Get Lucky; Is The Wall Street Journal's editorial page written by James Bond villains?

The New Republic ^ | December 17, 2002 | Jonathan Chait

[Torie]

Get Lucky

by Jonathan Chait

Post date 12.17.02 | Issue date 12.23.02

One of the things that has fascinated me about The Wall Street Journal editorial page is its occasional capacity to rise above the routine moral callousness of hack conservative punditry and attain a level of exquisite depravity normally reserved for villains in James Bond movies. To wit, a recent lead editorial titled "THE NON-TAXPAYING CLASS." A reader unfamiliar with the Journal's editorial positions might read this headline and assume it refers to ultra-wealthy tax dodgers. But no--the Journal, of course, approves of such behavior. The non-taxpayers it denounces are those who earn too little to pay income taxes: "[A]lmost 13 percent of all workers," the editorial fumes, "have no tax liability. ... Who are these lucky duckies?" In typical Journal fashion, the editorial is premised upon a giant factual inaccuracy--it completely ignores sales and excise taxes, which consume a huge share of the working poor's income. But what makes the editorial truly exceptional is the reasoning underlying it. The Journal complains that low taxes on the poor are "undermining the political consensus for cutting taxes at all." For instance, the editorial considers the example of a worker who earns $12,000 per year, and, after noting bitterly that he pays less than 4 percent in income taxes, concludes, "It ain't peanuts, but not enough to get his or her blood boiling with tax rage." In other words, the Journal wants to raise taxes on the working poor so that they will have more "tax rage" and thus vote for Republicans. Once in office, of course, those Republicans would proceed to cut taxes for the well-off. (Indeed, according to the Journal's logic, they couldn't cut taxes on the poor because that would just lead them to stop voting Republican.) When I try to visualize the editorial meeting that produced this bit of diabolical inspiration, I imagine one of the more rational staffers--maybe Dorothy Rabinowitz--tentatively raising her hand and asking, "Isn't that idea a bit, you know, immoral?" Then Robert Bartley or Paul Gigot would emit a deep, sinister laugh and press a hidden button, depositing the unfortunate staffer into a tank of piranhas. Come to think of it, I haven't seen Rabinowitz's byline in a couple of weeks.

The Journal is perhaps most famous for helping to transform supply-side economics from a crank doctrine ridiculed by mainstream economists and rejected by Washington policymakers into a crank doctrine ridiculed by mainstream economists yet embraced by Washington policymakers. But, even though President Bush is no less committed to supply-side economics than was Ronald Reagan, W.'s policies, unlike the Gipper's, are almost never described in the press as "supply-side." A rare exception occurred last month, when President Bush declared at a press conference that "the deficit would have been bigger without the tax-relief package." A minor stir ensued, with Democrats accusing the administration of practicing supply-side economics and Bush aides denying it.

Why Bush's embrace of voodoo economics became newsworthy just recently is hard to figure, because his spokespeople have been saying the same thing for months. "The tax cut gives us a chance for sustained economic growth. If we have higher taxes on this economy then the [revenue] projections won't get stronger; they're more likely to get weaker," insisted White House Budget Director Mitch Daniels last summer. "The president does believe that cutting taxes is the best way to spur growth and therefore to have a return of bigger surpluses," declared Ari Fleischer ten months ago. Indeed, describing this administration's economic policies merely as "supply-side" is something of an understatement. Supply-siders believe that cutting upper-bracket tax rates can cause massive economic benefits, and in the early '80s they did famously claim that those benefits would be so large that they would actually cause tax revenues to increase. But most have spent the intervening years fervently insisting never to have said any such thing. "[T]he 'supply-side' movement is not remembered for its correct predictions about prosperity, but for the 'Laffer curve,' and its supposed prediction that the revenue effects of tax cuts would be large enough to shrink the deficit," writes Bartley in The Seven Fat Years, his apologia for Reaganomics. "The prediction, however, is not one any of us really ever made." So Bush has embraced a version of supply-side economics so radical that even the supply-siders themselves have repudiated it. After the president's controversial pronouncement, no less a purist than Jude Wanniski, author of the influential 1978 supply-side tract The Way the World Works, told The Washington Post that the Bush tax cut is "decreasing revenues."

Wanniski, once a confidant of GOP stars such as Jack Kemp and Steve Forbes, has since become marginalized by holding forth on noneconomic subjects--for instance, defending Louis Farrakhan or insisting that Saddam Hussein did not use poison gas against the Kurds--where his nuttiness is apparent even to laymen. The other great tax-cut tome is Wealth and Poverty, written by George Gilder in 1981. Gilder's reputation, too, has gone south recently. After winning acclaim as a tax-cut zealot, Gilder abruptly became a telecommunications autodidact. During the 1990s boom he made a fortune as a new economy evangelist--he earned up to six figures for a single speech, and his newsletter, "Gilder Technology Report," often caused stocks he recommended to jump as much as 50 percent. Gilder used his wealth to purchase the conservative monthly The American Spectator, which he turned into a monument to his own genius. One issue featured a 6,600-word cover interview of Gilder himself, in which he was asked questions such as, "In the late 1970s and early '80s, you led the intellectual debate on sexual issues from the conservative side. In the 1980s your book Wealth and Poverty transformed the way people thought about capitalism. And then you wandered off to study transistors. Why did you do that?" (Gilder's reply: "I thought I had won those debates. Whenever I actively debated anybody, they didn't have any interesting arguments anymore.") In the same interview Gilder declared, "Almost all [upper-class women] are averse to science and technology and baffled by it. And they clutch at the pretentious irrationality of environmentalism as their countervailing wisdom." The Spectator promised its readers that "[a]n equally wide-ranging talk with George will be an annual event." Alas, only one ever took place. The technology crash caused most of the companies Gilder extolled in his newsletter to lose virtually all their value. "I told people in early 2000 they should sell half their shares in these companies," he told Wired in a semi-contrite interview last July. "I didn't say it often. I didn't put it in a newsletter." Gilder had to abandon the Spectator and, according to Wired, is now broke and has a lien against his home--giving the phrase "Wealth and Poverty" an unanticipated poignancy. But, as the Journal might note, his income-tax bill these days is probably almost nil. Lucky ducky.

Jonathan Chait is a senior editor at TNR.

[Bob]

...and figure that about half of the corporate income tax is a disguised sales tax.

In my view, corporations don't pay taxes at all. Taxes are just another of their costs of doing business. Corporate taxes are either:

A) paid by their customers in the form of increased prices

or

B) paid by their investors in the form of reduced dividends.

[The Great Satan]

Second, and most important, no conceptual, logical, dialectical, or even material limit exists on the claims of the majority for the incomes and assets of the minority, i.e. those enjoying the benefits of appropriating the incomes of others have no incentive to ever vote for any other policy than an ever more steeply progressive rate of taxation.

Correctomundo.

[altura]

There was something to be said for only property owners being allowed to vote.

The thing is if over 50% of the voters don't pay taxes, then they are totally indifferent and ready to spend the money of the rest of us.

Without taxing the lower 50% too horribly, we still need to figure out a way to get those people to care about waste and way-out welfare in government.

[185JHP]

Do you know what a nanosecond is? It's about how much time would pass before the malefactors of greed and wealth started trying to pay less than whatever the "flat tax" rate was. NB Not all the rich are malefactors of greed and wealth.

[Cicero]

I haven't read the article, but I would probably have agreed with it. The point is that if everyone paid a reasonable share of taxes--which for low-paid workers would still be much less--then they would not be so eager to vote for every imaginable government handout. If you create a large class of people who never pay taxes, then of course they don't much care how much everyone else has to pay.

Actually, 4% is probably enough for a low-income worker. When I listen to my kids complain the first time they have to pay income taxes on a part-time job, I find that the experience quickly teaches them that taxes are unpleasant.

[Torie]

Yep. the below surprised me as well. If the tax collections in the US are similar to what they were in 1985, it appears that the system is regressive overall, assuming you assume half the corporate tax is a sales tax. It is probably less regressive today somewhat due to the income tax credit, and talking all those low income folks off the income tax rolls that the WSJ worries so much about.

Here is the poop from Joel B. Slemrod. "Slemond is the Paul W. McCracken Collegiate Professor of Business Economics and Public Policy at the University of Michigan, and director of the Office of Tax Policy Research at the Michigan Business School. He was senior economist for tax policy in President Reagan's Council of Economic Advisers.

...

"Chart 1 illustrates the progressivity of the overall U.S. tax system in 1985 (the latest year for which this information is available), according to two different assumptions about the shifting of taxes. Under assumption A the average tax rate generally increased with income, suggesting a generally progressive tax. Under assumption B the average tax rate actually is lowest for families in the highest income decile. The key difference between the two results is that B assumes that half of the corporation income tax is shifted to consumers, in the form of higher prices, while A assumes that all of it is borne by shareholders, who are generally high-income taxpayers. Chart 1 illustrates both the importance of the shifting assumptions and the fact that, even though the federal income tax by itself is progressive, its progressivity is overwhelmed by less progressive levies such as sales taxes and, to a lesser extent, the payroll tax."

[Torie]

Just prudential limits. One doesn't want to kill the goose the lays the golden eggs.

[Torie]

Except that they do pay taxes, and arguably a higher pecentage of their incomes than the "rich" do. So the chart above.

[Paul Atreides]

Do you also believe that a person above your decided income level should be charged more for a good than a person who falls below it? For instance, if two people go into a restaurant and order the same meal, should the person, who makes $750,000 per year, be charged $50 for the meal as the person, who earns $735,000 per year, paying $15 for the same meal. Also, do you think that the person above the established income level should also have to pay a higher sales tax?

Also, what about the kid in college who has a job working at a clothing store part time, who may be getting more in salary and commission as opposed to his classmate who is working part time as a burger-flipper. The kid working in the clothing store can afford more than the burger flipper. Should he be taxed more?

[No Truce With Kings]

"So, we should soak the rich, right? Lots of folks say "Yes" without realizing they're volunteering to be soaked.

And just in case Torie wants to say "But I do volunteer!", I'll just point out that NO ONE to whom I have explained this has actually taken that position."

Anybody remember what happened when Huckabee allowed people that felt they "were not getting taxed enough" to pay extra to a special fund in Arkansas? I think the cost of maintaining the fund (minimal) exceeded the moneies donated. (Regardless, I thought it worth it to expose the hypocracy of the left.)

[groanup]

"The richer should pay more"

I'll paraphrase Walter Williams. 'If I want to get some work done on my computer I could hire you for say $200 to do it. However, if you want to clear $200 and you are in a 30% tax bracket you will only take home $140 dollars. For that sum you are unwilling to do the work. For me to hire you anyway I would have to pay you $285 so you could net $200. I am unwilling to pay that sum. So no transaction takes place and NO taxes are collected period.'

Taxes either stymie economic activity or alter behavior in order to avoid them or both. Lower taxes reward wealth creation (jobs). Higher taxes reward politicians with the votes of the beneficiaries of government hand-outs. And those beneficiaries are no longer exclusively the poor. They are the legions of big government at all levels whose jobs depend on taxes.

[Torie]

A progressive sales tax is impracticable to administer. Where the brackets should be drawn, and what the rates should be, is a prudential matter, in part driven by spending and receipts. I suspect in your hypo, the two college kids would be in the same marginal income tax bracket, probably 10%. No, it is impracticable to have each bracket just one dollar wide, with the increase in rates for each dollar .0001% or whatever. Gee, I invoked practicality twice here. Maybe it might be catching.

[Erasmus]

Solution is a flat tax IMO. It's fair in that everyone pays the same percentage.

A real flat tax would mean everybody pays the same amount!

It is interesting to think about, or to hear, arguments as to why a tax should be anything other than a fixed quantity per person. It exposes a lot of assumptions, some of them questionable.

For instance, one might argue, "The rich should pay more because they get more in services." But if you look at "services" supported by tax dollars, don't the poor make much more use of police and welfare than the rich? So should not the poor pay more?

I seem to recall Dr. Walter Williams making an argument along this line.

[ClearCase_guy]

Huckabee did a good thing there. But, of course, there's no need for a Governor to explicitly voice such a program. Steven Spielberg, George Soros, Ted Turner, and Susan Sarandon are all far-left crazies who believe in soaking the rich. Question: Do those people ever voluntarily send big checks to the US Treasury? I'm not talking at tax-time. I mean just out of the blue. "Hey, I have too much money, guess I'll send some the government!"

That NEVER happens.

[section9]

Most of the upper income liberals and moderate liberals I know don't think they are overtaxed. But then maybe the folks that I know I odd. A little chart is coming up soon. Stay tuned.

Tax increases and decreases tend to be at the margin.

The Reagan cuts were sizable, but they were still marginal cuts. The Clinton increase was slight compared to what the liberals really wanted to do, which was to roll back Reagan/Kemp/Roth altogether. They never did. The Reagan boom continued through the Clinton years, despite the marginal increase in taxes, because Reagan's basic taxing structure was not repealed (although I should point out that the only salutary thing that Bush I did was to get that silly "Boat Tax" repealed. The small aircraft and boating industry took a dive because of it.).

Perhaps the rich should pay more, but I seriously doubt that that would make a practical difference. The success of Reagan was that he brought a lot of money out from under the mattresses and into play. That led to an explosion in revenues. This model is the same one that Bush II is following. In the out years, this model will pay dividends, as people like to take their marginal increase in income and do one of three things: save it, spend it, or invest it.

Whichever way is chosen, the economy benefits.

What might be instructive is to watch Vladimir Putin's experiment in a 13% flat tax. Passed by the Duma last year, the flat tax has apparently led to the same process as happened under Reagan: rubles mysteriously appeared out of nowhere. Now the Russians are building shopping malls and tax receipts are up (by the way, their new Sukhoi fighters are on par with the JSF and the F-22).

Putin is trying to make the mafiya and the biznessmenyi put their cash to work in the legal economy instead of squirreling it away in hard currency accounts in Switzerland.

Be Seeing You,

Chris

[Torie]

You have made some empirical assumptions about the marginal utility of income and leisure. And the case for supply side turns on such empirical assumptions. It is strictly a data thingie. The supply siders in the present bracket ranges simply don't have such data to back up their case. They are running on empty. When the top marginal federal income tax rates were 70% or 93% (as they were once), they probably were not.

[Torie]

Yes, that is the point. Supply side is not in play where the ball is being thown around at present, or even close to it. Russia is inapposite, because tax fraud there is rampant. They simply don't have the mechanisms to incentivize folks to voluntarily comply, or the culture or habits of compliance.

[groanup]

"The key difference between the two results is that B assumes that half of the corporation income tax is shifted to consumers, in the form of higher prices, while A assumes that all of it is borne by shareholders, who are generally high-income taxpayers."

Bogus assumption. Corporations (which don't pay taxes anyway) cannot control how much of the tax they pass on to consumers in the long run or even year over year. Market forces do that.

[Torie]

That is right, and the assumption is that about half is in practice. It is driven by the elasticity of the cost of capital actually. The higher the elasticity, the more of the corporate tax will be passed on in the form of higher prices pursuant to market mechanisms.

[Torie]

Anti flat tax bump. :)