Tax Talk

A few days ago, October 19, there was a debate, unrelated to a candidate campaign, between Senators Ted Cruz and Bernie Sanders on CNN. [Transcript here.]They had one a while back on Obamacare. This one was specifically about taxes, concurrent with a tax plan working through the legislative process right now.

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Ted Cruz started with this summary:

This debate is very, very simple. Bernie and the Democrats want every one of you watching today to pay more taxes. And Republicans want to lower the taxes for each and every person watching this debate.

Now, tonight I'm going to make a prediction. Bernie is going to suggest in just a few seconds that this is not really about you, this is about, "taxing the rich." That's what the Democrats always say. But here's what you need to know. Every time Bernie says the rich, what he means is taxpayers. And so if you pay taxes, he's talking about you.

And Bernie Sanders begins with, wouldn’t you know, coveting the rich and hating on those evil Koch brothers:

Let me make a prediction:

In two minutes, Senator Cruz is going to tell you that if we give tax breaks to the billionaires like George W. Bush did, like Ronald Reagan did, we're going to create zillions of jobs and you're all going to become very, very rich, that we have a trickle-down economic theory, tax breaks for the wealthiest people, the largest corporations, and, whoa, everything is good.

That is a totally fraudulent theory. Here is the reality of American society today. For 40 years, the middle class of this country, the great middle class has been shrinking. And what we have seen is a massive transfer of wealth from working families to the top 0.1 percent, trillions of dollars because of cooperate greed and an unfair tax system.

Now, the Trump Republican tax proposal that's before us today, this proposal is being pushed by Senator Cruz's campaign contributors, some of the wealthiest people in this country, by the Koch brothers, who are worth $90 billion. Why are they pushing this agenda? Because 80 percent of the tax breaks in this proposal will go to the top 1 percent.

In fact, 30 percent of the middle class will end up paying more in taxes. Forty percent of the tax benefits will go to the top 0.1 percent. This is massive tax breaks for the wealthy.

So it took one minute, just 163 words, to get to the Koch brothers, who are virtually never mentioned at Republican meetings (I attend many), or at tea party meetings (I attend even more of those), or on conservative radio, or in conservative articles. In fact, the first time I ever heard of them, it was in a left-wing pro-socialist article, claiming they had a stranglehold over all conservative thought—so I, a conservative thinker, looked them up just to know who they were. I wrote about them in May 2011.

There are, of course, exaggerations in Sanders’ prediction about what Cruz would claim: “zillions of jobs,” everybody becomes “very, very rich,” etc. So that even saying “more than zero jobs will be created” would sound like something to be flippantly dismissed. But I thought I’d look at some of the data. 

Sanders says the middle class has been shrinking for 40 years. Not sure that’s essential knowledge, but it seems measurable. So I looked it up. I think the data probably comes from a Pew Research Study. 

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Today the middle class is about 49.9%. That means that’s the percentage earning a middle income. Pew Research defines that as “two-thirds to two times the national median income for your household size” or about $46,000 to $141,000 for a 4-person household. Roughly 29% make a lower-class income, which includes entry-level workers, full-time students, retirees—not simply full-time workers who can’t make ends meet, although they are among this level. Another 21% make upper incomes.

The change has been happening over 40 years. But Bernie would have you believe this is all bad news. There has been a slight growth in lower-income households: from 25.2% in 1971 to 29% in 2015, so, over about 4 ½ decades—coinciding, incidentally, with the “War on Poverty.” Hmm.

But, most of the dwindling middle class has come at the upper end: from 14% in 1971 to 21.1% in 2015. So the middle class lost 3.8% to the lower class, and 7.1% to the upper class. In other words, more people are moving up. That’s not a bad thing.

Here’s another detail: “Upper-class Americans have seen their incomes rise 47 percent, while lower-class families have gained only 28 percent.” This is not a bad thing either, if you realize the good stuff is happening to more people. Unless you’d rather see bad happen to everyone if good isn’t happening to you.

And here’s another thing to note: while lower income families aren’t gaining as fast as we’d like, it’s not mostly the same families staying in poverty over those decades. Mostly those are newcomers—new young adults, new students, new entry-level workers. Most of those people gain experience and move up.

But Bernie’s view is that those poor families are specific people losing out because specific rich people are getting their gains.

That’s what you call covetousness. And “Thou shalt not covet.”

If we needed to summarize the difference between Sander’s view and Cruz’s view, it would be that Sanders thinks it’s unfair for anyone to rise; anyone who succeeds should have their rise taken away and given to someone who didn’t rise. Regardless of difference in effort. Using the force of government.

There was a significant portion of the debate talking about Denmark. A man from Denmark posed a question:

And, you know, these are countries which—where the government spends—taxes and spends approximately twice the level of the United States. And while I am very sympathetic to many of your spending proposals, especially on the things you mention on early childhood and single-payer and the like, I also know that these are countries that heavily tax everybody, not just the rich people, middle classes. They have consumption taxes on everything of 20 percent.

So while I'm very sympathetic to what you're saying, my sense is still that you would like to spend as a Scandinavian but not tax as one, is that right?

Since Bernie talked about how we need “free” health care and “free” child care—that these are “rights” we are born with and therefore the government is obligated to provide—let’s look at the cost of “free.” I wrote about Denmark a while ago. [  2-11-2016   ] Using data that a young Danish writer offered, an ordinary working class Dane who makes $25,000 DKK a month (about $4,000, which would be $48,000/year) ends up with 9,848.71 DKK before he can start making choices about how to spend it. Here’s what I said:

That is 39.39% of your original. You have paid 60.61% of your income. If you were wealthier, you would add 15% [in taxes] earlier in the process. Not far off from what Bernie Sanders thinks those terrible rich people ought to be paying here. But note that in Denmark everybody pays, no matter how little they make.

Socialism isn’t about getting free stuff; it’s about spending 60% or more of your income on those “free” things, without market choice. Everyone pays it. There’s no getting away from it. If you’re healthy and would rather pay for minimal health care, so you can save up for a down payment on a house, you don’t get that choice. If you want faster internet or more media options than the single media company offers, you don’t get that choice.

But for all the lack of choice, you work until mid-July or later for the government and can only use what you make the rest of the year to support your food, shelter, clothing, transportation, and entertainment choices.

Meanwhile, the government is telling you how happy you must be, because of the good way the government takes care of you.

To translate the numbers in our US experience, a single person makes $48,000 a year, which feels pretty good just out of college. But the government takes $29,092.80, leaving you $18,907.20.

But your healthcare is minimal; isn’t that worth it? If you’re a young, healthy person, do you think $2,424.40 is a good deal for you? Let’s throw in child care—not quite free; the Dane says it’s about $300 a month, depending on region. So, let’s take away $3,600 from your $18,907.20, which leaves you $15,307.20 for your discretionary spending like food, housing, transportation, or travel.

Do you feel better, earning $44,000, but getting to spend only $15,307.20 the way you choose, in exchange for “free” stuff?

Bernie made the false claim that the average Dane has a better standard of living than the average American. But 70% of Americans, according to the data he used, are middle class or above, so they can buy a home, one or two cars, high-speed internet, a big screen TV, and save up for vacations, open their own businesses, prepare for their retirement, and in every other way “pursue happiness.”

Meanwhile, their Danish counterpart is less likely to own a home, more likely to live in an urban setting (in an apartment, without land), and more likely to work for the government (1 in 4).

Ted Cruz brought in statistics about socialized medicine in Denmark:

If you look at socialized medicine, there are waiting periods. There's rationing. The government says, if you're an elderly person and you need a hip replacement, it says, well, you may not get a hip replacement. We were talking about Denmark. The average wait time in 2014 for cataract surgery was 83 days...

And the average time in Denmark, which he brought up, for hip replacement was 55 days, 59 days for knee replacement.

The man asking the question believed these statistics were more negative than the reality. Anecdotally, he reported that his mother was treated for cancer within a couple of days of her diagnosis. However, I don’t know exactly where Cruz got his statistics, but he’s not haphazard about gathering and memorizing that kind of thing. My own familiarity with socialized medicine, Canada’s, involves a former neighbor’s father. He was told they couldn’t do anything to treat his cancer, and he should plan to die soon. He studied, changed his diet, and came to the US for some necessary care. No thanks to Canada’s socialized health care system, he lived six more important years while his grandchildren were growing.

The health care discussion was a side issue for this debate. But what it did was clarify the two vastly different philosophies on taxation. Despite some early dissembling, Bernie Sanders was really in favor of raising everyone’s taxes, significantly—up to Denmark’s levels, which are the highest in the world.

Bernie finally admitted that, but he believed promising all the free stuff would persuade voters:

If we can explain to people, yeah, you're going to be paying more in taxes, it's going to be a progressive tax system. The wealthy are going to pay their fair share, not the middle class, not the working class, but everybody will pay some more.

Cruz pointed out that admission moments later, and Bernie interrupted to tell him not to put words in his mouth. He forgot (or maybe didn’t pay enough attention to know) that Cruz remembers what he’s heard verbatim; it’s his superpower. And he’s better at math:

Bernie's tax plan cost over $13 trillion. That's what he's proposed raising in new taxes. And who pays for it? Well, the Democrats always talk about the millionaires and billionaires, but here's a simple fact. We could take every single person making $1 million a year or more and confiscate 100 percent of their income, everything they make, every penny, and it would raise about $1 trillion, about 8 percent of the cost of Bernie's tax plan.

That means if you want tax revenue, you don't get it from the millionaires and billionaires. You get it from the middle class. You get it from the working men and women in this country.

One of Cruz’s better points was that higher taxes slow growth, and lower taxes lead to more growth. Cruz had charts. Growth is important, because we’ll never get Congress to cut enough spending to cut the deficit. Here’s Cruz’s summary:

Obama versus Reagan, under Obama, median income increased 6 percent. Under Reagan, 17 percent. How about African-Americans? Under Obama, median income increased 8 percent. Under Reagan, 12 percent. How about women? Under Obama, median income increased 6 percent. Under Reagan, 25 percent. Young people, under Obama, 9 percent, under Reagan, 55 percent. Young women, under Obama, 8 percent, under Reagan, 73 percent. And, finally, the bottom 20 percent, those struggling, under Obama, 12 percent, under Reagan, 40 percent.

What I don’t know is whether the current tax plan is as good as we need it. But what I do know is that we Americans make better decisions about how to spend the money we earn than the government does.