Thursday, October 16, 2008

Talking Taxes and Truth in 2008

by Bruce Fisher


Maybe the presidential race will get closer, but so far Senator Barack Obama’s success demonstrates that the Republican campaign against taxes is failing.

That’s a profound and historic shift.
Obama is succeeding with a calm reassertion of popular notions of mutual obligation, of interconnected destiny and of fairness, even as he gives voice to a widespread resentment of self-dealing and of excess.
His perspective reflects the formative crisis of his early 20s. In the early 1980s, when the steel plants of the South Side of Chicago were abruptly closed, when Chicago Mayor Jane Byrne ignored the pleas of destitute residents of public housing, when faraway General Jaruzelski crushed the Solidarity movement in Poland and put African-American and Polish-American protesters out in the frigid streets of Chicago on the same cold nights to march against injustice, and when in March 1983 the late African-American Congressman Harold Washington brought together a coalition of labor, progressives, intellectuals, and minorities to eke out a historic victory for mayor, the subject was never, ever taxes. Right there in the middle of the age of the anti-tax, anti-government conservative icon Ronald Reagan, the issue that captured the imagination of Chicago was fairness.
But tax talk has dominated American politics since then. Intellectuals, especially University of Chicago economists, have been the respectable beards for Republican political operatives who have turned all talk about taxes into a vicious rant about race. The late Lee Atwater, but also Karl Rove and the guy who beat former Rochester Mayor Bill Johnson’s pro-consolidation campaign for Monroe County executive, won Republican victories with TV ads that told the following story: Hard-working white folks pay taxes to bureaucrats who turn around and give that money to grasping, undeserving, violent and irresponsible blacks.
All the while, the intellectuals write exquisite notes to one another in the Wall Street Journal about the ideas of Edmund Burke, Adam Smith, Friedrich Hayek, and Milton Friedman, while their think-tanks in Washington and Fox News alternately explain away and celebrate the extraordinary concentration of wealth, and the upward redistribution of income, that has taken place since the 1980s. I see the advent of aristocracy that has been facilitated by pro-capital and anti-labor tax policy; the Chicago boys see it as a natural, and desirable, consequence of the robust marketplace.
Republican tax policy is part of what has made the owners of wealth wealthier and the workers for wages more resentful, and more stressed. Preferential treatment for income that comes from investments means that investors, speculators, and people who get their income from trusts, dividends, and interest (i.e., not from work) pay lower rates than people who work for salaries and wages.
And all those loopholes that were eliminated in the historic 1986 Tax Reform Act—all those exclusions, credits, special rules for depreciation, loss-carryforwards, and the like—have come back into the federal tax code as a horde of lobbyists has made neutrality, and fairness, into an obscure or quaint notion rather than the small “d” democratic policy guidelines they once were.
The great innovation of the 20th century was Franklin D. Roosevelt’s compromise: Robust capitalism gets government help, so long as capitalism funds social stability through progressive taxation. That was our social contract, until the racialization of tax rhetoric by Republicans. Fast-forward to 2008, and now Republican political success in demonizing progressive taxation has become Republican demonization of all taxation—which is why Sarah Palin didn’t hesitate to question, in her recent deabte with Senator Joe Biden, how paying taxes could ever be patriotic.
Obama’s non-radicalism
Obama has been forthright about raising taxes on high-income individuals. He asserts a return to progressivity.
Political conditions are such, just now, that Obama’s plan seems not to upset too many people. Why? In part because lots of folks (and not just the senior economists who are advising Obama) remember the Clinton years, when the economy felt better for all and when tax rates on the well-off were much higher—but also because Obama isn’t very radical at all. He only seeks to “raise” taxes on the well-off if by “raising” taxes one means that Obama plans to allow the George Bush tax cuts for individuals with incomes over $200,000 a year to expire.
Independent observers, including most news organizations as well as the Institute on Taxation and Economic Policy (of which I was research director from 1985 to 1990), totally reject Senator John McCain’s characterization of Obama’s plan as a general tax increase.
But independent observers also note that Obama isn’t even talking about restoring Clinton-era progressivity in the tax code. Labor-funded Citizens for Tax Justice is quite tepid in its defense of Obama against McCain’s distortions. Why, CTJ asks, can’t we all admit that Clinton-era tax rates were more fair and should be reinstated?
Let us not let the perfect be the enemy of the good—and the good news is that the old Republican scare tactic on taxes isn’t working at the national level.
But because of the combined weight of the regional daily paper, local TV and radio, and the lingering effects of the Erie County political crisis of 2005, the war against taxes may work here in Upstate New York.
Dishonest discourse
The race for retiring Congressman Tom Reynolds’s seat pits progressive Democrat Alice Kryzan against Republican Chris Lee, whose ad campaign is entirely a reprise of every scary thing you’ve ever heard about taxes.
Notwithstanding the fact that Kryzan has never held public office, Lee asserts that she is responsible for the specific kind of taxes that kills jobs. What kind of tax is it that kills jobs? The unspoken premise of the Lee ads is that any tax, of any kind for any purpose—even the kind that pay for roads, the army, healthcare, police, schools, or homeland security—kills jobs.
Meanwhile, in the same general suburban, overwhelmingly Caucasian area, notorious pork-barreling Erie County Legislator Mike Ranzenhoffer runs for New York State Senate promising to end mandates, cap property taxes, and generally continue to pay for all the things we like without actually having to charge anybody anything.
It’s an insane contradiction, but it’s discourse that is empowered and legitimized by the region’s daily newspaper, which editorializes that Erie County—which is about to increase property taxes for the first time since 2001—should not raise taxes no matter how much the cost of road maintenance, labor contracts, gasoline, healthcare for old people, or jail costs have risen. At the very same time, the daily paper editorializes that New York State should continue to fund UB, and to allow UB special status to avoid state procurement and labor rules, so that UB can proceed with its 2020 plan.
Here’s a news flash, folks: The money to provide basic services, and big public works, comes from taxes. The question is whether the money will come from progressive income taxes, which take a larger share of income from those who have more income (especially from unearned income), or whether it will come from people with less income.
Nobel Prize winners like Joseph Stiglitz and Paul Krugman argue that things need to be paid for with taxes, and that people with more income should pay more taxes.
That has a sort of Obama-esque ring to it. But I first heard that concept in Sunday school, when I read Saint Paul’s assertion that more is expected from those to whom more has been given.
That fundamental Christian notion is not empowered by any political campaigning here. Other than Obama, I never hear a Democrat say “tax the rich.” Elected officials avoid or are ignorant of the views of St. Paul or of these prize-winning, world-renowned economists who firmly advocate public investment in things like roads, schools, sewer systems, and other public projects that sustain enterprise, and who say that the well-off should pay their fair share in paying for this stuff. What is empowered here is the Republican rhetoric that slams the notion of actually paying for public works with money collected from taxes, especially if those taxes are collected from the well-off.
But the contradictory rants of these Western New York voices is nothing compared to what’s coming out of Massachusetts.
St. Paul: Welcome in Boston?
The main event this year in Massachusetts is a referendum on the state income tax.
“Our goal is to reach and persuade 1,600,000 voters to vote “YES” to END the State Income Tax,” says the Small Government Act.org website.
“With less government and no income tax, Massachusetts will become a magnet to private, productive businesses and individuals. More good jobs and more good workers.”
Sounds good, eh?
But just a minute.
Massachusetts has for the past 20 years been a magnet for some of the smartest, most productive and most highly paid workers in America.
Most observers credit the massive public and private investment in higher education for having transformed Boston from a snowy, mob-ridden, class-polarized dump into a global center for innovation. A hundred thousand English-speaking, hard-working, educated Irish immigrants didn’t hurt, either.
Taxing income is the only way to get distributional equity—taking more from those who have more in order to support stuff that benefits everybody.
The campaign to eliminate the income tax has some momentum. But the threat of suddenly starving the state of 40 percent of its operating budget is real. Folks are starting to understand that local services from schools to police stations to senior centers would be on the chopping block. “Property taxes—the most unfair and hated of all assessments—would likely rise to make up the difference,” opines the Boston Globe.
Maybe that explains why the Massachusetts Municipal Association, representing all the state’s 351 cities and towns, opposes the referendum.
The moral imperative for progressive taxes is backstopped by practical economics, even at the state level. Lower-income people spend all of their income; upper income-people spend less than their income. So for our consumer-driven economy, leaving more money in the hands of people who spend all their income gets their spending into the economy. Even Ronald Reagan understood this: He was an enthusiastic proponent of the Earned Income Tax Credit, which gives low-income working people a greater reward for working. That’s why the Massachusetts plan to kill the income tax, and substitute regressive property taxes, is so dumb.
There is still time for the Republican anti-tax religion to get its Reagan-era energy back. But a little bit of tax sanity may yet prevail this year.
Bruce Fisher is visiting professor of Economics and Finance at Buffalo State College, where he directs the Center for Economic and Policy Studies.

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