Michael White: ‘I would like to suggest that Nader be known forever more as Ralph W. Nader.’

☞ This is probably more polite than calling him a big fat idiot, and may work just as well. Ralph W. Nader it is.

Warren S: ‘In all your rhetoric against tax cuts for the rich you seem to have forgotten about the current state of the economy. Remember just over one year ago when you didn’t advocate a tax cut because it would cause inflation? If I recall, your suggestion was “wait until we need it” (i.e. the economy stalls). Well, the economy has stalled. You don’t really think that a tax cut for the poor is going to help them start businesses and hire people do you?’

☞ Well, with unemployment near historic lows, I’m not sure things are so bad. And using the surplus to pay down the debt is its own form of stimulus, because it helps to keep interest rates low — say, for mortgages and home building.

Still, with the stock market down sharply and the administration talking down the economy and our confidence (like a coach running up and down the sidelines, as John Podesta has put it, shouting, ‘We’re gonna lose! We’re gonna lose!’), some early tax relief may be just what the doctor ordered.

But what kind?

The current tax structure seems to have worked pretty well since it was enacted, over unanimous Republican opposition, in 1993. Certainly it has worked well for the top 1%, toward whom so much of the Bush tax relief is directed. As Hendrik Hertzberg notes in the March 12 New Yorker, ‘From 1992, the year before a supposedly onerous new marginal tax rate kicked in, through 1998, the most recent year for which Internal Revenue figures are available, the average after-tax income of the richest 1% rose from about $400,000 to just under $600,000, and from 12.2% of the national net income to 15.7%.’

If Warren S. is right – that a tax cut for low-income folks won’t help stoke the employment engine – then I suppose he might argue that only those best off, and most likely to be able to start a business and hire people, should get a tax cut. But somehow, I don’t buy it. Lots of businesses were started, and people hired, in the Sixties, when the top bracket was 70%. Indeed, employment growth under Reagan/Bush was significantly less, when the top bracket was dropped to 28% and 31%, than it was under Clinton/Gore, when it was hiked to 39.6%.

People who start businesses do so in part because they know that their main reward, if they succeed, will come in the form of long-term capital gains. Cutting the top income tax bracket will not sharpen that incentive. Nor will an extra $40,000 a year in the pocket of an executive earning $800,000 a year encourage him or her to start a new business and hire new people. (An additional maid, perhaps, but that’s different.) Such a person already has access to capital if he has a good idea for a business. What’s more, this extra $40,000, if anything, reduces the incentive to risk everything and go out on his own.

The same holds true for ordinary investors. As the income tax rate falls closer and closer to the long-term capital gains tax rate, the incentive to take extra risk investing in a risky start-up falls, too.

Many new businesses will get started no matter what the tax structure is. But on the margin, lowering the top tax rate on ordinary income probably lessens the incentive to take the risk of financing a new business.

A tax cut is clearly in the cards. Democrats favor one, too. Just not so big as to keep us from paying down the debt. Not so big as to crowd out other priorities, like education and a prescription drug plan for seniors. Not so big as to risk crisis if it turns out the 10-year budget projections – which we all know are well-intentioned but fanciful – fail to pan out. And not so skewed as to redistribute wealth from the 98% at the bottom to the 2% at the top.

How about the Democratic suggestion to cut the 15% bracket down to 10% for everybody? That would save all income tax payers money, including the wealthiest, because the first few dollars of income even the wealthiest report on their 1040 are taxed at 15% and would now be taxed at 10%. So all would get a break, and it would be simple to do quickly.

When one surveys all the world’s challenges, opportunities, and woes (Africa is dying! the rain forests are dying!), it’s just very hard for me to rank as a priority the need to shift more wealth to the top 2% of Americans.

I’d love to know what Ralph W. Nader thinks about all this. And about our shutting down the Korean peace process. And our reigniting a world arm’s race with our unworkable $450 billion Star Wars nuclear missile shield. And our cutting off family planning aid to impoverished women around the world. And our proposed cuts in the budget for alternative energy sources that compete with oil and gas. And our taking the American Bar Association out of the process of vetting judges. And about arsenic standards and carbon dioxide standards and workplace ergonomics. But now that the causes he champions are being dealt blows day after day, he has vanished from the ramparts.

 

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