rich and poor

Paul Krugman, in a recent editorial, makes the statement that "this election really is -- in substantive, policy terms -- about the rich versus the rest."   Mitt Romney, for his part, refuses to apologize that he is successful in his private economic life, and Obama, for his part, refuses to apologize for making his record at Bain Capital and what we know of his tax history a matter of campaign rhetoric.  Some of the current rhetoric surrounds the Bush era tax cuts, where predictably the conservatives want to maintain all the tax cuts, while the progressives want to maintain those for those at the middle and bottom of the income spectrum and raise them for the rest.  While neither solves the deficit problem, at least in terms of direct revenues, the progressive plan puts more money in the coffers while the conservative plan, as Krugman notes, makes a promise to close tax loop holes.  There is, really, little reason to believe that the conservatives will do much in the way of closing tax loop holes -- in part because most of the so-called loop holes are either incentives to behavior that we ostensibly value (e.g. deductions for mortgage interest because we value the social effects of home ownership) or benefit the very constituency that form the contributing position of the conservative base (e.g. the differential tax rate for capital gains).  The closure of each loop hole, I'm certain, would simply provide new fodder for political contention and gridlock.

The tax code is, of course, far too complex to comprehend, with intentional and unintentional effects scattered throughout, and that is why the notion of a "flat tax" has some appeal, principally among libertarians and conservatives.  Just for the sake of argument, and to highlight the issues involved, let's assume that we have a flat tax of 10% on income.  As a matter of calculation, this is absolutely equitable, and that is part of its common appeal, and anyone who has divided snacks among eight year olds knows the appeal of absolute equity.  When one considers the effects, however, the equity tends to disappear.  The effect of a 10% cut on an income of $30K, leaving $27K, is much greater than the effect on an income of $100K, leaving $90K.  The cost of most goods and services are the same -- a gallon of gas or a gallon of milk will set both back equally -- which means that, after necessities, the person with $27K will have far less to spend than the person with $90K.  One could expect the latter to spend on "upgrades," a better dwelling or car, and on luxury items like an iPhone.  Altogether, this seems straight forward, and seems to provide no disincentives to increase one's incomes.

There are a couple of tipping points, however, one obvious, one not so obvious.  At the low end of the scale, there is a point where the confiscation of the tax would tip a person into real poverty, a point at which the 10% means the difference between affording and not affording the basic necessities of life.  One could define this with some precision, but again for the sake of argument, let us say that it requires an income of $20K to provide just the basic necessities of food, clothing, shelter, transportation to and from work, and the like.  If we confiscate the $2K in taxes from someone making $20K, leaving $18K, they can no longer provide for themselves.  Assuming, of course, that we do not want to reduce people to abject poverty, there seems to be a couple of options.  On the one hand, we could say that, for incomes below $22K we would not confiscate the tax.  Or, on the other hand, we could go ahead and confiscate the $2k, and return it to them in the form of entitlements -- say, food stamps.  The first, of course, opens the door to a progressive tax rate, and at certain income levels provides a direct disincentive to increase one's income.  For example, if one is making $21K, with no tax, one would be wise to decline a raise to $22K, with a tax leaving $20K.  The second just pushes the same issue off on the value of the entitlement.  On the assumption that the entitlement disappears at some income level, one would be equally wise to decline a raise that wiped out the entitlement.

At the high end of the scale, the tipping point is not so obvious in part because it relies on an individual standard.  We could ask, for example, "at what point does an increase in income make no appreciable difference in those things that one might reasonably value?"  At an income level $100K, the 10% tax leaving $90K may well make an appreciable difference, say, in one's ability to afford a better home in a better neighborhood with better schools.  At an income level of $1000K, the 10% tax leaving $900K would make no appreciable difference in one's ability to afford a better home, or much of anything for that matter.  At even higher income levels, it makes even less appreciable difference.  We might never reach the point where it makes no appreciable difference at all to specific individuals -- after all, someone might highly value the third $20 million home, particularly if their neighbor has three --  but we could ask the initial question a bit differently.  At the low end of the scale, there are more or less obvious reasons to provide incentives to earn more.  At the high end of the scale, however, at what point do we say, enough is enough?  Steve Jobs died a very very wealthy man, not because he created money out of nothing, fortuna ex nihilo, but because people like you and me made contributions to that fortune in the way of iPhone purchases, among other things.  At what point do we say, "you win.  You have taken enough."

I might be accused of class envy, but in truth I really don't envy Mitt Romney the good fortune of his parentage, or the fortune he was able to leverage.  Except perhaps envy for the overwhelming sense of security a fortune of his scope must provide, I have given it very little thought really.  I might also be accused of fomenting class warfare, and that comes closer to the truth, but I would not advocate the violence that warfare tends to imply.  At the moment, I am simply a voice in the wilderness, advocating for the sorts of redistributive justice that would make us not only a society of moral individuals -- and it is important, of course, that we be moral individuals -- but more generally, and collectively, a moral society.  There are any number of fraught notions within the previous sentence, not least "redistributive justice" and "moral society," and those notions are fraught because we have not yet achieved a consistent set of values that could garner universal consent.  Michaiel Walzer in his Spheres of Justice comes close to articulating the space I want to occupy when he writes that the aim of "redistributive justice" and of "political egalitarianism is a society free from domination."  He recognizes that to free a society from anything requires some level of coercive force, and to free a society  from domination gets stuck at the universal level in sophomoric paradox that we must exercise coercive force over domination.  We must, as it were,  dominate domination, and we must do so within an advanced democracy, if by no other means, through the coercive force of the "will of the people" as it emerges within the deliberative process of our electoral politics.  As some have noted, if the extremes of the Tea Party and the Occupy Wall Street movements have a common core, it is this egalitarian impulse to be "free from domination."  The question that is hotly to be debated, is this:  "domination by what?"

The extreme right, of course, fears domination by the government, particularly the federal government.  They seem to have less compunction about seizing control of local government and using its coercive power to legislate a particular vision of the moral society.  They nevertheless have a point, and their fear of central governments is not entirely misplaced.  I needn't reiterate Hayek's arguments here to suggest that the 20th century experiments to coerce communal egalitarianism from a central government were neither communal nor egalitarian, but were bathed in the blood of millions.  No one I think wants to resurrect those experiments, but the reflexive fear of government domination, captured in the word "socialism," still prevails.

The extreme left, of course, fears domination by the plutocracy within oligarchy.  They too have a point, and their fear of corporate dominance is not entirely misplaced, and seems altogether more imminent than government dominance, which brings me round again to Krugman's point that this election is about the rich and the poor.  Anyone who doubts that money is power hasn't yet stumbled far enough through life.  The ability to give or withhold a loan, for example, is a direct exercise of power with considerable influence on the quality of most Americans' lives.  The ability to set the terms of that loan deepens the power and the influence, and the use of force, even violent force, to coerce obedience to those terms completes the picture.  One need only conjure the picture of a mobbed up loan shark to understand why "usury" is morally challenging.  The difference, and really the only difference between the mobbed up loan shark and Bank of America are scale and government.  Under the regulatory sway of the federal government, they are not entirely free to set the terms of the loan, nor are they free to deploy their own enforcers.  They must use the courts.  Government, in short, stands between the vast majority of Americans and dominance by the Plutocracy within an Oligarchy.

I have some empathy for both sets of fears, though in this day and age I know of no one who credibly advocates for anything that might actually resemble a socialist government.  There are those, of course, who believe that government may well be the solution to pressing social problems, and not the problem itself, and President Obama would be within this camp, but they tend to advocate for government solutions proposed within and made legitimate by democratic institutions.  This hardly counts as "socialism," unless any government solution to any social problem is by definition socialism, and there are those, of course, who believe just that.  The reflexive cries of "socialism" are not intended to engage discourse around the nature and type of government, not even discourse around the nature of a specific government policy, but rather emerge from a broad distrust of government itself, in all its dimensions -- or, and this is more to the point, self-interest.  On the one hand, we are familiar enough with the conspiracy theorists, the one's who form militias in northern Michigan, but anyone who has held a position of leadership within a large complex organization knows how difficult it is to keep the ducks marching in the same general direction, much less mount a true conspiracy.  On the other had, we are familiar enough too with the government bashers, those who assume that any government operation is inefficient and ineffectual, but here again anyone who recognizes a grain of truth in the Dilbert strip would need to admit that the inefficiency and ineffectuality are characteristics not simply of government organizations, but of human organizations, the too-big-to-fail banks with their billion dollar losses being no exception to the rule.  Whether one's belief tends toward the hyper-efficient conspiracists or the bumbling ineffectuality of the bashers, there is plenty of reason to distrust government, per se, and it was perhaps the peculiar circumstance and genius of the framers to build this distrust into the constitution itself, but they also recognized that government, though problematic, was also necessary.

I am not concerned with those that distrust government in and of itself, and even feel they serve a broadly socratic role as gadflies, but I am concerned with those who capitalize on that distrust out of self-interest.  It's a good rule in life to follow the money, and that pertains especially in politics.  If we believe that government is necessary -- if we believe, along with Hamilton, that "the federal government must of necessity be invested with an unqualified power of taxation in the ordinary modes" to fulfill the ends imposed upon it -- then we should concern ourselves with the question of ends -- what is our tax money actually being used for? -- and with the question of equity -- do we have a fair and equitable system of taxation to accomplish those ends?  I suffer under no illusions that current tax policy tends to benefit the very wealthy more than the merely wealthy, and the merely wealthy more than the rest of us.  According to Roberton Williams from the Tax Policy Center, for example, "the very rich may be 'different from you and me,’ as F. Scott Fitzgerald wrote, but they are also different from the ordinary rich, as new IRS data on the 400 tax filers with the highest adjusted gross incomes show. Not only do the top 400 taxpayers have much more income than others with [adjusted gross incomes] exceeding $1 million — nearly 75 times as much on average in 2009 — but they get far more of their income from investments and thus pay lower effective individual income tax rates."  


I probably don't need to point out that Mitt Romney is among those that pay lower effective individual income tax rates.  While across the board tax cuts of the Bush era do put more money in the pockets of most Americans, they also put a disproportionate share back in the pockets of the very wealthy and the merely wealthy.  Whether those tax cuts and Mr. Romney's tax rate have had a salutary effect on job creation has yet to be conclusively demonstrated, but they have effectively increased the deficit.  It is also accepted, more or less as common wisdom, that reductions in the deficit will come at the expense of social programs.  As C. Eugene Steuerle of the Urban Institute points out, however,  "the nation’s real tax system includes not just the direct statutory rates explicit in such taxes as the income tax and the Social Security tax, but the implicit taxes that derive from phasing out of various benefits in both expenditure and tax programs. What I have labeled 'expenditure taxes' are like tax expenditures in the sense that both tend to hide the full impact of government and are seldom dealt with on a consistent basis."  He also points out that "although low- and moderate-income households are especially affected, middle income households face these expenditure taxes, too, as in the phase out of Pell grants and child credits."  In short, reductions within and access to social programs, like Pell grants and food stamps and medicare, increase household expenditures on education and food, and it's not difficult to see how that would have a disproportionate effect on those who can least afford it.


So, yes, this election really is about the rich and, if not the poor, then rich and the rest of us.  It will not likely play out that way however.  While American voters tend to vote the state of the economy, the votes comes more a "throw the bums out" reflex than a consideration of one's real economic interests, and there are plenty of other divisions to distract us -- evangelical social conservatism being perhaps the biggest of the big distractions.  Those who are for Jesus, against socialism (and gays, and illegal immigration, and abortionists, and government handouts in general) will line up at the polls and vote against their own economic interests while saying, "it's the economy stupid."