The tax challenge

Over at threat of the future we got into two tax issues: whether wealthy people paying as much as they do in taxes is justified; and whether the United States tax policy favors white people over minorities. They are directly related, and I'm going to attempt to answer both of those questions in the affirmative. The following is from the New York Times:

"In 2000, the last year for which the government will release such data, the 400 taxpayers with the highest incomes now pay income, Medicare and Social Security taxes amounting to virtually the same percentage of their incomes as people making $50,000 to $75,000."

jackscolon responded with this:

"I think someone making $100 million and paying the same percentage as someone making $75,000 is totally fair. For every ten percent taxed, he or she is kicking in $10 million for the other person's $7,500. Can you argue that the wealthier person is using up over 1,300 hundred times the services?"

Here's my thesis: the number of your tax dollars that come back to you in a useful form is a function of what you do for a living, and not how much you pay in taxes. Let me explain.

Most conservatives think that the wealthier you are, the less you get out of the services that traditionally spring to mind when we think of taxation: welfare, unemployment, Medicare and Medicaid, food stamps, public transportation, financial aid for college, etc. This is ABSOLUTELY TRUE. However, these services are just a small part of what our taxes pay for. Take someone working for a defense contractor. The biggest defense contractors in this country--Lockheed Martin, Northrop-Grumman, Raytheon, SAIC, CSC, Titan, BAE Systems, Anteon--do nearly all of their business with the federal government. That means that they are 100% taxpayer supported. (Boeing is a notable exception--they have many commercial and international contracts.) So, if you work in the defense industry your paycheck consists of tax dollars and you gain a huge reward from the taxes you pay. In fact, the defense budget and defense-related expenses are consistently 40-50% of our national budget.

So, the very reason Bill Gates is able to make $100 million is because he is using our tax-supported infrastructure and tax-supported services as well, just like Mr. Defense Contractor. He's supporting himself by paying $10 million in taxes, as those taxes go to pay for the things that he then makes his money from. The example of his kids not going to a state college and receiving aid is perfect, because his tax dollars go to provide financial aid for students who can't afford the private universities he can--thus creating a market for his products, namely the massive amounts of Windows licenses that educational institutions buy and are able to pay for because of tuition dollars that Bill Gates contributes to. No tax, no financial aid; no financial aid, lower enrollment; lower enrollment, less need for Windows licenses; less need for Windows licenses, Bill Gates's income goes down.

Here's another example. Johnny Casino Owner resents that he pays 6.2% of his income out in Social Security every paycheck. However, the massive amounts of senior citizens patronizing his casino are doing so partially with their Social Security money, so it goes right back into his pockets! Cut the tax, cut the benefits; cut the benefits, cut the senior citizens gambling in Johnny's place and cut his profits.

Again, wealthy people do get less out of the services aspect of their tax money, but they get so much more out of the infrastructure aspect. This is why progressive taxation is justified: the wealthier you are, the more your tax dollars contribute to the things that you can then take advantage of by being wealthy. I'd argue that benefits from taxation are exponential and not linear.

The clearest analogy I can think of is how some states get more back from the highway dollars they pony up (paid for by gas taxes) than others. This has NOTHING TO DO with how much money they pay; it has everything to do with the structure of the state economies and who works where. California, where gas taxes are high, and which pays a massive amount of money into the highway systems, gets even more back than Wyoming does, because it has more roads and needs more maintenance per capita. This mirrors my thesis, found above: you can't just look at a state and say "It pays more out in highway money, therefore it gets less back," just as you can't compare a rich person paying 38% on an income of $500,000 and a poor person paying nothing on an income of $5,000 and say that the poor person is getting way more out of the system. They're just not.

Everyone with me so far? Good. Now, this is why our tax policy favors white people. It's NOT because it's overtly racist: there's no black tax. But since it should be even more progressive than it is, and since the average income of African-Americans is much less than that of whites, it's subtly racist.

In closing, I'd like to point out that my argument is valid, which simply means that the conclusion necessarily follows from the premises. IF I am right that wealthy people get more out of the system, and that their taxes should be even higher than they are, then I am right that the system (unintentionally and blindly) screws black people, because no one disputes that white people make more.

Go to work.