Unfair to the readers

by John Quiggin on October 22, 2004

I’ve never been a great fan of Steven Landsburg’s ‘Everyday Economics’ columns in Slate[1]. While he occasionally has something interesting to say, a lot of his columns are what Orwell called ‘silly-clever’, such as this piece defending looting. Economists are often prone to this kind of thing, and it doesn’t do the profession any good in my view, but it’s usually not worth refuting.

Landsburg’s latest piece is in a different category. It’s a repetition of dishonest rightwing talking points about taxation that have been refuted over and over, but apparently need to be refuted yet again. As is his wont, Landsburg seeks to defend a paradoxical claim, namely, that “Bush’s Tax Cuts Are Unfair …To the rich.” He makes a total hash of it.

His initial presentation of the argument will be familiar to anyone who’s followed the tax debate in the US. He says that

a couple with a taxable income of $60 000 a year have had almost a 24 percent income tax cut since President Bush took office. (And ditto if your income was just $20,000.) Meanwhile, the folks who make $350,000 a year got a cut of only about 12.5 percent; those who make $1 million a year got an even smaller cut.
As Landsburg acknowledges almost immediately, these numbers are meaningless. Although the United States has a tax called the “income tax”, it’s not the only tax on incomes, or even, for many people, the most important one, nor does it apply to all kinds of income. For those on low and moderate incomes, the most important income taxes are the payroll taxes that finance Social Security and Medicare. For the rich, it’s necessary to look at capital gains, dividends and inheritance. When Landsburg looks at all taxes on all incomes, he finds that the rich get about the same tax cut as the median taxpayer.

Even though this analysis refutes Landsburg’s stated conclusion, it’s still hopelessly biased. To begin with, there’s a presentational trick he doesn’t explain, but which can be illustrated by an example. Suppose, in an initially progressive system, high income people initially pay 40 per cent of their income in taxes, and low income people initially pay 10 per cent. Then suppose the rates are cut to 30 per cent and 5 per cent. Clearly, the high income earners have gained twice as much, relative to pretax income, as the low-income earners. But according to Landsburg, the low-income earners have done twice as well, receiving a 50 per cent cut in their tax paid, compared to the high income earners who have only had a 25 per cent cut. There’s probably no point in arguing at length over the “right” way to present data, but Landsburg ought to make it clear what he’s doing.

The more fundamental problem is that there is no reason to look only at taxes on income. Taxes on income are the only progressive element in the tax system, being offset by regressive taxes like sales tax. Overall, the burden of taxation, relative to taxable income, is not far from being proportional[2]. When account is taken of the opportunities for tax avoidance and evasion, disproportionately available to those in the top quintile, it’s doubtful that those on high incomes pay any more of their income in taxes than the population as a whole.

What this means is that it doesn’t really matter whether you look at the Bush tax cuts relative to pretax income, posttax income or total tax paid. However you cut it, the top 20 per cent of income earners got the biggest benefits, and within that the group, the top 2 per cent got more than everybody else.

fn1. It doesn’t help that Slate’s previous economics columnist was Paul Krugman, a very hard act to follow.

fn2. Reader Jack Strocchi has pointed me to this study (PDF) showing that the US tax system as a whole was very weakly progressive before the Bush tax cuts and is likely to be proportional or slightly regressive once they are fully implemented . I had a go at the same topic for Australai here. Kevin Drum has a relevant graph

{ 58 comments }

1

Skip 10.22.04 at 9:38 am

I would like to point out the snide note number one is wrong. Instead of Mr. Landsburg being unable to follow in the footsteps of Mr. Krugman, they wrote concurently for Slate.

By the way I wonder what the CT crowd would have thought of this article by Krugman

http://www.slate.com/id/1933

I’m guessing that they would have ignored the argument and gone on about the conflict of interest. In the same way they blither on about TCS all the time.

I’m guessing this one would have ruffled a few feathers as well.

http://www.slate.com/id/1918

John, glad to hear your not a fan. Thanks for sharing. You think Mr Landsburg’s arguement is disingenuous. Can’t you say that without mentioning that he does not recieve your blessings.

2

McDuff 10.22.04 at 11:00 am

“you’re”

3

McDuff 10.22.04 at 11:51 am

Also, it’s possible I missed something, but it seems odd that I should miss the part of the Crooked Timber terms of service that states;

a) that an endorsement of someone should necessarily be taken as an endorsement of every single thing they have ever written by all contributors to the blog, and that any failure to comment on any single article in that person’s entire written output is a glaring omission, rather than a function of the size of the internet; and

b) that all those at Crooked Timber are kneejerk liberal stereotypes who necessarily object to any defense of “big business” or “free market capitalism” simply because they are on the Left and that is what People On The Left do, silly!

Do people who construct Strawman arguments simply not realise that they are doing so, or is it in fact a nefarious plot to distract others into countering absurd and irrelevant objections to… whatever it is you’re objecting to?

4

abb1 10.22.04 at 12:08 pm

The Bush tax cuts (which Congress just voted to extend) are an affront to the most fundamental principles of fairness.

Which Congress just voted to extend? What exactly he is talking about – I don’t think Congress voted to extend anything, they passed a corporate tax-cut bill, correct?

5

Rexxy 10.22.04 at 1:16 pm

Q: Do you know how many economists you need to change a light bulb?…
A: An infinite number because they can never agree on the best way to do it.

6

John Quiggin 10.22.04 at 1:22 pm

Not to mention the (surprisingly common) move of attacking your opponents on the basis of beliefs you have arbitrarily imputed to them.

While I disagree with plenty of things Krugman has written, I didn’t see anything particularly objectionable in the two pieces mentioned by skip.

7

harry 10.22.04 at 1:32 pm

John, isn’t progressivity a property of the tax-benefit system, strictly speaking, rather than of the tax system itself. I high but flat rate VAT which paid for a large Basic Income Grant would be very progressive; a highly progressive income tax that pays for corporate welfare is would not be (or at least, would not necessarily be, it would depend on how things worked out, of course).

8

John Quiggin 10.22.04 at 2:09 pm

Harry, this depends on the purpose for which you are doing the analysis. My general preference is to look separately at revenue and expenditure, but there are problems in classifying cash benefits and tax concessions.

Ignoring these problems for the moment, my drastic summary is that the redistributive effect of government policy arises from the fact that, in aggregate, taxes are roughly proportional to income, while benefits of government spending are roughly equal for everyone.

9

Kieran Healy 10.22.04 at 2:34 pm

A: An infinite number because they can never agree on the best way to do it.

No, no. The correct answer is ‘None, the market will take care of it.’

(Equal oppotunity answer for sociologists: ‘None: it’s an institutional problem.’)

10

jif 10.22.04 at 2:52 pm

abb: I believe they did both. Bush’s “middle class tax cut” (the one that directs more than half of the money to the top 10% vs. 14% of the money to the bottom 60%) was extended for the 4th year in a row. (An interesting way to finance a war). I think the corporate tax break (initially written to do no such thing) was a separate bill that passed.

11

Barry Freed 10.22.04 at 3:44 pm

Bush’s tax cuts unfair to the rich?

Cry me a river.

November 2 can’t come soon enough.

12

Giles 10.22.04 at 4:17 pm

There’s always an argument that they might be fair – It all depends on how you define fair! Maybe its fair since the rich deserve tax cuts because they work harder. In which case the author should say so.

Still I have to agree that this “clever – silly” style of economics writing has been in the ascendey in economics writing. Personally I put it down to the increasing tendency of texts and articles to describe groundbreaking/intelligent theories as being “counter intuitive”. This is indeed often the case, but as this articles shows the inverse does not apply, counter intuitive ideas are not necessarily intelligent.

13

Seth Gordon 10.22.04 at 4:18 pm

I would also take issue with Landsburg’s next-to-last paragraph: “…it seems patently unfair to ask anyone to pay over 30 times as much as his neighbors (unless he receives 30 times as much in government services, which strikes me as implausible).”

Given that one of the chief functions of government is to defend the property rights of its citizens, it doesn’t seem at all implausible to me that the more property you have, the more of a stake you have in the government’s working well.

Imagine if the US passed a constitutional amendment stating: “Neither the United States nor any State may take any action to enforce contracts that benefit persons or corporations that are in arrears on their taxes, nor may anyone be convicted of theft or fraud from such a person or corporation.” Who would rather suffer a high tax burden than suffer this penalty for non-compliance, a poor person or a wealthy one?

14

BigMacAttack 10.22.04 at 4:25 pm

You didn’t refute anything.

Stephen stated his opinion that progressive taxes are unfair.

You stated your opinion that proportional taxes are unfair.

You both agree on the numbers.

Despite your opinion that, ‘There’s probably no point in arguing at length over the “right” way to present data’, arguing about data presentation is pretty much, one way or the other, all you did in this post.

I support the idea of progressive taxation.

I have no real problem with the idea, that any tax cut should first relieve any existing tax burden on the lowest income earners, before relieving any burden on the highest income earners.

But I think it is a bit disingenuous to argue that a proportional tax or progressive tax cut is unfair to the poor because the rich receive a greater dollar amount in tax cuts, unless you would also argue that a proportional tax increase or regressive tax increase would be unfair to the rich, if they would pay a greater dollar amount in tax increases.

Again, for those incapable of seeing anything but straw and figments, I am not arguing that proportional or regressive tax increases are unfair to the rich, I am not arguing against progressive taxation, I am arguing that the reasoning that was used to present proportional tax cuts as unfair was disingenuous.

Just come out and say what you really mean.

Any tax cut no matter how progressive(can I use progressive that way, does it work?) is unfair unless every nickel of tax burden has been relieved from the poorest tax payers, before a nickel of tax relief is given to richer tax payers.

Or at least set your parameters.

(You can cut 1% from the highest income earners, even if they reap a greater total benefit, as long as you cut 50% from the lowest income earners)

15

Skip 10.22.04 at 4:53 pm

Mcduuf

Both points you make are true but irrelvant. I was not saying that CT or any pariticular member would have agreed or disagreed with Paul’s point about Microsoft. My point is that they would have mostly igonerd the arguement and said that he works for Microsoft so his arguement must be tainted. As to point b, I don’t think that there is rigid party line at CT. I’m saying they would have treated Paul much differently before he became known as the man who hates Bush the most.

John, I’m sure you disagree with Krugman on many things. But do preface your disagreements with attacks on his style. Do you make false comments about how he pales in comparison to some greater light before you comment on him.
That’s the question left unaddressed.

16

Barry 10.22.04 at 4:57 pm

LA Times: Bush Administration Suppresses CIA Report Until AFTER the Election!

http://www.latimes.com/news/opinion/la-oe-…l=la-util-op-ed

October 19, 2004

Robert Scheer: The 9/11 Secret in the CIA’s Back Pocket The agency is withholding a damning report that points at senior officials.

It is shocking: The Bush administration is suppressing a CIA report on 9/11 until after the election, and this one names names. Although the report by the inspector general’s office of the CIA was completed in June, it has not been made available to the congressional intelligence committees that mandated the study almost two years ago.

“It is infuriating that a report which shows that high-level people were not doing their jobs in a satisfactory manner before 9/11 is being suppressed,” an intelligence official who has read the report told me, adding that “the report is potentially very embarrassing for the administration, because it makes it look like they weren’t interested in terrorism before 9/11, or in holding people in the government responsible afterward.”

When I asked about the report, Rep. Jane Harman (D-Venice), ranking Democratic member of the House Intelligence Committee, said she and committee Chairman Peter Hoekstra (R-Mich.) sent a letter 14 days ago asking for it to be delivered. “We believe that the CIA has been told not to distribute the report,” she said. “We are very concerned.”

According to the intelligence official, who spoke to me on condition of anonymity, release of the report, which represents an exhaustive 17-month investigation by an 11-member team within the agency, has been “stalled.” First by acting CIA Director John McLaughlin and now by Porter J. Goss, the former Republican House member (and chairman of the Intelligence Committee) who recently was appointed CIA chief by President Bush.

The official stressed that the report was more blunt and more specific than the earlier bipartisan reports produced by the Bush-appointed Sept. 11 commission and Congress.

“What all the other reports on 9/11 did not do is point the finger at individuals, and give the how and what of their responsibility. This report does that,” said the intelligence official. “The report found very senior-level officials responsible.”

By law, the only legitimate reason the CIA director has for holding back such a report is national security. Yet neither Goss nor McLaughlin has invoked national security as an explanation for not delivering the report to Congress.

“It surely does not involve issues of national security,” said the intelligence official.

“The agency directorate is basically sitting on the report until after the election,” the official continued. “No previous director of CIA has ever tried to stop the inspector general from releasing a report to the Congress, in this case a report requested by Congress.”

None of this should surprise us given the Bush administration’s great determination since 9/11 to resist any serious investigation into how the security of this nation was so easily breached. In Bush’s much ballyhooed war on terror, ignorance has been bliss.

The president fought against the creation of the Sept. 11 commission, for example, agreeing only after enormous political pressure was applied by a grass-roots movement led by the families of those slain.

And then Bush refused to testify to the commission under oath, or on the record. Instead he deigned only to chat with the commission members, with Vice President Dick Cheney present, in a White House meeting in which commission members were not allowed to take notes. All in all, strange behavior for a man who seeks reelection to the top office in the land based on his handling of the so-called war on terror.

In September, the New York Times reported that several family members met with Goss privately to demand the release of the CIA inspector general’s report. “Three thousand people were killed on 9/11, and no one has been held accountable,” 9/11 widow Kristen Breitweiser told the paper.

The failure to furnish the report to Congress, said Harman, “fuels the perception that no one is being held accountable. It is unacceptable that we don’t have [the report]; it not only disrespects Congress but it disrespects the American people.”

The stonewalling by the Bush administration and the failure of Congress to gain release of the report have, said the intelligence source, “led the management of the CIA to believe it can engage in a cover-up with impunity. Unless the public demands an accounting, the administration and CIA’s leadership will have won and the nation will have lost.”

17

son volt 10.22.04 at 5:28 pm

The biggest problem with Landsburg’s analysis is that he omits mention of the ballooning deficit. Suppose the deal were as good as he describes it, and the offsetting, regressive payroll and sales taxes weren’t a factor. Suppose that, in return for slashing taxes on the affluent, taxes of any kind on families of modest means would be eliminated altogether.

That would in fact be a terrible deal for working families, since the government services they benefit from could not be maintained. It would, indeed, be a terrible deal for nearly everyone except affluent social Darwinists such as Landsburg has elsewhere shown himself to be.

18

roger 10.22.04 at 5:43 pm

Exactly right. That was one of the stupidest articles I’ve read of the “silly/clever” type in Slate. There is something to the pragmatic test of a belief — action. If Lnadburg actually believed it, he would be voting for Kerry in order to give the rich a tax break.
Myself, I think that, if a tax system is really based on a linear equation in which you figure out exactly how much you get out of government in order to figure out how much you put into it — than the wealthy should surely be paying around the Truman level, a 60 percent tax rate. Simply calculating, for instance, the effect of the Federal Reserve on accruing money for the dividend set, or the effect of the mortgage pools that are tacitly guaranteed by the Gov (in spite of the official rhetoric, we all remember who paid for the S & L blowout), gets us at least halfway there. As for the 400 billion that goes into defense, that’s pretty much a wash for the working class.

Finally, of course, your statement about “the opportunities for tax avoidance and evasion”, otherwise known as deductions, is spot on. If I compare the taxes paid, for instance, on two people with the same income, one of whom rents, and the other of whom pays a mortgage, it would be intellectually dishonest to ignore the homeowner’s deduction.

Landsburg piece was shot through with that kind of intellectual dishonesty. If he really believed it, he would have been an ardent supporter of Howard Dean, the only candidate who wanted to roll back the whole of Bush’s system — so his beloved rich people could gain an abstract and meretricious percentage spread like they used to enjoy under Clinton. Yeah, right. What a clown.

19

Mark 10.22.04 at 5:44 pm

One problem I had with Landsburg’s article is his failure to address the standard economic justification for progressive taxation. As a Ph.D economist, he is unquestionably aware of Adam Smith’s ability to pay principle, and of the principles of vertical and horizontal equity which follow thereon. Yet he fails to address them in his article.

20

dsquared 10.22.04 at 5:52 pm

The justification for progressive taxation actually predates Smith and is due to Sir William Petty, who pointed out that people ought to be taxed “according to the share and interest they have in the Publick Peace; that is, according to their Estates or Riches”.

Seth has it right in comments above; the rich get more benefits from government simply because they are rich, because, to put it crudely, it costs more to insure a Ferrari than a Ford. Or as I seem to remember putting it the last time we went round this mulberry bush: if there was a revolution tomorrow, then my dustman would still be in his old job, but Warren Buffet would most likely be dead. Therefore Warren Buffet has a much greater interest than my dustman in paying for a social welfare system that keeps the poor from wanting to rebel.

21

abb1 10.22.04 at 5:59 pm

Yes, all of the above, plus this: arguing about progressive taxation let’s not forget that a bunch of lazy golf-playing plutocrats in the US are ‘earning’ as much money every week as an average working stiff makes in a lifetime. How is this ‘fair’? Under these circumstances dropping the top tax bracket from measly 39% to 33% is simply a disgrace.

22

Mr. Winston 10.22.04 at 7:08 pm

abb1, it’s fair because some people work harder, put in more hours, and generally have lived a more responsible lifestyle. I resent your comment that one who is making good amounts of money is a lazy golf playing plutocrat, because it’s about as ignorant as the other side saying that working stiffs are bunches of sniveling half-wits who have never learned how to do anything except receive a handout from the government that is giving it. We should just go to a flat tax to end the griping from both sides about who is getting the short end of the stick. Additionally, it would help us curb this disguise of consumers using non-profits as tax shelters. You can write off donations made to churches, the same churches that allow a candidate to speak out of the pulpit in a worship service. And that is “fair?”
Please, to hear you people talk about “fair” like we were all born to acheive a similar outcome, irrespective of how much more productive one has been than the other makes me sick. We all do eventually have the same outcome…we die. The money we make before that outcome should remain ours if we so “choose.”

23

washerdreyer 10.22.04 at 7:13 pm

I would like to rephrase what Mr. Winston said so that it’s not egresiously insulting. The existence of an economic inequality is not (in my opinion) a prima facie wrong. How that economic inequality came to exist must be considered before deciding what measures, if any, would be justified to rectify it.

24

abb1 10.22.04 at 7:22 pm

it’s fair because some people work harder, put in more hours, and generally have lived a more responsible lifestyle

Yes, that would be fair, indeed.

However, crony capitalism where a bunch of powerful plutocrats steal unimaginable amounts of money from everyone else is hardly that.

Don’t be a sucker, Mr. Winston.

25

Robin Green 10.22.04 at 7:40 pm

Good point abb1.

26

JRV 10.22.04 at 7:51 pm

The argument made by the original poster that Social Security and Medicare should be included as tax is also silly. These are more akin to user fees than progressive income taxes. I don’t think the argument that the “rich” get back their money for taxes. If and when they do, these and other welfare benefits should be cut.

27

BigMacAttack 10.22.04 at 8:01 pm

I am baffled.

Mr Winston and Washerdreyer argue that income inequality is not prima facie evidence of wrong.

Abb1 seems to agree that income equality would be acceptable if it was not the result of wrong doing and then points out that the existence of income inequality equals theft.

Robin Green likes Abb1’s point.

Oh well.

28

Mr. Winston 10.22.04 at 8:04 pm

I don’t deny that charlatans exist. However, I feel that a phony can be a wealthy CEO’s or just as equally be welfare citizen. Yes, there are those who steal, both rich and poor. What makes it okay for govt. to indescriminately “take back” in the form of a tax from those who have made an honest dollar versus those who have stolen?
There, abb1, is your injustice.
Very truly yours, A Sucker

29

Walt Pohl 10.22.04 at 9:00 pm

If I were a charlatan, I would definitely prefer being a CEO to being on welfare.

30

Steven E. Landsburg 10.22.04 at 10:06 pm

You write:

“Suppose, in an initially progressive system, high income people initially pay 40 per cent of their income in taxes, and low income people initially pay 10 per cent. Then suppose the rates are cut to 30 per cent and 5 per cent.
Clearly, the high income earners have gained twice as much, relative to pretax income, as the low-income earners.”

In other words, you missed the entire point of the article.

The Bush deficits have made future tax *increases* inevitable. The right question is not “Who got the biggest tax cut?” (because the cuts are illusory). The right question is “Who will get the biggest tax increase?”

Point One: The Bush-era changes to the tax code has made the tax code more progressive. If that progressivity is maintained, then when the inevitable tax increases come along, the rich will, as a result of Bush, be bearing a higher share of the tax burden
in both absolute *and* percentage terms.

That in fact is the *main* point and you missed it completely.

Point Two: I happen to think the tax code is currently too progressive and therefore that this is a move in the wrong direction. You (apparently) happen to think the tax code is
currently not progressive enough, so you should think this is a move in the right direction.

Your and my particular preferences are really not germane to the main point here, which is, again, that a) Bush has effectively raised taxes and b) the bulk of the tax increase, in percentage terms and in absolute terms, will fall on the rich.

31

abb1 10.22.04 at 10:13 pm

The way I see it, income equality doesn not equal to theft, although at some level it does become a basis for progressive taxation, justified by the ‘ability to pay’ agrument mentioned above: every next dollar you get is less of a necessity and more of an excess than the previous one, and therefore it’s fair to tax it at a higher rate.

And then there is luck.
And then there is theft.

32

abb1 10.22.04 at 10:26 pm

The Bush-era changes to the tax code has made the tax code more progressive.

Is it true, though? How is it possible with the top tax bracket getting the largest cut, taxes on dividends being cut and the estate tax being eliminated altogether?

Something is fishy here, professor.

33

Brian 10.22.04 at 10:39 pm

“I high but flat rate VAT which paid for a large Basic Income Grant would be very progressive; a highly progressive income tax that pays for corporate welfare is would not be (or at least, would not necessarily be, it would depend on how things worked out, of course).”

What are you talking about?

34

dsquared 10.22.04 at 10:49 pm

Stephen, I agree with abb1. The tax code was not made more progressive with the Bush cuts (John’s footnote 2, which you would have done well to have read before shooting your mouth off about other people’s reading habits, refers).

35

John Quiggin 10.22.04 at 11:13 pm

Stephen, having shown that the tax code was not made more progressive (even your own graph shows this!) I didn’t feel it necessary to go further.

But I don’t see the last stage in your argument either. We can’t predict how the deficit will be made up, but it seems likely to be some combination of tax increases and spending cuts, which will leave the rich (as net contributors) better off.

As far as tax is concerned, it seems likely that at least some of the increase will be in sales taxes and other regressive taxes, again leaving the rich better off.

Coming finally to income taxes, why isn’t the null hypothesis that the Bush tax cuts will be reversed proportionally for everyone? This would mean that, if higher income taxes were the sole route to fixing the deficit, the final position would be the same as the status quo ante. You seem to be arguing that there is some asymmetry here, but it’s unclear what it is.

36

Steven E. Landsburg 10.22.04 at 11:16 pm

The tax code was not made more progressive with the Bush cuts

Now you’re at least arguing about something interesting.

I haven’t carefully read the article you refer to. I have done my own calculations, accounting for cuts in income tax rates, payroll taxes, AMT, EITC, taxes on dividends, capital gains, corporate income, child care tax credit, etc. I’ve presented the results of those calculations in the Slate column. If you think they’re wrong, we have something substantive to argue about—and something that can, in principle, be settled one way or another by an appeal to the facts.

But I continue to insist that a) your and my preferences regarding progressivity, absent interesting new arguments, are not terribly interesting, and were not the heart of what I was writing about, and b) we are not talking about tax cuts; we are talking about tax increases, so that when you assert that “the rich got a bigger cut” you cannot be right.

37

abb1 10.22.04 at 11:17 pm

Oh, in 10:13 PM post above it should be “income inequality doesn not equal to theft”, in case anyone cares.

38

Steven E. Landsburg 10.22.04 at 11:23 pm

Responding to John Quiggin:

Stephen, having shown that the tax code was not made more progressive (even your own graph shows this!) I didn’t feel it necessary to go further.

“Progressive” is, of course, not a precisely defined term. What I see in those graphs seems to me to count as an increase in progressivity. If you disagree, that’s fine. The graphs stand on their own.

But I don’t see the last stage in your argument either. We can’t predict how the deficit will be made up, but it seems likely to be some combination of tax increases and spending cuts, which will leave the rich (as net contributors) better off.

I agree that this is the weakest point in my argument (i.e. the point where I am most likely to be wrong). It seems to me, based partly on a casual reading of recent history and partly on gut feeling, that it is easier to make the tax code more progressive than to to make it less so.

You seem to be arguing that there is some asymmetry here, but it’s unclear what it is.

“Arguing” probably overstates the case; I haven’t given anything that merits the honor of being called an argument. But I’m willing to take a bet on how this goes.

39

John Quiggin 10.22.04 at 11:32 pm

Steven, the main substantive issue to which you haven’t responded is that the calculations exclude sales taxes and other regressive elements of the tax code. Some of these are state and local taxes, but in a federal system with transfers, there’s a significant amount of substitution between revenue from different levels of government.

As regards preferences, I didn’t say anything about mine (though your guess is correct). My argument would be equally valid if presented by someone who shared your preferences on progressivity and wanted to defend the Bush tax cuts as implementing those preferences.

40

dsquared 10.22.04 at 11:38 pm

Progressive” is, of course, not a precisely defined term.

Yes it is. A tax system is progressive if the average rate is an increasing function of income.

41

Steven E. Landsburg 10.22.04 at 11:47 pm

To John Quiggen: You’re certainly right that I haven’t accounted for sales taxes; this would be very hard to do correctly since the answer would be different in each of the fifty states. But one could argue that whatever has happened to progressivity as a result of increased state taxes is not reasonably attributable to the Bush administration. Even if you want to say that Bush’s policies have required states to raise taxes, the states are still free to choose between sales taxes, income taxes, etc. Those choices are not matters of Bush administration policy, and therefore not really what I was writing about.

To dsquared: There are functions that increaase over some ranges and not others.

42

Simon Rippon 10.23.04 at 12:49 am

Steven Landsburg writes:
“Point One: The Bush-era changes to the tax code has made the tax code more progressive. If that progressivity is maintained, then when the inevitable tax increases come along, the rich will, as a result of Bush, be bearing a higher share of the tax burden in both absolute and percentage terms.
That in fact is the main point and you missed it completely.”

I doubt that the Bush tax cuts made the tax burden more progressive, but I’ll accept it here for the sake of argument. Now I had been rather confused about what Stephen’s argument is, since he argues that the unfair tax “cuts” aren’t (except pedantically) really “cuts” at all. He can’t be arguing that non-existent tax cuts are unfair. But now I think I see his point; he thinks that the tax cuts have made “inevitable” future tax increases that disporoportionately burden the rich. And *that* is what he thinks is unfair. Not the fact that under the Bush tax cuts, some poor people got $500 back, while some rich people got $300,000 or so.

“If that progressivity is maintained” (in any hypothetical future tax increases) is the important qualification here. Of course, under a reelected Bush administration, we have no reason whatsoever to think it would be – because they might go about balancing the budget with regressive tax increases on income, or taxes on consumption which are highly regressive, or regressive cuts in expenditure that hit medicare and social security. So let’s just be intellectually honest and point out that what Stephen is arguing is not really *that the republican tax cuts are unfair*, but that *the democratic replacements to cut the budget deficit likely would be*.

Personally, I disagree with him, for the reason that were there no government, economic infrastructure, and widespread cooperative economic activity, there would be no very rich people either. That means that rich people extract *very much* more benefit from government (and from other people) than poor people do. They just don’t get the benefit from government so directly (for example, in the form of welfare checks). Given their greater ability to pay as well as their greater benefits received, it seems to me to be no bad thing that people who have enjoyed more opportunity, or more economic luck, are asked to take on more of the share of the burden when it comes to sustaining the system we live by. Now I happen to think that this is not all a matter of personal opinion, and that if more magazine writers with columns would explain why regressive taxes are a bad thing, a lot more people would agree with me. But Stephen doesn’t think there are “interesting new arguments” here, so that’s off the table.

On the other hand, excepting the (unargued for) premise that tax increases less progressive than the system they are introduced into are politically inexpedient, Stephen’s own “interesting new argument” doesn’t seem to offer much. It says that (i) Bush has created a budget deficit, (ii) (controversially) the tax cuts resulted in a slight increase in the progressivity of the tax system overall, and (iii) when we plug the gap, we can either (a) put more of the burden back on the rich, or (b) regressively tax the poor. Stephen’s claim that “the Bush tax cuts are unfair” seems in fact to be a highly misleading way of expressing the claim that he personally favors (b). I just wish that’s what he’d *said*!

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Simon Rippon 10.23.04 at 12:56 am

Apologies to Mr. Landsburg for misspelling “Steven” in that last post.

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Simon Rippon 10.23.04 at 12:58 am

Apologies to Mr. Landsburg for misspelling “Steven” in that last post

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Russell L. Carter 10.23.04 at 1:02 am

“To dsquared: There are functions that increaase over some ranges and not others. “

I see. If the imperfectly designed rate function is not provably monotonically increasing across the entire income range than useful definitions of progressivity are impossible. And we should look into our hearts and use our faith and feelings to determine what a progressive system really is.

Thanks for clearing that up!

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Russell L. Carter 10.23.04 at 1:20 am

Blast! Stephen is actually making a (slightly) stronger claim that mathematically I probably should account for. I mean since he’s being such a pedant and all. Insert the word ‘strictly’ in the appropriate place in the second sentence of my previous comment.

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Steven E. Landsburg 10.23.04 at 2:05 am

Russell Carter: I see. If the imperfectly designed rate function is not provably monotonically increasing across the entire income range than useful definitions of progressivity are impossible. And we should look into our hearts and use our faith and feelings to determine what a progressive system really is.

I did not say that useful definitions of progressivity are impossible; I said that there is no widely agreed upon definition of progressivity.

What do you think is gained by inventing preposterous statements and attributing them to people?

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Taxwisdom.org 10.23.04 at 2:32 am

I would be very much interested in a philosophical analysis of the arguments presented at http://www.taxwisdom.org. The essential argument is that the progressive income tax does not impose any real burden on taxpayers in terms of purchasing power because it preserves the relative “bidding positions” of all taxpayers within the hierarchy of all disposable incomes.

Can anyone offer a cogent counter-argument?

Thanks,

Linette

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son volt 10.23.04 at 2:50 am

Prof. Landsburg, in comments above:

It seems to me, based partly on a casual reading of recent history and partly on gut feeling, that it is easier to make the tax code more progressive than to to make it less so.

Sure, but it’s also easier to cut taxes than to raise them. If the affluent will pay higher taxes, in absolute terms rather than merely a higher relative share, in the future than they did before Bush, that consequence is almost certainly an unintended one. Clearly the Bush admin is betting that, at some future day of reckoning made more painful by massive deficits, America will opt to revoke the New Deal rather than raise taxes.

Usage note: Perhaps the issue might be viewed more clearly if we used the term “tax holiday” to refer to tax cuts that aren’t offset by spending decreases.

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PG 10.23.04 at 3:20 am

Ooh, I wished I’d checked CT earlier today. The Case for Looting was one of the most idiotic attempts to apply economic thinking that I’ve ever seen.

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Russell L. Carter 10.23.04 at 6:37 am

“I did not say that useful definitions of progressivity are impossible; I said that there is no widely agreed upon definition of progressivity.”

False. There is no evidence for your claim.

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Mark 10.23.04 at 6:53 am

there is no widely agreed upon definition of progressivity.

Yes there is; dsquared already reminded you of what it is, and as a Ph.D. economist, you know it perfectly well. You may not agree with it, but virtually all economists not named Steven Landsburg do.

The Bush-era changes to the tax code has made the tax code more progressive.

You have presented no data that bear on this question. The percentage change in dollar amount of taxes paid is not the relevant number; as you know, progressivity is measured by looking at the percentage of income paid in taxes. To demonstrate your point, you would have to present data (not just a chart, but the underlying data) on that percentage, or use some other recognized measure of progressivity, as used by Brian Roach in the article John linked to.

Finally, I want to reiterate that I was especially disturbed that, in complaining about the “unfairness” of the Bush tax cuts, you simply pretended that the well-established principles of tax equity, which I referred to earlier, do not exist. You did not address them at all. For a Ph.D. economist, well-versed in these matters, to discuss tax fairness without addressing these issues is, to say the least, highly irresponsible, if not downright dishonest.

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roger 10.23.04 at 7:18 am

I’m so glad that Landsburg is distressed by Bush’s terrible liberalism. It reflects the sad state of the rich in the country at the present moment, who are, as Grover Norquist once remarked, undergoing the same thing, by paying their taxes, as the people thrust into the concentration camps by the Nazis.

I’m totally looking forward to his embrace of Kerry as the true alternative for his brand of conservative economics.

When are we going to see it?

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abb1 10.23.04 at 10:09 am

The looting thing is obviously tongue-in-cheek, typical Slate/Kinsley-style contrarianism, the “why idiots make better presidents” kinda stuff. Call it ‘silly-clever’ if you wish, but it’s often good, it’s funny.

And I thought the ‘Bush tax-cut benefits the poor’ would be one these things too. But if the guy who posted here is indeed Steven Landsburg, then it’s a bummer – he actually believes it. Instead of saying: hey, where’s your sense of humor, folks, this was merely a parody of the Heritage – he actually defends it.

Perhaps over the years these Slate people have gotten brainwashed by their own shtick.

Come to think of it, this is also very funny.

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Don Quijote 10.23.04 at 2:50 pm

We should just go to a flat tax to end the griping from both sides about who is getting the short end of the stick.

Sounds like a fine ideal, but let’s make it a flat tax on Wealth.

Get your accountant to figure out your net worth on Dec 31 and pay a flat percentage of it to the IRS. Simple and fair every one pays the same percentage.

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roger 10.23.04 at 7:57 pm

It is rather funny that a man who writes for a blog called Marginal Revolution seems blithely unaware of the historic roots of the progressive income tax. Martin Daunton’s essay in History and Policy, “Quality and incentive: fiscal politics from Gladstone to Brown” shows that Adam Smith’s precept for taxation — that it should involve ‘equality of sacrifice” — was recalibrated by the marginal utility economists, like Alfred Marshall:

“Alfred Marshall’s Principles stressed the marginal costs of producing another unit of output, and the marginal satisfaction to be derived from consuming it. In this approach, an additional pound did not produce the same satisfaction for someone in receipt of an income of 1,000 as for someone in receipt of an income of 100. The meaning of equality of sacrifice was more complicated than writers in the past had appreciated. Did equal sacrifice mean each taxpayer should surrender the same proportion of their total utility?

“That is, the aim should not be to take 10 per cent from all income levels ( 5 from an income of 500 and 10 from an income of 1,000), but rather to extract the same proportion of happiness or satisfaction, which varied according to income. Or did it mean an equal marginal sacrifice in order to produce minimum disutility? By this definition, the aim was to calculate the additional satisfaction produced by the final increment of income, and to ensure that the rate of taxation on that income imposed the same loss of utility or satisfaction. Thus the final 10 of income for someone earning 500 might produce three times as much satisfaction as the final 10 for someone earning 1,000, so that the tax rate could be three times as high on the larger income with the same marginal disutility.”

But an economic sophist like Landsburg is, of course, not going to be aware of this history, or interested in it, even as he uses the theory.

Typical.

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James J. Kroeger 10.24.04 at 11:43 am

Yes, Roger, the “equality of sacrifice” argument has always been the most difficult argument for right-wing apologists to answer. It becomes even more difficult for them to answer when it is pointed out that even steeply progressive income taxation imposes no real sacrifice on wealthy income earners in terms of lost purchasing power. How can I argue that it would be unfair for me to pay a larger percentage of my income in taxes if I can see that market prices are sure to adjust in a way that will make all of my purchases just as affordable as they were when I had twice the disposable income to spend?

The fundamental error in logic that these apologists are guilty of is the fallacy of composition. They assume that the sacrifice a single income earner would suffer if only her tax obligation was dramatically increased would be imposed on all taxpayers if all of their tax obligations increased. This is, in fact, not true. When the same “sacrifice” is imposed on all income earners, none of them actually experiences any real sacrifice because market prices will adjust. When it comes to the purchasing power of incomes, what matters is not your absolute level of income, but only what your level of income is relative to everyone else. For an elaboration of these points, see http://www.taxwisdom.org.

Any economist who understands 1) the phenomenon of inflation, and 2) how markets set prices, can only disingenuously object to progressive income taxation.

James J. Kroeger

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Chris Martin 10.24.04 at 9:12 pm

Quiggin, Is there proof that high income earners also use more government services and therefore are rightly charged more in taxes? I’ve heard this argument before but I haven’t seen anyone point to reliable research that tries to calculate exactly how much more government services are used by high-income earners.

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