I CONFESS THAT THE ABOVE HEADLINE IS not totally accurate. Sam Morgan’s dad actually went full retard a long time ago. The latest manifestation of his retardness (and mind you it’s not even lunchtime yet, so there may be further incidents) is his response to Paul Henry’s confrontational interview with him and Jamie Whyte’s on-the-button critique of Morgan’s hoped-for tax grab from home-owners.
(Good advice may be not to feed the troll, since he’s only enjoying the attention. But since his sins are so egregious, and so fundamental, I can’t not.)
"No wonder Jamie Whyte and Paul Henry are whingeing" says Captain Morgan, "they and their rich mates love tax loopholes." So no trace there at all of the pandering to envy that both accused him of, is there. Nor of accuracy, since it is hardly a “loophole” that successive governments have elected not to take income tax from home-owners who may not even have one. It’s a policy. A fairly sensible one.
What’s not sensible is Morgen-pere’s response to his critics. A better word would be “unhinged.” What gets him most unhinged is them attacking him on what he thinks is his ground: on economics. He reserves special scorn for Whyte’s attack as coming from someone with only a qualification in philosophy (“he is a philosopher” he sniffs parenthetically, whose “lack of economics background leads him to a fundamental error”).
And yet a qualification in philosophy would be ideal to critique both Morgan’s claim and his whinging – since his whole argument is based on a fundamental philosophical error to which contemporary economists so frequently fall into, and his whole policy is aiming at what he claims is an ethical outcome – surely a province in which a philosopher should dare to tread, but must. (A fundamental economists’ error being to forget that their science, like every science, does have a philosophical base.)
SO TO CRITIQUE WHAT Morgenthau says is the philosopher’s “fundamental error”:
I am not proposing to tax the opportunity cost of assets as Whyte claims, I am proposing to tax imputed rental… Imputed rental is the benefit you actually (not potentially) get from owning an asset because you don’t have to rent it. Because no cash changes hands, it is far more tax efficient to own assets rather than put the money in the bank and use the interest to rent the asset (like a house). Hence the rich store their wealth in lots of assets that they can use, and legally avoid paying tax. Why join an expensive tennis club when you can put a tennis court in the back yard?
But as one wag says, “If you pay to build a tennis court in your backyard, you get the benefit of not having to pay membership fees to the tennis club. If you join a tennis club, you get the benefit of not having to pay to build a tennis court in your backyard.
Why does Morgan want to tax one of these benefits but not the other?” And as Whyte responds,
How can you have a "deemed rate" if you are taxing actual benefits received and not the some assumed opportunity cost?
This is the incoherence of Morgan’s incoherence. This is the crux. Morgan claims to be taxing actual benefits, yet he needs someone to deem what these benefits actual are because, well, they don’t actually exist. This indeed is the very problem at the very heart of the whole concept of imputing incomes: that these incomes don’t actually exist, and in glossing over this point – or trying to – Morgan wants people to pay his tax who have no actual income with which to do so.
Which means they will need to take out either a reverse mortgage on their house in favour of the IRD, or to ship out.
ECONOMIST GEORGE REISMAN EXPLAINS the mote in Gareth’s eye, which (being about the crucial difference between existence and non-existence) as much philosophical as economic:
The doctrine of imputed income openly and systematically avows that the absence of a cost constitutes income… Contemporary economics thus deals in non-existent incomes … which it treats as though they existed. It’s formula is that money not spent is money earned… [this position] turn[s] out to be riddled with contradictions and absurdities. [Capitalism
Being riddled with contradictions and absurdities is a fair description of Morgan’s policy proposal, in large part for the reason that Reisman lasers in on. It amounts to:
It seems to be 'you own a house, so we'll tax you on the money you're not paying in rent'. I can't see how that's any different from 'you have a vegetable garden so we'll tax you on the money you're not spending at the supermarket' or 'you walk everywhere so we'll tax you on the money you didn't use to buy a car or catch the bus'.*
It’s true, as Morgan says, that contemporary economics measures these fantasy incomes as part of its national accounting.
Many countries in Europe [says Morgan] tax imputed rental already alongside other imperfect wealth and housing taxes. Imputed rental is even in our national accounts – so that we can compare our national income with that of Germany or Switzerland which have much lower rates of home ownership.
Imputed rental is income like any other, but we don’t tax it... If Henry or Whyte could demonstrate they have even a basic grasp of national accounts … I’d consider them worthy commentators. They can’t.
Well, speaking for the philosopher, they can. Economist George Reisman’s knowledge of national accounts on this score is both impeccable, and highly critical. The fact that contemporary economics measures them as part of its national accounting does not make the fantasy incomes any more real. It just makes the error more egregious. I won’t labour the point here (but I will direct you if interested to pages 456-459, 461-462, and 476 of Reisman’s free online book for the wider and most fascinating econo-philosophical discussion). Instead, I will simply point out that once the conceptual error is imbibed, the economic and moral error committed by Morgan made by follows as a matter of course:
At the base all these absurdities is the failure to realise the importance of earning money as the means of living in a division-of labour society. As a result of this failure, contemporary economics [and contemporary economists like Morgan and those on his payroll] does not consider the earning or non-earning of money to be a significant matter.
But it is. It is of crucial importance. Says Whyte:
[Morgan] says he is offended by the fact that some incomes are taxed and others (such as living in your own home) are not. So he claims he is doing the opposite of what you say. He is taxing assets so as to tax [fantasy] incomes.
Whyte offers an example to make the absurdity plainer:
As the basis of tax policy … the idea leads to absurdity or even atrocity. A woman might benefit from having voluntary sex with her husband. She could have bought that sex from a prostitute. If she had, the government would have received tax from the prostitute’s income. So a woman who has sex with her husband is a “tax loophole cowboy”, as Morgan puts it. I am keen to meet someone who will say that people who have untaxed sex with their wives are enemies of the people and that the government should tax sex between husbands and wives.
Dr Morgan has no plan to tax sex with non-prostitutes, of course. But it is an arbitrary violation of the principle that allegedly motivates his policy. The principle that all “income” should be taxed, whether it comes in cash or kind, will still be violated all over the place if Dr Morgan wins the next election. The only difference is that these violations will more closely match Dr Morgan’s views about what people should do for themselves and what they should buy.
Do we really want to be violated by Dr Morgan’s views about what we should and shouldn’t do, based on a fantasy of his profession’s making?
AND WHAT OF SO-CALLED FAIRNESS? – that illusive claim for which Morgan says makes his proposed tax grab so all-fired necessary (it apparently being “fair” to steal from folk on the basis of an income that doesn’t exist).
Reisman nails that himself in pointing out that what creates the inequality through capital gain that Morgan decries is the rampant monetary inflation that Morgan, in other writing, so strongly supports. [READ: ‘How Inflation Creates Inequality Through Capital Gains’]
And Whyte nails it too in his response, which addresses the “distortion” that Morgan confuses for a loophole:
There is an element of truth in the Morgan … position. Our current tax system is “distortionary”, most notably, by favouring consumption over saving and DIY over paying for labour. The culprit in the case of the pro-consumption distortion is the double taxation of capital income (you earn it from savings made from your already-taxed income). The pro-DIY tax incentive is created by the fact that income tax and GST apply only to observable monetary transactions. (Minimum wages also encourage DIY). The answer is to eliminate capital income taxes (a standard view in the economics of public finance, btw) and to reduce income taxes/GST (which are almost the same thing over the long-run, since all income is eventually spent).
This would also help the poor, who Dr Morgan seeks to benefit. These reductions in taxation would encourage productive investment, employment and, thereby, economic growth. Which is the only thing that has ever seriously improved the lot of the poor.
Dr Morgan often says that economic prosperity is impossible without “fairness”, by which he means equality of income and wealth. Ask someone from China if she agrees. 50 years ago, all Chinese were equally poor (except Communist Party big-wigs). Today, inequality is far greater. Yet even the relatively poor in China are far better off.
Game, set and match to Whyte and Reisman?
* So as Reisman argues, this false concept of imputed incomes “constitutes a kind of conceptual bridge” that helps support the whole Marxian exploitation theory on which Morgan relies for his very concept of fairness. Not an accident then.