Deficit Commmission working groups
by Linda Beale
crossposted at Ataxingmatter
Deficit Commmission working groups–tax group, but no practicing or academic tax lawyer
One of the strange results of treatment of economists as central policymakers over the last four decades or so of the “Washington Consensus” and the dominance of Chicago School freshwater economists has been the distortion of policy making on taxes to favor economic arguments over fairness and statutory construction that results in a coherent Code. You’d think that people would want a range of perspectives from tax academics and practitioners. Many tax academics are in the “economic efficiency is the only measuring stick that matters for tax policy” camp, but many aren’t. (moi, for example.) Including those broader perspectives might bring us more quickly to good tax policies and save us the waste of time from focussing solely on efficiency and growth arguments. (There’s a lot of talk, for example, among tax efficiency academics about “progressive consumption taxes”, yet we all realize that it is unlikely that an efficient consumption tax will be enacted (it requires taxing borrowings, for example) and even more improbable that any consumption tax enacted would be progressive at the rates necessary to achieve real progressivity. We’d be better off discussing how to improve the income tax to make it fairer and raise more revenues.)
Obama’s deficit commission appears to be following the trend of treating economists and businessmen (CEOs) and even union leaders as more appropriate to have input on tax issues than tax experts. The tax working group of the deficit commission includes, according to BNA Daily Tax Realtime (May 4,2010): “Sen. Max Baucus (D-Mont.), Rep. Dave Camp (R-Mich.), Sen. Kent Conrad (D-N.D.), Sen. Judd Gregg (R-N.H.), Rep. Xavier Becerra (D-Calif.), Dave Cote, Sen. Mike Crapo (R-Idaho), Sen. Richard Durbin (D-Ill.), Ann Fudge, and Andy Stern. Cote is president and CEO of manufacturer Honeywell, Fudge is the former chairman and CEO of Young and Rubicam Brands, and Stern is president of the Service Employees International Union.” BNA
Of course, some of those politicians, like Baucus, serve on the tax writing committees (Finance in the Senate, and Ways and Means in the House). But still, it would be nice to see a progressive tax academic invited to serve on this group…..
I nominate my favorite tax lawyer blogger Prof. Maule:
http://mauledagain.blogspot.com/
We’re doomed. I expect a Federal Food Tax which will be used to fund Ag export subsidies so we can grow exports. Literally.
Linda
I agree with you on substance but not so much on tactics.
My guess is that the commissions are political, so it is understandable that they should be filled up with politicians. Theoretically the politicians would consult their own favorite experts. Of course that’s only theoretical, and the “economists” are really closet politicians, so I suspect what you are seeing is politics in all its flaming ignorance.
But I am not so sold on the idea of ‘experts’ myself. I have watched quite a few experts turn out to be “experts in what other people say,” or “experts in what i [the expert] want to believe.” since people seem to be easily fooled by “non partisan experts” i suspect the republic is safer in the hands of even ignoramus politicians.
the deficit commission, in any case, is not serious. they begin by blaming the deficit on Social Security, and that is so ludicrous you know the fix is in.
I think that federal spending should be targeted at around 19 percent of GDP. Any tax policy should try to manage high and low revenue periods so on average tax revenue match expenditures at around 19 percent. On progressives I don’t value their objectives.
“There’s a lot of talk, for example, among tax efficiency academics about “progressive consumption taxes”, yet we all realize that it is unlikely that an efficient consumption tax will be enacted (it requires taxing borrowings, for example) and even more improbable that any consumption tax enacted would be progressive at the rates necessary to achieve real progressivity. We’d be better off discussing how to improve the income tax to make it fairer and raise more revenues.”
Frankly, I doubt that a progressive consumption tax is what those who are pressing it actually want. Any progressivity can be whittled away later. The rhetorical point is to deflect calls for more progressivity in the income tax.
YEs, economists of all stripes have too much influence in Washington on many issues; taxes, health care, etc.
Problem with tax lawyers is they tend to see the system in terms their practice focus of 1) complex transaction planning and 2) cases driven into litigation. This causes them to focus on only a very small part of the system (the case method of law schools is a poor way to teach tax because it focuses on litigation).
Want real perspective on the tax system? Add some CPAs, who get the broadest and best view of the system.
Cardiff
you asked a question on a prior thread… about the rate of return on social security. i answered it. there is no evidence you read the answer.
nor is there any evidence you read the comments on the posts re the “ignorance of economics of progressives.”
so a question, why should anyone bother to read, let alone answer your comments?
second, your faithin “19%” is touching. can you explain the logic of it to those of us who might know more than you do?
third, in case i don’t get back, have you ever, ever been able to question that which you are sure you know?
Rusty
might be fun. but i suspect the same old problem: the experts often have exactly zero insight into the nature of the problem under consideration. they know what they know. no questions asked. or allowed.
Save_the_rustbelt,
YEs, economists of all stripes have too much influence in Washington on many issues; taxes, health care, etc.
They actually don’t have enough influence. Why should they not have influence since so many issues in Washington are economic. Pilots fly planes, bakers bake bread, and doctors practice medicine. So how again does it not makes sense for economidyd to influence economic issues. Anyway, washington makes laws so lawyers will always be the most influential there.
What’s on your mind…
Maybe tax policy should be focused on the purpose of taxation which I submit is the raising of revenue to cover the expense of governing the nation. The immediate corollary to that proposition is that tax policy should not be perverted for the purpose of engineering the economy. Good investments should stand on their own strength. Capital will flow toward those opportunities that are likely to produce profits. Taxation is for the purpose of raising necessary funds for the support of government which in turn will provide for a safe environment within which the people and their economic activities will prosper. But again, tax policy is only perverted from its primary purpose when such policy loses its focus in an effort to manipulate economic activities. Tax policy becomes complicated when diverted from that primary purpose.
We could do that, but then we would have to throw away the tax code.
Throwing away the tax code!
There is an idea whose time has come. Unfortunately, every time it comes, the legislators reform the tax code to favor their buddies. And instead of actually doing something, the tax code is used to give incentives to other people to do it. Sometimes that works, but usually it is a half measure, at best.
Jack
I think you are exactly right. Without the manipulation, the “economy” would adjust to the taxes the same way it adjusts to gravity and friction. Just a cost of doing business.
>Maybe tax policy should be focused on the purpose of taxation which I submit is the raising of revenue to cover the expense of governing the nation.<
The purpose of federal taxation is to create demand for currency and to slow aggregate demand in the non-government sector. The federal government does not need to rely on tax revenue or borrowing to fund its operation.
Jeff
You are exactly the problem, thinking that you are uncovering a purpose when in fact you are revealing a consequence. You need to answer your own questions first before suggesting what the answer to other questions may be.
Jack,
Consider a government that issues a new currency.
Please explain why anyone would bother to accumulate the new currency if taxes were not soon to be due denominated in the new currency?
Please explain how taxes can be paid in the new government currency before the government has spent that currency?
Please explain how government debt can be purchased using the new government currency before the government has spent that currency?
Purpose and consequence are crystal clear in this example and it is exactly the system the US Federal Government has now even if it did not begin with such a clean slate.
I think you are confusing the idea that government carries out a variety of functions, one of which is the issuance of currency, with the need for that government to pay the expenses of its various functions with the support of its citizens. Suppose that the Federal Reserve could just credit the government with sufficient funds to cover all expenses. “Start up the printing presses. The US has b ills to pay.” While the Fed may very well issue too much money at times, it certainly would be hugely inflationary to have no counter balanced removal of funds from the public’s accounts. If the Treasury issues T Bills to raise funds to pay government expenses is there not a need for some other entities to purchase those bonds? While our financial system may be more a system of electronic funds transfers from one source to another reciopient, there does need to be a balance of those payments.
Maybe the confusion stems from the fact that the government, once it begins to function, becomes a participant in the economy. It is, however, a participant that does not do fee for service billing. It’s many functions, all of which have a cost, are paid out of a limited number of revenue streams, all of which are necessary if not sufficient. If we accept your interpretation of the process we will soon find ourselves in a Lewis Carroll type of description of that system. We pay ourselves to do what we do and, as a result, we need not charge others to do it. The fact that the government giveth does not assure that the government does not taketh away. It’s a bit like your circulation system. Your heart pumps blood into your arteries for circulation to your various internal organs, muscles etc. Does that preclude the necessity of having a distinct and tegrated system of veins to bring back the flow to the heart following rejuventation in the lungs?
Jack
while i think i agree with you, i also think i have some sympathy with jeff’s point. or maybe it’s greg’s. i get a little lost with specualitive economics.
i would add that the government can “print” money as long as there are “idle resources” so all it is doing is introducing the “means of exchange” to get the exchange of real resources started. priming the pump. but for some reason this strategy seems to run out of control.
the government has been printing money by running deficits (not sure if borrowing money is exactly the same as printing it) to pay for its wars. no one on the right objected, but now the deficit is a huge horrible crushing problem that can only be addressed by cutting social security, which never borrowed a dime.
coberly
“i get a little lost with specualitive economics”
Don’t worry about it too much. Next time we launch a brand new currency you can always check with the appropriate econ websites to see what the correct order of sequence is when starting up a new financial system.
In the mean time, continue to use you checkbook and credit/debit card as you always have, and that should keep you out of trouble. 🙂
Cedric
while that’s all true, i suspect we start up a new financial system every time those people who don’t believe in taxes or government regulation think of a new way to fleece the rubes. even if the pictures on the dollar don’t change.
Jack,
The entire point of government backed money is for the government to purchase goods and services it needs to function. This was true from day one. Taxes served to create a need for people to give up those goods and services for the government money otherwise they wouldn’t bother.
There is no confusion. I’m not an advocate of profligate government spending or the govenment replacing the economy. Inflation is a constraint, but “printing money” is only “massively inflationary” if the printed money competes with existing money for goods and services. There is little danger of this happening at the moment. You’ve got 20% of the population working less than it wants.
In the context of SS this is important because the accounting fiction charge you frequently see just doesn’t matter. Affordability questions vanish.
This isn’t Lewis Carroll stuff, there are serious people espousing MMT.
Read Warren Mosler’s “7 Deadly Innocent Frauds”:
http://moslereconomics.com/2009/12/10/7-deadly-innocent-frauds/
The 7 Deadly Innocent Frauds
#1: The government must raise funds through taxing or borrowing in order to spend. In other words, government spending is limited by the government’s ability to tax or borrow.
#2: With government deficits we are leaving our debt burden to our children.
#3: Government budget deficits take away savings.
#4: Social Security is broken.
#5: The trade deficit is an unsustainable imbalance that takes away jobs and output.
#6: We need savings to provide the funds for investment.
#7: It’s a bad thing that higher deficits today mean higher taxes tomorrow.
eff
how do you keep it from running away?
what do you do when you reach “full employment”
how do you reassure the people that it won’t run away?
what about people (like me) who like to see a chain of ownership? for example, i am prepared to agree that the government could just print the money to make up the Social Security shortfall and as long as the old folks were limited to buying groceries with it, or paying rent, there would be no effect on the economy… other than perhaps the positive effects of supporting the food and housing markets which might otherwise collapse into a permanent state of starvation and homelessness.
but i think it is better for the people if they feel that they paid for their own benefits.
Coberly,
I think it is important to recognize that this is how things work now. Is there any evidence that US federal government spending is constrained by tax revenues and borrowing? Iraq war? TARP? Afghanistan war? Who in a position of authority ever asked “can we afford it?” while discussing these actions? Why do the same people now ask “can we afford it?” when it comes to SS or health care? The handwriting is on the wall for anyone who wants to see it.
The reality is that government officials make choices about spending because the decisions are always choices. They only use the excuse “we can’t afford it” when it is something they don’t really want to do.
Realizing this is true isn’t the same as advocating that the government plan out the entire economy.
jeff
that sounds about right to me. but i think you have trouble selling the idea to people who have a psychological need to see that the books “balance.”
i am afraid that includes me. i don’t have much difficulty witht he idea that the gov can print money and stay out of trouble if it is careful. but i’d have some trouble with money for Social Security appearning out of nowhere. like i said, it’s a psychological issue.