Fiscal Conservatism and Social Pragmatism

I am hoping that the Democratic party is developing a new mindset around the shared concept of fiscal conservatism and social pragmatism.

Hillary Clinton's recent remarks to an pro-life group that reducing unwanted pregancies was a shared goal of the pro-life and anti-abortion movement was an example of just the kind of pragmatism that is required, and is desired by the average voter.

On the subject of fiscal conservatism, I think it should be the centerpiece of the new democratic agenda, led by a balanced budget, a social security reform plan that makes sense, and a flat tax.

Tom Watson has a great post up today on the flat tax and social security reform that is exactly what I am talking about.  He quotes a guy named Tom K in this post who says:

I am against an absurdly complex tax code that taxes honesty more than any other quality, and rewards the obsessive pursuit of tax avoidance more than any other behavior.

I'd like to see no taxation for the working poor and possibly the lower middle class, and a flatter tax structure overall -- even entirely flat if possible (putting aside the fact that it will not kick in until, say, $40,000).

But far more importantly, I want to see a system that the average person has some reasonable prospect of understanding, and a system that does not lead to billions of dollar a year being spent finding and exploiting loopholes, which typically are available only to the very rich because the professional costs of taking advantage of them are prohibitive unless you're going to save tens of millions of dollars.

In short, our current system isn't really progressive; it taxes honest people, not rich people, disproportionately. Worse, it re-defines "honesty" downward: if you don't take advantage of any avoidance options that you can afford to exploit, you aren't being "honest" - just as people taking advantage of legal avoidance options aren't "dishonest." It makes a sucker of he who is not a schemer, and could be much fairer and simpler and, I would submit, more "progressive" with a flattening of rates.

I agree with Tom K and I would love to see the Democratic party take this issue and run with it.

Comments

[James]

In general, I agree with you and the original author, however, this remedy proposal would introduce as many problems as it would create. I always cringe whenever I see the word “wasted” in tax avoidance spending, because it isn’t really wasted, it’s rent seeking behavior and their dollars are being spent in the economy instead of going to the federal tax system, which is what most conservatives are usually very excited to talk about.

There are other proposals on the table, such as the consumption based tax system, which has it’s merits, but I feel is largely squandered by a select few at www.fairtax.org. I’m not sure where they get their numbers from; they are mostly “proven” and “most experts believe” and other such loaded terms.

My personal favorite is one which is rarely discussed and that is the geo-classical or Georgist (named for Henry George) school of taxation, tax justice and distribution. The idea promotes capital investment by eliminating taxes on savings; this idea also eliminates all the loopholes which are currently in the system. I like how it harmonizes the libertarian notion of liberty with the liberal notion of egalitarianism. You can read more about it here http://www.schalkenbach.org/library/george.henry/ppcont.html, here http://www.henrygeorge.org/isms.htm and more generally here http://www.henrygeorge.org/pplink.htm or you can read about in Henry George’s book “Poverty and Progress”

[Steve]

Hear hear.

Better, I think Steve Forbes and George Bush would agree.

[John Ballard]

Thanks for pointing this out.

I am guilty of being against the flat tax only because a local talk show host is for it. I instinctively react against anything he says for that reason alone. I'm an old-fashioned lberal while he is an out of hand libertarian who only lives to make others angry. It's easy to lose sight of content when form is so distorted.

At a visceral level the idea of a tax on consumption appeals to me more than any other, if only because there is such a large underground consumption economy that involves everyone. The well-heeled pay to consume even if they never pay a dime in income tax. I suppose that appeals to my bleeding heart.

It would be interesting to extrapolate a measure of the economy backward from spending and see how little it is really taxed at all, other than by state sales taxes.

[Hector]

Huh? You're backing Howie for DNC chair but want the party centerpiece to be a) balanced budget, b) sensible social security reform, and c) a flat tax. Make up your mind, dude, 'cuz these things don't mix. Sort of like going to a biker bar and ordering a pina colada: don't do it unless you want to get beat up.

Your party ran, no, sprinted from Gramm Rudman, and you are nowhere close to re-embracing a balanced budget amendment, which is the only way to mandate balanced budgets. Your party will never embrace a flat tax because the IRS is the left's chief enabler, and a flat tax robs the left of its class warfare platform. Just ask Jerry Brown how well he fared with the idea. Most of your party's leadership is denying there is a social security crisis, so you're probably SOL there, too. Your party needs new elected leadership at all levels in government in order to be relevant in the future and Howard Dean is about to set you back 10 years before Michael Moore's next movie is even out.

The political center has moved right and Howie is taking you left. Smart move, smart guy!

[Randall Burns]

The big problem with flat taxes or consumption taxes is that they tend to work out to be enormous boons for the very wealthy.
economics.about.com/cs/taxpolicy/a/fairtax_4.htm

One way around that would be to pair a flat tax with a land tax and possibly a wealth tax.
bostonreview.mit.edu/BR21.1/wolff.html

If you read Henry George carefully, he wanted to tax not only land but monopoly influence-the fact that the wealth have increaseed their holdings so much in recent years compared to the middle class may be evidence of monopoly influence.

The way I would structure a wealth tax and land tax would be to
1) assess private land value in each
state before and after the switch to a
flat tax and tax those increases away

2) levy a tax on wealth of the top 1% that would be bring in revenues equal to the extent growth of holdings of the top 1% exceed that of the median

Now that is something the democrats could hold their head high about. That policy would effectively stop further concentration of wealth _and_ would simplify the tax code. 1% of the population would have to file returns-but that is a lot better than now.