Wednesday, December 22, 2004

To Populist or Not To Populist...State of the Party V

Now, before we go off and spend the next three pre-Iowa-caucus-2008 years making horse race predictions as I just did in the last post, we ought to get back to this business of message. I've already laid out the parameters of what I think our approach should be on campaigning in the South (yes) and the priority civil liberties issues should have in the next few years, but there's also this little matter about economic policy, and as Thomas Frank suggested in What's The Matter With Kansas, having we Dems go back to a focus on populist economics as a counter to the culture war the Repubs have been waging. As my concern with civil liberty issues probably suggests, I don't completely agree with Franks' emphasis on economics over culture, if that is indeed what he arguing. But I do thing there's good policy and good political grounds for Democrats to pursue a focused, and bold, approach to economic policy that challenges many of the conventional myths that conservatives have been spinning for the last couple of decades.

The root of this New Democratic Economic Populism is philosophical and from a political psychology standpoint, as much about reframing issues as about concrete policy alternatives. While I will elaborate on my basic philosophy in hopefully greater clarity in the days and months ahead, my basic point and plea to the Democrats is to say out loud at every forum that the conservative spin about "less government", the wonders of "capitalism" and the magic of "free markets" and "individualism" is a bunch of gobblydogook. The "free market" as conservatives revere it, doesn't exist. Capitalism doesn't spring up from the soil unbidden, ready to work its god-given majesty to all who will sacrifice themselves to its mercies. Capitalism, the economy, and the "market" is a fabrication. It is a construction. It requires an infrastructure and rules. And favors. And privileges. Now, what conservatives want is for people to believe that government and society have no role to play in ensuring some measure of economic justice or wellbeing, while on the other hand, allowing and encouraging government institutions to go on quietly existing to maneuver through means of regulations and legislation that the economic needs of corporations are provided for.

Maybe you get where I'm going with this. From an economic populism standpoint, perhaps for Democrats the return to power is a matter of "less is more". Perhaps, instead of calling for greater public spending and the higher taxes needed to support it, there is a basis for Democrats to focus on pruning the corporations from the public trough. I recognize I'm simplifying something here that is more complex than a matter of attacking corporations in a general sense. And that is not my argument. But I do believe there are plenty of avenues, both philosophical and tangible, to refocus Democratic economic policies towards leveling the playing field by removing corporate preferences and subsidies from the public sphere, rather than attempting to add additional spending programs and layers of bureaucracy.

Which I guess brings us to taxes, and tax policy in particular. The Rogue Progressive, Rogue that he is, is talking economic heresy for Democrats. Not that there's anything wrong with that. In fact, it's a good read, and maybe even good heresy.

Like the Rogue, I've begun to wonder whether the progressive income tax is either good policy or good politics for Democrats. Before the Rove machine began floating the idea of ending certain tax exemptions (deducting state and local taxes from fed income tax, the health insurance write off for corps, the mortgage interest deduction) as part of a tax reform package, I'd been thinking much of the same thing, but from a more liberal vantage point. Simply put, I believe the progressive income tax, such as it is, is more a cesspool of inequities than a means of "progressive" policy, both in the forward thinking as well as redistributive senses of the word.

Should Democrats consider the in-name-only progressive income tax as the gold standard of tax policy or should we, as a part of unmasking the hidden role of government and the disparities it creates, see the income tax as a viable basis for reform, from a progressive standpoint?

Most people don't realize the degree to which their livelihoods depend on certain features of the tax code and other indirect and hidden dimensions of government driven economic policy. The progressive income tax, with its host of subsidies, tax deductions, and hidden incentives, has created a situation where the government role in the economy is not well understood and has been the breeding ground for conservative misinformation and scorched earth politics that needs to be countered.

As the Rogue Progressive implicitly argues, conservatives have used liberal support for government programs as a whipping boy while continuing to work the levers of government to serve its own inequitable ends. As we continue to grasp the circumstances of being out of power, Democrats should reconsider our tax and economic policy positions and be prepared to branch out in new, if challenging directions.


American Dilettante said...

Rogue Progressive (yes, quite rogue lately) is completely wrong about income taxes.

Income taxes, unlike every other tax we have (excise, corporate, Social Security, sales) is progressive, thank God, even with deductions.

CBO has a couple of wonderful reports called "Effective Tax Rates". One is from 1979-2001 and one is from 2001-2014.

The reports show how Reagan shifted the tax burden to the poor and how Bush helps the rich more than anyone else.

Under Bush, the top 1% now only pay a total effective rate of 26% when they used to pay 36% under Clinton. The poorest quintile pays 5.2% when they used to pay 5.8%. Yes, a cut for everyone, but a much bigger cut for the top.

A Sales Tax structure or a Flat tax would be chaos. Income disparity to rise which would bring crime and other destablizing factors. Not to mention, sales taxes slow the economy down more than income taxes.

You know what I say to people that complain about deductions for the rich- get rid of the deductions. A simple, but progressive system is what we need.

This evil, evil shift of the tax burden to the poor over the last 24 years must be stopped.

The Rogue Progressive said...

Populist or not populist kind of misses the point. It is whether the Dems should continue to play in the Republican sandbox (and worry about populism vs. not populism) or to build their own.

As far as the conservative spin - it just should be ignored. Of things that George Lakoff gets right, that is one of them. Dems need a whole new vocabulary.

Ah, Sen. Bulworth offers me high praise. I mean, six years ago the entire Bush agenda was considered radical. The Dems often seem to be more attached to specific programs than they are the goals behind those programs. Attack the income tax, or welfare programs, or inefficient government and the Dems go apeshit, even if have the same goal as them. Unfortunately, it's a sign of lack of thinking on their part. If something shows up that can do everything a Dem program can do, but better, they should jump on that train immediately, a la FDR, TR and other progressives.

In refuting my points about the income tax, American Dilettante pointed to CBO numbers on effective tax rates. Most of those numbers refer to all federal taxes. The income tax numbers appear mildly progressive (um, but only the top quintile cracks 10%? something doesn't smell right there). But I have quibbles with CBO's methodology that make me suspect the numbers really are more flat or even regressive.

CBO includes in income the value of in kind transfers like school lunches and government benefits? That just artificially inflates the incomes at the lower end, reducing their tax bite on paper. That income does not generate any tax liability because it is not cash income or alternative compensation, like 401K contributions and matches). And as I've said in my blog, people who don't file a return because they don't make a lot often miss out on a refund of part or all of their income taxes. Since CBO uses the IRS Stats Of Income, based on filers, it misses them. Plus the value of a lot of those refunds is eaten up by tax prep costs and the interest on those "instant refunds." I also find it just a little odd that CBO dumps the burden of corporate taxes on stockholders (increasing the simulated tax bite on the rich) when we know that corporate taxes have been going down when profits and capital gains have been going up.

Finally, if you want an appeal to authority on income tax regressivity, talk to anyone who heard Yale Law professor John Langbein, an expert in tax law, at the January National Academy of Social Insurance who put together a much more convincing case than mine that the income tax is not progressive. Unfortunately he didn't provide a paper, but his argument boiled down to this: the rich avoid progressive rates through tax shelters and dodges that most people have never heard of and that you need a brigade of lawyers and accountants to arrange.