Thoughts on taxes (and spending)

So with the Iowa caucus still fresh, I’ve decided to post something on taxes or more accurately taxes and spending.  It occurred to me over the holidays that a really good poll question would be, do you pay more in taxes than you get back in spending.  I suspect the results would be similar to asking whether you are a better than average driver with 90% answering in the affirmative.

On the tax side I have in mind all taxes, not just the personal income tax, so this would include payroll taxes and the employer contributions to same.  And this is perhaps as good a time as any to remark that the distinctions between these and other taxes are worthless.  There is no social security account or unemployment insurance account with your name on it accumulating funds until you need to draw on them.  Cash is cash, everything is money in and money out.  The same goes for the related statement that the social security fund is currently in surplus.  Again, this is complete accounting nonsense (the government either is or isn’t running a surplus, end of story). 

On the “cost” side of the equation things get much more complicated.  First the relatively easy part would be to calculate your share of defense, judicial, and administrative spending.  The rest would be an actuarial expected value cost that would need to be adjusted as conditions changed.  Thus, if you were say a 40 year old male as of 2012 there would be the expectation that you would collect so much in social security, unemployment, and medicare/medicaid assistance and have so many more years of income.  Your tax should thus be the current year’s proportion of that total such that when you quit having taxable income the amount you’ve paid in will equal what you will subsequently take out (since the money you pay in is just going right back out I don’t see a return factor being applicable, but you could argue that it exists as a kind of opportunity cost).

The last factor would be some decision on redistribution.  Obviously there will be a segment of poor people who will need help, and I think it makes sense to have the very wealthy make a greater proportional contribution to this assistance, in large part because I think there is a fair amount of luck involved in great wealth.  But the classification of poor shouldn’t be too indulgent.  A redistributional transfer from the wealthiest to say the median income level is absurd.

So after all that, where do I fall out?  I haven’t a clue, although I suspect that even in a good income year I’m not paying enough in taxes to cover my likely future costs on present government commitment levels.  But the important point is I really don’t have any idea and I’m pretty sure you don’t either.  The fact is that on the critical political question of our fiscal position the voters are approaching it from the vantage point of almost complete ignorance.  Actually it’s worse than that.  The voters are approaching it from the almost certainly mistaken angle that what they are paying in is greater than what they are likely to take out.  If democracy requires an informed public, shedding a little light in this area would seem to be worthwhile.