Please Explain These Economic Theories To Me....

Please speak slowly and use small words.

Rep. Darrell Issa (R-CA) was on Real Time with Bill Maher, advocating a VAT (a significant national sales tax) as good policy, premised upon his position that imported goods are sold without contributing to Social Security or the general fund. There, he argued, European nations have better tax policy than the U.S. So help me out here - how is he not arguing in fact for tariffs? And why is it better to have a VAT which affects all goods - whether or not they are manufactured in the U.S. - even though by Issa's logic that would amount to the double-taxation of U.S.-manufactured goods? (And wouldn't the VAT, a regressive tax, swallow whole Sebastian Mallaby's notion of Wal-Mart as a giant welfare program?)

And speaking of Mallaby, in today's homage to labor, he proposes saving us all through tax reform - but surprisingly not a VAT. (I guess he wants to preserve the benefits of those low Wal-Mart prices.) Trade protection, he tells us, is bad - so I guess he's really not at all on the same page as Rep. Issa. He argues that "The case for unionization appears better than it has in a generation," but sees it as at best a minor part of the solution to inequality. He also argues that a minimum wage increase won't have much benefit as it will only "directly benefit fewer than 6 million workers" - apparently indirect effects don't count.

Then he proposes his first "meaningful" reform - the elimination of the mortgage interest deduction. "More than half of this subsidy flows to the top 12 percent of households with incomes over $100,000; the poor get very little." Okay... so if the problem with the subsidy is inequality, why eliminate it? Why not cap it, the way we cap contributions to Social Security in order to be, um, fair to the wealthy? Yes, as he argues, "affluent families would own their own homes anyway," but how would the elimination of the mortgage interest deduction increase home ownership? Or if it wouldn't - if he really believes it makes no difference - what alternative does he propose that will help the poor obtain homes, the middle class keep the homes they have, and let the rich carry on as usual? Even if he sees the mortgage interest deduction as flowing largely to the wealthy, by his own assertions its elimination would effectively significantly increase the tax burden on the middle class - and is there any real question that without the mortgage interest deduction a significant number of people in the middle class will have to move to lesser housing? This is a tax reform that will reduce inequality?

Then he proposes eliminating tax subsidies on retirement savings. Again, its that the rich will save anyway, so they don't need the subsidy. He argues that the poor don't save. He somehow forgets to mention the middle class. If you subsidize savings, it seems, "A chance to boost national savings is wasted." How, exactly, does he come to believe that eliminating a subsidy for savings will boost national savings?

Finally he complains that some people have really good health insurance (probably himself included) which "throw money at health services; health inflation goes up, making insurance too expensive for poor families". He argues that "the ranks of the uninsured could be reduced by at least 1 million if the tax deduction for health insurance were capped at a reasonable level." Okay.... As we approach fifty million uninsured people in this country, he has a plan that in theory will cause the rich to get less insurance coverage. Unlike their houses or savings accounts, when it comes to their health the rich apparently won't spend their own money to make up the difference, so there's less money flowing into treatment and health inflation drops. And that means we end up with 45.6 million Americans who are uninsured instead of 46.6 million? Wait - didn't he just tell us that it's not even worth doing something if you only directly benefit six million people?

And seriously - he suggests that if we cut these subsidies, which he argues largely benefit the middle class, we will be able to redirect the increased tax revenues (we won't call it a tax increase) to "a big expansion in the earned-income tax credit plus a cut in the regressive payroll tax"? It seems fair to assume that he's not proposing that Social Security contributions be paid out of the general fund, so those would stay the same? So... it will be a greater contribution to Medicare from the general fund to allow the reduction in payroll taxes? Does he truly anticipate that the "big expansion in the earned-income tax credit" will result in more of the poor people who qualify for that subsidy to save money or buy houses?

I would venture that Rep. Issa would propose a reduction in income taxes in association with the implementation of a VAT, such that the rich pay a lot less tax and the poor pay a lot more. Mallaby seems to believe that the rich don't need tax deductions and the middle class will take care of themselves, but does he sincerely believe that this nation is in any sort of mood (particuarly following the elimination of tax deductions which significantly benefit the middle class) to increase its subsidies to the poor? Fergudnissake, we already let them shop at Wal-Mart.

Our nation's tax policies are pretty awful, and they could use a lot of heavy-duty housecleaning. But look at the Tax Code - look at the manner in which it caters to the wealthy and to various special interest groups. Oh, you may be able to get changes through which benefit those groups, while tricking the middle class into going along. (Isn't that the story of GW's "tax reforms" to date?) But if you truly believe you can take away deductions which you argue don't matter to the rich (as if such a deduction exists) at significant detriment to the middle class, so you can provide an increased subsidy to the poor... is it really necessary to tell you, "Ain't gonna happen?"