Beware Of Any Deal Over Government Deficits That Includes Tax Code “Reform”
Anyone who follows politics in this country knows what the word “reform” has come to mean. These days it means a deal in which the poor and the working middle class get stiffed on their benefits and pensions, while the rich either get additional compensation or are simply excluded from making their own sacrifices.
That’s the basis of the reform of the tax code being pushed by Republicans. The reform embedded in recommendations by President Obama’s panel that was supposed to come up with ideas to reduce the national debt. The reform embraced by the president himself a few months back.
In general, here’s what all these so-called “reforms” are all about. Benefits for the suffering poor and middle class are trimmed big time in one way or another. Some tax breaks enjoyed by the rich are also done away with. And to compensate the rich for these loses, their marginal tax rates are reduced.
You see, in the current world of reform in which our politics operate, the already badly squeezed and hard-pressed need not be recompensed. But if the precious rich take a hit, they must somehow be made whole. Oh, and by the by, even the tax breaks taken away from them up front would almost certainly be sneaked back into the tax code over time while their lower marginal rates would be fixed in stone.
It has taken a long time, but the American electorate has finally begun to recognize that Republicans’ nattering about taxing the rich as class warfare, and million-a-year earners as small businesspeople, is nonsense. The public now wants, and is beginning to demand, higher taxes on the very rich. They favor a 5 percent surtax on million-or-more-a-year earners. A growing number are even beginning to understand the logic of pricking the Wall Street bubble with a transaction tax, and dong away with the carried interest tax scam of hedge fund managers.
Democrats have issues here that could keep them in the White House and maybe, just maybe, even win them back congress. Or they could go with some variant of a grand bargain “reform” of the tax code and blow it yet again.
Awhile back I would have given 5-to-1 odds that they would buy into this sham “reform.” Things have changed a lot lately, however. Now I make it even money.
Who knows. Democrats might be able to free themselves from their Wall Street-trained advisers who say this kind of reform is economically prudent, and from their political advisers who tell them that sucking up to big money is the only way to win elections.
Democrats might actually be able to do that. Might even do what they promise if they get elected or reelected. And deserve to hold public office in consequence.
We can at least hope.
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28 Responses to “Beware Of Any Deal Over Government Deficits That Includes Tax Code “Reform””
Unless you have information I don’t, you have left some things out. my understanding is the heart of the GOP plan is to change the formula used to assign tax brackets, with the result being more people will be shifted into higher tax brackets over time. Really it’s a backdoor way of raising taxes without actually raising the rate. As you have pointed out the GOP has also proposed getting rid of some tax breaks for the super wealthy, which at least partially addresses the problem of the super-rich not paying any taxes at all.
My personal preference has been a return to Clinton era tax rates for everybody, or a least a compromise between the Bush and Clinton rates. This plan might do that although in an indirect way.
The millionaire tax is a band-aid that solves little. Saying a 5% tax on millionaires is the right thing to do because of poll results is an exceedingly weak reason. The GOP will almost certainly not raise tax rates directly, so why look to that as a solution.
This plan is imperfect but looks like a step forward to me.
What happened to Obama’s campaign promise to place tax on Wall Street transactions? This would generate billions. Currently, they only pay on captial gains profits at a 15 to 20% rate with other loophole savings that we don’t even know about.
What a phenomenally horrible post. Math is relatively simple.
The plan (all sides seem to agree) raises more money than the current rate table. It also lowers rates across the board and gets rid of deductions.
The only way that all three of those things can be true is if the reduction in deductions raises more money than the reduction in rates loses.
Furthermore, since the formula for reducing deductions is to cap them as a percentage of income, the reduction in deductions will disproportionately hit the wealthy and not the middle class or the poor.
Now of course we don’t have enough details to do a full distributional analysis but the few details we do have require higher effective tax rates (on average) on the wealthy. In reality, tax rates on people with a lot of deductions will go up and the rates on those with few deductions will go down. Since the bulk of people taking lots of itemized deductions are wealthy, they will bear the brunt of the tax increase.
Now there are certainly valid critiques of the proposal…it doesn’t raise taxes enough…it leaves the opportunity for future Congresses to add more deductions…but arguing it on distributional effects is simply mathematically incorrect or ignorant of the proposal in question.
Hi All,
Here’s the point of my post.
You have this thing called “reform” that can be diddled in countless ways because it would doubtless come in the form of a huge document filled with words and phrases that can be argued and abused in countless ways but very smart people who live doing exactly that. And the end result — whatever the claimed intended result — would be something that ended up favoring the rich because…because that’s how it has always worked out in recent years.
Or..You could have a simple, straight forward surtax of 5 percent on net incomes over a million dollars a year. And, you could have a financial instrument transaction tax of one-quarter of one percent that would also be fairly straight forward and far less susceptible to fancy fudging.
It’s obvious which way I want to go. It’s equally obvious this ain’t gonna happen with the present Republican-controlled congress. But…if my druthers is adopted as a prime policy issue by the Democratic Party, I think they might win the White House and Congress and then my druthers will become policy.
“Reform,” with quotes, that isn’t really reform, yes, beware.
True reform, welcome with relish as well as relief.
End the unneeded details, broaden the base, flatten and lower the rate(s).
Clean-up on Aisle 6
What’s with all the “attack the author” foolishness that’s been going on lately?
JJ
Do you understand that a financial transactions tax has nothing to do with the capital gains tax rate?
A transaction tax would generate virtually nothing. Transactions would move offshore in a heartbeat.
Hi Again,
You know, a tax proposal is known by the company it keeps. When the likes of Senator Toomey from my own Pennsylvania is leaning toward tax “reform” with all those cute assumptions built in (lower tax rates for top earners would be more than offset by their loss of deductions, yeah, right) well, really folks, is this gonna benefit the little guy, or work to get the rich off the tax hook.
Conservatives surprise me on this one. They like the flat tax approach because they say it’s so simple and easy to understand. Think of the surtax I propose as a kind of a flat tax approach to garnering revenue. Simple to understand. Not like uber complicated tax “reform.”
Re: That transaction tax that is claimed to be impractical because it would force trading offshore. EU countries want one, and it would have an international edge if we went along So why don’t we?
Re: transaction tax
Who knew the only countries were the US and Europe ; )
In the end, the Democrats are no better than the Republicans. They complain about Republican obstructionism. But the Democrats could lay out how they feel reforms would need to be done to not hurt the poor to favor the rich. But instead we being told to reject any reform proposal at all because a vague sense that it must be part of a secret Republican attack on the poor.
What we need is to break up the two party system so we aren’t stuck choosing which evil we want.
Steve, the technological infrastructure to support modern trading doesn’t exist in that many places in the world. In addition 70% of modern transactions are purely automated with no human intervention and take place so fast that the speed of light in fiber and electrons in cable become important. That’s why many of the servers executing those trades are co-located in the same facilities in New Jersey that the major exchanges have their servers in or at least ones close by. Think how much time would be lost by relocating trades to Asia, which is to the best of my knowledge the only place with infrastructure similar to that found in the U.S. and Europe. And if you think that the people thinking of a transaction tax haven’t thought of that it shows the hubris of the modern conservative.
And the other question is whether or not the results of research like this would apply.
http://econproph.com/2011/04/22/millionaires-dont-move-to-avoid-taxes-empty-threats/
You keep saying that, David. So which third party will deliver us?
The reason we don’t have good third party alternatives is because the system is so stacked against them. That is why I think we need voting reform, such at instant-runoff voting…
http://en.wikipedia.org/wiki/Instant-runoff_voting
Now some people on the centrist blogs are talking about the National Centrist Party movement. There has also been attention regarding the Americas Elect group. I personally think we need fundamental reform, so I’m not part of the “we need a new party to oppose the two parties” crowd. OTOH, I think almost anything would be better than wasting my vote voting for one the two parties who have taken turns leading us down the road we are on.
@David
Although I am not in total agreement with the proposals, the Democrats have (in fact) given their proposals for how to move forward. Just because those proposals have not been voted on does not mean they don’t exist. To get a plan voted on, you need a simple majority in the house (and the permission of the speaker). To get a plan voted on in the senate requires 60 senators to agree to allowing the vote.
In the past, there were few times that the senate would prevent the vote. Now, that has become the norm. Do not listen to House Republicans claiming they passed a budget, gee why didn’t the Democrats. The House R’s know very well that their fellow R’s in the Senate would block any such vote unless it was exactly what the GOP was insisting upon.
We have instant runoff voting here in San Francisco, David, and it’s controversial. It will probably give us Ed Lee, a party machine Democrat, as mayor. It gave Oakland a mayor who looks fairly incompetent. Voters may repeal IRV in the spring.
Personally I’m undecided on it, but I don’t see how it advantages third party candidates, except to the extent it produces more random outcomes.
Well, I was responding mostly to Mr. Silverstein’s article, which essentially says to regard any reform proposal as a secret Republican attack on the poor. Any article coming up here saying that one should regard any health care proposal as a secret Democratic attempt to socialize health care would be regarded as proof of Republican obstructionism.
Yes, I live just down in the Silicon Valley and hear all about it. In fact, it has, IMO, worked well for San Francisco. There are voters who don’t seem willing to take the time to understand it. And some politicians will oppose it because they calculate that a system that doesn’t require them to get a majority give them a better chance.
Ed Lee wasn’t elected because of Instant-Runoff voting. He was elected because the voters chose him. A system that gives voters more choices and follows their will better doesn’t change whether they will pick the “right” guy.
And in the current election, had it been an old-fashioned winner-takes-all election, it would have been simply math for the two candidates to try and savage each other. But, instead of the most memorable campaign ad being some savage attack ad, it was Lee’s “to Legit to Quit” ad.
Or they may not. If it gets repealed, that would be a mistake.
Well, I don’t think Lee’s election was “random”. In fact, here IRV didn’t make a direct difference in the election, since Lee one in first round. (IRV is essentially just a system of holding runoff elections without having to have separate elections. But a run-off is not needed if someone wins an election in the first round).
It did however mean that if Lee had been unpopular, he couldn’t have gotten elected just because his opposition was split. It also mean that in the campaign, he could just concentrate an trying to convince everyone that his one opponent killed puppies and wanted to turn Union Square into a toxic waste dump.
Or lets look at it another way. There a lot of people here who like Nader, but think he damages the Democrat’s chances? In instant-runoff voting, you could vote for Nader secure in the knowledge that, by putting the Democrat as you second choice, you can’t be helping to elect the Republican.
No, Lee didn’t win in the first round, he won in the eleventh. And I’m not saying his election was random, because he would probably have won under other rules as well. I’m just saying he’s anything but a third-party candidate.
I agree with you that IRV makes it easier to vote for long-shot candidates, but that’s a symbolic gesture. If enough people cared to vote for them to put them in office, they wouldn’t be long shots to begin with.
Yeah, I misread the article. He won in the later run-offs.
Well, most of the time the third party won’t win, because even in a fair system, bigger parties will win more often, but it means they can win and, more importantly, people can vote for them, and show their positions have suppport.
Under the current system, third parties are in a catch-22. The idea that they can’t win means that the most attractive potential candidates and money goes to the main parties, but because they don’t have those resources, it is seen as proof they can’t win. IRV would break out of this. It means you can from a party that has enough support (say 15%) to show that there is a point of view out there that isn’t being represented without having to worry that you will only get 4% of the vote because everyone is convinced you can’t win. Instead, you can show that you matter to the electorate and gain attention support you can build off of.
And I have to say, given the attitude that many have toward the main parties and all their partisan games, I think that if we had IRV across the country, they would start loosing seats here and there. That might be something that would start to change things.
IRV also makes it harder the main parties to force out their more independently minded members who don’t toe the party line, since it means that those forced out can run as a third party without having to put up with the automatic assumption they can’t win.
And the idea that a third party can win, or even just build support, by getting votes makes it harder for the main parties to play the game of just trying to make sure the other guy looks worse, rather than trying to be good choices themselves. When voters have another choice they can go to, the math doesn’t work the same for scorched earth partisanship.
So you’re saying IRV can give a third party candidate who would otherwise have gotten 4% of the vote 15%, and this proves a new level of support for the party and gives them qualitatively different economics?
I don’t see how this works. Sure, the machinations of IRV can make a minor candidate look better in the 11th round than he did in the first, but the system is complicated enough that no one’s likely to notice. I only found out Lee won in the 11th round with some research, and I have no idea of anyone else’s standing in that or any of the intervening rounds. Even if I knew, say, a Libertarian candidate lost in the 9th round with 15% of the vote, I can’t see it changing my behavior.
And as far as individual candidates are concerned, the election results are too late anyway: it’s polls that determine a given campaign’s economics. A candidate polling at 4% won’t get much attention, and IRV won’t change the poll results.
Of course, if a few 4%-ers actually went and won their elections thanks to IRV, that might make people recalibrate how they read polls. On the other hand it would convince people IRV produces random outcomes and hasten its repeal.
You are missing the point. The old winner take all districts actively prevent people from voting for any but the two main parties and it is stopping that factor that makes a difference. People are told, “you have to vote for me because that other guy wants to destroy our country”. People who would like to vote for Nader a afraid to because if might elect an evil Republican.
IRV, by eliminating this effect, makes it possible for they guy who 15% of the people support to actually get 15% of the first place votes. Not because of any mathematical trick, but simply because people can vote for whom they want to without helping the “wrong” guy win.
It is the number of first place votes that indicates support, not the number of rounds it went (which actually will usually be close to the number of candidates, since you eliminate the top candidates last).
You know that 11% of the people wanted Dennis Herrara for their first place votes, rather than him getting 2% of the vote because he “can’t win”, showing that he has support. If he could pick up 8% of the vote, he might be the second place candidate.
Say the first place votes in an election are 40%, 33%, and 27%. The the two main parties know that there are voters who concerns they need to court, rather than ignore them as they do know. It also means that people who might like the third party best know that they have support and can build on that.
No, but if the polls are 40%, 33%, and 27%, then the third place candidate is close enough to pull up to second and can even take the election. In the winner take all system, people are so concerned with the top two (who “can win”) that he probably doesn’t even poll at his real support.
What is more, it means that even if the “traditional” candidates have taken their place on the ballot, another candidate can know that people won’t feel that have to vote for one of the two parties and consider him, rather than being put in a position where he can’t win right from the beginning. This means that you can get more qualified candidates to run.
I shouldn’t focus just on first place votes. This election not only told us that 11% of the people wanted Dennis Herrara for their first place votes. It also told us that when it came down to the final three, he wasn’t too far behind Avalos (23% to 29%) and only needed to pick up 6% to get into the final round. Clearly people agreed with his policies and they should be regarded are a credible alternative to the main two.
If I am understanding correctly, IRV sounds somewhat similar to the way that Canada chooses is parliament. The voters choose which party they support and MP’s are assigned based on the % of the vote their party received. This allows smaller parties to actually obtain seats that would otherwise be taken by much larger parties if each MP were elected individually according to district.
I would like to see third-party people get the recognition they deserve–it might even help to keep the two main parties in our country more honest. Correction: it might cause those elected officials in the two main parties to BECOME honest (don’t want the accusation of oxymoron assigned to me).
David, your point about releasing people from voting out of fear sounds valid and a good argument for IRV.
I still think your belief that it will change third-party economics is highly speculative. 11% of the people may indeed have approved of Dennis Herrera. I’ll file that in the same bin I file the endless posts on TMV claiming “Polls show 53% of people favor policy X, therefore it’s a sound policy.” Pure hogwash.
I believe most campaign donors are trying to back someone electable and would rule out anyone without a reasonable chance of winning, so they watch the polls closely. The remainder are zealots who will donate to minor candidates to buy airtime for positions they believe in strongly, no matter what the polls say. Like TMV writers, no amount of data will change their positions. So Dennis Herrera’s 11% won’t change the behavior of either group.
Yes an no. What you are talking about is proportional representation. That can be done in election for a single person (because you can’t elect a part of a person
. IRV is designed to break out of a two party system for single person districts, which a pretty basic to the US system. (There is really no way to elect the president or senators any other way.) One effect can be to help third parties (or independents) get elected.
I do agree that many of the problems we see today is because the two parties only need to run each other down, rather than do anything positive.
Well, we will have to disagree on that. I will point out, however, that the one thing that we know for sure won’t work is to stick with the winner-take-all system we have now. I like IRV, but it isn’t the only solution out there. If someone can get another reform to come along, more power to them.
Well, I agree that people aren’t often willing to change their views completely, but the can, and do, shift around and that can be enough to shift things around in multicandidate situations (there the election has force a choice between polar opposites). They also shift positions in regard to individuals fairly often.
And, as you note: some donors (actually a lot) only give money to those who can be elected. In fact, even ideologically motivate people might only give money to those who a “right”, but they still often of a choice of elections to donate to and try to go where they can win. By removing a barrier to winning for third parties and independents, IRV can help candidates get support.