Why Tax Cuts

It should be said, that though belief in "tax cuts will pay for themselves" type theories is frequently expressed by Republican Party politicians and Republican-oriented columnists, talk show hosts, and think tankers, I do think it's unlikely that this theory actually causes Republicans to advocate for tax cuts. For that, you need to look to something more like Jason Furman's testimony today (PDF) before the Ways and Means Committee.

Here's a chart that summarizes his main conclusions and, I think, basically explains Republican thinking. If the image is too small for you to read, click and you'll get a bigger one:

What we're seeing here are dynamic analyses of the effect of tax cuts on the income of people at different income levels, under different scenarios. The top selection shows what happens if you pay for tax cuts via decreases in spending -- i.e., what conservatives typically say should be done. Most households -- 74 percent of them, in fact -- wind up worse under this scenario than they would have been without the tax cuts. But 57 percent of families in the top twenty percent benefit. And 99 percent of families in the top one percent benefit. If, by contrast, the tax cuts are paid for simply by a future re-raising of taxes, then 76 percent of households wind up worse off, but 43 percent of households in the top one percent benefit.

In the real world, of course, you're likely to see a mix of spending cuts and tax increases used to close deficits (so indicate the precedents of the major deficit reduction packages of the past) so that Republican Party advocacy of tax cutting does, according to Furman's analysis, probably achieve its purpose of further enriching the richest Americans, albeit at the expense of the vast majority of Americans. For some of the movers behind this policy, it's a question of self-interest (they're rich or being paid by the rich to serve their ends) and for others it's a simple question of justice -- a not entirely trivial minority of the population regards the fact that the very richest Americans aren't even richer as deeply immoral.

Comments

So the effect of a cut in spending is equivalent to abolishing a law that allows a bunch of dudes to gang rape one woman. She gains, they're all worse off. Clearly, this is an evil and self interested outcome. Why won't the Republicans get out of the pocket of Big Don't Rape Me?

Posted by Dylan | September 6, 2007 4:18 PM

Matt,

Why do you hate America?

Posted by Citizen (World) | September 6, 2007 4:26 PM

Matthew becomes a democracy fetishist when it gives people he agrees with the ability to access wealth on an involunatry basis from people he disagrees with. This is what is known in the Democratic Party as "social justice"; "once we have the most votes, then we'll force others to do our bidding, because doing our bidding is a good thing, and not agreeing to our demands is a bad thing."

Posted by Will Allen | September 6, 2007 4:27 PM

Before the yelping starts, let me say that I know I'm quite aware of the hyperbole of my post above, and that I don't even have a strong opinion on whether the top marginal rate should be at 34 or 39 percent, or anywhere in that ballpark. I was merely trying to mirror Matthew's bad faith chracterization of people he has a difference of opinion with.

Posted by Will Allen | September 6, 2007 4:32 PM

That's Al's schtick, Will. You need your own gig.

Posted by Steve | September 6, 2007 5:03 PM

Oh come on Matt, this is crazy! You think the Republican party is conspiring to make the rich richer out of self interest, or some fanciful belief in a twisted concept of social justice?

I prefer 1) ignorance 2) honest belief in the ability of tax cuts to grow the economy, either through bogus supply side income/substitution effects or through the effect of added savings 3) adherence to some other philosophical tenant that happens to have this as an irrelevant side effect, like 'man is entitled to the fruit if his labor' 4) Starving the beast explanations 5) Something I haven't considered that doesn't require my ideological opponents being stupid or evil. . .

If you insist on your explanation, I think some sort of evidence is in order, eh? Obviously I can't expect you to find indication that Republicans are plotting to enrich themselves, so let's stick to the second point. Who, out there, just link to someone, that thinks that "the fact that the very richest Americans aren't even richer as deeply immoral."

Posted by Wilson | September 6, 2007 5:12 PM

Now we're getting somewhere. Just like the Megan threads about Laffer and Chait's book we're getting to the real core of conservative tax policy.

The supply side arguments are bunk, tax breaks don't largely pay for themselves.

Yes, when you cut taxes on rich people this results in less money available for government services largely targeted at the non-rich.

The real conservative argument, thanks Will and Dylan, is that progressive taxation is just plain immoral. And, that any attempt by congress to raise taxes on rich folk is just the tyranny of the majority.

Now, I'm fine with those arguments if the conservatives and libertarians are. But, let's not pretend that the right would win any general elections any time soon by running on their conviction of the inherent unfairness of progressive taxation. The supply side mumbo jumbo and hiding the effects of revenue loss on social services are necessary to win elections.

Posted by Citizen (World) | September 6, 2007 5:13 PM

How stupid of Matt to bring up the facts, as if they matter to the Republicans and their fellow travelers.

Posted by gregor | September 6, 2007 5:17 PM

The real conservative argument, thanks Will and Dylan, is that progressive taxation is just plain immoral.

It seems to go beyond that. The implicit point of all those arguments that the top 1% already bear X% of the tax burden is that there's something wrong with making the top 1% bear more than 1%.

Posted by Steve | September 6, 2007 5:18 PM

You think the Republican party is conspiring to make the rich richer out of self interest

yup. it's called economics, there's quite a lot of it about.

Posted by dsquared | September 6, 2007 5:19 PM

It seems to go beyond that. The implicit point of all those arguments that the top 1% already bear X% of the tax burden is that there's something wrong with making the top 1% bear more than 1%.

Don't know how many economic conservatives actually argue this, or if it's just a straw man, but I do think the converse is true: there seems to be no limit to the amount which liberals think one can be forced to work for the government.

Posted by Homer | September 6, 2007 5:26 PM

From this semi-libertarian's POV, it's not that progressive taxation is immoral. Taxation itself is a necessary evil, and I think the taxes you do have should be either flat or progressive, so that the overall tax burden is somewhat progressive. However, taxes should exist to pay for services -- we pay the smallest amount necessary to get the services we need (and that are consistent with our constitutional structure). Taxation shouldn't be lowered or raised to help or hurt some group of people. Tax cuts should be paid for with spending cuts, because spending should be cut. "Paying" for them with higher taxes later on is pointless. I understand why it's politically tempting, but except in rare situations where you want to goose the economy, it's just dumb.

I know most people here won't care, because they don't think taxes are "your money," but lower taxes only count as depriving the government of revenue if you start from the assumption that every penny you earn could belong to the government, and they're doing you a favor by letting you keep any of it.

Posted by too many steves | September 6, 2007 5:33 PM

Don't know how many economic conservatives actually argue this, or if it's just a straw man, but I do think the converse is true: there seems to be no limit to the amount which liberals think one can be forced to work for the government.

It's a strawman in the sense that I'm not sure how many people actually believe that the top 1% of income-earners should only bear 1% of the tax burden. But I'm not sure what else you're supposed to take away when they argue "the top 1% are paying X% of the taxes" as an appeal to fairness.

But the idea that liberals favor as high a tax rate as possible is certainly a strawman. Yes, liberals keep advocating for higher taxes, but we don't seem to actually get what we want. If Democrats held Congress for a dozen years, the top tax rate went up to 50%, and liberals continued to clamor for a tax increase, you'd have a great analogy to the Republican platform as it exists today.

Posted by Steve | September 6, 2007 5:48 PM

Its hard to reverse engineer Furman's work, but a couple of points stick out: (1) A 10% recovery rate is on the low end of publishable estimates, particularly for capital gains taxes. He is defintely not using lotteries. (2). He is not splitting the reductions in marginal rates from the rebates. (3) He is not considering the possibility that a capital gains tax cut may allow for a better insurance again income risk towards retirement

Posted by Hector Calvo | September 6, 2007 5:52 PM

Well, instead how much and who should pay what taxes, the far more important question is what government should be spending money on. The largest government activity, in terms of money spent, is benefits for the wealthiest age demographic, because they are old. Forget about arguments regarding the liquidity of that wealth; it could easily be recaptured at death, like medicaid benefits are. However, our political culture thinks it better to preserve the inheritances of baby boomers than the paychecks of 20 year old Wal-Mart employees. I don't care much if the top marginal rate is at 34 or 35 percent, but I'd strongly support a 50% decrease in FICA taxes on the first $20,000 in income.

Posted by Will Allen | September 6, 2007 5:56 PM

Make that "34 or 39 percent".....

Posted by Will Allen | September 6, 2007 5:59 PM

Furman's w/spending cut numbers assume that one dollar less of gov't spending is translates directly to $1 less of income and that the impact of the decreased spending would be uniformly distributed. The w/tax hike numbers are highly contingent on the nature of the later tax hike, which Furman declines to specify (although I'd buy that cutting into a deficit probably is a bad idea under most realistic assumptions).

Since the assumptions mentioned above dictate the outcomes and are either unrealistic or not given, the table is largely meaningless, which of course doesn't stop those whose preconceptions it supports from treating it as incontrovertable proof.

Posted by MattXIV | September 6, 2007 6:25 PM

Matt writes: "probably achieve its purpose of further enriching the richest Americans"

More accurately: "probably achieve its purpose of lessening the de-riching of the richest Americans"

I suppose "de-riching" isn't a word. Maybe "confiscation"--or is that too libertarian?

Posted by Jeff | September 6, 2007 6:35 PM

"So the effect of a cut in spending is equivalent to abolishing a law that allows a bunch of dudes to gang rape one woman. She gains, they're all worse off. Clearly, this is an evil and self interested outcome. Why won't the Republicans get out of the pocket of Big Don't Rape Me?"

This is a parody right? So that's why my ass is always bleeding every payday! I have to remember to stock up next year for a bunch of morning-after pills to take in mid-April.

Posted by Reality Man | September 6, 2007 6:36 PM

So, at what point, exactly, in a liberal's view, would taxation be too much?

50%?
75%?
85%?
95%?

Is there any limit at all that liberals would call immoral? Can I get a number!?

Posted by El Viajero | September 6, 2007 6:45 PM

"lessening the de-riching of the rich"? Because the federal government having de-riched the rich, there are no longer any rich people in this country?

??

Libertarian or not, "confiscation" is at least technically correct. Stick with that.

Posted by Mark | September 6, 2007 6:48 PM

too many steves says:
lower taxes only count as depriving the government of revenue if you start from the assumption that every penny you earn could belong to the government, and they're doing you a favor by letting you keep any of it.

This is most definitely not where I come from. Simply put, the government needs a certain amount of money to function (whether that's 1, 20, or 50% of GDP is entirely irrelevant to the principle) and you can't get blood from a stone, so taxing the poor is counterproductive and bordering on immoral. Hence progressive taxation. You tax the rich because that's where the money is. I also beleive that income is income is income, and having separate rates for the capital gains tax and the income tax is wrong.

Posted by Odysseus | September 6, 2007 6:53 PM

Matt XIV above says the main point about the charts - that the numbers in the "Finance Cost" column are completely made up with no basis in anything. And since those are the numbers that drive the entire exercise, the entire exercise seems unproductive.

But I want to add about the "% with Income Increase (Decrease)" columns also. What these columns show is that, to the Left, the entire purpose of taxation is income redistribution. The perfect outcome, presumably, would be to have exactly half of the people gain income (all of the people in the bottom half of the distribution) and exactly half of the people lose income (all the people at the top), with the amount gained or lost dependant upon the amount of pre-tax income. I suppose the best way to accomplish this would be to have the government tax everyone at a rate of 100%, and then give the money back to everyone on a strict per capita basis... then you'd have Left-wing Nirvana: perfect income equality!

Posted by Al | September 6, 2007 6:59 PM

"So, at what point, exactly, in a liberal's view, would taxation be too much?

50%?
75%?
85%?
95%?

Is there any limit at all that liberals would call immoral? Can I get a number!?

Posted by El Viajero | September 6, 2007 6:45 PM "

*rolls eyes* Cite me a single example of a major Democrat or liberal urging that we have at least a 50% tax rate. Liberals don't have a fetish for taxes. Liberals like the welfare state for its effects of helping those with lower income, not because it screws the rich. If you want to have a functioning government and military, you need taxes. Liberals don't get together in secret and have same-sex jerkoffs while serenading each other about returning to 91% tax rates. Conservatives have come to rely on a worldview based on fear of the Other (gays, feminists, Muslims, liberals, etc.) and a need to have their victimization complex fed.

Posted by Reality Man | September 6, 2007 7:02 PM

So, at what point, exactly, in a liberal's view, would taxation be too much?

Since, to a liberal, all money is the government's money in the first place, there is no "immoral" rate of taxation - the government is simply taking what is already its own. As I noted above, presumably, a 100% tax rate would be the ideal, since then you could redistribute all the money on a per capita basis, which permits perfect income equality. Unfortuantely for the liberals, there are rich Republicans and other evil people who prevent this Nirvana from occurring.

Posted by Al | September 6, 2007 7:05 PM

If you want to have a functioning government and military, you need taxes.

Huh. I see columns entitled "% With Income Increase" and "% With Income Decrease". I don't see "Increase in Military Function" or "Increase in Government Function".

So it seems to me that you are precisely wrong. According to the chart Matthew posted, what we are talking about is how much income gets redistributed.

Posted by Al | September 6, 2007 7:10 PM

"If you want to have a functioning government and military, you need taxes.

Huh. I see columns entitled "% With Income Increase" and "% With Income Decrease". I don't see "Increase in Military Function" or "Increase in Government Function".

So it seems to me that you are precisely wrong. According to the chart Matthew posted, what we are talking about is how much income gets redistributed.

Posted by Al | September 6, 2007 7:10 PM "

So because Democrats take the time to measure the effects of possible tax rates, that somehow means the totality of liberal thought on taxes is just to redistribute income?

Posted by Reality Man | September 6, 2007 7:12 PM

"Since, to a liberal, all money is the government's money in the first place, there is no "immoral" rate of taxation - the government is simply taking what is already its own. As I noted above, presumably, a 100% tax rate would be the ideal, since then you could redistribute all the money on a per capita basis, which permits perfect income equality. Unfortuantely for the liberals, there are rich Republicans and other evil people who prevent this Nirvana from occurring."

Thats exactly right Al. Tell it to the mountain. The only thing that keeps my feeble pecker up is phant'sy about 100% tax rates. My sex life resembles that of James Taggert. I read the first, really boring part of Atlas Shrugged as a proscription for action.

Posted by mickslam | September 6, 2007 7:17 PM

we are talking about is how much income gets redistributed.

Right. And the question in the title of the post is "why tax cuts?" And the answer proposed is, because of the self-interest of people at the top of the income distribution. As demonstrated by the chart.

Posted by UN Plaza | September 6, 2007 7:21 PM

"Cite me a single example of a major Democrat or liberal urging that we have at least a 50% tax rate."

What, recently? Nobody to be taken seriously. Historically? Democrats not only urged a higher rate than that, they managed to get it for a good part of the 20th century.

If they don't advocate it today, it's a combination of the Laffer curve being relatively uncontroversial at high enough rates, (The only real contraversy is where we presently stand relative to that revenue maximizing rate, not whether it exists.) and the Democratic party's reliance on wealthy donors.

Posted by Brett Bellmore | September 6, 2007 7:29 PM

I assume they advocate tax cuts because they want to pay less tax. I don't think it's any deeper than that.

Still, it's fair to evaluate these post-hoc rationalizations on their own merits.

Tax cuts are a miserable, dismal failure at incresing revenue. They're even a bigger failure at imposing fiscal discpline, forcing spending cuts and shrinking the size of government. The failure is so palpable and obvious that "principled" conservatives now deny that W. is one of them.

Tax cuts could be made to look like they stimulated the economy, with a ton of extreme cherry picking. Even then, the record is overwhelmingly mediocre at best.

Tax cuts may or may not have positive effects on deadweight loss. Advocates of this theory should prove it, and offer a compelling reason why this effect is worth the lost revenue.

All these theories are just like the rationales for war with Iraq: post-hoc excuses for doing what conservatives wanted all along.

Posted by Jalmari | September 6, 2007 7:47 PM

I'm amazed how unphased the liberals here are that regarding the problems with the w/spending cuts table. In the w/spending cuts table, a more realistic estimate would be to prorate the cut by the % of the general budget that goes to direct benefits in each income bracket, which I'm guessing is around 10-15% of the values in the table based on how the budget breaks down, and even that is arguably high since it's politically difficult to cut transfers. More realistic numbers in the w/cuts scenario would probably put every group except the bottom quintile in the black. That's not a trivial difference and doesn't support the story Matt and Jason are selling.

Posted by MattXIV | September 6, 2007 8:09 PM

I assume they advocate tax cuts because they want to pay less tax. I don't think it's any deeper than that.

Still, it's fair to evaluate these post-hoc rationalizations on their own merits.

Tax cuts are a miserable, dismal failure at incresing revenue. They're even a bigger failure at imposing fiscal discpline, forcing spending cuts and shrinking the size of government. The failure is so palpable and obvious that "principled" conservatives now deny that W. is one of them.

Tax cuts could be made to look like they stimulated the economy, with a ton of extreme cherry picking. Even then, the record is overwhelmingly mediocre at best.

Tax cuts may or may not have positive effects on deadweight loss. Advocates of this theory should prove it, and offer a compelling reason why this effect is worth the lost revenue.

All these theories are just like the rationales for war with Iraq: post-hoc excuses for doing what conservatives wanted all along.

Posted by Jalmari | September 6, 2007 8:39 PM

Obviously I can't expect you to find indication that Republicans are plotting to enrich themselves, so let's stick to the second point.

Thank you, Wilson, I just got home from work and needed good laugh.

Scene 1:

Bush to Cheney:"Ixsnay on the it's our duenay..."

End Scene,
Thunderous applause....

Posted by Rihilism | September 6, 2007 8:55 PM

"As demonstrated by the chart."

Thank you, UN Plaza, that was the second funniest comment.

Posted by Rihilism | September 6, 2007 9:02 PM

Policies which make rich people even richer don't happen just because they would make rich people even richer.

No.

It's obviously some much, much more complicated thing involving trends, graphs, curves, explanations, some famous economists, famous debates at some Republican convention, etc., etc.

Otherwise it would just be some way of making the richest people even richer, and it would just be crazy to imagine that any politicians would ever, ever, ever do that.

Also, I put some beer in the refrigerator, but it was not to make it cold, and it would be wrong and simplistic to suggest that this is the explanation of why I put some beer in the fridge.

No, it was because I read these books about space efficiency in refrigerators, and there were these graphs about how other food items would benefit from being placed close to beer, and those food items hypothesized to most benefit from being close to beer also happen to be food items which need refrigeration.

Posted by El Cid | September 6, 2007 9:57 PM

For those who think they owe nothing to the government that enables their productivity, I say go peddle your wares in Somalia or Afghanistan. I'm sure you'll find their tax rates much more to your liking. You selfish ungrateful bastards. Would there be such a thing as philanthropy without the death tax?

Posted by Just Karl | September 6, 2007 10:12 PM

Is there any limit at all that liberals would call immoral? Can I get a number!?

It depends on the society; you don't want to impose a level which the general consensus in society views as immoral. There's no reason "in principal" why a marginal rate of 90% for people with income over $10 million a year, say, would be "immoral"; in a lot of hardworking Calvinist societies people feel that if you don't think $400 after taxes is worth an extra hour's work, then you consider yourself too good for normal life like the rest of us, and you need a kick in the pants and a bit of respect for everyone else. That's partly why in Norway, the Netherlands, and so on, top marginal rates are very high. It's precisely because of their sense of morality, rather than "immorality".

However, in the US, we have a much greater tolerance for income extremes and more distrust of government. Here, these days, the top marginal rate that people would accept on the extremely wealthy would probably be somewhere around 50 or 60 percent. So somebody making 10 million a year would only earn $1600 to $2000 for working an extra hour. More importantly, I think most liberals would feel that a top marginal rate of 40% on the wealthy, rather than the low-30s rate we have now, would be completely fair and would allow the US to accomplish all of the urgent priorities the country has -- collapsing infrastructure, lousy primary education system, massive numbers of uninsured, and so forth.

The economic efficiency arguments regarding how much deadweight loss occurs when you set marginal tax rates higher are a different question. I think that if you set the tax incentives to graduate up smoothly and at the right points, people will still be eager to work hard and strive for efficiency; the high productivity of French workers is a good example. But that argument involves a lot more specificity, and its relationship to "morality" is more mediated.

Posted by brooksfoe | September 6, 2007 11:39 PM

In the w/spending cuts table, a more realistic estimate would be to prorate the cut by the % of the general budget that goes to direct benefits in each income bracket, which I'm guessing is around 10-15% of the values in the table based on how the budget breaks down -MattXIV

Social Security benefits are mildly regressive, since people who've paid more into the system get more out; so, yes, perhaps prorating those benefits might lower the prospective cut to the income of the poor. That would only show up for the elderly poor. Medicare benefits are a wash -- people get money based on how old and sick they are, not how wealthy they are, so that should spread evenly, as in the chart. For the rest, Medicaid cuts obviously would hit the poor hardest, raising the "cut" in the chart. WIC ditto. This all looks insignificant to me. What other benefits should be prorated, in your view?

Posted by brooksfoe | September 6, 2007 11:55 PM

brooksfoe,

You seem to be misunderstanding - I'm saying that we should be prorating how much of gov't spending should be counted as "Finance Cost" on income rather than how much of received benefits should be counted as income. SS and Medicare aren't relevant even involved here since we're not dealing with FICA taxes at all. Medicaid is part of the relevant budget, but it's only a small fraction. Furman's calculations assume not only would 100% of the spending cuts be taken from transfers (as opposed to military spending, administrative spending, foreign aid, etc), but that each $ cut would be a $ cut in benefits, which would require the transfers in question to be 100% efficient. The negative effects that Furman and Matt are claiming disappear outside of the bottom quintile if ~40% or less of the spending cut is in transfers that could be considered income. The negative changes are mostly an artifact of the unrealistically high estimate (100%) of how much of the cut will be from recieved transfers.

Posted by MattXIV | September 7, 2007 12:28 AM

Wait - shouldn't we be punishing low income earners for being a drag on our society and for not contributing their full potential to the economy?

Maybe we should have a 90% tax rate just for those earning less than a million dollars.

That'd show 'em.

Posted by El Cid | September 7, 2007 12:51 AM

Okay, I see what you're saying, but the alternative to considering cuts in government spending as a change in "income" on the part of the populace is to consider that they do not accomplish anything that can be measured in dollar terms. And in that case, it's hard to make a comparison of who wins or loses if we finance tax cuts by cutting spending or through future tax increases.

Posted by brooksfoe | September 7, 2007 1:02 AM

"For those who think they owe nothing to the government that enables their productivity, I say go peddle your wares in Somalia or Afghanistan. I'm sure you'll find their tax rates much more to your liking. You selfish ungrateful bastards. Would there be such a thing as philanthropy without the death tax?"

Yes, yes, we're all familiar with this argument: "The government provides police protection for Joe Shmoo's $5, and for Bill Gates' $5 billion (Or whatever.) and therefore it's providing $5 of services to Joe Shmoo, and $5 billion in services to Bill Gates. And is entitled to take in payment whatever fraction of the wealth IT enabled it feels like."

Among the many glaring flaws in this reasoning, is that it attributes an arbitrarily high percentage of Bill Gates' wealth to a single one of many necessary factors. Farmers could reason the same: Gates can't become wealthy if he can't eat. Doctors could reason the same: Gates can't become wealthy if he sickens and dies. Hell, plumbers could reason that Gates wouldn't have become wealthy if everybody were shitting in the bushes and wiping off with leaves. So, are they all entitled to take just a bit less than 100% of Gates' wealth?

In fact, the genuinely necessary factor behind that wealth, given that 2-300 million other people in the country had all the other factors and didn't generate it, was... Bill Gates. And everybody else, is entitled to nothing more than the cost of the service, plus whatever profit they can negotiate in a free market.

Except for the government, which since it doesn't allow a free market in it's services, isn't entitled to the profit, just costs.

Posted by Brett Bellmore | September 7, 2007 7:00 AM

So Brett,

Why don't the doctors and the farmers and the plumbers and the bankers all gouge the hell out of Gates? Hmmmmm? Is it because they realize that society is better off with a Bill Gates around? No it's not. Because the government protects Gates wealth, it is entitled to decide which of it's services are necessary. It's therefore allowed to determine the costs.

Posted by Just Karl | September 7, 2007 7:32 AM

The table is ridiculous

As if people in the bottom quintile(or even second from bottom) pay taxes!!

The chart redistributes the (static) cost of a tax cut even to people who pay no or even negative Fed income taxes. This is beyond mendacity.

I've never heard of Jason Furman but now I know all about him that I need to.

Posted by Jozef | September 7, 2007 7:38 AM

Unless you are willing to argue we don't need taxes, arguing for a non-progressive tax rate is a bit futile. Do we really want to live in a society where Bill Gates doesn't pay a greater percentage of his income in taxes than a family making $50,000 a year? If Bill Gates pays 45% of his income in taxes, he isn't going to feel any real pain. If the family of four making $50,000 pays 40%, they feel actual pain. The reason why Merkel's attempts at a flat tax have been unpopular is that switching to a flat tax rate would result in either a massive budget deficit or a higher rate of taxation on the middle class (but a lower rate on the rich). There is a reason why 59% of voters making over $10 million voted for Kerry in 2004. The wealthy in general in the US actually don't buy supply-side nonsense, but the Republican-leaning nouveau riche (making under $10 million) often do because they think that buying into those things are what the rich do. It's kind of like how the class that is the most in favor of the inheritance tax is overwhelmingly in favor of keeping that tax on the books.

Posted by Reality Man | September 7, 2007 8:41 AM

"It's kind of like how the class that is the most in favor of the inheritance tax is overwhelmingly in favor of keeping that tax on the books."

Should have been:

"It's kind of like how the class that is the most likely to have to pay the inheritance tax is overwhelmingly in favor of keeping that tax on the books."

Posted by Reality Man | September 7, 2007 9:20 AM

I was waiting for someone to make the point that Just Karl makes. Our government protects the wealthy to a larger extent than any others in our society. Why is it that Bill Gates has so much money for creating what is a pretty maligned product, but teachers, police, and firefighters get paid squat? Our society has legislated an advantage for Bill Gates. Bill Gates get copyright protection from our government. Billions of dollars of tax money go to that defense worldwide, but where is the defense of Joe Schmoe's job? Even the offshoring of his job is done with protection of our tax dollars that go to our military that helps the owner of the business cause direct harm to his fellow citizen to the benefit of himself and the country where he relocates. Why? Because our government has seen fit to give him that opportunity and protects it with Joe's tax dollars. I find the morality arguments about taxation to be complete silliness when compared to larger picture of immoral class warfare that has become the foundation of our economic system.

Posted by Ricky | September 7, 2007 10:16 AM

"Do we really want to live in a society where Bill Gates doesn't pay a greater percentage of his income in taxes than a family making $50,000 a year?"

Sure, why not? He'll still be paying hugely more in absolute terms than that family, and the cost to government of services doesn't remotely scale linearly with income.

What's really got you guys scared spitless about a less "progressive" tax system, is the (well justified!) fear that the huge middle class wouldn't be so fond of massive government spending if somebody else wasn't picking up most of the tab. Buying people's votes doesn't work nearly so well if you have to do it with their own money, does it?

Posted by Brett Bellmore | September 7, 2007 11:17 AM

"The economic efficiency arguments regarding how much deadweight loss occurs when you set marginal tax rates higher are a different question."

Well, in terms of overall utility to the economy, it seems that we're considerably below the sweet spot:

http://angrybear.blogspot.com/2007/09/tax-rates-and-economic-growth-look-at.html

Posted by Lewis Carroll | September 8, 2007 3:41 PM

But the discussion of principle is entirely flawed: the libertarian argument that paying taxes in the USA is entirely voluntary, and the rich in the USA pay them as part of a freely entered bargain, seems flawless to me (as far as it goes).

When marginal taxes on rich were 90% as in the 1950s there wasn't much argument about that -- it was a freely entered bargain then, it is a freely entered bargain now. Nobody is forcing the rich (or the poor) to pay any USA taxes. So what's the big deal?

Just like nobody forces the rich (or anybody else) to work for low wages at Wal*Mart, nobody forces the rich (or anybody else) to keep their USA citizenship/residence with its duties, including paying whatever taxes are legislated by Congress.

The rich who don't like the citizenship/taxes bargain offered but not imposed by the USA can choose to switch their allegiance to the King of Arabia, the Emir of Bahrain, or the Prince of Monaco, and many do.

Conversely, last I checked there was a huge queue of foreigners begging to freely enter the bargain to pay USA taxes for USA citizenship/residence...

Also it is quite dishonest to talk about taxes and burden on the rich as if only income taxes mattered; if one includes sales/excise/... and state taxes, it turns out that the percentage of tax paid by the rich and the poor in the USA is roughly the same, about 30% no matter what the income is (except at the very low and very high ends where it is a bit lower). Warren Buffett, who is a billionaire, has written that the percentage of income paid out as tax by himself and his secretary is the same, and that's a scandal.

Posted by Blissex | September 11, 2007 1:14 PM

«Except for the government, which since it doesn't allow a free market in it's services,»

That's a complete and knowing lie -- absolute nobody and nothing forces you to pay for and accept the services of the USA government; there is no government services monopoly. If you don't like the services or the price, choose the citizenship of another government. There are no exit visas, the USA is a free country. It is easier to get out than to get in though.

Again, exactly like Wal*mart, or the services and taxes of any USA state: nobody forces you to shop at Wal*mart, if you don't like what your local store offers, just walk out of it and drive to the nearest Costco.If you don't like Massachussets taxes or services, take your car and move to Texas. The USA is all about freedom of choice.

Posted by Blissex | September 11, 2007 4:25 PM