Tax Policy is not a Talking Point

I’ve had a lot of arguments with people about taxes in the past several days. What surprised me is how sure everyone is of their position. There are three broad options I hear:

  1. Increase taxes on just the very rich (with some dollar amount defining the threshold for the “very rich” label)
  2. Increase taxes on everyone
  3. Decrease taxes on everyone

And everyone provides basic arguments in support of each of these policies that boil down to the trade-off between freedom and equality.

What I think is missing is the question of absolute values. There are optimal tax policies for each basic political view. It’s impossible to know exactly what that policy is, but it’s probably not either of the extremes of (1) tax 100% of all income or (2) tax 0% of all income. So the question when someone wants to decrease taxes is not just “Why?” but “How much and why?”. It seems that few people have a good answer for “how much” except by referencing a historical value along with a questionable claim that this value led to some positive outcome.

0 thoughts on “Tax Policy is not a Talking Point

  1. christopher maksymowicz

    The question should not be why someone wants to decrease taxes (how much) and why?, but rather why someone wants to increase taxes and why? After all, it’s your money.

    1. lexfridman Post author

      Spare me talking points. Please make a more rigorous argument.

      After all, if the general statement of “it’s your money” is taken to its logical conclusion we shouldn’t pay taxes at all. Meaning, we shouldn’t have government. As beautiful as that ideal is, a society that’s larger than a few thousand people will have a lot of trouble achieving stability and economic growth. We need government for basic services, for enforcing laws, building infrastructure, education, police, fire departments, military, and some would argue health care.

      And if you accept that, then the question is: “How much is the right amount of taxes to pay for all those services?”

  2. Azeez Hayne

    I won’t respond with a “rigorous” econometrician’s answer as I don’t have the tools to give you one. But I think this answer is at least in the spirit of your question: what is the appropriate tax rate and why?

    I start with the following premise. Our society is built on the idea of limited government with the people retaining any rights not expressly granted the government. Our society is also built on the notion that each individual has an unalienable right to life, liberty, and (their own) property. It follows that any property owned or created by an individual should remain his or hers absent compelling reasons and due process.

    The first question, then, is what expenditures should the government properly be making. Thus, the appropriate tax rate is the rate that produces just enough revenue to cover these expenditures in the way that tramples individual liberty least, raises this revenue most efficiently, and in the way that minimizes economic distortions.

    Consequently, arguments over the tax rate really are arguments about the proper scope of government and hence government spending. Arguments about the type of tax (e.g. capital gains v. income tax) are the other side of the equation — what type of tax is most efficient, least distorting, and least offensive to individual liberty.

    1. lexfridman Post author

      Very well put. We shouldn’t decouple the discussion of taxes from the discussion of what tax revenue is spent on. The latter should define the former.

      Right now, the two aspects of money in government are separated, and whatever doesn’t add up is just added to the deficit.

  3. christopher maksymowicz

    “Post hoc ergo propter hoc” Tsk Tsk Tsk.
    What you think is a logical conclusion is not so…I never said we should pay no taxes…that is ridiculous. Government must provide for the safety and common welfare of the people. Unfortunately, it has an unsatiable apetite for $$ above and beyond what is necessary. Earmarks galore and stimulus that stimulates only more and more borrowing. The more you have, the more govt wants to take from you….progressive taxation. A flat rate for ALL is fair, but govt is not interested in fair…it is interested in $$$$.
    The argument is quite rigorous….maybe too simple for your tastes, nonthless…it is true. The individual knows best how to spend thier money. When government begins to punitively confiscate wealth, it decreases the motivation to a). take risk and b). work. Why take risk when your success will only be subject to the predations of a government intent on continuing it’s profligate spending. I can best sum it up in a letter I received from the Bergermeisters….”You may be wondering why your property tax bill has increased even though your home valuation has fallen……to continue the business of the county….” That is a rigourous argument taken from experience. The Eloi care not for existing reality, they demand the tribute that is their due…after all it’s not my money, it’s their money, I’m just holding on to it for a while.

    1. lexfridman Post author

      Well put. I’m always torn on the topic of progressive taxation because I believe it’s unfair but is good for economic growth, so for me it boils down to individual rights vs common good on that aspect.

      I don’t think however that a fair tax is morally sound. In my opinion, it needs an adjustment, a safety net. It’s essentially regressive since for the poor and middle class, consumption of basic goods / services / necessities is a much larger percentage of income. I think income spent on basic necessities should not be taxed. I’m a big believer that we promote economic growth by maximizing the percent of the population that earns a “living wage”.

      Thank you for your comment. I think you have more experience and wisdom on the subject. I’m just saying things that feel right. As I learn more about the world, my view changes (sadly often to the more cynical side).


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