Tag Archives: tax policy

Listen To Nick Hanauer

Recently, I posted about the difference between tax cuts and tax reform, and why we need the latter but not the former. That argument was made–far more persuasively than I made it–by billionaire Nick Hanauer, in a recent post to Politico.

The Republican tax plan is a scam—a massive and destructive financial giveaway masquerading as pro-growth tax reform. Which is why our first response must be to demand not one penny of tax cuts for big corporations and rich guys like me. In fact, if I were Benevolent Dictator, I would substantially raise taxes on myself and my wealthy friends. Why? It is the only way to sustainably grow the economy, boost productivity, increase business opportunities, and create more and better jobs.

Hanauer takes aim at the central premise of GOP tax policy, what I have referred to as an “article of faith,” because when you take something on faith, it’s because you have no empirical evidence for its validity. In this case, as Hanauer points out, we have substantial evidence that the premise is fatally flawed.

There is is simply no empirical evidence nor plausible economic mechanism to support the claim that cutting top tax rates spurs economic growth. When President Bill Clinton hiked taxes, the economy boomed. When President George W. Bush slashed taxes, the economy ultimately collapsed. It wasn’t until after most of the Bush tax cuts expired during the Obama administration that the post-Great Recession recovery started to pick up steam—an ongoing recovery that, as uneven as it has been, has grown into one of the longest economic expansions in U.S. history.

And then, of course, there’s Kansas.

As we all know, and as Hanauer reminds us, Kansas dramatically “underperformed ” the rest of the country in economic growth and job creation after Sam Brownback, its “true believer” Governor, slashed taxes on individuals and corporations. And as he also reminds us, California, which horrified those true believers when it imposed the nation’s top income tax rate, has thrived.  By 2015, California had the fastest-growing economy in the nation. Kansas? Dead last.

For several years, Hanauer has been arguing that Republicans have the economic argument exactly backwards–that inequality, not high tax rates, retards economic growth and job creation.

But the Republicans’ problem is that they have economic cause and effect reversed: Low wages and rising inequality are not symptoms of slow growth, low wages and rising inequality are the disease that causes slow growth—and inequality cannot be cured by creating even more inequality. In reality, our modern technological economy is best understood as an evolutionary feedback loop between innovation and demand. Innovation is the process through which we evolve new solutions to human problems, while consumer demand is the mechanism through which the market selects and propagates successful innovations. And it is economic inclusion—the full participation of as many people as possible in as many ways as possible, as innovators, entrepreneurs, workers and robust consumers—that drives both innovation and demand. The more we invest in the American people—in our wages, our education, our health care and our infrastructure—the more dynamic that feedback loop, and thus the faster and more prosperous our economy grows.

As I tell my students, if you own a widget factory, and no one is buying your widgets, you are unlikely to hire more workers to increase widget production. When consumers lack disposable income with which to buy your widgets, you cut back–or stop making widgets entirely.

As Hanauer explains:

The real problem with our economy is that we are concentrating wealth in the hands of people who aren’t spending or investing it, while starving working- and middle-class Americans of the ability to invest in themselves—not to mention sapping the consumer spending power that accounts for 70 percent of GDP. We rich Americans may not all be idle, but these days, much of our money is—and you will not get it flowing back through the economy again by cutting our taxes even further. I already earn about 1,000 times more per hour than the average American, but I couldn’t possibly buy 1,000 times more stuff. I only own so many pairs of pants. My family and I can only eat three meals a day. We enjoy a luxurious lifestyle, but we already own several houses, a private jet and one too many yachts (turns out, the optimal number is two). Cutting our taxes will make us richer, but it won’t incentivize me or my venture capital partners to spend or invest more than we already do. What’s holding us back isn’t a shortage of cash, but rather a shortage of demand—from you.

Exactly.

Thank you to everyone who wished me a happy birthday yesterday. It was much appreciated!

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Maybe We SHOULD Run Government Like These Businesses…

Political Animal had an interesting item a few days ago, pointing out that American businesses are increasingly uncomfortable with the supposedly “business-friendly” strategies being pursued by the GOP.

It isn’t just business’ pushback against retrograde anti-LGBT measures, either; recently, 51 New York millionaires asked Governor Cuomo to raise their taxes, and there has been a mass exodus of large corporations from ALEC–mainly as a response to that organization’s denial of the reality of climate change.

Most recently, several corporations have expressed concern about participation in this year’s GOP convention–at least, if Trump looks likely to be the nominee.

The discomfort of savvy businesses with the increasingly radical positions espoused by Republican officeholders has led President Obama to pursue an interesting strategy:

When President Obama initiated his “pen and phone” strategy, a big part of the effort was aimed at convincing the private sector to do what Congress refused to tackle: raise the minimum wage, embrace paid family leave, hire veterans, ban the box, implement policies that mitigate climate change, expand access to broad band, etc. The President’s recent trip to South by Southwest was a call for engagement of the tech industry in addressing challenges like improving access to voting and countering ISIS recruitment strategies online. Interestingly enough, he’s had more success with these efforts than he has with Republican legislators.

If these trends continue, we may finally be seeing what some in the punditry have long been predicting– collapse of the never-comfortable alliance between the pro-market, pro- business, “country club” Republicans who are generally fiscally conservative and socially moderate (or even socially liberal), and the Religious Right extremists who have come to account for so large a portion of the GOP base.

The 2016 election may be the last for the GOP in its current iteration. We can only hope that–once the smoke clears–America ends up with a responsible, adult center-right party that can engage productively with the Democrats’ center-left philosophy, and once again give conscientious citizens a thoughtful and meaningful policy debate.

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The Nitty-Gritty Matters

When I tell people I work at a school of public policy, I can often see their eyes glaze over. Policy is so…boring.

Politics, on the other hand, is interesting.

Political horse-races are so much more exciting than the intricacies of the tax code. And let’s be honest: people can decide how to vote on the basis of a candidate’s skin color or his willingness to stick a probe up a pregnant woman’s vagina; they don’t have to know anything about that candidate’s stance on tax policy.

Today’s politics, especially, is all about distraction and the “shiny object.”

And while we are all engaged with that shiny object,  American taxpayers are getting ripped off–and it’s all legal.

We’ve heard a lot lately about so-called inversions.

Companies striking deals to become technically foreign can be found in all corners of American business, from California computer-equipment manufacturer Applied Materials to Minnesota medical-device giant Medtronic to North Carolina­based banana behemoth Chiquita. Little is changing in the core business of these firms. They will just pay less in taxes – and to a foreign government, often Ireland or the Netherlands.

As the article notes, however,

[I]nversions are just the tip of the iceberg. The crisis of corporate tax avoidance is far more pervasive – and destructive – than either Obama or Lew is letting on. At a moment when Congress appears impossibly divided, a strong, bipartisan consensus has, in fact, emerged in Washington: The world’s richest corporations will get away with fleecing hundreds of billions of tax dollars from the rest of us….

Last year the IRS finally collected more in tax receipts than it did before the crash in 2007. But dig a little deeper into the numbers and it is clear we haven’t returned to normal: Corporations paid nearly $100 billion less in federal income taxes last year than before the Great Recession….

The top names in American business – from Apple to Xerox – have joined in the greatest tax dodge in world history. Using clever accounting games, these corporations have siphoned majestic sums out of the country and into tax-haven shell companies – where the money is untouchable by the IRS.

 The numbers are staggering. More than $2 trillion in U.S.-based multinational profits currently sit in offshore accounts, representing, by credible estimates, in excess of $500 billion in unpaid taxes. If that money were deposited in federal coffers tomorrow, it would wipe out the deficit for 2014. And every year that Congress dithers on a crackdown, America is forfeiting an approximate $90 billion in revenue.

The article details a variety of tax provisions–all legal, all part of the U.S. Tax Code–that privilege corporate America at the expense of individual taxpayers. The people who are outraged–outraged–by the use of tax dollars to provide poorer citizens with access to healthcare are curiously silent about the immense costs of this preferential treatment of corporations.

The silence of the elites, of course, is understandable. People who understand that our tax code is massively tilted toward America’s “haves” tend to be beneficiaries of those provisions. They are unlikely to complain.

Most of the silence, however, can be attributed to the average American’s deep-seated disdain for policy, our preference for easy issues, “shiny objects” and pop culture distractions from all those boring details.

I guess it’s just too much trouble to figure out who is picking our pockets, and how they’re doing it. And too much work to vote their lapdogs out of office.

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A Question of Taxes

A couple of days ago, my class preparation required that I review an early American time-period that included both Shays Rebellion and the Whiskey Rebellion. Both–as those of you familiar with this particular time period will recall–were uprisings sparked by resistance to taxes.

Some things really never change.

I am not sufficiently familiar with citizens’ attitudes in other countries to be certain of this, but it certainly seems that this characteristic American anti-tax animus is unique; a piece of a none-too-attractive “American exceptionalism.” (When was the last time you saw Norwegians mounting a tax protest?)  Americans are allergic to taxes, no matter how reasonable, no matter how necessary.

There are a couple of problems with this deeply-ingrained resentment. The first and most obvious is that it is unrealistic–not to mention unseemly–to demand services for which we are unwilling to pay. Someone once noted that taxes are the dues we pay for civilization, and I think that’s right. But the same Americans who would never dream of joining a country club and refusing to pay the dues needed to maintain the golf course and hire the help evidently have a very different reaction to assessments for membership in the polity. (Much of that animus seems based upon distaste for their fellow “members”–perhaps the problem is that we are fellow-denizens of a “club” they wouldn’t have chosen..?)

The second problem with the “pox on all taxes” attitude is that it focuses attention on the wrong issues. Governments require revenue in order to provide services; that’s a given. The questions we really need to ask are procedural: what is the best way to raise the dollars needed? Is the tax system fair and equitable? Does it inadvertently encourage unwanted behaviors (outsourcing of jobs, or shielding of assets in off-shore accounts) or discourage desirable ones? Are units of government operating efficiently?

It’s hard to ask those questions–let alone debate the answers–when people are whining about “redistribution,” and complaining about paying their share.

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I Don’t Get It

There’s a pretty robust public debate–in which I’ve engaged–about the refusal of congressional Republicans to even consider raising taxes on the wealthiest Americans. That debate has centered around the practicality and morality of their position: practically, government needs the revenue that would be raised by what would historically be considered a very minimal raise in the rate; morally, it seems truly wrong to demand yet more sacrifice from the beleaguered middle class while giving the rich a pass.

That debate is worth having, but what I don’t get is the politics of the position.

I understand that the people who fund GOP campaigns–the Kochs, the Scaifs, etc.–look favorably upon the Republican position. And I understand that money matters (far more than it should or than it used to, thanks to Citizens United). But I can’t believe that a political party can win a national election on a platform that advocates hollowing out the public purposes of government–“starving the beast” is the way Grover Norquist puts it–in order to protect the pocket-change of the powerful.

Leave aside whether the GOP position makes any economic or moral sense. I can’t imagine it making political sense. You can rename plutocrats “job creators” all you want, but it is pretty clear that they aren’t creating any jobs (at least not here in the US), and without that rather thin defensive reed to lean on, it is hard to envision any but the most ideologically rigid buying that snake-oil.

What am I missing?

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