Paul L. Caron

Sunday, November 25, 2012

Kristof: A Failed Tax Experiment

New York Times op-ed:  A Failed Experiment, by Nicholas D. Kristof:

Half-a-century of tax cuts focused on the wealthiest Americans leave us with third-rate public services, leading the wealthy to develop inefficient private workarounds.

It’s manifestly silly (and highly polluting) for every fine home to have a generator. It would make more sense to invest those resources in the electrical grid so that it wouldn’t fail in the first place.

But our political system is dysfunctional: in addressing income inequality, in confronting climate change and in maintaining national infrastructure.

The National Climatic Data Center has just reported that October was the 332nd month in a row of above-average global temperatures. As the environmental Web site Grist reported, that means that nobody younger than 27 has lived for a single month with colder-than-average global temperatures, yet climate change wasn’t even much of an issue in the 2012 campaign. Likewise, the World Economic Forum ranks American infrastructure 25th in the world, down from 8th in 2003-4, yet infrastructure is barely mentioned by politicians.

So time and again, we see the decline of public services accompanied by the rise of private workarounds for the wealthy....

I’m used to seeing this mind-set in developing countries like Chad or Pakistan, where the feudal rich make do behind high walls topped with shards of glass; increasingly, I see it in our country. The disregard for public goods was epitomized by Mitt Romney’s call to end financing of public broadcasting.

A wealthy friend of mine notes that we all pay for poverty in the end. The upfront way is to finance early childhood education for at-risk kids. The back-end way is to pay for prisons and private security guards. In cities with high economic inequality, such as New York and Los Angeles, more than 1% of all employees work as private security guards, according to census data.

This question of public goods hovers in the backdrop as we confront the “fiscal cliff” and seek to reach a deal based on a mix of higher revenues and reduced benefits. It’s true that we have a problem with rising entitlement spending, especially in health care. But I also wonder if we’ve reached the end of a failed half-century experiment in ever-lower tax rates for the wealthy.

Since the 1950s, the top federal income tax rate has fallen from 90% or more to 35%. Capital gains tax rates have been cut by more than half since the late 1970s. Financial tycoons now often pay a lower tax rate than their secretaries.

All this has coincided with the decline of some public services and the emergence of staggering levels of inequality (granted, other factors are also at work) such that the top 1% of Americans now have greater collective net worth than the entire bottom 90%.

Not even the hum of the most powerful private generator can disguise the failure of that long experiment.

Update:  Commentary:  Kristof in the Dark, by John Steele Gordon:

Nicholas Kristof has one of the most prestigious perches in American journalism: a regular, twice-a-week column on the op-ed page of the New York Times. Yet on Wednesday he wrote a piece that, had it been turned in to a freshman expository writing class (if such things exist anymore), it would have deserved to have been flunked cold. It would appear to have been written off the top of his head, without any fact checking that I can discern. He just dipped deeply into his prejudices and hit the keyboard.

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And yet, the top 1% are roughly paying the same effective tax rate they have always paid in income tax within a 2-3%

And the majority are paying a smaller effective rate than they've ever paid in income tax. In fact, the middle slice of this country pays a negative effective tax rate, when 30 years ago they paid a healthy share.

If anyone is freeloading, it is not the wealthy.

And thus, while the top 1% pays what they always have paid, the majority does not. Concurrently, the grid has slid into disrepair, along with the rest of the infrastructure. And the rich respond with the same skill that has got them where they are today: They fix the problem. They don't kick it down the road. They don't hope it gets better. They don't wonder when the government will make it better. They pick up the phone, they decide a generator is a better purchase than a new LCD TV and a smartphone, and they pay for it and install it.

Odd concept, I know.

Posted by: | Nov 26, 2012 12:30:01 AM

I do not believe most of the "rich" are freeloading (as distinguished from corporations). Nor do I believe taxes should be viewed as punishment. These should not be the issues. The left is simply asking that the rich pay more as a proportion. It's that simple.

Posted by: Publius Novus | Nov 26, 2012 8:15:50 AM

Does no one on the NYT editorial staff look at Kristof's work? Yuck.

Posted by: Jake | Nov 26, 2012 8:30:48 AM

Can you give us the source of your statements? such as the effective rate of the top 1% is within 2=3% of where they were?


Posted by: Sid | Nov 26, 2012 8:32:37 AM

Sid, you are on a tax blog and don't know how to look this up? Worse, you don't already know this?

The effective total tax rate paid by the 99.0 to 99.5% group in 1999 was 32%. In 2005 it was 29.7%. The 99.5% to 99.9% group paid 33.9% in 1999, and 31.2% in 2005.

1999 was the high water mark from Clinton's term. And 2005 was the low water mark from Bush's term (2005 was the last year covered in this report). In the other years, the gap is even smaller outside of those specified comparison years.

The source for this is Table 1 from the Dec 2008 study on high wealth groups by the CBO prepared for Max Baucaus. That report is valuable because it segments the top 1% in detail.

Posted by: | Nov 26, 2012 7:00:30 PM

The first sentence of this article discredits the remaining text. It's simply not true. It's time for liberals to stop repeating these lies. Class envy and class warfare are ugly and are not a part of the true American spirit. Stop it!

Posted by: Linda C. | Nov 27, 2012 2:38:16 AM