Monday, November 5, 2007

Re: ‘Intaxication’

Economist Paul Krugman
Returning to Phil Dillon’s conservative blog, Another Man’s Meat (which has since changed its name to Fires Along the Tallgrass), I have sometimes written responses to his posts which did not show up on his site.  One such response answered a post of his on taxes.

On August 15, 2007, Phil posted a meditation on taxes, specifically how someone in his hometown of Emporia, Kansas, a Mr. John Peterson, was proposing a tax on the wealthy to bring in some needed revenues. “Intaxication” was Phil’s rejoinder. I submitted a response to his piece, but it never appeared on Phil’s blog. Here is what I wrote:

No one likes to pay taxes. On the other hand, Americans (most of us) like Social Security, Medicare, the Federal Deposit Insurance Corporation, and other federal programs. Americans also like to have access to police officers or fire fighters when they’re needed. And Americans like to drive on paved roads free of potholes and have traffic lights that don’t cause any car crashes. These everyday social fixtures that we take for granted must be paid for. What pays for them? I’ll give you a hint: it’s a five-letter word and a favorite bugbear of the Republican Party.

Much of what makes our society livable — not everything, but much — depends on taxes. However, you wouldn’t get that idea from reading “Intaxication.” Instead, Phil likens taxes to “theft,” which he defines as “taking something that belongs to someone else and using it for another’s purpose, agenda, or pleasure.” But aren’t the social fixtures that I mention above a benefit to all of us, not just “another”?

The tenor of the post — especially its references to “theft,” “coveting,” and “mugging” — implies that the best kind of taxation is no taxation at all, or at the very least, a minimal form of taxation that would make April 15 just another day on the calendar. How would this kind of taxation pay for Social Security, policemen, and pothole patches? The post doesn’t say. I get the idea that anti-tax activists think that if you eliminate all taxes, these social necessities will pay for themselves. Such a utopian belief isn’t far from the one that says functioning Jeffersonian democracies will flourish throughout the Middle East just by toppling Saddam Hussein in Iraq.

Now, I’m not writing to defend John Peterson’s particular tax idea. Being no economist, I have no idea whether it would be suitable or not for the good people of Emporia (although, as a rule, I find flat taxes regressive). I’m also not saying that some taxes shouldn’t be scrutinized or adjusted or even abolished when appropriate. But some taxes must be — must exist — for the sake of society. The Great Depression (caused by the stock-market crash of 1929) showed us the need for a social safety net: Social Security, the FDIC, unemployment relief, etc. To continue on our present course of taxation could very well force us to slash these social services severely. And I don’t see any acknowledgement of that in “Intaxication.”

Phil’s post pointed me to a 2003 article, “The Tax-Cut Con” by Paul Krugman.

There. I’ve probably lost at least two-thirds of any conservative readers out there just by mentioning Krugman’s name. He is a liberal economist and New York Times columnist who alerts his readers to the flaws (to use a value-neutral word) in the Bush economy. He is also the bête noir of many on the political right, and a small conservative cottage industry has sprung up to refute everything he says as a “lie.” Krugman’s name carries as little credibility with many conservatives as the name of right-wing think-tanker Thomas Sowell (whose writings Phil recommends and whose syndicated column I sometimes read in the Daily News) does with me. Still, I thought that I would compare some of Krugman’s comments in “The Tax-Cut Con” — and a few of my own — with some of Phil’s statements in “Intaxication”:

“We’re taxed on every hand. The federal government taxes us; the states tax us, municipalities tax us. … They even tax us when we die.” —Phil

Phil’s statement is obviously a reference to what is officially known as the estate tax or inheritance tax, but which has lately become more commonly known as the “death tax.” However, Krugman explains how the estate tax was cut by the Bush administration and why the phrase “death tax” (reportedly coined by GOP strategist Frank Luntz) is a misnomer: “[Bush’s] 2001 tax cut phases out the inheritance tax, which is overwhelmingly a tax on the very wealthy: in 1999, only 2 percent of estates paid any tax, and half the tax was paid by only 3,300 estates worth more than $5 million. The 2003 tax act sharply cuts taxes on dividend income, another boon to the very well off. By the time the Bush tax cuts have taken full effect, people with really high incomes will face their lowest average tax rate since the Hoover administration.”

Further on, Krugman says: “As demonstrated, the estate tax is a tax on the very, very well off. Yet advocates of repeal began portraying it as a terrible burden on the little guy. They renamed it the ‘death tax’ and put out reports decrying its impact on struggling farmers and businessmen — reports that never provided real-world examples because actual cases of family farms or small businesses broken up to pay estate taxes are almost impossible to find. This campaign succeeded in creating a public perception that the estate tax falls broadly on the population.”

“By the time they’re done with us they’ve taken 50% or more of the money we’ve earned by the sweat of our brows.” —Phil

Krugman: “Very few Americans pay as much as 50 percent of their income in taxes; on average, families near the middle of the income distribution pay only about half that percentage in federal, state and local taxes combined.”

“Prior to the ratification of the Sixteenth Amendment, government controlled about seven percent of our gross domestic product and employed about four percent of the total workforce.” —Phil

The Sixteenth Amendment was ratified in 1913. That year, World War I hadn’t even begun, and the G.D.P. of America was a fraction of what it became after World War II. Today, the United States is a world superpower, with a powerhouse economy, and needs a government (which is financed by our taxes) to match. Is looking at the tax needs of the U.S. today alongside the U.S. of 1913 a fair comparison?

“By 1995, our federal bureaucracy employed nearly twenty million Americans and controlled one-third of gross domestic product. That’s as staggering as it is sobering.” —Phil

Krugman: “To assess trends in the overall level of taxes and to compare taxation across countries, economists usually look first at the ratio of taxes to gross domestic product, the total value of output produced in the country. In the United States, all taxes — federal, state and local — reached a peak of 29.6 percent of G.D.P. in 2000. That number was, however, swollen by taxes on capital gains during the stock-market bubble. By 2002, the tax take was down to 26.3 percent of G.D.P., and all indications are that it will be lower [in 2003 and 2004]. This is a low number compared with almost every other advanced country. In 1999, Canada collected 38.2 percent of G.D.P. in taxes, France collected 45.8 percent and Sweden, 52.2 percent.

“Still, aren't taxes much higher than they used to be? Not if we're looking back over the past 30 years. As a share of G.D.P., federal taxes are currently at their lowest point since the Eisenhower administration. State and local taxes rose substantially between 1960 and the early 1970s, but have been roughly stable since then. Aside from the capital-gains taxes paid during the bubble years, the share of income Americans pay in taxes has been flat since Richard Nixon was president.”

“In about a year and a half the page of history will turn and in all likelihood there will be a complete shift of political power in America. I can only imagine how much more of our property and wealth will be redistributed when that day dawns.” —Phil

The Bush tax cuts have fallen disproportionately on the wealthiest Americans. If more government revenues are needed — and I think they are — the best way to get them would be to roll back these particular tax breaks, sparing most folks in the middle class or below. But which tax breaks (if any) will be rolled back probably depend more on the influence of wealthy campaign contributors — to whom both Democrats and Republicans are beholden — than they do on the candidates themselves. Krugman says: “Wealthy campaign contributors have a lot to gain from lower taxes, and since they aren't very likely to depend on Medicare, Social Security or Medicaid, they won't suffer if the [social safety net] gets starved.” Krugman continues: “And more broadly, the tax-cut crusade [since the Reagan years] will make it very hard for any future politicians to raise taxes.”

“I suppose we might ask our founding fathers, who funded a revolution without levying taxes. In fact, wasn’t one of the principle reasons we shook off the tyranny of George III the matter of taxation without representation[?] How did we ever manage to secure our liberty without so much as a hint of an Internal Revenue Service?” —Phil

Is comparing the needs of America today with those of the America of 1776 any more appropriate than comparing them to those of the America of 1913? And is the above sentence suggesting that we Americans (other than the civilian residents of Washington, D.C.) have taxation without representation today? If so, then what do you call all of those people who work on Capitol Hill? Aren’t they called “representatives”?

“Maybe if [government leaders were to read the books of supply-side economists, those leaders would] see that tax reductions actually produce increased government revenues ….” —Phil

Krugman: “[President Bill] Clinton did exactly the opposite of what supply-side economics said you should do: he raised the marginal rate on high-income taxpayers. In 1989, the top 1 percent of families paid, on average, only 28.9 percent of their income in federal taxes; by 1995, that share was up to 36.1 percent. Conservatives confidently awaited a disaster — but it failed to materialize. In fact, the economy grew at a reasonable pace through Clinton's first term, while the deficit and the unemployment rate went steadily down. And then the news got even better: unemployment fell to its lowest level in decades without causing inflation, while productivity growth accelerated to rates not seen since the 1960’s. And the budget deficit turned into an impressive surplus.”

Elsewhere in his article, Krugman says: “It is not that the [economic] professionals refuse to consider supply-side ideas; rather, they have looked at them and found them wanting. A conspicuous example came [in 2003] when the Congressional Budget Office tried to evaluate the growth effects of the Bush administration’s proposed tax cuts. The budget office’s new head, Douglas Holtz-Eakin, is a conservative economist who was handpicked for his job by the administration. But his conclusion was that unless the revenue losses from [Bush’s] proposed tax cuts were offset by spending cuts, the resulting deficits would be a drag on growth, quite likely to outweigh any supply-side effects.”

“…It is our magnificent cultural and economic system which gives [the wealthy] the opportunity to be rich. They should give back.” — John Peterson, quoted by Phil

Throughout “Intaxication,” I don’t see any persuasive argument that refutes this statement. Someone whose perspective approximates Mr. Peterson’s was the industrialist and philanthropist Andrew Carnegie, who said, “Wealth is not chiefly the product of the individual, but largely the joint product of the community.”

I also dispute “Intaxication’s” contention that “the power to tax is becoming increasingly the power to control.” Isn’t the disproportionate accumulation of wealth by private corporations, and their allocation of the products we depend on, a power to control as well, a power less accountable to our political processes than taxation is? (Not that I have anything against private corporations as such.) For example, don’t the skyrocketing prices of gasoline (those prices exclusive of any gas taxes) influence our driving habits? However, this is too big an issue to go into here.

Just a few weeks ago, Minneapolis experienced the tragic collapse of a bridge on Interstate 35 that took eleven lives at last count. The devastation was a heart-rending reminder of how our very lives can be dependent on an infrastructure funded by tax dollars — and tax skeptics will correctly remind us that those revenues need to be spent wisely. Was the bridge catastrophe directly traceable to the Bush administration’s regressive tax policies, which leave municipalities around the country needing to stretch the monies they spend on infrastructure? Probably not. But I believe that the tragedy does foretell the multiple mini-Katrinas that could take place around this country if Bush’s tax policies stay on the books.

Suffice it to say that the United States suffers from a peculiar kind of schizophrenia: Americans love, enjoy, and take for granted many of the benefits that come from taxation. However, Americans hate paying the taxes themselves — so much so that even a few middle-income folks passionately denounce taxes that impact only the very rich.

Everybody wants to go to Heaven. Nobody wants to die.

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