Some random thoughts on America's tax debate

Todd Henderson's badly written piece about the effects of tax increases proposed on America's "wealthy" and the comments that followed made for reading that was both entertaining and depressing.

There's not much to add to the extensive criticism of Mr Henderson or the very limited support he has received. However, a few random thoughts:

1. like many other developed countries, America is living beyond its means. History has shown that no country can continue to spend more than it earns indefinitely. Sooner or later there will be adverse consequences. At a federal or other government level, there are only three ways to deal with the issue - tax increases, spending cuts or asset sales. Most likely, all three will be needed. So far we've seen a lot of rhetoric and not much action to address the issue;

2. the word "fair" has no place in the debate. It is a subjective term and what is, or is not, "fair" will depend on your perspective;

3. higher taxes have consequences. A person faced with a higher tax bill will either save less, spend less or borrow to maintain spending. Spending less has a negative impact on the goods and services being purchased or charities supported - which will be a negative for the economy and tax receipts from the businesses involved. This does not mean that higher taxes are not appropriate or are not needed, only that higher taxes are not a free lunch for everyone other than those paying the additional taxes;

4. America already taxes wealth. Taxes on dividends are, in reality, a wealth tax - the company has already paid tax on the earnings (profit) and paying a dividend is merely transferring part of those tax paid earnings to the real beneficial owner. Taxing those earnings again is a tax on wealth. The same can be said for capital gains taxes (at least in part). To the extent that capital gains reflect an increase in value arising from tax paid profits being retained by the company, the capital gains tax is a tax on wealth. Likewise, a reintroduction of estate duty will be a tax on (tax paid) wealth;

5. too much of the debate over America's deficit and debt problems is resembling class warfare for my liking. One of the problems America faces is that the number of people paying meaningful amounts of tax is much smaller than the number of benefiting from taxpayer funded support. While this can be taken as evidence of growing income/wealth inequality, it also has other implications. Everyone wants someone else to bear the burden and will support proposals that have that effect, either through public debate or at the ballot box. This is not a healthy situation as the resulting proposals and actions too often end up being an exercise of power by a majority over a minority. It also isn't an answer as the the number of "wealthy" people represent a sufficiently small minority that no amount of tax increases on them is going to come even close to addressing the underlying problem;

6. if Mr Henderson's writing is indicative of his teaching standards, I don't want him teaching my children.

With the exception of item #6, these issues are not unique to America. Many other countries face similar issues. Few countries are dealing with them in an effective manner.