Restoring Progressivity to the Tax System
We must restore progressivity to our tax system. But before we can do that without getting conned and distracted by the faux libertarian and other Con arguments we have to understand what the word "progressivity" in taxation means and what the issues are and are not.
What is and what is not fairness
To some wealthy, "fairness" means preserving (conserving) wealth and passing wealth and power to their progeny. Which happens to be the definition of hereditary aristocracy. Such people call themselves conservatives because they are trying to conserve their wealth and power. Because such people are often in positions of trust, we tend to trust them. But their idea of "fairness" is not always very fair.
To the rest of us, unless we've been conned by such people, fairness means preserving one's wage income from excessive rents and taxes and saving enough surplus (individually or collectively) to be able to survive illness, disaster and live a dignified old age. To the young it means eating, having shelter and affording a decent education, clothes and transportation so they can pursue happiness through productive employment. A person is poor if these abilities are burdened through excessive charges by those with power and privilege -- or by folks locking the gates to productive opportunity. Our concerns emerge from the "pursuit of happiness" which is a basic right. Theirs emerge from power and privilege and the need to justify it. It's not a natural state, a "common-wealth" system is win/win for everyone.
Pursuit of Happiness Versus Social Darwinism
The eternal issue is how to achieve the pursuit of happiness for ourselves without harming others; and what sort of society we have to constitute to achieve those goals. If we want a Dog Eat Dog, competitive world then we are unconsciously accepting social darwinist tropes. For some folks trying to con us, this is a world where only the most venal and "fittest" survive. Ironically these modern social Darwinists pretend to oppose Darwinism and support various religious myths about society. When you hear someone extolling the value of capitalism and social darwinian climbing capitalism you aren't dealing with someone who is very religious in an integral way. You are dealing with a con artist not a conservative. If they don't want us learning about the real Darwin, it's partly because he was not a social darwinist. Religious people like the Monk Mendel developed the theory of evolution. Cons preach social darwinism while claiming that Darwin was evil. Sadly we have to learn to think for ourselves
Either get clear or get swindled
Thus our Con artist friends understand our basic need for certainty and play on our lack of clarity about them.
They do the same thing with tax systems. They play on the fact that most of us see ourselves as potential equals by convincing us to support tax policies that can't possibly benefit us unless we win the capitalist lottery that is stacked against our efforts. We wind up supporting regressive tax policies because they hit us with reasonable sounding arguments that aren't in our real interests individually or collectively. There are principles behind tax law that need to be imposed from below. When we trust the tax lawyers and their pet legislators we end up paying for millionaires to become billionaires -- as we've done since 1980.
That is why we should have an overall understanding of tax law, tax issues and what taxes we want and don't want and why. We need to base our legal demands on basic notions of equity: fairness and fair play. Us lay folks don't need to be tax lawyers or lobbyists to get that understanding. We just need to put in a little effort to understand the principles involved and make sure the policies flow from those principles. Then with a little effort to get a general understanding we have something we can share.
If we don't do that and understand the principles, the moment a disaster comes we'll hear as sophisticated argument as to why we should compromise those principles in the name of exigency. Disaster makes us vulnerable to canned sophism. We wind up embracing as "temporary", regressive solutions argued as temporary and somehow necessary that even after the exigency is over, become permanent. This is what Naomi Klein talks about in her book "The Shock Doctrine." But that principle works both ways. A disaster of any kind is a moment when we can make positive changes too.
What are the principles behind a Progressive Tax?
There are several basic principles that define whether a tax is progressive or regressive. These are as old as human kind and need to be considered together:
- Rights and Basic Fairness
- Privileges and Duties
- Preserving "Seed Corn" -- Actual Capital
- Protecting "livelihood" -- the wages of labor
- Taxes should pay for unearned privilege
After that I'm going to go on and talk about 3 privileges, Rick DiMare's 3 taxes and try to summarize.
Each of these subjects is important in itself. And understanding these principles is important to defining and ruling the policies that govern both public taxation and that private taxation known as "rents."
Taxation is "Positive rights" (Requirements) and the privileges necessary to achieve them.
A Positive Right is a right that can be expressed as a requirement in mandated language. "Thou shalt honor thy mother and father" is a requirement for folks who take the ten commandments seriously, for example. The right "honoring parents" associated with the mandate is a positive right. Being honored for specific deeds is a privilege the parents have to earn by acting the role of parent. The right itself is a duty imposed on their children who are taxed to 'honor' parents usually with lip service and rarely with money.
Negative Rights are boundaries
A negative right is expressed as "thou shalt not". They are prohibitions and sometimes abolitions of a right or privilege. Most laws are enforcing such prohibitions. They express boundaries we mandate, usually on behavior in public. Regulating Behavior in private is often delegated to the individual. We regulate such "private" behavior by the right to sue someone, or bring charges, for harming us or transgressing those boundaries. We have a right not to be murdered based on common law which is also in the ten commandments as "thou shalt not kill". That right applies in the home as well as on the street. Negative rights are expressed in most public laws. It's easy to say "Thou shalt not steal" and then setup means by which a person can figuratively steal from people without being accountable. Negative laws set boundaries folks aren't supposed to transgress. Like the lanes of a road. Positive laws tell us where the rest areas and exit ramps should be. Both are intended to prevent us from crashing into each other while pursuing happiness.
Rights, inalienable and fundamental
A Right is a privilege that we claim by "right." It is inalienable if it is something that pretty much everybody can see is "self evident" if they think about it (or aren't aiming to do others harm). Sometimes a right can be easily defined by what happens when it is infringed. For example the right to privacy is so fundamental that people are traumatized by it's violation. Some of our most severe crimes "felonies" are punishment for fundamental violations of a person's private space, such as rape. Rights can be infringed but their denial only illustrates their fundamental necessity. A government can try to legalize rape or torture, but these are still a violation of a person's most sacred personal space. When law tries to deny fundamental rights, that is not justice anymore, it is injustice. Justice is the subject of law, supposed to be its object. But imperfect humans sometimes make a justice system unjust. When we infringe on rights we are doing "oppression" -- we are depressing people and holding them down. Holding them back. Using negative law to restrict their space. Poverty is an expression of lack of access to fundamental necessities. It is an expression of oppression. But it takes positive law to do something about poverty. Negative law is sometimes used to enforce poverty. Positive law can also create and enforce privilege.
Taxes flow out of the duty to pay for privileges.
The requirement to do something is called a duty. Those who do those requirements in a fundamentally just way are known as virtuous. We are talking about public virtue when we talk about a fire-fighter or a policeman and what he does in public. But virtue also defines what people do when the law is just and they are being citizens as defined by principles such as democracy, republicanism, federal principles and commonwealth. Virtue is not just extraordinary acts but it is the acts of generosity, kindness and fairness that allow us to safely drive or walk down a street, use a market place, or pursue our individual happiness without infringing on the happiness of others. Virtue is necessary to the functioning of any well Governed society. There is no "invisible hand" without public virtue guaranteed by virtuous police, judges and citizens.
Duties pay for Privileges
Along with requirements there has to be a grant of privilege. Without the resources; (money, land, right to collect rents (or duties) one cannot do one's duty well. A privilege is either given associated with a duty, or paid for by some kind of taxes, or duties in the other sense. Thus a privilege is a granted right, not a fundamental right, and is usually associated with the need to organize, govern and maintain some mission of a Government. Privileges have to be paid for either through the performance of duties, or the collection of duties.
Mission, Rights and Privileges
Rights need to be associated with some grant of privileges in order to be defined and have meaning. The privilege is associated with a mission, which is starts as a high level and usually abstract definition of the duties required to enable basic rights such as "life", "liberty" or "pursuit of happiness." A mission then goes on to be further defined and associated with privileges necessary to it's execution. That definition is a regulation and legislative function, and it usually results in the creation of an institution with a mission; such as "The Department of Justice" or "The Department of Transportation". And sometimes the work of that mission is delegated to private governance, such as companies and other agencies. For example churches carry out the Governance of the poor through their "Missions." And a person with a mission of preaching some set of virtues is known as a "missionary." An Agricultural agent helping farmers grow their crops is in his own way a "missionary".
The farmer raising crops for food and production of agricultural goods has a mission too. That mission contributes to his (or her) own livelihood and the productivity of society -- and thus is contributing to the general good while looking out for his or her own good.
What is Corruption, Really?
Terms lose their original meaning and organizations may lose their original purpose -- but every privilege starts as a means to address some fundamental need of society associated with our basic rights. When an organization loses focus on its mission and becomes a means for the enrichment of it's officers then the word for that is corruption. The loss of focus and purpose can turn an organization devoted to justice into one that behaves unjust. Or it can turn a mission to promote happiness into one that is oppressive. Worse, when the mission of an actor organization or individual gives them power over others their own needs and behaviors can oppress those who are pursuing their missions in another realm. A Tax Collector (public or private) should not take the seed corn from the farmer.
A basic principle of taxation is that taxes must not be oppressive or they harm the public good.
Taxes should not harm individuals (and society collectively) in their ability to survive the seasons or perform their duties capably. If you take the "seed corn" from a farmer he can't plant crops for the next generation. "Seed Corn" is used here as a simile for the basic capital of a society; tools, fields, farms, storage bins, seeds and fabrication machinery. When economists talk of "capital" they are referring to what I'm referring to as "seed corn". In the Georgist definition of the word (which is one of the clearest available) capital is wealth plowed back into production. It is wealth used to generate more wealth. A commonwealth isn't much good without wealth to share. And producers of wealth have a basic right to conserve their capital and the compensation for the resources that went into their own productive activities. They have a basic right to livelihood, to receive wages for their labor and to be compensated for their costs. A society that boxes up and ships factories overseas is figuratively (and sometimes literally) "eating it's seed corn." A legal system that lets private entities punish farmers for using their own seeds is oppressive and doing essentially the same thing. When we put folks in charge of our nations "capital" they shouldn't be eating real capital in order to get money. Money is not capital, though in most minds they are conflated.
Essentially taxes should not harm "livelihood."
Every person has a right to live. To have shelter, food, clothing, transport to and from work, access to capital goods to perform his or her labor, and should be compensated for their labor. Until Anti-Marxists degraded the notion of "labor theory of value" and Milton Friedman invented "withholding," a persons labor compensation was considered sacrosanct and it was understood that a living wage included the cost providing these things (food, shelter clothing) plus medicine/health capabilities, educating our children and providing charity for others. Some businesses get these fundamental rights as "deductions" from gross income, but workers should not be taxed on these things either. Wages are compensation for labor. And labor is only sustainable if folks can afford a livelihood through their labor. Moreover, in most cases the division between labor and capital is not (or should not be) fixed. In Lincoln's day it was assumed that folks were mixing their own capital with their labor. The usurpation of the government of capital by so-called capitalists is a privilege that is unearned except in the context of producing public good. If labor is not compensated than the holder's of that privilege are not doing their duty and should pay duties on their unearned gains. Since the income tax was invented employers and governors have assumed some of these functions as trustees and then subverted them. But they've always had both an individual and collective component. They are inalienable, if positive, rights that require the collective programming and projects of families, towns, cities and entire countries to be produced.
Do Not Tax Basic Labor income
...And if we are to tax basic wages it should be solely to pay for the things that wages are supposed to pay for. We should not tax people at the expense of them suffering and being miserable. In a famous debate years ago Jesse Jackson referred to it as "Chicken and Egg Politics". When you tax labor you are taking legs and arms from US Chickens.
This concept is sometimes more difficult to understand due to years of deliberate obfuscation, though once it is formulated clearly it is obvious. We should pay for privileges. A privilege is usually related to a right but not the same. We have a right to shelter, but it is a privilege to live in a mansion. We have a right to travel to work and visitation, but it is a privilege to ride in a limo or drive a Ferrari. Certain minimal privileges are necessary to our rights like the privilege of visiting a doctor. We should individually pay for privileges but we should collectively pay for rights. And since both of these kinds of "rights" and privileges are positive things -- we have to pay for them usually one way or another because they are matters of allocating resources not ones of drawing lines in the sand.
Paying for Privilege
All privileges were granted to provide some public good. If the privileged are doing their duty they will have no unearned income from their privilege. But if not they should pay for that privilege. Taxes used to be more explicitly about people paying for privilege. Those with privilege really don't like paying for privilege but it's their duty to either do the duty associated with their privilege or pay duties so that society can regain some benefit from their unearned privileges and that they don't use that privilege to oppress others. They may not like paying taxes anymore than middle class or poor people. But when they use their privileges to collect rents they are really collecting private taxes on the rest of us so it's not the same. Once you realize that privileges are private taxes then the arguments become clear.
Privilege is a function of power
Both Formal government, capital government (business), and most public business (family transactions, small business, etc...) are expressions of power arrangements in society. As noted before privilege is always associated with a duty or mission. They don't get the power to back their efforts by coercive access to raw force or courts/police/security forces, for no original good reason. However, Power is measured with money and property and once people acquire it for a legitimate reason, they often forget their original duties and the limits that were supposed to be on their power. This is why Popes, Kings and CEOs dress so nice. It's also why we've had dictators, Borgia Popes, and a long history of scoundrels with unearned privilege. Privilege is associated with comfort. It is much more comfortable to live in a mansion than a shack even though both provide the basic need/right of "shelter." The privilege get their privilege through the privilege of power and wind up hiring or enslaving others to do the duties associated with it. That is another reason for taxing privilege. If they are collecting a duty and spending it for themselves and not doing their duty.
We create specialists in various kinds of business so we can have governors, legislators, lawyers, judges and other kinds of specialized officers such as CEOs and Vice Presidents of operations. These officers have necessary privileges and then use their necessary power and privilege to grant themselves additional "perquisites" or privileges. They may or may not earn them. When they earn their power and perquisites by performing their original functions and are considered "virtuous" when they've earned the rights to wages like everybody else. But when they aren't taxed or regulated, the result is vicious behavior.
Aristocracy and oligarchy are corrupting because the powerful with offices forget their original functions and tend to private fortune, private rivalries and family posterity instead of doing their original jobs. The fact that we have officers who allocate power is why we need progressive taxation and why it rarely remains progressive unless folks from below beat on the officers to remain virtuous.
Oppression is a function of vicious power
Thus oppression is vicious power and liberty is a function of virtuous power shared widely. The powerful tend to rarely be satisfied with their power. They tend to fight over who should do what. The better roles are defined or "constituted" in creating governments the less they have to fight about. But they tend to fight viciously anyway. What makes the fighting viciousness is that it is the rich and powerful (same thing really) who allocate resources. And the rich do things like "selling seedcorn" (moving factories) to China and refusing to pay people a living wage. Thus oppression is a function of power too. The oppressed are those whose livelihood is suppressed and whose access to real capital is made contingent on performing labor for the powerful. When one doesn't own one's labor that is a vicious situation. And when our officers take more than is necessary for them to perform their offices it's at the expense of the schooling, entertainment or even the survival of the masses of people whose labor they are enjoying the fruits of -- ostensibly as a trade of services.
Those who enjoy more privilege should pay a much higher tax. And in a fair society the difference between even "high officers" and common folks should be reduced by taxing the portion that reflects power curves and unearned wealth. That is mathematical progressivity. A person making more than 10x the average wage of others should not be keeping much more of his/her income than the person making 100x.
Wealth and Power obey power curves and for that reason if they are not taxed, they tend to reallocate power and wealth exponentially with time and very little effort. See: [Vilfredo Pareto and his Curves]
Progressivity is about embodying and "disambiguating" three basic principles
Progressive taxation is thus about separating out the parts of income tax that fall on privilege from that portion that falls on actual capital and livelihood.
- The first principle is therefore that taxation should not infringe or burden (oppress) livelihood and thus we should not oppress labor either through taxing wages, or allowing others to use privileges to oppress wages.
- The second principle is that taxation should "preserve the seed corn" (actual capital). Taxes should not fall on wealth being plowed back into production.
- and the third one is that those with offices and privilege should pay for their privilege more so that those whose privileges are minimal can enjoy them. The principle of progressivity is thus based on three basic (but not absolute) mandates.
The three privileges we have to deal with broadly in this country are:
- The ownership of "nature's bounty" -- this is what Henry George was referring to as "Land Value". It comes with the privilege to deny access to, charge rents on and infringe on the rights of renters. And thus the unearned parts of wealth collected due to this privilege should be taxed.
- The Corporate Privilege -- this is the power to use ownership of artificial persons to control real persons and avoid responsibility. It is normally taxed through an income tax
- The Banking Privilege -- this is the legal privilege of issuing money as debt and regulating the financial system privately.
I'll write more on this later
Three Separate Income taxes
My Friend Rick DiMare, who is a Tax Attorney, has written extensively about taxation tells me that we also need to understand and "disambiguate" the three income taxes and why they exist, if we want to avoid being conned into paying more than our fair shares of taxation and being oppressed by our tax system. He notes that there are really 3 separate income taxes. One the "Springer Income tax" is called that because it is a "tax on the privilege of using Federal Reserve Notes" which he refers to as a "currency regulating tax." He explains it here: [https://www.facebook.com/notes/common-wealth-tax/doc-97-the-goal-for-the-99-is-to-disambiguate-the-three-income-taxes-not-abolish/611843165595497]
Taxes as a regulation tool
"The power to tax is the power to destroy" but it is also the power to regulate otherwise unmanageable privilege. When the Springer Income tax was created it was created as a means to regulate the power of banks to issue currencies not issued by the Treasury. Most of our taxes are there to try to manage the otherwise unmanageable. That is why the income tax has all it's exemptions and complexity. Over the years the government has tried to use it to encourage some behaviors while discouraging others. Simply banning behaviors doesn't always work so we tax them. Like we tax cigarettes and alcohol. Most privileges are associated with duties and virtues, so taxes are meant to try to encourage folks to use their privileges virtuously.
Three Different Taxes on Three kinds of privileges
These taxes tax completely different things, though the lawyers and propagandists would convince us that they are the same tax and that if we tax, corporations we are doing a double tax on the folks who own shares in those corporations. But they are taxing different privileges.
- Currency Regulating -- Springer Income Tax
The Tax on Property Income (Rick Calls the Pollock Income tax)
“Corporate Privilege Income tax” [ Flint v. Stone Tracy Co.]
Rick Explains: "the “currency-regulating income tax” or the “legal tender privilege income tax,” but the tax is basically derived from England’s 1799 income tax, which was used by the Crown to support the Bank of England as it came off the coin standard." It essentially is a tax that is intended to "regulate" (through taxation) the privilege of using Federal Reserve notes and privatized (privateering) money. He believes that if we were paid in US Treasury money the tax would be unconstitutional. But I'm not sure I agree. In any case the springer income tax is actually on the wages paid to an employee in legal tender that isn't government issued.
The Currency Regulating Tax is really supposed to be a tax on the banking privilege, especially as enjoyed by the Federal Reserve and it's ability to inflate money and charge interest on it's own printed notes.
This is the tax that required a Constitutional Amendment. As it falling on property in the eyes of the Supreme Court Made it a Direct Tax. But As Rick notes " all [the 16th Amendment] did was eliminate the idea that rental or interest income might be a direct tax on land, labor or capital." -- Because taxes on rental of land are or ought to be considered a tax on the privilege of renting land. And taxes on income from the sale of land either may reflect the accumulated labor of the owner, but more often reflect the accumulated appreciation of the social value of land without much effort on the part of the owner. The Pollock Income tax is close to what Henry George had in mind. I'm not a Georgist though I admire the man greatly and agree with about 90% of what he himself actually said.
A direct tax is taxes that are levied on property directly. The constitution specifies that no direct taxes could be laid except in "No capitation, or other direct, Tax shall be laid" and was only modified to enable calculations of income from any source (including rents). Taxes on privilege are considered "indirect" and thus:
Is also an indirect tax because it's a tax on all the privileges of creating, running & sustaining the artificial entities known as corporations. Corporations can and should be taxed because they have the privilege of avoiding legal liabilities, avoiding most personal income taxes and are usually exempted from performing needed services to labor and community so they can make a profit. Thus the only way to recapture the wealth they take is by taxing them.
- Rick's exposition on the subject.
- Readings and References
- Economic Rents are Private Taxes: [http://holtesthoughts.blogspot.com/2015/07/economic-rents-are-private-taxes.html]
- First published 12/15/2014 at 11:09 PM, updated, 9/20/2015 for clarity. Will probably update again at some point.
Taxes exist either to fund needed government programs or to recover unearned "privilege" and are usually a bit of both as most privilege is granted ostensibly for the sake of providing a needed service or product to the nation that grants that privilege. Taxes are fair if they fall on privilege more than necessity, surplus more than "seed corn" and the wealthy more than the poor. Taxes represent a transfer of wealth from labor to governors and that occurs with business as much as with government. In theory businessmen are adding value to the products of the labor of their employer. But in theory so are governments when they provide legitimate services.
Unfair taxes are usually the product of conflict and/or corruption. They represent the abnegation of the principles listed in this post.