June 02, 2003

Why Are We Ruled by These Idiots? CXII

The New Republic covers the Republicans' false and shifting rationales for why they decided to leave one in six children behind in the current tax cut.


The New Republic Online: etc.THE BUSHIES' LAME EXCUSE FOR SCREWING THE POOR: Yesterday's New York Times reported that the tax cut bill George W. Bush rammed through Congress and signed into law on Wednesday mysteriously omits a provision that would have increased the child tax credit for families making between $10,500 and $26,625 from $600 to $1,000. The provision would have cost a mere $3.5 billion, and would have benefited about 12 million children, or, according to the Times, one out of every six children under the age of 17. When asked about the omission, a spokeswoman for the Republican-controlled House Ways and Means committee, which oversaw the junking of the provision, argued that the Senate's insistence on a $350 billion cap for the entire tax cut package had forced the Republicans' hand. "The Senate preferred to have $20 billion in state aid. But when we had to squeeze it all to $350 billion, they weren't talking about the child credits."

This argument is, of course, preposterous on its face. House and Senate Republicans managed to fit something on the order of $800 billion in tax cuts into what was officially a $350 package, mostly by using a series of shady accounting tricks. Surely they could have found a way to squeeze in another $3.5 billion (or 1 percent of the total official cost, for those keeping score at home). And, if not, then surely they could have reduced the tax on capital gains and dividend income by a marginally smaller amount so as to make room for the provision. (These tax cuts that will cost hundreds of billions of dollars over the next ten years.)

So, perhaps sensing the ridiculousness of this argument, the White House is now trotting out a new line: that people too poor to pay taxes in the first place don't deserve tax credits. (Actually, this is a very old line--one the administration used again and again when explaining away the fact that 40 percent of the benefits of Bush's 2001 tax cut went to the top 1 percent of income earners--but it's apparently been revived for this latest occasion.) As Ari Fleischer puts it in today's Times article, "Does tax relief go to people who pay income taxes and forgive their income taxes, or does it go above and beyond the forgiving of all income taxes, and you actually get a check back from the government for more than you ever owed in income taxes?"

But this turns out to be even more preposterous than yesterday's spin. For one thing, there are tons of families making above the $26,625 threshold who would have had no income tax liability before the new tax cut went into effect, but who will still enjoy the more generous tax credit--people who, in Fleischer's words, would "actually get a check back from the government for more than [they] ever owed in income taxes." If the White House is serious about awarding tax credits only to people who have some tax liability, shouldn't these people be excluded as well?

But even more damning is the fact that the administration itself has already agreed that families making between $10,500 and $26,625 should enjoy the more generous tax credit that Republicans denied them this week: As the Brookings Institution's Peter Orszag points out, the 2001 Bush tax cut already awards it to them, albeit not until 2005. The only thing the omitted provision would have accomplished would have been to accelerate the phase-in of the more generous tax credit by two years. But, of course, doing that might have given cash-strapped families money to spend at a time when the economy desperately needs them spending it. Good to see we dodged that bullet.

Posted by DeLong at June 2, 2003 04:44 PM | TrackBack

Comments

As Eric Alterman would say, "gee thanks, Ralph."

Does anyone have any statistics on if and how that lowest-income tax-bracket voted? I doubt many of them did. It seems to me that all the Democrats have to do to win any next election is to mobilize that vote over this issue. Boom -- 10 poll points!

Well I can dream, can't I?

Posted by: Alan on June 2, 2003 05:31 PM

Why doesn't someone in congress propose a bill to cut this tax by 3.5 billion now? They could even be more wacky and find 3.5 billion in spending to cut and make the package revenue neutral!

Posted by: Rob Sperry on June 2, 2003 06:48 PM

Gallup occassionally has articles on this.

Here's one, by subscription only:

http://www.gallup.com/subscription/?m=f&c_id=9975

My recollection is that urban areas, postgraduates, blacks overwhelmingly vote for Democrats. Religious, rural, high-school graduates, and the wealthy generally vote for Republicans. Then there were marginal differences, such as a slim lead in college educated (2 or 4 year) persons tending to vote for Republicans and women more likely to vote for Democrats.

Class divide alone is, oddly enough, a poor campaign issue. Americans tend not to associate themselves with lower classes, regardless of what their incomes are. Many Americans would be shocked to find that their taxes actually went up during the 80s, were unaffecfted throughout the 90s, and largely unaffected after 2 of the largest tax cuts in history.*

Americans are unlikely to be swayed on issues that relate to class or that rely on numbers for which they are generally unaware.

(Payroll taxes went up during the 80s. The bottom 40% of wage earners saw their taxes increase slightly. Taxes went up in the early 90s for the highest decile. As the most recent cuts are mostly income tax cuts, those with children in the bottom 40% saw their taxes go down not at all or only slightly. This is what I mean by 'many' and 'most'.)

Posted by: Saam Barrager on June 2, 2003 07:34 PM

The $350 Billion package was the tax cuts that go with the GOP budget. The GOP has always said that they want to come back with another tax cut bill to include what they could not fit in the $350 Billion.

So they will put the $3.5 Billion for the poor in with another $300 BIllion for the wealthy and dare their opponents to vote against tax cuts for poor people. This is all about politics and winning and losing. It is not about good policy and fairness. It will come back. Mark my words.

Posted by: bakho on June 2, 2003 07:42 PM

I see those wild-eyed Marxist revolutionaries at the New Republic are at it again: a column on the tax bill that uses words like "poor" and "people" (and even, shockingly, the phrase "poor people") is virtually a manifesto for class warfare.

Posted by: Invisible Adjunct on June 2, 2003 08:43 PM

An' anuther thing: What's this *earned* income tax credit sillitude?

Surely people who don't have earned incomes are the ones who deserve tax credits the most. They have corporation tax, gasoline tax, the coin laundry owner's Social Security tax and so forth built into their cost of living right now, modulo the various elasticities, even if they aren't paying Federal income taxes.

Surely they should be first in line to get their taxes back.

When income taxes were first introduced -- before they were even Constitutional :-) -- the top 2% of income earners paid 100% of all income tax. Seems like a good point to aim for.

One could be just a wee-ee bit less Draconian than that and restrict the income tax to the top 2% of all income earned, and still get this bit of government off about 95% of the people's backs.

Revenue neutral? If tax reduction is an incentive to productive work, reducing taxes for 19 opeople out of twenty ought to cause an explosion in the nation's productivity!

Posted by: David Lloyd-Jones on June 3, 2003 06:52 AM

Off topic, but could someone recommend a couple pretty good introductory economics books -- one liberal, one conservative? I have a feeling that Samuelson 1965 is out of date by now.

Don't recommend first editions of anything, because I'm going to buy cheap slightly-out-of-date versions.

Posted by: zizka on June 3, 2003 07:53 AM

"Why Are We Ruled by These Idiots? CXII"

Something called free elections? Partisans often believe in elections only when they produce the desired result, of course. But who was it that said that a people gets the government they deserve?

I must have missed parts I-CXI of this post. Perhaps the answer is in there?

Posted by: pj on June 3, 2003 08:20 AM

DeLong: Tax cuts are terrible. They don't help people, on net, because they ruin our fiscal health over the long term.

[pause]

DeLong: Tax cuts for the poor! We should help people, BY CUTTING TAXES! Of course, we should help only the people that I like. They're the only ones that deserve to keep more of their own money.

Oh well, guess I'll go back to my guaranteed-for-life job and bitch about the rich people who work for a living, in between boring everyone with stories about my precocious children.

~

Give it up, man.

Posted by: sick of you, delong on June 3, 2003 08:29 AM

Cutting veterans benefits and aid to poor children - because being mean-spirited is its own reward.

Posted by: citizen k on June 3, 2003 08:33 AM

Back in the day when the Republicans wanted to get rid of the Commerce Department, you all said that was "mean-spirited" too.

The only thing that's not mean-spirited is taxing working people until they can't afford to do anything for themselves. I'll remember how much you care when I see the thousands of dollars taken out of my paycheck every year. Thanks a lot, you little compassion-fascist.

Posted by: sick of you, delong on June 3, 2003 08:40 AM

You know, dude, it would be pretty embarrassing if you turned out to be using a computer with the same IP number as Donald Luskin's.

Posted by: dsquared on June 3, 2003 09:02 AM

Hey sick of Delong! Why not read some different Blogs?

http://www.brinklindsey.com/

http://www.anagelikethis.com/

http://denbeste.nu/

I can't bring myself to steer ANYONE toward The Conspiracy to Keep You Poor and Stupid, though.

Speaking of den Beste, whatever happened to SSDB, dsquared?

It's really kinda creepy, the way this administration forgets little things like a few billion dollars for Afghanistan which would have been quite useful toward helping stabilize things or appropriating sufficient (but not large, if well spent) funds for national security, while able to spend hundreds of billions on incentive-free tax cuts and the like. It's almost as if they were trying to do the exact opposite of the national interest. It doesn't even seem like it's about special interest politics: it seems like it's just about trying to do as much damage as possible to the USA.

I think they're communist spies.

Posted by: Julian Elson on June 3, 2003 09:30 AM

"Why are we ruled by these idiots?"

Because the Democrats are even stupider idiots, and spineless too.

Hope that clears that up.

Sorry, but I get wistful when I think about what it would be like to be in a country that actually had a "loyal opposition" -- both words actually having meaning. We might actually have some sort of political balance of the sort that gave us reasonable economic policy in the 1990s. We might actually have a government that didn't seem divided between decisive but insouciant Republicans and tremulous, querulous Democrats. It could be pretty neat. But, no, I forgot -- that would require the Dems to *take responsibility* for something, and that seems to be unpossible.

Anyway, like I said -- we're ruled by these idiots because these idiots are marginally smarter and braver than the former idiots. Better get used to it.

Posted by: Erich Schwarz on June 3, 2003 10:01 AM

D-squared:

Yeah, that would be pretty embarassing, wouldn't it? Just b/c Luskin's a bad critic, doesn't meant that Krugman/de Long etc. are right.

Mr. Elson:

What can I say? I really like to debate. I'm also stunned by the complete certitude and lack of self-examination on this blog. It's like a car-wreck: revolting, yet mesmerizing.

I'm also attracted to arrogance in roughly the same way that flies are attracted to, well, you know...

Posted by: SOY,D on June 3, 2003 10:35 AM

Alan,

The National Election Studies center at the University of Michigan is the place to go. Their data files are a bit unwieldy unless you have a copy of SPSS or Stata lying around, but they have reliable large-N data on this and more.

http://www.umich.edu/~nes/

Posted by: david on June 3, 2003 10:59 AM

We are ruled for the time by radical-conservatives who are doing all they can to mask their intent and policies. Intent and policies are designed to undo Social Security, Medicare, and Medicaid. Also, to increasingly favor the rich in policy at the expense of the middle class. As to providing opportunity to the poor, that seems an absurd idea to these radical-conservatives.

Posted by: lise on June 3, 2003 11:08 AM

SOY'D: So debate!I think you've missed the point so far.

Tax cuts for the very very richest do not buy you much stimulation per buck and large deficits cost something too is I think a better explanation of the first argument you refer to. Care to disagree?

As for the second, backtracking on a tiny tax break for the poor (~1 per cent of the package even allowing the sunsetting) while slashing capital gains and making >6,000lb SUVs deductible is mean and not very stimulative is my understanding of the second. Are those not facts or is that interpretation exceptionable? Do you have a view?

I think Prof De Long is pretty hard to fault on his work rate and stories about his kids only bore with your consent.

Do you have any interesting questions to provoke a useful self examination?

Posted by: Jack on June 3, 2003 11:15 AM

>could someone recommend a couple pretty good introductory economics books...

Economics in One Lesson, by Henry Hazlitt
Basic Economics, by Thomas Sowell

Posted by: George Zachar on June 3, 2003 11:16 AM

SOY'D: So debate!I think you've missed the point so far.

Tax cuts for the very very richest do not buy you much stimulation per buck and large deficits cost something too is I think a better explanation of the first argument you refer to. Care to disagree?

As for the second, backtracking on a tiny tax break for the poor (~1 per cent of the package even allowing the sunsetting) while slashing capital gains and making >6,000lb SUVs deductible is mean and not very stimulative is my understanding of the second. Are those not facts or is that interpretation exceptionable? Do you have a view?

I think Prof De Long is pretty hard to fault on his work rate and stories about his kids only bore with your consent.

Do you have any interesting questions to provoke a useful self examination?

Posted by: Jack on June 3, 2003 11:25 AM

Jack,

Glad to oblige!

Is getting rid of dividend double-taxation a tax-cut for the very richest? I had thought that this was one of those rare birds where all economists, left and right, were in agreement. Is it not true that the top 5- 10- and 20% of earners pay a greater percentage of income taxes than is proportional to their income earned?

Isn't it true that the bottom, say, 20% pay no income tax at all (in proportionate terms)? Is it not possible that one could see a situation where an entire group of people views the top 20% of earners as nothing more than a cash cow? As people who must be wrung out for their filthy lucre? Is this really the path that we want to go on? Where one income group has the power to tax the other into oblivion?

The Bush administration has taken many lines on the tax cut but one of them (my favorite) was that this was not short-term stimulus but long term rationalization of the tax code. (Coupled, of course, with lower marginal rates.)

I agree that they shouldn't have backtracked on the tax cut for the poor. Although dollars have diminishing marginal utility, taxes hurt the rich just as they hurt the poor. Everyone should have their taxes cut. And government spending should be radically cut back. (The big stuff that no one dares talk about b/c the Democrats have demagogued the issue so thoroughly: medicare, medicaid, soc. security, etc.)

It's a dangerous situation when one class of people pays most of the (income) taxes for EVERYONE's programs.

Posted by: SOY,D on June 3, 2003 11:35 AM

http://www.cbpp.org/

Perhaps you might read up on the tax cut from these articles. The dividend and capital gains tax cuts were decidedly not designed to fix inequities in tax law, rather they created a host of new inequities. This was a tax cut designed to make the tax system regressive rather than proportional, and to hugely increase the budget deficit for years and years. Hopefully those who support such radical-conservative fiscal policy are rich enough to really benefit from it!

Posted by: jd on June 3, 2003 11:45 AM

> Is it not possible that one could see a situation where an entire group of people views the top 20% of earners as nothing more than a cash cow?

Frankly, most non-limousine liberal Democrats I know fall into that category. It's the "fairness" angle.

Posted by: Bucky Dent on June 3, 2003 11:47 AM

http://www.nytimes.com/2003/06/03/opinion/03KRUG.html

Paul Krugman

Even as George Bush stunned reporters by declaring that we have "found the weapons of mass destruction," the Republican National Committee declared that the latest tax cut benefits "everyone who pays taxes." That is simply a lie. You've heard about those eight million children denied any tax break by a last-minute switcheroo. In total, 50 million American households including a majority of those with members over 65 get nothing; another 20 million receive less than $100 each. And a great majority of those left behind do pay taxes.

And the bald-faced misrepresentation of an elitist tax cut offering little or nothing to most Americans is only the latest in a long string of blatant misstatements. Misleading the public has been a consistent strategy for the Bush team on issues ranging from tax policy and Social Security reform to energy and the environment....

Posted by: arthur on June 3, 2003 11:50 AM

Economists believe that eliminating the corporate tax in a revenue neutral manner would be a good thing. Economists view the current tax cut package as a very bad thing.

Double taxation is a red herring. The issue is total taxation. Which is worse, two 10% taxes or one 30% tax?

Focusing on income tax alone is misguided. One shold look at the total tax package, including payroll taxes, property taxes, sales taxes, etc.

>>this was not short-term stimulus but long term rationalization of the tax code>>

The recent tax package is a mess and overly complex. It was a move away from simplicity and retionality, which is not easy given how complex the code was before the changes.

Government spending has jumped under the current administration.


Posted by: richard on June 3, 2003 12:43 PM

>>Something called free elections? Partisans often believe in elections only when they produce the desired result, of course. But who was it that said that a people gets the government they deserve? >>

You might recall that the Supreme Court decided to cut short the free election process.

And that data suggest that if all votes were counted Gore would be president today.

Posted by: richard on June 3, 2003 12:48 PM

>>this was not short-term stimulus but long term rationalization of the tax code>>

Actually this tax cut is the dream of any tax accountant looking to design shelters for clients. There was no "rationaliztion" rather the tax system was made decidely more regressive!

Posted by: anne on June 3, 2003 12:54 PM

Could we go back to the little nugget suggesting that Republicans in the 90s represented "loyal opposition" in the true senses of both words?

What is loyal about fanatically manipulating the OIC laws to overturn election results of which one does not approve? What is loyal about suggesting that attempting to strike Osama bin Laden is a political ploy?

The Republican Party in the 1990s certainly represented "opposition", but they were loyal only to their own ideology.

Posted by: JRoth on June 3, 2003 02:17 PM

Richard,

You really need to go back and review the history of the 2000 elections. Not to put to fine a point on it but based on Gore's case to the Florida and US Supreme Courts there was no way he could win. The only counting scenario where Gore wins the election is if all Over counts (i.e. voted twice on same ballot) and Under counts (i.e. chad, not clear, no vote.) where counted. Unfortunately, or fortunately, Gores legal team specifically ruled out counting the Over counts. This was actually addressed in arguments to the Supreme Court and is in the official court records. If Gore had won the Supreme Court case, and if the Florida State legislature had not presented its own electorates, the only votes to be recounted would be under votes. Under this scenario Bush still wins the election.

The place where ire should be directed is in the approx 3,000 African American voters that where disenfranchised due to clerical error. Yes clerical error. While there is no indication that all 3,000 voters attempted to vote, the idea that any non-incarcerated US Citizen should ever lose their right to vote is very disturbing.

Posted by: james on June 3, 2003 02:26 PM

Actually, it's a perfect measure of the delusional qualities of the likes of Bucky and SOY, D that they argue points in the Comments section on an article that explicitly gives the lie to these points.

Both of these geniuses try to argue that this "oversight" on the tax credit is good because the poor should, of course, pay more taxes - so they'll be thankful for what they get. But, of course, if their reading comprehension matched their dudgeon, they would note that Bush's plan is to give these tax credits to the poor - just a little later is all.

Look, fellas, you can entertain your little Objectivist dreams that you're Howard Roark and John Galt, but the reality is that this administration doesn't give a sh** about rationalizing the tax code, reducing inefficiencies, or cutting overall government spending. They don't care about reducing tariffs or subsidies, they don't care about the freedom of the Iraqi people, and, frankly, they don't care much about the good of this country. Defend your ideas, or defend this administration, but don't waste our time pretending that the two relate.

Posted by: JRoth on June 3, 2003 02:28 PM

>Both of these geniuses try to argue that this "oversight" on the tax credit is good because the poor should, of course, pay more taxes ...

The reason you deliberately falsely attribute noxious ideas to me is...

Posted by: Bucky Dent on June 3, 2003 02:40 PM

Zizka -- Samuelson/Nordhaus is still writing, and his book is now in its 17th edition. It's an old standard, and there is no reasons not to pick up a recent copy.

Krugman and Wells are also about to come out with an eagerly anticipated an Econ 101 textbook in December 2003.

Ideologicaly on the other end, Gregory mankiw (a Bush economic advisor and well know economist) put out a bestseller in 1997. It's now in its second edition and trhere should be plenty of used copies floating around.

I think Krugman/wells and Mankiw satisfy the requirements you seet out. Liberal and conservative. Both very well-respected.

Here is an (old) review of the two books
http://www.economicprincipals.com/issues/02.12.29.html

Posted by: Ikram Saeed on June 3, 2003 04:33 PM

SOY,D wrote, "Is getting rid of dividend double-taxation a tax-cut for the very richest?"

Dividend taxation is not double taxation. A corporation is a legal entity separate from its shareholders. If owners don't like "double taxation," they're always free to reorganize as a partnership.

I also note that you follow the same deceptive line that Bush et al. do, referring to *income* taxes rather than total taxes paid.

Cheers,

Posted by: Stephen J Fromm on June 3, 2003 08:42 PM

SOY, D:

A few points:

1) Social programs spreads risk through the pool of all taxpayers. In a most cases, getting sick, being born disabled, being raised in a dangerous, unstable environment, etc. is not a choice. How do expect those "20% at the bottom" to get anywhere when this risk is not mitigated? Good luck try to save, buy a house or do any long-term planning. Doesn't it seem counterproductive when a huge portion of the population faces a disproportionate, and perhaps debilitating, share of economic risk?

2) In the aggregate the middle class carries the burden of the tax bill. They live off labour income; paying mortgages, funding their kids' education and hoping for a comfortable retirement. Seems to me that tax package gives them a little bit, but it's not going to change their lives.

3) While the poor do consume government social services, it is the rich that benefit from "economic" spending. Infrastructure isn't about connecting national parks, it's about commerce. Corporate welfare and tax expenditures (notably for the oil and gas sector - see the Cheney Report) are beneficial to truck and trade. Oh, and it's the middle class that again picks up the bulk of the bill. This isn't liberal market economics; it's rent-seeking.

4. Oh yeah, one last thing. If the poor do get to sick and destitute, they have a habit of cutting off the king's head (figuratively and literally). I guess that's rent-seeking behaviour too.

Posted by: Stephane on June 3, 2003 09:14 PM

I have a theory about SOY,D. His real name is Don Luskin. Both write a lot of words with little real substance but a lot of nasty comments. And who else would be reading this web cite except the author of the "Truth Squad" (whose tag is even less accurate than Fox News's "Fair and Balanced").

Posted by: Hal McClure on June 3, 2003 09:26 PM

Two things are undeniable regarding this debate: (a) if this Administration wants to give tax breaks to capital income - either taxes will have to be increased somewhere else and that will hit lower income people or government expenditures on transfer payments will have to be massively reduced, which is also likely to hit lower income people; and (b) this Administration will never be honest about (a). But one thing is not clear to me - how can reasonably smart Americans not see this?

Posted by: Hal McClure on June 3, 2003 09:33 PM

`Is it not possible that one could see a situation where an entire group of people views the top 20% of earners as nothing more than a cash cow?

Frankly, most non-limousine liberal Democrats I know fall into that category. It's the "fairness" angle.'

Remarkable. The man is fixated on his "progressive" taxes but entirely of his free will he chooses to live in Manhattan, which had he even the slightest familiarity with 5500 years of civilization, is guaranteed to provide him by far the worst losses WRT taxes on his ROI in his labor. And it mandates that he must send his child(ren) to the high risk pedophile-inclined (but very cheap, blue light special) schools besides!

If *I* was living in Manhattan I'd have no time at all for this blog; good lord, what on earth for?

Son, vote with your feet, as the honorable and doddering RR famously spake, and for the good of your family, move to Idaho, take a powder, and chill.

Posted by: Russell L. Carter on June 3, 2003 11:42 PM

SOY,D wrote: "I'm also attracted to arrogance in roughly the same way that flies are attracted to, well, you know..."

In other words, you're a narcissist.

Posted by: Keith M Ellis on June 4, 2003 06:21 AM

>If owners don't like "double taxation," they're always free to reorganize as a partnership.

The legal constraints/liabilities on partnerships are so onerous as to make that opion unworkable for all but the smallest operations.

In a litigation lottery world, people won't expose their capital to unlimited liability.

And in cases where people actively ferret out tax-advantaged partnership structures, they are hounded and condemned as seeking "tax shelters".

Posted by: Bucky Dent on June 4, 2003 07:14 AM

>how can reasonably smart Americans not see this?

The default assumptions are that the only folks who support W are either rich smarties, or middle-class dolts.

Posted by: Bucky Dent on June 4, 2003 07:18 AM

>he man is fixated on his "progressive" taxes but entirely of his free will he chooses to live in Manhattan

The retreat to howling non sequitors is complete. Bravo.

Posted by: Bucky Dent on June 4, 2003 07:21 AM

Um, Bucky, the reason I would attribute noxious ideas to you is that you write noxious things like,

[SOY,D]:`Is it not possible that one could see a situation where an entire group of people views the top 20% of earners as nothing more than a cash cow?

[Bucky]: Frankly, most non-limousine liberal Democrats I know fall into that category. It's the "fairness" angle.'

Noxious is as noxious writes? Unless I 100% misread your comment, you're asserting that SOY,D is correct that, if poor people don't pay lots of taxes, they'll simply view the rich as a "cash cow."

Posted by: JRoth on June 4, 2003 07:55 AM

SOYD asked a rhetorical question: "Is it not possible that one could see a situation where an entire group of people views the top 20% of earners as nothing more than a cash cow?"

I made a statement of fact: "Most non-limousine liberal Democrats I know fall into that category".

I am sorry that you find facts "noxious". But I made a statement of fact. I know lots of liberals, as I used to be one myself. And I've had many many long conversations with them over the years.

They tend to view the top earners as evil undeserving parasites whose property should be re-allocated to better serve the needs of the many.

This view is widely held, as you no doubt know.

Why you should find this noxious is a mystery.

Posted by: Bucky Dent on June 4, 2003 08:11 AM

Bucky Dent wrote, "In a litigation lottery world, people won't expose their capital to unlimited liability."

You mean the same liability that everyone else is routinely exposed to?

I guess you're a socialist committed to doling out economic favors to shareholders of corporations. To quote Dean Baker: "The article implies that eliminating the tax on corporate income is a step toward greater economic efficiency. Corporate status is a privilege of enormous benefit that the government makes available to its citizens. (The most important benefit is limited liability, which gives the corporation the right to damage individuals -- for example by polluting their drinking water -- while granting its owners legal protection against the claims of the people who were harmed.) The benefits associated with corporate status are demonstrated by the fact that shareholders willingly pay the corporate income tax, rather than form partnerships, which are not subject to an income tax. The elimination of the corporate income tax would effectively mean that the government is giving away the protections of corporate status at no cost."

"They tend to view the top earners as evil undeserving parasites whose property should be re-allocated to better serve the needs of the many."

To the extent that they actually contribute to the economy, no, they're not parasites. To the extent that they're collecting economic rent (particularly rent provided them by the government, such as that from land) they *are* parasites.

Cheers,

Posted by: Stephen J Fromm on June 4, 2003 11:35 AM

Bucky Dent wrote, "In a litigation lottery world, people won't expose their capital to unlimited liability."

You mean the same liability that everyone else is routinely exposed to?

Your admission that people will use the corporate form over the partnership exactly proves my point. To quote Dean Baker: "The article implies that eliminating the tax on corporate income is a step toward greater economic efficiency. Corporate status is a privilege of enormous benefit that the government makes available to its citizens. (The most important benefit is limited liability, which gives the corporation the right to damage individuals -- for example by polluting their drinking water -- while granting its owners legal protection against the claims of the people who were harmed.) The benefits associated with corporate status are demonstrated by the fact that shareholders willingly pay the corporate income tax, rather than form partnerships, which are not subject to an income tax. The elimination of the corporate income tax would effectively mean that the government is giving away the protections of corporate status at no cost."

"They tend to view the top earners as evil undeserving parasites whose property should be re-allocated to better serve the needs of the many."

To the extent that they actually contribute to the economy, no, they're not parasites. To the extent that they're collecting economic rent (particularly rent provided them by the government, such as that from land) they *are* parasites.

Cheers,

Posted by: Stephen J Fromm on June 4, 2003 11:38 AM

Bucky Dent wrote, "In a litigation lottery world, people won't expose their capital to unlimited liability."

You mean the same liability that everyone else is routinely exposed to?

Your admission that people will use the corporate form over the partnership exactly proves my point. To quote Dean Baker: "The article implies that eliminating the tax on corporate income is a step toward greater economic efficiency. Corporate status is a privilege of enormous benefit that the government makes available to its citizens. (The most important benefit is limited liability, which gives the corporation the right to damage individuals -- for example by polluting their drinking water -- while granting its owners legal protection against the claims of the people who were harmed.) The benefits associated with corporate status are demonstrated by the fact that shareholders willingly pay the corporate income tax, rather than form partnerships, which are not subject to an income tax. The elimination of the corporate income tax would effectively mean that the government is giving away the protections of corporate status at no cost."

"They tend to view the top earners as evil undeserving parasites whose property should be re-allocated to better serve the needs of the many."

To the extent that they actually contribute to the economy, no, they're not parasites. To the extent that they're collecting economic rent (particularly rent provided them by the government, such as that from land) they *are* parasites.

Cheers,

Posted by: Stephen J Fromm on June 4, 2003 11:40 AM

>You mean the same liability that everyone else is routinely exposed to?

Individuals are always exposed to liability. And the limited liability aspect of the corporate structure has not prevented enormous fortunes from
changing hands at the tort bar.

Finally, the limited liability aspect of corporate structure has nothing to do with the tax treatment of its income.

>To the extent that they're collecting economic rent (particularly rent provided them by the government, such as that from land) they *are* parasites.

Then from whom would you borrow money to buy a house, car, etc.?

Posted by: Bucky Dent on June 4, 2003 12:12 PM

Individuals always and still have liabilty exposure, limited to their means/assets.

Corporate limited liability, which AFAIK is totally unrelated to their tax treatment, hasn't prevented enormous sums from changing hands at the tort bar.

As for coupon clipping "parasites", from whom do you borrow money for a house, a car, etc.?

Posted by: Bucky Dent on June 4, 2003 12:19 PM

Sorry for the repetitive posts, but I though the site ate my first one.

Posted by: Bucky Dent on June 4, 2003 12:23 PM

why is there an obsession with the 'marginal rate'?

the marginal rate is completely meaningless in any real analysis. My marginal rate is 36%. Last year, my actual tax rate was 22% and I am in the top 5% in income.

Yes, each additional dollar will only give me 63 cents, but so what? as a percentage of my overall income, my tax burden does not budge above 22%. I don't make decisions based on marginal rate, I make decisions based on 'net after taxes', my mortgage company decides my leverage based on net after taxes.

If 99% of my income has an effective rate of 22%, I really don't care that the last 1% is taxed at 36%. I agree that if that rate were 70%, I may not have much incentive to go and earn that additional dollar, but I am totally indifferent between 36 and, say, 40. By the same token, I am indifferent between 36 and, say 30. Dropping it to 30 no more changes behavior than increasing it to 39 - as long as my overall rate remains around 25.

Posted by: Suresh Krishnamoorthy on June 4, 2003 12:34 PM

as an illustration, which of the two following structures would you rather have:

First 20% 0%
Next 30% 20%
Next 45% 25%
Last 5% 70% ('marginal rate' = 70%)

or

First 20% = 0%
Next 20% = 20%
Last 60% = 35% ('marginal rate' = 35%)

Posted by: Suresh Krishnamoorthy on June 4, 2003 12:45 PM

>why is there an obsession with the 'marginal rate'?

I believe most saving is done by the top earners, so this rate governs how much they can save and thus how much capital is formed in the private sector.

As for political obsessions, the same can be asked about affirmative action, abortion, or other issues where the State impacts on private choices.

Posted by: Bucky Dent on June 4, 2003 12:47 PM

... oh and before anyone flames me with 'but it doesn't work with slabs', yes it does, as long as the slabs represent a large enough segment of the taxpaying population.

If 99% of the taxpayers earn below 350k, then you can compute tax tables based on 350k as 100% and set a high marginal tax rate over 350k. Yes, it makes a difference to the top 1%, but the bottom 99% should be indifferent to the high marginal tax rate.

If I am making 25 million a year, does it really matter that I only get to keep roughly 16 million at a 35% 'marginal' rate versus 19 million at a 25% marginal rate? Am I confident that I will put that extra 3 million to better use than the government? perhaps. But does it seriously affect my lifestyle that I get to spend only 16 million versus 19 million?

Posted by: Suresh Krishnamoorthy on June 4, 2003 01:01 PM

>Yes, it makes a difference to the top 1%, but the bottom 99% should be indifferent to the high marginal tax rate.

Why not make abortion illegal for women in Alaska? Alaskan women of child-bearing age are less than 1% of the US population, and while it would make "a difference" to them, the rest of us "should be indifferent" to their loss of freedom. Besides, they could choose to leave Alaska.

It is frighteningly easy to direct the State to impinge on someone else's life, when one can see scant impact for oneself.

Certainly some vegetarians would want to limit the meat intake of their fellow citizens. Away from the animal rights angle, there is a compellling health argument, is there not?

It was Lincoln who famously observed that those who advocate slavery for others ought to get a taste of it themselves.

Posted by: Bucky Dent on June 4, 2003 01:15 PM

Bucky Dent:
.I believe most saving is done by the top earners, so this rate governs how much they can save and thus how much capital is formed in the private sector.

Really?

Do you seriously believe that the guy who makes all those millions does not blow it on cheateaus in France and million dollar paintings? You think they all form venture capital funds and fund incubators? They don't blow it on contributions to the Republican party but instead stick it in their neighborhood bank to fund their local small business?

Posted by: Suresh Krishnamoorthy on June 4, 2003 01:21 PM

>Do you seriously believe that the guy who makes all those millions does not blow it...

All of the research I've seen indicates that, conspicuous consumption to the contrary, most wealth at the top of the income scale is saved.

If anyone has contrary data, I'd be happy to admit I'm wrong.

Posted by: Bucky Dent on June 4, 2003 01:24 PM

Bucky Dent wrote, "Finally, the limited liability aspect of corporate structure has nothing to do with the tax treatment of its income." Yes it does; a corporation is a distinct legal entity that can be taxed.

"Then from whom would you borrow money to buy a house, car, etc.?" There *is* no economic rent on a car or a house; they're economically different from land and other items for which it's possible to accrue economic rent. Individuals could own land whose value is taxed in such a fashion that the government, not the individual, captures the rent (or much of the rent on the land). I guess you've never heard of Henry George.

Posted by: Stephen J Fromm on June 4, 2003 04:22 PM

Bucky Dent wrote, "Finally, the limited liability aspect of corporate structure has nothing to do with the tax treatment of its income." Yes it does; a corporation is a distinct legal entity that can be taxed.

"Then from whom would you borrow money to buy a house, car, etc.?" There *is* no economic rent on a car or a house; they're economically different from land and other items for which it's possible to accrue economic rent. Individuals could own land whose value is taxed in such a fashion that the government, not the individual, captures the rent (or much of the rent on the land). I guess you've never heard of Henry George.

Posted by: Stephen J Fromm on June 4, 2003 04:23 PM

Sorry, didn't catch the "borrow money from".

Land is different from other capital assets. It was never created or accumulated by anyone.

Posted by: Stephen J Fromm on June 4, 2003 04:26 PM

>Land is different from other capital assets. It was never created or accumulated by anyone.

It is fair to say "the nation's breadbasket" was created out of the virgin forests and gasslands of mid-America. And it is similarly fair to say its concentration in "agri-business" constitutes accumulation.

Posted by: Bucky Dent on June 4, 2003 05:03 PM

> a corporation is a distinct legal entity that can be taxed.

No one disputes corporations generate taxable income. The issue is the number of times that income is taxed.

Posted by: Bucky Dent on June 4, 2003 05:12 PM

>gasslands of mid-America

gRasslands. d'oh!

Posted by: Bucky Dent on June 4, 2003 06:02 PM
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