To subdue the enemy without fighting is the supreme excellence. - Sun Tzu

Monday, October 11, 2004

Death and Taxes

Well well, this is my first post as a member of the "Progressive Blog Alliance". I hope I can write with the same quality of these other great free-thinkers.

To business. I revised my take on an income cap, because there's really no hope of convincing the average American that it's not communist. A better way of executing wealth distribution is to have 'exponential' progressive taxation.

Under the current system, if the hypothetical entrepeneur Bob Goursie makes a huge heaping pile of cash, he gets taxed at about 35% regardless of how much he makes. If he makes $1 million, he keeps 65%, if he makes $10 million, he keeps 65%. Almost everyone agrees that this is fair.

I do not. I think that our current system neglects the real purpose of money- It is worthless in and of itself; rather, it is a medium of exchange. Money is just numbers and paper, but saying a loaf of bread is $1 gives money value. Money = standard of living. However, it is not a direct correlation. The goal being to maximise happiness, $1 means much more to a starving person than it means to a rich person. $1 is the difference between life and death for some, but nigh-worthless to others. The key is standard of living: The value of a dollar varies for each person based on how many they already have.

So here's the problem: Our current system neglects the impact of taxes on standard of living.

Even though a poor person, let's call her Polly, might only be taxed at 15%, 15% of $20,000 is a much, much bigger blow to her standard of living than that 35% of Mr. Goursie's $1 million. $3,000 is several month's rent for Polly. I don't have to explain how much money $3,000 is.
$350,000, though- what does that mean to Bob? He might not be able to buy another mansion. He'll still have plenty to eat, his kids will go to the best schools, he'll fly first-class everywhere. His standard of living is hardly affected.

So, even though Polly is paying a smaller percentage, her Standard of Living is being reduced by a larger percentage! Is that fair? There is no data what the populace thinks about this, but I'm confident that, should the question be posed in a way the average person could understand, they would agree with me.

I propose that tax rates graduate like this: If you have no income, your tax rate is 0%, and if your income is (a very large number), you pay 100%. The shape of a graph of Income vs Tax Rate would be along the lines of x^2, sloped so that the amount of government income is whatever is needed that year. No one would actually be taxed at 100%, because it would take an astronomical income, in the trillions of dollars, to be taxed that highly. Similarly, someone making a median income would not necessarily be taxed at 50%; it depends on how the slope comes out that year.

Because it takes a very large amount of tax to affect Bob's standard of living the same way as Polly's, the net effect is that taxes would generally be raised on the wealthy and sharply reduced on the poor and middle class. The increased taxes on Bob could pay for the reduction of taxes on hundreds of worse-off people. Raising his taxes from $350,000 to even $600,000 doesn't reduce his standard of living as much as it raises the standards of living of over 100 people in Polly's situation. An 80% tax rate on someone who made $40 million leaves them with $8 million, still an astronomical sum, and significantly increases the standards of living of over 16,000 Prollies!

So I took my idea over to a right-wing website, Right Wing News, where they don't get much more rabid. They came up with the following counter-points:

1) I am an idiot.
2) I am a Communist.
3) This is unfair.
4) I should move to Europe if I'm such an America-hating commie liberal pinko hippie fag.
5) This would be disasterous for the economy.

Frankly, #'s 1 and 4 seemed a little unfair. I didn't inquire as to their justification for these stances, as history has shown that the conservatives consider them to be self-evident. I guess we'll just have to agree to disagree.

The rest I'll address out of order.

3) This is unfair.
They argued that each person deserves to keep as much as they can and that taxes should be minimal.
However, that ignores standard of living. They are of the opinion that if someone makes a million dollars, it doesn't matter that they could take a slight hit to help out dozens of people; the wants of the individual are greater than the needs of the many. Spock disagrees, but I don't see any way to reconcile this.

5) This would be disasterous for the economy.
The increased tax burden on the wealthy would cause them to reduce their investment in the economy, leading to recession and depression.
They believe that economics is not a 'zero-sum' game, even though they never substantiated what that means. Anyway, even though I explained repeatedly that the money's not being destroyed, just moved to a more fair location. Since the lower classes now have more, they have more to invest, so overall investment would not decrease significantly. In fact, since the lower classes spend a much greater part of their income on consumer goods, the economy would probably be better off than it is now.

2) I am a Communist.
Since I proposed a plan which is clearly socialist, that makes me a communist.
I stated many times that, this is socialist, not Communist. Communism would involve the equal distribution of wealth- I've never proposed that. That's stupid. It squashes incentive. No one worked in Russia. The place was a dump. My old history teacher, who visited in 1986, had a story about trying to use a Soviet bathroom. Not pleasant.
But I digress. Socialism and Communism are different things, and there's nothing inherently wrong with socialism. Socialism is everyone giving a little toward greater collective good.
Government is the classic socialist institution. If each farmer had to defend himself against the Vikings, then they'd had their way with Europe- well, to an even greater extent. But if the farmers give part of their crops toward the purpose of fielding a professional army, then some of them have a chance of surviving. At their most basic level, governments are just mutual defense pacts. Some socialism is good.

Guess if that worked? Of course not. The American populace was brainwashed for 70 years that Communism, and socialism by association, is evil. No amount of logic and calm rationality can penetrate that. They even think that history textbooks are controlled by a communist conspiracy.

So 'Exponential Taxation' is probably not going to happen, if only for that reason. I won't say this isn't a great country but, man, we sure screw ourselves some times.

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