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Stephen Moore Makes the 'Dismal Science' Enjoyable

October 12, 2012

By Diana Furchtgott-Roth

The presidential election is less than a month away, the candidates’ debates are in full swing. A central disagreement between Mitt Romney and Barack Obama is income tax policy.

And that makes the Oct. 9 publication of Stephen Moore’s new book, "Who’s The Fairest of Them All: The Truth About Opportunity, Taxes, and Wealth in America," timely.

Moore is not neutral, he is a champion of limited government and free markets, but he is fair. (He has to be, in a book about fairness.) He examines a broad range of perspectives, from those of liberal economists Alan Blinder, Peter Diamond, and Emmanuel Saez to Columbia University professor Glenn Hubbard, Romney’s chief economic adviser (who contributed the foreword), former Federal Reserve governor Lawrence Lindsey, and supply-side economist Arthur Laffer.

Laffer, it will be remembered, delivered three decades ago the supply-side rationale for cutting tax rates that was embraced in President Ronald Reagan’s 1981 tax cuts. Since then, Moore has collaborated with Laffer, he is now a member of the Wall Street editorial board, and he was affiliated with the Club for Growth, which has advocated tax-rate reduction.

So it is no surprise that Moore prefers Romney’s policy — reduce all tax rates — to Obama’s prescription, raise taxes for couples with incomes above $250,000. The heart of the book is the author’s examination of what constitutes "fairness" in America. He argues that cutting tax rates is fair because lower rates lead to income gains for all, from bottom to top.

Moore’s long title belies a short, accessible book. Moore succeeds where most economics writers fail, making "the dismal science" enjoyable to read. Moore’s numbers and charts blend into the pages rather than creating obstacles for readers. Moore captivates the reader with references to Kurt Vonnegut, practical questions about fairness, and other allusions to popular culture.

Moore’s book is for ordinary Americans with little free time but with curiosity about economic fairness in America. Moore gives them a book that can be read in a couple of hours. Moore helps them understand that America is a profoundly fair country, and that efforts to raise taxes would likely be counterproductive.

As readers even moderately engaged in this presidential campaign know, President Obama repeatedly argues that upper-income Americans need to pay their "fair share" of taxes, by which he means their tax rates should rise. Mitt Romney has proposed reducing all tax rates, including those of upper-income Americans, by 20%.

Moore evaluates the arguments on each side, and concludes — as he has believed and advocated for decades — that lower tax rates lead to faster growth, which he argues will result in greater income growth for all Americans.

Moore told me he wrote the book because "fairness is the central issue in the campaign." Or, as he writes, "How do we make sure that the middle class and the poor can get ahead...?"

Myth of the troubled middle class

Most people would agree that the question of what policies will best help the poor and the middle class is central to this election, coming as it does amidst a weak economic recovery. Not all of us will agree with Moore’s prescription that a flat tax is the way to achieve fairness and simplicity.

Moore explodes the myth of the troubled middle class, which has been a Romney theme. He presents data showing that when all benefits are added to income, the well-being of people in all parts of the income distribution, from bottom to top, rose between 1979 and 2007. The top 5% saw an increase of 63%, and the bottom 40% saw gains of 25%. That differential rate of progress has been grist for the mills of liberals, although they usually pose the numbers differently.

Other data cited by Moore: the percentage of poor households owning a variety of home appliances and electronic devices in 2005 exceeded that same ratio in 1970. It’s not only the spread of computers and cell phones: In 2005, 82% of the poor owned air conditioners, compared to 34% of all households in 1970. And 37% of poor households owned dishwashers in 2005, compared with 19% of all households in 1970.

To return to taxes: Moore shows that as tax rates decline, the share of taxes paid by top earners increases. That is why Romney in the first debate could promise that the share of all revenues paid by the rich would not decline.

In 1980, the top tax rate was 70%, and the top 1% of income earners paid 19% of all federal income taxes. In 2007, the top tax rate was 35%, and the top 1% paid 40% of all taxes — even though it earned 22% of all income. Similarly, the top 10% paid 49% of all taxes in 1970, and 71% of all taxes in 2007. Readers and voters can judge for themselves if that is fair.

Moore suggests that a principle of fairness is that all workers should pay some income tax, even as little as $100, because 48% of tax filers pay no income tax. In my view, it would be inefficient, because the Internal Revenue Service might spend substantial resources collecting small amounts from large numbers of people. Moore doesn’t address this efficiency issue.

Further, the 48% who don’t pay are not the same people every year. Some retirees may pay one year, perhaps because they have a capital gain, but not the next year. Some students might pay next year, after they graduate, but will not pay tax this year on low earnings from part-time jobs.

Moore’s preferred tax is a flat tax, like Hong Kong’s 15% flat tax. He proposes a rate under 20% with an exemption for the first $20,000 of income for a family of four for the sake of progressivity. This tax is fair, according to Moore, because it would result in a boom in economic growth, creating "a rising tide that lifts all boats," in the words of President John F. Kennedy.

If you want to examine economic fairness in America, you might listen to Barack Obama or to Mitt Romney. Or you could read Stephen Moore’s new book on fairness, and you will be far better informed.

Original Source: http://www.marketwatch.com/story/a-fairer-look-at-taxes-and-wealth-2012-10-12

 

 
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