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The Truth About Taxes

Arvind Sankar

The specifics of the “bloody experiment” that Mr. Nesmith refers to in his April 15 column should clue one in as to the hollowness of his overall case: comparing the premier economy of the world to one of the world’s poorest nations, less than 25 years since its independence, run by an unofficial dictator since that time, with a quarter of its adult population HIV-positive, and periodically ravaged by drought (including for the last couple of years); and ascribing all of its problems simply to the land-reposession policies recently implemented by President Mugabe is as dirty a rhetorical trick as any that can be contemplated. India instituted a similar program soon after independence as well, kicking out zamindars (landlords) and dispossessing hereditary kings of their kingdoms, but it doesn’t seem to have been too disastrous. Perhaps Mugabe’s problems lie more in the implementation than in the policy. Heck, the United States broke up AT&T in the eighties, implementing a policy that no doubt repels Mr. Nesmith as much as Mugabe’s, and is probably the reason why long-distance is so expensive now.

I also believe that if Nobel laureates in economics and university professors of economics are all decrying the unjust distribution of wealth in America, one ought to listen seriously to them. My roommate is an economics grad student, and I am constantly reminded that she has a far better grasp of these issues than myself. Education does count for something, you know.

Further, if we are to contemplate the so-called “logical conclusion of leftist policies”, surely we should compare it to the logical conclusion of rightist policies, the abolition of government? Are even the most staunchly conservative of the American people prepared for that? Does anyone really want a society in which the poor simply starve to death if they can’t afford food, ER doctors rifle through your wallet before deciding whether to stop your bleeding, and justice consists of a bullet in the head? European colonialism represented an extreme form of capitalism. A democracy is arguably antithetical to extremist capitalism, because its mantra of “one man, one vote” doesn’t allow the rich to simply outbid the poor. I submit that both extremes are untenable: pure capitalism doesn’t work because humans care too much about others, and pure socialism doesn’t work because they care too little -- yes, a simplistic statement, but it sounds so good, I couldn’t resist.

So we’re now forced to consider shades of gray, rather than black and white, always more difficult, but always necessary. The federal government is essential, taxes can’t be wished away, and at the same time, executing Bill Gates doesn’t help anyone, South Park notwithstanding. So let’s consider whether tax rates are punitive, and whether the proposed Bush tax cut is a good idea.

I don’t know where Mr. Nesmith got his figures of the top 1 percent of taxpayers coughing up half the federal budget. According to “An Economic Evaluation of the EGTRR Act of 2001,” published in the National Tax Journal in March 2002, the top 1 percent earned 19.2 percent of pre-tax income and paid 25.9 percent of federal taxes, but that was reduced to 24.9 percent by the 2001 tax cut. The bottom 60 percent of the population earned about 22 percent of pre-tax income and paid about 14.5 percent of federal taxes. (These values were not significantly affected by the 2001 cut.) These 60 percent earned less than $44,000 per year. The bottom 20 percent earned 3.2 percent of pre-tax income but paid only 1.1 percent in taxes; on the other hand, they earned less than $15,000 a year. So the federal tax structure is somewhat progressive, but not obscenely so. The table is available online at taxfacts/overview/egtrra.cfm.

According to a Jan 21, 2003 article in the New York Times, if you consider all other taxes, not just the federal ones, the bottom quintile pays as much as the top, as a percentage of income. Of course, some might argue that a flat tax should mean the top 1 percent pays 1 percent of taxes, but such people are usually considered to be in the same category as flat-earthers.

The bottom of the income distribution does receive more in direct federal outlays than the top; on the other hand, the top gets much more of the indirect benefits, like the police (it stands to reason that you’re more interested in not getting robbed if you’re rich), the military, civil courts, even a healthier labor market than otherwise. And there are studies that show that even the direct outlays, which, being a tax-the-rich-to-help-the-poor sort of a thing, are expected to be heavily skewed toward the poor, aren’t as skewed as you might expect, with 60% of federal cash payments in 2001 going to the bottom 40% of the population.

One should also note that if you look at the states that pay more in federal taxes than they receive in federal funds, you find quite a few bleeding-heart liberal north-eastern states, so arguably they’re putting their money where their mouth is; and when they ask for federal bailouts, they just want their money back.

Finally, a rather mean-spirited nitpick: in his fourth paragraph, Mr. Nesmith opens by saying, “Never mind, for a moment, the hypocrisy that this position entails.” His moment lasts only until the end of that sentence, however, since he immediately launches into a cliched demonstration of that hypocrisy. Not all liberals are of the armchair variety: quite recently a couple of them died in Palestine, for example, and a lot more work in places like Zimbabwe, trying to help the local population. And on the other hand, not all conservatives are rugged, self-made individuals: witness the current President.

Moreover, it seems quite unreasonable to expect that you must starve yourself before you can appeal to feed the hungry. Perhaps you should not be allowed to complain about Evil until you’ve sold your own soul to the Devil?

Arvind Sankar is a graduate student in the Department of Mathematics.