Thursday, April 16, 2009

Responding to Reich

Robert B. Reich served as the Secretary of Labor under the Clinton Administration. Yesterday he penned a column explaining why people attending the tea party rallies were "kooks and demagogues." My response:
1. "Americans pay too much in taxes." Wrong: The United States has the lowest taxes of all developed nations.
What other countries pay isn't terribly relevant. There is no reason to mimic dumb behavior. In any case this line of thinking also ignores the fact that almost all of those other countries also have socialized medicine, which means that their taxes cover more services.
2. "The rich pay too much! The top ten percent of income earners pay over 72 percent of all income taxes!" Misleading: The main reason the rich pay such a large percent is they've become so much richer than the bottom 90 percent in recent years. If you look at what they pay as individuals -- the percent of their incomes over and above the highest rate below them -- you'll see a steady decline over the years. When Republican Dwight Eisenhower was president, the marginal rate on the highest earners was 91 percent (after deductions and tax credits, closer to 50 percent); by 1980 it was still up there, at 70 percent (an effective rate of closer to 45 percent); under Bill Clinton, it was 38 percent (an effective rate closer to 28 percent).

Look at the after-tax earnings of families and you'll see what's really going on. Between 1980 and 2000, the after-tax earnings of famlies (sic) at the top rose more than 150 percent, while the after-tax earnings of families in the middle rose about 10 percent. The Bush tax cuts of 2001 and 2003 raised the after-tax incomes of most Americans by a bit over 1 percent -- but raised the after-tax incomes of millionaires by 4.4 percent.
Yes, the rich have more money. However, even as a share of income they still pay a disproportionate amount of taxes. So this line of reasoning holds no water.
3. "The bottom 60 percent pay only 3.3 percent of the taxes!" Misleading again. Most Americans are paying more in sales taxes than they ever have. Property taxes have also been rising at a steady clip. And Social Security taxes have also risen (thanks to the Greenspan Commission), while earnings over about $100,000 aren't subject to Social Security taxes. So-called "sin" taxes (mostly beer and cigarettes) have also skyrocketed. All of these taxes take a bigger bite out of the paychecks of people with lower incomes than they do people with higher incomes.
Property and sales taxes are controlled by states, not the federal government, so they are not on the table for discussion. The discussion is around federal income taxes, which Reich is trying to dodge. Those high sales and property taxes, by the way, tend to be found in heavily Democratic states. Perhaps Reich should ask his fellow Democrats there why they elect to disproportionately tax the poor.

The federal government, however, does have a "sin tax" on cigarettes which President Obama has more than doubled. Why he is trying to disproportionately punish the poor is something Reich should take up with the White House.
4. "Obama is raising your taxes!" Wrong. Obama is cutting taxes for 95 percent of Americans, by about $400 per person a year -- not a whopping tax cut, to be sure, but not a tax increase by any stretch. Only the top 2 percent will have a tax increase, but even this tax increase is modest. Basically, they go back to the rates they were paying under Bill Clinton (their deductions will be limited to 28 percent, which is only fair). And they won't start paying this until 2011 anyway.
Again, Obama has increased the cigarette tax, so this is flat out wrong. I would also like to point out that Obama is not cutting a single tax rate and is letting taxes increase next year. But hey, since only a tiny minority of taxpayers will be footing the bill, who cares right?
5. "The huge debts we're wracking up will cause your taxes to rise!" Wrong again. When it comes to the national debt, as I've said before, the relevant statistic is the ratio of debt to the gross domestic product. The only sure way to bring that debt down and make it manageable in future years is to get the economy growing again -- which requires that, in the short term, the government spend a lot of money (because consumers and businesses won't). In the long term, the biggest source of concern is rising health-care costs. And that's something Obama and Congress are aiming to tackle.
You know, it's funny that Democrats deride supply side economics as "trickle down" but then push this line of thinking. Democrats would have you believe that when the wealthy have their taxes cut -- which gives them more money to spend -- that this has little impact on the economy but when the government spends the money that it creates all sorts of growth. Interesting. Unfortunately we never see this play out in reality. The government cannot spend itself into prosperity.

Even the White House seems to realize this, projecting deficits in excess of $500 billion for the next ten years. If all that spending will stimulate the economy and allow us to grow our way out of debt then why are we projecting adding trillions to the national debt? Even President Obama by virtue of the numbers he has provided doesn't buy this line of thinking.

As for health care -- if you think that the national debt is a problem now, just wait until government starts paying for it. It is really bewildering to think that the government taking on more liabilities will somehow lessen the fiscal burden.
6. "We have a patriotic duty to stand up against Washington taxes!" Just the opposite. We have a patriotic duty to pay taxes. As multi-billionaire Warrent Buffett put it, "If you stick me down in the middle of Bangladesh or Peru or someplace, you'll find out how much this talent is going to product in the wrong kind of soil. I will be struggling thirty years later." President Teddy Roosevelt made the case in 1906 when he argued in favor of continuing the inheritance tax. "The man of great wealth owes a particular obligation to the state because he derives special advantages from the mere existence of government."

An acquaintance from law school, now a partner in one of Washington's biggest and wealthiest law firms, explained to me one day over lunch how he and his partners use tax rules to create offsetting taxable gains and losses, and then allocate the gains to the firm's foreign partners who don't pay taxes in the United States. That way, they keep the losses here and shelter their income abroad. I noticed he had an American flag lapel pin. "You're supporting our troops," I said, referring to his pin. "Yup," he replied, entirely missing my point.

True patriotism isn't cheap. It's about taking on a fair share of the burden of keeping America going.
I love this argument, truly I do. It is so mindbendingly dishonest. First off, no one is stating that we shouldn't pay taxes, so let's dispense with that strawman. The argument, rather, is that taxes are too high.

Think about it this way. We all have a duty to support our children, but if you packed your kid off to college with a credit card to be used in case of emergency and you received a bill that included items such as Prada shoes and a trip to Cancun wouldn't you start asking questions? It doesn't make you a bad parent, it makes you a responsible one.

Apparently Reich and others think that our duty is simply to allow Congress to spend whatever it wants and then have us foot the bill with no questions asked. Such is the mindset of those currently running our government.

8 comments:

Anonymous said...

" Such is the mindset of those currently running our government."

I have to wonder where you and the other tax protesters were for the past few years, when Bush was busy spending more than any other President, was busy growing the reach of big government, and getting us into a couple of very expensive wars.

No one seemed to mind when the white rich guy spent money irresponsibly, but now it's a high crime?

Colin said...

Actually I criticized Bush for overspending when he was in government as well:

http://togetrichisglorious.blogspot.com/2006/02/bush-vs-reagan.html

http://togetrichisglorious.blogspot.com/2006/02/sotu-iii.html

And Bush got us into a "couple" of very expensive wars? Funny, I figured that the 9/11 attacks that killed 3,000 Americans got us into one of those wars. I guess you also think FDR is responsible for WWII?

Now, I recall that Democrats criticized Bush for the deficits of his tenure and now they are rapidly expanding them. I think we see where the real hypocrisy lies.

But then again perhaps it isn't really hypocrisy since many of us suspected the Democrats weren't at all serious about the matter.

Anonymous said...

Colin:
1. "Americans pay too much in taxes". I'm not sure how one can respond to this assertion without comparing to non-Americans. Comparison to other countries IS relevant.
2. "even as a share of income they [the rich] still pay a disproportionate amount of taxes". True. Apparently you advocate a flat tax. A famous billionaire once said "taxes are rent living in America".
3. "The discussion is around federal income taxes" Where in Reich's article did he limit the discussion to Fed taxes only?
"Those high sales and property taxes, by the way, tend to be found in heavily Democratic states." Not true. States with the highest sales tax (when you include weighted averages for county and city rates) are: Tennessee (9.4%), Louisiana (8.7%), Washington (8.5%), New York (8.25%), Arkansas (8.2%), Alabama (8.15%), Oklahoma (8.1%), and California (8.0%).
5. What I find curious about the tea-baggers' sudden interest in Fed spending is their deafening silence the past decade during which spending grew out of control DURING TIMES OF ECONOMIC PROSPERITY. Now that UE rates skyrocket and GDP dips, now the tea-baggers are concerned about spending?? Now? Fair to say, economists of all stripes agree that Govt spending increases are needed in times of economic downturn.
"As for health care -- if you think that the national debt is a problem now, just wait until government starts paying for it" Aren't we all paying for insurance now? Would it really be more expensive under a single payer plan than what for-profit companies charge us now? That's still an open question.

Dave D3 said...

"What other countries pay isn't terribly relevant. There is no reason to mimic dumb behavior. In any case this line of thinking also ignores the fact that almost all of those other countries also have socialized medicine, which means that their taxes cover more services."

Actually, it is quite relevant. Too many times during the Bush years, whenever there were protests against Bush administration behaviors or policies, conservatives would start yelling "Love it or Leave it!". It is the equivalent of Yao Ming complaining to Robert Reich (or to me for that matter) that Yao Ming feels too short. If you look at the alternatives, America has it better in regards to taxes.

And your response to taxes vs income is one of those statistical 'damn lies'. You really have to look at the numbers in regards to take-home income. I pay more in taxes than someone who earns $10/hour, but I also have a lot more discretionary income than that person does as well.

"Property and sales taxes are controlled by states, not the federal government, so they are not on the table for discussion. The discussion is around federal income taxes, which Reich is trying to dodge. Those high sales and property taxes, by the way, tend to be found in heavily Democratic states. Perhaps Reich should ask his fellow Democrats there why they elect to disproportionately tax the poor."

Yet, when you look at who gives the most money to the government and who gets the most money from the government, it is overwhelmingly the heavily democratic states giving and the heavily republican states getting. Also, it is the overwhelmingly democratic states who have the highest standards of living and best educations. Something to be said for those higher taxes, now isn't there?

"Again, Obama has increased the cigarette tax, so this is flat out wrong."

Increasing taxes on cigarettes negates Reich's comment? Wow, that logic is amazing. Nuff said!

Honestly, I could go on refuting you point-by-point, but I just don't have the time, and all I can see in your post is more and more faulty logic.

Colin said...

Thanks for the comment. In response:

1. A fair counterpoint. However, let's also keep in mind that when we look back in history in our own country we see that the income tax originally began with a top rate of 6%. We are plainly a long ways from that.

The argument at hand was that we pay too much in taxes. Reich would have us compared to other countries. That doesn't negate the fact that we pay too much in taxes. Our taxes are high, theirs are higher.

2. Yes, I do advocate a flat tax. I am open to having either zero deduction or one standard deduction for everyone. Fairness is key. Not sure the relevance of your quote -- no one is saying that we shouldn't pay taxes.

3. "Where in Reich's article did he limit the discussion to Fed taxes only?"

The tea parties were about the federal government, and hence federal taxes. Reich was discussing the tea party movement, and by logical extension federal taxes.

As for your other point, remember that I said sales AND property taxes. So, Alabama may have high sales taxes, for example, for their property tax ranks #48 in the country as a % of home value. Louisiana is #50 and Arkansas is #42.

Source: http://articles.moneycentral.msn.com/Taxes/Advice/PropertyTaxesWhereDoesYourStateRank.aspx

I have been unable to find a ranking that blends sales and property tax, but for overall tax the Democratic states clearly have the lead:

http://www.retirementliving.com/RLtaxes.html

"New Jersey residents paid 11.8%, topping the charts. New Yorkers were close behind, paying 11.7%, and Connecticut was third at 11.1%. The top 10 were rounded out by Maryland (10.8%), Hawaii (10.6%), California (10.5%), Ohio (10.4%). Vermont (10.3%), Wisconsin (10.2%) and Rhode Island (10.2%)."

Let's keep in mind that the rest of us help subsidize that to an extent given that state taxes are deducted from federal tax.

4. I addressed this point already in this threat. I was very much against much of Bush's spending spree, specifically on Medicare, education, energy, the transportation bill and farm subsidies. If there had been protests at the time I would have attended them. It is my sincere hope that these protests continue as long as spending remains out of control regardless of who is in office.

Besides, what alternative was there to Bush? Obama/Pelosi/Reid have already demonstrated that the Dems aren't much of an alternative if one is looking for fiscal responsibility.

Also, it would be one thing if Obama's spending suddenly spiked for a year or two and then returned to reality, but he is projecting deficits of at LEAST $500 billion for the NEXT TEN YEARS. This from the guy that promised a net spending cut. Unreal.

I don't have time for a lengthy health care debate, but the thought that handing more control to the government will promote cost control strikes me as bizarre. The only way you can achieve that is simply by spending less -- and providing less care.

Anonymous said...

Colin, thanks for the reply. Just wondering: why is it that it strikes you as "bizarre" that the Fed Govt cannot control costs as well as the for profit insurance companies are? The US has by far the largest per capita expenditures on health care in the world! Other country's governments are able to provide better healthcare at a lower cost than our countries private insurers have for us. I have faith that our government can (eventually) provide similar benefits and similar costs, why don't you?

Colin said...

I somehow missed DaveD3's comment. My response:

":Actually, it is quite relevant. Too many times during the Bush years, whenever there were protests against Bush administration behaviors or policies, conservatives would start yelling "Love it or Leave it!". It is the equivalent of Yao Ming complaining to Robert Reich (or to me for that matter) that Yao Ming feels too short. If you look at the alternatives, America has it better in regards to taxes.

And your response to taxes vs income is one of those statistical 'damn lies'. You really have to look at the numbers in regards to take-home income. I pay more in taxes than someone who earns $10/hour, but I also have a lot more discretionary income than that person does as well."

I really have no recollection of conservatives saying "love it or leave it." Can you document this? A few links would suffice.

I am most certainly not employing a statistical "damn lie." If you look at the percentage of national income for the rich people and the percentage of tax they pay it is disproportionate. That is the best apples to apples comparison you can make. Amount of discretionary income is irrelevant.

"Yet, when you look at who gives the most money to the government and who gets the most money from the government, it is overwhelmingly the heavily democratic states giving and the heavily republican states getting. Also, it is the overwhelmingly democratic states who have the highest standards of living and best educations. Something to be said for those higher taxes, now isn't there?"

This is correct. GOP states tend to get more in federal revenue than they contribute. Alaska is the posterboy. So I hope you will join with me in advocating slashing the federal budget to eliminate this. Bipartisanship!

I would love to see your cause and effect between high living standards and high taxes. Really, break that one down for me. However, it is also worth noting that people are fleeing CA, NY and MI -- deep blue states with high taxes. Funny, that.

"Increasing taxes on cigarettes negates Reich's comment? Wow, that logic is amazing. Nuff said!"

Nuff said indeed. The claim that Obama is raising taxes is true. Not only because of the cig tax, but also the tax increase he is permitting next year.

Colin said...

Again, thanks for your comment.

"I have faith that our government can (eventually) provide similar benefits and similar costs, why don't you?"

Quite simply this is because government isn't exactly a paragon of efficiency. In all seriousness, make a list of the activities that government performs better than the private sector -- I think you will find it is a rather short one. I have little expectation that health care will be an exception.

This isn't a purely theoretical discussion. Government already plays a huge role in health care, perhaps most notably via Medicare/aid. And they don't seem to be doing a bang-up job there:

http://online.wsj.com/article/SB123993462778328019.html

This is an op/ed from yesterday. Excerpt:

"Consider that the Medicare Payment Advisory Commission reported in 2008 that 28% of Medicare beneficiaries looking for a primary care physician had trouble finding one, up from 24% the year before. The reasons are clear: A 2008 survey by the Texas Medical Association, for example, found that only 38% of primary-care doctors in Texas took new Medicare patients. The statistics are similar in New York state, where I practice medicine.

More and more of my fellow doctors are turning away Medicare patients because of the diminished reimbursements and the growing delay in payments. I've had several new Medicare patients come to my office in the last few months with multiple diseases and long lists of medications simply because their longtime provider -- who they liked -- abruptly stopped taking Medicare. One of the top mammographers in New York City works in my office building, but she no longer accepts Medicare and charges patients more than $300 cash for each procedure. I continue to send my elderly women patients downstairs for the test because she is so good, but no one is happy about paying.

The problem is even worse with Medicaid. A 2005 Community Tracking Physician survey showed that only 50% of physicians accept this insurance. I am now one of the ones who doesn't take it. I realized a few years ago that it wasn't worth the money to file the paperwork for the $25 or less that I received for an office visit. HMOs are problematic as well. Recent surveys from New York show a 10% yearly dropout rate from the state's largest HMO, the Health Insurance Plan of New York (HIP), and a 14% drop-out rate from Health Net of New York, another big HMO."

Given such problems why should we trust them with an ever larger share of health care?