The Parable of the Talented Endowment Tax

July 14, 2011 | 51 comments
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Governments impose taxes in order to raise revenue that, in turn, funds government function and services.[fn1] In designing a tax system, tax theorists generally try to create provisions that will raise revenue without significantly altering taxpayers’ economic choices. That is, ideally, taxpayers will act in approximately the same way as they would have in a world without tax.[fn2]

But we can’t hit the ideal. The income tax alters people’s actions, because it alters the price calculus. One way is in our work-leisure decisions. Assume with me that I earn $10 an hour. That said, I enjoy not working, too–my leisure is worth $8/hour to me. In the absence of an income tax, if I have a choice between work and leisure, I’ll choose work. Even with a 10% tax, I’ll choose work, because I’ll bring home $9 after taxes, while my leisure is still worth only $8/hour. However, if the income tax is at a 25% rate, I’ll only bring home $7.50 after taxes. Suddenly, an hour of leisure is worth more to me than an hour of work; the income tax has caused my to substitute less-valuable leisure for more-valuable work.[fn3]

One way you could eliminate this problem, according to some economists and tax theorists, would be to replace our income tax with an endowment tax.[fn4] An endowment tax is, in broad strokes, a tax on potential income, rather than on actual income. An example (though not a rigorous example): suppose you go to Columbia Law School and do fairly well. You get a job offer at a prestigious firm that will pay you $100,000 a year.[fn5] But during law school, you discover that you would rather make and sell surfboards, a job that will pay you $20,000 a year, but leave you plenty of time to surf. So after graduation, while all of your friends study for the Bar and wear business casual, you shape fiberglass and wear flipflops. At the end of the year, however, you are taxed on the $100,000 that you could have earned, rather than the $20,000 that you did earn.[fn6]

Outrageous, huh?

I was thinking about the Parable of the Talents recently. Remember, the traveler gave his servants money, each “according to his several ability.” Two took the money, invested it, and doubled it. The third buried it. When the man got back, he praised the two servants who double their money and condemned the one who didn’t.

I’ve never heard anybody object to the inequity of holding the third servant responsible for his potential; as a matter of fact, the parable is usually used as evidence that God will hold us responsible for developing our talents and abilities. But what if this servant decided that, rather than work as an investment manager, he wanted to make and sell surfboards? Why don’t we see the results of the parable as being as outrageous as endowment taxation? They have their differences, sure, but in holding us accountable for our potential, irrespective of our preferences, they have a lot in common.[fn7]

[fn1] Yes, I know there are some of you who believe that taxes are illegitimate theft. But please don’t bother repeating it on this thread. It is completely irrelevant to the point that I may, eventually, make.

[fn2] I recognize that this isn’t always the case. Sin taxes, for example, have the dual purposes of raising lots of money and discouraging things that society finds unsavory. And I also realize that a tax-free world would be significantly different than the world with taxes (for example, we wouldn’t have the same government-provided infrastructure that we currently have), and so a taxpayer can’t truly know how it would act in a tax-free world. Nonetheless, these are assumptions we make, and assumptions that we really have to make.

[fn3] If you really geek out on this kind of thing, you could fix this problem by also taxing leisure and other imputed income. But you wouldn’t.

[fn4] Don’t bother looking it up on Wikipedia. Its article is about the taxation of university endowments, not endowment taxation. But if you want a good overview of the endowment tax, check out Lawrence Zelenak, Taxing Endowment, 55 Duke L.J. 1145 (2006).

[fn5] Yes, I know $100,000 isn’t what my hypothetical person would make. But I’m a tax professor: I always use $100,000, because it makes the math I have to do off the top of my head in front of a class really, really easy.

[fn6] Before you rage in the comments about how outrageous endowment taxation is (and you know who you are), keep in mind that (a) an endowment tax regime can be designed to ameliorate the most outrageous aspects, and (b) nobody really thinks endowment tax will be adopted full-scale–your outrage would doubtless be shared by all Americans except for a select few economists and tax theorists, plus it would be practically impossible to actually determine a person’s potential income, whereas it is relatively easy to determine her actual income.

[fn7] Please keep in mind that I do recognize the differences between taxation and the master’s requirements of his servants. And I’m not suggesting that the parable is wrong, or even unjust. I’m just wondering why we intuitively shrink from endowment taxation, but are comfortable championing the idea that we will be held accountable for developing our talents.

51 Responses to The Parable of the Talented Endowment Tax

  1. Jason Hardy on July 14, 2011 at 6:56 am

    Two points: First, property taxes, at least in the assessment stage, in some ways function like an endowment tax. While local practices may vary, often properties are valued according to their “highest and best use.” The value of a property used for rentals is tied to income from the rentals. As is the case in the income tax example you cite, ideally you don’t want to push property taxes so high that it wipes out the income from the property, which could make it more worthwhile for the owner to abandon the property rather than rent it out. When looking at how the income from the property affects its value, assessors often look at the rent the owner _could_ be charging, though, rather than what they actually are charging. If you have a property owner who is renting to family members and giving them a discount, that will not affect the assessed value of his property–he will be assessed as if he is charging the maximum rent the market would support. There are reasons for this policy, but also difficulties–it can spur gentrification by making people raise the rents in an area where property values are expanding, making it difficult to support affordable housing. All this is to say that there can be unintended negative consequences of an endowment model.

    The second point is that it is in some ways unfortunate that the Parable of the Talents uses a money model to make its point. Much of what we do in life, and many of the contributions we make to our selves, our families, our wards, and our communities cannot solely be measured by the income those actions generate. So if the third person in the parable decided to make and sell surfboards, even though his income would have been less, he would have been developing his non-financial talent. He would have been doing _something_, making a contribution that would be valued. Especially by surfers. The problem in the parable is not that he earned less, it’s that he didn’t _do_ anything. We don’t have to make the most amount of money possible–my early intentions were to become a lawyer, not a writer, and I’m sure I could be making more money as a lawyer than I am now. But I am trying to do _something_ with what I have, and the reason I’m not repelled by the Parable of the Talents is I feel (or hope) that that something will be valued for things besides the total income it generates. As long, of course, as I’m actually _doing_ something.

  2. Mark Brown on July 14, 2011 at 7:12 am

    As I read the post, I thought of property tax. Then I read comment # 1. So, ditto to Jason’s first paragraph.

  3. Peter LLC on July 14, 2011 at 7:16 am

    I’ve never heard anybody object to the inequity of holding the third servant responsible for his potential;

    For what it’s worth (not much I hope!), I complained about it briefly when we had the lesson a couple of weeks ago.

    Anyway, what about the no-account slacker who undeservingly ends up with a sweet gig, sort of like the scenario king Benjamin describes in Mosiah 4? It seems to me that rather than being taxed on our future potential (which for righteous Mormons would be pretty steep), the Plan rewards us for recognizing our currently worthless and fallen state.

  4. Sam Brunson on July 14, 2011 at 7:19 am

    Interesting idea about the property tax. Where it varies would be this, I think: an endowment property tax would say, if you could have built a 5-unit apartment building, but instead chose to build a 2-unit building, you will nonetheless pay property tax on the assessed value of the 5-unit building you could have built.

    And Jason, while I’m reading (significantly) into the parable, I assume that the unfaithful servant did something while his master was gone. If not making surfboards, maybe he played ancient video games (Pong?) or gardened or caught up on the last few episodes of Battlestar Galactica. Or blogged. His problem, as I read the parable, was that he didn’t do the thing that his master expected of him.

  5. Senile Old Fart on July 14, 2011 at 7:56 am

    Modern hedge fund managers are compensated on their successes; why not ancient ones, too?

  6. Sam Brunson on July 14, 2011 at 8:08 am

    Senile Old Fart, while it’s true that hedge fund managers are compensated on their successes (and their ability upward movement of the market), (a) nobody forces somebody to be a hedge fund manager, and we don’t tax people who could have been, but chose not to be, hedge fund managers on the income they could have earned in that position, and (b) frankly, hedge fund managers face little to no downside risk if they don’t make money.

  7. Al on July 14, 2011 at 8:16 am

    So the lord in this parable is exacting an endowment tax? I thought he was looking for shares in the fruits of his seed capital. Silly me. I guess that the state has given me all that I have so they can take back whatever they like.

  8. Stephen M (Ethesis) on July 14, 2011 at 8:25 am

    What about rent taxes. E.g. as a law professor, you make $240,000.00 a year. At your next best employment, working for the Legal service Corp, you would make $40,000.00 a year. So, the government taxes you the tax rate on the difference. If the rate is 90%, they tax you $180,000.00. You still make $60,000.00, which is more than if you changed jobs.

    On the other hand, the guy who makes $6.00 an hour and can’t get a better job, and who can get any number of $6.00 an hour jobs, gets taxed on 90% of $0.00.

    Lots of other versions of the economic rent tax. But they tax your personal endowment (often as an addition to other taxes). The more usual example would be property taxes on downtown land vs. country land, or taxing Michael Jordan as a basketball player vs. as a baseball player or a bricklayer.

  9. Sam Brunson on July 14, 2011 at 8:31 am

    Al, please see footnote 7. And, for that matter, footnote 6.

  10. Julie M. Smith on July 14, 2011 at 9:00 am

    Sam, serious if tangential question here: you wrote, “my leisure is worth $8/hour to me.”

    Is there any evidence that real human beings (by which I mean: not economists) think in these terms? Because the real human beings I know aren’t quite so . . . Spock-like.

    And one thought on the endowment tax: it would make it more-or-less impossible for an educated mother to stay home with her children, no?

    And a final note: most of the reason that I read blogs is so that I can see professionals carry on serious conversations with someone called Senile Old Fart.

  11. Jax on July 14, 2011 at 9:05 am

    The surfer guy isn’t making his ‘potential’ but isn’t someone making the $100,000 that otherwise wouldn’t have been? and being taxed on it? So where does the revenue shortfall come in? Or is the new guy being taxed on his $100,000 as if he should be making more as well?

    If you were to implement the endowment tax, you would see a race to the bottom. Everyone trying to prove how LITTLE they are worth in order to avoid that taxes. I could see vast majorities of people trying for all they could to prove that they are worthless, and can’t do more. The consequences for showing signs of excellence could/would be too expensive. As you say, good thing it won’t be implemented.

    His problem, as I read the parable, was that he didn’t do the thing that his master expected of him.

    I don’t think you believe that what the master expects of us is to make as much money as possible. What his/our master wants is a broken heart and contrite spirit, and to bring other souls unto him; not bring him extra revenue. In HIS words: What is property unto me?

    D&C 117:4

    4 Let them repent of all their sins, and of all their covetous desires, before me, saith the Lord; for what is property unto me? saith the Lord

  12. SilverRain on July 14, 2011 at 9:05 am

    1) The Lord is a lot more trustworthy at discerning our actual potential than the government.
    2) It’s not the SERVANT’s money we are talking about, it’s the Lord’s. The parallel doesn’t really hold water.
    3) The servant wasn’t being held accountable for doing the wrong thing with money, but doing nothing and trying to blame that on the master.

  13. Sam Brunson on July 14, 2011 at 9:21 am

    Julie, good questions. I really doubt that anyone actually thinks, “Leisure is worth $8/hour to me.” But people have to do that kind of analysis, albeit without the precision. If I worked for an hourly wage and was offered overtime, in deciding whether to take that overtime, essentially I would have to decide if the money I would get from working overtime was more valuable than what I would be doing with my time otherwise. As I weigh jobs, the salary fits into it, but I also evaluate where I would live, what my quality of life of life would be like with this job, and other non-monetary-compensation things. Essentially, valuing my leisure at $8/hour is shorthand for all of these types of considerations.

    And yes, it could make being a stay-at-home parent fairly expensive.

    SilverRain, nice analysis. A couple things I want to push back on:

    (1) Because I’m talking about endowment tax in theory, not in practice, assume an omniscient tax assessor who could know perfectly our potential. (In practice, the lack of such an omniscient actor is one of the problems implementing the tax). Does the tax assessor’s omniscience make a difference?

    (2) But the lord is holding his servant responsible for not getting the return the lord wanted (essentially, not getting the return that the servant could have earned on the lord’s money if he had acted differently). He’s not holding the servant responsible for losing the money (because, ignoring time-value issues, the servant kept the money safe and returned it).

    (3) I like this idea; could you flesh it out a little more? Are you saying that he’s blaming the master by saying that the master reaps where he doesn’t sow, etc?

  14. Jax on July 14, 2011 at 9:31 am

    Because I’m talking about endowment tax in theory, not in practice, assume an omniscient tax assessor who could know perfectly our potential. (In practice, the lack of such an omniscient actor is one of the problems implementing the tax). Does the tax assessor’s omniscience make a difference?

    Does your omniscient tax assessor value anything other than making money? His omniscience would only serve to condemn me if he only values $$$. However, if he valued my happiness, like the Lord does, than my leisure could have greater value than my work, right? Does he account for this value or is it strictly dollars and cents?

  15. JKC on July 14, 2011 at 9:33 am

    Maybe this is a cop-out, but I think there is a difference between parable and allegory that is often lost on us. A parable uses scenes and concepts from daily life to make a point about something less familiar, but doesn’t necessarily create a one-to-one correlation between its characters and events and the people and events it is teaching about.

    I don’t think its necessarily correct to equate the “master” in the parable to Christ or to God. The point of the parable, as I read it, is not that God is a harsh businessman, but rather that just as in the business world, you are expected to take care of your responsibilities and make the most of what you have been given, God also requires us to take care of our responsibilities and make the most of what we have been given. Ultimately, I think this parable is a lot more about stewardship, consecration, and recognizing the priority of the Lord’s claim of ownership over the things (both tangible and intangible, i.e., time, talents, etc.) that are “ours” than it is about judgment and reward.

    I sat through a Sunday school less a few weeks ago where a good portion of the discussion was spent in trying to argue that the Lord himself is “an hard man” who “reaps where he has not sown” and “gathers where he has not strawed,” and trying to justify this (or use it as justification for the argument that Jesus is obviously a red-blooded capitalist). The whole exercise seemed unnecessary to me. My take is that this detail makes it a good story, and does a good job making the listener understand that the expectations in the business world are serious, which advances the lesson taught, but doesn’t necessarily need to be taken as a revelation on the nature of God.

  16. Sam Brunson on July 14, 2011 at 9:35 am

    SilverRain, I should add that nothing in the parable suggests that the parabolic (like that?) master is omniscient. He assumes that the servant would have made him money but it would be equally possible for the servant to have lost his money.

    Jax, good question. From what I’ve read, whether the endowment tax focuses solely on money is up for debate. Generally, endowment tax people look at dollars you could have earned, but there seem to be at least a couple who take a more holistic approach.

  17. JKC on July 14, 2011 at 9:37 am

    In other words, when Jesus tells a parable, he isn’t saying: “look, God is like the people I’m describing in this story I’m telling, and you should also be like the people in the story.”

    Instead, he is saying: “hey, you know how this is the way people act? Well, let me use that to make a point about the gospel.”

  18. SilverRain on July 14, 2011 at 9:44 am

    1) Perhaps if, in that omniscience, the tax assessor is able to evaluate actual potential of the individual affected by external factors (such as opportunity to actually hold the job they were trained in), and also able to evaluate value provided to the community. Perhaps there are dozens of lawyers, but no one else wants to make surf boards. That is value outside of mere money, and would have to be considered in a truly omniscient evaluation.

    2) a) In the parable, the Lord knew exactly what would happen if the servant acted. His giving that talent to the servant meant that the servant could double that. If the servant would have failed in his efforts, the Lord would have known that and not given him the money to begin with.

    b) Even if the Lord didn’t perfectly know what would happen, there is no indication in the parable that IF the servant had tried and lost it all that the Lord would have been angry with him. He wasn’t angry with him because of the amount of money, but because the servant was lazy and took the stewardship he had been entrusted with casually. Which brings me to

    3) If you read vs. 24-27, the servant says, essentially, “I knew what you wanted me to do, but I was afraid that I couldn’t do it, so I did my own thing instead so I could be safe.”

    The Lord responds, “You knew what I wanted you to do, and you didn’t do it.” It’s about the servant having deliberately chosen not to follow the commandments of the Lord because he thought he knew better. He didn’t trust that the Lord truly understood his ability, and gave him a stewardship that he was capable of living up to.

    To compare that to our lives, how often do we feel promptings from the Spirit to say something to do something, but we choose not to because we are afraid or lazy? The Lord is teaching clearly here, that if we ignore His will when the Spirit teaches it to us, we will no longer be given the opportunities to serve Him. And, if you read on, if we are not His servants, we cannot be part of the kingdom of God.

    That parable is only about talents and gifts from the Lord on a very superficial level. More deeply, it is about our dedication to the Savior, and our trust in Him who is mighty to save.

  19. Jax on July 14, 2011 at 10:32 am

    I sat through a Sunday school less a few weeks ago where a good portion of the discussion was spent in trying to argue that the Lord himself is “an hard man” who “reaps where he has not sown” and “gathers where he has not strawed,” and trying to justify this (or use it as justification for the argument that Jesus is obviously a red-blooded capitalist).

    I sat through one of these as well, every few weeks it seems. Whole hearted devotion to capitalism leads us farther from Christ, not to him.

    D&C 104:16
    …behold this is the way that I, the Lord, have decreed to provide for my saints, that the poor shall be exalted, in that the rich are made low.

    What part of that describes capitalism to you? Really? I mean you have to really NOT want to understand the scriptures to think capitalism is God’s designated and desired system.

    Which brings us to SilverRains conclusion from the parable:

    The Lord responds, “You knew what I wanted you to do, and you didn’t do it.” It’s about the servant having deliberately chosen not to follow the commandments of the Lord because he thought he knew better. He didn’t trust that the Lord truly understood his ability, and gave him a stewardship that he was capable of living up to.

    But LDS people continue to choose the mammon of capitalism and money-making over using their talents to serve the Lord and do what he has repeatedly stated clearly to do – share equally and bring souls to Him. Makes we want to scream….

    “I knew what you wanted me to do, but I was afraid that I couldn’t do it, so I did my own thing instead so I could be safe.”

    This is a good summary. ‘I knew you wanted me to share, to consecrate, to live the celestial law, but I didn’t think I could do it because it would be weird in the US, so I accepted capitalism because it made me feel safe. I used it to plan for my retirement. It defeated the communists and I so I trusted in its military….on and on’ BLAH!

    Sorry for the off thread rant Sam.

  20. Jason Hardy on July 14, 2011 at 10:36 am

    I think that SilverRain’s point that there is “value outside of mere money, and would have to be considered in a truly omniscient evaluation” is an important one. To get back to what the master expected of the servant, he expected him to do something worthwhile. In the mercenary terms of the parable, that means make money. But in our master/servant relationship with the Savior, it’s not about making money; it’s about adding value. There are many ways to add value to ourselves, to our families, and to our communities, and these do not have a strong positive correlation with the market value of these actions (in fact, sometimes it seems as if there is a negative correlation).

    In this sense, we are in fact confronted with an endowment tax. We are all endowed with certain talents and abilities; if we go to the temple, we get a further endowment. The expectation is for us to use these endowments to add as much value to the world as possible (we will, of course, fall short of this goal. Luckily, there’s a backup plan). Looking at the value we add to the world requires the “truly omniscient evaluation” SilverRain referred to. To dive slightly into personal theology, I would say that an accurate knowledge of the full, long-term effect of actions and the value those actions do or do not have is one of the defining traits of godhood.

  21. Ray on July 14, 2011 at 10:43 am

    I was going to say about the parable exactly what Silver Rain said in point #3 above. I will add only one thing.

    I have heard some really twisted interpretations of that parable in my years in the Church – including a few weeks ago by the GD class in the ward I attended. If I were teaching it to a Primary class, my summary would be:

    The servant was someone who was supposed to make money for the Master. It was his job. He hadn’t proven himself as much as the other two (since they were given more to invest than he was), but he still was expected to produce. He knew exactly what was required of him in that position (and could have done nothing more than exactly what the other two did), but he chose to do nothing because he was scared – so the Master fired him and gave his responsibilities to others who would do their jobs.

    So, my point:

    This parable isn’t about a tax of any kind; it’s about employment in the Kingdom and the need to do what you believe is expected of you by the Master, no matter the exact “amount” of your contribution. It says, in essence, “If you want to be part of my organization, be engaged and make something of what you’ve been given – or I’ll fire your lazy butt.”

  22. Ray on July 14, 2011 at 10:45 am

    #20 – Jason, I like that use of the concept of an endowment tax – so I will modify my last statement about the parable not being about a tax of any kind.

    Sam, in that light, great point! lol

  23. Sam Brunson on July 14, 2011 at 10:50 am

    Ray,

    I have heard some really twisted interpretations of that parable in my years in the Church

    Any favorites you’d like to share?

    This parable isn’t about a tax of any kind

    True (again, see footnote 7). Still, it is about being held responsible for what appears to be the full potential of what you could have done, ignoring your personal preferences. And that strikes most of us as fundamentally unfair when not-God demands it of us. But in the parable, we don’t have God–we have a human master.

    But I like the ideas about adding value. Whose value counts, though? I’m not convinced that God cares whether we have an income tax, a consumption tax, or an endowment tax, and still I spend a lot of time thinking about things related to them, whereas I could have spent my time getting good enough on the saxophone to be a jazz musician (and I am convinced that God cares about jazz). Do my personal preferences matter?

  24. Brad on July 14, 2011 at 11:07 am

    Sam, interesting piece. I found a good article critiquing the theory of endowment taxation. Perhaps you have read it:

    Ilan Benshalom and Kendra Stead, (2010) “Values and (Market) Valuations: A Critique of the Endowment Tax Consensus” Northwestern University Law Review 104, no. 4.
    http://www.law.northwestern.edu/lawreview/v104/n4/1511/LR104n4Benshalom&Stead.pdf

    They make a lot of good points which I don’t have time to summarize now.

    In my view Endowment taxation makes sense when looking at the overall statistics (e.g. those graduating with a degree from Princeton make an average income of x amount of dollars, therefore it is justifiable to tax on expected income). However, crises in the financial sector and deleveraging shocks to the private sector (as we recently experienced) may significantly offset those average stats. For instance those graduating with a law degree from a prestigious university may face significant difficulty finding a job that compensates him or her commensurately. The endowment tax would then be quite onerous. Also, what if many law schools started inflating their stats and taking in more students than they can find suitable jobs for, as appears to be the case now with many law schools. The burden of the endowment taxation would still be upon that percentage of law students who couldn’t find suitable jobs, and the law school (raking in more money from increased tuition revenue) would make beyond its expectations.

    So my main problem with the endowment tax is that it tends to attribute profits to personal efforts. When profits are under the expectations, it attributes that to personal laziness.

    On the parable of the talents, that was a case in which the servant was lazy and did not try to work in order to turn a profit. But what if economic conditions had favored the first two in turning their profits, and then economic crisis hit when the third one came along, and despite his efforts to make due, the unfavorable market environment led him to decide to save.

  25. Jason Hardy on July 14, 2011 at 11:09 am

    Do your personal preferences matter? Yes. Do they overrule other considerations? No. If personal preferences automatically overruled other considerations, would that cause a ton of problems? A million times yes. Do personal preferences that lead to greater appreciation of art/beauty enhance us as a person, thus adding the sort of value to our spiritual selves that is important? Yes. Did I start on a question and answer format for this comment and then just decide to continue it all the way through for no good reason? Apparently.

  26. False Doctrine on July 14, 2011 at 11:52 am

    I think the key to understanding the point is to decide if you think the Lord was asking the servant for a tax or a return.

    Taxes are collected by governments to provide services. Returns are collected by investors for profit. To decide what the Lord was asking for, we look at the capital.

    Taxes: Governments collect and distribute (in the form of services), but don’t profit.
    Returns: Investors supply the capital and profit from the gain.

    In the case of the parable, I think a stronger argument can be made that this is a case of the Lord asking for a return. He supplied the capital and profits (builds the kingdom) from the increase.

    If it were a tax, and specifically an endowment tax, the parable would go a bit more like this. The Lord established and is regulating a free market which He funded by collecting a tax on the profits made in the market. Three men came to the market, they each had (note: “had” not “were given”) different amounts of capital. Two of the men made a profit and the Lord collected his tax. The third did not invest (for whatever reason) but the Lord required a tax anyway on the profit he should have made with that money.

    Yeah, if the parable went down like that, then I think you would see some outrage from the folks who don’t like endowment taxes.

  27. Brad on July 14, 2011 at 11:55 am

    Not to belabor the point. But it occurred to me that there is a huge industry which makes its profits from others’ leisure activities. Working and profiting for them requires the leisure of others. So lets say that the endowment tax hypothetically led people to start working more and spending less time in leisure activities. Then the leisure industry would take a hit. (I don’t know if that would be a good thing or not, fewer video games would be nice). But they would be pulling in profits that were less than expected, but still paying on expected profits. So they would have to work harder on convincing others to not work as hard.

  28. Scott Armstrong on July 14, 2011 at 1:28 pm

    (23) In some sense, Sam, I chose the saxophone.

    I’m working on a creative writing MFA right now. And while people often think of Stephanie Meyer incomes when they think of authors, most literary novelists make very little from their books. They’re compensated in prestige within certain circles and cushy teaching loads at universities.

    I’m intrigued by the endowment tax idea, but I wonder if it can adequately process the arts. Is the theory broad or developed enough to include some sort of in-kind taxation?

    Maybe artists with middling incomes and lots of free time could fulfill tax obligations by teaching classes or producing works for the benefit of the state.

  29. Raymond Takashi Swenson on July 14, 2011 at 1:34 pm

    Several commenters have pointed to what I understand is the meaning of the parable of the “talents”. While just about everything that is written about it in LDS literature assumes the word “talent” refers to the modern conventional meaning of a personal skill (including the GD lesson manual and the quotations from various General Authorities), it seems to me that, as with certain other parables like the ones in Matthew 25, Christ is talking to members of the Church, not to the general public, and is pointing out that we will be rewarded eternally for how we carry out our stewardships here in mortality. Each of us is a servant of Christ entrusted with care of his treasure. Our duty is to “magnify our calling”, to increase the value of God’s treasure.

    What is God’s treasure? He already owns all the materials of the earth, its energy, and its life. But what he values is his children, and their potential to become like him and share his joy. WE are what Christ bought with his suffering. WE are God’s “peculiar” (treasured) people, his “jewels”. The stewardship we are accountable for is our care, in the context of the Gospel, for those who are entrusted to us, our spouses, our children, our brothers and sisters in the Church, as well as our neighbors at large. Some of our responsibility is inherent in being members (comforting, witnessing), and more is the result of various callings we are given over time. The span of our stewardships varies from time to time, but the key thing is whether we are caring properly for God’s treasure–his children. And that is where this parable ties into the parable of the sheep and goats. Beyond the need for charity to all in basic things, a message reiterated by Benjamin, there is the particular need for charity in the context of what we can do as Saints, in freeing people from spiritual prison through temple work, in feeding people with the word of God, and clothing them with the Endowment. After all, the theme of the Endowment is that all the sons and daughters of Adam and Eve can be transformed into the image of Christ, and that inherent value, the message of the parable of sheep and goats, is what we are responsible to recognize and nurture in our stewardships on earth.

    As to the endowment tax, I am puzzled as to how the IRS is supposed to collect from a beach bum the amount of money he should have earned as a stockbroker. Additionally, how would it apply to the many of us who don’t deserve our current incomes? My sense is that there are masses of people in senior management in all sorts of organizations who arrived there through luck rather than skill and have fulfilled the Peter Principle in spades. Do they get a tax break because by rights they should only earn half of their current salaries?

  30. Al on July 14, 2011 at 1:47 pm

    Sam regarding comment 10. Can’t see what footnotes 6 and 7 have to do with my objections. But I do constantly see a twisting of scriptures for illustration of “progressive” ideas. The parable of the talents is a total non-starter for any discussion of taxation. Straining this hard is apt to cause some sort of serious cerebral event. Drink lots of water and the analogies will come easier.

  31. Jax on July 14, 2011 at 2:02 pm

    My sense is that there are masses of people in senior management in all sorts of organizations who arrived there through luck rather than skill and have fulfilled the Peter Principle in spades. Do they get a tax break because by rights they should only earn half of their current salaries?

    LOL. Thus the beach bum will be made to pay for many lunches he never gets to eat while the executive eats lots of lunches he never has to pay for.

    That sounds sadly familiar unfortunately. Far too many work for benefits they never see while far too many also recieve benefits for which they never have to work.

  32. Peter LLC on July 14, 2011 at 2:19 pm

    Additionally, how would it apply to the many of us who don’t deserve our current incomes?

    Exactly the point I was trying to get at above. What of it, Brother Brunson?

  33. Janell on July 14, 2011 at 2:21 pm

    I’m surprised no one has yet brought up the conflict that would exist between an endowment tax and the Church norm expectation that women become at-home-all-day mothers.

    I have been blessed talents, opportunities, and employment as a computer program, yet there is a Gospel expectation that I shall one day forgo employment for motherhood. (Yes, I know that’s not the only option, but it does seem to be the most common.) So in order to raise the coming generation yadda yadda I am to be taxed on my potential ($20 if poorly paid) rather than the $0 I actually make?

    Unfortunately, I think such a type of tax would instead encourage people — particularly women — to squelch their opportunities to increase their income potential. A fifteen year old girl can easily, “Oh? High school education? Well that’s an income potential of at least $8 an hour. I’m going to be a mother at $0 an hour. So, nope, no schooling for me, thanks.” Never mind that any form of education does aid a person in their parenting.

  34. Sam Brunson on July 14, 2011 at 2:23 pm

    Sorry, Peter. Didn’t mean to blow you off. Endowment taxation isn’t really concerned–at least in its most common forms–with desert. Instead, it’s concerned with potential. If you are making more–even far more–than you deserve, you nonetheless have the potential to earn that much, and would, under an endowment tax, be taxed on that amount. So the lucky slacker doesn’t get a windfall. Sorry, all you lucky slackers.

  35. Sam Brunson on July 14, 2011 at 2:27 pm

    Janell, good point (and, in her defense, Julie mentioned it way up in comment 10).

    The thing is, you don’t necessarily get out of your future tax liability by foregoing schooling that you could have done. In a way, choosing not to finish your education is like choosing not to take that investment banking job: you can make the choice but, if you have a higher earning potential, you’re taxable on that higher earning potential.

  36. Jax on July 14, 2011 at 2:40 pm

    The thing is, you don’t necessarily get out of your future tax liability by foregoing schooling that you could have done. In a way, choosing not to finish your education is like choosing not to take that investment banking job: you can make the choice but, if you have a higher earning potential, you’re taxable on that higher earning potential

    Wouldn’t a gov’t then need to tax everybody equally? We are all basically have the same potential at birth and only achieve different things because of our choices. “you could have gone to Harvard instead of the CC, but you choose to date during high school instead of do extra studying…” Any choice for personal, non-monetary growth, would be punished.

    Unless someone can definitively say what a person is and isn’t capable of at birth, then they whole idea this tax is an unbounded opportunity for corruption. The people you want to punish are ruled to be able to do more, and are thus penalized with a higher tax; and the people you want to reward are given passes.

  37. Sam Brunson on July 14, 2011 at 2:56 pm

    Jax, that’s a legitimate critique (and it’s worth remembering that (a) this is a really condensed explanation of endowment taxation and (b) it’s not my specialty by any means). But it’s not clearly the case: we’re born with different genetic endowment and we have different childhood opportunity (meaning parents’ income and education and things like that).

    But you bring up some practical problems that, to the best of my knowledge, haven’t been resolved satisfactorily, including who gets to assess potential, what yardsticks are used, and at what age we decide potential is locked in.

    I may have overspoken: it’s possible that educational attainment could be used as the marker for potential, at least under some proposals. (I honestly don’t know.) But it is not necessary that it be used: there are other measurements available, and, as Janell demonstrated, using educational attainment as our sine qua non criterion has serious potential negative effects.

  38. Jax on July 14, 2011 at 3:10 pm

    K…what about retirement though? If you retire early because you have earned enough to satisfy you, are you going to still be taxed for the income you could of earned? How long are you taxed on potential?…

    But here is what kills me…. What if in a community there are 10 people who have enough education, experience, and intangibles to hold a $100,000 job, but there are only 2 such jobs available. The other 8 take the 5 jobs paying $75,000 and the others earn even less. They’ve done everything they can to secure the higher jobs that they are qualified for…. and are taxed on that potential, but beyond their own control CAN’T earn that money…. how do you fix that?

    Or Inventor A who invents widgets…and everyone on earth buys a widget and he makes a bundle of money. What happens when his competitor, who makes a second rate widget, convinces the powers that be the Inventor A also has the ‘potential’ to invent Gizmos and Gadgets… and that he could really be earning 10x more than he is except that he is being lazy and using his current earnings for pleasure instead. Is he going to be taxed for NOT inventing what people think he COULD invent and make profitable?

    To the parable… I think we don’t cringe at these kind of hypotheticals with the Lord because we trust the he IS all-knowing and that he is good. He has OUR interests at heart, and not ulterior motives. We don’t/shouldn’t/can’t trust other humans (especially gov’t ones) in that way.

  39. Steve Smith on July 14, 2011 at 4:53 pm

    “Outrageous, huh?”

    Yes, I think that sums it up quite nicely, Sam. The endowment tax idea IS outrageous, and it seems that those who promote it are living in a world of untenable theory.

  40. Jax on July 14, 2011 at 6:56 pm

    In designing a tax system, tax theorists generally try to create provisions that will raise revenue without significantly altering taxpayers’ economic choices. That is, ideally, taxpayers will act in approximately the same way as they would have in a world without tax.

    It seems the introduction of any new tax plan would create alterations, and a significant change like the one you mentioned would create significant behavior alterations. It also seems the plan that can be left alone, the stable one, would have the least alterations. Change is what causes the alterations more than the actual plan IMO. I can see where we might need a significant change into a stable plan though. So which type of tax creates the least variation of actions in the economy and consumer?

  41. Sam Brunson on July 14, 2011 at 8:24 pm

    So which type of tax creates the least variation of actions in the economy and consumer?

    A head tax (i.e., a tax imposed on each person, without considering how much they earn). There’s only one way to avoid a head tax,[fn1] and most people aren’t willing to do that. An endowment tax is pretty close, though, because altering your behavior won’t alter the amount of tax you pay, so there’s little tax incentive to change your behavior.

    [fn1] Just in case it’s not clear, they way to avoid a head tax is to die.

  42. Jax on July 14, 2011 at 11:14 pm

    A head tax? As in each person (man, woman, child) pays $100-$1000 each year. Do you collect from everyone in the country (legal and illegal) or just citizens? Can you lein against property for it? imprison? Do you offer a rebate to the indigent? disabled? children? What $$$ would be sufficient?

  43. Paul on July 15, 2011 at 8:27 am

    It so happens I went home last night and we read the parable of pounds (which is very similar to the one of the talents, but it retold in Luke and pounds are the currency; one pound is given to each of ten servants). It was interesting to read in connection with this post. Some observations that have nothing to do with taxation:

    1. The ruler provided the money to his servants. It is implied that he had the expectation they would do something with the endowment they received.

    2. At least two of the recipients knew of his expectation since they acted on it. The third also apparently knew of the expectation but was afraid to act and kept his pound in a napkin (my 10 year old daughter thought this was hilarious).

    3. It’s also interesting that the nobleman was not well liked, and that he gave pounds to ten men, though he only questioned and judged three. And then he ordered his enemies killed.

    In the case of endowment taxation as you lay out, it seems the source of the endowment of education is not important, but in the parable of the pounds (and talents) it is the person who granted the endowment who judges the result.

    #18 SR: “That parable is only about talents and gifts from the Lord on a very superficial level. More deeply, it is about our dedication to the Savior, and our trust in Him who is mighty to save.”

    I agree

    #21 Ray: I agree with you, as well. The account in Luke makes even clearer this was an employment arrangement, not a taxation issue.

    Finally, I also can’t sort out the economic value of time off. I get the theory, but even when I worked an hourly wage, I never calculated it as simply as outlined in the OP. Nevertheless, I get that economics needs some method of measurement, and I accept that it may be implied.

  44. Amber on July 15, 2011 at 8:58 am

    I had 3 main thoughts in my reply.

    1.
    -The thing is, you don’t necessarily get out of your future tax liability by foregoing schooling that you could have done. In a way, choosing not to finish your education is like choosing not to take that investment banking job: you can make the choice but, if you have a higher earning potential, you’re taxable on that higher earning potential.-

    How would you determine the higher earning potential if they never finished their education? Would people that choose to stay at home be taxed on what grades they received in High School? How would you determine what their potential is if they never finish their education? Would taxes be based on ACT scores at that point? Baby IQ tests? (I’m just curious; I don’t know much about endowment tax)

    2.
    Hypothetically, if taxes were based on a college degree, would the government give tax breaks to their own employees who make significantly less than the market value? (my husband is a federal employee)

    3.
    The difference to me between my being ok with the parable of the talents and my dislike for an endowment tax (I am a stay-at-home mom with and advanced degree, and so would suffer financially) is this:

    With the parable I believe it is understood from the beginning that the original talents were the Master’s. The servants work together build up the Master’s kingdom. The talents are also measured in a concrete way. Those GIVEN more have more expected of them. Also, the Lord rewards those that live up to their potential.

    With the tax, we start out with our own potential as babies. At some point someone arbitrarily says “this kid should make $**** when he grows up.” We are out for ourselves. Those who work harder to increase their potential are punished by higher taxes later. And, We get to keep whatever the government doesn’t take. So of course we don’t want to be taxed.

  45. Amber on July 15, 2011 at 9:02 am

    I thought of one other thing.

    The Lord determines the value of a Talent.

    The market (not the Government) determines the value of the dollar.

  46. Sam Brunson on July 15, 2011 at 9:20 am

    Amber, good thoughts and questions. As to your #1, I sincerely don’t know. To the best of my knowledge, nobody has actually implemented a pure endowment tax, in part for perceived fairness reasons and in part because of the practical administrative issues. So, although the theory has been kicking around for about 150 years, and although I’m sure some have proposed answers to your questions, I don’t actually know how and when potential earnings would be determined. It is worth noting, though, that some propose an annual tax, whereas some propose a lump-sum tax on all potential earnings at, say, the age of 21.

    2. Probably not: federal employees who chose to work for the federal government in place of earning more compensation in the private sector would not be that different from the surfboard maker who graduated from Columbia.

    3. Thanks; that’s interesting analysis.

  47. Believe All Things on July 15, 2011 at 12:08 pm

    Endowment taxation seems somewhat based on the same philosophy as property taxes to which Jason alluded to above – the inherent class conflict foreseen by David Ricardo in the “rentier class”. Neither seems inherently just.

    The comparison to the parable of the talents appears problematic on many levels depending upon the definition of a “talent.” While there are many such definitions, a purely economic one may or may not be the best. #justsayin

  48. Paul Robichaux on July 15, 2011 at 5:45 pm

    If you want a real-world, non-thought-experiment example of how this works in real life, take a look at imputed income in child support cases.

  49. Bryan in VA on July 15, 2011 at 9:39 pm

    Me thinks that taxation theory is a science even more dismal than economics.

  50. hmmm on July 16, 2011 at 4:01 pm

    Amber – curious how much your husband makes (total compensation = time off + insurance befits + pension/401k benefits + salary) compared to the private sector.

    I’ve heard this before about how much less the government makes compared to what they can get otherwise, but I think it’s pretty laughable.

  51. RW on July 16, 2011 at 5:06 pm

    I have come to the conclusion, in the parable of the talents, that the servants were in a “no-loose” situation, that is, they could not loose the money given them, only gain, which was why the master was so irritated with the one who did not use the talent and make a guaranteed profit.

    In life all we have to do is to get good at something and it will come to fruition. There are so many ways of getting good. (Think of R.Crumb, the comic book creator.) Pick a direction, get good at it, make some money (enough to live), have fun, spread love.

    There is no downside to getting good at something, investing yourself and your time to be world class at whatever you do.

    So as far as a tax on how good you can become. I wish it were so easy to predict. In financial life there are negative outcomes with investment, particularly because of competition and bad timing and bad luck, but in the totality of life the parable of the talents works. There is no downside to getting good and working to improve.

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