By All Means Mr. Buffett...

please pay more. More in-depth analysis of the op-ed and policy ramifications here, here, and here. For my part, I don't understand why he doesn't just put his money where his op-ed suggests it ought to be compelled to go. "It's only right, but I'll only do it if you make me." That's just rich.

NYT Editorial Says It All

This morning's NYT Editorial page contains this little ditty, one accusing House Republicans of hypocrisy when it comes to the deficit.  It is a beautifully concise summation of the Mars/Venus relationship conservatives have with liberals in general and the NYT in particular.  Let's review some of its more relevant assertions, shall we?

It was not long ago that Republicans succeeded in holding unemployment benefits hostage to a renewal of the high-end Bush-era income tax cuts and — as a little bonus — won deep estate tax cuts for America’s wealthiest heirs. Those cuts will add nearly $140 billion to the deficit in the near term, while doing far less to prod the economy than if the money had been spent more wisely. 

Let us review.  There were no tax cuts on the table, there was simply the decision to maintain the status quo or raise taxes.   Any additions to the deficit have nothing to do with the tax rate charged, as once again, it is status quo.  Any deficit increase is therefore wholly attributable to spending.



The new Republican rules will gut pay-as-you-go because they require offsets only for entitlement increases, not for tax cuts. In effect, the new rules will codify the Republican fantasy that tax cuts do not deepen the deficit. 

This is not fantasy, this is reality.  Tax cuts NEVER have to "pay" for themselves, but spending must.  This distinction flows from the metaphysical truth that the government has no money of its own, only the money it collects from its citizens.  When the citizens (through their representatives) decide to limit that collection, government must responsively limit its operations as a result.

 It gets worse. The new rules mandate that entitlement-spending increases be offset by spending cuts only — and actually bar the House from raising taxes to pay for such spending. 

This is worse?  Why?  Why are tax increases "sensible", but benefit/spending cuts are not?

For example, the cost to make the Bush-era tax cuts permanent would be ignored, as would the fiscal effects of repealing the health reform law. At the same time, the new rules bar the renewal of aid for low-income working families — extended temporarily in the recent tax-cut deal — unless it is fully paid for. 

Repeat again after me.  Tax cuts don't "cost" anything, they simply represent a larger share of productive labor retaining its fruits.  Asserting that a tax cut "costs" something assumes that spending must be considered as a constant.  This is of course, not true.
 
The NYT represents a view of the relationship between the governed and the government that was largely repudiated in the last election, and to some extent, by the politics of the last three decades (2008 being anomalous).  Its readership is declining consistent with the relevance of its editorial views.

The Obama Tax Hike Lunacy

In an effort to continue to stoke the class warfare that has become their brand, Obama administration folks (and yes, the President himself) have begun to point at the Chinese bogeyman to justify raising the taxes on successful Americans.  Here's David Axelrod:

"The notion that we borrow $700 billion for the next ten years from China or some other country in order to pay for tax cuts for millionaires and billionaires doesn't make sense. This is part of how we got in trouble in the first place," Axelrod said on CNN's "State of the Union."

Ok, so let's get this straight; in the midst of an economic downturn the President and his homeys want to raise taxes on "2 percent" of Americans, while leaving the Bush Tax Rates in place for the other 98% of taxpayers.   They cry "CHINA" and "$700B" as justification.  But one wonders--where will the $2 TRILLION come from to "pay for" the revenue lost in not raising taxes  for the other 98%.  Um.....China!

Greg Mankiw Breaks Down Higher Taxes On The Rich

Former Bush Administration economist and Harvard Professor Greg Mankiw put a few thoughts down on the impact of the Bush tax cuts expiring.  In it, he uses an interesting test case--himself.

I am a big fan of Mankiw, but I have a quibble with his approach.

He lays out his whole case as a comparison between what his situation would be after 30 years of NO taxes whatsoever, and what his situation would be with the Bush cuts lapsing.  Only at the end of his example does he come back to the fact that this isn't a choice between no taxes and something else.  It is a choice between the present tax rate and a marginally higher one.  Don't get me wrong--I don't want the higher taxes either--I just don't like the way he makes his point here. 

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".

So, 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.