We've (and me most of all) been playing fast and loose with the
terminology, here. A few quick thoughts...
REGRESSIVE vs. PROGRESSIVE
A flat universal consumption tax (or any other flat tax) literally
cannot be considered either regressive or progressive by definition.
Definitions from dictionary.com, dict.org, and m-w.com all agree on
the literal meanings of "regressive" and "progressive" with respect
to taxes. Mirriam-Webster (not surprisingly) has the most rigorous
definitions, so here they are:
regressive: decreasing in rate as the base increases <a
regressive tax>
progressive: increasing in rate as the base increases <a
progressive tax>
We've been informally (and incorrectly) using regressive and
progressive to refer to the impact of particular systems on "the
Matthew effect." (NB: Is that a real term? Apparently so. Got a
few Googles on it that look relevant. The Matthew effect apparently
just means "the rich get richer while the poor get poorer.") We've
been calling systems which by their construction accelerate the
Matthew effect regressive, and systems which by their construction
have the inverse effect progressive.
MATTHEW IS EXTRANEOUS, AND MORAL ALGEBRA
The moral nut of my argument is that, if you believe in free market
capitalism, it shouldn't be the job of a tax system to influence the
Matthew effect at all, either to promote or inhibit it. Trying to
modulate Matthew in a tax system unavoidably adds extraneous and
controversial moral and economic judgements (saving is better than
spending, or that the poor are more entitled to the fruits of their
labors than the rich, etc.) to the process.
This all boils down to the following assertion:
for x, y such that Ex > Ey, Cx/Ex = Cy/Ey, Ix/Ex = Iy/Ey ---> Wxy =
Pxy
is a morally acceptable proposition. If you agree with this
proposition, then you *must* agree that universal, flat taxes are the
only morally acceptable solutions as they are they only ones which
exhibit this characteristic. (I haven't demonstrated that yet, but
trust me --- it's true. At least until I convince myself otherwise.
;-)
Further, if you *do not* agree with the above assertion, then you in
some sense *must* believe one of the following: capitalism is not a
morally acceptable proposition, different people have different
rights and entitlements, or it is the moral imperative of the
government to redistribute wealth outside of the normal exercise of
commerce.
The above assertion says that no matter how hard you work, how much
you have, or how much you earn, your wealth will (potentially,
depending solely on the performance of your investments) accumulate
in the same manner as someone else --- potentially richer,
potentially poorer --- who invests the same percentage of their
earnings.
It also reinforces and reifies the notion that people --- regardless
of income --- are entitled to enjoy the fruits of their labors
however they want, and to allocate earnings at their discretion;
wealth accumulation *and* consumption are therefore purely functions
of the individual's choices, and not influenced in any way by the tax
system.
IS MATTHEW UNAVOIDABLE?
So this all begs an interesting question. I've been dodging a
bullet, so far, since retracting my retraction. ;-) While we can
prove that flat consumption taxes are both literally and (for a given
set of assumptions) informally neither regressive nor progressive,
and that they are morally sound given a very reasonable set of
assumptions... don't they *actually* promote the Matthew effect?
After all, in the real world, for x, y such that Ex > Ey and where Ey
is sufficiently low, Cy / Ey is going to be much greater than Cx / Ex
just to maintain some minimum standard of living. It seems that
perhaps capitalism itself, if followed rigorously, makes the Matthew
effect unavoidable.
This isn't actually the case. The hidden assumption here is that
there is some minimum standard of living that we're all morally
entitled to. A true hard-line capitalist would deny this: we are
each entitled to the fruits of our labors, no more, no less. Our
standard of living is purely a function of the choices we make in how
to use those earnings. The Matthew effect is a function of our
cultural prejudice --- of the assumption that there is some minimum
standard of living that must be maintained --- not a function of
capitalism itself. A street person earning $30k a year panhandling
(this was an average amount for panhandler in SFO in 1990) and
allocating 100% to investment will grow their wealth at a greater
rate than a Dellionaire earning $500k but spending 50% of that on
lifestyle, ROI being equal.
THE MORALITY OF COLLECTION
I've harped on tax being theft and all that until I'm sick of my own
BS. ;-) Perhaps this is a better way to position that argument...
There are at least two dimensions of tax systems which are
orthogonal: how the taxes are collected, and how the system is
structured. My issue with income taxes is that they are not, for a
reasonable definition of voluntary, voluntary. (Dave's argument
about reducing your tax liability by choosing to earn less gets right
to the point --- income taxes disincent earning. IMO this is both
anti-capitalist and individually unacceptable.)
In a truly free society all choices are voluntarily made; anything
else is coercion, and that's morally wrong. Now unless we have an
*entirely voluntary* tax system, we can't get away from this
problem. (Interesting to ponder the game theoretical aspects of a
truly voluntary tax system.) I doubt we're going to go to a
charity.gov model anytime soon...
Forgetting about totally voluntary taxes, we have to make a choice
about how to collect taxes. Should we take them directly out of
income, or should we take them out of spending, or what? Given the
two scenarios we've discussed at some length, income or consumption,
we leave the individual taxpayer with two different decisions. In an
income tax scenario, to determine how much tax he actually pays the
taxpayer must decide how much he wants to make; in a consumption
scenario, the choice is rather how much he wants to spend.
If you believe that encouraging everyone to be as economically
productive as possible / earn as much as they can is a good thing,
and you believe that more freedom of choice is better than less, then
it is entirely rational and follows for you to believe that
consumption-based taxes (while still perhaps not truly moral) are at
least on somewhat sounder moral footing than income taxes.
Henceforth, let's forget about MORAL, and call it VOLUNTARY.
VOLUNTARY will be that you can exercise discretion over how much you
pay in taxes through some other means than simply capping your
income.
EQUITABLE vs. FAIR
My previous half-ass attempts to define "fair" have been pretty
unsuccessful. There are really two pieces to it: the EQUITABLE
piece, which speaks to how the tax system is structured and which I
think we've nailed, and another fuzzier piece. That other fuzzier
piece is more about how services are provided and how tax revenue
translates into individual value. We'll informally call that other
piece "fairness" for a moment.
A FAIR system of taxation and service would be one in which for some
given amount of value received through gov't provided services,
Ritchie and Joe would pay the same exact price. The only *tax*
system we've mentioned (true free markets aside) that truly has this
kind of FAIR is a flat price tax, which is clearly and wildly NOT
EQUITABLE and which may not be SUFFICIENT, depending on how much
service we choose to have the gov't provide. You can't have your
cake and eat it, too: EQUITABLE and FAIR (the above definition) seem
to be incompatible.
In the interest of being pragmatic, I've given up hope that any
generally acceptable tax alternative can truly be fair; the best we
can hope for is that it's morally consistent for some set of
generally-agreeable moral assumptions, voluntary, expedient,
sufficient, and equitable.
FUTURE DIRECTIONS
If this is to go much further, at some point I'm going to revamp the
analytical framework. A new list of criteria might be: VOLUNTARY,
FAIR, EQUITABLE, CONSISTENT, EXPEDIENT, and SUFFICIENT. My friend
Russell has suggested two additional criterion: fair administration
and economic neutrality. Kent wants me to go further in describing
the subscriptive tax system --- the "Ala Carte Allocation Model" I
suggested earlier --- which speaks to how tax revenue is allocated to
services after collection. Axes of analysis might be: collection,
structure, dispensation. I'll leave all that to some possible v2.0
of the taxonomy and evaluation essay, which if I get off my duff I'll
put up on geocities instead of spamming to the list. ;-)
jb
This archive was generated by hypermail 2b29 : Fri Apr 27 2001 - 23:15:14 PDT