Monday, January 14, 2019

Socialism Reconsidered Part 6 - A Shadow Government for Income Redistribution....

....Until the Real Government Starts Doing the Job Effectively.  

This is Part 6 in an occasional series.   In this essay we recapitulate some of the discussion from earlier posts in this series as we take on three issues that are new.  One is about learning to be socially responsible (and willingly accept a substantially higher tax burden for the good of the order).  The next is about regulatory capture theory.  A good case can be made that Congress is captured by certain lobbyists, which prevents Congress from acting in the general interest.  A shadow government may then be necessary until this capture can be undone, if indeed it can be undone.  The third idea is to reconsider the politics of income redistribution.  In the prior essays it was assumed Republicans would shy away from income redistribution and only Democrats would embrace it.  It may be time to reconsider this view for the following alternative.  Republicans who are tired with Trump might look for ways out of a second term for him.  Pursuing an income redistribution agenda might then be a way to achieve that end.

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This piece is mainly a reaction to Thomas Edsall's column from last week, The Lobbyists Blocking Nancy Pelosi and Her New Majority.  Of course, that majority is in the House only.  The Republicans still have a majority in the Senate.  So getting progressive legislation passed in the next two years will be a tall order, without taking into consideration lobbyist block behavior.  But bills that get out of the House may set an agenda for the next Congress, potentially with full Democratic control.  So there clearly is a desire by House leadership to produce a set of aggressive pieces of legislation that will define the near future.  Edall's column is meant as a warning shot across the bow for those euphoric Democrats who think that control of the House will itself reverse the direction of Congress, because the lobbyists may hold sway and, if so, it means inaction will continue to be the rule of the day.

But before taking on that argument, I want to get at something else that the piece also argued, that a high-tax agenda on wealthy taxpayers, including many who contribute to the Democratic Party, may be hard to implement.   The segment below is taken from Edsall's column. I don't know that what Jesse Rhodes says is perfectly true or not, but here I want to treat it as if that's the case.  I've highlighted the parts that are especially relevant.

This makes it appear that the Democrats are stuck in moving ahead on an agenda of income redistribution, even if we disregard the lobbyists.  Is there a way to get unstuck?    I believe there is.  I'm going to sketch some thoughts about how this might be done.

What Is The Ethos?

Where Are We Now?

For the most part, outside of political campaigns people don't talk about their beliefs on matters like personal responsibility, good citizenship, and paying taxes.   So at the outset would be some fact finding as video interviews - with the person on the street who is willing to stop and talk with the interviewer, with focus groups chosen for their demographics, and with well known personalities who, because of their name recognition, might attract others to hear their views.

For this to work the interviewer needs a script of questions.   Here are some possibilities for the person on the street interviews.

On being a responsible adult:
1) What does it mean to be a responsible adult?
2) Can you give an example where you've behaved as a responsible adult?
3) Does that example typify your behavior or do you often act irresponsibly?  You don't have to give an example of where you've behaved irresponsibly if that helps you answer the question.
4) What about other people?  Is your impression that they mainly act responsibly or not?

On being a good citizen:
1) Where does good citizenship take place?  Is it mainly exercised through voting?  Can it happen in the workplace?  Or at the school your kids attend?  Or in some other social setting?
2)  Are you a good citizen?  In some particular settings?  Why there and not in other settings?
3)  What about others in the same settings as you have described?  Are they also good citizens?
4)  Are you familiar with the terms "free rider" and "shirker"?  Do you have some theory as to why others might be a free rider or a shirker?

In a focus group or with a well known personality, where the duration of the conversation might be substantially longer than with the person on the street, one would want to get more depth.  So the interviewer would ask both about being a responsible adult and about being a good citizen.  Then an obvious follow up would be about the overlap between the two ideas.  After that the interviewer would get into learning to be responsible and learning to be a good citizen.  Where is that taught?  How is it taught?  Can the learning continue to happen after we're already adult?

On taxes, the approach needs to be a little different.  My guess is that people who would be interviewed have records of their income taxes paid, stored on their computers or in the cloud, but off the top of their heads can't say how much they paid in income taxes or what their average tax rate was.  (TurboTax, for example, provides that information in summary form for the previous 5 years.)  So getting at specific quantitative information won't work.  It is attitudinal information that can be elicited along with some very basic facts about tax payment.

On paying income taxes:
a)  Did you file a Federal tax return last year?  Assuming the answer is yes, the follow up is: did you prepare the return yourself, did another member of the household do it, or did you hire somebody to do it?
b)  Do you keep records of your tax returns?
c)  Do you think the tax system is fair?  What would make the system fair or unfair?
d)  Do you know anything about the taxes paid by others?  Those households that are similar to your own?  Those who are very rich?  Those who are middle class, defined here as those households with income close to the median for the U.S. (The interviewer can give a number for median household income and then suggest that depending on location and cost of living the number should be adjusted somewhat.)

It's a bit difficult to write this part because on the one hand I don't want to anticipate what those people who are interviewed will say, while on the other hand I think there are some basic notions of fairness and privacy that will come out in these conversations.  Fairness requires households that are alike to pay similar amounts in taxes - equal treatment.    Fairness requires the rich to pay more.   I would guess that people will talk about paying their fair share.  If they come up with an example where the average tax rate of a rich person is lower than that of somebody else of more ordinary means, they'll surely say that is unfair.  The rich person is playing the system some.  The other point is that they won't want to share their own tax returns with others, so projecting that outward they will largely say they don't know about the taxes paid by others.  Some might then speculate, while others will be reluctant to do so.

Now let me say what I hope to hear.  Among those who are reasonably well off, they identify fairness entirely with reference to equal treatment with others and not at all with reference to the absolute amount of taxes they pay.  This rules out interviews with "Sonny Capps" type of taxpayers.  The reason for this is not that there are no such taxpayers in society.  Rather, it is because it's hard to imagine why such taxpayers would willingly participate in a video interview.

The actual production and dissemination of the interview information is beyond me.  My hope is that the information would be widely viewed and people will become comfortable with hearing and seeing this information. But I surely lack the expertise for how to achieve this goal.  So to make this work others who do have the expertise would need to be brought on to deliver on this.

Are There Some True Believers In The Population?

By true believer in this context I mean people who openly are willing to have their taxes raised substantially now, prior to any educational effort to encourage people in this direction.  I'm a true believer this way.  I had a strong negative reaction to the Tea Party and started to write blog posts expressing this disapproval beginning in April 2011.  The first of these was a tongue in cheek post called Raise My Taxes --- PLEASE!  But then I wrote many different pieces on the same theme, though I want to note here that it is not just modifying the tax system, but also modifying the employment relationship and retirement pensions.  The most comprehensive piece on this general theme is a rather long essay entitled Rethinking The Social Contract, with the most relevant section of the piece called Social Attitudes and the Social Problem, beginning on page 12.  In effect, the emphasis here on income redistribution through the tax system is because some of the other avenues for possible redistribution aren't in place and likely won't be in place for some time to come.  True believers understand that and are ready and willing to do their bit to make the system work better.

At around the same time, April 2011, I started a Facebook group called For A More Compassionate And Saner America. I invited a bunch of people I knew to join the group.  A good number of them did join.  Some invited people they knew.  But the friend of a friend chain soon stopped and membership in the group plateaued.  We had interesting discussion for a while, but as a way to disseminate these ideas it was not the right vehicle.  Several months later, Occupy Wall Street began.  In terms of getting people's attention to the inequities of the system, Occupy Wall Street was infinitely better than my Facebook group. But it made common cause among the 99 percent.  While shining a light on the uber rich has some benefit, as I've written elsewhere, many of the true believers might not be in that category, yet Occupy doesn't give a mechanism for identifying these true believers, because the entire focus is on what the 1 percent pay in taxes.  The hope is that this shadow government approach will identify those true believers early on in the process.

Yet up front, one wonders whether it's possible to identify a sufficiently large group of them to get the shadow government approach up and running. Here's one possibility.  There is a group of very rich people who have taken The Giving Pledge, where they promise to give at least half their fortune to philanthropy.  If some of them might be convinced that this shadow government approach is philanthropic in spirit, then they might be the ones to jump start the activity.  There are some paradoxes here, regarding the difference between giving to charity and paying one's taxes that would need to be addressed, if not totally reconciled.  I wrote about this in a post called Mattering Bias.  This is a discussion of the issues from that piece, though not a resolution of them.

The pledge itself is rather mild.  It specifies neither the recipients of the giving nor the purpose of the gifts.  Implicitly, then, it embraces the notion that all such gifts are equally valuable, so the donor is free to choose from among the possibilities.  But that might be quite wrong.  Suppose, instead, that by coordinating donations and acting in concert the givers can achieve much greater than is the sum of the benefits achieved when they make donations individually in an uncoordinated manner.  I will illustrate with a few examples below.  But before I do I want to note this issue.  If they do act in concert might it be that each individual gift matters less in that case?  In other words, if 168 out of the 169 listed on the pledge site acted in concert, could they then achieve the anointed purpose?  If so, it doesn't seem that the giving of the 169th donor matters much if at all.

There is thus a kind of free rider problem with getting the group to act in concert, though it is a different sort of free rider problem then is usually described in the public finance literature.  Here it is not tax avoidance per se which is the issue.  The person is willing to give, as long as the donor can see that the gift matters in an overt way.  The person only wants to avoid those gifts where it is not possible to determine that the individual gift matters or where, even if possible, it appears that the individual gift doesn't matter, although the aggregate gift does.

Changing The Ethos

The Shadow Government Program Itself

Here only a very brief overview will be given as the spending side of the program is well described in the previous post in this series, Wage Subsidies and Confounding Expectations, while a basis for the revenue side of the program is given in the post before that's called, Thoughts on Income Redistribution.

Groups of between 500 and 1000 workers who live and work in the same community will be targeted for wage subsidies that will bring their hourly wage up to at least $15/hour and possibly higher.  These subsidies will endure for the life of the program - until the Federal minimum wage is raised to $15/ hour (perhaps by continuing to subsidize the work done at companies that are not making huge profits).  Groups will be selected via an application process that emphasizes diversity of the various groups - urban/rural, age, occupation, small business or big companies, plus with some sense that there can be local supervision of the program, where the funds ends up with the right people and are not pilfered in route.   The total number of groups obviously will be linked to the volume of contributions, but the hope is to get at least one in each state, red or blue, and to have more where there are large communities of people struggling to make ends meet. Some additional funds may be allocated to help recipients with debt relief, out of fear that creditors who are owed by the recipients will swoop in and appropriate the entire amount of the subsidies.  That outcome must be prevented for the program to have good effect.

The recipients will be studied regarding how the subsidies impact their quality of life and how they spend the funds.  Video interviews with some of the recipients will be done so the public will get a sense of how the program is helping them.  To the extent that the program is successful, the hope is that not just donors who participate in the program but also potential donors who might participate will experience the warm glow of giving, as termed by James Andreoni.  It is experiencing this feeling, which will change the ethos the most.

On the revenue side, of course the organization will accept all donations, but the idea is to educate well heeled potential donors about how much their taxes would increase if the program were fully taken over by the government (and other government spending, such as a Green New Deal gets supported as well). So it is hoped that the potential donor will report their household income, after which they will learn the amount their taxes would go up.  (And the full schedule of income versus tax increase would also be published for those who want to study it.) Then it is hoped, in addition, that they willingly donate the full amount of the recommendation.

The goal would be to produce a virtuous cycle where the good works the program does attracts more donors and where prior donors persist for additional years with program, so the number of donors, and the volume of donations both grow.  In turn this would mean the number of groups that are supported also grow and/or there is some within group growth of people receiving the subsidies.

A Related Educational Effort on Windfalls for High Earners

Certain sectors of the economy, most notably healthcare and higher education, have witnessed hyperinflation (prices rise faster than the rate of inflation) in costs over a very long period of time.  Those who work in these sectors, and elsewhere in the economy as well, may very well have received a windfall in their earnings as a result.  People who work hard at their jobs typically feel they are entitled to their earnings as the fruits of their labor.  But thy tend not to acknowledge this windfall effect.  If the windfall issue was made more overt to them, they might recognize that some of their compensation is an "economic rent," which means a payment in excess of what is necessary to elicit their participation.  If all people doing like work were paid a bit less, so the taxing of the windfall was not viewed as punitive of a particular individual in any way, then people might come to understand that it is reasonable for their tax burdens to be higher.

I wrote about something like this in a post called The Higher Education Salary Compression Function - A Fantasy.  The thought there was that highly visible academics, such as Nobel Prize winners and MacArthur Genius Award winners would form a vanguard to make salary compression something others would be willing to follow in.  Likewise, I envision finding leaders in the various sectors who willingly will talk about their own compensation, how even after adjusting for inflation it is greater than those who did like work 20 or 30 years earlier, so they are willing to pay more in taxes as a result.  This message would seem novel, as there has been so much anti-tax rhetoric that the normal expectation would be everyone wants to lessen their own tax burden.  The purpose of the education effort would be to confound those expectations.

A Different Appeal - Changing Our National Politics

Until this post in the series, I assumed that it would be Democratic voters who would participate in  any voluntary income redistribution program and only they would vote for converting such a scheme into a permanent government program.   But I now wonder if there are many business types who have been loyal Republicans yet are completely burnt out on Trump that they might be willing to contribute as a donor if they thought it would help to defeat Trump in the 2020 election.

So, among those who are part of one of the groups that receive subsidies, might the subsidies impact their views about national politics?  Low wage earners tend to have low voting participation, which would be an argument that this won't matter much directly. This is an argument that says the program will have little political consequence. Here is an alternative argument. If many Trump supporters are in his corner because of a grievance - the system is rigged against us and the elites either don't care or they're the ones who are rigging the system - then if the program is highly visible and is evidently growing, it would confound that belief.  If so, some current Trump supporters might switch their allegiance.  In turn, upscale voters might then willingly donate to the program, not because they feel the warm glow of giving, but because they want somebody else in the White House.

I came at these ideas with the more pure motives described in the previous sections and the earlier pieces in this series.  But we seem so focused on the horror that is our national politics now, that helping to end this melodrama might serve as a more immediate motivation for many well heeled voters, of either party, even if pointing it out is rather opportunistic of me.

What of Lobbyists And Politics as Usual?

Even if in the 2020 election the Democrats take control of both Houses of Congress and the White House too, the shadow government program might stay in the shadows for quite a while thereafter, for fear the legislators will get captured by the lobbyists, regardless of party affiliation, and thus legislation to make the program a fixture of government will stall.   In looking back at the history of passage of the Affordable Care Act, it faced this same issue and it was a huge lift to get it done. But they had to throw out the public option in the process.  This shadow government program, if it is absorbed by the government, is all pubic option. That would make it seem even harder to get it passed.

At issue, then, is whether lobbying reform is possible first.  The little I know about this is from watching Season 7 of the West Wing, where it is an issue in the episode called Requiem.   Edsall's column makes lobbying reform seem essential, but students of real politic need to be skeptical that strong reforms would be put in place.  I have no sense of this now other than to argue that it seems a necessary intermediate step.

But maybe, just maybe, the lobbyists also have been shaken up by Trump and they might reasonably conclude they brought this on themselves.  The system is broken, yes, and they are the ones who broke it.  Does that realization lead to self-reform even in the absence of legislation?   One can only hope.

Wrap Up

The intent of this post was to sketch how a shadow government for income redistribution might work and be used not just to benefit recipients but also the change the minds of the potential donors regarding their willingness to be taxed.   This sketch is still quite far from a plan for implementation, which would require a lot more detail, charismatic leadership to get the ball rolling, a great communication and marketing strategy to keep the program in the public eye, and a substantial amount of good luck that the early groups end up being successful.

I want to note that our national politics does talk about income redistribution in a Robin Hood manner, so it is meant to be coercive.  This is why there is such focus on the 1% or even just on the 0.1%.  That focus very much makes it them against us, class warfare if you will.  The possibility of voluntary income redistribution winning the day will seem like a pipe dream to many folks as a consequence.   Yet a different purpose of this piece is to get readers to entertain the idea that voluntary income redistribution is plausible.

In my mind, voluntary income redistribution is also preferable to the coercive form because, to use a Star Wars metaphor, even if the Force is with you, the Empire will strike back.  If we can avoid the tit-for-tat cycles that will be inevitable under a coercive approach and produce a stable form of income redistribution, that would be much better.  My hope then is that this pipe dream might become a reality as some others who are in a position to make it work come to see things the same way I do.

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