At the Kitchen Table: An Ad in One Act

That's a funny commercial idea, but it raises a serious issue -- if someone else makes more money than me, should the government tax him more and give his money to me?

The answer seems to depend on what people think of the principle of Pareto optimality (http://en.wikipedia.org/wiki/Pareto_efficiency). A situation is Pareto optimal once there's no way left to make one person better off without making another person worse off.

Laissez-faire types usually argue for stopping government actions at the point of Pareto optimality, but many people (like the butler in your commercial) have no problem with the government making other people worse off to benefit them.

Wade @1: waitwaitwait. So hypothetically, a society where one person has all the wealth and every other person has no wealth at all is Pareto optimal?

Yeah, I personally don't have a problem with the government making that one person worse off to benefit the other people.

If you earn a 4.0 in class and another git earns a 0.5... how many points do you compassionately owe her so her fully-paid scholarship will continue while you service cafeteria tables in the dorm to stay alive?

Wade:

You're assuming that the current taxation system doesn't do anything that shifts burdens around.

Between my wife and I, we make a lot of money. But since it's all salary, it's taxed quite heavily. I've got no problem with that. But: according to the data released by the McCain campaign, my family paid more in federal income taxes than John and Cindy McCain. Not a higher percentage - more money.

For another example, a few years before my father retired, my mother had some health trouble, which wasn't covered by her insurance. To pay the bills, my father needed to pull money out of his retirement. With penalties, he ended up paying something around 39% taxes on the money he withdrew to pay medical bills. Does anyone making over a million dollars per year really pay 39% income taxes on anything?

That's how the current tax-code works. If you've got a lot of money - enough money to own multiple vacation homes - it's easy to shelter your money so that you don't wind up paying much in taxes. But if you're someone who actually works for a salary - even someone who works for a very good salary - you're stuck footing the bill.

The current system works reasonably well for very low income (where earned income credits come into play), and for very high income (where shelters kick in). But for people in the middle, it's a screw-job. To use Chad's metaphor, a nice hunk of the butler's salary is going to taxes, which are then given to his employers in the form of tax shelters and subsidies.

If this economy continues, I may have to live in a shelter. You think the gov'ment can grant me one of them there tax shelters?

Hey Wade Walker and like-minded, you are falsely assuming that the background (non-taxing) part of property and the economy is neutral and "natural" to begin with, and that the people "earning" such and such obviously 1. deserved to get it in the first place 2. really got it by natural and free trading of goods and services and so any rearrangement by a supposedly separate government of that is "artificial interference" and a form of "stealing." Well, this may or may not be news for you and other libertarians (?), but that picture is mis-framed and isn't how the state of affairs actually exists and works. Consider these points:

1. You owe the rest of civilization's efforts for your even being able to talk, use math and science, etc., and by extension owe "society" for what you can accomplish. It could be considering repayment for the intellectual property rights of all past civilization, hence that justifies taxing output and earnings for the common good.

2. The money supply is controlled by the government and increased according to monetization of debt, manipulation of interest rates, etc. No way that can be treated as like a voluntary direct trade of a hard real-value currency for goods. The Fed's interest rate fiddlings affect millions of people, they throw people out of work, determine who makes money (borrowers versus lenders, etc.) and most importantly, the expansion of a fiat currency system has to be politically allocated since "new money" is not an intrinsic part of direct commercial transactions (read about how the banking system works, how it enriches those involved in it by crediting banks with money they lent even before it is actually paid back, etc.) Indeed, when the Fed's actions (e.g. interest rate hike) put people out of work they deserve compensation just like those displaced by flooding from a federal dam. Did you know any of this stuff? Honest libertarians like Mary Ruwart at least acknowledge all this existing, whatever they want to do about it.

3. Most business money is earned through corporations. The limited liability and partial legal personhood of a corporation is a privilege, not a genuine right. (The SCOTUS decision supposedly proving the contrary was fraudulently annotated anyway, see for example: How a clerical error made corporations "people" by Jim Hightower, http://www.hightowerlowdown.org/node/664.) Therefore we can "charge" for that privilege instead of providing it for free. IOW, we can demand conditions of what corporations do, like how much they pay their workers etc.

4. What proves that private property claims are more inherently "real" that government "ownership" anyway? Every time I hear that old glibertarian canard that "taxation is theft," I counter with, "Then, rent is theft!" Really, if you claim that "owners" can charge for use of their property and make you pay them to stay there, why the hell can't the public as a mass "owner" of the territory governed by their nation charge "rent" to the inhabitants thereby? And please don't anyone try semantics arguments since any language's same or different names for what in English we call "properties" and "governments" etc, don't inherently prove similarity or dissimilarity. I think it's so funny when folks like Sarah Palin and her buddies in the Alaska Independence Party gripe about how much of Alaska is "owned by the Federal government." Well, the US government bought the land of Alaska from Russia, so why do they even have to give any of it to private owners at all? The same question could be asked about the Louisiana Purchase, which contains many later States.* Property and government claims are all highly dubious anyway, just look at the "original justification" question of what gets them logically "off the ground" for a given claimant (not the same issue as the general validity which is hard enough, I mean why anyone's borders or property lines should be "here" and not "there"...) Just look at the USA, all those people already living here and then others come in and claim "this is our land, our resources" etc.

Got you straight?

* Wikipedia:
"The Louisiana Purchase encompassed portions of 15 current U.S. states and 2 Canadian Provinces. The land purchased contained all of present-day Arkansas, Missouri, Iowa, Oklahoma, Kansas, Nebraska, parts of Minnesota that were south of the Mississippi River, most of North Dakota, nearly all of South Dakota, northeastern New Mexico, northern Texas, the portions of Montana, Wyoming, and Colorado east of the Continental Divide, and Louisiana west of the Mississippi River, including the city of New Orleans."

Correction, I should say:
"What proves that private property claims are more inherently "real" than government "jurisdiction" (etc.) anyway?"
Also, it's the Alaskan Independence Party, and I note the irony that Pravda (yes, it's still around!) supports Alaskan independence! Heh, Alaska: American's South Ossetia, or Abkhazia? The latter even sounds similar ... Maybe call the new "nation" Ablaskia? (We could say, it "ablated" off the USA?)

... and maybe the Russians will help defend newly "independent" Alaska? Maybe a case of mixed loyalties would come up for the new VP or President as the case may be ...

I think your missing something here.

It isn't a simple zero-sum game. The taxes go to all sorts of services and benefits. The OBWM, according to the present setup, gets SS payments even though they amount to less than a rounding error on his tax return.

Everyone pays for roads at about $1 million a lane-mile but it is primarily the well off that benefit by having their trucking needs taken care of. It is also primarily trucks that wear out the roads and force them to be resurfaced. A beat up 92 Honda could drive a road for eternity before it would cause enough damage to require major repair.

Similarly it is the well off that benefit from airports most, in part because poor people don't fly as often. So while the poor pay taxes to support the airline infrastructure, the cost of TSA security at airports and the huge cost of maintaining the FAA flight control system it is disproportionately the rich who benefit

And who benefits most from our being in Iraq? Sure the poor provide the manpower and blood in addition to a good part of the finances but it isn't the poor who own stocks in defense contractors, Haliburton or oil futures.

It isn't about playing Robin Hood and taking from the rich to give to the poor. It is about the well to do paying their fair share for the benefits they receive in this nation.

It is about people who benefit from the system and who have disproportionate representation within the system helping to pay for some portion of the system that has allowed them to do so well.

Hi guys,

I truly wasn't trying to imply anything about current tax policy or whether the current system is neutral or not.

It just struck me when reading Chad's commercial how it seemed to draw an arrow directly from one guy paying more in taxes under Obama's plan, to another guy paying less.

Assuming Chad's commercial is correct about Obama's tax plan, then I'd be on the recieving end of such an arrow, and I'm not sure I'm comfortable with that. I hadn't seen the tradeoff presented in such bald terms before.

Wade, any time somebody pays less, somebody else winds up paying more, either directly in taxes, or by the lack of services that tax money would go to.

The direct line actually runs from taxes to wages. When taxes on the wealthy are high, everyone makes more money, including wage earners. When taxes on the wealthy are low, the wealthy make more money than everyone else, but less than if they paid more taxes. Those are the simple facts, and if you think about the structure of the economy, they make perfect sense. Money naturally flows uphill. If you have a good or service that everyone wants, you can make big bucks selling them. That's how you get rich and stay rich.

Some people object on philosophical grounds. It rankles a lot of people when poor people have too much money. They are supposed to know their place. Rich people, not poor people, are supposed to be the ones with all the money. Conservatives seem to be willing to get by on two grains of rice a year as long as some poor bastard has to get by on one.

Kaleberg, I am not sure how you figure that everyone and even the richer folks make more money when taxes are high (more infrastructure, more money for the lower classes to spend because they are healthy/educated etc? What? I can't imagine "it makes perfect sense", maybe even I'm a bit dumb ;-) Empirically verified?

BTW Wade, I didn't mean to come on so scary, I just wanted you to see that your framing assumptions weren't true. No presumption of either relative lack of ability or frankness on your part, the misperception is so widespread it seems a socio-political mythos ("meme".)

tyrannogenius

Chad, with all due respect, it sounds to me as if you need a better CPA.

Why don't you and your wife have a corporation which gets revenues from book royalties, and has business expenses to go to science fiction conventions? Some years it will make a profit, some years not. But in the of years, it reduces your personal taxable income. And if you're on a panel at the con, it is a legitimate business trip.

Do you know at what age your child can be paid a salary for what work, which will be taxed at a lower rate than you are?

Instead of being annoyed at rich people who have a sophisticated tax strategy, why don't you adopt a similar strategy?

Sure, it takes circa 100 hours per year of your time to get your data properly input to your spreadsheet, analyzed, and formatted for the CPA, but you're saving roughly $100 for each of those hours.

Sure, it slightly increases your odds of being audited, but if you are never audited, you are probably "leaving money on the table."

Chad, with all due respect, it sounds to me as if you need a better CPA.

Huh?
Where did you get the idea that this is about me?

Wade Walker: Pareto optimality is a term economists dislike a lot. We prefer Pareto efficiency (notice the wikipedia link you provided). It may seem like quibbling, but it's crucial. Pareto efficiency does not imply optimality in any sense.

The idea of Pareto efficiency grew out of economists' queasiness about making moral judgments about issues of distribution. (It is not our area of expertise, after all. My training in Econometrics, for example, does not give me better moral insight than anyone else.) Pareto wanted to rank the desirability of different outcomes, but came up against this issue of judging distributional issues. Is an economy with high average income, but high degree of inequality, better than an egalitarian middle income economy? In the end, he punted on the issue and said "Well if it's possible to make someone better off without hurting anyone else, then this economy is obviously lousy." This situation would be Pareto inefficient. If we cannot improve anybody's situation without making anyone else worse off, then we are efficient, meaning that there are no free gains left.

However, the fact that some outcome is Pareto efficient does not make it socially optimal. I'm perfectly OK with redistributive taxation, even if it lowers oveall incomes.

puzzled: That's a good point, and I agree with your distinction.

I've always heard it discussed as "Pareto optimality", but I assumed that the creator of the term meant it as "optimal" in a mathematical or abstract sense, not in a social or moral sense.

Of course, depending on your philosophy, you might take a maximally Pareto efficient scenario to be morally optimal as well (or not, as you described your own viewpoint).

"Where did you get the idea that this is about me?"

I think he was responding to MarkCC, not you.

I think he was responding to MarkCC, not you.

Except it's addressed to me, and refers to specific things that I do.

# 18 | KeithB

Yup. My mistake. I was wrong. You were right.

I like MarkCC's blog and Chad's blog and, silly as it sounds, I guess that I plumb forgot which one I was on. I reckon. Shucks.

# 18 | KeithB

Yup. My mistake. I was wrong. You were right.

I like MarkCC's blog and Chad's blog and, silly as it sounds, I guess that I plumb forgot which one I was on. I reckon. Shucks.

# 18 | KeithB

Yup. My mistake. I was wrong. You were right.

I like MarkCC's blog and Chad's blog and, silly as it sounds, I guess that I plumb forgot which one I was on. I reckon. Shucks.

# 18 | KeithB

Yup. My mistake. I was wrong. You were right.

I like MarkCC's blog and Chad's blog and, silly as it sounds, I guess that I plumb forgot which one I was on. I reckon. Shucks.

Its a great ad. Outstanding concept.

I'd suggest one featuring an Ohioan at a gas pump and an Alaskan opening an annual rebate check. One gets to pay $4.00 for a gallon of gas, while the other thanks Sarah for her oil tax increase that takes even more money from Ohio and sends it to them in Alaska.

Wade #1, you WERE implying something about the current tax policy, just as the folks lying about Obama's tax plan were hoping you would not notice what they were not saying as they created that lie. Few working people benefit from all of the tax loopholes that make the tax law so complicated.

Is it fair that Alaska can spend four times as much per person on state government than Delaware does simply by the expedient of taxing oil that might be bought by people in Delaware? No, but the law allows it. However, it is wrong for Sarah to pretend that she has a budget surplus because of prudent spending when the reality is that it resulted from SIX BILLION dollars from an oil TAX INCREASE that she pushed through and we are all paying at the pump. Small government my eye.

Other examples are in my blog over the last week or so. The next one might be looking at the cost of private health insurance for McCain if he ever had to pay it (has he ever had private insurance in his life?) given his health history, and the same for Palin if she could not have her husband's Union health coverage.

Uh, don't the rich already pay most income taxes? Myself I prefer James Buchanan's principle: "Let the blessing and burden of government fall upon all without favor."

Walt, you need to read my comment #6 and see that the economy isn't a neutral/natural background to begin with, that we can calibrate "redistributions" or favors etc. from as a legitimate baseline. Once a person appreciates that point, there is no going back, no more ability to pretend that you can just look at how overt taxes shift income from one person or group to another, etc.

Neil, I read your comment and I think I understand it but correct me if I'm wrong.
Your first point is, generally, that we "owe" the current government something, perhaps taxes, for our upbringing. (Let's ignore the possibility that any particular state may have had nothing to do with our raising and may indeed be arbitrarily hostile to a citizen's culture and legacy) I think we should be careful with the concept as it has been used many times as an excuse for tyranny. Consider the Soviet Union's classification of "parasite on the state" to anyone who didn't work with the Party or the constant drumbeat in North Korea of the debt owed by citizens to their leader. Extreme examples, perhaps, but illustrative of the danger of relying on debt as an organizing principle of a nation.
I think we can agree that in this stage of civilization the state will have to collect taxes to exist and we can probably agree that the state is a useful institution. I hope you agree that taxes, like laws, should not be burdensome (and hence as little as possible), understandable and fair. What could be fairer or more understandable than a flat tax? And what tax is more immune from political gamesmanship?
Your second point is a wonderful argument for gradually removing control of the monetary supply from the Fed.
Your third point seems to step around the true usefulness of limited liability. That corporation can exist and that people can safely invest in them is one of the greatest generators of wealth in the modern world.
Your fourth point seems to suggest that state can simply negate a citizen claim to his private property to feed it's day to day needs. Now you might not agree with me that the concept of private ownership is a fundamental pillar of society. Without it, control of resources would be a constant struggle.
When the state abrogates the citizen's right to personal property it should do so only when the circumstances are predictable and understandable, supportable and fair to all.
Well, that's my rant and I enjoyed it. Thanks!

I'm surprised this thread is still going. Loved Chad's hypothetical video ad. It's funny, like a good politcal cartoon, brings out an interesting point, gets a laugh, skewers the opposition without demonizing them as monsters.

The discussion is stimulating too. I'll come clean and say that I come down on the side of Walt and Wade (although I think Wade was just making an academic point). Neil B is ultimately unconvincing-- he's been smoking too much collectivist weed.

In any case, it's good to have a civil discussion, something typical of Chad's site. Even the rants are mostly civil (unlike the stuff over on Daily Kos).

Walt, you are getting confused about some things but there's hope for mutual understanding and agreement (see the end.) First, I meant we all owe "society" and "civilization" for being able to function, through the entire history of the development of language, culture, math, science, technology, etc. That doesn't mean we owe "the government" for giving us that, but rather that the government is the "broker" of the equivalent of payment for the use of civilization's intellectual property. Second, since the Fed does exist those quids pro quo are in order regardless of what we do about the Fed later - and no it isn't an argument to get rid of the Fed because we need the Fed's credit expansion to have a functioning modern economy. Instead, given our need for a modern monetary system, therefore the reparatory adjustments have to be made as I explained. Third point, of course corporations are a great "invention" and useful, but their being constructs of the State give us the *right* to regulate them, which no more implies that regulation should be excessive or counterproductive anymore than the right of governments to pass and enforce laws implies the appropriateness of "bad laws" etc.

Fourth point: private property is an overall good but no more deserving of absolute power than that of the government - that was my point. Again, you make a straw man of false dichotomy since the legitimacy of control and quid pro quo does not mean that "more is better" of such control. But I do agree the State/society's "interference" (regulation of its own interference in the original "natural state" of the commons) should be above all be predictable and understandable, supportable and fair to all! Finally something we can agree on, it sounds like a good campaign slogan. BTW I am opposed to the horrible Kelo decision, since ED should be reserved for direct public use. See, I seek appropriate application of society powers, and press only the point society has the power to do such things "in principle."

tyrannogenius