ataxingmatter

More on the Threat to Social Security and Medicare from the so-called "Fiscal Cliff"

In several posts recently I have discussed the harmful demands the right is engaging in related to the so-called "fiscal cliff" created by the original Bush tax cuts (set to sunset en masse), the artificial debt ceiling (used by the GOP to exact promises of spending cuts during a recession along with extension of unneeded tax cuts for the rich), and the ill-conceived notion that the U.S. military should continue to be funded at dangerously high levels that (i) ensure that the military-industrial complex will find a war or quasi-war in which to engage their newest toys while (ii) sucking resources from public infrastructure projects and education that are vitally needed to sustain our economy.  See, e.g., The GOP's extortion demands: cut Social Security or we'll shoot; If the Dems got backbone; Is it a fiscal cliff or merely a bump in the road; We face an 'austerity crisis' not a 'fiscal cliff. 

A. The Explanation.

At least the national media and a slew of bloggers are beginning to provide some background information to ordinary Americans on just what is driving the national discussion of "fiscal cliffs" and "austerity" demands.  See, e.g., Richard Rubin & Heidi Przybyla, Tax Pledges Confound Math as Obama Seeks Deal with Republicans, Bloomberg.com (Nov. 16, 2012) (noting that "The $607 billion fiscal cliff is the combination of tax increases and spending cuts that will take effect in January if Congress doesn’t act" and characterizing the positions of the parties as follows: "Republicans want to extend expiring tax cuts for all income levels and are demanding an overhaul in 2013 of entitlement programs and the tax code" while "Obama wants $1.6 trillion in higher taxes for top earners over the next decade, achieved through a combination of limits on breaks and higher tax rates on ordinary income, capital gains, dividends and estates"); Jackie Calmes, Demystifying the Fiscal Impasse that is Vexing Washington, New York Times (Nov. 16, 2012), at A19 (the online article is dated Nov. 15). 

[A] slew of tax cuts — $400 billion for 2013 — expire on Dec. 31: All of the Bush-era rate reductions; smaller tax cuts that periodically expire for businesses and individuals; and the 2-percentage-point cut in payroll taxes that Mr. Obama pushed in 2010....  Also, 28 million taxpayers — about one in five, all middle- to upper-income — would have to pay the alternative minimum tax in 2012.... That is because Congress has failed to pass an inflation adjustment....

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An emergency unemployment-compensation program is expiring, which would save $26 billion but end payments to millions of Americans who remain jobless and have exhausted state tax benefits.

Medicare payments to doctors would be reduced 27 percent, or $11 billion, because this year Congress has not passed the usual so-called 'doc fix' to block the cuts....

The biggest cut would be $65 billion, enacted across the board for most federal programs over the last nine months of fiscal year 2013, from January through September.  This cut, known as the sequester, was mandated by an August 2011 budget deal between [President] Obama and Congress that ended [the GOP] standoff over raising the nation's debt limit.   Demystifying the Fiscal Impasse that is Vexing Washington

It is surely accurate that our still-weak economy would do better if we do not hit it too hard with decreases in government spending--especially decreases to government spending that supports the most vulnerable amongst us who need unemployment support in order to provide the basic necessities.  Similarly, it is surely true that some of the Bush tax cuts and the Obama payroll tax reduction are still vitally important to those in the lower 60% or so of the income distribution because of the slow growth in the economy.  We will want to find some resolution to the situation that accommodates the need to avoid a harmful austerity approach.

So the Times' explanation of the components of the so-called "fiscal cliff" is okay.  And it is reasonable in noting that the situation is currently "vexing" to Washington.  Similarly, the Bloomberg article succinctly characterizes the clear poles of the Democratic and Republican positions--a Democratic insistence on higher taxes paid by the rich, and a Republican insistence on so-called "tax reform" and spending cuts, aimed in particular at the earned benefit and safety net programs of Social Security, Medicare, and Medicaid. 

B. A Grand Bargain or a Devil's Bargain--How the Heck Did Social Security Even Get In the Picture?

Where the Times article fails is in its discussion of the "reasons"  for excessive worry about the "fiscal cliff" (if one can really call the GOP recalcitrance to immediately pass an extension of at least a good portion of the Bush tax cuts for individual taxpayers in the true middle class any form of reason).  

The Times article asserts that the "main disagreement" between Dems and Republicans is merely the question of extending the Bush tax rates for the top 2 percent of taxpayers.  That is a considerable understatement, one that results in part from the way the media reduces complex issues to easily retained soundbites, in that it ignores the considerable disagreement about whether and to what extent there should be any changes at all to the various earned benefit programs. 

The  article author appears to operate on an unstated assumption that because President Obama seemed ready to trade off changes in Social Security, Medicare and Medicaid benefits for higher taxes on the very richest of the rich in August of 2011, he will still enter into such a "Grand Bargain" to avoid the so-called "fiscal cliff."  Progressives hope, at least, that Obama will not fall prey to those same conclusions: Obama is now in a position of considerable leverage, and he must recognize that he cannot allow the Democrats to be extorted into a Devil's Bargain to reduce Social Security, Medicaid, and Medicare benefits in exchange for the pittance of slightly higher taxes on the upper crust.

The article goes even further astray at the end with its label of a "two-part deal" as the "best-case outcome".  It claims that "[m]any budget experts and economists are hoping for a two-part deal.  The first part would extend many of the tax cuts and repeal the automatic spending cuts to avert the changes scheduled after Jan. 1.  But it would be contingent on the second part: a framework for reducing projected long-term deficits by overhauling both the tax code--to raise revenues--and entitlement programs--chiefly Medicare and Medicaid, whose rising costs in an aging population are unsustainable."  Id.

Of course, here the "many" is simply put out there without any context, so one can't challenge the statement as accurate or inaccurate.  The right-wing has a stable of market fundamentalist economists who want to see earned benefit programs reduced, and there are certainly the Blue-Dog Dems and a number of others (like the Bowles Simpson group) who go along with that with little questioning of the ultimate negative impact on quality of life and decency of those determinations.  Overall, there is considerable parroting of the right-wing rhetoric that suggests that these vitally important programs have to be overhauled, rather than recognizing that it is the factors that lead to ever-increasing costs for medical care in the United States that must be addressed.  And it mistakenly suggests that there is a consensus in that regard. This is a perfect example of the way today's journalists buy into the rhetoric that is promoted (at great expense) without questioning the fundamental presuppositions underlying it.  In fact, the sequester deal did not touch Social Security, Medicare and Medicaid because there was no consensus that these programs should be reduced.  And the election results demonstrate that there is no consensus now that these program benefits must be reduced, though there is likely a consensus that health care costs in this country are increasing well beyond what is reasonable.  It is absolutely critical that the distinction be made.

So let's take these issues into consideration here.

C. Thinking about the two key components of the so-called "fiscal cliff"--tax cuts and spending cuts.

1. The Bush tax cuts, job creators, and uncertainty

The right has, not unexpectedly, argued that not extending all of the tax cuts--including those that amount to significant dollars for the wealthiest upper crust--will create a dire situation since, the right argues, the wealthy are the "job creators".  There is no empirical evidence supporting the idea that tax cuts for the upper crust do anything to create jobs: most jobs are created by small businesses, and those with incomes above $250,000 make up only about 3% of small businesses. 

Others argue that the uncertainty of letting the Bush tax cuts expire on December 31 is itself a dire blow to the economy.  But in the same breath, the media and most members of the Democratic and Republican parties acknowledge that they do not disagree on the need to extend the tax cuts for the middle income group at this time--the Democrats because they recognize that the tax cuts are still needed at a time of continuing slow growth out of the Great Recession caused by the profligate regulatory and tax policies of the Bush years, and the GOP because they recognize that they have no opportunity for an electoral majority if they continue to ignore the middle class. 

Thus,  savvy political advisers note that allowing the Bush tax cuts to expire and then enacting judiciously selected tax cuts targeted at the middle class (perhaps similar to the Bush tax cuts for the lower income groups or perhaps more carefully selected and without the many corporate tax giveaways) are fairly sure things, so that the arguments from uncertainty reduce to the same-old right-wing scare tactics.

2. The sequester, military spending, health care costs, and the importance of Social Security, Medicare, and Medicaid

Some conclude that neither side wants the sequester, with its domestic spending cuts and military cost-cutting, to go into place.  This, too, may be incorrect and overly simplistic. 

Many progressives recognized that we have a substantial imbalance in spending, in which we neglect public infrastructure (roads, bridges, public transportation especially rail and inter-and intra-city rail) and human capital development (funding for public education and for basic research) while pushing money at the military-industrial complex.  The latter step merely encourages the military to find ways to use the military investment it makes--i.e., more money essentially fosters war-mongering simply by providing plenty of the tools to carry it out through exorbitant expenditures on the military.  Letting the sequester take place is probably the only way that our dysfunctional Congress--with far-right-wing/Tea Party dominance in the House and the minority-control rule through the filibuster in the Senate--will be able to undo the disastrous emphasis on military spending above everything else that began with Reaganomics.  

Accordingly, a better course might be to let the sequester take hold, too, and then selectively undo cuts that jeopardize sound government--such as cuts to research, centers for disease control, public transportation, public infrastructure, education, and funding of public pension obligations.  Surely the right recognizes that Americans are not happy when lax regulation results in deaths from medical care because Congress was lobbied out of regulating compounding pharmacies or deaths from bridge collapse because Congress refused to spend sufficiently on upgrading our antique transportation infrastructure or continually falling behind in research on Alzheimers and cancer and the many other modern afflictions because Congress has been so stingy with federal funds supporting basic research at our research universities.

OF course, we know from the election that today's GOP sees no problem with cuts to various domestic programs that the Dems (and many ordinary Americans) hold dear--the right's admitted goal since Reagan has been to reduce the size of government, on the ill-founded belief in market fundamentalism that private markets can do everything better.  

But we have years of evidence that disproves that belief, and progressives must start publicizing the absurdity of the right's claims about market fundamentalism and the right's denials about basic scientific theory.  Climate change is real, and investments will be required to protect our great cities.  Social Security is not bankrupt, and there is no reason that it cannot continue for years (even indefinitely) without reducing benefits.  Markets like medical care simply don't work without governmental intervention because Big Pharma, Big Insurance, and Big Med (especially for-profit hospitals, nursing homes but also too highly compensated doctors combined with too lowly compensated aides and other assistants) exercise near-monolithic control of access and pricing, rendering the health care "market" dysfunctional, and government intervention will be required to create health-care delivery systems that serve the people. 

(Even those who ascribe to Milt Friedman's views of how markets work--views which in my view are based on unrealistic and overly simplistic assumptions that leave out most of the truth of human behavior in order to arrive at neatly mathematical formulas--recognize problems with the health care market where physicians operate in a structure of monopolistic competition.  In Capitalism and Freedom, Friedman noted that state licensing acts as a barrier to entry that gives physicians considerable market control, thus resulting in rent profits.  Friedman's market fundamentalism solution would be to allow anyone to practice medicine without a license, thus creating consumer "choice."  Query whether anyone without considerable wealth would actually prefer a return to those "quack" days of frontier medicine where such a market existed or would rather have a version of today's regulated system of health care professionals with both affordability and competence. I argue that the latter is both preferable and attainable.  See below.)

The following provides some of the factual evidence for the importance of government intervention in the medical care market--European and Canadian health care, which are generally forms of government single-payer or single-payer/single-provider care, and Medicare, which is a form of government single-payer care, are both considerably less costly and substantially more universal in coverage than the standard, private market U.S. medical care model.   See, e.g., the OECD's comparative statistics on medical care provision in the US compared to OECD countries and Canada, available here (see statistical spreadsheet here).

Total Healh Care Spending Per Person, 2010: US (8233); OECD avg (3268); CA (4445)

Total Health Care Spending* as Share of GDP, 2010: US (17.6); OECD avg (9.5); CA (11.4)

Pharmaceutical Expenditure* Per Person, 2010: US (983); OECD avg (496); CA (741)

Practicing Physicians Per 1000 Population, 2010: US (2.4); OECD avg (3.1); CA (2.4)

Practicing Nurses Per 1000 Population, 2010: US (11.0); OECD avg (8.7); CA (9.3)

Physician Consultations Per Person, 2010: US (3.9); OECD (6.4); CA (5.5)

Medical Graduates Per 100000 Population, 2010: US (6.6); OECD (10.3); CA (7.2)

*expressed in dollars adjusted for purchasing power parities (rates of currency conversion that equalise the cost of a given 'basket' of goods and services in different countries)

The U.S. medical care market's high costs are attributable to a variety of factors, but perhaps the most significant is the potential for "rent" profits to Big Med, Big Pharm, and Big Insurance. 

Note that the right's "reaganomics" rhetoric has been that we have to reduce the size of government by cutting government costs specifically for the social justice programs that serve a majority of our citizens, particularly in their old age.  The right's most important priority for reductions in government services, that is, are reductions to the earned benefit programs that it calls "entitlements" (a term that it does not extend to the various tax expenditures that provide all kinds of gravy for the upper crust and multinational corporations like Big Oil, Big Pharma, Big Banks, etc.).  The right wants to reduce the deficit on the hides of the poor, the elderly and those who have little besides Social Security and Medicare for retirement (because of their reasonable reliance on their availability to buffer the viscisitudes of private markets in their old age).  So the right proposes either privatizing ("voucherizing" Medicare; "optionalizing" Social Security) or shifting programs to the States (where reductions in Medicaid funding for the poor can be hidden more easily) and/or reducing benefits by increasing the age for eligibility and decreasing potential payments.  In other words, the right treats a problem caused by the unduly high costs of a wacky, quasi-monopolistic, market-based medical care system as best solved not by bringing the costs down the way every other civilized peer nation has done, but instead by preventing the majority of Americans from having access to decent medical care if they are poor or old and dying or physically handicapped or otherwise unable to afford private insurance.

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After all, as Robert Reich argues, the "fiscal cliff" and "looming budget deficits" aren't the worst of our problems. 

The central problem of our economy is widening inequality. It's reducing the purchasing power of the vast middle class on which job growth depends, and turning the economy into a speculative casino for multimillionaires and billionaires.  It's also undermining our ability to turn the economy around, as those millionaires and billionaires subsidize politicians who refuse to raise taxes on the wealthy and seek to cut spending critical to the middle class and the poor.  Robert Reich, Stop income inequality!, Salon.com (Nov. 15, 2012) (formatting changed).

The more I think about this, the more I am convinced that, as Kenneth Thomas says, Democrats Should Just Sit Back and Ride Over the Fiscal Cliff (in a post at Middle Class Political Economist, republished on BusinessInsider.com, here). 

[The fiscal cliff] is the combination of spending cuts and tax increases set to take place on January 1 based on several different laws.  Estimates of the consequences run as high as $800 billion next year, or 5.2% of the country's $15.29 trillion gross domestic product in 2011.  Yes, that would mean a recession, with obvious consequences for the middle class.  But this is only true if we did nothing after January 1, and that's not going to happen.  Id.

Romney's Tax Views Lead to Blooper Comments Denigrating America's Elderly and Poor

Most of us who follow tax issues in the news and in political campaigns are aware that GOP candidate Mitt Romney has been very secretive about various items.

First and foremost, he has been secretive about his own extraordinary wealth:  he has refused to follow his father's example in releasing more than a decade of tax returns and he has maintained numerous accounts offshore, including in jurisdictions that are known for banking secrecy.  This secrecy is problematic for many voters, because without those returns it is difficult to evaluate his aggressiveness in using shelters or taking controversial positions on returns to save himself tax dollars --a topic that is surely relevant to his qualification to hold the highest executive office in the land.

Second, he has been secretive about his plans for achieving across-the-board tax cuts of enormous benefit to the uber-rich and multinational corporations while claiming to maintain revenue neutrality.  Respected non-partisan tax analysts have concluded that his plans simply don't add up--the "arithmetic", as Democratic speeches noted, is against him.  When he refuses to specify just what programs he would cut while cutting taxes and increasing military expenditures, many voters are naturally suspicious that the cuts will all be taken out of the safety net--voucherization of Medicare, privatization of education funding, and even more of the deregulation that cost us so much in the 2007-8 financial crisis--while continuing the over-spending on military and various lucrative loopholes for the wealthy like the "carried interest" provision for private equity managers.

Third, he has been secretive about his lack of commitment to the disadvantaged in our society.  His failure to describe how he will create jobs (other than through his claim that managing vulture capital "leveraged buy-out" funds is good preparation for the presidency) suggests that he has no ideas other than the long disproven ones being pushed by the Chamber of Commerce and other business lobbying organizations--less regulation, more privatization, more reductions to earned benefits like Medicare and Social Security, and more tax provisions that favor the rich that the GOP labels--without empirical support-- as the "job creators".  But he has nonetheless tried to foster an image of caring about American people who weren't born to the life of wealth and luxury that he's enjoyed.

That third point of secrecy was shattered by the revelation of a taped video of Romney comments to major donors (delivered at a May 17 fundraiser at an investment banker's home in Boca Raton, Florida), in which Romney showed utter disdain for the large segment of the US population who ultimately do not pay any federal income taxes.  Romney called those who pay no federal income tax "dependent on government" and indicated that they see themselves as "victims".  He concluded he'd "never convince them they should take personal responsibility and care for their lives."  See David Corn, Secret Video: Romney Tells Millionaire Donors What He REALLY Thinks of Obama Voters, Mother Jones (Sept. 17, 2012).

 

See also Chris Miles, Obama vs Romney Polls: How Latest Romney Gaffe May Have Just Lost Him Ohio, Policymic (Sept. 17, 2012);  MicCheck.com email alert, 47% Video Worsens Romney's September Nightmare (Sept. 18, 2012); Chris Cillizza, The Fix: Mitt Romney's darkest hour, Washington Post.com (Sept. 17, 2012).

Romney's 47% comment fairly drips with disdain and scorn for ordinary Americans, casting them, as the Mother Jones article cited above notes, as "a mass of shiftless moochers who don't contribute much, if anything, to society." David Corn, Secret Video: Romney Tells Millionaire Donors What He REALLY Thinks of Obama Voters, Mother Jones (Sept. 17, 2012). It is of a par with comments by a woman that I met at a reception in Boston over the weekend, who spewed scorn as she claimed that anybody that is on welfare or getting unemployment is just a lazy bum that wants the rest of us to hand them a living on a silver platter.  Romney's and the woman's comments both show absolute insularity from the real world of povery and near-poverty in America in the aftermath of Bush's Great Recession, when able-bodied men despair of their situation in being unable to find a job, any job, and young folks grow hopeless as they fill in application after application.  Without government programs to fill in the gaps for these groups, their lives would be truly desperate.  Their non-taxpayer situation has nothing to do with lack of personal responsibility and everything to do with a society in which the economy for too long has favored the uberrich at the cost of ordinary Americans.

Remember that the federal income tax is specifically designed to protect taxpayers in the lower income distributions from paying federal income tax through the use of the standard deduction and personal exemptions.   That's because Congress has always assumed that there should be a minimum below which the federal income tax does not reach.  And Congress has enacted a number of other exclusions and credits designed to ensure that the federal income tax doesn't fall too heavily on the more vulnerable amongst us.  

About half of those [46% of households] did't pay [federal income taxes] because of standard deductions and personal exemptions designed to exclude subsistence levels of income from taxation.  The rest received tax breaks, including the earned income tax credit, the child tax credit and tax benefits for older Americans such as the exclusion of Social Security benefits from income."  Richard Rubin, Romney's 47% With Not Taxes Combines Elderly with Poor Workers, Bloomberg Businessweek (Sept. 18, 2012). 

Furthermore, most taxpayers who pay no federal income tax do pay other taxes:  state and local income, property and sales taxes eat up a substantial amount of income, as do federal payroll taxes, which often amount to the most significant tax bite for these lower-income taxpayers.  And as the Rubin article also notes, people who don't pay income tax one year--because of returning for education, job losses, extraordinary medical expenses and other causes--come back on the tax rolls in later years when they finish studies or find work.

Regrettably, Romney's remarks at the fundraiser mainly reveal an eager player in the class warfare game that the right has engaged in for the last few decades--it reflects a firm support for tax policies that redistribute upwards to the elite, at whatever cost to ordinary Americans who are disdained and even despised as irresponsible and lazy.  With CEOs making 200-400 times what their average workers make and the productivity gains contributed most especially by the workers being siphoned off for increasingly higher pay for the executives, ordinary Americans already are hurting.  Tax policies that continue the rip-off by continuing preferential rates for capital gains, providing even more preferential marginal rates for the uberrich, and eliminating worldwide taxation on multinationals will do even greater harm to ordinary Americans and the sustainability of our economy.

Tax Foundation--up to its usual nonsense

The Tax Foundation claims to be a nonpartisan institute interested merely in researching and informing people about taxes.  That's far from the truth, however.  Its work is aimed at one purpose--convincing Americans that they pay too much in taxes and that government is too big. 

One of its most useful distortions is its self-proclaimed "tax freedom day."  It adds up all the state and local and federal income, excise, social security, property, and other taxes on individuals and businesses,including corporations, and then considers how many days of work, at a consistent amount per day, are required to raise that amount of taxes.   See Tax Freedom Day 2012, Tax Foundation.

But of course the entire enterprise of tax freedom day is baloney.  Nothing in that formula actually relates to what an individual earns or what an individual pays in taxes.  But because the date is announced as the day that Americans quit working to pay government and start working for themselves, many media outlets and readers interpret the "tax freedom day" as meaning that they themselves must work that long to pay off their share of taxes. There is no such thing as an average American, and it isn't clear at all that many of the excise, corporate and other businesses taxes are borne by ordinary Americans.  Moreover, thinking about this on an individual level means averaging in the super-rich like Warren Buffet with ordinary Joes like "Joe the Plumber" and poor folk like those barely scraping by on teacher or janitor salaires results in sheer nonsense.  There is no such thing as an "average" amount of taxes paid or a day in the year when each and every American can say--this is the last day I have to work to pay taxes. 

The Tax Foundation often goes through some rigamarole to insist that it doesn't ever imply that the "tax freedom day" is anything other than a cute figure of speech that captures a meaningless statistic.  But look at what it says in its announcement of the 2012 date:

Tax Freedom Day® 2012 arrives on April 17 this year, four days  later than last year, due to higher federal income and corporate tax collections. That means Americans will work 107 days into the year, from January 1 to April 17, to earn enough money to  pay this year’s combined 29.2% federal, state, and local tax bill.

Now, a typical person reading those two sentences would conclude that this is a straightforward statement that that particular American will work 107 days to pay off his own personal taxes.  Nothing could be further from the truth.  Some would have to work only a few days to pay off their share of taxes, while others don't work at all--those living on capital gains from inherited wealth--and still others may work considerably longer.  The statistic is meaningless and by confusing ordinary Americans into thinking that it can be applied to their own particular situation it becomes detrimental to understanding of the US tax system or government costs.

Further down, the Tax Foundation makes this statement.

 Tax Freedom Day is a vivid, calendar-based illustration of the cost of government, giving Americans an easy way to gauge the overall tax take.

And there one sees the anti-government bias of the Tax Foundation.  By using a formula that pretends to show Americans how hard they must each work to fund government, and providing no counterbalance (such as showing how many people are benefitted by various government programs, or how much harder each American would have to work without the various subsidies for home ownership, financial institution soundness, health research, and old age health care and retirement benefits), the Tax Foundation succeeds in convincing many Americans that government is indeed a wasteful exercise that demands too much of their own sweat. 

Just about as bad is the more recent Fiscal Fact:  Americans paying more in taxes than for food, clothing and shelter, Tax Foundation (May 3, 2012).  This look at government tax collections (using the same data used for the tax freedom day calculation, so including all taxes paid by individuals or businesses, whether income, property, excise or other and whether paid to local, state or federal government) and compares that to government figures for expenditures on essentials. 

This is again misleading, as the Tax Foundation itself acknowledges, since it counts taxes that are used for social programs that pay for those same essentials.  Redistribution programs that use the collective wealth to support those who cannot support themselves (vulnerable elderly and children, unemployed, mentally incapacitated, prisoners) serve a vital government function. Similarly, it again deals with national statistics that ordinary people are likely to interpret as applying to their own situations, even though the statistics cannot be applied in that way.  Consider the wealthy billionaire with a private island and seven multimillion dollar homes in the US--taxes collected on those properties will be much more than what ordinary folk pay on their single residence.  Likewise, taxes collected from billionaire CEOs will be much more than those collected from ordinary workers, even though the CEOs may also have considerable investment income that is taxed at ridiculously low preferential rates.  So no conclusions can be drawn from aggregate numbers of housing, food and clothing expenditures to individual taxpayers, just as no meaningful analysis can be drawn from aggregate federal, state, and local expenditures to benefits received (or costs borne) by individual taxpayers.

So why does the Tax Foundation produce such deceptively simple statistical studies that are cast in terms that are bound to mislead ordinary Americans about the role of taxes and government and even the amount of taxes they pay?  It seems likely that the primary purpose is to mislead ordinary Americans about the role of taxes and the amount of taxes they pay.  The Tax Foundation gets my maximum "boo" for its shameless exploitation of statitstics to mislead Americans about both their own tax burdens and the role of government in our lives.

 

Graphs Show It Clearly--the richest are much richer and most of us are poorer

David Cay Johnston has employed a couple of key graphic images that tell a significant story about the way that US laws have favored the rich--including tax administrative procedures that have reduced real audits of the rich and tax laws that have cut the top rates significantly and cut the rates on the "favorite" form of income of the rich to extraordinarily low rates.  See David Cay Johnston, The rich get richer, reuters (Mar. 15, 2012) (noting that the figures he uses here, in 2010 dollars, are from an analysis of IRS data by Emmanuel Saez and Thomas Piketty). [hat tip Francine Lipmann and Tax Prof]

The 1934 economic rebound was widely shared, with strong income gains for the vast majority, the bottom 90 percent.

In 2010, we saw the opposite as the vast majority lost ground. National income gained overall in 2010, but all of the gains were among the top 10 percent. Even within those 15.6 million households, the gains were extraordinarily concentrated among the super-rich, the top one percent of the top one percent.

So while the Great Depression acted as a leveler, the cascading impact of tax and other fiscal policies that are extraordinarily favorable to the rich was little influenced by the Great Recession.  Here're the two telling graphs from the article.

Johnston notes that the story in numbers for adjusted gross income is discouraging: 

Saez and Piketty show that the vast majority’s average adjusted gross income, of which wages are just a part, was $29,840 in 2010. That was down $127 from 2009 and down $4,842 from 2000.

Most shocking? The average income of the vast majority of taxpayers in 2010 was just a smidgen more than the $29,448 average way back in 1966.

At the top, the super-rich saw their 2010 average income grow by $4.2 million over 2009 to $23.8 million. Compared to 1966 their income was up on average by $18.7 million per taxpayer.

The graphic illustration shows just how much the inequality we see today is from the richest of the rich getting an indecent proportion of income growth. 

Is this a problem that needs fixing?  Yes, it clearly is.  We have long recognized the importance of a society where everyone takes part and everyone has at least the minimum essentials for a decent life and a chance for improvement. 

A society where a very few "elite" at the top garner all the benefits of the system and more and more of the income for themselves is not a sustainable society--the top becomes predatory, willing to take gains no matter what the cost to everyone else.  It is the kind of attitude that many who are familiar with Wall Street banks have criticized as endemic to Wall Street culture--and one that was revealed even more starkly by the resignation from Goldman of a star banker who publicly criticized the current culture at Goldman that believes in profits for the firm at the sacrifice of the good of the customer.  See Greg Smith, Why I am Leaving Goldman Sachs, New York Times Op-Ed (Mar. 14, 2012).  Shareholders obviously agree with Smith that the "profit for the firm above care of the client" mentality is wrong.  See Christine Harper, Goldman Roiled by OpEd Loses 2.2 Billion for Shareholders, Bloomberg (Mar. 15, 2012). 

[Goldman is worried--I got a release from a PR firm suggesting that Goldman's profit-making is a boon to the economy and gives its clients great trust in the firm.  I read it and thought--hmm, misses the point.  Smith isn't condemning profit-making per se.  He is condemning profit-making at all costs, and in particular the "greed is good" type of profit-making that creates conflicts of interest with the client that is purportedly being served but would as soon eat a client as eat a steak, if money could be made for the firm (and the trader's bonus) that way.]

If we want the kind of society that gives everyone a chance to have a decent education, we have to quit running down public schools and diverting public monies to support private religious schools.   Hold schools accountable, but quit the wasteful focus on testing and assessment.  Do a little assessment and a lot more teaching.

If we want a more equal society, then we have to change our tax laws so that they don't favor the rich over everybody else.  Reduce the interest deduction, so that leveraged buyouts aren't a way to take a stable working company, make a huge profit by borrowing, and then dump it (either in bankruptcy or out of it, but nonetheless yoked with the debt that got the private equity firm rich).  Get rid of provisions that are primarily beneficial to the wealthy--reinstate a hefty estate tax, eliminate the preferential rate on capital gains, reinstate the phase out of deductions at high income levels, increase the top income tax rate (let the Bush tax cuts lapse in toto or at least for the top earners), phase out the accelerated depreciation schedules, bonus depreciation and expensing provisions, and otherwise return our tax system to a saner progressive model that can support the important basic research at universities and basic public infrastructure development that are the real keys to economic growth.

The right has bamboozled the public with its tiresome but endless class warfare rhetoric pushing corporatist policies that claim that tax cuts for wealthy corporations and wealthy individuals are the way to boost growth and help the majority of Americans have good jobs and decent wages.  It's a lie.  The way to do that is by moving to a more progressive tax system and providing more government funding for basic research (NIH, NSF, etc.) and for public infrastructure (mass transportation, rails throughout America and its inner cities, urban development).  
 

Misleading Tax Rhetoric Abounds

I got the same piece of mail that my colleague and fellow blogger Jim Maule got--a disturbingly misleading rant trying to make a case for zero taxation of unearned income.  I started to write a post about it, since this is the kind of material that gets my ire up.  It is written with what appears to be an intent to confuse or mislead.  It applies vague language when that suits the writer, and fails to explain even the simplest transactions acceptably.

Maule beat me to it.  He has an excellent post on Issue 9.04 of Tax Bytes, put out by the Institute for Policy Innovation (a think tank on the right):  When Double Taxation Doesn't Exist, MauledAgain (Feb. 8, 2012).

The problem with the IPI starts with the title of the piece--"when investment earns you additional--not lower--taxes".  Right there they are conflating two things--the original amount earned that was put into the investment, creating a "tax basis" that will not be subject to tax on any disposition of the investment; and the return on the investment when it is sold (or when dividends are paid on it), creating additional "gross income" that will be subject to tax, though at the preferentially low, low rate currently applicable for capital gains.

As Maule points out, the piece seems to be written to try to make the unknowing reader think that all the proceeds of a disposition of an investment will be taxable, not just the NEW income represented by the gain --the increase in value of the investment over the original basis.

The fact that a think tank could publish this kind of tax rhetoric, with so many misleading or erroneous statements, is just one more reason that I have urged my colleagues here at Wayne Law to require all our students to take at least the basic federal income tax course.  No student will come out of that course making the mistakes the IPI made in its piece on the taxation of gains from investments.  And every lawyer ought to have that foundation, so that they don't make such foolish statements as those in the IPI piece.

Why we don't need corporate tax "overhaul": GOP poormouthing on behalf of rich corporate allies(Part I in a series)

These days, one hears a great deal from politicians on the right about how a corporate tax "overhaul" is needed because our taxes are "too complex" and/or "too anti-competitive" or because our tax rates are "too high".  The same GOP politicians who whine and whimper about how huge the deficit is, and accuse President Obama of driving our country to ruin with the deficit are willing to lower the tax burden paid by highly profitable corporations considerably (thus increasing the deficit and adding to regressivity of the tax system)--so long as they are appeasing their multinational constituency, the huge corporations who are the new providers of campaign funds and the new decisionmakers in elections--even though the corporate entities have no vote.  Claims of revenue neutrality are generally little more than PR cover for corporate giveaways.

Just a couple of examples from a recent Bloomberg piece:

• Republican Senator Robert Portman says he will unveil a new proposal soon that will cut taxes for multinational companies' repatriated offshore profits--i.e., a permanent tax holiday for multinationalsm as a first step towards a very MNE favorable move to a territorial tax system--that will remedy "an inefficient and complex maze of tax preferences".   See, e.g., Kathleen Hunter, Portman Corporate Tax Plan to Include Low Repatriation Rate, Bloomberg.com (Feb. 1, 2012).   Portman claims this huge tax cut for the high and mighty MNEs (and their managers/owners) is needed because they "pay[] a very steep tax bill if and when they choose to bring their money home."  Ludicrous.  There is a very generous foreign tax credit provision that allows many MNEs to reduce their taxes to near zero anyway.  Further, the deferral they are allowed on active business income gives them the time value of money benefit.  Most of what foreign corporations want to do is allow their taxes on non-US income to reduce their taxes on US income--which is a kind of subsidy for offshoring that costs US jobs.  And of course, as I've noted in earlier posts on tax holidays and proposals for a territorial system to replace a worldwide system, corporations hold more money overseas when they think there is a good chance that their buddies (or "bought pols"?) will give them the tax break they have been lobbying for--so these proposals encourage corporations to engage in the activity that these proposals say they are addressing, thus giving them more ammunition to get the change they want.  Portman, of course, says he wants to "streamline" the corporate tax and lower the rate to 25%.  We have a statutory rate of 35% now and most corporations that pay taxes (which are not by any means all of the corporations that make significant profits) pay less than 25%.  If we lower the statutory rate to 25%, it is quite likely that most corporations that actually end up paying taxes will be a smaller number than with the 35% rate and at a much lower rate--probably around 10-15% instead of 20-25%.  Of course, what the result will be--as it was in the 1986 tax reform that lowered rates for ordinary income and ended a number of problematic tax preferences such as the capital gains preferential rate--is that the lower rates will stay, and all of the loopy tax preferences (and more) will be reenacted within a couple of years under heavy lobbying for the same by the corporations that benefit from this round.
• Dave Camp, Michigan Republicans and Chair of the House Ways and Means Committee, wants to exempt 95% of overseas profits. 

Is there merit in this drumbeat of (lobbyist-induced) calls for "corporate tax overhaul legislation"?  The simple answer is no.

On Complexity:

Most complexity in the code is there for one of two reasons.

The most likely reason for complexity is the creation of tax preferences heavily lobbied for by corporate lobbyists.  One example is the so-called "domestic production activity deduction" that lowers the tax rate by 9% for most industries (even ones that don't really produce anything) and 6% for natural resource extractive industries.  There are tax breaks on top of tax breaks for the resource industries, of course, that get numerous special benefits throughout the Code, while joining in various coalitions that lobby AGAINST even extraordinarily modest support for green industries (such as reasonably low cost loans for solar power). 

The second main source of complexity is the clear need for specific anti-abuse provisions to undo the harm done when corporations use what can most charitably be called aggressive and inventive interpretations of Code provisions--often ones that are hyper-literal in nature (the kind of analysis that allowed the Bush Treasury to redefine what "exchange" means in the reorganization provisions in order to allow taxpayers to manipulate the allocation of consideration to create a hitherto unrecognizable tax loss in the reorg transaction) or turn the Code's clear textual provision on its head (look at the briefs for the defendant--or for that matter the lousy statutory interpretation in the district court opinions-- in the Black & Decker contingent liability shelter case, where Black & Decker argued for application of a provision in section 357(c) (which says explicitly that it applies only where paragraph one of that provision applies) in a context where paragraph one did not apply).  As a result of the contingent liability shelters, Congress added various Code provisions, including section 358(h) (having to do with the basis for corporate assets in transactions with significant liabilities) and section 357(d) (having to do with calculating the amount of liability assumed).

Complexity, in other words, is not an evil in itself.  Sophisticated taxpayers aren't harmed by complexity, and in fact complexity is needed to provide sufficient detail to prevent sophisticated taxpayers (with the help of their tax advisers) from cheating.  There is generally less complexity in provisions that are relevant for unsophisticated taxpayers, though it is more clearly an obstacle to good tax compliance behavior there.

On Competitiveness:

Competitiveness is used so frequently that it seems doubtful that anybody really knows what they mean by it.  If one company destroys a union and is able to pay their workers lower wages as a result, then a company that produces a similar product will claim that "competitiveness" requires that they be allowed to do the same.  Of course, another approach would be for the company that retains an active union, and continues to provide pension and health care benefits could lobby Congress to enact stronger laws protecting worker rights to pension and health care benefits.  In other words, competitiveness is consistently used as an argunent, when it comes to corporations, for taking away benefits to workers, communities, states and the nation for the benefit of the corporations.  Competitiveness could just as easily be used to argue for maintaining programs, procedures and benefits for workers, communities, states and the nation by considering what would be necessary to buttress the system that supports those benefit levels.  And in fact that view of competition--that we are competing globally to create both profitable companies AND a secure and well-paid workforce that can support a healthy economy that can in turn support a quality of life in all dimensions--would lead to different decisions not only about taxation but also about anti-trust, excise taxes, trade treaties, environmental protection, and many regulatory projects.

Furthermore, competitiveness is often used as an argument in the abstract when the main competitors are both US based companies.  There, the argument for reducing taxes to enhance competitiveness is at its weakest, but few competitiveness arguments reveal just how the competititon is playing out even on a globalized playing field.

On Rate Structures:

The 1986 tax reform act is a frequent reference these days when people talk about amending the Code generally and specifically about amending the corporate tax provisions.  But the context for that act's passage was quite different.  Individuals were taxed at rates that were reasonably progressive--with a top rate at 70% (though the brackets could probably have been better defined to differentiate among top income recipients).  Further, the 1954 Code had built up a plethora of tax preferences (especially useful to the rich) and the Congress had realized that the preferential capital gains rate was wreaking havoc on sensible provisions because of the arbitrage opportunities it created.  Thus, there was room for "base broadening"  (removing ill-advised preferences spread throughout the 1954 Code) as a means of paying for "rate lowering" (lowering the fairly high rates about half, without costing the fisc because of the higher amount of income on which those rates would be charged).

We are not in the same situation today.  We have very high deficits because of an economic crisis caused by two interwoven problems--(i) the lax regulatory oversight of 40 years of Reaganism, which permitted the financialization of the economy and led to excessive incomes for people at the top (managers and owners, hedge fund and equity fund managers, and speculators generally) and excessive debt for banks and especially people not at the top (because of their stagnant or reduced incomes in the face of growing costs, caused in part by the relaxation of regulations and anti-trust activity coupled with the anti-union attitudees and activity); and (ii) the success of a radical right-wing fringe in characterizing government and business as having adverse interests and progressive programs supporting social well being (from Social Security to Medicare to Medicaid to (modest) heatlh care reforms intended to reign in the cost of medical care to unemployment benefits to efforts to reign in contracts of adhesion in the consumer credit markets) as "unmerited" "entitlements or costly and anti-competitive regulation of businesses that counters the "free market" that will ensure "growth and jobs".  The result of the rhetoric is a citizenry that is ignorant of the actual income distribution, tax burdens, and impact of government spending on jobs and the health of the economy.  The result of the 40-year "reaganomics" effort from the right to cut regulations, cut taxes, privatize and militarize is that this is no context for rate reduction but in fact a context in which those who can afford to do so--for sure those individuals and households in the top two quintiles of the income distribution that comprise the upper middle class and the upper class and all profit-making corporations--should be paying taxes at HIGHER rates, not lower rates.

It should be noted that President Obama--who is at best a middle of the roader on tax issues--also is said to plan to propose an "overhaul of the U.S. corporate tax system" in connection with his budget plan for FY 2013 that involves lowering rates and base broadening.  See Steven Sloan, Obama said to propose corporate tax overhaul next month, Businessweek.com (Feb. 2, 2012).   Again--lowering the rate is a bad idea.  Lowering the rate without base broadening is a stupid idea.  But the kind of base broadening that is included, if such a proposal eventually passes, matters an awful lot.  The problem is that if Obama proposes such a reform, the GOP won't support it unless the "base broadening" is essentially inconsequential and can be undone easily later or affects only little guys and not the big-monied lobbyists.  Thus this looks like another of those initiatives from the White House that play into the right's agenda and do little to advance any progressive idea.

Corporate Taxes from the AEI perspective--the AEI report gets an F

[edited to correct typos and add link to CTJ and Leonhardt articles 2/19pm]

Kevin Hassett, an economic grunt at the American Enterprise Institute and frequent contributor to the Wall Street Journal op-ed pages, prepared a report for the institute on corporate taxation.  Guess what--it claims that the US overtaxes its corporations and that is the reason that we are losing jobs.

There are all sorts of things wrong with this report.

1) it disregards the impact of globalization on corporate decisions to move enterprises, and the fungibility of operations if jurisidictions left don't make the exit a highly taxing moment.  It also disregards the lack of protection for US workers--yes, US workers are better paid than workers in undeveloped countries, and if multinational enterprises (MNEs) can merely substitute the one for the other, they will. 

2) It first spends a lot of ink on the US statutory rate, complaining that it is higher than that of most other OECD countries.  That is true, but really meaningless in itself.  You can't have a decent understanding of a country's tax policies without looking at both tax rates and the base against which they are assessed.  Since the corporate tax base in the US has more holes than Swiss cheese, looking at the rate tells you almost nothing about the corporate burden.

3) It notes that corporate taxes raise much less in revenue as a percent of GDP in the US than in other OECD countries.  Somehow, the report intends this to be an indictment of the US corporate tax system as overtaxing corporations.  I suppose the authors reach that by implying that corporations have fled the system and that's why.  But it is really an indication that the thesis in the title of the report--that the US gets an F for bad taxes that are making US corporations uncompetitive--is wrong. The US has such a loophole riddled corporate tax system that corporations are easily able to avoid paying their fair share of taxes. IN fact, other countries have more effective tax systems that get more corporate taxes out of their corporations as a percent of GDP, so the US must be a tax haven.  It is rather surprising that we haven't had an upsurge of grass-roots, tea party-style protests against all the big MNEs that manage to benefit mightily from the use of tax revenues (from roads to water to workers' comp to subsidized health care) yet pay next to nothing in taxes in return. 

For some examples of these MNEs with low taxes and much use of benefits, see David Leonhardt, The Paradox of Corporate Taxes in America, New York Times, Feb. 2, 2011 .  Leonhard points out that Carnival Corporation "wouldn't have much of a business without help from various branches of government" from the Coast Guard to Customs to road building and bridges and port maintenance, but the biggest benefit mayh be the price it pays, since it has only paid total (federal, state, local and foreign) taxes over the last five years equal to 1.1% of its $11.3 billion in profits."  Other major US corporations with substantial economic profits pay corporate taxes less than 10%--Yahoo (7%), Boeing (4.5%), Prudential Financial (7.6%).  Id.  (And wasn't Prudential  one of the banks that got to use the Treasury's ultra vires notice permitting banks that acquired other banks to use their losses without the strict limitation provided in the tax code section 382?)

4) It claims that the US corporations' effective tax rate is still way higher than for other countries.  To do this, it uses two formulaic calculations for effective tax rates, neither of which is particularly trustworthy as to actual effective tax rates. It finds that its two hypothetical measures of effective tax rates come out at 29% and 23.6%.  These are probably too high, but are considerably less than the statutory rate. it doesn't, for example, look at the amount of actual taxes paid compared to the amount of taxable income reported.  That figure would suggest a higher effective rate than actually experienced, since taxable income is much less than economic income.  It doesn't do what makes even more sense, look at actual current taxes paid as noted on financial statements of reporting companies compared to economic income as noted on financial statements of reporting companies.  That number would be fairly accurate, and in fact comes out very low indeed.  See, e.g., CTJ study, Revenue-Positive Reform of the Corporate Income tax, Jan 25, 2011 (noting that a Bush study in 2007 found only a 13.4% effective tax rate for 2000-2005, compared to a 16.1% rate for other OECD countries). 

 5)  In comparing US corporations' statutory taxes to those in other OECD coutnries, it takes into accout state and local corporate taxation (average) rates.  But note that the US has primarily corporate income taxes, while OECD countries may have a host of other taxes, including in most cases a substantial value-added tax system (VAT).  The report doesn't bring that tax into the comparison.  As a result, its comparison is again meaningless, because it isn't really comparing the overall tax burden to determine whether the US corporations are in fact paying tax haven rates or being stymied in competition. 

6) And of course, these corporate excusers provide only the slimmest of rationales for asserting that the US is aided by improving the competitiveness of MNEs in other countries--usually along the lines that helping them invest more abroad will also have a spillover effect in terms of more investment here.  Actually if we help them succeed there by reducing taxes here, we are cutting off our noses to spite our face, since they will move operations there and do less here. We'd be much better off using that money to fund education and basic scientific research that can improve our quallity of life and give us new things to manufacture! 

As usual with the AEI, the ideological agenda has resulted in a report that primarily serves a propaganda purpose.  I'd say that it isn't US corporate taxes that get an F, but rather this AEI report!

Truth in Budget Numbers

[edited 2/19 to clarify that it was a failure to extend the American Recovery and Reinvestment Act credit that was, like the Bush Tax cuts, originally enacted for a limited time only]

Seems like everybody these days is into misrepresenting, distorting, or at least stretching the facts to suit the spin they want to give. 

One issue that I raised in my snarky post on the 15th about the Budget commentary was the way most media has described the December 2010 Tax Relief ....and Job Creation Act.  As you will recall, that bill extended the Bush tax cuts for another two years, and most of the media talks about it as a "tax cut" bill.   The GOP pushed hard to make sure that the Bush cuts would be extended, on the claim that it wouldn't be fair to have ANY tax increases due to failure to extending existing cuts.   But in fact that bill ended (i.e.,  did not extend)  the "Making Work Pay" provision from the American Recovery and Reinvestment Act of 2009, a cornerstone of the Obama Administration's attempt to make the stimulus package work for ordinary Americans.  The end of that provision resulted in a substantial tax increase for 51 million Americans in the lower income distribution.  See, e.g., Floyd Norris,  Some Taxes Went Up   (Feb. 4, 2011); Tax Policy Center, Table on the 2010 tax bill (Dec. 13, 2010).  When we talk about that bill, then, wouldn't it be more accurate to discuss it as a tax bill that increased the burden on some of those in the most unfortunate circumstances, while giving substantial tax cuts to those at the top?

FactCheck.org, of course, spends its time looking for just those kinds of distorting statements and trying to set the record straight so that we are all talking about the same set of facts.  They did an analysis of the "Budget Spin" that both sides put out surrounding the release of the President's Budget.  Both sides get very bad grades.   Both sides misrepresent facts--neither Democrat nor Republican is immune.  And those misstated facts spread like wildfire over the net, as illustrated by Sarah Palin's "mis-tweet" claiming that the White House is proposing a mere $775 million in cuts amounting to less than 1/10th of 1% of the deficit and linking to Glenn Beck's right-wing website as proof. The truth is quite different--$33 billion in discretionary cuts for 2012, and the website link  from which she got her information was a mischaracterization of some examples offered by White House Budget Director Lew that was posted 5 days before the budget release. But Palin's "mis-tweet" has been "re-tweeted" and that is the way misleading information is spread so easily on the net.

PS  if you enjoyed this you will also enjoy Floyd Norris on Life at the Dakota, noting the miracles (or at least, loopholes) achieved by someone with a mere $1.5 million in taxable income and outlays considerably greater just on housing...

More on State Budgetary and Tax Matters

In the last few postings, I've commented on Illinois' decision to increase taxes modestly in order to address a substantial budgetary gap of $8 to $15 billion.  I've noted that many states face similar problems, and that increasing taxes along with wise allocation of tax dollars and stringent attempts to cut waste (but not to target public employees or needed programs for the vulnerable) should be considered by most states during this difficult fiscal time.

But the New York Times today has a story that says that many states have concluded that they have to take draconian cuts and can't raise taxes no matter what because of their fear that raising taxes will stifle growth.  See Monica Davey, Budget Worries Push Governors to Same Mind-Set, NY Times, Jan. 17, 2011. She says the "prescription" is to"slash spending. Avoid tax increases. Tear up regulations that might drive away business and jobs.  Shrink government, even if that means tackling the thorny issues of public employees and their pensions."

This is a prescription for disaster.  Why?  Because historically, we have better growth at higher tax rates, not lower rates.  See Mike Kimel's blog "presimetrics" for various good posts on this topic, looking at a range of data from a range of sources, e.g., Kimel, Presimetrics,  Tax Rates that Maximize Growth, Dec. 25, 2010.   States that follow the cut-services,-fire-workers,-defund-pensions,-and-don't-raise-taxes prescription are sticking to the worn out script provided by the "freshwater economic" thinking of the Chicago School--dogmatic, unrealistic, tied to a notion of property and wealth that favors the propertied and the wealthy at the expense of ordinary folk. 

Note the contradiction between what these "free market" economists who want us to crack down on unions and public employees say and what they profess to support.  They profess to support full property rights and the right of individuals to have a say in their destiny.  But public employees who signed on for a particular compensation package--pay below what their skills and competencies would garner in the private market, but buttressed by decent pension and health benefits--are now expected by these stuck-in-the-mud thinkers to give up what they already worked to earn, and in addition accept pay freezes and/or furloughs and/or large layoffs.  All in the name of avoiding higher taxes for those who have continued to garner most of the benefits of productivity gains through the last few decades.

That makes sense if you honestly think that giving more wealth and power to the plutocrats who already control so much of our wealth and power is a good idea.  Otherwise it does not.  What states should be doing is raising taxes through a more progressive tax system--not flat taxes on income, but progressively higher taxes on income and increased corporate and capital gains tax rates (where there is a preference as in the federal system).

The rhetoric of the "no new taxes" governors is generally off base.  Rick Scott, new Republican governor of Florida, said that "taxation, regulation and litigation" are the "axis of unemployment".  Yet the facts don't support that.  Better regulation prevents businesses from abusing workers and stepping on worker rights and more taxation actually supports growth. (Again, look at Mike Kimel's work on this issue.)  Scott Walker, the Republican governor of Wisconsin, says that there will be no tax increase and that he will "right-size" government.  Does that mean cutting funding for public universities?  Public universities were an important piece of our advancements after WWII, and the significant decrease in public funding for them has resulted in higher tuitions (making them less accessible to the middle and lower middle classes and poor) and less funding for basic research (if it doesn't come from the federal government, it likely isn't there).  Then there's the public infrastructure that is rotting in this country--from bridges to state roads, from lack of rail systems to inadequately inspected rail systems.  If any state is going to move forward in the next few decades, it will need to invest in cutting edge energy and transportation infrastructure, not cut back to bare bones.  And that means it will have to raise taxes to pay for some of these important public services.

Even Jerry Broan indicates that public pensions need to be reviewed to be sure that they are "fair to the workers and fair to the taxpayers."  If you've already contracted to pay a particular pension, how is it fair to the workers to reneg on the bargain you made just because you saw fit to spare higher income taxpayers an increased tax burden to pay for it at the time and deferred it to another day.  Now that another day has dawned, it is suddenly "fair" to reneg on that contractual agreement in order to spare the wealthy their fair share of the tax burden?  That seems to be the political sentiment expressed by the tea party, the Republican party in general, and even lots of Democrats these days.  But it doesn't sit well with hopes for broad-based growth that builds a sustainable democracy, or even with claims to honor "traditional" values like responsible payment of obligations.  The Republicans scoff at homeowners who default on their mortgages for being irresponsible, then urge states to do exactly the same thing in dealing with their public employees.  this stems more from the wealthy-friendly animosity to unions than from any traditional value of accountability, responsibility, or fairness in contractual relations.

This isn't "shared sacrifice" but it certainly is a "painful choice."  It is a choice that will reverberate through the next decade, as the wealthy continue to benefit from a casino economy with even less regulation than before, while the brunt of the sacrifice is borne by the poor and middle class (the real one--not including those well-off in the bottom of the top quintile of the income distribution).

 

Why taxes are important

The so-called tea party adherents and many libertarians, treat taxes as robbery, thinking that "it's mine and the government has no right to it."  That crazytalk, which most would realize if they ever had the opportunity to live in the brute-force world of no taxation.  It would be oligarch rule or the wild west without the civilizing influence of towns with governments and sheriffs to keep order.

With midterm election day just around the corner, maybe it's worth reminding everybody about the reason that all advanced countries have strong tax systems.  It's likely the case that none of us really enjoys paying taxes, and some of us complain about them all the time.  But most of us recognize that taxes are a necessary part of supporting a democratic government and a civil society.  Without a tax system, the rich and powerful would be able to do whatever they wanted.  There'd be no FBI or SEC to investigate their wrongdoing, no cops to arrest them, no courts to bring them to justice, no prisons to put them in.  Most of the rest of us would be subjected to conditions closely resembling slavery--or at least the conditions of the early twentieth century, when mineworkers could be bullied, beatup and even killed by "Pinkerton" thugs hired by mineowners, when union representatives might be murdered to keep them from inspiring workers to join together to fight the owners for reasonable wages and benefits, when old people had nothing but the charity of neighbors and families to live on, because companies didn't provide pensions and there was no Social Security organization in government.

As Oliver Wendell Holmes said, taxes are the price we pay for a civilized society.  Luckily, there is an increasing attention to this issue in the blog world, to counter the "taxes are evil" mantra of the neo-conservative and libertarian right.

See e.g. (in addition to the information here on ataxingmatter):

I Heart Taxes  (see, e.g., Baby, Taxes Drive Your Car, regarding federal funding for satellites making the GPS system possible)

Kay Bell, The Good Side of Taxes

The Tax Literacy Project

Taxes support democracy.  Taxes fund government services and goods, including court systems and national defense, which protect your life, your property, and your constitutional rights.

Taxes support economic growth.  Governments use taxes to encourage economic growth in numerous ways such as maintaining a stable currency, enacting and enforcing laws that protect both workers and employers (their life and property), and helping to build and maintain large and dependable energy, transportation and communication systems.

Taxes support your daily quality of life.  Taxes help you and your family buy a house, breathe clean air, have safe food and drugs, and travel safely and efficiently on highways, trains, and planes.  Taxes help pay for your health care (in the form of tax benefits or direct care) and they pay to educate you and your family.  Taxes help you at work (e.g. enforce contracts, provide safe workplace) and help you at play (e.g. national parks).