That was the title of a frontpage story in the Wall Street Journal on Tuesday, November 22nd. The gist of the article is that the gap between the wealthy and the poor in America has been widening over the last 20 years (which I concede is true), and that Democrats – having won the house and senate in the recent election – are now in a place where they can (and intend to) do something about it (which can be a good thing, if done well). The Dems’ plans to fix the gap (many of them potential plans, not likely to become realities) include but not limited to the following (according to the article).
I thought these topics might be interesting to discuss, even though some have already gotten some air time here…
- Raise the minimum wage. I can’t really argue witht his, since it’s SO low ($5.15), and hasn’t been changed in 20 years, while inflation has increased the cost of everyday goods by about 25% in that time. I have no real beef with this approach, though I agree with the WSJ that this will do little to actually close the gap between the salaries of CEO’s and the salaries of dock workers (for example). An increase in the earned income tax credit would be another option to which I wouldn’t necessarily be apposed, and is on the agenda of many democratic lawmakers going into January. However, I have to admit that I haven’t spent much time thinking about the implications of an increased EITC.
- Limit the amount people can earn. This effectively boils down to instituting a “maximum wage”, similar to the minimum wage, but on the other end. This is straight off the Marxist “redistribute the wealth” page of the San Francisco values handbook, and would be a disaster. Not only would this work toward crippling the economy by undermining the incentive to succeed, but is an afront to freedom and capitalism. Really really really bad idea (in my opinion), but some libs love it.
- Institute a windfall profit tax. If you make too much, then you get exorbitantly taxed for it on top of standard income tax. See my objections in #2.
- Lower the cutoff for the death tax. This would undo recent legislation that increased the cutoff (from $650k to $3.5M) for paying estate tax (also affectionately called the “death tax”). The percentage of the tax has also dropped from 55% to 47% in recent years, and this change would potentially roll that back as well. These were key components of the infamous “tax cuts for the rich”, which we’ve talked about and which gets a lot of air time in liberal circles. Summary from my perspective: I think the estate tax is morally wrong and punishes people for having accumulated in life – and at that, does so a second time (because it’s taking half of what they managed to accumulate after having paid all manor of taxes on what they earned, spent, lived in, bought, talked on, used to heat their homes, breathed, etc). I am *not* a big fan of second generation wealth, and have seen up close the disaster that people who get a lot for little work can make of their lives. However, this is not the solution to that. Freedom has some challenging by-products (a statement I know most liberals would accept and agree to), and I feel this is just one of them. It takes something really really wrong like the death tax to address it, so we just need to live with it.
- Strengthening labor unions. The goal here would be to give the labor unions more power, so that they can avoid being stepped on by management. As I’ve said before, I think it’s unfortunate that labor unions are even necessary, but they are. If management was more generous and considerate and supportive of their workers, we wouldn’t have many of the problems we have in the marketplace. My fear is that workers with more powerful unions would use this power to “stick it to the man”. Like much of what passes these days for the search for “racial equality”, I fear this will translate to “revenge” instead of stopping at “equality”. I guess I have a “can’t we all just get along” attitude here, which I know is unrealistic. So, in the final analysis, I support strong labor unions. They’re something management will just have to live with. Mostly, they brought it on themselves. For what little good it will do, I would call on both sides to be reasonable.
- Raise the income tax brackets. This just ticks me off. Where’s the end of this? So called “wealthy” Americans are already shouldering an enormous percentage of the tax burden in America. At what point do you begin to break the back of the machine that’s creating all the jobs and wealth and opportunity for the lower- and middle class? People think that when the Democrats talk about “tax cuts for the rich”, they’re only talking about billionaires. Not hardly. If you make $100k a year (putting you in the bracket 2nd from the top), you’re paying 22% of your salary to federal income tax alone, then about 3% to state, then 6.2% to social security, then 1.5% to medicare. Totally forgetting about property tax, the 30% tax on your cell phone, exhorbinant taxes on all your utilities, and on and on and on and on, that’s a total of almost exactly one-third of your salary down the black whole of income taxes (before we even get started on all the other taxes). And the Dems are saying that’s not enough. If you make $250k / year (putting you $80k into the top bracket … right in the sweet spot for the small business owner, employing 6-10 lower- to middle class workers), you’re getting close to 40% just to income tax (plus another 6.2% for social security, unemployment, and a bunch of other taxes) for every employee in your company. This not already an unbelievable strain on the people creating the jobs. How is raising tax brackets going to make that better? Yes, it would create more tax revenue in the short run, but would be one more stone around the economy’s neck in the long run. What will make these people happy? Jack the top bracket up to 70% like it was before Reagan cut it in ’81? Btw, just for the sake of reference, the guy making $10M a year pays 44% income tax, only 4% more than the small business owner paying 40%, who’s also in the top bracket. If you want to add another bracket to the top at say $500 and up, great. Then I can get on board calling that a tax for the rich. But the current definition of “the rich” gets all the way down to the guy making $94k/yr at the bottom of bracket 2 – not exactly the exobitantly wealthy. (Interested in playing with a tax bracket calculator, here’s a good one.)
- Raise the dividend tax rate. Lowered to 15% by Bush’s tax cuts (“for the rich”), this played an enormous role in rehabilitating our economy after the tech bubble crash, 9/11, and the various Enron-et-al scandals. Now, the Dems want to role it back, because I guess they feel creating more capital for business expansion (which generates wealth and creates jobs) is a bad thing. Actually, that’s unfair. What they really want is more equity (admirable, if unrealistic at the level they’re thinking), but I believe that they fail to see that having this rate low so that businesses can grow and expand dramatically helps the lower- and middle class. More jobs and more assets are good, right? Like #6, this has short term benefits, but constitutes a serious long-term liability – in my opinion.
- Collect unpaid taxes. I’m all over this one. If someone owes taxes, they should pay them. If they don’t, they should be penalized. If we just had a more effective system for collecting taxes (*cough* simplify! *cough* flat tax! *cough*), then we could generate quite a bit of extra revenue just by collecting what’s already due the government. (Btw, we had a lively debate about taxes a while back that might interest you.)
- Increase the ceiling for social security. This year, you pay social security only on your first $94k of income. It already goes up every year. It feels like such a short-term, short-sighted solution to the social security solvency problem, but yes, I guess we could raise those limits even faster and bring in more money. Yes, this punishes Bill Gates, but it also punishes the same small business owner we’ve been talking about in the last few paragraphs. And while we’re on the topic, why *should* Bill Gates be punished? The poor guy we’re “robbing the rich” for? How many jobs has he created? How many companies has he built? Do we really believe that Bill Gates is exorbitantly wealthy because he lucked out, not because he had amazing ideas, was craftier than others, took huge risks, worked himself half to death, AND was lucky? Just seems wrong to punish people like him for their success. America is the only country on earth where a person can drop out of high school, build something amazing in their garage, and parlay that into a $100 billion empire. Why does that somehow intrinsically give us the right to take whatever we want from him, just because he has money? I agree he should shoulder a significant burden, but don’t you think he already does? (Also, feel free to join the social security debate from a last week.)
- Universal health care. I’m not sure I even want to get into this (okay I’m sure, and I don’t – this is already a long post). Suffice it to say, from my perspective, if this passes, you’ll pay more for something “free” than you have for almost anything else in your life. I can’t even imagine the tax increases that would be required to even begin to cover this – double all the income tax brackets, maybe? Makes me sweat just thinking about it. (Here’s a very interesting analysis of the pros and cons of universal health care.)
Here’s a free-radical kind of thought… It really gets under my skin that many of the liberals calling for sweeping economic reform – including much of the “rob the rich to feed the poor” legislation – are extremely wealthy themselves, and are well-known to have much of their personal wealth in off-shore bank accounts, outside the reach of taxes. The Kennedy’s, George Soros, and others.
In addition to all this, I found the following interesting. Quoting the article…
“Barney Frank, the Massachusetts Democrat in line to chair the House Financial Services Commitee, vows to push legislation that would force companies to provide more and clearer details of CEO pay, devise policies to recapture incentive pay if earnings are later restated, and require shareholder approval of ‘golden parachute’ payments to dismissed executives.”
To sum it up, Frank asks the question, “How do you do a better job of sharing overall economic growth with the average worker?” I’m not necessarily apposed to any of the three things for which he’s pushing in the above paragraph, but this “fundamental question” smacks way too much of “it’s the government’s responsibility to provide” for my taste. For the 100th time, I’m way more comfortable with having the government provide freedom and equal opportunity, so that people determine their own standing in society through their hard work, smarts, and ambition. Legislating “fairness” will never be achieved, and in my opinion we risk destroying the country in the process. So, let’s minimize (not eliminate) the legislation of fairness, and try to get out of the way of peoples’ entrepreneurial drive as much as possible.
Some of the dems’ proposals in this article do that, some really don’t. But it’s that question I use to draw the lines around what I like and don’t like in their plans.
Technorati tags: minimum wage, windfall profits tax, income tax, estate tax, social security, labor unions, universal health care
As a person on the liberal side of the scale here are my reactions. Jeff, I must say you have given a pretty fair review of these.
1. Agreed, I though Clinton raised the minimum wage in the early ’90s, but either way it is due to increase. I thought you opposed EITC, glad to see your support.
2. Agree with you again. I don’t know whose hairbrained scheme this is but we both know it won’t fly.
3. I would like to see exactly what they are proposing here.
4. You view 2nd (and larger) generation wealth as a neccessary evil, as we have discussed before I support the death tax. Again, I feel you are taxing a person not a dollar. That being said, I would like to see what level they arte going to. I would not support anything below $1 mil.
5. I don’t know how they plan to empower the unions but I don’t support anything that would increase an us vs. them (unions and govt. vs business) mentality.
6. I know you disagree, but we cannot balance the budget without raising taxes. We do need spending cuts as well, but I absolutely cannot condone Bush cutting taxes during a war.
As you have mentioned our country is the greatest in the world, yet you view taxes as a punishment rather than an obligation. Remember, freedom isn’t free.
7. I have never understood how people are allowed to pay a lower tax rate on dividend money (which they don’t work for) than they are for income money (which they do work for). If I had my way dividend income tax would automatically be set to the maximum income tax rate.
Besides, while we are funnelling more money into the market (to companies for capital money) that money is creating more jobs and assets, but not much in the U.S.
9. I support increasing the retirement age more than increasing the ceiling, but both may be needed.
10. Yes you will have to pay for universal healthcare, but you are currently paying for health insurance, co-pays, and anything else medically related. You would disagree that the healthy need to shoulder the burden of the sick. For most sick people it is not their fault they are sick and they would definitely prefer not to be. But we also burden them with bankruptcy and a huge financial burden with any medicines they may need to live.
RE: free-radical thought
I agree most politicians suck.
RE: Barney Frank
With all of the CEO scandals, people robbing their shareholders blind, backdating stock options, flat-out lying, you appear to be arguing for reducing government oversight for these people. Is this correct?
1. Raise the minimum wage The minimum wage is not about helping the working poor. It’s about making political groups look good. If the minimum wage were about helping the working poor, we would index it poverty line and never have this argument again. Besides, as you pointed out, the EITC (i.e. welfare) is a far better way to help the working poor. As an aside, the minimum wage, even after FICA, is still above the poverty line.
4. Lower the cutoff for the death tax. No one has ever been able to make a convincing argument to me as to why estates should be taxed differently than everything else. I would much rather see the estate tax repealed and then treat inheritances as income (also getting rid of the step-up in basis, which is equally absurd). This is a more unified approach and it also gets rid of the artifical exemption that we have to keep fighting over.
6. Raise the dividend tax rate. Just like the estate tax, I think it’s ridiculous that dividends aren’t treated as ordinary income. Why can’t we just treat all income equally? The special treatment of certain types of income is the number one reason why our tax code is so screwed up.
9. Increase the ceiling for social security. Question: Would this include a proportional increase in benefits for those above the existing base? If so, I think increasing the base would only serve to plunge the system further in to the red. If not, you’d basically be breaking the (already tenuous) connection between contributions and benefits. At that point, we might as well admit that Social Security is welfare and start funding it out of general revenues.
10. Universal health care. Before the government takes another step on the health care front, we need to have a national dialog on whether health care is a right. If we decide health care is a right, then the government will need to step in and take over. On the other hand, if (as I suspect) we decide health care is not a right, then the government should stick to the business of governing and leave health care alone (including Medicare and Medicaid).
4 and 6. Bill, I love your argument on 4 and 6. I am curious about Jeff’s take, and I will tell you why. The only benefit I see to taxing these forms of income differently is that they encourage savings and investing, which Jeff is very for. But, in doing so, the government is “taking care of you” by rewarding what they consider good behavior. This is also contradictory to business interests which want you out spending.
10. I believe heathcare is a right and is also in the best interests of our country. You support eradicating Medicare and Medicaid, what about the CDC, the FDA, Surgeon General?
Of the points on this list, the health care issue is the one I’m most interested in discussing. (Sorry, Jeff, I know you didn’t want to focus on that too much here.) I also believe that access to basic healthcare is a right, which I’m sure will surprise no one here. I will save my list of reasons and benefits for when Jeff gets around to making a separate topic on it.
As for the current discussion, I would really take issue with Bill’s suggestion that government should completely leave health care alone by abolishing Medicare and Medicaid programs. How does this take into account people who are unable to work and thus can’t afford health insurance? I’ll offer an example I have some familiarity with: the mentally ill with illness severe enough to qualify as disability. These people are often completely unable to hold a job, and their families rarely have the resources to care for them, considering the cost of life-long psych medication. Without Medicare/Medicaid, what do you think should be done for these people?
No insurance/money, no meds, so their symptoms get worse and they become a danger to those around them?
Institutionalize them so they can’t harm society? Even if we are comfortable disregarding their rights, someone still has to pay for this.
I’m really curious about this. If you want the government completely out of health care, what do you anticipate happening for people with no other options?
Woah there people. First of all, I did not offer my opinion on whether or not health care should be a right. Nor, for that matter, do I believe my opinion is pertinent to the discussion. My only statement was that I believe the majority of Americans don’t think health care should be a right. As an aside, this goes back to my comment about the “culture war”. Whether you support it or not, you have to concede that universal health care is a pretty extreme idea. Ergo, I don’t think mainstream America would support it.
Now, as to Medicard and Medicaid… Here’s why I can’t support these programs:
Cliff Cutoffs. What happens if your 65th birthday is March 1st and you have a heart attack on February 29th. Sorry, you’re not covered under Medicare. Similarly, suppose the income cutoff for Medicaid for your family is $20K. If your family makes $20,001, you don’t qualify for Medicaid. Is your family’s socioeconomic status any different that if you made $20K?
Unfair Business Practices. I talked about this in a previous comment. Doctors lose money on every Medicare/Medicaid patient they see. They have no way of addressing this problem because the rates are set by law. This is becoming such a problem that doctors are starting to refuse Medicare/Medicaid patients. How will these program help anyone if health care providers refuse them? In addition, the undue pressure that Medicare and Medicaid put on the health care system have caused the business of health care to become greatly distorted.
Discrimination. This relates back to the cliff cutoffs. Why are the poor and elderly entitled to cheap, government-subsidized health care? What test do you use to define who is poor and who is elderly? Are those tests fair? More importantly, does a fair test even exist? I suspect the answer to that question is no.
Efficacy. Medicare is crappy insurance. It used to be really crappy, but Part D has “improved” it (at enormous expense) to merely crappy. Medicaid is better, but it’s still a far cry from comprehensive medical care. We pay a lot of money for these programs and don’t get a lot of benefit out of them.
Don’t get me wrong. I firmly believe we need to take care of the poor. But creating expensive, misguided government programs with horrendous unintended consequences is not the right way. Discriminating between classes of people is not the right way. Throwing more and more money at the problem won’t solve it, either.
What this country needs is a single, unified approach to welfare. The current patchwork system of state and national programs combined with government-funded charities simply doesn’t work. The new approach should start with money. The poor need money, plain and simple. Give every family enough money to bump them up to the poverty line. It’s simple, it’s fair, it’s unified, it’s efficient and I think it’ll take care of 80% of the people. After that, reevaluate and see what else can be done for the remaining 20%.