Goldilocks kind of situation going on with respect to taxes. If the total level of taxation on an individual is too high, you generate less revenue than you might, if it’s too low, you generate less revenue than you might, the trick is finding that sweet spot at which your level of taxation just right.
What is that level? I don’t know.
However, I’m skeptical about James’s last dictum. The best answer to it was given 2,000 years ago: “Whose image and superscription hath it?”
However, I’d go a little farther than Hilzoy does in her post linked above. I don’t believe that nowadays you become rich by hard work nor do I believe it’s a case of “building a better mousetrap”. I don’t believe that a doctor however wise or learned, a writer however entertainingly he or she writes, a computer programmer however skilled, or a stock trader however savvy becomes wealthy without also being a skilled manipulator of the system. The physician is dependent for his income on the monopoly on prescribing certain kinds of pharmaceuticals that was granted to the profession more than a hundred years ago by the Pure Food and Drug Act of 1906. The writer and programmer are dependent on copyright and/or patents, both creations of government. The stock trader relies on the rules set up by government but even more government is the primary creator of arbitrage and it’s arbitrage that makes the market.
These days you become wealthy through hard work, skill, being a savvy manipulator of the system, and plain dumb luck.
The rich are all the creatures of government and they shouldn’t be surprised if the government that created their wealth makes outrageous demands of them.
However, I also think that we should be cautious and prudent. Americans are not naturally law-abiding, especially not in tax matters, and if you raise the taxes on individuals beyond a certain point, they simply won’t pay them. And the rich are enormously better equipt to hide their income than the poor are. I don’t believe there’s any level of enforcement that Americans will tolerate that will enable the government to raise taxes on Americans to an arbitrarily high level.
Consequently, we must temper our demands from government to be achievable within the level of revenue that we’re willing to tolerate our government raising. I’d think that this would go without saying but, judging by the debate I’m hearing these days, apparently not. Remember that the more we borrow today the more we’ll pay out in debt service tomorrow and that runs up against the same willingness to pay that all other forms of government spending are limited by.
In the infamous words of Borat: Whoa-whoa-whoa-whoa-whoa.
Bloody’s at brunch, Dave??
“These days you become wealthy through hard work, skill, being a savvy manipulator of the system, and plain dumb luck.”
That’s fine, and I concede the dumb luck point (even though it is overstated). But manipulator? In some endeavors, yes. In most, I’m not so sure.
More importantly, how about risk taking? I am constantly amazed at how this aspect of capitalism is grossly underestimated. (See Matt Yglesias cheap shot) Just try starting a pass of the hat for bucks. Ask for a real live check. Then you will see. Watch the shuffling of feet and the sudden and intense interest in minute defects in the floor below. Everyone is a capitalist……until they have to send in the money.
Last time I looked, capital is important, isn’t free, and the government doesn’t give common schlubs like me a do-over. Further, I seem to recall reading something about banks not lending capital for growth…..
“The rich are all the creatures of government and they shouldn’t be surprised if the government that created their wealth makes outrageous demands of them.”
Now I need a Bloody, make it a double…no, a triple. I’ve heard tortured arguments about how businessmen should turn over their fortunes because government defends them, enabling them to make profit. But “the rich are all creatures of government……..that creates their wealth?????????????” Please tell me that was a brain cramp.
I may live in an alternative universe. But in the entrepreneur class I traffic in, “creatures” of government are almost non-existant.
………………………………..
Separately,…….
“Americans are not naturally law-abiding, especially not in tax matters, and if you raise the taxes on individuals beyond a certain point, they simply won’t pay them.”
And the rich are enormously better equip(ed) to hide their income than the poor are.”
Indeed. A point Milton Friedman always made, and I (blush) try to make. Commentators quoting marginal tax rates under Kennedy for example (to justify higher rates today) are either 1) ill infomed (I’m being nice) or 2) flat damned dishonest. Deductions and tax avoidance schemes ruled the day!!! Those rates aren’t comparable!
Just wait, Obama. Your tax honey pot will be an illusion.
Perhaps “manipulator” is the wrong word. Riding the waves? I’m not sure what the right word is.
I don’t know, Drew, but I’m seeing an awful lot of risk mitigation through the clever use of government power these days. Intellectual property—patents, copyrights. Licensing. Quotas. Government contracts. Zoning. Rigged bids of various different kinds. It doesn’t seem to me that preventing competition is precisely what’s meant by entrepeneurialism.
It is sad but true that government is completely interwoven into the fabric of our society. I’d prefer if it were different but it isn’t.
It may be different with the companies with which you deal but I mostly either deal with professionals (licensed to eliminate competition) or companies whose business plan is to do something that’ll get them acquired by a larger company who wants their intellectual property.
I’ve been trying to find an independent source for it, but one of my professors (he’s a poli-sci guy, or more technically an International Political Economist) mentioned a while back that a 47% marginal rate seems to be some type of psychological threshold. Up to that point, tax evasion and the disincentives to work didn’t seem to have that big of an effect – but beyond it, suddenly you start seeing increasing rates of tax evasion and the like.
You have a point, though, Dave, in that so much of our economy and success depends on government systems, from patent systems to property rights (without property rights and enforcement, we’re back in feudalism/mafia-land).
That’s the figure I recalled, too, Brett, so I suspect there’s something behind it.
Dave –
Interesting points. As I often point out, we are all to a degree prisoners of our personal experiences.
I of course, traffic in the world of small business. For me, that definition is companies with revenue of $50MM to $200MM. Further, we are talking basic manufacturing companies. So the manipulative maneuvers you describe are foreign to me. I just don’t see it. My world is not large corporate, or Chicago-style pay for play on construction projects, or intellectual property intensive assets.
This would be a point of agreement between me and the left: criticism of large corporate practices.
But again, to shamelessly rip off a Friedman observation: set up a regulatory environment, and just who do you think will become the regulators, and just how do you think the big guy vs the little guy will do??