Responding to Reich

Robert B. Reich served as the Secretary of Labor under the Clinton Administration. Yesterday he penned a column explaining why people attending the tea party rallies were "kooks and demagogues." My response:

1. "Americans pay too much in taxes." Wrong: The United States has the lowest taxes of all developed nations.

What other countries pay isn't terribly relevant. There is no reason to mimic dumb behavior. In any case this line of thinking also ignores the fact that almost all of those other countries also have socialized medicine, which means that their taxes cover more services.

2. "The rich pay too much! The top ten percent of income earners pay over 72 percent of all income taxes!" Misleading: The main reason the rich pay such a large percent is they've become so much richer than the bottom 90 percent in recent years. If you look at what they pay as individuals -- the percent of their incomes over and above the highest rate below them -- you'll see a steady decline over the years. When Republican Dwight Eisenhower was president, the marginal rate on the highest earners was 91 percent (after deductions and tax credits, closer to 50 percent); by 1980 it was still up there, at 70 percent (an effective rate of closer to 45 percent); under Bill Clinton, it was 38 percent (an effective rate closer to 28 percent).

Look at the after-tax earnings of families and you'll see what's really going on. Between 1980 and 2000, the after-tax earnings of famlies (sic) at the top rose more than 150 percent, while the after-tax earnings of families in the middle rose about 10 percent. The Bush tax cuts of 2001 and 2003 raised the after-tax incomes of most Americans by a bit over 1 percent -- but raised the after-tax incomes of millionaires by 4.4 percent.

Yes, the rich have more money. However, even as a share of income they still pay a disproportionate amount of taxes. So this line of reasoning holds no water.

3. "The bottom 60 percent pay only 3.3 percent of the taxes!" Misleading again. Most Americans are paying more in sales taxes than they ever have. Property taxes have also been rising at a steady clip. And Social Security taxes have also risen (thanks to the Greenspan Commission), while earnings over about $100,000 aren't subject to Social Security taxes. So-called "sin" taxes (mostly beer and cigarettes) have also skyrocketed. All of these taxes take a bigger bite out of the paychecks of people with lower incomes than they do people with higher incomes.

Property and sales taxes are controlled by states, not the federal government, so they are not on the table for discussion. The discussion is around federal income taxes, which Reich is trying to dodge. Those high sales and property taxes, by the way, tend to be found in heavily Democratic states. Perhaps Reich should ask his fellow Democrats there why they elect to disproportionately tax the poor.

The federal government, however, does have a "sin tax" on cigarettes which President Obama has more than doubled. Why he is trying to disproportionately punish the poor is something Reich should take up with the White House.

4. "Obama is raising your taxes!" Wrong. Obama is cutting taxes for 95 percent of Americans, by about $400 per person a year -- not a whopping tax cut, to be sure, but not a tax increase by any stretch. Only the top 2 percent will have a tax increase, but even this tax increase is modest. Basically, they go back to the rates they were paying under Bill Clinton (their deductions will be limited to 28 percent, which is only fair). And they won't start paying this until 2011 anyway.

Again, Obama has increased the cigarette tax, so this is flat out wrong. I would also like to point out that Obama is not cutting a single tax rate and is letting taxes increase next year. But hey, since only a tiny minority of taxpayers will be footing the bill, who cares right?

5. "The huge debts we're wracking up will cause your taxes to rise!" Wrong again. When it comes to the national debt, as I've said before, the relevant statistic is the ratio of debt to the gross domestic product. The only sure way to bring that debt down and make it manageable in future years is to get the economy growing again -- which requires that, in the short term, the government spend a lot of money (because consumers and businesses won't). In the long term, the biggest source of concern is rising health-care costs. And that's something Obama and Congress are aiming to tackle.

You know, it's funny that Democrats deride supply side economics as "trickle down" but then push this line of thinking. Democrats would have you believe that when the wealthy have their taxes cut -- which gives them more money to spend -- that this has little impact on the economy but when the government spends the money that it creates all sorts of growth. Interesting. Unfortunately we never see this play out in reality. The government cannot spend itself into prosperity.

Even the White House seems to realize this, projecting deficits in excess of $500 billion for the next ten years. If all that spending will stimulate the economy and allow us to grow our way out of debt then why are we projecting adding trillions to the national debt? Even President Obama by virtue of the numbers he has provided doesn't buy this line of thinking.

As for health care -- if you think that the national debt is a problem now, just wait until government starts paying for it. It is really bewildering to think that the government taking on more liabilities will somehow lessen the fiscal burden.

6. "We have a patriotic duty to stand up against Washington taxes!" Just the opposite. We have a patriotic duty to pay taxes. As multi-billionaire Warrent Buffett put it, "If you stick me down in the middle of Bangladesh or Peru or someplace, you'll find out how much this talent is going to product in the wrong kind of soil. I will be struggling thirty years later." President Teddy Roosevelt made the case in 1906 when he argued in favor of continuing the inheritance tax. "The man of great wealth owes a particular obligation to the state because he derives special advantages from the mere existence of government."

An acquaintance from law school, now a partner in one of Washington's biggest and wealthiest law firms, explained to me one day over lunch how he and his partners use tax rules to create offsetting taxable gains and losses, and then allocate the gains to the firm's foreign partners who don't pay taxes in the United States. That way, they keep the losses here and shelter their income abroad. I noticed he had an American flag lapel pin. "You're supporting our troops," I said, referring to his pin. "Yup," he replied, entirely missing my point.

True patriotism isn't cheap. It's about taking on a fair share of the burden of keeping America going.

I love this argument, truly I do. It is so mindbendingly dishonest. First off, no one is stating that we shouldn't pay taxes, so let's dispense with that strawman. The argument, rather, is that taxes are too high.

Think about it this way. We all have a duty to support our children, but if you packed your kid off to college with a credit card to be used in case of emergency and you received a bill that included items such as Prada shoes and a trip to Cancun wouldn't you start asking questions? It doesn't make you a bad parent, it makes you a responsible one.

Apparently Reich and others think that our duty is simply to allow Congress to spend whatever it wants and then have us foot the bill with no questions asked. Such is the mindset of those currently running our government.