My friend Matt Miller defends Obama against my wounding accusation that the president is a bold progressive liberal. I've got it all wrong, says Matt, who is also a fairly progressive liberal (though paid by public radio to pose as "the voice of the political centre"). In fact, he says, the president is a defender of the status quo.
Also, and here is where I think Matt crosses a line, he calls me mild-mannered. No disrespect, but Bolton men find that kind of talk hard to take from a big girl's blouse from LA.The point of Matt's column, when he finally gets to it, is that tax deductions for mortgage interest and so on are subsidies that unfairly favor the rich. That is all you need to know about them. Curbing them must therefore be good, and Obama is a centrist, QED.
Let the mortgage deduction illustrate the point. Under Obama's proposal, top earners will be able to deduct mortgage interest only at the 28 percent rate, not at the 35 percent rate (or the 39.6 percent rate, once Bush's tax cuts expire). What does that mean exactly? Today, every $1,000 in mortgage interest (or charitable gifts) generates $350 in tax savings for top earners; under the new plan, the tax savings would be only $280.
To be sure, this represents a sudden and disorienting loss for top earners, who were accustomed under the previous regime to having their taxes cut even during a time of war. But here's the comforting part: That $280 per $1,000 mortgage subsidy is still a lot more than the $150 subsidy per $1,000 that millions of middle-income homeowners in the 15 percent bracket enjoy. And it's an infinitely bigger federal housing grant than the zero awarded by Uncle Sam to the masses of Americans who rent (or who will shortly, once they've been thrown out of their homes).
Yes, that's one way of looking at it. And it so happens I'm for broader tax reform that reduces or eliminates these deductions. In the column Matt complains about I said this:
Granted, other things being equal, reducing the value of tax deductions - not just for the highest earners, but for every taxpayer - makes sense. It broadens the tax base and requires lower marginal tax rates for any given amount of revenue raised. But look at Mr Obama's proposal in context. He is not broadening the base to lower marginal rates. He is raising marginal rates on the highly paid, and increasing their effective tax rate by rolling back deductions. The measure is an unexpected element of redistribution in a package that was highly redistributive to begin with.
Matt entirely ignores the context, quite a feat in its way. The collapsed savings of the prosperous middle class, the other tax increases on high earners, the failure to ask most Americans to pay anything at all for health reform or the array of other new spending commitments in the budget, the huge and ongoing fiscal gap (and the presumptive need for further tax increases in the longer term): in Matt's view, none of these things factors in. He is wrong. They are relevant.
Notice too how Matt walks right up to, then swerves around, the logical consequence of his argument.
Given the temper of the times, and the extent to which America's unsubsidized cops, teachers, nurses, and janitors outnumber its well-to-do homeowners and donors, the "socialist" route would have been to take top earners off the dole altogether.
Dole? Let that pass. My question is, are you for doing this,
Matt--and if not, why not? Why, on your reasoning, would you not
immediately abolish tax deductions for all taxpayers? People too poor
to pay tax do not get these subsidies, so in simple justice it cannot
be right to pay them to the non-poor: as you put it, treat John Thain
and his cleaning lady the same when it comes to tax subsidies. Isn't
this your argument in its entirety? Don't worry about equity and
efficiency more broadly; pay no heed to marginal rates or effective
rates of tax; never mind about the distribution of the tax burden. Just
equalise/eliminate those tax subsidies, as though nothing else mattered.
I may have misunderstood you. I've read the paragraph about janitors
four times and I'm still not sure where you stand. If abolishing
deductions is indeed your recommendation--not in the longer term, not
as part of a broader tax reform, but right here, right now--I think
you're nuts but I withdraw the accusation of cowardice in the face of
your own logic. If your view is, "Now is not the time, and it would
have to be done as part of a bigger reform," then I agree with you--and
your position, though you don't seem to realize it, mostly collapses into the
one you attack. (The difference comes down to, "How large a tax increase on the non-poor is wise?"--a question you fail even to acknowledge, let alone answer, in your article.)
Incidentally, whatever happened to the Matt Miller of "Fixing America's Problems in Ways Liberals and Conservatives Can Love"? Tired of that old centrist shtick? Sensing a shift in the market?
I still want satisfaction on "mild-mannered".
That famous socialist Ronald Reagan signed the tax reform act of 1986, the last good tax act we ever had, that among other things taxed capital gains, dividend income and ordinary income at the same rate -- 28%, by coincidence. This eliminated a lot of nonsense as you can immediately see. An earlier draft of TRA86 would have eliminated the mortgage and local tax deduction, but was unsalable and withdrawn. The alternative minimum tax system that everyone complains about, and which many of us in effect are governed by, should be studied: you might like it and so might Matt. Try this exercise: pretend you only pay the AMT and see how it works. You will need Turbotax and a lot of patience.
Clive,
Perhaps you can flesh out the cultural significance of being from Bolton, for your American readers who are unfamiliar with this place.
Separately, your friend Matt needs to reconsider the props in making his class warfare pitch. America's cops, and nurses are doing quite well, and America's teachers aren't too far behind. Cops in my state of New Jersey, for example, average six-figures in annual income with overtime. They also retire after 20 years, with generous defined benefit pensions, supplemented by the government equivalent of a 401(k), the 457. In addition, if memory serves, cops here are exempt from the Social Security payroll tax and instead contribute to a more lucrative alternative.
Nurses aren't doing too bad either. I know one who often earns $50 per hour doing agency work. Staff nurses around here can easily earn six figures with overtime.
Veteran teachers in the more affluent districts here also can earn six figure incomes, while working about 180 days per year and getting two months off every summer. Not a bad job.
Yes, one who passes a 700+ billion "stimulus" package and makes a $600 billion "downpayment" on universal health care is a defender of the status quo. Indeed.
The key to understanding the Obama tax plan is to look at the spending plan. Sure, there is a case to be made that the currently proposed tax hikes merely revive Clinton's just-left-of-center policies. My question: where will Obama's massive new spending have marginal rates in 5-8 years? Obama understands that proposing a truly massive tax hike, even on the "rich", won't pass in one fell swoop. Better to use the economic crisis to massively boost spending, thereby creating a later budgetary crisis that gives the political cover for the 50% plus marginal rates that are almost sure to come. The "logic" that justifies moving the rates from 35 to 39.6 -- they're rich and don't need the money -- will apply with equal force to moving from 39.6 to 42, and so on and so forth.
The sure retort from Miller, et al. is that this is speculation. Well Obama can put an end to it by pledging that income tax hikes will stop with those now on the table. Does anyone expect him to even hint at that? And of course, the idea that we can have a European-style welfare state without also having their tax rates is fanciful, to say the least.
The truth is that these tax increases are the forced "downpayment" of upper-income earners, just as the 600 billion is the downpayment on government-run healthcare.
And finally, Clive, don't let the "dole" comment slip. It is the key to the worldview that animates the left's desire to punish the "wealthy" through taxes. I'm just barely over Obama's arbitrary $250k demaraction between the middle class and wealthy -- never mind that I am still in my early 30s, just started earning that much money, and still have a mortgage, student loans, and zero net assets. I will likely pay over $50,000 in federal income taxes in 2009 -- my single largest expense, by a mile. But if I get a moderate deduction on my mortgage interest, I am no less on the government "dole" than a welfare mom, I guess.