Thursday, September 01, 2011

The Tax Debate is Getting Personal

-- Posted by Neil H. Buchanan

There are many good reasons not to watch the Sunday morning political talk shows. Among other things, missing them allows one to avoid the Beltway Insiders' version of witty repartee. A common claim by the Sunday pundits is that everyone likes to talk about raising taxes, but no one is willing to raise their own taxes. More than once, we have been regaled with a supposedly common (and supposedly clever) Washington aphorism: "Don't tax you. Don't tax me. Tax the man behind the tree." Not exactly Oscar Wilde. Still, the idea is that the fiscal policy debate is infected by self-interest, and we would be ever so much better off if someone would step forward and say, "Yes, tax me."

Enter Warren Buffett. As I discuss in my new column on Verdict, Buffett has been the subject of much venom for having committed the sin of suggesting a tax increase on wealthy people, which would obviously include himself. The vitriol is hardly surprising, given the strength of the forces arrayed against increased progressivity in taxes. Still, what is surprising is just how personal the attacks on Buffett have become -- with the personalization of the debate serving a surprising purpose, as I discuss below.

Contrary to what some have suggested, Buffett did not actually say, "I think I have too much money." Buffett's argument, expressed in a now-famous op-ed in the NYT, was a straight policy brief in favor of changing the tax system. He described how the current U.S. tax code makes it possible for the wealthiest Americans to pay lower taxes than the non-wealthy pay, putting the lie even to the claim that the system currently asks proportionately more of the rich than from anyone else.

Even if that were not true, moreover, Buffett's argument would essentially boil down to this: "As a policy matter, I think we need more revenue to reduce the federal deficits. Rich people can afford to pay more, and experience shows that higher taxes on wealthy people does not reduce their incentives to pursue productive investments. Therefore, there are benefits without costs to my proposal to raise taxes on those with the highest incomes."

Some of those who attack Buffett want to argue about the costs and benefits of his proposals, which is entirely appropriate. My assessment is that Buffett has the better of the argument, but that is why we have robust debates.

What is truly stunning, however, is the ferocity of the personal attacks on Buffett. In my Verdict column, I point out that most of the negative response to Buffett has come in the form of crude ad hominem attacks, which are irrelevant to the debate.

The more interesting question, however, is why so many people have chosen to misinterpret Buffett to be saying that he personally wants to pay more taxes. In a literal sense, of course, he has called for a policy change that would negatively affect his own bottom line. This would, under the usual Beltway wisdom, make him a stand-up guy. In any event, his argument is not, "I want to pay more taxes," but "The right group to target for tax increases, for good policy reasons, is the wealthy (of which I happen to be a member)."

Even so, the response to Buffett, even from supposedly neutral sources, has been to personalize his call for higher taxes. A number of European billionaires and multi-millionaires have been calling for higher taxes on the wealthy, with a group in Germany having kept up the call for two years now. Toeing the new conventional wisdom, a news article in The New York Times describing the most recent such announcement was headlined: "Tax Me More, Europe's Wealthy Say."

Why does it matter that these announcements from wealthy people are characterized as subjective statements of personal preference, rather than objective assessments from people who might know something about the subject? As an aside, just think about how much ink is spilled telling the world the thoughts and opinions of business leaders on every topic under the sun, no matter how far from their actual range of knowledge those opinions stray. The average CEO has no particular training or experience allowing him to understand monetary policy's effect on the macroeconomy, for example, since the effect of monetary policy on one's own business does not aggregate into a generalizable rule of economics (and in fact often points in precisely the wrong direction). Even so, the business press breathlessly reports the wit and wisdom of corporate titans as if they possess the absolute truth. When Buffett says something that is actually within his experience and knowledge as a highly successful capitalist, however, it becomes merely his opinion.

Obviously, those who oppose Buffett on the merits have good reason to characterize his arguments as his subjective opinion. The more pathetic the subjective opinion can be made to seem, moreover, the more easily the argument can be dismissed. Thus, as I pointed out in my column, some commentators have accused Buffett of engaging in "guilt therapy" for having become so rich. Similarly, in the article noted above about Buffett's European counterparts, someone from a think-tank is quoted as saying: "Maybe some are ashamed by what they earn." Yes, this is all about a bunch of neurotics!

The personalization of this debate serves a purpose beyond the effort to portray Buffett and his compatriots as soft-headed, however. The quote from the previous paragraph continues: "But they can just ask to be paid less." Bruce Bartlett (former aide to Reagan, Bush 1, Jack Kemp, and Ron Paul) correctly dismissed such comments as "a completely unserious response" to Buffett's arguments. Even so, the "If they don't think the rich should have so much money, they can give it away without imposing their views on rich people who disagree" argument has surprising staying power. Several years ago, when that argument came up in an earlier version of this debate, two progressive economist friends told me that they found the argument initially persuasive. After thinking about it for more than a moment, of course, they could not defend the argument. Still, the initial appeal even to unusual suspects is noteworthy.

The problem, as so often happens with talk show fodder, is that the response is more complicated than the argument. It is another case of "If you're explaining, you're losing." As I argue in my Verdict column today, the "Let Buffett pay more if he wants to pay more" argument ultimately boils down to the argument that all taxes should be voluntary. Why? Because anyone who says that he favors a tax system that would require him to pay any amount in taxes can be described as "volunteering" to pay taxes, opening himself to the response, "Well, that's your choice, but don't impose it on others."

There are those who sincerely believe that taxation is theft, and that any group activities should be paid for through voluntary contributions. Such a society would quickly fail, of course, due to free-rider problems, an inability to make long-term plans for public improvements, and so on. Still, people are free to imagine otherwise, and there has always been a small minority of people who hold such extreme views.

What is surprising, however, is how the personalization of the attack on Buffett so stealthily moved that argument into the mainstream. We go from one of the wealthiest people in the world calling for higher taxes on the wealthy, and in a few steps we arrive at an argument that has no principled stopping point short of "taxes should be voluntary." And the political and pundit classes fall for it. That is some powerful rhetoric.