Bill turned me on to Newt Gingrich's piece on middle-class tax cuts in yesterday's Wall Street Journal. Bill also correctly pointed out that Gingrich proposes no mechanism to pay for his proposal of a massive middle class tax cut. This may be an attempt to find common ground with the Obama administration, but Gingrich can't avoid harping on the same pet peeves that pushed him into the political mainstream once upon a time, and which are woefully out-of-step with American political culture now.
First, Gingrich criticizes tax credits as welfare. He's right, in that they are federal give-aways rather than tax breaks directly tied to work, but if he wants to keep welfare as his favorite political punching bag, he'd better stick to fictitious welfare queens, because if he starts telling the American people that recipients of tax credits are the lazy enemies of a successful economy, he'll be in trouble. The child tax credit is wildly popular, and not just with "welfare queens". That full-time single mom who is also a half-time student uses that credit to keep her children clothed and fed until she can enter the workforce in a more profitable and productive position, and the child tax credit, like the deduction for childcare expenses and the deduction for her tuition, produces a net gain for us all if she finishes school and works as a para-legal or a nurse's assistant or a dental tech. A simple cut to the lowest tax rate would mean she'd keep more of her paycheck from her job at McDonald's, but she'd also need to stay there, and that's a net loss for all of us.
Second, Gingrich falls back on this tried-and-true conservative myth: liberals want the rich to pay what he dubs "hate rates" because the rich "are too productive, work too hard, and earn too much." Gingrich, it seems, does not have a 401K, or he might have noticed that the rich haven't been to productive recently. As to the notion that the rich work too hard, I think that's a pretty tough sell, too. Would he seriously claim that Paris Hilton works harder than the employee behind the counter at one of her family's hotels? Does Gingrich expect us to believe in the vaunted work ethic of the extremely wealthy when our exposure to them consist of shows like The Hills? Certainly there are wealthy people who put in ridiculous hours at stressful jobs, and though they might not sweat as much as their poorer counterparts, they probably have the ulcers to show for their work, but if Gingrich thinks he can push public policy by feeding off sympathy for the wealthy, especially during an economic downturn, he'd better enjoy the scenery in the political wilderness. And liberals do not think the wealthy should pay higher taxes because they "earn too much", but because they need too little. Stealing from the rich is morally dubious, but hoarding while others suffer is universally recognized as immoral behavior. The wealthy recognize this moral imperative, too. That's why they voted for Obama this time around.
So Gingrich's brand of conservatism:
-provides no mechanism to pay for itself, so it's not fiscally responsible. Strike 1.
-maintains its attitude that the poor are morally inferior, but ropes in the middle class folks who like their child-tax credits. Strike 2.
-predicates itself on the belief that the wealthy are better, better, and better than the rest of us, a notion which doesn't even appeal to the wealthy. Strike 3.
I'm not a baseball fan. Perhaps someone can explain some political version of the infield fly rule which explains how this view of taxation gets conservatives on base?
Showing posts with label taxation. Show all posts
Showing posts with label taxation. Show all posts
Friday, November 21, 2008
Saturday, September 20, 2008
A Rant about Taxation
Someone on a list serve sent me the following email, asking how to respond to a Republican friend who preaches lower taxes for the wealthy. The forward got my blood boiling, so I weighed in, and I thought I’d share the original forward and my response here.
Here’s the original forward:
“TAX CUTS EXPLAINED:
Because it's the election season, let's put tax cuts in terms everyone can understand. [Way to start out with condescension from the get-go, eh?]
Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:
The first four men (the poorest) would pay nothing.
The fifth man would pay $1.
The sixth man would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.
So, that's what they decided to do.
The ten men drank in the bar every day and seemed quite happy with the arrangement until one day the owner threw them a curved ball (or is that a curved beer!).
'Because you are all such good customers,' he said, 'I'm going to reduce the cost of your daily beer by $20.'
Drinks for the ten now cost just $80.
The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free. But what about the other six men ??[sic] the paying customers? How could they divide the $20 windfall so that everyone would get his 'fair share?'
They realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being paid to
drink his beer.
So, the bar owner suggested that it would be fair to reduce each man's bill b y roughly the same amount, and he proceeded to work out the amounts each should pay. And so:
The fifth man, like the first four, now paid nothing (100% savings).
The sixth man now paid $2 instead of $3 (33% savings).
The seventh man now paid $5 instead of $7 (28% savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).
Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant the men began to compare their savings.
'I only got a dollar out of the $20,' declared the sixth man. He pointed to the tenth man, 'but he got $10!'
'Yeah, that's right,' exclaimed the fifth man. 'I only saved a dollar too. It's unfair that he got ten times more than me!'
'That's true!!' shouted the seventh man.
'Why should he get $10 back when I got only two? The wealthy get all the breaks!'
'Wait a minute,' yelled the first four men in unison. 'We didn't get anything at all. The
system exploits the poor!'
The nine men surrounded the tenth man and beat him up.
The next night the tenth man didn't show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something
important. They didn't have enough money between all of them for even half of the bill!
And that, boys and girls, journalists and college professors, is how our Tax System works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy and they just may not sho w up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.
David R Kamerschen, Ph.D.
Professor of Economics
University of Georgia
[and, because the intro wasn’t insulting enough, it ends with this flourish]
For those who understand, no explanation is needed.
For those who do not understand, no explanation is possible.”
This first thing I did when I read this was to google the Ph.D. who is credited with this deceptive story. It seems there is a David R Kamerschen, Ph.D. who teaches econ at the U. of G., but, of course, he may not have written this. For his sake, and for the sake of the institution where he teaches, I sincerely hope not.
The story shows a fundamental misunderstanding of what taxes are and what they pay for.
It's true that the poor pay less, but they receive less. Taxes don't go to beer. They go to things like police and firefighters and public schools. A policeman defends all homes from, for example, theft, so the wealthy person is receiving protection for far more valuable goods than the poor person. Likewise the firefighter, who is protecting a lot more property when he/she puts out the fire in the wealthy person's home than when putting out a fire in a poor person's home. The same even goes for public schools: the education may be the same for the child of a wealthy person or a poor person (or, at least, it would be if we had a more equitable system) but the wealthy person not only receives an education for his/her child, but a more educated workforce at his or her company, a benefit which the poor person doesn't experience. Also, the values of the expensive property of the wealthy person are related to the quality of the schools, just like the crime rate. Any of you who have crummy schools and have seen a decline in the value of homes in the area know this to be true. So, an economic professor might think we get beer for our tax money, but I'm not sure what country has such a system. I expect services, and the wealthy do benefit more, so they should pay more.
People like Bill Gates Sr. have said as much when they advocate for keeping the estate tax: they know how they've benefited, and that a more equitable system, even one that costs them more in taxes, benefits them even more in services. Bill Gates Sr. wrote: "The estate tax — our nation’s only levy on accumulated wealth — is the fairest and most important tax we have.
"It puts a brake on the concentration of wealth and power, generates substantial revenue from those most able to pay and encourages billions of dollars in charitable giving each year. The estate tax is not only fair but an essential component of our nation’s economic dynamism.
"Without our society’s substantial investments in taxpayer-funded research, technology, education and infrastructure, the wealth of the Forbes 400 richest Americans would not be so robust."
And as to the spurious argument that the ultra-wealthy will leave the U.S. for a country where high taxes and a strong government do not protect their wealth: show me the wealthy person who has decided to invest all his money in countries with low taxes and no stable banking system or protections of personal property, and I'll show you someone who may become very poor very quickly then they government falls or decides to seize his assets without cause. There's a reason a country like the U.S., which taxes the wealthy more than the poor, has the largest GDP in the world, and there's a reason why the economy slips when McCain, Bush, and the other acolytes of anti-tax activists gain power and try to do away with the very regulations that protect us all, wealthy and poor alike.
[I wrote that last bit on September 16th. This is not to say that I have some unusual powers of prognostication when it comes to the markets, but I think any economics professor worth his/her salt would concede that deregulation has shown its darker side quite vividly in the five days since.]
The next day I thought of another example as I fumed about the guy's perverted parable: Imagine that you have a hundred dollars in a bank, and somebody comes along with a hundred million and wants to open an account. The bank decides it will have to build a new, two million dollar high-tech vault to keep all that money safe. A conservative tax scheme would dictate that the most fair way to divide that cost would be for both you and the multi-millionaire to pay an even million each for that protection.
I think, when reduced to that oversimplification, it's easy for anybody to see that fair isn't always equal and equal isn't always fair.
Here’s the original forward:
“TAX CUTS EXPLAINED:
Because it's the election season, let's put tax cuts in terms everyone can understand. [Way to start out with condescension from the get-go, eh?]
Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:
The first four men (the poorest) would pay nothing.
The fifth man would pay $1.
The sixth man would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.
So, that's what they decided to do.
The ten men drank in the bar every day and seemed quite happy with the arrangement until one day the owner threw them a curved ball (or is that a curved beer!).
'Because you are all such good customers,' he said, 'I'm going to reduce the cost of your daily beer by $20.'
Drinks for the ten now cost just $80.
The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free. But what about the other six men ??[sic] the paying customers? How could they divide the $20 windfall so that everyone would get his 'fair share?'
They realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being paid to
drink his beer.
So, the bar owner suggested that it would be fair to reduce each man's bill b y roughly the same amount, and he proceeded to work out the amounts each should pay. And so:
The fifth man, like the first four, now paid nothing (100% savings).
The sixth man now paid $2 instead of $3 (33% savings).
The seventh man now paid $5 instead of $7 (28% savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).
Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant the men began to compare their savings.
'I only got a dollar out of the $20,' declared the sixth man. He pointed to the tenth man, 'but he got $10!'
'Yeah, that's right,' exclaimed the fifth man. 'I only saved a dollar too. It's unfair that he got ten times more than me!'
'That's true!!' shouted the seventh man.
'Why should he get $10 back when I got only two? The wealthy get all the breaks!'
'Wait a minute,' yelled the first four men in unison. 'We didn't get anything at all. The
system exploits the poor!'
The nine men surrounded the tenth man and beat him up.
The next night the tenth man didn't show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something
important. They didn't have enough money between all of them for even half of the bill!
And that, boys and girls, journalists and college professors, is how our Tax System works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy and they just may not sho w up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.
David R Kamerschen, Ph.D.
Professor of Economics
University of Georgia
[and, because the intro wasn’t insulting enough, it ends with this flourish]
For those who understand, no explanation is needed.
For those who do not understand, no explanation is possible.”
This first thing I did when I read this was to google the Ph.D. who is credited with this deceptive story. It seems there is a David R Kamerschen, Ph.D. who teaches econ at the U. of G., but, of course, he may not have written this. For his sake, and for the sake of the institution where he teaches, I sincerely hope not.
The story shows a fundamental misunderstanding of what taxes are and what they pay for.
It's true that the poor pay less, but they receive less. Taxes don't go to beer. They go to things like police and firefighters and public schools. A policeman defends all homes from, for example, theft, so the wealthy person is receiving protection for far more valuable goods than the poor person. Likewise the firefighter, who is protecting a lot more property when he/she puts out the fire in the wealthy person's home than when putting out a fire in a poor person's home. The same even goes for public schools: the education may be the same for the child of a wealthy person or a poor person (or, at least, it would be if we had a more equitable system) but the wealthy person not only receives an education for his/her child, but a more educated workforce at his or her company, a benefit which the poor person doesn't experience. Also, the values of the expensive property of the wealthy person are related to the quality of the schools, just like the crime rate. Any of you who have crummy schools and have seen a decline in the value of homes in the area know this to be true. So, an economic professor might think we get beer for our tax money, but I'm not sure what country has such a system. I expect services, and the wealthy do benefit more, so they should pay more.
People like Bill Gates Sr. have said as much when they advocate for keeping the estate tax: they know how they've benefited, and that a more equitable system, even one that costs them more in taxes, benefits them even more in services. Bill Gates Sr. wrote: "The estate tax — our nation’s only levy on accumulated wealth — is the fairest and most important tax we have.
"It puts a brake on the concentration of wealth and power, generates substantial revenue from those most able to pay and encourages billions of dollars in charitable giving each year. The estate tax is not only fair but an essential component of our nation’s economic dynamism.
"Without our society’s substantial investments in taxpayer-funded research, technology, education and infrastructure, the wealth of the Forbes 400 richest Americans would not be so robust."
And as to the spurious argument that the ultra-wealthy will leave the U.S. for a country where high taxes and a strong government do not protect their wealth: show me the wealthy person who has decided to invest all his money in countries with low taxes and no stable banking system or protections of personal property, and I'll show you someone who may become very poor very quickly then they government falls or decides to seize his assets without cause. There's a reason a country like the U.S., which taxes the wealthy more than the poor, has the largest GDP in the world, and there's a reason why the economy slips when McCain, Bush, and the other acolytes of anti-tax activists gain power and try to do away with the very regulations that protect us all, wealthy and poor alike.
[I wrote that last bit on September 16th. This is not to say that I have some unusual powers of prognostication when it comes to the markets, but I think any economics professor worth his/her salt would concede that deregulation has shown its darker side quite vividly in the five days since.]
The next day I thought of another example as I fumed about the guy's perverted parable: Imagine that you have a hundred dollars in a bank, and somebody comes along with a hundred million and wants to open an account. The bank decides it will have to build a new, two million dollar high-tech vault to keep all that money safe. A conservative tax scheme would dictate that the most fair way to divide that cost would be for both you and the multi-millionaire to pay an even million each for that protection.
I think, when reduced to that oversimplification, it's easy for anybody to see that fair isn't always equal and equal isn't always fair.
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