Monday, June 22, 2015

The Trouble with Scott Walker's Tax Policies

Scott Walker is the remarkable GOP governor of the purple-to-blue state of Wisconsin and he's running for president.

His record on taxes, Henry Olsen tells us approvingly, departs from supply-side orthodoxy. In Wisconsin, he reduced the marginal rate on the state income tax for the middle-class taxes from 4.6% to 4.0%. But he only reduced the top rate on the rich from 7.75% to 7.65%. And he sweetened the pot with middle-class deductions for contributions to HSA accounts and private school tuition. No general tax rate relief for corporations, of course.

The result is that Scott Walker got reelected in a landslide in Wisconsin, but Sam Brownback, running for reelection for governor in Kansas with an orthodox supply-side record, only squeaked in.

The fact is that the middle class cares about what the politicians do for them, and that means lower taxes on the middle class. The middle class resents anyone else getting a break. And that, I'd say, is a pity.

It's all very discouraging to me, because the way out of the welfare state box canyon is not to create more middle-class sweeteners while keeping tax rates on the rich high. Why? Because high tax rates on the rich and corporations are in fact catnip for political corruption. Lobbyists can deal small-ball exemptions and carve-outs below the radar with the politicians that benefit existing powerful interests. And high marginal tax rates make it hard for newcomers to accumulate wealth to challenge the status quo.

But you can't explain that to Americans. In fact, Rule One in politics is that if you are explaining, you are losing.

Henry Olsen calls Ronald Reagan to testify for his anti-supply-side arguments. Reagan didn't sell his tax reductions on the benefits to entrepreneurs but to ordinary people. And he made sure that his tax proposals included big middle-class sweeteners.
By indexing standard deductions and tax brackets for inflation, he steered hundreds of millions of dollars to middle- and working-class families, money that theoretically could have been used to cut top rates even more. And his 1981 tax cut allowed all workers to contribute to tax-deductible IRAs, exactly the sort of middle-class tax cut that today’s supply-siders deride.
Yeah. But the truth is that these carveouts for the middle class were bubba-bait, just like President Obama's claims that Obamacare would reduce premiums by $2,500 per year. The real thrust of the Reagan tax cuts was to lower the top marginal rate from 70 percent down to 28 percent, and get entrepreneurs out of their garages. Just like President Obama's plan was to force everyone to get health insurance, whether they needed it or not.

The problem with high tax rates mitigated by deductions and subsidies is that it turns the economy into a valley with high cliffs on each side. As long as you stay in the valley bottom in sight of the politicians you do all right. But to strike out across open country? Well, first you have to find a way to climb the valley walls.

Yes, but isn't it right that government should subsidize people into doing the right thing, saving for medical and education expenses and stuff? Maybe.

But is it really a good idea to subsidize billionaire Elon Musk in his electric car startup and his solar-panel venture? Green energy subsidies are based on the idea that we are running out of fossil fuels and/or that carbon dioxide from fossil fuels is frying the planet. It's all based on current "settled science" or perhaps the latest gentry liberal fad.

My dream is for an America with low entitlements and low taxes, so that people just starting out don't pay 25% of their wages on payroll taxes, but use that money for health care, education, starting a business, saving for retirement.

But we'll never get started if we are all ruthlessly defending our own pet projects and carveouts like the proverbial dog in a manger.

1 comment:

  1. I am greatly enjoying your archives, keep up the good work.

    This article got me to thinking about the "take back the language problem". I think all govt. debt should always be referred to as a "tax on the young ".

    Also, when talking about tax policy, mandates, economics the points should always be made:
    (1)."all costs are paid by the consumers" (exceptions would be if a business is destroyed by costs, which is actually worse).

    (2)."It is not the taxes that are bad, it's the spending". That is the part where government is hogging all the resources that could have been used by productive people. If govt. gets the money by debt or counterfeiting(selling bonds), it's actually far worse than if they had just taxed us.

    (3). "Don't let the (D)irtbags confuse you. Nothing is free. Complicated explanations and 'free' offers are signs of a scammer"

    (4). "Politicians are surrounded by the slickest salesmen in the country, and they want 'contributions' to get elected. Character matters! "

    With the media against us it is hard to get a message out. Short, simple, easy to defend and hard to refute. My best results when talking to dems: "If you're registered to vote, you are likely to get jury duty" - rub it in with "you're likely to spend August getting 10$ a day while making a couple lawyers get rich". They want benefits, not duties, and envy eats at them hard -also, this is something their leaders have not told them(the scammers). This shuts them up very well, and seems to sour them on the whole voting thing.