‚??Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.‚?Ě
‚?? Mr.¬†Micawber¬†in¬†David Copperfield
If America‚??s long-term economic growth were 3.5 percent, the result would be the restoration of cheerfulness. If long-term growth is closer to 2 percent, the result will be continuing social disappointment and political crankiness.
Representative Dave Camp (R., Mich.), as chairman of the Ways and Means Committee, did his considerable best to deliver the indispensable igniter of sustained growth ‚?? tax reform. As he leaves Congress after twelve terms, passing the gavel to an equally able reformer, Paul Ryan, Camp remains confident that it can be done. Such serenity is strange in today‚??s Washington, where even events that cause cheerfulness are for that reason depressing.
The euphoria occasioned by the economy adding 321,000 jobs in November indicates that we have defined success down. In the 1960s, there were nine months in which more than 300,000 jobs were added, the last being June 1969,¬†when there were about 117 million fewer Americans than there are now. In the 1980s, job growth exceeded 300,000 in 23 months, the last being November 1988,when there were about 75 million fewer Americans than today.
To demonstrate how young people ‚??are not getting the kind of start others got,‚?Ě Camp offers a graph charting the ‚??fraction of young adults living with older family members.‚?Ě Beginning in the middle of the last decade, the line goes almost straight up, to almost 46 percent. For those 25 to 34, median household income plunged 8.9 percent between June 2009 and June 2012,¬†the first three years of the recovery.
Surely it is time to give earners on the lower rungs of the ladder of upward mobility a boost by cutting their payroll taxes. This can be paid for by ending the nonsense of taxing at the low capital-gains rate the income that fabulously wealthy hedge-fund managers call ‚??carried interest.‚?Ě
There is consensus about the broad contours of tax reform: Lowering rates and recouping lost revenue by closing loopholes, and by improved economic growth, justify ‚??dynamic scoring.‚?Ě This means estimating the revenue and growth effects of tax changes that improve incentives to work, invest, and consume. And save: The median savings of households ten¬†years from retirement is a paltry $12,000; nearly one-third of those 55‚??64 have¬†no¬†savings.
Consensus abruptly ends when dealing with details begins. Suppose the deductibility of mortgage interest were capped at a $500,000 mortgage level (involving less than 5 percent of houses on the market). But all 435 congressional districts have this in common: They all have real-estate interests (bankers, brokers, builders) who will object. But, says Camp, if tax reform delivers faster growth, housing prices will rise because more people will be working and in the housing market.
Charitable giving, too, is highly correlated with economic growth. Were the deductibility of charitable contributions limited¬†in a context of improved economic growth, charitable giving would increase: People give more when they are prospering. Such giving surged after Ronald Reagan reduced the top tax rate from 50 percent to 28 percent in 1986. Although this rate reduction also lowered the value of the charitable deduction, it ignited growth, hence cheerfulness, hence largess.
Camp would prefer to have just two tax brackets (10 percent and 25 percent) but thinks that, for political reasons, a third is necessary ‚??because of the Derek Jeters of the world.‚?Ě There are so many high-earning athletes and entertainers, and corporate CEOs are earning so much more than in the 1980s, that a 35 percent bracket for income over $400,000 (less than 1 percent of taxpayers) is needed to serve the optics of equity.
One prerequisite for tax reform, Camp says, is presidential engagement. Of today‚??s president, Camp says: ‚??I haven‚??t really seen why he is there.‚?Ě
Because comprehensive tax reform inevitably would leave no faction unscathed, Camp‚??s optimism might seem misplaced. But optimism comes easily to a man two years into remission from lymphoma, the treatment for which cost him much of his hair. Said his son, with the savoir-faire for which the young are known: ‚??Don‚??t worry, Dad, it was going anyway.‚?Ě Camp is going from Congress with the knowledge that he advanced the cause of reform, and hence of American revival, and that, as Jefferson said, ‚??The ground of liberty is to be gained by inches.‚?Ě