Wednesday, September 1, 2010

Let the Bush tax cuts expire

Has the Wall Street Journal gone totally right wing nutballs or has it always been that way? A recent article on the expiration of the Bush tax cuts gives cause for concern.

In the summer of 2007, Rupert Murdoch prevailed upon the Bancroft family and sucked the WSJ into the media empire of News Corp. Murdoch's other properties include Fox News and the New York Post, neither of which are exactly monuments to journalistic integrity. As a very occasional reader, I can't say whether or how much the WSJ has changed since.

In the weekend edition of August 28, 2010 an unsigned editorial titled The $31 Billion Revenue Fantasy complains about the plan to let the Bush tax cuts expire. They make the claim that the Bush tax cuts were not a windfall for the rich. After the particularly piercing argument "Yada, yada, yada," (really, they said that), they throw up a bunch of numbers. It's not that surprising to find a sermon to the anti-tax faithful in the WSJ. But, the totally bogus and deceptive line of argument they use has a real Fox News ring to it. For example:

The IRS data show that in 2003 those with incomes above $200,000 paid $313 billion in income tax. By 2007 they paid $610 billion. When the recession hit, the payments fell to $537 billion in 2008. But even accounting for that decline, payments by the rich were still 65% higher five years after the rate cut that was supposedly a giveaway to the rich. The share of federal income taxes paid by the $200,000-a-year club was 42% in 2003 but 52% in 2008. (The IRS doesn't adjust these annual numbers for inflation.)

Inflation is only one reason why these numbers are not very meaningful. According to CPI numbers, 100 2003-dollars is about 117 2008 dollars. So, even if incomes only track inflation the pool of 200k-plus tax-payers grew. Also at the same time, the economy was expanding (and bubbles growing in housing and finance), which also lifts people into the higher income bracket. Tax receipts at all levels go up with the economy. Tax receipts from higher brackets go up more. Finally, high-income earners (for example those already over the 200k line) saw their incomes increase at a rate greater than the economy as a whole, thus paying more taxes.

These numbers are completely consistent with the story that the rich got richer while being taxed at a lower rate. As the New York Times put it:

Though tax cuts for the rich were bigger than those for other groups, the wealthiest families paid a bigger share of total taxes. That is because their incomes have climbed far more rapidly, and the gap between rich and poor has widened in the last several years.

- NYT “Tax Cuts Offer Most for Very Rich”

In 2003, 450 economists signed a statement (Economists’ statement opposing the Bush tax cuts (2003)) opposing the Bush tax cuts on the grounds that they would fail as a growth stimulus, increase inequality and worsen the budget outlook. Even Alan Greenspan thinks these tax cuts should expire as do former Treasury Secretaries Robert Rubin and Paul O'Neill.

The real question the editorial is trying to address is what degree of progressivity do we want in our tax system. Should those who have benefited most, in turn, support the system most? That's a fair and legitimate question. As economist Russ Roberts puts it, “Should we be more like France or less like France?

What disappoints me about the WSJ article is this: Shouldn't the readers of the WSJ - educated businessmen, rather than tea-party loonies - be able to think this through soberly and logically? Given the audience of the WSJ, we're left with the scary conclusion that many of the wealthy are lying to themselves to justify their own sense of entitlement. Either that, or they're trying to arm themselves with deceitful and self-serving arguments to manipulate those less savvy than themselves.

There are common features to be found in several species of voodoo economics from the Laffer curve and trickle-down economics to "starving the beast" to the claim that letting the Bush tax cuts expire would stifle the recovery. Numerical quackery obscures policy that always seems to favor the rich at the expense of the common good.

What about what's good for the country? Shouldn't the country's business elites have a few ounces of patriotic blood in their veins? And might that lead to pursuit of goals that are good for America as a whole; strategies that grow the pie for everyone rather than tactics for capturing an ever bigger slice?

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