“Feelings” Holding Back Tax Reform

November 30, 2012 13:00 pm

by Charlie · 34 comments

Today’s Courier Herald Column:

Republicans spent their first week back in Washington after Thanksgiving break battling each other as much as taking on Democrats.  The ideological circular firing squad that is customary after losing a national election has spread to the House and Senate.  The path to fixing our deficit and tax policy has been largely conceded to some increase in federal revenues.  But how much of that revenue constitutes a “tax increase” has ignited a now too familiar debate.  At the center, as always, is American’s for Tax Reform’s Grover Norquist.

Georgia’s own Saxby Chambliss ignited this round by telling Macon’s WMAZ that he cared more about the country than a 20 year old pledge” on the day before Thanksgiving.  While subsequent comments had the Senator walking back his statement, many other Republicans – especially members that identify with the TEA Party, have already  moved into customary apoplexy and have determined that the upcoming budget deal will be a failure for movement conservatives.

Members of Georgia’s House delegation were quizzed this week by the Atlanta Journal-Constitution’s Daniel Malloy.  All from the house side who have signed the pledge swore their continued loyalty to it.  The only Republican who didn’t, Freshman Congressman Rob Woodall told Malloy that he didn’t sign the pledge because he was afraid that it would limit his ability to pass a national sales tax to replace the income tax code, commonly called the FairTax, but he also “insisted” to Malloy that he would never vote for a tax increase.  Woodall’s statement illustrates the underlying problem with ATR’s pledge.

The ATR pledge is simple on its surface. Those that sign pledge to their constituents that they won’t vote to raise marginal tax rates nor vote for elimination of deductions or credits that aren’t matched by corresponding rate cuts.  The implementation, however, has generally relied on Norquist issuing a pronouncement of what does or doesn’t constitute a tax increase.

Woodall’s statement of concern is not without basis.  When Georgia’s legislature attempted broad tax reform in 2011, Norquist wasn’t consulted, and determined the plan was a tax increase.  Those that met with him during follow on negotiations weren’t quiet about their feelings for him during those meetings, with many feeling his objection was more about not being consulted on the front end rather than a distinct opposition to the proposal.

In June of 2011, Norquist went so far as to tell Republicans in the US Senate that they couldn’t eliminate subsidies for ethanol because that would constitute a tax increase.  His definitions appear to be more fluid as time goes on, thus ensuring he must be privy to any details, up front, before major changes can be made.

In Malloy’s report, Norquist is quoted as saying the following, “I have job security that most people don’t have…At least the marijuana-legalization people could end up out of a job in a couple years if they win. But we’re always going to feel that our taxes are too high.”

And within that quote is a perhaps larger problem for Republicans than Norquist’s own ego. The battle is no longer over statistics or economic data.  It’s about feelings.

Arthur Laffer was the economic guru that convinced Republicans and eventually a majority of Americans that marginal tax rates in 1980 were too high.  He argued that there was a point that taxes could be lowered that would increase overall revenue, and marginal tax rates were significantly cut.  Conceptually this can be proven to be true, but where these numbers fall is difficult to prove.

Yet to accept Laffer’s concept, we also have to accept the fact that when you move to the left side of the Laffer curve, reducing tax rates also reduces revenue.  This is central to the concept, equally provable as the increase in revenue on the right side of the curve.

Too many Republicans have “learned” the lesson of Reaganomics is that “every time we cut taxes we raise revenues.”  It’s often stated by candidates as unquestionable dogma. It is, unfortunately, not true.

Republicans like to point out the Democrats who have said it doesn’t matter that raising marginal tax rates on the highest income earners won’t raise revenue don’t mind because they claim it’s about fairness.  We’ve now countered by anointing a leader who admits it’s about feelings.

Republicans claim they want fundamental tax reform, but the FairTax’s leading champion worries that the ATR pledge will keep that from happening.  And likely, it will.  Because Republicans continue to cede power to a man who preys upon feelings to stroke his own ego and secure his unelected position of power.

IndyInjun November 30, 2012 at 9:37 pm

The Laffer curve is pure lunacy. Yes, math is boring, unpopular and painful. The Laffer Curve got married to Keynesian economics and together they have birthed one humdinger of a financial crisis. Are we having fun yet?

saltycracker December 1, 2012 at 8:48 am

Fairness is a flat line.

Chris Huttman December 1, 2012 at 3:02 pm

Even the “fair tax” with it’s prebate is progressive, if I understand it correctly.

saltycracker December 1, 2012 at 9:37 pm

Prebates, rebates, exceptions, exemptions, subsidies do not represent a flat line.
Neither proposal on the fair or flat tax is fair or flat.

IndyInjun December 1, 2012 at 10:40 pm

Fairtax forgives several $trillion in “back taxes” for corporations, while putting a new 28/30% tax on Grandma’s nursing home care. Only idiots, reactionary talk-show hosts, and corporatists can see it as a “Fair”tax.

It ain’t happening. This is another reason to celebrate the GOP slide into irrelevance.

Harry December 1, 2012 at 10:56 pm

Trust me – a lot of us who identify as GOP never supported it.

IndyInjun December 1, 2012 at 11:21 pm

Indeed, Sir Harry, indeed.

It was about the closest thing we have encountered to a cult in politics.

It is about dead. Maybe Rep. Woodall needs some schooling. There are too many demons in that thing to exorcize them all.

Harry December 2, 2012 at 7:36 am

The formulation of questions are often of more relevance than the answers themselves. Why a member of the state controlled media, WSB, would permit their commentators to promote a smokescreen and inherently flawed idea such as the fair tax? I’m not implying that the likes of Boortz and Linder were and are not true believers in the idea. But would it not serve Democrats well to rally Republicans around such false flags that are nonstarters, politically and practically? Also, has Boortz not proven useful in his efforts to divide conservatives along social issues? I’m just asking the questions here.

IndyInjun December 2, 2012 at 9:08 am

Linder wasn’t a true believer. He was a deceiver. At one point, after Bush’s tax reform commission dissed the FT, Linder et al had it ‘rescored’ by Global Insights, who admitted that the rate would have to be 26%, tax inclusive, which would have put the tax exclusive rate at 32%. Linder cited that study on C-Span, but went around citing the old, lower rate.

Boortz didn’t understand the bill, because that puppy puts broadcast media out of business. The thought of him groveling to get one of the first Federal Sales Tax Exemptions passed always made me smile. In the final analysis, those two put in their second FT book that they would not debate HR 25, the actual legislation, so I guess that puts them in the Pelosi school of legislative theory.

Over this way, John Barrow is an old hand at just totally pummeling Fairtaxers. The second time Max Burns ran, you about could not force him to utter “Fair Tax.”

It really isn’t much mystery about the origins. Corps would get $trillions in tax forgiveness for less than $150 million of contributions to the FT movement. The ignorant GOP socons would love it unquestioningly. They DEMAND their FAIR TAX, never mind that it guts their finances. There you go.

IndyInjun December 2, 2012 at 9:09 am

Correction – make that a 23/30% rate

mpierce December 3, 2012 at 1:46 am

Income taxes are quoted on an inclusive basis, so in comparing them it seems 23% would be the figure to use.

IndyInjun December 3, 2012 at 8:32 am

Fairtaxers always try to confuse the issue like this.

You cannot compare a sales tax like this one and an income tax. They are 2 different beasts.

mpierce December 4, 2012 at 1:35 pm

If you are choosing between 2 options, you might want to compare them.

martha zoller December 2, 2012 at 8:33 am

In my run for Congress, I was a ATR pledge signer. Heck, I signed the thing years ago as “just a talk show host,” because I have long believed we have a spending problem, not a tax problem. As far as the “Bush Tax Cuts” go, if your 35 or under, they are the only rates you’ve paid. Continuing rates that have been in place for 10 years, is not a tax cut, but raising the rates, is a tax increase. Most of these guys have been lying to you and themselves for so long, they can’t even do basic math.

Good for Sen. Chambliss to get out there and defend his positions. Didn’t we say we wanted people who will do the right thing even if it’s not politically expedient. To me, the issue is, let’s get something to vote on. All this is just talk right now and we won’t know what does or doesn’t get compromised until they start voting. Call me old fashioned, but I’m for passing something in the House, passing something in the Senate (which seems to be foreign to Sen. Harry Reid) and then if it doesn’t match, hammering it out in Conference committee, then back to the Houses to pass. That’s how you get policy. This Congress has forgotten that.

IndyInjun December 2, 2012 at 8:47 am

Math is a problem both parties have. The Dems want huge social programs and don’t mind taxing to pay for them. The GOPers want insane military spending but refuse to pay for it.

My problem as an ejected GOPer of long standing is that the GOP cut taxes without cutting pensions that the taxes are supposed to fund. They use the Laffer Curve to foist some sort of implausible mystical belief that the money will come from ‘somewhere.’ The legislature has been the worst in the world for that.

Bottom line is that MATH is shredding the BS that surrounds politicians. They don’t like it and nor do the people like it.

Math doesn’t care. Math IS.

Harry December 2, 2012 at 11:38 am

The Laffer curve can work under conditions of small government and prospects for a rising economy. Unfortunately, we are well beyond that stage. It doesn’t work in an entitlement society. So yes, we don’t need to be talking about the Laffer curve going forward.

Democrats must not deny their own misapplied logic. They are saying we can’t decrease entitlements as it would have a overly adverse effect on GDP. They claim there is a multiplier effect on entitlements. There are so many holes in that argument that I don’t have time and have to leave it to others to comment. Suffice it to say that taking money from investment through taxation and passing it to entitlement-driven consumption is not the way to build the economy and jobs. Consumer spending to a large degree just leaks offshore (China). Yes, I know taxes on the top 2% should be raised because wealth accumulation has perhaps been skewed too much in their direction at the expense of the middle class. However, when Obama wants to raise the corporate tax rate – already one of the highest in the world – it’s not productive, not good for small business (the only free market), and does not create jobs. The cost of Obamacare also is not productive and does not create jobs.

IndyInjun December 2, 2012 at 12:53 pm

As part of my FairTax research, I looked into the financial data of 6000 companies as reported by Valueline. The objective was to determine the veracity of the 22 to 26% embedded tax claim the FTers make. What I found is that the cash basis corporate tax as a % of sales was only about 8%.

The “highest corporate tax rate” in the world claim is bogus because there are nearly zero corporations paying out taxes at those rates.

Accrual base accounting for taxes versus cash basis is the the culprit, but GOPers hawking the ‘highest corporate tax rate” claim really do need to explain that. Otherwise credibility suffers.

Harry December 2, 2012 at 1:06 pm

We have one of the highest corporate tax rates in the world. The fact that many individuals and corporations are not paying taxes is because of the lobbyist-driven deductions, exemptions, credits – i.e. loopholes. That’s what needs to be fixed. For example Buffet’s company Berkshire Hathaway pays virtually no income tax because of the dividends received deduction. Buffet himself doesn’t pay tax because he doesn’t take compensation or sell his stock. Yet he wants to raise taxes on others.

IndyInjun December 2, 2012 at 2:12 pm

Another factoid that came out of my research was that 20 corporations alone have $500 billion in deferred income tax liabilities (no I didn’t segregate out state income tax liabilites, to be honest). Should the Fairtax pass, those never have to be paid. Across the entire spectrum that would be $trillions in taxes at issue.

mpierce December 3, 2012 at 1:44 am

What I found is that the cash basis corporate tax as a % of sales was only about 8%.

Did you forget to include the personal income taxes and the payroll taxes (both employee and employer) of the employees?

IndyInjun December 3, 2012 at 8:39 am

No, I didn’t and here is why. Fairtaxers make the claim that you get “100% of your paycheck.” Employee Social Security is included in salary, so if it is an embedded tax that can be ‘saved’ the only way to ‘save’ it is to not pay it to the employee.

Boortz even had to admit to this doubt counted false claim.

We debated this ad naseum 3 and 4 years ago.

Fairtaxers have a HUGE problem. It is called HR 25 – the Fair Tax BILL. Some folks gave it more than the Pelosi – leap of faith – method and read the darned thing. Boortz and Linder cannot defend the BILL and the BOOK is a work of fiction. I can write a book describing a beautiful unicorn, but that beast doesn’t exist, either.

mpierce December 4, 2012 at 1:59 pm

The fair tax would be a replacement for the corporate tax, income tax, employee payroll tax, and employer payroll tax. Social security funds would come from the 23% Fair Tax instead of the employer and employee payroll taxes.

IndyInjun December 3, 2012 at 10:28 am

I included the employer payroll taxes but not the employee, for the reason stated.

At one point, the figure 12% for embedded taxes was arrived at and that coincided with a piece at that time deep in the FT background research as being what a “skeptic” might come up with.

The Fairtax isn’t a deal anyone but Woodall will run on.

mpierce December 4, 2012 at 2:17 pm

My mistake. I misread your post above:”embedded tax claim”. I haven’t read the book, perhaps they are including compliance costs?

Three Jack December 2, 2012 at 2:13 pm

It ought not require a signed ‘pledge’ for fiscal conservatives to oppose tax increases of any kind. That should be the very basic principle of any candidate running under the GOP banner.

Dems continue to dominate the messaging game. In a debt laden economy with government spending reaching record highs annually, how in the world did the GOP manage to get in a debate about raising taxes/revenues? This has to be the most inept group of elected officials in quite some time.

seenbetrdayz December 2, 2012 at 6:00 pm

The GOP thinks the problem is that they were just being too much in favor of smaller government, so they’re molding more of their positions in favor of big-government, hoping that will somehow solve the problem.

Here’s the rub, though:

I can’t think of any Republican who was voted out of office for being ‘too radically in favor of small government’ (however the media chooses to phrase it). The media would have us believe that this is the republican party’s problem. Yet, logically, how can that be? I can think of several republican campaigns for election or re-election that have failed because the GOP was too much in favor of big-government. The GOP seems to be running the wrong way on the issues, and at a more accelerated rate since the election. Perhaps it should stop taking its cues from the media.

IndyInjun December 2, 2012 at 3:54 pm

” how in the world did the GOP manage to get in a debate about raising taxes/revenues?”

Well, in Georgia it will come down to having given $billions in sales tax revenues on corporations away that once supported the obligated retirement and other benefits of the state’s teachers, judges, and other employees.

They stupidly followed that Laffer Curve nonsense. Superior Court judges won’t laugh, though. They will force the issue of whether their own pensions are worth anything. Politically, there is no stronger group than teachers, so there you go. Math will force the tax increases on the GOP “majority.” “Conservative” media turned fiscal responsibility on its head to read “We don’t have to pay anytime, any place and in any form.” Now the math has set in. Math has no pity on lying, bumbling, and bamboozling politicos………

saltycracker December 2, 2012 at 11:32 pm

Math can be mystical or the major accounting firms could not do what they do.

The definitions/categories/accounts of numbers (math) are the best friend of lying, bumbling and bamboozling politicos – Geithner & Boehnor showed us how on all the news talk programs this morning.

Another short term “fix” is on the way and the fun will continue as long as we can keep rates surpressed and transfer wealth from the savers & producers.

Harry December 3, 2012 at 12:40 am

Boehner has it right
From Business insider –
The topline of the White House’s reported initial offer is $1.6 trillion in tax increases and $400 billion in cuts to Medicare and other entitlements. It also includes $50 billion in immediate stimulus spending and a proposal to eliminate Congress’ power to vote on raising the debt ceiling, two components Boehner also slammed.
“Silliness. Congress is never going to give up this power,” Boehner said. “I’ve made it clear to the president that every time we get to the debt limit, we need cuts and reforms that are greater than the increase in the debt limit. It’s the only way to leverage the political process to produce more change than what it would if left alone.”

Harry December 3, 2012 at 12:46 am

The original agreed-to idea of the so-called fiscal cliff, which socialist Obozo is attempting to obscure through an exercise in revisionist history, was to reduce spending $1 for every $1 of tax increase during concurrent time periods. I say let’s just go over the cliff. It’s a better outcome for reducing the deficit.

IndyInjun December 3, 2012 at 10:34 am

The debt will not be repaid. Default will either be outright or by inflation. The latter is being elusive, because everyone on the planet is manipulating their currencies lower.

IndyInjun December 3, 2012 at 8:45 am

That isn’t math, though.

You make a wonderful point, however. Isakson and the Senate threatened the Financial Accounting Standards Board (FASB) into revising FASB 157 to allow financial institutions to continue to mark the toxic MBS (in millions of “stable value” 401k’s) worth 20 cents on the dollar to fictional, stated 100% values.

FASB 157 sounds down heah like a varmint cartridge. But the pesky varmints are US.

IndyInjun December 3, 2012 at 8:57 am

“Another short term “fix” is on the way and the fun will continue as long as we can keep rates surpressed and transfer wealth from the savers & producers.”

That has been the game. The trouble is that the savers and producers have begun the process of peeling away from the ponzi debt mountain. Soon the tumbling peebles and ice will become an avalanche.

These ‘fixes’ have increasingly short half-lives because the truth and basic, old fashioned math of addition, subtraction, multiplication and division cannot be denied.

saltycracker December 3, 2012 at 7:02 pm

“Soon” is an obscure word as no one will know when it is over until it is over. Ask any home flipper or dot com believer. The smart guys that shorted financials in 2007 moved too early and nearly got wiped out by those screaming they were negative lunatics. We are determined to test the limits of the debt balloon and reelect those that will get us there to lead us out. Term limits or bust.

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