The editors of the Wall Street
Journal still don't get it. Apparently they don't get it when they are talked
to like adults; so maybe we should try talking to them like children. Here is
their problem, expressed in their own words: “On taxes, [the claim is] that the
rich don't pay their fair share, yet the most affluent one-fifth of taxpayers
supplied 68.7% of the federal revenue for 2011.”
That's what they wrote in an
editorial that came under the title: “More Redistribution, Less Income” and the
subtitle: “Obama has spread the wealth, but the poor and middle class haven't
benefited.” It was published in the Journal on November 24, 2014. They later
buttressed their point with this: “The Middle class were households with market
income between $49, 800 and $83,300 on average. In 2011, they paid about $7,400
in taxes and received $16,500 in transfers, for an average after-tax income of
$59,000. That implies an effective tax rate of minus -13.7%.”
This means that the highest
earners who contributed as much as positive +18.9% of their income to the
federal revenue, saw their tax dollars transferred to the poor and the middle
class. In the eyes of the Journal editors, the rich gave and the poor took.
Therefore, there should be no problem. It should be case closed if not mission
accomplished.
No. Not really. To put things in
simple terms such that a child can understand, let's say that a family making
on average $68,366 in market income and transfers would rather earn a million
dollars a year and pay $189,000 in taxes, which would leave it with $811,000 to
spend. This will be more desirable than having to live on a measly $59,000 no
matter the sources of the revenue.
That example demonstrates the
absurdity of discussing the share of taxes in terms of percentages because the
approach hides the reality that the rich pay a higher percentage only because
they have the wherewithal. On the other hand, someone earning $59,000 could not
possibly pay $189,000 even though he would love to because it would imply he
earned a million dollars. And the flip side of this is that someone paying
$189,000 would not want to receive $16,500 in transfers because it would imply
he will have to live on a measly $59,000.
This being the premise upon which
the editors of the Journal have based their argument, they'll have to trash the
whole idea and start from scratch. The trouble however, is that instead of
doing just that, they tried to build on their shaky premise by adding two other
layers of absurdity on top of it. First, to argue that the poor have not
benefited from what they call the redistribution of wealth, they say that
after-tax income fell by 1.9% without pointing to a single evidence that the
redistribution is the cause, and that the fall of income is the effect.
Second, they report on a footnote
that was made by the CBO to the effect that a change in market income causes
people to change their behavior. Gee! what an insight that most people miss.
Quick, tell it to those who hope to win the lottery. Tell them that if they
win, they’ll be tempted to change their behavior. Too bad “the CBO did not
attempt to model these behavioral effects,” they say but still, they point out
that such effects “can't be good for upward mobility.” Again, they don't say
how or why they reached this conclusion.
They end the article by
enunciating a conclusion in a roundabout way, having failed once again to point
to the nexus that is supposed to tie the cause and the effect. This is what
they wrote: “The main lesson … is a verdict on Obamanomics. Presidents who put
reducing inequality above increasing prosperity end up with less growth and
more inequality.” How does it happen? Why does it happen? When does it happen?
No response.
Having convinced themselves they
contributed valuable insight to the debate, they feel confident enough to give
advice to someone they believe will run for the presidency of the United States
two years from now. They tell her to avoid Obamanomics, especially if it is
going to be on steroids … in the European style.
And they say why this would be a
bad idea by making a guess that is both rare and brilliant in its implications.
Brace yourself for, here it comes: “Our guess is that most Americans would
prefer to earn more income.”