The New Republic

Your "reply" just continues to parrot the same specious arguments. Why don't you account for wealth distribution and all taxes (payroll, state, local, federal) and exemptions? The idea that the top 1% or 5% are paying a rational portion of tax revenue is true only in an Ayn Rand objectivist dystopia in which everyone in except that top percentage are moocher parasites trying to imprison the heroic capitalist. That philosophy worked well in the finance industry recently.

- enaso1970

May 16, 2011 at 8:36am

The selective use of statistics to support a totally defensible (in fact, the only defensible) position (shared sacrifice) continues to baffle me. Likewise, the continued use of the canard that his critics believe we can balance the budget solely by increasing the income taxes paid by the top 1% continues to baffle me. It's as if Galston is out to undermine his own position, a positon (shared sacrifice) which, as indicated, is the only defensible position.

- rayward

May 16, 2011 at 9:29am

This is only barely, slightly better than its predecessor. At least it is not garbled. But it includes unsupported claims -- can't raise taxes very much without capital flight -- serious case for consumption taxes or carbon taxes -- and the use of almost irrelevant tables about percentages of taxes paid and so forth. Let us be clear, since the Bush tax cuts, the income of the top earners as a percentage of income has gone even higher, observable in the growth of share of tax liabilities in Galston's last table. All of these tables are useless, they obscure. The relevant single table is share of after-tax income. Bearing in mind that there is a big difference between your first and last $20,000 and the last $20,000 out of $250,000, there is plenty of room for the top end to pay higher taxes than under Clinton because its income share has gone up. Take a look at after-tax income shares in 1980 and today. Capital flight is largely a myth when applied to the US. Where is it going to go? It is not as though we can be drained of our reserves of the the reserve currency because we issue the reserve currency. Our physical capital cannot get up and leave, although people could stop in investing here. But as long as domestic capital is needed to serve the domestic market, we will have the necessary investment. Unless we start running big trade surpluses, there is no meaning to domestic profits other than, for the most part, domestic investment, and there will be domestic profits. However, our trade policies and secular trade deficits stink and need to be revised. They are witless because every other nation manages trade and we don't. We have free-trade nuts, many on the center-left, who are just as absolutist as the tax nuts. There is no question that, if we allow our deficits to be whatever the private market would like, we could have more trouble as it becomes even cheaper to produce elsewhere than here. On the other hand, if we are smart about taxing the revenues of companies importing, then we need not have a problem. Galston needs to consider the fact that if our government is running deficits, someone else in the economy is running surpluses, revenues in excess of their consumption and their investment in real assets. The surpluses are called Treasury bonds. They don't need them. If the had real investment opportunities, they would be investing in those and we would have a larger output without a deficit. Taxing away the unnecessary surpluses is not going to damage our economy, it will help it. There is no serious case for consumption taxes when we have an excess of money in the hands of the investing class and a lack of demand. Just the reverse. There is a case for carbon taxes, but it is primarily due to the externality of atmospheric carbon and the damage that is causing, not the budget deficit. In this country, capital income is woefully undertaxed. That is our problem. If we looked at our tax structure from that point of view, we could solve our fiscal problems, our tax problems, and our recession problem all at the same time. It would be better if Galston didn't write about these issues, except perhaps from a political point of view, what can and cannot be achieved politically and how to do it. He does not understand enough of the economics to make sense and ends up picking up the talking points of the right because they appeal to his moral sensibilities about frugality and such. He would do well to educate himself about the "paradox of thrift" just to get going.

- roidubouloi

May 16, 2011 at 10:19am

enaso is spot on.

- roidubouloi

May 16, 2011 at 10:20am

Roi: "Let us be clear, since the Bush tax cuts, the income of the top earners as a percentage of income has gone even higher, observable in the growth of share of tax liabilities in Galston's last table." A minor quibble, but the table says nothing about relative income shares, only the % share of total income tax paid by each cohort, i.e., that income tax collections by cohort have become more progressive. Whether it is progressive enough is a different question, given that high incomes have outpaced lower incomes. At that, the truly significant historical difference is the growth in the incomes at the top of the top 1% share, whether $25 million/yr baseball players, or $1 billion Raj Rajaratnums (er, well, not anymore..)

- ds111

May 16, 2011 at 12:03pm

Simple point that the author does not explore: What would be the effect of raising the marginal taxes on the top 1% and a bit more on the top 1/2 of 1%. And at the same time bringing fairness to the taxation of the earnings of hedge fund managers and oil companies? That's where significant money is -- and where it would cause absolutely no hardship to standards of living and no reduction in incentives (although maybe a disincentive to engage in pure paper speculation may not be a bad thing). So, for example, maybe Galston can tell us what he thinks would be the revenue effect of, say, in addition to restoring the Clinton rates on earnings (I assume adjusted gross) above $250,000, there were a 4% surcharge on earnings above, say, $800,000 and another 4% on earnings above $1.4 million, plus the two reforms I mention above. Galston's charts, by the way, don't tell us anything about the percentages of all taxes (federal, state, local) paid by various income classes. As is well known, state and local taxes tend to be regressive.

- PeteBeck

May 16, 2011 at 12:10pm

The problem has been since Mondale, a Presidential Candidate admitting he has to raise taxes will lose him the election. I think Mondale had other problems, frankly, but this has become the current political mantra to explain Mondale's loss, the 1994 tax-revolt election, and even the 2010 Republican recovery in the House. Until the US Populace grows up, and realizes that we currently have historically LOW tax rates, with historically HIGH deficits, and that the one EXPLAINS the other, we're in serious trouble. The US Populace needs to DEMAND restoration of the Clinton-era tax rates. Instead the Tea-Party is dragging the debate in completely destructive directions.

- AllanL5

May 16, 2011 at 12:35pm

AllanL5, Obama could have done that, and should have. Still can, I expect. But it would require going back on a campaign promise. That is what Galston is trying to suggest. It would be easy to pitch, given the public concern with the deficit, and should not hurt him politically (especially after OBL). He might be concerned that Bush I, in another economic slowdown, reversed a promise and promptly lost, but unlike with Bush pere, I don't think it would anger Obama's base in the least, and the center would likely appreciate the honesty. And I doubt the right could argue effectively against it, given that we'd only be returning to the rate structure of the Clinton years.

- ds111

May 16, 2011 at 1:55pm

I'll just jump in and point out that the man who managed Mondale's campaign was (wait for it) Bill Galston! What a political winner his focus on the deficit was, how brilliant his assessment of the nation's appetite for deficit reduction. So, no, he probably shouldn't write about the political aspects of closing the budget deficit, either. Though that'd be far better than using misleading statistics and self-contradicting arguments (he opposed the Bush tax cuts, but also believes they must be left in place for the bottom 95 percent or so) or blathering about something he obviously has a poor understanding of. Chait's critique of the Wall Street Journal's argument about taxing the rich showed quite clearly that you can solve the budget deficit, or go a very long way toward it, with taxes on the rich alone.

- Curran1

May 16, 2011 at 2:00pm

I'll just jump in and point out that the man who managed Mondale's campaign was (wait for it) Bill Galston! What a political winner his focus on the deficit was, how brilliant his assessment of the nation's appetite for deficit reduction. So, no, he probably shouldn't write about the political aspects of closing the budget deficit, either. Though that'd be far better than using misleading statistics and self-contradicting arguments (he opposed the Bush tax cuts, but also believes they must be left in place for the bottom 95 percent or so) or blathering about something he obviously has a poor understanding of. Chait's critique of the Wall Street Journal's argument about taxing the rich showed quite clearly that you can solve the budget deficit, or go a very long way toward it, with taxes on the rich alone.

- Curran1

May 16, 2011 at 2:00pm

Curran, Chait's piece showed nothing of the sort. It showed that if you confiscate income, you could cover the deficit. Great. But not a realistic solution, or even proposal, just silly semantics. (The following year, there would be little to confiscate, so you'd have to go further down the income scale, and so on..) Thanks for the hilarious Galston irony, worth a good chuckle.

- ds111

May 16, 2011 at 2:20pm

I return to the point I have made here repeatedly. We could eliminate the budget deficit by including all income in the tax base, eliminating preferential rates, exempting the first $120,000 of household income, and taxing above that at 54%. Now, considering that there is significant income raised by taxation on incomes below $120,000, we could leave those rates in place and have a marginal rate less than 54%, probably between 40% and 45%. That is hardly confiscatory. The claims about the need to "confiscate" all income of the wealthy to eliminate the deficit unless the middle class pays higher taxes are simply untrue. Propaganda from rightists, libertarians, and Galston. They say this to scare everyone. It's their version of a bogeyman. ds111 is firmly in this tradition. As for this from ds111: "A minor quibble, but the table says nothing about relative income shares, only the % share of total income tax paid by each cohort, i.e., that income tax collections by cohort have become more progressive." This is all wrong. The reason for the larger tax share at the high end has nothing to do with tax collections becoming "more progressive." They have become less so. But the income share of the wealthiest has grown astronomically. This is the point that Galston and ds111 do not understand despite Chait's best efforts to educate them. I am correct. The reason for the growth in tax shares is the growth in income shares, not that taxes are more progressive. Curran is right. Galston shouldn't write about economics or politics. He should go away. Galstons have been ruining the Democratic party since 1972. Just look what we have to show for it.

- roidubouloi

May 17, 2011 at 1:49am

Roid writes: " We could eliminate the budget deficit by including all income in the tax base, eliminating preferential rates, exempting the first $120,000 of household income, and taxing above that at 54%." But again, that math doesn't work. You are roughly talking about the top 10% of earners that would be subjected to any taxes. The 91-95% have an average income of $161K, the 96-99 are $269K, the 99 to 99.5 are $588K, the 99.5 to 99.9 are $1.2M, the 99.9 to 99.99 are $4.7M, the top 0.01% is $35.5M . Run the numbers on each of these and you raise $1.4T. Much less than even today. As of 2005, our tax revenue was just over $2M (incl corp). We need to get to $3.5T of revenue to break even. Your plan also gives an enormous tax break to the 91 to 95% group. Today, their average income is $161K. Under your new plan, an average person in that group would have just $42K of taxable income, and thus enjoy an effective tax rate of 14%, while today they are paying a 22% effective tax rate. I'm sure you are considering other aspects that might help to raise revenue, such as heavily taxing pension plans. But absent this, the top 10% earned a combined income of $4T (55% of all income). You'd need to tax away most all that money to close the deficit.

- seattleeng

May 17, 2011 at 11:40am

PeteBeck writes: "Simple point that the author does not explore: What would be the effect of raising the marginal taxes on the top 1% and a bit more on the top 1/2 of 1%." The top 1% earn around $1.7T each year combined. Currently they are taxed at 30% (generating about $510B). You could take the rest of that ($1.1T) which would raise their taxes to 100% and you'd still not close the annual deficit. And next year, as noted, they'd not work at all, and that money would be gone, and we'd be back to the same place we are today. The only way out of this, if we could step outside of your envy party for just a moment, is broad tax increases on everyone, combined with broad cuts on the budget.

- seattleeng

May 17, 2011 at 11:45am

Roid writes: "Let us be clear, since the Bush tax cuts, the income of the top earners as a percentage of income has gone even higher, observable in the growth of share of tax liabilities in Galston's last table." While this might be true for the top 1%, it's not true for the top 10%. The total share of income grabbed by the top 10% has remained essentially flat. In other words, if you are OUTSIDE of the top 10%, then it's remained the same for you. But if you are INSIDE the top 10%, then the wealthiest of the wealthy have gained faster than you have. But who cares? The total pie has grown overall ("taller" I think Bush said). The facebook guys created $50B of wealth out of nothing. Thin air. Of course they can keep it all for themselves. Why should a pipefitter in Ohio get some of that newly created wealth and income?

- seattleeng

May 17, 2011 at 11:52am

It dawns on me that at TNR we have a very smart bunch of readers. But you guys aren't able to grasp the straightforwardness of the math involved with our deficit. And if that is true of you, what does it say for the rest of the population that is fueled by populist anger? Some very smart people believe that this entire problem can be solved by reversing the Bush tax cuts. It cannot. Not even close. Some believe the war is what got us here. It isn't. Not even close. Combined, Bush tax cuts and the war didn't get us here. Not even close. We cannot increase taxes on the top 5% and get out of this. There isn't enough. The income earned by our top 1% is not that much more than Europe. Don't be lulled into thinking that is the root of our problems. It's not. We cannot dramatically increase taxes on any single group because they will do things you don't expect to ensure that doesn't happen again. At the end of the day, the only way out of this is broad increases across a sizable portion of the tax population, and that will include those making less than $100K. And once you realize we're about to tax the $100K earners fairly hard, then you must ask why the guy working 50 hours per week to earn $100K must feel a lot of pain while the guy working 25 hours per week to earn $50K will feel no pain. And ultimately, we end up where Europe is today: Social programs cost, and the only way they can be paid for is by taxing everyone--even the working poor--at what most in the US view as oppressive and heartless levels. Galston is being very straightforward with the numbers. And yet when confronted with the numbers you don't like, you dismiss Galston, or suggest the numbers don't show the full picture. The guy isn't from the Heritage foundation. He's got the bona fides you desire. He just doesn't bring the message you like. Think really, really hard about what this says about your analytic abilities: You are rejecting a message from someone you are politically aligned with because you don't like the message. There is a reason Obama doesn't have a plan. The math doesn't work. Full stop. You are holding out for unicorns.

- seattleeng

May 17, 2011 at 12:28pm

That's pretty funny, seattle, because the one around here with the greatest difficulty with numbers is you. Or maybe it is Galston. Or maybe it's a dead heat. But you both suffer from the same lapses. The top 10% of income earners in the US have almost 50% of total US net income. That is more than $6 trillion of GDP. They could cover the entire Federal operating budget of $2.25 trillion with plenty left over. The income of the top 1% alone is nearly equal to the entire Federal operating budget. You are obviously from the school that believes that if you repeat a falsehood long enough, it is as good as the truth. We do not have tax guy making $100,000 "hard." Indeed, we don't have to tax him at all to cover the operating budget (that is, excluding social security and Medicare). We could, if we chose, exempt the first $120,000 of household income and, income above that at 54% and balance the operating budget. Contrary to your claim, the income distribution in the US is significantly more skewed than in Europe. We are an outlier amongst industrialized countries. The only two such with a worse income distribution than ours are Turkey and Portugal. In Europe they have to levy taxes more broadly precisely because the income distribution is flatter. Even your claims about the sources of the budget deficit are wrong. Go to Chait's column on April 21. It is almost entirely accounted for by the Bush tax cuts, the Bush wars, and the Bush recession. The tax cut is overwhelmingly the largest single piece. Galston is not any more straightforward with numbers than you, seattle. He doesn't understand the meaning of the tables he uses and you don't either. Rather obviously you are cribbing from the same sources as you misuse the tables on tax shares in the identical way. Your math doesn't work, indeed doesn't even make the attempt. Full stop.

- roidubouloi

May 17, 2011 at 4:23pm

Roid writes: "The top 10% of income earners in the US have almost 50% of total US net income. That is more than $6 trillion of GDP." Actually, I think the top 10% have a bit more than 50%. Where your math falls down is that there are 11M earners in the top 10% (which conveniently has an average income starting at $161K, and a minimum income near $120K), but 10.6M of those earners have average incomes below $250K, meaning they pay a very small amount of your tax due to the $120K deductible. The IRS believes the total income of this 91 to 100% band is $4T The 91 to 95% has an average income of $161K, so they'd only have $42K of income that would be taxed under your rule (tax rates for them would go down). This about his: Tax rates for 6M of the 11M would go down by quite a bit under your plan! The 96 to 99% has an average income of $269K, so they'd only have $149K of income taxed under your rule (at a similar effective rate than they are paying today). Think about this: Tax rates would stay roughly the same for 4.7M of the 11M! So, from 91 to 99%, your tax "rule" would generate less revenue than the plan in place today. In other words, 10.5M out of 11M households would be the same or less under your plan. Using IRS numbers, and a $120K deduction, your plan would generate the following revenue at the following rates: 55% tax on all over $120K: $1.4T 65% tax on all over $120K: $1.7T 75% tax on all over $120K: $1.9T The killer is the deduction. It let's too many in the 90-99% "escape" significant taxes.

- seattleeng

May 18, 2011 at 10:51am

There are 130 million households, seattle. I took the $6 trillion+ of economic income of the top 10% and subtracted $120,000 per each of the 13 million households in the top 10%. 54% of the remainder covers the Federal operating budget. Might take a bit less than 54%, closer to 50%, but there is some uncertainty in various numbers. The deduction is not the killer. The killer is allowing so much of economic income to go untaxed through definitions of one kind or another AND then having income classes subject to different tax rates, notoriously the capital gains rate. That's the difference between the $4 trillion of adjusted gross income as defined by the IRS (should be nearly $4.5 given that those households are near to 50%) and the $6 trillion+ of economic income, actual, countable, real net output, that represents 46.5% (the figure I am using for the top decile) of $12.9 trillion of Net Domestic Product less charitable income ($200 billion). I would say that under my plan more than 100 million households would pay less tax, we would balance the budget, and have an after-tax income distribution far healthier for the economy by better balancing consumption funds and investment funds. That's all possible because the income share of the top 10% is now such an outlandishly large share of national income.

- roidubouloi

May 18, 2011 at 6:03pm

That still comes up short. 13M households, 6T income, that's $461K income per household. Minus 120K deduction gives $345K taxable income per household. At 55% tax rate that is $187K in taxes per household. Times 13M households that's $1.1T in total revenue. Federal receipts are $899B in individual income, $865 for SS, $191 for corp income tax, and about $200B for other. If you are still expecting the masses to cover SS, then this covers that part. And I'm not sure how you convince someone to keep working after they've earned a million for the year, as their incentive is largely gone....but that's another thread. And there's not enough here to balance the budget at all. You'd need to raise an extra $1T over $800B to balance the budget. And I'm not sure taxes for all most go down. The bottom 50% in this country get fairly large credits that blunt SS payments, and the bottom 20% in fact yet rebates that turn their tax bill negative (IOW, taxes are net GAIN in income for them) But your plan definitely is great for those earning, $70K to about $160K. They see their taxes plummet over what they are today. The hardest hit are the $160K to $300K earners. They get hammered hard and aren't exactly "rich". It's very punative on the $300K to $1M earners, since it's a 50% increase in their taxes. For the $1M+ earners, it will change their lifestyle, but not by too much assuming they can earn what they earn fora few years and that it's not a once in a lifetime windfall. YNot only is the income of the 10% outlandishly large, the HOURS WORKED by the top 10% is outlandishly large compared to the bottom.

- seattleeng

May 19, 2011 at 11:10am

Time for an arithmetic lesson, I see. 13 million x $120,000 is $1.56 trillion. $12.9 trillion of NDP (after excluding the charitable income portion of $200 billion) x 46.5% (income share of the top decile) is $6 trillion. $6 trillion less $1.56 trillion is $4.44 trillion. Multiplied by 54% that comes to $2.4 trillion, more than the Federal operating budget (expenditures not including social security and Medicare). Do it your way. $187,000 x 13 million is . . . $2.4 trillion. Just as I said. The reason you get this wrong, seattle, is that even you cannot fathom what an absurdly large share of national income goes to the wealthiest. Hence, you just cannot believe what your eyes ought to tell you, that they could pay the entire Federal operating budget and have plenty of money left over. Entitlements are a separate matter. Social security can be balanced with means testing. I think $100,000 should be the maximum income at which you can receive social security, maybe a lot less than that if that is what it takes. Every dollar of income above the cutoff should offset SS dollar for dollar. Think of it as income insurance, not a pension, "retirement income security," not retirement income. Although the current contribution of Medicare to the deficit is not all that large, $240 billion, it will surely get worse. I don't think that problem will be solved without controlling medical costs directly in order to get our expenditures, now 17.5% of GDP, in line with those of France, 11% of GDP, which has a fine medical system, universal coverage, and medical outcomes as good as ours. The outlandishly rich should stop working such outlandish hours. Mostly they produce devastation for everyone else which might just be reduced if they stopped working so hard. If nothing else, it would create more opportunity for others to work long hours for a high income.

- roidubouloi

May 19, 2011 at 11:40am