(Crossposted on “Alas” and on “TADA.”)
Things are still in flux, but it seems likely that Republicans are going to coalesce around extending the Bush tax plan (the legislation Republicans wrote a decade ago created temporary tax cuts, so they’ll need to be actively extended by Congress in order to continue). Democrats seem likely to propose letting the Bush tax cuts expire for households with over $250,000 in income (about 2% of taxpayers), but cutting taxes for many with household incomes under $250,000.
The Wall Street Journal helpfully charts the competing proposals:
The only persuasive argument for the Republican plan is that it’s foolish to let tax cuts expire during a recession. But tax cuts as stimulus are most effective when the people getting the tax cuts aren’t rich (since poor people are more likely to spend the money immediately, and more consumer spending is the one thing our economy most desperately needs). By moving the tax cuts from the rich savers to middle-class and lower-class spenders, Obama’s tax plan may well be more stimulative.
An argument we’re likely to hear from conservatives is that the top 2% of earners already pay a huge portion of federal income taxes, relative to the rest of the country.. That’s true, but they also own a huge proportion of the country’s wealth — most of it, in fact.
It’s not unjust that the people who own most of everything should also pay most of the taxes. (And in fact, the rich are not as paying as large a portion of taxes as some conservatives claim, once all the other taxes Americans pay — not just Federal income taxes, but payroll taxes, sales taxes, state and local taxes — are included.)
Finally, some Conservatives are going to voice a philosophical objection to the idea that some Americans will wind up paying no taxes at all. But again — we’re just talking about Federal income taxes here. There are plenty of other taxes, especially payroll taxes, that are paid for by a broader slice of Americans.
UPDATE: Actually, the Obama administration has proposed not extending the Bush tax cuts for individual filers making $200,000 or above, and joint filers making $250,000 or above. That’s a bit different from what I claimed above; sorry for my mess-up.
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Ampersand:
But tax cuts as stimulus are most effective when the people getting the tax cuts aren’t rich (since poor people are more likely to spend the money immediately, and more consumer spending is the one thing our economy most desperately needs).
Doesn’t that mean, then, that when we’re not in a recession, that we should be transferring money from non-savers to savers? The argument for transferring from savers to non-savers for stimulus purposes really only makes sense in a recession. Long-term, we need more savings to drive sustained growth.
It’s not unjust that the people who own most of everything should also pay most of the taxes.
This raises a philosophical question that I’ve been wanting for some time to ask of a thoughtful lefty. I have two friends who are roughly the same age as me and roughly as intelligent as I am. We all got into top-tier state colleges. After school, I went into the software industry. I make pretty good money. I’ll probably never be rich, but I’ll probably never have to worry about money. One of my friends never really got a serious job, and he still lives with his mother. The other is a doctor and is making something like three times my income. Incidentally, of the three of us he comes from the least privileged background.
Now, I can see an argument for taxing any one of us more than, say, someone who is not terribly bright and never had any realistic chance to be a doctor or an engineer. What I can’t see is any good justice-based argument for taxing the three of us differently. My doctor friend made huge sacrifices to be where he is—why should he be taxed more than I am because he’s chosen to work harder in exchange for more money? My other friend—and I hate to say this because he is my friend—has (thus far, at least) more or less squandered the opportunities he was given. If privilege goes hand in hand with obligation, then why is he allowed to shirk his obligations just because he’s chosen to take it easy rather than taking advantage of the opportunities he’s been given?
I didn’t notice this was on TADA; I’ll try to confine my arguing here.
Because he has more money.
I understand he’s a hard worker and I’m sure he made sacrifices — and if his gross income is three times yours, I’ll bet he takes home more than you do. Not three times as much, perhaps, but more.
I’m not certain I’m not responding to something you haven’t raised, a hazard, I suppose, of doing this a lot. You appear to be a libertarian, however, so I assume you disapprove of taxation by default; thus, you consider your doctor friend unjustly punished and your, er, marginal friend unjustly rewarded. If one views taxation as a civic duty, on the other hand, it’s as valid to say more is required of the doctor because he’s demonstrated hes able to give it.
Hershele, the idea of taxation of punishment is what I take issue with as well. It’s probably a perception equally shared among conservatives and liberals, but it’s wrong; taxation isn’t about “sticking it to the man,” it’s about doing what’s best for our country.
1. On wealth vs. income. If you support a policy of cutting taxes for people who aren’t rich during a recession, should you also support transferring money from non-savers to savers after the recession?
This question seems to confuse the rich/not rich distinction and the savers/not savers distinction. For example, a retired person might well have more money saved than the average person, and from that savings might derive an annual income that was lower than average. It’s unclear to me that a policy of increasing taxes on people with high income (which might not include the retiree) should later result in transfer of wealth to savers (such as the retiree).
2. On cost allocation. There’s a broad philosophical distinction between assessing costs on the basis of who benefits and assessing costs on the basis of who causes the costs to be incurred. Generally our society favors the second philosophy: If you want a beautiful tree in your front yard, then you pay for it, even though everyone else in the neighborhood also derives the benefit. But when we need to recover “overhead costs” – that is, costs unrelated to any specific cost-causer – then we often look to other factors for allocating the cost, including allocations in proportion to benefit.
That said, the concept of causation is tricky, and people can disagree about whether a given person caused a cost to be incurred. For example, the Federal Reserve tends to expand or contract the money supply in response to the unemployment rate; if the unemployment rate goes too low, the Fed restricts the money supply in order to stave off inflation. To what extent, then, can we say that unemployed people cause the need for welfare payments? Many philosophical issues follow.
1. On justice. Admittedly, whether you think that it’s not unjust that people who own most of everything should also pay most of the taxes depends on your concept of justice. Pick your beliefs, pick your conclusions. (Alternatively, and perhaps more accurately, pick the conclusions you like, then pick the beliefs that support those conclusions.)
Rather than appeal to a sense of justice, let me appeal to a sense of reality: If you don’t have a progressive tax system, how do you pay for government? Can we identify any system of government that was not based on some kind of progressive taxation? While we can articulate all kinds of justice-based ideas related to taxation, I suspect governments embrace progressive taxation for the same reason Willie Sutton robs banks: “Because that’s where the money is.”
2. On incentives. Does progressive taxation cause people to behave differently than some other form of taxation (“distort incentives”)? Does it discourage John Galt behavior and encourage people to be shiftless slugs? Wouldn’t we be better of raising revenues by taxing people on the basis of opportunity, or talent, or something…?
Yup, I expect so. And if you can devise a mechanism for doing so, let the IRS know.
The tax code faces many problems comparing earned income and “realized” income, generally taxing the latter but not the former. For this reason, among others, the economist David Bradford favored a consumption tax over an income tax. He argued that a consumption tax, combined with other policies, could produce as progressive a finance system as any income tax. But near the end of his life he acknowledged the challenges posed by a transition from an income tax to a consumption tax. In particular, the entire concept of “basis” would be largely eliminated – effectively eliminating an entire category of property.
3. On public finance debates: For most purposes, the issue of how government chooses to spend money is unrelated to the issue of how government structures its taxes.* In short, the rigorous way to oppose a tax is to compare alternative means to raise an equivalent amount of money – not to complain about the spending program to which the tax is putatively linked.
* When governments raise revenues, it creates substantive feedback effects. Thus, I don’t object if someone wants to argue that the consequences of financing a welfare programs will result in greater harm to the poor than the elimination of the welfare program. But I don’t regard arguments in the vein of “I shouldn’t have to pay taxes to subsidize those lazy, good-for-nothin’ laybouts” to be real arguments about public finance.
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