Both our current administration and the New York Times appeared to have little or no understanding how the “real” economy worked or the impact of incentives on tax policy. In more recent years they grasped that changing tax policy can impact economic incentives, which in turn, can increase their chances of being re-elected.
Their first major foray was “cash for clunkers” which gave a tax deduction for turning in your old car for a new one. Like most one-time incentives, it accelerated purchases into the current period, giving a boost to auto manufacturers and car dealerships (and sticking the tax credit to the deficit). Lately the administration has gotten bolder, offering 100% deduction for capital purchases in the current year for tax purposes (which has the same effect as “cash for clunkers”, except on a wider scale as tax incentives for corporations and private companies), and then giving a 2% “payroll tax cut” which finally eliminates even the concept that social security is anything more than a “pay as you go” system and that there is nothing there waiting for you when you retire.
My view of tax policy is that the goal of a sound policy is to:
1) raise the revenue that you set out to achieve
2) minimize negative effects or dis-incentives of the policy
Examples abound of a failure of #1, including raising marginal taxes on the wealthy (they change their behavior or move to another jurisdiction) and the distortive effects of #2 are legendary, including over-investment in non-productive housing stock (due to the mortgage interest deduction) and the massive numbers of lawyers and accountants that make a living on the entrails of our bewildering and counter-productive tax system.
In recent years the NYT, as the sounding arm for the administration, has started to realize that the haphazard and counter-productive effects of our current tax system are legion, and that better core policies could improve revenues while minimizing negative behavior. This article called “A Better Tax System” (Instructions Included) laid our four principles that seem reasonable overall:
1) Broaden the base and lower rates
2) Tax consumption rather than income
3) Tax “bads” rather than “goods”
4) Keep it simple, stupid
I would say that their item 1 corresponds to my number 1, above, because a wider base with a less sloped marginal top is the core to a sustainable base of revenues that won’t fluctuate as much over time. Items 2-4 are under the negative minimization principle.
Of course part of the reason that this article seems to make sense is that it was written by a non NYT staffer who works for an opposition candidate. But I do think that the NYT and the administration are starting to realize that our current tax system is an unholy mess with huge dis-incentives (the highest corporate taxes in the world drive jobs overseas), that doesn’t raise revenue broadly, and has huge dis-incentives in terms of ability for companies and individuals to plan ahead.
Too bad it is too late in the game for them to do much more than talk about it. Also shame on the prior administration for never spending the political capital to attempt to change the system and reform it. They neglected to wield their power to make America more competitive.
Cross posted at LITGM
Yes, that was a good article. But it does not represent a sudden enlightenment in the NYTimes editorial offices. The article is an op-ed in the business page written by Bush 43 CEA chairman, and Harvard prof., Greg Mankiw. Here is the link to his blog:
http://gregmankiw.blogspot.com/
I read somewhere that the cash for clunkers cost the govt over $20,000 per car to administrate. Doesn’t surprise me.
The current tax policy is so laden with special interest loopholes that anytime you want to change anything – you get howls of protest.
But it has to be radically changed.
And you are right; shame on George Bush – he had it all – Congress – and to think what he could have done for change….
I do not know how you an say “shame on the prior administration for never spending the political capital to attempt to change the system and reform it.”
The prior national administration, as all almost all GOP administrations of the last 40 years, both nationally and at the state level, has taken great pains to “change the system” and concisely explicate just why this should be done. In GWB case, this was,famously, spearheaded by the Bush tax cuts. I do not see how the “explanation”, as it were, could have been clearer, and, for the rest of us, this all was widely understood long before GWB ever took the oath of office.
For you to make this claim is as curious as it is absurd, for it has been one of the key ideological points of debate between the parties since Goldwater, and, as a practical matter, has being subject to debate and scrutiny since Reagan. One doubts that you actually did not hear all those decades of our socialists in the Democrat party shrieking over this over the decades, but, if so, you evidently have missed the last 45 years of American politics. Go poke around the Heritage Foundation Website should you need a refresher.
What is really odd is that you think that the American people require education here. Those of us who are actual producers, and thus actually pay these taxes, have understood this for at least 2 generations now. The parasitic Left have understood this as well, thus their caterwauling. Only the Left’s confused, “useful idiots” in the middle do not comprehend this, but, clearly, they are perforce ineducable.
Above and beyond that curious assertion of yours is your notion that any taxation for any goals whatsoever somehow has merit, and, more importantly, it is the governments foremost goal to expand revenue so far as tax policy goes (e.g., its “tax base”). Moreover, you appear to be asserting that the tax code exists in some measure for social engineering goals. When one hears “tax ‘bads’ and not ‘goods'”, one shudders. If this is some sort of oblique reference to so-called “sin taxes”, you should be quite ashamed at yourself. If an activity is legal, the government has no place either encouraging it or discouraging it by any means, but it most certainly must not base taxation on this sort of elitist nonsense. In actual practice, “sin-taxes” are just a rhetorical hustle to mask seizure of the taxpayers wealth, often accompanied a strong does of political bullying of one section over another.
The Left, notoriously, villainize those whom they would loot.
No, what we need to do is not “expand the tax base”, but rather radically reduce the size and role of government across the board. Part of this means limiting governments ability to tax. It means, at the very least, removing the ability of the federal government to tax income.
“Economists who have added up all the externalities associated with driving conclude that a tax exceeding $2 a gallon makes sense. ”
Yes, Urbanista Trustafarians who don’t have to drive much think this makes sense, continuing to prove that it’s much worse than Charles Murray thinks.
The economy and the modern country were built around the auto-mobile. It isn’t just that most of America has to drive to conduct the daily activities of life, it’s also how most of our daily needs are transported at some point. This nation outside urban enclaves that were extant and established nearly prior to rail, never mind the auto is built around the car. We need cheap fuel, and it shouldn’t be taxed at all. Never mind Europe sized prices.
As far as consumption taxes, oh we’ll have a VAT. But it’s idiotic to think it will replace the income tax. It will be on top of it.
The Bush tax breaks for the wealthy doubled the deficit and then the nation went into a recession with that huge deficit.I find it odd that conservatives so dislike the NY Times but read it religiously and love it when it agrees with something they support. One well-know blogging guy even suggested some time ago NOT to buy it but to read it free on line. Why not buy? Because it is a terrible left wing
paper that ought not be supported!
Anon, you have commented here under “Anon” and three other pseudonyms in the past month. It might be better for everyone if you picked a pseudonym and stuck with it.