The Breakfast Table

Fiscal Thoughtfulness

Dear EJ,

Taxes still on the brain. Looking over the budget, I again see something awry in our tax culture. The budget is a big bid by a certain political class to remain in power. There are a million agendas in this budget, agendas that often conflict with one another. Certain groups get favors–the steel industry gets a tax credit. But, as the Journal notes in its editorial this morning, that means other groups lose. In this case the vice president’s electric car movement.

No wonder people feel manipulated. Their tax disillusionment is the counterpart to the political disillusionment you looked at in your book, Why Americans Hate Politics. We’ve ended up with a tax structure that punishes the people we should want to reward the most–those who are becoming successful. The very successful, those who have already arrived, aren’t punished–they pay lower capital gains taxes. But those who are in the process of succeeding pay the highest rates of all (50 percent, in tax hell New York). And what’s the point of taxing businesses and investors, as the budget’s authors want to do? They are the ones who gave us the gift of this surplus in the first place.

The title of my book, The Greedy Hand, is a dramatic one. The phrase comes from Tom Paine–“the greedy hand of government…making our prosperity its prey.” This revolutionary zeal is a bit strong for our chatty, discursive age. But the budget is a perfect example of the Paine’s greedy hand at work. America is prosperous now, so the hand is grabbing some of that back.

In my mind Charles Murray’s piece this morning about the growing underclass (also the Journal’s editorial page) explains the downside to this. Murray focuses on social factors–jails, illegitimacy rates. But there is also a tax factor here.

If you tell his underclass, or even middle earners, that the moment they succeed they lose, this is a bad message. Yet that is indeed what the current tax structure does–lower and middle earners lose valuable tax credits when they start to earn more.

Last summer I visited Milton and Rose Friedman at their apartment in San Francisco. My kids came–they wanted to meet “the smartest man in the world.” The first thing out of Friedman’s mouth was his concern that the lower earners would be left behind in the computer revolution. Friedman is often pictured as a ruthless free marketeer, but he’s actually the most humane of fellows. His solution? Privatize schools. But as for grown ups, the old Reaganites are actually correct. The only way to ensure that everyone benefits from the new bounty is to lower tax rates all around. That’s a true level playing field.

Yours in fiscal thoughtfulness,

PS. I haven’t forgotten the babies topic. More later.