The Absurdity of Income Tax

> When Professor Cost left his job at Wachtell, Lipton, he took what I estimate to be an 85% pay cut. What would motivate a man to do such a thing? From a government accountant’s point of view, Professor Cost has made a terrible mistake. Whereas before he had earned, say, $2,000,000 in income annually, now he was earning only $300,000 annually. Such irrationality! In a socially just world he would be punished for costing the government $700,000 in tax revenues per year.

What nonsense. The writer assumes that the final goal of the goverment is to increase revenue. That is how corporations work, not governments. The goal of government is to represent its citizens to try to achieve the society that citizens want. The goal is to maximize well-being (whatever is each person definition), not cash.

From there on, everything falls into this kind of missing the point arguments.

This article is looking for meaning in the tax system where there was never any to find. Whatever your philosophy, taxes are arbitrary. There is some broad consensus that we can't tax people who have no money. People act as though a lot of questions in the tax system have been settled but it takes very little thought to realise it is a stack of conventions with flimsy justifications and questionable incentives. Nobody with the power to change things seems to have a stack of evidence of why any particular configuration is expected to lead to better outcomes. If they do they really should talk about it more.

There are groups who believe that the tax system should encourage certain objectives. Which specific group has power keeps changing (a much deeper trend than mere political parties). The tax system is a jumble of competing ideas. Sometimes, if something is grossly unfair, the rules change. Other times they don't.

I see a couple of straw-mans in the reasoning. First is the claim that taxation assumes that working you get paid for nothing - "When I work hard to earn money, I’m not getting something for nothing. I’m getting something for my time and my time has value." - that is not at all the point, the IRS doesn't assume that. You get paid for your time AND your skills AND your willingness to exchange both for value, whatever value you choose to receive.

Which takes us to the barter part of the essay.

There is a major difference between paying someone to do your chores or doing them yourself. What's the difference? The value you are willing to exchange not to do the chores yourself, of course. Be it lack of skills, lack of time or valuing that time spent doing something else more than what you're giving in exchange.

In other words: the IRS recognizes that you own your own time and are free to do with what you want, but when you exchange it for something of value - money, services, goods - you will be taxed on that value.

Not entering the discussion on taxes: both the lawn mowing person and the house cleaning person recognize that there is more value in the other's time for a given task than their own time, if and how much that differential in value should be taxed it's a different conversation.

The truly wealthy are making much of their money passively, income tax isn't really something they think about. The government would need to increase the estate and capital gains taxes to actually balance/unburden things.

Regardless, I found the anecdotes entertaining.

It is kind of absurd, especially once you get into the messy bits around bartering and gifting. But then all sorts of elements of modern society are absurd when you look at them closely.

It seems that once you get into the world of macroeconomics, everything is absurd in some way or other. It's all just a great weird fiction that we all buy into because it keeps society running. Money itself is a weird social construct. GDP is completely mad.

What does the author suggest we do instead? Something that isn't as absurd?

Income tax is absurd - we should tax wealth not work.

By penalising those who work hard, it destroys social mobility and entrenches the establishment landowners and conservatism.

Income tax and VAT should be replaced with wealth tax, Land Value tax, property tax, inheritance tax, gift tax, etc. - i.e. tax the accumulation of wealth itself and use that to help level the playing field and promote economic activity (startups, technological disruption, etc.).

I think of it more as a hack than an absurdity. It's a defined point when a defined amount of cash is transferred from one place to another.

Ideal time to tax.

If you suggest something like a land value tax then people will worry about how you value something without a market price. It is in some senses abitrary what your land is worth (Not actually a problem in practice but makes the point why a hacky system might prevail in the real world).

See also, taxes on purchases, estate taxes etc.

Taxes are a "Goldilocks" problem, because they are a braking effect.

The correct amount stabilizes a system. Too much kills it; too little lets the system self-immolate.

I was actually thinking of an AskHN just ahead of seeing this item: "Why aren't all the Really Smart People in tech demanding serious tax reform?"

Its better than vat, which increases the price on everyone, without taking their income into consideration.

We should all be taxed like corporations - netting up income and expenses etc.

While societal control is maintained by pushing financial obligation to the masses, both debts and taxes represent the nuclear upgrade to capitalism that unilaterally enforces the system.

Debt grants its users a taste of what they can not yet afford, subsequently reinforcing the notion that work is equal to progress while also ensuring continuous participation within the larger financial system.

Taxes guarantee the debt-free still participate in commerce. One cannot simply be self-sufficient when property taxes are due annually.

Within this system, every citizen must participate in some form of commerce to meet those obligations. Neither goats nor gold can satisfy this bill; hard currency is required.

This construct does not benefit the majority, only those who hold power and seek to keep it. Neither currency nor commerce represent the underlying problem; they are merely instruments designed to thieve power from man.

He’s ignoring the important details by using “exchange labor for compensation” in an outdated fashion. Money begets money.

How else does one explain the concentration of wealth over time? Progressive income tax is needed to stabilize wealth from collapsing in on itself.

Taxes don’t really have to be fair or just. In German, the noun for „tax“ is the same as the verb for „steering“ even!

In Order for our societies to work in practice, taxes are needed. What to tax and by how much is up to political debate…

But there is evidence that high taxes combined with a great welfare state and some redistribution allows even capitalist societies to thrive. It even gets better when you specifically use taxes to reduce the difference between rich and poor.

There might be less billionaires in such situations, but everyone else is MUCH happier and well off.

So, from a consequentialist standpoint, more taxes, especially if progressive and hard enforced, are better.

Every counter argument to that seems to construct some reasoning from pure egoism and assuming someone is not a product of his environment - and ignoring the very first thing I said - taxes don’t have to be fair or just