Tuesday Blognado: The taxing question of … tax

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James K

James is a government policy analyst, and lives in Wellington, New Zealand. His interests including wargaming, computer gaming (especially RPGs and strategy games), Dungeons & Dragons and scepticism. No part of any of his posts or comments should be construed as the position of any part of the New Zealand government, or indeed any agency he may be associated with.

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188 Responses

  1. Avatar Patrick Cahalan
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    This post is enormously awesome.Report

  2. Avatar BlaiseP
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    Just a few thoughts, nothing organized:

    Progressive taxes mean people don’t save and by extension don’t invest their post-tax earnings.   Clever people simply get a better tax and investment guy to shelter their income.   It’s a fine art and costs people loads of money but it’s worth every penny.  The rich don’t spend: they invest.  The poor spend everything because they don’t know any better.

    The 401(k) model has addressed some of the deficiencies of progressive taxation for Joe Sixpack but not by much.   Most people don’t have the sense to max their 401(k), believing (usually correctly) they’re not going to recognize any benefits until they’re too old and gouty to enjoy them.

    Moreover, the longer I think about i, I’ve come to believe progressive taxation looks great on paper but the USA’s implementation is stupid.   Even though I am a big ol’ Liberal I’ve looked at the math and soaking the rich is political popcorn:  mighty tasty when it’s fresh out of the popper.  Not much nutrition in there, just starch and grease and salt.   Folks just will eat it up but it makes a lousy meal.   Attempting to soak the rich is a mug’s game:   they can shelter their income faster than you can pass laws to get at it.     I’m not averse to progressive taxation but consumption is a far more accurate gauge of taxable income than income.

    The income tax is mostly stupid.  The AMT is a nightmare which ought to be repealed tomorrow:  it might have made sense but many of the loopholes it was designed to address have long been closed.   We know what people earn and we have even better data on what they spend:  put that data through a CBO-type model, applying income and consumption data to create a tax model which would encourage investment and the formation of corporations, hunting for a Goldilocks Zone where taxes wouldn’t crush down the economy.

    Congress would be obliged to create budgets on the basis of these models.   No more of this Soak the Rich from the Liberals and harum-scarum about Welfare Mamas from the Conservatives.   Politicians could play with the model but economists would engineer it.

    The cogent observer will have already noticed the glaring deficiency in this scheme:  Congress makes tax law and each Congress-critter thinks only of his state.  The larger scheme of things is always ignored in this process.   I see no good way around this short of a new constitution.Report

    • Avatar BlaiseP in reply to BlaiseP
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      Ugh.   Let’s try that again

      <i>I’m not averse to progressive taxation but consumption is a far more accurate gauge for taxation than declared income.</i>Report

      • Avatar Just John in reply to BlaiseP
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        I must disagree, and I don’t see how consumption could be a more accurate gauge for taxation than declared income if “the rich don’t spend, they invest.”  For quite a while I’ve felt that we should tax only personal income and not consumption, and I’ve toyed with the idea that we should not tax corporations except to price in negative externalities.  We should have a progressive income tax structure with many more brackets.  When we reduce tax rates, we should reduce them at the lower brackets first.  We should eliminate all tax deductions; when we want to encourage consumption of something like higher education or homes we should subsidize to increase supply and/or reduce price.Report

        • Avatar BlaiseP in reply to Just John
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          In principle, you’re correct.  Consider this: taxable income has become something of a fiction.   Not the actual earned income, that much we know, but after all the deductions and income hiding, what’s left?

          Consumption, however, shows how much of my income actually moves through the economy.   I’m not sure we can call it Pigouvian, this business of trying to pushing income into investment rather than consumption, but taxing consumption would tend to increase investment.   Let the last

          Stepwise functions are a mess.   The more steps, the worse they get.   Beyond the obvious conclusions about consumption and investments,  I have serious ethical reservations about progressive taxes.   They’re unequal to their core and the steeper the slope, the greater the propensity to avoid them.   They are, as I have said, political popcorn:   it’s class warfare at its most repulsive:  the truly wealthy hide behind corporations anyway.Report

          • Avatar BlaiseP in reply to BlaiseP
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            says:

            Ugh.   Gotta go back to composing outside this wretched JavaScript box.

            EDIT:  Let the last … half century show what happened when we became a consumer society and not an investor society.Report

            • Avatar Just John in reply to BlaiseP
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              It’s true that one’s level of consumption shows how much of your money is pumping through the system, but that’s also true of useful investment.  Money that’s invested in productivity is money that’s spent either on resources or labor.  But there’s also a lot of investment that’s not spent.  Money that’s invested in stocks, unless it’s into an IPO, is not spent on productivity.  And the incentive to invest in financial instruments is to gain a return purely in money terms, not to increase production or productivity.

              Currently there’s a global glut of savings.  This is why the U.S. monetary base could be increased something like three-fold over the past few years without driving up interest rates on U.S. Treasury debt.  There’s all this money out there that can’t find productive investments that seem worth their risks. So this money gets invested into an entire safe economy (which is what purchasing Treasury debt is like) which can’t save money for the future because there’s no point in that.  Money that the government collects that it doesn’t spend is just money that’s not doing money’s job, which is to circulate facilitating transactions — that is, a sovereign government surplus that’s not spent is effectively a reduction in the money supply.

              The analogy is to blood.  Blood that’s not circulating isn’t doing its work.  It’s as if it were just going into an ever growing blood blister.  What’s really needed is for the blood to be delivered to where it’s needed now, and whatever’s not needed now needs to be drained and more created later when it’s needed.

              We like to say that we’ve gone from being an investment society to a consumption society, but how can that be genuinely true when the finance sector of the economy has grown so much relative the rest of the economy?

              FYI, I’m not an economist and these are just my impressions.  There may be — perhaps probably are — ways in which what I’m saying can be shown to be clearly wrong-headed, and I’d appreciate having those pointed out.Report

              • Avatar BlaiseP in reply to Just John
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                Well, I’m just a model builder.   I’m not a full-fledged economist yet.   This I do know about economics:  it’s rather like weather forecasting.   Some models work better at different time ranges and in different circumstances.

                You make a cogent observation about the glut of cash on the sidelines.   What might bring that money back into the market and where would it go if it did?   I contend much of that reticence resolves to investor confidence, directly related to the predictability of taxation.  Look at the Congress’ continued fecklessness, playing games with the budget process.    I’m not pointing fingers here, I’m analyzing why investors like me continue to hang onto gold, though I’m slowly easing out of that position.

                I’m a Fear Investor:   I’m motivated by stupidity and take advantage of panicky herds of short term investors.    I look to buy stocks in companies with sound earnings with a low P/E ratio.   Dead simple investment strategy, but since I can’t get a clear picture of this constipated market, I’m loth to invest.   My only guide is to look at how closely earnings match the stock price.

                I’m supremely uninterested in anything but market fundamentals.   Insofar as it’s a good company with good earnings, it’s a good place to make money over the long haul.   Corporations with good sense invest in themselves, retooling, building new factories, building new products, funding their R&D.   I don’t like to invest in any corporation which doesn’t have an R&D division.   Tells me they’re thinking long term.

                The finance industry, especially the joint stock corporation, is the main reason the West has prospered so mightily where other systems have failed.   It’s compatible with every sort of political system save Communism.Report

              • Avatar Kimmi in reply to BlaiseP
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                Well, BP, I ain’t investing strictly because the SEC is a POS unreliable and undependable organization. When the market’s tight, and all the sharks are out, smart little fishies go hide.Report

              • Avatar BlaiseP in reply to Kimmi
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                The SEC Club features a revolving door at the front.   Within its confines, the regulators and regulated slither about in a grotesque pile of greased, naked bodies.Report

              • Avatar Kimmi in reply to BlaiseP
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                don’t forget the p0rn.Report

              • Avatar Just John in reply to BlaiseP
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                “Gatsby believed in the green light, the orgiastic future that year by year recedes before us.  It eluded us then, but that’s no matter — tomorrow we will run faster, stretch out our arms farther . . . And one fine morning—-”

                Is it not so much a matter of adjusting what we’re after?Report

              • Avatar BlaiseP in reply to BlaiseP
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                F Scott Fitzgerald was a damned poor guide to his era.   A sot, a spendthrift and an genial idiot.   His greatest hero, Gatsby, was a two bit bootlegger in pursuit of the unattainable.   What we’re “after” is usually an illusion.

                Though lots of folks mock the equivalence of a person to a corporation, the parallels are pretty good in terms of what we want from both.   I would extend the metaphor to the state except our nation exhibits schizophrenic and self-delusional tendencies beyond the current Constitution’s powers to correct.

                At no point has this country ever considered the financial well-being of its citizens a priority, beyond some interesting experiments in the time of FDR, most of which blew up in FDR’s face.   FDR inoculated the USA with a dose of socialism in an attempt to save a very sick patient.   FDR made significant and important reforms to banking and securities markets, most of which were good for the system.    Since then, the nation only saw fit to pull down his reforms, especially Glass-Steagall, which probably did need some changes but not outright repeal.   Well, 2008 came along and trillions of dollars were ejected into the void.

                Here we are in Anno Domini 2012 and the economy is still hung over.    We’ve bailed out the banks and suchlike.   Arguably these institutions were too big to fail.   But consider an alternate universe in which the government invested in its citizens, looking to create more taxpayers and devising schemes to that end?Report

              • Avatar Just John in reply to BlaiseP
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                I don’t know; those shortcomings would seem to make him a terrific guide to the experience of his generation.  The disabledest man in a disabled time.

                That’s very much the point here though, isn’t it?  We reduced tax rates on upper tiers of income because it was thought that it was both unfair to take so much of what the rich had “earned” and because it was thought that the self-interest of the rich would cause them to apply all that newly un-taxed income in ways that would end up being a net positive for society as a whole.  I don’t feel either is true.  I think some reality tv shows, much as I detest the form myself, has exposed anew the emptiness of competitive leisure and luxury, and the economic outcomes are there for all to see as you point out.

                You said above that progressive taxation causes people not to save but to shelter their income.  I’m not sure that’s entirely true.  And private savings sufficient to support a large retired class is an impossibility because it would end up being all this money just sitting there as a huge proportion of all money just competing with itself.  I think that’s why it made sense back in the ’80s to set up a Social Security trust fund that held government debt and bet that the government using that money now and paying it back later would mean an economy growing fast enough to pay it back later.

                To create more tax payers paying more tax would mean more tax payers earning more to be taxed, so the system can’t be designed to keep the money flowing upward and mostly staying there.  But the incentive for promoting a more redistributive or circulative system has to come from our sense of what’s good in life.  Excessive wealth or perhaps excessive opulence might need to be stigmatized a little more.  Paying rock stars to play your birthday party should be a little shameful and finding rock stars singing songs in your salon because they like you should be preferable.Report

              • Avatar Kolohe in reply to BlaiseP
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                You make a cogent observation about the glut of cash on the sidelines.   What might bring that money back into the market and where would it go if it did?

                Well, in theory, inflation.  The problem, though, as you allude. is it just may simply drive all the big money into (yet another) speculative bubble, and, in any event, really screws over the small money.Report

              • Avatar BlaiseP in reply to Kolohe
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                Libertarians make this point about Bubbles.   Trouble is, they think deregulation will solve the problem when the exact reverse is true. China’s waist deep in speculative bubbles and crony capitalism and no good will come of it.   As varies risk, so varies the need for regulation and truly open markets, where bets are paid and winners can be separated from losers and the regulated are separated from the regulators.

                The Invisible Hand always seems to be attached to an arm with a hidden ace up its sleeve.    Big money moves small money:   watch and listen as someone big steps up to the top tier in the Corn pit to trade a hundred lot and you’ll get my drift here.   Big Money won’t move unless markets exhibit stability.    The Wall Street Weasels ought to be regulated within an inch of their lives so they don’t welch on their bets.   That regulation is the sovereign cure for the Bubble Phenomenon.Report

              • Avatar Just John in reply to BlaiseP
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                Couldn’t agree more.Report

              • Avatar Kolohe in reply to BlaiseP
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                says:

                There’s a difference between ending Prohibition on the one hand and actively providing the beer bong and case of Milwaukee’s Best Light on the other.

                 Report

              • Avatar Kolohe in reply to BlaiseP
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                says:

                Plus the issue of regulation being sufficient to prevent bubbles is a different subject than simply the efficacy to put the gas on the velocity of money and get it going where you want it to go to fulfill your policy ends.Report

              • Avatar James K in reply to BlaiseP
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                Unfortunately everything we understand about bubbles suggest there simply is no preventing them, whether by regulatory or deregulatory means.Report

              • Avatar Snarky McSnarksnark in reply to BlaiseP
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                Well government policy sometimes exacerbates bubbles;  and if, at the very least, it stopped doing that, it would help.

                Many people were begging Alan Greenspan to act against the real estate bubble (Barrron’s famously had an editorial urging him to up the discount rate because the low FED rates were clearly contributing to the accelerating inflation in the housing market which was feeding the bubble).    Not only did he demur, he made a public statement urging people to buy more variable-rate mortgages.

                I was working in the mortgage industry during the peak years of 2004 – 2005, and there were clearly about a million ways that the Federal Government could have ended or mitigated the housing bubble.   It fed on fraud:   here’s a partial list of policies that could have ended the party before we ended up in depressioin:

                • Disclosure laws.   If consumers were made aware of how high their mortgage payments could go after then fixed rate period was over, a good portion of them would not have taken out a mortgage.   But the average borrower clearly did not understand the impacts of the contract he was signing, and naively assumed that if the mortgage company was willing to make the loan, that they must be considered financially able.
                • Discount rates.   Fed discount rates were at then-historic lows, and the extra money sloshing through the system was clearly just going to inflate the real estate market, instead of going to more productive uses.   It should have been raised.
                • Sunshine laws.   AmeriQuest pioneered the blind, complexly-tranched securities what underpinned the financing of these mortgages.   If regulations required more accurate and complete reporting of these bundled securities, not many people would have bought them.
                • Risk sharing.   One of the mortgage companies I consulted for washed its hands of all liability for the mortgages it was selling an average of eleven days after the contract was signed.   If brokers and mortgage companies had some longer-term liability for default or fraud for the products it sold, there would have been no bubble at all.

                You are, of course, welcome to dismiss all these as counterfactual.    But I would assert that there were many, many policy and regulatory options that could have prevented a great deal of the damage we are all suffering through right now.

                When an investment or asset bubble grows to dominate the economy, we have an obligation to our own self-preservation to make sure that it doesn’t threaten the long term health of our financial and economic systems.

                 Report

            • Avatar Just John in reply to BlaiseP
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              Regarding class warfare, changes in progressive taxation is what we have instead of revolutions and suppressions (word?).  That is, in my view this sort of class struggle is what we have instead of class warfare, in both directions.

              Regarding the wealthy hiding behind corporations, that would have to protected against in the new tax legislation and other regulation.  Besides, the wealth that lasts more than a couple of generations (old money) seems to be ownership of land and other long-lasting real stuff, not ownership of producing businesses.

              Again, I’m a dilettante or ingenue here, so claim to be making these statements with authority and would appreciate corrective feedback.Report

        • Avatar Brandon Berg in reply to Just John
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          I must disagree, and I don’t see how consumption could be a more accurate gauge for taxation than declared income if “the rich don’t spend, they invest.”

          That’s the argument for consumption taxes, not an argument against them. Money is just paper. Or bits. Either way, it’s not a real resource. You don’t derive any concrete benefit from your money unless and until you spend it, and you having money in your bank account that you’re not spending doesn’t make me any worse off. In fact, if you invest it, it makes me better off.

          Suppose someone’s making a million dollars a year, and only spending $50,000. If he’s only consuming $50,000 a year in resources, then why should he be taxed on $1,000,000 worth? If he’s investing the rest of the money, why would we want to reduce the amount he has available to invest? That’s nuts. We shouldn’t tax him until he decides to spend it.

          And if he never spends it? Then we’ll tax his heirs when they spend it. Or maybe he’ll give it away, in which case taxing him on that income really means taxing the charity it would have gone to.

          Making money and not personally consuming it is one of the best things a person can do for society. We shouldn’t be taxing that.Report

    • Avatar Matty in reply to BlaiseP
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      The poor spend everything because they don’t know any better.

      That depends how poor you mean, if someones income exactly equals their essential* living costs they’d be pretty stupid to save or invest when that leads to either doing without essentials or funding them with debt that is likely to at least equal and probably exceed the amount saved.

      *There is a lot of wriggle room on what is an essential but unless nothing is I think my argument stands for at least some people.Report

      • Avatar BlaiseP in reply to Matty
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        How very right you are.   The current system is so completely jiggered to the Consumer side few people see any benefit to becoming an Investor.   He who puts his money in the bank is only benefiting the bank.   The bank keeps just enough money around to satisfy withdrawal needs and can use the Federal Reserve system to that end:  the rest is invested.

        Here’s where we need to wriggle for our lives as taxpayers.   The poor remain poor because they do not invest anything in their future.   Money makes money, be the sums ever so small.   Analyze the money flow problem:   once the money’s in the bank, your bank balance is a numerical construct:  it doesn’t stay in the bank.  Plenty of poor people don’t even have bank accounts.   That’s got to change.

        There’s only one effective guide to taxation, imho:   only tax money in motion.   The poor end up paying tax far out of proportion to their income in profoundly regressive sales taxes.   We see pathetically inadequate Pigouvian compensatory schemes at the grocery store, where some items are taxed and others aren’t.    If people had any idea how much tax they actually pay, they’d head to Washington and demand reforms.    But because these parasite taxes seem small, people put up with them.

        Problem is, as I’ve said upstream,  we need more sophisticated taxation models.   I’m not sure what the ratio is anymore, but the law library at Sears featured about three times more statute law on taxation than criminal law.   As any three tax preparers to do your return and you’ll get three different sets of results.   The government ought to be run for the people and for their benefit.   As James K notes above, there’s a distinct lack of transparency in taxation.   Address that first.Report

  3. Avatar Michael Cain
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    “What does “no tax increases” actually mean?”

    Grover Norquist’s oft-stated view — and Grover is defining the terms of the debate for a lot of conservatives — is that any change that results in increased revenue for the government is a tax increase.  Stupidest tax deduction in existence?  If eliminating it increases revenue, Grover says it’s a tax increase.Report

  4. Avatar Kolohe
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    says:

    Great post.  The other factor at work in the US that imo provides a nuance that isn’t included enough when discussing these things is that the various types of taxes (e.g. real estate, use/sales, income) all tend to be divided in their utilization by the level of government (local, state, federal).Report

  5. Avatar Roger
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    Great summary, James

    I would add that the other issue on the Laffer curve is that the optimal short term rate for revenue maximization may differ significantly from the long term rate. In other words, tax rates can affect growth rates that feed into the long term revenue base.

    On your third point, I believe conservatives tend to believe that limiting tax collection forces austerity. If the government has it they will spend it, so the key to restricting unlimited increase in government interference in the economy is to restrict total receipts. Congress can spend a hundred billion with a single rider to a bill, so their thinking is we had better be sure they do not have it to spend.

    Limiting revenues is their “brilliant plan to reduce spending”. Or at least to limit increased spending.Report

    • Avatar Just John in reply to Roger
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      Yeah.  Problem is, every bit of spending always seems urgent (to someone) and decoupling the need to spend from the need to raise needed revenues based on the idea that every bit of refused revenue guarantees greater revenue in the future is a recipe for burgeoning debt.Report

    • Avatar North in reply to Roger
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      To your second point Roger, current historical evidence seems to be firmly in that “Starve the Beast” is an utter and colossal failure. Obsessing about keeping the tax rates down while (substantively) ignoring the spending side has only served to destroy the conservative greed eye shade type, decouple government bonbons from taxes in the minds of the voters (and thus increase support for them) and baloon deficits and national debt.Report

    • Avatar James K in reply to Roger
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      Yes, I know that’s a common belief, but it doesn’t seem to have a good track record.  The problem is that congress doesn’t have to actually have money in order to spend it.  When a business starts borrowing too much, equity analysts get worried and it affected the value of the company’s shares.  But there’s no equivalent for government, once voters have stopped equating taxes and spending.  As we have seen a government unchecked by fiscal responsibility will just go on racking up debt until it hits its credit constraints.  Then bad things happen.Report

      • Avatar Roger in reply to James K
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        says:

        James,
        Again I ask the question, compared to what? I agree that democracy decouples spending and revenues. I understand that we spent it even though we did not have it. The question is how much more would we have spent if we had not tried to starve the beast. We do not know this.

        I think conservatives believe we would have higher spending, more government waste and regulation, much higher taxes, slower growth, less wealth and the same deficits.Report

        • Avatar Plinko in reply to Roger
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          Conservatives might believe that, but if they do, it seems like willful ignorance to me.Report

          • Avatar Roger in reply to Plinko
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            Plinko, North & Liberty

            All three of you seem to be parroting a left wing meme of some type. Starving the beast is a stupid and ineffective strategy.

            To make your case you would need to understand the goals of conservatives and compare it to what they believe would have happened if they had another strategy.

            Maybe you are right. Maybe it is willful ignorance on the behalf of tens of millions of people. You need to make your case first though. Let’s hear an actual argument rather than left wing Meme replication please. Care to try?Report

            • Avatar Plinko in reply to Roger
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              Well, I don’t have a magic counterfactual machine to prove anything, so you’ll have to bear with my guesswork.

              The conservative contention (that ‘starve the beast’ is actually keeping things from getting worse!) requires us to believe one or both of two things:

              1. If Congress had felt compelled to cover the cost of new programs with offsetting tax increases – that proportionately higher levels of spending would have been enacted over the course of the last three decades would have occurred than already did.

              2. If the Bush-era income tax cuts had not occurred, that there was even more spending that Congress would have enacted but could not, for want of potential debt to issue.

              I find the first one to be pretty unbelievable without a really, really different Congress in the counter factual – it would have been extremely easy, especially in the Senate, for everything to just die rather than be coupled with any kind of tax offset.

              The second is kinda plausible but given the enormous spending spree of that same Congress I find it hard to imagine that any programs were out there that they would have enacted if only they had room to issue even more debt  – maybe the Mars mission could have been scheduled way, way earlier?Report

              • Avatar Roger in reply to Plinko
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                says:

                Pinko,

                Sorry I missed your comment before my last reply.

                I think the vast majority of tea party folks believe that we would have found countless ways to spend more money. We could have added another trillion to get out of the recession, we could have added a few hundred billion more to Obamacare, added another Medicare giveaway and funded another few wars in the Mideast.Report

              • Avatar Plinko in reply to Roger
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                says:

                And I believe if only the refs had made the right call in that 2008 playoff game against the 49ers, the Packers would have gone on to win the Super Bowl.

                That perspective is non-falsifiable, they can think it all they want but what good will it do anyone?Report

            • Avatar North in reply to Roger
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              says:

               Roger, maybe I could compare it to conservative goals pre- starve the beast? As I understand it old school conservatives said “Lets cut spending by cutting spending (Gasp).

              Starve the Beast said, in essence, “Cutting spending is hard. Let’s instead run up deficits and drive down revenues so that someone else is eventually forced to cut spending for us. Preferably someone who’s not us. Then we get the credit for cutting taxes and they get the blame for cutting spending. Genius! *chortle*chortle*prance*prance*.

              So far, it looks like when you set out to cut spending and achieve that goal you end up with… reduced spending.

              in comparison if you set out to starve the beast and achieve that you end up with… higher spending and larger deficits.

              So, compared with the older conservative tactics of cutting spending I would submit that Starve the beast is a failure, and in that Starve the beast also seems to have pretty much destroyed the (credible) fiscal conservatism of one of the countries two major parties I’d assert additionally that it was a stupid colossal and destructive failure. At least from the point of view of a fiscal conservative (which I’m not exactly but as a fiscally conservative liberal I can think like one when I squint hard).Report

        • Avatar Will Truman in reply to Roger
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          Starve The Beast is viable on a state level, but there is simply no reason to believe that it is viable on a national level. Not that conservatives don’t believe it. But I agree about Plinko about willful ignorance.Report

          • Avatar Roger in reply to Will Truman
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            says:

            Will,

            Details appreciated…..Report

            • Avatar Will Truman in reply to Roger
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              States have to come within a reasonable proximity of a balanced budget. The federal government does not. So states which limit income, limit spending. The federal government can limit income and increase spending at the same time. And does.Report

            • Avatar Snarky McSnarkSnark in reply to Roger
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              says:

              How about these bits of evidence:

              • We didn’t have our current scale of deficit spending (or anything like it) until movement conservatives got their hand on the till.
              • Deficits have, for the last 40 years, gone down in Republican administrations, and up in Democratic administrations.
              • Growth rates have been higher in Democratic administrations than Republican (Obama gets a pass on this one for special circumstances).
              • Tax cuts have almost been universally accompanied by promises that it would spur so much economic growth as to be self-financing. That has not been the case thus far.
              • Counterfactuals are always impossible, given the low availability of time machines, but I’ve seen absolutely no evidence that Starve the Beast has slowed or reversed the growth of government in the least:  with the growth rate consistently higher in Republican (Nixon, Reagan, Bush) than in Democratic (Carter, Clinton, Obama) administrations

              Report

        • Avatar James K in reply to Roger
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          Again I ask the question, compared to what?

          Compared to how good it would need to be in order to restore fiscal balance.  The problem here is not so much the level of spending, but rather the vector of spending.  Spending is rising at an escalating rate and I don’t believe for  a second cutting taxes will slow that rate of growth, particularly since most of the spending growth comes from entitlements which grow automatically.

          It’s one thing to insist that any tax increases be accompanied by spending cuts, but to try and cut taxes in the current fiscal environment is madness.Report

          • Avatar Roger in reply to James K
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            says:

            James, Will, Snarky, North and Liberty,

            You guys are all talking around the issue. The claim from the left is that starving the beast is stupid and useless act of self deception.

            I think Tea Baggers are aware that the fed can deficit spend and that republican presidents are often as bad as democrats. I have heard them say as much.

            To convince them that starving the beast is useless you would need to convince them that growth in government would not have been even worse absent their starvation diet. You guys are nowhere close to showing this.

            Seriously, it just seems like you are all just dismissing their argument because you disagree with it. I am not saying I agree with them, but at least I take the argument as worth considering.Report

            • Avatar James Hanley in reply to Roger
              Ignored
              says:

              Roger,

              Fair enough, but to make their argument persuasive you have to show that growth in government would have been even worse absent their starvation diet. You/they are nowhere close to showing this.

              Each side needs an alternate reality machine to provide the missing data.  The “starve the beasters” not one whit less than those who are skeptical of their claims.Report

              • Avatar James Hanley in reply to James Hanley
                Ignored
                says:

                Addendum, if the starvation hypothesis is to be given at least some benefit of the doubt, it ought to at least be able to show that the expenditures growth curve became less steep following significant tax cuts.  I mean, we have had the independent variable, so we ought to be seeing some kind of positive correlation on the dependent variable, even if its weak.Report

              • Avatar Roger in reply to James Hanley
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                says:

                James,

                Maybe, but that would assume they are not logrolling short term tax reductions for increased spending.Report

              • Avatar James Hanley in reply to Roger
                Ignored
                says:

                Not quite following that, so feel free to haul me up short if I’m misinterpreting it, but wouldn’t that just be evidence against the argument?  Any tax reductions that lead to increased spending would seem to contradict (not necessarily disprove) the hypothesis, no?Report

              • Avatar Stillwater in reply to James Hanley
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                says:

                Any tax reductions that lead to increased spending would seem to contradict (not necessarily disprove) the hypothesis, no?

                That’s an excellent point, James. If not, then the theory quickly becomes irrefutable, with all the a priori nonsense that follows: conspiracy theories, RINO, denial of evidence, ‘conservatism can only be failed’, first principles, etc etc.

                But I’d go even further than you are here: it prima facie contradicts the theory, but it disproves it insofar as the theory requires human behavior to be different than it is, or institutional meta-structures to be different than they in fact are.Report

              • Avatar Jaybird in reply to James Hanley
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                says:

                That’s always bugged me a little about the Laffer Curve.

                The argument, even if true, strikes me as greasy.

                “You people like the idea of the government making more money, right? You should like this idea, then!”Report

              • Avatar Roger in reply to James Hanley
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                says:

                James and gang,

                That is why I am not making their case. I am simply pushing back on a half dozen folks who are saying conservatives are self deluded idiots to embrace the dumbest idea of all time.

                If the only way to prove either side is a time machine, perhaps we should not dismiss either side as misguided rubes.Report

              • Avatar James Hanley in reply to Roger
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                says:

                Roger,

                Again, they can at least show bending of the spending growth curve.  If they can’t, they are indeed stupid and deluded, for lack of any evidence in support of their thesis.

                There is also the problem of theory–politicians can benefit by providing goodies for their constituents for free, and charging non-consituents for them.  Future voters are non-constituents.  If anything, borrowing may increase the rate of spending more than tax increases, precisely because no current constituents feel the pain.  Actually raising taxes to cover spending would seem to be a theoretically more sound way to starve the beast, because then the recipients of the goodies actually understand the consequences of getting them.  I think starve-the-beasters haven’t thought this through from a public choice perspective very well.

                The whole theory of starve the beast depends on lack of tax revenues being an actual constraint on politicians.  I don’t see much evidence for that.  The only plausible argument is the long-run one; not exactly starving the beast, but leading it into a Greek-style collapse, and hoping upon hope that the resulting changes are more to their liking.Report

              • Avatar Plinko in reply to James Hanley
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                says:

                As usual, Professor Hanley puts it much better than I could hope to.Report

              • Avatar Roger in reply to James Hanley
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                says:

                James and all interested in Starving The Beast,

                This is a fascinating topic. The left hates starving the beast (STB) because it is used as an excuse to avoid tax increases, which can be used to get the dangerous rich people and fund new ideas. Libertarians dislike it because it allows kicking the can down the road and not facing tough spending cuts. Some conservatives question it because short term effect is faster growth of government spending, as it avoids the pain. Bond markets hate it because it increases deficits and inevitably leads to a crisis showdown.

                After digging into the topic, here is my feeble attempt at a summary…

                Q: What is behind starving the beast?

                A: The belief that government dynamic as it is today is that no matter how much we collect, long term, government will spend more. Therefore, we need to limit how much we collect (this assumes one wants smaller government).

                Q: Does this work short term?

                A: No, in fact it may work perversely short term. It disconnects costs from benefits, and therefore may lead to more spending per dollar collected. If the long term trend is $1.20 spent per dollar collected, the short term effect of tax decreases may be to increase this to more than $1.20 per.

                Q: So should those wanting smaller government raise taxes?

                A: Not necessarily. Not if the theory is correct and we still spend more than we collect. All this does is delay the day of reckoning and increase the size of the beast that will eventually have to be dealt with. The bigger the beast, the poorer we will be and the harder the beast will fight.

                Q: Aren’t republicans pushing brinksmanship?

                A: Short term, yes, but they believe it is better to face the issue sooner and smaller rather than later and bigger.

                Q: Doesn’t this allow republicans to pander to their base?

                A; Yes. It in effect packages lowering taxes as good for us.

                Q: Is this healthy?

                A: Hell no, if we want smaller government, the healthiest way to do so is to make tough choices.

                Q: So why don’t we?

                A: It is political suicide today to push reality.

                This is a strange topic because people are attacking something from different directions with different values, time frames and motives. Are we attacking a dysfunctional Republican strategy, or are we really just attacking a structural weakness in democracy itself?  Something is insane and dysfunctional here.

                In other words, instead of us all saying that starving the beast is insane, what are we actually arguing for?

                 Report

              • Avatar North in reply to Roger
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                says:

                Roger, that’s quite a lengthy way of saying you agree starve the beast has been a colossal failure. I agree.

                Insanity has famously beed defined as doing the same thing over and over again and expecting different results. In that starve the beast has demonstratedly failed one could make the arguement that the current GOP (and policital conservative movement) is once again taking aim at Starve the Beast strategies (much focus on tax cuts, much vagueness on spending cuts/much hiding behind the current gridlocked state of government on spending cuts) and is expecting different results which is arguably insane.

                I just don’t buy the “this is a problem with democracy in general” line. Canada in the 90’s and Britain right bloody now is and has demonstrated that democracies are clearly capable of making painful spending cuts coupled with tax increases that result in balanced budgets, deficits under control and (in Canada’s case though ominously not so far in Britains case) economic growth.

                The US has so far been unable to replicate this. The US, Canada and Britain are all democracies. Only the US has a conservative movement that wholeheartedly embraces the Starve the Beast strategy. Ceteris parabus the problem lies not with the nature of democracy but with starve the beast.Report

              • Avatar Roger in reply to Roger
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                says:

                North,
                The reason for the length is that this is a complex issue with lots of people talking past each other. I suspect we still are (see below)

                Most of the arguments I read here and from conservative sources were related to this idea being dysfunctional at reducing short term spending. This is probably correct, but misses the point that it only makes sense as a long term (dangerous) strategy of taking deficits to the brink.

                The solution for you is pretty easy. Let’s increase taxes wisely. My problem with this is that I believe the conservatives are right and Plinko is wrong and that spending will indeed go up faster than taxes in our current system. It all leads to the same place with only the date and size of the beast in question.

                My solution is to drastically reduce spending and taxes and focus government on doing a limited range of things. The problem with my solution is it is politically DOA.

                I admit the institutional dynamics may be different in different democracies. I do suspect the dynamic of democracy is attracted to overspending (as per public choice theory).

                I agree there is a colossal failure somewhere. My question, is what should proponents of small government recommend instead that is politically viable?Report

              • Avatar Snarky McSnarksnark in reply to Roger
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                says:

                Roger –

                I decided to dip my toe back into this discussion.

                Leaving aside the efficacy of “Starve the Beast.”    What I want to know is:   why would anyone assume that having to pay for increases in government spending, in the form of tax increases, would not be a dramatically more politically effective way of constraining spending.   Unless there was genuine consensus on any new spending, a tax rise would be politically painful.

                If taxes were raised to pay for, say, Medicare Part D, or the Iraq war, I guarantee (backed by the full faith and credit of my rhetoric) that they would have been implemented dramatically differently, if at all.   It’s my personal opinion that STB was implemented in earnest in the first two years of the Reagan Administration, but its failure to touch spending in any sufficient way made the true believers give up.   However, it was attractive for the charlatans, who could justify politically popular items (new and expanded government programs, with lower tax rates), and still appear to have a high-minded “conservative” rationale for it.

                Unless the current practitioners of STB intend  to drive the US into fiscal crisis (like Greece, or Argentina), and resurrect a Milton Friedmanesque government and economy from the ashes, I just don’t see how the current advocates of STB (which appears to be most of the right wing of the Republican party, given their continued support for tax cutting at a moment of historic non-war deficits) expects the strategy to pay off.Report

              • Avatar BlaiseP in reply to Roger
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                says:

                 What I want to know is:   why would anyone assume that having to pay for increases in government spending, in the form of tax increases, would not be a dramatically more politically effective way of constraining spending. 

                This.

                Conversely, why all this talk of Starving the Beast rather than putting it on a diet?

                When Harry Truman was first elected senator, he was viewed as a lackey for the corrupt Pendergast Machine from Kansas City.   Truman shook off that opprobrium by going after waste and fraud in military procurement.   His good work saved the country billions of dollars, in an era when a billion actually meant something.

                It’s always more palatable to attack something in the abstract than to confront specific shortcomings and malfeasance.   From personal experience, I can tell you the government’s nether parts are covered with contractor leeches, many tiers of them.    I have been just such a leech.

                Nobody in his right mind wants to eliminate necessary programs and their budgets but sunlight is the best disinfectant.   I’m convinced we could cut about 20% of government expenditures by eliminating government contracting services.   It’s scandalous how much taxpayer money we’re wasting.Report

              • Avatar Roger in reply to Roger
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                says:

                Snarky,

                I think the pain of higher taxes is indeed a brake on higher spending. The conservative and libertarian opponents of STB are arguing this pretty convincingly. The choice then becomes which path will we take…

                Increase spending and taxes until taxpayers put their foot down, or…

                Hold the line on taxes until deficits force the issue.

                I take it that you prefer the former path. The risk of the second path is obvious, but there are risks of the former as well. The risks are that we will get extremely high spending, extremely high taxes, economic stagnation and a beast that is even more ferocious.

                I agree STB attracts horrible abuses, widespread pandering and a race to the bottom. After all, if we are going to hit a crisis, we might as well do it pandering to our base rather than the other side’s.

                I also agree that the strategy assumes an inevitable deficit showdown. STB speeds up the day of reckoning.Report

              • Avatar Roger in reply to Roger
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                says:

                Blaise,

                Are you recommending an offset strategy rather than STB then? Are you suggesting that small government types push a platform of fixed revenues and fixed spending with discipline of offsets, that is that every new expense be offset with a reduction somewhere else?

                Would this be politically viable?Report

              • Avatar BlaiseP in reply to Roger
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                says:

                Here’s the fundamental problem:  bureaucracies become self-perpetuating institutions.   SEC arose in the wake of the Wall St crash of 1929.  The FBI arose as a response to Prohibition-era interstate gangsters.  The CIA arose as a response to the Cold War, NSA as a result of the spy satellite and telco technologies,  NASA to the space race, Homeland Security in the wake of 9/11… all these agencies arose as a result of some perceived crises.

                BlaiseP’s Law of Bureaucracy states “An army without an enemy will presently invent one.”    We need to untangle the government from its attendant industrial complexes, establish bright lines for regulator and regulated.   Look at some of the boondoggles we’ve perpetuated over time:   look at the problems related to military base closures and moribund bureaucracies everywhere, outsourcing everything to an unseemly racket of contractors, jobs those bureaucrats ought to be doing and aren’t.

                Bureaucracies are meant to enforce laws and do the business of the nation.   Insofar as they’re properly run, they ought to be periodically reformulated by competent project managers, assessing priorities and addressing changes in the mission.   Bureaucrats ought to be able to do their jobs:  where they can’t do that job, it gets outsourced to untold tiers of contractors.   We might have to spend more on bureaucratic salaries but we’d actually save money in so doing.

                Those who advocate for Small Government ought to embrace the notion of fewer and more competent bureaucrats to administer our laws and programs.Report

              • Avatar North in reply to Roger
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                says:

                 

                Roger,

                I’m a little confused that you’re attributing to me the strategy of increasing spending and increasing taxes when I have repeatedly both in examples and in personal advocacy advanced that the desirable course of action (and the action most demonstratably effective at dealing with deficit problems) is to raise taxes AND cut spending. This is the traditional method of dealing with deficits; conservatives trade increased taxes for decreased spending from liberals. This is the parameters of the deal that Bush senior cut with Democrats in the early 90’s (which resulted in budget surpluses and improving balances of accounts until STB true believers took full control in 2000). This is the method used by the Canadians in the early 90’s to bring that country from the brink of default to the fiscal catbird seat the country is occupying currently. This was also, I’ll note, the option extended most recently during the various deficit showdowns that occurred with the rise of the Tea Party.

                It is also the traditional method for dealing with budget deficits; you cut spending and raise taxes together. No one is happy but because the unhappiness is spread broadly everyone grumbles and puts up with it. Starve the beast was developed as a wily alternative to this method which, it’s inventors reasoned, would allow them to spend their days handing out candy while forcing their opponents to eventually peddle the broccoli. The problem with this of course is that their opponents refused to play along and the result was decades of candy for all.

                Obviously, as a libertarian you’d have considerable objection to this since this would result in only a modest reduction in size of government in this country. I have little sympathy since libertarians really need to advocate for their preferred government structures up front; not try and smuggle their preferred policies in under the skirts of some conservative induced fiscal crisis.Report

              • Avatar Roger in reply to Roger
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                says:

                Blaise,

                No argument from me on this approach. The problem of course comes from JH’s favorite topic– public choice. The incentives and dynamics of democracy lead to runaway, self perpetuating bureaucracies.

                The issue then is changing the system somehow to resist this tendency.Report

              • Avatar BlaiseP in reply to Roger
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                says:

                The incentives and dynamics of democracy lead to runaway, self perpetuating bureaucracies.  The issue then is changing the system somehow to resist this tendency.

                We must return to first principles.   Most regulatory law is written in blood.   We simply must have an SEC, for example.   We must have an FAA.   That said, the mission of the SEC is constantly changing.   Securities fraud is an ongoing problem: crooks are more inventive than the regulators.  Nobody wants to fly in unsafe aircraft:  until we’ve invented the Star Trek transporter, the FAA has an ongoing mission.

                The bureaucrats are pawns in a game of Turf War.   They’d like nothing better than to do their jobs more efficiently.   Trouble is, the people who run SEC can barely be distinguished from those they regulate.   The first step is to pull them apart and establish boundaries.Report

              • Avatar Roger in reply to Roger
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                says:

                North,

                My bad on false assumptions on your recommendation. 

                I agree that I would not be happy with raising taxes to pay for increased spending or lower rates of increase. These lead to a bad place. I would certainly approve raising FICA and Medicare taxes to make these programs self funding though. In past discussions the libertarians on this site  have pretty much agreed here. They need to fund themselves (all the more reason to privatize most aspects of them). It helps that there is no longer a surplus to raid, otherwise shenanigans would occur. 

                I think your point that libertarians should not hide under the skirts of STB is a real strong one. I would not advocate lowering taxes to starve the beast. I would recommend lower taxes and lower spending, but I am aware that is politically a non starter. The question becomes who do I vote for in the real world. A STB’er or a tax and spender?Report

              • Avatar Roger in reply to Roger
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                says:

                Blaise,

                In thirty years of working in and running bureaucracies I have rarely found them to want to “do their jobs more efficiently”.

                The dynamic in bureaucracies is to grow in staffing, budget, regulations, paperwork, and responsibility. In addition they resist change to the core of their being. In government bureaucracies it is even more perverse, as they also are inventivized not to solve the problem, but to perpetuate it and even grow it opaquely.Report

              • Avatar BlaiseP in reply to Roger
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                says:

                In thirty years of working in and running bureaucracies I have rarely found them to want to “do their jobs more efficiently”.

                I’ve been around both government and private bureaucracies.   Government bureaucracies are often quite efficient, when they’re allowed to be.   US Army procurement, US Transportation Command, USDA, I’ve watched all of them make changes with startling speed.   When the paperwork gets too onerous, mistakes get made and that’s when I enter the picture.

                So maybe I get to see a better cut of Gummint Bureaucrats.   It’s the private sector bureaucrats, especially within health care, that drive me insane.

                The dynamic in bureaucracies is to grow in staffing, budget, regulations, paperwork, and responsibility.

                Conversely, when the regs and mission change and responsibilities increase, the bureaucrats are treated like worthless scum.  Their opinions aren’t solicited.   They’re told to put the five pounds of shit in the two pound box and everyone wonders why the process breaks down.

                In addition they resist change to the core of their being. In government bureaucracies it is even more perverse, as they also are inventivized not to solve the problem, but to perpetuate it and even grow it opaquely.

                A certain amount of inertia is present in all bureaucracies.  You’d be surprised, though, to see the bureaucrats when my business analysts talk to them about this Resistance to Change.   They’re often being judged on conformance to outdated standards.   They know they’re not doing things the reasonable way.   Given half a chance, they’ll tell my BAs, often in tears, just how stupid and demeaning their jobs have become.Report

              • Avatar North in reply to Roger
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                says:

                Roger:

                If I were a libertarian I would (arguably) waste my vote on a true libertarian candidate and try and make the starve the beast party come to their senses and either go libertarian or at least traditional cut spending by cutting spending conservative.

                Frankly I think starve the beast is especially poisonous to libertarian positions because it makes people view government services without considering costs. Starve the beast undermines libertarian principles pretty much directly and the only possible payoff comes from assumption that the government will be collapsed at some point in the future and replaced with a small government alternative.Report

              • Avatar Roger in reply to Roger
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                says:

                North,

                I find much wisdom in your words.Report

              • Avatar Roger in reply to Roger
                Ignored
                says:

                Blaise,

                The problem bureaucrats face is that they work in bureaucracies. The institutional dynamics and incentives lead them to perverse places.Report

              • Avatar James Hanley in reply to Roger
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                says:

                @Blaise,

                when the regs and mission change

                This point can’t  be over-emphasized.  It’s a crucial theme in James Q. Wilson’s classic book , Bureaucracy: What Government Agencies Do and Why They Do It.

                An agency that has a clear mission is often very effective.  The usual caveats about lack of proper incentives and non-priced products still apply, but in what they do they are very focused and effective.  But when their mission changes, or they are given fragmented or contradictory missions, they really tend to falter.

                Why did FEMA do such a bad job in New Orleans?  Because after being stupidly shoved into the new DHS it was forced to focus its planning efforts on terrorism prevention and response.  It’s such a predictable problem that people were pointing out the risks long before Katrina hit.Report

              • Avatar Stillwater in reply to Roger
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                says:

                Maybe I’m not understanding you or the thread here, but what you wrote above doesn’t seem to follow. At least, it isn’t obvious that it does. This claim

                The claim from the left is that starving the beast is stupid and useless act of self deception.

                can be supported by empirical evidence. But this claim

                To convince them [TPers] that starving the beast is useless you would need to convince them that growth in government would not have been even worse absent their starvation diet.

                is impossible to empirically demonstrate. So I don’t think both sides are on equal footing here.

                Now, if this whole argument takes place in utopia-land where counterveiling evidence is reflexively denied because it doesn’t fit the theory, then you have a point. But by hypothesis, we’re talking about the real world and normal standards of evidence here, no?

                 Report

              • Avatar Roger in reply to Stillwater
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                says:

                All,

                Here is an article from Cato on the issue and how it cannot work as well.Report

              • Avatar James Hanley in reply to Roger
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                says:

                Roger,

                Excellent link, thanks.  It being by Niskanen, it goes right into the public choice approach I touched on.  Niskanen, by the way, died last October; a sad loss.Report

              • Avatar Roger in reply to Roger
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                says:

                James H,

                You never weighed in on what strategy you recommended instead of STB. As my string above lays out, I do not believe short term deficit reductions are the measure of success or failure of the program (those these may be how it is sold to voters). Those economists and political scientists that still endorse it are doing so upon the belief that long term American democracy as the dynamic works today will spend more than receipts.

                The strategy of starve the beast thus becomes one of hastening the showdown crisis while taxes are still low, the economy is still growing and the beast is still manageable.

                Obviously this is a risky gamble. In a perfect world I would recommend lower taxes and spending and assume you would too. But we live in the real world, and I wonder what you recommend instead that is politically viable.Report

              • Avatar James Hanley in reply to Roger
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                says:

                Roger,

                I don’t know if there is a successful strategy except for pushing the state to failure and hoping for the best.  And frankly, I don’t think that’s worth the price and risk.  Sure, as a libertarian I want a smaller government that does less, but I also recognize that I’m just one of 300 million people, and the means I advocate toward my end are not necessarily justified by the end.  I also recognize that my less-preferred world of more government expenditures isn’t exactly hell on earth.  I can live with it, although I will perpetually grumble about it.  But economic collapse doesn’t always lead to libertarian reforms–it is, historically, at least as likely to lead to authoritarian reforms and/or civil war.  That’s why I think STB is foolish and short-sighted.

                My preferred way is a balanced budget amendment (or, more specifically, an unbalanced budget amendment, requiring a surplus when the economy is growing).  And that requires continuing to argue and debate about why we need it.  Will the arguing and debate work?  Who knows, but if it does we’ll have no need for STB.  If it doesn’t, we may end up with STB by default.Report

              • Avatar Roger in reply to Roger
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                says:

                James,

                Thanks. I kind of landed in the same place in my discussion with North

                I think the down side is the risk that we get to a showdown either way. We need a conservative party that refuses net spending increases, not one that offers lower taxes, additions to medicare, and an unfunded series of wars.

                 Report

              • Avatar North in reply to Roger
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                says:

                Roger, as James has noted Starve the beast proponents should be able to show several of the outcomes that they predicted would occur that haven’t:

                -STB Proponents asserted that by slashing taxes without slashing spending deficit hawks would force spending decreases. This has been disproven. Instead voters have demonstrated indifference to deficits as a general rule unless they’re partisans for a party (either party note) that is out of power. What few deficit hawks remained have been carried along squawking in a deluge of increased spending.

                -STB proponents asserted that STB would produce decreased spending and diminished government programs. Instead programs have grown, spending has grown and borrowing has grown.

                -STB proponents asserted that STB policies would strengthen small government spending cutters on both sides of the aisle. While Democrats have moderated to some small degree the former party of spending restraint has demonstratably and dramatically ceased to be the party of spending restraint (courtesy of their utter abandonment of spending restraint principles when they were in power). So much so that the Tea Party has formed to protest excessive spending. In essence the Tea Party phenomena is itself proof of the failure of the GOP’s starve the beast position.Report

              • Avatar Stillwater in reply to North
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                says:

                In essence the Tea Party phenomena is itself proof of the failure of the GOP’s starve the beast position.

                Excellent North. I kept stumbling around this very point but couldn’t quite put my finger on it. And what follows from this, if it’s right, is that the neo-STBers are utopian idealists, immune to evidence or argument.

                 Report

              • Avatar North in reply to Stillwater
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                says:

                Thanks Stillwater,

                I actually haven’t seen many neo-STBers about, well except maybe for the editorial board of NRO.Report

              • Avatar Roger in reply to North
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                says:

                North,
                Are they a repudiation of it or a reincarnation of it?Report

              • Avatar North in reply to Roger
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                says:

                Well, depends on your point in time. Initially I’d say (if I were being charitable) that they were a repudiation of it; now days they seem to have evolved into a reincarnation of it.

                 Report

              • Avatar Jaybird in reply to Roger
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                says:

                Starve the Beast *MIGHT* have worked *MAYBE* if 9/11 didn’t happen.

                As it is, I think we have to say that the plan did not survive first contact with the enemy.

                Maybe Canada could provide an example of what tight fiscal discipline looks like with a leader who has enough of a mandate to say “we don’t have the cash for that” but not enough of a mandate to say “we need a national registry of ladyparts”.Report

              • Avatar Patrick Cahalan in reply to Jaybird
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                says:

                Weeeelll… for it to work, it’d have to still work, measurably, at some point.  Granted, an exception scenario may muck things up, but eventually you’d still see some measurable effect… if not 2 years later, certainly 7.

                In a more general point, if your fiscal policy requires a period of time when an outside force doesn’t impose a pretty big crisis, and the period > the expected incident of major exceptions, by design, it’s extremely likely to fail.  If you need to starve the beast for a decade before it starts to work, and fiscal crisis occur about once in every decade, you’re kinda screwed.

                The problem isn’t that plans don’t survive the first contact with the enemy.

                The problem is when you keep trying to follow the plan after the Germans go through Belgium and machine gun nests prove to be useful against cavalry, Joffre.Report

              • Avatar Jaybird in reply to Jaybird
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                says:

                Would 1995-2001 count? If not, then I have no examples of maybe it working under ideal circumstances. “But that wasn’t starve the beast!”, okay fine.Report

              • Avatar Snarky McSnarkSnark in reply to Jaybird
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                says:

                Starve the Beast started in 1981 (nee David Stockman).   If the beast ain’t dead yet, 31 years later, I would be hard pressed to make a case that it works…Report

              • Avatar Jaybird in reply to Jaybird
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                says:

                Oh, I certainly wouldn’t argue that it *HAS* worked. It certainly has *NOT*.

                We were on a decent vector there for a handful of years, though.Report

              • Avatar North in reply to Jaybird
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                says:

                Yes Jaybird but can much if any of that be attributed to Starve the Beast? I mean there’s a part of the credit that goes to gridlock, another part that goes to economic growth (coupled with gridlock) and then finally the Bush I GOP and the House/Senate Democrats of the early 90’s cut a deal that cut spending and raised taxes which precipitated the good times for the rest of the decade. I just don’t see any part of that accruing to Starve the Beast. If anything I’d say the 90’s prosperity was the outcome of the last gasp of the GOP old school of cutting spending by cutting spending. Bush I lost the presidency at least partially due to his sensible deal that happened to raise taxes.Report

              • Avatar wardsmith in reply to Jaybird
                Ignored
                says:

                @Snarky, I reiterate that there has NEVER been a starve the beast in this country, and by never I mean NEVER. Stockman may have given it a try, but while you and others point out who was president during those years you completely ignore which branch of gov’t pulls the purse strings (Congress). Only a majority in Congress can effect fiscal change and all the political promises in the world don’t stand up to the light of public scrutiny when pork is at stake. The term “3rd rail” came into parlance during the budget battles with Tip O’Neil.Report

              • Avatar Jaybird in reply to Jaybird
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                says:

                What would “Part II of Starve the Beast” look like if *NOT* that?

                Greece and Greece alone?Report

              • Avatar North in reply to Jaybird
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                says:

                Ward, it depends on your definitions which I suspect are being muddled.

                If you’re talking about cutting spending directly (also known as throwing the poor out to die to Dems or letting the Commies/islamists/etc just walk in and conquor everything to the GOP) then yes it’s not been very heavily tackled. I’d submit however that this is not starving the beast as it’s commonly used in political discourse.

                Starve the beast in general discourse is the strategy of keeping tax revenue low and lowering it whenever possible in hopes (mistaken in my opinion) that this will force the government to cut spending when the money runs out. By this definition of course it’s been the policy of one party in this country for 30 odd years and I’d say it’s been very thoroughly tried out (and found badly wanting).Report

              • Avatar wardsmith in reply to Jaybird
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                says:

                Nope Starve the Beast never happened and this is why:Report

              • Avatar North in reply to Jaybird
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                says:

                Hmm it’s cute, but to be frank I don’t see the pertinance.Report

              • Avatar North in reply to Jaybird
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                says:

                Canada definitly wouldn’t work Jaybird. Their budgets were balanced by a center left Prime Minister and party who made the strategic decision to steal the sensible parts of their (destroyed) opponents fiscal platform. You’d never have caught them plotting to register lady parts.. though they did register long guns.Report

              • Avatar Jaybird in reply to North
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                says:

                Oh, Harper’s not center-left. Is he???Report

              • Avatar Jesse Ewiak in reply to North
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                says:

                North is referring to the Liberal governments of the 90’s.Report

              • Avatar North in reply to North
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                says:

                Jay, Harper is the conservative Prime Minister under whom the Canadian government has ceased to balance their budget and under who’s administration they’ve resumed running budget deficits after years and years of Liberals balancing the books. Many Canadians very uncharitably call him Bush lite.

                In fairness to him Canada did have a recession (and the Liberals were long due for some time out of power) and I’d be surprised if he doesn’t eventually get the books back in order. But he ain’t no great corrector of government profligacy.Report

              • Avatar Jaybird in reply to North
                Ignored
                says:

                Whew! I was freaking out.

                You wouldn’t believe what my in-laws call him, you see. If he was “center-left”, my head was going to explode.Report

              • Avatar Jaybird in reply to Roger
                Ignored
                says:

                On the other hand, I think that Greece is about to show us what “Starve The Beast” will look like in real time.Report

              • Avatar James K in reply to Roger
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                says:

                I’m not suggesting that Republican voters are deluded idiots, that post’s coming tomorrow ;).  All I’m saying is that it would appear that  Starve the Beast has failed to rein in the expansion of government spending, meaning that even if it works it doesn’t work well enough and that means other measures are called for.

                There’s a difference between being wrong and being deluded.Report

              • Avatar wardsmith in reply to James Hanley
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                says:

                What “starvation diet” has EVER occurred with this government? I’ve never seen it. Don’t believe the headlines, when politicians talk about “reductions” they are REALLY talking about spending more at a slower pace than they were originally planning. When the taxes don’t meet the budget they just borrow more. Borrowing at a clip approaching 45% is not “starving” in any meaningful sense of the word.

                State governments are in a different boat because they can’t borrow based on the “full faith and credit of the US Government” (thank God). State budgets get mightily skewed because of the influence of Uncle Sam, he can give them money, loan them money or withhold money, sometimes all three. For all the supposed belt-tightening in the states, I’ve personally seen tons more that could take place. There is a discipline that is inherent in operating a business that is sorely lacking in government at all levels.Report

            • Avatar Snarky McSnarkSnark in reply to Roger
              Ignored
              says:

              Without that time machine, you cannot “prove” the supposition one way or the other.

              But the inferences one can make from available evidence (such as that I posited) suggests that it’s a pretty dubious proposition.   What it is is politically easy to do, once you’ve constructed a plausible intellectual justification for running continuous deficits (“supply-side econonimics”).

              I don’t think that history will regard this era with much kindness.

               Report

            • Avatar Stillwater in reply to Roger
              Ignored
              says:

              To convince them that starving the beast is useless you would need to convince them that growth in government would not have been even worse absent their starvation diet.

              That’s a burden which cannot be met.Report

  6. Avatar G.M. Palmer
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    says:

    Fascinating (though my Chrome version shows a few typos that may be spacing errors–don’t know how it shows up on other browsers),

    Question, though: what’s the benefit of “spreading the tax around” rather than concentrating on one area?

    I like the idea of a property value tax only scheme (not, by the way, the “land value” rent system of the Georgians) as it keeps what I would consider “proper” progressivity while doing two things very well: one: raising enough revenue and two: keeping the voters on their toes regarding taxes (which encourages them to keep their legislators on point).

    Your thoughts?

    GMP

    p.s. Nice picture! Did you get in on the Order of the Stick Kickstarter?Report

    • Avatar James K in reply to G.M. Palmer
      Ignored
      says:

      It wouldn’t surprise me if there were some typos, I’m the world’s worst proof-reader.

      There are two reasons why it pays to spread your taxes out:

      1) The negative effects of taxes are non-linear, the economic harm caused by raising income taxes from 10% to 11% is much lower than the harm caused by raising income taxes from 90% to 91%.  Multiple taxes let you keep your rates lower, which adds up to less distortion of the economy.

      2) Every tax has different strategies to avoid it.  If you have only one tax, people have an incentive to work out and implement ways to avoid that tax.  But if you have many taxes, it won’t be worth it to work hard to avoid any one of them.

      Property taxes have merit certainly, though the advantage of taxing land specifically is that it’s a zero distortion tax that’s impossible to avoid, but if you tax the building as well, you create incentives to let buildings run down to avoid a tax bill.  That means a regime based on land taxes alone would be as efficient as a tax system can get, as well as being progressive.

      The downside is political.  In the first case, you’ll have problem with people who are asset rich, but cash poor (i.e. retired people), and in the second case a system of pure property taxes will leave a significant fraction of the population who pay no taxes at all.  This can create perverse incentives in the political process.Report

  7. Avatar Morat20
    Ignored
    says:

    Here’s a question I’d like honestly discussed:

    Should capital gains be taxed at a different rate from income? I’m not sure why capital pays a different rate than labor — I’ve heard the arguments (“stimulates investment!” comes most readily to mind), but is it anything but a cheap slogan?

    Looking over the last few decades, I can’t see a reason — other than to coddle the wealthy —  to really tax investment differently than labor.

    Want to simplify the tax code? For people, it’s ALL income. Whether it’s from your job, your investments, or your bank — it all goes together into combined income. No seperate rates.

    And don’t get me started on that carried interest stuff.Report

    • Avatar Jaybird in reply to Morat20
      Ignored
      says:

      Why not coddle Labor instead? Bring Labor’s rates down to around investment level taxation rates.Report

      • Avatar BlaiseP in reply to Jaybird
        Ignored
        says:

        Yes, why not coddle Labor to the same extent we’ve coddled Management?   I recommend outsourcing management of some of these corporations to some crafty cabal of women in some third-world marketplace.   Certainly be cheaper.Report

    • Avatar Roger in reply to Morat20
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      says:

      Morat,

      There is the issue of time frames. Capital gains is distorted by the longer time frames. If adjusted for inflation, I see no reason we should incentivize capital more or less then labor.Report

    • Avatar Snarky McSnarkSnark in reply to Morat20
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      says:

      Well, because of inflation, the “returns” from any long-term investment are overstated.    If I earn an 8% return on an investment, and the inflation rate is 4%, I have really only earned 4%.    And if the tax rates for earned and unearned income were identical, I’d be paying twice the effective tax rate.

      Beyond that, no, I cannot think of any good reason that unearned income should have priveleged tax treatment.    If inflation adjustments were factored in when an investor pays his capital gains, I think the rates should be the same.  

      However, you could make a good case for exempting the first $20,000 – $30,000 of unearned income:   it would provide great incentive for wider investment, and would still extract substantial taxes from the 1%Report

      • Avatar BlaiseP in reply to Snarky McSnarkSnark
        Ignored
        says:

        Furthermore, capital gains taxes hit the elderly disproportionately.   Someone who’s salted away his earnings against his retirement ought not be hammered for behaving prudently.Report

        • Avatar Just John in reply to BlaiseP
          Ignored
          says:

          If it were taxed as ordinary income in a progressive way perhaps it wouldn’t hit them so disproportionately?Report

          • Avatar BlaiseP in reply to Just John
            Ignored
            says:

            I’d have to see how such a model would behave.   Again, to a man armed with hammers, (and in the hammer-making business!)  all the world’s problems start resembling nails, so don’t take me too seriously here.    Models won’t reveal everything.

            I must keep banging my spoon on the bottom of my little pot, however tiresomely it may seem:   progressive taxes aren’t the solution here.   Even if we could Soak the Rich, there’s just not enough money in the Cave of the Forty Thieves for some progressive Ali Baba to reconcile budgets to tax revenues.

            My guiding principles for a model would be these:   taxes are a burden.   A good strong horse can pull more than a sickly one.   Taxable entities are like those horses:  if they’re burdened beyond some arbitrary threshold, they simply won’t get up and whipping them won’t make them.

            There’s got to be some feedback loop in operation here, one which progressive taxation simply doesn’t implement.    The rising tide which floats all boats will float a supertanker as well as a canoe.   If the poor are to rise in the world, the rich will rise on the same tide and there’s no getting around it and we shouldn’t care.Report

            • Avatar Just John in reply to BlaiseP
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              says:

              First, I completely agree about the need for feedback loops.  In a dynamic world no solution can be for all time.  So a progressive tax system would have to be recalibrated from time to time (preferable to watering the tree of liberty with the blood of patriots, in my view).

              I don’t agree that a progressive tax system is all about soaking the rich; it’s more about soaking everyone according to their absorbancy.  Moving from sponges to horses, the threshold between tolerable-share-of-burden and intolerable-share-of-burden isn’t arbitrary.  If it were, then it’d be possible to say a strong horse shouldn’t bear any burden.  My impression is that the portion of the tax burden borne by high-income earners is currently substantially below the point at which their marginal tax rates create a real disincentive for additional income.

              On to the boats on the tide.  Sure, a rising tide raises all boats — except for the ones that have holes in them or the ones that are anchored to the bottom with shorter chains.  And I’m not sure the economy is fully analogous to an ocean whose unobstructed expanse assures a universal level.  If we dam up a river, the water on one side of the dam rises and the water on the other side recedes.Report

              • Avatar BlaiseP in reply to Just John
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                says:

                See, in the larger picture, tax revenues increase when the economy’s doing well.   Rates matter less than you might think.   My son the mathematician demonstrated this to me:  though I stoutly resisted the notion at first, I was grudgingly obliged to changed my mind about many things.

                Thing is, there’s only so much the Gummint can do about the Market and not everything it does is wise.  Mere deregulation is almost the worst thing Gummint can do:   there’s always a price to pay for it.

                Furthermore, policy decisions, however wise, don’t take effect immediately:   look at unemployment numbers.   Unemployment is the last big thing to change in a recovering economy.

                The Libertarians make this point, however imperfectly.   Their economists are generally crackpots but they’ve reached some perfectly cogent conclusions about the role of governments vis-à-vis markets.   In our laziness, we have come to expect Gummint to do things for which it was never intended.   It’s rather like what Nietzsche had to say about God:  he’s the sum total of our hopes and fears, all rolled up in a ball and hurled into the sky.   At some point, we must take responsibility for our own decisions.

                The Chinese have a proverb about this disconnect   Tian gao huang di yuan :  “Heaven is high and the Emperor is far away”.   Increasingly, Americans don’t vote because they don’t feel connected to the system.   It’s just an impediment which never takes their concerns into consideration.   This disconnect affects the rich as much as the poor and the middle class.Report

              • Avatar Just John in reply to BlaiseP
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                says:

                Yes, no dispute that the healthy growth of the economy is more important to the growth of tax revenues than tax rates in themselves.  But hasn’t the argument for drastic reduction of upper end tax rates been that any and all such reductions would boost the growth of the economy (Grover Norquist)?  And hasn’t that been shown to be false?

                I think taxes should be progressive and the government should provide benefits to the lower end of the income spectrum because the natural tendency of the game without progressive taxes and government largesse is for income and wealth to become more concentrated, and that means the game ends and we all need the game to keep on going.  Another analogy: Texas Hold’em tournaments: everyone starts with the same stake, everyone plays by the rules, nothing gets redistributed, after a day or two one players got everything and the game is over.

                The government helps the economy by buying things that people don’t buy for themselves, even when they possibly could.  Highways, clean air, assistance to the needy (charity does do this, but it seems clear that it does it much less efficiently than state programs), national defense, civil rights for minorities, a well-regulated currency, criminal justice.  All of these things are essential for the economy to grow stably, and I suspect for it to grow beyond some sort of “natural limit” to what a system of strictly free individual actors could achieve.Report

              • Avatar Roger in reply to Just John
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                says:

                Just,

                Be careful with your Texas hold em analogy. The market is a positive sum game. Poker is a zero sum game. Great wealth, when created by free exchange is normally created by creating wealth for others.

                Gates and Buffett can do well for themselves by doing well for others.Report

              • Avatar Roger in reply to Just John
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                says:

                Just,

                On your third paragraph, I agree with these as great areas of government focus. If we could just focus on these things rather than trillions on overseas wars of adventure, middle class transfers and special interest privilege seeking. The vast majority of actual spending is on things we have no reason to have political involvement in.Report

              • Avatar BlaiseP in reply to Just John
                Ignored
                says:

                That’s short term thinking.   Policy outcomes ought to create more taxpayers.    Lifting the poor out of poverty and into the happy, tax-paying fraction of the population is the goal.

                We invest beaucoup shekels on training soldiers and sailors and Marines and suchlike, constantly revising that training and assessing its effectiveness.   The military is in a constant ferment, attempting to reformulate its mission and tactics based on the threats we’re likely to face.   The American military is the best in the world because decisions are made at the lowest level possible.

                I do not propose to militarize the poor.   I propose to treat the War on Poverty as an ongoing struggle with a coherent, cost-effective strategy with meaningful benchmarks.   Insofar as the poor are lifted from poverty, we’re winning.   Where they’re not, we’re losing.   The poor are expensive.   They fill our jails.   They lack the skills and training and resources to get out of poverty.

                Wealth does tend to concentrate.  This is an unavoidable consequence of capitalism.    But wealth is not a zero sum proposition:  wealth can be created.    By my estimates, and those of my son, there’s no excuse for poverty anywhere in the world:  show me a grossly distorted society and I’ll show you a Banana Republic government which cannot manage its own affairs well enough to understand this fact.

                The rich could pay more taxes, that’s a given.   But it doesn’t change the nature of the equation:   nobody complained much about those high taxes during the Clinton administration because the economy was on a tear with the Internet Boom.   This Class Warfare rhetoric is so much pseudo-Marxist redistributive crap and Liberals ought to lay off it, that’s not what’s needed.   We need to think about the poor as a resource who might benefit from some properly applied investment capital so they’ll start producing results and paying taxes and leave the ranks of the poor so we can quit paying for them.   That’s progress.Report

              • Avatar Just John in reply to BlaiseP
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                says:

                The Texas Holdem analogy is just a limited analogy, extreme and definitely zero-sum.  I’ve piped up with objection about the use of zero-sum thing here a while back, but I’ll try to be clearer about it here.  Certainly, positive-sum results are desirable, but negative-sum results are also non-zero-sum, which is why I don’t find it persuasive to object to a proposed analogy merely on the basis that it’s zero-sum.  Suppose that in the “naturally occurring” dynamic of economic interactions between individuals, positive-sum outcomes and negative-sum outcomes balance each other out?  Or suppose that “naturally-occurring” systems vary in the balance between net positive and net negative?  Then systems that tend to result in a net positive would have an evolutionary advantage over those that net-negative or net-zero.  But since we’re individuals and not the universe, evolution’s too slow for our purposes and we have an interest in trying to make our own system net-positive.  I think progressive taxation as a leveler is likely to be more conducive to net positive results than flat taxation (hedging language because I’m trying to be honest that I don’t really know — haven’t done the years of work it would take to gather data or develop disciplined theory that could make me more confident in asserting all this).

                And the spending side creeps in, as I think it must.  What’s legitimate and helpful for the government to spend on and what’s not — can that ultimately be left out of a discussion of needed revenue levels?Report

              • Avatar BlaiseP in reply to BlaiseP
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                says:

                Look at it this way, if you’re for progressive taxes:  if the rich pay more for every dollar of profit than others, they will find ways to shelter their gains.    They have excellent tax guys at their disposal:   they will find a way and every attempt to close ’em down is just a game of financial Whack-a-Mole.

                Now I’ll tell you what else isn’t a zero-sum game, that’s attracting investment capital and human talent to our shores.    For a good long time now, the most-enterprising souls came here.   Some still do, but not in the numbers or percentages they used to come.

                What do such people want?   They have their choice of where to live and invest and do business.   The USA isn’t the only such destination.   Taxing the living doo-doo out of capital gains and corporate income makes such desirable folks want to go elsewhere.    I do not propose to play Beggar Thy Neighbor with other countries but our society is in competition for those people, the wealth-creators, and they’re not people with existing fortunes.   If we offer a well-regulated society, free of corruption and nepotism, with plenty of educated people for them to employ, that’s a winning strategy.

                So Xi Jinping comes here to the USA to visit a few days ago.   Interesting guy, knows the USA reasonably well.   Know where he went after the USA?    Ireland.   Food for thought.   Revisit the previous paragraph for his reasons.Report

              • Avatar Just John in reply to BlaiseP
                Ignored
                says:

                Progressive taxation doesn’t have to be taxing the living doo-doo out of anyone, though it clearly can be and has been in the past.  I think we’re currently very far from that.  Back when high-skill immigration to the US was higher than it is now, there were more tax brackets and the marginal rates were higher, so it looks to me like progressive taxation might not be so related to that as just the rest of the world being in much better shape than it was then.  And I think US immigration policy might make it much harder to immigrate and naturalize now, but I really don’t know.  Still, I agree that we wouldn’t want an income tax structure that made the US less attractive than other countries. Also, part of my original proposal above was that it might be a good idea not to tax corporations at all except to price in negative externalities.

                I think the financial whack-a-mole problem might be intractable, and it might just have to be played forever no matter what the system, even a flat tax system.  Not only will people find whatever ways there are to protect their wealth, they’ll lobby to get ways made to protect their wealth, and they’ll be as Machiavellian as they need to be about it.  So here as in so many other ways the price of liberty is constant vigilance.

                I’m not sure why he’s visiting Ireland, but Ireland does look like a potentially fruitful place for him to go.  Still suffering huge productivity loss from the flight of the foreign capital that gave them their boom, Chinese investment there could be a very attractive means to get them out of their doldrums.Report

              • Avatar BlaiseP in reply to BlaiseP
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                says:

                Progressive taxation doesn’t have to be taxing the living doo-doo out of anyone, though it clearly can be and has been in the past. 

                A good model would seek an optimal tax rate as a sum of many vectors.   I’m not averse to something more complex than a straight line flat tax, mostly because every attempt at a Flat Tax isn’t optimal:  it’s just flat.   I remain agnostic to progressive taxation:  show me how the model responds to progressive taxation and how much income hiding goes on.   Strive for the least of both.

                It might be a good idea not to tax corporations at all except to price in negative externalities.

                Them too.   The model considers this via the earnings statement.

                The price of liberty is constant vigilance.

                The price of liberty is constant heartburn.

                I’m not sure why he’s visiting Ireland, but Ireland does look like a potentially fruitful place for him to go. 

                Ireland’s government took over every single penny of its banks’ debts.   That took guts.   No discounting the problem:   Ireland took the punch.   It’s still got a strong export economy, loads of smart people and appealing tax rates.Report

              • Avatar Just John in reply to BlaiseP
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                says:

                The price of liberty is constant heartburn.

                LOL.  The price of living might be constant heartburn.  L’enfer, c’est les autres.

                I’m afraid I can’t deliver on the models.  But I will still say that I do think progressive taxation is a moderate idea, not a leftist or rightist one.Report

              • Avatar Roger in reply to BlaiseP
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                says:

                Just,

                Free markets are positive sum. That is where much of our prosperity comes from. As long as actions are voluntary and externalities are accounted for, free markets tend to create wealth. The power of free enterprise is not that it is not zero sum, it is that it is overwhelmingly positive sum. Indeed, my main concern with political interference is that it perverts a positive sum game into a negative sum one.

                That is the magic of Adam Smith. He clarified the possibility of positive sum institutions (that were always possible).

                I do not disagree with progressive taxes being a good way to pay for public goods. A flat tax with a large exemption is a progressive tax, by definition. The middle class and poor pay virtually nothing and wealthy pay it all. Our current system is of course progressive too, but very inefficient and is used in a zero sum rob Peter to pay Paul way.

                The sad truth is that spending and revenue are separate discussions in American politics. Probably in democracies everywhere.Report

              • Avatar BlaiseP in reply to BlaiseP
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                says:

                I still say progressive taxation is weak rhetoric.   If we want to Soak the Rich in any meaningful fashion, we’d give them fewer reasons to hide their money from taxation.   Class Warfare is wretched rhetoric, pandering to the worst instincts.   The OWS rallies….  five, six years too late to the bonfire.   Don’t they know Wall Street as it was is gone, its fearful remnants peeking out of the windows of chartered banks?

                We need Wall Street to work at least as well as a casino, where you must put your money on the table.Report

              • Avatar Snarky McSnarkSnark in reply to BlaiseP
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                says:

                It seems to me, Blaise, that you have picked up movement conservative framing on these issues.    “Soak the rich” and “class warfare” are slogans, and slogans that don’t map reality particularly well.

                Progressive taxation exists, because the rich have a very substantial share of the assets, and an even greater share of the surplus in the economy.   Populsts sometimes talk about knocking the rich down a peg, but we tax them at a higher rate because:

                • They have it
                • Rather than equalize tax “rates,” progressive taxation gestures towards equalizing the pain of taxation (diminishing marginal returns and all that)
                • The market does not reward commensurate with effort or virtue, but seems to follow the pattern of a geometric function.   Bill Gates is smart and hardworking, but not a million times smarter and more hardworking than John Q. Steelworker.
                • We don’t want to live in a society in which 45% of the rewards go to 1% of the people.   At least, I don’t.

                Report

              • Avatar BlaiseP in reply to BlaiseP
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                says:

                ”Soak the rich” and “class warfare” are slogans, and slogans that don’t map reality particularly well.

                Which rather goes to my point.   I’m trying to forge up an investor society, one where folks are considerably less passive.

                Progressive taxation exists, because the rich have a very substantial share of the assets, and an even greater share of the surplus in the economy.  

                Huh?   One doesn’t imply or justify the other.   Furthermore, that sentence smells like the aforementioned slogans.    If the middle class is paying a higher effective rate than the rich, there’s a disparity worth correcting, one my model would detect.

                Carefully examine how the rich “got rich” and get more people on that road if it’s worth taking.  Amazingly, such an examination has been made and that path even has a name, the joint stock corporation.   It’s been in use for several hundred years and we’ve even got large marketplaces where shares in those corporations are sold.

                Populists sometimes talk about knocking the rich down a peg, but we tax them at a higher rate because

                They have it

                ROFL.  No they don’t.   Being a millionaire means you can borrow a million against equity.   Nobody just leaves a million dollars in a checking account unless it’s in Switzerland and they charge for that privilege.   More people need to open trading accounts before discussing the millionaire and his modus vivendi.

                Rather than equalize tax “rates,” progressive taxation gestures towards equalizing the pain of taxation (diminishing marginal returns and all that)

                It is as if I have not explained how progressive taxation leads to tax sheltering and outright tax avoidance through various accounting tricks.   Just how tediously must I repeat this?

                The market does not reward commensurate with effort or virtue, but seems to follow the pattern of a geometric function.  

                Bullshit.   The market rewards one thing and one thing only.  Risk.   That’s it.   You take a million times more risk, you win a million times more reward.

                 Report

              • Avatar Just John in reply to BlaiseP
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                says:

                Or lose your whole stake — unless the government will bail you out.Report

              • Avatar Scrooge McDuck in reply to Just John
                Ignored
                says:

                 

                Blaise –

                I suspect we’re talking right past one another, but I’ll give it one more shot.

                Progressive taxation exists, because the rich have a very substantial share of the assets, and an even greater share of the surplus in the economy.  

                Huh?   One doesn’t imply or justify the other.   Furthermore, that sentence smells like the aforementioned slogans.    If the middle class is paying a higher effective rate than the rich, there’s a disparity worth correcting, one my model would detect.

                Well, to state it another way, let me paraphrase Willie Sutton:  I believe in progressive taxation because that’s where the money is.  You don’t want to tax food out of a person’s mouth, so you ideally tax “surplus”–income greater than that needed for subsistence.  And, simply, the wealthy is where the money is.

                Carefully examine how the rich “got rich” and get more people on that road if it’s worth taking.  Amazingly, such an examination has been made and that path even has a name, the joint stock corporation.   It’s been in use for several hundred years and we’ve even got large marketplaces where shares in those corporations are sold.

                Well, some got rich from stocks, others from currency or commodity trading, and a substantial number from their daddy.   I live in Newport Beach, and best estimates are that 60% of the wealth there was actually  earned by a previous generation.   And money earned from foreign stock exchanges does not bring the same benefit to society as investment in our economy.

                we tax them at a higher rate because…

                They have it

                ROFL.  No they don’t.   Being a millionaire means you can borrow a million against equity.   Nobody just leaves a million dollars in a checking account unless it’s in Switzerland and they charge for that privilege.   More people need to open trading accounts before discussing the millionaire and his modus vivendi.

                Yes, Blaise, they do.   I’m doing okay myself, and know full well that I pay my capital gains when I redeem it, not when I cycle it.   And, it’s largely a rhetorical point you’re making:   we are speaking of wealth, here.   The wealthy have it, the poor don’t.   That’s why the rich are called “wealthy.”

                Rather than equalize tax “rates,” progressive taxation gestures towards equalizing the pain of taxation (diminishing marginal returns and all that)

                It is as if I have not explained how progressive taxation leads to tax sheltering and outright tax avoidance through various accounting tricks.   Just how tediously must I repeat this?

                No need to repeat anything:  I understand fully well how progressive taxation works.   Tax sheltering is made possible by complex tax laws, not tax rates (although I grant you that higher tax rates provide greater incentive).    You believe what you believe, but I think you make your case a little too categorically.

                The market does not reward commensurate with effort or virtue, but seems to follow the pattern of a geometric function.  

                Bullshit.   The market rewards one thing and one thing only.  Risk.   That’s it.   You take a million times more risk, you win a million times more reward.

                That is manifestly untrue:  the market rewards many things, including risk, but also including knowledge, skill, timing, and luck.   Bill Gates made his fortune with very little risk:  Warren Buffet with a greater degree.   John Grisham made his with skill,  and Kim Kardashian made hers with luck and brass.   So what?

                The point I was trying to make is that the topside rewards in our society are out of proportion to the risk, work, or social value contributed.   I’m sure that Warren Buffett and Bill Gates are lovely men, but there was a time at the peak of the tech boom when Gate’s nominal assets were equivalent to those of the poorest 100 million Americans.

                I’m not saying that the wealthy should be “soaked,” or that the top rates should be confiscatory.   But in assembling a tax regime, it is one tool among many that accomplishes both budget and policy goals.

                 

                 

                Report

              • Avatar Roger in reply to Scrooge McDuck
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                says:

                The market rewards solving consumer’s problems. That is its foundation.

                You can’t measure whether the rewards are commensurate with the contributions as there is no standardized measure of utility. In free markets it is the sum of individual consumer (and middlemen) utilities that defines what the rewards will be. Consumers in effect vote with their purchases. Gates, Jobs, Buffett and Walton have gotten a hell of a lot of votes and have added a hell of a lot of value by solving innumerable problems for consumers.

                My point is that 7 billion people seem, on aggregate, to disagree with both Scrooge and Blaise on contributions of the wealthy. I trust the market’s evaluation.

                By the way, comparing net worth is silly, as a great deal of people can have negative net worth.Report

              • Avatar Snarky McSnarkSnark in reply to Roger
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                says:

                Comparing net worth is far from silly when one is talking about issues of “distributive justice.”

                For many people, the market seems a part of the natural order, its conclusions to to be tampered with.   But it is a part of society, and huge differentials of wealth, income and power are, I believe, corrosive to society.   So the market’s evaluation is, to me at least, as meaningful as the outdoor temperature:  it’s there, but I’m still going to turn on the heat when I’m cold.

                Tax policy should, I think, aim to pay for governmental operations with the least aggregate pain to society as a whole, while being consistent with its ethos and values.    And some degree of progressivity is present in virtually all tax codes in the developed world–and for good reason.

                On a tangentially-related note, Jonathan Haidt, the moral psychologist, talks about the “fairness” aspect of progressive taxing here.    It’s very interesting.Report

              • Avatar Roger in reply to Snarky McSnarkSnark
                Ignored
                says:

                Snarky,

                I’ve said repeatedly that progressive taxation makes total sense especially in a nonspiteful version of flat tax with a big exemption. So no argument there.

                When people can have negative net worth as a reasonable strategy as a part of their life plans, adding up the average of the lowest hundred million people is going to give you a silly number. It means little in this situation. It is probably even a good thing (that people are able to borrow more than they have saved). You are abusing the statistics.

                The market is not a part of the natural order though it is based upon a natural proclivity in humans to exchange. It is an institution developed within societies to allow people to specialize and exchange in a positive sum, win win way that creates unprecedented value and prosperity. When you interfere with market outcomes, you are interfering with the voice of the consumer. You are replacing the decentralized sovereignty of 7 billion consumers with your own centralized view of value. This is an act of immense potential hubris and should be done most carefully.Report

              • Avatar Snarky McSnarkSnark in reply to Snarky McSnarkSnark
                Ignored
                says:

                I don’t think we’re actually that far apart, but I would like to get one last shot in about “market fundamentalism.”

                The market is a terrificly efficient, dynamic, self-adjusting mechanism for allocating resources providing that the fundaments of a marketplace exist.  When there is competition, reasonably symmetrical information, free entry and exit into the market, no significant externalities, and a comprehensible product, yes markets work pretty well.

                But marketplaces are a measure primarily of desire and supply.    There are other human values that are just as important that are ignored by a market entirely.    The economic value and the social value of pornography, or happiness, or justice can be very different.

                And we have to insert our values where the market doesn’t.  To use an extreme case, there is no marketplace for murder or kidneys because we’ve decided that some things are not measured by economic value alone.

                I’m currently reading a semi-interesting book,  Monoculture: How One Story is Changing Everything (there’s some interesting ideas, but the prose style is kind of meh) that posits that the marketplace has become our dominant societal paradigm, in the same way that religion dominated the pre-Enlightment era, and science the post-Enlightenment ).    The market is nifty, but it ain’t everything.Report

              • Avatar BlaiseP in reply to Snarky McSnarkSnark
                Ignored
                says:

                Supply and Demand?   I think it’s mostly Fear and Greed, that’s been my observationReport

              • Avatar Roger in reply to Snarky McSnarkSnark
                Ignored
                says:

                Snarky,

                Sounds like a good one to add to my wish list.

                I agree markets need to be institutionalized to work by establishing property rights and conventions for entry, competition, transparency, etc.

                I also heartily agree that markets are not good at solving all human needs. They do not provide science, or public goods, for example.

                Markets are great problem solving systems for economic progress. Science is a great problem solving system for explaining natural phenomena. I think our real problem is that we have not yet evolved a great political problem solving system yet. I think our paradigms are wrong and dysfunctional on that front. On the other hand, maybe this is as good as it can get. I hope not.Report

              • Avatar Snarky McSnarkSnark in reply to Snarky McSnarkSnark
                Ignored
                says:

                Kumbaya, Roger.Report

              • Avatar BlaiseP in reply to Scrooge McDuck
                Ignored
                says:

                Well, to state it another way, let me paraphrase Willie Sutton:  I believe in progressive taxation because that’s where the money is.

                Even if we taxed every dollar out of the One Percenters it wouldn’t cover the bills.

                Well, some got rich from stocks, others from currency or commodity trading, and a substantial number from their daddy.

                No.   I’m talking about creating and running these joint stock corporations.  The names of these corporations are on people’s paychecks and customer invoices and packing slips.   True, you could manage to get wealthy investing in other people’s corporations, but there’s nothing like running your own.

                Yes, Blaise, they do.   I’m doing okay myself, and know full well that I pay my capital gains when I redeem it, not when I cycle it.  

                Speak for yourself about being a millionaire.   Anyone who leaves a million dollars in his own personal checking account is an idiot.   He’d at least have in in the money market.

                No need to repeat anything:  I understand fully well how progressive taxation works.   Tax sheltering is made possible by complex tax laws, not tax rates (although I grant you that higher tax rates provide greater incentive).    You believe what you believe, but I think you make your case a little too categorically.

                I see no need to parse the matter any finer.   The steeper the slope of progressive taxation, the more income sheltering we will observe   Remove the shelters and lower the slope.    I contend most of this Progressive Taxation is a sop to the populists and the Bush Era tax reductions a payoff to his backers.   If progressive taxes can be squared up with a trend toward more long term investment and less short term consumerism, I’d be all for it.   My numbers don’t show this to be true, but a proper model could prove me false.

                That is manifestly untrue:  the market rewards many things, including risk,

                Then it’s not manifestly untrue.

                but also including knowledge, skill, timing, and luck.   Bill Gates made his fortune with very little risk:  Warren Buffet with a greater degree.   John Grisham made his with skill,  and Kim Kardashian made hers with luck and brass.   So what?

                Someone took a risk on all these people.   Bill Gates used his mother’s connections to gain entree to IBM and they took a risk on him.   He took a risk demanding  a per processor license.   Warren Buffet, well, jeebus, he’s preaching my brand of risk:  low P/E, good earnings and the like.   Kim Kardashian will be broke before she’s grown a foot of hair.

                Those who complain about how money is made or how the rewards system works are living in a dreamworld.   Now I’m not going to lump you in with those folks but we live in the real world, where buying low and selling high is how real money gets made.  Risk.   Everything else, luck, skill, good looks, mad skilz doesn’t mean anything.   Absolutely nothing.

                I’m not saying that the wealthy should be “soaked,” or that the top rates should be confiscatory.  

                But you’re defending progressive taxation using Willie Sutton quotes.   Sorry, that made me laugh.Report

              • Avatar Snarky McSnarkSnark in reply to BlaiseP
                Ignored
                says:

                Well, honestly you seem a little too dug in.    You are distorting what I’m saying in order to rebut it.    I’ll bail here.Report

    • Avatar James K in reply to Morat20
      Ignored
      says:

      Generally capital gains taxes are lower because they’re easier to avoid.  If your tax rates are low enough that’s not a problem, but as rates rise the laffer curve becomes a problem for capital gains taxes sooner than for other income.Report

      • Avatar Morat20 in reply to James K
        Ignored
        says:

        And the proof of this…is?

        I hear lots about tax avoidance. I also hear IRS auditors are extremely effective investments by the US government, and that all those anonymous Swiss and Cayman bank accounts are a lot more mythical these days.

        You want to adjust gains for inflation? Eh, maybe. I’d like to see the numbers to see if it’s really worth it (I don’t get inflationary raises on my paycheck, I might note), and I don’t mind modest carve-outs to protect retirees (exempt the first 30 grand, for instance — but then again, people on SS pay taxes on their SS income…)

        But let’s face it — there’s no reason hedge fund managers (who aren’t risking a penny of their own money) get to pay 15% on their bonuses. Or that trust fund babies pay 15% on their million+ incomes….

        They’ve already GOT enough breaks in life. They don’t need to pay half the rate their garderners and maids pay.Report

        • Avatar Roger in reply to Morat20
          Ignored
          says:

          Morat

          We get your frustration. The numbers are around 4 percent inflation and around 7 or 8 percent long term capital gains. In other words, about half of capital gains is gone when adjusted for inflation.

          This could be corrected by an index corrected for inflation and then taxed at the same rate. This would put it at parity with wages taxation.

          By the way, I believe most bonus options are paid and taxed as wages. Please correct me someone if wrong.Report

          • Avatar Roger in reply to Roger
            Ignored
            says:

            Oh, and gardeners and maids don’t pay income taxes. The personal exemption is a great device to ensure fair yet progressive taxation.

            If we adjusted cap gains for inflation and taxed all income at a flat percentage with a very healthy personal exemption then we would have a fair, progressive system that only the well of paid.Report

            • Avatar Snarky McSnarkSnark in reply to Roger
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              says:

              As insipidly as it has been used, lately, I very much believe in the “skin in the game” notion of taxation.   So, rather than have an all-out large personal exemption, I want to see everyone with a positive income pay something in taxes.

              It’s our government.   We should all have to ante up for the benefits of society we all share.Report

              • Avatar Morat20 in reply to Snarky McSnarkSnark
                Ignored
                says:

                Who doesn’t? Even those lucky duckies too poor to pay federal income taxes still pay FICA taxes (if employed), and pay sales tax and other local/state taxes.

                They’re only not paying federal income taxes because they have no money left.

                EVERYONE pays taxes. But for some reason, the rich seem to pay pretty much the same rate as the ludicrously poor — but not for nearly as good a reason. (We tax the poor so little, at least ignoring sales taxes and whatnot, because it’s cheaper to let them buy their own food and shelter than take all their money and then turn around and give it to them).

                It does not make me think well for the future to see that the GOP candidates are currently competing to see who can drop taxes on the rich the most. It’s like I’ve travelled to an alternative universe where apparently the last 50 years of tax rates never happened.

                Even the Democrats step lightly when talking of taxes, restricting themselves to simply moving the upper bracket tax rates to what they were a decade ago. Bold moves there, guys. Why not roll it back to Reagan?

                Or, I dunno, take a look at the last 50 years and figure out what does and doesn’t work — but sitting here listening to the John Galts of the world scream about their high taxes (when those taxes have been on a downward trajectory for DECADES) and how they’ll all quit and the sky will fall if taxes every, god forbid, go up….(how their parents and grandparents forced themselves to work everyday in an era of 50 to 90% marginal tax rates on the top brackets is a mystery. And possibly another universe)…

                Americans have certain expectations about government. What it will do. And, like it or not, that’s about 20% or so of the GDP (depending on the economy). One party can’t DO the math and thinks you can give Americans what they want at half price — and the other party refuses to do the math, because they’ll be crucified at the polls.

                It’s not voting for bread and circuses that’s killing us. It’s a political party that told the masses they were free and you could cut taxes forevery and get more money for doing it.Report

              • Avatar wardsmith in reply to Morat20
                Ignored
                says:

                FICA is not a tax, at least that’s how it was sold to the public.

                As for the 50% and up crowd, this was before the era of Sub Chapter S corp membership. The tax reform acts during the Reagan administration reshuffled the deck. “Millionaire” filers numbered in the high hundreds back then, perhaps a few thousand. Furthermore the creeping trend of inflation which added millions of taxpayers to an AMT that originally was written to net about 100 tax-avoiders. Remember, what they were doing at the time was not illegal whatsoever, they were merely investing in municipal bonds and other vehicles that gave them income of the “unearned” variety. I’ve been filing AMT’s for over a decade now, even in years like this one when my actual income from dividends and interest is only $50K. Since I don’t work for a paycheck, that is ALL of my income.Report

              • Avatar Morat20 in reply to wardsmith
                Ignored
                says:

                How are you qualifying for the AMT with 50k in income? I call shenanigans.

                Although you’re perfectly right that the AMT needs to be permanently fixed.

                And yes, FICA is a tax — it’s 13% of your paycheck, out the door. Furthermore, it’s a regressive one because it caps off at 120k or so. I understand the reasons for that cap, but pretending the poor don’t pay taxes when the Federal Government grabs the first 13% they owe is just BS.

                Worse yet, the bulk of “social” spending — the stuff conservatives like to scream about — is for Medicare and Social Security. The GOP has a narrative about the poor, and it is inherently contradictory. They don’t pay taxes and suck down welfare money! They should get a job!

                And the 13% the government takes off their job and gives back to them when they’re old DOESN’T COUNT as taxes! But it sure counts as welfare!

                It’s a neat system. I miss the OLD GOP. Way back before the Gipper.

                But hey, it’s not like they’re an outlier. The banks all went crazy too. I miss the old style bankers. Sober people in suits, looking for steady long term returns and using actuarial tables — instead of playing speculative games and betting on math that only string theoreists could understand, but could be summed up as “GOOD TIMES FOREVER!”.

                My only solace is that I can blame the previous generation. I’ve got like 20 years before it’s my generation’s fault. 🙂Report

              • Avatar wardsmith in reply to Morat20
                Ignored
                says:

                Morat, you posted a good comment. However although there is much to agree with, you’re still wrong that FICA is a tax. Not your fault for thinking that (and I’m sure about 100 million Americans agree with you), but it is as Jaybird says below, a “contribution”, said contribution being to your future retirement account that you (the royal you, not you personally) are too stupid to save for. That’s really what Social Security was envisioned to be, an insurance plan that Americans could count on. During the Johnson administration it was robbed and replaced by IOU’s, munging the rest of the budget into indecypherability, where it remains to this day. Even the $16Trillion total debt the government owes (coincidentally similar to this number) is dwarfed by the REAL number it would be if money owed to SS future payments were properly accounted for.

                So is FICA a tax? Absolutely not, and while the regressive poor will complain vociferously about paying contributing to it, statistically they will receive many times their contributions in paychecks over their lifetimes, said payments coming via contributions from others.Report

              • Avatar Jaybird in reply to wardsmith
                Ignored
                says:

                When I was growing up, it wasn’t a tax but a “contribution”. This distinction was, apparently, very, very important.Report

              • Avatar Plinko in reply to wardsmith
                Ignored
                says:

                He has to fill the form, not necessarily pay the tax, just another complication of our fun, fun tax structure.

                On the other hand, ward, I can’t say it’s genuine to argue that political spin has the power to make things a tax or not a tax for reals.Report

    • Avatar Brandon Berg in reply to Morat20
      Ignored
      says:

      Should capital gains be taxed at a different rate from income?

      Steven Landsburg had an interesting argument for this. Suppose you work really hard one year, and make a million dollars. Then you want to put it all in the bank and live off the savings. If we had no taxes, and you could earn 10% interest, your income would be $100,000 per year.

      Now suppose we have a 30% tax on both wages and interest. So there’s $300,000 gone right there, and you can only put $700,000 in the bank. Which means you only make $70,000 per year in interest, before taxes.

      See what happened there? By taxing the principal at 30% when it was earned, the government has already diminished the amount of interest you earn by 30%. When we factor in the 30% tax on interest, your interest income is fully 51% less than it would have been under a zero-tax regime.

      Since investment income is already diminished by taxing the principal when it’s earned, then there’s a pretty good argument to be made that investment income shouldn’t be taxed at all.

      There are also macroeconomic arguments related to elasticities, but I’m not familiar enough with them to explain them myself.Report

      • Avatar Plinko in reply to Brandon Berg
        Ignored
        says:

        I think that’s a very weak argument – what about it applies to interest income that does not also apply to every other form of economic activity?Report

        • Avatar Brandon Berg in reply to Plinko
          Ignored
          says:

          Because it’s an additional effect above and beyond everything that happens to other types of income, because the principal is ultimately derived from wages or other non-capital income.

          Actually, now that I think about it, I’m not entirely sure that something comparable happens to wage income at all. Could you elaborate with an example like the one I gave?Report

  8. Avatar James Hanley
    Ignored
    says:

    Think of all those tax accountants who will be freed up to apply their intellects to more positive-sum activities.

    Think of all the jobs lost!  (*grin*)

    Nice post, James.  You made me realize I knew a bit more about tax policy than I thought I did.  It’s always been an area I was afraid to tread into.  I found your distinction between tax magnitude and tax policy particularly helpful.Report

    • Avatar James K in reply to James Hanley
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      says:

      I found your distinction between tax magnitude and tax policy particularly helpful.

      I honestly think that the breakdown of this distinction in the minds of voters, and by extension in politics is the biggest threat out there to the long-term stability of governments in the western world.Report

  9. Avatar James Hanley
    Ignored
    says:

    P.S., in reference to your comments about tax incidence and corporate taxes.  In Michigan we’ve long had corporate tax rates that were not only high, but badly designed for making compliance simple.  We’ve just recently made a change to the following (source).

    The new Corporate Income Tax rate of 6% will take effect on January 1, 2012 and will apply only to companies that hold the status of “C Corporation.” S-Corporations, partnerships, LLCs, and individuals that were previously required to file the Michigan Business Tax (MBT) return will not be taxed nor require filing under the new Corporate Income Tax. Also, many of the deductions, credits and exemptions allowed under the MBT will no longer be available under the new tax code.

    This is a dramatic simplification of our business tax code.  We’ll see how it plays out in terms of revenue and economic encouragement over the next few years.Report

  10. Avatar North
    Ignored
    says:

    Apropos of nothing I’m surprised Koz hasn’t popped up in this thread. Tax policy was always a pet subject of his.Report

  11. Avatar wardsmith
    Ignored
    says:

    That’s very much the point here though, isn’t it?  We reduced tax rates on upper tiers of income because it was thought that it was both unfair to take so much of what the rich had “earned” and because it was thought that the self-interest of the rich would cause them to apply all that newly un-taxed income in ways that would end up being a net positive for society as a whole.  I don’t feel either is true. 

    @John, the Laffer curve worked, up to a point. The further tweaking and tuning hasn’t for the simple reason that there isn’t that much area left under the curve. The statistics stand for themselves, we have 50% of the adult population who don’t pay a penny in federal taxes. Not taxing the rich was NEVER about being fair, it was about freeing the animal spirits of capitalism. Unfortunately in an era of vast uncertainty the rich would rather hoard than invest. If you were rich it would make perfect sense. What investors like is some semblance of determinism in a world of unknowns. It is complicated enough to run a business (please reread all of David Ryan’s posts concerning his tiny company) with the rules and regulations increasing exponentially as the size increases. Not only do owners have to worry about current rules and regs, they have to worry about future ones. At some point the worry gets to be too much and the owner says, “Fish it!” and takes his marbles out of the game.Report

    • Avatar Just John in reply to wardsmith
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      says:

      Can’t see much to disagree with here, but several months ago I read in Yglesias or Smith (I think – not sure where I read it) that Greg Mankiw said that even though raising top marginal tax rates would be more optimal economically he was against it because it’s unfair.Report

    • Avatar Morat20 in reply to wardsmith
      Ignored
      says:

      Betcha they don’t. And if they do, so what? Capitalism, matey. Someone else takes up the investment.

      That’s how it works, isn’t it? Risk and reward? Can’t stand the risk, step aside and let someone else do it?

      Why is it that all this uncertainty is fine and dandy for the market (starting a new business is risky! Investment is risky! But don’t worry, invisible hand!) but somehow taxation and governments are EXTRA risky? Some sort of special risk?

      Except, you know, they’re NOT. People invested 50 years ago. 40. 30. 20. 10. Now. Tax rates, regulatory burdens — they’ve seesawed all around since the Great Depression. Up, down, worse, better, more, less…

      And yet there’s never been an actual Going Galt movement. Why now? Are today’s would-be Galt’s just extra special that way?Report

    • Avatar Liberty60 in reply to wardsmith
      Ignored
      says:

      At some point the worry gets to be too much and the owner says, “Fish it!” and takes his marbles out of the game.

      I am entering this in Snopes as an urban legend. Where is this happening? When has it ever happened? Where would these rich folk go with their marbles?

       Report

      • Avatar Jaybird in reply to Liberty60
        Ignored
        says:

        Would people who drop out of running their own business and get a desk job at Global Conglomerate count? I know a handful of folks who did that.Report

      • Avatar James K in reply to Liberty60
        Ignored
        says:

        It’s never that stark, all the action happens at the margins.  Slightly higher taxes won’t turn a great project into a loser, but there are always projects that are only just worth it, a business that is only making just enough profit to justify the capital put into it.  Profitability is a spectrum, and increasing taxes gets rid of the investment opportunities that were just on the right side of the abyss.Report

  12. Avatar Plinko
    Ignored
    says:

    I don’t feel up into getting into the weeds of the earlier comments tonight, but I wanted to say this was a great post, James.

    The blognado has been great so far!Report

  13. Avatar Gene Callahan
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    says:

    “For example, corporate taxes could be paid in three ways: the shareholders could accept lower dividends (in which case the owners are bearing the incidence), the company’s employees could end up receiving lower wages over time (this would be the workers bearing the incidence), or the corporation could raise prices (the consumers are bearing the incidence). ”

    You missed one: a corporations suppliers could accept lower prices.Report

  14. Avatar wardsmith
    Ignored
    says:

    @North, responding to your post up above, There was a LOT more to the “good times” of the 90’s than raising taxes and lowering spending. Let’s count the ways shall we?

    1. Peace dividend – The Cold War was won and under Bush I and continuing under Clinton we had drastically reduced military forces, spending and base closures. These equated (in the economics sense) into vastly more money available for civilian purposes which brought us to
    2. Equity dividend – All that new money sloshing around the system began to find its way into ventures that had funny names like Netscape, Pets.com, Napster, Yahoo, Amazon and others. Spectacular successes and spectacular failures, which brought us to
    3. Tax dividend – All those newly minted millionaires (and I was one of them) got to pay extraordinary taxes into a system that hadn’t seen us before. The coffers were swollen and the new majority thought the good times would go on forever, which brought us to
    4. Dot Bomb – Too much money chasing too few deals and an IPO track that allowed total garbage into a system not designed to peruse P/E ratios that were undefined (because you can’t divide by zero). 9 Trillion dollars evaporated, just in time to elect Bush II into what should have been a multi-year recession.

    The Republican Congress with their “Contract with America” attempted (and succeeded) at passing a balanced budget. The much ballyhoo’d “surplus” was only a budgetary phenomenon and was mythical at best, misleading at worst.  This article is a good read, because while we’re looking around for mythical time machines, it is important to understand the gestalt of the period in question, “live” as it were.Report

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