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November 09, 2007

Comments

"Since, to their credit, they passed PAYGO rules that require that any tax cut or spending increase be paid for, they had to find some way to raise taxes."

I know it's a ghastly thought, but couldn't they instead have cut spending?

Brett Bellmore asks a good question. Here are some possible answers:

1) Sure, we could cut spending to offset lost revenues from an AMT fix. In particular, we could cut spending on the occupation of Iraq, on the Star Wars fantasy, and on subsidies to corporate farms.
But:

2) Even if we do cut spending, even if we reduce government to drown-it-in-the-bathtub size, we STILL have to allocate the remaining tax burden among American taxpayers. Even if the federal government was running enormous surpluses, we would still need to ask: why do the GOPers want to tax high-middle-class wage earners at a higher marginal rate than astronomically-well-compensated hedge-fund managers?

-- TP

Brett, I'd be curious if you'd read this piece, keeping in mind that the "Congress" referred to at the time was the Republican-controlled Congress, and let us know what you think of this particular example of privatization of a government function, and if you think this might or might not be an example of a case where privatization wasn't an improvement.

Thanks for any substantive response.

The difference between the two parties indeed. According to Howard Dean, one is good, one is evil. Is it that simple?

Prof. Greg Mankiw is quoted here by the WaPo, but the part of his views that's uncomplimentary to Democrats is missing. A caution on forming one's opinions based solely what we read in the papers, perhaps.

From his blog:


"The Washington Post reports that the new Democratic majority in Congress wants to focus on the Alternative Minimum Tax. The AMT is paid disproportionately by residents of Democratic states because those states tend to have high state and local taxes and the state and local tax deduction is disallowed under the AMT.

This raises the question: Is the state and local tax deduction justifiable in the first place? I think not. Suppose the residents of town A vote for high local taxes to finance, say, a municipal pool. The residents of neighboring town B keep taxes low, allowing people who so choose to join a private pool club. Because of the federal tax deduction, town A gets a federal subsidy at the expense of town B. This outcome is neither equitable (it is violates the principle of horizontal equity) nor efficient (it encourages excessive provision of goods and services by states and localities over the private sector).

So if we want to get rid of the AMT, let's combine it with eliminating the state and local tax deduction. That would be, I believe, approximately revenue neutral. I understand that this proposal would not fulfill the political goal of rewarding blue-state voters, so I am not holding my breath expecting it to happen."

Joseph Stiglitz on the Bush/Republican economic legacy.

But what does he know about economics, anyway?

1. Hedge fund guys should pay like the rest of us, well done Democrats.
2. There is nothing wrong with the AMT, 26% is a fair percentage. The Democrats are pandering to their fancy friends with engineered tax returns. Bad Democrats.

PAYGO is too little too late. Under existing entitlement programs and accrual accounting, we already have over $60 trillion in unfunded liabilities, growing by ~$3 trillion a year, and accelerating. People are starting to pick up on this and dump US securities. One ‘expert’ was explaining on TV last night that big dollar holders cannot dump their dollar reserves because, if they did, it would devastate the value of the rest of their holdings. Think about that.

Between dollar dumping, the Fed printing money to keep banks solvent, and Asia selling our T-Bills, bottom line is the cost of borrowing jumps and the electorate’s addiction to other people’s money eventually becomes unsustainable. Really bad times ahead for those who rely on government checks for their well being. Political pandering to the electorate by getting them addicted to Uncle Sugar is unethical. Bad Democrats (and bad Republicans), but really, in the final judgment, bad electorate. A Republic, if you can keep it.

http://usscouts.org/advance/boyscout/bsmotto.asp

Can someone explain how the AMT can go from affecting 4 million families to 23 million in one year, just because the threshold was indexed for inflation? I don't believe either the inflation rate or the rate of income increase is that high.

"The Difference Between The Two Parties In A Nutshell"

Republicans: starve the beast.

Democrats: starve the guy holding the beast's leash.

KC - the short answer is that the normal tax brackets are indexed to inflation, but the AMT is not. So people who make the same amount of money as last year would pay less via the normal brackets this year, and that lower amount would fall below the AMT for the 26 million people they're talking about.

KC: I don't know, but one possible answer is that last year (and the year before...) they had temporary patches in place. So it could be that the point is not: the AMT, left unpatched, would have hit 4m last year and 23m this year, but rather: the patched AMT hit 4m last year; if left unpatched, it would hit 23m, because all the increases in the number of people covered that have occurred since we started patching it would all come due at once.

As I said, I don't know if this is right, but it occurred to me as a possibility.

In the comment above, for 23, read 27. Or whatever. :)

Suppose the residents of town A vote for high local taxes to finance, say, a municipal pool. The residents of neighboring town B keep taxes low, allowing people who so choose to join a private pool club. Because of the federal tax deduction, town A gets a federal subsidy at the expense of town B.

Town B probabely has residents going to the municipal pool in town A - that the residents of town A paid for with tax increases.

I also love the WH idea of reintroducing tax farming (abonnement fiscal, that popular pre-1789 program that made the world save for the glorious rule of Louis XXVII we enjoy today). Sign the petition for a rogue elephant exception in the eighth amendment.

I also love the WH idea of reintroducing tax farming (abonnement fiscal, that popular pre-1789 program that made the world save for the glorious rule of Louis XXVII we enjoy today

The ancient Romans had them too. Not nice people--even Jesus was critcized for hanging out with prostitutes and tax farmers

Town B probabely has residents going to the municipal pool in town A - that the residents of town A paid for with tax increases.

No, in most such cases you have to show ID with a local address to use the municipal facilities, or get a special ID from the facility. That's been the case everywhere I've ever lived in the US.

First of all I support the Democrats here. I want the AMT fixed, and I don’t have a lot of sympathy for private-equity fund managers, but I do have to point out that old law of unintended consequences.

1969 – We need more revenue. Let’s just tax the super-rich! It’s only 155 super-rich households. The super-rich aren’t paying their fair share. They’re taking advantage of legal deductions we put into the tax code. They should pay an alternative minimum tax!

2007 – The AMT is a disaster! It’s going to hit 27 million households this year! Let’s tax the super-rich to “fix” this! It will “land primarily on Wall Street titans”. The super-rich aren’t paying their fair share. They’re legally taking advantage the tax code!

Again, I support the Democrats on this. Let’s get this out of the way and maybe save someone else a few keystrokes: Yes, I’m an evil conservative. I’d rather see people dying in the streets than take a dime from the rich. Make that children dying in the streets. Make that cold and hungry children with bad teeth…

But I’m really not seeing the “Difference Between The Two Parties” hilzoy.

The chairman of the House Ways and Means Committee has proposed legislation that would effectively halt some current tax audits of people who get a tax break for living and operating a business in the United States Virgin Islands.

Many beneficiaries of the tax break are campaign contributors to the lawmaker, Representative Charles B. Rangel, Democrat of New York, according to data collected by CQ MoneyLine, which tracks political contributions.

Beneficiaries of the tax break including Michael W. Masters and Richard H. Driehaus, money managers, accounted for more than half the $51,900 that individuals in the Virgin Islands gave last year to Rangel for Congress, the chairman’s campaign organization. Mr. Rangel raised almost three times as much from such donors last year as in any other year in the MoneyLine database.

The provision is in a broader tax relief bill intended to prevent some 21 million American households from falling subject to the alternative minimum tax this year. That broader bill was approved by Mr. Rangel’s committee last week.

Financial services companies and their executives began flocking to the islands, taking steps like contributing to local charities as ways of establishing residency, which was required to capitalize on the program’s tax benefits.

And this?
Democrats angrily countered that all they were doing was closing tax loopholes on super-rich private equity and hedge fund managers to live by their pledge of fiscal responsibility.

Pledge of fiscal responsibility?!? Spare me.

House Appropriations Committee Chairman David R. Obey, D-Wis., challenged House Republicans to join Democrats in supporting the bill despite the veto threat.

Obey made clear that lawmakers who support the president risk losing what many members most want out of spending bills: earmarks, or funding for local projects.

I would ask every serious-minded person in this body if they really think there’s a chance of a snowball in Hades that members’ earmarks on either side of the aisle will survive if we wind up at the president’s level of funding,” he said.

Let’s see: Looking for $52 billion for this AMT thing… Hey I know – let’s add $8 billion in bipartisan pork to the water works bill! That should help.

Both parties are bad on fiscal responsibility. Both care more about pandering to whoever they think is a good voting block and/or whoever is filling their campaign coffers.

Bah.

"1) Sure, we could cut spending to offset lost revenues from an AMT fix. In particular, we could cut spending on the occupation of Iraq, on the Star Wars fantasy, and on subsidies to corporate farms."

Cool! Go for it!

"2) Even if we do cut spending, ... why do the GOPers want to tax high-middle-class wage earners at a higher marginal rate than astronomically-well-compensated hedge-fund managers?"

I think I addressed that over in the "Don't be a liberal hatuh" thread. Essentially, the Republicans tend to take a market view of fairness: That it consists of people getting what they've paid for, and paying for what they get. And "astronomically well compensated hedge fund managers" aren't actually getting all that much in government services, so why the heck should they be paying astronomically high taxes?

Remember, "From each according to their ability, to each according to their need." is a maxim that's more popular among Democrats than Republicans.

"Brett, I'd be curious if you'd read this piece, ...
Thanks for any substantive response."

Of course it's a bad idea: Forcing people to do things, (In this case, pay up.) is, like, the definitive governmental function. It's really the only thing the government is any better at than the private sector. Outsourcing it is madness.

Heck, it would make more sense to have private creditors who are having trouble collecting sell their bad debts to the IRS for collection.

Brett, there is an IRS lady at the place in Mount Prospect, Illinois, who is Smokin' Hot!

Plus she got all my 1099s when I thought I had lost some. I say, man the IRS with pretty women, and they'll do a better job of collecting taxes.

I would question the "Hedge fund managers aren't getting that much in government services" claim, because their entire job depends on the existence of government regulated financial markets, a society that produces enough surplus in money, food, and other necessities to allow the existence of hedge funds and the manager thereof, food and safety departments to ensure the caviar they buy is caviar, and not plastic beads, insurance and regulations that allow people to trust financial markets enough to put their money in them, military and police to provide the physical security that allows them to work, schools and zoning boards and building inspectors to keep their office from collapsing, regulations and inspectors to ensure their water is clean enough to drink and air is breathable, and enough social security and order that the peasants don't decide to re-enact the French Revolution.

So claiming they don't get much government services, just because they don't get welfare, or food stamps, or whatever, is rather disingenuous and a very limited view of "government services".

Hedge fund managers do, of course, depend on the government's involvement in insurance, telecommunications infrastructure, statistical collection and distribution, standards in weights and measures, courts to enforce contracts, the police (including protection from mobs), physical infrastructure including surface and air transportation and standardization of electrical interfaces, patent and copyright registration and enforcement...and that's all off the top of my head.

Nate and I also do duets for weddings, funeral, bar mitzvahs, and Chapter 11 consolidations.

See, in the end you went all tautological on me, trying to define government services so that the exact same services are "worth" vastly more to the wealthy. But do they cost vastly more to provide?

I'm not denying that the wealthy get more government services. But I am denying that it scales even proportional to income. Putting $10,000 in my wallet doesn't make it (Checks wallet...) 500 times more expensive to keep me from being mugged. Especially if I move to a gated community, and keep a couple of body guards on staff.

Even the flat tax rips off the wealthy. That's the point of the tax system, from a politician's viewpoint: Since everybody gets to vote only once, you concentrate the pain as much as you can get away with, and spread the benefits as much as you can, to maximize the vote yield. It's got squat to do with abstract conceptions of justice, no matter what rationales we might try to come up with after the fact. It's all about robbing Peter to buy Paul, John, and Ringo's support.

We weren't talking about the costs to provide it, we were talking about the benefits obtained from government, Brett. That's what you were talking about, when you said "And "astronomically well compensated hedge fund managers" aren't actually getting all that much in government services, so why the heck should they be paying astronomically high taxes?"

They ARE getting that much in government services, and they get quite a lot more benefit from them than the poor do. Who benefits more from the government run FAA, which keeps plane travel smoother and less dangerous than travel by car, the hedge fund manager who flies many places, or the poor who never get to travel? Who benefits more from government insurance of banks, a hedge fund manager with thousands of dollars deposited, or the guy who keeps the minimum possible in his checking account, just so he can cash his paychecks each week? Who benefits more from well-built and maintained office skyscrapers? Legal contract enforcement? Hell, who benefits more from Federal Reserve rate adjustments? Who benefits more from the Internet? Who benefited more from government funded universities and schools? Who benefits more from the electrical grid, the poor who run a kitchen and TV and lights, or the market fund manager who runs his office full of computers?

Also, a brief bit from my stuff about marginal utility, in the "Liberal hater" thread.

"If you have two dollars, and pay one dollar to walk on a sidewalk, that's half of your money. If you have a hundred dollars and pay one dollar to walk on the same sidewalk, that's 1% of your money. And if you have $100,000 and pay one dollar, that's .001% of your money.

When you have more money, each individual extra dollar of cost or earnings nets you less effect than the last. And each dollar you spend hurts you less, because you still have plenty more available. That's the entire point of progressive taxation, it's not a matter of screwing the rich, it's a matter of maximizing utility."

Larger values in absolute dollar terms can still be less in percentage terms. And even identical percentages are still less, in proportional effect. A 15% flat tax that takes $15 from somebody with $100 and leaves them with $85 affects them more than it affects the guy who has $100,000 and ends up with $85,000 afterwards. He may pay more, but I don't think there's any way you can say he's more "screwed", because he still has a thousand times the money the other person had.

"I would question the "Hedge fund managers aren't getting that much in government services" claim

I wouldn't even bother. Look, Major League pitchers may not get that much in government services. Rock and Roll stars may not get that much in government services. Or any other high earned income person you can think of.

But they also don't get to pay a capital gains rate on what is most definately standard earned income.

If you want to change the tax code so that everyone pays for what they get go for it. I don't think you have much chance of getting such a bill passed, but fine.

Until then, why should hedge fund managers essentially be exempted for a large percentage of the taxes everyone else owns.

"They ARE getting that much in government services, and they get quite a lot more benefit from them than the poor do"

That's an interesting question: If I use a KWH of electricity to surf online comics, and the web developer next door uses the same electricity to earn $10,000 in commissions, should he pay 100 times the rate for that electricity?

That's basically the claim that's being made here, and it's a claim which would logically have the wealthy being charged $50 for a burger at Hot 'n Now, because he's earning more money while burning the calories.

That's a version of 'fairness' I explicitly reject: In a competative market, products get priced at a bit above the cost of production, not at the rate that extracts from the consumer most of the benefit of buying the product.

Essentially, you're suggesting that the government behave as a monopolist does in the market. But, in the market, don't we view that as bad?

"This raises the question: Is the state and local tax deduction justifiable in the first place? I think not. Suppose the residents of town A vote for high local taxes to finance, say, a municipal pool. The residents of neighboring town B keep taxes low, allowing people who so choose to join a private pool club. Because of the federal tax deduction, town A gets a federal subsidy at the expense of town B. This outcome is neither equitable (it is violates the principle of horizontal equity) nor efficient (it encourages excessive provision of goods and services by states and localities over the private sector).

So if we want to get rid of the AMT, let's combine it with eliminating the state and local tax deduction. That would be, I believe, approximately revenue neutral. I understand that this proposal would not fulfill the political goal of rewarding blue-state voters, so I am not holding my breath expecting it to happen."

May I rephrase that for you Greg? Let's try:

"This raises the question: Is the [mortgage interest] deduction justifiable in the first place? I think not. Suppose the residents of town A [build enormous mcmansions with huge financing cost deductions], say, [in a new high-end gated development]. The residents of neighboring town B keep taxes low, [maintaining reasonable zoning and building regulations]. Because of the federal tax deduction, town A gets a federal subsidy at the expense of town B. This outcome is neither equitable (it is violates the principle of horizontal equity) nor efficient (it imposes excessive [building and infrastructure burdens] on states and localities, rather than the private sector).

So if we want to get rid of the AMT, let's combine it with eliminating the [mortgage interest deduction]. That would be, I believe, approximately revenue neutral. I understand that this proposal would not fulfill the political goal of rewarding [wealthy max-contributors], so I am not holding my breath expecting it to happen."

Most baseball stadiums are paid for by state and local governments. Much baseball income comes from television, which uses airwaves regulated and auctioned by the government. Airports and the rest of transportation infrastructure are essential to the existence of baseball. Baseball players get endorsement contracts. Etc.

Rock stars make some of their money from royalties on copyright (the studios take most of it). Television and radio stations play music for advertising, over the airwaves. Travel, once again. Electrical infrastructure for those guitars. Most big arenas are either sports stadiums or partially or wholly funded by the government. Distribution over the Internet, now. Etc.

Many of these can apply to pretty much anybody who makes lots of money, because they make their money in the framework of society and government, and therefore use the tools and things both have created.

I'm just saying. :)

While we're at it, Greg, we can also discuss how those nefarious blue states subsidize federal largesse to the sainted red states via federal tax remittances and aid/grants:

"There is no relationship between defense
spending per state and the state’s Electoral College vote. However, the relationship between non-defense spending and the vote becomes even stronger: States that benefit the most from non-defense spending (from retirement and welfare payments to farm subsidies to highway construction) give even higher margins to Bush. For each additional 10 cents per dollar that the federal government spends in a state, Bush’s margin increases by over 2.9 percentage points...

The real effect of federal finances on vote shares comes from tax burden. States that have a higher per capita federal tax burden have more Gore voters; states with a lower per capita federal tax burden have more Bush voters. A $1,000 per person increase in federal taxes indicates a 7.6 percentage point decline in Bush’s vote margin. This result is indeed curious since Bush campaigned on a platform of lowering taxes and reducing spending. This message
appears to have been best received in states that have low tax burdens already. Voters in states with higher per capita federal tax burdens, concentrated in the Northeast and Great
Lakes, were less receptive."

http://psweb.sbs.ohio-state.edu/faculty/hweisberg/conference/Lacy-OSUConf.PDF

So we'll give up the state tax offset on the 1040 when red states stop nursing at the federal teat. How's that for *horizontal equity*?

Does anyone recall if any politicos or pundits predicted this would happen with the AMT back in ‘69? I’m curious if anyone called it right but there is not much available from that year online.

I wonder if "H.L Mencken" is being intentionally ironic when he uses the mortgage interest deduction as a 'foil' to Greg when Greg is on record as not being a fan of the market-distorting effects of the mortgage interest deduction but acknowledges that killing it would be super-tricky to unwind at this point (though perhaps easier now than before). I'm suspicious because the 'reasonable zoning regulations' which avoid leading to high prices are found in Republican areas, not Democratic ones (like New York, San Francisco, D.C. etc. whose skyrocketing prices are largely caused by zoning regulations which sharply restrict building compared to other cities).

That's the problem with appropriating the name of a well known satirist--if you make mistakes it can be difficult to tell if making fun of the people who would believe that, or if you just haven't looked in to the issue enough to make an informed comment.

It's been a bunch of weeks since I last reminded people how to link, so: How To Embed A Link.

Here is a handy guide to HTML tags.

You can use "find" to go to "link something."

Here's how you link (you can copy this and paste it as necessary, if you can't remember):

Put words as necessary between > <

Put the actual URL to link to where it says "URL."

You're done. It doesn't matter if you capitalize or not.

Hmmm, in the next comment by "H.L Mencken" we see an odd argument for a Democratic Party supporter to be making.

Are you for or against redistribution from the wealthy to the poorer? Or are you only for redistribution from rich Republicans to poor Democrats but against redistribution from rich Democrats to poor Republicans?

Looking more like a subtle anti-Democrat satirist, but perhaps just deeply confused. :)

Maybe I should post under "C.S. Lewis" and see if that helps my posts?

That's an interesting question: If I use a KWH of electricity to surf online comics, and the web developer next door uses the same electricity to earn $10,000 in commissions, should he pay 100 times the rate for that electricity?

This has got to be one of the most retarded attempts at comparing apples to kangaroos that I've ever seen on the internets. I can't decide whether you honestly believe that and therefore don't understand the first thing about marginal utility, or are just saying it to derail the discussion. Let me know which it is.

And while you're at it, I highly suggest you re-read Nate's post until you understand what the point is. Hint: it's not who should be charged more for public utilities, it's whether or not the a given tax rate has the same effect on the ability of a rich person to make ends meet as it does on someone who's living paycheck to paycheck.

referring to rea at 7am
I know, they were the 'publicans'. They have obviously reincarnated as the Republicans ;-)
Citing the Romans would not have made my (ironic) point since the Roman Empire did not fall as a result of abusive taxfarming, while it played a nonnegligible role in the French Revolution (Don't know how taxes and tolls were collected in pre-revolutionary America).

All French all equal before the law. The law forbids both rich and poor alike to sleep under bridges. (actual words of a French politician who seemingly did not see the irony).

Brett: I didn't know you read webcomics.

However, that wasn't my argument. My argument was for marginal utility and public goods and therefore progressive taxation. Your argument (in the other thread, though they overlap now) was that people should "Pay for what they get." So I was taking that logic and showing how the rich still get more out of government services, especially public goods, than the poor do, but much of it's less direct. So even by your own argument, the rich should still pay more than the poor. Which includes more of the provision for public goods as well.

And since you didn't answer in the other thread, do you really think that progressive taxation, or even a flat tax, is Communism? You kept quoting "From each according to their ability, to each according to their needs."

"Maybe I should post under 'C.S. Lewis' and see if that helps my posts?"

Will there be talking animals?

"The law forbids both rich and poor alike to sleep under bridges. (actual words of a French politician who seemingly did not see the irony)."

"The law, in its majestic equality, forbids the rich as well as the poor to beg in the streets, steal bread, or sleep under a bridge."
-- Anatole France

Rather more eloquent.

It's one of the quotes on the sidebar of my blog. The original was in French, of course.

"Will there be talking animals?"

Look around Gary. They are already here! :)

"So even by your own argument, the rich should still pay more than the poor. Which includes more of the provision for public goods as well."

Indeed, they should. I just think that it's hard to make a case that the amount they should pay scales even linearly, (Flat tax) with their income. Maybe logarithmically would be closer to the truth.

The way I remember it (with only the bridge), it was by a politician but it is obviously possible that one was quoting the other or coming up with the same image independently. Since I can't remember who exactly the quote was attributed to in the book (I think it was in Geyer's essay "Über die Dummheit" (On Stupidity) but that book has no index, so it would be difficult to check). No dispute about the AF version being more eloquent though.

"Are you for or against redistribution from the wealthy to the poorer? Or are you only for redistribution from rich Republicans to poor Democrats but against redistribution from rich Democrats to poor Republicans?"

Neither, necessarily, just against hypocrisy. It was offered in rebuttal to Greg's snarky comment in his full post about the goal of "rewarding blue state voters". One guy's *reward* is another guy's subsidy. Always has been. Always will be. The mortgage deduction was conceived as a way of promoting home ownership, a linchpin of the 'ownership society' which would lead to people taking an interest in the well-being of their own neighborhood.

But since you asked, I have no problem with some degree of redistribution, at least as far as a basic safety net is concerned. But what I'm definitely against is the demand for *tax relief* from quarters that most benefit from the very public financing that derives from taxation.

As for the local and state taxes, I always thought that 'states' rights' and 'local control' were what conservatives preached. So when states and localities choose to provide for the welfare of their residents to the extent that the federal government did not, why should they be double taxed for those expenditures?

To pour some oil into the fire. From what I read in the German papers parts of California especially affected by the fire had to practically abolish fire services because anti-tax constituents had indeed starved the beast. In that case (provided it is true) the reaction should have been to either deny them federal (or state) help completely (and to charge private firefighters for use of infrastructure, water etc.) or to present them with the full bill (also denying them any deductability for the expenses).

Brett: Well, that disagrees with your idea of a single cost head/poll tax for everyone. And the rich do make much more use of many of the tools of government and society, but it's usually more subtle and diffuse than just getting a check. I suspect it scales more than linearly, personally.

Also, the rich already have their wealth and status on their side, they don't really need the government to lend them even more of a helping hand than it does already. So government should best look out for the poor. Plus the fact there are many more poor than there are rich, and a government of and by the people should look to the interests of the people first.

"The way I remember it (with only the bridge), it was by a politician but it is obviously possible that one was quoting the other or coming up with the same image independently. "

Um, no, it's not. It's from Le Lys Rouge (The Red Lily), ch. 7 (1894).

It's well known that it's from that work by Anatole France, the winner of the Nobel Prize for Literature. It's eminently verifiable.

Full original text here: "Autre motif d’orgueuil, que d’être citoyen! Cela consiste pour les pauvres à soutenir et à conserver les riches dans leur puissance et leur oisivité. Ils y doivent travailler devant la majestueuse égalité des lois, qui interdit au riche comme au pauvre de coucher sous les ponts, de mendier dans les rues et de voler du pain."

That is, it's a sure thing that zillions of politicians, and other types of humans, have paraphrased Anatole France's quote, of course. Equally obviously, the gist of the thought must surely be ancient.

But he's the guy who wrote the phrase that became famous. Wording is crucial to crystallizing and precisely expressing thought. Thus, credit where due, in my view.

I'm not going to pursue this at length because there are all kinds of ramifications I'd want to think out, but...

One might argue that wealthy people's wealth depends to a much larger degree than the small estates of the poorer classes not just on the wealthy person's own situation but the fundamentals of a whole lot of other people's situations. The rich person is likely to have employees and customers that they'd prefer not be in armed uprising or spreading plagues, for instance. Rich people travel more and have more widely spread holdings, and are therefore much more likely to be directly affected by federalism in action, with concomitant interests there. And so on - wealth supports more of the overall structure of the system because more of the structure matters to wealth and its custodians and creators.

"As for the local and state taxes, I always thought that 'states' rights' and 'local control' were what conservatives preached. So when states and localities choose to provide for the welfare of their residents to the extent that the federal government did not, why should they be double taxed for those expenditures?"

Huh? Your point doesn't make any sense to me.

Who is being double taxed? If states or localities decide to provide more services than the federal government provides, local taxes isn't "double taxing" it is "paying for the EXTRA services you want on top of what you already get from the federal government.". The states have the right to provide MORE than the federal government. Why you believe that ought to provide a federal tax break is mysterious.

"But since you asked, I have no problem with some degree of redistribution, at least as far as a basic safety net is concerned. But what I'm definitely against is the demand for *tax relief* from quarters that most benefit from the very public financing that derives from taxation."

I gathered that first sentence.

As for the second, there is discussion above about 'most benefit'. I suspect you could easily argue that richer people get more 'benefit' from having a well ordered society than poor people on an absolute dollar value basis. (Though I don't believe it is strictly true for all values of X and X+1, I suspect that the lower middle class for instance gets less than the some of the people below them). But could already be covered by taxing a fixed percentage of income. 30% of $10 is less money than 30% of $1 million. You have to argue that the rich person gets greater value as a percentage of net worth than the poor person. And it has to be much greater to justify even small percentage differences because each small percentage step is a huge amount of money. Since rich people seem to exist in societies with less 'rule of law', I'm not sure that position is easily defended. Which is not to say that progressive taxation is automatically bunk, but rather that your explanation of why it ought to exist (here in the comments, perhaps not in your head or in your understanding) is pretty deeply deficient.

I tend to agree with Milton Friedman that it isn't wise policy for the majority of the population to get in the habit of having its wants and desires paid for by other people (i.e. voting to have 'the rich' pay for what you want). Like Friedman, I think it might be morally proper for the majority to decide that some small minority is too poor to pay much in taxes, but it shouldn't get in the habit of having different tax rates on 'other people' to help pay for what 'I' want.

"Brett: Well, that disagrees with your idea of a single cost head/poll tax for everyone."

Well, it might if that's what I was advocating. But what I'm advocating is that taxation be based on user fees to the extent that the costs can be directly attributed to particular taxpayers, with the balance being handled on a head tax basis. With some provision akin to food stamps for people who can't afford to pay the taxes they really owe on this basis.

A poll tax, of course, is a tax you have to pay to vote, and I'm not advocating that.

Many of the things we have been talking about are things that can't easily be narrowed down to individuals. That's what "Public Goods" means. They are still used more by the rich and benefit the rich more. Therefore the rich should pay more for these, which your head tax for public goods that can't be easily covered by user fees is supposed to cover. Therefore the head tax would have to be progressive, or it would fall disproportionately on the poor. I think you're massively underestimating the amount of the system that benefits the better-off.

Which leaves aside marginal utility, the benefits of having a society that guarantees a certain level of security (such as preventing riots and mobs), and all of the other arguments in favor of progressive taxation.

And you still haven't answered if you think a progressive, or even apparently, a flat tax, is communism.

"If states or localities decide to provide more services than the federal government provides, local taxes isn't "double taxing" it is "paying for the EXTRA services you want on top of what you already get from the federal government."."

Except that this is the problem. The lower-servicing states allow us (in the higher-servicing states) to subsidize their state welfares with a net transfer, via the federal government. So I'm not only paying to maintain the welfare of the citizens of my state, I'm paying to maintain the welfare of citizens of another state. Again, I have no problem with it, since my state has a lot more marginal income (and therefore greater ability to pay), but I do have a problem with the railing against it by those who benefit from it.

Another way to look at it is to change your statement above to something like "states deciding to provide EXTRA services above that which can be financed with their state and local taxes, and sending me (in another state) the bill".

And Sebastian, while I agree in principle with Friedman re: the economic tyranny of the majority over the minority, it's only to the extent that there should be no mandate for a few to provide ENTIRELY for the needs of the many.

However, I do believe that 1. there is a general responsibility for at least a baseline commonweal and 2. where there are clear market failures in providing basic necessities (e.g. health insurance), it is the responsibility of government to provide that public good.

So at base I'm concerned that reductionist Friedmanism will pull us toward being a nation of Mississippis and Alabamas, rather than a nation of Californias and Massachussettses. Creating more of the latter would theoretically have synergistic effects as well since it appears that healthy, well-educated states are more productive.

That's very well put, H.L, about the kind of nation policies build up.

"Another way to look at it is to change your statement above to something like "states deciding to provide EXTRA services above that which can be financed with their state and local taxes, and sending me (in another state) the bill". "

That isn't another way of looking at it all. There is a federal set of services. That is decided on federally. If you don't like that fact that is an argument against progressive federal policies.

That is one set of arguments.

ANOTHER SET, is about state tax offsets from the federal government.

These occur when states implement policies and pay for them with state and local taxes. Since these are IN ADDITION TO already existing federal outlays, there is no reason why they should be subject to a federal offset. Or if there is, you haven't even remotely hinted at why.

"And Sebastian, while I agree in principle with Friedman re: the economic tyranny of the majority over the minority, it's only to the extent that there should be no mandate for a few to provide ENTIRELY for the needs of the many."

So if we made rich people pay for everything except our own toothbrushes, you think that represents a good estimate of fairness? I'm highly skeptical. I would suggest that in general, able bodied people should provide for themselves and contribute to the things they demand from the government. If you vote for something, you should be expected to pay for it. If you aren't expecting that you have to pay for it, you tend to vote for more than you would if you did expect to pay for it. That is systemically problematic in the long run.

"where there are clear market failures in providing basic necessities (e.g. health insurance), it is the responsibility of government to provide that public good"

There aren't nearly as many clear market failures as there are silly government programs. See, e.g. the farm bill.

I'm not sure "market failures" and "silly government programs" are comparing apples to apples. There's lots of silly things "the market" does, and ways companies waste millions if not billions of dollars as well.

Brett Bellmore suggests that a head tax, plus user fees, plus some subsidy ("akin to food stamps") would constitute an equitable tax system. Whether or not that's a silly idea, we need to ask Brett why he thinks our present tax system is all that different from his proposal.

We already have a flat income tax system: you pay 35% no matter how high your income, but you get reduced rates (i.e. a "subsidy") if your income happens to be under about $300K a year. "Targeted" deductions like the one for home mortgage interest are certainly "akin to food stamps". We could collect "user fees", from all Americans including pre-schoolers, for the per-head cost of national defense, and then tax hedge-fund managers more heavily than, say, firemen to subsidize the pre-schoolers' "defense user fees". Put it all together, and Brett's notion of tax fairness may well be what we have now.

-- TP

The tax code is a reflection of opinion, preferably popular opinion, about what sort of society we want to live in.

So, if I could put my own expression on a point already mentioned by Nate: As income rises, each dollar earned is less and less essential to the earner. This, in part, is sound justification for progressive taxation.

But more important, some degree of income redistribution is desirable from a societal perspective to offset the natural tendency of wealth to aggregate into the hands of those with an advantage, whether an earned or an unearned advantage.

Brett howls about the unfairness of progressive taxation. But what is fair or unfair is a matter for public opinion to adjudicate. Brett would be wise to adopt a philosphy that kept pitchforks and shotguns out of the adjudication process.

"Another way to look at it is to change your statement above to something like "states deciding to provide EXTRA services above that which can be financed with their state and local taxes, and sending me (in another state) the bill". "

"That isn't another way of looking at it all. There is a federal set of services. That is decided on federally."

And paid for disproportionately by some states rather than others. You say tomato, I say tomahto. So those less-populated, poorer states, use their disproportionate influence to help *decide* on certain subsidies (which constitute a 'federal set of services') and send me the bill. At least some of the state- and local-tax-funded services I'd like to claw back from my federal tax bill go toward things that increase productivity and therefore GDP and tax revenues; things like good infrastructure, transportation and education.

But again, as I said, I'm willing to go along with it, because that's the system we've got. You pays your money and you takes your chances. I say the deductibility of state and local taxes represents a bargain as far as the net-federally-taking states are concerned. Even with those deductions, we STILL pay a disproportionate amount of the federal tax bill.

"So if we made rich people pay for everything except our own toothbrushes, you think that represents a good estimate of fairness?"

Please take it easy on that strawman. A basic social safety net (e.g. social security, medicare, unemployment insurance etc.) will do. A sense of economic injustice can get out of control without some countervailing force, society can be very destabilized and people can start doing stupid things like electing trade resticters, socialists and isolationists. Plus, what Nate said.

Putting $10,000 in my wallet doesn't make it (Checks wallet...) 500 times more expensive to keep me from being mugged.

No, but it makes it, oh, let's say somewhere between 100 and 1,000 times more likely that you'll be taken seriously by the police when you report the mugging. Which is another way of saying that the work the police do generally accrues a lot more to rich people than to poor people.

H.L. Mencken: …we STILL pay a disproportionate amount of the federal tax bill

Do you like beef? Pork? Chicken? Salad? Bread? Corn? Potatoes? Citrus?

Obviously the highest concentrations of people pay the most. They also use the most welfare etc. Scattered among those red states are a handful of people who grow most of our food. Think about what you pay for a head of lettuce or an orange. Disproportionate? Subsidized?

Well, I've reached a threshold point. I can't really respond to the posts I'd like to without breaking the posting rules a zillion different ways. I will therefore try to go quietly rather than out in a blaze of glory - we'll see how long it takes me to find a temperate voice again this time.

"I say the deductibility of state and local taxes represents a bargain as far as the net-federally-taking states are concerned. Even with those deductions, we STILL pay a disproportionate amount of the federal tax bill."

I'm pretty sure this is factually incorrect unless you take away the progressivity by income which is exactly what you (most of the time) seem to be arguing to keep.

"And paid for disproportionately by some states rather than others. You say tomato, I say tomahto."

If you want to keep conflating two extremely distinct issues I can't stop you. But you haven't linked them in any way except for as "two things I'm talking about" so I can't really proceed.

OCSteve: Obviously the highest concentrations of people pay the most. They also use the most welfare etc.

Actually, I think you'll find that agribusiness is the largest single recipient of federal welfare in the US. The pittance doled out to individuals out of work, compared to the vast sums paid to the businesses that produce corn and cattle, is part of what makes the red states suckers at the federal tit. To produce not lettuces or oranges, but beef and syrup. To the consequent obesity among low-income Americans: the federal government subsidizes the least healthy food for them to eat.

Not to forget that subsidized agribusiness plays a role in destroying markets in the 3rd world that can produce cheaper but can't compete with subsidized products from both the US and the EU (who also block entry to their markets by imposing high tariffs). It's pork present and futures.
Sorry, I don't want to move the thread towards that other standar, "free" trade.
---
To Gary
I checked the book ("On Stupidity"; after searching for it for about an hour) on the France quote. The author (despite quoting France directly on another occasion) seems not to know the exact origin of the quote and takes it for the (possibly apocryphal) blunder of a French legislator. Since I could not get a content description of The Red Lily on the run, I don't know in what context France uses it. It seems that the quote is rarely used in its original form but usually leaving parts out, alternating the sequence or adding details (e.g. naming the bridge). Interestingly the bridge seems to be the most popular part although the begging in the streets is more direct.
Thank you anyway for providing the correct context.

"Do you like beef? Pork? Chicken? Salad? Bread? Corn? Potatoes? Citrus?"

OC Steve,

Actually, that helps prove the point I'm trying to make. Namely, that there are benefits to others beyond the specific recipients of federal aid. So, do you like computers, insurance, airplanes, investments, nuclear submarines, vaccines and other pharmaceuticals etc? Well, we people in the blue states pay most of the cost of the infrastructure, transportation and education required to produce those goods. Where are our subsidies for those things?

Again, like I told Sebastian, I don't have a problem with it, because to me a direct payment subsidy to residents of one state from the federal government is akin to partial relief from the federal tax burden for the residents of another. Which, Sebastian, is the point I was trying to make, vs Mankiw, whose statement started this whole thing with appeals to economic justice, horizontal equity etc.

P.S. This makes no sense to me:

""I say the deductibility of state and local taxes represents a bargain as far as the net-federally-taking states are concerned. Even with those deductions, we STILL pay a disproportionate amount of the federal tax bill."

I'm pretty sure this is factually incorrect unless you take away the progressivity by income which is exactly what you (most of the time) seem to be arguing to keep."

If you made the tax system less progressive, the tax burden would be distributed more EQUALLY across red and blue states, since blue states have higher income, both overall and per capita.

There should be some inquiry into the reasons TennCare (state-government backed comprehensive health care) didn't work out so well. TennCare was an experiment in a red state for expanding government assistance for health care, but on a smaller, state-level scale.

The term "poll tax" may be associated in American history with a tax on voting, but it's not the general or original meaning, which is head tax. Famous for provoking the Peasants Revolt of 1381 in England, after which no one was stupid enough to try it there until Thatcher.

Taxes are not fees paid for goods and services delivered by the government. It's wrong to argue that the rich don't get enough value from the cops or the courts or the military to justify how much they pay in taxes. It's a fundamentally dishonest argument.

Moreover, it's a mistake to argue against this argument by pointing out how much more value the rich get from cops or courts or the military. Because, like I said, taxes aren't fees paid for services. They're part of the shared burden of supporting out the society that we all benefit from.

The super-rich aren’t paying their fair share. They’re taking advantage of legal deductions we put into the tax code. They should pay an alternative minimum tax!

I think this is a pretty legitimate point.

If folks are abusing tax deductions, there's a much simpler remedy available -- amend the tax code to tighten up the deduction.

Instituting another whole tax regime, targeted exclusively at a small sector of the population, doesn't seem to be a great idea as an alternative.

Republicans tend to take a market view of fairness: That it consists of people getting what they've paid for, and paying for what they get.

Here is that idea of fairness in action.

"9-11, can I help you?"
"Yes, I think someone is breaking into my house"
"That will be $100 for a car with two officers to come to the house, plus $100 for each hour they are there, billed at 15 minute increments, with a one hour minimum. If they make an arrest, there will an additional $1,000 fee to cover the cost of prisoner intake and paperwork"

That's called fee for service. It's a not-bad way to run a private business. It has no place -- none, whatsoever -- in government.

To be honest, I don't think there are very many Republicans who think this is a good idea, either.

Let me know if I'm wrong about that, because if I am, I'm going to more or less redouble my efforts to keep them the hell away from any position of responsibility, including dog catcher.

Maybe logarithmically would be closer to the truth.

This is B.S.

If you have anything resembling a cite, great, I'd love to see it. If it's just your imagination, thanks but no thanks.

I tend to agree with Milton Friedman that it isn't wise policy for the majority of the population to get in the habit of having its wants and desires paid for by other people

So do I.

Nobody's proposing that, and it's not, by any stretch of the imagination, what we have.

You know, IMO the whole "rich vs poor" thing misses the boat.

Some rich people are rich because they worked their bloody behinds off, earned every penny they have, and made not a few other folks rich along the way. I know a few folks like that.

Some are rich because great-great-great-grandpa invented a better mousetrap, and his descendants haven't quite managed to completely piss the fortune away yet. I know lots of folks like that, too.

Some folks are poor because they are, plain and simple, damned unlucky.

Some are poor because they can't be bothered to get off their butt and go get a job.

None of this -- not one bit of it -- is in any way relevant to the question of how to fund the legitimate operations of government.

Government is a set of institutions that people create to organize their collective civic life. It formalizes mutually recognized privileges and responsibilities. It is, in fact, to some degree coercive, because by and large everyone would like to have their own way, and there need to be sticks and carrots to keep all the cats herded in the same direction. In that, it's more or less exactly like every institution that humans have ever created to manage their interaction with each other.

Government costs money. Generally, folks try to find ways to allocate those costs so that the necessary revenues are collected with the least degree of overall pain. Here in the US, we happen to do this with a mix of tax regimes, resulting in a mildly progressive overall tax burden imposed on anyone who earns money, owns property, buys or sells anything, or uses a government service. In other words, basically everybody.

There are lots of other ways to do this, and in fact we've done this several other ways in the course of our history. I think we've only had federal income tax for about half of our history. We used to have tariffs, luxury taxes, and a number of other schemes. We changed to an income tax because we weren't raising enough through those schemes to do what we, as a nation, decided we needed to do.

Historically, the things that have driven us to an income tax have been wars and/or, post WWII, the need to project military force globally in peacetime as well. Worth noting.

And, as an aside, check out our current trade imbalance. Anyone interested in replacing our income tax with a tariff system? I'd be open to it.

Nobody likes to pay taxes. Almost everyone pays them. And, unless you are living 100% off the grid, growing your own food and wearing clothes made from elk hide that you tanned yourself, from a elk that you shot yourself, and not on government land either, and using a gun and bullets that you made yourself, you are a recipient of government services.

So, meaning no disrespect to anyone, but if you think you did it all on your own, you're probably wrong.

If you're middle class or up, the dollar value of the services you receive are probably worth as much or more than the dollar value of folks who rely on subsidies for food or shelter to survive. Most likely, you're already getting a bigger bang for your bigger buck spent.

And, by far, most folks that rely on those subsidies would rather not.

Government costs money. In return for that money, the freaking wheels don't come off of society. So, we should all just pony up and get on with it. The only question that should remain is, what's the best way to allocate those costs across the population. "Best" here needs to be something that will actually function in the real world.

To be honest, I'd be open to a flat tax, if only because it would make conservatives quit whining. My only requirement is that it be applied, uniformly, to each and every form of income without exception, and that there be no, absolutely no, deductions.

Put that on the table and we can talk.

"Maybe I should post under 'C.S. Lewis' and see if that helps my posts?"

Will there be talking animals?

Or a talking head in a jar?

The flat tax is a con. It's a hustle.

There's some good argument that the tax system is too complex, too difficult to understand, too easily abused and that it should be simplified. There's no reason that a simplification should include getting rid of tax brackets.

Tax brackets are very simple and very easy to understand. If you make up to this much, pay one rate. For money over that and less then that much, pay this much. Or even just figure out your taxable income and look at a chart. That's not tremendously complex.

If states or localities decide to provide more services than the federal government provides, local taxes isn't "double taxing" it is "paying for the EXTRA services you want on top of what you already get from the federal government.". The states have the right to provide MORE than the federal government. Why you believe that ought to provide a federal tax break is mysterious.

The trouble with this whole "Mankiw" line of argument is that it assumes that the only difference of opinion among states is the overall level of federal benefits, or taxation, if you prefer. But there are important allocation issues as well.

States A and B may agree on the desirable overall level of federal taxes, but disagree on how the money is to be spent. Perhaps A wants more for roads while B wants more for education. Let's say A wins out. Then B is paying for roads it doesn't want. That is not much different than paying for a pool you don't want.

Letting B spend some extra money of its own on schools, with a federal tax deduction, is a rough way of dealing with this problem. B in effect gets to allocate a portion of the federal budget the way it wants. The portion allocated is fairly small, and B has to put up most of the extra money itself. State A can do the same, of course, but if it's happy with federal spending allocations then it may choose not to spend any extra.

None of that seems unreasonable.

In a general sense, there really is no difference between the parties. Here is a book that details it
http://differencebetweendemocratsandrepublicans.com/

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