The New York Times Editorial Board released this opinion piece on July 10, 2015, attacking Rand Paul’s tax plan. I’ve already covered the key details in the plan, as listed and documented in my previous post. I was a bit concerned for a while when he first released it, largely because there weren’t any attacks really against it, or than those wanting a Fair Tax, and and those wanting a lower rate (mostly the libertarian camp).
Let’s dive into their arguments, and see if we can’t counter or debunk them, shall we?
The Paul plan, like the flat-tax plans from previous campaigns, would fail to raise enough revenue to finance a modern government. Estimates by the conservative Tax Foundation found that it would reduce revenue to the Treasury by $1 trillion to $3 trillion over a decade. Citizens for Tax Justice, a more liberal advocacy group, estimates a 10-year loss of $15 trillion. Arguments about the proper role of government aside, a population and an economy that are growing in size and complexity cannot thrive with a shrinking government.
A supposed “modern” government, as the Times claims, must raise more than $3 trillion in revenues every year, and always be raising it’s budget, and increasing it’s tax receipts. Modern governments must spend billions in waste and abuse on programs. Modern governments must go to war and spend billions, if not trillions on them in the process. Indeed, this is what the Times is implying, even though we know that they have been long skeptical of these things. The Times imply’s that big government is the only solution, and that the warfare-welfare state is here to stay.
The NYT defines a “modern” government as being progressive, as this article will blatantly point out. There is no escaping this fact, and they will judge things along their own perspectives. Sure, many Americans hold this viewpoint. Many Americans do NOT hold this viewpoint, and in the past few years, we have been seeing more and more support for these programs crumble.
Government spending would reduce by about $3 Trillion. That’s what is called for. This would be made up in gains in the GDP, which was estimated to go up by 9.4% in 10 years (if passed and implemented). Government spending and control of the economy is harming production and reducing what GDP could be, and thus, we have effects that hurt people. Raise the minimum wage? Impose new regulations on an industry? Control prices on the commodities or goods? Impose controls on just about anything, and that harms the economy, and thus, harms regular working people, and not just the wealthy, like progressives like to think.
And as for the CTJ numbers they cite, you have to sort of read their analysis (they’re a liberal group). They say the following:
When the dust clears, this would leave the federal government with $1.2 trillion less in tax revenue in fiscal year 2016 if the plan were implemented immediately—a reduction of about one-third in total federal revenues. Over a decade, the plan would cost a stunning $15 trillion.
So, over 10 years, what this means is that the people, and not the government, will retain $15 trillion. Just because government doesn’t have the ability to spend that money, doesn’t mean it won’t be spent. And even if it isn’t, that doesn’t mean nothing happens with it. More than likely then, it’s in savings, and being used by banks in loans to businesses or people. This leaves people with money in their pocket, and this next quote is very important here.
Arguments about the proper role of government aside, a population and an economy that are growing in size and complexity cannot thrive with a shrinking government.
Um, yeah, it can. Take the sharing economy for instance. Right now, you have Uber, Lyft, and AirBnB fighting to live, with governments expanding their power by banning their services in their cities. You have a Presidential candidate named Hillary Clinton (D) being skeptical of these kinds of things, saying “This ‘on demand’ or so-called ‘gig economy’ is creating exciting opportunities and unleashing innovation, but it’s also raising hard questions about workplace protections and what a good job will look like in the future,”. Aside from realizing that Uber and Lyft weren’t meant to be full-time jobs, the sharing economy is coming under fire, and more government interventionism isn’t going to help it.
And why aren’t arguments about the proper role of government important? That’s probably the most important question of all. Ron Paul was right to bring that up and question that in the debates like he did. Governments aren’t supposed to be our nannies. They’re supposed to protect our rights that we already have. They cannot create them, but rather, take them and sell them back to use for a price (think marriage, for an example). When government is big enough to give you everything, as a lot of these progressives would love to have, they fail to recognize that it also holds the power to take it away if they wanted to do so, and that’s why I, like many others, don’t believe in these programs, and don’t see them as a proper role in government, and thus need to be cut.
The Paul plan also fails the basic test of progressivity. It promises a big tax cut for everyone, but analyses show it would be a big tax cut for high earners and businesses and basically a wash for everyone else.
I guess they forgot to link to that? I don’t know. I’ll keep looking for them. What’s interesting here is that the Times assumes that the rich are actually paying the high rates that are stated (somewhere) in the tax code for their brackets. After all the deductions and loopholes, which through the help of a tax attorney who knows the code, they can avoid paying exactly those high rates. The Paul Plan leaves only two deductions: for charitable contributions, and mortgages. The rest all disappear into the trash can (or the burn pile). So, the rich would actually pay more than they have been in the recent years, and yes, they’d pay more than those working at McDonald’s (actual dollar wise).
Mr. Paul might be on to something if he were willing to acknowledge that his flat tax is essentially a value-added tax similar to those used in all market-oriented democracies except the United States.
The New York Times claims that this is a Value Added Tax, or VAT. I find problems with that simply in the very definition of the term itself. Here’s the definition from Investopedia:
A type of consumption tax that is placed on a product whenever value is added at a stage of production and at final sale. Value-added tax (VAT) is most often used in the European Union. The amount of value-added tax that the user pays is the cost of the product, less any of the costs of materials used in the product that have already been taxed.
We can see the problems with this already. The Fair & Flat Tax Plan is still taxing income, and much that I don’t like an income tax, we’re talking getting rid of many other taxes in the process, for which, I can settle with this for now. A consumption tax is completely different. The tax only is applied when a person or firm buys something. This is a Sales Tax, for example. These two tax very different things. One before you have your net income, and the other after you have your net income.
The Times does do good in pointing out the problems with a VAT, but the Paul plan simply is not a VAT.
Mr. Paul’s plan heads the wrong way on all those fronts, providing less progressivity and more cuts to spending and investment. It is bad policy, and it does nothing to foster a meaningful debate about the economy or taxes.
Less progressivity? From the same people who call for equality? Really? That aside, this actually helps, because the plan takes away those deductions the wealthy people have been using to pay a very low rate. The NYT would rather see them with a higher rate, but I guarantee that the deductions will not be taken away. The necessary cuts would actually be good, as this would allow private investment, by individuals and businesses, to take place, now that they have more capital of which to invest. This plan would allow families in trouble to breath a breath of fresh air, and begin to gain some stable ground.
To be fair, it’s a good policy to have a debate over taxation with. For the past so many years, all that’s been done is fiddle with the code. This is radically different. This is a game changer. This is what separates Paul from the crowd, and to say that this “does nothing to foster a meaningful debate about the economy or taxes” is truly off-point, and selfish. The Founders rebelled over taxation when it was in the single digits. Proclaiming that government can better invest money worked hard by other people is grossly inept and stupidly selfish and cronyist, if you ask me.