Arguing With The Tax Policy Switcheroo

I was or will be on Channel 10’s News Conference Sunday show this week, depending on when you’re reading this.  John Simmons, of the Rhode Island Public Expenditure Council, was a guest with me.  An exchange we had reminds me of many I’ve had recently, including this comment from Dan DaPonte, the Senate Finance Committee chair.

It is an unmistakable fact of legislation that Rhode Island repeatedly cut the income tax in the years 1997-2009.  We cut the tax 10% between 1997 and 2002, we cut the capital gains rate in 2005, and we implemented the “flat” tax option in 2006.  All of these constituted cuts that were either exclusively for the richest of tax payers or predominantly for that top end.  The graph here, an old favorite of mine, shows the effect of the various cuts on the top 1%, and the median taxpayer, along with the unemployment rate during the period, just for fun.

In 2010, the legislature adopted a tax change (for tax year 2011) that froze the flat tax option in place and incorporated it into the tax code, preventing it from being easily repealed.  There were a large number of changes made that year, and the jury is still out on whether that was an advantage for rich people or not.  It was not designed to be, and possibly it was not, though only time will tell for sure.

However, the fact that the 2010 change may have been essentially neutral does not change the fact that the previous 13 years were characterized by repeated tax cuts for rich people.  The Almond cuts alone were worth about $100 million per year by 2002.  Nonetheless, when you complain about tax cuts for rich people, people like Simmons and DaPonte reply that the 2010 changes were not a tax cut for rich people and therefore “progressives are wrong.”  Then they go off into the weeds trying to demonstrate conclusively that the 2010 changes were not tax cuts for the rich.  If you watch the Sunday show, you’ll see John doing exactly that, and then getting miffed when I interrupt to say that the answer he’s giving is irrelevant to the complaint I’m making.

Here’s DaPonte:

I’m still quite honestly confused at the liberal opinion that the 2010 personal income tax reform was a big giveaway to high-income earners. From everyone that I’ve heard from, particularly tax professionals who do this stuff for a living – they have a completely opposing opinion, that that is not, in fact, what we did do.

But what did you do during the previous decade?

Whether you think that tax cuts for rich people constitute enlightened public policy or whether you think that they were a source a source of great inequity in the tax code and a source of real pain for our cities and towns (and the people who pay property taxes), it is tiring to hear people try to deny what actually happened in the last decade and a half or to obfuscate the issue, which is precisely what’s going on here.

The state of Rhode Island gave up a tremendous amount of revenue to these tax cuts.  The cuts produced a tremendous amount of fiscal pain in the cities and towns, and contribute to the fact that so few school systems have anything like a real music program left or new books on their library shelves.  Whether they added something to our economy is debatable (and I’m happy to debate it) but 100% irrelevant to the claim that they happened.

The 2010/11 tax changes are a part of this story only to the extent that they make restoring the status quo ante far more difficult.  Other than that, they have nothing at all to do with the larger offenses against tax equity committed over the last 15 years.  When you talk to people about tax equity, don’t let the subject change.