Monthly Archives: October 2011

Tax Fairness (Part 2): Solved with the Equal Tax

Our tax systems (income, property, sales) share a common problem. They are applied in a discriminatory manner that harms some to the benefit of others. Rather than discrimination based on race or gender it is discrimination based on behavior or actions. Those that behave in a government desired manner pay less. Those that are good at hiding income or gaming the system pay less. Everyone else pays more. These systems are easily bypassed both purposefully and accidentally thus driving up tax rates in order to compensate for such losses. Lastly, they can transform the average citizen into an unwitting criminal if they happen to take a wrong step in the minefield of tax rules. In short they are an imperfect and unfair mess.

A fair tax system would have a universal/non-discriminatory target: those that benefit from core government services (defense, courts, contracts) by virtue of their residency: all permanent residents. It would have an inescapable calculation method: one’s tax bill would be based on a single universal metric and would not be a function of an individual’s behavior. What is this perfect tax system? I call it the “Equal Tax” which is otherwise known as a capitation or head tax. Each and every person would owe the same amount of tax.

What problems does the Equal Tax solve?

1) Fairness: The foundation of “fairness” is universality. Rules in a game are “fair” and  “uniform” because they apply to all players and they have an equal result. But sometimes a rule can be uniform yet still be unfair and it is this that we wish to avoid. For example if taxes were based on weight (i.e. pay $x/lb) this would be a uniform rule as it would apply to everyone but the result of such a rule would be obviously unfair. In the same way one might claim that an income tax or property tax is “uniform” because it is methodologically applied in the same way to each person, however the outcome is clearly unfair since some end up paying more following this “uniform” rule. The Equal Tax solves this issue because both the method and the result are uniform. It applies to every man, woman and child residing in the US (obviously parents would pay for their minor child’s obligation). The measure (i.e. amount) of this tax will be driven to the lowest level possible by altering the incentive structure that currently governs our tax system. Rather than attracting votes by promising local pork-barrel projects (i.e. leading to higher taxes) elected officials will attract votes by promising to decrease the tax burden. This inherent incentive of cost reduction will necessarily drive the genie of big government back in the bottle until government is reduced to its core essential functions.

2) Fraud: It is inescapable. There is no point in hiding income, no point in understating your home’s value, no point buying over the internet solely to avoid sales tax…your tax bill is the same as your neighbors and it isn’t going to change based on anything you do or don’t do. Payments won’t be 100% every year, but at least we’ll know exactly how much revenue is short rather than pie in the sky guesses.

3) Impossible to inadvertently violate tax laws. There are no complex rules to follow. You owe $x each year. Period. If you don’t pay it, you know you’re not paying it, so it can’t be accidental.

4) Engagement of all citizens in the political process keeps government in check. Congress will hear from every citizen “Why are we funding that program? It’s costly and I’m PAYING for it, get rid of it.” This would force government to provide only the essential functions that everyone agrees on. Our current system minimizes incentives for citizens to be involved in the political process because the vast majority don’t care because they pay little to no taxes. In short, the involvement of citizens would force government to remain affordable to even those with the lowest income thereby imposing real restraint on the growth of government.

How much would it cost? Assuming all Federal, State and Local governments adopted such a method and only core functions of government are funded it would cost roughly $2400/year/person (based on US Budget figure for 2010 (publicly available at Wikipedia) and public figures for local county and state budgets). I’m sure the idea of the Equal Tax has raised a lot of questions, some of them good and valid and some of them unthinking knee-jerk reactions. I answer those concerns here…

Tax Fairness (Part 1): What is it?

I wish someone would explain the objective criteria used to define “fair share” as it pertains to taxation. This term is used indiscriminately by those that assume everyone else’s internal fairness meter must be the same as theirs. Unfortunately “fair share” is not an objective standard, nor is it a subjective standard either because it’s not even a standard at all. It is merely subjective whim masquerading as some golden absolute. The peg of “fair share” moves to whatever arbitrary point will bring in enough revenue to pay for whatever government largesse the proponents are seeking to fund. It is a completely backwards approach to budgeting that always leads to debt and/or higher taxes. It is based on the faulty premise of spending driving revenue requirements vs the economically sound approach of fixed revenue driving permissible spending.

The various tax systems (income, sales, property) today are a cesspool of unfairness from which we will never find a “fair share” lurking beneath their depths. The income tax system is based on a foundation of fostering wealth redistribution and behavior modification using the carrot/stick model. For example, every time someone gets a deduction or credit on their taxes it is because they are engaging in behavior the government wishes to promote (“there boy, good boy, you’ve been a good doggy”) and those that don’t get those deductions or in fact pay extra surtaxes are engaging in behavior the governments finds objectionable (“bad dog, bad dog!”). Deductions and incentives are one form of tax unfairness as they benefit one group at the expense of another. The other more sinister form of tax unfairness is progressive income taxation. There is no rational basis upon which one can argue that as one obtains more income they have progressively less right to keep that income.  Few today realize that the idea of a progressive income tax is one of the primary tenets of communism*, its sole purpose being to destroy all wealth so as to more rapidly bring about the utopian order of the perfectly “fair’ communist society where all are “equal”. Oh, and yes, I did say “rational basis” for an argument. I don’t include the irrational ones like the argument that society has a right to tax the wealthy more because the only reason they are wealthy is because they have had at their disposal all the wonderful manna that has fallen from government run heaven (e.g. roads, public education, court system, etc). So, if all these things are what made wealthy people wealthy, then why isn’t everyone wealthy? These things are available to everyone, right? Or more to the point, based on this twisted logic one could argue that any tax rate imposed on the wealthy is fair. The argument doesn’t tie the value of these government services to some specific tax % therefore this argument can be employed for any tax %. Reductio ad absurdum.

When it comes to taxation the question of fairness must be broken down into two components: (1) the method and (2) the measure. To be considered fair the method must be (a) universal and (b) inescapable. A universal method is non-discriminatory and applies to every single citizen or non-citizen resident. Every. Single. One. An inescapable system is sufficiently transparent that it is not possible to hide one’s tax obligation. There is one tax system that would be universal and inescapable (hint: it’s not a sales/consumption/VAT tax). But, you’ll just have to wait until next week for the exciting conclusion when I reveal the identity of this new system and how it dovetails perfectly with the second component of tax fairness: measure.

* Manifesto of the Communist Party, Marx K., Engels F., 1848, Chapter 2.

 

A Wasted Protest

The “Occupy <insert city name here>” protestors are certainly an eclectic bunch. From what I can gather they blame “the wealthy” and “corporate greed” (whatever that means) for a myriad of the problems this country faces, not the least of which is that they don’t have a job. Give me a break. If they have time to travel across the country and camp out in a park for weeks on end, then they have time to find a job. The protestors have one slender thread of a justifiable grievance: the “too big to fail” crony capitalist policies of our political system. The problem is that they should be protesting the government that bailed out big businesses (the financial and auto sectors). Those businesses made risky investments because they knew Uncle Sam would back them up if things went south. Ask yourself, if you could go into a casino and gamble as much as you wanted knowing that any losses would be repaid to you, would you really restrain yourself from not simply gambling as much and as fast as you could?

This protest is a wasted opportunity to raise national awareness of what really ails this country: big government. The protestors are simply too ignorant of basic economics (“let’s just get rid of all money” said one) and the nature of free-market capitalism (as distinguished from crony-capitalism) to advance any kind of legitimate, useful agenda. For example, some constructive demands would be:

1) end the Fed and the ability of the government to print money: this brings an end to the “business cycle” which is an artificial result of government money manipulation

2) end all government subsidies: this would lower taxes by eliminating corporate welfare

3) repeal all government regulation of business: this would put all the lobbyists out of work and would then create a boom in new businesses and new jobs (as regulations are the tool that big business uses to raise the barrier to entry by new competitors)

4) repeal all business taxes: a lack of income tax would create a huge increase in rate of return on invested capital thereby attracting thousands of US and foreign companies to the US which would in turn create millions of new jobs.

But you won’t hear any of the protestors calling for such reforms. Their solution to “income inequality” is not to raise those on the bottom up (by promoting an environment conducive to job creation) but rather to cut those at the top down (by promoting punitive taxation under the mantra of redistribution following a misguided appeal to “fairness.”) Income inequality is a natural consequence of being human. It is the same as inequality in a foot race. In fact the statistical distribution in both a race and income is identical: a handful are wealthier or faster than everyone else, a large portion are average and a handful are very slow or poor. Government mandated redistribution of wealth is no different than forcing the fast runners to carry sandbags on their back, so as to remove their “unfair” advantage over slower runners. Capitalism is like the foot race; those that come in first do not gain their speed by sapping the speed of the slower runners.

To insist that income must be equal for all or have a very narrow distribution is to tilt at the windmill of biology: we all have equal natural rights but we are not created with equal abilities. Those with skills in high demand or low supply (doctors, lawyers, actors, sports stars, etc) will always earn much more than those with skills in low demand or high supply. That’s life, get used to it. The solution the protestors should be seeking is to improve their skill set rather than promoting government-sanctioned solutions that use threat of violence (taxation) in order to “right” their perception of a “wrong.”

 

Decriminalize Immigration

The idea of “illegal” immigration is a silly notion. It’s akin to an “illegal” vacation. Immigration is simply the act of moving from Location A to Location B. Why should permission be required to exercise this right? Up until 1882 (with passage of the non-euphemistically named “Chinese Exclusion Act”) anyone was permitted entry. Immigration laws were tightened further until 1921 when the Temporary Quota Act set “national quotas” and permanently criminalized immigration. And thus a legal harmless act was made “illegal” by arbitrary government fiat.

The RIGHT to immigrate (or emigrate) is distinct from the PRIVLEGE of citizenship. The basic idea is “you’re welcome to come and work and live here and support yourself but don’t expect handouts from the government… if you want a handout then you must become a citizen.” If immigration were properly viewed in this manner it would solve the issue of an overburdened social safety system. If only citizens can utilize the social institutions then you remove all incentives for those with parasitic intentions from immigrating. We would, however, have to change the antiquated citizenship laws that confer citizenship to those born on US soil. Citizenship should be a privilege reserved for those that meet the established criteria or the children of a US citizen.

The most common justification for restricting immigration is that they ‘steal’ jobs from Americans. Hogwash. They are doing the jobs that nobody wants. And when nobody does them, they don’t get done. For example, my family has been buying peaches from a fruit stand on Hwy 441 for several years and we have gotten to know the owners quite well. This past spring Governor Deal signed into law Bill 87 (which enacts severe penalties and mandates in order to curb illegal immigration). So this was the first growing season after that bill passed and recently one of the owners, Amy Bishop, remarked to us that the lack of immigrants had severely affected their business. There are simply not enough pickers. Food is rotting in the fields. The peach harvest was greatly diminished in both quality and quantity. She stated “I’ve thrown away more peaches this year then in 15 years, we lost, at our cost, over a 6 week span over $2000 just on peaches” (due to low quality from lack of tending and higher prices due to diminished supply).

“I’ve thrown away more peaches this year then in 15 years, we lost, at our cost, over a 6 week span over $2000 just on peaches”

With high unemployment you’d think the growers would have people lining up to work. Apparently not. When unemployment compensation can last 2 years it disincentivizes the unemployed to find work when such work might only equal or barely exceed what they already collect for doing nothing at all. Some say the wages for such “menial” jobs are too low to attract Americans to work them. Funny, the immigrants seem to get by just fine. Nevertheless, if the pay is “too low”, then I don’t understand the argument that jobs are being stolen? Stolen from the people that don’t want them?

Many immigrants fill a niche in our economy, the niche of the menial jobs that the native born don’t want. This has been true since this country was founded. The first generation is willing to do the hard work so that their children won’t have to. Removing the immigrants simply leaves those jobs undone, driving up prices. If we don’t want immigrants “mooching” off our big social safety net we need to either make the net smaller or require proof of citizenship for those wishing to partake in a government handout.

Public privacy?

The Atlanta Journal recently reported on plans to increase video surveillance in downtown Atlanta. This was quickly decried as an ever-greater violation of our privacy. That viewpoint rests on a faulty assumption, namely that our right to privacy extends into the public arena. In short, there is no privacy for public actions, only private actions.

The right to privacy is a natural right and as with all natural rights we must act in order to secure this right. Just as we work to secure our right to life, so must we work to provide ourselves with the tools that secure our right to privacy (e.g. shelter and clothing). Once these tools are secured, we have established our private-public boundary. Any uninvited breach (e.g. trespass, eavesdropping, thermal imaging, “peeping”, personal searching, etc.) of that boundary is a violation of our right to privacy.

Once we exit the private realm and enter the public arena there is no longer a boundary (other than clothing) that can be breached. There is no reasonable expectation that we will not be observed or if we are, that it is incumbent upon any observer to cease such observation. Natural rights cannot obligate others to act in order for us to secure our rights. For example, the right to life is sustained by inaction of others (i.e. not killing us). Conversely the right to life cannot obligate others to act unwillingly on our behalf (i.e. provide us with food without anything in return). In the same way, a demand for “privacy” when in public would obligate others to act (e.g. cover their eyes and ears). No person has the right to forcefully obligate another to act on their behalf.

So, if it is unreasonable to expect people to shield their senses from us when we are in public, then: Is it ok for a person to observe another person in public? Is it ok for a person to draw what they publicly observe? Is it ok for a person to more efficiently draw what they publicly observe (e.g. use a camera)? Yes to all, but at this point some might hesitate and suggest permission is required or even “no”. But why? It is an emotional response, as there is no logical difference between observing and drawing versus observing and snapping a photo. The latter is merely a more efficient tool to accomplish the former. I can dig a hole with my hands or with a backhoe. The backhoe is a whole lot more efficient, but both processes are still the same: digging.

Public cameras are merely tools that facilitate that which is unobjectionable (a cop standing on a street corner watching people) to be more efficiently accomplished. Legitimate concerns have been raised that public cameras are wasteful because they don’t accomplish the desired goal in a monetarily efficient manner. Also abuse such as stoplight camera “gaming” (adjusting yellow light duration) is common. Inefficiency and abuse are valid reasons to object to such monitoring, but privacy concerns are not. If our laws only protected natural rights rather than trying to legislate behavior there would be little objection to such monitoring. Absent abuses of power or waste, we should be more concerned with the nature of the laws rather than the method of their enforcement.