October 19, 2003
FROM LOSERMAN TO TAXMAN ISN'T EXACTLY PROGRESS:
Taxman and Robin (E.J. Dionne Jr., October 17, 2003, Washington Post)
How does it feel for cautious, moderate, mild-mannered Joe Lieberman to find himself suddenly compared to Robin Hood? [...]What Lieberman proposed is a version of tax reform aimed at shifting the burden toward the wealthy -- exactly the people who have benefited the most from President Bush's program -- and away from poor and middle-class taxpayers. [...]
For married couples with taxable incomes of $56,800 or less, the 15 percent income tax rate would fall to 12.5 percent. For incomes between $56,800 and $114,650, the rate would drop from 25 percent to 22.5 percent. The rate reductions kick in for single taxpayers at roughly half those amounts.
Lieberman estimates that a married couple earning $50,000 a year could save as much as $1,000 from his plan; at double that income, the savings would roughly double.
For poorer Americans, he would fix the earned-income tax credit, the program that raises the incomes of the working poor, by eliminating biases in its rules against married people and larger families. Score one for pro-family progressivism.
But Lieberman then turns around and restores part of the inheritance tax that is in the process of being repealed. He gets rid of Bush's dividend tax cut, raises the top rate back to 39.6 percent and applies it to married couples earning $150,000 or more. And -- here's the Robin Hood part -- he levies a 5 percent surtax on families with incomes of over $250,000. (Interestingly, Lieberman keeps the capital gains tax cuts because he thinks they promote growth.)
Because all these numbers are based on taxable rather than gross income -- and because higher-income taxpayers would derive some benefit from Lieberman's rate cuts -- his staff reckons that all Americans earning less than $200,000 a year would benefit from his plan. Lieberman estimates that netting out the cuts and increases, the plan would yield between $600 billion and $700 billion in additional tax revenue over the next decade.
There's much to argue about here, and we'll get to that. But at least Lieberman has joined Rep. Richard A. Gephardt in competing for the bold ideas award.
Setting aside for a moment both the Marxist interpretation of Robin Hood and the question of whether taxing the rich is good policy, what matters here is this: no bold political idea is that hard to explain and process. When Ronald Reagan ran on tax cuts he proposed cutting rates by 30%. That's pretty easy to grasp anyway, but what came through was just the idea that he'd cut taxes. When George W. Bush ran on cutting taxes, his plan was way too convoluted, but the message was easy: he'll cut taxes. Joe Lieberman is saying that he'll raise taxes but that he'll shift the burden around, which means folks are both going to hear an initial message that scares them and have to know the specific details about the plan. That seems dubious politics. Posted by Orrin Judd at October 19, 2003 5:50 PM
The principal goals of the 1986 Reagan tax cuts were to cut the marginal tax rate and to eliminate many deductions. The elimination of deductions is one of the reasons why tax revenues increased after adoption. It simply didn't pencil out to hire tax lawyers and accountants to creatively employ deductions to reduce taxable income. Lieberman's complex proposal, by focusing on taxable income, is a lawyer-and-accountant full employment act. Given that Lieberman is from Connecticut, and thus close to Wall Street and financial service interests, this should come as no surprise.
I'm sure that Mr. Dionne is pleased that he can figure out Lieberman's proposal. He of course is smarter than the average bear. For the average hypothetical $50,000 earner cited in his column, however, my hunch is that it will cost about a grand to hire an accountant to figure out how to capture that asserted $1000 tax savings. That's probably cool for Lieberman and Dionne because that expenditure will go to lawyers and accountants (other smart people). But I doubt it will actually benefit the $50,000 working stiff.
Fred Jacobsen
San Francisco
Assuming that one accepts that taxes must be collected, and that gov't services are necessary or desirable, it DOES make sense to tax the rich. They benefit most from gov't services, and from a vigorous consumer society.
Of course, there is some point at which it becomes immoral to pile on the most wealthy, but until payroll taxes are eliminated, I remain unconvinced that we're anywhere near that point.
Michael-
Of course taxes are required in order for government to function. Some government "services" are required, not all. When gov't acts as if it's function is to provide "distributive justice" or "economic equality" you've got a problem. It begins to assume "market failures" which mainly exist in the imagination. Government begins to develop interests of its own which many times are in direct conflict with the common good.Government is assumed, within the American constitutional scheme, to have the potential for abuse evolving into bald tyranny. Jefferson's quote noting the need to "bind government to chains of the constitution" was not just a rhetorical device but the only alternative to the historical reality that unbounded, unlimited government soon chains its subjects.
Posted by: Tom C., Stamford,Ct. at October 20, 2003 10:16 AMMr. Herdegen;
Why not a flat tax, then? Then if someone makes ten times as much as you do, he pays ten times as much tax. Is that not sufficiently burdensome on the wealthy?
What would be bold is to eliminate all income tax on working and middle class Americans and keep income tax only for the top income earners - which is what the income tax was originally supposed to be for. Any revenue shortfall could be made up by a tax on gas and/or foreign oil and tie it into the Terror War.
I agree with OJ that in terms of politics bold ideas must be easy to explain. Policy minutiae doesn't excite people, and any laws that exist should be easy enough for people to understand in the first place.
Posted by: Chris Durnell at October 20, 2003 1:30 PM"What would be bold is to eliminate all income tax on working and middle class Americans and keep income tax only for the top income earners..."
Translation: tax somebody else, not me. And by the way, top income earners are often among the hardest working Americans.
The political problem is that voters don't believe the "tax somebody else" message. Those silly voters usually figure it's them that's gonna get taxed. Those silly voters are usually correct.
Posted by: Casey Abell at October 20, 2003 3:38 PMIndeed, Casey, and furthermore the rich already do pay the lion's share of the taxes. I'm too lazy to go look it up, but just recently someone reported that the top income earners (over $200k) pay 40% of the entire income tax revenue, but number 7% (or less) of the population. Ah, heck, better treat both percentages as approximations here, but what I've written is definitely in the ballpark.
Posted by: Kirk Parker at October 21, 2003 12:53 AMTom C.:
Your post, and I assume your irritation, is directed at SPENDING, and not TAXATION. I agree that spending could be curbed. I wish that the line-item veto had been found to be Constitutional.
AOG:
I could, in principle, support a flat tax, assuming a generous exclusion. However, flat doesn't necessarily mean simple. Most of the complexity in the current tax code is over what is taxable, what is deductible, and under what conditions. Unless ALL deductions are eliminated, you'll still have a complex code.
The Alternative Minimum Tax was in part designed to ensure that the "rich" DID pay twice, thrice, or more, what the middle class did. However, due to malice or stupidity, the AMT was not inflation-indexed, leading to much current suffering.
It's also entirely possible that someone making ten times what I do receives MORE than ten times the benefit from living in American society. Bill Gates has an almost infinitely greater stake in the status quo than I do.
Posted by: Michael Herdegen at October 21, 2003 12:54 AMKirk:
Throw in payroll taxes, and consumption taxes, such as sales, gasoline, or sin, and fees, such as auto registration, and the median taxpayer is at a much lower income.
Posted by: Michael Herdegen at October 21, 2003 1:00 AM