RFC: dividend tax cut piece

Peeps,

I got a bit stuck trying to figure out an ending on this piece. I thought
maybe throwing it open to comments will either help me finish it or make
perfectly clear the degree to which no one here is interested in reading
my crap *in draft*! :>

Kendall Clark
--
  The Bush plan

      A large part of the cost of President Bush's proposed economic plan is
      the elimination of the dividend tax, an unexpected move which has Bush
      admirers calling him "Reaganesque". Most Republicans sent out to
      defend Bush's proposal are being very careful not to call it a
      "stimulus package", since they know it isn't one: the majority of the
      predicted economic impact, such as it is, is expected to occur in
      years, not months. One Republican in particular, Sen. Bill Frist, the
      new Senate majority leader, is trying to sell the plan by distorting
      some very basic economic facts.

      Frist made the rounds of Sunday talk shows this weekend, taking his
      cues from Bush -- heretofore unknown as an ethicist or moral
      philosopher -- who said "double taxation is wrong". Frist based his
      defense of Bush's plan in part on what he called a "moral argument".
      Frist claims that eliminating the dividend tax is justifiable because
      the dividend tax is immoral. It is immoral, Frist adds, because it is
      a form of "double taxation".

      As Frist explains, dividends are taxed first as corporate profit and
      then taxed again when they're paid to investors. Taxing the same money
      twice, in Frist's view, is immoral, though he never offers any reason
      for that claim. It is, I suppose, one of those unimpeachable American
      truths, vaguely evocative of "no taxation without representation".

  What is "double taxation"?

      Is double taxation immoral? More importantly, what is it? You might
      think "double taxation" means paying both federal and state income tax
      on the same income. But that's not what the Republicans mean. Or you
      might think it refers to some feature of the federal tax code. Imagine
      that that code were such that it taxed income from "real estate
      holdings" at a 10% rate and also taxed the same income -- under a
      different provision of the tax code, say -- an additional 8%. The same
      income is taxed twice, for a total effective tax rate of 18%. In that
      case, "double taxation" is simply a way of talking about the effective
      tax rate. The federal tax code in this scenario may be confusing and
      inefficent. But the answer to the question, "is double taxation
      immoral" is really the answer to another question, namely, "is the
      effective tax rate immoral?" -- a question which I return to below.

      However, neither of these glosses are what Frist or the Republicans
      mean by "double taxation", which is really just a (very clever and
      effective, so far) rhetorical device for justifying cutting taxes on
      certain kinds of income. Taking it at face value, which is certainly a
      mistake, the biggest problem with the Republican argument is that it
      confuses money with income.

      Corporations pay tax on corporate income. Sometimes corporations pay
      dividends to investors, for whom the payments are income. Bush and the
      Republican know, of course, that dividend payments to investors are
      income for those investors. In fact, when Bush introduced his propsal,
      he claimed that dividend income is a consistent and reliable source of
      income for senior citizens (a very odd thing to say on its own).
      
      When I was a very small child, I too was confused about this basic
      point. I thought, when I gave my grimy dollar bill to the nice cashier
      in exchange for some bubble gum, that somehow the dollar bill was
      still mine. For some reason I thought that if I could still see the
      dollar bill in the cash register, a real exchange hadn't occurred.
      Eventually, by the time I was 5 or so, I realized that when money
      changes hands, it's no longer the same money. Later I realized that
      when money changes hands, it sometimes becomes income for the person
      or organization which receives it. This is a very elementary and
      uncontroversial economic fact. Perhaps someone should take Frist and
      Bush aside and explain this to them?

      But that wouldn't do any good because it's precisely this basic fact,
      which no one <em>really</em> disputes, that the Republicans are trying
      to mystify. When Frist says "the same money shouldn't be taxed twice",
      he wants people to hear him say that a person's <em>income</em>
      shouldn't be taxed twice. But that's not what a tax on dividends does,
      of course. The Republicans really want people to think that there are
      exploited, oppressed taxpayers who pay taxes <em>twice</em> -- or who
      pay twice the tax rate everyone else pays -- for having the guts to
      invest in the stock market. An absurd suggestion which can only be
      made by insinuations and vague associations.

      It's obviously not what happens when the government taxes dividends,
      which become, as soon as they are paid from Corporation A to Investor
      B, income for Investor B and thus subject to income tax of some rate
      or other. Imagine a different situation in which Corporation A pays a
      bonus to Employee B as a percentage of post-tax corporate profit. By
      the Republican's argument, it is equally immoral to tax Employee B's
      bonus as income because the "same money" has already been taxed.
      Assuming that it's meant as a good faith contribution to political
      debate, the Republican argument that "double taxation" is immoral
      rests on an elementary factual error. Whatever the morality of the
      U.S. tax code, when money changes hands it often goes from being
      income for Party A to being income for Party B. Income and money are
      not the same thing, no matter how confused Bill Frist and George Bush
      are or pretend to be.

      But what about the morality of taxation in the first place?
      Another shoddy claim the Republicans are relying on these days
      is the idea that, since rich people pay most of the income tax
      collected by the federal government, you can't cut taxes without
      rich people getting most of the benefit. Setting aside the fact
      that this claim confuses, deliberately, income and other forms
      of taxation (like payroll taxes, which rich people don't pay at
      all), do rich people deserve a tax cut as a matter of morality?


  The argument for progressive taxation

      From the standpoint of morality, paying taxes is a way of contributing
      individually to a common or collective enterprise -- i.e., U.S.
      society -- from which some measure of benefit is derived. A moral
      justification of taxation per se, then, says that since individuals
      derive benefit from the actions of the federal government, it is
      reasonable to expect individuals to contribute to the costs of its
      ongoing operations. But, the put-upon right libertarian objects, I
      don't take welfare, I work hard and have earned everything I have. Why
      tax me?

      What such people ignore is that wealth and income are thouroughly
      social, thoroughly collective enterprises all the way down. There
      simply is no such thing as wealth or income, because there is no such
      thing as "the capitalist market", without things like private
      property, debt, laws, courts, government regulation, government
      enforcement of contracts and torts. Markets are not naturally occuring
      phenomena; markets are not like emperor penguins, icebergs, and
      near-earth asteroids. There simply would be no highly-ramified
      ecnonomic system within which a relatively small number of people can
      accrue millions, even billions of dollars -- including the ability to
      liquidate wealth, move it as capital to other countries, invest it in
      foreign markets, and so on -- without the capitalist market. All of
      which rests upon the operations of the federal government, which
      collects taxes as a way of keeping the whole thing going.

      This kind of selective blindness to social benefit is both deeply
      racial and political. As the historian David Roediger has argued, in
      his excellent collection of essays, <i>Colored White</i>, the public
      perception and representation of government benefits are highly
      racialized. For example, welfare programs, like AFDC, which are in
      fact not at all race-specific, are perceived to be merely racial
      handouts benefitting nonwhites disproportionately. And the inverse is
      that, for example, federal transportation projects -- highways,
      bridges, public transit systems -- which <em>are</em> race-specific,
      accruing in large part to the benefit of white-flight suburbanites,
      are not perceived to be benefits at all.

      The question of how much tax is morally appropriate for any individual
      (or corporation) to pay is either a question of how much benefit that
      individual derives from U.S. society or, alternately, how able that
      individual is to pay. In other words, obligation is either tied
      (directly or indirectly) to benefit, or obligation is tied to the
      ability to pay (where that means how much income one has after one has
      secured the things necessary to living a good life: food, housing,
      health care, and so on).

      In either case, a progressive taxation scheme, in which the rich pay
      more than anyone else, falls out with very little effort. The rich
      are, by definition, those who have received the most benefit from the
      existence of the state and the market. In which case, it is morally
      justifiable that the rich pay more because the rich have received more
      benefit from the system. Or the rich are, by definition, those who are
      able to pay more; it is morally justifiable that they pay more because
      they have more after securing the necessities of a good life.

      ...