Thursday, April 02, 2015

Stiglitz nails the Conservative Nanny State in tax policy

I have just finished reading a very interesting and compelling white paper by Joseph Stiglitz. Stiglitz brings numerous credentials, awards and years of experience as an economist. He is the 4th highest cited reference by other economists in the world today.

His paper, "Reforming Taxation to Promote Growth and Equity", offers well documented debunking of the usual conservative arguments in support of their "deficit fetishism". Stiglitz gives us a short tour of how conservatives see deficit reduction as a means to an end, paying no mind to how to grow the economy while reducing the deficit. He also shows how conservatives seem more interested in propping up their benefactors than helping everyone.

This paper gives a great overall sense to the subsidies built into the tax system for the richest 1% and to the richest corporations. Stiglitz has shown how "tax expenditures" are really being used as a guise for subsidies in the corporate tax system. The corporate tax code is a system of taxation where the taxes are paid, but then the money is paid back in huge refunds to the largest corporations. He makes the following observation about the corporate tax code:
"But embedding these gifts to the corporation inside the tax code has two benefits to the corporations: The expenditures are less transparent, less subject to scrutiny. And the payments automatically go up, say as the level of the “preferred” activity increases."
In other words, if you run a wealthy corporation, you can afford the lawyers that can find and support your claim of qualification for these tax expenditures. They're complicated so they're hard to explain to the average person on the street. Complexity is a feature not a bug.

In this paper, Stiglitz provides a comprehensive review of our tax policy and shows that the inequality produced by the tax system weakens the economy. He has found numerous subsidies built into the tax system that are not forward thinking and that have multiplier effects on our economy. He has also described positive and negative multiplier effects and that properly designed, the tax system can multiply the effects we desire and discourage the behavior we find damaging with high social costs while growing the economy.

One item that I really appreciated was his suggestion of a surtax on monopolies and rent-seeking behavior. Rent-seeking is one of the lowest forms of economic behavior and is associated with absentee ownership, you know, like organized crime. Examples include copyrights and patents, cable and telephone monopolies. Where there is monopoly, there is no competition and where there is no competition, there is little incentive to invest in anything more than lawyers. A surtax on monopolies would help tilt the scale to the point where actually working to serve customers might seem more profitable.

Stiglitz also pays notice to entities that seek to gain by externalizing their costs. By taxing activities that tend to externalize costs at a higher rate, we can encourage a more efficient economy. One example is to tax polluters with a carbon tax. We all pay for the carbon in the air, but the executives who run enterprises that emit carbon take the money to the bank rather than invest in ways to keep the carbon out of the air. This is a way to externalize the costs of an enterprise. A tax on such activities will go a long way to reducing the carbon we put into the air.

The white paper is 29 pages and goes into many details I can't go into here. But there is one point that Stiglitz mentions in the end that is particularly important:
"We can reform our tax system in ways that will strengthen the economy today, address current economic and social problems, and strengthen our economy for the future. The economic agenda is clear. The question is, will the vested interests which have played such a large role in creating the current distorted system continue to prevail? Do we have the political will to create a tax system that is fair and serves the interests of all Americans?"
I believe that the political will exists to pass and implement the policies recommended by Stiglitz - if we're talking about the average American. But if we're talking about members of our Congress, no, the will is not there because the money they receive points in the opposite direction. This is the problem that must be addressed before any reforms can be made. We must reform campaign spending so that Congress listens to the rest of us, not just the 1% or just the 0.1%.

Here are two websites dedicated to that cause:
The Friends of Democracy

Stiglitz has nailed The Conservative Nanny State in the tax code. Now it's up to us to reform campaign finance so that we can arrest the cancer of money in politics. Then we can enact real tax reform so that all of us may prosper, together.
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