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I hate how they equate progressive taxation with justice. It only works if you think justice is when people get equal outcomes regardless of if they deserve it

by JeffL 17y ago

I hate how they equate progressive taxation with justice. It only works if you think justice is when people get equal outcomes regardless of if they deserve it or not. It would be unjust to penalize Warren Buffet and the other titans that drive our economy with 91% marginal tax rates. They don't deserve that kind of treatment, and frankly, I trust them to do much better good with their excess cash than the government ever would.

forinti 17y ago
Shouldn't he at least pay as much as average joe? He himself conceded that his secretary pays a higher percentage of her income in taxes than he does.
- gyardley 17y ago
  I strongly suspect Warren Buffet pays orders of magnitude more tax than his secretary. If you're arguing that he should pay the same percentage of his overall income in tax as his secretary, fine, but that's a different argument.
- jbellis 17y ago
  > He himself conceded that his secretary pays a higher percentage of her income in taxes than he does Buffet is himself a redistributionist, and was comparing his capital gains tax rate (where essentially all his "income" comes from) with the earned-income tax rate his secretary pays. In other words, Buffet was indulging in a bit of FUD, to be blunt. Many economists believe that taxing capital gains lower than income is a Good Thing to encourage investment and savings, even if it results in strange outcomes like Buffet's in edge cases.
  - yummyfajitas 17y ago
    Further, capital gains is only part of the tax he pays. The businesses he owns also pay taxes, so the tax on his income is actually the combined tax on the business and the tax on his capital gains.
    - lsc 17y ago
      in the case of dividends, you are correct, you have to pay corp tax on your cash before you can hand it out as dividends (then the shareholders have to pay capital gains tax on it.) however, if the company immediately re-invests its cash, they don't have to pay corp. taxes on it. In theory, you could build a service-based business (where I am, that means no sales tax) that say, grew for a year on it's own revenue but paid no corp tax (in California and many other places there is a minimum tax, but that's small enough to ignore for this) then, at the end of the year, you could flip the company to some investors, and all your profits would be taxed only once, and at the lower capital gains rate.
  - dantheman 17y ago
    Remember when dealing with capital gains you are risking money whereas with normal income you are not. So any taxes on capital gains need to factor in that when you lose, you loose 100% and when you when you only get the return - taxes. If the taxes are too high then the amount of risk/reward becomes lower.
    - jws 17y ago
      Capital gains isn't there to compensate for risk, nor should it. Let the borrower compensate the investor for their risk. I think capital gains primarily serves as a crude mechanism to compensate for inflation. Consider a hypothetical case: Year 2050 $100 would but a 10 day supply of air I invest $100 in a jovian mining operation 2060 $100 would buy a 5 day supply of air I sell my interest in the jovian mining operation for $300 making a handy $200! If taxed as income (33%) I would owe $66 in taxes But think about air, I had the equivalent of 10 days of air, now I can buy 15 days of air, so I really only earned 5 days of air worth $100 which if taxed as income would cost me $33. So we invent a 2nd tax scheme for capital gains and set the rate at 15%, my $200 profit gets taxed $30 and we are pretty close to "fair" Except that only works for certain time periods over which inflation is about 100%. For shorter periods the investor wins. For longer ones the investor loses. And when I say "investor wins" I mean everyone else pays more to cover the government tax bill and vice versa for losing. There is no free lunch. If only we had invented some sort of "thinking machine" that could perform basic arithmetic operations, and if only investors kept track of when they purchased their investment, and if only we had, say an office that tracked inflation… we could dispense with the crude estimator and just tax people on their profit above inflation.
    - lsc 17y ago
      This is untrue. If you are a small business owner, your earnings are taxed as salary, even though you take as much risk as any venture capitalist. This is true until you sell your company; at that point the proceeds of the sale are taxed as capital gains. Personally, I think this rewards short-term planning over long-term planning. It's also essentially a subsidy on publicly traded companies that us little guys don't get.
apinstein 17y ago
He is promoting progressive taxation as an enabler of social justice, not individual justice. There's a difference. He acknowledges your point that the debate on flat vs progressive tax rates is a virtue vs social justice debate. He also is debunking the idea that higher taxes hurt the economy, which is the OMG BE SCARED argument that the right uses to try to lower taxes (without a commensurate reduction in spending) in order to grow the economy and (eventually) increase the tax base. I recently wrote a similar article about this particular point (http://www.reasonablyopinionated.com/2010/02/tax-revenues-tax-cuts-and-gdp.html http://www.reasonablyopinionated.com/2010/02/tax-revenues-ta...) because the only thing that ever happens in modern history when taxes are lowered is horrible deficits. As the Slate article points out, there isn't a strong correlation between tax rates and GDP growth. Personally I am on the side of Buffet and Spitzer on this issue and do support progressive taxation, precisely because of the social justice argument. I believe in equal opportunity, but abhor the idea of forcing equal outcomes. What really irks me about the anti-progressive-tax crowd is how they don't even acknowledge the benefits the rich get from such a system: efficient and reliable infrastructure, political stability, and a large middle class (ie customer base). If the government did not make those investments, the overall pie would likely be smaller.
- yummyfajitas 17y ago
  Could you explain what you mean by "social justice"?
  - apinstein 17y ago
    Oh sorry I meant to... "Social justice is the application of the concept of justice on a social scale." from http://en.wikipedia.org/wiki/Social_justice http://en.wikipedia.org/wiki/Social_justice
    - yummyfajitas 17y ago
      That article doesn't really explain what social justice is, nor does your quoted sentence. What does "justice on a social scale" mean? Does it mean that groups (on the "social scale") are granted the same rights as individuals? I.e., make corporate [1] personhood a fundamental concept rather than a convenient interface? The only really concrete idea I get from the wikipedia article is that an unjust government is illegitimate (without explaining what "unjust" means), and that somehow equality of outcome is desirable. [1] By corporate, I mean any large explicitly defined group of people, not strictly limited liability corporations.
fauigerzigerk 17y ago
I would agree with you (more than I do anyway) if everyone started out from the same base. But isn't it also unfair that true entrepreneurs who take a lot of risk are taxed equally to people who have inherited wealth or just went from one elite school to the next ending up at a consulting firm talking hot air for the rest of their lives? I do think that there is a causal relationship between effort and wealth, but that relationship is very patchy.

by JeffL 17y ago

forinti 17y ago

Shouldn't he at least pay as much as average joe? He himself conceded that his secretary pays a higher percentage of her income in taxes than he does.

gyardley 17y ago
I strongly suspect Warren Buffet pays orders of magnitude more tax than his secretary. If you're arguing that he should pay the same percentage of his overall income in tax as his secretary, fine, but that's a different argument.
jbellis 17y ago
> He himself conceded that his secretary pays a higher percentage of her income in taxes than he does Buffet is himself a redistributionist, and was comparing his capital gains tax rate (where essentially all his "income" comes from) with the earned-income tax rate his secretary pays. In other words, Buffet was indulging in a bit of FUD, to be blunt. Many economists believe that taxing capital gains lower than income is a Good Thing to encourage investment and savings, even if it results in strange outcomes like Buffet's in edge cases.
- yummyfajitas 17y ago
  Further, capital gains is only part of the tax he pays. The businesses he owns also pay taxes, so the tax on his income is actually the combined tax on the business and the tax on his capital gains.
  - lsc 17y ago
    in the case of dividends, you are correct, you have to pay corp tax on your cash before you can hand it out as dividends (then the shareholders have to pay capital gains tax on it.) however, if the company immediately re-invests its cash, they don't have to pay corp. taxes on it. In theory, you could build a service-based business (where I am, that means no sales tax) that say, grew for a year on it's own revenue but paid no corp tax (in California and many other places there is a minimum tax, but that's small enough to ignore for this) then, at the end of the year, you could flip the company to some investors, and all your profits would be taxed only once, and at the lower capital gains rate.
- dantheman 17y ago
  Remember when dealing with capital gains you are risking money whereas with normal income you are not. So any taxes on capital gains need to factor in that when you lose, you loose 100% and when you when you only get the return - taxes. If the taxes are too high then the amount of risk/reward becomes lower.
  - jws 17y ago
    Capital gains isn't there to compensate for risk, nor should it. Let the borrower compensate the investor for their risk. I think capital gains primarily serves as a crude mechanism to compensate for inflation. Consider a hypothetical case: Year 2050 $100 would but a 10 day supply of air I invest $100 in a jovian mining operation 2060 $100 would buy a 5 day supply of air I sell my interest in the jovian mining operation for $300 making a handy $200! If taxed as income (33%) I would owe $66 in taxes But think about air, I had the equivalent of 10 days of air, now I can buy 15 days of air, so I really only earned 5 days of air worth $100 which if taxed as income would cost me $33. So we invent a 2nd tax scheme for capital gains and set the rate at 15%, my $200 profit gets taxed $30 and we are pretty close to "fair" Except that only works for certain time periods over which inflation is about 100%. For shorter periods the investor wins. For longer ones the investor loses. And when I say "investor wins" I mean everyone else pays more to cover the government tax bill and vice versa for losing. There is no free lunch. If only we had invented some sort of "thinking machine" that could perform basic arithmetic operations, and if only investors kept track of when they purchased their investment, and if only we had, say an office that tracked inflation… we could dispense with the crude estimator and just tax people on their profit above inflation.
  - lsc 17y ago
    This is untrue. If you are a small business owner, your earnings are taxed as salary, even though you take as much risk as any venture capitalist. This is true until you sell your company; at that point the proceeds of the sale are taxed as capital gains. Personally, I think this rewards short-term planning over long-term planning. It's also essentially a subsidy on publicly traded companies that us little guys don't get.

apinstein 17y ago

He is promoting progressive taxation as an enabler of social justice, not individual justice. There's a difference. He acknowledges your point that the debate on flat vs progressive tax rates is a virtue vs social justice debate. He also is debunking the idea that higher taxes hurt the economy, which is the OMG BE SCARED argument that the right uses to try to lower taxes (without a commensurate reduction in spending) in order to grow the economy and (eventually) increase the tax base. I recently wrote a similar article about this particular point (http://www.reasonablyopinionated.com/2010/02/tax-revenues-tax-cuts-and-gdp.html http://www.reasonablyopinionated.com/2010/02/tax-revenues-ta...) because the only thing that ever happens in modern history when taxes are lowered is horrible deficits. As the Slate article points out, there isn't a strong correlation between tax rates and GDP growth. Personally I am on the side of Buffet and Spitzer on this issue and do support progressive taxation, precisely because of the social justice argument. I believe in equal opportunity, but abhor the idea of forcing equal outcomes. What really irks me about the anti-progressive-tax crowd is how they don't even acknowledge the benefits the rich get from such a system: efficient and reliable infrastructure, political stability, and a large middle class (ie customer base). If the government did not make those investments, the overall pie would likely be smaller.

yummyfajitas 17y ago
Could you explain what you mean by "social justice"?
- apinstein 17y ago
  Oh sorry I meant to... "Social justice is the application of the concept of justice on a social scale." from http://en.wikipedia.org/wiki/Social_justice http://en.wikipedia.org/wiki/Social_justice
  - yummyfajitas 17y ago
    That article doesn't really explain what social justice is, nor does your quoted sentence. What does "justice on a social scale" mean? Does it mean that groups (on the "social scale") are granted the same rights as individuals? I.e., make corporate [1] personhood a fundamental concept rather than a convenient interface? The only really concrete idea I get from the wikipedia article is that an unjust government is illegitimate (without explaining what "unjust" means), and that somehow equality of outcome is desirable. [1] By corporate, I mean any large explicitly defined group of people, not strictly limited liability corporations.

fauigerzigerk 17y ago

I would agree with you (more than I do anyway) if everyone started out from the same base. But isn't it also unfair that true entrepreneurs who take a lot of risk are taxed equally to people who have inherited wealth or just went from one elite school to the next ending up at a consulting firm talking hot air for the rest of their lives? I do think that there is a causal relationship between effort and wealth, but that relationship is very patchy.