Monday, September 20, 2010

Taxes and Equity

E.J. Dionne wrote a book a couple of decades ago called Why Americans Hate Politics.  He should go back and read it.  Before he became an apologist for lefties, he thought that the American political system did not serve the broad interests of most voters.   In a column (click on his name to read it) in the Sacramento Bee this morning Dionne laments that the democrats have let the GOP define the issues on extension of the Bush tax cuts.

I should reiterate that I am not a fan of the W tax bill on a number of fronts.  In some cases, for example, in the estate tax elimination and then reinstatement, I thought the long term policy was absurd.  Indeed, if a person dies on December 31 of this year, assuming that the tax cuts are not extended, or January 1, 2011 - the federal tax treatment of the estate will be substantially different.   While a case can be made to totally eliminate the estate tax, I think most Americans would support an exclusion which reflects a reasonable amount (perhaps $3-5 million) and a reasonable rate beyond that.  

I was also concerned that a lot of the policies established in the Bush bill made no long term sense.  I support reductions in rates but the Bush bill allowed political expediency and the absurdity of congressional scoring to create a bill which gives the current administration to argue that somehow people above an arbitrary level of "income" (as defined in the tax code) should be subject to much higher income tax rates.   My worry at the beginning of the decade when the Bush bill was being debated have come true.

What Dionne does not seem to realize is that the vast majority of Americans dislike the current income tax structure but that does not mean they support screwing their fellow Americans who make a bit more than them.   Good tax policy would do two things.  First, as was proven in the 1986 tax act, improvements in the tax system can be made by LOWERING rates and broadening the base.  What happens is a simultaneous improvement in tax collections (more revenue) and improvements in tax equity.   But Dionne is stuck in the absurd position of arguing for arbitrary limits on what is the right level of income for people to earn.  Most Americans understand that is a silly line of thought (if you can call it that).

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