Ezra Klein: Can we close the budget deficit by taxing the rich?

[dkf]

http://voices.washingtonpost.com/ezra-klein/2010/04/can_we_close_the_budget_defici.html

In my chat yesterday, someone asked if we could really eliminate the budget deficit by taxing the rich. The answer is no, but we could make it smaller by taxing the rich. The Wall Street Journal's David Wessel runs the numbers. Before we jump in, remember: The deficit over the next 10 years is projected to be $9 trillion.

Start with some rough arithmetic. The three million or so fortunate taxpayers whom Mr. Obama counts as rich are projected to earn about $27.5 trillion from 2010 through 2019, according to the Tax Policy Center, a Washington think tank, and about $23.9 trillion after deductions. They are projected to pay $7.4 trillion in taxes. That's 31.1% of every dollar of taxable income, on average.

To squeeze an additional $9 trillion out of these taxpayers would require boosting that to 68.9%. And that assumes these taxpayers wouldn't find tax shelters to hide their income or work less. There isn't enough money in the over-$250,000 crowd to stick them with the $9 trillion tab.

And this actually makes taxing the rich look better than it is. The deficit that people worry about isn't the $9 trillion short-term budget deficit. It's the mega-trillion long-term deficit. To put this in context, the 2009 deficit was 53 percent of GDP. The 2050 deficit is projected to be 350 percent of GDP.

What's driving this, as you've heard at length, is health-care costs and demographic changes. The CBPP has a nice primer if you want to dig into it. But health-care costs and demographic changes are happening way faster than wage increases. There's no tax regime in the world that can keep up indefinitely.

[Tripod]

1. I'm taxed high, at a very low income.

If the rich payed nearly 20 percent, such as I do, It would definitely help to close the gap.

[aquart]

5. If they paid 91%, it would help a whole lot more.

Let's not pussyfoot. We're a nation at war. We have no means to pay for it but by levying taxes. No true patriot would refuse his nation in its time of need.

[Tripod]

9. My child has just received her 4 year Degree.

And she might not get to be a doctor because her school grants are going away. If she is a DR for the next 35 years, that is alot of money into our country. If she can't finish school, That is a whole lot less!

[Capitalocracy]

2. Why doesn't someone say we should raise the minimum wage to lower the deficit?

And decrease military spending?

Or am I just Leftbob Crazypants over here?

[dkf]

I do think we need to allow people to make a better living so they can actually afford to pay taxes.

But I think most people miss the point...health care protected cost increases are beyond our ability to pay. Keeping Medicare as we know it is impossible.

[BzaDem]

6. Keeping Medicare as we know it is emminently possible. What needs to change are private sector

healthcare costs. Once those change, Medicare can be kept precisely as we know it.

[dkf]

10. Well Medicare as we know it piggy backs on an impossible health care system

But you have to admit our current debate on medicare gets us exactly nowhere. This is what makes me think the Democrats are just as incapable of addressing our real problems as the Republicans which makes me want to tear my hair out. I wish our Dems wouldn't simply accuse the Repubs of taking away medicare but would explain why the health care system we have cannot stay the same.

[BzaDem]

11. I think in many cases, the value of "explaining" complicated things like our healthcare system to

the public is overrated. I know of no research to suggest that it actually works.

Blasting Republicans for taking away a benefit that tens of millions rely on? That works. People are just enough interested in politics to the extent that their lives depend on it.

But explaining complicated healthcare economics? That doesn't work. Anyone who is listening for the most part already understands (and the remaining vast majority have better things to do than to listen and understand some esoteric aspect of economics and politics, especially when each individual vote has almost negligible influence). Individually-rational political ignorance is a collective action problem, and it isn't going away.

The truth is, we will bash Republicans for taking away Seniors' medicare, and Republicans will bash Democrats for proposing government-controlled insurance. This will continue, because those are the arguments that (at least so far) have worked. This is obviously not a good political equilibrium, since the outcome will inevitably be a fiscal crisis (and what happens at that point is too unpredictable to be knowable in any way).

[Capitalocracy]

23. Look at it this way. Medicare represents something.

Medicare is charged with ideological significance on a level that touches on the underlying philosophy of governance. Do you think the government should help people out, that it is a democratic collective project that we all decide to use for our common benefit, or do you think the government is nothing more than the administrator of police to protect you from your neighbor and an army to protect you from the rest of the world?

Medicare is unsustainable if health care costs increase. Health care costs increase as a result of private businesses inflating those costs and raking in gigantic profits. Why? Because they can... you either fork over the money, or you die. Often painfully.

So there are two possible solutions to this problem. One is to completely overhaul the system, and offer single-payer health care. You might as well, the only other way to save medicare would be to create government-run infrastructure, hospitals and clinics, where people can go without paying inflated prices. If you're going to take on that kind of project and make enough of these hospitals and clinics for them to service seniors and disabled people, you might as well just implement single payer while you're at it. Or you could just put strict limits on what hospitals and clinics can charge... $300 for a patch of gauze that costs less than $5 at the pharmacy seems a little excessive, after all. But the "free market" is not going to solve this thing.

The other "solution" is to just get rid of Medicare. Hey, that will solve the national deficit problem... but all it will do is transfer that cost to the people. Really, what's the difference between all the people of a nation getting buried in debt due to medical costs, and incurring a huge national debt due to the same inflated medical costs? It's just as bad, actually worse, if the people of the nation are impoverished by this than if the collective representation of those people, the government, is buried in debt. And those prices would not go down, they'd continue to go up. All it would cause is general poverty, suffering, and death.

But beyond that, if Medicare works and people like it (and they do), then it's an argument in favor of the idea that we as a society can work together to build something bigger than what we can produce individually. And if they manage to destroy it, they continue perpetuating that concept that government can't do anything right, get that big government out of my life, and all that. If they can remove any positive interaction people have with the government, not only can they appeal to people with their anti-government rhetoric and retain control and continue making the situation worse, they can convince people to drop out and get rid of people who might otherwise vote or volunteer or come up with new ideas or run for office.

[dkf]

30. But isn't it a pure lie to tell the public that the health care system and Medicare can

Go on as is? Am I so naive in thinking government should inform the people of the situation and give us viable choices? BZA above thinks that the Dems and Reps will never fess up because the current way they bash each other over the issue works too well.

Where are the truth tellers and problem solvers?

[dkf]

4. Oops

[BzaDem]

3. The 2009 deficit was not 53 percent of GDP, and the 2050 deficit could not possibly be 350 percent

of GDP. He must be referring to something else.

The rest of the article seems accurate. If medical costs continue to rise as they are now, there will be no tax rate that solves the problem. The rich certainly have to pay more to close the deficit, but that is only a necessary condition (not a sufficient condition).

[dkf]

7. That was actually debt as a % of GDP

http://www.cbpp.org/cms/index.cfm?fa=view&id=3049

These numbers are pre-health care reform so the revised numbers are better but still godawful and unsustainable.

[BzaDem]

8. Ah, accumulated debt as a percentage of GDP makes more sense.

(Obviously a 350% GDP deficit is mathematically impossible.)

[Capitalocracy]

27. I assume this is also taking into account...

that GDP growth is expected to be relatively stagnant while the debt will continue to increase?

[eridani]

12. The solution to health care costs is single payer n/t

[Capitalocracy]

20. A+. Good job.

I know they say there's no such thing, but it really is kind of a silver bullet that could solve a lot of our problems.

[Hannah Bell]

13. the cost of the bush tax cuts over 10 years was $2.5 trillion. about 40% went to the top 1%

That's 1 trillion.

that is just the bush tax cuts, i.e. a reduction from clinton-era rates.

and the top 1% starts somewhere around $350K.

i think klein's numbers are bullshit.

[BzaDem]

14. The CBO says that allowing Bush's tax cuts to expire on families making above 250k would save 700b,

not 1 trillion. And 250k (as you point out) is not the top 1%, so looking at just the top 1% would be even less than 700 billion.

http://mediamatters.org/research/201009080010

[Hannah Bell]

15. i don't care what cbo says; we already *know* how much they cost the last 10 years.

http://www.ctj.org/pdf/bushtaxcutsvshealthcare.pdf

2001-2010

top 1% = $674 billion.

And the big breaks for the rich didn't kick in until 2003.

It's now 2011, & the top 1% has the same tax cuts through 2012.

Two more years at $80 billion a year = about $835 Billion, & that's close enough to a trillion for me.

[BzaDem]

16. "i don't care what cbo says"

Perhaps that is part of the problem. It would be advisable to care what the CBO says, rather than make your own projection based on nothing more than a naive extrapolation of the data of an interest group that includes the yearly AMT fix in its numbers.

[Hannah Bell]

17. projections can be made to say anything one wants depending on the assumptions used.

we already *know* how much they cost, & i see no evidence that the top 1% has reduced their haul since, or is going to be doing so.

nor do i see any reason not to raise their taxes back to clinton-era levels or higher.

[BzaDem]

18. Again, you are using data from a model that also includes the AMT fix. If you are going to use a

naive extrapolation, you should at least make sure the data you are using is actually the tax cut in question. (Not that this makes any naive extrapolation accurate in the slightest).

"nor do i see any reason not to raise their taxes back to clinton-era levels or higher."

Nor do I see any reason why not to raise their taxes to Clinton rates or higher. I just value accurate data, since it points out we need to go well beyond that to prevent the deficit to GDP ratio from growing without bound.

[Hannah Bell]

19. amt relief is still in effect so far as i can see.

http://westfaironline.com/2011/12496-new-law-brings-more-certainty-to-tax-planning/

[BzaDem]

22. Yes, it is, but AMT relief in general is usually considered separately, since the non-indexing of

the AMT to inflation (causing the need for "AMT relief") occurred long before Bush (back in 1969). "AMT relief" would have occured with or without the Bush tax cuts. Similarly, the doc fix would have occurred with or without healthcare reform, so the cost of the doc fix has nothing to do with the cost of healthcare reform.

[Hannah Bell]

24. amt relief is voted on every year. it was in place all during the bush tax cuts.

the only reason it's mentioned in that chart is because if it had for some reason *not* been extended in 2010, the 2010 number would be different.

the numbers in that chart are the tax cut numbers.

"Also, we no longer project the effects of the Bush tax cuts without
AMT adjustments, since it is clear that Congress will continue to adjust the AMT to limit the number of people it affects."

[BzaDem]

26. I can't find the original ITEP source, but your interpretation sounds reasonable, so I'll assume its

correct.

It does seem strange though, since even CTR itself claims that 700 billion is the figure for the top 2%, not top 1%.

http://www.ctj.org/taxjusticedigest/archive/2010/11/tell_congress_dont_choose_tax.php

[Hannah Bell]

28. i would guess it has something to do with the 2009 arra, which included some modifications

in the bush tax cuts.

or else something to do with projections (like cbo's) that project the rich will have some down years next decade due to recession.

though i see no evidence they will.

ah, no, here it is: they're using figures from treasury:

According to figures from the Treasury, extending the Bush income tax cut for the richest 2
percent would cost $678 billion over a decade.

again, projections.

[boston bean]

21. Hey Ezra, how about adding in taxes corporations should pay, but are not!

he's a fool sometimes!

[MadHound]

25. Tax the rich, tax corporations, oh, and cut the military budget in half,

That would go a long way to reducing the debt and restoring fiscal sanity to our country.

[kentuck]

29. They should exempt everyone under $250,000.

Yeah, that's the ticket! Way to go Democrats. That's like trying to drive to California on a gallon of gas.