Trump vs. Obama on Taxes

In January 2013, Congress passed and Barack Obama jubilantly signed what The Wall Street Journal called “the largest tax increase in the past two decades”:

More than three-quarters of American households would see a tax increase from their 2012 tax levels, according to an analysis by the Tax Policy Center, a joint venture of the Brookings Institution and the Urban Institute.

In December 2017, Congress passed and Donald Trump jubilantly signed a bill that cut corporate income taxes and almost every taxpayer’s federal income taxes.

If you take the view taxpayers’ money really belongs to the government — as “liberals” are wont to do — you would have to concede that Mr. Obama was niggardly toward taxpayers, in comparison with Mr. Trump.


Related posts:
Ignorance Abounds
Defending the Offensive

Pop Logic

If you’re old enough to fight, you’re old enough to vote.

An 18-year-old is strong and full of energy — just what a foot-soldier should be. An 18-year old is impetuous and usually has little in the way of income, property, or investments to protect — just what a voter should not be. (Voting should be restricted to persons aged 30 or older who have income, property, and investments to protect.)

It’s okay to (insert crime or egregious behavior here) because others have done the same thing.

This is an attempt to absolve a person or group favored by the speaker or writer. By the same logic, the favored person or group could be absolved of murder. This kind of “logic” is often used to excuse the behavior of politicians (e.g., Hillary Clinton) and to justify reverse discrimination (e.g., “Whites got away with X, so it’s okay for blacks to do X.”)

Abortion should be allowed until X weeks, when a fetus becomes viable.

If the certainty of survival determines whether a human being should live or die, the human race should be exterminated because everyone is doomed to die eventually.

The death penalty doesn’t deter murder and should therefore be abolished.

It is because of such sentiments that the death penalty is no longer a common or certain punishment for murder, and therefore less of a deterrent than it used to be. Moreover, the death penalty is properly justified as a punishment. Its deterrent effect is secondary.

The death penalty is barbaric and should be abolished.

Murder is barbaric, and murderers should be executed so that they can’t murder again. And if potential murderers get the message, so much the better.

It is far more costly to enforce the death penalty than it is to keep a murderer in prison.

That’s because the cringing opponents of the death penalty have made it costly to enforce.

“Migrants” (the PC term for illegal immigrants) are human beings, and should be allowed to enter our country freely.

It’s true that illegal immigrants are human beings. The real question is whether immigration law should be changed by Congress (and not by executive fiat). By the “logic” of those who favor unlimited immigration, murderers (who are human beings, after all) should be allowed to murder with impunity.

Borders are arbitrary and shouldn’t restrict the movement of people who want to better themselves.

That’s okay if you know whether everyone who’s crossing a border is doing so to better himself — and not at the government-enforced expense of others. And if borders are arbitrary, why should you call the police if someone trespasses on your property and steals from you?

The “rich” should pay their fair share of taxes.

A person who says this is ignorant of the fact that the “rich” (i.e., those who earn high incomes) pay an overwhelming share of taxes. And he probably doesn’t consider himself to be among the “rich,” who are “those people” who earn more than he does.

I’m “rich,” and my taxes aren’t high enough.

The government accepts voluntary contributions. What you probably mean is that the government should raise taxes on the “rich,” presumably to give more money to the “poor.” Which suggests that you’re not rich because you’re smart. If you were smart, you’d know that government keeps a big chunk of taxes to pay above-market salaries to government workers and contractors. The poor would be better off if you and like-minded “rich” persons just sent your emissaries among the “poor” and handed out money. Or perhaps you don’t understand that the money which you spend and invest creates jobs that help to lift up the “poor” and end their dependency. Self-reliance is to be nurtured by job creation, not discouraged by handouts. But, as I said, you’re probably among the dumb “rich” — if not among the guilt-ridden (for no reason) or emotionally addled (i.e., functionally dumb) “rich.”

I like politician X because he’s becoming more popular.

That’ the implicit reasoning behind the bandwagon effect. For example, some people go from “undecided” between X and Y to “favor X over Y,” and it shows up in the polls. This leads the wishy-washy — bereft of principle and wanting to be on the right side of a trend — to join the movement toward X. And because of that more of the wishy-washy join the movement. And so on. The wishy-washy don’t necessarily prefer X and Y for an ascertainable reason, they just like to be on the winning side.

Guns don’t kill people, people kill people.

Sorry, but as much as I favor an almost-unlimited right to bear arms,* I can’t swallow that one whole. Unless you’re a witch or wizard, you can’t kill a person by pointing a finger at him. Guns do (often) kill people when people with guns point them (or not) and pull the trigger. And I daresay that most of the killings are intentional. Further, it’s likely that there would be fewer murders (though probably more crimes, overall) if there were fewer guns around. It’s psychologically and physically easier to kill someone with a gun than with a knife, a baseball bat, a garrotte, or bare hands. But even if guns were outlawed, I — like millions of other Americans who own unregistered weapons — wouldn’t give up my gun. Technically, that would make outlaws of me and the other millions, thus validating the motto “If guns are outlawed only outlaws will have guns.” But we would hold onto our guns to protect ourselves from the real outlaws — those who use guns to harm, rob, and coerce others.
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* I draw the line at persons who have been convicted of felonies against persons and property, loonies, idiots, and minors. I don’t draw the line at type of weapon — anything goes.

People who oppose preferences for blacks (e.g., unmerited job offers and university admissions for the sake of “diversity”) are racist; people who oppose homosexual “marriage” and preferences for homosexuals are homophobic; and people who disagree with politically correct positions, such as preferences for blacks and homosexuals, are hateful.

All such statements are cheap rhetorical tricks, played by people who don’t want to confront the real issues; for example:

  • the harm done to non-blacks and homosexuals (and members of  those groups, as well) by preferential treatment
  • the harm done to traditional marriage by the state’s encouragement of nontraditional marriage
  • the predictable harm to property rights, freedom of association, freedom of speech, and the rights of non-preferred groups that follows inevitably from preferential treatment for any preferred group
  • the harm done to civilizing social norms by the disparagement of traditional norms, such as heterosexual marriage and advancement based on merit.

But blacks, homosexuals, etc., are victims.

So, it’s all right to victimize whites, Asians, heterosexuals, etc., but not blacks, homosexuals, etc. (For the tone-deaf, that’s a rhetorical statement, not a claim.)

Life in Austin (2)

Life in Austin (1)” introduces some of the themes on which I will here elaborate. But there is more to say about Austin than greenness for its own sake, growth to stoke the egos of elected officials and other smug Austinites, the horrendous traffic that ensues, and the diversion of precious road space to Austin’s powerful (though minuscule) cadre of bicyclists.

The last-mentioned are not content to stay in their lanes. When they are not riding abreast and riding the white line to force drivers to swerve around them, they are waiting for lights to change (when they do wait, that is) by parking themselves square in the middle of traffic. The purpose of this maneuver, of course, is an ill-advised attempt to irritate drivers. Ill-advised because many drivers, who have a distinct weight advantage, make it a point to harass cyclists. I would not be surprised to learn that the occasional cyclist who is picked off by a never-discovered driver was a casualty of a poorly calculated near miss.

Austin’s self-designated status as the “Live Music Capital of the World,” to which I adverted in part one, is a matter of misguided opinion. How does one determine the “most musical” city and, more fundamentally, what counts as music? My idea of music isn’t a lot of twenty-somethings making a lot of noise that is heard mostly by other twenty-somethings. (Nor is it the corny trash for thirty-to-ninety somethings that seems to be Nashville’s staple.) Give me a first-rate symphony orchestra that plays (mostly) music composed before 1900 and a bevy of chamber ensembles that do the same. By that (correct) standard, there are dozens of cities that could claim the title of “Live Music Capital of the World,” but Austin wouldn’t be among them.

You may also have heard that Austin is a “beautiful” city. And that would be true, if only its parks and tonier residential areas are considered. But most of Austin — that part of it which hasn’t been paved over in a vain attempt to move traffic — is flat, brown much of the year (because of a continuing drought), and occupied by ugly houses and commercial buildings. Austin’s downtown area, which once was dominated by the beautiful Capitol of Texas, is now dominated by the random and graceless spires of high-rise buildings, to which the more affluent denizens of Austin have fled so that they have a place to park when they are conducting business in downtown Austin.

Getting back to Austin’s drivers, I can only say that they are, on the whole, the worst that I have encountered in my 56 years behind the wheel. Without further ado, I give you my essay on “Driving in Austin”:

It begins with (1) driving in the middle of unstriped, residential streets, even as other vehicles approache. This practice might be excused as a precautionary because (2) Austinites often exit parked cars by opening doors and stepping out, heedless of traffic. But middle-of-the-road driving occurs spontaneously and is of a piece with the following self-centered habits.

(3) Waiting until the last split-second to turn onto a street.  This practice — which prevails along Florida’s Gulf Coast because of the age of the population there — is indulged in by drivers of all ages in Austin. It is closely related to (4) the habit of ignoring stop signs, not just by failing to stop at them but also (and quite typically) failing to look before not stopping. Ditto — and more dangerously — (5) red lights.

Not quite as dangerous, but mightily annoying, is the Austin habit of (6) turning abruptly without giving a signal. And when the turn is to the right, it often is accompanied by (7) a loop to the left, which thoroughly confuses the driver of the following vehicle and can cause him to veer into danger.

Loopy driving reaches new heights when an Austiner (8) changes lanes or crosses lanes of traffic without looking. A signal, rarely given, occurs after the driver has made his or her move, and it means “I’m changing/crossing lanes because it’s my God-given right to do so whenever I feel like it, and it’s up to other drivers to avoid hitting my vehicle.”

The imperial prerogative — I drive where I please — also manifests itself in the form of (9) crossing the center line while taking a curve. That this is done by drivers of all types of vehicle, from itsy-bitsy cars to hulking SUVs, indicates that the problem is sloppy driving habits, not unresponsive steering mechanisms. Other, closely related practices are (10) taking a corner by cutting across the oncoming lane of traffic and (11) zipping through a parking lot as if no child, other pedestrian, or vehicle might suddenly appear in the driving lane.

At the other end of the spectrum, but just as indicative of thoughtlessness is the practice of (12) yielding the right of way when it’s yours. This perverse courtesy only confuses the driver who doesn’t have the right of way and causes traffic to back up (needlessly) behind the yielding driver.

Then there is (13) the seeming inability of most Austiners to park approximately in the middle of a head-in parking space and parallel to the stripes that delineate it.  The ranks of the parking-challenged seem to be filled with yuppie women in small BMWs, Infinitis, and Lexi; older women in almost any kind of vehicle; and (worst of all) drivers of SUVs –(14) of which “green” Austin has far more than its share on its antiquated street grid. It should go without saying that most of Austin’s SUV drivers are (15) obnoxious, tail-gating jerks when they are on the road.

Contributing to the preceding practices — and compounding the dangers of the many dangerous ones — is (16) the evidently inalienable right of an Austinite to talk on a cell phone while driving, everywhere and (it seems) always. Yuppie women in SUVs are the worst offenders, and the most dangerous of the lot because of their self-absorption and the number of tons they wield with consummate lack of skill. Austin, it should also go without saying, has more than its share of yuppie women.

None of the above is unique to Austin. But inconsiderate and dangerous driving habits seem much more prevalent in Austin than in other places where I have driven — even including the D.C. area, where I spent 37 years.

My theory is that the prevalence of bad-driving behavior in Austin — where liberalism dominates — reflects the essentially anti-social character of liberalism Despite the lip-service that liberals give to such things as compassion, community, and society, they worship the state and use its power to do their will — without thought or care for the lives and livelihoods thus twisted and damaged.

It should be unnecessary to add that the 16 egregious practices described above are especially prevalent among Austin’s self-important, SUV-driving, guilt-trip-Democrat-voting yuppies.

What is the cost of living in Austin’s smug, raucous, clogged, irritating, and (mostly) ugly environs? It isn’t cheap, because Austin levies the highest sales-tax rate permitted by Texas (8.25%), and routinely raises property assessments by 10% a year (the maximum allowable by law), while also raising property-tax rates (just enough to evade approval at the ballot box).

So, if you’re thinking of living in (or near) Austin, consider yourself warned.

As for me, I’m out of here as soon as my 90-something in-laws see fit to quit their earthly abode.

Taxes Matter

A recent story in The Telegraph (UK) leads with this:

Almost two-thirds of the country’s million-pound earners disappeared from Britain after the introduction of the 50 [percent] top rate of tax, figures have disclosed.

Surprise, surprise!

It happens here, too. For example, the net flow of persons among States (i.e., pattern of inter-State migration) is strongly determined by the relative tax burdens of the States (including taxes imposed by local governments).

The table below gives a hint of the strong relationship between tax burdens and inter-State migration. “In/Out represents the number of residents who moved into a State from another State, divided by the number of residents who moved out of the State to another State. The tax burden represents total State and local taxes levied on residents of a State, divided by income earned by residents of the State. (Sources and methods are discussed in the footnote to this post.)

In-out ratios and tax burdens of States

Green shading indicates States in the top (best) one-third of each distribution; gray shading indicates States in the bottom (worst) one-third. Alaska and the District of Columbia are omitted for reasons discussed in the footnote.  As it turns out, statistical analysis yields two significant determinants of a State’s In/Out ratio:

  • whether it is situated in the “Blue,” heavily unionized, North Central region of the United States, with its relatively high unemployment rate; and
  • the State’s tax burden.

Take California (please). In 2010 alone, the Golden State’s heavy tax burden — 11.2 percent vs. the national average of 9.5 percent — cost it 54,000 residents. And California is not the most repulsive of States (“tax-wise”). That “honor” goes to New York, with a burden of 12.8 percent in 2010 — a burden that cost the Empire State 66,000 residents in that year. Then there is Wisconsin — with only 1/6 the population of California — which lost 33,000 current and prospective residents because it is in the North Central region and has a tax burden of 11.1 percent.

When low In/Out ratios persist for years — as they have in California, New York, and most of the North Central States — the result is a massive reduction in the number of taxpaying citizens and businesses. Persistently low In/Out ratios lead to fiscal death-spirals:

  • Current and prospective residents and businesses are driven away by high taxes and other unfavorable conditions (e.g. unionization).
  • Instead of paring government and taking other steps to make the State more attractive (e.g., playing tough with public-sector unions), taxes are raised on remaining residents and businesses.
  • More residents and business are driven away.
  • Some amount of paring may eventually occur, but taxes remain disproportionately high (and other unfavorable conditions usually persist), so more residents and businesses are driven away.
  • And so on.

Detroit — which lost more than 60 percent of its population between 1950 and 2010 — is a prime example of a jurisdiction in a death-spiral, but it is far from the only one.

But voting with one’s feet, which works on the municipal and State levels, does not work on the national level. And the proponents of Big Government understand that. It is a sad fact that, for most citizens, the cost of fleeing the country for a better place (if one can be found) would far outweigh the additional burden of higher marginal tax rates, higher rates on capital gains, the perpetuation and expansion of “entitlements,” and the ever-growing volume of regulations (which are taxes in a different guise).

What the proponents of Big Government do not understand — or do not care about — is that they are killing the goose that lays the golden eggs. When people cannot reap the hard-won rewards of their labors and their investments, they labor and invest less. The result is slower and slower economic growth, and the imminent Europeannirvana” so devoutly wished by proponents of Big Government.

Related posts:
The Laffer Curve, “Fiscal Responsibility,” and Economic Growth
The Causes of Economic Growth
In the Long Run We Are All Poorer
A Short Course in Economics
Addendum to a Short Course in Economics
The Price of Government
The Price of Government Redux
The Mega-Depression
As Goes Greece
Ricardian Equivalence Reconsidered
The Real Burden of Government
The Illusion of Prosperity and Stability
Estimating the Rahn Curve: Or, How Government Inhibits Economic Growth
Taxing the Rich
More about Taxing the Rich
America’s Financial Crisis Is Now
A Keynesian Fantasy Land
The Keynesian Fallacy and Regime Uncertainty
Why the “Stimulus” Failed to Stimulate
The “Jobs Speech” That Obama Should Have Given
Say’s Law, Government, and Unemployment
Unemployment and Economic Growth
Regime Uncertainty and the Great Recession
Regulation as Wishful Thinking
The Real Multiplier
Vulgar Keynesianism and Capitalism
Why Are Interest Rates So Low?
The Commandeered Economy
Stocks for the Long Run?
We Owe It to Ourselves
Stocks for the Long Run? (Part II)
Estimating the Rahn Curve: A Sequel
In Defense of the 1%
Bonds for the Long Run?
The Real Multiplier (II)
Lay My (Regulatory) Burden Down
The Burden of Government
Economic Growth Since World War II
More Evidence for the Rahn Curve
The Economy Slogs Along
The Obama Effect: Disguised Unemployment
The Stock Market as a Leading Indicator of GDP
Government in Macroeconomic Perspective
Where We Are, Economically
Keynesianism: Upside-Down Economics in the Collectivist Cause
The Economic Outlook in Brief
Is Taxation Slavery? (yes)

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EXPLANATORY NOTE AND REFERENCES:

I began with Census Bureau estimates of State-to-State migrations in 2010. I derived estimates of in- and out-migration for each State and the District of Columbia. The “turnover” rates for Alaska and the District of Columbia proved to be much higher than the rates for the other 49 States. Preliminary analyses of the relationship between In/Out ratio and key variables (e.g., tax burden) confirmed that the inclusion of Alaska and D.C. in the analysis would bias the results, so I dropped those two entities from the analysis.

For the other 49 States, I considered the relationship between In/Out ratio and several variables:

  • population (from the same source as migration statistics);
  • regional effects, represented by dummy variables for Northeast & Mid-Atlantic (CT, DE, ME, MA, NH, NJ, NY, PA, RI, VT); North Central (IL, IN, MI, MN, OH, WI); South & Southeast (AL, AR, FL, GA, KY, LA, MD, MS, MO, NC, OK, SC, TN, TX, VA, WV); Plains & Mountain States (AZ, CO, IA, ID, KS, MT, NE, NV, NM, ND, SD, UT, WY); and West (CA, HI, OR, WA). (The statistical results are unaffected by reasonable variations in assignments — MD and VA to Northeast & Mid-Atlantic, TX to Plains & Mountain States, for example.)

Regressions on various combinations of explanatory variables yielded one statistically significant equation:

In/Out = 1.60 – 0.21NC – 5.58TB

where NC is 1 if a State is in the North Central region (otherwise it is 0), and TB is the State’s tax burden (expressed as a decimal fraction). Each State’s tax burden includes local taxes and taxes imposed on the State’s residents by other States. (A person who lives in New Jersey and works in New York knows that one price of living in New Jersey is the payment of New York’s income taxes.)

The equation and its constant and coefficients are significant at the 1-percent level, and better. The standard error of the estimate is 0.15, against a mean for In/Out of 1.048. The residuals are randomly distributed with respect to the estimated values.)

According to the equation, a North Central State with a tax burden of 10.2 percent (the average for North Central States) would have an In/Out ratio of 0.82; the average for North Central States is 0.83. A State in another region with a tax burden of 9.4 percent (the average for all other States) would have an In/Out ratio of 1.08; the  average for States not in the North Central region is 1.08.

Here is a plot of estimated vs. actual In/Out ratios:

In-out ratios_estimated vs actual

The outliers — States with residuals greater than 1 standard error — are indicated by the green shading (good) and gray shading (bad):

Residuals for estimate of In-out ratio vs Ncent and tax burden

The top 6 States have something extra going for them; the bottom 9 States have something extra going against them. The extras could be an especially hospitable or inhospitable business climate, climatic and/or geographical allure (or lack thereof), cost of living, unemployment well above or below the national average, the political climate (“Blue” to “Red” shifts prevail), or something else. Whatever the case, I am easily persuaded that New York (where I have lived and run a business), Michigan (my home State), California (a well-known basket case), Nevada (ditto), New Jersey (ditto), and West Virginia (with which I am all too familiar) have a lot going against them, even when it is not an excessive tax burden.

How High Should Taxes Be?

Steven Landsburg correctly observes that taxes should be high enough

to cover expected outlays going forward — but no higher.

That’s because any additional revenue would be used to pay down the federal debt, which is a bad idea. It was almost surely a mistake to run up this much debt in the first place, but now that we’ve got it, the best thing to do is to keep it forever….

The right policy, then, is to estimate future outlays including interest on the existing debt but not including any principal payments on that debt, and to set tax rates so that revenues match those outlays in a typical year. Insofar as Mr. Obama asks for more than that, he’s either a) planning higher future spending than he’s admitting to or b) embarking on a reckless policy of debt reduction.

The following discussion is for the benefit of readers who may remain unenlightened by Landsburg’s explanation.

I begin with the parties to the spending-lending-taxing triangle:

A — beneficiaries of government programs who provide no products or services in return (i.e., recipients of “entitlement” spending, the largest and fastest growing aspect of U.S. government spending)

B — lenders who are willing to underwrite that spending in return for interest payments of 3 percent on the amounts lent (the principal)

C — taxpayers who are “responsible” for the payment of the interest on the loan and who would also bear the cost of repaying the principal if government decided to retire the debt.

Take it as given, for the purpose of this example, that there is little overlap between A, B, and C. A‘s tax payments are either zero or de minimis — because A (mainly) represents the non-taxpaying 47 percent invoked by Mitt Romney during the recent presidential race. B represents a mix of foreign lenders and a relatively small contingent of American entities. C stands for the millions of taxpayers who bear the burden of U.S. government spending — the other 53 percent — especially those in the upper reaches of the income distribution.

Now suppose that in year 1 the government gives A $100 and finances the expenditure by borrowing the sum from B. If the loan is for 10 years at 3 percent, the transaction could be structured in one of two ways:

  1. annual interest payments of 3 percent ($3), with a “balloon” of $100, which can be paid off by finding a new lender (a debt roll-over); or
  2. annual payments of $12.84, which would reduce the debt to zero after 10 years, while giving the lender a return of 3 percent on the unpaid balance.

Option 1 burdens C with annual payments of $3. Option 2 raises the annual burden by $9.84. That is a deadweight loss to C — a burden that is imposed on C without a compensating benefit.

But what about the benefit that C will reap in the future, when C becomes A and takes his turn at the public trough? Well, because the taxes imposed on C force him to forgo remunerative investments, C would be made whole only if his future benefits are somewhat larger than A‘s current benefits, and only then to the extent that his valuation of those benefits matches their nominal valuation. (A healthy C, for example, would place little value on Medicare.) Further, there is reasonable doubt that the A of the future will be as well-fed as the A of today.

No matter how you slice it, A‘s “free lunch” is a bad deal for C. A deadweight loss, to be sure.

Higher Taxes, Higher Government Spending, Slower Economic Growth

J.D. Foster and Curtis Dubay, writing at The Foundry (“Of Course Higher Taxes Slow Growth — A Response to Diamond and Saez“), make mincemeat of Peter Diamond and Emmanuel Saez’s arguments for higher taxes on “the rich.” Implicit in Foster and Dubay’s takedown of Diamond and Saez is the demonstrably strong (and negative relationship) between government spending and economic growth.

Spending is funded by taxes, after all. And even when spending is funded by borrowing it amounts to a tax on the productive sectors of the economy. How is that? When government sell bonds to the public it redirects money from productive uses in the private sector to unproductive and counter-productive uses in the so-called public sector (i.e., government). The thievery is no less destructive — but more apparent — when the Fed creates money out of thin air to finance government spending.

So, the focus should be on spending, for which taxation is a proxy. The effect of government spending on economic growth is nothing less than disastrous. I have treated the subject at length in “Estimating the Rahn Curve: Or, How Government Inhibits Economic Growth.” Here is another version of the final graph in that post:

The bottom line is that for every 10 percentage points by which government spending rises, the rate of growth declines by 0.7 percentage points. If you think that 0.7 percent is negligible, try compounding it over a lifespan of 80 years. In that time, a sustained 10 percent rise in government spending will reduce the average person’s real income by more than 40 percent.

That, my friends, is soak-the-rich Obamanomics at work. Apologists for Obamanomics, like Diamond and Saez, should be ashamed of themselves for abetting economically destructive demagoguery.

Related posts:
The Causes of Economic Growth
A Short Course in Economics
Addendum to a Short Course in Economics
Enough of “Social Welfare”
The Case of the Purblind Economist
Economic Growth since WWII
The Price of Government
Does the Minimum Wage Increase Unemployment?
The Price of Government Redux
The Mega-Depression
The Real Burden of Government
Toward a Risk-Free Economy
The Rahn Curve at Work
The Illusion of Prosperity and Stability
Society and the State
The “Forthcoming Financial Collapse”
Estimating the Rahn Curve: Or, How Government Inhibits Economic Growth
The Deficit Commission’s Deficit of Understanding
Undermining the Free Society
The Bowles-Simpson Report
The Bowles-Simpson Band-Aid
Build It and They Will Pay
Government vs. Community
The Stagnation Thesis
Government Failure: An Example
Taxing the Rich
More about Taxing the Rich
Voluntary Taxation
Money, Credit, and Economic Fluctuations
A Keynesian Fantasy Land
“Tax Expenditures” Are Not Expenditures
The Keynesian Fallacy and Regime Uncertainty
Why the “Stimulus” Failed to Stimulate
The “Jobs Speech” That Obama Should Have Given
Regime Uncertainty and the Great Recession
The Real Multiplier
Vulgar Keynesianism and Capitalism
Why Are Interest Rates So Low?
Don’t Just Stand There, “Do Something”
Economic Growth Since World War II
The Commandeered Economy
We Owe It to Ourselves
In Defense of the 1%
The Real Multiplier (II)

Taxes: Theft or Duty?

As goofy as Ron Paul is about defense and foreign policy, he is mostly right about domestic policy, namely that there should be little of it — especially at the national level. This is from his exchange with David Gregory on Meet the Press (October 23, 2011):

MR. GREGORY:  Let me, let me ask you about the role of government.  You’ve said about taxation, in a way that doesn’t minces words, the following: “Taxation is immoral,” you told the Libertarian Party News.  Would you scrap the tax code altogether?

REP. PAUL:  That would be a pretty good idea, a pretty good start.  I, I can qualify it if I’m allowed.  Taxation is theft when you take money from one group to give it to, to another, when you, when you transfer the wealth.  Now, taxation could be accomplished with user fees and, you know, highway fees and gasoline taxes and import taxes.  But the income tax is based on the assumption that the government owns you, owns all of your income and provides the conditions on which they allow you to keep a certain percentage.  That, to me, is immoral, and the founders didn’t like it.  That’s why the Constitution had to be amended in 1913.

Not eloquent, but fairly near the mark.

Government has essentially one legitimate function, which is to protect citizens from predators, foreign and domestic. That covers national defense and domestic justice (including the enforcement of contracts and prosecution of fraud). Those functions could be provided by private agencies, but — because of the danger of warlordism — they are best provided by government and funded from a true flat tax.

A proper division of labor would place defense in the hands of the national government and justice in the hands of State and local governments. This would eliminate the ability of the national government to criminalize conduct for the sake of imposing its will on everyone. For the same reason, the provision of justice should be devolved to the lowest possible level within each State.

I see no need for State and local governments to do more than provide justice, though the government of a very small community — say, not more than 150 persons — might legitimately do more if authorized by the community, following rules explicitly and regularly adopted by consensus. Expanding the scale of government action beyond the jurisdiction of a small community courts runaway statism and precludes the provision of services (utilities, highways, etc.) by private actors, which are subject to discipline by market forces.

With that background, I turn to the October 20, 2011, issue of The New Republic and “Don’t Mess with Taxes: A moral defense.” Excerpts of the editorial (in italics) are accompanied by my comments (in brackets and boldface):

Elizabeth Warren, the Harvard law professor now running for U.S. Senate, is getting a lot of attention for the video of a speech she made recently. It wasn’t just because she was taking on Republican talking points more forcefully than most Democrats do these days. It was also because she was defending an idea almost nobody in American politics dares to champion anymore, at least explicitly: She was defending the idea of taxes. [Elizabeth Warren is all wet.]

In recent decades, Republican politicians and key allies, most notably anti-tax crusader Grover Norquist, have succeeded in demonizing taxes, as if the very concept of a tax itself were immoral. [Not quite. See above.]

But there is nothing wrong with asking [asking?] people to pay taxes. On the contrary, there is something very right about it. Nobody [nobody?] questions whether society [the state] can require people to serve on a jury or, in times of war, to enlist in the military. [So soon is Vietnam forgotten, along with its main legal legacy: all-volunteer armed forces.] So why do we question whether society [the state] can require people to pay for the government whose services, and protection, they enjoy? [Most of us do not “enjoy” government services, other than defense and justice, and even those that we do “enjoy” would be provided more efficiently by private firms.]

The moral case for taxation rests on two separate, but related, principles. The first is distributional. History teaches us that capitalism is an excellent economic system for generating wealth. But history also teaches us that capitalism will create losers as well as winners, often because of forces beyond any individual’s control. Whether it’s accident or illness, mismatched skills or misallocated resources, large numbers of people will inevitably find themselves in financial difficulty—without a job, without savings, and without enough money to pay for the basic necessities of life. It can be crippling for them and crippling for their children, so that poverty, like affluence, becomes its own sort of inheritance. [And that’s another thing better left to the private sector: charity. Charity-by-government is an inefficient way of taking from the few to give to the many — but it yields votes, as in “tax and tax, and spend and spend, and elect and elect.”]

A civilized society recognizes this problem and vows to mitigate it. [A state, driven by power-lust, is not a society, and cannot claim to be civilized.] If capitalism does not offer everybody at least some realistic hope of upward mobility, it cannot survive.  [But it does offer that hope, and it will survive unless the minions of the state have their way.] Here in the United States, a part of our solution has been to enact government programs that offer the needy minimal allotments of sustenance (food stamps) and shelter (housing choice vouchers), that provide the less affluent with cash (Temporary Assistance for Needy Families) and college tuition (Pell Grants), and that guarantee all citizens pensions (Social Security) and health insurance (Medicare, Medicaid, and the Affordable Care Act). These programs cost money. And the money has to come from somewhere. [These programs are self-defeating because they (1) create dependency, (2) reduce the incentive to better oneself, (3) reduce the incentive to save for one’s future needs, and (4) drain resources from growth-producing investments that create jobs and higher incomes, and allow people to save for future needs.]

The second reason we need taxes isn’t about the least fortunate; it’s about public goods. You’ll frequently hear conservatives argue that taking money from people, particularly successful people, is unfair because they, not the government, earned that money. But that’s not quite right, for reasons Warren explained very well in her monologue. Behind every successful individual is a set of public investments that past generations made. Could Bill Gates have made his fortune without government-financed education and technology? Could Sam Walton’s stores have spread across the country without government-sponsored roads on which goods and customers travel? “You built a factory and it turned into something terrific, or a great idea?” Warren said. “God bless. Keep a big hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along.” [“Public goods” are a crock. Elizabeth Warren is all wet.]

[O]n the morality of asking [asking?] people to pay taxes, there should be no debate at all. Taxes are an act of citizenship [coercion]. We should all be proud to pay them. [Speak for yourself, kemosabe.]

Other than that, I found the punctuation and spelling to be impeccable.

As for the question posed in the title of this post: theft, all theft, because even essential protective services are not funded equitably.

Related posts:
The Social Welfare Function
Risk and Regulation
A Short Course in Economics
The Interest-Group Paradox
Addendum to a Short Course in Economics
Monopoly: Private Is Better than Public
Utilitarianism vs. Liberty
Utilitarianism, “Liberalism,” and Omniscience
Accountants of the Soul
The Real Burden of Government
Zones of Liberty
Toward a Risk-Free Economy
Rawls Meets Bentham
The Rahn Curve at Work
A True Flat Tax
The Case of the Purblind Economist
The Illusion of Prosperity and Stability
Estimating the Rahn Curve: Or, How Government Inhibits Economic Growth
Asymmetrical (Ideological) Warfare
Giving Back, Again
Taxing the Rich
More about Taxing the Rich
Luck-Egalitarianism and Moral Luck
The Destruction of Society in the Name of “Society”
What Free-Rider Problem?
Utilitarianism and Psychopathy
Elizabeth Warren Is All Wet

The Economic Effects of Taxes and Regulations, in Pictures

Specialization by economic units and trade between them enables all of them to enjoy more material things than they would if each of the units stood alone. This is “before,” where relatively inefficient economic units stand alone (indicated by the interstices):

With specialization and trade, there can be more economic units, and each of them can make a greater contribution to the output of others:

Taxes shrink the output of economic units by reducing incentives to produce, and by diverting resources to nonproductive, and counterproductive governmental uses. Regulations effectively eliminate many of the units that would otherwise exist and whose products would enable the expansion of all units:

And so, with regulations and taxes as they are today, the economy realizes a fraction of its potential output.

Related posts:
The Price of Government
The Fed and Business Cycles
The Commandeered Economy
The Price of Government Redux
The Mega-Depression
Ricardian Equivalence Reconsidered
The Real Burden of Government
Toward a Risk-Free Economy
The Rahn Curve at Work
The Illusion of Prosperity and Stability
Estimating the Rahn Curve: Or, How Government Inhibits Economic Growth
The Stagnation Thesis
America’s Financial Crisis Is Now
A Keynesian Fantasy Land
The Keynesian Fallacy and Regime Uncertainty