Forum Post: Economics as Sleaze

by Richard Wolff.

The Wall Street Journal (WSJ), even as a Murdoch project, ought to know and do better than its lead opinion piece on “Tax Fairness” (July 23, 2012, p. A13). The gross pandering to right-wing self-delusion accomplished there by Ari Fleischer would win any economics student a well-deserved failing grade. The piece purports to interpret a recent Congressional Budget Office (CBO) report, “The Distribution of Household Income and Federal Taxes, 2008 and 2009 “. The quality of the writing in such sentences as “A new Congressional Budget Office Reports (sic) shows (sic)….” reminds us that Fleischer was the press secretary for the similarly English-language-challenged former President Bush. The editing that misses such gross mistakes suggests that the WSJ would get failing grades in English as well as economics.

Fleischer’s foray into economics makes the following points explicitly: (1) rich people pay too much in taxes relative to middle class and poor people, (2) the US tax system is thus “unfair” to the rich,(3) it became more unfair over the period covered by the CBO report, 1979-2009, and (4) President Obama is a liar because he says that the unfairness runs the other way. As I can easily show, the quality of Mr Fleischer’s economics suggests that he not give up his day job to do more economics.

Fleischer offers one argument taken from the CBO report. The top 20% richest families in the US earn 50% of the national income while paying 70% of the total federal tax take. Noticing that the latter number exceeds the former, Mr Fleischer leaps – with intense moral outrage – to the conclusion that the tax system is unfair to the richest amongst us. Lets take a quick look at this magic trick.

First of all, consider that the richest 20% of Americans take half our national income. That means the other 80% of us – the vast majority – are left to fight over the other half. No fairness problem there, at least not for Fleischer, the WSJ, and, I guess, the audience they pander to. Second, forget the history of the United States, especially that part about the beginning of the federal individual income tax when it was designed to be very progressive and tax only the richest Americans because of their inordinately higher capacity to pay than anyone else. The top few percent were supposed to pay 100%. Third, Fleischer wants to discuss fairness by looking only at who pays the taxes to the federal government and not also at who gets transfer payments from the federal government. How quaint.

Real economists don’t do that if their goal is to assess the overall impact of the federal government on the distribution of income. Economists take into account both taxes paid to the government and transfer payments to citizens from the government. In fact the CBO Report Fleischer cites, which is prepared by trained economists and statisticians, addresses that issue squarely with a table that shows exactly that. It is called the after-tax income distribution. Had Fleischer wanted to see about the fairness of the federal government’s impact on the distribution of the national income between the top 20% and the rest of us, that is the table he would have focused on and quoted.

However, Fleischer says absolutely nothing about it. But I will, and you can guess why. According to the CBO report (Figure 6 on page 15), the after-tax-and-transfers income of the richest 20% of Americans rose between 1979 and 2009 far more than that income for the other 80%. And the most spectacular rise was for the top 1%. That’s right, the impact of the federal government’s taxes and transfer payments made the distribution of income in the US more unequal across the period. That would be the real “fairness” issue.

People like Fleischer have long been repeating how awful the federal government was for “punishing success” by “taking from the rich and giving to the poor.” They abuse government reports to support such delusions. The CBO report shows the actual US government doing exactly the opposite. What better cover for such behavior than a constant barrage of phony, sleazy economics claiming to prove otherwise?

Finally, a recent article in The Guardian (UK) reports on the work of James Henry, a former chief economist at the global consultancy firm McKinsey and an expert on tax havens. He documents trillions of dollars hidden by the richest people around the world in tax havens where they keep their wealth and income secret and thus beyond the reach of government statistics as well as well as taxes. Fleischer writes as if that neither exists nor matters to notions of “fairness”. Wrong again.

http://rdwolff.com/content/economics-sleaze-blog