Saturday, 1 February 2014

TAXES, CHARITY,THE RICH AND US


Warning! This is not a short post... And it is also a long overdue post. Late last October, Pr. Kimball was kind enough to link on his own blog the article I had written about his general philosophy.

While Pr Kimball's tone was generally appreciative, he rightly pointed out that I had not really commented all that much on his proposed solution(s) to keep the provision of public goods high despite a lowering of taxes.

This is this criticism that I would like to address in this blog-post.

In his own words:

"I wished he had discussed my central proposal for keeping the burden of taxation down while providing abundant public goods: a public contribution system that raises taxes rates, but lets people avoid 100% of the extra taxes by making charitable donations focused on doing things the government might otherwise have to do".

Pr. Kimball then links to a few of his blog-posts on the subject: No Tax increase Without Recompense, Yes, there is an alternative to Austerity vs. Spending: Re-invigorate America's NonProfits and Scrooge and the Ethical Case for Consumption Taxation. He also links to a post about a popular article in the WSJ by Scott Adams (of Dilbert's fame) on 'How to tax the rich'.

In the above quote, Pr. Kimball summarised his thesis in one sentence but, really, you ought to follow those links and read his arguments for yourself since I will be spending most of this post on the problems I see with said arguments.

My first set of counter-arguments would be practical.

First, Pr. Kimball discounts the possibility that people would resent mandatory charity giving as much as (let alone, more than) taxes. That might be true in the USA where charity giving is a bit of a tradition. In Europe, we lost that tradition when we lost corporate paternalism, post-WWI. But I also suspect that Pr. Kimball is being influenced by his own biases. From his writings, I suspect he is a rather caring and compassionate human being. I am a lot less sure than he is that rich people in general would feel the same way he does about things such as charity giving.


Second, Pr. Kimball admits that the eligible charities would have to be high quality and fulfilling duties otherwise fulfilled by the State. As a matter of fact, charities don't have a track record of being more efficient than state bureaucracies, per se. The same was said of private companies and for-profit prisons, for-profit hospitals and for-profit schools and colleges have usually fallen well short of the pro-privatisation propaganda.

I also see a real risk of gaming the system. Say, set up the 'neighbourhood charity of X', dedicated to dealing with all local needs of neighbourhood X. And, if X happens to be a rich neighbourhood, it can set itself up as a little island of perfection while letting others around rot. Already, the problem is besetting localities and local taxes, especially in the USA. I don't think it's a good idea to make the problem worse. And the controls it would take to make sure that doesn't happen are probably expensive...


A third strand of ideas came from Scott Adams (but Miles Kimball takes up these ideas enthusiastically): He suggests preferential access to public service by the biggest tax-payers. Scott Adams gives, if memory serves, the example of being able to cut the queue for renewing a driving license.




That doesn't work because richer people actually use less of public services. I have personally noticed that, as my life and affairs got more complicated (when I got married to a non-EU citizen or when I lost my job), I suddenly had to have a lot more interactions with bureaucracies than when I was just a standard single employed middle class guy. Back then, filling in my tax form may have been the sole interaction I had with a state bureaucracy for the whole year. And, in the UK, where income taxes are deducted automatically from your paycheck, there wasn't even that!

So being able to cut the queue once every blue moon is nice but I doubt it's going to really compensate adequately people for paying meaningful higher taxes. Not to mention that rich people can always get other people to queue for them or, if wealthy enough, get lawyers and family office to deal with admin/bureaucracies for them entirely.

In general (and we're now moving to my more theoretically based objections), I am against making the rich feel too good about themselves (the essence of Scott Adams' idea).

Rich people are already lionised, they already have privileged access to law-makers and see their preferred policies given far more weight than anyone's else. They already cry like babies when they feel politicians and people aren't quite as panting with admiration as they used to be pre-crisis.



I've never met a rich person (and I have met a few) who really recognised the role of luck as well as the role of society and organisational power in their getting rich. Yeah, they sometimes pay lip service to the concept, saying "I got lucky, I worked hard, I had good mentors and great team-workers" but that's like actors thanking their fans or directors during an Award ceremony - pro-format and too often devoid of any real substance.

I was recently watching some of the 'Justice' serie by Michael Sandel (fairly basic but nonetheless highly recommended if what I've seen is representative). Explaining libertarianism, Pr. Sandel explains that libertarians are against any redistribution as long as the initial wealth was acquired fairly and the subsequent wealth resulted from free market dealings.

I've never seen any rich person recognise that his initial wealth was unfair. There's an old joke about a poacher being caught by an aristocrat on the latter's land. The aristocrat asks the poacher how he dares trespass and steal from lands that do not belong to him. The poacher asks why the land belongs to the aristocrat. The aristocrat replies he inherited it. The poacher asks why. Because his father inherited it before him says the nobleman. Why persists the poacher. Well, answers the aristocrat, if you go far enough, it's because my ancestors fought for it. Fine, says the poacher, I'll fight you for these now...


The initial wealth was distributed via the historical process. The one thing we can say about the historical process is that it didn't care one iota for fairness or justice.

The second condition that has to be satisfied for wealth to be acquired fairly and thus to be exempt from redistribution, except as state sanctioned thievery, is that such income must be generated via a free market i.e. the free interactions of free individuals.

Again, I've never met a rich person who said 'You know, I owe my wealth to my ability to exploit market deficiencies and inability of other stakeholders to organise themselves for better bargaining positioning'.

Yet, those two aspects are incredibly important. Prof Sandel takes the example of Bill Gates. I don't remember Bill Gates recognising that he used the natural monopoly of Windows to gouge customers. Sure, customers were 'free' to not buy Windows. Just as a starving man is 'free' to not buy bread whose price has been jacked up by a shrewd baker who guessed the desperation of his customer... Furthermore, Microsoft is not Bill Gates alone. He didn't write every single line of code in Windows or Word or Excel. Yet, via the existence of IP laws and property rights, he can lay claim to the results of all the engineers and coders working for Microsoft. I have no doubt those people are well paid and most would say they were fairly compensated but, had they decided to gang up and strike, I think they could easily have extracted even more wealth for themselves, out of Microsoft. Yet, they didn't or couldn't and so Bill Gates benefited.


Clausewitz: [In Military affairs] Quantity has a quality all its own


Quite apart from the fact that I see no reason to lionise the rich any further (and, mind you, before I am called an old fashioned Marxist, let it be known that such attitude also comes with boundless admiration for the role of entrepreneurs within society. It couldn't work without them and I do think Marx and Marxists usually under-play their importance. I'll have to a blog-post on that subject soon, lest I acquire an unshakable reputation as hard-left), quite apart from the risks I see with Pr. Kimball's idea about charity giving, I think there is a better solution.

For I liked Pr. Kimball's idea of enabling people to choose how their tax money would be spent. But, better than setting up competing charities to fund this or that, I think we should explore more ways into making direct democracy works.

I am not a specialist but I think California ran into trouble because they dissociated the revenue side from the spending side. That is, to the questions "Would you like more schools? more police? more prisons? more museums?', people usually answered 'yes!'. And, then, when asked if tax hikes should be limited/made impossible, people also answered 'yes'! To no one's surprise, surely?

I think Switzerland does 'direct democracy' better. Again, this would bear double checking but I think the key is that they automatically link an increase in spending with either an increase in funding or a reduction elsewhere. Want more schools? Either taxes go up or something else got to be cut.

It's not perfect since it ignores that the finances of a money-printing government are not at all 'like that of a family' but that would work well enough for local governments - who do not have the power to print.


I would also like to see what happen if you divide public spending in buckets - as in that Gallup survey I linked to before - and let people decide where they want to allocate their taxes.

As a liberal, I could be counted on wanting to spend all my taxes on education, health care and anti-poverty programs and leave national defence with nothing/very little, confident that my conservative counterparts would likely lean the other way.

We could have these choices iterated a few times to allow people to modify their initial response if they don't like the end-result but, eventually, we should end up with a public good provision that closely matches expressed preferences. I would also love for various ministers having to pitch for their projects/their domain i.e. imagine the secretary of defence forced to explain why he really really need people to match last year's budget...

Basically, it should have all the freedom of Miles Kimball's proposal (even more!) and most of the feel good factor of Scott Adams' (certainly more, if you actually care about public spending) without having to rely on charities to do the government's work or having to bolster the already big egos of the richest amongst us.