Thursday, May 26, 2011

More on “Taxation is Theft”

Consider this statement:







  1. Let's ask some more interesting questions on taxation, since this whole "coercion" business is frankly quite boring.

    1) Taxes have traditionally been regarded as a tool for ensuring solvency of public services. And not as a tool of political rhetoric or gain. Thus, isn't all the mainstream political discussion on taxes completely off topic? All that distraction about whether married couples should or should not get tax credits, or whether certain kind of behaviour should or should not be taxed is just that - distraction.

    Would you not agree, LK, that arguments for progressive taxation based on "greedy rich", or "excessive power of plutocracy" or "stopping the attack on the middle class" are base and irrelevant arguments? That they do absolutely zero to address issues of public sector solvency?

    2. In most discussions of lending and insurance policies, we always look at moral hazard and adverse selection. Any low interest rate loan will only be applied for by the least credit worth applicants and only encourage their uncreditworthy behaviour. Any long term loan, in place of a short-term loan that is to be frequently renewed, has the same effect. So does repeated and continuous lending, in place of ceasing to lend.

    Are taxes not akin to a zero interest rate loan with a repayment period of perpetuity, with continuous repeat lending? Do taxes thus not bring a serious moral hazard problem? Considering less economical departments, such as the Pentagon in the US, is there not also an adverse selection problem? Has it not led to a situation, in which US government keeps spending more and more on a navy that it does not need, which becomes obsolete quite quickly, which has to be replaced frequently, and which is still in gross excess of the next ten largest navies combined? Has it also not led to Japanese bureaucrats who draw out $300,000 in salaries and benefits? Does it not encourage uneconomical exhaustion of scarce resources?


    I regard taxes as

    (1) a means of implementing fiscal policy - the major policy tool of Keynesian economic management;

    (2) a way of providing the real resources required by government or the people it employs, by stopping consumption of a certain amount of resources by the community at large, freeing those resources up;

    (3) as a way of addressing the moral/ethical issue of inequality of wealth, which might have deep-seated historical causes in your society. I do not see extreme disparity of wealth as either morally or economically efficient.

    And I have to say I don't really think taxes "fund" government spending. This is just a superstition left over from the gold standard days. In this, I agree with MMT.


    Again, I don't see taxes as funding government spending.

    What just happened in the US, by the way?
    QE1 and QE2 in which we have just seen how the government can buy back a vast number of government bonds without taxes.

    The issue you are talking about - which is very real and a worrying one - is what type of spending the government should do.

    I don't think a bloated military is a good spending decision, and I favour social spending, public goods, and much more money on R&D, like basic and applied sciences and lots more on medical research.

    These things must be sorted out by a better democracy and public debate. If we had full employment and better economic security, there would be more opportunities for people to think about politics and the issues you raise, instead of worrying about making ends meet.

  3. Living in society is being coerced all the time, since no society is ever normless -- as they say, ubi societas ibi ius. This is really Law 101 stuff. Libertarians simply want to replace already existing norms with norms they like, except they get on a high horse about it and accuse everyone else of wanting to "coerce" or "initiate force."

    LK, I don't think you should validate their frail attempts at legal philosophy. It almost makes their "point" look meaningful.

  4. Inequality of wealth?! DISCREDITED YOURSELF!

    Sorry, but come ON. It does not make a difference that some people have more money than others. Not to you, not to me. On a day to day basis, neither of us cares that some people have more money than either of us. It would not make our lives better, and odds are that we would go on doing the same things we already are, if we did have more money. Such as talking economics on this blog.

    You know the R/P10% (or the ratio of the median incomes of the top 10% and the bottom 10%) is an interesting figure. United States has a R/P10% of 15. Russia has a R/P10% of 12. India has a R/P10% of 9. And yet, anyone would rather be poor in the US than in Russia or India. Face is that a larger percentage of the population is much better materially provided in US than most of the population in Russia or India. Why should it matter that there is "disparity"? In the bottom 20% of US lies people earning $30,000 a year, with a lifestyle better than anybody in North Africa.

    LK, I think you are the one who has to explain yourself here. One would have thought economics is a value-free subject, and yet you enter in your own values into economics here. As if everybody cares about the same values as you. If you have to look from the economics perspective, you have to see whether taxes are deployed in a way that makes the best use of scarce resources, given other people's ends, not yours. You should have been looking at whether there are costs to NOT paying some people more than others. Otherwise, you engage social commentary, not economics.

    Joseph Stiglitz and Paul Krugman talk a lot about income inequality, with much sincerity, but you never hear of them forfeiting their high speaking fees in favour of another household, and living on just enough (say $60,000).

    Incomeinequalitytards (sorry, but it's a word I like to use) hold a lot of values for public life that they never practice in private life. So what was the point? It only means that they themselves never cared that deeply about income inequality.

    Anyway, if you have merely mundane philosophical reasons to care about income inequality, and not economics, you have to know you are outnumbered philosophically. Distinguished philosopher James Burnham, once said, "Where there was no solution, there was no problem." Since there is no known solution to paying engineers the same salaries as janitors, without bridges falling apart, income inequality is not a problem. When large corporations run the risk of losing billions of dollars, it make sense to pay millions to a good CEO. Moreover, the ancient Greeks had a particular word for concerns about money, which they called "pleonaxia". It means wanting more. In their society and in ancient Christianity, it was considered a sin. It's not that having money is wrong, but thinking about money. Just spend it, give it away, or keep it, and then forget about it. The road to misery is in constantly thinking about money, be you rich or poor. Much the same way, why use politics for being an endless tool of deciding who should have been paid what? Milton Friedman, born in a poor Jewish neighbourhood in New York, cleaned toilets for minimum wage, but used that money to buy books and read vigourously. Even if policy ensured that the likes of him had more money, his pursuit and interests in life would have remained the same.

    In short, let's just leave the issue of incomes at the point of whether employers get what they want for they pay, and whether that employee's work is useful to the organization and thus the final customer. Much better than worrying about the trivial fact that some people make more money than others.

    I make this post, because while progressives like to see themselves as moderates and centrists, they don't realize how much of ideologues they actually are. Egalitarianism is a substitute religion, because the end result of equality is nothing but equality. It's an end in itself.

    Hope you respond to all my points.

  5. "It does not make a difference that some people have more money than others."

    It matters a great deal to me that some people are starving or homelesss or living in poverty.


    I don't think public economic policy is a "value-free" subject: it is very much restricted by morality.


    Perhaps my words "income inequality" used above are unclear to you. I don't mean perfect equality of wealth. I mean it in the sense of gross and large inequality of wealth.

    Yes, some people deserve more for the work they do than others (e.g., doctors), of course, and a mixed economy with Keynesian management will still have some degree of inequality of wealth.

    The point is gross inequality of wealth (poverty, especially) should be minimised.

  6. Poverty and hunger are a whole different issue from inequality.

    Tony Blair once said that he did not mind giant bonuses being handed out in Britain, because child poverty rates were falling. That is, of course, the sane position.

    I wished this was made much clearer. It would have been established that there are fewer differences in our positions. :)

    Margaret Thatcher was once lectured by the leader of her Labour opposition that because income disparity had increased during her term, the bottom 20% in UK had become "relatively poorer". She simply responded that real incomes across all brackets had risen; it was a deceptive lie to say anybody had become poorer.

    It's the same reason I have this reaction to anybody who talks about inequality. It's as if in this world of low fare air travel, increasing cheaper and mass produced automobiles,.etc, everybody has somehow become poorer. It's misleading.

    Yes, industrial nations such as US, UK,.etc have people living in poverty - that is, unable to earn enough for minimum nutritional requirement. A very tiny percentage, in nations otherwise having high obesity rates and large surplus food production. This tiny percentage is taken care of with standard welfare programs, food stamps,.etc.

    Getting back to topic, that's hardly much money required for such programs. It is easily earned by government's sale of goods and services on the market. US needs only $40 billion for its food stamp programs, and it earns that much money from Federal Reserve OMOs. So why bring taxes into this discussion?

  7. "Poverty and hunger are a whole different issue from inequality."

    The issues of povery and hunger are without any doubt subsumed within the larger issue of wealth inequality.

  8. And what about inequality without poverty? Is that a problem too?

    A high school graduate in the United States earns, on average, $27,627 in the year 1995. This is 37 times what people on the 75th percentile of incomes in sub-Saharan Africa earn. A high school graduate - a mere teenager and an unskilled worker - earned that much only 15 years ago, and much more now.

    Why should wealth inequality matter, when the poorest and the least productive workers, who have just entered the job market and are being supported by parents, earn nearly $30,000?

    It does not. Right?

    And to come back to taxes, why should they be a tool of addressing inequality, when the job market has already assured $30,000 to a typical teenager?


    I would say that the main problem of inequality is that it destroys social cohesion. I am not talking about inequality per se, I mean, just excessive inequality; there is a fair amount of data out there showing that the most inequal countries also tend to be some of the most violent ones, for example. So I think this should be a concern when talking about inequality, it matters on a practical level as well as on a moral one.


    That is not the type of wealth inequality issue I am talking about. To the extent that a person is paid less for work that is not that demanding or that does not require significant skills is not issue for me.

    The type of issues I have in mind with gross inequality of wealth are, for exmaple, the subversion of the democratic process that the rich individuals and institutions cause: this is one of the major problems of modern democracy, and the US is perfect example.

    Another major problem with macroeconomics over the past 30 years has been the failure of real wages for most people to rise with productivity growth, as they did from 1945-1973, and the shift in wealth from more even distribution to less even. This is an inequality of wealth issue.

    In fact, by allowing a gross inequality of wealth you are effectively fulfilling the Marxists' dreams: you're creating genuine class conflict or potential for class conflict in a society.

    I, frankly, have no problem with progressive retributive taxation and a dose of (reasonable) egalitarianism.


    It does, if you are remotely concerned about liberty. As Proudhon explained in "What is Property?", inequality produces exploitation ("property is theft!") as well as oppression ("property is despotism"). When the few own the means of life, the rest are reduced to being their servants.

    May I suggest the new Proudhon anthology "Property is Theft!" on this subject.

    If (genuine) libertarian thinkers are not your choice, I think Rousseau summed it up very well:


    Of course, that obvious statement of reality may not convince any more than Proudhon. I will quote propertarian Murray Rothbard on the terrible effects of inequality:


    He was discussing the end of serfdom and slavery in Russian and the Southern States of America in the 19th century. He seemed blissfully unaware that he also destroyed his own arguments against "economic power" under capitalism -- after all, the ex-slave was now a wage-worker. If one was subject to "masters" and "economic power" then so is the other...

    This is just one of the many reasons why "anarcho"-capitalism is self-contradictory nonsense. The other forms of propertarianism are not any better.

    An Anarchist FAQ

  12. Lord Keynes, the burden of proof lies upon you to prove that the rich can acquire superior political power, and not on me to prove that they necessarilly do not.

    And you did not provide any backing for your claim.

    As it is, Meg Whitman and Carli Fiorina, two extremely wealthy women and leaders of multibillion dollar corporations, failed to win even regional elections in the United States. Financial capital does not necessarily produce political capital.

    You are trying to attack an invisible phantom. THESE are your grounds for using taxation? To fight a nonexistent problem? Ross Perot, Nelson Rockefeller, and the two ladies mentioned above are small-time lightweights in politics, despite their huge wealth. Meanwhile, the most successful American politician has been a country bumkin from West Virginia - Robert Byrd.

    I am afraid your otherwise superior and very convincing analysis is falling to the level of a tabloid newspaper. "Subversion of democracy" - jesus. This is political rhetoric, not analysis.

  13. And it's up to you to prove why anybody should care about "subversion of democracy". Not on others to prove that there is nothing great about democracy.

    Nancy Pelosi and Harry Reed in the democratic US never worked in the insurance industry throughout their entire life. They do not know anything about the complicated workings of insurance. And yet, these two people had a full top down plan for how all medical insurance in United States was to be run, and how it was to deliver service, and what prices it would charge, and how it would or would not cover people.

    If you, a historian, would go out to the public and say that you had a plan for changing the way how all insurance companies were now to be operated in New Zealand, you would be laughed at by everybody. If I, currently a student, were to do the same in India, I would also be laughed out of the room.

    Somehow, all this changes, when the said person is a legislator. Even if the general American public adores Pelosi and Reed, the general American public knows nothing about how to run insurance either, and yet somehow their ignorance is a virtue. Because they are somehow in larger numbers than people who are not ignorant about running an insurance business.

    That is democracy - the idea that the people least qualified to manage or run an insurance company will somehow effectively run an insurance company or have any useful idea for it. The idea that the armchair public has it all figured out how others should do their jobs, and that the actual employees and executives working day to day are the ones who need to be lectured by outsiders.

    After all, people working in insurance didn't have a greater vote than the layman public during Reed or Pelosi's reforms, did they?

    If democracy is subverted, I have a hard time believing it is replaced by anything less damaging. Yeah, how about replacing stupidity with stupidity?

  14. @Prateek Sanjay:

    The super rich (here defined as anyone with $20 000 to spare per electoral cycle) provide a large proportion of the funding for the two main US political parties. Presumably they do this because they feel they're getting something in return (or are you suggesting that one become a millionaire by giving away money for nothing?).

    One of the cool things about being rich is if you need something done you can hire someone else to do it, rather than having to do it yourself. Why become a politician when you can simply hire the services of a politician?

    US economic policy over the past twenty to thirty years has been massively biased towards the interests of the super rich and corporate interests as opposed to the interests of the vast majority of Americans earning less than $100 000/year. If you do not recognise this I will assume you are rather more ignorant than you seem, or that you are trolling.

    As to Meg Whitman and Carli Fiorina: the fact that a particular rich person fails to get into the legislature doesn't mean anything (and note that the average net wealth per capita of the senate is around $13 million).

    As for:

    "the burden of proof lies upon you to prove that the rich can acquire superior political power"

    No it isn't. The precautionary principle would suggest that it is incumbent on anyone claiming that powerful and wealthy individuals do *not* game the system for their own benefit to prove that they *don't*.

    It is prudent to assume that wealthy and powerful individuals will act in their own interests, and that (being wealthy and powerful) they are quite likely to succeed in altering policy to suit their interests.

  15. TJ, this is pure testimony. Not one example given to back your claims.

    "It is prudent to assume"? I am sorry, analysis by presumption? What are you, a free marketer?

    With what mistake are you charging me - of having been "ignorant" of your assumptions?

    The plutocracy in America is a diverse lot. There are billionaires such as those funding Center for American Progress and the affiliated ThinkProgress website, and those funding Cato or Reason. In the case of the latter, we see the most incompetent plutocrats ever known (Koch brothers), who have not made a single dent in the political process over 40 years. They are clowns not taken seriously in the past by the very candidates they fund (see Justin Raimondo's In Defense of Kochtopus). What was the success of all the Koch campaigns to stop the Iraq War? Nothing. And if CFAP's whining is to be believed, the progressive Democrat lot has been locked out of the core Democratic wing of Obama/Pelosi/Reed/Emmanuel. The White House press secretary himself said that the other lot is not be taken seriously. All this despite billionaire funding to progressive outlets.

    Your whole assertion is incoherent, given that the rich are a bundle of different interests, and it is not possible to game the system towards people with entirely different interests - such as Koch and Huffington.

    As it is, neither is taken seriously in the establishment. Even billionaires enjoy a second-rate status in the political establishment.

    There - a second round of examples, when you have provided none. Since we are all cooperating, not competing, here, I would urge you to first consider these examples, take your own initiative, do a little research on the matter, and see if your opinions still hold. Don't be too eager to give a counterargument, especially given that (I am sorry to say) you have none.

  16. @Prateek Sanjay:

    Let's be clear about this. You are asking me for examples of US government policy that have primarily benefited the rich at the expense of the none rich.

    You keep talking about particular individuals (as if they was relevant) and demanding "examples". Here you go:


    Both of these tax cuts massively benefited wealthy people in the US, even though the tax cuts themselves were fiscally irresponsible. The Republicans were successful in extending these tax cuts after 2010. These tax cuts have already increased the US national debt by $2 trillion, and most of this has gone to the very wealthy.

    We're talking about the *class interests* of the very rich here. Not individuals. These class interests demand low taxes for the rich, no matter what the long term ill-effects are for society as a whole.

  17. (Oh god, class interests. Like I just said, there is an invisible phantom of which you speak, not any flesh-and-blood people. All of the wealthy somehow merge together and form a shapeless blob of "class", that demands different things from what the specific people among them want.

    I should not speak of specific people, I should speak of your invisible phantoms.

    Keith Obermann - paid $30 million a year - wants higher marginal tax rates, but when we talk about "class interests", Keith Obermann merges into your invisible blob monster and demands lower tax rates instead. Class interest Keith Obermann and actual Keith Obermann are thus two different people.

    You are again using pure political rhetoric, rather than analysis. This sort of talk works in an English literature class, not in hard talk about current affairs.)
    Let's start with this legislation you mentioned.

    It was never established whether the taxpayers at the marginal tax brackets are necessarilly the "wealthy". If you sold your house for $250,000 in a particular year, you are in the top tax bracket. We are talking about people who would be paying taxes in the top bracket one year, and not again in the next. Did you know there was a sudden rise in "number of millionaires" during the worst years of the crisis? And did you know there was also a sudden rise in people selling their houses after the housing collapse, in order to pay off their mortgages? Given these facts, would you not consider that a significant portion of the top marginal taxpayers are not exactly a permanent class group of wealthy? Besides, the wealthy live off their large savings during recession years, and their businesses set off and carry forward previous year's losses - many such wealthy fall in the bottom tax bracket or not even among taxpayers at all.

    There is also a difference between tax rate reduction and tax revenue reduction. Did the United States government obtain lower tax revenues than it could have? Sure! Did the United States government have lower tax revenues than previous years? Of course not. Loss to whom, again? Was this a matter of shortfall in receipts or a rise in spending? The post-2007 debt was a result of a shortfall in receipts after a recession. The national debt during the Iraq War years, however, was a rise in spending problem. Joseph Stiglitz said it was a $3 trillion war.

    Was there ever both a tax rate reduction on the top brackets and a tax rate raise on the lower brackets, in order to benefit the rich at the expense of all others? No, there was not. Whose income was explicitly reduced in order to explicitly raise the incomes of another?

    I am trying to understand what it means to benefit someone at the expense of another with a tax rate reduction. United States has also had tax rate reductions for the "middle class" and there is a significant part of the population that stopped paying taxes altogether due to various forms of tax credits now available. It has had tax rate reductions at the top marginal brackets as well, under those two legislations you mentioned. And along with it, it has had dramatic expansion of state welfare spending under Bush with Medicare II and No Child Left Behind. So all major tax payers face lower tax rates in some respects, and even the net-tax-receiving population was not cut out, but was given a fat lion's share of public spending.

    Who is the villain here and who is the oppressed here? It becomes much unclearer. Which specific flesh-and-blood person has benefitted and which specific flesh-and-blood person has lost? Do the beneficiary flesh-and-blood people always fall across the same class? Do the losing flesh-and-blood people always fall across the same class?

  18. @Prateek Sanjay:

    If we are to discuss current affairs, doesn't it make more sense to discuss it in terms of empirical facts, statistical evidence, and the occasional bit of a priori analysis, rather than in terms of anecdotes about wealth individuals?

    You keep talking about the occasional Warren Buffet characters who argue for higher tax rates for the rich whilst being rich themselves, as if the existence of one or two such people disproves the notion that there is a class interest at work.

    I believe, as a matter of social justice, that the rich should pay significantly more than the poor as a proportion of their income, because it is the rich who benefit the most from society as it is. I also recognise that wealth is subject to diminishing marginal utility. For these reasons any policy that attempts to make the tax system more regressive requires strong evidence that it is economically efficient and beneficial to the very poorest in society (the difference principle).

    If you have differing values that's fine and dandy (you're wrong, of course :).

    But to bring this back to matters of fact, which of the following statements are you disputing:

    1) Over the last thirty years the US government has pursued policies that benefit the rich.

    2) These policies have resulted in an extremely large US government deficit.

    3) This deficit is not a good thing, in terms of its economic effect on the the US economy as a whole.

    4) The reason the US government has pursued these policies is because the US government is biased towards aiding the rich.

    5) The US government is biased towards aiding the rich because the rich help fund the two main US political parties AND pliant neoclassical economists are happy to provide supply side voodoo as a pseudo-scientific justification for these policies.

    6) The rich have interests in common. (This does not mean that ALL rich people believe the same thing, just that they have interests in common and that they share the tendency of all human beings to (in general, on average, in the long run) to pursue their interests).

    7) That they share these interests will cause the rich in aggregate to use their political power (as identified in 4) and 5) to lobby for certain policies.

    8) These policies may include tax policy that benefits the rich without offering general economic benefits to US society as a whole.

    As to your question "who is the villain and who is the oppressed here?" This part of my argument isn't concerned with morality. I am simply arguing that certain observed facts about US government policy over the last thirty years vis a vis the rich might have been undertaken because they benefit the rich.

    As I outline above, I believe this is wrong (and LK could probably offer an argument as to why it is economically inefficient as well).

    But what astonishes me is your repeated refusal to see that *this is happening at all.*

    Would you seriously argue that a rich person in the US would have been better off ten, twenty, or thirty years ago?

    Your quote:


    But there doesn't have to be. A reduction in the rate of tax from 39% to 35% for a person earning $10 million a year on income over $373 000 represents additional cash of %385 080 to the person earning $10 million.

    This money *could* have been spent on improved public services, schools, or civic amenities that would primarily benefit the less well-off. Just because a less well-off person and a person earning $10 million a year *both* pay less tax, doesn't mean the less well-off person is better off when you factor in the public services that aren't provided because the rich person is not taxed.


    Indeed it is. Giving more money to the rich and super rich does necessarily result in more employment, more investment or better real GDP growth.

    Instead the rich tend to pump their money into secondary financial asset markets, which is (in the words of the neoclassical F. Hahn) non-employment inducing demand, depriving the economy of commodity purchases that do in fact lead to more investment and employment. By contrast, the poor and middle class tend to spend less of their money on financial assets and more on producible commodities, which is demand that we need.

    Money diverted by the rich into casino-style gambling on financial assets on secondary markets is a curse of modern capitalism, and one of the reasons why Say's law does not work.

  20. Reduced public services due to lowered tax rates?

    What does economics mean? What does it mean to economise on resources? First you have to establish whether any reduction in public services could have occured with even the most efficient use of tax revenues, then you establish that more tax revenues are needed.

    Why don't you discuss reduced public services due to misallocation of public spending into wars, bloated intelligence bureaucracies performing duplicated tasks, an oversized army, a crack-brained program called No Child Left Behind that assumed that children will perform better in schools with a $600 billion inflow of funds, and so on?

    Why do lack of tax revenues have to come into the play?

    Then, after you deal with all of that, can you can talk about reduced public services due to lowered tax rates. Which is still totally irrelevant, given that tax revenues have been rising.

    You are aware of what a Black Hole problem in economics is, as described in the book The Turning Point. It's a situation of all input and no output. Much like permanent Soviet accumulation of inventories that were never cleared out. In the US, a Pentagon is given a blank cheque, and then it can not account for $2,300 billion.

    So wait a second, you have a government that can not account for $2300 billion, and you believe that the actual problem is not enough tax revenues coming in to your government?

    You believe public services to all were not reduced because of that lost $2300 billion?

  21. Now it's an interesting philosophical question, but i think it's an extremist view that taxation is theft.

    It's as extreme as asking for 100% taxation and citizen's wage, because inequality is theft. I mean, everything comes from the earth and we all inherit it, right? Then we should all be entitled to as much of it's product, at least if we try our best, right?

    I find myself more sympathetic to the latter view, but i don't think it would be very fair in the end. Neither would it be a working system, just like with the 0-tax 0-regulation anarcho-capitalism.

    The middle way tends to work best for social progress. The middle way is to the left of where we are today.