Perusing the New York Times website I saw a headline that caught my attention: Economic Scene : Sometimes, a Tax Cut for the Wealthy Can Hurt the Wealthy. Now, the argument that tax cuts have only benefited the wealthy has been widely advanced. This particular flavor of the anti-tax cut argument was a new twist, and held the promise of undiluted stupidity. I wasn't disappointed. The column, authored by Robert H. Frank, a professor of economics at Cornell University, is so mind-bendingly stupid as to be astonishing. For his students' sake I hope his teaching isn't this dishonest:
A careful reading of the evidence suggests that even the wealthy have been made worse off, on balance, by recent tax cuts. The private benefits of these cuts have been much smaller, and their indirect costs much larger, than many recipients appear to have anticipated.
The evidence:
On the benefit side, tax cuts have led the wealthy to buy larger houses, in the seemingly plausible expectation that doing so would make them happier. As economists increasingly recognize, however, well-being depends less on how much people consume in absolute terms than on the social context in which consumption occurs. Compelling evidence suggests that for the wealthy in particular, when everyone's house grows larger, the primary effect is merely to redefine what qualifies as an acceptable dwelling.
So, although the recent tax cuts have enabled the wealthy to buy more and bigger things, these purchases appear to have had little impact. As the economist Richard Layard has written, "In a poor country, a man proves to his wife that he loves her by giving her a rose, but in a rich country, he must give a dozen roses."
Even accepting his proposition that tax cuts are responsible for the rich purchasing bigger houses -- which I am not at all sure of, given that house sizes have consistently become larger over time -- his argument effectively boils down to: Sure, the rich are getting bigger houses, but so is everyone else. So given that their happiness is derived only from having bigger and better stuff than everyone else they're actually worse off. And closing this alleged housing inequality is an argument against tax cuts?
On the cost side of the ledger, the federal budget deficits created by the recent tax cuts have had serious consequences, even for the wealthy. These deficits will exceed $300 billion for each of the next six years, according to projections by the nonpartisan Congressional Budget Office.
Yeah, about those CBO projections. For 2005 the CBO's projected deficit was just under $400 billion. The actual figure: $317 billion. I will make a bet with anyone that next year's deficit will be less than whatever the CBO projects.
For example, deficits have led to cuts in federal financing for basic scientific research, even as the United States' share of global patents granted continues to decline. Such cuts threaten the very basis of our long-term economic prosperity.
Notice the wording: Our share of patents are declining, not the actual number. And why is this? Well, because other countries such as China, are taking a more active role in science. And that's a good thing. Having more science, more research, more advancements should be welcomed. Would we suddenly be better off if tomorrow a targeted strike wiped out all of China's scientific research? Of course not.
As Senator Pete Domenici, Republican of New Mexico, said: "We thought we'd keep the high-end jobs, and others would take the low-end jobs. We're now on track to a second-rate economy and a second-rate country."
The only thing revealing about this quote is that Pete Domenici doesn't know what he is talking about. I'm just curious how Domenici's contention squares with this headline from today's Wall Street Journal: Google's Growth Helps Ignite Silicon Valley Hiring Frenzy. And according to the article those engineers aren't exactly being paid peanuts. Oh, and if the U.S. is headed downhill so fast, why is it that Google, the quintessential 21st century company, headquartered here?
Large deficits also threaten our public health. Thus, despite the increasing threat from micro-organisms like E. coli 0157, the government inspects beef processing plants at only a quarter the rate it did in the early 1980's. Poor people have died from eating contaminated beef but so have rich people.
I'll take that at face value. But are deficits responsible for this? Weren't we running deficits in the early 1980s when we had more inspections? Weren't we running surpluses in the 1990s when we had less?
Citing revenue shortfalls, the nation postpones maintenance of its streets and highways, even though doing so means having to spend two to five times as much on repairs in the long run. In the short run, bad roads cause thousands of accidents each year, many of them fatal. Poor people die in these accidents but so do rich people. When a pothole destroys a tire and wheel, replacements cost only $63 for a Ford Escort but $1,569 for a Porsche 911.
Federal transportation budget in 2000: $47 billion. 2006 budget: $57.5 billion. That is greater than a 20% (nominal) increase in 6 years. And as for this notion that deficits cause increased deaths on our roads, check out this graph (note the deficit-plagued 1980s).
Deficits have also compromised the nation's security. In 2004, for example, the Bush administration reduced financing for the Energy Department's program to secure loosely guarded nuclear stockpiles in the former Soviet Union by 8 percent.
Interestingly this may his most valid argument. However, I'm not sure how this has any particular effect on the rich. After all, thermonuclear annihilation wouldn't seem to discriminate by income. But even taking this at face value, why are tax cuts responsible? Seems to me the real culprit is a misallocation of funds -- that money should have been stripped from some other budget item. Unless of course you believe that there is absolutely no fat in the budget, no pork, and nothing that could be but without massive deleterious effects. In which case I have a bridge to sell you in Alaska.
At the president's behest, Congress has already enacted tax cuts that will result in some $2 trillion in revenue losses by 2010. According to one recent estimate, 52.5 percent of these cuts will have gone to the top 5 percent of earners by the time the enabling legislation is fully phased in. Republicans in Congress are now calling for an additional $69 billion in tax cuts aimed largely at high-income families.
First off, as for those tax cuts, my reaction is: good. Given the stuff Congress continues to spend money on it's apparently that they already have too much to play with. I'd rather the money go to people who know how to make more of it than those who can't even spend it properly. Now, let's talk about those looming tax cuts. Those tax cuts wouldn't be new, but rather extensions on existing cuts passed back in 2003 on capital gains and dividends. So basically the impact anyone who owns stock. If you have a 401k, you probably own stock. Roughly half of American households own stock. So those cuts would impact half of U.S. households, not just the rich.
Robert Frank is obviously a bright man. I doubt Cornell is in the business of hiring idiots. So I'm left to conclude that, if this is his best effort at convincing me that tax cuts are a bad thing, they must actually be pretty good.
Update: I sent Frank a copy of this blog post and told him to feel free to respond. We'll see!
No comments:
Post a Comment