The Piketty Moment, the Democrats, and the Upcoming Elections

Tax Talk:  Pre-distribution or Redistribution?

by L. Randall Wray, New Economic Perspectives, with significant contribution from Lambert Strether

I’ve been blogging a series on the role of taxes. In the first piece, I argued that “taxes drive money”, in response to a silly claim that MMT argues we do not need taxes. In the second instalment I examined other uses for taxes — including to reduce excessive aggregate demand and to discourage “sin”. Most importantly, I argued that we do not need taxes to “pay for” sovereign government spending. In the third piece, I argued against the “Robin Hood” view that we need taxes to “take from the rich to give to the poor”. That should be obvious — we can spend on the poor without any tax increase, and indeed could spend on the poor while reducing everyone’s taxes.

Predictably, that third instalment riled the liberals. There’s nothing they like more than using the need to spend on the poor to justify raising taxes on the rich.

What was more surprising to me was the reaction from the former MMT/Austrian/Libertarian/Neoliberal/Regressive-leaning commentators over at Naked Capitalism (which reposted my third piece). As always, when it comes to attacking MMT, all standards of integrity, logic, and civil behavior are thrown out the window. Outright lies are OK: I’ve supposedly taken a pledge against taxes (stupid comment — read my blogs); my salary is paid by Warren Mosler (a lie; I’m a public employee paid by the state of Missouri which posts my salary online); I’ve never provided details on how to reduce inequality (another stupid and dishonest comment); and on and on.

My claims were two-fold: linking “tax the rich” to “help the poor” unnecessarily burdens sensible policy to reduce inequality at the bottom. Sure, we can “tax the rich” and we can “help the poor” but combining the two makes it harder to get the “help the poor” policy. My second claim was that it is difficult to reduce income and wealth at the top using the tax system.

Note that truth of this second claim is not at all necessary to the first claim.

[I went on to argue that incarcerating the rich for their crimes would do more good by discouraging their thieving. That led to a bizarre rally of support for thieving by the rich! See footnote below for my response to one other particularly nasty claim made by at least two critics.*]

I’m no political scientist and my claim that the attempt to raise taxes on the rich would fail was mostly an empirical claim, based on the work of  Philadelphia Inquirer reporters Donald Barlett and James Steele who went through the tax code and documented that the rich DO NOT PAY TAXES because they’ve had thousands of PERSONAL exemptions written into law. Sometimes facts matter! (But not to commentators.)

In any case, this series will continue and I’ll get into a bit of nitty gritty on what kinds of taxes I favor.

Meanwhile, Lambert Strether (who runs interference against trolls over at Naked Capitalism) penned an exceptionally good piece on what we might call the “political economy” of taxation explaining why “redistribution” through Robin Hood schemes won’t work.

Here’s Lambert; I’m reposting with his permission. The original is here:

This post began with an exchange in comments at Naked Capitalism; it’s a response to a “Distributionist” proposal by contributor Hugh in response to a post by Randall Wray, “Forget Taxes for Redistribution – What to do About Inequality”. Popularizing, we could define our terms using short-hand slogans from the New Deal era: “Soak the rich” would stand in for “Redistribution,” since redistribution’s intent is to reallocate wealth using the tax code; and “New Deal” itself would stand in for “Pre-distribution,” since redistribution’s intent is to reallocate wealth via government programs and services. (“Predistribute” because, as MMT teaches, government spending can come before the collection of taxes, and does not depend on them.) Note also that “Redistribute” is just a little bit deceptive; granting that we could raise tax rates on the rich effectively, that does not automagically net out positive for those who are not rich. Suppose we raised a trillion new dollars with progressive taxation, and then blew it on a manned space mission that the oligarchs build Galt’s Gulch on Mars? (Trickle-down enthusiasts, the door is to your right.) Or a lottery where all the proceeds went (again) to a winning 1%? –Lambert.

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Dear Distributionist:

I’ve read your proposal to “Soak the rich” — which I’m all for — and these are my thoughts.

Ultimately, people support government programs because they deliver concrete material benefits; that’s why programs like single payer in Canada or the NHS in the UK or Social Security and Medicare in this country are hard to dislodge, no matter how hard the neo-liberals work to degrade, privatize, and loot them.

And programs that deliver concrete material benefits are hard to dislodge because they develop constituencies and institutions that support them. Show me the enduring constituency for (say) a steeply progressive tax code! There isn’t one. And why? No concrete material benefits for voters, that’s why. Suppose the Piketty media boomlet turns into a constituency of sorts. Show me why that constituency is going to end up more powerful than a program like Social Security, that sends you a check in the mail (even today), or a program like Medicare, that gets you medical care (even today).

That’s why the best course is the one that Wray advocates: Pre-distribution. I’m a big fan of “Show me the money.” “Show. Me. The. Money.” Pre-distribution shows me the money. Messing about with the tax code does not. I can read about a “tax fight” in the papers, but at the end of the day I have to ask a question: “And I get?” What do I get out of your Distributionist plan? Read it through, and you’ll see the answer: Nothing. Zip. Zilch. Nada. A big fat zero. Actually, to be fair, I get the good feeling of having taken revenge on evil-doers (and evil they are!). But feelings don’t pay the grocery bills, and a check in the mail does. Show me the money! (You can’t, because Federal taxes don’t fund spending anyhow). And I get? The only answer is nothing. I read the proposal, and there’s nothing in it for me.

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Now let’s give some consideration to the whys and wherefores of the Piketty boomlet, and the whole “income inequality” gambit. (Wrong phrase: It’s “income inequality”; it’s class warfare. Not that you’ll ever hear a Democrat say that.)

1. We know that both parties and the political class as a whole are fully committed to a neo-liberal worldview that rejects the public delivery of public services for public purpose in favor of private delivery of public services for private purpose, through rent-seeking intermediaries (hence ObamaCare and not single payer, charters, and on and on and on).
2. We know that “income inequality” and the Piketty book are being pushed by the Democratic nomenklatura and the career “progressives,” subsets of the political class above.
3. We know that the Democrats pushing “income inequality” and Piketty got Obama elected and still “have his back,” even though he’s a con artist who’s “the more effective evil”.
4. We know that the Democratic 2008 campaign took a massive popular wave of desire for “hope and change” and dissipated it, completely and deliberately (through, for example, closing down OFA).
5. We know that the Democrats, and especially the career “progressives,” are expert at devising roach motels for progressive energy.

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So where does that leave us?

Let’s assume that a Distributive tax program like yours is the main focus of good-hearted and sincere leftists (like yourself) in the 2014 and 2016 campaigns. (You didn’t the Piketty boomlet was happening for any other reason, right?) So let’s see how all this is likely to play out.

Leaving aside lots and lots of spam for money and petitions from Democratic operatives paid by the click:

1. Massive “tax fight” in Congress in the Fall of 2014 and the summer of 2015. (There will be lots and lots of stories of wretched excess by the filthy rich, and the Senate may even bestir itself to [gasp] hold hearings, something Democrats could never bring themselves to do when the filthy rich had committed well-documented crimes.)
2. The uproar over “tax reform” will therefore turn out to be another “progressive” roach motel. Real outrage and real desire for reform will be fed with the empty calories of TV images from another Beltway circus.
3. A “tax reform” bill may even, after tremendous labor, be passed into law.
4. In due course, say in a decade or so, the law will be seen to have sadly come to nothing, exactly for the reasons Wray gives. (Even as you accuses Wray of pearl clutching, I notice that your proposal does not address how these taxes are to be collected; Wray claims they cannot.) This will happen more or less unnoticed, since as I pointed out above, there’s no constituency for such a law, since it does not deliver any concrete material benefits.
5. Therefore, what the neo-liberals really fear and hate — public delivery of public services for public purpose — won’t even be “on the table” at all. No “infrastructure program to begin to repair our deteriorating public goods, with the jobs targeted at the working poor” (Wray). No “universal preschool” (Wray). Robin Hood, shouting “Soak the rich!” in a “tax fight” will have sucked all the oxygen out of the room, choking the “New Deal.”
6. Democratic nomenklatura to their funders: “Mission accomplished!”
7. Democratic apparatchiks to each other: “BWA-HA-HA-HA-HA-HA-HA!!!! The ol’ ‘roach motel’ play worked again!” They never learn! [high fives, PBR all round]

Obviously, we should tax the rich painfully, to prevent the formation of an aristocracy of inherited wealth, to prevent the rich from buying the government with their loose cash, and for the psychological and spiritual well-being of their children. We also need to see banksters in orange jumpsuits doing the perp walk. Even if the statute of limitations for their crimes in the housing bubble now applies, they have doubtless committed fresh crimes. But let’s not bet the farm of delivering concrete material benefits on solving “income inequality” with the tax code. Na ga happen. The American people really need the left to do better, and the Democrats are doing all in their power to prevent that. Sadly, reactions like your proposal play into their hands.

Cordially,

Lambert Strether

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*Footnote by Wray: At least two commentators claimed that my side comment on Banksters waking up in prison next to a tatooed roomie named Bubba was meant to support prison rape. Another lie. Any careful reader would have seen I used the name Bubba twice in the piece, with an intentional symmetry. I think the Bankster class would not mind having Bubba Clinton as a roomie (if they had to have a prison roomie) since that would probably increase post-release opportunities, as opposed to the other Bubba with tatoos. I realise that tatoos no longer mean what they used to mean, but a couple of decades ago abundance of highly visible tatoos was a sign of time spent in the joint–and probably not the kind of roomie our incarcerated bankster class would choose. I spent a fair amount of time in prisons in the early 1970s and do not condone violence against prisoners. I do think that incarceration of criminals at the top of the banking system would serve as a strong disincentive to banking crime.