Robin Hood and the Tax Code

 

Let me tell you about a very conflicted young man named Theo Hillman. Theo is conflicted for a lot of reasons, but one of his biggest issues is reconciling his upbringing in a life of privilege to the suffering of those at the other extreme of the socio-economic spectrum.

Theo’s solution to his guilt complex is to distance himself from his family, and force wealth redistribution from those disinclined to distribute it themselves.

In other words, he robs them.

Theo’s upbringing isn’t the only thing that makes him unusual among thieves. What baffles his partners in crime is that he doesn’t keep what he steals. He’s a modern Robin Hood in the sense that he steals from those whose gains have been most dishonorably obtained and distributes the loot to those he believes are neediest.

If you haven’t already guessed, Theo’s a fictional character. I’ve created him for the novel I’m working on. But as I work on this novel what’s in the back of my mind is taxation and spending. After the stalemate in Washington in recent weeks and now with the deficit panel about to tackle the goal of reducing the deficit by $1.5 trillion over the next ten years, it’s top of mind for many of us.

Warren Buffett raised one issue yesterday in his New York Times Op-Ed piece. But there’s a lot more to our tax problem than whether or not the mega-rich pay a fair share. I wonder if the system fundamentally does what the voters want it to.

I don’t think there’s anything objectionable about taking some amount from the rich (those earning enough to be subject to taxation) and giving it to the poor (in the form of Welfare, Medicare, food subsidies, child support, etc.)—or applying those taxes to a host of other purposes for the common good. But the tax code goes well beyond assisting the underprivileged and otherwise supporting the needs of society. It manages what activity gets taxed and how much, the choice of what offsets tax in the form of tax credits, the selection of what’s deductible and to what degree, and how shelters are devised and exploited. All this creates a system that through bypassed tax opportunities rewards behavior we’re supposed to like and through increased taxes penalizes others. That’s more social engineering than revenue creation.

Is that bad? My answer: It depends.

I’ll tackle that later.

For now, here’s my top 10 list of tax topics. What’s your hot button? Is it:

  • How and whom the code rewards and penalizes?
  • The prosperity-based system itself?
  • The complexity of the system?
  • How the system fails to bring in enough money in depressions/recessions when we need it most?
  • The level of tax rate progression as income rises?
  • Individual versus corporate rates?
  • How the US code compares to those of other advanced countries and how that impacts our competitiveness and ability to retain a domestic corporate tax base?
  • Congress’s process of enacting taxes?
  • The conglomeration of federal, state, local, sales, payroll and other taxes?
  • Inefficient and unwise spending?

All of the above? Something not on that list?

Let me know what you think. When you post, remember our Rules of Engagement, listed to the right.

But at the moment, Theo and his new girlfriend Ysabel are waiting for me to get back to their story so they can tell me what happens next.

 

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4 Comments

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  1. Stacy August 18, 2011 at 10:19 am #

    Interesting thoughts, Mike! Thanks for pondering and putting them out there.

  2. Carrie Padgett August 18, 2011 at 10:30 am #

    I got an email forward last week with a list of all kinds of taxes … inheritance tax, fishing license tax, road usage tax, and on and on. All taxes enacted in the last 100 years or so. I have to think our country’s founders never envisioned a tax on food or RVs.

    • Michael Berrier August 18, 2011 at 10:50 am #

      Carrie, if you can find that email I’d be interested in taking a look. That topic is on my list (not the founding fathers in an RV, the preponderance of taxes) so I’ll check it out and factor it into my post on the topic.

  3. Richard Mample August 21, 2011 at 4:30 pm #

    Theo is morally confused. At least that’s how we think of him, because he steals from the rich and gives to the poor.

    But, how confused is he, really?

    After all, Theo takes from the “haves” and gives to the “have-nots”, and isn’t this what our current form of capitalism – Mixed Capitalism –does, too?

    As I recall history, we innovated Mixed Capitalism in America following Russia’s Communist Revolution because we knew we had to do something to avoid a similar fate, and because we recognized a couple of potentially fatal problems with the form of Capitalism we were practicing at the time (laissez faire).

    One of “laissez faire” Capitalism’s big problems was the maldistribution of wealth caused by the highly concentrated ownership of capital (the other was the belief that capitalism should be regulated only by free market forces).

    However, our problem solvers of the time, probably for reasons of political expedience, concluded that we could not act to address the real problem (the highly concentrated ownership of capital), but that we must instead take dramatic action to address its effect (wealth maldistribution).

    The result was and still is Mixed Capitalism, a confusing admixture of competing principles, partly socialistic and partly capitalistic, that allows us to achieve a level of economic welfare, but only at the expense of economic justice and freedom.

    The thinking of our problem solvers might have gone like this: The main factor involved in the production of wealth these days is capital, not labor, but since only about 10% of American families own and control around 90% of our economy’s productive capital, when distribution time rolls around, 90% of the wealth will go to them, leaving only 10% for workers, and this is a big problem that we must solve quickly or face revolution; but capital owners acquired their capital legally, so it’s private property, and we’re in America, so we can’t just take it away from them, like the Communists did in Russia; but, we’re a nation of laws, so why don’t we just use the law – tax law, full employment policy, credit policy, etc. – as a tool to legally arrange the transfer wealth produced by capital – which by right belongs to the owners of that property – to labor?

    This, in a nutshell, is what they did, and we’ve been engaged ever since in a moral debate about which distributive principles should be given more weight, those that are socialistic or those that are capitalistic.

    Our tax code is a perfect example of the consequences of our moral confusion, and it needs to be completely rewritten, but to what end unless we envision a completely new and more just form of Capitalism , one that actually gives people a reason to think Capitalism instead of Socialism?

    Innovating a new capitalism based on the principles of justice and requiring the widely dispersed ownership of capital just might be the biggest challenge of the 21st Century. This type of transformation is the subject of several books and essays by Louis O. Kelso and Mortimer Adler, and in a book they co-authored way back in 1958 (The Capitalist Manifesto) they list the three principles which they believe should form the basis of a new capitalism. Here they are:

    - The Principle of Distribution:
    Among those who participate in the production of wealth, each should receive a share that is proportionate to the value of the contribution each has made to the production of that wealth.

    - The Principle of Participation:
    Every man has a natural right to life, in consequence whereof he has the right to maintain and preserve his life by all rightful means, including the right to obtain his subsistence by producing wealth or by participating in the production of it.

    - The Principle of Limitation:
    Since everyone has a right to property in the means of production sufficient for earning a living, no one has a right to so extensive an ownership of the means of production that it excludes others from the opportunity to participate in production to an extent capable of earning for themselves a viable income; and, consequently, the ownership of productive property by an individual or household must not be allowed to increase to the point where it can injure others by excluding them from the opportunity to earn a viable income.

    Based on these principles, I think capitalism would certainly enhance government’s ability to fulfill its role as a means to the end of a good life for all citizens through a more just and positive use of tax policy, employment policy, credit policy etc, because when these principles are respected, the focus of economic policy is largely about innovating ways to help individual citizens earn their own subsistence through their private ownership of viable, income earning capital estates.

    And, let’s face it. Technology and the changes it brings dominate the world we live in. Every day, new technology is employed by ever more efficient wealth producing machines, requiring fewer and fewer people for their control, maintenance, and management; every day it becomes more and more apparent to job seekers that the only viable way to attract the attention of an employer is to have some specific knowledge, skill, and experience to sell, preferably of the technical or managerial type; and, every day, for workers having only their own labor to sell, the chances of them finding a good paying job diminishes.

    I see only one possible outcome for mixed capitalism in a world like this: a sharp turn to the left, down the road to a greater socialization of our economy, to a place where those who are able to participate in the production of wealth must support those who can’t. Nobody’s happy.

    But, I want to be happy. I want to earn my own subsistence. I don’t want to be dependent on anyone for it. And, at some point, I’d even like to stop working altogether, at least for my subsistence. Ownership of capital stock enabling me to participate directly in a company’s distribution of net income might allow me to do that early in life, at age 40 or even 30. Then I could focus on the leisure work of civilization, like Adam Smith or Isaac Newton.

    So, I reject Socialism and embrace Capitalism. Theo and Ysabel should, too. Justice doesn’t require “Robin Hood” tactics. All it requires is Capitalism, widely dispersed.

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