Monday, June 13, 2011

Ten Men, Taxes and Free Beer

Ian Cowie, "personal finance editor" of London's Telegraph newspaper, laments that the vote isn't tied to income.
Why don’t we restrict votes to people who actually pay something into the system? No, I am not suggesting a return to property-based eligibility; although that system worked quite well when Parliament administered not just Britain but most of the world. Today, income would be a much better test, setting the bar as low as possible; perhaps including everyone who pays at least £100 of income tax each year.

That minimal requirement would include everyone who gets out of bed in the morning to go to work and could easily be extended to include, on grounds of fairness, several other groups. For example, all pensioners – because of the fiscal contributions to society they are likely to have paid earlier – and mothers – because of their contribution to defusing the ‘demographic time-bomb’ of an ageing population.
The two examples are interesting. The first does not look at contribution - it looks only at age and makes assumptions about contribution. Why? Presumably because Cowie sees the elderly as having interests sufficienlty aligned with his own political goals that he doesn't mind their voting. Excusing mothers... across the board... because they had children? That's just plain odd. For a man who purports to want to improve the quality of the vote, he would hand lifetime voting privileges to unmarried mothers, including teenage drop-outs, but not to fathers - even if mom disappears before junior is even discharged from the birthing center and dad is the child's sole caregiver? And... I see that Cowie's concern is a "demographic time-bomb" - so how about giving men the vote if they have children, the more the better, without regard to whether the children are born within a stable household or marital relationship? Better to have idiocracy, after all, then to have an inadequate number of young wage earners to support an aging population.

To support what he describes as a "modest proposal",1 Cowie quotes what he purports to be the clever words of others:
For example, it is sometimes said – and uncertainly attributed to Alexander Tytler – that: “A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury.

“From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy.”

Hard to believe? The credit crisis afflicting democracies around the world demonstrates the truth of this observation. So does the fact that our less democratic competitors in the emerging markets suffer no such crisis.
So Cowie is supporting his case by arguing that bankers, having successfully persuaded governments to scale back regulations and having engaged in high-risk bets, have since successfully lobbied for and received massive bailouts courtesy of the taxpayers of the western world, should not get the vote? Consistency, it seems, isn't his strong point.

It is true, of course, that nations in the developing world didn't directly suffer from the near-collapse of the global financial industry. It's fair to observe that Canada, having maintained adequate regulation of its financial sector, also emerged largely unscathed. It also seems fair to note that the relative wealth of nations was a huge factor - the financial industry appears to have pumped up the housing bubble in every nation in which it was possible to pump up housing values. Does Cowie see Bahrain as part of the developing world or as part of the developed world?

There's also something odd about being wistful for the financial governance of dictators and kleptocrats. If Cowie would prefer to live under the enlightened financial governance of Nigeria or Zimbabwe, I am confident that he could obtain an appropriate visa to support his relocation - and that he would get a closer look at how the wealthy of those nations siphon resources away from their countries and people. That's supposed to be enviable? I understand the concept of the philosopher king, but Cowie's looking for good governance in all the wrong places.

Cowie's sense of financial fairness reminds me of the joke about G.W. Bush, a man who "was born on third base who thought he hit a homer." Or the joke about nine ordinary people and a billionaire banker going into a cafeteria, getting a pizza cut into ten equal pieces, and having the banker grab the first nine slices - then complain about having to share the tenth slice of "his pizza". About that last joke, surely you have heard the one about "how taxes work" - a simplistic, often misattributed email forward about how the rich (and only the rich) deserve the benefits of tax cuts?
Let's put tax cuts in terms everyone can understand. Suppose that every day, ten men go out for dinner. The bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:

The first four men - the poorest — would pay nothing; the fifth would pay $1, the sixth would pay $3, the seventh $7, the eighth $12, the ninth $18, and the tenth man - the richest — would pay $59.
Well, apparently it was new to Cowie.
Suppose that once a month, ten men go out for beer2 and the bill for all of them comes to £100. If they paid their bill the way we pay our taxes and claim State benefits, it would go something like this;

The first four men (the poorest) would pay nothing. The fifth would pay £1.
The sixth would pay £3.
The seventh would pay £7.
The eighth would pay £12.
The ninth would pay £18.
And the tenth man (the richest) would pay £59.
Remarkable, how a supposedly insightful joke about the U.S tax system translates, dollar for pound, into a joke about the U.K. tax system. You might have thought that the numbers were picked to exaggerate the point of the joke, or that different nations and tax systems might result in a different distribution of the tax burden, but as it turns out... no! In any event, the punch line is the same. The wealthy guy decides that he has the right to stop paying taxes, the remaining nine people want to again be served their dinner (or free beer, or whatever), and discover that "they didn’t have enough money between all of them to pay for even half the bill". Cowie lectures,
That’s how non-contributory democracy led to the credit crisis in a nutshell. Or a joke, on the basis that you don’t need to be solemn to make a serious point. It’s time to restore the link between paying something into society and voting on decisions about how it is run.
Right - the problem in our society is that the wealthy and powerful don't have enough say in how things are run.

Seriously, as an explanation for why tax cuts might disproportionately benefit the rich yet still be fair, the shared dinner or beer joke is a good starting point for discussion. It's reasonable to say that a 3% tax cut should benefit people who pay taxes, and should not also require that tax credits be increased by 3%. The obvious retort, even there, is that wealth and income are not equally distributed, and that even the flat-taxers don't propose capitation - even if everybody were to pay the same percentage of their income as taxes the rich would pay more... to a degree. Fortunately for the rich, despite all the barriers Cowie apparently perceives as existing between them and their elected representatives, they have successfully managed to achieve tax rates for capital gains that are substantially lower than taxes on wages.

Speaking of capital gains, would Cowie extend his £100 standard to the idle rich? Or would you have to actually earn enough wages to have to pay income taxes in order to vote? After all, he's apparently excluding sales taxes, payroll taxes, and the like from his equation. What if you took a year's sabbatical, paying no taxes, to rest up after years of contributing massive amounts of money to the tax rolls - you're disenfranchised that year? What if you spend thirty years helping a company build value, but are laid off following a merger or unexpected catastrophic event? No voting until you either get a new job or retire? It shouldn't need to be said, but income and taxes aren't static over a lifetime. Most people earn more over time, some earn less, many experience setbacks. Even if we exclude the income of trust fund babies who never work a day in their lives, income can be a poor measure of contribution.

Cowie's example also presupposes that although contribution to taxes is unequal, the benefits of taxes are equal across the board. Perhaps he should compare the state of his local streets and schools to those of an inner city area. Perhaps he should compare how much influence a billionaire has, seeking zoning variances to put up a mansion or some other "monument to me", as opposed to an ordinary person who wants to erect so much as a fence. Or how that billionaire does when asking for hundreds of millions of dollars to subsidize his new, private, for-profit sports arena, as compared to the residents of a poor community who want the government to do a better job maintaining playground equipment in a local park. It may be that everybody is served beer, but some get pints and some get barrels.

At the end of the joke I'm still left scratching my head - what does Cowie's attempt at humor have to do with qualification to vote? For example, while I will concede that he's qualified to head a major political party and even to be a nominee for President, and that he probably paid lots of income tax even during the times his various ventures were in bankruptcy, I am not convinced that Donald Trump is actually qualified to vote. And if Cowie's exceptions encompass pensioners - a demographic among the most apt to vote to preserve or expand their benefits without regard to the state of their nation's finances - and mothers, without regard to income, education or aptitude merely because they give birth to potential future taxpayers, Cowie defenestrates whatever association income might have with the responsible exercise of the right to vote.

In the event that there's a billionaire banker reading this and he still thinks Cowie's example is fair and that he's unduly burdened by his tax bill, I have a proposal. And it's not a harsh one - I earn a good income, and as a result have a comfortable lifestyle. I will trade you all of my income and assets for all of yours, from this point forward. I will then pay your entire income tax bill in addition to my own for the rest of your life.3 Deal?


1. "A Modest Proposal" is a label most often given to ideas that are anything but modest, usually also by authors who are unfamiliar with Swift or unclear on the concept of satire.

2. It's a shame here that Cowie didn't use the traditional version of the joke that centered on dinner, as then the ultimate punch line for his "modest proposal" could be, "Well, we may not be able to afford a restaurant, but at least we can eat our babies."

3. This offer is also open to Darrell Issa, Sarah Palin, Mitt Romney, Rush Limbaugh, and similarly situated political leaders and television personalities.


  1. I just found this ...

    And I am tempted to take you up on your offer ...

    And then immediately stop working, since I am going to be receiving your income and I no longer need to work for what was your income and is now mine ... and you are more than welcome to *my* now-zero income, since I will no longer be working ...

    How does this sound to you ?

    How can I contact you to make the arrangements ?

  2. If you are in fact a billionaire banker, it sounds great. I'll live off of the billions in assets you give me, and heck - I can quit my job just as easily as you can. More easily, because I'll have at least a billion dollars in assets.


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