Morning Browse: Congestion Charges

New York is looking at introducing a congestion charge for part of the city. London and Stockholm already use congestion charges to decrease traffic in certain areas, but New York would be the first city to introduce such a system in the United States.

The U.S. does use congestion charges on its toll roads. The purpose is to keep the traffic on toll road flowing at a certain minimum rate. To roads in Northern Virginia aim for an average speed of 65 m.p.h..

The proposals have been attacked by some, saying that congestion charges and toll roads create a separate infrastructure for the haves and leaves the have-nots in traffic. This objection, however, misses the point. The fees raised from congestion charges are used to maintain all infrastructure, not just toll roads.

It reminds me of the economics of airplane tickets. Simply put, if it were few a few people flying in first class, airlines wouldn't be making money on a lot of flights. First class makes transatlantic flights economically feasible.

China also makes extensive use of toll roads for highways. One of the nice perks of a holiday is that sometimes the government does a deal and reduces the tolls, which sort of defeats the purpose. Anyways, thanks for reading.

Recently, things have been busy at work, so I'll be putting out just one or two posts a day.

Slate Star Codex: On Taxes

So I've started diving in on Slate Star Codex, an interesting blog, that covers mostly topics relating to politics, rationality, and psychology.

I've been told it has a bit of a reactionary tint, and that Slate Star Codex is dangerous because the author is a clever man, but writes on subjects he has no particular expertize in. So I thought I might poke through his archives and see what I think.

I wouldn't claim I'm an expert, but I do have degrees in international political theory and another in philosophy, specifically philosophy of science. and given my family background, I also have a lot of exposure to military issues and China. Anyways...

In one of his posts, Scott compares the GOP's Tax Bill to other "expensive" things. Analyzing a tax cut in such terms, however, is just fundamentally wrong. Tax bills change tax rates, not tax revenues. We won't know the true cost of the tax bill until it's implemented. The figures he works with are estimates.

You might say I'm sea-lawyering, but I'm not. These estimates are difficult to make. But the author commits a even deeper error.

The writer is committing a category-mistakes, which betrays his view of states and their relation to citizens. Tax cuts like the GOP Tax Bill and the Bush Tax cuts and things like the Apollo program and the Obama Stimulus are different types of things. It's misleading to compare them in terms of cost. We see this when we examine the figures more closely.

The numbers are just different. For the Apollo program, he just takes the budget figures. But that's not the true cost. It doesn't take into account the economic impact. But for the the GOP Tax Bill,  he does attempt to take into account economic impact.

In short, he's comparing the accounting costs of some government proposals to the economic costs of other government proposals proposals.

Finally, he's just wrong. Is it a great proposal? Probably not. Is it a terrible proposal that will trigger a crisis? No. The bill doesn't just benefits corporations. Even Krugman doesn't believe that.

Taxation : Equal Pay for Equal Work

According to Leftists, equal pay for equal work is a basic principle, particularly when they discuss the pay gap between men and women. Today, however, we're discussing how progressive income tax violates this principle.

Suppose you have two individuals. Let's say they're lawyers and make a fairly steady income. For the ease of calculation, let's say they both make roughly $100 an hour. And for the sake of our conversation, we'll say their work is of an equal caliber. 

Let us also suppose we have a country with three tax rates: 

A: 0% for people making $29,999 or under a year.

B: 15% for people making between $30,000 and $49,999 a year. 

C: 20% for individuals making more than $50,000.

As I mentioned in a previous post, progressive taxation is inherently discriminatory because the difference between an individual making $29,999 and $30,000 is arbitrary. Why is it justifiable to take 15 cents away from the latter and not the former? 

But that's not the question we're considering at present. Suppose one of our lawyers has had a bit of luck. He's been working for a few years, but he's mother went and did a very nice thing. Soon after he was born, his mother purchased a deferred annuity for her son, and she has dutifully been making the payments ever since. The annuity has been accumulating for 30 years. Now it has finally started distributing. It pays $3,000 a month. 

What will our lawyer do now that's he's making an extra $33,000 a year?

Let's suppose he made $20,000 from lawyering, working a mere 200 hours a year. He now stands to make $53,000 a year, putting him in the top tax rate. Will he continue to work those 200 hours? Perhaps. Perhaps not. 

What we do know is this. If our lawyer decides to work even a single hour, charging his normal rate, he'll take home only $85. Compared to the $100 the other lawyer will take home. Is this fair? It certainly isn't. But maybe you don't care for fairness. I can't say I blame you. 

How does this action harm the wider community? It can harm the wider community in one of two ways:

1. The lawyers aren't equally competent. The lawyer with the annuity offers a superior service. Because of his increase in income, he cuts back on his hours. This harms the entire community. His former clients get into legal complications. Trails take longer.
2. The lawyer with the annuity curs back his hours, and the one lawyer left in the game raises his rates. 

By introducing a progressive income tax, we inevitably distort prices, which have repercussion for society as a whole. 

Taxation without Universal Benefits

Spectator has an interesting article out. You should read it. It claims that 42% of Americans are on government funded health care. I'm willing to believe that. it is 5% than one of my own attempts, but they included other programs that I didn't.

The interesting part is the author's claim that services like health care ought to be provided as a universal benefit. Otherwise the minority of Americans who are taxpayers end up getting taxed for nothing, essentially being robbed. I think that's a decent point, but I don't quite agree with the solution.

If we do go down the path of making health care a universal benefit, we'll end up, I feel, with an NHS of our own, which hasn't been a success. NHS in America would likely be an even quicker failure than in Britain. The NHS right now is hemorrhaging cash on compliance and data collection surrounding the internal market, which basically let contractors enter the system.

I can't imagine such a health care system being created in the US without such a market component in the first place. So any American NHS would be saddled with compliance and data collection to monitor contractors and determine contracts from the very beginning.

Food for thought. Introducing free markets to government programs isn't alway a good idea. 

Research Update: Income Tax

I've been spending my evenings slogging through Hansard, specifically for 1909-1910, researching the debates surrounding the introduction of progressive income tax. No major news to report, but there are three interesting bits to report.

• Deductions for Employing Servants It appears that military officers and other individuals were allowed to deduct the wages of their servants from their income. Its interesting because a lot of these young officers are the sort of people that would make just enough money to be taxed. It's also interesting because Hayek says that progressive income tax makes employing servants much more costly. Hayek uses an example like this. Suppose I am a writer. Writing articles, I can make $10 an hour. To free up an hour of my time, I decide to call in a maid for an hour of work a day. She charges $5 an hour. Without taxation, it makes perfect sense to hire a maid. But suppose I am taxed at 50% of income and my maid at 0%. It no longer makes much sense to employ her. I am actually working on another article that examines he impact of taxes on the decline of household servants.
• Direct Taxation as an Emergency Measure Earlier in British history, income tax as a wartime measure. It was introduced to fight the Napoleonic Wars. After that emergency was met, the tax was repealed. A few decades afterwards, it was reintroduced under Peel. Looking at the government speeches, they expect the opposition to object to increased rates on grounds of national security. The idea is simple. In peacetime direct taxes must be kept at a minimum to allow economic expansion, creating a reserve of wealth that can be tapped by higher tax rates during wartime. It is an interesting argument. Indeed, during much of American and British history, tax rates are increased to meet war spending. During the First World War, however, the Germans didn't increase tax rates dramatically. Instead they increased borrowing and resorted to printing money to pay off their subsequent obligations. They suffered dreadfully as a result.
• Super Tax Unopposed In the Commons, people simply aren't objecting to the top rate. I still have 120 pages of result to go through, and I haven't even started in on the debate in the Lords, where the resistance was strongest. It's very interesting. The difference in rates is so minor that people in the Commons simply seem to take it in stride.     

Is Progressive Taxation Discriminatory?

As I mentioned earlier, the next few weeks I’ll be focusing on taxes, specifically progressive taxation. Progressive taxation is where the state taxes people at different tax rates depending on their wealth or income. This is usually justified in one of three ways.

1. Consumption taxes, such as sales tax, are inherently regressive, because people with lower incomes spend a greater proportion of their income on goods and service. If we make income tax progressive, we can make the overall tax rate equal. Therefore, we should make income tax progressive. 

2. The only way we can fund useful social programs is through progressive taxation. The middle class is either too small or not rich enough to support the burden. Therefore, the rich must be taxed at a higher rate. 

3. Alternatively, a proponent of progressive income taxation can bite the bullet and say it’s all about redistribution.

In any democracy, there is the risk of the majority exploiting the minority. Hence our having a Bill of Rights and the rule of law. Now income tax as it currently is practiced violates the rule or law because it is arbitrary. Once you adopt the principle that some should pay more than others, you still must decide:

1.Who should pay more?

2. How much more should they pay?

There are principled ways you can answer the first question. For example, you could say, if your income is over the poverty line, you should pay a higher rate. Or it could be double or triple the poverty line. 

But is there really a difference between a person that’s a dollar under the poverty line and another person that’s a dollar over the poverty line? I think not. Yet we will tax them at different rates because one happens to be just a bit better off than the other.

There is almost no principled way to answer the second question. Once you say, different people can be subjected to different tax rates, you still have the problem of deciding what those rates ought to be. The only principled way to answer this question is by taxing income progressive in order to cancel out the regressive effect of consumption tax. But that’s not what happens. Often top rates, particularly during wartime, sky rocket. So how are top rates decided?

Thankfully, this last question is an historical one. In the next few days I will follow up with a post looking at income tax debates as reported in the Congressional Record and Hansard.

Exploring Taxation: Objections to Progressive Taxation

With the passage of the Tax Cut and Job's Act, US Income Tax is going to become a little less progressive. The Left sees this as a negative, but in fact I think it a positive development. Over the course of the next month, I will be making the case against progressive taxation, and demonstrating the merits of a flat tax.

In The Constitution of Liberty, Hayak makes the case against progressive taxation. In this post, I wish to provide a brief summary of those objections. Over the coming days and weeks, I hope to explore each objection in greater depth and connect it to the current debate.

1. Progressive Taxation allows a majority to impose a discriminatory tax burden on a minority. 

2. Progressive Taxation violates the basic principle of equal pay for equal work.

3. Progressive Taxation distorts incentives for an entire class of people merely because--for one reason or another--their incomes are not in line with those of the majority. 

We will explore all these objections and more in the weeks to come.