The times are changing – tax style

from Peter Radford

The following is part of a correspondence I had recently with a friend here in Vermont:

The purpose of increasing taxes on the wealthy is twofold: one is to raise revenue; the other is to prevent growing concentration of wealth.  I think the second of the two is the more important.  The American system of opportunity and so on was founded on society being more equal than it is [not equal, but more equal].  As wealth gets entrenched further each decade inequality erodes that system and would eventually replace it with an “old world” class system.  So taxes on wealth are a buttress for democracy as much as a source of revenue. 

As for the funding for the various social and infrastructure being bandied about at the moment: I see no reason for us not to augment the increase in revenue generated by the above mentioned taxes by judicious borrowing and the implementation of new taxes such as the “Tobin” tax on financial transactions you mention. 

One of the most frustrating aspects of the current discussion is that whenever a social program is muted, so-called experts immediately decry its expense and the impact on the deficit.  We have to remember that the biggest cause of our current deficit has been the accumulated impact of the Reagan/Bush/Trump tax cuts none of which induced a corresponding increase in economic activity sufficient to allow the government to recoup the lost revenue. The only long term impact on the economy those tax cuts have had is to create the inequality we now suffer from.  

Lastly: yes, we need to improve government efficiency, but the savings are likely to be minimal compared with the cost of additional programs.  One source of waste right now is the excessive use of consultants and private contractors who are outside direct government oversight.  In-sourcing those activities, and then providing suitable incentives for government employees to increase efficiency, ought to be high on our list.   Corporate style cost-cutting is unlikely to be effective [attractive as it sounds] because of the very different incentive structure in the public sector.  Don’t forget that a majority of the cost is a consequence of legislation, and our public employees have no salary or bonus incentive to get rid of waste.   

A critical question that we all need to ask is: what share of GDP ought pass through the government?  And then we need to fund that share properly rather than executing tax cuts without making corresponding spending cuts.  In a fully functioning democracy that share is more likely to be 30% rather than the current 20% [approx.].  If we are having that discussion we are at least getting at core issues rather than being lost in pointless argument. 

Ironically, I think that’s where we are headed as the Democratic party shifts itself to the left somewhat and engages in a discussion of what the appropriate level of social and infrastructure spending our government ought engage in.  Unfortunately the GOP and a portion of the media are stuck in 1980.  Which is not constructive, and doesn’t address our issues.  

PS: The Warren proposal is based on the work of Piketty.  It is one of the first attempts anywhere to make practical use of his insights.  See his blog.

 I have to admit that I find the entire current discussion very annoying.  For the better part of four decades the wealthy have perverted the economy and rigged it in their favor.  The research by Gilens and Page is decisive in this regard, not that most of you need persuasion.

Having benefitted from this deliberate skewing of economic outcomes in their favor we are now treated to endless bleating by the wealthy about the so-called “harm” that undoing the damage would do, not just to the wealthy, but to society as a whole.  Apparently incentives to work would plunge and investment would plunge even further.

Neither of those outcomes is likely to happen.  The wealthy will still be driven to accumulate more wealth, and they will still need to find investment opportunities for whatever wealth they possess.

Besides, as all the recent literature on stagnation has illustrated, the flow of investment in the past few decades has not sustained economic growth.  There is a better argument to be made that the wealthy have preferred to park their assets in the financial system rather than in the real economy because with rising inequality has come a constraint on consumption and hence a brake on returns in the real economy.  In other words, the wealthy have shot themselves on the foot.  And the rest of us are collateral damage.

Even more annoying are the inevitable bromides spewing from the mouths of the so-called centrists who decry the fiscal consequences of the social programs now being actively discussed in American politics.  In an eery replication of arguments of years gone by, they carefully warn against the budgetary impact of spreading the wealth more evenly throughout society via social and infrastructure spending.  We simply cannot afford it.  This argument is especially leveled against the various forms of universal health are being proposed by our bevy of Democratic presidential candidates.  They are simply being sensible they say.  There is no room for such a radical expense.

Phooey.

Of course there is.

The problem, as ever, is getting the entrenched and the privileged to play ball with the rest of us.  Their excessive accumulation came at our expense.  Now it’s time to even things up a bit.

Perhaps what’s most encouraging about the present furor over these new plans for social programs is that we are having the discussion at all.  The very act of proposing a wealth tax, or a renewed top rate of 70% for income tax, represents a sharp discontinuity in the framing of political argument.  The tide seems to have shifted against the neoliberal, and and its neoclassical underpinning, and in favor of something else. Quite what that is we have to determine, but the discussion is going to take place on very different terms.

Which helps explain why the rising tide of objection from sundry billionaires who decry such tax proposals as “extreme” or “dangerous” looks so pathetic.  Their self-interest can scarcely be hidden by their outcries of erstwhile sense.  Their problem is that their privilege has become dangerous to society and needs to end.

The real sense is to rid ourselves of such privilege.

I am reminded of a statement by Beatrice and Sidney Webb back in 1923:

“There can be no permanence in a situation in which we abandon production to capitalism, and yet give workers the political power to enforce demands on the national income which capitalism has neither the ability nor the incentive to supply.”

How true.

And now we arrive back at a point when that conflict becomes more evident.  The counter-cycle to the neoliberal era has arrived.  The Reagan/Thatcher denial of the social is being denied itself.

How far this new cycle runs will be interesting to see.  But I doubt the billionaires will like what is about to happen.

Addendum:

In my correspondence included above I could have added references to all sorts of other taxes and changes to taxes.  For instance: a carbon tax; the elimination of privileges to capital incomes versus work incomes; and so on.  The opportunity to generate revenues is a long list.  So the wealth tax and a new top rate on the income tax are just a beginning.