I’ve never been a great fan of Steven Landsburg’s ‘Everyday Economics’ columns in Slate. While he occasionally has something interesting to say, a lot of his columns are what Orwell called ‘silly-clever’, such as this piece defending looting. Economists are often prone to this kind of thing, and it doesn’t do the profession any good in my view, but it’s usually not worth refuting.
Landsburg’s latest piece is in a different category. It’s a repetition of dishonest rightwing talking points about taxation that have been refuted over and over, but apparently need to be refuted yet again. As is his wont, Landsburg seeks to defend a paradoxical claim, namely, that “Bush’s Tax Cuts Are Unfair …To the rich.” He makes a total hash of it.
His initial presentation of the argument will be familiar to anyone who’s followed the tax debate in the US. He says that
a couple with a taxable income of $60 000 a year have had almost a 24 percent income tax cut since President Bush took office. (And ditto if your income was just $20,000.) Meanwhile, the folks who make $350,000 a year got a cut of only about 12.5 percent; those who make $1 million a year got an even smaller cut.
As he’s well aware, these numbers are meaningless. Although the United States has a tax called the “income tax”, it’s not the only tax on incomes, or even, for many people, the most important one, nor does it apply to all kinds of income. For those on low and moderate incomes, the most important income taxes are the payroll taxes that finance Social Security and Medicare. For the rich, it’s necessary to look at capital gains, dividends and inheritance. When Landsburg looks at all taxes on all incomes, he finds that the rich get about the same tax cut as the median taxpayer.
Even though this analysis refutes Landsburg’s stated conclusion, it’s still hopelessly biased. To begin with, there’s a presentational trick he doesn’t explain, but which can be illustrated by an example. Suppose, in an initially progressive system, high income people initially pay 40 per cent of their income in taxes, and low income people initially pay 10 per cent. Then suppose the rates are cut to 30 per cent and 5 per cent. Clearly, the high income earners have gained twice as much, relative to pretax income, as the low-income earners. But according to Landsburg, the low-income earners have done twice as well, receiving a 50 per cent cut in their tax paid, compared to the high income earners who have only had a 25 per cent cut. There’s probably no point in arguing at length over the “right” way to present data, but Landsburg ought to make it clear what he’s doing.
The more fundamental problem is that there is no reason to look only at taxes on income. Taxes on income are the only progressive element in the tax system, being offset by regressive taxes like sales tax. Overall, the burden of taxation, relative to taxable income, is not far from being proportional. When account is taken of the opportunities for tax avoidance and evasion, disproportionately available to those in the top quintile, it’s doubtful that those on high incomes pay any more of their income in taxes than the population as a whole.
What this means is that it doesn’t really matter whether you look at the Bush tax cuts relative to pretax income, posttax income or total tax paid. However you cut it, the top 20 per cent of income earners got the biggest benefits, and within that the group, the top 2 per cent got more than everybody else.
fn1. It doesn’t help that Slate’s previous economics columnist was Paul Krugman, a very hard act to follow.
fn2. Jack Strocchi has pointed me to this study (PDF) showing that the US tax system as a whole was very weakly progressive before the Bush tax cuts and is likely to be proportional or slightly regressive once they are fully implemented . I had a go at the same topic for Australai here. Kevin Drum has a relevant graph