Tales of taxation
Senator Kamala Harris, Representative Alexandria Ocasio-Cortez, Robert Reich — Democrats are truly testing our prowess in 2019’s championship round of that peerless political parlor game, “Dumb or Dishonest?”
We don’t play that game when it comes to the great blithering demos at the center of our democracy, because we already know the answer: stone-cold stupid. The American voter bears out the wisdom of the managerial proverb: “None of us is as dumb as all of us.” At the moment, voters are cheesed off because they got a tax cut and because the federal government acted, for once, with uncharacteristic directness and speed.
When the Republican tax bill lowered taxes for the great majority of taxpayers — all but about 4 million, as the hilariously named Government Accountability Office runs the numbers — the IRS got a move on and changed the withholding schedules. As a result of which, the people who got a tax cut got a tax cut right then, their paychecks getting a little bigger as Uncle Stupid skimmed off a little less.
You can see where this is going.
At the end of the year, people who had had less money withheld in taxes faced a terrible new reality: They had had less money withheld in taxes! They owed less, and they paid less, and, because the government did a surprisingly effective job of matching up what was withheld to what was owed, taxpayers got smaller returns. Which is to say, they got their money right away rather than having to wait for a tax refund after making the government an interest-free loan.
Getting paid, more or less in full, right now instead of waiting months and months: Naturally, taxpayers are enraged.
And along comes Senator Harris. Senator Harris, who might be as dumb as nine chickens or might be a cynical political operator who believes that her constituents are dumber than nine chickens — a supposition for which her election presents compelling evidence — complained on behalf of the morons she represents, writing: “The average tax refund is down about $170 compared to last year. Let’s call the President’s tax cut what it is: a middle-class tax hike to line the pockets of already wealthy corporations and the 1%.”
Nope. Wrong on every count. She couldn’t have written a wronger take if she had tried. Refunds are down (to the extent that they are down, more below) because withholding is down, and most taxpayers, according to the government’s figures — and maybe Senator Harris knows someone in government she could ask? — are paying lower taxes. Those refunds aren’t disappearing into the pockets of the hated 1 percent — most of whom would not break stride to bend over and pick up Mr. 50th Percentile’s federal income-tax payments should they happen step over them on the sidewalk — because they already have disappeared into the pockets of the taxpayers currently bitching about their diminished returns.
But it gets better: The talking point about tax refunds being down was based on early and incomplete data. It isn’t even clear that the average refund actually will be lower once all the refunds are processed. But, if they aren’t lower, then the IRS messed up. Lower refunds are the right outcome.
Representative Ocasio-Cortez — and, in her case, I’m leaning toward “dumber than that weird little runt heel of bologna left over when the deli guy is done slicing, when you’re buying bologna for some reason” — played a similar class-warfare game when she complained about “giving” Amazon $3 billion that instead could be invested in filling potholes and such, apparently being in a state of pristine ignorance about what a tax credit is. Very few things bring out the stupidity in a creature of politics like tax credits.
Streaking into the scene like a blazing comet of asininity comes Robert Reich, the gormless lawyer who plays an economist on television, who sets those lower individual returns — lower returns because the money was never taken away in the first place — against the gigantic tax returns coming to General Motors and Ford. “While millions of Americans have seen their refunds shrink,” Reich writes, “some of the most profitable corporations in the country are filing for massive refunds.”
Indeed, they are.
There are two things at play there: One is that the corporate tax system is not very much like the individual tax system, because it takes into account that businesses have profitable years and money-losing years, and our law allows businesses to carry forward losses against future profits for tax purposes. It’s a way of smoothing out, if not exactly averaging, earnings for tax purposes. (Some other countries extend this benefit to individuals in their tax codes, and it isn’t an obviously terrible idea.) General Motors lost a ton of money in the years leading up to its bankruptcy — hence the bankruptcy — and so it has a lot of losses available to offset future earnings. Ford had some pretty hairy years, too. Now, maybe you think that’s a bad idea, and that businesses should be hit up for taxes in their profitable years without taking into account their money-losing years — that’s not an indefensible idea, but that isn’t how the United States (or much of the rest of the world) has done it for a long time, and businesses aren’t exploiting “loopholes” or engaging in shenanigans when they avail themselves of the benefits of the law. They are following the law not only as it is written but also as it is intended. Carrying losses forward has been around for ages — the practice has nothing to do with the 2019 tax cuts.
Likewise, the tax credits. Government uses tax credits to encourage businesses to behave in certain ways. Want more “alternative” energy? The Obama administration couldn’t get enough tax credits for that. Tax credits are also used to encourage hiring — with the support of Robert Reich himself, who once blasted Congress for having “repeatedly rejected tax incentives designed to encourage more hiring” — and to subsidize lines of business that the federal government, in its wisdom, judges to be more important, usually manufacturing or things related to it, such as research and development or physical capital and infrastructure improvements. It would not be fair to say that Reich is an uncritical or categorical supporter of such tax incentives, but, then, neither are most Republicans, who can see crony capitalism clearly enough when the benefits are going to Democrats. But the idea of using tax credits to encourage this or that corporate behavior enjoys wide general bipartisan support — until some company like GM or Ford actually uses the tax credits! On Monday, it’s, “Hooray, tax credits!” On Tuesday, it’s “Why are these evil corporations allowed to use these stupid tax credits we created yesterday with the best of all intentions?”
Dumb or dishonest?
It is a tough call.