A former student recently directed me to this “not particularly good article” (her words, with which I concur) and asked for my comments. I sent her some brief comments; hopefully I helped clarify just how confusing the issue really is.

The article got me thinking about how to make our tax system more “fair,” which got me thinking about the futility of worrying about whether our tax system is “fair.” In my book, there are four ways a tax system can even remotely approximate “fairness.” Here goes:

1. Each person pays the same income tax rate. This is called a proportional or flat income tax. It would be “fair” because everybody would pay the same percentage of their incomes in taxes. Divide “total tax revenue desired” by GDP, and you’ve got your flat tax rate– pretend it’s 20% (the actual calculation would be much more complicated than that, but you get the idea). But a purely proportional/flat income tax won’t happen because there are some folks so poor that the 20% tax would keep them from covering their barest necessities. So, “everyone chips in 20% of his income” is unfair.

(So then you design a standard deduction to allow people to pay for the necessities, and then the 20% flat rate kicks in– after the first $10K per household, we all pay our 20%. But then you get into an argument about whether it’s fair to have a deduction at all, and if so, how large it should be, and what constitutes a necessity, and so on. And then you run into the argument about whether there’s any difference in principle between “a single tax bracket above a standard deduction” and “multiple tax brackets above a standard deduction,” and you run into the arguments over what should count as income, and eventually you run right back into the mess we’re in today.)

2. Each person pays the same consumption tax rate. This is a sales tax, equally applicable to all finished goods and services. The arguments regarding fairness are similar to those in #1 above. However, there’s one additional argument that consumption taxes are unfair: they are regressive relative to income, i.e., the poor tend to spend higher percentages of their incomes than the rich do. This happens because the rich can afford to save more of their incomes. Consumption taxes don’t (immediately) hit savings, so sales taxes would likely consume a higher percentage of poor incomes than rich incomes. So, “everyone pays the same sales tax” is unfair.

(So then you start exempting certain necessities from taxation in order to make it easier for the poor to afford them, which begins to reintroduce progressivity to the tax system. But then you get into the same arguments as before about what constitutes a necessity, and companies fight to have their products declared tax-free. Or you design a FairTax-style “pre-bate,” a stipend equal to the taxes each household would pay on necessities, and you get into similar arguments about necessities and the size of the pre-bate, and gosh-darn-it, why do all households get them, instead of just the poor ones?)

3. Each person pays the same capitation or head tax. This would be “fair” because every person would pay the same amount. Divide “total tax revenue desired” by total population, and you’ll know the amount everyone should pay. You don’t have to use total population– you could use total number of households, or total number of adults over 18, but you’ll invariably run into arguments over whether it’s fair that everybody pays the same amount. Furthermore, folks would call this “unfair” because it’s a regressive tax, like the basic consumption tax in #2. So, “everyone chips in five bucks” is unfair.

(There’s no way to even attempt to make this less unfair. It’s, like, totally unfair.)

4. Each person pays for the goods and services he receives from the government. It would be “fair” to calculate the exact value of the benefits a person receives from the government, and charge him for it directly– so if I get $11,000 in benefits from the government, I owe $11,000. But what good would it do to provide government services to the poor and needy and then turn around and give them the bill? It would defeat the point of a transfer payment or a welfare payment. So, “everyone pays for what he gets” is unfair.

(So then you try to get people to pay directly for those government services that economists consider “private goods,” and have the rest paid for out of other tax revenues. But then you’re right back to the problem of the poor not being able to afford those particular services, so then you scale back the number of services that are directly financed, and then you’re right back where we are today: with few government services paid for directly by the end-user. Furthermore, it would be darn difficult to calculate the bill on a person by person basis, because the invasiveness and precision of the record-keeping would be prohibitively expensive.)

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Bottom line: in economics, there is no such thing as “fair.” This sentiment– this reality– is reflected in this, the prototype for my future family crest.

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If you’ll forgive a weak analogy: taxation is a bit like drawing blood. Some body parts can handle the needle and the bruise better than others, but the whole body loses the blood. True, the loss is not evenly distributed– loss of blood from a toe is much different from loss of blood in your brain, heart, or lung– but it still affects the whole body to some extent.

If you can’t make taxation fair, at least try to make it efficient: draw taxes from the economy as painlessly as possible, and be careful not to drain so much that the whole thing breaks down.

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Exhausted; will worry about editing later.

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[Updated 10:35 PM, 4/24/12] Edited, and hopefully more clear now.

In my “Resolutions for 2012,” #11 was “I shall make an 11th resolution before April 30th, 2012.” I now have one.

I am ashamed to confess that I have never seen the Bears play in person. But this fall, I shall atone: the Jags will host the Chicago Bears in October. And I will be there, come hell or high water.

It’s at EverBank, not Soldier Field. It’s an inter-conference game, not a Black-and-Blue division rivalry game. It will certainly be uncompetitive as the Bears roll to a Superfans-esque 78-point victory. But I’ll be there, brats and beers in hand.

I do hereby resolve that:

11. I shall attend the Bears-Jaguars game on October 7th, 2012.

I’ll even have some Malnati’s and Portillo’s shipped in for the occasion. Game Sunday, heart attack Monday.

Today I took my first little baby step towards becoming a cyborg. The entire transformation will last years and will surely end up costing far more than the mere $6 million they spent on Lee Majors way back when (actually, I should say “the mere $30 million” to account for inflation). They haven’t even invented most of the technology necessary to transform me into the undying mechanical abomination I’ve long aspired to be, but a dental implant is a decent starting point.

They put some numbing gel in my mouth, shot some lidocaine in there, started drilling, shot some more lidocaine in there when I made it abundantly and profanely clear that I could feel everything, resumed drilling, screwed in a dental implant, and put a cover screw on top of that. After a few months of healing to ensure osseointegration, they’ll screw in a pin, pop a crown on top, and voilà! A brand new number 31.

At first, it’ll just be a regular crown, suitable for chewing and attracting odontophiliacs, but after I save up a little more I’ll experiment with an audio implant to link to my cell phone. Or maybe, one far-off day, I’ll replace the crown with a tiny computer that links wirelessly to a heads-up display in my eyeballs or my visual cortex.

Something not quite as far-off in the future might be an RFID implant with financial information on it. But that might be a mite awkward the first few years, because until RFID teeth become more popular, I’ll have to hold my face close to scanners in order to use my credit card. And to avoid high-tech thieves, I’ll have to wrap aluminum foil around my head most of the time.

Or maybe it’d be a good way to store medical information in case of an emergency, if the medics had RFID tooth-scanners. Teeth are pretty tough to destroy, and if I’m not mistaken, it’s tougher to knock out an implant than a natural tooth, so that’s as good a place as any to keep electronic medical files. Also, it could provide faster identification if I ever get amnesia, or if my corpse is so horrifically mutilated that my face is unrecognizable, or if my fingerprints are unusable, or if the lynch mob simply doesn’t want to give my name.

We’ll examine proposals for step two in the next few weeks– talk R&D, funding, permits and all that– but for now, I’ll be content to resume chewing with both sides of my mouth.

An anonymous reader e-mails:

So, seeing as you know a lot about economics, I was wondering if you could tell me anything about the economic ramifications of a large corporation like “Large Corporation” donating shrink/ old product to organizations like “Loving Charity.” I am trying to understand why “Large Corporation” donates so little and throws away so much, and it was pointed out to me that there are apparently economic ramifications, but no one seems to be able to clearly explain to me what they are. Something to the effect of it costing more to donate the product than to throw it away and count it as a total loss, and something about donating too much of the product resulting in the product becoming devalued. Like I said, I don’t quite understand it, so I was wondering if you knew anything about this. Thanks!

Please note that I pseudonymified the corporation and the charity. Also, Anonymous Reader, please note that “Large Corporation” does make donations to “Loving Charity”– google it– though perhaps not as much as one might like.

That said, I think you’ve pretty much got the answers already.

Maybe it’s more profitable to destroy the leftovers than it is to donate the leftovers. Maybe writing off the destruction as a profit-lowering cost would lower Large Corporation’s tax bill more than claiming a charitable deduction would. Or maybe the cost of moving the leftovers to Loving Charity is greater than the cost of simply throwing it out.

Or maybe they’re worried that by donating leftovers, they’re propping up Loving Charity as a competitor in the market for those products. They’re afraid consumers will buy the product second-hand at a discount (a 100% discount, in the case of Loving Charity) instead of buying it from Large Corporation at the higher price.

These answers are not different from what you wrote in your questions. I don’t know the actual answers, because I don’t run Large Corporation, I don’t know their numbers, and I don’t know their tax situation.

There may be other plausible reasons; I’ll take suggestions.

Dear President Obama,

On behalf of my fellow citizens of the United States of America, I hereby implore you to end the FDIC’s entirely unwarranted prosecution and persecution of Jim McMahon over this trifling matter of $104 million in bad bank loans. Mr. McMahon is undoubtedly innocent and his involvement with Broadway Bank was clearly not meant to start no trouble.

Given recent events, the attention of your Department of Justice would be better focused elsewhere.

Sincerely,

Vincent D. Viscariello

P.S. Could I get a free yard sign this time around? I ask only because your campaign charged me twice what the McCain campaign did back in ’08.