…because I’m an economist and a mom–that’s why!

Sorry, We Can’t Avoid the Tough Choices

April 27th, 2009 . by economistmom

Sorry, Gail Johnson (featured on the front page of today’s Washington Post).  You are indeed “wealthy” (or at least “well off”), and you will indeed eventually be paying higher than George W. Bush-era taxes.  But so will a lot of other folks–even those whose incomes are below $250,000/year, I predict–so you’ll have lots of company and not be so “stigmatized” by your “rich-person-who-deserves-to-pay-higher-taxes” label.

The basic math can’t be refuted (still):  if we want to keep certain commitments (such as public provision of some health and retirement security through our entitlement programs), and now even add new ones (that are part of President Obama’s plan to “transform” our economy and not just stimulate it), we’ve got to face up to the need to raise federal revenues beyond where they’ve been historically (a bit over 18% of GDP over the past 40 years).

Bruce Bartlett, in his continuing commentary on the anti-tax/tea-party “fantasy” seems amused by the latest (desperate) argument made by tea-party goers:

Finally, in desperation, my critics said that it is not actually the level of taxation today that they are protesting. It’s the implicit tax resulting from large federal deficits that really concerns them.

I might have been willing to buy this argument except for the fact that these same people justified a huge tax cut in 2001 on the grounds that large budget surpluses, which had arisen toward the end of Bill Clinton’s administration, were proof of over-taxation since the government was taking in more revenue than it needed to pay its bills.

Furthermore, the conservative line for the last eight years was that budget deficits don’t matter…It’s at least a bit disingenuous for conservatives to suddenly change their view on deficits simply because their team is no longer in power.

In my opinion, these tea parties had little, if anything, to do with current or projected tax levels. They were just partisan pep rallies designed to make out-of-power conservatives and Republicans feel better…

But I will grant that some of those attending tea parties are now genuinely concerned about our fiscal future even though they weren’t during the George W. Bush Administration. (Where, I wonder, were the protestors when Bush and a Republican Congress massively expanded Medicare in 2003?) But it’s not enough just to complain; specific proposals need to be developed that go beyond cutting foreign aid and earmarks — just about the only spending that conservatives ever talk about cutting.

In particular, anti-tax activists need to explain how we are going to cut Medicare by tens of trillions of dollars when its beneficiaries already represent the largest voting bloc in America and its ranks will grow sharply as the baby boom generation retires. Because of rising Medicare costs, we would be facing massive budget deficits in the near future even if Barack Obama had not been elected, Republicans still controlled Congress, and there had been no economic crisis…

[P]rotestors need to do a better job of figuring out what they are protesting and devise a real plan for dealing with our nation’s fiscal problem. Otherwise, their efforts will amount to nothing more than hot air.

And even though Gail Johnson doesn’t want to pay higher taxes (and seems to suggest it’s unfair), Marc Friedman–featured in the same article–has a different perspective:

Not all business owners are complaining. Marc Friedman, who earns about $350,000 a year operating Ace Hardware stores in the District and Baltimore, said he wouldn’t mind the extra $35,000 to $50,000 he stands to lose to the IRS.

“The small-business community feels there’s a disproportionate amount of tax placed on us, and it’s true,” Friedman said.

But government services “can’t be paid for equally by everyone,” he said. “It’s a big burden, but we’re fortunate to be successful.”

One Response to “Sorry, We Can’t Avoid the Tough Choices”

  1. comment number 1 by: Anandakos

    I have a question for Mr. Friedman. Why does he think he is a part of the “small-business” community. He is referenced as operating “Ace Hardware storeS in the District (of Columbia) and Baltimore”.

    Ace Hardware is hardly a “small business”. It is a large corporation with distributed capital — i.e. a franchisor. It’s franchisees have all the support that any large retail operation provides: standard marketing materials, an “in-house” line of products to be sold at a discount, centralized accounting and payroll services, and so on. Franchises are NOT “small businesses”.

    I certainly respect and honor him for his willingness to recognize the that his good fortune is not entirely the result of his own efforts and willingness to shoulder a disproportionate burden of social services. Obviously I don’t know his religion or philosophy, but whether it be Christian, Jewish, Muslim or another, he has taken the core teaching of generosity in plenty shared by all of them to heart.

    And to Ms. Johnson, I ask “WHY would increasing your personal taxes force you ‘to consider scaling back operations’?” The income from your educational S-Corp that you bring to your 1040 is NET income after all legitimate business expenses. Are you so narcissistic to think that because YOU PERSONALLY have to pay higher taxes on that net income you should limit the activities of an organization that obviously provides a valuable and socially progressive service?”

    If this business truly has nearly 700 HUNDRED employees (nine campuses times 75 employees at each location) it pretty much runs itself. Sure, you make the critical decisions and probably talk daily to each of the on-site managers at the various facilities. I expect you’re never really “off duty” if some crisis arises at one of them. So yes, you deserve your half a million dollars’ annual income.

    But it’s a load of bull-puckey that you wouldn’t expand the business if you got the chance just because you have to pay even the 54% marginal rate generated by combining the Bush sunset and removing the cap from Social Security. You’d STILL get 46% of the increased profit.

    And I’d bet that the real reason you started the business was because you saw an unmet need and wanted to fill it, a very laudable desire. And maybe you also wanted to be the CEO, perhaps a little less so, but still laudable.

    Finally, I have a hard time believing that you are listening to an accountant who urges you NOT to move to a C-corporation for such a large entity. You would have much greater access to capital. I expect you’ve noticed that the banks’ doors squeak when they open these days.