Debt Ceiling: They May Not Have Burned It Down,
But, Do They Now They Own the Economy?
The only problem with being an absolutist AND trying to govern a country is that from time to time you get your way. I can see John Boehner patting Eric Cantor on the back and saying, “congratulations son, I hope it works. If it doesn’t, you, the Tea Party, and maybe the Republican Party are sunk.” If you believe the Tea Party got as much as you could get in a divided government and if calls continue in the new group (committee) of twelve to reduce Medicare without tax fairness, I think the case can be made.
You can bet the case WILL be made by the Democrats in 2012.
The same broken record you are hearing from Republicans will be reversed in 2012 if the economy continues to sputter. “It’s been 18 months and where is the prosperity you promised,” will be the question the Democrats yell from the roof tops. Of course, not everyone believed it about the Democrats and not everyone will believe it about the Republicans either. Tea Party candidates however, may have a harder slog. Rand Paul and others claiming the debt ceiling deal did not go far enough and voting no on the deal are not helping.
Although most moderates and centrists believed deficit reduction was a good idea, it can be argued many centrists will believe the way the Tea Party went about deficit reduction did something many thought was impossible. If someone had said eight months ago the Tea Party would have responsibility for what should have been Obama’s awful economy, we would have thought them crazy. After the debt ceiling has been raised, you can bet Democrats will be running away from this deal as fast as they can. Instead of bipartisan buy-in and blame sharing, everyone including moderate Republicans, enter John McCain, will be saying, “the Tea Party made me do it.”
If this column is remotely correct, the proof will be moderate Republicans and Blue Dog Democrats rushing to inoculate themselves from the Tea Party noose.
Inoculation may take the form some good ole job buying. Job buying however, in the current environment will be difficult. The political parlor game will just get more interesting. Watching progressive lawmakers vote down jobs bills might be the start. If they do vote them down, it will be to ensure the Tea Party takes the fall for the economy. Of course it probably wont be a hard sell to talk a progressive into voting down a jobs bill because in the current environment, something will have to be cut to pay for it. Cuts will most likely be something else the progressives hold true.
Truth has taken a vacation in this fight. After “listening to the American People,” John Boehner continues to say he passed what Americans wanted. We will see because the Americans to which he refers are the balance after you count the sixty-something percent he ignored. Two-trillion in cuts, balanced budget amendment and no tax fairness are just a few of the prizes the right won. Because he began to believe his spin, he might have won the battle but lost the war.
26 Responses to “Debt Ceiling: They May Not Have Burned It Down,”
“Truth has taken a vacation in this fight.”
Nailed it.
C’mon, D.R.! That classic lefty misuse of “fairness” for envy-and-resentment-driven morally wrongful tax policy, you shouldn’t ever be caught stooping to doing!
Righties who misuse a related word that comes up in emotionally-modified discussions of tax policy are (as they usually are) closer to reality and have a firmer grip when referring to the lefties’ target, the “successful.”
(Now complemented by the latest righty phrase, “job creators”)
That has no place in serious tax policy thought and writing, much less decision-making and execution!
It’s related to the gimmick tax increases sought by many liberals, deliberate disincentives to the economy as well as moral failure, rather than real reform, simplifying the tax laws and ending all the exceptions and special favors that cost so much revenue. We especially need to get things right before the Baby Boomers retire and there is a legitimate, real, actual need to raise taxes later, not just income taxes but someday other taxes in addition, even the levying of all-new kinds of taxes. (Good thing if we convert to a consumption tax system and end the hated, inhibitive income tax.)
“Shared sacrifice” … “balanced” … just like “fair share”: Wrong, and appeals to emotion, of those susceptible; it’s Obama 2012 now!
* * *
Meanwhile, of note with this hopeful budget deal, is that some Democrats as well as Republicans are facing the truth, that spending is our problem (notably entitlements) and that any serious reform is primarily spending reform, and reductions. An overdue positive precedent has been set.
(The major defect of the deal is that it has no entitlement reform, and additional welfare programs are spared if there are spending cuts. There are other defects, like the structural gimmicks nobody smart ever will count on, and the bizarre boost of Pell Grant funding, apparently a specific insistence by Obama. But at least concession to reality has happened, an important precedent set.)
No, the Republicans don’t “own” this, much less the “tea party” people; even wiser Democrats are flirting at real reform.
There’s always hope, D.R.. The Senate and House have actually to take the proposal and make it law in the form they both will accept, and the President still has to sign it (all under time pressure, of course). (Anyone wrecking its passage now is a real idiot, no matter how little everybody thinks of the proposal. Don’t forget, with the debt limit pushed back beyond 2012, changes can be made later!)
It’s not too late for the House to just write up a single page raising the debt limit (they’d do it only high enough to last six to nine months or so) and that would have to be signed, as an alternative to failed attempts to make the proposal a bill.
Isn’t Cantor possibly after Boehner’s job as Speaker? (Not only for himself, necessarily, but actually also on behalf of other activists in the House GOP, to pursue “progress” as has happened in states like Wisconsin and Ohio, maybe? Hmmm, de-unionizing all those many federal employees — so long, AFSCME antique-gorilla.)
(On that new commission — whose results I suspect will be treated as respectfully and well as Pelosi, Obama, and Reid treated the results of the Bowles-Simpson commission they insisted on doing their work — why not put Cantor and Ryan on it? Fun, fun, fun.)
Enough food for thought — floor yielded (waiting for any, as usual)
Defense spending cuts is not quite enough. Should be more like 1.4 trillion over 5 years.
80 billion in mandated spending cuts is way to much.
If the Republicans want to save defense cuts, then let them raise taxes.
Or let the trigger trip! Bond holders will LOVE it.
DLS, what exactly to you mean by “envy-and-resentment-driven morally wrongful tax policy”? A flat tax rate? I believe this statement is wrong and lies at the core of GOP beliefs that are tanking this nation fiscal wise. Is it that people who make more are taxed more? If so I’d like to talk about it. Flat taxes and tax rates approaching it are detrimental to a healthy economy in the long run, as is any policy that doesn’t redistribute wealth from the top to the bottom unless somehow that is happening already. As it is, the wealth is accumulating at the top, and this is bad unless the median wages are outpacing cost of living. And by cost of living I mean actual cost of living including education, healthcare, and living expenses, not the screwed up and easily tweaked current standard for cost of living.
You had a lot to say DLS,
I only have time to respond to one, sorry.
The “fairness” I describe relates to how the current tax structure seems to favor big corporations at the expense of everyone else. If you can afford a lobby, you get a tax cut, incentive or otherwise free ride. Call it what you will, it is in my view, no different than a grant given by the government which picks winners and losers. Cantor and others could not bear to even the field, even a little, if a few seniors or poor people were the beneficiary.
That system which Cantor and presumably you defend only makes sure the small businesses Cantor seems to love so much pay the full 35 percent while GE and Exxon pay next to nothing. If you really believe small businesses make this economy go, then you should be for eliminating the tax shelters those companies get to use and give it back to the businesses who you say really create the jobs.
Right wingers made us miss a golden opportunity to change the tax code to lower the tax rate and even the playing the field for small business. Why did they do it? Well, one of their stated reasons was that any thing that generated revenue which might offset cuts to Medicare or Social Security was not advised in this economy. They would have crushed corporations in a heartbeat if they could have politically told people the revenue did not go up. “If we get our political points, fine, level the tax code-If we don’t then the heck with small business.” I don’t presume to speak for all moderates but, most of the moderates I have talked to are incensed by the right wing killing prospects for a REAL deal including historic tax reform, fairness.
DR
Just a few things.
1. I agree that we should do away with loopholes and lower corporate rates. Unless I miss my guess, DLS does as well. Now some on the left may not because it would do away with subsidies for green energy and other things that the left tends to like.
2. Having said that, your notion that small businesses pay “the full 35 percent” is wrong. The vast majority of small businesses file as subchapter S corps and pay their taxes based on personal income taxes and pay less than the full 35 percent rate.
Slamfu
I’m not DLS but let’s talk about it. What’s the right amount of income to be transferred from the top to the bottom? Does subsidizing services count or does it only count if actually money is flowed from one group to the other?
Today, the high income already transfer a substantial quantity of money to the lower income. If this amount isn’t enough, how much should be transferred and via what mechanism?
I happen to agree that a pure flat tax is a bad idea but a flat tax with say a $35,000 personal exemption…that to me is the definition of a fair way to fund the government. Use that to substitute for FICA, the current income code and dividends and cap gains and you’ll get no complaint at all from me.
Sorry I do wish to talk about this but my limited time prevents me, I’ll be back tomorrow around 10am PST.
And what rate would you apply?
And how would non-wage earning dependents be accounted for?
I would apply whatever rate is necessary to make up the receipts. I haven’t done the calculation but if you want a rough guess, I’d say around 25%
1. Income under $35,000 was about 34% of reported income (quick and dirty from the CBO tables)
2. Total income and payroll effective tax rate was 16.6%.
3. So a rate right around 25% excluding the first $35K of income would be necessary to produce the same revenue
If you charged cap gains and dividends at the same rate, you could probably get it down to 23 or 24 percent.
All of the above data is from 2006 according to the CBO
No accounting for non-wage earning dependents or any other exceptions in the tax code.
slamfu-
I like how you think.
Makes entirely more economic sense to me than these voodoo economists here. Whereby you have to have a witchdoctor to interpret their horribly illogical “logic”.
“DLS, what exactly to you mean by “envy-and-resentment-driven morally wrongful tax policy”?” ~ slamfu
What he means is what he always means when he’s trying to slam liberals (which is almost always). He views them with what comes across as a pathological disdain and that disdain feeds most of his comments to varying degrees. Of course he will probably deny this and pretend to be hurt, but all one need do is read any half dozen of his posts at random to see the truth of it. As for the envy and resentment part, that is typical (and all too frequent) bullsquat that comes from people who measure most value that life has to offer in monetary terms and therefore they assume everyone else does too. Fortunately they are wrong. BTW, DLS is certainly not the only person here to have floated that ridiculous envy and resentment narrative.
(forgive the typos. The new commenting system is a little friendly on the iPad, but only a little)
I’ve been taking a break from politics for a little while so fill me in if im missing something, but I don’t understand one thing about the argument you are making: Obama not only conceded the argument over spending cuts, but actually argued for cutting spending on multiple occasions recently, including entitlement programs. Leaving aside whether we feel he was genuine in this arguments, how exactly do Democrats pin blame for the cuts (assuming the result is perceived to be bad) on Republicans? It seems to me that Republicans can just counter with the Presidents own words.
As for not raising taxes, the Republicans can claim credit/blame for that, but I think the argument that the economy is bad because we don’t tax te rich enough is going to be hard to make. Conventional wisdom, whether you agree with it or not, still runs the other way. So, Republicans will argue, effectively I think, that they stood firm against the Dem’s attempts to raise taxes and further damage the economy.
So, assuming the economy remains stagnant or gets worse, I’m not seeing how Obama and the Dems escape ownership over this.
“Conventional wisdom, whether you agree with it or not, still runs the other way.”
In the macroeconomic sense, tax cuts and stimuli should have the same effect on money, since it really boils down to borrowing.
However, notice how many voted for both tax cuts and stimuli?
“Conventional wisdom, whether you agree with it or not, still runs the other way.”
Wisdom is never conventional, just as sense is never common.
“Obama not only conceded the argument over spending cuts, but actually argued for cutting spending on multiple occasions recently, including entitlement programs.”
So am I. I just recognize that a diminishing group of people to the right of me actually want to make entitlement programs more cost-effective when they speak of “reform” – they just want to cripple the programs, make them useless and take money from them to give tax cuts to the rich.
One thing that constantly perplexes me – conservatives always moan about how providing health care and a decent retirement for people will destroy everything and hamstring the nation.
Um, if a nation can’t even manage that without going up in flames, then the nation – not the idea of entitlement programs and social safety nets – has failed miserably. So the choice is between financial or social cataclysm, eh? WHAT AN EASY CHOICE.
[S]lamfu wrote:
No. In fact, with the income tax, a single rate (flat rate) system is the correct one. It’s the opposite of a warped system used as a political weapon. I’m surprised you’d think of the opposite, instead. (A practical, real income tax has a single rate but also a single exemption for the essential income individuals need to meet basic expenses. The correct income tax policy method is there before everyone — juggle three things: the rate, the amount of the exemption, and the amount of money wanted.)
Progressive tax rate structures (which many lie about, calling them “fair” or an example of “fairness”) are typically political weaponry, not intelligent tax policy — an effective law of nature.
That’s the reality of an income tax system. It means people who make more are taxed more. That means in turn that those at the top pay much more than they owe insofar as any benefits from government are concerned. (Many want that, a form of parasitism or “punishment.”) But it’s a compromise. “Income is income.” Of course those with higher incomes have to pay more than those with lower incomes. Income is income! What’s being taxed is income.
The problem is when it’s misused as a political weapon (in fact as early as the 19th century, when it was first sought). And of course that there is envy and resentment behind its being sought is obvious fact. Anyone observing it plainly and objectively knows that. (It’s annoying to be encumbered by BS denial of that, etc.)
All this not only is true for the income tax, but for what I long have anticipated, typically a liberal subject like some on here that I’ve studied and discussed more on here than any liberal: someday we may also have wealth taxation, and the same facts apply there.
A flat tax is superior, obviously, as is simplifying the system and getting rid of all the distinctions in it and special favors in it, which includes the sacred cow the Herd will defend, the mortgage interest deduction.* All of these devices need to be abolished.
The resulting reduction of huge dead weight of compliance needs and costs alone make it superior, but so does its simplicity and ability to substitute a lower single rate in place of the nonsense.
There is no “necessity” for redistribution, it doesn’t even qualify as a “necessary” evil, just an effective consequence of the welfare state that we have, and the objective is riven with ill will and worse, (It’s less necessary than taxes or government, which are necessary evils.) Moreover, the results of the quest tend always toward leveling down, not up, and toward effective when not real destruction. (Kennan’s notes about the Soviet countryside where the land owners were dispossessed and often killed, where the farms and the farmers were left no better off and in fact worse than before, come to mind.) Certainly there’s disparity and inequity in the income distribution (and the notion that some are rigging as well as gaming the system), but not all of it is wrong or unnatural, and the cure typically has been much worse than the disease. The burden of proof lies wholly on the “doctors,” with a lot of bad baggage they have to account for beforehand.
As soon as you diverge from a single rate, you’re creating winners and losers, probably intentionally, and politically. Why?
Of course it’s accumulating at the top. (Nearly everyone looks at income disparity and concentration, and neglect where it matters at least as much if not more so, and where there is much more inequity and concentration: wealth.) I’ve posted charts numerous times on this site showing the differences typically from 1913 onward, that show notable changes after World War II, then changing in the 1970s-1980s to what we have now, which is more like pre-1930. And I’ve referred readers to scholars of inequality (which turns out at least once or twice to have used the same figures from NBER that I enjoy giving readers here the chance to read. No telling how often they read them, but they get the chance. Most apparently prefer trivial left-wing gossip or replying in kind most of the time.)
FYI, I’ve also made notes about (and posted links giving readers the chance to see and learn more for themselves) about poverty research as well as what’s related, yes, a modern cost-of-living definition (not the chintzy one in the early 1960s that was simply three times the typical cost of food).
I’ve also studied other welfare state ideas or extensions of what we have now — though ours were the beginnings of these, at least with health care — such as the universal guaranteed income, an overt income distribution that has practical as well as good intentions. (We can’t afford it, though some wanted to try in the 1960s into the early-mid 1970s, before the liberal crack-up. Don’t forget Nixon’s flirting with such a thing, in fact.)
I’ve meant well, better than many liberals, with more information.
I’ve also studied the demographics we’re going to face, unlike so many of my antagonists and critics. (They don’t understand or can’t face what’s going to happen in the 2020s onward, or that Europe has even more unsustainable welfare-state features than we have, and faces even worse demographics. Doesn’t stop them from being critics, of course, as in other matters on this site.)
* The mortgage interest deduction is a sacred cow that long has needed to be abolished, but will have enormous interests at stake that will try to defend it. It shows the frustration at seeking good tax policy.
Had we been still in a bubble, the logical progression for liberals would have been to treat the interest deduction and tax-deferred or “401(k)” and related retirement plans similiarly: First comes ability to borrow for a home, and deduct interest paid on home loans, then comes the same for automobiles, then for large appliances or other “durable goods” that are expensive, then just about anything (stereos and TVs), then just borrow for anything and even deduct credit card interest. “Tax reform” would then consist of effectively means-testing these things, and favoring those with lower incomes, disfavoring those with higher incomes.
Don’t be surprised to see means-testing used even in tax policy!
Which leads to another concern of liberals, future of entitlements.
Means testing is likely coming for entitlements. I’ve stated the case well for defending universality, and noting what’s ugly about coming means testing — probably lost on many until it happens to them — but means testing probably is coming. A related intellectual and political exercise I did and wrote about related to this was to consider a 100% egalitarian benefit structure for Social Security, where everyone got the same. It would be a hint at any kind of costs and needs for a guaranteed income for all adults, in case you hadn’t thought about that, too. It turns out that everyone now would get under $1,100 per month, which is far from enough to live on — I wouldn’t hesitate to say that is inadequate. Yet that’s the cost per head of Social Security now, and what about in the future, when there are so many more retired and their benefits cause the average to go up somewhat? How can we afford to greatly increase benefits for everyone, say raising that to $3,000 a month, promptly tripling the costs? We cannot. If we see adequacy, a concern I’ve written about more than any liberal on here, then probably we’re going to be forced to do means testing, because we can’t afford adequacy for everybody. And so much, obviously, for easily being able to provide a minimum to every adult in the nation.
For Medicare, worst case it means converting it to Medicaid.
Keeping it universal means limiting what services can be paid for.
One more thing about Slamfu and the economy: I’ve noted (the only one) that what’s neglected is the (political-baggage-free) concern that Social Security benefits may not be adequate. We’re heading for leaner, meaner, tougher times for everyone in the 2020s onward. Big sell-off of assets by people to pay for their retirements (driving prices down), aging causing labor shortages and likely inflation, taxpayers increasingly beleaguered and resenting it as well as suffering from it … governments finally having to get real and pare down (and reform government employee retirement). What happens when so many reach the age of retirement and become more dependent on Social Security (which as I’ve said is why it won’t be abolished!), and find that their incomes are inadequate, not merely much less than what they had presumed (as well as their retirement standards of living)?
What will inadeqeuate Social Security benefits and overreliance on such benefits (inadequate or adequate but hardly substantial) going to do to demand and to the economy additionally, then?
More food for thought
D. R. Welch wrote:
It’s not the same as “industrial policy,” but rather amounts more to what is conveyed by the term “corporate welfare,” which also is incorrectly applied here. They’re able to game the system, which suffers from all kinds of exemptions, deductions, other details.
Real reform means all these details are abolished. That ends picking winners and losers in the tax code, of course, but they shouldn’t be in the tax code. End all the unnecessary complications, and the rates can be lowered but revenue neutrality retained. (“Revenue neutrality” is wrongly used in a political way and I’d rather avoid introducing it again, but it’s a good gauge of the size of any kind of replacement for the status quo, too.) Corporate tax rates can be lowered (ideally, a single rate!) to achieve parity with the middle of OECD rate structures.
With the income tax, it should also be simplified, a flat rate and a standard exemption (for basic expenses*), and of course there wouldn’t be a need for the alternative minimum tax any more.
What Steve in Chicago and others have said, yes, FICA needs to be raised to 25 per cent to make the entitlements solvent, and the income “cap” needs to be raised or ended, benefit structure be adjusted, etc., but there’s no reason in theory that entitlements couldn’t be funded completely (much is now) out of general funds, which come primarily from income taxes. (The current fraction and other things are “mandatory,” taking priority over other claims on general revenues now. Some would make all entitlement funding “mandatory”; with or without that, making all funding from income taxes certainly is a possible alternative to FICA.)
That’s the kind of real reform that makes sense.
And of course, if or when there are wealth taxes, may they be simple and free of political taint, if we can ever do that for income taxes.
* Might this not come close to or even match typical Social Security benefits, incidentally?
One of the alternatives (a variant, effectively of the guaranteed income for everyone) if Slamfu wanted to take things to the extreme about income redistribution would be the negative income tax, incorporating redistribution of incomes into the income tax itself.
It’s not just the Left’s idea; it’s best associated with Milton Friedman.
It could be thought of as a “fee-bate” scheme applied to the income tax. Those with higher incomes would pay the fee, which would be rebated to those with lower incomes.
One time I even thought of a formula and some other details, based on an easy source of data, last year’s percentiles.
NOTE: This would replace ALL OTHER WELFARE PROGRAMS.
(except perhaps health care, which many would insist on keeping)
I’m afraid you’re wrong again, J. Spencer, while even hinting again hypocritically about expressing what’s an identifiable defect in the seeking of progressive income (and wealth) taxation.
The only valid, and still cold and harsh, rationale or logical basis for redistribution and taking even MORE from those with more is still utilitarianism: taking away the least essential income causes the least real pain, while assisting those with the least reduces the most pain.
99.9999% it’s just envy and resentment, jealous of those with so much more and hating them for it. (Add to that the “blame” for so much of the nation’s or world’s ills to “rationalize” and justify it more.)
Note, too, D.R. Welch, the response of liberals to the budget deal (probably at its core, the response to acknowledging that spending is excessive and wrong, and requires correction):
They’re aping the Tea Party stereotype, wanting to trash Rome in their laughable “outrage.”
“I’ve posted charts numerous times on this site showing the differences typically from 1913 onward, that show notable changes after World War II, then changing in the 1970s-1980s to what we have now, which is more like pre-1930″
Lol yea, pre-1930 as in the era that set the stage for the great depression. Again, there isn’t anything wrong with accumulation at the top as long as the rest of the people have enough spend, buy houses, pay for college, basically everything that drives the economy. WWII redistributed the wealth with tax rates at what, about 90% for the top earners? What happened afterwards was a massive growth in the US economy, transformed us into the global powerhouse we are today. This is my point.
The people at the top don’t spend their money on goods and services, or rather someone with 1000 times the net worth of someone making the median wage isn’t using up 1000 times the goods and services of that median wage worker. Their income goes into mutual funds and other investment devices which provide capital for the creation of jobs to meet demands, but eventually there won’t be a need for all that capital because the demand no longer exists when the middle class doesn’t have any money to spend. That is why it must be redistributed. Once a critical mass of the economy is in the hands of the wealthiest, everything collapses. The signs of this are the creation of riskier and riskier investment schemes like the mortgage based securities and the pushing of application free mortgages to shore those up. Its what causes the bubbles to burst.
Also, there is no linkage between federal income tax and jobs made or lost. The GOP’s main argument for playing around with the tax rate is that raising taxes costs jobs and lowering taxes creates them. Its an easy pitch to make to the average taxpayer, works in quick soundbites and you don’t need an economics degree to digest it properly. The problem is its not true. All the tax rate does is provide the gov’t with the money it needs to do the things we need it to do. Which contrary to many conservatives way of thinking, is a lot of stuff. Its one of the most sure fire ways to get the budget back on course, help redistribute some money to the middle class to jump start consumer demand again, and fix things both at the federal and economic level. Basically the GOP has what I know to be a very flawed premise for its economic plans, while the democrats don’t have the political will to enact anything that needs to be done. Its got me really depressed some days.
P.S. – Sorry noticed that was all in italics, I didn’t mean it to be and the edit feature doesn’t seem to allow me to fix that. If any moderators want to do so for me that would be appreciated.
If the moderators change it, change it after the word “correction” in my posting before Slamfu’s (that precedes this posting).
There are problems that affect individual postings, as I’ve seen, but it’s really bad if errors affect subsequent postings, too. Or “when,” perhaps — what’s with those overrunning text lines?
Stand by for reply, Slamfu (no italics).
Slamfu wrote:
The point was that I’ve shown charts that go back really far, and show the changes before World War II as well as in contemporary (post-1980 and later) times. (Note that there’s no going back to that “golden era” of 1947-1974 or so, a wasted wish.)
I don’t believe it necessarily “should” be a normal distribution (Gaussian), but rather should be log-normal. So many other things in the world are, and incomes as well as home prices appear to follow this, too.
The money to create jobs that pay income that supports or even generates demand has to come from somewhere, and it comes from savings and investment, particularly. (I fear even more than an income tax, a wealth tax someday, not only the likely morally low underpinning of the desire and effort to get one, but for its likely effects on the economy, including those from capital flight.)
The Keynesian “macro problem” demand view is good, but it can be superficial and certainly doesn’t justify preoccupation or even obsession with demand and attempting to rationalize any and all spending (even the most reckless, it seems sometimes), or the corollary that may come to mind that everyone should have the “right” [sic] to be able to spend as much as one wants, et cetera.
There is no need for redistribution, certainly never to excess. It is true that inequality can cause problems when incomes at the low end are inadequate. I believe it is this adequacy issue, not inequality, that should remain paramount, even if some draw from that the inference that something has to be done to correct it. But what, and what about the side or negative effects of that?
(If you didn’t see my note from time to time: In addition to the other problems from the 2020s onward on our economy and society, I believe Social Security dependency will be much greater or more thorough among the older people than they realize now while they’re younger. That adequacy concern will become more important than it currently is, because the fraction of older people will increase later. In that sense there’s the “macro” view in addition to the “micro” or individual concern about adequacy to meet one’s basic needs.)
The disincentives of income taxation, and particularly of high and complex taxation, are not seriously questioned. Reducing them is a bonus from serious tax reform.
Needs or wants?
Needs or wants?
Note that among the things that long have needed rationalization (not only analysis, but correction and improvement) has been what things the federal, state, and local governments should be doing, as well as what should be public and what should be private. That will be forced eventually and fans of expansive government, notably a federal government not constrained by federalism, are going to have their unrealistic dreams ruined.
Raising taxes is inevitable because of the size of the Baby Boomer cohort when it reaches retirement age. But first comes tax reform, before raising taxes, and even before that comes the need to first face the true problem, spending, and the real place where reform is most needed, spending reform, and reduction.
The last thing the Dems or the GOP should do is raise taxes greatly or introduce substantial new taxes without abolishing the income tax. The income tax is inferior to consumption taxes (even the one that never should be used, the personal or corporate expenditure tax, where income and expenditures are declared to the government doing the taxing, and which often involves income withholding in many schemes, making it even worse). But we’re probably stuck with the income tax, and so first and foremost it needs to be reformed. That means ending all the details, and subjecting all (all) income to a single rate, with a suitable exemption to provide for all basic needs for an individual adult. (This should also be the minimum Social Security payment, incidentally. “Integrate!”) A multi-rate income tax is inferior, and subject to morally deficient motives and their effects, but certainly it’s possible to have something that isn’t the worst. Obviously the top rate shouldn’t exceed 50 per cent; above that is slavery. (Notions of nominal rates much higher are silly; nobody pays that in the real world, but avoids taxes and spends additional money and effort in the process, adding to the dead weight costs imposed by income taxes that are especially bad.) The ideal would be to have as many rates as practical so as to as finely divide the income ranges as much as practical, for more precision, and aim for consistent, equal marginal rates on each income class “increment.” That won’t satisfy the greedy and the envious, but they don’t or shouldn’t count in serious matters.
(A faster way to do it is to calculate the previous year’s income percentiles and then base the current year’s taxes on incomes depending on which percentile range they fall into. It permits up to 100 separate tax rates if there is no exemption, or just charge zero per cent tax on everything below the exemption. Note that a negative income tax super-redistributionist “fee-bate” scheme could also use percentiles, and shift incomes from the top half to the bottom half; the key to keep things within moral and incentive bounds is to limit the taxes and the subsidies to low incomes such that higher earned, nominal incomes always result in higher after-tax incomes.)
(It should be added that the federal minimum wage should be tied to the income tax exemption — what’s reasonable for a minimum? — and to Social Security tax payments. Also, while incomes should of course be earlier for earlier retirement and that is a bad idea, we could have early retirement beginning at age 59.5 years, and full retirement age at 70.5 years, which is a modern true retirement age, and it ties into the income tax IRA and 401(k), etc., distribution rules. Again, integrate!)
If you want a more conventional progressive income tax that ends high, and is based on realism, we might see an exemption of $25,000, and 2-6 tax brackets ending with the last starting at $250,000 (at up to 50 per cent). If there are discontinuities in the current taxable income distribution (or that of projected incomes if the taxability of various kinds of income is changed), that have been persistent or “durable,” that indicates significant true multiple “classes” or groups of income, and their bounds are where there should be differences in tax rates, logically. (Note yet more that Social Security benefit calculations and replacement rates for various levels of income should be based on these groups, too. Integrate!)
There’s much that could be done with (income, mainly) taxes that would increase the revenue yield but more importantly be logically and morally superior — even if progressivity is added.
P.S. Poverty research should provide more information for the exemption-Social Security minimum payment-federal minimum wage.