Thursday, April 23, 2009
Will California lead the way? And will Tom Brokaw connect more dots?
The New York Times has just posted a story suggesting that serious people are beginning to call for a new constitutional convention to revise a disastrously dysfunctional California constitution. Good for them!! Is it too much to hope that perhaps this development, should it come to pass, might generate at least a scintilla of conversation about our own decidedly imperfect Constitution?
The country can't handle a US Constitutional Convention right now.
California would be a far sight better if Proposition 13 were repealed.
Have you thought about which of your proposed constitutional changes would muster a supermajority ratification of the states or what other amendments you would be willing to accept in compromise to enact your changes?
The California effort really has nothing to do with structural reforms like those you support, Sandy. The CA Dems and their RINO governor are simply using this as a ruse to strip out pesky obstacles to spending, borrowing and taxes so the state can complete its trip along the road to bankruptcy.
Since they took over a couple cycles ago, our Dems in Colorado have been trying to gut our Tax Payer Bill of Rights (TABOR) limits on spending and taxes and requirement that increases go to a state wide vote. Every time they tried, the voters smacked them back down.
I am unsure whether California voters are more eager than we Rocky Mountain voters to raise their taxes and lower their standard of living again.
You really do yourself no favors by citing to Tom Brokaw, for Christ's sake. The man is not exactly an intellectual powerhouse, you know.
As if the home foreclosure rates have not been high enough for you, let's throw in a couple thousand dollars more in property taxes per home?
Is it too much to hopeBe careful what you wish for.
Reactionaries and flat-earthers retain considerable political power in both California and the nation at large.
Yes, a Constitutional convention might produce something better than what we currently have. But until the political climate changes, I think the chances are very good that reworking the Constitution will produce a curate's egg.
In the future, when you imagine the deliberations over this revamping of the fundamental laws of our land, I would ask that you seriously consider the actual players who will be forging the compromises and controlling the debate.
We do not seem to have a Jefferson or a Madison ready at hand -- yet one thing we have in common with the Founders is that reactionaries and Southern obstructionists demand outsized influence as the price of assent.
So when you envision your proposed Constitutional Convention for the United States, please place Senators Inhofe and Brownback and Cornyn at center stage, where they will certainly demand to be.
I also think it fair to say that whatever else may come out of a constitutional convention, one thing that definitely will not come out of it is what Prof. Levison really wants most, an end to each state having an equal number of senators. Except for a handful of the largest states, no one else is going to agree to it.
Regarding local government structure, other states would be well advised to study the example of Virginia.
In the Old Dominion there are no overlapping cities and counties. You are either in one or the other. There is one local government, and everyone know whom to hold accountable at election time.
As a CA resident, I'm anxious to see us adopt a new constitution. The current one is a disaster, and not just because of Prop. 13.
I understand that lots of people have concerns that profoundly illiberal (in the classic sense) and undemocratic provisions may be proposed in a new federal constitution. If CA does decide to revise its constitution, that will be an interesting test of those concerns. In fact, there may be other recent changes to the constitutions in other states which might alleviate (or aggravate) them. Perhaps someone like Prof. Levinson should research the individual state experiences; at least the recent ones. :)
The California effort really has nothing to do with structural reforms like those you support, Sandy. The CA Dems and their RINO governor are simply using this as a ruse to strip out pesky obstacles to spending, borrowing and taxes so the state can complete its trip along the road to bankruptcy.Bart, it's quite the opposite. Our Constitution REQUIRES spending and MAKES DIFFICULT tax increases. In other words, we have a Constitution which requires the government to spend money and prohibits the government to raise revenues needed to pay for the spending.
So it's the current Constitution that is leading us to bankruptcy, not the people who would revise it.
California is going bankrupt because its profligate spending imposes the 6th highest per capita tax burden in the country and is chasing its productive middle class and their tax revenues out of the state and is replacing them with low skill immigrants who are net tax consumers.
If the Dems pushing for a change in your constitution seek to remove the mandated spending and strengthen the obviously insufficient obstacles to increasing the tax burden further, then you might have a chance at avoiding a state bankruptcy. However, if your Dems are like our Dems, they are proposing just the opposite.
That means there are yet more CA refugees heading out to our fair state and its TABOR protections.
FYI, all (in the interest of legibility):
If you'd like to quote someone [say, in italics] and then comment, with the latest fustercluck in the Blogger software, here's how you do it:
<i>[stuff that you want to quote in italics]
<br></i>[and then your comments]
Put the "br" and closing "/i" tag on a new line!
Check it out with preview too (a procedure that I neglect to follow far too often, as well).
Until they fix what they broke in Blogger...
If the Dems pushing for a change in your constitution seek to remove the mandated spending and strengthen the obviously insufficient obstacles to increasing the tax burden further, then you might have a chance at avoiding a state bankruptcy.Bart, tax increases reduce deficits. Tax cuts increase them, just like spending does.
Conservatives have been falsely denying this for 30 years, but meanwhile, we've seen Reagan cut taxes and explode the deficit, Clinton raise them and cut it, and Bush 43 cut taxes and explode it again.
So if we want to avoid bankrupting the state, the state needs the freedom to BOTH cut spending AND raise taxes.
The limits on taxation you favor are deficit-INCREASERS.
I don't want this thread to devolve into a discussion of CA's specific issues, but I will provide this link for information regarding taxes in CA.
Bart, tax increases reduce deficits. Tax cuts increase them, just like spending does.
I do not want to start a 80 post thread on taxes, so I will limit myself to this one response.
Deficits are simply governments spending more money that they take in tax revenues.
Tax revenues are only one side of that equation and their increase cannot by themselves reduce deficits of the government increases spending even faster.
The issue I was raising in my previous post was the well documented effect of a reduced return in tax revenues for each increase in tax rates.
Reagan: Although the tax rates dropped by over half, tax revenues nearly doubled during his Administration, far more than projected by OMB and CBO. Reagan's early deficit was caused by a rapid increase in defense spending before the economic stimulus of the sharply lowered tax rates kicked in.
Bush I: Bush raised tax rates to lower the deficit and the country went into recession the next year.
Clinton: Clinton raised tax rates again as the country was experiencing nearly 5% growth pulling out of the Bush recession. The growth dropped and the actual increase in tax revenues were half of that projected by OMB and CBO.
Bush II: Bush cut tax rates in the Summer of 2003 and tax revenues increased annually by double digits until 2008, far more than projected by OMB and CBO.
The causation is plain. Taxation is punitive. The more you tax an activity, the less likely folks are to engage in it. Liberals intuitively understand that when it comes to excise taxes on tobacco, but are willfully blind to the same effect when they tax income. The more you raise taxes on and punish income creation, the less income creation folks engage in, reducing tax revenue if the tax payer stays in the state or nation, and eliminating the tax revenue entirely if the tax payer flees for another nation (like all the Brit expats in the US in the 70s) or the state (like the enormous migration from the high tax states like NY & CA to lower tax states like my CO.
CA total tax burden has not ranked as low as #10 since 1994. Recently, it has ranked between #4-6. It could break into the top three after the new slew of taxes just enacted.
The more you raise taxes on and punish income creation, the less income creation folks engage in
That is the most assinine argument I have ever heard. If I have a choice of making more net money with a $100,000 income than I make with a $50,000, even if my taxes are higher at $100,000, I am going to opt for the $100,000 income. If you would rather have the $50,000 income, it would explain a lot.
Tax revenues are only one side of that equation and their increase cannot by themselves reduce deficits of the government increases spending even faster.There's no content to this statement. You could just as easily say that spending cuts cannot by themselves reduce deficits if the government decreases taxes even faster.
The issue I was raising in my previous post was the well documented effect of a reduced return in tax revenues for each increase in tax rates.Bart, that's what the conservative movement claims (based on the infamous Laffer curve), but in fact, not even conservative economists accept this. At best, under "dynamic scoring", SOME-- but not all-- of the revenue lost through a tax cut may be recovered through economic growth.
And further, tax increases can even sometimes lead to economic growth due to deficit reduction which reduces the crowding out of investment caused by government borrowing. That's what happened under Clinton.
I don't want to oversimplify-- economics is complicated and there are certainly discussions about whether in some cases, tax cuts (or spending increases) can work as a Keynesian stimulus that can repay itself in the long term through increased economic growth. But your statement that tax cuts bringing in more revenue is "well documented" is simply false. It is, at best, one model of something that can occur in certain circumstances and there are competing models that make other predictions.
Clinton raised tax rates again as the country was experiencing nearly 5% growth pulling out of the Bush recession. The growth dropped and the actual increase in tax revenues were half of that projected by OMB and CBO.Actually, Clinton raised taxes and every major Republican predicted that it would ruin the economy. Instead, we had the longest peacetime expansion in American history. Every single Republican prediction on this turned out to be wrong.
The causation is plain. Taxation is punitive. The more you tax an activity, the less likely folks are to engage in it. That's true as a matter of theory, but reality is more complicated than that, because (1) even if you keep 67 cents of every marginal dollar rather than 72 cents, you still have plenty of incentive to earn the extra dollar, and (2) it is possible (and indeed likely) that the activity will be reduced and yet the tax revenue still increases, for the same reason that a business can sometimes raise a price of a good, sell less of it at the higher price, and still increase revenues.
Term limits would be nicer if there were fewer revolving doors. Termed out in one chamber in state legislature, then termed out in the other chamber, then arrange a commission appointment, then d.c. al fine. That is the diluted form of term limits in CA.
Prop 13 was successful until redefinitions diluted it.
The next proposition with a similar theme to prop 13 forced budget compromises to exact supermajority, which worsened standoffs and gave a vocal antigovernment minority increased control over budget compromises.
Finally voters were fooled into voting for a dilution of the distance between the two political parties by the redistricting rule recently passed. The outcome has yet to appear, as it activates only after the decennial census, next after 2010, whereby a political allotment of spots on the redistricting commission resembles the hamstrung FEC structure, half republican, half democrat; this in a state nearly two thirds democrat.
However, I support these constitutional changes introduced through the initiative and referendum processes, as better than states whose initiative dynamic is less robust.
More need for new initiatives than a new state constitution.
>> The more you raise taxes on and punish income creation,
>> the less income creation folks engage in
> That is the most asinine argument I have ever heard.
But it's a remarkably common article of belief among affluent Republicans, held with nearly religious intensity.
In the reality-based community of economists whose work take the Clark Prize, not so much.
As Matt Yglesias points out:
"there’s little support for the idea that increases in marginal tax rates harm the economy but reducing people’s incentives to work. Studies, in other words, show low levels of labor supply elasticity with respect to marginal tax rates."
Conservatives can't do simple arithmetic. I thought everybody knew that. Their whole economic philosophy depends on it.
Marcab, you might want to read past the first paragraph, because that paper doesn't support your claim, as even Yglesias explains.
That paper says that it's true at lower levels of income -- as we might expect from people who don't really have the flexibility to radically alter their employment behavior in response to tax changes -- but not among the upper income people where liberals want to go hunting for all that extra money to throw around.
1) Without exception, federal tax revenues have risen during the economic booms that followed marginal tax rate reductions. The counter claim is that the economy would have grown anyway, thus the government "lost" revenues due to the rate reductions because federal tax revenues would otherwise have grown even faster. The problem here is that OMB and CBO use the static scoring assumed in this argument and, without exception, the economic growth and resulting tax revenue growth following marginal tax rate reductions are substantially higher than scored.
2) The idea that higher taxes increase economic growth by reducing government borrowing makes no sense. Your argument assumes that the government removing wealth from the economy by borrowing. That assumption is sound. The money can be used far more efficiently in the private sector to create further wealth providing goods and services consumers want than it can being spent on items politicians want. However, if borrowing is reduced by raising taxes, the government is still removing money from the economy and reducing efficiency.
The Clinton example does not support your argument. Growth slowed after the Clinton marginal tax increase and the tax revenue increase was half that projected by CBO. The refrain was, $200 billion dollar deficits as far as the eye can see (which seems quaint with the current Obama Trillion dollar deficits for the next decade). The budget did not go into surplus until government spending growth was slowed when Clinton signed off on the Gingirch budget after he was safely re-elected.
3) You cannot reduce deficits by lowering or increasing marginal tax rates because the politicians will spend anything you give them and them some. The only times we seriously reduced deficits were when Reagan reduced defense spending and when Gingrich/Clinton slowed entitlement spending. Deficits are a spending problem, not a taxation problem.
David Nieporent :
Hmm. I _did_ read the Saez paper. And what the paper I read said was :
- taxable income elasticity with respect to tax rate variance is too small an effect to bother discussing in any but the top 1% of incomes.
That is to say, for 99 % of households, Bart's assertion is simply false on its face.
- in the top 1% of incomes, the existing data sets do not show a good correlation. Top 1% elasticity figures for the most comparable historical tax increases vary wildly. In only one case was the elasticity greater than 1.0 -- that is, in only one case did the decrease in taxable income of the top 1% equal or exceed the increase in taxes on those incomes. In all other cases, increasing the tax rate on the top 1% resulted in greater tax revenue from the top 1%
- Such elasticity as does appear in the data seems to be mostly a short-term effect, rather than a long-term shift of economic production. The numbers dip or rise briefly, and then revert to trend.
- Significantly, Saez spends much of the paper discussing the means by which that top 1% of earners may seek to reduce their reported taxable income without reducing their actual income. He cites shifting income from year to year, tax sheltering, increasing deductions by taking on more mortgate debt, shifting compensation plans to make less of total compensation taxable, outright tax evasion, etc. None of these mechanisms constitute high-earners choosing to work and earn less in response to higher tax rates, yet these are the mechanisms by which Saez explains the observed elasticity.
Saez also discusses the case which IMHO we have been seeing in our large corporations : the case where low tax rates induce executives to spend their efforts inveigling the Board to increase executive compensation rather than tending to the company's business. In this case of "negative externality", the executive's own taxable income rises, but the overall effect on the economy is negative, because the business goal becomes production of high executive compensation rather than healthy economic growth.
I commend to your attention section 3.6, in which Saez says that elasticity is thus less useful as an analytic tool in setting tax policies than "a more granular understanding of the various components of behavioral responses to taxation".
A later section of the paper considers the complementary Republican belief and claim about behavior -- the idee fixe that reducing marginal tax rates constitutes an economic stimulus, because people will redouble their efforts if they retain a greater share of their nominal earnings. About the available empirical data surrounding tax rate cuts :
"What remains unclear is whether any portion of the wage and salary growth is attibutable to the marginal decline in taxes, or is simply another form of income shifting" [emphasis added]
The Republican Party has spent a quarter-century assuring us that reducing marginal tax rates on top earners constitutes the best and most effective available economic stimulus. These Clark-Medal winning economists are unable to find in the historical data any clear support for that assertion.
1) Without exception, federal tax revenues have risen during the economic booms....There. that's seems pretty accurate....
The only times we seriously reduced deficits were when Reagan reduced defense spending*choke*
Reagan reduced defense spending ?
graph of defense spendinggraph of US deficitI invite all readers to search in those figures for Reagan's reduction of defense spending.
(Another thing to note is the horrific effect that the unrelenting Bush 43 tax cuts have had on the national deficit, exactly the opposite effect predicted by the Republican economic model that Bart so doggedly champions here )
Without exception, federal tax revenues have risen during the economic booms that followed marginal tax rate reductions.And federal tax revenues also rose during the economic boom following Clinton's tax increases, which Republicans like you confidently predicted would bankrupt the economy.
So obviously, your economic model isn't as predictive as you think it is. (And that's why actual mainstream economists reject it and call Republican hack-economics the bunk that it is.)
The idea that higher taxes increase economic growth by reducing government borrowing makes no sense. Your argument assumes that the government removing wealth from the economy by borrowing. That assumption is sound. The money can be used far more efficiently in the private sector to create further wealth providing goods and services consumers want than it can being spent on items politicians want. However, if borrowing is reduced by raising taxes, the government is still removing money from the economy and reducing efficiency.You are assuming the two "removals" happen at the same rate. But if the deficit is too high, it crowds out MORE investment than would be decreased through higher taxes, because government borrowing drives up long term interest rates so much that businesses can't raise capital (especially high risk businesses raising start-up capital).
Your model is too simplistic. "You're putting in more money here but removing the same money there." The two effects work differently. In an economy where investment is not being crowded out by government borrowing, it may very well be the case that the contractionary effects of tax increases outweigh any expansionary benefit of lowering long-term interest rates. But it's much more complicated than you seem to think.
Further, I might add that there is absolutely no difference between tax cuts and spending in this regard. Cutting a tax is exactly the same, economically, as the government writing a subsidy check to every recipient of the tax cut. Whatever one says about tax increases one can also say about the spending cuts that Republicans are always claiming to support.
The Clinton example does not support your argument. Growth slowed after the Clinton marginal tax increase and the tax revenue increase was half that projected by CBO. The refrain was, $200 billion dollar deficits as far as the eye can see (which seems quaint with the current Obama Trillion dollar deficits for the next decade).Actually, Clinton dramatically reduced the deficit / increased the surplus EVERY year of his presidency. It is true that Gingrich gets some credit for spending cuts after 1994, but the deficit went down the first 2 years of the Clinton presidency as well. And the economy boomed during that time period.
Republicans were simply flat wrong about Clinton's tax increases. They predicted calamity, and looked like idiots when it didn't happen.
You cannot reduce deficits by lowering or increasing marginal tax rates because the politicians will spend anything you give them and them some.That's a strange claim. Politicians will also cut taxes any time they can.
Look, the truth (as opposed to the dishonest Republican spin) is that politicians of both parties love to cut taxes and spend money. (Perhaps you can say that Republicans love to do the former and Democrats the latter. But in practice, these things both get bipartisan support.) And BOTH those things lead to deficits.
You want to hang everything on spending. But as I said, a tax cut is spending just like spending is. Economically, tax cuts are exactly the same as mailing everyone a check, except for transaction costs. It's all the same. This is why CREDIBLE deficit hawks (like the Concord Coalition) want both spending cuts AND tax increases. It's the only way, and Clinton proved it.
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