25 August 2008


Not that I really needed another reason, but this very lengthy delineation of Obama's economic plan also precludes any possibility of voting for him.
If time allows a more substantive critique will follow, but for now:

History has shown that free markets aren’t so good at, say, preventing pollution or the issuance of fantastically unrealistic mortgages.
--Is pollution better or worse in Russia, China, North Korea? Was it better in East Germany or West Germany? I work in the title insurance industry and the free market has done a pretty good job of affording mortgages to people who qualify for them. There have been problems to be sure, but the market adjusts to these problems. There will be far fewer no-doc negative amortization loans in the future than there were in the last ten years. No government regulation is necessary to effect that.

Increasingly, the income-tax system becomes a way to transfer money to poor families. ...the essence of his market-oriented redistributionist philosophy (though he made it clear that he doesn’t like the word “redistributionist”).
--As I noted elsewhere, I was under the delusion that taxes were a way to provide revenue to the government to provide necessary government services (as to the federal government, those specified in Article I, Section 8). It is not the the responsibility of the federal government to take money from the one to give to the other in the interest of fairness, good tidings or under any other rubric.

There's a treasure trove of nonsense in this piece, not least of which is the complete lack of serious criticism or analysis from the Time's "economics columnist."


Claudio said...

yes it is the governments responsibility to provide blah blah, but to do so they must tax. In how much they tax whom they are effectively taking money from one and giving it to another. That is why the flat tax idea is floated by the incredibly wealthy (Forbes). It's regressive. If the gov't needs 100 rupies to accomplish it's goals (different argument) and it takes 1 rupie from everyone of it's 100 citizens to accomplish garnering the needed funds this sounds very even handed. However if one citizen only has 3 rupies and another has 3,000,000 rupies (which I think is a indicative ratio to the disparagies in income) you are taking away one third of citizen A's income and 0.000003% of citizen B's income. That is ridiculously unfair. The argument that citizen B should not be punished for being successful is a false argument. There is a lot of middle ground between 33% and 0.000003% to allow an enlightened citizenry to figure out how to not make taxation blatantly unfair. I'm not always sure of the enlightened citizenry part of the equation (see '00 and '04 elections) but I think that is really what is being discussed. Bush's tax cuts (leading up to a war none the less when most leaders would realize it might not be the best time to do so) swung the pendulum to far in citizen B's direction and some correction needs to be made.

Now I'm not sure if your for the flat tax or federal sales tax or exactly where you end up, but my point is that it is impossible to collect income based taxes and not effectively redistribute wealth, in one direction or the other.

Claudio said...

I think you need to take 2 zero's off of my citizen B and his/her percentage of income numbers. This is what keeps me up at night.

SeanEBoy said...

I agree that government must tax, but note well that there was no income tax until 1913.
But for the sake of argument, lets agree that income must be taxed to finance government operations most efficiently.
If the purpose of the tax is to pay for defined, proper government operations then we're OK. I think a flat tax is a great idea, providing that the first, say, $30,000 per couple is exempt. And most allowable deductions are removed. Perhaps allow a per-child tax credit, as propagation of natural citizens serves the national interest self-evidently and provides future revenue sources. The exemption removes most of the "unfairness" argument, I would think. It should also be x for an individual and 2x for married filing jointly. Marriage is a wonderful thing, however it should not be a policy concern of the federal tax code.
Graduated taxation does punish the successful and acts as an incentive to remove production and/or encourages novel tax evasion schemes. Say Obama's tax plan will tax incomes over $250,000 at 40%. You're boss is thrilled with your performance and wants to pay you $265,000. The first thing you'll do is work with him to keep your gross income at $249,000 or lower and provide other methods to make up the difference. This is no different that low-income people negotiating with their employer to keep their base pay below a certain level to maintain eligibility in certain government programs (i.e.-health insurance). Both are acting in their own self-interest, which is what makes them rational. One is seen as greedy. Neither are. If you remove many of the deductions, loopholes and other nonsense, it is eminently fair. PA has a flat tax, in the Quaker tradition, and I haven't heard many calls for a graduated tax. Also, is it fair for 90% of the population to vote a punitive tax on 10% of the population?
Further, it is an economic truism that increasing taxes on higher incomes reduces overall productivity thereby inhibiting growth which affects everyone.
I also think there should be no corporate tax as this is an expense that is merely passed along to consumers (a further tax). However, all corporate revenues need be accounted for. Dividends to shareholders are taxed as regular income; money reinvested into capital improvements will be prorated as income among shareholders and thus taxable. In other words, you'd get a dividend statement from the Widget Corp with a check for $100 and a statement saying $100 further was reinvested into the company for capital improvements-your income from this company is $200. This removes the shell game that goes on, perfectly legally, right now and actually costs the treasury. This would also put a premium on corporate executives that can think critically about corporate reinvestment and shareholder happiness. This, I would think, also addresses your concern that corporation do not then pay for their own wear and tear on infrastructure (a completely valid concern).
In my opinion, poverty alleviation is not a federal concern and the poor are arguably worse off in terms of being able to improve their own lot since the federalization of anti-poverty measures (Johnson's War on Poverty). See the above example regarding a low-income person purposely negotiating a capped wage. Micro-economically it makes sense, macro-economically its bad policy.
Clinton's tax increases helped because he focused on debt reduction, which encourages growth. Bush's tax cuts haven't helped so much because they were in concert with dramatic increases in spending, raising the debt which is a drag on growth, also his policy regarding the dollar is just stupefying (the Nero-like behavior of Bernanke is probably more to blame for current conditions)--and no one who predicted bad things from the mortgage boom in 2003-2005 was taken seriously, this I saw from the inside. There is also the fact that there are normal, cyclic, fluctuations.
Obama's policy is to raise taxes (something I disagree with as a matter of course, but I understand that sometimes this is necessary) on some--the more successful. But his plan isn't deficit reduction, it is the expansion of federal government (further) beyond its narrowly defined role, which combines the worst aspects of Clinton and Bush.
His plan to give a $4000 tax credit to college students who participate in community service is a great example. I object, principally, that community service is a federal concern, and if it is a legitimate community concern, then state actors can get creative to spur involvement (e.g. PHEAA charging a lower rate on student loans for those performing 160 hours of community service annually). But also, the only things this will accomplish are: 1) lower federal revenues with no commensurate reduction in spending and 2)just about every college in America will increase it rates no less than $4000/year within 12 months of enactment. I think the latter is distasteful. It is also the rational thing for college administrators to do. Would you like to make a wager on whether this would happen?
Capitalism and Freedom by Milton Friedman is excellent in laying out very logically, dispassionately and fairly why most of what I believe would work. He also does it very well (much better than I ever could) and in a way that is digestible--rare for a Nobel laureate in economics. I also have Free to Choose by him and his wife which I've yet to read and The Myth of the Rational Voter which I've not yet read. The premise of the latter is that while people behave rationally (in their own self-interest) they have biases, prejudices (good and bad ones), misconceptions and irrational beliefs. They tend to vote according to these principles resulting in bad policies. When I'm done I'll lend it to you. This may be a few years.

SeanEBoy said...

Any negative consequences of Clinton's tax increases were also mitigated by the incredible technoligical advancements in the 90s which were a tremedous spur to productivity.