Dems Eye Tax Cuts

Or, to be more accurate, Dem eyes tax cuts.

From the Wash Times comes props for New Mexico Gov. Bill Richardson for pushing tax cuts--and pulling a gentleman's "B" on the Cato Fiscal Policy Report Card ("B" was the highest grade anyone got).

Mr. Richardson, who is the new chairman of the Democratic Governors Association, said he wants his party to change its position on taxes and begin supporting tax cuts that help create more investment, economic growth and new businesses that will boost employment.

While Democratic leaders here, and many fellow Democrats in the state capitals were bashing President Bush for cutting taxes and even raising taxes in their states, Richardson was doing what Mr. Bush did: He cut state income tax rates sharply across the board and slashed the capital gain tax rate in half.

Post-ideological hilarity--and massive job growth--ensues. Whole thing here.

Comments

[joe]

Democratic governors cut taxes all the time, and Republican governors raise them (see Mitch Daniels). Working at the state level seems to require or allow more pragmatic, less ideological tax policies than you find in Congress.

[Ken Shultz]

"Mr. Richardson, who is the new chairman of the Democratic Governors Association, said he wants his party to change its position on taxes and begin supporting tax cuts that help create more investment, economic growth and new businesses that will boost employment."

...If they want to give me a reason to jump, that's the way to do it.

P.S. Did the invasion of Iraq make this liberalization possible?

[Morat]

So, if I understand you right, you're saying that the fiscal situation -- budget, economy, job market, tax rates and structure -- of New Mexico is identical in all major respects with the federal government.

That's hard to believe, but if you didn't mean that, how could you imply that something that worked in New Mexico would necessarily work for the federal government? I can't see you falling into the "one-size fits all" solution mindset.

[sage]

I saw something about Alan Greenspan being in favor of a national sales tax to boost growth, but because of the transition costs we should go to a 'hybrid.' That's just great, a sales AND income tax. Viva revolution.

[AJS]

Sage, if I understood correctly, Greenspan was advocating effectively scrapping income tax and going to a consumption tax model. I heartily applaud that approach. It means everybody pays their share and the loopholes for wealthy folks are gone. Predictably, a Democratic senator jumped up and said that it was unfair and that poor people would end up paying more. That guys needs to learn some basic economics. Note, I am neither Dem or Rep (I'm not even American, I just live here), but I get sick of Democrats saying any kind of tax reform is inherently slanted against the poor. The poor and middle classes are precisely the people who would *benefit* from tax reform! Any kind of simplification of federal tax would be welcome and certainly lower the overall cost of compliance (everybody wins there).

[joe]

AJS, if you don't realize that flat taxes hit lower income people harder than progressive ones, or that poorer people consume a higher % of their income than wealthy people, then you really shouldn't be telling anyone to take an economics class.

[Russ D]

Working at the state level seems to require or allow more pragmatic, less ideological tax policies than you find in Congress.

Hah! Spend a few weeks in Illinois! (If the hotel taxes don't wipe you out.)

[curious]

joe,

I?ve heard that argument before and I don?t understand it from my own example. When I was out of college in the late 80s and making like 20 grand a year, I was paying about 33% in taxes, in that my total tax bill (lumping fed/state/city together) was about $6,666. Sometime later in life, I?m making more money, say about 60 grand, and the tax rate should be about the same so I should owe about 19,800. However, with a home, kids, and other interesting deductions my tax guy comes up with, I?m only paying tax on 45 grand per year, which comes out to 14,850.

But I?ve made 60,000 no matter what phony baloney deductions I?m taking, so I end up paying 14,850 on 60,000 which is a rate of 24.75 percent. So my actually tax rate is lower than a low income knucklehead who doesn?t have the wherewithal to not fill out the 1040EZ.

If I was paying a flat tax of say 10%, as a young man I?m paying 2,000 and as an older guy I?m paying 6,000. I?m making more than my younger self and I?m paying a larger share of the pie.

Please explain where I?m faulty in my logic. And please don?t talk about deductions because that?s a bunch of nonsense, why should I take off mortgage interest, state taxes, and children from my taxes and increase the burden on others, especially the young and poorly paid.

[MP]

joe,

Most serious flat tax proposals include a significant standard deduction which mutes the "flat tax is not progressive" argument.

[curious]

Actually, I shouldn't single out joe, can anyone explain why I pay a smaller percentage of my income as taxes now that I make more money?

[joe]

curious, you may not like the answer, but the reason you may be paying a lower % now is because you qualify for exemptions, especially the home mortgage deduction.

I'm not arguing against tax reform as a whole - everybody has their favorite loopholes they'd like to get rid of. I'm just pointing out the definition of "flat tax," and the real world effects of a consumption tax.

[Curious]

It just doesn't seem fair to me, and it is why I'm always the one defending a flat tax in discussions with my proegressive friends.

Thanks!

[Phil]

The faulty logic lies in the fact that for the Federal government, and state governments, to meet their fiscal needs (and let's even assume that they're throwing in some spending cuts), a flat tax rate of 10% would be ludicrously, unbelievably low. By, like, a factor of four. It wouldn't bring anywhere near sufficient revenue. So, what the numbers usually translate out to is a flat tax rate that amounts to a hike for the poor and a cut for the rich.

What's more, income tax aside, lower income earners are hit harder by sales and other consumption taxes, have to pay FICA on their full income, and have to pay payroll taxes which a lot of high-bracket people don't. So a high flat tax rate combined with all those things results in an overall regressive tax structure.

[MP]

Phil,

The Hall-Rabushka Flat Tax plan estimates that a 19% rate will be revenue-neutral. Although I don't agree with their treatment of capital gains, their model is still considered the standard Flat Tax model. Since this plan (like most other flat tax plans) includes a high standard deduction, the poor would be much better off.

[R C Dean]

begin supporting tax cuts that help create more investment, economic growth and new businesses that will boost employment.

Sounds like someone is trying to spend social-engineering and pork-barreling via the tax code to me.

[MP]

These tax cuts were across the board and not targeted to any particular special-interest. Thus, there is no social-engineering involved.

[AJS]

Joe, as others have pointed out, there are mechanisms to combat that problem. High standard deductibles are one, exemptions on items are another. One suggestion I saw that looked doable was introducing the comsumption tax over time, but reducing income tax dollar for dollar, so the net effect is at worst zero. If it encourages the tax payer to save instead of spend the money, then they'll actually be better off. The main advantage to me is the simplification of the code. I've just done my taxes for the year and they get more and more complicated every year, with these bizarre deductions that sound like social engineering or vote buying to me. New Zealand embarked on this process a few years ago (read the article on TechCentralStation) and found (in a shocker) that the economy ended up better off.

[AJS]

The article to which I referred is at:

http://www.techcentralstation.com/021805C.html

[thoreau]

Whatever you may think of Richardson's proposal, he seems to be doing everything in his power to alienate Democratic primary voters in 2008.

His only hope is to start talking about ethanol and personally kiss every ass in New Hampshire.

[Ken Shultz]

The only bad tax cut is a dead tax cut.

[Dynamist]

After Richardson is done osculating New Hampshire's babies, he should take a quick side trip to Massachusetts. If he can smooch his way to gaining joe's support, he's our next CinC!

[thoreau]

After Richardson is done osculating New Hampshire's babies

...he'll go on trial like Michael Jackson?

I don't know what "osculating" means, but it sounds bad 🙂

[Mo]

osculating = kiss

Too good for the vernacular Dynamist or did you just want to sound dirty?