The Harvard economist (and blogger) Greg Mankiw has written an excellent primer on the Federal Reserve’s power to influence the economy, making much of the the fact that the Fed is politically independent and can therefore afford to ignore public sentiment more than politicians can.
His piece got me thinking about what a lot of people have been thinking for years: what would happen if the I.R.S. were independent as well? If you’re interested in the subject, you might want to check out this 1998 testimony before the Senate’s Finance Committee by Margaret Milner Richardson, a onetime Commissioner of Internal Revenue. She was all in favor of independence — no big surprise, perhaps, considering her former position; but her points are well worth considering.
I still feel, as we wrote a couple of years ago, that the I.R.S. is like a big police force charged with enforcing a bunch of rules that are unpopular, constantly disputed, and set by someone else.
Judging from a pair of very interesting posts on Marginal Revolution about taxation (including this one, about who pays what share of tax and this one, about how tax money is spent), and also judging from some of the comments following our recent post about charitable donations, there are a lot of other people who feel, like me, that taxation is an inherently political enterprise as it is now configured. The I.R.S. is a convenient scapegoat, but let’s be real: if the I.R.S. were even half as independent as the Fed, would politicians (especially in campaign mode) get to constantly play yo-yo with taxes, as they do now?
FWIW, there is a pair of interesting tax-related articles in today’s Wall Street Journal. This editorial bemoans a new effort in Congress to impose an e-commerce tax, and this op-ed makes an impassioned pitch by Leo Linbeck for the FairTax. Among the questions raised by the latter: “Is it really in everyone’s interests to keep the income-tax system so that one-third of taxpayers can go on deducting a portion of their mortgage interest from their federal taxes?” Like I said, there’s no way such a fight can be fought with a politically beholden I.R.S. Which makes Linbeck’s argument, as compelling as it may be, the ultimate Catch-22.
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Politicians cannot afford to ignore public sentiment. If they do, their approval ratings will go way down (@see Bush, Cheney, Congress) and…they will be able to govern just as ineffectively as hey had before.
huh?
right. this country is a democracy in name only. the USSR called itself a democracy, too.
Politicians cannot afford to ignore public sentiment. If they do, their approval ratings will go way down (@see Bush, Cheney, Congress) and…they will be able to govern just as ineffectively as hey had before.
huh?
right. this country is a democracy in name only. the USSR called itself a democracy, too.
Has much thought been given to simply having the Congress set a revenue target for each state (based upon whatever horsetrading need occur) and then let each state figure out how best to tax itself?
This would seem a very reasonable approach, enforcing a chain of command that seems oddly short-circuited with the Fed fretting about individual incomes.
Decreasing the scope of taxation decisions would seem to allow the individual vote to have greater expressive power.
Historically, lack of modern information systems contributed to the current situation. What good arguments exist against delegating taxation to the state level?
Has much thought been given to simply having the Congress set a revenue target for each state (based upon whatever horsetrading need occur) and then let each state figure out how best to tax itself?
This would seem a very reasonable approach, enforcing a chain of command that seems oddly short-circuited with the Fed fretting about individual incomes.
Decreasing the scope of taxation decisions would seem to allow the individual vote to have greater expressive power.
Historically, lack of modern information systems contributed to the current situation. What good arguments exist against delegating taxation to the state level?
I think you are considering whether an independent agency like the Fed could establish tax policy more fairly/equitably/reasonably than Congress. But I think the definition of what is fair requires a political process. The success of such a decision is measured in a political market. The success of the Fed’s policy decisions is measured much more directly in GDP and such metrics.
The way we decide how to tax ourselves is horrible, but I’m afraid that other processes would be worse!
I think you are considering whether an independent agency like the Fed could establish tax policy more fairly/equitably/reasonably than Congress. But I think the definition of what is fair requires a political process. The success of such a decision is measured in a political market. The success of the Fed’s policy decisions is measured much more directly in GDP and such metrics.
The way we decide how to tax ourselves is horrible, but I’m afraid that other processes would be worse!
I am generaly in favor of a consumption tax system like the fairtax, but I wonder what the effect would be on home prices. I assume that the price of housing is inflated by the mortgage tax deduction, so housing prices would likely fall further if such a fairtax was implemented. Similarly, the lack of a mortgage deduction might send some homeowners on the brink into forclosure. I guess a compromise would be to exclude housing from the fairtax, which would help offset loosing the deduction.
I am generaly in favor of a consumption tax system like the fairtax, but I wonder what the effect would be on home prices. I assume that the price of housing is inflated by the mortgage tax deduction, so housing prices would likely fall further if such a fairtax was implemented. Similarly, the lack of a mortgage deduction might send some homeowners on the brink into forclosure. I guess a compromise would be to exclude housing from the fairtax, which would help offset loosing the deduction.