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Thread: The times they are a changing... Bob Dylan

  1. #16
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    Hi Jeff,

    Nope - not THAT David Wells!

    What a great game!

    Okay - on to the tax talk.


    Modifying behavior - taxes to modify behavior seem like an okay idea in principle.

    The problem is the practice. In practice, I think they are just used to raise additional revenue. And in some cases they create uncomfortable conflicts of interest for the government. Take the tobacco taxes as a prime example.

    Theoretically, tobacco is taxed to discourage its use as well as to help pay the health costs that are associated with long term smoking. This seems reasonable enough. However in practice, the state does not actually spend all of the money it raises from tobacco taxes on tobacco prevention or treating tobacco-related disease. Instead, it spends the money however it chooses. In fact, the state actually has a vested interest in people CONTINUING to smoke because it derives a significant amount of revenue from people smoking and paying the taxes.

    Also, for people who like progressive taxation, I should point out that many of the behavior-modifying taxes are extremely regressive in nature.

    More importantly to me, I have a guess that these types of taxes (and deductions) are a big part of the reason why the federal tax code is some 17,000 pages long. The IRS estimated that in 2005 it took AMericans 6.6 BILLION hours to fill out the various and sundry tax forms that the current tax code requires. Right now, there are over 100,000 employees at the IRS - think about how much we spend as a country to a)prepare our tax returns and b)determine whether they are accurate. Snarky aside - the current tax code appears to be so complicated even our own Treasury Secretary couldn't figure it out.

    Redistribution of weath - I am 100% opposed to any involuntary systems of wealth redistribution. I maintain that is not only unfair but counterproductive. The notion that the government should monitor and adjust the gap in wealth between rich and poor through progressive taxation in order to maintain societal stability - I just think it is wrong, misguided, and if the current tax code has that as a goal, it certainly isn't working very well anyway.

    I'm going to modify your example slightly to make the math simple for myself. Suppose someone is making $15,000 and someone else is making $15,000,000, and suppose the flat tax is 10%. It seems perfectly appropriate to me that the person making $15,000,000 pays 1000 times as much in taxes ($1,500,000 vs. $1,500 - they made 1000 times as much money. The revenues raised from such a tax ought to be enough in order for the federal government to fulfill its duties, including providing an appropriate safety net or "floor".

    It is all a question of priorities and execution, and at least on the question of execution, the federal government has a pretty dubious track record. Since the "War on Poverty" began in the 60s (Is it still going on? Did we surrender yet?), who knows how much money has been spent - much of it I would argue ineffectively, as evidenced by the number of people who are still destitute. I contend that privately funded organizations such as the Gates Foundation or Catholic Charities, etc. are doing a far better job providing for society's less fortunate, on a voluntary basis, than the federal government has or ever will. (That doesn't mean I don't think the government shouldn't continue to try though.)

    Further, many flat taxers do introduce a progressive component, by setting a minimum amount of income required for the tax to kick in - people making less than $15,000, for example, would pay no income taxes at all. If this sort of flat tax was introduced, it would still have a progressive characteristic, but would eliminate the vast waste associated with the existing tax code by dramatically simplifying the calculation and collection of taxes.

    I, however, would prefer that everyone who is earning income pay the same proportional rate of tax on that income for the reason I cited originally - I think everyone needs to have some skin in the game. You asked me if I have any studies demonstrating that more evenly distributing tax burdens would result in greater fiscal responsibility. The answer is no I don't, but it just makes common sense to me - Before voting yet again for the same old representative who consistently supports the latest boondoggle federal budget, if an individual realizes that they actually have to pay for part of it, perhaps they will think twice.

    The estate tax - I don't think enough people are voting against it (or more accurately, for representatives who will vote against it), or otherwise it wouldn't exist. To me, it is an egregious "us vs. them" tax designed to confiscate wealth from a very small percentage of American citizens.

    I didn't really pay much attention to "Joe the Plumber" during the last election - so I can't really comment on him, If you can't tell, I'll just come right out and say that I'm not very happy with either of the mainstream political parties. Here's my summation of the last 15 years of American politics as related to fiscal policy. The republicans got elected in '94 on large part due to their promise of instituting fiscally conservative polices, and proceeded to morph into their own longtime characterization of democrats, significantly increasing the annual deficit and national debt. The democrats are now back in charge, and while they complained loudly and often about the fiscally irresponsible republicans when they were out of power, they are now going to solve our problems by going on a simply staggering spending spree. Yipee! Hope it works!

    I haven't seen any studies demonstrating that people vote against their economic self interest. I do know that politicians routinely pander to people's self-interests, and they wouldn't do it if it wasn't working for them. This is why social security reform is known as the "3rd rail" in American politics, and probably why President Obama is careful to couch his tax proposals in terms of the %95 of people who will purportedly benefit. Too bad for the 5% whose tax burdens will increase - you guys just don't have the votes!

  2. #17
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    Quote Originally Posted by David Wells View Post
    Redistribution of weath - I am 100% opposed to any involuntary systems of wealth redistribution.

    ...

    Further, many flat taxers do introduce a progressive component, by setting a minimum amount of income required for the tax to kick in - people making less than $15,000, for example, would pay no income taxes at all.

    ...

    I, however, would prefer that everyone who is earning income pay the same proportional rate of tax on that income for the reason I cited originally - I think everyone needs to have some skin in the game.
    It's not clear to me whether you are a flat taxer with a minimum amount--if you are, then you've started down the path of progressive taxation. The question then becomes where you stop along that path.

    Our current system has the characteristic for which you advocate: everyone above the minimum does have skin in the game. For those at the low end of the spectrum, that skin just hurts a lot more than the skin "higher up."

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    I've given this topic a bit more thought and have concluded that even regressive tax rates don't necessarily meet the criteria of zero wealth redistribution.

    The only tax framework that would avoid wealth redistribution would be an extreme form of regressiveness. A truly wealth-neutral tax code would presumably charge citizens based on their consumption of government services.

    Everyone would pay the same share of defense, police, fire, and other public safety. Everyone would pay the same amount into, and get the same amount back from, Social Security. Ditto for Medicare/Medicaid. Other optional/variable services (education, library, etc.) might only be charged to users.

    I don't know what the fixed tax amount would be, but it would probably consume more than the entire income for many citizens. I don't think that a wealth-neutral tax code is remotely practical, and once we depart from such a model, the conversation becomes one of how much wealth to redistribute.

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    Quote Originally Posted by Jeff Dieffenbach View Post
    "Our current system has the characteristic for which you advocate: everyone above the minimum does have skin in the game. For those at the low end of the spectrum, that skin just hurts a lot more than the skin "higher up."
    See this link

    (http://money.cnn.com/04/15/pf/taxes/...ys_most_least/)

    The article includes the following: "The Tax Policy Center estimates that for 2009, 43% of tax units (most of which are lower income households that may or may not file a return) will have no income tax liability or will have a negative income tax liability, meaning the government will actually pay them."

    To me, that means that when these folks vote, they do so with the knowledge that they aren't going to be paying any income tax to support the programs their representatives propose.

    BTW - not sure how much credence you will place in the www.taxfoundation.org, but I like it because it seems to have a conservative perspective.
    Last edited by Kim Reichelt; 04-19-2009 at 08:16 AM. Reason: to fix quotes

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    In response to your last post: For many on the left of the political spectrum, redistributing wealth is a goal in and of itself. It is not merely the neccessary consequence of tax policy, as you so succinctly put it.

    What is a little ironic to me is that the current progressive tax structure actually seems to be doing a very poor job at redistributing wealth, I'm sure much to the chagrin of some. Visit the website www.extremeinequality.org for some statistics on wealth distribution in the US. It turns out that the rich have been getting richer for decades, and the poor are still poor. My guess is that the extremely wealthy can afford to pay for the lobbyists, accountants and lawyers they need to avoid the progressive intent of our current income tax.

    Which brings me back to the flat tax. It is simple, could be structured to be minimally progressive, and would be much, much more efficient to operate.

  6. #21
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    It sounds like we're both willing to accept a structure that's at least marginally progressive by virtue of exempting those with low incomes. On a percentage of wage earners basis, I don't know where the cutoff might be--43% of "tax units" (gotta love that phrase!) seems high. Here's a chart showing income distribution--as a rough cut, 43% would appear to be all households earning $40k or less.

    Your observation about wealth redistribution being a necessary consequence versus an objective is a great one. I hadn't previously considered the necessary consequence side of the equation until you introduced flat tax to the conversation--I had always thought of a flat tax as distribution neutral, but it's not. That is, wealth distribution is *inevitable* since people at the low end don't earn enough to cover their equal share.

    I'm still not sure on which side of the above "versus" I come down (redistribution as necessary or as an objective). "Fair" is important to me, and there's certainly a strong argument that wealth-neutral is fair. This raises a really interesting question--what happens when fair isn't good?

    Yes, I'm on the left side of the US political spectrum, albeit not dramatically left (socially left, but fiscally moderate). At the core of my "philosophy" is the notion that too wide a wealth gap is not only undesirable, it's societally unstable. I don't have any proof of that, and would be interested in evidence one way or the other. I guess that puts me in the "objective" camp, but redistribution can't be so onerous as to dampen capitalist incentive. Moreover, it should be as mild as possible.

    Regarding tax simplicity, I'm with you. Interestingly enough, I just heard something this week about President Obama intending to simplify the tax code. (By my counting, that probably makes him, oh, I don't know, the 44th consecutive President to do so!) 17,000 pages or whatever sounds like a lot. I have no idea how much of that applies to someone like me: a paycheck, mortgage interest to deduct, some charitable giving, and my wife's business. I do my own taxes (thanks in large part to tax software), but can't always say that I understand them.

    Keep in mind that a flat tax isn't the only route to simplicity. It wouldn't add much at all to have tiered rates similar to what we have now that could still be explained on a postcard.

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    Jeff - Thanks for indulging me in this thread. I enjoyed the discussion.

    If you find any studies concerning societal stability and wealth distribution I'd be interested in reading them.

    My own off-the-cuff opinion on that topic is that societal stability is best achieved and maintained through a) consistent enforcement of rational laws and b) quality education for all (including moral and civic education)... Actually, thinking out loud, it seems to me that without b), a) is pretty difficult to achieve.

    Time to go enjoy the sunshine!

  8. #23
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    Default On the question of a flat tax to fund our government

    I appreciate the depth of thoughtful commentary on this question. The idea of a flat tax where everyone contributes equally is an attractive idea. Unfortunately our economic system does not function on that basis of fairness and equity. I might be in favor of a flat tax if our economic system could deliver significantly more fairness and equity by putting every member of our society on a level playing field.

    These would be some of my baselines:

    1. Make sure that every full time employee earns a real living wage.

    2. Make sure that the highest levels of compensation structures are rationally based on the merits.

    3. Make sure the commercial enterprises pay their fair share based on their uses of the infrastructure of both soft (prudent regulation) and hard costs (i.e. utilities, transportation, security, etc).

    4. Make sure that every member of our society has adequate free health care whether public or private as most Western societies provide.

    5. Make sure every member of society has full educational benefits to the limits of their ability.

    6. Full public financing of our political processes to eliminate undue influence of all interest groups no matter their perspective so that public policy actually benefits the public interest.


    If we could provide a level playing field of fairness and equity than we would not have to worry about tax incentives for this, that, or the other all we need to provide for in our tax system would be the operations of government. If that were the case than a flat tax shared by all might be a great option. I do believe our market based system and democratic process could accomplish this in time and would really thrive.

    Barry

  9. #24
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    Quote Originally Posted by Barry Nystedt View Post
    I might be in favor of a flat tax if our economic system could deliver significantly more fairness and equity by putting every member of our society on a level playing field.

    These would be some of my baselines:

    1. Make sure that every full time employee earns a real living wage.
    This certainly varies by region. And, it might well require tax exemptions and credits.

    Quote Originally Posted by Barry Nystedt View Post
    2. Make sure that the highest levels of compensation structures are rationally based on the merits.
    Agreed. I've got no problem with someone making gazillions of dollars. What I hate is when corporate executives get huge compensation without delivering results. As I've written somewhere on this Discussion Forum, I think, shareholders and boards either can't or don't seem to be able to exercise control here.

    Quote Originally Posted by Barry Nystedt View Post
    3. Make sure the commercial enterprises pay their fair share based on their uses of the infrastructure of both soft (prudent regulation) and hard costs (i.e. utilities, transportation, security, etc).
    Would you then cap corporate taxes at the amount equivalent to the consumption you describe here?

    Quote Originally Posted by Barry Nystedt View Post
    4. Make sure that every member of our society has adequate free health care whether public or private as most Western societies provide.
    As with (1), this will likely require wealth redistribution.

    Quote Originally Posted by Barry Nystedt View Post
    5. Make sure every member of society has full educational benefits to the limits of their ability.
    How would you measure this? Spending? Outcomes? Already, many cities pay more even than expensive Wayland on a Per Pupil Expenditure basis. And, it's not clear that any amount of money will change this. After all, children spend on the order of 15% of their waking life in school between birth and the end of high school. There are simply too many external factors for schools to overcome.

    Quote Originally Posted by Barry Nystedt View Post
    6. Full public financing of our political processes to eliminate undue influence of all interest groups no matter their perspective so that public policy actually benefits the public interest.
    A great goal, but even optimistic me is pretty pessimistic on this point.

    Quote Originally Posted by Barry Nystedt View Post
    If we could provide a level playing field of fairness and equity than we would not have to worry about tax incentives for this, that, or the other all we need to provide for in our tax system would be the operations of government. If that were the case than a flat tax shared by all might be a great option. I do believe our market based system and democratic process could accomplish this in time and would really thrive.

    Barry

  10. #25
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    Barry/Jeff:

    Happy Marathon Day!

    I can't resist responding, and thus coming fully out of the closet as a certifiable wingnut, to use the DailyKos parlance

    Quote Originally Posted by Barry Nystedt View Post
    1. Make sure that every full time employee earns a real living wage.
    I'm not an economist, but I have soaked up some basic economic theory over the years. Living wages strike me as a desirable outcome, but I don't think we get there by having the government set them. I favor a market-driven approach, where wages are determined by demand. I think the law of supply and demand dictates that arbitrarily setting a "living wage" has the unintended negative consequence of actually increasing unemployment.

    Quote Originally Posted by Barry Nystedt View Post
    2. Make sure that the highest levels of compensation structures are rationally based on the merits.
    This strikes me as being extremely antithetical to free-market principles. Who will "make sure"? Who will determine the merits? To me, as messy as it is, the system that has been proven over time to be the most efficient is one where the market determines what a particular person gets paid. I'm sure there are plenty of people that feel that various people are vastly overpaid relative to their societal contributions (put your own favorite example here), but having some new government entity (The Department of Fair Wages?) determine individual's compensation agreements - ouch!

    Quote Originally Posted by Barry Nystedt View Post
    3. Make sure the commercial enterprises pay their fair share based on their uses of the infrastructure of both soft (prudent regulation) and hard costs (i.e. utilities, transportation, security, etc).
    Usage fees for infrastructure make sense to me, in addition to a flat tax on corporate income.


    Quote Originally Posted by Barry Nystedt View Post
    4. Make sure that every member of our society has adequate free health care whether public or private as most Western societies provide.
    This seems like a reasonable funding priority for the government - to provide some base level of health care. The word "free" is a little scary to me. It seems to me that there has to be at least some cost associated with health care for everyone except the destitute, or the system will wind up being abused (I think this goes on today in emergency rooms all around the country - where people are using them as their primary care physician.)


    Quote Originally Posted by Barry Nystedt View Post
    5. Make sure every member of society has full educational benefits to the limits of their ability.
    I agree that education is a crucial funding priority for society. However, rich people will always be able to afford to send their kids to private schools at whatever cost they deem appropriate, so the there will never be a "level playing field" unless we outlaw private schools - not something I am advocating. The current system of funding public schools through local property taxes seems very odd to me, as I implied in an earlier post, as some areas of the country are much wealthier than others. I know money isn't everything in terms of determining the quality of an education - perhaps it is often over-valued. That said, it seems like the current funding structure immediately creates a "haves" vs. the "have nots" system above and beyond the existence of private schools.

    Quote Originally Posted by Barry Nystedt View Post
    6. Full public financing of our political processes to eliminate undue influence of all interest groups no matter their perspective so that public policy actually benefits the public interest.
    I have several very large problems with this one - I think it would turn an already dysfunctional system into a catastrophic one.

    First, this puts incumbents in an almost unassailable position by putting them in control of the funding of their competitors' campaigns. It is already almost extremely difficult to dislodge incumbents in this country - each congressional race, look at the number of seats that are deemed to be "in play" out of the total: it is a tiny percentage. I don't think this is because all of the incumbents are doing such a wonderful job. One of the largest factors in elections in this country is name recognition. One way challengers attempt to gain name recognition parity with incumbents is by spending a lot more money than the incumbent spends.

    Second, interest groups are an essential and natural component of our representative democracy. Most people that complain about interest groups are complaining about the ones with wich they disagree. The idea that auto workers, teachers, retirees, gun owners, students, environmentalists, small-business owners, etc. do not have the right to lobby their government to promote their particular interests - I don't know how to characterize it other than to say it is exceedingly undemocratic.

    Third, I also think it is flat-out unconstitutional. Under the First Amendment, as I interpret it (I am not a lawyer), I have the right to advocate for the election of anyone I choose, and I have the right to do so as a member of any group of like-minded individuals I choose. I have never understood how limits to campaign contributions have passed muster in terms of the First Amendment. I don't see why their are any limits on private citizens funding election advertising.

    Rather than attempting to limit what Americans can spend on political contributions, I would much rather see a system where all campaign contributions were required to be published on the internet in a timely fashion (before the election!), so we could see who was funding a particular candidate and use that information in deciding how to vote.

    Dave

  11. #26
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    Quote Originally Posted by David Wells View Post
    [Making sure that the highest levels of compensation structures are rationally based on the merits] strikes me as being extremely antithetical to free-market principles. Who will "make sure"? Who will determine the merits? To me, as messy as it is, the system that has been proven over time to be the most efficient is one where the market determines what a particular person gets paid. I'm sure there are plenty of people that feel that various people are vastly overpaid relative to their societal contributions (put your own favorite example here), but having some new government entity (The Department of Fair Wages?) determine individual's compensation agreements - ouch!
    It isn't clear to me that Barry was suggesting that this objective be accomplished by the government, nor that "societal contribution" come into play. One, government might simply enable shareholders to play a role, and two, this isn't about societal value, it's about shareholder value.

    I would be ecstatic if the free market, in the form of shareholders and board members, set limits on executive pay. All too often, sadly, the former don't seem to have the power in any practical way, and the latter don't seem to exercise it. Obscene compensation practices when a company is doing well are bad enough, but when the company is struggling, they are repulsive.

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    Good points. How the government (we) decide to further enable shareholders is the question. Shareholders already have the opportunity to sue corporate officers and board members for fiduciary malfeasance, I think. I actually am not versed on what the laws are requiring transparency in terms of compensation agreements made between boards and corporate leaders, but that would be one place to start.

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    Regarding shareholder power, there are several additional considerations:

    1. Relatively few people who own stock in individual companies will have the time or inclination to exercise their power as a shareholder, particularly if they own stock in a fair number of companies. And even if they did, they would have to overcome substantial obstacles in communicating with other shareholders to reach a "critical mass."

    2. Mutual funds exacerbate the problem, as the individual's power is diluted even further (perhaps to zero?).

  14. #29
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    Default Make sure that every full time employee earns a real living wage.

    Hi Jeff & David,

    I have been short of time, I decided to do individual threads on my responses after trying to figure out the quoting functions on mufti-point threads. I think you both have more background on these questions than I do. It may not be clear, but I believe strongly in market solutions wherever possible with prudent regulation and incentives that keep "the train on the tracks" and prevent us from destroying our economic and democratic systems.

    1. Make sure that every full time employee earns a real living wage.

    Jeff said:
    This certainly varies by region. And, it might well require tax exemptions and credits.

    David said:
    I'm not an economist, but I have soaked up some basic economic theory over the years. Living wages strike me as a desirable outcome, but I don't think we get there by having the government set them. I favor a market-driven approach, where wages are determined by demand. I think the law of supply and demand dictates that arbitrarily setting a "living wage" has the unintended negative consequence of actually increasing unemployment.


    I am not sure how we get there; these are ideals in response to the ideal of a flat tax. Jeff is probably on target regarding exceptions and credits which undermine simplicity that we all yearn for in a tax structure. This is addressed indirectly by exempting lower wage earners from the flat tax idea although that undermines what is in part attractive in the theory that everyone contributes something. Obviously everyone is paying consumption taxes of some type or another.

    Barry

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    Default Make sure that the highest levels of compensation structures are rationally based on

    2. Make sure that the highest levels of compensation structures are rationally based on the merits.

    Jeff said:
    Agreed. I've got no problem with someone making gazillions of dollars. What I hate is when corporate executives get huge compensation without delivering results. As I've written somewhere on this Discussion Forum, I think, shareholders and boards either can't or don't seem to be able to exercise control here.

    David said:
    This strikes me as being extremely antithetical to free-market principles. Who will "make sure"? Who will determine the merits? To me, as messy as it is, the system that has been proven over time to be the most efficient is one where the market determines what a particular person gets paid. I'm sure there are plenty of people that feel that various people are vastly overpaid relative to their societal contributions (put your own favorite example here), but having some new government entity (The Department of Fair Wages?) determine individual's compensation agreements - ouch!

    Jeff subsequently commented:
    It isn't clear to me that Barry was suggesting that this objective be accomplished by the government, nor that "societal contribution" come into play. One, government might simply enable shareholders to play a role, and two, this isn't about societal value, it's about shareholder value. I would be ecstatic if the free market, in the form of shareholders and board members, set limits on executive pay. All too often, sadly, the former don't seem to have the power in any practical way, and the latter don't seem to exercise it. Obscene compensation practices when a company is doing well are bad enough, but when the company is struggling, they are repulsive.

    My comment:
    I am not suggesting anything like government determining compensation for anyone. I think that some type of regulation that facilitates accountability and prevents abuses is what is in order here. Certainly there have been some notorious executives that have all but raped their companies.

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