Taxation

by Henry on September 13, 2003

Paul Krugman has a long and devasting “critique”:http://www.nytimes.com/2003/09/14/magazine/14TAXES.html?pagewanted=print&position= of the Grover Norquist agenda in the NYT magazine. Expect the usual talking points from Sullivan and co. – ‘shrill,’ ‘sloppy’ – but don’t expect any serious counter-arguments.

And, proving that conservatism can be something more than blind advocacy of tax cuts, Tacitus “gives forth”:http://38.144.96.23/tacitus/archives/000913.html#000913 on the decision to reject tax-reform in Alabama:

bq. prisons and cops — and yes, even public education — are legitimate functions of government at that level, and so I have to ask whether underfunding them is really the conservative thing to do … All in all, the whole episode and the anti-tax rejoicing in the aftermath points to an increasing cognitive dissonance in Republican circles. The notion of taxation as an evil in itself is useful as a tactical tool, but it’s not useful as an analytic tool: you don’t get good governance if you focus on cutting taxes in the absence of any consideration of legitimate budgetary needs or any effort to concurrently reduce spending. But that’s exactly what’s happening, in the Congress and in Alabama. It’s worrisome and I daresay wrongheaded

{ 26 comments }

1

nameless 09.13.03 at 1:14 am

This fellow Slacktivist has a similar take:

“The Alabama vote and its consequences provide the clearest picture of America’s future, the future that George W. Bush is unraveling for all of us. Alabama, with the lowest and most regressive taxes in the nation, is Grover Norquist’s vision of paradise.

As Gov. Riley asked, “If having the lowest taxes in the nation means we’re going to have an economic explosion, where is it?”

The answer, of course, is that a regressive, inadequate tax structure that guarantees massive deficits and a failure to invest in education, health and basic public safety is not — as George W. Bush and his Svengali, Norquist, argue — the path to economic growth. It is the path to feudalism and to the Mississippization of America.”

http://www.slacktivist.blogspot.com/2003_09_07_slacktivist_archive.html#106330443783315293

2

Ophelia Benson 09.13.03 at 1:20 am

Ah. That’s what I thought.

“The other doctrine is often referred to as ”starving the beast,” a phrase coined by David Stockman, Ronald Reagan’s budget director. It’s the view that taxes should be cut precisely in order to force severe cuts in public spending.”

That’s what I said the other day – that it’s old news that Republicans want to get rid of social programs by taking the money away, that Stockman admitted as much during the Reagan era. I’m glad I remembered right (for once).

3

Ophelia Benson 09.13.03 at 1:22 am

“Mississippization of America”

Yeah, and that’s if we’re lucky. But hey! there will be lots of happy rich people around, that’s the important thing.

4

Pio 09.13.03 at 4:59 am

“Paul Krugman has a long and devasting critique of the Grover Norquist agenda in the NYT magazine”

What? All I see is Krugman announcing something that has been known for years as some kind of amazing new discovery.

The only thing that makes it devastating in your mind is that you disagree with the positions that Norquist and co. take. Since Krugman only repeats those positions in a disaproving tone, instead of, say, trying to attack them on the merits, this is hardly devastating.

As to those merits, everyone here seems to think that rolling back FDR’s amazingly unconstitutional New Deal (which economists agree only excaberated the Great Depression) is a bad idea. This is absolute nonsense. Basic economics, less government interference in economic activity (barring theft and fraud cases) = better economy. Better economy = everybody better off. Germany is an excellent example: Extremely worker-friendly regs coupled with a huge “safety net” means that tons of people live off welfare (which often pays better than work) or work off the record to avoid paying social taxes and going through paperwork. These are the same kinds of regs and safety net that libs want for america.

Of course, people may argue that this kind of economic repression isn’t happening in america, b/c we somehow have the perfect balance between theft and freedom. Or you may point to the wisdom of random bloggers like “Slacktivist”. Unfortunately for you, though, Nobel-prize-winning economists disagree. Milton Friedman once said that w/o FDRs random intrusions, the economy would have grown at around 10% annually over the time since FDR. You can’t seriously claim all that went to the rich?

5

ogged 09.13.03 at 5:22 am

Pio,

Are you really still fighting FDR? “Basic economics, less government interference in economic activity (barring theft and fraud cases) = better economy” is just cant. Millions of people who are screwed from birth because of their economic circumstance depend on “intervention” just to have a semblance of a human life. It may even be true that a “more free” market would benefit those people in the long run, but unless you have a specific and credible plan for the transition, you’re talking about sacrificing them for your dogma, and that’s just callous.

6

J Edgar 09.13.03 at 5:37 am

Pio,
Leave Alabama out of this. Oh, I see you did.
Can’t have any reality intruding on your theories.

Rants about FDR and what he did in an economic environment that (thank FDR) no longer exists. Drop out of orbit, please.

7

Pio 09.13.03 at 5:40 am

Ogged: I don’t believe that we should just suddenly drop the entire welfare state all at once. That would screw over way too many people who have grown up expecting and depending on it, and it aint okay to punish them for the New Deal’s promises. I can’t put forth a perfect solution out of thin air (I was just advocating the position that the welfare state should be, somehow, gotten rid of), but I would imagine an adequate plan would look something like a more ambitious and longer-term version of Clinton’s Welfare Reform, expanded to cover all of the welfare state. After all, Welfare Reform worked fairly well.

Unfortunately, the welfare state aint goin away conspicuosly (sp?) in the current political climate, but gradual cuts to trim defecits might do the trick.

8

Ted Barlow 09.13.03 at 5:51 am

Pio,

Lordy. 10% a year, every year, since (say) 1945? Do you want to double-check your source on that?

9

Ted Barlow 09.13.03 at 5:59 am

And are we talking about real or nominal GDP? (Default would be real; it makes a big difference.)

10

Brian Weatherson 09.13.03 at 6:10 am

I’m with Ted – 10% a year is a completely bizarre claim. When was the last time a major economy grew, in real terms, by 10% in a year? I can’t remember it ever happening, though I’ve heard of 7 or 8% at least being claimed in places like China. I don’t really watch these things obsessively, so I might have missed something. Maybe Ireland at the peak of its growth boom?

Friedman might have meant 10% higher now (at the time the claim was made) in real terms. I probably wouldn’t believe him still, but that would have been a reasonable claim.

11

Trickster Paean 09.13.03 at 6:20 am

You also have to remember that for some years during FDR’s reign that he tried to balance the budget and cut back on deficit spending. Each time he managed to do that, the country’s growth slowed down, and he was forced to do more of that Keynesian intervention to keep growth up. I don’t know what part of FDR’s tinkering with the economy that Milton would be referring to, but the Keynesian economics were what got growth and productivity back.

12

raj 09.13.03 at 11:07 am

It’s somewhat humorous to see someone ranting against the “FDR” welfare state, in comments on a post regarding Alabama’s tax structure. Alabama proposed to increase taxes to pay for things like public education, police and fire, the criminal justice system (i.e., courts and prisons), and the like. Such government programs predated the FDR administration by quite a bit.

One thing that is interesting about the Alabama situation is that the referendum was not only about increasing tax receipts, but also restructuring the system that currently highly advantages the wealthy, and highly disadvantages the less well off. The governor latched onto the tactic–that had been proposed by others for a number of years, of trying to shame Christians by saying that disadvantaging the poor to the benefit of the wealthy was–well–unChristian. It’s interesting that the Alabama Christian Coalition came out against the proposal. As did most of the (probably mostly Christian) voters in Alabama.

13

Doug 09.13.03 at 2:44 pm

Hello Pio,

I made these comments the first time Henry blogged on the referendum. They were a show-stopper at the time; I am curious to see if you have answers that other people espousing a similar position did not have last time around.

+++

Let’s lay a few facts on the line, as reported in the New Republic:

“The state constitution, rewritten in 1901 at the behest of timber and cotton interests, largely exempts Alabama’s extractive industries from property taxes. As a result, while timber companies own 71 percent of the state’s land, they pay less than 2 percent of its property taxes. So how does Alabama make up for this lack of revenue? Partly, it doesn’t: Its schools are the worst funded in the country, and last year the state tied for last in national writing tests. Partly, it taxes the poor. In most states, state income taxes kick in at around $18,000. In Alabama, they kick in at a breathtaking $4,600 — or about one-fourth of the poverty line for a family of four. The state collects the majority of its revenue through highly regressive sales taxes; in some counties, the tax on groceries reaches 11 percent.”

(http://www.tnr.com/doc.mhtml?i=20030908&s=trb090803)

So, back40, is this a good approach to taxation? Tax groceries at 11 percent? Impose one of the lowest thresholds for income tax in the whole of the union? Rank dead last in school funding? Tax the largest and wealthiest landowners the least?

This is what your arguments lead to out in the real world. Is it good? Is it right? Is it just?

14

Demetrios 09.13.03 at 2:50 pm

The notion of taxation as an evil in itself is useful as a tactical tool, but it’s not useful as an analytic tool

Is Tacitus suggesting that conservatives sometimes reduce the complex issues surrounding an election to “Comissioner Bunnypants raised our taxes, let’s git ‘im!”?

15

Karmakin 09.13.03 at 4:36 pm

One more thing to remember in the whole welfare debate. The economy is run around not having full-employment. When things are approaching that mark, the brakes are put on the economy, to ensure some unemployment. In theory, welfare accounts for that policy.

You can either have that, or throw open the floodgates for the economy, and eventually get inflation problems, or have social anarchy and pay the price at the prison level.

Take your pick.

16

Norbizness 09.13.03 at 4:44 pm

I hereby strongly object to the term “Mississippization”. Texas is rapidly passing up Mississippi in significant Third World indicia. (http://www.chron.com/cs/CDA/ssistory.mpl/metropolitan/1760034)

I don’t think we Texans will fulfill Grover’s wet dream of a state folding up and going bankrupt (I think Alabama is on its way first), but we’re certainly trying our damnedest.

17

Tristero 09.13.03 at 4:45 pm

Pio

“(I was just advocating the position that the welfare state should be, somehow, gotten rid of)”

And I thought it was we liberals who were noted for singing “Cumbaya” and other pie in the sky fantasies.

And for the record, Pio, I agree with you, the welfare state should be gotten rid of and I know exactly how to do it. If we pour a lot of money into cold fusion research, we’ll all be so rich that poverty and pestilence will disappear as quickly as the truth disappears from George Bush’s mouth.

Moving on:

Amazingly, but still in his patented pompous style, Tacitus is correct for once; Alabama should almost certainly raise its taxes. However, Tacitus’s reasons weren’t the reasons the governor advanced, at least on a national level. He said it was the “christian” thing to do.

Now that may be so, but that is as unconstitutional a reason to raise taxes as I can imagine. Perhaps the folks in Alabama had more good sense than Tacitus gives them credit for and rejected the tax out of church/state worries (not every Alabamian is a Roy’s Rock fan, after all). And perhaps, next time, the governor will give them a very good reason to raise taxes that has nothing to do with their “christian charity” or lack of same.

18

Edward Hugh 09.13.03 at 5:14 pm

“It’s impossible to know how such spending cuts might unfold, but cuts of that magnitude would require drastic changes in the system. It goes almost without saying that the age at which Americans become eligible for retirement benefits would rise, that Social Security payments would fall sharply compared with average incomes, that Medicare patients would be forced to pay much more of their expenses out of pocket — or do without. And that would be only a start.”

I wouldn’t want to take anything away from what Krugman says about the anti-tax crusade, but it is worth noting that these very same problems are arising in France, Germany, Japan, etc.

To my knowledge George Bush hasn’t been in government there (of course it is always possible to imagine Duisenberg as a CIA ‘plant’ but I’m not that perverse). Nor has the influence of ‘Alabama thinking’ been hitherto imagined to reach so far.

So why is all this happening? Krugman’s points, while not being wrong, (the US could have been a lot nicer place) lack depth and substance. It is also, as is the analysis of the Great Depression on which he, Bernanke and company are pinning their anti-deflation hopes, incredibly US centric. Pity, since I’m happy to go on record as saying he’s got one of the best economics minds on the planet.

But to say we have an easy solution ready for each and every problem as it arises, this kind of thinking is for simpletons. As is:

“the more you look at the Bush administration the more you feel like a “crazy conspiracy theorist.” ”

Not me I’m afraid. Or have I missed something about the problems he’s having in Iraq.

On internal coherence. If Bush is so powerful that he can see the future so well, even if his only intention is to wreck things, where does that leave Krugman’s defence of a market economy? I mean, we just replace the bad ruler with the good one, don’t we?

Well, everyone can make up their own minds on this. But for me it doesn’t work. Fortunately Sartre (among others) already pointed out: the idea of an omniscient and all powerful god is internally inconsistent.

19

obruni 09.13.03 at 7:10 pm

Krugman is correct to state that Bush cuts taxes to repay his campaign contributors. This is corruption pure and simple. All the political noise about “job creation,” etc., is just noise to manipulate the American people.

Bush doesn’t have an economic plan, because he believes (hopes) the economy will take care of itself. Bush’s economic plan only appears incoherent because he doesn’t have an economic plan. Bush has a tax-cutting plan, which is essential to his reelection (election) plan.

20

Arnold Bocklin 09.13.03 at 8:15 pm

Who wouldn’t welcome a future in which the US is unable to compete with Europe because Americans are too poorly educated to service a high tech economy — in which America is internally divided, forced to focus its energies on quelling internal class unrest rather than attacking imaginary external ‘foes’ — in which the cream of American talent floods across the Atlantic seeking the greater opportunities that Europe offers. Bring on the tax cuts and the end of US hegemony!

21

Barry 09.13.03 at 10:48 pm

“I don’t think we Texans will fulfill Grover’s wet dream of a state folding up and going bankrupt (I think Alabama is on its way first), but we’re certainly trying our damnedest.”

Posted by Norbizness · September 13, 2003 04:44 PM

Don’t worry; Grover doesn’t mind if Texas follows Alabama into his idea of paradice, or leads the way. He just wants you there.

22

Arnold Kling 09.14.03 at 4:19 am

Krugman buries the lede. His key point is this one: “As the baby boomers retire, spending on Social Security benefits and Medicare will steadily rise, as will spending on Medicaid (because of rising medical costs). Eventually, unless there are sharp cuts in benefits, these three programs alone will consume a larger share of G.D.P. than the federal government currently collects in taxes.”

If you read carefully, and if you look at actual numbers here (http://www.cbo.gov/showdoc.cfm?index=3521&sequence=0), you will see that it is the outlook for entitlements that places truly unprecedented stresses on the Budget. The Bush tax cuts only served to keep taxes as a percent of GDP from remaining above historical norms.

Krugman is saying, “we are going to need big tax increases to pay for entitlements. Let’s get on with it!” Others would say that telling people aged 50 and under today that they should think in terms of becoming eligible for SS and Medicare at age 72 or later would be a better solution.

But apart from the spin, I found nothing much to quarrel with Krugman’s description of the problem.

23

Edward Hugh 09.14.03 at 12:34 pm

“Krugman is saying, “we are going to need big tax increases to pay for entitlements. Let’s get on with it!” ”

Arnold: Krugman isn’t saying exaclty this, because he wants – and I agree – to use fiscal deficits now, rather than tax cuts, to try to turn the US economy round. I agree that this needs doing, I don’t agree this will suffice. So his position, and the problem, is more complicated.

“becoming eligible for SS and Medicare at age 72”

I don’t want to enter an auction over a retirement ages. But I think you need to go up a bit, and even then you might not do it. You depend on China and India I guess. Does that feel nice, having the boot on the other foot for a change I mean?

24

Ophelia Benson 09.14.03 at 11:10 pm

“Others would say that telling people aged 50 and under today that they should think in terms of becoming eligible for SS and Medicare at age 72 or later would be a better solution.”

Bloody typical – of the middle class thinking everyone is like them. If you’re a factory worker or a plumber or a construction worker or a meat packer or a waitress maybe your body isn’t even able to hold out until you’re 72. Ever think of that? We’re not all comfortable desk jockeys you know.

25

Doug 09.15.03 at 8:28 am

Funny thing, Ophelia, when I worked oil-field construction, the folks there thought of themselves as middle class. The older ones owned their own homes, some of the younger ones too. Plus, there’s plenty of skilled craftsmen who out-earn the denizens of the cubicle farms.

Another funny thing, nobody expected to be lugging seven inch grinders to the top of a pipe rack in late middle age – and they weren’t. From the field you moved on to be a foreman or over to be an operator or to be a salesman. Folks knew the score and go on with it.

Now I know I can’t speak for everyone in the blue-collar world. But then again, I’m not the one who started with a sweeping generalization.

26

Tripp 09.15.03 at 10:19 pm

But all we need to do is eliminate ‘government waste’ ™ and our budget problems disappear.

Right?

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