Tag Archives: taxes

The Big Con

My husband and I were discussing the Council’s current standoff with the Ballard Administration–a dispute triggered by Ballard’s refusal to share budget information with the Council and other elected officials. That conversation brought back memories from our days in the Hudnut Administration; the then-Controller, Fred Armstrong, made himself available to Councilors, Department heads, the media….pretty much anyone who was interested in the intricacies of the budget. Fred would go on and on, explaining the numbers, funds, sources…

I don’t think anyone understood a word he said. I know I didn’t. It was the classic “bury them in bullshit,” and he was great at it. (He was also an incredibly competent public servant.)

Fred knew that most people don’t understand public finance. Our widespread fiscal ignorance is why Paul Ryan has been taken seriously, despite a budget that David Stockman, among others, has described as a “fantasy” and “devoid of credible math.” (Stockman, for those of you too young to remember, was Ronald Reagan’s very conservative Budget Director.)

Today’s candidates are counting on our ignorance of the most basic axioms of taxation and government revenue. It isn’t just that–as a colleague of mine put it recently–half of them clearly don’t know the difference between a marginal and effective tax rate. It’s that they engage in wishful, magical thinking.

Yesterday, I saw an ad for Mike Pence in which he promised to cut taxes “across the board,” and to establish an office of regulatory affairs that would resist federal regulations and return federal dollars.

I can’t decide if Pence is really that stupid, or he just thinks voters are.

There are legitimate issues around regulation–what is enough, what is too much. Reasonable people can differ over their assessments of particular rules. There is a pretty broad consensus that banking regulations were too lax, and that lack of oversight led to the Great Recession; there are certainly other areas where ham-handed regulatory policies have been distinctly unhelpful. But taking a position that all regulation is bad and must be resisted is insane. What about nursing home regulations that protect grandma from abuse? What about food and drug regulations that keep dog feces out of your beanie-weenies, or water purity standards, or building codes, or….Well, you get the point.

And how about that “cutting taxes across the board” and “sending the money back to the feds” promise?

Just how does our “I wanna be your governor” Pence propose to fund anything Indiana needs? Federal dollars pay for our roads, augment our (increasingly inadequate) police forces, and provide medical care for the indigent. They feed schoolchildren and support special education programs. Federal dollars fund small businesses (yes, it turns out that even the angry guy in the anti-Obama commercial who insists that he and his sons built their business all by themselves had an 800,000 SBA loan). The federal government funds 33% of Indiana’s budget; if we sent that money back and cut taxes, Indiana’s government would come to a screeching halt.

The Ryans and the Pences of this world are counting on our ignorance. They are con men, hustlers secure in their (unfortunately reasonable) belief that voters don’t know where their tax dollars go, don’t recognize when they themselves benefit from government programs, and have no idea how their government works or what it does.

Con artists are successful because they tell us what we want to hear, because they promise us we can have something for nothing. The ugly truth is that the people who fall for the con are the people who want to believe they can get something for nothing.

Pence and Ryan are as reputable as that Nigerian banker who will send you a million dollars if you can just front him a few thousand.

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Are We Really Talking About Taxes?

I’m beginning to suspect that all the anger/righteous indignation/resentment directed at the subject of taxes isn’t really about taxes at all.

If Americans were really discussing the tax system, surely they would know more about it. And I’m not just referring to the ludicrous arguments being made by the televised talking heads in the wake of the healthcare decision. (Hint: the Supreme Court ruled that the imposition of a penalty for noncompliance was an appropriate exercise of Congress’s taxing power–they didn’t rule that the penalty was a tax.) I’m talking about far more basic information.

A recent poll of Tea Party folks found that 90% of them believed taxes had either gone up or remained flat under Obama; only 2% answered (correctly) that taxes had gone down, which they have for 95% of American taxpayers. Bill Maher noted the irony: members of an organization formed to oppose taxes and named after a historical group known for its anti-tax activism don’t know whether taxes have gone up or down.

Nor is this an anomaly. Discussion of taxes rarely include definition of the term. So people will assert, with a straight face, that “the bottom half” of Americans “don’t pay taxes.” This is hogwash–they pay lots of taxes. Poor people may not make enough money to owe federal income taxes, but they pay federal payroll taxes, gas taxes, sales taxes, utility taxes, property taxes (even renters pay property taxes, which are part of the rent)…In fact, the percentage of their income that the poor pay in state and local taxes is far higher than the percentage paid by the wealthy.

So–we have people who don’t know whether taxes have increased or decreased, and pundits whose calculations of the tax burden conveniently or mistakenly leave numerous taxes out of the equation. But my biggest pet peeve is the folks who discuss tax rates without distinguishing between the marginal rate and the effective rate.

Right now, we are arguing about the wisdom of returning to the marginal rates under Clinton–approximately 39%. Listen to the bloviators on your favorite talk show and you are likely to get the impression that such a rate translates to taking 39% of the taxpayer’s income in taxes. Of course, it means no such thing. It means that once an individual has made enough to be in the highest income bracket, each dollar in that bracket will be taxed at that rate. The effective rate is the actual percentage of overall income paid, after averaging out the rates applied to each income bracket. That–plus lots of loopholes aka “incentives”–is why Mitt Romney’s effective rate was in the neighborhood of 13%, and why corporations that are theoretically subject to 30%+ tax rates actually paid 12.6% in 2008.

My point here is not to advocate for any particular tax policy–we can all agree or disagree about what an optimum tax system would look like. My concern is more basic. It seems to me that if we were really arguing about taxes, we would know much more about them. And if we aren’t really arguing about taxes–if taxes are just a useful surrogate for whatever it is that actually has our collective panties in a bunch–what is that sore spot?

What’s the real source of our sour national disposition?

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Res Ipsa Loquitor

There is a legal term, “res ipsa loquitor,” meaning “the thing speaks for itself.” Today’s example? The Texas Republican Party Platform. 

Texas Republicans call for abolishing the 16th Amendment, which authorized the Income Tax. It calls for repeal of the tax on capital gains, and the abolition of the state’s property tax. It opposes the imposition of ANY tax other than a (regressive) sales tax. And it demands a return to the gold standard. (There was no call for abolition of public services, and the document appears silent on how, exactly, those services are to be paid for.) The platform also supports privatization of Social Security.

By far the most telling provisions of the GOP platform, however, are those addressing education.

The party goes on record opposing “multicultural” education, and supporting the use of corporal punishment by school officials. It demands that “both sides” be taught when “controversial” theories like evolution and climate change are addressed.

Given these positions, it should come as no surprise that the platform also opposes the teaching of critical thinking skills–since those “undermine parental authority.” Such skills probably DO undermine the parental authority of the authors of this platform–which speaks for itself.

I don’t know what happened, exactly, to turn the Republican Party I used to belong to into whatever it is today–but I am pretty  sure it wasn’t critical thinking.

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The Real State of the State

A former student of mine is a researcher for Indiana’s Institute for Working Families. (I strongly encourage those of you who are interested in evidence about the status of working Hoosiers to visit and like the Institute’s Facebook page.) He was the lead researcher for the Institute’s recently released report, The Status of Working Families 2011. That report, which he shared with me, is a sobering corrective to the political hype that passes for news these days.

The punditocracy has characterized Indiana as an economic “success story,” as a state that weathered the Great Recession better than most. As the Institute’s report makes clear, that rosy evaluation ignores a number of highly inconvenient facts: the state has 231,500 fewer jobs than before the recession (Indiana is among only 17 states that have continued to experience absolute declines in the labor force since the recession began); our median wage for those with a bachelor’s degree is $0.80 lower than the national average (and a mere 14.6% of Hoosiers even have a bachelor’s degree–we rank 42d in the nation); since 2000, the state has seen a 52% increase in poverty.

These and similar statistics in the report are depressing enough, but I think the most significant analysis centers on wages. Although our political rhetoric regularly conflates job creation and wages, they are two very different indicators of economic health, and both sides of that equation are important. We need more jobs, but not just any jobs. We need jobs that pay a living wage.

So how does Indiana stack up?

  • Indiana workers earn 85% of what workers in the rest of the country earn. We rank 41st in the nation.
  • Since 2000, wages have decreased for workers in both the 50th and 10th percentiles (by 3.4% and 10.6% respectively). This cannot be explained by decreased productivity, because productivity increased by over 14% during that same period.
  • Median household income fell by 13.6%–the second largest decrease in the nation. (Michigan was first.)
  • Median family income also decreased dramatically, falling 29.6%
  • Since 2000, Indiana has experienced a 52% increase in poverty.

The current administration believes that low tax rates and decimated unions will attract jobs to our state. Evidence does not support this belief. Businesses relocate to areas offering–among other things–an educated workforce and consumers with the discretionary income to buy their goods. They relocate to environments offering a high quality of life–parks, public transportation, good schools and a reasonable social safety net. These are the very things that suffer when lawmakers care only about slashing taxes and depressing wages.

There’s a reason businesses aren’t moving in droves to Mississippi.

If we continue to starve public education and local government, if we continue to pursue policies that depress wages and make it more difficult for families to escape poverty–if we continue to emulate states like Mississippi–businesses won’t move here, either.

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The Older I Get, the Less I Understand….

Final week is over, grades are in, and I’ve had more time to read the news. That’s obviously a mixed blessing.

There are so many things I just don’t understand.

There’s a toaster that embosses the face of Jesus on each piece of bread as it toasts. It is evidently selling briskly.

There’s Newt Gingrich.

And then there’s the House GOP. Even the Senate GOP is scratching its collective head over them. After the Senate passed one of the few genuinely bipartisan measures that has emerged this year, extending unemployment benefits and the payroll tax reduction for two more months, the House Republicans are refusing to go along. No coherent reason why has yet emerged, although John Boehner has seemed particularly teary.

Think about this: Christmas is coming. So the House GOP wants to raise taxes on America’s dwindling middle class and its working poor, while continuing to insist that the historically low taxes on the rich cannot move up an inch. Ignore, for the moment, the moral poverty and economic danger of that position. Think about the political obtuseness of the message they’re sending.

Even they must recognize that this is not the way to popular acclaim. The New York Times reported this morning that “rather than have a straight up-or-down vote, the House will implement a procedural maneuver in which they will “reject” the Senate bill while requesting to go to conference with members of that chamber in a single measure, protecting House members from having to actually vote against extending a payroll tax cut. During the conference meeting among Republican members, some members expressed concern about effectively voting for a tax increase on the eve of an election year, said some who attended.”

Ya think?

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