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A new tax plan and an old conversation

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On Thursday, as we were stumbling out of midterms or watching a great movie (thank you Cardinal Nights!), House Republicans unveiled their broad tax overhaul plan. As reported in AP News, it’s a plan that will touch all Americans: bringing together lower tax rates for corporations and a reduction on personal taxes with fewer deductions for those buying homes and those with large medical bills. And students who put in a student loan interest deduction on their 1040 forms could also take a hit as that deduction is taken away and their taxable income rises.

There are many technical problems with this new tax plan (examples include incentivizing businesses to leave America or the government’s debt), but to me, the issue was less technical and more instinctive, because it’s a plan that seems to be on the side of businesses and manufacturing but only seems to benefit those who own these companies — those who will be all right in any case. It doesn’t seem at all to try to help those people that we really mean when we talk about the importance of companies staying in America: those who work on the factory floor, who make their lives around plants that produce in this country. It doesn’t seem fair that a party that speaks so highly of personal freedom, and that was elected by those left behind by a moving economy, would propose a plan that gives tax cuts to those at the very top but gives very little to those working jobs that could soon drastically diminish in quantity and/or pay.

But the idea of fairness is an old one, in the case of taxation, and not something that a single column can hope to reason out. This plan needs to be considered not just from our traditional ideas of what fair taxation means — arguing about the tradeoff between encouragement of economic actors with lower taxes and the benefits of the redistributive function of taxes — but something more complicated. Because there’s something else on the horizon which is already bringing sweeping changes to the way America makes anything.

I recently came across a great long-form piece in The New Yorker by Sheelah Kolhatkar. Titled “Welcoming Our New Robot Overlords,” it was an expansive view of labor in America and automation that honed down with crystal-clear clarity on what the reality of automation will entail. It is tinged with both optimism and sufficient doubt — and makes the case that the invisible hand that creates jobs where automation takes them away might be broken.

Because as automation increases, it takes away a particular kind of job market, and retraining people from one field to another is neither as frictionless nor as invisible as a free-market idealist would make it seem. The article talks about the research of David Autor, an economist at M.I.T. who studies the impact of automation on employment, and it is a line from him that stayed with me: “It doesn’t mean there’s no money around, but it’s just accruing to the owners of capital, to the owners of ideas, and capital is less equitably distributed than labor. Everyone is born with some labor, but not everyone is born with capital.”

And that’s what I kept thinking of while reading about this tax plan: that this debate about taxes isn’t the old one between Republicans for freedom and simplification versus Democrats for a social security net. As the economy changes with the increased use of automation, the ability to earn a living by working hard is simply not something we can take for granted as an uncomplicated reality. In fact, if anything, the shift from labor to automation means that hard work itself is no longer enough: that to make a living requires something far more than what is in the control of an individual. Circumstances of birth and opportunities will play a much bigger role than maybe ever before.

Of course it seems fair somehow that those with good ideas will simply make more than those with jobs that can be automated away — but this isn’t as uncomplicated as that. Because the skills you have and the job you spend your early work life training for are partly a choice, but they are also, for millions of people, a function of availability and necessity — to punish them for an industry dying is simply not fair. And those who accrue money from owning ideas aren’t always the ones coming up with them or fostering innovation: Often, they’re just someone who has the capital to own those ideas.

The future of manufacturing and of the people who rely on the jobs it provides looks murky if not downright bleak. In writing for The New Yorker about the debate on whether manufacturing should be subsidized, Joshua Rothman talks about this further, making the case that whenever we are not using taxpayer dollars to subside industry, we are letting it fail because subsidies are the reality of manufacturing. And manufacturing, despite the overused cliché of being the backbone of America, is immensely important to the livelihoods of millions of people in this country.

But it was something else that he wrote that really drove it home that our political conversations are caught in dichotomies that can’t handle the real problem at hand. He writes: “Today, neither Democrats nor Republicans seem particularly equipped to discuss the past or future of manufacturing in a realistic way. Republican free-market orthodoxy doesn’t have room for ‘picking winners’ or for massive government spending on industrial policy; the Democratic aversion to helping big business means that subsidies are defensible only when they are aligned with a progressive cause, such as solar power.”

And that’s what seems unfair about this tax plan: that it’s still arguing for those old ideals of a small government that doesn’t meddle with the market, that it’s a simplified tax plan in an economy and world that are incredibly complicated and deserve a response equipped to deal with the particulars of those complications. Because this country deserves better governance, and at the very least a better conversation, especially for a plan that will touch so many lives.

 

Contact Rhea Karuturi at rheakaru ‘at’ stanford.edu.