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
“Are there no poor houses?”, cried Scrooge. Man, this stuff was old a hundred years ago when the last of the robber barons watched events in Europe after WWI. The masses will overwhelm us! Yeah, and if they do, you’ll deserve it, said the Teddy Roosevelt’s and Woodrow Wilson’s of the time. Well, it didn’t happen then because the smarter of the old money guys decided they’d give up a little to keep the rest. Result–income taxes. Turns out they were a good idea considering the alternative. :)) NancyO
Linda
you are of course right.
trouble is, once someone agrees with the idea of “instant gratification” and they have all seen people like that, and they suspect they would themseves be like that if not for the “disicipline” of the market… all the rest “follows.” it sounds like logic to them. it’s just association of ideas… but you’ll get people voting for it just because “instant gratification” “SOCIAL security” “government money” “debt” “taxes” “discipline” “moral fiber” all cluster in their brain and add up to a kind of red haze that requires them to “do the right thing.”
don’t think you can argue them out of it.
it doesn’t help when “liberals” offer arguments that reinforce the idea that “we” “owe” those morally weak folk “equality.”
we don’t need to “tax ourselves” to pay for SS. the people who get SS tax themselves to pay for it.
for some reason this is a secret the left… democrats and Obama… are chosing to ignore. or do away with.
oh, oops.
i forgot that most people can’t understand how you can be paying for it yourself when pay as you go takes your money and gives it to someone else’s greedy granny.
but that is because they are too stupid to breathe without an instruction video.
“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.”
Nice system you got here. Be a shame if sumpn wuz to happen to it.
It comes from AEI and it smells of AEI. Find an intersting, topical factoid, twist it into shape and claim it supports one (hell, ALL) of AEI’s standard positions.
Education is a pretty good example of delayed gratification. I can spend all day watching cartoons, or I can go to school. The reward for going to school is year’s down the road, when you get your first crack at Shakespeare or, for those more attracted to material riches, even later when you get the good job. Education is mostly publicly funded in the US, and one of the bones that the right and left fight over is how much public support to give education.
Social Security is money put aside now for the future. Medicare? Same sort of deal for the individual payer and user, even if not when seen from the budget’s point of view.
Really, the whole “delayed gratification” bit badly mischaracterizes the bulk of entitlement spending. Those programs are built on delayed gratification. The folks who howl to keep their FICA so they can earn a higher return themselves are the ones who are demanding gratifiction now. For other social , it is simply the wrong argument. “Instant gratification” is not what anybody is after when they want health coverage. You don’t run off and get medical care to be “gratified”. You get medical care because something has gone wrong (or to reduce the odds that something will go wrong.
Want instant gratification? How about a tax loophole for the current year? How about lowering your tax rate by 20% simply by slapping the “carried interest” label on what is actually earned income? AEI OpEd pieces are an embarassment.
It comes from AEI and it smells of AEI. Find an interesting, topical factoid, twist it into shape and claim it supports one (hell, ALL!) of AEI’s standard positions.
Education is a pretty good example of delayed gratification. I can spend all day watching cartoons, or I can go to school. The reward for going to school is year’s down the road, when you get your first crack at Shakespeare or, for those more attracted to material riches, even later when you get the good job. Education is mostly publicly funded in the US, and one of the bones that the right and left fight over is how much public support to give education. Brooks’ argument is dead backwards when it comes to public spending on education.
Social Security is money put aside now for the future. Medicare? Same sort of deal for the individual payer and user, even if not when seen from the budget’s point of view. Really, the whole “delayed gratification” bit badly mischaracterizes the bulk of entitlement spending. Those programs are built on delayed gratification. The folks who howl to keep their FICA so they can earn a higher return themselves are the ones who are demanding gratifiction now.
For other social spending, it is simply the wrong argument. “Instant gratification” is not what anybody is after when they want health coverage. You don’t run off and get medical care to be “gratified”. You get medical care because something has gone wrong (or to reduce the odds that something will go wrong.
Want instant gratification? How about a tax loophole for the current year? How about lowering your tax rate by 20% simply by slapping the “carried interest” label on what is actually earned income? AEI OpEd pieces are an embarassment.
kharris
i hate it when this happens: i agree with you entirely.
i should admit though that i liked school. a day watching cartoons would have bored me to the point of physical pain.
what i object to about schools, is that they are sold as the cure for economic ills. kids are humiliated in school, and bored to death, by teachers who are more bureaucrat than teacher, and those who think the answer is more tests, or more money spent on the latest wonderful scientific education fad. a good teacher and ordinary straight forward, black ink, no pictures, books are all that is needed… and of course a building that is not a health hazard.
“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.”
A railroad is not 21st century transportation. If rail transport was all that people needed, they would not have invented automobiles and airplanes.
There is no public rail system that covers its costs, period. Outside of the three or four densest urban centers in America, every American rail-based public transit system is a waste of money.
If you want to invest in 21st century transportation, invest in driverless cars and the wireless infrastructure to support them.
I started paying – though only very slightly – into SS in 1965, then in a more meaningful way in 1968.
I started recieving benefits in 2009.
How much more delayed gratification could anyone ever ask for?
Aaarrrrggggghhhhhhh!
JzB
jazz…..lol and rolf.
mark t
why that’s true. and now that the car has been invented, we don’t need legs anymore.
most of the cars i see anymore are effectively driverless. like some blog comments.
The problem is the wealthy don’t want to wait for the second marshmallow. They want lower taxes, and low taxes mean slow economic growth. Raise taxes, then wait a bit, and the higher growth rates mean higher returns and lots of marshmallows for everyone.
The problem is the wealthy don’t want to wait for the second marshmallow. They want lower taxes, and low taxes mean slow economic growth. Raise taxes, then wait a bit, and the higher growth rates mean higher returns and lots of marshmallows for everyone.
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