Wednesday, June 6, 2012

Piercing the Government Veil

David Brooks got all huffy in The New York Times recently about the Occupy Wall Street folks. He says they wanted to raise taxes on the rich, and he thinks that's not enough to do something meaningful about the deficit.

When you've got one percent of the population getting almost a quarter of the income, it's simply not true that there's no money out there. And the most recent year where data is available, 2009, happened to be the year the stock market really dove, and so a bad year for the rich. But all this is beside the point.

The OWS people weren't just talking about the changes in the distribution of income. They were talking about changes in the distribution of wealth, which is even more unequal than the distribution of income. This doesn't register with Brooks, because how does that affect the Federal government? The feds don't tax wealth. (The very prospect sends a chill down the spine of right-thinking people, though local governments do it all the time, at least for real property.)

It strikes me that this is an interesting example of how public conversation often gets sucked into talking about how policies affect Government as a thing, rather than how it affects individuals.  Take one of Brooks's favorite worries, Medicare. The threat to the economy is not Medicare. It's increases in health care costs--no matter who pays them.  Confusion about this leads Brooks to praise the courage of Paul Ryan's budget plan, which does nothing about rising health care costs and simply puts a cap on the government's contribution.

The belief that costs borne by government are somehow more real than those borne directly by citizens also shows up in journalists' accounts of how Europe is groaning under the burden of its generous social programs.  For example, they have universal health insurance. Yet it turns out that every European country spends a lot less than we do on health care. This is an economic advantage to them, not us. It looks like a burden to them because in countries like France, virtually all health care costs end up in the government's budget, while in the U.S. only about half do. But those are real costs, no matter who pays them.

Similarly, Republicans who want to scare you about the costs of Obamacare will sometimes suggest that it will cause large numbers of employers to drop their health plans and dump their workers in the exchanges. Never mentioned is the fact this will drastically reduce labor costs and improve competitiveness for businesses. The only question then is who should pay for the increased costs to the government.

Economists will point out that there is a second-order effect when raising taxes: higher taxes impose an additional efficiency cost on the economy by distorting people's choices away from the taxed thing. But to a first approximation, costs are costs. They don't suddenly disappear by shifting them out of the Federal budget onto individuals, businesses, or state and local governments. And they aren't always shifted through the tax system.

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