Harold Meyerson recently set out to sneer, in the pages and pixels of the Washington Post, but succeeded more decisively in refuting himself. It's always a bad sign when a writer introduces statistical evidence that weakens the argument he's trying to make.
Meyerson wanted to show that the Republican approach to cutting the deficitspending cuts only, no tax increasesis absurd. His point on taxes is that in 1955, according to the Campaign for America's Future, the country's 400 wealthiest taxpayers had an average income of $13.3 million (in 2008 dollars) and paid 51.2% of that in federal income taxes. In 2008 the richest 400 had an average income of $270.5 million and paid 18% of that in federal income taxes. In 1955, he notes, "we could afford to pave roads."
But wait. 51.2% of $13.3 million is $6,809,600, the average federal income tax bill for the most fortunate 400 in 1955, using 2008 dollars. Thus, the federal government gathered in the inflation-adjusted equivalent of $2.724 billion from the whole lot of them. 18% of $270.5 million is $48.69 million, meaning that average tax bill for the top 400 was, adjusted for inflation, more than seven times as high in 2008 as in 1955. Those 400 households collectively accounted for $19.476 billion in federal revenues.
It speaks well of American governance during the Eisenhower administration that we managed to pave our roads while receiving $2.724 billion in federal taxes from our richest citizens. It speaks poorly of the quality of our governance today if, despite the additional $16.75 billion the families in the capstone of the income pyramid paid to the IRS in 2008, we can't pave the roads as often or as well, which Meyerson suggests is the case.
Assuming Mr. Meyerson owns and operates a calculator, it makes sense to ascribe his mistakespeaking as if the tax revenues generated by the richest 400 have gotten much smaller when they have clearly gotten much biggerto a philosophical disposition rather than a mathematical error. Most people, and certainly most NLT readers, assume the purpose of a tax system is to raise revenues to finance the government's activities. A seven-fold increase in tax revenue from one segment of the population would, accordingly, mean that the government could undertake more activities, or that other segments of the population could pay lower taxes, which is a rough description of what actually happened in America between 1955 and 2008.
If, however, the primary purpose of the tax system is to punish or reproach the rich, to express our envy and resentment of people who are rich and getting richer, then it makes sense to treat the much larger revenues from that cohort as a minor detail and concentrate, angrily, on the fact that their incomes have gone up while their tax rates have gone down. Six years ago the columnist Jonathan Chait insisted that such malign intentions toward the wealthy played no part in liberals' preference for progressive taxes: "Liberals want to make the rich pay higher tax rates not because they hate them. It's because somebody has to pay for the government, and the rich can more easily bear higher rates."
Well, yes, one advantage to being rich is that you can afford things easily that would be difficult or impossible for other people, including the 91% federal income tax bracket that was on the books in 1955. The problem with Chait's argument is there's no way to say where it stops. If the principle is that the rich should pay higher taxes because they can more easily bear the rates, then we should keep raising tax rates until the rich can no longer bear themuntil, that is, they're no longer rich. One need not be rich to find this prospect disquieting. A government that can take whatever it wants strikes a lot of people as unfair, and unfree.
Assurances that only the rich will suffer as a consequence haven't convinced most people that this policy is fair, or that it really will be confined to the wealthy. In November 2010 voters in Washington, a state blue enough to have given Barack Obama 57% of its vote in 2008, rejected a state income tax applicable only to individuals making more than $200,000 per year and families making over $400,000. That most prosperous 1.2% of the state's population evidently had a lot of less-affluent friends, since 65 percent of the voters opposed the tax. One factor was that the promise to limit the income tax to the $200,000 and $400,000 thresholds was good for all of two years, after which the legislature could have applied it more broadly.
Meyerson makes a second point. Not only are the rich getting off too lightly, but the main beneficiaries of the federal government's activities tend to be red states. He cites a Tax Foundation study showing that in 2005 the federal government spent between $1.76 and $2.03 in New Mexico, Mississippi, Alaska, Louisiana, and West Virginia for every dollar it received from those states in taxes. By contrast, the blue states subsidize the federal government's operations: New Jersey, Nevada, Connecticut, New Hampshire, and Minnesota received between 61 and 72 cents for every dollar paid in federal taxes. The states that "drain the government also constitute the Republicans' electoral base," writes Meyerson, "while those that produce the wealth constitute the Democrats'."
But, again, there's more to the story. The Tax Foundation study includes money transferred between citizens and the federal government as well as between the federal government and state and local ones. As the organization explains in the introduction to its study, "The most important factor determining whether a state is a net beneficiary is per capita income. States with wealthier residents pay higher federal taxes per capita thanks to the progressive structure of the income tax." New Jersey and Connecticut are net exporters of dollars, vis-à-vis the federal government, precisely because progressive federal taxes, which Meyerson imagines to have been relegated to the dustbin of history, draw in so much money from those states' disproportionately affluent residents. Mississippi and West Virginia have disproportionately few residents in the top tax brackets, but more than their share of poor residents receiving assistance from Medicaid, food stamps, Supplemental Security Income, school lunches, and a long list of other government programs.
If the disparities between importer and exporter states are intolerable, then perfect fairness will be attained when no such disparities exist, and every one of the fifty states receives precisely as much from Washington as it sends to Washington. At that point, however, the involvement of the federal government becomes completely pointless. The big steps needed to reduce the disparities between states that are net importers of federal dollars and net exporters would be to abolish the progressive federal income tax in favor of a flat tax or Value Added Tax, and do away with federal programs that direct assistance to households with low incomes.
I'm not as mean-spirited as Harold Meyerson, so I'll suggest consideration of a less drastic remedy, proposed 38 years ago by William Buckley in his book Four Reforms. Buckley would confine eligibility for welfare state programs to Americans living in states whose median income was below the national average. Because Buckley thought it was economically and politically debilitating to "turn the skies black with criss-crossing dollars," his reform would ground a lot of those dollars. Federal welfare expenditures would shrink, as the number of people eligible for them was limited, and prosperous states would pay for their own welfare programs without the transit and administrative fees of sending them on to Washington and then back to the states. Mr. Meyerson, do you wish to second the motion?