Thursday, October 31, 2013

Are Taxes a Form of Theft?

Are Taxes Theft? and

Tom’s previous post was blunt: Simple Solution: Raise taxes! Some readers commented that taxes should, in addition, be PROGRESSIVE. This means that the more you make, the greater PROPORTION of your income you should hand over to the government - not just a larger ABSOLUTE amount. Steve called himself an “Eisenhower Republican and a conservative.” He agreed with Eisenhower, during whose presidency the top marginal tax rate was over 90%.

We want to pursue this. For the sake of argument, let’s talk about a group, which we shall call the “$10 million+ a year club.”

Personally, if we were members of this club, we would be fine with what Steve, the “Eisenhower Republican” said, above. We wouldn’t mind handing over $9 million of our earnings each year, and live on the remaining one million.

How many people are there in the “$10 million+ a year club”? Anecdotally, we hear about the many NBA, NFL and MLB players who are there, along with dozens of Hollywood superstars, and of course thousands of business executives and assorted other professionals.

According to the Tax Foundation, in 2009, 8,274 Americans reported more than $10 million in AGI. The number of people who make $10 million or more GROSS is much larger. Also, the number of deca-millionaires has increased since 2009, and of course some percentage of this group earns more than $10 million.

Whatever the number of people in this group, the question is: How big should their tax bite be? You might feel that 90% or more is excessive. A radical might even say that ALL taxation is theft. He would say that whenever the government taxes you, it is in fact STEALING from you, because the money is YOURS. You earned it. On its face, this sounds like a reasonable argument. But is all that money really yours? Did you really earn it?

This varies. Many members of the $10 million+ a year club did no more “earn” their money than do millions of others who make only $25,000 or $50,000 a year. Sometimes, the $10 million is “earned” the way one wins the lottery - through luck. Often, it comes through inheritance, connections, and cheating or outright crime, such as insider trading.

True, for some it is due to exceptional talent, dedication and hard work (e.g. the super-athlete, the super-star, the founder of a successful business). Hard work and dedication CAN play a role. But there are many other factors. So, have most members of the $10 million+ a year club earned their fortune?

We won’t go so far as to agree with the French Utopian Socialist Pierre-Joseph Proudhon, who said, “Property is theft.” But neither do we agree with the polar opposite, namely that taxation is theft. The question, “how big should the tax bite be?” is a moral question. The answer would have to be based on empirical evidence about how each rich person came to be rich. To what extent are the $10 million you made last year really YOURS? To what extent did you truly EARN that?

Three things seem clear:

1) Many members of the $10 million+ a year club do not deserve their wealth any more than most $25,000-$50,000 earners deserve theirs. The latter do their best every bit as much as the millionaires do.

2) On the other hand, some members of the $10 million+ club make enormous contributions to society through incredible talent and extreme dedication (Think Stephen Jobs). These folks therefore have a moral right to an exceptionally generous income.

3) Taxes must be progressive, and unfortunately, they have become less so over the years, especially in America. Consider the following comparison between the US and the Netherlands.


Getting back to Steve, the Eisenhower Republican, here is how things have gone in the US since the 1950s:

Eisenhower actually did the wealthy a service by raising the highest tax bracket from $200,000 (under Roosevelt) to $400,000. So fewer people were paying the highest rate of 92%. Johnson lowered the marginal tax rate to $75% but also lowered the highest tax bracket to $200,000; so more people paid the highest rate.

The most drastic change in the tax rate was under Reagan. Top income tax rates were slashed from70% to 28%, but these rates applied to lower income levels. Anyone making more than $31,000 paid the same rate of $28%. Under Bush senior, the rate went up to 31%, but only for people making over $87,000, causing fewer people to face that tax. Clinton raised it to 39% for income over $250,000. So it looks like since Reagan not much has changed.

Compare this with Holland, where poor people pay fewer taxes but still pay, whereas here, you don’t pay until you earn $9,000 and the highest tax rate not only is much higher, but also starts at a much lower income level of $75,000 as opposed to $400,000. Before Reagan, the tax system was a lot more progressive in America.

The question is, what percentage of the population pays what rate? We couldn't figure out what % of the population in Holland is poor, middle class or rich. For the US, the figures are as follows: Under $25,000: 35% of population;   $25,000 to $50,000: 36%;  $50,000 to $75,000: 16%;    $75,000 to $100,000: 6%;    $200,000 and more: 7%. You be the judge. leave comment here

© Tom Kando 2013