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Robert F. Graboyes's avatar

We had a nanny in New York City, 1986-1988. Two epiphanies—and mind you, I am an economist. First was when I wrote the first checks for her federal, state, and city income taxes. Intellectually, I knew that 50% technically came from her and 50% from me. But as an employer, I paid them in combo with my own checks. And I saw what a vast percentage of her income was going to taxes. I had known it algebraically, but not viscerally. Second, we moved to Virginia in 1988 and said goodbye to our sweet nanny. Somewhere around 1992, I got a menacing letter from the New York State Unemployment Bureau, mailed to my address in Richmond, Virginia. It advised me in harsh terms that they had not received my payments for unemployment insurance in four years and, therefore, was being charged the payments in arrears and fined several thousand dollars. I sent them a sternly-worded letter asking if they had noticed that they had mailed it to me in a place called “Virginia.” I noted that they were apparently aware of my Virginia address (how, I do not know). And that residents of this place called “Virginia” are under no obligation to pay unemployment insurance in New York—especially when they have not had a nanny in four years. Never heard back from them. At the time, I still had a two-inch thick stack of documents from managing the red-tape for our New York nanny.

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Peter Gerdes's avatar

That's awful but I want to push back on the connection with libertarianism. I know that's kinda a throwaway line and I would have used the same title but I think a big part of why we have so much unnecessary regulation is because we encourage this false dichotomy that suggests it's either libertarianism or accepting regulatory burden. But, in fact, you can both believe in the need for appropriate state action and regulation and still agree that there is a huge cost imposed by unnecessary overhead.

I mean this gives you reason to hate the fact that tex-prep companies have captured our tax system and a greater appreciation of how much overhead unnecessary regulations can create but I'm not sure it makes one much more of a libertarian. I mean once you grant that you need taxes to at least fund defense you need to collect them some way and that's an issue for the libertarian and non-libertarian alike and the libertarian doesn't get to be alone disliking unnecessary paperwork.

I suspect we could make better progress on this if we convinced people on the right and left it was ok to make combating inefficient regulations part of their political goals as well.

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Benjamin Gilad's avatar

I am inclined to disagree, as a libertarian, with your sweeping assertion that libertarians hate paying taxes for the legitimate role of government in ensuring our safety (law and order and defense). While there is a sect of anarcho-libertarians, a free market libertarian following Hayek and the "austrian" economic model, just like to restrict government bureacracy to these roles, reflecting way lower taxes and way smaller government and way, way fewrer regulations. Nothing in this nightmare of bureacracy of hiring a nany confroms to that model.

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Peter Gerdes's avatar

I didn't mean to make that assertion at all and don't believe I did. Just the opposite, I assumed that libertarians accepted the need to pay some taxes. Thus, the libertarian has no *special* reason to be upset about the situation with nannies -- everyone (libertarian or not) dislikes it because the tax scheme is unduly complicated and difficult (likely bc of capture by tax prep).

Exactly because the libertarian *doesn't* say all taxes are theft they can't say "well it would all be fine if we had a libertarian system". It's not a matter of more or less government it's merely a matter of collecting those taxes you do collect in an efficient way which I assume everyone can agree on whether or not they are libertarian.

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Benjamin Gilad's avatar

I stand corrected. You are right that seeing taxation as a necessary means to keep an orderly civilization should, in principle, confine objections to how taxes are collected. However, the Hayek school regards any form of taxation which is not a flat tax as discriminatory. A flat tax also means way simpler system of collection. Surely not the nightmare of regulations described in the theatre of the absurd above.

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Peter Gerdes's avatar

Fair. However, I'd push back on the idea the flat percent (or worse flat fee) model is less discriminatory. That's like saying a property tax is fair if it taxes you based on the number of buildings you own rather than the square footage is fair.

What we really care about isn't money but satisfaction and all our evidence suggests that each additional dollar you earn increases your happiness less than the previous dollar (indeed it's logarithmic or worse). As such surely the fair system taxes people who earn more at higher rates so everyone has to give up the same amount of utility to support the government.

But yes we both support much simpler tax systems. While I'd have a tax system that was progressive otherwise it should be a simple function of income (and not exist for corps) making it simple. Unfortunately, the tax prep industry hates that idea and it's politically difficult.

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Benjamin Gilad's avatar

I disagree. The equal treatment in front of a general law dictates that any form of discrimination is wrong. To charge higher tax rate because someone earns more is to discriminate simply because "progressive taxation necessarily offends against what is probably the only universally recognized principle of economic justice, that of equal pay for equal work." (The Road to Serfdom, p. 317).

Your analogy with property tax doesn't hold because the property tax is not levied on all other income. Whether it is on square foot or buildings it is a constant (proportional) tax. Not so with income tax.

Moreover, your basis for justification is false: the declining marginal utility from wealth is the neo-classical theory of quantitative utility rejected by classical economists. As Hayek says, "Progression provides no criterion whatever of what is and what is not to be regarded as just. " If you base your entire argument for progressive taxation on psychological research into happiness, you may find it is the weakest defense of discrimination.

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Peter Gerdes's avatar

But there are infinitely many different ways you could compare taxation policies. Why is it more fair for us to give the government an equal amount of money rather than to give an equal amount of time or to sacrifice an equal amount measured in terms of pleasure.

Before claiming that an equal money system is the fair one you need some reason that's the right metric. I argue for utility as the right metric because that's in some sense what we ultimately care about.

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Benjamin Gilad's avatar

I stand corrected. You are right that seeing taxation as a necessary means to keep an orderly civilization should, in principle, confine objections to how taxes are collected. However, the Hayek school regards any form of taxation which is not a flat tax as discriminatory. A flat tax also means way simpler system of collection. Surely not the nightmare of regulations described in the theatre of the absurd above.

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Ephie's avatar

Like the trials of Job.

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Irving Kavanagh's avatar

The simplest way to liberate yourself from these bureaucratic complexities is to hire your wife to raise your offspring.

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Thomas L. Hutcheson's avatar

More!

I faced the same problem trying to get permission to repair the wall in from of my house that collapsed, blocking the sidewalk. Over two months! [And the _people_ I dealt with were individually friendly and helpful!]

The problem is that it is too easy to see and say how stupid and counterproductive much of the regulation is. Trying to figure out exactly what is NOT stupid and counterproductive would, like Socialism, "take too many evenings."

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Benjamin Gilad's avatar

maybe Musk can point the way?

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