Daily Archives: 01/08/2013

People are missing the point on taxes


I recently had a contest asking commenters to find an article or blog post on the fiscal cliff deal that did not contain factual errors regarding the change in tax rates.  No one succeeded, even my own blog post contained errors.  And so does the David Henderson post that I’m about to comment on, although it’s far better than most.  I sometimes have the feeling that the press doesn’t even care what the truth is.  I also think people are being far too kind to the Congress.  This is a terrible bill, and should be roundly ridiculed and mocked.  Consider the following analogy:

Suppose Congress declared April 15th to be “handheld calculator regression day.”  All Americans had to go to a public building and sit there all day doing complex regression analysis using simple hand held calculators, for no reason art all (I did regressions like this in the 1970s, BTW.)  Obviously there’d be outrage.  Now consider a recent post by David, who defends the bill as the best the GOP could have gotten:

Most of the criticisms that Scott Sumner and Steven Landsburg make are ones I share. So I’m not judging the tax bill to be good. Viewed in a political vacuum, it sucks. Viewed in the world we’re in, it’s actually a pretty good bill.  .  .  .

Think about the context. Republicans, who, since 1981 have been the anti-tax-increase party, hold only the House of Representatives. The President, who is very hostile to high-income people and very strongly in favor of double-taxing savings, was just re-elected. The Democrats hold the Senate.

Had the Republicans held out for anything like the reforms that Sumner and Landsburg wanted, the bill would have been Dead on Arrival in Harry Reid’s Senate.

Maybe I’m reading between the lines, but I wonder if David assumes that I view the GOP as the good guys, and the only question is whether they were able to hold back the evil Dems, who favor much higher taxes.  In fact, I see the GOP and the Dems as both favoring big government, both being the bad guys.  Recall that when the GOP took all three branches of government for the first time in my lifetime (in 2001) they went on an orgy of spending, after 8 years of pretty reasonable fiscal policy under Clinton.

Now let’s examine my criticism of the phase-outs.  These require taxpayers to do all sorts of complex mathematical calculations for no reason at all.  It’s just busywork.  These don’t bring in more revenue than you’d get from slightly higher MTRs, and they don’t affect the progressivity of the tax code.  Suppose the phaseouts bring in $100 billion.  Is David suggesting that Obama would not have accepted the following deal from the GOP:

“Mr. President, your proposed phaseouts bring in $100 billion from the people in the $250,000 to $400,000 income range.  We propose instead that the MTRs on that group rise from 33% to 35.7% (or whatever is needed.)  This increase would make the tax system far simpler, bring in equal revenue, and be just as progressive.”

Is David saying Obama will refuse that deal?  Indeed Obama is just as guilty as the GOP, for not proposing it.  Why didn’t it happen?  Perhaps the GOP was concerned with public relations.  Maybe they wanted to hide the fact that they were caving in to Obama and signing off on raising taxes on everyone making over $250,000 per year, and all the know-nothings in the press and blogosphere played along, parroting the GOP lies.

The marriage penalty was another big issue I raised.  I don’t recall hearing a single GOP Congressman complaining that Obama was actually increasing the marriage penalty.  It would have been great PR to tell the public that Obama’s bill would result in the government paying people thousands of dollars to get divorced and live in sin.  They could talk about how men living with their mistresses would pay much lower taxes than men living with their wives (if the women also worked.)  They could propose a revenue neutral fix.  Let’s be honest, the GOP silence on this issue shows they favor the marriage penalty.

I also discussed the higher MTRs.  As I noted in my post, I think you could argue that the upper middle class and rich should pay rather high MTRs on their wage income.  At least as long as we have government spending at these levels.  And as I said, the GOP favors big government, indeed they increased the size of Medicare, federal aid to education and homeland defense under Bush.  They want an even more bloated military, agricultural price supports, space program. etc.  What the GOP doesn’t realize is that these things have to be paid for.

But let’s accept David’s premise, and see if the GOP could have done better in holding down MTRs.  I claimed that their big mistake was made in 2011, when they might have latched on to Schumer and Pelosi’s proposal to just raise taxes for those making over a million dollars a year, and make the other tax cuts permanent.  Obama wanted a deal to cement his re-election.  But they never tried.  They refused to even discuss any tax increase at all.

A bit later I suggested the GOP would lose the 2012 election and end up with a far worse deal from their perspective, which is what happened.  So on the basic question of size of government, the GOP blew it in 2011, n0t 2013.  I certainly agree with David that the size of the tax increase in dollar terms is about the smallest the GOP could have gotten in 2013.  My criticism lay elsewhere.

We let our politicians get away with murder, partly because taxes are so complex.  If the public understood that there was absolutely no reason for the complexity, that it was just make-work so Congressmen could hide the extent to which they raised taxes, there would be outrage.  Or at least there’d be outrage in a country with high civic virtue like Denmark, maybe not Greece or Pakistan.  I don’t like where America is headed.

Someone in my department just got divorced and likes to point out that his taxes will fall by more than $10,000, and yet he still lives with his “wife.”  Is that fair?  BTW, I like him and applaud his decision, but he shouldn’t have to go that far.  What a sad, pathetic tax code we’ve constructed, and it doesn’t have to be that way.  In Sweden they tax individuals, and simply send you the bill.  No forms to fill out.  No estate tax.  We should demand no less.

PS.  My foaming at the mouth anger is directed at Congress and the press, not David, who I like a lot.

PPS. The funniest comment after my contest was this from Ben J:

Struggling to find any examples of the actual effective rates. Finally found a website with a collection of people talking about rates. I noticed someone mentioned the real capital gains tax rate of 23.8%…

…and they were quoting S.Sumner, Bentley University.


God help us if they are looking to me for expertise on taxes!  Later I found out that the top capital gains rate would be higher than 23.8%, so even I was in error.

People are missing the point on taxes
Sat, 05 Jan 2013 03:24:45 GMT