Saturday, April 17, 2010

Ramesh Ponnuru Is Wrong On Income Taxes

This is a long post. For my short attention span readers, move on.

There has been a good bit of talk here on the blog and on the radio program about the recently released Brookings statistic that indicated 47% of wage earners either pay no income tax or actually get money BACK from the government. Many Conservatives--myself included, believe that this is an unhealthy state of affairs for our country. Ramesh Ponnuru of National Review does not agree. One picks a disagreement with Mr. Ponnuru at one's own peril, as he is not only one of the smartest Conservatives out there, he is unbeatable in a serve and volley blog debate. But because I am unaware of Mr. Ponnuru's reading habits, I will assume he doesn't read this blog and will proceed to take him on.

First, some background on how we got to where we are. The incomparable Keith Hennessey reminds us all that it was largely REPUBLICAN policies that accelerated the removal of so many people from the rolls of those paying income taxes in the first place. Additionally, a kindred spirit of Ponnuru's on the Weekly Standard blog makes the point that a widely distributed (or even universal income tax liability is "wildly ahistorical".

Here's the gist of Ponnuru's argument from a blog entry on The Corner: "Most conservatives are convinced that it's a major problem that 47 percent of Americans pay no income taxes. I'm not. The argument -- which has been steadily picking up adherents on the Right for ten years -- is that people who pay no income taxes are likely to perceive big government as a free good and therefore become more supportive of it than they would be if they paid income taxes. A secondary argument is that it is important, as a matter of both morals and civics, for everyone to pay taxes."

Ponnuru further points out that "the distinction between income taxes and payroll taxes" probably doesn't strike the people who pay them as deeply meaningful.

Ponnuru wraps up his argument--like any good analyst--by searching for signs of its confirmation in data. This he finds here: "Another difficulty for the thesis: Attitudes toward government do not appear to have become more liberal as the number of people paying no income tax has increased. In August 1992, Gallup found that 50 percent of Americans thought that "government should do more to solve our country's problems" Gallup asked the same question in June 2008 and got the same results. No clear pro-government trend can be found in other polling results".

to summarize the arguments against everyone paying income taxes I offer the following:

1. Such broad-based tax liability is ahistorical.
2. People who pay no income tax but who do pay payroll taxes do not distinguish between them.
3. Because there has been no increase in the general acceptance of a more liberal approach to government, there is insufficient evidence to support the commonly made assertion that people who do not pay income taxes are more likely to be pro-government.

I take each in turn.

1. The historicity of a broad-based income tax liability is interesting, but irrelevant. Truth is, we didn't even HAVE an income tax in this country for its first 126 years; so the fact that it has evolved from very narrowly focused pre-WWII to more broadly based post-WWII seems to suggest that the GENERAL trend over time has been to MORE broadly institute it, rather than less broadly--the last twenty years have been the exception--historically.

2. That people without income tax liability do not consider themselves as not "paying taxes" (as I see Ponnuru's argument) is again--interesting, but irrelevant. The fact is--they are not contributing to the everyday operations of the federal government--from which they are deriving benefit. That they pay into insurance programs from which they will likely one-day handsomely benefit (and in the case of social security--to an extent far in excess of what they have paid it) adds weight to the requirement that they do so. Put another way--because Ponnuru believes that they don't make this distinction matters not to those who do--the 53% of the American public who ARE paying for the contributing operations of the federal government over and above that which is destined to come back to them in entitlement benefits.

3. Ponnuru's point about there having been no increase in general liberal attitudes toward government as there has been a decline in the percentage of workers who have no income tax liability is simply incomplete. His statistic is a blunt instrument--measuring only a general inclination across an undifferentiated sample. What would be meaningful to me would be some way of distinguishing among socio-economic groups. Has the tax paying portion of the spectrum become less liberal about the role of government while the non-tax paying portion has become more? Could the flatness in the sample be explained in such shifting proportions? We don't know--because the statistic just doesn't prove what Ponnuru thinks it does. It would also be interesting to look at the voting patterns of those in the "no liability" category. Would Ponnuru be satisfied if the data revealed a heavily Democratically skewed result? Or would that simply show that poor people vote Democrat?

Again--Ponnuru is a brilliant thinker--and to his credit--he wants to see hard data that indicates that not paying income taxes is in some way connected to a nascent movement to more radically redistribute wealth before he gets onboard the bandwagon to institute a mandatory "contribution" level (in my estimation, 1% should be the bottom bracket, even if tax credits indicate money coming back from the government. Once a taxpayer's credits get them to the 1% level, the credits would have no impact). I can't give him that data. I can give him the benefit of the ancient Greeks--who told us that the natural devolution of democracy is to the tyranny of the mob. I can give him the growing evidence that it is an important political objective within the modern Republican Party that all citizens have some continuing responsibility to fund the operations of the government.

I am coming to conclude that this will be an important issue going forward--one in which in the interests of a perceived sense of "fairness", Republicans will wind up supporting a broad-based tax increase--largely aimed at eliminating the pool of no income tax liability workers. This will put both parties in unusual positions--Republicans supporting a tax increase, and Democrats walking away from it. We shall see.


Anonymous said...

Well said. It would seem that a natural extension of the "everyone should pay something" debate is that "everyone should have an equal obligation to defend the republic", via mandatory public service. What say ye?

The Conservative Wahoo said...

I don't sign up to that. I support the emergency imposition of a draft if necessary, but believe registering for the levee en masse is sufficient. The all-volunteer force gets the job done.

I understand the natural extension and see it, I just don't wish to take it that far.

"The Hammer" said...

Taxes should be widely based and as flat as possible. It's as simple as that.

Anonymous said...

CW, I remember you wrote on this issue a while back when you brought up the way a democracy can fail. The gist of that post had to do with people who don't pay into the system continuing to vote for/support politicians who will continue to sponsor legislation that maintains the status quo or even expands government handouts. Thus creating a downward spiral to the final destruction of the economy and the republic a la Atlas Shrugged. Your proposition that the voting data be examined has the most merit in my opinion because that may indicate if we are headed down that road to ruin. Continued props for a great blog. I read it daily.

The Conservative Wahoo said...

Many thanks, Anon!

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