Tax policy should reward merit: raise taxes on money nobody could earn or merit

On April 24, the "liberal" Washington Post published a high profile article by economist Arthur C. Brooks, arguing that "Obama is wrong when he says it's 'fair' to tax the wealthy." Most of the so-called "liberal media" bend over backwards to showcase conservative opinion, and to highlight any political current of hostility to perceived "liberalism." The Post is no exception. Whether this is fairness or political masochism remains open to debate.

Brooks offers an erudite, eloquent, emotionally appealing argument. No doubt he has sincerely convinced himself. The only flaw in his presentation is the facts on the ground that he conveniently omits.

Brooks offers several game-playing experiments - popular in many academic fields that try to understand human behavior. In one, a person is issued $10 - unearned, as Brooks emphasizes. They are asked to make an offer to split the $10 with a second person. If they can't agree, neither gets any money. Generally, the second person will accept an offer for $4, but anything less will be rejected as "unfair."

Then Brooks turns to a survey about buying beer. It seems people tend to tell research assistants they would be willing to pay more money to buy the same beer from a fine hotel than from a run-down grocery store. Seventy-percent of people, say the latest surveys. Then Brooks jumps to his eagerly-anticipated conclusion: "The $10 game involves redistributive fairness; the beach-beer experiment reveals meritocratic fairness."

Meritocratic? There is NO difference in the "merit" of the beer. No research assistant seems to have offered the option of paying more for a luxurious room at a fine hotel, because that is worth it, but paying what the beer is worth when buying beer, rather than paying more because it is sitting on a shelf in a fine hotel.

But that is a better way of talking about fairness in our tax system. Nobody likes paying taxes, but if there are no taxes, there will be no government: no police protection (unless you can afford to hire your own private security), no traffic lights, no street cleaning, no military defense, no coast guard, nobody inspecting our food to make sure it is free of mouse droppings and salmonella...

There is no greater merit in beer bought at a fine hotel. The consumer is not paying more for a better quality product. The vendor is charging the customer more simply because they can. Brooks runs on at some length about whether a secretary who is "quicker, more efficient and more reliable" should be paid more than one who is slower, less efficient, and less reliable. Almost nobody would deny the better secretary better pay.

Unfortunately, among those who wouldn't bother to pay the more skilled and reliable secretary more, are a large proportion of those who do the hiring, firing, and setting pay levels in American businesses, particularly at the corporate level. They are too busy paying themselves huge packages. Then they cry "merit" when the president attempts to at least give the hard-working secretary a tax break.

There are stratospheric compensation packages which have nothing to do with "merit." The difference between an entry-level job paying $20,000 a year and a responsible position paying $60,000 a year may well be demonstrated ability, invaluable experience, and skill. The difference between $100,000 a year and $1,000,000 a year may indeed by the drive, acumen, and long work days over many years that build a successful business from scratch.

But what about the difference between $1,000,000 and $30,000,000 a year? Are there enough hours in the day for a corporate CEO to work thirty times harder than the self-made entrepreneur? One might argue the opposite. On pure merit, it is the woman or man who builds a business from scratch who should be making the bigger money. The corporate CEO is stepping into a business built by others before his father was born.

How much more is a top-earner worth, on merit, than the secretary in the local branch office, the janitor who cleans the building, the window-washer, the local salesman, the newest graphic artists in the advertising department? Thirty times as much? One hundred times as much?

Try this out for "fairness" and "merit." Add to the existing minimum wage laws a provision that the lowest paid employee of any enterprise shall be paid no less than one percent of the total compensation package of the highest paid executive. One percent. A penny for every dollar. Oh dear, $700,000 a year entry-level janitors!

In the long run, perhaps CEO compensation would come down to $7,000,000 a year (what a harsh penalty for being entrepreneurial). That would bring the janitor down to $70,000 a year, which, frankly, a good, hard-working, skilled janitor is worth. We all want our bathrooms clean, but none of us want to clean them ourselves.

The laborer is worthy of his hire. Where would all the revenue go that is no longer funding outsize executive packages? It might go into new investment, which might actually create some of the new jobs corporate executives pretend to create. Or, it might go into lower prices, so the rest of us could manage to live on what we earn.

In the meantime, nobody, in any income bracket, is going to be robbed of the rewards for their labor by paying a few more percentage points on their highest tax bracket. Like all of us, the wealthiest in the land can take the Standard Deducation, tax free. Usually, they file a Schedule A to take much larger deductions. They pay only 10% on the first bracket of taxable income, after all the income that is tax free. By any tax proposal on the table, they get to keep 65 percent of the income in the highest tax bracket.

Frankly, business derives a large part of the benefits of government operations, as much or more so than do those who depend on government programs such as Medicaid for their survival. There is no reason that large business incomes should not bear a higher share of the costs.

Let's try a different analogy. I'm researching a biography. It is not likely to be a best seller - few biographies are. I need to consult at least three archives at universities and historical societies. None of them charge admission.

It is good, and right, that they don't charge admission. It would be an unconscionable infringement on the free market of ideas, on diligent inquiry, to require payment for access to our common history. But, it does take money to run these archives. Someone does the work of sorting, filing, categorizing, typing up finding aids and indexes. Someone unlocks the doors and supervises and pulls the boxes.

On the rare occasions that someone who has used these archives has a best seller, they darn well ought to share a chunk of the revenue with the archives. Yes, the author put a lot of hard work into writing a best seller, and they deserve to profit by it. But, many no less deserving or hard working are not so fortunate. Without the archives, and all the work and costs to sustain them, the best-seller could never have been written.

Why shouldn't those who make a lot of money be the ones expected to give a lot back? Not everything, not even fifty percent, but a substantial sum. Those who didn't make money don't have money to give.

When it comes to taxes, we all get to keep most of what we need for basic survival, ALL of us, even the wealthiest. We pay a bit more on the income over and above our most basic survival needs. And we pay a bigger chunk, but much less than half, of the money that is way beyond what anyone "needs." That is as it should be.

This is going to stifle entrepreneurial initiative? Nonsense. Nobody ever walked away from $1 million, because they would only get to spend $720,000 of it. The highest compensation packages aren't for entrepreneurial intiative anyway. They are paid out by well established corporations to people who simply move money around in well established channels, making darn sure they really ARE "too big too fail" so that when they blow it, taxpayers HAVE to bail them out to avoid a full-blown Depression.

Anyone who is serious about eliminating the deficit, and paying down the national debt, MUST face the fact that tax revenues are what we pay these down with. It is unfortunate that George W. Bush and his minions doubled our national debt during good times, when we should have been saving for a rainy day. But they did, and they did it in our name, after promising that we could have our cake and eat it too. Now it's time to pay for the mistake of believing them.

Let those who make far more than they "need," far more than anyone's "merit" could explain, pay more. It is the least they can do for their country and their generous fellow citizens. Give the real entrepreneurs, and those whose work has real merit, a well-earned and long-overdue break.

The sole proprietor as yardstick for class struggle

The working class and the employing class have nothing in common. There can be no peace so long as hunger and want are found among millions of working people and the few, who make up the employing class, have all the good things of life.

Between these two classes a struggle must go on until the workers of the world organize as a class, take possession of the earth and the machinery of production, and abolish the wage system.

----- Preamble of the Industrial Workers of the World

History has not exactly sustained the premise that the working class and the employing class have nothing in common. The working class and the employing class are each collections of fractious individuals who, for a variety of motives, are all over the political map, and seldom agree as a whole on much of anything.

But there is antagonism built into the relationship of employer to employee. There is no better way to identify why, than to examine the very different situation of an individual sole proprietor, who owns their own business and does all the work to make the business prosper.

"My own business"

If a sole proprietor decides that growing the business requires putting in extra hours, they and their family personally suffer the costs of that decision. The same individual and family reap the benefits, in the form of increased business from increasingly loyal customers impressed with the ever-increasing quality of the product or service the business delivers.

If a sole proprietor takes time off, there is no "paid vacation." Either the business owner shuts down the business for a time, foregoing the revenue that could have been made, or, hires at her or his own expense a temporary employee to keep the business open and operating. If the owner takes no vacation, they personally pay the social and emotional price of disappointing the family, or of sending the family off on vacation while remaining at home to work.

If the business fails, the proprietor, and their family, are the ones who pay the price. The proprietor made the decisions, and lives with the consequences of their own decisions.

At the end of a long life building a business, making sacrifices in the short term to prosper in the long term, the sole proprietor can look forward to a well provided-for retirement, either selling the business for a lump sum, providing a nice nest egg, or turning it over to a successor in return for monthly payments.

The employer and employee divide up the costs and benefits in a very different way.

Wage Slavery

In the absence of labor protection laws or a union contracts, if an employer decides that an employee at will should work extra hours, the employer reaps the benefits, but the employee and the employee's family pay the costs. If an employee is ill, or their child is sick, and the employer insists they must come to work, the employer reaps the benefits of attendance, but the employee's health, or family life, suffer the pains which are the price of showing up for work.

In the absence of a pension plan, an employee receives only their weekly or bi-weekly paycheck. One of the effects of "market forces" is that this paycheck allows little for savings, being just enough to pay living expenses, paycheck to paycheck. Employers do not, unless strict laws or powerful unions require it, set aside a portion of the revenue from an enterprise to insure that EVERYONE who makes the company's prosperity possible is provided for in their old age.

If the stockholders and managers made bad decisions, not only do they lose, but a substantial work force which had no part in making disastrous choices is out of work.

It is entirely understandable human nature that a business owner would put the business first. They are not suffering the pains that their employee(s) suffer. It is equally understandable human nature that an employee would resent the high-handed behavior of the boss.

Thus, in any enterprise where the functions of owner and manager, are divorced from worker and employee, the result is class struggle. It is as natural as breathing. Costs and benefits fall differently on each class of persons. This, and this alone, all members of a given class share in common.

Failures of socialist construction

One of the failures of socialist construction to date, starting with the Soviet Union, but including India, Tanzania, and many other socialist experiments, is the fact that state administrators in practice feel the pressures of managers, but not the pressures of employees. A sole proprieter personally feels and pays all the prices, and reaps all the rewards. The manager of a socialized state enterprise does not, any more than the manager of a private capitalist enterprise.

Alternatives such as worker self-management or cooperatives are unsteady, because most of the working class, most of the time, don't really want to be bothered with devoting time and effort to administration.

The reason there is leadership in trade unions is that the number of people with ambition to lead and skill at organizing is only a minority of the total union membership. The reason there is political conflict within unions is that the number of people with ambition to lead and skill at organizing is somewhat greater than the total number of leadership positions available.

All ideologies are either utopian abstractions or blatant hypocrisy. The most rabid advocates of the "free market" party line (yes, it IS a party line) are first in line for government subsidies, loan guarantees and tax credits. Likewise, the working class hero who lives only to sacrifice for their brothers, a sterling champion of justice, is a figment of intellectual daydreaming.

Working class heroes

There are working class heroes, but like everyone, they act on motives. They may be high-minded enough to rise with the ranks, not from the ranks, but they do want to rise. Union officers who are on call 24/7, and work sixty to eighty hour weeks, sooner or later desire to be reasonably well paid for it.

Progress is seldom achieved by reasonable men and women sitting down to work out reasonable solutions. Progress more often emerges from the clash of opposing forces, each motivated to get the best deal for themselves. But a stable, lasting solution, one that isn't undone then redone every time a political balance shifts, requires some thought.

More important, it requires some real attention to the over-used slogan "People before profit." A sole proprietor absolutely needs to profit from their labor, and their investment of capital to improve the productivity of their labor. But it is all theirs. It is all done for their own person and their own family.

The purpose of economic activity is to provide for human life. The purpose of human life is not to provide a motive power for economic activity, as an abstract good in itself. If the working class as a body cannot literally take control of the means of production, then a rebalancing of the costs and benefits of production is the minimum necessary concession to the reality of class struggle.

Rewriting history: the middle east in 1947 and 1967

An anonymous comment on a previous article, What Really Happened in Palestine has posed the question, what would you have done in 1947?

I'm not sure I can answer that, but let me start by working backward from 1967. I can't blame anyone for not recognizing, in the heat of the moment in 1967, what seems evident now with 20 / 20 hindsight, from a comfortable desktop in mid-America. But the last half century could have worked out so much better.

In 1967, there was no question that Israel was under attack from at least three nations, backed by the resources of at least a few more. Israel moved pre-emptively, but only when it was blatantly obvious that armies were mobilizing for all out war in Egypt, Jordan and Syria. Israel won, hands down. It was the last time in history when Israel could credibly present itself as a scrappy underdog acting in pure self-defense.

Among the territories Israel militarily occupied were the Gaza strip, illegally seized by Egypt in 1948, and the west bank of the Jordan River, illegally seized by the Hashemite monarchy of Jordan in 1948. Both territories had been part of the British Mandate of Palestine, and therefore, if not part of Israel, should have been the land of an indpendent Arab state in Palestine. That's what the UN resolution to partition the mandate had directed.

So, Israel could, at that moment in 1967, have proclaimed itself the liberator of an independent Arab Palestine, in conformance with the UN resolution, from illegal occupation by neighboring kingdoms. The national socialist Arab successors to some of those monarchies would have howled, infiltrated saboteurs, etc. of course. But, if a truly independent self-government had been rapidly developed behind the protection of the victorious Israeli army, the feudal monarchies and national socialist republics might have had to move on to some other pretext for demagoguery.

A Talmudic scholar who fought in the 1967 war, and now lives in America, has suggested that Israel should have outright annexed the entire territory. His personal experience was that Arab civilians told him they were looking forward to Israeli citizenship, after experiencing the Hashemite monarchy and its minions. That would have raised howls of protest at the UN. But, if Israel moved quickly, dissolved the stinking refugee camps, moved the population onto available land or into available industrial work, when feasible even returned traditional family homesteads (where that did not displace people who had been improving the land for themelves for over 20 years), it might have drained the abcess of "resistance" politics.

Either solution would have been better than the stalemate of the last forty-four years, keeping "Palestinians" in limbo, breeding various forms of protest and terror.

Could anything better have been done in 1947? The British had no will at all to do this, but if control had passed to a power that did, it would have been good to delay partition, keeping the entity of Palestine intact. It would also have been good to develop a highly trained military strike force to exterminate the Grand Mufti's most loyal forces, especially the Nazi-trained legions (and kill the Nazi refugee trainers), then either remove or isolate the man himself. Balance would have required taking out the Stern Gang also, and possibly the Irgun.

Then, a period of testing out what worked, slowly and painfully, might have involved dividing the territory into rather small political units of at least five varieties. In places where Jewish Kibbutzim and Arab villages led by Muktars had been getting along, combine them into regional cantons, leaving local self-government unimpaired, with cooperation only on larger projects, like water and irrigation. Were there such valleys? Leon Uris wrote about that in different ways, in Exodus and The Hajj. Absent the Grand Mufti and his allies, either one could have been worked with.

There would also have been overwhelmingly Arab areas, to be left alone and excluded from Jewish settlement, and overwhelmingly Jewish areas, to be administered as such, and open to additional Jewish settlement. There would be some area where various populations were intermixed, and happy to be so. And there would have been vacant lands, which would be designated for development by people from various adjacent areas. Some, but not all, would have been available for Jewish settlement.

Major cities and religious shrines would have had to be handled to provide general access, if that could be done while preserving public order and security. Hard work? Yes. Impossible? Maybe not. The British didn't care to even try. It would have been worth pointing out that, when the mosque on the Temple Mount was built, the rashidun caliphs went to great lengths to assemble as many pieces of the Second Temple as they could find, on the site where the Romans smashed the entire complex, and incorporated them reverently into the walls of the mosque.

In ten or twenty years time, decisions could have been made to partition the territory into two, or three, independent states, or a federation with a common national defense policy. All this assumes that British mishandling set off a racial and religious war that didn't need to happen at all.

Or, perhaps it was inevitable. If enough Arabs were willing to kill all Jews, and all Arabs who didn't join in the campaign, if enough Jews were willing to kill Arabs indiscriminately, then perhaps open bloodletting to set boundaries was unavoidable, however sad. In that case, the next opportunity would have been 1967.