Transformational Government

Transformational Government

by digby

In an article discussing the fact that the wealthy only pay an average of 17% tax on their millions (and poor people pay no federal income taxes at all, the bastards!)here's how CBS describes the Republican and White House budget proposals:

The sheer volume of credits, deductions and exemptions has both Democrats and Republicans calling for tax laws to be overhauled. House Republicans want to eliminate breaks to pay for lower overall rates, reducing the top tax rate from 35 percent to 25 percent. Republicans oppose raising taxes, but they argue that a more efficient tax code would increase economic activity, generating additional tax revenue.

President Barack Obama said last week he wants to do away with tax breaks to lower the rates and to reduce government borrowing.

Basically, they're saying that the president and the Republicans are proposing the same thing, except the Republicans are promising that the deficit will magically go away. Again, I get why the conservatives want to exchange tax breaks for lower rates. Their rich patrons will take the lower rates and will reinstate all the tax breaks and more as soon as possible. Entire armies of lobbyists are employed expressly for that purpose. (The fact that the Ryan budget the House passed last week includes a total rollback of Dodd Frank should be some indication of where they are coming from on this sort of thing.) They don't really care about deficits, so they are employing their vacuous supply-side talking points, assuring everyone that if you cut taxes on the wealthy you increase revenue.

Here's Amanda Terkel in yesterday's HuffPo discussing the GOP's mantra:


[Congressman Joe] Walsh replied that the best way to raise revenues is to grow the economy. "You get taxes and regulations off the backs of businesses so that revenues can increase," he insisted.

Amanpour continued to press him, expressing skepticism that Congress can really balance the budget just by cutting social programs. Walsh insisted that tax cuts consistently help the economy grow and therefore raise revenues for the government.

"In the 80s, federal revenues went up," said Walsh. "We didn't cut spending. Revenues went up in the 80s. Every time we've cut taxes, revenues have gone up. The economy has grown."
[...]
Walsh isn't the first lawmaker to make this argument. Last year, Senate Minority Leader Mitch McConnell (R-Ky.) made a similar comment about the Bush tax cuts.

"There's no evidence whatsoever that the Bush tax cuts actually diminished revenue," he asserted. "They increased revenue, because of the vibrancy of these tax cuts in the economy."

But even conservative economists have cast doubt on this claim.

"Federal revenue is lower today than it would have been without the tax cuts. There's really no dispute among economists about that," said Alan D. Viard, a former White House economist under George W. Bush, in a 2006 Washington Post article.

Robert Carroll, deputy assistant Treasury secretary for tax analysis, also said that no one in the administration believes tax cuts created a surge in revenue. "As a matter of principle, we do not think tax cuts pay for themselves," Carroll said.

Bruce Bartlett, a Reagan economist who became a strong critic of the Bush administration's policies, used data from the Office of Management and Budget in a blog post last year to illustrate how "the Bush tax cuts reduced revenue rather significantly."

Ok, so the Republicans are lying as usual. And they are pulling an additional fast one with this notion of "reducing tax expenditures" as a way to raise revenue. Here's what "tax expenditures" are:

Tax expenditures are, quite simply, spending programs implemented through the tax code. These programs give people and businesses special tax credits, deductions, exclusions, exemptions, deferrals, and preferential rates in support of various government policies. Some of these programs help people save for retirement, buy a home, or pay for college; others encourage companies to invest in green energy technologies or build nuclear power plants; they even subsidize corporations that drill for oil or purchase real estate; and much more.

The government uses both tax expenditures and direct spending to support its policies. Direct spending is when the government takes taxpayer dollars and gives them to others to spend for a specific purpose. The government uses tax expenditures to accomplish the same goals as direct spending, but it transfers money by lowering taxes for an individual or company instead of giving them the money.

Consider this example to see the similarities between direct spending and tax expenditures: The government wants to create a program that provides $10,000 to every individual who weatherizes his or her home. The government can deliver the subsidy in one of three ways: (1) cut a check for $10,000, (2) create a tax expenditure like a refundable credit worth $10,000, or (3) use a combination of direct spending and tax expenditures. In all three cases the individual who weatherizes his or her home receives $10,000 from the government.

What makes tax expenditures different from other forms of government spending?

The government uses tax expenditures and direct spending for the same purposes, but tax expenditures receive different treatment in two key ways. Most tax expenditures are not subject to the same annual appropriations process as other forms of spending. This means they are less likely to be scrutinized.

Second, tax expenditures appear to be tax cuts instead of spending because they transfer funds to businesses and individuals through tax subsidies. It is therefore generally easier to win votes for tax expenditures than direct spending. And members of Congress often pursue their priorities through tax expenditures as a result, even if direct spending would be more effective and cost less.

More at the link. So really, eliminating tax expenditures is not "raising revenue", it's cutting spending for programs that benefit the people --- it's just doing it by eliminating the incentives that make them possible. And what's most ironic about it is that it's GOP propaganda about big government that insisted upon enlisting the private sector and using these "incentives" instead of direct government spending in the first place.

Now, it's true that there are a boatload of tax expenditures for corporations and the wealthy that can and should be cut. There is no reason for any government program that puts even more money into the pockets of rich people without giving any benefit to the citizens. But they are the least likely to stay cut for long --- lobbyists are cheap by comparison and they are good at their jobs. No, the weight of this quest to eliminate the tax expenditures is going to fall on the programs that help average people or individuals. (They need to have "skin in the game", dontcha know.) What's happening is that all the programs the government has put in place for the past 60 years, from the New Deal to Medicare to the more modern tax incentives and subsidies for things like education and green energy are on the chopping block. That's transformative alright.

So why is the administration pre-emptively signing on to this formula? I can't say why they think that this kind of "reformation" of the tax code in a time when government is already restricted in it's ability to deliver needed services to its citizens is a good idea. But this commentary by Gene Sperling explaining the White House position confirms that they do sign on to it. Basically, the president has promised to retire the Bush tax cuts and he will also close loopholes and remove "tax expenditures" which will bring in more money to deal with the deficit. And that means we can afford to lower the tax rates back down again --- which also means the Bush tax cuts will become the Obama tax cuts. Hooray for the Democrats. Tax cuts uber alles:

Sperling: Obama's message is bipartisan tax reform that lowers rates

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In other words, "deficit reduction" as currently conceived is pretty much all spending cuts, whether through cutting direct government programs or indirect tax incentives. But we'll pretend that it's actually due to the elimination of corporate loopholes and subsidies. (So many we can actually lower tax rates even more!) If it happens (a long shot to be sure) the wealthy will end up paying less than they are already when all is said and done. And to be fair, average citizens' may end up paying lower rates as well. But their government will end up doing much, much less to provide for the common welfare. That's transformational, for sure.

And it also shows to me that this deficit hysteria is bullshit. "The market" demands low tax rates or they'll crater the economy again, the CEOs demand low tax rates or they'll move all their jobs offshore, and the wealthy donors demand low tax rates so they can leave most of the country's wealth in the hands of their deadbeat offspring. Let's be honest about what's happening here and deal with it directly: the owners are demanding that average people give up their security and their futures so the top 1% can pay even less in taxes --- or else. Whether it comes in the form of "tax reform" or direct spending cuts or any combination, that's the "deal" that's really on the table.


*And yes, I know that many of these subsidies are nonsense and should be eliminated. But unless they are willing to at least keep the tax rates at a reasonable level for the wealthy and corporations at the same time, once the lobbyists are done the net gain in revenue --- if there is any --- will all fall on the middle class and poor.

If I trusted these people to do the right thing, or even that they knew what the right thing was, I might be willing to give them the benefit of the doubt. But this is not about the deficit --- this is about cutting taxes and reducing the government's ability to mitigate the harsh consequences of unbridled capitalism and support a strong, educated, healthy society that is compassionate toward those who cannot work. But hey, if you like a Hobbesian Jungle featuring lovely, full service, heavily armed gated resorts for the wealthy you're going to love 21st century America.


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