海角大神

As we arrive at the federal tax filing deadline (this year on Tuesday, 4/17), it just so happens that Congress and the Administration have been thinking of different ways to raise tax burdens on the rich.听 Last week I participated in a 鈥淭ax Day鈥� event at the聽Tax Policy Center聽called 鈥淪hould the Rich Pay Higher Taxes?鈥� as one of the 鈥渇our Ds鈥� panel which also included 罢笔颁鈥檚 director Donald Marron, former CBO director and former McCain adviser Doug Holtz-Eakin (now president of聽American Action Forum), and economist rich guy (and a member of the聽鈥淩esponsible Wealth鈥� coalition) David Levine.听 The TPC has our handouts and a video of the event聽posted.听

罢笔颁鈥檚 Howard Gleckman moderated the event (and聽blogged about it afterward,) and at one point asked each of us 鈥渨ho is rich?鈥澛� I at first didn鈥檛 know how to answer that; 鈥渞ich鈥� is a relative concept that depends on one鈥檚 personal 鈥渂aseline,鈥� of course!聽 But then I circled back to the focus of the event鈥搘hat the tax burdens of 鈥渢he rich鈥� should be鈥揳nd I realized that in that context,聽补濒濒听federal income taxpayers should be considered 鈥渞ich,鈥� in that we are all, all combined at least, paying too聽濒颈迟迟濒别听in taxes.听 Revenues as a share of GDP are far lower right now than the 18 percent historical average over the past several decades, which is too little anyway to produce economically sustainable budget deficits now and going forward (let alone enough to cover spending fully).听 And although a lot of that currently-below-average level is because of the short-term but stubbornly persistent weakness in the economy (a cyclical phenomenon), projections show that even when the economy gets back to 鈥渇ull employment鈥� and even when revenues/GDP recover back to and above the historical average (even under the policy-extended baseline, by the way), revenues are still not going to be enough to keep up with the growth in government spending鈥揺ven if health reform (already in place and to come) successfully reduces the growth in Medicare spending.

So if 鈥渢he rich鈥� are defined as those who can afford and ought to be expected to pay higher income taxes, then 鈥渢he rich鈥� really has to be much more broadly defined than 鈥減eople like David Levine鈥� (who are multi-millionaires).听 And if you watch the video of the TPC event, we all pretty much agreed on the premises that: (i) we need more federal revenue; (ii) 鈥渢he rich鈥� can manage higher tax burdens the best (and should be asked first); and (iii) David definitely qualifies as 鈥渞ich.鈥澛� We had more differences in opinion over: (i) how much more revenue we need (and implicitly, what the right size of government is); (ii) how that revenue should be raised in terms of base-broadening vs. rate-raising reforms; (iii) what the right basis of taxation is鈥搃ncome or consumption; (iv) if David鈥檚 wealth comes more from his high productivity and hard work, or more from good luck; and (v) if raising tax rates on people like David will cause them to not work so hard, or if it just means they will not be as 鈥渓ucky鈥� in terms of their tax burdens.

David is practically begging to make him, and other millionaires like him, pay higher taxes, and feels the best (maybe easiest) way to do so is in the latest legislative version of the 鈥淏uffett Rule鈥濃�搘hich basically imposes another 鈥渁lternative minimum tax鈥� to brute-force effective tax rates on the incomes of the rich to be at least 30 percent, without changing (improving) the definition of taxable income.听 I and Donald agreed that David can afford to face a much larger tax bill, but that it would be better (more economically efficient and better for supply-side incentives) if his burden were raised by paring back the tax subsidies David receives via, for example, itemized deductions and the preferential tax rates on capital gains and dividend income.听 Doug also agreed that the best way to raise tax burdens on the rich is to reduce tax expenditures rather than raise marginal tax rates, but he did not count the preferential rates on capital income as a tax expenditure (because he advocates consumption as the right basis of taxation), and also probably would not agree with me and Donald on how much revenues/GDP need to rise.听 And all of us, being economists, agree that in theory and聽all else constant, higher marginal tax rates can discourage the incentives to increase the supply of productive resources (via working and saving) to the economy.听

But if there鈥檚 one thing that economist聽and聽rich guy David made clear in telling of his own personal experience with wealth and taxes, it鈥檚 that even for really rich people, the economist-labeled 鈥渋ncome effects鈥� of taxes鈥搕he effects of having more or less after-tax income鈥揳re typically far bigger than the economist-labeled 鈥渟ubstitution effects鈥� of taxes鈥搕he effects of marginal tax rates on relative prices which cause people to substitute away from taxed or higher-taxed activities and into untaxed or lower-taxed ones.听 I feel that conservatives (like Doug) who want lower marginal tax rates tend to over-sell the empirical significance of those substitution effects, yes, but liberals (even rich ones like David) tend to forget that as long as some substitution effects exist, it鈥檚 better to raise tax burdens by broadening the tax base (in a progressive manner) than by raising the top marginal tax rate.

So, the TPC event made clear that 鈥測es, the rich should pay higher taxes.鈥澛� But it also highlighted where the challenges to achieving fundamental tax reform will be, in coming to agreement about who exactly is 鈥渞ich,鈥� and how exactly they will be made to pay more in taxes. We have far more work to do regarding federal tax policy than what is currently being debated鈥搃n a very narrow sense鈥揳bout the 鈥淏uffett Rule.鈥�