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Being Civilized About Taxes

June 13th, 2011 . by economistmom

civilized-on-irs-building

Here’s my inaugural column for Tax Notes, as reprinted on the Concord Coalition’s website today.  Note that the title of the regular column is “Taxes for a Civilized Society,” but the specific title of the inaugural column is (the very slightly different) “Being Civilized About Taxes.”  At any rate, you can find the whole text of the column (originally published on 6/6/11 in Tax Notes) here (on Concord’s site) without a Tax Notes subscription, and here (on the Tax Notes site) with one.  Next week’s column, scheduled to come out in Tax Notes on 6/20, is all about how reducing tax expenditures is like the “tastes great and less filling” approach to cutting the deficit.  (Learn more about Tax Notes here.)

18 Responses to “Being Civilized About Taxes”

  1. comment number 1 by: AMTbuff

    “Taxes are what we pay for a civilized society”. Does that mean that the more taxes we pay, the more civilized society gets? Because I’ve seen the opposite trend.

    This implication seems analogous to the specious assertion that tax rate cuts always increase revenue. Righties presume that we are to the right of the Laffer peak, while lefties presume that we are to the left of the Oliver Wendell Holmes peak. I don’t buy either assertion.

    I’m all for revenue-gaining tax reform as soon as government irrevocably breaks all its unaffordable promises to the non-poor. Until then, we would be throwing good money after bad. Worse, we would be spending money that we will need later when we finally admit that we need to achieve permanent balance.

  2. comment number 2 by: Underwriterguy

    EconMom, thank you for a great beginning to what can be a very civilized discussion if we can stow our passions for a while. Tax Notes should expand the audience for your thoughts and may even gain this blog some new members. Keep up the good work.

  3. comment number 3 by: Brooks

    AMT,

    AMT,

    Not that we’re going to go over all this all over again, but I can’t resist…

    Re: I’m all for revenue-gaining tax reform as soon as government irrevocably breaks all its unaffordable promises to the non-poor.

    Translation: “I’m all for reducing some entitlement spending on the non-poor as soon as government irrevocably breaks all its other unaffordable promises to the non-poor.”

    As you can imagine (even though you don’t agree), that’s the translation in the view of someone (e.g., me) who views tax deductions and credits for purchasing products specified by politicians as largely similar to explicit entitlement spending. If you qualify, based on something that has nothing to do with your income level* (in this case, by purchasing one/some of the specified products), you end up with more money than you’d have without that provision (if you had an income tax liability prior to the credit/deduction).

    As another (minor) note, I think we could afford projected entitlement spending on the non-poor if that’s all we spent money on, and if that’s correct then technically we can’t call that promised spending “unaffordable” (just as we couldn’t say that about any category of spending that would be “affordable” if we spent on nothing else).

    * Income level does affect the size of subsidy you get, particularly in the case of deductions, although probably for most people the larger factor is the amount of spending on the relevant product(s), including of course whether you spend any amount or none at all on those products.

  4. comment number 4 by: SteveinCH

    Brooks,

    Of course you won’t mind if I interject, but your contention about “products” versus income is simply horse hockey.

    What are the three largest “tax expenditures” Brooks?

    Let’s perhaps use this as a fair assessment although as we know I believe that measuring the size of such programs is challenging and requires a counterfactual tax code to do accurately. But let’s leave that to the side for the moment.

    Let’s take a look at tax expenditures rated by size…

    http://www.law.nyu.edu/ecm_dlv3/groups/public/@nyu_law_website__academics__colloquia__tax_policy/documents/documents/ecm_pro_068305.pdf (Table 3)

    Number 1: Health insurance exclusion…what product do I purchase there Brooks? A job?

    Number 2: Mortgage interest deduction…well let’s see, pretty much everyone buys housing and makes a decision about how to finance that, rent or own, debt versus equity. That’s what determines the size of the deduction (implicit or explicit), a decision about financing, not a decision about whether to buy a house.

    Ah, but you might say that my choice about how large a house to buy has more impact on the MI deduction than my income. That would be difficult to sustain as a practical matter but I’m happy to see you try to prove the contention should you wish to do so.

    Number 3: 401k deferral. I’m going to pass on this because it’s actually a timing issue but we don’t buy 401k’s either.

    Number 4: State and local taxes. Do we buy those? Nope not those either.

    Number 5: Step up on cap gains at death. Leaving aside the debate about whether we should index cap gains, how is this a tax on purchases. Unless you are defining the difference between consumption and investment as buying a product, noting of course that consumption yields a lower long term tax rate than investment regardless of the cap gains stepup rule.

    Number 6. The lower tax rate on cap gains. This one is rather amusing given our longstanding discussion on whether a graduated rate table does or does not comprise a tax expenditure.

    Number 7. Charitable deduction. Maybe this one is actually buying something I suppose but we are of course down to number 7 and about 4 percent of the total.

    So your contention “for most people, the amount of spending on the relevant product is the larger factor” seems rather odd in context.

    Now Brooks, do tell which of these actually are about a product I buy. Are you arguing that we buy state and local government? or that our deduction for state and local taxes is not related

    I look forward to your susbstantation of your point. And of course, most of these tax expenditures are very broad based and do in fact relate more to income than to purchases or purchase size. That might almost make you rethink your overall point.

    Or not.

  5. comment number 5 by: Brooks

    Steve,

    Your argument is at best quite flawed and I’d say essentially invalid for a couple of reasons.

    First, you yet again (for the millionth time) respond to a comment of mine by addressing the supposed arguments of others and you remain fixated on semantics rather than addressing anything I’ve said. I spoke of tax deductions and credits for purchasing particular products. You respond by referring to a list that (some) other people cite as “tax expenditures” (a term I didn’t use, and neither did AMT in the comment to which I was responding), a list that includes some items that obviously don’t fit the items to which I was referring, and then nonsensically claim that my description of the items I actually was referring to is fundamentally inaccurate, simply because some other people are using a term I didn’t use to include items to which I obviously wasn’t referring (lol). Yeesh. It’s like I said oranges are orange and you said “That’s wrong. Fruit includes bananas and they are yellow.”

    If you have a beef with someone referring to “tax expenditures” and including things other than the stuff I’m clearly describing, you should talk to them about it (and hopefully also start focusing on substance rather than your complaint about semantics — inclusion of items you [and in some cases I too] don’t think should be called “expenditures” of any sort), or at least you should stop confusing what I’m saying with what you think they are saying. But apparently whenever it comes to this topic you can’t think clearly no matter how much I try to help.

    1. Re: employer-provided health insurance, it is indeed a form of purchase. The tax deductibility leads to a greater portion of total employee compensation taking that form than would otherwise occur, because the subsidy (equivalent to a voucher if the amounts could be made the same for each individual as with a tax deduction) means many employees would rather get more compensation in that form (other taxpayers are, in effect, sharing some of the cost of the insurance premiums for those employees — a subsidy that increases the more of it that is purchased for the employee). So the employer buys that much more of it on behalf of the employee. The employee ends up better off (at the expense of other taxpayers) and the employer ends up better off (by offering a more attractive compensation package for the same cost as if it were all cash, similarly at the expense of taxpayers). It’s a subsidy for purchasing a particular product. You end up with more in your pocket as a result of the subsidy, and the more is purchased for you, the greater the subsidy you get, at the expense of other taxpayers.

    2. Mortgage interest deduction: Are you disputing that there is very substantial variation across individuals based on how much each spends on this product? I have to assume you are not disputing that premise. So that’s pretty much that. It’s a subsidy for purchasing a particular product. And up to a limit, the more you buy the more of a subsidy you get.

    Your 3, 4, 5, and 6 have nothing to do with anything I’ve argued or even referred to.

    7. Charitable deductions. Glad you got that one right. Yes, it’s purchasing something, and yes, it too is a subsidy for buying a product the politicians have chosen for such a subsidy, and yes, the more you spend on it, the larger a subsidy you get. You laughably make the point that it’s “down to number 7 and about 4 percent of the total”…of a list that was, from the standpoint of what I was actually discussing, entirely contrived by you for the purpose of making exactly that argument.

    Re: of course, most of these tax expenditures are very broad based and do in fact relate more to income than to purchases or purchase size. That might almost make you rethink your overall point.

    “Broad based” can be substantially different from universal. And even if I’m wrong re: which factor of the two is greater, that wouldn’t mean the “amount of spending (on Product X, Y, etc.)” is not a substantial factor. That said, I would be interested in links you may be able to provide with data showing breakouts of these factors, or any argument you may have to support that premise. Presumably you have one or the other if you are making an assertion of “fact”. Or perhaps your contention was based on your inclusion of your 3, 4, 5, and 6 and not to the kind of provisions I was actually (clearly) referring to.

  6. comment number 6 by: SteveinCH

    Laughable Brooks. If you don’t like that list of tax expenditures, give me a different one. You want the entire world to revolve around a mythical definition that you won’t reveal to anyone and respond to any argument with “well that’s not what I meant.” Great, tell us what you mean specifically. Give us a list so we can talk practicalities and not theoretical examples.

    Do you buy health insurance? Is it a purchase by the consumer? Nope. Things purchased for me are hardly my decisions now are they? And if they aren’t, are you really saying that any provision that helps me is a tax expenditure on my behalf? Is for example, the R&D tax credit a tax expenditure for me because it might benefit me at some point?

    A subsidy for purchasing a product that pretty much everyone has to purchase (housing) is hardly a subsidy targeted at an individual for purchasing X.

    As to broad based versus universal, the examples you like to use aren’t even broad based, they are highly targeted.

    As you made the original assertion re: it being more about individual decisions on what to purchase than income, I’d love to see the backup for your assertion.

    As to the list being contrived by me, it hardly was. I typed something like quantification of tax expenditures into google and that was on the first page.

    See Brooks, now that we’re onto specifics, it’s interesting how silly the argument looks. BTW, nice backpedaling from “probably for most people, the larger factor is” to “the amount of spending is not a substantial factor”

  7. comment number 7 by: Brooks

    Steve,

    You have just GOT to be kidding. I mean, really. How incredibly silly.

    I’ve said a million times the same thing: tax credits and deductions for buying particular products (and I’ve also said explicitly and repeatedly that I include the exclusion for employer-provided health insurance). I also just told you that the mortgage interest deduction obviously fits, as do deductions for charitable giving.

    Basically, I just showed you that you were making no sense and that you obviously threw together a list containing several items that obviously did not fit what I was clearly talking about…only to claim that my description was wrong because it did not apply to items on the list that I obviously wasn’t referring to. THAT is laughable, as is your pathetic response to the correction.

    And why would I need to provide you with a complete list to make the point I’ve been making? Do you not know what I mean by tax credits and deductions for purchasing particular products specified in the tax code (with my repeated note on several threads that employer-provided health insurance fits that category)? Do you really confuse a lower capital gains tax rate with what I’m talking about? Of course you don’t. At this point (and for a while now) you’re just floundering around trying to find something to say so you appear to have some real argument.

    Your argument that tax exclusion of employer-provided health insurance is not a subsidy simply because the employee isn’t the agent purchasing it is really quite dumb. I can’t improve on my explanation. Either you get it or you don’t (or you get it but are pretending not to get it).

    A tax credit for R&D is a subsidy for R&D, just as would be a voucher or any other cost-sharing by the government of a company’s R&D. And your question is what?? You’re asking me if it could be “a tax expenditure for [you]“. What does that even mean. You are just so lost on this topic I can’t decipher or even deconstruct your question, and you keep insisting on pushing semantics.*

    Re: A subsidy for purchasing a product that pretty much everyone has to purchase (housing) is hardly a subsidy targeted at an individual for purchasing X.

    I already explained what’s wrong with that argument. See my previous comment to you. I can’t improve on it.

    Re: As to broad based versus universal, the examples you like to use aren’t even broad based, they are highly targeted.

    Really? Which examples are those? I just said — as I have repeatedly on prior threads — that the mortgage deduction is included, as in exclusion of health insurance, which you just said are two of the largest. So what the heck are you talking about?

    Re: As you made the original assertion re: it being more about individual decisions on what to purchase than income, I’d love to see the backup for your assertion.

    Ah, that’s a classic blogger response when he has no response. I said “probably for most people the larger factor is the amount of spending on the relevant product(s), including of course whether you spend any amount or none at all on those products.” Note the word “probably”. YOU respond “of course, most of these tax expenditures are very broad based and do in fact relate more to income than to purchases or purchase size.” Note the words “of course” and “in fact”. I therefore presumed that you either had some data or at least some strong argument, since you spoke as if you were sure, and I said I’d be interested in either from you. I explained that even if my best guess was incorrect, it would not invalidate my point, but I said I’d be interested in getting from you either a link to the data on which you may have been basing your statement of “fact” or at least whatever strong argument you may have had that led you to say something that “of course” was “fact”. Your only response is to put it back on me to substantiate something that was just a minor note anyway and which I just said was “probably” the case. YOU stated that “of course” the contrary was true as a matter of “fact”. So I’m just saying, since you seem much surer than I am, I’d be interested in seeing the data or strong argument on which you base that assertion. I’m still interested, if you have anything.

    Re: As to the list being contrived by me, it hardly was. I typed something like quantification of tax expenditures into google and that was on the first page.

    Yeesh. How darn tedious it is dealing with you on this issue. As I wrote that part I thought, “Here I am clearly saying that ‘from the standpoint of what I was actually discussing‘, the list Steve is introducing is entirely contrived by him for the purpose of making this ‘oranges and bananas’ argument. Is Steve (or any other reader) going to be confused and think that, by ‘contrived’, I mean that he fabricated the list or chose some obscure list?” But then I thought “Na, it’s clear from all I’m saying in this comment that what I mean by ‘contrived’ is that he is choosing a list (a conventional list, not strange or invalid in any way) that clearly doesn’t fit what I’ve been speaking of just so he can then say that what I’ve been saying doesn’t fit that list — just like my analogy re: ‘oranges’ vs. ‘fruit’ (a list that contains bananas and other non-orange fruits).” But Steve, you showed once again that you always remove your brain whenever we start discussing this topic.

    Re: See Brooks, now that we’re onto specifics, it’s interesting how silly the argument looks.

    Yeesh. You are really lost.

    RE: BTW, nice backpedaling from “probably for most people, the larger factor is” to “the amount of spending is not a substantial factor”

    Just because you don’t understand the difference between a best guess assumption of a magnitude of something stated as a minor comment vs. the threshold magnitude that would be the standard for some assertion, that doesn’t make the latter “backpedaling” from the former.

    Steve, yet again I have shown just about every comment you make to be either a non sequitur or irrelevant to anything I was saying. It’s tedious. It’s possible you really are making a good-faith effort yet are so consistently putting forth such nonsense, but I find it hard to believe, since I’ve seen you capable of relevant, logical argumentation on other topics. So I’m left with the guess that you are counting on the assumption that I’ll stop putting in time doing it at some point, and you can then get in some last word and thus maintain some pretense that you hope will give the false impression to someone here that you actually have some real point. If you really need that much to have the hope of saving face, that’s sad, but perhaps I should just let you hold onto that hope.

    * If every business with a tax liability had that tax liability reduced by an equal amount (or perhaps even an amount proportionate to their tax liability, more like a deduction) for doing no more R&D than they would have without that incentive, I’d say the credit was like a business tax rate cut, but I don’t think those conditions are met, and if they were, there wouldn’t be any reason for an R&D tax credit (it wouldn’t be an effective incentive at all per that scenario). I add this even though just about anything I say at this point will probably lead to yet another point of confusion on your part. You simply aren’t getting this stuff enough to make the necessary distinctions.

  8. comment number 8 by: AMTbuff

    Re: I’m all for revenue-gaining tax reform as soon as government irrevocably breaks all its unaffordable promises to the non-poor.

    Translation: “I’m all for reducing some entitlement spending on the non-poor as soon as government irrevocably breaks all its other unaffordable promises to the non-poor.”

    Yes, that’s what it’s going to take to bring us back to long-term balance. Dial back the scope of entitlements to 1960 (pre-Medicare, inter alia) and we’d be AOK forever.

    Progressives would rather crash the system than relinquish a core middle class entitlement. Post-crash, they will be begging to limit the damage to loss of the Medicare program.

    People have no idea how harsh the post-crash austerity measures will be. It will be much worse than any country which had access to IMF or other rescue funds. We are too big to rescue.

  9. comment number 9 by: Brooks

    AMT,

    I’m wondering if you caught my point. The way you phrased it suggested that you’re ok with higher taxation (i.e., measures including or at least somewhat similar in nature to tax rate increases) only when entitlement spending law is revised to reduce projected spending on the non-poor. In other words, your phrasing suggests that you’ll accept (in other words) some “bigger government” and “higher taxes” (i.e., sacrifices for fiscal and economic conservatives) in exchange for spending cuts. The point of my “translation” is that you are really (in my view) saying that you will accept cuts in some entitlement spending on the non-poor only when government commits to lower spending on other entitlements for the non-poor. Obviously that can make sense (favoring some particular spending over other particular spending), but that seems to reflect a very different view than the one your statement seemed to reflect.

  10. comment number 10 by: AMTbuff

    We need to get to balance soon, but more importantly we need to renege on promises now in order to stay in balance over the long term. Once the long term picture is stable (spending flat as a percentage of GDP), then increase revenues to close the remaining gap. Removing tax breaks is the most efficient way to do this.

    However people who don’t want to flat line federal spending want to increase revenue to feed spending growth. That’s a bad mistake, making the inevitable balancing much harder.

    Progressives believe that conservatives object to higher taxes. They are wrong. Conservatives object to bailing out the boat before the leak is repaired. Bailing first is a waste of energy and will probably result in the boat’s sinking. Once the leak is repaired everyone will be happy to contribute to the bailing effort.

    Progressives’ only recent accomplishments have been to drill more holes in the boat, such as a new health care entitlement. Naturally this leaves conservatives reluctant to cooperate with a bail-first plan.

  11. comment number 11 by: Vivian Darkbloom

    I’m going to try my best here to stay out of the endless discussion over tax expenditures and whether they constitute taxing or spending or whether they have anything at all to do with that ubiquitous “Product X”. The discussion for the most part is far to theoretical and ignores the fact that, like pigs, no two tax expenditures are equal.

    As far as Economist Mom’s inaugural column in Tax Notes, I can largely agree with what she has written. Nevertheless, Economist Mom, like most other pundits and politicians, likes to keep their real views about tax expenditures slightly under the radar. I fully expected her to allude to the real point, and she didn’t disappoint:

    “And because tax expenditures are created by cutting holes out of a progressive income tax base, their benefits go disproportionately to higher-income households, making them a more palatable target for cuts than most other forms of spending.”

    It does not appear to me that for Economist Mom, or nearly any one else, the real agenda here is about reducing the deficit. The real issue in politics and the great divide between left and right is about who gets what. Whether you call a particular provision a reduction in tax our a spending outlay, the real issue about tax expenditures is how each particular one is distributed. No matter how each side tries to take your eyes of that ball, it’s really just about that.

    So, when Economist Mom talks in high tones about eliminating tax expenditures to reduce the deficit, I don’t think she is talking about the earned income tax credit.

  12. comment number 12 by: SteveinCH

    Right on Vivian.

    In the end, when you strip away all of the complex arguments, you come back to 3 things.

    1. How much do you want to spend and on what?

    2. How much income redistribution do you want to do and to whom?

    3. Who is going to pay for all of it?

    It would be a far better discussion if we’d start from zero which is a clean baseline rather than starting from today which is a very, very dirty one.

    I also agree that the majority of people clamoring on tax expenditures are clamoring, not out of some sense of intellectual purity, but for some other reason.

  13. comment number 13 by: SteveinCH

    Brooks,

    Not getting into it again until you provide a list of tax expenditures and an explanation of how that list is mostly driven by individual behavior.

    The good news is that since that will never happen, I can be done with this discussion other than continuing to ask you for those two things : )

  14. comment number 14 by: Vivian Darkbloom

    SteveinCH,

    I like your list, which I think sums up the issue pretty concisely. I’m afraid this comment will not succeed to be quite so to the point as yours.

    I was debating whether to write “issue” or “issues” because one tends to consider the items on your list separately. This makes no sense, because each of the items on your list need to be considered in conjunction with each other. The answer to “how much do you want to spend”, for example, is certainly going to be affected by the answer to “who is going to pay for it”.

    I’ll be up front about my politics here–I believe that the tax code should be reasonably progressive and that the spending programs (other than those that benefit us all, such as schools, roads and defense) should be targetted to those who need it the most. That is inherently redistributional. In order to judge the net redistributional effect (#2), though, one needs to look not only at who pays for it (#1), but who those revenues are spent on (#3). I would want to make sure that in resolving those questions the system as a whole does not unreasonably distort incentives. On balance, this would likely result in a somewhat smaller government and the government we do have would probably carry out its functions closer to the people.

    We live, supposedly, in a democratic society (both words equally important here) and so long as the decision-making process to arrive at consensus is fair, I can live with whatever result comes out of it.

    But, sticking with the theme of three, the following are pre-requisites , in my view, to a fair democratic societal resolution of your issues:

    1. Everyone, or at least nearly everyone, should pay a little bit (#3) in support of #1. When more than half of the adult population pays no income tax their idea about how much to spend (#1) is not at all tempered by any concept of cost (#3). Not only that, but it results in the situation where one of the political parties is more or less required to pander to the unreaalistic desires of this group to gain or maintain control of government. “Capture” is obviously possible in the other direction, but I honestly don’t think that this is the biggest problem in regard to our deficits;

    2. The system should be simple enough that a mere mortal being, or at least some government accountants, should be able to provide us with a reasonable overview as to how we’ve resolved these three vital questions. This is one of my main objections (but not the only one) against “tax expenditures” (*any* properly labelled “tax expenditure”) because they clearly blur the line between your #1 and #3 and make it impossible to judge the amount of #2. Another example is social security where it is only possible to judge its effects by applying all three of your criteria but at least it is possible with some effort). It frustrates me to no end, for example, that the vast majority of Americans believe that since they pay some payroll tax, they are fully paying for everything they get out of that system.

    3. What we spend (#1) and what we pay for that spending (#3) need to be in balance. For me, this is the strongest pre-requisite and should be the easiest to achieve from a structural point of view, even though there currently is a lot of intentional obfuscation on this point in relation to unfunded liabilities and other such things. It is the only thing that makes any long-term economic sense and so it is in the best interests of both the current generation and the next. It should also focus our attention on making wise choices with regard to your other two issues.

    If my three pre-requisites are met, I can pretty much go along (not that I have a choice) with how we collectively resolve your three questions.

  15. comment number 15 by: Brooks

    Steve,

    You are such a joke on this issue.

    Re: Not getting into it again until you provide a list of tax expenditures and an explanation of how that list is mostly driven by individual behavior.

    First, I’m not asking for you to get into it again. You jumped in after I responded to AMT’s comment. I know discussion of this issue with you is a total waste of time. Either you are strangely, utterly confused and incapable of making relevant, substantive logical arguments vis a vis what I’ve been saying, or you not quite that confused but are not engaging in good faith, but rather are engaged in a desperate attempt to put up some smokescreen to mask your confusion and hopefully feel like you’ve saved face to some extent in the eyes of some reader(s) here.

    As for your demand, it’s just funny. Why would I need to provide some comprehensive list in order for you to want to discuss the issue with me (not that I want you to)? I’ve been clear on what I’m referring to. Presumably you’re not claiming that the stuff I’m talking about is fiscally and economically insignificant. We’ve discussed many times some major examples — including the largest and broadest ones, as well as smaller ones, plus hypotheticals. So it’s ridiculous for you to say “Give me a full list or it’s not worth discussing”, let alone to imply that I have no valid point or no point with practical application unless I provide such a list.

    And as for “mostly driven by individual behavior”, although it’s far from clear what you mean or what one might think is important about whatever you mean, it seems what you’re really just doing is grabbing onto some minor note I made in which I said I thought something was probably the case, although I’ve explained that even if not, it doesn’t invalidate my point, and you’re trying (pathetically) to make it seem to someone here like there’s some key point there. Yeesh.

    I simply can’t believe that you are engaging in good faith because it’s highly improbably that you could so consistently make no sense on this one topic. It is quite obvious that you are just looking for some way of creating the false impression in someone’s perception that you have some point and that what I’ve been saying is invalid or without practical application for some reason.

    What is particularly pathetic is that I have consistently explained clearly how, throughout our exchanges on this thread and previous ones, almost all the arguments you’ve made have been irrelevant or simply not made sense, yet instead of ever acknowledging your errors you just keep responding with more nonsense. Your behavior on this topic is a case study on what happens on a blog when someone realizes or senses his overall assertion and supporting arguments have been refuted or at least challenged by counter-arguments he finds himself unable to refute, yet he cannot bear to admit any such thing on the blog, so he persists churning out nonsensical and/or irrelevant comment after comment in the hopes that someone will fail to see his arguments for the nonsense that they are.

    It’s particularly unfortunate to see when your doing so may make it less likely that some other reader here will gain any degree of clarity on this topic, simply because if someone starts out conceptually confused on this topic, any “noise” is likely to make it harder for him/her to break through the confusion (although hopefully anyone paying sufficiently close attention — despite the tediousness — and with sufficient relevant intellect will be helped by all my refutations of your arguments)

    Although I’m not sure, I’d like to think that if I didn’t consider this dynamic important, given the importance of the topic, I would just let you have the last word, since you apparently feel a very strong emotional need to do what you’re doing. I do hope you find a way to grow from the experience though so that next time or at some time in the future you don’t react in such an immature way when you find yourself again in the aforementioned situation.

  16. comment number 16 by: SteveinCH

    Vivian,

    Thanks for the thoughts. It’s interesting to read your views on the topic. Let me reply roughly in kind (although it could get a wee bit long).

    First off, I completely agree that the three questions must be considered together because one’s point of view on how to pay should (and does) depend on what is being done with the money.

    On the three criteria you raise, I’ll comment briefly and then add a fourth.

    1. I almost totally agree about this. I say almost because it depends on whether you think that certain programs are funded by dedicated taxes or not. You need to either conceive of SS and Medicare as just programs and FICA as just a tax or you buy into the notion that they are separately funded programs. I’m in the first camp not the second so the number of Americans who, in my view, pay nothing is much smaller than 50%, closer to 10% as near as I can tell. Having said that, this world view creates other issues as I will cover below. If you view SS/Medicare and FICA as independent of the rest of the budget, I completely agree with your point 1 even though I don’t see them that way.

    2. Agree completely and I think it goes back in part to the two points of view in point 1. Those who view SS and Medicare as “paid for” by past contributions are going to have a different point of view of how much transfering there is going on than those who see them as self-funded (or, to your point, partially self funded) programs.

    It goes back to the point I’ve made in other places. Since I have no legal or contractual guarantee to my future SS or Medicare benefits, I am not self funding them. Both I and the government may wish to maintain this fiction but it is still a fiction.

    One of the interesting things I did once was look up the data on government transfers by age and income. Turns out there is no correlation between dollar amount of government transfers and income (were one to include tax expenditures in the calculus, there would probably be a positive correlation between the two). However, there is a strong correlation between age and transfers (and of course the BEA data excludes in-kind transfers like Medicare).

    3. Also agree very strongly with this. I think one of the saddest things I’ve seen has been the notion of “primary balance” which is another way of saying permanent deficit. Zero is the right through cycle average for the deficit. Anything else is constraining the options for future generations, something which I do not believe we should be doing.

    I would add two further points, at least from my pov.

    4. The government should, as a starting point, avoid transfers between levels of government. Another very disturbing trend for me is the tendency to flow money from the Federal government, to the states, to localities. Leaving aside the unfunded mandate problem (not an entirely separate issue), this further clouds a reasonable person’s understanding of government finances and has had the effect of moving funding to the most distant part of government rather than the part that is closest to the citizen.

    5. Whatever process is set up should be simple enough that the average human can comply. The unbelievable complexity of the system that has been created means that people can neither easily pay what they owe nor collect what they are owed.

    I guess we can dream ; )

  17. comment number 17 by: Vivian Darkbloom

    Steve,

    Regarding your points 1 and 2, reasonable people can and do take different positions on the nature of programs like SS and Medicare. That is because, essentially, those systems are really hybrids. And, I think, this is the same problem created by “tax expenditures”, which is just another example of hybridization of taxing and spending.

    It is perhaps less important to me regarding Social Security that it be funded by dedicated taxes or not, than that the hybridization end so that we can acheive a clear accounting of what is going on.

    Due to this hybridization and confusion over what is taxing and spending, we have completely lost the ability to determine what should be put on the credit or debit side of the government balance sheet. It is sadly ironic that the government expends vast amounts of effort to establish and enforce rules to ensure that the accounting reports issued by private enterprise clearly distinguish credits from the debits on their balance sheets, but at the same time is actively involved in trying to obscure the same with respect to its own finances.

  18. comment number 18 by: AMTbuff

    VD, that’s the single best post I’ve ever read on this subject. Amazingly good.

    Hybridization will not end. It’s the political equivalent of marketing a product differently to different customer segments. Since before recorded history politicians have loved to hide the ball.