Project 7: Taxes and Populism
In the last decade, politicians are increasingly eager to impose new taxes hikes without any consideration on what effect this would have on the economy, while economists have been strongly advising against such actions. The clash between economics and politics reached a new peak when Bernie Sanders announced his tax plan in 2015 to pay for his social programs that resulted in even the most liberal economists pointing out that such action would drastically shrink the economy by ten percent. The discipline of sociology explains why, despite the discipline of economics showing the negative effects of taxes, such disastrous tax proposals continue to remain popular.
In the last decade, politicians are increasingly eager to impose new taxes hikes without any consideration on what effect this would have on the economy, while economists have been strongly advising against such actions. The clash between economics and politics reached a new peak when Bernie Sanders announced his tax plan in 2015 to pay for his social programs that resulted in even the most liberal economists pointing out that such action would drastically shrink the economy by ten percent. The discipline of sociology explains why, despite the discipline of economics showing the negative effects of taxes, such disastrous tax proposals continue to remain popular.
In 2004, economists Steven Davis and Magnus Henrekson released a study that assessed the effects of various tax differences among countries. What they found was perhaps unsurprising to economists but was a shock to the broader public. Their study found that taxes directly affect the amount of work people do on average, with higher taxes on income and consumption resulting in less work time in the labor market and more time spent working within the household. For instance, a 12.8 percentage point tax hike would lead to 122 fewer hours of work per year for an adult, as well as less employment overall. Higher taxes also resulted in a larger underground economy, meaning that more people would pay for goods and services in cash or by other means in order to avoid having it reported to the Internal Revenue Service. The researchers also noted that the negative employment effects are stronger in higher-income countries with higher taxes because the welfare programs tend to be more generous, which also creates a disincentive to work.
Another study from 2002 by economists WIlliam Gentry and Glenn Hubbard found that higher tax rates decrease the likelihood that a head of household would move up to a better paying job during the coming year. Conversely, a five-percentage reduction in taxes increased the odds of people moving up to a better paying job 0.79 percentage points, which translates into an eight percent increase in turnover propensity. Coupled with the 2004 study, there is strong evidence that not only do taxes hurt employment, they also affect future employment prospects.
Bernie Sanders, a Democratic presidential candidate, released a tax plan that would have profound effects. The tax plan would raise the marginal tax rate on all income brackets by 2.2 percent, tax households earning over $250,000 at 39.2 percent as opposed to the current 33 percent, and create two additional tax brackets for high earners at 54.2 percent, whereas currently it tops out at 39.6 percent. Although these increases may appear modest on paper, economists found that the effects would be felt across all income levels. In 2016, economists from the Tax Foundation, a nonpartisan think tank, released a report analyzing that should Bernie Sanders’ tax plan come into effect, it would shrink the GDP by 9.5 percent over the next decade and result in 6 million fewer full-time jobs. Additionally when accounting for the reduction in GDP, all taxpayers’ after-tax incomes would fall by 12.84 percent.
Bernie Sanders, a Democratic presidential candidate, released a tax plan that would have profound effects. The tax plan would raise the marginal tax rate on all income brackets by 2.2 percent, tax households earning over $250,000 at 39.2 percent as opposed to the current 33 percent, and create two additional tax brackets for high earners at 54.2 percent, whereas currently it tops out at 39.6 percent. Although these increases may appear modest on paper, economists found that the effects would be felt across all income levels. In 2016, economists from the Tax Foundation, a nonpartisan think tank, released a report analyzing that should Bernie Sanders’ tax plan come into effect, it would shrink the GDP by 9.5 percent over the next decade and result in 6 million fewer full-time jobs. Additionally when accounting for the reduction in GDP, all taxpayers’ after-tax incomes would fall by 12.84 percent.
So if high taxes, as demonstrated by the discipline of economics, are so negative for the economy and even individual well being, why are they so popular amongst politicians? Sociology may offer an explanation for that. A 2011 study on attitudes towards environmental taxes found that support for such taxes can be determined by how strong those consequences to self are. For example, if individuals believe that they will be negatively impacted by emissions but not by the taxes on such emissions directly, they will be more likely to support such taxes. Guided by self-interest, individuals are likely to support policies that benefit them as long as the cost is not transferred to them. This may explain why with Sanders’ tax plan, the tax increase on low-income earners is small compared to the 14.6 percentage point increase on wealthier individuals. His supporters are more likely to be lower-income individuals who would directly benefit from his social programs while the direct cost is transferred to other people. Although even a tax increase on the wealthy would ultimately result in lower wages and employment opportunities for the poor, supporters of the populist tax policies often overlook that long-term economic consequence.
Indeed, populism has been a driving factor for the support of Sanders and his policies. Recent research from 2015 noted that populist movements often arise because of a crisis. Furthermore, the article argues that populism doesn’t just follow a crisis, but that populism also attempts to trigger a crisis as well. Such a crisis “allows populist actors to pit 'the people' against a dangerous other, radically simplify the terrain of political debate and advocate strong leadership,” (Moffitt). Anyone who had a few minutes to listen to Bernie Sanders rhetoric would immediately notice that he often references to the 2008 financial crisis, blaming the wealthy for it. Furthermore, Sanders talks about about the “one percent” as essentially oppressing the rest of the population and how his followers must rise up and have a revolution. This creates the crisis of economic inequality (although it is an issue, the way Sanders presents it is like an all-out war) with the “one percent” being the “dangerous other” that the people are pitted against. Sanders presents himself as the “strong leadership” that would then resolve the problem. His tax policy is an extension of his strong leadership that he uses to rally people behind him. A 2012 paper by political scientists also found that most Americans view the Democrats as the party of the people, which would further explain why Bernie ran as a Democrat despite previously identifying as an independent. As sociologists and political scientists noted, these types of populist movements will tend to have the immediate goal in mind and may disregard the far-reaching economic consequences of such a movement. This may perhaps explain why despite the severe economic implications, Sanders and his tax plan continue to remain popular.
In a sense, sociology and economics can be seen as analyzing a problem and effects of solutions in depth. Economics can be thought of as looking at effects of proposed solutions, such as tax proposals. Sociology looks at the problem in depth, trying to understand the state of the world and the drivers for various political movements. In short, analyzing Sanders’ movement from both the economic and sociological perspective helps understand both the cause and effects of his tax proposals. As political science and sociology demonstrate, people tend to vote in their self-interest. That self-interested vote coupled with populist movements would explain the large support for economically harmful policies.
___
On the web:
Tax Foundation: http://taxfoundation.org/article/details-and-analysis-senator-bernie-sanders-s-tax-plan
No comments:
Post a Comment