So tell the truth: did you just click because of the title?
I knew it.
You’re contributing to the downfall of Western Civilization, you monster. Buzzfeed exists because of people like you.
Anyway, I am deliberately pretending to be a strawman of the anti-libertarian argument, hopefully as a way of showing how just shouting “BUT FREEDOM” over everything just doesn’t always work.
And today we’re talking about the social and taxation concerns I have with libertarianism, so it fits right in!
Let’s start with the social issues.
The libertarian argument here generally goes something like this:
The harder you work, and the smarter you work, the more money you’ll get. We shouldn’t begrudge those that get a lot of money, but instead praise them for all the good to society they must have contributed in order to provide so much satisfaction to so many customers.
Those who do not work as hard, or as smart, do not get as much money. Only if they work harder should they get more. If you get money without working harder or smarter, this is unfair, and is entitlement that results in eventual societal ruin.
Modern liberalism, unfortunately, has resulted in the opposite viewpoints. People with a lot of money are seen as greedy, hogging it all for themselves and stealing from those who work less hard. Unless they give away their ill-gotten gains, we should hate and fear them. This results in the “progressive” taxation system, which also eventually ruins society – it is both morally wrong and will result in economic catastrophe. Leaving a bigger slice of cake to the rich will result in them spending it, leaving extra wealth to “trickle down” to the poor.
Let’s take a look at this claim of government being the recourse of the moochers, and hard work/intelligence being the main factors in success.
Many libertarians claim that the wealthy earned their money by the sweat of their brow, and the poor are poor because they did not. The usual counterclaim to this is that the poor never stood a chance.
Luckily, this is something that can be solved by empirical data.
What we want to do is simply check to see whether children from rich families are more or less likely to end up rich than children from poor families.
By defining “rich” as “income in the top 5% in America”, and “poor” as “income in the bottom 5% in America”, we find that Richie Rich is about 20 times more likely to end up rich than … Poory-Poor? Poor Pauper?
In any event, that’s rather extreme. Let’s expand the boundaries a bit and make it upper class vs lower class, if only so that Marx’s ghost can stop yelling at me about how the proletariat will rise.
Defining “upper class” as “top 20%” and “lower class” as the reverse, we discover that a person born into the lower class has a 50/50 shot of making it out someday. Not bad odds, all things considered, if a little lower than the 80% that chance would expect.
Making it into the upper class, though?
Only a 3% chance.
Upper class children are 6 times more likely to end up in the upper class than the lower class; lower class children are 4 times more likely to end up in the lower class than the upper class.
Mathematically speaking – and I hate math, so I hope you all understand what a sacrifice this is – this can be called “intergenerational income mobility”, and it’s rated somewhere between .4 and .6.
In slightly more understandable terms, that means about half the difference in people’s wealth is explained solely by who their parents are.
(Please note that you may occasionally encounter a libertarian who shows you a study that claims that poor children are more likely to end up rich than rich children are. Claims of this sort mostly come from a rather discredited study which, to sum up, claimed that 32 year old young professionals making more than college students was a fact about social mobility. The study can be traced to a think tank called the “American Enterprise Institute”, and a more detailed rebuttal of the study is here.)
An argument may come that this needn’t be parents setting their kids up with healthy trust funds. It could be genes for hard work, or intelligence! It could be that rich parents just instill a better work ethic!
This all falls apart slightly when you look at studies that compare American socio-economic mobility with other developed countries. Of 11 developed countries in one of these studies, the USA came in 10th. The “intergenerational income elasticity” was rated at .47 (falling nicely between the previous number we’d have of “between .4 and .6”), while other countries had elasticity as low as .15 (Denmark), .16 (Australia), .17 (Norway), and .19 (Canada).
Government spending obviously plays a large part in this, since education has a major role in one’s social mobility. Poor children in America are much less likely to go to Harvard or Yale, whereas UToronto or McGill are much more of a possibility for poor Canadian children, where tuition is mostly government-subsidized.
Even if it is true, the argument may come, that rich children have an advantage, don’t all these studies show that it’s still possible for a poor child to become rich? So in the most important sense, if you are not rich, it is still mostly your fault.
99% of people born in Ecuador become Christians. 99% of people born in Saudi Arabia become Muslim. It follows, therefore, that any chance of a native-born Ecuadoran becoming Christian is 99%, and the same is true of Islam for a Saudi – with only a 1% chance of becoming Christian.
One could say, then, that it’s basically free entry into heaven for Ecaudorans, but people in Saudi Arabia can go to hell. Literally, as it were.
And it might be argued that this 1% means a great deal. That against all odds, a few will still choose Christianity.
But what does this kind of freedom mean, when external circumstances make 99% of people in Ecuador choose one way, and in Saudi Arabia the opposite way?
It is the mind, in the end, that chooses to accept or reject Christianity, to accept or reject Islam. Yet the world around shapes that mind before it does its accepting and rejecting. There is no contradiction in saying that it is up to free will what religion one chooses, and also saying that what one chooses is almost entirely determined by culture.
In the same way, every poor person may (by their hard work, intellect, and perseverance) become rich. Whether that poor person grasps the opportunities presented them is determined by that poor person’s personality.
And that personality is shaped by factors outside that person’s control.
If success comes from externals, it only seems fair to “pay it forward” and try to improve the externals that will influence the lives of others. This simple idea is a good deal of the justification for government aid to the poor.
You want a concrete example? Lead poisoning. Children with lead poisoning permanently lose 5 IQ points for every extra ten millionths of a gram per deciliter concentration of lead in their blood. People exposed to higher levels of blood lead as a child are 50% more likely to be arrested for criminal behavior as adults.
Self-control, intelligence, and attention lead to economic success. It is grossly unfair to blame people for not grabbing opportunities to rise above their background when their very background has ravaged the organ responsible for grabbing opportunities.
The significance of whether success is personally or environmentally determined is this:
It provides justification for engineering an environment in which more people can succeed, and for the redistribution of wealth.
Now, onwards to taxation!
“Isn’t taxation taking other people’s money by force, and isn’t that inherently evil?”
I promise I will address this once I get to the moral issues section.
I promise I will, at some point, get to the moral issues section.
Donating chocolate is a great way to get me to write faster, and yes, I know it’s bribery.
But let’s talk about the libertarian idea that the progressive tax system (i.e. taxing the rich more than the poor) is unfair.
The best explanation for this I’ve seen has to do with movie tickets and a concept called “marginal utility”.
Let’s say that different people are allotted a different number of movie tickets every year. Some get one or two, others get thousands.
One of the people with only two movie tickets would love to get an extra one. Perhaps she wants to see Star Wars, Avengers 3, and whatever monstrosity Michael Bay has just released. As it stands, she can only see two of the movies she’s super-hyped to see this year.
Someone with ten tickets would still enjoy an extra ticket, but would get less value from it. They can see all the movies they REALLY want to see this year, but the extra ticket would let them see one that they sort of are pretty excited for. Even if it won’t be one of their favorites.
A person with a hundred movie tickets wouldn’t care much about an extra ticket. You’re not likely to see a hundred movies in a year, and if you tried, you’d be scraping the bottom of the barrel in terms of things you could bear to sit through.
For a person with a thousand tickets, an extra ticket would be practically worthless.
Not entirely worthless, of course. You could always write memos on the back of it.
All movie tickets provide an equal service, then, but they are valued differently – and 50% of their holdings represents something different to different people. If you only have two tickets, you suddenly can’t watch the second-best film of the year. If you have a thousand, you can see all the year’s best films, and at worst have to buy a new scratchpad for your memos.
Money is like movie tickets. Your first hundred dollars determines whether you live or die. The next thousand determines whether you sleep under a roof or freeze on the streets. And by your hundred billionth, you’re just buying a slightly bigger golden tower.
Progressive taxation attempts equality not by lump sum, but by burden.
Now, here’s an argument I’ve sometimes heard that shows zero understanding of how the tax system works.
The progressive tax system is perverse and blatantly unfair! Imagine the tax rate on people making $100k or less is 25%, and if you make over that, the tax rate is 50%. You make $100k a year, and at the end of the year your boss gives you a bonus of $2. Now all of a sudden you’re taking home $50,001 instead of $75k! How is that fair?
Well, it isn’t. So it’s rather lucky that’s not how our tax system works! Your first $100k, no matter how much you earn, is taxed at, say, 25%. All that you make AFTER that is taxed at 50%. So if your boss gives you that $2 bonus, you would end up with $75,001.
Most libertarians don’t make this mistake, of course, and there are much better arguments against progressive taxation. I’ve just seen this one around, and thought I’d take care of it while passing.
“But taxes are so high it’s ridiculous!”
High by what standards?
“Historical ones! Big Government means people pay more taxes than ever!”
People on median income are paying some of the lowest effective tax rates they’ve paid in the last 50 years.
“I meant for the rich.”
“But the amount of tax revenue coming from the rich is at its highest level ever!”
This is true. The rich are getting richer and the poor are getting poorer. More money is in the hands of the rich, and so they pay more. Effective tax rates on the rich are still at historic US lows.
“I meant for corporations.”
Them too. Among the lowest effective tax rates in the past 50 years.
“I mean that if you raise taxes too much, people stop producing. That’s bad for the economy AND tax revenue!”
That’s called the Laffer curve, and it definitely exists. But studies show that the actual result is high elasticity of taxable income – which is to say, the more you raise taxes, the more loopholes people try to find, making revenue go down. However, what this means is that although raising taxes by 10% will not bring in 10% more, the overall revenue is still higher. Relevant studies include Saez, Slemrod, & Giertz and Gruber & Saez.
Trickle-down, you say?
Between 1969 and 2008, average income grew by $11,684. All of this growth went to the top 10%. Income for the bottom 90% declined. Trickle-down should be classified as an interesting economic theory that empirical data has disproven.
“But taxes are a racket! They just spend it all on foreigners and poor people.”
Foreign aid comprises around .6% of the budget. Food and housing for the poor is around 5%. The majority of taxes go to programs that benefit middle class Americans, such as Social Security and Medicare (and to programs that “benefit” middle class Americans, like the military).
And wait – what’s this? Have we finally come to the moral issues section?
2000 words is just right for an essay. Too much longer and things just get silly.
So stay strong! It’s coming this weekend! Who knows where we’re going after that! Who knows what we’ll talk about!
Adventure is out there, friends! Be on the lookout!