The Trunk

Drawing Lines

jeffmiller:

moorewr:

…

Jeff and I have different understandings of who can afford a tax increase. A family making $100,000 a year is making approximately twice the national median. We can quibble over what constitutes rich and what constitutes merely affluent—but the bottom line is the guy who had a $100,000 year can, with the same kind of budgeting everybody else does, find a way to get by on a mere $98,000 a year.

That’s about the increase we’re talking about. The marginal rate for taxable income over $250,000 would go from 35% to 39.6%. The guy with a $400,000 year could be looking at paying the higher tax on roughly $100,000 of his income (assuming he’s got the student loans and other deductible expenses Jeff is putting him at.) His tax increase will be … $4,600 for the $400,000 year.

This isn’t free.He might feel the pinch. He might buy a less expensive car. He might send his kid to a less expensive college. He might decide to take fewer cases and spend more time with his family. Maybe. He might give more of his money away to take better advantage of charitable deductions. Jeff is entirely right that there is a marginal cost.

But there is also an opportunity cost to extending his tax break. The poverty line is about $14,710 for a family of two. Four million six hundred thousand Americans live on less than that. Programs like food stamps, the earned income tax credit, and the other things in our safety net means that these families have food and, sometimes, shelter. It’s a sick society that worries about the marginal cost to the guy making $100,000 a year more than the basic living conditions of those in poverty.

Raising the lawyers taxes isn’t free—but it’s worth it.

Part of the problem with the libertarian/progressive dialogue is that our perspectives ar so different, we sometimes we think we’re arguing over the same thing when we are not. I have no doubt that the family I described in the prior post can find a way to get by with a few thousand less dollars each year. They don’t need to take a vacation; they don’t need to have cable; they don’t need to buy that new iPad … there’s lots of things they can cut. My point has nothing to do with whether or not they can absorb the hit of a tax increase. Rather, my point is that increases in the tax code will change their incentives in ways that have consequences. In my primary example, one of the two spouses very rationally decides to quit their job and stay at home. Will the family still get by?—of course. But again, the employing company lost a good worker, the nanny lost her job, the quitting spouse will watch his or her job skills atrophy. In designing changes to our tax code, we ought to care about these things. Now, it may very well be that the extra money you get from the tax increases will outweigh these consequences in your mind. But I think progressives vastly underestimate the social costs of tax increases. Indeed, I think they hardly ever look at them at all.

When the moderately affluent cut their consumption as a result of a tax hike, the will probably vacation less, or drop HBO, or fire their nanny. And thought their individual action won’t have much of an effect on the economy, it can in the aggregate. That nanny might have trouble getting another job, for example. Or some hotels might close. And when these things happen, you get more people in poverty than before. (Thank goodness you increased taxes, because more people need help, right?)

There’s this silly notion that money in the hands of the moderately affluent just sits there, making the moderately affluent fat and happy. But the moderately affluent don’t just stuff money into mattresses. They spend this money on things that create jobs, or they invest it in companies that create jobs. If you care about redistribution, know that this money is already being redistributed—it’s redistributed to people in exchange for goods and services and work. Sure, the government can take this money and redistribute it too, but it won’t necessarily be in a way that actually creates any wealth. Yes, the out-of-work nanny might need some public assistance, but as a society, we ought to prefer that she have a job.

As a bleeding-heart libertarian, I’m more than sympathetic to Squashed’s calls for us to care about the poorest amongst us. We both want the poorest amongst us to be better off. I just believe his politics will make them considerably worse off.

Squashed writes: ”It’s a sick society that worries about the marginal cost to the guy making $100,000 a year more than the basic living conditions of those in poverty.” I think it’s a sick society that sees their fates as being in conflict; who sees this as a zero sum game. Every day, the man making $100,000 a year buys things from people that employ people who make less than he does. When you raise his taxes, who does it hurt? Does it hurt him because he has to cut a few expenses? Or does it hurt the guy who used to cut his grass? The woman who used to serve his coffee? The installer who used to service his cable?

I understand the impulse of those who want to order the world, even if I find it depressing. Those who wish to order the world tend to underestimate just how impossible that task is.

Source: moorewr