What’s Fair?

Harry Reid just gave a speech on the Senate floor designed to placate Democrats that were upset over the outcome of the debt ceiling debate.

In the speech, Reid stressed some words that I find interesting. One, “fairness”. He used “fair” or a derivative of the word at least ten times. He also said it was the role of government to create jobs.

What’s fair exactly? Fair is different depending on the individual. Economics professors call it “normative” economics. Normative economics places value judgements on policy. Those judgements are subject to change. In cases of income, you might call it the politics of envy.

Here is an example; How much is enough money? Depending on who you ask, and which geographical location, you will get a range of answers. Pollsters have determined $250,000 per year is a lot of money to most of the public, and this is why Obama hammers on that number.

Here is another one; What’s a correct hourly wage? That all depends on a lot of factors. It’s subjective. The bulk of government policies are all subjective. They want to pick and choose winners and losers. The power doesn’t reside in the market, but with the person in the position.

Contrast that with what’s known as “positive economics”. Positive economics are concepts that can be quantified and proven, just like a scientific method. Everyone meets the same minimum standard.

Here is an example: Raising the minimum wage increases unemployment.
It can be shown both graphically

and anecdotally that raising the minimum wage creates unemployment. It’s a simple statement of fact.

That’s why the only way to have a fair tax code is to set some standard, and have everyone regardless of income, class, gender, marital status or any other category you want to include, meet the same standard. A flat tax is ideal.

Is it fair to tax billionaires more than anyone else? Who creates more jobs, billionaires or government? Give you a hint. You elect them with your pocketbook.

Who should pay more in taxes, Steve Jobs or a minimum wage worker? Is that fair? Even if they paid the same rate, Steve Jobs would pay far more in tax than the minimum wage worker. Jobs through all his companies creates far more jobs in an hour than one minimum wage worker will create in their lifetime.

Governments don’t create jobs. They need to facilitate the creation of jobs by the private sector. Governments do this with flat taxes, low regulation, and by simply staying out of the way. As President Reagan said, the worst words you could hear are, “I am from the government and I am here to help.”.

If Democrats and some Republicans were truly worried about creating jobs, they would strip out all the horribly toxic regulation we have today and amend the tax code like this: End all subsidies and write offs, flat tax everyone the same at 15%.

You’d see jobs created like you dreamed of. With all the economic growth, government coffers would be over flowing.

That would be fair.

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  • Anon

    Your point and link to the article that compares government job creation and private sector job creation is misleading. The author of that article is pointing out that the government cannot create private sector jobs. This is correct. However they have created many public sector jobs in that time. The other day a story was circulating about how much cash Apple has on hand. Even with all of this cash they are not doing any significant hiring. HSBC is planning to lay off 30000 people even though banks received the majority of the stimulus money. Why do you think giving corporation more cash via tax breaks will lead to them adding jobs. Hint. It won’t

    • don

      public jobs can only be provided up to a point. then the underlying private sector cannot foot the bill. Hint. that is where we are today. Apple is a rare business right now. Most are struggling under regulation and taxation. my small firm of 13 saw my Illinois IDES(first quarter) go from $800 to $10,000. Sorry guys–no raise or bonuses

      • Anon

        Don,

        Your point about Illinois taxes is understood.  I am focusing more on Federal spending.  Jeff says Apple has no economic incentive to hire.  The reason that any business would hire more personel is increased demand for their products or services.  In a balance sheet recession and during times of high unemployment people consume less so the demand for goods and services falls.  This causes more people to lose jobs which creates a potential feedback loop.  Government spending, either by tax reductions or actual dollars spent (both of these inject money into the private sector) is necessary to fill the void in demand and break the loop.

        The private sector does not “foot the bill” for the government.  This is an outdated view of how “money” works left over from the gold standard.  People need to understand our national debt is different from personal, corporate or state debt.   As the monopoly supplier of the dollars that our debt is denominated we can always meet our “debt” obligations.  The government does not count tax receipts and/or make bond issuances so that they can spend.   Nothing funds the spending of the US government, the US government is never revenue constrained. The USG spends without regard for tax receipts or debt issuance & taxation functions as an anchor for the dollar as the one and only currency in the US and the Treasury’s bond issuances are just apart of the mechanism whereby the Fed targets (and hits) the overnight rate by drying up the proper amount of excess reserves in the system.  This is not to say that government should spend without regard for the efficiency of that spending.  Government spending should focus in areas that aid in increasing our productivity

        • you can’t meet the obligations without either economic growth or inflation; The money to run the government doesn’t come from the govt. It comes from taxes-which pay down the debts.

          This isn’t a balance sheet recession. This is a recession based on too much govt debt (Europe), and misaligned economic incentives in the US. Get the incentives right and we will grow.

          • Anon

            “The money to run the government doesn’t come from the govt. It comes from taxes-which pay down the debts”

            This statement is completely false and it is important that people start to understand why.  First of all, consider the fact that the US has spent more than it took in via taxation practically every year since it was founded.  This should make you question your assertion that taxes fund spending.  The government is exactly where the money comes from.  Consider this, if the government wanted to eliminate the debt tomorrow what could they do?  The could tax us 100% of our US dollar assets tomorrow.  Then they would have a huge surplus that they could spend.  Of course the private sector would be destroyed but who cares as long as the government is rich right?  NO, taxes exist to incentivize certain behavior and regulate demand.  If the government does not tax enough this would cause inflation if they tax too much, well look at the economy now.

            The problem in Europe isn’t debt per se it is a flawed currency system.  The only incentive that drives business is demand.  If there is no demand for your product you are not going to expand your business regardless of the incentives in place.  The consumer in the US is spending less because of lack of credit, unemployment, etc (attempting to strengthen their balance sheet).

          • The only conclusion from your statements on this blog is that you pay zero in taxes.  

          • Anon

            Wasn’t it Leona Helmsley that said, “Only the little people pay taxes”?

    • Apple has no economic incentive to hire, and no economic incentive to pay a dividend.  So it sits on cash.

      My points are not misleading.  Government is not an economic engine, at all, period.  Keynesian economics is dead.  Buried.  Over.  Proven wrong.  

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