The morality of a flat rate tax

Politics are a bit raw in the US these days, and while I spent the summer in Seattle I got into a few discussions about the current campaigns and public policy in general. 

One of the most unexpected positions I found was that of people being in favour of a flat rate tax. Twice I heard people independently defending flat taxes –one rather superficially, because he believed that a flat tax “should be enough” to cover the needs of society, and the other as a matter of principle and fairness. That’s the one that caught my attention: I’ve heard the arguments based on the simplication of the tax code and on the generation of wealth through flat taxation, but never that flat rates were morally defensible.

The argument goes as follows: The income an individual receives is a reward for the value that such individual adds to society. The market determines the value of each good and service; since trivial needs are easily satisfied, they are not as highly valued. Therefore, the more we contribute to satisfy society’s needs, the more money we earn. And, roughly, the more effort we apply to fulfill society’s needs, the more value we provide.

Therefore, we all earn our wealth rightfully (as long as it was legal), and it is unfair for the rich to be taxed at a higher proportion than the poor, since their wealth is simply a manifestation of the greater value they have provided to society. A progressive tax rate takes money away from the most productive and helpful citizens, and gives it to the least productive and helpful, which is an injustice to put it mildly.

(To be sure, this argument should conclude with a proposal not for a flat rate tax, but for a flat fee tax, where the government charges the same minimal fee to all its citizens and gets out of their way, like a club membership. But I have yet to hear anybody advocating the morality of a flat fee tax with a straight face.)

Now, the friend that gave me this argument is well-meaning, principled, and not particularly rich. For him, it is not simply an excuse to support selfish tax policies, it’s a consequence of a sincere belief in the free market system. I guess many compassionate, well-to-do people think similarly when faced with the deep inequalities in our economic system. But it’s a naive and erroneous argument, for two reasons.

First, it is false that the money exchanged in a transaction is generally a good approximation of the value provided to society by the transaction. Sometimes it is a good approximation of the value provided to the payer, but inconsequential or detrimental to the payer’s community (for instance, arms trading and stock exchange speculation). Sometimes the value provided to society is impossible to assess at the time of the transaction (as with scientific research). Sometimes the value is far higher than the money exchanged, because the benefitting party is disadvantaged and cannot pay an amount corresponding to the benefit received (for example, most volunteer work). It is then wrong to reason that the value provided to society equals the wealth earned in the process.

Second, it is false that the effort one exerts optimally corresponds to the benefit one will provide to society. We do not have a level playing field: poor citizens have by definition less capital than rich citizens, and hence less leverage to provide greater value to society with the same amount of effort.

So, effort exerted does not correspond to value provided to society, and value provided to society does not correspond to personal wealth. We simply cannot assume that the rich among us have provided greater value to society, or that they have made greater sacrifices for it. We can see, however, the ethical case for using superfluous capital to address society’s ills, through taxing proportionally more those with proportionally fewer needs.

About Jorge Aranda

I'm currently a Postdoctoral Fellow at the SEGAL and CHISEL labs in the Department of Computer Science of the University of Victoria.
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30 Responses to The morality of a flat rate tax

  1. Amy says:

    I have been arguing against flat taxes for years. The example I normally use is proportional detriment. This basically means that if everyone is taxed at, say, 10%, then that 10% becomes proportionally less detrimental the more money you make.

    For example, if you have only $100, then taking $10 from that will massively reduce what you will be able to afford. For the sake of simplicity, let’s say your rent is $40, transportation costs $20, food costs $30, and then you have nothing left when the tax is taken. This extra amount would certainly be spent in the general marketplace, adding to the economic activity of society, but instead, it goes to the government (not entirely bad, but the government does not create economic activity as efficiently as the hoi-polloi.

    Now let’s say you have $1000. Sure, you are paying a whopping $100 in tax, as much as some people have altogether. However, taking that $100 from someone with $1000 hurts less. Let’s double the rent – nicer place. Let’s triple the food – eating out and all. Transportation… sure, let’s triple that too. A Lexus isn’t cheap. $80 + $60 + $90… $230. We still have a ways to go until we hit $900. It is actually less of a sacrifice to take $100 from someone with $1000 than to take $10 from someone with $100. Flat rates seem fair, but when looking at them from a true economic standpoint, they aren’t, not really. Once you factor in things like that rich person making 7% on millions while poor people probably don’t even have investments, the hurt starts hurting even more. Additionally, the best way for a capitalist economy to operate is with a huge middle class and very few rich and poor people. Why? Because one person buying a yacht contributes less to marketplace activity than a million people buying Big Macs. Luxury goods don’t help economies. Consider that medieval Europe could provide plenty of luxury goods to those who could afford them, but in general, the place was stuck in a several hundred years economic depression.

    If a person really believes in capitalism, he should also believe in keeping it healthy. Lots of poor people isn’t a healthy situation for capitalism, and you can’t have lots of rich. The more evenly the wealth in a system is distributed, the better, and because the rich can more easily expand their wealth, taxation has to be adjusted accordingly.

    A reasonable scale would be that poor people paid little to no tax, middle class people paid a small percentage, around 15-20%, and rich people paid a large percentage, pushing 50% of income and a heavy luxury tax on superfluous goods.

  2. Jorge says:

    Thanks for the comment, Amy —we agree.

    I had rarely ever found people defending flat rate taxes, so it was unusual to find two proponents in my short stint at Seattle. Made me think it’s a fairly popular stance in the U.S.

  3. Leo says:

    I believe that with a good government this would become irrelevant. Capitalism is about everybody having the same opportunities. A good government would be able to balance the equation. With a flat rate tax, the government should be dedicated to spending more of that money on the poor but if the rich pay a higher rate, the spending should be distributed equally.

    A good government should be able to be fair and balanced regardless of the taxation system that it runs. Hence, the system applied should be the one that is easiest to enforce. I don’t know which this would be.

  4. Jorge says:

    With a good government lots of things become irrelevant, but we have to do with the one we’ll always have🙂.

    And be careful — capitalism is certainly *not* about everybody having the same opportunities. That’s what government intervention is for.

  5. Leo says:

    My point is: If you have a bad government, you can have the best or (if you want to assign them a moral value) the most moral tax system and this will not make the society any more balanced.

    With a good government, the tax model becomes, again, irrelevant… 6 of one, half-a-dozen of the other one. And I insist. Based on that, the easiest one to enforce should be applied.

    I believe that the best argument that can be presented in favor of a flat rate tax is its simplicity. Although, I do not know if it is any more easier to apply than the other models. I just don’t think that any tax system has morals attached to them.

    You are absolutely right about pointing out that that is not what capitalism is. In simplifying my thoughts I ended up making no sense.

  6. Justin says:

    It sounds as though you’ve encountered a common stereotype: the techy libertarian. For thousands of useful examples of this mindset see Slashdot or the campaign of Ron Paul. As programmers/software engineers/information workers/whatever business speak is currently used to denote the practitioners of applied discrete mathematics (typically with emphasis on “applied” rather than “mathematics”), we deal in logical solutions to large-scale problems. It’s natural to apply the same rigid logical principles that govern the efficient, elegant solutions to mathematical problems (and, yes, here I’m including “programming” in its original sense as a means of attaining the solution to a mathematical problem) to the real world. The problem with this approach, when applied to government taxation, for instance, stems from abstraction–the very basis of modern computer science. Virtually all such arguments hinge on a convenient logical abstraction of a complex social problem. If this abstraction were sound, then of course the solutions advocated by such well-meaning individuals would be the ideal solution to our problem. Unfortunately, it’s not. These are most likely the same sort people who think that “mathematics governs nature,” rather than the other way around. You’ll see many such arguments prefaced by tell-tale qualifications, like “Assuming a purely capitalist system.” If you’re feeling masochistic, look at some of the insane copyright arguments on Slashdot that assume a strict, logical interpretation of the law. In any case, there is no sound, logical abstraction for the real world, and we have to accept potentially suboptimal solutions to some problems, since optimality isn’t even precisely defined in this case.

    As far as the flat tax is concerned, our current brand of capitalism does not (by definition) consider externalities. Using the same quasi-logical appraoch as above: if we assume that every business operates at some extent to the expense of society (and in fact, profit are dependent on scarcity of goods, which in turn is best maintained by underproduction at the cost of society) then the largest profit-makers, would, in fact be responsible for the largest amount external costs to society, which are monetized naturally by a progressive tax. Suppose I sell drinking water. In an unregulated capitalist system, it’s to my advantage to ensure that the public supply of drinking water is as small as possible, thereby increasing the profits from my venture. Naturally, this doesn’t apply equally to every business, as some are based on more substantial services or products, but it does give a picture of what happens when we decide to privatize everything. In this (admittedly contrived) example, the single best method for increasing my profit margin is inherently detrimental to the overall social utility, and hence my profits are proportional not to my social worth, but rather to my social cost.

  7. Jorge says:

    Leo,
    I see your point that a “good” government would balance the equation in favour of those in most need, no matter the taxation system (as long as “ensuring equality” is a key criteria of being “good”). This might be true. But it is an ideal case, and the proponents of flat taxes want to implement them here, in the real world.

    As Amy hinted, 10% for a worker earning minimal wage hurts much more than 10% for a millionaire with seven houses. We cannot trust that a good government will take care of the imbalance with proportionally more and better services for the worker on minimal wage.

    Taxation systems do have moral values attached to them –fairness, especially. This is trivially easy to demonstrate: a system that taxes 100% to low-income citizens (under the assumption that the government will provide all their needs) and 0% to high-income citizens would be immoral because of its extreme injustice: if I am poor I have no freedom to invest my money the way I wish, but if I am rich I do. I’ve always thought that a progressive tax rate is more fair, and hence more moral, than flat taxes –which is why it surprised me to hear from my friend otherwise, and ended up writing this post.

    Justin,
    I think your analysis of what’s wrong with the argument (flawed abstractions) is exactly right.

    As a general rule I, too, believe that those with the largest profit are those that have been the most costly to society. To show that the argument for the morality of flat taxes is wrong I merely had to show that they are not the ones with the most social worth.

  8. Isn’t it a moot point to talk about flat-rate taxes without talking about how the government will spend the money that it collects?

    As you guys said, the government should be dedicated to spending the taxes in the most appropriate way – typically more spending will go to the poor. Thus, in Amy’s example, there will be $110 dollars to spend on two people, one rich and one poor. Does it matter that the two people were taxed the same rate? If a $100 were used to satisfy the needs of the poor guy, then he essentially enjoys negative taxation.
    Jorge, do you remember your experiment with bias to numbers? The people you spoke with might think that a flat tax system is good because it is initially perceived as fair – but that’s just a fixation (you might call it anchoring😉 )

  9. Leo says:

    It is evident that with no flat rate tax, in the US at least, the rich are getting richer and the poor are getting poorer. Please explain to me what do you mean by “the real world.”

    Again, I am not for one or the other one, but you are assigning a low moral value to one and a higher moral value to the one that is widening the gap between the rich and the poor.

    Taxing 100% to the poor and 0% to the rich is a crime, not a tax model.

  10. Oh, and another thing – why is it that a taxation system should be as simple as possible? Simple for whom? Simple for the people to understand? for the government to enforce?
    I think the main goal of a taxation system (when combined with a spending strategy) is to reflect the policies and beliefs of the people and of the government (let’s hope that they believe in fairness).
    Sure, simplicity is nice as an overall goal of the government to give better service to the people, and a simpler system is more likely to be more efficient, but it is not an end in itself for a taxation system. It is a complex domain, and we should first get it right (after arguing forever about what “right” is) and then try to simplify and streamline the process, not the other way around.

  11. Leo says:

    If two or more models lead to the same result, the one that should be applied is the one with the path of least resistance. That is why.

  12. Jorge says:

    Yoni,
    Yes, spending is the other part of the taxation equation, but changes to the taxation code rarely affect the spending policy radically, so we can discuss taxation assuming the money will be spent roughly the way it is spent now.

    I also do not get the argument of the simplicity of implementation of flat taxes, and I think it’s usually raised as a way to irrationally balance the arguments (“progressive taxes may be more fair, but flat taxes are simpler!”).

    Leo,
    It is not true that both models lead to the same result. With flat taxes the poor have less freedom –less opportunities to choose how to spend their money; and the rich have more.

    Flat taxes vs. progressive taxes isn’t a binary distinction, there’s a continuum. You reason that since the US has a (relatively) progressive tax rate, and deep inequality, it must be the tax rate’s fault. But most developed countries have a more pronounced progressive tax rate, and less inequality.

    With “the real world” I meant of course the real world –the world with Republicans and Democrats (or Liberals and Conservatives over here), where we have deaf institutions, hidden interests, unknown variables, and laws that can’t be changed with a brush stroke. Here we cannot assume to have a good government that will magically balance things for all.

  13. Leo says:

    And I just want to repeat that I am not in favor of the flat tax. I am against assigning the flat tax a low moral value when we are living (in the US) with a government that does not apply the flat tax and has proven to be socially catastrophic.

    Talking about the low moral value of a tax system that has only been applied to a few countries without mentioning the fact that the gap between the rich and the poor has increased in most of the countries that do not use a flat tax model is misleading.

  14. Leo says:

    I agree, saying that the model that should be applied should be the simplest one just because it is the simplest one would be irrational.

    It is also irrational to extrapolate my comments to that.

  15. Jorge says:

    “I agree, saying that the model that should be applied should be the simplest one just because it is the simplest one would be irrational.

    It is also irrational to extrapolate my comments to that.”

    Yes. But this is a mix-up; I wasn’t referring to you, but to the proponents of the flat rate tax.

  16. Neil says:

    “There are no poor libertarians.”

  17. Manuel says:

    The flat rate taxes promoted in EU and USA refer primarily to corporate taxes, not to income taxes, hence talks about social justice are trivial because we are talking about corporations
    Even the countries that promote personal income flat rate taxes always establish an except household income, so the families making the $100 or $200 that Amy mentioned will pay little or not tax. It is not a real flat tax rate since the % of the total income would be different, given this exception
    The objective of a flat rate is not being fairer or have a higher moral, but to simplify the system to everybody and to encourage investment and minimise tax evasion. It encourage investment because each dollar that you invest will have the same return instead of diminishing over the amount, and being simple to calculate make it harder to evade
    The inefficiency of a progressive tax rate is that for each percentage increase the extra burden to pay it by the square of the rate
    Fairness and morals has nothing to do with tax recollection. You can argue that is unfair to heavily tax rich corporations (or individuals) because they are the ones that use less the services that government provides (they have private health care, their own pension system, and unless you are Conrad Black, rarely go into welfare). You can also said that poor people (or smaller corporations) have less opportunities and hence should pay less. Taxes are about paying the cost of running the government, promote investment and economic growth, and to redistribute the wealth of a nation, not about morals or fairness. How the government pursue these goals may be moral or not, or inefficient or not, but that is independent of the tax schema.
    Jorge is right by establishing that not activity is rewarded by its value to society, even Warren Buffett said that his fortune is due that he is good at something that has a high return, while other contributors to society like teachers, educators, researches, and philanthropist are stuck in lower income activities

    Very interesting points…

  18. Galax says:

    For a flat tax system to work, men should be like angels. And if people were like angels, any tax system would work.
    I am paraphrasing… (ooops, somebody).

  19. Galax says:

    I am sorry. I wrote my conclusions before explaining my arguments.
    Fairness and morality in taxes are a very complex issue. When you mix the tax rate with the taxable income, the collecting and, finally, the distributing of public expense, you get a soup but you can not recognize the taste. Some people might like it. Most do not. Change an ingredient, the tax rate. We can not expect that just because of that everybody will enjoy the soup flavor.
    In Mexico we have a progressive tax rate for individuals, with a negative tax rate for low income people –employers pay them a subsidy on behalf of the government-. And we have a kind of flat tax for corporations. The problem lies not in the single rate, but in the deductions to the taxable base. No matter if the country had a progressive tax rate for corporations. A corporation can hire lawyers and accountants and legally pay little or no income tax. In “the real world”, a big corporation can pay a lower tax as a percentage of its income, or even a lower net tax amount than the tax paid by a smaller, less profitable corporation or by a “captive” employed worker. How is that for morals?
    My country is trying a new kind of flat rate tax, (IETU – Flat Rate Corporation Tax), with less deductions allowed and a smaller rate than traditional Income Tax (17% versus 28%). It is running parallel to traditional Income Tax. Corporations must calculate their tax with both systems and pay the one that results in the bigger amount. With fewer shelters and places to hide, the new flat tax rate is collecting significantly more money; so much so that in a couple of years traditional income tax for corporations might be derogated.
    And about the redistribution of wealth, well, that is and endless discussion. Marx wrote something like “from everyone according to his (her) possibilities; to everyone according to his (her) needs”. Beautiful! In heaven, maybe. Consider two men working at the same place, doing the same job, getting the same salary and paying the same amount of income tax. One of them is single. The other one is married and with six children; his wife does not have a paid job. The government will supply health care, school and some other benefits to the large family, in part with the tax money collected from the single person. So, the single man will be going to work to pay for the education and such of his colleague’s children and for his coworker’s wife health care! That is what I call solidarity!

  20. Jorge says:

    It’s better than the alternative. It’s only fair and in the interest of society that the six kids in your example, who by the way didn’t choose to be raised by a careless moron, don’t grow up sick, uneducated, and condemned to poverty.

    When your single guy grows old, retires, and becomes afflicted with disease and no relatives to provide care, the taxes of those six kids will sustain him instead.

    As for the old progressive rate vs. the new flat rate for corporations in Mexico —it’s great to hear the new rate is working. But from what you say, it works because it does away with the loops in the pathological old system, not because of its flatness.

  21. Galax says:

    Hey! Why do you call “careless moron” to the exemplary husband and father of the above example? He and his wife planned just a single child but the fertility treatment resulted in sextuplets. By the way, the fertility treatment was paid in part with the taxes charged to the single man. I have my suspicions about who the moron really is.

    As I said, wealth distribution is an endless discussion. I did not want to elaborate too much in my hypothetical example because the issue was the flat rate tax. But her I go: What if the single man, being a careless moron himself, as stated before, fathers six children too? Then all of the twelve children will grow up sick, uneducated and condemned to poverty; unless somewhere we find two other single men to come up and rescue them. And, in the best interest of society, they better are gay, let the problem grow exponentially.

    As for the success of the flat rate tax in Mexico, you are correct; it is working out because it eliminates the loops. So we could reach the conclusion that a flat rate tax with no deductions is more moral than a progressive tax with lots of places to hide. Then we could reason that a progressive tax with no shelters would be the most moral of them all. That is, if for “moral” we understand forcing the big corporations to pay more taxes. But…

    Let us not forget that corporations really do not pay taxes. People do. As corporations transfer more money to the government in the form of higher taxes, with either system, they will pass the added cost to the consumer in the form of higher prices.

    So, what shall we do? Well, indirect taxation, such as the Added Value (sales) Tax, in use in some European countries and in Mexico, among other countries, makes people pay a tax in proportion to what they buy. The more you spend, the more you pay. It does not “punishes” wealth as it is produced, but as it is spent by the final consumer of the goods –not by corporations-, thus promoting savings and investment. For it to work properly, the AVT has to tax all of the final consumer buys of goods and services. And there lies the problem with populist governments (i.e. Mexico), which begin making exemptions to some goods, such as food and medicine, to allegedly protect lower income people, but benefiting the same to rich people that, obviously, also consumes food and medicine and in larger quantities.

    Another condition for AVT to work properly is that it should have a single rate, making it a flat rate tax.

    Sorry.

  22. Jorge says:

    “So we could reach the conclusion that a flat rate tax with no deductions is more moral than a progressive tax with lots of places to hide. Then we could reason that a progressive tax with no shelters would be the most moral of them all.”

    Yes, that’s the argument.

    “That is, if for “moral” we understand forcing the big corporations to pay more taxes.”

    No need to involve corporations, at least not now; we’re just talking about rich folks and poor folks. My point is that if I make a million dollars and you make a thousand, it’s ethically incorrect to charge us both the same rate.

    For purposes of comparison regarding income and sales taxes:
    http://en.wikipedia.org/wiki/Tax_rates_around_the_world

  23. Galax says:

    Ok. Let us leave corporations aside. Now let us solve these problems arising from a progressively rated, no deductions, income tax:

    Problem 1- Who will draw the line?

    Individual A makes $10,000 dollars and is taxed at a 10% rate. Individual B makes $100,000 dollars. At what a rate should he be taxed in order to have a “moral” and “ethical” tax law? 11%? 12%? 28.6934%? If he is taxed at a rate of 91% his net after tax income would be equal to Individual A’s ($9,000). So, who will set the tax rate to apply to Individual B’s income? The Congress? The Pope? Shall it be fixed by popular vote? In this last case we will have a majority agreeing, but that does not mean it would be a fair solution.

    Let us face it. Any progressive tax rate is merely subjectively fixed. So, any rate would seem moral and ethical to some and the opposite to others.

    The argument “a progressive rate tax is better than the alternative” is not valid unless it is proved so. A 70% tax rate applied to Individual B’s income is maybe more unethical than a flat rate tax. So, who is going to say how much is ethical and how much is not?

    Problem 2- The taxation period.

    Income tax is applied on a calendar year basis. Individual A works from January the 1st to December the 31st of year 1. He makes $20,000 and is taxed at a 15% rate, equals $3,000 dollars. For any reason (let us not be lost in details) he does not have an income on year 2.

    Individual B works from July the 1st of year 1 through June the 30th of year 2. He makes the same $20,000 in that period. But, since income tax is applied on a calendar year basis, it happens that his income was $10,000 in year 1 and $10,000 in year 2. As stated in Problem 1, the tax rate for a $10,000 yearly income is 10%. So, Individual B pays $1,000 in taxes in year 1 and the same amount in year 2, for a grand total of $2,000.

    Taking the two years as a whole, Individuals A and B worked exactly the same number of days and had exactly the same income, but Individual B paid 50% more income tax than Individual A. Is it “moral”? Is it “ethical”? Of course it is not! It is just a flaw of progressive taxation. That is why indirect taxes are fairer. Even if they are (they have to be) flat rated.

    Problem 3- Individual effort and service provided.

    Individuals A and B have a job sweeping streets for the municipality. They are paid the same amount per hour. Individual A is kind of lazy and decides to work half a shift, 4 hours; he sweeps 4 blocks a day and makes $10,000 a year. Individual B works the full shift; he sweeps 8 blocks and makes $20,000 a year. Obviously, Individual B had double an income than Individual A because the effort exerted by him was double that of Individual A; double, too, was the value provided to society. Using the same tax rates of the before Problems, Individual A pays taxes at a 10% rate and Individual B does it at a 15% rate. Explain why it is “moral” for the harder worker to be charged with a 50% higher tax rate.

    My conclusion: For thousands of years governments have searched for a fair system of taxation. They have yet to find it. My bet is they will not. For a flat tax system to work, men should behave like angels. And if people were like angels, any tax system would work.

  24. Jorge says:

    These are good points. Here’s my thinking:

    Problem 1 – Who will draw the line?

    Like in most interesting ethical problems, there is no way to draw a line infallibly. Too much of a good thing is, of course, bad. A radically progressive rate (for instance, charging the very poor 0% and the very rich 100%) is clearly unethical. But establishing a flat rate also means drawing an arbitrary line; we cannot avoid doing so. And when we compare it with other, more (prudently) progressive rates, we see it is less moral.

    Problem 2 – Taxation period

    I agree this is a flaw of progressive taxation. We assume that individuals receive income at a relatively constant rate; edge cases like the one you describe are problematic.

    Problem 3 – Individual effort and service provided

    This was the core of the argument on my original post. Effort does not correspond to value provided to society, and value provided to society does not correspond to personal wealth. You carefully construct a case in which they do; we can easily describe others, as common or more, in which they do not.

    Incidentally, when reading the arguments of conservatives I often encounter the distinction between the hard-working (and hence richer) individual and the lazy, dishonorable (and hence poorer) individual, and of how leftist policies punish the first and reward the second. This does not match at all with my experience. The most hardworking people I know are poor and struggling; the laziest are comfortably rich.

  25. Galax says:

    Please CORRECT ERROR ON PROBLEM 2, LAST PARAGRAPH; it reads:

    Taking the two years as a whole, Individuals A and B worked exactly the same number of days and had exactly the same income, but Individual B paid 50% more income tax than Individual A.

    It must read:

    Taking the two years as a whole, Individuals A and B worked exactly the same number of days and had exactly the same income, but Individual A paid 50% more income tax than Individual B.

    Sorry about that.

  26. Galax says:

    As this is your blog, it was my secret intention to let you express the last argument, so long as it was a gentle one. And I must say your last answer was so.

    I just want to make some not too troublesome precisions.

    Of course Problem 3 was carefully constructed, but I made a mistake; I called Individual A “a lazy” worker. It really was not my intention to dishonor him. I could have said that he worked a full shift and that Individual B worked two shifts; but then we would be dealing with the overtime payment and the diminishing yield for the long hours and such. In my discharge, in Problem 2 I had asked not to be lost in details, but instead go to the core of the argument, i.e., the inequities arising from progressive income taxation. Of course we can build thousands of examples supporting your point of view, but they would not ease the frustration of Individual A in Problem 2 and of Individual B in Problem 3. Or are we going to justify a society that has an unethical behavior against some of its citizen as long as it is ethical to the majority? Can we send to jail a few innocent people as long as we also jail criminals? The judge instructs the jurors: If there is a shadow of a doubt, let the accused go home.

    “Incidentally, when reading the arguments of conservatives I often encounter the distinction between the hard-working…individual…, and of how leftist policies punish the (hard-worker)”.

    Well, that is not an argument; that is a theorem. It is beyond any doubt that far-left policies discourage hard work. That is why communist societies crumbled down.

    “The most hardworking people I know are poor and struggling; the laziest are comfortably rich.”

    What can I say? I am happy I am zillions away of being filthy rich; and I am also happy I am not extremely hard-working. I guess that makes me neither lazy nor poor.

  27. Jorge says:

    Oh you know you’re not lazy —and I’m happy and grateful that you were never so caught up with work that you wouldn’t have time for your family.😉

  28. Manuel says:

    Hi, it is me again,

    First, Jorge needs to coordinate a beer night between Galax, Jorge, and I, because I find this conversation fascinating,

    Second, for the first time in my life I cannot disagree more with something that Jorge said: “The most hardworking people I know are poor and struggling; the laziest are comfortably rich”.

    This is a dangerous statement, and in my view is populist. We can discuss ad nauseum examples where a flax tax system is better or worse than a progressive one and cases where the Pedro Infante’s hard worker is stepped down by Gastón Billetes, but taxes do not apply for examples of three or four people; taxes apply of populations between 10,000 and 100,000,000 people, where the law of larger numbers will stabilise the sample . Capitalist system tends to reward hard work, with few exceptions. It is true that very hard working people are poor, and that some Juniors are very rich, but in the long term, the fortunes will work on favour of the hard working people, even if now they don´t. Junior may be rich and lazy because his father broke his back working, hence working for both of them, and Joe the Plumber may be poor because his father was a drunk, but while Junior´s son will probably will be at least quite less rich, Joe’s offspring will do better.

    Now, in a more serious matter, Jorge, coordinate the beers….

  29. Jorge says:

    You’re right, my statement was populist. But I don’t mean to claim that the poor are always hardworking and the rich always lazy; merely that the opposite is false.

    Still, we disagree in whether capitalism rewards hard work. It can, I think, as long as it guarantees equal opportunities. But for that you need progressive policies.

    Anyway, this definitely should be discussed over beers. Galax lives in Mexico though, so putting us all together won’t be easy!

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