A letter to the editors at the Wall Street Journal, sent on 7/24/10, expressing a bit of sarcasm toward another billionaire telling us about his guilt, and compensating for it by proposing that other people pay more taxes.
Just what we need: another Wall Street gazillionaire telling us it is time for a tax increase (Peter G. Peterson, Tax Aversion Syndrome, July 24). Granted, Mr. Peterson has gone mildly creative, suggesting a new category of taxation (“a progressive consumption tax”) and an elimination of income-tax credits and deductions rather than a simple increase in rates, but, in referring to “tax aversion syndrome,” he clearly acknowledges that he is, in effect, advocating for a tax increase. Three observations:
(a) If his income-tax reforms only kicked in for taxpayers with income at the 5- or 10-million dollar level that is common for junior partners and competent traders at the big banks, or at Mr. Peterson’s level, that might overcome some of the middle-class cynicism that arises from the fact that, at the present time, the marginal rate on Lloyd Blankfein’s next dollar of income is the same as the marginal rate on someone making 1/200ths of what Mr. Blankfein makes;
(b) taxpayers who are not at Mr. Peterson’s income-level are also cynical about the notion of a VAT that is sufficiently “progressive” that they (the ordinary taxpayers) do not end up bearing the brunt of the VAT; and
(c) Even a Pete Peterson ought to know that the raising of effective tax rates (whether by reducing deductions and credits or by taxing things that were not previously taxed) does not necessarily equate to a raising of tax-revenues, a point that has been demonstrated almost ad nauseum by such authorities as Alan Reynolds, Glenn Hubbard, Robert Barro, and the Editorial Page of the Wall Street Journal. If Mr. Peterson wants to get into that argument, I suggest he tackle it head-on, rather than just presuming that adding a VAT and increasing the effective income-tax rates would automatically increase revenues; a very credible case has been made that tax revenues (from all types of taxes) will always remain a constant percentage of GDP, and there seems to be no reason to assume that this result would be avoided by going to a VAT or cutting deductions and credits rather than simply raising the income-tax rates.
One additional point: Mr. Peterson’s proposal that we also tackle the governmental-outlay side of the problem is, of course, welcome, but his suggested cutbacks in Social Security benefits would be truly unfair to people who have already paid (and overpaid) into the system, and his optimism about “pilot programs” as fixes for Medicare, though rather quaint, is absurd in the context of the adoption of Obamacare.
[Posted on mecmoss.com 10 Feb 2012]