POLITICS AUGUST 9, 2011
-
Read Later
READ LATERAvailable only to subscribers. SUBSCRIBE TODAY
-
Listen
ARTICLE AUDIO
- Font Size
Standard & Poor’s did not downgrade the U.S. political system. It did not downgrade the stock market. It downgraded United States Treasury bonds and bills—and did so after Congress had removed whatever tiny chance existed of even a small delay in payments. So it’s instructive that, on the next market day, investors moved massively out of stocks, and into the safety of U.S. Treasury bonds and bills. Rarely has stupidity been so quickly and massively shown up.
Some commentators read the downgrade as a rebuke to the Tea Party, but, in fact, S&P was making good on its threat to act if the deficit deal resolving that drama did not reach the arbitrary threshold of $4 trillion over ten years. It wasn’t the Tea Party’s Kool-Aid they were drinking, but that of the deficit hysterics.
And yet, S&P’s statement (math error and all) was of a piece with mainstream budget projections from CBO and other official sources. These projections all assume steady growth, low inflation, and falling unemployment (in which case, one may ask, what’s the problem exactly?). Yet they also predict much higher interest rates. In these projections, it is mainly the vicious magic of compound interest—debt compounded on top of debt in computer models—that generates the explosive debt dynamic which rationalized the downgrade.
These projections are so bizarre and so inconsistent that they survive only through the willful refusal of those who use them to actually look at them. With low inflation, why on earth would the Federal Reserve jack up interest rates? If it did, mortgages would go even more massively into default, stocks and bonds and real estate would again crash, so the growth rate could never be achieved. Not to mention the fact that actual economic growth rates have been below-track for two years, so that the short-term assumption that a sustainable recovery is underway is obviously and plainly wrong.
None of this matters to the president, nor to majorities in Congress, nor to the pundit brigades. All have embraced the “long-term deficits” which appear in the projections as though they were foreordained history, sufficient to compel action now that will effectively cut Medicare, Medicaid, and Social Security, and curtail federal government investment, regulation, administration, and services to levels not seen since the 1950s.
Exactly what that threat is remains elusive. Foggy rhetoric about “burdens” that will “fall on our children and grandchildren” sets the tone of discussion. The concept of “sustainability” is often invoked, rarely defined, never criticized; things are deemed unsustainable by political consensus, backed by a chorus of repetition from the IMF, headline-seeking academics, think-tankers, and, of course, the ratings agencies.
But there isn’t, in fact, a “long-term deficit problem.” So long as interest rates stay below the growth rate, as they are, debt-to-GDP levels eventually stabilize and even decline. The notion that there is a big problem is pure propaganda based on a pseudo-debate, pitting two viewpoints that nevertheless converge on the practical issue.
On one side are those who profess to abhor all deficits, arguing that the productive private sector will rise up to offset all government cuts. This is an appealing 18th century viewpoint found in Adam Smith, a throwback to the days of peasants and petty craftsmen preyed upon by lords, kings, and tax collectors. The only problem is that things have changed since The Wealth of Nations was published in 1776.
The other force is the political liberals who were desperate to get a short-term stimulus package through Congress two years ago and who were therefore prepared to concede the case for “long-term deficit reduction.” What that case is—crowding out? Inflation? High long-term interest rates?—they rarely, if ever, say, because none of those things is remotely plausible given the 9 percent unemployment, debt-deflation, and rock-bottom long-term interest rates we see now. But having made the concession, mainly for political and rhetorical balance, they are trapped. Paul Krugman is a key example; as recently as August 6, he wrote on his blog:
America does have a long-run fiscal problem, driven by the combination of rising health costs, an aging population, and the unwillingness to raise taxes to pay for the programs we already have. If we don’t come to grips with that problem, bad things will happen.
Notice two things here: First, Krugman doesn’t say what the “bad things” are. Second, he does not mention the interest rate and never discusses what happens to the debt/GDP ratio if rates stay put. (Answer: It stabilizes eventually and nothing else happens, as I have shown in a paper linked here.) And thus he lends his great weight to the pressure that will build, later this year, for the cuts in Social Security, Medicare, and Medicaid that were deferred in August—and which Krugman surely opposes.
The perverse character of the debt deal will now force the Pentagon into the fray on behalf of cutbacks in Social Security, Medicare, and Medicaid. This is true even though the Pentagon sequesters that would occur if Congress does not pass the recommendations of the new “supercommittee” are arguably phony. It seems obvious that both the Republicans and the White House understood this dynamic very well, which is why the defense-spending-cut rabbit came out of the debt-deal hat at the last minute. As usual, the progressives who momentarily thought this was a win for Democrats were duped.
So what is to be done? This is not a moment to describe policies that would, for example, create jobs, build infrastructure, or deal with energy or climate change. Nothing like that can happen now until ideas change. And the first change must be to challenge and reject all the nonsense about long-term budget deficits, national bankruptcy or insolvency, and even “fiscal responsibility” that we are hearing. The entire object of this propaganda campaign is to cripple government—including regulation and the courts—and to roll back Social Security, Medicare, and Medicaid. The defense of those successful, effective—and yes, sustainable—programs just became far more difficult, and perhaps impossible. But it needs to be carried on to the last ditch.
James K. Galbraith is author of The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too.
93 comments
Quite so. If we had, relative to GDP, a large trade deficit, that would be a problem as we would be consuming more than we are producing. But we have no such trade deficit, and the one we have could be eliminated in a moment if we were willing to manage our trade. Our current budget deficit is simply the result of the failure to tax, as the budget deficit is a private surplus. For the economy as a whole it nets to zero. We are producing what we are consuming and investing. We could raise the same money with taxes on high-end incomes as these are the only people who can buy Treasuries. Everyone else spends what they earn and then some. There is no economic reason why we must give them back a piece of paper when we take their money -- money that was created by government spending else they wouldn't have it. We can just take their money in the form of taxes instead of loans and, poof, deficit be gone. The existence of the budget deficit is, therefore, purely political and can be eliminated the moment we have the political will to do so. Regarding Medicare, Medicaid, and Social Security, the only important question is what income share we regard as the minimum for working people and retirees. We can permit them anything that we regard as a plausible minimum with plenty left over for everyone else if we do not continue to allow the top 10% to capture an enormous share of after-tax income, vastly larger than in 1980 when supply-side nuttery (then called Reaganomics) first appeared and started to erode our economy.
- roidubouloi
August 9, 2011 at 12:33am
If I am not mistaken, the long-term deficit problem is real – in that health-care costs are soaring while Medicare and Medicaid rolls expand concurrently. What seems to be lost is the fact that these costs would merely be shifted elsewhere if the government cut back, or services withheld. If anything, it is a case for the standardization of payment, a single-payer insurer, or some other government-led reform of the health-care system. And, as Krugman says, taxes are too low. The Bush tax cuts need to be repealed if people want services. If not, the services need to be cut.
- spmull06
August 9, 2011 at 1:47am
Another perverse effect of yesterday's stampede by investors to Treasury notes and bonds (debt) and away from equities is that it adds to the army of politically well-connected money-men who will oppose any expansionary economic policy that might increase the rate of inflation. Think about it: S&P downgrades US debt and investors stampede to buy more US debt (and sell equities), further discouraging the adoption of a more expansionary fiscal policy (which was unlikely anyway) or a more expansionary monetary policy (which was likely until yesterday). I'm reminded of those scenes from Africa in which herds of migrating animals cross the treacherous river, with its fast-moving current and crocodiles and other predators, many of whom drown or are eaten by the predators, just to get to the other side.
- rayward
August 9, 2011 at 7:07am
You are quite right, sp, that rising medical costs are a real problem, but this is distinct from the problem of fiscal deficit. As you yourself point out, if the government sheds Medicare responsibilities, it simply shifts the costs elsewhere, allocated more erratically than they are by taxation, with the result that some, perhaps many, cannot afford them at all. We collectively cannot afford them. Our medical costs are already 17.5% GDP and rising, far above other industrialized nations. France spends 11% of a smaller per capita GDP with universal coverage and medical outcomes as good as ours.
- roidubouloi
August 9, 2011 at 8:36am
So Krugman is just too right wing and concern about the defecit is nothing more than the result of lies ginned up by those with an anti-government agenda. The entire basis for this utter nonsense is, "So long as interest rates stay below the growth rate, as they are, debt-to-GDP levels eventually stabilize and even decline." This simple little assertion reveals less about our current situation and much more about the mental blocks of those on the economic left. 1.) The statement is only true mathematically if the issuance of new debt also holds as a percentage of GDP. That is a big 'if' that Galbraith, in particular, cannot ignore. For he is calling for more stimulus on top of the $1.5 trillion in defecit spending that we don't call "stimulus" because it has become the new baseline. 2.) Even with this qualification, based on the latest data, the observation does not describe the reality. Yields on the 10 and 30 yr notes are 2.4 and 3.7 respectively, whereas GDP growth rates for the past two quarters are 0.4 and 1.3 respectively. 3.) Even with the qualification of the first, and even if growth rates were kinder to Galbraith, well before the debt-to-GDP ratio plateaus, is it that hard to imagine events that would make interests rates spike to much higher levels? But with the much higher debt burden, our economic options, in that eventuality, would be extremely limited. Is it Galbraith's contention to proceed full steam ahead and if and when evil market forces force the government to enact sudden and massive fiscal contraction, we will at least have clean hands. In effect saying, "we didn't abandon grandma, voracious capitalists did." Let's call this left wing Bachmanism.
- jkodak
August 9, 2011 at 9:34am
Really a lot of argument from assertion, or from reference to hyperlink. It may be true, I don't even know and I'm just starting the morning with a quick TNR read and have to get on to work so I can't examine it all, but to call a spade a spade ... Much asserted, very little if anything expressly argued by way of direct appeal to evidence and analytics. Please - point out the counterexample if I'm wrong. But - having said that - I'll give this much to the author ... one does start to wonder if the combined effect of decades of inflation plus a growing economy has caused the numbers to reach an "inhuman" scale. What I mean is that - federal budgets of >$3 trillion, GDPs of >$14 trillion, yearly budget deficits >$1 trillion, total debt of $14 trillion ... its hard for people to understand these numbers, they are just too big. Even if total federal debt matches or is less than GDP - a debt, any debt, of over a trillion, that grows by a trillions, yearly - that is simply heart-sinking to a regular person, and we aren't all about to stop being regular people. Even on a personal level - we don't really think people are doing well unless household income is about $250K/year. People can't understand how they (or others) can be earning $50K/year and it isn't enough - barely enough to bother taxing because at $50K/year - you are SO far down on the relative income scale. From a strictly psychological standpoint, it seems to make the case for re-monetization, i.e.: issue a new dollar - maybe one worth 4 or 5 of today's dollars - if only to bring our sense of relative numeration down to earth.
- dcwood10
August 9, 2011 at 9:36am
Let's try it this way: We have a $15 trillion GDP. As we have a lot of slack in the economy, this is well below our current output capacity. According to wiki: The Obama administration's original budget request contained $2.627 trillion in revenues and $3.729 trillion in outlays for 2012. The April 2011 Republican plan contained $2.533 trillion in revenues and $3.529 trillion in outlays. Note that the Obama budget has a deficit of $1.1 trillion. The Republican budget has a deficit of $1 trillion. Will the Republicans claim that the budget is out of control because we have a deficit of $1 trillion? More than likely. However, if we have a $15 trillion economy, that means that someone in the economy has $15 trillion of income. Why then are we unable to raise taxes of either $3.5 trillion or $3.7 trillion, representing about 25% of output? No reason at all. We just choose not to because we have demagogues who serve the interests of the wealthiest. Because, let's face it, that's who got the tax cuts, that's who has the highest share of gross income in nearly 100 years, and that's who is going to pay the taxes if we raise them. Why? Because of the Willy Sutton principle. That's where the money is. Deficit gone. Does this need to produce hardship? Not at all. Notice, we are producing what we are consuming. But we have mismatches between accounting income and expenditure. The people who have money left over to give to the government because the government is not collecting enough in taxes are spending less than their income. Else they wouldn't have it to give. Overwhelmingly, these are the high-income earners. Most everyone else is going into debt. If we taxed them at a sufficient rate, they would no longer have a surplus to lend to the government. But then, we wouldn't need the surplus because the government would no longer have a deficit. The government deficit and the private surplus are the same thing, the difference between accounting income, in money, and expenditure, in money. The supply-side wackos insist that we have to reduce expenditure to equal money income. But the government can have whatever income share it wants by levying taxes. Unless there is a good case to be made that these government expenditures are bad for us -- and other than our outsized military and the excessive cost of medical care both public and private I have yet to hear any serious argument, only screeching -- the much simpler solution is to adjust the government's income share to equal its expenditure share. Not only does it produce far less dislocation, but in an already slack economy, cutting government demand -- expenditures -- is pure insanity. We need to increase government expenditures to take up the slack. Yes, there is some point where taxes get so high that incentives becomes perverse. We are nowhere near that and have no reason to be. We have the lowest taxes in the industrialized world and could eliminate the deficit and still have the lowest taxes in the industrialized world. If we return to fiscal balance, and a modicum of inflation that we need to move the economy in any case, our debt will melt away. Even if we have to pay it off, the domestically held piece is just a re-allocation of income shares to the holders of financial assets. If we are taxing the high-end to achieve balance, they are just paying themselves. Good. The Sutton principle. They have the money because they have been unjustly enriched by regressive tax cuts. If we try to make workers pay this off, we will break the country. Why should we do that? To make the rich happy?
- roidubouloi
August 9, 2011 at 10:41am
Let's be clear who the "last ditch" fight is against: A GOP entrenched in the agro-military pork barrel and Democrats hustling "financial innovation" (larceny) and "arms barter" (trade deals). They have their entitlements and resent those other ones. But, the electorate, now trapped between two parties they distrust deeply, is increasingly paralyzed by fear or immobilized by diffuse anger. The way out is a combination of civic and economic reconstruction in the great city-states of North America which can ill-afford the parasitism of BoWash & Londinium or the parochialism of Northern Virginia.
- JRBehrman
August 9, 2011 at 11:48am
roidubouloi - If your argument is what the author is really getting at, I'm with that. It just isn't clear purely from the text that that's what he's trying to say. Seems to be a more abstract point that we can spend all we want. Again - maybe the hyperlinks fill out the point in some way, but if so that's just poor writing. Hyperlinks are an option for enrichment or fact check, not additional mandatory paragraphs necessary to understand the point. More taxes seem bleedingly obvious. Intelligent budget cutting still makes sense though. While there's no need to raise the retirement age on my parents, I sympathize with no representative or senator who claims to be protecting me by refusing to raise it. Demobilizing overseas National Guard units seems pretty obvious. 2 fewer carrier battle groups is still seven more than anyone else is floating. I believe taxes will come down to this: we are basically at a cross-roads with taxes. We either attempt to continue to use marginal rates, which Americans no longer trust, or we take aim at the byzantine system of government favors that is the tax code. I believe Democrats WILL NOT gain the trust of Americans that is necessary to raise taxes, until they take aim at the latter. There should be a Democratic moratorium on discussing tax increases and a unified front to flatten the tax code. The message should be: flatten the tax code AND reduce marginal rates for everyone. If that doesn't result in sufficient revenues, only then, only after the favors have been stripped from 100,000 pages of tax code, only then do Democrats start talking about tax increases again. Talk all you (not just speaking to you now roidubouloi but to other commenters) want about how it won't happen - maybe it won't - but if it won't, we're on to the next Gilded Age.
- dcwood10
August 9, 2011 at 11:54am
I would add that financial innovation and arms barter are not 18th or 19th or even 20th century capitalism. They are more like the "convergence" of Anglo-American and Soviet political economy during the late stages of the Cold War. We have had two false starts in Washington at something different in 1993 and 2009. Their failure is mainly a problem of a center-left Democratic Party with no grass roots or discipline -- just a bunch of professional office-squatters and their entourage of "politicos".
- JRBehrman
August 9, 2011 at 12:00pm
Orszag recommends increasing the payroll tax cut to 6% from the current 2%, and then tieing the cut to the unemployment rate (so that the cut continues in effect until the unemployment rate goes down significantly and automatically reappears if the unemployment rate goes back up significantly). [He says that a 6 percent payroll-tax holiday would amount to about 2 percent of gross domestic product.] Tieing the payroll tax cut to the unemployment rate is about the best recommendation I've heard. First, by being automatic, it is naturally stabilizing. Second, it would significantly increase progressivity of the US tax system. That latter benefit can't be overstated. Republicans promote income tax cuts as the best tonic when the economy slides, but their idea of tax cuts is one directed mostly to the wealthy, which has little stimulative effect and makes the US tax system more regressive. By contrast, the payroll tax is paid mostly by working Americans, so a cut in that tax has a much greater stimulative effect - lower and middle income Americans are much more likely to spend their tax cut. If a payroll tax cut automatically goes into effect if the unemployment rate increases significantly, adoption of an ineffective (as a stimulus) income tax cut mostly benefitting the wealthy would be much less likely.
- rayward
August 9, 2011 at 12:57pm
Keep writing, Mr. Galbraith! When even NPR begins echoing the Tea-Party rhetoric that "entitlements are the problem", we desperately need rational economists like yourself to provide some reason and push-back. Thank you for the excellent article.
- AllanL5
August 9, 2011 at 2:02pm
Will woners never cease. A texan who understands Keynesian economics. My only complaint is that I think he misrepresents Krugman's overall analysis of the economy-- which is very similar to Galbraiths.
- drofnats1
August 9, 2011 at 6:55pm
Christ, I'm confused! But not for long. Tonight, as I lay me down to sleep I'm gonna pray hard for the fog to be lifted so that I may see the light and understand things especially why we are not at all allowed to consider working at this issue from the revenue side. Now, this may prove to be difficult being I'm a militant agnostic but I'm gonna try. That is, after I cast my ballot in the recall election here in Badgerland and of course pray that our progressives are victorious. Roid, thanks, I think I learned something. (By the way if you have not yet read Leon W's essay "Repent" have a look. Made my day. ) Now let's see how do I do this again....put both hands together like this....
- reefer
August 9, 2011 at 7:11pm
You're welcome, reefer, but let me give you another hint since you seem interested. Think of the economy as having two sectors, government and private. Everything the government buys/consumes is produced by the private sector (otherwise called people). Likewise what the people buy/consume. Their total expenditure is what is produced by the economy. Their total expenditure also equals their total income because income is likewise what is produced by the economy. However, it is possible for one of the two sectors to have more income than its share of expenditure as long as it lends the excess back to the other share. If it didn't lend the excess back to the other sector, then the other sector could only spend its income. It would have no other source of funds. But, here is the paradox. If the sector with the ability to produce a surplus won't lend it back, then the sector with a deficit cannot have a deficit. It's share of income therefore equals its share of expenditure. But then the algebra does a funny thing. If one sector is in balance between income and expenditure, then the other is too. So, if one side runs a surplus, the other has to run a deficit. And if one refuses to run a deficit, the other cannot run a surplus. In my example, the government is buying a portion of its share of output by issuing paper, Treasury securities, to the private sector. If the government is denied the ability to borrow, this output just vanishes, unless the private sector can buy it. Can that happen in a recession when we are already suffering from insufficient demand? No, it cannot. That's but one reason why supply-side economics and the push to cut government spending now are sheer lunacy. Back to the example. One an assume that all the money starts out in the private sector. The government takes money from the private sector by taxing or borrowing. It buys stuff from the private sector so all the money ends up back in the private sector. This is because the government doesn't need to hoard cash to make payments the way we do. If the government runs a deficit, each sector consumes what it consumes, the money ends up back in private hands, and the private sector holds government securities for the difference between what the government spent and what it took in in taxes. If instead the government taxes enough to pay for the identical amount of consumption, each sector consumes what it consumes, the money ends up back in private hands (as the government doesn't run a surplus by piling up cash). The only difference is that the government securities now do not exist in private hands. So, think about. What purpose is served by borrowing the money the government needs rather than taxing it from the private sector? Is there a reason for having this government debt outstanding? In the real world, it is of course not quite so simple as there are dynamic effects: People's spending behavior is influenced by their accounting income. But those dynamic effects are not that big when we are talking about the investor class, the class that can spend less than its income and run a surplus. They more or less can spend what they want and accumulate the rest. Everyone else is spending their income whether the government runs a deficit or not. Therefore, the simple way to end the deficit is just to tax enough to end it. Ideally, the new tax burden falls on the class that isn't spending its income anyway, the high income crowd, so that spending and consumption are not reduced. The alternative is to reduce government spending. But then we reduce income, because government spending is someone's income. If we are capacity constrained and have other more urgent spending needs then what the government is doing, fine. But we are not capacity constrained. We have excess capacity. Hence, any reduction in government spending will reduce someone's income dollar for dollar, and then whatever they don't spend will reduce someone else's.
- roidubouloi
August 9, 2011 at 8:24pm
The debt is mind boggling to me, but so is the idea that the whole world runs around trading pieces of paper for things that they can use or own and that I can hand a plastic card to someone and they will give me something I want that was made in another country. Other things are not so evasive. Tax rates I can understand and they are too low at the top. Government funding advancing technology and science I can understand. The relationship between social security, unemployment benefits, aid to the poor, etc. and consumer demand, I can understand. the Republican desire to destroy the country before the election makes sense too.
- Nusholtz
August 9, 2011 at 9:17pm
Galbraith is nuts. What is startling is that most of you do not appreciate why his viewpoint is so revolting to libertarians and conservatives. Sure, the long-term deficit can be rectified by sufficiently high taxation. But if so, it represents claims on the output of future taxpayers, be they workers, employers, or investors. So in reality the deficit does matter, contra Cheney. Yes debt can be grown out of, as long as deficit+interest does not exceed GDP growth. But that is a rarity and not to be counted on - it worked for Clinton, though Bush pissed it away. What we should strive for are roughly balanced budgets - historically 20% rev and 20% spending, give or take. Some want both significantly higher, but there is clearly no consensus around this, as even Obama has ruled out such a level of revs by focusing ridiculously on top earners. But obviously 15% revs and 25% exp doesn't work. Roi, you again (here or elsewhere) reference total NNP and taxation of said. Much of the nontaxable NNP is middle class pension and 401-k/403-b money. Should it be taxed, perhaps, but again, that is new ground, and not agreed to by anyone on our political spectrum. I'd be happy taxing them all, but that still leaves you with the Buffet problem, capital gains, which are taxable only upon realization. Your theoretical taxable income will never be taxable unless we make some major changes. I hope, but it is not credible. The reality - as Seattle, your favorite, I know - says is that high government expenses will need to be paid for by high middle class, and even lower class, taxes on income. There is no political consensus for this, as the Dems, Obama in particular, have implied that government costs can somehow be borne by the wealthy only. Most on this site seem to believe the same nonsense. Can't happen, just look at Europe. Politically it is a shame, as the public might be willing if told the truth.
- ds111
August 9, 2011 at 11:15pm
The repubs are not so much anti-tax as anti government (federal in particular) as a significant share of the economy. I understand that most of you don't agree with this, but outside dopes like Norquist, it is a fairly simple, even moral construction. Part of the reason for the tea-party. Repubs are not trying to help the wealthy, or rich, whoever they are, they are simply trying to restrict the size of the federal government to something close to an historical share of GDP. Moreover, while the Federal govt grew from 5% to 25% GDP over the last 80 years, over the last 50 years, state and local govt has grown from 2% to close to 15% GDP. It is fair to make the argument that this is beneficial, and needs to be paid for, while still acknowledging that the diminution of take-home pay is a direct result of the growth of government at all levels. Perhaps it is worth it, but the jury remains out.
- ds111
August 9, 2011 at 11:46pm
You are not telling the truth, ds111. The need for high taxes on the middle class is a myth, a lie, a politically concocted lie to make it appear that government spending is unaffordable. We could balance the budget tomorrow with taxes on the top 10% lower than what we have had from the end of World War II to the beginning of the Reagan era of voodoo economics AND THEY WOULD STILL HAVE A HIGHER SHARE OF GDP THAN THEY DID WHEN REAGAN TOOK OFFICE IN 1980. Capital gains are not part of GDP and hence taxes on those gains are, in macroeconomic terms, wealth taxes, not income taxes. When two people swap money for a capital asset, nothing has changed in terms of output, it is just the passing of title. Hence, there is a tax on wealth, not income. Good. Very good. If we taxed capital gains at the exact same rates as all other income, they would nicely offset the portions of GDP that we want to be exempt from taxation. There is very little significance to the effort to restrict government spending as a percentage of GDP, particularly as to transfer payments such as social security. If workers bought chips -- investments -- and then sold them to pay for their retirement consumption, they would still be consuming a share of output with less therefore for everyone and everything else. Get that? instead of paying payroll taxes younger workers would be buying the chips from retirees, but in terms of consumption little would be different. That government has made itself the financing mechanism, a pass-through, and added an insurance element is irrelevant except for people who think that such percentages, rather than real consumption shares, have any meaning. They don't. This is just part of the supply-side nuttery, ds111. If you want to say something to which we should pay attention, you need to talk about the real economy, not various aspects of the financial economy, including government's participation in the financial economy.
- roidubouloi
August 10, 2011 at 12:24am
Also, ds111, pension fund contributions avoid taxation, but pension fund withdrawals are taxed. If they are equal, then there is no portion of GDP escaping taxation due to pension funds. Only the identity of the taxpayer changes. Assume rather that pension assets are growing. The are on the order of $5-6 trillion, so 5% growth, real and nominal growth, is on the order of $300 billion. The taxes on that would be on the order of $60 billion. Not the cause of our problem and with little bearing on our ability to raise taxes on the top tier.
- roidubouloi
August 10, 2011 at 12:32am
"What is startling is that most of you do not appreciate why his viewpoint is so revolting to libertarians and conservatives." Yeah, well, what startles me is that you don't realize why libertarians and conservatives are so revolting to the rest of us.
- roidubouloi
August 10, 2011 at 12:34am
Well certainly alot of the increase of percentage of federal government spending has been highly beneficial . The jury could be out so to speak on a small percentage of the increase . The public simply wouldn't stand for the conditions that would result from too large a retrenchment. Public health and safety would deteriorate to a point that would be intolerable . I really don't think that state and local governments would pick up the slack. People would be shocked at how much state and local taxes would have to go up to cover what the feds do. The feds can leverage a tremendous amount. Research and development in medicine and statistical analysis in almost every area of life are powered by federal dollars. We would be flying blind through life if not for the info . Health care costs are by far the biggest problem in our short and long term budget . We have got to get a handle on costs . Seniors and the poor are not able to deal with this system as it is currently constituted. Defense spending has tripled in the last 12 yrs. Right now the % of government take of the economy is quite high by historical standards . Safety net spending is high right now due to the state of the economy and very high health care costs. Yes , regressive payroll taxes and other fees are taking a big bite of paychecks and property taxes are at an oppressive level here in Jersey. Always a fair debate to decide what percentage to tax and spend at , local , state , and federal , but it needs to be an intelligent debate . We can't have that debate with today's Republican party.
- alanwilkov
August 10, 2011 at 12:34am
"You are not telling the truth, ds111. The need for high taxes on the middle class is a myth, a lie, a politically concocted lie to make it appear that government spending is unaffordable. We could balance the budget tomorrow with taxes on the top 10% lower than what we have had from the end of World War II to the beginning of the Reagan era of voodoo economics AND THEY WOULD STILL HAVE A HIGHER SHARE OF GDP THAN THEY DID WHEN REAGAN TOOK OFFICE IN 1980." You have stated this before, and it is a fairy tale, but a destructive one if some readers actually believe it. Income tax collections were 8% GDP post war, while Corp taxes have been largely replaced by FICA payments. The spread of collections was not dissimilar today. So the rates you refer to were irrelevant, nobody paid them. Your fairy tale requires a tax code we have never had, and which Europe does not have today - they collect, by necessity, from across the spectrum.
- ds111
August 10, 2011 at 8:15am
European government spending is a higher share of GDP than ours and their gross income is much less skewed to the wealthy than is ours. To raise any amount of taxes, let alone a higher share of GDP, Europe therefore needs to tax more broadly. Or, to put it another way, even progressive rates fall more broadly when income is flatter. Indeed, if you stop to think about it, if everyone had the same income, progressive rates become meaningless. As well, our existing tax system is barely progressive at all. For the vast majority, the total tax rate falls at about 20%, plus or minus 3%. We have abandoned progressive taxation at the very time when gross income distribution has become and continues to be come more skewed. Hence, we cannot raise sufficient revenues. Comparisons to Europe are your way of evading the truth about our economy. Try counting our actual income, here in the United States of America, not someone else's income, and apply even moderately progressive rates -- a top rate of 50% -- to our income distribution, not someplace else's. You get lots of tax revenues. I thought you were merely ill-informed ds111. But you are a willing liar. Turns out the lie isn't their lie that you merely repeat, but your very own. Your radical libertarian ideology claims that taxation is fundamentally unjust and therefore anything you make up to justify our failure to collect taxes is fine with you. If we must have some taxes for your spending favorites, defense no doubt, then you want flat or even regressive taxes. Not because we have to have flat or regressive taxes or that there is any reason at all to believe they are better for us (all the evidence of the last 30 years is quite to the contrary), but because this is what you think is just, and you will tell whatever lie is convenient in the service of what you think is fundamentally a just cause. As Lenin taught all radicals such as you, there is no truth, only useful lies and useless lies.
- roidubouloi
August 10, 2011 at 9:06am
Hope to have time today to re-do the analysis of American, not European, income distribution and tax rates. Then you can do some real work, ds111, instead of just repeating garbage from the right-wing echo chamber, and try to figure out why I am wrong.
- roidubouloi
August 10, 2011 at 11:00am
God no, not Mr Hyde again! Stop calling people liars. You are as much of a fundamentalist as anyone here, but that's fine, because you do add clarity to the discussion. Despite your apparent view that your framework is flawless, it is not, and there is room for deep disagreement. Yes, I believe that limited government is best, for many reasons, but mainly because I find it corrupting. Progressive taxation encourages lower earning producers to spend a greater share of the production of higher earners. A flat tax accross all income, if achievable - a big if I recognize - would at least invest every taxpayer, to the same degree in the public decisions about the level of government spending. Anything that heads us in that direction i'm in favor of. I really don't care the level of government in the economy as long as all share equally in its cost. If people prefer the services, so be it, but not in the skewed system where I prefer more services as long as someone else is footing the bill. Anything else is, as you say, fundamentally unjust.
- ds111
August 10, 2011 at 12:57pm
ds111, now you have shifted ground and are making claims of justice and politics. That's fine. I don't agree with your view of justice or of a healthy polity, but I have no objection whatsoever to the manner in which you state those claims. What is objectionable, and a commonplace on the right, is making false empirical claims, particularly with regard to economics, to bolster a political position that does not have very much appeal on its own. Some of these false claims have been catastrophic for our country. Economics is not a very exact science, but it is not merely an aesthetic discipline. Some claims may be difficult to prove or disprove because economics is seldom an experimental science. Others are clearly wrong or have been shown to be wrong with real time experiment on our economy. There is no empirical basis for the tax claim you made above. Nor is there any empirical basis for the claim that low taxes per se, or flat or regressive taxes, with or without low spending, are the path to prosperity. The best evidence is that too much income inequality is inimical to growth and prosperity because it saps demand which is always and everywhere the driver of economic growth. There is also abundant evidence that the private market cannot sustain stable demand and that government spending, both cyclically and secularly, is an important contributor to growth. There is no such thing as supply-side economics unless you thing that astrology and astronomy are the same thing. So, if you wish to ground your libertarian ideas in claims about justice, by all means. Go right ahead. But you do not have license to make up economic facts or espouse theories that do not have an empirical basis in aid of your politics.
- roidubouloi
August 10, 2011 at 2:22pm
ds111, You write, "What is startling is that most of you do not appreciate why his viewpoint is so revolting to libertarians and conservatives. Sure, the long-term deficit can be rectified by sufficiently high taxation. But if so, it represents claims on the output of future taxpayers, be they workers, employers, or investors." And the sun rises in the east and sets in the west, the sky is blue and daytime is generally warmer than night time. My mortgage is a claim on future income. Same goes my car loan. These are not objectionable, because they are my choices. Our federal debt was encumbered by legal, democratic process. We have to pay for it - the right wing goodies and the left. Entitlements that were too generous? perhaps. Too many carrier battle groups? likely. Mobilized reserve and national guard units and logistics to run two wars of questionable value? yup. Pork-barrel spending on earmarks. That too. Republicans voted for these things. Republicans voted to raise the debt ceiling to pay for them. Libertarians perhaps didn't but you may notice - even today: libertarians are not well represented in our democracy. There was a democratic mandate to buy the things we borrowed for. It does not offend my sensibilities that we should get around to raising taxes to pay for them. It does offend my sensibilities that when the chicken has come home to roost and the bills are due, the same republicans who voted for debt and voted for spending, now circle the wagons as has rarely been seen ever in American politics in order to prevent the taxation of the most economically robust among us, and at a cost to the most vulnerable.
- dcwood10
August 10, 2011 at 2:56pm
I view your own Keynesian influenced echo chamber equally - well I don't care to say garbage. Despite its apparent elegance it falls flat in the real world. Workers buying chips from retirees? Those who invest their unconsumed production make (or should make) conscious decisions about where to invest. This process is crucial in investment allocation decisions which produce growth. While it is not uncommon for society-wide misallocations to occur, generally private capital flows to its best use. Your chips example is telling, in that it ignores this best-use aspect, which is so important in long term productivity growth. In seeking a better retirement, savers help increase the future pie for all, themselves included. It is not simply swapping chips, it is a competitive process which increases societal wealth - and makes all chips worth more in the future. A true transfer of income for social insurance is more akin to your chip example, and is more of a decision to allocate publicly some portion of current production in order to allow all citizens a dignified life. It is a societal good, but doesn't by itself improve productivity. But individual savings, including that portion flowing into government directed infrastructure investments are a different animal, the investment of which are the cause of productivity growth.
- ds111
August 10, 2011 at 5:24pm
Falls flat? Which part? Save in a boom, spend in a bust? When there is a lack of demand and the economy is unresponsive to monetary policy, government spending can replace missing private demand to close the gap between output and capacity? Which part falls flat exactly? Care to give examples? Keynes was at least an actual economist, you know. You fail to understand the chip example, again confusing finance and the real economy. If the government collects payroll taxes and turns the proceeds over to the investor class, either by lowering their taxes or by buying up Treasury securities they hold, what do they do with the money? Do they up their consumption? Not much if at all. They invest the money in whatever productive assets they can find. They only problem with this system as it works in America is that, due to the political power of the investor class, we neglect to take our cut of their gains realized by investing the money we gave them. When people retire, they draw out of the system. While they are working, they pay in. Now, instead of this, sort of our current system, we could have people directly invest the same money in assets. What changes? Same amount of money. Unless the working stiffs who are saving make better investment decisions that the investor class, not likely, we get the same amount of productive investment. We also have a lot more individual risk on the shoulders of people who cannot shoulder a lot of risk having not many alternatives. When they retire, they sell investments into the market. At the same time, young workers are paying into savings and they buy the investments. So, instead of trading claims on the Federally organized pension system, they trade investment chips. Is there an advantage when the young buy investments from retirees rather than claims on the Federal pension system? Not that I can see. The aggregate productive investment is essentially the same either way. That's because we don't invest what we save, we save what we invest. If we don't invest it, it isn't saved as there is no other place to put it. As I said before, the only problem with the current system is that we allow private investors to keep the gains rather than taking a cut of their action for the financing they received via the tax system. Either way, the money that retirees spend, whether from cashing in an investment or from cashing in a pension claim, is an allocation to them of a share of consumption. One way is secure and smooths out differences in outcome during working life, as well as providing insurance features. The other is less secure, does not smooth out differences, and entails much more individual risk. There is no case to be made that either results in more productive investment, although having sophisticated investors doing the investing and taking a cut would seem likely to do better than allowing individual workers to do it or over-paying fund managers to mis-manage assets as often occurs.
- roidubouloi
August 10, 2011 at 5:49pm
Well said DC. Certainly no one would gripe with your choices to encumber your future however you see fit. Well, maybe Elizabeth Warren..but not me. And libertarian views are better looked at as "guidelines", and not a sound governing philosohy. And I agree that we must pay for the democratic choices we have made in the past, and nor are my sensibilities offended by doing so. The question we face relates to the future, and Galbraith's blithe disregard of the risks his approach entails. We have not decided politically what size government we want. Clinton and a GOP congress more or less agreed, and it largely worked. Bush and Obama have not, and the expected future path of tax revenue and entitlement spending imply persistent large deficit spending amid an ahistorical increase in the federal component of our GDP; with no current consensus that it should be so, just heads in the sand. I suspect repubs realize that the Bush tax cuts will expire, or are seeking fuller tax reform, and perhaps that's why they've been so adamant, but most seem to recognize that revs of at least 18-20% are a necessity.
- ds111
August 10, 2011 at 5:57pm
As baby boomers retire, the Federal government share of GDP is going to rise, if you include the transfer payments in the Federal share. Economists don't normally consider transfer payments as government spending, however. The increase in spending from Clinton until now is almost entirely due to Bush's wars, Bush's unfunded Medicare changes, and Bush's recession. It does not reflect Democratic priorities or governance, not does it reflect absence of political agreement. The Republican Congress agreed with Bush. The discussion about spending is riddled with false claims. It ain't the Democrats who did this. It is the Republicans who are desperate to pretend that they didn't.
- roidubouloi
August 10, 2011 at 7:48pm
Falls flat: we never save in a boom (Clinton/GOP excepted). Good farmers wisdom though, and his best observation, if we could only manage it. To the political class, we are never in a boom. Unless you define a boom as a time of government surplus, as under Clinton (almost). I'd be thrilled. Capacity always exceeds output, Keynes views the slack as inefficient, and employable. I see this as a major mistake, in that slack exists for many reasons: for risk protection, potential opportunities, or just bad judgement - his main critique. I see his solution as increasing risk, in the same way that financiers thought that seemingly minor risks, leveraged up, could produce consistent returns. It works until it doesn't, and then you get 2008/2009. In Keynes case, it works until actors realize that the price signal is broken, debt explodes, or inflation takes off. I believe it works best when debt/GDP is low, and if we save during booms. We have neither circumstance now. I'd be a fan of a federal pension system especially if it were modeled on the Chilean system, a tightly regulated system of forced retirement savings in which individual accounts are pooled and invested in a broad mix. Account holdings can be annuitized only when they produce a state determined minimum annual income stream. Public support aids those in retirement who were unable to save sufficiently. Otherwise, I generally agree that we should have a national pension system, or that we do something similar perhaps and allocate a percentage of GDP to retirement income support while dropping the charade of SS. Questioning the primacy of demand. Production must precede demand, as demand is theoretically unlimited. Production requires work and often risk. The price mechanism signals whether it is worth the work and risk. Sometimes we miscalculate, and often we have excess production. Increases in leverage allow society to borrow production from the future. The housing bubble is one example, and we overproduced. The entire economy overproduced. The price of goods had to fall versus the dollar, deflation, and debt needed to be restructured, entailing significant private and some public losses, but rewarding the prudent. Keynes would turn this on it's head, punishing the prudent, adding phony demand by borrowing yet more from the future. Adding public debt to pay off private debt just shifts the deck chairs. Liquidate. Let the price mechanism do it's job, and the quicker the better for all.
- ds111
August 10, 2011 at 8:34pm
"democratic choices" was with a small d. I might blame them more equally (bush <4% def; Obama >10% def) but agree that such expected spending required corresponding taxation.
- ds111
August 10, 2011 at 11:25pm
"democratic choices" was with a small d. I might blame them more equally (bush <4% def; Obama >10% def) but agree that such expected spending required corresponding taxation.
- ds111
August 10, 2011 at 11:27pm
ds111: "A flat tax accross all income, if achievable - a big if I recognize - would at least invest every taxpayer, to the same degree in the public decisions about the level of government spending. Anything that heads us in that direction i'm in favor of." I've never met anyone who is in favor of a true flat tax. Do you think that working families who are nevertheless in poverty should pay any income tax at all? If not, you're in good company: even Steve Forbes, Mr. Flat Tax, favored an exemption for the first $X thousand of income. But that's a two-tiered progressive system, 0% up to the exempted amount and then another rate above it. Once one concedes that the poor are too poor to pay taxes, then there is no reason not to ratchet the tax up gradually to the "full" rate according to ability to pay, and there's your progressive system. Moreover, once one considers federal wage taxes, gas taxes, and state sales, income, property, and other taxes, our system is embarrassingly flat. http://economix.blogs.nytimes.com/2009/04/13/just-how-progressive-is-the-tax-system/ The progressive federal income tax may be the only factor that keeps our system from being regressive. "I really don't care the level of government in the economy as long as all share equally in its cost." But it's impossible for people to share equally in its cost if we're going to provide services that we think everyone should have access to. There will always be people who can't afford the cost of sending their kids to school. There will always be people who can't afford minimally adequate health insurance. If we think that everyone should have a basic education, and if we think we should live in a society where no one dies because they can't get insurance and families don't go bankrupt because someone got sick, there has to be by necessity a wealth transfer from higher income earners to lower income earners. "If people prefer the services, so be it, but not in the skewed system where I prefer more services as long as someone else is footing the bill." I'd say that based on the evidence, this fear is pretty much unfounded. The wealthy in this country have continued to do better than ever, their effective tax rates have gone down over the past 15 years, and returning them just to Clinton-era levels has proven to be extremely politically difficult. People in poor communities continue to go to schools that are not as well funded as those in wealthier communities. Low income earners get less-than-average health care services. Yes, someone else is footing the bill for what they do get, but there doesn't seem to me a stampede to "soak the rich" so that lower income groups can just live it up.
- dsimon
August 11, 2011 at 12:01am
Galbraith is hands down the best economist that I have seen contribute to this magazine. The deficit is not the problem. Lack of investment in the poor and lower middle class is the problem. They are not fairly valued in our economy. Social programs, education, and spending on infrastructure increase their wealth and their ability to contribute back to the economy. You can debate how best to allocate that spending, but that it should exist is overwhelmingly obvious.
- keepin_on
August 11, 2011 at 8:47pm
Dsimon, FICA taxes (contributions, they're called, absurdly) should be included in the flat tax, and not be separate. Yes, Forbes, and Hall and Rabushka before him, argued for a large exemption, in part to offset first dollar FICA. A small exemption would be reasonable, as a form of earned income tax credit against sales and other taxes, which are otherwise after tax costs and which are certainly, as you note, not progressive. Perhaps I wasn't clear - I don't mean that everyone should pay the same dollar amount, but that they should pay the same percentage of their income to fund services all benefit from. From a game theory perspective, we'd arrive at the optimal tax rate for society, as some would prefer more taxes and services, some lower taxes and fewer services. The clearing rate would represent the optimal, but importantly only if all pay at the same rate, regardless of income.
- ds111
August 11, 2011 at 10:11pm
ds111: On the one hand you write "A small exemption would be reasonable," but then you also say "they should pay the same percentage of their income to fund services all benefit from." These two statements are simply not mathematically compatible. So which is it? Also, if you're willing to have any exemption at all, then why not ratchet up to the top rate according to ability to pay? Isn't that an endorsement of a progressive system? Also, a flat tax ignores the marginal value of money. I'd say $4,000 matters a lot more to someone making $20,000 than $40,000 matters to someone making $200,000. Game theory claims are all well and good, but some games don't take some very important empirical matters into account. And again, I don't see much evidence of the masses soaking the rich so they can live it up with government services. I understand the perceived threat, but isn't it simply a nonexistent one? After all, there are plenty of people against the estate tax even though a tiny fraction of the public will ever be subject to it.
- dsimon
August 11, 2011 at 10:46pm
Dsimon: I see your point that conceptually progressive is progressive so why not go the whole nine yards? Any exemption makes a flat tax progressive, even if only sllightly so. Why should there be any exemption at all? The best reason is in order to accomodate the way states and localities raise their own revenues. Sales taxes and fees are typically a large chunk of non-federal taxes and represent the most effective and stable method used by non-federal taxing entities. As you pointed out, they are not progressive. $500 on a $10k car is more meaningful to someone making $20k than $200k. Local entities tax the way their local representatives decide - Wash St has a sales tax, Oregon St does not. There is no reason for the federal government to favor one method or the other. A federal exemption meant to make an allowance for part of this is not contradictory, simply a recognition that federal taxation can reasonably (but need not) allow for the higher relative burden on those with lower incomes evident in much local taxation. Creating a small federal exemption as a partial offset would seem reasonable while retaining the idea that all pay for (federal) government at (roughly) the same rate, and importantly at the same marginal rate. "Also, a flat tax ignores the marginal value of money. I'd say $4,000 matters a lot more to someone making $20,000 than $40,000 matters to someone making $200,000. Game theory claims are all well and good, but some games don't take some very important empirical matters into account." Fair point about games. But why would the flat tax ignore the marginal value of money, as it is meaningful for both taxpayers in your example? The person making 20k could prefer paying 10% or 90%, but would need to make that argument to others. Similarly, the 200k earner could argue that all pay 10%, but would have to defend the resultant lack in services available to those less well off. We have a tax system that produces revenue similar to a flat rate system, but with absurd complexity and compliance costs, and a nice legal bribery scheme for public officials. That too, is an empirical matter, so I'm not sure what would be lost.
- ds111
August 12, 2011 at 2:33pm
ds111: "A federal exemption meant to make an allowance for part of this is not contradictory, simply a recognition that federal taxation can reasonably (but need not) allow for the higher relative burden on those with lower incomes evident in much local taxation." But I don't think that's the justification for a progressive federal income tax; it's just a result. The justification, as I noted before, is the marginal value of money plus the sense that people who can barely put food on the table should not be taxed at all. So even if there were no state sales taxes (which we agree are regressive if only because the poor have to spend a greater portion of what they earn just for necessities), wouldn't there still be substantial justification for progressive taxation to some degree? Yes, taxes should equalize something. But people disagree about what should be equalized. A head tax is equal in that it requires each person bear the same amount of the burden of running government , but no one advocates it because some people clearly can't afford it. A flat tax equalizes each earned dollar, but again disproportionately affects those who are struggling to make ends meet. A progressive tax tries to equalize something fuzzier: the subjective burden of providing services that we think should be available to everyone. And though that subjective unpleasantness is fuzzy, it seems clear to me that it's far easier for someone making $200,000 to pay $40,000 in taxes than it is for someone making $20,000 to pay $4,000. Those early dollars are more important that the later ones. That's why the marginal value of money matters; it's not about the rates that are needed to fund programs, it's about how to allocate the costs regardless of what those costs happen to be.
- dsimon
August 12, 2011 at 2:52pm
Food on the table could be, and is, a federal spending component. The poor might prefer to pay 50% of their modest income in order to capture the 50% of those with higher incomes into public spending, including for food on the table. Some would, some wouldn't. The flat rate would clear at the then societally optimal point. Everyone would have a direct interest in the clearing rate, a price which would by definition represent what society, in aggregate, was willing to pay for government.
- ds111
August 13, 2011 at 8:05am
Food on the table could be, and is, a federal spending component. The poor might prefer to pay 50% of their modest income in order to capture the 50% of those with higher incomes into public spending, including for food on the table. Some would, some wouldn't. The flat rate would clear at the then societally optimal point. Everyone would have a direct interest in the clearing rate, a price which would by definition represent what society, in aggregate, was willing to pay for government.
- ds111
August 13, 2011 at 8:13am
Very good, ds111. No we can see clearly that your false claims about how much revenue we can raise with various tax structures are merely in the service of your flat tax ideology. As for your comment on Keynes, economists are quite aware that there is a difference between the unemployment that results from the normal changes in the economy, the ebb and flow of demand for particular products, services, and productive processes under the influence of changing tastes, technologies, and resource constraints -- called frictional unemployment -- and the swings of the business cycle -- called cyclical unemployment. Keynes was addressing himself to the latter. With the increase in technological differentiation in job skills, there is also what is called structural unemployment -- the obsolescence of particular individual's skills so that there is no place for them in the economy. There is nothing "phony" about government spending as demand. It is every bit as real, and every bit as sustainable, as private demand. This notion of your is another right-wing canard with no empirical basis at all. You really do have trouble with confusing your politics and your pseudo-economics, don't you ds? The difference between government demand, for real products and services, and private demand is who makes the decision about what to spend and who receives the benefit of the spending. You are ideologically opposes to any sort of democratic, collective decisionmaking about spending and to any spending that delivers benefits to individuals without regard to their tax contribution. You really ought to be in favor of a head tax, but that is so manifestly impossible given income distribution that even you cannot advocate that. So, instead you favor a flat tax. But that has nothing at all to do with economics or prosperity, and indeed is inimical too it. If we really implemented a flat tax with no zero bracket -- a progressive system as dsimon points out -- we would see private demand collapse and high permanent unemployment. I have made the argument for a zero tax bracket up to $250,000 and a 50% rate about that (might have to be as high as 55%). We can raise sufficient revenue that way, particularly with capital gains taxes on the same basis, but you find that objectionable. But that is your ideology talking, not fiscal or economic realities. The impossibility of a flat tax given income distribution would compel a sharp reduction in government spending, and THAT, like the Tea party, is your real ideological agenda, ds111. Flat taxes are merely your version of starve the beast. You are opposed to any government spending that has redistributive effects and to government spending in principle because you think that private choice maximizes welfare. The former is pure ideology, that latter is empirically incorrect for the reasons that dsimon has pointed out to you. The second then gets absorbed into the first as a claim that it is unjust to use the power of democratic government to achieve any distribution other than what the unfettered market achieves, including economic depression if that is what the unfettered market achieves. You are a market idolator who believes that markets are divinely endowed with the ability to achieve just outcomes despite abundant evidence that they achieve chaotic and serendipitous outcomes. They are however very efficient at certain things which is why they serve us. But just why we are compelled to accept the many failures of markets as a cost for using them as a social and economic tool when we do in fact have the ability to mitigate their problems without significantly impairing their utility is a mystery. Libertarian religious zealotry is the simplest explanation. Either way, stop mixing false empirical claims with your ideological beliefs. You are entitled to your ideology, thoroughly obnoxious to most of the civilized world when shorn of its false and magical claims. You don't get to use false and magical claims to sanitize a noxious ideology, not that that isn't exactly what believers in such ideologies routinely do -- communist ideology being your mirror image in that regard. The communist claim that markets are useless and can be replaced efficiently by central planning is a false empirical claim made in the service of a radical egalitarian ideology. The claim that we cannot have the substantial benefits of markets without accepting completely all the outcomes they deliver is equally false. It is a falsehood in the service of a radical anti-egalitarian ideology. Empirically you are wrong, and the history of the last two hundred and fifty years is a good demonstration. Mass production and the wealth that it brings demands on mass markets, and mass markets require a certain income equality. With radical income inequality you reproduce feudalism, subsistence for most, simple technology, and the rich consuming what amount to personal services (even in construction) from the many on subsistence. Do you really want to live in a feudal society, ds111? Do you suppose that most people do even if they believed along with you that it is perfect justice?
- roidubouloi
August 13, 2011 at 8:16am
What by the way makes income taxes sacred? If one is obsessed with the notion that everyone must pay the same tax rate, why not a flat tax on wealth? Given the skewness of wealth, even greater than the skewness of income, we could raise all the revenue we need with what would effectively be a vastly more progressive income tax than even the $250,000 zero bracket I suggest. Somehow, I don't think you would be in favor. But surprise me why don't you.
- roidubouloi
August 13, 2011 at 8:22am
I had meant to agree with dsimon that even two brackets is already a progressive system which is how he cornered you into arguing for an absolutely flat tax with a single rate applied to all income (no doubt exempting capital gains and whatever forms of income of the wealthy you think uniquely worthy). Flat tax my ass.
- roidubouloi
August 13, 2011 at 8:25am
Really Roi? Cornered into what I was arguing for in the first place? What a trick! A stretch even for you. If it was a corner, I was happy to go into it, as that is the logical conclusion, and I commended dsimon for his observation. Yes and all forms of income, tho cap gains only upon exercise, which will delay the take. I believe wealth taxes are unconstitutional - can't remember the section - the framers weren't dopes you know - though property is taxable at the state level, where the tax belongs - competition between the states and all that. I don't give a crap what the rate is, though I do have an expectation of where it would clear. Since the median income is roughly 50k, I would assume that the rate would fall in a range acceptable to the great bulk of earners between 25k and 75k. Seems a no brained to me do you fear that the public would undertax themselves? More later.
- ds111
August 13, 2011 at 8:35pm
So what if the Constitution prohibits wealth taxes (or rather requires them to be apportioned among the states by population)? We had a constitutional amendment to permit income taxes without apportionment. The question is whether you would object to wealth taxes if there were a flat rate. You claim that all you want is for everyone to be treated the same regardless of their circumstances. You don't REALLY believe that, do you? Else let's hear you say that you would be just as happy with a flat wealth tax as with a flat income tax. Or are income taxes one of those sacred categories under libertarianism, another perfect form of justice? Why should taxes on capital gains be deferred? Do you think that when your stock portfolio increases in value it is not a real gain in wealth? I am a mark-to-market trader. I pay taxes in the change in value of my portfolio. Not hard to do as he wealth is real. I will tell you the reason you want to defer them, because overwhelmingly they are the income source of the wealthy and what you really believe in are regressive taxes, as close to a head tax as you can get.
- roidubouloi
August 14, 2011 at 12:12am
Since you believe, ds111, that individual choice is superior to direct government services, and since you seem to allow for flat income taxes to support direct government services such as "food on the table," would your libertarian philosophy tolerate taxing all income at a flat rate and giving every adult who either worked full time, was retired, or unable to work due to disability a flat after tax income grant, to be enjoyed in addition to whatever they earned? Much more efficient isn't it? to give them the money and let them decide how to spend it.
- roidubouloi
August 14, 2011 at 12:42am
Yes I would object to wealth taxes, but not as you imply because I like the wealthy - what a weak and snide commentary, if you were serious, which I wonder. Like AA+, how about CCC+? States can and do tax wealth, directly, though rarely, with intangible taxes, and indirectly with property taxes - indirect because taxpayers can limit them (say, by living in a hovel - some do). And lots of luck with that constitutional amendment. Another straw man. You can do better. Two problems with MTM - you really pay individual tax on your MTM? First, the income fluctuation would create incredible volatility in government revenues. California, and to an extent the US during Clinton, relied heavily on collections from cap gains taxes. The revenue volatility has been substantial and hard to manage. Theoretically govt. could save during good years, but in practice rarely does (Clinton v Bush). Secondly, while gains are unrealized, cash is required to pay taxes. There is a reason strips are rarely owned in taxable accounts, the shad
- ds111
August 14, 2011 at 10:27pm
Something cut out. "...the shadow tax destroys the return over time through negative compounding.
- ds111
August 14, 2011 at 10:46pm
If we are discussing optimal tax policy, of what relevance is the Constitution? None. The Constitution permits progressive income taxes and those were clearly in contemplation at the time the amendment was adopted. Indeed, the first income taxes were levied exclusively on the high end. If we use the Constitution as the standard, and the history of the amendment, then progressive income taxes are the necessary outcome. But you would not be persuaded by that. You still will argue that flat taxes are preferable. The Constitution is quite irrelevant to this discussion. So, would you or would you not be opposed to wealth taxes if the rate were flat? And on what basis? If you say overall prosperity, than you have to defend your preference for flat income taxes on the same basis, and there is no empirical support for the claim that flat taxes, indeed regressive taxes since you would postpone taxing unrealized capital gains, are superior for prosperity. Such evidence as exists is all in the other direction. And there is a reason, as I have explained: Mass markets require mass demand to function smoothly. And mass demand requires that income be not too unevenly distributed. If you do not object to wealth taxes on pragmatic grounds, but on grounds of justice, by what principle do you claim that taxes levied on wealth at equal rates are unjust but taxes levied on income at equal rates are just? Yes, I pay individual taxes on MTM income as it is earned in an LLC, a pass-through entity. For a portfolio of liquid assets, without which MTM would be impossible, this is not at all a hardship. Since there are no capital gains or losses to worry about, the timing of liquidation is of no importance. All the assets are virtually cash and any necessary portion is readily liquidated to pay taxes. There are no adverse impacts on yield, certainly not producing a negative yield, except to the extent that there is no benefit to deferring gains in order to defer taxes. There is therefore no tax-distorting effect of any kind on the portfolio. Not a big deal. Brokers make margin calls based on market value, not realized and unrealized gains. No reason why the government cannot call for its share the same way, especially if there are no longer any tax implications. The volatility of revenues would be a problem for a state funding itself this way. Not at all for the Federal government with its essentially unlimited capacity to issue debt. This would be self regulating as market increases increase taxes and declines produce a flux the other way. Also has the effect of being an automatic economic stabilizer. With stock markets appreciating over time, the Federal government would always be getting a share of the economic gains. Probably a very good idea in and of itself. This would eliminate a major inequity between income from labor and income from capital. You neglected to address whether a flat income tax rate on all income, whether from capital or labor, combined with a flat after-tax income grant to all people who work, are retired, or are unable to work due to disability is consistent with your libertarian principles. Everyone is treated alike. Any problem with that? Based on what? Economic prosperity or your justice principles?
- roidubouloi
August 15, 2011 at 12:01am
Yes, generally I believe individuals are better decision makers, individually and in aggregate, with their own money than anyone else on their behalf. But I've no doubt that many would rather have someone else make decisions for them. Clearly, for major projects, such as roads, dams, airports and defense, it is necessary to have some centralized decision making. But for other public goods, say schools and health care (I understand why you'd disagree here, you've stated your case) and even some degree of retirement security, what you describe - effectively vouchers - might work better if individuals had more say in how the funds were disposed. For instance the Netherlands provides public education funding, but with broad individual choice of school, as did our own very successful GI bill. A zero bracket flat tax (with social insurance taxes folded in and all income taxed at the same rate - income is hard but not impossible to define) could easily raise whatever level of government the public desired - it's pick a number. If all pay the same rate and all decide on the level of public spending, what is the problem? Though I might prefer a lower rate, believing it more beneficial to the overall economy, I might easily be outvoted. So be it. Your suggestion that we would turn feudal is wild unsubstantiated conjecture. The disaster with the Bush tax cuts is that he llowered income taxes across the board while increasing the RELATIVE (sorry lib) share of tax revenues from high earners. Most of the lost revenue is attributable not to high earners but to the middle class. He thought he was helping lower earners out, I believe, and while it was largely nickels and dimes, except for those few at the high end who did indeed benefit the most even if not proportionally, nickels and dimes in the middle really add up. If you rely on high earners you end up with a volatile revenue stream, as today, producing now sub 15% of GDP. Your large-exemption flat tax is impractical for the same reason - income at the high end would likely drop precipitously as more and more tax-marginal earners simply stop bothering to earn more. And contrary to your assertion, it would be a deadweight loss to the economy overall. Why you think otherwise mystifies me.
- ds111
August 15, 2011 at 12:34am
Good questions. Turn everyone into an LLC? Not sure of the ramifications offhand, and suspect they are significant, but it has some curb appeal. Wealth, on the other hand, to the extent it is not unrealized capital gain, has already been taxed when earned. Both the LLC model and the wealth tax appear to have a significantly pro-cyclical impact on revenues, historically disastrous for budgeting. Fine under Keynes, but the political class never follows that proscription in the real world. As if a flat tax is the real world either. Hah! More tomorrow.
- ds111
August 15, 2011 at 1:22am
No, not conjecture at all. If income is widely disparate, it is impossible to sustain a mass market economy. There is a clear and inverse relationship historically and around the world between income disparity and per capita GDP. Your account of the history of the Bush tax cuts is wrong. The highest rate cut was from 39.6% to 35% at the top bracket. Then there were cuts of 3%. Also, since the top 10% alone captures nearly 50% of national income, the losses to tax revenues were overwhelmingly at the high end, top 20%, not in the middle class as you claim. As well, the largest drop in taxes from 1980 to 1998 was at the highest end, 33%, in contrast to about 20% for the top half. The bottom 20% actually saw a very large tax increase because the income tax cuts were more than offset by payroll tax increases. I would say that you got every aspect of this wrong because you didn't really do the research, easy enough to do. You, like seattleng, just repeat the stuff you read in the right-wing echo chamber. There is absolutely no reason to believe that high end income would collapse with top earners no longer bothering to earn money, what you consider a deadweight loss, if they were taxed at 50% on their income above $250,000. Who would decline the next $500 million because they only get to keep $250 million? If it were a matter of consumption, they would have stopped long ago. Most of their income is from capital, not labor. And history does not support your claim. We weren't short of wealthy people in 1980 when their average tax rates were 50% higher than today. What the growing income inequality does do is render the economy unstable and slow growth in labor productivity. What do you mean by pro-cyclical? Taxes decline in a recession and go up in a boom. That is counter-cyclical in the sense it is usually meant, that is, that it tends to dampen rather than reinforce the business cycle, negative rather than positive feedback. Else you could say that employment is pro-cyclical, goes up in a boom, while unemployment is counter-cyclical, goes down in a boom. But they are the same real phenomenon by different names. Can't be pro and counter cyclical at the same time. In fact, employment is pro-cyclical as it is positive feedback to the business cycle, the very reason that the government attempts to use monetary policy to counter it and needs fiscal policy in the case of a severe decline that renders monetary policy ineffective. Declining taxes in a recession are problem for local government, not for the Federal government. Should taxes go up in a recession? The notion of "already taxed" makes no real sense at all. It is purely notional, like claiming that corporate income is "double taxed." It's not double taxed; it just pays a different rate. And I wasn't suggesting both a wealth and income tax. I want to know if you would have a problem with a flat tax on wealth which is even more skewed than income. ________________________ The Forbes 400 vs. Everybody Else According to the most recent information, the Forbes 400 now have a greater net worth than the bottom 50% of U.S. households combined. In 2009, the total net worth of the Forbes 400 was $1.27 trillion. The best information now available shows that in 2009 the bottom 60% (yes, now it's 60%, not 50%) of U.S. households owned only 2.3% of total U.S. wealth. Total U.S. household net worth -- rich, middle class and poor combined -- at the time the Forbes list came out was $53.15 trillion. So the bottom 60% of households possessed just $1.22 trillion of that $53.15 trillion, less than the Forbes 400. Thus the Forbes 400 unquestionably have more wealth than the bottom 50%. By contrast, in 2007 the bottom 50% of U.S. households owned slightly more wealth than the Forbes 400; the economic meltdown has hurt the bottom more than the top. (And in fact, in 2010 the net worth of the Forbes 400 jumped to $1.37 trillion.) SOURCES: 1. Total net worth of Forbes 400, 2009: Forbes 2. Total net worth of bottom 60% of U.S. households, 2009, by percent of total U.S. household net worth: Edward Wolff, "Recent Trends in Household Wealth in the United States: Rising Debt and the Middle-Class Squeeze—an Update to 2007," p. 33 Edward Wolff, Professor of Economics at New York University, is the top academic expert on economic inequality in the U.S. He writes: "A somewhat rough update, based on the change in housing and stock prices, shows a marked deterioration in middle-class wealth. According to my estimates, while mean wealth (in 2007 dollars) fell by 17.3 percent between 2007 and 2009 to $443,600, median wealth plunged by an astounding 36.1 percent to $65,400 (about the same level as in 1992!) ... Trends in inequality [from 2007 to mid-2009] ... show a fairly steep rise in wealth inequality ... The share of the top 1 percent advanced from 34.6 to 37.1 percent, that of the top 5 percent from 61.8 to 65 percent, and that of the top quintile from 85 to 87.7 percent, while that of the second quintile fell from 10.9 to 10 percent, that of the middle quintile from 4 to 3.1 percent, and that of the bottom two quintiles from 0.2 to -0.8 percent." (emphasis added) Note: a "quintile" is 20% of U.S. households, so the middle and bottom two quintiles include 60% of U.S. households. 3. Total net worth of U.S. households, third quarter of 2009: Federal Reserve, p. 1 4. Total net worth of bottom 50% of U.S. households, 2007, by amount: Arthur B. Kennickell, Federal Reserve, "Ponds and Streams: Wealth and Income in the U.S., 1989 to 2007, p. 35 5. Total net worth of Forbes 400, 2007: Forbes 6. Total net worth of Forbes 400, 2010: Forbes _____________________ The Federal budget is about 7% of national wealth. You got a problem with a flat tax on wealth of 7%, bearing in mind that the bottom 60% will pay only $80 billion toward the budget of $3.5 trillion? That's about $1,000 per household, way less than they are paying now in payroll taxes alone. Okay with you? It's the same rate applied to everyone, across the board. If it's not okay, is it on prudential grounds, in which case you are going to have to start getting your economics and your facts right, else you can't make prudential claims, or is it on the grounds of justice? If the latter, why is it unjust? Is there some principle of justice that makes annual income the only just basis of taxation? How could that be possible?
- roidubouloi
August 15, 2011 at 2:07am
Your notion that high-end income would collapse with a marginal rate of 50% is not just wild conjecture but flat-out inconsistent with the history of the world. You know, as in wrong.
- roidubouloi
August 15, 2011 at 2:09am
And here, as if on cue, to make my points about the insensitivity of investment to marginal rates and the negative impact of income inequality and regressive taxation on growth is none other than Warren Buffet in today's New York Times. http://www.nytimes.com/2011/08/15/opinion/stop-coddling-the-super-rich.html?ref=opinion I imagine you are just as mystified that he doesn't see the truth so obvious to you (on the basis of no historical or empirical evidence, only your certainty that reality must conform to your theory about how the economy works -- the Laffer curve that is, your theory).
- roidubouloi
August 15, 2011 at 8:31am
He made my point about tax rates too, eviscerating your claims about the impacts of tax cuts. And, of course, he picks the appropriate period to discuss, 1980, when Reagan began to implement wacko supply-side economic policy fantasy, and the present.
- roidubouloi
August 15, 2011 at 8:33am
Amusing too to read the letters in today's Times on the subject of taxes. There is pretty much one throwing a dart at every one of your mythical claims about taxes and their impact on behavior.
- roidubouloi
August 15, 2011 at 8:42am
The letter writers to the NYT are generally idiots of the first order, so I'll ignore that one. I know he's revered as an investor, but Buffet is a bit of a panderer on this subject. He is right that there is no reason to differentiate between tax rates on income, capital gains or carried interest (tho cap gains are subject to subsequent loss and hedge managers are subject to clawback in the event that things go wrong - normal wage earners dont carry that risk - the recipients can i suppose re-file or use losses to offset prior gain income). I don't like the system now, but don't see the needed changes as hard to accomplish either, just common sense, which is Buffet's specialty. "Back in the 1980s and 90s, tax rates were much higher," he says - 80s and 90s - hmmm. I guess he means that the 15% cap gains rate, passed by Clinton and a republican congress in 1997 was a mistake - I would agree...so? Perhaps you should re-read his article. I don't have any theoretical problem with a wealth tax, mainly a practical and legal one. It would give a great advantage to all but the very wealthiest, and my guess is the truly wealthy would mostly move to Switzerland, only to visit here extensively, but that would be the last chance we'd get to tax them, barring guns in their faces as they tried to flee. Something tells me neither of us want that scenario. Forbes next.
- ds111
August 15, 2011 at 10:18pm
The highest per-capita income countries in the world have been Singapore and Hong Kong - must be something about those Chinese! They also happen to be the most free economically, though changes are afoot in Hong Kong - time will tell - and I'd still rather be here. We've had this discussion before, but I see lower rates as having allowed for the increased reported taxable income, just as more enforcement produces more reported crime. Hence the increasing skew. I've no truck for the very wealthy, but most >$250k earners are decidedly not the very wealthy, who seem - i understand - the object of your scorn. Most are simply high earners, often for relatively short periods of time. I always found it laughable that Kennedy would support higher income taxes, when, like Buffet, they were the taxes that would least bother him or his family. While I share your concern with income and especially wealth disparity, I'd question the methodologies used to arrive at a fair representation. Not to go off on a tangent, but shouldn't the PV of expected SS, MC, and pension benefits count as wealth? It certainly didn't exist in the distant past as such. The permanent income hypothesis would suggest it should be counted, and if so, would have a significant impact on relative "wealth" claims. For example, doctors in private practice must save for their own retirement, whereas a doctor with, say Kaiser, likely earns a pension which may or may not be counted as PV wealth. I suspect there is a lot of work to be done in this area, but to be relevant to public policy, it would need to be an accurate reflection of reality.
- ds111
August 15, 2011 at 10:56pm
My bad on pro v counter terminology. Doesn't change the point. At low debt, borrowing to offset low revenues can work, but it gets problematic at high debt, even in our own reserve currency. Probably not worth discovering the breaking point.
- ds111
August 15, 2011 at 11:07pm
My bad on pro v counter terminology. Doesn't change the point. At low debt, borrowing to offset low revenues can work, but it gets problematic at high debt, even in our own reserve currency. Probably not worth discovering the breaking point.
- ds111
August 15, 2011 at 11:22pm
The wealth of the United States cannot be moved to Switzerland, and American citizens could be taxed on worldwide wealth just as today they are taxed on worldwide income. Do you think that because Clinton did something we are automatically supposed to think it is good? Not at all. We can have whatever revenues we choose to have if we design the tax structure to generate it. Every dollar of GDP is earned by somebody. We just don't count it. We could have progressive consumption taxes too, so that the wealthy would lose the opportunity to generate wealth without taxable income -- that gains deferral -- while spending what they will. The only reason for high deficits is the political refusal to collect taxes. We could balance the budget with taxes on the high end and they would still have a higher share of net income than in 1980. That's why the claim that we have to tax the middle class is false. With 10% of the population garnering 50% of national income, there is plenty there to tax. If the top 10% paid a 50% average rate, the deficit is gone and the still have 1/3 of net income while the other 90% has only 2/3 of net income with even a zero tax rate. The net income shares of the top 10% would be a mere 4.5 times the average net income share of everyone else
- roidubouloi
August 15, 2011 at 11:46pm
And what about a flat income tax with a flat income grant? Any problem wit that?
- roidubouloi
August 15, 2011 at 11:46pm
ds111: "Your large-exemption flat tax is impractical for the same reason - income at the high end would likely drop precipitously as more and more tax-marginal earners simply stop bothering to earn more." Just jumping back in on this one. I don't think there is any empirical evidence to back up the claim that higher marginal tax rates of the kind we're discussing on higher income levels are much of a disincentive to work. Yes, at some tax level the effort won't be worth reward. But I don't see evidence that we're anywhere near those levels. And it's worth keeping in mind that a substantial chunk of income for the wealthy is not through actual work but investments, which may take little or no effort. "I've no truck for the very wealthy, but most >$250k earners are decidedly not the very wealthy, who seem - i understand - the object of your scorn. Most are simply high earners, often for relatively short periods of time." Well, if it's for a short period of time, then they won't wind up paying very much more in taxes, will they? And I think those who make over $250k for an extended period of time are doing very well. I understand that they may have more expenses, perhaps living in a high-cost-of-living area, paying off a mortgage, sending kids to private schools--but that's what they're choosing to do with their money. Median household income is $50k. Five times that is a lot. As for Buffett's op-ed, there's a follow-up article in today's NY Times. This part struck me: "Representative Kevin Brady, a member of the Ways and Means Committee and a Texas Republican, flatly rejected Mr. Buffett’s ideas. 'This is not a serious solution for deficit control or getting this dismal economy on its feet,' Mr. Brady said. 'Economic growth does not follow a tax increase. So as much as I respect Mr. Buffett, his proposal fails on virtually every level.'" http://www.nytimes.com/2011/08/16/business/buffett-calls-on-congress-to-raise-taxes-on-the-rich.html Does Congressman Brady have any recollection, or did anyone bother to inform him, that this is exactly what conservatives said in 1993 and they were not only wrong but spectacularly wrong? And this guy has a vote on Ways and Means...it's hard to get good policy when facts don't matter. At the very least, one should be able to conclude that the overall economy isn't that sensitive to relatively small changes in marginal tax rates, especially at the top. But for many of those in Congress these days, if facts contradict the ideology then the facts must somehow be flawed.
- dsimon
August 16, 2011 at 9:40am
ds111: "The letter writers to the NYT are generally idiots of the first order, so I'll ignore that one." Well, I hope I fall under your qualification of "generally" since I've had numerous letters in the NYT. I do find the occasional dud and wonder how they let that one in, but many of them are informative.
- dsimon
August 16, 2011 at 9:45am
"But for many of those in Congress these days, if facts contradict the ideology then the facts must somehow be flawed." This is the gist of so-called "supply-side" pseudo-economics, dsimon. It has no empirical basis whatsoever, bearing no more relationship to real economics than creationism does to science. But when the evidence and supply-side pseudo-economics conflict, as they they always do, the evidence simply vanishes into thin air. It isn't that the facts are "flawed." For Republicans and supply-side true believers, the facts simply never existed. Hence, one can simply claim that raising top marginal rates will impede growth and cause growth to decline no matter how much evidence there is that the opposite is the case. I've had perhaps a dozen letters published in the Times over a span of years but stopped writing years ago. I can no longer bring myself to write in Times style. This is more fun.
- roidubouloi
August 16, 2011 at 10:54am
More fun, and more appreciated roi...dsimon, I'm sure yours were not among those idiotic letters (btw - the right has its own idiotic version as well). More later.
- ds111
August 16, 2011 at 12:52pm
I agree that it is difficult to identify a marginal rate at which work would be discouraged, other than a very high one, but I suspect 40% fed (plus state and local) is about tops (yes - we've had higher rates, but virtually no one paid at those rates). Roi - I responded prior on the flat income grant in lieu of direct government spending, if I understood you correctly. Much govt spending needs to be centralized and is broad in nature (e.g., infrastructure). Government support for individuals, as with income support, food stamps, health care or schooling can be provided directly by government, or flow directly through individuals in whatever way is most deemed most effective (EITC, vouchers, etc.).
- ds111
August 16, 2011 at 2:58pm
roi: "For Republicans and supply-side true believers, the facts simply never existed." Would that this phenomenon were restricted to economics. Boehner has said repeatedly that we have "the best health care system in the world," despite the absence of any metrics to back up that statement and the clear comparisons with our peer nations. (It seems that the only area in health care where we're consistently first is cost, not outcomes.) What they call "socialized" medicine can't possibly work--and yet it does. Michelle Bachmann is quoted in today's NYT that she'd reinstate Don't Ask Don't Tell because it "has worked very well," apparently ignoring the evidence that allowing people of any sexual orientation to serve openly in the military has also worked very well in Israel, Canada, Britain, and elsewhere--unless she thinks the Israeli Defense Forces are a bunch of wusses. If facts conflicted with my worldview, I'd like to think I'd have the humility to adjust my worldview. But for far too many today, ideology is all that matters. And unfortunately they make up a considerable portion of Congress.
- dsimon
August 16, 2011 at 3:58pm
Just a point. One problem I have with high marginal rates is that they favor the already wealthy, effectively locking in the existing wealth structure. We don't and likely won't ever have a wealth tax, so a high marginal rate (especially a high flat tax capturing all income), effectivelly precludes all but the highest earners from challenging the existing status quo.
- ds111
August 16, 2011 at 4:19pm
The last comment was unintelligible, ds111, completely. If you will accept that, with a flat income tax rate, it is legitimate for the Federal government to deliver personal consumption in one form or another, and that a flat income grant is a better or at least equally good way to distribute personal consumption, you have just accepted a two-tier income tax system with a zero bracket equal to the income grant divided by the tax rate. Congratulations ds111! You have just explained the importance and purpose of progressive income taxation. The claim that no one paid high marginal rates in the past is another one of those claims that has zero empirical support but is necessary to sustain the rickety structure of supply-side pseudo-economics.
- roidubouloi
August 16, 2011 at 6:10pm
Not quite. If you read what I wrote, I don't object to a modest exemption (creating effectively two tiers) under a FEDERAL flat tax, for reasons explained earlier, mostly having to do with first dollar NON-FEDERAL sales taxes and fees which have a greater impact on those with lower incomes. Income above that modest exemption would pay at the same marginal rate on the next dollar of income. I understood your point to be, inexplicably, an income grant in lieu of much government spending - perhaps my bad - effectively vouchers for schools or medical insurance. etc. The model would be the education component of the GI bill. I see we were discussing at cross purposes. (Lib, I would have italicized, but don't know how.) "The claim that no one paid high marginal rates in the past is another one of those claims that has zero empirical support but is necessary to sustain the rickety structure of supply-side pseudo-economics." A claim I believe belied by the fact that income tax collections have averaged 8% gdp postwar. Unintelligible??? Buffet is already wealthy. High income taxes don't bother him, because he doesn't have to pay them, and I'm sure he would take advantage of any opportunity to reduce his taxes (he's already done so, with his large charitable organization - putting his money where is mouth isn't). High (even $200k+) current earners might similarly wish to build substantial wealth, or some version of it. You would deny them that chance with your 50% average rate, leaving the Buffets of the world in a permanent wealth class. Absent a wealth tax, and we don't and won't have one, this would be the ironic result of your proposal. Incidentally, based on his statements, I would hope he would support the kind of first (or close to it) dollar all income flat tax I'm talking about.
- ds111
August 17, 2011 at 3:27pm
ds11: "I'm sure he would take advantage of any opportunity to reduce his taxes (he's already done so, with his large charitable organization - putting his money where is mouth isn't)." Buffett's point isn't that taxes should be voluntary or that people shouldn't pay more than the tax code requires. It's that more revenue is needed and it should come from the wealthy. So these charges of hypocrisy fall flat. We all know that unless taxation is mandatory, asking people to pay less than they formally own is subject to all sorts of free rider problems, so it's useless to ask individuals to just pay more on their own. (I think the home mortgage interest deduction is the most poorly targeted subsidy I've seen, I think we should phase it out, I don't need it, I would have bought my apartment without it, and I'd like to thank you for subsidizing my recent purchase.) "High (even $200k+) current earners might similarly wish to build substantial wealth, or some version of it. You would deny them that chance with your 50% average rate, leaving the Buffets of the world in a permanent wealth class." Buffett is already in a permanent wealth class. Roi's proposal, and treating capital gains and dividends as ordinary income, would at least be better than the current situation, wouldn't it? And I didn't see the Clinton tax rates as being a substantial impediment to a lot of people amassing substantial wealth during the 1990s. One could argue that taxing people making under $250,000 at a top marginal rate of 28% is a far greater impediment towards building wealth than taxing income over $250,000 at a higher rate. In any case, I think the claim that roi's scheme would result in a "permanent wealth class" is unsubstantiated. If you're a Fortune 500 CEO making$10 million a year, you're still going to be very, very wealthy. If you make your money through some fortunate investments, you are also still going to be very, very wealthy. And those in the "permanent wealth class" regardless of tax rates will pay more. I may not agree with roi's proposal, but I'm not sure it would create any more of a permanent wealth class than we have now.
- dsimon
August 17, 2011 at 9:31pm
Dsimon: Agree on the home mortgage interest deduction, and would add the health insurance deduction and the charitable deduction as well. They benefit itemizers, most of whom earn well over the median. I also agree that capital gain realizations and dividends should be treated as ordinary income (cap gains can be deferred until sale, so they would still carry some advantage vs wage income). I am in favor of a flat rate with no deductions and no FICA taxes, at whatever level of government we choose, believing that we will choose best if we are all paying for it. As to high earners (a minority of whom could fairly be called wealthy - well off is not the same) they currently pay a lot - no weeping for them here- so much so that eliminating the Bush II cuts for those over $200/250k only add back 20% or so of the lost revenue. I don't mean to criticize Buffet unfairly, just think his thinking on this subject is neither sharp nor realistic.
- ds111
August 17, 2011 at 11:24pm
ds111: "we will choose best if we are all paying for it." This is the "skin in the game" argument, but I don't see any empirical evidence that backs it up. I don't see why the poor should pay anything if they're struggling to get by (should they really have to pitch in for basic education?). And again, I understand the concern that the majority who are earning less will just vote themselves benefits paid for by those who are earing more, but that just doesn't seem to have happened and so I think that fear is unfounded. (People make the same "skin in the game" argument when it comes to health care, but countries with far less out of pocket expenses than ours get the same outcomes at far less cost; people don't overuse the system even when it seems "free," at least no more than we do.) "so much so that eliminating the Bush II cuts for those over $200/250k only add back 20% or so of the lost revenue." Not sure what "the lost revenue" refers too--all of the revenue lost compared to if the Bush cuts had never been enacted? Anyway, I don't see why that's the relevant lens for properly apportioning the cost of running government. And if we look a the effect on the deficit, there are lots of ways to raise taxes on the wealthy that would make substantial inroads on our fiscal problems. Check my link from 8/16 9:40 am post; that article has several items that would take care of a large chunk of what the deficit "supercommittee" is charged with coming up with.
- dsimon
August 18, 2011 at 6:11pm
Yes, lost rev refers to the Bush tax cuts, all of which should have expired, which Obama could and should have allowed, but did not, based largely on the false Keynesian idea, supported hypocritically by the same repubs who rail against Keynes (unless the topic is taxes) that raising taxes in a recession is a bad idea. The article to which you refer supports what I've been saying: taxing $1mm+ earners, plus raising cap gains and dividend taxes would raise revs a paltry $500m out of $3.5-4T lost from the Bush cuts over the next ten years. Why is this even a credible discussion? Because it is a down payment on a down payment? Keep in mind that our projected out year deficits get progressively worse. Yes it is I suppose skin in the game, but not the same as the health care question, which is I believe quite different. Having informed experts decide appropriate care within a global budget is at least a sound method to provide care to all at a reasonable cost. Whether that makes sense in the US is a different question, with which I might disagree, but it has sound conceptual underpinnings. But determining the global budget, for instance as a % of GDP is very different, and one for which all having skin in the game makes perfect sense. At any rate, while I can't say I agree with your take on the poor, I do appreciate your sentiments. I think the poor more clever than you seem to give credit, and that a flat tax would be understood and appreciated by all. In that respect I view the flat tax as a way to heal certain societal rifts.
- ds111
August 18, 2011 at 10:15pm
Heal societal rifts by having the wealthy have an even larger share of after-tax income. There must be no social means whatsoever to restrain the rich from fucking everyone. Makes perfect sense in the crazy world of supply-side pseudo-economics and Randian savagery. Keynes idea was not deficit financing, but government spending as what is necessary in a recession. As for the Bush tax cuts, how did it happen that raising marginal rates higher than those that Bush cut became something taboo to discuss? Supply-side nuttery and Randian savagery. That is all. When 10% of the population has 50% of GDP, that's where the tax burden has to fall because that's where the money is. We can have the same money we now borrow from the rich by taxing them. And we should. The hyper-ventilating that the wealthy will stop earning money is absurd, a supply-sider lie, nothing more, repeated endlessly.
- roidubouloi
August 18, 2011 at 10:48pm
"You would deny them that chance with your 50% average rate, leaving the Buffets of the world in a permanent wealth class." We used to have inheritance taxes to take care of this problem. At 50%, doesn't take many generations to reduce even the vastest fortune.
- roidubouloi
August 18, 2011 at 10:51pm
As well, since Buffett would be paying 50% on virtually all his money, his wealth would decline just as fast. Your argument is incoherent if Buffett and your nouveau riches are paying essentially the same rate although the lowest earners pay less. But then, there is no limit to the gibberish you can spout, is there? You have lately overtaken seattleeng in that department.
- roidubouloi
August 18, 2011 at 10:53pm
""The claim that no one paid high marginal rates in the past is another one of those claims that has zero empirical support but is necessary to sustain the rickety structure of supply-side pseudo-economics." A claim I believe belied by the fact that income tax collections have averaged 8% gdp postwar." You cannot prove anything at all about the incidence of the marginal rate from the average rate. Complete nonsense, yet again. Got any actual evidence about how many incomes fell in the range of the highest marginal rates in the past? I am sure you don't. But that won't stop you from repeating the claim, without the benefit of any evidence at all.
- roidubouloi
August 18, 2011 at 10:58pm
Here is one empirical answer to the completely unsubstantiated claims of ds111 about the impact of marginal tax rates. Needless to say, reality is the exact opposite of what ds111 claims: http://en.wikipedia.org/wiki/Income_inequality_in_the_United_States#Role_of_presidential_partisanship Several economists have demonstrated that income inequality has grown more rapidly under Republican administrations than under Democratic administrations. Income-tax policy has been cited as one of several factors that contributed to inequality. Republican President Ronald Reagan reduced the top marginal tax rate from over 70 to 28 percent during his tenure in office, which greatly contrasted with the very high top marginal tax rates in place during the period of great income equality, the “Great Compression”.[59] Larry Bartels, a Princeton political scientist, looked at average annual pre-tax income growth from 1948 to 2005, which encompassed most of the egalitarian Great Compression and the entire inegalitarian Great Divergence (up until the time he did his research) and published his findings in the book Unequal Democracy: The Political Economy of the New Gilded Age (Princeton University Press: 2008). His calculations showed that pre-tax income increased overall about 1.42 percent for people in the lowest quintile of the population and 2 percent for those in the top 5%. His research did suggest that income inequality increased under Republican administration and not under Democratic administration. Timothy Noah in the series “The United States of Inequality” summarized Bartels's findings below: In Democrat-world, pre-tax income increased 2.64 percent annually for the poor and lower-middle-class and 2.12 percent annually for the upper-middle-class and rich. There was no Great Divergence. Instead, the Great Compression—the egalitarian income trend that prevailed through the 1940s, 1950s, and 1960s—continued to the present, albeit with incomes converging less rapidly than before. In Republican-world, meanwhile, pre-tax income increased 0.43 percent annually for the poor and lower-middle-class and 1.90 percent for the upper-middle-class and rich. Not only did the Great Divergence occur; it was more greatly divergent. Also of note: In Democrat-world pre-tax income increased faster than in the real world not just for the 20th percentile but also for the 40th, 60th, and 80th. We were all richer and more equal! But in Republican-world, pre-tax income increased slower than in the real world not just for the 20th percentile but also for the 40th, 60th, and 80th. We were all poorer and less equal! Democrats also produced marginally faster income growth than Republicans at the 95th percentile, but the difference wasn't statistically significant.[59] _______________ Most of the job-growth of the last 100 years occurred under Democratic presidents pursuing consciously or unconsciously Keynesian policies. So why again do we need to use the tax system to exacerbate rather than mitigate income inequality when mitigating income inequality is a proven success for growth and aggravating income inequality is just the opposite? Not to mention that there is a sound theoretical underpinning for the benefits of broad distribution of income -- demand that fuels growth -- and no empirical basis for supply-side claims. All the evidence that exists is that supply-side pseudo economics is a failure, as one would expect. Try navigating to Mars based on Ptolemy rather than Newton and Kepler. Not going to work out either. Stick to your Randian justice claims, ds111, odious though they may be. Your attempts at economics are garbage and cannot justify anything. But if you can find even one historical example in US history to justify even one of your supply-side claims, I'll eat my copy of the General Theory of Employment.
- roidubouloi
August 18, 2011 at 11:12pm
Where to start? The is no wealth tax, and the inheritance tax brought in a pittance. As Buffet would be paying 50% on his income, not his wealth, there is no reason to expect his wealth to decline at all. More likely he would produce less income, finding it more attractive after tax, though less optimal, to defer realization of gains as long as possible. Your 50% tax would likely produce less tax revenue than anticipated, forcing you to go back down the income scale as always. Well done there!
- ds111
August 19, 2011 at 7:56am
Oh, have you made a start? On what? Vast fortunes are built through capital appreciation, not by accumulating current income. How about you start there, with reality instead of with your fantastical fictions? Do you think it is not possible to have an inheritance tax that would cut the fortune of a Buffett in half if we wanted to do so? Do you think that the various devices for avoiding inheritance taxes, such as they are -- a panoply of trust devices and who knows what else -- just fell from heaven or are they in fact written into the tax law for this purpose? Your rather absurd point is that people with income north of $250,000 can somehow elbow in on the great fortunes if they pay low taxes. For one, this makes clear that, shorn of all the pseudo-economic bullshit that you spew (it really is horrible nonsense ds111 and you invariably change the subject when one of your colossal economic fictions is backed into a corner), your real aspiration is to allow those with the most to have an ever larger share of the pie. This is your Ayn Rand idea of social justice. The pseudo-economics is just the cover story because you know perfectly well that only a tiny minority of libertarian fruitcakes takes Rand seriously once the pseudo-economic drapery is gone. But, back to the point: If Warren Buffett and your aspiring Fortune 400 are paying exactly the same tax rate, as you hypothesize, how exactly does this allow the aspirants to catch-up and end the current monopoly of the current über-wealthy on their positions? Inevitably, Buffet will consume a lower percentage of his income than the aspirants. Hence, his wealth will grow at a faster rate than theirs. If you genuinely had the goal of not locking in wealth and of social mobility, then you would want the opposite, progressive income taxes and effective inheritance taxes. These would dissipate large fortunes and allow those at the bottom a greater opportunity to accumulate wealth. Lying, hypocrisy, or economic wackery? Pick door number one, two or three. You are behind one of them, ds111.
- roidubouloi
August 19, 2011 at 8:27am
Next. Bartels, really Roi? Have you read the criticism of his methods and conclusion? He made a good faith effort, but merely shifting the base dates one or two quarters, or incorporating economic conditions, wipes out any stastical significance to his claims. GIGO. Back to the drawing board on that one, tough since it fits your preconceived notions. A 25% limited exemption flat tax, with no FICA and taxing cap gains and dividends at the same rate would produce plenty of revenue, 20% GDP or so, and produce roughly the same tax/income distribution as under Clinton and much of the postwar period. It would do so more efficiently and in my view morally (you and dsimon would object). Want to make it 30%, fine, as long as everyone agrees. I'm indifferent as to the level of government spending as long as all share in it's cost in proportion to their income. Seems to me you hide behind Keynesian "demand" as an excuse to take from one to give to another, according to your redistributionist rules. I agree with Keynes "save in good times to spend in bad times" theory - it is farmer common sense, though in practice it is one-tail abused - we never save. Better to keep the fed budget in balance, even with a modest lag for unknowns. We've spent-too-much / taxed-too-little for long enough that we are now at 100% debt/GDP, far more if off-balance-sheet obligations are for real. Do you believe there is a point where Keynes suggestion would hit a wall, or a tipping point, wherein increasing the debt/GDP ratio actually does more damage than good? I believe we are in such a period now.
- ds111
August 19, 2011 at 8:57am
One doesn't need Bartels' analysis. All you need to do is look at the figures on job growth under Democratic and Republican presidents for the past 80 or 100 years. The figures for the Democrats completely swamp the figures for the Republicans. No base dates, no nothing. It isn't even remotely close. You can make all the morality claims for a flat tax you want. Go right ahead. I think they are repellent, but so much so, and so evidently so, that I wouldn't even bother arguing with you. What is grossly objectionable is that you constantly clothe your flat-tax morality in false economic claims. I am still waiting for your one single example of a policy success for supply-side pseudo-economics. Just one will do. There is no basis for the claim that a flat-tax is "more efficient." A two-tier tax, or even three, zero and two brackets, would be every bit as easy to compute if it were shorn of deductions and all income were treated alike so that there was no benefit to trying to shift, in name or in fact, income classifications. Once the taxable income is computed, it actually doesn't matter how many brackets there are in terms of computing the tax. Trivial. In terms of the impact of the tax structure on growth, ALL of the available evidence is to the effect that more equal after-tax incomes is better for prosperity than less-equal (less-equal being the supply-side and Randian claim). As far as debt to GDP is concerned (your claim that "we never save"), another stream of falsehoods. That ratio fell in every postwar administration until Reagan/Bush I when it increased. Fell again under Clinton, then started to rise disastrously under Bush, by design. This was the plan!, so that people like you could then argue for reductions in spending to offset the supply-side wacko tax profligacy. This is indeed but one of the catastrophic failures of supply-side nuttery -- we are harmed both by the failure to collect sufficient taxes and by the decline in progressivity of the tax system since Reagan. Biggest tax cuts at the high end, with actual tax increases, in the form of payroll taxes, at the low end. But, no matter how cataclysmic the failures in the real world, libertarian nuts continue to claim that the only problem is that we were not radical enough in implementing supply-side policies. We were not radical enough in flattening the tax system, it must be absolutely flat by design! Even the fact that Clinton's reversal of supply-side nuttery worked, both in terms of debt and job growth, does not suffice in the minds of the religious zealot libertarians to disprove their flat-earth nonsense. That's because the reality is irrelevant. You believe what you believe on the basis of your Randian ideas about political and social justice. You just don't have the balls to defend your moral beliefs and so insist on cloaking them in false, even preposterous, claims about economic reality. There is no need for the debt to increase as a percentage of GDP. We have only to levy sufficient taxes on those with the overwhelming share of GDP, the top 10% and 20%, and we have no deficit. So, don't give me the crap about a Keynesian tipping point. The debt/GDP ratio is not the result of Keynes, but the result of supply-side idiocy. See point above regarding decline of debt/GDP under every president until the supply-side lunatics came to power and actually began to implement their lunacy -- your lunacy. As far as government spending to GDP, which is the point that Keynes was making, not a point about debt, we are nowhere near any tipping point. See, e.g., WWII and the prosperity that followed. One need not "hide behind" Keynesian demand for any purpose at all. In real economics, as opposed to the creationist supply-side version, it is understood that demand is what drives a modern market economy. The fact is that keeping income not perfectly equal, but not extremely unequal, fuels demand. It is also my idea of justice, that people should be able to reach some norm of personal consumption before they pay income taxes, particularly when the redistribution is still positive for growth. The core idea of libertarianism, that what people earn is the "true" value of their labor or contribution to society, is wrong. Most (probably not wrong to say almost all) high incomes are due to exploiting some market failure or imperfection so as to obtain rents, and then defending that market failure or imperfection zealously so as to sustain the rent. Indeed, this is almost the only reason for direct investment as you can get a market return by buying an index fund. There is real value in terms of innovation and risk-taking to allowing a certain amount of rent and rent-seeking, the reason we have a patent system, a very self-conscious and legally sanctioned form of rent. But the fact that there are benefits does not mean that we are somehow cosmically obliged to accept any outcome of the system, particularly when we can obtain most of the benefits while mitigating the inequities that result. Allowing people to generate rents and then reducing them through progressive taxation, taking back some of the rents for the people from whom they were extracted in the first place, is a perfectly sensible, and just, means of obtaining the benefits of the market without suffering excessively from its extreme outcomes. It also allows the system to sustain itself as secularly increasing income disparity produces instability and collapse. The market and the tax system are both socially constructed and socially determined. There is no inherent justice in either, anymore than there is inherent justice in a steam engine or a micro-chip. These are tools only. The fetishization of the tools and their exaltation over obtainable outcomes, perfectly in evidence in supply-side nuttery, is the path to zealous disaster, as it has already proven to be. The zealots don't care. They want the intellectual and moral simplicity of their purity and don't give a damn what becomes of the people condemned to live in their dystopian hell. When the dystopia shows its head, they just ask for even more of the same.
- roidubouloi
August 19, 2011 at 10:41am
It would be futile to try and eliminate market rents one by one, except in the most extreme cases which is why we do have anti-trust laws and other laws setting boundaries on market behavior. We also have laws, such as environmental laws, to eliminate market externalities that threaten great harm. The sensible, practical response to the existence of market imperfections and the resulting rents is not to try to track them down and eliminate them, but to let them identify themselves in the form of unusually high incomes and just take a nice, big cut, to reduce their adverse impacts on the economy and society as a whole. Practical, doable, effective. In the course of so doing, we undoubtedly take a chunk from those -- Alex Rodriguez, Lady Gaga -- who are only exploiting their own unique talents. Oh well. The world is not perfect. How much should society as a whole suffer, as with flat taxes, to protect the fortunes of Alex Rodriguez and Lady Gaga?
- roidubouloi
August 19, 2011 at 10:48am
Gee, ever hear of Gates, maybe Ellison, Zuckerberg perhaps? Because our society allows and encourages the creation of wealth it produces in meaningful turnover in the composition of the wealthy strata. Wealth has a tendency to dissipate over time and generations, as dumbo Bif blows it. Apparently you don't mind wealth generated through unrealized gains. Well you do, but have no way to get at it other than a wealth tax, which we don't have, and likely never will. So in order to generate the revenues you desire, you tax heavily the income of those who work to gain some semblance of wealth. No question of whether that is fair - it is because you deem it so. What nonsense!
- ds111
August 19, 2011 at 11:02am
I have heard of Gates, et alia. But weren't you the one just lamenting that progressive taxation is preventing new accumulations of wealth? The question is whether you have heard of these gentlemen. Apparently you have but are unable to notice that they make your claims about the disasters of progressive taxation perfectly ridiculous. My answer to the deferral of taxes on capital appreciation is: 1. Strict gift and estate taxes of 50% with no deductions of any kind (other than a zero bracket) including no deduction for so-called charitable donations. 2. An alternative progressive tax on consumption (cash proceeds of all types, including debt proceeds, less cash business investment or increase in cash balances) so that the wealthy cannot consume in excess of their stated income without paying taxes on that consumption as if it were income. 3. Public campaign financing and a complete ban on corporate participation in politics or political speech. 4. The requirement that all communications between government officials and lobbyists be in public -- written communications disclosed and phone calls and meetings recorded and available to the public. 5. Progressive income taxes, with a high zero bracket and as many brackets above that as seems necessary. I suspect two, 50% and 75% (the latter for those really astronomical gains, in excess of $10 million of current income), would more than suffice, but I could live with one taxable bracket in the 50-55% range. All GDP is current so all current spending and taxes only come out of current GDP no matter the value of assets. If you tax the GDP share that goes to the rich, you are doing fine. If they cannot evade because of alternative progressive consumption taxes, you are doing much better. If half the wealth ultimately ends up in the public till, I can wait. Its current value to the wealthy is only income, consumption, and/or the ability to control and manipulate political life. Deal with those, and the system would be manageable.
- roidubouloi
August 19, 2011 at 11:40am
ds111: "ever hear of Gates, maybe Ellison, Zuckerberg perhaps? Because our society allows and encourages the creation of wealth it produces in meaningful turnover in the composition of the wealthy strata." Do you really think any of these people would have acted any differently if their income over $250k had been taxed at 50%? Would anyone be crying, including themselves, that their vast fortunes were slightly less vast? "Seems to me you hide behind Keynesian 'demand' as an excuse to take from one to give to another, according to your redistributionist rules." I have to agree with roi here. That sounds like a Randian tenet. You've agreed in the past that redistribution is a necessary component of government if we're going to provide services that we thing are necessary for all. The question is then how to fairly apportion those costs. It's not about how those who have made it big are somehow more deserving to keep all of their gains and those who are poor should be forced to chip in as some kind of necessary motivation; there are plenty of incentives to do better in our society, as I see few people willingly remaining poor (or trying to become poor) so they can mooch off of the success of others. "No question of whether that is fair - it is because you deem it so." This seems no different from what anyone else is doing--justifying that their system is fair because they deem it so. "The article to which you refer supports what I've been saying: taxing $1mm+ earners, plus raising cap gains and dividend taxes would raise revs a paltry $500m out of $3.5-4T lost from the Bush cuts over the next ten years. Why is this even a credible discussion? Because it is a down payment on a down payment?" Because it represents a good start with even the most modest of proposals. No one says it's a complete solution or goes far enough. Allowing all the Bush tax cuts to expire would solve 75% of our short-term deficit problem, and 40% over the next 20 years (there's another David Leonhardt NYT article on this). That's why we should have this discussion. As the wealthy have garnered more and more of our nation's income, that's where the capacity is to pay for the government services we say we want. Indeed, this is one of the problems facing Social Security: that the increased GDP goes to people whose income is exempt from funding the program, making it less solvent for the long term.
- dsimon
August 19, 2011 at 6:15pm
I disagree vehemently with ds111's notions of what is fair, but I don't object to his making claims about what is fair. I don't even want to argue those because I think they are almost self-refuting in the eyes of most people. I do object to his invocation of phony economics, that have no empirical basis, in order to legitimize his justice claims. The consistent supply-side rhetorical tactic is to make claims that are so outlandish, so preposterous -- such as that progressive rates and inheritance taxes make it more, rather than more, likely that the current wealthiest will remain the current wealthiest -- that people are too stupified to respond. If you are a supply-sider, you just say that tax cuts for the rich are the best course for growth and prosperity even though such evidence as exists is directly to the contrary. To them, the contrary evidence only proves that we have not yet gone far enough. When the economy is a smoking ruin, they will be telling us the same thing.
- roidubouloi
August 19, 2011 at 7:30pm
"make it more, rather than less, likely that the current wealthiest will remain the wealthiest"
- roidubouloi
August 19, 2011 at 10:14pm