September 22, 2010

The Terrible, Awful Truth About The Tax Cuts


taxrates.jpg
won't help


I. The $250,000 Question: Will Atlas Shrug?  No, He's A Punk

So they're going to uncut taxes for the rich, as defined as over $250k/yr.  Everyone seems to know the answer: is $250k a year rich, and why do they say they can't afford it?

Which really isn't what the arguing is about.  That 4% tax increase is not on 250k but on any money above 250k, which means if you make 300k you're taxed an extra 4% on the 50k.  Oh well, no ki-ran burgers for a week.
 
The real controversy, brought to you in HD, is about "fairness," which is defined not by the ends but by the means-- that's the only way to excite the amygdala enough to get you to tune in.   Ask John Galt why Americans will soberly and willingly part with 80% of their income if it makes sense to do so/they want an Acura, but try and take 4% and they'll gas an elementary school.


II.  "I'm telling!" 


Who decides fair?  In the U.S., fair could mean democracy, so let's ask them: what do the majority of Americans want?  They want 2% of you to pay more taxes.  If you don't like it, you can move to the Caymans.  Your business is already there, isn't it?

If this logic appeals to you, then you're not going to like the next part: this isn't a democracy,  it's a businessocracy, which means the government isn't going to obey the will of the majority of the voters, but the majority of corporations.  So: according to the gerrymandered voting of the S&P 500, what will taxes do?

Answer: they're still going up, because the corporations don't care about AGI, they care about corporate taxes, which are never going to go up, not if you want to keep your job.  "Labor costs" is the answer to every political and economic question.  All that other stuff about rich and poor are for ratings, to draw you into the electric coffeehouses and get you agitated, and for politicians who need a mulligan.  In other words, it's for suckers.  You're not a sucker, are you?

I understand that tax policies have serious effects on people, but the setting of tax policy has much less to do with revenue generation than giving voters a fairness boner.  We spent $3.6T this year; these tax uncuts are going to generate $700B over ten years, assuming they don't simply get recut in four years anyway.  So why are we bothering?  

"The rich have to pay their fair share!"  Let's look at the Adjusted Gross Income of the United States Government.

Corporate Tax: 12.9%

Individual Income Tax: 52%

Employment Tax: 32.2%

Estate Taxes: 1.1%

Excise Taxes: 1.9%
 

Take a moment and redistribute your fairness points.


III.  Why a Tax on The Rich?

Why $250k?  That number didn't come from the Bible, it is the income level that accounts for about 50% of the income tax revenue.  Fortunately, it is also only about 2% of the population, so you only have to piss off 750,000 people.  That's democracy.  Eat it.

Why not just crush their spirits and raise their taxes 20% instead of just 4%?  Because they're not stupid, they'll alter the way they get paid.  W-2s become 1099s, 1099s become non-cash compensation (car, homes, etc.)  And more business deductions, I for one will try to deduct  rum expenses under fuel costs.  The proof is in the writing.
   
"We won't employ contractors and nannies!"  Yes you will, come on, you don't know how to entertain a 2 year old any more than you know how to put up dry wall.   None of that matters anyway, not hiring another contractor pales in comparison to what Pfizer will do if Obama raises corporate taxes, or, more rigorously accurately, what Pfizer will threaten to do if Obama threatens to raise corporate taxes.  Those 39 words and 4 commas may seem confusing to you, but-- and this is the point-- they are not confusing to Obama.  Hence, a tax increase on the rich.



IV.  The Terrible, Ugly Truth

50% of the budget  goes to Social Security, Medic*, and unemployment/welfare.  Add another 20% for defense, and that's pretty much the blueberry piechart.  I have no ability to assign relative moralopolitical value to these things, but I can state with certainty that none of them pay for themselves.  Unless DoD spending yields practical nuclear fusion or robot lawn mowers, most of that money is just a form of white collar, defense industry (and everyone they employ) welfare.  And the real problem isn't today, it's over time.  The baby boomers have only started to retire, and they won't be cheap.

There is a terrible, terrible, ugly truth underlying all of this, and that is that taxes don't matter to a government that can print money.  The government collected $2.4T and spent $3.6T.  They'll take what they get, of course, but if they had collected $2T or $3T you/they would not have noticed.  The country isn't a household, it is a bank, and as long as the rest of the world believes "we're good for it," then we are.  When it decides otherwise, look out.  The US will go Lehman Brothers faster than you can say Bear Stearns. 

V.  Were We Wrong?

Some fundamental assumptions have turned out wrong.  For example, we always talk about income.  But we never talk about wealth.  In France, they tax wealth-- literally a tax on assets. They earned 4.5 billion euros from that and France's population is 1/4th as large and not nearly as wealthy or funny.    Furthermore, every country in Europe has a VAT tax, which is quite high, sometimes over 20% on consumer products.   But a VAT is completely unAmerican because the US's entire existence is predicated on consumption.  France has lots of other taxes that are probably socialist, but then again, isn't a $700B TARP fund socialist?  It's as annoying.

More to the point, if the TARP fund was necessary to prevent large scale social disruption among all workers (not just the finance industry), and the 2008 crisis was simply the result of people behaving unethically/injudiciously but otherwise legally, then (a) some crisis was inevitable because you can't legislate ethics for every possible scenario, and therefore (b) US-style capitalism is only possible in the buffer of  emergency sharp turns into socialism.  To phrase it in terms of books everyone has heard of but no one has actually read, Disaster Capitalism relies on The Black Swan event which is ultimately a consequence of the institutional structure of capitalism (not a natural disaster) to periodically deploy the Shock Doctrine to prevent the institution from actually changing.   Long Tail that one, wildman.

VI.  So Socialism Is The Answer?

To what?  You don't even know what the question is.

The tax code many be complicated, all the talk on CNBC may seem technical, but our problem here is concrete, all you need are the numbers: we took in $2.4T and spent $3.6T.  Anyone who attempts to discuss tax policy without including those two numbers has a whole different agenda which probably includes giving you AIDS.  Run.  

$2.4T in, $3.6T out.  That's everything.   And don't tell me that some of our expenses are one-offs, like Katrinas or Iraqs, it is no different than blaming your budget deficit on your vacation to Disneyland.  Next year you'll want to go to Disneyworld or Paris or carpetbomb Iran or tow California back out of the ocean, there's always another unexpected expense.  And truth up, even if there were no unexpected expenses you wouldn't save the money, you'd spend it on drugs and shoes.

So what can be done?

Well, here are some ideas that I got from science fiction movies, along with tube cars and blinky lights on our hands telling us it's time to go:

You could raise corporate taxes by 1-3%.  I understand the Pfizer result here (firing people) but the reality is they fired people anyway, so what was the point?  That they won't fire more people?  LABOR COSTS.  The move towards globalization is happening independent of tax policy, the limiting factor isn't Pfizer's willingness to do it but Romania's willingness to go along with it.   I don't need to defend my capitalism credentials, but if the ultimate end of capitalism is to convince you you need high fructose corn syrup, the system needs some adjustment, and that adjustment is about 3%.

Or a VAT.  Or a tax on wealth.  Warren Buffet observed that he pays little income tax because he has little income.  A 1% tax on wealth over some number could bring in a lot.  Buffett has $40B, you could get $400M out of him alone, and he seems up for it.  The combined net worth of the Fortune 400 is $1.2T; 1% of that is $12B a year, and here you'd only have to piss of 400 people.  But, as I said, that's democracy.

Aren't these ideas anti-capitalist?  It doesn't matter, they'll never happen.  $2.4T in, $3.6T out.  That's all that matters. 

VII.  The Other Ugly Truth

If you doubled income tax receipts on the rich, you still wouldn't cover the deficit.

VIII.  Is $250,000 rich?

Fun fact: how much money does it take to raise kids?   To quote the great Ron Bennington:  "All of it."  You'll spend 10x more to send them to a 1.5x better school.  Who could fault you? The alternative is school loans, which end up being a mortgage on a house you can never sell.  Those time burglars are also gonna need iPads.

"Is $250,000 rich?" is a question that wants to be written, "the country needs the money, where can we get the money from?"

Which makes this next part so easy.  The deficit is 10% of the GDP, a generational high.  Either we cut spending or we raise our GDP, e.g. by inventing fusion engines or robot lawnmowers.

 deficit vs gdp.png

So if we're not willing to cut spending, we have to turn to business.  It's that simple, because the country can't generate the revenue any other way.  We rely on corporations for everything, jobs, insurance, lifestyle, products, mate selection.  Say whatever you want at the CNN podium, bash the rich, shame the poor, it makes no difference.  You may as well double down on the market and ride out the bump, because if it doesn't go up you'll have bigger problems than your portfolio.   Pretending to reduce greenhouse gases or paying for MRIs or supporting welfare cheats or killing Muslims all costs money, if the government wants to keep doing these things and more the market has to go up.  It is inevitable

$2.4T in and $3.6T out.  That's all.  The reason why "is $250,000 rich?" is so hard to answer and pointless to ask is the same reason the government is in trouble.  If you spend more than you take in, it doesn't matter how much money you make.  You're not rich, you're doomed.

---
(pastabagel gets another writing credit)

---

http://twitter.com/thelastpsych





 


 





Comments

So from the left side, Keit... (Below threshold)

September 22, 2010 1:48 PM | Posted by herereadthis: | Reply

So from the left side, Keith Olberman tells us we're doomed. From the right side, Glen Beck says we're doomed. And from the "It's all narrative - a diversion that prevents you to see the real problem" side (that's you), well, we're doomed anyway.

Pass the rum.

Vote up Vote down Report this comment Score: 32 (32 votes cast)
who is pastabagel... (Below threshold)

September 22, 2010 1:55 PM | Posted by fatperson: | Reply

who is pastabagel

Vote up Vote down Report this comment Score: 19 (21 votes cast)
I find your politics hard t... (Below threshold)

September 22, 2010 3:12 PM | Posted by DEstlund: | Reply

I find your politics hard to parse, and (from the perspective of a socialist) somewhat nihilistic. But we seem to be in agreement most of the time, and so I keep reading. It does seem puzzling--you don't seem to believe it matters what we're for or what we do. What's wrong with anti-capitalist ideas anyway, except for the Quixotism of it all? Better that we lie down and take it like good consumers?

Vote up Vote down Report this comment Score: 4 (32 votes cast)
Cut spending or raise taxes... (Below threshold)

September 22, 2010 3:13 PM | Posted by BHE: | Reply

Cut spending or raise taxes or both, it's that simple.

But no one wants their taxes raised and sure as hell no one wants to lose their sweet entitlements, so we'll just keep having it both ways until there are no ways left to have it.

Of course we're doomed, the populace has proven itself to be far too short-sighted and selfish to fix the problem.

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No, he believes that what w... (Below threshold)

September 22, 2010 3:20 PM | Posted, in reply to DEstlund's comment, by lordzork: | Reply

No, he believes that what we do matters more than anything, while what we're for is mostly a smokescreen to distract ourselves from having to go through the trouble of deciding what to do.

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lordzork, I kind of get it,... (Below threshold)

September 22, 2010 3:25 PM | Posted by DEstlund: | Reply

lordzork, I kind of get it, but what he believes we should do is hidden behind a cloud of "but it doesn't matter because all I see are hopeless sheeple bound for slaughter. Oh yeah, and they're taking all the rest of us who know better down with them." Which kind of sucks, if that's what he really believes. Because in that case, the only solution* is to hide out in a fallout shelter with a shotgun and a mountain of MRE's.

*That's not a solution.

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I don't mean to speak for t... (Below threshold)

September 22, 2010 3:32 PM | Posted, in reply to DEstlund's comment, by lordzork: | Reply

I don't mean to speak for the author(s) but the intent here seems to be descriptive, not proscriptive.

It is also not inconceivable that there might be conundrums for which there really are no solutions.

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Corporate taxes don't make ... (Below threshold)

September 22, 2010 3:46 PM | Posted by ryno35: | Reply

Corporate taxes don't make a lot of sense, do they?

In most cases corporate profits gets passed through to individuals who are taxed on it. Otherwise they re-invest which usually means growth and more jobs. Occasionally they horde it (microsoft, apple) but this seems rare.

Anyway I'm all stocked up on bullets, ready to battle the robot lawn mowers (which they have already invented).

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LMAO-> "VI. So Socialism ... (Below threshold)

September 22, 2010 3:50 PM | Posted by Anonymous: | Reply

LMAO-> "VI. So Socialism Is The Answer?

To what? You don't even know what the question is."

The people who I have seen recite textbook entries to capitalism and communism in conversations(in order to sound intelligent?) may outnumber the narcissists in this world.

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Corporations don't "pay" ta... (Below threshold)

September 22, 2010 4:03 PM | Posted by Dan: | Reply

Corporations don't "pay" taxes, they collect them. Any increase in a corporate tax will just be passed through to their customers.
Why is that a better idea than just raising taxes directly?

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Apparently it took two peop... (Below threshold)

September 22, 2010 4:11 PM | Posted, in reply to fatperson's comment, by Bagelpasta: | Reply

Apparently it took two people to write this tripe...

Vote up Vote down Report this comment Score: -19 (29 votes cast)
sorry to change topic doc, ... (Below threshold)

September 22, 2010 4:19 PM | Posted by Ed: | Reply

sorry to change topic doc, but if you ain't the perfect guy to comment on a 1,905-page suicide note I don't know who else is...

Harvard Crimson link:

http://www.thecrimson.com/article/2010/9/22/heisman-harvard-mother-death/

"The man who shot himself on the steps of Memorial Church Saturday morning had published online a 1,905-page document entitled “Suicide Note,” according to his mother."

http://www.suicidenote.info/

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Mostly handwaving? I still... (Below threshold)

September 22, 2010 4:37 PM | Posted by dorkle: | Reply

Mostly handwaving? I still don't see the argument against rolling back the tax increases. It funds, perhaps, only a small amount of the deficit, but increasing tax on businesses would still be possible.

None of the arguments you make seem to accept the fact that we could decrease the deficit by a nonzero amount of money in an essentially painless way just by letting an old tax cut expire.

And this is my first time here, but I'm totally turned off by your personal exceptionalism (you're the 'last one'!), your 'got it all figured out' snark, and your love for massive, exaggerated statements (labor costs are the answer to every political and economic question? oh, right!). If pastabagel is the same person I read on Metafilter, then I am disappoint.

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That's just his style man. ... (Below threshold)

September 22, 2010 5:28 PM | Posted, in reply to dorkle's comment, by antoboyo: | Reply

That's just his style man.

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It's quite sad when "tax cu... (Below threshold)

September 22, 2010 6:14 PM | Posted, in reply to dorkle's comment, by Ancap: | Reply

It's quite sad when "tax cuts expire" instead of "taxes are raised." The whole idea is suggestive of the government's inherent right to take my money before it's even slipped into my pocket. Tax cuts expire == the government is letting you keep a little bit more of your own money (for now).

Just another way for the powers-that-be to confuse us into believing the magical numbers they create ($250,000! $13T! 3.14159...) are actually important. People are finally getting wise that the population is being pumped for money, so the government can pump it into companies, so the companies can pump out crap that kills us, so the crap that kills us can make the company money, so the company can pump money into the politician's wallet.

Good thing we have all those illegal immigrants to repopulate the country. All the Anglos and Afros are dying and/or broke.

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3.14159Stop... (Below threshold)

September 22, 2010 7:33 PM | Posted, in reply to Ancap's comment, by tanj: | Reply

3.14159

Stop being irrational.

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The point is that you might... (Below threshold)

September 22, 2010 9:43 PM | Posted by EH: | Reply

The point is that you might be well-served in demanding that the Pfizers and Idle Rich out there to take their well-deserved haircut. 400 people or 700,000 people? Tyranny of the majority and mob rule, sure, but facts is facts.

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executive summary:</... (Below threshold)

September 22, 2010 10:34 PM | Posted by how_42: | Reply


executive summary:

* The real issue is not who gets taxed but that we make $2.4T and spend $3.6T.
* We either have to raise taxes or cut spending or both to fix that.
* Neither party wants to cut spending. they just want to spend it on different things (reduce greenhouse gases / paying for useless MRIs vs give money to their favorite oil conglomerate or bomb muslims )


my solution to the above "problem":

* I personally dont see America ever raising taxes or decreasing spending enough to be long-term deficit-free. (regardless of the rhetoric on the two sides. there is just too much vested interest.
* how to save yourself? buy stocks of large global companies in global denominated currencies because they will get it all figured out (eventually) - and, if you can afford it, have living facilities in two opposite side of the world (to escape any "interim" collapse).

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This post should be mailed ... (Below threshold)

September 23, 2010 12:36 AM | Posted, in reply to how_42's comment, by Anonymous: | Reply

This post should be mailed to every Congressman and media pundit. "3.6 out and 2.4 in." A mantra for our generation.

I'd emphasize that last part of your summary (how_42), and add that he questions whether "they system" that is built to give us "high fructose corn syrup" must inevitably fail every so often. If that is intrinsic to the system, we're forced to live with these generational crashes.

I consider myself a reasonably aware person, and I understood that we ran about a trillion dollar deficit, but I don't think I ever understood how vastly inadequate the tax revenue was in comparison. "If you double the taxes on the rich, you still wouldn't cover it." That boggles the mind. Now I know why he drinks.

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Long live Peter Schiff. An... (Below threshold)

September 23, 2010 2:31 AM | Posted by Lexi: | Reply

Long live Peter Schiff. And of course, Alone.

(for those of you that don't know Peter Schiff)
http://hustlebear.com/2010/08/10/hustle-bear-award-man-of-the-year-2010-peter-schiff/

It doesn't take rocket science to figure this shit out, but it sure as shit seems like it does with the lack of understanding.

Vote up Vote down Report this comment Score: -1 (7 votes cast)
"Let the bears pay for the ... (Below threshold)

September 23, 2010 4:30 AM | Posted by Gil: | Reply

"Let the bears pay for the Bear Patrol Tax."

Vote up Vote down Report this comment Score: 5 (7 votes cast)
"...we have to turn to busi... (Below threshold)

September 23, 2010 5:31 AM | Posted by Chris K: | Reply

"...we have to turn to business. It's that simple, because the country can't generate the revenue any other way."

Which is what seemed to work under Clinton when the budget ran a "surplus". And I recall that V.P. Gore did reduce government headcount. But this fell apart with the dot-com bust and Bush's wars and tax cuts and spending.

The Keynesian recommendation (e.g. by Paul Krugman) is to push for growth by borrowing -- enough growth will pay for the borrowing and then some. Consider a businesswoman borrowing money to expand and grow enough to cover the loan -- the U.S. seems to have spare capacity and ought to be able to grow more.

The core need is two-step: for American business to grow, and for this to increase tax revenue. Always lowering tax rates will prevent the second step -- letting tax rates on the top 2% go up is pushing to make the second step work.

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I've had some time to diges... (Below threshold)

September 23, 2010 9:07 AM | Posted by The Exorcist: | Reply

I've had some time to digest this. Alone makes three points. First and foremost, that we basically could never collect enough income tax from Americans to cover the deficit. Even doubling them wouldn't work, and meanwhile the rich would shelter their money.

Following from this, tax policy is really about the illusion of fairness. Libs raise taxes, cons cut taxes, then both reverse course towards the end of their terms (Reagan 1987 tax increase, Clinton tax cuts), with no serious consideration that they are raising money for the country. It's politics and vote getting.

Finally, the _discussions_ we have about tax policy are also for show, for telling other people what kind of a person you are. For class warfare.

The bottom line is derived by arithmetic: 3.6T out, 2.4T in.

That's basically his ideas in a nutshell, but one thing he slipped in there that gave me pause is how the current deficit is 10% of GDP, which is a "generational" high. It was much higher during WWII, but never again as high. It's that statistic, and not the nominal size of the deficit, which is truly scary, because it is what would lead our creditors to lose confidence in the U.S., and demand higher interest rates for their loans (bonds.) The U.S. could conceivably carry an even bigger deficit as long as the deficit/GDP ratio fell to "normal" levels (3%.) Japan runs 2%, and even so it's had terrible two decades.

He didn't make the explicit link to narcissism, but I can: it's indicative of the American predilection for self-absorption. Americans seem more eager to debate tax policy, and thereby "brand" themselves, then in solving the obvious crisis.

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The Exorcist, that's not th... (Below threshold)

September 23, 2010 9:38 AM | Posted, in reply to The Exorcist's comment, by Anonymous: | Reply

The Exorcist, that's not the only indicator of narcissism. The other is the nationalistic (corporate/advertising driven) narrative of the contemporary version of the American Dream, the sense of entitlement and perversion of "freedom" to mean "unlimited credit" and never having to actually live in reality and be responsible. Most of this is crafted around Ayn Rand's overwrought odes to narcissism that became fiscal policy. What narcissist isn't going to love a justification for their narcissism?

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What is rich? In t... (Below threshold)

September 23, 2010 10:23 AM | Posted by Dolores: | Reply

What is rich?

In the US (I looked it up on Wikipedia, so who knows how accurate my info is) the income tax brackets start at 10% and the highest bracket is 35% percent if your income is over 373,651 USD. The bracket from $82,401 – $171,850 is taxed 28%.

In the Netherlands the brackets are 33% for income 0-18,000 Euros, 42% 18,000-54,000 Euros, and 52% above 54,000 Euros. The USD-EURO exchange rate is 0.77.


Vote up Vote down Report this comment Score: -2 (4 votes cast)
Yes: rum, please.B... (Below threshold)

September 23, 2010 10:23 AM | Posted by David Buchner: | Reply

Yes: rum, please.

But "the setting of tax policy has much less to do with revenue generation than giving voters a fairness boner"
...is the best sentence I have read all week.

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There are times when I susp... (Below threshold)

September 23, 2010 11:09 AM | Posted by Andrew R.: | Reply

There are times when I suspect that Alone is at least a closet Foucauldian... Especially when you combine posts like this one with his post on standing up to the Feds.

Vote up Vote down Report this comment Score: 1 (3 votes cast)
Federal corporate income ta... (Below threshold)

September 23, 2010 11:35 AM | Posted by Dave: | Reply

Federal corporate income taxes are already among the highest in the developed world, and most corporations also have to pay state corporate income taxes on top of that. Raising the corporate income tax would discourage companies from expanding and hiring in the U.S., so that would be a bad idea.

Better to lower corporate income taxes and make up the shortfall with a consumption tax such as a VAT. If a VAT isn't politically viable, there's an easy way to construct a de facto consumption tax: take the employer's portion of the payroll tax and stick that on the employees instead. Then let employees deduct the entire additional amount of the payroll tax provided they contribute an equivalent amount of money to their retirement plans and medical savings plans that year.

Since the only way to avoid that added payroll tax will be to increase savings, and since to increase savings people will have to decrease consumption, this would be a de facto tax on consumption.

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Who is pastabagel? Your dog... (Below threshold)

September 23, 2010 11:48 AM | Posted by America: | Reply

Who is pastabagel? Your doggy?

Vote up Vote down Report this comment Score: -1 (3 votes cast)
"Following from this, tax p... (Below threshold)

September 23, 2010 12:18 PM | Posted, in reply to The Exorcist's comment, by Pastabagel: | Reply

"Following from this, tax policy is really about the illusion of fairness."

Almost. Fairness itself is the illusion. Because for the rules to be made fair, there has to be someone in a grossly unfair position able to set rules. With so much corporate influence over law-making, it is inevitable that the outcome will be unfair.

The talk about why we can't raise corporate taxes illustrates this. None of you are corporations. Corporations are massively complex entities whose accounting is byzantine. It is impossible to conclude as a matter of economic fact that increasing corporate taxes would have a single common result across all corporations.

And yet people repeat soundbites--raising corporate taxes would cost domestic jobs, etc. Why not let the corporations themselves make that argument through their representatives? Why not let a CEO making millions a year try to explain that if corporate tax rates go up by 3 percentage points, he has to fire hundreds of workers making $50k a year.

More to the point, why are you making it for them? Why are people defending the entities that shape the laws but also that shape the public debate over those laws? You won't trust the argument of another person who has to pay more in taxes who says he needs the money, but you'll take the word of an entire class of gigantic impersonal entities? Is that rational? They are the entities able to influence the law to their advantage.

The fact that some people feel the need to represent their position with such a non-rigorous, almost tautological way, demonstrates how effective the shaping of that debate has been.

If the soundbite is true that raising taxes would cost jobs, then why don't you support cutting taxes so corporations can create them? Because the truth is that cuts and hires have nothing at all to do with taxes, and everything to do with meeting the quarterly earnings number that Wall Street expects.

And if it is true that taxes are passed on to the consumer, so what? So the prices increase, and at the margin there is less consumption. Do we really need more consumption?

So instead of engaging those *structural* problems - corporate influence in government and the domination of corporations (production) by the speculative finance industry - we engage in the debate that we are allowed to have, one that pits people against people and pits no one against the true holders of wealth.


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I'm not saying the conclusi... (Below threshold)

September 23, 2010 1:46 PM | Posted by starvtwalker: | Reply

I'm not saying the conclusion is necessarily false, but I do have a problem with some of these conclusions. For one thing, the 2.4 in 3.6 out is a federal point. What about states? States also tax you, and states are the ones paying the firefighters and police and the roads. I understand the federal question is important, but the state one hardly seems less important.

The other problem I have is a lot of these questions about what tax system we should use are not solely based on what money people get out of it. I, for example, would rather have a consumption based tax because it would be easier for me as an individual. It probably will still be complicated for businesses and corporations, but a tax only on what you buy, not on your income, is supremely easy for a consumer to figure out. If it is included in your bill, you do not even need to figure anything out! Changing the income tax system to a consumption tax system is a matter of simplifying bureaucracy which I find to be a noble goal.

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never have I been more curi... (Below threshold)

September 23, 2010 2:39 PM | Posted, in reply to David Buchner's comment, by Lexi: | Reply

never have I been more curious about rum in all my life. Seriously, Alone could pick a brand and make a marketing deal if he wanted to.

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Andrew R-- At firs... (Below threshold)

September 23, 2010 2:47 PM | Posted by Lexi: | Reply

Andrew R--

At first I was like nah, but after 3.6 seconds I was like, he may be on to something.

There is a book called "Hello, I'm Special: how individuality became the new conformity" that I picked up while on the internet in meat space (a bookstore). It was right next to some Foucault. And I liked the chunk in the middle I read, in much the same way I like TLPs posts. They both deconstruct . . . and the book points out that marketers appeal to our sense of individuality to sell things, on a mass marketing level.


---
Anyway . . . between that, and the fairness boner --- it's the illusion of fairness imho.

And why we can't all bite the bullet and be 'poor' er, I mean have a budget for a few years and stick to it, is because it would collectively conflict with our images of ourselves. Nevermind that we can't afford the bimmer. We look like we can.

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And if it is true that taxe... (Below threshold)

September 23, 2010 2:54 PM | Posted, in reply to Pastabagel's comment, by Kevin: | Reply

And if it is true that taxes are passed on to the consumer, so what? So the prices increase, and at the margin there is less consumption. Do we really need more consumption?

I think the answer they would give you is yes, we're barely recovering from an almost complete financial breakdown. Some would say discouraging consumption is dooming yourself in just another fashion.

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"Cut spending or raise taxe... (Below threshold)

September 23, 2010 3:49 PM | Posted, in reply to BHE's comment, by 300baud: | Reply

"Cut spending or raise taxes or both, it's that simple."

This is one of those allegedly smart things to say like, "Being overweight: cut calories or increase activity, it's that simple." It's factually true, sort of, and allows the person saying it to indicate their superior mental clarity. And it is worse than useless if the goal is to actually make things better.

The problem is that it's not that simple, as anybody who has tried to put that weight-loss advice to work knows. The simple solutions that flow from that don't work. They may provide some short-term improvement, but the actual problems are complex, and not amenable to simple-minded solutions.

So 98% of people opining on this problem know fuck-all about applied economics. They couldn't explain the theory of comparative advantage, or how recessions actually work, or when the difference between "money" and "value" matters. Some know the small amount of theory that lets them justify their positions; most know less. Global economies are, it turns out, not "just that simple". But since people like to be told that, I'm sure we're on track to hear about another set of "simple" solutions that are both appealing and useless where they aren't harmful.

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<a href="http://thirdtierre... (Below threshold)

September 23, 2010 4:21 PM | Posted by Paul: | Reply

http://thirdtierreality.blogspot.com/

What if you graduated from law school with $150K in loans and only make $40K per year? How will these tax cuts affect such a person?

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I know it's a little off to... (Below threshold)

September 23, 2010 4:52 PM | Posted by Nik: | Reply

I know it's a little off topic, but why doesn't anyone ever get mad that we have a progressive tax rate? If we are a nation of equality, why is this an area of exception? I can understand the allure, if you don't make much it's nice for some one else to pick up your slack. But shouldn't your integrity and pride in being a citizen of USA inspire an urge to help equally?

If two people are moving and one is considerably stronger then the other, he should move the heavier things. But that doesn't give license for the weaker roomie to not move anything. The weaker person shouldn't be expected to move more mass, but he shouldn't be excused for making fewer trips.

Don't get me wrong, I'm against the flat tax, it's unfair in the exact opposite way, but come on. We should be proud to say that we all bear the same burden. That while some may be able to contribute more, we all put forth the same effort.

Any how, enjoyed another great post. Thanks.

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Nik, your question seems to... (Below threshold)

September 23, 2010 7:12 PM | Posted, in reply to Nik's comment, by 300baud: | Reply

Nik, your question seems to assume that the only way we contribute to the nation is income tax. Or at least that's the only way we contribute differently.

As far as the "same effort" standard goes, though, I think that leads to a progressive tax. Thanks to the effect of diminishing marginal utility, extra money means less to a rich person than a poor person. Ergo, to have equal impact, you'd have to tax the rich person more. As it is, I suspect that for the "same effort" standard, I think our tax system isn't progressive enough. That's my experience, anyhow; the better off I get, the less I mind my tax bill.

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We have to run deficits to ... (Below threshold)

September 23, 2010 7:28 PM | Posted by Adam: | Reply

We have to run deficits to fund private savings.

You ask a lot of hood questions but leave out the biggest one. Where do dollars come from? Answer: the Fed government creates money ex nihilo.

The government spends to tax, not vice versa.

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"I'm totally turned off by ... (Below threshold)

September 23, 2010 11:52 PM | Posted, in reply to dorkle's comment, by Zo: | Reply

"I'm totally turned off by your personal exceptionalism (you're the 'last one'!), your 'got it all figured out' snark, and your love for massive, exaggerated statements"

It's called Writing, and it's quite good. (Jeez, there are a lot of people with Geek Syndrome attracted to this blog.)

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Live to hate, don't hate to... (Below threshold)

September 24, 2010 8:32 AM | Posted, in reply to Adam's comment, by Max: | Reply

Live to hate, don't hate to live. That's my motto.

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<a href="http://biggovernme... (Below threshold)

September 24, 2010 4:02 PM | Posted by Morgan Warstler: | Reply

http://biggovernment.com/mwarstler/2010/09/15/jan-2011-agenda-progressive-corporate-taxes/

The answer is progressive corporate taxes, to almost any question on tax of jobs policy.

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Not your best. Actually, o... (Below threshold)

September 24, 2010 7:17 PM | Posted by Anonymous: | Reply

Not your best. Actually, one of your worst. You come off as a secluded, know-it-all autodidact. Like a crank. You throw number after number around, without attribution and one assertion leads to the next. It's sloppy and fairly pathetic.

I don't know this Pastabagel, but I don't think I like him/her/it.

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spot on.the two pa... (Below threshold)

September 25, 2010 4:29 PM | Posted by medsvstherapy: | Reply

spot on.

the two parties want us each to declare affiliation, and declare war on the other party - so they can continue servicing the corporations undetected.

slogans always work well. plus, obama telling us not to watch what we want on tv, and working to reign in "media" (am radio, of all things - could be worse- could be short-wave radio or neighborhood flyers).

medi[wildcard] is funny. gotta include the west coast.

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The only thing I'm assuming... (Below threshold)

September 26, 2010 6:11 AM | Posted, in reply to 300baud's comment, by Anonymous: | Reply

The only thing I'm assuming is that in that particular instance (income tax) we contribute differently. Why is sales tax the same for everyone?

Also, if you want to consider that each individual contributes in different ways, why does someone who went through all levels of higher education and then gets a high paying job in a privet military research and development company pay more in taxes then a janitor. The former is both helping to protect our country and funding it in with a larger portion of his paycheck. Who's pulling more weight now?

Just because the loss of 1 dollar effects someone with a million dollars less then a person with 100 dollars doesn't mean either dollar is worth different amounts. In the end, the government profits equally off of both. Also we aren't talking about a flat tax. The guy with a million pays a hell of a lot more then the guy with 100 (in the case of a 10% tax, million = 100k, 100 = 1).

Now you said the progressive tax isn't progressive enough, if you keep taking a larger percentage from the wealthy you are trying to equalize the playing field (in terms of total wealth owned). That is communism.

In the end, I'm shocked that as a people we've let the government take so much of our money regardless of how much any of us make, especially since we are the government.

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Australia is experimenting ... (Below threshold)

September 26, 2010 4:40 PM | Posted by Chui: | Reply

Australia is experimenting with expenditure control for it's aboriginal welfare recipients. I don't know if the problem is entirely the same though. There are no food stamps in Australia, all welfare is given in cash. Coupled with alcohol problems, we end up with hungry kids. I like the remark about educating the poor to live as the poor. There is an implicit assumption that welfare payments are enough. Are they?

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Chui - The Australian abori... (Below threshold)

September 26, 2010 5:51 PM | Posted, in reply to Chui's comment, by Anonymous: | Reply

Chui - The Australian aboriginals experienced the same assault on their culture and families as North American aboriginals, it's a bit ridiculous to blame Australian aboriginal or native Americans for not having strong and high functioning families when governments in these countries (in conjunction with Christian religious organizations) intentionally set out to destroy families and shame children about their heritage (and family). Often this was done by placing children with abusive (though sometimes well meaning) Christian parents or in religious schools - and we now know just how long the Catholic church has been protecting priests who are pedophiles (who were often hidden away in native schools and orphanages when they were discovered molesting white children, to give the appearance that something was being done about behavior that was obviously both accepted and condoned).

If you don't understand the context and history, you'll never understand the behavior or be able to come up with effective solutions to help people. In the US you've got the added issue of slavery - which involved dividing families when they were sold (not to mention raping female slaves). Of course, it's easier to just blame people for being bad parents than to actually look at the horrible things we've done (and still do) to maintain a certain standard of living.

And there's nothing at all wrong with the notion that it takes a village to raise a child. Rich and even middle class people employ a village of people to raise their children (nannies, cooks, housekeepers, tutors, etc). They don't share with their neighbours or look out for other people's kids necessarily - and the people who look after their kids are doing it for money and not because they actually care about the kids or their future, nor are they part of the same community as a the family (if that family actually has any real community that isn't dependent upon maintaining social status).

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"This is one of those alleg... (Below threshold)

September 26, 2010 7:01 PM | Posted, in reply to 300baud's comment, by Morgan Warstler: | Reply

"This is one of those allegedly smart things to say like, "Being overweight: cut calories or increase activity, it's that simple." It's factually true, sort of, and allows the person saying it to indicate their superior mental clarity. And it is worse than useless if the goal is to actually make things better."

No. this is the only advice needed. DO NOT EAT THE MARSHMALLOW. Get off your ass and go to the gym.

That your kind looks any further than: this is the simple rule, follow it... impugns your kind. Period.

I can describe in intricate detail what's happening in the economy, and apparently, you'll just have to take it from me... it isn't complicated. And more than half of likely voters understand to a large degree what is happening as well.

Too many people in the wagon. Too many nice sounding rules. Too many feel good regulations. Too much deferred pain. Too much EATING THE MARSHMALLOW.

Small example: We have decided in the past to offer extra care largely to a single group of people (a group we all expect to become part of), and let the other groups struggle for themselves: the elderly get the bump - all efforts to expand aid to other groups meaningful will fail, especially as the age of "elderly" is being raised.

What FAR MORE INTERESTING is our willingness to not speak about the things we're choosing to do - be less egalitarian, less concerned with all people equally, and to go vote to pull up the drawbridge - as just because we want something doesn't mean we'll let ourselves be raked over the coals for it.

In this way, we refuse to play the game of Democratic Capitalism - in the end, its just capitalism, and if democracy gets in the way, it will be glossed over and forgotten as need be.

This is who we are. This is what likely voters choose. And frankly, this is indeed the most just system.... just ask Rawls.

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Chomsky long ago wrote that... (Below threshold)

September 27, 2010 5:58 PM | Posted, in reply to medsvstherapy's comment, by SlightlyLessStupid: | Reply

Chomsky long ago wrote that the "two parties" were really the two branch of the one Business party.

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Chomsky isn't saying that a... (Below threshold)

October 5, 2010 2:43 PM | Posted, in reply to SlightlyLessStupid's comment, by medsvstherapy: | Reply

Chomsky isn't saying that anymore because one of the parties morphed into his party.

http://www.truthdig.com/avbooth/item/20081021_noam_chomsky_theres_nothing_wrong_with_picking_the_lesser_of_two_e/

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<a href="http://www.coachus... (Below threshold)

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Love it. Moonbeams and wis... (Below threshold)

August 5, 2011 12:48 AM | Posted, in reply to Pastabagel's comment, by DataShade: | Reply

Love it. Moonbeams and wishes inflate the GDP and keep the economy bouyant, business as usual.

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Insightful as usua... (Below threshold)

December 19, 2012 5:10 AM | Posted by Wulf: | Reply

Insightful as usual but I am surprised you didn't spell out the obvious implication of the deficit chart. Taxes, be they income, corporate or VAT, don't matter AT ALL. The last hundred years show that in any given year it's far more likely that there will be a deficit instead of a surplus. However, taxes and tax revenue haven't been constant during this time. Revenue has been rising all this time yet the deficit (and the total debt) didn't get smaller. Past behavior is the best predictor of further behavior so the best prediction re: government debt is that it will keep increasing no matter what happens on the revenue side.

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