Interregnum: Feedback and Comments

This issue asks for reader feedback and suggestions, and responds to some interesting comments made about the last issue.

Welcome Back to Win-Win Democracy

This issue is atypical. Instead of introducing a new topic, I would like to

1. Ask for your feedback and suggestions; and

2. Respond to a few comments on the last issue on subsidies.

Feedback and Suggestions

Writing this newsletter on a consistent schedule is a lot of work. I do it in the hope that it gets people thinking and talking about important issues that are polarizing our country and threatening our future as a democracy, and to propose some ideas that could plausibly make a difference.

I would like your feedback both to help me decide whether or not it is worth continuing this effort and, if so, to help me better meet your needs and interests. Please take the polls below.

The polling facility is limited to counting responses to a few fixed choices. Everyone will be able to see the count thus far of responses to each poll but not who voted. The polls are open for one week.

To give me more feedback or to make suggestions, please also post a comment (all will be able to see) or click here to send me a private email.

I’d like to get some idea of who the readers are:

Your Comments

Several of you made comments about the last article on subsidies that I’d like to discuss further.

Enjoy Your Oligarchy

A friend on Facebook, who happens to be Canadian, had this to say:

“It’s cute that you think the rich, who clearly own the Republicans and some Democrats, would allow that. First step would be to get money out of your political system, which the rich also won’t allow. Enjoy your oligarchy.”

And, my wife had a similar reaction: “when the rich realize that they’ll pay more, they’ll never go along with it”.

My flip response to both of them would be “there’s more of us than them”.

Of course, that only matters if enough of “us” can be convinced to vote to change our system — both to improve the economic lot of the vast number of people in the country who are struggling and to reduce the ability of extremely wealthy people and corporations to buy candidates and elections.

The first step is to get more people to understand how skewed our current system is and to want to do something about it. I’ve seen tremendous progress in the last decade on this. Before Bernie Sanders’ campaign in 2016 the notion of “inequality” was rarely an issue in post-World War II American politics. That has changed. Many people, especially young people, understand that there’s a big problem, even if they don’t understand the underlying causes.

Next, something has to be offered that many different people can support. That’s what I’ve tried to construct: a simple, “fair” tax system coupled with targeted subsidies as appropriate. I believe that many people — both Democrats and (non-MAGA) Republicans — could get behind something like this.

A significant problem, however, is that there are many people outside of the top 1% who benefit from the myriad tax breaks in our current system. Getting their support will probably require grandfathering those benefits or at very least phasing them out slowly.

There’s no magic here. We have to develop and socialize (no pun intended) ideas, which then a charismatic leader, probably assisted by an economic crisis, can drive into reality. This has happened before with the Great Depression and FDR.

Universal Basic Income & Negative Income Tax

Reader Jim Bryan, who is an emeritus professor of economics at Manhattanville College, suggests in a comment that there are at least two alternatives to my proposal for subsidies: Universal Basic Income (UBI) and a refundable negative income tax. The idea of a UBI has been around since the early days of the country and was recently highlighted as a key part of Andrew Yang’s presidential campaign.

UBI is an attractive idea because of its simplicity — we give everyone a minimum income to help meet their basic needs, doing away with a complex web of welfare and other assistance plans. Unfortunately, it is also expensive because it is not means tested and would probably require either a combination of raising income tax rates and cutting other programs or a much higher income tax rate than Americans are accustomed to. See the Center on Budget Priorities and Policy Priorities’ commentary on UBI for more detail.

Negative income tax, advocated by Milton Friedman in 1962, is similar to UBI but is less expensive because only low-income people receive it. Anyone who earns less than an income cutoff receives a refundable tax credit for a certain percentage of the difference between their income and the cutoff. For example, if the cutoff is $50,000 and the percentage is 40%, then someone earning $20,000 would receive an additional $12,000 from the government.

One politically attractive characteristic of the negative income tax is that someone who works always makes more than someone who doesn’t work. Continuing the above example, a non-working person would receive $20,000 from the government, but nothing from working, making $20,000, while the working person earning $20,000 would make $32,000.

A good discussion of the advantages and disadvantages of a negative income tax, especially in comparison to various welfare programs, appears here.

While both UBI and negative income tax could be used to help meet people’s basic needs — food and shelter — we also need a mechanism to subsidize other activities. For example, to fight climate change, we might want to subsidize use of renewable energy or low-carbon transportation.

Capital Gains are the 800-lb Gorilla in the Room

Another Facebook friend took exception to me worrying about equity issues between the 80-99% folks and the bottom 80%, when the big problem is the treatment of capital gains. He wrote:

“Being slightly more serious, the 80-99% don't have the individual resources to buy Congresscritters and otherwise single-handedly manage to create economic distortions, but the 1% (or, at least, the 0.01%) can. They can and do undermine our democracy.

Also, in tax equity discussions, unrealized capital gains are always the 800-lb gorilla in the room that everyone tries to ignore. And it's worse than just a problem now; if we close other loopholes and leave unrealized capital gains untaxed, the people we really need to reach out and touch will just recharacterize more income into that bucket and everything else you do will have much less impact than you expected on the 1%.”

I couldn’t agree more. That’s why we spent so much time discussing capital gains in earlier issues of the newsletter. While I did mention this in the Subsidies issue, I didn’t emphasize it enough. So, let me say it clearly here:

Eliminating preferential treatment of capital gains (especially deferral of taxes on unrealized gains) is the most important step we could take to slow the growth of American oligarchs.

If you haven’t read the earlier discussions, I recommend these two issues:

Growing Oligarchs

Taxing Capital Gains as Ordinary Income