A piece back I reviewed the book Freakonomics, which is quite an enjoyable read. Today I’d like to talk about Ferengi-nomics, though–the economics that exist (or could exist) on the world of Ferenginar.
There’s an episode very late in DS9 (in fact, it’s the next to last episode, if memory serves) in which taxes have been introduced on Feriginar as part of Grand Nagus Zek’s left-leaning societal reforms.
Quark is horrified when he learns of this, saying that taxes run contrary to the spirit of the free market. “That’s why it’s called free,” he says.
Actually, that’s not why it’s called “free,” at least not on Earth, but it’s a good line, and you can’t expect the Hollywood lefties who write the show to understand economics.
What’s worse (from Quark’s perspective) is that not only have taxes been introduced, a progressive income tax has been created.
For those who may not be aware, a progressive income tax is one in which people who make more money are charged a higher tax rate. They not only pay more tax total, they pay taxes at a higher rate. Thus if a person in a lower income bracket pays 20% of his income in income tax, a person in a higher income range might pay 40% of his income.
The theory behind progressive income taxes is that the more money you have, the more you can afford to pay a higher percentage of your income in taxes.
The problem with progressive income taxes is that they serve as a dis-incentive to make more money. If you have to work harder for each new dollar of (after tax) take-home pay then that unmotivates you to do the work needed to get that dollar, and so at some point you say, “Eh. I’ve got enough. Why should I work harder to get more when the government will only take more of it.”
And thus economic development caps out. That means that there are fewer jobs that exist than would exist if the income tax rate weren’t progressive. The progressiveness of the tax rate serves as a drag on the economy that ends up keeping people jobless and harms them in bunches of different ways related to an absence of money in the economy that would otherwise be there.
What happens if you make the tax rate less progressive? People in the top tax bracket (i.e., the ones with the money) get more motivated to make money since they can now keep more of it. Economic growth is stimulated. Jobs are created. And, in many circumstances, the tax revenue that the government collects actually goes up since the economic stimulus provided by the lower rate more than offsets the fact that the rate has itself gone down.
Which raises a question.
Think for a minute about Ferenginar.
Assuming that they did have taxes there, and assuming that we set aside the Hollywood writers’ progressive income tax on Ferenginar idea, what kind of tax rate would they have there?
Ferengi place a value on economic development above all else. If having a highly progressive tax rate highly hampers the economy, and if a less progressive tax rate hampers the economy less, then I bet on Ferenginar they’d have a negatively progressive tax rate.
In other words, they wouldn’t have a progressive tax rate, they’d have a regressive one.
On this scheme, your tax rate would be higher if you make less money and lower if you make more money. Someone in a lower income range would be paying the 40% (or whatever) and someone in the higher range would be paying 20% (or whatever).
You can just imagine how they’d justify it, too. I can see Quark giving a speech in which he says, “This way it gives the poor an incentive to not be poor any more, to work hard and look for economic opportunities that will let them make enough money that they can get into that next tax bracket. That makes them richer. It makes society richer. It stimulates economic development. It’s better for everybody. Don’t give me your silly Federation ‘morality.’ A progressive income tax rate is positively immoral! How can you be so cruel to your poor as to subsidize their poverty and keep them trapped in it?”
It’s too bad that there aren’t any Trek TV-writing jobs available at the moment. I could probably work a pretty good episode out of that idea, or at least the B story of an episode.
SURPRISINGLY, SOME HU-MONS HAVE EXPERIMENTED WITH REGRESSIVE INCOME TAXES.
They apparently have one in Taiwan.