American Enterprise Institute’s Arthur Brooks on budgets and taxes

by Linda Beale

American Enterprise Institute’s Arthur Brooks on budgets and taxes

Arthur Brooks of the American Heritage Institute had an op-ed in Friday’s Wall Street Journal, “Obama’s Budget Flunks the Marshmallow Test” (Feb. 24, 2012), at A13, in which he claimed that “unfunded entitlements to the middle class, runaway deficits to be repaid in the undefined future, and immense tax increases on the entrepreneurial class” meant that the Obama budget proposal would damage national prosperity and even worse, harm “our national character”.

He spends a lot of the op-ed talking about experiments that showed that youngsters who were able to defer gratification tended to be more successful in life (higher SAT scores, finishing college, more money, etc.) He suggests that the “national character” problem is that we have too many people who think the government should “shove marshmallows in our collective mouths” and “protect[] us from the consequences of our actions.” The implication, of course, is that anyone receiving Social Security and Medicare is harmed by those “entitlements” and being moved “away from the national entrepreneurial ethos, teaching dependency and changing our relationship to the state.”

This is the typical right-wing argument that the safety net is really harmful to people and we’d all be better off returning to the turn of the 18th century when people had to pull themselves up by their own bootstraps and government policy was intended oh so clearly to benefit the wealthy class. By “unfunded entitlements” one assumes that he means to refer to Social Security, Medicare, unemployment benefits and other measures that we have decided as a society make sense. Social Security, of course, is not “unfunded”–we committed to funding it, and therefore borrowed the funds paid into it by workers. We are morally obligated to tax ourselves to pay the pensions we have promised. Brooks (like the GOP and its other “think tank” friends) apparently wants citizens to overlook the moral obligations to those who worked hard all of their lives and paid into Social Security and Medicare and blame the recipients for being unable to defer gratification.
Meanwhile, we are supposed to overlook the subsidies –from the mortgage interest deduction to the charitable contribution deduction for phantom gain we’ve never paid tax on to the preferential rates for unearned income–and pity the upper crust that bears the “immense tax increases on the entrepreneurial class.”

But this is wrong twice. First, the Obama proposals are not “immense tax increases”. They are in fact mostly just allowing the law as written to come into place, rather than continuing extensions of the “temporary” tax cuts installed in the Bush era . As a result of letting the 2001-2003 Bush cuts finally lapse for this high-income group as currently slated to do, we would have a very modest and reasonable restoration of some of the tax rates that existed for the upper crust, a group that has profited enormously from tax policies of the last decades that have favored their type of income over the type of income that the vast majority of working Americans receives.

 Second, these upper crust elites are not an “entrepreneurial class”. A few of them are, and so are some of the poor. When a private equity fund attacks a stable, profitable but not exciting company, leverages it highly, rakes off the borrowed funds as rentier profits, then splits up the company, firing workers, sending it into bankruptcy to break up the union, and walks away, that is not being entrepreneurial. It is being exploitative in ways that destroy communities and companies that provided steady employment. When the upper crust buys and sells shares on the market, they are not being entrepreneurial–they are just engaging in trades of shares. When the wealthy live on the income from their wealth and buy expensive baubles and paintings and names on opera houses, they are not being entrepreneurial, they are just consuming the income from their wealth. Even on those rare occasions when the wealthy invest some of their excess income (and the top 1% has lots of that) directly in a business, they are as likely to (more likely to?) do that in Singapore as in the United States.

And all the while Brooks complains about letting the sunset on the Bush tax cuts for the wealthy tax place as scheduled (just returning us to more or less the reasonable tax rates on the upper class that existed before Bush), he bitches about the deficit. This is the typical right-wing rant. Only cutting earned benefits is viewed as a reasonable way to attack the deficit–and the right tends to cast the recipients of earned benefits as undeserving, as lacking in moral fiber, as Brooks does here. Letting taxes on the upper crust return to something like (but still less than) the taxes in 2001 before the Bush tax cuts is treated as horrible–even though there’s no foundation for claiming that it damages prosperity, much less interferes with real entrepreneurial activity.

The deficit is, ultimately, a real problem. We should think about how to address it long-term and begin to take action to do so. For starters, we should consider how to rejuvenate the US domestic manufacturing sector so that we import less from China and India and export more to them. We should create more government incentives for, and provide more startup funding to, intracity and intercity rail systems, to bring the US into the twenty-first century in public transportation. We should take more steps towards a solvent health-care system, instead of continuing to add on the rentier profits of the insurance companies to the rentier profits of the for-profit hospitals and the exorbitant pay of the MDs. Moving towards a single-payer system should be the first item on the agenda of every person who seriously raises concerns about the deficit. We should cut our military spending starkly in a measured, long-term fashion–not just reduce the annual increases to the budget. We should increase taxes on multinational corporations that have been raking in profits but paying almost no taxes for the last decade. And we should tax the wealthy on their unearned income (and their earned income) at least at the same rates that we tax the rest of us–i.e., we should eliminate the preferential rate for unearned income and the absurd “carried interest” provision that allows private equity managers to pay taxes at half the rate that ordinary workers pay on their compensation.

When Brooks supports removing the instant gratification giveaways (like accelerated depreciation and expensing in the corporate tax code and preferential rates for unearned income and the charitable deduction for value rather than investment in individual tax provisions) that are overly generous to Big Business and the wealthy, then he can come back and we can talk about what further should be done to set the country on a surer national footing.

crossposted with ataxingmatter