Repost: Phony Individualism: Why we undertax the wealthy

[koshersalaami]

I think of myself as a primarily economic blogger. However, in looking back over my posts, I realize that hasn't been true for a long time, I guess because I got tired of saying some of the same things repeatedly in different ways. In the last couple of years, who is active on Our Salon has changed, and so my self-image doesn't match what current bloggers have seen of me, so I think I'l repost a few old pieces.


This was originally published on March 20, 2014, both here and on Open Salon. When I started posting here, I double-posted damned near everything.

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There's a major philosophical argument underpinning the major economic disputes in Congress, and it has to do with whom is owed what.

Why aren't we taxing the wealthy enough?

There are two justifications given. The first is that you don't overtax people who create jobs if you want them to create jobs. This argument is complete crap because it misdiagnoses the problem: The reason jobs aren't being created sufficiently in the United States is not that investors don't have enough capital, the reason is that they don't perceive enough demand for such investments to make business sense. They're right, of course: Wealth is so polarized that the United States suffers numerically from a shortage of paying customers. But putting more money in the hands of investors doesn't fix that, particularly when they already have enough money; to fix that, you need to put more money in the hands of customers, and that's exactly what Republicans seem to have religious objections to doing.

The second justification is that they don't deserve to be taxed more. They built businesses, they earned what they have, so why should we punish success? And, most particularly, why should we punish them in order to subsidize the Undeserving Poor?

To begin with, the people with this viewpoint always fail to notice that we're already subsidizing the Undeserving Rich. There are energy companies out there who pay zero in taxes but get payments from the Government - in other words, their taxes are actually Negative. There are companies that pay their employees so little that the Government has to assist those employees with programs like SNAP, meaning the Government is subsidizing labor costs for these companies (Wal-Mart is the biggest perpetrator of this). We subsidize the middle class and the wealthy with the mortgage deduction, though overall we don't subsidize the middle class enough. Taxes are far lower on investments than on labor but, given that business is more starved for demand from laborers than for investment, that's now backward from the standpoint of helping the economy, and why exactly do investors Deserve more than people who actually work? And then, of course, there's the low inheritance tax, subsidizing the great example of people who get rich but have done absolutely nothing to Earn it or deserve it.

But there's another myth attached to this viewpoint that people don't talk about:

People build businesses by themselves, without any help, and so they don't owe anyone anything,

particularly the Government, which primarily functions as an enormous bloodsucking regulatory burden.

They are, as they used to be called, Self-Made Men (and women).

So Mr. Self-Made Man gets up in the morning, grabs his coffeepot, turns on the fawcett to fill the pot with city water that's miraculously clean and potable, plugs in the coffeemaker which miraculously doesn't short out or set the house on fire as it makes coffee, takes a quick shower that drains into a city sewer system that miraculously takes away his waste water, swallows a couple of pills that miraculously work and miraculously don't make him sick or kill him, gets dressed and into his car that is miraculously not Unsafe At Any Speed, backs out of his driveway onto a road that's miraculously waiting for him, drives through intersections with traffic lights that are miraculously hung properly and that the other drivers on the road miraculously know how to interpret so they don't crash into him and kill him, drives past a policeman who's miraculously watching out for his safety, drives past a firehouse that's miraculously convenient in case his house catches fire from a faulty coffeemaker, parks at work near a streetlight that will miraculously light the way to his car if he gets out of work late, checks his e-mails over an internet that is miraculously available on his computer, reads them due to having been taught to read at public schools that were miraculously in the neighborhood and miraculously staffed with trained and certified teachers while he was growing up, writes a check to put in mail service that will miraculously take it anywhere in the country for under fifty cents, checks inventory that came in primarily on trucks driving on interstate highways that are miraculously in place, has to dash out to drop one of his employees off at the local airport to take a business flight that's miraculously safe, grabs a fast food lunch that miraculously doesn't make him sick and miraculously gives him nutritional information so he can watch his diet, then heads over to the local Chamber of Commerce for a meeting where he complains about high taxes and wonders aloud what in Hell the Government ever did for him.

I guess being rich means you're entitled to miracles,
or at least to pretend that you're self-made.

Somehow I just can't bring myself to view low taxes on the wealthy as a moral imperative. But, somehow, there are a lot of people in Congress who do.

And, somehow, that has to change.

[Steel Breeze]

being economically challenged,i don't get why a flat tax rate for everyone isn't fair......the more ya make,the more ya pay......

[koshersalaami]

Because the proportion of income of what people need to live on changes radically. If you make $20,000 a year, you need all of it to survive. If you make $2,000,000 a year, you need very little of it to survive. So where do you put the flat tax? 10% both overburdens the first person and doesn't take enough from the second person to keep government operating adequately. Past a certain point, people can afford to educate their kids anywhere, using an example of an important common expense. And so we put a greater burden on people who can carry it for basically the same reason (using a metaphor Imused in a post once) that we put our biggest football players on the line instead of in the backfield - that's where the heavy lifting is. 

[Steel Breeze]

ok...but....if you and me wanted to join a club,and the fee for you was 10x the fee for me cause you make 10x what i do......would you join? kinda simplistic,i know,but i'm a simple dude.......i think i'm tryin to say that everyone pull their fair,but equal,share....

[TG DE VORE]

I was raised to believe that the more you have, the more you should give. And that seems to be the opposite of what is America now.

[koshersalaami]

I'd say in the case of taxation it would be closer to fair to use an equal portion of disposable income. We can't measure that exactly but the proportion of income that is disposable tends to rise with income. And this question doesn't take my first answer to you into account in the respect that a number like 10% doesn't work for the country at either end of the income spectrum, so a flat tax can't work effectively. 

So, how do you handle it? Say that if you make $19,000 a year you don't pay taxes but at $20,000 the flat tax kicks in? The problem with that is people now earning $19,999.99 because the next penny of income costs them $2,000 at a 10% rate. That's a damned expensive penny. 

You could say that the first $20,000 isn't taxed but everything past that is taxed at, I don't know, 20%. Then, that penny doesn't cost you a fortune - if you make $20,010, your tax is $2. However, you've just effectively gotten rid of a flat tax and introduced a graduated tax. If everything over $20,000 is flat taxed at 20% and you make $40,000, your effective tax rate is 10% (0 on the first 20k and 20% on the next 20k equals $4k, or 10% of income). If you make $100,000, your effective rate is 16% (20% of $80k). 

[Steel Breeze]

i'm sayin ALL earned income.....ya earn a buck,ya pay a dime....

lemme try a maybe better simple man view...

all annual earned income in the US is XXXXXXXXXX...

annual budget for the govt is X....

so if ALL earned income is taxed at 10%,budget is met....

[koshersalaami]

It misses the problem of those at the bottom. If you make poverty level wages, earning $12,000 a year doesn't mean you can afford $1,200.

[Ron Powell]

AMEN!

[koshersalaami]

Terry,

Which is a microcosm of my issue with income/wealth polarization in general. 

[J.P. Hart]

Maybe all tax is a figment of our imagination. Some of my best friend's are CPAs!

A thick book oughtahbee written about the Clinton Surplus, the perpetual (automatic generational WEDGE) Congressional 'borrowing' from the Social Security fund. The predictable 'lack of logistical expertise' whenever mind numbing  loss of life and wicked 'acts of nature' explode our sanctuaries and sustenance. Eg: why don't we plumb valved geysers as 'preemptive fire lines'. Why don't we osmosis and chill-down the Verdev Straits hot spots,  Years off, I wrote of Teflon umbrellas (post Reagan shooting, pre-Brady bill). Government accounting is a grey hole.

The a priori 'adventure' is keeping the fine' nuclear genie in the bottle. The CIC of North Korea is not the sharpest blade on the Swiss Army knife.  And from the 'I can't believe it's not protein file' I clearly remember a Craig's List advertisement/solicitation for AmeriCorps with the high-lighted wage of $.63 per hour. Sure the corp offers three hots and a cot (maybe a futon???) but the what you can do for your country aspect of the opportunity is certainly worth more than 12 per cent of the Federal minimal wage. One of my smartest mentors was fond of having 'staff' fax his 1040's as though we needed to know he grossed $249,999.  Dude was markedly OK; company fudgsicles every 15 APRIL, No Name Steaks for Memorial Day etc. generous T & E spence counts, pro-sports box tickets but yet a frugal eye on the high-noon of the bottom line