Big Tex,

You posed an article by Robert Frank of the Wall St. Journal on my wall so I felt compelled to read it and respond thoroughly. Upon finishing my first read of the article, my mind was reeling attempting to harmonize its clever craftsmanship and highly disingenuous message; the WSJ is certainly getting its money’s worth with Mr. Frank.

Upon further contemplation, I was left with a lot of thoughts, which I’ll share below, after briefly recapping the author’s position.

Author’s Position

The article is motivated by the following correlation: those States most reliant on income tax revenue from their wealthiest citizens now face the largest deficits. Mr. Frank frames this subject by noting that this is emerging during a time of greatly increased public spending. He then notes that “as the incomes of the wealthy have grown, they have become less stable.” Mr. Frank acknowledges that there is a consensus that these top salaries are too tightly linked to the market. Nonetheless, this situation has left governments increasingly dependent upon their top earners for revenue.

This story is told through the personal story of Brad Williams, a former economic forecaster for the State of California. Mr. Williams retired from the State in 2007 and now runs his own consultancy. We learn that Mr. Williams had long been aware of this excess reliance on top earners. While working for the State, he advocated the following fixes: 1) flattening income tax rates, 2) allowing the wealthy to defer payments on windfall profits, and 3) establishing a “rainy day” fund. His proposals, however, were not adopted. Mr. Williams, however, felt vindicated by the recommendations of a bipartisan commission assembled by former Governor Schwarzenegger in 2009. The commission’s proposal to fix the State’s over reliance on income taxes from the wealthy was to decrease those taxes while increasing the general sales tax. As California remains beholden to its wealthiest, and by implication, to the market, Mr. Williams laments of having “no real pleasure in being right.”

My Thoughts

As I alluded earlier, the author of this article, Robert Frank, has spun this tale well. However, its unquestioned reliance on certain tacit assumptions, along with a gross disregard of other highly relevant factors, make it a staggeringly disingenuous work of art.

To his credit, Mr. Frank notes how the top tax bracket has fallen from 90% during WWII to 35% today. But instead of analyzing this massive decrease, he instead highlights how today, those earning over $379,000 are taxed twice that of those whose salaries are under $69,000. This “twice as high” tax rate is presented as a great injustice while the broader 55% decrease is included as mere background. Mr. Frank fails to examine how these massive tax reductions for the wealthy helped create the very conditions which underlie the current crisis.

Throughout the article, the increased accumulation of wealth is treated as inevitability. Furthermore, the article dismisses, as asides, other factors that have lead to the current crisis, namely decreased corporate taxes. As anyone following the saga of General Electric is aware, large corporations, while thriving, are paying far less in taxes than before. These profits are instead going into CEO and senior executive pay. Since these outsize compensation packages are directly tied to the stock market, they foment instability. Thus, public officials, instead of leading, are left studying Wall St. to “more accurately predict state revenues.”

In essence, this story is about how US public policy regarding taxation has empowered the super-wealthy to leverage their wealth so spectacularly as to ensnare all of us in their vagaries. The US economy has been split in two, leaving government constantly one step behind, trying to fix what has already transpired while the next movement is afoot.

The proposals that the author endorses, those espoused by Mr. Williams, are cruel and cynical. To escape the current volatility, it is suggested that income taxes be lowered and sales taxes increased. Such a proposal would further impoverish the state, enrich the already wealthy, and burden the poor and middle class.

Mr. Frank fails to examine other, more progressive policies, that could help address the current volatility in state revenues. Higher income taxes for the very wealthy might well temper current excesses in market-based speculation. And decreasing income polarization would itself engender more stable revenue collection models, thus allowing states to better plan for and wisely craft their spending priorities.

Instead, we’re one again pitched tired old proposals which do little more than privatize profit while socializing losses. We’re told that states will benefit if the super-rich are allowed to spread out their income tax payments on windfall profits over multiple years. In the same breath, we’re encouraged to create a “rainy day” fund, the type which could ostensibly be funded by such windfall tax revenues. Mr. Frank’s vision would leave us poorer now and surely impoverished later.

Conclusion?

Sorry, but if that’s the best that “conservative” America has to offer, then maybe we should start dragging the term “conservative” through the mud, like “social welfare” (aka Socialism) has been. As Bob Herbert has opined in his swan song at the New York Times, America has lost its way. Our extreme economic inequality now holds the majority of us hostage, and our elected officials appear to be indifferent, impotent or in-cahoots. Our system no longer serves us. Rainy day funds are not the answer to an America, Inc., which has become “too big to fail.”

So, Jim, those are my thoughts. This article is well crafted but wrongheaded. I respectfully disagree.

Best,
-WD