Tax day arrives!

  

 

I HERD U LIEK TEH TOP MARGINAL RATE!

 

By J. DeVoy

Dear the top 10% of income earners:  Thank you!  Because of your toil as business owners, doctors, lawyers and financial service experts, you are able to subsidize the lifestyles and safety of people like me – somewhat literate, moderately intelligent lifetime students – by paying more than 70% of all Federal income taxes.  My dirty secret is that for all my striving, I’m woefully below average at something — being a taxpayer.  Despite scrupulously filing my taxes every year, I haven’t been able to break median or even come close to it.  I fall into the group that contributes less than 3% of all Federal income taxes.

This disparity arises as a function of our progressive taxation regime, where the highest earners pay the most and lowest earners pay the least.  Indeed, the well-off don’t object to redistributionist policies that keep the poors from trammeling their quality of life, as urchins tend to be more interested in wealthy people’s consumer goods than their liberalism.  When the have-nots have nothing, they get violent.  This extortion arises in part from the underclass’s cognitive limitations, and unfortunately is only one form of tribute required to placate them.  Others range from ceding entire sections of American cities as no man’s land to carrying an emergency $20 in the event of a mugging.

Despite these realities, the one-person, one-vote model persists.  Forty-seven percent of households have no tax burden this year, yet every non-felon adult citizen in them has the right to vote.  This is incomprehensible.  While enduring none of the costs of maintaining the republic, they receive all of the benefits — and likely a disproportionate share.  While haves purchase health insurance, have-nots rely on government assistance.  Haves live in well-off neighborhoods, sometimes gated, and own home security systems; have-nots rely almost exclusively on the police for monitoring their property.  The same can be said of family relationships, where haves will send their children and themselves to the best therapists they can afford, while have-nots will call the police to resolve their domestic disputes once they inevitably explode into violence.

Two potential alternatives to the current system exist, which are held out as being more fair.  The first is a flat tax, which taxes all income at a fixed rate, rather than progressively.  While this would have a regressive effect, as the set rate of taxation would have to be fairly high, it would assure that every citizen contributed an equal component of his or her earnings.  Another alternative is a national sales tax, akin to the United Kingdom’s 17.5% Value-Added Tax (VAT), which is tacked on to every purchase.  Due to the lopsided cycle of spending in America, distorted by winter holidays, a national sales tax may create revenue issues for the national treasury.

We have ignored the wisdom of the ancients and our founding fathers.  Both Plato and Alexis de Tocqueville disliked democracy, with the latter famously saying “[a] democratic government is the only one in which those who vote for a tax can escape the obligation to pay it.”  Thomas Jefferson described democracy as a form of “mob rule.”  While we live in a republic and not a democracy, we pander to the rubes and outwardly consider their positions and opinions, as if the half-thoughts they express in YouTube and Perez Hilton comments can be characterized as such, so that our elected officials can ensconce themselves deeply in their elected positions.  It is a distinction without a difference.

The forefathers were wrong about some things.  Today it is unthinkable that voting would be limited to white men.  They were, however, deadly accurate in limiting voting to landowners.  Restricting the franchise to those with something to lose leads to more prudent government, even if it does have a redistributionist bent.  Rationally, those with property after a lifetime spent acquiring it are less likely to squander it for nothing than those who never had such niceties, and thus cannot appreciate them.  When the bitterness of envy and class resentment is grafted onto this latter group’s ignorance – a seemingly natural consequence of the Dunning-Kruger and Downing effects – reckless decisions become spiteful ones; the destruction of wealth is not born from ignorance, but spawned of malice.

Thus, the choices for creating a legitimate tax model are clear: All must suffer equally, or those who suffer more must be accorded a greater voice.  Allowing the most productive members of society to be stripped of their wealth by sheer force of numbers, even if the fleeced would agree to the payment and its aims, is unjustifiable.  There is no endpoint where the masses can no longer expropriate wealth.  Just as in business and especially Venture Capital, the party bearing the greatest financial burden should be accorded the most say in how its finite resources are used.  After all, this is their property we’re talking about.  Beyond making economic sense, it is loyal to the most important rule of all, the Golden Rule: The one with the gold makes the rules.

35 Responses to Tax day arrives!

  1. Currency issuers in a floating, non-convertible regime (like the US federal government since 1971) don’t need anyone’s tax dollars to spend, and, therefore, nobody subsidizes anyone else. The federal government merely credits and debits accounts on a big spreadsheet. It can never run out of money and there’s never a risk of insolvency.

    Households and other non-currency issuers (like US states and countries in the EU like Greece) do not have that luxury. They can run out of money and bear the risk of insolvency.

  2. blueollie says:

    “he one with the gold makes the rules.”

    Uh, isn’t it that way right now? It isn’t as if I can spend 100,000 dollars a year lobbying for policies that benefit mediocre mathematicians that teach at small, nondescript universities. :)

    • J DeVoy says:

      Yes, but sub rosa, which only drives up costs. Plus, if an issue is big and sexy enough (e.g. healthcare), the public can still step in and flex its big dumb muscles. The money race tends to work better on a mundane level, like like agency regulation and more complex pieces of legislation that benefit preferred groups. Medicare part D is a good example of the latter.

      • Brian says:

        Wow–You really think you’re a lot better and smarter than most people, don’t you. If you weren’t so young you might realize you are probably wrong. About a lot of things.If you’ll allow a word of advice from an old liberal, try to develop some empathy. Peace.

  3. 66.208.47.66 says:

    Federal income taxes are only one piece of the puzzle. Us normal folk pay 15.3% of our income in social security and medicare taxes, which is just a bit higher than what the people you’re fellating here pay in capital gains taxes. We also pay sales taxes, property taxes, and a whole host of other taxes and fees to various governments… so this image you’re apparently trying to create of a nation full of 90% freeloaders is BS.

    The top 10% control 70% of the nation’s wealth, and they earn slightly under 80% of the nation’s income. What exactly are you whining about again?

    • J DeVoy says:

      People who don’t make a lot of money recover some of their payroll taxes through the earned income tax credit, offsetting that loss. I didn’t say that 90% of the country were freeloaders – I implied more like 1/3 to 1/2. Having the stability to own property and worry about taxes on it is solidly middle class.

      Also, ~50% is a bit less than 80%, considering the 70% burden. Sure, 50 is closer to 80 than 0, but let’s not play too loose with the numbers here.

      • 66.208.47.66 says:

        Yes, let’s not.

        Table 7: Share of capital income flowing to households in various income categories

        Top 10%
        1979 66.7%
        1981 64.6%
        1983 63.7%
        1985 64.9%
        1987 64.0%
        1989 66.0%
        1991 64.7%
        1993 69.2%
        1995 70.1%
        1997 72.6%
        1999 73.8%
        2001 74.8%
        2003 79.4%
        Adapted from Shapiro & Friedman (2006).

        http://sociology.ucsc.edu/whorulesamerica/power/wealth.html

        • J DeVoy says:

          From the same article — “capital income”: income from capital gains, dividends, interest, and rents.

          “The analysis by the two professors showed that the top 10 percent of Americans collected 48.5 percent of all reported income in 2005.”
          http://www.nytimes.com/2007/03/29/business/29tax.html?_r=1 – dealing with income, rather than capital income, which captures a picture of people who don’t have substantial dividends, capital gains, interest or rent income and is likely more representative of how most people live.

  4. Harry Mauron says:

    “All must suffer equally, or those who suffer more must be accorded a greater voice. ”

    Suffering is the wrong measure. Speaking as someone who has been earning above the SS wage base limit for the majority of his adult life, I don’t SUFFER MORE from my tax rate than my relations, acquaintances and former self living paycheck to paycheck. I certainly bear more burden, but it’s easily borne.

  5. Agreed Harry. I paid more in taxes this year than a lot of people earned all year — I don’t particularly mind.

    I am a fan of progressive taxation because of the distorting effect that unchecked wealth has on society. Compare latin america to Scandinavia. One of the key differences is the hefty progressive taxation structures in the Nordic countries means that there are few truly uber-rich, but there are also few poor.

    I think our problem is not that we have too progressive of a tax structure, but it is not progressive enough. If that means that I need to pay even more taxes, I am okay with that.

    • J DeVoy says:

      The America:Scandinavia comparison is oft-made but inapt. Both latin countries and America have populations much larger than Scandinavian countries http://en.wikipedia.org/wiki/List_of_countries_by_population

      Also, Scandinavian countries are more homogenous, which enhances public trust. A vignette of this is why public transportation works so well in Portland, a very homogenous place, and is less popular in areas with a cross-section of backgrounds and class, such as NYC and Chicago. America and latin countries are more diverse in terms of class than Scandinavian ones, which is something that can’t necessarily be remedied by taxation.

      Progressive taxation is part of the equation, but it’s just one of many covariants — and probably not even the most important one.

      • Marc says:

        Wait, can you go back to the part where public transportation is more popular in Portland than in NYC or Chicago?

        WTF?

    • Skepticalinq says:

      I applaud your non-greed!

      So many succesful people seem so cranky about paying taxes.

      Imagine how cranky those people’d be if they lost their health and had to live on a reduced income. They might get so cranky that they’d actually become violent! Especially if the government insisted on taking an ever-larger chunk of their smaller incomes. :D

      I guess I fail to understand all the crankiness because my (very modest) success and level of comfort have made me less cranky and more generous. But I guess it isn’t that way for everyone.

    • Christopher Harbin says:

      Sometimes I read your posts and think what an incredible asshole you are — and then you write something like this that reminds me that you’re a good fucking dude.

  6. Larry Staton Jr. says:

    My first comment appears to have been nuked. I’ll repeat the gist of it here:

    A currency issuer in a floating, non-convertible regime (like the US federal government since 1971) does not need tax dollars to spend and, therefore, nobody subsidizes anyone else. The federal government is never revenue-constrained and never risks insolvency. Operationally, when the federal government spends and taxes, it simply credits and debits accounts in a big spreadsheet. Taxes are merely a mechanism to control inflation (by destroying money).

    Households and other non-currency issuers (like US states and EU countries like Greece) do not have this luxury. They are revenue-constrained and bear the risk of insolvency.

  7. Davis says:

    …by paying more than 70% of all Federal income taxes.

    And they also take in roughly http://www.nytimes.com/2007/03/29/business/29tax.html 50% of all income. So they do pay more than their share, but less than the 70% figure would make it appear.

    Forty-seven percent of households have no tax burden this year…

    Even people who pay no income tax are still paying sales tax, fuel tax, and all sorts of other hidden taxes, not to mention the indirect payroll taxes for those that have jobs.

    • J DeVoy says:

      It’s still quite progressive, though: The top 1% is paying 40% of all income tax burden. http://www.ntu.org/tax-basics/who-pays-income-taxes.html

      Sales tax and these hidden taxes, such as the lottery, are state-level. I’ll give you the Federal fuel tax, but the truly destitute and a good chunk of people living in major cities don’t have cars.

      • Davis says:

        The top 1% is paying 40% of all income tax burden.

        Repeating my analysis above (via the same source), the top 1% also take in 20% of all income, so it’s still less skewed than that number sounds. It’s also interesting to note that if you do the math, the 9% of earners below that top 1% take in roughly 30% of all individual income and pay roughly 30% of all income taxes.

        Sales tax and these hidden taxes, such as the lottery, are state-level.

        The state/federal distinction is very thin. Going back to the post, you led with this:

        While enduring none of the costs of maintaining the republic, they receive all of the benefits…

        Certainly many of the costs and benefits of maintaining our republic occur at the state level; your argument on this point only works if you’re suggesting that non-federal-taxpayers should be able to vote at the state level, but not the federal level. But even that’s a non-starter, since federal policies (such as highway funding) often have an impact on state taxation.

        More importantly, your argument assumes that the burdens and benefits of participation are purely economic — and only in the narrowest sense. For example:

        They were, however, deadly accurate in limiting voting to landowners. Restricting the franchise to those with something to lose leads to more prudent government…

        Even if a person with no income and no property has quite a lot to lose: his rights. Without the right to vote, a citizen has no effective means for ensuring protection for other rights.

        On the flip side, non-taxpayers generate substantial non-monetary benefits. Teach for America and Americorps volunteers work for poverty-level pay to benefit communities. Workers harvest fruits and vegetables at wages that allow domestic farmers to remain in business. Should these people lose the right to vote merely because they don’t send any dollars directly to the federal government?

  8. Skepticalinq says:

    “When the have-nots have nothing, they get violent”‘

    Yea, but also, paying more than fifty percent of a below median income in taxes and deductions is not just an incentive to violence.

    It’s a DIS-incentive to working. You need to view the “earned income tax credit” and the “child care tax credit” thru another lens and see them for what they are – a wage subsidy for the corporation…Walmart, McDonalds and any other large corporation that pays bare subsistence wages. If those Walmart greeters had to stand on their feet forty hours a week, not get paid for OT *AND* give over another 15 – 20 percent of their paychecks to the govt, why would they bother to work? What Walmart refuses to pay them, our Federal Government will and does. Re health reform, I note that Walmart was a major lobbyist for (thats “for” as in “in favor of”) sweeping health care reform because much of their work force is already Medicaid-eligible or falling thru the cracks in the system – and Wally-world don’t wanna pay health benefits. They like that free government healthcare for their employees.

    • J DeVoy says:

      I’m normally a big efficiency troll, but I don’t think Walmart’s externalities are worth the low-cost proposition it offers in its stores. Others may disagree, but its been one of the big enablers in transferring our wealth out of America. Of course, it wouldn’t be able to do so without our greed.

  9. Mark M says:

    “They were, however, deadly accurate in limiting voting to landowners. Restricting the franchise to those with something to lose leads to more prudent government[.]”

    I assume your piece was tongue in cheek … although which cheek (or pair of cheeks) is subject to question.

    The Founders feared losing their property (often inherited property and in some case, maintained on the backs of slaves) to the rabble, even if they could articulate other, more high-minded, reasons for limiting the franchise to landowners. Leaving that aside, the “something to lose” argument is just callow. Just because you don’t own something in fee simple (mortgaged or otherwise), doesn’t mean you don’t have an ownership stake in this nation’s economy and social structure – that is, something to lose. Would you take away the franchise of a long-time voter who had lost his home (and perhaps his life savings) to foreclosure caused by job loss in the past two years? Would you deny the franchise to a senior who has sold a home and moved into rental property (or a retirement center). What about career public servants who, by virtue of their positions, may live in publically provided housing? What about someone who eschews traditional property ownership and rents while investing all of his or her wealth in stocks and bonds? What about priests, pastors, and others in religious orders who live on church-owned or collective property? What about academics or school administrators who may live in school-provided or subsidized housing?

    Of course, we could go the route suggested by the author Robert Heinlein, among others – conditioning the franchise on public service in the military, regardless of wealth. I don’t agree with that structure, either, but at least it has a simple elegance to it.

    • J DeVoy says:

      Would you take away the franchise of a long-time voter who had lost his home (and perhaps his life savings) to foreclosure caused by job loss in the past two years?

      Maybe. Normally I would chide him or her for being overleveraged, but the economy has been brutal to certain sectors for a prolonged period of time.

      Would you deny the franchise to a senior who has sold a home and moved into rental property (or a retirement center)

      Without thinking twice. Old people have stopped producing value, yet suck the marrow out of youngs through their entitlement programs that eat up an increasing portion of our incomes, as they couldn’t be bothered to rear the large family to which they statistically belonged.

      What about career public servants who, by virtue of their positions, may live in publically provided housing?

      “Career public servants” tend to get enough benefit from the government for the work they do already. Not to say all are bad, or that they don’t do good, important work — but have you dealt with the DMV lately?

      The other examples descend into madness. As you can tell from the post, the notion of property ownership was being used illustratively and not restrictively.

      • Interesting… I wish that I could completely dismiss the notion of denying the vote to the elderly who sell their homes, but I can’t. I don’t agree that they should have reared a big family to take care of them, but there’s some wisdom to the notion that once you are on social security, maybe you ought not to be voting anymore.

        • J DeVoy says:

          Social Security is correlated with a birth rate decrease in every country where it’s been implemented. http://mises.org/daily/2451 Granted, there are a lot of other covariants that cropped up in the ~60 years since Social Security and comparable systems were implemented worldwide, but research consistently points to it being a contributor to shrinking birth rates. Even in America, all new growth is a result of immigration. While unintended, the net effect of Social Security by its own operation is to devalue children and replace their long-term utility with the state. It’s a great deal for the people who are alive at the right time to benefit from it, but this trend inevitably leads the system to implode.

          • Davis says:

            Correlation is not causation. Here are some other consistent hypotheses, off the top of my head:

            (a) Higher standard of living causes both the decrease in birth rate and the increase in soc. sec. taxes: the former because of the cost of raising children, the latter because of of longer life expectancies and higher cost of living during the long-tail end-of-life stage.

            (b) Higher standard of living reduces birth rate as in (a), generating increased need for soc. sec.

            (c) Reduced infant mortality rate decreases the need to have many children to ensure some survive; switch to a non-agrarian lifestyle reduces the economic incentive to have children. Same factors that reduce infant mortality increase life expectancy. Non-agrarian lifestyle leads to dissolution of agrarian family structures, requiring retirees to self-support. All of these factors result from technological progress, generating the correlation apparent from the data.

            At best, it’s naive to draw any conclusions based on this one correlation. It’s incredibly expensive to raise children today, due to direct and opportunity costs; that fact is almost certainly independent of social security.

  10. thefncrow says:

    In 1992, George H.W. Bush instituted an annual report regarding the tax bills of the nation’s 400 top earners. We haven’t had this report in recent years, though, because his son, George W. Bush, suspended the publication of the support, but President Obama has reinstated the report.

    For 2009, the top earners nationwide paid an average effective tax rate of 16.7%. The idea that the tax system is “too progressive” is rather destroyed by that figure, given that most middle-class taxpayers are paying significantly more than 16.7% of their income in taxes. In fact, what it suggests is that for all the progressivity built into the system, the tax system on the whole is actually regressive, not progressive.

    Given that the only fair taxation scheme is a progressive scheme (thanks to the diminishing marginal utility of money), this is an argument for increasing the tax burden of the rich, not for decreasing it.

    • Harry Mauron says:

      The 16% number is shocking until you realized that the top cap gain rate is 15%. Obviously, the 400 top incomes earn almost all cap gains. Tax policy works! Change the tax code and the hedge fund managers will find a way to earn income that maximizes their take.

      Just don’t change it so much that moving to Canada/Switzerland/etc. becomes a better choice – when you make $xB, you can afford to establish whatever “home” you need, and still manage to have the nanny pick up the kids in time for family outings.

      • Davis says:

        The 16% number is shocking until you realized that the top cap gain rate is 15%. Obviously, the 400 top incomes earn almost all cap gains.

        That’s one possible conclusion, but is there empirical data to back that up?

        • Harry Mauron says:

          Yeah – I asked the tax lawyer in the office next door. He said the only way to get that rate above 6 figures is to make 9x% of your money in cap gains. Empirical enough?

  11. Matt Saunders says:

    Jesus, J DeVoy, just say “fuck you, got mine” and spare us the burden of reading that mess.

  12. Christopher Harbin says:

    Let’s be real here, DeVoy. The “poors” — as you are so quick to label them — pay sales tax, payroll taxes, etc. And the notion that the wealthy should get more say in the voting process is, for lack of a better word, disgusting. Part and parcel of living in a representative democracy is that no matter your status, you get a say in how you are governed.

    Not only does your idea undervalue the public good that flows from a participating electorate, it also fails to account for the simple and sad fact that the wealthy already have ridiculous amounts of government influence. And let’s not forget exactly who devised naked short selling and credit default swaps. News flash: it wasn’t the Starbucks barista. If you’re going to withhold the franchise from those who are overleveraged, let’s start with the i-bankers.

    But, of course the real point of your article is that A = A. Isn’t that right, Mr. Galt.

    • J DeVoy says:

      Of course they pay payroll taxes and sales taxes. In terms of what those actually contribute to the public fisc, though, the reality is that it ain’t much. People with less income necessarily can’t spend as much money as higher earners, and their ability to contribute to sales tax revenues is necessarily limited by that factor. I think I’ve addressed the issue about payroll taxes and how refundable credits like the EITC negate that burden. I’m not saying they pay *no* taxes – just not nearly enough to matter.

      I don’t think it’s disgusting to give the wealthy more of a say. You point to the wall street crisis of evidence of this, and your point is well taken, but the conditions that led to a debt-and-credit frenzy were focused on housing and the illusion of a society where ownership of housing was ideal for everyone because it’s what the disadvantage wanted to hear. Due to that pressure and the electoral rewards of placating that block of the population, representatives like Barney Frank and Chris Dodd reformed the laws to allow lenders to this segment of the population; in fact, they encouraged it. Granted, it’s a lucrative market segment with high interest rates, and Posner described this action in A Failure of Capitalism as “pushing on an open door,” but it wouldn’t have been open without government intervention, or at least not as wide. While the American economy has been predicated on boom-and-bust cycles since around 1980, this particular crisis could have been averted or at least minimized if the electoral power of this voting group had been blunted.

      You’re right about one-person, one-vote being at the heart of a Republic. My griping aside, I feel awfully fortunate to be an American and genuinely love the country. But we are reaching a point where two groups of roughly equal size have widely divergent views about how to manage the country and allocate its resources. The reality of our system allows the group with the most votes to prevail, which the other half may find appalling. On a more extreme level, Israel is facing an identical crisis right now with regard to its rapidly growing Arabic population, which will soon be able to outvote the Israelis within its own government despite the groups’ irreconcilable views.

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