On Taxing The Rich And Other Options

I want to share some thoughts I recently sent to a relative concerning taxation.

This was triggered by a recent spate of what I view as mean-spirited comments about how lucky poor people are, since they don't have to pay income tax. Of course, if they have a job, they pay payroll tax and Medicare tax, as well as state taxes like sales tax and property taxes (if they own anything at all).

The discussion has become more heated since the disclosure that many super wealthy individuals pay income tax at a lower rate than their secretaries.

A frequent question is, "what's fair?" This may be the wrong question. I think a better question is, "what taxation policy leads to greater general prosperity?" That is, "what works best?" But we need to keep the goal in mind - improved general prosperity.

I shared the following thoughts:

There is, of course, a whole literature on taxation issues. Some of it is even interesting. I commend to your interest the article at this link and the ensuing discussion.

I find the idea of taxing the superrich at a marginal rate of 70% intriguing. Some things I know because I have lived a long time and have been paying attention for most of that time. I know, for example, that the period of greatest general prosperity in this country (say, 1946 to 1976) was also a period of high marginal income tax rates and a very progressive tax structure. It was also a period of powerful (or at least influential) labor unions.

In that period, banking was a pretty boring activity. Bankers were generally stolid and unimaginative, but reliable. Interest rates were low. Regulations to insure a stable banking system were pretty strict. Savings and Loans played an essential role in expanding the nation's housing stock at affordable prices.

There was great concern after the war over the possibility of high inflation, but also over the possibility of a postwar depression. Neither happened, in part because we had a skilled bunch of economists working to bring us in for a soft landing. Elements of the solution: GI Bill took millions of returning GI's off the labor market during a crucial period; the Marshall Plan provided the wherewithal to foreign countries to buy industrial and agricultural products from us (anti-depressant); great pent up demand for housing and automobiles as well as other durable goods, plus significant savings accumulated during the war (war bonds, etc) when there was little to buy, anyhow and what there was was rationed.

These were all practical measures, mostly driven by what works.

My view of economics is that it should continue to be driven by what works, not by theories (or conjecture or assertion) divorced from reality and unsupported by real world data.

By the way, if you are looking for a country with low (or no) taxation, little regulation, etc. I can think of several.  Somalia comes to mind.

I have no problem with the idea that people with little income should pay no income tax.

I do have a problem with measures favoring one kind of income over another. Why shouldn't we value wages and salaries at least as high as dividends and capital gains?

How about a flat income tax deduction? Same for everybody. You want to buy a mansion? Fine. You get the same housing deduction as the guy who rents. 

Just a thought.

Follow The Money

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General Prosperity Or Particular Prosperity?

Along the same lines as yesterday's post by Robert Reich is an interesting examination of why business leaders aren't calling for economic stimulus. As this article points out, in the 1940's business leaders joined together to press for a substantial federal stimulus to protect against a postwar depression.

It worked.

Even in an earlier period, Henry Ford recognized that if his workers couldn't afford to buy his products, his factories wouldn't prosper. So he paid well and prospered greatly himself.

But in today's world, executive compensation is divorced from the overall performance of the economy. For that matter, it seems divorced from executive performance in any normal sense.

This needs attention.

Public Morality

It seems like every even year, we have a flurry of political rhetoric about SEX. For many, it seems that morality = SEX and associated discontents.

There is a different view: public morality has to do with questions of who benefits and who pays. Government's principal activity is to make the rules that control economic outcomes. Members of the public who believe the deck is being stacked against them should see this as the moral issue of our day.

There are those who spend a lot of time thinking and analyzing such issues. Foremost among them is Robert Reich.

I commend to your attention his latest article, "The Difference Between Public And Private Morality."

The heart of his argument: "There is moral rot in America but it’s not found in the private behavior of ordinary people. It’s located in the public behavior of people who control our economy and are turning our democracy into a financial slush pump. It’s found in Wall Street fraud, exorbitant pay of top executives, financial conflicts of interest, insider trading, and the outright bribery of public officials through unlimited campaign 'donations.'"

That hits the nail on the head.

White Man's Burden II?

I spent my adult life in defense of democracy. Not because our own democracy is perfect, but because it has the chance of standing up to various forms of authoritarianism and despotism. I was not an anticommunist crusader. I did support the late George Frost Kennan's approach of defending American interests by containing Soviet power.

At the same time, I agreed with the late Marshall Shulman's view of the Soviet-American conflict as a "limited adversary relationship," not an apocalyptic one.

Through all of the Cold War period, I never thought the United States had an obligation to establish democratic regimes in other countries. Not our job. Beyond our power.

My entire life has been spent against a backdrop of war and rumors of war. But the most important efforts in defense of democracy have been right here in the USA.

Authoritarianism and despotism continually lurk in the wings. And they have deep pockets.

The overwhelming question was raised by Abraham Lincoln: can a nation "of the people, by the people and for the people" long endure. The "existential threat" so frequently mentioned by the G.W. Bush administration, comes not from abroad, but just as in 1861, it comes from ourselves.

These thoughts are pondered in the somber light of the actions by an American sergeant in Afghanistan. That sergeant's systematic murder of sixteen Afghan citizens in their beds for no apparent reason highlights the tensions between our servicemen and local residents in Afghanistan.

Here, in an article by David Rieff, is one of the most thoughtful and thought-provoking examinations of our proper role in the world I have seen recently. It's worth reading and pondering. 

Maybe it's time to bring our forces home.

Throwing Eastern North Carolina Under The Bus?

Today's article in the News and Observer about possible tolls on I-95 should be a wake-up call. Tolls for Pamlico County commuters may be just the beginning.

Is there anyone out there who thinks tolls on I-95 won't shift traffic across North Carolina further inland? Say, through Raleigh and Charlotte?

Will that be good for business in Eastern North Carolina? Not likely.

I know that I-95 is projected to become congested along its entire link by 2030. But toll booths are likely to increase, rather than alleviate, congestion.

Contributing to the problem is that both the US Department of Transportation and the North Carolina Department of transportation are really just the same old highway departments of old. They love pouring concrete and building bridges. They don't yet (and may never) address transportation as a system. The function of the system is to move goods and people from where they are to where they need to be.

Roads and highways aren't the only way to move people and goods around. Rail, for example, is much more energy efficient than trucking. Most energy efficient of all is water transport. We have lots of water here in Eastern North Carolina. Here's a plan to use it to alleviate congestion on I-95.

Let's have no tolls on any North Carolina highways.

Blame Game

When Oriental resident Greg Piner wrote Phil Berger, President Pro-Tem, NC State Senate about the ferry toll issue, Mr. Berger answered:

“Unfortunately, the financial mismanagement of our predecessors in the legislature created a staggering $2.5 billion budget deficit – the worst in state history."

Mismanagement? Has Mr. Berger noticed that, beginning in 2008 the United States suffered the greatest economic downturn since the great depression? There were a lot of reasons leading to the collapse of our financial system and the "great recession" that followed, but financial management actions of the North Carolina legislature are not among them. As any elected official well knows, but some refuse to admit for partisan reasons, financial crises cause reduced revenue and increased safety net expenditures.

Mr. Berger continues: "It [the deficit] forced us to make tough decisions to fill that hole and balance the budget – including implementing a minimal user fee to offset a small percentage of the cost of coastal ferries, which are funded by every taxpayer in North Carolina."

Not exactly. The deficit was large, but it didn't force any particular measure. Governor Perdue submitted a balanced budget to the legislature that did not include tolls for commuter ferries and did not include the massive cuts in education funding contained in the legislature's bill that the governor vetoed.

The tolls were not necessary. Nor do they contribute measurably (or perhaps even at all) to balancing the budget. The tolls, as well as massive cuts in funding for public education, resulted from decisions made under Mr. Berger's leadership. They represent his priorities and those of Mr. Tillman in the House.

What You Don't Know Won't Hurt Us

Judging from the current primary campaigns as well as what has happened in many states when Republicans take over, the new operative slogan might be, "what YOU don't know won't hurt US" (with apologies to Paul Krugman for my blatant plagiarism).

Alternatively, "billions for defense but not one cent for public education (let the kids fend for themselves)."

Another possibility: "we don't need no stinkin'" (pick one or more)
1.  Early Childhood Education;
2.  Higher education;
3.  Research;
4.  Free highways;
5.  Facts (facts have a known liberal bias);
6.  Foreigners;
7.  Diversity;
8.  Stimulus;
9.  Economic Development ("REAL Enterpreneurs spend their OWN money");
10.Networks (except for Fox).