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Taxing Decisions

Aug 16, 2011 • 188 Views

According to The Atlantic’s Megan McArdle, all of us should know about the Fallacy of Chesterton’s Fence before we decide how we feel about taxes.

Picture a fence extending across a road. 2 people approach it. The first says, “I don’t see the use of this; let us clear it away.” A second person answers, “If you don’t see the use of it, I certainly won’t let you clear it away. Go away and think. Then, when you can come back and tell me that you do see the use of it, I may allow you to destroy it.” Chesterton’s point? Assuming that a reasonable person built the fence, we should know why before we decide we have a better reason for removing it.

This takes us to Warren Buffett. After reading his NY Times Op-Ed column, “Stop Coddling the Super-Rich,” the sound bite that sticks is “Warren Buffett should pay more taxes.” But McCardle logically tells us that instead of focusing on one very affluent individual, we should ask why he and other high earners benefit from the current tax code. Only then can we support retaining or revising it.

The Economic Lesson

McCardle lists the issues we should consider when debating tax rates.

  1. The tax code should not diminish economic growth.
  2. People earning more should pay a higher proportion of their income than those earning less.
  3. Tax incentives for desirable activities should be retained.
  4. Tax laws should affect everyone; they should not be directed at any individual.

She then asks, does this mean we should or should not retain charitable deductions? Home ownership mortgage deduction incentives? Encourage capital investment? If your answer is yes but you believe the affluent should pay more, then your position is potentially contradictory.

An Economic Question: Please add the following to Ms. McArdle’s list.

  1. Fair
  2. Raising sufficient revenue
  3. Administratively simple

Then, decide your priorities for a tax system:

 

 

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