Sunday, September 25, 2011

Raising Taxes

Many on the American Right are reflexively against increased taxes. I don't think they should be reflexive about it, but I understand their core assumption--we pay too much already to a government that wastes our money, and don't want to pay more. I agree with that, believing wholeheartedly that government must be cut, that entire departments must be closed or blended with others, that entire programs need to wither away. Once we've identified the core functions of government, then we can determine how much it costs to pay for that government (including the interest on what we've already borrowed), and set tax rates accordingly. Unlike the president, I don't believe that the purpose of taxes is to create "fairness" or to redistribute wealth or to change behavior, but to pay for the legitimate functions of government. If, after we've cut out all the crap, our current tax rates won't pay for what we want, then, and only then, should tax rates be raised.

So it was with great interest that I read this article in The Economist, about raising taxes on the rich:
Tapping the rich to close the deficit is “not class warfare”, argues Mr Obama. “It’s math.”

Actually, it’s not simply math (or indeed maths). The question of whether to tax the wealthy more depends on political judgments about the right size of the state and the appropriate role for redistribution. The maths says deficits could technically be tamed by spending cuts alone—as Mr Obama’s Republican opponents advocate. Class warfare may be a loaded term, but it captures a fundamental debate in Western societies: who should suffer for righting public finances?

In general, this newspaper’s instincts lie with small government and against ever higher taxation to pay for an unsustainable welfare state. We reject the notion, implicit in much of today’s debate, that higher tax rates on the wealthy are justified because of the finance industry’s role in the crunch: retribution is a poor rationale for taxation. Nor is the current pattern of contribution to the public purse obviously “unfair”: the richest 1% of Americans pay more than a quarter of all federal taxes (and fully 40% of income taxes), while taking less than 20% of pre-tax income. And knee-jerk rich-bashing, like Labour’s tax hike, seldom makes for good policy. High marginal tax rates discourage entrepreneurship, and no matter how much Mr Obama mentions “millionaires and billionaires”, higher taxes on them alone cannot close America’s deficit.

So the debate is poisonously skewed. But there are three good reasons why the wealthy should pay more tax—though not, by and large, in the ways that the rich world’s governments currently propose.
It's not a long article, taking up only a single page in the print edition, but it's powerful. Two points jumped out to me as seeming reasonable:
Public spending should certainly take the brunt: there is plenty of scope to slim inefficient Leviathan, and studies of past deficit-cutting programmes suggest they work best when cuts predominate. Britain’s four-to-one ratio is about right. But, as that ratio implies, experience also argues that higher taxes should be part of the mix.
Why raise taxes? Because we've got to pay down that debt. And the other valuable point?
Indeed, the third argument for raising more money from the rich is that it can be done not by increasing marginal tax rates, but by making the tax code more efficient.

The scope for doing so is most obvious in America, which relies far more than other countries on income taxes and has a mass of deductions on everything from interest payments on mortgages to employer-provided health care, so taxes are levied on a very narrow base. Getting rid of the deductions would simplify the code and raise as much as $1 trillion a year. Since the main beneficiaries of the deductions are the wealthy, richer folk would pay most of that. And since marginal rates would be untouched (or reduced), such a reform would do less to discourage them from creating wealth.
I won't support a single tax increase until we start cutting government--and I mean cutting, not snipping off a corner here or there. Once we're serious about cutting, the proposals put forth in the linked article would be a grand place to start when considering taxation.


mazenko said...

Does that include the bloated Pentagon budget?

Darren said...

Liberals always want to cut the Pentagon's budget, but they always want the US military on standby to help out in "emergencies". I wonder how bad the world would be were the US military *not* around to keep evil at bay.

But yes, I'm all about cutting at least waste, fraud, and unneeded programs in the DoD. Can we cut entitlements first, though, since they're a much larger percentage of our budget than Defense?

MikeAT said...

Interesting mazenko, just one question. What specifically would you cut from the Pentagon budget? One or two carrier task forces? A MEU or two to go along with them? Shave a few more Army brigades? What specifically?

Or two questions. Kinda tying into what Darren raised, what do you think the military exist for?

Luke said...

The entire DoD budget could get cut, including the all of the "off budget" spending to support operations overseas, and it wouldn't even come close to balancing the budget. Its the non-constitutional spending, ALL of it needs to cut, gone, zeroed out. Yes the pentagon budget needs to be cut, but since its one of the few things that's actually authorized in the Constitution, we MUST spend some money on it. We can argue about how much, but only AFTER all of the non-constitutional spending is cut to zero.

mazenko said...

No, not first. Same time - budgets are budgets. And there is a lot in the pipeline on military spending that could be suspended immediately and for years without any risk to security.

And what entitlements?I'm all for means testing Social Security and negotiating prices for Medicare. But what can you exactly cut right now?

Specific ideas?

Darren said...

There are plenty of people who receive payments from social security, people I'd cut off immediately--fake "disabilities" like ADD, dependents who get social security because their retired parents do, those come instantly to mind.

MikeAT said...

And there is a lot in the pipeline on military spending that could be suspended immediately and for years without any risk to security.


I'll give you a few suggestions. End letting women on subs. Conversions of the boats will cost hundred of millions. Any position with "diversity" or "multicultural" in it is a defined oxygen thief and needs to be eliminated.

Come on give me you ideas. Also, you're not asking the bigger question. Why do. We have the military?

mazenko said...

Uhm ... all our bases in Western Europe? Definitely a carrier or two. Plus weapons contracting.

Here are some suggestions from the WSJ.

At least $100 billion in waste and fraud has been literally lost in Iraq/Afghan. That's a tenth of a trillion. That's some real money.

Let's suspend some serious payments now.

And I agree with you, D. But you're talking in hundreds of millions or maybe a billion here and there. Let's talk some serious cuts now. Hundreds of billions.

Where do you see it?

Darren said...

I'd cut *much* more out of so-called entitlements than out of the military. I can agree with pulling people out of Europe.

MikeAT said...


I for one am impressed.  You finally answered a simple question. There is hope for to after all.  But your ideas show a hostility to power projection.  Since 45 we have used forward basing and naval, naval air and air free to project our power around the world.  If you want to pull all of our European bases (I presume besides Germany  you also mean retreat from Poland and England) will you also pull out of Asia, Africa, the Middle East?  That sounds rather isolationist of you.  Last time we tried that?  Post World War I.  We have spent trillions to keep the peace since WWIi, no argument.  But behind that this country, Western Europe and Asia have enjoyed peace and   prosperity.  If you want to pull out of Europe, where do you go next.  Forward basing in the Middle East?  We have legitimate interest in the Middle East and we don't want certain nations in the area with nukes (BTY, several other nations in the area, like israel and Saudi Arabia also don't want  nukes under Tehran's control).  If so, where? It's kinda small there.  OK, bring the 100k all back to the US?  What then?  Demobilize?  Place them on the southern border?  Legitimate interest in controlling the border but generally liberals favor open/no borders.  So again how would you reorganize American foreign policy?

Good article from Sec Lehman.  But from what I read he was for reforming the procurement process, (with some excellent ideas I might add) not eliminating "weapons contracting".  This may shock you but the Army hasn't built it's own weapons in over a century.  We need to contract for stuff.  

A 100 billion in waste.  How about we rip Obamacare out by the weeds.  That's multiple trillions not wasted.

And how about this. Eliminate base-line budgeting.  Only in a f]{}ed up leftist mind is an increase from 100 billion to 105 billion a cut because "it should have been increased to 115 billion because of the base-line...". 

Until this happens with legitimate entitlement reform the budget is out of control

MikeAT said...

PS: Again I ask a simple question. What do you think the military exist for?

mazenko said...

I gave suggestions.

At least a carrier or two. The bases in Western Europe. The F/22 fighter. The national missile defense and any space-based defense programs. (We could add the Mars trip and other NASA exploration projects to the cuts as well). Continued nuclear warhead development. Any more Trident missiles. Any more B2 bombers or V22 Osprey. These are all products/programs that have received heavy scrutiny - often by the military themselves - yet not cut. And, how about not paying weapons contractors until after they deliver the product?

I'm talking real money - your training and equipping cuts account to almost nothing. And, of course, the military's job is to provide for the national defense. Period. But, it is overseen by non-military personnel for good reason. Though the problem is the politics involved in something like the B2. The military doesn't want any more. But Congress does because they equal jobs in each state. Thus, many in Congress believe the military's role is to provide jobs.

I disagree.

And you?

Darren said...

"As a nation, we’re facing some tough choices as we put our fiscal
house in order. But I want to be absolutely clear: We cannot, we
must not, we will not, balance the budget on the backs of our
veterans. As Commander-in-Chief, I won’t allow it.”
President Obama, August 30, 2011

MikeAT said...

I think I agreed with you that you were specific for a change. You obviously want to shrink our Navy and weaken the nation. I was pointing out you want to limit power projection. And I asked you what to do with forces stationed in Europe, something you weren't clear on.

All in all you seem very isolationist. Rather libertarian/Ron Paul of you.

And your isolationism seems to expand to space and I'm assuming Asia. Is there anywhere you don't want to contract the country, besides the expansion of the welfare state.

Oh, you were close on the purpose question. The armed forces exist to win our wars.

mazenko said...

It's a far, far, far different world than sixty years ago. You're a dinosaur. And my criticisms have been recommended by numerous voices in the military as a way of maintaining military dominance for a bout $250 million less than current spending.

MikeAT said...

You're a dinosaur. Dinosaur. Hey Darren you know me better. Would I be Grumpy, Dopey or Emily?

And my criticisms have been recommended by numerous voices in the military as a way of maintaining military dominance for a bout $250 million less than current spending.

Please name them and give their specifics as you are going back to your straw man arguments.

It's not 1951. Back then we didn't have terrorism to deal with as well as Russia pushing in East Europe/Asia, China starting to build a navy and challenging us in the Pacific, North Korea and Iran building nukes, multiple countries in the Middle East in anarchy (BTY who know what's the man child you voted for doesn't have a good handle on...where are the thousands of SA-7/14s Libya has. Maybe he should have thought of that before he stuck his nose and ears into the place), our southern border in chaos. And your only solution seems to be isolationism.

Simple questions. You want to pull out of Europe. Any other regions? South Korea? Japan? Kuwait? I know you want us out of Afghanistan and Iraq.

Weakness only invites aggression. A lesson of history many enlightened people can never get.

mazenko said...

Actually, Mike, I consider myself quite cosmopolitan - having lived abroad for five years and traveled extensively. I'm just not naive about the state of the world, the cost of an effective military, the widespread waste in the Pentagon's budget. Shrinking the navy does not equate to weakening the nation. That's a flimsy dichotomy and it's where your belief interfere with reality.

Oh, and I mistyped. My recommendations provide the same protection and projection of military power for $250 Billion less.

MikeAT said...

Your travel history is not relevant and I'm not questioning your intelligence, experience or education. I am questioning your judgement and worldview.

You keep putting out cliches like we can save money on the Pentagon budget, we need to get out of Europe, etc. I ask some simple questions of how far you will retrograde forces and what will you do after that (redeploy in the US, other areas, etc) and if you think we should leave other areas. You dodge the questions and I conclude you are rather isolationist. Any questions?

Yes, shrinking the Navy will weaken this nation. We have to be able to project power throughout the world to protect our vital interest (e.g. The free flow of oil at market prices from the Middle East).

All in all you seem to be quite content with us following the path Great Britain took after World War II. Deliberately removing ourselves from superpower status. Power abhors a vacuum and someone will fill it. Who do you want to take the top position? China? Russia?

This is a world governed by the use of force and I'll give you the worlds of Frederick the Great, “Diplomacy without force is like music without instruments.”

Again, I'll ask, you want to pull out of Europe. Where else will you retrograde from? South Korea? Japan? Kuwait? Qatar? Any other country?

maxutils said...

A few comments on taxation:

1) Not a single one of us knows are true tax burden, because so many are hidden, or collected in an obscure manner -- such as reading one's tax off a tax table, rather than actually calculating it. as such,

2) People have a gross misunderstanding of the tax code -- almost every student I've ever had thinks that if the top tax rate is 35%, you pay 35% of all your income.

3) Corporate income tax is almost entirely, if not entirely, shifted to the consumer in the form of higher prices.

4)Getting rid of the mortgage interest deduction would be grossly unfair. Most people commit to a 30 year loan, and a house price, based on the assumption that interest can be deducted. Taking this away would have a huge effect on every homeowner, and dramatically reduce the value of their greatest asset. Phase it out? Okay. But eliminate it? No.

5) Your FICA tax isn't actually 7.75%; it's double that, since your employer compensate their share by paying you less.

6)I think we would all be better off if everyone knew exactly what they were paying: One tax form, with a specific set of percentages based on income, county, and state. Exclude a certain minimum amount of income; make it gradually progressive; make people write a check at the end of the year.

7) For CA especially: Don't allow a proposition on the ballot without specifying a corresponding tax increase. Our stem cell research and high speed rail initiatives would have been toast.