Tax Policy

20Oct08

Recently, one of my favorite personal finance bloggers posted this on Joe the Plumber:

This rare moment of candor in this political season has sparked an interesting debate regarding taxes, government’s role in our economy and personal responsibility. Polls show that most Americans are against government acting as an agent of wealth redistribution. Most Americans want to choose where their money goes instead of the government telling them where it should go. Another interesting point is that many have testified that the more government redistributes money, the less people give when it comes to charity. Western Europe is typically the comparison used in this regard.

While it seems we truly may be taking steps towards more wealth redistribution, I have several fears regarding this direction our country may take. I’m a believer in the economic philosophy that was originally brought up by the now-famous plumber. Joe said additional taxes would prevent the business from growing as much as he’d like. I work for a small business and I believe there are a great number of small businesses that will be affected.

Kevin is entitled to his opinion, and he’s great later in the piece to note that the Congress will be the one writing the actual tax laws. Obama will only sign off on it. But this paragraph concerned me:

Another major fear of mine is the trend this might establish for our country. First, I don’t believe an extra $1000 to a poor person will do anything to raise them out of their current status. Sure, it might help putting gas in the tank a little easier temporarily, but it will not result in a long term status increase. My worry is that without a jump in the status that this wealth redistribution is intended to help, will we here more rhetoric during the next election about spreading the wealth around again? Where does it end? How high can you tax the highest income earners?

“How high can we tax the rich?” Historically speaking, 94% I believe. But no one believes that’s good anymore. Obama’s talking about raising the top tax rates from (if memory serves) 36% to 39% or so. The incentive argument Kevin makes is certainly important, but it’s also important to keep a historical perspective when we ask ourselves where the limit is.

It’s also important to keep perspective for one’s country. I’m a believer in the fact that significant income inequality is a key destabilizing factor of a nation, and inequality has been on the rise in the US for a number of years now. Continued policies in our present trend will begin to destabilize the system we’ve strived to maintain.

I believe every person should be able to receive what they earn, but I also believe that capitalism, when deregulated with power structures already in place, does not lend itself to a true meritocracy. It looks great on paper, where assumptions of perfect information and no head starts make the math eloquent… but this is not the case in reality. As such, we should adjust our policies accordingly.

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2 Responses to “Tax Policy”

  1. 1 kduffey

    Interesting response to my article over at 20smoney.com. I think you have some good thoughts.

    I standby my thought that an extra $1000 to a poor person hardly makes a difference. Long term what does that do? Nothing except additional dependence on government. To really make an impactful change in that person’s life, a status change upwards is needed. An annual check of a grand doesn’t achieve this change.

    I truly wish to impact these people. I want to get them out of the hole they are in. My point is more to discuss the ineffectiveness at achieving this change through additional welfare than to be upset about penalizing success. To impact these people, there needs to be more aggressive action taken to help those WHO WANT HELP. This help should not be a hand out each year, but perhaps take on the form of a program described as follows:

    I would love to see a program where those from an underprivileged area wish to have the opportunity to have their own business can enter a program which teaches them business skills. Upon passing the program, they will be provided with seed money to start a business (after review of a business plan) if they go back to the underprivileged area to start the business. The sense of ownership along with the inflow of money to that area will help transform that community, provide more jobs, provide ownership opportunities. These are the pathways to increasing one’s standard of living.

    I realize there are probably programs liek this in existance, but perhaps they need a boost, more funding, etc. Put funding towards that instead of across the board welfare checks.

    As always, I don’t know everything. These are just my thoughts, and I’m always welcome to opposing opinions.

    Take care

  2. 2 David Wynn

    And by no means do I disagree with what you suggest Kevin. I don’t think simply giving people free money is a good idea either.

    I simply believe it’s important to keep a historical perspective with regard to current events. Many nations have collapsed because the income gap grew too wide between the rich and poor, but few have collapsed because they overtaxed the rich.


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