30 November 2011

Taxes and Fairness

John Stossel, on Atlanta’s new vendor laws:

Street vending has been a path out of poverty for Americans. And like other such paths (say, driving a taxi), this one is increasingly difficult to navigate. Why? Because entrenched interests don't like competition. So they lobby their powerful friends to erect high hurdles to upstarts. It's an old story.
Now, growing local governments are crushing street vendors.
The city of Atlanta, for example, has turned all street vending over to a monopoly contractor. In feudalist fashion, all existing vendors were told they must work for the monopoly or not vend at all.
Institute lawyer Elizabeth Foley says the regulations make "it virtually impossible to be an effective street vendor. You can't be within 300 feet of any place that sells the same or similar merchandise. That's absolutely ridiculous for the government to use its power to enact a law like that. ... These people are just trying to make an honest living, and the city is making it impossible to do so."
Raul Martinez, the mayor when the law passed, defended the rule.
"You don't want to have everybody in the middle of the streets competing for space on the sidewalk without some sort of regulations. In the city of Hialeah, we're not overregulating anybody."
He says one purpose of the law is simple fairness: Street vendors don't pay property taxes. Brick-and-mortar stores must.

No one likes paying taxes, and so everyone tries to either avoid the misery or spread it around.  One common justification for paying taxes, then, is fairness:  Why should I pay taxes when my competitor doesn’t?

That is, perhaps, a legitimate question, but it is irrelevant nonetheless because fairness does not exist.  For starters, no two people can even agree on what constitutes fairness.  And even if they could, ensuring fairness requires more data than anyone possesses or could hope of possessing.

Taking the case at hand, it seems obvious that it is unfair for street vendors to not pay taxes.  But should their tax bill be comparable to brick-and-mortar stores?  The answer isn’t straightforward because one must consider how much less of a burden street vendors are to the local government relative to brick-and-mortar stores.  One must also compare the relative advantages of each venue—a street vendor does not offer the same product as a restaurant, even if the menu offerings are identical.  Trying to determine a fair tax rate in light of the considerations is simply impossible.

As such, it is simply best for the government to surrender the battle on fairness and simply say that the government needs X amount of dollars in revenue and that policy Y is the easiest way to attain this.  The continual bickering over fairness simply increases systemic costs, damages the economy, kills people’s job prospects, increases political rancor, and does absolutely nothing to improve the system in the long run.  Therefore, the government would be better off implementing one simple tax and living within its means, and stop concerning itself with fairness.

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