Thursday, August 11, 2005

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.

12 Comments:

At 3:41 PM, Blogger StandingOutInTheCold said...

I don't think there is anything inherently wrong with your analysis of the tax system's relevance to the rich. I think that your logic makes sense and it is a point of view that should be taken into consideration when discussing taxation. Is your analysis complete and does it provide answers that should be adopted? I don't know. I don't know enough about economics and other important factors to say either way.

I do think that it is still silly to say that the system "favors white people." Although the statement may be factually true, I think that it is misleading and really of no importance. It doesn't inherently favor white people. It may be that the system is broken and white people happen to be the demographic that is getting the most benefit from the brokenness. But there are many many poor white people in as bad a situation as any. And there are plenty of black people who are in high tax brackets who ought to be paying more. The system may favor the rich, but not because they are white. The fact that the people benefitting are white is a coincidental point and has nothing to do with the way the system is set up. Its set up based on incomes. Its not the system's fault that white people, on average, make more than other ethnic groups. So I think that when you talk about reforming or overhauling the tax system looking at race is actually taking the focus off what is relevant. Because, as I've stated, the system doesn't care that they're white, it just cares that their rich. To change the system to favor the poor would be fine (ethically, at least) but changing it to favor blacks or other minorities would be just as wrong as intentionally favoring whites. So I do not think that race is a valid topic to bring into a discussion about taxes, although it may be factually true that white people are getting the better end of the stick now, al beit coincidentally. Its not my fault I'm white and I shouldn't be taxed differently beacuse of it. It is relevant, however, that I am relatively rich and therefore should be taxed differently than the poor. And I think that is the only thing we can ethically consider in a tax debate.

 
At 4:21 PM, Blogger J. Morgan Caler said...

Standingoutinthecold, I liked your comment and just have two responses:

To reiterated and perhaps clarify what Charles stated originally, the tax structure as it stands now benefits those in higher tax brackets to a greater degree than those in lower tax brackets. The reason, as you made clear, that Black Americans are disproportionately disadvantaged by the current tax structure is because they are disproportionately represented among the poorest of Americans, not because they are Black. So, as you pointed out, the meaningful factor is socioeconomic status, not race, when it comes to benefits from the tax system. I think we are all in agreement here, but I wanted to state it clearly.

On the other hand, there seems to be a point at which we are not in agreement. Let me provide three quotes from your comment:

“It may be that the system is broken and white people happen to be the demographic that is getting the most benefit from the brokenness.”

“The fact that the people benefitting are white is a coincidental point and has nothing to do with the way the system is set up. Its set up based on incomes. Its not the system's fault that white people, on average, make more than other ethnic groups.”

“So I do not think that race is a valid topic to bring into a discussion about taxes, although it may be factually true that white people are getting the better end of the stick now, al beit coincidentally.”

Where I think the disagreement lies (and please correct me if I am wrong) is in the reason that the current situation exists, that situation being that a) Blacks are overrepresented in the lowest strata of society and b) the current tax system favors those in the highest strata of society. I think that it is very intentional, very long-standing, very well-orchestrated. You seem to think that it is “coincidental” and just “happen[s] to be” that way.

Because of the divergent views held on the reasons for the current situation, you get divergent ideas about how society ought to continue and what wrongs, if any, ought to be righted. I think that it is an overt goal of the Republican party leadership and current White House to keep the socioeconomic structure in America as it is. I DO NOT think that the Republicans or the White House work so hard to keep the situation as such because of racism, but because of, among other things, self interest.

 
At 4:41 PM, Blogger CharlesPeirce said...

standingout, I see what you're saying--you're basically saying that we can talk about the tax system being broken and in need of fixing without bringing race into it at all. You're right--that's absolutely true, since I pointed out that it was NOT overt racism that causes the tax structure to favor white people. It's a historical contingency.

You wrote:

I do think that it is still silly to say that the system "favors white people." Although the statement may be factually true, I think that it is misleading and really of no importance.

Misleading? Yes, because it lets people on the far left draw the conclusion that it's overtly racist, which (as I keep pointing out) is not the case. I completely agree with you and think that that needs to be stressed. But of no importance? That's sort of where j. morgan is taking issue with you, though he didn't explicitly identify that term ("of no importance") as I am doing now.

Thanks for your response and I'm glad you liked my analysis.

 
At 4:45 PM, Blogger CharlesPeirce said...

Just for the record, here's why I posted this in the first place. jackscolon wrote:

"I still don't follow your whole taxation theory, the part where it discriminates against non-whites that is...I don't want to clutter up my comment space for it but if you could email your explanation or post something to that effect on your blog I'd be interested."

standingout, to give your argument even more weight, I would say that it's not that the tax system "discriminates" against minorities--the problem is that it precisely does NOT discriminate. Its color-blindness, and the fact that it's skewed toward the rich, is the problem, as you pointed out.

 
At 5:23 PM, Blogger StandingOutInTheCold said...

J Morgan, I agree with you that the tax system intentionally favors the upper strata. The only thing I think is coincidental is that there are far more white people in that group than any others, not that it favors that group. I also agree that white people are disproportionately represented in that group due to a number of factors, almost all of which are out of control by the individuals involved. The biggest reason is simply history. Black culture is, in my opinion, another thing that keeps them poor because, as Bill Cosby has pointed out, in that culture being educated is seen as a betrayal of your race. And that has undoubtedly held back many people who would otherwise risen in socio-econmic status. However, the overwhelming factor is the situation that individuals are born into, which is obviously out of their control. I agree that this is not the best system, and I would love to see a system evolved where upwards mobility was actually attainable by all memebrs of society. If that happens there will rise a new set of problems -- like who you get to work at the grocery store or as garbage collectors when everyone has an upper level degree. But those are problems we are far from facing today, they just have to be considered when shaping a new society. I'm not at all endorsing the idea of intentionally keeping a lower class, I'm just saying that when we eleminate that class we need to have a plan to fill the jobs that they no longer will be forced to hold.

 
At 5:25 PM, Blogger StandingOutInTheCold said...

I apologize for the horrible grammar in that last comment ;)

 
At 10:55 AM, Blogger RedHurt said...

I know we all agree on this, but I want to say that I think it's useless to talk about the tax system being "racist" for any reason. J. Morgan has stated before that when words adopt connotations that do not directly reflect their meaning (such as "panhandler"), we as responsible intellectuals ought not use those words. I think that applies to "racist" here.

While the tax situation DOES favor one ethnic group over another, we've already agreed that this is directly the result of the directly correlated socio-economic status of these ethnicities and not their color of skin. While racism might objectively mean "separated by race", it more subjectively means "unduly restricted specifically by race", which we've agreed taxes are not.

So I'll agree with the statements "taxes favor the rich, and the rich are white people", and not "taxes favor white people."

 
At 11:00 AM, Blogger RedHurt said...

I am an individualist and generally a republican, and in my understanding of the ideology there is absolutely no desire to "keep the socioeconomic status as it is." In a very Randian way of thinking, it's a desire to create a society in which everyone is required to deal honestly with each other and given the freedom to produce and create as much as they're capable. Without going into specifics about the current administration, can we first agree on that? If so, then let's get into specifics about how republican's keep people down.

Charles, feel free to delete this post if it's getting too far away from the tax discussion.

 
At 11:26 AM, Blogger Jackscolon said...

Standingout- I think that by the time we solve the problem of social inequality, we will have robots to pick up our garbage.

Ok, seriously now.

J. Morgan- I'm interested in some substantiation (an example or two would suffice) for your theory that suppression of minorities is "very intentional, very long-standing, very well-orchestrated." While I'm not denying that racism occurs (especially here in the south), I have to agree a little with standingout that overt actions by powerful white people is not the only thing
holding back poor blacks.

 
At 11:56 AM, Blogger Jackscolon said...

As for the tax issue, I think your point has some merit in certain instances, but less in others. I mean, for every Bill Gates I think you can find an Oprah- and I'm not sure if your theory is as readily applicable to her. Do you think that every single wealthy person derives extra benefit from their taxes, or just on average?

 
At 12:18 PM, Blogger CharlesPeirce said...

Wow, lots of issues here.

1) redhurt: no, this is a fine and appropriate tangent. You wrote:

"it's a desire to create a society in which everyone is required to deal honestly with each other and given the freedom to produce and create as much as they're capable."

I agree with that--like I said, we're all capitalists here. Corporate secrecy is one block to honesty and production, and I tend to think that Republican administrations allow abuses on that level more than Democratic ones. So, there's an example of us agreeing on the base line.

2) Our tax policy is not racist, you're absolutely right. By a historical contingency we are in the situation we are in. I'm going to let j. morgan explain what he means (if he wishes to.)

3) jackscolon, you asked:

"Do you think that every single wealthy person derives extra benefit from their taxes, or just on average?"

On average, I'd say wealthy people get a better return than middle-class people or those in poverty. However, to stick to my thesis, how many tax dollars come back to you is a function of what you do. So, you might be a wealthy white person in an industry that does NOT benefit at all from federal dollars. An example of this would be people in the private sector whose customers are also (exclusively) spending private sector dollars. Good point.

 
At 5:02 PM, Blogger RedHurt said...

right - no need to explain the racist thing. I think we all understand what everyone means here. I'm just saying that we shouldn't say "subtly racist" - we shouldn't say "racist" at all. "Race correlated", sure. But not racist - that word has negative connotations that betray it's usage here.

 

Post a Comment

<< Home