Monday, November 19, 2007

You've got to take up the tax before you can take up the carpet.

Today's heading again comes from Groucho, this time from Duck Soup: Groucho has become President of Freedonia (don't ask) and is presiding at a cabinet meeting; the Minister of Finance wants to take up the issue of the tax, but Chico thinks they should take up the carpet. Groucho tells Chico that the Minister is actually correct, and you know the rest.


Do a web search using tax protest as the terms and you will get "about 2,390,000 English pages" (Google). Scan as many as you like and see how many--if any at all--relate to regions outside the U.S.A. Objecting--fiercely, indeed sometimes violently--to taxation has long been an especial hobby of the American people.

That is profoundly ironic. Americans pay a far lower percentage of their incomes to tax than do the citizens of any other first-world (industrialized ) nation save Japan, than whose folk we pay only a little less--but that's because they alone of the lot have no substantial national-defense expenses. Indeed, citizens of most European nations pay close to (or, in the case of Sweden at least, more than) twice what Americans pay. By and large, they don't any of them seem too upset by the matter.

Nero Wolfe wisely and correctly observed that governments spend money for only three reasons: because they have to, because they want to, or because they have it to spend. But today I am not aiming at how and on what governments spend money, the obscene outlines of that being fairly generally known. Instead, I am concerned with how and why governments collect taxes. Fruit-cakery aside, it is obvious that any citizenry above a wandering hunter-gatherer tribe has to have some government, however minimal some might wish it, and governments are not, cannot be, breatharians. So, ignoring the amounts involved, what are reasonable ways for governments to assess and collect taxes?

A crucial distinction must be grasped right at the outset: taxes come in two basic and distinct sorts, the sort depending on the nature of the governmental expense involved. For convenience I'll call the two types meterable and universal.

A meterable expense is one whose benefit to a particular taxpayer is capable of reasonably precise measurement. Correspondingly, a universal expense is one which either cannot be "metered" or whose benefit falls by unpredictable chance. The distinctions may seem obvious, but in fact the one sort is often mistaken for the other.

A simple universal expense is national defense: the hobo sleeping under the bridge and the billionaire sipping his champagne would, at least presumably, be equally discommoded, even if perhaps in different ways, did The Dirty Commies (or whomever) conquer our fair land. A simple meterable expense is municipal water: it is perhaps the most commonly metered, in the literal sense, government provision of all.

But now consider a fire department: one might think the cost a universal benefit, but it is in reality a simple meterable benefit--insurance companies meter it thousands of times a day. A fair fire-protection tax would be imposed on property owners in proportion to the size and fire hazard of their properties, things which, as noted, are scarcely arcana. A police department, on the other hand, is much more nearly a universal benefit.

We must take care not only to not mistake one type for the other, but to not mistake what is properly being metered where the benefit seems meterable. A childless household might feel put upon being taxed to pay for schools. It would be easy, and wrong, to say to them that sound schooling of our children confers a general benefit on society. The correct analysis is that schooling is meterable, but that the meter is ticking for their prior education; the taxes they pay today are repayment for the benefits they received in the past. (A nitpicker might object that not every single citizen had the benefit of schooling, but the vast majority did and we must be practical.)

Then consider courts: certainly not everyone makes use of the court system, and not in equal shares even among those who do. But the availability of a court system to all as and when they require it is a benefit unpredictable, so that societal support of courts is, rather like insurance, a "universal" expense.

So much for the essential preliminaries. It seems clear, at least to me, that having recognized the substantial difference between the two types of taxes, we need also to recognize that each requires a correspondingly different method of tax funding. When a benefit is meterable, should not the beneficiaries of it pay in just proportion to their use of it? We seem generally to think so. Water and sewage removal, when governmentally provided, are literally metered; roads are paid for by gasoline taxes, which all in all are a pretty reasonable measure of the wear a given vehicle puts on the roads (lighter vehicles use less gas, heavier ones more, and all sorts use fuel in proportion to miles driven).

Indeed, those of a libertarian bent would probably argue that any service that is legitimately meterable ought not to be provided by governments at all: that governments are constituted only to provide truly universal (in this narrow sense) benefits. It is a view hard to argue against. There are, of course, never 100-percent-clear bright lines on meterability: take the postal service (please). While in principle its services are completely meterable, there is an underlying belief that a universally available postal service is an urgent need in a civilized nation. We thus heavily subsidize the service, so that you and I can send one another checks or billets doux or whatever even if we are rather poor; the amounts we pay are nominal, to discourage the overuse that a completely free system would presumably engender--in this they are just like the "co-pays" that HMOs impose to discourage the hypochondriacs of the world.

So much I suspect most would agree with, in general if not always in detail. The nub comes when we try to decide how to pay for universal benefits. The simplest and most obvious method parallels the widely accepted fairness of proportional payment for metered expenses: where all benefit equally, in fact or in potential, then all should bear the cost equally. Sounds simple and fair, but it's a bomb.

Under that scheme, if governments at all levels had, or presumably had, culled out and were billing separately for all meterable services, whatever was left (and, at least for the national government, a lot would be left) would be paid equally by all. The guy making $6 an hour would pay a federal tax equal to that paid by a billionaire. Not so simple-seeming now, is it?

I will here skip over the ethical arguments about whether there can be any fair justification for unequal distribution of the burden for paying for services that benefit all equally. That's a book-sized essay and it's approaching midnight as I type. Let's take it as read that we will allow some system of unequal payment, which necessarily means one where those with more pay more.

How, then, to implement such a scheme? The way we do now, with a massive, grotesquely inept bureaucracy, the IRS, poking and peering into every minutest detail of our once-private lives, so that they can squeeze out all the pennies needed to make up for the billions lost through special-benefit exemptions wired into the tax Code by those most able to pay? Um, perhaps not.

To my thinking, the most effective scheme considering fairness, practicality, and a few other things, is a national sales tax. Instantly, I need to point out that such a tax, to avoid being severely regressive, must have substantial exemptions for those necessities that are, especially for the poor, the bulk of basic-life expenditures: food, shelter, medical costs, education, and suchlike. Here very truly is the devil in the details--no 12-second sound bytes can cover this area--but it is eminently possible to create a reasonable and fair tapestry of such exemptions, such as taxing only housing costing above the median cost for a given-sized family in a given region. Beyond those, sales-tax everything.

The poor pay very little; the middle class pay some; and the rich pay a lot. Moreover, and this is very important, money is taxed only when it is spent: the current drastic disincentives to saving and investment disappear. "Money" in the abstract, as numbers on a piece of paper or a screen, is meaningless; money is only money when it actually changes hands, becomes a medium of exchange, buys something in the real world.

And, perhaps best of all, those psychopathic drones at the IRS would all have to get real jobs.

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