Giving Back the Tax Cuts: A Guest Post

My colleagues Jacob Hacker and Daniel Markovits have created a cool website called?www.GiveItBackForJobs.org that not only includes a useful tool to let you calculate the size of your tax cut, but suggests that “Americans who have the means should collectively give back our Bush tax cuts, by making donations to organizations that promote fairness, economic growth, and a vibrant middle class.”? Here’s a post from the creators themselves that gives more details:

Giving Back the Tax Cut
Daniel Markovitz and Jacob Hacker

If a dysfunctional political process leads to bad fiscal policy – a pretty good first approximation of the current state of play in Washington and the tax deal it produced – what are ordinary citizens to do? Can citizens make shadow fiscal policy that at least partially counteracts the government’s?

On the revenue side, this question raises the familiar specter of Ricardian Equivalence – the proposition that consumers internalize the government’s budget constraint and thus respond to government borrowing by increasing savings, nullifying the stimulative effect of public deficits. ?That proposition has been much discussed of late, including in the blogs associated with this newspaper (see here).?The best current thinking suggests that Ricardian Equivalence does not fully hold – private savings does not offset public borrowing one-to-one. Moreover, even if it did fully hold, a temporary increase in government borrowing would still retain a stimulative effect. Even if consumers do save to offset the public borrowing, their savings will be spread over many years while the increased public spending enters the economy immediately, producing an economic stimulus.

But what about the spending side? Suppose citizens think that government stimulus is unfairly and inefficiently allocated. In the recent tax deal, modest support for middle class Americans was combined with massive tax cuts for the rich. This is unfair: the rich don’t need the help. It is also inefficient: the rich will save rather than spend their tax cuts, so that cutting their taxes yields little stimulus per dollar of deficit. Can citizens adjust their conduct to counteract such wrong policy?

We believe that they can and propose a mechanism for doing so. The most fortunate citizens can convert their inefficient and unfair tax cuts into good fiscal policy. Rather than saving their new-found after-tax income, citizens who can afford it should donate their tax cuts to charities that promote the kinds of stimulative programs that better government policy would provide.

We’ve built a website to help achieve this – www.giveitbackforjobs.org enables citizens to calculate their approximate tax cuts and, acting in concert, give them back to appropriate charities. Acting together matters here. First, each participant encourages others to join as well. Second, by tying giving to tax policy, donors emphasize that they are not giving out of private grace, but from a shared sense of the obligations of citizenship. They practice?political philanthropy.

We’re not so naïve as to believe that all the tax cuts will be given back. But we are convinced that there are many, many Americans who have the means and the desire to encourage a better policy. By actually putting their money where their mouths are, they won’t just be helping out their fellow citizens and encouraging economic growth; they will also be signaling the need for a better?public fiscal policy.


Deron White

Seems to me there is certainly room to try such an effort. For many wealthy people the purchasing power of the middle class remains important to the maintenance of their wealth, so self-interest does exist.

I would urge that in your copy regarding the tax cuts, the word "fairness" be removed. Regarding taxation "fairness' is a slippery term. It suggests a shared measure that does not exist. For anybody with wealth, or even hopes of wealth, there is plenty in the tax system that looks unfair.

Efficiency on the other hand, is an excellent choice.

DaveyNC

Will you publish your results? How much raised, how many contributors, etc.?

Vangel

It is good to see in writing admissions that government is not as good at spending our money as private individuals. If charities are so much better at doing the things that governments try to do why is it that we allowed governments to tax us as much and squeeze out mutual societies, church organizations, and other institutions that were far more effective?

John B. Chilton

You write, "Acting together matters here." Did you give thought to introducing an assurance contract aspect to your scheme, where the contributions would be canceled if a certain threshold of number of contributors, or total contributions was met?

Tumbolian

Tax cuts for the rich are inefficient? Since deadweight loss is a function of the square of the marginal tax rates, I would contend that tax cuts for the rich are the most efficient.

Thomas Sewell

So they advise giving money to private charities instead of the government? Wouldn't that put them with the same idea as those who advocate for the tax cuts? Who advocate that people will do better things with the money than the government would?

If they were serious about their position that the tax cuts were a bad idea, they'd be advocating giving the money people would otherwise keep directly to the government.

Of course, if they suggested that, everyone would realize that the government would not provide much in the way of marginal tangible benefits with the money, so people would be better off spending the money themselves instead of it being taxed away from them.....

How much not legally required money did Daniel Markovitz and Jacob Hacker voluntarily donate to the government last year? I suspect the answer is the same for them as it is for most everyone else, $0.

The hypocrisy and cluelessness is simply amazing...

Don't even get me started on the rhetoric of giving "back" to a private charity something that you earned, that you didn't get from private charity, nor from the government. Politically correct language in which everything everyone has is a gift from the government.... where will it all end?

Read more...

Karen

The idea is a compassionate conservative's wet dream -something Mitch McConnell can point to when calling for cuts in social safety net programs. Since corporations are already running the government, how about actually hiring people instead of making charitable donations to ease what little conscience you have?

Oh, and I am sure all those charitable donations are tax deductible, too, saving you even more. This is win/win for rich people and a horrible deal for everyone else. We would rather you pay your fair share in taxes, so call Congress and say you want to be taxed at Eisenhower era levels.

Thanks, and Happy New Year.

Ian Kemmish

1) Would the rich really save and get half a percent, or invest an get ten percent? The money they invest doesn't just get salted away - it starts off on another lap of the economy.

2) I can't tell the difference between "private grace" and a "sense of the obligations of citizenship". Even if you insist that the two are not entirely equivalent, the second must surely imply the first.

3) And if it does, and if I'm going to give to charity,then there are much better charities to give to than local unemployed people. Let's say the fight against malaria for the sake of argument. Anyone who thought the former a better cause than the latter would have to have your sense of obligation - and ONLY in a local sense - but at the same time lack any grace. Do such people exist?

DWS

First, I don't see it my job to, as your web site declares, "begin to redeem candidate Obama's promise".
Second, the Bush Tax cuts were in response to 9/11 and were effective and should remain in place indefinitely to encourage economic growth.
Third, it's not the revenue side that is out of balance. The progressive tax system is alive and well and the high income earners pay substantially more in taxes than the infamous "middle class".
Fourth, it's the spending that is out of control. Previous administrations and congresses have contributed to this, but the current administration has really shot the moon here.
Lastly, if the current rate of excessive federal spending doesn't subside soon, the savings of the wealthy will be devalued back to the 60's.

Jackson

Let me just say that respect the efforts by Jacob Hacker and Daniel Markovitz to raise money for charity, and I hope their efforts will be wildly successful.

While I like their goal, I take issue with a number of things in this article. It is very hard to take an opinion seriously when they use media buzz words and catch phrases as though they actually represent the facts. To say that the rich are receiving massive tax cuts this year is absurd. They are simply not having their taxes raised. Contrasting that with "modest support for middle class Americans" is clever, but misleading. The rich still pay a higher tax rate, and there were no changes made to the income tax rates for the middle class or the upper class this year.

Then, to think that people should be upset that their taxes weren't raised is delusional. Do they think that people who earn a lot of money will be upset about not having their taxes raised? Has anybody ever actually felt this way?!?! Furthermore, they suggest that this donation program will act as a signal to the government to raise taxes, and they have the hubris to present this as a good thing. Unbelievable.

Read more...

Thomas Sewell

If there wasn't so much evidence that this is real, I'd think it was a parody ala The Onion....

Colin

James Taranto picked this apart pretty well here:

http://online.wsj.com/article/SB10001424052748703909904576051572334343448.html?mod=djemBestOfTheWeb_h

Jack Freymuller

Food for thouht:

From the ATLANTIC , April 2004, page 62, in an article by Michael. J. Sandel, Harvard Univ:

"Why do the successful owe anything to the least-advantaged members of society? The best answer to this leans heavily on the notion of giftedness. The natural talents (and in many cases the financial structures and support) that enable the successful to flourish are not their own doing but, rather, their good fortune - a result of the genetic (and parental ?) lottery. Thus, if our genetic endowments are gifts rather than achievements for which we can claim credit, it is a mistake and a conceit to assume that we are entitled to the full measure of the bounty they reap in a market economy. We have an obligation to share this bounty with those who, through no fault of their own, lack comparable gifts ( and support) "

Words in parentheses are mine.

Green-Man

I can really feel for the people with student loans that are crippling their lifestyle.
Just that they have no Idea what high taxes are as a working stiff barly getting by. I paid 30% and my tax rate was minor compared to years ago and say you want to be taxed at Eisenhower era levels.
What todays 34.6% is to high?
Your student loans are killing you with your 250,000 income.
Look at 1956's tax rates.

~Chris

You are assuming that people aren't doing this already. Many many are giving large sums of money to charities that do great work, and have done so for generations. By large sums I mean in terms of percentage of income. These people feel it is their moral obligation in response to Gods grace in their lives. By the way, these people don't generally take vacation after vacation to Hawaii / Spain...etc.

Joe

How can these guys be 'academics' when they ignore the last 150 years of research on the biological basis for human behavior?

I'd love to see how this works out (my bet is an almost immeasurable amount of $ is contributed *)

* not 'given back', which makes no sense in this context.

MPCT

If the authors believe that taxes should be higher to pay for more government programs than why advocate giving to private charities? Just pay more taxes than you owe. Don't take deductions etc The Treasury takes donations as far as I know.

Eric M. Jones

As a spreadsheet exercise, write down how to spend a billion dollars in any reasonable (or even) extravagant way. Basically unless you spend all your time just spending money, you can't do it.

2% of the population has 50% of the wealth, 50% of the population has 2% of the wealth. Start the revolution, or find some other way to make the game less fixed.

W.M.

Guess what: They are no longer "Bush tax cuts". Now they are Obama tax cuts.

Besides, why is this country vilifying the rich when the bottom 50% of tax payers pay only 3% of income taxes collected and the top 5% pay almost 60%? Don't let a few thieves in Washington and Wall Street lead you to believe that everyone who has been successful did it through dishonesty. There are a lot of wealthy people who got there honestly, through hard work and risk taking. They shouldn't be punished for being successful.

If you feel you're paying too little in taxes, you are always free to send in a check to the IRS. That takes a lot more character than whining about other people's taxes being too low, even when they pay more than you.

Sean

The upper 1% earned 19.6% of total income before tax, and paid 41% of the individual federal income tax. "No other major country is so dependent on so few taxpayers"