Just Tax

by publius

I have to admit that I don't like the idea of the government stepping in to dictate compensation levels, TARP funds or no TARP funds.  I'm certainly not morally opposed to it -- heck, many of these people deserve far worse.

The problem, though, is that I don't think the government is institutionally competent to figure this stuff out in a remotely fair and informed way.  It seems like the bluntest of blunt instruments.

Instead, I'd prefer to let people make what they make, and then raise taxes significantly on the very top earners.  For that reason, I'd prefer to see the anger from these ridiculous compensation levels (which were made possible by government intervention, mind you) channeled toward larger tax reform.  

The compensation limits proposed this week will be fleeting anyway -- the ultimate purpose is to keep us rubes at bay.  Raising tax rates on the very very top, by contrast, would be a more lasting reform -- one that would promote equality, reduce concentration of political power, etc.

Comments

[TheBadness]

I have enjoyed in times past pointing out how high (pre-loophole, because I'm not 100% honest) tax rates were under Eisenhower, and how they so stifled growth and innovation.

[cleek]

meh. they brought it on themselves. if they had just laid low and pretended to be chastened by the fact that they almost destroyed the world financial system, nobody would've minded if they broke out the bubbly once things recovered. but these dickheads didn't even have the decency to acknowledge their fnck-ups.

maybe the government won't come up with the absolute best and just and theoretically-sound way of handing it, but guess what: too bad. life isn't logical and it isn't fair. and when you piss on the feet of the people who helped you get out of the ditch, you can expect a little retribution.

they asked for it.

fnck em.

[tgirsch]

Agreed. Go back to a Carter-era or even a Reagan-era top tax bracket, and have it kick in at a million or so.

[Nate]

Publius: "don't think the government is institutionally competent to figure this stuff out in a remotely fair and informed way. "

In fairness, private industry obviously isn't either. :)

[Ugh]

We could start with equalizing the capital gains/qualified dividends and ordinary income tax rates, and eliminate tax-free interest on muni-bonds (tho' I have a vague recollection that the latter might be unconstitutional).

In any event, there's no reason why we can't have a separate tax bracket for those who make above $1 million, above $5 million, above $10 million, etc.

[jonnybutter]

Absolutely right that this is just a gimmick

Raising tax rates on the very very top, by contrast, would be a more lasting reform -- one that would promote equality, reduce concentration of political power, etc.

And also right that this is the real way to deal with the issue. Funny, isn't it, that the idea of raising taxes on very very rich people has come to be such a taboo? My, my.

[Point]

"Raising tax rates on the very very top, by contrast, would be a more lasting reform -- one that would promote equality, reduce concentration of political power, etc."

I'd support more for purposes of raising revenue, but maybe that's splitting hairs...

[Pithlord]

I disagree. There's a huge difference between the function of income tax and pay caps on government-subsidized businesses. The first is a judgment that market rewards should be redistributed. The second is a recognition that once you take the taxpayer's dime, you are a public servant.

[kyllaros]

@pithlord:

Placing higher taxes at very high incomes isn't necessarily about redistributing market rewards. It's just as much, if not more about discouraging excessive compensation in the first place. Excessive compensation (or at least compensation based on very short term success) is a large part of what got us in to this mess.

[chmood]

Tax salary amounts over $2m @ 90%, just like EISENHOWER DID. Tax bonuses the same.

[Michael Cain]

http://abcnews.go.com/Business/CEOProfiles/story?id=6823376&page=1&page=1>At least one non-banking CEO agrees with you, suggesting a 50% marginal tax bracket on income above a million dollars.

[Tony P.]

Thank you, Publius. We need an income tax structure that's "progressive all the way up".

The top 0.1% of incomes are now taxed at essentially a flat rate of 35%. Zero point one percent sounds small, but it's one income in a thousand. Most of us know a thousand people -- though not necessarily a random sample. One person in 1000 making more than 10 times the median household income is not a trivial effect.

Of course, the "top 0.1%" are pikers compared to the to the top 0.01% -- i.e. one person in 10,000. The people who really should be pissed off about the 35% flat tax are the 9 people in 10,000 who have to pay the same rate as that 1 person in 10,000 who makes enough to buy and sell all 9 of them combined. But the mildly rich would rather identify with the stinking rich than with us lowly proles.

--TP

[Sebastian]

I'm actually not super bothered by the principle of the thing--if you get a bailout from bankruptcy, the people who bailed you out can make management decisions. I'm not sure I agree with the method of payment though. Forcing everything into stock options just dilutes the equity holder's value (which at this point includes the government).

I'm more troubled by things like the UAW getting a large equity interest in GM and then brokering harder deals against the only non-bailout auto firm--Ford. It seems to me like the UAW is in fundamental conflict of interest there and needs to either abandon its ownership interest in the competitor, spin off the Ford union so it can advance its own interests, or give Ford the same contract it gives GM. As it stands now, it looks like the UAW is trying to screw over one company in preference to propping up the other. Since this is only possible because of the government bailout of the weaker company, it doesn't seem wise, as it could harm the only semi-strong Detroit automaker in favor of the weaker, more mismanaged one.

This is especially problematic if, as I suspect, GM isn't going to make it anyway.

[ugh]

Tony P,

Its worse than that, the top 400 earners in the US paid a flat rate of 17% on their income in the most recent year that stats are available for. Entirely thanks to the 15% rate on capital gains.

[Brett Bellmore]

We already have a radically "progressive" tax system: Somebody who makes a million dollars will pay more than twenty freaking times as much taxes as somebody who makes fifty thou, for no more services. (Unless you define "services" tautologically, of course, which is popular among defenders of highly "progressive" tax systems.)

That's a moral travesty for anybody who isn't devoted to the Marxist principle, "From each, according to his ability, to each according to his need."

People should pay for what they get, and get what they pay for. THAT is justice.

[elm]

A flat tax, then Brett? Perhaps $17000 per year for every man, woman, and child. Debtor's prisons for those unwilling or unable to pay?

[The Crafty Trilobite]

It woudl be interesting to know whether there is a correlation between same CEO pay and (a) performance, or (b) true capital growth (as opposed to financial gimcrackery). My guess is that when execs soak the shareholders that hard, they have to justify it by large, quick profits, which usually precludes long-term growth.

[baf]

We already have a radically "progressive" tax system: Somebody who makes a million dollars will pay more than twenty freaking times as much taxes as somebody who makes fifty thou, for no more services.

That is not what the term "progressive tax" means.

[chmood]

Mister Bellmore: We already have a radically "progressive" tax system: Somebody who makes a million dollars will pay more than twenty freaking times as much taxes as somebody who makes fifty thou, for no more services.

The individual making a million has been paid 20 times what the 50k earner makes - so paying taxes IN THAT EXACT PROPORTION is somehow unfair? Pretzel logic, indeed, if you think that's the definition of "progressive"!

Enjoyed the quote from those notorious Marxist Jamestown colonists. Interesting that you're very specific about paying and getting, but utter not a whisper about EARNING anything. Why do you think that is?

[byrningman]

I agree with all those above who have expressed the "meh" sentiment. These guys ran their firms into the ground, they still have jobs on account of taking the taxpayer's investment, and now like any other sizable investor the taxpayer is having a say on how the business is run. Given that these same firms had to be saved from suicide when privately-owned, there's surely no basis for assuming that the government is somehow less qualified to make these kinds of decisions than any other possible actor. When they buy out the taxpayer, at a healthy profit for the taxpayer, these guys will be free to ignore our opinions again.

To be honest, most of the bankers I've spoken to recently share this same attitude. The sector's PR people are certainly trying to get the best deal they can get by moaning insincerely about "socialism", which some suckers on the right lap up credulously, but any non-moronic financier fully appreciates the dictum that whoever pays the piper, calls the tune.

[byrningman]

Brett:

We already have a radically "progressive" tax system: Somebody who makes a million dollars will pay more than twenty freaking times as much taxes as somebody who makes fifty thou, for no more services.

I think it's wholly legitimate, and in the best spirit of capitalism, to argue that the person who has made a million dollars in a year has extracted 20 times as much value from government services than the person who earned $50k did. Like any rational economic actor, the government expects a proportionate fee, which really is a terrific value proposition for this lucky millionaire.

If our millionaire really believes the government's fee structure is intolerable, he is free to try his luck in a place like Russia, or Afghanistan, where taxation is essentially nonexistent. In the absence of effective government services however, he'll have to spend a great deal of money providing his own personal security and the security of his possessions and business, taking out enormous insurance for every single business transaction since there will be no reliable legal recourse in the event of fraud, probably paying a great deal of money to establish his own transportation and communications logistics that approximate a western level, etc....

[Carleton Wu]

We already have a radically "progressive" tax system: Somebody who makes a million dollars will pay more than twenty freaking times as much taxes as somebody who makes fifty thou, for no more services. (Unless you define "services" tautologically, of course...

Im pretty sure you have no idea what a tautology is; use words you understand please.

[byrningman]

It's very telling that the Russian oligarchs, the luckiest beneficiaries of "capitalism" in its purest form, all stash their wealth and their families in the West as soon as they get the chance.

Turns out a high marginal tax rate is a small price to pay for knowing your wife and children aren't likely to be kidnapped on any given day, or your wealth and business seized because you haven't matched the bribes of your competitors or bought enough physical security.

[cleek]

We already have a radically "progressive" tax system: Somebody who makes a million dollars will pay more than twenty freaking times as much taxes as somebody who makes fifty thou, for no more services.

"radically" ? WTF

to call something "radical" is to imply that there's a standard to which most objects in the class adhere to and from which the object in question is set far apart.

so, which countries comprise the standard from which we radically deviate ?

it should be easy to name a few dozen of them, since they should be among the majority of countries.

[Brett Bellmore]

"The individual making a million has been paid 20 times what the 50k earner makes - so paying taxes IN THAT EXACT PROPORTION is somehow unfair?"

Yeah. Fair is that you pay in proportion to what you GET, not in proportion to what you have. If I and Bill Gates walk into Burger King, fair is that we both pay the same for a Whopper, not that he pays $10,000 for his.

"I think it's wholly legitimate, and in the best spirit of capitalism, to argue that the person who has made a million dollars in a year has extracted 20 times as much value from government services than the person who earned $50k did."

And the tautological definition of "what you get" has just reared it's head.

[Gary Farber]

"Fair is that you pay in proportion to what you GET, not in proportion to what you have.

While my posts are still hanging around the front page, I can't resist: Brett, do you have a cite to an objective source that has determined this?

Or are you citing your personal economic religion as an objective truth?

As I recall, when you've been pinned down on these sorts of arguments-by-assertion in the past, you've simply declared that you're objectively right, and other people are objectively wrong, and that those who disagree with you know they're wrong, and are consciously being dishonest in not admitting it.

But perhaps you've taken a different view since, or I'm misremembering, or misattributing a view on one principle to another, so I thought I'd ask.

[Nate]

Brett, there is a very strong case for the fact that someone who makes 20 times as much as the average person really DOES get at LEAST 20 times the value from government and society. They're a lot more likely, for example, to benefit from the rules that create (relatively) level playing markets, that they participate in.

And there's that whole keeping society stable enough that they don't have to deal with literal mobs with torches and pitchforks, as opposed to the metaphorical torches and pitchforks populists have been calling for. That's kinda valuable. And cheaper than hiring their own private army for their feifdom.

[yoyo]

I sort of agree with brett here, in that i think the more important issue is making sure noone 'earns' 20 million dollars, instead of just trying to tax it at the end of the year.

better structures that don't reward people for insider connections would be a lot healthier.

to the degree that anyone is actually producing >20x as much value than average, its because they lucked/networked/etc their way into a limited training slot to receive valueable skills.

but conservative have their relio-psych where there is some deep moral thing that millionaires are doing differently from other that makes them 'deserve' big $$ pay

[Tony P.]

Brett,

As long as you brought up Bill Gates, I have to ask: do you run pirated copies of Windows or MS Office or IE?

You DON'T?!? Why the hell not?

Oh, I see: you're too honest to do such a thing. It makes no difference that Bill Gates can call on "the government" to enforce his "intellectual property" rights. That's not really a service Bill Gates gets from the government.

I'm not being completely sarcastic here, because as a matter of fact Bill Gates would not lose any sleep if he learned that lil' ole you were ripping him off. No, the real protection he gets from "the government" is protection from, say, Rupert Murdoch. You see, Rupert is different from you in two important ways: 1)he has fewer scruples than you do; and 2)he has more money than you do. In particular, he has enough money to launch a major pirated-software company. If Brother Rupert started selling MS software without paying Gates royalties, that would make Brother Bill call on the feds to do him a service. In fewer words: what Bill Gates really "gets" from the government is protection from OTHER RICH PEOPLE.

Why you feel it's only fair for YOU to pay for Bill's protection, when he won't even buy you a cheeseburger, is beyond me.

--TP

[byrningman]

And the tautological definition of "what you get" has just reared it's head.

Carlton Wu is right, Brett, you don't understand that word.

[yoyo]

No, see property rights aren't a service, its just a law of nature. they are completely different to rights that benefit the non-wealthy.

oh and bill gates getting rich had nothing to do with government reseach and investment.

[russell]

In other news, one third of all pay in the US goes to executive compensation.

One dollar out of three.

Why is the economy stuck? Because corporate executive management is taking all the money.

It's not going to labor, it's not going to shareholders, it's not being invested back into the enterprise. It's going to C level executives and the members of the board.

[Jesurgislac]

But russell, look at how hard corporate executive management work! They deserve to be appropriately rewarded for all the effort they put in to make their companies a success. Plus, in order to get high-quality corporate executive management, you have to pay them the current market rate for their services. This current market rate is of course determined by corporate executive management, because who else could judge it?

[Shane]

Jes: I'm just impressed they manage to find the time in their busy busy schedules.

[UserGoogol]

The idea that how much people pay is in proportion to how they get is simply an artifact of the market, which is a fine system, but it there's nothing inherently "fair" about it, it's just the result of people buying and selling at whatever prices they feel like. Since taxation is by definition not a voluntary transaction, it's a completely different thing.

Something is fair if it respects everyone's interests equally: and that means getting the tax dollars with the minimum amount of pain. Because of diminishing returns, in a world there tax policy had no side effects, that would be something like a maximum wealth tax, with the entire tax base being concentrated as much as possible on the richest people. However, in reality that system would be tremendously distortive, so the tax base needs to be broader than that.

Now my hyper-utilitarian sense of fairness isn't for everybody, but I don't understand why people on both sides of the aisle seem to accept the "it's fair to pay what you get" idea with the debate being over what exactly people "get." It's not something you can just assume. There's plenty of competing theories of fairness.

[Hartmut]

The idea of paying according to one's ability is not that absurd. I know a number of services (private and public) that charge different rates for different customers at least vaguely related to their means, and it is not always a 'reduced rate for some' (like chidren, unmeployed etc.).

[ajay]

We already have a radically "progressive" tax system: Somebody who makes a million dollars will pay more than twenty freaking times as much taxes as somebody who makes fifty thou, for no more services.

This is, of course, wrong.
http://lanekenworthy.net/2009/01/08/how-progressive-are-our-taxes-follow-up/
As you can see from chart 1, the bottom 20% actually pay a higher proportion of income as taxes than anyone else.
Not only that, but someone in a higher income bracket will actually receive more services - for example, Social Security spending.
http://www.nber.org/digest/jun99/w6989.html

And that's before you get into the very good point made already that Bill Gates certainly does get a lot more benefit, in monetary terms, from the US government than someone on $20k a year.

If you look at the tax system as a sort of monetised corvee, Bill Gates is paying almost exactly the same as everyone else in terms of hours of labour.

[Brett Bellmore]

"While my posts are still hanging around the front page, I can't resist: Brett, do you have a cite to an objective source that has determined this?"

What I'm trying to point out here is that the moral superiority of a "progressive" tax system can't be so blithely assumed, it rests on some rather contested moral basis. Even the casual assumption that utilitarianism, rather than some form of teleological theory, is the "correct" form of morality, is contested.

If two people walk into a restaurant, it's generally understood and expected that if they order the same meal, they'll get the same bill. This is ordinary, everyday ethics.

That ordinary, everyday ethics goes out the window when taxation is considered is a testament to the hard work of "progressives", but your work isn't so complete that you can just assume that everybody agrees with you.

[Jesurgislac]

If two people walk into a restaurant, it's generally understood and expected that if they order the same meal, they'll get the same bill. This is ordinary, everyday ethics.

As has been pointed out to you several times already, Brett, if life is a restaurant, a person with ten million dollars and a person with ten thousand dollars are not "ordering the same meal" - and therefore shouldn't get the same bill.

[tomaig]

Tax the rich
Feed the poor
till there are no
rich no more.

So - in the interests of fairness - do you think it's right for the bottom 40% or so of wage earners to pay NO federal income tax?

And please don't yap about the "payroll tax" - these folks get back everyting they paid in over the year and then some when they file a return.

[Marty]

The control of pay for executives in TARP funded banks is expected and short term, the provisions of keeping the loan.

The control of pay at all levels in all financial instituions announced by the Fed is simply a psuedo government takeover of the financial industry. Thats a much bigger problem. It is the next step in the "secret socialist agenda" or whatever term you wwant to apply to it. We have autos, working on healthcare and financials, what percent of gdp do we think that means government controls?

[Marty]

"So - in the interests of fairness - do you think it's right for the bottom 40% or so of wage earners to pay NO federal income tax? "

In 2009 that will be 47%.

[Nate]

Yeah, in regards to Marty, Brett, and all the "conservatives" who say how unfair it is that the very rich pay more in taxes?

According to those notorious communist agitators at the Wall Street Journal, ONE THIRD of ALL pay in the country goes to executives. That's just counting raw pay and bonuses, not stock options, benefits, etc.

Let me repeat that. ONE THIRD of ALL pay in the country, $2,100,000,000,000 out of $6,400,000,00,000 goes to pay and bonuses for executives.

One more time. ONE THIRD OF ALL PAY IN THE COUNTRY. THAT is why wages have been stagnant, THAT is why we had a huge bubble and economic crisis, 'cause they wanted to find investments for all that money they couldn't spend.

ONE THIRD OF ALL PAY IN THE COUNTRY. That needs to be stamped on the forehead of EVERY SINGLE PERSON who whines about how "unfair" it would be to tax the poor little rich people, or complains how so many people are too poor to pay income tax. Seriously, just shut up. THIS is what you're defending.

It's long past torches and pitchforks time.

[Hartmut]

Warren Buffet famously said that he pays taxes at a lower rate than his secretary* and that this shows that something is pretty wrong with the system.

*through legal loopholes, deductions available only to people with high incomes etc.

[Jesurgislac]

do you think it's right for the bottom 40% or so of wage earners to pay NO federal income tax?

I think it's terrible. What kind of country is it that as many as 40% of wage earners are paid so little that they fall below the threshold for federal income tax? Raise wages and you raise the number of federal income tax payers!

[Marty]

"Yeah, in regards to Marty, Brett, and all the "conservatives" who say how unfair it is that the very rich pay more in taxes?"

Just so we are clear, I didn't say that. All I added was a fact on how many people would pay zero this year. Interesting though that in that number 20% of people making 50k will pay no taxes. I would be curious to know how that compares to the UK.

I believe that if the worst thing you have to do to make more money is pay more taxes thats a pretty good trade off. I do object to the general inclusion of people who make 250k in the "wealthy" category.

[russell]

it rests on some rather contested moral basis.

Assume you need to raise revenue, and that you have decided to do so through taxes levied on individual people.

Every dollar of tax you levy on a poorer person is a dollar they will not have to spend on necessities -- food, clothing, shelter.

Every dollar of tax you levy on a richer person is a dollar they will not spend on non-necessities.

So, net/net, the overall pain incurred by the tax is lower if more of the tax is levied on richer people.

That is the classic moral argument for a progressive tax regime.

If you think of government as a provider of services for which you pay on a per-use basis, this will strike you as unfair.

If you think of government as the institution through which we manage our common life, hopefully it will strike you as reasonably fair.

In 2009 that will be 47%.

People pay a variety of kinds of federal tax. Some taxes are progressive, some are flat, and some are regressive.

The relevant question is this: what is the relative proportion of tax to income for all federal tax liabilities, for people at different points in the income scale?

The all-in figure nets out to be mildly progressive. By "mildly progressive" I mean there is a low-double-digit difference in the percentage of total federal tax liability to income for the lowest income earners as compared to the highest.

This may strike you as unfairly progressive.

To put it in context, the lowest income earners make, let's say, $10K or $15K a year.

Highest income earners may hundreds of millions or even over a billion.

If you make $150M a year, you make *ten thousand times* as much money as someone earning $15K. You make as much in a year as they would make in ten thousand years, which is more or less the length of the Holocene epoch so far. Ten thousand years ago, humans were settling the first agrarian communities in Asia Minor and groping their way out of the late Stone Age.

One year, versus the entire time span of human culture. That's the difference in scale we're talking about.

One out of three dollars of compensation goes to executives.

All of the wealth created by increases in productivity over the last 30 years has gone to the top 20% of income earners.

All of it.

I don't want to hear talk about unfairness to the executive class. They are acting like parasites.

Enough is enough.

[Nate]

Marty: The median pay in the us is ~$50K. if someone making five times the median pay isn't "wealthy", what is?

The problem is the increasing concentration of wealth has made a lot of SUPER-wealthy, so people who are merely very wealthy, wealthy, or decidedly well-off don't feel like they're "rich" in comparison.

[Gary Farber]

"If two people walk into a restaurant, it's generally understood and expected that if they order the same meal, they'll get the same bill. This is ordinary, everyday ethics."

That's not ethics; that's custom.

[Jesurgislac]

Marty: Interesting though that in that number 20% of people making 50k will pay no taxes. I would be curious to know how that compares to the UK.

Nobody, just like in the US. Everyone pays taxes - even if they're so broke that the only tax they pay is sales tax (VAT). The threshold for paying NI is £110 pw (£5720 pa) and the threshold for paying income tax is £6475 pa.

National Statistics collects household income, not individual income: the average household income for the bottom fifth percentile is £14300 pa.

Of course we don't make the distinction between state and federal tax. (The only locally applied tax is council tax, which is based on the value of the place you live in and which everyone over 18 pays except full-time students. It is an unprogressive tax invented by conservatives, which bears far more heavily on the poor than on the rich, though not quite as unfair as the poll tax it replaced, which was the tax that brought down Margaret Thatcher.)

[cleek]

It is the next step in the "secret socialist agenda" or whatever term you wwant to apply to it.

heh. thanks for that :)

it's always good to start the day with a laugh!

[Marty]

"heh. thanks for that :)"

You are very welcome!

[EKR]

Brett writes:
"If two people walk into a restaurant, it's generally understood and expected that if they order the same meal, they'll get the same bill. This is ordinary, everyday ethics."

It's not even true. Many restaurants offer student and/or senior citizen discounts.

[russell]

The relevant question is this: what is the relative proportion of tax to income for all federal tax liabilities, for people at different points in the income scale?

OK, cite.

Bottom line, per the CBO's all-in analysis, including all federal taxes and all forms of income:

The top quintile makes 55.7% of pre-tax income, and pays 69.3% of all federal taxes. They pay 13.6% more in federal taxes than they would under a purely flat regime.

The bottom quintile makes 3.9% of pre-tax income and pays 0.8% of all federal taxes. They pay 3.1% less tax than they would under a purely flat regime.

The total difference between the top and bottom quintiles in tax assessed vs pre-tax income is 16.7%.

I make that out to be a mildly progressive regime. YMMV.

Note that the numbers here include benefits and entitlements such as Medicare, Medicaid, food stamps, and Social Security in the income numbers, and include EITC numbers in the income tax liability (some income tax numbers are negative).

Everybody -- all quintiles -- pays some taxes. There may be some folks at the very bottom of the bottom quintile who do not, if so they are the exceptions.

The US has a broadly based and mildly progressive federal tax regime. Period.

Interestingly, the top 1% make 18.8% of all pre-tax income, and pay 28.3% of all federal taxes, a difference of 9.5%. The folks who are paying the highest burden as a percentage of income are the folks in the lower half of the top quintile.

If you're gonna be rich, it pays to be really, really rich.

[Gary Farber]

"What could you possibly have in mind as an 'objective' source?"

Exactly.

It's not me who was making a claim that there's an objective definition of what's "fair."

Brett consistently states his views on fairness as axiomatic.

It's not a sustainable position. "My opinion is objective fact" is not an argument.

[Mike Schilling]

The poor often pay more for less. Local groceries in poor neighborhood are more expensive than supermarkets in better ones. Poor neighborhoods are not served as well by transit, so their residents spend more time (which is money) waiting for buses and streetcars. And then there's Vimes's boots.

[JanieM]

Fair is that you pay in proportion to what you GET, not in proportion to what you have.

Like Gary, I don’t see anyone advancing any objective evidence as to the meaning of “fair.” Funny how this definition applies only after people have grabbed so much more than a “fair” proportion of the resources that should (by my definition) belong to all of us.

Maybe fair would be the rest of us making sure that people don't get the chance to grab so much more than any imaginable definition of a fair (i.e. even) share of goods both financial and otherwise. Instead of being so obsessed with “fairness” on the back end (taxes), I'd like to see some obsession with fairness on the front end (the minimum wage, for instance). Or is it a dog eat dog world until you have as much as you can grab, then all of a sudden "fairness" kicks in?

I don't have time right now to read this whole thread, but some numbers I crunched from a CBO report in an ObWi thread last spring bear repeating:

The 2005 charts divide the top quintile into 7 sublevels. The highest level of all is “Top 0.01 percentile.” In 1979 there were roughly 9000 households in that group, by 2005 there were about 11000.

In 1979, the after-tax income of the lowest quintile was $14,400; of the top 1% of 1% it was $4,188,300. The top 1% of 1% were taking home (after taxes) 291 times the bottom quintile.

In 2005, the after-tax income of the lowest quintile was $15,300; of the top 1% of 1% it was $24,286,300, or 1587 times the bottom quintile.

[To be continued. Typepad seems picky today, or maybe it's my browser.]

[JanieM]

Adding to the crunching from last spring:

In 2005 there were about 2,411,6000 households in that bottom quintile, and about 11,000 in the top 1% of 1%. If the top 11,000 households were somehow forced or persuaded to give up half their after-tax income (leaving them with a measly $12,00,000 or so to survive on for the year), and that money was redistributed (free of further tax) to the bottom quintile, the financial resources of the bottom quintile households would be increased by 36%.

To put it a different way, half the annual financial resources of each household in the top 1% of 1% is enough money to make a significant (36%) difference in 2,192 households at the bottom.

I bet the numbers have gotten even worse since 2005.

This is an obscenity; there is no imaginable definition of "fair" that justifies it. I like Russell’s repeated suggestion that the right way to approach the problem of the increasing gap between the top and the bottom is ensure better wages at the bottom. But if we don’t start addressing it that way or some way, we’re going to be in worse trouble than we already are. Just my opinion.

[I tried to include links to the CBO report and last spring's thread -- "Be like Reagan and Thatcher! Soak the rich!" (March 8) -- but something is screwy with my browser and links, or html in general, and I don't have time to mess with it right now.]

[russell]

The first is a judgment that market rewards should be redistributed.

As a practical matter, I don't see that executive compensation is set by anything resembling a free market.

Executive salaries are set by corporate boards, who generally are executives.

Shareholders have some nominal voice in the matter, but in practice that voice is either nonexistent or not effective.

Occasionally a large institutional investor -- mutual fund manager, public pension fund manager -- might squeak out an objection, but it doesn't really change things.

The fact that always seems to be forgotten when we're talking about executive compensation in publicly traded companies is this:

*IT'S NOT THEIR MONEY*.

If you start a company, build it up to be highly profitable, don't issue publicly traded shares or otherwise take on significant debt, then live it up. It's your money. Have fun.

Publicly traded corporations, different story.

Executive management doesn't own the company, they run it for someone else.

It's not their money.

[Carleton Wu]

Yeah, you're right that people shouldn't do that. But I don't think that's what Brett did. He offered his Burger King analogy. The analogy happened to be facile and inapt, but it was a legitimate attempt at defending his conception of fairness.

Im not sure that it was. Or, Im not sure that it serves the purpose that he thinks that it does. Would it really violate anyone's sense of fairness or ethics if a restaurant gave a price break to demonstrably poor people?
Or, maybe it would. But I wouldn't have a very high opinion of someone if that was their sense of 'ethics'. And, were I in possession of such limited ethics, I wouldn't want to advertise that fact.

[Carleton Wu]

So - in the interests of fairness - do you think it's right for the bottom 40% or so of wage earners to pay NO federal income tax?
And please don't yap about the "payroll tax" - these folks get back everyting they paid in over the year and then some when they file a return.

I like that- use the word "yap" to preemptively dismiss the argument that totally f^cks your position. ajay already pointed out that the poorest quintile pay a similar percentage of their income when all taxes are considered.

[Brett Bellmore]

"i.e. taxes are not simply a way of "buying" government services."

No, they're also a way of screwing some people over, by making them buy other people's government services. In order to buy those other people's votes for the politicians levying the taxes.

Buying somebody's vote with services THEY have to pay for themselves doesn't work very well, that's why 'progressive' taxation.

[Jesurgislac]

Carleton Wu Would it really violate anyone's sense of fairness or ethics if a restaurant gave a price break to demonstrably poor people?

It would violate a libertarian's sense of fairness and ethics, since (according to libertarian values) it would mean the restaurant manager was "screwing some people over, by making them buy other people's meals" in order to get the demonstrably poor people to come to the restaurant and eat, while richer people who eat there buy those other people's meals while the manager is levying the prices.

We can imagine a situation, in fact, where there's a village in a post-Disaster situation which has decided to make all the food in the village go further by storing it in a central location and serving meals only from the local restaurant.

Some people in the village had more food stored than others: the local grocery-store owner had more food than anyone: some people had no food stored at all, because even before the Disaster struck they were living hand to mouth. But, the village is a small community with a strong sense that they must all stick together and pull each other through, so everyone in the village can come to the central kitchen for a square meal three times a day, and the people who contributed more food to the common weal get no more food served to them at the counter than the people who contributed little or none.

To a libertarian, that situation is strikingly unfair - the shopkeeper and the wealthy few should be allowed to glut themselves while the poor starve.

To everyone else, that situation is an example of how, in a crisis, most people can behave well when treated fairly. (Even in a famine zone, people will queue up in order to receive their share of emergency food supplies - providing they know there are fair shares of for all.)

[243]

Nate: The median pay in the us is ~$50K. if someone making five times the median pay isn't "wealthy", what is?

Actually ~$50K is closer to the median household income. Median wage income for 2008 was 26,514.38 according to Social Security http://www.ssa.gov/OACT/COLA/central.html. So someone who is paid $250K would be making close to ten times what the average worker would have made.

[Jinchi]

Somebody who makes a million dollars will pay more than twenty freaking times as much taxes as somebody who makes fifty thou, for no more services.

I propose a contest, Groundskeeper Willie versus Mr. Burns. Each calls his Rep and both Senators asking for some personal time to discuss health care reform.

First one to speak to all 3 wins.

We know that millionaires get far more in government services that the rest of us. Just in the last year we've had a $700 billion dollar "no strings attached" bailout of the financial industry, and a much smaller bailout of the auto industry that required unions to accept a freeze on salaries, loss of health care benefits, and restrictions on their right to strike. Even the 9/11 victims compensation fund paid relatives of the rich far more than the relatives of the poor.

[ericblair]

The idea of paying according to one's ability is not that absurd. I know a number of services (private and public) that charge different rates for different customers at least vaguely related to their means, and it is not always a 'reduced rate for some' (like chidren, unmeployed etc.).

Most companies will do everything in their power to segment their markets. Most of the time it's trying to charge less price sensitive businesses more and price sensitive personal consumers less: for example, business phone lines versus personal, and short-notice weekday plane fares versus weekend stays, for example.

The reason that restaurants charge the same for the millionaire and the peasant isn't because the restaurant owner has some highfalutin moral argument about pricing: it's because he hasn't figured out how he could charge them differently. I mean, really, this stupid restaurant argument has been going around for years and it doesn't get any smarter with age.

[cleek]

Buying somebody's vote with services THEY have to pay for themselves doesn't work very well, that's why 'progressive' taxation.

nope.

progressive taxation because it's an absurd Randroid fiction that you can have a stable society where the government takes 30% from someone who only makes 50% of what he needs to survive.

[byrningman]

American conservatives keep coming back to this wholly illogical notion that "the market" and "the government" are in dialectical opposition. Ironically, in this misguided belief they resemble convinced Marxist-Leninists. In reality, of course, the market is a creation of government, it cannot exist except in the most rudimentary way without government giving it structure, predictability, reliability, transparency, and -- yes -- efficiency.

If you want to make a utilitarian argument for a progressive tax system (although I'm sure the moral argument suffices for the large majority of people, myself included), then its quite obvious that someone earning $1M per year is reaping the benefit of all sorts of market-enhancing government services and regulatory functions that do not apply to a relatively capital-poor person earning $50k per year.

The problem with our dialectical American conservatives is that they are so comfortably ensconced in the prosperous bubble that America's relatively large government has created for them, that they have become completely oblivious to all of the subtle and indirect services "government" provides, and on which their comfort depends.

Remove government, and you send us back to capitalism's dark ages, where fairly unsophisticated financial and mercantile dealings are possible only among tight-knit groups or familial relations, and the vast majority of people are excluded from any of the benefits of capital accumulation or productivity growth.
(For example, the reason why diaspora minority communities like the Jews in Europe or the Han Chinese in South-East Asia tended to arouse a great deal of local resentment is because their family connections in different countries allowed them to be pioneers in financial and mercantile activities).

[Gary Farber]

"That was Gary Farber's complaint,"

No, it wasn't.

There. Is. No. Objective. Source. (Of What Is Fair.)

Brett's actual Objective source.

[Brett Bellmore]

"progressive taxation because it's an absurd Randroid fiction that you can have a stable society where the government takes 30% from someone who only makes 50% of what he needs to survive."

There's a fairly large difference, albeit one of degree, not kind, between a head tax that's a little higher than most people's honest share of government expenses, in order to cover the people who can't afford that share, and a tax system which aims to extract as much money from as few people as possible, so that the majority will vote for an amount of government they wouldn't think was worth it if they had to pay for it themselves.

[hairshirthedonist]

...a tax system which aims to extract as much money from as few people as possible...

Huh? What country do you live in, Brett?

[Shane]

Yes, there is. I think we (you in the U.S., I in Australia) live closer to the former.

[hairshirthedonist]

I guess if trends continue, our tax system, while not aimed to do so, will end up extracting most of the money it gets from very few people, since they'll be the only ones making any. I suppose, though, that those few people could just build fortresses and abolish government, leaving the rest of us to live like Mad Max a la Road Warrior. (No offense to Australia.)

[cleek]

the majority will vote for an amount of government they wouldn't think was worth it if they had to pay for it themselves.

the poor, put-upon, wealthy minority is perfectly free to leave the country, if they dislike the benefits they're paying for. seriously.

here, i'll show them how to find the nearest government-purchased and regulated and protected airport so they can board the next government-regulated and protected plane out of our government regulated and protected airspace. i hope they enjoy their ride on the government-purchased and protected roads. i hope they don't forget their government-backed and certified passport and a big wad of government-backed US dollars.

bon voyage! don't forget to renounce your US citizenship at the departure gate!

[Phil]

Most companies will do everything in their power to segment their markets.

Indeed. Despite the fact that my company -- one of two very large market leaders in its business -- has a published rate card, I can assure you that very few of our clients actually pay what's on that rate card, nor do they all pay the same as each other, even though they are getting nearly identical bundles of services.

[Anarch]

If two people walk into a restaurant, it's generally understood and expected that if they order the same meal, they'll get the same bill. This is ordinary, everyday ethics.

This is absolutely, categorically wrong. This (as Gary noted) is the custom in the West; it is sometimes the custom elsewhere, and sometimes not. What's more, it's not even the universal custom in the West. There's a restaurant or two around here which operate on a donational basis: you eat a meal there and pay what you feel it was worth (and, if relevant, what you can afford).

It's also a blindingly stupid and facile comparison (as observed by Herostratus) in that Brett is taking as universal one particular commercial transaction that, well, isn't. I could just as easily argue that taxation should be like buying a used car: you get what you negotiate. [Alternatively phrased: how much you can convince the government to take in order to not throw you in prison.] Or maybe it should be like paying someone for the privilege of picking strawberries, where a flat fee lets me acquire as much as I can take. Or maybe it should be like a microloan between friends. Or whatever.

And, of course, there's the even greater fallacy lurking in the depths here, that government is a commercial transaction, or is reducible to one. That Brett takes this as axiomatic -- crudely put, that all things reduce to the market -- is what's really at issue here, and something that can't be argued against without one side proclaiming the other a moral idiot. Myself, I'm happy to say that market transactions are not the sine qua non of ethics, and I'm willing to literally defend that position unto death; I can't speak for Brett, nor would I want to.

[Nate]

Y'know, screw all this restaraunt stuff. Brett wants to talk about "fairness" and how the poor put upon wealthy minority is exploited to pay for so much extra government. Whatever that means.

How about we go to a more fundamental bit of fairness, then?

From russel's quote, bolds added by me: "The top quintile makes 55.7% of pre-tax income, and pays 69.3% of all federal taxes."

"The bottom quintile makes 3.9% of pre-tax income and pays 0.8% of all federal taxes."

"Interestingly, the top 1% make 18.8% of all pre-tax income, and pay 28.3% of all federal taxes."

A quintile, though I'm sure most everyone here knows it, is 20%, quint being five and all. The top 20% make more than HALF the money in the country. The top 1% make nearly 20% of all the money in the country.

Somehow, I find it hard to believe that those 20%, and that 1%, are REALLY producing half or a fifth of the wealth and production in the country, through their actual labor. And I wonder what the numbers would show us if we looked at wealth, not just income.

So, Brett, let's say 100 people go to a restaraunt that has 100 meals. Is it fair for 1 of those people to take 19 of those meals? How about the next 19 people, who take 37 meals between them? Is it fair for the last 20 people to get less than 1 whole meal to split between them?

You want to argue the tax code is unfair? Fine, that's your right, but you're missing a much bigger source of unfairness in the numbers. I will take Republican complaints about taxes and "fairness" seriously when they have make an attempt to deal with income inequality, or when their tax proposals at least do something other than help concentrate wealth.

[russell]

The only thing I would add to Anarch and Nate's comments here is that we have, so far, only been discussing income.

The disparity in the distribution of wealth in the US is even more extreme.

The top 1% of the population owns about 35% of the nation's private wealth.

The top 10% own over 70%.

The bottom 20% owns less than 1% of all privately owned wealth.

The US GINI coefficient for 2004 was 0.829. If you exclude primary residence -- in other words, if you include only fungible, liquid assets -- the GINI coefficient for 2004 is .902.

The words that come to mind are "banana republic".

To publius' original point, I fully agree that government intervention in compensation in private companies is undesirable, and is an incredibly blunt instrument for addressing the problem at hand.

But the executive class, particularly in the FIRE sector, are looting the wealth of the nation.

If it takes a blunt instrument to stop it, then a blunt instrument is what we will use.

[Jordan]

All these post were about moral reasoning, all but russell's last one. I want to use economic reasoning for why the income inequality is bad for economy.

The IRS info is that 50% of population makes less then $33,000. That makes it possible for them to spend mostly on bare necessities. That is just above being poor. This 50% or about 150 million americans do not contribute to the economy and can not buy products of the companies they work for.
The reason banan republics of third world can never get out of such income inequality and prosper is that most of their population can not buy products that are made in their country but they have to be more self sufficient. They never create the need for more business because they are paid just barely to live by. That is the reason that whole lot of businesses are closing in the US since the people can not replace stagnant income with HELOCs anymore. The difference from stagnant wages went to executives, that were blindly robbing the corporations by fasle presentation of their contribution to prosperity of the corp. This was going on for few decades, while their workers were steadily loosing the power to buy their own products.
As Ford said when asked why he owerpays his workers comparing usual pay: "so that they can buy my cars" This is what Obama mentioned couple of times during the election campaign, but i say that he should keeep saying it everyday to teach those criminals what is at stake and where is the problem.

If you want a moral reasoning about wage inequality then go this way. My personal time taken away by working at a company is not a cent more waluable then CEOs personal time that he gives to the company. We both give the same time and bodies for the company away from what i would like to enjoy with my friends and familly.
Only the previous investment of college or perseverance is what gives them the right to make more money.

[chmood]

Brett's concept of economic fairness strikes me as 'preservationist', in that it wants to preserve current disparities at any cost (that cost to be deflected away from the primary beneficiaries, of course), and this concept of fairness *does* indeed have a root principle, which lies at the heart of our economic problems.

Briefly stated: "we stole it fair & square, so the government not only has to let us keep it, they have to help us protect it. Everybody who comes after us has to find somebody else to steal theirs from."

From Crown land-grants to westward expansion, indian massacres, predatory lending and swindles of all descriptions, "I stole it fair & square - you can't take it from me" has been a ruling principle. It is the one thing that preserves a system that strips value from the economy, causing each of the inequities & outright outrages categorized in this thread.

It is also the categorical opposite of the Golden Rule - which as we all know, says, 'don't be an @ssh0le'....

[JanieM]

chmood, That's fantastic.

"I stole it fair & square - you can't take it from me" -- the whole history of "civilization" in a nutshell. I have been trying to think of a way to say this in 25 words or less for ages. You've just solved that problem for me.

[Brett Bellmore]

I have no interest in either preserving or destroying economic disparities. I do observe, though, that people will gladly 'buy' things which aren't the least bit cost effective, if they don't personally have to pay for them. Which strikes me as the main problem with 'progressive' taxation: People are only too glad to vote for things somebody else will be paying for.

Progressive taxation not only suffers from that moral hazard, it exists to promote it.

[tgirsch]

Brett:

You're more than welcome to relocate to any one of the fabulous libertarian paradises that have tax structures more in accordance with what you prefer. Oh, wait, there aren't any, are there. Perhaps you could go set one up? You know, go Galt?

Anyway, you write:

people will gladly 'buy' things which aren't the least bit cost effective, if they don't personally have to pay for them.

There's frankly not much evidence that this is a significant contributor to the overall tax bill.

Well, actually, I take that back. I can think of a couple of wars that are not the least bit cost effective, and paid for with other people's money. But I suspect that's not what you were talking about.

[Phil]

Translated from the Bellmore, I think that means, "I just got my lunch eaten on that stupid damned restaurant thing, so I'll just stamp my feet a little about how unfair life is once again."

[Carleton Wu]

I have no interest in either preserving or destroying economic disparities. I do observe, though, that people will gladly 'buy' things which aren't the least bit cost effective, if they don't personally have to pay for them.

Observed means facts. But I think you're offering a theory, not facts.

[chmood]

"Progressive taxation not only suffers from that moral hazard, it exists to promote it."

Brett, I think Gary has well and truly tagged you as an Ayn Rand fanboi. Funny: I got out of that phase before I left high school.

Might as well build a political philosophy out of "Battlefield Earth".

[Brett Bellmore]

" But I suspect that's not what you were talking about."

And you'd be wrong, it's at least part of what I'm talking about. Both Republicans and Democrats want an excess of government, usually in different areas, but they both want more government than the median voter would support if he had to pay his full share of it. The difference, I suppose, is that libs want a LOT more government than that median voter would be able to stomach the bill for, and so want to shaft the wealthy even harder.

Chmood, I was saved from being a Randroid by my profound allergy to tobacco in all forms. Made me question Rand from the start. I think she was somebody who had an important insight, but who thought it was a lot more important than it really was. If I was going to be a devotee of anybody, it would probably be David Freidman.

[Jesurgislac]

Brett: I was saved from being a Randroid

What makes you think you were saved?

[chmood]

And *which* "David Freidman" would that be?

[Shane]

So, on the topic, you favour government mandated compensation levels, over Publius' preferred letting the market decide.

[Brett Bellmore]

http://en.wikipedia.org/wiki/David_D._Friedman>This David Freidman, of course.

"What makes you think you were saved?"

That I think Rand was wrong about quite a lot?

[Jesurgislac]

You know, when I admire a person, I usually check how to spell their name. It's just a thing.

Speaking of which, isn't David Friedman the guy who thought he could extrapolate out from running Society for Creative Anachronism events to running a country? You know, kind of like running horse shows is the equivalent to running a national disaster response agency? Heckuva a job, Brownie!

[Brett Bellmore]

Nicely executed putdown, Jes; Not terribly accurate, but the workmanship is excellent. The hand of the true expert is demonstrated, in the way you took a few bits of information from a wiki article, and threw together an attack on the fly.

The thing I like about David's writings is that he recognizes the difference between having a vision of the moral society, and it being practical to immediately implement it. It's one thing to think a society based on voluntary cooperation is feasible, it's another thing to believe that you could implement one while surrounded by societies based on coercion.

Alas, one of the things government is best at, is making itself 'necessary', by actively destroying, where it doesn't merely atrophy, all the social institutions necessary to do the needed things it chooses to get involved in. If we embark on creating a working anarchy, we'll need to recreate all those institutions government has destroyed, and in the face of government efforts to keep them from being recreated.

That's why I call myself an aspirational anarchist; I think it would be a good place to be, but don't see any feasible route there.

[Jesurgislac]

Nicely executed putdown, Jes; Not terribly accurate

That's ironic, coming from someone who didn't know Cariadoc of the Bow spells his surname with an i before an e...

[Nombrilisme Vide]

If we embark on creating a working anarchy, it wouldn't be anarcho-capitalism. Therein lies a reversion to feudalism.

I've always favored the phrase "non-practicing anarchist" to describe my own relationship with the philosophy (albeit the non-repugnant leftist variety). It seems more accurate than something like "aspirational anarchist", in that those aspiring to something are actually working towards realizing it.

[Brett Bellmore]

On the contrary, a working anarchism for anything more advanced than a hunter-gatherer society would have to be anarcho-capitalism, because you'd need government to prevent capitalism from arising in a free society.

[Jesurgislac]

Nombrilisme Vide: If we embark on creating a working anarchy, it wouldn't be anarcho-capitalism. Therein lies a reversion to feudalism.

Indeed; as we see in Afghanistan.

Brett, you are so ignorant of history it would probably embarrass even an SCA member, but if you are going to throw around big words like "capitalism", you really should be aware that while the definition of capitalism in history is difficult, it is generally agreed that capitalism arises with a mercantile class / wage labor, that it goes back further than recorded history. And common sense and the study of history will tell you that where the power of wealth exists, government tends towards protecting wealth/the wealthy.

Government is older than capitalism: any fifty humans living together will tend to develop government probably even before capitalism....

[russell]

I think it would be a good place to be, but don't see any feasible route there.

I'd just like to point out that you are, apparently, arguing throughout this thread for a point of view that you consider to be unrealizable.

Without meaning any disrespect, I have to ask what the point is?

Any one of us could make up our own personal political and social nirvana and then argue that anything that falls short of it simply will not do.

But what's the point?

There isn't going to be a human society more complex than hunter-gatherers without a government. The reason I feel comfortable making that claim is because we've lived in societies more complex than hunter-gatherers for about 10,000 years, and as far as anyone knows, we've always done so under some form of governance.

It might bug you that that is true, but it is true.

If you like howling at the political moon, live it up. The rest of us are trying to figure out how to live with each other.

If you want be part of that, fine. If you don't, fine. But don't expect the rest of us to join you in holding out for the figment of David Friedman's, or anyone else's, imagination.

[Nombrilisme Vide]

On the contrary, a working anarchism for anything more advanced than a hunter-gatherer society would have to be anarcho-capitalism, because you'd need government to prevent capitalism from arising in a free society.

And what exactly do you propose to prevent de facto governments from arising in an unrestricted capitalist economy? Oh, wait, in your anarcho-capitalist utopia, it just never occurs to your self-interested individualists to be even the least bit coercive with the power disparity their capitalist wheeling and dealing grants them. It'd be absurd to imagine they would. I mean, sheesh. That's just crazy talk!

[chmood]

N.V,: "If we embark on creating a working anarchy, it wouldn't be anarcho-capitalism. Therein lies a reversion to feudalism."

This explains the involvement in SCA, which is built around the conceit that all players are noble. by one description or another.

Brett: thanks for the link; as a student of Rothbard, I'm not very fluent in the subtleties of the social-darwinists, but I can recognize them. I see now where the "moral" component arises for you (assuming you're being accurate in disowning Rand).

I had no idea we were debating the ideal anarchist society (and I completely agree w/ N. Vide that feudalism is highly likely to result from anarcho-capitalism). I do not know where your notion of 'moral hazard' arises if you recognize no ideals of natural law or community. I do not trust cost/benefit analysis as a moral compass or ethical guideline.