Tax policy

POLI 352A

Taxes: Extracting resources

• Income

• Consumption

• Social insurance

• Wealth

• Corporation

• Tax expenditures

Varieties of tax policy

• United States– Progressive

– Heavy corporate burden

– Light consumption tax

– Lots of tax expenditures

• Sweden– Regressive

– High consumption tax

– Light on active capital

Varieties of tax policy

• United Kingdom– Unstable and incoherent

Tax expenditures in the United States

Policy making regimes

Corporatism/

PR

Pluralism/

FPTP

Parliamentary

Sweden

(Coherence & compromise)

United Kingdom

(Incoherence)

Presidential

United States

(Fragmentation)

U.S.: Fragmentation

• Fragmented political authority

• Interest groups: Opportunities for narrow demands Narrow organization of interests and demands

Heavy tax rates butNarrow tax expenditures

• Weak parties, interest groups Hard to make social bargains

Liberals reject consumption tax • Even though it could finance social spending

Sweden: Coherence and compromise

• Proportional representation Stable Social Democratic dominance– But minority = need for compromise

• Interest groups and politicians: Incentives to compromise

• Neo-corporatism, strong parties– Makes bargaining easier

Broad policy bargains– E.g., consumption taxes for social spending

United Kingdom:Incoherence and instability

• Centralized authorityPower for policy change

Adversarial party politics

Politicians: Incentives to campaign on polarized promises• Keep them without compromise

• But administratively impossible to reverse all previous choices

Blame avoidance:Tax visibility

• Least popular taxes are most visible– Property and income

• Regressive, but less-visible taxes accepted– Social insurance and consumption

Big spenders rely more on less-visible taxes

• How?– Social bargains using neo-corporatist structures

Blame avoidance:Tax cut visibility

• Bush tax cuts– Far from median voter

BUT

– Overall costs delayed

– Sunset provisions hide cost

– Skewed distributive effects delayed

– Immediate (but small), visible benefits for everyone

– Framing

Conclusion

• Effects of institutional-interest group regimes– Fragmented

– Inclusive

– Adversarial

• Institutions shape actors’ policy demands

• Policy design crucial method of blame-avoidance

• Policy “choices” don’t necessarily reflect intentions

Debating policymaking regimes

• Four policymaking regimes

1. Westminsters (Parliamentary, FPTP) pluralist interests

2. Parliamentary, PR, neo-corporatist interests

3. Presidential, weak parties, pluralist interests

4. -- Westminster plus federalism

• Each group comes up with reasons why their regime is best– Define “best” – what criteria are you using?– If you use “democratic” as a criterion, define what you

mean– Examples of types of policies– All group members take notes