On Wed, 15 Nov 1995, Richard Ira Lavine wrote: > You may have noticed the op-ed in the Wall St Journal by a Richard > Vedder, who apparently creating arguments for the Joint Economic > Committee in favor on abandoning progressivity in federal taxation. > > His article makes several claims about state taxation: > > 1. "A state can dramatically improve its economic performance by lowering > the overall tax burden." > > 2. "The experience of the states suggests that a move in the direction of > taxing consumption as opposed to income would increase our nation's > wealth and prosperity." > > 3. "The econometric evidence demonstrates that flat-rate income taxes > lead to superior economic performance over variable-rate taxes that raise > the same amount of money." > > I would appreciate help in combating each of these propositions. Our > governor is particularly responsive to demands from the business sector > for lower property taxes and is considering offering to replace school > taxes with a consumption tax, with disastrous consequences for working > people and the poor. > > Dick Lavine > Center for Public Policy Priorities > Austin, TX > Anyone who wants a good laugh should read the op-ed (WSJ, 11/14) that Dick Lavine mentioned in his posting. Or maybe I should say "a good cry." The attack on progressivity in taxes has gone entirely mainstream, as economists and politicians now brazenly claim, for example, that "fairness" means treating ALL TAXPAYERS AND ALL INCOME THE SAME. (That particular wording is from the Heritage Foundation.) The arguments, if you can call them that, in Vedder's op-ed are riddled with the worst kind of errors in reasoning (e.g., States with high taxes have lower growth, so lower taxes are good!); and it completely ignores the problem of generalizing from state-level data to the federal level. Example: having shown that the 36 progressive-rate states have lower growth rates than the 14 zero- or flat-rate states, Vedder makes the following observation: "On balance, people are migrating away from progressive tax states and toward flat rate ones." Even ignoring the multitude of factors that go into this coincidental pattern, is it surprising that the migrations would move in that direction? The wealthy are more mobile and more likely to respond to tax incentives, so why should we be surprised that the movement of people from NYC to West Orange, NJ and Greenwich, CT confirms the correlation that Vedder conflates into an economic causation? (As a side note, Connecticut recently became more progressive by moving from a no-income-tax system to a flat system; so that is hardly the type of move that Vedder is talking about.) Even ignoring all of that, though, do we really believe that the states' experience in fighting against migrations of businesses and wealthy taxpayers in the proverbial "race for the bottom" is a useful model for federal-level tax policy? Vedder's arguments, even holding ideology aside, are ridiculous and unfounded. People on this network should realize that the attack on progressivity is here, and it's proponents are no longer shy. Despite a few problems, Dick Gephardt's plan for simplifying the income tax and making it more progressive is the best thing out there. Everything else is just a giveaway to the rich. This is big!
