Re: OT: oil profits

On Fri, 9 May 2008 11:52:47 -0400, "BBrain" <widenerb@xxxxxxxxxxx>
wrote:


"McDuck" <wallyDELETEMEMcDuck@xxxxxxxxxxx> wrote in message
news:pv4724d7t584i2l176qbkfvtn2i5qc9ke0@xxxxxxxxxx


I'm probably less Libertarian than I sound. I too believe that there are
necessary functions that only government can perform. However it seems to me
that government at all levels, but particularly at the Federal level has
intruded into more and more areas that are best left to individuals, or at
least more locally organized state and local governments. With this
intrusion comes government funding, and with that comes government controls.
If we could just stop expanding government at such a rapid rate the pressure
for new revenues wouldn't be so intense, and we wouldn't need to raise
anyone's taxes.

Government grew in the past, but it has not been growing at the
Federal level for several decades. It has grown at the state level
and, in some cases, at the local level. so you should be happy <g>.


And how are these funds acquired? Higher taxes. So it seems we are paying
higher taxes to fund even more programs and with them, more controls. And
how do our political "representatives" sell these higher taxes? They divide
us into groups, then they raise taxes on one group at a time. Since any one
group is a small minority, they have little success in fighting back. The
most popular target right now seems to be the "very wealthy", who are
accused of "not paying their fair share". Who's next?

I do disagree strongly that one role of government is to mitigate the
inequality of wealth and income. And why in the world would you want a
system that tries to obtain this equality by penalizing the most successful
in order to subsidize the least successful? Remember the great experiment
with communism? As I recall, it didn't work out real well. And socialism
isn't lookig that good either. I do agree that government should strive to
create equal opportunity for all, but to punish those who are lucky or make
more of their opportunities than others is self defeating.

Does every conversation about fair taxes have to end up with a
discussion of Communism? The Communists did not have a tax system, or
not much of one. The USSR did have a modest tax to try to take account
of differences in family size, but certainly it did not have a
redistributive income tax.

However, Marx was on the mark with his claim that capitalism contains
the seeds of its own destruction. His point --- which we now
understand to be obviously correct --- is that unregulated capitalism
ends up with more and more wealth being concentrated in the hands of
the few, resulting in huge savings levels and little consumption (and
misery for the masses). He looked forward to the collapse of
capitalism as the entry to communism. Didn't happen because the
political process in the US and Europe intervened to end laissez faire
capitalism. And a redistributive income tax was a major part of the
solution.


Most social scientists and economists agree that tax policies can be used to
influence economic behavior; if you want less of something, tax it, if you
want more of it, lower the taxes or subsidize it.

Sure, partly true. I want less inequality, so who do I tax to get it?

The Wall Street Journal frequently makes the argument you have made
--- that a tax on the rich is a tax on success. It is not. Someone has
to pay. Do you or anyone else think that if we tax the poor more
heavily, we will have less poverty?

In fact, the economic literature shows that heavy taxes on the middle
class reduce work but that heavy taxes on the wealthy have little or
no effect on their conduct. If someone has $50 million and is still
working hard, you can be pretty sure it is not mostly for the money.
It is for power, glory, prestige, inner demons, whatever, but not to
satisfy their matieral needs or even material wants.

Economists speak of two effects of an income tax --- the income effect
and the substitution effect. The latter occurs when a taxpayer
responds to higher taxes on income by working less (substituting
leisure for working). The former occurs when a taxpayer is working to
achieve some goal (e.g., buy a house) and works even harder after the
tax is imposed in order to be able to get the money needed to achieve
the goal. For example, If I'm making $50,000 after tax and working 40
hours a week, with the goal of buying a $300,000 house, I might work
50 hours to get back to $50,000 if an additional tax is imposed that
reduces my after-tax income. The effects have opposite signs --- that
is, the substitution effect reduces work incentives and the income
effect increases them. No one knows, a priori, which is more
important. In practice, they seem to balance each other out a lot of
the time.

We need to be careful we
don't end up taxing success at very high rates in the name of equality. We
could end up with a lot less of it, then who would be next? My bet is that
the definition of "very wealthy" would be revised downward. Think of the
minimum alternative tax as a good example of how this happens.


Well, you said you favored graduated rates, so you do favor taxing
"success". Perhaps we disagree on the degree of progressivity we favor
--- don't know, as that issue was not on the table. I was arguing
against the flat-tax as a requirement of social justice.

As for the alternative minimum tax, I think it does not make your
point. The AMT was once a rough way of reducing popular tax loopholes
for upper-income people without facing the political problems of
taking them away from the middle class. Then congress took stuff out
of the AMT that were directed at the rich, such as the untaxed part of
capital gains. At that point, the tax was pretty stupid.

But it got worse. In 2001, when Bush and the Republican Congress
borrowed money to provide tax cuts for the rich, they refused to make
the adjustments in the AMT that had routinely been done when rates
were lowered. That fact, plus the lack of indexing of the exemption
level, created the current problem. But understand why. IF the Bush
people had not created the AMT problem by lowering the top regular
rate and not lowering the AMT rate, they would have had less money for
the tax cuts for the very rich. In effect, the upper middle class,
though the AMT, is paying for a good portion of the tax cuts for the
very rich.
.

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