Taxes fair and efficient

 

I was just going to write something else tonight when I come to find ShellGamer’s post on fair taxes. In Minnesota we have a biennial discussion of this with the release of the state’s Tax Incidence Study, which is routinely used by the state’s Democratic (or more precisely the Democratic-Farmer-Labor party, as it is called in MN) party as the rallying cry to take more taxes from “the rich”.  It shows that our taxes in Minnesota, at the state and local level, are regressive.  That is, those at the top of the income distribution pay a lower share of their income in taxes than those in the middle class.  

There are several problems with such claims.  Comparisons across years of these studies leads one to think the rich are getting a better deal than they did 10 years ago.  But the rich 10 years ago are not the rich today.  I have thought of introducing a bill that would call it the “Minnesota Tax Annual Incidence Study.”  The annual incidence just says how much taxes you pay this year on the income you earn this year.  What we really want to know is how fair taxes are over one’s lifetime, isn’t it?  People do not stay in the same place in the income distribution from year to year; one study showed that only 6% of millionaires (earning $1 million or more) in 1999 stayed millionaires each year through 2007.

Federal taxes are progressive; these are ignored in our Tax Incidence Study, and ignoring them makes us look worse.  On an annual basis income taxes are far more progressive than sales taxes, and both of those are more progressive than property taxes.  Yet local governments rely mostly on the last, and states take a combination of all three.  When viewed over a lifetime, the differences in progressivity between federal, state, and local disappear.

What we really want, in my view, is not necessarily a progressive tax system … unless redistribution is your explicit goal of government.  (If it is, let the feds do it with an income tax.  The reason will have to wait for comments or another post.)  What we want is to start with an amount of government we want to pay for.  I would like there to be money to pay the police and court officials and corrections officers, man the firehouse, pave the roads, and educate our kids (maybe privately, but again that’s besides the point.)  We then figure out what’s the best way to collect that money.  How can we get it without changing how people behave to avoid paying?  

In all the discussion about fair taxes, what I don’t hear is what is an efficient tax.  How do I keep people working, enjoying leisure, consuming what they want, while collecting enough to pay for the items we see as properly the function of government?  Doing so keeps more wealth production and more leisure consumption, things that many of us find as important as fairness.  

There are 8 comments.

  1. Johannes Allert Inactive
    rosegarden sj dad: The reason Dems don’t want a simplified tax code–even if it got more tax revenue–is that it undercuts their ability to turn taxes into a tool of class and cultural revenge. · Mar 27 at 8:46pm

    You nailed it. As I’ve started to point out to my left leaning individuals here in Minnesota they define every issue along the lines of race, class, and gender. Tap in the notion of inequity and you get votes every time. It has nothing to do with making sure everyone has a chicken in every pot and an Ipod. It has everything to do with power & control.

    The late President Reagan did the best job of anyone by asking the simple question “Are you better off now than you were four years ago?” In doing so he revealed the fundamental flaw in liberalism. People do not get more when only the rich are taxed. Our goofy Minnesota Governer Mark Dayton AKA “Trust Fund Baby” has a ton of $$ squirrled away across the border in South Dakota. Whenever challenged, he deflects the question and says it’s not fair to bring his father into the equation. REALLY?

    • #1
    • March 28, 2011, at 4:07 AM PDT
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  2. Jerry the Bastage Inactive

    The trick is to get more people to want less from their government. That can be done by enforcing the basic understanding that government isn’t free.

    Let’s make everyone pay taxes and lets make them write a check for those taxes four times a year. At least make them sign a tax bill four times a year showing the withholding they’ve paid.

    Make taxes universal and visible.

    • #2
    • March 28, 2011, at 5:38 AM PDT
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  3. Good Berean Inactive

    I would prefer that we apply a corollary of the Roman law maxim, Quod omnes tangit ab omnibus approbatur (what touches all must be approved by all): What everyone uses, everyone pays for. I like the idea of a flat tax as proposed by Steve Forbes and others.

    • #3
    • March 28, 2011, at 8:29 AM PDT
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  4. Morituri Te Inactive
    King Banaian: In all the discussion about fair taxes, what I don’t hear is what is an efficient tax. How do I keep people working, enjoying leisure, consuming what they want, while collecting enough to pay for the items we see as properly the function of government? Doing so keeps more wealth production and more leisure consumption, things that many of us find as important as fairness. ·

    Exactly. I don’t think “fair” has any useful meaning in the context of taxation. The purpose of taxes is to pay for the things we want government to do. Our tax system should accomplish that in a way that is most economically efficient, and in particular avoids disincentives to marginal effort that depress labor productivity and thus wealth.

    Good luck explaining that to a liberal. They think taxes exist for the things they want government to do, and to redistribute wealth.

    • #4
    • March 28, 2011, at 8:32 AM PDT
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  5. rosegarden sj dad Inactive

    I had a chat with my father in law yesterday, a West L.A. gentry-liberal; what was most notable was the lack of metrics in his discussion of taxes. His argument was: We’re not broke, we’re just not taxing the rich enough. I asked him how much was enough, what metrics seemed right, what was a fair top rate, what was a rate % for the top quintile, what % middle class should be paying. He had no answers. He doesn’t care if the $ is well-spent, he just wants rich people to pay more.

    What’s interesting about this mindset is not its hypocrisy, but it’s fear of an agreed-upon metric. The truth is, they want the issue to be unclear, because it gives Liberals In Power the chance to use situational management to stick it to people they don’t like. This debate is not about taxes: it’s about using the tools of government to punish dissent.

    The reason Dems don’t want a simplified tax code–even if it got more tax revenue–is that it undercuts their ability to turn taxes into a tool of class and cultural revenge.

    • #5
    • March 28, 2011, at 8:46 AM PDT
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  6. Peter Robinson Founder

    King, I weep. Why are you a legislator in Minnesota and not the governor of California?

    • #6
    • March 28, 2011, at 10:06 AM PDT
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  7. Lucy Pevensie Inactive

    One other point to always keep in mind: the real “rich” are not the high earners. The real rich (I gather like the Minnesota governor) are the ones who have the money, often by inheritance, not the ones who earn it.

    • #7
    • March 28, 2011, at 11:42 AM PDT
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  8. Profile Photo Member

    The great Bill Buckley famously said, “I would like to electrocute everyone who uses the word “fair” in connection with income tax policies.” The key point is that “fair” is necessarily a very personal and subjective term with no useful application. I prefer to agree on the purpose of taxes. Do we tax to raise revenue for necessary government activities? Or do we tax to engineer a better state? These drive different answers, but I doubt that anyone in Washington has the courage to start that discussion. I would prefer a consumption tax to income tax. Failing that, a flat tax with no deductions would be the most efficient.

    • #8
    • March 28, 2011, at 11:57 AM PDT
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