Edward Kleinbard (USC), Machiavelli on Tax Policy:
Niccolò Machiavelli, that sublime analyst of all political instincts, understood contemporary America perfectly. In his greatest work, The Discourses on the First Ten Books of Titus Livy, Machiavelli wrote that truly admirable men remained constant in temperament through good fortune and bad. By contrast, “Not so do weak men behave; for by good fortune they are buoyed up and intoxicated, and ascribe such success as they meet with, to a virtue they never possessed…”
Those of us who have achieved material success have been fortunate in ways great and small, visible and forgotten. … The tax system is a window into the soul of our society, because we use tax law as our principal tool of industrial policy, wage support and income redistribution. Our tax structure tells more about what we as a society believe to be fundamentally fair than does any other aspect of government.
If we believe that our material success is ours alone — a reflection of our personal virtues, or perhaps the special benevolence of some Higher Power — and not in part the outcome of the unpredictable caprices of fortune, then we intuitively find repugnant the idea that we should be willing to share those gains through the intermediation of the tax system with those to whom fortune’s wheel has been less kind. We reflect this in our tax policy by demanding still lower marginal tax rates on high-income taxpayers …
It is not surprising that the affluent have always slipped into the convenient habit of mistaking good fortune for great virtue, and therefore into believing that higher marginal tax rates were a confiscation of the rewards that come naturally to those imbued with virtue. What is new is that the rich seem to have convinced the poor and middle class to believe this as well. …
If we could learn to acknowledge the role that the whims of fortune play in all of our lives, then we might perhaps not grasp quite so tightly onto our material success as if it were ours alone. We might be more willing instead to share at least a little bit of our good fortune, not out of pity, but out of gratitude. …
As I described in a previous contribution, simply allowing the Bush tax cuts to lapse, and weaning ourselves off personal itemized deductions, like the home mortgage interest deduction, would by themselves basically resolve the current budget crisis for the next decade or more, giving us time to develop and phase in better-targeted entitlement programs. Together with some judicious trimming of current spending, these moves would give us the budget headroom to invest collectively in America’s future, through public education and infrastructure investment.
Moreover, the elimination of personal itemized deductions follows economic logic. Doing so raises revenues without raising the top marginal tax rates; doing so does not penalize business (small or large), because (with the minor exception of unreimbursed employee expenses, which do not properly belong on the list) the itemized deductions are not expenses of earning an income; and the itemized deductions are the paradigmatic examples of “upside down subsidies” — they are more valuable the greater your income. These tax subsidies are the perquisites of the affluent, not the genuine middle class.
These two recommendations are not soul-crushing burdens to ask us to bear, nor are they exercises in spiteful class warfare. Instead, they are simple, easily implemented, and sane policies that we know will work. What stands between us and their implementation is not simply political fractiousness, but the pernicious myth that we all deserve everything that happens to us.
Wall Street Journal editorial, A Stealth Tax Hike: The Return of the Deduction Phase-out Gambit:
The White House wants Republicans to agree to tax increases that no one wants to call tax increases, and for an insight into this political method let’s focus on one proposal in particular—the phase-out of itemized deductions for upper-income taxpayers. We hope the tea party is paying attention, because this kind of maneuver is why people hate Washington. …
The political point of this exercise is to raise marginal tax rates without appearing to do so. The top statutory individual rate would remain at 35%, so the politicians could claim they hadn’t raised rates. …
The phase-out gambit is an attempt to shoe-horn more progressivity into the tax code without admitting it, and to do so in such a way that only tax experts will know what’s going on.
One goal of the tax reform that Republicans and Mr. Obama keep talking about is to simplify the tax code, but deduction phase-outs make the code far more complicated. Phase-outs make it impossible for taxpayers to add up their income, look at the tax tables, and know what they owe. The IRS taxpayer advocate service and even the head of the ABA tax section urged their repeal in the 1990s.
Democrats keep telling us Americans support raising taxes. If that’s true, the least they can do is try to raise them honestly.
