In a recent column ("No Time Like the Present", 9/16/13) in Barron's, Donald J. Boudreaux, a libertarian economist, makes an excellent point - in absolute terms middle class Americans are better off than their 1950s counterparts - but uses this observation to counter an argument no one is making.
The "left-wing propaganda" of economists such as Nobel Laureate Paul Krugman whom Boudreaux has made a career of attacking is far less nostalgic for the bad old days of the 1950s than are many on the far right who wax about the days before Medicare, Medicaid, the EPA, and desegregation as some kind of Fathers Knows Best utopia.
The actual arguments made by Krugman can be (honestly) summarized as:
1.) The extraordinary increase in wealth over the past few decades has been shunted disproportionately to the top 1% with American middle class workers earning no more than they earned decades ago despite soaring worker productivity.
2.) Economic history shows that the oft-repeated right wing talking point that economic growth is strangled by top marginal income tax rates above 30% (or wherever they happened to be last year) is wrong.
In one sense, Boudreaux's column helps make point #2. The technology driving all that Cheap Stuff Americans enjoy today, as well as the advances in medicine, public safety, and hygiene that prolonged life expectancy did not happen overnight. We are beneficiaries today of a process that was in full bloom in the 1950s, a period when top marginal tax rates topped 90%. The fact that high marginal income tax rates did not choke off an economic and scientific boom then makes it hard to defend maintaining tax rates only a third as high today.
The author also confuses and conflates many developments that were financed by the higher income taxes he bemoans. We live longer in large part because our workplaces and highways are safer. Motor vehicle deaths per mile traveled, for example, are a fraction of what they were in the 1950s in large part because of technological changes such as seat belts, anti-lock brakes, and airbags that were fought vociferously by free market advocates and only developed and installed when the federal government mandated them. Safety devices in the workplace, such as obligatory carbon monoxide detectors in coal mines, were not installed out of the love of coal mine owners' hearts. The air we breathe is cleaner not because Big Oil had an epiphany about CO2 emissions and lung cancer. Rather, our government, based on extensive taxpayer-funded research, mandated that cars have cleaner emissions and smokestacks have filters.
Life expectancy of course has nothing to do with marginal tax rates or the ability to buy big refrigerators inexpensively. It has to do with access to clean, running water, cars that don't kill us in a crash, and access to healthcare (it does us no good to live in a society with vaccines and antibiotics if workers lack health insurance). Although we continue to lag other developed countries, the United States made massive progress in insuring its citizens through programs that have nothing to do with low income tax rates and everything to do with government intervention: Medicare, Medicaid, and now the Affordable Care Act, all of which were vociferously opposed by "right wing propagandists" as an apocalyptic scheme to deprive us of our liberty. During 2008 presidential campaign, Sarah Palin famously cited one such campaign, quoting (without attribution) then actor Ronald Reagan's 1961 tirade against the "Socialist Dictatorship" that would inevitably follow the implementation of Medicare.
No one argues that we are not better off materialistically than we were in the 1950s. The point is whether the middle class is sharing the extraordinary profits they created. From income to net worth skew, the answer clearly seems to be no. We can argue about the reasons - perhaps the fact that income tax is less progressive and unions have been gutted is simply coincidental - but no one can deny that the lion's share of the wealth the middle class created has been transferred to a managerial and speculative elite. (Interestingly, the magnitude of this wealth transfer deviates dramatically both from what people think it is and what people when surveyed believe is fair.) Active unions and progressive income taxes arguably help offset some of this wealth transfer as indeed they do in Western Europe. If Bordeaux's thesis were correct, workers in European countries with more progressive income taxes and powerful unions should not live longer or enjoy higher standards of living than their American counterparts. And yet they do.
Boudreaux has argued elsewhere that the idea that "America's middle class has stagnated economically since the 1970s" is a "spectacularly wrong… 'progressive' trope." His bottom line seems to be: middle class, stop whining. You don't need to be paid more, have more job security or benefits, or join a union because you can buy a cheap refrigerator and live 8% longer. Anyone who says otherwise is just spinning "left wing propaganda."
Fair enough. So let's apply this same logic to those who whine incessantly about how they will not work or hire if they have to pay a penny more in taxes. The ratio of CEO-to-worker pay surged 1,000 percent since 1950; Fortune 500 CEOs earn 204 times as much as their workers, up from 20 times in 1950. This means that CEOs today could suffer a 90% income tax haircut and still have the same relative wealth as their 1950s counterparts - they would still earn 20 times as much as their workers (the ones who live so long and can buy all those cheap refrigerators). The fact that no one is proposing anything like a 90% top marginal income tax rate is irrelevant, but illustrates how strident and divorced from reality the conversation about optimal income tax rates has become.
If Bordeaux is correct, then surely at the top should be ecstatic at making 2,000% of what the fat and happy American middle class earns. The fact that they are not satisfied earning even 20,400% of what workers speaks volumes about the true economic reality in America.
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