standard boilerplate: November 2005

[Jim]

Added to this is of course the shifting of the tax burden from corporations (15 of the 20 largest corporations in the US paid no taxes in 2004 - how does that work?) and reduction of the marginal rate from the elites to the middle and lower class. And a point not noted is that rarely do the elites pay that top marginal rate - there are so many holes in the tax system, for them, that those who can afford a good tax lawyer can make the dodge easily.

 

Tax

Edited November 17, 2005 by Jim

[Dr_Flash_Amazing]

The poor haven't been getting poorer under this system, they just haven't seen their income and standard of living increase as rapidly as everyone else.

 

So, the poor are almost immeasurably getting ahead, while the gap between have and have-not widens considerably? Wow, there's never been a better time to be poor, huh?

 

[JayB]

The short answer is no. If people today lived in the conditions that my grandparents grew up in, they'd be considered desperately poor - although both of them were in the middle class of their day.

 

The poor seeing their real incomes and material prosperity grow more slowly than the wealthy, and the "poor getting poorer" are two different things. IMO the best way to reduce poverty and increase real wages is to increase demand for their skills and labor by increasing labor productivity and profitability, which translates into more jobs. The people who are least likely to see their real standard of living increase in any economy are those who have no job.

 

My sense is that if you are a poor person you are better of having an increasing real income and lower marginal rates, than a declining real income - or no income - and increasing marginal rates for those in the tax brackets above you.

[JayB]

Added to this is of course the shifting of the tax burden from corporations (15 of the 20 largest corporations in the US paid no taxes in 2004 - how does that work?) and reduction of the marginal rate from the elites to the middle and lower class. And a point not noted is that rarely do the elites pay that top marginal rate - there are so many holes in the tax system, for them, that those who can afford a good tax lawyer can make the dodge easily.

 

Tax

 

Despite this the're paying the vast majority of income taxes. A simpler tax-structure with fewer deductions, and lower marginal rates would likely increase government revenues and eliminate these loopholes - so there'd be more money for the government to spend.

[cj001f]

Despite this the're paying the vast majority of income taxes.

No, the rich aren't paying the "vast majority". Corporations are paying a pittance. Perhaps some statistics?

As they've received the greatest monetary benefit from our current government, shouldn't those groups pay the most? Or

[chucK]

Question 1: Which figure shows that the top marginal rates have consistently lowered?

 

Question 2: Do you have any sort of control comparison? Perhaps another first world economy where the top marginal rates have not consistently lowered? Your consumer ownership statistics, for example, could be just as easily explainable by technological advances.

[mattp]

Last I remember hearing much about this, trickle-on economics was generally agreed to be a political idea that had no substance --- even by most Republican economists, I thought. Jay is truly hard core.

 

Two questions I have to add to Chuck's query:

 

Is there anything here that shows that reductions in the top marginal rate actually CAUSED the poor to be able to buy more TV sets?

 

Are the poor getting richer if they have more TV sets? How do you determine their actual wealth?

[Dr_Flash_Amazing]

Are the poor getting richer if they have more TV sets? How do you determine their actual wealth?

 

Well, that's probably calculable on the basis of total square-inches of TV screen per capita. Although, with the recent price reductions of LCD and plasma technologies, some poorer people may have fewer viewable inches of higher-quality picture, so maybe there's some kind of equivalency to factor in there.

 

Really if this trickle-down bullshit worked worth a damn, the poor would be rolling along with the rest of the population, not increasing almost imperceptibly.

[Jim]

The previously cited stats on appliances is what? - supposed to prove that the poor are well off? That they are not really poor becuase they have a stove and a 1981 Hornet? Gimme a break.

 

How about comapring things that matter such as health status, accesibility to health care, savings, life expectancy, child mortality, education, and housing. This, with the arrogance of the recent tax breaks to the rich is a continued trend of income redistribution to the upper elites.

[selkirk]

How about comapring things that matter such as health status, accesibility to health care, savings, life expectancy, child mortality, education, and housing.

 

Of course this needs to be normalized by the how quickly the rest of society is increasing.

[Jim]

huh?

[Stonehead]

The previously cited stats on appliances is what? - supposed to prove that the poor are well off? That they are not really poor becuase they have a stove and a 1981 Hornet? Gimme a break.

 

How about comapring things that matter such as health status, accesibility to health care, savings, life expectancy, child mortality, education, and housing. This, with the arrogance of the recent tax breaks to the rich is a continued trend of income redistribution to the upper elites.

 

I just wonder if the idea of civic responsibility or civic virtue comes into play here. Do today's elites have a sense of civic responsibility to improve conditions for the underclass who will definitely feel the bite of inflation or the pain of an economic recession. What has become of communitarian values or are the elites simply going to abandon the less well off? Is there a moral obligation or is it simply, "I got mine."?

[selkirk]

If your in any way shape or form religious there is definitely a moral imperitive to take care of those less fortunate. Not that this transfers into action by very many people.

 

I think in a lot of ways' KK hit the nail on the head. For most people it's CYA first and foremost, everyone else can figure it out for themselves.

[Jim]

But we're approaching the Gilded Age mentality where it's not just I want to keep what I've earned, but I want all the corporate subsidies and tax breaks I can get while standing on your throat. When was the last time the minimum wage was increased substantially? Compare action on that end of the spectrum with the recent tax breaks including the continued lobbying for repeal of the estate tax.

[JayB]

I'm flattered by the response but there'se no way that I'll have the time to respond to every question for a while. Maybe PP can chime in with the charts and stats that you've requested.

 

Seems to come down to a question of whether one places a greater premium a tax-structure that optimizes revenue, growth, and employment, and shifts the burden of actual taxes paid onto the wealthiest, or a tax structure which does none of the above but validates one's preconceptions about what constitutes fairness.

 

Speaking of which - I hope all of you Progressive folks what are currently taking advantage of the mortgage tax deduction are writing your Congressmen and demanding that they rescind it - that'd be $60 billion more for the government to invest elsewhere, would eliminate a tax-subsidy that actually hurts the poor by inflating the price of housing, encourages a misallocation of capital into a manifestly non-productive asset-class, etc, etc, etc. Or just refuse the deduction and send the extra money to the government in advance of any change to the tax code. It's really the least that you could do.

[JayB]

Pricing unskilled labor out of the market definitely helps the poor and the young.

[foraker]

send the extra money to the government in advance of any change to the tax code. It's really the least that you could do.

 

My bro tried to send money back to the government once when they sent him more back in a refund than he paid in taxes. Their response was "Please, sir, for the love of God, don't do that. We aren't set up to handle that".

 

If refusing the mortgage deduction is the right thing to help poor people, then why aren't more conservative Christians doing it? Or were you just making a subtle rhetorical point?

[mattp]

Rhetorical? Yes. Subtle? No.

 

JayB is making an absurd jab that shows only that he is cynical and derisive toward those he disagrees with on tax issues. To begin with, I don’t think the mortgage deduction is aimed at the rich so much as the middle class. (My bet is that the wealthy may have sizeable mortgages in some cases, but the resultant tax deductions are peanuts on their tax return. Certainly, the amount of their income spent on the mortgage pales in comparison to their actual income, especially if you include not just wages and other taxable income, but long term income in the form of capital gains. It is those who strain to meet the mortgage obligation that take a tax deduction that is really meaningful in terms of their tax burden.)

 

Even if I’m wrong, I'd wager a guess that nobody here has ever decided to contribute to good governmental policy by deliberately paying excess taxes or refusing a deduction -- least of all JayB. He may have donated $ to some right wing interest group or other worthy cause, and he might have even given money to help the needy at some point but I'm pretty sure he hasn't sent a check to the general fund and expected it would have any effect on the plight of his less fortunate brothers or that it might help reduce the budget deficit.

 

There is nothing hypocritical about taking honest and legal tax deductions even IF some of us feel we are under-taxed as a class. Voting for or otherwise supporting tax reform is one thing; sending extra money to the IRS would be just silly. And singling out the mortgage deduction and saying we ought to eliminate it in order to make the tax code more progressive is damn near as silly.

[mattp]

Put another way: JayB is frequently defending Bush's handlling of the war; by his logic he is a hypocrite if he doesn't enlist.

[glm]

Yes. Now where were we before we were so rudely interrupted?

 

Ah yes, America sucks, soldiers are yes-men, and the US got what she deserved with GW.

 

It is patriotic to criticize your government - in fact, Critical thinking is not a right, it is a responsibility!

However, if you are going to criticize, it should be constructive. If I didn't care about this place, I would just move and stop worrying about it. This is a good place to live, but it can always be better.

 

Just remember what Machiavelli said so many years ago: "The government the people get, they deserve."

 

Note that Machiavelli also said "The prince governs with the consent of the governed."

 

Somebody gave these guys this power and it can (and should)_ be taken away from them.

[JayB]

I think I've responded to that one before, so just search for my response if you feel the need.

 

With respect to the mortgage interest deduction, you are actually mistaken with respect to who it benefits. Even your cohorts on the Left disagree with you -

 

"End the Mortgage-Interest Deduction!

Why the left should embrace the Bush tax commission's most radical proposal.

By Jason Furman

Posted Thursday, Nov. 10, 2005, at 12:13 PM ET"

 

http://www.slate.com/id/2130017/

 

I care less about the progressive side of the argument and more about the market distortion and subsidy side, but here's a case where the two seem to intersect. There's really no way to defend this one on an economic or social-policy basis.

[Stonehead]

Is it a mischaracterization to say, "all head, no heart"?

[JayB]

More on the same topic

 

http://www.slate.com/id/2116731/

 

"There's a cancer at the heart of our increasingly complex tax code. A special deduction that disproportionately benefits the wealthy and distorts economic activity has grown rapidly in size and could cost taxpayers nearly $100 billion annually by 2009. Eliminating it would allow us to reduce levies on income and rationalize the system. According to Martin Sullivan, a contributing editor of Tax Notes, its existence "means the economy has less business capital, lower productivity, lower real wages, and a lower standard of living."

 

Who wouldn't want to excise such a tumor from the mighty American economy? President Bush, Congress, oh, and you, too

 

And we probably should. The Internal Revenue Code routinely favors one kind of spending over another. For decades, legislators have been using tax deductions to provide incentives or effective subsidies for people and companies to purchase health care, to donate to charity, to invest in energy efficiency, or to save for retirement. The home mortgage deduction is among the single largest such incentives. Introduced along with the income tax in 1913, it wasn't widely used until the 1950s. In the last few decades, with the massive expansion of the home-finance and mortgage-backed-securities markets, housing debt has risen smartly. And so too has the home-mortgage deduction, from about $20 billion in 1981 to $38.8 billion in 2002 to nearly $70 billion in 2003, according to estimates from the Joint Committee on Taxation.

 

Today, individuals can deduct interest on up to $1 million in mortgage indebtedness, plus interest on another $100,000 in home equity loans. This year, the deduction will sap an estimated $72.6 billion from the Treasury. And the Joint Committee projects (scroll down to the 33rd page) that the deduction will total $434.2 billion over the next five years. As Cleveland State University College of Law professor Deborah Geier notes in a recent working paper, the home-mortgage deduction is the third-largest single "tax expenditure" behind the deductions companies take for contributions to pension plans and for health-care premiums.

 

Clearly, we've gotten some bang for all these bucks. The United States has an enviably high rate of home ownership and a highly developed infrastructure—secondary markets in mortgage-backed securities, online mortgage companies, etc.—that supports the construction and purchase of homes.

 

But the once-modest deduction has evolved into a very large and highly inefficient rent subsidy. The deduction plainly causes distortions. People are willing to pay more for houses and buy bigger houses than they otherwise would because they can deduct the interest from their taxes. "When Americans invest the bulk of their life savings in housing, that's a redistribution of capital from the productive business sector," said Sullivan.

 

What's more, the expansion of the deduction seems occasionally to have more to do with stimulating the financial-services industry than with allowing Americans to turn their homes into assets. Consider the growth of interest-only mortgages. With the deduction, the government is effectively subsidizing your monthly payment. But you're not building any equity, you're just paying rent. It's hard to say how an interest-only loan encourages home "ownership."

 

Then there are home-equity loans. The proceeds from home-equity loans can be used to pay for an addition or repairs, but also for a television or for a trip to Jamaica. And the taxpayer foots a portion of the bill. What does this have to do with encouraging homeownership?

 

What's more, it's remarkably unprogressive. One of the biggest obstacles to homeownership is the inability to come up with a down payment. The deduction doesn't help you there. Taxpayers who don't itemize deductions—generally people in the lower income brackets—don't receive any benefit from the home-mortgage deduction. And the more you borrow, and the higher your tax bracket, the more valuable the deduction becomes.

 

So, what would happen if the home-mortgage deduction were slowly phased out? For the sectors of the housing market where homeowners tend not to itemize deductions, the impact would probably be minimal. At the higher end, housing prices might be expected to adjust, but not to crash. Consider a home buyer in the 25 percent tax bracket with an 8 percent mortgage. Thanks to the interest deduction, he effectively pays 6 percent on the mortgage. Losing the deduction would have the same effect on his personal finances and mentality as a rise in mortgage rates from 6 percent to 8 percent would. A bummer? Certainly. But such moves have happened frequently without causing crises. And if the elimination of the deduction were accompanied by a reduction in rates elsewhere, it would be a wash for many homeowners. The real harm would come to the home-building industry.

 

And that's the real reason we shouldn't bet the house on eliminating or reducing the mortgage deduction. The home-building, home-selling, and home-buying industries, which claim to speak for homeowners, would bitterly oppose such a move. And so it's no surprise that earlier this year, when President Bush penned instructions to the advisory panel on tax reform, he told them to "recognize[e] the importance of homeownership."

[chucK]

Hey Jayb,

Did you ever send any money here?

 

There are a number of ways that you can actually take some constructive action to both alleviate the suffering of the Iraqi people and provide resources that the troops can use to help the Iraqi people, and in so doing provide them with the means to build bridges with the population in small but significant ways.

 

http://www.spiritofamerica.net/

[Luna]

And yes, those compassionate conservatives are at it again as we speak. The House of Representatives, in the wee hours, just passed major budget cuts to student loan and grant programs, food stamps, medicade, enforcement of child support, early childhood education and a host of other social programs.

 

Next vote coming up (this is serious) is a huge tax break and capital gains tax break that primarily benefits the wealthy and piles on the deficit. These people are pigs.