Making an Honest Conservative Argument for a Regressive Tax
In this post, I’m going to make the argument for a regressive income tax, and not just a regressive income tax, but one that is heavily regressive. I personally favor a progressive income tax, but I want to do this for two reasons…. the first is that it being political season, we’re seeing regressive taxes being proposed yet again. Sure, they come in the guise of “flat tax” or “fair tax”, but they’re regressive.
If you don’t believe a flat tax on the books is really regressive in practice, ask yourself these two questions: a) Who gets a greater percentage of her income from tax free munis – Paris Hilton or a maid who works at the Hilton? and b) Who is more likely to retain the services of a high powered tax services company which knows all the loopholes that can be used to shield income or inflate costs, and who is more likely to get a W-2 – Paris Hilton or a maid who works at the Hilton? As to a consumption tax like the flat tax, all you need is one question: who has to spend a greater percentage of his income just to keep body and soul together each and every year of his life – Steve Forbes or a janitor at the magazine that Forbes inherited?
The second reason I want to make an argument for a regressive tax – though I think it is not a good idea and is immoral to boot – is to show how its done. The conservatives who seem to get play in the media these days seem to specialize in making inane or dishonest arguments.
So here goes – my best shot at arguments for a regressive tax system:
1. Economic theory tells us that taxes distort people’s behavior – that is, the existence of the tax causes some people to behave differently than they otherwise would – which moves the economy away from the free market Invisible Hand equilibrium it would achieve in the absence of the tax. Thus, the best tax is one that has the least ability to distort people’s behavior. It is much easier for Paris Hilton or Steve Forbes to modify their economic behavior and change the way they receive income than it is for someone at the bottom of the totem pole. In fact, many of the changes that Paris Hilton or Steve Forbes will make will happen without their knowledge. If a quirk in the law results in one sort of investment vehicle being subject to lower tax rates, people who work for Paris Hilton or Steve Forbes will press the appropriate keys on their keyboards, and if necessary, sign paperwork to ensure that more of Paris Hilton’s income and more of Steve Forbes’ income comes from that vehicle. Paris Hilton and Steve Forbes might be informed of the bigger structural changes, but that’s about it. On the other hand, what is Hilton maid or the Forbes janitor going to do – stop going to work if their tax rates went up? How would they eat?
2. The income of a janitor at Forbes Magazine is more dependent on Steve Forbes than Steve Forbes’ income is dependent on the janitor. In fact, the income of of many janitors and clerks and secretaries at Forbes Magazine is more dependent on Steve Forbes than Steve Forbes’ income is dependent on them. Forbes can make very, very bad decisions and there go everyone’s pensions. He has control, directly or indirectly over the wage of each janitor. On the other hand, if several or many of the janitors and clerks and secretaries start doing a better or worse job, it probably won’t affect Steve Forbes all that much. Even if they manage to tank the company, he has assets in many different places. Since Steve Forbes is the key link in the chain, the tax system should favor him, not the rest of his employees.
I think those two arguments suffice for the regressive tax… now I’m going to kick it up a notch and argue that the tax should not only be regressive, but heavily regressive – that is, if the $20K a year is the dividing line between marginal rates of X% and Y% (where Y%
3. Taxes provide disincentives and are often used to purposely change people’s behavior. Think of the cigarette tax – it raises income, but many proponents hope that in the long run, there will be fewer smokers, and there is some evidence that this is, indeed, what is happening. Now, take a janitor at Forbes Magazine making $20K a year – tell him that if he puts in a few hours of over-time every week, not only he will make more money, but he’ll pay less in taxes on that extra income too. Will he take it? I think we can all agree the answer is yes. I have no idea what Steve Forbes makes, but let’s say you could tell him something similar – show up to an additional continental breakfast at a Forbes Cruise for Investors every year, and not only will you get the extra income from it, but you’ll pay a lower tax rate on that extra income. Will he do it? My guess is that it would take a lot of inducement. With all due respect to Mr. Forbes, its easier and more pleasant to show up for “some mingling time with like-minded friends and photo opportunities” than it is to scrub toilets and battle a cockroach infestation. And income – even after-tax income – is probably not what makes Forbes make a decision about whether to show up for more mingling time rather than less mingling time now. Which means that if we want to encourage Mr. Forbes to do more of what he does, more mingling with Pete du Pont and sharing his views about where the economy is going, its going to take a lot of inducement. That means a big, big break from the government.
Anyway, I can come up with a few more arguments. Its not difficult. FWIW, I don’t agree with any of them. Maybe I’ll write up a post pointing out why I don’t. But… these are, to the best of my ability, honest arguments for something that a lot of people really want to see happen. But they don’t have the decency to make the honest argument for it. And you can’t have a debate with a grifter.