Posts Tagged ‘freedom’

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Jeff Koterba December 8, 2016.
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You’d think a Harvard economics professor would be able to do better than invoke horizontal equity as the sole argument for reducing the U.S. inheritance tax.

But not Gregory Mankiw, who uses the silly parable of the Frugals and the Profligates to make his case for a low tax rate on the estates of the wealthiest 0.2 percent of Americans who actually owe any estate tax.*

I’ll leave it to readers to judge whether or not it’s worth spending the time to compose a column on a tax that affects such a tiny percentage of rich—very rich—American households. And then to argue not for raising the tax, but for lowering it.

Me, I want to raise a few, more general issues about how mainstream economists like Mankiw think about inheritance taxes.

First, Mankiw presents one principle—horizontal equity, the “equal treatment of equals”—and never even mentions the other major tax principle—vertical equity, the “unequal treatment of unequals,” the idea that people with higher incomes should pay more taxes. Certainly, on the vertical criterion, those who receive large inheritances (for doing nothing more than being born into and raised within the right family) should pay taxes at a much higher rate than those who do not.

Second, even the notion of horizontal equity—that equals must be treated fairly—depends on an assumption that we each have come fairly to where we now stand. If that principle is violated (as it often is, e.g., because an estate represents the accumulated wealth based on other people’s labor, their surplus labor), then we need to ask if there is even an a priori principle of horizontal equity. The alternative is to judge everyone’s entitlements and burdens, including those occasioned by large inheritances, according to a single theory of equity or justice.

Finally, and perhaps even more important, both the horizontal and vertical equity standards presume that tax justice can be achieved by minimizing the coercive relation between the citizen and the state, which is then counterposed to the freedom guaranteed by a system of voluntary exchange. As Paolo Silvestri explains,

if the problem of the legitimacy of taxation as coercion is posed in terms of ‘voluntary vs coercion’, or freedom vs coercion, the maximum that one can ask it is to minimize coercion and maximize possibilities for voluntary exchanges, and / or minimize the role and size of government and leave as much room as possible to the private sector.

The alternative, of course, is to imagine a very different economic and political relationship, one in which both exchange and taxation—and thus notions of freedom and obligation—are understood in terms of an alternative logic. Consider, for example, the gift. If there is indeed something that the literature on gift economies has revealed it is the fact that social reciprocity—literally, creating and reproducing social relationships through gift exchange—configures the relationship between freedom and obligation in a manner quite different from that presumed by Mankiw and other mainstream economists.

What Silvestri makes clear is the circulation of the gift involves the free recognition (or non-recognition) of the obligation or debt occasioned by the gift, “in the sense that human freedom is asserted as such at the very moment in which it recognizes (or not) his debt.” Taxation, in particular, can be represented as an act of “giving back” to society, the recognition of a relationship of living together beyond the family—which, while never finally solving the tension between obligation and freedom, creates and recreates relations of mutual trust and living in common. It thus redefines the issue of equal or unequal return—the accounting framework of giving and taking embedded in notions of horizontal and vertical equity—in favor of asymmetry and an unending cycle of producing and resolving instances of justice and injustice across society.**

To which the only possible answer is further giving—and thus the freedom of those who have managed to amass great fortunes to comply with the obligation, after they have died, to pay taxes at a high rate based on large accumulations of the social surplus.

 

*There are many other facts about the estate tax Mankiw conveniently leaves out (according to the Center on Budget and Policy Priorities): the effective tax rate is much lower than the statutory rate, only a handful of family-owned farms and businesses owe any estate tax, the largest estates consist mostly of “unrealized” capital gains that have never been taxed, most other rich countries levy some form of estate tax, and the estate tax is the most progressive part of the U.S. tax code.

**My concern here is with the inheritance tax. Silvestri takes his argument in a related but different direction: “the European economic crisis, the restrictive fiscal policies and their social consequences [that] have done nothing but to sharpen the citizen’s distrust in such legal-political institutions, increased their resentments, and even undermined the very possibility of a democratic discussion on taxes.”

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Fred Block and Frances Fox Piven make a convincing case, from the Left, for a universal basic income.

In particular, they demonstrate an understanding that wage work has become one of the most elemental pillars of our civic religion,” past relief efforts (going back to Poor Laws) were mostly punitive, and employers will likely resist any attempt to undermine the so-called work ethic.

Not everyone will be on board to sever the age-old ties between poverty relief and tough demands on the poor. The basic-income approach will be resisted by employer interests because it violates that venerable principle, and will make workers more powerful over time by reducing their dependence on any one employer. A generous basic-income policy could, in other words, transform class relations.

There are however other obstacles, particularly problems of political language, that need to be overcome in any attempt to expand the “entitlement society” (a term that itself needs to be recaptured from the Right) through a universal basic income.

As I wrote back in 2012 (at the early stages of the previous presidential campaign), there are at least two issues we need to confront:

First, we need to contest the meaning of dependence. In particular, why is selling one’s ability to work for a wage or salary any less a form of dependence than receiving some form of government assistance? It certainly is a different kind of dependence—on employers rather than on one’s fellow citizens—and probably a form of dependence that is more arbitrary and capricious—since employers have the freedom to hire people when and where they want, while government assistance is governed by clear rules.

Second,. . .corporations have been successful in shifting the financing of government assistance programs from their surpluses to workers’ incomes. But the solution to the pressure on current workers’ standard of living is not to cut government programs but to change how they’re financed.

The campaign for a universal basic income will only be successful when we effectively contest the meaning of dependence (such that wage-labor is no longer viewed as a sign of independence) and change the way government programs are financed (such that the social surplus, not workers’ wages, can be utilized to satisfy social needs.)

Ultimately, then, a universal basic income points toward a new realm of freedom, including freedom from the need to work for the benefit of someone else and from the need to hand over a growing portion of one’s already-low individual income to finance a program that benefits society as a whole.

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One of the biggest crime waves in America is not robbery. It is, as Jeff Spross [ht: sm] explains, wage theft.

In dollar terms, what group of Americans steals the most from their fellow citizens each year?

The answer might surprise you: It’s employers, many of whom are committing what’s known as wage theft. It’s not just about underpaying workers. They’re not paying workers what they’re legally owed for the labor they put in.

It takes different forms: not paying workers the federal, state, or local minimum wage; not paying them overtime; or just monkeying around with job titles to avoid regulations.

No one knows exactly how big a problem wage theft is, but in 2012 federal and state agencies recovered $933 million for victims of wage theft. By comparison, all the property taken in all the robberies of all types in 2012, solved or unsolved, amounted to a little under $341 million.

Remember, that $933 million is just the wage theft that’s been addressed by authorities. The full scale of the problem is likely monumentally larger: Research suggests American workers are getting screwed out of $20 billion to $50 billion annually.

Actually, employers steal from workers in at least two different ways: when they don’t pay them what they’re legally owed, and even when they do. In the former case, the laws and enforcement are weak—but at least prosecutors and labor groups are getting more aggressive about pursuing wage theft. Maybe, then, workers will be able to recover the back pay they’re owed and employers, instead of just paying small fines when they’re caught, might actually go to jail.

In the latter case, fixing the theft that occurs even when workers are paid what they’re legally owed, is even more difficult, at least within existing economic institutions. That’s because, under the rules of capitalism, workers receive a wage (which, at least under certain circumstances, equals the value of their labor power). But then, outside the labor-market exchange, when workers start to produce, they create value that is equal not only to their wages, but also an additional amount, a surplus. Even when workers receive their legally mandated wages, that extra or surplus-value is appropriated by their employers. It’s legal and, within the ethical code of capitalism, “fair.”

So, within contemporary capitalism, we should be aware of two kinds of wage theft, both committed by employers: the theft of legally mandated wages and the theft that occurs even when workers receive their legally mandated wages.

The first is a case of individual theft, the second a social theft. Both, it seems, are countenanced within contemporary capitalism—and workers are made to suffer as a result.

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Charles Wilbert White, “The Contribution of the Negro to Democracy in America” (1943)

Almost two centuries ago, European (especially French) elites were fearful of the democratic experiment taking place in North America. So, they dispatched Alexis de Toqueville (and Gustave de Beaumont) for a report, under the pretext of examining the U.S. penal system. The result was de Toqueville’s two-volume paean to the principle of equality and the “great democratic revolution [that] is going on among us.”

This year, the United States hosted another visitor, Maina Kiai, the United Nation’s Special Rapporteur on the rights to freedom of peaceful assembly and of association. As Max Bearak [ht: ja] explains, Kiai’s trip “was spurred by growing concerns that despite a Constitution that guarantees broad inalienable rights, the world’s supposed beacon of freedom is often not living up to international standards of equality under law.”

At the end of his trip, Kiai also published his findings, which readers will see is a much more critical analysis of the current state of democracy in America.

Like de Toqueville, Kiai begins with some history:

The United States is an impressive, complex and imposing nation in which to undertake a mission such as this. It is an economic powerhouse, a military superpower, a global engine of technological development, and one of the oldest democracies in the world.

It is also an extremely diverse nation, a nation of indigenous peoples, slaves and immigrants. It is a nation of diverse opinions and views, sometimes so strongly held that it once slid into Civil War. And it is a nation of struggle and resilience, home of one of the 20th Century’s most inspiring moments encapsulated by the Civil Rights Movement.

The experiences with various forms of diversity and complexity have not always been smooth. The country was founded on land stolen from its indigenous Native Americans; its early economic strength was built on race-based slavery against people of African descent; and successive waves of immigrants have faced discrimination, harassment or worse.

Kiai then observes, “America seems to be at a moment where it is struggling to live up to its ideals on a number of important issues, the most critical being racial, social and economic inequality, which are often intertwined.” He is particularly concerned with an issue that de Toqueville himself thought was vital to the practice of American democracy: the freedom of association. “But it is impossible to discuss these rights,” Kiani notes, “without issues of racism pervading the discussions. Racism and the exclusion, persecution and marginalization that come with it, affect the enabling environment for the exercise of association and assembly rights.”

This issue is particularly grave in the African-American community, and understanding its context means looking back at 400 years of slavery. It also means looking at the emergence of the Jim Crow laws that destroyed the achievements of the Reconstruction Era, which emerged at the end of slavery in 1865, and enforced segregation and marginalized the African-American community to a life of misery, poverty and persecution.

It means looking at what happened after Jim Crow laws were dismantled, when old philosophies of exclusion and discrimination were reborn, cloaked in new and euphemistic terms. These may have not been race-based on their face, but they have, intentionally or not, disproportionately targeted African-Americans and other minorities.

The so-called “War on Drugs” is a perfect example. From it, one out of every 15 black men is in currently jail. One out of every 13 African-Americans, meanwhile, has lost their right to vote due to a felony conviction. An aggressive emphasis on street-level “law and order” (or “broken windows” approach) policing combined with wide police discretion means that African-Americans are subjected to systematic police harassment – and sometimes much worse – often for doing nothing more than walking down the street or gathering in a group. Convictions and incarcerations dramatically increased once the “War on Drugs” was set in motion, without a corresponding increase in drug use.

Similarly the crime laws passed under the Bill Clinton administration (1993-2001), including the federal “three strikes” law, implemented aggressively against people of color have contributed to the huge rises in incarceration and exclusion of the black community further fueling discontent and anger.

The effects can often snowball: A minor criminal offense – or even an arrest without substantiated charges – can show up on a background check, making it difficult to find a job, secure a student loan or find a place to live. This marginalization in turn makes it more likely that a person will turn to crime, for lack of any other option, and the vicious cycle continues.

These discriminatory laws and practices need to be seen in the larger context. Wall Street bankers looted billions of dollars through crooked schemes, devastating the finances of millions of Americans and saddling taxpayers with a massive bailout bill. Yet during my mission I did not hear any suggestions of a “War on Wall Street theft.” Instead, criminal justice resources go towards enforcing a different type of law and order, targeting primarily African-Americans and other minorities.

There is justifiable and palpable anger in the black community over these injustices. It needs to be expressed. This is the context that gave birth to the non-violent Black Lives Matter protest movement and the context in which it must be understood.

In discussions with activists, it is clear that “Black Lives Matter” does not mean that other lives—green, purple, blue, white or other color—do not matter. The Black Lives Matter movement is simply a reaffirmation that black lives do in fact matter, in the face of a structure that systematically devalues and destroys them, stretching back hundreds of years. It is not about granting African-Americans special status or privilege. It is about a historically and continuously targeted community seeking to elevate itself to the same level that everyone else enjoys.

But, he explains, “racial inequality is not the only inequality inhibiting the enabling environment for association and assembly rights.”

 Although the United States engineered an admirable recovery following the financial crisis of 2007-08, this rising tide did not lift all boats. Productivity and economic output has grown, but the benefits of these have gone primarily to the wealthiest, as the wages of average people have stagnated. This has exacerbated the problem of inequality across all demographic groups, created more resentment, and more tension; providing more reasons for people to become politically engaged – including by exercising their assembly and association rights.

This inequality has been accelerated by declining union membership in a context of laws and practices which make it difficult for workers to organize, increasing corporate power, and a free market fundamentalist culture that actively discourages unionization. A dysfunctional, polarized Congress that has seemingly lost its tradition of compromise has made things worse.

In short, people have good reason to be angry and frustrated at the moment. And it is at times like these when robust promotion of assembly and association rights are needed most. These rights give people a peaceful avenue to speak out, engage in dialogue with their fellow citizens and authorities, air their grievances and hopefully settle them. They are also a key vehicle for public participation for marginalized groups whose ability to participate in democracy may be otherwise limited by dint of being felons or migrants.

Consider, then, the difference in perspective 185 years have created: The French aristocrat thought American democracy, whose only threat was a tyranny of the majority, promoted general equality among its citizens. Today, however, the U.N. official finds that growing inequality—racial, social, and economic—in America is undermining the practice of democracy, precisely when it is most required for the majority of its “angry and frustrated” citizens.