First Principles And Context: Fiscal Policy

Posted on July 20, 2012 by reflectionephemeral

Julian Sanchez frets about the implications of the out-of-context remark from Pres. Obama that has the whole GOP writhing in hategasm:

Maybe, however, the point is more along the lines of the Nagel/Murphy “Myth of Ownership” argument: Since you didn’t earn whatever wealth you have all by yourself, without external help, you can’t really claim to deserve or be entitled to it—it’s a matter of luck you’re not one of those smart, hardworking people who didn’t get rich, after all—and so “we” (apparently meaning “the government”) get to take back however much “we” think is appropriate.

But this one proves rather too much doesn’t it? … It’s not that the “you didn’t build that” argument is wrong as a factual matter—it’s that it’s true about everything, and therefore doesn’t get you much of anything.

Sanchez’s post misses the mark because it fails to engage with real-world debates over policy. As commenter Alex Theisen explained in the thread, Obama’s comment “reads to me more as an attempt to rebut a very common rhetorical strategy that is often deployed against government taxation or redistribution.”

As to where these principles lead us, well, let’s look at the current context. The president is proposing to return some income tax rates to surplus-era levels. Gov. Romney is proposing to cut taxes, mostly on the wealthy who have a proportionately greater share of the income and therefore pay more in taxes, but make it deficit-neutral with other (heretofore unspecified) changes in the law.

Zooming out a bit more, I don’t think things have drastically changed since 2009, when the US had the second-lowest taxation in the OECD behind Australia, and when we paid less as a percentage of income in federal, state, and local taxes than we had since the Truman administration. Certainly, we still have lower federal income tax rates than we did for most of the Reagan administration.

Also we have seen an explosion in inequality in the past 3 decades, out of whack with our history, and the experience of comparable countries.

Given that context, it’s hard to be too sad and mad about the president’s comments. Sure, had someone said that in the UK in 1978, I wouldn’t have been too psyched. But, here we are.

As Edmund Burke put it:

I cannot stand forward, and give praise or blame to any thing which relates to human actions, and human concerns, on a simple view of the object, as it stands stripped of every relation, in all the nakedness and solitude of metaphysical abstraction. Circumstances (which with some gentlemen pass for nothing) give in reality to every political principle its distinguishing colour, and discriminating effect. The circumstances are what render every civil and political scheme beneficial or noxious to mankind.

As on defense policy, the GOP’s economic talking points are built on plausible enough principles, but those talking points are rendered entirely specious by today’s context.

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  • http://www.tarheelred.com/ Pino

    proposing to cut taxes, mostly on the wealthy who have a proportionately greater share of the income

    I’m trying to think of a way or manner in which, when dividing America by wealth, how you would get a wealthy class who wouldn’t have more of the money.

    and therefore pay more in taxes,

    You gloss over this too quick.

    The central meme of “The Great Builder” is that those wealthy don’t pay their fair share. New data from the CBO shows that only the top quintile pay more of a proportion of total taxes than they ear of total income.

    That is, the lowest quintile earns ~5% of the income yet only pays ~1% of the tax. The next quintile? 10 and 4. The next comes in at 15 and 10 with the fourth quintile at 21 and 18 or 19. The top quintile? 51 and 68.

    Not only are the wealthy paying more taxes, they’re paying more of their share of the taxes based on their income.

    I’m anxious to know, what constitutes “fair share.” And if the answer resembles anything like “more”, I contend that isn’t an answer but just a need to crate a “fair world.”

    we have seen an explosion in inequality in the past 3 decades,

    Again, you aren’t measuring compensation, only wages/salaries.

    • http://poisonyourmind.com reflectionephemeral

      What’s “fair” depends on context. See Burke’s quote.

      Here’s context:
      https://lh5.googleusercontent.com/_VgJQTp0Bsf0/TbG1L-PYTdI/AAAAAAAAAeM/cAtrN2W0K98/ctjshare.jpg

      And: http://assets.motherjones.com/politics/2011/inequality-page25_actualdistribwithlegend.png

      And: http://www.cbpp.org/images/4-13-11TopTenTaxCharts1.jpg

      And: http://www.washingtonpost.com/rf/image_606w/WashingtonPost/Content/Blogs/ezra-klein/StandingArt/debt%20drivers%20pew.jpg?uuid=ehD-yqBVEeG6E9X7LEUx8A

      You, like Sanchez, are remaining entirely in the realm of the abstract, declining to engage in the question of whether we should return to some surplus-era marginal rates. Given the context, that appears to be a smart policy. And most people agree! “By two-to-one (44% to 22%), the public says that raising taxes on incomes above $250,000 would help the economy rather than hurt it, while 24% say this would not make a difference. Moreover, an identical percentage (44%) says a tax increase on higher incomes would make the tax system more fair, while just 21% say it would make the system less fair.”

      • http://www.tarheelred.com/ Pino

        What’s “fair” depends on context. See Burke’s quote.

        I think that boils down to:

        “We need money, now, who has it and who can best part with it?”

        Which is no way to run a railroad.

        You, like Sanchez, are remaining entirely in the realm of the abstract,
        declining to engage in the question of whether we should return to some
        surplus-era marginal rates.

        I disagree. I don’t think I objected to raising the rate at all here in this post. I’m calling shenanigans on “fair share”.

        Moreover, an identical percentage (44%) says a tax increase on higher
        incomes would make the tax system more fair, while just 21% say it would
        make the system less fair.”

        But I’m asking you. What rate would be fair? Or, how do you determine fair?

        • http://poisonyourmind.com dedc79

          What do you think would be fair? everyone paying an identical rate?

          • http://www.tarheelred.com/ Pino

            What do you think would be fair? everyone paying an identical rate?

            I think that we should either pay the same amount [highly regressive, so I don't favor this option above the others], pay the same rate or abandon the income tax and replace with a consumption tax.

            In today’s world, I would much rather establish the same rates, allow for deductions for things like kids and basic food expenditures, and then move rises and cuts in tandem.

            How horrible is it that we allow the majority to dictate that taxes rise on but 2-3% of the population. What’s too stop them from just continuing to raise them and raise them and raise them?

          • http://poisonyourmind.com dedc79

            As to your last question, that sounds like a challenge to democracy as a method of government. In practice, the present situation is a perfect example of why we don’t have to worry about 2% of the population being victimized by the remainder. The wealthy don’t just have a lot of money they have a lot of political power. How else to explain why restoring their tax rates from just a little over a decade ago is proving so difficult when well over half the country thinks it should be done?

            Under Obama’s plan, the wealthiest person in america pays the same income tax rate on his/her first $250k as someone who makes to $249,999.99. It’s only that part of the income that exceeds $250k that gets taxed at a higher rate. That seems entirely fair to me.

        • http://poisonyourmind.com reflectionephemeral

          But I’m asking you. What rate would be fair? Or, how do you determine fair?

          Sorry I haven’t been more clear.

          There are two valid principles here:
          1) It is fair to keep the money you work to earn.
          2) You wouldn’t be able to earn any money were it not for the civilization you were born into, so it’s fair to tax you.

          Now, there’s no One True Perfect Fair tax rate. No one’s going to read Plato and Socrates and Robert Nozick and John Rawls and come back and tell us, “Guys, I figured it out, it’s forty-two!”

          See Burke’s quote above. It depends.

          In a war for the survival of civilization (think WWII, not GWOT), it’s fair to have tax rates north of 50 percent. Here and now, returning some rates to surplus-era levels is fair.

          (Incidentally, behind a Rawlsian veil, wouldn’t all of us bid like 90% of our lifetime earnings for the right to be born in the US and not elsewhere?)

          I’ve written about the rise in resentment in taxpaying, which didn’t exist (or at least, wasn’t the sum total of conservative thought) in the Eisenhower & Nixon eras:

          Like we’ve mentioned around here before, the Southern Strategy transformed white populism. Gone is William Jennings Bryan-style economic populism geared toward making poor whites’ lives better, replaced by a cultural resentment of government and the minorities it was perceived to be helping.

          Patrick Buchanan called for Republicans to “cut the country in half” on racial and political lines for political gain; he correctly ascertained that the 95%+ white party would have a majority for awhile. This resentment-grounded rhetoric gave rise to a curious new patriotism– a love of country impatient, unkind, easily angered, keeping a careful record of wrongs, deeply distrustful.

          • http://www.tarheelred.com/ Pino

            There are two valid principles here:
            1) It is fair to keep the money you work to earn.
            2) You wouldn’t be able to earn any money were it not for the civilization you were born into, so it’s fair to tax you.

            1. Agreed. In fact, I would argue that property rights are one of the inalienable rights that we inherit at birth. Government is not meant to give me the property I already own. Rather, it is here to prevent tyranny from taking it.

            2. Yes. There are proper roles of government that we all must bare the burden for.

            Now, there’s no One True Perfect Fair tax rate.

            There isn’t. Again, I agree. Paying for WWII requires a higher burden that times of peace. [Here I resonate with the liberals who feel we should have some form of elevated tax level to pay for the two wars. Tax rates that would explicitly dimisn as the wars came to a close.]

            But there ARE principles of taxation. I would suggest that some of those principles are:

            1. We should take part in taxation. To the degree we can, we should absolutely fear a majority of citizens [or significantly large voting block] paying no taxes while the remainder do.
            2. An increase or decrease should be realized by as many as possible. If I think it’s a good idea to expect YOU to pay more, I should be willing to pay more as well.
            3. That we understand that taxing is taking rightful property. It is an act of confiscation. We should only do it with great reservation.

            ‘ve written about the rise in resentment in taxpaying, which didn’t
            exist (or at least, wasn’t the sum total of conservative thought) in the
            Eisenhower & Nixon eras:

            I don’t know that is true. And I don’t know if what I feel is shared by other low tax individuals. But I resent taxpaying more and more as we continue to expand entitlement programs. I resent having my money confiscated while paying unemployment to able bodied individuals for 99 weeks. For paying for their cell phones, While paying non-college individuals to go to college to perhaps drop out or graduate with a degree in literature.

            Restrict spending to something more resembling “proper role of government – ensure individual liberty” and I’ll be less likely to resent paying taxes.

            I suspect the great disagreement here is going to be proper role of government.

  • http://www.tarheelred.com/ Pino

    What do you think would be fair? everyone paying an identical rate?

    I’m not the one calling for “the rich to pay their fair share.”

    But in the spirit of fairness, I promise to tell you mine just as soon as you tell me yours.

  • Alan Scott

    I always find that making a point about taxes, class warfare, and government over spending is far easier using States and Cities than it seems to be using the Federal Government as an example . Those states such as California and Illinois who follow the Liberal economic model of screw the rich, are the ones in the most trouble . Throw in Cities like Detroit and you can see the Greece like future we all face when Liberal class warriors are put in charge of anything .

    When was the last time our class warrior leaders ran anything and had success ?

    • http://poisonyourmind.com dedc79

      I don’t think a single thing you wrote here is accurate and when you start with false premises it’s not surprising that you would come to false conclusions. I’m not even sure where to start. If California’s policy is “screw the rich” why do so many wealthy people hang around there? How do you measure which states “are in the most trouble”? What does any of this have to do with Greece?

      You can’t just take the federal govt and federal taxes out of the picture and look at states/cities in isolation. States like California and New York pay far more into the federal system than the Republican bastions of Alabama and Mississippi. Would you hold out Alabama and Mississipi,which score at the bottom on basically any metric you could come up with as examples of the conservative ethos?

      • Alan Scott

        dedc79,

        I am very accurate . I do not make false premises. I merely use States and Cities run by people who think as you do, as examples of failure . Detroit is probably the most glaring example of the Grecian formula .

        California’s rich are leaving with their money to places like Texas to create jobs . Those who choose to stay are either so in love with California’s climate and beauty that they put up with the Sacramento idiocy, or they can’t liquidate their wealth, or they are just liberal and stupid .

        Lets speak of New Jersey where Cristie is trying to salvage what’s left of his State after your boy Jon Corzine ruined it . In 2004 your socialists raised the tax rate from 6.35% to 8.97% . How’d that work out ? By 2008 Jersey had a ginormous deficit and 4,000 souls making at least $ 500,000 voted with their feet and left .

        I will give you Mississippi’s unemployment rate is above the national average. I believe Alabama is better than the national average . Then there is North Dakota . Last I heard they were around 3% . Lets see any of your Liberal Green wastelands top that .