Category Archives: Politics

If They Wanted Real Tax Reform

Posted on by

The big story in Washington this week is the Senate Republicans scrambling to pass a major tax bill that nobody but their donors and other members of the plutocracy likes. Assuming something like it eventually becomes law, it will give a temporary tax cut to most members of the middle class and raise taxes for others, while giving a permanent tax cut to rich people and corporations. It will also add more than a trillion dollars to the deficit while requiring billions of dollars to be cut from programs like Medicare. (There is a nice summary of the giant con here.)

Republicans and even some journalists are calling it “tax reform”, even though it will make our system of taxation worse than it already is.

Wondering what real reform would look like, I read a book called A Fine Mess: A Global Quest for a Simpler, Fairer and More Efficient Tax System. It’s by a journalist named T. R. Reid. After a lot of research and conversations with tax experts around the world, he reached the same conclusion most experts have. The simplest, fairest and most efficient system of taxation is based on the “Broad Base, Low Rate” (BBLR) model.

The BBLR idea is that countries should tax as much as possible while keeping rates as low as possible. So, in the case of income tax, it’s best to tax all kinds of income at the same low rate. That means getting rid of deductions, exemptions and credits, many of which benefit people with the highest incomes, while categorizing things like health insurance benefits from your employer as personal income. That’s the “broad base” part. Once you’ve broadened the base and made more income subject to taxation, you can then lower everyone’s rates (that, obviously, is the “low rate” part).

The BBLR approach has a number of benefits. Filing and auditing tax returns is far simpler. Since rates are low and everyone’s income is treated the same, fewer people are tempted to avoid or evade taxes. Also, decisions about things like buying a house or building a factory tend to be made on the merits, not on the basis of tax considerations.

Reid also thinks the U.S. should institute a Value Added Tax (VAT). It’s a kind of sales tax, but one that is applied at every step of the manufacturing or distribution process, i.e. whenever money changes hands. We are the only rich country in the world that doesn’t have a VAT. Since it’s a tax on consumption, not income or savings, a VAT apparently has beneficial effects on a nation’s economy. It’s also difficult to evade. That’s why everyone else has one.

Another change Reid recommends is to reduce taxes on corporations. The U.S. has a high corporate tax rate, which results in corporations devoting a lot of effort to reducing or even eliminating their taxes. He thinks it would be better if all of the income people receive from corporations, especially dividends and capital gains, were subject to the same tax rate as other income (today, supposedly in order to foster investment, that income is taxed at a lower rate, which again mainly helps the wealthy). In fact, in a very interesting article in The Washington Post earlier this month, Reid advocated eliminating the corporate tax altogether, since it doesn’t do what it’s supposed to do.

What surprised me most about A Fine Mess, however, was that some of the ideas Reid endorses are included in the Republican tax bill. (Seriously, it doesn’t happen very often that there is overlap between “Republican policy” and “good idea”.) For instance, the Republicans have talked about getting rid of the deductions for medical expenses, state and local taxes and interest on mortgages. They would try to offset the disappearance of those deductions by increasing the standard deduction and lowering everyone’s rates. The result would be that more income would be taxed, but at a lower rate (that’s BBLR). Another result, not so beneficial, would be that millions of average taxpayers, for example, those who have major medical expenses or live in states with high taxes or who have big mortgages, would get a tax increase, even if their tax rates were lowered.

Unfortunately, the Republicans want to combine their few good ideas with many bad ones. For example, they want to get rid of the estate tax, which only affects the truly wealthy, and give more favorable treatment to certain kinds of business income (it’s been said that the Republican tax plan could have been written by Trump’s accountant). They also want to reduce taxes on the rich so much that they’ll have to cut social programs like Medicare, while adding more than a trillion dollars to the deficit.

Reid points out that Congress tends to produce a major tax bill every 32 years. The last one was in 1986. Congress worked on it for two years. The bill had bipartisan support and actually deserved being called “tax reform”. This year, the Republicans are trying to pass their bill in a matter of weeks, without hearings and without input from the Democrats. That indicates how screwed up our government is and how far away we are from getting actual reform.

A Fine Mess: A Global Quest for a Simpler, Fairer and More Efficient Tax System by T. R. Reid

Posted on by

The journalist T. R. Reid argues that America’s national tax system is a disaster, but we could fix it if we started over and adopted the best ideas about taxation from other countries. According to Reid, better systems of taxation are based on the BBLR model, i.e. they tax as much as possible (a “Broad Base”) but at rates that are as low as possible (“Low Rates”). So, instead of allowing lots of deductions and exemptions and credits, as we do now, we should simply tax all income. But since more income would be subject to taxation, the government could lower tax rates for everyone. Because their rates would be lower, fewer people and businesses would hire lawyers and accountants in order to avoid taxes. Business decisions and personal decisions would no longer be made on the basis of what taxes would be owed. In addition, filing a tax return would be much simpler than it is today.

Reid cites New Zealand as the country with the best tax system in the world. They once had a complicated tax system like ours, but were able to revamp the whole thing, following the BBLR model. He also argues for the adoption of a VAT (Value Added Tax), a kind of sales tax that every advanced country but the United States currently applies (one benefit of a VAT is that it’s hard to evade).

Some of the ideas Reid proposes would be acceptable, in theory, to both liberals and conservatives. But he admits that overcoming opposition from special interests and taxpayers who benefit from the system’s complexity would be a big challenge. For example, he recommends eliminating the deductions for charitable donations, local taxes and mortgage interest. I assume he would eliminate medical deductions as well. No doubt some taxpayers would end up paying more, while some would pay less. But we would have a system of taxation that was simpler, fairer and more efficient.

Given the benefits, it seems like the United States should do something like this. Given the craziness of the Republican Party, it seems unlikely that we ever will.

Ideology: A Very Short Introduction by Michael Freeden

Posted on by

This is volume 95 in the Very Short Introduction series published by Oxford University Press. I suppose it was worth reading, although I expected more about particular ideologies as opposed to the general nature of ideology.

Freeden defines a political ideology as: “a set of ideas, beliefs, opinions and values that

(1) exhibit a recurring pattern
(2) are held by significant groups
(3) compete over providing and controlling plans for public policy
(4) do so with the aim of justifying, contesting or changing the social and political arrangements and processes of a political community.”

He identifies four main political ideologies (socialism, liberalism, conservatism and fascism) but argues convincingly that none of them can be precisely defined. What they share are general commitments to certain fundamental principles, which can also be understood as preferred ways of applying certain key terms. For example, a liberal and a fascist may both be in favor of “freedom” and “justice” but define those terms differently and apply them to different situations.

Freeden doesn’t think that having an ideology is a bad thing. He clearly favors some ideologies over others, but suggests that having a political ideology is like having fundamental principles or preferences, and that it’s almost inescapable to have an ideology if you take politics seriously. At least in the Western world, the four mentioned above, although they have evolved through the years, have been the most frequently adopted.

Throughout the book, Freeden emphasizes the importance of language in the study of ideology:

Ideologies compete over the control of political language as well as competing over plans for public policy; indeed, their competition over plans for public policy is primarily conducted through their competition over the control of political language.

The “Skinny” Repeal of the ACA Is Back

Posted on by

Republicans in the Senate want to cut taxes so much for rich people and corporations that the federal deficit would go way up. That means they need to reduce government spending or find new revenue to offset the cuts. Their latest idea is to bring back the “skinny” repeal of the Affordable Care Act. The repeal would be “skinny”, because the only thing being repealed would be the “individual mandate”, the requirement that people have health insurance or pay a fine.

But why would getting rid of the individual mandate help offset tax cuts? The reason is that millions of low-income people would no longer buy health insurance, so the government would no longer need to give money to help them afford it. Right now, the government spends millions of dollars on health insurance subsidies for people who couldn’t otherwise get it. If those people don’t have health insurance anymore, the subsidies won’t be paid.

Unfortunately, there are serious problems with this approach. From The Washington Post:

 

Repealing the mandate would undermine … key parts of the Affordable Care Act. The health care law banned insurance companies from discriminating against people with pre-existing health conditions. But in order to prevent people from waiting to buy insurance until they got sick, the law … imposed financial penalties [the individual mandate] for individuals who did not maintain health insurance coverage.

 

Health experts say eliminating the mandate would destabilize the individual insurances markets set up by the Affordable Care Act, as they would be full of people with high health care costs but have far fewer of the healthy people that insurance companies bank on. In response, insurance companies would likely either massively raise premiums or pull out of the marketplaces entirely.

 

A powerful group of stakeholders, including the major health insurance and hospital insurance lobbies and two influential doctors’ groups, wrote a letter to leaders from both parties arguing that they should retain the individual mandate.

 

“There will be serious consequences if Congress simply repeals the mandate while leaving the insurance reforms in place: millions more will be uninsured or face higher premiums, challenging their ability to access the care they need,” the groups wrote.

The Congressional Budget Office (CBO), among others, analyzed “skinny” repeal earlier this year. Their conclusions led three Republican senators to vote against it on the night of July 27th (it was in all the papers). Maybe the same three will defeat it again if it’s part of the Republican tax bill, but there might be more pressure on them to accept it this time.

Meanwhile, Republicans in the House of Representatives have their own version of the tax legislation. Today, the CBO had something to say on that. From Yahoo Finance:

 

If the House GOP tax plan passes, it is projected to cut revenue significantly, likely increasing the deficit by $1.456 trillion from 2018 to 2027, according to the Joint Committee on Taxation and Congressional Budget Office.

 

… the CBO explained that without any more money to offset the fall in revenue, the Office of Management and Budget (OMB) would be required to issue a “sequestration order” to reduce spending in 2018 by $136 billion.

 

The effects of this sequestration order would trigger automatic cuts to various programs, including Medicare. According to the CBO, this could be as much as 4% for Medicare, which amounts to $25 billion in 2018. Furthermore, all non-exempt programs would be eliminated, which include some farming subsidies, border security, and student loan help.

So, in order to give the wealthy and corporations an enormous tax cut, Republicans will either raise insurance premiums for millions of average Americans or apply major spending cuts to programs like Medicare (or do both). This is in addition to increasing taxes on millions of people who itemize their deductions because they have big medical bills or live in states or cities with high taxes. All of this will happen while they increase the deficit by $1,456,000,000,000, give or take several billion. 

On the plus side, the president, his family, the billionaires in the Cabinet and lots of other plutocrats, including many CEO’s, will have a lot more money in their very deep pockets, a few dollars of which will trickle down to the rest of us. Inequality will increase, people will die too sooner, but that’s all right, because I’ve got mine, Jack!

This, That and the Other Thing

Posted on by

There are few places as forlorn as a resort town on a chilly, cloudy, damp, out of season weekday afternoon. Thus, Virginia Beach, Virginia, last week:

20171109_145916

20171109_150115

But let’s move on.

Paul Waldman writes about “The GOP’s Baffling Decision to Raise Taxes on Millions of Americans” at The Week.

If there’s one thing we thought we could count on in this crazy world, it’s that Republicans will never, ever, ever support a tax increase. It wasn’t always this way — Ronald Reagan, who to hear some people tell it practically walked the Earth without sin, actually raised taxes multiple times — but today there may be no more foundational belief to the GOP than the principle that taxes must come down, everywhere and always.

Nevertheless, “the GOP is right now rallying around a bill that will raise taxes on tens of millions of Americans.” It certainly is strange. One part of the explanation, however, is that Republicans aren’t very good at this governing thing. Another part is that they’re so eager to cut taxes for rich people and corporations, they’re willing to antagonize millions of voters and lie about what they’re doing.

As a partial antidote to the above, consider reading all about “The Relentless Honesty of Ludwig Wittgenstein”. Ian Ground presents an excellent overview of Wittgenstein’s philosophy, both early and late, at The Times Literary Supplement.