Liberals should think twice about tax and spending schemes

They either want to spend money we don’t have or soak the rich with no plan for using the revenue.

Congress enjoys spending money it doesn’t have, and efforts to restrain deficit spending have been a total failure. They were apparently no match for either Congressional thinking or thought-free actions. The current annual deficit is approaching $1 trillion and shows no signs of shrinking. In fact, deficit spending only decreases in that fairyland future where it is overwhelmed by wishful thinking.

As we move into fairyland’s suburbs, otherwise known as election campaigns, imaginative spending ideas become an easy way for candidates to distinguish themselves, giving them an identity in an ever-growing crowd of rivals. And we also have some imaginative taxation ideas, which serve a similar purpose — providing identities for candidates.

Curiously, though, there are few connections between the two sides of the deficit equation. The candidates who offer imaginative spending plans do not seem to care about how we pay for them, and those who offer imaginative taxation ideas do not seem to care how the proceeds are spent.

One of the spending proposals is a single-payer system called “Medicare for All,” most recently supported and given additional spin by Sen. Kamala Harris, D-Calif., who would add to it the elimination of all private medical care insurance. Theoretically, in such a system, if you need health care you just show up at a hospital or clinic and you will get it — no forms or other paperwork.

Harris seems uninterested in what such a system would cost and would instead substitute faith that the elimination of paperwork and insurance company profits would balance the books.

They won’t, of course. Some critics have calculated that over time it would blow a $30 trillion hole in the federal budget. Medicare is itself an insurance program for which participants pay premiums set by the federal government. Medicaid, by contrast, is a welfare program which provides health care benefits to poverty-stricken families and individuals. Medicaid is chronically on shaky financial ground, and neither program could be considered aperwork paperwork-free. Still, if there is no place else to go, perhaps people will find a way to make it work — although coming up with the money would be a tall, tall, problem.

Candidates with tax schemes so far enjoy a numerical advantage over those with spending schemes. All of them, however, have to be content with working in the shadow of the Clinton administration, which set the bar for ill-fated tax ingenuity, and it’s a high one.

That early-1990s tax proposal was simple enough. Anyone who owned a home would have to pay income tax each year on its “imputed income” — that is, what the house would rent for in the market where it was located.

The reception that the imputed income idea received in the news media and in public opinion was decidedly negative and the power of that negativity seems to have erased all evidence of whose idea it was in the first place. That hasn’t entirely blocked people from guessing, though, and it may come up during the upcoming campaign.

The current major tax proposals by announced presidential candidates plan to “tax the rich” one way or another. Demographically, the rich make an attractive target for politicians because the wealthy, despite their growing numbers, remain a small minority of eligible voters. As donors, they are another matter, but that is something each candidate’s campaign has to figure out. Generally, though, taxing the rich appeals to voters who are attracted to programs that somebody else will pay for.

Rep. Alexandria Ocasio-Cortez, D-N.Y., is proposing an income tax rate of 70 percent on high-income earners. It has several advantages; the first being that it is clearly within the Constitutional boundaries of federal taxation. It also has a seeming advantage in that “we’ve been there before” with even higher marginal tax rates and the country survived intact. That same history, though, also showed us that it had little impact on income inequality. It also brought forth a wave of tax dodges and schemes that were not healthy for our economy. In today’s world of international cash and capital flows, the opportunities for such tax avoidance schemes would multiply and could do serious damage to our economic system and our economic growth.

Sen. Elizabeth Warren (D-Mass.) has offered a proposal that’s innovative in that it would tax the accumulated wealth of individuals. Her plan calls for a tax of 2 percent on the assets of those whose net worth is over $50 million.

Her plan may collide with the U.S. Constitution, which prohibits that kind of tax, but scholars differ on this point.

Taken as a whole, the presidential tax proposals seem to be works-in-progress. They are aimed at producing major social change, but their economic impact has not been thoroughly worked out. That could be an expensive oversight.

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