Mindless tax slogans dominate our debate

By Robert Frank
September 13, 2011

By Robert Frank
The opinions expressed are his own.

What do the following slogans have in common?

“All taxation is theft.”

“It’s your money and you know how to spend it better than any bureaucrat in Washington.”

“It’s unjust to tax some people more heavily than others.”

“Taxing the rich kills the geese that lay the golden eggs.”

Although each has been repeated so often by conservatives during recent decades as to have acquired an air of settled truth, each is also either clearly false or conveys no useful information. A more troubling shared feature of these slogans is that they are causing serious harm. Their enthusiastic embrace by Tea Party members and large
factions of the Republican Party now threatens to transform the United States economy, once the envy of the world, into an economic backwater.

Let’s consider them in turn.

“All taxation is theft” is easily the most mindless of the batch. Functionally, it’s equivalent to the “It’s your money…” entry, since the ostensible point of each is that meddlesome government officials shouldn’t be allowed to confiscate the hard-won fruits of our own talent and effort. But there isn’t much economic value to confiscate in countries that lack well-defined and enforced systems of property rights and the public infrastructure required for highly developed and specialized markets. None of that could exist unless government could levy mandatory taxes. No informed person would seriously consider living in a society whose government lacked that power—think Somalia, or the Sudan—even apart from the concern that it would quickly be conquered by an army supported by a neighboring country’s mandatory taxation.

A distant second in any mindless slogan contest would be some variant of “It’s unjust to tax some people more heavily than others.” As with private goods, higher incomes generally spawn demands for more and better public goods. But any society that was constrained to collect no more in tax revenue from some citizens than others could provide public goods only in the quantities and qualities demanded by its most impoverished member. Its roads, bridges, police and fire protection, national defense, and other public goods and services could never be better than the versions its poorest citizen was willing to pay for. Again, no informed person—rich or poor—would want to live in such a society.

Among all anti-tax slogans, however, none has caused more profound damage than “Taxing the rich kills the geese that lay the golden eggs.” Higher taxes reduce the reward for effort, just as trickle-down theorists claim, but they also make people feel poorer, which creates an incentive to work harder than before. Economic theory says
nothing about which of these offsetting effects may dominate. Nor do higher taxes send investors to the sidelines. As Warren Buffett recently wrote, for example, “I have worked with investors for 60 years and I have yet to see anyone… shy away from a sensible investment because of the tax rate on the potential gain.” Nor does experience
suggest an inverse relationship between tax rates and economic growth. During the immediate post-WWII decades, for instance, the U.S. tax system was much more progressive than it is now, yet growth rates were also substantially higher.

But because the golden eggs slogan sounds less transparently absurd than “All taxation is theft,” it’s far more widely believed and has therefore had far more pernicious influence on policy. It was the foundation for the George W. Bush tax cuts on the wealthiest households, which helped double the national debt during his presidency and continue to undermine the once-vibrant middle-class on which our future growth so heavily depends.

We should of course continue to attack waste aggressively. But the bulk of the future spending increases we face are nondiscretionary. With the baby boomers retiring, for example, we face a growing gap between Social Security payments and payroll tax receipts for the foreseeable future. Revenue shortfalls in the Medicare program, already
large, will grow much faster than Social Security shortfalls because of inevitable cost increases in the medical sector. No realist expects total spending on these programs to shrink.

At some point, we’ll really have no choice but to repair our long-neglected roads, bridges, and dams, and rebuild our failing water and sewage systems. We’ll want to build high-speed rail systems, which some less developed countries are already building.

A smart energy grid has become an increasingly attractive public investment. Many urban areas still lack even rudimentary public transportation systems. We still need to round up poorly guarded nuclear materials in the former Soviet Union. We should reverse earlier funding cuts for scientific research, which has always been an important source of competitive advantage. The list goes on.

We may be able to rationalize our entitlement programs at the margins, and extract some savings here and there from other cutbacks. But no one who has done the math could pretend that we can do what needs to be done without substantial additional revenue.

Yet each of the Republican legislators appointed to the recently established congressional supercommittee charged with balancing the federal budget has signed a formal oath pledging never vote for any tax increase under any circumstances. And in a recent public debate, all of the Republican presidential candidates said they would reject any budget legislation if it had even one dollar of tax increases for every ten dollars of spending cuts. An economic train-wreck looms.

Legislation guided by mindless anti-tax slogans is steering our once powerful economy back to the dark ages. Given the current electoral map and the ability of a party with as few as 40 votes in the Senate to bring the legislative process to a halt, there may not be much that can be done about that in the near term. But advocates for reality-based economic policies would do well to speak up. We’ll surely have a better chance to change the long-run electoral balance if we make more energetic efforts to explain to voters why we’re on the wrong track.

This essay is adapted from “The Darwin Economy” (Princeton University Press, September 2011).

37 comments

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‘During the immediate post-WWII decades, for instance, the U.S. tax system was much more progressive than it is now, yet growth rates were also substantially higher.’

Correlation is not causation, sir.

Yet more rubbish from Reuters.

Posted by Elektrobahn | Report as abusive

A very well written article that explains why we need to be careful of who we vote into office.

Posted by weneedchange | Report as abusive

It is the progressives who have created the Tea Party. The revulsion against further tax increases is a direct result of excessive waste – waste which is there for all to see. It is insufficient to draw a dichotomy between that deemed “nondiscretionary” and waste. the nondiscretionary entitlements – Social Security, Medicare and Medicaid – were constructed almost entirely by the progressives with obviously not the slightest thought as to what the cost implications actually were. If you like a shock, go back to the adoption of Medicare and read what the progressives said it would cost long -term – it is near unbelievable what the difference turned out to be. But that has been the progressive technique – just get it in and then let it run wild. It is that which has taken us from patently false cost projections to the present state of affairs where the State of New York spends one billion dollars on Medicaid – every week.

We all want effective government but increasing taxes to fund the mistakes of the past will not get us there. Yes – the government should be effective in its core functions – preservation of public order, national defense, a functioning court system, and maintenance of infrastructure. the problem is the progressives squandered the former vast wealth of this nation disproportionately on other things.

Posted by SayHey | Report as abusive

75% of us are against further taxation from the polls I read! Leaves only cuts, which we have just started to make! Makes the case for living below ones means not above! I believe we’ll need to raise taxes on everyone to help the least of us-which I’m fine with! What we do with our money says everything about us as a country! Note: government is now 40% of US GDP and our debt will exceed 100% of GDP! Imagine what we could have done with the money? Sorry, big government is not the answer-it’s the problem! Hope we come out the other end a better country!

Posted by DrJJJJ | Report as abusive

A vision without a way to pay for it is dangerous/ morally irresponsible! Yes, much/most of the progressive world view is an oxymoron!

Posted by DrJJJJ | Report as abusive

Here’s one: “…Sooner or later you run out of other people’s money”. You’re an international sort of guy, run that by the Greeks (and Germans) and see what they say.

Posted by ARJTurgot2 | Report as abusive

DrJJJJ: “75% of us are against further taxation from the polls I read!”

This demonstrates a big part of America’s problem. Americans remain, and continue to become, misinformed. There simply aren’t enough sources that are accurately informing the public in order for the public to make intelligent, informed decisions on the issues that confront our nation. Consider that 6 months into the Iraq War 70% of Americans believed that Saddam Hussein was behind the 9/11 attacks. This was the prevailing view because they were led to believe it by the Bush Administration, enabled by our “news” sources.

One must consider that our most prominent news sources are corporate owned. Corporations prefer to pay as little in taxes as they can get away with. That holds true for wealthy corporate owners as well. Why would they allow the news agencies they own to proliferate the idea that we’d be better off if the Federal government raised their taxes? After all, in our culture money is the #1 priority.

Excellent op-ed, Professor Frank. It’s too bad that the facts that back you up are only allowed to come out through “opinions”. But thank God for little favors, eh?

Posted by doggydaddy | Report as abusive

It sounds like a new American Revolution (financial) and a new American Civil War (financial) all at once. There’s a Tea Party and those who believe America should be a financial Republic or a financial Democracy. Each group has their wealthy common. Who knows who will win.

Posted by geesam47 | Report as abusive

Since all property is theft, who cares whether taxation is theft?

Posted by vinlander | Report as abusive

One should draw two lines with the income distributions in U.S. and in Europe.

In a second, it is explained why most Americans can’t afford a trip to Europe and why most Europeans can afford a trip to the U.S. easily.

Posted by FBreughel1 | Report as abusive

I’m glad to see this kind of line-item dismantling of those mindless cliches. Unfortunately, the clearest logic in the world will not sway those who believe in those cliches. Remember, religion and the Right are inseparably bound – no amount of logic or reason will shake their “faith” in bad ideas. That’s the tragic age in which we live, halfway between the primordial ooze and the stars.

Posted by Nullcorp | Report as abusive

FBreughel1: You point out a good indicator. In Europe, there is a much more equitable distribution of wealth than we have here in the States. The income tax rates are more progressive, and their citizens don’t have to worry about having their life savings wiped out in a few months if they were to get sick or have an accident because of their universal healthcare systems, which are far more cost effective than our.

They have a much more rational, educated and civil society. We could, likewise, enjoy a more civil society if we didn’t allow our government to be run by corrupt, greedy plutocrats that control everything from how much we pay for our healthcare to the way we analyze our world through the filtering of information through our corporate-owned news media.

Posted by doggydaddy | Report as abusive

This guy teaches at Cornell? In his second argument that “It’s unfair to tax some people more than others” is laughable at best. The bottom 50% of American wage earners only pays 3% of the total income taxes.

Yes, I am one of those who wants to live in a society where taxes are shared EQUALLY, and progressives would stop with their wasteful spending. This author can complain all he wants about what happened under the Bush years but the fact is that most of the policy was set by Congress who was controlled by progressives during his tenure.

What a joke. This is who teaches are children these days? Yet another progressive university bubble that needs to be popped!

Posted by SeattleReign | Report as abusive

Taxing the top 2 percent 40 percent is GOOD. Let me not forget taxing capital gains at a higher rate as well. Nuff said.

Posted by WiseOne2 | Report as abusive

Post WW2 US growth couldn’t possibly be caused by the fact that the other manufacturing countries were bombed flat and still smoking with 60 million dead and 200 million seriously wounded, hmmmmm? Robert Frank knows it and is a big fuzzy liar.

Posted by citizendave | Report as abusive

I like this guy, vinlander. America is definitely going to the dark ages and that is what today’s proverty indicator report suggests.

Posted by vze | Report as abusive

Federal Taxation, when not spent in support of constitutionally enumerated powers is theft.

The federal government should do away with departments of Agriculture, Education, Energy, HUD, HHS, and EPA because of their waste, corruption, and non-constitutionally enumerated functions.

That is not to say that the government should or should not have such powers, just that the current federal government does not have any legal powers in those fields. Every dollar spent illegally is taxed illegally. If you think the government should have such powers, then there is a legal approach: the constitutional amendment.

Posted by DonM2 | Report as abusive

‘All taxation is theft’ is part of a moral argument, not an economic one.

Dictionary.com says stealing is to to “to take (the property of another or others) without permission or right, especially secretly or by force”. So the issue at hand is whether the state has a right to your material property. Tax is theft as long as one rejects the notion that the state has any right to your property.

“But there isn’t much economic value to confiscate in countries that lack well-defined and enforced systems of property rights and the public infrastructure required for highly developed and specialized markets.”

The argument you’re trying to refute is not “mindless”. It is made in moral terms that you’re apparently ignorant of. The fact that the state may have given before taking does not mean they haven’t taken.

“No informed person would seriously consider living in a society whose government lacked that power”

So anyone with a notion of inalienable negative rights is not informed? Of what exactly? You show ignorance of the origins of something you’re attempting to refute, and follow that with claims of your opponents ignorance. Personal attacks, ironic failures and we’re barely into the article.

What gives the state its rights? If might, then all aggressive behavior is moral. If consent, then taxation is theft so long as the taxed party says so. If majority consent, then all minorities live at the whims of their majoritarian overlords. The author seem to prefer a world of aggression and/or subjugation.

Someone please make an inane comment about social contract. An argument that ironically lacks any mention of contracts.

Posted by lulz | Report as abusive

Every time I read such painfully straightforward articles about the real problem plaguing the U.S. today, I am reminded why I love living in socialist Canada: we may put the monarchy on our currency, but we are not handicapped with the delusion that a just nation is one in which the lower-classes are only free to dream and to be forgotten while the rich shamelessly use them to secure their own selfish agendas.

Posted by Smashy | Report as abusive

@Elektrobahn

Did you even read the article before launching ad hominem attacks?

Posted by flyingsphinxter | Report as abusive

Part of the problem is the definition of the word “we”. The meaning always seems to shift to increase costs to the listener while decreasing benefits. Mostly, this is plain old fraud being perpetrated because elected officials are above the law, not subject to it. And they get around it by decreeing that to be the case.

The fact is that different groups exist in this country and I mean groups with a genetic or cultural affinity, not bridge clubs. Some groups are easy prey for other groups, as it always has been. The difference is that here in the USA we pretend that such groups are “bad” when we want to prey on them. Who complains about being unfair to “the bad guys”?? No one. This is the stuff wars are made of, and always has been. And that is where we are headed.

Posted by txgadfly | Report as abusive

What’s wrong with you, Mr. Frank? Did you forget the fact that government doesn’t create jobs? That’s right, government has not ever created one single job. Perhaps that can be the subject for another column, but that’s the one slogan that keeps ringing in my ears.

I’m a life-long Republican (pre-dating the Reagan era)who’s never worked in government, but I swear I just might lose it and choke the living bejezus out of the next person who uses that line on me. These lunatics must just be dying to live in some perverted “Mad Max” world where it’s every man for himself.

Okay, so you don’t like government? Maybe you should check out Somalia….

Posted by Samdog_07 | Report as abusive

It’s clear which way this writer leans. Rhetoric and mindless slogans are not partisan issues. The Democrats are superior in these two areas.

Posted by GSH10 | Report as abusive

Dear Samdog_07,
You seem to express contradicting opinions about the article:
“Did you forget the fact that government doesn’t create jobs?”, VERSUS “Okay, so you don’t like government?”

Did you mean to say: “Okay, so I don’t like government!”?

The article by Mr. Frank covers the value of government in any society. Government funds schools that educate people so they have skills to get a job. Government funds roads so people can drive to the workplaces where they have jobs. Etcetera.

I don’t think Mr. Frank was suggesting he did not like government. Also, he is not really arguing any proposition that government either does or does not create jobs. Rather, I think he is just explaining that the role of government is to build and maintain the shared economic infrastructure with which people build and operate private enterprises and create jobs.

Posted by Colin_99 | Report as abusive

@Elektrobahn

Correlation does not always indicate causation. You still have to do the intellectual legwork to prove the causation that would replace it, however complex. It is a fallacy because it often turns out to be true, so people tend to take the shortcut without doing the hard part of researching the actual causation. I’m afraid your comment is equally lazy.

Ad hominem abusive?

I would say no, because I’m attacking your argument. See? Not so hard.

Posted by VonnegutIce9 | Report as abusive

I admit I was concerned over the quality of reporting and writing diminishing when Reuters was sold to Thomson. Though I still criticize stylistic points for one reason or another – that ha not increased. Part of being a cranky geek for so many decades is that the function kicks in easier than the nice guy parts – I guess.

But – TR’s inclusion of sound, educated commentary from the Left and Right not only hasn’t diminished, the quality feels as if it has risen. I thank you for that.

Reuters has long been a source I could count on quoting in the blogs I’m associated with. The same has become true of opinion pieces like this one by Robert Frank.

Posted by Eideard | Report as abusive

‘We’ll surely have a better chance to change the long-run electoral balance if we make more energetic efforts to explain to voters why we’re on the wrong track.’

EXACTLY.

Posted by ex-fungi | Report as abusive

It is interesting that only the right’s mindless slogans are listed. The left has just as many mindless slogans as the right. We did not get into this situation through only one parties bad leadership and failure.

We have serious structural issues to address in this country that require hard work and difficult choices to repair. Neither party has shown anything close to good leadership. They are great politicians but very poor government leaders.

Posted by Gen | Report as abusive

There is a lot of misinformation being perpetrated. For instance, the myth about Obama growing the national debt at historical rates. I encourage everyone to do your own research!  

As of the end of FY2008, the debt stood at $10.0T.  Estimates for the end of CY2008 puts the accumulated debt at $10.7T, with the passage of TARP having taken place in December 2008.  The CBO Outlook published 1.1.2009 projected deficits for 2009 and 2010 combined of $1.9T based on existing economic policies and commitments carried over from the Bush administration.  This was before Obama even took office!  

As of 1.1.2011, the deficit stood at $14.0T.  Bridging from 1.1.2009, $10.7T + $1.9T + $0.8T Obama stimulus = $13.4T.  That leaves $600B of TOTAL debt growth outside of previously planned debt growth and stimulus during Obama’s term.  Now we can argue over the necessity of the stimulus (I personally think it was warranted given the state of the economy Obama inherited), but $600B growth over two years (which includes funding for two unfunded wars) is a fraction of the Bush era annual growth rate as calculated against existing debt.  

Posted by Shohola | Report as abusive

Ugh, this article is so full of holes, I can’t believe these people can teach economics.

His arguement against the “All taxation is theft” is 2 things: an ad hominem attack and the current paradigm of “public goods”. The idea that perhaps the market would build roads or bridges out of its own interest is completely absent (how do you think roads were paid for in the early days of the country?). He tries to compare a gov’t who can’t tax to Sudan and Somalia, but is this really fair? Theres several issues in these war torn countries and trying to say that lack of taxation or government power caused the problem is oversimplifying the issue.

“Higher taxes reduce the reward for effort, just as trickle-down theorists claim, but they also make people feel poorer, which creates an incentive to work harder than before.”
I honestly do not understand the logic of this, it just completely boggles my mind. Its ok to take from people so they will be more productive? It never even addresses the morality of forcibly taking something from someone else.

And quoting Warren Buffet, cmon. The man just dumped a pile of money in BOA and do you know why? He knows they will get bailed out again if they’re in trouble.

Posted by Jaigar | Report as abusive

IT AIN’T NECESSARILY SO …

… that taxes are all badness.

I suspect, in this debate, the key factor that escapes most American is that without taxes many things do not happen. No Police Force, no firemen, no garbage collectors, no Army to protect our nation, no … well, you get the idea.

Having posited the above, let’s think of what expanding tax revenues might bring in light of the question “does it make either moral sense or economic utility?”

There are many programs that match either qualification and a couple that match both. Here are two that match both:
* A national health care system that is “world class” will take America out of the dark-ages. World class means “like Europe” – which learned long ago that health care is so universal in need that it must be a Public Option. It must be provided by the state and also price-mandated as well. Without those criteria, HC becomes enormously expensive – which has been the case in the US where it costs twice to three times as much per person as in Europe. And its indirect weight on the budget is pronounced as well, since much corporate HC-benefits are subsidized by the Treasury. And, of course, so is all Medicare/Medicaid.
* We live in a world well into the transition from the Industrial to the Information Age. The paradigm shift has dislocated jobs to the Far East throwing many of us into permanent or semi-permanent unemployment. But rather than lamenting the fact, we can actually try to do something. That something is making Tertiary Education (vocational, college, university and job retraining) as least costly as possible. It costs a young adult in France $1100 a year to go to university. It costs even less to enter two-year postsecondary schools. We should not be placing high barriers to those who need most training/education to get “decent jobs”. And those decent jobs certainly are not un- or semi-skilled as they were in the past.

The above are just two calls to action in order to get us out of the Deep Doodoo into which we have fallen.

MY POINT

Taxation at the upper-classes should be put back to pre-Reagan days, where they had been for decades. (They were in the 70/90% range.) It was Reagan’s lowering of them that opened Pandora’s Box of Ills. How’s that?

Here’s how:
* It created the feeding frenzy on both Main Street and Wall Street that brought about the SubPrime Mess, the Toxic Waste, and the Credit Mechanism Seizure of 2008 that spawned the Great Recession of 2009.
* The reduction in taxes had a serious and permanent effect upon our National Debt. See that in this infographic showing the coincidence between the lowering of upper-income taxes and the inflection upwards of the National Debt here: http://en.wikipedia.org/wiki/File:Taxes_ debt.png

Need more be said?

Posted by deLafayette | Report as abusive

No more new taxes until the government stops spending more than it takes in now.

Posted by binder123456 | Report as abusive

Citizendave makes an excellent point…the US was poised to grow after WWII given the state of the rest of the industrialized world regardless of our tax rates.

The scenario the author cites (post-WWII with more progressive taxes and higher economic growth v. now) is something you see all the time in economic debates. People will argue a point and cite a single variable as proof to substantiate their argument while ignoring lots of other very meaningful variables.

Economic performance is driven by lots of variables, so to Citizendave’s point, make sure you consider the entire picture before declaring cause and effect.

We’re facing a fundamental question in our economy about taxation levels and scope of government, and currently, the two don’t match We tax like a country that has more limited government programs, but we spend like a country that resembles our socialist cousins in Europe. We need to pick one or the other. I believe more limited government and lighter taxation is the way to go.

Posted by jambrytay | Report as abusive

C

Posted by FrankTrades | Report as abusive

Just tell me how much of each dollar I earn I should be able to keep. …a number, please…

Posted by FrankTrades | Report as abusive

{… but we spend like a country that resembles our socialist cousins in Europe.}

If only …

At least Europe “wastes” its taxes on Universal Health Care (that very largely covers ALL serious illnesses regardless of their tenure) and Education (primary, secondary AND tertiary education, where the last costs about $1000 in tuition).

The US spends 3 times as much on the military than the EU and its Social Investment Programs are much higher.

It has a much tighter safety-net than the American one, which would not stop an elephant in free-fall.

Europe is a better place to live than the US, because its Social Investment Programs take more of the randomness out of simply living than does the US with its inbred Income Inequity.

Let’s not forget one salient fact, in terms of who garners how much wealth in America, here is the breakdown:
Top 1 percent – 42.7%
Next 19 percent - 50.3%
Bottom 80 percent – 7.0%

Those figures are from a site that has demonstrated professional analysis to obtain the above breakdown. You are invited to investigate yourself, here: http://sociology.ucsc.edu/whorulesameric a/power/wealth.html

If you find a flaw in the methodology, do come back and post it here. (I’ve been putting that challenge up on various forums for years and have never had it accepted.)

Posted by deLafayette | Report as abusive

I don’t know if the numbers you cite are 100% accurate, and I don’t care, and don’t have a problem with the disproportionate distribution of wealth in the US. Would you prefer the top 1% to have 1% of the wealth and the next 19% have 19%, etc, etc.

I don’t have a problem with the various income disparity stats (the Gini Index, etc.) that people like to quote as I believe that the absolute income difference isn’t really a problem. If the ranks of the poor are growing over time or if incomes across the board are dropping, different story, but that’s not what the data shows.

Our economy works, in part, because we put a big, fat brass ring out there for motivated, talented, hard working people to aim for. People are not going to work ridiculous hours, take big risks, and make sacrifices for socialist wages. US businesses have developed lot’s of great stuff over the years—pc’s, iPhones, cures for cancer, etc, etc.—how many of these things came out of the old communist bloc? I can’t think of any.

Posted by jambrytay | Report as abusive