Tuesday, October 6, 2009

Freedom Based Taxation

Taxes are 100% constitutional and fully consistent with the principles of a freedom loving people. However, taxes become a form of slavery when they systematically and purposefully redistribute wealth. Wealth is simply the product of someone's labor. Whether the laborer is Bill Gates, or a cotton picker in the 1800's, when the fruit of the laborer is given to another without consent it is coerced servitude. The principle of freedom in taxation is that the benefits of the taxes must be general and fall evenly upon all citizens. This implies that taxes should be as local as possible. It also means that private alternatives should always take precedence over public programs. The fire department is a good example of the locality principle. Research at the National Institute of Health Sciences is a good example of the general utility principle as it produces knowledge that is available to everyone. I'd even say NASA is of general benefit even if you aren't a space buff. Federal highways are OK too.

However, here is where we depart from the principles of freedom in taxation: 1. overly progressive taxes, especially "negative" taxation, and 2. general fund expenditures on individuals and special interests. When the government reduces the level of tax to zero (or below zero) for a class of people, they are reaping the rewards paid for by another class of people. I'm not arguing for a capitation tax, nor even necessarily a flat tax. I'm just saying that the lowest income tax level should not be zero! And the highest should not be confiscatory! Today, because of so many tax deductions and credits, 4 in 10 Americans pay no federal income tax! How well does that bode for freedom when 40% of Americans have no incentive as voters to control federal spending?

Second, whenever the government writes a check to an individual so they can receive a benefit that is unique to them, unfair wealth redistribution occurs. Welfare payments out of the general fund to select groups of people based on things such as health status or income level are unequal expenditures which benefit a few at the expense of others.

In the U.S. we have at least tried to pay lip service to freedom principles in our welfare state. Social Security was envisioned as a separate fund dedicated to one purpose. It was to be self-funded and it would theoretically (except for the lucky first cohort) pay out about as much as you paid in. Thus, it wasn't supposed to be redistributive. It was a mandatory savings program. Medicare was to be the same. Of course they are both ponzi schemes and we all know it. Today, both of these programs simply represent a massive generational transfer of wealth. Current workers are slaves to current retirees and will not receive back what they paid in.

But what if taxpayers voluntarily vote to extend benefits to select groups? Well, up until the early 1900's, it was understood that payoffs to special interests, even if charitable were unconstitutional. See these examples. We are now flouting the constitution with programs like Medicaid and CHIP. But still, if taxpayers approve of it, isn't that their freedom based prerogative? No, inalienable rights* should not be voted away and the Supreme Court should not allow it. The fact that it has been allowed shows how far we've strayed from the principles of freedom. Additionally, you will never get unanimity among tax payers, so somebody is going to be forced to pay for something that they don't benefit from.

*The right to property is an inalienable right. Before Jefferson, the three liberties were "life, liberty, and property".

I agree that there is a gray area. The welfare state proponent will no doubt say things like:
  1. The benefit is general because program X reduces crime, for example, and lowers costs to you in other ways.
  2. You might need government charity someday too. Consider it insurance of which you are a beneficiary.
  3. What about that fire department you mentioned? Not everyone will have a fire. So it's like insurance. Why can't we have health insurance for all too?
These arguments have a valid point, but one that has a built-in answer in the American system of government. The answer is local rule. The smaller the unit of collective action, the more likely it is that the beneficiaries of the activity will be have the same needs and interests. Taxation will always be an imperfect vehicle for equitably representing the desires of the the tax payer. The best we can do is to ensure that the taxpayer's contributions travel the shortest distance away from her as possible so that she can see it's effects and have a greater say in remediation of any improprieties.

The fire department, again, is a great example. Different places in the country have different approaches to fire fighting. Some areas rely only on volunteers. There is no one-size-fits-all approach. Ever since charity went Federal, we've noticed many more abuses of it. Who is a greater steward of charitable benefits, the man who receives a check from 2,000 miles away or the man who sees his benefactors as neighbors? Keep it local! And when possible, keep it private!
"The government of the United States is a definite government, confined to specified objects. It is not like the state governments, whose powers are more general. Charity is no part of the legislative duty of the government. "
--James Madison

Taxation will always be messy and imperfect. But this does not give us license to view the "rich" as an ATM and for the "poor" not to contribute. And on the spending side, if there is a risk that a program will only benefit a select group, it needs to be rethought or pushed down to a more local group (state, county, or city) or to the private sector.

2 comments:

Jazzbumpa said...

Nathan -

I've just read your first paragraph and it is so full of all kinds of wrong, that I see no reason to read further.

Taxes are 100% constitutional and fully consistent with the principles of a freedom loving people.

Good start.

However, taxes become a form of slavery when they systematically and purposefully redistribute wealth.

No. Suppose the richest 1% of the population, who control something like 40% of the total wealth, are taxed in such a way that the wealth of the lowest 10% is doubled. I don't know how much wealth the lowest 10% percent actually posses. Let's do a thought experiment based on 1%, which I'm guessing is actually quite extravagant.

So we extract 1/40 of the wealth from the richest 1%. Now they only posses 39% of the total wealth. This booty, distributed amongst the lowest 1%, is not going to be trivial, per each, from their perspective. It will double their wealth, and allow them to eat for a while, if they so chose.

It might also allow some discretionary spending, which is good for the overall economy.

That top 1% - well they're still the top 1%, and still fabulously wealthy.

The fundamental problem with absolute statements - and this is why I ALWAYS avoid them - is that it only takes a single counter-example to topple the whole house of cards.

Wealth is simply the product of someone's labor. Whether the laborer is Bill Gates, or a cotton picker in the 1800's,

Labor is a component of wealth, not the whole ball of wax. In fact, for large chunks of human history, wealth was defined mainly as land holdings, and other physical possessions.

when the fruit of the laborer is given to another without consent it is coerced servitude.

Only if there is a) servitude, and b) coercion. Taxing a multimillionaire's next million, which is likely accrued with absolutely no effort on his part, frex., via a capital gains tax, at an incremental rate of 90% still leaves him with $100,000, for which he did, essentially, nothing.

The principle of freedom in taxation is that the benefits of the taxes must be general and fall evenly upon all citizens.

Really? Sez who? The top Google hit that seems to actually contain the phrase "freedom in taxation" is this blog entry. Are you just making this stuff up as you go along?

This implies that taxes should be as local as possible.

Really? How so?

It also means that private alternatives should always take precedence over public programs.

There is no cause and effect linkage among these statements. Your presentation is nothing more than a string of naked assertions.

You really are just making this stuff up.

The fire department is a good example of the locality principle.

A fire department HAS to be local to be of any utility. This is not a particularly relevant example, from the standpoint of taxation and freedom.

Research at the National Institute of Health Sciences is a good example of the general utility principle as it produces knowledge that is available to everyone. I'd even say NASA is of general benefit even if you aren't a space buff. Federal highways are OK too.

Why stop there? People who don't have children still support schools through property taxes. Do you think this is good, proper and just?

I'll suggest that tax-funded social programs are human resource investments that benefit society by helping individuals move out of an economically deprived underclass that is disproportionately likely to produce criminals and other types of sociopaths.

Off topic here, but in response to your comment at my blog - I do understand courtesy and persuasion. I chose not to employ them because a) I'm really not interested in getting anybody to agree with me, and b) you are coming from a place so filled with poorly reasoned right-wing talking points that I have no confidence in maintaining a meaningful conversation.

That said, though, rudeness is out of place, and I apologize again.

Cheers!
JzB

nathan3700 said...

Jazz,
I see that it would be helpful to explain the sources of my inspiration for this post. Yes, I am synthesizing thoughts from multiple sources ("making this up" as you may describe it). My primary source of inspiration is the Constitution of the United States. I have also been reading the Federalist Papers this year (I'm up to No 80 or so). Also read the "5000 year leap" this year. I've been influenced by biographies of Hamilton and Adams. I've also just dabbled around randomly learning about Jefferson and Locke, especially their views on natural rights.

Specifically, though, I see the Constitution as having successfully found the "balanced center". It touches on taxation of course. The two main concepts that influenced my post here are first, The apportionment clause (Article I, Section 2.3) and second, the tenth amendment. The apportionment clause, along with the enumerated powers of section I.8 clearly define a government that is paid for equally by all states (as measured by population, not wealth) and whose benefits are general and nation-wide, not local. I realize apportionment was repealed by the 16th amendment to enable the income tax, but the general principles are still valid. The 10th amendment is clearly an attempt to prevent over-centralization of power and to guarantee the sovereignty of states. This was a attempt to keep power as local as possible.

Anyway, you make a good point about wealth not necessarily being the fruit of labor. I think there are two issues here: inherited wealth, and wealth that is earned through financial instruments. I agree that inheritance is one-degree removed from producing wealth first hand and therefore might be treated differently to some extent.
I divide human rights into two sets: inalienable rights, and vested rights. You can use your inalienable rights to create vested ones. Inheritance is when someone uses their inalienable right to execute a contract which creates a vested right for someone else to their property. So by confiscating inherited wealth, you indirectly violate an inalienable right. Life is unfair, and there is plenty of gray area, but it is no excuse not to attempt to preserve inalienable rights whenever possible.

Same goes for wealth created by financial instruments. Here you have a mixture of two things: vested rights coupled with risk-based labor. It might not seem like work, but putting money at risk is a form of labor in my book. Especially if you care about the money and put effort into checking up on how it is being used. Whether the money at risk is 100 or 1 million, the investor has a right to any gains from it.

You'll see that I never precluded a progressive tax. I just ask that the purpose of the tax not be overtly about treating one person's rights as inferior to another's regardless of how rich they are. BTW,I reject the notion that people have a right to be free from want, or a right to a minimum standard living. Those are vested rights, and must be earned or gifted.

When it comes to absolute statements, I see them as ideals, not absolutes. Much like how a euclidean shape such as a square can only ever be approximated in real life, but that does not make studying it any less valuable.