When was the last time you were thanked for paying your taxes?
In the past, I’ve heard passionate opponents of privatizing Social Security argue that won’t do because it would expose people to the vagaries of the stock market.
Detroit may prove that counting on taxpayers to fund your retirement is not better than betting that folks will continue to buy Coke and McDonald’s hamburgers. Especially so if taxpayers disappear.
There may be $4 trillion in unfunded public pensions. Not sure why people trust public officials with their retirement.
In the same EconTalk podcast with Morris Fiorina that I wrote about in this post, Fiorini describes another ‘how much’ scenario:
…I saw a paper presented yesterday on taxes. And it was very interesting that the population according to these surveys does think we should have more taxes on the rich. But then when you ask them, what are the rich actually paying, they underestimate, of course, what the rich are currently paying. And, what’s interesting is they think the rich should be paying less than they actually are. But you ask them, what is the fair tax to pay for various income brackets? They come in at figures that are actually below what the rich, what people in those brackets are actually paying. So here’s a case of people being uninformed and mal-informed at the same time.
While flipping channels tonight, I came across a segment of the Jon Stewart Show where Mr. Stewart claims John Boehner referring to taxation as theft showed a lack of understanding of the United States Constitution.
Here’s a link to the full clip.
I’d be open for Mr. Stewart, or the writer of that joke, to point me to the part of the Constitution he believes Mr. Boehner doesn’t understand.
Article I, Section 8 of the CoTUS gives Congress the power to ‘lay and collect’ taxes. However, it does not say that taxes are not theft.
I’ll give Mr. Stewart the benefit of the doubt that he is referring to meaning of theft as the unlawful taking of another person’s property without their permission. Since the Constitution makes taxing power lawful, then (I’m guessing) Stewart believes taxes are not theft.
However, some folks believe the more salient meaning of theft is the part where another person’s property is taken without their permission. In that view, many taxes are theft.
I’d rather have elected officials who see taxes the way Speaker Boehner sees them than the way Mr. Stewart sees them.
Stewart was miffed that Boehner’s (what he thought was a) “mistake” didn’t get media attention, while President Obama’s lack of understanding of Star Wars and Star Trek did.
Maybe others in the media were concerned that Mr. Boehner’s view on taxes would make sense to people, especially folks fresh off their 2% payroll tax holiday.
Bob Murphy makes a good point while responding to Elizabeth Warren’s discussion of a $22 minimum wage:
We’re not talking about a “modest” change that Krugman et al. hide behind when we free-marketeers go nuts on this stuff. (Even here, I’m still waiting for someone to show me why going from $7.25 to $9/hour–which is a 24 percent increase–is “modest.” If the government cut the deficit by 24 percent in a year, I doubt Krugman would dismiss it as “modest.”)
…or cut government spending by 24%, lowered tax rates by 24% or increased tax rates on the poor by 24%.
Here’s a couple (paraphrased) good points made by callers to a radio show that I heard on the way to work this week.
Caller 1 — About the sequester budget cuts:
They expected us all to take the hit to pay the extra 2% in payroll tax at the beginning of the year. Why shouldn’t we expect government to take a hit once in a while?
Caller 2 did a great job illustrating the silliness of false choices often presented by politicians facing budget cuts:
Let’s say I take home $1,000 a week in pay. The payroll tax increase kicks in and that costs me $20 a week. Who’s going to believe it when I say, “Now I won’t have lunch money for my kids and they won’t be able to eat lunch.” Nobody…they’ll ask me if there are other expenses I could cut first. Why not cut back on the beer or Starbucks? They’ll tell me that I can make lunch for my kids to take to school.
But, why, when politicians use this tactic do people accept it as if there are no other alternatives.
I went to Grant Davies’ blog, What We Think and Why, and watched all of the nearly 28 minute Dr. Carson speech. I recommend watching it. I just had to re-post it here:
Here are some of his major themes:
1. Political correctness keeps us from saying what we really think and that keeps us from talking about important things.
2. But, we should be respectful with those who we disagree. That’s a major theme of this blog. Hostility just tends to entrench people in their beliefs.
3. Carson’s Mom taught him to use his brain to solve problems, which resulted in him thinking his way out of poverty by not accepting excuses for his poverty status, taking advantage of education, educating himself and thinking himself out of poverty.
4. He and his wife put their money and talents where their mouths are to help others to the same. They started the Carson Scholarship Fund.
5. Why is education so important? He encourages us to learn from ancient Rome, which died from within.
6. He mentions we have a fourth branch of government: Special Interests.
7. Everyone should pay some tax, we shouldn’t punish the guy who puts a billion dollars into the pot and with health care we should empower individuals.
8. He closes with a great story about the origination of our National Anthem and a very nice imagery of the bald eagle as the nation’s symbol.
An enterprising reporter ought to ask President Obama what he thought of Dr. Carson’s speech. However, I think I can predict the answer. My guess is he’d say he liked it and agreed with it, and then say that’s why Federal government needs to help do those things.
Johns Hopkins neurosurgeon, Ben Carson, made a couple of interesting points at a White House prayer breakfast this week. Here’s one point about taxation (emphasis mine):
What we need to do is come up with something simple. And when I pick up my Bible, you know what I see? I see the fairest individual in the universe, God, and he’s given us a system. It’s called a tithe.
“We don’t necessarily have to do 10% but it’s the principle. He didn’t say if your crops fail, don’t give me any tithe or if you have a bumper crop, give me triple tithe. So there must be something inherently fair about proportionality. You make $10 billion, you put in a billion. You make $10 you put in one. Of course you’ve got to get rid of the loopholes. Some people say, ‘Well that’s not fair because it doesn’t hurt the guy who made $10 billion as much as the guy who made 10.’ Where does it say you’ve got to hurt the guy? He just put a billion dollars in the pot. We don’t need to hurt him. It’s that kind of thinking that has resulted in 602 banks in the Cayman Islands. That money needs to be back here building our infrastructure and creating jobs.”
Update: Grant Davies has posted the video of Carson’s speech on his blog, in case you are interested in watching it. Carson talks about much more than taxes. Thanks Grant!
And I highly recommend that you watch it. I’ll have more to post from it.
Here’s my attempt at using the Costco Connection format to look at this question from both sides.
What the experts say: Economists tell us that wealthier folks have lower utility for each marginal dollar than less wealthy folks, because they have more than met their basic needs.
Or, as most people believe, the wealthy can afford to pay more than the less wealthy.
The wealthy benefit more from government, so should pay more to support it.
Tax rates can help us remedy unfair income distributions.
The wealthy already pay more than the less wealthy.
It’s presumptuous of us to feel we have the right to demand more from the wealthy than we are willing to give ourselves.
Even if it’s true that the wealthy have less utility for each additional dollar than the less wealthy, that’s not the right comparison. Wealthy people have higher utility for each additional dollar than government bureaucrats have with other people’s money.
Diminishing marginal utility is not a good argument for taking stuff from people. If I stole all the stuff in your attic, would you accept my argument that what I did was right because you weren’t using it?
Everyone benefits from government and it’s fair to expect everyone to pay something for it. In any situation where a minority pays for the majority of something that everyone benefits from (or thinks they benefit from), the tendency is for the majority to demand more and more, because it costs them nothing to do so.
Tax rates do not remedy envy. Higher tax rates on the wealthy can contribute to perceived income inequality, as wealthy folks respond to the incentives of their after-tax pay, not their before-tax income, while inequality is often based on gross income. In other words, if you raise taxes on the wealthy, they’ll seek to make even more income to make up for those higher taxes.
Higher tax rates also encourage the wealthy to make adjustments in their lives to avoid paying those taxes. Wealthy folks moved from England and France after those countries passed higher tax rates on the wealthy, for example.
I think we spend too much time talking about tax rates and not nearly enough time talking about government spending.
I think everyone, no matter how rich or poor, should pay something.
I don’t begrudge the wealthy of their wealth, especially the wealth of those who have earned it fair and square. That means they’ve added value to society, something we fail to consider as we salivate over ways to take it from them.
Even with 20/20 hindsight, I’m appalled at how we fail to see that earned wealth often carried with it gut-wrenching risks, previous failures and an extraordinary amount of persistence against the odds. We act as if it was a given.
I don’t accept that wealthy people have less marginal utility for an additional dollar than the less wealthy. If that were true, I would expect to see more evidence of that in the financial behavior of less wealth people.
A while ago someone thought it would be a good idea to require that tax or government spending changes (aka budget change) without a sunset provision (an expiration date) be passed with three-fifths Senate majority (or 60 votes).
Technically, a budget change without sunset provision can pass if the opposition doesn’t raise a point of order against the bill (which then requires the 60 votes to overcome), but that rarely happens.
A budget change with a sunset provision, however, can pass with simple majority in the Senate. This rule is referred to as the Byrd Rule. According to this Wikipedia article, it rule originated in 1985 and was modified in 1990.
Since it is rare that Republicans or Democrats hold the 60 votes in the Senate necessary to overcome the point of order, many budget changes get passed with a sunset so it can pass with a simple majority.
Many good-sounding, well-intended actions of government have unintended consequences.
The intention with the Byrd rule was to prevent government from making long-lasting budget changes without a strong majority. If Congress signs-up for something that costs a lot of money, they’d either need to be really sure they want to make that change, ensured by the three-fifths majority, or they’d force to come up for extension or go away.
The Byrd Rule sounds similar to the trick individuals use to keep from making impulse purchases. When you really want something, give yourself a cooling off period and see if you still want it in a week. If so, it’ll be there.
However, the Byrd Rule has a bad unintended consequence. The Byrd Rule treats tax cuts the same as a spending increase, as having a cost. There’s much wrong with that (like recognizing a revenue reduction as a cost), but the bad consequence is that this builds in automatic, recurring political bargaining chips.
To recap, because of the Byrd rule, tax reductions are usually passed with a simple majority and a sunset provision, instead of being made permanent and risk requiring a three-fifths majority.
As the expiration dates for all the past legislation with sunset provisions approaches, politicians salivate as they get to rehash all the old arguments again and use their approval for extending the goodies as leverage for getting some of their other agendas passed (like raising taxes on select groups).
That’s why the “Bush Tax Cuts” for everyone, keep coming up for renewal. Before the Byrd Rule, Congress would change tax rates and those changes would hold until a future Congress decided to change them again.
The Byrd Rule has resulted in a government that spends a great deal of time deciding whether to kick the can down the road, as was done again last night with the fiscal cliff deal.
For example, without the Byrd Rule, the “Bush tax cuts” would have ceased being referred to as such about 2 years after they were initially passed, at which point they would have become known as the regular tax rates.
That wouldn’t preclude future Congresses from further changing the tax code. But, any change they wished to make would be justified and framed against those rates.
We would be less inclined to confuse the issue by treating the “Bush tax cuts” as temporary changes that cost the government lots of money over the past decade.
The truth is, NOBODY knows if those tax cuts actually cost the government anything. Did you know that Federal income tax collections grew for several years after the passage of the ‘costly’ “Bush tax cuts”, reaching record heights in 2007?
When someone says that the “Bush tax cuts” cost government $X over the past decade, they’re making an assumption that the economy would have happened the same as if the tax rates were never changed, or close to it. But, we have no idea if that assumption is correct.
Tax rates have incentive effects. Lower tax rates can result in more economic activity over time since individuals get to keep more of the value they produce. Higher rates can result in less, because they keep less of it.
What’s the solution? Get rid of the Byrd rule. Let’s stop kicking-the-can down the road.