Distressingly, neither the president nor the Democrats offer any rigorous account of the optimal level of tax progressivity. Rather, the president seems to think that no matter how high the current marginal tax rates, the correct social policy is to move them upward. As such, he cannot explain why the top marginal tax rate for the rich should not approach 100 percent as they accumulate more and more wealth. After all, why not push the limits if efforts to redistribute wealth do not at some point impede its creation?
My view is the polar opposite of Obama’s. I believe, now more than ever, that the optimal level of progressivity in the system is zero, so that today’s marginal adjustments in taxes should increase taxes on those on the bottom half of the income distribution. To explain why, let us start with the premise that the defenders of any progressive tax have to give some principled account of the optimal degree of tax progressivity. They have to identify which of the infinite number of progressive tax schedules they embrace, and then explain why it is best.
They can’t. It’s all about “fairness,” not rationality or revenue. Or preventing the country from going into a tipping point of entitlement.
[Update a while later]
Are we having a Gettysburg moment in the long cold civil war?
If so, I hope that the Republicans continue to press their advantage, as Meade didn’t.
It is especially a time for a tax hike on the poor if you consider that the theftists consider a cut of guberment benefits as a tax on the beneficiaries.
When you have lost David Brooks, well . . .
OK, OK, I have come here to admit that I had been wrong. Yep, me and ol’ David Brooks (his NYT op-ed is linked through the Michelle Malkin “Hot Air” site so you can go look at it that way) both admit to being wrong.
I have never been a fan of “raise taxes on the rich” or talk of the “eeevill Booosh tax cuts . . . on the rich!” type of class warfare rhetoric. What makes the rich, well, rich as opposed to poor is that for whatever reasons, their amassed wealth paying for financial experts, their business acumen, or whatever, the rich are uniquely positioned to transfer their costs on to their clients and customers whereas the poor are just that because they cannot. Hence taxing the rich is kind of like a sales tax in that the poor(er) who consume the products and services generated by the rich pay more or do with less in the end.
On the other hand, me and David expressed the opinion, unpopular in the Right Blogosphere, that some kind of “deal” requires, well, some dealing, and an absolute position of “no taxes, in no form, no how” was painting the House Republicans into a corner and Mr. Obama would come out smelling like a rose instead of like a cigarette smoker. Among the League of Squishes, this was expressed that “the House Republicans could give up an inch (on a largely symbolic tax increase, say closing loopholes on corporate jets or oil companies) and gain a yard (serious entitlement reform).
An article of faith in the League of Squishes was that those Tea Party folks were so bloody minded and inflexible that they were going to get their way that they were going to pass up “The Deal.” Not only that, Mr. Obama was “winning” because our side was mired down in laments of “Oh, the Humanity, you can’t tax corporate jets” (yeah, yeah, the poor union Moes building the jets would take it on the chin, but controlling the narrative and having the other side control the terms of the debate blah, blah).
So I turn on the TV at 8 PM Central Daylight Time last evening, the President strides up to that podium he uses, and he starts out with “10 years ago we were running a slight surplus until we enacted massive tax cuts and fought . . .” I almost smashed my shins getting up in my rush to switch off the TV. So the Evil Booosh was a spendthrift for the tax cuts and the Unnecessary Iraq War (and Prescription Drugs for Seniors!), and Mr. Obama was going to spend his TV time covering that ground. Again. No. Thank. You.
But after this weekend spent up to my elbows in tractor hy-tran fluid in a repair project, I have caught up on the Internet and watched the TV and I admit I am flat-out wrong. Don’t know about the Tea Party back benchers, but Mr. Boehner had an oral agreement with Mr. Obama for 800 bil in tax increases, but somehow this was no good. So much for my (and David Brook’s) idea of giving up a little on taxes. Mr. Obama is out for much more than closing the loopholes on corporate jets and oil companies.
So, did I say that I was wrong? OK, already!
When it comes to legal bribes (AKA “campaign contributions”), few gigs in Congress are so lucrative as being on the committees that work on tax legislation. Just mention tweaks to the tax code and the money flows. That’s why the tax code is such an abomination and why getting a true flat tax enacted is so difficult, if not impossible.
The primary problem we have at the federal level is excessve spending. History shows that every time they get more tax revenue, spending increases even faster than the revenues. Take some hard measures to cut spending and then we can talk about raising revenues. I’ve lived long enough to see the llies too many times. There is zero trust left.
I need to write another piece on taxes, titled, “Lies, Damned Lies, and Revenue Enhancements.”
Paul, Republicans have never been intrinsically opposed to an increase in government revenue. What they have opposed is tax policy that destroys rather than enhances economic growth, which makes it counterproductive in terms of raising revenue. But the Democrats remain committed to “social justice,” which is what has gotten us into this mess. Barack Obama gave away the game in the primaries when he told Charlie Gibson that he would increase the capital gains tax out of “fairness,” and revenue be hanged.
As has been said many times in the past few weeks, the way to increase revenue is not by increasing tax rates, or taking away legitimate business deductions (the president was mendacious last night when he talked about “special” deductions — what he wants to take away from the oil companies is the same deduction that other businesses get — he just wants to take it away because he thinks that he can demonize energy producers), but by increasing the number of taxpayers, and their income.
The Republicans should stop thinking about the flat tax.
As gun control is the poison bait to the left, so flat tax will prove to the right. Obviously, the country needs those below the 50 percent income line to be contributing more – just to pay down the debts – but passing tax reform which increases tax on “the poor” is political suicide.
It might be better to “embrace inflation” which would automatically move salaries up – into the lower income tax brackets while also relieving the underwater home owners.
It might be better to “embrace inflation” which would automatically move salaries up – into the lower income tax brackets while also relieving the underwater home owners.
The tax code has been indexed to inflation for many years (IIRC, Reagan). That was a struggle and there’s no way I want to go back to the days when getting a raise just to keep up with inflation pushed you into a higher tax bracket. I was a young adult during the Carter years when inflation was running over 15%. It sucked eggs (and so did/does Carter). Inflation wipes out the savings of those of us who have no pensions and are actually saving for our own retirement.
You want to raise revenue? Grow the economy. There are things the government can do that support growth in the economy. Raising tax rates isn’t one of them – quite the opposite. Simplify the tax and regulatory environment and let the economy grow.
Rand Simberg Says:
“the president was mendacious last night when he talked about “special” deductions — what he wants to take away from the oil companies is the same deduction that other businesses get”
Haven’t seen much about that tax break. Is it the depreciation schedule used for the purchase of new equipment?
“The story goes that, after the failure of Pickett’s Charge on the third and last day of the battle, Lee feared a Union counter-assault and order Pickett to prepare his division. “I have no division,” replied the defeated general. ”
Comparing Obama to the Confederacy? I think we all know how that will go over in the MSM…
I rather like the analogy myself. Particularly because of how it would go over in the MSM. Wodun, I’ve never been able to figure out exactly what “special tax break” they’re complaining about, but I suspect it is the depreciation. They don’t want the oil companies to get it because…they’re profitable. Or something.
Rand,
I believe Oil Depletion Allowance that is the tax you are referring to.
Yeah, because God forbid the tax code should encourage oil and gas exploration. That would leave less money to
wasteinvest in green jobs and renewable energyboondogglesWin The Future projects!K, I hear you on the flat tax. Although treating people the same is really fair, it is politically a non-winning topic. Indeed a world without guns might be great, except it can never be, so gun control is a non-winning topic.
But one aspect of a flat tax I like. The idea that everybody has to pay something as a tax. It’s skin in the game, and once a person has to give rather than just receive; they consider things in a completely different light. Obama thinks he can push a tax increase because over 45% of the population doesn’t pay federal income taxes anyway. So he thinks they’ll go with him, but a significant portion of those paying no federal tax would like to make income such that they would pay taxes. So they care. But if all paid something, then Obama would never play such a foolish game as he has the last few weeks.
the country needs those below the 50 percent income line to be contributing more
This is worth repeating…
You seem to be labouring under the misconception that wealth is distributed in the US in a normal distribution and that the bottom 50% percentile’s net worth or income would make any difference to actual revenues.
I’m fairly sure that this one of many misconceptions you share with Rand and the other regulars here.
Still… coming here makes me chuckle more and more everyday.
Now where is that popcorn?
You seem to be labouring under the misconception that wealth is distributed in the US in a normal distribution and that the bottom 50% percentile’s net worth or income would make any difference to actual revenues.
It only seems that way to idiots, who didn’t bother to read the linked article.
The issue has little, if anything, to do with revenues.
Is the only reason you show up here to make a fool of yourself? Because it’s hard for us to see any other.
Still… coming here makes me chuckle more and more everyday.
You must be one of those blitherers who LOLs at himself on the Internet.
Oil Depletion Allowance:
http://legal-dictionary.thefreedictionary.com/Depletion+Allowance
http://www.mineralweb.com/owners-guide/leased-and-producing/royalty-taxes/depletion-allowance/
“What makes the rich, well, rich as opposed to poor is that for whatever reasons, their amassed wealth paying for financial experts, their business acumen, or whatever, the rich are uniquely positioned to transfer their costs on to their clients and customers whereas the poor are just that because they cannot.”
Theftist lie. The rich become so, in a free market, because they have some talent, skill, or drive to produce something that people find of value.
In a competitive market, whatever a business produces is usually sold at small margin over cost. Higher and business is lost to the competition. If a tax is applied to such a business there is no choice but to pass it on or go out of business.
Even with the Flat tax , their will be loop holes. It will be impossible to keep the politicians out of it. They will try to incentivize certain behaviors which will lead to exploitations.
The article it self reading between the lines implies you have to remove special tax status to charities and religions. Which will be a none starter politically
In the end the answer to how much progressiviity to the tax system is the point where the cost of gaming the progressive tax system, is more expensive than the progressive tax. The trick is finding that point unfortunately their is a lack of feedback or a fast enough sample rate. To reach it or maintain it.
Though as a friend keeps saying historically we had a 90% top marginal tax rate from 1942 till the 60s , coming out of the depression and had economic growth. And were above 70% till the 80’s. So during the period that America become a top economic power we were under nearly theftist rates at the top levels.
Though as a friend keeps saying historically we had a 90% top marginal tax rate from 1942 till the 60s , coming out of the depression and had economic growth. And were above 70% till the 80′s. So during the period that America become a top economic power we were under nearly theftist rates at the top levels.
There were also a lot of tax shelters and loopholes that allowed most of the wealthy to avoid paying those high marginal rates. Do you know the story of how the Alternative Minimum Tax (AMT) came about? Back in the 1960s, there were a few hundred millionares who had the gall to use the tax code to their advantage and completely avoid paying any income tax. When this became known, there was lot of political lamentations and knashing of teeth. The government implemented the AMT to make sure that they couldn’t use the law to avoid paying taxes. Unfortunately, they didn’t index it to inflation so now the tax on “the rich” is impacting millions of middle class families. For that matter, the original argument for passing the 16th Amendment authorizing the income tax was that it would really only be applied to “the rich.” Indeed, for the first couple years, only those with high incomes (>$20,000) had to pay a rate of 7% while those with lower incomes paid 1% (here’s a link to the tax rates over the years). Keep in mind that $20,000 in 1913 was the equivalent to $456,000 in 2011 when you adjust for inflation. Here’s a link to an inflation calculator from the Bureau of Labor Statistics. About the time we got involved in WWI and needed more revenue, the tax code was modified to impact nearly everyone.
Let that be a lesson: whenever you find yourself agreeing with the idea of a special tax on “the rich”, watch your wallet. It’s only a matter of time before that same tax will apply to you.
…want to raise revenue? Grow the economy. Heretic! Burn him! Does he weigh the same as a duck?
The ‘Fair Tax‘ is the only reason to support Huckabee (which I otherwise thoroughly do not.)
While the left demagogues about the high fair tax rate (29% to be revenue neutral?) Proponents can push the fact that we are already paying more than that. Hit that point hard and often.
Also hit the fact that it includes a monthly check (and make sure this doesn’t count against social security/disability) and I think you could get enough people on board to pass it.
What a can of worms it will open regarding changing constitutional amendments is another story.
I like the fact that you’ve got one rate that everyone can see reducing the impact of demagoguery and producing downward pressure.
…want to raise revenue? Grow the economy. Heretic! Burn him! Does he weigh the same as a duck?
That would have to be one big-assed duck.
Monty pythons got one for ya. By the scientific method of declaring it so they’ve proved that a duck, a witch and a pile of wood all weigh the same.
Rand, as I’ve noticed before your comprehension skills are lousy. I actually POSTED the text I was ridiculing this time. This idea that taxing the 50% who are paying federal taxes would solve the problem.
As I’m sure you can understand, that has little to do with the erroneous drivel in that article you linked to. To talk about “fairness” and taxing lower incomes at any level when the wealth distribution is so completely screwed up in the US is not just immoral, but when coupled with the idiotic idea that it will actually DO anything… well… I’m back to idiotic.
If you, as you guys say, Do The Math, there’s very little you could impose on 75% of the population which will make a damn bit of difference to revenues and do anything except make you feel better about what taxes you pay and deal with your high school feelings that somebody somewhere has pudding and you don’t.
Is the only reason you show up here to make a fool of yourself?
Well, there’s the funny thing – a) I’m doing no such thing, b) Poking you guys is quite a lot of fun because you’re so cliched and c) I feel that it’s important that the particular brand of drivel that gets presented here as fact needs to be pointed and laughed up.
And, in the course of this, if I plant just one seed of doubt in somebody about the poisonous brand of politics you subscribe to, then I’ve done my work.
Oh yeah, and when you’re on-topic on Space Stuff, your blog is quite good.
Yes Larry J, I am somewhat familiar with the amt and it originally intent of targeting the wealthy though after doing some research. Seem you left off the
1986 amendment to it that caused most of the damage , which opened it up to not ignoring more commonly taken deductions. Which came about needing to fill a revenue hole he had, and not being aware of the original bill didn’t take account of inflation. So that special tax on the rich was re-aimed/adjusted to fill the coffers at a time of need.
Now I have a hard time believing that taking loop holes to avoid the high tax rate was that prevalent. That the theftist rates would of had no effect on the economy cause of the loop holes. If the loop holes were so prevalent think we would it in the tax income over their years.
Now I some what buy what the taxes were used for have a effect , that now we have more in income distribution than we did in the past (though sort of have no proof of) , so a high tax on the rich has a double effect on their purchasing power, by taxing them and then diluting their purchasing power in the wealth transfer.
Engineer, you might want to look at this graph of US tax revenues as a function of GDP and then compare it to those tax rates I provided in the earlier post. If you do, you’ll see that while the marginal tax rate has varied widely over the past decades, tax revenues have been remarkably flat (15-20%) over most the the same time. This pretty well proves the fallacy of static analysis of rates verses revenues. Raising the marginal tax rate has little impact on revenues collected because people change their behavior. The economy tends to slow and revenues never increase as much as predicted by static analysis. Conversely, tax rate reductions never “cost” as much as the static analysts claim, either.
Eh, that’s just not going to happen. Your vacuous drive-by sneers are repulsive, and no one not already in the tank for the Left (or psychologically damaged) will derive any pleasure or counsel from them.
In contrast, the entertaining, thoughtful and oft-heated exchanges found among the normal (if sometimes amazingly gifted) human beings on this forum is much more compelling.