Brandon Weichert, whose excellent writing has caught my eye for a while now, exhibits his worthy independence from party orthodoxy with his article on Monday asking: Why not tax the rich more? Weichert’s instincts here are good, but as a wizened old-timer (you may call me Obi-Wan), let me sweep back my gray robes and say: slow down with that tax-power lightsaber, young Padawan!
I share Weichert’s view that President Trump and the GOP missed a great opportunity when it disdained Steve Bannon’s proposal to raise marginal tax rates by 5 percent on incomes over $5 million. In fact, I am tempted to reply—I was there first!
In 2011, I wrote an article for the center-left Breakthrough Journal arguing that “modernizing conservatism” required rethinking the categorical conservative opposition to tax increases. You can imagine the negative reaction! I got called names. Unpleasant names. Also accused of bad motives. Joseph Bast of The Heartland Institute said I was merely trying to preserve my Georgetown Cocktail Party privileges, somehow missing the news that I had left Washington. (For the record, by the way, in my 15 years in Washington I only attended four Georgetown cocktail parties. They are way overrated. Parties in Kalorama are better, or were until Obama moved there.)
My case was simple and straightforward: the old strategy to “starve the beast” with tax cuts had failed. I was persuaded by some good empirical evidence (“empirical evidence” is not always an oxymoron) by several sound conservative economists that tax cuts, in fact, had backfired as a means of imposing spending restraint. Americans got used to receiving a dollar’s worth of government for only 60 cents of taxes (for many people, close to zero cents of taxes).
Now, I argued, we ought to consider a strategy of “serving the check”: if Americans were made to pay for all the government they receive, they might want less of it. We’re already seeing a glimpse of how this might work: residents of high-tax blue states are just now starting to realize the effect of losing the state-and-local-tax deduction (SALT) from the Trump tax reform, which was my favorite part of the Trump bill, and the deserved cost of Democratic intransigence. (Scuttling the elimination of SALT was the primary Democratic demand of the 1986 tax reform talks with Reagan, and they got it easily. The imperatives of #TheResistance in 2017 meant they couldn’t deal with Republicans, so now blue states are taking it in the neck. I call that “winning.”)
I am still convinced of the essential logic of supply-side economics, but Weichert is correct that the supply-side prescription was suited to another time and place, namely, 70 percent income tax rates and 50 percent capital gains tax rates at a time of high inflation that made these tax rates de facto wealth confiscation.
The role of inflation in the supply-side story is forgotten these days, if it was ever understood clearly in the first place. Tax cuts in 1981 were an essential anti-inflationary policy, though the conventional Republicans of the day (cough cough Bob Dole cough cough) had it exactly backwards. That is not the world we live in today. And I don’t think the difference between a 35 percent top income tax rate and a 39 percent income tax rate is the difference between economic nirvana versus economic ruin. It’s not 1979. (Thank God. I hated disco, the Bee Gees, bell bottoms, and leisure suits. Young Padawan Weichert, you have no idea how good you have it.)
“Serving the check,” however, requires taxing everyone, not just the super-rich. This is true not just on political grounds but on fiscal grounds as well.
Repeat after me: the middle class is where the money is. And just here is the hazard for the Weichert Tax Plan. A tax curve that looks like a fallen-over L-shape won’t match up to our drunken spending habits, won’t have the salutary and transformational effect on public opinion, and won’t last for long.
When Democrats say they want to raise taxes on the super-rich, it has always been a cover for raising taxes on the middle class, because even 70 percent income taxes on the rich along with a 2 percent wealth tax on people with more than $50 million in assets won’t begin to raise enough revenue to pay for existing entitlement programs, let alone the long list of new freebies liberals are panting for.
What Scandinavian Socialism Gets You
Here we should take liberals at their word that they aren’t literal socialists, but are only aiming at having us emulate Denmark or Sweden. Fine. Let’s note, then, that Denmark’s top income tax rate of 60 percent kicks in at about $55,000 of income, which is rather less than $10 million. Ditto Sweden. Tilt! Add to that the 25 percent value-added tax on virtually all transactions, and you have a tax burden that the middle class in America won’t support.
Denmark and Sweden are fine places, and their people are mostly happy. But Americans aren’t Swedes or Danes. We’re Americans. Disposable income in Denmark and Sweden is quite low. I was stunned on my first visit to Copenhagen a few years ago to see how crappy are the bicycles Danes ride around their bike-friendly city. That is a function of their high taxes. New cars there come with a 100 percent excise tax. Yeah—go ahead, make my day, libs: please propose that here.
This is why it is important to make the libs own the tax hikes to come. If we cooperate or lead the charge, the libs may end up owning us.
Weichert is right that “Wealth in this country has simply become too concentrated in the hands of a very few, mostly leftist globalists.” If I was king for a day, I’d design a tax system that soaked leftist billionaires. Call it a “virtue-signaling excise tax.” Or maybe a “Bonhoeffer Levy”—no cheap grace for leftist billionaires. Every time Google does some stupid intersectional identity politics nonsense, its corporate tax rate should go up by 1 percent.
But that is a hard tax system to design in the real world. Likewise Weichert’s notice of Trump’s forgotten pledge to rein in the “carried interest” tax treatment of hedge funds. The carried interest treatment of hedge fund management fees that covers regular income into lower capital-gains tax rates is arcane enough to defeat targeted fixes but is susceptible to a simple fix that could help the middle class.
The case for a lower capital-gains tax is sound on the merits, but one solution is to treat capital-gains at the same rate as regular income, with one adjustment. If we’re going to go back to 1950s-style marginal income tax rates, why not also re-institute the provisions of the tax code in that era that exempted the first $100 dollars of dividend income (except adjust it for inflation, so make it $5,000 or so today), and likewise exclude something like one-third or half of capital gains from taxation (which is simpler than trying to adjust for inflation), which would also help the small investor and retail saver while limiting the gamesmanship of Wall Streeters.
One other thing: we should insist that Senator Elizabeth Warren’s wealth tax be applied to those huge tax-free hedge funds that run a small college on the side, like Harvard and Yale. Let’s watch the professoriate scream over that. I’m buying popcorn futures. I just hope Weichert won’t tax away all of my easy gains from this obvious trade!
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