Almost any parking lot of a Grateful Dead Concert in the 70's and early 80's.

That's called, how do you put it? - oh yeah, " individuals make[ing] their own decisions about what's good for society."

No, that's called "individuals making decisions for other people about what's good for society".

Give me an effin break Steve. Can you find me one human being on earth who has ever decided to not accept a higher paying job, because some fraction of the increase in his salary would be taxed at 39% rather than 35%?

And I guess your rhos and taus might seem ever so scary to some people, but it seems like childsplay to work that into an algorithm that could answer those questions instantaneously.

If you found such a person who needed to know that.

As far as bad people in government causing disasters, well, as we sit here in 2007 I am hardly the one to argue with that. But it is why I support the notion of checks and balances, and never ever voting for Republicans. :)

Child labor was, of course, just one example of what occurs in an unregulated marketplace. And I didnt claim that it was an invention of capitalism.

One of the odd things I have always noticed about libertarians is that they seem ever so suspicious of unaccountable power - but only if it is government power. As if power (including the power to oppress in many different manners) exists soley as a function of government. Private institutions can exercise power too. We saw that in laissez faire capitalism - when government basically let private corporations do what they wanted, the result was a monstrous way of life for workers.

One could make quite the case that a major subtext of 20th century history was the attempts by people throughout the Western world to find some kind of alternative system to the horrors of pure capitalism. Socialism, communism, fascism and so many other permutations won over the hearts and hopes of tens of millions of decent people because they all knew, without question, that there had to be something better. We were lucky enough to hit upon the notion of a regulated, policed market system that kept the underlying economic engine humming, but outlawed the outrages, tamed the excesses, and modified the distributions so that society could advance as a whole. I think the case can be made that this type of a regulated market is infinitly better than a "free" market, and probably more productive as well.

I dont know if it is ignorance of history, a fantasy of actually being a robber baron with no regard for the rest of society, or some kind of a bizarre longing for a simple, clean model, unsullied by the little fixes that actually can make it work, that causes libertarians to constntly try to undo the progress we have made.

The problem is that you inaccurately described the way flat tax proposals are structured. You claimed, falsely, that they are about simplifying only the brackets and by implication not how taxable income is determined. I pointed out that this is false.

As for the number of brackets it does add to the complexity in that people often have to consider what moving into a higher bracket does in terms of the labor leisure trade off. With a progressive multi-bracket system the marginal rate isn't so easily determined and hence it is harder for people to know if accepting a higher paying job with increased work hours is a good thing or not.

Think of it this way. You have a flat tax with tax rate tau. You have standard deduction of D, and income is denoted by I. Now your tax is given by,

Tax = (I-D)*tau.

The marginal tax rate is,

dTax/dI = tau.

Now suppose we have two tax rates tau and rho. Now the tax that is paid is given by,

Tax = (I* - D)*tau + (I-I*)*rho.

That is you firts apply the deduction to income below I* and tax that at rate tau. Any income over I* you tax at rate rho with rho > tau.

Just this two tier system is more complicated in that the tax function facing each tax payer is more complicated. Do they face marginal rate tau or rho? The more brackets you add the harder it is. If you add in different rates for different types of income it becomes even more complicated. For example, if you want certain types of labor income to be taxed at one rate and others taxed at a different rate.

Yeah. Well, minimalist government works only so long as you get good people. Business works only so long as you get good people.

Only one fatal falw to your cute little analogy. Blogs and corporations don't usually have the same level of power the government does. Go over and read Radley Balko's articles on militarizing the police. Go read up on the Kelo decision. A business with a "bad person" goes out of business. A government with bad people can lead to atrocities.

Regarding Child Labor:

Oh really? Why is that.

Because the idea that people are going to get that much extra income from sending their children a la the late 1800's out into the work force is highly questionable. By the way, child labor was just as rampant prior to "capitalistic systems". Agrarian economies put their children to work just as well. This notion that it is some evil associated with robbber barons and capitalism is just silly.

Do we have a better sort of human being now?

No, we have a vastly different economy now. We have an economy where if people were going to look at their children as sources of income you'd have both a present and potential future income streams to look at. Sure you could send Jr. out to work in the Nike factory for $5.25/hour or you could send him to school and have him go out and earn $25.25/hour instead.

Maybe its time to withdraw the police from our city streets - in the expectation that no one is really seeking to bend any rules to maximize their advantage anymore?

Strawman.

Ya got that right.

Yeah who needs those stupid property rights. Fuck the Constitution and that stupid fourth amendment.

Some might actually be so wise, but not most. And besides, it is still the long-term health of their own business that they might attend to, not that of society as a whole.

Really? Toyota is a great example. They seem to have a very long planning horizon. Microsoft as well with its aggressive pursuit of intellectual property for software. Focusing on merely the next quarter is a great way to run into very serious problems. If that is really what firms did in general you'd see firms failing to make large scale capital investments. After all, those expenditures could be then considered profits for that quarter pumping up profits, and temporarily stock prices, and in your view providing the justification for CEO salaries. The problem is that as capital depreciates away these firms productive capability would also decline. Funny, that just doesn't seem to be the trend.

And anyone who disagrees with what the electorate thinks is objectively good for society can have their assets confiscated and sent to jail at the barrel of a gun. Sorry but I think I'd prefer to have individuals make their own decisions about what's good for society.

Thank you. We've done that. We did it through our political process. It's called democracy.

And what we have decided is that what is good for society is for each of us as individuals to contribute a fair share of our income (in progressively higher amounts as we benefit more from society) to a government of our choice. This government we have established to provide for our general welfare and to establish justice and to provide for common defense and to do a few other things.

Those people who refuse to go along with the small sacrifice required to enjoy the benefits of our nation are invited to either comply or to leave. Those who chose neither to comply nor to leave we chose to put in jail.

That's called, how do you put it? - oh yeah, " individuals make[ing] their own decisions about what's good for society."

And what is wrong with using the tax code to redistribute wealth or to incentivize certain activities? These are activities that are, I think, objectivly good for society.

And anyone who disagrees with what the electorate thinks is objectively good for society can have their assets confiscated and sent to jail at the barrel of a gun. Sorry but I think I'd prefer to have individuals make their own decisions about what's good for society.

• SIMPLE, easy to understand
• EFFICIENT, inexpensive to comply with and doesn't cause less-than-optimal business decisions for tax minimization purposes
• FAIR, loophole free and everyone pays their share
• LOW TAX RATE, achieved by broad base with no exclusions
• PREDICTABLE, doesn't change, so financial planning is possible
• UNINTRUSIVE, doesn't intrude into our personal affairs or limit our liberty
• VISIBLE, not hidden from the public in tax-inflated prices or otherwise
• PRODUCTIVE, rewards, rather than penalizes, work and productivity

Its benefits are as follows:

FOR INDIVIDUALS:
• No more tax on income - make as much as you wish
• You receive your full paycheck - no more deductions
• You pay the tax when you buy "at retail" - not "used"
• No more double taxation (e.g. like on current Capital Gains)
• Reduction of "pre-FairTaxed" retail prices by 20%-30%
• Adding back 29.9% FairTax maintains current price levels
• FairTax would constitute 23% portion of new prices
• Every household receives a monthly check, or "pre-bate"
• Pre-bate equals payback for taxes on spending to poverty level
• FairTax's pre-bate ensures progressivity, poverty protection
• Finally, citizens are knowledgeable of what their tax IS
• Elimination of "parasitic" Income Tax industry
• NO MORE IRS. NO MORE FILING OF TAX RETURNS by individuals
• Those possessing illicit forms of income will ALSO pay the FairTax
• Households have more disposable income to purchase goods
• Savings is bolstered with reduction of interest rates

FOR BUSINESSES:
• Corporate income and payroll taxes revoked under FairTax
• Business compensated for collecting tax at "cash register"
• No more tax-related lawyers, lobbyists on company payrolls
• No more embedded (hidden) income/payroll taxes in prices
• Reduced costs. Competition - not tax policy - drives prices
• Off-shore "tax haven" headquarters can now return to U.S
• No more "favors" from politicians at expense of taxpayers
• Resources go to R&D and study of competition - not taxes
• Marketplace distortions eliminated for fair competition
• US exports increase their share of foreign markets

FOR THE COUNTRY:
• 7% - 13% economic growth projected in the first year of the FairTax
• Jobs return to the U.S.
• Foreign corporations "set up shop" in the U.S.
• Tax system trends are corrected to "enlarge the pie"
• Larger economic "pie," means thinner tax rate "slices"
• Initial 23% portion of price is pressured downward as "pie"
increases
• No more "closed door" tax deals by politicians and business
• FairTax sets new global standard. Other countries will follow

I still dont understand why you cant focus on the one single issue that we are discussing in the tax brackets issue. It is simply this. One can decide the number of brackets, be it one or two or 10 or 20, and this question is entirely separate from the other issue - whether to simplify the tax code, either a little or a lot or not at all. Two entirely separate questions. You can change one or the other or both or neither, in any permutation, independently of eachother. That was, I presume, Kevin Drum's original point, and was the point I was trying to make. And it is the point that the "flat tax" proponents always try to obscure. Most likely because tax simplification is popular - whereas a flat tax structure (which amounts to halving the marginal rates on the high-income earners, shifting the tax burden onto the middle class) is much less popular.

"Seriously, your arguement boils down to, "Activist government would work, just so long as we got good people in positions of power." "

Yeah. Well, minimalist government works only so long as you get good people. Business works only so long as you get good people. Blogs too.

[re. child labor etc] "it is somewhat questionable that we'd have that today if we reduced the size and scope of government intervention."

Oh really? Why is that. Do we have a better sort of human being now?
Maybe its time to withdraw the police from our city streets - in the expectation that no one is really seeking to bend any rules to maximize their advantage anymore?

"Unfortunately you don't seem to have much truck with guaranteeing rights to resources."

Ya got that right.

"Why should a politicians who is in office for either 2, 4 or 6 years going to take a longer planning horizon..."

Hey, I am very much opposed to term-limits, for precisely this reason (amongst others).

"than a business owner who is 40 years old and looking to be in business for up to 25 years? "

Some might actually be so wise, but not most. And besides, it is still the long-term health of their own business that they might attend to, not that of society as a whole.

Ken, you crack me up.

The flat tax proposal has two brackets. A zero percent bracket (what you refer to as the large standard deduction) and then the flat rate itself - 17%, 20%, whatever.

Technically, there is only one bracket. 20% of $0 is $0 in taxes.

There is no reason, as you seem to acknowledge, that one could not have any number of brackets.

Well what do you want to influence with different tax brackets? The only thing I can see influencing is the amount of work some people in society want to do. The biggest way to influence people's behavior is via deductions. You want to make it easier to purchase a home, give a mortgage interest deduction (and don't tax the imputed income from occupying one's own home). Want people to have more children, then give them a per-child deduction. But this leads to rent-seeking and increases the complexity of the tax system.

I dont know what you think "rent-seeking" or super-majorities have to do with this issue.

Ignorance of rent-seeking is why we have the complex and byzantine tax system and bureaucracies we do.

Well yes. And so you have a process in which you elect people to use judgement in distinguishing between the two. And if they are successful at that, you send them back to continue using such judgement. Thats the way it is supposed to work.

You sound like George Bush. Seriously, your arguement boils down to, "Activist government would work, just so long as we got good people in positions of power." Nevermind that the notion of time inconsistency seriously undermines this claim, and history points out that often time the knaves and liars are the ones that go into politics.

Nothing is pure in this mortal coil. I was thinking along the lines of 19th century early-industrial-revolution times. You know, robber barons, gilded age, the right-wing good ol' days.

Oh, the industrial revolution which laid the foundation for much of what we enjoy today? Yeah, there were some disturbing practices like child labor and the such, but it is somewhat questionable that we'd have that today if we reduced the size and scope of government intervention.

Yeah, I kinda get the idea that you are not a big fan of democracy. But to whatever extent you are right about that history, it is probably better than the allocation from other systems.

I didn't say I wasn't a big fan of democracy, I just oppose using it to allocate/reallocate resources. You put your guy in and Charles Austin is unhappy with the stuff he does. So Charles gets his guy in and does stuff you don't like. Back and forth it goes wasting resources via rent-seeking. Along with rent-seeking, which wastes resources, there is rent-protecting. If each side is willing to expend resources upto the value of the rent then the potential loss is multiplied by the number of sides.

Ah, a constitutional democracy, I mean. With guaranteed rights. All praise the ACLU!

Unfortunately you don't seem to have much truck with guaranteeing rights to resources. It appears very much that you see resources sort of like poker chips that should be handed out via some sort of nebulously defined voting mechanism with little restraint via the Constitution.

Hey, I cant deny this is a problem. None the less, we do look for our politicians to be statesmen and to consider the longer horizen, and we do tend to reward some of them who do that.

This is really an assumption. Why should a politicians who is in office for either 2, 4 or 6 years going to take a longer planning horizon than a business owner who is 40 years old and looking to be in business for up to 25 years? Firms that focus solely on next quarter's profits are usually firms that don't last that long. There are things like capital expenditures that could have to be amortized over a few decades, etc.

Well yes. And so you have a process in which you elect people to use judgement in distinguishing between the two. And if they are successful at that, you send them back to continue using such judgement. Thats the way it is supposed to work.

"Exactly how many pure capitalistic systems have you seen?"

Nothing is pure in this mortal coil. I was thinking along the lines of 19th century early-industrial-revolution times. You know, robber barons, gilded age, the right-wing good ol' days.

"Voting has a really shoddy history of allocating resources in a way that most consider "good"."

Yeah, I kinda get the idea that you are not a big fan of democracy. But to whatever extent you are right about that history, it is probably better than the allocation from other systems.

"What if the popular vote is to round up all HIV patients and quarentine them?"

Ah, a constitutional democracy, I mean. With guaranteed rights. All praise the ACLU!

"Oh yes, and politicians have such long planning horizions. Why of course they plan for events 2,3 even 4 election cycles ahead."

Hey, I cant deny this is a problem. None the less, we do look for our politicians to be statesmen and to consider the longer horizen, and we do tend to reward some of them who do that. We do need more of this. There is a chance to get some through the electoral process. No chance to get if from quarterly-report driven businesses.

Let me focus on the nonsense you spout with regard to tax simplification vs. the number of brackets.

You call what I say nonsense, but you then just wander around the issue without addressing it.

The flat tax proposal has two brackets. A zero percent bracket (what you refer to as the large standard deduction) and then the flat rate itself - 17%, 20%, whatever.

There is no reason, as you seem to acknowledge, that one could not have any number of brackets. This would have NO EFFECT WHATSOEVER on the question of simplifying the tax code - which refers to the question of whether to have all manner of deductions, loopholes, incentives etc. as we now do.

I dont know what you think "rent-seeking" or super-majorities have to do with this issue.

every progressive tax system seems to have the (unintended?) effect of keeping me from being able to accumulate wealth.

Actually what is keeping you from accumulating wealth is you penchant for spending inordinate amounts of your time on-line whining about how the tax system is keeping you from accumulating wealth.

I am not trying to be cruel but I have seen enough of people like you to diagnose your near hopeless condition: you are a conservative. This means that you will never take responsibility for your own failure to accumulate wealth but will always blame it on the country you live in.

I see plenty of good people everywhere who are working hard, accumulating wealth, paying taxes, raising a family and who are grateful that they live in a country that allows them the freedom to do all of this and do not begrudge the taxes they pay.

Pity you could not be more like them.

As for the unlucky few who have to pay significant percentages of their income in taxes, don't forget about FICA, Medicare, and the AMT. The first two are especially problematic since as an S Corporation business owner I have to pay those amounts twice. Also, your allusion to people who are paying large amounts of taxes due to property taxes helps illustrate what I tried to note about the difference between wealth and income. They are not the same thing, and frankly every progressive tax system seems to have the (unintended?) effect of keeping me from being able to accumulate wealth.

And what is wrong with using the tax code to redistribute wealth or to incentivize certain activities? These are activities that are, I think, objectivly good for society.

James has already given the answer Tano. Rent seeking, that is the problem. Once you open the door to creating special incentives then people start asking for special incentives, some worthy, but most likely most are not.

We want to keep an economic system that is essentially capitalistic, because we understand that that is the engine for economic growth and the landscape upon which the creative capacities of the population can best be realized. But we also know perfectly well that a pure capitalistic system leads to highly undesirable and unstable outcomes - including a gross disparity in income, and a huge class of relatively poor workers who cannot sufficiently participate in the economy.

Really? Exactly how many pure capitalistic systems have you seen? Please don't use third world countries as most, if not all of them, don't count. When you have a country ruled by a dictator or some sort of authoritarian junta you tend to find cronyism, nepotism, and just about every other bad -ism out there. As such, they aren't "capitalistic".

And using the tax code to incentivize or deincentivize certain activities is an ideal way for a society to guide, with a relatively light hand, the economic energy of the society in the direction that we as a society deem important.

Really, you mean like England's Corn Laws? Voting has a really shoddy history of allocating resources in a way that most consider "good". The quotes are to denote the subjective nature of the word good by the way. How do we determine it? By popular vote? What if the popular vote is to round up all HIV patients and quarentine them? Good idea, bad idea? And this doesn't even get into the "technical" issues of using voting mechanisms as a way of making decisions.

The mentality of the decision maker in a business is neccessarily too short term to always emcompass the larger, or longer term interests of the society.

Oh yes, and politicians have such long planning horizions. Why of course they plan for events 2,3 even 4 election cycles ahead.

The "flat tax" movement has always been pushing the notion that one must adopt a flat tax (2 brackets rather than 6 or 7) in order to achieve tax code simplification. This is nonsense.

The only bit of nonsense is what you are spouting. True many, if not all, flat tax proposals have one (maybe two) tax brackets, but they also simplify the calculation of your taxable income. They remove all the itemized deduction stuff and opt for large single deductions. For example, the Hall-Rabushka flat tax eliminates most of the deductions you see today and in their place put a large standard deduction, I believe that the deduction for 2006 would have been around $33,700 for a family of four. That is if such a family earned $32,000 then they'd pay no taxes at all.

Now, you could go with the above deduction and have more than one bracket, but the big thing is getting rid of the rent seeking. You'd have to do something like pass the tax reform and also incorporate some sort of super-majority requirement to change the law. Now, if you ask Drum about that, he'll poo-poo it. He hates the super-majority requirement here in CA for changing things like property taxes. Granted, I believe Drum rents so, higher property taxes would have little impact on him, at least initially.

As for taxing investment income and labor income the same, fine, but then eliminate the corporate profits tax since most investment income his hit with that before it is paid out to shareholders.