Balko wonders why the richest 1% makes 19% of the income and pays 37% of the taxes. (My numbers say 31%, but that's probably because I'm including payroll taxes and Balko isn't.) He then asks what our limit to progressivity is. Well, for one, I don't think we've reached it yet. Right now the richest 1% still makes $1 million-plus after federal taxes, so pardon me if I'm not particularly worried about their financial health. Furthermore, state taxes tend to be somewhat regressive, since most states, as far as I know, balance a not-particularly-progressive income tax with a highly regressive sales tax. I don't think the 90% rate we had during the '50s is reasonable, but then, our economy seemed to chug along quite nicely even with that tax rate. I'd have more sympathy for the rich if they were paying 75%+ in taxes. Right now, with the federal top-bracket rate at 35%, I'd say we've got nothing to worry about by making things more progressive.
Again, I know next to nothing about inflation, but I do know we shouldn't be printing money to get ourselves out of debt. Inflation as a normal economic phenomenon is okay as long as the average investment still gains money compared to it. Government shouldn't be artificially inflating the currency in order to get out of debt, though. That's all I got.
National Debt as Percentage of GDP
Balko asks what percentage of GDP can the debt reach before it becomes excessive. We're at 80% by Balko's numbers - I have 73.2% from the OECD. That sounds bad, but comparatively speaking it's not awful. Canada's in the mid-60s, as is Germany; France is in our neighborhood; Italy and Japan make us look like we're spending chump change. We'll be adding significantly to that debt in the next few years as the costs of the bailout and
porkulus stimulus get factored in. I, personally, don't like carrying around debt, especially as a country because it can mess with your foreign policy something severe (how much more would we be pressuring China on human rights if they didn't hold a crapload of our debt?). So while zero debt is ideal, I'll use 60% as my limit, since that's what the EU uses to judge whether a country is ready to join.
Federal Spending as Percentage of GDP
Radley asks us to put limits on spending as percentage of GDP - currently 26% and more if health care reform gets done - and on the deficit, currently 7%. I'll be simple on the deficit - my limit is 0. I guess I differ from other liberals in that I'm something of a deficit hawk. But spending? It's tempting to put a number down here, but I don't think I can. There's a lot of spending that could do some good, but there's a hell of a lot of waste too. I'd like to see the waste (coughfarmsubsidiescough) go away and have us spend well on anti-poverty programs that work, as well as on infrastructure and science. I think by the time we get all the waste out and spend wisely, we'll be somewhere in the low 20s. We should spend whatever's necessary... but we should tax at a level that reflects that spending. If people want a government service, they've gotta pay for it.
A caveat - a little deficit is okay every now and then, as long as there's a promise that we'll be back in the black soon. It's just like running a business, in that regard.
Unfunded Liability of Entitlement Programs
The dirty little secret of the entitlement programs - Social Security, Medicare, and Medicaid - is that they work pretty well. They're just not funded well. Again, if we want a service we should pay for it. A few simple tweaks - raising the payroll tax ceiling, limiting benefits to rich seniors who don't need them, raising the retirement age - can fix our problems. No need to panic here.
Again, I'll differ from my fellow liberals in saying that I don't care about income inequality. As The Economist once said, a long ladder is okay, but it must have rungs. The real problem is the lack of upward mobility - we're on a par with class-obsessed Britain in that regard right now. Government spending should be targeted in a way that increases upward mobility, and we shouldn't be concerned about inequality.
Individual Tax Rates
Balko asks about the highest total tax burden on the super-rich we should tolerate. He says that this will reach 60% if Obamacare passes. I'm not worried about this number, economically speaking - as I mentioned earlier, our economy got along just fine with a much higher tax rate. We're talking moral imperatives now: how much of that hard-earned money should a rich man be able to keep? Remember, though, that most super-rich aren't really making that much off their income. Rather, the increase in value in their investments and property would keep them high on the hog even if we took much more of their income. I'll throw out that 75% number again, but that's really just chosen at random.
Average Tax Burden
How high should the average corporate tax burden climb, asks Balko, citing a World Bank report that places taxation at 46.2% of total profits. This number seems fishy to me, considering the U.S. only collects 2.2% of GDP in corporate taxes (compared to over 3% for other industrial nations). I think it's because the World Bank report doesn't take into account tax sheltering, which puts most American profits on overseas books. So while our 35% corporate tax rate is high, it's there because the profits companies make don't often make it onto their taxable books here. If we end tax sheltering, then we'll definitely have to drop the corporate tax rate. Until then, we could raise the corporate tax rate into the 60s and see little to no effect on corporate profitability.
I'll be interested to see if Balko actually responds to this. It was certainly interesting to write.
Update 7/24/09: Welcome Agitator readers, and thanks for your comments. I haven't been able to respond to all the comments yet because I went home from work sick yesterday and I don't have Internet access at home. I'm probably not going to be able to respond individually, unfortunately, though I'll give it a crack. First, though, thanks for the corrections on the history. I tried to correct some of that in the early going. Second, there's a lot of talk about the screw job our government pulls on small businesses. That's an issue that warrants its own post, and I'll hopefully have that up by the end of the day today. Finally, an anonymous commenter pointed me towards essays by Frederic Bastiat and Henry Hazelitt. I'll try to read those and get a response up next week (like I said, no Internet at home so no weekend blogging).