How Our Tax System is Both a Particle and a Wave
The CBO recently released a report on the effective marginal tax rates for low- and moderate-income workers and once you account for federal and state income taxes, federal payroll taxes, and SNAP (food stamp) benefits the tax system for these workers looks pretty flat.
Higher income groups pay roughly the same range of tax rates (or too often less) as the working class groups we see graphed above, so we basically have a de facto flat tax. As economic’s professor and former advisor to Mitt Romney, Greg Mankiw, points out, “we could repeal all these taxes and transfer programs, replace them with a flat tax along with a universal lump-sum grant, and achieve approximately the same overall degree of progressivity.” Saying “same overall degree of progressivity” is another way of saying no progressivity.
The United States is often thought of having a highly progressive tax code because most of the revenue we generate comes from the richest Americans. But if our effective marginal tax rates are basically flat, how are our revenues so “progressive”? Inequality. People at the top end of the income distribution must own a disproportionately large share of the national income.
Eduardo Porter, writing in the New York Times, is right that we shouldn’t get overly fixated on tax progressivity; our concern should be raising enough money to fund programs that can benefit the poor and the middle class.
[T]he government’s success at combating income inequality is determined less by the progressivity of either the tax code or the benefits than by the amount of tax revenue that the government can spend on programs that benefit the middle class and the poor.
The entire budget for cash assistance for families in the United States amounts to one-tenth of 1 percent of the nation’s economic output. The average across the O.E.C.D. nations is 11 times bigger.
Porter argues that European style flat taxes (e.g. VAT, carbon taxes) can raise more revenue to pay for larger benefits. But we don’t have that type of flat tax. Just like the wave-particle duality in quantum mechanics, where particles exhibit the characteristics of both waves and particles, the United States created an astonishing tax system: A highly inefficient de facto flat tax that somehow manages to disproportionally rely on the rich while collecting insufficient revenue and doing next to nothing about inequality. It’s simultaneously flat and progressive and, to paraphrase Richard Feynman, nobody understands the tax code.
Sociology professor Philip Cohen shares some data from the Census Bureau to demolish the myth that single-parent households were responsible for rising crime rates starting in the ’60s.
Violent crime has fallen through the floor (or at least back to the rates of the 1970s) relative to the bad old days. And this is true not just for homicide but also for rape and other assaults. At the same time, the decline of marriage has continued apace.
Cohen doesn’t mention it, but the theory that single-parent families are definitively worse for kids’ outcomes is also undermined by comparing why families have one parent.
As you can see from this chart, children that were raised by single parents because of the death of one parent do almost as well as kids from two-parent families. This is almost certainly because, counterintuitively, genetics and peer-groups play a much larger role than parenting does.
So why has violence gone down recently? That requires a complex explanation, but the short answer is the state got more effective at controlling crime (e.g. locking more criminals up; hiring more cops). Additionally, although it’s harder to quantify, the 1990s saw the re-ignition of what Steven Pinker calls “The Civilizing Process” where more people began to feel like the criminal justice system was less capricious and more legitimate while the glorification of violence fell out of favor.
One positive legacy of the 1960s was the revolutions in civil rights, women’s rights, children’s rights, and gay rights, which began to consolidate power in the 1990s as the baby boomers became the establishment. Their targeting of rape, battering, hate crimes, gay-bashing, and child abuse reframed law-and-order from a reactionary cause to a progressive one, and their efforts to make the home, work-place, schools, and streets safer for vulnerable groups (as in the feminist “Take Back the Night” protests) made these environments safer for everyone.
We may be able to make further progress by continuing to make the justice system more fair. Although the ‘War on Drugs’ may be responsible for locking up many criminals in its wide cage, it also delegitimizes the state’s authority in many communities where local citizens feel like the police are discriminatory, inconsistent, and untrustworthy.
Stable families are better for children, but there is no reason to blame single-mothers when they already have enough responsibilities.
If only American voters knew, in advance, which candidate’s plans would be better for the economy and the world. How fortunate would we be if history conspired to test out their general approaches before we vote on Tuesday? Remarkably, it has. And, no, I’m not just referring to the G.W. Bush presidency, which Romney hopes will turn out better as a sequel. Rather, England and other European nations experimented with the government slashing austerity that conservatives predict will lead to the economic boom we all desire.
If you look at the pink shading, you’ll see the predicted paths of growth for the US and the UK following the financial crisis. Now, check out the real growth for each. The American economy infused with Obama’s policies exceeded the expected growth (purple line); the British Conservatives who cut government hoping to produce market confidence left the UK underperforming (dark blue line).
In February of 2009, Obama and the Democrats passed the stimulus bill in the middle of a tanking economy. Unemployment stood at 8.3% and climbed every month. Fiscal and monetary stimulus slowed the free fall and the economy eventually began to turn around. Now we’ve had 32 straight months of private sector job growth. The unemployment rate is down to 7.9% from a high of 10%.
In Europe, the trend is different. In February of ’09, unemployment was 8.2%. Today, it’s 11.6%.
Despite the positive trend here, what’s the most direct reason unemployment isn’t even lower in the US right now? In contrast to past recessions, we now have a Republican Tea Party congress that prevents any more aid going the states, forcing layoffs of public sector workers (green line).
But what if Romney shifts once in office and doesn’t cut spending as the right-wing fantasizes? It’s possible Romney just repeals Obamacare and the Dodd-Frank financial regulation and then passes another budget busting tax cut. As the private sector and homeowners continue to deleverage and as the Fed continues its monetary stimulus, we are going to continue out of this economic rut and eventually see faster growth. So if Romney doesn’t torpedo the recovery with short-term fiscal contraction, Americans might associate the repeal of universal healthcare and financial regulation as keys to success. It’d be easy enough to confuse voters with that simple correlation even though the cause of recovery differs.
The historic passage of universal healthcare will be doomed. Another generation will see millions of Americans suffer with inadequate care and go bankrupt from medical bills. Without a universal system, American workers won’t have the mobility to always take better jobs if that opportunity risks their coverage. And the financial system will continue the destructive risk-taking that put us in this economic mess.
It’s vital to remember that Obama isn’t perfect and has broken enough important promises and principles to warrant changing course. Unfortunately, the only viable challenger is likely worse on these same issues. As a consequentialist, I can’t endorse swing-state voters risking the election of Mitt Romney, but it’s worth reviewing where Obama has gone terribly wrong. Lower ticket elections are crucial to pressure executive policy change.
Obama admirably put us on course to end the wars in Iraq and Afghanistan, but despite his 2008 campaign rhetoric, he initiated a war in Libya without congressional approval, violating the War Powers Act. His challenger may repeal the ban on torture, but Obama continues to personally accept the horrific treatment of Bradley Manning. Obama has extended the Patriot Act and continues to spy on Americans without warrants or proper oversight. This president also signed the NDAA, which grants the power to indefinitely detain American citizens under his personal discretion.
The president was right to refocus the war on terror against Al Qaeda and Bin Laden specifically, but the increase in drone strikes, often against targets whose identities we don’t know, is an immoral and dangerous power no president should have. As reported in the New York Times, president Obama has also created a secret kill list that includes American citizens living abroad. This unconstitutional power has no checks to prevent abuse or to ensure due process. These abhorrent policies will be left to future administrations to expand and abuse along with the status quo destruction of poor communities through the War on Drugs. If a feasible alternative existed, they should be elected. Disappointingly, our electoral system makes it so Mitt Romney is our only likely substitute. He supports all these programs and his neoconservative foreign policy team seems more likely to start a costly new war with Iran no matter what the unintended consequences.
On the substantive issue differences between the two major candidates, we have a clear contrast. We have a president that supports full equality for gay Americans. A challenger that supports 2nd class citizenship. A president that is more likely to end the cruelty against innocent children of immigrants. A challenger who’s nativist party doesn’t trust the citizenship of anyone who looks foreign. A president that supports the right of women to control their own bodies. A challenger with policies that could end birth control or force women to get unnecessary and invasive vaginal probes. I don’t share the same overwhelming fear of the national debt that many conservatives do during Democratic administrations, but both candidates seem eager to pass a long-term deficit deal. If it must be done; I trust Obama not to do it entirely on the backs of the poor like a Romney-Ryan plan surely would.
Too often voters punish incumbents on squishy feelings or without examining the likely course of policy consequences. Even in The Economist‘s endorsement of Barack Obama it lamented that he didn’t appear polite enough to businesses or social enough with Republican congressmen by playing more rounds of golf with them. This complaint springs from the cult of comity, a theological belief system that believes bi-partisanship and cordiality are goods in themselves. It’s not how policies are made that matters, it’s the results of them.
Nevermind the reality that Republicans agreed before Obama’s election to oppose everything he did. Since the special election of Republican Scott Brown in Massachusetts, the legislative branch has been dysfunctionally obstructionist against providing the president any further accomplishments. Even with the obstruction, Obama’s legislative victories would make most presidents jealous, but it’s necessary to solidify them and ensure they’re carried out responsibly. The Obama administration has staffed its agencies with professionals that want government to work. Nowhere is this seen more clearly than in the response to Hurricane Sandy. Republicans with their deep ideological aversion to government doing things well make appointments that create a self-fulfilling prophesy. Is anyone surprised that Bush’s FEMA head incompetently bungled the response to Katrina, while Obama’s appointment has received high accolades for his performance?
If you want government to run well and to focus on policies to help all Americans, your best hope is the reelection of Barack Obama.
(Official White House Photo by Pete Souza)