Progressive Taxation

R1) Inequality To say that there is a consensus regarding inequality is incorrect. Inequality is a threat when it is made primarily through extortion and threats. In developing countries this is often the case because there is not a functioning market. But inequality is not bad when the rich produce things. This is the premise of Greg Mankiw’s paper, and he argues that, on balance, the American 1% work to get their money. If they are producers, inequality can actually increase the economic standing of everyone [1]. Market liberalization, even though it may cause inequality, can help the poor. Economist Martin Feldstein argues that inequality is the wrong measurement of well being, poverty is the proper metric. Economists “start with the principle that a change is good if it makes someone better off without in making anyone else worse off.” [2] In a market economy everything is based on voluntary transactions and we need a government to enforce said contracts. It is difficult for one to argue that inequality is actually immoral or bad if it inflicts no harm on other people. Say Kasmic has an IQ of 155 and I have an IQ of 1. Would it be fair to take his income more to subsidize my behavior? I do not think inequality is immoral if his money is acquired through legitimate means. The question is what reduces poverty. We should focus on reducing poverty, not inequality. Inequality can increase but overall living standards can improve simultaneously. Feldstein argues that if we work to reduce unemployment by promoting harder work ethics, reduce drug use and poor lifestyles, and having a small but existent social safety net can increase living standards [2]. Inequality doesn’t cause poverty. Inequality is bad only when it harms others. It doesn’t. It is not morally wrong because if someone works hard they deserve to have more money. According to the St. Louis Fed, income mobility is more important than inequality. If poor households have the ability to become wealthy over time it does not matter if inequality exists. You may be poor one day, but the next year you may be in the top 10% of income earners. “[C]omparing different income quintiles over time is like comparing apples to oranges, because it means comparing incomes of different people at different stages in their earnings profile. … nearly 58 percent of the households that were in the lowest income quintile ... in 1996 moved to a higher income quintile by 2005. Similarly, nearly 50 percent of the households in the second-lowest quintile in 1996 moved to a higher income quintile by 2005.” [3] Inequality actually can be a good thing in a market economy. The Fed states that the rich are richer because they are more productive. More production means they not only help themselves but also the poor. Consumers now have the ability to choose more products, and they are not better with said products. Not taxing or burdening the rich means you increase the number of opportunities to become rich, and actually help americans. “Poverty and income inequality are related, but only the former deserves a policy-based response. Sound economic policy to reduce poverty would lift people out of poverty (increase their productivity) while not reducing the well-being of wealthier individuals. Tools to implement such a policy include investments in education and job training.” [3] We should not soak the rich because that would reduce economic growth and hurt everyone. We should focus on the poor. Causing growth is the best tool we have for helping the poor: a larger pie means they can have a larger slice. The environment argument is odd. The research here comes mostly from non-developed countries. They have inequality for different reasons developed countries do. Market liberalization would remedy the problem. Environmental damage harms profit so it is in their best interest to contain it. Property rights also reduce pollution, and property rights are key to any market economy. So, ironically, allowing for more opportunities to become rich and supporting property rights are probably the cure for environmentalism. Soaking the rich isn’t. R2) Progressive taxes reduce inequality As noted, we should *not* reduce inequality, only reduce poverty. Allowing inequality causes growth which in and of itself helps the poor. According to the OECD, “Economic growth is the most powerful instrument for reducing poverty and improving the quality of life in developing countries.” [4] As progressive taxes reduce growth they have the potential to hurt the poor, not help them. Harming the rich does not mean the poor are helped. An interesting study also notes that in countries with high tax evasion a flat tax actually may decrease inequality as well [5]. So this isn’t necessarily true. Inequality is *not* a good metric of well being, and is actually associated with higher living standards and lower poverty [6]. C1) Progressive taxes and growth Kasmic is understating what the Tax Foundation report actually says. Any voter is free to view the source and it is clear that the Tax Foundation’s report does *not* support progressive taxes and does feel that the results of the evidence in the study are significant. They state, for example, that “the lesson from the studies conducted is that long-term economic growth is to a significant degree a function of tax policy.” [7] They argue elsewhere that “While there are a variety of methods and data sources, the results consistently point to significant negative effects of taxes on economic growth even after controlling for various other factors such as government spending, business cycle conditions, and monetary policy.” The source definitively states that the evidence is on my side. This should be compared to the climate debate. Climate is an *extremely* complex system. And although we do not know what effect these other factors have, we do know that CO2 is a greenhouse gas and has an effect on climate. We know from this that taxes have a strong effect on growth as well. Also Kasmic is misreading the Tax Foundation quote. It is saying that anything can find support in the data, sure. But *any* issue has that problem. The question is what does the best evidence say; it says progressive taxes are bad. "Progressive taxation also reduces investment, risk taking, and entrepreneurial activity since a disproportionately large share of these activities is done by high income earners.” [7] (not just US system) Kasmic’s interpretation of what I said is incorrect. I said that progressive taxes didn’t kill *all* investment or innovation, only that it affected *some*. And that effect is significant enough to reduce economic growth by huge amounts. I didn’t concede anything. It is absurd to make me argue that progressive taxes make all investment impossible. But arguing that it has a large effect is correct based on the evidence in this debate. I have offered many peer-reviewed studies saying that progressive taxes shrink the economy — Kasmic has not offered any evidence against this and instead tries to play semantics on a statement which does not prove him correct. Kasmic pointing to the CRS is confusing. The source argues that “the CRS study [is] unpublishable in any peer-reviewed academic journal.” [7] Is he really saying that the fact that an extremely flawed report supports his position proves me wrong? This can be demonstrated through the Soon-Baliunas controversy. Willie Soon and Sallie Baliunas published an extremely flawed study which doubted the climate consensus and led to multiple journal editors to resign [8]. Is climate science wrong because a terrible study was published? We don’t have unanimous evidence — we must assume it is wrong! That logic doesn’t even make sense. When it comes to tobacco, many scientists published dissenting opinion despite the *excellent* evidence that smoking caused cancer [9]. Is my opponent willing to say that smoking does not cause cancer because there is not unanimous evidence? I don’t know where he is going with this. And this is a strawman: I never said that the evidence was unanimou, only that the strongest evidence supports my position. Kasmic has offered no evidence. Rebuttal to inequality is above. C2/3) Flat taxes Why are flat taxes not fair? Quoting an anarchist is not really solid proof. What is fair? I think this is fair to everyone: if a demographic produces 50% of the wealth they should pay 50% of the taxes. If the 1% controlled 15% of the wealth they should pay 15% of the taxes. Let’s see if a flat tax does that (economy = 100$): Kasmic: $30 -> 30% of income. 16k: $20 -> 20% of income Mikal: $40 -> 40% income JMK: $10 -> 10% income 28% flat tax Kasmic: 30 * 0.28 = $8.4 in taxes 16k: 20 * 0.28 = $5.6 in taxes Mikal: 40 * 0.28 = $11.2 in taxes JMK: 10 * 0.28 = $2.8 in taxes Total: $28 Now percent paid: Kasmic: 30% 16k: 20% Mikal: 40% JMK: 10% This is fair. A progressive tax takes more from Mikal and Kasmic because of income, which is just arbitrary. Why do the rich Kasmic and Mikal owe more than me and JMK? It doesn’t make sense. The flat tax treats everyone equally. Unlike what Kasmic claims, we have the *most* progressive tax system [10]. Reducing progressivity would create growth, yes, but less than a flat tax. And since flat taxes create the most growth, they best help the poor. Inequality is a weak argument as shown above. I would also note that a reduced progressive tax makes it harder to deal with inequality. So if you agree with Kasmic’s inequality argument he must support the extreme position — but that harms growth — and if you agree with me progressive taxes, even if it is reduced, will harm growth compared to the flatter alternative. 1. http://bit.ly... 2. http://bit.ly... 3. http://bit.ly... 4. http://bit.ly... 5. http://bit.ly... 6. http://bit.ly... 7. http://bit.ly... 8. http://bit.ly... 9. http://bit.ly... 10. http://bit.ly...