Tuesday, February 17, 2009

Tax Policy and the Dewey Decimal System

I’ve been thinking about the question of how to equitably distribute tax burden in society.

100’s  Philosophy
200’s  Myths & Religion
300’s  Social Science
400’s  Language
500’s  Science
600’s  Technology
700’s  Arts & Recreation
800’s  Literature
900’s  Geography & History

It may help you to know I'm a serious fan of the Dewey Decimal System not just for its ability to classify books in a library, but for the underlying philosophy that led to its categories. I don't even 100% agree with the categories that resulted—I just like the thought process Dewey went through in order to arrive at the categories.

Melvil Dewey conceived of an ordered series of questions that primitive man must have asked as he evolved socially, intellectually, and culturally from a cave dweller to a citizen of civilized society.

100’s  Who am I?
200’s  Who made me?
300’s  Who is the man in the next cave?
400’s  How can I make that man understand me?
500’s  How can I understand nature and the world about me?
600’s  How can I use what I know about nature?
700’s  How can I enjoy my leisure time?
800’s  How can I give my children a record of man’s historic deeds?
900’s  How can I leave a record for men of the future?

When trying to wrap my head around a conceptual space, particularly one that involves a series or evolution of steps, I sometimes find myself reaching for Dewey's list of questions to use as a kind of conceptual scaffolding while I try to devise something better to use. And that's what I found myself doing in this case.

One's economic life, it seems to me, follows a structurally similar evolutionary path to the one Dewey describes. Admittedly, some go to college and some don't. Some start families and some don't. So the details will differ. And even for the shared issues, we might each confront them in a different order. But that was true for Dewey's system, too. So use your imagination and you'll quickly see where I'm going.

We start life with our parents taking care of us, asking questions like this:

Hey, Mom, where‘s my lunch money?
How can I afford an iPod on my tiny allowance?
How am I ever going to afford college?
How can I get a job that pays enough for me to live on my own?

Finally we break free and set out on our own, struggling at first to become self-sufficient:

How can I afford an apartment?
How can I make enough money to buy groceries?
How can I afford to buy new clothes?
How can I pay for transportation to and from work?
How can I afford to pay my college loans?

It's a good feeling to get these items under control, but it's not enough. Yes, paying for the basics is good, but we're still at the point of being hand to mouth, with no margin for error. We still have to plan for contingencies. If we can't handle those, we're only kidding ourselves in our belief that we're self-sufficient:

Heat costs how much? How will I ever afford that?
Hey, my car broke down. I was supposed to budget for that?
How can I afford that medical treatment?
Wait a minute. I can't afford to be unemployed. What now?
While still repaying college loans, I have to re-educate myself?
What if I'm unable to work later in life?

If we're lucky, we do eventually rise above it, but often it takes a long time. Ideally, though, once the above items are mastered, we start to have surplus income and can finally turn our attention from needs to wants:

How can I repay those who have been helping me?
How can I make enough money to afford an iPhone?
How can I make enough money to afford cable TV?
How can I afford to go on a vacation?

At this same time, we may begin nesting:

How can I afford to buy a house?
Can I afford to have a family?
How can I afford to feed, clothe, and house my family?
How can I survive the loss of a job without putting my family at risk?
Can I assure my children go to college?

Or our world may expand in other ways:

How can I help my friends?
How can I afford to contribute to charities?
Can I employ others by by starting my own business?

My point here is to portray life as a continuum from helping ourselves to helping others. And finally now with that in mind I can make some of the points I wanted to make.

First, it should be obvious that the first and most important thing each of us can do to help society is to eliminate society's need to help us. If we are not self-sufficient, we cannot help others.

I mention this because I've sneakily omitted taxation from the above lists of questions. This is because I want to make a point about where taxation is appropriate. It seems obvious to me that presently we tax people before they are able to help themselves. And I just don't see the point of that.

Taxing lower income people delays the time in their lives at which they can be self-sufficient. It also introduces inefficiency into the system: The entire process of taxation expends societal energy that is simply lost productivity. Taxing our weakest members is silly since they'll just turn around and ask for the money back—and the process of getting that money back to them will use up some of the money. Our tax revenue should come only from genuine individual surpluses.

And by surplus I don't just mean that people should have a few dollars left in their paycheck to go to taxes. I mean that everyone should try to fill a savings account with $100,000 for emergencies. If they haven't got that, and most people don't, then they aren't ready for the kinds of major expenses life is sure to dish out—unemployment, illnesses, accidents, retirement. Once they've provided for those, then they can begin generating a surplus.

They should be filling that account before they get to the point where they are allowed to pay taxes. Paying taxes should be seen as a privilege, a status symbol, something people aspire to do as part of their personal growth.

Of course, that might not leave a lot of taxpayers. What a burden that will be on those who are able to take care of themselves. Darn. That's awful. We hear all the time about how the economic system is not a zero-sum game, and how it's possible for someone to get rich and for others to do well. Fine, let's see it played out.

If the wealthy want to be taxed less, they should arrange for society to enrich as many others as possible, in order to have friends who share the “burden” of taxation. If enough people make a decent enough wage to achieve a surplus, it won't be so lonely at the top. If instead the present trend continues, concentrating the wealth in an ever-shrinking portion of the population, those few wealthy should expect to pay a steep price for membership in that elite club, because the rest of us can't afford to help pay the taxes until we can afford to take care of ourselves.

Click here for more information
about the Dewey Decimal System.

Author's Note: Originally published February 17, 2009 at Open Salon, where I wrote under my own name, Kent Pitman.

Tags (from Open Salon): taxes open call, jobs, retraining, unemployment, illness, accident, rich, wealthy, wealth, low-income, poor, tax burden, wealth redistribution, income redistribution, medical emergencies, retirement, tuition, college, education, finances, politics


Brett Bazant said...

One idea that comes to mind with reference to the idea of making people fill a bank account *before* they are taxed is that many aspects of our society are arranged to encourage us to spend our money (and incur debt) and not save at all. A friend of mine who is 65, has nothing set aside for retirement, and is 500K in debt, has a lifelong history of spending on his lifestyle instead of saving. He recently told me "if I had a second chance, I would have spent twice as much." Banks are trying to give us debt, TV is trying to tie buying trinkets to our sexual urges, and the War Machine is telling us we are under constant, imminent existential threat. So clearly we need to spend trillions of dollars on bombs and general domination. How about some kind of incentive for the saving for the less-well-off? Maybe for people below a certain wealth level, if you cannot show you have saved 20% of whatever income you did achieve, then you DO have to pay taxes? One way of looking at this would be "if you can't arrange to look after yourself, we will MAKE you pay so we can look after you later." Another very interesting topic which is coming up more lately is the universal basic income. I think I'm really starting to like the idea. How about a thought-provoking treatise on this Kent? And very glad to have found you here, thanks for the links from our Reddit conversation!

netsettler said...

Hi, Brett. Thanks for the thoughts.

I think you'd still have to have some kind of exemption for basic living expenses. People who are just breaking even shouldn't be expected to save. Saving is something you do with surplus, and below a level there really is none. But I think your basic premise that some form of set-aside, whether through taxes or savings, is warranted.

Also, these things are inevitably solving more problem than just one, and have to take very complex stuff into account. I have a friend who is well-to-do who claims that no one should be taxed on money they spend, only on money they save. I think again his theory only makes sense if a certain basic planning for the future is done, but it's apropos here. His theory is that saved money doesn't help the economy much, while spent money is helping a lot. (There's a technical term for this, which is the "velocity" of money.) For example, if he eats out a lot, he's helping others in a way that reflects directly in local paychecks, so the government has an interest in encouraging that. So you want to incentivize people (presumably after they've saved for basics) to employ others.

That, in turn, gets into the messy question of whether you are encouraging resource use or just services. If you haven't seen my article Corny Economics, it gets into that a little. Can't do it all in one post. :)