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What should be an allowable non-profit?
In a ruling last December that sent tremors through the not-for-profit world, the Minnesota Supreme Court said a small nonprofit day care agency here had to pay propery taxes because, in essence, it gave nothing away.
...Almost 88 percent of overall nonprofit revenues in 2005, the most recent year for which figures are available, came from fees for services, sales and sources other than charitable contributions...Nonprofit health care providers, day care centers and retirement homes, among others, are often difficult to distinguish from their tax-paying competitors.
...the Mall of America, a major tourist attraction, was seeking tax exemptions as part of its plans to expand, arguing that it aids the state economy by drawing visitors.
Here is the full story, interesting throughout. I would say the Mall of America no, hospitals no (any subsidy to care should be more selective), the AAA club no, universities yes (ideas are public goods), and charities yes. And here are important new developments in the world of Harvard philanthropy.
Posted by Tyler Cowen on May 26, 2008 at 08:25 AM in Law | Permalink
Comments
shouldn't subsidies to ideas also be more selective as well?
Posted by: AO at May 26, 2008 8:43:46 AM
Should all public goods be subsidized then? What about the news media? Television? Movies? If a paper by an academic about Buffy the Vampire Slayer is a public good, then surely Buffy the Vampire Slayer the TV show is also a public good. Why subsidize one and not the other?
Posted by: Hei Lun Chan at May 26, 2008 8:50:48 AM
" universities yes (ideas are public goods), .." ???
Please unlock jstor then.
Posted by: Matt at May 26, 2008 9:18:17 AM
I'd say NO to everyone. Selective tax exemptions just lead to gaming (Mall of America? WTF?!?)
Charities and universities can have special "property tax bakes sales" to meet their obligations. (Harvard's would be pretty low, with a basis from the 17th century.)
It's the same stupidity as we see with corporate taxes.
My idea (since a long time) is to tax property alone, but I have been advised by wiser heads that we need to keep a balance between property, income and consumption taxes. Fine -- but the only exemption should be for the first $x, $x and $unprocessed food, respectively.
Posted by: David Zetland at May 26, 2008 9:20:48 AM
The whole system of tax-exempt status for non-profit organizations and/or causes inevitably leads to this kind of political wrangling. Plus, it puts the government in a position of creating inappropriate incentives that distort how people choose to allocate their money/resources in a fashion that is biased towards someone's political agenda.
A few weeks ago, Yaron Brook wrote a great column in Forbes.com on the perils of tax-exempt status and "social engineering" at:
"Life and Taxes"
http://www.forbes.com/opinions/2008/04/16/yaron-taxes-campaign-oped-cx_ybr_0417yaron.html
Posted by: Paul Hsieh at May 26, 2008 9:36:31 AM
I generally agree with all of these comments. They reflect the general problem of democracy as highly motivated interests get special payments or tax exemptions.
Posted by: John Bailey at May 26, 2008 9:59:28 AM
Tyler,
I think everyone should be exempt from property taxes. That would solve the problem.
Best,
David
Posted by: David R. Henderson at May 26, 2008 10:56:11 AM
I found your feed as a recommendation from Google Reader just a few days ago.
I work for a non-profit, and I think that your list (and what it suggests) of what should be allowed to operate as a non-profit is far too slim. If ideas are public domain, so should be health, and 'charities' is too limiting a word for what the non-profit community is made of.
The organization I work for exists as a non-profit to provide tech support, web development and other IT services to other non-profits. We're part of a community, and being a non-profit ourselves means we understand the budgeting constraints at our client organizations far better than a for-profit IT company AND it also allows us to set rates that are not "competitive" - allow sliding fees, etc, which would be contradictory to the "rules" of for-profit business.
For the amount of money that gets spent in businesses across the board, either for-profit or non-profit, there's a miniscule amount of grant funding out there for IT work - and yet, in this day and age, it's critical. And there's even less funding available for organizations that exist in a support capacity - supporting other organizations instead of supporting issues like homelessness, teen parents, HIV patients, civil rights, etc, directly. So in order to maintain ourselves as a non-profit, most of our income does come from services that we "sell". But we could not do it in the way that serves our community as a for-profit business.
Posted by: Photopoppy at May 26, 2008 11:13:38 AM
In Europe they have a wealth tax. Maybe we should adopt this. Then people won't be putting so much money into nonproductive assets like real estate. Be careful what you wish for...
What about credit unions? Do they pay property taxes?
Posted by: jorod at May 26, 2008 11:40:18 AM
In Europe they have a wealth tax. Maybe we should adopt this. Then people won't be putting so much money into nonproductive assets like real estate. Be careful what you wish for...
What about credit unions? Do they pay property taxes?
Posted by: jorod at May 26, 2008 11:40:45 AM
So all the non-profits should be taxed, except for the one you work for ... nice. I absolutely think universities should not be exempt. It's obvious that univerisities are revenuing maxmizing. The only difference is that universities do not have equity investors, so they distribute the profits to their employees. Imagine if Harvard was for profit. Instead of sinking all their extra money into ridiculous luxury, they would open up a dozen branches and education ten times the number of students. Non-profits are usually the last type of business you want to subsidize with the tax structure, since they are the most ineffcient and least scalable business structure.
Posted by: Patrick Fitzsimmons at May 26, 2008 11:59:15 AM
Non profits that "give nothing away" are still very different from for profit institutions. Think nonprofit food coops vs whole foods.
Posted by: matt at May 26, 2008 12:41:57 PM
Non profits that "give nothing away" are still very different from for profit institutions. Think nonprofit food coops vs whole foods.
Aren't most food cooperatives for-profit but owned by the consumers? The consumers prefer making a small profit generally, but they do sometimes send out checks, just like mutual insurance companies.
Posted by: John Thacker at May 26, 2008 1:51:25 PM
Not hospitals? How much more selective do you want to get? Dollarwise most subsidies to healthcare (Medicare,Medicaid) increase demand, worsening the problem of healthcare inflation. The only problem with subsidizing supply through tax exemptions for nonprofit hospitals is that the tax exemption isn't big enough to offset the huge amount we throw into increasing demand.
Posted by: Tom Hanna at May 26, 2008 1:56:15 PM
I agree with David Henderson; there is no objectively correct answer on this. Whenever government gets involved, you can't be "fair" since it's not fair to take people's money at gunpoint (i.e. taxman).
I think the objections to Tyler's position are good ones. What about bookstores? What about creative writing seminars? What about music lessons, so long as the students agree to keep any new songs in the public domain?
And the person who gives tech support to non-profits: I'm not disagreeing with your principle, but notice that then the McDonald's down the street from the hospital could also claim at least partial exemption, since it "provides food to the non-profit sector" when the hospital employees eat there. And then GM when it sells a car to a pastor shouldn't be taxed on those revenues...
Posted by: Bob Murphy at May 26, 2008 1:59:30 PM
The idea of not taxing non-profit firms is quite simple. Since they don't make an accounting profit, there is no profit to tax. A for-profit firm that makes no taxable profit also is untaxed. Clearly, non-profits make economic profits which they distribute to their employees in various ways. However, if a for-profit firm spent all of its profit on employees, it would not be subject to corporate income tax either.
All of the compensation that is given to employees is taxed the same way that compensation is taxed for employees of for-profit firms, so I see no need for adjustment here.
Endowments are different, however, because the "income" from the endowment is not taxed. I think endowment taxation is a separate discussion that should focus on the long-term needs and value of non-profit charity work, especially in hard economic times.
As a society, we can decide which types of organizations are taxed and which are not; however, the implications can be striking. I recall studies that show that for-profit hospitals have worse patient outcomes (e.g., higher mortality), especially in locations where there is limited competition. Life and death may not be a public good, but they are an important part of most "true" charities' missions.
Posted by: Michael Kelly at May 26, 2008 2:06:19 PM
See that is where you are incorrect. Non Profits do make accounting profits or else they would have no need for non profit status. Non-profit status just means they do not pay Taxes on the profits unlike the rest of companies who have to pay taxes on profits AND oftentimes revenue.
"The idea of not taxing non-profit firms is quite simple. Since they don't make an accounting profit, there is no profit to tax. A for-profit firm that makes no taxable profit also is untaxed."
Posted by: azer at May 26, 2008 2:44:46 PM
I don't know the specifics of the hospital case you are talking about, but I can give you an example how a for-profits and non-profits can still be profit maximizing entities.
Lets say you have Hospital 1 & 2. 1 is non profit, 2 is for profit. They both expect a 10% net profit = 10M a year
#1 Rev = 100M - 0% Prop tax, 0% Corp tax, 0% State tax = 90M for Operating
#2 Rev = 100M - 3% Prop tax, 35% Corp tax, 2% State tax = about 80M or so
So a non profit could have similar revenues & profits, yet have the ability to spend more on operating costs. Might explain why for-profit hospitals can have worse paitent outcomes. Not to mention they probably have lower debt costs due to subsidies.
Posted by: azer at May 26, 2008 3:00:48 PM
Patrick Fitzsimmons: "The only difference is that universities do not have equity investors, so they distribute the profits to their employees."
Yes, with one qualification: a lot of their "profits" (from their fund-raising activities) are just added to their endowments, which keep growing. A for-profit corporation can't do that, partly for tax reasons and partly because there are residual claimants who wouldn't stand for it. Universities are piling up billions in assets that will never be spent for any educational purpose--the endowments will just grow forever or until the government can no longer resist the urge to take some. Why people give them money is a mystery; there are lots of truly deserving, and poor, charities around.
Posted by: Alan Gunn at May 26, 2008 6:16:21 PM
hospitals -- no. HAH. Increase paper work in Hospitals further by making sure contributions can only be spent in X way. I.e. institutions that provide care for people with no insurance, should be taxed. Many of which are already financially in the red.
Universities -- such as harvard, which many have noted is operated more like a hedge fund, with an adjunct university -- should be tax exempt. Perfect sense! No self-interest there, Professor.
Posted by: Jor at May 26, 2008 6:39:47 PM
azer, you are completely correct; however, I think that I have a point to make. Let's find out if I do and see what words appropriately describe it.
The way I look at a non-profit operating "properly" is that even if they make money in one period, they will tend to make investments so that they lose that money in another period. For instance, suppose a non-profit hospital makes money from a transaction. That money is then used to buy a piece of equipment (an MRI machine). A non-profit that should be getting a tax holiday is one where that the services of that machine will be priced so that the internal rate of return from that investment is less than or equal to zero.
Let me give you another example that is closer to my experience. Suppose a non-profit raises money to preserve a historic site. The fund-raising can be thought of as a positive accounting profit event; however, the money goes into an investment that has an internal rate of return of zero. (The buy and preserve the site and building, perhaps renting the building out to a local arts group, but the endeavor merely meets operating costs.) I think most people would agree that no "profits" are made here, or, perhaps, that no "profits" are made here that "should" be taxed. All of the "profits" are tied up in the zero IRR historic site, not in a pile of cash or securities at the bank.
The problem in my mind comes about when the non-profit starts to price its products such that it has money left over and winds up with an endowment. (I believe that very few non-profits [on a percentage basis] have endowments, but, as we've seen in education, they can get quite large.) In this case, the non-profit has positive internal rate of return projects that dwarf any zero or negative IRR projects. Ultimately, money is being funneled primarily into market return securities and we can question whether that is worthwhile for society.
So, in my mind, Harvard is a hedge fund that has a relatively small, money-losing education business on the side. I can see a justification for an endowment in a world of uncertainty when there are "bankruptcy costs" associated with the failure of a non-profit. However, large endowments are disturbing and are possibly evidence that a non-profit has not followed a zero or negative IRR strategy.
I don't think we should penalize the charities that truly funnel their "profits" into zero and negative internal rate of return projects that help the public good.
azer, is there anything reasonable in the above statements?
Posted by: Michael Kelly at May 26, 2008 7:01:24 PM
tks to universitires youare reading this blog.
Internet was born in
Stanford.The Pentagon hired someone in Stanford to made it.Stanford is the center of Silicon Valley because Hp, and Xerox invested ther tks to tax exemptions
Mosaic, open source,free, is the basis of your browser, no matter wich one are you using, was developed in The Illinois University.
The blog authors are tenured professors that are giving you for free their knowledge.
The Large scale integrated circuit was invented by a graduated student.Then he tutored the founder of the inventor of microproccesor wich allows you to have a computer at home.
The first computer was developed at Harvard, Eniac.
You have the best system of Universities of the WORLD, 77 OVER 100 ranked universities are american and the Massachusset Legislature wants to ruin the first one.
And seem that most commentes want the same
Posted by: karl at May 26, 2008 8:57:01 PM
The article is talking about tax exemption for the purposes of property taxes. Property taxes do not depend on whether the entity is making a profit or not. In other words, hospital A that makes 0 profit has to pay more property taxes than "non-profit" hospital B that makes $1m profit which is added to the endowment.
I say get rid of exemptions on profits while keeping the charitable deduction for donors. Why should Harvard be tax-exempt on the dividends it receives from Microsoft or IBM stock, when everyone else is taxed on that dividend?
Posted by: LZ at May 26, 2008 9:54:21 PM
OK, I'll be rude and add churches to the list of debatable tax-exempt organizations. For instance, Benny Hinn received a lot of publicity a while ago for asking for donations to purchase a Gulfstream private jet. And, of course, the Church of Scientology deserves some note in this regard as well.
Posted by: Ricardo at May 26, 2008 10:17:52 PM
I disagree with Azer's statement that for profit hospitals have worse outcomes. In fact scientific studies failed to show such is the case. By the way, all hospitals in the US regardless of profit status are required by federal law to care for everyone that is admitted whether they have insurance or not (and whether they are legal residents of the US or not).
The community not for profit hospital I work at charges the same fees as any for profit hospital and goes after defaulters as aggressively as any other entity using collection agencies and such. Not for profit entities just like religious entities want to be treated as sacred cows (- no critical look at their executive salary structure, equipment purchases and hiring practices, etc). The community is actually a net loser with not for profit hospital because of loss of huge property tax revenue and income tax. Just because there is no stock holder dividend does not make not-for-profit entities efficient or better at delivery of health care services. Often these entities have religious affiliations and indeed I suspect have a subtle bias in hiring and caring. In some places not for profits are magnates to hire family and friends of the administrators and board members. Actually, for profits are under greater scrutiny because of the stock holders.
What we need is a free market in health care with government getting out of provision of health care and letting customers choose the best and most affordable service they can find. I would also think the providers should be able to compete on fees based on their knowledge, skill, customer service metrics (and the market value of their service).
Posted by: GIdoc at May 26, 2008 10:40:49 PM
Tyler, surely with the advent of patents and copyright laws, ideas are not public goods anymore? They're now excludable, even though they're non-rival.
Additionally, even if purely academic ideas are non-excludable and non-rival, the creators of those ideas are compensated within academia (if your idea is important enough, or valuable enough, your salary will be likely to increase as universities fight to hire or keep you).
I don't see why everyone should be taxed more so that their money can be given to the future rich (university graduates).
Hospitals are FAR more deserving because a high level of good health in apopulation is a TRUE public good - the healthier my neighbours are, the less likely it is that I'll get sick. Obviously this is only true for communicable diseases but they're quite important, wouldn't you say?
Posted by: Rachael at May 27, 2008 5:13:30 AM
Professors at my school often make $100 large plus.
To bank that in the for-profit sector you'd have to do more than run off 20% of your underlings per year.
So, when I hear the word(s?) non-profit I chuckle inwardly.
Posted by: Andrew at May 27, 2008 10:51:11 AM
Anyone else find it ironic that the Mercatus Center, which pushes privatization schemes for every conceivable enterprise, claims for itself non-profit status?
Posted by: ranger_granger at May 28, 2008 11:26:13 AM
The basis of exemption from federal income taxation is that an organization is organized and operated exclusively for exempt purposes. It doesn't mean an organization will not have revenue, just that such revenue will be used exclusively for the organization's exempt purposes and not inure to the benefit of any private individuals. In the case of a college, the exempt purpose is education. Note that if the college received revenue from operating in a manner that was essentially the same as a private business, it would generally be subject to tax on that income (its called Unrelated Business Income Tax).
This is not inconsistent with a professor receiving a salary for her services, since a school cannot further its exempt purposes without teachers. And, as one commentator noted above, that salary will be taxable. If the professor is compensated at other than an arm's length rate, there are penalty and other provisions that come into play. The system actually works pretty well at targetting abuse, provided there is enough auditing to put the fear of God in tax exempt organizations.
Posted by: taxlawyer at May 28, 2008 12:24:57 PM
Here are some interesting thoughts on a property-rights rationale for replacing the income tax with a net wealth tax.
Loftin Graham
loftin@tmo.blackberry.net
____________________________________
On Nov 6 2007, [utf-8] Loftin Graham wrote:
Dear Mr. Diamond and Mr. Mirrlees:
I am curious to know whether either of you is aware of any academic work
that proposes the use of a wealth tax to finance general government
expenditures. I recently received a communication from Michael Devereux
in which he suggested that you were involved in a joint effort (along
with a Mr. Banks? whose contact information I was unable to locate) that
might involve some discussion of a wealth tax. He provided a paper that I
have downloaded and am in the process of going through.
If either of you has a couple of minutes to skim what I've written below
and give some direction or sources to go to, that would be great. If not,
that's fine too.
Sincerely,
Loftin Graham
The reason that I ask about the wealth tax is that I have become
convinced in thinking about it during the past year, that wealth is the
most appropriate basis to use in order to pay for that portion of
government expenditures that are not associated with specific programs or
projects (i.e. that are, rather, associated with the general operations
of government). The rationale I have for this involves the answer to the
question: what is the underlying basis for the economic claims that
governments have on their citizens? The answer to this question seems to
me to be that ultimately all legitimate economic claims that governments
have on their citizens originate in the provision on the part of
governments of something of economic value to their citizens individually
and as a group. This is not really a new notion; it is merely the
economic analog of the statement that every government exists to benefit
its people (or at least that it should do). From the reference point
represented by this conclusion, one is led to consider what economic
benefits accrue to a nation's citizens as the result of good government.
I have become convinced at the conceptual level, that the primary and
most general economic benefit that good government provides for its
citizens is an environment within which their individual rights to have
and productively use capital (of all sorts) are guaranteed. In other
words, the primary - or at least most fundamental or basic - economic
benefit that good government provides is the guarantee of property
rights. Other economic benefits that the citizens of a nation might
choose to dispense through government agencies and programs might
include: different forms of insurance (e.g. Social security, Medicare,
Medicaid, worker's comp, etc.), infrastructure (roads, sewers, etc.), and
so on; but here I am talking about funding the GENERAL operations of
government. Good government of course generally also provides other
benefits, e.g. political, that are not primarily economic in nature; but,
again, here I am talking about economic claims that the government might
have on its citizens, and those should be tied, it seems, to economic
benefits provided.
Now, since decoupling a benefit received from an associated and
commensurate charge to the recipient is likely (if self-interest is
deemed to be a persistent force in determining human behavior) to result
in the equivalent of a sort of benefits-arbitrage, it seems that good tax
policy would involve an assessment that is in some sense proportional to
the benefit received; and in the case of the considerable amount of
GENERAL expenses associated with providing an environment in which
individuals are able to own and productively use capital, the benefit
accruing to individuals is related to the property or wealth that each
has at his disposal: the absolute value that is at stake for each
individual in the loss of genuine property rights is proportional to
their overall wealths. Consequently, the financing of this portion of
government expenditure should be accomplished in a way that is
proportional to individuals' wealths. Other categories of expenditures
would be dealt with via taxes that are proportional to income or to some
other relevant quantity (e.g. gasoline consumption in the case of
financing highways and roads).
Are you aware of any discussion of this principled justification of
wealth taxation - or of taxation in general? Most of the articles that I
have come across posit the entitlement-based justification that is
inherent in ability to pay arguments. I am uncomfortable with the ability
to pay justification for much the same reason that I am uncomfortable
with the notion of pure democracy (e.g. absent important guarantees for
individual/civil rights). Using ability to pay as the basis for taxation
seems to suggest that there need be no guarantee of the basic individual
economic right that is expressed in the concept of individual property
rights. Since from the perspective of behavioral considerations there may
be long-run implications (distributional and in terms of overall welfare
- via effects on productivity, for example) associated with
entitlement-based frameworks versus those that emphasize or reward
individual responsibility and initiative, it seems like it would make
sense to find a justification of taxation that is consistent with the
latter class of frameworks. While the modelling technology may not
currently exist to adequately take into account this behavioral
dimension, this doesn't mean that one can afford to ignore it altogether.
Any suggestions you might be able to provide regarding discussion of
wealth-based tax or property-rights justifications would be sincerely
appreciated.
Sent via BlackBerry from T-Mobile
_________________________________
>-----Original Message-----
>From: Professor Sir James Mirrlees
>
>Date: 14 Nov 2007 07:56:49
>To:loftin@tmo.blackberry.net
>Cc:pdiamond@mit.edu
>Subject: Re: Wealth taxation
>
>
>Dear Mr Loftin,
>
>I had been waiting until I got back to Hong Kong at the end of the week to
>remind myself how much the Meade Report discussed wealth taxation; but I
>think you should do that yourself! The Netherlands and Sweden, at least,
>have wealth taxes, but I still don't know much about implementation or
>legislative details. Probably they exclude small-business and residential
>assets.No doubt you could find out more by suitable web searches.
>
>At the theoretical, or optimal-tax level, it seems to me that an important
>issue is the source of an individual's wealth. Anyway, a convenient date at
>which to tax it is when it is received, and then one can work out the
>incentive issues relatively straightforwardly. But remember that the age
>when receiving it may be a relevant parameter.
>
>I rather think it would be unwise to go far into this without someone local
>to supervise your research. It's too easy to make mistakes.
>
>Yours,
>Jim Mirrlees
>
______________________________________
On Nov 15 2007, [utf-8] Loftin Graham wrote:
>Mr. Mirrlees:
>
I hope this doesn't seem overbearing, but in reading back over your
response, I don't think you understood the main point of my idea. My idea
is that individuals should face costs for government-provided services
that are proportional to the benefits that they derive from them. Since
wealthy individuals receive - in absolute dollar terms, for example -
greater benefit from government in the form of a guarantee of their
property rights, they should pay more (again, in absolute terms) than
their less wealthy counterparts, and the amount of their tax liability
should be proportional to their wealth. Since the benefit people receive
in respect to the capital they own is received continuously in much the
same way that insurance benefits are received continuously during periods
of coverage (i.e. NOT just at the point in time that they first come to
own the capital), the tax should not be on income but rather on wealth!
Theoretically the correct way to assess such a tax would be either
require continuous payment of a fixed proportion of wealth or to
integrate the product of instantaneous wealth times the rate for the year
- accumulating with some interest rate - and charge this amount at the
end of the year. The idea though is that the general economic benefit
received is the guarantee of property rights and that benefit has some
similarities with insurance coverage. The corresponding tax liability
should be dealt with accordingly. Hopefully that makes a little more
sense to you. Obviously, in real life some simplification would be
necessary; but I don't guess that that would be much of a problem to work
out.
>
>Regards,
>Loftin Graham
>
By the way, part of the reason that I wrote you and Mr. Diamond is that I
don't have much "local support" as you called it. I have upset some of
the powers that be here at Wharton by pointing out what everyone here
already knows: that there is a group of secular Jews here that have
gained influence over the school and who use that influence in ways that
are inconsisent with good scientific practice. In particular I believe
that they give precedence to race over merit whenever they think they can
get away with it - I mean they promote their own people to positions of
influence and frustrate those who have differing viewpoints or who are
unwilling to put up with their bullying. So, it looks like I'll be
working on this project mostly alone unless my situation changes
significantly somehow.
>
>
>Sent via BlackBerry from T-Mobile
>
______________________________________
-----Original Message-----
From: Professor Sir James Mirrlees
Date: 16 Nov 2007 12:39:33
To:loftin@tmo.blackberry.net
Subject: Re: Wealth taxation
Sorry, I don't think taxes are or should be payments for services rendered,
so I had no sympathy for your general idea. Note that enforcement of
contracts applies to labour as well as capital and land.
Yours,
James Mirrlees
______________________________________
-------- Original Message --------
Subject: Re: Wealth taxation
Date: Fri, 16 Nov 2007 14:42:15 +0000
From: Loftin Graham
Reply-To: loftin@tmo.blackberry.net
To: James Mirrlees
CC: Peter Diamond
Mr. Mirrlees:
Thanks for the clarifying response. Yes, I suppose that labor is also subject to contracts, with he implication that one's human capital would theoretically be a part of one's wealth, broadly defined. But that should only strengthen (from your stayed point of view) the position of the argument I've provided because it demonstrates that wealth, defined broadly enough, is equivalent to the holy grail of tax bases: the so-called "ability to pay". The beautiful thing about this idea involving property rights (and I mentioned this to the professor here in my dept that has some tax background, without him catching the beauty of it apparently) is that one basically reaches the same policy result (using wealth rather than income as the base for taxes that fund general government expenditures) as an argument coming from polar opposite sides of the political spectrum - Ed Wolf, for example has justified a wealth tax on the basis of ability to pay rather than on that of benefits received. So, people that favor ability to pay justifications of tax bases should be content with my property rights reasoning because the policy implications are the same - the two sides appear to converge. This kind of an outcome (when the same conclusion follows from two independent lines of reasoning) is the kind of thing that most scientists get excited about, me included! Anyways, Mr. Diamond rightly pointed out that such a scheme has some practical difficulties in terms of implementation that would have to be overcome, but the general idea appears to be sound to me. And technology improvements may render concerns about valuing small business and other assets less and less serious - consider what telecommunications improvements have done through eBay and other online auction sites, for example. In addition, shifting the activities of the tax-services industry from being unproductive (I mean here in the organic sense that funding tax shelters and loopholes is not value-producing from the aggregate perspective) to being productive (valuation is a financially productive activity because information has value) would seem to be welfare improving. Anyways, these are some things to consider, no?
Take care,
Loftin Graham
By the way, viewing tax liabilities as inherently connected to benefits received does NOT mean (i.e. it is NOT necessitated by logic) that those paying greater taxes are justified in believing that they have greater claim on any SPECIFIC government service. Nor does it mean that they have any just basis for claiming greater political influence (though practically speaking this is nearly impossible to avoid, regardless of tax-system considerations). All it means is that wealthier individuals benefit (economically) more in absolute terms from the underlying framework that good government provides than do their less wealthy counterparts, so they should be willing to pay more. In particular, they should be willing to pay the same annual proportion of their wealth.
Sent via BlackBerry from T-Mobile
Posted by: Loftin Graham at Oct 13, 2008 3:01:25 AM
