Good Thing I Read the Post
Ken writes that Ezra Klein has turned into a Fred Hiatt Jr. I was inclined to differ. As evidence, I considered linking to
To govern responsibly, the White House will need to negotiate like Republicans
That doesn’t sound like Hiatt. Then I got to the policy proposal
The White House should announce that it won’t extend any of the Bush tax cuts and will instead insist on a Gang-of-Six-esque plan that cleans the code, lowers rates for everyone, and raises $2 trillion or more in revenue. If the GOP refuses, the tax cuts will expire,
That sounds just like Hiatt. My comments after the jump.
rapid GDP growth is a friend of progressive governance. This, in turn, is one reason why tax reform that closes loopholes in exchange for cutting rates could be such a useful idea.
I don’t agree with this policy proposal. What’s this about “lowers rates for everyone”, that is, lower rates for the top 1% than Bush and the Republicans introduced. Why ? It makes no sense. Also it is unpopular. Most people in the USA want higher rates for the rich. They also want to keep the mortgage interest deduction.
I’m afraid Klein has been drinking from the Washington Post water coolers . Even very young very serious villagers agree that the 86 tax reform was the best thing evar — we need fewer loopholes and lower rates. That’s why the economy has done so well since 86 while it did so poorly with top rates of 70% or higher.
In my view, the problem with letting Bush cuts expire on income over $250,000 is that Clinton rates on income over $250,000 were way too low. Somehow it is agreed that, even as a bargaining proposal, a top rate higher than Clinton’s is unmentionable. Why ? There is overwhelming popular support for higher taxes on the rich. There is no popular support for eliminating any major tax deductions.
Now another thing we need right now is stimulus. It is very hard to stimulate the economy when everyone in official Washington (including you) has decided that the issue to address is the deficit — which is too high. However, it is possible. If the tax code is made more progressive, aggregate demand increases (the propensity to consume is lower for the rich).
I think the best policy now is to raise taxes on the rich *and* extend the payroll tax cuts *and* extend UI *and* do the making work pay tax cut again. This will drive the Republicans crazy, but, hey they are already crazy and will not be able to risk arguing that taxes must be low especially for the “most productive job creators.”
Specifically on Yglesias, I genuinely don’t know if he is confident that lower rates cause faster GDP growth or if he thinks that closing loopholes causes faster GDP growth. Somehow the idea that the combination of fewer deductions and lower rates is good has become so deeply implanted that the idea that no explanation of the logic or (absence) of evidence is needed.
I mean “Broaden the Base!” means increase taxes on the poor. They really aren’t hiding it that well. Also love how they never address the 401(K) tax break, its always mortgages and health care.
Once the rates are lowered in a high-visibility rose garden ceremony, the lobbyists will be back in the dead of night, gnawing at their reps for all the old loopholes and within a couple presidential cycles you’ll have loopholes, lower rates, and of course less revenue.
Congress needs to set a budget for tax expenditures so that any new loophole requires closing someone else’s loophole. But this example of ‘living within our means’ isn’t what conservatives have in mind.
Simplifying the tax code in exchange for lowering rates would in theory make the economy perform better because it would remove the complication of assessing the impact of taxes on business decisions. It would also mean that having a talented tax evasion team would no longer be a competitive advantage, forcing enterprises to spend more effort on their core business area.
Reality is more complicated, but Yglesias seems to think any idea that pops into his head is fully formed policy ready to be implemented and succeed.
Rob,
Where else are you going to get enough money from a tax increase? 40% of the population don’t even pay taxes.
If you focus the tax increase only on the people over $250,000, you don’t generate enough money to matter, and if you just increase the rates higher till you do, you will likely cause a tremendous amount of damage.
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40% of the population don’t even pay taxes.
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Rich people don’t pay taxes either.
“Rich people don’t pay taxes either.”
Evidence?
Try this:
Raise the top marginal rates. Discontinue all corporate welfare. No oil and gas depletion. No foreign tax deductions. Corporations want the rights of individual citizens. Fine, have them pay income taxes as though they are just that.
Forty % don’t pay taxes because they earn so little that there’s nothing to tax after basic needs are paid for.
Go back to where ever you came from.
In order to make the claim that 40% of the population doesn’t pay taxes conservatives have to redefine the meaning of the word ‘taxes’.
So conservatives obviously condone the same bullshit method for anyone to make any ridiculous claim they want.
I’m merely making use of your technique.
So rich people don’t pay taxes, and taxes means what I say it means, nothing more, nothing less.
It’s calvinball, just the way conservatives like to play it.
Peak
I agree about the simpler code. using taxes to fine tune the economy is insanity and it leads to counterproductive gaming.
i am not ready to see lower taxes. when the deficit is paid down to the point where nobody is shouting about it, i will reconsider.
i don’t agree with Robert that taxes should be raised on the rich, the rich only, or the rich especially, beyond what is needed to reduce the deficit to the point where nobody is shouting about it. a year ago rescinding the bush tax cuts would have done the job… that’s about a 3% increase in taxes. i can see no reason that ALL the tax cuts should not be rescinded. i get tired of liberals exempting themselves from higher taxes. we need to tax the rich more… until our bills are paid… but we need to tax ourselves more just for reasons of mental hygiene.
raising the payroll tax a tiny amount would allow SS and Medicare to pay for themselves, thus solving the “future debt crisis.”
a 10% patriotic debt emergency surtax would do wonders for our mental hygiene as well.
and now lets hear it from the “oh woe, taxes will kill the economy” crowd and their paid economists.
Personally, I’d like to know which liberals are calling for lower taxes on themselves. The President is not a liberal. Or not very.
Darren you are quite wrong. 40% (plus another 7% so 47%) don’t pay *income* taxes. However, most of them pay payroll taxes which are regressive. Also sales and excise taxes indirectly.
You are much more fundamentally wrong when you suggest that the only way to increase revenue massively is to take more from the non-rich. It is true that taxing income over 250,000 per family at still very low Clinton era rates wouldn’t raise a huge amount of money (about 800 billion over ten years — enough with the recently planned cuts to stabilize the debt/GDP ratio until Medicare eats the Federal government). However, it is possible to tax at much higher rates without noticible distortions.
The catastrophic growth in the 60s was achieved with a top rate of 70%.
Do the math (looking at the actual income distribution). Importantly, it is not at all necessary to increase incentives to find deductions to avoid taxes when one increases tax rates — the value of the deduction can be capped at 35% of the amount deducted no matter how high the tax rate is. The approach of deducting from income then applying the tax function was made by men and can be changed (Obama has been proposing such a reform since before he was elected).
It may or may not be wise to handle the long term budget imbalance by increasing taxes only on the richest few percent, but it is certainly possible. I think there is no evidence that it would be unwise and advocate just such a policy. Oh and also tax cuts so 60 % of households pay no income tax.
PeakVT the tax breaks did not fall from the sky. Many were designed with the aim of itnernalizing externalities. I do not think that innovation would be improved by elimination of the Reseach and Development tax credit (which costs the Treasury almost nothing as it is benchmarked). I don’t think that investment would be encouraged by elimination of the investment tax credit (why do we tax reinvested profits at all). Both are reasonable distortions based on evidence of externalities. How about a carbon tax. That would change economic decisions. That’s the point.
It is easy to say that deductions should be eliminated just as it is easy to say that Federal spending should be cut. If you discuss deductions in the abstract all you know is that they reduce taxes collected and that they are complicated and lawyers and accountants are employed dealing with them (two costs). Similarly public spending (unless the economy is in a liquidity trap) crowds out private spending and is bad except if there is good reason for it.
Tell me which deductions to eliminate. It is too easy to just argue for eliminating a class of things when you describe only the cost and don’t consider any possible benefits.
I think I will have a cut and paste diatribe for every comment which proposes simplifying the tax code without describing each proposed simplification in detail.
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It may or may not be wise to handle the long term budget imbalance by increasing taxes only on the richest few percent, but it is certainly possible.
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Conservatives alternate between telling us that rich people are reponsible for keeping the entire US economy chugging along while also claiming that they can’t finance the government even though it’s just a fraction of GDP.
And somehow this is supposed to make sense.
That 40% number is bogus. They pay sales taxes, payroll taxes, car taxes, property taxes and so on. They just don’t pay income taxes.
Also, do the math. There’s plenty of money going to those making over $250,000 a year, and definitely enough to close the deficit. The big problem is that they, unlike the government, aren’t spending every dime they can get their mitts on. That’s why you can’t have high growth without high taxes on the rich.
There are two problems with the “cutting rates but simplifying the code” meme.
A: Conservatives deliberately conflate simplification with an overall rate cut.
B: Conservatives always insist on fewer brackets, even though this has *nothing* to do with the complexity of figuring out one’s taxes – one bracket or a million, the computer calculates your taxes instantly, or you look them up in a table in seconds. The complexity of the tax code comes from determining your taxable income, not figuring out how much you have to pay once you have your AGI in hand. Likewise, most of the infamous “loopholes” of the rich are based on hiding income, not deductions. In fact, wealthy people DON’T qualify for a lot of deductions that schmucks like you and I do.
There is nothing at all wrong with simplifying your tax code. But Democrats should insist that on an overall revenue increase as a part of the deal, and insist that it does not lower the share of the tax burden borne by the wealthy.
Robert Waldman
you are supporting an argument i made here that has been much dismissed by folk who say “do the math” who don’t know what math is. so let me make some points
“taxing income over 250k at clinton levels would stabilize…”
yes, and taxing income over 100k would begin to pay down the deficit, and taxing all income at clinton rates would do that even faster, moreover…
“until Medicare eats the Federal Government…”
no reason for this to happen. the people need to pay for the medical care they want. they can afford to do this. a raise in the Medicare tax at a much lower rate than the increase in incomes (comparing dollars for dollars, not percent for percent) would pay for even the projected costs of medicare without adding a dime to the deficits, and still leave workers with more than twice as much money AFTER the tax as they have today.
but yes, taxing at higher rates.. until we pay for what we already bought… is not going to cause any real hardship, except the emotional hardship of seeing your money go to the goddam government… which makes possible your ability to earn money in the first place.
i disagree strongly with “tax the rich” approach. the rich need to pay a fair, graduated, tax. but the idea that rest of us should not pay taxes is bad mental hygiene and bad politics.
Waldman
eliminate them all. the market will take care of private investments. you can tax a straight tax and pay for needed investment from federal funds, or find other ways to encourage investment besides the tax code. the trouble with special tax breaks is they all get gamed, or they end up being used for socially harmful activities.
or if nothing else they encourage the very “my needs are greater than yours” that you seem to be criticizing.
and even saying that “public spending crowds out… and is bad” gives too much aid and comfort tot he insane. of course it “crowds out”… all economics is about choices. we can decide that some public spending is more valuable to us than whatever private spending is “crowded out.” sure as hell can’t say that it “is bad.”
bat…
listen to our friends who want to raise taxes on the people who have more money than they do. but not on themselves. that ‘eliminate the bush tax cuts on income over 250k” is part of that thinking. it is dishonest. and it gives the rich reason to cry po’ us.
eliminate all the bush tax cuts.
Chad
hooray.
Coberly, I agree eliminate the Bush tax cuts. But I still don’t remember anyone, other than the President, calling for ONLY eliminating them on the rich.
Anyone who simply followed the President’s lead doesn’t count. He’s the President.