Ross Douthat asks

by on January 1, 2013 at 5:39 pm in Current Affairs | Permalink

If a newly re-elected Democratic president can’t muster the political will and capital required to do something as straightforward and relatively popular as raising taxes on the tiny fraction Americans making over $250,000 when those same taxes are scheduled to go up already, then how can Democrats ever expect to push taxes upward to levels that would make our existing public programs sustainable for the long run?

Here is more.

Bill January 1, 2013 at 6:00 pm

Douthat assumes that the military will have the same percentage of the budget, that farm price supports will continue, and that the Republican plan to cut corporate taxes will not bring about orgasmic growth that will bring the new millennium.

What position does Douthat have on military spending? Guess the share of military spending as a percentage of discretionary spending and you see the direction we need to go.

Yog Sothoth January 1, 2013 at 7:27 pm

Yes the assumption of non-orgasmic growth weakens Douthat’s analysis considerably. The NYT editors should have asked him to explicitly address that contingency.

vanderleun January 1, 2013 at 8:21 pm

What passes for “editors” at the New York Times these days should put a gin-soaked sock in it and light it.

Andrew' January 2, 2013 at 12:05 pm

Why does it matter what Douthat thinks about the military? Maybe he just assumes extrapolation. He could even believe like me we could do it much cheaper AND more effectively but just realize that our politicians no longer care about policy.

Thomas Sewell January 2, 2013 at 12:49 pm

The problem is that Congress and the President have been “pushing” spending and taxes up for a long time, but while taxes are constrained by the actual wealth people generate, spending isn’t constrained as long as the Feds can sell bonds as the safest government around. To ask, “Why can’t we push taxes up forever” seems to miss the real issue of forever increasing spending plans.

In constant dollars, 2012 federal government receipts are $892 Billion _higher_ than in 1980. D.C. is just spending even more and you can’t explain it by population changes alone.

See the graph at: http://comeletusreasontogether.com/revenue-problem-or-spending-problem.

msgkings January 2, 2013 at 2:50 pm

You can explain it with war spending + demographics. It’s not just larger population, it’s older population, living longer and longer. And medical costs rising very rapidly (because medicine does a great deal more than 30 years ago). And fighting 2 wars/’building’ two nations.

Beans January 1, 2013 at 6:04 pm

As a Canadian, I’m attracted to the prospect for high net worth individuals post-2014. Even under plausible tax increases, Canada remains significantly more expensive.

Alexei Sadeski January 1, 2013 at 6:44 pm

Canada has had lower taxes on the rich for some time now…

Beans January 1, 2013 at 7:14 pm

Effective tax rates are significantly higher.

Alexei Sadeski January 1, 2013 at 7:28 pm

Effective AND nominal rates are far higher in the ‘States.

USA:

Income: 38

State Income: 10

Cap Gains: 36

Corporate: 46

Estate: 40

_OVERALL_: 92.3%

Canada

Income: 29

Provincial Income: 15

Cap Gains: 22

Corporate: 27

Estate: 22

_OVERALL_: 73.2%

————-

Because Canada has such low Capital Gain and Corporate rates, high net worth individuals are able to lower their tax liability dramatically by funneling income through corporations. In the US, this is not as useful – the US has one of the highest corporate tax rates in both the world and OECD.

Beans January 1, 2013 at 7:39 pm

Please produce a source, I’d like to look at their methodology.

Peter Schaeffer January 1, 2013 at 7:49 pm

The effective corporate tax rate is in the 20s. That Federal statutory rate is 35%. If you add in state and local corporate taxes, the statutory rate is 39.7%. See http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/69xx/doc6902/11-28-corporatetax.pdf for a long and detailed analysis.

Alexei Sadeski January 1, 2013 at 7:51 pm

“Methodology?”

Canadian income tax rates, capital gains rates, and estate tax rates are available on the Canadian tax authority’s web page. Canadian corporate tax rates are highly publicized, as they are amongst the lowest in the world and the OECD.

American income tax rates have been plastered all over the news lately. American Corporate tax rate hasn’t changed in some time. State tax rates vary and are publicly available anywhere. US Capital Gains rate sums Federal Cap Gains + State Income (most states, including CA, tax Cap Gains as normal Income) + Obamacare levy.

This information is all readily available if you care to look for it.

Go ahead and compare other OECD countries if you with – Throw in Denmark, Sweden, the UK, Germany… you’ll find that the US is either around as high or significantly lower than many (for some nations you’ll have to add the “Wealth Tax” – Netherlands and France come to mind – but this is uncommon). There are also other intangibles which tend to tilt the effective rate higher in the ‘States – Americans pay taxes if they are Citizens even if not residents (only nation on earth to do this I believe), tax collection is far more thorough and evasion punished far more severely in US than other nations, deduction for rich are limited in US and becoming more so (but this enters very murky waters… one should really be an expert in each nation’s tax practices to talk deductions!), so on…

Alexei Sadeski January 1, 2013 at 7:55 pm

“…around as high or significantly higher than…”, not lower :) Typo.

Beans January 1, 2013 at 7:59 pm

Again, I’m concerned with effective tax rates.

Per your claim:

“Effective AND nominal rates are far higher in the ‘States.”

Beans January 1, 2013 at 8:01 pm

Your link helps though.

Alexei Sadeski January 1, 2013 at 8:03 pm

Peter,

The “apparent,” “observed,” or “effective” corporate tax rate for US corporations appears low because multinationals which are based in the US defer repatriation of foreign capital in hopes of a lower future US corporate tax rate or temporary holiday. According to the NYT, more than $1T of US corporate cash is sitting offshore awaiting change in the absurd corporate tax code.

For a high net worth individual, this provides zero utility, as he is unable to funnel his income through such a corporation – he will be without the capital – as soon as it is repatriated, he must pay the tax.

This US owned foreign capital WILL be taxed as SOME rate, but at the moment is not, so it shows on the books as 0% and skews the overall rate. Other nations in the comparative data are not impacted by this uniquely American feature (their corporations are not holding capital whilst awaiting a tax holiday).

The NYT and other publications have covered this numerous times recently:

http://dealbook.nytimes.com/2012/10/03/overseas-cash-and-the-tax-games-multinationals-play/

Beans January 1, 2013 at 8:11 pm

“For a high net worth individual, this provides zero utility, as he is unable to funnel his income through such a corporation – he will be without the capital – as soon as it is repatriated, he must pay the tax.”

Of course they can.

“This US owned foreign capital WILL be taxed as SOME rate, but at the moment is not, so it shows on the books as 0% and skews the overall rate.”

Not always, tax treaties and information agreement can also reveal this.

Bill January 1, 2013 at 8:23 pm

Alexis, foreign earnings can indefinitely be deferred from taxes, and be used under various licensing me chasms to underwrite US expenses for R&d, for example or for building infrastructure abroad, or for security on loans made to the US parent.

Alexei Sadeski January 1, 2013 at 8:36 pm

Similar exceptions presumably may apply to Canadian firms as well…

And that all deferred capital is counted as 0% in the CBO report (presumably), which is… a bit extreme.

Bill January 1, 2013 at 9:35 pm

Alex, I don’t get your argument then if both Canadian and US firms can do the same thing. And, doesn’t this contradict your statement that “This US owned foreign capital WILL be taxed as SOME rate, but at the moment is not, so it shows on the books as 0% and skews the overall rate. Other nations in the comparative data are not impacted by this uniquely American feature (their corporations are not holding capital whilst awaiting a tax holiday).”
Did you mean to say Canada and the US when referring to this uniquely American feature?

derek January 1, 2013 at 11:35 pm

Both countries have various corporate tax deductions, R&D credits and the like. But after all said and done, the remainder is taxed higher in the US.

Matt January 1, 2013 at 6:06 pm

What does Douthat think Obama could have done about the tea party wing in the House? And why does he seem to think that any other actually possible party would do better than what Obama did? As is typical, he’s just making stuff up.

So Much for Subtlety January 1, 2013 at 6:23 pm

Obama does not need the Tea Party wing of the Republican Party. He needs a few votes from the non-Tea Party wing. This ought to be obvious. He won the election. He has the Senate. He has an obsequious media that will ignore everything bad he does, cover it up in fact, while lauding him as the greatest genius since Jefferson. And this is the best he can do? He just needed some of the moderate Republicans – and they still do exist – to vote for him, or to offer them such a good deal they could not turn it down.

It is a reasonable question.

The fact is Obama gets a great press but he is one of the most incompetent Presidents in modern times. Every policy he has tried has been an utter failure. But no one notices because the media is too busy being servile.

John January 1, 2013 at 6:51 pm

Not defending Obama but he does need Boehner to bring any measure to a floor vote in the House. Also Republicans have fairly good party discipline which discourages splintering.

Chris D January 1, 2013 at 6:56 pm

Thanks for a good laugh to start out the new year. Anything to add about how Obama wasn’t vetted in ’08 and we really don’t know anything about him, because mainstream media?

TMC January 2, 2013 at 11:42 am

Or the sun setting in the west…

boba January 1, 2013 at 8:06 pm

“Obama does not need the Tea Party wing of the Republican Party.”
While Obama does not need the tea Party, Boehner in his infinite idiocy does need their support. This is because he chose to require a majority of the Majority party to bring the bill to the floor to vote. So while the House may be happy to vote for the compromise, without the lunatic fringe assenting to do so, the vote cannot take place.

So Much For Subtlety January 1, 2013 at 11:09 pm

John, he needs the support of some Republicans. Which means he needs a deal that some will sign up to. There has been a growth of extremism in both parties, not just the Republicans.

Thank you Chris, I try to please. I could add some more, but we all know it is true so why bother?

Boba, Boehner is not in the White House. Obama has all the cards except one – he needs some Republican support in the House. He can get the media to crucify the Republicans if they don’t play. And they are. He can rule unimpeded in a way that George W. Bush never could. But he does need that small number of votes. Which means he needs some sort of deal that moderates can sign up to. I see no evidence whatsoever that he has any intention of producing such a deal. His demand seem to be that the Republicans should agree to raise taxes, spend more and allow Obama to borrow as much as he likes. Blaming all his problems on a potential fillibuster seems so misplaced to me I hardly know where to start.

joshua January 2, 2013 at 1:36 pm

“This is because he chose to require a majority of the Majority party to bring the bill to the floor to vote.”

Apparently not.

Bill January 1, 2013 at 6:24 pm

+1 Douthat should exercise his formidable persuasive skills to persuade Mitt Romney to release the secret list of deductions that would be eliminated or modified if he wants greater middle class participation. I, too, have a secret plan, and I am not Richard Nixon.

Reg January 1, 2013 at 8:01 pm

Great comment Bill!

Andrew' January 2, 2013 at 12:08 pm

Because you are not wanting to use it to win votes, right Bill?

Well, you are certainly more earnest than any of the Democrats.

Here’s how it works, you have to elect them to find out what’s in them, such as gun control, not prioritizing the economy (i.e. pursuing Obamacare boondoggle, etc.)

maguro January 1, 2013 at 6:48 pm

Yes, so unfair to expect Obama to accomplish anything as long as there’s a single House member who opposes his plans.

I think it’s racist. White Presidents never had to deal with this “opposition party” bullshit.

Jan January 1, 2013 at 8:15 pm

It’s actually Boehner’s fault, because he is afraid to agree to anything that the right-wing 20% of his party won’t sign on to. He wants something that all Republicans will vote for to avoid the appearance of fracturing within the party. I realize his and Cantors’ jobs are to keep the party in lock step, but they are doing that at the cost of actually solving any problems. It’s pointless to try to reel the righties back in. It is not Obama who needs to accomplish these things, it is Boehner and his House ninnies.

vanderleun January 1, 2013 at 8:25 pm

Interesting that everything is “the fault” of a Republican whose first name begins with the letter B and nothing can be done by the most magical negro in the history of the Republic. Got to buck up that A Action for another 50 years I guess just to haul those folks out of the woods at last.

maguro January 1, 2013 at 8:52 pm

Sure, Boehner would like to keep his caucus united, but Obama doesn’t need the entire Republican House caucus to pass a bill. He only needs 24 R votes, or about 10% of the caucus.

For that matter, Obama could get everything he wants (or claims to want) by making no deal at all and letting the Bush tax cuts expire, then having the House Dems present a bill cutting everyone’s taxes except the $250K and up bracket. No way Boehner could mantain party discipline under those conditions.

In no way does Obama need the tea party, or even Boehner, to raise taxes on the rich. This whole fiscal cliff kabuki is necessary because the Dems don’t want to be solely responsible for the results that ensue.

Tom West January 1, 2013 at 9:13 pm

If I’m not mistaken, isn’t the problem that once Obama got what he wanted on the tax cuts, he wouldn’t have anything left to bargain with to avoid the spending cuts?

maguro January 1, 2013 at 9:43 pm

But the spending cuts are almost all on the defense side, which the Dems claim they want to cut anyway.

Jan January 2, 2013 at 1:15 pm

Nah, half of the cuts are on the defense side.

joshua January 2, 2013 at 1:39 pm

“It’s actually Boehner’s fault, because he is afraid to agree to anything that the right-wing 20% of his party won’t sign on to”

Apparently not. He did last night.

Jan January 2, 2013 at 2:24 pm

It was a half-assed deal brokered by Biden and McConnell. Boehner is afraid, trust me. We’ll see in two months what the fallout is.

john personna January 1, 2013 at 6:45 pm

The phrase that has struck me is that conservatives are going through a “deathbed conversion.” Douthat, presumably not a long time friend of higher taxes, asks why Democrats can’t raise taxes more broadly. (Double-take.) This must come after he has decided that conservatives cannot propose acceptable spending cuts after all, and that taxes are the last best way of closing the deficit.

Andrew' January 2, 2013 at 12:11 pm

And if that’s the case, “we” should just stand pat. Wait for the next time the politicians are in the gutter and ask them if they are at rock bottom yet. If not, just wait.

And why not just make the middle class pay for their entitlements? Because they are not positive ROI. That simple. And they are not positive ROI because they are not public goods for the general welfare.

Jan January 1, 2013 at 6:47 pm

Well it will be very difficult to raise any taxes with the right wing of the Republican party. This is because they are legislating from completely gerrymandered districts, where they face no real risk of not being reelected, even when they turn down balanced, bipartisan deals. It doesn’t matter if 80% of Americans support tax increases on the rich–the electorate in those very, very red districts don’t support that.

The truth is that the public programs need to also be cut a bit, but the Republicans can’t be the ones to propose it. They do support the cuts, but they want Obama to be the one to propose them, but he’s not playing that game this time. So we wait.

john personna January 1, 2013 at 6:50 pm

That’s the other theme, yes. The right demands that the Democrats act like better Republicans.

Andrew' January 2, 2013 at 12:12 pm

There should be no raised taxes. See above. It’s fascinating why this is assumed among smart people to be a fait accompli.

Brian Donohue January 2, 2013 at 4:10 pm

If we don’t raise taxes now, the Baby Boomers are all gonna retire and leave us holding the bag.

Wake up, young people!

Alexei Sadeski January 1, 2013 at 6:47 pm

Mssr. Douthat, like many observers, is far too optimistic. “Liberalism” has a “$15,000 Problem,” not a “$400,000 Problem.”

Taxes must rise on the poor and middle class: Additional taxes on the rich, the near rich, and the upper class will be unable to make much of a dent.

I wrote about precisely this aspect of Douthat’s commentary this morning on my blog:

http://alexeisadeski.wordpress.com/2013/01/01/liberalisms-15000-problem/

JWatts January 2, 2013 at 2:18 pm

“Mssr. Douthat, like many observers, is far too optimistic. “Liberalism” has a “$15,000 Problem,” not a “$400,000 Problem.””

I think Douthat actually acknowledges this point in a general way:

” and the American left actually has a long-run incentive to make the federal tax code less progressive, because only a broader base can keep the liberal edifice solvent in the long run.”

It’s pretty obvious that if the US wants European style large government socialism then the US is going to have to pay for it with much higher taxes on the middle class, just like Europe does. It’s only in fantasy land that the US can have both high government spending and low middle class taxes.

tt January 1, 2013 at 6:48 pm

yes,yes its all the democrats fault.

Andrew' January 2, 2013 at 12:14 pm

Actually it is. They created insolvent programs. That’s fine. Just fix them when they become illiquid. They refuse. The Prez’s insistence on nailing the rich because he gets to stick it to the Republicans is merely a logistical oddity that belies his actually poor bargaining position.

mulp January 2, 2013 at 4:08 pm

Everything was insolvent in 2000? Why Calpers was proof that privatizing Social Security would result in higher benefits at lower cost than FICA. Now Calpers is proof that everyone needs to work until you drop because retirement savings in Wall Street will leave 90% broke and Social Security is broke because the US Treasury is bankrupt.

All because Obama took office in 2001 and destroyed American and run up $16 trillion in debt in his first 12 year term and turned a budget surplus into a trillion dollar deficit.

JVM January 1, 2013 at 6:56 pm

To be fair, I don’t think the Repbulicans that Obama needs to do those things are very amenable to his wishes.

The Other Jim January 1, 2013 at 7:02 pm

There is not enough money on Earth to make our existing public programs sustainable for the long run.

So keep that in mind.

john personna January 1, 2013 at 7:06 pm

What about robot scrip?

Jan January 1, 2013 at 7:16 pm

I know you meant this to be hyperbolic, but this is not even close to the truth.

The U.S. has lower average effective tax rates than Germany, Belgium, France, the UK, Canada, Sweden, Spain, Japan, Australia, Italy, Greece, Brazil, India, Estonia and Denmark. If we moved toward taxing personal income at similar rates to countries at even the lower end of this spectrum, we could pay the bills in the long run.

CONOR January 1, 2013 at 10:24 pm

I haven’t looked at the numbers so this may be wrong but I’ve heard that the US effective tax rate isn’t as low as it seems if you look at not just Federal but Federal/State/local. The number I hear is in the 40% of GDP neighborhood. Maybe it’s even higher in those countries you mentioned?

Jan January 2, 2013 at 7:36 am

It is actually around 25-26% of GDP, including state and local taxes, lower than almost any European country. Take away state taxes and it is much lower. I am not saying this best metric, but on pretty much any metric you will find that the U.S. taxes at a much lower rate than almost all OECD countries.

CONOR January 2, 2013 at 10:05 am

source for “25-26% of GDP”?

This
http://www.usgovernmentspending.com/total_spending_2013USrn
says spending (federal/state/local) is 6.3 trillion.
this
https://encrypted.google.com/search?q=gdp+usa&oq=gdp+usa&sugexp=chrome,mod=8&sourceid=chrome&ie=UTF-8
says GDP is 15.09 trillion.

TMC January 2, 2013 at 11:48 am

Federal is 24%, so local and state combined equal an additional 1%?
More Obama math.

Andrew' January 2, 2013 at 12:16 pm

It’s much higher including all. Rather amazing that this is not recognized, let alone easily accessible. Not to mention we get much less ROI on each government dollar due to things like heterogeneity and population density.

Jan January 2, 2013 at 1:37 pm

The 25% figure is from OECD data: http://www.oecd.org/ctp/taxpolicyanalysis/revenuestatisticstaxratioschangesbetween2007and2011.htm and http://www.oecd.org/ctp/taxpolicyanalysis/Table_A_eng.xls

The data includes state and local taxes. If you don’t believe me, you can read the interpretation guide here: http://www.oecd.org/ctp/taxpolicyanalysis/RS_OECD_Interpretative_Guide_2012.pdf

CONOR, government spending is not the same as revenue.

TMC, nope.

It is amazing that people don’t believe this. Taxes are exceedingly low in the U.S.

CONOR January 2, 2013 at 4:22 pm

That’s weird because this site
http://www.usgovernmentrevenue.com/total_2011USpt_88ps5n

says all public sector revenue is at 35% of GDP.

Truthfully I don’t know anymore about the value of this source then the one your pointing at.

It’s an amazingly large difference though.

Jan January 2, 2013 at 7:24 pm

Your source seems to be a person named Chris Chantrill, who I am not sure is accountable to anyone but himself, but I think I see what could explain the difference. His revenue figures also include non-tax revenue, while the OECD data I was looking at is strictly taxes. The non-tax revenue includes leasing federal land, state-run liquor stores, fees to get a drivers license, etc. and it adds up to $1.3 trillion.

Steve January 1, 2013 at 10:37 pm

Similar to what we saw in the election there are times you realize just how far from reality certain political factions are. How quickly people forget while we just saw the fastest increase in the deficit we also saw the fastest decrease in the deficit. And if we allow ourselves to fall off the cliff and go back to the tax rates we had in that awful economic time period in the 90s the deficit would get much smaller indeed.

Yancey Ward January 2, 2013 at 10:56 am

And pretty much none of those countries can pay for their own programs.

Grant January 1, 2013 at 7:16 pm

They hide the tax as fixing a problem, such as a tax on carbon, and then claim that the benefits of the tax outweigh the costs so that it really isn’t a tax.

Michael Foody January 1, 2013 at 7:19 pm

Douthat asks how we can have our current rates of spending if Republicans are unwilling to have even modest tax increases (which, bizarely, he treats as almost a force of nature and assigns little blame).

Why not frame the question as: Given that even small spending cuts are unpopular and difficult to agree upon surely we cannot continue with our current tax policy?

I am not up to making a case for tax cuts v. spending on its merits, but Douthat’s question is not clever or interesting. If in a negotiation you hold one side as fixed of course the other side has to bend. In reality it appears that negotiation around spending cuts and tax increases are both very difficult.

CG January 1, 2013 at 10:14 pm

Exactly. He says that raising taxes on rich people is popular? Nonsense, only among Democrats. He’s ignoring practically half of the electorate. Umm, Ross, you remember that group of people, called Republicans, who campaign, get votes, and govern on the basis of not raising taxes on anyone (including rich people)?

The reality is that increased taxes, even for the wealthy, are just as unpopular as spending cuts. They’re just unpopular to different segments of the electorate. Generally, a tax increase is as unpopular among Republicans as a spending cut is among Democrats. If this weren’t the case, debt reduction would not be an issue.

prognostication January 1, 2013 at 11:14 pm

“Fully 68 percent said Obama “has a mandate” from the November election to cut taxes on families earning less than $250,000 per year; 65 percent said he has a mandate for “increasing taxes on the wealthy and reducing federal spending.”

Some 59 percent said Obama has a mandate to eliminate the Bush tax cuts on incomes above $250,000. And an overwhelming 76 percent said that higher tax rates on incomes that high would be an “acceptable” element of a compromise to avoid the fiscal cliff.”

http://www.cnbc.com/id/100307516/Obama_Has_039Mandate039_to_Increase_Taxes_on_Wealthy_Poll

And there are other polls with similar findings.

CG January 2, 2013 at 11:23 am

Prognostication,

Exactly my point. There’s still 41% of the electorate – who are mostly on the right – that oppose tax increases on people making over $250K. And those people vote. You only need to look at representation in Congress – Republicans (up until this deal) have responded to their constituents desire not to raise taxes. The only reason that they eventually did capitulate is that the tax increases were automatic. Tax increases on the wealthy are still deeply unpopular among Republicans in Congress.

CG January 2, 2013 at 11:36 am

Here’s another poll suggesting that cutting spending is “popular”:

“Overall, 61 percent of voters say major spending cuts are necessary to reduce the deficit, while 33 percent think increasing taxes on high earners would be enough. Half of Democrats think taxing the rich is all that is needed. By contrast, majorities of Republicans (77 percent) and independents (62 percent) think cutting spending is also necessary.”

Read more: http://www.foxnews.com/politics/2012/12/12/fox-news-poll-according-to-voters-spending-cuts-are-must/#ixzz2Gpvjf1oS

Then Douthat could have just as easily asked the converse:

“If newly re-elected (Republicans) can’t muster the political will and capital required to do something as straightforward and relatively popular as (cutting spending) when (spending on government programs will automatically be cut), then how can (Republicans) ever expect to push (spending down) to levels that would make our existing public programs sustainable for the long run?”

He’s simply framing, not asking a substantive question of policy.

careless January 2, 2013 at 12:08 pm

People also said they’d like a free pony.

Brian Donohue January 2, 2013 at 4:17 pm

The law that ‘saved’ us from the cliff (sigh) raised taxes on the rich, didn’t cut spending. There’s your path of least resistance.

Vangel January 1, 2013 at 7:38 pm

The argument that the ‘rich’ are not taxed enough is total nonsense because the top 10% in the US pay far more than the top 10% in the EU and most of the globe. The problem is spending. One side wants more and more welfare programs for the ‘poor’ while the other wants more and more welfare programs for corporations and the military. What is lost in this debate is that military spending must be cut as welfare programs for both individuals and corporations are cut. If you look at all of the expenditures that are military related (CIA drone program, Pentagon, VA, NASA military satellites, DHA, NSA, FBI counterterrorism, Energy Department military related programs, interest on past military spending, etc.,) we find that the spending makes up about half of all tax revenues. That is not insubstantial no matter what spin is being put by the big government Republicans who see nothing wrong with the US spending more than the next 10 nations combined. At the same time it is clear that the unfunded liabilities are too large to keep playing the promises game advanced by the Democrats. It is time for the US to start looking at reality even though that would hurt for a while. Rand Paul had a few very good ideas on the spending front. It makes sense that Republicans would take a look at those ideas unless they want to go the way of their predecessors, the Federalists and Whigs. At the same time the Democrats cannot afford to be smug. They are far from the Party of Jefferson and have turned back on the original ideas that made them worthy. Unless they are careful there will be an uprising that moves their support to a third party not in the picture at this time.

Jan January 1, 2013 at 8:09 pm

The premise in your first sentence is wrong. The disparity between what the top 10% and lowest 10% of earners make is much more pronounced in the U.S than in other countries. If we have a progressive tax system, doesn’t it make sense that this group would also pay a relatively higher share of total taxes? Our rich are richer than other countries’ rich.

In the U.S., top 10% earners make 15.9 times more on average than bottom 10% earners. That multiplier is 6.9 in Germany, 8.1 in Denmark, 9 in Switzerland, 9.4 in Canada, 10.8 in Estonia, 12.7 in Russian, and 4.5 in Japan. These numbers aren’t cherry picked. http://hdr.undp.org/en/media/HDR_2009_EN_Complete.pdf

Alexei Sadeski January 1, 2013 at 8:22 pm

Jan,

From that source: “Because the underlying household surveys differ in method and type of data collected, cross-country comparisons should be made with caution as the the distribution data are not strictly comparable across countries.”

Given that such data doesn’t square with preadjusted GINI data, I’d say it’s quite suspicious. Preadjusted GINI, for example, shows Germany as more unequal that the US.

My thoughts on GINI:

http://alexeisadeski.wordpress.com/2012/08/06/quick-look-at-income-inequality-international-comparison/

Jan January 1, 2013 at 9:23 pm

It is an interesting theory you put out, though I have no way to determine whether Gini is fundamentally flawed in the ways you suggest. However, the figures in my source show that income inequality in the U.S. is vastly greater than in most other OECD countries. Based on your criticisms, the magnitude may be somewhat exaggerated, but it seems that the U.S. would be at the top of the inequality heap regardless.

The main point I was making is that the top 10 or 20% of income earners in the U.S. make a larger share of all income than middle and low income earners, compared to most other countries. This is why they pay a larger share of the taxes–we have a progressive tax system and those who make more money pay more, proportionally, in taxes. It should not be a surprise. The high level of income inequality in the U.S. is indisputable and the trend is that it is getting worse in relation to other countries. The Congressional Research Service produced a very in depth report on this issue that does not rely exclusively on Gini calculations: http://www.fas.org/sgp/crs/misc/R42400.pdf

Alexei Sadeski January 1, 2013 at 10:29 pm

Jan,

Do you not find it odd that the OECD’s adjustments for Gini calculations turn Germany from a country which is more unequal that the US (raw) to one which is far more equal than the US (adjusted) – despite the fact that Germany’s taxation regime is less progressive than that found in the US?

It seems quite remarkable to me, personally.

GiT January 2, 2013 at 4:37 am

All it takes is more substantial transfer payments than the US. Really not very remarkable.

Jan January 2, 2013 at 9:14 pm

Ok, I agree the larger transfer payments could totally explain it. Is that not the case, Alexei?

Alexei Sadeski January 1, 2013 at 8:21 pm

Jan,

From that source: “Because the underlying household surveys differ in method and type of data collected, cross-country comparisons should be made with caution as the the distribution data are not strictly comparable across countries.”

Given that such data doesn’t square with preadjusted GINI data, I’d say it’s quite suspicious. Preadjusted GINI, for example, shows Germany as more unequal that the US.

My thoughts on GINI:

http://alexeisadeski.wordpress.com/2012/08/06/quick-look-at-income-inequality-international-comparison/

8 January 1, 2013 at 9:00 pm

Economic declines are always accompanied by internal fracturing. The fighting will increase until the crisis is so large that it destroys at least one of the major parties. Anyone who tries to get in front of this train is doomed.

Floccina January 4, 2013 at 12:06 pm

+1

John January 1, 2013 at 9:32 pm

President Obama is a Democrat by affiliation only. In the reality based world, he’s a moderate Republican.

So Much For Subtlety January 1, 2013 at 11:24 pm

Nice to see Noam Chomsky read this blog.

Rahul January 1, 2013 at 11:50 pm

Who’s your ideal Democrat?

Willitts January 1, 2013 at 11:51 pm

Obama wouldn’t be a moderate republican in the People’s Republic of China.

Andrew' January 2, 2013 at 12:21 pm

He’s simply an opportunist. He’ll take whatever the situation gives him up to to the equilibrium point (and beyond) of him being on the liberal side of the Democratic half of the Senate (where he was also an opportunist of course).

msgkings January 2, 2013 at 12:58 pm

Will you haters give the man some credit if he pulls a ‘Nixon goes to China’ and actually gets some entitlement reform done? I don’t think a Republican could sell the changes we need.

JWatts January 2, 2013 at 4:13 pm

And if Obama completely dodges any meaningful entitlement reform, will you then admit he’s not worth a ‘Nixon’, to follow your example. ;)

msgkings January 2, 2013 at 5:11 pm

Actually yeah, if Obama doesn’t use his second-term status to move to the center like Clinton did and get some meaningful entitlement reform done I will indeed judge him a mediocre president.

Scott Sumner January 1, 2013 at 10:44 pm

Actually the deal does have substantially higher taxes on those in the $250,000 to $450,000 range, it’s just that the media doesn’t know what’s going on, and doesn’t report it.

jan January 1, 2013 at 11:07 pm

You talking about an eimination of some deductions (and a deductions cap), or payroll tax holiday expiration, or something else?

JWatts January 2, 2013 at 4:21 pm

The 3.8% Obamacare surcharge on Investment Income for > $200K income is one.

Evan Harper January 1, 2013 at 10:48 pm

“how can Democrats ever expect to push taxes upward to levels that would make our existing public programs sustainable”

The phrase “our existing public programs” is doing an awful lot of work there, isn’t it? As I understand it, the U.S. gov’t is financially sustainable just about everywhere, with the sole exception of: you eventually won’t be able to massively overpay for medical interventions of questionable utility for a tiny fraction of its population. So if Mr. Douthat is right that opposition to higher taxes is an irresistible force, then extending the last and least enjoyable years of America’s elderly will have to turn out not to be an immovable object after all.

Kevin January 2, 2013 at 4:56 am

I think you’re being too kind to Douthat. It’s completely obvious that the policy outcome Americans support today is the same level of benefits with no increase in tax levels. Douthat can suggest that this is unsustainable. What he can’t do is argue that Americans are choosing lower taxes over the existing scheme of benefits.

I’ll make two predictions. First, the American electorate won’t choose between these two options until the last possible moment. Ie., they’ll support politicians who tell them that they can have their cake and eat it, too, and it’ll be circumstance, not any “grand bargain”, which forces a decision.

Second, I predict the winning policy outcome will be high taxes/high benefits for the elderly. From the perspective of someone who is, say, 40 years old, limiting the government’s responsibility to fund heroic efforts to prolong the lives of an elderly minority is a case which makes itself. If you’re older, though, this really makes no sense. Unless you’re among the wealthy you can imagine a scenario where you might benefit from this guarantee.

The average age of a voter during the past presidential election was approx. 45 years old. That might go up as much as one year per four-year cycle because of changes in the overall population. If the political system can’t reach a consensus on how to reduce benefits now, when the costs and constraints imposed on individuals is largely theoretical (ie. would occur in the distant future), what chance will they have when the costs and constraints are immediate and potentially life-threatening?

Kevin January 2, 2013 at 5:01 am

Oops, just to clarify. The average age of the American voter in presidential years, I project, will go up as much as one year per four-year cycle for the next four decades, so in 2052 this might be as high as 57 years old. In off years this average might be higher. People aren’t factoring this into the politics. Schemes like the Ryan plan, imo, are dead in the water, because they can’t lock in future reductions of benefits, and to older voters the benefit being offered, literally, could mean the difference between life and death.

Chip January 2, 2013 at 1:58 am

If raising taxes can pay for expanding entitlements then clearly other high tax (and necessarily slow growth) countries elsewhere in the world have proved this can be done.

Any examples?

Guest January 2, 2013 at 8:22 am

and another conservative almost sees through the fog of his pre-conceptions that Obama might not be the Marxist Kenyan anti-colonialism Islamic plant Fox and their pay masters — or I guess based on the poor results in 2012 ‘mark’ is the more appropriate term for the wealthy republicans — believed him to be. . Obama is a moderate Republican and he negotiates and rules that way.

TMC January 2, 2013 at 11:57 am

That would make all of Congress, in comparison, pretty hard right Republicans then, right?

RPLong January 2, 2013 at 10:00 am

Can anyone explain to me why the American Left desires high tax rates?

For example, there is no love of high tax rates in those countries elsewhere in the world that have the social systems the American Left would most like to implement.

I understand the redistributionist concept of taxing the rich and providing for the poor, but America already does that, and America also does not have the lowest tax rates in the world. So, if anyone could provide some clarity for me on this, I would appreciate it.

Thanks.

msgkings January 2, 2013 at 11:53 am

I think anyone interested in closing budget gaps wants highER taxes than we had for the last 12 years, because it’s not realistic to close those gaps using only cuts in spending. The next couple of months will now be about spending cuts and entitlement reform, with the debt ceiling as the Reps’ leverage.

We’ll see but this moderate is hopeful we get something done there, to go with the increased revenue we just got.

msgkings January 2, 2013 at 12:06 pm

Defense cuts I hope are a big part of the mix too, they almost have to be. The last time the US had deficits this large (as a % of GDP) was after WWII. They cut spending dramatically (mostly on defense) and the economy boomed instead of collapsed. It was a different time of course, the boom was also due to the explosion of pent up demand, so I wouldn’t expect a similar boom this time, but it is illustrative that dramatic cuts in government spending don’t necessarily have to crater an economy.

We should remember the deficit is down to 7.3% of GDP from over 10% a few years ago, and that’s before the reforms we’re doing now. With continued growth and the recent revenue increase and some spending cuts I see no reason that can’t make its way to 4-5% of GDP which isn’t a bad equilibrium. 3% would be better.

Andrew' January 2, 2013 at 12:25 pm

Wars the main reason for the deficits. Those end…despite both parties, eventually. What’s left is the insolvent and illiquid entitlement programs.

msgkings January 2, 2013 at 12:38 pm

Agreed, and the entitlements are only a problem because of the demographic wave (lots mroe old people, living a lot longer) not some statist perfidy.

We’re dealing with it now. This shitty process is what it looks like in our democracy. The end result, and I don’t know the details, will be increased ages and decreased benefits, plain and simple.

Andrew' January 2, 2013 at 12:50 pm

only a problem because of the demographic wave

But, from what I hear, demographics is a thing.

(lots mroe old people, living a lot longer) not some statist perfidy.

Not for lack of trying. This shitty process is the statists realizing they are going to get what they said they wanted good and hard.

msgkings January 2, 2013 at 12:53 pm

Yes demographics is a thing, and modern democracies dealing with demographic changes as the pressures build is a thing too.

Brian Donohue January 2, 2013 at 4:28 pm

It’s not just demographics. Medicare was designed to blow up. I think statist perfidy is an excellent description of LBJs Medicare bamboozle. Taxes on Medicare just went up again, but I don’t believe it’s enough.

Also, no one gives a shit about the debt, but when interest starts eating 10%+ of government revenues in a few years…

msgkings January 2, 2013 at 5:25 pm

Could you elaborate on the ‘Medicare designed to blow up’ idea? Seriously asking, not sure what the reasoning would be to bamboozle something into place just for it to blow up later. I can see putting something in (like Medicare part D) that helps you and your party in the present and doesn’t hurt you at all or your party for many years after, but a policy intentionally designed to not work?

Unless you believe there’s no place in the modern world for government assistance to old people, you have to think some version of Medicare is necessary. The problem is ‘old people’ as a category has changed a lot since Bismarck got the modern nation state to start helping them out. There’s a lot more of them, and they live a LOT longer.

So we are now at the point (Europe and Japan are too of course) where the whole idea of government helping the old and infirm is getting really really costly. And thus the reform is beginning to happen. Think of how far along we are, as recently as 10 years ago any mention of reducing entitlement promises was intant political suicide. Now the debate is who will cut more. If something cannot go on forever it will eventually, somehow, stop.

RPLong January 2, 2013 at 2:19 pm

Suppose I could find a country with both a lower overall tax rate and a lower overall budget. If I could do so, would that convince you that we could, in fact, close our budget gaps with spending reductions?

msgkings January 2, 2013 at 2:43 pm

As I mentioned we need spending reductions here. It would require far too dramatic spending cuts if they didn’t also come with some more tax revenue. Obviously we don’t need to raise taxes if we as a nation decide to dramatically cut back on funding the military and paying for old folks’ medical care and pensions.

If the country you find is similar to the US in population and type (modern, large area, diverse people, etc) that would certainly be a data point worth considering.

Douglas6 January 2, 2013 at 10:40 am

Various Democratic surrogates – Ezra Klein & Matt Yglesias, to name two – have been arguing for some time that the US needs to raise taxes on the middle class substantially to pay for the European-level welfare benefits/transfer payments that Obama has enacted and wants to expand. They acknowledge that the upper classes in the US are relatively highly taxed in the US compared to Europe. At the same time, the middle classes are relatively lightly taxed compared to Europe primarily because the US does not have a VAT. The only way to pay for the current programs is thus to tax the middle class with a broad based tax like a VAT and that’s what Klein and Yglesias were suggesting sotto voce prior to the election, and louder now. I guess the only other way would be to borrow all the money and then inflate the hell out of the dollar, which, come to think of it, might just be the president’s plan.

Rich Berger January 2, 2013 at 11:04 am

Pretty good summation. Increase taxes for everyone, cut spending or inflate away the debt. Of course, you can deny the starkness of these choices as most of commenters here appear to do, but you can only keep reality at bay for so long before you can’t. Sad.

Floccina January 4, 2013 at 11:16 am

Maybe they are just reluctant to raise tax in hard economic times.

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