One thing I always find unique about US policy debates is the bipartisan consensus that there are no programs that should be paid for by broad taxation. Everything from BBB to Medicare for all should be covered by targeted taxes on the wealthy (or shouldn’t exist to facilitate lower taxes in the wealthy if you are in the GOP). The obvious ‘fix’ for both Medicare & Social Security is a bump in the payroll tax, but somehow that is more toxic than cutting those programs.
I do wonder if Democrats should start talking about investing in major programs to lay the groundwork for more sustainable funding mechanisms in future debates - otherwise I feel like a lot of the welfare state gains of the last decade will be pared back in the coming ‘fiscal responsibility’ movement.
If you look back to when ACA was passed, there was a concurrent big concern with inequality being the most pressing social issue of our time. I feel like that drove a lot of the feeling that taxing the rich (and only the rich) was sort of doing double work -- paying for programs for the poor and also just lowering the income/wealth of the rich was good on its own merits.
Now we've seen some significant lessening of inequality, but political ideas have inertia. I wouldn't be surprised if, if the trend to lower inequality continues, we start to have more enthusiasm for broader taxation.
All that said: I think it's also time to take another look at the idea that in fact America's overall lower-tax regime is... good? I remember back 15-20 years ago there were a bunch of people who strongly believed that Europe had a really good policy regime which would lead to steadily higher prestige in the world and greater economic prominence at America's expense. I don't think the last 20 years have been kind to that view.
I was one who was at the time also a lot more enamored with what Europe was doing. There's still a certain efficiency they've developed that it's hard not to pine for. However I think you're right, the experience of the teens and covid need to be a big gut check and the case that they're ahead of us in any aggregate way has gotten harder to make. If anything it's our continued insistence on kind of a swiss cheese state with lots of weird gaps and inconsistencies in taxation, welfare state, etc. holding us back from completely leaving them in the dust.
We mainly have a lot of historic path decency differences on where we come out on state capacity. It has become less clear to me over time how much of that is current structural difference vs just inertia from both past policies and historical contingencies.
Did we re-tax the rich? The capital gains and estate tax rates are still disgustingly low
And the inequality stats that were cited often - the 0.1%, the wealth of billionaires - do not seem to have lessened. When some people are born inheriting millions and others are born with nothing, then yes, inequality is a huge social issue of our time, holding us back from the ideal that all Americans are created equal.
A VAT is also not very effective against billionaires or wealth inequality, since only a tiny proportion of their billions are spent on consumption.
I think consumption inequality is probably what we should actually care about. But that won't stop people from hammering on the "X% of people hold Y% of wealth" type stats to say we live in a fundamentally rotten society.
We call our system “progressive taxation,” but when you add all local, state, and federal taxes together it’s not very progressive. Consumption or VAT taxes would end this charade, and there would be no more “well, poor people don’t really pay taxes.”
"We call our system “progressive taxation,” but when you add all local, state, and federal taxes together it’s not very progressive."
As with many things in the US, that varies a lot by state. Some are super regressive (like Washington) and some are fairly flat to slightly progressive so that overall taxation (state + federal) is still fairly progressive. No states are nearly as progressive as the federal tax system tho. See https://itep.org/whopays/
There is no reason the policy stakes need to be confined this way. It is technically very possible to tax wealthy people to pay for social security instead of laborers.
Congress can write a law to increase the estate tax rate. It can also write a law to give money to entitlement program funds.
I think there has been a successful attempt by the “elite” to have people think that funding entitlements is only possible by taxing labor. Some SB commenters are also willing to entertain taxing consumption. But these are not the only options. The country could fund government operations including entitlement programs by taxing the wealth of the wealthy, either directly, or indirectly through the estate and capital gains taxes.
The billionaire and 0.1% statistics haven’t lessened - but the much bigger issue, of the 10% being able to boss around the bottom 50% in various dehumanizing ways, has been lessening quite a bit in the last year or two.
Europe tends to have higher capital gains rates, and many countries have a wealth tax. The net effect to me seems to be that the wealthy in Europe pay a greater amount in taxes compared to the poor than is true for the wealthy in America. How is this less progressive?
Most of the European countries that tried having a wealth tax gave up on it, your information is decades out of date. Both Britain and France famously abandoned wealth taxes as unworkable
More in theory than practice. And then politicians use that idea to use tax money “for the people who pay taxes” instead of universal services (transportation, housing, health) that everyone needs.
When I said a while back that the US needed gigantic child benefits paid for with a 10-15 percent VAT (which would massively reduce child poverty and stop the population from falling) someone objected that VAT isn't the best kind of taxation.
But all the European countries with more generous welfare states have VAT along with income tax. I think one reason America's long-term prospects are better than the EU's is that this option is still available to be tapped for pronatalist welfare policies. I can easily see Europe sliding into a vicious circle of population decline, pension costs weighing on a tapped-out tax base, and resistance to large-scale immigration, all mutually reinforcing. It could happen in the US as well but the risk seems much lower.
Or perhaps the Euros are declining because of the VAT. Odd that with this social support that should make things easier, entrepreneurship does not seem to be their forte.
One of my ideas that I'm not sure I am actually for, as it remains totally half baked, is for the US to simply eliminate all tax deductions (maybe excepting EITC for low income) for people who have not married and had at least one child (including via adoption, surrogacy, fertility treatments etc.) by I dunno age 40.
No one should ever, ever be forced to start a family, and the decision of the individual is paramount. However I also don't think there should be a windfall for those who have for whatever reason decided not to invest personally in the next generation and the future of the country. I'm certainly open to all manner of caveats and exceptions on this, but seems like it might be a good way to either raise revenue or nudge fertility in a more sustainable direction, maybe both in the short term.
I think the idea is that people will make more children if the government makes it easier and more appealing to have more children by giving parents a fat break.
"my general view on this would be we should take current social security benefits, cut them in half, and then the remaining benefits should be allocated each year based on the social security earnings accrued by people who were the retiree's custodial children (or theirs)
this approach would be unkind to the involuntarily childless, but would also create a HUGE incentive for adoption.
that is, it would only actually exclude people who didn't have kids *and also* did not adopt/marry someone with kids
it would also mean losing custody of your kids would hammer your retirement benefits.
these all seem like pretty rational mechanisms to me."
Jesse, I know stupid comments are, like, your specialty, but this is probably the stupidest one I have ever seen you make on any comment of mine, here or other places where we have crossed paths.
This idea is bad and half baked. Most deductions are a subsidy to some socially favored objective which applies with equal force to the childless.
You can subsidize childbearing (if you want) by additional child tax deductions or direct cash transfers but it is nonsensical to do so by randomly removing all other tax subsidies from childless people.
I said removal of deductions at approx. age 40, so even childless would have them for a while, especially when it might help establish home ownership and other desirable things. But anyway your argument isn't that it's bad, it's that it isn't as high of a priority as other objectives. What priority is higher than the state sustaining the systems that produce a broad based high standard of living, which like it or not require a minimum level of population stability?
My argument is that blanket disallowing unrelated deductions is a random and terrible way to allocate a subsidy. Take the same approx revenue that would generate and construct a less insane and random subsidy to parents, like a higher tax credit. Same cost, non crazy way to implement it.
Is there a way for the tax man to differentiate between voluntary and involuntary "selfishness"? I don't think my aunt who never married or had children through no fault of her own (complicated story involving childhood illness should get hammered by the IRS.
Maybe. I said I'm open to nuance. I also never used the word selfishness. But I don't know why people who are going to benefit from programs like SS, Medicare, etc. that rely on at least some degree of population stability shouldn't contribute more financially to sustain those programs when they haven't created any future tax payers (which again, must always be completely 100%, discretionary).
The proposal isn't about sin or punishing anyone or anything, just an acknowledgement that on current trajectories beneficiaries stand to get a lot more out than they put in, which puts increasing strain on future, smaller generations. We need to think about ways to navigate that.
A low-tax and high deficit regime never made any sense. Democrats made big mistakes in not at least trying to make Republicans pay a political price for the Reagan, Bush and Ryan-Trump deficits that their tax cuts for the rich generated.
My recollection is that they correctly pushed back on the argument that the cuts would pay for themselves (in the case of corporate taxes that the cuts would not increase investment) , but not on how damaging deficits are to long term growth or even the size of the income transfer up the income scale.
After living in Denmark and experiencing a 25% VAT on all goods and services, a special flat tax at 33% on income (it would have effectively been 45% without it), and taxes on unrealized capital gains, I have come to the conclusion that Americans are undertaxed. All the whining about taxes in the U.S. is silly. I make more now and pay less in taxes than when I was earning less in Europe.
Americans want the government to provide things but they don’t want to contribute.
I honestly cannot see how taxes on unrealized capital gains are defensible even in principle -- it's not actual money people have to spend, it's neither income nor consumption, valuation prior to sale for anything that isn't a publicly traded asset is various shades of hocus pocus, and if we're taxing unrealized capital gains symmetry would suggest that we grant tax breaks on unrealized capital losses -- which would in turn seem to be giving free money to, e.g., people who bought BTC when it was on its way down from 40k or so. And if we want to claw this back we introduce a huge amount of retrospective look-back requirements that are an administrative nightmare.
Surely the easier *and more conceptually just and coherent* solution is to just tax actual capital gains....
I'm in favor of getting rid of the capital gains tax and just going with a VAT for financial transactions, sometimes called a financial transaction tax.
If we're going to try to move to a VAT system, we might as well start with the financial system, since it seems easiest to implement (everything digital, heavily watched and regulated industry...)
Taxing unrealized gains is pretty similar to a wealth tax, just focusing on assets that can be easily valued. As with a wealth tax, liquidity can be an issue.
I think it’s more that average Danish voters don’t save and don’t think about it. Danes are very insular and will invest usually through Danish brokers who automatically do the tax stuff. It’s when you have overseas assets that things get really weird and the single Danish tax bureaucrat goes “I have never seen this before.” And it’s not like the IRS where they can just give you the forms, no the Danish government has to figure out how to set up how you report it.
If we will not tax unrealized gains, then we must renounce concern for wealth inequality.
If we wish to use wealth inequality measures as a barometer for the health of our society, then we must do something about some people having a lot more appreciated asset value than others.
A modest reform to the estate tax -- eliminating the step-up at death -- would accomplish this without the need for a dramatic re-reading of the 16th Amendment. Add some changes to trust laws (GRATs, mostly) and the estate tax will have a significant effect on inherited inequality.
If it doesn't go down before the sale goes through, sure. But since you don't have the money until the sale goes through, the logical thing to do is to wait until that event occurs. But that's just regular capital gains tax.
You’re going to crimp people’s long term investment growth if every year a stock goes up you trigger a tax that means you will need to divest some of the shares.
Are you going to tax realized capital gains? What if you realize gains in order to pay an unrealized tax? Will you be taxed double? What if I sell another asset in order to pay tax on an unrealized asset, do you pay capital gains tax in order to pay capital gains tax then?
What if the unrealized gains have dissipated and you didn’t actually realize any of them? Seems pretty asinine if you’re paying for gains you no longer have.
I agree there's a case that Americans in 2023 are somewhat too lightly taxed (I'm not sure this was the case in 2015), but much of this is simply downstream from wanting less government. Americans could have a lot more government if they wanted it, and were willing to vote accordingly. But if they got a lot more government and didn't raise taxes by heaps and heaps, the resulting inflation would probably be ruinous. The Danes don't pay higher taxes mainly because they're so much more virtuous about debt. They pay more taxes because they want government to do a lot more than Americans do.
To put it another way, there's a difference between saying "Americans are shy about paying taxes and will likely suffer bigger deficits/higher inflation" and "Americans are shy about paying taxes and are willing to make do with fewer government services."
I'd say the latter sentence is a more valid description of current US political economy. I don't care what the opinion polls say: the US electorate regularly hands over 48-52% of the country's political power to a party dedicated to public sector shrinkage. You can have lower taxes than Europe when your public sector is a lot smaller than Europe's.
Part of the problem though is that if you just look at the stinginess of America's social programs or the amount of public infrastructure that gets built, you would conclude that the American government is much "smaller" that it actually is.
US government programs only cover healthcare for veterans, the elderly/disabled, and the very poor, yet they spend a similar amount *per American* as the UK NHS does per Brit, to cover the entire population. If the US got the underlying healthcare costs under control, it could have a European style healthcare system *with no increase in taxes or the deficit at all*.
Similarly, the US government spends orders of magnitude more for major infrastructure/public transit projects compared to peer countries. It could be building so much more, without spending more. And also, while this issue is not unique to the US by any means, the artificially created housing shortages in many American cities make it much more expensive for the government to provide housing subsidies or social housing, causing less of it to be provided than otherwise would.
I feel like it's a totally underrated issue in American politics that the government could be getting so much more for the money it already spends, on so many dimensions! And if the US managed to fix this, maybe Americans would have increased confidence in how their tax dollars were being spent and more open to a larger government with more social programs.
There's no way to decrease healthcare's share of the economy by 5 or 6 points of GDP *and* simultaneously provide or upgrade coverage for several tens of millions of uninsured or seriously underinsured Americans. I believe inefficiencies in the status quo might enable us to take care of these folks without substantially increasing healthcare's share of GDP. But a big decrease isn't in the cards.
I actually think this is a weird downstream consequence of George HW Bush losing the 1992 election. The most famous part of his 1988 campaign was "read my lips, no new taxes". Then he raised taxes to help balance the budget, lost in 1992 and the conventional wisdom (especially on the right) became he lost because he broke his no new taxes pledge when the real reason he lost is a recession hit at just the wrong time. If recession was just a few months later, GHWB probably wins and raising taxes doesn't become nearly as toxic especially on the right.
Also, as is my remit, this substack is committed to (rightly) saying not everything is about the race, but my (slight) pushback* is that unfortunately a lot of things in the US really is about race or at least downstream of a more racists past. When John Stossel (famously libertarian) used to use his segment to say "it's your money", the unsaid last part of the statement was "going to 'those people'". It's not a mistake that European welfare states were created at a time when most European countries were way more homogeneous than the US. Seeing the rise of some pretty explicit anti-immigrant (and to be honest bigoted) parties in various European countries is a giant sign to me that you probably couldn't create the expansive welfare state/tax regimes in a variety of European countries today. Unfortunately, you can't talk about US' aversion to both taxes and expansion of welfare state without touching the very particular role race has played in American history.
* I actually think Matt would agree with my take here.
I agree with your general point, but that recession would've needed to arrive earlier to help Bush, not later. That recession arrived in the summer of 1990 and was over by the spring of 91. What did Bush in was the very weak early *recovery* (and also, I think, "third term vote share drop"). Had it arrived later (say, the summer of 1991) he'd likely have lost by a larger margin.
Yeah I should have said earlier not later. I think I was getting mixed up with FDR in 36 of all things. But yeah, if recession was done sooner, the public likely starts to actually feel the effects of a non-recessionary environment more and blame GHWB less. And yeah basic thermostatic opinion is probably the other factor; people just kind of over GOP being in the White House so long. Suspect this at least part of the reason why Labour may actually gain power again in U.K. after being out of power for so long.
It's my hope and worry about 2024. Matt has made a pretty convincing case to me that if we look at other countries' leaders in Canada and Europe, Biden's approval rating being low is all about inflation. No matter which party is in power in various countries around the world, people are voting against the party in power and the common thread is almost certainly inflation. Given inflation is continuing to come down and will likely come down further, I'm hoping a year is enough time for the public at large to actually really notice; especially if it comes with even a modest Fed rate cut.
>The obvious ‘fix’ for both Medicare & Social Security is a bump in the payroll tax, but somehow that is more toxic than cutting those programs<
It's possible that's what we'll learn in a few years. But hardly guaranteed. We don't really know either way, I think, because the relevant trust funds haven't run out yet. In other words, crunch time hasn't arrived. When it does get here, I suspect deep cuts to these programs are likely to be even more unpopular than raising payroll taxes.
No, shift the financing of Medicare and Social Security (and unemployment insurance and ACA, and a child tax credit) to aVAT. A flat tax on wages made sense in the 1940 before the invention of the VAT, but its still a tax on income, not consumption. The logic of these programs is to support consumption of people in specific life circumstances -- old age, sickness, unemployment, rearing children -- and we should tax the _consumption_ of others not in those situations to do so, not income (consumption + saving) and especially not wage income (and more especially in the case of SS, CAPPED wage income).
What's so bad about taxing wages (as part of the mix)? FWIW I'd like to see the US adopt a VAT, but I wouldn't replace payroll taxes with a VAT, I'd *augment* them. AFAIK all the major social democracies rely substantially on wage taxes to fund pensions and healthcare. There has to be some merit to doing so. I'd guess that "merit" in part is tax code progressivity. Another is (depending on structural specifics) the incentive to participate in the paid labor force (to quality for the pension). I think there's also a perception of fairness, universality and solidary (ie, all "workers" are covered, and indeed rewarded for the productive labor they contribute).
The problem with a VAT in the U.S. is that we have an economy designed around encouraging people to consume more, not less. If we are taxing consumption higher, then people will consume less, and the economy will slow. I am not an expert on tax policy, but I do know that in the U.S., you can avoid paying some income taxes if you spend your income on certain large purchases, incentivizing consumption.
I don't know if its good or bad, but I think it is likely the U.S. will continue to rely heavily on personal income tax and payroll taxes for the majority of its funding.
I do not think we have "an economy designed around encouraging people to consume more, not less," but if that were the case we should change the design. Most people are already inclined to consume today rather than save to consume more tomorrow. Public policy, especially taxes, ought to "encourage" in an offsetting way.
I guess you are talking about ACA. It should have raised taxes then and there and been designed to chip away at employer purchase of health insurance, at least for low wage workers.
One thing I always find unique about US policy debates is the bipartisan consensus that there are no programs that should be paid for by broad taxation. Everything from BBB to Medicare for all should be covered by targeted taxes on the wealthy (or shouldn’t exist to facilitate lower taxes in the wealthy if you are in the GOP). The obvious ‘fix’ for both Medicare & Social Security is a bump in the payroll tax, but somehow that is more toxic than cutting those programs.
I do wonder if Democrats should start talking about investing in major programs to lay the groundwork for more sustainable funding mechanisms in future debates - otherwise I feel like a lot of the welfare state gains of the last decade will be pared back in the coming ‘fiscal responsibility’ movement.
If you look back to when ACA was passed, there was a concurrent big concern with inequality being the most pressing social issue of our time. I feel like that drove a lot of the feeling that taxing the rich (and only the rich) was sort of doing double work -- paying for programs for the poor and also just lowering the income/wealth of the rich was good on its own merits.
Now we've seen some significant lessening of inequality, but political ideas have inertia. I wouldn't be surprised if, if the trend to lower inequality continues, we start to have more enthusiasm for broader taxation.
All that said: I think it's also time to take another look at the idea that in fact America's overall lower-tax regime is... good? I remember back 15-20 years ago there were a bunch of people who strongly believed that Europe had a really good policy regime which would lead to steadily higher prestige in the world and greater economic prominence at America's expense. I don't think the last 20 years have been kind to that view.
I was one who was at the time also a lot more enamored with what Europe was doing. There's still a certain efficiency they've developed that it's hard not to pine for. However I think you're right, the experience of the teens and covid need to be a big gut check and the case that they're ahead of us in any aggregate way has gotten harder to make. If anything it's our continued insistence on kind of a swiss cheese state with lots of weird gaps and inconsistencies in taxation, welfare state, etc. holding us back from completely leaving them in the dust.
We mainly have a lot of historic path decency differences on where we come out on state capacity. It has become less clear to me over time how much of that is current structural difference vs just inertia from both past policies and historical contingencies.
Did we re-tax the rich? The capital gains and estate tax rates are still disgustingly low
And the inequality stats that were cited often - the 0.1%, the wealth of billionaires - do not seem to have lessened. When some people are born inheriting millions and others are born with nothing, then yes, inequality is a huge social issue of our time, holding us back from the ideal that all Americans are created equal.
The 0.1% and the wealth of billionaires are not responsive to taxes on W2 income, which are the policy stakes here.
So let's take the wage tax off the table. Permanently. A VAT will collect more from billionaires than the wage tax does
A VAT is also not very effective against billionaires or wealth inequality, since only a tiny proportion of their billions are spent on consumption.
I think consumption inequality is probably what we should actually care about. But that won't stop people from hammering on the "X% of people hold Y% of wealth" type stats to say we live in a fundamentally rotten society.
But VAT doesn’t just tax consumption, it also taxes production...that’s why it’s “value added”...we already have consumption (sales) taxes.
We call our system “progressive taxation,” but when you add all local, state, and federal taxes together it’s not very progressive. Consumption or VAT taxes would end this charade, and there would be no more “well, poor people don’t really pay taxes.”
"We call our system “progressive taxation,” but when you add all local, state, and federal taxes together it’s not very progressive."
As with many things in the US, that varies a lot by state. Some are super regressive (like Washington) and some are fairly flat to slightly progressive so that overall taxation (state + federal) is still fairly progressive. No states are nearly as progressive as the federal tax system tho. See https://itep.org/whopays/
There is no reason the policy stakes need to be confined this way. It is technically very possible to tax wealthy people to pay for social security instead of laborers.
Please elaborate.
Congress can write a law to increase the estate tax rate. It can also write a law to give money to entitlement program funds.
I think there has been a successful attempt by the “elite” to have people think that funding entitlements is only possible by taxing labor. Some SB commenters are also willing to entertain taxing consumption. But these are not the only options. The country could fund government operations including entitlement programs by taxing the wealth of the wealthy, either directly, or indirectly through the estate and capital gains taxes.
A VAT
The billionaire and 0.1% statistics haven’t lessened - but the much bigger issue, of the 10% being able to boss around the bottom 50% in various dehumanizing ways, has been lessening quite a bit in the last year or two.
My parents’ dog is part of the top 10% of households and she is still very bossy.
Yes, and the 10% are quite fucking put out about it.
Loudly, performatively put out about it.
The US has a way more progressive tax system than Europe
Europe tends to have higher capital gains rates, and many countries have a wealth tax. The net effect to me seems to be that the wealthy in Europe pay a greater amount in taxes compared to the poor than is true for the wealthy in America. How is this less progressive?
Most of the European countries that tried having a wealth tax gave up on it, your information is decades out of date. Both Britain and France famously abandoned wealth taxes as unworkable
More in theory than practice. And then politicians use that idea to use tax money “for the people who pay taxes” instead of universal services (transportation, housing, health) that everyone needs.
Yuros are all poor (I joke.)
I mean, compared to Americans they are. The only richer ones are the Swiss and Norwegians, and Norway is the UAE of the Arctic.
When I said a while back that the US needed gigantic child benefits paid for with a 10-15 percent VAT (which would massively reduce child poverty and stop the population from falling) someone objected that VAT isn't the best kind of taxation.
But all the European countries with more generous welfare states have VAT along with income tax. I think one reason America's long-term prospects are better than the EU's is that this option is still available to be tapped for pronatalist welfare policies. I can easily see Europe sliding into a vicious circle of population decline, pension costs weighing on a tapped-out tax base, and resistance to large-scale immigration, all mutually reinforcing. It could happen in the US as well but the risk seems much lower.
Or perhaps the Euros are declining because of the VAT. Odd that with this social support that should make things easier, entrepreneurship does not seem to be their forte.
The lack of entrepreneurship and innovation in Europe probably has more to do with labor rules, but the tax structure doesn't help.
I think the U.S. poaches their best talent and pays them 2-3X as much
I hope so!
One of my ideas that I'm not sure I am actually for, as it remains totally half baked, is for the US to simply eliminate all tax deductions (maybe excepting EITC for low income) for people who have not married and had at least one child (including via adoption, surrogacy, fertility treatments etc.) by I dunno age 40.
No one should ever, ever be forced to start a family, and the decision of the individual is paramount. However I also don't think there should be a windfall for those who have for whatever reason decided not to invest personally in the next generation and the future of the country. I'm certainly open to all manner of caveats and exceptions on this, but seems like it might be a good way to either raise revenue or nudge fertility in a more sustainable direction, maybe both in the short term.
What do you think the political reaction to this idea would be on the left and right?
Probably really bad for a bunch of reasons.
It could help. But I think paying cash to parents is the most transparent way to do it.
Would “Kash for Kids” work?
i have one kid and I don’t think there’s any amount of money that the government could give me to have a second. A million dollars maybe.
Sure but you still want revenue to fund and balance against inflationary pressures from those kinds of programs.
I think the idea is that people will make more children if the government makes it easier and more appealing to have more children by giving parents a fat break.
Late to the party because I had a busy day, but this reminds me of one of Lyman Stone's patented wild takes:
https://twitter.com/lymanstoneky/status/1529520275171295237
"my general view on this would be we should take current social security benefits, cut them in half, and then the remaining benefits should be allocated each year based on the social security earnings accrued by people who were the retiree's custodial children (or theirs)
this approach would be unkind to the involuntarily childless, but would also create a HUGE incentive for adoption.
that is, it would only actually exclude people who didn't have kids *and also* did not adopt/marry someone with kids
it would also mean losing custody of your kids would hammer your retirement benefits.
these all seem like pretty rational mechanisms to me."
"Hey women, go through the danger of childbirth, or get taxed more."
Jesse, I know stupid comments are, like, your specialty, but this is probably the stupidest one I have ever seen you make on any comment of mine, here or other places where we have crossed paths.
I'm quite OK being on the side of not wanting to punish women for not having babies quick enough for your liking, which is what this comes down too.
This idea is bad and half baked. Most deductions are a subsidy to some socially favored objective which applies with equal force to the childless.
You can subsidize childbearing (if you want) by additional child tax deductions or direct cash transfers but it is nonsensical to do so by randomly removing all other tax subsidies from childless people.
I said removal of deductions at approx. age 40, so even childless would have them for a while, especially when it might help establish home ownership and other desirable things. But anyway your argument isn't that it's bad, it's that it isn't as high of a priority as other objectives. What priority is higher than the state sustaining the systems that produce a broad based high standard of living, which like it or not require a minimum level of population stability?
My argument is that blanket disallowing unrelated deductions is a random and terrible way to allocate a subsidy. Take the same approx revenue that would generate and construct a less insane and random subsidy to parents, like a higher tax credit. Same cost, non crazy way to implement it.
Is there a way for the tax man to differentiate between voluntary and involuntary "selfishness"? I don't think my aunt who never married or had children through no fault of her own (complicated story involving childhood illness should get hammered by the IRS.
Maybe. I said I'm open to nuance. I also never used the word selfishness. But I don't know why people who are going to benefit from programs like SS, Medicare, etc. that rely on at least some degree of population stability shouldn't contribute more financially to sustain those programs when they haven't created any future tax payers (which again, must always be completely 100%, discretionary).
The proposal isn't about sin or punishing anyone or anything, just an acknowledgement that on current trajectories beneficiaries stand to get a lot more out than they put in, which puts increasing strain on future, smaller generations. We need to think about ways to navigate that.
A low-tax and high deficit regime never made any sense. Democrats made big mistakes in not at least trying to make Republicans pay a political price for the Reagan, Bush and Ryan-Trump deficits that their tax cuts for the rich generated.
They didn't try? I always felt like this was an argument they made.
My recollection is that they correctly pushed back on the argument that the cuts would pay for themselves (in the case of corporate taxes that the cuts would not increase investment) , but not on how damaging deficits are to long term growth or even the size of the income transfer up the income scale.
After living in Denmark and experiencing a 25% VAT on all goods and services, a special flat tax at 33% on income (it would have effectively been 45% without it), and taxes on unrealized capital gains, I have come to the conclusion that Americans are undertaxed. All the whining about taxes in the U.S. is silly. I make more now and pay less in taxes than when I was earning less in Europe.
Americans want the government to provide things but they don’t want to contribute.
I honestly cannot see how taxes on unrealized capital gains are defensible even in principle -- it's not actual money people have to spend, it's neither income nor consumption, valuation prior to sale for anything that isn't a publicly traded asset is various shades of hocus pocus, and if we're taxing unrealized capital gains symmetry would suggest that we grant tax breaks on unrealized capital losses -- which would in turn seem to be giving free money to, e.g., people who bought BTC when it was on its way down from 40k or so. And if we want to claw this back we introduce a huge amount of retrospective look-back requirements that are an administrative nightmare.
Surely the easier *and more conceptually just and coherent* solution is to just tax actual capital gains....
I'm in favor of getting rid of the capital gains tax and just going with a VAT for financial transactions, sometimes called a financial transaction tax.
If we're going to try to move to a VAT system, we might as well start with the financial system, since it seems easiest to implement (everything digital, heavily watched and regulated industry...)
Thanks for mentioning this, I missed the word "unrealized" in his post.
Oh, and like the U.S. SKAT claims all income earned globally. Even the gains on that 401k from your previous employer.
Of course no foreigner would avoid declaring these to SKAT…
Taxing unrealized gains is pretty similar to a wealth tax, just focusing on assets that can be easily valued. As with a wealth tax, liquidity can be an issue.
If we were taxing consumption progressively, unrealized capital gains would not be taxed as neither would undistributed business profits.
The Danes exempt private pension plans but don’t view. 401ks or IRA as private pensions.
The big reason for this is Danes don’t really save privately (some of the highest levels of personal debt in the OECD.)
So is the idea that the Danes tax unrealized capital gains because nobody has any so it doesn't matter? What about non-retirement brokerage accounts?
I think it’s more that average Danish voters don’t save and don’t think about it. Danes are very insular and will invest usually through Danish brokers who automatically do the tax stuff. It’s when you have overseas assets that things get really weird and the single Danish tax bureaucrat goes “I have never seen this before.” And it’s not like the IRS where they can just give you the forms, no the Danish government has to figure out how to set up how you report it.
So many headaches.
"The big reason for this is Danes don’t really save privately (some of the highest levels of personal debt in the OECD.)"
This seems bad.
If we will not tax unrealized gains, then we must renounce concern for wealth inequality.
If we wish to use wealth inequality measures as a barometer for the health of our society, then we must do something about some people having a lot more appreciated asset value than others.
A modest reform to the estate tax -- eliminating the step-up at death -- would accomplish this without the need for a dramatic re-reading of the 16th Amendment. Add some changes to trust laws (GRATs, mostly) and the estate tax will have a significant effect on inherited inequality.
Of course they have it to spend. If my SPY goes up 10% and I want to buy something I can just sell it.
If it doesn't go down before the sale goes through, sure. But since you don't have the money until the sale goes through, the logical thing to do is to wait until that event occurs. But that's just regular capital gains tax.
You’re going to crimp people’s long term investment growth if every year a stock goes up you trigger a tax that means you will need to divest some of the shares.
Are you going to tax realized capital gains? What if you realize gains in order to pay an unrealized tax? Will you be taxed double? What if I sell another asset in order to pay tax on an unrealized asset, do you pay capital gains tax in order to pay capital gains tax then?
SKAT just taxes your salary income more the next fiscal year.
What if the unrealized gains have dissipated and you didn’t actually realize any of them? Seems pretty asinine if you’re paying for gains you no longer have.
My home state of Colorado is a great example of >>Americans want the government to provide things but they don’t want to contribute.<<
We have a thing called the Tax Payer's Bill of Rights. You can read all about it here: https://www.bellpolicy.org/wp-content/uploads/2017/11/Understanding-TABOR.pdf
Ah, TABOR. Is it in third rail status there like Prop 13 is in California, or no sales tax in Oregon, or no income tax in Washington?
What has you thinking that?
I agree there's a case that Americans in 2023 are somewhat too lightly taxed (I'm not sure this was the case in 2015), but much of this is simply downstream from wanting less government. Americans could have a lot more government if they wanted it, and were willing to vote accordingly. But if they got a lot more government and didn't raise taxes by heaps and heaps, the resulting inflation would probably be ruinous. The Danes don't pay higher taxes mainly because they're so much more virtuous about debt. They pay more taxes because they want government to do a lot more than Americans do.
To put it another way, there's a difference between saying "Americans are shy about paying taxes and will likely suffer bigger deficits/higher inflation" and "Americans are shy about paying taxes and are willing to make do with fewer government services."
I'd say the latter sentence is a more valid description of current US political economy. I don't care what the opinion polls say: the US electorate regularly hands over 48-52% of the country's political power to a party dedicated to public sector shrinkage. You can have lower taxes than Europe when your public sector is a lot smaller than Europe's.
Part of the problem though is that if you just look at the stinginess of America's social programs or the amount of public infrastructure that gets built, you would conclude that the American government is much "smaller" that it actually is.
US government programs only cover healthcare for veterans, the elderly/disabled, and the very poor, yet they spend a similar amount *per American* as the UK NHS does per Brit, to cover the entire population. If the US got the underlying healthcare costs under control, it could have a European style healthcare system *with no increase in taxes or the deficit at all*.
Similarly, the US government spends orders of magnitude more for major infrastructure/public transit projects compared to peer countries. It could be building so much more, without spending more. And also, while this issue is not unique to the US by any means, the artificially created housing shortages in many American cities make it much more expensive for the government to provide housing subsidies or social housing, causing less of it to be provided than otherwise would.
I feel like it's a totally underrated issue in American politics that the government could be getting so much more for the money it already spends, on so many dimensions! And if the US managed to fix this, maybe Americans would have increased confidence in how their tax dollars were being spent and more open to a larger government with more social programs.
There's no way to decrease healthcare's share of the economy by 5 or 6 points of GDP *and* simultaneously provide or upgrade coverage for several tens of millions of uninsured or seriously underinsured Americans. I believe inefficiencies in the status quo might enable us to take care of these folks without substantially increasing healthcare's share of GDP. But a big decrease isn't in the cards.
Why not? Other countries do it.
Path dependency.
Maybe, but that political party has not actually shrunk the government anytime it has been in power.
I brought this up not to show how government in the US is shrinking (it's not), but to highlight the difficulty of expanding it.
We don’t all want the government to provide things.
Ok. Some nutters don’t want functioning sewer infrastructure and paved roads with visible signage.
As famously parodied here:
https://www.youtube.com/watch?v=chMCU5VSuqw
I actually think this is a weird downstream consequence of George HW Bush losing the 1992 election. The most famous part of his 1988 campaign was "read my lips, no new taxes". Then he raised taxes to help balance the budget, lost in 1992 and the conventional wisdom (especially on the right) became he lost because he broke his no new taxes pledge when the real reason he lost is a recession hit at just the wrong time. If recession was just a few months later, GHWB probably wins and raising taxes doesn't become nearly as toxic especially on the right.
Also, as is my remit, this substack is committed to (rightly) saying not everything is about the race, but my (slight) pushback* is that unfortunately a lot of things in the US really is about race or at least downstream of a more racists past. When John Stossel (famously libertarian) used to use his segment to say "it's your money", the unsaid last part of the statement was "going to 'those people'". It's not a mistake that European welfare states were created at a time when most European countries were way more homogeneous than the US. Seeing the rise of some pretty explicit anti-immigrant (and to be honest bigoted) parties in various European countries is a giant sign to me that you probably couldn't create the expansive welfare state/tax regimes in a variety of European countries today. Unfortunately, you can't talk about US' aversion to both taxes and expansion of welfare state without touching the very particular role race has played in American history.
* I actually think Matt would agree with my take here.
I agree with your general point, but that recession would've needed to arrive earlier to help Bush, not later. That recession arrived in the summer of 1990 and was over by the spring of 91. What did Bush in was the very weak early *recovery* (and also, I think, "third term vote share drop"). Had it arrived later (say, the summer of 1991) he'd likely have lost by a larger margin.
Yeah I should have said earlier not later. I think I was getting mixed up with FDR in 36 of all things. But yeah, if recession was done sooner, the public likely starts to actually feel the effects of a non-recessionary environment more and blame GHWB less. And yeah basic thermostatic opinion is probably the other factor; people just kind of over GOP being in the White House so long. Suspect this at least part of the reason why Labour may actually gain power again in U.K. after being out of power for so long.
It's my hope and worry about 2024. Matt has made a pretty convincing case to me that if we look at other countries' leaders in Canada and Europe, Biden's approval rating being low is all about inflation. No matter which party is in power in various countries around the world, people are voting against the party in power and the common thread is almost certainly inflation. Given inflation is continuing to come down and will likely come down further, I'm hoping a year is enough time for the public at large to actually really notice; especially if it comes with even a modest Fed rate cut.
I should add to my second point that honestly this Kevin Drum post sums things up pretty well when it comes to the inflation issue. https://jabberwocking.com/heres-the-definitive-short-answer-about-why-were-unhappy-with-the-economy/
I can tell you from experience that the Danish welfare state is created for Danes and paid for by non-Danes who are ineligible for the benefits.
Which non-Danes? People with work visas or other?
>The obvious ‘fix’ for both Medicare & Social Security is a bump in the payroll tax, but somehow that is more toxic than cutting those programs<
It's possible that's what we'll learn in a few years. But hardly guaranteed. We don't really know either way, I think, because the relevant trust funds haven't run out yet. In other words, crunch time hasn't arrived. When it does get here, I suspect deep cuts to these programs are likely to be even more unpopular than raising payroll taxes.
I have a suspicion that we aren't going to know anything about what the sentiments actually are until about 2032.
No, shift the financing of Medicare and Social Security (and unemployment insurance and ACA, and a child tax credit) to aVAT. A flat tax on wages made sense in the 1940 before the invention of the VAT, but its still a tax on income, not consumption. The logic of these programs is to support consumption of people in specific life circumstances -- old age, sickness, unemployment, rearing children -- and we should tax the _consumption_ of others not in those situations to do so, not income (consumption + saving) and especially not wage income (and more especially in the case of SS, CAPPED wage income).
What's so bad about taxing wages (as part of the mix)? FWIW I'd like to see the US adopt a VAT, but I wouldn't replace payroll taxes with a VAT, I'd *augment* them. AFAIK all the major social democracies rely substantially on wage taxes to fund pensions and healthcare. There has to be some merit to doing so. I'd guess that "merit" in part is tax code progressivity. Another is (depending on structural specifics) the incentive to participate in the paid labor force (to quality for the pension). I think there's also a perception of fairness, universality and solidary (ie, all "workers" are covered, and indeed rewarded for the productive labor they contribute).
The problem with a VAT in the U.S. is that we have an economy designed around encouraging people to consume more, not less. If we are taxing consumption higher, then people will consume less, and the economy will slow. I am not an expert on tax policy, but I do know that in the U.S., you can avoid paying some income taxes if you spend your income on certain large purchases, incentivizing consumption.
I don't know if its good or bad, but I think it is likely the U.S. will continue to rely heavily on personal income tax and payroll taxes for the majority of its funding.
I do not think we have "an economy designed around encouraging people to consume more, not less," but if that were the case we should change the design. Most people are already inclined to consume today rather than save to consume more tomorrow. Public policy, especially taxes, ought to "encourage" in an offsetting way.
Agree to disagree on the current design of the economy. I do agree with you that our economy should be better designed to encourage sustainability.
Democracies are responsive to the will of the voters, yes
I guess you are talking about ACA. It should have raised taxes then and there and been designed to chip away at employer purchase of health insurance, at least for low wage workers.