Tax the rich? Good politics, but incomplete policy

Democrats far and wide are aiming to increase taxes. This may prove only that it's not an election year. But there are notable differences among the proposals of the moment.

It was fully five years ago when Minnesota's Mark Dayton launched his candidacy for governor with the unambiguous battle cry: "Read my lips. Tax the rich."

Dayton finally got his tax hike on the well-off in 2013 — along with one on smokers, another unpopular minority.

Now re-elected to his last term, Dayton appears to have turned from pleasure to business where tax policy is concerned. He always said taxing the rich was as much about restoring fairness as about the state needing the money.

But now that Dayton is working on raising big dollars for transportation, he's proposing to do it by boosting taxes on just about everybody, through a sales tax on gasoline to fund roads and a general metro-area sales tax for transit.

Whether Dayton can get any kind of tax boost enacted is uncertain with Republicans now in control of the state House. But he's moved beyond taxing the rich.

No similar shift is visible in the tax debate in Washington. President Obama seems as focused on taxing the rich as ever, and chiefly to promote fairness and equality.

It's all politics, of course, as has been widely observed. The president dropped his plan — to fund tax breaks and subsidies for a very broadly defined "middle class" by boosting taxes on the investment income of the very wealthy — before a new, all-Republican-controlled Congress that is in no danger of enacting such a thing.

Coming on top of Obama's other politically nimble but unmistakably hostile maneuvers since the GOP victories in last fall's midterm election — on immigration, say, and Cuba — the tax plan is discouraging evidence that the president may neither expect nor much desire to work constructively with the GOP Congress.

This seemed to be Obama declaring his ideological principles for the record while he still holds center stage, and maybe about trying to secure the place of those principles within America liberalism and the Democratic Party in the 2016 presidential campaign and beyond.

So here we have two men of the left, Obama and Dayton — two lame ducks trying to shape their legacies. Though both may be thwarted in the short run by divided government, in the long run it is Dayton who is contributing more to a serious and constructive debate, with his candid and pragmatic shift away from pure class-struggle tax policy.

The trouble isn't necessarily with the idea that America's rich must pay higher taxes. They well may need to pay more as the nation comes to terms with its budget and demographic challenges in the years ahead (spending cuts, too, will be needed).

And progressives might want to consider that if only the taxes of the rich can be hiked, it will remain impossible to finance anything like the really ambitious, European-style systems of income redistribution liberals admire.

The European welfare states do of course redistribute wealth more extensively than American government does. But generally they don't do it by having more progressive tax systems than we do — by imposing disproportionately high taxes on the rich. They impose high taxes, especially consumption taxes, on everybody. They achieve dramatic redistribution though social spending programs targeted aggressively toward those in most need.

In "How Can Scandinavians Tax So Much?" — a paper in the fall edition of the "Journal of Economic Perspectives" based at Macalester College — economist Henrik Jacobsen Kleven shows that the famously socialistic Nordic countries collect upward of half of national GDP in taxes. Yet what he calls the "participation tax rate" is much higher still, at around 80 percent. It represents the portion of one's earnings that an average worker never sees, because of the combined effects of taxes and reductions one's earnings trigger in payments from government programs.

Kleven says a combination of effective tax enforcement and powerful cultural cohesion explain how the Scandinavians can maintain high employment and vigorous economies in the face of such incentives.

The point here is to notice the major role means-tested spending programs, rather than progressive taxes, play in ambitious redistribution strategies. A complexity for the United States is that as the population ages non-means-tested programs for the elderly like Social Security and Medicare will grow, directing more public spending toward the middle class and even the affluent, rather than focusing resources on the truly poor.