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René Dupart

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Should there be different income tax rates in a country where opportunities are fully equal but incomes are highly unequal?

I know the assumption of equal opportunity is very unlikely to occur in real life, but I would appreciate your different thoughts on fair and unfair inequality. Especially since income inequality has become a topic of much debate in our time.

I'm particularly interested why you would think different taxes are fair in this hypothesized situation. Is it then equality of outcome you perceive as more fair? Or is there perhaps another explanation?

It appears to me that in politics, equality of opportunity is much spoken about, but that it is not used as an argument for progressive taxation, at least not in a manner where a link is established between the steepness of taxes and their view on the equality of opportunity. I tend to think of progressive taxation as a corrective measure for the perceived level of inequality of opportunity, but I'd be glad to hear different views on this topic.

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    Jan 16 2013: "But the issue of social immobility and poverty as raised by John is not really addressed by you."

    sure it was addressed. i explained that redistribution does not help mobility. it cripples the entire society, and creates a bad environment for everyone. meanwhile, rich people can still circumvent the unworkable state solutions, thus have better opportunities. many experts agree that role models are extremely important. successful people will always be better role models than unemployed, unmotivated, uneducated people. there is simply no way around that. unless you are willing to take away all children, and raise them in camps.

    setting the goal to give equal opportunity to everyone is an impossible goal. the state can not provide that. in fact the state can not provide any better than freedom can. the argument that freedom provides a less than satisfactory solution is not a good argument on the side of the state, as the state offers an even worse solution.

    in freedom, if you have merits, you are hard working, smart, creative etc, you have much better chance to find someone who sees a possibility in you. who is willing to put up some money upfront, so you can develop your talents. if you have good ideas, you will more likely to find investors in a capital-rich free capitalist environment. freedom is the way that maximizes the possibilities to advance.

    that is the maximum we can get. in a free environment, it takes 2-3 generations to get from the bottom to the top, if you have the attitude.
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    Jan 15 2013: how would a tax correct opportunity inequality? if i work hard, my neighbor does not, and i have more money at the end, i will pay more taxes, and thus finance him, even if the opportunities are the same.

    in reality, opportunity equality is a holy grail. you can chase it all day long, and never get any closer. not only that, but you can't even measure it in order to tell if you've got closer to it or not. the only thing we can really tell for sure is that variety and freedom increases it. the more ways one can advance, the more chance he will find one he can walk. suppose the only way to go ahead is through be a good soldier. should you be small, weak built, slow, have bad eyesight, you are screwed. but if being a scholar is also a possibility, you might find a glaring career.

    a faulty view is "smoothing" everything out. the notion for example that so called "free" schools would equalize opportunity is just totally wrong. free of course is not free, but paid for through taxes. more taxes he might pay, a rich guy still can afford a good private school. or simply just give a better model/background for the kid. public schools on the other hand will be crappy as hell, for the entire dynamic of the situation creates an incentive for schools to be expensive and totally indifferent about quality.
    • Jan 15 2013: Really appreciate your thoughts. You're right that the free choice to work more than other would have you end up paying more taxes than others in absolute terms. What I'm curious about is, would you perceive this as fair - holding on to the assumption that opportunities are equal?
      • Jan 15 2013: "You're right that the free choice to work more than other would have you end up paying more taxes than others in absolute terms."

        Yes, but in the end you'll still have more than the guy who didn't work hard, besides, chances are (most parents aren't particularly wealthy, hell not everyone has parents to begin with) you could only get that good job you have because the taxpayers helped you out at some point.
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        Jan 15 2013: not at all. i would even consider flat tax be unfair, since we receive the same service. if i order a pizza, it costs me exactly the same as my neighbor. they don't make me pay more just because i earn more. so by the same token, i want to pay the exact same amount in money terms for government services as everybody else. that would be fair.

        but no, that would still be not fair. the pizza company does not charge everyone by the same amount. they charge me only if i order a pizza. if i decide to make my own pizza, they might drop a little flyer in my mailbox, but otherwise leave me alone. that is fair.

        everything else is not fair. it might be practical, or necessary, but not at all fair.
        • Jan 15 2013: "not at all. i would even consider flat tax be unfair, since we receive the same service. if i order a pizza, it costs me exactly the same as my neighbor. they don't make me pay more just because i earn more. so by the same token, i want to pay the exact same amount in money terms for government services as everybody else. that would be fair."

          Except the rich get more pizza's from the government: when you own 5 houses you use up 5 times more police and fire department resources and foreign invaders are probably more interested in your superyach than in my bicycle, so national defense is primarily there to protect your assets. My bicycle doesn't require wide, thick roads, but the trucks of the companies you own do. You consume more fuel and hazardous materials so the government needs to clean up more. There are countless other examples.
        • Jan 15 2013: Okay, so to paraphrase you horizontal equity represents fairness. This sounds very intuitive. In your earlier post you state that variety and freedom increase equal opportunity. Would taxing everybody with a similar amount contribute to our level of freedom? Would it not limit our choices if we'd all had a fixed tax burden?
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        Jan 15 2013: taxes never increase freedom. tax itself is a limitation to freedom. instead of me, the legal owner, some government bureaucrat will decide what to do with the fruit of my efforts. how would that possibly increase freedom?
        • Jan 15 2013: A proportional tax (regardless its structure) would leave the option for a life without income tax, simply by not having income. Would this not provide a higher level of freedom than horizontal equity?
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        Jan 15 2013: well, in that sense, yes, but how irrelevant is that? if i want to avoid taxes, i need to starve to death? or beg for food? it is hardly a real opportunity.
        • Jan 15 2013: I know, most people would not prefer a self sustained life, I know I wouldn't. But if I add up 1) more freedom = more equality of opportunity and 2) a proportional tax provides a higher level of freedom, then a proportional tax regime prevails if we perceive equality of opportunity as a justice norm.

          Would you say rates should be flat in this instance or rather progressive or perhaps still regressive?

          Really interesting Krisztián, looking forward to hear your thoughts.
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        Jan 15 2013: "proportional tax provides a higher level of freedom"

        i didn't agree to that. my position is that lower taxes provide more freedom.

        i tell you what kind of tax system i would prefer, if the option of zero taxes are out of the question. my tax system would be this:

        tax = (total income) * (tax rate) - (small sum)

        the numbers should be tweaked so that (small sum) would be a bare minimum that allows some basic level of survival, like in a homeless shelter, eating bread and cooked maize, chicken wings and such things. tax rate should be no more than 25%. if the resulting tax is negative, the citizen receives this amount in cash. so the system also serves as a relief / unemployment benefit / aid / safety net.

        benefits: progressive at the low end, flat at the high end. marginal tax is the same everywhere. there is no need for complex calculations and tax sheets, simply deduce X% from every income, and transfer right away. at the end of the month you get the (small sum) of money transferred to your bank account.

        and i'm only at like half of the benefits.
    • Jan 15 2013: "how would a tax correct opportunity inequality?"

      Let's say we have two twin brothers: Bob and Steve. Both get a college education from their parents. After their education Bob works harder and gets more money because of it (that's hardly how things go in the real world, but we're assuming a perfect meritocracy here). Bob and Steve both have a son, Bob Jr. and Steve Jr. Steve doesn't have enought money to send Steve Jr. to college, Bob does have enough money to send Bob Jr. to college, so in essence Steve Jr. gets punished for the sins of his father. Then the state steps in and says "no, we can't allow this: Steve Jr. is not responsible for the actions of his father so we use tax money to allow him to go to college". Now the playing field is level again and taxes made that possible.

      "a faulty view is "smoothing" everything out. the notion for example that so called "free" schools would equalize opportunity is just totally wrong."

      They make one hell of a difference (the difference between a Dickensian story and the present situation where a person with poor parents, such as myself, can read, write, learn quantum mechanics and communicate with people from across the globe).
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        Jan 15 2013: "please don't pretend like you care if poor children"

        this is not the acceptable style. correct if before we can move on.
        • Jan 15 2013: Corrected, I went off the rails there, but it's a subject I am passionate about. Lives are destroyed when children don't get opportunities, simply because their parents are not as rich as those of other children. If I have to give up some of my material luxuries in the form of taxes to give others the opportunities I had then I'll gladly pay those taxes because I know what it's like to be on the other end of the deal. I will never claim (pretend) I pulled myself up by my own bootstraps without the help of others, even though it would be financially advantageous for me to claim that, because I still have to be able to look myself in the eye. I invite everyone who would accuse my younger self of having an entitlement mentality to live 9 years in a children's home and then see how big their mouth is. People like Rush Limbaugh get paid millions to call people like my younger self "lazy" and "entitled", but what has he ever done that's so great and valuable to humanity? He never worked a day with his hands and never earned a college degree. He went straight from his comfortable upper middle class parental home to talking in a microphone while sitting on his fat ass.

          I hope you can appreciate that.
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        Jan 15 2013: redistribution of money always have multiple effects, and no doubt, some are beneficiaries. but it takes some more analysis to find out who and to what extent. just look at what we have today. we don't need to immerse in some high philosophy. look at how it worked out so far. public schools rob everyone a decade of their lives, college consumes another half, and the result is atrocious. children can't think, and they can merely read and write. education costs us huge sums, while teachers are not that well paid at all. and overall, we pay half of our incomes to the state, and what do we get in return? police does not work. healthcare either somewhat works or does not work, depending on the country. we are surrounded by legislation that does not work, but tie our hands. our children do not learn how to mobilize creativity, effort and hard work to achieve goals. we raise a generation of sheep that only looks at the shepherd for remedy for any problems they have. the economy stops growing, capital starts deteriorating, human capital rots as never, we do evil things against each other in the name of sacred things, and the demand for tyranny is back on the table.

        do you want free schools if this is the price? what for? so they can learn the hymns to sing to our great leaders? so they can learn forged history? to learn useless "sciences"?
        • Jan 15 2013: "we pay half of our incomes to the state"

          That's not even true in Sweden...

          "police does not work. healthcare either somewhat works or does not work,

          look at how it worked out so far. public schools rob everyone a decade of their lives, college consumes another half, and the result is atrocious."

          Do you happen to live in Somalia? If not, go there and see for yourself how much of a difference even an imperfect system makes vs the law of the jungle. Most people wouldn't be alive if it wasn't for state provided modern medicine and wouldn't be able to read if it wasn't for state provided education.

          "to learn useless "sciences"?"

          Without which most of us wouldn't be alive. I find it striking that you can complain about sluggish economic growth and at the same time declare science useless. Without science economic growth would be exactly 0 forever.

          "our children do not learn how to mobilize creativity, effort and hard work to achieve goals"

          You sound like a priest. Besides, how many creativity would children learn in the coalmines or cornfields?

          Worst of all you decry all institutions except the institution of property. Why do you think it's unnatural for there to be environmental legislations protecting everyone while you accept without question that a man can own land (who gets to decide who gets what piece of land?) and that children must be punished or rewarded for the failures or successes of their parents.

          In your world a rich person would keep all the freedoms he has now and gain more, a poor person would lose ones like being able to go to sleep at peace, knowing they won't go bankrupt if they get in an accident tomorrow, the freedom to do things in spare time (80 hour workweeks are not necessary with a decent minimum wage) and gain "freedoms" along the line of "freedom to choose to drink from a polluted water source" and "freedom to quit and die in the gutter when your boss is abusing you". You define freedom way too selectively to take seriously.
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        Jan 15 2013: "That's not even true in Sweden..."

        US federal + local government spending: $6.3 trillion
        GDP: $15.811 trillion
        that is pretty close to half. it is not all from tax, you say? guess what, at the end, you pay for everything. you have been cheated.

        "Most people wouldn't be alive if it wasn't for state provided modern medicine"

        correction: most people wouldn't be alive if *nobody* provided medicine. do not compare the state service to zero. compare to what technology would allow today. just consider the number of new drugs that nobody can use, because the Great FDA said so. in my country, you can get state ultrasound diagnostics in a month. you can get private the same day.

        --'to learn useless "sciences"?-- "Without which most of us wouldn't be alive. "

        (NOTE: from this, i have to retype, because TED engine decided to cut the rest of my post, because i used less than signs. thanks TED)

        mind the quotes. i learned to solve logarithmic equations. also poems from the 1400's.

        "how many creativity would children learn in the coalmines or cornfields?"

        populism anyone? guess what, elimination of crappy jobs was done by private sector, not the government. the 1800's was the single greatest period as far as life conditions goes. the government was barely involved with the economy back then.

        "In your world a ..."

        your interpretation of freedom is ... a little different than most. maybe you confuse that with opportunity. however, the free market already has proven itself the best tool to improve opportunities. for the masses, that is.
        • Jan 16 2013: If I may Krisztián, you clearly have a libertarian view on this, which is fine of course. But the issue of social immobility and poverty as raised by John is not really addressed by you. Please let us know what your take on that is, how do you, with a free market ideology, look at the fact that people who are born with rich parents have a higher likelihood of success and less for ending up in poverty? You did acknowledge its existence in your earlier posts. Should we accept and neglect social immobility as part of life or would you think there is a suitable measure to correct this?

          Let's keep this a pure exchange of ideas on the topic please. Much appreciated.
  • Jan 15 2013: In a free market economy a flat tax won't collect enough revenue to ensure equal opportunity for everyone, at least that has never been the case in any real world country.

    There will always be jobs that the market pays higher rates for, but the number of these jobs will also be limited, in addition, even in a perfect meritocracy people will rise because of luck. So it's: "anyone can become rich", not "everyone can become rich". It's like running a marathon with 100 equally skilled runners: only 1 will win even though they are all of equal skill. I think in the end the confusion stems from an erroneous interpretation of statistics: if a group of people all throw a dice once the expectation values for the outcomes are the same for everyone but it's highly probable someone will throw a 6 while someone else throws a 1. Expectation values are the outcome of an infinite number of repeats: they aren't worth anything when the number of repeats is small. Therefore, since life is too short to have many careers, equal opportunities don't imply equality.
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      Jan 15 2013: your very first sentence is an oxymoron. in a free market economy, there is no tax. if there is tax, the economy can only be sorta free.
      • Jan 15 2013: Right, "sorta free" it is then, what I was trying to say is that very strict controls on income inequality would be needed to make a flat tax viable (otherwise you either crush the poor, or have very low revenue), the difference between such a society and a society that has a free market, except for taxes, is so large that the latter can be called a free market, even though it's technically not 100% free.

        @below

        I'm not sure a change in the progressiveness of taxes always needs to be backed up by a change in inequality, the progressiveness of taxes may not have been of the correct magnitude to begin with.
        • Jan 15 2013: Thanks John for your insights. Though it might seem like it, I'm not in favor of a flat tax. My point of view is that as long as there is -and in reality there will always be- inequality of opportunity, a corrective measure i.e. progressive tax is justified. But then it follows that a change in the progressiveness of taxes needs to be backed by arguments referring to changes in inequality of opportunity. Would you say this is a fair policy?