Please note: the following should not be construed as an endorsement of the Obama tax plan, even if that is the context in which the post emerges.
Can we please get something straight about the notion of redistribution in our tax code as it relates to current and future fiscal policy as well to the positions of our two major political parties and their presidential candidates?
Let’s be clear: we currently have a progressive tax system that taxes income at higher percentages the more money one makes. This has been the case since the institution of the income tax in the early 20th century. The only change over time has been the number of brackets and the percentages that each bracket pays.
Beyond any of that, any tax system is, to one degree or another, redistributionist in nature. For example: even if every house in your school district pays the same flat tax rate on the value of the property, the bigger, more expensive houses will end up funding a large percentage of the schools. In other words, in such a system one doesn’t pay simply per capita (i.e., a flat fee per person), but rather one’s contribution is weighted based on the monetary value of one’s home. There is also the problem that many property tax payers do not even directly receive the service in question, as they have no school age children in the schools (and perhaps never did). Now, such a household still receives a public benefit from the school (no kids hanging around all day in the neighborhood with nothing to do, hopefully employable workers and so forth), but clearly the taxes from that household are being distributed to benefit other households with children, in some cases to households that pay very little property taxes.
I would be more than happy to have a major national debate about the nature of the code tax, all the way from whether the current behemoth itself makes any sense to complex questions about radical change, including the relative merits of the flat tax, consumption taxes (sometimes called “the fair tax”) or any other alternatives. While some wonks talk about it, as do some ideologues, it is clear that there has been no serious debate. Taking one quote by Barack Obama given to Joe the Plumber and turning it into claims that he’s a socialist does not equal such a debate (indeed, if one looks at the whole thing objectively, one should be able to see the absurdity of the current “debate” such as it is, when it is focused on that one statement, not to mention the circus that has emerged around Joe).
However, even if we went to flat tax or a national sales tax, that system would still redistribute wealth. The wealthy would pay for more of the public goods (schools, roads, the military) than lower income citizens. Beyond that, so long as we have any kind of social welfare system, there will be, by definition, redistribution (e.g., Medicaid can’t exist without redistribution–nor, for that matter, can public schools or public roads).
Therefore the debate is not about, despite what anyone calls it, between the redistributionist and the non-redistributionist. It certainly isn’t about the anti-socialist v. the socialist. Rather, it is a debate over tinkering with the exact nature of the currently re-distributionist system (such as where the top marginal rates ought to be).
In short: there are very legitimate debates to be had over what the exact percentages ought to be within our current income tax system, as well as legitimate debates about the appropriate capital gains tax rate, and it would be great if we could actually have those debates. What we don’t need (and are nonetheless getting) is a debate that charges one side as being “redistributionist” when it is patently the case that both parties support redistribution.
A little policy honesty would be nice–of course, it is simply easier to make dramatic charges than it is to have a serious policy debate (nothing new there, of course).
For further reading: Thoreau at Unqualified Offerings has some similar thoughts: Socialism? Is that all you’ve got?
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November 1st, 2008 at 12:08 pm
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November 1st, 2008 at 12:50 pm
Debate?
How about this. The Obama tax plan is suitable for fantasyland. I will not argue the merits of social democracy, but will say that no functioning social democracy operates under the Obama tax plan.
If the middle class want increased government services, then they are going to have to pay more in taxes.
Are you a married American with two kids making the average wage (about $54,000)? - then you pay 16% of your wages in income tax and employee contributions. In Germany: 30%, France: 21.1%, Sweden: 25.3%, UK: 22.8%. Of course, I have not mentioned the VAT which averages around 18% in Europe.
Is the Obama tax plan redistributionist? Yes.
It is also untenable and a joke.
If the Democrats want a social democracy, then they need to be honest about the costs associated with that model.
November 1st, 2008 at 1:51 pm
Again, I am not here to defend the Obama plan, I would just like to see some actually facts in the debate. For example, the plan on the table does not do anything near what you are describing.
Indeed, the marginal rates would resemble the tax rates under Clinton. Now, one can say that those where poor choices, but it is impossible to argue that the income tax rates during that period resembled western Europe in any way, shape or fashion.
November 1st, 2008 at 1:54 pm
I agree with much of your commentary, but I have difficulty with the concept that higher taxes on the wealthy for the purpose of funding military spending is a redistribution of wealth in anything close to the sense this discussion has taken publicly. My interpretation has been that the notion of redistribution of wealth, used in the context of the current public discussion, is referring primarily to taxing high income or wealthy individuals in order to increase government payments of what we generally refer to as entitlements to individuals who fall into lower income or wealth categories.
This results, in large part, from the constantly increasing size of the Federal government and its movement into areas of our daily lives that it should not be involved in, healthcare and education are good examples. The reason I say the Federal government should not be involved is because there are perfectly valid and acceptable alternatives at the state level and below for almost any issue for which entitlements are handled at the Federal level. Of course, if we continue our current path, this situation will only get worse, and the ultimate outcome will be a form of socialist state at least on a par with those in Europe.
November 1st, 2008 at 2:16 pm
Bob,
I will agree that the military isn’t part of the McCain-Obama debate, per se. However, as with any public good, the military is paid for more via the taxes of the wealthy than the taxes of the poor.
Bottom line: unless we have a per capita tax that is absolutely the same, then we have a redistributive system and the debate is then about how extensive that system ought to be.
November 1st, 2008 at 2:46 pm
Steve,
I’m OK with your response i.e. that the wealthy pay a greater share of the costs of things for the common public good and that you are calling that a redistribution.
I still think there is a difference in kind between a redistribution of wealth for purposes clearly mandated in the Constitution as proper Federal government matters (military expenditures is a good example) versus redistribution of wealth for individual entitlements (the qualifications for which are customarily based on a person’s individual wealth or income circumstance). The latter, in my opinion, meets the tests of a socialist program whereas the former would likely be recognized as a legitimate form of taxation (and redistribution of wealth) even for a libertarian.
I’m to the point in this overall debate or discussion where I believe we either reverse this trend and recognize and correct some of those Federal government actions that have gone beyond its Constitutional powers or we may accept an inevitable procession on the path to a socialist state, by any meaning of that terminology.
November 1st, 2008 at 4:50 pm
I’ve been out talking to the racist good ole’ boys again and when they hear McCain label Obama a socialist or hear the word redistribution they take it to mean that Obama is going to take their hard earned money and give it to the lazy niggers. McCain knows that the income tax in all the schedules we have employed during his lifetime have redistributed wealth in one way or another. His comments do not make sense because he is not trying to make sense, he is trying to reignite Reagan’s “welfare Cadillac” appeal to good old racism.
November 1st, 2008 at 5:31 pm
Whenever I engage in similar discussions, I inevitably find that people are unversed to the proper definitions of the terms. People throw around words like “socialist” without any idea what that really means. It’s the same with “fair” tax. Calling it fair doesn’t make it so.
November 1st, 2008 at 6:14 pm
I think conflating the idea of redistribution with socialism is ridiculous. Socialism is about collective ownership of the means of production in a society. This has nothing to do with redistribution, per se. I haven’t seen anything in Obama’s plan about abolishing private property or nationalizing industries. If anything, the Bush bailout, which arguably did nationalize the banks to some extent was more akin to socialism. The idea that simple redistribution of wealth via income taxes constitutes socialism is ludicrous.
November 2nd, 2008 at 12:18 am
While I agree with the contention that we already redistribute under our current progressive tax system, I think that what so many object to in the Obama tax plan is that it seemingly takes the concept of redistribution to a whole new level, one that carries a whiff of class warfare.
Our tax system is progressive in nature only in regard to wages. Capital gains, whether one dollar or one million dollars, are taxed at a fixed rate. When Warren Buffet says that his maid pays a higher percentage of her income in taxes than he does, it is only because, unless she is the world’s highest paid maid, she not only pays income taxes on her wages, but also pays payroll taxes on her entire salary. Mr. Buffet, on the other hand, pays payroll taxes on only the portion of his income that comes from wages less than $102K, pays income taxes at whatever bracket his salary falls into (which I’ve heard is approximately $150K), and then pays the much lower capital gains tax on his capital gains earnings, which constitute the bulk of his annual income.
The vast majority of those subject to Obama’s proposed income tax increase with incomes in the $250K to $500K range most likely have incomes almost entirely comprised of wages. I think that what has so many concerned about Obama’s “spread the wealth” comments is that while wanting to raise the percentage collected on the top two brackets, the remaining three lowered brackets will be left as they currently are. They will not be raised, nor will they be lowered. Instead, while calling it a “tax cut”, Obama plans on increasing the number of tax credits available to “middle class taxpayers”, which will phase out as income goes up, and expanding other tax credits that already exist. Right now, approximately 40% of wage earners pay no federal income taxes. It has been estimated that with these proposed changes to tax credits that not only will the number of wage earners paying no income taxes increase to around 50%, but that these credits will result in vast numbers of people actually getting a check from the federal government. Typically, such a check from the government is commonly known as welfare.
If one wanted to truly make our tax system, including payroll taxes, both progressive and perhaps a little more “fair”, capital gains taxes, like taxes on wages, would also be calculated on a progressive scale, tax credits would be eliminated entirely, tax cuts would mean actually a decrease in the tax rate in the brackets themselves, there would be no phaseouts of exemptions and deductions based on income and the income cap on payroll taxes would be eliminated. Given all of the special interest groups that this would offend, I am confident that this will never happen.
Something tells me that Mr. Buffet and Martha Stewart would not be quite so enthusiastic about Mr. Obama and his tax plans if the income they derive from capital gains were to be taxed at the same rate as income earned from wages.
November 2nd, 2008 at 7:48 am
Thank you for this. I can’t seem to get through to anyone that it’s a difference in degree rather than kind. You said it better than I have managed to.
November 2nd, 2008 at 11:55 am
While it is true that our existing system is progressive and sustains a degree of redistribution, one of the problems we face, which has increased during the current administration so it is not the albatross of either party, is that we are dangerously close to achieving the tipping point where the majority of the electorate believe they can vote for bigger government and more entitlements without them incurring any additional liability for those. There is a quote attributed to Alexander Tyler sums this up quite well: “A democracy cannot exist as a permanent form of government. It can only exist until a majority of voters discover that they can vote themselves largess out of the public treasury.”
November 2nd, 2008 at 11:59 am
I’m willing to go along with the idea that Obama’s tax plan is a difference in degree rather than kind.
But, I’m also a person who thinks that there aren’t really stark lines between major ideologies like socialism and capitalism. Certainly, our society has elements of both, if you take a very puritanical look at both ideologies. Pure capitalism would not allow for programs like Medicaid or public education; and pure socialism would not allow for things like private medicine or private schools.
So clearly, there is a spectrum. You have very socialist/communist systems on one end of the spectrum, and very capitalist systems on the other, and a nation can exist at any of about a million points in between. We like to think of these things as black and white: we are a capitalist country, China is a socialist country. Reality is that both of these countries have elements of socialism and capitalism, to very different degrees - nevertheless, neither, to me, can neatly be placed in the perfect, textbook ideological box of either system. What we are thinking of as polarity should really be thought of as a spectrum, with unreasonable (perhaps even impossible) extremes at both ends and a million points in between.
We can also argue and debate and have personal opinions about where along the spectrum a country becomes “socialist” and where it becomes “capitalist”. I suspect such a conversation would go on indefinitely and resolve nothing; this is largely a matter of personal opinion. I’m not going to go there.
What I can say is that for me, and for a lot of conservatives, the United States currently sits at a point on that spectrum that is as socialist as we care for it to ever be. I think we’ve hit a reasonable balance between services offered by the government and personal taxation; I do not want to see us move any further on that spectrum in the direction of socialism, and would like very much to see us move a bit (not a lot) back in the direction of capitalism.
So for me the question is what direction on that spectrum is the nation going to move in as a result of policies enacted by a given leader? I don’t think, for example, that the Obama tax code by itself (assuming he is able to pass it, which I think he will have a harder time doing than he thinks he will) will make the US a bona fide socialist country; but it will, in my opinion, move us further in that direction than I am comfortable with.
Differences in degree are important. They can represent directional movement on political, social, and economic spectrums, and over time these small movements add up. At some point, given enough of these gradual movements, you have to take a step back, look at the thing you’ve created, and say “yes, this is a socialist system.” We aren’t there yet, and maybe won’t be with Barack Obama.
But if we look at this as a matter of directional movement and not a matter of absolutes (that is, are we moving closer to socialism, not are we actually there yet) I think it would be pretty hard for anyone to say that an Obama presidency would not at the very least maintain our current position on the spectrum; and would probably slide us further in the direction of socialism. I can’t see any reasonable argument that Obama policy would move us back in the direction of pure capitalism, but if you have such an argument I’d be interested in hearing it. This doesn’t make Obama a socialist.
That settled, it becomes a question of degree - to what degree will this movement occur, and what precedents will it set for future leaders to build on?
It is fair to call Obama tax code what it is. As Dr. Taylor noted, our current tax code is redistributionist in nature. I know of no conservative - even the worst of the pundits - who thinks that the current system is not redistributionist. No one is arguing that; in fact, to many conservatives, it is already too redistributionist in nature, and needs to be reformed and scaled back. A lot of the nastier pundits think we’re already on the threshold of socialism; that’s where they see us on that broad sprectrum. They use terms like “wellfare state” and “nanny state” to describe us. No serious anaylist can say we do not have elements of socialism and redistribution built into our system as it is. Where we get into arguments is over whether this element or that has pushed us over the line and whether or not we can call ourselves “socialists” or “capitalists”, when the reality is that we will always be somewhere in between.
But, if it is fair to call our current system redistributionist, and Obama is calling for an expansion of that system and not the overhaul of it that is badly needed (and that Dr. Taylor would be interested in debating the merits of, as he stated in his post), it is also fair to say that Obama is a redistributionist. I see no semantic problem here. If we’ve established that what we’ve got is redistribution, and he wants to keep the current system and add on to it (increasing taxes on the wealthy and creating monetary benefits for the poor that currently don’t exist), why is it not unreasonable to call him a redistributionist?
I’ll go out on a short limb and say John McCain is a redistrbutionist, too. In fact, most of our leaders are. But to what degree? And how far are they willing to take redistribution? Do they want to expand it or cut it back?
These are the questions I have been asking. They are reasonable questions, and are part of why I dislike Obama, and why I cast my vote for John McCain last week.
When I call Obama a redistributionist, I’m using the term as a relative one; he is redistributionist *relative* to John McCain. That doesn’t mean that John McCain is not redistributionist *relative* someone else - a hard-core libertarian, for example.
I think, therefore, that it is quite silly to attack anyone for calling Obama a redistributionist. Relative his competition, he is one, and that’s what really matters; he’s running against John McCain.
Now, if we had a multi-party system, where a lot of people’s names were in the mix and there were more points on the spectrum to look at, it might become semantically bad to call Obama a redistributionist; perhaps there is someone further on the spectrum in the socialist direction than him. But that’s not the case; we have two guys, John McCain and Barack Obama. If your major concern is redistribution of wealth, one candidate is clearly better for you than the other.
November 2nd, 2008 at 10:10 pm
Why can’t socialism really mean ‘democratic socialism’? Look it up on Wiki. People who go with the ‘collective means’ definition fail to recognize that socialism has evolved and there are many forms. Redistribution of wealth is only a tenant of the classical definition, but its still a valid conclusion that a system that includes it is ’socialistic’ in nature.
November 3rd, 2008 at 11:40 am
Dr. Taylor,
You are honestly going to tell me that the marginal rates under Obama would be the same as those under Clinton.
Maybe you bought into the talking point that Bush only lowered taxes for the rich.
Was there a 10% bracket under Clinton?
I would be much less suspect of the Obama plan if he just promised to go back to the rates under Clinton.
That is not what he is proposing.
That is why his tax plan is unsustainable and a joke.
We are talking about higher government spending than under Clinton while only raising the rates on the top two brackets.
Do you honestly think we can have deficit spending forever?
November 3rd, 2008 at 12:03 pm
cfpete,
Perhaps I am misunderstanding your point, but you do realize that the 10% bracket was created by the Bush tax plan.
Is your argument that taxes should be raised across the board? Fair enough, but I am not sure what that has to do with what I have written.
If your argument is about long-term revenue, then I am assuming you don’t like the McCain plan either?
Help me out here and tell me what your position is.
November 3rd, 2008 at 1:40 pm
I believe your misunderstanding is indicative of the level of modern day political discourse.
You assume, straight off the bat, that anyone disagreeing with Obama’s plan must be some rightwing starve the poor nut job.
You stated, “I would be more than happy to have a major national debate about the nature of the code tax(tax code).”
I would also desire this debate, but I would like it to be a rational debate.
Yes, I am concerned about long term revenue and deficits.
Yes, I think the McCain plan is also a joke.
Yes, I know Bush created the 10% bracket and that Obama plans to keep that bracket and all of the other lower brackets (except for the top two).
Yes, I am arguing that any future tax increases should be across the board - and can we please discuss a VAT.
Where am I coming from?
Your post was mostly about Obama’s tax plan. I apologize for not couching my response with similar displeasure for McCain’s plan. However, his plans are moot with a Democratic Congress in place and the fact that he will most likely not win the election.
The debate about taxes and government spending in this election has been entirely divorced from reality.
My main complaint:
Obama has sold the idea of increased government services without any middle class tax increases.
There is no way this is feasible without never-ending deficit spending.
We can argue about increased government services.
I would just like that argument to be based upon a realistic funding source.
November 3rd, 2008 at 2:26 pm
cfpete,
Actually the post was about the fact that our tax code is already redistributionist. It really wasn’t about the Obama plan, as the disclaimer at the top of post notes.
I did not assume you were anything in particular–I simply found your comment a bit confusing. I am not sure why asking for clarification constitutes an example of the poor nature of political discourse at the moment. Yes, I brought up the Bush plan, but I hardly stated that you were advocating it.
And we are actually in basic agreement in terms of the following:
Obama has sold the idea of increased government services without any middle class tax increases.
There is no way this is feasible without never-ending deficit spending.
We can argue about increased government services.
I would just like that argument to be based upon a realistic funding source.
Fair enough. It is unclear to me where I said anything that would contradict that.
And you are right, my original post above should have noted that the top marginal rates would resemble the Clinton era, not the bottom rates.