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Wednesday: Americans pay too little in taxes?

I’ve heard this from Paul Krugman and Fareed Zakaria recently and now some new dude is claiming that Americans pay too little in taxes. From David Leonardt’s article this morning at the New York Times titled, “Why Taxes Will Rise” (NYTimes, limited free access), we get this:

Polls show that most Americans are opposed to raising the federal debt ceiling. Even when the Pew Research Center included the consequences in its question — a national default that would damage the economy — slightly more people were against raising the ceiling than were for it.

How could this be? Above all, I think it reflects a desire to return to the good old days. Not so long ago, nobody was talking about tax increases or Medicare cuts, and the federal budget seemed to be in fine shape. If only we could get back to the past — get spending under control, as the cliché goes — we’d be O.K. The debt ceiling, with its harsh finality, offers the chance.

Unfortunately, this nostalgic view depends on a misunderstanding of the budget. It imagines a budget in which the United States indefinitely has the world’s highest medical costs, its largest military, an aging population and, nonetheless, taxes that are among the world’s lowest. Economists have a name for that combination: a free lunch.

Free lunchism is ultimately the problem with the no-new-taxes pledge that so many politicians have adopted. A refusal to raise taxes, no matter how principled, cannot take us back to the good old days. It would instead lead to a very different American society. For taxes to remain where they are, Washington would need to end Medicare as we know it, end Social Security as we know it, severely shrink the military — or do some combination of the above.

Free lunchism?

Maybe he doesn’t have any friends or colleagues from France, Germany or Britain. My French colleague was astonished at the high taxes she paid here in the US. In her opinion, Americans pay a lot in taxes compared to the French. While salaries were more modest in France and taxes are high, the average worker there doesn’t have to pay sky-high health insurance premiums. In France, the government provides a stipend for new children, maternity benefits are generous and child care is high quality, plentiful and cheap. If you want to attend university after high school, tuition is about the same amount as a student activity fee in the US. You don’t graduate with debt the size of a mortgage on a starter home. Unions protect many jobs in France and while this makes it much more difficult to find a job there, once you have a job, it’s much harder to get rid of you. The government responds to workers and protects them in a way that we Americans can only dream about. But if you do manage to lose your job in France, chances are much greater that you will get a generous early retirement, if you’re old enough, or your unemployment benefits will last 2 years with something like 80% of your salary. Let’s say you make it to retirement age and the French version of Social Security. You can retire in France at age 62. Think about that. In a country that is experiencing high unemployment, retiring people at 62 frees up a lot of positions.

She said that what French workers take for granted, we Americans pay and pay and pay. Everything costs a lot of money here. That’s because instead of using the government’s economy of scale to purchase and regulate health insurance, for example, we are forced to buy it at inflated prices from for-profit insurance companies on the open market. Our mass transit system is a wreck, we pay outrageous bridge and turnpike tolls, our car insurance is ridiculous compared to that in France where suing for every little thing is unheard of and child care in the United States is so expensive that many young families live paycheck to paycheck to pay for it.

What do we get for our money? Well, we get two unnecessary and money sucking wars in Iraq and Afghanistan. Don’t get me wrong, I have relatives in the military and I don’t have any problem paying for military readiness. But did we really need to spend trillions of dollars in central Asia? We have a defense department budget that only a military contractor could love.

If we really want to reform Medicare, and let’s face it, it is a money pit, we need to regulate providers as well as consumers. I don’t have a problem looking at the cost of Medicare and making intelligent decisions about care as long as it doesn’t fall exclusively on the backs of senior citizens. The cost of Medicare, and health insurance in general, is so high because everyone sees health care as a profit making machine. But even pharma can be brought to heel with an in-depth look at what ailes the industry and good planning. It is possible for people to make a profit without that profit being insanely greedy and obscene. The question is, do we have the political will to look greedy people in the eye and tell them “Enough!”? Recent history says no but the era of unfettered greed and deregulation may be coming to an end.

And don’t even get me started with Social Security. It is one of our government’s crown jewels. It’s is run fantastically well with low overhead and provides millions of seniors with income to keep them from starving. The money seniors receive goes back into the economy through their purchases of goods and services. The idea that we would mess with success is just so insane most people I’ve talked to can’t believe that Democrats would even contemplate it. I really resent the idea that something I have paid into my entire working life to serve as my insurance policy in the event that something goes horribly wrong with my worklife is now considered a “free lunch”. What exactly would people like Leonardt have us do when we get old? Some of us don’t even have pensions and the 401K is a lousy way to save for retirement if everything hinges on a volatile stock market.

What I think we see here with Leonardt and Obama and the Steny Hoyer’s of this world is a profound disconnect from current reality. My theory is that they see Americans as separated into winners and losers in the socioeconomic market. If you are well educated, a professional or a member of the “creative class”, you don’t need the “entitlement” of social security. You can fend for yourself. Just be more prudent with your savings. If you’re in the “old coalition” and social security is your only refuge from poverty, then social security becomes more like a welfare program. We want to provide for the poor working class but Obama doesn’t see his base supporters *in* the poor working class. That explains why he keeps putting an emphasis on more education and more STEM jobs. He still sees that as the path to freedom from “entitlements”. But we aren’t creating those kinds of jobs here in the US. We are letting those jobs go to Europe where the highly educated workforce is protected or to Chindia where the highly educated workforce is exploited. Here in the US, the highly educated workforce is left to fend for itself and is no better off than the grocery store cashier, subject to the whims of a volatile free market supply and demand cycle and stupid MBAs.

This recession is different. In New Jersey, there are plenty of hard-working, dedicated professionals with armloads of advanced degrees who are now falling into that poor working class category. If the unemployment situation isn’t dealt with soon, there will be a lot more of us depending on social security in a couple of decades. The Republican and Obama administration policies are going to make the problem worse. And we’re not looking at social security as a free lunch. We’re looking at it as the insurance policy it was designed to be.

There’s a lot to be said about the surly French and their attitudes towards their work-life situation. They take long vacations throughout their lives and they don’t feel the optimal amount of stress on the job to make them compete. (heads up to those workers across the pond: when you get projects from your laid off American colleagues, that means that YOU are now responsible for figuring them out. Expecting the laid-off American to give you all the answers in advance is probably unrealistic.) Working in France is not all a bed of roses. But here in America, we’ve pegged the stress level to 11, produced like crazy and have bloody little to show for it. Our vacations are short, our family lives overwhelming, our social safety net non-existent and our taxes are *still* high because so much of what those taxes should be providing is now privatized and in the hands of greedy rent seekers.

So, please, Paul, Fareed and David, please don’t roll out that old chestnut about how low our taxes are compared to other countries. We’re getting reamed no matter how you slice it. The middle class wants something of value in exchange for the taxes we pay. The Republicans seem determined to deny us that and the Democrats are just fricking clueless. If taxes must rise, raise them on people making more than $250,000/year. *They’re* the ones who are making out like bandits and treating the US Treasury as their own personal revolving credit account.

One final thing struck me as oddly out of touch in Leonardt’s piece. It was about the mortgage interest deduction:

The mortgage interest deduction, for example, saves more than $5,000 a year for the typical household in the top 1 percent of earners. Most middle-income households don’t benefit from the deduction at all, because they instead claim the standard income tax deduction. And the mortgage deduction is the second-largest tax break for individuals, costing about $80 billion a year, more than the budgets for the Education Department and Justice Department combined.

Are you kidding me?? Everyone I know uses the mortgage interest deduction and I don’t know anyone in the top 1% bracket, or the top 5% for that matter. It’s the only thing that makes buying a house possible. If we don’t get a break on our mortgage interest we might as well rent and there goes the housing market. What would be the point of buying an expensive, money sucking house? How old is David Leonardt anyway? Does he know that the vast majority of Americans have discovered the internet and use PCs and can figure out how to use Turbo Tax to itemize and to import their W-2s and mortgage company’s tax statement for the previous year? Does he think we still do all that crap on paper with an adding machine or something so that it’s sooooo much easier to just do the short form? The mortgage interest deduction is practically the only break the middle class gets in taxes these days. Without that and the state tax deduction, we’d be descending on Washington right now. Don’t go there, David. Really.