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taxes

From Those Who Take Much, Little Will Be Returned

After reading Richard White's Railroaded history of the railroad barons in the late 1800's, I realized that if one had left Earth in 1900 and returned in 2000, they would be quite at home.

The rise of regulations that limited the destruction wrought by supposedly smart financiers and established a middle class following the excesses of the Gilded Age had largely been gutted by 2000 and the middle class was once again in danger of being listed on the Endangered Species list.

After smart regulations prevented any major financial crises for decades, elected officials began dismantling them. After each financial crisis (e.g., Savings & Loan), we deregulated further.

Fannie Mae and Freddie Mac, the agencies responsible for the 30 year fixed rate mortgage that allows millions of us to afford homes, had been largely privatized but still retained a public guarantee, the worst of both worlds but all part of the Republican big-business strategy of privatizing gains and socializing loss.

And the response of tens of millions of Americans? More deregulation! Let's run back into the age where we cannot breathe the air, swim in our waterways, or trust that the food we buy is not going to poison us.

There are those who say the government cannot grow forever and cannot forever raise taxes. Those people are EVERYBODY. No one is proposing such a ludicrous approach. What many have proposed instead is returning to the tax rates of 15 years ago... because the government cannot lower taxes forever.

There are good reasons to have government programs. Roads are one. Keeping illiterate orphans from overrunning the streets are another. A military designed only to provide jobs to well-connected firms with massive lobbying budgets is not one.

But back to the middle class - I recommend "Can the Middle Class Be Saved?" from The Atlantic.

For those who have forgotten that taxes are in fact at historic lows, this passage toward the end of the article is an accurate reminder:

Over time, the United States has expected less and less of its elite, even as society has oriented itself in a way that is most likely to maximize their income. The top income-tax rate was 91 percent in 1960, 70 percent in 1980, 50 percent in 1986, and 39.6 percent in 2000, and is now 35 percent. Income from investments is taxed at a rate of 15 percent. The estate tax has been gutted.

Government policies are overwhelmingly designed by interest groups with powerful lobbyists... and those lobbyists promote the interests of the powerful. Duh - who else can hire them??

What’s more, some of the policies that have most benefited the rich have little to do with greater competition or economic efficiency. Fortunes on Wall Street have grown so large in part because of implicit government protection against catastrophic losses, combined with the steady elimination of government measures to limit excessive risk-taking, from the 1980s right on through the crash of 2008.

Our failure is not a general failure of government, it is a specific failure of a government that governs in the interest of a few. It should be no surprise that those few are doing very well.

Health Care and Reagan's Recession Tax Hike

History from the Daily Beast:

Conservatives delude themselves that the Bush tax cuts worked and that the best medicine for America’s economic woes is more tax cuts; at a minimum, any tax increase would be economic poison. They forget that Ronald Reagan worked hard to pass one of the largest tax increases in American history in September 1982, the Tax Equity and Fiscal Responsibility Act, even though the nation was still in a recession that didn’t end until November of that year. Indeed, one could easily argue that the enactment of that legislation was a critical prerequisite to recovery because it led to a decline in interest rates. The same could be said of Clinton’s 1993 tax increase, which many conservatives predicted would cause a recession but led to one of the biggest economic booms in history.

Taxes Taxes Taxes

If there is something that Americans love to do, it is bitch about taxes. I have to wonder if Republicans would have the support of any non-evangelical Christians were it not for them positioning themselves as the party of reducing taxes (irregardless of their reckless fiscal record, they certainly act like they are the party of reducing taxes).

In Minnesota, Pawlenty cites his record of not increasing taxes (which is bullshit, he renamed some taxes to fees and raised them and he avoided raising taxes by cutting funds to cities who then had to raise taxes to avoid laying off cops and firefighters) as his greatest accomplishment. Of course, he didn't really reduce spending, that might have been unpopular. He just refused to finance the spending bills he signed, compounding problems for the future.

Let's address this problem head-on ... are we overtaxed? Do tax increases kill businesses and hurt the economy? In MinnPost, Dane Smith smartly asks, "If taxes are bad for us, then how did we get so healthy, wealthy and wise?"

Since 1909, and with big spurts in the 1930s and 1970s, the federal-state-local government's share (anti-tax types like to call it "take") of income in Minnesota and the United States grew steadily and sharply, from about 5 percent to 35 percent.

A seven-fold increase in taxes should have left us a howling wasteland, if one subscribes to the anti-government theory of anti-tax zealots. We should have less wealth, no creativity, diminished entrepreneurialism, little technological innovation, and no incentives to do anything but seek or wait for the next government check.

The exact opposite happened as government grew.

I have to assume that the whole less-government-is-good-government approach is only possible in a culture that does not know its history. Our government grew in reaction to the "excesses" of the unregulated capitalism.

The EPA was not a liberal conspiracy to limit corporate profits, it was a reaction to the poison that many businesses spewed into the environment. And, despite what I believe to be overly lax enforcement, it has greatly improved the environment. From air pollution to previously dead lakes, the environment around us (and therefore us as well) is healthier than it was before government forced businesses to stop poisoning us (because it really is more profitable to poison us that to mitigate pollution - we even have a name for it: negative externality).

I was fortunate enough to go to college when I was 18 in part because I was not working in mines when I was 8. My parents were not bankrupted taking care of my grandparents in part because of social security.

Things certainly could be better. Health insurance providers should not be allowed to just drop people or refuse to fund necessary medical treatments because they want to maximize their shareholders' dividend.

I can just imagine that if anyone still reading this disagrees with me, they are fuming that I would choose to encourage policies that will just drive all the rich people out of the state or country or whatever. Fortunately, Daniel Gross just tackled this at Slate with "Who is Killing America's Millionaires?"

In May, the Wall Street Journal op-ed page argued that millionaires fled Maryland after the state legislature boosted the top marginal state income tax rate to 6.25 percent on the top 0.3 percent of filers. "In 2008 roughly 3,000 million-dollar income tax returns were filed by the end of April," the Journal notes. "This year there were 2,000, which the state comptroller's office concedes is a 'substantial decline.' " The Journal uses this small sample to warn the federal government and states with progressive tax structures and lots of rich people—New York, New Jersey, California—to heed the lesson. Tax the wealthy too much, and they'll leave.

Such logic makes sense to the Journal's op-ed page staffers, who inhabit an alternative universe in which people wake up in the morning and decide whether to go to work, innovate, or buy a bagel based on marginal tax rates. But if people were motivated to choose residences based solely on high state income taxes, then California and New York wouldn't have any wealthy entrepreneurs, venture capitalists, or investment bankers—and the several states that have no state income tax, which include South Dakota, Alaska, and Wyoming, would be really crowded with rich people.

He tackles the question from multiple angles, explaining how this particular argument (rich people move from tax increases) is based entirely on specious data and an extremely lazy approach to causality. Having debunked some right-wing stinktank reports myself, I am shocked at just how lazy they are. It is a truism that you can pretty much convince some journalists of any argument and once it is in print in a supposedly neutral source, it becomes fact.

However, if there is evidence that rich people move to avoid taxes, I have yet to see it. Moving takes a lot of effort and there are many variables to consider. I think it more likely that rich people will move to areas with rich cultural life and a high quality of living because they will want to enjoy their wealth rather than say, living in a state like Mississippi where they will have to ship their kids across the country to give them a decent education.

None of this is to suggest that taxes should be constantly increased - there is a point when increased government is not worth it. In the U.S., probably most of us that support a strong role for government in regulating things like pollution and providing health care are less supportive of continuing to spend more of the discretionary budget on the military than any other program. So we recognize tradeoffs. We would rather use our tax dollars to protect our citizens from Medica and Enron than protecting Exxon's business interests abroad.

Further, I believe in some deregulation. For instance, I believe that government deregulation of the airlines and trains (since the 1970's) has been positive on the whole. Again, there are clearly tradeoffs, but I prefer making it cheaper to fly than getting a meal on the flight. That said, there needs to be some regulation - ticket prices to many destinations are again approaching those high prices from the era of massive government regulation because of increasing concentration among the airlines (it is competition that keeps prices low, and competition flourishes from the right policies, not an absence of them).

However, we should be clear about who caused the problems we are currently attempting to resolve. Daniel Gross addressed this in "War on the Rich?.

The Bush team and congressional supporters had seven years to manage fiscal affairs in such a way that they would be able to extend the tax cuts in 2010. But they screwed it up. Instead of controlling spending and aligning tax revenues with outlays, the Bush administration and its congressional allies ramped up spending massively—on two wars, on a prescription drug benefit for Medicare, on earmarks, etc. Oh, and along the way, they so miserably mismanaged oversight of Wall Street and the financial sector that it required the passage of a hugely expensive bailout. Even before the passage of the TARP, the prospect of extending all the Bush tax cuts was a nonstarter. Once Bush signed the $700 billion bailout measure into law, extending tax cuts was really a nonstarter. The national debt nearly doubled during the Bush years. So if you want to blame someone for raising taxes back to where they were in 2001, don't blame Obama. Blame Bush, his feckless Office of Management and Budget directors, his economic advisers, and congressional appropriators like Trent Lott and Tom DeLay.

The Republicans (with some help from the Democrats, but clearly the R's deserve most of the responsibility) pushed the policies that have bankrupted the country.

Minnesota Government Spending Explained

Pawlenty seems to have a lot of support throughout Minnesota by his supposed stand against new taxes (though, as I have noted previously, he has raised taxes by branding them "fees"). However, I think a lot of this support is predicated on an ignorance of where taxes go.

This ignorance can hardly be blamed on the public at large - civics classes in high school are poor and even those who worked for government for years can barely explain what the government spends money on. The simple truth is that government is really frickin complicated while being extremely vulnerable to bumpersticker-type attacks. I doubt most people can even separate local government functions from state or federal at this point.

For those who are interested in trying to understand where state tax money goes, I suggest a couple of recent articles from Matt Entenza's MN 2020 think tank, located in Saint Paul. Both are by Jeff Van Wychen. The first is "Minnesota's Government Growth in Context" - which responds to a right wing blogger making faulty assertions about the ways the current state budget has changed from a number of decades ago.

If you are trying to figure out one of the reasons government spends so much more now than it did in the 60's, start there. Some of the reasons include higher education spending (things like special-needs classes, ESL, etc), and environmental programs (the all high and mighty market produces things like dead waterways and air pollution if it is not closely regulated by the government). He does not note the costs to all levels of government of our busted legal system (which cannot handle the millions of people we seem to need to lock up). Maybe I assume it is a larger drag on the economy than it really is, but I find that hard to believe.

The second article is "Minnesota Communities: The Biggest Budget Cutters" and notes that the decreases in government spending are overwhelmingly coming from local governments, not state governments. Pawlenty has found the political courage to veto tax increases but has done little to curb spending - preferring instead to rely on budget gimmicks and one-time money that make our problems worse (but what does he care, he won't be governor when his deferred shit hits the fan).

Pawenty may make a great national politician - he seems adept at doing little while taking credit for much. Minnesota communities have had to cut their budgets because Pawlenty has not cut back spending in Minnesota, he has just limited the money going back to local governments (who are forced to both cut services and raise property taxes - something Pawlenty ironically attacks as he has proven incapable of lowering MN spending).

Pawlenty cuts aid to the cities because he has not decreased the MN budget. Then he blames them for raising property taxes - something akin to an observation my friend James made about national Republicans bitched about the deficit - it amounts to little more than arsonists complaining about the fire department wasting water.

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