Thursday, March 31, 2011

How To Argue About Taxes (and How Not To)

"Myopia afflicts the contemporary legislative process in the US in a dramatic and simple way, in the form of tables that set out the distribution of tax burdens associated with various tax reforms. Most government transfers are excluded from these burden tables, including, most importantly, Social Security and Medicare. It seems clear that a tax burden that is matched by an equivalent transfer is not, in the relevant sense, a burden at all... But the problem would not be solved even if all money transfers were included in the burden tables. That too would be arbitrary, so long as we excluded in-kind benefits such as roads, schools, and police, not to mention the entire legal system that defines and protects everyone's property rights. If literally all government benefits were taken into account, however, we would notice that almost no one suffers a net burden from government. We would be forced to conclude that there is no separate issue of the fair distribution of tax burdens, distinct from the entirely general issue of whether government secures distributive justice. This might be described as a question about the allocation of different benefits of taxation, expenditure, and other government policies to different individuals; but that looks very unlike the original question." (pp.14-15, The Myth of Ownership, Nagel and Murphy (Oxford: 2002)).
The point is that it is false to claim that we can intelligibly discuss "tax burdens" as an isolated matter apart from the social/economic system of which taxation is but a small part. In particular, it is preposterous and unjustifiable to merely examine or criticize "tax burdens", conceived of as levels of taxation on whatever (income, consumption, etc.) without also looking at the way that taxes are spent.

If, say, my income tax goes up by 5%, say by $1000/yr, and I get unlimited access to higher education (which is worth much more than $1000/yr), it would be absurd to say that my increased rate of taxation means an increased "burden". I haven't been burdened in the slightest- I've just netted quite a lot of value. It would be pointless to debate whether my 5% was, in itself, fair or unfair without considering what we get from taxation: services, a functioning society, basic social institutions, a more equal and fairer distribution of resources, etc.

But that is how the conversation is set up in mainstream "debates" about taxes. It is a discussion merely about "burdens" and whether they should be lifted just a bit or quite a lot. If it's not economists going on about what's most "efficient" or "best for growth" (as though these underspecified goals were the only values relevant to the determination of tax policy), it's politicians blathering about how to distribute the "tax burden" fairly. Now I don't want to suggest that we shouldn't pay attention to the distribution of tax rates. How tax rates are distributed is an extremely important- I've argued many times on this blog that working class tax rates should be decreased while corporate taxes, estate taxes, and the top marginal income tax rate should be steeply increased. It matters a great deal whether we have, say, a flat income tax or a progressive income tax, or whether capital gains and dividends are taxed at the same rate as wages.

Moreover, I'm not saying that taxes can never end up being a burden. For many people in the US, they absolutely are. For working class and poor people, deeply regressive taxes can end up being quite burdensome indeed. But they are burdensome on the assumption that basic needs go unmet despite the fact that people's relatively low income is taxed at a high rate. When a working class person faces high consumption taxes that increases the cost of food, that is clearly a net burden. But say that this same person pays high premiums for health insurance from a for-profit provider every month for inadequate coverage. If we were to institute a single-payer system, this person's taxes might well increase. But it would be false to say that this person is now enduring a new, increased burden. On the contrary, they would no longer have to pay high premiums to a for-profit insurance agency, and they would receive far more extensive care than they received before. What they pay in taxes is less than what they paid in premiums, and they now receive more extensive care for less money. This is clearly a net gain. The language of "burden" here is a red herring. Again, we can't make sense of the justice of tax policies without examining, among other things, what goes in and what goes out. If my taxes go up 2% and I get 25% more in terms of goods and services, it would be bizarre to say that I'm now burdened 2% more than before.

Thus, there is no abstract way to say whether a certain rate of taxation, all by itself, is burdensome or not- we can only know whether its burdensome by looking at the balance of what one pays in and what one gets out of it. We have to examine someone's class position. If we operationalize this in dollar terms, we could say that a particular policy was burdensome if and only if I paid far more into the system than I got out of it. And to calculate "what I get out of it" we have to add up a long list of social goods, institutions and services: roads and infrastructure, legal systems and courts, educational institutions, public parks, libraries, fire protection, Medicare/Medicaid, and so forth.

So, for the vast majority of us, taxation in general will not be a burden in this sense at all. Conversely, for the ruling class, taxation probably will be a "burden". They will, it seems, be required to pay more into the system than they are likely to take out of it in terms of services and public goods. Again, in a narrow sense, if the system of taxation is progressive (i.e. if the average rate of taxation increases with income) the rich will pay more into the system in dollar terms then they get out of it in services. But there are three reasons that nobody except ruling class parasites should worry about this.

First, it isn't quite right that the ruling class puts more in than they put out. In order for them to earn any profits whatsoever, they need a set of basic public institutions (legal system, police, military, courts, infrastructure, anti-trust regulators to guarantee competition, etc.) that make it possible to own property and have a market economy at all. Markets aren't "natural" in any sense whatsoever: they are conventional and require quite a lot of "big government intervention" in order to exist at all. Though we are encouraged to forget this and ignore it, the obvious fact is that private property is a legal convention, not a fact of nature. "We are all born into an elaborately structured legal system governing the acquisition, exchange, and transmission of property rights, and ownership comes to seem the most natural thing in the world. But the modern economy in which we earn our salaries, own our homes, bank accounts, retirement savings, and personal possessions, and in which we can use our resources to consume or invest, would be impossible without the framework provided by government supported by taxes". All of this must be in place in order for a capitalist economy to exist at all: the basic institutional framework underwriting markets are not "free", they must be paid for by tax revenues. So, to be sure, isn't exchanging equivalent for equivalent if we add up the taxes they pay alongside, say, the value of the education they procure from a free public university. But it's a fact that the ruling class needs a lot of government intervention (to break strikes, to intimidate protesters, to thwart social movements, to intervene globally to create a good business climate, to protect property, etc.) to make the profits that it makes. And that intervention is not free: there's a sense in which the ruling class owes the government "rent" for being there to create the conditions for profitability. Of course, power relationships mean that the ruling class is often in a position to get out paying this "rent"; thus they make working people pay it for them. They are, after all, just trying to maximize profits for themselves, even if this means socializing necessary risks and costs. The ruling class way of life is as follows: evade all costs, exploit ruthlessly, externalize risks and wastes, and jealously covet all the earnings that it can get its hands on.

Second, there can be no ethical objection to the idea of taxing the rich at much higher rates. On the contrary, there is something deeply unsavory, morally speaking, about the person with massive surpluses who refuses to relinquish any whatsoever to help those with nothing. The idea of paying according to one's means is a basic ethical principle that seems rather hard to reject. Such a principle correctly abhors the vices of avarice and miserly tendencies to hoard things for oneself. Moreover, it is absurd to ask Bill Gates to pay the same dollar amount in taxes as a working-class single mother. To object to that is to depart from our ordinary moral horizon entirely, so the ethical objection to taxing the rich hardly holds water. But, as we will see below, this moral/ethical element only arises on the condition that the pre-tax income of the ruling class is legitimate. But it is not. It is already tendentious for a ruling class person to say that their pre-tax income is "theirs" in some fundamental way (it is only "theirs" under a particular regime of property relations and public institutions which they willfully ignore in discussions of taxation). But even if it were "theirs", there are still very strong, and quite uncontroversial, ethical reasons to think that the "pay according to one's means" principle is sound. Cough it up, moneybags.

Third, it is false that the ruling class receives in profits exactly what they deserve as a result of their productive efforts. That's not how markets work. Markets aren't conscious, they aren't aware of who deserves what, and they certainly aren't in the business of rewarding people. Some of what determines market distributions is brute luck, some of it has to do with allocating resources in such a way that profit is maximized, some of it is short-sighted irrational craziness (as in the buildup to the recession we're in). In principle, I needn't do anything productive whatsoever to earn profits on an investment. Arbitrage is the most obvious example: this is when someone moves massive amounts of capital very quickly to exploit a small, temporary shift in exchange rates between, say, two currencies. This is how Soros made his billions. There is nothing productive whatsoever about such transactions. This is simply a case of money making money.

So, incomes in a market economy aren't in any sense based on what one "deserves". Often, many deserving people are denied employment simply because there is no way to profitably employ all of them. For the most part, incomes in a capitalist economy are determined by the office or position one occupies in the economy. And depending on the location of that office/position you have more or less economic power- and it is primarily the degree of economic bargaining power that determines your income. For example, if you're an un-unionzed worker in a labor market in which unemployment is high, then employers have a huge amount of economic power over you. They are in a position to push wages down in part because there are many workers competing against each other for scarce jobs. Because of your powerless position as an unemployed worker (you have nothing to take to market but your own capacity to work), your income is liable to be low. On the other hand, if you own large amounts of alienable productive resources (e.g. a factory, large amounts of resources) you are in a position to command a very high income indeed. It's not how productive you are or how hard you work, in the end, but what particular office you occupy within the system that largely determines your income.

Let us not forget that capitalism is a society in which the ownership of the means of production is concentrated in a small fraction of the population's hands. The majority of people in capitalism do not have large amounts of capital or land that they could invest for a profit; the only important productive asset most people have is their ability to labor. This means that those who own the means of production are in a position of power vis-a-vis others in that society, and thus they are in a position "to demand returns in the form of profit, interest, and rent". Most people, therefore, are not in a position of economic power such that they may extract profit, interest and rent from others.

Let me say a bit more about this to drive the point home. Marxists aren't claiming that capitalists and landowners never derive any income from, say, improvements to their land or labor they expend managing their firms. What fraction of income landlords and capitalist receive as a result of their labor is not, strictly speaking, what angers Marxists. What Marxists see as problematic is that fraction of income that capitalists and landlords receive, just because they are owners of capital or land. Their main complaint is about "money making more money" in a society in which the majority don't have such a luxury and must therefore work for every dollar they earn.

The basic problem here is that the ruling class can only earn profits on the condition that there is a large class of people who do all the labor necessary to produce profits in the first place. The ruling class can only make their massive fortunes on the condition that they own and control the means of production, whereas the majority of us do not. Their social/economic power comes from the fact that they control what we need to survive- jobs on the one hand, and goods and services on the other.

And as any child can tell you, if all the workers in a society simply stop working, the whole society grinds to a halt. If they were to stop working indefinitely, the ruling class would wither on the vine- they wouldn't even be able to continue to eat and procure their own means of subsistence. What this shows is that they are plainly dependent on a system of social labor. This is why the ruling class pulls out all the stops to prevent and to break strikes. Ruling class persons, then, are hardly self-created, isolated producers who create something out of nothing. They occupy a particular place in the economic system, and it is in virtue of their place vis-a-vis production that they are able to have the power they have, and earn the incomes that they do. So to say that there is some sense in which they "deserve" their pre-tax income is absurd. To say that they it is an illegitimate intervention into their private affairs for them to be taxed is patently false: their pre-tax income is only possible because of a massive, public system of social labor (which is not ignored at production time, but is happily ignored at tax time). Their income is not a private affair- they need the rest of us who do the work if they are to earn it! When the day comes that the ruling class produces everything they have entirely by themselves, on a deserted island, without the help of anyone else, then perhaps their complaint will have some merit. But of course they wouldn't be a ruling class anymore in such a case- they'd just be some weird person on a island who makes all their own stuff. They'd have no power over us and they'd have no way of exploiting our labor for profit.

But as long as they need the rest of us to have what they have, they should dispense with the bogus talk about the "privateness" of what they earn. It is public in every sense of the word- and it is justly taxed by society in order to fund the basic institutions, services, and goods that are required if any society is to flourish.

But though socialists support the demand to tax the rich, this isn't the goal of socialist politics. The goal of socialist politics isn't to achieve an "optimum" (whatever that would be) level of taxation on the ruling class; the goal of socialist politics is to transform society in such a way that there is no ruling class. The goal is to bring the basic structure of society under the democratic control of the people, rather than leaving it under the dictatorial control of the capitalist class.

1 comment:

dnw said...