Like I Said, We Have A Lousy Tax Policy

Here is exactly my point made in today's Washington Post. It is worth your time to read.

In American politics, stupidity is the name of the game

By E.J. Dionne Jr.
Thursday, July 29, 2010; A23

Can a nation remain a superpower if its internal politics are incorrigibly stupid?

Start with taxes. In every other serious democracy, conservative political parties feel at least some obligation to match their tax policies with their spending plans. David Cameron, the new Conservative prime minister in Britain, is a leading example.

He recently offered a rather brutal budget that includes severe cutbacks. I have doubts about some of them, but at least Cameron cared enough about reducing his country's deficit that alongside the cuts he also proposed an increase in the value-added tax, from 17.5 percent to 20 percent. Imagine: a fiscal conservative who really is a fiscal conservative.

That could never happen here because the fairy tale of supply-side economics insists that taxes are always too high, especially on the rich.

This is why Democrats will be fools if they don't try to turn the Republicans' refusal to raise taxes on families earning more than $250,000 a year into an election issue. If Democrats go into a headlong retreat on this, they will have no standing to govern.

The simple truth is that the wealthy in the United States -- the people who have made almost all the income gains in recent years -- are undertaxed compared with everyone else.

Consider two reports from the Center on Budget and Policy Priorities. One, issued last month, highlighted findings from the Congressional Budget Office showing that "the gaps in after-tax income between the richest 1 percent of Americans and the middle and poorest fifths of the country more than tripled between 1979 and 2007."

The other, from February, used Internal Revenue Service data to show that the effective federal income tax rate for the 400 taxpayers with the very highest incomes declined by nearly half in just over a decade, even as their pre-tax incomes have grown five times larger.

The study found that the top 400 households "paid 16.6 percent of their income in federal individual income taxes in 2007, down from 30 percent in 1995." We are talking here about truly rich people. Using 2007 dollars, it took an adjusted gross income of at least $35 million to make the top 400 in 1992, and $139 million in 2007.

The notion that when we are fighting two wars, we're not supposed to consider raising taxes on such Americans is one sign of a country that's no longer serious. Why do so few foreign policy hawks acknowledge that if they lack the gumption to ask taxpayers to finance the projection of American military power, we won't be able to project it in the long run?

And if we are unwilling to have a full-scale debate over whether nation-building abroad is getting in the way of nation-building at home, we will accomplish neither.

Our discussion of the economic stimulus is another symptom of political irrationality. It's entirely true that the $787 billion recovery package passed last year was not big enough to keep unemployment from rising above 9 percent.

But this is not actually an argument against the stimulus. On the contrary, studies showing that the stimulus created or saved as many as 3 million jobs are very hard to refute. It's much easier to pretend that all this money was wasted, although the evidence is overwhelming that we should have stimulated more.

Then there's the structure of our government. Does any other democracy have a powerful legislative branch as undemocratic as the U.S. Senate?

When our republic was created, the population ratio between the largest and smallest state was 13 to 1. Now, it's 68 to 1. Because of the abuse of the filibuster, 41 senators representing less than 11 percent of the nation's population can, in principle, block action supported by 59 senators representing more than 89 percent of our population. And you wonder why it's so hard to get anything done in Washington?

I'm a chronic optimist about America. But we are letting stupid politics, irrational ideas on fiscal policy and an antiquated political structure undermine our power.

We need a new conservatism in our country that is worthy of the name. We need liberals willing to speak out on the threat our daft politics poses to our influence in the world. We need moderates who do more than stick their fingers in the wind to calculate the halfway point between two political poles.

And, yes, we need to reform a Senate that has become an embarrassment to our democratic claims.

ejdionne@washpost.com