Tuesday, December 24, 2013

Tax Hackery From a Self-Styled Impartial Referee

-- Posted by Neil H. Buchanan

In my post here on Dorf on Law this past Friday, I offered one possible answer to the question: Why Do Anti-Tax Zealots Resort to "Envy" and "Vengeance" as Explanations for Calls for Redistribution? (I will offer a different, complementary answer in a future post.)  There, I returned to my occasional discussion of the puzzling and empty rhetoric that conservatives have long used to attack progressive taxation.

The odd self-victimization involves the wealthy and their flatterers professing to believe that it is all about jealousy, with "losers" simply wanting to take things from "winners" out of spite.  And I do mean it when I say that the wealthy see themselves as victims: Recall the leading anti-tax militant's comparison of progressive taxation to the Holocaust, which has become a standard meme on the crazy right.  Under this view, the 99% are using their extreme numbers to hijack democracy and take from the beleaguered 1%.  It is all so unfair and mean-spirited!!

A related rhetorical device involves comparing taxes to punishment.  The idea, apparently, is that having tax rates rise as income (or wealth) rises is not a matter of recognizing ability to pay.  Instead, it is simply part and parcel of the envious masses' desire to bring vengeful harm to their betters.  This framing has been around for at least a generation, if not longer, but it has generally been confined to the same conversations in which people toss around the word "socialism" without any sense of what it means.

Imagine my surprise, then, when I read an op-ed in yesterday's New York Times by the former Executive Editor of that newspaper, Bill Keller.  Keller, who richly earned a spot in 2011 on Alex Pareene's must-read annual "Hack List" (which was especially great this year), decided to pretend that he is not really a center-right Clintonite Third Way apologist, by writing "Inequality for Dummies," where he pretended to assess fairly the two sides of the Democrats' intramural debate (which, after some pretense of balance, he finally calls "the near left and the far left") regarding inequality.

A response to most of that piece will have to wait for my upcoming Verdict column that addresses President Obama's call to deal with inequality.  For now, however, I will note that Keller actually appropriated the vengeance framing for taxation, as an argument from a supposedly moderate viewpoint.  Describing with great sympathy the views of "the center-left," Keller writes: "Yes, you can raise taxes on the rich, but you don’t want to punish success."  Yes, he actually said that.

Why is that framing especially outrageous?  Well, consider that he immediately follows that absurd statement with this quotation from a center-right economist (whom Keller gently describes as one "who aligns more with the center than with the populists"): "You want to increase social mobility by providing an opportunity for the bottom to become rich, not forcing the rich to become poor."

Progressive taxation, even at highly progressive marginal rates, does not "force the rich to become poor."  People who earn more before-tax income will still end up with more after-tax income, under every progressive tax plan that any American politician has ever proposed.  Keller is, after all, talking mostly about incoming NYC Mayor Bill de Blasio and U.S. Senator Elizabeth Warren as the vanguard of his dreaded "far left."

Nowhere in anything that either of those people (or their allies) has said or written can you find a tax plan that would make rich people's after-tax income lower than poorer people's.  The intended result is to compress the after-tax distribution, but the people who receive more gross income do not end up poorer than people who receive less gross income.

The standard use of the argument that Keller is pushing is that a person who is considering becoming richer ("Gee, I have an opportunity to invest in this project and earn $5 million, but would it really be worth it?") will be somehow punished for improving his position.  At a 50% rate, he would end up $2.5 million richer, but he would still be richer.  And he surely would not be poorer.

Of course, for the people who are already rich, and who are not planning to do anything in particular to get richer, their high after-tax incomes will be less high under a de Blasio tax system.  Maybe that's the "punishment" that Keller fears, but if so, he can rest assured that the rich will still be richer than everyone else.  They just will have to settle for being fewer multiples richer than their lessers.

The only way the argument that progressive taxes create poverty makes any sense at all is if one adopts the standard trickle-down theory of economics, under which higher tax rates on the rich will cause them to stop being "makers" and simply shut down job-creating enterprises and retire on their piles of cash.  Everyone knows that this is a plausible argument at extreme rates approaching 100%, but we also know that there is a large area of uncertainty within which the economic evidence is extremely weak, at best, in support of the idea that increasing rates by a few percentage points on the wealthy will harm everyone else.  The best recent research indicates that you can have rates on the rich in the 70-80% range without making anyone poorer.

So what is the argument that Keller is pushing?  He does not literally say that the Far Left is pushing for tax increases that are large enough to make everyone (or, at least, the rich themselves) poor.  He just says that the opponents of the Far Left want to prevent rates from being set so high that they "punish success."  Not that anyone else might be suggesting such a thing.  It is just that the center-left "sees the problem and the solutions as more complicated."  As opposed to the Far Left simpletons who just do not understand that real life is difficult.  Get it?

Keller has been missing from Pareene's Hack List for the past two years.  He is well on the way to returning to his former glory in 2014.

5 comments:

Paul Scott said...

The appropriate formulation, on which I express no opinion because that can only be done in the context of a particular tax proposal, is that the desire to not "punish success" is the desire not to dissuade investment.

Taxes havea distorting effect on risk assessment. Losses are not mitigated by tax credits at all and are compensated less by tax deductions than are gains taken by tax assessments. So, while we may not care about the taxing of safe investments, we should very much care about the effects of taxes on risky investments.

Risky investments, of course, are not limited to the extremely wealthy. One of the riskiest investments normal people make are job changes. As we also know our "progressive" tax policy is really only progressive up to the wealthy wage-earner. Once you get into true wealth, taxes are regressive.

So, I certainly agree with you on the rhetoric, but I do think that the standard liberal tax position that focuses on increasing income tax is largely misguided and chooses not to recognize both its distortions on decision making and is effects of increasing the regressive effects at the top end for wage-earners.

Bogdana Kovach said...

Progressive taxation still remains highly controversial. It really reminds "from each according to his ability, to each according to his need." But all those individuals who still think of it as a nice idea of punishment for the rich, might try some services like no credit loan in UK to start their own business and to try to succeed.

Funny Games said...
This comment has been removed by the author.
Funny Games said...

Risky investments, of course, are not limited to the extremely wealthy. One of the riskiest investments normal people make are job changes.LOL Elo Boost | FUT 14 Coins
As we also know our "progressive" tax policy is really only progressive up to the wealthy wage-earner. Once you get into true wealth, taxes are regressive.

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