Taxes – Rolling Doughnut

In The Top 1% of Artificial Narratives

I’ve seen a series of animated gifs about J.K. Rowling and taxes floating around for a few weeks. Here is a screenshot, because copying the gifs would make this post too clunky. The series is summarized this way, from Hank Green’s Tumblr:

wilwheaton:

geardrops:

fauxmosexualtranstrender:

sandandglass:

Total respect.

I love her.

She donates so much she went from “billionaire” to “millionaire.”

MAD respect for that.

Listen to J.K. Rowling, and put your money where your mouth is, 1%.

I think there really needs to be a cultural shift among the wealthy. It’s very inspiring to hear Jo telling it like it is.

I get the message. I disagree because it endorses a specific solution to a problem. Even if we pretend that the solution is effective, it’s more concerned with enacting a specific solution. It’s an effort to bludgeon opponents with a silly, nonsensical political narrative.

As Forbes wrote:

New information about Rowlings’ estimated $160 million in charitable giving combined with Britain’s high tax rates bumped the Harry Potter scribe from our list this year.

Hank Green’s position above is a lot more subtle on this, although I think it fails to address whether the perceived necessity isn’t a red herring. J.K. Rowlings donated $160 million to charity. Other wealthy individuals also donate to charity. Should these charitable donations be sent as taxes to governments to distribute as politicians deem appropriate? Would the charities that received Rowlings’ $160 million donations receive donations from the government in the redistribution of taxes? And why should we assume that the government doesn’t have the necessary tax revenue to fund such necessary expenditures if unnecessary (or unjustified) expenditures ceased?

The 1% narrative works to fit problems into a solution rather than addressing the problems with whichever solutions are effective for each problem.

Political Healing Is Not Physical Healing

So, I was wrong with my prediction on the ACA. I was correct that if the mandate went down, all of it would go. But Chief Justice Roberts agreed that the mandate acts as a tax. Okay.

There are still other problems. Eugene Robinson highlights them, although not intentionally.

The political impact of Thursday’s stunning Supreme Court decision on health-care reform is clear — good for President Obama and the Democrats, bad for Mitt Romney and the Republicans — but fleeting, and thus secondary. Much more important is what the ruling means in the long term for the physical and moral health of the nation.

I find the idea that this is an improvement to our nation’s “moral health” ridiculous and offensive. It’s the simplistic view that opposition to the ACA is opposition to the claimed goals. It’s the pretense that opposition is founded on an “I got mine, so screw you” idea. It’s hackish. Opposition guarantees no such intention, and maybe I’m foolish, but granting the government more power to use force against individuals is hardly an improvement in our moral health.

All but lost in the commentary about the court’s 5 to 4 ruling, with Chief Justice John G. Roberts Jr. unexpectedly joining the majority, is that the Affordable Care Act was intended as just a beginning. We have far to go, but at least we’re on our way.

Obama’s great achievement is not any one element of the health-care reform law — not even the now-upheld “individual mandate,” which compels individuals to have health insurance or pay a fine. The important thing is the law’s underlying assumption that every American, rich or poor, should have access to adequate health care.

But that’s not the issue. The important thing is how well the law will achieve its aims. Will it? Which unintended consequences will result? What will it cost in trade-offs? Early evidence suggests a strong “no” for the first question, which should raise further concerns about questions two and three.

Here, we don’t even get to the first question. Mr. Robinson is endorsing the Do Something theory of government. This is Something, so it must be good. It’s untethered from outcome. We’ve merely expressed the right feelings that every American should have access to adequate health care. That isn’t a solution to a problem that exists in large part because of previous feelings-premised public policy solutions. The ACA is not the only way to try to achieve the real goal of reform and improving health care access and outcomes. The ACA merely doubles down on the existing structural problems. When government is failing, ordering more government is hardly a credible solution.

As I wrote in my prediction, tying insurance to employment is inefficient and stupid. Our current unemployment rate is an excellent indicator of a flaw in the policy. Mr. Robinson gets at this:

Most working-age Americans who have health insurance obtained it through their employers. But this is a haphazard and inefficient delivery route that puts U.S. businesses at a disadvantage against foreign competitors, most of which shoulder no such burden. Tying health insurance to the workplace also distorts the labor market and discourages entrepreneurship by forcing some employees to stay where they are — even in dead-end jobs — rather than give up health insurance.

With this acknowledged, it appears the only way to endorse the ACA is to focus on the important thing, the good feelings. The ACA will work to untie insurance from employment, but only because it makes the burden of employer-provided insurance so onerous. It pushes people into public options. That’s aiming for single-payer without having the political courage to admit the aim. Such lack of courage does not suggest good outcomes when the inevitable financial crisis from the ACA results. And now, because this reform was so ham-fisted and clueless, no one will have the political capital necessary to reform the reform.

Rather than seek a radical reshaping of the health-care system, Obama pushed through a set of relatively modest reforms that will expand insurance coverage to a large number of the uninsured — about 30 million — but still not all. He also tried to use free-market forces to “bend the curve” of rising costs, slowing but not halting their rise.

The ACA doesn’t try to use free-market forces. It attempts to manipulate them, at best, and pretend they don’t exist, at worst. It’s the idea that prices can be mandated, that supply and demand are fully malleable with political will. It’s neither an honest nor an intelligent attempt by the Congress and President Obama. It will fail. The only questions are how soon, who will be harmed, and what will we do in response.

Correlation Still Does Not Equal Causation

Nancy Pelosi’s office blogged about the Department of Labor’s latest jobs report. This graph is included in the brief entry:

From this, Rep. Pelosi declares:

Today’s jobs report marks a welcome step in the right direction for our economy and our families: the unemployment rate is going down. The Recovery Act, which Congress passed one year ago to pull our economy back from the brink of collapse, has already created or saved nearly 2 million jobs so far.

Yet our work is far from over. This recession that President Obama inherited has taken the worst toll on our job market since World War II. Too many workers have lost their jobs through no fault of their own. Leaders of both parties must work together to keep our recovery on track by helping small businesses create jobs, investing in our infrastructure and clean energy industries, and keeping police, firefighters, and teachers on the job. Congress will continue to act to build a new foundation for long-term prosperity.

I see the correlation I’m supposed to perceive, but that doesn’t prove what Rep. Pelosi expects me to assume, that the American Recovery and Reinvestment Act is the reason the graph looks as it does. It’s easy to claim success when you establish superficial results as the standards for success. If she’s going to make this claim, she must defend it with specific details about how money was spent and how that improved the jobs situation. Saying it isn’t enough if you’re skeptical of power rather than merely skeptical of your ideological opponents.

(Via Irene retweeting Markos Moulitsas)

Can something earned be unfair?

The Washington Post admits what anyone willing to look at facts knows: the United States has a progressive tax system that leads to progressive taxation:

In 2006, the top 20 percent of earners paid 70 percent of all federal taxes. On average, they paid 26 percent of their income to the government. The very richest — the top 1 percent of taxpayers, with household incomes of over $332,000 — paid 28 percent of all taxes, with an effective tax rate of 31 percent. The middle three quintiles paid rates of 10, 14 and 18 percent. The lowest 20 percent of households paid only 0.8 percent of all federal taxes — and the bottom 90 percent of households paid only 45 percent.

You know this still isn’t going to end well, right? Just look at the sleight-of-hand commonly used among advocates of further progressivity. A household with an income over $332,001 may not, in reality, be “the very richest”. In DC, $332,001 before taxes would make that household very comfortable after taxes, but only in the short-term. It would still take many years of that income to be considered “rich”, and more still to be “the very richest”. Contrary to what the Post implies, $332,001 is not $100-bills-as-toilet-paper rich.

But that’s the buildup. Here’s the Post’s sales pitch:

Based on these numbers, it would be hard to argue that the country doesn’t already have a significantly progressive tax system. Taxes aren’t just for suckers, with cashiers paying more of their income than corporate chief executives. Nor is the system egregiously stacked against the wealthy — who, after all, receive the bulk of the income. The top quintile earned over 55 percent of the income, and the top 1 percent earned a full 19 percent of all income.

The “wealthy” do not receive income, just as the “poor” do not receive income. People of all incomes earn. The Post uses the proper word in the last sentence, but only in the populist context of whining towards an argument of fairness. Can something earned be unfair?

I will give the Post proper credit for acknowledging that spending cuts are the best route to balancing the budget, which politicians will never embrace. (Politicians engage in a more extensive version of the populism the Post engages in here.) Still, the editors drag out “income inequality” in the fifth paragraph of a six-paragraph editorial. It can’t possibly get a sufficient analysis. Are the higher incomes earned? They should at least address that question. Instead, this:

When taxes go up, they should be increased in a way that makes the tax code more progressive. Income inequality has widened for the past three decades, and it only makes sense for those who have benefited to pay more. …

It only makes sense for the Post to prove that those who earn more do so because of the government provided by the the taxes they remit. I’m not sure a direct case can be made. Opportunity exists for those who wish to pursue it. There are no entry requirements based on economic class.

It’s obvious that government plays favorites. Or, if you must believe that government is above reproach, it gets played through rent-seeking. Where this occurs, it must stop. Unlike what the Post argues in its editorial, I believe words like fair and equal mean fair and equal. No free benefits for the “poor”, but no free benefits for the “rich”. But even if we go with the Post’s populism, rent-seeking isn’t going anywhere as long as there are favors available. That is why limited government is so essential to true fairness and equality (of opportunity).

More Spending Increases for the Non-Rich?

The Washington Post makes the same mistake in an editorial that I criticized on Tuesday.

AT A TIME of soaring deficits and growing needs, the Senate is weighing whether the wealthiest of wealthy Americans should get a tax break worth some $250 billion over 10 years. …

If you guess that there’s no discussion of not spending so much money, or even an explanation of growing needs, you’ll be correct. Even though the Post’s editors tell us this tax “would hardly be punitive”, they justify themselves by saying “[w]hy in the world should these folks get more of a tax cut?”. Perhaps we should consider the idea that our government should treat everyone equally rather than picking a politically-convenient minority to act as the nation’s ATM-of-last-resort.

Not that we should be surprised. The editors conclude the first paragraph with this:

… aren’t there better uses of hundreds of billions of dollars than reducing taxes even further for the tiny sliver of Americans subject to the estate tax?

Who gets to decide what better uses exist? Those who have the money (that was already taxed as income in some form)? Or those who vote to take it from them? This is a test of whether or not one believes that central planning is more effective and more legitimate than individual choices. I do not think it is, on either front.

Nor am I convinced by the Post’s evidence-free implication that lower estate taxes will harm charities. Such social engineering is hardly justified, even if the Post offered convincing evidence. What people do with their property is their business alone. But our history is full of examples of the wealthy leaving their estates to philanthropic ventures rather than leaving their heirs with every remaining penny they saved.

The solution to the problem is (A) or (A).

On the general subject of taxation, Matt Yglesias
defends sustained and increasing progressivity (emphasis added):

As Ed says, the argument is that “we can’t have progressives taxes because somebody’s rich uncle might not have the wherewithal to subsidize somebody’s business start-up.”

I’m not going to dignify this with a response. I’ll just note that Schramm is president and CEO of the Kauffman Foundation and I believe he was in the room when I first heard the “rich uncle” argument, so I may have been present at the creation of this particular talking point. Meanwhile, the crippling long-term budget deficits that will result from refusing to raise new revenues are not going to be doing any wonders for entrepreneurs. And perhaps more directly to the point, the lack of a guarantee of affordable health coverage is a major impediment to entrepreneurship in the United States. The status quo systematically discourages talented, skilled people form leaving jobs at existing firms in order to strike out on their own, and this is one of the things the administration is trying to address in its budget proposals.

It’s very useful to frame problems with the solution in mind.

Long-term budget deficits occur because Congress does not match spending to tax revenue. (They are crippling because Congress believes that politics is more important than either economics or accounting.) There are at least two solutions. Congress can raise new revenue, as Yglesias suggests. Within that solution, it can raise taxes on high-income Americans or lower-income Americans. Fairness and equality in treatment suggest that everyone should share the burden, if we are to raise taxes. That’s beyond my point here, so I’ll back up and reiterate: Congress can raise new revenue. Congress can also reduce spending. Is that not an acceptable option? Ignoring it reeks of a preference for social engineering over responsibility.

Nor would I write that the lack of a guarantee of affordable¹ health coverage is the impediment implied. If person X quits her job to start a business, she loses her medical coverage after a certain period of (more expensive) COBRA coverage. Tying health insurance to an employer is the problem. If her business becomes successful, then her employees will be burdened as she was if they want to leave. The system is flawed and needs to be fixed because it limits individual choices. We should begin our search for a solution from that starting point. Changing our treatment of health insurance to resemble other decisions individuals make for themselves independent of how they earn income is a possible solution Mr. Yglesias ignores.

The general theme within Mr. Yglesias’ framing appears to be a push for equality of outcome rather than equality of treatment. Equality of outcome will never happen in practice for precisely the reasons that his proposed solutions are possible in America. The political atmosphere makes it possible to treat others “more equal” by pitting one group against another, with the politicians conveniently acting as final arbiter. Endorsing that system is at least an implicit statement that control is fine as long as you are the one in control. It’s either that, or the person proposing such a statement is ignorant. I don’t think Mr. Yglesias is ignorant.

¹ I will ignore the issue of affordability here. Such a subjective word requires a much deeper analysis, including the trade-offs, that I’m not interested in addressing in this post. Let it suffice that Mr. Yglesias and I probably agree very little on the matter.

Linkfest

LINK: From the April issue of reason, Matt Welch addresses the ongoing topic of “liberalterianism” and how it’s doomed. The heart of his argument, which I agree with completely:

It is certainly no surprise that any party, let alone the Democrats, would want to use that fancy government once it held the awesome reins of power. Unified Republican governance this decade should disabuse even the most gullible from the notion that either of our two major parties is ever going to enact a small-government agenda, especially during a perceived crisis. But already during Obama’s first 100 days we’ve seen how quickly liberals will turn against libertarians once they’re no longer swinging at the same piñata.

Small-l libertarians will never find sufficient common ground with anyone interested in maintaining partisanship at the expense of ideas.

LINK: Also from reason Ronald Bailey discusses a free market approach to health care coverage proposed by University of Chicago economist John Cochrane.

So how does health-status insurance work? As Cochrane explains, “Market-based lifetime health insurance has two components: medical insurance and health-status insurance. Medical insurance covers your medical expenses in the current year, minus deductibles and copayments. Health-status insurance covers the risk that your medical premiums will rise.” Cochrane offers the example of a 25-year-old who will likely incur $2,000 in medical expenses in a year. His medical policy component would thus cost about $2,000 per year, plus administrative fees and profit. For purposes of illustration, Cochrane then assumes the 25-year-old has a 1 percent risk of developing a chronic medical condition that would increase his average medical expenses to $10,000 per year. In that case, he would be able to buy medical insurance for $10,000 per year—which is a big financial hit. That’s where health-status insurance comes in: It insures that you can be insured in the future.

I’m not fully convinced that this would work, but I’m not unconvinced, either. I don’t know enough. However, the idea seems to be based in personal responsibility. Life is unfair, so some of us get sick. There are costs involved. It’s unfortunate if medical costs cause financial distress. We should mitigate that, but provide individuals the options to do that for themselves. That is the right approach.

Mr. Cochrane also discusses how his plan would help separate health insurance from employer provision. That will be a feature of any responsible health care reform. (Transferring the incentive from employer to government does not qualify as that type of responsible reform.)

LINK: Harold Meyerson is an incurious propagandist:

But in the United States, conservatives have never bashed socialism because its specter was actually stalking America. Rather, they’ve wielded the cudgel against such progressive reforms as free universal education, the minimum wage or tighter financial regulations. Their signal success is to have kept the United States free from the taint of universal health care. The result: We have the world’s highest health-care costs, borne by businesses and employees that cannot afford them; nearly 50 million Americans have no coverage; infant mortality rates are higher than those in 41 nations — but at least (phew!) we don’t have socialized medicine.

Universal education is not “free”. The minimum wage costs jobs. Financial regulations overlooked obvious warnings of Bernie Madoff. “Nearly 50 million” uninsured is not true. Infant mortality is more complex than a quick comparison can demonstrate.

He also wrote this, so it’s clear that he’s interested in his narrative more than facts.

Take it from a democratic socialist: Laissez-faire American capitalism is about to be supplanted not by socialism but by a more regulated, viable capitalism. And the reason isn’t that the woods are full of secret socialists who are only now outing themselves.

We do not have laissez-faire capitalism. No amount of stating preferred explanations will make them true.

LINK: Steven Pearlstein defends President Obama’s budget in a way I don’t fully understand.

In the meantime, the federal government is one of the few entities that is still able to borrow in the current environment, and given the perceived safety of buying government bonds, the cost of that borrowing is about as low as it has ever been. From a purely cash-flow point of view, substituting 18 percent credit card debt with 3 percent Treasury bond debt is a positive development for the grandchildren.

The 18 percent credit card debt makes no sense here. Government borrowing isn’t replacing that. And my hypothetical grandchildren do not have any debt right now. Adding more, even at 3 percent, is hardly a positive development for them. The administration intends to grow the debt, not refinance it.

Refinancing costs are relevant, too. If the so-called positive development of new debt at 3 percent interest helps us, what will this new debt look like at 4, 5, or more percent when interest rates rise, as they will? Maintaining the apparently-permanent interest payments is a cost.

He continues with a bit about how infrastructure creates lasting economic value without defending it. Would the Bridge to Nowhere have justified its cost? Doesn’t matter, it seems. He reassures:

Strange as it may sound, there are times when it’s necessary to make things worse in order to make them better. Fighting a war to achieve a lasting peace. Making a patient sick to cure his cancer with radiation or chemotherapy. And, yes, taking on more debt to help get the country out of a debt-induced recession.

Unlike chemotherapy, where doctors eventually stop dosing a patient, what evidence do we have that politicians will ever believe we’ve reached the “ideal time for the government to deleverage and put its financial house in order”? The new deficit spending is permanent. The only open question once the budget passes is who will pay for it. Right now, the answer is “the rich” and the Chinese. Eventually, it will be the middle class, including all of our grandchildren.

LINK: Wanting an iPhone does not mean a consumer is entitled to an iPhone with the carrier of his choice.

The Consumers Union, the New America Foundation, and the Electronic Frontier Foundation, as well as software provider Mozilla and small wireless carriers MetroPCS (PCS) and Leap Wireless International (LEAP), are lining up in opposition not only to the Apple-AT&T partnership, but to all manner of arrangements whereby mobile phones are tethered exclusively to a single wireless service provider.

Apparently a voluntary contract between two parties means nothing if it means a consumer has to then make a choice that she doesn’t like. I want an iPhone with Sprint, but I can’t get it. My response is to decide which has more value and act accordingly, not whine to the government.

More Consumers Union nonsense here and here.

Capitalism improves. Social engineering punishes.

In yesterday’s Washington Post, E.J. Dionne wrote a column around this idea:

The central issue in American politics now is whether the country should reverse a three-decade-long trend of rising inequality in incomes and wealth.

Politicians will say lots of things in the coming weeks, but they should be pushed relentlessly to address the bottom-line question: Do they believe that a fairer distribution of capitalism’s bounty is essential to repairing a sick economy? Everything else is a subsidiary issue.

Apparently we can’t ask whether or not our current and prior attempts to achieve a “fairer” distribution of capitalism’s bounty contributed to our sick economy. Not that we have capitalism in the way that Dionne wishes to imply. The failings of a mixed economy do not prove that it’s time to toss the capitalism from the mix. Making that case requires a bit more than tossing around the undefined, subjective word fair and pretending that the argument is won.

As Dionne continues:

“Over the past two or three decades, the top 1 percent of Americans have experienced a dramatic increase from 10 percent to more than 20 percent in the share of national income that’s accruing to them,” said Peter Orszag, Obama’s budget director. Now, he said, was their time “to pitch in a bit more.”

Is there more direct proof that liberals view the rich as the nation’s piggy bank than claiming it’s time for the top 1 percent “to pitch in a bit more”? Does Orszag mean the top 1 percent who paid 39.89% of all federal income taxes in 2006? Dionne is saying that it’s okay to increase the existing unfairness in the tax code because the disparity in income at the extremes is unacceptable to his sense of fairness. He must ignore the question of whether or not the alleged victims of the unfairness of capitalism’s bounty are better off than they were in the past. He concludes:

Do we want to be a moderately more equal country or not? This is the question Obama has put before the nation. Let’s debate it without the distracting rhetorical sideshows designed to obscure the stakes in the coming battle.

I would ask something different: Do we want to be a more productive country or not? Does everybody gain, even if the distribution is “unfair”, or do we harm some to improve others in the short-term? Dionne has the wrong preference.

Only We the People go to jail for unpaid taxes.

I wrote about Tom Daschle not paying his taxes on Twitter this morning, but it warrants another mention, this time with a comment from David Boaz at Cato @ Liberty:

I sympathize with anybody trying to hold down his tax bill. Government is too big and too expensive, few of us feel we get our money’s worth from our taxes, and we all have better uses for our money than bridges to nowhere and free condoms. But honestly, shouldn’t people who want to increase taxes on the rest of us — like Daschle, Geithner, Eleanor Holmes Norton, Chairman Charles Rangel, Al Franken, Governor David Paterson’s top aide, Democratic National Convention staffers, Al Sharpton, and so on — pay their own taxes? [Links omitted for aesthetics]

Higher taxes are always about forcing the other guy to pay for what you think everyone should have. When it’s not about power, it’s about requiring people to care about the “right” outcomes.

But, never forget that it’s always about power.

Which Atlas Shrugged character is he?

I’ve been wrapped up in playoff baseball for the majority of the last three weeks. Much of the world is passing through my filter with scant attention. But Senator Obama managed to poke through that filter with a loooooong commercial about taxes. I sat dumbfounded through the second minute because I couldn’t believe he’d use such an obvious pander. From the ad:

…

On taxes, John McCain and I have very different ideas. Instead of giving hundreds of billions in new tax breaks to big corporations and oil companies, I’ll cut taxes for small and startup businesses that are the backbone of our economy.

Instead of more tax breaks for corporations that outsource American jobs, I’ll give them to companies who create jobs here. Instead of extending the Bush tax cuts for the wealthiest — I’ll focus on you.
…

If he is speaking to all Americans, as he clearly wants us to believe, who are the non-“you” taxpayers he is speaking about rather than to? Has there ever been a clumsier example of creating a “Them” for “Us” to despise?

Senator Obama may think he can pass off his class warfare bribe as an enlightened, good-for-society measure. Given the unthinking, partisan nature of much of America, he’ll probably pull it off with his half of the electorate. That does not change the undeniable fact that there is a group – consisting of “all men are created equal” Americans – he thinks he can harm because a) they have something he wants and b) they’re a minority of the population to be demagogued into submission. How very progressive.