Get Lucky; Is The Wall Street Journal's editorial page written by James Bond villains?

One of the things that has fascinated me about The Wall Street Journal editorial page is its occasional capacity to rise above the routine moral callousness of hack conservative punditry and attain a level of exquisite depravity normally reserved for villains in James Bond movies. To wit, a recent lead editorial titled "THE NON-TAXPAYING CLASS." A reader unfamiliar with the Journal's editorial positions might read this headline and assume it refers to ultra-wealthy tax dodgers. But no--the Journal, of course, approves of such behavior. The non-taxpayers it denounces are those who earn too little to pay income taxes: "[A]lmost 13 percent of all workers," the editorial fumes, "have no tax liability. ... Who are these lucky duckies?" In typical Journal fashion, the editorial is premised upon a giant factual inaccuracy--it completely ignores sales and excise taxes, which consume a huge share of the working poor's income. But what makes the editorial truly exceptional is the reasoning underlying it. The Journal complains that low taxes on the poor are "undermining the political consensus for cutting taxes at all." For instance, the editorial considers the example of a worker who earns $12,000 per year, and, after noting bitterly that he pays less than 4 percent in income taxes, concludes, "It ain't peanuts, but not enough to get his or her blood boiling with tax rage." In other words, the Journal wants to raise taxes on the working poor so that they will have more "tax rage" and thus vote for Republicans. Once in office, of course, those Republicans would proceed to cut taxes for the well-off. (Indeed, according to the Journal's logic, they couldn't cut taxes on the poor because that would just lead them to stop voting Republican.) When I try to visualize the editorial meeting that produced this bit of diabolical inspiration, I imagine one of the more rational staffers--maybe Dorothy Rabinowitz--tentatively raising her hand and asking, "Isn't that idea a bit, you know, immoral?" Then Robert Bartley or Paul Gigot would emit a deep, sinister laugh and press a hidden button, depositing the unfortunate staffer into a tank of piranhas. Come to think of it, I haven't seen Rabinowitz's byline in a couple of weeks.

The Journal is perhaps most famous for helping to transform supply-side economics from a crank doctrine ridiculed by mainstream economists and rejected by Washington policymakers into a crank doctrine ridiculed by mainstream economists yet embraced by Washington policymakers. But, even though President Bush is no less committed to supply-side economics than was Ronald Reagan, W.'s policies, unlike the Gipper's, are almost never described in the press as "supply-side." A rare exception occurred last month, when President Bush declared at a press conference that "the deficit would have been bigger without the tax-relief package." A minor stir ensued, with Democrats accusing the administration of practicing supply-side economics and Bush aides denying it.

Why Bush's embrace of voodoo economics became newsworthy just recently is hard to figure, because his spokespeople have been saying the same thing for months. "The tax cut gives us a chance for sustained economic growth. If we have higher taxes on this economy then the [revenue] projections won't get stronger; they're more likely to get weaker," insisted White House Budget Director Mitch Daniels last summer. "The president does believe that cutting taxes is the best way to spur growth and therefore to have a return of bigger surpluses," declared Ari Fleischer ten months ago. Indeed, describing this administration's economic policies merely as "supply-side" is something of an understatement. Supply-siders believe that cutting upper-bracket tax rates can cause massive economic benefits, and in the early '80s they did famously claim that those benefits would be so large that they would actually cause tax revenues to increase. But most have spent the intervening years fervently insisting never to have said any such thing. "[T]he 'supply-side' movement is not remembered for its correct predictions about prosperity, but for the 'Laffer curve,' and its supposed prediction that the revenue effects of tax cuts would be large enough to shrink the deficit," writes Bartley in The Seven Fat Years, his apologia for Reaganomics. "The prediction, however, is not one any of us really ever made." So Bush has embraced a version of supply-side economics so radical that even the supply-siders themselves have repudiated it. After the president's controversial pronouncement, no less a purist than Jude Wanniski, author of the influential 1978 supply-side tract The Way the World Works, told The Washington Post that the Bush tax cut is "decreasing revenues."

Wanniski, once a confidant of GOP stars such as Jack Kemp and Steve Forbes, has since become marginalized by holding forth on noneconomic subjects--for instance, defending Louis Farrakhan or insisting that Saddam Hussein did not use poison gas against the Kurds--where his nuttiness is apparent even to laymen. The other great tax-cut tome is Wealth and Poverty, written by George Gilder in 1981. Gilder's reputation, too, has gone south recently. After winning acclaim as a tax-cut zealot, Gilder abruptly became a telecommunications autodidact. During the 1990s boom he made a fortune as a new economy evangelist--he earned up to six figures for a single speech, and his newsletter, "Gilder Technology Report," often caused stocks he recommended to jump as much as 50 percent. Gilder used his wealth to purchase the conservative monthly The American Spectator, which he turned into a monument to his own genius. One issue featured a 6,600-word cover interview of Gilder himself, in which he was asked questions such as, "In the late 1970s and early '80s, you led the intellectual debate on sexual issues from the conservative side. In the 1980s your book Wealth and Poverty transformed the way people thought about capitalism. And then you wandered off to study transistors. Why did you do that?" (Gilder's reply: "I thought I had won those debates. Whenever I actively debated anybody, they didn't have any interesting arguments anymore.") In the same interview Gilder declared, "Almost all [upper-class women] are averse to science and technology and baffled by it. And they clutch at the pretentious irrationality of environmentalism as their countervailing wisdom." The Spectator promised its readers that "[a]n equally wide-ranging talk with George will be an annual event." Alas, only one ever took place. The technology crash caused most of the companies Gilder extolled in his newsletter to lose virtually all their value. "I told people in early 2000 they should sell half their shares in these companies," he told Wired in a semi-contrite interview last July. "I didn't say it often. I didn't put it in a newsletter." Gilder had to abandon the Spectator and, according to Wired, is now broke and has a lien against his home--giving the phrase "Wealth and Poverty" an unanticipated poignancy. But, as the Journal might note, his income-tax bill these days is probably almost nil. Lucky ducky.

Flat tax!! It's the only fair way. And, it is the only way in which the people that are getting a free ride get to see at least part of what it costs. It lessens the liberals' ability to use my tax dollars to buy the votes of deadbeats (but unfortunately, not the votes of the dead).

Most of the upper income liberals and moderate liberals I know don't think they are overtaxed.

Perhaps it is time to reinstate the "tax me more" campaign.

A real flat tax would mean everybody pays the same amount!

I've never heard that voiced before. I disagree. I support a flat, uniform percentage for everyone, with no itemization or deductions.

Your employer must report your income. Your stock broker must report your transactions. Your bank must report your holdings. The government knows what you earn. Then you pay (perhaps) 15% of that to the government. Everyone is treated equally under the law. Anything else is IMO immoral.

Supply side is actually not the issue here. It's the old ethical debate of Who Pays What to Whom. And all that is is a debate about first principles, not tax rates. The only thing we can do is watch and see how Bush's tax relief package plays out.

However, having not read the WSJ piece, I can only go so far in this debate and do so with any shred of intellectual honesty.

As to Russia, Putin put in the flat tax precisely because there is a culture of tax avoidance, fraud, and scam. If you lived under Communism for seventy years, you'd learn all the tricks, too. The thirteen percent deal is low enough to be fair to the workers, while moderate enough not to hurt the Mercedes Benz people.

Be Seeing You,

Chris

The chart suggest a flat tax applied on every tax, state, local and federal, would be a move towards progressivity, if only we could find a way to levy a sales tax on the amount that is saved rather than spent.

Yes, you are right, but only in part. The thrust of the Chait piece is about errant facts and assumptions, and false empiricism. Thus, I am weighing in here. We need to get the facts right, or more closely right.

But then I am fairly liberal on tax policy matters. The richer should pay more.

Then you should be overjoyed with the current "progressive" system. But even if our current system of thievery received a complete and much needed overhaul and a flat tax was implemented, the "richer" would still pay more --- a lot more.

Yes, everything I think. But I am not sure, just quite sure given the numbers. Of course, one could argue that fica taxes are not taxes at all, but that argument frankly lacks much appeal, except amoung some old FDR new deal diehards, and certainly not among the Right.

This entire sentence slips and slides. It's wrong.

Progressive is regressive in that it punishes performance and rewards mediocrity and laziness. There is no reason for a progressive tax. It is theft.

It is accurately, except that the "embracing" is only intermittant and rhetorical in the Bush administration. They don't really believe in supply side in the sense that the lower the rates, the higher the revenue over time. More typically, the White House is able to restrain itself, and just talk about economic stimulus in a recession, or near recession.

"That is right, and the assumption is that about half is in practice. It is driven by the elasticity of the cost of capital actually. The higher the elasticity, the more of the corporate tax will be passed on in the form of higher prices pursuant to market mechanisms."

The elasticity of the cost of capital is base on interest rates, the state of the equity markets, a company's credit rating and outlook etc. The cost of capital, like the cost of taxes has nothing to do with what a company is able to charge for its goods and services.

I think the word you are looking for is "impracticle."

Concerning the progressive income tax that you favor, I am not rich and may never be rich. I would like to be rich. However, just because I am not rich means that I favor a progressive income tax. Here's how I see it:

If I have a job, making $10,000 per year, and there is a flat income tax rate of 20%, I am paying $2,000 in taxes.

If my friend makes $1,000,000 per year, at the 20% rate, he is still paying more than me.

Also, depending on how he is making his money, if he is a business-owner, he is creating jobs for the community. Which is something that I am not doing.

"It is accurately, except that the "embracing" is only intermittant and rhetorical in the Bush administration. They don't really believe in supply side in the sense that the lower the rates, the higher the revenue over time. More typically, the White House is able to restrain itself, and just talk about economic stimulus in a recession, or near recession."

I think I'm outta this one. Have another drink. See ya.

It actually does. If the cost of capital does not go up as corporate taxes go up (and remember this is a worldwide market), then competitive pressures will cause no increase in prices, and the after tax return on capital will be reduced. If it does shoot up, then that increase will be passed on in the form of higher prices. I think I have that right.

Withholding taxes should be described in terms of present value of payment minus future returns (which unfortunately have to be estimated and possibly won't be there). In that respect, they aren't really a tax in the same sense as government operating revenue is. You should note that those paying SS taxes at the lower end of the scale tend to over-collect and those at the top of the scale tend to under-collect. This is made moreso when you consider that some SS recipients (those that took care to set themselves up for retirement) have to pay taxes on part of their SS money.

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