Some thoughts on taxes and public policy

An old colleague and friend whose politics and opinions I have always respected posted the following comment re:my last blog entry:

one thing I think we should all consider is for all of us to stop buying the mantra that taxes are evil, or that "we" can spend our money better than "they" can. Taxes pay for services - police, fire departments, teachers, clean air, food safety --- things that individually, we cannot do by ourselves in virtually all cases.

The middle class was all too happy to support continuing tax cuts for themselves...but we do, as a country, have debts to pay...and we should pay for our wars (or not get into them or get out of them), for one thing.

This comment raises two points that I feel inclined to address.

Taxes are the price we pay to live in a civilized society that provides for the basic needs of its citizens – needs that those citizens cannot provide for themselves – and, yes, we should pay them without begrudging them, provided they are used in the best interests of the common good.   These days, a lot of folks object to paying Federal taxes because they feel that the Federal government just pisses their money away, or gives it back to them “with strings attached.”  The crux of these folks’ objections (and my own, at times) is that the government has used their tax money for a LOT of stuff that doesn’t benefit them directly and/or that they don’t agree with.  But that isn’t really the standard, is it?  The standard is the common good.  We elect a President, Senators, and Representatives to figure out what that common good is and to spend accordingly.  If we don’t agree with their decisions, we elect someone else.  We don’t start mailing tea bags to Washington and electing demagogues who promise to cut taxes to nothing and to starve the Federal government out of existence.  I shudder to think where we’d be if the demagogues succeeded with that agenda.  And you can be sure that the Tea Baggers, the GOP, Sarah Palin, Rush Limbaugh and Glen Beck would be among the first to complain about the failure of  government services under that scenario.

Yes, the middle class should pay its fair share of taxes, along with wealthier individuals.  But not now, when we’re trying to get our economy restarted.  Let me present an illustration of why I believe that we should raise taxes on the wealthiest Americans first, and NOW.  Let’s take two families of 4:  the Middle family has a combined gross income of $75,000; the Betteroff family has a combined gross income of $750,000.  The Middle family’s income is likely to be almost entirely earned income.  The Betteroff family probably receives a portion of its income in the form of stock options and other “capital gains” and can better afford to use tax shelter and deferral mechanisms.  Consequently, the Middles already pay more taxes, as a percentage of gross income, than the Betteroffs do.  (In recent years, the wealthiest Americans paid 17% or less of their gross income in taxes.)   Moreover, the Middles must dedicate a much higher percentage of their net income than the Betteroffs do to “nondiscretionary” spending on housing, food, insurance, clothing, utilities, medical expenses, local property taxes, etc.  When all is said and done, the Middles are going to be awfully lucky to have $20-25,000 left for discretionary spending and saving, and they are likely to spend most of it.  On the other hand, the Betteroffs will likely have $200,000 or more left for these purposes, and they will save a healthy chunk of it.  The Betteroffs’ savings is NOT money circulating in the economy, spurring production and growth and creating jobs.  It’s just wealth piling up, to be passed on (tax free up to $3.5 million) to the next generations of Betteroffs.  The Betteroffs are better able to maintain their standard of living even if they pay 5% more in taxes, and that 5% could be put to better immediate use for the common good than sitting in the Betteroff’s VUL policies, stock accounts, or laddered CD’s. 

For an outstandingly clear and well reasoned extended discussion of these and related policy issues, I highly recommend Robert Reich’s new book, Aftershock: The Next Economy and America’s Future.