Semi-Open Thread: Obama’s Tax Plan

With midterms and whatnot, I can’t work myself up to writing a real post, but if I could, I’d write about Obama’s new tax proposal. So consider this a semi-open thread–what are your thoughts on it?

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About J@m3z Aitch

J@m3z Aitch is a two-bit college professor who'd rather be canoeing.
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17 Responses to Semi-Open Thread: Obama’s Tax Plan

  1. P.J. says:

    I don’t feel qualified to comment; but, it seems to make sense. I like the idea that benefits are given to those employers that bring jobs back to the U.S.A.
    .
    I think the wealthy should pay much more than the rest of us as they are the ones that are getting the most economic value from our society. “From whom much is given, much is required.”

  2. Troublesome Frog says:

    When somebody unveils a tax plan, I look for a few basic things:

    1) Does it make the system simpler? I don’t know the details of “reducing loopholes” in this context, but anything that cuts into the list of deductions is good.
    2) Does the person pushing it claim that any obvious arithmetic deficiencies will simply be “taken care of” by the historically unprecedented feast of abundance that the brilliant new plan will usher in? Doesn’t seem so. That’s good.
    3) Does it introduce silly new tax expenditures? Yes, this one appears to. Unfortunate.

    The plan is light years better than anything the Republicans have proposed. They all typically fail on point 2. This seems to be a small step in the right direction.

    I’m going to break with some of my fellow liberals and go on record as saying that the corporate tax rate should be zero. If you want to get money from the wealthy owners of corporations, treat their dividends and inflation-indexed capital gains as ordinary income and be done with it. Corporations have too many resources and incentives find loopholes. The net result is a complex tax system that doesn’t raise nearly as much revenue as it should and produces massive misallocation of resources in the process. Even worse, it gives corporations a huge incentive to lobby for all manner of weird laws when they should be using that money producing goods and services.

    A zero corporate tax rate has a few other benefits. Taxing the gains as incomes means that the progressive scale applies to them. Grandma’s meager holding in her pension fund is taxed at a lower rate than Mitt Romney’s personal holdings rather than having them both pay the corporate rate. And of course, as Republicans are always telling us, it should create incentives for corporations to relocate to the US and stop hiding their income abroad.

    Tax income. That’s where the money is anyway.

  3. James Hanley says:

    T-Frog,
    I haven’t heard yet about the silly tax expenditures, could you elaborate?

    I do like the overall concept of the plan, as I’ve heard it described–a lower rate but without the loopholes. Of course businesses like to fight to keep their loopholes, but if the rate is low enough and the structure is simple enough, they may find it more cost-effective to accept the simplified plan as opposed to paying for the lobbying and the tax attorneys to find and exploit the loopholes.

    The one thing that struck me as dead wrong (although I haven’t looked at it in any detail) was the proposal to tax manufacturers at a lower rate than other businesses. Shades of industrial policy all over again, can we never shake that specter? Still, I’d accept that for a plan that met the general goals of broadness and simplicity, but I think it would just lead to more lobbying because firm X would want the good deal that firm Y is getting.

    As to zero corporate tax rate, yes, I think so. At any rate, the actual tax incidence probably falls mostly on consumers anyway, so it’s a bit of a make-believe that we’re actually taxing the corporations effectively.

  4. AMW says:

    I know nothing about the details – which is where the devil is typically hiding out – but I’m for lowering the rate and closing the loopholes. It’s insane that a company like 3M paid zero taxes last year while corporations with smaller tax/legal teams were paying effective rates in the double digits. T-Frog’s comment about mis-allocating resources at the behest of the IRS rings very true. There’s no way 3M would have positioned its resources the way it did last year if it weren’t for the corporate tax code.

    As for P.J.’s comment, I do not concur with the second paragraph. By and large nothing is “given” to wealthy people; they become wealthy by creating value for a lot of other people and keeping a percentage of that value.

  5. Troublesome Frog says:

    James Hanley,

    I was referring to the same policy you’re referring to: the transfer of money from businesses who don’t do something called “manufacturing” to businesses that do something called “manufacturing.” First off, what is manufacturing exactly? How long before Goldman Sachs stops producing CDOs and starts “manufacturing” them? I’ve already heard my bank wanting to talk to me about their loan “products,” which seems to me to be at least a little bit of an abuse of the word.

    Second, I think that one of the biggest mistakes people make when thinking about economics and employment is forgetting that people are resources. If we invent a machine that allows us to make the same stuff while consuming less copper, it frees up copper for other uses and makes us wealthier. If we find a way to make stuff while consuming less labor, it frees up labor to do other stuff and makes us richer. If we pay an industry to use more copper, it will likely make us poorer. So why are we paying certain industries to suck up precious human labor? We bitch and moan about not having enough teachers/doctors/software engineers, and then we pay the so-called “manufacturing” industry to suck up able workers?

    If we want more people to move from the unskilled trades to the skilled trades (and we should), the best thing we can do is make it easy to gain those skills. Just a few years ago, several community colleges in my area offered highly subsidized programs to train machinists. I just looked last week. We have none now. And you know what? Local manufacturers are complaining that they can’t find machinists, and sending the jobs to China is a better business decision than driving up wages here. I guess that on the issue of increasing the ranks of skilled tradesmen, I’m what you’d call an “education supply sider.”

    I’m agnostic about the tax incidence of corporate taxes, but I do know one thing: the standard Republican line that almost 100% of corporate taxes are passed to the consumer but taxes on dividends and capital gains need to be low to compensate for “double taxation” isn’t exactly logically consistent. But then again, “starve the beast” is 100% inconsistent with the Laffer curve.

  6. James Hanley says:

    I was referring to the same policy you’re referring to: the transfer of money from businesses who don’t do something called “manufacturing” to businesses that do something called “manufacturing.”
    Gotcha. I hadn’t quite thought of that as a tax expenditure, but I guess it is.

    Second, I think that one of the biggest mistakes people make when thinking about economics and employment is forgetting that people are resources. .. So why are we paying certain industries to suck up precious human labor?
    I think you know why. ;) To be fair, although I totally agree with you, I have a lot of sympathy for those who don’t get this. After all, the copper that is saved isn’t going to lose its home or be unable to feed its kids well while it’s waiting for a new use for it to appear.

    the standard Republican line that almost 100% of corporate taxes are passed to the consumer but taxes on dividends and capital gains need to be low to compensate for “double taxation” isn’t exactly logically consistent.
    Yeah, that went through my mind and I had a few qualms about writing the tax incidence line. I think how much taxation a company can pass on depends on how competitive a market the firm is in, and there’s obviously a lot of variation in that.

    “starve the beast” is 100% inconsistent with the Laffer curve.
    Umm, maybe I’m slow today, but I don’t get this. If we’re on the far side of the hump, then cutting taxes will obviously feed the beast, but if we’re already past that and on the near side of the hump (the up-slope), then cutting taxes should deny it food (setting aside the issue of borrowing).

    Or are you talking about the vulgar Laffer curve folks who don’t understand the different sides of the curve and think all tax cuts always pay for themselves? That would indeed be wholly inconsistent with starve the beast.

  7. Troublesome Frog says:

    After all, the copper that is saved isn’t going to lose its home or be unable to feed its kids well while it’s waiting for a new use for it to appear.

    Absolutely. We need to make sure that people can get “good” jobs, but we’re going about it in a roundabout way. Let’s say the ultimate goal is to get people to train up for some sort of skilled trade for a better life. We could spend money adding those skills to our inexpensive community college system. Alternately, we could find an industry that *might* hire such tradespeople and then pour enough money into them that they start hiring. Then, we wait for the shortage of tradespeople to drive up wages enough to give an unskilled person an incentive to pay for a trade school and invest the time to go there. That seems like a much more expensive way of doing the same thing, and it distorts the markets and the tax system at the same time.

    As I see it, we make similar mistakes with education. We want people to go to college. Rather than pouring money into building out our educational system and increasing its capacity so we can admit more people on the cheap, we pour money into the demand side and drive up tuition, hoping that the end result will be a slow build-out of more private schools. Meanwhile, demand outstrips supply and people are going deep into debt to get their degrees. We pour a lot more money in for the same effect, and a lot of it goes into the pockets of lenders and the types of seedy institutions that inevitably pop up whenever a lot of money starts looking for a place to go.

    I’m a big believer in community college, and it kills me to see them shriveling up all around me. The best way to get people to learn new skills is to make it as inexpensive and convenient as possible to do so.

    Or are you talking about the vulgar Laffer curve folks who don’t understand the different sides of the curve and think all tax cuts always pay for themselves? That would indeed be wholly inconsistent with starve the beast.

    Those are the guys. I realized that the statement was wrong as soon as I posted it. Blah.

  8. James Hanley says:

    We pour a lot more money in for the same effect, and a lot of it goes into the pockets of … the types of seedy institutions that inevitably pop up whenever a lot of money starts looking for a place to go.
    Hey, my college has been around for 150 years. We may be gone to seed, but we’re not seedy!

    I’m a big believer in community college, and it kills me to see them shriveling up all around me.
    Where do you live? This is different than what I’m seeing.

    Those are the guys.
    Aha, that was my last thought just before I posted. Glad I caught on. Yeah, those guys are among my least favorite folks in America. They’re absolutely 100% resistant to logic and evidence. They don’t even understand the theory they’re so in love with.

  9. Matty says:

    I’m not familiar with the plan so I’ll talk about tax more generally.
    I have never understood the case for taxing capital gains differently to earned income, to the end recipient surely both are ‘money in’. I can see of course that a lower rate would encourage investment but not why using the tax code to favour certain economic activity is good when that activity is buying shares but bad when it is manufacturing.

    ‘Starve the beast’ – when has government ever worked by looking at tax receipts then finding things to spend them on? Surely the process is to decide they want something then find a way to fund it.

  10. Troublesome Frog says:

    James Hanley:

    I live in California, land of the perpetual “budget crisis” (read: our constitution is set up to make it hard to pay our bills, so we mostly decide not to). I’m no expert, but I have been watching the course catalogs and they’re shrinking every year. Fees are going up and offerings are going down. I work with a couple of really top flight engineers who got started by going to school as electronics techs at the local community college. Barely more than 1/4 of Americans have bachelor’s degrees. What is available for the 70+ percent of people who don’t go that direction? They can’t all have government-subsidized “manufacturing” jobs.

    You know better than most of us that for working adults with responsibilities, going to school is an investment and a risk. You pay tuition, limit your work options, and lose time with your family. It sounds like the government is trying to get people to take that risk by guaranteeing a payoff when they could simply invest in supplying more cheap and convenient education opportunities.

    As for the Laffer curve, I really believe that it’s one of two aspects of the Reagan administration that enormously damaged our political discourse. When we talk about taxes, we’re no longer two sides discussing the same facts from philosophically different positions. The two sides occupy two mutually exclusive realities. There isn’t much useful compromise between “taxes increase revenue” and “taxes lower revenue.”

    The other aspect of that period of time that bothers me is what I call the “Let’s just give up on the whole thing” philosophy for government. Conservatism no longer about being prudent with minimal government programs where they’re necessary. It’s about blaming government for everything and crippling it wherever possible. People who work for the government aren’t “public servants” anymore. They’re lazy good-for-nothings who couldn’t make it in the private sector and would rather live on the dole. Investing in infrastructure isn’t a prudent, conservative action. It’s “theft” by taxation and Stalinist central planning.

    There might have been a time when those where good rhetorical tricks to shift the middle ground, but they’ve worked too well. They have become reality for a lot of people. Lots of people now really believe that tax cuts increase revenue and that the same government that won WWII, split the atom, put men on the moon, and built the interstate highway system is incapable of doing anything to serve society.

  11. James Hanley says:

    T-Frog,

    Ah, California.I wondered if perhaps that was your reference. Indeed, the state constitution is a disaster, and has been for a long time. I’m a cautious person by nature, but in California’s case I think a constitutional convention is desirable–it’s hard to imagine how they could make things worse.

    I actually am one of the many people who have benefited from California community colleges, having taken several classes at San Francisco City College, and then having picked up a couple at College of the Canyons in southern California (where I took my first economics course).

    And as a prof at a liberal arts college, I firmly agree that a BA/BS is not for everybody, and we need to ensure good technical education is available.

  12. Troublesome Frog says:

    It’s definitely interesting living here. Who would have thought that a constitution that makes it easy to spend and nearly impossible to tax would result in perpetual deficits?

    Bill Maher summed it all up during the last election: “Nobody can govern California because it’s illegal to govern California.”

  13. James Hanley says:

    Can I ask what area of Cali you live in?

  14. Troublesome Frog says:

    I’m currently in Davis. Grew up in the East Bay and went to college in Stockton. As ungovernable as it is, I do like this state.

  15. AMW says:

    I’m a fairly recent transplant to Orange County. Same state, different world.

  16. I’ve only been there a couple of times, but Davis seems like a nice place, other than the summer heat. I’m particularly fond of the eggheads at the UC. And I haven’t spent much time in the East Bay, but I did live in San Francisco for a while (and my wife and I had our first date at a Cal basketball game, so the East Bay does have a special place in our hearts).

  17. Dr X says:

    Troublesome Frog,
    Nice series of observations.

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