We Shouldn’t Actually Say “It’s the Economy, Stupid”; We Should Say “It’s the Taxes, Stupid”

Progressives have completely missed the ball in dealing with tax policy. Republicans are fanatical about taxes and will sacrifice anything and everything else to lower them for rich people. Just in recent days they’ve said that they will allow nothing, absolutely nothing, to take place in the U.S. Senate unless the Bush tax cuts for the rich are extended. Since then they’ve filibustered a defense spending bill, a bill to pay the medical expenses of 9/11 responders, and the DREAM Act. They previously filibustered extension of unemployment benefits, something they now say they’ll let pass if the rich first get a big holiday treat. They are obscenely fixated on one thing and that thing is giving hundreds of billions of tax breaks to the rich.

Compared to tax policy, progressives are always much more interested in spending. We want money spent for children, the disabled, the poor, the unemployed, environmental investments and regulation, medicare, Medicaid and social security, and lots of other good stuff. We don’t want money spent on wars.

But when it comes to tax policy, we tend to just yawn . . . until very late in the day when we realize that Republicans are here to rob the bank. And by that time, they’re usually out the door with the money.

Why is it that we don’t seem to care -- or even pay much attention to –- where the money that we want to spend comes from?

Maybe it’s because we don’t really care about budget deficits. At the federal level, Keynesian economics tells us that budget deficits grow the economy, and since growing the economy is generally good for all of the folks we care about, we’re OK with that. So we want to spend money, and the question of whether or not there’s any tax revenue to pay for it seems almost irrelevant.

Unfortunately, that attitude lets us get played. Republicans also don’t care about deficits. But they know that deficits can be used to scare large numbers of Americans and opinion makers into demanding budget cuts. And with budget cuts, bigger tax cuts seem reasonable. So they pretend to care about deficits, the better to enable them to cut programs and then the taxes that they say will no longer be needed to support them. For Republicans tax cuts are the (distorted) mirror image of our spending programs; they want stuff from the government too, but it’s not a check for worthy programs, it’s a lower tax bill.

So what’s the end result of all this? The right relentlessly pushes tax cuts, rich people wind up with far more money than they need and social programs go on the chopping block. The latest round of this pattern is now unfolding in front of our dumbfounded eyes. This will be the year the filthy rich get richer. Next year will be the year of the chopping block.

At the level of state government, this pattern of using taxes as a dam to stop social spending is even more insidious. State and local governments are constitutionally prohibited from running deficits. So every dollar of expenditure has to be paid for in the year that it’s made. In boom years, tax revenue rolls in (along with federal aid), so it’s possible to pay for good stuff like increased support for education. And we’ve had some good years recently. But now it’s crunch time, the economy has gone to hell, the feds are about to cut their aid, and to maintain social spending taxes will have to be raised.

But the rich have rigged the tax game at the state level. Under the PA Constitution, all taxes must be uniform. Therefore state income tax rates are flat (with just a slight break allowed for the working poor.) That means to raise revenue for the poor, taxes on the near poor and middle class must increase. So when the rich argue that the Democrats want to “tax and spend”, they mean the Democrats want to spend but then tax their own working class base. The base gets confused at best, very pissed and inclined to vote Republican at worst. Tax rates stay put, no matter how much damage that does to services.

At the level of Philadelphia government, the picture is even worse. Here we have huge expenditure obligations that have been pushed onto us by the Philadelphia-hating state legislature. The major tax we rely on to pay for the mandates is the wage tax. That tax must also be levied at a flat rate, and cannot be imposed on interest and dividend income. High mandate levels and a limited wage tax base could only result in one thing, sky high rates. But then the pressure to reduce the rate, even at the cost of reduced services, became enormous. And, indeed, the rate has been cut every year since 1996. A slow, real, but nearly undiscernable reduction in services has followed.

Worse has come to even worse as far as the wage tax is concerned. Hated as the wage tax is, a deal came along a few years ago which no one could refuse. Build two casinos in Philly, tax the receipts and use them to reduce the wage tax rate further. The deal was done. The small print on this Faustian bargain actually makes it all but impossible for the City to raise the rate now even if we could find a politician suicidal enough to propose it. So, if and when the state slashes subsidies to the City further –- in other words soon -- the wage tax won’t be raised to compensate.

The City does have other choices, primarily the business tax and the property tax. But each of them is problematic as a vehicle to raise more revenue when the City needs it.

The property tax is regressive, based on arbitrary assessments, and widely unpopular. Nevertheless it was increased 10% last year. It’s unlikely it’s going up again.

Then there’s the business tax. That requires a whole separate blog that will be coming soon. But here’s the bottom line on all of it: the left has no coherent message on taxes at the federal, state or local levels. Unless we find one, almost everything else we care about is headed to life support.

Moral documents

I don't really think Keynes had any idea that debts could get as bad as they have gotten, but... that aside...

I agree,it is a problem. It's tough to get folks excited about taxes. In part, I think, because no one likes them, and frankly a lot of the most powerful liberals are rich.

The only way that folks can possibly be excited about it is by couching it in the concept of class war, but that never goes over that well. During my years at the Philadelphia Unemployment Project, I never stopped being amazed at the folks who have nothing and still cling to the idea that they might end up rich one day.

The myth of everyone having a shot at real wealth, I think, is one of those things slowing us down.

I don't know what to say. Progressives have missed the boat on this one and I'm not sure that's going to change.

---
This Too Will Pass, adventures by the season.

We just need to keep talking about it.

It's what I do to the point of resenting my own obnoxiousness. I think I've made some headway though. And it's the way the right does it. They talk and talk and talk and talk as if they believe the crap they're talking about, and pretty soon it becomes acceptable. Progressives, on the other hand, start out actually making sense. So it shouldn't be quite as hard to break through. Not easy, but perhaps not impossible.

By way of further reply

We win on Foxwoods, and we should all cheer the demise of an atrocity. But then we have to deal with this. And the political pressure to replace the Foxwoods atrocity with another just as bad will continue unless we find and support a tax with substitute revenues.

in responce to moral documents

its tough to couch the argument in terms of class war when there is such a huge divide between middle class private and public sector workers. in the last city budget, after the cuts were made but before the property tax increase , the budget was balanced except for money set aside for wage increases. hence the 10% increase in property tax went 100% for public sector wage increases . its hard to get solidarity among the middle class when private sector workers who had lost their job and were unemployed had to dig into their pockets and pay higher taxes so city workers could get raises. in the depression it was the absolute reverse situation. for example in the early 30s boston school teachers took a 2% pay cut and that money went to fund programs for the unemployed and people in poverty, whereas today the money is flowing in the opposite direction where the unemployed and private sector workers who have had their pay cut are paying higher property taxes to fund pay raises for city workers.in other words its tough for us in the private sector who have had their pay cut , frozen or lost their jobs to feel much solidarity with public sector workers.

"It's Wall St., stupid"

Is what we should really be saying, Ian. Wall St put the City's pension fund in the toilet, killed the local economy, and caused the fiscal crisis here and across the country. But
Wall St is trying to demonize working stiffs like City workers to deflect attention from themselves. Thanks for helping, Ian.

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