From: Tax Vox - The Tax Policy Center Blog
On The President’s Recommendations to the Joint Select Committee
William Gale
Posted on September 19, 2011, 6:36 pm
Today, President Obama outlined proposals to reduce the medium-term federal budget deficit. His proposal would pay for the $447 billion stimulus package he proposed last week and reduce the 10-year federal budget deficit by an additional $3.2 trillion, according to OMB estimates.
The $3.7 trillion ($3.2 trillion + $447 billion) in budget savings is categorized as follows:
–$257 billion in mandatory spending
–$320 billion in health care spending
–$1,084 billion in defense spending (overseas contingency operations)
–$1,573 billion in tax revenues
–$436 billion in net interest savings
The proposals would bring the deficit down to about 2.7 percent of GDP by 2014, where it would hover and then eventually fall to about 2.3 percent of GDP by 2021. The debt/GDP ratio would peak at just under 77 percent of GDP in 2013 and would fall to 73 percent by 2021. The budget would be in primary surplus by 2017 and reach a primary surplus of 0.9 percent of GDP by 2021 (all data according to OMB).
Some initial reactions:
(1) Going big
The debt-limit deal signed in August had two parts. OMB estimates that the first part will reduce spending by $1.2 trillion (this may seem confusing, because the commonly-used figure for this part was $900 billion originally).
In combination with the debt-limit deal, then, the new proposals would (a) pay for the stimulus package the President proposed and (b) still reduce 10-year deficits by $4.4 trillion. Changes of this size constitute “going big” in current budget parlance and should be applauded.
In contrast, the Joint Select Committee needs to come up with “just” $1.5 trillion in deficit reduction to avoid the automatic second-round cuts. The President is asking Congress to go well beyond that and make a much more significant dent in the fiscal problem now.
(2) Compared to what?
The baseline that OMB uses is a measure of “current policy”: it assumes the extension of all of the 2001 and 2003 tax cuts, the indexation of the AMT for inflation, the non-reduction of Medicare provider payments, and the continuation of military operations at full throttle in Iraq and Afghanistan (it does not appear to assume that the run-of-the-mill temporary tax policies, the so-called “extenders,” are extended).
I have argued elsewhere that, in many ways, it makes more sense to use current law as the baseline. (http://www.brookings.edu/events/2011/0817_deficit_committee.aspx) Ultimately, the most important thing is where the proposal ends up in terms of deficits, debt, taxes, and spending. The President’s proposal would put the country on a more sustainable fiscal path and buy significant time to deal with long-term problems.
(3) Timing
The combination of the President’s stimulus proposal and the medium-term deficit reduction measures would raise the deficit by $300 billion in 2012, and then would reduce the deficit (all, relative to baseline) by $23 billion in 2013, by almost $300 billion in 2014, and by increasing amounts thereafter. If the economy has fully recovered by 2013, it will be able to bear the burden of changes in the direction and magnitude of the deficit. But if the economy is still weak, the increase in fiscal drag in 2013 and 2014 may cause significant problems.
(4) The Role of Taxes
The President is right to call for tax increases as part of medium-term deficit reduction. As I described last month, any credible proposal to solve our fiscal problem will include an increase in government revenue.
–All major durable deficit reduction packages enacted in the last thirty years, including the 1983 Social Security reforms and the 1990 and 1993 budget agreements, included both tax increases and spending cuts.
–The only way to provide shared sacrifice is by including tax increases in the package. Spending cuts do not require any significant sacrifice from very high-income households.
–The notion that government can be reduced in size by holding taxes low has not fared well over the last 30 years. The “starve the beast” approach was tried by Presidents Reagan and George W. Bush, who cut taxes, but ended up raising spending. In contrast, when President Clinton raised taxes, government also reduced spending, resulting in better fiscal discipline on both sides of the budget.
–Tax increases will be needed, too, because historical revenue levels will not be sufficient to pay for the costs of an aging population with rapidly rising medical costs. Even with significant reforms of Medicare and Medicaid, health costs will place a significant burden on the federal budget.
–Because the debt-limit deal focuses only on spending cuts, adding tax increases as one part of the new package will help, in all of the ways described above. The overall package looks to have about a 2:1 ratio of spending cuts to tax increases.
–A combination of tax increases and spending cuts is in accord with the wishes of the American public, who vastly prefer a combination of the two types of budget solutions to a solution that involves spending cuts alone.
(5) Taxes on high-income households
It is appropriate to include tax increases on high-income households as part of the fiscal package.
–High-income households have seen enormous income growth over the past 30 years, which has not been reflected fully in the tax revenue statistics. The share of total income going to the top 1 percent has more than doubled, rising from 9.3 percent of pre-tax income in 1979 to 19.4 percent in 2007. In a progressive tax system, where average tax rates rise with income, one would expect that such a massive increase in income would be coupled—in the absence of any change in tax law–with significantly higher average tax rates (since more income is taxed at the highest rate as income skyrockets). Instead, the average federal tax rate on the top 1 percent of households fell over the time period from 37 percent in 1979 to 29.5 percent in 2007. (As a result, the share of federal taxes paid by the top 1 percent went up by less than double (even though the income share more than doubled) to 28.1 percent in 2007, up from 15.4 percent in 1979.)
–In contrast, the middle and lower ends of the income distribution have shown very small gains over the past 30 years. According to the Census, median family income after adjusting for inflation only increased 7.3 percent since 1979. More recently, median real family income has declined over the past decade, with median income in 2010 7.1 percent below its 1999 peak.
–The President’s proposal would return tax rates for high-income households to their late-1990s levels, a period of strong economic growth. Even though the tax rates of the 1990s did not cause the strong economic growth, it is clear that they did not get in the way of the strongest growth period the nation has had in several decades.
–Proposed taxes on high-income households seem to always generate two responses – it will hurt small business and it constitutes class warfare – which are discussed below.
(6) Small business
There will be concerns voiced that raising taxes on high-income households will hurt small businesses. However, the case can be vastly overstated.
–First, the proposed tax rates will not affect the vast majority of small businesses. According to the IRS’ 2009 Statistics of Income, only 9.9 percent of tax returns reporting business income were filed by taxpayers with an adjusted gross income greater than $250,000. Second, businesses in the upper income brackets are naturally larger than those in the lower brackets, and account for almost half of the aggregate income of so-called “small business,” but it is unclear that many of these businesses are indeed small. (For example, when Goldman Sachs was a partnership, the income of its managers would show up as “small business” income.) Moreover, most of the income in those income groups is not business income.
–Those statistics aside, the effective tax rate on small business income is likely to be zero or negative, regardless of small changes in the marginal tax rates. This is for three reasons. First, small businesses can expense (immediately deduct in full) the cost of investment. This alone brings the effective tax rate on new investment to zero, regardless of the statutory rate. Second, if they can finance the investment with debt, the interest payments would be tax deductible, making the effective tax rate negative. Third, they can deduct wage payments in full, so the marginal tax rate should have minimal impact on hiring.
(7) Class Warfare
Proposals to raise taxes on high-income households inevitably generate claims of “class warfare.”
–But it seems reasonable to ask for some fiscal sacrifice from a group that (a) is very well off, (b) has seen meteoric income gains relative to the rest of the population over the past 30 years, and (c) has nevertheless seen their average tax burden fall, not rise, during that period. It does not seem fair to let the wealthiest escape from sharing the burden of closing the fiscal gap; nor is there a way to impose that burden without tax increases.
–Ironically, proposals like Rep. Ryan’s recent plan to address long-term fiscal issues would impose more than the full burden of closing the fiscal gap on low- and middle-income households and, at the same time, give high-income households a tax cut. That seems much less justified on fairness grounds than asking high-income households to share in the burden of closing the fiscal gap.
(8) The Buffett rule
As a guideline for future tax reform (but not as a specific proposal now), the President described “the Buffett rule,” (named with reference to Warren Buffett, who has commented that he faces a lower average tax rate than many of his employees) as implying that no one with income over $1 million should pay a smaller share of his income in taxes than middle class families pay.
–The notion that people with income above $1 million should pay higher average tax rates than those in the middle class should not be a controversial proposition in principle. It is simply an extremely mild form of progressive taxation.
–However, the guidelines say “no household” with income above $1 million, which might create issues.
–The mild form of progressivity may not hold in the current system because different income types have different tax rates. These income types are concentrated in certain income groups more than others. For example, wages and salaries, which are a big share of low- and middle-income households’ income but not of high-income households’ income, are taxed at a flat payroll tax rate (up to a maximum) and graduated income tax rates. Capital gains and dividends are taxed at very low rates (15 percent maximum) under the individual income tax; these constitute less than 1 percent of the income of the bottom 80 percent of the income distribution, but more than 30 percent of the top 1 percent of households (in 2007, the figure will vary from year to year). According to Tax Policy Center estimates, the top one-tenth of one percent of households receive almost half of the benefits from preferential rates on capital gains and dividends. Low- and middle-income households cannot benefit from these tax breaks like millionaires, nor can they exploit other tax loopholes and deductions like high-income households.
–The Buffett Rule could be implemented in different ways: via a surtax on those whose income exceeds $1 million; via a reformed Alternative Minimum Tax (which would ensure that high-income, not middle-income, households are primarily affected); or via elimination or reduction of preferential rates for dividends and capital gains. The goal of a progressive tax system is laudable and should be pursued, especially as the greatest income gains have benefitted the top while median incomes have stagnated.
William G. Gale is the Arjay and Frances Fearing Miller Chair in Federal Economic Policy and Codirector of the Urban-Brookings Tax Policy Center.
Monday, September 19, 2011
Friday, September 16, 2011
What I Read Today - Friday September 16, 2011
The Planning Fallacy
By DAVID BROOKS
When the Nobel Prize-winning psychologist Daniel Kahneman was a young man, he led a committee to write a new part of the curriculum for Israeli high schools. The committee worked for a year, and Kahneman asked his colleagues how long they thought the rest of the project would take. Their estimates were around two years.
Kahneman then asked the most experienced among them how long such work took other curriculum committees. The gentleman pointed out that roughly 40 percent of the committees never finished their work at all.
But what about those that did finish? The gentleman reported that he had never seen a committee finish in less than seven years and never in more than 10.
This was bad news. They might fail to finish a task that they thought would be done in three years. At best, the project might consume eight or nine years. Yet this information didn’t affect those on the team at all. They carried on, assuming that though others might fail or dally, surely they wouldn’t.
As it turned out, their project took eight years to finish. By the time it was done, the Ministry of Education had lost interest, and the curriculum was never used.
In his forthcoming book, “Thinking, Fast and Slow” (I’ll write more about it in a couple of weeks), Kahneman calls this the planning fallacy. Most people overrate their own abilities and exaggerate their capacity to shape the future. That’s fine. Optimistic people rise in this world. The problem comes when these optimists don’t look at themselves objectively from the outside.
The planning fallacy is failing to think realistically about where you fit in the distribution of people like you. As Kahneman puts it, “People who have information about an individual case rarely feel the need to know the statistics of the class to which the case belongs.”
Over the past three years, the United States has been committing the planning fallacy on stilts. The world economy has been slammed by a financial crisis. Countries that are afflicted with these crises typically experience several years of high unemployment. They go deep into debt to end the stagnation, but the turnaround takes a while.
This historical pattern has been universally acknowledged and universally ignored. Instead, leaders in both parties have clung to the analogy that the economy is like a sick patient who can be healed by the right treatment.
The Democrats, besotted by the myth that the New Deal ended the Great Depression, have consistently overestimated their ability to turn the economy around. They regard the Greek crackup as a freakish, unlucky break, even though this sort of thing is a typical feature of a financial crisis.
Republicans, who should know better, also have an inflated sense of the power of government. In the presidential debates, Rick Perry, Mitt Romney and Jon Huntsman argue about which one oversaw the most job creation during his term as governor, as if governors have an immediate and definable impact on employers’ hiring decisions.
The reality, of course, is that the economy is not a patient. It is a zillion, zillion interactions. Government is not a doctor. Most of the time, it is a clashing collective enterprise that is occasionally able to produce marginal change, for good and for ill.
Democrats should be learning about the limits of social policy. As in the war on poverty, as in the effort to transform American schools, as in the effort to create prosperity in the developing world, it is really hard to turn around complex systems.
Republicans should be reflecting on the fact that if a Republican president were in office right now, and even if he or she did sensible things, the economy would still be in the dumps. It would be Republicans losing “safe” Congressional seats in special elections.
The key to wisdom in these circumstances is to make the distinction between discrete good and systemic good. When you are in the grip of a big, complex mess, you have the power to do discrete good but probably not systemic good.
When you are the president in a financial crisis, you have the power to pave roads and hire teachers. That will reduce the suffering of real people who would otherwise be jobless. You have the power to streamline regulations and reduce tax burdens. That will induce a bit more hiring and activity. These are real contributions.
But you don’t have the power to transform the whole situation. Your discrete goods might contribute to an overall turnaround, but that turnaround will be beyond your comprehension and control.
Over the past decades, Americans have developed an absurd view of the power of government. Many voters seem to think that government has the power to protect them from the consequences of their sins. Then they get angry and cynical when it turns out that it can’t.
By DAVID BROOKS
When the Nobel Prize-winning psychologist Daniel Kahneman was a young man, he led a committee to write a new part of the curriculum for Israeli high schools. The committee worked for a year, and Kahneman asked his colleagues how long they thought the rest of the project would take. Their estimates were around two years.
Kahneman then asked the most experienced among them how long such work took other curriculum committees. The gentleman pointed out that roughly 40 percent of the committees never finished their work at all.
But what about those that did finish? The gentleman reported that he had never seen a committee finish in less than seven years and never in more than 10.
This was bad news. They might fail to finish a task that they thought would be done in three years. At best, the project might consume eight or nine years. Yet this information didn’t affect those on the team at all. They carried on, assuming that though others might fail or dally, surely they wouldn’t.
As it turned out, their project took eight years to finish. By the time it was done, the Ministry of Education had lost interest, and the curriculum was never used.
In his forthcoming book, “Thinking, Fast and Slow” (I’ll write more about it in a couple of weeks), Kahneman calls this the planning fallacy. Most people overrate their own abilities and exaggerate their capacity to shape the future. That’s fine. Optimistic people rise in this world. The problem comes when these optimists don’t look at themselves objectively from the outside.
The planning fallacy is failing to think realistically about where you fit in the distribution of people like you. As Kahneman puts it, “People who have information about an individual case rarely feel the need to know the statistics of the class to which the case belongs.”
Over the past three years, the United States has been committing the planning fallacy on stilts. The world economy has been slammed by a financial crisis. Countries that are afflicted with these crises typically experience several years of high unemployment. They go deep into debt to end the stagnation, but the turnaround takes a while.
This historical pattern has been universally acknowledged and universally ignored. Instead, leaders in both parties have clung to the analogy that the economy is like a sick patient who can be healed by the right treatment.
The Democrats, besotted by the myth that the New Deal ended the Great Depression, have consistently overestimated their ability to turn the economy around. They regard the Greek crackup as a freakish, unlucky break, even though this sort of thing is a typical feature of a financial crisis.
Republicans, who should know better, also have an inflated sense of the power of government. In the presidential debates, Rick Perry, Mitt Romney and Jon Huntsman argue about which one oversaw the most job creation during his term as governor, as if governors have an immediate and definable impact on employers’ hiring decisions.
The reality, of course, is that the economy is not a patient. It is a zillion, zillion interactions. Government is not a doctor. Most of the time, it is a clashing collective enterprise that is occasionally able to produce marginal change, for good and for ill.
Democrats should be learning about the limits of social policy. As in the war on poverty, as in the effort to transform American schools, as in the effort to create prosperity in the developing world, it is really hard to turn around complex systems.
Republicans should be reflecting on the fact that if a Republican president were in office right now, and even if he or she did sensible things, the economy would still be in the dumps. It would be Republicans losing “safe” Congressional seats in special elections.
The key to wisdom in these circumstances is to make the distinction between discrete good and systemic good. When you are in the grip of a big, complex mess, you have the power to do discrete good but probably not systemic good.
When you are the president in a financial crisis, you have the power to pave roads and hire teachers. That will reduce the suffering of real people who would otherwise be jobless. You have the power to streamline regulations and reduce tax burdens. That will induce a bit more hiring and activity. These are real contributions.
But you don’t have the power to transform the whole situation. Your discrete goods might contribute to an overall turnaround, but that turnaround will be beyond your comprehension and control.
Over the past decades, Americans have developed an absurd view of the power of government. Many voters seem to think that government has the power to protect them from the consequences of their sins. Then they get angry and cynical when it turns out that it can’t.
Thursday, September 15, 2011
What I Read Today - Thursday September 15, 2011
From: The Tax Vox - The Tax Policy Center Blog
What the Great Budget Debate Is Really About
Howard Gleckman
Posted on September 15, 2011, 9:00 am
Want to know what the Great Budget Debate of 2011 is really about? Ask Congressional Budget Office director Doug Elmendorf (who was a Tax Policy Center associate before joining CBO). In testimony to Congress’s fiscal super committee on Tuesday, Doug put the whole thing into a few simple sentences:
“I think really the fundamental question…is…where you want the country to go, what role do you …want the government to play in the economy and society?” [I]f you want a role that has benefit programs for older Americans like the ones we’ve had in the past, and that operate…the rest of the government like …in the past,then more tax revenue is needed than under current tax rates. On the other hand, if one wants those tax rates, then one has to make very significant changes in spending programs for older Americans” and the rest of government.
Doug is exactly right about these core choices. And that’s why it is so difficult for Congress and President Obama to reach any serious agreement on fiscal policy. At bottom, this argument is not about reducing the deficit by $1.2 trillion or $1.5 trillion to hit some artificial budget target. It is about reconciling fundamentally competing visions of the role of government.
Herb Stein, who was the top economic adviser to President Nixon, used to say that budgeting was simple: Congress’ job was to decide what it wanted to do and then figure out how to pay for it.
Unfortunately, in the four decades since Herb’s observation, Congress and a half-dozen presidents have done a fabulous job of finding stuff to do, but not such a hot job of paying for it (Bill Clinton, with the help of a roaring economy, was the exception).
Now, policymakers finally are struggling to do the work Stein described. And to do so, they must confront Doug’s choice: Do they do less than many voters expect, tax more, or both?
To add to the challenge, they are trying to do it at a time when the nation is deeply divided—and conflicted. Polls suggest most Americans support deficit reduction—but oppose the very spending cuts and tax hikes needed to achieve it. This disconnect is not helped by politicians who continue to promise pain-free deficit reduction.
At the most recent GOP presidential debate, for instance, former House Speaker Newt Gingrich insisted he could address most fiscal problems by controlling, yes, waste, fraud, and abuse. “Anybody who knows anything about the federal government knows that there’s such an enormous volume of waste, that if you simply had a serious, all-out effort to modernize the federal government, you would have hundreds of billions of dollars of savings falling off,” Gingrich claimed.
Now, there is plenty of waste in government and we absolutely should curb it. But is it going to fix the deficit problem? Only in Newt’s dreams.
So increasingly, it looks as if we are going to have an election about the fundamental role of government—in creating jobs, helping those in distress, and preserving the nation’s health and safety. This may not be so true if Republicans nominate Mitt Romney. But it certainly will be if the GOP picks Texas Governor Rick Perry and Obama sticks with the powerful defense of government he delivered to Congress earlier this month. Not since Johnson and Goldwater would these competing visions be so clear. If nothing else, as Goldwater said, voters will have a choice, not an echo.
What the Great Budget Debate Is Really About
Howard Gleckman
Posted on September 15, 2011, 9:00 am
Want to know what the Great Budget Debate of 2011 is really about? Ask Congressional Budget Office director Doug Elmendorf (who was a Tax Policy Center associate before joining CBO). In testimony to Congress’s fiscal super committee on Tuesday, Doug put the whole thing into a few simple sentences:
“I think really the fundamental question…is…where you want the country to go, what role do you …want the government to play in the economy and society?” [I]f you want a role that has benefit programs for older Americans like the ones we’ve had in the past, and that operate…the rest of the government like …in the past,then more tax revenue is needed than under current tax rates. On the other hand, if one wants those tax rates, then one has to make very significant changes in spending programs for older Americans” and the rest of government.
Doug is exactly right about these core choices. And that’s why it is so difficult for Congress and President Obama to reach any serious agreement on fiscal policy. At bottom, this argument is not about reducing the deficit by $1.2 trillion or $1.5 trillion to hit some artificial budget target. It is about reconciling fundamentally competing visions of the role of government.
Herb Stein, who was the top economic adviser to President Nixon, used to say that budgeting was simple: Congress’ job was to decide what it wanted to do and then figure out how to pay for it.
Unfortunately, in the four decades since Herb’s observation, Congress and a half-dozen presidents have done a fabulous job of finding stuff to do, but not such a hot job of paying for it (Bill Clinton, with the help of a roaring economy, was the exception).
Now, policymakers finally are struggling to do the work Stein described. And to do so, they must confront Doug’s choice: Do they do less than many voters expect, tax more, or both?
To add to the challenge, they are trying to do it at a time when the nation is deeply divided—and conflicted. Polls suggest most Americans support deficit reduction—but oppose the very spending cuts and tax hikes needed to achieve it. This disconnect is not helped by politicians who continue to promise pain-free deficit reduction.
At the most recent GOP presidential debate, for instance, former House Speaker Newt Gingrich insisted he could address most fiscal problems by controlling, yes, waste, fraud, and abuse. “Anybody who knows anything about the federal government knows that there’s such an enormous volume of waste, that if you simply had a serious, all-out effort to modernize the federal government, you would have hundreds of billions of dollars of savings falling off,” Gingrich claimed.
Now, there is plenty of waste in government and we absolutely should curb it. But is it going to fix the deficit problem? Only in Newt’s dreams.
So increasingly, it looks as if we are going to have an election about the fundamental role of government—in creating jobs, helping those in distress, and preserving the nation’s health and safety. This may not be so true if Republicans nominate Mitt Romney. But it certainly will be if the GOP picks Texas Governor Rick Perry and Obama sticks with the powerful defense of government he delivered to Congress earlier this month. Not since Johnson and Goldwater would these competing visions be so clear. If nothing else, as Goldwater said, voters will have a choice, not an echo.
What I Read Today - Thursday September 15, 2011
From: The Miami Herald
Candidates must deal with facts, not wishes
By PETER C. FRUMHOFF AND KERRY EMANUEL
When it comes to foreign policy, the saying goes that politics stops at the water's edge.
When it comes to climate science, we say that politics should stop at the atmosphere's edge.
One of us is a Republican, the other a Democrat. We hold different views on many issues. But as scientists, we share a deep conviction that leaders of both parties must speak to the reality and risks of human-caused climate change, and commit themselves to finding bipartisan solutions.
Scientists have known for more than 100 years that carbon dioxide in our atmosphere traps heat. And today we know that the excess carbon dioxide accumulating in the atmosphere from human activity - primarily, burning coal and oil and clearing forests - is altering our climate.
It's a conclusion based on established physics and on evidence gathered from satellite data, ancient ice cores, temperature stations, fossilized trees and corals. And it's a conclusion affirmed by the U.S. National Academy of Sciences, established by President Lincoln to advise our nation's leaders on matters of science.
But as scientific understanding of climate change has advanced, the public discourse has split along partisan lines.
Republicans who identify with the Tea Party are particularly likely to deny the reality of global warming. Several of this year's aspiring presidential candidates are rejecting the findings of climate science - and feeling the political heat if they don't.
After former Massachusetts Gov. Mitt Romney reiterated his understanding that human activity is warming the planet, Rush Limbaugh denounced him for doing so, saying, "bye-bye nomination." Romney now says that he doesn't know what is causing climate change.
Texas Gov. Rick Perry recently accused climate scientists of "manipulating data." In Wednesday's Republican candidate debate, he made an argument like the one tobacco industry executives used to cast doubt on the scientific evidence of smoking's health risks, saying, "The idea that we would put Americans' economy in jeopardy based on scientific theory that's not settled yet to me is just nonsense." Science is never truly settled and no responsible leader would wait for 100 percent certainty to respond to a serious threat.
Making misleading statements about science and picking on scientists is easy. Most would rather defend their findings in peer-reviewed journals than on cable TV. A lie can travel halfway around the world before we even get our lab coats on.
Some politicians, fortunately, are demonstrating a more responsible way to talk about climate change.
Former Utah Gov. Jon Huntsman, for example, reaffirmed his acceptance of the science in Wednesday's presidential debate. And New Jersey Gov. Chris Christie has also been speaking up for climate science, even as he has backed away from taking action.
"When you have over 90 percent of the world's scientists who have studied this stating that climate change is occurring and humans play a contributing role, it's time to defer to the experts," Christie said last month.
The right rebuked Christie for recognizing the reality of climate change. And the left lambasted him for using the same speech to pull out of a regional pact to curb emissions.
We question Christie's policy decision. But we commend him for acknowledging the reality of climate change, and for providing New Jersey voters a chance to decide whether they agree with his policy choice. That's how our democracy should work.
Republicans skeptical about climate policy should follow Christie's and Huntsman's lead and realize that they don't need to misrepresent the science.
And Democrats must speak out as well.
Candidate Barack Obama spoke forcefully about global warming, but has been far too quiet as president. In a rare public statement on climate, he recently told two "kid reporters" with Scholastic News that climate change is one of the chief challenges their generation will face.
That's not enough. Science tells us that the extent and severity of climate change faced by our children's generation will be determined by the hard choices we must make today. Political leadership is about ensuring that we adults face up to this task.
We cannot afford to have those leading our nation misrepresent, or be silent about, the reality and risks of climate change.
Whoever wins the next election will lead a nation increasingly affected by climate change, command a Pentagon that calls climate change a national security threat, and preside over federal scientists already working to help states and cities prepare for climate change impacts.
It is time for leaders of both parties to take seriously what science tells us we are doing to our common atmosphere, so we can take up the urgent task of finding solutions on common ground.
Read more: http://www.miamiherald.com/2011/09/14/v-print/2406387/candidates-must-deal-with-facts.html#ixzz1Y1bSuXZB
Candidates must deal with facts, not wishes
By PETER C. FRUMHOFF AND KERRY EMANUEL
When it comes to foreign policy, the saying goes that politics stops at the water's edge.
When it comes to climate science, we say that politics should stop at the atmosphere's edge.
One of us is a Republican, the other a Democrat. We hold different views on many issues. But as scientists, we share a deep conviction that leaders of both parties must speak to the reality and risks of human-caused climate change, and commit themselves to finding bipartisan solutions.
Scientists have known for more than 100 years that carbon dioxide in our atmosphere traps heat. And today we know that the excess carbon dioxide accumulating in the atmosphere from human activity - primarily, burning coal and oil and clearing forests - is altering our climate.
It's a conclusion based on established physics and on evidence gathered from satellite data, ancient ice cores, temperature stations, fossilized trees and corals. And it's a conclusion affirmed by the U.S. National Academy of Sciences, established by President Lincoln to advise our nation's leaders on matters of science.
But as scientific understanding of climate change has advanced, the public discourse has split along partisan lines.
Republicans who identify with the Tea Party are particularly likely to deny the reality of global warming. Several of this year's aspiring presidential candidates are rejecting the findings of climate science - and feeling the political heat if they don't.
After former Massachusetts Gov. Mitt Romney reiterated his understanding that human activity is warming the planet, Rush Limbaugh denounced him for doing so, saying, "bye-bye nomination." Romney now says that he doesn't know what is causing climate change.
Texas Gov. Rick Perry recently accused climate scientists of "manipulating data." In Wednesday's Republican candidate debate, he made an argument like the one tobacco industry executives used to cast doubt on the scientific evidence of smoking's health risks, saying, "The idea that we would put Americans' economy in jeopardy based on scientific theory that's not settled yet to me is just nonsense." Science is never truly settled and no responsible leader would wait for 100 percent certainty to respond to a serious threat.
Making misleading statements about science and picking on scientists is easy. Most would rather defend their findings in peer-reviewed journals than on cable TV. A lie can travel halfway around the world before we even get our lab coats on.
Some politicians, fortunately, are demonstrating a more responsible way to talk about climate change.
Former Utah Gov. Jon Huntsman, for example, reaffirmed his acceptance of the science in Wednesday's presidential debate. And New Jersey Gov. Chris Christie has also been speaking up for climate science, even as he has backed away from taking action.
"When you have over 90 percent of the world's scientists who have studied this stating that climate change is occurring and humans play a contributing role, it's time to defer to the experts," Christie said last month.
The right rebuked Christie for recognizing the reality of climate change. And the left lambasted him for using the same speech to pull out of a regional pact to curb emissions.
We question Christie's policy decision. But we commend him for acknowledging the reality of climate change, and for providing New Jersey voters a chance to decide whether they agree with his policy choice. That's how our democracy should work.
Republicans skeptical about climate policy should follow Christie's and Huntsman's lead and realize that they don't need to misrepresent the science.
And Democrats must speak out as well.
Candidate Barack Obama spoke forcefully about global warming, but has been far too quiet as president. In a rare public statement on climate, he recently told two "kid reporters" with Scholastic News that climate change is one of the chief challenges their generation will face.
That's not enough. Science tells us that the extent and severity of climate change faced by our children's generation will be determined by the hard choices we must make today. Political leadership is about ensuring that we adults face up to this task.
We cannot afford to have those leading our nation misrepresent, or be silent about, the reality and risks of climate change.
Whoever wins the next election will lead a nation increasingly affected by climate change, command a Pentagon that calls climate change a national security threat, and preside over federal scientists already working to help states and cities prepare for climate change impacts.
It is time for leaders of both parties to take seriously what science tells us we are doing to our common atmosphere, so we can take up the urgent task of finding solutions on common ground.
Read more: http://www.miamiherald.com/2011/09/14/v-print/2406387/candidates-must-deal-with-facts.html#ixzz1Y1bSuXZB
Wednesday, September 14, 2011
What I Read Today - Wednesday September 14, 2011
From: The New York Times
Is It Weird Enough Yet?
By THOMAS L. FRIEDMAN
Every time I listen to Gov. Rick Perry of Texas and Representative Michele Bachmann of Minnesota talk about how climate change is some fraud perpetrated by scientists trying to gin up money for research, I’m always reminded of one of my favorite movie lines that Jack Nicholson delivers to his needy neighbor who knocks on his door in the film “As Good As It Gets.” “Where do they teach you to talk like this?” asks Nicholson. “Sell crazy someplace else. We’re all stocked up here.”
Thanks Mr. Perry and Mrs. Bachmann, but we really are all stocked up on crazy right now. I mean, here is the Texas governor rejecting the science of climate change while his own state is on fire — after the worst droughts on record have propelled wildfires to devour an area the size of Connecticut. As a statement by the Texas Forest Service said last week: “No one on the face of this earth has ever fought fires in these extreme conditions.”
Remember the first rule of global warming. The way it unfolds is really “global weirding.” The weather gets weird: the hots get hotter; the wets wetter; and the dries get drier. This is not a hoax. This is high school physics, as Katharine Hayhoe, a climatologist in Texas, explained on Joe Romm’s invaluable Climateprogress.org blog: “As our atmosphere becomes warmer, it can hold more water vapor. Atmospheric circulation patterns shift, bringing more rain to some places and less to others. For example, when a storm comes, in many cases there is more water available in the atmosphere and rainfall is heavier. When a drought comes, often temperatures are already higher than they would have been 50 years ago, and so the effects of the drought are magnified by higher evaporation rates.”
CNN reported on Sept. 9 that “Texas had the distinction of experiencing the warmest summer on record of any state in America, with an average of 86.8 degrees. Dallas residents sweltered for 40 consecutive days of grueling 100-plus degree temperatures. ... Temperature-related energy demands soared more than 22 percent above the norm this summer, the largest increase since record-keeping of energy demands began more than a century ago.”
There is still much we don’t know about how climate change will unfold, but it is no hoax. We need to start taking steps, as our scientists urge, “to manage the unavoidable and avoid the unmanageable.” If you want a quick primer on the latest climate science, tune into “24 Hours of Reality.” It is a worldwide live, online update that can be found at climaterealityproject.org and will be going on from Sept. 14-15, over 24 hours, with contributors from 24 time zones.
Not only has the science of climate change come under attack lately, so has the economics of green jobs. Here the critics have a point — sort of. I wasn’t surprised to read that the solar panel company Solyndra, which got $535 million in loan guarantees from the Department of Energy to make solar panels in America, filed for bankruptcy protection two weeks ago and laid off 1,100 workers. This story is an embarrassment to the green jobs movement, but the death by bankruptcy was a collaboration of the worst Democratic and Republican impulses.
How so? There is only one effective, sustainable way to produce “green jobs,” and that is with a fixed, durable, long-term price signal that raises the price of dirty fuels and thereby creates sustained consumer demand for, and sustained private sector investment in, renewables. Without a carbon tax or gasoline tax or cap-and-trade system that makes renewable energies competitive with dirty fuels, while they achieve scale and move down the cost curve, green jobs will remain a hobby.
President Obama has chosen not to push for a price signal for political reasons. He has opted for using regulations and government funding. In the area of regulation, he deserves great credit for just pushing through new fuel economy standards that will ensure that by 2025 the average U.S. car will get the mileage (and have the emissions) of today’s Prius hybrid. But elsewhere, Obama has relied on green subsidies rather than a price signal. Some of this has really helped start-ups leverage private capital, but you also get Solyndras. The G.O.P. has blocked any price signal and fought every regulation. The result too often is taxpayer money subsidizing wonderful green innovation, but with no sustainable market within which these companies can scale.
Let’s fix that. We need revenue to balance the budget. We need sustainable clean-tech jobs. We need less dependence on Mideast oil. And we need to take steps to mitigate climate change — just in case Governor Perry is wrong. The easiest way to do all of this at once is with a gasoline tax or price on carbon. Would you rather cut Social Security and Medicare or pay a little more per gallon of gas and make the country stronger, safer and healthier? It still amazes me that our politicians have the courage to send our citizens to war but not to ask the public that question.
Is It Weird Enough Yet?
By THOMAS L. FRIEDMAN
Every time I listen to Gov. Rick Perry of Texas and Representative Michele Bachmann of Minnesota talk about how climate change is some fraud perpetrated by scientists trying to gin up money for research, I’m always reminded of one of my favorite movie lines that Jack Nicholson delivers to his needy neighbor who knocks on his door in the film “As Good As It Gets.” “Where do they teach you to talk like this?” asks Nicholson. “Sell crazy someplace else. We’re all stocked up here.”
Thanks Mr. Perry and Mrs. Bachmann, but we really are all stocked up on crazy right now. I mean, here is the Texas governor rejecting the science of climate change while his own state is on fire — after the worst droughts on record have propelled wildfires to devour an area the size of Connecticut. As a statement by the Texas Forest Service said last week: “No one on the face of this earth has ever fought fires in these extreme conditions.”
Remember the first rule of global warming. The way it unfolds is really “global weirding.” The weather gets weird: the hots get hotter; the wets wetter; and the dries get drier. This is not a hoax. This is high school physics, as Katharine Hayhoe, a climatologist in Texas, explained on Joe Romm’s invaluable Climateprogress.org blog: “As our atmosphere becomes warmer, it can hold more water vapor. Atmospheric circulation patterns shift, bringing more rain to some places and less to others. For example, when a storm comes, in many cases there is more water available in the atmosphere and rainfall is heavier. When a drought comes, often temperatures are already higher than they would have been 50 years ago, and so the effects of the drought are magnified by higher evaporation rates.”
CNN reported on Sept. 9 that “Texas had the distinction of experiencing the warmest summer on record of any state in America, with an average of 86.8 degrees. Dallas residents sweltered for 40 consecutive days of grueling 100-plus degree temperatures. ... Temperature-related energy demands soared more than 22 percent above the norm this summer, the largest increase since record-keeping of energy demands began more than a century ago.”
There is still much we don’t know about how climate change will unfold, but it is no hoax. We need to start taking steps, as our scientists urge, “to manage the unavoidable and avoid the unmanageable.” If you want a quick primer on the latest climate science, tune into “24 Hours of Reality.” It is a worldwide live, online update that can be found at climaterealityproject.org and will be going on from Sept. 14-15, over 24 hours, with contributors from 24 time zones.
Not only has the science of climate change come under attack lately, so has the economics of green jobs. Here the critics have a point — sort of. I wasn’t surprised to read that the solar panel company Solyndra, which got $535 million in loan guarantees from the Department of Energy to make solar panels in America, filed for bankruptcy protection two weeks ago and laid off 1,100 workers. This story is an embarrassment to the green jobs movement, but the death by bankruptcy was a collaboration of the worst Democratic and Republican impulses.
How so? There is only one effective, sustainable way to produce “green jobs,” and that is with a fixed, durable, long-term price signal that raises the price of dirty fuels and thereby creates sustained consumer demand for, and sustained private sector investment in, renewables. Without a carbon tax or gasoline tax or cap-and-trade system that makes renewable energies competitive with dirty fuels, while they achieve scale and move down the cost curve, green jobs will remain a hobby.
President Obama has chosen not to push for a price signal for political reasons. He has opted for using regulations and government funding. In the area of regulation, he deserves great credit for just pushing through new fuel economy standards that will ensure that by 2025 the average U.S. car will get the mileage (and have the emissions) of today’s Prius hybrid. But elsewhere, Obama has relied on green subsidies rather than a price signal. Some of this has really helped start-ups leverage private capital, but you also get Solyndras. The G.O.P. has blocked any price signal and fought every regulation. The result too often is taxpayer money subsidizing wonderful green innovation, but with no sustainable market within which these companies can scale.
Let’s fix that. We need revenue to balance the budget. We need sustainable clean-tech jobs. We need less dependence on Mideast oil. And we need to take steps to mitigate climate change — just in case Governor Perry is wrong. The easiest way to do all of this at once is with a gasoline tax or price on carbon. Would you rather cut Social Security and Medicare or pay a little more per gallon of gas and make the country stronger, safer and healthier? It still amazes me that our politicians have the courage to send our citizens to war but not to ask the public that question.
Tuesday, September 13, 2011
What I Read Today - Tuesday September 13, 2011
From: The New York Times
If It Feels Right ...
By DAVID BROOKS
During the summer of 2008, the eminent Notre Dame sociologist Christian Smith led a research team that conducted in-depth interviews with 230 young adults from across America. The interviews were part of a larger study that Smith, Kari Christoffersen, Hilary Davidson, Patricia Snell Herzog and others have been conducting on the state of America’s youth.
Smith and company asked about the young people’s moral lives, and the results are depressing.
It’s not so much that these young Americans are living lives of sin and debauchery, at least no more than you’d expect from 18- to 23-year-olds. What’s disheartening is how bad they are at thinking and talking about moral issues.
The interviewers asked open-ended questions about right and wrong, moral dilemmas and the meaning of life. In the rambling answers, which Smith and company recount in a new book, “Lost in Transition,” you see the young people groping to say anything sensible on these matters. But they just don’t have the categories or vocabulary to do so.
When asked to describe a moral dilemma they had faced, two-thirds of the young people either couldn’t answer the question or described problems that are not moral at all, like whether they could afford to rent a certain apartment or whether they had enough quarters to feed the meter at a parking spot.
“Not many of them have previously given much or any thought to many of the kinds of questions about morality that we asked,” Smith and his co-authors write. When asked about wrong or evil, they could generally agree that rape and murder are wrong. But, aside from these extreme cases, moral thinking didn’t enter the picture, even when considering things like drunken driving, cheating in school or cheating on a partner. “I don’t really deal with right and wrong that often,” is how one interviewee put it.
The default position, which most of them came back to again and again, is that moral choices are just a matter of individual taste. “It’s personal,” the respondents typically said. “It’s up to the individual. Who am I to say?”
Rejecting blind deference to authority, many of the young people have gone off to the other extreme: “I would do what I thought made me happy or how I felt. I have no other way of knowing what to do but how I internally feel.”
Many were quick to talk about their moral feelings but hesitant to link these feelings to any broader thinking about a shared moral framework or obligation. As one put it, “I mean, I guess what makes something right is how I feel about it. But different people feel different ways, so I couldn’t speak on behalf of anyone else as to what’s right and wrong.”
Smith and company found an atmosphere of extreme moral individualism — of relativism and nonjudgmentalism. Again, this doesn’t mean that America’s young people are immoral. Far from it. But, Smith and company emphasize, they have not been given the resources — by schools, institutions and families — to cultivate their moral intuitions, to think more broadly about moral obligations, to check behaviors that may be degrading. In this way, the study says more about adult America than youthful America.
Smith and company are stunned, for example, that the interviewees were so completely untroubled by rabid consumerism. (This was the summer of 2008, just before the crash).
Many of these shortcomings will sort themselves out as these youngsters get married, have kids, enter a profession or fit into more clearly defined social roles. Institutions will inculcate certain habits. Broader moral horizons will be forced upon them. But their attitudes at the start of their adult lives do reveal something about American culture. For decades, writers from different perspectives have been warning about the erosion of shared moral frameworks and the rise of an easygoing moral individualism.
Allan Bloom and Gertrude Himmelfarb warned that sturdy virtues are being diluted into shallow values. Alasdair MacIntyre has written about emotivism, the idea that it’s impossible to secure moral agreement in our culture because all judgments are based on how we feel at the moment.
Charles Taylor has argued that morals have become separated from moral sources. People are less likely to feel embedded on a moral landscape that transcends self. James Davison Hunter wrote a book called “The Death of Character.” Smith’s interviewees are living, breathing examples of the trends these writers have described.
In most times and in most places, the group was seen to be the essential moral unit. A shared religion defined rules and practices. Cultures structured people’s imaginations and imposed moral disciplines. But now more people are led to assume that the free-floating individual is the essential moral unit. Morality was once revealed, inherited and shared, but now it’s thought of as something that emerges in the privacy of your own heart.
If It Feels Right ...
By DAVID BROOKS
During the summer of 2008, the eminent Notre Dame sociologist Christian Smith led a research team that conducted in-depth interviews with 230 young adults from across America. The interviews were part of a larger study that Smith, Kari Christoffersen, Hilary Davidson, Patricia Snell Herzog and others have been conducting on the state of America’s youth.
Smith and company asked about the young people’s moral lives, and the results are depressing.
It’s not so much that these young Americans are living lives of sin and debauchery, at least no more than you’d expect from 18- to 23-year-olds. What’s disheartening is how bad they are at thinking and talking about moral issues.
The interviewers asked open-ended questions about right and wrong, moral dilemmas and the meaning of life. In the rambling answers, which Smith and company recount in a new book, “Lost in Transition,” you see the young people groping to say anything sensible on these matters. But they just don’t have the categories or vocabulary to do so.
When asked to describe a moral dilemma they had faced, two-thirds of the young people either couldn’t answer the question or described problems that are not moral at all, like whether they could afford to rent a certain apartment or whether they had enough quarters to feed the meter at a parking spot.
“Not many of them have previously given much or any thought to many of the kinds of questions about morality that we asked,” Smith and his co-authors write. When asked about wrong or evil, they could generally agree that rape and murder are wrong. But, aside from these extreme cases, moral thinking didn’t enter the picture, even when considering things like drunken driving, cheating in school or cheating on a partner. “I don’t really deal with right and wrong that often,” is how one interviewee put it.
The default position, which most of them came back to again and again, is that moral choices are just a matter of individual taste. “It’s personal,” the respondents typically said. “It’s up to the individual. Who am I to say?”
Rejecting blind deference to authority, many of the young people have gone off to the other extreme: “I would do what I thought made me happy or how I felt. I have no other way of knowing what to do but how I internally feel.”
Many were quick to talk about their moral feelings but hesitant to link these feelings to any broader thinking about a shared moral framework or obligation. As one put it, “I mean, I guess what makes something right is how I feel about it. But different people feel different ways, so I couldn’t speak on behalf of anyone else as to what’s right and wrong.”
Smith and company found an atmosphere of extreme moral individualism — of relativism and nonjudgmentalism. Again, this doesn’t mean that America’s young people are immoral. Far from it. But, Smith and company emphasize, they have not been given the resources — by schools, institutions and families — to cultivate their moral intuitions, to think more broadly about moral obligations, to check behaviors that may be degrading. In this way, the study says more about adult America than youthful America.
Smith and company are stunned, for example, that the interviewees were so completely untroubled by rabid consumerism. (This was the summer of 2008, just before the crash).
Many of these shortcomings will sort themselves out as these youngsters get married, have kids, enter a profession or fit into more clearly defined social roles. Institutions will inculcate certain habits. Broader moral horizons will be forced upon them. But their attitudes at the start of their adult lives do reveal something about American culture. For decades, writers from different perspectives have been warning about the erosion of shared moral frameworks and the rise of an easygoing moral individualism.
Allan Bloom and Gertrude Himmelfarb warned that sturdy virtues are being diluted into shallow values. Alasdair MacIntyre has written about emotivism, the idea that it’s impossible to secure moral agreement in our culture because all judgments are based on how we feel at the moment.
Charles Taylor has argued that morals have become separated from moral sources. People are less likely to feel embedded on a moral landscape that transcends self. James Davison Hunter wrote a book called “The Death of Character.” Smith’s interviewees are living, breathing examples of the trends these writers have described.
In most times and in most places, the group was seen to be the essential moral unit. A shared religion defined rules and practices. Cultures structured people’s imaginations and imposed moral disciplines. But now more people are led to assume that the free-floating individual is the essential moral unit. Morality was once revealed, inherited and shared, but now it’s thought of as something that emerges in the privacy of your own heart.
Monday, September 12, 2011
What I Read Today - Monday September 12, 2011
From: TaxVox - The Tax Policy Center blog
Do Republicans Really Want to Cut Taxes on the Wealthy and Raise Them on Everyone Else?
Howard Gleckman
Posted on August 25, 2011, 3:26 pm
Of all the curious rhetoric floating around both Washington and the campaign trail, the strangest may be the demand of many Republicans that Congress raise taxes for low-income working households even as it cuts taxes for the wealthy. The left has, not surprisingly, gleefully leapt on the issue. And, honestly, it seems like terrible politics for the GOP.
But this idea is hardly new. It is a key element of various forms of consumption taxes such as the National Retail Sales Tax (including the wildly misnamed FAIR tax). It is also favored among those on the right who want to close “loopholes” to force low- and moderate-income households to pay some income tax even as they cut rates across the board—a design almost certain to favor high-income taxpayers.
Texas governor and GOP presidential hopeful Rick Perry supports the FAIR tax (or at least did last year when he wrote his manifesto Fed Up). This levy would repeal nearly all federal taxes (including the income tax and the payroll tax) and replace them with a single-rate national sales tax on the purchase of all goods and services. FAIR tax backers set this rate at 23 percent but the Tax Policy Center’s Bill Gale and others have concluded that the rate would have to exceed 30 percent if the scheme is to raise as much money as current law.
To try to get a sense of what such a levy would do to the tax burden across incomes, the Tax Policy Center analyzed a generic consumption tax designed to replace most federal taxes. In, um, fairness, it is important to note that TPC did not review the actual FAIR tax but rather a stylized Value Added Tax –type consumption tax. But any broad-based consumption tax will generate roughly the same pattern.
Still, the results are dramatic. On average, such a levy would raise the share of taxes paid for all but the highest-income households, who would pay far less than they do today. A consumption tax without any rebate to protect low-income people (the red bar in the graph) would be extremely regressive. In other words, the more you make, the lower your tax burden, and the less you make, the higher–a mirror image of today’s moderately progressive tax system.
The reason is simple: A consumption levy would not tax income from saving, and low- and moderate-income people save a lot less than the rich. Thus, if Congress taxes consumption, those down the economic food chain will inevitably pay more in taxes. One way Congress can address the problem is with a rebate—effectively exempting thousands of dollars of spending from tax (the exact amount is tied to the poverty level so it rises as income falls).
As the blue bars in the graph show, such a rebate would not completely fix the problem. Low- and moderate-income families would still pay more on average than they do today. But they’d pay a much smaller share than if there was no rebate.
There is a funny thing about the rebate, though (called a prebate in the FAIR tax). It would end up exempting a lot of low-income households from tax—recreating exactly the problem Perry and others complain about. And even with a rebate, the highest income 5 percent of households would still enjoy a major tax cut even as others pay more. Such a consumption tax would reduce the tax burden for the top 1 percent (who make an average of $1.6 million per year) by a stunning 40 percent.
Of course, tax systems are about more than fairness. Efficiency and the effect on the overall economy matter. But I’m not sure I’d want to run for president on a promise to cut the tax burden on millionaires by 40 percent even as I’d raise taxes for nearly everybody else. Forget class warfare. This is more like the charge of the Light Brigade.
Do Republicans Really Want to Cut Taxes on the Wealthy and Raise Them on Everyone Else?
Howard Gleckman
Posted on August 25, 2011, 3:26 pm
Of all the curious rhetoric floating around both Washington and the campaign trail, the strangest may be the demand of many Republicans that Congress raise taxes for low-income working households even as it cuts taxes for the wealthy. The left has, not surprisingly, gleefully leapt on the issue. And, honestly, it seems like terrible politics for the GOP.
But this idea is hardly new. It is a key element of various forms of consumption taxes such as the National Retail Sales Tax (including the wildly misnamed FAIR tax). It is also favored among those on the right who want to close “loopholes” to force low- and moderate-income households to pay some income tax even as they cut rates across the board—a design almost certain to favor high-income taxpayers.
Texas governor and GOP presidential hopeful Rick Perry supports the FAIR tax (or at least did last year when he wrote his manifesto Fed Up). This levy would repeal nearly all federal taxes (including the income tax and the payroll tax) and replace them with a single-rate national sales tax on the purchase of all goods and services. FAIR tax backers set this rate at 23 percent but the Tax Policy Center’s Bill Gale and others have concluded that the rate would have to exceed 30 percent if the scheme is to raise as much money as current law.
To try to get a sense of what such a levy would do to the tax burden across incomes, the Tax Policy Center analyzed a generic consumption tax designed to replace most federal taxes. In, um, fairness, it is important to note that TPC did not review the actual FAIR tax but rather a stylized Value Added Tax –type consumption tax. But any broad-based consumption tax will generate roughly the same pattern.
Still, the results are dramatic. On average, such a levy would raise the share of taxes paid for all but the highest-income households, who would pay far less than they do today. A consumption tax without any rebate to protect low-income people (the red bar in the graph) would be extremely regressive. In other words, the more you make, the lower your tax burden, and the less you make, the higher–a mirror image of today’s moderately progressive tax system.
The reason is simple: A consumption levy would not tax income from saving, and low- and moderate-income people save a lot less than the rich. Thus, if Congress taxes consumption, those down the economic food chain will inevitably pay more in taxes. One way Congress can address the problem is with a rebate—effectively exempting thousands of dollars of spending from tax (the exact amount is tied to the poverty level so it rises as income falls).
As the blue bars in the graph show, such a rebate would not completely fix the problem. Low- and moderate-income families would still pay more on average than they do today. But they’d pay a much smaller share than if there was no rebate.
There is a funny thing about the rebate, though (called a prebate in the FAIR tax). It would end up exempting a lot of low-income households from tax—recreating exactly the problem Perry and others complain about. And even with a rebate, the highest income 5 percent of households would still enjoy a major tax cut even as others pay more. Such a consumption tax would reduce the tax burden for the top 1 percent (who make an average of $1.6 million per year) by a stunning 40 percent.
Of course, tax systems are about more than fairness. Efficiency and the effect on the overall economy matter. But I’m not sure I’d want to run for president on a promise to cut the tax burden on millionaires by 40 percent even as I’d raise taxes for nearly everybody else. Forget class warfare. This is more like the charge of the Light Brigade.
Subscribe to:
Posts (Atom)