Base broadening, rate lowering…Robert asks?
Lifted from Robert’s site:
Ezra Klein defends an increased capital gains tax as necessary for distributionally neutral base broadening rate lowering tax reform.. I support a higher capital gains tax rate (did not have space for that in my comment).
My comment:
But why do you want base-broadening, rate-lowering tax reform ? The inside the beltway wonk consensus is that this must be good. The claim is that it is more efficient. Surely true if efficiency is measured as dollars raised per page of tax code or dollar of compliance cost. But the argument is that the important advantage is that such reform will reduce distortions due to taxes. Here the implicit arguments are both that high rates cause distortions and that deductions and credits and such allow socially costly tax avoidance. I consider them in turn:
1) High rates are bad. There is almost no evidence for this claim. It is an article of faith for Republicans and Democrats have decided that they can get more important changes in exchange for lower rates. But as far as I know (and I’ve published in the Journal of Public Economics) the claim is not supported by actual evidence.
2) Tax expenditures are worse than just giving the money to corporations and rich individuals because they distort decisions. Here I think opposition to tax expenditures in general is like opposition to government’spending in general. No one likes either in the abstract.
You wouldn’t really argue that way too many Americans had health insurance because employer provided health insurance was not taxed as income. So that is one major bit of base broadening you would have opposed at least pre ACA (except on a ‘the worse it is the better it is’ Leninist principle).
How about the EITC. You know that is one tax expenditure that Republicans want to cut. It is also one of the very best policies there is (one of the key ways US policy is vastly better than European policy along with … uh give me a minute). How about the charitable gift deduction ? It can be abused but seems basically OK to me.
I think a lot of the broad support for base broadening is based on hatred of the mortgage interest deduction. It means huge houses far from work and driving cars and global warming. It diverts saving from productive capital labor productivity and wage increasing capital to houses which just sit there. Suburban and Exurban because that’s where the new building is. Also completely totally politically untouchable and you know it. You might as well base your hopes on cutting rates and increasing the tax on gasoline by a dollar a gallon plus imposing a $100 dollar a ton carbon tax. Fine policy, but not a policy proposal of any relevance to the US debate.
The most extreme case is someone (not you a friend of yours) who said we have to radically simplify the corporate tax code so corporations spend money on engineers not lawyers and accountants. That is to increase corporate R and D and eliminate the R and D tax credit.
3) This is not an argument for base broadening and not at all relevant to this blog, but I think every aging Washington wonk’s favorite year is 1986. Genuinely bipartisan, wonk driven reform. It was great. But what good did it do ?
(Dan here…Light editing for readability)
“But as far as I know (and I’ve published in the Journal of Public Economics) the claim is not supported by actual evidence.”
There ought to be some equivalent to Godwin’s law for economic debate that takes points off for this kind of stuff. Among the most common logical fallacies is the “appeal to authority”, which takes the form “I’m right because an authority in the field agrees with me.” A claim that some point is true, backed up with “and I’ve published…” is just a special case of appeal to authority, one in which the author appeals to himself as an authority. Really bad form.
Not to mention that lots of people who’ve published in every line of inquiry have been proven utterly, completely wrong.
If you have evidence in the affirmative why don’t YOU show it. He did the studies, now you refute them.
If you have evidence in the affirmative why don’t YOU show it. He did the studies, now you refute them.
If you have evidence in the affirmative why don’t YOU show it. He did the studies, now you refute them.
A fine posting. Regarding the mortgage interest deduction, the problem is that the cap is too high (interest on up to a million dollars in loans). It’s the one deduction that much of the middle class enjoys, so it’s targeted. The man on the street will tell you that most tax deductions go to businesses and their owners and executives, but surprise! These deductions aren’t included in lists of tax expenditures. Liberals note that the mortgage interest deduction benefits the wealthy and leads to McMansions in the ‘burbs and vacation homes, but for some reason they don’t talk about lowering the cap and limiting it to one primary residence. At lower loan levels, the deduction has societal and economic value because it encourages people to save to join the middle class, and to take ownership responsibility for their own dwellings and neighborhoods.
Typically “tax reform” is code for “let’s change taxes to benefit my political backers.” Politicians who claim to be addressing economic goals are, more often than not, lying. Never ever accept somebody who says “trust me” on this issue.
“But why do you want base-broadening, rate-lowering tax reform ?”
Because when you tax the cream of society, they simply pass the taxes on to the rest, who bear the tax burden, anyway. It is more efficient to just go to the eventual taxpayers directly.
{i don’t always label my sarcasm, but this is too close to the truth, I am afraid.}
Re the Mortgage interest deduction its value depends on where you live, as housing prices and thus the interest paid vary greatly. In Indianapolis with the median price at about 160k you would have about 5k for the MID, while on the expensive costs it would be nearer 30k. (So its really a way to have the center of the country pay for the expensive coasts)
quite so kharris. I admit to bad form and give up points.
In my defence I wrote this in a huge long comment thread so far down that no one would get to it and at my personal blog.
Also hey wait I have a defense sort of semi. I was claiming that I could report on the literature not claiming authority to judge the truth about the world (I wouldn’t based on the pub in question which was theory and had absolutely zero effect on my beliefs about the economy. No claims of real world relevance were made in the paper).