In previous posts, I’ve tipped my hat to Representative Paul Ryan for his budget proposal because he showed the logical outcome of Republican ideas.  To keep taxes at the absurdly low levels that Republican leaders profess to desire, we will have to drastically cut Social Security, Medicare, and the Department of Defense.  (It’s a funny proposal because you’d expect such an honest assessment from a fringe figure, like an anguished partisan fan of WorldNetDaily, not the ranking Republican on the House Budget committee).

I thought Ryan is at least different because he would keep taxes the same, but a Center for Tax Justice analysis reveals that he will also raise taxes on 90% of Americans.  Guess who the lucky 10% are?  The rich, not surprisingly.  To summarize, Representative Ryan wants to screw over seniors, poor people, and the military so the rich can do whatever they want.  See the CTJ’s best chart after the jump.

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This is why the best measure of a government’s size is spending as a percentage of GDP (America’s spends about 42% of GDP).  Think about it like this: when you go to the store and give $5 for a $4.50 purchase, the cashier may ask, “Would you like to donate that fifty cents to charity?”  You’re more likely to say yes because the money isn’t in your hand, so it doesn’t feel like spending.  But it is: the fifty cents is money you would have had to spend on whatever you like, including charity, so giving up the money before you have it is equivalent to spending the money on one narrow purpose.  The government gives up this $.50 every time it establishes a tax credit.

I’ve made this argument before and bring it up again because A) it’s important and B) Matt Yglesias just pointed out a recent study by Edmund Andrews that bolsters my argument.  Yglesias concurring with me:

The point is simply that if you establish a tax credit and pay for it by raising tax rates, that has the same consequences as establishing a direct expenditure and paying for it by raising tax rates. Similarly, if you establish a tax credit and pay for it by borrowing more, that has the same consequences as establishing a direct expenditure and paying for it by borrowing more.

Scary fact of the day from Andrews: tax expenditures (credits and breaks) cost the government $1 trillion per year.  In other words, we could solve our deficit and keep tax levels the same (satisfying even crazy Republicans) if we just removed all the leaks from our tax code.  In practical terms, I’m advocating for cutting government spending to balance the budget, a “traditionally” “Republican” idea.  Obviously, I support higher government spending, but I support it carried out in a very honest, obvious manner.

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It’s okay to not like Obama because you don’t like his foreign policy or his stance on Don’t Ask Don’t Tell or the stimulus.  I obviously disagree with those who dislike those actions, but I can respect someone nonetheless who holds them.  What’s unfathomable, however, is when people are against Obama for raising taxes, something which has not happened (and which someone who reads fact-based news would know).  This CBS poll finds that 24% of all Americans believe Obama has raised taxes whereas 44% of Tea Partiers believe he has.  To be fair, 53% of Americans and 46% of Tea Partiers know that Obama has kept taxes the same.  (I’m ignoring the tax credits in the stimulus bill since those are temporary measures.)  Nonetheless, it’s incredible that one-quarter of all Americans are basing their political beliefs on falsehoods.  You can’t have reasonable debates with people whose ideas are coming from a make believe place.

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TaxVox has a lot more detail.  Their calculations suggest that 80% of income-earning Americans would pay federal income tax if all the loopholes and credits were closed.  For issues involving tax credits, the net effect could be zero if the government takes the new revenue and then spends it on child or mortgage (or other) subsidies.  Our government already pays this money as foregone income; ending these exceptions would remove inefficiencies in the tax system.

So Congress hates itself because it of course has enacted these complex tax loopholes and so shrunk the tax base.  Getting rid of these loopholes would drastically expand the tax base without having to affect policies (just spend the money instead of credit it), but the devil is that Congress actually likes this complexity because it lets it pursue social policy without looking like its pursuing social policy or spending money when of course it is doing both.

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President Obama is quoted in BusinessWeek saying that no options are off the table when it comes to reforming the budget.  “The whole point of it is to make sure that all ideas are on the table.  So what I want to do is to be completely agnostic, in terms of solutions,” he explains.  Obama realizes we face a structural problem, part of which is a poorly designed tax code.  The tough part is figuring out how to change it without getting killed at the ballot box.  For those who follow the politics, being agnostic about solutions is a pretty clear way of saying open for higher taxes on the middle class.  ”Agnostic” is code for “I understand it needs to be done,” just as “originalist” is code for “I want to interpret the Constitution in a Republican way”.  It’s going to be hard to make Americans realize that fact, but it’s a fact that needs to be realized.

What does this exchange have to do with taxes?  Well, if the principle is that people need to pass hurdles to receive help from the government, then, logically, homeowners must pass these same tests.  The mortgage interest tax deduction is, after all, a huge subsidy to homeowners.

Mike Konczal at Rortybomb originally made this point.  Him:

Plus, there would be the interesting part of dragging 98% of homeowners who make over $125,000 and having them directed to pee in a cup by social workers, and giving them a first hand experience of the petty humiliations and disciplinary mechanisms of our current War on Drugs. That would certainly move the debate forward for those who would like to see solutions to issues surrounding drug use that don’t involve militarizing the police force or eating the Bill of Rights.

I think it’s safe to say that no legislative body is going to pass a bill requiring well-off, predominantly white, people to go pee in a cup.  For one, way too many well-off people use drugs that aren’t crack.  And they’d realize the indignity of the process and push real hard on their legislators to not submit them to that.  Most importantly, those perfectly normal Americans who smoke marijuana probably aren’t willing to forgo their government subsidy.

I think what’s really going on is that Lt. Gov. Bauer, a Republican, realizes that the poor, largely non-white people on welfare are most likely not going to vote for him anyway.  Since he doesn’t have to worry about winning their vote, it’s safe for him to attack them as a method to shore his base.

Domestic energy production in all forms good

So how does this trade deficit relate to taxes?  The best way to shift our system from importing too much oil to producing enough of its own energy is to indirectly tax the consumption of foreign energy, i.e. tax oil products like gas and plastic more.  It would be too indirect to have the government raise tax revenue to seed industries and jumpstart green manufacturing, but it can easily nudge the market to that new equilibrium.  Here’s Matt Yglesias’ explanation of the dynamics:

It seems unlikely that getting China to increase the value of its currency is going to do anything to fix this aspect of the problem. Higher taxes on gasoline to finance investments in clean energy infrastructure and reduce the medium-term budget deficit, on the other hand, would do the trick. If you’re looking for a politically appealing alternative to gas taxes, you could probably try to rework it as some kind of tax on the oil exporters themselves. Then tax opponents could be tarred as standing up for the interests of scary Arab-looking types.

The revenue raised will both lower our fiscal deficit and create a signal to private enterprises that the market would reward energy produced in a way that avoids petroleum.  In other words, private business would lead the charge into wind, solar, and nuclear power.  People will also use less plastic bags since they are pretty much made only of foreign oil.  American consumers would then direct their dollars to the new, better alternative, and it so happens that that alternative keeps the money in the hands of American companies and workers.  Less money being sent to foreign companies means a lower trade deficit.  And voila, you’ve decreased our trade deficit by raising revenue all without raising income or capital taxes or touching the mortgage interest tax deduction.

On the other hand, there’s this institution called the Senate.  Really though, this move should be appealing to pragmatic people of all stripes.