"Tax-Exempt" Status and Non-profit activity

Here's a perennial, difficult question for classical liberals--how does a free society fund its collective choices? More specifically, the recent furor over the IRS' alleged targeting of conservative political groups raises the question of what kinds of private activities should fund public decisions.

One view is that any kind of gainful activity should be subject to taxation. This view has the advantage of simplicity and generality. What's more, it accords with a particular view about the division of burdens and benefits in society: because all the benefits we receive that enable all our types of productive activities have a social or collective dimension, all types of productive activity may be appropriately subject to taxation.

On this view, allowing certain kinds of activities to be "tax-exempt" is just a kind of political favoritism.   And this aspect is certainly true. But arguments about the political economy of taxation--how to make a tax code that's more efficient, resistant to rent-seeking--occurs at a lower level of analysis than arguments about what a just or fair tax system looks like. These arguments are arguments about what principles should guide thinking about a tax system in the first place.

A free and open society is one that permits its citizens to employ and gain from productive activities. It should not make types of activity subject to taxation on the basis of the description of the activity, because a free society has an obligation not to use reasons that represent judgments between the kinds of activities in which citizens participate. So the simple fact that an activity is economic, or recreational, or philanthropic, or non-profit, or profit-based does not constitute a reason to tax or not to tax that activity. From the public point of view, there is nothing intrinsic to profit-based activity that renders it more, or less, defensible than than non-profit or philanthropic activity.

What is more, it is not enough to simply say that the beneficiaries of collective choices are morally obligated to support the choice. In the first place, benefits don't create obligations. If someone washes my car while I'm at a stoplight without asking me, I have no obligation to pay them, even if my car's aesthetics improve greatly from their labor. So is there something special about collective choices? I don't think so. If collective choices really were things that we could not do individually, then it could be argued that the necessity of collective choices means that we consent, implicitly or explicitly, to the means necessary to support them. But most collective choices aren't like that. As Locke recognized, collective provision of security and justice is more efficient than private provision, but security and justice would still exist without collective provision. So perhaps only if I prefer collective provision I have an obligation to benefit.

It seems then that classical liberals cannot appeal either to the type of social activity or simply ask "Who benefits?" I hope to develop a proposal for the distribution of burdens in a further post.

A bad libertarian argument against taxation

If you spend enough time in libertarian circles, you'll hear the argument made that "taxation is slavery." Libertarians aren't claiming this is some analytic truth about taxation--rather, it is an argument about the moral status of the act of taxation. As I hope to show in this all to brief post, I think this argument doesn't work. The argument goes something like this:

1. Slavery is involuntary subjugation to the will of another person, or entity
2. Taxation involves the involuntary taking of property by a government
3. Involuntary taking of my property is subjection to the will of another entity
4. So taxation is slavery.

The problematic step in this argument is premise 3. I think there are two specific problems with this premise. First, it is not necessarily true that the involuntary taking of property involves subjection to the will of another. In particular, norms of taxation involve taking property in accordance with an established, promulgated, and general legal regime rather than the will of particular individuals. Of course, dysfunctional governments come close to resembling organized theft when they allow particular officials to manipulate and threaten citizens using the taxing power. But a regular, orderly system of taxation, which may yet be onerous or unfair, does not subject citizens to the wills of particular individuals in the same way. It subjects them to a general scheme of confiscatory taxation.

The second problem with the third premise is that taxation is not automatically a "subjection," either. "Subjection" here means the creation of some differential status between the object of the tax and the taxing power. When I say that taxation is not automatically a "subjection," I am making a claim about the conceptual relationship, rather than a moral one, between taxation and subjection. The concept of taxation makes sense as a "subjection" if we think of taxation as a burden that is "added on" to membership in a political community. Call something that's added on in this way a cost. Instead, I think taxation is closer to one element in a bundle of features involved as a condition of membership in a political body. This distinction between taxation as a cost and taxation as a condition shows why it's mistaken to think that taxation "subjects" citizens in a political community. A tax is not the kind of thing that swoops in upon unsuspecting citizens and confiscates some percentage of their income or wealth. It's rather in the deal all along. And because the bundle of features that we call "citizenship" constitutes a certain unitary status for its object, a person, it is odd to think that one element of that bundle could reduce the status of the person relative to the other elements.

To clarify, my second argument does not rule out that certain taxes could "subject" their subjects in virtue of other particularities. Nor does it mean that all taxes are morally indefensible. But it does mean that the usual slogan doesn't cut it.

How Conservatives Can Talk About Equality

In the aftermath of the riots across England last week, right-leaning English papers like the Daily Mail are now frankly acknowledging the politics of envy in the background of the social unrest. The rioters' own statements, or what little of them made their way into the papers of record, suggest the juvenile resentment behind their actions--such as the callow expression of one young lady that she was showing "the rich" that "we can do what we want."

It's far too generous to the rioters to ascribe political motives to them, of course. Despite the earnest introspection by the chattering class, the riots were distinctively apolitical, more akin to the rioting in Vancouver after the Stanley Cup finals than a political protest. Much analysis of the "politics of envy" has focused on parallels between the looters/rioters and the banking sector in the wake of the 2008 financial panic. As the Daily Mail reports, banks bailed out with taxpayer dollars have refused to renegotiate mortgage payments to families that lost homes to fire in the riots--to justified outrage. After all, it seems like the refusal of the banks in the aforementioned case shows the same callousness and ungratefulness as the rioters' burning of the house in the first place. In both cases, the bad actors bite the hand that feeds them.

Nevertheless, its vital to preserve certain distinctions, as Theodore Darymple has pointed out:

First, rioters violated others' rights. Banks may have captured the regulatory apparatus or received special treatment, but taxpayers' rights weren't violated as a result of the bailout--it's in the nature of a representative democracy that government will use our taxes for some with which we disagree. Second, the degree of responsibility differs in each case. The rioters bear individual and collective responsibility for the harms they inflicted. The lenders, however, were only half the story--borrowers incurring debts they couldn't afford form the other. What's more, the perverse incentives work differently in each case. The rioters retain more responsibility because of the criminal nature of their wrong, while the bankers I think retain less responsibility because of the economic or civil nature of the wrong. Put another way, the rioters inflicted a harm against the whole of society in a sense that the bankers' individual sales did not.

These difficulties arise if you want to exculpate the brawlers by comparing them to the bankers. But if you come to the analogy to concerned by the breakdown individual responsibility at all levels of society, then the analogy doesn't exculpate anyone. Rather, the analogy indicates an inequality of class values that poses a serious challenge to economic (and therefore political) freedom. The rioters lack respect for society's institutions for a variety of reasons, some venal and unworthy of further discussion, but also for others like the preferential treatment and socialization of financial losses

Deciding to socializing losses invariably leads to the demand to socialize profits. Fairness cannot have it any other way, whether in the case of subsidizing banks' bad risks and precluding a true profit-and-loss system in finance or failing to discipline society's bad actors in the court of law. But there, of course, is another option: privatize the losses, either through market discipline or individual responsibility. In this respect, conservatives should be the standard bearers of equality--equality of expectations and consequences.

"Fairness", Solidarity and Liberty

President Obama's speech last Monday laid out his case for raising the debt ceiling and used "fair" or "balanced" twelve times in less than 15 minutes. There is an obvious political reason for his choice of diction--painting House Republicans as enemies of moderation and disconnected from the reality of the moment--but it has an important intellectual and moral aspect as well.

Conservatives and libertarians quickly dismiss principles of "fairness" and "balance" as a cloak-and-dagger show for grinding, leveling equality. But this is to miss the point--the desire for "balance" doesn't desire balance for the sake of equality but for the sake of solidarity--a desire to see a reflection of one's own experience or values in the rest of society. Envy or jealousy might be sufficient for the desire for solidarity, but they don't exhaust it. The desire for solidarity or a desire for belonging are more akin to a secularized religious instinct that seeks to fill out the spiritual inadequacy of individual experience. One way in which this desire might manifest, then, is by recognizing the values and qualities of our individual experiences in the lives of those around us. And so we have the desire for community.

In the United States, with our peculiar sense of exceptionalism and national destiny, community can be a vehicle for progressive as well as conservative values. The difference between the two is that described by Leo Strauss in his great essay "Progress or Return", the difference between the progressive or conservative community turns on the community's place in time: the progressive imagines the community of the future, while the conservative yearns for the community of the past.

But the liberal communitarian is not what she once was. The classical liberal community was one in which advanced through economic growth, ameliorating the condition of all in society and rewarding the Protestant virtues of thrift, industry, and perseverance. Yet now the liberal communitarians, in particular the greatest beneficiaries of an individualistic political order, envisage a community characterized instead by "shared sacrifice." From growth, advancement, and progress, we've turned to sacrifice, sharing of burdens, and fairness.

It's instructive to remember the uproar Wall Street bonuses met with after TARP and the Bush-Obama bailouts. As Michael Sandel keenly observed, the outrage wasn't so much directed at size of the bonuses or their apparent brazenness as their purpose--these bonuses seemed to reward recipients for their incompetence and catastrophic miscalculations. They rewarded failure. In our ordinary experience with capitalist, meritocratic, individualist values, to each according to his ability. Yet here a different set of rules seemed to apply, not necessarily as a result of cronyism or outright corruption as mystery--we heard that the size of bonuses was necessary given the scale of business, and banks had done the best they can in the face of an overwhelming financial "tsunami" that no one could quite understand. One set of rules for Main Street, another, opaque set of rules for Wall Street.

Irving Kristol warned more than 30 years ago that the bureaucratization of the American economy risked alienating capitalism's support among the American public by blurring the connection between achievement and virtue. The great promise of capitalism, like religion, has been the promise of equality--no matter your condition, high or low, if you work hard and play by the rules, you will find success in life. Belief in this equality, this fairness, is the basis for the solidarity upon which a dynamic, restless, market-based society depends. Subvert this equality and we will find instead a great hunger for "fairness" and "balance."

Wall Street is of course right in the formal, positive sense that their bonuses are justified by the rules of the economic game it must play. But formal, positive justifications have and will never support political economies--they commend no loyalties, they do not inspire reverence, and they do not summon the people to defend them against their enemies. Capitalism must be grounded on sounder stuff, and friends of free, market-driven societies should take notice.

Education and Individualism

I had the good fortune this past month to attend a weeklong seminar hosted by the Institute for Humane Studies entitled "Exploring Liberty." The seminar introduced students to libertarian perspectives in philosophy, economics, law, and history, through the real purpose was clearly to recruit new minds to the libertarian cause. More than the discussions and lectures, which had their own appeal, the most revealing comment of the week came at the final Q&A with the seminar's faculty panel.

The question, "What is your biggest problem with libertarianism," could have easily fallen on deaf ears. The answer, however, exposed the kernel of thought that most troubles libertarianism: children. Indeed, the moral status of children and an accompanying theory of paternalism would be a huge difficulty for an ideology whose favorite epithet is "paternalistic."

Because of its allergy to paternalism and coercive restraint upon the individual, libertarianism doesn't give us a good story about how we should form or educate children (in the literal sense of "bringing out" or "bringing through" children into adulthood) because libertarianism is so individualistic. So someone like Walter Block, for example, is at his most comical defending the employer of child labor because his theory of education is so hopelessly barren. A child becomes an adult in Block's view by acting in a way that befits an adult, e.g. selling his labor to an employer for a wage and living apart from his parents. The transformation of child into adult is a kind of "immaculate conception" whereby the child wills himself into adulthood, where the very performance of leaving home to seek employment serves as proof of childhood's end. There is no theory of education here beyond the single, formative, self-begotten action that Block calls "adult homesteading" and allows children to "fire their parents" when they become too "onerous."

The comedy of Block's effort results from shoehorning an intransigent feature of human life into a constrictive ideology of individualism. But childhood isn't reducible to the vocabulary of individualism because children must be educated, and education involves, well, coercion and indoctrination. What is more, education involves more than just parents. It involves a community and a culture--or a theory of what a community praises and blames. And the need to educate the next generation, or to answer the question "What will we tell the kids?" justifies the intuition that there are collective goods of moral importance in addition to individual goods.

Leo Strauss is said to have quipped (and he was a man of few quips) that all political philosophy is about education. I understand this to mean that the central motivation in political philosophy's search for the best regime is the thought of how we want to raise or rule our children. Libertarians might better understand traditionalism, conservatism, and liberalism if they recognized that paternalism, rather than some misplaced political gesture, is in fact the central subject of politics.

The Harry Lime Hypothesis

Midway through The Third Man, Holly Martins announces to a meeting of Vienna's literary scene that his next book will be a clean break with the trivialities that marked his previous works with a more serious story called, aptly enough, "The Third Man". The piece, some reviewers have noted, marks the central maturation in Holly Martins as he comes to understand the complexity of collective responsibility and the myth of the romantic hero. This is simple enough. More interesting, however, is the way in which Holly's interactions with Anna and Harry change over the course of the film especially near its conclusion. Anna asks Harry, for example, "What's your price this time?.... You must be proud to be a police informer." While her agenda obviously leads her to this statement as Harry's mistress, her point remains--all the characters in The Third Man are marionettes of larger forces at play, including the zeitgeist of the post-war era. This devaluation of the individual surfaces again at the end of the film's famous chase through Vienna's sewers, where a wounded and exhausted Harry Lime signals Holly to shoot him as though to give a proper ending to Harry's saga. Collectivized responsibility seems to mean collectivization in general--here, Harry Lime completes his role in the story in deference to some kind of collective will.

Anna comes out of this as the emblem of the drifting individual. The closing scene aptly captures this--she slowly approaches the stationary camera head on, growing from one of Harry Lime's dots to her full figure. Her attachment to Harry, borne out of her rescue from repatriation to the Russian sector, makes her the modern Antigone in the words of one critic and does perhaps redeem her. Her character's oblique reference to the Prague Coup of 1948, for example, allows us to sympathize with her plight. There is also something compelling in her indictment of Holly. His betrayal of his best friend is no small task, and it comes in the service of enforcers of justice who have lost much of their legitimacy. The black market is not some fringe phenomenon in Vienna after all, and those who attempt to control it fail to understand the desperation of the times. 

Like the other two films studied in my group, this adds the central dimension of tragedy to The Third Man. The tragedy itself becomes the lamentation of the film, not the compromises made by individual characters. If there is one glimmer of hope it comes, ironically, from Harry Lime himself. His suggestion from his famous cuckoo-clock speech, that good and evil can be magnified by each other, seems to ring true in the sentiments of Holly Martin's new book. Is evil necessary for their to be good, and can laying evil bare create virtue? Perhaps. But this old idea better fits Renaissance Florence than post-war Italy in film's perspective.

Cynicism and Hope in Post-War Film

I find it interesting that Alex and I have each noted that our films carry a deeply cynical and gritty tone toward the war while Justine's has a more hopeful view. This suggests with respect to Italy that the country escaped the crippling feelings of national guilt that other Axis powers had to confront in the wake of WWII. Italy never carried out anything like Hitler's Final Solution, so perhaps it escaped the moral condemnation and humiliation that Germany received and was thus able to recover psychologically more quickly. Das Boot, on the other hand, seems to cast the submarine crew as appendages of the German war machine and focuses on the ordeal they endured as pawns of the Third Reich. My film takes a cynical view not because of defeat, but because of the readily apparent hollowness of the Allied victory--WWII had not ended but seamlessly shifted east to the borders of the USSR.