Sunday Six Pack

NPR recently had group of economists discuss policies that they think are great for the country but that politicians consider radioactive. The group of economists was actually quite diverse, ranging from George Mason libertarian (and frequently linked Cafe Hayek blogger) Russ Roberts to Cornell liberal Robert Frank. What six policies could that group possibly agree on? And why wouldn’t politicians embrace policies that enjoy such a broad consensus?

One: Eliminate the mortgage tax deduction, which lets homeowners deduct the interest they pay on their mortgages. Gone. After all, big houses get bigger tax breaks, driving up prices for everyone. Why distort the housing market and subsidize people buying expensive houses?

One thing they don’t talk about: the mortgage interest deduction is a lot smaller than most people think it is. People see they can deduct $10,000 off their taxable income and think that’s pretty big. But mortgage interest is deducted only if you throw out the standard deduction, which is $12000 for a married couple. For most people, if their home costs less than about $250,000, they are gaining little, if anything. The host says the deduction saves him $5000. Assuming he’s calculating that correctly (i.e,. what it gives him above the standard deduction), that means he’s paying off a half million dollar mortgage.

The home mortgage interest deduction has its destructive aspects, too, distorting the real estate market. As noted above, it mostly subsidizes the purchase of large and expensive homes, driving up that end of the market. But even worse is that by creating the perception that the government is paying up a third of your mortgage, in induces people to buy more home than they can afford. Ironically, this drives up the cost of housing for the poor and middle class.

I don’t think the market can take the shock of an immediate cessation. But phasing it out would be a great idea. Even better, as we’ll see later, would be to scrap the entire tax system.

Two: End the tax deduction companies get for providing health-care to employees. Neither employees nor employers pay taxes on workplace health insurance benefits. That encourages fancier insurance coverage, driving up usage and, therefore, health costs overall. Eliminating the deduction will drive up costs for people with workplace healthcare, but makes the health-care market fairer.

Have the tax deduction for all health insurance or have it for none. Encouraging people to get insurance through their employer has been one of the biggest drivers of healthcare cost over the last few decades, pushing consumers further and further away from the actual costs. The Wyden-Bennett bill, one of the things I hope becomes part of the “replace” part of “repeal and replace”, would have done this.

Three: Eliminate the corporate income tax. Completely. If companies reinvest the money into their businesses, that’s good. Don’t tax companies in an effort to tax rich people.

Four: Eliminate all income and payroll taxes. All of them. For everyone. Taxes discourage whatever you’re taxing, but we like income, so why tax it? Payroll taxes discourage creating jobs. Not such a good idea. Instead, impose a consumption tax, designed to be progressive to protect lower-income households.

The Fair Tax is one of the more coherent plans on this subject. I’ve detailed before why I oppose it. A VAT would work much better but only if it mostly replaced the existing system. A lot of libertarians oppose the VAT because they see it as a gateway to big government. My opinion is that we already have big government and, given our commitments to seniors, it’s not going to get small anytime soon. The question is how to pay for it without crippling the economy and a VAT has the minimum of deadweight loss.

I lived in Texas, which does not have an income tax, for four and a half years. It was awesome. You weren’t taxed until you spent money. I would love to see the entire nation enjoy that freedom and empowerment.

Note also something important in the broadcast: the most ardent advocate of eliminating the corporate tax? The two liberals on the panel. They know how destructive corporate taxes are to our economy.

Five: Tax carbon emissions. Yes, that means higher gasoline prices. It’s a kind of consumption tax, and can be structured to make sure it doesn’t disproportionately harm lower-income Americans. More, it’s taxing something that’s bad, which gives people an incentive to stop polluting.

This is the one that will cause the most disagreement on the blog. I don’t want to open another global warming debate. I would support a carbon tax but if and only if it came with steps three and four of eliminating our current tax system. It is infinitely preferable to the cesspool that would be cap and trade.

Six: Legalize marijuana. Stop spending so much trying to put pot users and dealers in jail — it costs a lot of money to catch them, prosecute them, and then put them up in jail. Criminalizing drugs also drives drug prices up, making gang leaders rich.

We’ve talked about this before. No need to rehash.

Here’s where the NPR segment falls on its face: they imagine a politician putting forward the above platform and being rejected by the public. There’s some validity to that. If you cornered politicians, they would probably agree that most of these ideas are sensible but fear the public backlash. However, I think that if you polled the American people on that platform, they wouldn’t be too opposed either. Oh, they might have reservations about one or two policies but they would probably accept it over the current system.

No, I don’t think the problem is necessarily one of marketing. I think the problem — a problem that NPR glosses over — is that our politicians and political class are simply too invested in the current mess. Part of it is special interests that would rather have a tax system tailored to them or a booming prison industry or a booming housing market. Part of it is simple inertia in favor of policies we have pursued for decades. Part of it is spinelessness — the unwillingness to propose policies that, as NPR noted, can be easily demagogued.

But the largest problem is that our politicians like the system we have. The system we have — especially the tax system — keeps titans of industry, atlases of production and prometheii of invention groveling to them. The system we have keeps special interests on bended knee, constantly asking for and getting favors from politicians. Remember how, earlier this year, Apple had to start ramping up their political contributions and lobbying under threat of regulation and lawsuit? Politicians love that.

The system outlined above isn’t actually libertarian. It sounds like it, because I’ve cast in libertarian terms. But steps 1-4 would be accomplished by replacing our tax system with a VAT — versions of which have propped up some of the most socialist countries in the world. That and step 5 just detail how taxes are collected, not how much are collected. It would create a tax system that was essentially “Dial a Revenue” — capable of supporting either an expansive welfare state or a limited federalist state. Opposing those changes and supporting the current system is not an issue of big government versus little government. It is an issue of just how much of our lives and our industry Washington can control.

Even step 6 isn’t a necessarily libertarian issue; it’s more a matter of common sense. I’ve heard support for marijuana legalization from all parts of the political spectrum. My mother has never voted Democrat. My best friend from college has never voted Republican. Both think marijuana should be legal.

So, no, it’s not that the above platform would necessarily be Republican or Democrat. Or conservative or liberal. Or libertarian, for that matter. The problem with it is not that it would produce smaller or bigger government but that it would produce less invasive government, less powerful government. It would disperse the groveling lackeys and toadies are politicians have grown used to. It would produce a government less besieged by special interests and lobbyists. It would produce a government that spends a lot less time looking over shoulder and poking through our underwear drawer.

And that’s the reason it can’t happen. Our establishment enjoys the genuflection too much.

Comments are closed.

  1. Seattle Outcast

    I could go with about half of that. The other half means you and I are going to meet with swords in the morning…

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  2. blameme

    Rich – I don’t know of many Americans who would be happy with eliminating the mortgage deduction, creating new carbon taxes or corporate healthcare tax deductions.

    Frankly – the only deduction I am able to get (due to income) is my mortgage. I have three kids under 8 – but no child credit for me. Nor do I receive deductions for Roth accounts.

    I have never received any “refund” checks – you remember the ones to spur the economy – nope – I made too much.

    The only way I would be good with the mortgage deduction being taken away is if we got rid of income tax. And that ain’t happening.

    All I see happening on this list are – removing the mortgage deduction (have to screw those rich folks), remove the tax deduction on corporate health care (can’t have guys like me who bust their ass get a “Cadillac” benefit you know) and a carbon tax.

    In other words, the parts of your list that screw me – a producer – those will be implemented at some point as the populace is made to hate me even more. But the other parts – eliminating income taxes, corporate payroll taxes etc – that will NEVER happen.

    So fuck the whole list…thank you very much.

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  3. richtaylor365

    blameme, this was Hal’s post, not mine. But I have been on record in the past in supporting a stream lined tax code where:

    One could file his taxes on a postcard size form.
    ALL tax deductions would be eliminated, including mortgage credit, child credit, charity, everything.
    Corporate income is taxed ONE time, not twice or three times like it is now. At the corporate level would be fine, lower the corporate tax rate to 15%, then whatever dividends it wants to share with it’s shareholders, all this is tax free.
    Eliminate all estate and death taxes, period, that money (property valued at the stepped up basis) has already been taxed once.

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  4. blameme

    DAMMIT.

    Sorry about that Rich. I was reading another post of yours and I guess I just had you on my mind. :)

    Again, I apologize.

    As to your response – if I could trust our politicians to enact ALL OF THAT – then yes. My problem is they will only enact some of it – only increasing my tax burden.

    They will never eliminate estate/death taxes. Nor payroll taxes, nor the IRS.

    They like control. But they like screwing me even more (I am a good lay). So, my deduction will disappear, more taxes will be levied and it still will not be enough.

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  5. CM

    They will never eliminate estate/death taxes.

    These are ridiculous taxes. I would always support getting rid of those. I couldn’t believe people have to pay ‘stamp duty’ in the UK when they buy property. What a crock.

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  6. Kimpost

    In Sweden we eliminated the estate tax ten years ago. A coalition between social democrats, greens and the left managed it. If I remember correctly most union supported getting rid of it. I guess I’m saying that if our leftists could do it, surely you can. I think you will…

    I couldn’t believe people have to pay ‘stamp duty’ in the UK when they buy property. What a crock.

    Fuck you, and your taxhaven hobbit bana republic! ;)

    (We pay a stamp duty on mortgage securities and property deeds)

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  7. CM

    Yeah we haven’t had estate tax for 20 years.

    Fuck you, and your taxhaven hobbit bana republic! ;)

    Sorry no stamp duty here. Or hobbits in the UK. Bananas are available to all though.

    See this?

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  8. Hal_10000 *

    As to your response – if I could trust our politicians to enact ALL OF THAT – then yes. My problem is they will only enact some of it – only increasing my tax burden.

    That, indeed is a problem. Eliminating deductions only makes sense if you lower the overall rate or eliminate the income taxes altogether. Eliminating them without cutting rates is just a tax hike.

    Australia doesn’t have estate taxes either; the bankers were frankly stunned when I mentioned it. They do have stamp duty though.

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  9. Tripper

    instead of eliminating the corporate healthcare tax deduction, a less effective but more politically effective idea would be to make all health insurance purchases tax deductible. I know it doesn’t fit with the general theme of getting rid of deductbut I think it would encourage more people who don’t have it now to buy it, adn would pretty quickly break the link between employment and insurance that exists for so many.

    If it was a choice of eliminating the deduction for all or nothing though, consider me in favor of the elimination. It is politically deadly though. McCain was for it 4 years ago and Obama hammered him (unfairly) on it. I supported Obama in general then and still do but I preferred McCain’s idea on healthcare

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  10. CM

    I lived in Texas, which does not have an income tax, for four and a half years. It was awesome. You weren’t taxed until you spent money. I would love to see the entire nation enjoy that freedom and empowerment.

    Our current centre-right government made a revenue-neutralish tax change a couple of years ago – they lowered income tax* and put up sales tax a little (from 12.5% to 15%). So the tax emphasis moved slightly from the earning to the consumption. Part of the reason was to try and encourage savings (i.e. a good thing). People are also less able to avoid sales tax.

    *The top tax rate, payable on income above $70,000, fell from 38 cents to 33 cents in the dollar. The 33 cent rate which applied on income between $48,000 and $70,000 fell to 30 cents, and the 21 cent rate, on income between $14,000 and $48,000, fell to 17.5 cents. Company (corporate tax) also dropped from 30% to 28%.

    I think it was a good move.

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  11. Seattle Outcast

    Before they start fucking with the tax code they need to put the brakes on government spending and cut it by 50% as a start. there is a metric shitload of debt that needs to be paid off first, and then slash taxation all to hell.

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  12. Seattle Outcast

    Sorry no stamp duty here. Or hobbits in the UK. Bananas are available to all though.

    See this?

    Since it’s the British press, I have to take it with a grain of salt, but let’s say it’s 100% accurate.

    The problem is that government taxation has forced massive amounts of assets to sit idle. If it’s just sitting in accounts then it isn’t go be taxed anyway, it’s just idle cash that should be circulating in the economy.

    You’ve just disproven most of your, and all of Moogoo’s, arguing points on tax rates.

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  13. CM

    You’ve just disproven most of your, and all of Moogoo’s, arguing points on tax rates.

    How so? Please explain how I did that.

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