|The debate transcript is available here:|
... and I pulled some quotes below and interjected comments ...
I think the economics depend on the times, and the times now are such that we've got to address our fiscal problems.Zandi is adopting a post-modern notion of economic relativism, where different economics work for or at different times. What this means is that there are some times, perhaps rare, where complete communism would "work" -- simply because it's the "right time" for communism. What this ignores is the fundamentality of human nature -- that human nature is something that persists, rather than changes, through time. He is ignoring the trees in the forest and making bold conjecture that some forests would do fine in complete drought or fully ablaze.
Don't forget about the trees.
But there have got to be some tax increases, and the real question here isn't the size of government, the real question here is who is going to bear the brunt of the tax increases. Is it going to be people mostly at the top, or is it going to be people who are in the middle, or is it going to be people who are poor?Reich is evading the issue that it is the spending side of the equation that is out of whack. As Glenn Hubbard says later, government spending is 3 percentage points higher than historical levels, and is not projected to recede from that point. That is out of whack, it is the main reason for our fiscal problems, and Reich is evading it in order to embellish in some kind of sick, socialist envy of the rich.
[How's that for a rant, Kyle?]
We had an economy that did not perform nearly as well as it did under the president I was very proud to have served under, that is Bill Clinton, who raised taxes. We had the largest and longest boom in modern memory, 22 million jobs were created. That wasn't a negative growth, that was not a slowdown in growth. We raised taxes, 22 million new jobs were created.Reich is engaging in a non sequitor (post hoc ergo proptor hoc, or non causa pro causa, or whatever it is called in Latin!). It does not follow from the fact that raised taxes and created jobs happened to have coincided, that one caused the other. Under that logic, you could say that the rising sun in the morning is what caused Snookie to become pregnant (oh my god, I can't believe that I just admitted that I know who Snookie is!). Besides, as Art Laffer says later, Clinton (along with a Republican congress), decreased the scope/cost of government more than the next best 4 presidents combined. It is more likely that lifting the weight of government off of the markets of the economy(s) is what it is that led to the creation of those 22 million jobs.
In fact, median family incomes since 2000 have actually dropped 8 percent.But it's important to note that statism -- the thing that Reich is arguing for -- also increased during that time and may be related to the recent gutting of the middle class. There was a baseline of statism in 2000, and it has grown. Reich, like a good socialist, would have to argue that even though a little extra statism didn't help the middle class, that a whole lot more statism would turn around and all-of-a-sudden start to help the middle class. This is a favorite argument of the commies -- that the reason communism never worked is because there has never been enough communism for it to work -- so we merely need to ram collectivism down everyone's throat against their will (and then we will arrive at Utopia).
Robert, your president, by the way, cut the capital gains rate dramatically; he got rid of capital gains taxes on owner occupied homes for everyone, he also got rid of the tax on retirees working, which was the group between 65 and 72. He also put in welfare reform, he also cut government spending as a share of GDP by more than the next four best presidents combined ...Here, Laffer is making a lot of sense toward explaining the economic boom of the 1990s.
The last fiscal year just ended. We had a deficit of $1.1 trillion. You can ask, "Well, what's going on?" Lots of things. There's the wars. That's [$0.12 trillion per year] over the last 10 years. That's Afghanistan and Iraq. There's the Bush era tax cuts. According to the nonpartisan Congressional Budget Office, that cost us [$0.16 trillion per year] over a 10 year period. And, of course, there was a recession, the great recession, and by my calculation, that's cost us about [$0.18 trillion per year] over the course of the last 10 years.Zandi offers 3 big reasons, but still doesn't come up with an explanation for even half of the $1.1 trillion deficit. A more honest approach would involve explaining at least half of the deficit. We can call it the Thompson 'must-explain-half-or-you're-being-dishonest' principle of proper debate, and you only get exemptions from it when you justify yourself or your position. For instance, there are some things in which it is currently impossible to explain half of their genesis (e.g., why is Honey-Boo-Boo so popular?), but our deficit is not one of those things. Instead, it is more explainable than that -- and that puts the onus of explanation on all honest debators.
If you don't explain at least half of something that is "explainable" then you ought to be suspected of being dishonest. For instance, Zandi fails to mention entitlement programs, which go a long way in explaining our deficit. That's 'pink-elephant' evasion on his part. Zandi does bring up entitlements elsewhere, however, so he is not thoroughly evil -- just maybe one-third evil (twice as good as he is evil), or something like that.
And I think the problem here is that if we don't address the skewing of the distribution and wealth, the disenfranchised are going to say, "Enough!" And they're going to stop the process of globalization, and they're going to rebel against the pace of technological change, and that's going to be to everyone's detriment, including higher income households.This is the Begging the Question fallacy (petitio principii, or some such jargon), and Reich is in full agreement with it. Here is how the argument looks when you strip it down from euphemistic rhetoric:
1) We need to be able to keep the tremendous benefits of free market capitalism.
2) If incomes skew far away from the egalitarian ideal (where everyone makes the same wage), then the disenfranchesed proletariat will revolt and they will say: "Enough! Workers of the World Unite!"
3) Therefore, in order to save capitalism, we have to increase statism.
Talk about an inability to think straight about this issue!
If I were king for the day, I wouldn't raise tax rates on anybody, and I don't think we need to, right? I am all for tax reform. Let's close the deductions, let's close the loopholes, let's make the tax code fairer, broaden the base, I'm all for it, but let's use the revenue to address our fiscal problems, not to cut tax rates, until we're able to do that, right? I mean, that is the best way, that is the way proposed by Simpson-Bowles, that's the way proposed by Domenici-Rivlin, and that is a bipartisan way. His new name ought to be Mark Toohey.
Arthur Laffer [response to question of whether the current system is "fair"]:
No, it's not. It's totally not. And let me use an example if I may, Warren Buffett. He was sitting there asking my friends and I need to have higher tax rates, and I looked at his letter to the New York Times, and he said he paid a little less than 7 million in taxes, and he said his tax rate was 17.4 percent ... . He had adjusted gross income of $40 million in that year. I then went to Forbes. His wealth increased from 40 billion to 50 billion. I went to the Bill and Melinda Gates Foundation, and what you found there is he gave 1.75 billion to the Bill and Melinda Gates Foundation, not counting his sons' foundations or his daughter's foundation. Now, as a definition of "income," to me income is what you spend, what you give away, and your increase in your wealth. It's called the Simon definition of income. ... if you look at Warren Buffet, his income that year as $12 billion, and he paid 7 million in taxes. That is a tax rate of six 1/100th of 1 percent on his true income. That is obnoxious.Laffer did a good expose` on how dishonest Warren Buffet is as a person, but it didn't help him in the debate. Instead, it was turned around and used against him in a dishonest manner (see below).
... if you add up all the tax increases on the rich that are currently being discussed in Washington, it's about 1 percent of GDP. The Congressional Budget Office has come up tonight. They would tell you that the long-term problem in Social Security and Medicare alone is on the order of 10 percentage points of GDP. Anybody who's selling you that taxes on the rich are going to get us out of the fiscal hole doesn't know the math.Great point by Hubbard, remniscent of that time in the 2008 presidential debates when Stefanopoulos asked Obama if he would raise corporate or capital gains taxes -- even though that would stall economic growth. Obama said he might do it anyway, because his personal, post-modern, infantile-narcissistic feelings of social justice trump the actual results for real people living in the real world. This aspect of his personality can be summed up in the sentence: "I want to get my own way and settle scores based on my own personal, emotion 'intuitions,' even if it forces other innocent people into starving destitution."
[Okay, Kyle, are you happy now?]
The current budget has spending [at a] full three percentage points higher than traditional levels in the country. It is proposing to raise taxes on high-income people by 1 percent of GDP, and we just don't know what happens to the other two. In the long term, as I've said, just Social Security and Medicare alone are 10 times the cost, even of the most optimistic tax increases. So, taxes aren't even an important part of this conversation. And, to the extent that they are, they would have to follow the European model, which is to raise them on everyone, a consumption tax.Another great point by Hubbard.
I think it's important that we address the distribution of income and wealth, because if we don't, we're going to have the situation that Arthur [Laffer] joked about but is very serious. And that is that the wealthy will capture the system. Art joked about buying a senator, buying a congressman. I don't think that's a joke. I mean, I think that's a very serious issue.Here we go again:
1) We have to save capitalism.
2) The way that we do that is to increase statism.
3) By all means, we have to increase the size and scope of government, in order to prevent abuses stemming from the excess size and scope of government.
4) Reducing the size and scope of government -- something that would make buying a senator less attractive -- is to be expressly avoided (even if it fully solves our current problem).
There's no question from a tax fairness or social justice point of view that we need a progressive tax system. The wealthy in our society should pay a disproportionate share of the tax burden ... Ugh. Not his best statement. It's terrible, actually.
The chances that a poor kid is going to be a poor adult is greater in the United States than it is -- not only in Canada, but greater than in Germany, greater than in most of Europe, greater than in every place in rich nations other than Britain and Italy.What Reich misses in his summary of relative economic mobility is a cause. He just conveys how bad things have gotten, but relies on emotional arguments soliticing us to "fill-in-the-blanks" as to the cause of the mess. "Look how bad it has become in the US!", he tells us. "We need more statism here in order to increase our economic freedoms and mobility. Let's all get together and tax the rich! We can make the poor better off by making the rich worse off!"
I did Jerry Brown's flat tax when he ran for president in 1992, we got rid of all federal taxes. You should look at every tax, not just income taxes. We got rid of the income taxes, corporate taxes, payroll taxes, employer and employee; we got rid of excise taxes, capital gains, estate taxes, tariffs. And the only ones we left were sin taxes, which are really small. And, in there, said we had two flat rates, one of business net sales, value added, and one on personal unadjusted gross income. If you did that at full employment, you could have a flat tax rate of 11.8 percent and have it statically revenue-neutral, that's it.Under computational analysis (results from game theory, rational choice theory, decision theory), such a tax rate -- 11.8% -- is sustainable in a population of interacting participants for several dozens of reproductive generations, maybe even for as much as 1000 years. This is good, because the Eisenhower 54-56% "effective federal tax rates" twice touted by Reich in this debate would lead a population to extinction in less than a dozen generations (it would cause the collapse of our country in as little as one century). But like Obama, Reich doesn't seem to know or care about the impending doom entailing from the implementation of his own subjective sentiments.
If the initiation of force among humans happened to be moral, then Reich should be forced to wake up every day to a picture of the bodies of exterminated citizens piled up in ditches in the 20th century, under various collectivist regimes. He's not young enough to be ignorant of that socialism-caused genocide.
I'm fond of an example that illustrates my worry with an image of the nation as a tall building with the bottom flooded out, the penthouse doing fine, and the elevator broken. We could throw rocks at the top or we could fix the elevator. I think most Americans make the latter choice viscerally. And to the points Art and I have made tonight, throwing rocks doesn't fix the elevator, and to torture the analogy, can't pay for it. We need to think about growth and fairness. The case for the proposition tonight is very strong. Tax rates should not rise. The rich are taxed enough. A good closing metaphor to sum up what's at stake and how you fix it.
(Edited by Ed Thompson on 11/18, 8:14pm)