tax madness

One of the most significant but least publicized stories in the country today is the increasing skewing of the tax code in favor of the extremely rich. Taxes have gotten more and more regressive, to the point that the lower and middle classes pay roughly the same percentage of their income in total taxes — including payroll and sales — as the rich. This is contributing to the increasingly large gap between rich and poor and the ever-ratcheting pressure on the middle class’ income, security, and lifestyle. There are many, many good things written on this subject. Here are three:

1. This post over at Calpundit draws together several data points to show how lower and middle class wages are being squeezed.

2. This review of David Cay Johnston’s new book, Perfectly Legal: The Covert Campaign to Rig Our Tax System to Benefit the Super Rich — and Cheat Everybody Else by economist James K. Galbraith. It touches briefly on many of the tax code horrors most folks never hear about. (Better yet, read the book.)

3. Radical Tax Reform, by Maya MacGuineas, does some more explaining of how the tax code has become so unfair, inefficient, and insufficient to pay for our expenses. She recommends some interesting solutions, among them a progressive consumption tax that would apply to total spending. Her essay is part of the Atlantic Monthly’s “State of the Union” collaboration with the New America Foundation — all of it is worth reading.

The debate over taxes in this country, like most of our politically dialogue, is simple, verging on retarded, going back and forth about whether taxes should be higher or lower. We should be talking about what _kind_ of taxes we have, and what kind of behaviors and economic trends the taxes encourage. The hijacking of government by the rich is ongoing and in the end will hurt them as much as it hurts the country as a whole.

  • Greg

    John Linder (Rep) GA has the best plan to fix the tax code. See Fairtax.org (put it in Google with Linder’s name). The Drum piece is, as he admits, anecdotal, but beyond that, it doesn’t really make much sense. He says that tax cuts fail to stimulate the economy, which is patently untrue. Perhaps he is really saying that they fail to stimulate the economy “the right way”, but it doesn’t make any sense that a harsher progressive tax on the wealthy would help the middle class at all.

    The thing is that the wealthiest Americans are the people who have the mechanisms to create wealth. They own the factories and the businesses. They have the sales contacts. Unless you can give that away, most Americans are still going to be depending on the wealthy to create enough wealth to allow the middle class to have a share. Trickle-up economics is a stupid concept because giving classes of people money doesn’t actually make them better off.

    Drum also fails to address that the middle class is never accurately classified by the government. For example, I am considered wealthy by the government, when, by any reasonable assessment of my salary, I am lower to middle class. Someone who has a net worth of millions might be classified as poor if they relied on investments and did not receive a classic “income” for the year. It doesn’t make sense. At this time, close to 50% of the population doesn’t even pay taxes. Perhaps if liberals would quit removing everyone from the tax rolls to buy votes, the system would work a little better. Who knows?

    Perhaps I’m being unfair. I have never liked Kevin Drum because his method seems to be to throw out a bunch of unrelated figures that he then uses to draw conclusions that make no sense to me. However, I am a fiscal conservative, so it could also be that.

  • Anonymous

    Greg said…”The thing is that the wealthiest Americans are the people who have the mechanisms to create wealth. They own the factories and the businesses. They have the sales contacts. Unless you can give that away, most Americans are still going to be depending on the wealthy to create enough wealth to allow the middle class to have a share. Trickle-up economics is a stupid concept because giving classes of people money doesn’t actually make them better off.”

    Sorry Greg but this is categorically false, or at least unprovable. Perhaps you are referring to capital? Perhaps you meant to say “The thing is that the wealthiest Americans are the people who have the mechanisms to create capital. ”

    In any event wealth is created by ideas not the wealthy. The wealthy tend to generate capital, not the same thing as wealth. Ideas are as follows – I have created a better widget, I know how to sell an existing widget better, I know how to sell people on a use for a widget that has never been done before. I hope you get the idea.

    It is a fallacy to pose things as you have. Sometimes the wealthy do create wealth by virtue of their wealth but it is not a given and it is certainly not something you can depend upon. The multipliers involved in the lower classes having more spending money are much higher than than multipliers from the welathy.

    I am a fiscal conservative as well and it reads as though you need to learn a bit more about wealth creation, capitalism, and the tax structure before you begin making prescriptions. Also it would be extremely helpful when you make declarative statements like “At this time, close to 50% of the population doesn’t even pay taxes. Perhaps if liberals would quit removing everyone from the tax rolls to buy votes, the system would work a little better.” that you would actually learn about the topic before writing down blatent falsehoods like this.

  • Sorry, that was I.

  • Greg

    “We’ve reached a new record. The highest number of Americans in history are now paying no federal income tax at all. Over 44 million income-earning Americans — one third of all income earners — will pay no federal income taxes. Step by step, the politicians are moving toward realizing their dream of an electorate where they majority that they need doesn’t pay taxes, and the minority that they don’t need will foot the bill.” From Neal Nuze (also the bottom 50% of tax-paying Americans pay approximately 8% of our taxes. (If I absolutely must, I will find the reliable source for both of these statistics, I just don’t feel like it right now.

    I’ve given Realish the actual IRS breakdown before; the statistic is hardly a blatent (sic) falsehood.

    With regard to your major point regarding the creation of wealth or, since you prefer it, capital, I have to tell you that I have a wonderful idea for creating a better refrigeration unit, but that idea does me little good. About the best I can do is sell my idea to someone with the wealth/capital to actually develop, mass produce and market it (or convince investors to buy into my idea). They also have to be able to support the product, which means having spare parts and a network of people to install them. Otherwise, about all I can do is risk everything I have on a proposition that may or may not ultimately pay off. Against competitors who don’t want my product on the market – especially if it’s better than theirs.

    Also, how’s this for an immeasurable, people who are wealthy (all but the 2% of millionaires who win or inherit their millions) got to be wealthy because they merited it. They made the right decisions, took the right risks at the right times, and had the intestinal fortitude to weather the bad times. My money says they would get it right if they had to do it all over again.