27 June 2005

federal income taxes

Why are "taxes" and "federal income taxes" so often thought of as synonymous?

Part of it is that those are the most noticeable on Apr 15, and part is that they're easier to have a national conversation about, but part really is a deliberate effort from right-wingers. The progression of arguments is pretty amazing (from rushlimbaugh.com):

Only the Rich Pay Taxes!
NEW UPDATED FIGURES: Top 20% Pay 80% of Taxes
New York Times Buries, But Reports, Truth on Taxes
CBO report misheadlined by New York Times still reveals truth...tscript,
CBO Report: Effective Federal Tax Rates Under Current Law, 2001 to 2014
Posted Forever: Top 50% of Wage Earners Pay 96.03% of Income Taxes
Excel file: IRS Income Stats
Myth Buster: Democrats Get More Campaign Cash from "Rich"

Only the rich pay taxes!!!
Well, 20% pay 80% but that's still a lot of money wasted on public goods.
and by taxes, I mean "federal income taxes."

(Context: Overall the tax burden is a pretty even share of income for everyone, or if anything is slightly regressive. But the federal income tax is strongly progressive, and that's what everyone notices.)

I found this while trying to substantiate the argument that Rush Limbaugh's genius is to approach familiar issues with unfamiliar arguments. I do have to admit that the Club G'itmo golf shirt definitely was an unfamiliar approach to an issue I thought I knew.


ahren said...

leaving aside the actual implementation and who pays what percentage of what particular tax, etc. (i'm willing to accept the argument that the tax burden is spread out equally, as i've done no research on it whatsoever myself, and i generally trust you)

but to me, the fundamental problem with the progressive federal income tax is that it basically sets up different rights for different groups of people based on their income-- which i think is a very damaging precedent to set.

i understand that other sorts of taxes that are flat (car registration) or a flat percentage (sales tax) will be a much larger burden on poorer people comparitively, but really-- so what? isn't that just a natural consequence of a system that treats everyone equally? and how do you weigh the cost/benefit of rejecting equality in structure for equality in practice?

also, a random complaint i have about progressive federal income tax is that salary doesn't necessarilly correspond well to wealth at all...

aram harrow said...

I don't know if I should be happy or uncomfortable that you're willing to believe me about the overall tax system being slightly regressive. I tried to dig up evidence about it (other than Krugman one-liners) and found this article
which says that federal taxes are very close to proportional but slightly progressive. I think that's offset by state taxes, but don't know where I've seen that argument. It's actually not that straightforward of a question to answer, because things like a sales tax can be assumed either to be paid by the buyer or the seller, and the way it's split depends on the ratio of the supply/demand elasticities (this is not too hard to see - whoever is more price sensitive will change their behavior more and therefore pay a smaller share of the tax).

Will talk about rights in a separate comment.

aram harrow said...

There are several problems with these arguments based on rights.

1. There's no a priori value to rights; it's only their consequences that are valuable. e.g. we have a right to free speech because there are political and cultural benefits to giving legal protection to unpopular speech. We (try to) draw a firm line around free speech because when people try to judge which speech is good and which is bad, they usually get it wrong. But the ultimate goal isn't free speech as much as an accountable government.

Likewise there's no "right" to paying the same percentage of income as taxes as everyone else in the country. We can argue that it's socially beneficial because progressive taxes reduce incentives to work or whatever, but you have to compare consequences of policies, not abstract principles.

2. Like you pointed out, almost every kind of tax discriminates in some way. One of the worst (in terms of wasting a lot of money for little social benefit) is the deduction for interest on mortgages (because despite the positive externalities of home ownership, the mortgage deduction has been shown to increase only the size of homes and not to turn many renters into buyers). Payroll taxes discriminate against those making <$90000. Sales taxes discriminate in favor of savings rather than consumption. Having capital gains taxes be lower than income taxes discriminates against those who get their income from working as opposed to from investments. And so on...

(Those last two arguments are kind of boring and standard. This last I'm more interested in.)
3. Not all rights and all (un)fairness comes from the government. Specifically, people who make more money are already being treated unequally by society - they're getting allocated more resources! Yes, this is largely a function of personal initiative/resources, but no one makes money without trading with others in a large cooperative system.

Two implications
a) From an individual point of view, you can't argue that you're "entitled" to the amount of goodies implied by the size of your paycheck. The system that enables your big paycheck, including welfare programs meant to preserve social order, exists disproportionately for your benefit, so it's fair that you pay more for it.

b) From a market point of view, the reason some people have more income is because they negotiate better/more deals with their employers/clients. And in general, everyone negotiates for as much money as they think they can get away with. Since anyone is free to leave the country, especially the rich who can travel easily, the government should be free to do the same thing with taxes -- basically negotiate with taxpayers at each bracket a rate that they're willing to pay so that they can stay in the country and keep benefitting from it. And it's not true that all countries have high taxes, only the good ones like Sweden do -- rich Americans are always free to move to tax havens like Russia, Afghanistan, Sierra Leone, etc. and live out their libertarian dreams.

ahren said...

i agree that there are no such thing as a priori rights. i just have questions about what is the "best" way to allocate the rights.

i also think it's fine that wealthy people pay more tax, as they have more to protect-- which is really the fundamental role of government.

the "if you don't like it you can leave" argument isn't really a good one though. if you're going to take that route, why not just bargain all the poor people out of the system instead and force them to leave or starve? clearly a country full of rich people is better than one full of poor people.

it seems that a fundamental basis of our system is the assurance of some measure of protection of the individual from the coersive force of the government-- with the idea that this leads to the most productive society in the long-run. perhaps this idea is wrong-headed (or i'm misinterpreting), and i agree with you that there's no divine force ensuring this to be true (as the natural law people would assert), but i think that's the purpose of the constitution/supreme court/legislature system -- where the fundamental "rights" are instilled by the super majority, and the will of the majority is able to shape the implementation with the check that it not supercede the "rights." there is also a mechanism in place, such that the super majority can change its mind as time goes on too to keep the society updated.

i don't think these mechanisms have been properly utilized or updated-- especially as it pertains to taxation and property, and that the conflict should be resolved one way or another.

aram harrow said...

I agree that the "if you don't like it, then leave" philosophy is shitty (though it seems not terribly far from the status quo). I was trying to say that the "pay your taxes or leave" idea is philosophically consistent with the idea that people have a right to their paychecks; both amount to accepting that people have a right to take whatever they can successfully bargain for.

You're right that taxes and regulations can have the effect of hurting people's rights. Emininent domain is one example of this, but there are plenty of other ways governments can steal from people. For example, a high deficit that leads to inflation. Or in many African countries, governments keep their currencies overvalued and get their money by awarding import licenses in a corrupt way.

The problem is that unlike other rights, it's hard to draw a clear line around any absolute right, or any clear infringement. Things like the balanced budget amendment are almost certainly bad ideas.
But in general, it can be hard to distinguish incompetence, corruption, malice or honest mistakes.

So you have to go back to asking *why* particular acts of coercion are bad, which means looking at details. If a 99% tax rate is bad, that doesn't necessarily mean a 50% rate is bad. etc.

ahren said...

this post ended up being too long and abstract and weird to put here... it's now being constructed as a blog entry on my blog:


progressive house said...

i´m sure this is the largest comment i´ve
ever seen...