EAT THE RICH
The Morning Call comments on a publicity stunt
We suppose we should start today with an apology to you and to Jim Pethokoukis, a senior fellow at the American Enterprise Institute. In general, we like Pethokoukis. He’s a smart and sharp economic analyst and an interesting writer. His stuff is more than a little too mainstream, conventional-wisdom, dewy-eyed globalist for our taste, but it’s still mostly pretty astute.
Nevertheless, we never cite Pethokoukis in these pages unless he’s written something that we think is eye-rollingly naïve or trite – as he did the other day. If you searched our archives for his name, you’d find only negative comments about him, which is unfair – to him and to you. He’s better than he appears in these pages – despite espousing the silly ideas that land him here. So…our apologies.
Now with that out of the way, Pethokoukis penned a blog post the other day about our national fashion-scold, Congresswoman Alexandria Ocasio-Cortez, and what he wrote was…well…ugh:
Inequality has been an overriding theme of Democratic politics over the past decade, from Elizabeth Warren’s “middle-out economics” to Bernie Sanders’ surprisingly strong presidential campaigns to the political rise of Alexandria Ocasio-Cortez.
So where’s this all going, exactly? Is America on its way to becoming a Nordic-style social democracy — or even something further to the left? Well, before speculating, let’s make one assumption: Stuff needs to be paid for, eventually….
And they know it, at least some do. AOC sure seems to know it.
After providing some details about what the Biden tax hike might contain, what it won’t contain, and what it was originally supposed to contain (including a quote from our brilliant friend and former colleague Jim Lucier), Pethokoukis gets back to what it is AOC supposedly knows:
And while higher inequality in the US may help make the left make the case that the wealthy here could theoretically bear even more of the burden than in Scandinavia, the fiscal math still doesn’t work without the sort of value-added tax those nations have. Finland, Norway, and Sweden all have a 25 percent VAT, with Denmark collecting about 9.4 percent of GDP through the VAT, Norway 8.6 percent, and Sweden 9.2 percent, according to the Tax Foundation. But Democrats keep promising not to raise taxes on the middle class, or families who make less than $400,000 a year.
Of course, many populists keep ignoring this reality, which in itself is a key element of populism. In their classic 1991 paper “The Macroeconomics of Populism,” economists Rudiger Dornbusch and Sebastian Edwards identified how populists rise and what they do when in power. One key ingredient: “[Ignoring] the existence of any type of constraints on macroeconomic policy.” You know, like the need to pay for stuff. Populists love to imagine the existence of miraculous money trees. But the smarter ones don’t, and they understand their dream won’t come close to happening without everyone paying more in taxes.
We have no idea what Pethokoukis is talking about. He says that AOC understands that stuff needs to be paid for and that raising taxes on everyone is necessary to do so. Uhhh…OK…. To make his case, Pethokoukis cites an AOC tweet in which she writes: “I am open to taking a look at SALT and addressing concerns for families put under the squeeze in high cost of living areas. But a full 100% SALT repeal means major tax breaks for extremely high-net worth individuals and billionaires. Why do that?”
It seems to us that what AOC is saying here is that she is willing to look at cutting taxes for some people (by reinstating the SALT deduction) but not for billionaires. That’s precisely the OPPOSITE of what Pethokoukis takes it to mean. AOC says SPECIFICALLY “tax the rich but not everyone else.” That’s not “everyone paying more in taxes.” It’s not even close.
More to the point, we’re unsure where Pethokoukis gets the impression from AOC’s tweet that she thinks that taxing anyone, especially the “extremely high-net worth individuals and billionaires,” is about paying for stuff. She doesn’t say that, and she doesn’t believe it. NO ONE believes it. There are maybe two or three people in Washington who believe that taxes are for raising revenue and that spending needs to be paid for by those revenues. And Pethokoukis is one of them. His AEI colleague Michael Strain is another one. As for the third…well…he’s probably just a myth.
Everyone else knows that taxes are not distributive or redistributive but are PUNITIVE. They are to be wielded as a cudgel with which to pummel people you don’t like. In Washington today, where deficits are obscene and absurd, where the relationship between revenue and expenditures has been thoroughly dissolved, taxes simply are not about raising revenues.
AOC didn’t wear that Eat Mor Chikin dress to Met Gala last week because she believes that the rich could, through additional taxes, support government programs designed to create a more equitable society. She wore it because she has it in her head that “rich people” are evil and need to be punished. The same applies to those on the Left who want to eliminate the tax-exempt status of churches. They hate religion and want it beaten out of existence. So, they want it taxed. Populist conservatives like J.D. Vance hate woke corporations – and so they want their “tax breaks” eliminated and want them penalized by the tax code.
For the first time in all of recorded history, taxes and spending have nothing whatsoever to do with one another. Taxes are purely punitive, and spending is purely magical.
Pethokoukis demurs, writing that “Populists love to imagine the existence of miraculous money trees. But the smarter ones don’t….” Sorry (again), Jim. That’s wishful thinking. Even non-populists like Dick “Deficits Don’t Matter Anymore” Cheney are pretty sure that money does indeed grow in trees. Sure, in the long run, deficits DO matter and spending WILL need to be paid for. But then, as last century’s most famous economist noted, in the long run, we are all dead. So…carpe diem, in the meantime.
The problem with the economic analysis offered by the likes of Pethokoukis and Michael Strain is that it’s based on something completely unknown in Washington these days: reality. They’re nice, responsible boys from the suburbs who grew up learning that you can only buy what you can afford and, eventually, excessive debt has negative consequences. And because they’re RIGHT about that, they figure everyone else knows it as well. They project their understanding of basic budgeting onto those who have no such understanding and would be violently unhappy if they did.
AOC doesn’t care about budgets. She doesn’t care about the “theoretical” relationship between revenues and expenses. She knows, based on her ideology, that “the rich” are the bad guys. Moreover, whether she understands it consciously or not, she uses the term “the rich” not as a description of those with a lot of money but as a catch-all term whom she sees as culturally oppressive – white, Christian, cis, hetero males, mainly.
We are hardly the first to note the severing of the relationship between taxes and spending and the decline of taxation into a tool for settling political scores. Others, far smarter than we are, have said it far better than we could. Ultimately, the source of this decline is the Sixteenth Amendment, that is to say, the adoption of a graduated income tax. The idea that taxes could and should be applied to different people at different rates led inevitably to the manipulation of that exercise to reward friends and punish enemies, which is precisely why Madison warned, in Federalist #10, against adopting such a system:
The apportionment of taxes on the various descriptions of property is an act which seems to require the most exact impartiality; yet there is, perhaps, no legislative act in which greater opportunity and temptation are given to a predominant party to trample on the rules of justice. Every shilling with which they overburden the inferior number, is a shilling saved to their own pockets.
We’re sorry. Sorry, sorry, sorry. But anyone who believes that Washington is about to have a powerful come to Jesus moment about taxes and spending is naïve at best. That’s not gonna happen. Taxing the bad guys is fun. And so is spending money. And that is what AOC knows for sure.