April 7th, 2008 by Rightsideup

A video surfaced this week of an interview with Harry Reid, by a man named Jan Helfeld, which tackles the subject of taxation. In it, Reid repeats an idea floated a few months ago by Charlie Rangel, which is that we have a “voluntary tax system.” Now, it appears that this is a standard term used in tax policy circles, and it describes the fact that US citizens are responsible for paying their own taxes to the government, and that the government does not forcibly extract such taxes from each paycheck as in other countries. In addition, it is supposedly tied to the concept of deductions which may be made from tax payments for various items, which again are not present in other countries (although my experience of the British tax system suggests that the two needn’t go together – the UK uses a pay as you earn (PAYE) tax system in which the taxes are subtracted from paychecks but there are still various deductions, albeit not as generous as in the US).

However, both Reid’s and Rangels’ insistence on using this phrase in the context they do makes clear that it has nothing to do with arcane policy discussions and everything to do with trying to make it sound like we live in a utopian society where paying taxes really is “voluntary”, which most would take to mean optional. This it clearly isn’t in the US or in another other real-world country. And it is a fallacy which must be tempting to believe in when you believe the government has the right to demand extortionate rates of taxation from its citizens in order to pay for a multitude of government programs not authorized by the constitution. As long as it’s all voluntary, then it doesn’t really matter, does it?

But of course the interviewer in the Reid clip rightly presses him on that point and suggests that it is not voluntary in any sense a normal person would recognize. Instead of simply agreeing that it is an inappropriate use of the word in the context and moving on, Reid digs in and insists that the tax code is voluntary and that this is somehow important. This just reinforces the perception that Reid is willfully misrepresenting the situation out of political necessity, but he just comes off as being ridiculous at worst and irretrievably wonkish at worst.

March 6th, 2008 by Rightsideup

Fiscal responsibility hasn’t been mentioned much in this year’s presidential campaign outside of discussion of the Bush tax cuts (which McCain voted against initially but has since supported). But it’s got to be one of the biggest issues that Republicans need to address if they want to retake Congress. The fact that they’ve been so weak on fiscal responsibility (i.e. lowering government spending and taxes) has allowed the Democrats to neutralise the traditional advantage Republicans have on the economy (and even overtake them in this regard in some polls) and has been a big part of the reason they retook Congress two years ago.

I think Romney should have gone after the Republican Congress harder on this – it would have been a nice stick to beat John McCain with since he’s been right there in the thick of it (though arguably not one of the worst culprits). But I think he was hamstrung in this and in other matters by the fact that he wanted to be supportive of President Bush, who hasn’t done the Republicans any favors in this department either aside from those tax cuts, never vetoing a single pork-laden spending bill during the entire time Republicans were in charge.

At this point McCain needs to make this a campaign issue, but the Republicans (planning to stay) in Congress also need to really take it on board and ensure they send a strong message on the issue to voters between now and November.

Ed Morrissey (erstwhile of Captain’s Quarters, now at Hot Air) has written several good pieces on this whole issue over the last few weeks which are all worth reading. The Republicans have had a mixed record even over that short period, but they really need to tighten up and close ranks on this issue. They also need to put some serious reformers in prominent committee positions to give them some clout to clean things up. At this point, it’s 50/50 at best as to whether they’ll make any headway on this point in time for this fall’s elections.

February 26th, 2008 by Rightsideup

USA Today has done an analysis of the likely impact on deficits and spending under the Democratic candidates. It draws on analysis released by the National Taxpayers Union, which suggests that Obama’s plans, to the extent they can be nailed down, would lead to increases in spending of $287 billion annually compared with an increase of $218 billion for Hillary Clinton’s plans.

The findings are pretty predictable, although the exact amounts are rather meaningless (see the NTU’s detailed analysis for the kind of methods they used to come up with the numbers). We get the gist, though: either candidate would require a lot more spending. And the main strategies for funding the spending are repealing the Bush tax cuts (i.e. a big tax increase) and withdrawing troops from Iraq and Afghanistan. So they would fund their big spending plans by taxing us more and giving up on the efforts to stabilise those two countries.

Even these two things taken together, leaving aside the fact that the campaign’s estimates of how much they would contribute, would leave a shortfall, meaning more taxes, of course. And none of this takes account of the fact that spending is increasing anyway, especially as regards social security. But of course reducing spending or reforming social security doesn’t come into the equation at all.

Ultimately, these tax increases, the reduced freedoms enjoyed by individuals under a Democratic admininstration, and the appointment of judges to the higher courts are the biggest reasons to vote Republican (McCain) this year, even if he’s not the candidate a lot of Republicans had hoped for. Certainly, McCain may cause other problems, but on these three big issues there is clear blue sky between his positions and those of Obama and Clinton.

February 24th, 2008 by Rightsideup

There are a pair of articles in the UK’s Daily Telegraph today which illustrate the difference between the US and the UK in their citizens’ attitude to taxes. The articles appear to have been triggered by a story this week about miscalculations in the UK council (local) tax programs which have led to overpayments by as many as 400,000 households, all of which was covered up by the government. The relation of these other two articles to that story is tenuous but there is a link.

The first article, written almost in blog style, focuses on the payment of VAT (sales tax) on services such as plumbing, construction and childcare, where many UK citizens pay cash to avoid paying the tax. It’s written from the point of view of the writer and includes several personal experiences. It’s pretty weak on substance and ends with an unpleasant conclusion. Here are some key passages:

Without taxes there would be no education for all, no health care from cradle to grave, no armed forces to defend us.

Like taxes, laws are a good thing. They are the opposite of anarchy. Again, if you don’t like them, elect a government that will legislate in a way you do like. Until then, pay your taxes with joy in your heart. It’s not a perfect system, but it does work.

The problem is that the first paragraph suggests taxes go to pay for these universal goods (of course, healthcare is another area where the UK and US differ). But there’s no mention here of welfare, of abortion on demand, of huge government bureaucracies or any of the other myriad things that much of the government’s tax revenue actually gets spent on.

But the real problem is the conclusion – that we should pay taxes with joy in our hearts because if we don’t like where the money goes, we can “elect a government that will legislate in a way you do like.” This seems startlingly naive since none of us single handed can “elect a government” and even if we collectively elected the most taxpayer-friendly option available, the fact is that we would still be stuck with the vast majority of taxes we pay, including all the stuff we don’t like.

The second article, which is actually a masthead editorial rather than being attributed to a particular author, is in a similar vein. It makes more concessions to common sense, as one would hope from a paper which is generally conservative, including the second paragraph:

The risk of being punished for tax-evasion is not, however, the only reason why most people comply with the tax code: as Nigel Farndale points out, most of us believe we have an obligation to obey the law, tax-law included – even if many of us also believe that the share of our money that the Government wants to take is far too high.

It focuses on the fact that most British taxpayers pay their taxes honestly because they believe that the government acts with integrity and there is little corruption. I suspect it has more to do with British respect for the rule of law generally, to be honest, but it’s a fair point. But that doesn’t mean, as the first author suggests, that we have to be happy about what we pay.

But all this illustrates a big difference between the UK and the US. While in the US we have major parties and major politicians making serious pleas for lower taxes, this strain of political thought is all but absent in the UK these days. And that’s pretty worrying, because the UK’s taxes are already quite a bit higher than those in the US, and are still rising. At some point, the UK will have to cotton on to the changes that are happening in the rest of Europe in response to economic stagnation, but it may well not be before the UK again becomes the sick man of Europe, as it was in the 70s.

April 16th, 2007 by Rightsideup

Ari Fleischer – former press secretary to President Bush – has a very interesting article in the Wall Street Journal about the progressive nature of the US income tax system. He focuses especially on the fact that a bare majority of American taxpayers actually pay any income tax at all and that 40% of the population pays 99% of the taxes.

This serves as another reminder of the fact that, while it’s easy to raise taxes on “the rich” it’s nigh impossible to lower them again later – “tax breaks for the rich” being unpalatable to even Republican politicians. So the system becomes ever more skewed in favor of progressive and redistributive taxation, with no end in sight.

It’s not at all obvious how we ever get beyond this situation and move to a more rational future approach to taxation which allows the burden of additional taxation (which is inevitable given the inexorable rise in spending) to be spread more evenly across the population as a whole. Of course, in an ideal world, we would be reducing the overall tax burden by reducing spending, but that seems even less likely than a less progressive tax system.