David R. Henderson  

Good for Jared Bernstein

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Those who know me well know how much I like civility in debate. And, beyond civility, I like even more when people on one side of an issue will grant a point made by someone on another side of an issue. One nice result is that both sides can narrow the issue down to where they disagree. When I'm in an audience and I see one speaker say that everything the other speaker is false, my red flag goes up and I lose interest.

For that reason, I was pleased to see Jared Bernstein's response to Chris Edwards. Jared is a senior fellow with the Center on Budget and Policy Priorities. From 2009 to 2011, he was the Joe Biden's chief economist. Chris is the director of tax policy studies at the Cato Institute. Those two places are ideologically pretty different and I am almost always on the Cato side of things.

I was about to write a blog post pointing out how devastating Chris's critique of Jared was. But now I don't have to--because Jared pointed it out. It turns out that it was all a misunderstanding. I particularly liked the opening two paragraphs of Jared's response:

I recently touted the benefits of a financial transaction tax (FTT), and in the intro, I made a comment about how our tax code is titled toward the wealthy. Chris Edwards very reasonably takes issue, correctly noting that our federal tax code is, in fact, quite progressive, meaning that low-income households face a much lower tax burden as a share of their income than higher income households.

My piece wasn't about the broader code so I didn't take the time to elaborate what I meant. My bad, but let me do that here.


He then goes to explain what he meant and it's very different from what Chris or I thought:
The fact is that our tax system contains a large number of provisions that disproportionately benefit wealthy taxpayers, many of whom are the same folks on whom the incidence of the FTT will fall. So while I did not sufficiently articulate the point, for which Chris fairly dings me, I was trying to say that one distributional rationale for the FTT is that it pushes against some of the tax preferences I'm about to show you.

After laying out his data and showing some striking graphs, Jared ends with:
So good for Chris for pushing me to explain myself, but more to the point, I take the fact that he said nothing about the central theme of the oped--it's time to seriously consider implementing a small FTT--to be an implicit endorsement.

I'm guessing Chris doesn't.

By the way, Timothy Taylor recently had an excellent post on financial transactions taxes.


Comments and Sharing


CATEGORIES: Taxation




COMMENTS (19 to date)
Charlie writes:

The link: http://jaredbernsteinblog.com/the-tilt-or-lack-thereof-in-the-tax-code/

Effem writes:

why do you exclude state & local taxes? Feels like cherry-picking. Please don't say it's because people have the option to move. Most low income people I know really don't have that option without taking serious risk.

David R. Henderson writes:

Thanks, Charlie. Link added.

David R. Henderson writes:

@effem,
why do you exclude state & local taxes?
I don’t. Neither does Jared. Look at his graphs.

Andrew_FL writes:

While I would agree that Mr. Bernstein should be praised for admitting his prior phrasing was misleading, and for clarifying what he actually meant, I have the sneaking suspicion that he intended his original phrasing to be misleading. There's really no other way to read "our tax code remains tilted in favor of the wealthy" than precisely the way Chris read it. I can't pretend to know how he thought readers would understand that comment, but it's hard to imagine he thought they'd understand it to mean what he later said he meant by it. If he did think so, I guess his readers should thank him for assuming them to be mind readers. That's...sort of a compliment?

He should have said what he claims to have meant the first time.

David R. Henderson writes:

@Andrew_FL,
He should have said what he claims to have meant the first time.
True.

Civilian writes:

What confuses me is why civility in debate is uncommon. People are rarely persuaded to change their minds, and when they are, it's generally by someone who disagrees with them in a civil way. (Studies seem to back this up.) So why are people uncivil? Are there incentives I'm missing, or is uncivil debate an evolved adaptation that doesn't serve us well?

Zack writes:

These ITEP numbers always looked fishy to me, but after looking through their website a little, their methodology just seems downright absurd.

They're taking a narrow definition of "cash income," apparently excluding fringe benefits and government transfers. They then combine that with a much broader definition of a person's tax bill, including all sorts of indirect business taxes. They even go as far as to include a company's property taxes as part of an employee's tax rate, and a landlord's taxes as part of the renter's.

On the other hand, they seem to be adding retained corporate profits as part of the stockholder's personal income for the year. Note that they claim the top 1% pay an average total federal rate of 24.3%. Compare that to the latest CBO numbers which put the average rate for that group at 33.3%. The Urban-Brookings Tax Policy Center estimates show similar numbers.

These things could all probably be justified individually, but to simultaneously do all three of them doesn't make any sense to me. It seems like a pretty blatant attempt to tax rates look lower at the top end and higher at the lower end.

Mark V Anderson writes:
What confuses me is why civility in debate is uncommon. People are rarely persuaded to change their minds, and when they are, it's generally by someone who disagrees with them in a civil way. (Studies seem to back this up.) So why are people uncivil? Are there incentives I'm missing, or is uncivil debate an evolved adaptation that doesn't serve us well?

Good question. My guess as to the answer is that most debaters are more concerned about getting kudos from their own side than convincing the other side. I know I've heard political strategists often stating that a more effective approach to getting elected is to get one's own side fired up so they go to the polls, than the much harder task of winning over those on the fence.

It is unfortunate, but I think these strategizers are mostly correct.

Peter writes:

Perhaps I'm missing something, but Mr Berstein's discovery seem to be that people who don't pay much tax tend to get little benefit from tax code provisions for deductions, exemptions and discounted rates. If you think that is a problem, then the answer is to change those deductions, exemptions and special rates.

An FTT may or may not make sense on efficiency grounds, but it seems silly to argue that an FTT is needed because dividends have a lower rate of tax and poor people don't receive much dividend income.

Kevin Erdmann writes:

Hmm. I'm all ready to accept a Hansonian take on incivility, but I wonder if it's just that we are capable of being objective, but only provisionally because confirmation bias makes us dense. We all know civility is optimal, but most of the time none of us probably deserve it, because we are obviously, hopelessly wrong about so much. Maybe it's a miracle that we are as civil as we are.

When there is persistent disagreement, human nature does not tend to pull opinions toward the mean or toward ambivalence.

john hare writes:

On civility in debate.

I have known a large number of people that believe passion and their own opinion is far more important than any other viewpoint. The attitude by these people is that their viewpoint is the only legitimate one means that your opposing viewpoint is illegitimate and should be cut off from debate as you are obviously not worthy of listening to.

"If you're not a Christian,..."
"Democrats are evil communists,..."
"Republicans hate the poor,..."
"Businesses exploit the workers and,..."

Most of these phrases and many others continue with some variation of "shut up", as the speakers deny that you even have a right to any other viewpoint. Many people have the "If you're not with us, you're against us" philosophy which gathers multitudes of enemies. The tragedy is that so many of them don't understand why they have so many enemies.

Seth writes:

@john hare -- I agree. Another one I've heard a great deal lately is:

"If you are a Christian,..."

effem writes:

@David

The last chart in jared's piece show the effective tax rate when all taxes (federal+local) are accounted for. He shows a bottom fifth rate of 19% and a top rate of about 30%. This qualifies as a highly progressive tax code?

I've found that most people are surprised that the tax code is this flat.

Mark V Anderson writes:
The last chart in jared's piece show the effective tax rate when all taxes (federal+local) are accounted for. He shows a bottom fifth rate of 19% and a top rate of about 30%. This qualifies as a highly progressive tax code?

I've found that most people are surprised that the tax code is this flat.

Two answers to that:

1) I am always hearing people complain how regressive our tax system is, so I wouldn't be surprised if lots of folks would be surprised it is so progressive.

2) It is apparent from the first graph that he displays that he excludes the refundable credits such as EITC and child tax credit from his calculations (since he shows the lowest Federal tax at zero instead of highly negative). So the 19% is far higher than it should be. I don't know what he's done with the FICA taxes, but many trying to show regression include them. They are really a pension plan, not a tax. Perhaps a poorly run pension plan, but that is the intent of the FICA and Medicare "taxes."

Zack writes:

Effem, see my post above about ITEP's methodology. I really don't see how they can logically combine such a narrow measure of "cash income" with such a broad measure of taxes paid. They also make some pretty aggressive assumptions about counting all sorts of business taxes as being paid by consumers and/or employees, as opposed to the owners of the business.

Compare ITEP's numbers to the widely cited CBO data. ITEP claims the top 1% pay an average federal rate of 24.3%. The CBO put the same number at 33.3% for 2013. ITEP says the bottom quintile pays an average of 7.1%. The latest CBO number for that group is 2.9%.

Mark Anderson's comment makes a good point about FICA taxes too.

Kevin Erdmann writes:

Zack, the funny thing is, it is a neoliberal argument that corporate taxes are passed on to customers and workers. If that is what they are showing, then ironically Bernstein would have to argue that eliminating corporate taxation would make the tax code more progressive.

Do I even need to look his position up on that? I took a quick look at ITEP and they seem very pro-corporate tax.

john hare writes:

I finally got around to the transaction tax link. It reminded me of a radio personality a few years back claiming that this tax was the cure for all ills. The stock market handling 2 quadrillion dollars in transactions annually, a 1% transaction tax would net 20 trillion dollars annually. The national debt paid off the first year and all other taxes eliminated and so on. He was unimpressed with my calls suggesting that all the money would be gone in months or even weeks if the players were stupid enough to not change their behavior.

Thanks for the memory.

Zack writes:

Kevin Erdmann, good points. I can't tell exactly what ITEP does with the corporate income tax, but I always find it odd when people think a business can and does simply pass on any payroll, sales, excise, property taxes etc, but not income taxes.

And just to add to my earlier comment, it does indeed look like they're counting undistributed corporate profits as part of the shareholder's income base when they calculate his or her personal tax rates. I'd love to hear their reasoning behind doing this while also excluding non-cash benefits and transfers that a typical worker or poor household receives. Their whole model comes across as a series of bizarre twists and turns designed to make taxation in the U.S. look less progressive.

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