alien & sedition.
Monday, April 23, 2007
  The Persistence of the Low Road

Ross Douthat points out an interesting example of a contrast in conservative intellectual syles: call it honesty vs. hackdom.

The specific debate has to do with the tax code, and the honest - and surprisingly moderate - analysis comes from the American Enterprise Institute's Kevin Hassett. Now I'm about the last person on earth to accuse AEI of objectivity or moderation, but Hassett's article quite reasonably uses economic data and historical analysis to make two important points about the tax code: that it is 1) Not very progressive, but 2) Not particularly controversial, either.

The second point is the larger one, and what he means by it is simply that modern Americans are quite comfortable with the fact that roughly 30% of their income goes to taxes, since those taxes pay for the public goods that Americans expect government to provide. Hassett points out that the tax rates that drove our founding fathers to revolt added up to a whopping total of about 2 percent of their income. Conservative anti-tax warriors tend to appropriate that revolutionary rhetoric to combat a modern tax system which they view as a monstrosity; Hassett, to his credit, observes that the great majority of Americans simply don't agree.

Even more to his credit is his analysis of an aspect in which the modern tax code should be more controversial: its hidden regressivity:
Government has been robbing Peter to pay Peter. The similarity between the tax proportion for the high-income family and that of the middle-income family will surprise many. That's because the federal income tax, which is steeply progressive -- the higher your income, the more you pay in taxes -- gets all the media attention. But other taxes that are less visible, such as sales taxes, hit lower-income families with a heavy thud and quickly fill in the gap between their lower federal income taxes and the higher rates paid by those with high incomes.

This is evident in the calculations that went into this chart. The federal income tax in 2003 for the family earning $50,000 was about $3,800, whereas it was about $17,500 for the family bringing in $150,000. But everything else worked to more than offset this difference. Middle-class families spent a larger share of their income and thus paid more sales tax. Gasoline and property taxes also ate up a larger share of the middle-class family's budget. Finally, the payroll tax is limited to 15.3 percent of income, so the wealthy paid a smaller share.

Governments at all levels have voracious appetites for cash, but taking revenue from the middle class is a politically risky maneuver; after all, that's where the votes are. So lawmakers have crafted ingenious ways around the dilemma, imposing hefty levies on those with lower incomes but relying on stealth taxes to do it. If you're going to tax widows and orphans, you'd better be quiet about it; use a sales tax.

Government thus takes more from the wealthy through income taxes, but extracts more from the poor with all the other taxes. By doing this, politicians get to pretend that they are virtuously redistributing wealth from the richer to the poorer, and they can maintain that fiction without sacrificing the cash. Voters seem to like this approach.
This is an important insight: not only does it illustrate how absurdly regressive our tax code has become - families earning $50,000 pay the same amount in overall taxes as those earning $150,000 - it reveals the political sleight-of-hand that has brought this situation to pass. Of course, Hassett's conservative perspective still comes through: one could re-write the paragraph I emphasized above to point out that "politicians get to pretend that they are virtuously cutting middle-class taxes, and they can maintain that fiction without sacrificing the economic interests of their wealthy supporters." But the formula is the same.

So the hackdom comes in Ari Fleischer's Wall Street Journal op-ed, in which the former Bush flack ludicrously claims that the wealthy are paying an unfair share of taxes compared to the freeloading poor. Douthat points to Jonathan Chait's evisceration of Fleischer's piece, and it's a good read (especially if you don't have a subscription to the Journal). Chait mocks Fleischer's basic mathematical incompetence, and goes on to point out that Fleischer is dishonestly using income tax data alone to make his claim - thus ignoring the numerous other forms of taxation which, as Hassett points out, wind up forcing the working class to pay as much as the rich. And it doesn't stop there:
Fleischer waxes indignant about how the top 1 percent is paying a higher share of the tax burden than it was 25 years ago. The reason this is true, of course, is that the top 1 percent is earning a far higher share of the national income.Fleischer insists it's because they're paying higher tax rates. He cites a study last year by CBO which, he says, shows that since 1979, the "[The top 1 percent] share of the nation's income has risen, but their tax burden has risen even faster."

I found that study, and it shows just the opposite of what Fleischer says. In 1979, the highest-earning 1 percent of taxpayers paid an effective federal tax rate of 37 percent. In 2004, they paid an effective federal tax rate of 31.1 percent.
As refreshing as it is to see honest analysis of an important issue by a conservative like Hassett, it's deeply depressing that hacks and liars like Fleischer are not only considered equally important voices, but are actually governing this country. I'm glad Douthat demands a higher standard from conservative discourse; I wish more of his compatriots would do the same.

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