by John Hawkins | October 22, 2012 6:12 am
I was very pleased to get an opportunity to interview Stephen Moore, one of the most brilliant conservative economists on the scene today, about his new book Who’s the Fairest of Them All?: The Truth about Opportunity, Taxes, and Wealth in America. What follows is the slightly edited transcript of our discussion.
First question: Does America have the most progressive income tax system of any country in the Western world?
I think the most shocking finding of this book is that the United States is so dependent on rich people to pay the tax load in this country — more so than just about any other industrialized country we compete with. So the top 10% pay more of the taxes in the U.S. than Sweden, Germany, France — so many of these countries that we think of as socialist countries. The other thing that’s really amazing about the U.S. tax system is that the top 10% in the United States pay over 2/3 of the income tax. So when people say that the rich don’t pay their fair share, they’re not looking at the real facts and data.
And these other countries, they tend to have much higher tax rates than us overall, but the people in the middle class pay a lot more, correct?
Well that’s exactly right. If you look at these other countries, they tax the middle class a lot more. Now I know I certainly don’t want to tax the middle class more. I think one of the points of my book is that the best way to raise the revenues, as John F. Kennedy used to say, is to cut the tax rates, not raise them, because you get more economic activity, you get more investment, you get more business start-ups and less money that flows overseas.
That was true in the 60’s and that was true in the 80’s when Reagan cut tax rates. It’s something that has been proved time and time again and that’s why I think that Romney’s tax plan makes much more sense both from a deficit reduction standpoint and from the standpoint of growing our economy.
Now you have a chapter in the book called, “The Poverty of Equality.” In it, you make the argument that for society to be really fair, some people are going to have to be much richer and much more successful than the rest of us. A lot of liberals would disagree with that definition of fairness; so explain it more fully.
…The fairest of them all is the free enterprise system. That’s what creates the most economic opportunity, the most wealth — it’s the system that creates the most jobs and it’s the reason that the United States has become the wealthiest country in the world. By the way, our poor are much richer than the poor of almost every other country. So, this is the goose that lays the golden eggs. Why in the world are the politicians trying to kill the goose that lays the golden eggs by demonizing people who are successful in business, people who make money and those who make profits?
Well, let me ask you a quick follow-up question on that. You say our poor are richer than the poor of these other countries. Let’s say, compared to France or Spain or Greece, how do our poor do?
Our poor are richer than the poor in other nations — and especially in Europe these days. It used to be people said, “Well, look at how much better the poor and the middle class live in Europe than in the United States.” I don’t know if that was ever really true in recent times. But it certainly isn’t true now because the middle class and poor have gotten clobbered in Europe with the high tax rates and socialist policies. Of course, I think most Americans now realize, except the guy in the White House, that the last policy we want to emulate is what Europe is doing with their Robin Hood policies. We’ve seen what’s happening in France where they’ve raised the top tax rate to 75% and many of the rich are making plans to leave.
Yeah, I can’t blame them; I would too.
Now I’m not a big fan of suggested questions that come with books, but you did have one that came with this one that I thought was particularly intriguing; so let me read it. “The perception of a shrinking middle class is a myth. The trend in upward mobility and improved standard of living of the middle and poor Americas is the big story of the last quarter century.” Now many people would disagree with that assertion; so talk about it a little bit.
Well, what happened in the 1980’s and 1990’s in this country was one of the greatest boom periods for, not just the nation, but the middle class ever. Now it’s true rich people got very rich in the 1980’s and 90’s — the Bill Gates of the world and the Steve Jobs of the world and the Fred Smiths of the world who started Federal Express. But it’s also true that the middle class saw very big gains in their incomes and standards of living. So I estimate in the book that the average middle class family today has a higher living standard than the average rich family did in 1950. I think there’s just no question about it. Just look at all the goods and services that people have. So the average increase in income for the middle class was about 1/3 higher than it was about 30 years ago. That’s a big, big gain in a very short period of time historically speaking.
Now another point about the poor you made — you noted in a chart in your book — and this is something I’ve often said — is that in many respects the poor today live better than the rich have throughout much of human history because things have become so much more affordable. You even have a chart in the book called, “Everything is More Affordable: The Ownership Society” in which you compare the poor in 2005 to everybody back in 1970 and find that the poor are doing better in a lot of respects. Talk about that.
Even a lot of poor families have iPhones, they have air conditioning, they have washers and dryers — we think, well, of course everyone has those things. But, as recently as 1970, most families did not have those things. So there have been gigantic gains when it comes to the standard of living of the poor. Now, I’m not saying that there aren’t people who are facing real hardship in America. Of course, there are — especially in the last four years. Joe Biden had it right when he said the middle class has gotten clobbered over the last four years. That’s because we’ve adopted Robin Hood strategies of trying to steal from the rich and give to the poor, rather than finding economic opportunities and ways to provide not just a handout, but a hand up to the poor so they can advance into the middle class.
Now your book has a wealth of great statistics in it, tons of charts; the depth of information in it is amazing. But here’s one that stuck out: Two out of three Americans have higher incomes than their parents at the same age and when adjusting for family size, 81% have a higher income. Life is getting better for Americans; so why is there so much complaining, do you think? Why do you have so many people going, “Oh it’s so terrible now,” when things are better for this generation than they were for their parents?
Well, first of all, I think it’s a natural human impulse. People always say, “Well, things used to be better in the past than they are now.” Maybe it’s because we were all younger back then and we have a very wonderful memory of what it was like in our youth. I think that it was the great Jackie Gleason that once said that the past remembers better than it lived. I think there’s a lot of truth to that and I think true especially among young people. They don’t really have an appreciation for the fact that things like iPods and personal computers and iPhones and the Internet are very recent inventions. My teenager is just like this. He thinks that living without the iPods and the Internet would be like living in the pre-historic ages.
Now there was a quote from you that made the Drudge Report this week. It was in an article, but in effect, you were basically saying that for 40% of Americans, tax day is a pay day. They take in more than they pay out. Is that healthy for a society?
No, it isn’t. I think this is a problem and I’m very anti-tax, but I do think in this great country of ours, everyone who works and is a voter should pay some income tax. By the way, Republicans and Democrats are equally responsible for removing so many people off the income tax rolls and so according to official IRS statistics, the percentage of families that don’t pay any income tax has almost doubled over the last 30 years.
It goes back to Reagan. I love Reagan, but one of the things that Reagan did was he moved a lot of families off the income tax rolls. That continued under Clinton and it’s really happened under President Obama. I think that is a mistake. I think everybody should have some skin in the game, even if it’s only paying $50 or $100. I think everybody should have some positive income tax liability. Maybe what we need to do is move towards a consumption tax system where you pay your taxes when you consume things and you really feel it. You feel the effect when you go to the 7/11 or when you go to the grocery store and you pay your sales tax, you really feel that tax. You see it right there on the receipt. So, yeah, I think everyone who participates in this great country as a citizen and as a worker and as a voter should pay some tax.
Now you have a chapter in your book that has a very scary title to it. It’s called, “Is a 76% Tax Rate in America’s Future?” Why do you ask that question?
The reason I asked that question is because a lot of academics now are pretending like the last 30 years didn’t happen. They’re pretending like we’re back in the 1970’s when so many of the politicians thought, “Yeah, sure, let’s have 70% tax rates; that’s not going to hurt the economy,” and when you include the state rates, we were as high as 80%. It’s amazing how many of these left wing academic communists are now saying, “Sure, sure we can do that again. It’s not going to hurt the economy.” Well, I think that is what I call “bimbo economics” to think that we can raise our tax rates up and up and up and rich people will continue to work or continue to create businesses that they will invest here in the United States. They won’t and we have the historical evidence to prove it. That’s why I’m very nervous about the direction our tax policies are going to go if President Obama has a second term and he’s not shying away from this. He’s telling us those tax rates are going up if he’s re-elected president.
I really appreciate your time; outstanding interview.
Thank you so much. I appreciate you taking the time to do this, too.
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