Monday, December 08, 2008

Treating CC's questions as a meme

CC has listed some questions that trouble her . Here's the quick version of my answers; I'd be happy to elaborate or debate if desired.

1. How do I justify loving art and goofing off and creature comforts in a world where so many are suffering and I could feed a kid in Africa for a year on what I spent on a painting on Saturday? There's an old story about a new-hire lumberjack, who impressed his boss with his tremendous production right from the start... but after a few days, his production started tapering off, so the boss asked him about it. "I don't understand," the kid said, "I'm working harder than ever, but just can't seem to get anywhere." The boss said, "Here's your problem- your ax is dull! Why haven't you sharpened it?" "I was falling behind- there wasn't time to sharpen it!" Your tools, your mind, and your spirit must all be sharp to be effective- if you let your spirit grow dull, you'll become part of the problem, rather than the solution. Joy is as vital as food to being human.

2. What’s the deal with my professor asking vague multiple choice questions but insisting that there’s one right answer when sometimes reasonable arguments could be made for up to three? Because to many people, only their solution is reasonable; to your professor, the other arguments, not being his, are by definition not reasonable.

3. What duties do I have to the rest of humanity? To my family in particular? Your first duties are to yourself and your family- it does humanity no good to be less than your best, because you can give the most when you have the most to give. It's like the instruction one gets in an airplane: if the oxygen masks fall, put your own on before trying to help anyone else!

4. Could you summarize the analytical framework that goes along with the federal taxation of a company’s loans to employees and shareholders, with specifics on what gets taxed when, and what gets capitalized when if the employee is working on a long-term capital project? I have only the vaguest idea of what you're talking about, so I'll generalize: corporate and company taxation is intellectually dishonest and counterproductive; the best answer would be to not tax them in the first place.

5. Is that old law school maxim “A’ students become judges and ‘B’ students work for ‘C’ students” thing really true? Because some of us are counting on it as our backup plan… I don't know about the law, but it's true in many other professions- and I can't suggest a better plan.

6. I am, at heart, quite an eccentric and moody person. But I have seen before how much being an eccentric and moody person that people don’t identify with and don’t understand gets in the way of having things I want and connecting with others. What’s the proper balance between living my life as I please and being someone that other people understand and root for? Just come up with interesting explanations for your eccentricities, whether they're true or not, and make it clear that they are not a reaction to the people around you. People love eccentrics, as long as they're amusingly weird and not confrontational. Many people have made entire careers as an eccentric.

7. So what’s the deal with corporate takeovers? In general and with specifics. Too open ended a question for me.

8. When I come across and idea or a philosophy I don’t get or don’t agree with, I have this little-kid-with-a-broken-alarm-clock need to take it apart, figure out how it works and see what the problem is. I do this by arguing or at least asking pointed questions. Some people think that’s fun and I can talk to those people for hours. But others tend to see me as stupid or a contrarian (or a racist, or a kneejerk liberal or an elitist or… or…) when I argue with ideas that they hold dear. Right now, my solution is to mostly move that nitpicky nature to the internet, but even there are there times when I should just shut it and let people think what they want without bugging them, and agree to disagree before I’ve gotten their argument down to the premises and pissed them off? I have this tendency and problem myself. I finally decided that people have the right to be wrong, and if they insist on exercising this right, I can't stop them. I judge when they've reached this point by the amount of venom used.

9. Is it actually moral for the government to use taxation to socially engineer as much as they do? To what degree should I accept the argument that what the government taxes, it controls? If I should accept, isn't progressive taxation with a deduction for the personal consumption costs of enough for food, shelter and preventative medical care and no other deductions at all the ideal? No, it is not moral to use taxation for social engineering- it's little different from using a gun when people don't have the money to buck the system. You should totally accept the argument that what the government taxes, it controls- indeed, control is sometimes the stated reason for the tax involved. (See social engineering) If the progressive tax you're speaking of is an income tax, then no, it isn't the ideal. Consumption taxes are superior in terms of fairness and economic growth.


fausto said...

I disagree on point 9. Taxation is necessary for a functioning government; social policy is a valid exercise of government power; and the progressive income tax is the fairest and most equitable possible tax.

I agree in part on point 4. There should not be double taxation of the same income at both the corporate and personal levels. There's nothing inherently wrong with taxing corporations rather than individuals, though, if the income is generated at the corporate rather than personal level. I think either the entire corporate income should be imputed to the ultimate equity holders and taxed at the personal level, or else should be taxed at the corporate level with dividend distributions being tax-free at the personal level. Taxing it all once at the corporate level places the consequences of taxation in the same hands as the economic decision-making, and avoids market distortions arising from differential tax treatment of differing shareholders (for example, charities versus individuals).

Joel Monka said...

Agreed that taxation is necessary, and that social policy is a valid government function. However, to use taxes for that social policy creates a system whereby only those who cannot afford to pay the tax must obey the policy. If, for example, it was deemed that the private ownership of cats was socially undesireable, then a law to that effect should be passed. If you instead levied a tax on cat ownership, then the rich could keep their cats and the poor could not- patently unfair.

Progressive income taxes are not more fair than consumption taxes. Suppose I inherit a billion dollars and never work another day in my life. Suppose I don't invest the money; just put it in a checking account. I would then pay no taxes- I have no income. But if we used a consumption tax, I would then pay taxes on all the toys I purchase. To me, something like the Fair Tax makes more sense.

If one MUST have an income tax, I agree with you about point 4- legal fictions do not pay taxes; people do. "Corporate profits" are really shareholder profits; they should pay the taxes personally. The reason why I disagree with business taxes is that they are dishonest- the company's money comes from the customer, so by taxing the company you are in reality taxing the customer anyway. Business taxes are nothing but an attempt to hide a tax increase from the citizens who are really paying it.

ogre said...

Persons pay taxes. Until that day (may it be soon) when corporations are no longer treated as if they had--and had a right to--the rights of real persons, I can't see how they can claim not to owe taxes.

If I earn money, and give a bunch of it to Joel--not as a gift, but because he has some claim, say a loan...--then it's taxable to me, and what Joel gets is also taxable. Why is a corporation going to be treated differently? It's NOT "just" property. It's not "just" a tool that's making money. (Yes, I'm aware that that is precisely what it is....) As far as the law is concerned, it's a person for most purposes.

As such it gets to pay taxes on them. And should. That it owes some or much of its earnings to others is not relevant. Doesn't matter if I have debts to others. I don't get to claim untaxable status. Shareholders get to be utterly without responsibility for the criminal acts and debts of the company they own. But they get the profits. That the profits are taxable before they get to the shareholders isn't unfair. It's simply the way things are legitimately arranged. Corporations get lavish legal advantages and protections--and pay a price for them. Please, cry me a river about how unfairly they're treated. Bail me out?

Joel, you're going to have to define what you mean when you say "fair." I think that you're using the word to mean "equal." That distorted use was driven from my young mind when my brother and I complained to my father about some perceived unfairness at Xmas... where our sister got some doll that was (to our minds) expensive. He informed us that if we wanted EQUAL, we could have dolls too.

You want equal taxation? Then I'll insist on a range of other social equalizations that I think you'll consider shocking and horrifying. It'd only be fair that we be paid equally if we're to be taxed "fairly."

Joel Monka said...

No, I don't mean "equal". I repeat: only people owe taxes. It is a social covenant negotiated by and agreed to by people. Calling a legal fiction a person doesn't make it one.

To a business- be it GM, or the corner newstand- taxes are a cost of doing business, like rent, utilities, payroll, etc. These costs are added to the price of the product or service. The customers pays these costs when they buy the product. If any of these costs increase, the price of the product increases proportionately.

When you tax a business, the customer pays. When you increase the taxes, the customer pays. When you claim to be making those evil corporations pay their fair share, you're really just increasing the price of their products, because the customer ALWAYS pays. That's where the business' money COMES from- the customer.

So when you talk about "taxing the corporate profits before shareholder division", you're talking about raising the price of the product. Period. Not being "fair"... YOU AND I pay those "corporate" taxes when we buy the products. "Corporate" taxes are the government creating inflation to raise money while trying to claim they're not raising OUR taxes.

Thus all business taxes are nothing more than a mechanism politicians use to raise our taxes while avoiding unpopularity for doing so. Indeed, they often become MORE popular for "making those evil corporations pay their fair share". Did you know that the average embedded tax on all products is 23%? When you pay a dollar that the store, you've just paid $0.23 in taxes... but that's OK, because those are just "corporate" taxes, not OUR taxes.

ogre said...

No, I don't mean "equal". I repeat: only people owe taxes.

That's an assertion... which the law doesn't seem to support.

And then there are estate taxes. The ownership of the estate is a dead person--a non-person, rather by definition. You can argue that this is a tax on the inheritor, but I don't think that the law's set up that way; the taxes aren't based on or related to the wealth or income of the inheritor, but rather on the value of the estate, the possession of the deceased.

It is a social covenant negotiated by and agreed to by people.

And... it's an agreement that corporations pay taxes--and are permitted to exist. Where's the unfair?

Calling a legal fiction a person doesn't make it one.

True. So true. But within the world of the law, irrelevant. Ask CC.

When you tax a business, the customer pays. When you increase the taxes, the customer pays.

Depends. You may well be correct--or you may not. There are plenty of examples of product prices not being increased, despite an increase in costs, for market reasons, such as to keep market share, or because of the perception that increasing the price will drive down purchases. In that case, the tax will--sometimes--rest on the profit, and have no impact on the price paid by the purchaser.

If the state adds a tax to something, say to cigarettes, and the corporation jacks the price up by the full amount, purchasers may buy the same, or less, or none of it. If it's the same... then your argument stands; the burden falls entirely on the purchaser. If it's less... well... the/a burden falls on the purchaser, but it may be the same, or less or more. It'll depend. If it's none... then no, it doesn't. And the social engineering purpose of getting people to quit, with concomitant effects and costs (savings) for the individual and the society have been achieved--admittedly at some cost of the value of the tobacco company's stock (probably).

But if the tobacco company adjusts prices so that the effect is that the whole tax cost isn't just handed over to the purchaser--perhaps to avoid having him or her quit smoking, or move to another brand--then the assertion that it's just picking the consumer's pocket isn't correct. Both the corporation and the purchaser are sharing the burden and it's NOT all being passed along.

Corporations are a legally very powerful tool. And like most tools can be used for terrible purposes. Because of the way it's defined in law--with its foremost goal being to increase shareholder value--it's dangerously bereft of any moral character... and actually strains against any ethical constraints its execs may have. That's WHY they were leashed in law originally (and for a time even "put down") and ought to be re-leashed. They're not evil, but easily go there.

But that's another topic.

Joel Monka said...

"That's an assertion... which the law doesn't seem to support."

Sure it does. If taxes aren't paid, who goes to jail- a person, or a copy of the corporate charter? The same with the death taxes- they aren't going to dig up uncle Charley and put his moldering corpse in jail for non-payment. The "entity" that will be staring down the barrel of a gun if the tax is not paid is the one upon whom the tax is levied.

As to the example of cigarette taxes going up, I can sumarize it and any similar such cases thusly: you have income coming in, you have expenses going out. If expenses- which includes taxes- go up, and you want to stay in business, you must either increase your income or cut your other expenses. If we don't raise prices, we must cut some expense other than the tax (which isn't optional). We could stop paying dividends, which hurts the stockholders (mostly, nowadays, retirement funds) and ruins our bond rating; we could cut payroll, by wage or hiring freezes or even layoffs; we could cut corners in quality and service; we could move the whole company outside of the taxing jurisdiction. So while you could create a scenario in which the customer doesn't pay the tax increase, at least directly, the consequences would be worse in the short run. In the long run, the board of directors would fire you and hire someone who WOULD just pass it along to the customer and restore the company's standing.

Anonymous said...

The customers pays these costs when they buy the product. If any of these costs increase, the price of the product increases proportionately.

This is not true. The price of a product is determined by "what the market will bear." If taxes increase and people won't pay more for the product, income goes down. If it goes down far enough, the company goes out of business. It's the business's business to increase what the consumer will pay.
It's fairer to tax the corporations, except for necessities like food, because if a person can't afford it, they don't get it.
The reason sales tax is added on top of the stated price is so the consumer won't blame that part of the cost on the provider. It works.

Joel Monka said...

Kim, you're quite right that there's a limit to what the market will bear. If a new tax takes a product beyond that limit, the company will either go out of business or stop making that product. But- few products are near that limit, and the limit is not a fixed number, but dependent on many things.

Say a corporate tax increase raises the price of a $2.00 bag of cookies to $2.15. Few people will stop buying cookies because of that $0.15- and if enough people do quit to affect total profits, they'll just increase the price another penny (or whatever is needed) to restore the balance. End result: the customer pays an extra $0.16, and the company does a little less business- meaning no raises, no new hires, no expansions. Which of these is the good thing?

Consumption taxes are fair because poor people consume little and so pay few taxes, while the rich consume much and would therefore pay more taxes.