T Nation

The Flat Tax

Why is it that our country, built around capitalism, free market, and an understanding that we will all be economically unequal, attempt to screw those that work hard in life and ultimately succeed with a proportional tax?

"You cannot legislate the poor into freedom by legislating the wealthy out of freedom. What one person receives without working for, another person must work for without receiving. The government cannot give to anybody anything that the government does not first take from somebody else.

When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that my dear friend, is about the end of any nation.

You cannot multiply wealth by dividing it."
~~~ The late Dr. Adrian Rogers , 1931 to 2005 ~~~

Ultimately, I think that what we need to do is return to the colonial “pull yourself up by the bootstraps,” work for your way ideals of Jamestown. What do you all think about the flat tax? In times like these, we need to be promoting success, not supporting laziness. Thoughts?

It’s the only way to balance the books.

There was a study done some time back where participants got to keep some real money from the outcome of the game.

Among the features of the game was that they could place bids wherein for some cost of their own money, they could ensure that other participants took home less.

I forgot the ratio and percentage but the researchers found that a fairly high percentage of participants would choose, at cost of their own money, to spend quite a bit to make sure other people got less.

Again I forget the ratio but for example, it was probably something like such people being desirous enough to be sure that another person took home $100 less that they would choose to take $30 less themselves to accomplish this.

Obviously, such people even if knowing that a tax code harms the economy to such an extent that they themselves will indirectly do worse – due to employers not having as much money for payroll, products costing more because of higher cost of doing business, etc – will favor that tax code because it makes sure “the rich” can keep less of their money.

Or take a recent post here complaining about the state of affairs (I forget by whom): practically the first complaint the poster made about the country is that “the rich get richer.”

“Waaaah! Other people are getting RICHER! That is bad!!! I hate that!!”

It is necessary to realize that there are many who really hate seeing others do better than themselves – in many cases of course from having gotten themselves better educated, making better decisions, investing money instead of blowing it every week and so forth – and would gladly do somewhat worse themselves if only that would punish the better-off sufficiently.

I favor a flat tax.

When the graduated income tax was first passed, I think the rationale behind it was to provide some financial help for farmers and other working poor.

Also, a graduated income tax helps narrow the gap between the rich and the poor. Granted, it does this predominantly by lowering the rich, but it does seem to accomplish one of the primary goals of a social-democracy; a more even distribution of economic growth.

It is also Plank 2 of the Communist Manifesto. So in addition to saying it accomplishes one of the primary goals of a social-democracy, as you did, one can say it accomplishes one of the primary goals of socialists, period.

[quote]Otep wrote:
I favor a flat tax.

When the graduated income tax was first passed, I think the rationale behind it was to provide some financial help for farmers and other working poor.

Also, a graduated income tax helps narrow the gap between the rich and the poor. Granted, it does this predominantly by lowering the rich, but it does seem to accomplish one of the primary goals of a social-democracy; a more even distribution of economic growth.[/quote]

Why do you favor a flat tax? Are you in favor of regressive taxation?

Personally, I understand why people dislike progressive taxation. It does create, to a certain extent, a negative incentive. However, this negative incentive is extremely small in comparison to the other benefits of placing oneself in a “higher tax bracket.” In other words, I don’t think the negative incentive is very great.

As you say, progressive taxation policies (however you construct them) are, in essence, a means through which economic growth is more distributed. Philosophically, I think this is probably the way to go. What do you think?

[quote]Gambit_Lost wrote:
Otep wrote:
I favor a flat tax.

Why do you favor a flat tax? Are you in favor of regressive taxation?

Personally, I understand why people dislike progressive taxation. It does create, to a certain extent, a negative incentive. However, this negative incentive is extremely small in comparison to the other benefits of placing oneself in a “higher tax bracket.” In other words, I don’t think the negative incentive is very great.

As you say, progressive taxation policies (however you construct them) are, in essence, a means through which economic growth is more distributed. Philosophically, I think this is probably the way to go. What do you think?
[/quote]

I do not believe a flat tax is a regressive tax.

I understand how it can be construed as such, that paying the same % of income (or sales, I guess) would imply less discretionary income available for the poor, but I believe such arguments ignore the fact that anything short of an absolutely level income distribution will create the same effect (the poor have less discretionary income).

I actually disagree with the entire idea of income redistribution. It was a post Rainjack actually made, where he pointed out that taxes to fund government programs (infrastructure, defense) are morally acceptable, but taxation with the express intent of wealth redistribution are wrong. I thought long and hard about an individual’s moral right to property and an individuals right to dignity (or a set standard of living), and found that I could not favor the former at the expense of the latter.

For me, that was a moral issue.

The financial dis-incentives are not quite so apparent because America’s tax structure is bery complex, and there are a number of ways to manage your finances so as to have a lower ‘real’ rate than the ‘stated’ rate. I do believe they exist though, mostly because I can’t see them not.

Example: HK’s top income bracket is 15%. Sweden’s is 80%. It should come as no surprise that HK experienced more growth last year.

But the primary issue for me was the moral one.

[quote]Gambit_Lost wrote:

As you say, progressive taxation policies (however you construct them) are, in essence, a means through which economic growth is more distributed. Philosophically, I think this is probably the way to go. What do you think?
[/quote]

Cool-

Let us hear your philosophical justification for a progressive tax.

I am almost finished writing my thesis on it but if your argument is really good enough to justify what amounts to state servitude let us hear it and fast, for I will have to do a lot of re-writing.

[quote]Otep wrote:
I do not believe a flat tax is a regressive tax.

I understand how it can be construed as such, that paying the same % of income (or sales, I guess) would imply less discretionary income available for the poor, but I believe such arguments ignore the fact that anything short of an absolutely level income distribution will create the same effect (the poor have less discretionary income). [/quote]

I think that, theoretically, it may be possible to craft a flat tax that is not regressive. Realistically this is nearly impossible, however. How would you propose constructing it so that it is not regressive?

http://www.brookings.edu/~/media/Files/rc/articles/1998/summer_useconomics_gale/gale.pdf

http://www.brookings.edu/events/2003/1216taxes.aspx

[quote]

I actually disagree with the entire idea of income redistribution. [/quote]

Yeah

There is no doubt that there are trade offs to higher taxes. To state the obvious, where would you see greater poverty, HK or Sweden?

[quote]
But the primary issue for me was the moral one.[/quote]

Are you sure you want to take morality lessons from PWI?

[quote]orion wrote:
Gambit_Lost wrote:

As you say, progressive taxation policies (however you construct them) are, in essence, a means through which economic growth is more distributed. Philosophically, I think this is probably the way to go. What do you think?

Cool-

Let us hear your philosophical justification for a progressive tax.

I am almost finished writing my thesis on it but if your argument is really good enough to justify what amounts to state servitude let us hear it and fast, for I will have to do a lot of re-writing.
[/quote]

Are you serious? I’d love to see a copy.

[quote]Gambit_Lost wrote:
orion wrote:
Gambit_Lost wrote:

As you say, progressive taxation policies (however you construct them) are, in essence, a means through which economic growth is more distributed. Philosophically, I think this is probably the way to go. What do you think?

Cool-

Let us hear your philosophical justification for a progressive tax.

I am almost finished writing my thesis on it but if your argument is really good enough to justify what amounts to state servitude let us hear it and fast, for I will have to do a lot of re-writing.

Are you serious? I’d love to see a copy.
[/quote]

It would be in German and my professor does not allow me to keep in the good parts.

I can give you the cliff notes though.

The only justification for progressive taxation could be a utilitarian one, meaning, that you could increase overall welfare by shifting around money.

That idea has some merit, especially if money is redistributed because that means that everybody is free to spend it as he pleases. That means that we have an attempt here to objectively measure and increase something as highly subjective as “utility” or, a bit misleading, happiness.

That would be a public ethic we could all agree on, or at least we could objectively determine whether a proposed political measure is truly in the public interest or not, by measuring wheter utility was raised or not.

The problem is it does not work. Not only is any consequentialist ethic deeply flawed, utilitarianism also has a major weakness, you cannot measure utility in any meaningful way, nor can you compare it between two or more persons.

So, whenever someone claims that an act of redistribution is for the greater good, he is claiming something that he cannot know. You can never know if a measure increases or decreases overall happiness, only that you decrease it by default by forcing someone to fork it over.

But even if those problems did not exist, basic public choice theory tells us that it would still be impossible to reach such decisions in a democratic society.

So, even if you follow a strictly utilitarian ethic, you might want to embrace classic laissez-faire liberalism, for in the end it really brings about the “greatest good for the greatest number”.

[quote]orion wrote:
Gambit_Lost wrote:
orion wrote:
Gambit_Lost wrote:

As you say, progressive taxation policies (however you construct them) are, in essence, a means through which economic growth is more distributed. Philosophically, I think this is probably the way to go. What do you think?

Cool-

Let us hear your philosophical justification for a progressive tax.

I am almost finished writing my thesis on it but if your argument is really good enough to justify what amounts to state servitude let us hear it and fast, for I will have to do a lot of re-writing.

Are you serious? I’d love to see a copy.

It would be in German and my professor does not allow me to keep in the good parts.

I can give you the cliff notes though.

[/quote]

I remember you mentioning that your professor made you edit out some of the “good parts” because they were not so politically correct.

That is what I’d be interested in reading.

In German or otherwise.

As an aside, does that sort of political censorship happen regularly in Austrian universities? Under what pretext is it justified?

orion, I would love to read the original unPC version of this thesis.

[quote]Varqanir wrote:
orion wrote:
Gambit_Lost wrote:
orion wrote:
Gambit_Lost wrote:

As you say, progressive taxation policies (however you construct them) are, in essence, a means through which economic growth is more distributed. Philosophically, I think this is probably the way to go. What do you think?

Cool-

Let us hear your philosophical justification for a progressive tax.

I am almost finished writing my thesis on it but if your argument is really good enough to justify what amounts to state servitude let us hear it and fast, for I will have to do a lot of re-writing.

Are you serious? I’d love to see a copy.

It would be in German and my professor does not allow me to keep in the good parts.

I can give you the cliff notes though.

I remember you mentioning that your professor made you edit out some of the “good parts” because they were not so politically correct.

That is what I’d be interested in reading.

In German or otherwise.

As an aside, does that sort of political censorship happen regularly in Austrian universities? Under what pretext is it justified?[/quote]

She did not exactly edit them out. You are supposed to give a a general outline of what you are going to write, the more details the better.

My paper would have been to long anyway, so she had to curb my enthusiasm in any case, so a lot of the good stuff had to go.

Some things I was expressedly forbidden to write, like “the cry for business ethics in university curriculums as a cry for moral indoctrination” and comparisons between Egyptian priests upholding their state religion and deifying their pharaoh and state sponsored universities and professors who work there and their justification for massive government intrusions in peoples lives.

And of course that consequent redistribution discriminates against minorities.

The other stuff was pretty technical, about how the von Neumann-Morgenstern functions have given rise to neo-cardinalist welfare theories and what would happen if utilitarianism really was consequentially put in to practice and leading it ad absurdum.

The good news is that with the Bologna system I have to write a thesis for every bachelor and master degree and that means I have a lot of ammunition for further papers.

Then, there was no pretext. She said I could not write that. Americans always seem to think that there must be a pretext. There rarely is when dealing with Austrian state employees. They usually tell you that they are sorry and that you could circumvent that law in question this or that way.

I am perfectly free though to write whatever I want. She is perfectly free not to accept my paper.

That is bad, because I want that degree as a sexual ornament.

[quote]LIFTICVSMAXIMVS wrote:
orion, I would love to read the original unPC version of this thesis.[/quote]

There is none, I could only send you the original outline in German.

[quote]orion wrote:

The only justification for progressive taxation could be a utilitarian one, meaning, that you could increase overall welfare by shifting around money.
[/quote]

Can you elaborate on this assumption?

[quote]Gambit_Lost wrote:
orion wrote:

The only justification for progressive taxation could be a utilitarian one, meaning, that you could increase overall welfare by shifting around money.

Can you elaborate on this assumption? [/quote]

Utilitarianism is a code of ethics that says that you should act in a way that maximizes utility for all people.

That basically means that you should consider other peoples wellbeing as well as your own with an economic twist.

So the basic neo cardinalist idea which is dangerously outdated and yet taught on colleges and universities is this:

We all know that the utility of an item becomes less the more you have of it.

The first liter may save your life, the one millionth liter might end it. Obviously you value the first liter most, the second less and so on.

The same is true for money. You will value the 100.000 dollar less then the 1st, 2nd … 99.999 dollar.

So, the value of each dollar gets less.

The idea is to shift this last dollar to someone who only has 10.000 dollars for he will value it more. This way the first person will feel a smaller loss than the second persons gain and therefore more happiness exists in the world and the world is a better place.

So, utilitarianism would dictate, or so some people have said, to spread money around so long that we maximize utility.

Since it is a consequentialist ethic, taxation , aka stealing and servitude are a-ok, if they maximize utility. In fact, murder, rape and concentration camps would be a-ok too, if they maximized utility.

If some people say that red and brown socialism and liberalism have the same roots, they usually believe that this is one of these roots.

It was a brilliant idea that Bentham had and he immediately grasped why it would not work. JS Mill however did not get why it would not work, or he refused to believe it and rung in the era of social democracy or liberalism as Americans call it.

If you follow political debates these days, you will notice that political arguments are almost always utilitarian in nature.

Since most people do not consciously know what ethical belief system they follow, except perhaps religious people, they are unfortunately also totally unable to point out the logical flaws or consequences of their beliefs.

There are also some hidden jokes on liberals in there, for example these:

Even though they believe that a it is bad if an individual maximizes wealth, it is their highest goal to maximize public wealthfare.

Even though they decry materialistic capitalism, they build their very theory of ethics on an economic concept and bring everything down to an materialistic level, because they, out of necessity, have to measure everything in money if they do not want to betray the ethical justification of their actions.

Capitalism does not reduce everything to money, they do because they believe capitalism does.

[quote]Gambit_Lost wrote:
I think that, theoretically, it may be possible to craft a flat tax that is not regressive. Realistically this is nearly impossible, however. How would you propose constructing it so that it is not regressive?

http://www.brookings.edu/~/media/Files/rc/articles/1998/summer_useconomics_gale/gale.pdf

http://www.brookings.edu/events/2003/1216taxes.aspx
[/quote]

I must admit that when I wrote the phrase ‘I support a flat tax’, I was thinking along the lines of what Steve Forbs tried to run on in the 2000 presidential primaries- specifically, a 17% income tax without exemptions for medicine, education, or mortgages.

I can see how a consumption tax can be seen as regressive (I’m not exactly certain it is… this is somewhat tangential to my argument at the time, but if you want, I’ll go into this later), but mostly I reject it because it’s unfamiliar. ‘The best tax is an old tax’. I’m used to paying income tax, and while it might not be the best way, I do not believe shifting to a sales or VAT would be worth the adjustment costs.

Yes. Or rather, MY property, and my RIGHTS to my property, are moral. The issue was ‘what right does the government have to take my property (money)?’ That answer, is to provide me with services. Security, the rule of law, roads… hell, even public transportation or medical services. In each case, I am making a transaction with another entity.

Specific to the redistribution of wealth, I am making a transaction with another human being to give them money, and the state is acting as an intermediary. Now, if this was voluntary (me making a donations to the Shriner’s Hospital, for example), that’s cool. One assumes I’m engaging in a voluntary transaction, and I’m recieving something (piece of mind or whatever). However, if I am forced to do such… then we’re basically taking money out of my pocket and giving me nothing in return. Which is theft, and is morally inappropriate. Reprehensible, even.

Now, two arguments can be made that taxes for the purpose of wealth redistribution provide a needed service.

One, that welfare checks lower crime. I disagree with this,not because it’s not true, but because it’s basically bribing someone not to kill or steal my shit, which I feel is wrong, that I shouldn’t have to do that.

The second, is that I’m paying this money in return for the ability to live under this government (one assumes I’m there voluntarily and have decided this is the place I want to live, for whatever reason), and that the extra tax is just part of the deal. It’s worth pointing out that you can justify any tax with this rationale. But more, I dismiss it under the auspice that if it’s not providing something tangible (or even describable), it’s probably bullshit.

You are correct, there is much more poverty in HK than in Sweden. This would be a reprehensible thing if the people in HK were forced, generation after generation, into a hopeless cycle of poverty, with no hope of social mobility (as in pre and early industrial Sweden). However, that is not the case. There are opportunites for social advancement, and these opportunities shift the responsibility for rising out of poverty from the society onto the individual.

I can’t speak for the record in HK, but I do know that in the US, the VAST majority (I’m thinking 80-90%) of those living in poverty either

a) had a child before the age of 18
b) had a child out of wedlock or
c) didn’t graduate high school.

These are all more or less voluntary choices. I can accept that for some, the choices are harder to make because their immediate society doesn’t reinforce positive behavior. That’s why people are praised for getting out of the ghetto.

And about morality… I, perhaps, have a great deal of catch-up to do. I do not have the luxury of contempt prior to investigation. Therefore, I will learn what I can, where I can.

For the record, I’m really glad you post here. It provides variety from the otherwise right-battles-even-further-right fare that would otherwise occur.

[quote]orion wrote:
Capitalism does not reduce everything to money, they do because they believe capitalism does.
[/quote]

If I want to quote this in a philosophy paper who exactly do I cite? :stuck_out_tongue:

[quote]Otep wrote:
I can’t speak for the record in HK, but I do know that in the US, the VAST majority (I’m thinking 80-90%) of those living in poverty either

a) had a child before the age of 18
b) had a child out of wedlock or
c) didn’t graduate high school.

These are all more or less voluntary choices. I can accept that for some, the choices are harder to make because their immediate society doesn’t reinforce positive behavior. That’s why people are praised for getting out of the ghetto.
[/quote]

While these are all voluntary choices, they’re generally choices made by children and teenagers, for which they suffer for the rest of their lives. In modern times, kids are generally coddled and protected from the consequences of their poor decisions until they’re (sometimes much) older than 18. This will appear to be working out fine, since they’re only being kids, boys will be boys, etc. and it’s assumed they’ll grow out of it. Until, that is, they make decisions so bad or so big (i.e. the ones you mentioned) that their parents are no longer able to protect them. Suddenly, they’re living in poverty because they made bad decisions, but they were never shown how or why to make good decisions.

I actually agree with most of your post, including the part I quoted, it’s just that I can’t help but think we’re being irresponsible and even callous by saying it’s their own fault when they generally have no incentive to behave properly and don’t really realize the ramifications of what they’re doing. I know that I’ve been lucky that my bad decisions have worked out okay, because I also had no real idea of the possible consequences of what I was doing when I was younger and still often don’t take risks into account.

Given that, as you clearly explained, we can’t and shouldn’t have to support bad decision makers via welfare for their whole lives, maybe we need to adjust our values so that this kind of stupidness happens less often. How to do that, I have no idea.

On to the consumption tax :).

When you (everyone, not just Otep) talk about not liking the consumption tax, and it being regressive, what exactly are you talking about? Do you have sales tax at all in the US? Are necessities exempt? In Canada (at least Quebec and Ontario) unprepared and raw foods do not get taxed, nor does public transportation, clothing from discount stores or rent on people’s homes. As such, it is really the elective spending that is taxed. If I choose to buy pizza instead of buying the ingredients and making my own, if I want a car instead of taking the bus, all the way up to if I want a hot tub, flat screen TV or Rolex are all taxed. This isn’t ideal, but I think it is possible to design a consumption tax system which doesn’t unduly punish the poor by taxing them on things they need, but allows for the wealthier to essentially decide how much tax to pay by either saving/investing or spending their money. I certainly don’t buy the idea that the rich wouldn’t buy anything under a consumption tax system.