Jonah Lehrer is clueless as to why and how the rich respond to tax policy

This is a letter I sent to Jonah Lehrer, commenting upon his piece, “Are We Hardwired to Love Taxes,” that appeared in the 11/13/10 edition of the Wall Street Journal.  Mr. Lehrer, who reportedly fancies himself as a healer of the rift between the sciences and the humanities, does not appear likely to heal any rifts with this piece.

Dear Mr. Lehrer,

Regarding your musings on how the “rich” respond to the re-distribution of wealth:  If you are going to venture this far away from your areas of expertise (as identified in either your website or the various Google entries that purport to describe you), I suggest you first seek out sources that offer actual data, as distinct from psychological or neuroscientific speculation.   The fact is, we already know how people in the highest tax-brackets respond to increases in tax-rates:  they alter their behavior in ways that have two very clear effects:  (a) they call their lawyers and accountants and figure out ways to reduce the amount of taxes they would have to pay if they declined to alter their behavior;  and (b) as a result of the things they do on the basis of their advisors’ advice, the overall economy suffers.  I could refer you to literally hundreds of scholarly pieces by people such as Robert Barro of Harvard, Alan Reynolds of the CATO Institute, Milton Friedman and most of the rest of the Nobel Laureates identified with the University of Chicago, that have conclusively demonstrated just exactly how “the wealthy actually respond to the redistribution of wealth.”     Secondly, your attempt to state the “conservative argument” is inadequate:  yes, the alteration in the behavior of taxpayers in the highest bracket may include a reduction in consumption and/or investment, but those are not the only changes – these taxpayers will also tend to reduce or avoid entrepreneurial activity and, in general, will tend simply to not work as hard.  The real point, as made at length by nearly every reputable conservative economist (and quite a few honest liberals), is that raising tax rates (i.e., tax “increases,” as you call them) does not necessarily raise tax revenues;  both Barro and Reynolds have shown (with hard data) how overall tax revenues tend to remain at a constant percentage of GDP regardless of the actual rates of taxation.  (This is obviously because of the fact that tax-rate increases reduce economic activity and growth, which reduces income, so there is less income to which to apply the higher rate of tax.)   In the short term, there may be a brief burst, while people are taxed at the higher rates before they have had time to alter their behavior in response to the increased rates, but the burst only lasts for a very short time.

I do not mean to minimize the potential validity or significance of your musings on human motivation and behavior – perhaps the higher-bracket people do experience some sense of guilt while following their advisors’ advice.   Perhaps, as the Left has persisted for 200 years in believing, we are all closet Marxists who secretly yearn for “a world in which wealth is more evenly distributed, even if it means we have to get by with less.”  Nevertheless, if given the choice once summarized by my favorite Marxist (Groucho) as, “Who are you going to believe, me, or your own lying eyes,” I respectfully choose to believe what I see before my eyes, which is that most people will do what they can to minimize the taxes they pay, and that a country in which people are largely allowed to be motivated by self-interest tends to be a country that takes much better care of its less-fortunate citizens than do countries that are more deeply into concepts of re-distribution.   Moreover, I suggest you re-think your use of the blanket term, “the rich,” because, under our present tax code, the highest marginal tax rate (35%) kicks in at about $373,000, and an only slightly lower rate (33%) applies to all income above about $172,000, and I can guaranty you that the motivations and tax-related reactions on the part of people making $172K or $373K are dramatically different from those of people whose incomes are more commonly associated, in contemporary America, with the term, “rich.”

[Posted on mecmoss.com 10 Feb 2012]

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