Sunday, November 02, 2008

The end of Bush-onomics and a new beginning

[The following is an argument I made in email with a friend. It's about whether it is just to "redistribute the wealth"; whether capitalism eventually shakes out good outcomes through the invisible hand of the market; and whether we think that spending money on the poor will actually achieve anything.]

I'll try to explain where I think Bush's economics went wrong, and why we shouldn't trust our current political and economic system to correctly determine winners and losers in the economy.

Trickle-down economics really doesn't work. Bush blew the doors off upper class tax rates and said many times that those tax cuts would pay for themselves. I think it is by now universally acknowledged that after eight years of such policies, the middle class did not see the benefit of economic stimulus at the top. The tax cuts did not live up to the hype.

There are a lot of reasons this is true. One that I think explains a lot is the marginal value of income. When people are poor, their money goes to necessities. Losing a hundred dollars can have serious effects on their weekly budget. Their quality of life diminishes a lot if a bill has to be late, or they can't pay for medical care when they need it or a hundred other things. Being poor or even middle class in America is a constant balancing act. Gaining a hundred dollars can have a real positive impact on their budget for the same reasons.

On the other hand, when people are rich, like a two hundred fifty thousand dollars a year rich, for example, they're taking home on the extreme end of conservatively, ten thousand dollars a month in net income after taxes. Losing a hundred dollars is not a blip on the radar of these people. Their standard of living does not change in any meaningful way. Gaining a hundred dollars is the same.

What's going on here is that the millionaire's last dollar is worth much less to the millionaire than the poor person's last dollar. It is discounted by the fact that around dollar $500000, or earlier, money became no object. So when we say that rich people pay the vast majority of taxes in a dollar amount, we should realize that even though they are paying much more as a percentage of their income than poor people are, they are paying out of the cheap end of their cash. The widow's mite story in the Gospels is still true today. [Ed. see here]

In the United States, the situation is even further off the deep end than that. Warren Buffett, the world's richest man, has a smaller tax footprint than his janitor, because of the way we tax income, payroll, and capital gains. He said in an interview two months ago:

"In my office, I have 18 or so people there, and I ask them to compute line 63, which is their tax, and then add payroll taxes, and compare it to line 43, which is their taxable income. And these people who make anywhere from $50,000 to $750,000 a year ... and the lowest person in the office pays a higher rate than I do. I paid 17.7 percent last year, counting payroll taxes. ... The (employees) average was twice mine. ... Those fellows say they fix up companies and they get paid for doing that. On balance, they're paying a 15 percent tax rate on that and no payroll taxes, and somebody that fixes up the restroom is paying 15.3 percent in payroll taxes, just to start with. ... [The janitor] pays a higher tax rate than people who fix up companies (being paid) hundreds of millions of dollars annually in income."

This is totally upside down and unjust, and it's a direct result of our political/economic system being flawed.

Our system is set up so that rich, powerful special interests are overrepresented in legislation and tax policy. They pass their policies, like the bankruptcy bill a couple of years ago, that increase the tail end of their profits and incomes at the expense of poor and middle class consumers who can't pay their debts any more. They pass their upper-class tax cuts, they pass Medicare Part D with massive giveaways to drug companies, they pass their Wall Street bailouts and buy nonvoting shares of failing companies, they give no-bid defense contracts to wasteful companies.

And then they call people socialists for daring to suggest that their casino gambling on derivatives of derivatives of insurance on unsafe mortgages should be regulated, and that after the world economy collapses.

If our politics and capitalism were a just system, we could lie back and let the system work itself out. We could trust that the just rise and the unjust sink. But by almost any statistic you care to name, be it income gaps, wages, consumer buying power, bankruptcy and foreclosure rates, overall taxes as a percentage of income, or health care costs, and the list is pretty endless, our politics are lifting the rich on the backs of the poor.

So yes, measures that take from the discounted end of the wealth of rich people and pay it to the valuable end of the wealth of poor people, I see as corrective action pushing back against an unfortunately corrupt machine. I don't see the harm in taking an extra $5000 a year from someone who makes $250000 a year.

If you believe that we're supposed to sink or swim on our own, I can see why you would disagree. But I think the machine is out of control, the pendulum has swung way too far, and people who profit from imperfect systems should give back to those who don't.

As far as putting more cash into the hands of poor people (or spending it on services, like health care and education for the poor), I would rather give a few of the wrong people more money than deny it to all of them. It is the same kind of optimism that lies behind innocent until proven guilty: letting several guilty people go free lest one innocent should be punished. We should apply the same rigor to making sure that not one poor person should be disadvantaged by our systems, even if it means getting taken advantage of a little.


tori said...

Robin Hood has one fatal error. Stealing from the rich to give to the poor sounds great... but in the end, it is still stealing. Clear as that. Whenever you choose to vote to take something away from someone and not yourself, once is stealing. I'm trying out this new idea...I've only thought about it for two days. But I think an equal percentage tax on all Americans would be most just.
Glad that you won't get mad at me for saying this, Dan. We can just debate and not let it get personal.

Dan Lewis said...

I won't get mad, Tori. Be welcome!

I don't know how far we want to take the Robin Hood analogy. By this reasoning, if I don't like the tax structure I call it stealing.

For instance, in the status quo, I say the Bush tax cuts are stealing from poor people and giving to rich people. Someone might argue to the contrary that rolling back the tax cuts would be stealing from the rich and giving to the poor. Both sides can make an equal-and-opposite argument, and they basically cancel each other out. Maybe it's not the best label.

We will have a tax structure one way or another. The question is whether it should favor the poor at the expense of the rich, favor the rich at the expense of the poor, or somewhere in between.

When I quoted Warren Buffett, the richest man in the world, he said he pays less total taxes as a percentage of his total income than his janitor. That is, we have a deeply regressive tax structure in this country, even though on paper rich people may be paying more.

There are lots of reasons why this is so. One obvious one is that if you become rich enough, it becomes cheaper as a percentage of your income to pay a lawyer to lawfully evade taxes than it is to just pay them straight down the line. That leads into another reason, which is that it's cheaper to lobby Congress to pass laws to create tax loopholes than it is to just pay them straight down the line. It is big business for rich people to game the system to keep more of their money. The working stiffs do not have the time or the money to play in this game.

The point of all this is that our tax structure is unfair, but it is unfairly skewed to benefit the rich. If you want a fair system, it probably needs to swing back the other way even harder.

We have a lot of policies that aid the disadvantaged in society. For instance, we have homeless shelters. The homeless do not pay for them, but we do it anyway. We all pay for health insurance for poor families (Medicaid) and the elderly (Medicare). It goes on. We do unemployment for people between jobs, welfare for people who are poor, food stamps for people who would go hungry. And so on.

These are "unfair" taxes on people who have food, shelter, enough money, jobs, their health. "Why should I have to pay for that? I don't get anything back for it. I'm doing just fine on my own." People who have money are giving to those who don't have it. It is not equal or even fair.

There is a secular argument to be made that these policies really do pay for themselves. When we invest in crime prevention or preventive health care, these pay large dividends down the road. And there are similar arguments to be made for the societal costs of not caring for the elderly, the poor, the hungry, the homeless, and so on.

But I think there's a more telling argument for people who follow the way of grace. I think it is natural that we who are rich should give out of our abundance to those who are poor without expecting anything in return.

As Christians, the principle that the greatest among us will be the servant of all, that we will lift up the humble and cast down the proud, that the poor will always be with us, is even more strongly pronounced. We have special duties to care for the poor and defenseless, the widows and orphans, the outsiders.

One way we can do this is by voting for the engines of government to reflect our values. That's not stealing, it's empowering our representatives to work toward the balance we think is just.

Aaron said...

Hey Dan,
Thanks for your response...and for taking the time to explain so much on your blog. I can see where you are coming from...and even why you are for the pendulum swinging in favor for the poor rather than the rich.
It sure would be nice if taxes could be and would remain just. And it would be nice if the church would do the job of the church and care for the "orphans and widows in their distress." I'm just not sure that the main way the church should do this is through the government. Did the church fail in this? Is this why the government has to take over this role?
Unfortunately, because of the fall, the poor are no more righteous than the rich. You are in the minority... in voting on economical issues not for your own gain, but out of concern for those who are barely making ends meet. Many are openly voting for whatever will help their own bank accounts. Many of the "poor" think that they have the right to have their needs met by the government. This takes away the whole idea of grace and generosity. Instead it becomes something that is forced.
The whole point, I that people are totally depraved and will all look out for their own best interests as far as they understand them. The rich, in not paying even an equal percentage to the poor who have so much less- are (if we are to compare sin here) the worse sinners. They should not be able to get out of their equal percent for any amount of money. This is turning into a great conversational illustration of the doctrine of total depravity! So long as we are sinful and living in a Genesis 3 world... our economic policy will never be just. And then the question comes... are we as fervent in our giving to the poor outside of our own taxes (what we are obligated to pay the government) as we are to see legislation pass that may or may not help the poor?
Guess this leaves me at this point wondering what the real solution is? Do we implement unjust means to achieve justice? Perhaps the ends do justify the means in such murky waters? I'm not sure that the real heart issues will ever be discussed in politics....
and perhaps it is the church's job to call the government into account for "stealing widow's houses" as the Leaders did in the day of Jesus. But I'm not sure what that looks like. I'm not convinced that it takes place through a vote. The government will answer to God on the day of judgment. God has ordained the leaders and those in power... in His sovereignty (whether the person has what we consider to be "Christian values" or not) and on the day of judgment they will answer to Him (as the rest of us).
Oh... and what are your thoughts about proposition 8 in CA? If it gets overturned again... just what does our vote mean anyway? Government for the people by the courts?
OK... please explain where I obviously don't understand. :)