Ever wonder why we vote in November but file taxes in April?
The answer is that if we voted in May, an incumbent could never get elected. I’ve been working on our taxes (about two days now) and seeing my wife’s extra work get taxed at the full marginal rate was very depressing. She worked her ass off to teach a class, for which they paid her $7000. After the government was done, she really did all this work for about $4100. And that’s not considering all the taxes involved when she spends it. Why would Americans want to work harder and contribute more productive work when they see so little of the pay for it?
My wife’s attitude was “Well, it is what it is.” I assume my wife is not alone in taking the same passive attitude towards our government, and it goes a long way to explaining how well it functions. But would we be so complacent if every time we negotiated a salary or a contract, the price was negotiated in post-tax dollars? Of course, maybe I’ll forget all this by November…
Taxes are the membership fees for this country club we call America. Without the fees we wouldn’t have all the perks we enjoy… like rolled-back environmental regulations, crumbling public schools and a 100-year occupation of Iraq.
A passive attitude towards government is bad. Demanding a better government is good.
You WILL vote for Obama, Jon, and you will ENJOY it.
What kind of stinking country club charges you more if you play less golf?
I’m not sure I get it. You’re saying that when someone who makes decent money at their main job takes on a smaller job they should be taxed on the additional pay as if it were their only job? That would be pretty screwed up, we’d all want to get hired & fired every week just so we could stay in the lowest tax bracket.
Also, along with the post-tax-dollars negotiation idea (which I like) I think Libertarians should have the option to pay a-la-carte for each government service they use, like 1) federal building code for any building you go into, 2) paving & filling of potholes & engineering standards on any street traveled, 3) some reasonable assurance that when you get old you won’t be thrown out with the trash, 4) the requirement that other drivers on aforementioned roads must pass a driving test, etc. etc.
That should put us on about the level of a good solid almost-second-world regional-warlord-controlled country like Pakistan or Eritrea or Kansas.
If the a-la-carte system proves inefficient, perhaps the Libertarian Party could establish a common payment system in which each member pays sort of an average cost across all party members for the services, thereby achieving better economies of scale and decreasing transaction costs. Of course, you also wouldn’t want to force a financially poor Libertarian into hunger and destitution because of an inability to pay their share, so the few rich folks could pay just a bit more without feeling much of a pinch, making a huge improvement in the lives of the many poor.
We have a group here in MN called the Taxpayers League of Minnesota, dedicated to reducing taxes and reducing government spending. Sounds like a good idea in theory but in practice I seem to hate everything they lobby for. I keep threatening in my mind to start a group called the Willful Taxpayers League.
Holy crap, I didn’t realize I wrote so much.
Hey, Ken! Thanks for writing. I’m not saying I hate taxes and I’m not anti-government, by any means. Most libertarians (especially the small ‘l’ ones) wouldn’t suggest we have no taxes, and the stone-ages argument is a bit of an unfair strawman, sort of like if I took the ad absurdum limit of progressive taxation and suggested liberals would be willing to enslave the rich by forcing them to accept work at 100% marginal rates if the poverty problem got far enough out of hand. I presume we are both arguing over matters of degree, and you would be no more happy with 100% than I’d argue for 0%. (Also, with regard to your allusion to libertarians’ distrust of social security: there is a difference between mandatory retirement planning and a regressive pyramid scheme. I’m sure your grandchildren will agree. Sorry, I couldn’t let that one go by.)
Anyway, I had two points. First, that politicians are incredibly good at hiding the costs of government from us so that we don’t get as upset about their wasting our money as we should. (Do you like paying for the war or bridges to nowhere?) If we were more cognizant of the costs, we’d be more involved in our government. Between spreading taxes all over the place, hiding them in payroll taxes, and the genius of withholding, we don’t really see how much we pay and so we don’t pay as close attention as we should.
My second point was just the standard Laffer curve deal. I’m willing to stipulate for the sake of this argument that it is fair to tax somebody well beyond what they are receiving from the government (even in terms of the social insurance provided by existence of welfare) as a form of social engineering. And despite my libertarian bent, I’m sure some level of pure wealth transfer is fair and good, if for no other reason than some of the rich are lawyers and real estate agents. However, at some point the taxation starts to become counterproductive as it inhibits motivation and drives away capital.
Anyway, to finally address your initial objection, I agree you can’t get around the fact that marginal rates will be much higher than effective rates with a progressive taxation system, and that there’s no way around this that doesn’t raise paradoxes. The fundamental theorem of calculus kind of screws you there, I guess. So my main point is that we better keep government costs reasonable, because at some point you just start having to either tax the hell out of the middle or bump up against the wrong side of the Laffer curve with the rich. We don’t have much more to go in either direction. Half the country already now pays the taxes of the other half. How much more progressive can we go? Is it really a healthy democracy when half the citizens have no financial stake in their government? That’s kind of the definition of economic moral hazard.
Don’t you agree that if taking about half of a college teacher’s marginal output is what it takes to run a society, something has gone a bit wrong?
Ken and Morgan:
I hope I didn’t come off as too much of a jerk, either in the post or in my replies. It was a pretty dumb post to begin with, but it wasn’t meant as a libertarian rant. I actually think Michele and I pay, overall, surprisingly little taxes (probably less than our fair share) but that the marginal rate is high enough to be counterproductive. And think the notion that taxes should be more transparent transcends the issue of how much we should be taxed and for what it should be used. I promise future posts (if any) on the topic will suck less.
Hah – Jon, I know your exact level of jerkitude already, and I highly doubt it’s any higher than my own (a level I can’t quite pinpoint).
I think I’m an inexperienced reader of political blogs, especially non-left-wing political blogs. I had to look up the phrase “Laffer curve”, for example. So I think I assumed you were saying certain things that you probably weren’t saying.
Maybe I have 2 more basic questions: 1) implicit in the notion of the Laffer curve seems to be an assumption that a goal of government should be to maximize revenue, but why should that be the case? 2) what do you mean by “financial stake in the government”?
Hi Ken,
My jerkitude apparently is a random variable, which has caused me to establish a mandatory one day cooling off period before things get posted. You should see the shit I delete. In fact, I think this policy may have just recently saved me from what would’ve been a nasty libel suit from Jamie Lee Curtis and the makers of Activia.
I agree that the concept of aiming for the extremum of the laffer curve assumes that you want to maximize government revenue, but the theory being correct or not doesn’t really imply that you have to go for it. What I was trying to say in the comment was that if we’re on the right side of the curve, everybody of any political pursuasion will want to lower taxes because it makes everybody happy, even if you don’t think we should maximize revenues. Furthermore, if you’re anywhere near the peak, you get very little change in revenue for changes in marginal tax rate. Given the costs of taxation to economic growth, it would seem best to stay well to the left, where we will then all argue over how much revenue is needed. I didn’t mean to imply that I thought anybody wanted to maximize government revenues, just that I’m worried we’re close to it. I read somewhere that some economists think that around 60 percent you hit the maximum. Granted, it seems like we’re far from that, but I think if you add up all levels of government and all taxes, maybe we’re not, especially if the max marginal rate goes back up into the 40s.
By ‘financial stake in the government’ I meant that if you pay no taxes (something like half of Americans essentially pay no income tax) then you have no incentive to worry about government operating efficiently. Why would you ever vote down an increase in taxes to fund even the most wasteful of spending? More nefariously, those that pay no taxes (or at least think they don’t) are less likely to be motivated to follow the government they didn’t have to pay for, so ironically their interests will not be looked out for as well. According to the Wall Street Journal, the top 20% of wage earners pay about 70% of the federal tax burden. That seems a bit out of whack to me, but maybe it’s just an unavoidable result of the severe wealth disparity, I don’t know. I’m just saying it’s unhealthy for a democracy, whatever the cause.
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