Repealing Tax Cuts and Redistribution

Lori Montgomery writes about tax policy in today's Washington Post. Her article was cross-posted in the Fiscal Times and commented on in TaxVox by Howard Gleckman of the Tax Policy Center of the Brookings Instiution and the Urban Institute. I commented on it there and am cross-posting my comments here.

...conservatives like Rep. Cantor argue that not keeping the tax cut in place is some form of class warfare. As I posted on the Fiscal Times, a reason for governmental redistribution is to correct for the maldistribution of income in an unfree labor market - which is made possible by government benefits to corporations and other capitalist businesses. The fact that this correction is not adequate to the subsidy for the rich is not grounds for ending the correction, but for increasing tax rates on the wealthy even more.

Back before the Reagan tax cuts, companies had less of an incentive to play hardball on salaries, since most of the money going to investors and/or managers for doing so would be taxed. It is no accident that salary raids and union busting began in earnest under Reagan and not just because of lax DOL enforcement - but because changes in the tax code made doing this pay.

The problem becomes how to undo the implicit inequaltiy. Controls don't work and taxes will never go up as high as they used to be (although the prospect is tempting). Social Security reform may be an avenue for equalizing wages if personal retirement accounts are managed by the union and if they can be managed to maximize salary benefits as well as short term return. The other option is to allow concentrated ownership of one's employer in personal accounts. Eventually, most firms will go private (or stay private) and be owned by rank and file employees rather than management - with the rank and file in control of what management and executives are paid. This would especially be the case if the employer contribution to these accounts was equalized (decoupled from salary) with the income cap removed - with the added feature of shifting all contributions to employers). Now that would be successful class warfare.

The other aspect of redistribution is land reform. The current crisis is masking a land grab by the wealthy - which must lead to a discussion of land value taxes as a way to equalize income - since people's largest expense is still housing. An LVT which extracts the value of these holdings will cause excessive land accumulation to end, especially if this is attached to a citizen dividend that both redistributes income and cancels out the tax obligation of single-family homeowners.

None of these three of these options (high taxes, personal accounts, land value taxes) are ever discussed - they are essentially off limits - even at TPC. I can assure you that if the personal account scheme I have described was discussed, no one would talk about Social Security reform for a while - especially on the Republican side. Indeed, the Tea Party would protest anyone who did. Discussing any of these would also jeapordize the funding of Brookings, Urban and TPC, so I doubt a more in-depth discussion will occur (although I would love to be proven wrong on this).