Taxes: Taxonomy and Evaluation

From: Jeff Bone (
Date: Tue Mar 27 2001 - 21:14:47 PST

Striving for Nonzeciousness in Discussing Taxes

We've had a hell of time meaningfully prosecuting this topic. I for
one could probably have exercised a bit more rigor and objectivity in
discussing it, though I'm not alone in that. This is an attempt to
inject a bit more definitional and logical rigor into the process,
which I hope Dave Long will appreciate. The result, hopefully, is a
terminology that is clear, unambiguous, internally consistent and
maps to reality; I hope to also provide a strawman rational
framework for evaluation of tax schemes.


PROPERTY RIGHTS. It is an assumption here that property as a concept
is well-formed, and that common notions of property rights and the
general moral agreements attending those notions are acceptable for
our discussion. In particular, we make assumptions about involuntary
surrender of ownership, cf. THEFT below.

EQUALITY. You and I are legally entirely equal. My life is worth no
more or less than yours. Same for liberty and pursuit of happiness.
The latter notion includes by implication the protection of my assets
and preservation of my right to trade freely and pursue my industry.
I assume that these protections are worth no more or less to me than
your identical rights are to you, regardless of the value of my
assets or yours. We have exactly equivalent rights under the law,
which should draw no distinctions between individuals based on any
particular individual characteristic.

INDIVIDUALITY. In measuring proportional benefit, we must all be
treated as equal individuals, not as collectives, representatives of
some interest group, or as accumulations of assets.

CAPITALISM. However attenuated, I assume that capitalism is regarded
as a good thing, and that the proceeds of of an individual's economic
activity are individually-owned and well-deserved.

THEFT IS IMMORAL. For the purposes of our discussion, I assume that
we'll all agree that theft is immoral. By theft, I mean the taking
of one's property by another without the first party's consent. We
can argue out-of-band whether the tax process involves consent, or
whether the consent is delivered under duress, etc. For the purposes
of this discussion, I assume that confiscation of taxes up-front is
coercion, coercion is theft, taxes levied on income are a form of
theft; therefore taxes collected directly from income are immoral.

Goals of Tax Systems

We've got our marching orders:

  * establish justice
  * ensure domestic tranquility
  * provide for the common defense
  * promote the general welfare
  * secure the blessings of liberty

This is all somewhat irrelevant --- the assumption is, for this
conversation, that we've got to fund *some* set of mutually-agreeable
government activities. We can argue about that set elsewhere --- the
object of interest herein is the process by which gov't revenues are
collected, not what we spend them on. Let's assume for the
discussion that our gov't needs to collect something resembling the
current level of annual collection in order to provide some set of
mutually-agreeable services that accomplish the above.

NB: it is patently NOT a goal of a tax system, in an capitalist
economy, to redistribute wealth according to some moral agenda.
"From each according to his abilities, to each according to his
needs" is NOT a lemma. It is also by implication therefore NOT a
goal of a tax system to eliminate the occurance of the Matthew effect
through normal economic activity.

A Taxonomy of Taxes

FREE MARKETS. (FM) In what we'll call a "free market" system, there
are no taxes. I'll leave open the question of how then the
government is funded, with the possibility that the answer is "not at
all." While actually a non-tax system, we'll cover it for

FLAT PRICE TAXES. (FP) In what we'll call a "flat price" system,
everybody pays the same fixed dollar amount in taxes to fund the

FLAT RATE TAXES. (FR) In what we'll call a "flat rate" system,
everyone pays the same percentage of some quantity --- personal
income or spending, for example --- in taxes to fund the government.

FAIRTAX. (FT) Refers to the FairTax proposal. FT is an FR system;
it's a consumption system.

PURE ESCALATING TAXES. (PE) In what we'll call a "pure escalating"
system, everyone pays a continually-increasing percentage (to some
point) of some quantity --- personal income or spending --- in order
to fund the government.

"wealth-advantaged escalating" system, everyone pays a
continually-increasing percentage (to a point) of some quantity ---
personal income or spending --- in order to fund the government.
HOWEVER, there is a point where, either by design of the rate
structure or by selectively available tax-avoidance strategies, one
can begin to avert taxes once the base quantity (income, spending)
reaches some level.

Qualities of Tax Systems

MORAL. (M) Morality is a general consensus of which behaviors and
actions are considered right and which are considered wrong. For our
discussion, a Moral system is one where (given the Assumptions above)
there is no question of controversy over the moral basis, the actions
necessary to undertake in order to implement the system, etc.

FAIR. (F) In evaluating tax systems, we'd like to ask "is this
fair?" For our purposes, Fair will be defined to mean that (given
the Assumptions above) no person receives a disproportional benefit
(i.e. provided services) from the system relative to their input into

REASONABLE. (R) A Reasonable system for our purposes is one where,
upon consideration and stipulating the Assumptions, we can most
likely all agree that this system is constructed from first
principles in a consistent, logical fashion. This is regardless of
whether we agree with these first principles.

EXPEDIENT. (E) As in "political expediency." An Expedient system is
one which has at least some glimmer of hope of being recognized as a
viable mechanism given today's and future anticipated political
climate, social and individual attitudes, and so forth. Expediency
is the cutting criteria between idealism and pragmatism.

SUFFICIENT. (S) A Sufficient system is one which is likely to
accomplish the Goals, whatever they may be. I.e., a Sufficient
system delivers revenue equivalent to today's revenues.

CUMULATIVE. (C) A Cumulative system is one which perpetuates the
"Matthew effect", where by the construction of the system wealth
accumulates in the hands of the few. A system is *not* Cumulative if
wealth accumulation merely happens as a result of ordinary economic
activity rather than as a direct byproduct of the formulation of the

Analysis of Tax Systems

Now, let's look at the systems.

FREE MARKETS. FM is: Moral, Fair, and Reasonable. It is not
Expedient, probably not Sufficient. It is not Cumulative. FM is
Moral because it does not rely on theft as a funding strategy. It is
Fair because, in a free market, the market sets prices for all goods
and services; these prices are optimized by the conduct of
commerce. By definition, it is Fair: value given will always equal
value received in any transaction. It is Reasonable: if you believe
in capitalist economics, you've got a hell of a powerful argument
here. It is not Expedient, because as a society we lack the courage
of our capitalist convictions, and FM represents too large a change
to the status quo and special interests. It is probably not
Sufficient; while it may be the case that all the Goals above might
be achievable through purely private means, I will concede the
argument that this is not guaranteed. FM is not Cumulative; any
redistribution of wealth in this system is purely a function of the
conduct of commerce and normal economic activity.

FLAT PRICE TAXES. FP is: Fair, Reasonable, and Cumulative. It may
or may not be Moral. It is not Expedient, nor Sufficient. FP is
Fair by definition; each person pays the same price for the same
level of service. Nothing could be more fair. It is Reasonable
because of the strength of the Fairness argument. It is undeniably
Cumulative; only those who have enough left over to put to economic
use on their behalf can accumulate wealth. It is Moral only if it is
based on and can be controlled by the taxpayer; a consumption tax is
arguably moral whereas an income tax is clearly not. FP is not
Expedient; it is so egregiously regressive that nobody would ever
stand for it. Nor is it Sufficient; our current system relies for
revenue *primarily* on "the wealthy," and in FP systems we would have
to scale taxes down to the lowest common denominator supportable at
middle and lower income levels. This would inevitably lead to a
reduction in services.

FLAT RATE TAXES. FR is: Reasonable, Expedient, Sufficient. It may
or may not be Moral and Fair. It is not Cumulative. FR is
Reasonable; if you believe that we all benefit proportionately from
our infrastructure, i.e. the assumptions above, then it's entirely
reasonable to assume that we should pay the same amount relative to
that benefit. FR is Expedient, perhaps just barely; recent
legislation and John McCain's / Steve Forbes' positions on the matter
give it enough validity to consider it Expedient. FR is Sufficient:
numerous example budgetary exercises demonstrate that a flat tax can
generate as much revenue as our current system. FR may be Moral, if
the amount of taxes paid is left to the individual; a
consumption-based FR is Moral, while an income-based FR is not. FR
is arguably fair; while less Fair than FP, the Reasonable argument
demonstrates at least some concern for Fairness. There is no
particular reason to believe that FR is itself Cumulative; there is
in fact some reason to believe otherwise. Under FR, assuming
proportional benefit, accumulation can only occur as a result of
economic activity.

FAIRTAX. FT is identical to R, except that it is decidedly Moral due
to being an individually-manageable tax based on controlling
consumption. (In fact, there are actually many unfortunate elements
of "progressiveness" in FT, such as the vouchers and rebates, etc.
But for our purposes, we'll consider it a consumption-based FR

PURE ESCALATING TAXES. PE is Reasonable, Expedient, Sufficient. It
may or may not be Moral. It is not Fair. It is not Cumulative. PE
is Reasonable *iff* you believe that the purpose of taxation is to
redistribute wealth in the form of services from the haves to the
have nots. It is Expedient; it is a variation of the existing
system, and most tax reform has been directed at moving us from a WE
to a PE system. It is Sufficient for the same reason, i.e. its
similarity to what we've already got demonstrates that it can provide
adequate revenues. As with all the examples, it is Moral only if
voluntary. It is not Fair; the whole premise behind its formulation
is to redistribute wealth, i.e. create disproportional benefit. It
is not Cumulative; by construction, it is designed *hinder*
accumulation, even through the course of normal economic activity.

Expedient, Sufficient, and Cumulative. It is not Reasonable, nor
Fair. It may or may not be Moral. WE is Expedient because --- well,
clearly, that's what we've got. Sufficient: same reason.
Cumulative: the loopholes at the top end enable the avoidance of
taxes by those with sufficient assets to put to certain
tax-advantaged uses. It is not Reasonable: under no logical
formulation does it make sense or have some grounding in mutually
agreeable first principles; nobody likes it if the rich get all the
breaks, except perhaps the rich. It is not Fair, as different people
contribute in different proportions and receive still different
levels of the services offered. It is Moral only if changed to a
voluntary / consumption basis; it is not Moral as constructed today.

Summary Evaluation


Well, here's one methodology. I'm sure that we can all agree that
M,F,R,E, and S are all good qualities, and I'll stipulate that C is a
bad quality. Without even getting into the hocus of trying to rate
the qualities, here's what we'll do. A "Yes" answer for MFRES counts
2 pts; a "Maybe" for those same qualities counts 1 pt; a "No" does
not count, as in practice something's got to give. A "Yes" answer
for C counts -2 pts, while a "Maybe" answer (there isn't one) for C
would count -1. Given this, here're the scores.

     FM. Yes: M, F, R. Maybe: S. No: E, C --- 7 pts
     FP. Yes: F, R, C. Maybe: M. No: E, S --- 3 pts
     FR. Yes: R, E, S. Maybe: M, F. No: C --- 8 pts
     FT: Yes: R, E, S, M. Maybe: F. No: C --- 9 pts
     PE. Yes: R, E, S. Maybe: M. No: F, C --- 7 pts
     WE. Yes: E, S, C. Maybe: M. No: R, F --- 3 pts


Any tax based on confiscation of assets rather than individual,
voluntary control of the total amount paid is not Moral. Any tax
where anyone receives benefits disproportional to their input is not
Fair. This argues for a consumption-based tax, and for a universal
flat rate structure without loopholes.

So you can disagree reasonably with my assumptions, but I hope at
this point, at least for Dave's purposes, you can't disagree with the
chain of thought. The conclusions flow from the premises. So here
you go, Dave: FairTax is, under a reasonable method of evaluation,
demonstrably better than any alternative*, better than pure
escalating (progressive) taxes, and more than twice as good as our
existing system. ;-)

Pick away.


* though the only reason that FR / FT beat the free market is the
pragmatic assessment of their political expediency, and all the
ooh-scary bugaboos about truly free markets in general.

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