RWCG


Money Is Additive, Speeds Are Not
August 21, 2011, 1:50 pm
Filed under: Uncategorized

Norman Geras doesn’t like the just-pay-more argument I and others have been using in response to the Billionaires’ Low-Tax Laments we’ve been treated to recently:

Unless I’m missing something, this is equivalent to saying that a person who favours lower speed limits on suburban roads should simply drive more slowly herself than the law currently allows. Of course Buffett can write a cheque to Uncle Sam. But that wouldn’t make his contribution a tax on the super-rich, which is the proposal under discussion.

Norm is indeed missing something because the purported benefits of taxation are additive, whereas the purported benefits of lower speed limits are not. That is: the only overt1, legitimate argument we are being given as to why taxes might even need to rise in the first place is that the government doesn’t have enough money; to the extent that the government not having enough money is a problem, it is a problem that would have to be solved precisely by getting some additional sum of money to the government; money is additive and fungible; and so however much money the government supposedly needs, every dollar towards that sum is, by hypothesis, helpful in a nonzero way. Nobody is (overtly) making the argument that taxes need to be raised merely for the sake of having a higher tax-incidence function at which we can gaze lovingly; they (including Buffet) are specifically linking their high-tax dreams to the supposed need for more revenue. In that sense – if that’s really the sincere argument – then it’s perfectly fair to point out that Buffet could just voluntarily fork over his own money toward that stated goal, and make at least a dent in it.

The benefits of lower speed limits are not like this. Speed limits, if they are beneficial at all2, are meant to be beneficial because they increase safety. But if everyone drives 50 on some road, and I drive 25, I have not necessarily helped to make that road safer at all (not even in some marginal, infinitesemal way). In fact, I may have made it more dangerous. You don’t and can’t aggregate speeds the way you can money, and the safety benefit of reducing speed limits doesn’t come from getting the sum-of-all-speeds past some safe threshold per se, not independently of the distribution of speeds. Part and parcel of the benefit of speed limits is not merely getting speeds down, but making them similar so that there are not large speed differentials between drivers (limiting speeds is also a crude method of limiting speed variances). Indeed, driving very slowly on a freeway on which everyone else drives 60+ mph is the precise opposite of safe.

Now, if a fast-driving, road-safety advocate were to take to the public to argue that, for safety, we need to reduce the sum-of-all-speeds, while continuing to drive fast herself, then ‘why don’t you just drive slower?’ would be an equally good retort as the one being leveled at Buffet, Damon et al. But nobody makes that argument because speed-safety is not like that. However, revenue-from-taxes is like that: that is, it is additive.

In both cases, of course, there is also the hypocrisy charge available. As Graybeard points out, the $7mm tax bill Buffet complains was too low for him to be paying was an amount he paid on a ‘taxable income’ of somewhere in the neighborhood of $40mm, when in reality his net worth increased by $3 billion dollars that same year, most of which he shielded from taxes. If you are not swayed by the pure hypocrisy of complaining about not being taxed enough while shielding most of your income from taxes, you might at least scratch your head as to why increasing tax rates is supposed to be a better mechanism of taking more of Warren Buffet’s money for government use than simply not letting him shield so much of his wealth increase from taxation according to the rate schedule already in existence. Similarly, it’s fair to wonder why, if Warren Buffet is as concerned about the government getting enough revenue via taxation as he claims to be, his focus was ‘increase taxes’ rather than ‘don’t let people like me shelter my wealth as easily’. Why he didn’t mention this option is a matter for speculation, but it is at least relevant to point out that sheltering 98+% of one’s wealth increase from taxation is something that would not even be mathematically available to the middle- or upper-middle-class people who would, I assert, be affected by the higher tax rates Buffet favors.

In that sense, I’m starting to wonder whether Buffet’s suggestion was, in likely practice and effect, even a suggestion to actually raise tax revenues collected from ‘the super-rich’ in the first place. I would certainly be curious to hear what Norm – who I should read more often – thinks?

1Of course, an all-too-common unstated, perhaps subconscious, reason people want higher taxes has nothing to do with getting the government more revenue per se, and everything to do with envy and leveling-out resented wealth differentials. But for the purpose of this discussion, I have to treat the pro-tax argument as sincere.

2This is not something I grant.

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[…] Something about Warren Buffett’s plaintive wail for higher taxes doesn’t quite ring true… As Graybeard points out, the $7mm tax bill Buffett complains was too low for him to be paying was an amount he paid on a “taxable income” of somewhere in the neighborhood of $40mm, when in reality his net worth increased by $3 billion that same year, most of which he shielded from taxes. If you are not swayed by the pure hypocrisy of complaining about not being taxed enough while shielding most of your income from taxes, you might at least scratch your head as to why increasing tax rates is supposed to be a better mechanism of taking more of Warren Buffett’s money for government use than simply not letting him shield so much of his wealth increase from taxation according to the rate schedule already in existence. Similarly, it’s fair to wonder why, if Warren Buffet is as concerned about the government getting enough revenue via taxation as he claims to be, his focus was “increase taxes” rather than “don’t let people like me shelter my wealth as easily”. Why he didn’t mention this option is a matter for speculation, but it is at least relevant to point out that sheltering 98+% of one’s wealth increase from taxation is something that would not even be mathematically available to the middle- or upper-middle-class people who would, I assert, be affected by the higher tax rates Buffett favors. […]

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