Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.

Socratic Economics X: Is "compound empowerment" a valid argument for progressive taxation?

by marco Sun Jun 22nd, 2008 at 11:19:19 PM EST

I am not sure if I am allowed to add a diary to the Socratic Economics series at will, but since I have a question and it is about economics, I figured I'd throw it up there.

Some friends and I are having a debate about the moral justification for progressive taxation, as opposed to a flat tax, a consumption tax, and even no taxes.

Personally, while I understand the pragmatic arguments for progressive taxation and on balance am decidedly in favor of it, I have always felt rather ambivalent about its moral justifiability.

The strongest moral argument I find in favor of progressive taxation is that based on compound empowerment.


Though informally I had been familiar with the basic idea, I first learned the term compound empowerment in an essay, "Progressive Taxation: Some Hidden Truths", by George Lakoff and Bruce Budner of the Rockridge Institute.

They write:

Progressive taxation--taxing the wealthy at higher rates than the poor--is a moral issue. Like many moral issues, it sparks heated debate.

<...>

Consider Bill Gates. He started Microsoft as a college dropout and has become the world's richest person. Though he has undoubtedly benefited from his unusual intelligence and business acumen, he could not have created or sustained his personal wealth without the common wealth. The legal system protected Microsoft's intellectual property and contracts. The tax-supported financial infrastructure enabled him to access capital markets and trade his stock in a market in which investors have confidence. He built his company with many employees educated in public schools and universities. Tax-funded research helped develop computer science and the internet. Trade laws negotiated and enforced by the government protect his ability to sell his products abroad. These are but a few of the ways in which Mr. Gates' accumulation of wealth was empowered by the common wealth and by taxation.

As Warren Buffet famously observed, he likely couldn't have achieved his financial success had he been born in Bangladesh instead of the United States, because Bangladesh had no banking system and no stock market.

Ordinary people just drive on the highways; corporations send fleets of trucks. Ordinary people may get a bank loan for their mortgage; corporations borrow money to buy whole companies. Ordinary people rarely use the courts; most of the courts are used for corporate law and contract disputes. Corporations and their investors -- those who have accumulated enough money beyond basic needs so they can invest -- make much more use, compound use, of the empowering infrastructure provided by everybody's tax money.

Ergo, while the top 10% of the U.S. population receives 48% of the country's income, it is morally justified that they pay 69.7% of the taxes, as per this chart:

What do others here thought of this argument for progressive taxation?  Does it hold up?  Is it enough on its own as moral justification for progressive taxation?  Or must it be combined with other arguments such as marginal utility and vertical equity to make a sufficiently strong panoply of arguments for progressive taxation?

[editor's note, by Migeru] Socratic Economics is an occasional series of questions posed in a Socratic effort to understand economics. Previous entries: Other diaries which should have been added to the series...

Poll
Is "compound empowerment" a valid argument for progressive taxation?
. No, don't use it. 0%
. It is, but on its own, but it is not enough to justify progressive taxation. 40%
. It is, and is even strong enough to justify progressive taxation on its own. 60%

Votes: 5
Results | Other Polls
Display:
I think more convincing arguments for the justness of steep progressive taxation stem from:

  1. marginal utility

  2. need to curtail or prevent the rise of aristocracy
by PIGL (stevec@boreal.gmail@com) on Mon Jun 23rd, 2008 at 02:16:53 AM EST
Got it.

Incidentally, I have to stay away from using words like "aristocracy", because they are hair-triggers for emotional reactions and name-calling about "class warfare" and suddenly I get suspected of being a "socialist" or a "communist", etc.

Instead, I use terms like "concentration of wealth", "undue influence on government", etc.

... all progress depends on the unreasonable mensch.
(apologies to G.B. Shaw)

by marco on Mon Jun 23rd, 2008 at 06:26:41 AM EST
[ Parent ]
Does talking about "dynasties" as opposed to "aristocracy" help?

However, I should note that if you debate these people in their "fiscally conservative" frame, you can't win. You need to spend energy on shifting the frame, or at least undermining the frame with appeal to other parts of their value system (if that is possible).

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes

by Migeru (migeru at eurotrib dot com) on Mon Jun 23rd, 2008 at 07:03:24 AM EST
[ Parent ]
is a waste of time, if they are 'invested'. There's your morality - i.e., it is relative to their investment.

Efficiency is mentioned several times in this thread. It is inefficient to talk to people who have strong motives to block your arguments.

paul spencer

by paul spencer (spencerinthegorge AT yahoo DOT com) on Mon Jun 23rd, 2008 at 09:51:59 AM EST
[ Parent ]
paul spencer: Talking to 'fiscal conservatives' is a waste of time, if they are 'invested'. There's your morality - i.e., it is relative to their investment.

It may be inefficient, but I don't think it's hopeless.  And these are not people who lack compassion, and while they probably have some investments, the bulk of their income comes from their salaries.

I've been thinking a lot about what the purpose of ETPedia after getting slapped around by ThatBritGuy in an earlier discussion on that topic.

In addition to being a position-paper container/ideological framer/attention attractor, I think what ETPedia can do -- through position papers and/or through more modest articles -- is present arguments on issues that are specifically designed to address and defeat oft-used counter-arguments, and to do so in an utterly non-contentious manner that presumes the reader is in good faith and open to considering the arguments on its merits.

In addition to "Why progressive taxation is a good thing", there also comes to mind "Why regulation is a good thing", for starters (and actually another topic I've been debating my friends about.)

I find that reading blogs and commenting is informative, but when it came to debating with my friends, I simply was not able quickly to marshal the evidence and reasoning that nevertheless I had read in abundance on this site.  So I guess I figured I should start putting Cliff's Notes (cheat sheets) distilled and/or precipitated from here.

... all progress depends on the unreasonable mensch.
(apologies to G.B. Shaw)

by marco on Mon Jun 23rd, 2008 at 12:07:42 PM EST
[ Parent ]
I don't mean to demean your friends. My neighbor still won't quite accept the fact that Iraq is about the oil. He hates the occupation, but he just can't believe that the ruling class is that crass, amoral, and/or powerful.

paul spencer
by paul spencer (spencerinthegorge AT yahoo DOT com) on Mon Jun 23rd, 2008 at 03:30:31 PM EST
[ Parent ]
I agree that it is worthwhile to continue attempting to persuade even the "invincibly ignorant."  I think that the key is to find things consequent to their arguments that conflict with values and self images that they treasure.  Things they "wouldn't want to think that!" about.  

Another argument derives from Aristotle's Ethics. He asked how any thinking person could be happy.  No matter your current state of affairs and reasons for felicity, you must always be aware that all could change tomorrow.   You could be struck mute and paralyzed. See your fortune lost to theft or opportunistic legal actions, see your sons killed and your wife and daughters raped and be powerless to prevent or avenge these events.  Knowing this, how can anyone truly be happy?  My father used to say: "Only fools are happy."

Think this surely can no longer be the case?  Consider the latter years of Joe Kennedy.  Consider John Ramsey, his wife Patsy and their daughter, Jon Benet.  The only possible defense against such calamities is a strong and caring community and a just society.  We are far from it.  Your friends can deny that this will happen to them and may well be right, but perhaps these considerations will at least disturb their sleep.

Have any of these things  

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Jun 24th, 2008 at 04:58:34 PM EST
[ Parent ]
18 For with much wisdom comes much sorrow; the more knowledge, the more grief.


When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes
by Migeru (migeru at eurotrib dot com) on Tue Jun 24th, 2008 at 05:08:31 PM EST
[ Parent ]
The arguments of those supporting neo-classical economics are most vulnerable to attacks on the assumptions, which in fact were assumed and not demonstrated.  See my "Mainstream Economics vs. the rest of the world" diary recently put back up under Recommended Diaries in the right hand column.  (Shameless plug.)

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Jun 23rd, 2008 at 06:12:00 PM EST
[ Parent ]
Sorry, I missed this comment earlier.

Migeru: Does talking about "dynasties" as opposed to "aristocracy" help?

Haven't talked about dynasties because they can so easily point to the Kennedys and Clintons.  Though this may be proving the point, in their mind, the existence of "liberal dynasties" is probably evidence of the inherent hypocrisy of liberalism.

Migeru: You need to spend energy on shifting the frame, or at least undermining the frame with appeal to other parts of their value system (if that is possible).

You said it.  Shifting the frame is too ambitious (at least for me), so one must undermine it, or rather, gently dismantle it.

I do believe that we share the same values, but we simply put more and less emphasis on different ones.  Also, we have different assumptions about reality.

So, for example, the assumption that anyone -- if they try and work hard and persistently enough -- can will succeed.  Or that what success we achieve is mainly through one's own efforts and minimally through supporting circumstances.

If a "fiscal conservative" can be made to reconsider those two points, perhaps there would be more chance of persuading them of the validity of both the compound empowerment argument and the vertical equity argument for progressive taxation.

... all progress depends on the unreasonable mensch.
(apologies to G.B. Shaw)

by marco on Tue Jun 24th, 2008 at 03:55:55 AM EST
[ Parent ]
marco:
I do believe that we share the same values, but we simply put more and less emphasis on different ones.  Also, we have different assumptions about reality.
Since the origin of this diary is a text by Lakoff, you should probably read Moral Politics to understand that no, you don't share the same values and yes, you have different assumptions about reality.

And remember this by kcurie: EUROPE.IS.SO.DOOMED. Narrative Edition

In other words, only when a statement or discourse is in direct contradiction with itself and immediate reality can we reach the guys at the other side of our enlightenment narrative/mythology. But we have to reach them, otherwise, they will forget.
You need to undermine their frame by pointing out how their narrative is self-contradictory and then be ready to push your narrative as a way to resolve the contradiction.

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes
by Migeru (migeru at eurotrib dot com) on Tue Jun 24th, 2008 at 05:26:55 AM EST
[ Parent ]
Migeru: You need to undermine their frame by pointing out how their narrative is self-contradictory and then be ready to push your narrative as a way to resolve the contradiction.

Have you ever tried this?  Has it ever succeeded?  (I am not asking skeptically, but simply to find out.)

Unfortunately, I may not have a proper narrative that I can offer to resolve those contradictions.  (Maybe I have one implicitly, but it is not articulated well enough to push on someone else.)

I'll see if I can find a summary of Moral Politics to get Lakoff's main points.  I still think my friends and I share the same values, but simply weight them differently.  But I am curious as to how Lakoff argues otherwise.

... all progress depends on the unreasonable mensch.
(apologies to G.B. Shaw)

by marco on Tue Jun 24th, 2008 at 05:47:14 AM EST
[ Parent ]
marco:
Have you ever tried this?  Has it ever succeeded?  (I am not asking skeptically, but simply to find out.)
It's like debating Creationists... You might get better advice from JakeS or DoDo...

Jokes aside, I'm not saying it's easy to do but since these are your friends you actually have a body of previous conversations to have an idea of how you could try to argue to them that they contradict themselves.

You might find that when faced with a contradiction between the profit motive and their values they bite the bullet and drop their values.

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes

by Migeru (migeru at eurotrib dot com) on Tue Jun 24th, 2008 at 05:51:05 AM EST
[ Parent ]
It's like debating Creationists... You might get better advice from JakeS or DoDo...

The easiest way to deal with people like that is if you can find a factually wrong statement that is sufficiently vital to their argument that they cannot simply abandon it. Then you nail them to the wall with it and you don't let go until they squirm.

Otherwise, you need to know thine enemy and know thyself.

Creationists and Freepers have about 20 different argument templates (so maybe 30 put together, because there is some overlap). In my experience you need to know them so well that you can immediately dissect any argument you encounter and discover the template, then employ the standard counter-template.

The primary difficulty is that when two completely different narratives clash, the background knowledge that is assumed to be self-evident is in fact disputed, and you have to argue against three or four times as many arguments at any one time as you would have if you were debating with someone who substantially shares your narrative but disagrees with you on a detail here and there.

To take a simple example, the creationist might say "Archaeopteryx is a hoax." You should read this as "[There are no transitional fossils; therefore claimed transitional fossils are hoaxes. For example,] Archeropteryx is a hoax. [Since there are no transitional fossils, Evolution has to be false. Q.e.d.]"

The standard counter is "There are mountains of transitional fossils. For example, the evolution of the modern horse is charted completely from where it branched off from its last common ancestor with humans. Even if Archeropteryx were a hoax, it wouldn't change the fact that transitional fossils are abundant and completely consistent with evolutionary theory."

If you happen to know the details of the Archeropteryx case, you can also insist that it is not, in fact, a hoax (it isn't). But only do that if you are familiar with the case, because some claimed hoaxes are in fact hoaxes (e.g. the Piltdown man). They also know that nailing people to the wall on factual errors is a good tactic and they do exploit it.

As you see, the difficulty in addressing creationist arguments is partly in the fact that it takes 50-odd words to counter a four-word falsehood (or maybe 25 words for someone with a snazzier prose than mine, which is still a factor of six and the loose change).

And of course the usual creationist foot-soldier doesn't have a sufficiently solid grasp of the narrative he works within to be able to phrase the context of his argument as clearly as I have here, which adds another layer of difficulty, on top of this.

Finally, to some extent this approach is geared towards combating professional creationists - who must be assumed to know that what they spout is BS and be willing to Lie for Jesus (or be sufficiently delusional that you can't convince them with anything short of strong anti-psychotics). So the emphasis is more on convincing the onlookers that the professional creationist is full of crap than on convincing the creationist himself.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Jun 26th, 2008 at 08:58:02 AM EST
[ Parent ]
Wikipedia: Moral Politics (book)
Moral Politics: How Liberals and Conservatives Think is a 1996 book by cognitive linguist George Lakoff. It argues that conservatives and liberals hold two different conceptual models of morality. Conservatives have a Strict Father morality in which people are made good through self-discipline and hard work. Liberals have a Nurturant Parent morality which sees people as something to be cared for and assisted.

(The first edition of the book was published with the subtitle What conservatives know that liberals don't.)



When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes
by Migeru (migeru at eurotrib dot com) on Tue Jun 24th, 2008 at 05:52:14 AM EST
[ Parent ]

Have you ever tried this?  Has it ever succeeded?

I have and sometimes it does.  

Around New Years Day 2008 we were at a party.  Most of the attendees were 50+. One was a Marine combat veteran from the Vietnam War who has written an interesting self published memoir of his experiences before, during and after.  He loves his guns, is an outspoken self professed Republican who found himself surrounded by a bunch of Democrats or worse. He enjoys being outrageous and often indulges indulges in hyperbole.  He is in his early 60s and has a form of cancer that affects his spine.  He is still physically active, but has had to give up riding his beloved motorcycles as his back won't take the pounding.  Now he is reduced to driving his Corvette, carefully.  

He relies primarily on the Veterans Administration for medical care.  There is certainly a plausible link between his cancer and exposure to Agent Orange. I don't know if the VA has acknowledged his illness as being service related.  With all of the strains on the VA from Iraq the VA has become like one of the country's worst HMOs.  His alternatives at this point consist of paying out of his own pocket or waiting until he turns 65 and qualifies for Medicare.

We were discussing the medical insurance business in the USA.  I said that I could see no excuse even for the existence of the private medical insurance industry.  The whole industry was a pack of social parasites.  They added greatly to the cost of delivery of medical services and decreased outcomes through rationing that was not justified on medical grounds.  A government based single payer system would be the best and fairest system and would give us much more bang for our bucks.

Red meat for a Republican.  He bit and started attacking "socialized medicine."  He should be able to find and go to the best doctor he could find, etc.  I agreed and asked him how he would pay for that in his situation.  The best private insurance he had found and for which he might qualify was a low end HMO.  I then asked him if he thought it was right that an HMO employee or the VA would make decisions on HIS medical care based on the impact on their bottom line, profit and bonuses rather than on his medical need.  He had to say "NO."  Amidst barely suppressed smirks around the room he said "That still doesn't mean I'm in favor of socialized medicine."  The conversation shifted.

I may still be able to bring him around, at least on medical care.  His identification with the Republican party is based not on material self interest but rather on the way in which their rhetoric empowers the  bombastic and outrageous side of his persona.  I understand.  I told his girl friend, who could at times almost be seen to wince at his remarks, although she too voted Republican:

"John, (not his name), and I are a lot alike, except that we come from different political perspectives.  At least when he is around I won't be the only or even, perhaps, the most outrageous guy in the room!"  She gave me a wan smile.  We have run into them again in social settings and for a while John and I will argue and talk past one another, but usually we find something on which to agree.  That is always my goal.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Jun 25th, 2008 at 02:38:33 PM EST
[ Parent ]
Migeru:
You need to undermine their frame by pointing out how their narrative is self-contradictory and then be ready to push your narrative as a way to resolve the contradiction.

I like Pirsig's "Platypus" concept.

"Your view is that animals are classified as mammals and reptiles. Here is a platypus. Explain that?"

We have to confront them with narrative Platypi.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Tue Jun 24th, 2008 at 06:32:52 AM EST
[ Parent ]
Here's a platypus.

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes
by Migeru (migeru at eurotrib dot com) on Tue Jun 24th, 2008 at 06:55:17 AM EST
[ Parent ]
Marco, you seriously need to work on delegitimizing some of their pernicious assumptions.  The class war is completely one sided, is being and always has been waged in the USA by the wealthy against the rest of society.  The last time any serious social programs were passed was under LBJ.  The last time any serious environmental regulation regime was put in place wad the EPA under Nixon.  Since then it has all been backpedaling.  

If you cannot get them to consider that and to try to refute that thesis in specific, then you are probably dealing with people whose modus operandi is to listen to Rush and BillO for talking points and then ignorantly spew them forth.  The right wing has numerous "think-tanks" devoted to devising devious rhetoric. It is not a real discussion on the merits.  It is you, unaided, on a stool, verses them with the Staples Arena sound system. You get drowned out.  It isn't fair.  Fair is what we have in the fall at the county seat, with the cows, the pigs, and the sheep.

Your best bet is to tell them that you won't waste time responding to Rush and BillO's talking points.  Ask them to relate those talking points to events in their lives.  How do the talking points do anything other than arouse emotional responses in a flock of manipulable arrested adolescents?  They, and their families, if they have any, get fucked and they get the satisfaction of "at least not being a liberal."  Just like so many of my Scots-Irish brethren for so long sacraficed the economic well being of their families for the consolation of "at least not being a nigger."  The two consolations are of similar moral worth.

 

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Jun 23rd, 2008 at 10:07:02 PM EST
[ Parent ]
Assuming more informed and objectively better self-interest populace... We can, in principle, agree on any kind of distribution or non-distribution - even if it is too easy to take enforcement infrastructure (for the rules we agreed, or convinced each other) for granted. But what if I (and quite many other) are not interested in poker-lite distribution rules (even if I may have good chances to win)? What if don't feel that, in the world where status is everything is determined by money, money makers deserve all respect and benefits just because they concentrate on that money making?

Would it be moral for me to agree the money making class to gather more and more power and influence? Would it be immoral to make their occupation of capturing wealth and power more difficult? Would the majority be moral by knowingly allowing more suffering to itself? If (just suppose) a majority can agree that it is in their interests to control wealth and power balance by progressive taxation, would it be moral (or immoral) for them not to enforce that?

by das monde on Tue Jun 24th, 2008 at 11:45:17 AM EST
[ Parent ]
Showing only the income tax is a very deceptive way of presenting arguments about tax equality, IMHO. It is vital, of course, to your discussion, but properly can only be seen in the context of all income and all taxes. Were you to show, for the US at least, the portions of SSI, FICA, Medicare, sales estate and excise taxes paid by each group, a very different picture would emerge.

This is especially true when you consider the disproportionate influence exerted on the disposition of the revenues from the SSI, FICA, etc. by members of the top income bracket.  Currently it is all effectively going to finance deficits, the largest portion of which were created in order to provide tax relief to that very top 1%.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Jun 23rd, 2008 at 02:29:48 AM EST
ARGeezer:
Showing only the income tax is a very deceptive way of presenting arguments about tax equality,

Indeed, I think that the rich have successfully held the line for over 100 years against "progressive taxes" on wealth - rather than income.

Gates is a classic case of someone who has taken massive advantage of two untaxed privileges.

Firstly, the privilege of exclusive ownership of a "Commons" ie Knowledge.

IMHO those who are given such exclusive rights, through copyright and patents, should compensate those they exclude, through a tax or levy on the gross rental/use value.

Secondly, he has successfully been able to exclude from participation in  his success his suppliers, staff (absent share options) and customers (who massively overpay due to his effective monopoly). I don't think he's needed to borrow much, if at all, so temporary financiers have not been excluded.

He has done this through the successful use of that toxic legal form - the Joint Stock Limited Liability "Corporation".

IMHO those who have the protection of Limitation of Liability should again compensate the rest of Society, and at least part of Microsoft's GROSS revenues should  have been the subject of a "Limited Liability Levy".

Such taxes on privilege - and in particular the "Single Tax" on land rental values (ie the privilege of "ownership" of the Commons of land) advocated by Henry George - would be extremely progressive.

Such taxes on privilege are inherently easier to collect and harder to avoid, and would allow Income taxes (the ones Helmsley famously said are for ""little people") to be massively reduced, as they should be.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Mon Jun 23rd, 2008 at 05:40:31 AM EST
[ Parent ]
ChrisCook: Firstly, the privilege of exclusive ownership of a "Commons" ie Knowledge.

Do you mean you consider software code to be a form of "knowledge commons"?  I agree, it would be great if every software developer and development company opted to make their products free, but that is not something that should be imposed on them.  In this respect, I think software code is more like art, and the creator reserves right to use and distribute: these products should not automatically fall into some commons as soon as they are completed.

ChrisCook: Secondly, he has successfully been able to exclude from participation in  his success his suppliers, staff (absent share options) and customers (who massively overpay due to his effective monopoly). ...

He has done this through the successful use of that toxic legal form - the Joint Stock Limited Liability "Corporation".

Hmmm.  I agree with you that a more open and cooperative model of business organization should be available and legally supported by the state.  However, I am not sure if Gates and other corporations should automatically be blamed -- and penalized through progressive taxes -- simply because they became economically successful through free and voluntary business activities supported by the conventional corporate structure.

... all progress depends on the unreasonable mensch.
(apologies to G.B. Shaw)

by marco on Mon Jun 23rd, 2008 at 06:20:57 AM EST
[ Parent ]
marco:
Do you mean you consider software code to be a form of "knowledge commons"?  I agree, it would be great if every software developer and development company opted to make their products free, but that is not something that should be imposed on them

I'm not advocating that products should be "free": merely that if software writers do charge for use, then part of the gross revenue should be collected for the benefit of the Society which gave them the privilege of exclusivity and the licence to charge.

I advocate ownership "in common" by a Custodian (nothing new there, virtually the entire stock market is technically owned by Custodians), within a revenue sharing framework agreement.

ie x% of revenues goes to Society, and (100-x)% goes to the software producer and any partners he may have. If he doesn't charge, then Society gets (100-x)% of nothing.

marco:

However, I am not sure if Gates and other corporations should automatically be blamed -- and penalized through progressive taxes -- simply because they became economically successful through free and voluntary business activities supported by the conventional corporate structure.

Gates was used as an example in the Diary, so it's not me picking on him! IMHO he's no better or worse - just more successful - than anyone else who uses a "Corporation" as an enterprise model.

As a policy, I think a "Limited Liability Levy" on gross revenues - collected at the clearing level -  would be preferable to the Corporation Taxes levied on easily and infinitely manipulable and transferrable net profits.

So I'm not advocating a Limited Liability Levy as additional to Corporation Tax, but as possibly a simpler and fairer alternative.

It could not be "passed on" to customers over and above existing prices in that Corporations already maximise the prices they charge.

Investors would therefore have to share the gross income of the Corporation with Society in return for the privilege of Limitation of Liability they receive.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Mon Jun 23rd, 2008 at 08:05:59 AM EST
[ Parent ]
... government-created monopoly is that it serves a greater public good by encouraging creation of more work.

After all, what is different about copyright as opposed to normal property rights (usas, abuses, usafructus) is that it does not reduce the direct benefit I obtain from the use of an original if someone else makes use of a copy ... it only affects market rents obtainable due to artificially created scarcity value.

That is, in any event, the Constitutional basis for the grant of copyright in the United States.

Bill Gates is a more fascinating topic for conversation because the question of the public benefit from the copyrights held by Microsoft can be argued both ways.

A less fascinating a topic for conversation is Disney's push to maintain copyright in peretuity over the creation of Disney and those who worked for him between the World Wars ... because it is obvious that permitting copyright for that long after the death of the original author provide no material incentive to the creation of new works at all ... it only interferes with the creation of new works by preventing that work from entering the Public Domain.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Tue Jun 24th, 2008 at 12:58:14 PM EST
[ Parent ]
Interestingly, Bill Gates Sr. and Warren Buffet are two very public advocates of greater taxation of their own tax bracket, on grounds of both practicality and principle.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Jun 23rd, 2008 at 05:37:03 PM EST
[ Parent ]
Taxes and regulations based on the state granting the status of a "fictitious legal entity" to corporations seems hard to argue against.  Corporate charters create immortal entities that have limited liability.  If objectors don't like the taxes or the regulations, just do business under their own name and try to live forever.

Of course that would require that the majority of citizens stop acting like a bunch of timid children who are afraid they will annoy the adults.  That is the real challenge.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Jun 24th, 2008 at 04:20:27 PM EST
[ Parent ]
There are also other messy issues to consider, such as wealthier people having access to lawyers and financial advisers to help them avoid paying taxes through fancy loophole acrobatics.

However, I guess I am trying to go for a hypothetical, highly simplified situation in which the wealthy do not have disproportionate influence on the disposition of tax revenues, where there is only one kind of tax, say income tax (which applies to all forms of income, including capital gains), and everyone pays it honestly (i.e. no tricky loopholes, offshore tax havens, etc.)

I realize that this is a hopelessly idealized scenario.  But since I am debating this with fairly staunch fiscal conservatives, raising those other points is just going to introduce more points of contention.  What I would like to isolate "the more you make, the more you benefit from public services & infrastructure, and therefore the more taxes you should pay even above a flat percentage of your income" principle, and explore if that on its own is a strong enough argument in favor of progressive taxation.

... all progress depends on the unreasonable mensch.
(apologies to G.B. Shaw)

by marco on Mon Jun 23rd, 2008 at 06:04:17 AM EST
[ Parent ]
Wealth tax.  Chris mentions it in the thread above.  Hey - we all pay 1.5% per year on our assets.  That's a flat tax, correct?

My son is the Assessor in our county, and, theoretically, he can already assess every asset that an individual or company owns for purposes of taxation. Of course, in the U.S. we have - by common practice - limited this to 'real' property (meaning land and buildings).  But there's a 'flat tax' rate just waiting to be implemented.

paul spencer

by paul spencer (spencerinthegorge AT yahoo DOT com) on Mon Jun 23rd, 2008 at 10:13:19 AM EST
[ Parent ]
Add to that the ability to pay in "equity shares" and the argument that people will lose their homes goes away.

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes
by Migeru (migeru at eurotrib dot com) on Mon Jun 23rd, 2008 at 10:18:17 AM EST
[ Parent ]
So what does it mean if an entity owns a share of your equity? Surely a portion of income and of the proceeds if you sell. Anything above that? Do you have to generate an income?
by generic on Tue Jun 24th, 2008 at 11:48:23 AM EST
[ Parent ]
In Arkansas we also pay property taxes on vehicles registered to operate on public roads.  The rate is the same as for real property, although the assessment is often a fraction of the real worth, and drops to nothing for vehicles worth less than $2000.00.  That at least adds a degree of progressiveness.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Jun 24th, 2008 at 04:25:45 PM EST
[ Parent ]
While it would not advance your goal of a single tax, I have seen cogent arguments for a sales tax on professional services. This would fall disproportionately on those in higher income brackets who avail themselves of lawyers, accountants, architects, engineers such as myself, etc.  This would counterbalance the sales tax on goods that disproportionately impact those in the lower brackets. As the Democrats love to do in the USA, the tax could exempt medical services below a certain level, public construction projects, etc.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Jun 23rd, 2008 at 05:44:10 PM EST
[ Parent ]
In fact, a sales tax is the obsession of one of my friends.  I will put to him the notion that the sales tax should apply to professional services as well as to goods.  I am very curious as to what he will say.

... all progress depends on the unreasonable mensch.
(apologies to G.B. Shaw)
by marco on Mon Jun 23rd, 2008 at 07:38:58 PM EST
[ Parent ]
In Europe there's no sales tax, there is Value Added Tax which is added both to sales and to professional services.

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes
by Migeru (migeru at eurotrib dot com) on Tue Jun 24th, 2008 at 05:32:56 AM EST
[ Parent ]
USians pay around 40 - 50% of their income in total taxes, except that the very rich are actually on the low side of the scale; because their SSI contribution is capped at a relatively low income; sales taxes apply to a small portion of their purchases; their income is derived from capital gains (15% tax rate currently); and they have all kinds of investment 'incentives' that allow them to shield income from taxes.

Different tack - if you made a graph of utility-derived vs. taxes paid, you would get an inverse bell. The utterly poor and the super-rich get more value from government than the vast majority of us tax-payers. We get highways and some 'public protection' services. The super-rich get free money from the Fed, cost-plus contracts, payments-in-lieu-of-growing-crops, etc.

paul spencer

by paul spencer (spencerinthegorge AT yahoo DOT com) on Mon Jun 23rd, 2008 at 10:01:54 AM EST
[ Parent ]
I think the argument should be turned on its head. Which should incomes and wealth derived by the capitalist economy be considered morally fair ?

I don't think I ever understood that one. Don't forget that the economical arguments in favour of a "free market" have always been about efficiency, not fairness.

Un roi sans divertissement est un homme plein de misères

by linca (antonin POINT lucas AROBASE gmail.com) on Mon Jun 23rd, 2008 at 03:25:30 AM EST
linca: Which should incomes and wealth derived by the capitalist economy be considered morally fair ?

Suppose I apply for a job that pays 300,000 euros per year.  I get rejected in favor of another applicant because they are deemed more qualified than I am.

So I apply for another job whose requirements are much easier for me to satisfy because they involve competencies that are far more common (and which I happen to have to a sufficient degree).  This job pays 30,000 euros per year, and I get it.

Where, in this scenario, is the unfairness?  And who precisely should be blamed for being unfair?

... all progress depends on the unreasonable mensch.
(apologies to G.B. Shaw)

by marco on Mon Jun 23rd, 2008 at 06:35:13 AM EST
[ Parent ]
First thing to note is the obvious, that the top 1% incomes typically do not come from wages.

Secondly and crucially, what created this qualification divergence in the first place ? Was he more lucky in getting previous jobs that were more formative ? or did he have family relationships that got him those jobs ?

Did he get in a better university because he worked harder in high school ? Or did he grow up in the proper neighborhood with access to the better schools, because his parents had enough wealth to buy the proper house ; did they know more about the school system ? Did they give him early access to cognitively and culturally better education ?

The liberal "equal starting line" is a myth. Our societies are highly hierarchically differentiated, and starting higher on the ladder gives one, indeed, an unfair advantage - unless you consider random chance to be fair. And calling it random chance is being nice ; very often the parts of society higher up the ladder consciously lessen the chances of those starting from lower ends.

Then there is the unfairness inherent in the random aspects of markets moving around ; depending upon entering the job market when it is on the upside or the downside, two equally qualified people will get very different - and lasting - opportunities and wages.

Another example being the merits of two candidates to, say, medical studies - one who is the last accepted in medical school, the next one the best candidate rejected. The discontinuity in prospective wages in very large - yet the difference in merit will be very, very small, maybe a bad choice of salutation formulae in the candidacy letter. Is that fair ?

As for who to blame for the unfairness, quite often no one - except the way our civilisation is set up with strong hierarchies. However regularly, the discriminations that create inequalities have perpetrators ; see racism, sexism...

Un roi sans divertissement est un homme plein de misères

by linca (antonin POINT lucas AROBASE gmail.com) on Mon Jun 23rd, 2008 at 06:52:04 AM EST
[ Parent ]
The guy who got the job was a black man (actually, his mother was white, but white people see him as black) whose father abandoned his family when he was seven.  His mother supported them working as a postal employee.  They lived in a small working-class town in Ohio.  Through very, very hard work he was accepted into a top tier university.  Don't know what his grades were like in high school, but it is conceivable that the university's affirmative action program helped him get there.  Don't know what his university grades were, but he worked like the devil there, too -- although he clearly was not the academic type, he worked overtime to make up for what he could not get on a raw intellectual aptitude.

In the end, he was picked up by a premiere investment bank.  Now he's probably a millionaire.

What had going for him:  a super mother, some of the best street smarts I've ever seen, great looks, and excellent health.

True story.  And a fair outcome.

Maybe this sort of case is the minority, but they exist, and there are plenty of them.

In any case, how do you propose wages should be set, if not by the market mechanisms of job supply and demand?

... all progress depends on the unreasonable mensch.
(apologies to G.B. Shaw)

by marco on Mon Jun 23rd, 2008 at 10:30:36 AM EST
[ Parent ]
Firstly, why is that fair ? Does his effort "deserve" 10x compensation, that in the end will represent 100x wealth ? For example, does his wage represent actual contribution to social welfare, rather than being in a position to skim off the productivity of others ? Read the Anglo Diseases diaries about how investment banks are destroying the world's industrial infrastructure...

Secondly, for one guy like this there are ten guys like Bush, or Gates (whose family was wealthy to begin with), and these stories, as heart warming  as they can be, serve the useful role in the American psyche of hiding the realities of a class based society where social mobility is going down fastly - and was never that high to begin with. A CEO wage is fair because you, yes, you, could get it if you work hard enough ! That's the fairness of a lottery system eventually, because you will find people who worked as hard as him who didn't get into the right school.

The mechanism I propose to socially set incomes - not wages - is to reinforce the one that is already in use, albeit weakened : lessen the inequalities of market based incomes with progressive - and possibly confiscatory for the high end - taxation. Income tax is not only, not even mostly, about paying to the State the utility you get from its services ; it is also about what we socially define as fair incomes, because the market is unfair.

Un roi sans divertissement est un homme plein de misères

by linca (antonin POINT lucas AROBASE gmail.com) on Mon Jun 23rd, 2008 at 10:51:45 AM EST
[ Parent ]
linca: Firstly, why is that fair ? Does his effort "deserve" 10x compensation, that in the end will represent 100x wealth ? For example, does his wage represent actual contribution to social welfare, rather than being in a position to skim off the productivity of others ? Read the Anglo Diseases diaries about how investment banks are destroying the world's industrial infrastructure...

I should preface by saying that when I chose the original 300K example, I was pulling that out of the air and was not thinking of this person.  I thought of him after reading your first comment as an example of someone who despite fairly tough odds, did manage to obtain a relatively high compensation for a job that he really deserved.  He did not make 300K right out of school, but he did still make significantly more than most college graduates, and once embarked on that career path, his income grew apace.

Having said that, it is unfortunate that he happens to be an investment banker, as they are our textbook example of the predatory profession.  It would have been less complicating (for my point) if he were a doctor or designer or something.

However, I do recall reading what you (I think) wrote once before making a similar point about the injustice of superstar athletes making so much money, way more than the average player (this weekend I learned a friend of a friend plays for the Los Angeles football team Galaxy; while he makes about $40K, his teammate and colleague David Beckham makes $5.5 million [before counting commercial endorsements that could make the total up to $250 million over five years] -- I refused to believe it).

I also find such extreme differences in income somehow disgusting and perverted, even scary.  As I guess you would say, does Beckham really contribute 5.5 million/40 thousand = 137 times (not to mention 1370 times) more to Galaxy's performance than his unknown teammate?

Still, I would feel uncomfortable legislating caps or salary brackets based on professional categories.  But that is not what you would propose, if I read you correctly; you would adjust incomes to "fairer" levels by reducing overly high incomes, which basically amounts to progressive taxation.  And your last sentence make it clear that you think vertical equity is more important than "compound empowerment" to justify it.

linca: ... you will find people who worked as hard as him who didn't get into the right school.

That is most likely true.  Is there a way to quantify this, or at least find some measurable, if only circumstantial, evidence of this?

... all progress depends on the unreasonable mensch.
(apologies to G.B. Shaw)

by marco on Mon Jun 23rd, 2008 at 11:42:15 AM EST
[ Parent ]
It's very hard to quantify failure. But we do, in fact, mass produce failure. Many talented people fall through the cracks, especially because efficiency is defined as profit and not as social returns in the form of improved quality of life for the majority.

Besides that - income levels are talismanic, not rationally calculated. In a culture that rewards narcissism, narcissistic income levels need no other justification. Someone has to have them, and since it's narcissism and not talent that's being rewarded, the reward is based on notions of the inherent specialness of celebrities and CEOs, and not on anything more substantial.

You won't get support for progressive taxation until this narcissistic mythology is replaced by a mythology of cooperation, empathy and social awareness - which sounds unlikely now, but is a possible outcome if the current system implodes in a memorably horrible way.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue Jun 24th, 2008 at 05:17:07 AM EST
[ Parent ]
slightly OT, morale della favola, seems like we should be prioritising the teaching of good parenting as much as number-juggling and consumer-milking...sorry, business school...

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty
by melo (melometa4(at)gmail.com) on Tue Jun 24th, 2008 at 11:17:44 AM EST
[ Parent ]
... in that $300,000 job is the size of the salary increment. That $300,000 job, as a salaried job, is most normally senior management. Senior management wage inflation in the US at least is in excess of any CPI inflation or non-managerial wage inflation, because they have far more direct personal contact with the system of deciding their wage ... and the CEO-wage inflation has been extraordinary, because they help pick the members of the Board of Directors that in turn decide on executive salaries.

And it is probably the case that the senior management has skills (in addition to connections from going to the right schools) that exceeds the skill of the fork lift operator on the floor of one of the third party logistics warehouses where the firm's logistics have been outsourced ... but to be fair, its not just "more" valuable that has to be justified, but twenty times as valuable ... and then that the skills of the CEO are twenty times as valuable as the skills of the Senior Vice Presidents.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Mon Jun 23rd, 2008 at 10:22:39 AM EST
[ Parent ]
gratifying job in the company (unless you're the wine taster at Chateau Lafitte)?  It's the CEO job.  There is no risk nowadays.  You make a good decision, you get a bonus and someone else gets laid off; you make a bad decision, you get your retirement bonus early.  CEOs should pay the company instead.

paul spencer
by paul spencer (spencerinthegorge AT yahoo DOT com) on Mon Jun 23rd, 2008 at 03:41:19 PM EST
[ Parent ]
... the early Naughties in the English Premier League ... "Ah, yes, they'll be looking back to coaching in this period as the feet-up league. If you have a top side, play a 4-4-2. If you are fighting to avoid relegation, play a 3-6-1. Have the trainers work the lads til their fit, and have the marketers tell you which lads to give a couple of games more than their form deserves. Sooner or later you will get the sack, but it'll come as quick whether you work hard at your job or not, and you'll get a juicy payout besides."

A paraphrase, mind, not a quote, since I read it some five years back.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Mon Jun 23rd, 2008 at 07:47:16 PM EST
[ Parent ]
That would depend on the basis on which they were deemed more qualified.  What if the person given the job in a non-family owned company has no more qualification, or even less qualification than you, but is related to the person doing the hiring, went to the same school as the person doing the hiring, is a co-religionist, etc.? Especially if those factors are not generally known.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Jun 23rd, 2008 at 05:56:30 PM EST
[ Parent ]
Let them be paid whatever, but tax away the top.

As linca said, the goal should be a balanced distribution of income, whether from wages or other sources. Excess income should be taxed progressively, insufficient income supplemented (there's no reason why relative poverty needs to exist).

And tax assets at a flat rate, allowing payment in "equity shares" on those assets if income from them is not sufficient to pay the tax.

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes

by Migeru (migeru at eurotrib dot com) on Tue Jun 24th, 2008 at 05:31:54 AM EST
[ Parent ]
I recall that John Stuart Mill himself noted that while the capitalist system had been shown to be the most efficient means of generating wealth, it did not follow that it was the best or most efficient means of distributing wealth.  I have looked for this quote in his work but been unable to find it.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Jun 23rd, 2008 at 05:47:28 PM EST
[ Parent ]
was it this quote you were looking for?

John Stuart Mill : Of the Stationary State (1848)

It is only in the backward countries of the world that increased production is still an important object: in those most advanced, what is economically needed is a better distribution, of which one indispensable means is a stricter restraint on population. Levelling institutions, either of a just or of an unjust kind, cannot alone accomplish it; they may lower the heights of society, but they cannot, of themselves, permanently raise the depths.


Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Mon Jun 23rd, 2008 at 06:22:38 PM EST
[ Parent ]
A good quote, but not the one for which I have lost the reference.  I skimmed his Political Economy and the addition thereto entitled On Socialism.  What I am looking for is almost exactly what I quoted.  I am not clear on how he ended the statement.  Thanks.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Jun 23rd, 2008 at 10:16:39 PM EST
[ Parent ]
Weren't we looking for the writings of the Classical Liberal economists on the bleak "stationary state" or "end state of capitalism"? (decaying profits, subsistence wages)

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes
by Migeru (migeru at eurotrib dot com) on Tue Jun 24th, 2008 at 05:29:12 AM EST
[ Parent ]
isn't that Marx you're thinking off? Writing in one of his critiques of liberal economics?

(Just kidding, Migeru)

by PIGL (stevec@boreal.gmail@com) on Tue Jun 24th, 2008 at 10:18:40 AM EST
[ Parent ]
No, it's actually (that I have seen) in the writings of Adam Smith, John Stuart Mill and Thorstein Veblen, and I suspect in those of others that I haven't read such as Ricardo, Malthus and who knows who else.

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes
by Migeru (migeru at eurotrib dot com) on Tue Jun 24th, 2008 at 10:28:12 AM EST
[ Parent ]
Or:  

Didn't you know that poor people are spiritually inferior and Jesus hates them?  

Glad we got THAT cleared up!  

The Fates are kind.

by Gaianne on Tue Jun 24th, 2008 at 04:40:30 AM EST
[ Parent ]
I'd suspect that 'compound empowerment' is in reality more diverse than the declining marginal utility of consumption. The dependence upon the state as a guarantor and service provider will differ a lot depending upon which rich person you'd pick. Indeed, it will also differ between different middle-income and low-income people.

On the other hand, the use of extra money, past a certain point, is purely positional -- something also underwritten by psychology. So aggregation would be less problematic.

As a general note, economists who talk about 'deadweight losses' due to taxation resulting in lower incentives to work are insane.

by nanne (zwaerdenmaecker@gmail.com) on Mon Jun 23rd, 2008 at 07:15:24 AM EST
... will be receiving a large portion of their income from wealth income, or a large portion of their income from some form of rent in a broad based market.

And there is no doubt that both wealth incomes and access to broad based markets rests heavily on government and other social infrastructure that the individual did not themselves create.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Mon Jun 23rd, 2008 at 10:25:45 AM EST
[ Parent ]
... argument is that the theory of utility is tendentious nonsense, so while there is a ceremonial benefit in drawing on that argument, the substantial merit of the argument is subject to some suspicion.

In the US, the only argument that is necessary is that on balance the tax system is already more or less neutral ... that is, if that diagram above is replaced by the best estimates of share of total income paid in all federal, state and local taxes, the two sides will be roughly in line.

So arguments for a neutral income tax in the US are arguments for a regressive tax system overall.

However, I am not content to rest with that, because I do, in fact, support a return to a progressive tax system.

One argument, which is also sufficient on its own on policy grounds (though probably does not swing enough political force to be sufficient as a political argument) is an argument from functional finance. A progressive overall tax system is an economic stabilizer. Further, economic stabilizers protect the portfolios and therefore the wealth income of the wealthy (look at what happened to income inequality in 1930 ... and, no, it wasn't a boom in incomes at the bottom), so it is even a case of those receiving greater benefit from the protection "paying" the price of the protection.

And a second argument is the one presented ...  those with high incomes are the net winners from a large social infrastructure that they themselves are not responsible for, and so it is only fair that, to the extent that it is necessary for the government to withdraw purchasing power from the system in order to maintain the purchasing power of the fiat currency, those who are the big winners in the system provide the largest share of the purchasing power to be destroyed.

In the corporate-interest version of the Prussian-model state that we have in the US, where a large portion of the Federal budget goes to defense spending, and the majority of that is spent in defense of corporate power rather than in the interests of ordinary residents of the US, a third argument for progressive federal taxation is that a good third of the budget or more is spent for things to benefit the top 10% of the income ladder at most, and primarily for the top 1% of the income ladder. That would be a "user fees" kind of argument.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Mon Jun 23rd, 2008 at 10:14:16 AM EST
BruceMcF: if that diagram above is replaced by the best estimates of share of total income paid in all federal, state and local taxes, the two sides will be roughly in line.

I was hoping and went looking for a graph that would include all the other taxes that ARGeezerr mentions above, but could not find anything like that.  I suspect compiling the data for such a graph, much less depicting it is just too complex.  Or else I just wasn't looking the right way.

BruceMcF: A progressive overall tax system is an economic stabilizer. Further, economic stabilizers protect the portfolios and therefore the wealth income of the wealthy (look at what happened to income inequality in 1930 ... and, no, it wasn't a boom in incomes at the bottom), so it is even a case of those receiving greater benefit from the protection "paying" the price of the protection.

Is this the same concept of "stabilizer" as in the Wikipedia article for progressive taxation:

A progressive tax is an automatic stabilizer in the sense that if a person were to suffer a decrease in wages due to a recession then the money regained by being in a lower tax bracket lessens this blow.


... all progress depends on the unreasonable mensch.
(apologies to G.B. Shaw)
by marco on Mon Jun 23rd, 2008 at 11:00:39 AM EST
[ Parent ]
What a weird way to describe a stabilizer.

A progressive tax is a stabilizer in the sense that if national income drops, then average tax incidence drops, and so tax collections fall, reducing the contractionary budget surplus or increasing the expansionary budget deficit.

A job guarantee program is another form of automatic stabilizer, on the expenditure side.

Its quite a bit of work to determine the average incidence of state and local taxes, and the academics willing to put that work in are trying to find something different from what everyone else has already found, in order to get their work published. So diving into that work presents the same cacophony as in many academic literatures ... and of course, most of the literature requires a fee, institutional access rights, or trip to a University library to access.

One work cited by others is Pechman's (1985) study of 1970 US tax incidence, with the formulation of the estimate that had the most progressivity and the formulation that had the least progressivity after (by decile):
1st 18.8% 25.9%
2nd 19.5% 24.2%
3rd 20.8% 24.1%
4th 23.2% 25.8%
5th 24.0% 26.4%
6th 24.1% 26.3%
7th 24.3% 26.2%
8th 24.6% 26.4%
9th 25.0% 26.1%
10th 30.7% 27.8%

If a reasonable estimate is somewhere in the middle of the two extremes, the US overall tax incidence was mildly progressive on average (varying by state, of course) in 1970.

With Social Security and Corporate Income tax swapping places as the second and third most significant forms of income tax, reducing the progressivity of the Income Tax component, now you'll find the most progressive estimates published showing a progressive structure, and the least regressive estimates published showing a regressive structure, which is why I say that the overall US tax incidence at the moment seems to be roughly neutral.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Mon Jun 23rd, 2008 at 12:51:17 PM EST
[ Parent ]
To that argument I would add one more, sort of following Hobson.  Much of the prosperity in 20th century USA was fueled by industries such as automobile manufacturing and related suppliers paying more than the minimum possible wage.  Henry Ford paid a wage that would enable his employees to purchase the product they made.  By funneling all of the rewards to the top .1% as we have been doing, we are strangling the base of the economy and , if these trends continue, that of itself can lead to collapse.  Currently much of what US consumers purchase supports Chinese and other low wage workers and the profits go to a tiny elite.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Jun 23rd, 2008 at 06:05:49 PM EST
[ Parent ]
... "Conservative Movement" fighting to roll back "creeping socialism" as a label for those Fordist regimes of regulation which were and are required to allow capitalism to continue without imploding.

But the tendency of the spoiled rich to see the goose that laid the golden egg and see a tasty roast goose is not to be underestimated.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Mon Jun 23rd, 2008 at 07:50:44 PM EST
[ Parent ]
Ah, if only there had been revolutionaries in the USA willing to buy the rope that the spoiled rich were too willing to sell them.  But that would have been a lot of blood under the bridge and we probably wouldn't even have the vestige of a Bill of Rights that now remains to us.  Where are true conservatives when we need them to help in the defense of the Constitution and Bill of Rights.  This stuff is not just the ravings of some ACLU crazies, (of which I am one!), but serious questions.  Is the Constitution and Bill of Rights only to apply to Democratic Administrations?  Ask them that, Marco?  And yes I know that that is another thread. Sorry.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Jun 23rd, 2008 at 09:42:37 PM EST
[ Parent ]
... the prospects of the revolutionary's side coming out on top on that one in the 1930's ... I reckon Grampa Bush's crowd could well have won that round. So I have no regrets at all that the New Dealers saved capitalism from the calamities that happen when capitalism is unfettered and left entirely to its own devices.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Tue Jun 24th, 2008 at 12:05:35 AM EST
[ Parent ]
Compound empowerment is the justification to have taxes at all. Without any form of it, there wouldn't be a justification for a state at all. We could as well simply live in anarchy.

To argue with it for progressive taxation is IMO very weak. Sure, courts are more used by rich people. Arguably police, firefighters, and roads (although usually anyhow financed by a gas tax) are more used by rich people, but for that it is reasonable to assume proportional benefit - somebody with double the money may have double the profit, from a police (or less because without a police his bigger private security may be able to take the wealth of the other in addition). In the example of the worker of Microsoft, why do you think Bill Gates profits overproportionally from the school education from the worker compared with the worker himself?

But what a share of the gov really is that kind of wealth-serving spending? That is of course different from country to country. But the rich for sure don't tax subsidies for retired, ill or unemployed people (together nearly half the federal gov spending in Germany, excluding the pay roll tax based entities). To put a child of a rich into school doesn't cost more than a poor child, and for most of the small issues the same accounts, too. These elements would speak for an absolute taxation, or the replacement of a tax with a fee for the specific service - in some countries you have to pay a protective charge to the gov, when making a contract (at least until some years ago, in Poland).

Non-working states (e.g. Kongo) are not known to me, for their high degree of equality, which one would assume, if a good working state favours rich people so much disproportionally.

Anyhow if you say progressive taxation, I would ask, based on which tax base. Is capital income the same kind of income as working income (which would mean most developed states have strongly regressive income taxes). Can one deduct the annual inflation before paying for an interest payment? Can one deduct everything one needs to create the income (e.g. food, clothes, ... , a fixed existential minimum amount)?

From your link to vertical equity:
The application of the concept of vertical equity differs depending on whether taxes are judged according to the benefit principle or the ability-to-pay principle.
The benefit principle is a bad one. Taken very serious, you could never give money to a patriotic seriously disabled citizen, because he profits a lot (his live) and can't pay anything back.
Compound empowerment has so much benefits, that the principle could even be: Nobody shall be worse off after paying taxes compared with a situation, without any taxes at all.
Of course taxing should be some function of the ability-to-pay. This is the much more important principle. It allows a society to define goals, including real solidarity, and find a fair taxation.


Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers

by Martin (weiser.mensch(at)googlemail.com) on Mon Jun 23rd, 2008 at 06:44:30 PM EST
... individual benefit of the government spending, not the positive externality.

Who is more likely to benefit from the fact that universal education makes Johnny on average a more productive worker ... Joe Shmoe that works beside him, and Joe Fellows that owns the company?

Wealth is a claim on the income producing capacity of the nation, and so automatically all government spending that creates, supports or defends the income producing capacity of the nation benefits the wealthy more than it benefits the median wage earner.

And in particular, the reason that taxation is required at all is to maintain the purchasing power of fiat currency, and the wealthy are being protected more than the median wage earner because they have more purchasing power to protect.

Wealth is distributed progressively by income, so when income has to be withdrawn from the economy in protection of wealth, it ought to be a higher percentage of the income of the wealthy than the income of the median wage earner.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Mon Jun 23rd, 2008 at 07:56:03 PM EST
[ Parent ]
Who is more likely to benefit from the fact that universal education makes Johnny on average a more productive worker ... Joe Shmoe that works beside him, and Joe Fellows that owns the company?
But Johnny is the one who profits the most. Should he therefore pay more than than Joe Fellows.
For the general public the profit is again proportional to wealth, as products are cheaper due to his greater productivity, which helps proportionally to spending on those goods.
Anyhow of course there is lots of spending on other issues than education.

Wealth is a claim on the income producing capacity of the nation,
Money is such a claim. Not wealth in general.

and so automatically all government spending that creates, supports or defends the income producing capacity of the nation benefits the wealthy more than it benefits the median wage earner.
And again of course the benefit is proportional to the purchasing of the goods, produced with this higher capacity.
But one has to look of course as well to the alternative. Rich people could often organise a lot of this on their own. Therefore often rich people don't ask for different spending of taxes, but for less gov spending at all. Due to decrease in marginal utility the benefit for the rich may even be lower than proportional.

And in particular, the reason that taxation is required at all is to maintain the purchasing power of fiat currency, and the wealthy are being protected more than the median wage earner because they have more purchasing power to protect.
This is of course again proportional. But in my country middle class people are more dependent on fiat currency than the rich, who are more likely to have real assets. The process of how taxation maintains purchasing power is not really clear to me, but probably without taxation there would be no state institutions and therefore of course no money at all.

Wealth is distributed progressively by income,
I disagree, of course. The amassing of excess money over consumption is indeed distributed progressivly. But spent money is as well a form of wealth. The non-spent money is either
- not spend at all
meaning, there is no benefit at all
- spend later
then there is question what is progressive taxation, e.g. what is the tax base.
Usually there is interest and inflation. That means, that later consumption may lead to more or less consumption than immediate consumption. Usually economists call that a price/gratification for later consumption. This gratification is of course benefitial again proportional to the later consumed amount.

so when income has to be withdrawn from the economy in protection of wealth,
Tell me, you don't mean this serious! Income is not withdrawn from the economy, when it is saved, unless you put it under your pillow. But old people who don't trust banks are already punished by the inflation. If they want to earn interest, they have to find somebody taking the money back into the money circle. Or you buy directly, e.g. a house. Then the craftsmen, who have build the house have the money. And if you really ever hide money under your pillow, the real winner is ... the central bank via seignorage.
Is this 'savings are bad for the economy' idea, the way Americans think? Is that the reason for zero savings in the US? Please read  Grrr... Martin Wolf still blames the Chinese for the Anglo Disease from Jerome and my and Jerome's comments about the 'savings glut'. As you will see, I'm not the only one, in favour of savings.

it ought to be a higher percentage of the income of the wealthy than the income of the median wage earner.
As I disagree with the first parts of the sentence, I of course disagree that one can base this claim, which I support for completely different reasons, on the first part.


Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers

by Martin (weiser.mensch(at)googlemail.com) on Mon Jun 23rd, 2008 at 08:56:08 PM EST
[ Parent ]
... the most. Clearly Mr Fellows is the one who benefits the most, since Mr Fellows gets a far bigger slice of the external benefit of the public education, public health, public rights of way, and common knowledge. There is no member of the entrenched self-reproducing aristocracy of wealth that does not owe the majority of the wealth that they inherited or the wealth that they accumulated to the social infrastructure of institutions and technology created by others, because no one individual can, in a lifetime, create that institutional and technological legacy from scratch.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Tue Jun 24th, 2008 at 12:14:55 AM EST
[ Parent ]
I disagree. Joe is the one who profits most from his education. Mr Fellows profits from education infrastructure. But 250 or so million Joes profit from their own education. And this 250 million Joes of course earn as well much more money than Mr Fellows.

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers
by Martin (weiser.mensch(at)googlemail.com) on Tue Jun 24th, 2008 at 08:18:29 AM EST
[ Parent ]
But a single Joe earn a tenth or a thousandth share of what Mr Fellows earns, thanks to that education infrastructure. Mr Fellows is the one that profits most from the fact everybody is educated, not Joe.

Un roi sans divertissement est un homme plein de misères
by linca (antonin POINT lucas AROBASE gmail.com) on Tue Jun 24th, 2008 at 08:24:50 AM EST
[ Parent ]
And with a proportional taxation he is paying ten times or a thousand times as much as Joe for that education infrastructure. The question in the diary was, if progressive taxation is justified, by compound empowerment.

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers
by Martin (weiser.mensch(at)googlemail.com) on Tue Jun 24th, 2008 at 08:33:52 AM EST
[ Parent ]
If you make the hypothesis that no individual actually have an independent productivity worth a thousand that of others, then progressive taxation means a low tax for the parts of income that come from an individual's actual added value, and a high tax for the part of income that comes from leveraging the education infrastructure.

Un roi sans divertissement est un homme plein de misères
by linca (antonin POINT lucas AROBASE gmail.com) on Tue Jun 24th, 2008 at 08:54:13 AM EST
[ Parent ]
The part of income one can get in densely populated areas without leveraging public infrastructure won't be enough to survive.

Furthermore if taxation is based purely on that argument, there is no reason, why taxes should be higher than what is needed to provide such kind of infrastructure. You end up with an ultra-lean state, where older and disabled people are let to starve, illnesses of poorer people are only cured, if the illness prevents them from doing their job, nobody cares about abused children, because helping them is more expensive than what one can expect, that they ever will pay back, education is limited to what is needed to do a job, instead of what could help to be an interesting person, prisoners with a risk of a fall back won't get a chance to be released. Policy can be given away to economists, which calculate, which measure may produces which amount of benefit for which group, and taxing accordingly. It is done what makes profit and not done what doesn't make profit.


Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers

by Martin (weiser.mensch(at)googlemail.com) on Tue Jun 24th, 2008 at 09:17:13 AM EST
[ Parent ]
Policy can be given away to economists, which calculate, which measure may produces which amount of benefit for which group, and taxing accordingly.

That calculation could be performed, but since much of what we are talking about joint products with benefits over a long horizon, the calculation would inevitable rest on arbitrary rules for dividing up the indivisible.

The part of income one can get in densely populated areas without leveraging public infrastructure won't be enough to survive.

That part of income one could get in less densely populated areas with leveraging common knowledge, technical inheritence and social infrastructure is also normally not enough to survive.

Its like the Hindu guru who told the Westerner that the earth was a platter held up on the back of giant elephants. When asked what the giant elephants are standing on, he replied, "don't even bother, its elephants all the way down".

We have been, after all, social animals all the way back. So the seeds that we would use to rely "on our own initiative in the wild" are, obviously, a social technical inheritance. And given current global population densities, the only way we could obtain and hold a large enough parcel to live on, "on our own", would be to rely on social property rights institutions.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Wed Jun 25th, 2008 at 09:49:22 AM EST
[ Parent ]
BruceMcF:
Policy can be given away to economists, which calculate, which measure may produces which amount of benefit for which group, and taxing accordingly.

That calculation could be performed, but since much of what we are talking about joint products with benefits over a long horizon, the calculation would inevitable rest on arbitrary rules for dividing up the indivisible.

Moreover, one cannot expect the calculation to result in a single optimal decision, but an "indifference set" among which a political choice must be made.

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes
by Migeru (migeru at eurotrib dot com) on Wed Jun 25th, 2008 at 09:54:57 AM EST
[ Parent ]
I think it's entirely the other way around: people's wages (not income) should come from their added value, and ensuring everyone has enough to cover the necessities of life and nobody accumulates too much economic power is the function of taxation and benefits (negative taxation).

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes
by Migeru (migeru at eurotrib dot com) on Wed Jun 25th, 2008 at 02:43:01 AM EST
[ Parent ]
... "more" in aggregate from the provision of universal education, not unless Joe is a member of a labor union that can negotiate with the ownership union on an equal basis. If universal education is in place and truly effective, then the competitive value of possessing that education is nil, and the gains are in the increased productivity of the going concerns. And where the increased productivity of going concerns is directed is a negotiated outcome.

You are comparing direct benefits to external benefits, and doing so in a case where provision of universal service (indeed, mandatory consumption) reduces the direct market benefit.

Its the benefit of the positive externalities that concentrate according to wealth. And it is the existence of the positive externalities that justifies the government spending in support of the social infrastructure.

For pure private benefits, we do not have progressive pricing. If John Fellows wants to get a tube of tube socks from Wal-Mart, he pays the same $1 as Joe Schmoe.

Its for things like universal education, where the external benefits are a substantial part of the total benefit, that government subsidy or direct provision is needed to avoid underutilization.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Tue Jun 24th, 2008 at 09:14:45 AM EST
[ Parent ]
If universal education is in place and truly effective, then the competitive value of possessing that education is nil, and the gains are in the increased productivity of the going concerns. And where the increased productivity of going concerns is directed is a negotiated outcome.
But in such an idealised situation it is clear from the beginning where the productivity increase goes into. Into cheaper prices for the products.
The reality is of course, that sometimes there are higher corporate earnings - and usually big companies have collective wage negotiations (except for a few higher positions).

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers
by Martin (weiser.mensch(at)googlemail.com) on Tue Jun 24th, 2008 at 09:32:25 AM EST
[ Parent ]
But in such an idealised situation it is clear from the beginning where the productivity increase goes into. Into cheaper prices for the products.

Only in a climate of perfect competition among a large number of businesses. In reality businessmen realise that competition is bad for the bottom line as it depresses profit rates, and create "trusts" and merge their companies in order to be able to keep prices high even in the face of productivity increases.

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes

by Migeru (migeru at eurotrib dot com) on Wed Jun 25th, 2008 at 02:40:12 AM EST
[ Parent ]
Does everyone has to care so much about every bit of a benefit balance? How much does this sensitivity cost?

Not so long ago, in the 60s or so, parents were just dropping kids by a school gate, and no one was crazy of which is the best school, or whose kids are taught better. Apparently, there was some understanding that education is good to everyone. Now the understanding is relative: education is the problem of making your smarter and more knowledgeable than others, whatever costs. No wonder best teachers get concentrated in good schools, while increasingly more kids are "accidentally" left behind, no matter policy names. From certain "objective" interests, high quality public education is even unfair to the "haves", as it negates the "deserved" possibilities gap of hard-working winners. That was not that big a concern 40 years ago!

by das monde on Tue Jun 24th, 2008 at 11:13:13 AM EST
[ Parent ]
At least where I come from there was this idea that universal, public education meant that it shouldn't matter to which public school you went, you'd get a reasonably uniform standard of instruction. People only go to private school because they want a particular (usually religious) ethos to be inculcated, because they want a school where pupils are under closer supervision or a stricter discipline. Oh, and to mix with the right kind of people, that's the most important reason why people send their kids to private schools.

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes
by Migeru (migeru at eurotrib dot com) on Wed Jun 25th, 2008 at 02:37:53 AM EST
[ Parent ]
Joe profits more from a humanistic point of view, but Mr. Fellows profits more from a monetary point of view.

That's okay, Mr. Fellows being a businessman only cares about the bottom line, while Joe probably cares both about his bottom line and about living a better life.

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes

by Migeru (migeru at eurotrib dot com) on Wed Jun 25th, 2008 at 02:33:35 AM EST
[ Parent ]
There is no member of the entrenched self-reproducing aristocracy of wealth that does not owe the majority of the wealth that they inherited or the wealth that they accumulated to the social infrastructure of institutions and technology created by others, because no one individual can, in a lifetime, create that institutional and technological legacy from scratch.

Why should someone create all that legacy from scratch? His parents, grand-parents, great-grandparents etc. may very well have contributed a share to creating it, if he is a rich heir, probably more than the parents, grand-parents, etc. of others. The willingness to contribute to building up such infrastructure is usually bound to the promise, that one can use it, too.
Of course, if you assume that once somebody dies, his claims on getting the state's services to its citizens, vanishes, and every baby is born with kind of debt to a diffuse public, then you are right. But this is clearly against what I believe.


Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers

by Martin (weiser.mensch(at)googlemail.com) on Tue Jun 24th, 2008 at 08:56:59 AM EST
[ Parent ]
But that requires assuming that the fortune was built entirely on the difference in the productive contribution of the founder of the fortune over the productive contribution of the ordinary participant in the going concern, and that there was no greater proportion that consisted of being in better position to appropriate a share of the income flowing through the firm.

And its hard to anchor that assumption in the historical record. You can anchor an assumption that a fortune normally includes a advantageous position to appropriate from an income flow on historical accounts of the founding of large fortunes ... it does not need to be an article of faith.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Tue Jun 24th, 2008 at 09:23:19 AM EST
[ Parent ]
You may explain that a bit clearer.

What do you mean with "an advantageous position to appropriate from an income flow"?

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers

by Martin (weiser.mensch(at)googlemail.com) on Tue Jun 24th, 2008 at 09:39:28 AM EST
[ Parent ]
It means that the CEO (in the old days, owner) of a business decides what to do with the revenue and can give himself a big paycheck wholly incommensurate (more now than in the old days) with his actual productivity. In addition, by virtue of his position he has easier access to credit that the workman (who, in the old days had no access to credit other than by loan sharks and only recently has been encouraged to use debt for consumption).

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes
by Migeru (migeru at eurotrib dot com) on Wed Jun 25th, 2008 at 02:31:34 AM EST
[ Parent ]
Martin:
Income is not withdrawn from the economy, when it is saved, unless you put it under your pillow.

We've had this debate before, but yes, this is exactly what he means, and he's perfectly correct - wealth is money which is being hoarded and not shared with the public, more or less by definition.

When the public creates most of that wealth by contributing between eight and sixteen hours daily to its creation, and by paying taxes on income which support infrastructure and education, and that wealth is not returned in the form of further social investment, and when it's kept in a micro-economy which wealth creators have no access to - then yes, it has been withdrawn from the economy.

The results are foreclosures, debt, and a population which can't afford food and transport. This is what happens when wealth is withdrawn, and it's entirely predictable - but entirely avoidable, with more thoughtful policy planning.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue Jun 24th, 2008 at 05:30:42 AM EST
[ Parent ]
He is not correct, just because you had this debate before. And while indeed debt is a possible, but not necessary outcome of saving, this is exactly one way the wealth is not kept in a micro-economy without public access.
Foreclosure is the result of too little saving, not too much saving. There is absolute zero reason, why saving should necessarily lead to consumer debt. Therefore foreclosure is of course a completely unpredictable (and not happening) outcome.

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers
by Martin (weiser.mensch(at)googlemail.com) on Tue Jun 24th, 2008 at 08:37:04 AM EST
[ Parent ]
Foreclosure is the result of wealth not being shared.

This isn't complicated, and I'm not sure how much simpler I can make it. If real wages go down, wealth is being hoarded. If owners of utilities profiteer essential services, wealth is being hoarded. If stock prices in a virtual economy bear no relation to anything substantial, wealth isn't just being hoarded, its supposed value is being inflated beyond any bounds of sanity and reasonableness.

This has nothing to do with matresses and personal accounts, and everything to do with whether or not the majority of the population have a reasonable share in the accumulated wealth which they produce through what economists call their productivity - presumably for a good reason.

If they don't share in wealth, people are made homeless, people starve, jobs are lost, and only the self-satisfied fools in the proverbial top 1% of the foodchain are happy.

I have no idea what you're talking when you say foreclosure is unpredictable and not happening. Perhaps you should visit the parts of the US where it is happening -  exactly as predicted.

If you're not aware of the nighbourhoods which have already been decimated, a little more background awareness might not go amiss.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue Jun 24th, 2008 at 07:48:41 PM EST
[ Parent ]
What you say doesn't fit with reality. The US is a country with a relative equal distribution of wealth compared with e.g. Germany or Sweden.
Income is indeed distributed more differently. But wages in the US in the last decade were going up more than in Germany, where the savings rate was quite positive (among about the upper 30% of people). France has even an higher savings rate than Germany.
If foreclosure would be a result of saving, and the withdrawal of money from the economy by building up wealth, shouldn't I see the foreclosure in my neighbourhood? Instead the Americans, which did exactly what you wanted them to do, have now a foreclosure problem.

Jerome said, promoting debt in the anglo-world was a way to mask growing income inequality. Maybe. The better off in the US have consumed as well quite a lot. They have not saved. That would have been likely the better thing to do. One reason  income inequality  could have become obvious was indeed that the better-off consumed so much. Many Americans said they 'had to borrow to keep up with the others'. If they would have saved, the others wouldn't have had to spend so much 'to keep up'. Not that this is an excusable automatism, but not even the silly excuses people give, don't fit to what you say. In a way of course foreclosure is the result of not sharing wealth: Indeed European banks don't donate the money they provide for the anglo world, but dare to demand interest payments. To little in my opinion. Taxation wouldn't have prevented that, unless you can tax people in the rest of the world and spend the money in the US - which is even with the currently strong Euro still richer than the EU average.

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers

by Martin (weiser.mensch(at)googlemail.com) on Tue Jun 24th, 2008 at 08:53:35 PM EST
[ Parent ]
... withdrawn from circulation, then there would be no problem of wealth income. Cash under the bed yields no income.

The wealth that creates income is financial assets, which are promises to deliver a income under the specific terms and conditions of the contract, in return for handing purchasing power over for the use of the seller of the financial asset. Go to the actual transactions and the actual institutional rules that govern the transactions, and the dragon's cave model of saving falls apart.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Tue Jun 24th, 2008 at 09:25:49 AM EST
[ Parent ]
Arguably police, firefighters, and roads (although usually anyhow financed by a gas tax) are more used by rich people, but for that it is reasonable to assume proportional benefit - ...

I noticed somehow more police (in any or other country), especially in shopping malls, near banks, stations. Somehow it feels that they are protecting wealth of the wealthy, particularly. It is harder to imagine them helping an obviously poor bypasser even from physical damage, while they would take care of any kind of troublemaker at a shop. Libertarians (representing the wealthy) even think that the state should provide nothing but common security - they may indeed need essentially only that from the state, so long as all other infrastructures can be taken for granted.

When I think of the "wild" nature, I see so much...  socialism. From a certain perspective, you can have anything in nature - so much and diversely provided, and no big need to fight continuously for a survival ticket. Surprisingly much sharing and so little grabbing... No one cares much, or even knows, whether the next capture is all your attainment, or a general nature' gift.

by das monde on Tue Jun 24th, 2008 at 11:28:48 AM EST
[ Parent ]
You seem to have very bad experience with police. I have completely different impressions of police. What they do mostly is traffic stuff. Respond to crime is mostly reactive, not proactive.
A security man in the mall is a private (and from my experience absolutely unnecessary) issue.


Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers
by Martin (weiser.mensch(at)googlemail.com) on Tue Jun 24th, 2008 at 11:55:46 AM EST
[ Parent ]
I just feel sort of uncomfortable, as I perceive more police than I am "used to". There is noticeably more attention to security, whether private or public, whether in man force or security cameras. I do not buy necessity for increasingly more security, for people to be more afraid of each other. I don't see that security attention benefiting me; rather I feel less free. (And I won't talk about more countries planing fingerprinting visitors at borders.) These are pretty totalitarian measures to "ensure" security...
by das monde on Tue Jun 24th, 2008 at 07:57:08 PM EST
[ Parent ]
Sometime ago there was the election in Hesse, where Koch has made advertisement with 'being strong on security'. In reality he has decreased the number of policemen. While 'anti-terrorism' laws are en vogue as well in Germany, regular police is not.

I know that US inhabitants are 20 times or so more criminal than Western Europeans (measured by prisoner-population ratio), which would explain there some over presence, but I would have thought that Japan (which is where your profile says you are) is rather save, too.

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers

by Martin (weiser.mensch(at)googlemail.com) on Tue Jun 24th, 2008 at 08:22:36 PM EST
[ Parent ]
US inhabitants are 20 times or so more criminal than Western Europeans (measured by prisoner-population ratio)

Incarceration rates are not crime rates. What this measures is the inhumanity of the US criminal justice and prison-industrial systems.

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes

by Migeru (migeru at eurotrib dot com) on Wed Jun 25th, 2008 at 02:21:47 AM EST
[ Parent ]
Not to speak of police with sub-machine guns. That gave me the creeps every time I went to an airport in the US after 9/11.

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes
by Migeru (migeru at eurotrib dot com) on Wed Jun 25th, 2008 at 02:51:07 AM EST
[ Parent ]
Migeru: Not to speak of police with sub-machine guns. That gave me the creeps every time I went to an airport in the US after 9/11.

Or at Charles de Gaulle in Paris, for that matter.  (In fact, I seem to recall them toting machine guns back on a trip in 1997.  But I may be mistaken.)

... all progress depends on the unreasonable mensch.
(apologies to G.B. Shaw)

by marco on Wed Jun 25th, 2008 at 03:40:41 AM EST
[ Parent ]
Well, you know, maybe the German police post-WWII is really civilised, or maybe you live in a small town. For those of us with closer memories of, say, the Soviet system or Franco, or living in large cities, the police situation - and the attitude to the police - is very different. Like many other things, modern police was "invented" in London in c19 - it is a big-city-slum necessity. Small, slow-living  towns don't need police as much.

And successfully policing a big city is all about proactive, preventive action (community policing, police de proximité, etc).

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes

by Migeru (migeru at eurotrib dot com) on Wed Jun 25th, 2008 at 02:50:09 AM EST
[ Parent ]
Well, most of Germany is either living in some form of "small town" towns (Karlsruhe has more than 250,000 people but still has a small town character) - or in the Rhineland, which is known for its placidity.
There maybe different places, like Berlin or Frankfurt, but indeed, if the Franco time was similar to the police I once could see in Chile at the airport, then even the Bundespolizei is by far not that displeasing.

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers
by Martin (weiser.mensch(at)googlemail.com) on Fri Jun 27th, 2008 at 03:40:42 PM EST
[ Parent ]
Why just local government services here? Provision of a monetary system, the legal system underlying financial contracts, the 50% of government spending going to prop up corporate profits via the Military-Industrial Complex ... talking about policeman and firemen arguably providing more protection to those with more to steal and burn down is nibbling around the edges.

Right smack dab in the middle is this: government is the monopoly provider of fiat currency. It does not need to tax to spend ... it can spend and organize afterwards that the Treasury check clears.

What government needs taxes for is to destroy a certain portion of the money that it has brought into existence in order to maintain its purchasing power.

And it is inarguable that the wealthy are having more financial wealth protected by that policy action than the poor.

Any tax is, in any event, a tax out of income, and since wealth is distributed progressively compared to income, the only way to deduct purchasing power in rough parity with the wealth that is being protected is a progressive income tax.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Tue Jun 24th, 2008 at 07:32:50 PM EST
[ Parent ]
It does not need to tax to spend ... it can spend and organize afterwards that the Treasury check clears.

It can't. In the US the gov is not even the provider of currency at all, as the Fed is private, but this doesn't matter. Nobody would accept a currency monopoly, if the gov is simply printing money to finance it expenditures. One would switch to bank provided money (or foreign currency, see all the 'dollarised' and 'eurosed' countries), which, with all its flaws, still would be dramatically better than the official one. Deficits do matter, even if Dick Cheney doesn't believe it.
A sudden currency reform hurts rich more than the middle class, but persistent high inflation is much worse for debtors than for creditors, once the creditor knows, that there will be inflation.

And for the Military-Industrial Complex, this is not a general benefit for 'the rich' and with regard to progressive taxation (which begins usually below the median income) it is for sure not for the upper middle class.
If the wars, which are fought are in the general interest, everybody profits, if they are not, then there is no justification for the MIC at all based on the 'who benefits shall pay' assumption. Just kill it.

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers

by Martin (weiser.mensch(at)googlemail.com) on Tue Jun 24th, 2008 at 08:12:26 PM EST
[ Parent ]
...
Nobody would accept a currency monopoly, if the gov is simply printing money to finance it expenditures.
... to the reality that the requirement on commercial banks to hold reserves in fiat currency would on its own be insufficient to maintain the purchasing power of the fiat currency in the face of substantial government expenditures, unless the government demanded taxes in fiat currency, which both adds foundation need to obtain currency and by removing it from circulation maintains its scarcity value.

And yes, as you point out,

Deficits do matter
... without a budget deficit, there can be no net new creation of private financial wealth.

However, as Cheney would appear to not understand, a nation that is running a 5% current account deficit will find that there will be an outflow of the net financial assets to those overseas, resulting in accumulating overseas obligations.

On the six decades of Military Keynesianism, there is, admittedly, a lot more pure plunder of the public treasury in the last administration and a lot less concern with the propping up of effective demand. Still, however wasteful and inefficient it is as a form of demand stimulus, the idea that the effect of half of federal government spending is somehow quarantined to a specific sector of the US economy seems an awfully strong claim.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Tue Jun 24th, 2008 at 10:08:58 PM EST
[ Parent ]
To the first part:
One can describe it that way, but the interpretation of this as service to the rich is the issue. Especially as financial wealth is often more important for the middle class than the rich. In Germany e.g. only about 40% live in their own home, you can be sure, more people have financial claims for their retirement. Stocks and other forms of ownership of corporations on the other hand are in a way naturally hedges against inflation.

To the second:
Financial wealth can be created without public debt, if the CB accepts other collateral. This is the case. The ECB has recently even accepted Australian(!) car loans as collateral.
And it seems Cheney really meant fiscal deficit, not CA deficit!(link)

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers

by Martin (weiser.mensch(at)googlemail.com) on Fri Jun 27th, 2008 at 03:22:54 PM EST
[ Parent ]
Right smack dab in the middle is this: government is the monopoly provider of fiat currency. It does not need to tax to spend ... it can spend and organize afterwards that the Treasury check clears.

What government needs taxes for is to destroy a certain portion of the money that it has brought into existence in order to maintain its purchasing power.

And it is inarguable that the wealthy are having more financial wealth protected by that policy action than the poor.

That's because the government decides to let the financial sector decide how much money to create, for whatever purposes the financial sector sees fit to fund.

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes

by Migeru (migeru at eurotrib dot com) on Wed Jun 25th, 2008 at 02:44:59 AM EST
[ Parent ]
And it is inarguable that the wealthy are having more financial wealth protected by that policy action than the poor.

That's because the government decides to let the financial sector decide how much money to create, for whatever purposes the financial sector sees fit to fund.

Rather, its because the benefit of policy that defends the function of money as a store of value scales with how much money and obligations denominated in money someone has claim to.

And it was equally true in the US in the 1950's, when there was far more substantial regulation on the lending of commercial banks, and therefore far more restrictions on the purposes for which money could be brought into existence, as opposed to lending money that was already in existence.

Taxation as a support of the medium of exchange function of money and defense of the store of value function of money are intrinsic to a system founded on fiat currency, no matter under what terms additional credit-money is allowed to be created.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Wed Jun 25th, 2008 at 09:38:32 AM EST
[ Parent ]
I wish I had more time to pitch in here, but alas, we are moving our abode. The discussion thus far is fascinating (it usually is!) but I fret that no one is actually addressing the morality of the progressive taxation, which is the issue raised by the original posting. The history of Judaism and Christianity is rich (pun intended) with relevant material. For example, the whole concept of "To whom much has been given, shall much be expected."

Now, this link is rather tangential, but actually I believe it can be read with much resulting fecundity on the issue at hand.  Dr. Michael Hudson was Chief Economic Policy Adviser for the Kucinich for President campaign. I offer his The Lost Tradition of Biblical Debt Cancellations. Here's a sample to whet your appetite:

THE once-glowing core body of law within the Judeo-Christian Bible has become all but ignored - indeed, rejected - by the colder temper of our times. This core provided for periodic restoration of economic order by rituals of social renewal based on freedom from debt-servitude and from the loss of one's access to self-support on the land. So central to Israelite moral values was this tradition that it framed the composition of both the Old and New Testaments.

Radical as the idea of canceling debts and restoring the population's means of subsistence seems to modern eyes, it had been a conservative tradition in Bronze Age Mesopotamia for some two millennia. What was conserved was self-sufficiency for the rural family-heads who made up the infantry as well as the productive base of Near Eastern economies. Conversely, what was radically disturbing in archaic times was the idea of unrestrained wealth-seeking. It took thousands of years for the idea of progress to become inverted, to connote freedom for the wealthy to deprive the peasantry of their lands and personal liberty.

Also, google Thomas Jefferson and see what his position was on taxing the rich (hint: American conservatives NEVER quote Jefferson on the issue of taxation).

And I recall that John Kenneth Galbraith had some very wise insights on this issue also.

by NBBooks on Mon Jun 23rd, 2008 at 09:54:40 PM EST


Display:
Go to: [ European Tribune Homepage : Top of page : Top of comments ]

Top Diaries

Leave UK <dot> DT

by Oui - Dec 4
57 comments

It's Tory Austerity Stupid!

by Oui - Dec 9
22 comments