Tag Archives: taxes

Tax and Regulate

A dislike of taxes and regulations are the hallmarks of those with a libertarian bent. These concepts are somehow subsumed in the socialism is bad, capitalism is good rubric. The problem is this is a gross oversimplification that fits well on a bumper sticker but is a terrible way to determine ones voting preferences.

Taxes come in several flavors: regressive sales taxes, property taxes, progressive income taxes, et al. Although you hear lots of complaints about taxes, few complain about the services they provide: National defense, police and fire protection, highways, schools, etc. Supreme Court Jurist Oliver Wendell Holmes, Jr famously said: “I like paying taxes, with them I buy civilization.”

Before you reject voting for or against taxes, consider how the tax is structured. Sales taxes lean most heavily on those least able to afford them, whereas progressive income taxes rely on those that need the services the most. Police protection is a little like insurance, the more you have to protect, the more you should pay for the protection.

In a similar vein, regulations are important tools for civilization. They protect us in ways that are impossible to do individually. Clean air and water, climate stability, highway safety, and food and drug safety are just a few.

Another oversimplification is the capitalism-socialism dichotomy. The two are complexly entangled. Generally, I would agree that capitalism is a noble ideal, Adam Smith’s invisible hand can guide a market – but not without oversight. Unfettered capitalism is really anarchy. A perfect example is the black market for heroin. A lot of money can be made, so what if people die from violence and the use of the drug itself?

A capitalist needs to recognize that there have to be constraints to trade that preserve societal goals. Laws and regulations are a necessary evil of capitalism, necessary to civilization. If we can democratically agree on those laws and regulations then capitalism is the bee’s knees.

A little more difficult discussion is the value of socialism. The strict definition for socialism is an economic policy where the means of production are owned collectively, where collectively can refer to the government or simply organized groups, from workers to shareholders. Ironically the hallmark of capitalism, the corporation, can be publicly owned and therefore constitute a socialist enterprise.

If you want to consider socialism where the government is the collective, look no further than police protection. Here the state employs the “workers.” Even here it doesn’t disallow capitalist alternatives such as mall cops and bouncers. Even at the federal level where national defense is involved, we have private contractors participating.

Closer to what folks may call socialism is government management of some aspects of society. Medicare and Social Security come to mind. These are wildly popular and effective entitlement programs – the recipients are entitled to benefits by way of previous payments into the system.

At or near the top of making America great is our public education system. We could do better by increased funding and more equitable distribution, but all in all we would be much worse off without it.

The long and short of it is that the arc of civilization is cooperation. As long as we democratically determine what kind of taxes pay for what kinds of regulations, we have civilization, and civilization is a good thing.

Dr. Bob Allen is Emeritus Professor of Chemistry, Arkansas Tech University.

Carbon and Taxes

There are a number of ways to raise money to pay for the various and sundry functions of government. Here in the United States we use many different taxes. At the local level, say county and city, the emphasis seems to be on real and personal property taxes and sales taxes. At the federal level income taxes predominate. There are many variations on these taxes such as luxury taxes, estate taxes, capital gains taxes and special exceptions, i.e, tax deductions, but a common theme runs through them all. In addition to raising money for the operation of the government, taxes are aimed a social policy.

Progressive income tax rates, dependent allowance for income taxes, sales tax exemptions for food and drugs, deductions for mortgage interest and child care to name just a few. The result of all this is a rather arcane web of taxes that keep certified public accounts and tax lawyers in the the tall cotton. It could be simpler, for example we could get rid of all deductions and exemptions.

Much of Europe uses a VAT or Value Added Tax. Basically this is a sales tax on the increased value of an item. Iron ore is minded to make steel, which is used to make pipe, which is used to lay an natural gas line. At each point the value of the product increases and that increased value is taxed. A similar tax has been proposed in the US called a “fair tax.” This is a 30 % tax on sales of goods and services. The rate is set to be revenue neutral, that is it would replace other taxes but neither increase or decrease net revenue.

The flaw with any tax is that it punishes some activity. Some are intentional such as sin taxes, those on the sale of tobacco and alcohol, but others aren’t meant to punish but do just the same. Income taxes punish income (work), sales taxes punish sales (business), and capital gains taxes punish savings.

We have to collect taxes and that collection inherently punishes some activity. An alternative promoted by environmentalists is a pollution tax. The tax rate could be calculated to be income neutral, and the tax rate of a polluting activity could be based on the importance of the pollutant. The most mature of these pollution taxes is called a carbon tax, actually a tax on Carbon Dioxide released on combustion of fossil fuels. Over ninety per cent of of fossil fuels go to the generation of energy (do work), the remainder being used for the manufacture of plastic bags and axle grease.

The carbon tax would embed an additional cost for heating your home, fueling your car (and the trucks and trains that move the goods across the country,) and keep the lights on in your home, as long as this work was done via fossil fuels.

An most important added value of this form of taxation is the favoring of clean energy production. Solar, wind, and geothermal processes do produce useful work but don’t pollute so wouldn’t be taxed. This would greatly stimulate the adoption of sustainable energy for our future.