David R. Henderson  

Rand Paul on Letterman

Barbara Branden on Atlas Shrug... Distribution of Tax Burden by ...

When Rand Paul ran for the U.S. Senate, my worst case rating of him, out of 10, was about a 4, and my best case was about a 7. One of my biggest concerns was that he seemed to waffle on the issue of war. Seeing him on Letterman the other night and reading his "Dear Colleague" letter about the USA PATRIOT Act, I would now give him at least an 8. It's not just the views he expresses, but also the sensible, compelling way in which he expresses them.

Some of the other commenters who commented on his appearance on Letterman pointed out how weak Letterman was, disagreeing with Paul but not being able to articulate why. I agree with those criticisms. But I guess I'm a glass-half-full kind of person, always looking for little cracks in the concrete through which the sunlight can stream. And I saw a lot of cracks in Letterman's concrete: even when he disagreed with Paul, he often admitted his own ignorance. How many people do that? Here are some highlights:

2:10: Paul quotes Al Franken saying that Letterman isn't that funny. (I take this as a shot across Letterman's bow. Strategically risky, but it seemed to work.)

5:55: Paul says fire protection is a basic government service. (Rand Paul should read Fred McChesney, "Smoke and Errors," for some U.S. history of volunteer fire departments.)

6:20: Letterman: "Are we hurting the middle class, guys like you and me?" Excuse me? Letterman is middle-class? In that case, words have lost all meaning. Notice the slight laughter after he says that. This is too much for even Letterman's audience.

6:40: Paul does a nice job of talking about incentives in the market vs. in government.

7:50 to 8:10: Again, Paul talks nicely about market signals.

8:50 and following: Paul lays out how much of the federal income tax is paid by high-income people (he says that people making $70K and above pay 96% of the federal income tax) and Letterman says, "I think there's something wrong with those numbers: I don't know what it is exactly, but I'm pretty sure there's something wrong with them." There was something wrong with them. According to the Tax Foundation, in 2008, the top 50% paid 97% of the federal income taxes, but the adjusted gross income defining the top 50% was $33K, not $70K. This is a big difference but I think Rand Paul got the basic point right. Check out the Tax Foundation's numbers. And I'll bet dollars to doughnuts that if Rand Paul got the numbers right and came back on the Letterman show to say, correctly, "In 2008, the top 25%, those with adjusted gross incomes of $67K or more, paid 86% of the total taxes paid," Letterman would still say, "I think there's something wrong with those numbers."

9:15: Here's the refreshing part. People applaud Letterman for saying there's something wrong with those numbers--that's not refreshing. What's refreshing is that Letterman responds to the applause by saying, "Thank you; you're applauding my stupidity."

11:00: After Rand Paul says that competition makes things better, including for late-night talk-show hosts, Letterman says to the audience, "I think he's wrong about some of these things: I just can't tell you why."

I know there will be people who get down on Letterman for talking this way--saying that that there's something wrong, but he can't put his finger on it--but I think that confession of ignorance is the first step toward understanding.

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CATEGORIES: Economic Philosophy

COMMENTS (18 to date)
bucknasty writes:

@6:20 is clearly tongue-in-cheek. What is it with libertarians and social obtuseness? Guys like you make it tough for me ...

The Engineer writes:

You know, I've had conversations with educated liberals like David Letterman, and gotten the same reaction to things I said.

"You're wrong about that. That's not true."

Of course, that was before we lived in the age of the iPhone, when you can go online immediately and show that it IS true.

"To the Batcomputer, Robin!"

Who says we live in stagnant times? ;)

Corey S. writes:

1) Letterman clearly meant "are we rich people" hurting the middle class. Not that he was in the middle class.

2) Paul probably knows that fire departments can be run privately. But you can't say that to a national audience without sounding like a complete wacko.

I was very impressed with Rand Paul. People who watched with an open mind will come away convinced. (I realize that very few people actually watched with an open mind.)

steve writes:

"Letterman would still say, "I think there's something wrong with those numbers."

That is easy. In many years of reading various conservative/libertarian economics sources and listening to them on TV, I cannot recall one ever volunteering what percentage of income and wealth is controlled by that same demographic group. There is also never any mention of payroll taxes, which totaled close to what was taken in by income taxes for 2009. If I may quote Martin Wolf.

"By the way, I find it astounding that in 2009, the total revenue from the income tax, at 6.4 per cent of GDP was almost identical to the revenue from social security receipts, at 6.3 per cent. If this were my country, I would find that scandalous, given the latter are so much more regressive (and job destroying) than the former. But it is not. I merely point it out."


David- Why not break ground and be the first libertarian to discuss income tax in complete context? (Or point me to where someone has done so. I only read 4 or 5 libertarian writers on a regular basis.)


John V writes:

I wonder if lettermen got in front of a computer and looked this stuff after the show.

John V writes:


a few comments:

1. payroll taxes are collected on everyone that gets a paycheck. It's very broad based. Income tax is not broad based. Almost half of all tax payers pay none. Go further down the line and people start getting back more than put in tax refunds because kids and EITC. That's why the totals collected between the two types of taxes is almost equal. One is collected at a small clip from everyone (which makes it regressive) while the other is mostly collected from the top to the upper middle and then the bottom payers get it all back and then some...which comes out of the total collected and back to mainly low payers.

2. Payroll taxes for SS are split between employer and employee. So, a good portion of the total payroll taxes collected do not come from employees paychecks.

3. You say payroll taxes are job destroying. Keep in mind that, again, that employers pay half of those taxes. So what's the solution? Just cut it and then complain about SS and Medicare insolvency or put more of that burden on top 50% or top 30% or whatever top %? Keep in mind that by making a larger and larger portion of the population numb to practically any taxation makes revenue issues for the government more dicey in downturns because the burden falls on smaller number of people (meaning it's less spread out) and it also makes more and more people immune to feeling of taxation and consequences of spending...until they grow into a higher bracket and start complaining.

ed writes:

Uggg. Are payroll taxes not taxes (including the so called "employer share")? Are corporate income taxes not taxes? These taxes are effectively paid by everyone, not just the top 50%.

Talking about "income taxes" in isolation is sophistry.

John V writes:

What are you getting at, Ed? I didn't talk about anything in isolation. Why don't you elaborate on what you are getting at?

James writes:

The whole issue of tax incidence is a red herring. Under any tax structure, most of the burden falls upon those whose demand curves are steepest and whose supply curves are flattest. In practice, this means the people with the fewest alternatives i.e. the poor.

Dale writes:
What are you getting at, Ed? I didn't talk about anything in isolation. Why don't you elaborate on what you are getting at?

He is saying that you cannot bring up income tax burden as an analogue for the entirety of the tax burden.

Conservatives love to do this by saying "the top 50% pay 95% of all (income) taxes" with the "income" part stated under their breath in a low tone in the hope that no one hears.

Except that people don't think of payroll taxes as different than income taxes, after all, what are our payroll taxes except taxes on income?

Its misleading to talk about income taxes as the tax burden when they represent about 1/3rd of government revenues (the rest being in payroll, corporate, and sales taxes/property taxes on the state level[though some states have income taxes to generate revenue]). And so while their progressiveness is important to the overall picture, it is not the entire overall picture.

When Ron Paul gives that information on income taxes he is being disingenuous. When Letterman said "that doesn't seem right", he was reacting instinctively to the notion that we are talking about taxes levied on income, and not simply the statutory income tax.

wreaver writes:

@bucknasty: Regarding,
"@6:20 is clearly tongue-in-cheek. What is it with libertarians and social obtuseness? Guys like you make it tough for me ..."

Libertarianism seems to be associated with a masculinized brain.

See the following paper for more info:

The result is that although they socialize fine with others with masculinized brains, they don't socialize well with "normal" people.

PrometheeFeu writes:

@John V.

The fact that the employer is the one who puts a check in the mail is actually irrelevant. Employers are very much aware that the "employer's share" is part of the cost of having you on as a worker and they take it into account in their hiring decision the same way you would take Earned Income Tax Credits into account into your employment decisions.

@Everyone who has a problem with "This is wrong I just don't know how":

This is how inquiry begins. Intuition will often steer you wrong and so getting your evidence from your intuition will get you into trouble if you are questing for truth. However, before you begin your in-depth investigation of a topic, intuition is a very useful tool to select a line of inquiry. Think Isaac Newton and his apple, Adam Smith and the pin factory and many others.

John V writes:


I didn't discuss income tax in isolation. Ed brought up payroll taxes and I addressed it. And one thing I did do was talk about how saying that payroll taxes and incomes taxes account for the same amount of revenue is also a bit disingenuous. He said it in a way to convey more than he really could.

Income taxes are not only extremely top heavy but they are also negative for the lowest earners do to deductions and things like the EITC. Not mentioning that is disingenuous.

Payroll taxes are broad base and it's shared with employers. they are also totally different in that they were created to pay for specific programs that payers collect from.

Rundy writes:
  • Rand Paul said that Wisconsin teachers make an average salary of $89,000 per year. He is either a liar or stupid or both. The real number is $52,466.
John V writes:


Paul was referring to total average compensation including benefits.

Maybe you could assume that people are basing on number on something that you should verify first before throwing insults around.

Dale writes:

John Wrote:

Payroll taxes are broad base and it's shared with employers. they are also totally different in that they were created to pay for specific programs that payers collect from.

Money is fungible, so tax incidence is not tax burden. This is why the calculations tend to have a set methodology for where the burden lands rather than simply assigning it to incidence.

In addition to the issue of tax incidence the fungibility of money means that at the end of the day there really is no difference between taxes paid in payroll and taxes paid in income. Increasing one allows the other to fall and vice versa.

WRT: The issue Ed had.

Ed was pointing out that talking about the mechanics of the revenue generation gets past the implications of the discussion. Yes, we do know that payroll taxes and income taxes generate roughly the same amount of revenue for different reasons due to the mechanics of how they're collected.

But at the end of the day, when we are making a point about who pays taxes talking about only one tax is disingenuous. No one stated that we would not talk about people who get money back on income taxes, but what we really care about is the total tax burden. Not just income tax burden.

The reason that we need to talk about all taxes is that most people are not economists or not current on the debate over taxes and income. To most people, if you asked about income taxes they would consider that all taxes on their income no matter where they come from, they would include payroll taxes. When you quote "income taxes" at most people that is what they think of, yet we know that the numbers are wrong for that understanding. (this is ignoring the issue that people do not tend to see many tariffs/sales taxes and so don't realize they pay it)

Rand was being disingenuous for mentioning only income. He is a smart guy is he not? He should know better.

James writes:

To be fair to Paul, Letterman kept referring to income taxes so if Paul had countered by discussing the distribution of tax incidence for all taxes, Letterman probably would have accused him of evading the issue.

Just my two cents: Libertarians are wasting their time when they talk about progressivity of taxes or the level or any of these details. The relevant question is "Why should the government be collecting taxes at all?" The unarticulated and undefended assumption underlying taxation is that the government will make better decisions about how to use that money than those people who pay the taxes. Paul should have challenged Letterman to provide evidence for this.

Yes, the government may use some part of revenues to produce public goods, but there is no good reason to believe that on balance, the politician spends more wisely than the taxpayer.

Dale writes:
The unarticulated and undefended assumption underlying taxation is that the government will make better decisions about how to use that money than those people who pay the taxes. Paul should have challenged Letterman to provide evidence for this.

Not if Paul wanted to not be laughed at by every viewer.

It takes a hardcore libertarian to assert that there should be no government at all and it takes the assumption that government can(and does) make better decisions with what to do with money in order to assert that there should be some government (however limited).

While Letterman, not being an economic philosopher probably doesn't have the experience/training/education/whatever to make an on the spot argument regarding positive liberties; that doesn't mean that Paul would be good to bring it up. Not only because of how radical the assertion is, but also because anyone can argue with someone who isn't prepared for the debate, such an exchange adds no value.

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