Fantasy Policies

Maybe its something in the water. Right along with the popularity of fantasy football, as Robert Samuelson points out in his most recent Washington Post column, we have fantasy tax policies from both political parties. I can’t say that the fantasies are equal and opposed but they’re certainly different. Here’s the Republicans’ fantasy:

Many Republican candidates have already issued detailed plans that lower personal and corporate income tax rates. For instance, Jeb Bush would replace today’s seven individual rates with three — 10 percent, 25 percent and 28 percent — and cut the top corporate rate to 20 percent from today’s 35 percent. Some of these cuts are offset by eliminating personal and business tax breaks. But not all.

The nonpartisan Tax Foundation evaluated seven Republican tax plans and concluded that all lose gobs of tax revenue. Some estimated shortfalls are gigantic. Over a decade, Donald Trump’s plan results in a $12 trillion revenue loss. The other losses include $6.1 trillion for the plan from Sen. Marco Rubio (R-Fla.) and $3.7 trillion for Bush’s.

and here’s the Democrats’

The same can be said of Democrats’ faith in soaking the rich. Their political narrative seems powerful. The rich have gotten richer and don’t pay their “fair share” in taxes. Raising their taxes will temper inequality and finance good causes. Redistribution becomes an engine of social justice. The trouble is that the math doesn’t match the rhetoric, as a new Brookings Institution study shows.

In it, economists William Gale, Melissa Kearney and Peter Orszag asked this question: What would happen if the top income tax rate were increased from 39.6 percent to 50 percent? The answer — less than you think.

For starters, it would raise about $100 billion in tax revenues. That seems like a lot (and is), but it’s actually slightly less than a quarter of the $439 billion budget deficit for fiscal 2015. Never mind paying for new programs. Even if the $100 billion were directly distributed to the poorest fifth of Americans (an average $2,650 per household), the effect on overall inequality would be “exceedingly modest,” the authors say.

From these contrasting fantasies Mr. Samuelson concludes that tax increases that extend well into the middle income quintiles is in our future. I think it’s more likely that there won’t be any tax reform at all.

There are three good, practical ways to reduce income inequality: increase the number of jobs, increase the pay of the jobs on offer (without reducing their number), and reduce the subsidies we’re paying to the top decile of income earners. None of those makes a particularly good soundbite.

3 comments… add one
  • Guarneri Link

    Not that these observations have a chance in hell of implementation, but if you want a more growth friendly tax scheme – and I can’t imagine one wouldn’t unless you are a politician – you need to focus on simplification and reducing the drag on investment returns.

    This would involve broadening the base by ridding the code of the myriad “loopholes,” exemptions and social engineering schemes while reducing marginal rates. Stop the damned credits through the tax code, and just make direct cash transfers. It was proposed by M Friedman almost 50 years ago. The most potent exemption reductions would probably be the mortgage interest deduction, charity and health care. And then we have LT ST cap gains shenanigans, credits for electric cars or babies etc etc etc. I can’t imagine a more regressive motley Crüe of provisions. But they are sacred. We really don’t want what we say we want.

    The corporate tax rate should be zero. Pass through income to owners at the rate they find themselves in. Else you will see the tax passed through in a significant way in prices or lower wages. Regressive. Worse, but better than today: reduce the rate to international standards. But you still keep K. Street employed, and an ongoing battle.

    Why will things like this never happen? Because pols horse trade this stuff for votes and campaign contributions, and will demagogue reform as favoring the rich, which of course in reality the current system does quite well. But the electorate are too ill informed, and too busy with the Kardashians…..

    They get what they implicitly want, and they get it hard.

  • ... Link

    Why should any of the major Presidential candidates worry about making campaign promises that make sense? None of the recent actual Presidents have bothered with such a high bar for actual policies.

    The truth is that no one in DC has given a shit about deficits since Gingrich left office. It’s all just funny money, and they’ll make it up as they go along. Members of the American electorate only care about deficits when the President is a member of the party they voted against. We see that here, with steve still kvetching about W’s deficits while only caring about Obama’s much larger deficits. (In fact, most Obama supporters seem to think Obama should have run substantially larger deficits. See Paul Krugman and Michael Reynolds as examples.)

    So the tax proposals don’t mean anything. The tax code is merely a way for the rulers of the country to punish their enemies (the majority of Americans, mostly*) and extract money from lobbyists. That’s it.

    * Proof of what I’m saying: That “man of the people, friend of the working person”, the socialist Bernie Sanders, has admitted recently that he plans to substantially jack up payroll taxes. Since those are the most regressive taxes out there, he is, in fact, proposing to punish the idiots that want to vote for him. All in the name of going after the rich, of course.

  • ... Link

    Incidentally, I’ve recently been watching a bunch of WWII propaganda put out by the US government – Why We Fight, War Comes to America, Know Your Ally: Britain, that sort of thing. It had been airing on TCM a couple of months back and I decided to record a bunch of it.

    What’s funny about it is that they keep making the point that John Q. Public is in charge of America, not some elite self-selected ruling class that thinks they know best about everything. It’s very strange to see that the US government/ruling class is now the kind people we were fighting 70 years ago.

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