Wednesday, March 25, 2009

The button down mind of BHO

Q: Mr. President, are you — thank you. Thank you, Mr. President. Are you reconsidering your plan to cut the interest rate deduction for mortgages and for charities? And do you regret having proposed that in the first place?

OBAMA: No, I think it's — I think it's the right thing to do, where we've got to make some difficult choices. Here's what we did with respect to tax policy.

What we said was that, over the last decade, the average worker, the average family have seen their wages and incomes flat. Even in times where supposedly we were in the middle of an economic boom, as a practical matter, their incomes didn't go up. And so, well, we said, Let's give them a tax cut. Let's give them some relief, some help, 95 percent of American families.

Now, for the top 5 percent, they're the ones who typically saw huge gains in their income. I, I fall in that category. And what we've said is, for those folks, let's not renew the Bush tax cuts, so let's go back to the rates that existed back in, during the Clinton era, when wealthy people were still wealthy and doing just fine, and let's look at the, the level at which people can itemize their deductions.

And what we've said is: Let's go back to the rate that existed under Ronald Reagan. People are still going to be able to make charitable contributions. It just means, if you give $100 and you're in this tax bracket, at a certain point, instead of being able to write off 36 percent or 39 percent, you're writing off 28 percent.

Now, if it's really a charitable contribution, I'm assuming that that shouldn't be the determining factor as to whether you're giving that $100 to the homeless shelter down the street.

And so this provision would affect about 1 percent of the American people. They would still get deductions. It's just that they wouldn't be able to write off 39 percent.

In that sense, what it would do is it would equalize. When I give $100, I'd get the same amount of deduction as when some, a bus driver who's making $50,000 a year, or $40,000 a year, gives that same $100. Right now, he gets 28 percent, he gets to write off 28 percent. I get to write off 39 percent. I don't think that's fair.

So I think this was a good idea. I think it is a realistic way for us to raise some revenue from people who've benefited enormously over the last several years.

It's not going to cripple them. They'll still be well-to-do. And, you know, ultimately, if we're going to tackle the serious problems that we've got, then, in some cases, those who are more fortunate are going to have to pay a little bit more.

My favorite parts? First, I love the extremely high bar BHO has set for his policies: "It's not going to cripple them", so what in the world could the fuss be about?

I also like his command of economics: "If it's really a charitable contribution", then the tax treatment really isn't important to the process.

Finally I really like the asymmetric application of fairness. He compares a rich guy to a bus driver making $50,000 and says it's not fair that the rich guy gets a bigger deduction for the same contribution. He seems however to have no problem with the fact that the bus driver is paying less in taxes both overall and as a percentage of his income.

Look people, I know politicians will pretty much say anything to justify what they want to do, I am just a bit surprised at how much of a hack our beloved Obama has become in such a short time.


Max Sawicky said...

Re: the reduced benefit to deductions, there is no marginal incentive issue re: work, saving, & investment, and there is an equity rationale (you might not like it, but you lost the election), so indeed what is the fuss about?

Re: charity, o.k. he is not an obsessive marginalist. That's not a crime. By this logic you ought to favor the present estate tax.

Re: the bus driver, he understated his case. The $50K guy probably won't itemize at all, so gets no deduction for charity, and if he did itemize it would probably be in the 15% bracket. Moreover, the rate structure is about ability to pay. You might not like it, but that's the idea of it. The deduction for voluntary charitable contributions is about a merit good. So there is no inconsistency.

In sum, the terminology 'hack' is not well-justified by your problematic arguments.

But I luv this blog. Usually.

Angus said...

Hi Max: well, I didn't actually lose the election. I wasn't running and I didn't vote. I did express a preference for gridlock over one party government so I guess I "lost" in that regard. I don't see why you think this is personal for me. It isn't. The Angii are not in the income group that BHO says is going to get "not cripled".

There certainly are equity arguments for progressive taxation. However "it won't cripple them" is a fairly low bar to apply in judging the equity of tax increases.

I disagree with you about the bus driver case (though I have no idea what a merit good could possibly be). They are not two separate things, they are two sides of the same coin: how much tax a person pays. Progessiveness of the rates means deductions are more valuable. If you take that away you are essentially increasing marginal tax rates even higher while pretending some how that you are not.

And that is called being a hack.

But I love your comments. Usually.

Rolo Tomasi said...

My understanding of a merit good comes from a course i sat in on at Cal. This is how i choose to remember what the professor said:

"I really like opera. Unfortunately not enough of you plebs are sophisticated enough to want to attend it and my friends and I don't want pay the amount it costs to put on an opera in SF. So we should have the government force you to pay for it because it really is good and I want to listen to it."

br said...

My favorite part was immediately following that excerpt: "there's very little evidence that this has a significant impact on charitable giving."

The key arbitraries are "little evidence" and "significant".

5% of the population will, on aggregate, reduce their participation in any activity for which the benefit has been reduced.

Max Sawicky said...

Re: "won't cripple," apparently BHO's understatement was lost on you.

All I mean by merit good is that it's something the Gov decides to subsidize. Obviously the classification invites abuse. I wouldn't subsidize charity through taxes at all, but that's just me. BHO proposes a modest reduction in the subsidy.

You can hardly claim BHO is shying away from admitting he will increase marginal rates, since he has also proposed to do exactly that. But in terms of tax structure, incentives and all that, you must be able to appreciate the distinction between changing deductibility and changing marginal rates.

There are estimates floating around of the impact on charitable giving which indicate the effect is -- how shall I say it -- not crippling.

When estate tax repeal was proposed, the negative implications for charitable giving were discounted by opponents of that tax. Now the shoe is on the other foot -- liberals discount the impact of BHO's change. So everybody is corrupt. Live by the margin, die by the margin.

John Thacker said...

Also, the "let's go back to the rate that existed under Ronald Reagan" is incredibly disingenuous. Deductions were worth 28% at the top rate under Reagan because the top rate was 28%.

Even then, charitable donations were not taxed. Under Obama's plan, charitable deductions will effectively be taxed some 11%.

John Thacker said...

When estate tax repeal was proposed, the negative implications for charitable giving were discounted by opponents of that tax.

When estate tax repeal was proposed, the same bill eliminated capital gains step-up at death, something that was ignored and discounted by those who support the tax (or opposed the repeal.)

With capital gains step-up removed, the effect on charities was somewhat lessened compared to what supporters of the estate tax claimed.