Revealed preferences

by Henry on February 16, 2008

Via Robert FarleyScott Lemieux, I see that noted economist Megan McArdle is arguing that the fact that Virginians haven’t voluntarily contributed to a fund increasing government revenues implies that people don’t want higher taxes.

This is what economists call “revealed preference”. What most of us are really in favor of is higher taxes on other people. If we wanted higher taxes on ourselves, we’d give the money to charity.

This is really very silly. In general, revealed preference arguments which don’t refer to some external set of motivations rely on circular argument and other forms of shoddy logic (see further Amartya Sen’s Choice, Welfare and Measurement on this). More specifically, as Robert says, vulgar revealed preferences claims, like the one that Megan is making here, completely ignore how strategic considerations impact choice. If the choices that individuals make are interdependent, as they self-evidently are here, then observed behaviour tells us diddly-squat about the preferences individuals would have if they didn’t have to take account of others’ behaviour. The best non-technical treatment I know of this why arguments like this are so bad is Tom Slee’s No-one Makes You Shop at Walmart (Powells, Amazon ), which I have recommended before as a really wonderful and first rate book, that should be required reading for all pundits inclined to opine on matters economic. Slee uses simple game theory to explore in detail precisely why bad preference revelations claims don’t work. As Alex Tabarrok, who is nobody’s idea of an anti-market lefty, says (I blockquote him in extenso ):

Slee’s book is the best of the anti-market books: it is well written, serious, and knowledgeable about economics. In fact, I regard Slee’s book as an excellent primer on asymmetric information, free riding, externalities, herding, coordination problems and identity – Economics 301 for all those budding young Ezra Klein’s of the world who think that Economics 101 isn’t quite right.

Early on Slee makes a good point about preferences and outcomes:

The prisoner’s dilemma shows how, as soon as one person’s choice alters the outcome for another person…choices do not reveal preferences…instead of thinking about choices as revealing preferences, it pays to think of choices as ‘replies’ to the actions or likely actions of others. The best choice you can make is the best reply to the likely actions of others.

Later, he drives the point home with a nice example:

Faced with the observation that few children walk to school anymore, we commonly hear that this tendency represents our preferences: that “people won’t walk” anymore. But this is oversimplified. What we are seeing is one equilibrium among many, and perhaps not the best one. There is an equilibrium in which no one wants their children to walk along empty streets, and so no children walk, but there is another equilibrium in which many children enjoy walking with groups of other children, and parents feel safe about their children because there is safety in numbers on the busy sidewalks.
…Too many cities have concluded that empty sidewalks are a result of our preferences…but once a city takes it as a given that most children will be driven to school, there is no need for the city to even build sidewalks in new subdivisions, and there is more temptation to build fewer, bigger schools rather than more, smaller, easily accessible schools. With these decisions, the empty-sidewalks equilibrium becomes even more entrenched: we are trapped in an outcome that was the result of individual choices, but that may not represent our true preferences.


In the spirit of contributing irrationally to a collective good (the better education of aforementioned punditocracy) I have just paid for a copy of Slee’s book to be shipped to Megan at the Atlantic head offices. I warmly encourage people to buy other copies of the book for other pundits (left and right) of their choice – it really provides both a nice antidote to the unfortunately widespread habit of glib commentary based on bad economic reasoning, and good ammunition for commenters who might like to correct the sins of others . If this post actually inspires anyone to engage in this kind of irrational behaviour, I encourage them to report it (and the targetted pundit) in comments.

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02.22.08 at 6:08 pm

{ 76 comments }

1

Rich Puchalsky 02.16.08 at 8:57 pm

Is there a book that convincingly urges its readers towards suicide? There are a couple of pundits who I might be tempted to send that one, on bad days.

2

Will 02.16.08 at 9:10 pm

I’m slow today. Where’s the strategic interaction in the Virginia case?

If I want to increase tax revenues, donating will do that whether or not I convince you, or the whole electorate, to do it.

3

Weston 02.16.08 at 9:21 pm

Will,

I know my voluntary contribution will accomplish something when combined with the contributions of others. Since I assume they won’t contribute, I don’t either.

Rich,

Not sure about suicide, but you might try sending them David Benatar’s “Better Never to Have Been.”

4

derek 02.16.08 at 9:22 pm

By McArdle’s reasoning, all state lotteries are therefore the revealed preference of the taxpayers to setting next year’s taxes higher, to the amount of this year’s lottery takings. And there’s no need to stop the lottery next year: you can use it to see if the taxpayers are for even higher taxes the year after. Bet they are!

5

washerdreyer 02.16.08 at 9:23 pm

Your end goal is to achieve something with those tax revenues, not to increase them for their own sake, and it’s extraordinarily likely that the marginal increase which you can contribute won’t achieve that goal.

6

djw 02.16.08 at 9:24 pm

Apparently Will doesn’t understand collective action problems either. I think this basic problem is more pronounced on blogs than it is in the population as a whole.

Will: try hard to think about this. An individual donation raises government revenue an utterly trivial degree that will have no impact on the level of government services. A tax increase across the board will is not so doomed. On the other hand, that trivial donation may not be trivial to you. How is this not blindingly obvious?

7

Will 02.16.08 at 9:38 pm

But McArdle’s comments (and the comments by Buffet that started this conversation) aren’t about government services. They were about tax revenues, who should supply them and in which proportions.

We’re not talking about the level of tax revenue here.

I get supplying public goods has a strategic component; I don’t get how volunteering to pay your “fair share” of taxes does. If you think you should pay more taxes, e.g. because you’re rich, then there’s nothing stopping you from donating.

8

Walt 02.16.08 at 9:40 pm

If a store did not enforce security, many people would just take stuff from the store without paying. I think from a simple revealed preference argument we can conclude that for shoplifters, the marginal value of the product they steal must be zero.

9

Rob 02.16.08 at 9:44 pm

Although I’d like to take credit, the LGM blogger in question was actually Dr. Scott Lemieux…

10

Weston 02.16.08 at 9:57 pm

Walt, you’ve got to factor in the costs of risk. But–funny.

11

divino_nino 02.16.08 at 10:34 pm

If mccardle receives an economics book every time she says something stupid higly debatable, I only hope she’ll make her library public at some point.

12

harry b 02.16.08 at 10:38 pm

will – the intuition is simply that what constitutes your fair share is not independent of what others are actually paying. Compare with criminal justice. We might think that it is fair for somebody committing serious crime X to get a 20 year sentence, but that it is unfair for him to get that sentence if others are getting 2 year sentences for the same crime.

13

John Emerson 02.16.08 at 10:38 pm

McMegan is usually silly. Someone ought to give Yglesias a good spanking for linking to her so often.

Someone besides McMegan, I mean.

14

Will 02.16.08 at 10:54 pm

Thanks Harry for the analogy. But isn’t a prisoner free to spend more time in jail if thinks that would be fair. Doesn’t it say something about people’s preferences for jail that no prisoners choose to stay there longer than their sentence?

Conditional on Buffet thinking he doesn’t pay his fair share, you’d expect him and others that have come to the same conclusion to have donated to the general fund. I’d say it reveals something about his preferences that he doesn’t donate.

15

david 02.16.08 at 11:06 pm

“But isn’t a prisoner free to spend more time in jail if thinks that would be fair.”

No, you have to go out and get convicted again to get back in. Weird, huh?

16

Kenny Easwaran 02.17.08 at 12:25 am

The Virginia residents might also be doing something else more complex. (I don’t think they’re actually doing this, but it’s a relevant point to consider perhaps.) If some people were to donate more to this general fund, the legislature would be tempted to cut taxes, because of the extra cash flow coming in. But really, what we might want is higher cash flow. Donating to this fund doesn’t obviously result in that in the long run.

It’s the same worry about voluntary fuel economy – if I do my part to save lots of energy, this just lowers the price of energy so that other people will use more of it, and there will be just as many emissions. To actually lower emissions even by the amount of my own use would require some sort of regulative pressure.

17

Will 02.17.08 at 1:26 am

Kenny, with your fuel economy example, the account that keeps track of people reducing their fuel economy voluntary wouldn’t be zero (or close to zero). People like you would make it positive.

Maybe on balance donations would be matched by tax decreases, but you’d still expect donations (if people care about paying their fair share of taxes).

The number of people voluntarily increasing their tax burden in Virginia is essentially zero. This means whereas some people talk about not paying their fair share in taxes (assuming there are mini-Buffets in Virginia), no one actually backs that talk up with action. This is exactly why economists rely on the notion of revealed preference. Talk is cheap.

18

csning 02.17.08 at 2:07 am

Megan is not an economist.

19

notsneaky 02.17.08 at 3:03 am

“An individual donation raises government revenue an utterly trivial degree that will have no impact on the level of government services.”

Yeah but people vote. Voting influences outcome to an equally trivial degree. Still people vote but don’t donate to “voluntary tax fund” schemes.

20

ScentOfViolets 02.17.08 at 3:08 am

I’d say it reveals something about his preferences that he doesn’t donate.

I’d say it reveals something that this has been explained to you several times now, and you claim not to get it. I’d say that your revealed preference is that you get a kick out of being coy.

There’s nothing wrong with this reasoning, is there?

21

ScentOfViolets 02.17.08 at 3:19 am

Yeah but people vote. Voting influences outcome to an equally trivial degree. Still people vote but don’t donate to “voluntary tax fund” schemes.

Color me confused. What does the one have to do with the other?

22

washerdreyer 02.17.08 at 3:45 am

Voting, despite the fact that it takes time, isn’t a public burden to be shared, but a public benefit to be taken advantage of.

23

geo 02.17.08 at 6:55 am

Will,

No, it doesn’t follow that if someone (like Buffett) thinks he’s assessed less than his fair share of taxes, then he ought to make a voluntary contribution to the general tax fund. What he ought to do is to make a contribution to a group or candidate that is working to have taxes assessed fairly. Similarly, it doesn’t follow that Al Gore ought to have refrained from flying around, in order to reduce total global energy consumption, while making “An Inconvenient Truth.” Flying around was part of an effort to obtain a much larger reduction of global energy consumption.

The general principle is to do what will do the most good. If one person’s making a voluntary contribution will lead to something more than adding an insignificant amount to general tax revenues (eg, by inspiring lots of other rich, undertaxed people to do the same), then arguably one should do it. But the best thing to do, it seems to me, is to try to wake up Kansas and the rest of America to the fact that they’re being robbed by the tax system. Which is what Buffett was trying to do.

24

Robert 02.17.08 at 7:54 am

As far as I can see, McArdle has no credentials and no capability to discuss economics. Mirowski says, in More Heat than Light, that Samuelson’s revealed-preferences theory was a failure. He cites Stanley Wong (1978). This is independent of uses of the theory to practical or political conclusions. (I have not read Sen’s book.)

25

notsneaky 02.17.08 at 10:09 am

Well, voting is supposed to be a preference-revealing-aggregating mechanism in the end. It’s sort of an almost puritanical fetishism of duty to some but that’s neither here nor there. And even though Megan misuses the term “revealed preference” (and it’s a kind of term which yields itself to misuse) (and the concept is not circular, I think someone’s misunderstanding Sen) the basic point is sort of obvious; most people would prefer it if someone else paid for the stuff, even if they profess otherwise. Sure, there’s altruism (which, actually makes you want to have lower taxes as long as they’re costly to administer, and the altruism is of the ‘fraternite’ not ‘egalite’ kind) but that’s more along the lines of abb1’s post above. If you know the money will be put to good use you’ll be more willing to partake. Otherwise, you reveal a preference for free riding.

And why even bother reading Mirowski?

26

Will 02.17.08 at 10:17 am

Geo, your comment mirrors exactly the opinion expressed in McArdle’s post.

27

Bruce Baugh 02.17.08 at 11:08 am

Surely at this point there’s a large presumption against anything worthwhile being in a Megan McArdle post. She is reliably wrong on facts, bad at logic, and erratic at best in theory, and she doesn’t seem to ever learn when exposed to correction. The question then becomes, on what grounds should any of us spend effort on the next post?

28

GreatZamfir 02.17.08 at 12:11 pm

Yeah but people vote. Voting influences outcome to an equally trivial degree. Still people vote but don’t donate to “voluntary tax fund” schemes.

First, the cost of voting is low, while the cost of donating extra tax is, well, exactly the amount you donate.

Second, even if the benefit to you personally of your vote won’t pay for the little bit of effort it takes, there is still a presure from society to vote. There is more such pressure to donate to charity then to donate extra taxes, and lo and behold, people give more to charity.

There is however a pressure not to cheat too much on your taxes, and people probably cheat less than fear for the IRS would justify.

29

John Emerson 02.17.08 at 1:32 pm

Why bother reading Notsneaky? He asserts that he’s refuted everyone who disagrees with him, but anyone can do that.

30

Slocum 02.17.08 at 2:58 pm

Later, he drives the point home with a nice example.

Does Slee provide better examples? Because this one strikes me as pretty marginal. Parents don’t drive their kids to school because of streets empty of other kids, they drive them because it’s become normal. And because it is convenient — one can drop the kid off on the way to work, and even if that’s not the case, driving is quicker so you don’t have to get the kid out of the house as early in the morning. And it’s safer — one does not have to worry about kids crossing streets. And we’re wealthier now — when I was a kid (in the 60’s and 70’s), one reason kids walked to school was the family didn’t have a second car which was available for daily kid chauffeuring. It seems to me that the trend toward driving kids to school is overdetermined and that ‘empty streets’ is at most a minor factor.

That said, my kids walked to elementary school every day. And I don’t shop at Walmart. And neither of these “achievements” were particularly difficult.

This is really very silly.

I think it’s silly to dismiss this out of hand the question of why charities get voluntary contributions while this fund does not. I think abb1 is probably right that specificity is important. People do, after all, sometimes donate extremely large sums of money for certain government functions. For example, there are quite a few state-owned universities on this list (including 4 of the top 10):

http://money.cnn.com/2007/01/22/pf/college/richest_endowment_funds/index.htm

People also seem particularly willing to give land and money for state owned parks and nature preserves. So perhaps opportunities are being missed in not establishing state charitable funds for things like ‘flu vaccines for the poor’.

31

ScentOfViolets 02.17.08 at 3:20 pm

the basic point is sort of obvious; most people would prefer it if someone else paid for the stuff, even if they profess otherwise.

Just who, exactly, has professed otherwise?

To me, this ‘revealed preference’ argument just seems to be a dishonest way of framing the debate (libertarians do that a lot) so that rhetorically, one can have one’s cake and eat it too; that is, it seems the ‘revealed preferences’ crowd are making some blue-sky (and rather inflammatory) assertions, and then expect everyone else to prove that they’re wrong. Iow, it’s the old “If you can’t make me say I’m wrong I win game.” Uh-uh. You make an assertion, it’s on you to provide a convincing argument that you’re right, not on others to try to convince you you’re wrong.

I note, btw, that in real life, I’ve voted on regressive tax increases to be levied against myself multiple times, for example, property tax increases to fund school development, regressive sales taxes to fund various community programs, etc. I suspect most people have done so, putting their money where their mouth is.

One last point: does anyone know of a pie chart that would show the median-income voter preference for how federal taxes are spent? I’ve seen a few articles that show individual slices of the pie are wildly out of kilter with regard to voter preferences, but nothing giving a nice overall view.

32

Sebastian Holsclaw 02.17.08 at 6:02 pm

However the notion of triviality of contributions plays out for lots of other people, it doesn’t play out the same way for Buffett. He has enough money that he could make a decidedly non-trivial donation to a state government like Virginia if he didn’t think that he was paying his fair share.

33

Barry 02.17.08 at 6:09 pm

Will: “The number of people voluntarily increasing their tax burden in Virginia is essentially zero. This means whereas some people talk about not paying their fair share in taxes (assuming there are mini-Buffets in Virginia), no one actually backs that talk up with action. This is exactly why economists rely on the notion of revealed preference. Talk is cheap.”

Ya know, there’s dim (e.g., Megan), and then there’sa few thousand words have pointed out the error, and makes that same exact error with the same dim air of Revealing Higher Truth.

34

Barry 02.17.08 at 6:10 pm

where ‘there’sa’ translates into ‘there’s somebody who comes in after a’

I blame the University of Chicago.

35

Paul 02.18.08 at 1:27 am

I live in Virginia, and I would gladly pay a bit more taxes. However, I can understand why a lot of people won’t: our state government is roughly spit between the two parties. Thus, many likely consider the risk too high that their money will be confiscated by the “bad” side of the government(however they choose to define it). One can carefully choose one’s favorite charity to have little or no counterpart to the “bad” side.

36

geo 02.18.08 at 2:56 am

Will@26: Geo, your comment mirrors exactly the opinion expressed in McArdle’s post.

I confess I’m baffled, Will. I don’t see the faintest resemblance, even setting aside the fact that McArdle is probably constitutionally incapable of enunciating the phrase “rich, undertaxed people.”

37

John Emerson 02.18.08 at 3:29 am

McArdle is probably constitutionally incapable of enunciating the phrase “rich, undertaxed people.”

Tactically she’d be happy to use the phrase to zing Democrats.

The following comment was rejected as off topic elesewhere:

We’re drifting, I’ll share my new McMegan theory*. She’s like Joey Ramone and Vince Gallo, a Republican in a hip milieu where Republicans are transgressive and shit. (Being a libertarian wouldn’t be trnasgressive enough, so she’s torture-neutral and vaguely pro-life).

She knows how to talk to liberals, having been born into a liberal family, and if you’ve spent your whole life in a Republican-free environment, she’s interesting.

Whereas if you’ve sent half your life avoiding swarms of Republicans coming at you from all sides, or if you’ve had significant, consequential disputes with Republicans, she’s annoying as shit. (And the you seem unfair and mean, since you lump her in with all the other people you’ve known with her views, whereas in truth she’s a unique little snowflake).

*This new theory is not meant to exclude darker, even more pejorative McMegan theories.

38

John Emerson 02.18.08 at 3:31 am

The following comment was rejected as off topic elsewhere (REVISED):

I’ll share my new McMegan theory*. She’s like Joey Ramone and Vince Gallo, a Republican in a hip milieu where Republicans are transgressive and shit. (Being a libertarian wouldn’t be trnasgressive enough, so she’s torture-neutral and vaguely pro-life).

She knows how to talk to liberals, having been born into a liberal family, and if you’ve spent your whole life in a Republican-free environment, she’s interesting.

Whereas if you’ve sent half your life avoiding swarms of Republicans coming at you from all sides, or if you’ve had significant, consequential disputes with Republicans, she’s annoying as shit. (And the you seem unfair and mean, since you lump her in with all the other people you’ve known with her views, whereas in truth she’s a unique little snowflake).

*This new theory is not meant to exclude darker, even more pejorative McMegan theories.

39

Bruce Baugh 02.18.08 at 5:58 am

John, that makes excellent sense to me, and nicely explains the tolerance she gets from otherwise pretty sharp folks like Matthew Yglesias and Ezra Klein. They grasp the big-scale threats the Republican machine makes, but have a harder time thinking of themselves as the rubes in a local show.

40

Tom T. 02.18.08 at 6:07 am

Re: 35. I think Will was making the point that your earlier comment — “try to wake up Kansas and the rest of America to the fact that they’re being robbed by the tax system” — argues for people to agitate for more taxes on other people (“rich, undertaxed people”), which is what McArdle suggests people want, based on their revealed preferences.

Along the same lines, it seems to me that Henry’s overall point similarly restates McArdle more than it refutes her.

41

GreatZamfir 02.18.08 at 8:36 am

But Tom t., people can prefer that other people pay more taxes, and at the same time prefer that everyone pays more if only other people paying is not an option.

It is perfectly reasonable to want to pay, ceteris paribus, as little tax as possible, while you are still willing to pay more if everyone chips in too so the government can improve services.

Let’s imagine a buying a farewell gift for a colleague about to leave.
A says: -Let’s ll pay 5 bucks
B says: – That’s not enough, if we all pay 10, we can buy something nice
A: -Then why don’t you pay 10 while we pay 5?
B: – No, that’s silly
A: – So, your revealed preference is for 5 bucks?

42

geo 02.18.08 at 5:43 pm

Hear! hear! Greatzamfir.

43

Sebastian Holsclaw 02.18.08 at 6:30 pm

But the preferred progressive position is:

(with 3 people including middle class A1 and A2 and richer B)

A1: Let’s all pay 5 bucks.
B: OK.
A2: Wait we can’t get something nice for a total of only 15 bucks. We get something nice for 150 bucks though.
B: Hmm, I’m willing to pay more for nicer but that seems a bit expensive so why don’t we each pay 25 bucks.
A1: 75 bucks sounds good.
B: Ok
A2: Great 5 from me, 5 from A1 and 65 from B.
B: What?
A2: There are two of us and one of you. Besides, you agreed that 75 bucks would get something nice.

Which is precisely Megan’s point. People have a strong preference for getting stuff on other people’s dime.

44

Righteous Bubba 02.18.08 at 6:33 pm

But the preferred progressive position is:

Yes, the preferred progressive position is to fool the innocent rich guy. Please. That was a dialogue of Meganesque quality.

45

Sebastian Holsclaw 02.18.08 at 7:32 pm

What ‘fooling’? There was no trickery or confusion. They straight up voted to have him pay for what they want.

46

Righteous Bubba 02.18.08 at 7:47 pm

What ‘fooling’? There was no trickery or confusion.

I refer you to comment 43 in which B says “What?” after he believes he agrees to something different.

47

geo 02.18.08 at 8:34 pm

Sebastian, you’re being silly. Are you complaining about the principle of progressive taxation? If so, then come forth and acknowledge your depravity. If not, then are we to assume in your example that A, B, and C all have roughly equal disposable income and wealth? If that the case, then would you connect your imaginary conversation to reality somehow?

48

Sebastian Holsclaw 02.18.08 at 8:54 pm

“I refer you to comment 43 in which B says “What?” after he believes he agrees to something different.”

He did agree to something different, but there was no trickery. They just voted 2-1 for him to pay lots more.

“If not, then are we to assume in your example that A, B, and C all have roughly equal disposable income and wealth?”

Line #2 of comment #43:

“(with 3 people including middle class A1 and A2 and richer B)”

Again, people have a strong preference for getting stuff while getting other people to pay for it. Acknowledging that preference isn’t an attack on (nor is it support for) progressive taxation. It is reality. The reality-based community would do well to deal with it.

We can argue about what the ramifications are about the preference, denying reality isn’t doing anyone any favors.

49

abb1 02.18.08 at 8:56 pm

Where I work they pass an envelope and everyone gives as much as they want. Again, it all depends on the specifics: in some cases people make voluntary donations and that’s fine, in other cases they have to be forced to pay, unfortunately.

50

Righteous Bubba 02.18.08 at 8:59 pm

He did agree to something different, but there was no trickery.

Rollllllling my eyes. Okay Sebastian. You just finish your meal, I’m gonna go next door to get some gum and we’ll split the bill when I get back.

51

Great Zamfir 02.18.08 at 9:44 pm

Uhm, I thought Warren Buffet was the guy Megan was arguing against? If he counts as middle class but not rich, than who does classify as rich?

52

geo 02.18.08 at 9:48 pm

Sebastian: sorry, I overlooked line 2, #43. But in that case, what’s the difficulty? C knows that he’ll be paying a higher assessment as his share of any collective, democratically agreed-on expense, and he agrees (if he’s a decent, enlightened rich person, the kind that admires Warren Buffett and hates Grover Norquist’s guts) that this is just.

How is your example different from progressive taxation? And if you’re opposed to progressive taxation, come out and say so. We can handle it.

53

Bruce Baugh 02.18.08 at 10:16 pm

Gosh, it’s not like it’s been empirically demonstrated that government officials are more responsive to wealthy constituents, or that wealthier people make more use of the entire infrastructure, or have wider-ranging networks of assets supported by government guarantees and facilities…

54

Sebastian 02.18.08 at 10:49 pm

“You just finish your meal, I’m gonna go next door to get some gum and we’ll split the bill when I get back.”

The funny thing about you using this analogy is that you do so as if sticking me with the meal is ok. And furthermore you think it is BETTER if two of you sneak out and stick me with the bill.

“C knows that he’ll be paying a higher assessment as his share of any collective, democratically agreed-on expense, and he agrees (if he’s a decent, enlightened rich person, the kind that admires Warren Buffett and hates Grover Norquist’s guts) that this is just.”

If the vote is 2-1 he isn’t ‘agreeing’.

And if he is agreeing, he could just as easily donate the money without a vote.

Which is precisely Megan’s point.

As for progressive taxation IN GENERAL, I think it is ok to a point but that it is inherently subject to abuse the more people you have paying a lower tax rate. At some point (and we can have plenty of argument about where exactly that point is) you just get a majority voting itself more services without having to immediately worry about where the payment comes from because they vote the cost onto someone else.

I tend to agree with Milton Friedman that it could be better to have a relatively similar tax rate, high enough to support the majority’s spending desires with the majority choosing to exempt or partially exempt the poor from taxation. Essentially it would be a progressive tax rate capping out somewhere near the median income. The point being that the majority of the voters making the decision about what things are spent on would be paying whatever rate was necessary to fund those decisions.

55

Righteous Bubba 02.18.08 at 10:54 pm

The funny thing about you using this analogy is that you do so as if sticking me with the meal is ok.

Do I?

56

Sebastian 02.18.08 at 11:40 pm

If you aren’t going to directly deny it, I’m going to stick with ‘yes’ and let you think you won on debate point niceties. :)

If I’ve misinterpreted the heaping amounts of sarcasm in your last three posts, I…. well I can’t even force myself to apologize for that.

57

Righteous Bubba 02.18.08 at 11:50 pm

I suppose I’ll directly deny it then. Note that Megan’s idiot idea is dispensed with at the very top of this thread.

58

geo 02.19.08 at 1:46 am

Sebastian: I seem to keep misreading your original example (#43). Sorry. And yet, every time I return to it with your latest clarification in mind, a new flaw is revealed. #54 makes it clear that your analogy is not with the tax system at all. A1, A2 and B are apparently discussing voluntary contributions. In that case, what authority do A1 and A2 have to require B to pay $65? None, as far as I can see. So B will simply walk away, if he wants to.

The tax/gov’t expenditure situation is entirely different. Civilized societies have democratically decided that those with greater resources will make a greater contribution via taxes to the common good. Note: not the common good as they define it, but as it’s collectively, democratically defined. Rich people agree to this in principle by retaining their citizenship. In practice, of course, they cheat (both legally and illegally) on a staggering scale, which is why effective tax rates across all income levels in the United States is nearly flat.

Sorry, but I still can’t see that your example proves Megan’s point or any point.

59

xodusprime 02.19.08 at 4:40 am

Geo: In your opening paragraph of #58 you state that if it is a matter of voluntary donation then it has no bearing on a tax system. In your second paragraph, however, you state that “rich people agree to do this in principle by retaining their citizenship,” indicating that taxes are in fact voluntary, accepted by a failure to reject citizenship. Which is it?
I do agree that #43 is a poor example, at least in America. In a pure Democracy this example would work just fine, but since America is a (Representative) Republic it is somewhat more difficult to overrule the will of the minority (in #43 – B)since explicit freedoms and process for the protection of the minority rights have been put in place by the Constitution and the legal system at large.

60

geo 02.19.08 at 4:44 am

Further on #54: Another of Milton Friedman’s plausible oversimplifications, hugely influential only because hugely convenient to the rich and powerful. Those majority voting to spend the money are paying whatever rate is necessary to fund those decisions. A society’s rules for acquisition and ownership of property are just as much a matter for democratic determination as the tax schedule. The relevant moral principle is that whatever is socially produced (ie, everything) should be socially available, with whatever exceptions (enormous at our present abysmal level of human solidarity) are necessary to motivate selfish and talented people. Of course we are, practically even if not metaphysically, individuals; and so individual ownership of property above the median level, even far above (though not stratospherically far, as is common at present), is necessary and desirable. But the notion that more fortunately endowed people are entitled to own as much as they can bribe politicians (rather than honestly persuade their fellow citizens) to let them keep is just a mistake.

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xodusprime 02.19.08 at 5:23 am

“Those majority voting to spend the money are paying whatever rate is necessary to fund those decisions.” Currently. I believe the argument was “it could be better to have a relatively similar tax rate, high enough to support the majority’s spending desires with the majority choosing to exempt or partially exempt the poor from taxation” Indicating the desire to prevent the taxation on the upper bracket from turning into a hot-air balloon piloted by the impoverished.
“A society’s rules for acquisition and ownership of property are just as much a matter for democratic determination as the tax schedule.” It already is, check amendment 5 of the United States Constitution “…nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.”
“The relevant moral principle is that whatever is socially produced (ie, everything) should be socially available, with whatever exceptions (enormous at our present abysmal level of human solidarity) are necessary to motivate selfish and talented people.” So… Communism?
“Of course we are, practically even if not metaphysically, individuals; and so individual ownership of property above the median level, even far above (though not stratospherically far, as is common at present), is necessary and desirable.” So… Not Communism?
“But the notion that more fortunately endowed people are entitled to own as much as they can bribe politicians (rather than honestly persuade their fellow citizens) to let them keep is just a mistake.” I think Judge Learned Hand covered this eloquently when he stated “Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one’s taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands.” Just because the poor don’t have the resources easily available, does not mean that the wealthy should be penalized. If that’s what you want, make it a criminal offence to be a Tax Attorney or an Accountant.

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geo 02.19.08 at 6:31 am

59: Which is it?
Remaining a citizen is voluntary. As long as one remains a citizen, paying taxes is not voluntary. Chipping in to buy a gift for someone is, however, voluntary.

61: the desire to prevent the taxation on the upper bracket from turning into a hot-air balloon piloted by the impoverished
To anyone living in the United States today, the danger of excessive taxation on the rich is so minimal that it hardly need be taken seriously. By “rich,” I’m referring to people in the top 2 percent of the income and wealth distributions.

Communism? … Not Communism?
If communism means Leninist totalitarianism, then no. If it means democratic control of the economy, then yes.

nobody owes any public duty to pay more than the law demands
Just so; no one is suggesting otherwise. This doesn’t mean, however, that it’s moral (even if legal) to influence legislation simply by giving lots of money to legislators, or to hire lawyers who will thwart the clear intentions of the law by making the costs of enforcement too high, as is routinely done. Perhaps you think the tax laws are actually enforced. In the United States, they are not — if your lawyer is ingenious and persistent enough. And even if they were enforced, they’re bad enough. According to no less an authority than Leona Helmsley, “only the little people pay taxes.” And the Inside Trader-, Tax Evader-, and Draft Dodger-in-Chief himself once argued against raising taxes on the rich by sagely observing that they would “just hire fancy lawyers to get them out of paying.”

make it a criminal offence to be a Tax Attorney or an Accountant.
Tempting.

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xodusprime 02.19.08 at 7:48 am

“Remaining a citizen is voluntary….”
While I continue to disagree with #43 as an accurate example for the American Tax system, I do have to say that in the example it appears as though retention of citizenship, or in that specific case membership to the group of 3 was a presupposition. If, however, we wish to stick with “citizenship is voluntary,” we may just as easily say that membership in the group of contributors is voluntary. In order to remain a member of either group, payment is required. With that, both may be expressed:
If A wishes to be a part of group B then A must pay amount C.
Membership in B is voluntary.

“By “rich,” I’m referring to people in the top 2 percent of the income and wealth distributions.”
To tell you the truth, I’m not overly concerned about the top 2 percent of the wealth. What I do, however, find disconcerting is that a household that makes $65,101 will pay 10% higher taxes than a household that earns $65,100. The newest solid numbers I could find were from the Census Bureau in 2005, but in that year: 28.22% of households made under $25,000 and 26.65% made under $50,000. So I’m not talking about the people on a pedestal, I’m talking about 54.87+% of the population who are in the two lowest tax brackets voting in increases for everyone above them.

“If communism means Leninist totalitarianism, then no. If it means democratic control of the economy, then yes.”
Communism – a theory or system of social organization based on the holding of all property in common, actual ownership being ascribed to the community as a whole or to the state.

And you said “The relevant moral principle is that whatever is socially produced (ie, everything) should be socially available…” in #61. Perhaps you could clarify.

“This doesn’t mean, however, that it’s moral (even if legal) to influence legislation simply by giving lots of money to legislators, or to hire lawyers who will thwart the clear intentions of the law… Perhaps you think the tax laws are actually enforced…. even if they were enforced, they’re bad enough…”
Well the beauty of a Republic is that if you don’t like your legislators taking bribes then you are welcome to either vote for other ones or run for office yourself. If enough other people feel that the same way that you do, you just may get elected. You stated “If it means democratic control of the economy, then yes.” We the people are in control of the economy and we vote in several different ways. One is at the ballot box, one is with our bank accounts, and one is with a jury of our peers. We can use any or all of these to affect change.

P.S. I’m enjoying our discussion. I hope you’ll excuse me if I’m rusty.

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abb1 02.19.08 at 8:35 am

What I do, however, find disconcerting is that a household that makes $65,101 will pay 10% higher taxes than a household that earns $65,100.

Apparently you don’t understand the basics of progressive taxation, the concept of marginal tax rate.

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Great Zamfir 02.19.08 at 9:53 am

Sebastian syas:

At some point (and we can have plenty of argument about where exactly that point is) you just get a majority voting itself more services without having to immediately worry about where the payment comes from because they vote the cost onto someone else.

This is reasonable point, and if you look at the tax system of European welfare states, you’ll see they are acutely aware of it. So when they introduced most saftey net features, the money for them was raised, on purpose, through relatively ‘even’ taxes, such as the VAT and obligatory social insurance systems. Both are effectively regressive taxes, but used to pay for progressive policies.

This is a good example of a wider point about democracies: while in theory they could lead to all kinds of dictatorships of the majority, in real life this doesn’t appear to happen.

But I think this distracts from the central point here, namely that it is perfectly reasonable to wish for tax increases for all, including oneself, while still not volunteering for an individual tax increase.

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mike 02.19.08 at 10:00 am

Let’s cut through all the crap.

When Warren Buffett says his taxes are too low, what he really means is he thinks the taxes on the poor are too high.

It’s not like he WANTS to get rid of all his money. He’s just willing to pay a bit more so that the poorest pay a bit less.

So the reason he doesn’t voluntarily contribute more money is because he’s not a moron and he realizes that the bureaucracy will suck up his money and keep the taxes on the poor at the same rate.

I’m going to digress though…

The real UNDERLYING issue here is that the Richistanis (i.e. “screw-‘em” conservatives, as compared to the nearly extinct Jeffersonian conservatives) wonder: “Why does Warren Buffet care if the poor are overtaxed? It’s not like they’d do anything for him if they had more money.” And since they can’t understand why Buffett would genuinely care about the powerless they smell a rat — he must have some ulterior motive!!

Must be because he gets pleasure out of feeling “holier-than-thou.” (G-dd-m do-gooders!!)

Well most liberals do have a desire to feel proud of their actions, and some may have an inordinate desire for it.

But as for me, and I hope for Buffett too, it’s a very calculated sense of social investment. I expect my children and grandchildren will live in America. I want them to live in a country that has very high quality of life across the board. Why? Because you that leads to social cohesion and low crime, not to mention. In the other direction — a large oppressed underclass — are the seeds of our very own Bolshevik Revolution. Or French Revolution. And I don’t want my successful kids to be guillotined by outraged mobs.

When a reactionary thinks of the poor, he thinks of a dumbass who will blow any extra money on beer and drugs. A bleeding-heart liberal thinks of a down-trodden yet noble soul who could achieve so much if only the path was made a little easier for him. The realist in me says there’s both types and a range in between, and the cynic in me says there’s more of the former than the latter.

However my egalitarian instincts force me to agree with Lincoln: “As I would not be a slave, so I would not be a master.” And my Christian upbringing reminds me of the Golden Rule: “Do unto others as you would have done unto you.”

Anyway, point is, Buffett isn’t insecure about not having enough wealth and so he isn’t too worried about having his taxes raised. But that doesn’t mean he’s going to fund the government on his own.

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geo 02.19.08 at 6:20 pm

Well said, Mike. If only Rawls could write as well as that.

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Sebastian Holsclaw 02.19.08 at 9:28 pm

Why should we think that Buffet isn’t capable of saying what he really thinks?

“Rich people agree to this in principle by retaining their citizenship.”

You seem to be implying that if we change my hypothetical to include “you will pay the $65 unless you ‘choose’ to leave your job” that it would change the balance of justice in it.

I don’t think it does, nor do I think you have provided sufficient reason that I ought to suspect it should.

My point, which is really Friedman’s point, is that it isn’t wise as a general principle to set up an incentive structure where people can regularly vote themselves benefits without the expectation that they will be largely contributing to paying for them.

Is that really such a ridiculous point?

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Righteous Bubba 02.19.08 at 9:31 pm

Is that really such a ridiculous point?

Yes.

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geo 02.19.08 at 11:15 pm

#68: Sebastian, I must be missing something again. Of course it makes a difference. In your original example you offer no reason why B need pay $65 involuntarily. So A1 and A2’s “vote” has no force, and therefore there’s no analogy whatever with taxation.

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ScentOfViolets 02.19.08 at 11:39 pm

My point, which is really Friedman’s point, is that it isn’t wise as a general principle to set up an incentive structure where people can regularly vote themselves benefits without the expectation that they will be largely contributing to paying for them.

Which is, of course, why the wealthiest 2% suffer under a marginal rate of 95% for every dollar made over $5 million. Oh, wait, they don’t.

And _my_ point is that data trumps theory every time. What are the ‘revealed preferences’ of people who hold onto theories long after observations have proven them incorrect?

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Righteous Bubba 02.19.08 at 11:56 pm

ScentOfViolets has clearly never visited AntiLiberTopia where the citizens each voted themselves big rockets and boxes of matches and perished in the conflagration.

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Righteous Bubba 02.20.08 at 12:20 am

And the rich guy had to pay for it and could do nothing! NOTHING!!!

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Bob Entail 02.20.08 at 1:30 am

Did Holsclaw stop lowering the level of discussion over at ObWi in favor of lowering the level of discussion over here, or is he lowering the level of discussion at both places?

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John Emerson 02.20.08 at 5:54 pm

Isn’t this a “moral hazard” case?

Suppose that 1.) I think that more money should be spent on schools and that 2.) I think that my taxes should be raised so that more money can be spent on schools.

Why don’t I just donate the money? Because 3.) I also think that school funding is a public obligation and should be paid for by taxes and 4.) people who don’t want to pay taxes should not be allowed to shift the burden of schools to private donors.

I disagreed when Dsquared made this argument elsewhere, because sometimes in bad political circumstances you end up giving in and dealing with the local situation. But Dsquared was right on the main principle, and a common though not universal effect of voluntarism is to favor kids in well-off neighborhoods even more than they already were favored. (The US school system’s local control organization is designed to maintain inequality.)

My use of rational arguments indicated no weakening of my conviction that McMegan is a malicious twit and not worth bothering with. What’s with the Economist, anyway?

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politicalfootball 02.20.08 at 7:35 pm

Tragedy of the Commons covers this case, too. It’s in everybody’s individual interest to avoid paying taxes, but taxation is clearly necessary for a functioning modern society. It’s entirely rational to wish to pay no taxes and to wish to live in a functioning modern society.

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