How to Fix the Deficit

Here. Of course, there are problems with the NYTimes options. The sorts of taxes they allow you to meddle with are excessively narrow and confined to those already in existence (what about an intangible property tax, for instance?) Moreover, they only let you raise taxes on the rich to "Clinton-era Levels" which were already indexed to the neoliberal era begun under Reagan. For instance, we must note that the top marginal rate of income taxation was low during the Clinton-era. It would do this country some good to let everyone use this gadget with the added option of raising the top marginal rate on income as high as they like.

Below is the history of the top marginal tax rate on income (i.e. the rate paid by the richest earners who constitute less than 1% of the population.... right now it means that the rich pays 35% on every dollar earned over $373,000):
What you should notice first is that it was raised significantly in the 1930s (from 26% to 60%, later from 60% to 80%). It remained above 60% from the 1930s until the 1980s when Reagan cut it back down to pre-Depression levels. That is, it remained significantly above 60% during the longest, most sustained period of economic growth in the history of the United States (the so-called "long boom" from WWII through the early 70s). When the NYTimes says "Clinton-era rates", they mean a meager 40% top rate, but there's no reason in principle why we shouldn't raise the top rate significantly higher than that right now. After all, in the 1950s it was even as high as 90% under Republican presidencies! So it's just false and disingenuous to claim, as Republicans (and many Democrats) do, that high top marginal rates mean anemic growth. In reality, the fight over taxing the rich has nothing to do with growth or efficiency, and everything to do with class power. That is, the profit-hungry ruling class doesn't want to pay for this crisis themselves: they want to force the working majority to clean up their mess. Their credo is: socialize the losses and risks, privatize the profits and earnings. And their sway in Congress is such that the lowly Democrats hardly even hesitated in pushing through an extension of the Bush Tax give-aways for earners over $250,000. Obama didn't even fight for his campaign promise to return taxes on the rich to pre-Bush levels, and I think that speaks volumes about what the Dems stand for. By further eroding the funding for the public goods that are now on the chopping block, they paved the way for the brutal cuts that are being proposed now. There is no reasonable way to interpret the "budget war" as a struggle between Right and Left. It is a struggle between hard-Right and soft-Right. It is a debate between two bullies about how many times to punch us in the stomach; it's not a debate about whether we deserve to be beat up at all.

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How To Argue About Taxes (and How Not To)

"Myopia afflicts the contemporary legislative process in the US in a dramatic and simple way, in the form of tables that set out the distribution of tax burdens associated with various tax reforms. Most government transfers are excluded from these burden tables, including, most importantly, Social Security and Medicare. It seems clear that a tax burden that is matched by an equivalent transfer is not, in the relevant sense, a burden at all... But the problem would not be solved even if all money transfers were included in the burden tables. That too would be arbitrary, so long as we excluded in-kind benefits such as roads, schools, and police, not to mention the entire legal system that defines and protects everyone's property rights. If literally all government benefits were taken into account, however, we would notice that almost no one suffers a net burden from government. We would be forced to conclude that there is no separate issue of the fair distribution of tax burdens, distinct from the entirely general issue of whether government secures distributive justice. This might be described as a question about the allocation of different benefits of taxation, expenditure, and other government policies to different individuals; but that looks very unlike the original question." (pp.14-15, The Myth of Ownership, Nagel and Murphy (Oxford: 2002)).

The point is that it is false to claim that we can intelligibly discuss "tax burdens" as an isolated matter apart from the social/economic system of which taxation is but a small part. In particular, it is preposterous and unjustifiable to merely examine or criticize "tax burdens", conceived of as levels of taxation on whatever (income, consumption, etc.) without also looking at the way that taxes are spent.

If, say, my income tax goes up by 5%, say by $1000/yr, and I get unlimited access to higher education (which is worth much more than $1000/yr), it would be absurd to say that my increased rate of taxation means an increased "burden". I haven't been burdened in the slightest- I've just netted quite a lot of value. It would be pointless to debate whether my 5% was, in itself, fair or unfair without considering what we get from taxation: services, a functioning society, basic social institutions, a more equal and fairer distribution of resources, etc.

But that is how the conversation is set up in mainstream "debates" about taxes. It is a discussion merely about "burdens" and whether they should be lifted just a bit or quite a lot. If it's not economists going on about what's most "efficient" or "best for growth" (as though these underspecified goals were the only values relevant to the determination of tax policy), it's politicians blathering about how to distribute the "tax burden" fairly. Now I don't want to suggest that we shouldn't pay attention to the distribution of tax rates. How tax rates are distributed is an extremely important- I've argued many times on this blog that working class tax rates should be decreased while corporate taxes, estate taxes, and the top marginal income tax rate should be steeply increased. It matters a great deal whether we have, say, a flat income tax or a progressive income tax, or whether capital gains and dividends are taxed at the same rate as wages.

Moreover, I'm not saying that taxes can never end up being a burden. For many people in the US, they absolutely are. For working class and poor people, deeply regressive taxes can end up being quite burdensome indeed. But they are burdensome on the assumption that basic needs go unmet despite the fact that people's relatively low income is taxed at a high rate. When a working class person faces high consumption taxes that increases the cost of food, that is clearly a net burden. But say that this same person pays high premiums for health insurance from a for-profit provider every month for inadequate coverage. If we were to institute a single-payer system, this person's taxes might well increase. But it would be false to say that this person is now enduring a new, increased burden. On the contrary, they would no longer have to pay high premiums to a for-profit insurance agency, and they would receive far more extensive care than they received before. What they pay in taxes is less than what they paid in premiums, and they now receive more extensive care for less money. This is clearly a net gain. The language of "burden" here is a red herring. Again, we can't make sense of the justice of tax policies without examining, among other things, what goes in and what goes out. If my taxes go up 2% and I get 25% more in terms of goods and services, it would be bizarre to say that I'm now burdened 2% more than before.

Thus, there is no abstract way to say whether a certain rate of taxation, all by itself, is burdensome or not- we can only know whether its burdensome by looking at the balance of what one pays in and what one gets out of it. We have to examine someone's class position. If we operationalize this in dollar terms, we could say that a particular policy was burdensome if and only if I paid far more into the system than I got out of it. And to calculate "what I get out of it" we have to add up a long list of social goods, institutions and services: roads and infrastructure, legal systems and courts, educational institutions, public parks, libraries, fire protection, Medicare/Medicaid, and so forth.

So, for the vast majority of us, taxation in general will not be a burden in this sense at all. Conversely, for the ruling class, taxation probably will be a "burden". They will, it seems, be required to pay more into the system than they are likely to take out of it in terms of services and public goods. Again, in a narrow sense, if the system of taxation is progressive (i.e. if the average rate of taxation increases with income) the rich will pay more into the system in dollar terms then they get out of it in services. But there are three reasons that nobody except ruling class parasites should worry about this.

First, it isn't quite right that the ruling class puts more in than they put out. In order for them to earn any profits whatsoever, they need a set of basic public institutions (legal system, police, military, courts, infrastructure, anti-trust regulators to guarantee competition, etc.) that make it possible to own property and have a market economy at all. Markets aren't "natural" in any sense whatsoever: they are conventional and require quite a lot of "big government intervention" in order to exist at all. Though we are encouraged to forget this and ignore it, the obvious fact is that private property is a legal convention, not a fact of nature. "We are all born into an elaborately structured legal system governing the acquisition, exchange, and transmission of property rights, and ownership comes to seem the most natural thing in the world. But the modern economy in which we earn our salaries, own our homes, bank accounts, retirement savings, and personal possessions, and in which we can use our resources to consume or invest, would be impossible without the framework provided by government supported by taxes". All of this must be in place in order for a capitalist economy to exist at all: the basic institutional framework underwriting markets are not "free", they must be paid for by tax revenues. So, to be sure, isn't exchanging equivalent for equivalent if we add up the taxes they pay alongside, say, the value of the education they procure from a free public university. But it's a fact that the ruling class needs a lot of government intervention (to break strikes, to intimidate protesters, to thwart social movements, to intervene globally to create a good business climate, to protect property, etc.) to make the profits that it makes. And that intervention is not free: there's a sense in which the ruling class owes the government "rent" for being there to create the conditions for profitability. Of course, power relationships mean that the ruling class is often in a position to get out paying this "rent"; thus they make working people pay it for them. They are, after all, just trying to maximize profits for themselves, even if this means socializing necessary risks and costs. The ruling class way of life is as follows: evade all costs, exploit ruthlessly, externalize risks and wastes, and jealously covet all the earnings that it can get its hands on.

Second, there can be no ethical objection to the idea of taxing the rich at much higher rates. On the contrary, there is something deeply unsavory, morally speaking, about the person with massive surpluses who refuses to relinquish any whatsoever to help those with nothing. The idea of paying according to one's means is a basic ethical principle that seems rather hard to reject. Such a principle correctly abhors the vices of avarice and miserly tendencies to hoard things for oneself. Moreover, it is absurd to ask Bill Gates to pay the same dollar amount in taxes as a working-class single mother. To object to that is to depart from our ordinary moral horizon entirely, so the ethical objection to taxing the rich hardly holds water. But, as we will see below, this moral/ethical element only arises on the condition that the pre-tax income of the ruling class is legitimate. But it is not. It is already tendentious for a ruling class person to say that their pre-tax income is "theirs" in some fundamental way (it is only "theirs" under a particular regime of property relations and public institutions which they willfully ignore in discussions of taxation). But even if it were "theirs", there are still very strong, and quite uncontroversial, ethical reasons to think that the "pay according to one's means" principle is sound. Cough it up, moneybags.

Third, it is false that the ruling class receives in profits exactly what they deserve as a result of their productive efforts. That's not how markets work. Markets aren't conscious, they aren't aware of who deserves what, and they certainly aren't in the business of rewarding people. Some of what determines market distributions is brute luck, some of it has to do with allocating resources in such a way that profit is maximized, some of it is short-sighted irrational craziness (as in the buildup to the recession we're in). In principle, I needn't do anything productive whatsoever to earn profits on an investment. Arbitrage is the most obvious example: this is when someone moves massive amounts of capital very quickly to exploit a small, temporary shift in exchange rates between, say, two currencies. This is how Soros made his billions. There is nothing productive whatsoever about such transactions. This is simply a case of money making money.

So, incomes in a market economy aren't in any sense based on what one "deserves". Often, many deserving people are denied employment simply because there is no way to profitably employ all of them. For the most part, incomes in a capitalist economy are determined by the office or position one occupies in the economy. And depending on the location of that office/position you have more or less economic power- and it is primarily the degree of economic bargaining power that determines your income. For example, if you're an un-unionzed worker in a labor market in which unemployment is high, then employers have a huge amount of economic power over you. They are in a position to push wages down in part because there are many workers competing against each other for scarce jobs. Because of your powerless position as an unemployed worker (you have nothing to take to market but your own capacity to work), your income is liable to be low. On the other hand, if you own large amounts of alienable productive resources (e.g. a factory, large amounts of resources) you are in a position to command a very high income indeed. It's not how productive you are or how hard you work, in the end, but what particular office you occupy within the system that largely determines your income.

Let us not forget that capitalism is a society in which the ownership of the means of production is concentrated in a small fraction of the population's hands. The majority of people in capitalism do not have large amounts of capital or land that they could invest for a profit; the only important productive asset most people have is their ability to labor. This means that those who own the means of production are in a position of power vis-a-vis others in that society, and thus they are in a position "to demand returns in the form of profit, interest, and rent". Most people, therefore, are not in a position of economic power such that they may extract profit, interest and rent from others.

Let me say a bit more about this to drive the point home. Marxists aren't claiming that capitalists and landowners never derive any income from, say, improvements to their land or labor they expend managing their firms. What fraction of income landlords and capitalist receive as a result of their labor is not, strictly speaking, what angers Marxists. What Marxists see as problematic is that fraction of income that capitalists and landlords receive, just because they are owners of capital or land. Their main complaint is about "money making more money" in a society in which the majority don't have such a luxury and must therefore work for every dollar they earn.

The basic problem here is that the ruling class can only earn profits on the condition that there is a large class of people who do all the labor necessary to produce profits in the first place. The ruling class can only make their massive fortunes on the condition that they own and control the means of production, whereas the majority of us do not. Their social/economic power comes from the fact that they control what we need to survive- jobs on the one hand, and goods and services on the other.

And as any child can tell you, if all the workers in a society simply stop working, the whole society grinds to a halt. If they were to stop working indefinitely, the ruling class would wither on the vine- they wouldn't even be able to continue to eat and procure their own means of subsistence. What this shows is that they are plainly dependent on a system of social labor. This is why the ruling class pulls out all the stops to prevent and to break strikes. Ruling class persons, then, are hardly self-created, isolated producers who create something out of nothing. They occupy a particular place in the economic system, and it is in virtue of their place vis-a-vis production that they are able to have the power they have, and earn the incomes that they do. So to say that there is some sense in which they "deserve" their pre-tax income is absurd. To say that they it is an illegitimate intervention into their private affairs for them to be taxed is patently false: their pre-tax income is only possible because of a massive, public system of social labor (which is not ignored at production time, but is happily ignored at tax time). Their income is not a private affair- they need the rest of us who do the work if they are to earn it! When the day comes that the ruling class produces everything they have entirely by themselves, on a deserted island, without the help of anyone else, then perhaps their complaint will have some merit. But of course they wouldn't be a ruling class anymore in such a case- they'd just be some weird person on a island who makes all their own stuff. They'd have no power over us and they'd have no way of exploiting our labor for profit.

But as long as they need the rest of us to have what they have, they should dispense with the bogus talk about the "privateness" of what they earn. It is public in every sense of the word- and it is justly taxed by society in order to fund the basic institutions, services, and goods that are required if any society is to flourish.

But though socialists support the demand to tax the rich, this isn't the goal of socialist politics. The goal of socialist politics isn't to achieve an "optimum" (whatever that would be) level of taxation on the ruling class; the goal of socialist politics is to transform society in such a way that there is no ruling class. The goal is to bring the basic structure of society under the democratic control of the people, rather than leaving it under the dictatorial control of the capitalist class.

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GE's Tax Bill? ZERO.

General Electric, the nation’s largest corporation, had a very good year in 2010.

The company reported worldwide profits of $14.2 billion, and said $5.1 billion of the total came from its operations in the United States.

Its American tax bill? None. In fact, G.E. claimed a tax benefit of $3.2 billion.

Read the rest here. Set aside the recent Democrat extension of the Bush tax giveaways to the wealthy. Just focus on the G.E. thing for a moment. When the Democrat-apologists trot out their tired arguments for why you should hold your nose and spend money, political energy, time and votes getting Democrats elected to office... just remember that this appalling class tax disparity went unchallenged by a Democrat-controlled House, a super-majority Senate, and a popular young President who talked big about change. It remains unchallenged, in fact, as the article makes clear, Obama applauds this kind of thing:

In January, President Obama named Jeffrey R. Immelt, General Electric’s chief executive, to head the President’s Council on Jobs and Competitiveness. “He understands what it takes for America to compete in the global economy,” Mr. Obama said.

That's the political face of the Democrats, folks. That's supposed to be the best we've got. Now, I would never deny that the Dems are often less offensively right-wing than the hapless Republicans. But let's not kid ourselves about who the Democrats are and who they represent. If you are truly on the Left, then you have to believe that there is a irresolvable contradiction between where we need to get to and what the Democratic Party (as a national, heavily business-influenced organization) aims to accomplish. We have to ask: where do progressives want to go, and can the Democrats take us there? You only have to think rather modest things like "we should have a national health care program (e.g. like Canada) that covers everyone unconditionally from cradle to grave" to find yourself in a position where you have to answer "no".

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The Case for Taxing the Rich

(See the Economic Policy Institute for the above images and more facts/figures).

As the first graph makes clear, the fifth of earners in the US have made staggering gains between 1979-2005. The disparities only get more extreme when you climb up the ladder within the top 1/5: the top 0.1% experienced an average $6 million increase in annual income whereas the bottom 1/5 of Americans experienced a mere $200 average increase. Make no mistake, this trend of increasing inequality amidst increasing growth represents a relentless class project of redistributing wealth from the bottom up to the top. By relentlessly pushing for cuts and privatization coupled with massive tax gifts for the super-rich, the ruling class has managed to redistribute wealth embodied in public goods to private coffers. The last 40 years have been a testament to their success.

Now, as the second graph makes clear, the Bush tax breaks for the rich only served to further increase this trend. These tax breaks were basically just decorative icing on the cake. Bush's cuts dropped the top marginal rate from 40% to 35%, but it had been 70% under Nixon and Carter's presidencies before Reagan dropped it to 30% in the early 80s. It's worth recalling that during Eisenhower's presidency in the 1950s the top marginal rate was 91%. This makes it clear that it's just plain false that a high top marginal rate of taxation is incompatible with capitalist expansion: the "long boom" from the 1945-1973 was probably the most stable, prosperous period in the history of US capitalism. The talk about an obvious connection between growth and top marginal rates, however, is almost always a red herring. The real issue is political and grounded in class interest: those in the top brackets have a strong interest in lowering their marginal rate and they'll marshal any rationalization (even obvious bullshit-on-stilts like the "laffer curve"... see image here) they believe is effective in order to do so.

They can't just say, baldly, "hey I want to get even richer so stop taxing me to pay for bridges and schools!". As I've noted elsewhere, the ruling class knows that it cannot address the population in the language of petty interests. In order to be effective it must speak the language of universality and rationality.

So to recap: the top marginal rate of taxation has dropped all the way from 91% in the 1950s to 35% today. Do the math: that's quite a gift, especially when you add in the fact that the majority of Americans have seen their real wages decline or stagnate during the same period (despite vastly increased productivity from 1980 to the present).

All of this, we should note, is just background. The real question we're supposed to be addressing is whether to let the Bush tax cuts expire for the rich. Once we have the facts on the table, however, the choice should be obvious unless your a self-serving, ruling class tool: we should repeal the gratuitous gifts given to the wealthy and bring the top marginal rate back to realistic rates. Why, when the Federal budget is such bad shape, should we give them $67 billion in gifts over the next two years when they're already rolling in more cash than they'll ever know what to do with?

To hear the ruling class and their political mouthpieces speak of "shared sacrifice" right now is laughable. They've been sacrificing the majority of us for 40 years as they've reaped more and more each decade. Last quarter, for instance, corporations posted the highest profits on record, even though the majority of us are still suffering the effects of the recession. On top of what they've been able to accumulate themselves, the ruling class has also pushed down our standard of living considerably during the last 40 years by breaking unions, cutting social services, privatizing and so on.

Now, after they've been punching us in the stomach for 40 years straight, they have the chutzpah to ask us to entertain the idea of "shared sacrifice". The only proper response to their suggestion is "fuck off". The ruling class loves the language of "we" and "us" when we're talking about risk and losses. But when it comes to profits and gains, they aren't so keen on including "us" in the equation, are they? When it's about money to be gained, it's all first-personal language about getting the "government off their backs".

If "shared sacrifice" has any meaning at all, it must mean that all parties share a burden according to their means to do so. So let the rich, who've amassed surpluses for themselves larger than the world has ever seen, do a bit of sacrificing. Let them at least pay the top marginal rates they paid under that "radical leftist" Richard Nixon for godsake. It's the least they can do, considering they've waged a one-sided class war against us for the last 40 years while wrecking the global economy with their reckless pursuit of short-term profits.

In fact, if we just eschewed the language of "sacrifice" entirely and simply asked the ruling class to clean up the mess they've made of the economy, they'd be paying much, much higher rates than they would under a regime of "shared sacrifice". A simple cost-benefit analysis, something the ruling class is fond of, quite clearly suggests the rich cost that the majority of us a lot more grief than they bring us in benefits. The entirely reasonable socialist intuition here is this: why, then, do we need to have a ruling class at all? They need us but we don't need them.

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The "Oppressed" Rich

Don't you feel bad for them? I mean they worked so hard for their bonuses on top of bonuses didn't they? They selflessly work for the benefit of others, so it's only fair that they should be rewarded by the rest of us, right? It's clearly worth the price (see below), isn't it?

Extending the tax cuts for all Americans with taxable income over $250,000 for joint filers ($200,000 for single filers) would cost the country about $40 billion next year, according to the Joint Committee on Taxation, and it would cost $700 billion over the next decade.

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Oregon says YES to taxing the rich

Oregon has just passed a referendum measure that increases taxes on corporations and the wealthy in order to stop cuts to education and other public services. Both measures 66 and 67 passed by wide margins (53% in favor, 45% against).

Organizing got rolling in October when the measure got enough signatures to be placed on the ballot. The Secretary of State’s office said then that “[supporters of the measures] filed more than twice as many [signatures]. It’s unusually high for a statewide ballot measure.”

The gist of the measure is as follows.

Measure 66 "raises tax on incomes above $250,000 for households, $125,000 for individual filers. Tax rate increases 1.8 percentage points on amount of taxable income between $250,000 and $500,000, 2 percentage points on amount above $500,000 for households. For individual filers, the rate increases begin at $125,000 and $250,000 respectively. Eliminates income taxes on the first $2,400 of unemployment benefits received in 2009. Raises estimated $472 million to provide funds currently budgeted for education, health care, public safety, other services.

Measure 67 raises the state's $10 minimum corporate income tax.

Together Measure 66 and Measure 67 are estimated to generate $727 million, which 2009 Legislature has already put in their budget for public schools and other state services.

Now, can anyone say "duh"? Doing this sort of thing makes so much sense, yet discussions of budget crises are often talked about as though they were natural disasters in which we can't do anything except try to manage damage control.

But the math here is really simple. When there is a budget shortfall, public institutions can do one of two things: (1) Cut services and layoff public workers, or (2) tax the rich.

If you go in for (1), then you hit the hardest-hit even harder by cutting the most essential services when they're need most.

For the majority of ordinary people, that (2) is the way to go should be a no-brainer. The people sitting on top of massive surpluses should cede some of it in the spirit of solidarity so that there are no cuts to education, public transit, and so on.

And if you're worried that you'll have a hard time convincing some of your wealthy friends that this is the way to go... don't worry. You don't have to. That is the beauty of democracy.

Those earning more than $250,000/yr are less than 5% of the population. If everyone else thinks that social justice endorses taxing the rich, that's 95% in favor.

The moral of the story: Tax the rich. And then tax them some more.

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It's becoming a trend

Here's the newest addition to the heap.

And don't forget the former Majority Leader from Dakota.

Or the Treasury Secretary who's so keen on keeping the 'private sector private'.

Who's next? Its no problem, really. Its only that these people are supposed to be part of the new wave of 'progressive change' sweeping in to make tax policy more fair and egalitarian...

To be clear: none of this, of course, licenses the moronic 'hypocrite' arguments soon to be launched by Rush Limbaugh, et. al as 'evidence' that progressive tax policies, national health insurance, etc. are evil policies (as though the policy proposals themselves were the ones evading taxes). But this is a serious blow to the credibility of supposed reformers, its manifestly unjust and it speaks to the class-character of the Obama cabinet.

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Drifting Rightward

In yet another instance of the rightward drift of a campaign that began much further from ‘reformist’ or ‘progressive’ than many of its followers would like to admit, Obama recently embraced a whole slew of conservative assumptions about tax policy.

In the recent statement, Obama said he would “delay rescinding President Bush’s tax cuts on wealthy Americans if the economy is a recession”, because doing so would “further hurt the economy.”

What should ‘progressive’ Obama supporters giddy about ‘change’ take from this statement? The simple, often-repeated neoliberal dogma that: Tax cuts always create growth and tax increases hurt the economy. Reagan, Norquist and Gingrich couldn’t have put it better themselves. Way to totally undermine the rationale for having taxes at all.

In the same statement, Obama went on to assure us that “even if we’re still in a recession, I’m going to go through with my tax cuts…that’s my priority”. Because remember: we can’t talk about how to go about funding irrelevant things like health care, social security, education, national infrastructure, natural disaster relief, etc. The only thing to do is to inject the private sector with some ‘dynamism’ and to find ways to ‘give people’s money back to them’… i.e. regurgitate the policy of the Bush Administration.

Now try this one out. Who said this: “We can get this economy back on its feet… get it going again. Don’t raise their taxes. Americans are hurting in a way that they have not hurt for a long time”… Obama or McCain?

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