...

[stone]

Kevin W, charitable foundations such as the Wellcome Trust are growing exponentially. They are doing good work but they are growing exponentially.

[KevinW]

Sure, but I don't see the stomping-on-everyone-else part happening.  I guess I don't worry so much about benign things growing.  Or more accurately, worrying about benign things is a much lower priority than worrying about exponentially-growing things that have already proven themselves to be dangerous.

[Ad Orientem]

Is it too simple to state that inheritance taxes constitute double taxation and therefore should be eliminated or at least reduced? This wealth was taxed over a person's lifetime and should not be taxed a second time upon their death. Am I wrong?

I really don't like our tax system at all.  But I do operate on the premise that anytime money moves from person or entity 'A' to person or entity 'B' it should be taxed.  So I don't really buy the double taxation argument.  I think it would be easier and more fair to just tax it as ordinary income after a certain amount.

[Ad Orientem]

You might not realise how fortunate you are in the US.

UK death taxes start at around $500K amounts, above which you're taxed at something like 40%.

I only found out today that in the US you're allowed $5,000,000 tax exemption !!!

Clive, couldn't anyone with sufficient resources simply transfer their wealth to a US bank before their death?  Or, better yet, transfer the wealth to a country that has no inheritance tax at all.  Once the tax has been paid on that money and it is considered mine, as far as I can tell, the US or the UK can't stop us from expatriating it.

Worst case scenario: convert it to a briefcase full of gold and hand carry it to the Cayman islands.

I don't know what UK law is regarding the tax obligations of expatriates.  However, US citizens are subject to at least the Federal Income Tax irrespective of where they or their money resides or the source of their income.  Moving your money to the Cayman Islands or Switzerland makes no difference to the Feds.  You still have to pay US income tax.  As far as I am aware there is no way out of that obligation short of renouncing your citizenship.

[Reub]

"But I do operate on the premise that anytime money moves from person or entity 'A' to person or entity 'B' it should be taxed."

And just why should it be taxed? Just whose money is it anyway?

[Ad Orientem]

"But I do operate on the premise that anytime money moves from person or entity 'A' to person or entity 'B' it should be taxed."

And just why should it be taxed? Just whose money is it anyway?

Unless you are an anarchist I presume you accept that we need some form of government.  That requires money.  A straight tax on income strikes me as the most fair method of raising revenue.

[Reub]

I must have misunderstood. I thought that you said that ANYTIME money changes hands it should be taxed. Now you seem to be saying that unless one is an anarchist that taxes are necessary. Are these two statements the same thing?

Would it be fairer to say that SOMETIMES when money changes hands the MINIMUM required should be taxed by the government to meet only the NARROWEST of its needs?

[Ad Orientem]

I must have misunderstood. I thought that you said that ANYTIME money changes hands it should be taxed. Now you seem to be saying that unless one is an anarchist that taxes are necessary. Are these two statements the same thing?

Would it be fairer to say that SOMETIMES when money changes hands the MINIMUM required should be taxed by the government to meet only the NARROWEST of its needs?

I would say if you are getting money you did not previously have, that such is a reasonable definition for income.  And yes I do think that arguing against any form of taxation is tantamount to anarchism.  I think a straight income tax that has few exemptions and deductions is much more fair than a tax code that is so byzantine in its complexity that lawyers have to hire other lawyers to do their taxes.  In general I would agree with your assertion that one should not collect more taxes than is necessary for the minimum functions of the state.  But of course everyone has a different opinion about what those minimum functions are.

[stone]

Ad Orientem, historically income tax is a fairly novel concept. In previous centuries, the standard idea was that taxes were due for what you owned rather than on what transactions were made.  I think a lot of the economic mess we are in is down to taxes having shifted away from assets and to transactions. The benefits that come from having a functioning state could be thought to acrue in proportion to how much you own (Warren Buffet gains billions from having a functioning state). The affordability of the taxes also seems proportional to how much you own. By definition, if you own a lot, then you can aford the tax. I'd rather just have one tax and that tax being a flat % of the value of all assets of each citizen where-ever in the world they were held and in whatever form.

[MediumTex]

Wasn't the U.S. tax system orginally ONLY excise taxes on certain imports?

[Ad Orientem]

Wasn't the U.S. tax system orginally ONLY excise taxes on certain imports?

Yes it was.  But that was also in an age when the government didn't do ANYTHING beyond deliver the mail and maintain an army smaller than the New York City Police.

[Reub]

Ahhh, the good old days!

[MediumTex]

Wasn't the U.S. tax system orginally ONLY excise taxes on certain imports?

Yes it was.  But that was also in an age when the government didn't do ANYTHING beyond deliver the mail and maintain an army smaller than the New York City Police.

To be fair and not too nostalgic about the past, I'm sure that the state governments back then collected a significant amount of taxes in some form.

[stone]

Reub, I thought you wanted trillions of dollars of defense spending?

[Reub]

I want as much defense spending as can be accomplished within the confines of a lean, efficient government that is decidedly NOT a European, socialist style welfare state.

[stone]

Reub, I totally agree about how important it is for everyone to insist on a lean, efficient government. Our UK public sector has degenerated to the extent that there seem to be office blocks of staff who just have formal meetings about meetings, send each other emails and if they interact with the outside world it is just to make a seemingly aimless nuisance .

[Lone Wolf]

To be fair and not too nostalgic about the past, I'm sure that the state governments back then collected a significant amount of taxes in some form.

In "Why Government Doesn't Work", Harry Browne laid out the numbers on this.  Before the outbreak of World War I, federal, state, and local taxation combined consumed less than 10% of the national income (looks like about 7-8%.)  In 1997, Browne's data series had combined taxation consuming 48% of the national income.

This means that in 1915, people could spend more than 90% of their earnings as they wished.  80 years later, that was cut down to just over 50%.  It's no wonder that many people feel that they "need" an ever-expanding government to provide everything for them.  "Someone" made off with all their money!

This brings to mind one of Browne's great quotes: "Government is good at one thing: It knows how to break your legs, hand you a crutch, and say, 'See, if it weren't for the government, you wouldn't be able to walk.'"

[moda0306]

LW,

Even if I were  a staunch libertarian, I think I'd still respect the fact that government has to be very good/reliable at recognizing private property.  Take that away and capitalism turns into anarchy.  Recognizing private property in terms of patents, in my opinion, is full of extremely complicated (but necessary) value judgements.

Further, we may take it for granted now that much of the ownership of land is established, but the process through which a government initially issues deeds to property can probably define later on whether it's going to be feudal or much more equally prosperous in nature going forward.

Lastly, local governments have a ton of interactions with the private sector when they are crowded areas (any decent-sized city is a very tight mix of private and public sector pieces moving together).  Freeway and road design around the city is hugely important.  I'm sure all of us have seen what happens when poor planning goes into designing a possibly-crowded freeway interchange.  I actually thought one of my favorite career paths would be in "road design/engineering" if there is such a thing... I'm entranced by the efficiency, or lack thereof, that can be acheived through proper foresight.

I guess I'm just saying that there are things that even in a very libertarian society that government has to be very good at for said society to function, and the members of government that can do those aforementioned jobs well, instead of poorly, should receive a ton of respect, IMO.  I think being a patent law judge would be one of the toughest jobs out there if you were truly dedicated to properly recognizing intangible property.

[Storm]

Moda, you have some very good points.  Prior to 1915, government didn't provide nearly the same amount of roads and other infrastructure that we have become accustomed to.

You can have your 7-8% tax rate, but your country will probably look more like Afghanistan than the US.

[moda0306]

Storm,

While that may be an exaggeration, I agree that if you don't have gov't do the right things when they are called for, the private sector doesn't work well.  Private property isn't something that exists without government... just because it's legitimate doesn't mean it doesn't take a referee... it takes gov't to guarantee that the land you built a factory on will stay yours, and that the gov't will show up with guns if someone tries to claim the factory as their own while your name is on the title.  

If you like private property and contract law (sometimes quite complicated) being established and respected, or a functioning city atmosphere (I realize some people hate cities), hating gov't or thinking it's completely incompetent is a bit counter-intuitive.

I think a gov't is as good as the citizens' will to intelligently interact with it and demand accountability and a proper role.  An imaginary city full of engineers, business-owners, doctors, teachers and scientists will probably have VERY good government, fair judges, reliable contract/property laws, low congestion, beautiful parks, smart police and fire departments, flowing sewer and safe, tasty tap water.

[moda0306]

I'd also add that as populations become more crowded, it takes more government to efficiently negotiate the activity amongst all those people.  This is why big cities have much more complicated issues to deal with vs small towns.  So while taxes may be higher, the potential private-sector productive capacity is significantly increased through the proper layout of infrastructure in an area.  Skyscrapers will only be able to be properly filled up if you have different forms of public transportation in the mix, thoughtfully designed road ways & utility functions, and common areas that people can forget that they're in a concrete jungle (think central park).

This costs money, but vastly increases the capacity for the area to remain a desirable place to live for a lot of people and also remain amazingly productive.

This discusses city government, and states to some degree, but the idea that the federal gov't needs to be involved with these things is a stretch, and often the main area of consternation amongst libertarians.  Instead, though, the federal gov'ts largest expenditures are social insurance programs with a very small administrative cost and payroll... this involves quite a different conversation vs city management subjects.  Most of these programs are simply transfers of wealth... on purpose... between workers and retirees (even the vast majority of medicaid goes to the elderly).  I definitely think the taxes associated with these activities seem burdensome, and there are problems with administering these programs, but I hardly consider private-sector activities within these industries (financial services and health insurance) to be the epitome of honesty... I'd probably trust a representative at the SS office or medicare administration more than their private-sector counterparts, on average.

The federal gov't is also involved with various regulatory activities, but as a tax accountant I get the impression that it's the various state gov't regulation differences that make doing business the bigger nightmare, and in a more state-driven government system you'd see more, not less of that.  Looking at one area of regulation of the federal gov't is one thing... examining state-by-state regs is much more of a headache.

[Lone Wolf]

You can have your 7-8% tax rate, but your country will probably look more like Afghanistan than the US.

Yet if we look at actual history, the United States was able to remain both prosperous and strong during decade after decade of these tax rates.

Private property isn't something that exists without government... just because it's legitimate doesn't mean it doesn't take a referee...

Protection of life and property is the entire reason that governments were formed.

Was the United States ineffective in protecting private property before World War I?  What necessitated a six-fold increase in the rate at which we are taxed?  Bureaucrats are really this much better at deciding for a person how their earnings should be spent?

In other words, the growth in government has greatly outstripped our growth in income.  When viewed as a 100 year trend, does this strike you as sustainable?  Does it strike you as wise?  Does this trend strike you as something that leaves us more free?

An imaginary city full of engineers, business-owners, doctors, teachers and scientists will probably have VERY good government, fair judges, reliable contract/property laws, low congestion, beautiful parks, smart police and fire departments, flowing sewer and safe, tasty tap water.

This is a useful list because it illustrates how few of the public goods people really care about are actually provided by the ever-fattening federal government.

[stone]

If someone starts a job and they can see that everything could be made more simple and efficient and they implement that then they will put themselves and their coworkers out of work. If instead they come up with extra rules and forms and complexity and end up having a backlog and working late then they will be able to make a case for more staff. They will then be able to say that they have staff working under them and so have great responsibility and require a promotion. All the new staff will also be looking to better themselves by themselves -so they too invent extra rules and forms and complexity and get extra staff working under them and so on and so on .

[Lone Wolf]

If someone starts a job and they can see that everything could be made more simple and efficient and they implement that then they will put themselves and their coworkers out of work. If instead they come up with extra rules and forms and complexity and end up having a backlog and working late then they will be able to make a case for more staff. They will then be able to say that they have staff working under them and so have great responsibility and require a promotion. All the new staff will also be looking to better themselves by themselves -so they too invent extra rules and forms and complexity and get extra staff working under them and so on and so on .

A pattern repeated in many a dysfunctional organization throughout the world.    This is, I think, an indictment of undue complexity in general, whether in a government or a corporation.  (Or, IMO, in systems like software.)

What's nice is that every entity in a true free enterprise system is subject to the discipline of the market.  If they are too filled with cruft to survive as a viable business, the market clears them out.

There's no analogy to this process in government.  This is why you wake up one day and find that it's consuming 50% of the country's earnings.  By this time, the complexity has grown so great that people tend (understandably) to just shrug their shoulders when confronted with the question of how to address it.

[moda0306]

Private property isn't something that exists without government... just because it's legitimate doesn't mean it doesn't take a referee...

Protection of life and property is the entire reason that governments were formed.

Was the United States ineffective in protecting private property before World War I?  What necessitated a six-fold increase in the rate at which we are taxed?  Bureaucrats are really this much better at deciding for a person how their earnings should be spent?

In other words, the growth in government has greatly outstripped our growth in income.  When viewed as a 100 year trend, does this strike you as sustainable?  Does it strike you as wise?  Does this trend strike you as something that leaves us more free?

An imaginary city full of engineers, business-owners, doctors, teachers and scientists will probably have VERY good government, fair judges, reliable contract/property laws, low congestion, beautiful parks, smart police and fire departments, flowing sewer and safe, tasty tap water.

This is a useful list because it illustrates how few of the public goods people really care about are actually provided by the ever-fattening federal government.

The protection of life and property may be the reason gov't was formed, but it still can be at least examined to find out whether or not gov't is inherantly incompetent or not.  The fact is, if gov't is incompetent in the area of defending contracts and property and protecting our lives than not even capitalism truly works, because we need gov't to perform those functions for capitalism to function.  So on its face, government has to be at least somewhat competent, or at least has the capability of being that way.  I realize this conversation is about both the role of government (what it SHOULD do) and whether it's incompetent in general.  I respect the competence it takes to make government work "well," even by a libertarian's standards... especially some of the intricacies of local government in metropolitan areas.  

The federal gov'ts various roles, if judged by $' spent, outside of military and interstate regulation is basically a giant social insurance "company," which in its very nature isn't going to benefit the smartest in society that know how to save, are unlikely to lose their job, and can maybe even be a discerning customer of health insurance and health services (though I'd argue even the smartest people, when they need it most, are going to be completely inadequate "discerning consumers" of healthcare... therefore it helps to have at least a regulatory framework on the industry IMO).

It's these things that the gov't does that cost us a lot in tax $$'s.  It's really not all that difficult to sort through "all the new things the fed gov't does" if you use dollars spend as the guideline for the taxes that were needed to be collected and therefore what is really bloating the need for higher taxes.  This really could boil down to a discussion about social insurance, and whether most of us are better off for it, and maybe asking ourselves if these programs would be better administered by state governments if we have to have them.  

If the purpose of SS is to transfer income from workers to retirees based on what the retirees paid into the program for as little administrative cost as possible, it's hard to say it's anything other than very successful.  If the goal of medicare is to offer health insurance to retirees that contributed enough over the years more efficiently than the private sector, it appears, despite the rhetoric, that it's doing so.  Medicare's costs haven't risen as much as private insurance over the past decade.

People may not like these on a moral basis, or because they think they're creating the problems they're claiming to solve, but on a purely administrative basis they both seem to be less rife with near-fraudulent profiteering than the private-sector versions of both industries, and at least seem to serve the function they set out to serve.

stone,

Your post is definitely valid, but the federal government has a VERY small payroll relative to its total operating cost... and looking at administrative costs of medicare and SS, it's hard to claim that what you describe is going on, as the private sector provides those services (financial and health insurance) with much higher administrative costs.