Tag: inequality

Honest Leftist Admits Desire for Spite-Driven Tax Policy

Every so often, I’ll assert that some statists are so consumed by envy and spite that they favor high tax rates on the “rich” even if the net effect (because of diminished economic output) is less revenue for government.

In other words, they deliberately and openly want to be on the right side (which is definitely the wrong side) of the Laffer Curve.

Just in case you think I’m exaggerating in order to make my opponents look foolish, check out this poll of left-wing voters who strongly favored soak-the-rich tax hikes even if there was no extra tax collected.

But now I have an even better example.

Writing for Vox, Matthew Yglesias openly argues that we should be on the downward-sloping portion of the Laffer Curve. Just in case you think I’m exaggerating, “the case for confiscatory taxation” is part of the title for his article.

Here’s some of what he wrote.

Maybe at least some taxes should be really high. Maybe even really really high. So high as to useless for revenue-raising purposes — but powerful for achieving other ends. We already accept this principle for tobacco taxes. If all we wanted to do was raise revenue, we might want to slightly cut cigarette taxes. …But we don’t do that because we care about public health. We tax tobacco not to make money but to discourage smoking.

The tobacco tax analogy is very appropriate.

Indeed, one of my favorite arguments is to point out that we have high taxes on cigarettes precisely because politicians want to discourage smoking.

As a good libertarian, I then point out that government shouldn’t be trying to control our private lives, but my bigger point is that the economic arguments about taxes and smoking are the same as those involving taxes on work, saving, investment.

Needless to say, I want people to understand that high tax rates are a penalty, and it’s particularly foolish to impose penalties on productive behavior.

But not according to Matt. He specifically argues for ultra-high tax rates as a “deterrence” to high levels of income.

If we take seriously the idea that endlessly growing inequality can have a cancerous effect on our democracy, we should consider it for top incomes as well. …apply the same principle of taxation-as-deterrence to very high levels of income. …Imagine a world in which we…imposed a 90 percent marginal tax rate on salaries above $10 million. This seems unlikely to raise substantial amounts of revenue.

I suppose we should give him credit for admitting that high tax rates won’t generate revenue. Which means he’s more honest than some of his fellow statists who want us to believe confiscatory tax rates will produce more money.

But honesty isn’t the same as wisdom.

Bipartisan Baloney About Top 1 Percent Income Gains

In the State of the Union address on January 20, President Obama said, “those at the top have never done better… Inequality has deepened.”  The following day, Fox News anchor Brett Baier said, “According to the work of Emmanuel Saez, a professor at the University of California, Berkeley, during the post-recession years of 2009-2012, top earners snagged a greater share of total income growth than during the boom years of 2002-2007. In other words, income inequality has become more pronounced since the Bush administration, not less.” 

Senator Bernie Sanders agrees that “in recent years, over 99 percent of all new income generated in the economy has gone to the top 1 percent.”  And Senator Ted Cruz likewise confirmed that, “The top 1 percent under President Obama, the millionaires and billionaires that he constantly demagogued earned a higher share for our income than any year since 1928.” 

When any statistic is so politically useful and wildly popular among left-wing Democrats and right-wing Republicans you can be pretty sure it’s baloney.  Bipartisan baloney.

In November 2013, I wrote that, “Because reported capital gains and bonuses were…shifted forward from 2013 to 2012 [to avoid higher tax rates], we can expect a sizable drop in the top 1 percent’s reported income when the 2013 estimates come out a year from now. The befuddled media will doubtless figure out some way to depict that drop as an increase.” As predicted, the New York Times took one look at a 14.9% drop in top 1% incomes and concluded that “The Gains from the Recovery are Still Limited to the Top One Percent” That involved slicing the same old baloney very badly.

Another Defective IMF study on Inequality and Redistribution

IMF Warns on the Dangers of Inequality,” screams the headline of a story by Ian Talley in the Wall Street Journal. The IMF – which Talley dubs “the world’s top economic institution”– is said to be “warning that rising income inequality is weighing on global economic growth and fueling political instability.” 

This has been a familiar chorus from the White House/IMF songbook since late 2011, when President Obama’s Special Assistant David Lipton became Deputy Managing Director of the IMF.  It echoes a December 2012 New York Times piece, “Income Inequality May Take Toll on Growth,” and a January 14, Financial Times feature, “IMF warns on threat of income inequality.”  This isn’t news.

Talley writes, “The IMF … says advanced and developing economies need to raise more revenues through taxes, focusing on progressive taxation that moves more of the burden for social security, health care and other state benefits to the high-income earners.” That isn’t news either.  The IMF has an ugly history of advising countries to raise tax rates, with disastrous results.  The inequality crusade is just a new pretext for old mistakes.

Libertarianism at the Britannica

I have an interview up at the Britannica blog on libertarianism. Or, as they put it, an interview on libertarianism and abortion, same-sex marriage, and the Tea Party. Multiple questions, to be sure.

I responded this way to a question on the inevitable inequalities of capitalism:

Inequalities in wealth are inevitable in all economic systems. In fact, the Economic Freedom of the World report finds that the share of national income going to the poorest 10 percent of the population is remarkably stable no matter what the degree of economic freedom in the country (see exhibit 1.9). What does vary is the absolute income of the poorest 10 percent, which is much higher in countries with more freedom (exhibit 1.10). Socialist states had and have huge hidden inequalities of wealth. Differences in access to privileges were staggering—special stores, hospitals, dachas and so on for party members that ordinary people could not enter, access to international travel and literature, etc. And all that in regimes that were officially dedicated to equality, in which inequality was “forbidden.” If inequality is inevitable, it’s better to have a system that gives people incentives to invent, innovate, and produce more goods and services for the whole society.

And my most controversial line:

There’s no libertarian pope, so I hesitate to excommunicate people for not being “true libertarians.”

A Flat Tire for Low-Income Drivers?

Will the President raise taxes on new tires?

President Obama will need to decide any day now whether to impose tariffs on lower-end automobile tires imported from China. As my colleague Dan Ikenson has ably argued, the decision will tell us much about whether the president believes trade policy should serve the general interest of all Americans, or whether it is simply a political tool to satisfy key constituencies.
Neglected in the news coverage of the pending decision is the impact it could have on consumers. The imported tires targeted by this Section 421 case are of the cheaper variety, the kind that low-income Americans would buy to keep their cars on the road during a recession. If the president decides to impose tariffs, his union supporters will cheer, but “working families’ will find it more difficult to keep their cars running safely.
A central point of my new Cato book, Mad about Trade: Why Main Street America Should Embrace Globalization, is that import competition is a working family’s best friend, especially imports from China. As I write in an excerpt published in today’s Washington Examiner,
Imports from China have delivered lower prices on goods that matter most to the poor, helping to offset other forces in our economy that tend to widen income inequality. …
Imposing steep tariffs on imports from China would, of course, hurt producers and workers in China, but it would also punish millions of American consumers through higher prices for shoes, clothing, toys, sporting goods, bicycles, TVs, radios, stereos, and personal and laptop computers.
We will see shortly if President Obama will punish low-income Americans who drive.

President Obama will need to decide any day now whether to impose tariffs on lower-end automobile tires imported from China. As my colleague Dan Ikenson has ably argued, the decision will tell us much about whether the president believes trade policy should serve the general interest of all Americans, or whether it is simply a political tool to satisfy key constituencies.

Neglected in the news coverage of the pending decision is the impact it could have on consumers. The imported tires targeted by this Section 421 case are of the cheaper variety, the kind that low-income Americans would buy to keep their cars on the road during a recession. If the president decides to impose tariffs, his union supporters will cheer, but “working families’ will find it more difficult to keep their cars running safely.

A central theme of my new Cato book, Mad about Trade: Why Main Street America Should Embrace Globalization, is that import competition is a working family’s best friend, especially imports from China. As I write in an excerpt published in today’s Washington Examiner,

Imports from China have delivered lower prices on goods that matter most to the poor, helping to offset other forces in our economy that tend to widen income inequality. …

Imposing steep tariffs on imports from China would, of course, hurt producers and workers in China, but it would also punish millions of American consumers through higher prices for shoes, clothing, toys, sporting goods, bicycles, TVs, radios, stereos, and personal and laptop computers.

We will see shortly if President Obama will punish low-income Americans who drive.

Thinking Clearly about Economic Inequality

The public discussion of inequality in the United States, and no doubt elsewhere, is marked by a lack of clarity and care. Few commentators — even among those who are professional economists — speak clearly about what the various measures of economic inequality do and do not tell us. In a new study, Cato scholar Will Wilkinson challenges many common assumptions about equality and political morality that appear again and again in textbooks, media reports, and public discussions.

Thinking Clearly about Economic Inequality, Cato Policy Analysis No. 640

Robert H. Frank, A 200% Tax Even Socialists Will Hate

In the latest issue of Forbes, Cornell University economist Robert H. Frank is pushing “A Tax Even Libertarians Can Love.” I hope he wasn’t counting on this libertarian’s support.

What he advocates is “replacing the income tax with a progressive tax on spending. …A family’s income minus its savings is its consumption, and that amount minus a large standard deduction – say, $30,000 a year for a family of four – would be its taxable consumption. …Rates would start low, perhaps 20%, then rise gradually with total consumption. …With savings tax-exempt, top marginal tax rates on consumption would have to be significantly higher than current top rates on income.”

His concept of “significantly higher” includes tax rates of 100-200% on marginal income that isn’t saved.  This is about minimizing affluence, not maximizing revenues.  There is ample evidence from Emmanuel Saez and others that the amount of reported income drops sharply as marginal tax rates rise above 25-30% (and even less on capital gains).

In his 2007 book, Falling Behind: How Rising Inequality Harms the Middle Class, Frank suggests marginal tax rates of 50% above $220,000  and rising to 200%.  Since seniors (like me) commonly finance retirement from past savings, Frank’s tax scheme amounts to rapid confiscation of past savings.

For young people, Frank’s tax can’t possibly encourage savings because it discourages earning any income in the first place.  Consumption is, after all, the motive for both earning and saving.   The prospect of facing future consumption taxes of 50-200% would surely discourage saving much, because the rewards from invested savings (namely, future consumption) would be subjected to such prohibitive tax brackets. Under this steeply progressive tax on unsaved income, any income exempt from taxes today would be subject to brutal taxes whenever folks wanted to buy anything of value, like a car or house, or to retire on their accumulated savings.

In another April 25 piece in The New York Times, Mr. Frank shifts from promoting confiscatory taxes on consumption to defending small tweaks to the current tax regime. “The current [tax] system is much fairer than many people believe, and the president’s proposal will make it both fairer and more efficient.” That comment was aimed at the tea parties.  Yet tax party protesters clearly understood, as Frank does not, that the president’s first wave of proposed tax increases come nowhere near paying for his grandiose spending plans.  My estimate of last October, that Obama’s plans would add $4.3 trillion to the deficits over ten years is now looking much too generous, if not wildly optimistic.

In the New York Times piece, Frank argues that income differences are mainly a matter of luck.  As he often does, Frank pretends to possess evidence about this topic that other economists have missed.  He says, “economists have only begun to realize [that] pay differences often vastly overstate differences in performance.”

In his book, whenever Frank alludes to what “the evidence suggests,” his sources are usually suspect, obsolete or invisible. He claims “regulations, like cartoons are data.”  He cites an unpublished master’s thesis, unidentified surveys and “casual impressions.”

Frank  claims “happiness can be measured reliably” by brain waves.  Explaining this better in the Economic Journal in 1997, he noted that people who say they are happy show “greater electrical activity in the left prefrontal region of the brain” which “is rich in receptors for the neurotransmitter dopamine, higher concentrations of which been shown independently to be correlated with positive affect.”  If we accept the amount of dopamine in the brain as the gauge of happiness, however, then the happiest people are those who routinely abuse crack and meth.

In the second chapter of Falling Behind, his first graph lists a Census Bureau URL as the source for household income data from 1949 to 1979.  Click on that link and you will find the data only go back to 1967.   In reality, all of Frank’s income and wealth graphs actually came from Chris Hartman at inequality.org. Hartman is not an economist or statistician, but a “researcher, writer, editor, and graphic designer with experience in politics, higher education, and publishing.”  Hartman’s non-facts used in Robert Frank’s first graph actually came from a 1994 book from the Economic Policy Institute, reflecting the “authors’ analysis…  of unpublished census data.” Frank’s comparison of CEO pay with “average wages” came from Hartman’s flawed calculations for United for a Fair Economy, which were critiqued on page 131 of my textbook Income and Wealth. And Frank’s demonstrably false claim that “asset ownership has become even more heavily concentrated during recent years” is likewise from inequality.org.

In short, Professor Frank often bases his remarkably strong opinions on fragile facts.