The View from Right Field

“Build Back Better” and Responsible Governance

Following up on a post from October, I wrote this letter to the editor to the Financial Times, which was published today (because of the FT’s paywall, I am setting it out below¹):

"Ensuring spending lasts is key to Build Back Better

In “Trade-offs are needed to rescue ‘Build Back Better’” (FT View, December 22), you say “the legislation is mostly funded (though ‘temporary’ expenditures often find a way of becoming permanent)”.  Which is exactly the problem.

Helping the Rich, Democratic-Style

House Democrats finally passed, 220 to 213, President Biden’s $1.8 trillion¹ “Build Back Better” plan.  You have to be a political geek to know what’s in it, though it doesn’t really matter yet because the Senate hasn’t passed it.  They’re going to make changes in it, and then it will have to go back to the House for another vote.  So, trying to figure out what is in it at this point doesn’t make all that much sense.  The only things we know for sure are that (i) the price tag is totally made up, (ii) the revenue it raises is calculated on bases that won’t actually happen, and (iii) there won’t be any unexpected consequences because if you don’t know what is in the bill, you can’t know what is expected, and if you don’t know what is expected, there can’t be anything unexpected.

Still, one thing we do know about what the Democrats are doing is who is going to benefit.  And that is the upper middle class.  The Biden/Pelosi bill increases the limit on the amount of state and local taxes you can deduct from $10,000 per year to $80,000.  With a standard deduction of about $25,000, this won’t help average people – or even somewhat above average people.  It’s just a tax break for the upper middle class, especially those in states that have high local taxes (i.e., states with Democratic governors and legislatures).

How Many New Government Programs Do You Want – And How Many Are You Willing to Pay For?

The Wall Street Journal reported last week that polls showed broad support among Democrats for Joe Biden’s big spending proposals.  According to two different polls, 75% of Democrats favored President Biden’s original $3.5 trillion plan.  Of course, we really don’t know how the question was asked.  If it was just: “Do you support spending $3.5 trillion on new social programs and have it paid for by rich people and big corporations?”, of course, Democrats would say yes.  Maybe independents and even Republicans would, too.  After all, most people like something for free.

But I wonder what the response(s) would have been, even among Democrats, if several different formulations of the question would have been asked.  For example:

Tax Reform Versus the 2021 Democratic Congress

In 2017, the Republican Congress passed real tax reform legislation.  Democrats claimed it was just tax cuts for the rich, but they pretty much always say that.  What is funny about that claim (“funny” in the bizarre sense, not funny in the ha-ha sense) is that one of the things the Democrats objected to the most in the reform was the limitation on the deduction of state and local taxes (i.e., the “Salt deduction”) to $10,000 for a couple, even though the legislation also doubled the standard deduction.  For most people, and especially middle class and below, this was a great deal.  It made tax filing simpler, and it saved them some money.  For upper middle class people in states with high local taxes, i.e., Democratic states, it wasn’t.  So, Democrats from states like California, New York, New Jersey, etc., have been pushing hard to reinstate the full SALT deduction ever since, even though it would almost entirely benefit the upper middle class.¹ 

In any case, then-House Speaker Paul Ryan and other Republicans did real tax reform.²  They were trying to make the tax system better: simpler, easier to comply with, less inefficient, raising the most money with the fewest negative impacts on the economy.  In other words, real tax reform.

Is This the Way to Set Up New Social Programs?

As Democrats scramble to come up with a bill of social and climate-related programs that can pass, two big questions seem to dominate.

First, while normally you would think that government should decide what it needs to do and then come up with a way to pay for it, that is not what Democrats are doing.  Rather, they are figuring out how much they want to spend first.  Actually, it’s not how much they want to spend.  It’s what number sounds good politically.  $3.5 trillion was too high for some people.  Joe Manchin said $1.5 trillion was okay, but that’s too low for the progressives.  So they will probably come up with some number in between, though apparently closer to $1.5 trillion than $3.5 trillion.  Still, their first question isn’t what to do; it’s how much to spend. 

Big Changes Coming?

Monday is the Democrats’ self-declared day of decision, the day Democratic leaders in Congress have set as their deadline for passing a huge package of new social programs.  Whether it is going to pass – and/or what’s going to be in it – is unclear, but Monday is supposed to be the day. 

The programs include things that European countries already have, so we should have them, too, we are told.  Of course, Democratic leaders don’t explain that Europeans get these benefits because they, i.e., the middle class, pays more taxes than we pay in the United States.  Joe Biden has said that all these new benefits are “free,” by which he means “free” for the middle (and upper middle) class, because taxes are being raised on corporations and the rich and not the middle (and upper middle) class.

Climate Change, Extreme Weather, Carbon Limits – and Adapting

If it is true the extreme weather we have been having is a result of climate change, i.e., putting too much carbon into the atmosphere, then two things:

First, my suggestion with respect to putting less carbon into the atmosphere is a carbon tax, especially a carbon tax that would be refunded to everybody equally, on a per capita basis.  A carbon tax would probably be one of the quickest, most effective, and least costly ways to cut carbon.  A cap-and-trade system might work, too.  Heavy government regulation is a less good option.  It wouldn’t work as well, and it would be slower.¹

Why Are Our Taxes So Messed Up? My Guess Is Spelled C-O-N-G-R-E-S-S

My previous post was about the amount of taxes rich people pay.  Based on leaks of confidential tax info (so much for secrecy of tax returns), the ProPublica website disclosed the absolutely shocking information (shocking to people who don’t pay attention) that rich people don’t pay any more taxes than the law requires.  And if the law lets them take deductions, claim credits, etc., they do it and, thereby, pay less taxes.  ProPublica was shocked.  I’m not.  I think it says more about the tax code – and the people who pass it – than it does about the amount of taxes people pay.

Which brings me to an example of the simplicity and ease¹ of our tax code: the deductions and credits for families and child care.  Before 2021, there were two basic credits: (i) a refundable tax credit of $2,000 for each child, which began to phase out when modified adjusted gross income exceeded $400,000 for a married couple; and (ii) a refundable child care credit of $3,000 per child, up to a maximum of $6,000 for two or more children, with a phaseout beginning at $125,000 for a married couple.

Are You Surprised Rich People Try to Pay as Little Tax as Possible?

The media has reported the shocking news that: (i) if you’re not vaccinated, you’re more likely to get Covid-19 than if you are vaccinated: and (ii) rich people don’t pay more taxes that they have to under the law.  Let me address the second.¹

The ProPublica website has published information about how much taxes people like Jeff Bezos, Michael Bloomberg, Warren Buffet,² etc., pay, information they got from IRS data that was leaked to them.  According to ProPublica, the information included more than fifteen years of tax data on thousands of people.  ProPublica says that it does not know where the information came from or who sent it to them, but they published it anyway.  Even though this information is supposed to be confidential and secret, not that many people seem upset about the disclosure.  The information is too much fun to care about confidentiality

House Values in Illinois

One of the problems with living in Illinois is that house prices values aren’t going up like they are in some other parts of the country.  But then, with so many people leaving Illinois (Illinois is one of the few states losing people each year), it’s logical.¹  With fewer people in Illinois, there are fewer people looking to buy houses; i.e., demand is lower.  With demand lower and supply staying the same (the houses aren’t leaving, just the people), it’s logical that prices aren’t going up as much as places where population is growing and people want to move.

One of the reasons people are leaving Illinois (and why others aren’t coming or returning) is our lousy state government.  As I have said elsewhere, Illinois has the worst credit rating of any state and has hundreds of billions of dollars of unfunded pension liability, not to mention billions of dollars of unpaid bills.  Why wouldn’t people want to leave – or not come?  Why not get away from that debt?  Why move to that debt?