Birthright Taxation: Is it Really Your Money?
We aren’t anywhere near that cruel date in that cruel month, April 15, but taxes, like death, always are on my mind. In jest, I sometimes tell friends, excited upon receipt of their tax refund, that the money was theirs all along and they shouldn’t be so worked up about this supposedly bonus money. But is all that money the government extracts from us in the form of taxes really ours? At least one person vastly more informed on the topic than I am says it isn’t. To paraphrase,
…The above numbers were chosen to illustrate a point about a human’s “responsibility” for his ultimate earnings. Herbert Simon, a Nobel Prize winning economist, estimated that at least ninety percent of a typical individual’s earnings in a wealthy country like the United States is solely attributable to the accident of being born in the wealthy country. In other words, less than ten percent of a typical individual’s earnings is attributable to all other causes combined, including his innate abilities, his education, his social network, the advantages he receives from being a member of a loving household, or luck.
The foregoing observations make a lie of the view that taxation essentially is legalized theft because what you earn is really in the first instance your money. It is not. Over ninety percent of it would never come into existence in the first place but for the fact that you live in a country shaped and protected by the federal government. This is the most basic justification for taxation. The taxes you pay, whether you like to pay them or not, do in fact buy you something immensely valuable: they buy your way out of the alternative, which at the far extreme is the state of nature. So long as you get more in value than what you pay– and you do– you really have no grounds for complaint….
I have a lot more work to do in this area before I can offer informed thoughts of my own. Until then, my favorite quotation on the subject will remain the 1913 statement of Senator Elihu Root during discussion about the Sixteenth Amendment:
I guess you will have to go to jail. If that is the result of not understanding the Income Tax Law I shall meet you there. We shall have a merry, merry time, for all of our friends will be there. It will be an intellectual center, for no one understands the Income Tax Law except persons who have not sufficient intelligence to understand the questions that arise under it.
Harold Dubroff, The United States Tax Court: An Historical Analysis 12 (Commerce Clearing House, 1979).
Yes (ABWH) – “Birthright,” An Evening of Yes Music Plus (1993)
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QuestionsPresented 
The problem is his unstated assumption that ALL of your income taxes contribute to “a country shaped and protected by the federal government” that create the conditions responsible for 90% of your wealth. I accept the point that there are some functions (eg national defense) that can and should be provided only by the federal government, which create some of the conditions necessary for US citizens wealth. However, the point of departure is in the assumption that ALL federal government spending is necessary to create conditions necessary for that wealth. I would have to argue that some portion of federal government spending (eg much of the work I do for the federal government) is wasteful, inefficient, and does nothing to create the conditions that contribute to 90% of my wealth.
Yesterday, Professor Len Burman (Maxwell School, Syracuse University) discussed why Jon Stewart was wrong to criticize recent statements by President Obama on the topic of tax expenditures, more commonly known as tax credits. Burman provides a plain explanation of the concept of tax expenditures– government spending via tax policy– how politicians can take advantage of general misunderstanding of them to spend in a way that doesn’t look like typical spending, and ultimately (I believe) driving at the conclusion that, because all tax policies are distortionary, the best approach is to remove tax expenditures and tax a broader base at a lower rate.
The full post is available here.