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Do Soak The Rich

Don’t Soak The Rich is the headline of an op-ed in the New York Times, written by Edward D. Kleinbard, a professor of law and business at the University of Southern California. In a similar vein, Vox ran an post by Cathie Jo Martin, professor of Political Science at Boston University and a doctoral student at Harvard, Alexander Hertel-Fernandez. Both explain that we shouldn’t impose higher taxes on the filthy rich. Instead, we should tax the hell out of the middle class to pay for programs that benefit the poor. That will solve inequality, these writers say, without disturbing our lords and masters. As Martin and Hertel-Fernandez put it, if you have progressive taxation, you get backlash from the rich and powerful who use their political power to find loopholes and lobby to create new loopholes. They don’t seem to notice that there is enormous anger in the middle of the income distribution about programs that benefit the poorest, anger that the elites use to protect themselves from higher taxes. Mike Konczal and Marshall Steinbaum dismember the Vox post in detail.

Here’s how Kleinbard phrases the tax issue:

It turns out that progressive fiscal outcomes do not require particularly progressive tax systems — just big ones, to support substantial government investment and insurance programs.

The better response to income disparity, then, is not to tax the rich more, but to boost revenue over all so that government can invest more, and offer higher quality social insurance programs.

Kleinbard isn’t relying on the arguments of Modern Money Theory to make his case: he says the government needs revenues to support the spending programs he favors. He doesn’t want to soak the rich, so he intends that increased revenues come from the middle of the income distribution. That leaves us with the bizarre notion that a nation that is willing to cut food stamps for the poorest part of the population will happily pay more taxes to fund some other programs that benefits the poor. It’s an astonishing argument.

I suspect that underlying goal of these writers is to impose a value-added tax, a tax on consumption used in Europe. VAT taxes are highly regressive: they increases taxes at the bottom of the income scale, low-income people who currently don’t pay income taxes (but do pay FICA and loads of state taxes already), and people on Social Security, among others, and have a much lower impact on the upper income people who don’t consume as much, and whose consumption of things like lobbying for tax cuts and other legislative favors is not covered. It also leaves untouched their massive increases in unrealized capital gains, which increases their future income and their ability to obtain legislative favors and dominate the rest of us.

Neither of these two articles explains why we shouldn’t raise taxes on the filthy rich. There’s a hint that it wouldn’t be fair to raise taxes on the filthy rich. Kleinbard writes “A chief executive who earns 200 times as much as her typical employee does not get 200 times the benefit from our investments in highways.” That’s true. She gets a lot more benefit than 200 times. Without those highways, she doesn’t have a job. That applies to the entire oligarchy.

Martin and Hertel-Fernandez claim that we can’t raise enough from the rich, but they don’t say why. They claim that “Emphasizing redistribution as the central principle for tax policy is needlessly divisive, leads to smaller government revenues overall, and thus misses the positive benefits that having more revenues can offer if invested wisely in promoting success for all.” The revenue part most likely isn’t true, as we learn from a fascinating paper from Piketty, Saez and Stantcheva. Here’s a discussion of the paper. Neither of the two articles mentions it.

Piketty describes the paper in Capital in the Twenty-First Century.

We found that the elasticity of executive pay is greater with respect to “luck” (that is, variations in earnings that cannot have been due to executive talent, because, for instance, other firms in the same sector did equally well) than with respect to “talent” (variations not explained by sector variables). … Furthermore, we found that elasticity with respect to luck – broadly speaking, the ability of executives to obtain raises not clearly justified by economic performance – was higher in countries where the top marginal tax rate was lower. 512.

That’s econ speak for “the rich get richer at the expense of the poorer”, which is a good reason to raise marginal tax rates immediately. But there’s another and deeper reason. The entire problem facing the US and other advanced countries is that the rich are seceding from the rest of us. They have so much money, and so much power, that they are free to strangle the economy in support of their desire for more money and power. That needs to end.

Neither Kleinbard nor Martin and Hertel-Fernandez are willing to talk about raw power. They apparently think the current distribution of wealth and income is natural and justified. It is neither. It has become an instrument of oppression for the lower class, and is sucking the life out of the middle class. The sooner it ends, the better for all of us, even if it makes the filthy rich sad.

Photo by peasap under Creative Commons license

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Do Soak The Rich

Don’t Soak The Rich is the headline of an op-ed in the New York Times, written by Edward D. Kleinbard, a professor of law and business at the University of Southern California. In a similar vein, Vox ran an post by Cathie Jo Martin, professor of Political Science at Boston University and a doctoral student at Harvard, Alexander Hertel-Fernandez. Both explain that we shouldn’t impose higher taxes on the filthy rich. Instead, we should tax the hell out of the middle class to pay for programs that benefit the poor. That will solve inequality, these writers say, without disturbing our lords and masters. As Martin and Hertel-Fernandez put it, if you have progressive taxation, you get backlash from the rich and powerful who use their political power to find loopholes and lobby to create new loopholes. They don’t seem to notice that there is enormous anger in the middle of the income distribution about programs that benefit the poorest, anger that the elites use to protect themselves from higher taxes. Mike Konczal and Marshall Steinbaum dismember the Vox post in detail.

Here’s how Kleinbard phrases the tax issue:

It turns out that progressive fiscal outcomes do not require particularly progressive tax systems — just big ones, to support substantial government investment and insurance programs.

The better response to income disparity, then, is not to tax the rich more, but to boost revenue over all so that government can invest more, and offer higher quality social insurance programs.

Kleinbard isn’t relying on the arguments of Modern Money Theory to make his case: he says the government needs revenues to support the spending programs he favors. He doesn’t want to soak the rich, so he intends that increased revenues come from the middle of the income distribution. That leaves us with the bizarre notion that a nation that is willing to cut food stamps for the poorest part of the population will happily pay more taxes to fund some other programs that benefits the poor. It’s an astonishing argument.

I suspect that underlying goal of these writers is to impose a value-added tax, a tax on consumption used in Europe. VAT taxes are highly regressive: they increases taxes at the bottom of the income scale, low-income people who currently don’t pay income taxes (but do pay FICA and loads of state taxes already), and people on Social Security, among others, and have a much lower impact on the upper income people who don’t consume as much, and whose consumption of things like lobbying for tax cuts and other legislative favors is not covered. It also leaves untouched their massive increases in unrealized capital gains, which increases their future income and their ability to obtain legislative favors and dominate the rest of us.

Neither of these two articles explains why we shouldn’t raise taxes on the filthy rich. There’s a hint that it wouldn’t be fair to raise taxes on the filthy rich. Kleinbard writes “A chief executive who earns 200 times as much as her typical employee does not get 200 times the benefit from our investments in highways.” That’s true. She gets a lot more benefit than 200 times. Without those highways, she doesn’t have a job. That applies to the entire oligarchy.

Martin and Hertel-Fernandez claim that we can’t raise enough from the rich, but they don’t say why. They claim that “Emphasizing redistribution as the central principle for tax policy is needlessly divisive, leads to smaller government revenues overall, and thus misses the positive benefits that having more revenues can offer if invested wisely in promoting success for all.” The revenue part most likely isn’t true, as we learn from a fascinating paper from Piketty, Saez and Stantcheva. Here’s a discussion of the paper. Neither of the two articles mentions it.

Piketty describes the paper in Capital in the Twenty-First Century.

We found that the elasticity of executive pay is greater with respect to “luck” (that is, variations in earnings that cannot have been due to executive talent, because, for instance, other firms in the same sector did equally well) than with respect to “talent” (variations not explained by sector variables). … Furthermore, we found that elasticity with respect to luck – broadly speaking, the ability of executives to obtain raises not clearly justified by economic performance – was higher in countries where the top marginal tax rate was lower. 512.

That’s econ speak for “the rich get richer at the expense of the poorer”, which is a good reason to raise marginal tax rates immediately. But there’s another and deeper reason. The entire problem facing the US and other advanced countries is that the rich are seceding from the rest of us. They have so much money, and so much power, that they are free to strangle the economy in support of their desire for more money and power. That needs to end.

Neither Kleinbard nor Martin and Hertel-Fernandez are willing to talk about raw power. They apparently think the current distribution of wealth and income is natural and justified. It is neither. It has become an instrument of oppression for the lower class, and is sucking the life out of the middle class. The sooner it ends, the better for all of us, even if it makes the filthy rich sad. (more…)

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masaccio

masaccio

I read a lot of books.