"No New Tax Cuts"

Jeff Madrick makes the case for government:

No New Tax Cuts, by Jeff Madrick, Boston Review: ...Even Friedman acknowledged that free markets do not adequately supply some public goods, like primary education and roads. ... And there are other strong theoretical arguments to be made for state intervention in areas of information economics, behavioral economics, agency problems..., and institutional economics and the power of the firm.

However, it is possible to look at the question ... empirically rather than theoretically. ... One argument against government is that public spending is unproductive and crowds out private spending. But, time and again, [Peter H. Lindert, a leading economic historian,] found that studies claiming that high taxes reduce economic growth simply did not hold up. ... No matter how he juggled the data, he found no relationship between the growth of GDP per capita and productivity and the level of taxes or the extent of social spending. There is a dramatic “conflict between intuition and evidence,” he writes. ...

Other economists have ... shown that one of the other anti-tax arguments—that it significantly reduces incentives to invest and work—is highly exaggerated. ... Then there is the argument that government is always inefficient. Sometimes it surely is. But Medicare’s administrative expenses consume only 2 or 3 percent of outlays compared to 15 to 20 percent for private medical insurance. The administrative expenses of Social Security, a marvel of efficiency, are miniscule.

Indeed, the economic history of the United States is one of consistent and vigorous government action... Even when government expenditures were low, government established regulations that seriously affected the nation. Thomas Jefferson was one of the early regulators of land-distribution policies, which were radical by any standard we know today... As a consequence, land was widely distributed at a fair price in the nation early on, and speculators (to the degree possible) kept at bay.

State and local government spent on public improvements aggressively in the early 1800s, building canals and roads. By 1850 the United States had one of the the world’s great free primary education systems. Through land donations—a form of spending—the federal government supported the new agricultural and technical colleges, such as MIT and the University of California, Berkeley, and invested heavily in railroads. In the late 1800s and early 1900s, government built the sanitation, water, and sewer systems that made urban life possible. In the 1900s, government built the new high schools necessary for an advancing economy, along with new roads, dams, bridges, and all manner of public works. Look at your own city. After World War II, the federal government built the national highway system, subsidized college for GIs, supplied the polio vaccine, developed the Internet—and on.

That is where tax dollars go. The reason higher-tax nations do well economically is that government spending can and often does succor economic growth. All rich nations today have robust government. ...

America’s to-do list is now very long..., and many, with an unnecessary fear of budget deficits, believe it cannot do what it must. The first step will be to jettison ideology and return to America’s pragmatic roots. That has not happened yet, but push-back has already started...

[Read other pieces in this special economics feature by Dean Baker and Robert Pollin.]

I have argued that targeted tax cuts need to be a part of the stimulus package for a variety of reasons, e.g. the speed with which tax cuts can be implemented, and as part of a portfolio of policies that recognize we aren't sure whether tax cuts or changes in government expenditures work the best to name just two. So I don't agree with the title's call to not cut taxes, in the short-run we may need to lower taxes as part of a recovery package. To the extent that tax cuts support the goal of economic recovery, and do so better than any other option, they are needed. But if the goal of the tax cuts is simply to use the crisis as leverage to exploit a ratchet effect, or at least an asymmetry where taxes can be lowered much easier than they can be raised and hence squeeze government in the future, then that's another matter entirely. Republicans have a history of using crises to try and ram through their favorite policy, e.g.:

Just two days after 9/11, I learned from Congressional staffers that Republicans on Capitol Hill were already exploiting the atrocity, trying to use it to push through tax cuts for corporations and the wealthy.

That's not the only example from the past, and in the present we've already heard calls to repeal the capital gains tax as a stimulus measure. I'm sure if the GOP could come up with an estate tax repeal argument that sounded even remotely plausible as a stimulus measure, we'd hear that too. So while I can support targeted tax cuts to some degree, I am worried that we'll avoid the tough political battle in the name of expediency, go too far, and compromise the best economic options in order to satisfy ideological demands. (And that is true not only of the magnitude of the tax cuts versus spending other polices such as infrastructure and aid to state and local governments, but also of the type of tax cuts -- I am not thinking of the trickle down variety when I use the word "targeted".)

Comments

[Beezer]

At least we're doing something. And the canard that you check your brains in the lobby when you enter government work is idiotic.

Free market capitalism always, always, looks for the cheapest labor. Globalization opened up to our domestic industry the opportunity to access the lowest wages in the world. They left. Good for the rural farm worker in China (at least until recently), bad for manufacturing workers in America.

The irony today is that both China and America have a similar problem--not enough income flowed down to labor. In China they'll probably have to shoot a lot of people. But here in America, we elect new leadership that will take a more "holistic" view of our country.

In the not-so-long run, policies that elevate everyone and husband our resources will be best. Short term self interest for the thief is to steal more. If he's ambitious, he might move up to bank robbery. Substitute "investment banker" for "thief" and you've pretty much described what's happened to us the past several months.

[Noni Mausa]

Jeff Madrick: Then there is the argument that government is always inefficient ... But Medicare’s administrative expenses consume only 2 or 3 percent of outlays compared to 15 to 20 percent for private medical insurance...

This is a bug-versus-feature situation. It would be a bug for Medicare to consume a big slice of their money in administration, but in the private sector it's a feature. Look at the recent article in the NYT regarding text messages -- http://tinyurl.com/89wfma -- demonstrating that the text message you pay a nickel or dime to send (or receive, some places), costs the company essentially nothing to transmit.

Why does nobody (but me) make the argument that the private sector "is always inefficient"? I don't begrudge a decent profit, but by definition "profit" is what you the customer pay after all the other costs are paid -- salaries, benefits, buildings and materials, advertising, utilities, everything.

Therefore the more profitable a business is, the more the customer pays above and beyond true costs. Is that not "inefficient"?

Government at its best limits this fraction of price in the endeavors it undertakes. In some areas, it is better to have the service available efficiently, than it is to have someone making a profit from it.

Case in point: electrical power. In my home province, electricity is produced by a Crown Corporation called Manitoba Hydro, chiefly from hydroelectric dams spotted around the province.

The Hydro, as it's known, is an arm's length governmental agency providing a for-profit service, but providing it at a very low price-point and very high quality. The staff are skilled and well-paid, and although there are outages, it is a rarity for the power to be down anywhere for longer than a few minutes or hours. The one agency handles the dams, the distribution system, and the inverter plants that export
power mostly to the USA.

Who benefits? Pretty much everyone. Citizens profit from the low prices. But in spite of their low prices, the Hydro makes a good profit, which benefits the province (who takes a slice). The US customers are happy to get the power. And the staff, of several thousand people, benefit from well-paid stable employment. There are true trickle-out effects with many Hydro employees being active in charity work, buying good homes and other services, and retirement doesn't terminate this outflow of benefit. The company has just built a huge new headquarters in the downtown area, which will bring a thousand or more people into the area to have lunch, visit the local stores, and further invigorate the area.

Contrast this with the for-profit electrical production most other places. Cutting costs in these companies means lower salaries, lower benefit and retirement packages, reduced funds devoted to maintenance of the network, and a corresponding outflow of low-level detriment. (And sometimes high-level -- remember the electrical grid crash of 2003? http://en.wikipedia.org/wiki/Northeast_Blackout_of_2003 There's a good article on this topic here: http://www.issues.org/20.4/apt.html)

Some sorts of services do their work best under government control. Some, under private control, can lead to poor service at high costs, or even "free-range hostage" situations. Reagan and the other privatization enthusiasts were simply wrong, unless you think their intent was to increase the unnecessary costs to consumers usually described as profits.

Noni

[Markel]

The Boston Globe today reports that the one-time job creation credit of $3K was included specifically to appeal to Sen Judd Gregg, (R-NH). I'd be fascinated to read the economic rationale why a business would create a permanent $30K or $50K job in return for $3K. Or what kind of American-made capital good, such as mining equipment or military hardware, an individual taxpayer is likely to purchase with an additional $9.61 per week saved from withholding. It is disturbing, if not shocking, that Obama's economic dream team has come out of the gate with such a profoundly unserious proposal.

[bakho]

What he says about government investment is very important. It is a needed antidote to the barrage of libertarian propaganda about government spending. Why knock the anti-tax cut rhetoric without praising his valid points?

What taxes do you cut? Recessions primarily hit the poor and also the middle class. The wealthy are usually insulated and their spending is not greatly affected. The wealthy will automatically pay less taxes because of their large losses in the asset markets which will give them tax write downs for years going forward. The key to fighting recession is income redistribution. Recessions occur when wealth inequality reaches proportions where the people who need to spend don't have the money or the ability to pay back loans and the people that have the money don't have any reason to spend or loan.

If you mean cutting taxes for the lowest paid workers, then that would be stimulatory. But so would the government taking over more of their health care costs or college tuition payments. Tax cuts that stimulate the purchase of cheap plastic crap from China while not allowing needed investments in education and health care to go unfunded does not have much multiplier.

The US financial bubble was not sustainable. It is undesirable to inflate it again and return to life under the loan sharks. They are parasites that have moved away from earning their money from sound investments. It is time to take the money that was used to create an unproductive financial bubble and use it for productive investments.

[save_the_rustbelt]

Markel:

I am also puzzled by the jobs credit issue, not to mention it being a paperwork nightmare.

Jimmy Carter had a jobs credit, but it was based on gross wages, and since the economy was inflating wildly employers were given credits based on inflation - ooops.

[evagrius]

" No matter how he juggled the data, he found no relationship between the growth of GDP per capita and productivity and the level of taxes or the extent of social spending. There is a dramatic “conflict between intuition and evidence,” he writes. ..."

What type of intuition is he discussing? Rather than the term intuition, I would use the term prejudice.

Noni- I think you're looking at two views of "efficiency". One is the type that offers the most, ( services, goods, power, etc;), for the least effort or energy, ( or financial cost).
The other is the type that offers the least, ( services, goods, power, etc;), for the most effort or energy, ( or financial cost).

The first type could be considered the engineer's vision, the second could be considered the businessman's vision.

It's easy to confuse the two and that confusion is what has led to the present economic situation.

[save_the_rustbelt]

Just did a little web surfing, here is what I am finding:

Business "cuts". Extend the loss carryback period to 5 years (rather than 2), so companies could carryback losses against prior profitable years, generating cash refunds in about 90 days, thus putting cash back into companies that are probably in tight cash and credit positions. This may help some marginal companies survive.

Eventually this will wash for many companies (the surviving companies would have carried back 2 years and then carried forward, so we are really only changing the timing), but current cash could be a life saver.

Personal tax cuts would be accomplished by changing the withholding tables, putting tiny amounts in each pay check - my thought, why bother? Better to expand unemployment and Medicaid, IMHO.

[bp]

regulations and spending
two different things at the macro level

regulations - rules, terms, conditions
to enable or disable

may or may not
require significant funding as a mandate

i.e., administrative expense to change a tax is very small
but to invade Iraq is very large

spending per se as a component of aggregate demand
is driven by private incentives or gov mandated spending

only associated with administrative component
when it is very large

if taxes don't offset desired spending on the upside
then reduced taxes may not increase spending from downside

but the question of spending elasticity is independent
on what the taxes are spent

except to free-market simpletons for which
any dollar of tax crowds out any dollar of private spending

no matter the administrative expense
no matter the level of spending

[robertdfeinman]

It seems that economists can only think in terms of money so they only come up with money "solutions" to problems.

There seem to be two groups: those who want to fiddle with taxes and those who want to fiddle with interest rates.

That these tools are hard to control and poorly understood is born out by history and by the lack of consensus currently.

Suppose we asked a different group of experts to devise a solution. First, we have to define the problem. I see the problem as one where too many people are living below their potential. I'm not talking about the potential amount of wealth they could amass, but the maximization of their quality of life.

Suppose we decide to maximize gross national happiness instead of GDP. What would we do? It seems to me there are several obvious steps. First, is to improve people's sense of security. This means guaranteeing a base level of creature comforts. Only government can do this, either directly or via close oversight.

Second, is to enable people to reach their own personal potential. This means fostering creativity, communal life, altruistic endeavors - especially as regards the next generation, and enough leisure to enjoy life.

To do this means shifting from providing money and assuming the proper uses will follow, to promoting the goals themselves and having people earn just enough money to enable them to do the important things. Amassing huge reserves is not needed if you know your needs in old age and sickness will be covered.

"But, how does this help with the current crisis?" you ask. Well instead of gathering together economic advisers as Obama is doing today, we get a safety net in place of unemployment insurance, health insurance and retirement funds as a stop gap and then replace the economic advisers with social scientists and philosophers.

The economists get relegated to technicians who are told what needs to be done not asked.

Is this too utopian? Leaving aside the political obstructionism, is there anything difficult about expanding current insurance programs? They are all in place and only small adjustments to the rules and eligibility need to be made.

Economists are ill suited to make recommendations where the deciding factors are moral issues, not those of money "efficiency". At least theologians claimed that morality was their area when they were the advisers to rulers. What moral authority do economists possess?

[ECONOMISTA NON GRATA]

".......America’s to-do list is now very long..., and many, with an unnecessary fear of budget deficits, believe it cannot do what it must. The first step will be to jettison ideology and return to America’s pragmatic roots. That has not happened yet, but push-back has already started..."

I agree with this statement. Government is not a for profit business, it is a non-profit organization who's duties and responsibilities include the "equal" safety and well being of all of it's citizens. The U S Government must ensure and guarantee this safety and well being by any means necessary, at all times, I repeat, "by any means, at all times". The payment of taxes is not a charitable event, it is an obligation and a duty that every citizen must undertake in accordance with their means. This is the organic reality, there are no exceptions to the "equal" rule.

Best regards,

Econolicious

[Elliott Middleton]

They're talking about a cut in the payroll tax--how about making it revenue neutral by raising the ceiling? I do believe APC is inversely related to income.

[GloomBoom]

If more government were the answer, the former Soviet Union would have been paradise. There was nothing for-profit there. The government is the least effective entity to manage the economy. The free market is brutal but effective.

Take a look at France and Germany and you will see what big government is like. They control 55% of their economies and they were a disaster even before the economic crisis.

[anne]

"Take a look at France and Germany and you will see what big government is like. They control 55% of their economies and they were a disaster even before the economic crisis."

This is of course lying, but the point of such wild conservatives is lying. What puzzles me is that they are such amazingly poor liars for all the practice. Returning now to the disasters of France and Germany....

says...

"The administrative expenses of Social Security, a marvel of efficiency, are miniscule." .... but SSI is Madoff x 1000 ...

What's the point of reading stuff like this? It's just nonsense. How about some information that's for real.

[anne]

"In ----- they'll probably have to shoot a lot of people."

Notice the astonishing prejudice, what is important evidently is showing just how much disdain we have for others.

[anne]

"The administrative expenses of Social Security, a marvel of efficiency, are miniscule." .... but SSI is Madoff x 1000 ...

Notice the lying, but beyond the lying notice the bizarre hatred that is being expressed.

[Beezer]

Yeah. What a mess Germany's in now. Being the world's largest exporter and all.

[Beezer]

And France too. Get 80% of their electricity via nukes. Nukes may have a scary "afterlife" but they're clean as a whistle compared to coal. And "clean coal" is an oxymoron.

[Callahan]

Beezer said free market capitalism always looks for cheap labor. Ever heard the old expression, you get what you pay for? N'uther wirds, what goes round comes round. That is labor in this poor country of ours is busted, so watch out you "free" market cheapitalists.

[Lee A. Arnold]

The question is WHY it should be that government spending has not reduced economic growth, and I think the answer is a development of Coase's observation that firms exist because they reduce transaction costs.

In operational reality, ALL institutions, including government, reduce transaction costs -- and this is, viewed from another perspective, one of the few different kinds of growth.

As Lindert writes in his superb book, "universalism tends to cut costs." Cutting costs is saving, and savings can be spent on other things.

[kthomas]

"cheapitalists"...that's very funny, Cal.

[cm]

Noni: "demonstrating that the text message you pay a nickel or dime to send (or receive, some places), costs the company essentially nothing to transmit"

It only costs "nothing" because (1) texting is a relatively low-bandwidth application piggybacking on a network supporting a high-bandwidth application (phone/streaming data service) where much of the infrastructure cost is recouped and profit made by (over?)charging for the high-bandwidth application, and (2) - probably to a much lesser extent - because the charge, even if it were more nominal, throttles the texting volume.

In simpler words, marginal cost arguments work only when the activity under consideration is indeed marginal. Otherwise the old joke applies, when you charge nothing for a drop of gas, please drip my tank full.

[DW]

We figured out last night that we pay 56% of our income to taxes. Ouch.

At least in some countries, you get something for that kind of money, like health care...

[cm]

Though this is off topic, were texting free (because it costs "nothing"), people would try figuring out ways to "abuse" it for higher volume data service, esp. with mobile devices where the messaging system is programmable.

[cm]

DW: Are you self-employed, or have you included taxes that are not nominally taxes on (personal?) income (e.g. sales, fuel, property, or other business taxes and levies)? Otherwise it sounds implausibly high. If you would be willing to break this down in categories -- federal, state, payroll, ...

[JeffF]

The phone company could easily limit texting to avoid exploitation. They could, for example, only allow customers to send one text message per second. As these messages are severely limited in size one would not really be able to send much data though them.

[mmckinl]

Mark Thoma~ "in the short-run we may need to lower taxes as part of a recovery package."

Wrong, We need to increase taxes on the well to do. All income should be ordinary income and rates above $500,000 should be north of 50%.

But, Madricks Plans won't work either. His ideas while great over the long run will not effectively stimulate the economy ... We need "Medicare for All"

There is only one idea that is fast enough, big enough and needed enough to keep our economy from falling into a full blown depression. Medicare for All .

Medicare for All can be plugged right into the Medicare platform and be ready to begin acccepting people within weeks, we can start with public workers.

Medicare for All gets money into the system from the bottom up not from the top down. Business, State, County, Cities, Agencies and the Under and Unisured all get relief under this plan.

The rationalization of our medical system must be undertaken for another reason as well. Our current sector called Health Care will bankrupt this country if we don’t.

What better opportunity is there? A big boost for the economy and public sentiment while fixing a broken system that all the experts say will bankrupt America.

[Rusty]

"Medicare for All can be plugged right into the Medicare platform and be ready to begin acccepting people within weeks, we can start with public workers."

Medicare claims processing is a mess now, we would need a major reconfiguration of the claims processing structure. This would, ironically, require Medicare to contract with private insurers for processing (as has been done for decades).

Not an easy fix, and who would pay the premiums? How?

[calmo]

Whacking off Lee's slab of coarse meat:The question is WHY [mightily so...mightily WHY? and notso BDLish Why-O-why...?] it should be that government spending has not reduced economic growth,[afterall it B writ: the BadO Gov Crowds Out! crowds out busy little bodies like Economic Growth Upstarts like ourselves ] and I think the answer is a development of Coase's observation that firms exist because they reduce transaction costs. [ but alas only firm Firms and not soft, pudgy Firms lookin to screw somebody, somethin, somewhere...anywhere...the real firms lookin for yer real softass...and why M&A is so much fun.]

In *operational* reality [dang this is surgically good...provocative...scalpel please, I must have it!], ALL institutions, including government, reduce transaction costs [just don't get between me and my lover, honey ]-- and this is, viewed from another perspective, one of the few different kinds of growth. [ cancer maybe?]

As Lindert writes in his superb book,[Lee is more superb than this book could eva B people...discount this recommendation accordingly.] "universalism tends to cut costs." Cutting costs is saving, and savings can be spent on other things [Just lemmee do the spendin...is all I ask, you can be Capitain Universal...anything yo lil heart desires, you Big Cost Cutter! ]

[mmckinl]

Rusty says...

Medicare claims processing is a mess now, we would need a major reconfiguration of the claims processing structure. This would, ironically, require Medicare to contract with private insurers for processing (as has been done for decades).

Not an easy fix, and who would pay the premiums? How?

~~~~

Doctors prefer Medicare to private insurance now ... The personnel from the laid off health care sector could be employed to process. This would help doctors with Medicaid, a much more onerous system.Everybody could see their existinf doctors, something that not even HMOs can claim.

Medicare for All would be paid with higher taxes on the well to do and corporations. Corporations would see many dollars fall to the bottom line to be taxed because of the subsidy andd lack of deduction.

Medicare for All would rationalize all expenditures to eliminate defensive medicine, standardize records, treatments and billing. Overall Medicare for All woulf save the economy a trillion dollars soon and trillions more down the road.

All the other G7 nations do it in one form or another and that subsidizes their businesses. Medicare for All would help our businesses compete abroad and at home ...

[roger]

"Take a look at France and Germany and you will see what big government is like. They control 55% of their economies and they were a disaster even before the economic crisis."

I disagree with Ann's gloss of this. I consider this kind of statement more like the testimonial from some poor ignorant slob hyping a quack medicine more than a lie. The right devoted considerable energy proving to each other, during the great France the Traitor phase of 2003, that France was much poorer than Mississippi. This was helped immensely by the fact that the goobers passing around this kind of nonsense had never been to France, and got their entire lesson in French history from that great expert, Bill O'Reilly. Even now you see the suckers occasionally come up with laughable statistics cooked up in the fever swamps about this. They are driven by cult-like fervor and obscure neuroses, and can't help themselves.

Lying would require exercising a set of cognitive functions that are, to say the least, in abeyance among this crowd.

[save_the_rustbelt]

"The personnel from the laid off health care sector could be employed to process."

And who runs the intermediary program for these laid off workers to process the claims?

"Doctors prefer Medicare to private insurance now."

None that I know of.

If you run properly designed budget models for physician groups, and create a Medicare-for-all scenario, most of the physicians take a large reduction in income (sensitive to specialty). Even assuming an increase in volume and a decrease in claims costs (unlikely) the numbers look really ugly.

[pgl]

Tax cuts for the well to do - who are not borrowing constrained - will likely have NO aggregate demand stimulus effect as I have often argued (aka either Life Cycle or Ricardian Equivalence) models so if this is what the Republican Party have in mind - it is based on hogwash economics. Tax cuts for the working poor, however, may be a good idea as these households will consume much of the tax cut. I think this is what Obama has in mind. If your argument is that we should go with the kind of tax cuts Obama campaigned on - I agree. But tax cuts for Bill Gates is just stupid from a Keynesian point of view.

[save_the_rustbelt]

mmckinl:

With all due respect, you seriously overstate the benefits and seriously understate the transition problems.

[robertdfeinman]

str:
The journey of 1000 miles starts with a single step. Every time someone suggests expanded a health social service you complain it can't be done because of the complexity of the issue.

Yet, Massachusetts just did something similar with a minimum amount of disruption. The only major failing so far has been the lack of primary care doctors in rural areas to accommodate the increased demand from those who now have coverage.

If the transition will be difficult then throw more resources at it. This means management, process flow design, etc. If Walmart can master a complex supply chain then so can the federal government.

There is nothing wrong with contracting out paperwork, it doesn't alter the basic idea that health care should be universal and a government responsibility.

[anne]

"If you run properly designed budget models for physician groups...."

The game that is played is to forever play the expert, forever find reasons why health care reform any reform will be damaging, while never ever setting down evidence and references (checkable references).

[mmckinl]

save_the_rustbelt says...

~ And who runs the intermediary program for these laid off workers to process the claims?

~ "Doctors prefer Medicare to private insurance now."

~ Even assuming an increase in volume and a decrease in claims costs (unlikely) the numbers look really ugly.

~~~~

~ Medicare easily handled the massive move to Pharma for seniors ...

~ Doctors groups are now endorsing a single payer plan ... they know the system is broken. They deal with it everyday.

~ All the experts agree that unless the Health Care System is totally reformed Health Care costs will soar to 20% of GDP ... We need reform and the only way to get total reform is to eliminate profit from the system and minimize defensive medicine, record keeping and overhead costs.

[mmckinl]

save_the_rustbelt says...
mmckinl:

With all due respect, you seriously overstate the benefits and seriously understate the transition problems.

~~~~

We have no choice ... Medical costs will bankrupt this country if total reform is not implemented. We have to reduce costs while covering more people.

The needed reforms are well known ...

[anne]

"Doctors prefer Medicare to private insurance now."

None that I know of.

[There are doctors, significant numbers of doctors, who repeatedly write and speak of preferring Medicare to private insurance, and they are easily known to persons who care to read or listen to or know them. *

Once, just once, though busy beyond imagination, set down a checkable reference showing why health care reform, any reform for any reason is so horrid.

* http://www.pnhp.org/]

[bp]

Coase
what makes a firm a firm

it avoids transaction costs
produces for less what it could buy for more and vice versa

what makes an externality an externality
at zero transaction costs, nothing

because buyers and sellers
can internalize and bribe them away

moral of the story
lots of transaction costs

result in very big firms
with very big externalities

[Patrick Griffiths]

I think people sometimes forget (willfully omit?) the redistribution side of taxation. The fashionable term in the US for SS, Medicare, etc is "entitlements programs". It might be better to call it "equality programs", or maybe "civility programs".

Here's a though experiment with three mythical incomes:

Person A : $100
Person B : $500
Person C : $1000

Everyone pays 10% income tax (yes, flat because it's easier), the money goes into a pot and is then redistributed equally. That's $160/3 = $53.33. So after redistribution

Person A : $100 - 10 = 90 + 53.33 = 143.33
Person B : $500 - 50 = 450 + 53.33 = 503.33
Person C : $1000 - 100 = 900 + 53.33 = 953.33

That's not too bad, and since redistribution is universal at least those paying the most aren't excluded and thus less likely to object to paying for something they are denied access to.

Lest anyone get too exicited: I don't mean to suggest that flat taxes are a good idea (I don't know if they are or aren't). Rather, when talking about taxes it's important to look at where the money goes, especially if redistribution/equality is the goal. Also, universality of redistributive policies (health care, unemployment insurance, etc) is important both from an equality perspective and from an incentives perspective. On the latter, it strikes me as a dumb idea to preclude those who pay the most for an 'equality program'.

[mmckinl]

pgl says...
Tax cuts for the well to do - who are not borrowing constrained - will likely have NO aggregate demand stimulus effect as I have often argued (aka either Life Cycle or Ricardian Equivalence) models so if this is what the Republican Party have in mind - it is based on hogwash economics. Tax cuts for the working poor, however, may be a good idea as these households will consume much of the tax cut.

~~~~

Tax cuts for the working poor don't add up to much, many pay no taxes now. And this of course doesn't help the unemplyed one wit.

[anne]

The fashionable term in the US for SS, Medicare, etc is "entitlements programs". It might be better to call it "equality programs", or maybe "civility programs".

[What Social Security and Medicare are, are public insurance programs that we pay for through our working lives. I know that is difficult to understand for those who wish to undermine such programs, but Social Security and Medicare are wonderful public insurance programs. Am I being fashionable enough?]

[mmckinl]

anne says...

[What Social Security and Medicare are, are public insurance programs that we pay for through our working lives. I know that is difficult to understand for those who wish to undermine such programs, but Social Security and Medicare are wonderful public insurance programs. Am I being fashionable enough?]

~~~~

Great issue framing .... Just what we need to get by the troglodites ...

[SanFranciscoJim]

Tax cuts for the working poor don't add up to much, many pay no taxes now. And this of course doesn't help the unemplyed one wit.

This of course is not true. Everyone who works pays payroll taxes, and everyone who spends pays sales tax.

[mmckinl]

SanFranciscoJim says...
Tax cuts for the working poor don't add up to much, many pay no taxes now. And this of course doesn't help the unemplyed one wit.

This of course is not true. Everyone who works pays payroll taxes, and everyone who spends pays sales tax.

~~~~

Payroll taxes on the working poor are large in percentage terms and regressive but small in real terms. As far as sales taxes thsoe are state and local as far as I know.

Medicare for All would offfer the working poor and unemployed a much bigger subsidy than a reduction in payroll taxes, which is what I have proposed. I think all working people should pay something.

The working poor and unemployed are much more likely to have no or inadequate insurance than the middle and upper classes.

What I'm aiming for is a society that covers basic needs without rewarding needless consumption.

[evagrius]

"There is nothing wrong with contracting out paperwork, it doesn't alter the basic idea that health care should be universal and a government responsibility."

Not a government responsibility. A societal responsibility which the government can do best.

Pedantic, perhaps. But I think there needs to be a very deep examination of what society, ( composed of those who share something in common i.e; living together ), is responsible for.

I'm rather tired of the attitude that it's everyone for her/himself.

[Mcwop]

free markets do not adequately supply some public goods, like primary education

This is an absurd statement, as we have a thriving private educational system that helps supplement the public one. This private system spans all grades, and largely exists to account for the many failures of the public system.

[anne]

"Free markets do not adequately supply some public goods, like primary education."

"This is an absurd statement, as we have a thriving private educational system that helps supplement the public one. This private system spans all grades, and largely exists to account for the many failures of the public system."

No; the statement is carefully worded and quite correct while the response is wrong and calculatingly mean-spirited in being wrong. Me, I sort of remember reading about private schools popping up all over the South in the wake of Brown v Board of Education. Possibly there was a public school failure then, I wonder though.

[Mcwop]

No Anne, the statement is well, stupid. Your brown v board statement is a total straw man, and reaches back quite a few years. Let's move to today, and use Baltimore as a living example. In Baltimore, where many of the the public schools are down right scary, and not safe. Most people that have kids move out of the city or send their kids to safer private schools. There is still public school failure across the country, Baltimore is living proof and this type of incident is typical - YouTube video of Baltimore teacher being beaten in class. Wake up Anne.

http://www.youtube.com/watch?v=xyAhbbjaZ34

[anne]

"There is still public school failure across the country...."

Rubbish, but do carry on with the pernicious generalization. There are of course millions of children in superb public schools through the country.

Me, I once found a purple walrus. Watch on UUUTube, if purple is not too scary.

Purple?

No way.

[Mcwop]

I should qualify my above statement Most people that have kids move out of the city

To say that Most people that can that have kids and can AFFORD to move out of the city...

[anne]

No walrus, purple or otherwise was harmed in the filming. UUUTube for all.

[Mcwop]

Anne there are also millions of children in HORRIBLE public schools, but I guess you do not care about those kids. That you tube video is one example out of thousands of violent acts in Baltimore public schools. Wake up anne.

[S Brennan]

We've had major tax cuts for over 30 years, if tax cuts were making things better there we'd have noticed.

"So I don't agree with the title's call to not cut taxes, in the short-run we may need to lower taxes as part of a recovery package. To the extent that tax cuts support the goal of economic recovery, and do so better than any other option, they are needed." - Mark,

[Mcwop]

Here is more "success" Anne:

http://www.inteldaily.com/?c=144&a=5861

[stick]

School Sector and Academic Achievement: A Multilevel Analysis of NAEP Mathematics Data
Sarah Theule Lubienski and Christopher Lubienski

University of Illinois at Urbana-Champaign

Using data from the 2003 National Assessment of Educational Progress, this analysis compared mathematics achievement in public, charter, and major types of private schools to examine whether disparities in achievement are due to differences in school performance or student demographics in various sectors. Hierarchical linear models were used to control for student- and school-level demographic characteristics. The analysis indicated that the relatively high raw scores of private schools were more than accounted for by student demographics. In fact, after demographic differences had been controlled, the private school advantage disappeared and even reversed in most cases. These findings raise questions about the basis of reform models that seek remedies in parental choice, autonomy, competition, and other attributes associated with the private school sector.

[stick]

Mcwop, I'm not at my desk so I don't have more references for you. The idea that private schools are somehow inherently better than private has no factual basis.

[stick]

Considering the tasks assigned to public education and the resources allocated to it, public education is an amazing success. Despite the constant drumbeat of our failing schools.

Do they need reforming? You bet. Is American behind in educational attainment? You bet. But the idea that the private sector is superior to the public makes great rhetoric...

[B Feng]

The resources allocated to public education is huge, it's not the lack of resources, it's the wasteful allocation of resources that is to blame. We all know the consumer is likely to get better service and more product choices under a competitive marketplace vs. a monopoly.

Our colleges and universities are considered the best in the world. Our primary K-12 education is considered below average compared with other developed, wealthy nations. What gives? Well how about competition from the private sector? The top universities are all private sector universities. You can talk about various advantages these universities have, but one thing is certain--we are better off having them.

Why is there any hostility towards allowing the private sector to operate our K-12 classrooms when the sector has done such a good job with our colleges and universities? If we're going to spend X amount on educating a student, then why should the student be forced to spend that money on a monopolistic public sector school?

Right now, thanks to the entrenched public education special interests, a student receives much less in a voucher if he chooses a private school versus a public school. The deck is already stacked, but the majority of studies I've read still show that private charter schools do better. Even if performance is the same, preference should be given to private schools because THEY COST LESS, the vouchers the government pays out is far below the cost per student in public school.

So again, why is there any objection at all to giving parents and students a choice? What is there to lose? Obama evidently thinks the private sector can do better with his own children, no surprise there. So if all the elite liberals send their children to private schools, then why deny everyone else that opportunity? Doesn't make sense to me.

[anne]

"---- there are also millions of children in HORRIBLE public schools, but I guess you do not care about those kids."

Millions, millions, millions, millions, millions, millions, millions, millions, millions, millions, millions, millions.

"The top universities are all private sector universities."

Millions, millions, millions.

Me, I think billions, billions, billions.

[Mcwop]

Stick, my assertion was not that private schools are "better".

The Madrick article asserts that public schools exist because the private market in schools somehow failed. That is not true, and the private market in schools is quite strong, and in many urban areas serves as the only alternative to failed public schools in need of reform (thus my Baltimore example). The two systems can coexist, and private schools help public schools from a resource standpoint by creating more supply.

Obama's kids are going to private school, because the DC school system is horrid. They use safety as the reason and that is fine, but what they are saying is that the DC schools are not safe. Kids cannot learn in unsafe schools.

[stick]

Mcwop, my apologies for the mis-characterization of your point. However, I'm not sure that is what Madrick is arguing. He's arguing that public investments [such as education] provide long term economic and social benefits... which they surely can and have. If we want better schools then we need to pony up the resources. You get what you pay for...

[stick]

Feng- How about some citations to back up your assertions...?

[anne]

http://bostonreview.net/BR34.1/madrick.php

January, 2009

No New Tax Cuts
A case for big government
By Jeff Madrick

"By 1850 the United States had one of the the world’s great free primary education systems. Through land donations—a form of spending—the federal government supported the new agricultural and technical colleges, such as MIT and the University of California, Berkeley, and invested heavily in railroads. In the late 1800s and early 1900s, government built the sanitation, water, and sewer systems that made urban life possible. In the 1900s, government built the new high schools necessary for an advancing economy, along with new roads, dams, bridges, and all manner of public works. Look at your own city. After World War II, the federal government built the national highway system, subsidized college for GIs, supplied the polio vaccine, developed the Internet—and on."

This was what was written, simple and completely true. The ranting about the the private school largely existing "to account for the many failures of the public system," is so much suppositional rubbish.

[anne]

Correcting:

The ranting about the private school system largely existing "to account for the many failures of the public system," is so much suppositional rubbish. The game being played is to wildly generalize about and demean an amazingly varied and historically and presently overwhelmingly beneficial public school system, while presenting the lunacy of a UUUTube as evidence of the demeaning generalization.

[anne]

"The top universities are all private sector universities."

Simply a lie for the sake of lying, but imagine my surprise.

[Mcwop]

Anne, it is 2009 not 1850. Currently, many public schools have major problems, and private schools are a valid alternative to those failed public schools. But point taken on the history.

[Julio]

School systems serve different constituencies and have different mandates -- that's the reason for the "adjustments" needed when making comparisons between the "raw" scores of public and private schools.

Re the "more resources don't help" theme, a bit of anecdotal evidence:
Several years ago governments (mostly state; fed money has similar requirements) mandated that resources be provided to children with special needs. In the circle of my acquaintances, upper-middle-class parents of such children have uniformly opted for public schools because they got better service. The one exception I know of is one child that was moved back from a public to a private school that was created specifically for children with her condition.

[Ken]

Mcwop and anne: Would the introduction of the word "universal" into the phrase help bring you closer? That is, make it "free markets do not adequately supply some public goods, like universal primary education."

Obviously free markets can supply primary education to some; that's the way formal education worked for thousands of years, through tutors, academies, and so on. But it also meant that the bulk of the population had no access to this education. (In my hunt for the right word, I find that our own word "school" comes from a Greek word meaning "having the leisure time to study".)

However, I don't recall any historical instance where universal primary education was provided through a market system. I also see no signs that modern for-profit primary education businesses are attempting to expand their operations to the population at large. Nor would I expect to see this, since it would not be profitable for them to do so. The few instances where something along these line has happened have been through the use of government-provided scholarships, vouchers, or other support, which undercuts the argument that the service could be provided without the government.

With that addition, the discussion could shift from "can it be done" to "should it be done" - that is, is universal primary education of such general societal value that it should occur? Personally, I think that the answer is "yes", but I also think that this value is not the sort that can be turned into an immediate profit for the educator. Thus, it is not something that a private company would be interested in supplying, or even could supply.

[anne]

"Currently, many public schools have major problems, and private schools are a valid alternative to those failed public schools."

There are and will always be problems in a differentiated or diverse public schooling system for tens of millions of students, even so were the system uniform on the surface, but private schools are not a valid alternative since the cost of private schools precludes them ever being an alternative to those who cannot afford them while using public funds to send students to schools of any kind makes them public in essence.

There are brilliant schools, and there are schools that are problems for a complex of reasons, but the need then is to look to re-making problematic schools and the need will be continuous since the causes of problems will change over time and effect different schools.

Nonetheless, there is no possible way that a private school enrolling a President's children can be found an alternative to the public schools of a city beyond the select children enrolled.

[anne]

Jeff Madrick:

"We need not take on the economic theories of Milton Friedman and his disciples to make a case for government. Even Friedman acknowledged that free markets do not adequately supply some public goods, like primary education and roads. The benefits of such investment are spread across society; no one business or individual will invest enough."

By the way, I am not at all sure Friedman would agree that free markets do not adequately supply a good like primary education. I remember reading the reverse argument about Friedman recently, but I know of no instance in any society where free markets have at all adequately supplied primary education. What I do know is that private schools have prevented any number of children from going to school in any number of societies. Nonetheless, there is a prominent economist who argues even now against free public education in Africa where private education has been a continual problem for so many children.

[anne]

As for a specific public school system being troubled, that is a given and is a problem when so a problem that unfortunately can prove persisting, but the argument that the community private schools can solve the problems of the public schools simply by being a competitive presence is self-contradictory as such since the students able to attend public and private schools will differ and paying for students to attend private schools will in effect makes them public.

Notice that I am not in the least arguing against private schooling or even against paying for students to attend what would still be called private schools. But, somehow public provision for schooling must be made especially when schooling is required by a community.

Whether Friedman would wish to require even primary schooling, I do not know.

[anne]

The objection I have is to thinking public provision of a good or service is inherently problematic, and there has been a conservative tradition of arguing so in any number of instances from schooling on, and from primary schooling on. Public primary schooling was not easily or immediately gained in our history, advanced public schooling gained more gradually, and as far as I know public schooling was generally gained only in our wake in other countries and is still to be reasonably gained in some.

What is interesting is the extent to which public schooling when available has been taken advantage of beyond requirement through history.

[anne]

Supposing the finest universities were private, which would never occur to me, the problem of exclusivity alone as with a Duke or Stanford or Notre Dame creates the need for public universities simply because of the lack of possible opportunity that would persist in the absence of an alternative in a time when university education is so necessary. Such a time has really been here for more than a century, possibly far more.