Hehe. Is there a quadruple face palm?
you seem to be confused about the difference between both force and reason. as well as power and liberty. i don’t think i can be patient enough to help you in this regard. peace out.
On contrary. Bloom been here long enough to know better. He’s repeating the same questions that have been answered [thoroughly] already. Those blatant contradictions also help give him away.
The game is simple, and one that is a favourite of young children and trolls alike.
Step 1: Act inquisitively toward another person’s vocation (ask him/her questions).
Step 2: Persuade said mentor to hold your hold through the journey.
Step 3: Watch a month of Sean Hannity, and then stick an icepick in your temporal lobe.
Step 4: Repeat steps one and two.
Step 5: ???
Step 6: PROFIT!!!
Why is it that when someone disagrees with someone, the first thing they attack is their sincerity?
I’m not saying this to make you guys mad. I’m saying what I’m saying because as I see it, there’s no way to find an ethical or moral justification for taxation, that instead the only explanation for the power to tax is the power of the army and the police.
I also don’t feel like I’ve asked for a mentor or whatever. Not that I don’t appreciate the effort but you don’t really think you’re going to change my mind do you? Everything that I say vibes with my life experience, you think you’re going to invalidate my life experience on the internet? Come on. I don’t imagine you come on the internet to have your mind changed either. Your life experience has led you guys to become anarchists. This makes sense, but your life experiences aren’t universal so to assume that because someone disagrees with you that they must be confused or a troll is a little…silly to me.
I know some of you might think you’ve got the answers to everything. Fine. But you can’t possibly expect me to buy that can you?
I don’t like that my sincerity always gets challenged, as if I’m just saying what I’m saying to make people angry. But then again, I can’t really do anything about it either. So it goes.
Oddly no.
[EDIT]
I had to catch myself. While I don’t think I had anything destructive to offer I don’t see a point to continuing.
No one here doubts your sincerity Bloom, I hope you realize that. <3
Neither ethics nor morals have thing-one to do with religion.
Well ethics concerns the discourse on what is the ‘good’, I’m trying to think of whether that connects into religion. I mean in a sense religion is interested in the ‘good.’ What do you think BAAWA? I believe you are an atheist (?)
I see nothing about religion which tries to connect to the “good” other than in a self-serving manner, i.e. to perpetuate the meme (usually by proclaiming anything against the religion is bad). Ethics and morality are disconnected from religion in a logical sense, i.e. that we can discuss them without ever referencing religion.
There is no justification for putting a gun to my head and forcing me to pay for something I do not want.
Like a debt?
he did want the debt otherwise he wouldnt have taken it on and become someone who owes a debt. you seem to have a penchant for asking questions of a certain type…
Neither has the state ever agreed not collect the tax, so?
I would never pay any of my debts if I weren’t going to be forced to. I’d have no reason to. Why pay for anything if you don’t have to?
when did i take on the obligation to pay tax?
it doesnt seem you understood my explanation.
That’s fine, but in a more market oriented economy, if it were a sufficient enough of a trend to screw the creditors/ owners/ lenders the system in which the creditors getting screwed wouldn’t exist on any noteworthy level, or even if they did the failed credit/ rent/ loan system would be replaced by a more workable system.
You forgot “that you did not incur either willingly or via some action to violate the rights of another”. You really should work on completing your thoughts better.
Really, what’s the purpose of attempting to justify some action when you begin by assuming that there exists no objectively unjustifiable action?
Hi. I’ve been pursuing this idea for years now - am convinced that it is the right way to view taxation. Taxation should be attached to benefit derived, and the primary economic benefit we derive from a system such as our is property rights. Below are a some thoughts I’ve been pursuing along these lines (started as a PhD student at Wharton). Some of you may find it interesting…
LG
Content-Transfer-Encoding: base64
Reply-To: loftin@tmo.blackberry.net
X-Priority: Normal
Sensitivity: Normal
Importance: Normal
To: Justin Wolfers predictions@wsj.com
Subject: Wealth tax
From: Loftin Graham loftin@tmo.blackberry.net
Date: Thu, 4 Dec 2008 14:55:10 +0000
Content-Type: text/plain
MIME-Version: 1.0
On a more economic note, I am interested in the idea of replacing the annual income tax with a net wealth tax. I believe that a net wealth tax would more nearly approximate the legitimate economic claim that good government should have on its citizens than the current policy of taxing income does. Taxing net wealth (e.g. a fixed or perhaps even slightly decreasing pct to reflect decreasing marginal costs of production on the part of the government) reflects the principal economic benefit we derive from our form of government (individual property-rights) and allocates tax burdens across the population in a way that, unlike policies that tax income, more organcally reflect benefit derived. As a consequence, net wealth tax policies are more likely to respect individual property rights because the individual tax obligation is proportional to benefit derived rather than being the (potentially capricious) outcome of a democratic political process. Given the constraint of near-monopolistic power that governments presently tend to exert in tax matters, having a policy that reflects benefits derived is about as close as we can come to a competitive-pricing-type framework (one in which effective property rights are more balanced than under more monopolistic conditions).
Much if not most of what the government does through the establishment of institutions and the implementation of policies has an impact on our property rights. In the very first place, the fact that we can own and gainfully use property is of great economic value. In addition, the value of our human capital is affected by policies related to the labor markets; and our abilities to gain and then use whatever skills, knowlege, etc. we can is in many ways influenced by government. Again, it seems rather clear that the primary economic product of government relates to property rights. Another way of saying this is that what we stand to lose (the net amount at risk, to use an insurance term) in the absence of our form of government is the loss of our property rights - our net wealth, broadly defined (e.g. to include physical capital, human capital, financial capital, etc.). At any given instant, like owning an insurance policy, we benefit in a degree proportional to this net amount at risk; and the price that we are required to pay for that benefit (our tax obligations) should reflect this fact. I should note here that I am talking about financing the general operations of government through a net wealth tax. Other programs might be financed differently where appropriate, and non-economic benefits, such as the portion of “protection of life, liberty” that is essentially non-economic in nature, should be paid for in kind - e.g. by required military service or the draft in times of war or jury duty, etc..
One of the criticisms of taxing wealth is that it would represent a serious disincentive to save. There is of course some reason for concern on this point, but our concerns should be mitigated if not entirely eliminated by considering the fact that the current system, by providing disincentives for work (that’s what an income tax does) implicitly reduces savings already since savings are generated by unconsumed income. By removing the income tax, the theory predicts an increase in income, which translates (again in micro-theory) to increased savings. So, whereas some decrease in savings might be expected, it is far from clear to me without doing some simulation studies or other form of analysis that the decrease would be anytyging to worry about; and it’s even possible that the increase in income would more than compensate for the disincentive for saving. Perhaps of greater interest, however, is the fact that lower income individuals would likely be the ones that would (proportionally speaking) experience the greatest increase in savings, since they currently have a lower proportion of income that is disposable (hence susceptible to being saved/invested). From the perspective of this preliminary (and cursory) analysis we are justified in wondering whether income taxation effectively shifts the incentives and capacity for saving from the poor to the already wealthy relative to net wealth taxation; and if so, is it something that we’re comfortable with?
If that were the only implication for the income versus net wealth tax policy comparison, it would be interesting enough I think; but it’s not. It turns out that income taxation by its very nature inherently represents a form of wealth transfer from wealthier individuals to poorer individuals within the same income class. It is a wealth transfer because one subclass is effectively subsidizing the other: two individuals with the exact same net income pay equal income taxes while the one with greater net wealth implicitly (and by no choice of his own) derives a greater benefit: the guarantee of a greater absolute dollar amount via government provision of individual property rights. This will have the effect of increasing the wealth of the already wealthy relative to their less wealthy counterparts and represents, among other things, a form of discrimination against those with risky income streams relative to those with less risky income streams. This is because, in theory at least, two individuals with equal incomes can only have different net wealths if the assets backing their income (comprising their net wealths) are of different risk levels. So, the wall street banker with little initial accumulated (physical, financial capital) wealth and risky human capital wealth is subsidizing the Heinz family children who inherited a relatively well-diversified fraction of an estate. Switching from an income tax to a net wealth tax would arguably result in increased incentives for investment in risky assets, potentially offsetting any expected reductions in entrepreneurial incentives associated with having to pay taxes even when net income is not positive (something that would likely be incorporated into capital budgeting without much fanfare).
The above considerations are important because, again, not only do they highlight the injustice of the current income-tax policy (people are paying for services in a manner that is not proportional to the absolute dollar size of the benefit they receive), but it suggests the possibility that the injustice is opposite what most liberal-thinking people (i’m not necessarily one of these) think it should be. Interesting, no?
Sent via BlackBerry from T-Mobile
Subject: Re: On the Wealth Tax as Really an Income Tax
From: “Loftin Graham” loftin@tmo.blackberry.net
Date: Wed, 23 Jul 2008 18:38:59 +0000
CC: “Norman Kurland” thirdway@cesj.org
Mr. Greaney:
I’ve pasted your responses and am including my comments below each. Unfortunately that’s about the best I can do on my pda. (my comments start with an *).
Sincerely,
Loftin Graham
Mr. Kurland: I’m still working my way through some of the other references you provided. I’m a slow reader and some of the writers use rather complicated language (e.g. sentence patterns). I don’t see much in the way of math models for the binary concept - are there sources that provide that kind of characterization too?
[We are not paying for the rights to life and liberty, but for
protection of our rights to life and liberty. Government has to pay
people to perform its proper functions (to say nothing of all the
improper functions it has taken on), so the people make a grant of money
to the State so that the State, a necessary mechanism supporting our
social nature, can fulfill its role. If a good is non-economic,
obviously you can’t put a price on it, and a price should not be
charged, i.e., a tax levied to support something for which the State
doesn’t pay.]
- yes, where the gorebment’s guarantee or protection of property rights are concerned, it’s like insurance only to the extent that you are protecting or guaranteeing a net amount that would otherwise be at risk (i.e. in the absence of government). The mechanics of determining the price for such coverage is similar to that of determining the premium that would be associated with insurance on an object worth a certain amount in the sense that you just apply the per-guaranteed-unit cost to the amount at risk of potential loss. But yes, the comparison with insurance is limited (as most comparisons are at some level). So, the important thing from my perspective (and what matters in making a fair allocation of the aggregate tax obligation among all particiants) is to recognize that the benefit each person derives from a system that guarantees/protects property rights is proportional to the absolute economic value of those rights, which is best approximated, it seems to me, by total net wealth = total value of labor assets + total value of capital assets less the economic value of all outstanding obligations. Fixing the tax obligation as a percent of income (rather than denominating obligations in terms of wealth) unavoidably results in a situation in which the less wealthy at any given income level subsidize the cost of the property-rights guarantee provided to their more wealthy counterparts. That moves the situation in a direction opposite the stated desire of reducing the wealth gap.
[Obviously I did not express myself clearly, because I agree with you,
and thought that’s what I said. By saying that protection of a poor
man’s store of wealth (assuming he has any) is worth as much to the
small man, as protection of a rich man’s store of wealth is worth to the
rich man, I was pointing out that, in moral philosophy - which should
underpin economics and tax policy, whatever anyone might have told you,
justice is the basis of civil life, and justice is the highest temporal
virtue, according to dead white European males like Aristotle, Aquinas,
Maimonides, and Ibm Khaldûn - a difference in degree does not make for a
difference in kind. I realize a lot of people have trouble with that
concept, and assert that because, e.g., a rich man is a hundred times
richer than a poor man, he should pay 100% tax, while the poor man,
because he is poor, should receive a redistribution of that tax - less a
rake-off for State bureaucrats, of course.
*OK. It sounds like I misunderstood what you meant.
[A difference in degree does not make for a difference in kind. Nothing
can both “be” and “not be” at the same time, e.g., I do not suddenly
lose my right to life, liberty, or property the moment I turn 30 or have
$1 million in the bank, that is, the moment extraneous circumstances are
taken into consideration. Circumstances may justify some things as an
expedient, e.g., the progressive income tax in time of national
emergency to provide a means of keeping people alive, but the moment the
emergency is past, unequal taxation of that sort becomes unjust and
unjustifiable. The “catch” in moral philosophy is that since taxation
is not objectively unjust, you can justify an unjust tax - a tax that is
not levied justly, that is - on the grounds that the anticipated good to
be derived from an injustice that is not objectively evil outweighs the
unintended evil that results, in this case, the rich paying more
proportionately than the non-rich above an adequate subsistence level.
This is called “the principle of double effect,” and is valid only so
long as the emergency exists. Unfortunately, many people today assume
that because the social order is effectively in a state of chaos, such
expedients must be implemented as permanent solutions, and they are
somehow released from their personal obligation to organize with others
to restructure the social order to “fix” things so that just once again
can function.
- I’m not quite sure what you meant by “taxation is not objectively unjust”. Any time that prices are forcibly charged which don’t correspond to costs/market value, the tax would seem to me to be objectively unjust. Maybe there are extreme situations, but I guess I’m pretty uncomfortable suspending the principle of property rights. It seems that even in those times of chaos, the same principle is at work (no need for govt to suspend in whole or in part any individual’s property rights). The cost (hence price) for the protection/guarantee (per dollar of wealth covered/protected) may go up as a result of the crisis, the distribution of wealth may change as a result of the crisis (more people with negative net wealth values, or below some exempted threshold), but the principle remains: the expenses incurred in providing the protection or guarantee should generally speaking be divided according to the distribution of wealth because it is wealth (broadly defined to include all rights, privileges, etc. attaching to property ownership - whether of the labor or the capital type) that is ultimately being guaranteed.
[Morally and legally, then, a poor man owns what he owns as fully as a
rich man owns what he owns. Neither the poor man nor the rich man own
what they own in a different way, or to a different degree than the
other. That being the case, the demands of justice are met if the State
protects the $100 of the poor man and the $1 billion of the rich man in
the same way. Obviously, however, it is much less expensive to protect
the poor man’s $100 than it is to protect the rich man’s $1 billion, if
only because thieves are going to target the rich man far more often
than they go after the poor man. When someone asked Clyde Barrow why he
robbed banks, he responded, logically enough, by saying, "That’s where
the money is."
*Part of my point was that it could actually be the case that the price per dollar of net wealth covered/protected for poor individuals would be significantly less than for wealthy ones due to barriers to the free use of that wealth (whether of the labor or capital form) that exist in the marketplace. If the tax rules could reflect the true value of the coverage provided, it seems that this would provide natural incentives to all involved to encourage the government to make the modifications to the institutions and regulatory policies that would promote equal levels of protection or coverage for all citizens. I don’t know if that’s making anything more clear or not.
[Thus, a rich man should pay more in taxes than a poor man because the
benefits he receives cost more. However, because it would be unjust for
the rich man to pay more for a lesser degree of protection, or pay less
for a greater degree of protection, than the poor man, the tax rate
should be the same for both.
- I guess another way to think about this (the flip side to costs) is in terms of the value that the protection or guarantee has for the beneficiaries. Ultimately both are important to consider I guess.
[The only exception to this is, as noted above, in times of emergency
when the State takes more away proportionately from the rich man as an expedient. The caveat in moral philosophy, however, is rarely if ever
taken into account: when someone has his wealth confiscated in this
manner, the one who takes it (in this case, the State) owes not only the
duty of gratitude, but a reimbursement at some future date.]
- see earlier comment about suspending property rights. If it is compensated later that would make it less problematic, but it’s more difficult to actually carry out too probably.
[If I understand this comment, you are seeking to gain the same end as
we are. We would do this by eliminating the complicated system of
deductions and credits that burden the tax code, raising the standard
exemption to a realistic level, and imposing a single rate above that
amount. Again, if I understand your comment, you appear to be trying to
correct the current system, when it would be better, in our view, to
restructure the whole thing and orient it along more just lines.]
- It’s true that I sympathize with the goal of increasing access to capital markets, etc.; but actually, here I was trying to express why using the framework of fair pricing allows us to speak about objective fairness in the context of taxes. Once the economic relationship of government to its citizent is seen in its true light the idea of taxation is just a particular (albeit with some distinct characteristics) example of the pricing of a benefit conferred or of a service provided (in this case a guarantee of property rights). This means that there is a somewhat objective measure of fairness and that measure involves the “distance” between the actual tax obligation and the fair price for the benefit received.
[If I understand your comment, you are saying that the function of
government is to guarantee our lives, liberties, and property. If so, I
do not agree. The role of government is to provide a level playing
field by guaranteeing not our lives, liberties, and property, but access
to the means of enjoying our lives, liberties, and property. This may
sound as if there is no difference, but it is the difference between
equality of opportunity, and equality of results. The former is the
proper role of the State, the latter is socialism. Taxes are not,
therefore, some kind of insurance premium, but a fee for a service.
- I think I must not have expressed myself clearly. I agree that it’s generally equality of opportunity that we’re after. It’s the rights associated with our wealth (labor and capital), for example, that are guaranteed, not some specific outcome of wealth attainment. My point was just that there is a sense in which the institutions constituting our government provide a guarantee of something that is kind of intangible (rights) and that the size of the benefit received is like the net amount at risk in the insurance context. Providing a guarantee is providing a type of service.
[For example, if we buy fire insurance for our homes, we do not consider
ourselves cheated if our house doesn’t burn down, but if we pay taxes,
we are definitely being cheated if the State does not maintain a fire
department. Insurance involves a spreading of risk and minimizing the
cost per capita for a population, very loosely a form of gambling,
whereas taxation involves people paying for actual benefits received.
If the event against which are insured doesn’t happen, most people would
consider themselves fortunate. If the government does not provide the
service for which taxes are collected, most people would consider
themselves oppressed.]
*That’s right there’s not really any risk pooling going on here, except in the case of social insurance programs like Social Security and Medicare. The thing that is like insurance is the pricing mechanism - that the net amount at risk in this case is the net wealth.
[Non-income generating assets are purchased out of consumption income
that has already been subject to taxation; they are “after tax” items,
and taxing them would, essentially, involve double taxation, which is
unjust, as even the IRS admits, unless they equivocate as they do with
corporations. The case is similar with income-generating assets -
wealth. They are purchased with after-tax income (unless the State is
trying to use the tax code to encourage industry or other desirable
behavior - which it shouldn’t in any discriminatory fashion). By taxing
the income generated by wealth rather than the wealth itself, however,
you are taxing something new, once, rather than something that already
exists two or more times.]
- This comment calls into question whether my main point is being understood at all. Guaranteeing our right to life, liberty, etc. is a service that our government is supposed to provide. We where on that point, I believe. That service has a cost/price that is proportional to the benefit we receive. At any given point in time, an individual’s benefit is proportional to the net amount that (s)he has at stake were that protection or guarantee to disappear. This is where the mechanics of insurance pricing comes in. What this seems to me to suggest is that for any given period of time, the price we should pay (the tax obligation that would correspond to each of us individually) is going to be proportional to some measure (e.g. the average) of the net amount at risk during that period.
This is not really that complicated it seems. We each benefit every day, week, month, year from a service that the government provides in the form of protection of our rights to whatever property we have at our disposal. In absolute dollar terms, we benefit at different levels (alternatively, you can say that we incur different levels of costs from the benefits we each enjoy in the government’s provision of those rights). I say that in each period (whether you want to measure it on a daily, weekly, monthly, or annual basis is largely immaterial) we each receive a benefit that is proportional to the amount we have at stake with the loss of those rights provided by the government (namely property rights). This means that the tax obligation an individual has for each period is unavoidably related to his/her net wealth during that period, and the fact that you included an asset in net wealth in one year in no way suggests that you should exclude it the next years, because your right to it was “protected” in each year. Whether the asset was income-producing or not is immaterial to the fact that you received a benefit (the government incurred a cost) in having your right to own it/use it protected or guaranteed. I don’t know how to make it more clear than that. If I have someone clean my house monthly, should I expect to only pay them for the new items that they clean each time, or the entire house? It makes no sense to speak about new and old in this context just as is doesn’t in the context of taxes from my perspective. So, theoretically the tax calculation for individual (j) would look something like this:
O(j) = Integral(t=a, t=b) Wj(t)*r dt,
Where a is the beginning of the period of interest and b is the end, Wj(t) is the net wealth for individual j at time t, and r is the net wealth tax rate. The value of r would be set so that
General govt expenditures during the period (a,b) = Sum(j=1 to N) O(j).
------Original Message------
From: Michael Greaney
To: Loftin Tmo
Cc: Norman Kurland
ReplyTo: mgreaney@cesj.org
Sent: Jul 22, 2008 5:19 AM
Subject: Re: On the Wealth Tax as Really an Income Tax
22 July 2008
Dear Mr. Graham:
I’ll try to address your comments briefly. We’re engaged in preparing
papers right now for an upcoming book and a conference in St. Louis
(with less than a month to spare), as well as trying to publish a couple
more, so I’m afraid it’s something of a guilty pleasure to respond at
this time, but I’ll do my best. To save myself time, I’ll insert my
responses [in brackets] into your e-mail. I’m sure I’m going to forget
something, or leave something out, so I will burden Norm with the task
of filling in any gaps or explaining anything I leave obscure. I’m sure
he appreciates it no end.
First, however, I have to say that the response you got from the
individual who said your dissertation would be rejected because it
justified taxation on philosophical grounds rather than economic left me
completely baffled. Economics is based solidly on certain laws that
reflect human nature, e.g., the laws of supply and demand, and which
laws in turn are applications of our inborn sense of justice. It is
unclear how anyone could reach the conclusion that justifying anything -
which means applying principles of justice - is not philosophical enquiry.
Second, the “paper” I sent Norm was more a collection of notes to which
I appended a title, and a first draft at that. I was trying to come up
with an introduction to the “tax appendix” we developed for our
“Doctors’ Plan for Universal Health Care” proposal so that it could
stand alone. The concepts were thus expressed in a kind of shorthand
and obviously need some tightening up, so your comments will prove useful.
xxxxxxxxxxxxx
Hi Mr. Greaney. I read your short explanation. It was very useful in
providing some background that I have been missing about how people have
traditionally viewed taxes and why my comments might have posed some
difficulty. I have several comments.
First, a minor point. I guess I would differ with some (including Mr.
Locke) in that I believe that it makes the most sense to pay for things
that are intrinsically non-economic in ways that are also in a sense
non-economic. I don’t believe that we should pay for the right to life
and liberty completely through taxes.
[We are not paying for the rights to life and liberty, but for
protection of our rights to life and liberty. Government has to pay
people to perform its proper functions (to say nothing of all the
improper functions it has taken on), so the people make a grant of money
to the State so that the State, a necessary mechanism supporting our
social nature, can fulfill its role. If a good is non-economic,
obviously you can’t put a price on it, and a price should not be
charged, i.e., a tax levied to support something for which the State
doesn’t pay.]
Part of that obligation may very well be economic (to cover economic
costs incurred), but much of it is not susceptible of conversion into
purely economic quantities. Consistent with this basic approach, my
feeling (mentioned in an earlier email) is that the non-economic part of
the obligation we owe our government for the “life and liberty” we enjoy
should be paid “in kind” by the claim our country should have on us for
things like jury duty, participation in the defense of the nation and
our local communities, our effort in exercising our voting privileges,
etc.. We pay insurance for economic losses, not for any other kinds of
losses even though those losses can in many instances be more painful
than the economic ones. There is compensation in some instances for
things like pain and suffering, but these rewards are (in my
understanding, and if they’re not, they probably should be) justified on
the basis of their use as a disincentive for perpetrators (punitive
purpose) rather than as a form of compensation to victims. (In my
opinion, the punitive portion of damages awarded should probably be paid
- after covering legal fees, etc. - to some independent third party
involved in eliminating the punished form of abuse/infraction rather
than to victims who, as things currently stand, have inflated incentives
for initiating lawsuits. I did part of my dissertation on moral hazard
in bodily injury liability insurance and formed some opinions in the
process.)
Anyways, so my first point is that there is no reason to believe that we
can’t separate out the economic portion of benefits we receive and
restrict economic payment to that portion of the benefit while finding
other appropriate means (where they exist) for “paying for” the
non-economic portions.
[I agree, as I stated above.]
My second comment is that I was unsure of the ultimate conclusion of the
fourth paragraph. It seems to begin to suggest that wealth has nothing
to do with the benefit received since "[p]rotection of a poor man’s
small store of wealth … is worth as much to the poor man, as
protection of a rich man’s large store of wealth is to the rich man."
It was not entirely clear to me what the purpose of this (and the next)
statement were. If it was to suggest that the two should then face
equal prices, I could not disagree more. Such reasoning ignores the
importance of markets in determining economic values or prices, doesn’t
it? And what I’ve been trying to say about taxes is that division of
the aggregate obligation incurred in producing the benefits we enjoy
should be carried out against a backdrop of what markets would produce
were there to be a market for the kind of benefit we are talking about
(in fact there ARE similar benefits - generally they look like insurance
as I’ve said in earlier emails). It may be true that the property rights
of the rich and the poor man are “equally protected”, but so are the
Mercedes Benz C-class and the Ford Escort cars that they drive; and that
doesn’t mean that it would be fair to charge the the same amount for car
insurance, or that if we were to charge them based on their incomes
rather than on the value of their respective cars, that we wouldn’t be
making a grave mistake that would have implications for the choices that
the two (and others facing our pricing policy) would subsequently make.
This leads to my third comment: fairness (justice, equity, whatever you
want to call it) cannot be divorced from costs and benefits where
economic things are concerned.
[Obviously I did not express myself clearly, because I agree with you,
and thought that’s what I said. By saying that protection of a poor
man’s store of wealth (assuming he has any) is worth as much to the
small man, as protection of a rich man’s store of wealth is worth to the
rich man, I was pointing out that, in moral philosophy - which should
underpin economics and tax policy, whatever anyone might have told you,
justice is the basis of civil life, and justice is the highest temporal
virtue, according to dead white European males like Aristotle, Aquinas,
Maimonides, and Ibm Khaldûn - a difference in degree does not make for a
difference in kind. I realize a lot of people have trouble with that
concept, and assert that because, e.g., a rich man is a hundred times
richer than a poor man, he should pay 100% tax, while the poor man,
because he is poor, should receive a redistribution of that tax - less a
rake-off for State bureaucrats, of course.
[A difference in degree does not make for a difference in kind. Nothing
can both “be” and “not be” at the same time, e.g., I do not suddenly
lose my right to life, liberty, or property the moment I turn 30 or have
$1 million in the bank, that is, the moment extraneous circumstances are
taken into consideration. Circumstances may justify some things as an
expedient, e.g., the progressive income tax in time of national
emergency to provide a means of keeping people alive, but the moment the
emergency is past, unequal taxation of that sort becomes unjust and
unjustifiable. The “catch” in moral philosophy is that since taxation
is not objectively unjust, you can justify an unjust tax - a tax that is
not levied justly, that is - on the grounds that the anticipated good to
be derived from an injustice that is not objectively evil outweighs the
unintended evil that results, in this case, the rich paying more
proportionately than the non-rich above an adequate subsistence level.
This is called “the principle of double effect,” and is valid only so
long as the emergency exists. Unfortunately, many people today assume
that because the social order is effectively in a state of chaos, such
expedients must be implemented as permanent solutions, and they are
somehow released from their personal obligation to organize with others
to restructure the social order to “fix” things so that just once again
can function.
[Morally and legally, then, a poor man owns what he owns as fully as a
rich man owns what he owns. Neither the poor man nor the rich man own
what they own in a different way, or to a different degree than the
other. That being the case, the demands of justice are met if the State
protects the $100 of the poor man and the $1 billion of the rich man in
the same way. Obviously, however, it is much less expensive to protect
the poor man’s $100 than it is to protect the rich man’s $1 billion, if
only because thieves are going to target the rich man far more often
than they go after the poor man. When someone asked Clyde Barrow why he
robbed banks, he responded, logically enough, by saying, "That’s where
the money is."
[Thus, a rich man should pay more in taxes than a poor man because the
benefits he receives cost more. However, because it would be unjust for
the rich man to pay more for a lesser degree of protection, or pay less
for a greater degree of protection, than the poor man, the tax rate
should be the same for both.
[The only exception to this is, as noted above, in times of emergency
when the State takes more away proportionately from the rich man as an
expedient. The caveat in moral philosophy, however, is rarely if ever
taken into account: when someone has his wealth confiscated in this
manner, the one who takes it (in this case, the State) owes not only the
duty of gratitude, but a reimbursement at some future date.]
Third comment: Fairness, in my framework is related to the market
mechanism: it says something about the objective (in absolute dollar
terms) economic value of the benefit derived relative to the objective
economic value of the price paid. You can see that this is in some
sense an equilibrium concept, since if the markets that the government
“produces” discriminate against a certain class of people in favor of
another class of people (e.g. if access to credit markets is not fair),
the corresponding “fair” tax rate (per dollar of net wealth) will
decrease for those receiving the lesser level of guarantee because the
benefit received is less than a complete guarantee of property rights
(that class’s ability to freely use the wealth embodied in future labor
income streams is restricted relative to other forms of wealth - like
physical forms of capital). Likewise in such a situation, the net wealth
tax rate on the class that is receiving more favorable tax treatment
(because the system provides them with a greater guaranteed level of
property rights) would be increased, preferably so that it exactly
offsets any benefit they receive. This would discourage the use of
market mechanisms for purposes that distort the effective prices people
pay for the property-rights guarantee benefits that they receive (e.g.
adding a new tax shelter loophole would automatically generate a
corresponding increase in the net wealth tax rate for the group that
would otherwise benefit from the loophole and a decreased rate would
apply to everyone else in order that the correct tax obligations would
result, thus eliminating incentives to create the loopholes in the first
place).[1]
[If I understand this comment, you are seeking to gain the same end as
we are. We would do this by eliminating the complicated system of
deductions and credits that burden the tax code, raising the standard
exemption to a realistic level, and imposing a single rate above that
amount. Again, if I understand your comment, you appear to be trying to
correct the current system, when it would be better, in our view, to
restructure the whole thing and orient it along more just lines.]
Fourth comment: you appear to have missed the primary underlying
framework that I am suggesting. I’m saying that the primary (intangible
in many ways) economic benefit that we derive from the system our
government represents is in the form of an insurance or guarantee. I
say that the thing of economic value that is guaranteed is our net
wealth (this includes all the rights, physical assets, etc. that we
individually have: capital and labor, interest-generating and
non-interest-generating[2]) and that the mechanics of payment for this
benefit should reflect the nature of the exchange that implicitly goes
on between the government and its citizens in this regard. In
insurance, we make regular premium payments for periods of coverage for
a something that has economic value the loss of which represents a
risk. Payments depend on the level of coverage provided (quality of
service, reimbursement levels, etc.) as well as the length of the period
and the size and likelihood of the potential loss. In the case of a
guarantee of property rights, the mechanics of the exchange - including
payment - should (roughly speaking) reflect its insurance-like nature.
Payments should be periodic, related to the net amount that is at risk
for the period (overall net wealth), etc.. Nor should it matter how the
payee must come up with the tax payment. If people can’t pay the tax
with their level of assets, it’s because they have the wrong mix: their
assets are not productive enough a mix to cover the cost of insurance.
Maybe there is too great a proportion of overall wealth stuck in an
illiquid and relatively unproductive asset (like a big house), so that
it’s not producing what is required to meet insurance costs and living
expenses both. The answer to this kind of dilemma is to change the mix,
not excuse people from paying for their use of public goods. (It might
make sense to exempt certain assets from the calculation of net wealth -
like primary residence up to a certain amount - but right now I’m just
trying to get responses to the overall idea.) The reason I have gotten
the sense that you missed the main point of my proposal is that you are
discussing things like how many times an asset should be taxed. How
many times should we pay auto insurance premiums? The question seems to
demonstrate a misunderstanding of the mechanism that I’m suggesting.
Ditto for the business about how to pay for the tax. That’s the problem
of the beneficiary of the exchange, not the problem of the entity that
provides the benefit! It’s not an insurance company’s concern whether
the premium payer pays out of his savings account, his checking,
liquidates a CD, sells his used computer, whatever, to pay that premium;
and the premium schedule is not likely to reflect such concerns as a result.
[If I understand your comment, you are saying that the function of
government is to guarantee our lives, liberties, and property. If so, I
do not agree. The role of government is to provide a level playing
field by guaranteeing not our lives, liberties, and property, but access
to the means of enjoying our lives, liberties, and property. This may
sound as if there is no difference, but it is the difference between
equality of opportunity, and equality of results. The former is the
proper role of the State, the latter is socialism. Taxes are not,
therefore, some kind of insurance premium, but a fee for a service.
[For example, if we buy fire insurance for our homes, we do not consider
ourselves cheated if our house doesn’t burn down, but if we pay taxes,
we are definitely being cheated if the State does not maintain a fire
department. Insurance involves a spreading of risk and minimizing the
cost per capita for a population, very loosely a form of gambling,
whereas taxation involves people paying for actual benefits received.
If the event against which are insured doesn’t happen, most people would
consider themselves fortunate. If the government does not provide the
service for which taxes are collected, most people would consider
themselves oppressed.]
Anyways, I very much sympathize with the objective of spreading the
wealth around as much as is possible given differences in preferences
and abilities, and my preliminary feelings on the idea of making capital
more readily available to everyone are quite positive. I like the basic
idea of CHAs, though I’m still working through the details of what is
feasible given the constraints. I hope this is helpful in understanding
the framework I am suggesting and appreciate the time you’ve (both)
taken to consider what I have provided by way of explanation. I will
continue to look into some of the other things you’ve pointed me to.
Sincerely,
Loftin Graham
[1] A note of explanation. In this system, the individual is not
exactly paying the price for the benefit he receives, rather he is
paying that portion of the overall obligation that corresponds to the
level of guarantee of property rights that he receives. There is a
theoretical result in the insurance literature that I believe would
apply here, but I don’t have my books with me right now; so I can’t
provide more information.
[2] I see no reason why a distinction should be made between
income-producing and non-income-producing assets where taxes are
concerned. Besides the unfairness of it (if it’s use, access, right to
control, etc. is guaranteed, why should it be excluded?) it would seem
to encourage the acquisition of non-productive assets: people could own
them and derive enjoyment from them but not have to pay for the
corresponding cost of insuring that access and right to enjoy. How does
that make any sense?
[Non-income generating assets are purchased out of consumption income
that has already been subject to taxation; they are “after tax” items,
and taxing them would, essentially, involve double taxation, which is
unjust, as even the IRS admits, unless they equivocate as they do with
corporations. The case is similar with income-generating assets -
wealth. They are purchased with after-tax income (unless the State is
trying to use the tax code to encourage industry or other desirable
behavior - which it shouldn’t in any discriminatory fashion). By taxing
the income generated by wealth rather than the wealth itself, however,
you are taxing something new, once, rather than something that already
exists two or more times.]
Sent via BlackBerry from T-Mobile
-------- Original Message --------
Subject: Fw: Wealth tax
Date: Fri, 15 Aug 2008 21:17:37 +0000
From: Loftin Graham loftin@tmo.blackberry.net
Reply-To: loftin@tmo.blackberry.net
To: mfeldstein@harvard.edu
Hi Mr. Feldstein. I recently communicated with a Mr. Hubbard regarding a justification of a net wealth tax that would largely replace the current income tax with the purpose of financing general operations of the federal government. He suggested that I look into what you have written on the subject, including making reference to a website you have. I was unable to locate any individual website for you and only found a lot of papers on SSRN or IDEAS or something like that. There are so many and I was unable to locate any that specifically addressed the idea of net wealth taxation (if there is one out there, feel free to let me know). So, I thought I would explain the idea and see what you think about it if you have a couple of minutes. The idea goes something like this:
The primary economic* benefit that we derive from the existence and general operation of a government like our own is the guarantee of property rights - broadly defined. As a consequence, the most basic or fundamental economic claim that the federal government can legitimately make with respect to us individually should be proportional to the net amount at risk that we each have tied up in its existence - the absolute dollar amount that we each would stand to lose were the system to cease to exist, along with the property-rights guarantee that it provides. What using net wealth as the basis for taxation to finance general government expenditures does is it divides the aggregate obligation up in a manner that reflects, broadly speaking, the benefit derived. In this sense, it is a policy based on a principle that is “incentive compatible” (individuals should be willing to pay a proportion of the obligation that reflects the absolute size of the benefit they receive as a total of all benefits received from general government operations) rather than a policy that invokes democratic processes in violation of individual property rights - I mean that specifies an otherwise arbitrary (with respect to benefits derived and individual incentives) rule for assessing individual tax obligations. As I have spent some time thinking about this idea over the past year or two, I have become convinced that further investigation of a regular (e.g. annual) net wealth tax is merited. I am curious to know whether you have given much/any thought to such a tax reform policy and what if any conclusions you may have reached on the subject. A former advisor of mine at Wharton (yyyy - I guess you know him) discouraged me from pursuing the topic and I was later terminated for lack of progress (though I guess it’s more likely in my estimation yo have been associated with a run-in I had with xxxx and possibly some conversations I had with yyyy on the topic of religion - it’s hard to know how people will respond behind the scenes if they feel threatened by your worldview). In fact, I wouldn’t be surprised if Kent were pursuing the topic of wealth taxation now, since he did something similar when I approached him on a matter related to productivity increases in the Social Security benefit formula several years back - he told me in his office that it was “stupid” to talk about what was justifiable and what was not in that context (I was claiming that retired workers seemed to have no justifiable claim on productivity increases made after they leave the workforce) because the formula was just the outcome of a political process. But some months later he had apparently seen the light because he was promoting the idea on NPR! I’m glad the idea got some attention at least (another professor told me that the savings associated with such a change were not trivial - something that I would not have expected). Of course viewing policy as merely the outcome of a political process without regard to principle ultimately reflects is a certain amount of disregard for the need to address the natural tension that exists between the democratic process and individual rights. We address the tension where other important individual rights are concerned, why not where the right is of an economic (e.g. rather than of a civil) nature? Anyways, I’m forwarding a brief discussion of the topic I had several months back (when I was still at Wharton) with James Mirlees and Peter Diamond. I would be happy to know what you think about the basic idea if you can spare the time and have the interest.
Sincerely,
Loftin Graham
*We derive benefits that are not of an economic nature too (e.g. protection of life, suffrage rights, etc.), but those benefits should be “paid” for via non-economic means (the “option” for mandatory draft into military service, jury duty, etc.) so they can be ignored for the purposes of making tax policy decisions.
------Original Message------
To: Peter Diamond
Cc: James Mirrlees
Sent: Nov 13, 2007 2:18 PM
Subject: Re: Wealth tax
Mr. Diamond:
Thanks for taking the time to respond to my questions. I guess I was thinking that technological improvements (things like eBay, for example) have resulted in an environment in which valuing assets is not as onerous a task as it may have been in the past, and that requiring individuals and small businesses to do it would somehow improve that environment - e.g. liquidity would almost certainly increase. Also tax services activities would be channelled into activities that produce financial information (valuations) rather than activities that don’t - e.g. that merely minimize tax liabilities subject to the complicated constraints represented by the current tax code. Perhaps this is a biased oversimplification though. Anyways, I continue to think that there is significant merit to the idea of taxing wealth, but can understand your practical concerns regarding how it would be implemented.
Thanks again.
LG
------Original Message------
From: Peter Diamond
To: Loftin Tmo
Sent: Nov 9, 2007 2:19 PM
Subject: Re: Wealth tax
the problem with being serious about taxing wealth on an annual basis is
that it is hard to measure (and in the US would be politically seen as
too intrusive). while financial assets are readily measurable, at least
if they are in the US, and property values are measurable, small
business assets are not readily measurable. i take this to be a major
hurdle.
i am not aware of dissertation funding that is targeted on an issue like
this
good luck
Loftin Graham wrote:
Mr. Diamond and Mr. Mirrlees:
I have read a little farther in the paper referred to me by Michael Devereux that you are jointly working on and I saw in a footnote that there is not much existing work on the taxation of wealth. I am interested in this topic and would like to know whether either of you is aware of any opportunities for research funding for this topic. I am in dissertation status at the Wharton school (insurance and risk mgmt dept) at the University of Pennsylvania but have had some difficulties associated with a topic I had been encouraged to pursue (and which I accepted primarily on the basis of expediency) and am looking for alternatives. My former advisor has gone to another university and apparently has weakened incentives to continue to work with me. There is no one in my dept currently that has any expertise in the topic (DEA efficiency measures) and the one professor here that has any background in tax topics has discouraged me from pursuing the topic of wealth taxes. The first topic for my dissertation, on ex post moral hazard, I completed a couple of years ago with very little supervision and I’ve attached it for reference. I was away from school for personal/family reasons for the better part of an academic year, during which time I developed some interest in the topic of wealth as a basis for taxation. Since I have come back to school, I have been covering my own expenses. I realize that this is not necessarily the way these things are generally approached, but I am interested in exploring this topic. Any information that you could provide along these lines would be appreciated.
Sincerely,
Loftin Graham
215.668.8769
Sent via BlackBerry from T-Mobile
------Original Message------
From: Smetters, Kent
To: Graham, Loftin
To: Neil Doherty
Sent: Nov 6, 2007 8:34 AM
Subject: Re: Topic
Loftin: It is highly unlikely that your tax idea will be acceptable as a
paper in your dissertation since it does not involve economic reasoning
but moral philosophy. // Kent
Kent Smetters
The Wharton School
University of Pennsylvania
3302 Steinberg Hall - Dietrich Hall
3620 Locust Walk
Philadelphia, PA 19104-6302
(215) 898-9811
(215) 898-0310 (fax)
----- Original Message -----
From: Graham, Loftin
To: Doherty, Neil A
Cc: Smetters, Kent
Sent: Tue Nov 06 00:10:41 2007
Subject: Topic
Hi Neil. I have tried to contact Dr. Cummins in every way I know (both
phones and his temple email). I’m not sure what is going on - whether
he is getting my messages or just us too busy, or what. I am having
some ofthe same problems with the DEA project as before, however, and am
going to divert my focus to this tax idea that I’ve been thinking about
for a while until I find out what’s going on with the DEA stuff and Dr.
Cummins. Let me know if you think that’s a terrible idea.
Thanks,
Loftin
Sent via BlackBerry from T-Mobile