My friend, Jim, argues some interesting points in his rebuttal to my last post about progressive taxation.
Jim asserts that wealthy people have no more to lose than poor people or the middle class because a Ferrari may have as much (sentimental) value as a tin cup. While this may hold true in “The Gods Must Be Crazy”, it can hardly be argued in a developed civilization. It also creates a problem for Jim’s recommendation of going to a property tax only system. I say my property is only $1, so I should have to only pay the property taxes on $1. Who is to say what my property value is? What if the Federal government disagrees with the State, which disagrees with the County government about the value of my property? Do the roll one of those D&D dice with only three sides?
Material wealth is the primary foundation of economics. It isn’t about measuring if we are jumping on rainbows. The measure of economic success is purely material. Couple that with the fact that decades of research and intellectual property went into building a Ferrari, billions of marketing dollars, engineering, schooling, etc… Not to take away the incredible economic value of the invention of the concept of a tin cup, but one tin cup hardly holds the economic value of a Ferrari in any stretch of the imagination. Even in an undeveloped society where a Ferrari would have no transportation value for lack of available gasoline, it still provides a greater level of shelter than a tin cup.
Now, getting to his point about stealing. Certainly, stealing is criminal regardless of the value of what is being stolen. Of course, the immediate question then becomes that of ownership. Jim questions “What gives the politically powerful the right to decide for us what we should pay?” The answer to that question in America is simple: We elect them.
Now, Jim will argue that branches of the government and agencies the government have abdicated its authority (The Federal Reserve) to are not elected and are thus stealing from the American public. I can see his argument. However, nowhere in The Constitution does the word “police” occur. Therefore, would that make all police agencies unconstitutional? Hardly. Our Constitution is a broad document that has required clarification through numerous lawsuits and amendments. It is a living document, and as such is subject to the interpretation of those assigned to interpret it: The United States Supreme Court. The IRS, FED, EPA, FDA are all legitimate government agencies that were formed by our government. While there may be X-File style conspiracy theories as to the roots of each agency, each of them can be traced back to an act of our Congress or Executive Branch and all of the agencies do answer (contrary to Jim’s assertion) to the American government. Do these acts make them constitutional? Certainly not. But we can save that for another blogbate…
Jim goes on to argue that a consultant in the Bahamas is not participating in the United States economic system, despite offering services to Americans. How could he not be participating in the United States economic system? While all of his action may indeed take place in the Bahamas, the results of his actions have a very real impact on the United States economic system. Jim’s suggestion would basically allow for the pirating of the US economy. All one would have to do is have their base of operation outside US soil, and you would no longer be “part of the US political system”.
I can see where Jim might be going with all of this. Certainly, the abundance of manufacturing jobs made available by an abolition of government regulations, income tax, and environmental laws would make the US extremely attractive to business. In fact, Detroit automakers could just move their headquarters to Canada (it’s not that far away anyway) and they would no longer be subject to any American law. They could then lease all property in the United States and be completely tax free. Perhaps Jim might be on to something because that might be better than giving them $700 billion dollars…
This brings us back to Jim’s idea of real property being taxed instead of income tax. The great thing about Jim’s plan is that I could make as much money as I wanted and influence lawmakers and the entire political process by simply never owning a piece of property in America. I could setup businesses through out the country that always lease our property instead of own it. Of course, I’d live in the Bahamas like Jim’s fictional character, and none of my companies would ever have to pay any taxes at all. We’d be 100% tax free.
Of course, we’re still paying our leases, so we are indirectly paying taxes because the lenders who own the real property would be paying all the taxes. However, because I can make so much more money on everything my businesses do, I can afford to buyoff the property tax assessors so that the property taxes are very low. Come to think about it, I could setup shell organizations that would be the lenders. So, I would really just be paying myself the lease and then using that extra money to further buyoff lower property taxes.
Sounds absurd, grotesque, illegal… Remember, in Jim’s system, there are no regulatory agencies, so no one would ever find out. It’s a lot like the early years of the United States…
Getting back to progressive income tax being the best example of capitalism, I leave you the reader with this: It’s government leading by example. Join any country club, credit card reward program, any incentive program in America (I’ll argue the world!), and you will find that you must pay a greater price for a greater privilege. Jim can argue that there are all sorts of social programs that redistribute wealth, etc. That’s the other side of the taxation coin. What the government spends has nothing to do with what government intakes (let’s just face it, the national debt makes that very clear).
Greater privilege = greater price. This is precisely why those who may a higher income should pay a higher tax. I know plenty of people who think I am nuts for justifying paying more as my income increases. In fact, as my income bracket moved up over the years, I often questioned this idea until I met a billionaire a few years ago who shared a story that will stick with me forever.
This billionaire came upon his fortune very rapidly with the growth of the technology industry in the mid-90s. He put his kids into the finest schools, purchased fine cars, homes, took expensive trips, etc. One day, he arrived home from one of his trips to find a note that said one thing: If you ever want to see your daughter alive, pay $10,000,000. Instructions will follow.
The moral of this story is that there are always those who are willing to steal what you have worked hard to produce. I have had accountants, consultants, and employees steal hundreds of thousands of dollars of what I have worked hard to build. They have no regard for the amount of work I have put into building a business, the impact it may have on the families of the employees I employ that they just stole money from. These are not good, kind, well intentioned people who believe in a just system.
Fortunately, the billionaire in my example was able to recover his child unharmed. Those with greater wealth surely have far more attention than those without wealth. Not to say that low income and middle-class children aren’t abducted as well, but greater levels of success attracts those who want to steal from you.