Bullet train
The following is an excerpt from OpinionJournal’s “Best of the Web” at WSJ written by the editor, James Taranto.
Bottom Stories of the Day
- “$68-Billion California Bullet Train Project Likely to Overshoot Budget and Deadline Targets”—headline, Los Angeles Times, Oct. 25
- “Checkpoints Stir Palestinian Anger in East Jerusalem”—headline, Agence France-Presse, Oct. 24
Other Than That, the Story Was Accurate
“Police now say that a woman on a bicycle was not killed when she was hit by a truck in the Lincoln Park neighborhood earlier this week. ‘She’s up and talking,’ said Officer Mark Mora, a spokesman for the Chicago Police Department.”—Chicago Tribune, Oct. 23
Chris Stevens Could Not Be Reached for Comment
“Hillary Clinton Takes a Well-Deserved Post-Benghazi Victory Lap at the DNC’s Women’s Leadership Forum”—headline, Salon, Oct. 23
Thy Neighbor’s Assets
“When it comes to paying taxes, most Americans think the wealthy do not pay their fair share,” observes the New York Times’s Patricia Cohen. The Democratic candidates for president agree. In the first Democratic debate, Bernie Sanders railed: “Let me tell you, Donald Trump and his billionaire friends under my policies are going to pay a hell of a lot more in . . . taxes in the future than they’re paying today.” Inevitable nominee Hillary Clinton put it more gently: “Right now, the wealthy pay too little, and the middle class pays too much.”
Cohen means to assure her readers that a policy of punishing the rich would serve other ends as well:
But what could a tax-the-rich plan actually achieve? As it turns out, quite a lot, experts say. Given the gains that have flowed to those at the tip of the income pyramid in recent decades, several economists have been making the case that the government could raise large amounts of revenue exclusively from this small group, while still allowing them to take home a majority of their income.
It is “absurd” to argue that most wealth at the top is already highly taxed or that there isn’t much more revenue to be had by raising taxes on the 1 percent, says the economist Joseph E. Stiglitz, winner of the Nobel in economic science, who has written extensively about inequality. “The only upside of the concentration of the wealth at the top is that they have more money to pay in taxes,” he said.
That sounds more covetous than practical-minded, doesn’t it? And Cohen provides data that belie Stiglitz’s first assertion: The tax system is quite progressive, with the overall federal burden rising from 3.6% for the lowest income quintile to 7.8%, 13.7%, 17.0% and 25.7% for the top quintile. The trend continues within the top quintile, for whom the burden ranges from 20.0% for the second decile (i.e., the bottom half of the top quintile) to 33.4% for the top 1% and 34.9% for the top 0.1%.
Still, the burden could be heavier. And for those who aren’t quite as zealous as Stiglitz about punishing the rich, Cohen offers a payoff:
Raising [the top 1%’s] total tax burden to, say, 40 percent would generate about $157 billion in revenue the first year. Increasing it to 45 percent brings in a whopping $276 billion. Even taking account of state and local taxes, the average household in this group would still take home at least $1 million a year.
If the tax increase were limited to just the 115,000 households in the top 0.1 percent, with an average income of $9.4 million, a 40 percent tax rate would produce $55 billion in extra revenue in its first year.
That would more than cover, for example, the estimated $47 billion cost of eliminating undergraduate tuition at all the country’s four-year public colleges and universities, as Senator Bernie Sanders has proposed, or Mrs. Clinton’s cheaper plan for a debt-free college degree, with money left over to help fund universal prekindergarten.
A tax rate of 45 percent on this select group raises $109 billion, more than enough to pay for the first year of a new $2,500 child tax credit introduced by Senator Marco Rubio, Republican of Florida.
How is this any different from enviously imagining what you would do if you got your grubby paws on your wealthy neighbor’s money? And Cohen doesn’t stop with the top 1%. The next paragraph begins: “Move a rung down the ladder and expand the contribution of those in the 95th to 99th percentile . . .,” and imagines raising their overall federal tax burden to 30% from the current 25.2%. The average income in this class is just over $400,000.
There’s an enormous practical problem with this exercise as well. Early in her piece, she observes that for all their talk about “raising taxes at the top,” the Democrats “have not been very specific about how they would do so.”
But neither is Cohen. She imagines an increase in various income classes’ overall federal tax burden, but that is not how taxes are actually assessed. As she acknowledges, the total figure “takes into account the entire menu of taxes—including income tax, payroll taxes that fund Medicare and Social Security, estate and gift taxes, excise and custom duties as well as investors’ share of corporate taxes.”
Exactly what tax laws would one change in order to ensure that the top 1% (or the top 0.1% or the top 5%) gets gouged without harming the middle class? The question is unanswerable—it can’t be done. And as Cohen eventually acknowledges, high-income taxpayers have ways of defending themselves against covetous officials. Example:
Aided by a phalanx of lawyers and accountants, the rich have become adept at figuring out ways to shift earnings that would normally be taxed at the top 39.6 percent rate on ordinary income into capital gains, said the economist Gabriel Zucman of the University of California, Berkeley, who is researching the link between widening inequality and tactics—legal and illegal—used by the wealthy to sidestep taxes.
Naturally Cohen suggests raising the tax on capital gains to match that for ordinary income, but she doesn’t seem much worried about the disincentive effect on investment. (It’s reminiscent of Barack Obama’s assertion in 2008 that he favored raising capital-gains taxes “for purposes of fairness,” even if revenues went down as a result.)
Meanwhile, the main expert she cites calls for new tax breaks to encourage the sort of investment he favors:
“Why give a blank check to all of these guys?” Mr. Stiglitz, the liberal economist, asked. He pointed out that current tax law makes no distinction between, say, investing abroad, speculating in land or building a new factory. A better approach, he said, is to say: “We’ll give you generous deductions if you invest in America.”
The wealthier the taxpayer, the better equipped he is to take advantage of tax-code complications like the “generous deductions” Stiglitz proposes here.
A caption on a chart accompanying Cohen’s piece states: “Taking all federal taxes into account, the richest taxpayers contribute, on average, about a third of their income to the government. But they still enjoy after-tax incomes far higher than those of other Americans.” In other words, wealthy people are wealthier than less-wealthy people. The politics of envy rests on a rejection of that simple logic.
For more “Best of the Web” click here and look for the “Best of the Web Today” link in the middle column below “Today’s Columnists.”
