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The Greedy Hand: How Taxes Drive Americans Crazy and What to Do about It by Amity Shlaes
Not long ago, ultra-conservatives would talk about other things, then vote themselves economic goodies once they got into office. Now they have become brazen, careless, condescending or scornful of inept opponents or perhaps something else. Often they now come right out and propose pro-rich, anti-growth, anti-non-rich, anti-American plans almost with the implied taunt: “Americans are too weak, lazy, stupid or distracted to figure it out or do anything about it or both. Americans are pathetic. They are not men and women enough to stop ultra-conservative lies.” Fed up with the status quo, Amity Shlaes offers choice A as an alternative to choice A or choice A, continuing the great endeavor of Ayn Faust, er, Rand.
I could easily spend hundreds of pages pointing out the errors in this work. Let’s start with page 222: “The microchip in its way, has allowed us to postpone our date with tax reform” False claim.
Research suggests that computers have hurt the nation’s overall productivity for reasons ranging from learning
curves to employees playing computer games. Among the more probable candidates for increases in productivity in the late 1990s are:
· A weakening of unions.
· Advances in non-computer technologies.
· More flexible labor markets.
· Improved monetary and fiscal policies.
· Improved management.
· Baby boomers entering their prime years of productivity.
· Reduced government deficits, making more investment money available to the private sector. (Every dollar in surplus reduces the deficit by one dollar, saves several cents in interest payments each year, provides an additional dollar for private investment, lowers interest rates for private investments. That additional dollar for private investment will provide far more economic growth than using that dollar for a tax cut. As a tax cut, much of that dollar gets consumed rather than invested. Research suggests that the incentive to work harder when tax rates are lower is small, except when tax rates are collosally higher than they are now. By the way, between 1947 and 1973 growth in hourly productivity averaged 2.7 percent. Between 1973 and 1998 it averaged 1.1 percent, and that is using techno-utopian methods for calculating productivity.)
“Yet history—the history of the 1980s in particular—has shown an amazing thing—that lower rates on the rich produce more revenue from them.” False cause. Revenue from the rich increased in the 80s because their incomes skyrocketed and because many tax shelters were eliminated. If your income increases from 100 million to 200 million, and your tax bracket falls from 40 percent to 25 percent, your taxes will increase from 40 million to 50 million because of the increase in income. Ultraconservatives do not even have a decent model for how supply-side economics would work. They have a graph drawn on a napkin from a whim. Just because someone draws a graph doesn’t make it any good. Hell, someone could draw a graph that said, the more calories animals are fed, the more they lose weight.
“Taxes are for Revenue. For Fifty years we have used taxes to steer behavior” Yes, taxes have been used to reward bad behavior. But taxes always steer behavior whether intentionally or unintentionally, directly or indirectly. Taxes steered the Soviet Union away from invading Europe. Taxes steer eighty year olds away from living in the street. Taxes steer murderers into jail. Shlaes flat tax fix will steer behavior in nefarious ways, just as present bad tax policies steer behavior in nefarious ways. They will steer working class people into unemployment caused by deficits. They will continue rewarding the childfree for parasitism. They will steer young individuals into working more hours to pay the interest on an increasing national debt, and on and on.
Shlaes throws out many unclear and unspecific prescriptions. Her support for a constitutional amendment to ensure that no one pays more than 25 percent of her income in all federal taxes, however, is clear and specific. That amendment has little to recommend it. It would make the overall tax structure even more regressive because millions of non-rich citizens would end up paying the 25 percent limit plus more in regressive state and local taxes. It would also produce huge deficits.
Her breezy, anecdotal style concludes that the tax structure should:
· Be simpler.
· Be lower.
· Eliminate estate taxes.
· Give taxpayers an option of paying at their old rate or paying a 20 to 25 percent flat tax, an idea proposed by Stephen Moore.
· Not “steer behavior.”
Not only does Shlaes think progressive taxes are wrong, she thinks regressive taxes are fine because we are not “the czar’s Russia.” It is evil, according to her, to expect the rich to pay a higher parentage of their incomes in taxes, but okay for the non-rich to pay a higher percentage than the rich do. This is a form of an evil, familiar, irrelevant ultra-conservative argument: The non-rich are better off than Russian peasants a century ago, therefore it is acceptable to screw them. Funny, they never argue that the rich are colossally better off than Russian peasants and autocrats were, therefore the rich deserve less. If a rich person has 50 cars in his collection but not 58, it is a tragedy. If a non-rich person has a crappy apartment in a terrible neighborhood, she should be thankful she is not living in ye olde Minsk.
Her argument against the estate tax is that estates are “double taxed,” but most income subject to the estate tax is not double taxed. If you build a company from $10,000 to fifty million dollars, there is no tax on that lifetime capital gain. If you die and give the fifty million to your child, that is the first time it is taxed. Eliminate the estate tax, and it will not even be single taxed. Shlaes seems not to care that the incomes of working class people double and triple taxed with federal income taxes, payroll taxes, etc.
Even an “across the board” federal tax reduction is not a general across the board tax reduction. Payroll, state and local taxes are not federal income taxes. Seventy-four percent of American families pay more in payroll taxes (work taxes) than federal income taxes. When all taxes are counted, taxes are already remarkably flat. Whatever happened to conservatives who cut spending? Now we have ultra-conservatives who fight for almost always flattening and simplifying, that is, lower taxes for the rich.
The rich pay more dollars in taxes than others. Big deal. Monetary, labor, fiscal, financial, and educational policies are heavily biased toward serving the top one percent and becoming even more so. Watching the rich complain about paying more dollars in taxes is like giving free spinach to Popeye and watching him complain because he has to carry a heavier pack than a five-year-old. If the rich want, we can redesign fiscal, labor, monetary, financial, and educational policies to maximize benefits to the non-rich. Alan Greenspan doesn't change interest rates when it is in the best interests of most Americans. He changes them when it is in the best interests of the rich. Why don't we try a couple decades where the incomes of the rich stagnate or decline while attempting to more than double the incomes of the non-rich?
According to William Gale, the Moore plan would provide the top one percent with mean tax cuts of $30,000 and the those earning $30,000 or less with an $80 mean tax cut. For most non-rich citizens, Shlaes overhaul would not change anything other than increasing their taxes and turning their retirements into a risky mess. Plus retirees will have devote enormous time, energy, and expense to managing their investments.
Shlaes judges that Social Security should be privatized using “at least three of the percentage points individuals carry” [on payroll taxes apparently] because “Markets have taught us that they can do a better job than governments in providing public pensions.” Markets have not. If there is one thing the government is efficient at, it is Social Security. Ninety-nine percent of Social Security money gets sent to recipients. If
privatized, much money would be lost to cover profit, advertising, education and other costs. She supposes that privatized Social Security should be in “unguaranteed” accounts to prevent moral hazard. I do not see how moral hazard can be prevented. Some people will make the right or lucky investments and get fist fulls of money while others will lose everything. Is the government going to throw 80-year-olds out into the street and say, “Sorry, but Warren Buffet you are not.” No, the government will have to greatly expand SSI or create a new program to cover those with failed investments and those whose investments fail to cover a lengthy retirement, which will encourage moral hazards. People will take their three or more percent and invest it in junk bonds and risky investments because they know that the politician who says “go starve” to 80-year-olds has a death wish.
The Greedy Hand is typical plutocrat populism: Complain about how shabbily working people are treated, then with lots of cheerleading promote poorly explained policies that treat workers even worse. Let’s see how the Shlaes plan works for various individuals:
· Person A: Rich person who pays no taxes because she has renounced her U.S. citizenship or decided not to file a return. Result: No change.
· Person B: Rich person who has terrible tax advisers, does not care how much he pays in taxes, and none of the income is capital gains. Result: Tax cut from 33-39.6 percent to 20-25 percent in all federal taxes, plus same 6-7 percent paid in state and local taxes.
· Persons C and D: Parent who inherits $10 million business, then business increases in value to $5 billion, parent leaves business to child who never worked a day in her life, who spends $5 billion on the world’s biggest party and bank rolling terrorists. Result: Federal tax cut (from estate taxes) from 55 percent to zero percent. Child pays 6-7 percent in state taxes. The 4.99 billion capital gains increase in the value of the business never gets taxed by the federal government.
· Person E: non-rich young middle-class person. Result: Pays 25 percent in all federal taxes (payroll taxes for current retirees plus federal income taxes would put him at the constitutional amendment limit), pays 3-8 percent in new, unguaranteed retirement program, pays 8-14 percent in state and local taxes (lower income individuals pay a higher percentage of their incomes in state and local taxes because they spend a higher percentage of their incomes on items that are subject to sales, property and other taxes). Say goodbye to a total of 36 to 47 percent of income. Something should be done, but Shlaes would replace a bad system with a horribly worse system of flat taxes. Simplicity is not sufficient reason for anything.
Rich people complain that capital gains are not indexed to inflation. Big deal. Inflation is low. Capital gains taxes are deffered and they are often not taxed at all if they are part of an estate. This makes up for much of the inflationary losses. Even if many of the inflationary losses were not made up, the other flaws of setting capital gains taxes at a rate different from other taxes outweigh any plusses of special rates for capital gains. If we have a lower rate for capital gains, taxpayers will simply engage in economically inefficient efforts to get other sources of income relabeled capital gains. Michael Kinsley says it is like having a special tax rate for people named Newt. Many people will change their name to Newt. As for deficits created by the Shlaes plan, that is someone else’s problem.
The idea that the tax code has been used primarily to reward good behavior (steering behavior) in the past is badly mistaken. Over 600 billion in annual tax entitlements such as corporate welfare exist. The adoption credit, the EITC and the child tax credit are among the few minor rewards for good behavior. An even more regressive tax system will steer behavior toward the even worse. This book is Amity’s shrill horror. Not recommended. 255p
[Irrelevant digression: Why is there a blurb from Philip K. Howard (The Death of Common Sense) on this book? That should tell you how much good “common sense” is, a popularity appeal to what some people consider "self-evident," which, of course, others consider stunning stupidity. Flat taxes look like common sense to people who do not know a dang thing about taxes and economics and do not give a darn about finding the truth. Apparently, what matters is having a fun-to-read journalistic style, which Shlaes and Howard have in spades, just as it matters little whom the president is just as long as he or she looks self-assured. You can tell as much about individuals by which issues they discuss as you can by what they say about those issues.
Libertarians and other ultra-conservatives care about rights and freedoms when primarily rich hedonists have lots to gain or lose. Thus drug rights, the rights of corporations, the right to have no national ID card and so on are big with them. The ID card is big, not because it would be an invasion of privacy like their rhetoric says, but because it could lead to universal health care, salvaging Social Security and other things that might cost rich people money. You do not hear too much from libertarians on prison rape. The minor criminal or the wrongly convicted person who gets raped hundreds of times is at least a million times worse violation of rights and freedoms than the right to use crack or the right to no I.D. card.
Likewise, I have not seen any libertarians fighting for the right to more than one spouse. They might say polygamy is harmful, but that contradicts their principles of freedom first and freedom always-outweighing benefit, harm, and merit. They never-ever-argue that sweatshops are bad because they are harmful or represent losses in beneficial opportunities--and sweatshops are much more worse than polygamy. I could sit here all-day and think of situations where benefit, harm and merit are ignored by ultra-conservatives.
Ultra-liberalism and various ultra-conservatisms are morally bankrupt ideologies that survive only because they have lots of money and power to persuade the gullible who then contribute even more money and power. If ideas got the publicity they deserved and individuals were even semi-expert at weighing arguments, almost every current political philosophy would not exist, neoconservatism, ultra liberalism and so-called
lebertarianism included.}
(H)
—Book review article by J.T.
Fournier
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