Taxing Problems
by digby
Robert Frank gives Ezra Klein an interesting critique of The People’s Budget here:
Robert Frank, an economist at Cornell University, is one of the more innovative tax thinkers I know. In particular, I’ve always been partial to his proposal for a progressive consumption tax (pdf). So I ran the plan by him, as well. “The progressive budget proposal is of course an enormous improvement over the bizarre Ryan budget,” he said, “which for all its chest thumping about facing up to the hard choices, does nothing — absolutely nothing — to reduce long-run deficits.” But like Gale and Burman, Frank wanted to see more simplification and reform. In particular, he wanted more attention given to what we tax with an eye toward two-fers: raising more money off of things we want less of. “When we enter congested roadways, or buy heavy vehicles, or drink to excess, or emit CO2 into the air, we impose costs on others,” he says. “Taxing such activities kills two birds with one stone: It generates much needed revenue, and it curtails activities that cause more harm than good. Because these taxes make the economic pie bigger, it makes no sense to object that we can’t afford them.” He recommended this piece (pdf) for more on those ideas.
So, yes, that. Tax consumption, tax traffic congestion, tax pollution, tax public health hazards.
Sadly, this is even less likely than raising rates seeing as they are all items that are defended by very wealthy special interests. And unfortunately, the way things look right now, the other way of attacking these problems, through regulation and tax incentives also seem unlikely to survive the current budget hysteria. Indeed, the incentive and subsidy structuresto encourage good behavior in those areas (aka “tax expenditures”) are the most likely to be cut — and then called a tax hike.
I think The People’s Budget works as a political document in a different way. It does a better job of balancing the budget than the ridiculous Ryan Plan and it does it by taxing the hell out of the wealthy. That may be no more realistic than the Ryan plan, but it has the virtue of showing that taxation and defense cuts are perfectly doable ways to reach budgetary nirvana. This is as important as the details. It sets a leftward political parameter that up to now hasn’t even exisated.
I think Frank’s critique works better with the President’s plan than the People’s Budget. He could have adopted this middle ground of a mix of tax hikes, targeted tax cuts, subsidies and spending cuts in his budget to get to the same place, thus saving the wealthy from the draconian tax increases that the dirty socialists are demanding. Unfortunately, we have a debate that is currently centered between Ryan and the Simpson-Bowles Catfood recommendations, which puts the President far to the right of both Frank and The People’s Budget. It’s a shame.
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