Monday, March 21, 2016

The Paul Ryan / Harwood interview

What does Paul Ryan actually think about tax policy?  Whether or not the question is intellectually interesting for its own sake, it may matter politically, given Ryan’s position and extraordinary eminence within the Republican Party.

A recent Paul Ryan interview by CNBC journalist John Harwood has been getting attention lately.  Of particular note, Ryan flatly rejects the notion that comprehensive tax reform needs to be “distributionally neutral.”  Thus, whereas Dave Camp, when he was Ways & Means chair, attempted to devise a tax reform plan that would avoid cutting taxes for the very richest individuals, at least within the estimating window, despite the fact that high-end rates were going to be cut significantly, Ryan is evidently willing, and one surmises eager, to make the richest individuals better-off than under current law.

Harwood noted that this might cause blue-collar Republican primary voters (a.k.a. Trump supporters) to believe that Ryan is more interested in helping people at the top than in helping them.  Ryan breezily demurred that this was any problem.  But it is hard to say whether or not (a) he really believes that there is no problem getting the Republican voter base to continue accepting tax cuts for the rich as the party’s #1 fiscal policy goal, and (b) he would be right in so believing, as a matter of political prognostication.  All we can say for sure is that he wants to keep the Republican dogma status quo in place.

There’s been a lot of discussion regarding what lies behind Ryan’s view – and indeed, his doubling-down relative to Dave Camp (whose plans were DOA among Republicans by reason of his effort to preserve distributional neutrality).  What is the underlying rationale, and where would it leave Ryan if he had a free hand in setting U.S. tax policy?

Paul Krugman today argued that Ryan is saying that distribution doesn’t matter “because economic positions change all the time.  People who are rich this year might not be rich next year, so the gap between the rich and the rest of us doesn’t matter, right?”  He notes that data regarding actual economic mobility would not even remotely support taking this view, as a strict empirical matter.  He then notes what he, along with many others, considers Republicans’ frequent imperviousness to evidence – for example, with regard to claims about tax cuts and growth, not to mention various other subjects (e.g., climate change).  He hopes that the Trump shock and/or a “period in the political wilderness … will finally force the Republican establishment to rethink its premises.”

In general, I am sympathetic to this critique, including the underlying premise that, if the Republicans returned to the sanity of the Reagan and Bush I administrations, things would be a lot better for everyone.  But I didn’t actually read Ryan, in the interview, as relying on economic mobility to the extent that Krugman thinks he was.  This reflects the fact that, in a quick verbal exchange such as the Harwood interview, exactly what a given individual is saying or means to say can be ambiguous.

Here is the text of the Harwood-Ryan exchange (as condensed and edited by Harwood) insofar as it pertains to tax policy:
HARWOOD: On taxes, when your predecessor as Ways and Means chair, Dave Camp, came out with a comprehensive tax reform a few years ago, he adopted as a principle that it was going to be distributionally neutral. It wasn't going to give an advantage to any group over the current system. Is that still a principle that you think is appropriate for the Republican tax agenda?

RYAN: So I do not like the idea of buying into these distributional tables. What you're talking about is what we call static distribution. It's a ridiculous notion. What it presumes is life in the economy is some fixed pie, and it's not going to change. And it's really up to government to redistribute the slices more equitably. That is not how the world works. That's now how life works. You can shrink or expand the economy, and what we want to maximize is economic growth and upward mobility so that everybody can get a bigger slice of the pie.

HARWOOD: And you're not worried that those blue-collar Republican voters, who are voting in the primaries right now, are going to say, "Hey, wait a minute. You're really taking care of people at the top more than you're taking care of me."

RYAN: I think most people don't think, "John's success comes at my expense." Or, "my success comes at your expense." People don't think like that. People want to know the deck is fair. Bernie Sanders talks about that stuff. That's not who we are.

OK.  First point, I think Ryan is referring not to mobility within the income distribution, but rather to the growth effects that he chooses to attribute to tax cuts.  “[W]hat we want to maximize is economic growth and upward mobility so that everybody can get a bigger slice of the pie.”  So the claim here is not, who cares about rich versus poor because lots of us are going up and down the escalator all the time, but rather that everyone will be better-off due to the growth effects.

In short, it’s trickle-down, which still leaves in place the Krugman argument that Ryan is acting impervious to evidence about the actual growth effects of high-end tax cuts (especially when they are likely to explode the growth rate of national debt and thus create severe fiscal drag).

Ryan’s second comment however, raises a different point.  Ryan rejects the argument that the rich have succeeded at the expense of others.  Unless you’re Bernie Sanders, he asserts, all that matters is that “the deck is fair.”

Okay, fair enough, that’s his view.  But the thing is, in a budgetarily neutral scenario where the growth effects are only second-order (if that), there necessarily is a zero-sum game.  Rich people cannot pay less without others paying more or getting less, and this has nothing to do with whether the economic success of the rich came at the expense of others’ economic success.

So while Ryan chooses to gloss over it, clearly (and unsurprisingly) he does think that, relative to the current state of the play, there should be redistribution from the poor to the rich.

Obviously, he wouldn’t call it redistribution, because he’d reject the current policy baseline for assessing distributional policy.  Ayn Randian that he is, the baseline that he likes, and from which perspective he rejects redistribution, is evidently some sort of “pre-tax and transfers” baseline that he views as reflecting people’s economic contributions and consequent moral desert.

This is not a view of distributional policy that I share.  It falls within the ambit of what Liam Murphy and Thomas Nagel critiqued, under the label of “everyday libertarianism,” in their book The Myth of Ownership.

Rather than argue with that here, what does it imply Ryan actually wants our tax and transfer policy to look like distributionally?  How does one define the zero-redistribution baseline, given the impossibility of measuring the value of public goods or of defining a historically fictive pre-tax state of affairs?

One common answer is to say that tax rates should be flat.  But that not only is hard to defend intellectually (as Barbara Fried has argued), and is bizarrely unmoored if one doesn’t also specify the tax base, but also is not necessarily what people like Ryan actually want.  Would he oppose special concessions or low taxes at the top, if they were politically available?  Fried argues that libertarians (for example, Richard Epstein) should logically favor regressive rates, and perhaps even a uniform head tax, but are constrained by the political difficulty of getting there.

I myself think it’s quite plausible that Ryan would truly favor a uniform head tax, accompanied by minimal or no transfers to the poor, if he thought he could get there.  But he knows he can’t get there.  What’s more, his day job is that of a practical politician, not someone writing papers at a think tank.  So he doesn’t need to figure out just how far he’d be willing to go if he had complete control over tax and transfer policy outcomes.  What he does presumably know is that no politically available set of tax cuts for the rich and benefit cuts for the poor would go as far as he wants to go, so “the larger, the better” is a reasonable operating principle for him on both fronts.

I do think that Ryan is going to have to worry about whether the Republican base is going to continue to accept this.  But he may know that as well – he would presumably say the same thing in the Harwood interview whether he is actually worried or not about the evidence of a revolt by the base.

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