Taxes, can't govern without them, can't govern because of them

Taxes, who should pay them and how much? And so many misconceptions and distortions abound in any assertions about them. I almost wrote "discussions" instead of "assertions", but few listen well enough to have any meaningful discussions about taxes. Legislatures have almost ground to a halt because of the rigid stances of those who say "taxes are too high" and of those who say "the rich should pay their fair share".

We have those who claim taxes are holding businesses back from investing. But why was there such much investment when taxes were a lot higher?

We have those who claim that taxes are job killers. But how is taxing at a lower rate the sale of stock on the open market a job killer? The companies whose stocks are sold see nothing of the money. The jobs involved in buying and selling of stock have already been killed, by computers!

Actually, a complicated tax system is a job creator. Many people depend on accountants and tax preparation companies like H&R Block to prepare their taxes. Of course, computers are killing those jobs thanks to TurboTax and other tax programs.

It is ironic that today's Tea Party is anti-tax. The Boston Tea Party was an action against a private corporation with a government monopoly. One of the rallying cries of the Revolutionary times was not "No new taxes" but "No taxation without representation".

On the other hand, we have those calling for all to "pay a fair share". Just what is this fair share besides just more? It is almost an unanswerable question. Fair in what sense? Fair because those who have more are able to pay more? Fair because those who have more depend more on the public infra-structure for their earnings?

Just how do you measure the effect of infra-structure on earnings?

Certainly we can say Zigi Wilf does need a stadium to get any money with a football team? He also needs roads or public transportation to get fans to the games. Do we determine his fair share on the profits he derives from this infra-structure? Or do we determine his fair share on how much he can afford to pay?

Many corporations (and CEOs) depend on educated skilled workers. Many corporations now do little unsubsidized in-house training. Is their fair share based on the profits they derive from employees educated at the employees' own or at public expense? Or is their fair share based on how much they can afford to pay?

Finally, it is ironic that the headquarters of Fortune 500 companies tend to be located more in "high-tax" states than in "low-tax" states. In other words, these companies have been grown based on the public investments made in these "high-tax" states. Besides, the CEOs prefer the quality of life offered in "high-tax" states. See "The fallacy of ranking states by 'tax burden'".

Comment on taxable income

I posted the following comment to "CommonWealth:Assets vs. Income" by Will Rice on the Facebook page of the Coffee Party. It and the comments are various positions about taxing interest and capital gains.

If John and Mary start a company and sell stock in it to you, you have made an investment. If later I buy that stock from you at more than you paid John and Mary, I'm not making an investment in John and Mary's company; I'm providing you with liquidity for your investment. John and Mary have gained nothing from my purchase of your stock. Well, not quite, the liquidity I have provided to you makes it easier for them to sell new stock if they need to expand.

If purchase of stock on the open market is truly an investment, then why are you taxed at the full rate on the whole amount that you withdraw from your IRA or 401k? You are not taxed on the sale price minus the cost basis as you would be if you had bought stock for a regular account.

In either case, we have not done much work for our gains, unless you count biting nails when the stock goes down as work. The people who have done the actual work are John, Mary, and their employees. They have sweated and worried as we watched on the sidelines. And for this, we tax them at a higher rate. That does not sound like an incentive to get people to work.

Worse, we expect them to pay for all the infra-structure that makes their company successful: education, streets and sewers, police and fire, courts, and many other public goods. Those who pay a smaller portion of their income for public goods are free riders; without public goods they would have much smaller incomes. If you don't think public goods matter, consider that more large corporations tend to have their headquarters in "high-tax" states than in "low-tax" states. The public goods in the "high-tax" states made the corporations possible and the CEOs like the quality of life in these states. See "The fallacy of ranking states by 'tax burden'".

Tax quote of the day

"And as a former resident of Florida (which has no income tax either) who moved back to Minnesota a few weeks ago, I've learned that one gets what one pays for."

- Letter to the Duluth News Tribune, 2011-07-24, Ralph R. Doty, man of many hats including Budgeteer columnist