Thursday, October 23, 2008

Tax Progressivity: Adam Smith as a Socialist?

Steve Coll reminds us of this passage from the Wealth of Nations:

The necessaries of life occasion the great expense of the poor. . . . The luxuries and vanities of life occasion the principal expense of the rich, and a magnificent house embellishes and sets off to the best advantage all the other luxuries and vanities which they possess. . . . It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion.

Coll has also been watching Faux News so we don’t have to:

Smith’s notion of reasonableness did not anticipate the Fox News Channel, however. Last Tuesday, Wurzelbacher appeared on that network, where he denounced Obama’s comments as “socialist.” He said that Obama “scared me,” because he “wants to distribute wealth.”

I guess Adam Smith would also scare Joe the Plumber!


jimbino said...

It seems that Obama goes beyond advocating taking from the rich to distribute to the poor. Obama's policies, like Social Security itself, involve taking from the young to benefit the old, from the Black man to benefit the White woman, from the worker to benefit the breeder, from the healthy to benefit the hypochondriac, from the risk-taker to benefit the insecure, and so on and on.

Anonymous said...

Your serial analogy approaches farce. I'll just focus on the social security aspect. What the young pay into the Fund is not for the benefit of the old, but is instead for the assurance of their own economic survival in their own older age. Read the description on your pay stub. FICA, Federal Insurance Contribution Act, and that is just what it is, insurance against poverty in old age or premature permanent exit from the work force. When you send your premiums into All-State for the house and the car you're not paying for my burglary expense or car accident. FICA spreads the risk so that we're not on the dole when we get to be senoior citizens. What we pay in over our working lives are the premiums necessary to cover the acturial expectations.

And if you think you could handle your pension planning better, take a look at your current 401K balance. How are your IRAs doing at the present? Social Security has nothing to do with the young picking up the cost of the aged. It has every thing to do with the workers being financially prepared for and viable in their own retirement.

jimbino said...

Since you appear to agree with my other points on Obama's and SS's "wealth spreading," let me speak to your misconception regarding Social Security transfers from the young to the old. A retiree of 85 is absolutely gaining from SS wealth transfer and a person of 21 is statistically losing, especially if a man and more especially if a black man.

It is comparable to a policy of taxing young folks to send a bonus to US Senators, using as justification the argument that when they get to be Senators, they will recover what they've spent. That's true: any young person who became a Senator would recover his stolen wealth!

Furthermore, I can opt out, as I do, from sending premiums to Allstate for car or homeowners' insurance. I don't see an opt-out clause in either SS or Obama's theft plan!

Jack said...

You're still misconstruing the entire concept and process by which social security works. The young lose out only if they happen to die early in life. If they've got a spouse and children those are the beneficiaries of the prior contributions. No one is receiving a bonus of any kind, other than the longer one lives the better the deal turned out to be. Best of luck to you.

You're right. You can't opt out in almost all cases. That way the government is assured that you will not be a burden to the general populace in your old age should you be destitute. The tax proposals offered by both candidates have only to do with finding ways to raise the necessary revenue to run the country, as badly as it has been running. Obama's plan suggests that it would be prudent to look to those earning significantly more than the average Joe (the Plumber??) to contribute a bit more than they have been asked to do during the past eight years. It would be fruitless to continue to try to get yet more out of those who work for average wages. It would be akin to trying to squeeze water from a stone. The working class is tapped out. Those who have been raking in the bigger bucks may have to reconsider their usual attitude of distain towards supporting the political/economic system that makes their good fortune possible.
Perhaps you believe that the wealthy who have benefited so generously from our economic system, such that it is, have no obligation to support that system.
We're all expected to kick in a share of the budget burden. Too bad Georgie Boy has made such a blistering mess of the thing. Now it has to be attended to in hopes that the entire ship of state doesn't go down to the brink.

By the way, I am much impressed by McCain's focus on the capital gains of the elderly. He's going to allow them to realize those gains without penalty. Considering the current condition of the equities markets who the devil has capital gains to realize. We can always count on Johnnie the Hero to find a solution without a problem.

jimbino said...

If Social Security is obviously sensible, why is it that the Amish are exempt? I just want the sane treatment that the Amish get. If you were to fire up your spreadsheet, you'd find out that the young person of 21 is expected to lose about $2,000,000 by age 67 by having had to send monthly premiums to SS instead of putting his money in an index fund.

Furhermore, I am one of those many "elderly" and I stand to lose a lot in taxes on the sale of an investment property with a basis of $0 and a market worth of $400,000. With McCain's plan, I could sell and keep the $60,000 I would have to pay under current capital-gains taxes. Where is it you get your facts on the elderly?

Anonymous said...

What, you think your good fortune of having a piece of property of good value is common among the older segment of our population? As noted previously, you pay taxes on income in order to support the economic system that made it possible for you to own that property is a safe manner. The causes of its increased value more likley than not has to do with systemic improvements in the locality of that property. The tax is your share of the cost of that system. I guess Phil Gramm was partly right, there are a lot of whiners in the country. He was partly wrong in his focus of who those whiners may be.

jimbino said...


On the contrary, the "system" you speak of has stood in the way of my wealth-building for years on end.

Not that I'm unique in that. Most hard-working Joes share in the problem.

Had I decided to pollute the world with my brood, I would have been subsidized, and breeding will no doubt be subsidized even more under Obama. Woe to those who only care to invent, innovate and produce!

Anonymous said...

"If you were to fire up your spreadsheet, you'd find out that the young person of 21 is expected to lose about $2,000,000 by age 67 by having had to send monthly premiums to SS instead of putting his money in an index fund."

LOL! You obviously haven't been looking at index funds this year, kid.

"Woe to those who only care to invent, innovate and produce!"

Yeah, that's what the right was predicting in 1992, too. Those who cared to invent, innovate and produce made out like bandits under Clinton's tax increases. You need to update your talking points for the 21st centurey, Jimbo.

Anonymous said...

Unfortunately, that quote stops off before Smith's later explanatioan. The rich should give more, he believed, but required to, is quite another story.