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Taxing Language

There is a good argument to be made that raising taxes for anyone in the midst of a recession--or an anemic recovery--such as we are experiencing is unwise. What drives me bananas, however, are two terms that Republicans always trot out in debates over taxes. One term is "punish," as in, "Why do they want to punish people for being successful," i.e., rich. The other is "class warfare." Is it "punishment" to expect those who have benefitted most from our system--our laws, our economic and financial systems--to contribute more to it? Is it "class warfare" to point out that those who have benefitted the most from the system ought to bear a greater share of the burden of maintaining it?Both terms suggest to me that those who use them have no real sense of a commonweal, just as they have no real sense of what real class warfare is like. Let us pray that our nation's growing income inequality never gets so bad that they really find out.

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Former Senate Majority Leader George Mitchell used to point out that throughout the history of human civilization, all societies have redistributed wealth---either by taxation, or by violent revolution. The question for the wealthy then becomes: which do you prefer?

The redistribution of wealth that we're discussing here, istm, is from American taxpayers to Chinese bondholders.

As has been predicted, accurately, for decades now, the fisacal punishment (tax increases) is being visited upon the sons for the fiscal sins (irresponsible deficit spending) of the fathers.

It's often pointed out that Felix Frankfurter noted the sign of how civilized a society was was the percentage of taxes it paid."Class Warfare" and "punishing" are just part of the "free speech" semantics paid for by the powerful.(Here in New Mexico, the news this morning is that gubernatorail Republican candidate susanna Martinez has gotten several mil in the past weeks and a good chunk from the oil and gas folks (while she promises "real change'; also a big contributor is Mr. Brooks of Houston and swift Boat Veterans fame. The real change promised means "cutting taxes" toi "help small businesses and encorgae job growth - or so the appeal goes.))

Lets not forget to tax the beautiful, those with high IQs and the highly educated, the healthy, the long-lived, and especially the lazy. They also benefit the most from our system and should be expected to contribute more to it. Think what enormous good the government could do with added revenue from those favored outside the income hierarchy! I think monetary redistribution (I dont call this a contribution) is the least painful method of redistribution but it does have economic consequences. I admire those who are willing to trade off a great deal of economic growth for a slightly more egalitarian post-tax income distribution. Some would even favor smaller absolute (but equal) shares to larger amounts in an unequal (but otherwise just) distribution. But Im troubled when contemporary Robin Hoods assert that theres a free lunch to be had by taxing the rich and no important consequences for economic growth would follow. I also believe that its possible to reach a limit beyond which efforts to redistribute income are either futile or counter-productive and may reach a point so as to generate a backlash jeopardizing a much needed safety net.

Just a couple of facts to add to the conversation:1) The WW II and post-WW II era (1941-1973) was a generation of higher marginal tax rates and higher economic growth than the past generation.2) The tax hikes passed in the early 1990s under Presidents Bush and Clinton led to over 20 million new jobs and federal government surpluses. The tax cuts passed in the early 2000s under President Bush (George W.) led to a weak economy (virtually no jobs created) and $5 trillion added to the federal debt.

I just want to add that NPR has a week long series on the Tea Party starting today, and should be worth a listen.My image of the Tea Party is a picture of a rally wher ea woman is holding a sign, "God Hates Taxes."The problem with that view is that it's rooted in the deerply individulaistic view of each loks out for himself (so I've got mine" or hope to get it) and at base is ultimastely rooted in selfishness.

Hello Don,I think these are fair questions to ask. The obvious short answer might be that in some cases these terms are bandied about because the political rhetoric used to push such tax hikes often...well, smacks of "class warfare." Or at least is perceived that way by many.But I think you are also getting at deeper questions about what constitutes a fair or just tax rate - in other words, to what degree tax structures are intended (or should be intended) to create a more equitable redistribution of wealth?Hello Luke,I think we want to be careful here: It is true that the top marginal income tax rates in the postwar era were 91% (until 1963) and 70% (after the Kennedy-Johnson tax cuts of 1963-64) - far higher than we have experienced since the Reagan years. However, these rates also had major tax shelter exemptions, and the result was that most top bracket earners placed much of their money in them to avoid the tax hit. Few were actually paying anything like 91% or 70% on most of their income. There was, after all, no AMT In 1945-1973. As for the economic boom of the 90's - I think you have to give a fair amount of the credit to the IT bubble - and, for that matter, the mounting real estate bubble as well. More to the point, however, both sides too easily overlook the ongoing deeper structural changes (including globalization) that have been underway over the past few decades.

I'm a PhD student in exactly this topic - public policy & public finance, with a focus on redistributive policy. Anyone who is telling you that higher taxes (i.e. social spending, redistribution) leads to lower economic growth has not proven empirically that this is the case. Study after study suggests the opposite, yet it remains an axiom of orthodox economic thinking that a single dollar in taxes reduces overall economic efficiency.One could argue that the costs of a poor, hungry and miserable populace - who are as a result less productive - far outweigh the theoretical inefficiencies of redistributive policy.

Control of the US has always been a marriage between the rich and the middle class. The rich have persuaded the middle class that the status quo is their assurance of greater prosperity for the them. Trouble is the middle class is in deep trouble now while the rich have never been richer. And they are making certain people rich to keep it so. Sarah Palin is getting richer with Russ Limbaugh, O"reilly, Hannity etc. The joke is on the middle class who are seeing their jobe outsourced to other countries while they go without health care.

Is it punishment to expect those who have benefitted most from our systemour laws, our economic and financial systemsto contribute more to it?The government taking your earnings by force of law does not constitute a "contribution", a word that implies some level of choice.

Is "punishment" the oposite of "contribution?"

Let's see if Americans in November will buy into the usual Commonweal tax and spend policies - there should be a fund to "contribute" extra taxes for those who want to save the world by taxing and spending - I'm sure most of you will join the club.

Jim S,Nice political slogan and hardly original. The point is taxing those over $300,000 more. As you can surmise, those in the top 5 percent have no problem spending at all. They don't even need health care.

Thanks for the compliment, Bill - it's what I think, not a slogan - don't puff people off as stupid by claiming they use slogans and are not thoughtful - if you are right about taxes, it should show itself in the will of the American people in November - don't be mad when the majority disagrees - I am being punished by taxes as a retiree and I don't like it. Don't tell me I'm not being punished - regarding politics, both parties are to blame - I don't belong to either one - but I know who Commonweal supports - and you guys love to spend!

Thomas Jacobs,Its not hard to find views contrary to yours from reputable economists. Heres an excerpt from yesterdays WSJ by Harvard's Robert Barro (often mentioned as a likely Nobel prize recipient):From the standpoint of incentives, the important point is that higher marginal tax rates harm the economy. For example, if all of the 2003 Bush tax cuts (which alone reduced the average marginal rate by two percentage points) were undone for 2011, I estimate that GDP growth for 2011-12 would be reduced by 1.1 percentage points.http://online.wsj.com/article/SB1000142405274870359720457548356204865478... point is not that tradeoffs are never justified or that maximizing GDP is the only value worth pursuing. But I do think citizens are rightly skeptical when they are told there is no deadweight loss or administrative burden involved and therefore nothing to worry about when politicians want to spread the wealth around. If only our representatives were sufficiently shrewd as to accomplish this they might gain more sympathy. However, I can understand why citizens are less than inspired by the example of Timothy Geithner and Charles Rangel. Even with angels in power It would would be worth knowing how they balance equity and efficiency.Arguments about taxation among economists and real people like Joe the plumber are not likely to be soon resolved. In the absence of controlled experiments nothing is ever definitively proven in the social sciences. But the view that incentives matter should not be lightly tossed aside as often happens on the Democratic side. I hope Mr. Wycliff understands why that stance drives people bananas.

Patrick,We've been discussing Barro extensively in my classes. As far as I am aware, in terms of actual studies, not theory, Barro has no empirical evidence of his claims. He is taking lots of flak for this unsubstantiated position from those who work on this issue, including one of my professors. My point was not to say that people don't make that point - most do - it was that data does not back them up.

By the by, I read about a study recently that said most people grossly overestimate the amount that they pay in taxes. If you ask people on the street how much they pay, they will often say upwards of 50%. In fact, despite all cries to the contrary, we pay about 30% in taxes in the US (including the superrich - don't let them pretend otherwise). So, perceptions of tax rates may go a long way towards describing much of our cultural anxiety over taxes. We think we're being taxed at much higher rates than we actually are.On the other hand, people also tend to like the programs we wind up with, which is why its so hard to cut programs & funding once they've begun. No one wants to cut social security, for example, or medicare. Or highway funding. Or the billions in federal aid that fills ailing state budget gaps every year.I've made this point before, and had people jump down my throat over it, but it remains true nonetheless: most people don't actually know much about issues of public finance, which is why there is so much misinformation out there. Before I'm accused of elitism, I'd like to point out that this is not grounds for dismissing people's opinions out of hand. I think that everyone - and more than a few politicians included - should be better educated on the topic because it clears has so much to bear on our democracy.

Bob Schwartz said: "The government taking your earnings by force of law does not constitute a contribution, a word that implies some level of choice."Unless, of course, the government is a freely elected one in an election in which you voted.

The republicans agrument that raising taxes on the "rich" will cause our economy to somehow decline is a "bill of goods" if I've ever seen one. I hope they whine until they lose the next election. Where else are we going to get the money we need to climb up for air from deficit spending? Republicans--whine about taxes--and I hope you sit on your hands another 4 years while Obama is elected again--with all of the possible problems that may entail.

Where to begin?"The government taking your earnings by force of law does not constitute a 'contribution,' a word that implies some level of choice."Part of what we pay for with taxes is the protection of laws, so that saying "your earnings" or "my earnings" can have real meaning. And better to do this "by force of law" than by force of arms, which is the alternative.There is a choice: As Socrates (if I recall correctly) said in the Apology, each of us can decide at some point--or maybe at many points--to remain a part of the society into which we were born or to leave it for another. That option is always available. There are places in the world where one can go and pay far less in taxes than one does in the United States--and, I suspect, get commensurately less in the way of a dependable legal system, roads and bridges and highways and schools and all the other things that not only make life nice, but that make it possible for one to make the kind of income one can make in this country. Taxes are not "punishment." They are the cost of having a civilized society within which one can live, work and amass wealth that is protected "by force of law." If someone supposes he can get all that the U.S. offers in some other place at a cheaper price, I suppose that, economically speaking, he ought to grab it.Of course there are incentives and disincentives. My frustration is not with a discussion of those. My frustration is with hyperbolic language--"punishing success," "class warfare"--that obscures that very fact--that this is a discussion about incentives, disincentives and what kind of society we want to have, not a cry for blades to be sharpened and tumbrils to roll.

Thomas --About the economy improving when taxes are raised -- my whole life (80 years) I've heard it said that it is cutting taxes that encourages economic growth. Is that another an urban myths like the flat earth? How come the liberal economists haven't discovered this? Or have they?

Hi Ann,You point to one of the most interesting and intractable pieces of the debate, namely, whose opinion makes its way into the public sphere. Liberal (or heterodox) economists definitely have questioned the assumption that taxes hinder growth (on various grounds) - the problem is, economics is dominated primarily by orthodox "conservative" theorists. Paul Krugman at the Times is a good primer if you're looking for someone who's both respected & critical of some mainstream thinking. One reason he's so good is that he operates within the orthodox framework, but arrives at some different conclusions.I should probably clarify this, since it's at the heart of the post. It's not that cutting taxes encourages growth; or even that raising taxes encourages growth. The problem is that it is almost impossible to prove a cause and effect. One could argue, for example, that our average lower tax rates led to America's dominant economic position in the 20th Century. On the other hand, as someone else pointed up above, the periods of our most rapid growth (such as after WWII) reflect markedly higher tax rates and increases in government spending as a percentage of GDP. And our cyclic busts (2007-2008) are almost always preceded by periods of extremely low taxes.Unfortunately, these arguments too often take place in the realm of theory - and theoretically, taxes = inefficiencies. Reality, it turns out, is much, much, much more complicated.

"On the other hand, as someone else pointed up above, the periods of our most rapid growth (such as after WWII) reflect markedly higher tax rates and increases in government spending as a percentage of GDP. And our cyclic busts (2007-2008) are almost always preceded by periods of extremely low taxes."Thomas --Hmm. Very interesting. Could it be that what growth requires is simply major spending, whether of private monies or government monies -- that the money taken from investors by the government in the form of taxes is later spend by the government for public works, etc,?Since the economic busts have followe low taxes, might the busts happen because the private sector spends its investment money less productively than the government does? Further, given that in the last 15 years or so major investment money has gone into actually non-productive investment (I mean derivatives) that such "investment" probably wouldn't be approved of by Adam Smith? So non-productive, but money-earning investment should be banned??

Ann, that's exactly right, which is why you hear politicians saying "we need to increase demand." What they mean is that people need to want things, which companies then produce for them to spend their money on. The whole point is that people are spending their money on goods which are produced.The anti-tax argument says that both more and more accurate stuff (i.e. what people really want, as opposed to what government wants to give them) will be produced when people and companies don't have to give up their money in the form of taxes. Stimulus arguments, on the other hand, say that when people aren't spending their money, government needs to spend their money for them.I read Adam Smith in college, but I don't remember him well. I hope to revisit him soon. My gut says that he has been misused by idealogues who put words in his mouth that he would not have used. If I remember correctly, he was deeply skeptical of shareholder corporations (don't hold me to that). And I'm afraid I don't know enough about derivatives to say anything useful.

I just stumbled across this, which some may find interesting:http://ourfuture.org/files/documents/don't-kill-growth-and-jobs.pdf

Thomas --I got a "Page not found" note for that address.I don't even remember how many years ago I looked at Adam Smith :-)

Here, try this: http://dontkilljobs.org/

Thanks, Thomas.It seems to me that the biggest problem people have with your position is that it seems to make perfectly good sense for the Tea Partiers to say that you don't reduce debt by spending more money, and that includes the government. But the real issue is not whether to pay taxes, it's : when is a good time to pay taxes? You economists have a lot of educating of the public to do! We the people need the *reason* for spending more money in the face of a gigantic debt.