The Tax Question

These days an overwhelming number of political figures, especially conservatives and Republicans, continue to protest about taxes and insist that taxes should be lowered and that federal income taxes, at the very least, should be left at the lower levels set during the administration of the second President Bush. Although many conservatives protest that taxes are being used for “liberal” social engineering, the fact is that there are so many “special provisions” embodied in the tax code that such “engineering” runs from provisions purported to help groups ranging from the very poorest to the very wealthiest.  In addition, much of the complexity of the tax code arises from generations of efforts to make it “fairer.”

For all that rhetoric, the basic purpose of taxes is to pay for those functions of government that the elected representatives of past and present voters have deemed necessary through the passage of federal laws and subsequent appropriations.  Or, as put by the late and distinguished Supreme Court Justice Oliver Wendell Holmes, Jr., “Taxes are what we pay for a civilized society.”

Grumbling about taxation has been an American preoccupation since at least the 1700s when the American colonists protested the British Stamp Tax and later the tax on imported British tea.  In the case of the tea tax, the colonists were paying more for smuggled tea than for fully taxed British tea, which has always made me wonder about the economic rationality of the Boston Tea Party, and who really was behind it… and for what reason, since it certainly wasn’t about the price of British tea.

Likewise, my suspicions are that the current furor about taxes, and federal income taxes in particular, may not really be primarily about taxes themselves, but a host of factors associated with taxes, most of which may well lie rooted in the proven “loss aversion” traits of human beings.  Put simply, most of us react far more strongly to events or acts which threaten to take things from us than to those which offer opportunities, and in a time when most people see few chances for economic improvement, loss aversion behavior, naturally, becomes stronger.  And most people see higher taxes, deferred Social Security retirement ages, and higher Medicare premiums as definite losses, which they are.

What’s most interesting about this today is that the leaders of the conservative movements and the Republican party are generally from that segment of society which has benefited the most in the past twenty years from the comparative redistribution of wealth to the uppermost segment of American society and yet they are appealing to those members of society who feel they have lost the most through this redistribution – the once more highly paid blue collar workers in the old automotive industries and other heavy manufacturing areas of the U.S. economy.  The problem with this appeal is not that it will not work – it definitely will work, especially if economic conditions do not improve – but that the policies espoused by the “keep taxes low/cut taxes” conservatives won’t do anything positive to benefit the vast majority of those to whom these conservatives are appealing.  They will, of course, greatly benefit the wealthy, but the comparative lack of federal/state revenues is already hurting education, despite the fact that both conservatives and liberal both agree that improved education is vital for today’s and tomorrow’s students if they are to prosper both economically  and occupationally.  The lack of money for transportation infrastructure will only hamper future economic growth, as will the lack of funding to rebuild and modernize our outdated air transport control system and a number of other aging and/or outdated infrastructure systems.

The larger problem is, of course, that the conservatives don’t want government to spend money on anything, and especially not anything new, while the liberals have yet to come up with a plan for anything workably positive… and, under those circumstances, it’s very possible that “loss aversion” politics, and the anti-taxation mood, will dominate the political debates of the next six months… which, in the end, likely won’t benefit anyone.


7 thoughts on “The Tax Question”

  1. Robert The Addled says:

    Personally – I found the philosophy of your ‘tax/social responsibility’ system set in Adiamante wonderful and wish there was a real-world testbed.

  2. Alan says:

    Politicians will always cater to society’s whims. Especially at election time. It’s a downfall of the political system that the people elected to position are not there to do what is best, but what the majority of people want. And people rarely recognize what they truly need in these particular instances. They want what gives them the most immediate gratification and immediate short term gain, with no thought to long term consequences.

    As LEM noted, schools, infrastructure and public safety are the first ones to take a hit. Meanwhile social programs that support the weights of society continue on most strongly. This is because of the nature of people wanting to do as little as possible while being given everything for the lowest cost. Without an added input from taxes (Or even worse with lowering taxes), the money available must be allocated as best possible. The social programs, if removed or given reduced funding would be political suicide for the politicians. So they turn to the next target for finding funds.

    The fact that this is causing the steady decay of our children’s future (in many ways) is not as important in their eyes as the results of pointing out the need for higher taxes or reduced spending in social programs.

    There can only be so much theft from defense budgets, infrastructure and education before all of those collapse.

  3. R. Hamilton says:

    The way in which keeping taxes from rising, esp. for an extended period of time, will help _everyone_is twofold:
    * lower taxes favor more economic activity, which eventually means more for just about everyone

    * an extended period of consistency removes one sort of unpredictability…and businesses will be hiring sooner under more predictable circumstances.

    And yes, I’d like to see about 50 years worth of rollback on domestic spending. Maybe 80 years. 200 would be too much to hope for. The problem is there seems to be no limit to more spending, more stealing from the individual, more restrictions on freedom that come with all the strings attached to government “benefits”, etc…at least, no limit until the entire economy is controlled by the government. Which leads to a saying common in the former Soviet Union: “they pretend to pay us, and we pretend to work”. Interesting that a lot of people that got out of the former East Bloc in those days are NOT happy about changes here in the last few years…

    Being in an old retirement system not subject to Social Security, I’ll never get Social Security, even though with other jobs, I’ve paid into it (more than 20, but less than 40 quarters). I’ve paid into Medicare, but if I can avoid it, I will. (knock on wood, thus far in over 30 years, I’ve never even filed a health insurance claim…so I’ve clearly been subsidizing either insurance company profits or over-consumers, or both.) I don’t hugely resent what I’ve paid in and don’t expect any benefit from; but I would very strongly resent being compelled to pay more. If I want to help someone, I want to be able to choose who and how. Let the rest find someone else that cares enough to help them. Or let them suffer the consequences of having insufficient connections.

  4. Wine Guy says:

    Taxes don’t bother me as long as they are fair. Fair taxes are very subjective, so I won’t bother debating what ‘fair’ means since every group of four people has five definitions.

    It is my perception that said taxes are not being used either effectively or efficiently that bothers me.

    My own definitions of effective and efficient do not include:
    1. Social security, especially as applied to disability income. Means testing and frequent reassessment must to come to the fore here.
    2. Extended jobless benefits. (2 years? really?) Underemployment is the height of hubris when you have bills to be paid.
    3. Using the lowest bidder on everything: why bother with a bidding process that ends up costing more with change orders and broken contracts?
    4. Subsidizing markets that don’t need it: oil comes to mind.
    5. Business taxes: these get passed directly on to the consumer anyway. Why pretend otherwise? My accountant and I spend a good deal of time to figure out the best prices to do this; I assume other companies do as well.

    I don’t put healthcare here – yet. The current system is clearly failing, but I’m not convinced that there isn’t a better way than single payer because none of the countries using it actually have anything other than fancy rationing in place.

  5. Steve says:

    I have the happy circumstance to pay a significant amount of tax. I think I receive fair value from my city/state/country for the taxes I pay. I would be happier if I didn’t feel like the tax code was somehow “tricking” me and that others were paying less whether it be loopholes for the rich or credits for the poor. The current system fosters a significant amount of confusion and resentment.

  6. Chad says:

    “The larger problem is, of course, that the conservatives don’t want government to spend money on anything, and especially not anything new”

    What a sad, narrow minded statement to make.

    The conservatives I know prefer “spend within your means” not to cut all spending.

  7. It is indeed a sad statement, but it’s not a narrow-minded statement, but one of fact. They use the “spend within your means” test to advocate cutting that spending they don’t like in order to justify cutting taxes, or not raising them. The problem is that we have a growing population and holding spending level or cutting it means less government resources for each program. That’s not necessarily bad, but it does require re-evaluation of the merits of each federal program… and over the last forty years, I’ve never seen any Congressional oversight action anywhere close to objective — by either party. And in the few cases where bi-partisan oversight or investigative committees have made sensible recommendations, those recommendations have been either ignored or buried.

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