Tithes, Taxes and Progressivity

I grew up in a good Republican family, in a wealthy Southern California community, in a ward with lots of good, right-thinking Republican churchmembers. As a youth, I recall occasionally hearing an argument that went something like this: “The Lord asks all his children to pay 10% of their income to his Church, regardless of whether they’re rich or poor. He did so in the days of Malachi, and he does so today. But the government levies a tax on U.S. citizens that rises higher and higher the more money you make. Since we know that the Lord’s ways are just and fair, the government’s ways obviously are not.” In short, the Church’s tithing system was a model that the government should adopt with respect to tax policy. Progressivity in the tax code is unfair, unjust, perhaps even evil.

While there may or may not be compelling policy arguments for a flat tax, I am unconvinced by my fellow churchmembers’ line of reasoning. That is, it isn’t clear to me that tithing’s Biblicalness means that a 10% rate is the epitome of fairness in all times and places. And even if it is in some sense, it isn’t clear to me that a rule designed for God’s kingdom should necessarily apply in other contexts.

Is there an argument — as opposed to a mere assertion — to be made that Christianity’s “flat tithe” suggests the government should abandon its progressive rate structure and impose a “flat tax”?

And for those who support a progressive tax code on fairness grounds, is there an argument to be made in reverse? That is, would you find it religiously appropriate or just if the Church adopted a “progressive tithing” system (in which case, we’d need a new word to replace “tithing” I suppose) in place of the historical, across-the-board 10% rate? Such a change might seem radical, and I have no reason to believe the Church has ever considered making it. But given our Law of Consecration, our rhetoric that “everything belongs to the Lord, yet he only asks us for x%”, and the general commitment we take upon ourselves as churchmembers to support the Kingdom, I personally don’t think its that hard to imagine such a move.

Thoughts?

Comments

  1. Name (required) says:

    Christianity’s “flat tithe”…

    Does christianity have a flat tithe? I know its in the old testament, but I thought many christian denominations have moved away from a flat 10%.

    is there an argument to be made in reverse?

    Yes–the 10% thing should be revised significantly downward for most people and probably just replaced with a ‘give what you want’ system. 10% may have been good when the church functioned basically as a government as well as a ‘church’, but things have changed.

    When you look at money paid vs. services rendered, the church sometimes looks like a really poor investment. 10% of income for a building to meet in on Sundays with no paid staff. Compare this to a membership at a nice gym like Lifetime fitness. You can go to Lifetime any time, in a great facility. The cost is a fraction of 10% of income and they still make a nice profit for their corporation. Movie theatres? You go for a couple of hours each week for peanuts compared to 10% of income and likely get more entertainment out of it vs. sitting in church.

  2. Eric Russell says:

    Name, alas, the church just can’t compete with fitness centers and movie theaters.

    Interesting post, Aaron B. As I see it, the progressive tax is a necessary evil. There’s just no way to fund needed programs without it. Ideally the wealthy will choose to give their surplus to charities. It is perhaps this ideal of voluntary magnanimity that the church hopes will occur with a flat tithe.

  3. Last Lemming says:

    In “Gambling–Morally Wrong and Politically Unwise” (Ensign, June 1987), Dallin Oaks cites the regressivity of state lotteries as an argument against them.

    In the words of former Florida Governor Reuben Askew, the lottery is “the worst form of taxation ever invented.” This is because the poor pay a much higher proportion of their income than the rich. Economists describe this kind of tax as highly regressive. Writing in the National Tax Journal, one economist stated that most forms of gambling, including state lotteries and numbers games, turn out to be “two to three times more regressive than sales taxes.”

    This is not an unqualified endorsement of progressive taxation, but if he can favorably cite Askew’s assertion that the lottery is the “worst form of taxation” because of its regressivity, then I can reasonably infer that the “best” form of taxation must be progressive.

  4. Last Lemming says:

    Ideally the wealthy will choose to give their surplus to charities. It is perhaps this ideal of voluntary magnanimity that the church hopes will occur with a flat tithe.

    What the Church wants is for the wealthy to contribute their surplus to fast offerings.

    However, President Spencer W. Kimball asked us to give “much, much more—ten times more where we are in a position to do it.” (In Conference Report, Apr. 1974, p. 184.)

    I suspect that contributions to the Humanitarian Fund and Perpetual Education Fund (which didn’t exist in 1974) would fall into the same category.

  5. I don’t know what the Church should do. I’ll leave that up to the prophets. What I do know is that I’m really annoyed when people say that the fact that tithing is 10% for everybody means that everyone bears the same burden and makes the same sacrifice. In terms of percentage of disposable income, tithing represents a much greater burden for the poor than the rich. Sure, the rich man pays much more in absolute terms, but in order to do so he may be sacrificing some leisure and luxury while the poor man sacrifices things like heating for his home or a reliable automobile.

    Not that that’s necessarily bad. The poor man probably develops more faith as his faith is put more to the test. So maybe the flat tithe is something that is really detrimental and unfair to the rich.

  6. The differences in tithing and tax are appropriate in light of the different purposes of church and government. The rich arguably get greater benefits than the poor primarily in the security that governments provide. See D&C 134. The same cannot be said for church.

  7. The difficulty in the comparison is that Uncle Sam doles out benefits but not blessings — and that he’s not in a position to make quick turn-around on any benefit such that a payer might feel comfortable giving even in the face of destitution.

    The Lord, however, promises blessings, and, in deed, makes a compelling argument that tithing should be the first 10%, not the last.

    Just a thought.

  8. That is, would you find it religiously appropriate or just if the Church adopted a “progressive tithing” system (in which case, we’d need a new word to replace “tithing” I suppose) in place of the historical, across-the-board 10% rate?

    My personal experience is that affluent active membership tends to struggle to pay tithing in greater numbers than the poorer active membership. I don’t know why that is, and I don’t know if my experience is consistent with the rest of the church. Perhaps an increase of income also increases the difficulty of parting with that income.

  9. Don’t forget Israel’s temple poll tax (Exodus 30:14-15):

    Every one that passeth among them that are numbered, from twenty years old and above, shall give an offering unto the Lord. The rich shall not give more, and the poor shall not give less than half a shekel, when they give an offering unto the Lord, to make an atonement for your souls.

    As much of burden as taxes are, I dislike loading them on some group I’m not part of (smokers, gamblers, people richer than me) because it’s my government, and if I want it, then I should pay for it.

  10. StillConfused says:

    I strongly agree with the concept of a flat tax. People would be more successful if the tax system weren’t so perverse. As a tax attorney, I see people work less or rearrange things because of being pushed into a higher tax bracket. I like the Church’s “flat tax” approach because we all understand where we stand. 10% is what it takes — if it is 10% of $100 or 10% of $100000000, we end up in the same heaven.

  11. That is, would you find it religiously appropriate or just if the Church adopted a “progressive tithing” system (in which case, we’d need a new word to replace “tithing” I suppose) in place of the historical, across-the-board 10% rate?

    I think we already have it. While it is true that we all pay 10% tithing, those of us who are better-off have the opportunity to pay a larger fast offering and contribute to the ward missionary fund, and in two wards I’ve been in, this has meant pretty much supporting missionaries whose own family could or would not (and on several occasions we paid enough that it stung). So the well-off often do pay more, when it comes to all tithes and offerings.

    Also, several times we have paid part of EFY, which isn’t really church funds of course, but we’ve told our bishop that we would help with that kind of thing (and that was even before we saw SISTERZ IN ZION). I’m ashamed to admit that this summer I had a bad moment when I saw a family in the grocery store buying convenience foods that I don’t think I can afford, and yet I had paid for their child to attend EFY. I had to calm myself and remind that it was a gift with no strings attached–but next year I will tell the bishop that I don’t want to know which family is receiving it (they never knew who provided the funds, but the young people typically write us a thank you note, passed through the bishop, so we know).

  12. The problem is that a flat income tax would not equal flat and fair taxation because of the presence of payroll taxes and sales tax. Because payroll taxes level off after a certain amount, and because poor people spend a higher percentage of their income on food and necessary household items subject to sales tax, a flat income tax would actually be regressive, so that analogy to tithing is imperfect.

    That said, you could still argue that a flat income tax would be more fair and effective than the current system, or you could argue for a progressive, stepped version of the flat tax (e.g., those earning under $20K pay 0%, $20-40K pay 12%, $40-80K pay 15%, etc.) But income tax is just one part of the overall tax system, so it can’t be analogized to tithing.

  13. Latter-day Guy says:

    A man I know––usually very well informed––is strongly in favor of flat taxes after seeing how they worked in Russia. Due to the huge simplification of the tax code, using tax shelters and evading taxation became more expensive than just paying up. As a result, tax revenue vastly expanded. (Correct me if I’m wrong here; I’m no expert on Russian tax code. Just parroting.)

    I think that the success of the church tithing/fast offering/welfare programs is a stronger argument in their favor than just the fact that it’s the “Lord’s Program.” That is, the government shouldn’t adopt LDS church policies because they are LDS church policies; they should adopt them because they work.

  14. I once read an article either in the Ensign or church news about the wonderful sacrifices the saints in some South American country were making to build a temple. One such shining example was a man who took out his gold-filled tooth to be donated to the temple fund. It made me literally sick– how could the church, with it’s infinite wealth, ask people who were so poor that they sometimes struggled to eat, to sacrifice more for a temple? And getting rid of a filling on a tooth or other dental work can cause medical problems and infections. There is something seriously wrong when those who truly struggle for life’s necessities are told to pay 10% or else– gosh, they just may BURN in the second coming. Pay it before you feed your family, or get medical care for a child or… well, the list is endless. I remember post college charging my groceries and juggling whether I could pay my electric bill but still feeling horribly guilty about maybe fudging a couple dollars on my tithing. Maybe it’s a threadjack. Sorry. Should the 10% requirement by revised? Gosh, yes. I think giving 10% to charity or more, even the church, is great and noble. But I’d rather give to the church’s humanitarian aid fund so others may eat and have shelter, than 10% so we build another lavish temple and help pay for the renovation of down town SLC.

  15. Lulubelle, I would be willing to donate my grillz towards the construction of a new temple.

  16. #13: Tithing is the Lord’s Plan ‘B’. Did you mean to say the Government should use Plan “A”? I think we should revisit Henry George’s plan.

  17. Members have plenty of opportunities to contribute more than 10%. LDS Philanthropies is an arm of the church that successfully solicits substantial contributions beyond regular tithing.

    As far as the payroll tax is concerned, I am all for eliminating the cut off and using the gain to reduce tax rates in the lower brackets. There are two other substantially regressive subsidies worth mentioning – one is the way health care expenses are tax deductible for employers but not for individuals, and the second is the subsidy for large houses via the mortgage interest deduction.

  18. You have to be careful about comparing apples and oranges. Tithing isn’t about money, it’s about faith. While giving your left tooth for a temple may seem extreme, I bet you that person goes to the temple regularly along with paying tithing regularly.

    Don’t get me wrong, I’m in social work so I’m all for relieving temporal pain and injustices, but Heavenly Father can take care of us a lot better than we can take care of ourselves.

  19. Steve Evans says:

    “Tithing isn’t about money, it’s about faith.”

    That’s what I keep telling my bishop! Stupid bishop.

  20. #14: The City Creek Center expenditure is an investment in an income producing property with nice side benefits that will pay for itself perhaps twice over during its projected lifetime.

    Given that tithing and other contributions tend to rise and fall dramatically with the economy and other conditions, this is little more than conservatively saving for a rainy day while multiplying the eventual value of the original contribution. That is why universities have (financial) endowments, right?

  21. There'sastigmaaboutthis says:

    #11 Naismith

    If it’s any comfort to you many people who are very, very cash poor recieve more food stamps than they can use eating frugally.

    I can feed the family on $200 a month. I’ve done it on $30 a month by dipping into food storage. Yet during the quarter following a low income reporting month, my family can receive around $800 in funds that can only be used for food. Not diapers. Not dental floss. It’s illegal to trade them for anything. Convenience items are nice. What else are you suppossed to do with surplus food stamps?

    I always ask that my contribution to any church activity be food and I’m the first to volunteer to take someone a meal, but food won’t get my kid to EFY or scout camp or girls’ camp.

    Bless you for your kindness.

  22. Also, the City Creek development does not utilize tithing funds directly. I suppose there may be some indirect use of funds such as church employees that may be paid from tithing funds, but I’m not sure about that.

    Warren Buffet, one of the richest men in the world, recently pointed out that as a percentage of income, his lowest paid secretarial staff pay a higher percentage of tax than he does. So, perhaps it could be argues that our current federal taxation system is not really progressive at all….

  23. #22: Warren Buffett is not counting correctly. Every shareholder pays indirect taxes in the form of corporate income taxes, which are around 35%. Long term capital gains of ~15% are on top of that.

    If it were not for timing issues we could have corporations pay all their income taxes in the form of shareholder capital gains at a higher rate than they presently pay. A corporation is nothing other than a legal proxy for the shareholders after all.

  24. By 1933, with Utah’s unemployment rate at 35.8 percent, the fourth highest in the nation, it was clear that mutual aid alone could not offset the effects of the Great Depression. President Roosevelt had received widespread support from Utahns, 70 percent of whom had voted for him in 1932. Utah was 9th highest per capita for New deal money. Your tax dollars at work.

  25. Mark D. (#23): It seems to me that shareholders aren’t indirectly paying corporate income taxes nearly as much as the corporation’s customers are. When in doubt about Warren Buffet’s tax rate, I’ll trust Warren Buffet.

  26. zehill (#25): You could make a similar argument about anyone’s income taxes. e.g. it is not the (dentist/doctor) who pays income taxes so much as his patients, or it is not the engineer who pays income taxes so much as his or her employer’s customers…

    The argument, however, is fundamentally faulty. Income taxes are based on income (production), not expenditures (consumption). They are allocated to the producer, not the consumer, by definition.

    If an individual produces economic value he trades in exchange X dollars by virtue of his own effort, the government extracts a percentage. The fact that his employer and eventually his employers customers are paying that same X dollars (including taxes) is irrelevant.

    Now if the same individual buys a portion of a company, and his investment earns Y dollars before taxes, the company first pays the corporate rate on that amount, and then when he sells his portion he pays an additional capital gains tax. The fact the Y dollars was derived from sales to others is also irrelevant.

    In each case a certain amount of economic value was created, and the government taxed it as income. It is just in the latter case there is an artifical entity involved, making it easier for the government to tax the value created twice.

    And if that is not convincing enough, you might provide an argument for why the corporate income tax should not be 100%. After all the Warren Buffets of the world will still be paying less than their secretarial staff right?

  27. #26: I am “not convinced enough”. I know, I know, it’s “irrelevant” to you. But I just sense Warren Buffet is getting better tax breaks than I am.

  28. #27: I can’t argue with feelings, nothing more than feelings…

  29. BTD Greg is right (#12).

    There was a study done in Washington State a few years back that showed that the poor payed 17% of their income in state and local taxes while the wealthy paid only 4%. A flat tax would tilt the balance to a very regressive overall tax system. Forbes knew this but was for a huge tax break for the wealthy anyway.

  30. #26: I understand your argument and mostly agree. However, economists frequently disagree on who bears the corporate tax burden and we just don’t know if it’s the shareholders, employees, or consumers. I would suppose it’s a mix of all three, depending on the industry, market conditions, tax rate, etc. In your 100% corporate tax scenario, I agree that the shareholder would bear the entire burden, as it would be impossible to pass a 100% income tax on to customers or employees. However, a 100% tax would also significantly affect shareholder behavior.

    Per the U.S. Department of the Treasury: “The economic burden of a tax, however, frequently does not rest with the person or business who has the statutory liability for paying the tax to the government.” Report of the Department of the Treasury on Integration of the Individual and Corporate Tax Systems: Taxing Business Income Once, January 1992.

  31. Mark,
    The thing is, the corporate tax falls on shareholders, consumers, and employees, and nobody really knows what the incidence is on each. So you’re right that the corporate tax imposes more tax than a look at individual rates would suggest. But Warren Buffet’s secretary is certainly an employee, certainly a consumer, and very possibly a shareholder (if not directly, through mutual funds, at least). So the incidence of the corporate tax also falls on her. Because we can’t quantify how much falls on her viz Mr. Buffet, it makes sense to leave that out.

    Mr. Buffet, when he was saying he pays less tax than his secretary, was commenting specifically on the fact that carried interest—his compensation (and that of most hedge and private equity fund managers)—is taxed at long-term capital rates, which max out at 15% right now, as opposed to ordinary rates, currently at a maximum 35%. There are good arguments for and against treating carried interest at lower rates, and they’ve been argued extensively in the tax literature and tax blogs over the last six or eight months. But basically, even assuming double taxation, he very well may be paying a lower percentage of his income (say, his portion of 35% corporate tax as an investor, shareholder, and consumer, plus 15% on his income) than his secretary (her portion of 35% corporate tax as a consumer, shareholder, and investor, plus, say, a 28% marginal rate).

    Aaron, I’m a big fan of the idea that taxes and tithing are unrelated, as much as my Southern California upbringing also liked to conflate them, and decide that progressive taxation is a bad thing. I’m a fan, for various reasons, of the redistribute function of taxation, whereas fast offerings are the Church’s redistributive mechanism.

  32. At the beginning of the year Abraham had 200 sheep, over the course of the year another 100 were born, but 50 were slaughtered for food, charity for the poor and trade for non-meat edible items. At the beginning of the next year Abraham had exactly the same household items and land but an INCREASE of 50 sheep (as compared to the year before) and wants to compute his tithing.

    How many sheep should/did Abraham pay in tithing? Is your answer a wild guess or is there evidence to show how Abraham computed an “INCREASE”?

  33. Aaron Brown says:

    Sam B.,

    If you can do so quickly and succinctly, would you mind summarizing what are the “good arguments for” treating carried interest at capital gains rates? I’ve read the Viktor Fleischer article, but I haven’t followed the tax blogs on the subject. Just curious.

    Aaron B

  34. Sam B.,

    The first rule of honest accounting is that you cannot charge the same thing more than once. The corporate income tax is a tax on the corporation’s earnings. That tax is reflected as a reduction of the book value of each individual share, and hence the net worth of each individual shareholder.

    It is not a tax on employees. Employees make good wages in companies that aren’t earning a dime. It is not a tax on their customers either. They will still buy the corporations products and services while the corporation is bleeding red ink. Only if the corporation incurs a net profit will any tax be incurred, after all other expenses are paid.

    Ultimately government has a cost, and the ideal tax system spreads it as equitably and as efficiently as possible. Suppose for example there were no wholesale exemption to the sales tax. Then the effective cost to the end user would rise by 6-10% every time wholesale goods changed hands.

    The net effect would be a overwhelming subsidy of products that had the smallest number of levels in their supply chain. The practical effect would be to encourage substantial vertical integration and purchasing as much as possible directly from the manufacturer. But what rational basis would there be for the government to place such an artificial distortion in the system? None.

    Likewise, suppose I am a dairy farmer with fifty cows with costs that are too high to be competitive. Should the government tax my earnings at a substantially higher rate if I get together and incorporate with my neighbor farmer across the way, than if I remain independent?

    So in order to avoid artifically encouraging economically irrational behavior the principle is that whether we are talking an income tax or a consumption tax, the best public policy is to tax a net unit of income or consumption exactly once. Retail sales – point of purchase, Valued-added (VAT) tax, added value at each level of the supply chain, adding up to the total value. Income tax – to those parties that show actual earnings.

    And since all corporate earnings are actually shareholder earnings, the only rational policy in a progressive tax system is to tax them that way. Since corporate earnings are already taxed at 35%, the economically rational thing to do would be to reduce the capital gains tax on shares in such corporations to zero.

    To do anything else is to encourage people to do economically irrational things like build mansions on hillsides, buy expensive works of art, collector automobiles, and so on instead of investing in productive enterprises that actually make society as a whole better off.

  35. #19 Steve Evans
    President Hinckley said, “While tithing is paid with money, more importantly it is paid with faith.”

    Sayonara BCC

  36. I do think that taxing so-called “carried interest” (management fees) at capital gains rates is both economically irrational and fundamentally unfair by the very same principles. If that is what Buffett is after, I am all for it.

  37. Last Lemming says:

    Here is the state of the art in analyzing the incidence of the corporate income tax. The analysis shows a huge burden on domestic labor, nearly offset by a huge subsidy to foreign labor. It also shows a larger burden on foreign capital than on domestic capital. You have to read the paper to understand how that all works.

    http://www.cbo.gov/ftpdocs/75xx/doc7503/2006-09.pdf

    This other paper compares (among other things) the effective tax rates on capital when investments are made by corporations with those made by unincorporated businesses. Taxes on corporate investment is about 6 percentage points higher than on noncorporate investment, but the real story is that debt-financed investment and any investment in owner-occupied housing has a negative effective tax rate (because tax-free interest earned by nontaxable entities like pension funds does not offset the tax loss due to interest deductions of businesses and homeowners).

    http://www.cbo.gov/ftpdocs/67xx/doc6792/10-18-Tax.pdf

  38. Last Lemming says:

    Regarding the flat tax in Russia…

    When private companies began to flourish in Russia, they had no experience with paying taxes. Furthermore, the state had no experience collecting taxes from companies it did not own. The idea was to create a simple tax systen to make it easy for companies to comply with and for the state to enforce. Had things proceeded apace, I would have expected more complexity to enter the tax system as both taxpayers and collectors became more sophisticated.

    As it happened, companies that were generating huge tax liabilities (and allegedly not paying them) were simply confiscated by the state. So the Russian experience is not exactly a fair test.

  39. Mark D,
    I’m a tax attorney, not an economist, so I can’t do the math for you. But, according to what I’ve read, you’re wrong that the corporate tax falls solely and squarely on shareholders. The economists say it falls in some mixture on the three categories of people I (and zehill before me) mentioned.

    Aaron,
    There are a couple primary arguments that I’m familiar with. A favorite is that taxing investment managers at ordinary rates will prevent US funds from being competitive with offshore managers, and so will drive the PR and hedge fund practices offshore. (Along with that argument is the argument that it will raise costs, which will ultimately be passed to investors, reducing the return on investment funds.)

    I’ve also heard the argument that the investment managers’ return is a legitimate risk-based return (usually, for those who don’t know, investment managers for hedge and private equity funds get paid 20% annually of the gainst that the fund makes, with certain adjustments) and, for the same reason other risk-based returns are taxed at a lower rate than wage income, their return should be taxed at the advantageous rates.

    I’m sure there are other arguments out there, but these two seem to be the biggest ones. Whether you find these argument convincing or not is, of course, an entirely seperate question. Ben Stein had a great editorial in the New York Times three or four months ago in which he says, basically, so what if the tax code currently treats carried interest at the 15% rate? The tax code wasn’t written in stone by the finger of God, so change it if you don’t like it. Ultimately, that’s where I come down: currently, what they’re doing is perfectly legal. If we evaluate Vic Fleischer’s argument against the investment managers’ argument and decide Vic’s right, then we change the tax code, and that is that.

  40. The whole point of your fellow ward members’ argument about the relative justice of tithing versus progressive taxation seems fallacious since tithing is only the second-best law anyway. The Lord’s law is actually 100% taxation (with refunds and exclusions of course). In that sense it is also a “flat” system. But the amount redistributed to each individual would be different, according to the needs of them and their families, so in that sense it is also progressive.

  41. Sam B.,

    I can see that the long run incidence question is complicated. The problem is that a comparable analysis applies to the ordinary income tax obligation of salaried professionals as well. So to make a fair comparison we would need to reduce both sides of the ledger.

    One thing that hasn’t been mentioned yet is that capital gains is currently a tax on nominal, not real gains, i.e. it is not inflation adjusted. You can be losing money in real terms, and still be required to pay a tax on your “gain”.

  42. Mark,
    I agree on both points; on the first, I’m assuming the same incidence on both parties of the corporate tax, and just ignoring it for the sake of the comparison of Warren Buffett and his secretary. I realize that’s undoubtedly a horrible assumption, and, once I read the articles last lemming linked to, I may change it. But for now, because I have no good information, I’ll just ignore that piece of the puzzle.

    On your second point, the failure of the tax code to take into account inflation is an imperfection of the system. Given the low rate of inflation and the relatively decent appreciation of most capital assets, nobody in the last ten or twenty years has been paying tax while losing real dollars, but part of the capital gains tax is on inflation. I don’t know how I feel about that currently: while it seems unfair to pay taxes on gain that aren’t economic gain, I’m not sure if it’s worth the complexity that would be added to the system to figure out how to remove the portion of cap gains attributable to inflation (although I recognize that other portions of the Code—not counting, of course, the AMT—are indexed for inflation). (Of course, you could argue that part of the reason cap gains are taxed at a lower rate is as a crude fix for the inflation problem. Really crude, I admit, but I’m not sure if a surgical fix would be economically viable.)

  43. Aaron Brown says:

    “Ben Stein had a great editorial in the New York Times three or four months ago in which he says, basically, so what if the tax code currently treats carried interest at the 15% rate? The tax code wasn’t written in stone by the finger of God, so change it if you don’t like it. Ultimately, that’s where I come down: currently, what they’re doing is perfectly legal. If we evaluate Vic Fleischer’s argument against the investment managers’ argument and decide Vic’s right, then we change the tax code, and that is that.”

    Umm, isn’t this totally banal? I mean, doesn’t everyone agree with this, basically? The debate focuses on this very issue: Whether or not to change the tax code. Is anyone actually arguing anything other than this?

    Aaron B

  44. Aaron,
    Kind of. Except that when people start talking tax policy, . . . it’s kind of hard to explain, but it’s like there is a “correct” way for taxes to be imposed. The best we can hope for is that the taxes as enacted meet this semi-Platonic ideal. Usually, we talk in terms of the imposition of the tax matching the economics of the transaction.

    So yes, from an outside perspective, his observations are totally banal. But within the heat of arguing about the one and only true and living way to tax an investment manager’s receipt of carried interest, it served (or at least, tried to serve) to deflate the truth rhetoric and remind everyone that the tax treatment is what the legislature wants it to be, not what it is economically destined to be.

    If you’re interested, his column is here.

  45. Velikiye Kniaz says:

    RE: The Russian State Flat Tax

    The Russians, like all other human beings do not like paying taxes, especially those old enough to have lived through the “Soviet” era. When capitalism started once again in Russia everything was done to hide or ‘shelter’ was we call it all taxable income. Russians easily became drunk with so much disposable income and that begat some very irrational decision making. As a Russian friend of mine said, “Everyone wants to drive a BMW tomorrow!” Pyramid schemes grew like mushrooms in Russian forests. Another (younger) friend of mine invested his life savings, $3,800, in such a scheme despite my lengthy conversation with him against this ‘surefire investment’. He wanted to drive a BMW tomorrow also. The “oligarchs”, former Communist apparachiks who ‘bought’ industries and natural resources on less that mills to the dollar of the actual value, smuggled or transferred the billions upon billions the made out of Russia knowing full well that the day would come when they would be held accountable. The most egregious perpetrators now live abroad (outside) of Russia and usually sport an Israeli passport to insure that they won’t be kidnapped by the FSB and brought back to Russia for trial. Today Russians still do all they can to avoid paying taxes. If you ever want to become a partner in a Russian business ask to see the books. If they really need your money the most likely answer will be, “Which set?” Russia’s state tax system is an abysmal failure, that is why some of the oligarch’s ill gotten assets were seized. The Russian state is funded by still state owned natural resources, oil, natural gas, minerals, etc. Whatever taxes are paid into the state coffers isn’t the frosting on the cake, it couldn’t even qualify as the cherry. Don’t look to Russia for a solution to any tax quandrary, real or perceived.

  46. Now if I was Prophet, (which I am not in case anyone was wondering..jk)…I would put the highest taxes…I mean tithing on the wealthy members of the church…I would reduce the tithing for the poor to a lower percent. Of course to be good at this I would need to know with help of our scholary economists what would be a fair rate for all. However since I am not an expert and I have been given complete power in the matter (this is fun)…I say the wealthy get tithed 3 times the amount for the poor church members. You can call me Elder Robin E. Hood, “tithe the rich for the sake of the poor.” Maybe we can start an extra fund for me, personally, since I am poor. Anybody want to help me? jk :)

  47. IMHO, tithing would be much less regressive if the church would clarify that we pay 10% of our “increase” rather than “income” or “gross”. If it were 10% of any increase in net worth instead of 10% of salary, a poor person who receives a salary of $20,000 per year, rents his house and has an income that falls short of meeting basic living expenses, and is deeper in debt at the end of the year than at the first may owe no tithing as there would be no increase in net worth. On the other hand, the rich person who owns a company throwing off $1 million profit (from which he draws a salary of $100,000 and pays $10,000 in tithing) and who has a house that appreciated $200,000 this year, would owe much more than the $10,000 he plays under a “salary-based” tithing.

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