Mindless tax slogans dominate our debate
By Robert Frank
The opinions expressed are his own.
“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).