May 13, 2003

The National Review Flunks Quality Control Once More

Kevin Drum notices that the people who write about economic policy for National Review cannot calculate:

CalPundit: Addition, Multiplication, Whatever: ADDITION, MULTIPLICATION, WHATEVER....We can't be too nice to National Review, can we? So to make up for our last post let's take a look at Stephen Moore's latest scribblings about the dividend tax:

The company must pay a 35 percent tax on the profits that it earns and then if that after-tax money is paid to the shareholders in a dividend, they get smacked with a tax as high as 38 percent. That?s a 73 percent tax on dividends.

My goodness, 73%. That is high.

That is, it would be high if Moore's arithmetic were reliable. But it's not. His example actually amounts to a 60% tax rate.

Yep. It's true. (1 - 35%)*(1 - 38%) = 0.65 * 0.62 = 0.397 = (1 -60.3%).

A note to the editors of National Review: why not get some economics commentators who can calculate? Oh... You mean these are the only ones you can find who are politically reliable.

Posted by DeLong at May 13, 2003 04:36 PM | TrackBack

Comments

>>His example actually amounts to a 60% tax rate.<<

And that's assuming this investor is not smart enough to make use of some elementary tax shelter (something that is usually less accessible to someone who is diriving most of her income from selling her sweat.) And forgetting about the fact that the working class pays proportionally a larger share of sales tax.... You know, those people who bizzarely consume most of their income. ;-)

Posted by: Jean-Philippe Stijns on May 13, 2003 05:05 PM

I can understand someone being unhappy with a 60% tax effective tax rate and I think everyone should be behind at least reducing this second tax. However, only if the government can afford it. It cannot. If this tax cut goes through we will have to raise taxes some other way, and somehow I don't think it will be the well-off that will shoulder the burden.

That said, I don't see any evidence that the backers of Bush's economic "policy" (if that is the right word) has any real interest in the facts. They just hate the idea of paying any taxes at all. Nothing will ever convince them that taxes are anything but wealth redistribution from them to others, and maybe military spending is a good idea.

So although we "scored" one on the National Review here, nothing really changes.

Posted by: Alan on May 13, 2003 05:12 PM

I read somewhere that because of loopholes the effective tax on profits is 15%, though I think that excludes the dividends (which are tax sheltered anyway for most people).

And shouldn't we take more seriously John Irons' comment that "double taxation" is irrelevant and what is really important is the total tax rate (60.3% according to Brad)? Of course the taxation on dividends affects the incentives to issue dividends.

Posted by: Bobby on May 13, 2003 05:17 PM

Kudlow's Deficit Dance had to be the winner of all times. He profers some model of how much in annual tax revenues this slowdown has created using a 18% tax rate and some methodology (not well explained) of the GDP gap. His stated estimate was about $360 billion per year of lost revenues but his methodology suggested the output gap was only $360 billion per year. I suspect I know how he came up with his mistaken numbers and e-mailed the National Review. No reply, no retraction, no nothing. You would think the National Review would not want such obvious errors or lies - or whatever you want to call them. What an embarrassment to William buckley this rag has become!

Posted by: Hal McClure on May 13, 2003 05:20 PM

Brad please do a calculation of the effective tax rate, which takes into account the loopholes for the profit tax and the tax sheltering of dividends for most Americans. I think this would make Stephen Moore's odd calculation (Moore's Law 2?) even weaker.

Posted by: Bobby on May 13, 2003 05:29 PM

Moore and Kudlow lie without consequence, like the Wall Street Journal editorial page.

Besides, Moore's Cato Institute was against Gulf War I and II, making them unpatriotic, unAmerican,
probably Communist, perhaps filth and subhuman, potentially Al Qaeda sympathizers, and certainly liberal. At least, that's what I've been called for my similar views.

Posted by: John Thullen on May 13, 2003 06:00 PM

Yes, NR made a trivial error calculating the effective rate of two taxes. However, this in itself does not generally invalidate what they say about taxation. I assume you never make calculation errors. The main point is taxing dividends is double taxation of corporate income. Some European counties recognize this, and allow a credit, for example Germany. I think it’s useful to consider unintended consequences of having or not having a dividend tax. For example, in the case of privately held subchapter C corporations owner-workers sometimes find the IRS reclassifies their income as dividend income. The IRS claims they are paying themselves too much. Reclassification really increases the tax bite, really bringing home double taxation. So, if dividends become tax free, can we expect the IRS to tell all those people, "well we think you really should be paying yourself more, so we are reclassifying your dividends as income!"

Posted by: Michael Axelrod on May 13, 2003 06:31 PM

Michael,
I am an economist, though not of the caliber of Brad. I make calculation errors all the time, but they don't make it to my papers because I recheck important numbers many times, and pass papers by other numerically oriented people so they can check it. If its a complex procedure I spend most of my time figuring out automatic error-checking methods. That's what competent applied economists do. Econ grad school tends to weed out the people who don't have (or learn) this characteristic.

Posted by: CalDem on May 13, 2003 06:54 PM

Michael,

It's not a "trivial" error. It's a basic error that suggests that either Mooore can't do simple arithmetic or he's an outright liar.

That's not an exclusive OR.

Posted by: Bernard Yomtov on May 13, 2003 07:06 PM

The correct math for Stephen Moore's double taxation story is actually quite easy. Let's start with the old maxim - "it's not what you earn that counts, it's what you keep" which is simply (1 - Tc)(1 - Tp) if Tc is the corporate profits tax rate and Tp is the personal income tax rate. So if Tc = 35% and Tp = 38% (Moore's example), you keep 40.3% making the effective tax rate only 59.7%. A little algebra has the effective tax rate = Tc + Tp - Tc*Tp.

This is so easy and obviously true, how does a supposed expert in tax policy forget to subtract Tc*Tp? This cannot be a mere error - it had to be a game of deception. If I subscribed to the National Review, I would demand a full refund of all money I paid to this publication who clearly have an incompetent editor.

Posted by: Hal McClure on May 13, 2003 07:30 PM

I agree, when writing a professional level paper one should check important numbers very carefully. I too spend a lot of time checking my results, and I try to work a problem two different ways if possible. Moore should have been more careful. Nevertheless, these financial columnists are not writing professional level papers, and Moore is not the only columnist who trivial mistakes. He has a lot of company. The point I’m trying to make is we should concentrate on the quality of his argument, not an inadvertent error. Even great scientists sometimes make whoppers. For example, Linus Pauling once published a proposed structure for DNA that was not an acid! (See “The Double Helix” Watson and Crick) He made an embarrassing elementary chemical error; nevertheless, Pauling was still a great chemist. I think Brad just doesn’t like Moore’s politics, and is playing “gotcha.”

Posted by: Michael Axelrod on May 13, 2003 07:44 PM

Michael, when in a hole, quit digging. The Pauling example doesn't help.

Posted by: zizka on May 13, 2003 08:02 PM

"The main point is taxing dividends is double taxation of corporate income. Some European counties recognize this, and allow a credit, for example Germany."

Actually, in most European countries, there used to be a tax credit system to compensate for the fact that dividends have already been taxed as company profits. But this system is being suppressed almost everywhere. For instance, the UK suppressed it completely some years ago. In France the rate of tax credit for dividends paid to companies went from 50% to only 10% (which is bad news for holdings).
I remember seing a piece (in The Economist?) explaining that the suppression of the tax credit had caused an underperformance of the UK stock market.

Posted by: fberthol on May 13, 2003 08:04 PM

>>This is so easy and obviously true, how does a supposed expert in tax policy forget to subtract Tc*Tp? This cannot be a mere error - it had to be a game of deception.<<

My bet is that it isn't a game of deception: it's just that Moore is not good with numbers (or much of anything else). He will, however, say whatever is convenient for his political masters. That makes him valuable to them.

Posted by: Brad DeLong on May 13, 2003 08:20 PM

I am wondering if there are any conservative mags with competant economic commentators (I'm not referring to Barro or Becker in Businessweek)? I'm just wondering.

Posted by: Bobby on May 13, 2003 08:22 PM

Of course, the tax rate is only 60% IF our "double taxed" filer is paying at the top rate (which, statistically, he is). What about the guy who's only paying 15% or less (maybe a retiree, who after all, this dividend cut is for, guffaw)? The basis for throwing out only the top income tax rate is the focus on the marginal tax rate- but for most of us, 38% isn't our marginal rate. Most of us don't even get close (the cut-off is, what $280k for a married couple- and that's taxable income not the gross). I'm nowhere near the top bracket, and I can tell you it does not impact my decision making (but maybe I'm irrational that way).
Beyond Moore's embarassing math error (which is generous- the other option being full on dishonest), why is his example even treated as speaking to common experience (what's the stat, half of filers pay 4% of taxes, not that they all have dividend income, but if they did, their double taxation, to the extent that any occurs, would be much less than 60%)?

Posted by: Brendan on May 13, 2003 08:46 PM

Stephen Moore is president of the Club for Growth. Would his master be Grover Norquist? Recently Moore was seen using his Club against GOP Senators Snowe and Voinovich.

Attack ads against Snowe accused her of being the "French" wing of the GOP. How stupid is that? I will admit that I have occasionally retold a few Jacque and Pierre jokes. But seriously, anyone who does not know that a good percentage of Maine residents were decended from French Canadians, should not be running attack ads. Especially ads that denigrate the French. Duh.

Moore and his cronies have more problems than multiplication.

Posted by: bakho on May 13, 2003 08:47 PM

If the effective corporate income tax is 15%, which I hear from a reliable source here is the calculation of a 15% profit tax and 38% dividend tax (which itself is way too much since these are mostly tax sheltered).

(1-.15)(1-.38) = (.85)(.62) = .527 (1-.473)


So that's a tax rate of 47.3%

Posted by: Bobby on May 13, 2003 09:01 PM

It should say
(1-.15)(1-.38) = (.85)(.62) = .527 = (1-.473)

Posted by: Bobby on May 13, 2003 09:05 PM

How do I shelter dividends?

Posted by: Michael Axelrod on May 13, 2003 09:17 PM

Let's not all pile on the National Review's economic commentators.

They also have this guy called Luskin.

Oh wait...

Posted by: GT on May 13, 2003 09:43 PM

Some comments:

- Stupid error by Moore. Without bothering to read his article it seems to me more likely a mistake born of stupidity rather than an intentional lie.

- Jean-Philippe Stijns said that working people pay a higher proportion in consumption taxes. This is only true if, over a lifetime, income <> consumption. But if we say that inheretence is a gift (which it is), then consumption always equals income. And so consumption taxes are perfectly proportional. In fact... a flat, fully inclusive consumption tax is the only proportional tax. The comment by Jean-Philippe takes a static view of rich v poor people during their working years. A static view of rich v poor during retirement years would show that rich consumption exceeds their income considerably. In the end, it equals out. After all, saving only delays consumption - it doesn't destory it.

- Bernard Yomtov: I think the word 'or' is always exclusive. That's why some people use 'and/or'.

Posted by: John Humphreys on May 13, 2003 10:01 PM

Some comments:

- Stupid error by Moore. Without bothering to read his article it seems to me more likely a mistake born of stupidity rather than an intentional lie.

- Jean-Philippe Stijns said that working people pay a higher proportion in consumption taxes. This is only true if, over a lifetime, income <> consumption. But if we say that inheretence is a gift (which it is), then consumption always equals income. And so consumption taxes are perfectly proportional. In fact... a flat, fully inclusive consumption tax is the only proportional tax. The comment by Jean-Philippe takes a static view of rich v poor people during their working years. A static view of rich v poor during retirement years would show that rich consumption exceeds their income considerably. In the end, it equals out. After all, saving only delays consumption - it doesn't destory it.

- Bernard Yomtov: I think the word 'or' is always exclusive. That's why some people use 'and/or'.

Posted by: John Humphreys on May 13, 2003 10:02 PM

Some comments:

- Stupid error by Moore. Without bothering to read his article it seems to me more likely a mistake born of stupidity rather than an intentional lie.

- Jean-Philippe Stijns said that working people pay a higher proportion in consumption taxes. This is only true if, over a lifetime, income doesn't equal consumption. But if we say that inheretence is a gift (which it is), then consumption always equals income. And so consumption taxes are perfectly proportional. In fact... a flat, fully inclusive consumption tax is the only proportional tax. The comment by Jean-Philippe takes a static view of rich v poor people during their working years. A static view of rich v poor during retirement years would show that rich consumption exceeds their income considerably. In the end, it equals out. After all, saving only delays consumption - it doesn't destory it.

- Bernard Yomtov: I think the word 'or' is always exclusive. That's why some people use 'and/or'.

Posted by: John Humphreys on May 13, 2003 10:55 PM

Some comments:

- Stupid error by Moore. Without bothering to read his article it seems to me more likely a mistake born of stupidity rather than an intentional lie.

- Jean-Philippe Stijns said that working people pay a higher proportion in consumption taxes. This is only true if, over a lifetime, income <> consumption. But if we say that inheretence is a gift (which it is), then consumption always equals income. And so consumption taxes are perfectly proportional. In fact... a flat, fully inclusive consumption tax is the only proportional tax. The comment by Jean-Philippe takes a static view of rich v poor people during their working years. A static view of rich v poor during retirement years would show that rich consumption exceeds their income considerably. In the end, it equals out. After all, saving only delays consumption - it doesn't destory it.

- Bernard Yomtov: I think the word 'or' is always exclusive. That's why some people use 'and/or'.

Posted by: John Humphreys on May 13, 2003 10:56 PM

Some comments:

- Stupid error by Moore. Without bothering to read his article it seems to me more likely a mistake born of stupidity rather than an intentional lie.

- Jean-Philippe Stijns said that working people pay a higher proportion in consumption taxes. This is only true if, over a lifetime, income <> consumption. But if we say that inheretence is a gift (which it is), then consumption always equals income. And so consumption taxes are perfectly proportional. In fact... a flat, fully inclusive consumption tax is the only proportional tax. The comment by Jean-Philippe takes a static view of rich v poor people during their working years. A static view of rich v poor during retirement years would show that rich consumption exceeds their income considerably. In the end, it equals out. After all, saving only delays consumption - it doesn't destory it.

- Bernard Yomtov: I think the word 'or' is always exclusive. That's why some people use 'and/or'.

Posted by: John Humphreys on May 13, 2003 10:57 PM

Some comments:

- Stupid error by Moore. Without bothering to read his article it seems to me more likely a mistake born of stupidity rather than an intentional lie.

- Jean-Philippe Stijns said that working people pay a higher proportion in consumption taxes. This is only true if, over a lifetime, income <> consumption. But if we say that inheretence is a gift (which it is), then consumption always equals income. And so consumption taxes are perfectly proportional. In fact... a flat, fully inclusive consumption tax is the only proportional tax. The comment by Jean-Philippe takes a static view of rich v poor people during their working years. A static view of rich v poor during retirement years would show that rich consumption exceeds their income considerably. In the end, it equals out. After all, saving only delays consumption - it doesn't destory it.

- Bernard Yomtov: I think the word 'or' is always exclusive. That's why some people use 'and/or'.

Posted by: John Humphreys on May 13, 2003 10:57 PM

Michael Axelrod, the answer is that your dividends are sheltered in your 401(K) retirement account.

Posted by: Bobby on May 13, 2003 11:14 PM

Brendan-

When you say "most of us don't even make enough to..." I think about numerous surveys that I've read in which participants had no idea what tax policy meant for them personally.

Examples include a Gallup poll in which a majority of young Americans thought that they would someday be 'rich' (defined as "making about $120,000 a year), and in which 8% of those older than 65 thought that they would someday be rich (I have my doubts).

Another survey (which, sadly, I cannot site) in which people overwhelmingly said that Estate Taxes should be cut. These same people overwhelmingly said that Estate Taxes should NOT be cut if they applied only to estates larger than $1,000,000. (Hee hee!)

When politicians debate over how much a given policy will reward people in the top 1% income bracket, I honestly don't think that Americans realize that that means "$375,000 a year."

How many times have we heard that most Americans were upset that Bush I and Clinton raised their taxes? (When, of course, most Americans did not see their taxes go up...)

There's a bunch Freepers over at www.freerepublic.com that are clamoring for a 20% flat-tax or are peaved that the dems are blocking 'their' tax cut.

So when you say: "This doesn't affect me." you're saying it because you are more astute than most.

Cheers!
Saam Barrager

Posted by: Saam Barrager on May 14, 2003 02:19 AM

Adding together percentage rates is a pretty common way to get an approximation of the correct answer - but Moore has clearly forgotten (or never knew..) that it only works because log(1+x)=x is a good approximation if x is small enough. 35% is way too high to be using this. If only people paid attention in maths lectures..

Posted by: Mark Adams on May 14, 2003 03:49 AM

Yep. It's true. (1 - 35%)*(1 - 38%) = 0.65 * 0.62 = 0.397 = (1 -60.3%).

Um, doesn't 0.65*0.62 = 0.403? Or am I going out of my mind?

Posted by: Kieran Healy on May 14, 2003 06:35 AM

Well, at least Brad didn't jump to the accusation of "lying" this time. This tax rate calculation mistake does seem to be quite an egregious error to make for someone claiming to have insights into tax policy.

Nevertheless, there is a more fundamental issue lurking behind the mere matter of correct arithmetic. It seems that most commentators here, implicitly or otherwise, endorse the notion that a given tax policy is "fair" just as long as it doesn't inconvenience the majority, no matter how burdensome it may be to those who might be forced to bear the brunt of its' "progressiveness." Why exactly should this be so?

Now, I already know all the standard arguments about wealth and marginal utility put forth by advocates of "progressive" taxation, so you can spare me the rehash. What I want to know is more fundamental - what is the ethical justification behind the advocacy of taxing the few heavily to benefit the many? How is this different from any other form of majoritarianism? Just because a policy is politically popular doesn't necessarily make it "ethical": "aryanization" of Jewish businesses was popular too, and those harmed were a small minority of the German population. (Which is not to say that advocates of "progressive" taxation are Nazis ...)

Posted by: Abiola Lapite on May 14, 2003 07:09 AM

Abiola:
What are the ethical considerations of living in a community and failing to provide basic needs for your neighbors?

What are the ethical considerations of permitting ever increasing concentration of wealth in the hands of a feudal few and driving the middle class into poverty over time?

What are the ethical considerations of taxing at a higher rate but leaving very well off people with more than enough to be extremely comfortable?

Posted by: Claudius on May 14, 2003 07:34 AM

Abiola:
What are the ethical considerations of living in a community and failing to provide basic needs for your neighbors?

What are the ethical considerations of permitting ever increasing concentration of wealth in the hands of a feudal few and driving the middle class into poverty over time?

What are the ethical considerations of taxing at a higher rate but leaving very well off people with more than enough to be extremely comfortable?

Posted by: Claudius on May 14, 2003 07:36 AM

It is this sort of stuff that sometimes makes me wish that Steve was on the other side. He often does more harm than good in promoting views we share. This is not the first time his sloppiness has undermined the credibility of conservative economics. I believe that this is why he is so often quoted in liberal publications.

Posted by: Bruce Bartlett on May 14, 2003 07:53 AM

Moore's calculation error is clearly indefensible. But I do have problems with the implications of Brad's message. 73% IS high. But in fact, it's a trifling 60%. Presumably, that IS NOT high. Huh?

maciej

Posted by: maciej on May 14, 2003 08:03 AM

I'm also sure that the calculation was a slip but it
also suggests a lack of effective intuition about numbers. This is not highly technical stuff.
I wonder also whether a surprisingly low result froma mistaken calculation would have sliped through hte author's fingers.

Posted by: Jack on May 14, 2003 08:11 AM

But since the effective corporate profits tax is effectively 15%, the effective 'double -taxation,' if the dividend tax is 38%, is 47.3%. It is of course it is an even less stark problem since dividends in 401(K) retirement accounts are tax sheltered.

(1-.15)(1-.38) = (.85)(.62) = .527 = (1-.473)

I'm wondering if Brad knows of a hypothetical effective tax rate on all profits that would have the same effect as the tax treatment on profits in effect now. Whatever it is it would be smaller than 47.3%, and undermine the growth argument even more.

Posted by: Bobby on May 14, 2003 08:16 AM

Abiola,

I'm going to put this really, really simply.

One life == One life.

The wealthy few have made the choice that people starving to death, or dying underneath bridges because of a lack of somewhere to live, is OK.

This is, simply, an active choice to allow evil to happen.

Now, we could fix this with nine millimeter headaches for some of the plutocrats, in order to encourage the others. OK, so in this case we would have had to whack a couple of those who decided that John Smith dying of starvation wasnt a big enough problem for them to get involved.

On the other hand, we could merely threaten this, perhaps even merely by implicatiin ("We condemn the terrorist techniques of those Kropotikinites and Blanquists") and once the plutocrats are paralysed with this threat of this very personal retaliation, we take power as Fabian Socialists, and then by use of progressive taxation, impose a welfare state, clean streets, a working health system and so on.

The latter is clearly much more of a moral action.

So thats what we do.


Ian Whitchurch


Feed The poor - Avoid 9mm headaches.

Posted by: Ian Whitchurch on May 14, 2003 08:26 AM

"The main point is taxing dividends is double taxation of corporate income."

Well, it flat out isn't a double tax, because corporations are economic and legal entities distinct from their shareholders.

Shareholders are not personally responsble for the debts and liabilities of a corporation, because the corporation is technically a seperate entity. That's the advantage of doing business as a corporation. The downside of doing business as a corporation is that payment of dividends to the shareholders becomes a seperate taxable event, again because the corporation is technically a seperate entity. The downside is the logical consequence of the advantage. There is no such thing as a free lunch, after all.

Posted by: rea on May 14, 2003 08:53 AM

"The main point is taxing dividends is double taxation of corporate income."

Well, it flat out isn't a double tax, because corporations are economic and legal entities distinct from their shareholders.

Shareholders are not personally responsble for the debts and liabilities of a corporation, because the corporation is technically a seperate entity. That's the advantage of doing business as a corporation. The downside of doing business as a corporation is that payment of dividends to the shareholders becomes a seperate taxable event, again because the corporation is technically a seperate entity. The downside is the logical consequence of the advantage. There is no such thing as a free lunch, after all.

Posted by: rea on May 14, 2003 08:54 AM

Maybe the solution is to quit reading the NRO and switch to reading economists that make better sense such as Dean Baker:

http://inthesetimes.com/comments.php?id=185_0_1_0_C

Posted by: bakho on May 14, 2003 08:57 AM

On the substantive issue: Assuming that I understand his Delphic utterances on this point, I agree with Oracle Greenspan: eliminating double taxation of dividents is desirable in terms of gains in efficiency, but it is not worth increasing the deficit to realize those gains.

On Michale Moore: Moore's error is so blatant that it seems likely to have been just a dumb, careless mistake. Certainly, if it represents intentional deception, it would imply that he has a very low opinion of the intelligence of his NR audience.

On the comments (which raise some startling issues of their own):

-- Alan: "Nothing will ever convince them that taxes are anything but wealth redistribution from them to others...." Isn't that, in effect, precisely what a progressive income tax represents? (See, e.g., Claudius' comments.)

-- Claudius: "What are the ethical considerations of permitting ever increasing concentration of wealth in the hands of a feudal few and driving the middle class into poverty over time?" Recognizing that Brad's recent (and interesting) posts on the possible evolution of feudalism may have influenced your terminology, in what sense do you realistically find those "feudal few" in modern America? And what evidence do you find that we are driving the middle class into poverty?

Three fiscal realities relevant to this dispute seem clear to me, as a non-economist. First, the real concern with the deficits has nothing to do with feudalism or extinguishing the middle class. The issue is the generational conflict that will emerge as a smaller, younger working population struggles to support the retirement of a larger, wealthier -- but still fundamentlaly middle class -- generation.

Second, we always must be sensitive to the strength of the public's urge for federal spending (whichever party controls Congress). Bush's strategy most likely is based in part on the recognition that if the money is in Congress' hands, it will be spent rather than used to pay down the national debt. That is a reality of modern American culture that no President can fully resist.

Third, while average people may hope, even expect, someday to become wealthy, that is not the primary reason for their support of tax cuts even though the majority of the benefits will go to wealthier taxpayers. Rather, that support reflects the visceral sense that tax cuts are in a very literal sense leaving money with the people who'd earned it. Nobody likes to have his own pocket picked, and there appears to be a majority left in the US who are reluctant to be overly aggressive in picking other peoples' pockets. How aggressively and for what purposes they will support pocket-picking are precisely the issues that the politicians are in the process of defining.

Russ Wood

Posted by: Russ Wood on May 14, 2003 09:08 AM

Russ, I followed you up to the third point. Polling data has consistently shown that the public does NOT support tax cuts, preferring instead, deficit reduction. This is why Bush is touring the country trying to sell us on tax cuts. Data from numerous polls can be found @:

http://nationaljournal.com/members/polltrack/2003/issues/03taxes.htm

Posted by: bakho on May 14, 2003 09:30 AM

To add to Rea's point about double taxation, the tax burden is reflected in the price of shares in a corporation. Buy a share in Exxon and you get it at a price that reflects the impact of corporate tax.

It's only "double" taxation if you start your own company but then you are getting something for your money as described by Rea.

On the other hand this is a tax on investment but it is the common good, not investors which is suffering so the argument left standing is not about victimisation of investors but a more neutral and wider one about economic infrastructure.

Posted by: Jack on May 14, 2003 09:45 AM

Bakho,

Like you, I read the polls (for whatever they're worth) as showing that, at present, the public prefers deficit reduction over tax cuts, although they'd really like both. I too would prefer deficit reduction over further tax cuts.

However, there remains cause for skepticism over whether deficit reduction or increased spending would actually occur. (A pox on both parties' houses on that score, but it's really the voters' fault.) I think that this skepticism greatly reduces the voters' willingness to push against tax cuts in practical terms, and is a big reason that so many like divided government.

I don't think that Bush's efforts to sell the tax cut are so much about his specific tax plan as they are about showing that he cares about creating jobs, which his father failed to do. Brad (among others) probably would respond that Bush's cuts are not well-designed to create jobs, and they may be correct. However, my sense is that long-term tax policies are more likely to have a significant effect than one-time or short-term policies, because people tend to save what they see as a windfall. Request: could someone refer me to a lay-friendly discussion of why various types of tax cuts are more or less stimulative?

Russ Wood

Posted by: Russ Wood on May 14, 2003 09:57 AM

"Rather, that support reflects the visceral sense that tax cuts are in a very literal sense leaving money with the people who'd earned it. "

I think the parable of the mining community vs. the fishing community hits closer to the mark than this.

Posted by: StrontiumDog on May 14, 2003 10:14 AM

Look guys. Find out just what tax rates corporations pay on profits, and you find it less less less than 35%.

Paul Krugman calculated the sum recently and I will look for it later.

Corporations are not over-taxed, nor are dividend collecting investors, and even if the math had been right, and conservative-radicals made a habit of fudging math, even if the math had been right the double tax on dividends aint what we are told by the Administration.

Posted by: anne on May 14, 2003 10:34 AM

Paul Krugman

- The slogan was simple enough: "No more double taxation." Corporations, it was said, pay taxes on their profits — so let's not tax the same income again, when it's paid out as dividends. But the slogan was simplistic. On one hand, in our loophole-ridden system many profitable corporations pay little or no profits tax (and the new plan, by the way, will still leave corporations eager to exploit every loophole they can). On the other hand, retirement accounts, which receive most of the dividends paid to middle-class investors, are already sheltered from taxes. -

Posted by: anne on May 14, 2003 10:47 AM

The notion that, to the degree it occurs in the United States, the use of the implicitly violent power of the state to obtain by force that which was originally obtained by voluntary agreement, is needed to prevent starvation, or provide "basic needs", is just as idiotic as Moore's mathematical errors. The vast majority of taxation occurs in this country in order to insure that materially comfortable and politically powerful faction A can can forcibly grab the money that politically less powerful faction B gained by mutual agreement, regardless of B's material position to A. All that matters is the raw exercise of power, which is how minimum wage employees end up with their wages transferred to a retiree with 40,000 year in pension income and a mortgage-free house, so as to allow the retiree ot play golf 3 times a week , or avoid having to pay for his gall bladder surgery. This is how a millionaire sugar beet farmer, with bi-partisan support, becomes a millionaire by producing sugar by means that no consumer would choose, if not for the state's diktats. Lower taxes are preferred to higher ones simply because such a large percentage of the state's actions are nothing more than democratic thuggery, and is better that the thugs receive less booty. True enough, deficits incurred to fund transfers like the ones outlined above are simply deferred thuggery, in that the taxes will have to be paid eventually, but given the choice of creating ever-more "entitlements" (medicare prescription plan, anyone?) with their always- vastly-underestimated costs, and lowering taxes, I will take the lower taxes. Of course, I would prefer that the meat cleaver be taken to payroll taxes, but I succumb to reality.

Posted by: Will Allen on May 14, 2003 11:19 AM

--Jean-Philippe Stijns said that working people pay a higher proportion in consumption taxes. This is only true if, over a lifetime, income <> consumption.--

Well, the fact is that people do make bequests and do receive inheritence. Most often, up to a generation, these are the same people.

--But if we say that inheretence is a gift (which it is), then consumption always equals income.--

The fact is that it's a gift that not everyone has the luck to benefit from or can afford to make.

--And so consumption taxes are perfectly proportional. In fact... a flat, fully inclusive consumption tax is the only proportional tax.--

Again, that's only true if lifetime income = lifetime consumption and you want to exonerate inherited lifetime income from taxation.

--The comment by Jean-Philippe takes a static view of rich v poor people during their working years. A static view of rich v poor during retirement years would show that rich consumption exceeds their income considerably. In the end, it equals out. After all, saving only delays consumption - it doesn't destory it.--

This only makes sense in an economy with overlaping generations of representative agents endowed with equal amounts of initial physical and human capital bequests.

That's why inheritence taxation is, behind the veil of ignorance, the best way to improve fairness in our societies. It precisely meets your concerns about not taxing savings made to fund retirement while making sure that anything beyond that does not, over the course of a single voter's lifetime, go untaxed by virtue of not being ultimately consumed. Consumption taxes can be a second best in a context where inheritance taxes are politically undiserable.

P.S. We could also discuss whether we really do want "proportional" taxes...

Posted by: Jean-Philippe Stijns on May 14, 2003 11:23 AM

"The wealthy few have made the choice that people starving to death, or dying underneath bridges because of a lack of somewhere to live, is OK.

This is, simply, an active choice to allow evil to happen."

This smells like utilitarianism to me. Here's an attempt at a reductio absurdium:

"The wealthy Jews have made the choice that aryan men, women and children should be starving to death, or dying underneath bridges because of a lack of somewhere to live, is OK."

Outrageous isn't it? But it really is the sort of argument that was being made. To whit:

"Ich habe aber auch keinen Zweifel darüber
gelassen, dass, wenn die Völker Europas wieder
nur als Aktienpakete dieser internationalen Geld-
und Finanzverschwörer angesehen werden, dann auch
jenes Volk mit zur Verantwortung gezogen werden
wird, das der eigentlich Schuldige an diesem mör-
derischen Ringen ist: Das Judentum!"

Again, "progressive" taxation is NOT mass murder, but when you justify mistreating a minority because (you think that) the majority stand to benefit, you legitimize this sort of reasoning.

As for the argument that a poor man's dollar means more to him than a rich man's, you'd have to be able to objectively compare their utility functions, wouldn't you? How do you know that Ebenezer Scrooge doesn't gain more pleasure from his farthing than Tiny Tim does? Doesn't Mr. Scrooge have as much right to happiness as anyone else? "One life == One life", after all ...

It seems that this is a question very few "liberals" (and I put that in sneer quotes for good reason) are either willing or able to respond to in a persuasive manner. At bottom, the sole justification seems to be "because we can get away with it politically." That is why so much emphasis is put on arguments that "the Bush tax cuts will mostly benefit X percent of the population," rather than on, say, restraining spending (an equally valid, and arguably better, policy choice.)

Posted by: Abiola Lapite on May 14, 2003 11:24 AM

Bruce Bartlett writes:
>
>It is this sort of stuff that sometimes makes me wish that
>Steve was on the other side. He often does more harm
>than good in promoting views we share. This is not the
>first time his sloppiness has undermined the credibility of
>conservative economics. I believe that this is why he is so
>often quoted in liberal publications.

Uh...is this really who it appears to be? Somehow, I suspect not.

Posted by: Jonathan King on May 14, 2003 11:46 AM

Note that his story *now* reads that it's a 60% tax... however, the rest of the story still makes assertions about a 70%+ tax...

Posted by: Unseelie on May 14, 2003 11:48 AM

What is more important, right to happiness or to life? Most people that die from hunger cannot earn more than one dollar per day, while others in their same state enjoy millions.

DSW

Posted by: Antoni Jaume on May 14, 2003 12:20 PM

--Consumption taxes can be a second best in a context where inheritance taxes are politically undiserable.--

I obviously meant dividend and corporate taxes, not consumption (i.e. sales) taxes. Sorry.

Posted by: Jean-Philippe Stijns on May 14, 2003 01:00 PM

Anne, I'll be interested in Krugman's calculation of corporate tax rates. Particularly if he actually comes up a tax rate based on economic income, not publicly reported earnings (which have about as much relationship to economic income as my cat has to an orange).

Posted by: wol on May 14, 2003 01:00 PM

--Consumption taxes can be a second best in a context where inheritance taxes are politically undiserable.--

I obviously meant dividend and corporate taxes, not consumption (i.e. sales) taxes. Sorry.

Posted by: Jean-Philippe Stijns on May 14, 2003 01:01 PM

Krugman says that the effective corporate profits tax is 15% on this Week debating Newt Gingrich

http://www.pkarchive.org/economy/ThisWeek010503.html

I would love to see a formal calculation . . .

Posted by: Bobby on May 14, 2003 01:28 PM

Bobby

I read the transcript and I think I know what he is trying to say, but his 15% sounds awfully low to me. Let's say that whatever proceeds you as a shareholder get is either low tax capital gains or better still deferred so its present value is near zero. Now you might say that's a stretch if you need capital income for current consumption and you'd be right, but let's go with this for the sake of argument. U.S. C corporations are taxed by the FEDs at 35% on their worldwide income but only when that income is brought home. So if fancy transfer pricing (the company better watch section 482 here) leaves profits in a very low tax jurisdiction, the corporation pays that low foreign taxes now and the difference only later when the money does come back to pay dividends. Tax accountants have this concept called the effective tax rate (which technically flunks Finance 101 but let's go with it as well). I have seen effective tax rates drop below 30% but not down to the teens. So where he gets this 15% - I'm not sure. Then again, the tax accountants have other tax/book differences they can play. It is a very odd tax code.

Posted by: Hal McClure on May 14, 2003 01:56 PM

Kieran - right, .65 * .62 = .403, making the eff. tax rate 59.7 rather than 60.3.

The point remains the same, but one should check his own math when commenting on someone else's inability to calculate.

Posted by: wallster on May 14, 2003 01:57 PM

Hal. I don't know anything about tax law. I've heard Krugman say the 15% figure often, and I trust him in general to be correct at least on economic questions. So I think he's not making a mistake and is doing it from a reliable source, but don't know what the source is.

Brad? Do you know?

Posted by: Bobby on May 14, 2003 02:26 PM

Moore might be stupid but at least he has a sense of shame. When I checked his article today, the 73% figure was corrected to 60% (but not to 59.7%).

Posted by: MurryMom on May 14, 2003 02:29 PM

From Stephen Moore's bio at Club for Growth:
http://www.clubforgrowth.org/stephen.php

Mr. Moore also serves on the economic board of advisors for Time magazine; and is a regular contributor to The Wall Street Journal, Human Events, and Reader's Digest. Mr. Moore has appeared on such television shows as CNN's Inside Politics, Crossfire and Moneyline, NBC's Nightly News, Fox Morning News, and The McLaughlin Group. The Associated Press recently wrote, "Moore has earned the wide respect of economists for his many forays into the entrails of taxation and budgetary matters."

Mr. Moore is a graduate of the University of Illinois and holds an MA in Economics from George Mason University.

Posted by: MikeL on May 14, 2003 02:32 PM

From Stephen Moore's bio at Club for Growth:
http://www.clubforgrowth.org/stephen.php

Mr. Moore also serves on the economic board of advisors for Time magazine; and is a regular contributor to The Wall Street Journal, Human Events, and Reader's Digest. Mr. Moore has appeared on such television shows as CNN's Inside Politics, Crossfire and Moneyline, NBC's Nightly News, Fox Morning News, and The McLaughlin Group. The Associated Press recently wrote, "Moore has earned the wide respect of economists for his many forays into the entrails of taxation and budgetary matters."

Mr. Moore is a graduate of the University of Illinois and holds an MA in Economics from George Mason University.

Posted by: MikeL on May 14, 2003 02:37 PM

"Stephen Moore is president of the Club for Growth. Would his master be Grover Norquist? Recently Moore was seen using his Club against GOP Senators Snowe and Voinovich."
Somebody please email this error to Snowe and Voinovich. Or Newsweek: this can piggyback on the "They're French" ads.

Posted by: John Isbell on May 14, 2003 02:46 PM

"What are the ethical considerations of living in a community and failing to provide basic needs for your neighbors?"

No true liberal is concerned with whether a person "provides for the basic needs of neighbors." A true liberal only cares whether a person is harming, or not harming, that person's neighbors.

Posted by: Mark Bahner on May 14, 2003 02:50 PM

I just emailed Brad's post to Snowe, Voinovich and Newsweek (and cited you, Brad). Maybe it can be some ammo in the tax cut debate.

Posted by: John Isbell on May 14, 2003 03:15 PM

Dr. DeLong writes, "My bet is that it isn't a game of deception: it's just that Moore is not good with numbers (or much of anything else). He will, however, say whatever is convenient for his political masters. That makes him valuable to them."

Heh, heh, heh! You're paranoia is showing, doc! ;-)

I very seriously doubt that Stephen Moore says "whatever is convenient for his political masters."

Though you might find this hard to imagine, I expect that Mr. Moore almost certainly thinks that his advice (large cuts in taxes and government size) will be good for the country.

Rather than Mr. Moore's employers dictating what Mr. Moore says, I think almost certainly that they simply hired him--and he APPLIED for employment with them--because they generally agree with one another.

Hard as it may be for you to believe, some people genuinely think that limited government is a good idea.

Best wishes,

Mark Bahner (One of those people...though I would start with cutting government spending, before cutting taxes)

P.S. Oh, I've been meaning to post my review of your review ;-) of "Things Are Getting Better All The Time." But to summarize: You listed 4 things. On 1 of 4, you agreed with Moore (and Simon). One another, you significantly overstated their "mistake." One the third, THEY were actually right (or at least they were simply quoting directly from a source...which they gave in the book). Only on the fourth (not adjusting millionaires' incomes for inflation), did they significantly goof. (And I think it WAS a goof...though it MIGHT have been deliberate.)

Posted by: Mark Bahner on May 14, 2003 03:29 PM

1. "Moore might be stupid but at least he has a sense of shame. When I checked his article today, the 73% figure was corrected to 60% (but not to 59.7%)."
Why on earth would this indicate his sense of shame? He did something extremely dumb, and now he's covering it up. I have trouble finding proof of shame in that. CYA, sure.
2. Not content with one comment comparing taxation to Nazism in a single thread, Abiola Lapite posts two.

Posted by: John Isbell on May 14, 2003 03:29 PM

Dr. DeLong writes, "My bet is that it isn't a game of deception: it's just that Moore is not good with numbers (or much of anything else). He will, however, say whatever is convenient for his political masters. That makes him valuable to them."

Heh, heh, heh! You're paranoia is showing, doc! ;-)

I very seriously doubt that Stephen Moore says "whatever is convenient for his political masters."

Though you might find this hard to imagine, I expect that Mr. Moore almost certainly thinks that his advice (large cuts in taxes and government size) will be good for the country.

Rather than Mr. Moore's employers dictating what Mr. Moore says, I think almost certainly that they simply hired him--and he APPLIED for employment with them--because they generally agree with one another.

Hard as it may be for you to believe, some people genuinely think that limited government is a good idea.

Best wishes,

Mark Bahner (One of those people...though I would start with cutting government spending, before cutting taxes)

P.S. Oh, I've been meaning to post my review of your review ;-) of "Things Are Getting Better All The Time." But to summarize: You listed 4 things. On 1 of 4, you agreed with Moore (and Simon). One another, you significantly overstated their "mistake." One the third, THEY were actually right (or at least they were simply quoting directly from a source...which they gave in the book). Only on the fourth (not adjusting millionaires' incomes for inflation), did they significantly goof. (And I think it WAS a goof...though it MIGHT have been deliberate.)

Posted by: Mark Bahner on May 14, 2003 03:37 PM

When someone goofs in the same direction every time, it's probably not a goof.

Posted by: Jason McCullough on May 14, 2003 03:40 PM

"Not content with one comment comparing taxation to Nazism in a single thread, Abiola Lapite posts two."

What a cheap shot; never mind that I explicitly stated that the two weren't nearly of the same gravity. Still, it does save you the trouble of explaining why majoritarianism is wrong in one context and right in another. Tell me, if you can - you can't, can you?

Posted by: Abiola Lapite on May 14, 2003 03:43 PM

Abiola, you and a number of other people on this board might save yourself some embarassment and everyone else a lot annoyance by simply avoiding comparisons with Hitler, Stalin, or Mao, regardless of how limited they are, or how cleverly phrased.

Just avoid them completely. All the time.

DeLong commented awhile back that his comments do not degenerate into flame wars. I did not respond at that time, but I can tell you the reason. The reason is that the liberals on this site, with the single exception of myself, do NOT respond in kind to the sneaky little accusations of totalitarianism that half a dozen conservatives here habitually throw out.

So for example: if you're talking about a vegetarian with a neatly trimmed mustache, just restrain yourself from making the completely-accurate Hitler comparison. And so on down the line.

Deal?

Posted by: zizka on May 14, 2003 04:03 PM

zizka, instead of making pointless and tiresome attributions of embarrassment, how about taking up Abiola's challenge of explaining why majoritarianism alone is in and of itself capable a legitimating the use of force?

Posted by: Will Allen on May 14, 2003 07:10 PM

Jean Philippe, you are in error when you assume that everyone is similar to you, in their desire to use force to increase "fairness", that most nebulous and vantage-point dependent of qualities, at the cost of decreasing liberty, which is a quality that is far more measurable by empirical means, and ultimately, is the quality that makes all moral action possible. A moral act must be freely chosen, for any behavior that stems from coercion is merely the residue of violence. Violence and coercion are human behaviors that cannot be erradicated, given the nature of this Vale of Tears, but if moral and virtuous behavior is to be maximized, however morality and virtue are defined, then violence and coercion must be minimized, even at the cost to what the majority deems "fair". Few things are as amusingly ironic, in a grim way, than the democratic statist who vociferously maintains that he is opposed to violence. At least the undemocratic statist doesn't lie to himself, and therefore others, regarding his dedication to violence.

Posted by: Will Allen on May 14, 2003 07:27 PM

Will, it's probably pointless talking to you at all, but I'm not going to drop it. As long as you and your set continue making insinuations of totalitarianism on this forum, I'll keep objecting. I really don't care how slyly you do it or what hedged rhetorical form you use. Just learn to make your points without dragging in Hitler, Pol Pot, Mao, Stalin, and the others, and I'll shut up. What problem do you have with that suggestion?

The civility of this site is entirely onesided, and consists of a lot of nice people patiently putting up with some others who aren't so nice.

Posted by: zizka on May 14, 2003 09:13 PM

Mark Bahner wrote, "No true liberal is concerned with whether a person 'provides for the basic needs of neighbors.' A true liberal only cares whether a person is harming, or not harming, that person's neighbors."

Typical fatuous libertarian rant. Usually, having a neighbor means you and the neighbor own property. Who defines and guarantees that very ownership? The State, which Bahner and his fellow libertarians love to rant against.

(Geolibertarians exempted from this attack.)

Cheers,

Posted by: Stephen J Fromm on May 14, 2003 09:39 PM

..."how about taking up Abiola's challenge of explaining why majoritarianism alone is in and of itself capable a legitimating the use of force?"..

Not having read Locke or Hobbes, I'll take a tentative stab. Isn't the very notion of property rights a majoritarian construct - it doesn't flow from a natural state. One monkey in the jungle only "owns" his banana pile in so far as he can prevent the other monkeys from stealing from it (And it doesn't matter if he obtained the pile by luck or skill). If the monkey is not strong enough or the disenfranchised are too numerous or hungry, then the industrious monkey bands together with his buddies, to form a mutual protection arrangement. Or the monkey community decides it's in their best interests to agree to some contractual standards, because they notice that a better result comes when effort retains some reward - incentives.
So property rights are a majoritarian construct, based on efficiency arguments. But they're not "natural"..they require a state.
Otherwise, we would all have hire personal police forces, who would battle it out, an inefficient outcome.
And this is politics, BTW, social groups using force against each other. But, the larger the scale the more efficient and "fair"...i.e. more transparent and consistently applied.
One could argue for progressive taxation by stating that the rich benefit disproportionately from the order conferred by the state - contract enforcement, police, army. Would you invest (stock market or your time at your job) without being reasonably sure you could get your money back? Where does your confidence come from - the threat of state force.
Also, the benefits of wealth are mostly social, how much good would a million dollars (or bananas) do you alone on a deserted island. Technology and the ability to use other people's lives (time) are the source of wealth. There's a team of people in China gluing your next pair of shoes together, right now.
I think there are some poor anarchists who would love to see a withering away of the state's confiscatory powers, and then it would be the libertarians who would be calling out for the jack-booted storm troopers to come bash a few heads, in their name.

That said, I have no idea what the tax rates should be, perhaps they are already too progressive, I really don't know.

Posted by: andrew b. on May 14, 2003 11:23 PM

Abiola cleverly confuses the issue of the moral grounds for redistribution with the right to do so.

It must be remembered, of course, that "majoritarianism" isn't really the grounds for redistribution. For one thing, that's not how our system works: we're not a direct democracy, but a representative democracy with a constitution.

For another, the justification in our system is a contractual matter: when you earn something under our government-supported and maintained system of capitalism, you do so with the implicit agreement that the government has the right to demand payment and use it as it wishes.

So we're not talking about a morality that takes just because it can. We're talking about payment for services rendered. The choice to redistribute is made in part on utilitarian grounds, but the right to do so is not in doubt.

Posted by: Jonathan on May 15, 2003 09:04 AM

Abiola, every time you drag Hitler in to make a thin analogy, your speech looks stupid and offensive. I'd certainly like it if you stopped, since it's unpleasant to read, and it would help your credibility. So I have two reasons to recommend it.

Posted by: John Isbell on May 15, 2003 02:11 PM

"Abiola, every time you drag Hitler in to make a thin analogy, your speech looks stupid and offensive. I'd certainly like it if you stopped, since it's unpleasant to read, and it would help your credibility. So I have two reasons to recommend it."

If you're easily offended, that's your cross to bear. There is a very legitimate reason behind the comparisons I made, and if you don't like the similarities, hey, they exist anyway. Saying "this hurts my feelings" is not a legitimate debating tactic, in my view, especially as I haven't actually called anyone a Nazi.

You cannot reasonably expect to stifle debate by resorting to such a getout, simply because you doubt your chances of winning the argument.

Posted by: Abiola Lapite on May 15, 2003 07:16 PM

At least Jonathan engages the point I'm trying to make:

"For another, the justification in our system is a contractual matter: when you earn something under our government-supported and maintained system of capitalism, you do so with the implicit agreement that the government has the right to demand payment and use it as it wishes."

My problem with this is that, in point of fact, there really isn't a sense in which one can consider the relationship between a citizen and a state a "contract", in as far as nobody chooses where to be born, and most of us aren't free to choose some other state under whose jurisdiction we would prefer to fall.

Posted by: Abiola Lapite on May 15, 2003 07:22 PM

Abiola, if you want people to engage your points instead of addressing the manner in which you say them, then learn to make them without dragging in Hitler, Stalin, Mao, Pol Pot, and the rest. And lost the chickenshit whining about "I didn't actually call anyone a Stalinist". I don't care how cute your expression is, that stuff doesn't fly. And it's not that you've hurt my feelings, it's that you've convinced me that you're far too jerkish.

The civility of this forum comes from the fact that most liberals, excluding me, are civil to a fault and give the likes of you, Will Allen, Thomsen, and a few others the benefit of the doubt.

Posted by: zizka on May 15, 2003 08:27 PM

Abiola, if you want people to engage your points instead of addressing the manner in which you say them, then learn to make them without dragging in Hitler, Stalin, Mao, Pol Pot, and the rest. And lost the chickenshit whining about "I didn't actually call anyone a Stalinist". I don't care how cute your expression is, that stuff doesn't fly. And it's not that you've hurt my feelings, it's that you've convinced me that you're far too jerkish.

The civility of this forum comes from the fact that most liberals, excluding me, are civil to a fault and give the likes of you, Will Allen, Thomsen, and a few others the benefit of the doubt.

Posted by: zizka on May 15, 2003 08:28 PM

Abiola,
There isn't anything stopping any citizen of this country from emigrating, save perhaps cash. Even that isn't really a factor; just start walking north or south.

Or are we to now start abbrogating contracts just because people are poor? Do you not have to pay for your food at Diamond Dave's because you couldn't afford Tavern on the Green?

Posted by: Jonathan on May 16, 2003 12:19 PM

Another way of looking at it: you still have to pay rent to your current landlord, despite the fact that you can't afford to move elsewhere. The viability of a contract really isn't dependent upon your resource-dictated options.

Posted by: Jonathan on May 16, 2003 12:31 PM

"Another way of looking at it: you still have to pay rent to your current landlord, despite the fact that you can't afford to move elsewhere. The viability of a contract really isn't dependent upon your resource-dictated options."

True, in as far as it goes, and I would be even more in agreement with you if we still lived in the world of (relatively) free immigration that prevailed befored World War I, but we don't. Any American wealthy enough to find the option of emigration conceivable will be aware that American tax laws go to great lengths to make that route unpalatable.

There is also this to consider: resource-restraints or no, I have to explicitly agree to my contract with the landlord beforehand, whereas with taxation, if we take voting as the closest approximation to signing a contract, what one votes for needn't be what one gets. It is hardly acceptable practice in contract law to bind the partners to one contract to the terms of another, totally different one instead, simply because one party finds the other contract more favourable.

Posted by: Abiola Lapite on May 16, 2003 02:04 PM

Look, you are making arguments without mentioning Hitler. See how easy that is. You are not frothing at the mouth. Welcome to the discussion.

Posted by: John Isbell on May 16, 2003 05:56 PM

You have to agree to your housing contract with you landlord, but that is hardly a requirement for a contract to be valid. Consider the example of paying for a meal at a restaraunt: no contract has been signed nor even entered into orally; rather, it's implied by the fact that you eat something. In fact, at some restaraunts you owe a charge simply by entering the premeses.

The terms of the implied contract we all agree to by living on US land, enjoying the benefits of citizenship, etc. include abiding by the laws of the land even if we don't specifically vote for them.

Posted by: Jonathan on May 18, 2003 12:33 AM
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