Friday, February 16, 2007

Incentives Matter: Bowling vs. Income Taxes

Under the rules of bowling, you get rewarded, not penalized, for success. If you get a spare, the scoring system rewards you by adding in the pins from the next ball into the current frame, and if you get a strike the scoring system rewards you by adding the pins from your next two balls into the current frame.

Under a progressive income tax system, you get penalized, not rewarded, for being successful, because the more income you earn, the higher the tax rate you pay, currently up to 35%, and it's been as high as 91% in the 1950s and 1960s, and 70% in the 1970s.

If we kept score in bowling the way we tax income, we would subtract points for a spare or strike.

If we taxed income the way we scored bowling, we would have a regressive tax system and would reduce the tax burden for the most successful workers, not increase it.


At 2/16/2007 5:15 PM, Anonymous Anonymous said...

As an accountant I can say that taxes have nothing in common with bowling. Taxes are the price you pay for the cost of civilization. Taxes pay for things like roads, education, the C.I.A., the F.B.I., the Securities and Exchange Commision and the military just to name a few. The wealthy receive a disproportional amount of benefit from the government, so they should pay a disproportion amount of the taxes. If I have $10,000 invested in the stock market and Bill gates has $1,000,000,000 in the stock market, doesn't Bill Gates get much more benefit from the SEC? The military protects only tens of thousands of dollars worth of my assets from foriegn invasion, but they protect many times that number of Bill Gate's assets. Does not Bill Gates receive a disproportional benifit from the U.S. military?

At 2/16/2007 7:32 PM, Blogger wfontana said...

First of all- The SEC doesn't protect investors’ assets; it protects a system of rules that promotes efficient markets and the free flow of capital in transaction between willing counterparties by putting them on equal legal footing. It protects the rule or law of which we are all equal beneficiaries- because it allows a brilliant, entrepreneurial college drop-out to become the richest man the world (who in the process built an industry that employs a lot of Americans and made a lot of other people rich)

Secondly- even under a straight flat tax system the wealthiest people will pay BY FAR the highest proportion of taxes. That is simple math. In fact, the result of the 2003 tax cuts “for the rich” is that the rich pay a higher proportion of over taxes than they did before. (See WSJ article below)

At 2/16/2007 9:31 PM, Anonymous Anonymous said...

...all I know is that I look at my paystub every two weeks and think I would be doing very well if I could have just half of my deductions. And then when I file income tax I may have to pay more! or get little back. Looking at my paystub there are three times as many lines of deductions than incoming. Why do I have to pay all this tax, FICA etc, when many people do not work and get benefits for doing nothing. I will never be ableto retire, I will have to work unil I die. I am single working working 40+ M-F hours plus a week-end part time job, trying trying to make ends meets, fighting, managing, juggling, planning with no end to it. Never any money or time for leisure. This is my life.

At 2/16/2007 9:52 PM, Anonymous Anonymous said...

Again, taxes are the price you pay for the cost of civilization. Wealthy people are prone to think that they created their wealth without any help from anybody. Is that really true? What they fail to appreciate is that those tax dollars are what support the system that allowed them to create that wealth in the first place. Even Warren Buffet has said many times that he could not have created the wealth he has in many other countries. To those who rail against paying taxes I offer a simple remedy; move. Move to Samalia or Afganistan. They don't pay any taxes. Of course it will be a bit more difficult to build wealth in those places. Do we reward the wealthy in this country. Yes, we reward them with wealth.

At 2/17/2007 1:33 AM, Blogger wfontana said...

Now that is silly- America is a much freer society than those other places and Warren Buffet of course couldn't have built his wealth there. But that doesn't mean we are perfect. If we are going to measure ourselves against Somalia we will certainly never achieve the level of prosperity that we are capable of.

We aren't arguing that we shouldn't pay taxes. The point is that marginal tax rates create disincentives for success. That is a factual statement. Whether you morally agree with the implications of that fact or not is what is debatable.

At 2/18/2007 9:10 PM, Anonymous Anonymous said...

"I'm proud to be paying taxes in the United States. The only thing is...I could be just as proud for half the the money."

~Arthur Godfrey

At 2/19/2007 2:34 PM, Anonymous Anonymous said...

Anonymous says:

"The wealthy receive a disproportional amount of benefit from the government, so they should pay a disproportion amount of the taxes."

In other words -

From those according to their means, to those according to their needs.

Hasn't this already been tried somewhere else? Now, exactly how did that turn out?


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