Skin in the game

Radley Balko wrote a post recently offering up some policy ideas basically geared toward getting as many peoples’ skin in the tax-and-spend game as possible. Other than payroll taxes, most people on the bottom of the income ladder don’t pay taxes, and so government is funded by fewer and fewer taxpayers.

So here’s my idea: Let’s make the Medicare and Social Security taxes more progressive. (While we’re at it, let’s subject both programs to means testing.) But in exchange, we also scrap the Earned Income Tax Credit in favor a negative income tax. Built into this would be a mechanism ensuring that when government spending goes up, everyone pays for it—it’s just that people in lower tax brackets would “pay” by getting a smaller reverse income tax payout. The idea is to be sure everyone has to sacrifice a bit of discretionary income when a politician proposes some big new government program, so everyone can decide whether the benefit from the new program is worth its cost.

Charles Davis responded by pointing out that the government is largely in service of the rich, not the poor:

As a libertarian, Balko bases his tax-the-poor stance not on a concern over the government’s ability to fund programs he’d like to do away with, of course, but out of a fear that because many poor Americans do not pay federal income taxes, “we’ll soon have a majority of people who pay no tax voting for more and more government services they benefit from, but don’t have to pay for.” Implicit in this is the apparent belief that the dramatic rise in government spending and the national debt over the past few decades is explained by poor people voting into office politicians who keep giving them more and more of other peoples’ money – and voting out those who don’t; in other words, the standard conservative narrative of the parasitic, layabout masses bleeding dry the productive, wealth-producing John Galts.

That narrative, however, is what political scientists colloquially refer to as “fucking bullshit.” Contrary to what conservatives love to allege and big government-loving liberals would love to believe, the majority of what the state collects every April 15 goes not to poor, drug-addicted welfare mothers, but to blowing up poor mothers and their children on the other side of the globe with bombs purchased from very wealthy military contractors. While the bulk of state spending is indeed on Medicare and Social Security – the bread to go along with the circus of publicly financed stadiums – those programs are funded, as Balko acknowledges, by direct, regressive taxes that, yes, even poor people pay.

My gut reaction to Radley’s post was similar, maybe because I’ve been thinking a lot lately about how government screws over the poor. On second read, however, I’m pretty sure that my gut reaction was wrong, and that Charles is also wrong – at least to a degree – about what Radley is trying to do here. For one thing, making payroll taxes progressive and capping them for the rich is actually a really good, really progressive idea (and helps save money on entitlement spending).

Of course, Charles isn’t wrong that the state serves the elite first and foremost, and that too much taxpayer money is funneled straight to the Pentagon. I think what Radley is trying to do, however, is simply make more people aware of that fact.

A negative income tax that fluctuates when government spending increases and decreases gives many more people skin in the game. And not just so that they’re helping pay for the game – they’re not, after all, if they’re getting money back in the form of a negative income tax – but rather so that they can be aware of the consequences of government action. If you’re getting $3,000 back from the government each year and then we embark on massive spending increases, maybe launch a couple new wars or whatever, and now suddenly you’re only getting $1500 back – well I’d notice. And noticing is half the point of representative democracy, because then you can get pissed off about it.

One argument for increased labor participation and higher union density is that it leads to more people actively involved in politics. Being home owners also does this. Any time you can get people invested in the economy and the governance of the nation you up the ante on their democratic participation.

So while I agree completely with the thrust of Davis’s argument, I think he’s missing Balko’s point. I can’t blame him. I missed it at first, too. On further reflection, however, I think it’s a pretty damn good idea, though I’d prefer we abolished payroll taxes and replaced them with a carbon tax instead.

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42 thoughts on “Skin in the game

  1. This seems to me like a plan to make taxation less democratic so that other policies might be more so. I say this because we have a long history in this country of wanting the government to do more, and wanting to pay less, as individuals, for them to do it. Even when we want cuts in government spending, we want it to be on stuff that doesn’t affect us, and we want it to go along with tax cuts (see e.g. the Tea Party). So, in order to pass such tax legislation, we’d essentially have to go against public opinion, in the hopes that the public might then actually care about other policy stuff. In short, then, this sounds nice on paper, I guess, but I don’t see it working in the real world.

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  2. I’ll admit to a strong negative reaction to the suggestion that some people don’t have “skin in the game.” The people who are least well off always have skin involved when decisions are made that affect them; they are strongly affected when health clinics are opened or closed, etc. The stink of the “those lazy parasites” kind of arguments ( whether directly intended or not) is all over the “skin in the game” phrase which belongs with the people who truly believe that, on conservative blogs and with R politicians.

    In any case what i think gets missed in that phrase and this discussion is why people don’t pay income tax. I read an article just a few days ago which had the breakdown, which i can’t find now, but i’ll keep using the google machine. What it turns out is that almost all of the people who don’t pay income taxes are either really really poor or get tax breaks like the EITC due to having children and are poor. This kind of thing is direct result of having a wildly out of kilter income distribution where so much money is in the hands of a few while many have little. The problem with poor people is they are poor not that they are getting away with something. They aren’t getting away with anything.

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  3. Except…

    Taxes don’t actually fluctuate in relation to government spending, not in the current Washington climate, anyway. Everybody in Washington either 1) doesn’t care about the deficit, or 2) is fanatically opposed to any tax increases whatsoever.

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  4. On state service of the elite, assuming for the sake of argument that writing off the state entirely on those grounds isn’t a possibility, I see two basic ways to go from there:

    1) Focus as hard as possible on ending the aforementioned service to the elite, then watch what happens next after each success (assuming there can be any. Which I’m skeptical of. Which is why my preference is for The Possibility I’m Deliberately Not Endorsing For Argument In This Post). We could resume the argument on government-run social programs vs empowered labor & mutual aid later.

    2) Charge for the privileges hard enough to approach just compensation for the damage caused by them continuing to exist. This would mean, assuming a state still exists, and a state must tax, radical reform of taxation such that it deliberately targets sources of wealth that trace back to favoritism and/or separation & fouling of the commons. Land value, financial speculation, natural resource extraction — tax those, set aside some proceeds for a form of simple, direct, no strings attached aid, and leave well enough alone past that.

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  5. the majority of what the state collects every April 15 goes not to poor, drug-addicted welfare mothers, but to blowing up poor mothers and their children on the other side of the globe with bombs purchased from very wealthy military contractors. While the bulk of state spending is indeed on Medicare and Social Security – the bread to go along with the circus of publicly financed stadiums – those programs are funded, as Balko acknowledges, by direct, regressive taxes that, yes, even poor people pay.

    For the record, about 18% of federal revenue is allocated to the military, about 30% of our troops are stationed abroad, and about half of these are in countries not at war. Around about 0% of our troops specialize in slaughtering civilians, whether they be poor or not, mothers or not, children or not.

    It is not immediately evident why the $1 tn in cash and medical benefits for the elderly constitute ‘bread and circuses’ in this fellow’s mind (what there is of it).

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    • Not to defend Davis’s rhetoric, which I don’t find to be — well, let’s just say it’s sort of ludicrous — he doesn’t actually say “the majority of total federal revenues” he says “the majority of what the state collects every April 15.” Technically, that could be considered correct, since Social Security and Medicare are funded by separate taxes — taxes other than the federal income tax — and a significant part of the federal budget is funded by borrowing.

      The issue that his inflammatory rhetoric serves to help obscure is that safety net programs are not a large proportion of the budget, and that the assistance to the poor provided by those programs has eroded significantly over the past decades.

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      • Safety net programs for the actual poor, anyway, as distinguished from the elderly of all socioeconomic classes.

        As for the military issue – we could kill just as many people and spend a lot less on the military if we really wanted to. A lot of military spending basically is welfare for towns dependent on military bases or contractor factories for jobs, which is the real reason it’s so difficult to cut, and indeed since the Cold War one of the biggest ways to get military spending through Congress has been to make hardware production less efficient in order to maximize the number of districts and states that would benefit. The thing is, it’s been at such a high baseline for so long that it no longer really works as stimulus.

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      • A small correction: military spending was 20.4% of all federal expenditure during the fiscal year concluding on 30 Sept. 2010.

        What the state collects on 15 April is allocated across all categories of expenditure. It makes little sense to speak as if the military were financed exclusively by income tax collections and all other expenditure (leaving aside for a moment Social Security and Medicare) were financed by a combination of miscellaneous tax collections and federal borrowing. Money is fungible.

        That year, there were $3,644 bn in outlays. Subtracting Social Security payments, Medicare re-imbursements, and gross interest on outstanding federal debt, you have a remainder of $2,029 bn. The military consumed $746 bn, or about 37% of that remainder. The administration planned to allocate about 20% of the military budget to ‘overseas contingency operations’ (Iraq, Afghanistan, & odds-and-ends). So, about 7.3% of that remainder was devoted to Iraq and Afghanistan (and a smaller portion thereof to slaughtering poor mothers and their children). You recall that he spoke as if most federal revenues were devoted to the war effort. Were that the case, the ratio of miscellaneous expenditure to war spending would be 1 to 1. It is, in fact, 12.7 to 1.

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        • One of us is picking the wrong nits here — or maybe both — hard to tell. It seemed to me that Balko’s proposes an arrangement that he believes would induce a greater proportion of the population to oppose federal spending increases. It’s not clear from the quote how he envisions the practical implementation of this in a rationalized or legitimized way, but he’s explicit about including some sort of inverse relation between the proposed negative income tax rate and any change in overall federal spending. He also seems to assume that those who receive negative income tax payments would be able to find some way to significantly influence federal budget levels.

          Davis’s reply seems to me to boil down to asserting that such a scheme would make no difference because the government doesn’t care what the poor want but rather does the bidding of an economic elite that feels its interests are served by unconscionable applications of military force abroad.

          E.D. Kain says he found this exchange of views to be an interesting way to provoke an exploration of ways that the federal tax structure could be changed to foster more political engagement.

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          • Davis’s reply seems to me to boil down to asserting that such a scheme would make no difference because the government doesn’t care what the poor want but rather does the bidding of an economic elite

            And his factual support for that thesis is nonsense.

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  6. Contrary to what conservatives love to allege and big government-loving liberals would love to believe, the majority of what the state collects every April 15 goes not to poor, drug-addicted welfare mothers, but to blowing up poor mothers and their children on the other side of the globe with bombs purchased from very wealthy military contractors.

    Putting aside the obvious problems with the assumption that this is something done exclusively or even primarily for the benefit of the wealthy, the idea that payment for services rendered is just like welfare, the dubious characterization of all military activity as “blowing up poor mothers and children,” and the fact that the vast majority of high-income Americans derive little or no of their income from military contracts, this just isn’t true. Military spending in the US is about a third of federal spending exclusive of Social Security and Medicare.

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    • I’m also not sure that they want to go down the “taxes are payment for services rendered” path, because that implies an alternate solution, i.e. “I don’t have to pay for police or the fire department because I hire private security”, or “I shouldn’t pay for road maintenance because I telecommute”, or “I shouldn’t pay into pension plans or Social Security benefits for people who retired before I was born”.

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      • Taxes aren’t payment for services rendered, it’s the price of a society.

        I actually have respect for the crazy libertarians who go off the grid and live out on a ranch or in the woods somewhere. Libertarians who eat their USDA-endorsed food, take public tranportation, and drink tap water kind of amuse me.

        To be blunt, libertarians have three choices. Get used to the current setup of society, convince the population to change things, or move to the woods. Just like, as a social democrat, have the choice to accept things, convince the population, or learn Danish. :)

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  7. Has it occurred to anyone that the reason that fewer and fewer people owe no federal income taxes is that they are falling further and further behind in our economy. There are many reasons for this, but the fact remains that if our economy offered better salaries to more people, then we would have more net tax payers.

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