Taxing
27th April 2017
Don Boudreaux, a Real Economist, vents about media treatment of the proposed ‘tax reform’.
In recent days I have – likely like you have – heard and read several media reports on Trump’s tax plan (or what we know of it so far). Nearly all of these reports are juvenile: changes in tax rates are evaluated by the media according to changes in the legal tax liabilities of various groups of people. For example, Trump’s proposal to cut the top federal personal income-tax rate from 39.6% to 35% is assessed only by its effect on high-income earners. Specifically, of course, it’s portrayed as a ‘gift’ to high-income earners. Eliminating the estate tax, as well as the alternative minimum tax, are likewise portrayed as benefits for the rich.
My purpose here isn’t to praise or to pillory Trump’s tax plan; I’ve yet to examine it in any detail. My purpose, instead, is to lament this popular approach to evaluating taxation. This approach, as Deirdre McCloskey might say, is that of a lawyer and not that of an economist. The lawyer focuses on legal liabilities; the economist focuses on systemic consequences, both immediate and ‘seen’ as well as distant and ‘unseen.’
Actually, most of the j-school grads who are bloviating about it on TV aren’t even lawyers — but they have access to lawyers who (a) are mostly Democrats and (b) apparently slept through a lot of law school.
It’s true that if Smith’s last (say) $10,000 of annual income is currently taxed at a rate higher than a proposed new lower rate, Smith is made better off if this proposed lower marginal tax rate becomes reality. (As an aside, I refuse to go along with the common-in-many-circles description of such a tax cut as a “gift” or a “giveaway” to Smith and other high-income earners. Smith is the person who earned the income. It is his property. This income belongs to Smith. The government takes it away from him. For the government to reduce the amount of money that it takes away from Smith is not properly called a giveaway to Smith. But let’s here say no more about this particular linguistic battering of reality.)
There’s a lot of that going around these days; the presumption that all your income belongs to the government except for whatever they graciously deign to let you keep infects a lot of people beyond the Usual Suspects who want your earnings confiscated because it’s more than they think you deserve.