The Taxman Cometh

It seems obvous that everyone would be anti-tax. Actually, the anti-tax movement is a strange coalition of the haves and the have-nots. (This leaves out the have-somes, a category into which most of us fall.)

The haves like the anti-tax movement because the only option to taxes is debt. Debt needs to be financed and an investment that pays more than inflation is a great way to protect one’s wealth rather than risk it. (If you are rich enough, returns of 20% or 5% won’t make much difference in your lifestyle: losing 50%, however, might.) The haves love government debt because there are few investments so safe.

The have nots like the anti-tax movement because government spending does not so obviously benefit them. For instance, spending on advanced education might raise incomes but not for those in the little rural communities that lose their best and brightest to far away universities and even farther away companies. The fact that rural areas are heavily subsidized by urban areas in the form of transportation and agricultural subsidies (among others) is invisible to these folks: what is visible is the obvious wasteful spending on things that they can't relate to: things like obscure research, bailout of banks, sex education.

On my way to dinner tonight I found myself in the midst of a sea of anti-tax protesters. I heard one acknowledge another's sign, promoting fairtax.org, and then continued with "What I really want is no-tax.org."

The populist notion is that taxation is a form of extortion. But there is always extortion. Mexico’s tax rate is only 18.5%, but the weak government is no match for drug lords who extort the population at will. Communities always have someone stronger, someone with guns, able to enforce rules and “extort” money. Better to make those parties at least somewhat accountable through elections, laws, and some form of oversight. The resistance to taxation that assumes that a world without a government as one without extortion comes from a mindset that ignores history.

We’ll always have an anti-tax movement in this country. Given that it promotes deficit spending, though, it simply encourages more government spending than we’d otherwise need or want. When we don’t have to pay as we go, we spend too much. The real irony of the anti-tax movement is that it is fueled by the rage of the have-nots and yet it helps to finance the contentment of the haves. Funny how that works. You might think that this would just make the have nots angry, but I guess that their rage is already directed elsewhere.

Why Not Program-Specific Government Bonds?

Scott Adams of Dilbert fame makes an interesting suggestion at his blog. What if the rich were given an option to, say, buy homes with bad mortgages and required to rent them out? It would sort of be a tax but it would offer the rich the hope of a return, taking some of the sting out of "paying" extra taxes.

But what if investors had more options than a simple government bond? We have 37 kinds of ketchup but only one kind of federal bond? Why not a bond that finances alternative energy and another that finances war and another that finances transportation infrastructure? It would be even better if the bonds not only paid the traditional interest rate but offered a premium based on the performance of what they financed.

For example, let's say that there was a bond for community college programs to train trades people for plumbing, electrical, and carpentry work. If graduates from the program were employed in the trades at a rate of 85% or higher (to pick a number out of the air), you would get a premium of 1% on your annual return. If the rate of successful placement were 96%, you would get a 4% premium. The more promising you thought the program, the more likely you'd be to invest.

This would put markets to work as a means to finance government programs, letting investors "vote" on programs they felt would yield better returns, would create more value for the community.

And once that is in place, I see no reason why we couldn't go further with this, allowing taxpayers to indicate, when filing taxes, where they would like their money to go. I suspect that the Pentagon would get less and the National Science Foundation or National Institute of Health would get more. And I suspect that future generations, who would benefit from this research and investment, would thank us.

Bonds to Tie Hank Aaron this Weekend

Barry Bonds is here in San Diego for a three-game series. My prediction? He's going to tie and / or pass Hank Aaron this weekend.

It seems fairly certain that Bonds has used some kind of steroid, growth hormone, or substance to move from hero to superhero this late in his career. But there is one other possible explanation for his home run surge of the last five or six years.

Bonds has always done well against the San Diego Padres. In seasons when he'd hit, say, 43 home runs he would hit 13 of them against San Diego. For years he's feasted on the Padres. One explanation for his surge? Noticing this, his batting coach simply told him, "Imagine that they're all wearing Padres uniforms."