Those of us on the left have been indulging in our share of Schadenfreude since the reelection of Barack Obama–or, more specifically, the defeat of the Republican party and the associate shadow-money campaign newly authorized by Citizens United. The wailing and gnashing of teeth on conservative media, all looking for something to blame, seems to point to a recognition that something was wrong in the narrative conservatives had been telling themselves about the country for the last few months, years, and possibly decades.
It recalls the same sort of recognition that swept through the financial establishment four years ago. I never thought I’d like to see the day Alan Greenspan would use the words like
“[The] modern risk management paradigm held sway for decades. The whole intellectual edifice, however, collapsed…
in his explanation of the financial meltdown. Watching GOP strategists sputter on Fox and in print leaves the same impression, that they understand that a generational shift has occurred, marking the death of the Southern Strategy as a viable national campaign tactic for the GOP.
These are merely iterations of a larger fractal pattern of disintegration. Since the end of the Cold War and the beginning of globalization, American institutions (like Lee Atwater’s government-by-race-baiting) and American capital have sought growth by leveraging existing assets rather than bother with creating real value. Under Bush I, I recall watching as we sold off factories and shed union jobs while American auto workers flipped Japanese cars over in the streets. And under Clinton, they decided the short-term steroid shot of deregulation was enough to get us out of a recession, and it worked. And so we became addicted to financialization, because we had sold off the tools to manufacture a real economy to buy overvalued financial instruments.
Matt Taibbi recently noted that with the rise of junk-bond trading in the 1980’s, all of a sudden the ability to make stock deals became more valuable than the ability to build a company, in real dollar terms. The financialization of American (and global) capitalism has, at its base, an important assumption: perceived value is real value. Rather than relying on dividends to make money, Reagan’s deregulatory program (updated by his successors continuously over the next two decades) and new technologies made it possible to leverage relative value of the companies themselves via stock trading, potentially making far more than any dividend.
When executives can pay themselves in stock, the incentive to game the system with numbers becomes not only irresistible, but necessary to compete against other firms in the financial markets. There are the numbers for the quarterly reports and then there are the real numbers. There’s mark-to-market value and there’s a bank balance in the Caymans. Bifurcating public from private was merely about splitting off bullshit from truth; when perception is the actual good being traded there is no objective reality, or not for very long, anyway.
Mitt Romney embodied this so-called ‘engine of growth.’ A brave new world where perception actually is money, where stock prices move more on rumor than truth. And as long as we had real wealth lying around to be exploited, the games kept making money. Romney’s leveraged buyout firm* borrowed money to buy companies, then saddled those companies with long-term debt to cover not only the purchase price but hefty ‘management fees.’ His earnings, which he still receives to this day, were couched in a myriad of tax-evasion algorithms, smuggled past international borders and tax brackets. And you can profit from this vampiric scheme by trading company stock! His positions and their positioning weren’t flip-flops, per se, but were agile responses to the market. And the donors needed to be reassured that their investment was going to return the end of their Obama nightmare, produced and distributed by the right-wing echo chamber.
The same mechanism that allowed homes to be overvalued, junk-filled MBSes to gain real monetary value despite the fundamentals, quarterly earnings reports to be redacted after they’ve served their illusory purpose, is the prime candidate not for Romney’s downfall, but his obliviousness. And watching Karl Rove’s sputtering meltdown on Fox News underscores the crash of a very real market—the post Citizens United vote-buying market. Rove’s portfolio famously yeilded a 1.26% return on a $104 million-dollar investment on the part of conservative moneyed interests.
In retrospect it should have seemed obvious that a man like Romney ran on a platform that required heavy suspension of disbelief. I liked to call it the “magic Republican” theory, which Romney himelf explained to donors:
They’ll probably be looking at what the polls are saying. If it looks like I’m going to win, the markets will be happy. If it looks like the president’s going to win, the markets should not be terribly happy. It depends, of course, which markets you’re talking about, which types of commodities and so forth, but my own view is, if we win on November 6th there will be a great deal of optimism about the future of this country. We’ll see capital come back, and we’ll see—without actually doing anything—we’ll actually get a boost in the economy. If the president gets reelected, I don’t know what will happen. I can never predict what the markets will do. Sometimes it does the exact opposite of what I would have expected.
Conservatism, in essence, is the same kind of scam as financialization; trading on a promise of past greatness that never was, leveraging some warm-and-fuzzy memories—or in many cases, second-hand memories—of American greatness passed down by crotchety old white folks. It can be like it was, but better this time! And so that ruthless Republican campaign operative, Lee Atwater, had the brilliant stroke of leveraging the distant memories of Southern plantation life into an electoral strategy that defined the GOP’s national appeal for the whole of my lifetime and perhaps yours. For conservatives, American greatness is a birthright in every sense;
“Remembering is a type of forgetting,” Milan Kundera once wrote.
As I was writing this post, The Nation kindly unearthed the original audio from Atwater’s infamous 1981 interview, to wit:
You start out in 1954 by saying, “Nigger, nigger, nigger.” By 1968 you can’t say “nigger”—that hurts you, backfires. So you say stuff like, uh, forced busing, states’ rights, and all that stuff, and you’re getting so abstract. Now, you’re talking about cutting taxes, and all these things you’re talking about are totally economic things and a by-product of them is, blacks get hurt worse than whites.… “We want to cut this,” is much more abstract than even the busing thing, uh, and a hell of a lot more abstract than “Nigger, nigger.”
The GOP has been dog-whistling for generations. There’s just one problem: there are now generations of GOP pups who think the dog whistles are music. They don’t get that you’re not supposed to believe in the words (take, for example, “states’ rights”) so much as the racist sentiment behind them. Welfare for the urban poor is bad, welfare for corporations is good. States’ rights are paramount unless they have to do with gay marriage or drug legalization.
There’s a particularly obnoxious strain of Republican racism (the type preferred by Breitbart and Tucker Carlson, et al) promotes the idea that the Republicans are the party of Lincoln and the only people who are racists are Democrats for supporting affirmative action. Theirs is an America where Crayola still sells “flesh” colored crayons and being white and male and Christian is the national default. They accuse the president, of all people, of being “divisive” and waging some kind of race and class warfare. How are the Democrats divisive when Romney’s support is 91% white? When the Republican campaign spoke rather plainly about their absolute need to get more than 61% of the white vote? Obama’s coalition of support was diverse in every conceivable way.
Every nation, including America, is a story we tell ourselves. This is the triumph of Anderson’s “print capitalism” — countries are built by a shared culture. As the modern European powers emerged, the principal medium was the novel, a shared literature. As newer nations coalesced, radio and eventually television became the principal unifiers of nations, the enablers of a shared narrative that bound people together enough to believe they have a shared history with other citizens we’ll never meet.
A nation-state like ours, though, may be unprepared for the disruptions of new media. Instead of a shared media environment controlled or at least largely influenced by a single national government, there is now unprecedented choice in entertainment and even news, all of which presents a unique challenge to any national project. With the internet, you can now completely envelop yourself in a shared solipsism, a virtual echo chamber in the cloud, where you can more freely associate than anyone ever dreamed.
The irresistable force of delusion can, on occasion, run into an immovable object in reality. An unfavorable election result, for example, or an overhyped IPO fallen flat.
*At Romney’s Bain Capital, they practice a management philosophy called “Six Sigma” which focuses on a numbers-driven approach to achieving excellence or some such double-talk. One of the most accurate gripes with Six Sigma is its focus on arbitrary numbers, and it was also one of the hallmarks of Romney’s “I’m a numbers guy” campaign. For example, the insistence that we must be spending 4% of GDP on defence. Why not 4.1%? Or, heavens forbid, 3.95%? I dunno, it sounds like a real number—5% would sound too arbitrary, 3% insufficiently manly.
Christine O’Donnell went on TV with her usual claptrap about how Obama is a Marxist and Soledad O’Brien (who is on a huge streak of calling Republicans out in exasperation lately) rolled her eyes. In the clip, we don’t see the subject get pressed too much further, but this has been annoying me for a long time.
These nostalgic Reagan-worshippers just can’t seem to let go of the last time they thought America was in control of the world again. As Reagan joins the assembly of conservative saints along with Ayn Rand and Mother Theresa, all that he opposed is bad, all that he stands for is good. (Besides arming mujahideen in Afghanistan, but you’re not allowed to talk about that any more. Let’s just all agree that Obama is a Muslim, OK?)
Socialism! That’s what my generation remembers as the bogeyman from that show on TV where what sounded like an aging Bullwinkle would get up in a president mask and intone against the Evil Empire and so on.
The Tea Party loves to talk about socialism. To wit, quoth Ms. O’Donnell:
“We’re a free-market economy that’s supposed to empower the individual, let each person use their gifts, use their rewards to create a better life for themselves, instead of what Barack Obama is posing, one that punishes hard work. A tax code that reduces everybody to exactly the same…”
No one else has the intestinal fortitude to say this, but what O’Donnell is describing is closer to socialism than capitalism. The key phrase here is ‘hard work.’
To begin with, no Republican politician seems to know what socialism or even Marxism is, so they assume nobody else does. As far as I can tell, socialism covers anything that is less friendly to rich people than Reaganomics. For the right, socialism has no definitions, no credoes, no theories, no working examples, and is lurking in the dark–waiting to eat your children at night.
That’s why when pressed, Republicans regularly fail to explain what it is that they oppose, other than Obama or “liberals” or “progressives” and other devil-worshippers. This isn’t an economic argument, but a series of ad hominems.
Let’s be very, very clear. Socialism does have a credo:
“From each according to ability, to each according to work.”
Note that this is a little different than the Communist credo, “from each according to ability, to each according to need.” Socialism is more concerned with the people owning the means of production than necessarily ensuring an equality of outcomes. It does try to limit the development of gross inequalities, though. “Redistribution of wealth” from rich to poor–during peacetime, anyway–is something that really only works on a capitalist society that has embraced some measure of ‘social democracy,’ which is a mixed economy with government services supported by progressive taxation.
With all this in mind, we can clearly see that ours is neither a purely capitalist nor in any way socialist economy; we have a social democracy whose social benefits are being threatened by the tremendous tax cuts pushed through in the years before and after the turn of the millennium. Wealth can also be redistributed from the commonwealth to private hands. It usually doesn’t turn out well.
Here’s the sticking point: our tax system actually does penalize (hard) work. But that’s not an Obama-instituted change; that happened most recently and shamelessly when capital gains taxes were slashed almost in half–between 1998 and 2003, that rate went from 28% to 15%. This is how a millionaire like Mitt Romney gets away with paying less than 15% in federal income tax while middle-class families might end up paying over 15%. Wages–money you make from actually working–are taxed on a totally different schedule that includes a top marginal rate of 35%. Reagan, by the way, hacked and slashed the top marginal rate on income from 70% all the way down to to 28%, culminating just after Black Monday happened on Wall Street; Bush’s slashing of capital gains preceded the collapse of 2008.
To quote the New York Times,
There was, in fact, only one time that capital gains were taxed at the same rates that were paid by people who earned their money by working. That was during the years 1988 to 1990, as a result of the Tax Reform Act of 1986 — a law championed by President Ronald Reagan.
To be sure, he changed his mind about unearned income in 1988. After Vice President George H. W. Bush, then campaigning to succeed Mr. Reagan, endorsed lowering capital gains taxes, the president allowed that might be a good idea. Mr. Bush and the Congress did lower them after he was elected.
In fact, someone who actually works for a living (regardless of how ‘hard’ they work) is being penalized for not investing instead of working a regular job. And investing is a totally passive way to make money; in fact, it’s such an easy job that it seemed not to make much difference whether Mitt Romney was actually ‘working’ at Bain Capital for three years as CEO. On the other hand, if the cleaning staff went on strike, people would notice. Mitt made $21.6 million in 2010; the average custodial worker in Boston makes about $29,000 a year.
If income was commensurate with work in this country, that would mean Mitt worked about 745 times harder literally doing nothing (passive income, remember?) than the guy who cleans his toilets. Even if we were to assume that executives work, let’s say, twelve-hour-days, Mitt would have made his janitor’s salary in a single day with 20 minutes to spare.
Even within the world of executives, anyone who has ever started a business can tell you that you can work extremely hard at an enterprise only to have it fail (leaving debt instead of income).
In a capitalist system, you are compensated for how hard your money works, not how hard you do. There are plenty of working-class people with more than one job who, for some reason, have yet to become millionaires despite the hard work and long hours. Not to mention the fact that small investors (and many large ones) who poured capital into the stock market in hopes of gaming the tax system have lost huge since gambling with securities (note the ironic name) became government-subsidized. Bubbles need cash influxes from small, less savvy investors, otherwise they don’t happen!
If O’Donnell, Obama, or any other politician wanted to actually reform the tax code to reward hard work (and not, say, try to make everyone ‘the same’ in some other way than “protected by the law”), they could achieve that goal very simply. End the corporate and capital gains taxes and have all income be taxed under the same schedule. Federally mandate sick and paid family leave to American workers, who work longer hours for lower benefits than any other industrialized country–and take the fewest vacations. Raise the Federal minimum wage, because nobody works harder than the people at the bottom of the corporate ladders. And if you want to get down to the nitty gritty, offer immigrant workers (who work harder than everybody else) a path to citizenship.
Stay tuned for more of my Summer Of Long-Standing Grievances.
In the summer of 2008, I wrote a short story that was intended to be a comment on what I thought was a coming depression, where overvalued assets would ruin the wealthy and force all those paper millionaires into destitution. I got some positive feedback from a literary agent, who thought I could turn it into a novel, so I spent the summer researching and plotting out a whole novel that was going to be a prophetic cautionary tale about excess and over-leveraging… and then Bear Stearns collapsed. As the economy actually began to falter, and later, as the Madoff affair unraveled, I decided that the effect was ruined and I should abandon the book, which now seemed like it would come off as a reaction rather than a prescription.
Anyway, since I’ve been a bit blocked when it comes to writing lately, why not drag out an old and moldy chestnut? Enjoy this three-year old morsel while I work on a real post about the economy. And, if you like it, let me know and maybe I’ll release (and maybe rewrite) the next pages…
The Revenge of Icarus
“Since Tragedy is an imitation of persons who are above the common level, the example of good portrait painters should be followed. They, while reproducing the distinctive form of the original, make a likeness which is true to life and yet more beautiful. So too the poet, in representing men who are irascible or indolent, or have other defects of character, should preserve the type and yet ennoble it. In this way Achilles is portrayed by Agathon and Homer.”
Chapter One: Zeus
It was a Tuesday when the Gods descended from Mount Olympus, having talked to their accountant and finally concluded that the whole affair had simply become too expensive.
Christianity had long ago killed off the tribute business. Zeus, to his eternal chagrin, had personally sworn to the other eleven that tribute from mortals would be a never-ending spigot, but what was once a mighty
stream of gold, incense and amazing barbecue all the time had slowed to a trickle of credit card solicitations and coupons for two-for-one haircuts. They didn’t even get fan mail any more, not even from
He remembered the first time a girl he was trying to screw asked him to sign an autograph for her grandmother. “She totally, like, used to worship you and stuff,” she had said.
Back in the halcyon days, Zeus was constantly telling anyone who would listen, Olympus was truly a paradise of unimaginable delights. Las Vegas? Tijuana? Xanadu? Olympus put them all to shame, he would groan, usually while drunk.
Ambrosia on tap–they even had the toilets and showers running ambrosia for a few weeks once, just to do it, but it started to solidify in the pipes and they had to get Hephaestus–that ugly bastard–to fix it. And that
son-of-a-bitch proceeded to bring it up at literally once a week for the next millennium.
There were slaves, of course, to attend to your every need. And not those flea-bitten prisoners of war or twelve-year-old virgins you find nowadays, but real go-getters–accountants and gourmet chefs and Lit.
grad students–the real creme de la creme. And forget about pay-per-view. If you wanted to see a boxing match (or, more likely, olive-oil wrestling), you literally clapped your hands and all of a sudden there’s a two-bout fight in the middle of the courtyard. You even got to fix the odds if you felt like picking up some extra cash that day.
There was a constant revenue stream from the temples back then, and Zeus wasn’t shy about explaining that most of the money came from temple prostitution. Thankfully the gods had thought to invest a little bit of that money, the interest from which was now their main source of income. What was literally a spare change dish near the dawn of Greek civilization had, through compound interest, provided adequately for the Twelve for the past few hundred years. But what with the cost of olive oil and horsewhips and computers and everything else these days, cost-cutting had become commonplace on the Mount. Slaves’ largely unskilled labor was fine for wicker baskets and such, but they made shitty knock-offs when it came to modern luxuries such as designer clutches and private jets.
The first things to go were production values for public appearances, which in retrospect might have hurt them the most in the long run. When you show up at someone’s house demanding they sell their teenage son and/or daughter to you in sexual slavery until the end of time, you’d better show up as something really impressive, like a bull or a shower of gold. If you’re in body paint, it’s real gold leaf. You’ve got
imported silk kimonos and linen tablecloths and edible flower arrangements and ham sandwiches and a cask of upmarket grappa on a wagon in case they give you a rough time. And, if there is any trucking
involved whatsoever, naturally you have to use Teamsters.
In his new life, Zeus resolved, at least his conquests wouldn’t be expecting him to do any of the fancy stuff like turn into a Minotaur or pay child support. He would just be an anonymous aging playboy, on permanent retirement. Maybe I’ll go to the south of France, he thought, or South Beach. Trade the gold leaf for some bronzer.
“Nowadays I can barely afford a gold lame Speedo,” he said out loud. One of the movers turned around because he thought Zeus was talking to him, smashing face-first into another mover carrying a one-armed statue of Hera in an embarrassing pose that the avant-garde sculptor Galen had given Zeus as a birthday present. Hera’s remaining arm snapped clean off and skidded across the marble floor, neatly clipping Zeus in the shin.
“Aagh! Dammit!” he thundered.
“Oh Jesus Christ, I’m so sorry Mister Ze–” said one of the movers, as Zeus turned him into a toad.
“You want a piece of this?” he huffed at the other mover, whose former colleague was now jumping on his face. The mover screamed, so Zeus turned him into a toad, too. It was kind of a knee-jerk reaction,
but he went with it because when you turn toads like that back into people… let’s just say it’s better to let them stay toads. And just as he thought that, they seemed to calm down and stop jumping and ribbiting and just sat there on the broken statue in a daze.
“Stavros?” inquired one of the workers from around the corner, “Stavros? Other Stavros?”
Just how many of these bothersome idiots were there, Zeus wondered. When a fourth worker came in the opposite doorway, he gasped at the broken statue; but Zeus assumed that he was gasping at the fact that his two friends had been turned into toads, so he turned the young man into an alligator.
Alligators eat toads, right? Zeus thought.
This whole thing was really becoming bothersome, so he walked out onto the balcony, to enjoy the view from the above the mountain for what he thought would be one last time. As he looked out onto Greece and the Mediterranean, he remembered the first time he had seen this view, when he moved into the place all those eons ago. A young and relatively naive prince from some tiny island in the Mediterranean, he had worked his way up to Thunder God in the Levantine circuit, under the name “El” (his first agent told him, “keep it simple, stupid!”). The Levantines were OK, but they weren’t as wealthy as the Assyrians or the Egyptians, who had their own thing going.
So he moved to the Greek mainland, made a big show of banishing his “father” Cronus to Tartarus (later New Jersey), and took over what was then a rather small and motley crew of local charlatans in a largely fragmented market. Zeus saw the opportunity in that. He was an entrepreneurial sort by nature, and the thought that he could lead the Greeks to being a real regional player. He had succeeded beyond his wildest dreams, and now… was he leaving success behind or was success leaving him?
“No, I’m a survivor,” Zeus said out loud, again. “I’ve always been able to roll with the punches.”
Like when he took that buyout offer from the Romans. It was just too much money to pass up, and not only did it pay out in spades, it made him a worldwide household name–except that it was the funny name those
slick Italians called him, “Eee-yoo-pit-er.” Sure, it sounded a little fruity, but everybody got weird new names and the dough kept pouring in.
Oh, those Romans, with their money and orgies and vomitoria. Those guys knew how to party. It was like a ridiculous fad that no one knew how to stop–all of a sudden his neighbors on Olympus were running around in tunics with their little horse-drawn mopeds and drinking cappuccinos. But hey, they kept building new temples and private apartments in Rome, and you were constantly meeting girls from every corner of the globe. It was a fairly happening scene in its day, Zeus thought proudly.
Zeus watched some workers take apart the gazebo and realized he had spent so much time agonizing over having to pack all this stuff that he had forgotten to find a new place to live.
He decided to call his son Stavros, the God of Time-Shares and Vacation Rental Properties (Greece and Albania).
The Wall Street Journal’s most popular article today was an editorial by one Professor Michael J. Boskin entitled, “Get Ready for a 70% Marginal Tax Rate,” and it was a doozy. It hearkened back to bygone days at university, when we carelessly tossed haphazardly written bullshit under the professor’s door a minute after the deadline, filled with neat little tricks and techniques designed to give the appearance of substance to whatever flimsy excuse for an argument we had to present that week.
Maybe it’s because Boskin’s article reads like a sophomore homework assignment. “First, as college students learn in Econ 101, higher marginal rates cause real economic harm,” he tells us. (I guess they don’t teach history students the same thing.) Good, we’ve established an axiom. But Professor Boskin, how can we tell?
The combined marginal rate from all taxes is a vital metric, since it heavily influences incentives in the economy—workers and employers, savers and investors base decisions on after-tax returns.
So, the metric for how much higher marginal tax rates are affecting the economy is… the combined marginal rate? Leaving aside the circular logic for the moment, questions arise: how are these tax rates combined, and what is a marginal tax rate, anyway?
The current top federal rate of 35% is scheduled to rise to 39.6% in 2013 (plus one-to-two points from the phase-out of itemized deductions for singles making above $200,000 and couples earning above $250,000). The payroll tax is 12.4% for Social Security (capped at $106,000), and 2.9% for Medicare (no income cap). While the payroll tax is theoretically split between employers and employees, the employers’ share is ultimately shifted to workers in the form of lower wages.
Later, he gives us a sample question, assuming taxes will be broadly increased across the board:
It would be a huge mistake to imagine that the cumulative, cascading burden of many tax rates on the same income will leave the middle class untouched. Take a teacher in California earning $60,000. A current federal rate of 25%, a 9.5% California rate, and 15.3% payroll tax yield a combined income tax rate of 45%.
How does that work? Well, I got out a calculator (you can, too! it’s interactive!) and checked the professor’s math:
60,000×(1−(.095+(.153÷2)) = 49,710
49,710÷60,000 = 82%, or 18% tax rate before federal taxes
Federal taxes take 25% off the rest, leaving 62% of 60,000;
100-62 = a 38% effective tax rate.
How did he get to 45%, I hear you cry? Well,
60,000×(1-(.095+.153))×.75 ends up being a 43.5% effective rate, which is 45% if you round up to the nearest odd number, for some reason. But that would mean Boskin is counting the full payroll tax, half of which is paid by the employer, entirely as lost income in terms of the total tax bill. Why, by those standards, the teacher is actually making $64,590 a year (instead of $60,000 as stated). Also, our teacher takes no deductions whatsoever.
With failures in math and logic, the bigger problem lies in the fact that nowhere does Boskin say what “marginal” tax rates actually are and how they might differ from the other tax rates he yammers on about throughout the piece. Marginal taxes are those paid on the portion of income above a series of cutoffs. So, for example, California’s citizens face a haunting marginal tax rate (on wages only, not capital gains) of 44.1% including state and federal taxes; but that’s the most anyone can pay in taxes anywhere in the state (barring property, sales and other sin taxes, of course). Now I bet you’re wondering, how many people actually pay that rate? Well, here’s a look at income inequality in the United States:
Source: Thomas Piketty and Emmanuel Saez, “Income Inequality in the United States, 1913-1998,” Quarterly Journal of Economics, 118(1), 2003. Updated to 2008 at http://emlab.berkeley.edu/users/saez.
The bottom 99% receive between 76-79% of the wages (which is what we’re talking about here) and the same source as the graph above says that in “9 out of 10 households — income [is] below $104,696” and that the average income for these bottom 90% is $30,374 (which includes capital gains). By smoothly transitioning from the injustice of taxing the absolute richest people in the country–a.k.a. the “marginal tax rate”–to the inflated woes of a poor beleaguered California public servant (who is making, one might point out, just about twice the average for the bottom-90% bracket) and threatening Wall Street Journal readers with a projected 70% marginal rate on wages, Boskin has all the bluster he needs to distract from the argument’s essential flaws. One that jumps out at me is the following paragraph:
Nobody—rich, middle-income or poor—can afford to have the economy so burdened. Higher tax rates are the major reason why European per-capita income, according to the Organization for Economic Cooperation and Development, is about 30% lower than in the United States—a permanent difference many times the temporary decline in the recent recession and anemic recovery.
Besides the intentionally misleading wording that leaves the reader to decide whether the OECD specifically blames higher tax rates in Europe for the comparative difference in per-capita income with the U.S., or whether they just operate a website that features statistics for the whole of the European Union (or maybe even all of Europe as a continent), the truth is that the rich can be so burdened. Not only can they be so burdened, but the idea that lower taxes on the extremely wealthy somehow translate into economic benefit for the rest of the economy is flat wrong. You can see exactly how flat I mean:
You see, no matter what the after-tax income of the top marginal earners, since 1979, it hasn’t made one lick of difference in real take-home pay for the rest of us. On the other hand, the wealthiest 5% now make what the wealthiest 1% used to make way back then, and the top 1% themselves are taking in money on what, to the rest of us, looks like a vastly distorted curve.
1979, it turns out, was not only the year Reagan began to return our country to greatness by running for president, but also the year average wages basically stopped growing. Here’s the best part. Baskin acknowledges this problem, and then waves it away as if trying to swat a persistent mosquito:
Some argue the U.S. economy can easily bear higher pre-Reagan tax rates. They point to the 1930s-1950s, when top marginal rates were between 79% and 94%, or the Carter-era 1970s, when the top rate was about 70%. But those rates applied to a much smaller fraction of taxpayers and kicked in at much higher income levels relative to today.
There were also greater opportunities for sheltering income from the income tax. The lower marginal tax rates in the 1980s led to the best quarter-century of economic performance in American history. Large increases in tax rates are a recipe for economic stagnation, socioeconomic ossification, and the loss of American global competitiveness and leadership.
Back to the history books: in the 50’s and 60’s, when we were doing the exact opposite of “economic stagnation, socioeconomic ossification, and the loss of American global competitiveness and leadership,” marginal tax rates were between 94% and 70%. Not to mention the entire article is a long strawman directed at imagined increases in taxation connected to the weight of our deficit, $1 trillion of which were awarded as tax breaks to the wealthy in the last 10 years–and look how well that turned out.
So Boskin fudges the facts and the figures and the history and drips a little Milton Friedman blood on the altar of no-taxes. Who is this guy, anyway? Only last year, Boskin issued a screed on the same WSJ editorial page savaging the totalitarian impulse to destroy the truth with faulty numbers:
Politicians and scientists who don’t like what their data show lately have simply taken to changing the numbers. They believe that their end—socialism, global climate regulation, health-care legislation, repudiating debt commitments, la gloire française—justifies throwing out even minimum standards of accuracy. It appears that no numbers are immune: not GDP, not inflation, not budget, not job or cost estimates, and certainly not temperature. A CEO or CFO issuing such massaged numbers would land in jail.
Well, at least his motives are purely scientific–Boskin is, after all, a humble Stanford economics professor. It’s not like he’s in that rareified top echelon of earners who are actually paying the top marginal tax rate, he’s just a neoclassical economist with a real ideological fervor, right? Wrong.
Boskin happens to be a member of Exxon Mobil’s board of directors and has been for over 15 years. He also sits on the boards of Oracle, Japan’s Shinsei Bank, and European telecom giant Vodafone. He also happens to be the Friedman chair and a fellow at conservative think-tank The Hoover Institution, named after one of America’s favorite presidents (definitely in the top 100). So, this guy knows a thing or two about corporate number-crunching. And, history!
In Argentina, President Néstor Kirchner didn’t like the political and budget hits from high inflation. After a politicized personnel purge in 2002, he changed the inflation measures. Conveniently, the new numbers showed lower inflation and therefore lower interest payments on the government’s inflation-linked bonds. Investor and public confidence in the objectivity of the inflation statistics evaporated. His wife and successor Cristina Kirchner is now trying to grab the central bank’s reserves to pay for the country’s debt.
Most interestingly, Boskin was once head of the Boskin Commission, which convinced the government that… here, I’ll just let Wikipedia explain, it’s easier:
Its final report, titled “Toward A More Accurate Measure Of The Cost Of Living” and issued on December 4, 1996, concluded that the CPI [Consumer Price Index] overstated inflation by about 1.1 percentage points per year in 1996 and about 1.3 percentage points prior to 1996.
The report was important because inflation, as calculated by the Bureau of Labor Statistics, is used to index the annual payment increases in Social Security and other retirement and compensation programs. This implied that the federal budget had increased by more than it should have, and that projections of future budget deficits were too large. The original report calculated that the overstatement of inflation would add $148 billion to the deficit and $691 billion to the national debt by 2006.
I guess Stanford’s Irony Department is really great.