A Question From Inside the Beltway
Adam Freedman ·
Nov 7, 2010 at 6:40am
Visiting a good friend of mine in Washington this weekend. My friend, a Democrat, would like to pose this question to the Ricocheterati:
Is the primary argument in favor of extending all the Bush-era tax cuts economic or philosophical?
To put it another way, if we assume for the sake of argument that extending the tax cuts would not hasten our recovery from the recession (no net job gains, etc.), would we support the tax cuts simply because cutting taxes is the right thing to do?
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Sep '10
Re: A Question From Inside the Beltway
There are two economic arguments. First that progressivism in the tax code is a drag on growth because it discourages the earner from earning the next marginal dollar of income versus looking for ways to hide from that higher marginal rate. That, as I understand it is the supply-side argument. That argument is often mis-characterized as saying that tax cuts are self financing. They can be but they don't have to be in order to make the argument against progressive tax rates valid. The second and increasingly obvious argument is that "policy regime uncertainty" is a drag on growth and making the tax rates permanent will alleviate a portion of that uncertainty. It is lamentable though not surprising that an Executive branch peopled exclusively by academics and bureaucrats should have failed to recognize this fact as a terrible recession gave way to flaccid, uninspiring recovery.
May '10
Re: A Question From Inside the Beltway
It's both economics and philosophy.
Truth doesn't contradict truth.
May '10
Re: A Question From Inside the Beltway
I should have added right away that I think you are proposing an unreal hypothetical, Adam. In other words, you seem to me to be saying something akin to "Assume that reality is not what it is."
A "soak the rich" tax code is the wrong thing to do in part because it's bad economics.
Jul '10
Re: A Question From Inside the Beltway
Only if we cut spending.
There is a moral component to over-taxation, but there is a greater moral imperative of not requiring future generations to pay for the unfathomable boondoggles of today.
Leftists like to say that they'll make government more efficient by eliminating waste, fraud and abuse. My position is that almost all government spending, even narrowing down to those items enumerated in the Constitution, as opposed to most of the social programs of the New Deal, etc., is wasteful, fraudulent, and abusive of the society that provides the funds for those programs.
When a lot of leftists howl that a conservative would like to cut this program or this department, I think of one important fact. That is, most government employees do not do anything important or productive. You could eliminate the EPA (for example) tomorrow and the water, air, and soil would be just as clean (if not cleaner) a decade or century from now. The costs for organizations to not be environmentally sound are too high...
I'd like to ask the leftist this question: Since the introduction of the Department of Education, has the education of the citizenry improved?
May '10
Re: A Question From Inside the Beltway
The argument is both economic and philosophical (or moral if you prefer). It's economic in that we argue that tax cuts will be effective, i.e., will expedite the recovery and promote economic growth. It's moral in that we believe the expedition of the recovery and economic growth are aims that should be pursued. The effectiveness and the morality of tax cuts are intertwined.
Re: A Question From Inside the Beltway
Katie, I hear you, but that's why I say "assume for the sake of argument." If our Democratic friends believed that tax cuts invariably helped the economy, there would be little room for philosophical debate. The question is: at what point(s) do we engage our Democratic colleagues: are we simply trying to persuade them on the economic points, or are we primarily making a point about minimizing government intrusion in our lives (and pocketbooks).
Aug '10
Re: A Question From Inside the Beltway
Short answer, yes. Because like the Rent and the Charlie Sheen, the Taxes is Damn High.
Re: A Question From Inside the Beltway
Right now, something like 48% of the population pays no income taxes. It is simply unjust to place so heavy a burden on high earners. It is also bad economic policy. We should raise income taxes in a modest way on the 48% who pay none and extend the Bush tax cuts for everyone else. Otherwise, we will soon be a house divided -- between free riders and those who pay and pay and pay. My suggestion would be that we enact a 5% surtax on everyone dedicated to paying down the deficit, that we balance the budget, and that each succeeding year the surtax be reduced by 1/2 of 1%.
Re: A Question From Inside the Beltway
I focus on the economics. First, let's get our vocabulary straight. Nobody is talking about cutting taxes for anybody. President Obama and the Democrats want to raise tax rates on what they define as high-earning individuals and couples. There is no serious market-oriented school of economic thought that advocates doing so in a sluggish economy (unless Paul Krugman is now a "school").
Under our tax system, it is tremendously difficult for small businesses to create capital. If you organize as a corporation, you pay 39 percent of your earnings to the feds and then pay Social Security, Medicare and income tax on whatever you pay yourself. So most small businesses pay the individual rate. Take my friend Pat, who owns and operates the local quarry. His business relies on a lot of heavy machinery. So although Pat earns more than $250,000 in taxable income, his draw last year--what's left to live on after investment to keep the machines going--was $45,000. Raising his tax rate because he's "rich" is not going to hire anybody. The tax money will come straight out of his business.
Edited on Nov 7, 2010 at 8:07amRe: A Question From Inside the Beltway
BTW, a rhetorical tic from the political class that drives me wild is the formulation of all policies as affecting only those earning more than X dollars per year. The planted axiom being that we all draw regular paychecks from some large self-sustaining institution like the federal government or IBM. Earth to Washington: Entrepreneurs sacrifice and invest, often earning little, in hopes of a big year. If payday arrives--say your yogurt shop has a bumper year--Congratulations! you are officially rich and pay rates sold to the public as targeting Warren Buffett. When your competitors respond and the next year is lean once again, you can thank those far-sighted legislators who siphoned away the capital earned during your fat year for putting your business on the bubble.
Oct '10
Re: A Question From Inside the Beltway
Adam Freedman: would we support the tax cuts simply because cutting taxes is the right thing to do?
Since we're making the argument ceteris paribus, the answer is trivially "yes." If there is no economic argument—the cut is assumed to be economically neutral—then the only observation left is that the government is using its monopoly on the use of violence to take the fruits of citizens' labor from them by coercion. If that isn't obviously morally problematic, then there really isn't much to talk about. Much of my problem with discussing economics with the hard Left revolves precisely around their implicit assumption that sovereign citizens in a purportedly free society lack the right to keep what they produce—the most basic component of property rights imaginable. With the not-so-hard Left, the problem tends to boil down to that no amount of tax is too high, or the rate increase is always marginal, and who cares if a rich person pays 97% on their next dollar? This, of course, ignores the behavioral effect of marginal tax policy, as well as ignoring the property rights aspect.
May '10
Re: A Question From Inside the Beltway
Under current tax rates, many Americans work two or three days out of every week for the government. Forget money. How much of our time and labor does your friend believe our government can reasonably demand?
Republicans and Democrats generally disagree on the proper role of government. Disagreements on taxation derive from those more fundamental disagreements.
I believe a government is healthy when it's primary focus is defense of free will. It is unhealthy when it seeks to parent its citizens. Democrats often fail to distinguish between legal responsibilities and social responbilities. To say that government should not be involved in an issue is not to say that there should be no community involvement. We can serve and protect each other without legal mandates and bureaucracies.
Jul '10
Re: A Question From Inside the Beltway
I will note in passing that if G.W. Bush was a better President, we wouldn't be having this discussion.
Oct '10
Re: A Question From Inside the Beltway
Let's also remember that prior to 1894, the United States had no federal income tax, that the federal income tax was flat in 1894, and that it took a Constitutional amendment in 1913 to give us the current system. So a question for your Democratic friend might be: why do we need a federal income tax at all, given that America lacked one for its first 118 years?
Aug '10
Re: A Question From Inside the Beltway
1) The question is tendentious as phrased. The main question is whether Congress shouls vote to keep tax rates as they are, or allow an automatically programmed tax increase to kick in. Referring to an "extension of the Bush tax cuts" implies that the previous tax rates were correct, and what we're living with now is a special temporary dispensation from the gods in Washington.
2) The question of which of the above to do is primarily economic.
3) The secondary question of whether the top rate should be yoked to the others is primarily philosophical, because it is about the fairness of a majority shifting much of the tax burden onto an unpopular minority. A vote to keep the lower rates low permanently, but to keep the top rate low only temporarily, is really a vote to increase taxes on the top earners in the future, and everybody knows that. If Republicans go along with such a "compromise", it will prove that they are a bunch of squishes, and that the Tea Party made a bad bet by backing them.
Sep '10
Re: A Question From Inside the Beltway
This is so true and Republicans bare some blame for this. It came of various compromises and maybe they couldn't have lowered rates otherwise but dropping a large number from the income tax rolls has helped create this large group that gets more from the government than it gives and thus has no incentive to vote against profligate spenders.
Oct '10
Re: A Question From Inside the Beltway
To simplify the issue, it is about an "outmoded" Constitutional Republic placed in our hands by men who had a foundational world view of endowments of freedom given by the Creator God. Lose that foundation, which is where the debate Adam is commissioning begins, and we have already lost it all. Paul Rahe, yours is the most disappointing statement so far. Are you SURE that you mean what you are saying??
If truly outmoded, then we are indeed arguing about the arrangement of the deck chairs on the Titanic.
May '10
Re: A Question From Inside the Beltway
As an official accredited economist who has philosophies and stuff, it's hard to separate. Though I would urge your friend (I got many libs on the roster), to consider the track records of socialism vs capitalism.
Also, as Katie says, it's a moral thing. People earned that money by being creative and selling useful things. Taking it back is rather rude. As well as discouraging to others. Wealth is not shuffled and skimmed off the top; it's created.
Re: A Question From Inside the Beltway
Ward Good
This is so true and Republicans bare some blame for this. It came of various compromises and maybe they couldn't have lowered rates otherwise but dropping a large number from the income tax rolls has helped create this large group that gets more from the government than it gives and thus has no incentive to vote against profligate spenders. · Nov 7 at 9:22am
This issue is massive. The primary argument in favor of preserving the Bush tax cuts is not that taxes should always be cut below whatever they are but that taxes on income should not be raised on folks who are already surrendering such significant portions. The left consistently conflates income -- private or public? -- with wealth. I suspect a coalition could be formed on the right in favor of slightly higher taxes for everyone (on something other than income) in exchange for an overhaul of the tax code and a major move against the IRS.
Re: A Question From Inside the Beltway
Michael Tee: Only if we cut spending.
There is a moral component to over-taxation, but there is a greater moral imperative of not requiring future generations to pay for the unfathomable boondoggles of today.
I heartily agree. In fact, I think the current debate about tax cuts -- especially the Bush-era tax cuts -- is almost irrelevant. If we as a country like the size of government we have now, then taxes must surely go up. On everyone. Not just the rich -- they're aren't enough of them -- and not just the "middle class," either, but the working class, too. If we want our government to do even more than it already does -- and I'm including, in this calculation, Obama's health care law -- then taxes are really going to have to rise.
I dream of the day we can have nitpicking quibbles about details like dividend income taxes and income tax rates for earners at the $250k+ level. Because that will mean that our real problem is essentially solved.
Look, I love tax cuts. But if the Republican party is truly serious about saving this country from disaster, I'd rather talk about big fat entitlement eliminations.