January 8, 2015

Squaring the Taxing and Spending Circle . . . to Everyone’s Liking


“Squaring the circle” is an ancient mathematical problem that’s impossible to solve with a compass and a straightedge. It’s also a metaphor for trying to solve any seemingly impossible problem, like increasing taxes and spending money in ways that make everybody happy.

Well, it might be a stretch to say that University of Southern California Law and Business Professor Edward D. Kleinbard figured out how to square the tax and spending circle, but he does offer some different approaches to this problem. His new book—We Are Better Than This: How Government Should Spend Our Money—“holds the potential to change our often dogmatic and sometimes toxic public debate over how we tax ourselves and spend our tax dollars into a conversation about how to raise more money with less pain and spend in ways that will produce a happier America,” Syracuse University Law professor David Clay Johnston wrote in a recent book review.

What does this former chief of staff of Congress’ Joint Committee on Taxation have in mind? First, that “taxing and spending are the yin and yang, the alpha and omega, that should always be viewed together,” Johnston wrote. Kleinbard “repeatedly cautions about proponents of every perspective looking at only one side of the coin.”

Starting from this premise, Kleinbard precedes to step on many toes across the political spectrum. Because we’re too preoccupied with taxes, we overlook how well-targeted government spending complements the private sector, yielding positive social and economic returns.
To bring this about, we must get over our obsession with progressive taxation and design a tax system that produces those returns, according to Kleinbard. To Johnston, that means substituting “the simplicity and efficiency of rough justice for the ever more finely diced rules progressives have promoted for over a century as the best way to get a fair society,” adding that “such fine rules produce the unintended consequence of being material for unexpected pathways through the tax code to what Kleinbard calls stateless income, because no government taxes it.”

It appears that Kleinbard is trying to reframe budget debates, often quoting passages from Adam Smith’s Theory of Moral Sentiments (1759) to support his claims. What we “really should care about is whether government, taken as a whole, enhances the happiness of society by making socially useful investments and by appropriate levels of social insurance. These goods are financed by tax revenues, but the tax revenues are not the point of the system—the goods are,” Kleinbard wrote.