That's my TL;DR equivalent for the disturbing blasts of WTF that National Public Socialist Radio throws at me in the early morning. Too Early;More Coffee.
The WTF this morning is some economic forecast group changing their growth forecast down from 3.2-ish to 2.85-ish (again, TE;MC). Weird thing is that job growth is up, unemployment down, in this lower growth forecast. Consumer spending down, though.
Do you see the WTF? How the hell were we supposed to have gotten that jobless spending growth in the earlier forecast? Did the yacht bubble not happen? Does this jump out at anyone else as somehow just facially wrong? Not incorrect wrong--Celine Dion's cover of "Highway to Hell" wrong.
Monday, May 16, 2011
Tuesday, May 10, 2011
Trying not to "me too" what is already just being killed elsewhere
Seriously. I'll be adding the Great Orange Satan to my blog roll, too. Benen's WaMo blog and GOS do broad coverage of so much stupid, and BJ and Krugthulu hit their marks hard. So rather than do a "me, too" that could have gone into any of their comments, I'll pick on different stupid.
Edit: speaking of killing it, Boehner is absolutely crucified by Political Correction. Seriously, find some time to at least scroll through to see just how hard a take-down it is, even if TL;DR.
And this is frivolous stupid to cover because he won't win. Which he? The stupid flavor of the week who won't win. No, not The Donald the Birther. Herman the [atrocious] pizza man. He won't win the nomination, but he did get the nod at the South Carolina geek show. One of his idiot positions is advocacy of the "Fair [sic] Tax". Stupid policy is stupid, especially when stupid policy is a bad prescription for the actual current crisis.
The "Fair [sic] Tax" is a consumption tax in the form of a retail sales tax. A consumption tax could also be implemented by exempted savings or investment, as through an IRA, but then you wouldn't get to offer up the red meat of killing the IRS. Never mind that the Dept. of Treasury would need to implement a new bureaucracy to institute this fevered fiction.
Today I'll look past the touted fiction of the tax rates necessary to meet our revenue needs (probably 50%-ish by most realistic estimates) and how retail sales taxes and their kissing cousin the Value Added Tax, are easily and notoriously evaded. I'll just look at the main benefit promised, and how it's a load of horse shit.
The problem with the current income tax system, we're told, is that savings and investments are taxed twice, once when the money was earned in the first place, and a second time on the earnings from the investment. If the money was just spent for current consumption instead of investment, it's only taxed when earned. To me, income is income is income, and it ought to be part of the tax base, but we'll let that pass, as well as the nonsense that any more is taxed than the accretion on top of the invested principal. A consumption tax, it is promised, is supposed to put the decision to save or invest on an even footing with current consumption.
The principles are connected with academic principles that as a body are called "commodity taxation." If you have two types of goods with differential taxation that are roughly interchangeable, the higher tax on one will shift the preference of the consumer towards the other. Ideally, and I don't disagree with this, the tax system ought not favor one consumption choice over another.
So isn't the "Fair [sic] Tax" a wonderful curative that will spur our savings and investment rates? Depends whether you have any awareness of macroeconomics and our current macroeconomics. We're in a liquidity trap, and there's the classic babysitting co-op example. If saving for the future is valuable enough, the paradox of thrift can reduce current aggregate demand for consumption. The central-banking response would be to lower interest rates so that future use of saved or invested assets is not as valuable in comparison to current consumption. Or increase the inflation rate by loosening the money supply so that the saving isn't worth as much.
We don't have enough demand for consumption right now. Corporations and entrepreneurs are sitting on cash and unused capacity. Only current demand for goods and services will turn that around. So what is the curative proposed by a moron? Making current consumption less desirable. Awesome! You know what's even more awesome? That to correct for the dip in current consumption that idiocy would add on to the current hell we would have to implement policy moves that would offset the savings incentives that the "Fair [sic] Tax" is supposed to provide. Yep, lower interest rates and/or turn to inflation [like all the times it's been helpful in economic history, not the three times it's been a disaster], and all of the sudden putting savings/investment on an even footing doesn't deliver as promised.
Which would all be a fun frivolity if there weren't the enormous transition costs and inefficient transition rules. Oh, and Herman, have fun not being electable as dog catcher when you have to explain that the entire principal amount of a home mortgage would be includable in income the moment hardworking Americans sign the paperwork on their American dream.
But he won't be the last idiot to sign on. Mark my words.
Edit: speaking of killing it, Boehner is absolutely crucified by Political Correction. Seriously, find some time to at least scroll through to see just how hard a take-down it is, even if TL;DR.
And this is frivolous stupid to cover because he won't win. Which he? The stupid flavor of the week who won't win. No, not The Donald the Birther. Herman the [atrocious] pizza man. He won't win the nomination, but he did get the nod at the South Carolina geek show. One of his idiot positions is advocacy of the "Fair [sic] Tax". Stupid policy is stupid, especially when stupid policy is a bad prescription for the actual current crisis.
The "Fair [sic] Tax" is a consumption tax in the form of a retail sales tax. A consumption tax could also be implemented by exempted savings or investment, as through an IRA, but then you wouldn't get to offer up the red meat of killing the IRS. Never mind that the Dept. of Treasury would need to implement a new bureaucracy to institute this fevered fiction.
Today I'll look past the touted fiction of the tax rates necessary to meet our revenue needs (probably 50%-ish by most realistic estimates) and how retail sales taxes and their kissing cousin the Value Added Tax, are easily and notoriously evaded. I'll just look at the main benefit promised, and how it's a load of horse shit.
The problem with the current income tax system, we're told, is that savings and investments are taxed twice, once when the money was earned in the first place, and a second time on the earnings from the investment. If the money was just spent for current consumption instead of investment, it's only taxed when earned. To me, income is income is income, and it ought to be part of the tax base, but we'll let that pass, as well as the nonsense that any more is taxed than the accretion on top of the invested principal. A consumption tax, it is promised, is supposed to put the decision to save or invest on an even footing with current consumption.
The principles are connected with academic principles that as a body are called "commodity taxation." If you have two types of goods with differential taxation that are roughly interchangeable, the higher tax on one will shift the preference of the consumer towards the other. Ideally, and I don't disagree with this, the tax system ought not favor one consumption choice over another.
So isn't the "Fair [sic] Tax" a wonderful curative that will spur our savings and investment rates? Depends whether you have any awareness of macroeconomics and our current macroeconomics. We're in a liquidity trap, and there's the classic babysitting co-op example. If saving for the future is valuable enough, the paradox of thrift can reduce current aggregate demand for consumption. The central-banking response would be to lower interest rates so that future use of saved or invested assets is not as valuable in comparison to current consumption. Or increase the inflation rate by loosening the money supply so that the saving isn't worth as much.
We don't have enough demand for consumption right now. Corporations and entrepreneurs are sitting on cash and unused capacity. Only current demand for goods and services will turn that around. So what is the curative proposed by a moron? Making current consumption less desirable. Awesome! You know what's even more awesome? That to correct for the dip in current consumption that idiocy would add on to the current hell we would have to implement policy moves that would offset the savings incentives that the "Fair [sic] Tax" is supposed to provide. Yep, lower interest rates and/or turn to inflation [like all the times it's been helpful in economic history, not the three times it's been a disaster], and all of the sudden putting savings/investment on an even footing doesn't deliver as promised.
Which would all be a fun frivolity if there weren't the enormous transition costs and inefficient transition rules. Oh, and Herman, have fun not being electable as dog catcher when you have to explain that the entire principal amount of a home mortgage would be includable in income the moment hardworking Americans sign the paperwork on their American dream.
But he won't be the last idiot to sign on. Mark my words.
Either Doug Holtz-Eakin doesn't understand government revenues, or
he's just a liar.
Lies go in, lies go out. Never a miscommunication.
The bottom line is that a small minority is paying for all of the government Americans enjoy. Why is it fair that they be required to pay more?Remember social insurance levies, Dougie? Sales taxes? The argument that I'm sure you join in on that corporate taxes are borne by labor and/or consumers? Federal Income Taxes are not the only way people pay for government services.
Lies go in, lies go out. Never a miscommunication.
Is this how the zombie apocalypse begins?
National Public Socialist Radio is reporting (with soundclip) that Boehner promises no debt ceiling increase without 2 trillion of new spending cuts. And tax increases are off limits.
This is like a threat to shoot me in the head if I don't weave a basket, and I can't use my arms or my feet to do so. If this is a serious threat, this is more anarchistic than those bandanna-ed WTO protesters of old. If it isn't, this is such a giant pander that it should be named Tsing-Tsing.
Would the people who keep worrying loudly and publicly about a Greek-style currency run on the dollar please stop trying to instigate one?
This is like a threat to shoot me in the head if I don't weave a basket, and I can't use my arms or my feet to do so. If this is a serious threat, this is more anarchistic than those bandanna-ed WTO protesters of old. If it isn't, this is such a giant pander that it should be named Tsing-Tsing.
Would the people who keep worrying loudly and publicly about a Greek-style currency run on the dollar please stop trying to instigate one?
Monday, May 9, 2011
Before I could mildly hedge and retract, I was shown why I shouldn't.
I had my little rant this morning:
That is the nature of government. It is a solution to collective action problems. The questions are who the "we" is, what "our" problems are, and what acceptable means to solve the problems are. Generally the third question is argued as a rear-guard action when the first two arguments have been lost.
I was going to, on reflection, back off on the last point. You can have a big boat view of who our society is, agree on the problem and its seriousness, and still have disagreements on the best means to solve that problem. However, often enough it is true that the means arguments are chosen as means to not solve problems. Abdication to market forces, for example, is often a decidedly inadequate means to solve a problem, offered in hope that people forget that there is a problem. No dice. We have Medicare because market forces were not working for seniors in the 60's; the medical marketplace has not become any friendlier.
Krugman's razor slices to the bone again:
That is the nature of government. It is a solution to collective action problems. The questions are who the "we" is, what "our" problems are, and what acceptable means to solve the problems are. Generally the third question is argued as a rear-guard action when the first two arguments have been lost.
I was going to, on reflection, back off on the last point. You can have a big boat view of who our society is, agree on the problem and its seriousness, and still have disagreements on the best means to solve that problem. However, often enough it is true that the means arguments are chosen as means to not solve problems. Abdication to market forces, for example, is often a decidedly inadequate means to solve a problem, offered in hope that people forget that there is a problem. No dice. We have Medicare because market forces were not working for seniors in the 60's; the medical marketplace has not become any friendlier.
Krugman's razor slices to the bone again:
Here’s an analogy: think of Medicare as a footbridge that is deteriorating and will eventually become unsafe. You could propose structural repairs to fix its faults; Ryan doesn’t do that. Instead, he proposes knocking the bridge down and replacing it with trampolines, in the hope that pedestrians can bounce across the stream. And the Post declares that he deserves credit for pointing out that the bridge is falling down, and proposing a solution. Um, we knew that the bridge was in bad shape — and his solution is a fraud.So, no, I'm not retracting. Nuancing a little, but that's it.
What is your vision of government?
Steve Benen is doing my work for me.
I've already had this idea in mind for months as the idea of doing this blog got more serious, but he puts it on the table in a beautiful way. It's kind of unfair that Rick "frothy mixture" Santorum is the mouthpiece for stupid, but stupid would speak it's mind anyway. Why does America exist? If your answer is "American Exceptionalism," well sorry, but I wanted an answer, not conservative Mad Libs.
The froth was in response to Obama mentioning our social insurance programs and that our commitment to them is part of what makes us great. Benen turns rightly to the Preamble and its expressed aspiration of making us all better off through government. You could disagree with the progressive take of the read, but you're left with the inescapable vision of the Constitution: we join in it because we are better off with it than without.
That is the nature of government. It is a solution to collective action problems. The questions are who the "we" is, what "our" problems are, and what acceptable means to solve the problems are. Generally the third question is argued as a rear-guard action when the first two arguments have been lost. However, the attack on social insurance is part of a rear-guard action that has lasted 75 years, so this is nothing to get too cocky about.
I've already had this idea in mind for months as the idea of doing this blog got more serious, but he puts it on the table in a beautiful way. It's kind of unfair that Rick "frothy mixture" Santorum is the mouthpiece for stupid, but stupid would speak it's mind anyway. Why does America exist? If your answer is "American Exceptionalism," well sorry, but I wanted an answer, not conservative Mad Libs.
The froth was in response to Obama mentioning our social insurance programs and that our commitment to them is part of what makes us great. Benen turns rightly to the Preamble and its expressed aspiration of making us all better off through government. You could disagree with the progressive take of the read, but you're left with the inescapable vision of the Constitution: we join in it because we are better off with it than without.
That is the nature of government. It is a solution to collective action problems. The questions are who the "we" is, what "our" problems are, and what acceptable means to solve the problems are. Generally the third question is argued as a rear-guard action when the first two arguments have been lost. However, the attack on social insurance is part of a rear-guard action that has lasted 75 years, so this is nothing to get too cocky about.
Sunday, May 8, 2011
Osama Bin Laden, Tax Evader
Bin Laden never paid property taxes on his compound. Not that surprising, really. Nihilists never like contributing their fair share to society.
Steve Benen spots another zombie tax meme.
Michelle Bachman (Morlock, Minn.) simply goes for the partial truth that a large portion of the population pays no or low federal income taxes. The truth is so partial as to amount to a lie in the greater context of the budget demagoguery that's so in vogue these days. "We don't have enough federal income tax revenue, so let's leave the social insurance levies intact and gut those programs." Re-read if you missed the scope shift. Bad enough, but if you're an ambitious young Morlock from Wisconsin, why don't you go ahead and do this while reducing federal income taxes for millionaires? It's not like the media is awake at the switch.
We keep hearing the drumbeat that "entitlements" are killing us. The entitlements that are killing us are being funded by taxes paid for by these "no tax" lucky duckies. If anything, that raises the stakes on saving the programs. The social insurance programs are a part of the social compact and have been for as much as 75 years. Their very existence is not what's killing us. Look at the deficit impacts of the Bush-the-lesser tax cuts and you'll see most of what is killing us.
Orrin Hatch is a bit more subtle. (It is generally wise to be wary of a subtle mind in power.) His second point that Steve quoted first: he wants poor people "to help this government to, uh, to be better," presumably through the tax base. First of all, they do. See the social insurance levies, above. See sales taxes. See property taxes, passed onto the renters by their landlords. See corporate taxes, which conservative economists always want to tell us are passed on entirely to labor in the form of reduced employment and wages, and maybe in part to consumers in higher costs of goods. (They only like this incidence argument in certain contexts, those conservative economists. I wonder why that is.) Second of all, one wonders at Hatch's statement: "Not to hurt the poor. We should help the poor." What kind of Morlock tough love might this indicate? Our country gutted actual welfare in the 80's and 90's, preferring instead to provide tax breaks at the low end of the scale and living allowances. So how is taxing poor folks more going to help them, especially when the only respites they get are on the chopping block?
[Those schooled in academic tax policy will understand that there is a humane way to have every dollar of income taxed, maybe even at the same rate as billionaires' income, but still have an allowance for the costs of living. Demogrants will not be enacted soon, and probably not in my lifetime. Politics are the realm of the possible, and that ain't it.]
More marble-mouthed, Hatch cites a 19th century French (FRENCH?! Aren't they still the enemy?!) thinker for the idea that revenues have to come from the middle class. Look at the incidence of total taxes by income and we have see that progressivity is overstated, that we are taxing the middle unless you want to tax them at higher rates than the wealthy. Krugman extracted from CTJ to make this point a couple weeks ago. And then there are stupid politics on answering what middle class is. Is someone making $250,000 a year a poor middle-class wage slave? Is a Wisconsin school teacher making $50,000 a year after 25 years a fat-cat oligarchic overlord? Five times the income is a poor but-for-the-grace-of-God SOB when it comes to the possibility of a small tax increase as a function of current law, where the five-times lower income is an overpaid fat cat who ought to be paid less than a Walmart greeter despite the college degree and critical role in our society. The conservatives' goalposts keep on changing based on the desired policy outcomes, don't they? What a surprise.
It's not like Democrats are particularly good or coherent on tax matters, but they tend not to be pushing one-way ratchets based on half-baked or fraudulent arguments.
Benen jumped on the neo-poll tax shades. I've seen it, and I'll jump on that in a more appropriate instance, but this isn't the strongest instance IMO. Then again, linkies functional end up being TL;DR for me. (Unfair of me to complain when I'm not exactly in the Atrios school of brevity, but I make no great claims of being fair.)
Michelle Bachman (Morlock, Minn.) simply goes for the partial truth that a large portion of the population pays no or low federal income taxes. The truth is so partial as to amount to a lie in the greater context of the budget demagoguery that's so in vogue these days. "We don't have enough federal income tax revenue, so let's leave the social insurance levies intact and gut those programs." Re-read if you missed the scope shift. Bad enough, but if you're an ambitious young Morlock from Wisconsin, why don't you go ahead and do this while reducing federal income taxes for millionaires? It's not like the media is awake at the switch.
We keep hearing the drumbeat that "entitlements" are killing us. The entitlements that are killing us are being funded by taxes paid for by these "no tax" lucky duckies. If anything, that raises the stakes on saving the programs. The social insurance programs are a part of the social compact and have been for as much as 75 years. Their very existence is not what's killing us. Look at the deficit impacts of the Bush-the-lesser tax cuts and you'll see most of what is killing us.
Orrin Hatch is a bit more subtle. (It is generally wise to be wary of a subtle mind in power.) His second point that Steve quoted first: he wants poor people "to help this government to, uh, to be better," presumably through the tax base. First of all, they do. See the social insurance levies, above. See sales taxes. See property taxes, passed onto the renters by their landlords. See corporate taxes, which conservative economists always want to tell us are passed on entirely to labor in the form of reduced employment and wages, and maybe in part to consumers in higher costs of goods. (They only like this incidence argument in certain contexts, those conservative economists. I wonder why that is.) Second of all, one wonders at Hatch's statement: "Not to hurt the poor. We should help the poor." What kind of Morlock tough love might this indicate? Our country gutted actual welfare in the 80's and 90's, preferring instead to provide tax breaks at the low end of the scale and living allowances. So how is taxing poor folks more going to help them, especially when the only respites they get are on the chopping block?
[Those schooled in academic tax policy will understand that there is a humane way to have every dollar of income taxed, maybe even at the same rate as billionaires' income, but still have an allowance for the costs of living. Demogrants will not be enacted soon, and probably not in my lifetime. Politics are the realm of the possible, and that ain't it.]
More marble-mouthed, Hatch cites a 19th century French (FRENCH?! Aren't they still the enemy?!) thinker for the idea that revenues have to come from the middle class. Look at the incidence of total taxes by income and we have see that progressivity is overstated, that we are taxing the middle unless you want to tax them at higher rates than the wealthy. Krugman extracted from CTJ to make this point a couple weeks ago. And then there are stupid politics on answering what middle class is. Is someone making $250,000 a year a poor middle-class wage slave? Is a Wisconsin school teacher making $50,000 a year after 25 years a fat-cat oligarchic overlord? Five times the income is a poor but-for-the-grace-of-God SOB when it comes to the possibility of a small tax increase as a function of current law, where the five-times lower income is an overpaid fat cat who ought to be paid less than a Walmart greeter despite the college degree and critical role in our society. The conservatives' goalposts keep on changing based on the desired policy outcomes, don't they? What a surprise.
It's not like Democrats are particularly good or coherent on tax matters, but they tend not to be pushing one-way ratchets based on half-baked or fraudulent arguments.
Benen jumped on the neo-poll tax shades. I've seen it, and I'll jump on that in a more appropriate instance, but this isn't the strongest instance IMO. Then again, linkies functional end up being TL;DR for me. (Unfair of me to complain when I'm not exactly in the Atrios school of brevity, but I make no great claims of being fair.)
Saturday, May 7, 2011
How to turn completely blue, or waiting for fundamental tax reform
I saw quite a few non-scare-quote serious people discuss the potential for fundamental tax reform the other day. They seem to think it isn't too ridiculous a notion that it might occur in the next let's-say four years. (I think three might have been thrown out, but that was as a range that would improve the possibility.) I think they're ridiculous for thinking this.
Not that we couldn't use some reform. ("Well people do like that reform. Maybe we should get us some.") The problem is the obstacles. They mentioned some, the steepest hurdle being the near impossibility of bipartisan work on tax reform. This is a serious obstacle, and even a Democratic sweep retaking both houses and keeping the executive might not surpass it -- a party with a lock on power fears doing anything big that might upset that lock.
The other problem, though, is the conception of reform and the shibboleths going back to the 1986 Act that everyone holds so dear. There seemed to be a lot of totemism in the room about some parts of that act, including some that in retrospect maybe shouldn't still be such shiny baubles to cling to. [Yes, I am not afraid to end a sentence in a preposition. Get over it.]
Revenue neutrality is the first one. In short order it was recognized that we needed more revenue then the 1986 Act provided, and the deficit situation was bad enough at enactment that people shouldn't have been congratulating themselves so much. Some poor guy even lost his job for facing up to this fact. Depending on our baseline, we likely need more revenue now than revenue neutrality will provide. And what is our baseline? Someone is going to want to reanimate the temporary Bush-the-Lesser tax rates yet again for another monster movie sequel of fiscal destruction. If adults prevail finally and temporary rates are allowed to sunset as promised when enacted (at least for purposes of discussion on hatching a new plan), there is still the stupid annual AMT patch, a legacy of the 86 Act; it technically goes away, so putting in the effect of the patch would cost revenue by conventional definitions, but the politics . . . okay, I'm skipping over that before my head explodes. Anyhow, the short on revenue neutrality is that we have higher priorities and that there are ugly politics if we even try to use it as a point of comparison.
Then there is the tax expenditure budget. Showdown at Gucci Gulch was name-dropped at the aforementioned discussion, and the point made in the book and elsewhere is very valid -- there is a constituency for every tax break, and those who lose a tax break are more motivated than the general population who can benefit a small amount from not having to subsidize said break. There is a failure of imagination here. For people who talk about fundamental tax reform, the game plan is decidedly small ball. Notions have been floated of shaving down deductions as a fail-safe to fix things if Congress cannot act on specific measures. That isn't the fail-safe, that's the whole game.
Bill Bradley's initial reform proposal in (I want to say) 1982, as it pertained to individuals, had a low rate bracket of 14% and a high-rate bracket of 28%. We need not go to the brackets, but we need to look at the deduction portion of his plan. As well as killing some killable deductions and credits, the plan limited personal deductions to 14%, even for high-bracket taxpayers. Currently, a high-income person gets a greater tax benefit than a low-income person on a dollar per dollar basis. If it was a cost of producing income, there are arguments that can be made, but I'm no fool on the politics of carrying the argument. However, if the point of the home mortgage interest deduction is to help people afford homes, why do we care more about subsidizing a wealthy attorney's home ownership than that of the janitor who cleans his office? That's the statement the tax code makes about who we're looking out for. Same with charitable deductions -- charity that costs the attorney more as a matter of marginal utility gets him a bigger charitable deduction than the gift that costs the janitor much more dearly.
The reason to allow personal deductions is the humanistic idea that life costs money, and we will reduce somebody's tax base to allow for this fact. When life costs more money because the affluence is available to finance it, well, we need not be quite so concerned with the higher cost. But we could cut a break of sorts.
I mentioned the AMT earlier. The AMT is a mess of a regime originally designed to make sure that high-income individuals didn't reduce their tax liability too much from piling on a bunch of deductions. Having the savings impact of deductions capped to a rate lower than the marginal tax rate could have much of the same impact, but with a simpler regime. There, meaningful tax simplification but with a softer touch than Attila the Hun or the "Fair Tax" crowd. You don't even have to have personal deductions phase out or expire, just let them wash out as the tax rate rises.
With this approach, you avoid the usual base-broadening problem of every deduction having a constituency. All personal deductions get hit, but none needs to be specifically chopped to reduce subsidies to the affluent and claw back some revenue. Compared to some talk of eliminating all personal deductions or vague asterisks promising to do some base broadening, the constituencies could surrender and call it a victory.
Okay, that was five paragraphs on my second point on conceptual closure after the 1986 Act. I'll throw in another quickie. It didn't really seem to grab the discussion but it's making the rounds in the Cat Food Commission's not-really-a-report and the Ryan Plan [sic]. It's the catnip of top-line rate reductions. This is allegedly made possible through base broadening. It's hard to broaden the base to a degree sufficient to finance the rate cuts that the clowns throw around. There was a lot more to broaden in 1986. (If you're unaware, look up the passive-activity loss rule -- the end of the tax-financed gravy train probably was the major factor in the S&L implosion.) Top-line rates are overly fetishized when the rubber hits the road at effective rates. Look at the effective rates of the top 400 incomes in IRS statistics and you're looking at a tax haven. And if we are comparing rates to other industrialized countries, they all have a VAT. Where we need to fix rates is more akin to where things stood before tax reform became a priority in the 1980's, where we need to look at the equity of taxing an attorney and a hedge fund manager with the same income differently, or having Warren Buffett pay a lower effective tax rate than his secretary. If the solutions is reducing top rates, well, we're gonna need a VAT and we're going to need a bigger standard deduction, and maybe a refundable one at that.
As my introductory post, this is a good demonstration that I know how to have a good time on a Saturday night. If I keep at this thing, I'll hash out some of this at even greater length. For I am not a constitution; I am prolix.
Not that we couldn't use some reform. ("Well people do like that reform. Maybe we should get us some.") The problem is the obstacles. They mentioned some, the steepest hurdle being the near impossibility of bipartisan work on tax reform. This is a serious obstacle, and even a Democratic sweep retaking both houses and keeping the executive might not surpass it -- a party with a lock on power fears doing anything big that might upset that lock.
The other problem, though, is the conception of reform and the shibboleths going back to the 1986 Act that everyone holds so dear. There seemed to be a lot of totemism in the room about some parts of that act, including some that in retrospect maybe shouldn't still be such shiny baubles to cling to. [Yes, I am not afraid to end a sentence in a preposition. Get over it.]
Revenue neutrality is the first one. In short order it was recognized that we needed more revenue then the 1986 Act provided, and the deficit situation was bad enough at enactment that people shouldn't have been congratulating themselves so much. Some poor guy even lost his job for facing up to this fact. Depending on our baseline, we likely need more revenue now than revenue neutrality will provide. And what is our baseline? Someone is going to want to reanimate the temporary Bush-the-Lesser tax rates yet again for another monster movie sequel of fiscal destruction. If adults prevail finally and temporary rates are allowed to sunset as promised when enacted (at least for purposes of discussion on hatching a new plan), there is still the stupid annual AMT patch, a legacy of the 86 Act; it technically goes away, so putting in the effect of the patch would cost revenue by conventional definitions, but the politics . . . okay, I'm skipping over that before my head explodes. Anyhow, the short on revenue neutrality is that we have higher priorities and that there are ugly politics if we even try to use it as a point of comparison.
Then there is the tax expenditure budget. Showdown at Gucci Gulch was name-dropped at the aforementioned discussion, and the point made in the book and elsewhere is very valid -- there is a constituency for every tax break, and those who lose a tax break are more motivated than the general population who can benefit a small amount from not having to subsidize said break. There is a failure of imagination here. For people who talk about fundamental tax reform, the game plan is decidedly small ball. Notions have been floated of shaving down deductions as a fail-safe to fix things if Congress cannot act on specific measures. That isn't the fail-safe, that's the whole game.
Bill Bradley's initial reform proposal in (I want to say) 1982, as it pertained to individuals, had a low rate bracket of 14% and a high-rate bracket of 28%. We need not go to the brackets, but we need to look at the deduction portion of his plan. As well as killing some killable deductions and credits, the plan limited personal deductions to 14%, even for high-bracket taxpayers. Currently, a high-income person gets a greater tax benefit than a low-income person on a dollar per dollar basis. If it was a cost of producing income, there are arguments that can be made, but I'm no fool on the politics of carrying the argument. However, if the point of the home mortgage interest deduction is to help people afford homes, why do we care more about subsidizing a wealthy attorney's home ownership than that of the janitor who cleans his office? That's the statement the tax code makes about who we're looking out for. Same with charitable deductions -- charity that costs the attorney more as a matter of marginal utility gets him a bigger charitable deduction than the gift that costs the janitor much more dearly.
The reason to allow personal deductions is the humanistic idea that life costs money, and we will reduce somebody's tax base to allow for this fact. When life costs more money because the affluence is available to finance it, well, we need not be quite so concerned with the higher cost. But we could cut a break of sorts.
I mentioned the AMT earlier. The AMT is a mess of a regime originally designed to make sure that high-income individuals didn't reduce their tax liability too much from piling on a bunch of deductions. Having the savings impact of deductions capped to a rate lower than the marginal tax rate could have much of the same impact, but with a simpler regime. There, meaningful tax simplification but with a softer touch than Attila the Hun or the "Fair Tax" crowd. You don't even have to have personal deductions phase out or expire, just let them wash out as the tax rate rises.
With this approach, you avoid the usual base-broadening problem of every deduction having a constituency. All personal deductions get hit, but none needs to be specifically chopped to reduce subsidies to the affluent and claw back some revenue. Compared to some talk of eliminating all personal deductions or vague asterisks promising to do some base broadening, the constituencies could surrender and call it a victory.
Okay, that was five paragraphs on my second point on conceptual closure after the 1986 Act. I'll throw in another quickie. It didn't really seem to grab the discussion but it's making the rounds in the Cat Food Commission's not-really-a-report and the Ryan Plan [sic]. It's the catnip of top-line rate reductions. This is allegedly made possible through base broadening. It's hard to broaden the base to a degree sufficient to finance the rate cuts that the clowns throw around. There was a lot more to broaden in 1986. (If you're unaware, look up the passive-activity loss rule -- the end of the tax-financed gravy train probably was the major factor in the S&L implosion.) Top-line rates are overly fetishized when the rubber hits the road at effective rates. Look at the effective rates of the top 400 incomes in IRS statistics and you're looking at a tax haven. And if we are comparing rates to other industrialized countries, they all have a VAT. Where we need to fix rates is more akin to where things stood before tax reform became a priority in the 1980's, where we need to look at the equity of taxing an attorney and a hedge fund manager with the same income differently, or having Warren Buffett pay a lower effective tax rate than his secretary. If the solutions is reducing top rates, well, we're gonna need a VAT and we're going to need a bigger standard deduction, and maybe a refundable one at that.
As my introductory post, this is a good demonstration that I know how to have a good time on a Saturday night. If I keep at this thing, I'll hash out some of this at even greater length. For I am not a constitution; I am prolix.
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