Thinking About the Economy: Tax Reform, Anyone?

I’m no economist and I’m struggling right now to improve my knowledge of how the economy works. The following tax reform suggestions, however, are making a lot of sense to me:

Right-of-center, tax reform is inescapable. All households other than the truly poor will be required to pay more in federal taxes. The key issue is that of incentives and excess burdens. A flat tax devoid of all exemptions save for the very poor, is the best solution.  No personal exemptions, no child allowances, no mortgage relief, no charitable donations relief, no tax-subsidies to business enterprise of any kind. Almost every tub would be expected to stand on its own bottom.

The same  flat tax would apply to all dividends and capital gains. Only households would be taxed, at the point of receipt. The corporation tax and the payroll tax would be eliminated (as would the entirely fictitious Social Security Trust Fund).  The flat tax rate would have to be slightly above 20 percent across all income for all non-poor households to reach the tax revenue target. The flat tax ensures that all households – other than the poor – pay exactly the same proportion of their income to the federal government. Of course, the rich pay far more in absolute taxes than do their less rich compatriots.

I especially dig the part that I bold-typed. I don’t really know how the payroll tax works, so I can’t have an opinion about that part of the suggestion, but the rest of it seems eminently reasonable to me. My father, who is a small business owner, has been dreaming of just this kind of a tax system for decades. He says that this would do wonders for his capacity to manage his tiny company. When he comes back from Cuba (he’s on vacation there right now), I’m sure he will be happy to find out that this system is not a figment of his imagination.

Now some questions:

1) What do you, folks, think about this proposal?

2) The quote is from a blog by a Conservative economist who states from the outset that this is a right-of-center tax reform. But the tax reform seems very fair to me. Is this a generally accepted approach to taxes among Conservatives?

3) Can anybody suggest a website or a blog where I can see a Liberal alternative to this tax reform proposal? Or can anybody briefly tell me how it would differ? If I could at least figure out if I’m closer to the Conservative or the Liberal camp on this subject, that would already help me a lot in getting my bearings.

Yes, my questions might sound silly but I have already confessed my lack of knowledge in this area. I’m just trying to understand how things work.

Does the “99% vs 1%” Slogan Make Sense?

Reader n8chz says on the subject of whether the “99% vs 1%” slogan makes sense:

I take it as a political statement that the middle class have more interests in common with the lower class than with the upper class.

My question is, really? Is this a convenient myth we are telling ourselves, or is this actually true?

There is a grievous lack of a social safety net in this country. Let me remind you, however, where the money for this social safety net comes from in the countries of Western Europe and in Quebec that have it. It is financed by the very high taxes paid by the middle class.

In Sweden, the income tax rate is 57.7%. In Germany, it’s 42%. In Belgium, it’s 50%.

We like to pretend that if we prevent the hedge fund managers from paying smaller taxes than they should on their investments, that is going to make a massive difference to the economy. It’s all a convenient illusion, though. Every more or less socialist system in existence right now is based on taxing the middle class heavily.

This is precisely why the #Occupy movement is so invested into promoting the myth that we are all 99% and that we have the same interests and goals. You can nationalize every single private jet and every single private island in this country outright, however, and that is not going to finance a passable social safety net even for as short a time as the next 50 years.

It’s so much fun to protest and wave catchy slogans on Wall Street while feeling like you are bravely fighting for the cause of the dispossessed. It is a little harder, though, to agree to be taxed at the same rates that one’s Western European and Quebecois sisters and brothers do.

I have a question for my middle class readers. Are you willing to give away between 50% and 60% of what you make in taxes to pay for the universal free healthcare, very cheap or free higher education, very high unemployment benefits, free amazing daycare for the poor, etc.?

And Sometimes It’s Just a Cigar

Somebody I know has been recommending Juan Cole to me forever. So I finally found time to check him out. And this is the first article of his I stumbled upon:

I take it the American news cycle is dominated by the artificial debate over raising the debt limit. It is a silly season story. The budget was being balanced by Clinton in the late 1990s, and the Republicans were the ones who created long-term structural deficits by slashing taxes on the wealthiest Americans (even Bush argued with Cheney over the second cut), by an unfunded prescription drug give-away to get votes from the medicare crowd, and by two unfunded wars, one of them illegal in international law.

The reason that the Republicans deliberately destroyed the balanced budget and created unprecedented government debt was precisely in hopes that at some point they could use the debt as an excuse to destroy social security, medicare, and myriads of educational and health programs. They represent rich people, and the rich don’t want to be having to bear their fair share of the national burden. What better way to get out of having to pay those pesky taxes than making sure the government doesn’t do anything for anyone but the rich.

So everything unfolding in Washington was planned out in a room in 2001, and is going according to plan.

I like a good conspiracy person as much as the next person, but this one is just too outlandish. A group of people huddled in a room ten years ago and planning everything that would happen ten years from then would make for a bad Hollywood movie. Reality, however, is always a bit more nuanced, complex, and unpredictable.

Also, I don’t think that demonizing the Republicans in this way is useful to the Liberal cause. If they are capable of such brilliant, out-of-this world planning and strategizing, then we really might want these resourceful and organized people leading the country. Of course, the question arises as to why such ultra-intelligent folks allowed themselves to lose the White House in 2008. Maybe that was part of their hidden agenda whose consequences will become evident ten or a hundred years from now.

The reason why the Republicans are anti-tax is much simpler, in my opinion. The voters who handed them the congress last November are anti-tax, so the Republicans are simply following through on that popular sentiment. In my Spanish class that I was teaching right around the time of the 2010 elections, we arrived at the chapter in our textbook that introduced the vocabulary related to politics. I always ask my students to begin approaching the new vocabulary by creating sentences with the new words. From these sentences, I discovered that my students in the American Midwest overwhelmingly believe that taxes are the government’s way of ripping off hard-working folks to feed a huge bureaucracy.

One might not like this fact but the truth is that there are very very many people in this country who are anti-tax and anti-government spending. A huge number of citizens is driven by the hope of becoming extremely rich and buying their own yacht. Whether they will succeed or not, having that possibility is crucial to them. They are more prepared to identify with a millionaire on a personal jet than they are with an unemployed steel worker. Even though their personal circumstances place them much closer to the steel worker, their sympathies still lie with the more positive example of the millionaire. Psychologically, this makes a lot of sense.

I’m sure most of my readers are well-aware of all this. As in immigrant, however, I felt puzzled by this phenomenon for a long time. Only after living in the Midwest and talking to people of all ages and professions did I begin to understand why these hard-working folks seem to vote consistently against their own economic interests. The thing is, they don’t. They are neither stupid nor deluded. They simply vote for the interests of their future selves, the ones who will have managed to make it big eventually.