Libertarians vs. Liberals on Taxation and Entitlements

Yesterday I noted the latest attempt at finding common ground between liberals and libertarians in Brink Lindsey’s article jointly published at The Cato Institute and The New Republic. Kevin Drum finds problems:

It’s a nice try, I guess, but this just has nowhere to go. Liberals are never going to give up on the idea of progressive taxation, and our overall tax system is only barely progressive as it is. Making it even flatter — or even plainly regressive — by cutting investment taxes and increasing consumption taxes is a nonstarter.

Ditto on entitlements. Universal pensions and universal healthcare are bedrock parts of the social safety net, and it’s simply not conceivable that liberals will give ground on these. Nor should we. 13% of the country may be libertarian leaning, but something around 100% of the country likes Social Security and a pretty sizable majority like Medicare too. Universal healthcare will be equally popular eventually, and will also be far more efficient than the pseudo-free market alternative we have now.

And don’t even get me started on growing income inequality. I sometimes wonder if there’s any level of income inequality that conservatives and libertarians would consider high enough to merit an arched eyebrow.

Kevin Drum doesn’t speak for all of us in finding these ideas to be nonstarters. I lean towards the libertarian side on the taxation issue. It was the reduction in top tax rates which made voting for Democrats acceptable for myself and many other small businessmen and professionals. Some adjustments, such as reduction in the huge tax benefits provided to the ultra-wealthy under Bush, are on the table but there is a limit. We can argue all day about what is fairer, but the bottom line is that if the Democrats attempt to finance expensive programs by increasing taxes on the upper middle class, Democrats can kiss the votes of myself, suburbanites recently voting Democratic, and groups such as the “Starbucks Republicans” good-by. So far Democratic leaders such as Pelosi have spoken out against such an approach, recognizing what is necessary to maintain the Democratic majority.

Flat taxes are also on the table, but I’d like to see a good analysis of what rate would really be necessary to achieve adequate revenue, while providing relief for those who really cannot afford that rate. I suspect that many flat-rate advocates have underestimated the tax rate that would result, or include in their estimates unrealistic cuts in government spending. Considering the huge amounts of money which is spent (and perhaps not understood by those not in a position to benefit from such tax shelters) to avoid taxation, bringing that money into the system under a flat tax might turn out to be the most pragmatic approach. If simplification of the tax system reduces my annual accounting expenditures, (along with those of others in the upper middle class) that would also be of considerable benefit.

Drum is correct in continuing support for both Social Security and Medicare on political grounds. As I’ve alluded to in the previous post, there are also pragmatic reasons for continuing  Medicare as opposed to the pseudo-free market alternatives which have failed.

As for income inequality, the real question is not the inequality but how it is achieved.  I have no problem with individuals becoming ultra-wealthy as a result of their entrepreneurial achievements. When they achieve this wealth due to government benefits, that is a different story. I agree that the great discrepancy between pay for top executives and workers in corporations is undesirable, but I also question how government can bring about a change in this situation. Government setting of either executive compensation or employee pay is certainly not on the table.

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3 Comments

  1. 1
    Chad Sargent says:

    Our current tax code is a hopeless morass of regulations, loopholes and special interest influences. I think too many people don’t understand how bad it really is, or that we must replace it, not reform it.

    The flat tax reform proposal (HR 1040) is a definite improvement over the convoluted tax code. Filing simplified tax returns on a postcard is appealing and has some popularity. However, history teaches us that a flat tax doesn’t offer a permanent or satisfactory solution to our tax code problems.

    The income tax started out as a single rate (flat) tax. Under the power of government and isolated from the People, it gradually grew into an oversized, complex mess, with numerous loopholes, multiple brackets and high rates. In 1986, the tax code was overhauled, simplified and reduced down to two brackets. Many deductions and loopholes were eliminated. Today, we have six brackets, and most of the loopholes are back. This demonstrates twice over how a flat tax simply won’t stay flat. The reason is simple: Using an income tax base, Congress has the power of legislation, and We the People have no input or control. Lobbyists get tax breaks for their special interests and have more access to congressmen than We the People have. Precedents have been set. Each tax break complicates the tax code just a little more, and they add up.

    Finally, a flat tax is still income tax, counter-constitutional and contrary to the founders’ vision. The income tax was made possible only after self-serving politicians did an end run around the Constitution and the People in 1913 and took powers for themselves that the Constitution denied them.

    There is a well-researched tax replacement proposal in Congress that generates the same amount of revenue for the government, puts power back in the hands of the people, and encourages economic growth; the FairTax Plan. It is a nonpartisan national grassroots campaign to replace the federal income tax system with a progressive national retail sales tax and dollar-for-dollar federal revenue replacement. It has a “prebate” provision to ensure no American pays federal taxes on spending up to poverty level. Social Security and Medicare will be funded from the broad FairTax consumption base instead of the narrow and regressive payroll tax/income base.

    Companion legislation already in Congress will lead to repeal of the 16th Amendment, leaving no room for income tax reenactment.

    Our tax code is beyond reform. The replacement plan is ready. All we have to do is support it by signing theFairTax Petition and telling our congressman and senators that we demand the enactment of the FairTax.

    chadsargent.blogspot.com/

  2. 2
    yucca says:

    judging from the last paragraph of the quote, this Drum guy hasn’t even understood what libertarianism is. should you really bother replying to him?

    on the other hand, though, the issue is interesting… ill got and see if the piece is visible at the cato institute, ’cause the new republic one is for pay

  3. 3
    Ron Chusid says:

    yucca,

    Drum is intelligent and knowledgeable (as judged by his overall writings). I think the problem might not be so much lack of understanding of what libertarianism is as opposed to him objecting to its principles. My goal isn’t really to reply to him. He probably never read my post. I just thought it was a good jumping off point for a post here.

    The line which really got me is making progressive taxation sound like a hallmark of liberalism. It would be one thing if he argued that we want to pursue certain programs, and that the only way to raise the money would be with making the tax structure more progressive. There would still be room for disagreement, but I could see the logic to that. What I object to is backing progressive tax rates as a starting point, as if soaking the rich is a fundamental goal.

    As you probably found by now, the copy at Cato is available for free. (Sort of ironic–you have to pay to see it at the liberal site and it is free at the libertarian site.) I did excerpt a portion in my first post on this, but it would be better to read the whole article.

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