Roemer's Social Ethos: passing a tax increase for the rich might be the best thing we could do for them...

[After a week of visiting with the grandkids, I'm back!]

As everyone is undoubtedly aware, the House recently passed its version of health care reform, with a pay-for provision that includes a small surcharge on the very top tier of the income distribution.  That surcharge would raise somewhat more than $1 trillion over ten years.  The Republicans (and the blue dog dems) have gone crazy.  They are hollering about how taxing the wealthy amongst us will cause businesses to die and investment to flounder, bringing the economy to its heels.  Sound familiar?  You betcha.  It's the same old strained Reagonomics trickle down, supply side argument that has failed us resoundingly after a forty-year-old experiment.  We have a more unequal distribution of wealth and the working class and middle class is suffering while the wealthy have enjoyed a much higher percentage of income increase (and much more substantial tax cuts).  The economy isn't doing well, but banks on Wall Street are (after taking systemic risks that required billions of dollars in federal bailouts) and bankers are back to their greedy ways of huge bonuses, consolidation, and less services for ordinary folk.  Meanwhile, unemployment is staggeringly high and continuing to increase, and foreclosures aren't going away.  In other words, we've been runnng the country (and its tax policies) to benefit the wealthy owners of capital and managers of their corporate enterprises, rather than to benefit ordinary Americans.  And it hasn't worked.  Let me repeat--it hasn't worked.

Remember, too, that Congress went along with hardly a whimper with a "war of choice" that has cost us more than a trillion already and will likely cost us as much as 6 trillion, when everything is taken into account.  Congress has gone along with boondoggles for the military and deficit spending (with borrowing) that creates long-term needs for raising revenues from somewhere, in order to giveaway gigantic tax cuts to the wealthy, with hardly a whimper.  (Remember that Cheney got a tax-cut of more than $60,000 --more than ordinary Americans make in an entire year--just in the first year of the Bush tax cuts!) 

But when it comes to reintroducing tax rates on the wealthy somewhat more along the lines of where they were several years ago (when we had a successful economy, by the way, in which the slightly higher tax rates did not cause investment or businesses to die), all of a sudden Congress gets antsy.  We start hearing the same old tune that''s been proven untrue by the real facts.  Tax increases don't kill the economy.  Businesses in which individuals make $300,000 of profit won't die if the individual has to pay an additional $15,000 of that profit to the government that made it all possible in the first place.  The money spent by the government on health care will roll back into the economy, whereas the money left in the hands of the wealthy owners of capital might just as likely end up in a hidden account in Switzerland or an offshore bank in the Caymans or invested in polluting mines in Africa.  The fear that small businesses will cease to exist or that taxation will stop US investment is a monster under the bed created by the lobbies for the wealthy owners of capital who are hoping that the same old scare tactics will work yet again to prevent Congress from passing the right kind of tax changes--tax increases making the system more progressive.

Real health care reform, that will provide improved care for ordinary Americans--something most of us place a very high priority on--just isn't as important in the minds of many in Congress, apparently,  especially when their health industry buddies are lobbying hard against it and running ads to scare Americans into thinking that a public payer system would rob them of choice.  The reason Big Pharm and Big Med don't like a public option is because it will prove to Americans once and for all that most of the stuff that Big Pharm and Big Med have been saying about public provision of essential health care services is simply not true.  Take away the private insurers who make money out of denying care and you get more care.

Stop and think about the alternative.  Taxing the wealthy to pay for something needed by our society could have huge benefits.  Having a health care system that really serves everybody instead of rationing health care, as we do now, based on people's wealth, would be a boon for the entire economy and especially for ordinary Americans.  Paying for it by taking back some of the enormous tax cuts that we've handed out like candy to the wealthy is the most reasonable step we could take.  So the very wealthiest might end up paying a 5.4% surcharge.  That is peanuts to a multimillionaire, but manna from heaven for decent health care for all.  It will go a small way towards rebalancing the distribution of resources that has grown so out-of-kilter in the years of reaganomics.

John Roemer, Yale economics and poli sci professor, has something to say about the "social ethos" that is worth considering in the heat of the "how to pay for health care reform" debate.  John Roemer, Changing the Social Ethos is the Key, Economists' Voice, July  2009.  To summarize very briefly the rational man economic theory, economists assume that man is a greedy beast and that the way to make that work for the public good is to set the rules so that the market will be an "invisible hand" guiding the economy.  But, Roemer notes, the "invisible hand paradigm is flawed"--it's well nigh impossible to find a set of rules that would bring desirable social outcomes in real economies based on market principles.  (And, not to be forgotten--and this is me, not Roemer--market theories also define "desirable social outcomes" in ways that may, in fact, not really be desirable, such as reallocating resources to the highest value use, which means devaluing wilderness and valuing polluting extraction of resources, etc.)

What to do?  Roemer says if people are in fact less greedy, it is easier to design rules that work for the common good.  And people's greed is actually partly determined by social conditions.  So if "we follow a path leading to a society whose individuals are more solidaristic, then ...it is easier to design rules that will guarantee good outcomes."  "[U]nder feudal rules we get serfs who desire only to subsist; under capitalism, we get capitalists who desire to maximize their wealth."  So we need something in between, says Roemer.  Health care reform is an example.  Here's his hypothesis.

Suppose, for example, that America succeeds in implementing universal health insurance; that is, that voters in their majority demand it.  A more pleasant society will then evolve: people will be under less stress from the fear of losing their health insurance when unemployed, or because they contract a major disease; emergency rooms will be loss clogged with poor, uninsured persons; insurers will have incentives to urge people to undertak more healthy life styles (to keep costs down), and so on.  There is a good chance that citizens generally will like these changes--not only because of their own increased financial security, but because civility will increase, andp overty will be, at least along one dimension,less glaring.  Citizens may come to value equality of condition more than they preveiously did.  This change in preferences may well render politically feasible other insurance innovations and increased financing of public goods--more support for the unemployed with job training, perhaps more direct income support for the unemployed, and more support for intensive education for the disadvantaged.

In other words, if we do good, we will feel good about it.  And feeling good about it will cause us to do more things that are good for all of us.  Not a bad result.  Even the rich might realize that in the long run they are better off in a country where there is a strong middle class, poverty is eliminated or made very rare, and most everybody has a sense of being in the same boat.  A little bitty 5.4% surcharge (the highest rate under the House bill) is a very small price to pay for that benefit.

Comments

[Jack]

I had addressed the issue of a tax increase for the "Ninety-ninth Percentile" in a prior comment. I think it bears repeating here. Certainly I wholeheartedly agree with the concept of allowing the very wealthy to take a greater part in supporting the government that so vehemently supports them. Why, however, attach any tax increase to health care reform legislation, as this is likely to be a tactic for that legislation's demise or, worse yet, its evisceration.

I had noted previously that the budget is a unitary document with two exceptions, social security and medicare two semi-independent budgets which we all support with a so-called payroll tax addition. With the unitary character of the main budget taken into account, why not simply shift the emphasis of the additional tax "burden" which may befall the very wealthy in the following manner. Rather than any increase in taxes being identified as being linked to health care legislation I would propose that all military funding aspects of the budget be redirected in order to fund such legislation. Obviously that would leave military spending unfunded, but here is where any tax increase that may be applied to the "Ninety-nine Percentile Club" comes in. That increase be legislated separately as the Patriot's Military Procurement Tax. In this manner the very wealthy can gain the satisfaction of knowing that their added tax assessment is not being used to support a social good, but is otherwise a patriotic support for the military. Who knows, they may then begin to wonder about the wisdom of military funding.

[LindaMBeale]

good points, Jack

[market76]

I think we're all making this problem too complicated, because we want to arrive at a comprehensive solution for an idiosyncratic problem. The American social ethos does not need such a large shove as Professor Roemer’s article indicates. The majority of Americans– poor, middle-class, and even the wealthy– give generously, desire positive social change (although we disagree, in some instances, on what that might constitute), and earn money through hard, honest work. And the majority of wealthy people with whom I speak would gladly give more if their efforts were not counteracted by the sort of criminalism (see: AIG and Goldman) that our inefficient (taken in the most positive light) governance allows. A few criminals, aided by outdated or rotten institutions, ruin everything for everyone else. Let’s not negotiate with hijackers just because their crimes are sufficiently complicated to stymie the legal system as currently constituted. Everyone will happily kick in if we kick the greedy criminals out... of course, it looks like we're increasingly drawing them in...

http://blog.market76.com/2009/07/23/changing-the-social-ethos/

[Stephen V.]

Welcome back Ms. Beale, I suspect blogging is much easier than chasing after grandkids.
Great comments!
Jack: I look forward to running your idea by some of my high-AGI clients.
After the past year, it doth appear that criminality is here to stay.

[LindaMBeale]

Easier, but still hard to find the time to do it all--while trying to complete a corporate tax text for LLM programs.....and do even the lesser amount of college administrative "stuff" that goes on even during the summer.