Warping Fairness: The Socioeconomic Doom of Liberal Tax Policy (Ruth Marcus)

Rick Perry’s warped tax ‘injustice’

By Ruth Marcus, Monday, August 15, 1:58 PM

“We’re dismayed at the injustice that nearly half of all Americans don’t even pay any income tax.”

— Texas Gov. Rick Perry, presidential candidacy announcement speech, Aug. 13

Really? Of all the ills in the world, of all the problems with the economy, all the difficulties with the tax code, this is the one that Perry chooses to lament?

Yes, and rightly so, because the moment that 51% of the country uses the government to siphon the wealth of 49% of the population, Democracy yields to the tyranny of the majority. The income tax is particularly insidious because it disincentivizes economic production, making the disparity all the more glaring. That “shared burden” is a euphemism for more contributions from the upper class is a perverse joke.

Perry’s statement conjures visions of America as Slacker Nation, where the overburdened wagon-pullers drag an increasingly heavy burden of freeloaders.

What Perry’s words evoke is cultural decay as a result of intrusive government. Never in our nation’s history has the idea of the American Dream been in so much jeopardy. A combination of entitlements and skyrocketing regulation have seriously threatened the concept of a self-made man, an all-American idea and the secret to 200+ years of success.

His number is correct but, like other conservatives who have seized on the statistic, Perry draws from it a dangerously misleading lesson.

No, he doesn’t. Here’s where you start talking about irrelevant tax statistics that are meant to drown the casual reader in bullshit.

The nonpartisan Tax Policy Center estimates that 46.4 percent of households will pay no federal income tax in 2011.

Which is squarely in “holy shit, really?” territory.

This is, for the most part, not because people have chosen to loaf.

Nonsense. Not paying taxes is a function of low earnings, which are a function of a lack of marketable skills. A lack of marketable skills is a function of loafing. In a country with a dearth of skilled (not educated, mind you, skilled) laborers, significant parts of unemployment are the function of a non-adaptive (read: entrenched, entitled, and lazy) work force.

It’s because they are working but simply don’t earn enough to owe income taxes,

Well no shit. The fact that they’re working—perhaps very hard—at something the labor market doesn’t value highly is equivalent to loafing. Yet by coddling low earners with a sharply progressive tax system, the government is implicitly subsidizing inefficient economic activity. Nevermind the ineptitude that goes into a prolonged $20,000 salary. At least they’re trying. And by trying, of course, I mean showing up long enough to get employment benefits.

based on the progressive structure of the tax code and provisions designed to help the working poor and lower-income seniors.

Helping the poor through progressive policy is another euphemistically perverse joke.

As the Tax Policy Center’s Roberton Williams has explained, “a couple with two children earning less than $26,400

$26,400 amounts to a wage of roughly $13.20 per hour for one person per year or $6.60 per hour for two people working full time. Since $6.60/hr is 10% below the federal minimum wage (and several states are magnitudes higher) one parent must, by mathematical necessity, be loafing.

will pay no federal income tax this year because their $11,600 standard deduction and four exemptions of $3,700 each reduce their taxable income to zero. The basic structure of the income tax simply exempts subsistence levels of income from tax.”

No one claimed it was illegal, only that the government policy that rewards it is immoral and counterproductive. Which it is.

Does Perry truly see this as an “injustice”?

Yes, and so do I. Of course, neither of us is advocating a 50% rate for the lowest tax bracket. I’m not even arguing a flat system. Just enough so that these people have some skin in the game.

Does he believe his “dismay” should be alleviated by raising the tax burden on these households?

There is no tax burden. Raising the tax burden from zero to slightly above zero isn’t punitive. It’s just common sense.

Consider: Of those households that do not owe income taxes, about a third earn $10,000 a year

Which means that no one in that household works full time.

and a slightly smaller share earn between $10,000 and $20,000.

Which means that there’s probably no one in that household that works full time.

More than three-fourths earn $30,000 or less.

Literally not a word of that sentence was worth considering. It has absolutely nothing to do with the argument that Perry was making.

In addition, the notion that these households pay no taxes is flat-out wrong.

Which is why it’s specifically not what Perry said, Little Miss Reading Comprehension.

They pay — leaving aside state and local sales, income and property taxes —

Let’s not leave them aside. Sales taxes are slightly regressive, but only because of income elasticity. In fact, it reveals more about what’s wrong with the “regressive/progressive” scale of taxation than anything else.

State and local sales taxes, which are by and large scaled-down versions of the federal income tax (unless you’re in Texas—Rick Perry shout-out!) are similarly progressive. And what’s more, the poor very rarely own houses or property, making property taxes completely irrelevant to this conversation, and also progressive.

So she leaves them out because all three of these tax groups track precisely with Perry’s argument that the tax code is oppressive on the wealthy and coddles the lower and lower-middle class.

federal gasoline

Which Democrats wanted to increase in a colossally misguided attempt to stick it to Big Oil. Matt Miller was leading the charge into that brick wall of stupidity.

and other excise taxes

Which Republicans also mostly oppose, as evidenced by the drum-beat of protectionist rhetoric coming from the left as the right has stopped championing globalization.

and, most significantly, payroll taxes on every dollar they earn.

Of course, this is for things like unemployment insurance and Medicare—systems that unabashedly favor the poor. (Social Security is somewhat of an aberration due to the lower life expectancy of the lower class).

These taxes are regressive.

Technically, yes, these taxes are regressive due to income elasticity, but the rich still generally pay vastly more than the poor in sales-related taxes. What’s more, there are good arguments to be made for regressive tax policy at the upper end of the spectrum.

Everyone pays the same share, regardless of income, so they hit the poor hardest,

Did anyone else’s head just explode? Because everyone pays the same rate, the poor get hurt. Now I just want to punch a hobo.

and they counterbalance the progressivity of the income tax code.

They might not be equivalent to the progressivity to the income tax, but they certainly don’t counterbalance it. Let’s not forget that the income tax is the primary vehicle for taxation in this country, and by a yawning margin.

Indeed, factoring in payroll taxes alone, the Slacker Nation picture looks very different.

It really doesn’t. But even so, it completely misses the point of Perry’s assertion, which is that 51% of the poor taking from 49% of the rich undermines our democratic institutions.

Two-thirds of the households that pay no federal income tax still ante up for payroll taxes. Fewer than one in five — 18 percent of all households — pay neither income nor payroll taxes.

Categorize that as another “holy shit, really?” statistic. Yes, it’s that high.

Nearly all of these are elderly (10 percent) or have incomes below $20,000 (7 percent.) Assuming that Perry isn’t worked up about Slacker Grandmas, the relevant “slacker share” — people who are supposedly comfortably ensconced on that wagon the rest of us are pulling — is in single digits rather than “nearly half.”

Oh, because being old or poor means you don’t really count in this scenario. Also, let’s not count the people who only pay nominal fees for systems that are designed to disproportionately benefit the poor. Anyone else you want to exclude? Transients? Criminals? Do-gooder Artists?

Those are an awful lot of assumptions, and, frankly, they’re all irrelevant, because they amount to the same thing. Through tax policy, we have incentivized all of these carefully parsed constituencies to failure. Seventy years of progressive policies advocating higher taxes on the rich and increased  government spending have resulted in that have lit the fuse on a ticking time bomb of economic malaise.

And, of course, they pay other taxes. An analysis by the Congressional Budget Office, taking into account all federal taxes, found that in 2007 even the poorest one-fifth of households, with average income (including government benefits) of $18,400, paid 4 percent of their income in federal taxes. By contrast, the middle fifth (average income $64,500) paid 14 percent of income and the top fifth (average income $264,700) 25 percent.

Whoa whoa whoa! I thought you said that the progressivism of the income tax was counterbalanced by the regressivism of sales, excise, and payroll taxes. Can I chalk that one up as a bald-faced lie?

In short, the wealthy pay a greater share of their income in taxes — but the poor don’t, as Perry implies, pay nothing.

Again, that wasn’t the implication. Indeed, he made a particular point of specifically saying “income taxes.” Go back and read the quote. You decided to start the article with it! YOU chose the quote. You can’t make up a subtext and argue against your own made-up subtext. Well, at least not if you frown on argumentative masturbation.

About those rich people: Perry seems to believe it is wrong to ask more of them.

It is.

 “ ‘Spreading the wealth’ punishes success while setting America on course for greater dependency on government,” he said.

It does.

Perry needn’t worry. In the past several decades the wealth hasn’t been spread so much as concentrated — at the top.

Christ, she couldn’t miss the point more if she were blindfolded. The argument Perry makes is that tax policy undermines the free market and enforces inefficiency. A large economic disparity is the natural and inescapable result of liberal economic policies that promote corporatism instead of capitalism.  Entitlement spending keeps the poor poor and government interventionism keeps aggregates massive sums of money in the pockets of the politically connected.

The share of total income going to the top 1 percent of income earners more than doubled from 9 percent in 1970 to 23.5 percent in 2007. (The Great Recession has since narrowed the gap.)

Again, completely predictable product of liberal policies.

And while, as noted above, the rich pay a greater proportion of their income in taxes,

You mean to say, “the rich pay a ridiculous amount more money than the poor in taxes.”

the share of total taxes paid by the richest Americans is commensurate with their share of national wealth.Examining the total tax burden — state, federal and local — Citizens for Tax Justice

Which is a progressive group, meaning that their numbers are pretty much trash because liberals don’t really believe in math.

calculated that the top 1 percent of households (average income, $1.3 million) earned 20.3 percent of income and paid 21.5 percent of taxes in 2010.

Which is, of course, an idiotic metric, as the measure of fairness is how much you put in versus how much you get out. Even if you want to judge income as “getting something out” of the investment in government—which no sane person should—it completely ignores anything about direct cash disbursements through various social spending programs, or even about investment benefits from things like military expenditure.

Indeed, the term progressive is designed to indicate that it means a transfer of wealth from rich to poor. It’s not a code word, or reading into the subtext. It’s overt. Arguing that the government doesn’t favor the poor over the rich with tax policy is just a flat lie. Indeed, the entire verbiage of the tax debate hinges on language that indicates that tax policy favors the poor.

The tax code is studded with a costly bevy of deductions and preferences — mortgage interest, employer-sponsored health insurance, retirement savings — that benefit wealthier taxpayers over those with modest incomes.

Of course it is. It’s not because they’re good for the economy. It’s because politicans use them to curry favor with very specific constituencies. Liberal politicians pick the constituency to coddle, and Republicans go along because any decrease in taxes is at least a step towards sanity.

If Perry wants to go after injustice in the tax code, he’ll find ample targets. Failing to tax poor people enough isn’t among them.

You still haven’t addressed the point of Perry’s argument about injustice, which is that it is immoral to have citizens that can vote but who don’t have skin in the game. And no, an effective tax rate (with payroll taxes) of 4% is not having skin in the game.

(Of course this article did have the added bonus of providing the liberal argument that the tax code is essentially fair, which means that raising taxes only on the rich would be inherently unfair because it unbalances Ruth’s carefully constructed see-saw.)

But even Perry misses the more fundamental truth. Our tax code is the subject of these ridiculous inquests because taxing income is downright stupid. Taxation is equivalent to disincentivization. As a result, we are disincentivizing income. If that sounds crazy to you, congratulations, you’re less crazy than Congress (which is kind of like being the skinniest guy in a Twinkie-eating contest.) In this age of high debts, what should we be taxing? Consumption. Get rid of the income tax, implement a national sales tax at ~20% (give or take a few points) on final goods, exempt necessities like food and rent, and call it a day. No more IRS. No more tax accountants. No more April 15. Incomes would shoot up by 20-25% (so would prices of final goods) and we would encourage more savings, thereby reducing the impact of recessions on personal economies. I’m telling you, consumption tax is where it’s at.

I have solved the world’s taxation problems and ridiculed Ruth Marcus in the process. It’s been a good day.