Friday, February 22, 2008

Tax That Guy Behind the Tree

Megan McArdle is right (here and here), and Henry Farrell and Mark Kleiman are -- perhaps not exactly wrong, but as far as I can tell, they are either misunderstanding what she says or quibbling on minor points of semantics while apparently believing themselves to have a substantive point. The question is, "Do people want their own taxes raised?" My answer comes more from introspection than from logic or economics. Perhaps Henry Farrell and Mark Kleiman want their taxes raised, but I certainly don't want mine raised. However, I am willing to have my taxes raised in exchange for certain things that I do prefer -- in particular, I'm willing to have my taxes raised in exchange for an increase in everyone else's taxes.

I want to make it quite clear that I will oppose any law that tries to raise my taxes by $300 -- unless that law also contains provisions that I support and that are worth $300 to me. Would a provision requiring my compatriots to kick in a total of $6,000,000,000 to the National Science Foundation be sufficient to gain my support for the package? Hell, yes! I would support the package because the provision that I like (a $6,000,000,000 increase in taxes from everyone else, to finance the NSF) far outweighs the provision that I don't like (a $300 increase in my own taxes). That doesn't mean I like paying $300 more in taxes. When I refuse to make an autonomous contribution to support NSF-like research, I am indeed revealing my preference for not paying more taxes. (And by the way, if someone proposes to exempt, say, people who were, as of February 2008, blogging using a vowelless pseudonym, from a new tax, I will support the amendment, because I really would prefer not to pay more taxes.)

It seems to me that much of the popularity of the anti-tax movement that began with Reagan-Kemp-Roth (or did it begin with Kennedy-Johnson?) was based on an appeal to people's genuine preference for lowering their own taxes, combined with a sort of mental cover-up of the implications of taxing other people. Basically, get people to think about the $300 question and ignore the $6,000,000,000 question. On the pro-tax side, it is precisely the failure to acknowledge that people don't want to pay higher taxes that made it difficult to counter the appeal of the anti-taxers. The pro-taxers insistence on philosophical mumbo-jumbo about collective action and such covered up the fact that they had a very strong common-sense case that they were somehow unwilling to press.

There is a valid concern that revenue doesn't quite rise linearly with tax rates and that high taxes can produce certain economic inefficiencies, but to me the basic math has always looked very good for taxes (in a large country like the US): even if the money is spent very inefficiently and not on my own priorities, $6,000,000,000 is a hell of a lot. The government would really have to make an incredibly huge mess of its spending in order for that not to be worth $300 to a reasonable person. (But again, if you could get it for free, that would be even better.)

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Anonymous Anonymous said...

but doesn't that leave Megan in the right in quite a trivial way - all things being equal people prefer not to pay the $300 themselves - but Henry right in perhaps the more natural interpretation of the question - the fact that people do not make voluntary contributions does not demonstrate that people do not want to pay higher taxes, where it is taken as assumed that the form of paying higher taxes that people desire comes in the form of an agreement involving everyone else.

Luis Enrqiue

Mon Feb 25, 08:38:00 AM EST  
Anonymous Anonymous said...

Megan is wrong and she rattles on possibly to obfuscate, although she could just be confused. Most people actually have views on the balance between collective and private spending, and these views do not always fall in the favour of private spending. Deteriorating full or partial public goods such as education, health care, infrastructure (sink holes) are not well perceived by most, and people know that collective action is needed to address these issues. Many and probably most people are even supportive of antipoverty measures and see a role for government in addressing poverty. And of course, people don't want to contribute if others don't also contribute. Taxation is a mechanism that institutionalizes everyone's presumably relatively fair contribution. So, I pay my taxes with a smile and get annoyed when yet another politician runs on a platform of tax cuts without even mentioning what loss of collective goods or antipoverty measures we are going to experience with those cuts. Of course, if you're a wealthy politician who wants to line your pockets and those of your friends who can afford to buy their own roads and militia, and you really have little concern for efficiency or equity if it's going to negatively affect your or your friends private empires, then it would not make sense to talk about what everyone else wants out of the system. So, you run a deceptive campaign that makes it sound like tax cuts benefit everyone, and there is little or no value in any of the government activities that will be lost because of that cut.

Mon Feb 25, 09:34:00 AM EST  
Blogger reason said...

Join a club and take part in a discussion about dues, and you point becomes perfectly clear. The only difference is of course that the club is compulsory (unless you choose to leave the country). But in principle it is very much the same idea. Even better think of a body corporate (what is it called in the US - owners' co-operative?). And there of course if the management is inefficient you vote them out. If repairs are needed, it is in your own interest to pay for them, but only if everybody does as well. It is a good analogy.

Thu Feb 28, 10:17:00 AM EST  
Anonymous Anonymous said...

Yes, reason, I agree with analogy.

Thu Feb 28, 07:23:00 PM EST  
Anonymous Anonymous said...

You wrote: "I want to make it quite clear that I will oppose any law that tries to raise my taxes by $300 -- unless that law also contains provisions that I support and that are worth $300 to me. Would a provision requiring my compatriots to kick in a total of $6,000,000,000 to the National Science Foundation be sufficient to gain my support for the package? Hell, yes!"

1. The value of the 300 dollars depends on how much money I have (Law of Diminishing Marginal Utility).
2. Just because I prefer National Science Foundation, doesn't mean that everyone else prefer it. Instead, my wife prefers her 300 tax-dollars (and the 6,000,000 total) to be added to, let's say, the "National Foundation of Angry Overtaxed Americans", otherwise she will start a blog refusing the tax raising.
3. I have a child, so I want my taxes to be used for better education. Linda is 60 years old and she prefers her money to be used for better healthcare. And George is a truck driver, who prefers better and faster roads. Due to scarcity, government cannot fullfill all of our wants and needs.
4. Roads, education, healthcare etc., producing posivite externalities - either I know it or not. Also, we have a positive externality by reducing public debt, by having safety, by reducing income inequalities, and so on. maybe this positive externality doesnt'n mean anything to me, but it may mean a lot to my grandfather or Linda's nephew (who is a truckdriver). So, by having better roads, George will have more income and George will -at last- give back that money Linda gave him.
5. So, this is the main thing: do I trust my government? Do I believe that they will use my money in order to create positive externalities and growth (even if I have no benefit on the short-run)? And, also, there is anoter one question: is my money just for me, or for my children as well?

Sun Mar 02, 08:02:00 AM EST  
Anonymous Anonymous said...

I don't want to have my taxes raised if part of the money will be used to build another useless bridge to nowhere. Part of the popularity of tax cuts is perceived waste. $6B could easily be transferred to the NSF by elimination useless farm subsidies, or countless other low priority projects. Why should I pay more just to see it wasted?

Tue Mar 04, 03:03:00 AM EST  
Anonymous Anonymous said...

Hear! Hear! That is why it is important to participate in the democratic process to express your preferences about the size and composition of the public pie.

Tue Mar 04, 08:51:00 AM EST  
Blogger 花枝 said...

By the same logic, I would prefer not to pay any taxes at all.

Tue Mar 04, 01:02:00 PM EST  
Anonymous Anonymous said...

I'm sure you're not the only person who would rather not fund the state at all, and by all means, let the rest of us know, but I'm afraid you're a member of a very small minority.
KNZN, we need a new topic. I think this one has been fully squeezed.
Or, am I wrong?

Thu Mar 06, 03:14:00 PM EST  
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