Are you sympathetic towards a more deterministic reason? I.e., the rich did nothing to deserve either their intelligence or their will to succeed, so they should pay a higher share of taxes to compensate for those born with neither?
I'm somewhat skeptical of desert myself, although I'd characterize this point as more of a response to an objection to the argument I do find convincing. That is, someone might object that the relatively rich shouldn't be taxed at a higher rate to fund transfers to the relatively poor (even though this benefits the poor more than it harms the rich) because the relatively rich deserve their wealth and income. However, if you're a desert skeptic, then you'd be unpersuaded by this objection.
Fair enough. You'd have to argue the poor are deserving of a minimum level of well being and that the rich are not deserving of their wealth to make my original comment an objection in its own right.
This is among my top reasons. I want to live in a society that redistributes luck. Not perfectly but to some degree that looks after the worst off and gives them lives of dignity. It improves us all.
Why should the poor be compensated? What about weakness deserves anything?
Promotion of stability or social insurance if one were to fall might justify some transfer, but certainly not "deservingness". That might be a reason given but one should not take it too seriously.
I agree about the bad arguments. The only good argument for progressive consumption taxes is that the marginal value of consumption is higher at lower levels of consumption.
A counterintuitive observation is, in the US experience, a high tax environment gave better economic performance than the low tax environment that succeeded it. It does this through the effects of tax (and other government-provided economic policy) on business *culture* rather than a direct *economic* effect, (which would be the oppositive).
I would suggest that the primary benefit of living in a stable, democratic nation is proportional to one's wealth. In 2020 the top 1% held about 35% of the wealth in which case they ought to pay 35% of federal revenue rather than 24% share (see my earlier post) that they do pay. making the US tax system regressive.
The reason for this is simple. In the absence of a stable democratic government one can have a dictatorship, such as that in China, which can opt to confiscate the wealth (or take the life/freedom) of wealth subjects that the dictator does not like. Or one can have warlordism, in which the wealthy will pay a much smaller share of taxes (if any at all) than under a democratic state, but the total economic pie will be much smaller. Just looking at the GDP per capita of Somalia versus the US shows that the pie is so much smaller for the former that the rich are better off paying 35% of US tax revenue.
In 1976, the top 0.5% paid 14% of income tax (link 1), against an estimated 13% wealth share (geometric average of the 1% and 0.1% wealth shares from link 2). So we actually had a time when the rich paid taxes in proportion to their wealth share.
Link 3 gives some wealth share info for the pre-1976 period. Wealth share for 1% in the 1960's was 28%, compared to 23% share in 1976, suggesting a 13% (28/23 = 16% wealth share for the top 0.5%. The tax share in the 1960's was about 17%., again, suggesting that the rich paid taxes in proportion to the wealth back in the sixties, and presumably in the 1950's when the same high-tax regime was operative. Economic performance in the 1950's and 1960's was stellar so it does not appear that this tax structure had a deleterious impact in economic performance.
One can accept, for the sake of argument, that, sure, the rich *can* pay taxes in proportion to their wealth, rather than their income, and it does not adversely affect the economy, but the fact that the current "flat tax" system we have today is stable (it's been in operation for more than 40 years) and it has left the 1% MUCH better off (35% wealth share compared to 28% in the 1960's) so why should they change the system?
A primary result of the way we operate out tax system has been to increase economic inequality. Aside from moral concerns, this is problem because, according to Peter Turchin's secular cycle theory, rising inequality leads to destabilization and to possible state collapse, civil strife/revolution, or war, which always involves some portion of the ruling class to lose their elite positions (or lives), which, of course, is not a good thing for such elites. It is also not a good thing for non-elite people who also suffer, and perhaps are killed, but this is generally of little concern to ruling elites).
First let's look at the current situation. In 2020 the top 1% earned 22% of income and paid 42% of federal income taxes (link 1), which make up 47% of federal revenues (link 2), or 19.8% of federal revenue. Payroll taxes make up 38% of revenues. Payroll taxes are capped so the 1% probably paid about 2% of payroll taxes, or about 0.8% of revenues which when added to their 19.8% contribution from income taxes gives an overall 20.6%.. These two sources make up 85% of revenue. The last 15% comes from corporate, excise, tariffs and other taxes. If we assume the 1% pay 22% (their income share) of these taxes this adds another 3.3% to the 1% contribution to give 23.9% total, slightly more than their 22% income share making the US tax system slightly progressive.
Moral Smoral! We need to reduce the deficit and who better to tax? [Well, the rich AND the non-rich. :)]
Moreover, although it may not reduce the deficit (if revenues are rebated pro -rata) we need to increase the tax on net CO2 emissions from zero to at lest the equivalent of Green new Daal subsidies and mandates.
I was a deficit voter for 24 years (1978-2002). 1980 was my first Presidential election (I was 17 in 1976). I was appalled by Reagan's plan to blow up the deficit through his tax cut program. I wasn't the only one appalled, so, apparently was Ross Perot who ran for president on a third-party ticket in 1992, railing against the deficits generated by the Republican party he once supported. Democrats won the election and taking their cue from the election, raised taxes and moderated spending. The deficit came down and come the 2000 election we had a surplus, something I had thought I would never see in my lifetime.
Bush ran on a platform of Reagan-style budget-busting tax cuts, while Gore promised to keep the surplus, calling it a lockbox against the time (i.e. today) when Social Security would have to tap the trust fund. Bush won, went right to work replacing the surplus with a deficit. In 2002, Dick Cheney remarked that Reagan proved deficits don't matter. I became a toaster Democrat then and there vowing never to vote for a Republican again. The message was clear, why bust your ass balancing the budget when Republicans are just going to come in and piss on your work?
It took 15 years for Democrats to get the memo and now they don't care either. I originally took the fiscal conservative view because of inflation, but then inflation went away despite larger deficits. I still thought deficits matter wrt to inflation in the 1990's, having learned about the effect of interest rates on inflation. I did not put the pieces together on how deficits and inflation interact until Dec 2022, and wrote up my findings in my first substack, below:
Your Fred Durst example is an interesting prompt for a thought exercise, in that you correctly identify that he has much to lose if he doesn't reach the concert on time. With much to lose and greater resources, it stands to reason that he'd be more willing and able to stomach surge pricing on an uber and outbid you for a ride. Of course, this assumes that the resource in question that can help sustain his fortune is an excludable, rivalrous good; only one rider can order that specific uber, and that car can only hold so many passengers.
Of course, the more relevant item in question might be whether Fred should carry a greater share of the cost of the roads and public transit that ensure a smooth flow of traffic and on-time arrival to the show for both Fred and his paying audience, since those are more akin to club goods or public goods than the singular uber in question and since he stands to benefit more than the typical passenger on those roads.
Of course, that also raises the question of the free-rider problem. Suppose Method Man understands the cost-benefit framing of subsidized roads and transit to his concerts and donates accordingly to that cause. He's generously covering an Uber to the show for himself and his buddy Fred (where they'll of course perform N 2 Gether Now) and discovers that Fred hasn't contributed a dime to these expenditures. It dawns on Method Man that Fred is a free rider, leaching off of Method Man's social responsibility for his private benefit. One might imagine that at this juncture, Method Man would kick Fred out of the car and tell him to find his own way to the show. Alternatively, he might just support a government entity with a monopoly on violence that ensures everyone pays their fair share, thereby limiting risk of the free rider problem, lowering the cost Method Man individually pays for the social cohesion necessary to sustain his livelihood, and creating more fairness for everyone.
None of this gets to an alternative and more straightforward set of reasons the rich should pay more, which is simply the interplay between diminishing marginal utility of cash and a moral framework that says the rich should pay more because they can. We enforce moral codes through government policy all the time, and this is a pretty widely held belief around what's moral even if not universal.
There's so many unstated assumptions, ideology as fact, hidden extrapolation and inferences, and straight falsehoods buried in the statement that higher taxes cause slower economic growth.
Taxing the rich means taking money from some well off people in order to pay other well off people to provide "services", some of which are provided to the poor.
First, let's be clear that we we need a lot more revenue. Sure there are a few low benefit expenditures to be cut: farm, and ethanol, and hazard insurance subsidies and raising the "retirement age" is good as a way of delaying "retirement" independent of it reducing SS benefits payments a bit. They do not remotely add up to the growth damaging deficits so we need to tax more.
Specifically:
Eliminate business income taxation and impute the income to owners
Tax net emissions of CO2 and rebate the proceeds on a prorata basis
Substitute a VAT to (fully) fund Social Security, Medicare, Medicaid, and unemployment insurance
Raise personal "income" tax rates but allow much greater deductions for saving.
Substitute partial tax credits for "deductions" for tax favored consumption: mortgage interest, charitable deductions, medical bills
Tax indexed capital gains and dividends as ordinary income, no basis bump for capital gains on inheritance.
The tax system (which you mention in the beginning) should be structured around reducing the tax impact on utility. Thus tax should be levied on who has the lowest marginal utility from an extra dollar.
On the examples of infrastructure, this also applies. If the government could effectively price discriminate, then individuals that benefit more from infrastructure are willing to pay more. We already have that in the form of rush hour and off peak pricing. Since people have different marginal benefits from infrastructure, the government can price discriminate.
The problem we encounter is that 1) Is it difficult to actually define “rich.” Most people in the developed world, for instance, are “rich” by any historical measure.
And 2) tax…what exactly? If you are talking billionaires, taxing their income isn’t particularly useful as most of the wealth comes from unrealized capital gains.
What I have conveyed at Risk & Progress is that we ought to focus primarily on taxing rents and externalities (Land Value Tax stands out here)
Are you sympathetic towards a more deterministic reason? I.e., the rich did nothing to deserve either their intelligence or their will to succeed, so they should pay a higher share of taxes to compensate for those born with neither?
I'm somewhat skeptical of desert myself, although I'd characterize this point as more of a response to an objection to the argument I do find convincing. That is, someone might object that the relatively rich shouldn't be taxed at a higher rate to fund transfers to the relatively poor (even though this benefits the poor more than it harms the rich) because the relatively rich deserve their wealth and income. However, if you're a desert skeptic, then you'd be unpersuaded by this objection.
Fair enough. You'd have to argue the poor are deserving of a minimum level of well being and that the rich are not deserving of their wealth to make my original comment an objection in its own right.
This is among my top reasons. I want to live in a society that redistributes luck. Not perfectly but to some degree that looks after the worst off and gives them lives of dignity. It improves us all.
We primarily give the poor cheap dopamine and then pay professionals to try to patch them together. I don't think it improves them or us.
Why should the poor be compensated? What about weakness deserves anything?
Promotion of stability or social insurance if one were to fall might justify some transfer, but certainly not "deservingness". That might be a reason given but one should not take it too seriously.
I agree about the bad arguments. The only good argument for progressive consumption taxes is that the marginal value of consumption is higher at lower levels of consumption.
A counterintuitive observation is, in the US experience, a high tax environment gave better economic performance than the low tax environment that succeeded it. It does this through the effects of tax (and other government-provided economic policy) on business *culture* rather than a direct *economic* effect, (which would be the oppositive).
https://mikealexander.substack.com/p/how-economic-culture-evolves
I would suggest that the primary benefit of living in a stable, democratic nation is proportional to one's wealth. In 2020 the top 1% held about 35% of the wealth in which case they ought to pay 35% of federal revenue rather than 24% share (see my earlier post) that they do pay. making the US tax system regressive.
The reason for this is simple. In the absence of a stable democratic government one can have a dictatorship, such as that in China, which can opt to confiscate the wealth (or take the life/freedom) of wealth subjects that the dictator does not like. Or one can have warlordism, in which the wealthy will pay a much smaller share of taxes (if any at all) than under a democratic state, but the total economic pie will be much smaller. Just looking at the GDP per capita of Somalia versus the US shows that the pie is so much smaller for the former that the rich are better off paying 35% of US tax revenue.
In 1976, the top 0.5% paid 14% of income tax (link 1), against an estimated 13% wealth share (geometric average of the 1% and 0.1% wealth shares from link 2). So we actually had a time when the rich paid taxes in proportion to their wealth share.
Link 3 gives some wealth share info for the pre-1976 period. Wealth share for 1% in the 1960's was 28%, compared to 23% share in 1976, suggesting a 13% (28/23 = 16% wealth share for the top 0.5%. The tax share in the 1960's was about 17%., again, suggesting that the rich paid taxes in proportion to the wealth back in the sixties, and presumably in the 1950's when the same high-tax regime was operative. Economic performance in the 1950's and 1960's was stellar so it does not appear that this tax structure had a deleterious impact in economic performance.
One can accept, for the sake of argument, that, sure, the rich *can* pay taxes in proportion to their wealth, rather than their income, and it does not adversely affect the economy, but the fact that the current "flat tax" system we have today is stable (it's been in operation for more than 40 years) and it has left the 1% MUCH better off (35% wealth share compared to 28% in the 1960's) so why should they change the system?
A primary result of the way we operate out tax system has been to increase economic inequality. Aside from moral concerns, this is problem because, according to Peter Turchin's secular cycle theory, rising inequality leads to destabilization and to possible state collapse, civil strife/revolution, or war, which always involves some portion of the ruling class to lose their elite positions (or lives), which, of course, is not a good thing for such elites. It is also not a good thing for non-elite people who also suffer, and perhaps are killed, but this is generally of little concern to ruling elites).
https://economics.mit.edu/sites/default/files/publications/The%20Income%20and%20Tax%20Share%20of%20Very%20High-Income%20House.pdf
https://www.realtimeinequality.org/
https://mikealexander.substack.com/p/the-american-secular-cycles
First let's look at the current situation. In 2020 the top 1% earned 22% of income and paid 42% of federal income taxes (link 1), which make up 47% of federal revenues (link 2), or 19.8% of federal revenue. Payroll taxes make up 38% of revenues. Payroll taxes are capped so the 1% probably paid about 2% of payroll taxes, or about 0.8% of revenues which when added to their 19.8% contribution from income taxes gives an overall 20.6%.. These two sources make up 85% of revenue. The last 15% comes from corporate, excise, tariffs and other taxes. If we assume the 1% pay 22% (their income share) of these taxes this adds another 3.3% to the 1% contribution to give 23.9% total, slightly more than their 22% income share making the US tax system slightly progressive.
https://www.federalbudgetinpictures.com/do-the-rich-pay-their-fair-share/
ensus.gov/content/dam/Census/library/working-papers/2012/demo/sehsd-wp2012-12_presentation.pdf
Moral Smoral! We need to reduce the deficit and who better to tax? [Well, the rich AND the non-rich. :)]
Moreover, although it may not reduce the deficit (if revenues are rebated pro -rata) we need to increase the tax on net CO2 emissions from zero to at lest the equivalent of Green new Daal subsidies and mandates.
I was a deficit voter for 24 years (1978-2002). 1980 was my first Presidential election (I was 17 in 1976). I was appalled by Reagan's plan to blow up the deficit through his tax cut program. I wasn't the only one appalled, so, apparently was Ross Perot who ran for president on a third-party ticket in 1992, railing against the deficits generated by the Republican party he once supported. Democrats won the election and taking their cue from the election, raised taxes and moderated spending. The deficit came down and come the 2000 election we had a surplus, something I had thought I would never see in my lifetime.
Bush ran on a platform of Reagan-style budget-busting tax cuts, while Gore promised to keep the surplus, calling it a lockbox against the time (i.e. today) when Social Security would have to tap the trust fund. Bush won, went right to work replacing the surplus with a deficit. In 2002, Dick Cheney remarked that Reagan proved deficits don't matter. I became a toaster Democrat then and there vowing never to vote for a Republican again. The message was clear, why bust your ass balancing the budget when Republicans are just going to come in and piss on your work?
It took 15 years for Democrats to get the memo and now they don't care either. I originally took the fiscal conservative view because of inflation, but then inflation went away despite larger deficits. I still thought deficits matter wrt to inflation in the 1990's, having learned about the effect of interest rates on inflation. I did not put the pieces together on how deficits and inflation interact until Dec 2022, and wrote up my findings in my first substack, below:
https://mikealexander.substack.com/p/a-new-way-to-look-at-inflation-revised
Your Fred Durst example is an interesting prompt for a thought exercise, in that you correctly identify that he has much to lose if he doesn't reach the concert on time. With much to lose and greater resources, it stands to reason that he'd be more willing and able to stomach surge pricing on an uber and outbid you for a ride. Of course, this assumes that the resource in question that can help sustain his fortune is an excludable, rivalrous good; only one rider can order that specific uber, and that car can only hold so many passengers.
Of course, the more relevant item in question might be whether Fred should carry a greater share of the cost of the roads and public transit that ensure a smooth flow of traffic and on-time arrival to the show for both Fred and his paying audience, since those are more akin to club goods or public goods than the singular uber in question and since he stands to benefit more than the typical passenger on those roads.
Of course, that also raises the question of the free-rider problem. Suppose Method Man understands the cost-benefit framing of subsidized roads and transit to his concerts and donates accordingly to that cause. He's generously covering an Uber to the show for himself and his buddy Fred (where they'll of course perform N 2 Gether Now) and discovers that Fred hasn't contributed a dime to these expenditures. It dawns on Method Man that Fred is a free rider, leaching off of Method Man's social responsibility for his private benefit. One might imagine that at this juncture, Method Man would kick Fred out of the car and tell him to find his own way to the show. Alternatively, he might just support a government entity with a monopoly on violence that ensures everyone pays their fair share, thereby limiting risk of the free rider problem, lowering the cost Method Man individually pays for the social cohesion necessary to sustain his livelihood, and creating more fairness for everyone.
None of this gets to an alternative and more straightforward set of reasons the rich should pay more, which is simply the interplay between diminishing marginal utility of cash and a moral framework that says the rich should pay more because they can. We enforce moral codes through government policy all the time, and this is a pretty widely held belief around what's moral even if not universal.
Not to mention that economic growth was faster in the US when marginal income tax rates were closer to 90 percent.
There's so many unstated assumptions, ideology as fact, hidden extrapolation and inferences, and straight falsehoods buried in the statement that higher taxes cause slower economic growth.
Taxing the rich means taking money from some well off people in order to pay other well off people to provide "services", some of which are provided to the poor.
First, let's be clear that we we need a lot more revenue. Sure there are a few low benefit expenditures to be cut: farm, and ethanol, and hazard insurance subsidies and raising the "retirement age" is good as a way of delaying "retirement" independent of it reducing SS benefits payments a bit. They do not remotely add up to the growth damaging deficits so we need to tax more.
Specifically:
Eliminate business income taxation and impute the income to owners
Tax net emissions of CO2 and rebate the proceeds on a prorata basis
Substitute a VAT to (fully) fund Social Security, Medicare, Medicaid, and unemployment insurance
Raise personal "income" tax rates but allow much greater deductions for saving.
Substitute partial tax credits for "deductions" for tax favored consumption: mortgage interest, charitable deductions, medical bills
Tax indexed capital gains and dividends as ordinary income, no basis bump for capital gains on inheritance.
The tax system (which you mention in the beginning) should be structured around reducing the tax impact on utility. Thus tax should be levied on who has the lowest marginal utility from an extra dollar.
On the examples of infrastructure, this also applies. If the government could effectively price discriminate, then individuals that benefit more from infrastructure are willing to pay more. We already have that in the form of rush hour and off peak pricing. Since people have different marginal benefits from infrastructure, the government can price discriminate.
The problem we encounter is that 1) Is it difficult to actually define “rich.” Most people in the developed world, for instance, are “rich” by any historical measure.
And 2) tax…what exactly? If you are talking billionaires, taxing their income isn’t particularly useful as most of the wealth comes from unrealized capital gains.
What I have conveyed at Risk & Progress is that we ought to focus primarily on taxing rents and externalities (Land Value Tax stands out here)
But dying is a very effective way of "realizing" a capital gain [though it should be indexed].
That is one reason why I question if such gains should be able to be passed on to other people after death.