April 19, 2024

Today’s Economist: Bruce Bartlett: Wealth Inequality and Political Inequality

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Bruce Bartlett held senior policy roles in the Reagan and George H.W. Bush administrations and served on the staffs of Representatives Jack Kemp and Ron Paul. He is the author of “The Benefit and the Burden: Tax Reform — Why We Need It and What It Will Take.”

A crucial question in the debate over income and wealth inequality is whether its growth necessarily leads to a growth in the inequality of political power. If it does, then this is a powerful reason for the federal government to take active measures to reduce income and wealth inequality — even if it comes at an economic cost to the nation.

Today’s Economist

Perspectives from expert contributors.

Conservatives and libertarians generally do not believe that increased inequality is a political or economic problem. To a large extent, I think that is because they fear that acknowledging the problem would require the adoption of policies they find distasteful, immoral and economically counterproductive.

That is, income and wealth would have to be redistributed — taken via taxation from the wealthy and given to the poor. The higher taxes will reduce the incentive to work, save and invest among the wealthy, conservatives and libertarians believe, which will reduce economic growth and lead to the expatriation of the wealthy from the United States, while fostering a culture of dependency among the poor that will reduce their incentive to better themselves and escape poverty.

Insofar as the political dynamics are concerned, conservatives and libertarians are generally fearful of democracy. That is because, in principle, there is essentially no constraint on the ability of the majority to take from the minority and reward themselves in a pure democracy. The founding fathers very much shared this concern and intentionally enacted numerous restraints on the majority to protect the rights of the minority to their wealth. Among these are the federal system, with relatively strong states and a weak national legislature, as compared to parliamentary systems, and a Senate where small, sparsely populated states, per capita, have more influence than large, populous states; a written constitution with strong protection for property rights; and an Electoral College instead of election of the president by pure popular vote.

One reason that conservatives and libertarians obsess over the large percentage of the population that pays no federal income taxes, often put at 47 percent, is the political concern that the nation is very close to a tipping point where the have-nots can take from the haves almost at will.

The simple solution to this problem, to the extent there is one, would be to extend the tax net to some of those now living free of federal income taxation. But this is practically impossible because Republicans, who mainly complain about the large numbers of nontaxpayers, enacted most of the tax policies that removed them from the tax rolls. These include the earned income tax credit and the refundable child credit.

Secondly, almost all Republican legislators have signed a tax pledge promising never to raise taxes for any reason. Most Republicans are also ideologically opposed to a value-added tax, which would be the simplest way of getting everyone to pay some federal taxes to cover the government’s general operations. The payroll tax, which is more broadly based than the income tax, is earmarked to pay Social Security and Medicare benefits only.

Because the simple and obvious solution to their problem is off the table, conservatives and libertarians have concentrated on cutting benefits for the poor. They believe that programs such as unemployment compensation and food stamps subsidize laziness and undermine the work ethic. If such programs were cut, then those now benefiting would be forced into the labor force, where they would become taxpayers and cease being tempted by politicians promising them something for nothing.

The liberal view, by contrast, is that the poor are relatively powerless. They vote in lower percentages than the well-to-do and often suffer from policies to reduce their political influence, such as onerous voter registration requirements, demands for government identification at the polls and long waiting times to vote on Election Day. There is also evidence of growing pressure by employers to force their employees to vote against their own interest and for the employer’s.

Liberals believe our political system is generally more responsive to the interests of the wealthy. The poor, after all, are not major sources of campaign contributions.

But that is only part of the story. The well-to-do are far more likely to be engaged in the political process and to bring their concerns to bear on their elected representatives through direct contact.

Thus we have seen that while the recent budget sequestration has brought hardship to both the poor and the wealthy, Congress has taken no action to relieve the burden on the poor but acted with amazing speed to relieve a key concern of the wealthy — furloughs for Federal Aviation Administration personnel that created airline delays.

A new study by the political scientists Benjamin I. Page, Larry M. Bartels and Jason Seawright presents strong evidence that the wealthy are more aggressive and more successful than the poor at influencing the political system in their favor. This study is based on interviews with 83 wealthy people in Chicago.

The authors contrast the views of those in their survey with those of the general public based on national public opinion polls. They find that the wealthy are much more concerned than the general public about budget deficits, much more in favor of cutting social welfare programs, much less in favor of government jobs programs and much more opposed to government regulation, among other things.

Professors Page, Bartels and Seawright were unwilling to draw firm conclusions about whether the wealthy have disproportionate influence in American politics, owing to the small size of their survey sample. But it is at least obvious that the economic policy preferences of the wealthy strongly overlap with those of the Republican Party.

On the other hand, research by the political scientist Martin Gilens in his book “Affluence and Influence: Economic Inequality and Political Power in America” shows that the wealthy tend to be more liberal than the Republican Party on social issues. By and large, the wealthy are not religious, favor abortion rights and support gay rights.

The best hope for liberals in the future may be to emphasize social issues, which split the Republican Party between the interests of the wealthy and those of religious and social conservatives who dominate primary elections.

Article source: http://economix.blogs.nytimes.com/2013/04/30/wealth-inequality-and-political-inequality/?partner=rss&emc=rss

Economic View: How Boehner Could Find Blue Sky, Above the Debt Ceiling

A valuable principle of negotiation is to “never bargain with someone who does not have the power to say yes,” and Mr. Boehner has demonstrated that he lacks that power. He couldn’t even persuade his caucus to agree on a Plan B counterproposal and had to let Vice President Joseph Biden and Senator Mitch McConnell, the minority leader, steer the deal that avoided, or at least postponed, the so-called fiscal cliff.

I have a suggestion for how Mr. Boehner could have himself invited back to the negotiation party. But first, let’s take stock of where we are.

What has been accomplished, for better or worse, is that the Bush-era tax cuts for families earning less than $450,000 a year have been made permanent — or at least as permanent as anything in the tax code can be. Those earning more than $450,000 face a tax increase. There are further complications, of course, but the important thing is that there was no substantive tax reform, and no decisions about spending. The final bill even preserved the tradition of corporate welfare by extending a subsidy to Nascar.

Over the next few months, Congress faces a new series of deadlines:

The spending cuts mandated by the sequestration will begin on March 1, unless Congress delays them again. Congress needs to pass a “continuing resolution” or government will shut down, as it did in the 1990s during the standoff between Bill Clinton and Newt Gingrich. And, finally, the debt ceiling will need to be raised or the government will no longer be able to pay its bills to Social Security beneficiaries, the military or the owners of government bonds — a group that includes nearly everyone with a retirement account.

I have listed these deadlines in increasing order of their hazard to our economic health. The spending cuts would be tough and arbitrary but gradual. Incurring them for a couple of months would be bad, but not horrible. Closing down the government is more serious. And even if you’d like a smaller government, you probably still want essential services to continue.

OF the three, the debt ceiling is likely to arrive first and is simultaneously the most serious and the most ridiculous. It’s serious because it’s unthinkable that the government would stop paying its bills, and the ramifications if we defaulted on our debt payments would be catastrophic for the nation and the global economy. We don’t even want to think about going there.

But the debt ceiling is also ridiculous, because the law is redundant. It’s a tradition for members of Congress who aren’t in the same political party as the president to make sanctimonious speeches against raising the debt limit, to keep that president from running up big bills. Yet it is Congress, in fact, that determines how much we spend and how much tax revenue we collect. Our representatives and their predecessors passed the bills and authorized the spending that got us to this place. If they want to reduce the deficit, they should cut spending, increase revenue, or both. But what they should not do, under any circumstances, is to look back at the decisions they have already made and conclude that it would be smart to declare the United States bankrupt, thus creating a second global financial crisis.

Which leads to my proposal for restoring Mr. Boehner’s relevance: He should propose that the debt ceiling be raised for at least two years or, even better, propose that it be abolished. He wouldn’t need a majority of his own party to vote for such a bill, of course, because it would have wide support among Democrats. He would just have to propose it and persuade some of his colleagues to support it. That would be enough.

Here is why I think this is a good idea, for him, the Republican Party and the country:

Congress has plenty of incentives to make a deal on spending. Taxes have already been increased and Republicans are eager to even the score. The sequestration-induced spending cuts coming on March 1 should provide more than enough impetus for Congress and the president to agree to something, even if it’s only a plan to undertake serious tax reform and a comprehensive evaluation of all government spending. By removing an option that we should never rationally use, we can immediately accomplish an often-cited Republican goal — reducing global uncertainty — and likely restore our triple-A credit rating. The Bipartisan Policy Center has estimated that the dillydallying about the debt ceiling last time, which ticked up interest rates, will end up costing more than $18.9 billion over 10 years, about the same amount as the recent Medicare “doc fix, ” which blocks cuts to doctor reimbursement rates.

Tea Party conservatives would undoubtedly be outraged by this suggestion, arguing that Republicans need to retain the debt ceiling threat if they are to get the best possible deal from the Senate and the president. But taking this crazy threat away from a group that just might use it is precisely the point.

By undertaking this act of unilateral disarmament, Mr. Boehner and whichever Republicans had the courage to join him would be signaling that they’re willing to engage in the serious discussions the country needs, and to put pressure on Democrats to do likewise. Anyone who has a large bomb and is threatening to push the button doesn’t deserve to be a party to these discussions.

Richard H. Thaler is a professor of economics and behavioral science at the Booth School of Business at the University of Chicago.

Richard H. Thaler is a professor of economics and behavioral science at the Booth School of Business at the University of Chicago.

Article source: http://www.nytimes.com/2013/01/13/business/how-boehner-could-find-blue-sky-above-the-debt-ceiling.html?partner=rss&emc=rss

Common Sense: Comparing the Tax Bite With Obama and Romney

Would you pay more or less in tax? And how would that stack up against the richest Americans like Warren Buffett, who’s currently paying a lower rate than his secretary?

Considering how central these issues have been to the campaign, it’s curious how hard it is to come up with answers, perhaps because both candidates want voters to believe that someone’s else’s taxes may have to rise, but not theirs. Whether Mr. Romney’s math adds up and whether taxing the rich would make a dent in the deficit might make an interesting public policy debate, but those issues further obscure the most basic question, which is what effect the proposals will have on each of us.

I’m not saying voters should simply vote their pocketbooks. But I would at least like to know how much I’m being asked to pay and what I might expect in return. This has been especially true since I discovered this year that I paid a rate in federal income tax that’s nearly twice as high as Mr. Romney’s. As I said then, I’m not faulting Mr. Romney for taking advantage of the existing tax code, but that disparity continues to rankle.

Tax reform and the related issue of economic growth have been major themes in the campaign that will end on Tuesday. The economy has taken center stage, and both candidates have been making much of tax platforms that aim to spur growth and job creation while promoting fairness. Mr. Romney has been the more ambitious, calling for sweeping tax reform that would lower rates while broadening the base by limiting unspecified deductions and loopholes. “Tax policy shapes almost everything individuals and enterprises do as they participate in the economy,” he says on his “Mitt Romney for President” Web site.

President Obama has called for a return to the top rates that prevailed in the Clinton administration and higher rates on capital gains and dividends. “We can’t get this done unless we also ask the wealthiest households to pay higher taxes on their incomes above $250,000 — pay the same rate we had when Bill Clinton was president,” Mr. Obama said last month while campaigning in New Hampshire. “We created 23 million new jobs, and we went from a deficit to surplus. That’s how you do it.”

So what would the impact of their tax proposals be? After consulting several tax experts, I did the calculations both on my own returns for 2009 and 2011 as well as for the wealthiest 400 taxpayers.

For the Romney plan, I took the proposals from his Web site that apply to taxpayers with adjusted gross incomes over $200,000: a 20 percent cut in the top rate (to 28 percent from 35 percent); dividends and capital gains taxed at the existing preferential rate of 15 percent; and the abolition of the alternative minimum tax. Mr. Romney hasn’t said what itemized deductions he would abolish or limit, but he has said he might cap or eliminate those deductions for high-income taxpayers.

Mr. Romney has mentioned a cap on deductions of $17,000, and has also said: “One way, for instance, would be to have a single number. Make up a number, $25,000, $50,000. Anybody can have deductions up to that amount And then that number disappears for high-income people,” meaning high-income people would be allowed no itemized deductions.

So in the spirit of Mr. Romney’s comments, I eliminated all itemized deductions. I retained the self-employed health insurance deduction and the deduction for contributions to a qualifying retirement plan. So far as I can tell, Mr. Romney hasn’t proposed abolishing those.

I took Mr. Obama’s tax proposals from his proposed budget and subsequent campaign statements, in which he has called for a return to Clinton era rates of 36 percent (for single taxpayers in roughly the $200,000 to $400,000 bracket) and 39.6 percent for those earning over $400,000 for both ordinary and dividend income and a 20 percent rate on capital gains. While Mr. Obama has talked about repealing the A.M.T., he hasn’t actually proposed doing so and has only suggested indexing it to inflation, so I retained the A.M.T. in the Obama calculations.

I assumed the Obama proposals would raise my rate and the Romney plan would lower it. But the Romney plan actually increased my rate to 25.5 percent from 22.2 percent in 2011, and to 27.6 percent from 26.7 percent in 2009. The Obama plan raised it even more substantially, to 30.6 percent in 2011 and 29.3 percent in 2009.

Including the minimum tax in the Obama plan had a significant impact. If Mr. Obama abolished it, my rate under his plan fell to 29.7 percent in 2011 and to 26.7 percent in 2009 — lower than the Romney plan, in fact, in 2009. If Mr. Romney allowed me the $17,000 in itemized deductions he has mentioned, it would have only a negligible impact, lowering my rates 0.5 percent.

Article source: http://www.nytimes.com/2012/11/03/business/comparing-the-tax-bite-under-obama-or-romney.html?partner=rss&emc=rss

Common Sense: Comparing the Tax Bite Under Obama and Romney

What federal tax rate would you pay if Mitt Romney were elected president? And what would it be if Barack Obama were re-elected, assuming Congress goes along with the candidates’ proposals?

Would you pay more or less in tax? And how would that stack up against the richest Americans like Warren Buffett, who’s currently paying a lower rate than his secretary?

Considering how central these issues have been to the campaign, it’s curious how hard it is to come up with answers, perhaps because both candidates want voters to believe that someone’s else’s taxes may have to rise, but not theirs. Whether Mr. Romney’s math adds up and whether taxing the rich would make a dent in the deficit might make an interesting public policy debate, but those issues further obscure the most basic question, which is what effect the proposals will have on each of us.

I’m not saying voters should simply vote their pocketbooks. But I would at least like to know how much I’m being asked to pay and what I might expect in return. This has been especially true since I discovered this year that I paid a rate in federal income tax that’s nearly twice as high as Mr. Romney’s. As I said then, I’m not faulting Mr. Romney for taking advantage of the existing tax code, but that disparity continues to rankle.

Tax reform and the related issue of economic growth have been major themes in the campaign that will end on Tuesday. The economy has taken center stage, and both candidates have been making much of tax platforms that aim to spur growth and job creation while promoting fairness. Mr. Romney has been the more ambitious, calling for sweeping tax reform that would lower rates while broadening the base by limiting unspecified deductions and loopholes. “Tax policy shapes almost everything individuals and enterprises do as they participate in the economy,” he says on his “Mitt Romney for President” Web site.

President Obama has called for a return to the top rates that prevailed in the Clinton administration and higher rates on capital gains and dividends. “We can’t get this done unless we also ask the wealthiest households to pay higher taxes on their incomes above $250,000 — pay the same rate we had when Bill Clinton was president,” Mr. Obama said last month while campaigning in New Hampshire. “We created 23 million new jobs, and we went from a deficit to surplus. That’s how you do it.”

So what would the impact of their tax proposals be? After consulting several tax experts, I did the calculations both on my own returns for 2009 and 2011 as well as for the wealthiest 400 taxpayers.

For the Romney plan, I took the proposals from his Web site that apply to taxpayers with adjusted gross incomes over $200,000: a 20 percent cut in the top rate (to 28 percent from 35 percent); dividends and capital gains taxed at the existing preferential rate of 15 percent; and the abolition of the alternative minimum tax. Mr. Romney hasn’t said what itemized deductions he would abolish or limit, but he has said he might cap or eliminate those deductions for high-income taxpayers.

Mr. Romney has mentioned a cap on deductions of $17,000, and has also said: “One way, for instance, would be to have a single number. Make up a number, $25,000, $50,000. Anybody can have deductions up to that amount. And then that number disappears for high-income people. That’s one way one could do it.”

So in the spirit of Mr. Romney’s comments, I eliminated all itemized deductions. I retained the self-employed health insurance deduction and the deduction for contributions to a qualifying retirement plan. So far as I can tell, Mr. Romney hasn’t proposed abolishing those.

I took Mr. Obama’s tax proposals from his proposed budget and subsequent campaign statements, in which he has called for a return to Clinton era rates of 36 percent (for single taxpayers in roughly the $200,000 to $400,000 bracket) and 39.6 percent for those earning over $400,000 for both ordinary and dividend income and a 20 percent rate on capital gains. While Mr. Obama has talked about repealing the A.M.T., he hasn’t actually proposed doing so and has only suggested indexing it to inflation, so I retained the A.M.T. in the Obama calculations.

I assumed the Obama proposals would raise my rate and the Romney plan would lower it. But the Romney plan actually increased my rate to 25.5 percent from 22.2 percent in 2011, and to 27.6 percent from 26.7 percent in 2009. The Obama plan raised it even more substantially, to 30.6 percent in 2011 and 29.3 percent in 2009.

Including the minimum tax in the Obama plan had a significant impact. If Mr. Obama abolished it, my rate under his plan fell to 29.7 percent in 2011 and to 26.7 percent in 2009 — lower than the Romney plan, in fact, in 2009. If Mr. Romney allowed me the $17,000 in itemized deductions he has mentioned, it would have only a negligible impact, lowering my rates 0.5 percent.

Article source: http://www.nytimes.com/2012/11/03/business/comparing-the-tax-bite-under-obama-or-romney.html?partner=rss&emc=rss