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.

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  1. Deron White says:

    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.

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  2. DaveyNC says:

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

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  3. Vangel says:

    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?

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  4. John B. Chilton says:

    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?

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  5. Tumbolian says:

    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.

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  6. Thomas Sewell says:

    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?

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  7. Karen says:

    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.

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  8. Ian Kemmish says:

    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?

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