As featured on p. 218 of "Bloggers on the Bus," under the name "a MyDD blogger."

Tuesday, July 28, 2009

The War On Mitch Albom's Bank Account

Yesterday, I screwed up a pretty basic tax question when I misread that drug companies were getting a tax deduction for their ads instead of using ads as a business expense, like other companies, to offset profits. In times like these, I'm happy to not be Mitch Albom.

In explaining why it was OK to sock a new 5.4% tax on the highest earners in this country — to pay for health care reform — President Obama’s press secretary, Robert Gibbs, said this:

“The president believes that the richest 1% of this country has had a pretty good run of it for many, many, many years.”

Ah. So that’s it. The old “You’ve had it good enough for long enough” policy. That’s why a family earning a million dollars a year should now cough up $54,000 of that — in addition to all the other taxes it pays...

It is not that the rich should not pay fair taxes. They should.

But to justify a grossly overweighted tax by saying “You people have had it good long enough” is to engage in the worst and most destructive form of politics: class warfare.

Albom is engaging in math warfare. A family earning $1M a year would, under the surtax plan which is probably DOA, owe an extra $9,000. There's a thing called marginal tax rates, and so all your income isn't taxed at the same rate. Jonathan Schwarz has the full details.

But I actually want to hone in on Albom's "class warfare" comment. Obviously he gets the math completely wrong, but he thinks that we should not institute the kind of tax fairness that led to runaway growth in the 1950s and 1960s because we would be "engaging in class warfare." Well, we're already engaged in it, and the rich won. They captured government and shouted down the voices of the less fortunate. The truth of the matter is that higher marginal tax rates do not harm growth whatsoever. The rich have constructed a fantasy world where taxes on their income force them to cut jobs and end all business output. The facts show otherwise.

The effect of a range of variables other than the tax rates is tested by “progressive inclusion” to ensure robustness. When the average tax rate and the marginal tax rate are included separately in regressions the average tax rate is insignificant but the marginal tax is significant. A sample of the results is shown in Table 8 (t statistics in parentheses). Models II and III enter the tax variables separately. The lack of significance of the average tax rate is clear. Including both the average tax and the marginal tax is claimed to represent the effect of progressivity: holding the average tax rate constant while the marginal tax rate is increased represents an increase in progressivity. The results for Model VI show that when both tax variables are included the coefficient on marginal tax remains negative and significant but average tax is not significant. The results of Model III show that a 10 percentage point increase in the marginal tax rate reduces growth by 0.23 percentage points.

In addition, common sense dictates that rich people are far more concerned with their take-home pay than how many jobs they create for the poor and middle classes. A friend has a joke about his Republican brother insisting to him about the unfairness of the estate tax, and he replies, "I don't think rich people spend a lot of time thinking about the tax rates of my truck driver brother in downstate Illinois."

And needless to say, the author of two best-sellers and well-regarded columnist Mitch Albom falls into the category of the rich, not the Illinois truck driver. I'm sure he does find class warfare the "most destructive form of politics." At least to him.

Labels: , , , ,