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More thoughts about my economic model

On 2015 July 7, I published Thinking through a Fair Tax, in which I addressed my changing thoughts about workable tax structures with a simple economic model through which I could explore (and explain) an income tax, based on progressive rates against flat rates.

I built it because I’ve been a proponent (albeit a silent one) of a luxury sales tax: a tax that applies only to non-essential goods. My thought was that this tax would place the burden on those most able to bear it. There’s also been a “Fair Tax” based on a similar idea, except with taxes placed on all sales (with a “prebate” to offset essentials.)

BTW, luxury sales taxes don’t work, which is something I pointed out in my other post on the subject. Tracy Snell pointed out “A lesson from the yacht tax,” which demonstrated a core problem with taxes based on voluntary consumption: taxation changes behavior, such that the desired results are minimized, often with disastrous secondary results (in this case, the destruction of US-based yacht-building industry.)

I’m slowly becoming more inured to the idea of a progressive income tax, including a tax on capital gains, even though such a tax still bothers me. I just don’t see how the math – even on a simple level – works out for a sustainable tax structure otherwise.

My model was really, really weak. When I wrote about it, I pointed out one of the most obvious flaws: there are only six people, representing six incomes. Realistically, you’d have a lot of people in the lower income brackets, with a few people in the highest income brackets, which would affect the tax revenues and burden quite a bit; losing $1000 from a single low-income earner is a mild hit, but losing $1000 from each of a hundred low-income earners is quite a bit more severe.

However, that leads us to the biggest flaw in the model: the demand for taxes in the first place.

The goal of a tax system should not be “to gather as much money as can be had in the most pleasant way possible, but mostly to gather as much money as can be had.”

The goal of a tax system should be to gather funds in a way such that it’s able to fund necessary services in such a way that is punitive as little as possible. More on this as I progress.

My model assumed a constant tax basis need for six people, a number I pulled from my hat: $105,000 per year. (The actual rationale? I sort of guessed at what it would cost to hire a teacher, a fireman, a policeman, plus some supplies for them.)

The actual tax burden would probably be higher (there’s a feasible minimum: how many policemen are needed? How about firemen? Schools? More than one teacher?) but with six people, it’s difficult to model.

Here’s where my politics step in.

The goal should be for government to aspire to keep that tax burden as low as it can be, while not losing essential services.

That means there’s a question of what “essential services” means, of course; to a leftist, there are (probably) a lot more “essential services” than there would be to a Libertarian or to someone on the right, assuming someone’s actually on the right and not just claiming it.

What I’ve seen is that many people say they’re on the “right” of the political spectrum, only to mean that their definitions of essential services that the government provides are different rather than lesser.

To me, being on the political left implies a trust in a larger, more powerful government, implying trust in the government. For this to work, government has to not only mean well, but know well. The government ends up taking the place of a father, so to speak, and Father knows best.

Being on the right, on the other hand, implies self-sufficiency; the government represents corporate action (with “corporate” meaning “as a body” rather than “… of a corporation.”)

Maybe this is where some people on the left think people on the right are Fascists – because they’re idiots and can’t figure out that corporate action isn’t the same as action on behalf of a corporation; meanwhile, asserting that the government knows best for all seems actually more Fascist to me than the people who are accused of being Fascist in the first place! But all of this sounds unkind. Retracted.

People in the American Right seem to say “we want a smaller government” while still creating a giant government, just under the guise of privatization and a larger military/industrial complex. Private prisons aren’t the same as “smaller government” — they’re just managed differently, with imprisonment now being a profit center for someone; military expenditures are being used to prop up industrial concerns rather than actually supporting our troops. This is just as leftist as, well, the leftists are – just in different ways.

When I look at my politics, I end up being somewhat on the Left, which is surprising – but not very, because the common tests probably have to rely on my assumptions about what services I think should be necessarily provided by the government. I’m probably not reading “necessary services” as intended the authors of the test.

When I say necessary services, I mean services that are necessary for ethical and safe living in a world where not everyone subscribes to the same definitions of “ethical” and “safe.”

That means police departments, and fire departments. It also means services that provide education for our children as a whole, even though my wife and I homeschool our children. (I don’t think every family can or should homeschool, but it was the best choice we could make for our children.)

It means that I also accept the existence of a safety net. I actually don’t have a giant problem with the Affordable Care Act, except that it was presented dishonestly – which in itself justifies the people who are against it. It’s not the expense of the insurance; it’s that we were lied to in order to get our approval for it. (Well, it’s also the expense of the insurance, but mostly it’s the lies.)

There are a lot of aspects of the ACA that I approve of wholeheartedly. I have a friend who was unable to get insurance before the ACA; now he can, even though it’s amazingly expensive. But at least he can get it! On the other hand, health insurance remains exorbitantly expensive, which I thought was supposed to be what the ACA addressed. Oh, they lied about that so people wouldn’t be up in arms?…

I also don’t have a problem with welfare! I don’t like it – I think it’s done poorly in many ways. But the idea of a welfare system doesn’t bother me in and of itself. I think we do have a personal responsibility for the weakest among us, and the way we can maximize effort around that responsibility can be expressed through a system like welfare. Ideally, nobody would need it – but we don’t live in an ideal world.

The problem with my economic model is that it doesn’t address what services are necessary, or what criteria one should use for the services. It just assumes a conveniently constant demand, and works with an income tax model to meet that demand.

There lies the flaw in my economic model. It doesn’t address that question at all; it just assumes a constant demand, and works with an income tax model to fulfill that demand.

If we could address demands of the government, and bring them into line with what the community actually needs and is willing to pay for within reason, then we have a lot more flexibility with tax structure. Who knows? Maybe a luxury tax (or the suggested “fair tax,” which is a mostly-consistent sales tax) would work quite well, and the progressive tax wouldn’t be necessary at all.

I doubt it, though, because any sales tax would require that austerity not be a feature of the well-heeled, and part of how one becomes well-heeled is austerity in the first place.

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