## 2011/10/29

### More Tax Math

Assume for the moment that we cut out all tax deductions and loopholes so that tax rates are actually tax rates, not approximations. Now let's assume for the sake of argument that I make \$50,000 a year and pay 10% in taxes, and Mr. Joe "the government calls me a millionaire" Smith makes ten times as much – \$500,000 a year – and pays 20% in taxes. If you said the tax ratio is 1 to 2, you're wrong. Mr. Smith, in this scenario, pays \$100,000 a year in taxes, twenty times as much as my \$5,000. There is a 1 to 2 ratio: Mr. Smith pays twice as much more in taxes than he makes in income compared to me. Bonus information: the facts are that IRS data supports this thought-experiment's point: even with the loopholes that actually exist top earners pay more tax than they "deserve", at least in terms of percentages.

I want to consider another facet of the problem. The fact that I made \$50,000 this year and Mr. Smith made \$500,000 leaves him with more money to start the next year. How much more? While I tend to spend more than this, I can live fairly comfortably – in the DC area! – for about \$1,500 a month. In the above scenario, I would still have \$27,000 saved at the end of the year. (I actually make less money than this, and if I did make that much money, I might spend more of it. On the other hand the tax bill would actually be about three times higher, but the point is I'd still end up saving, say, \$10,000 that I "don't need".)

Mr. Smith, even if he lives much larger or has a good-sized family (or both) would have about \$300,000 left at the end of the year. (Again, in reality I am guessing he would be lucky to have \$200,000, unless either taxes are higher than I think they are or he had a chicanerous tax agent.) And I do not really have a problem with that. I think the more fortunate – and so far I have mostly been in that category – have a duty to provide a "fair share" of public money, one that cannot really be more than approximated mathematically. In ancient Athens, you had to bring a horse to the battle: now you have to pay 27% instead of %17. Fine, great, whatever.

But... don't me and my paltry twenty-seven grand deserve some of Mr. Smith's huge pile of extra money? I mean, I worked hard and I cannot even buy a fancy new car at the end of the year, and this guy can go buy a beach house (well, probably not a beach house, but a normal house or a cottage-up-north or a boat, anyway).

I am fairly certain – or at least sincerely hopeful – that we all agree that argument is ludicrous.

However, there is an inherent emotional appeal if we keep the scale but reduce the numbers. If I am still making \$50,000, but some unfortunate can only find \$5,000 worth of work to do in a year – for the record, this is less than 20 weeks – 5 months – worth of work at a minimum wage of \$6 an hour (which is low) – doesn't he deserve some of my money? Surely from that \$27,000 I am not going to use I can spare \$13,000 to bring him up to a "decent standard of living" – I wind up keeping almost as much as he is getting. That would be "fair", right?

The answer, as far as I can see it, is no. What has this guy done for me? He is not even working most of the year, so he has been unproductive. He has not done anything particular for me. His existence has no effect on mine – except now, to take my money. Since I am not a murderous materialist, the mind rebels at the thought of just ordering any adults who cannot care for themselves shot, but it is an equally "rational" way to solve the problem apart from the minor issues of morality and sustainability as a policy, and it does not take my stuff.

I would say I do have a duty to take care of less fortunate people, as I can. Maybe I should even stop living "comfortably" and scrape by on \$12,000 a year instead and throw that extra \$3,000 into my own charitable efforts. What I am not sold on at all is the idea that it is any government's role – and, because I like federalism, especially not Big Government's role – to make sure I perform that charitable duty, any more than I want to government trying to make sure I don't cheat on my (hypothetical) girlfriend or do buy a sufficient number of things made in the USA or stop swimming in perfectly good water.

There is a place for what we used to call (maybe we still do) "public works programs" – roads, a competent post service, etc. – and some distribution of welfare payments may be among them. But the important word is "public". What I believe needs to be consciously and vocally rejected is the idea of "wealth redistribution" as some sort of right. It is no such thing. There is no just reason to take what one person has earned and give it to a person who has earned relatively nothing, specifically because they have earned nothing. The mind boggles. The phrase is nothing more than an entirely colorless description of what happens with any tax money. Of course wealth is being redistributed. Wealth is redistributed when it is taken from me and given to my brother because he is a Marine and on the public payroll (though at least there he has earned the paycheck) or paid to Mr. Obama because he serves as our president. The justification for welfare payments also cannot be some nonsense about individual charity. Public money is not individual, and government involvement means at least the threat of coercion, making it strictly not charitable. The only plausible justification is the public good: that such and such a policy benefits the town, or state, or nation as a whole. I think this argument can be made; I suspect it can also be denied; I am not sure who is right, and to what extent.