11.30.2012

Saying No to Surprise One-Off Taxes

I am a little behind on this story (readers would likely be shocked to see how many pre-publish drafts of stories I am working on at any give time). However, while I am behind the original story of British Deputy Prime Minister Nick Clegg's proposal for a one-off tax on the wealthy time-wise, I can still use it to discuss why I am against one-off taxes in principle. From CNBC:

"Deputy Prime Minster Nick Clegg, leader of the Liberal-Democrat Party, has proposed a one-time tax on the wealth (rather than the incomes) of high-net-worth Britons. The details aren’t clear, but Clegg says the country is facing an economic war caused by a prolonged recession, and needs to tax the rich in order to avoid social unrest.
 
He told the Guardian that unless the country “hardwired fairness” into the budget, “I don't think the process will be either socially or politically sustainable or acceptable."
 
Britain has already hiked taxes on the rich to 50 percent but amid a weak economy and reports of wealth flight, the tax was ratcheted down in April to 45 percent."
 
Regular readers will know that I am, on the balance, opposed to taxes. Beyond any snap judgements and personal aversions however, I understand that they are the price of a civilized society. And as represented by the many nations with various forms of progressivity structures in place, most seem to coalesce, albeit loosely, around the idea that such a price should be borne by more heavily by those who have benefitted most from that civility.
 
While that isn't unfair, it is, however, unfair for that burden to be a surprise. While there are likely many wealthy in Britain who would accept such a tax for the good of the nation, it is also true that even the most beneficent could do with a head's up and some time to plan (like is often done in the case of estate taxes). 
 
Some readers might be thinking something along the lines of 'tough cookies' at this point. Many would like to see higher estate taxes, higher income taxes, taxes on dividends rise, no more carried interest for hedgies, etc. etc. etc. All fair points which could be defended without too much in the way of intellectual olympics. However, for anyone on that side of the argument, for those who would argue that the one-off tax would be fair from that angle, there is also the practical matter that the burden of a one-off tax on the society those wealthy live in is potentially a heavy one as well.  
 
It is important to consider just what a one-off tax on wealth would be. This wouldn't be a rise in the income tax. It wouldn't be a tax on dividends. It would be a tax on wealth. While there are, I am sure, some in Britain with enough in the way of liquid assets to cover whatever Her Majesty's Treasury would come looking for, I am sure many more have their wealth tied up in homes and/or business ventures.
 
How, therefore, would the tax be paid? Would the wealthy sell shares in stock, impacting prices in their, but the average workers', portfolios? Would they have to sell businesses, or lay off employees? Would they just up and leave to avoid the tax, taking their outsized consumption to more friendly locales? While there are many who snigger at any mention of the words 'trickle' and 'down' with respect to economics, it is also true that actions have impacts, and it seems that one of the likely impacts of a one-off tax would be that those who depend on the wealthy in their community for work might cheer a bit less loudly for such a tax after they have lost their jobs.
 
In complete fairness, and as noted above, I dislike taxes. More than most who dislike them from a dollars and cents perspective, I dislike them from a conceptual perspective in many cases as well (having more to do with the inefficient use of resources rather than any inclination against the concept of helping out my fellow man). An old professor of mine might point out that, based on this predisposition, I am more inclined to read certain economic analyses around the idea of a one-off tax, almost despite any attempt to do otherwise. However, I do truly believe that surprise one-off taxes are a kind of unfairness in their own right, and one which could have an impact far beyond those who actually write the checks.

2 comments:

  1. You say you object to taxes as inefficient. I agree; I think anyone who's taken Economics 101 can agree that taxes on any transaction move the intersection of supply and demand away from peak efficiency.

    But if that's our concern, aren't _surprise_ taxes _more_ efficient. I may well not buy something because sales tax has raised the price, or not take a second job because my additional income would be taxed too dearly. But if I do not _know_ about the tax, then I cannot plan to avoid it. You object to this as unfair. But isn't it also more efficient? We achieve the same economic behavior as before the tax, and we have the tax revenues. If all taxes were surprises, no one could plan ahead to avoid them or weigh whether to incur them.

    In fact, ideally taxes would be largely random. No telling how much or whether you'll be taxed, so you might as well take that second job at the gun & butter factory.

    In light of that, do you think your opposition relies more upon efficiency, or your view that a one-off tax is fundamentally unfair?

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  2. Hi Anon. Thanks for taking the time to comment.

    There is a lot to tease out of your comments...where to start?

    First, I think there is one point that needs clarification-and the confusion around it is entirely my fault as I was unclear in the original post. That is that the inefficiency I am referring to with respect to taxes is the collection and allocation of tax dollars. In my opinion (this is, of course, debatable and oft debated) the US government hasn't shown that it has any ability to manage money (unless scheduling the printing presses to run 24 hours a day is 'management'.)

    Therefore, my aversion to taxation isn't based on inefficiency in the sense of moving transactions away from peak efficiency (though I often do address that on this page as well), but rather with the inefficiency of the US government in using those dollars.

    That aside, I suppose I have to agree with your assertion that surprise taxes are more effective (less time to plan for them, planned behaviors are unchanged). At least in the short term.
    Of course, once a taxing authority becomes known for surprises, those who would be surprised leave often respond by leaving that authority's jurisdiction, meaning that a source of revenue leaves the financial ecosystem in question. In the very short term, however, you are of course correct.

    Therefore, I suppose that my argument does rest on fairness, or maybe a lack thereof. And, to be clear, there can be fairness arguments made both with respect to the wealthy who would be taxed and the middle class who would end up bearing the burden of the wealthy who flee alike.

    As for the argument that all taxes being random would be the best way to handle taxation, I think if such a strategy were put into practice, it is likely that people would use their earnings from the gun factory job noted above to purchase the fruits of their labor; revolution would certainly be in the air.

    JS

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