Obama having it both ways with tax rates

I just got done watching (the rather dull) Obama news conference, and something caught my attention about Obama's position on the tax deduction for charitable giving:

And what we've said is: Let's go back to the rate that existed under Ronald Reagan. People are still going to be able to make charitable contributions. It just means, if you give $100 and you're in this tax bracket, at a certain point, instead of being able to write off 36 percent or 39 percent, you're writing off 28 percent.

...

And so this provision would affect about 1 percent of the American people. They would still get deductions. It's just that they wouldn't be able to write off 39 percent.

In that sense, what it would do is it would equalize -- when I give $100, I'd get the same amount of deduction as when some -- a bus driver who's making $50,000 a year, or $40,000 a year, gives that same $100. Right now, he gets 28 percent -- he gets to write off 28 percent. I get to write off 39 percent. I don't think that's fair.

So Obama seems to be arguing for tax deductions to be "flat"--for a person making $50,000 a year to receive the same percentage deduction on charitable giving as a person making $500,000. But this is just the converse of the flat tax! The same logic that argues for a progressive tax structure on the disincentive side also argues, conversely, for a regressive tax structure on the incentive side. In other words: if we can tax Bill Gates a higher rate because giving up 39% feels way less painful to him than it does to me, then we must also incentivize Bill Gates at a comesurately higher rate, because his gaining 28% feels way less pleasurable to him than it does to me.

(Related post here.)

Re: Flat tax

An email I sent to the Sullivan blog with regards to the flat tax issue. I don't know if anyone will ever read it, but whatevs.

Hi Andrew,

You write that you want government to raise money "as equally as possible", and that you disagree with the idea that "tax policy should really be about redistributing wealth, and engineering substantive economic outcomes." This is all well and good. However, it is not clear to me that nominal equality in the tax code--i.e., everyone being taxed by the same numerical percentage--necessarily translates to the sort of "equality" that you are interested in. Certainly, if minimizing the impact of taxation on society is your goal, you will favor a scheme that imposes as few burdens as possible on society, and imposes them as equally as possible across all members, thereby making the government's presence in our lives as neutral as possible vis-a-vis our situation in life--our level of wealth, our ambitions, etc.. But to speak of a burden is to speak of a subjective state of the individual, a felt cost. Because a flat tax ignores the fact of diminishing returns on income--the fact that my 100,000th dollar earned means less to me, is worth less to me than my 1,000th dollar earned--it thereby imposes a very uneven burden on society, causing there to be a proportionately greater felt cost to the less wealthy.

So the question is: what is the more meaningful interpretation of "equal taxation"? Does it mean taxation that, while nominally equal for everyone, imposes a far greater burden (as subjectively evaluated by the individual) on the less wealthy? Or does it mean taxation that, while not nominally equal for everyone, makes some attempt to equalize the felt cost of taxation across all members of society?

Flat tax

Andrew Sullivan recently mentioned in an offhand way that he favors a flat tax, which I suppose triggered a big reaction, because he has followed it up with a longer post defending his position. He says:

So yes: a flat tax so far as possible for as many as possible and no deductions. That's my goal. How that differentially impacts the lives of citizens should not be government's primary concern.

Government's primary concern is to raise money as efficiently and as leanly and as equally as possible. I'm happy with the government then setting up programs to assist the poor, to provide better education for those at the bottom, safety-net healthcare and better policing. i.e. to gear spending toward social ends that might help the poor the most. These are measurable, practical goods. What I'm not happy with is the assumption that tax policy should really be about redistributing wealth, and engineering substantive economic outcomes. Yes, of course, at lower income levels, a 20 percent flat income tax will be more onerous proportionally than at higher incomes. So what? Why should that even concern a government that is not aiming to socially engineer more substantive equality? and the alternative - skewing taxes to target success - is an absurd set of incentives to put into a growing society.

So Sullivan wants the government to raise money "as equally as possible", and does not want the government to redistribute wealth. But why does a flat tax accomplish this any more than a progressive tax? The law of diminishing returns states that the 100,oooth dollar you earn is less valuable to you than the 10,000th dollar you earn, and that the 10,000th dollar you earn is less valuable to you than the 1,oooth. Given this, it makes sense that the government should tax at the lowest rates for the first dollars you earn and gradually raise that rate for successive dollars earned. Since the same progressive rate is applied to everyone, money is raised "as equally as possible".

Yes, of course, at higher income levels, a progressive tax structure will be nominally higher than at lower incomes. So what? Why should that even concern a government that is not aiming to socially engineer more substantive equality? And the alternative - skewing taxes to target poverty - is an absurd set of arbitrary penalties to put into a fair society.