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Debating Taxes When “Rights” are Irrelevant

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By Walter Donway

December 3, 2017

 

Amid the vitriolic debate over tax legislation moving through the U.S. Congress this is what both sides have failed to make explicit: By what standard are we judging the bill? The answer, of course, is “by contradictory standards.” That is why the discussion of the 515-page bill is a mere shouting match.

An invaluable question in any debate, devotees of the philosopher Ayn Rand long ago learned, is “By what standard?”

Amid the vitriolic debate over tax legislation moving through the U.S. Congress this is what both sides have failed to make explicit: By what standard are we judging the bill? The answer, of course, is “by contradictory standards.” That is why the discussion of the 515-page bill is a mere shouting match.

So threatening is the bill to the national socialists, such as the New York Times editorial board, that they abandoned mere journalism and took to Twitter to rally voters and call out Senate Republicans who, they charged “appear to be backing away from their [earlier] principled objections…”

What could have justified, in their minds, this move to outright partisan politics, which officially identifies the Times as an organ of the Democratic Party? Two separate issues, I would argue, are involved:

OMG: What If Trump Keeps a Campaign Pledge?

First, if the legislation is enacted, as seems increasingly possible, then Donald Trump and his faction of the Republican Party will have delivered on a headline, do-or-die campaign promise: to slash U.S. corporate tax rates from about 35 percent to about 20 percent to reverse incentives that now impel U.S. corporations to move overseas. Indeed, the uncompromised keystone of the proposed legislation is the corporate tax cut—a Trump promise to voters (who, by the way, elected him) some 18 months ago.

But be warned: if the stock market’s seemingly unstoppable surge reflects the President’s perceived pro-economic-growth positions, it may reflect, at the same time, the Federal Reserve’s scarcely believable injection of monetary inflation into the financial markets.

The prospect of lower taxes on American corporations may account for the straight-up stock market surge since Trump’s election, an astonishing record of new stock index highs.

(But be warned: if the stock market’s seemingly unstoppable surge reflects the President’s perceived pro-economic-growth positions, it may reflect, at the same time, the Federal Reserve’s scarcely believable injection of monetary inflation into the financial markets. Chart the rise of the financial markets and the Fed’s historically unprecedented creation of new credit: their trajectories track one another perfectly.)

If Trump keeps this pledge, the national socialists of the Democratic Party and media will see their hopes of a sweeping repudiation of Trump in the 2018 elections diminished. Right now, they even dream of impeaching the President and expelling him from office. If the “Tax Cuts and Jobs Act,” as it is officially titled, is enacted, the Trump majorities in the House and Senate may increase in 2018.

That is issue number one.

The Standard of Altruism

Issue number two is that national socialists see nothing in the proposed legislation to redress their No. 1 grievance: the disparities in wealth among Americans. That is the standard by which they condemn the tax bill.

The anguish of the national socialists is a response to how the bill’s reduced number of tax brackets, lowered rates, eliminated deductions, and special features affect the “taxes” of lower-, middle-, and upper-income groups.

Their headline indictment is that taxpayers in the lowest income brackets allegedly benefit least from this legislation. That sounds awful by the standard of progressive taxation (the more you make, the higher percentage of your income you pay in taxes). But what is the actual situation of these lowest earners?

The Pew Research Center is a mainstream, liberal nonprofit think tank. I quote at some length:

“…IRS data from 2015, the most recent available, shows that taxpayers with incomes of $200,000 or more paid well over half (58.8%) of federal income taxes, though they accounted for only 4.5% of all returns filed…

“By contrast, taxpayers with incomes below $30,000 filed nearly 44% of all returns but paid just 1.4% of all federal income tax–in fact, two-thirds of the nearly 66 million returns filed by people in that lowest income tier owed no tax at all.”

Well, if 66 million filers in the lowest income tier paid nothing, then how could they “benefit least” from the proposed tax-reduction legislation? Reduction from nothing is nothing.

If 66 million filers in the lowest income tier paid nothing, then how could they “benefit least” from the proposed tax-reduction legislation? Reduction from nothing is nothing.

The answer is that tens of millions of “taxpayers” in the United States every year receive checks from the IRS because their “credits”—for having children, for example—are greater than their liabilities. And so, the lowest tax-bracket filers have an average “tax rate” of -0.7 percent. That is: minus seven percent.

The nonprofit Tax Foundation reports:

“As a group, taxpayers who make over $1,000,000 pay an average tax rate of 27.4 percent. At the bottom of the income scale, taxpayers who earn less than $10,000 pay an average tax rate of -7.1 percent, which means they receive money back from the government, in the form of refundable tax credits. The next income group up has an even lower negative tax rate at 11 percent.” That is minus eleven percent.

These supposedly are the taxpayers “receiving the least benefit.”

In the United States, those earning the most pay the overwhelmingly largest percentage of federal and other taxes. For decades, half of all federal taxes have been paid by the 10 percent of highest earners. That continues, today.

As so, the anguish of the national socialists also focuses on the top income brackets, which, they assert, will get the biggest “break.” Well, if you pay the majority of federal taxes, then any tax cut is likely to benefit you most. Look at the figures, though, and the projected average tax reduction for the highest bracket is token.

Here is the picture from the online site, Politifact:

“According to the Tax Policy Center analysis of the House bill, the second-highest quintile of taxpayers would see a gain of $1,610—well above any of the lowest three quintiles—while the highest 20 percent of households would get an even bigger tax cut of $4,860 in 2018. That works out to about 1.9 percent of their income—the highest of any quintile.

“The top 1 percent would do even better, saving $37,100 in 2018, or 2.4 percent of their income. And the top one-tenth of a percent of the income spectrum would see a cut of $174,620, or 2.5 percent of their income.”

The top one percent of U.S. tax filers earn an average of $717,000 a year. Under the proposed legislation, it seems, they might pay some $37-thousand less in taxes next year. The Tax Foundation provides this perspective:

“In 2014, the top 1 percent of taxpayers accounted for more income taxes paid than the bottom 90 percent combined. The top 1 percent of taxpayers paid $543 billion, or 39.48 percent of all income taxes, while the bottom 90 percent paid $400 billion, or 29.12 percent of all income taxes.”

For another perspective, the top 50 percent of all taxpayers (69.2 million filers) paid 97.2 percent of all income taxes while the bottom 50 percent paid the remaining 2.8 percent.”

By what standard, then, are we judging the proposed Trump tax legislation?

The doctrine of “progressive taxation” has resulted in a tax system now judged by how much wealth it can seize from the highest earners to achieve “fairness” for the lowest earners. It is judged by the standard of altruism: the most productive and successful are sacrificed to the least productive, the “needy,” the “poor.”

It would be more honest if the national socialists limited their arguments to the consistency of proposed legislation with altruism (“redistribution” of earnings from the top to the bottom), since that is their sole actual standard. But that would put the doctrine of altruism squarely at the center of the debate. That never has happened because altruism is a never-to-be-debated, never-to-be-questioned axiom of socialism.

And so, the Times tosses in arguments about the impact of the proposed legislation on the federal deficit. Estimates of government bodies such as the Office of Management and Budget and the Senate Finance Committee are that the bill might add $1.5 trillion to the federal budget deficit over the next decade; most concede that one-third of that might be offset by higher tax revenues from a more productive U.S. economy. Non-government organizations such as the Heritage Foundation, Cato Institute, and Tax Foundation project a much greater offset from a far stronger economy that would boost profits and wages and thus tax revenue.

The Times editorial also tosses in the “Break for Booze” argument, which is intended to exemplify the capricious nature of the bill. Yes, the proposed legislation lessens the excise tax on alcohol—a so-called “vice tax.” At present, for every sale of alcohol, the government “earns” twice as much (in taxes) as is received by the industry that produces, bottles, markets, advertises, and delivers the product. If the debate was being conducted according to the standard of economic prosperity, then note that the U.S. “hospitality industry” is one of the most vibrant in America. The outlandish tax burden imposed on alcoholic beverages directly impacts that industry.

(A personal sidelight: as a New Yorker, I save a lot because I can deduct what I pay in state and local taxes from the income upon which I pay federal taxes. The Senate eliminated that deduction and the House curtailed it. Interestingly, that change hits hardest two overwhelmingly “blue” states–the bedrock of Hillary Clinton’s election chances–New York and California. My congressman, Lee Zeldin, an ardent Trump supporter, was one of five Republican House members who voted against the bill. A peeved Paul Ryan cancelled his planned participation in a Zeldin fundraiser.)

What if the Standard was Individual Rights?

Let me propose a different standard for judging the tax bill: not the standard of expropriation of the producers for the benefit of the less- or the non-productive, and not the impact of the bill on “national prosperity.” What if the standard was upholding the rights of those who create, produce, and earn wealth against the claims of government at all levels that it must expropriate that wealth to spend it in “the public interest”—that is, spend it based on the priorities of politicians, bureaucrats, and special interest groups?

By the standard of rights, specifically property rights, taxes should be the lowest feasible amount needed for those functions that governments unarguably must carry out: law enforcement at all levels, the court system, and national defense against foreign aggressors. That is approximately where the new United States of America began approximately 241 years ago under the U.S. Constitution.

It has taken literally centuries for advocates of socialism to brainwash voters to believe that anything that government stopped doing would never get done; that if government stopped providing something at taxpayer expense only the rich would be able to afford it; and that government is our only protection against the ruthless depredations inherent in free economic exchanges among free citizens. Today, most Americans find it inconceivable that government might get out of the businesses of running schools, building streets and highways, regulating the professions, providing health care, approving new medicines, subsidizing crops, inspecting eateries, controlling the airwaves, supporting the arts, and licensing fishermen and dogs.

Today, on average, an American pays about 20 percent of his income in federal taxes. That is one in five dollars, year in and year out, straight to the IRS—everything he and his family earn from New Year’s Day to March 15. State, city, local, school, excise, corporate, and legion other taxes increase the total burden 40-plus percent of everything Americans earn—everything that he and his family earns between New Year’s Day and April 15.

Of course, there also are transaction costs. The government estimates Americans spend 8.9 billion hours a year complying with IRS demands; the cost of compliance is $409 billion a year.

The argument rages over who benefits by the proposed legislation, but the truth is that in the (intentionally) arcane world of taxes and tax-related programs and benefits—as symbolized by a 515-page proposed law—no one ever can know if he or she as an individual is “benefiting.” It is laughable for the Times and its liberal-leftist cheering section to pretend to know real costs versus benefits.

By the same token, how can the tax bill be defended? By what standard? Is it upholding the rights of producers to own and enjoy their wealth? Upholding the rights of stockholders in corporations to their profits?

In fact, it is upholding no right. The issue of rights, such as property rights, has no place in the altruist-collectivist universe in which the tax proposal is being debated. Rights are utterly irrelevant.

Everyone’s earnings, efforts, dreams, plans, and accomplishments are up for grabs in horse trading over a 515-page enumeration of government demands that will be enforced by fines and imprisonment. This is government according to the philosophy of Pragmatism, eschewing principles. There are no absolutes, such as “inalienable rights.” Ideals are lipstick on the pig of power struggles.

Instead, everyone’s earnings, efforts, dreams, plans, and accomplishments are up for grabs in horse trading over a 515-page enumeration of government demands that will be enforced by fines and imprisonment. This is government according to the philosophy of Pragmatism, eschewing principles. There are no absolutes, such as “inalienable rights.” Ideals are lipstick on the pig of power struggles.

If the legislation has any justification, it is that it keeps a clear, unambiguous promise to the electorate; it at least reduces taxes on corporations and America’s vast number of small businesses; it may reduce somewhat the complexity of tax filing that is a job guarantee for 1.2 million professional tax preparers; and it gives a nod of appreciation to those taxed to carry the rest of the country.

The only viable road ahead is a debate on the role of government; a debate on the nature of rights (I cannot have a “right” to my earnings if you have a “right” to an education at my expense); a debate on the legitimacy of government “borrowing”; and, underlying it all, a debate between the doctrine of altruism and the doctrine of egoism—that each individual is morally justified and required by his nature to live for his own sake.
 

 

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  • Charles J Gervasi

    The contradictory standards are so annoying I did not read coverage of it. My wife knows people not into finance who suddenly read up on the details about how the tax code handles LLCs with S-Corp election because of the tax bill. It seems like too small a tax cut to merit this much hand-wringing. The hand-wringing itself underscores one bad thing about income taxes. If they simplify the tax and anyone’s tax goes up, there is indignation. There’s always the indignation that the rich benefit more, but that’s inherent in the nature of an income tax cut since the rich have more income.

    The level of hand-wringing over a relatively minor change makes me pessimistic about significant reductions in taxes and spending in the future.

    • W.R. Donway

      All good points, Charles. Trump ran on jobs and his answer to loss of jobs overseas was a dramatic cut in the corporate tax. Interestingly, this is the only thing that went through the legislative process unchanged in size and, of course, is very, very significant. The rest of the tax bill is just a setting for keeping this #1 campaign promise.

  • disqus_PeRYgPx0Bk

    By what standard do we judge the tax code — let alone the reformation proposals? Ultimately we have to judge it by a moral standard. In the 1860’s following the deaths of an estimated 620000 Americans it was decided “the peculiar institution” was immoral and henceforth would be illegal in the United States of America. Following a history of thousands of years as the standard, Western Civilization outlawed Slavery. As in all things political we must first define our terms: slavery: the legal premise that one entity has the right to the work product of another entity. While still practiced throughout much of the “non-western” world, slavery was dealt a death blow among, as Churchill might say English Speaking peoples. The 13th, 14th and 15th Amendments ended the legality of various practices directly or indirectly maintained to subjugate a class of citizens (slaves/former slaves). Fifty or so years later Congress passed and sent to the States for ratification the 16th Amendment which was ratified, formally reinstating slavery in these United States of America. Pushed as a punishment of the rich with assurances only the very top one percent would ever pay it, the immoral practice of taking the fruit of one person’s labor for the use of another party was once again “legal” (though still not moral). It is time We the People take back from the socialist progressives the rule of law to re-establish the rule of morality. It is so ingrained after 104 years of immorality that the income tax is the proper way to tax the economy that one must think hard to believe that prior to 1860 many Americans could not fathom an economic system that did not include the forced servitude or another class of citizens. How SHOULD we tax the American economy to sparsely provide for the 19 or so enumerated functions of the Federal Government. First, the standard must be moral. I support the FairTax Act, which directly and openly taxes consumption (it is transparent) which does NOT tax savings or investment, which untaxes (even subsidizes) the least financially successful and is projected to create economic growth “as far as the eye can see.” Other models are worthy of consideration (maybe a “wealth tax” similar to property taxes on everything of value an individual owns) One of the benefits of these ideas is the option of the taxpayer to avoid taxation — the former by growing/raising their own food and buying only used durable goods — the FairTax only taxes the purchase of new goods and services — the latter (wealth tax) could be avoided by renting/leasing everything one uses; then the landlord (leasor) would be subject to the tax (though the renter would still ultimately pay it).