markmthomson.net

The Miami Herald reported yesterday the results of a nationwide McClatchy-Marist poll showing that American’s are 2-1 in favor of raising taxes on the wealthy.

Coincidentally, a number of other news outlets reported yesterday a study by the Tax Policy Center showing that 45% of Americans pay no income tax at all. Since McClatchy-Marist’s poll used a random sample, those 45% are presumably represented appropriately amongst those who want the wealthy to pay more tax. It’s interesting that so many who pay so little want others to pay more. And it’s also interesting that calls for the wealthy to pay more tax are so often framed as “shared sacrifice“.

I went looking for the details of the Tax Policy Center’s analysis and the most specific information I could find was actually for 2009, contained in a report published in July of that year. In that case the proportion of people paying no tax was 47%. The table below taken from that report shows a detailed breakdown by income level.

The updated figure of 45% for 2010 appears to come from a short article from March last year (incidentally it also notes that the report containing the 2009 data is the most requested publication from their website). Another Tax Policy Center article, from June 2010, makes the further point that the largest factor behind so many people paying no income tax is the fact that “Congress has chosen to deliver large portions of social policy through the tax code.”

I have no problem with the notion that those in genuine hardship should not be expected to pay income tax. But 45% of the American population do not live in hardship by any sensible global or historical standard. Unlike most conservatives, I’m not fundamentally opposed to tax increases (though I have questions about the need for them and their effectiveness). Nor am I fundamentally opposed to tax increases on the wealthy. I just think that expecting the entire middle class to pay their ‘fair share’ should be a higher priority than going back to those who already bear the greatest share of the country’s tax burden. And yes, that means that I think I should pay more tax before someone earning more than I does. I suspect I may be in the minority on that.

I was mildly surprised to read the following reaction today from the University of Oregon’s Mark Thoma (no relation :)) to S&P’s negative outlook for US debt (via Brad DeLong):

… it’s important to remember that the US debt is a promise to pay dollars, and we can print as many dollars as we want. That could be inflationary, and the inflation can undermine the real value of those bond payments and cause other problems, but that is not technically a default.

I find the sentiment disturbing. “Not technically a default”? Correct, but an abrogation of moral responsibility nonetheless. Debasing your currency simply to avoid paying less in real terms than your debtors can reasonably expect is a cynical breach of good faith. And of course it’s more than that – it represents a systematic confiscation of wealth from people who hold cash and bonds and a redistribution of that wealth to those who hold debt.

I note that Brad DeLong raises no objection. And Paul Krugman‘s views are well known –

… in 1946, the United States, having just emerged from World War II, had federal debt equal to 122 percent of G.D.P. Yet investors were relaxed, and rightly so: Over the next decade the ratio of U.S. debt to G.D.P. was cut nearly in half, easing any concerns people might have had about our ability to pay what we owed. And debt as a percentage of G.D.P. continued to fall in the decades that followed, hitting a low of 33 percent in 1981.

So how did the U.S. government manage to pay off its wartime debt? Actually, it didn’t. At the end of 1946, the federal government owed $271 billion; by the end of 1956 that figure had risen slightly, to $274 billion. The ratio of debt to G.D.P. fell not because debt went down, but because G.D.P. went up, roughly doubling in dollar terms over the course of a decade. The rise in G.D.P. in dollar terms was almost equally the result of economic growth and inflation, with both real G.D.P. and the overall level of prices rising about 40 percent from 1946 to 1956.

I am by no means an ideologue (yet) on the general question of economic stabilization, but perhaps Irwin Schiff had a point when he claimed that the only arrow in the quiver of Keynianism is inflation.