Dishonest Rhetoric to Sell Tax Cut

Great Debates
81

A rebate check may provide an immediate, short-term stimulus. This may have its uses, and be especially valuable if there is a liquidity crisis.

Anyway, the original slowdown in the economy was a classic business-cycle kind of slowdown. There was excess inventory due to a reduction in demand, which was caused by the loss of several trillion dollars in the stock market after the dot-com collapse. The result was that corporations scaled back on production, which further reduced consumption of the goods corporations use.

I imagine the theory at the time was something along the lines of, “Since this recession is not the result of a structural problem, but simply a ‘bulge’ in inventory and a sharp decrease in liquidity, let’s inject some liquidity into the economy and speed up the recovery”.

The difference between rebates and what the Bush administration is now proposing is that rebates are temporary injections meant to solve temporary problems. But changes to the dividend tax are structural, and are meant to make the economy more efficient.

Bush made a mistake, IMO, in calling this a ‘stimulus’ package. I don’t see much stimulus here. What he SHOULD have said was, “The recession is over, and the economy is struggling back. Now is the time to fix the tax code to solve some problems that were hindering growth, so the recovery is long-term and healthier.” That would have been a more accurate representation of his tax cuts.

The thing about the dividend tax is that it seeks to remove the artificial distortion on dividends. This causes corporations and investors to modify their behaviour to suit the tax rather than the real needs of the market. By bringing dividends into balance, corporations can structure themselves more rationally.

Specifically when you tax dividends you move investment away from the types of stocks where dividends make up a big chunk of the investor’s income, and you encourage corporations to hang on to their cash and use it to buy other companies or otherwise expand rather than pay the money out to investors. That causes speculation.

Not that there’s anything wrong with re-investment or speculation, when it’s done for its own sake. But just like anything else, if you subsidize reinvestment or speculation, you get more of it. If you punish distribution of income to individuals, you get less of it.

So that’s the purpose of the dividend cut. It’s not to reward the rich, or stimulate the economy in the short term. It’s to get rid of a distortion that lowers growth and exacerbates speculative bubbles and cycles of over-and-under corporate investment.

82

jshore:

This is just getting stupid. Are you not reading? Is there anybody home? I think I defined redistribute for you in my last post, twice.
What don’t you understand? Do I need to write a thesis for your benefit? Very well.

It’s not hopeless at all. Here it is for you in a neat package.

We agree that the government performs various roles for the common good. These programs include things like welfare, meidcaid, medicare, social security, but they also include things like lucrative defense contracts, construction, protected business niches, subsidies, and also things like police forces, a judicial system, and FDA, defense, park services, highways and all that stuff.

In order to do these things the government needs revenues. It gets these primarily through taxation. Call it paying your dues, a social contract, promoting the common good, usurious confiscation under duress, or whatever you like. What it amounts to is the government takes some of your stuff whether you want it to or not. This is accumulation, or confiscation. This is not distribution. Nobody is getting anything yet. Nothing is being redistributed. So far it is just being taken.

I’ll say this one more time, because it is important, and you keep seeming to miss it. You’ve said that I can’t prove that there’s nothing redistributive going on with taxation, but, I just did. No redistribution has occured so far. No matter what I do to the tax rates at this point there is nor redistribution. Why is there no redistribution? Because nobody has gotten anything yet. Though it has been taken it has yet to be given out.

Say it with me:
There is no redistribution at taxation
Very good. I knew you could.

Now, you keept complaining that I’m not defining my terms and that you don’t understand. So let’s be clear if your satisfied so far up to the point of taxation.

Take this home test.

  1. At the point of taxation there is:

    a.  Redistribution of wealth
b.   A pretty sunset
c.   Dogs watching TV
d.  No redistribution of wealth

  2. True or false. The payment of taxes is redistribution of wealth.

  3. True of false. The mandatory confiscation of property through taxation represents a redistribution of wealth.

Take that test before you continue.

Ok, on to the next part. We already have discussed the accumulation of monies by the government through taxatiom, which you may recall has no redistributive qualities.

Now we’ll talk about payouts. We’ll define a payout as the governments spending money, or giving it away. Another important term at this point is “consideration.” Consideration is a payment. It is not necesarily cash. It can be anything, as long as it has value, or is percieved to have value.

The government makes payouts, or offers consideration in order to achieve the goals and provide the goods and services for the commons that we’ve already discussed.

This is the point where redistributions occur. For example, let’s say the people of Arizona and of Virginia both pay 10 million dollars in taxes. The government then decides it needs a fleet of submarines. After a heated competition between Arizona and Virginia, Virginia wins the contract due to its proximity to water. Virginia receives a 25 million dollar subsidy to build a sub pen, and a 150 million dollar contract to build submarines, which it then does. Arizona gets nothing. Has wealth been redistributed?

  1. $25 million dollars has been given out to Virginia to build a sub plant. We have taken money from Arizona and given it to Virginia. That’s a redistribution. Virginia has recieved a net redistribution of 15 million dollars. 15 million. Are you clear why?
  2. the $150 million dollar contract however is not a redistribution in an of itself. It is a contract for services. The government is offering money for submarines, which people will have to buy materials for and build.
  3. That contract, may have value all by itself. We will say it does, because it offers jobs, a stong local economy, and money in the hands of citizens of Virginia. It is clearly a very valuable thing, and one worth having. Is it a redistribution? No. It’s not. Arizona never had a sub plant. It hasn’t been taken away from them. Neither did any other state. We can look at this value in two ways. If the government has simple bestowed this contract on Virginia, than this additional value that the contract represents has been ginven in what is called a “grant.” If it was some kind of political bargain or complicated payment to Virginia than this value is simply consideration.

The end result may be that the people of Arizona are poorer and the people of Virginia are richer, but other than the $15 million, there has been no redistribution of wealth.

Clearly there are all kinds of great favors and whatnot that the government can bestow without it being a redistribution of wealth.
Another job that the government performs is to make sure that temporary problems do not destroy one’s life. Let’s look at two of them.

Fred is a poor man, and he gets very ill and he needs surgery that costs $20,000. Fred only pays $100 in taxes, but Medicaid pays for the operation, taking the $20,000 from Bill Gates. Has wealth been redistributed? No. Fred did not recieve wealth, he was granted a valuable operation by the government who paid the doctors consideration for services (which contract may have value itself, you’ll recall.)

Here’s another example. Fred is weak from his operation and can no longer work at his job. He gets fired and can no longer support his family. Fred receives unemployment benefits. This we can consider as a form of insurance that Fred has paid, and that money is now owed to him, so there is no redistribution.

Eventually Fred’s benefits run out, and he goes on welfare. So, we go back to Bill Gates because he can spare another $20,000 and we give it to Fred to tide him over. While recovering he reads a computer book, writes a better operating system than Windows, becomes superrich and bankrupts Microsoft and Bill Gates who then becomes a bum in the streets.

Has wealth been redistributed? Yes. Fred has received $19,900 that he didn’t have (plus his own $100 back.) But that’s it. None of the other things that followed can be called a redistribution.

Nowhere in here has a moral value been made. Nobody has been deemed worthier than anybody else. Nobody has set out to redistribute wealth, especially the government.

Money was given to Fred, because the belief is held that is in the common good that we do not let people starve or die, or let their families starve or die because of temporary problems.

Nobody said “Bill has too much, and Fred has too little, give Fred some of Bill’s stuff.”

Nobody said “Virginia is better than Arizona. Take some stuff from Arizona and give it to Virginia.”

The effects of redistribution that have occured are incidental to the purpose that is being served.

It is important that it remains that way.

It should be obvious why it is important, but you don’t seem to understand, so I’ll explain it for you.
We live in a free country.

As long as we follow the rule of law we have the right to live as we will without undue interference.

You may practice what religion you wish, and the government has no say in it.
You may walk around in your underwear in your own house and the government has no say in it.

Outside of what is necessary to protect the rule of law and the common welfare the government makes no moral judgement on you. Beyond that, it has no right to impose its will. By following the rule of law and contributing to the common welfare, the government protects you, by not allowing others to violate your civil rights.

We are all supposed to be equal.

Whether you have a billion dollars or a dollar fifty in your pocket you are supposed to be equal. If the man with a billion dollars assaults you the government is supposed to prosecute him, and when you go before a judge you are supposed to be equal in the eyes of the law.

Your property is your property and nobody has the right to violate it. Owning it may incur taxes and costs, but it is yours. No value judgement is made on your ownership of property by the government, nor is any value judgement allowed to be enforced against you by others. The government protects you.

If the government decides that one guy being rich is bad while this other guy is poor and takes money from the rich guy just to give it to the poor guy, the government is making a value judgement.

That rich man may be the scumbag and the poor guy may be the Saint, and the poor guy may have worked hard his whole life and never received anything, and the rich guy may have just lucked into his money, but all that is beside the point. If both people have followed the rule of law, they are equal, and no value judgement has been made against them.

There are two reasons why this value judgement should not be made:

  1. Freedom (already discussed)
  2. Control

This is the scary part. Supposedly this country is governed by the consent of the governed. Government works for us, not the other way around. If the government is making value judgements about us, and paying out consideration based on those judgements of who and what we are, then the government is controlling our lives. It is telling us what to do, and more importantly what to be.

Once the government makes these value judgements on us we lose our freedom. We no longer live in a free system where we can do what we wish, we are now in the position where we must curry the favor of the government and be and do what the government wants us to be and do in order to obtain success.

Ultimately those decisions are made by a bureacracy controlled by a few people.

I don’t want them making value judgements.

I don’t want them to say who is deserving and who is not, who is entitled and who is not.

I don’t want that because history shows that as soon as that happens we are lost. No bureacracy can manage your life as well as you can.

The system is not perfect and there are huge inequities, but this value judgemen blindness is key to freedom. Within the rule of law we are equal in theory.

In practice it does not work that way all the time, but that blindness to value judgement that we impose upon the government, that we impose against the people in regards to each other is truly the cornerstone of freedom. We are not free without it.

As soon as you start pointing at rich people and poor people and complaining about the discrepancy and saying it is bad, and as soon as the government starts listening and starts trying to change it, we are no longer free. We are well on our way down a very slippery slople.

You may say that these inequalities are bad, and they may be, but that is your value judgement. Neither you, the government nor anybody else has the right to impose that judgement.

You do not have that right because we are free.

Now there is a whole bunch of other shit and implications that we can talk about, Monopolies, and controlling wealth, or concentration of power weilded in such a way as to violate other people or control the commons, and all that should be addressed by the government, and it is.

Within the rule of law you are free from the value judgements of either the government or your fellow citizens.
I hope that helps you.

83

jshore:

None of your examples represent distribution, much less redistribution. They represent changes in accumulation, confiscation, taxation, or whatever.

I also note that you claim Eureka! But you have not read my quote very carefully, and have provided me something which I already knew concerning poverty, rather than what I have asked for.

You are looking at people in poverty, and those who are failing economically to meet their obligations. That is something different than a likelihood to spend based on tax-bracket, which is what I said, and what you originally suggested.

People in the lower tax brackets are not necessarily in poverty. It doesn’t follow. They are simply earning less and paying less in taxes.

Those in poverty basically aren’t paying taxes, so there isn’t anything in a macro sense to rebate them.

84

Now thats decidedly odd. I mean, you state your case as one irrefutably informed, and woe betide the ignoramus who disagrees. And, odder still, I thought there in fact was some disagreement as to whether or not the proposed tax cut would primarily benefit the wealthy. But that is put to rest now.

As for myself, I had already pretty much accepted that the proposal would benefit the wealthy. What stunned me was the gross, grasping, and utterly venal extent of that benefit.

266 Billion dollars! Sure, I capitalize the “b”. When you talk Billions, it deserves to be capitalized.

We have people where I live, people who work full time, entering lotteries at homeless shelters hoping to win the chance to sleep under a roof. And you’re telling me that it makes perfect sense to give, I mean non-confiscate, 266 Billion dollars to people who are already rich. People who already have homes, shoes, food for their children.

Who taught you Sunday School? Ayn Rand?

Well, thats enough out of me. The Case is being very well presented by Jshore the Dreaded Dr and he who inspires Xenophobia. Props and kudos, lads. Non Scylla Carborundum.

85

elucidator:

Invoking homeless people to defend unfair tax practices is low even for you. Pray explain how the two are connected and this execrable condition will be definitively relieved by maintaining the dividend taxation laws as they are, and I will proclaim it a just and wise tax. Failing that I’ll consider it your usual.

86

Without the goverment, you would have nothing to tax in the first place. Your ‘stuff’ is yours ONLY because the goverment provides the necessary infrastructure and security, and you absolutely owe something back for that consideration.

Taxation isn’t confiscation, son. It’s payment for services rendered.

Your mistake is in thinking that your ownership of stuff is uncluttered by that obligaion, or that the amount of stuff you own isn’t at least partly a consequence of goverment policies that favor your acquisition of more (or less) stuff than you actually earn.

87

Gee, Scylla, you can be exasperating! You mean to tell me that you send me on a wild goose chase to track down the correlation between spending and income without bothering to tell me that the part of this link you question is not that the wealthy have a lower marginal propensity to save than the poor but rather that income equates to wealth.

Well, sure, you have a point there. There are indeed wealthy people with low incomes. But, let’s face it, the correlation between wealth and income, while not perfect, is probably good enough that there is still some reasonable correlation between income and marginal propensity to spend. I am not going to waste time tracking that down, as then you’ll just pick on some other part!

The working poor pay plenty in payroll taxes which are in fact taxes even if you want to define them away as not being taxes because you want to think of it as a mandatory pension plan or you want to privatize it anyway, or whatever.

As for your point about redistribution, well, I think your treatise there did indeed help to explain your position. I find your definitions a bit bizarre and I agree with Tejota’s critique.

One problem I have with your definition, as I understand it, is that it depends critically on intent. So, you call things redistribution if you believe the intent is to take money from someone and give it to someone else.

But, one of my points is that conservatives are already very good at never giving away that as their intent for the obvious reason that transferring money from the poor and middle class to a small class of rich folk just isn’t easy to sell in a one-person-one-vote democracy. It’s much better to come up with neat explanations about how the dividend tax cut corrects distortions, prevents double taxation, and will create all sorts of nifty and cool benefits. (Note: I am not saying that the conservatives don’t believe these arguments or that in some cases they don’t even have a grain of validity, but I think they are often sort of rationalizations and beliefs based on one’s own sense of self-worth. [“Rich people like me are what actually produce things and employ people and …”])

Also, I find it hard to see how your definition provides much help in making policy decisions. I.e., does it help us decide whether we should have a dividend tax cut (which, completely due to coincidence, goes mainly to the wealthy) or a payroll tax cut (which, completely due to coincidence, is more evenly distributed or perhaps even benefits those with lower incomes more).

Sam Stone: You make an extremely eloquent case for why the dividend tax cut is good policy for correcting distortions and so forth (although I have also read some pretty good arguments the other way which is why I remain agnostic on that aspect). However, you fail to address why, if that is the motivation, this couldn’t just be coupled with other tax adjustments so it didn’t just work out to be a bonanza for the wealthy. And, you have also never commented on why this is brought to us by the same people who argued that we wanted a capital gains cut in order to encourage investment. (And, how long a lag time we will have before these same folks are back again telling us they have to have the capital gains tax eliminated altogether in order to correct the distortion that will then exist because of the differential between that tax and the lack of a tax on dividends.)

88

“unfair tax practices” Are we now to weep for the uptrodden?

How about 266 Billion in guaranteed housing loans? Employing carpenters, electricians, bricklayers, and yes, even a crumb or two for the forlorn waifs of the banking industry?

Or maybe 266 Billion in day care subsidies, so working people arent paying a third to a half what they make working so they can have the dignity of work. Ah, but theres the rub, yes? Cause you and I both know there isnt enough work for all. Never has been.

We are led by a mealy-mouthed hypocrite who piously intones bromides about leaving no child behind, when any idiot could tell him that a school book isn’t worth much to a child without breakfast, without shoes, without a home to do homework in.

And this same pampered cipher, who has never missed a meal in his life, never raised a blister on his hands, never had to dread the heartless joy of Xmas… Stands there with a straight face and tells us we should give 266 Billion dollars to people who don’t need the money.

Jesus wept.

89

I see a conflict between your two ideals here. On the one hand, you claim that we are all equal.

On the other, you want to do nothing to alter or prevent vast inequities of wealth.

However, I more subscribe to the view that vast inequities of wealth and equality do not coexist very well for a variety of reasons. For one, money buys access—For example, it buys access to better education. Worse yet, it buys access to better education for someone who had no choice in the situation. (I.e., one can argue that the rich are rich because everyone had equal opportunity and they have worked harder and got further but you can’t possibly argue that the 5-year old son or daughter of a rich person is rich person is rich because of anything having to do with their own choices and industry.)

Money also buys access in a democracy. It allows people to decide which voices get heard, which social and political research gets funded, etc.

So, in the end, there is a tension. Both extremes restrict freedom: Forcing everyone to have the same wealth or income certainly restricts freedom (and creates inefficiency due to lack of incentives, lack of balance between supply and demand, etc.) but allowing too much inequality will also restrict freedom…at least some people’s freedom. There is a happy medium where freedom is effectively maximized. Where that medium actually is is what we are really arguing about.

90

“The law, in its majestic equality, forbids the rich as well as the poor to sleep under bridges, to beg in the streets, and to steal bread.”

Anatole France

91

I also don’t buy this in the generality you seem to put it as some sort of general law. Clearly, government is going to have to make value judgements. Every decision we make as a society involves different people’s values.

I understand the desire to proscribe what value judgements will be made by society at large through the government and what will be reserved to the individual. But, clearly lines…and fuzzy ones at that…have to be drawn. It is not all-or-nothing, black-or-white because a government without value judgements is no government at all.

As one small example, how are we going to decide what to do with our economy without any value judgements? Different monetary policies have different tradeoffs involving different people. It is impossible to do this without injecting values into it.

92

No, I didn’t. That wasn’t the question I really wanted to respond to. I will stipulate that there are lots of ways to jigger the tax code to exactly balance out the regressive effects of the dividend tax cut. I simply don’t agree with that policy.

I don’t believe a more progressive tax system is a good thing. I don’t think it’s healthy to have a large percentage of the population paying no taxes - it becomes more likely that people will vote themselves bread and circuses. It is of no interest to me that the rich have been getting richer, as long as the poor are also getting richer. In fact, I expect the people who have shown themselves to be faster in the economic race to continue making gains over the others who are not performing as well economically. As long as the people at the bottom have the same opportunity to succeed, and the data continues to show that they are in fact quite mobile, I don’t see a problem.

People become wealthier as they age and move up quintiles in income, and are replaced at the bottom by new young families. Even absent all social problems, you would still have rich and poor for that reason. And being poor when young is a good thing. It’s a strong motivator to learn skills that society values and which will make you a better person.

I would rather see people who need help given direct aid than trying to equalize all of society through highly progressive taxation.

93

Yessiree, Bob! It builds character! Of course, if you’re young and poor and somebody calls you “Mommy”…well, that can get a bit tiresome. Like when your making $7 an hour and paying $150 a week for daycare, I can see how that would be tedious. But what a motivator! What a lesson is what society values!

But lets go all the way with this! Howzabout a 100% estate tax, so that the children of the rich don’t miss out on this wonderful lesson in living! Why, just think what a better person GeeDubya would be if he had such an opportunity!

94

Like I said if you’d read - I prefer a system of direct aid to people who really need it, rather than lumping ‘the poor’ together and using progressive taxes to flatten the entire income structure out.

95

Well, at the moment what we are talking about realistically is not whether we should have a more progressive tax system but whether we should have a less progressive tax system.

And, in fact, that WSJ editorial page argument concerning remedying the “problem” of having a large proportion of the population paying little of the (federal income) taxes is really a recipe for making the tax system continually less progressive over time if inequality continues to rise as it has been. After all, as I have pointed out, the reason why the imbalance in income tax shares has gotten more unbalanced in the last 20 years has nothing to do with the income tax system getting more progressive and everything to do with the fact that inequality has increased! (The only exception to this is when you get toward the bottom, where there has been a little increase in progressivity in income taxes due to expansion of the earned income tax credit although this probably hasn’t done very much on the larger scale of all taxes paid by this group.)

So, as inequality grows more and more, do we have to continue to make our income tax system more regressive until we get to the point where our tax system as a whole is in fact regressive (which, as I understand it, when you include all federal, state, and local taxes is not that far away).

Well, as a couple of the links above pointed out, the real income of the poor has basically been stagnant over the last 20 years.

The data is actually rather debatable. This is certainly something that needs more study. But, abuse of studies by the WSJ editorial page aside (they recently wrote a horrendously misleading article about a study by the Sphere Institute), the data on this point is mixed and still rather primitive. It certainly shows some mobility but it is not clear how much.

Yes, yes, noone is arguing that having a distribution of incomes is a bad thing. The question is rather whether it can become…and has become…too extreme (some argue, even from an efficiency point of view).

Well, okay, but haven’t many other conservatives been trying to dismantle this sort of direct aid and desiring things like the earned income tax credit instead that have a stronger link to providing incentives for working? Are you fighting them?

96

Sam

Two more questions:

(1) What about my other point about how the distortion you talked about was in part caused by cuts in capital gains which were (and further cuts still are) endorsed by the same folks, as far as I can tell, who want to correct this dividends distortion thingy?

(2) So, in all honesty, for you personally to what extent do you endorse the dividend tax cut because it corrects a distortion and to what extent do you endorse it because it makes the tax code less progressive?

97

Not bad so far. What’s your plan, and how is it to be accomplished without this “lumping”?

But I hasten to point out: the proposal in question is not a “progressive tax” seeking to “flatten the entire income structure” but a proposal to refrain from “confiscating” the money of people who already have more than enough.

266 Billion dollars. Did I mention that?

Look. Sam, all sarcasm aside…and a mighty labor it is, too…if you’ve got a plan, lets hear it. If you can show me how this will be of aid to the desperately needy, I’ll salute smartly and urge all my friends to do likewise. Neither of them have much money, but still…

98

elucidator:

Do you have a cite for these people in Minnesota who work full time and need to participate in lotteries in order to sleep in homeless shelters?

I would like to make a small donation.
Tejota:

I don’t think that, and I didn’t say that.
jshore:

Concerning your cites. I’m sorry. You said it was a basic rule of economics that spending is predicated on income. This turns out not to be true, yes?

Did you just make that tidbit up?

Probably. I doubt it’s a straight one. As your cites show, things like confidence tend to mean more.

Anyway, I think we’ve proven that you were dissembling either purposefully or not when you stated that it was a basic law of economics, like Newton’s 2nd law, so ignorance fighting has been served.

They are absolutely different than regular taxes. Your contributions benefit and insure you, and it costs less because you are in a pool. The fact that it is mandatory that one participate makes it feel like a tax, but it’s really works more like an insurance policy than a tax. It does not benefit the commons outside of the risk pool, so it is different than an income tax.
We can argue that these are onerous or unfair to the working poor, but they are something that needs to be kept seperate from income taxes and other taxes from which one is deriving no direct benefit.

No. Read it again. I can’t explain it any simpler than I already did. Redistribution occurs when it occurs regardless of intent.

Let’s see then you post a bunch of mildly bigoted bullshit where you attribute thoughts to conservatives in general. That’s worthless.

Sure it does. It tells us to look at each seperately. Medicare, unemployment and Social Security are programs that are funded directly by those payroll taxes, and in which people accrue ownership and benefits. An adjustment should be made based on the funding of those programs relative to their payouts. That’s how they were set up in the first place to function, and they were supposed to function to solve problems of poverty. Like so many wide-eyed and compassionate liberal programs they serve in part to ecacerbate the problems not solve them.

Yes. Some people are also smarter than other people, or better looking. Free and equal doesn’t mean the government should mandate lobotomies and plastic surgery until we are all the same.

Then you go on about money buying access and opportunity, and here, I agree with you, that those inequlalities, particularly of education should and need to be addressed.

99

Tha’t’s a good point. OTOH due to inflation and “bracket creep,” the income tax becomes a bit more progressive, as well as higher, every year. Reductions like this from time to time serve to keep it at the same level.

100

I dunno whether that’s a typo, december, but bracket creep makes the income tax less progressive over time.