Ethics vs. Haggling

“Class warfare”, “fair share”, “job-stopping”, “skin in the game”. The talking points of the tax debate make it sound like there are fundamental, ethical decisions being made.

But really, the situation is analogous to this joke:

“Madam, would you go to bed with me?”
“Not a chance.”
“Well, what if I offered you ten million dollars?”
She paused. “Maybe.”
“Okay, how about fifty dollars?”
“What do you take me for?!”
“We already established that. Now we’re haggling.”

Haggling is exactly what we’re doing. The minimum / maximum tax rates have varied from 1% / 7% to 22% / 94% over the past century (currently ~10% / 35%). And less than a hundred years ago, there was neither social security nor medicare (and not many social programs you’d recognize).

And yet throughout that period, the US was a capitalist nation, a democracy and a viable economy.

So let’s be clear on this. We’ve established what we are. Now we’re just haggling over the price. Yes, this haggling will have a real impact on real people. But it’s not going to make the rich people leave or stop trying to make money, nor will it kill all the jobs, nor will it turn the country evil.

Balancing Revenue, Spending and Debt.

The details of this haggling aren’t that complicated, either. It boils down to balancing three money buckets: Revenue (taxes), Spending (social programs, military, etc), and Debt. We are currently at a balance that is unsatisfactory to many, so the debate is: what do we change in order to correct that balance?

The two problems: Not Enough Jobs, and Too Much Debt.

Those two are the particular concerns that most preoccupy us. The first is an immediate problem, the second is a long term problem, but any plan should try to address both.

To reduce debt, we can cut spending or increase revenue. How to create jobs is less obvious, but we can consider the impacts of spending cuts / revenue increases on them.

Increasing taxes reduces jobs because it takes away money from the private sector. It also has a long-term chilling effect on the economy, in that it makes productivity less attractive (this is largely only true at the extreme ranges of taxation, however).

Cutting spending also reduces jobs, since the money involved employs the workers who implement the programs (e.g. military, contractors), and any money given to the poor gets spent almost immediately on job-producing goods and services.

So really, which reduces jobs more? It’s tough to say.

It so happens that I believe that increasing taxes (within reason — not so much as to truly discourage capitalism) is preferable. Additional money in the private sector may go toward creating new jobs, but most of it goes into investment, which is not an effective way to grow the economy.

Conversely, additional money in the public sector largely gets spent outright, which means products get bought, services get rendered, and workers are employed. For the same amount of money, in the context of the current balance, social programs are better job creators than the private sector.

However, you can make the opposite argument. Just remember that you’re haggling over the price, not over the nature of the beast.

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