Friday, October 21, 2011

Moral Failure and Taxing the Rich

On the subject of a sales tax, a member of the studio audience brought up the fact that the US government tried a small luxury tax in the early 1990s.

Three years later, it was judged to be a failure and repealed.

I should note that it was considered a failure by a Republican congress. However, the reasons offered for considering it a failure deserve some consideration. At the start, I need to remind the reader that this is a blog on ethics. I focus on how things ought to be. I have argued that the dollars that pay for government-provided public goods and basic welfare ought to be the dollars that fulfill the least and weakest desires. Given the law of diminishing returns, these are the last dollars of the richest people.

But, in the real world, we routinely run into people who are immoral.

We can conclude that torturing innocent people is evil. But, what does this proof do for the person who has been kidnapped by some sadist who has strapped him to a table and is starting to pull out his instruments of torture?

A sales tax that excludes basic welfare goods (food, medicine, basic shelter, basic clothing) has a lot to recommend it morally. However, some people are immoral, and their immoral behavior may create problems.

Well, immoral behavior, by its very nature, does create problems. There is no reason to call behavior that creates no problems immoral.

The luxury tax of the early 1990s is said to have failed because the very rich - the people whose dollars were fulfilling the fewest and weakest desires, were too selfish to allow that money go to providing government public goods and basic welfare (turning them into dollars that fulfill more and stronger dollars).

They quit purchasing goods in the land that has the sales tax and made their purchases in lands that did not have that tax. This left the middle class (those whose dollars fulfill more and stronger desires) to pay for the public goods and basic welfare that the wealthy refuse to provide.

Furthermore, when the wealthy took their money to other countries to make purchases, this cost jobs in local businesses that cater to the rich.

I want the reader to note that this problem is not unique to the sales tax. It is true of all forms of taxation. The very wealthy have a way to avoid those taxes - because they have a freedom the rest of us do not have to move their economic activity to other regions.

If there is a property tax, they buy property elsewhere. If it is an income tax, they arrange to get their income elsewhere. If it is a capital gains tax, they will buy and sell their assets in foreign markets.

Note that this is not a tax loophole. Closing tax loopholes alone will not bring this business back into the country. In fact, closing tax loopholes will do harm. These business leaders are simply going to move their activity from the country that closes the loopholes to a country that maintains them. In short, it will drive business away.

Actually, this is a lot easier to see with respect to regulation - though all of the basic underlying principles are the same.

Take a corporate leader who really does not care about the fact that the methods for creating his product kill, maim, or sicken others or destroys their property. He wants the liberty to conduct these activities anyway and he does not want to pay any compensation for harms done. Instead, he wants to pocket all of the profits including the money that would have gone to compensation.

Assuming that he is wealthy enough, he simply farms out his operation to whatever government will refuse to regulate those activities. If the harms are global rather than local, this becomes much easier to pull off.

We can take greenhouse gas emissions for an example. These are activities that kill, maim, and sicken others and harm their property. If one country decides to restrict or tax these emissions, the international business leader instead moves his business to a country that offers no restrictions. The country that gets the jobs will still suffer the harms of global warming - but they at least have jobs available while they are being harmed. Countries that refuse this deal also still get the harms, but do not get the benefits of jobs.

In many industries, the wealthy have the opportunity to bid out their activities in this way. They will build their business in those areas where the people ask for the least contribution of their dollars to public goods and basic welfare, and give them the greatest freedom to harm others without demanding that compensation be given. The country that puts in the winning bid gets the company with its jobs. All other countries get the global harm done and nothing else.

In fact, a business can add another element to this bidding process. "How willing are you to tax your middle class to provide me with an economic incentive - a payoff - to build my factory in your country? To get my business, you have to show a willingness to cut your college education funds and social security to make sure that my business is bailed out if I should make a lot of foolish business decisions."

This bidding puts more wealth into the pockets of the wealthy - often transferring it directly from the pockets of the poor and middle class. And the more wealth these people accumulate, the more freedom they have to engage in this type of bargaining. And the more freedom they have to engage in this type of bargaining, the wealthier they become.

To make matters worse, we can well expect that the people who have the profits from harming others without compensation, obtaining government "economic incentives", and refusing to contribute to public goods and basic welfare, will economically dominate competitors that accept these costs. Good companies finish last.

So . . . regulation, sales tax, income tax, property tax, capital gains tax, business incentives, environmental regulations, worker safety . . . all of these are subject to this phenomenon. It is not a problem unique to the sales/luxury tax, and it is not a reason to preferring some other option over and above the sales or luxury tax.

So, there you are, strapped to the table by the sadistic killer who is starting to gather his instruments of torture. The person strapped to the next table has given you an argument that demonstrates that sadistic desires are immoral - they are desires that people generally have many and strong reasons to inhibit through condemnation and punishment. You know this to be true.

But it is not going to help.

It is just a fact of the world around us that, where morality fails, people suffer the consequences. We have all been victims, of one degree to another, of moral failure. The more moral failure we allow, the more suffering results. The moral failure of allowing evil people to make economic bargains across nations of the type mentioned above threatens a great deal of widespread suffering. It is a situation that people generally have many and strong reasons to prevent.


Anonymous said...

This is an excellent blog. It explains fully why the rich keep getting richer as the country goes bankrupt. Is there a solution when raising taxes on the wealthy won't work and removing regulations will create harm to the enviroment yet help the rich to reap more profits?
To eliminate the deficit we need to raise income or lower expenses. Thats economics 101. Lowering expenses hurt the services to the poor but not effect the wealthy. Taxing the wealthy sends them to tax shelters. What do we do?

Emu Sam said...

If enough countries unite to agree on regulations, it becomes hard for a company to avoid them. Add increased tariffs from those countries who do not agree to the regulation or insufficiently enforce them, and it becomes more cost-efficient to comply with regulations.

Unfortunately, country to country is not the basic level of negotiations. Person to person is. It is not hard to find a few people in any country who are willing to put the needs of corporations about the needs of the whole country or the whole world.

Is it a principle of desirism that morality is good relations between individuals, for some definition of good?

Let me try to rephrase that. Morality is X relations between individuals. X is such that we have many and strong reasons to promote the noun or noun phrase it modifies.

Or are there levels of morality such as individual, societal morality, small group morality, group so large the human mind can't really comprehend it morality, etc.?

Eric Noren said...

"Take a corporate leader who really does not care about the fact that the methods for creating his product kill, maim, or sicken others or destroys their property."

Do you really believe this person exists in the real world? I know people take shortcuts and people do immoral things, but not caring about killing, sickening, or maiming others? I don't think so. I call strawman.

"Good companies finish last."

Companies are not good or bad, moral or immoral. Companies are amoral.

mojo.rhythm said...

Companies are not good or bad, moral or immoral. Companies are amoral.

It's the essence of capitalism and its institutions. Corporations are legal fictions created by the state system for one purpose: to maximize profits. Profits, profits, and more profits.

The corporation which intimidates its workers, cuts their wages, reduces their benefits, hectors and beats down the unions that represent them, buys off the state and federal bureaucrats, cuts corners, cooks books, and spreads vile propaganda will always have an edge against a corporation which does not do those things.

A recent study was done by a Swiss university group of psychologists. They performed a series of psychological tests on a group of 28 elite stockbrokers, and compared the results of an equivalent study done, in the past, on a group of psychopaths.

Here is some quotes from the author of the study to give you a flavor of it:

"...they [the stockbrokers] behaved more egotistically and were more willing to take risks than a group of psychopaths who took the same test."

" was most important to the traders to get more than their opponents...and they spent a lot of energy trying to damage their opponents."

This is why I get utterly bewildered when people complain about "corporate greed". It is what corporations are designed to do! Complaining about "war violence" makes just as much sense to me.

mojo.rhythm said...

I know people take shortcuts and people do immoral things, but not caring about killing, sickening, or maiming others? I don't think so. I call strawman.

The Koch Brothers. They fund anti-science propaganda, crush unions, buy politicians, bankroll extremist right-wing causes, bribe university economics departments to only hire economists that advocate extreme anti-union, anti-government, neoliberal capitalism, pollute rivers with benzene, dump aviation fuel and high-ammonia wastewater into wetlands near the Mississippi River, frequently spill oil all over the place in various parts of Texas, and so on.

Their negligence has even led to the death of two teenagers:

"In 1999, a Texas jury imposed a $296 million verdict on a Koch pipeline unit -- the largest compensatory damages judgment in a wrongful death case against a corporation in U.S. history. The jury found that the company’s negligence had led to a butane pipeline rupture that fueled an explosion that killed two teenagers."

The worst part is: there is NOTHING ANYONE CAN DO ABOUT IT. Koch Industries is an unnacountable private corporation that doesn't have to take orders from anyone.

Retired Prodigy Bill said...

"Take a corporate leader who really does not care about the fact that the methods for creating his product kill, maim, or sicken others or destroys their property."

Not really a strawman. Consider the Ford Pinto: X people will die in blazing, fiery crashes, and we'll pay Y compensation for that, it will cost Y+Z to retool to fix the problem. Solution of the people at Ford? Just pay Y, not Y+Z.

One of my colleagues at a Fortune 500 was present at a meeting where those assembled were told that, for cost reasons, the heat shield of the device, intended to prevent possible combustion, was being taken out -- and that this decision was not to be discussed in the hallways or EVER mentioned in any emails. And that the heat shield was totally unnecessary. But don't talk about it or write about it.

Had the sentence been "corporate leader who wants to cause harm" it would be a strawman, but in point of fact decisions at major corporations often focus on short-term profit in exclusion to almost all else, and lots of decisions are made based on the idea (in the head of the manager/worker) of how that person thinks that those above him (or "the corporation," since reification is quite common) would want the decision made.

Add in incompetence, lack of knowledge, the ability to rationalize and cultural expectations and you get Bhopal, you get sweat shops, you get fires in chicken factories where the emergency exits have been chained shut to avoid lost productivity from cigarette breaks.

Corporate leaders do not consider themselves evil, but the people who advance in a corporation tend to be those who are very concerned with advancing within the hierarchy of a corporation, and that requires a focus all to often resulting in actions that, while not intended to be immoral or harmful, are indeed those two things.

Retired Prodigy Bill said...

*all too often

I should proof before posting.

Kristopher said...


"Companies are not good or bad, moral or immoral. Companies are amoral." --HR

companies are groups of people making decisions. when people make decisions. one can always ask if it was a good decision, a moral decision, and what should the decision be. putting CO. at the end of my name doesn't somehow magically put me outside the realm of morality...

they should try to tax unfair practices over seas.

if a company is acting responsibly in another counry no import tax will be applied. if the company is disobeying saftey rules of the U.S. even if they are in a different country, the U.S. will add an import Tax on the products of that company.

right now, as we enjoy those products at lower prices when a company is using sweat shops and poisoning foriegn workers we are complicit in that crime. we are enablers. but as long as we have the ability to tax imports this is not an intractable problem. i dont want imports to be raised for protectionism. companies overseas should be able to compete with american companies. and when foreign companies enrich their workers, and create a new middle class in a third world country they should not be beholdent to import taxes. but when they are taking advantage of third world people becyuase their government is easy to bribe we should add a large import tax to their products.

Alonzo Fyfe said...

Heathen Republican

Note that, in my article, I did not say that there was such a person. Instead, I showed how, if such a person existed, given our current system, he would find it easy to get rich.

Villainy comes in degrees. In a system where villains win - where those who are evil have an advantage over those who do not - we can expect this to have the effect of promoting villainy, much to our overall detriment.