Rich People, Ballet, Taxes

Tim Lee says "we have to remember that many rich people give a significant fraction of their wealth to charity...some of us simply suspect that, on the margin, leaving a dollar in the pockets of a rich guy is more likely to lead to that dollar being used for a worthwhile purpose than giving that dollar to Congress to spend...it’s an important part of what drives anti-tax attitudes in broader electorate." Yep: They're not saying "don't tax me," they're saying "I believe these dollars would be better spent by wealthy individuals who really, really, really care about ballet."

But Tim's a stand-up guy, so if he says he believes this, then I believe him. But it seems bizarre. I know of a lot of right wingers who think a dollar left in a rich person's pocket will be more productively used than a dollar given to the government, but I don't know of any who say that that dollar is more likely to travel down the income ladder and guarantee health coverage to the poor, or pensions to the impoverished elderly.

Indeed, if you're searching for a substitute for the social safety net, much of the philanthropy that the rich engage in seems poorly targeted, to say the least. The Center on Philanthropy conducted a study on how much charitable giving was directed to helping the poor. They found that giving to help meet the basic needs of the poor is a mere 7.5% of total giving, while "other" donations that directly or indirectly help the poor are around 23%. The rest goes to alumni associations (a surprisingly huge money suck), arts and culture, and so forth.

Tax Time!

I largely agree with Steven Tele's critique of Michael Lind's tax plan: Big thinking on liberal tax reform should substantially change the tax code, and more to the point, simplify it. Extending credits to payroll taxes may be good for equity, but it's making the system ever more byzantine. This alternative proposal from Mike Graetz, however, is rather interesting:

a) Eliminate the income tax entirely for families earning up to $100,000, indexed for inflation.

b) Impose a flat rate tax on income above that level, at a rate of 20-25% (I lean strongly toward the upper end of the range).

c) Impose a VAT tax at a 10-14% rate.

d) Lower the corporate tax, aligning it closely to the new, lower income tax rates (while also forcing corporations to use the same accounting standards when they deal with the IRS and the SEC).

e) Mike would deal with the EITC's elimination by providing a refundable offset to the payroll tax. I think that my suggestions above could do roughly the same thing, or we could establish some compromise between what I want and what Mike wants.

I'd alter this substantially, noting that taxes would be done automatically for those making up to $100,000 (April 15th will be just another spring day, as the righties like to say), making the rates above $100,000 substantially more progressive, not lowering the corporate tax, and keeping the EITC as is. So maybe I don't much like Graetz's idea. But I do like VAT's, particularly of the sort that exempt the goods the poor buy the most (i.e, food). And more generally, Democrats need to get better at making the case for dedicated taxes, like a 4% VAT that pays for health care. Taxes shouldn't be giving money to the government for unspecified purposes. They should buy things.

The Politics of Taxes

Responding to a poll showing robust majorities support raising taxes on the rich in the US, Germany, the UK, France, italy, and Spain, Andrew Leonard writes:

For a citizen of the United States such as myself, who has watched Republican presidential candidates campaign, mostly successfully, on the holy writ of tax cuts for the rich since 1980, these poll results take on a dreamlike quality. What alternate reality is this, where the rhetoric of a quarter century is suddenly turned on its head? As recently as just a few years ago, if you tried to suggest that government should consider raising taxes on the wealthy, the notion was immediately dismissed as a throwback to the "failed redistributive policies" of the past. But now it's all the rage.

I don't have the numbers from the 80s in front of me (does anyone know of some good sites that allow you to compare historical poll data?), but in 1992, 77% of Americans thought the rich were paying "too little" in taxes, and I'd bet that number didn't dip below 50% in the preceding years.

It was never the populace dismissing taxes on the rich as "the failed redistributive policies" of the past -- it was the elite. In other words, the rich. And they happen to have a lot of power in our system -- and that power (and money) has gone, in no small part, to convincing Americans that their tax burden is too high, and that cross-the-board tax cuts are the only answer. But it's important to note that there's never been any campaigning on "tax cuts for the rich." There was just a lot of campaigning on tax cuts, and anti-tax sentiment, followed by policies that quietly amounted to tax cuts for the rich. And all of this was enabled by the media, which derided tax increases as failed redistributive policies, and happily pocketed tax cuts for themselves...

Viva Le Tax Simplification

It may indeed be true that Wyden is exaggerating, and even a very smart tax reform will leave some number less than all Americans completing their taxes in under an hour, but that number could still be quite a bit larger than it currently is, which makes it a goal worth striving towards. And lord knows we're not near the upper end of easy tax payments. Not only is the structure itself overly complicated, but it's been two decades since the last significant clean-up of the tax code. The accumulated loopholes and detritus are long overdue for examination.

Additionally, tax simplification is the sort of policy which would make a great many people very happy at just about no extra cost to the government. Which makes it all the more important to do. Most of the great gains in policy are to be made addressing the needs of the worst off. But most of the votes come from the massive middle. For these folks, the country actually works fairly well, if not perfectly. To institute policy that will substantially improve their existences through material transfers is, given their size, prohibitively expensive and politically difficult. But policy can improve their lives in other ways.

To simplify their dealings with government and make their lives at tax time 2008 simpler than they were during tax time 2007 is both (conceptually) easy and substantively worthwhile. And it can be a good that increases middle class support for a policy that also includes more serious reforms that aid the poor, like simplification and unification of the forms that govern benefits (see Max Sawicky's proposal here), getting the IRS to do the taxes of 50 million Americans themselves (see Edwards' proposal here), or taxing work income at the same rate as wealth income (see Wyden's proposals here). Simplification can work in service of progressive reform.

And finally, the perception of a complex tax code is bad for liberals. The more folks look at the loopholes and exemptions and deductions and forms and judge -- correctly! -- that the system can be gamed by those with the money and time to cheat, the more they'll feel like suckers for paying their fair share, and the more receptive they'll be to tax cuts and the dulcet tones of Grover Norquist. A system that obviously treated everyone the same would leave fewer fols feeling like dunces for cooperating with it.

Leave The AMT Be

Daniel Gross writes:

The Republicans' main argument against Democrats is that they'll raise taxes by letting the Bush tax cuts expire in 2010. Fix the AMT now and it will simply allow Republicans to argue that the Democrats are raising taxes in 2007 and 2008, too. What's more, fixing the AMT permanently provides all the drawbacks of responsible tax cutting with none of the benefits. The point of fixing the AMT is to shield millions of Americans from future tax increases. But Americans, who are instant-gratification addicts, would sooner vote for somebody who cuts taxes by $1,000 today than for someone who spares them a tax hike of $2,000 tomorrow.

Would Democrats suffer political backlash? Probably not. The AMT's victims will be concentrated in states in which Republicans are not likely to be all that competitive in 2008. In the home of Bushenfreude, middle-class and well-off voters already tend to blame Bush and his Republican associates for everything that has gone wrong. And well they should, given the GOP's shocking fiscal irresponsibility under Bush. It would be easy to fault them for the AMT crisis, too.

When the crisis peaks, Democrats can offer their alternative: fix the AMT, which would then be hitting millions of middle-class voters by rolling back the Bush tax cuts on the very rich. That's a political argument they will win. What they shouldn't do is try to repair the AMT problem too soon, before the catastrophe next April. Fixing it before taxpayers feel the sting would be better fiscal policy—but lousy politics.

That's a plausible read. What worries me, though, is that rolling back the Bush tax cuts to do nothing save replace portions of the AMT is a revenue neutral strategy. Democrats need to actually raise revenues for things like health care -- and part of that may mean restoring the tax cuts under the rationale of channeling that cash towards universal coverage, as John Edwards is promising.

That said, Gross makes some good points on the politics of taxes. Waiting till next year, with the expiration of the Bush tax cuts and the roaring return of the AMT will allow for quite a bit of energy behind tax reform. That moment should be used not simply to fix the AMT, or to roll back the Bush tax cuts, but to actually reform the tax code, as needs to happen every couple of decades when the numbers of deductions and quirks and loopholes and cheats becomes too unwieldy. A more flexible, fair, and progressive structure would be good for the country's fiscal situation and good for progressive priorities into the future.

Democrats and the AMT

I sort of wonder whether Tyler Cowen actually read this article on Democratic attempts to reform the Alternative Minimum Tax. Responding to the news that Democrats are "preparing legislation that would permanently shield all but the very richest taxpayers from the alternative minimum tax," Tyler writes, "this rather non-egalitarian policy, very costly in terms of revenue, is the Democratic attempt to reward their wealthy urban and suburban supporters...It was ugly what years and years of power did to the Republican Party. The particular interest groups will differ, but I do not understand why the progressives expect anything different better from the Democrats."

First, it's not costly in terms of revenue. As the article makes clear, the discussions now are how to actually replace AMT revenue. So the question is really what mechanisms they'll come up with to do that -- and for now, we simply don't know. Rahm Emmanuel, apparently, wants to replace it with new taxes on the rich. That would be all sorts of fine with me. It would be not only be more egalitarian, it would be more progressive. Alternately, using AMT repeal as a pretext for comprehensive tax reform would also be a damn good idea.

Moreover, the reason Democrats feel the political pressure to do this is a series of cynical fiscal decisions made by the Republicans. Bush's tax cuts dropped the tax rates without changing the AMT. Without them, 16 percent of Americans would have paid the AMT in 2010. With them, that number explodes to 33 percent. Here's how this looks:

Worse, the Republicans temporarily exempted millions of families from the AMT for the last few years in order to make the tax cuts seem more sustainable and remain more popular. But all their budget projections admitted the return of the AMT -- which will now be all the more onerous and surprising, and which unsuspecting taxpayers will be all the likelier to rebel against. Democrats, who actually want to keep their majority, have to do something about the various fiscal landmines Republicans have littered across the landscape. But the question of who benefits from their Democrats' proposed policy fixes can't actually be answered until we know what those fixes will be.

Baucus And Grassley Try To Screw Up The Country

Sebastian Mallaby's got a terrific column today blasting the the senseless, fiscally irresponsible team of Max Baucus and Chuck Grassley, who've decided to declare war on the Alternative Minimum Tax while eschewing any talk of replacing its $750 billion in revenues with anything new.  Baucus appears to think increased tax enforcement will make up the shortfall, which is akin to replacing your job income with change gathered behind the couch.  Grassley, meanwhile, is taking a brave stand against the economics of taxation: "It's unfair," he blustered, "to raise taxes to repeal something with serious unintended consequences like the AMT!"  I sort of hate to do this, Chuck, but remember those tax cuts?  The ones you voted for?  Here's what they did:

The AMT, which was created to ensure the rich couldn't deduct and shelter their way out of taxation, was created in 1969.  It kicks in when folks making above a certain income pay below a certain tax rate.  Not indexed for inflation, the share of the electorate paying the AMT grew over the past few decades.  Bush's tax cuts, however, sparked a massive drop in rates, bringing millions under the limits and exploding the AMT's reach.  Without them, 16 percent of Americans would have paid the AMT in 2010.   With them, that number more than doubles, to 33 percent.  This reckoning was put off the by tax cutters in the form of a temporary exemption from the AMT, an irresponsible little shell game meant to superficially improve the budget projections they used to sell the cuts, thus making them look more fiscally responsible.  That the  very same tax cutters -- like Grassley -- are now seeking the AMT's repeal without any replacement shows the depth and cynicism of their deception the first time through.  And here's the consequence:  In 2006, 3.5 million taxpayers paid the AMT.  In 2007, that'll shoot up to 23.4 million.

The hope of most policy wonks is that the AMT will provide the impetus for a wholesale restructuring of the tax code -- possibly in the direction of something like Ron Wyden's Fair, Flat, Tax Plan. Some even suggest that the AMT could be modified into the only tax rate and the words "Alternative Minimum" simply struck from the phrase.  There's some precedent for reform at this point in Bush's presidency: Ronald Reagan, weakened and looking for accomplishments by the last two years of his term, largely accepted a plan championed by Dick Gephardt and Bill Bradley which largely became the Tax Reform Act of 1986.  But what Baucus and Grassley are pushing isn't reform: It's fiscal demagoguery, and they should be roundly criticized for the offense.  Is it really so much to ask that the Chair and ranking member of the Senate Finance Committee betray a working knowledge of finance?

Taxing The Rich

At a New America event today, James Glassman (author of the hilariously wrong Dow 36,000) turned his characteristic insightfulness to inequality. "We've done all the redistributing we can do," he helpfully informed the audience. The poorest 50% only pay 3% in federal income taxes!

I was reminded of Glassman's by Mike's excellent comment on the inequality post from earlier today:

The cost of government should be funded in accord with the percentage of assets owned and earned. Here are increases in national debt for the past few years. Note, increasing national debt shows the full extent of deficit spending.
9/29/2006 $574,264,237,491.73

9/30/2005 $553,656,965,393.18

9/30/2004 $595,821,633,586.70

9/30/2003 $554,995,097,146.46

9/30/2002 $420,772,553,397.10

9/30/2001 $133,285,202,313.20

9/30/2000 $17,907,308,271.43

Here are the taxes paid by quintile.

Here is a pie chart of wealth distribution.

As you can see from this chart, the bottom 50% owns 2.6% of the wealth; they are therefore overtaxed because their tax burden is 3.4%. The top 10% own 69.9% and the remainder, the 40% between the top 10 and the bottom 50% own 27.4%. That totals 99.9% of American wealth. Note, the chart is dated 2001. Since then, the upper groups have gained wealth, the lower have lost.

There is a correlation between wealth owned and income earned, but note; there are families with great wealth and low income because the wealth is considered unearned: from stocks, bonds, and other sources aside from the weekly paypacket.

It is clear that the Federal taxes are too low by 575,000,000 in order to meet federal expenses and that the people owning America are drastically undertaxed because they are in no way paying their fair share, which is under 65% when it should be over 70%.

Therefore, all talk of the rich being overtaxed is bunk.

There's also, of course, payroll taxes, sales taxes, user fees, taxes on goods, and all the other regressive charges laid on by the government and helpfully forgotten whenever wingers want to make the point Glassman is. But as to his direct argument, Mike gets it right: We're not even taxing the rich in proportion to the share of the economy they control. Forget taxing them beyond it.

Laughing at Laffer

Via Mark Thoma, an IMF working paper studying flat taxes worldwide has just come out, and it's results aren't terribly encouraging for supply-siders:

there is no sign of Laffer-type behavioral responses generating revenue increases from the tax cut elements of these reforms; their impact on compliance is theoretically ambiguous, but there is evidence for Russia that compliance did improve; the distributional effects of the flat taxes are not unambiguously regressive, and in some cases they may have increased progressivity, including through the impact on compliance; adoption of the flat tax has not resolved common challenges in taxing capital income; and it may have strengthened, not weakened, the automatic stabilizers. Looking forward, the question is not so much whether more countries will adopt a flat tax as whether those that have will move away from it.

The Laffer Curve, folks will remember, is the idea that lowering tax rates increases economic growth and thus results in more tax revenue. In other words, tax cuts increase tax revenue. It never made much sense (save in regimes with truly exorbitant tax burdens), but conservatives predicated their support for tax cuts and a flat tax on the theory anyway. Now it's clear the theory is shite. On the bright side, another claim of flat taxers does look promising -- that if you make the tax easier to comply with, compliance will go up, and there will be more revenue because of decreased evasion.

The sterling reputation of flat taxes has largely come because money of the countries who adopted them saw rapid growth and success in the succeeding period. The authors of the study, however, don't think the flat tax deserves the credit:

The flat tax has commonly—almost universally—been adopted by new governments anxious to signal a fundamental regime shift, towards more market-oriented policies. In several cases, the signal appears to have been well-received. Where no such reputation needs to be acquired, the appeal of the flat tax is consequently less.

So the adoption of the flat tax has been a big signpost by new regimes claiming themselves free of old, anti-business nostrums and open for new investment.

Taxing the Rich Until They Don't Exist

By Neil the Ethical Werewolf

As you often read, the top tax bracket back in the late 40s and early 50s used to be high.  I mean, really high.  I'm talking about tax rates in the over-90% range.  And somehow, economic disaster didn't befall America.  Young liberal fellows like myself are often heard talking up Clinton and the 1990s as evidence that raising taxes makes for a happy economy (and obviously a low deficit), but look at the chart I've linked to and you'll see that the American economy did very well with much higher tax rates than we had even with Bill in charge.  The 1950s offer one example.  And the tax hike Bill brought us was nothing compared to the jumps we had in the past.  In 1916-1917, the tax rate on incomes over $2 million goes from 15% to 67%.  Granted, hardly anyone was making that kind of money.  But it's still quite a jump.

So when people ask -- "How are we going to fund free preschool and Medicare for all and all those other great liberal ideas?" -- shouldn't "raising the top tax bracket to something like 60%" be part of the answer?

Taxing Wealth

Apparently, the Wall Street Journal has been using Sweden's elimination of the estate tax to make the "even-the-Marxists-are-doing-it" argument for repealing our own. Putting aside the fact that Sweden is not often used as exemplar of the sort of taxation system the WSJ would like, liberals should offer a trade: we'll do what they did if we can do what they do:

But let’s say [the Wall Street Journal is] right, at least about Sweden, and U.S. tax policy should become more like Sweden’s. In that case, the United States would repeal the estate tax. But if death would "no longer be a taxable event," accumulating wealth would become a taxable event—annually. Unlike the United States, Sweden imposes a tax of 1.5% each year on the net worth of single-adult households in excess of 1.5 million kroner (or about $198,500), and above 3 million kroner for couples.

Okay, I'll buy that. Conservatives have been very effective at using the estate tax's counterintuitive nature to bury it in the thunderdome of public opinion. Democrats might want to think up similar strategies. Because it's hardly a tricky argument to say that the key to a healthy economy are the correct incentives for growth and innovation, not past fortunes and unearned inheritance. A small tax on wealth that could be channelled towards modernizing schools, subsidizing Pell grants, and freeing business from health care's onerous costs (by nationalizing it, naturally) is a perfectly intuitive way to approach taxation. Think The Wall Street Journal would agree?

Flat Tax?

Brad Plumer's got a very strong post poking holes n the supposed magic of "The Flat Tax". Read it. And remember this -- there's nothing complicated about taxation. You make X dollars a year, you multiply that by the percentage you should pay, and you mail off a check. See? Easy as pie. It's not paying taxes -- getting exemptions and credits and deductions and so forth -- that's complicated. So when Republicans begin advocating for flat taxation, call it what it is: an assault on the progressivity of the system. They don't want taxes to be easier, they want them lower on the rich and higher on the poor. This debate isn't about simple taxation, it's about simple fairness.

The Ancient Wisdom of Refundable Tax Credits

By Neil the Ethical Werewolf

One of the coolest things about this blog is its emphasis on making complex policy issues accessible to those who never had a chance to learn Tiger-Style Wonk Fu from the ancient masters. As my duty to Ezra's dojo, I here present a list of three things that one can do to reduce people's taxes -- giving them refundable tax credits, giving them nonrefundable tax credits, and giving them tax deductions. I've listed these from best to worst, in order of how much they do to help the poor. What are they, you ask? And why does anyone need to know about them? Patience, Grasshopper: look below the fold and you shall understand.

Getting a $2000 tax credit means that your tax bill goes down by $2000. If it's a refundable tax credit, it can reduce your tax bill below zero. This means that you pay negative taxes -- the government ends up giving you money! If your tax bill is $500, and you get a $2000 refundable tax credit, the government sends you a check for $1500 and you don't have to pay any taxes. (This $1500 refund will be added to whatever the government refunds you from having withheld too much from your monthly paychecks, so the actual number on the check might look higher than that.) The Earned Income Tax Credit is one example of a refundable credit. It's a great way to stuff the frayed purses of the poor -- while they don't make enough money to have a high tax bill, the government just ends up giving them much-needed money.

Nonrefundable tax credits aren't quite so nifty. The difference between them and refundable tax credits is that they can't drop your tax bill below zero. So if your tax bill is $500 and you get a $2000 nonrefundable tax credit, your tax bill just goes to zero. You don't pay anything, but the government doesn't give you the extra $1500. (They will, of course, refund you whatever they withheld from your paychecks, but it doesn't come with an extra $1500.) This doesn't do an enormous amount lot for poor people, because of the progressivity of income tax rates. Since people in lower tax brackets typically have very low tax bills, nonrefundable tax credits just reduce their taxes a short distance to zero, and don't give them any money. To wealthier taxpayers, however, a nonrefundable tax credit is often just as good as a refundable one. They're paying enough in taxes that there's really no chance of their bills dropping to zero.

Tax deductions do very little to help the poor. If you get a $2000 tax deduction, $2000 of your income goes untaxed. If you're in the 15% tax bracket, like poor people often are, you save $300. Rich people do a lot better with tax deductions. If you're very rich, you might be in the 35% tax bracket, and a $2000 tax deduction saves you $700. Often, Republicans propose that some area of spending -- say, spending on health insurance -- be made tax deductible. This does very little to actually help poor people get health insurance. If you're too poor to afford insurance, a 15% off coupon isn't going to help you. But if you're a very rich person who already has money for insurance, a 35% off coupon will put money in your pocket.

Now you are learned in the ways of tax policy! Perhaps you will want to see the lessons of today in action, as you read of a valiant Democratic Congressman's struggle to expose the uselessness of tax deductions for health insurance.

Where To Now?

This Business Week editorial is about the best thing I've yet read on Bush's upcoming tax reform (italics mine):

one of the mandates President Bush gave to the tax panel was that its recommendations should raise about the same $2 trillion that the feds currently collect annually. That means any changes will shift, not lift, the tax burden. So there will be winners and losers aplenty. Should we eliminate all taxes on capital assets like stocks or bonds, stimulating investment but giving the wealthy a windfall? Will Americans accept an easy-to-understand flat tax or consumption levy if the cost is the end of deductions for state and local taxes or home mortgage interest? And which business taxes may have to be increased by $600 billion over the next decade so the unpopular alternative minimum tax for individuals can be eliminated?

Such tough choices are sure to elicit howls of protest from the public and business, each eager to protect existing tax preferences. That's why the Bush Administration should be preparing a fallback plan of less ambitious tweaks to the current system, such as partial AMT relief, and moves to improve tax fairness, such as tilting savings incentives more toward lower-income groups. The Treasury should also launch a big effort toward tax simplification. There are myriad confusing, often overlapping tax policies -- for instance, there are currently more than a dozen tax-advantaged savings incentives -- so simply bringing some order to them would go a long way toward making Apr. 15 easier to stomach.

Ideologues will surely call this small thinking that misses an opportunity to impose some much-needed discipline on our runaway federal budget. But tax policy shouldn't be used as a backdoor means to effectively starve government. If Americans want smaller government, they should demand that their elected officials show fiscal discipline and curb spending. Taxes then can easily be lowered.

I'm a bit confused as to where he wants to go with this. Clearly, given the timing, Republicans want to focus the 2006 election on taxes, their strongest issue. But how? Assuming Bush really does pick from the menu his commission offers, all choices will be revenue-neutral. That means, as Business Week says, that he can shift the burden, but not change it. We know he's not going to ask the rich to shoulder more nor push it on the back of corporations, so where does it go, the middle class? If he eliminates loopholes in a simplification effort, won't he have have to raise tax rates? If he endorses a consumption scheme, won't he be slaughtered over the 20%-30% sales tax it'd mandate? Won't tiny changes be too small to act as an effective issue in 2006?

He could, of course, ignore his commission, but that'd be a strange move too, and with deficits as they are, congressional and public appetite for tax cuts don't make for a straight shot. So where are the politics of this? According to polls, they're in raising rates on the rich. But that doesn't help Bush at all. He may, in the end, follow the Homeland Security Strategy and endorse something broadly popular with a single provision that Democrats can't swallow, thus destroying their support and putting them on the wrong side of a key issue. But tax theatre ain't nearly so compelling as terrorist theatre, and I can't imagine the weakened Bush we see now could make it work.

So where does he go?

Two Cents on Taxes

In their special report on tax politics, the American Prospect made a good point.  Considering the current fiscal situation, Democrats are going to have to learn to advocate for higher taxes again.  Yes, it sucks to be the grown-up after the Republicans have crayoned over the budget's walls and urinated on the fiscal sofa, but somebody has to do it if our revenues are to be brough in line with the sort of progressive role for government we envision (and that George Bush, through NCLB and the Medicare drug benefit, has helped actualize). 

Generally speaking, we rhetorically approach this through soaking the rich.  Most everything advocated by a Democratic candidate last year was supposed to be paid for through rolling back the tax cuts on the wealthy.  Not even raising their taxes, just rolling back the decrease.  That won't cut it.  As someone in the blogosphere said (I forget who), you can't pay for everything through the estate tax, you can't fund all dreams on the backs of the rich.

And that, to some degree, has been the Democrats' problem.  But it seems to me that the solution is realizing you can fund something through the estate tax, through rolling back the tax cuts, and through other targeted and non-targeted tax increases.  Indeed, the Democrats are really in trouble when asking for broad-based, vague tax hikes.  If you nail everyobdy and don't tell them what it's for, don't be surprised when folks would prefer not to pay.  But dedicated revenue streams are another story.  What if we reinstituted the estate tax and dedicated it to Social Security?  What if we rolled back the tax cuts and put half the revenue towards the defict and half towards shoring up Medicare?  What if we instituted a VAT to fund universal health care, or raised taxes on everyone by 2% (or some amount) to institute single-payer health care?

The point is, Democrats need to make taxes about programs rather than paychecks.  The country is ideologically conservative, which is to say theoretically selfish, so if you ask them to give up more money to fund unknown government projects, a "no" response shouldn't exactly shock you.  But the country is also operationally liberal, so if you tell them you need some more money specifically and solely to fund something they like, that's a transaction as much as a tax increase, and it engages the liberal side of Americans as surely as it does their conservative halves. 

Democrats will have to raise taxes, the only question is how.  Approaching it like a sale -- you give us money and get some predefined benefit in return -- strikes me as a much more common-sense approach than vague pronouncements about the deficit or investment.  Ask for the money, explain what it'll buy, lock it into place (with the constraints on the revenue being sunsetted after five years to preserve future flexibility), and argue for it in context of a program people like, not a tax increase they never willl.

What Rights There Are

On my own blog, I never got around to commenting on the post where Ezra argued against the libertarian who said:

Let's talk about health care for a minute. Health care is certainly a need, but it is not a right. And all the high sounding rhetoric in the world that says otherwise is baloney. Rights don't involve, involuntarily, the assets of others. Any 'right' to health care would make exactly that sort of demand on the assets of health care workers.

Don't let libertarians get away with this. It's really hard to defend a notion of rights that doesn't involve, involuntarily, the assets of others. Consider the right to vote. For you to exercise this right, there need to be voting machines and ballots and people hired to count the ballots. Keeping a poor person from voting because he didn't have money to contribute to these things would still violate his right to vote. For his rights to be respected, others' assets would have to be deployed. Or consider criminal justice. For property rights to be respected, victims of theft need to have their property returned to them, and criminals must be punished. This process requires lots of assets which the victims might not have. In short, the libertarian restriction on rights can't be maintained.

--Neil the Werewolf

The People's Debt

I thought I might chase The Ethical Werewolf's notes on The People's Money with a snapshot of The People's Debt.  I've been following this story for several months, and I've noticed that it doesn't get much air time.  The essence is simple.  Assume the Republican Party makes all of its recent regressive tax changes permanent (but does not go farther down that path) and then only increases discretionary spending with GDP (by among other things, not debt-financing colonial adventurism).  By 2040, almost every penny that the Federal Government takes in goes just to pay the interest on the national debt.  For those who are curious about what that looks like, there's a chart below the fold.

That's not my opinion.  That's the opinion of the General Accounting Office, based on a middle-of-the-road set of assumptions.  And yet, the Republican Party talking points are that Social Security is bankrupt because in 2042, the Social Security Trust Fund will be depleted, and the amount of money then coming in earmarked for Social Security will only be enough to pay between 70% and 80% of the then-scheduled payments (again, based on a middle-of-the-road set of assumptions).

If the Republicans can't tell the difference between these two situations (and apparently, they can't, or they'd be far more worried about the General Fund than Social Security), they really shouldn't be trusted with the The People's Money to run the government.  Frankly, The People should probably think twice about whether the Republicans can even be trusted with The People's Ten-spot to buy The People a six-pack at Circle K.

- paperwight

A Bit More on Taxes

Kevin and Duncan* both point out that the VAT (see post below) is somewhat regressive. True 'nuff. So why do it? Mostly because it's safer than the alternatives. Reasoning below the fold.

The two main ways of raising revenue are increases in the income tax and hikes (or implementation) of a variety of small bore taxes (estate, gasoline, tobacco, etc). Kevin recommends the latter route. Generally speaking, I'm for it, but not when we're creating a dedicated source for a specific program. When a variety of mini-taxes are around, it's easy for Republicans to pick off just one or two unpopular ones and thus destabilize the whole endeavor. They did it with the estate tax, but that, at least, was just general revenue. What if it had been supporting only health care? A gasoline tax would prove, I fear, similarly vulnerable.

Option number two would be an income tax hike. Problem there is that the income tax covers so many things (general revenue, after all) that it's easy to cut it simply by invoking a handful of unpopular programs and accusations of government waste.

So to be clear, I'm all for raising revenue those ways -- a gasoline tax is especially crucial -- but I don't think they're functional or secure as dedicated sources of revenue. In contrast to their fluctuations, look how stable the payroll tax has been. Despite being the most in-your-face of the taxes, it's rarely been mucked with. Mostly, I think, because it's supremely clear about what it does. As a single tax with no other targets that pays for a program with no other sources of revenue, it's much tougher to attack. The VAT would enjoy similar clarity of purpose.

As for the regressiveness of the tax -- it's true, it is a bit regressive. You could create exemptions for basic food stuffs and the like, as they have in Europe, but I don't quite think you need to. A 3-4% VAT wouldn't be so regressive as to pose a serious financial problem to the vast majority of folks, and those who did feel it would end up quite a bit ahead thanks to the health care the tax provided.

* Duncan's probably right on his quibble with me re: the application of the tax. He is, after all, an economist. So go read him on it.