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Two more canvassers showed up at my house yesterday. When I asked them what was most important, they said they hoped to see lower taxes on the middle class. Sure, and then I asked if they were willing to have less government schooling and health insurance and the like, they said “of course not.” Implied in all of this was that the middle class should have their taxes lowered and the rich should have theirs increased.

I live in a pretty boring 1,900+ square foot split-level ranch house with 1980s-style appointments. It’s real groovy. When I asked them if they believed my taxes should increase, they said, “no, of course not.” When I told them that I am pretty close to being in the category of “the rich” they sort of gulped and said, “well, we mean the really rich.” Furthermore, when I asked them if they knew just how progressive the US tax system was in its entirety, all they could say was, “not enough.” When I asked them how US tax progressivity compared with other European countries, they said, “it’s definitely not more progressive.”

So much for the “evidence-based, reality-based community.”

That little engagement aside here an exercise that I demand all people take part in. Yes, I demand it! I’m just so darn important. Seriously though, here is what I would like to see when people accost me about how inequitable the tax code is.

(1) Show me examples of people that you consider poor, near poor, middle-class, upper-middle class, rich and super rich.

(2) Tell me a story about each of these people. How do you think they got to where they are? How do they make you feel?

(3) Tell me EXACTLY how much in taxes each of them should be paying. And please describe all of the taxes you are thinking about from income to payroll to state income to sales to excise to property to capital gains to customs duties to fat taxes to environmental taxes to luxury taxes to inheritance taxes and more.

So, for example, take several people in different income (AND WEALTH) categories. One person with $30,000 in income and no net wealth. Another with $30,000 in income and $100,000 of net wealth. Another with $50,000 of income and negative net wealth … another with $100,000 of income and $50,000 net wealth … another with $5 million in income and lot and lots of net wealth … and so on. Describe for me the sorts of places they live, the number of people they support and their consumption patters. To make it simple, assume no net wealth for anyone if you must and just consider income alone.

(4) Tell me EXACTLY what you think a “fair” amount of taxes for each of these people should be. And for the time being never mind the fact that there is almost no way to make it truly fair. The point of the exercise is that I want you to stop being opaque about “too much” and “not enough” … and to lay your cards on the table. For example, assuming no net wealth for anyone, I think consumption under $20,000 should not be taxed, consumption between $20,000 and $60,000 taxed at 10%, consumption between $60,000 and $200,000 taxed at 20% and consumption beyond $200,000 taxed at 33%. I know that this is harder said than done – but you get the point. When making this specification, make sure you report the MOST that you believe someone should pay in taxes (and it would be nice of you, for those who recommend 50%+ tax rates, why others have more of a claim to someone’s produce than their own children).

(5) And now for the fun part …. take your “ideal” tax system from (4) and multiply your rates/revenues by the number of people that actually fall into those categories today. How much in tax revenues do you see are likely to be collected? How close is that to the $6.5 trillion of spending that the government at all levels spends today. If it is greater than the government spends right now, do you think you should lower your estimates? Or what do you propose the government do with the extra revenues? If it is lower than the government spends, and I am almost sure that it will be if you do this exercise honestly, then what do you conclude from this?

Again, all of this assumes  a static world where people’s incomes and work/saving behavior is exogenous to the tax system, but that is clearly not the case.

Have you ever had anyone lay out to you just “how much is enough?” And should you not demand this of your elected officials and those who presume to replace them? Why is this not the FIRST and ONLY question they are asked until it is answered clearly?

3 Responses to “An Exercise in Intra-time Inconsistency”

  1. Speedmaster says:

    Very glad you brought this up. I see many people demanding higher income taxes on the “rich,” when members of this group (however that’s defined) may have very little income. It seems many people don’t understand the difference between wealth and income.

  2. Harry says:

    Exactly right, Speedmaster. Who the rich are is an ever-changing definition in the debate. On the one hand you have Warren Buffet, who is wealthy enough to feel that his capital gains should be taxed at his secretary’s marginal rate, even if it reduces the after-tax cash flow of the person with a $30,000 401-K or a poor soul in CALPERS.

    On the other hand, being rich also is often defined as a couple making over $250,000 per year, which may include today two Chicago teachers with a $600,000 mortgage on a house worth $400,000. Go figure.

  3. Harry says:

    Crickets, you know who you are! Let’s hear a story!

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