Happy to pay taxes

The Peoria Journal Star has an interesting letter-to-the-editor today:

I am proud to pay my taxes.

After all, I am gainfully employed and earned the money, which generated the levying of those taxes. I have a roof over my head, and a pillow for it at night. I have sufficient food for my sustenance, a vehicle for transportation, decent health and the ability to care for myself.

My background suggests that I should be grateful for these gifts, and compassionate enough to share them with those less fortunate. Why should I begrudge those who struggle when I can help them? Why should I deny the means to repair roads, establish small businesses, provide new jobs for those seeking them, ensure safe housing and milk for children, or provide better educational opportunities for those most in need?

What happened to the U.S.A. which once saw itself as a community that pitched in and contributed to others without second-guessing how hard they worked or how much they needed, without micro-managing the economy for selfish ends, with resisting participation in this nation’s forward movement toward a solid economy?

Or have we all joined the ranks of those CEOs who only saw greed at the ends of their noses?

May the spirit of charity reign, especially on April 15.

Dr. Jean E. Jost

I applaud Dr. Jost for writing her letter. I agree with some of what she says. But I don’t think it’s a set of arguments that’s going to get very far with many Americans.

Liberals need to come up with an entire way to frame and discuss taxes. But I think we need to start with the assumption that most people hate taxes, not that they are happy to pay them or see it as patriotic. We might eventually be able to define tax-paying as patriotic, but I don’t think people will ever be happy – not when they have to pay for things they don’t like (taxes are not voluntary), and that includes both the left and the right.

Economic culture matters

Economics is a very technical subject, but it’s also a human enterprise, which means that people and their values and their behaviors – that is, culture and ethics – underlie everything.

The New York Times has an interesting article on how Norway has avoided much of the world’s economic meltdown.

First off, the country is okay because it’s a petro-state (in fact, the world’s third-largest exporter of oil, which I didn’t realize).

But there’s a cultural dimension to it’s situation, too:

Instead of spending its riches lavishly, it passed legislation ensuring that oil revenue went straight into its sovereign wealth fund, state money that is used to make investments around the world. Now its sovereign wealth fund is close to being the largest in the world, despite losing 23 percent last year because of investments that declined.

Norway’s relative frugality stands in stark contrast to Britain, which spent most of its North Sea oil revenue — and more — during the boom years. Government spending rose to 47 percent of G.D.P., from 42 percent in 2003. By comparison, public spending in Norway fell to 40 percent from 48 percent of G.D.P.

“The U.S. and the U.K. have no sense of guilt,” said Anders Aslund, an expert on Scandinavia at the Peterson Institute for International Economics in Washington. “But in Norway, there is instead a sense of virtue. If you are given a lot, you have a responsibility.”

Eirik Wekre, an economist who writes thrillers in his spare time, describes Norwegians’ feelings about debt this way: “We cannot spend this money now; it would be stealing from future generations.”

Mr. Wekre, who paid for his house and car with cash, attributes this broad consensus to as the country’s iconoclasm. “The strongest man is he who stands alone in the world,” he said, quoting Norwegian playwright Henrik Ibsen.

Technical economic policies and factors are important, but they are always rooted in how we approach the world. For example, a market economy cannot function without a certain level of trust – trust in people, leaders, institutions, money, etc. And trust is created and destroyed by our interactions with one another.

Even the partner of the Warren Buffet (the second richest guy in the world, remember) emphasizes values as an economic condition (hat tip to Yves Smith at Naked Capitalism):

How and why do you think economists have gotten this so wrong?

I would argue that the economists have not been all that good at working concepts of good and evil into their profession. Nor do they understand, at all well, the economic consequences of bad accounting.

In fact, they’ve made a profession of driving value judgments out of the subject.

Yes. They say it’s not economics if you think about the consequences of good and evil, and good and bad business accounting. I think what we’re learning is that when you don’t understand these consequences, you don’t have an adequately skilled profession. You have big gaps in what you need. You have a profession that’s like the man that Nietzsche ridiculed because he had a lame leg and was very proud of it. The economics profession has been proud of its lame leg.

Crafting a household-centered bailout

I’ve pretty much been on board with the idea that we need to save the financial system in order to help re-start the economy. I’m not happy with many of the specifics (I generally think the existing financial players are getting too many breaks), but I’m willing to see the government do something to keep the financial system alive in the short run.

What’s been seriously lacking so far, though, is an equivalent emphasis on a bailout for American households and individuals. Helping actual people has been way down on the priority list.

And apparently even programs targeted at households are not doing so well. The New York Times and others report that the Bush and Obama administrations’ programs to help homeowners who are underwater on their mortgages (owe more than the house is worth) or that face foreclosure are starting out very slowly. Perhaps it will take some more time, but when will issues directly affecting American families get the attention they deserve? We can go a lot farther that we have to help families themselves.

For example, from the NYT article:

“Even if they do drop your loan payment, you can still be in deep negative equity, which is not an immediate crisis,” said Adam J. Levitin, an associate professor at Georgetown University Law Center. “But let’s say you need to relocate because the auto manufacturer you work for is radically downsizing. You are faced with losing your house in foreclosure or a huge balloon payment. And neither of those is palatable.”

One of the ways our economy will rebound is if workers can get to where the jobs are. Today’s out-of-work employees first have to get out from under their houses. That likely leaves them broke and unable to afford to move. We could develop some sort of “labor market restructuring assistance program” (LMRAP – limrap – not as cute as TARP, I’ll admit) that makes it easier for people to get out of their homes (with, dare I say, even some debt forgiveness) and money to move should they find a job.

Sure, it’s not that simple, and there would be all kinds of details to work out. But it sure wouldn’t be any more complex than the bailout of the financial markets. And it would be a people/family-centered bailout, directly helping them get over some of the worst parts of this economic downturn.

Medicare, Social Security, and Deficits as far as the eye can see

Okay, so this is bad. The Great Recession is whacking years off the life of Medicare and Social Security. Medicare remains the major problem, however. Health care costs are growing so fast that paying for medical services is going to severely damage the federal budget going forward. That’s why Obama is pushing so hard for health care reform this year.

I guess I have a few thoughts:

Budget deficits do matter. (Sorry, Dick Cheney.) Eventually we have to bring the federal budget under control, pay down our debt, and leave us with some borrowing capacity for the next rainy day. (The Great Recession is not the end of history – with any luck.)

Whether or not we get our health care through the government or not, we’re going to have to find a way to pay for it. Or…we won’t – which is why we have tens of millions of people without health insurance coverage. As health costs rise, more Americans will find themselves having to choose between medical care and other purchases. Which, to a certain extent, is okay. How much of your income would you be willing to pay to be healthy? Would you sell your house or forgo a big screen TV or new clothes to live another year? There’s nothing in nature that dictates that we should only spend a set portion of our national income on health care services. But let’s not kid ourselves. This is that dreaded “health care rationing.” And with health care costs rising the way they are, we’re going to get it whether we like it or not – unless we find a way to slow or reverse growing health care costs. But I haven’t seen many magic bullets proposed on that front. Single-payer seems to be the only one, but that has its own trade-offs. It would be nice if we could have a balanced public discussion about this, but that’s not how politics works.

And speaking of politics, I think the conservative arguments against liberal solutions to health care are pretty well understood by the American public. “Just look at those deficits!” they would say. But in my opinion, the downsides of the conservative options are not well understood. I believe conservatives would just like to eliminate Social Security and Medicare (and Medicaid) altogether. But what then do we have? Health care costs will still go up. So more and more people will go without health care, increasing human suffering. And on Social Security, conservatives better be willing to acknowledge that many seniors would see a serious decline in their standard of living without it.

In other words, there are costs on both sides – either in federal budget numbers or in private human declines in living standards and suffering. Neither one is particularly palatable, and that’s what makes solving this problem so serious.

Addition: From the blog “How the World Works.” Andrew Leonard writes about whether we can afford Obama’s agenda. Basically we’re caught between the devil and the deep red ink well. The failure to do something – even if it drives up deficits – might be worse than doing nothing:

Imagine if were looking at 20 percent unemployment, instead of 10 percent. Government revenues would be greatly reduced, while social welfare spending would inevitably be much higher. The Obama bet is that by investing now, we will save later. It’s a hell of a gamble, but not necessarily reckless or spendthrift. It might just be prudent.

Karl Rove in Peoria

So, Karl Rove came to Peoria to speak. I applaud everyone who turned out to protest.

What was most interesting to me is, though, is this: I moved here about a year-and-a-half ago. I have read the Peoria Journal Star almost every day, including the stories and columns by the designated political reporters.

But I learned more about the politics of the Peoria area from the stories that came out surrounding this event than anything else during all that time, and that includes election coverage. Here’s one of the articles.

We have labor leaders criticizing business leaders. We have people naming names and laying blame. We have various agencies and elected officials all pointing fingers. Wow.

So, what was it? Does the Employee Free Choice Act really drive divisions that deep? Was it the fact that the oh-so-delightful Karl Rove was involved?

I’m not sure, but I’m sure glad he came. At least now I understand the clans, fissures, and issues of Peoria politics a bit better.

The “banks”

The New York Times has a good article on community banks and how they largely stayed away from all of the financial destruction – oh, I mean “innovation” – that brought down the country’s biggest banks. It’s important when we talk about “Wall Street” and “the banks” to know exactly whom and what behaviors we’re talking about so that we can stop this from happening again.

Economic patriotism

Conservatives spend a lot of time belly-aching about “patriotism.” (Actually, they’ve been pretty effective at it and have pretty much owned the word. More work for liberals to do…)

But what counts as patriotic is not that simple, especially in a globalized economic age.

The bailouts of the auto industry being managed by the Obama administration might end up being good for “General Motors,” the entity that just happens to be headquartered in Detroit, but as William Greider points out in the Nation, it’s important to remember that some American citizens are being thrown under the bus:

So this is how the auto bailout will work. American taxpayers pump tens of billions into rescuing General Motors from bankruptcy. Then GM pays us back by shipping more jobs overseas — the equivalent of four assembly plants.

The United Auto Workers sent a letter to Capitol Hill the other day that revealed the terms. GM’s restructuring plan envisions a doubling of the vehicles it will import from overseas factories, from 372,000 to 737,000, in the next four years. GM’s imported cars — already 15.5 percent of its domestic sales — will rise to 23.5 percent. “The overall number of vehicles GM will be importing in 2014 represents the production of four assembly plants, the same number that GM plans to close in the United States,” UAW legislative director Alan Reuther noted.

Now, personally, I’m for globalization and trade. I think the general benefits of trade are well-proven, and I think that, ultimately, humanity will benefit from becoming more interconnected, not less.

However, that does not mean we should sacrifice people in the short-run.

And since we still have nation states, it certainly begs the question of why our national trade policies would be run to the detriment of its citizens. William Greider:

Other nations like Germany, Japan, France and of course China impose national obligations on their producers and multinational corporations–demanding that companies retain their highest value-added production and best-paying jobs in the home country. The US gives its multinationals a free ride–even assisting them in dispersing production and capital to low-wage economies while keeping open the US market for their imports. Our own companies game this system endlessly–producing cheaply abroad, then selling the “US brands” back into the home market.

Economic entitites, like corporations, really have moved beyond the nation state, playing in a global economic system. Nations, meanwhile, have remained, well, national. And as long as we have national governments, they should serve their citizens – all of their citizens. That would be true economic patriotism.

Update: This isn’t just an American issue. And it’s not just for auto workers.

At the Wall Street Journal, Robert Frank runs a great blog called “The Wealth Report.” He tracks the lives of the truly wealthy – people that live in a different world he calls “Richistan.”

The other day he had a post about how some wealthy Brits are threatening to leave the country (take their toys and go home) because the U.K. government was considering raising the top tax rate from 40% to 50%:

“I won’t pay. I’ll leave,” British entrepreneur Peter Hargreaves told the Times. “Why wouldn’t I? If I stay I’ll pay half a million more a year in tax. If I leave the country I can save [three million pounds] a year. It’s almost like the government is offering me a bribe worth [three million pounds] a year to go and live abroad.”

The actor Michael Caine has voiced similar concerns.

Quite some British patriotism there.

I’ve seen this “flight of the rich” argument in different places before. If ever there was a time for public shaming, this would have to be it. How strong could your patriotism really be if you just run away from your country because of policies you don’t like? I’d like to see some conservatives stand up rake these kind of “patriotic” rich people over the coals, but of course, they won’t.

And this brings up another point related to my comment on corporations in the original post above. The truly wealthy have already gone “post-national,” just like corporations. The world is truly their oyster, while the rest of us are left “patriotism” and “nationalism” – both “isms” that must seem like sucker’s games to them.

Frank continues in his post with an interesting conclusion. The rich might complain about higher taxes, but really, they “have no where to go:”

Almost every developed country in the world is raising taxes on the wealthy. Germany is boosting its capital-gains taxes. Other European countries also are turning to tax the wealthy. The U.S., of course, is likely to raise taxes on the affluent. Many states, from California to New York, already have imposed a “millionaire’s tax” that hits nonmillionaires.

Sure, they wealthy could move to Monaco or the Caymans or any other tax haven. But the fact is, the wealthy like to be at the center things–of ideas, culture, finance and socializing. After three months of coconut drinks, even the Caymans would get tiring. Not to mention the bad PR that comes from living in a tax haven, as with Johnny Hallyday in France.

At the same time, the U.S. and other governments are making it harder for people to use offshore tax havens. If they earn money in the U.S., it is going to be harder to shield it from the authorities.

In other words, the wealthy may grumble but they may have few options other than paying up.