Pulitzer Prize Winner Stresses Ethical Taxation

Pulitzer Prize Winner Stresses Ethical Taxation. Pulitzer Prize Winner Stresses Ethical Taxation September 29th, 2008 · Events · Posted by Behnaz Abolmaali

The fundamental starting point for democratic government began with taxation, said David Cay Johnston, a Pulitzer Prize-winning author and former New York Times investigative journalist, during a speech to McCombs accounting students Sept. 24.

Johnston, who came to UT as part of the Lyceum Speaker Series, told students that the ideas about taxation and society that have prevailed since Ronald Reagan’s time favor a system in which money is systematically funneled from the poor to benefit the rich.

“People who think that taxes are a cost will do virtually anything to eliminate that cost,” Johnson said. “Taxes are not a cost. Taxes are a moral obligation.”

The ancient Athenians, he said, developed democracy by instilling a guiding moral principle in tax laws: that the greater the wealth one has built up, the greater their moral obligation to helping society continue.

As readers of this blog know, I am a great admirer of David Cay Johnston.  I generally think he is on the right track, and/but (shifting metaphors and transportation systems) think he has some blinders on.

In the quote in the preceding paragraph, I think he is bringing up a vitally important matter, but he hasn't followed it to its logical root, and is thereby missing perhaps the most vital aspect of the subject.

Yes, it is one's wealth that ought to be considered.  But primarily, it is a very specific kind of wealth: the sort of wealth that represents or puts a call on the labor of others.  Specifically, that which the classical economists called "land" -- as opposed to "capital" and "labor;" those are the three inputs to production, and all things fit into one of those categories.  They are mutually exclusive, and ought to be considered separately and treated differently. 

I'm not debating how the ancient Athenians did things; I'm arguing that there is an important qualification to be put on the notion "that the greater the wealth one has built up, the greater their moral obligation to helping society continue."  My point is that the individual who has developed a huge stock of inventory of something he has created ought not to be taxed on that inventory.  But at the same time, if he is occupying a choice bit of land, he ought to be compensating the community in proportion to the value of the land he claims as his own.  If he calls a piece of oil-producing land his own, he owes to the community royalties on that irreplaceable resource.  If he calls a piece of land with coal under it his own, he ought to be taxed annually on that holding.  His holding may be huge and individually constitute a monopoly, or small but disproportionate to his per capita share -- the point works the same way in either situation.

I would go so far as to say that his moral obligation to help society continue is limited to paying the economic rent on the land and other natural resources and community-created resources he claims for his own property  -- as long as he doesn't harm others or produce negative externalities -- e.g., contribute more than his share to pollution which goes beyond the environment's carrying capacity. (That last is awkwardly worded, for which I apologize, but it generally communicates what I'm trying to say.) 

I suggested to DCJ a few years ago that LAND VALUE TAXATION was something we should be relying on as our primary form of taxation, and should only utilize sales taxes and taxes on wages and other income -- reluctantly -- if it turned out that heavily taxing rent was insufficient to meet our revenue needs.   He responded that balance in taxation was an important value -- that it was better to tax everything a little, than to tax any one thing heavily and others lightly.  (I'm paraphrasing what I recall.) 

If you favor that argument, I encourage you to read Bill Batt's essay, "The Fallacy of the Three-Legged Stool Metaphor"  Bill writes,

Tax experts, especially at the state level, ply their trade by invoking one metaphor above all others: the three-legged stool.1  It rests on the claim that a sound and successful tax regime for any government needs to rely on a three tax bases: income, property and sales.  This is repeated so often that it passes today without much examination.

There seem to be three arguments for this:

1. that taxes should be drawn from as wide an array of sources as possible so as not to overburden any one base or sector.
2. that the spread of tax burdens over a number of bases will ensure greater stability and reliability.
3. that reliance upon a wider number of revenue streams minimizes the downside consequences which all taxes impose on the economy. ...

The power with which the three-legged stool analogy has underpinned tax policy is in fact rather disconcerting, because a close examination of its premises shows that they are very questionable.  These benchmark measures of a tax regime are scrutinized here in order to cast doubt on the claims so often made on their behalf.

Actually, even if you don't favor that argument, I encourage you to read the article, because it provides a good overview of a number of tax issues.

What do the wealthy owe to the community?  A fair rent on that which they exclude the rest of us from. That's plenty.  When we start collecting that, we'll be on our way to a society consistent with our most devotedly held ideals.