Tuesday, April 19, 2011

Behavior Modification

This is a quickie, but it obviously deserves more comment...

There is a clear understanding, among many policy makers, that if you want to manipulate societal behavior - regardless of direction - one very common method is to adjust the TAXATION of a particular activity. If you want to encourage an activity, you reduce the associated taxes; if you want to discourage, increase the taxes. Simple.

Case in point: there have been numerous attempts to 'encourage' people to suspend or quit smoking. One primary motivation technique is to RAISE taxes on tobacco products. (Caveat: there are many different approaches currently in play on this issue, but let's focus on taxes.) The idea is that people will 'grow tired' of paying the additional taxes to the point they will subsequently modify their behavior to avoid the taxes by avoiding the product; which is the stated purpose of the policy in the first place. All agreed?

Ok, Let's also consider a group of folks out there I call "wealth generators". These are the folks producing wealth, by providing products and services. The desirability of a specific product/service doesn't matter: there is a financial flow from the consumer to the creator, creating wealth. The economy *depends* on these folks to continuing to create wealth, if for no other purpose than to generate the capital which can be consumed by paying taxes.

Logically, if follows that if one targets these 'wealth generators' with an ever-increasing tax burden, they WILL eventually modify their behavior to avoid the taxes. It seems the most likely behavior modification will be to REDUCE the creation of the wealth they will not be allowed to retain. After all, why work so hard to create something that will be taking away from you?

Thus - I pose the question: If we need these generators to keep doing what they do - and we REALLY do - then why do we seek to 'punish' them for their success? And worse, why do those same manipulators FAIL to consider the ramifications of taxation in predicting future revenues? I am reminded of the 60's humorist 'Brother' Dave Gardener, who suggested we should "tax the poor folks and give them an incentive to become something", which makes as much sense as anything else...

There has been a large amount of posturing recently (all sides) which are predominately concerned with "how much we will 'save' over the next X years". Hogwash. Those calculations assume the wealth creators will blindly continue to do what they've been doing, without changing their behavior at all, and without consideration of the increase in taxation. This is wishful thinking at best.

I submit that Human Nature will take over and the currently popular "Tax The Rich" class-warfare strategy will backfire in a big way. The economy will NOT recover as expected/predicted. At the very least, the recovery (if any) will be substantially blunted. This will result in the all-too-familiar cry, "we tried, but THOSE EVIL RICH have conspired against us: they're not paying 'their fair share'.

Perhaps we need a dose of honesty - something in very limited supply in D.C. - to clearly define precisely What Level of Taxation is Considered "FAIR". But then, IMHO, if they *were* honest about exactly how much the bureaucracy wants to collect and from who, the subsequent Behavior Modification which followed would *really* wreck the economy.

Bread and Circuses.

- Steve


  1. As a unicellular element of philosophy, what you're saying here makes sense. No one could rightly argue that penalizing a man for working hard does not disincentivise hard work.

    But problems creep in when you apply this principle, unalloyed, to all situations involving the more sophisticated problems of modern society.

    For instance, if you define "producers" as merely the people who make the most money, how do you account for those who became billionaires creating and selling the mortgage backed derivitives which nearly wreaked the U.S. economy? Don't you think we all would have been better off with a little less production from those "producers"?

    That's just one a practical observation, but more along the lines of philosophy, isn't it plain that men who actually do produce genuine wealth derive the most benefit from the ifrastructure and services provided by government? For instance, the man who works in a factory mostly uses the road which leads from his house to the factory - whereas the man who owns the factory might use the country's entire system of roads, not to mention railroads, air and waterways.

    Another point: sheerly on a practical basis, applying to THIS country at THIS time, what makes you think the wealthy in America would invest more in the American economy if they had more to invest - which, if you really think it though, is the practical aim of reducing taxes on the wealthy in the first place?

    In this regard, I've already demonstrated that after the Bush tax cuts of 2001 and 2003, which benefited the wealthiest Americans, we saw no corresponding increase in investment in American industries. As a matter of fact, the trade deficit shot up from 378 billion in 2000 to almost 700 billion in 2008 - which, if nothing else, clearly indicates we lost ground. This would not have been the case if those tax reductions had been invested in productive enterprises here in America.

    One other thing - a detail perhaps, but important. So long as we're making this a point of economic philosophy, or doctrine, let's not conflate the issues. If the Pentagon spends $3,000.00 apiece for toilet seats, its becomes an argument for better government - and not an argument against a progressive tax system.


  2. No argument from here that we need better government. But my point was to highlight that discriminating or favoring via taxation is inherently wrong, IMHO.

    You can equally argue that those 'net-tax-consumers' (e.g., those who don't effectively pay taxes, apx. 50% of the population), are getting "something for nothing". Why? They use roads, too. And they benefit from the economic cycle.

    It's also hard to define exactly how much WAS re-invested in a more favorable tax environment. The results of tax code manipulation will not always generate re-investment. There are several more factors to consider, such as the long-term prospect of keeping what wealth you create: i.e., keep what I can ala the wise ant storing up food for the coming winter. I'm also somewhat certain the trade deficit has other factors (excessive spending?) beyond just tax reductions.

    I would much prefer seeing a simple, one-rule-applies-to-everyone approach to taxation. In other words, the generation of revenue should be independent of attempts at social engineering.

    This is one reason I prefer the Fair Tax to our current form of taxation.

    We can do better and my old favorite: Equal Treatment Under The Law would be a nice starting point.

    - Steve

  3. Going a bit further... It is obvious we have a continually growing number of people who are becoming increasingly disconnected from the cost of government.

    If, as claimed by some politicos and various pundits, the American people deeply love their federal services, their dependency programs, their regulations, their industrious public education department, etc., etc., etc., - well, by golly, let’s *ALL* pay for it!

    Even in a progressive tax system, why shouldn’t EVERYONE pay for a (proportionally fair) share in the joy that government, in its wisdom, deigns to bring into our miserable existence? Joe-SixPack and the majority of income tax-paying Americans don’t really feel the cost of government simply because of how we collect taxes...

    So - I humbly suggest that we remove paycheck "withholding" and force folks to REALLY look at the numbers and pony up a check once a year to pay for government. I'll further suggest a likely side effect of such action would be the realization of a threatened "government shutdown" would quickly become the Last Thing on anyone's mind...

    All this to say: you have a good point... Let’s create better consumers of government. Great idea!

    You see, Consumers pay for and demand results for their hard-earned dollars. On the other hand, those who are dependent upon the largess of others for existence (especially by having one's hand in the taxpayer's pocket), only know how to "demand more" of those things for which they do not pay. And, since they (effectively) have no skin in the game, they have no reason not to act that way. Human nature at work.

    Yep, I'm just stirring the pot some more... ;-)

    - Steve

  4. Here's where, once again, whenever philosophy gets into a head butting contest with reality, reality always wins. I'm sure you were thinking here about social programs and other government hand-outs when you suggested all of us cut a check for them annually.

    But the same people who advance this kind of argument (though not necessarily you, Steve) never seem to apply the same argument to military spending and dubious military ventures.

    Generally speaking, its easy for conservatives to caricaturize recipients of welfare programs as lazy, good for nothing bums - but far more difficult (well, up to now, impossible) to be honest with the American people about the bloated military budget - which is a far larger drain on government finances than all the unfunded welfare programs put together.

    As far as I'm concerned, unprincipled conservative pundits both in and out of government have created this monster. Any man who stands up and tries to talk rationally about cutting military spending is labeled "un-American" - or worse.

  5. Trying to keep things simple... What percentage of the federal budget do you think is appropriate for military spending? Also, please include the appropriate percentage to be used for direct payments to individuals...

    According to one source (which may be faulty), shows Defense at just over 25%, while Soc.Sec + Medicare + Medicaid total just over 41%, and doesn't include other relevant budget items. The link I used for these values is here: http://www.thirdway.org/taxreceipt

    While I think the payment-to-individuals numbers are pretty close, I would have thought Defense spending would closer to 35%. I must be missing something. BTW - I'm just tossing this out to ask what you think about what constitutes an appropriate spending percentage in defined areas.

    In short, I don't think we can balance the budget by slashing defense alone (not to say that some savings are not available). Nor can we balance by ignoring all those entitlements.

    It is an all-too-common tactic to site the $3,000 toilet seat while ignoring the cost of unreasonable EPA regulations, Medicare fraud/waste/abuse, etc., etc., etc. from my position, it seems the Left / Liberals / Progressives (although not necessarily you, Chris) always seem to head directly to the "let's gut the Defense Budget" as an instinctive response to budget woes. This is just as bad as some conservative ignoring much-needed improvements in the Defense spending process.

    I'll listen respectfully to anyone with ideas that make a serious dent in spending across the board. I dislike attempts to focus on one particular area as a way to avoid spending cuts on a 'sacred cow' or two. Everything must be on the table, and - yes - that includes Defense. And Entitlements.

    - Steve