Obama’s Populist Tax Reform Proposal
Barack Obama has released the details of a fairly radical proposal to increase tax progressivity which he will make in his state of the union address.
The political impact will dwarf that of Chris Van Hollen’s proposal (which I am sad to say, has been quite dwarfish already). I am very enthusiastic about this. Even Romney is trying to sound populist. I am sure that politicians must have convincing evidence of a populist mood from polls and focus groups even aside from the public polls which, as always, show strong support for soaking the rich. I don’t see how Republicans can win this debate or even avoid debating with each other over whether Obama is a socialist class warrior or not a true economic populist like Republicans.
Matt Yglesias has an excellent (as usual) explainer at Vox. Basically the proposal is to increase the capital gains tax, close tax loopholes used by the rich, tax borrowing by huge banks and then use the proceeds to make permanent and expand various tax breaks for the non rich.
Of course, the proposal is politics not policy — there is no chance of Congress seriously considering it, let alone, passing it. I don’t have a problem with making political gestures when actual policy making is blocked by partisan gridlock. However, good policy and good political gestures are not identical. My one thought is that the tax cuts are much too complicated. I think it would have been much wiser to propose just cutting taxes of the non rich by some fixed amount as in the ARRA (and Obama’s successful 2008 platform) [update: and pay for this with the tax increases which I support as proposed]..
The proposal will be discussed but not implemented. It is therefore much more important that for it be simple and easy to understand than for it to be optimal policy. And to be frank, I think it is important that the proposal give money to almost everyone.
In other words what Lord said about the Van Hollen proposal.
Lord
January 12, 2015 12:41 am
Needlessly complicated. Simply raise the exemption level.
update: just to be clear, my proposed proposal would be to keep the fairly complicated loophole closing and tax increases, but to replace the proposed targetted tax cuts with a broad simple tax cut. The quote of Lord from comments should have been paraphrased to “the tax cut parts are ‘Needlessly complicated. Simply raise the exemption level’ and close the loopholes”.
“Needlessly complicated. Simply raise the exemption level.”
You get my vote.
Either raise the exemption to something that a human person can live on or let’s start taxing corporate persons on cash flow.
Cutting taxes without a balance such as an increase in revenues through increases in other taxes or increased flow of revenue through greater productivity is not likely to be a success. Since 2001 we have been waiting for the tsunami of increased productivity to result from cuts to the 1% of the population which has resulted in what? Little for the middle class and a higher concentration of wealth and income for the 1%.
A better solution might be to tax those pesky derivatives at creation and their cash flow which more than likely will not involve Labor as it is gambling for all intents and purposes.
On the other hand, you’ll notice that this made the news cycle. In fact, more and more tax the rich and help the vanishing middle class stories are finally being heard for the first time in several decades. Most of the media didn’t even put the words “job killing” or “class warfare” in their headlines.
That is how things progress. It took years for the “free enterprise”, stop fighting back against the big guys propaganda managed to seep through, but that was the first step towards it taking over the national conversation. I don’t think this Congress is going to do anything useful, but this is how it starts. Debate all the details you want, but make sure the media gets the stories out.
Lord’s idea of simply raising the exemptions level might make sense from an economist’s point of view, but it is politically beside the point and possibly counterproductive if there isn’t also an increase at the high end. The idea is not to let the middle class pay less, but to make the wealthy start paying some of their fair share.
Raising taxes on the rich…especially those with ill-gotten gains… makes sense
as long as the money is used to reduce the deficit to the point where the bad guys stop using it as an excuse to cut programs for the poor
but using the money to give tax breaks to the middle class is frankly stupid. the middle class is not suffering. asking the rich to pay your share of running the country is what fuels “class war” and you know who wins that war.
Just laying it out there as a Democratic proposal that everyone knows will go nowhere and is only being offered for campaigning purposes will do nothing much to move any needles anywhere. If he wants it to be taken seriously, he must state the undeniable facts of the situation and make things at least uncomfortable for the Republicans who will oppose it. He must say that (1) there is no question whatsoever that this proposal would be good for the economy and for the good of the overwhelming majority of Americans; (2) under the current make-up of Congress, the Republicans will oppose it simply because it is being proposed by my administration, not for any valid reason; (3) it will go nowhere unless you, the voter, regardless of your own political affiliation; put constant pressure on your Representatives and Senators to get it enacted.
If Obama wants this State of the Union to matter, he must break from the tired format and start some buzzing. Signalling that he is going to fight with the people ho oppose an agenda good for the country and do everything in his power to make life uncomfortable for them is a minimum he should do.
@Kaleberg
I meant that the tax cut part should consist of simply raising the exemption. I strongly support the tax increases on the rich,
Also I agree the details are less important than actually having the debate which is key both for Democrats’ electoral success and for eventually actually doing something about inequality years from now with a new Congress.
@coberly This time I don’t agree. For one thing the rich don’t always win class wars — inequality hasn’t increased and increased everywhere forever. Inequality has increased in currently rich countries for decades, but before that it decreased. Second, I don’t think there is a choice between having a struggle over income distribution or not but only between leaving all the fighting to Republicans and conservatives. Finally, this is about politics, and the middle class decides who wins elections.
If things were up to me, I would tax the US middle class much more in order to finance much more foreign aid. But it would be crazy for a politician to propose that — the only effect would be that politician would lose the next election.
“….show strong support for soaking the rich.” This is a very unfortunate choice of phrasing and only plays into the propaganda of “class warfare” which is the rallying cry of the Republican Party and their supporters. Requiring the very wealthy to give back what they have been given by the Bush tax cuts is anything but a soaking. An equally misguided concept is the suggestion, “…but using the money to give tax breaks to the middle class is frankly stupid.” Taxing all sectors of the economy in accord with the benefits those sectors gain from the economy is not a transfer mechanism, but rather an equalizing of the burden of supporting necessary government activities. We really have to discontinue using the terminology of the corporate class, which includes their lackeys in the political sector, when discussing the necessity of shared obligation based on the distribution of economic benefit.
Jack
it wasn’t me who said “show strong support for soaking the rich.” but it was me who said “using the money to give tax breaks to the middle class is stupid.”
exactly because it plays into the “soak the rich” mind set, which is what drives the honest rich into the arms of the Republicans, and it isn’t a very healthy way for “the poor” to think.
you will never “tax each sector in accord with what it has been given.” in the first place you won’t get anyone to agree about ‘oo has been given what. in the second place it is “the rich” who have the money. the “poor” will never pay their “fair” share.
i was not aware i was using the terminology of the corporate class.
i am on record as having suggested that the easiest way to collect the needed taxes is to tax ONLY corporations. they would of course pass the cost through to their customers. then the customers could decide if the products on offer were worth the price.
@Jack
I agree that it would be very unwise for a prominent Democrat to say “soak the rich”. I note that Obama says things like “well off people like me can afford to pay a bit more” correctly noting that, by his own definition, he is one of the rich. It is also true that, no matter how careful Obama is he is still accused of hating rich people and appealing to hatred of rich people. There is no way to prevent the right from making this accusation. However, I strongly agree with Obama’s approach of saying we should all work together to make the country better. I write “soak the rich” because I am not a prominent Democrat.
I don’t agree with the rhetorical strategy of denying that say the income tax combined with the EITC is redistribution. I think that redistribution from rich to less rich is good policy and absolutely defensible. I don’t agree with appealing to “necessary government expenditures” when those expenditures include transfers.
I think we will end up accusing each other of accepting the rhetoric of the corporate class. I think that arguing that we are not advocating transfers suggests accepting the idea that transfers are not morally necessary and good policy. I don’t accept that idea.
The problem is that I think it is also *not* good strategy to argue as follows: Obama did not propose redistribution from rich to non rich but rather raising necessary funds in a manner which will reduce the welfare costs of taxes. Obama’s proposal is good policy and would be improved if, in addition, we also transfered from rich to non rich.
That is I think it would be a *mistake* to respond to the conservative arguement that Democrats propose redistribution which is bad by saying that they are wrong twice — Democrats are not proposing redistribution and redistribution would be good.
Logically, arguing in the alternative, that is making two arguments each of which support the same conclusion should provide more support for the conclusion than presenting just one. However it creates a terrible impression for some reason.
My impression is that, what people here when one argues in the alternative is an effort to make argument 1, then the realization that it isn’t convincing, then changing the subject to argument 2 without admitting that argument 1 failed.
This means that I htink that good political strategy requires choosing one argument and sticking to it.
I think this is your approach.
I stress again that I don’t think it would be wise for prominent Democrats to write or speak as I write. I write what I think and don’t consider rhetoric or messaging or strategy. I do this, because I don’t think I have enough influence that I have to worry about messaging.
There is a difference between what one sensibly says in a conversation among friends and what one sensibly says in, say, a political advertisement. I think this blog is a discussion among friends.
Whew that was a long and boring reply. I trust no one read this far. If you did, my apologies for wasting your time.
Robert
I don’t think you wasted my time. I thought I was agreeing with you up to the end when I thought I just didn’t understand you. If people can’t find a way to talk until they understand each other there isn’t much point in talking in the first place.
“Among friends” I think “soak the rich” is bad politics and bad mental hygiene. That said, I think the rich do need to pay more taxes. And the “middle class” needs to pay at least what they are paying now: That is the “transfer” should not be seen as a transfer from the rich to the middle class.
There are lots of ways to benefit the poor, not to mention the middle class, without “taxing the rich” so you can cut taxes for a “middle class” that happens to be “you.”
a picture is worth 10k words:
i am sitting on the couch wrapped in a blanket. my house is cold. i am not “middle class.” neither is my dog, a short haired breed. he is cold too.
i invite him under the blanket. i am stealing his heat… he makes me warmer. he is stealing my heat… i make him warmer. besides it’s my blanket.
or maybe we are helping each other stay warm.
the “stealing my heat” is the way “the rich” think… even though the taxes they pay are making them richer. it is also the way the middle class and the poor think “taxes are stealing my heat”
it’s stupid. but it’s human nature.
if we are going to raise taxes… and we should… we should raise them (progressively) on the rich and the middle AND the poor. “We are all in this together” and the tax raises will help us all stay warm. And help us all get richer.
But raising taxes on X group in order to cut taxes on Y group is stupid.
It makes for “class war.” Class war was the stupid response of the rich to the New Deal. They couldn’t see that it was making them richer. And by the time they could see it, the politicians continued to use it to get their votes, scaring them with images of mobs of the undeserving poor stealing their hard earned property.
for the progressives to play into that politics by demanding the rich pay more so that they… middle class progressives… could pay less… is stupid.
sorry to keep coming back to that word. i am not calling you stupid. i am warning you about a stupid policy or stupid politics.
of course nobody likes taxes, and we… even the poor… don’t want to see endless tax increases. but the poor can pay for their own Social Security with a tiny tax raise, and the middle can pay a few dollars more if only as a show of good faith. the bulk of any needed revenue will always be paid by “the rich.” they have the money. it’s not wise to make them think they are paying the money to you. they like the idea that they earned their money and you earned yours by fair market transaction. it is not necessary to call for the Revolution to get them to pay the taxes needed for the benefit of the country… all of us.
but it does take some diplomacy and maybe confronting our own greed.
How is it possible to get blood out of a stone?
How do you raise taxes on people who do not have the money right now to pay for three hots and a cot?
Coberly – “i am on record as having suggested that the easiest way to collect the needed taxes is to tax ONLY corporations.”
I have always thought that taxing businesses instead of people was the way to go. First of all, they already collect most of the income tax from people and send it to the government. Obviously there would have to be adjustments to wages and means to tax outside income, but, why not?
If I were King of the World, I would have a flat tax.
All income treated the same.
Only deductions would be for individuals in the household. Absolutely no deductions of any other kind.
EITC like now.
One tax rate from dollar one of taxable income.
I think Forbes plan years ago thought 18% or so would be revenue neutral. Considering he did not tax passive income and left all kinds of deductions on the table, I would think my plan rate would be at most the same.
Only problem is, the 1% ain’t going for it.
Obama’s proposal is in part the party’s attempt at appeasing their masters and those who elect them at the same time.
It can’t be done because the entire issue of tax rates and fairness is completely tied to wage/income distribution which is totally dependent on the means in which we generate income. This gets us to the sub issue of labor’s strength within the market we have built.
If we had indexed the rates from the past when we started to build a middle class, what would the tax schedule look like today with such a shift of income?
As to class war. It’s been there since the beginning…of the human race.
If they were serious about income tax rates, the Dem’s would be proposing something more than 2 rates and then diddling with them.
Becker
class war has been here since the beginning.
so has race war.
it’s still not good politics for the lower class or the people who claim to represent them.
besides, we are trying to build something better.
you need to realize, perhaps, that “class war” is how the big bad guys rally the “normal” rich to their side. it is also the way that wannabe big bad guys rally the normal poor to their side. it’s the devil’s game.
not so sure it has been there since the beginning of the human race. back in the day, there were no classes, only extended families. but as the self appointed leader of my extended family i can tell you that trying to get the kids to see their own best interest feels like war at times.
EMichael
not trying to get blood out of a stone. the trouble with talking to most people is that they jump to the worst conclusions they can imagine and then say “it’s horrible.”
anyone with a job can afford to pay for his own retirement insurance.
anyone without a job needs help. i do not propose taxing them.
the middle class are hardly at the edge of starvation. they benefit from the State as much as anyone. they also benefit from “the rich”.
but there are also the “evil rich” who are no more than successful gangsters. we need to concentrate on curbing them. not fighting among ourselves over useless terminology and ‘oo gots the biggest piece of burfday cake.
Denying the attempt of large pools of money in the hands of the few gaining dominance in society such that those not within this cohort do not partake and receive the benefits of the ideal of equality written into our constitution and supposedly our moral foundation serves only the said cohort of pools of money.
Then again, Roosevelt did very well presenting the fight by noting the class warfare.
Idealistically, take the high road and thus no name calling. Reality, it’s a class war.
Thus it comes down to the words used to get the message across and who’s side the messenger is on when they speak the words.
And, yes there is still a race war and not uttering those words does not make it go away nor does uttering those words make it worse (excepting to those who would have these words used upon them as a tool of shame for uttering those words).
I don’t believe in bipartisanship. It’s a myth, a fable.
This country is in a class war. It has always been in a class war and it’s time we face it if we would truly like those words to not be used as a means of manipulation of the people within this war (contest, game, battle, struggle, conflict, distraction…).
Cob,
I was not talking about SS, I was talking about income tax. And until the last two paragraphs of your post, so were you.
Kind of sad that human beings can be so controlled by the Frank Luntzes of the world.
EMichael
I am ALWAYS talking about SS, and as long as the bad guys call it a tax, and the “good guys” call it a “regressive tax”, I’ll call for “raising taxes” on the poor: the need to pay for their own Social Security or the bad guys will own it. and the “good guys” won’t help them.
Becker
you ought to believe in “bipartisanship.” The real power is always bipartisan. and it is the bipartisan “experts” who are screwing you.
meanwhile they get you to dance your “partisan” class warfare thing and they are eating your soul.
i have no illusions about the bad guys, or the fact that they are rich. i have no willingness to write off the decent rich by delivering them to the bad guys who will protect them from us bad guys who want to take their money.
Cob,
Then you should try to pay more attention to what you write. You were clearly writing about the income tax.
Coberly,
I believe in working together. I don’t believe in bipartisanship. One is social the other is gamesmanship.
Class warfare is partisan within the political world that then becomes the action within the societal world. It is a construct used by both partisans. But Class warfare outside of the political world is non-existent. Granted, these days you have to scale down the size of the society to see that it does not exist.
I’m making no distinction regarding good rich and bad rich. I making a distinction of 2 sides of a class structure that are fighting over power. In that, there is rich/poor/ middle on either side. That 2 of the three may dominate one side just has to do with where the more power is not.
However, with that, I don’t know of any very wealthy people who are actively working to undo what their fellow class members have done other than Nick Hanauer. The only public rich person who has used the economic system created of this warfare to help those not in their class is Paul Newman and he’s dead.
What’s that about staying silent and thus being a passive participant in the deed?
I’m starting to think you have forgotten all I have written here at AB since 2007.
Becker
I have undoubtedly forgotten all that you have written…etc. I have forgotten all that -I- have written. We are writing past each other.
EMichael
You do NOT know what I meant. You are, unfortunately, suffering from a common mental error: you think I meant what you thought I meant, and you are determined that you know more about what I meant than I do. Sadly, I have never discovered how to cure this error. Years of psychotherapy used to be recommended. But it didn’t really work either.
I’ll summarize my point of view again. Government is the necessity of a society to function as an integrated whole. Government sets the guide lines of a society’s social and economic structures. It makes the rules and regulations within which those structures function. Government is what the members of the society make it to be. Not all members have the same agenda for their government, but still the government is a requirement of societal stability. A functional government doesn’t come without a significant cost to the society that sets up that government. All participants have to contribute to that cost of government, including all the societal and economic systems that the government see proper to utilize in its efforts to meet the needs of the members of the governed society. This isn’t rocket science. It costs a great deal of financial effort to make the engines of society run effectively.
So how is the cost of good government met by the society of the governed? Taxation with representation. And rather than think of the phrase “no taxation without representation” think “no representation without your fair share of taxation.” Those who, for a great many disparate reasons, benefit most from the society and its governmental systems are those who should bear the bigger share of those costs. That is not a soaking. That is a give back for what one has received. That is not a transfer from one to another. Progressive taxation is the practice of paying one’s fair share and fair share is determined by how much one has benefited from the form of our society and economy. That is democracy.
Cob,
I just read what you wrote. In a topic that has nothing to do with Social Security.
Perhaps after you take your medication, you should read the post you wrote at 11:06 am and notice that it is(until the last two paragraphs) on topic. And the topic was income taxes.
Or you could just confine yourself to topics about social security and avoid the confusion caused by writing about other topics and then insisting you are talking about social security.
Or you could change your prescriptions.
Jack
thanks for trying. i agree with what you say. but it doesn’t have much to do with what i was trying to say.
EMichael
I’d go for your proposal with a few modifications.
1. Careful – saying no deductions (what does that mean exactly – a lot of deductions are about defining what is income).
2. Higher rates + a basic income
3. An inheritance tax (or just treat inheritance as another form of income).
1. Income is income. Deductions for retirement accounts and healthcare insurance would not be allowed.
2. ??
3. I was just talking about income taxes. I favor a high inheritance tax rate, but treating it as income would be fine with me.
2. ??
Need to make the whole system progressive. A basic income (besides a whole lot of other advantages) does the trick. But the rates need to go up to pay for it. Initially I’d be happy with a smallish national dividend and a promise to phase it in (together with rationalization and simplication of other transfer payments).
EMichael
thanks for reminding me i was wasting my time.
i am sure you thought i was insulting you. i was just trying to explain something. like i said, waste of time.
Large personal deductions make it progressive, especially combined with an EITC.
True, it stops being progressive at high income levels, but I still believe that every single high income earner would see a large tax increase over the current system.
It’s hard to find educated folks on this matter, however you sound like you know what you’re talking about! Thanks