Professional Fakery

A major source of fake news and alternative facts is professionals who engage in political reality spinning while using their credentials as a source of legitimacy.  A recent example is the opinion piece in the Wall Street Journal by Alan Blinder, Princeton economist and former vice chair of the Federal Reserve and member of the President’s Council of Economic Advisors.

Blinder’s snarky assessment of the Trump tax plan, well it’s not a plan but a set of principles, is the work of political hacks; not that of a well respected academic.  Since the President released a one page summary of reform principles, Blinder must think that he is clairvoyant to divine the form legislation will take and the breakdown between winners and losers.  Since he is not clairvoyant, he relies on what he calls the “Republican Tax Cut Formula”.

Like all progressives, Blinder calls the proposal, which he translates into a plan, “remarkably regressive because it lowers the top tax rate from 39% to 35%, the corporate rate from the highest in the developed world to 15% and makes that rate apply to Sub-Chapter S corporations.

According to a report from Yardini Research the top 10% of tax payers, those with incomes over $100,000—hardly rich—pay 77% of federal income taxes.  The top 50% of tax payers pay a whopping 97% of federal income taxes, leaving the bottom 50% paying 3%.  How can reducing the top rate while also lowering the lowest rates be regressive?  Blinder must have an econometric model that makes it so.

The average corporate tax rate in developed countries is 22.5% while ours is 39% when state taxes are included.  This rate makes US corporations less competitive and creates an incentive to move investment offshore and keep foreign earning overseas.  It is estimated that US companies hold about $2.5 trillion overseas and untaxed. We live in a global economy, so making our corporations more competitive increases domestic capital investment, the route to increased productivity and job creation.  Blinder equates the change for Subchapter S corporations as a sop to hedge funds, real estate developers, and law firms—organizations that don’t have great public images.  The reality is far different than Blinder’s illusion.  According to the Tax Foundation, there are 24.7 million US corporations.  23 million are subchapter S which are subject to personal tax rates.  They are far more and far more diverse than hedge funds and others that the public scorns.

In his opinion piece, Blinder says “The system would remain complicated, unfair, and inefficient.  But the richest would pay much less.  Since legislation has not been written, how can he know this?  He doesn’t, it’s just alternative facts and fake news.

Republicans have a once in a generation opportunity to begin the process of putting our fiscal house in order since they control both the Congress and White House.  They realize this and also realize that picture could change next year.

That reality should give a sense of urgency to comprehensive tax reform.  The current tax code has 4 million words, which according to the Washington Times is seven times the length of War and Peace.  The Times also points out that 75 years ago the IRS 1040 had 2 pages and now it has 206.  Major reform that involves simplification is not an impossible objective.  Part of achieving it involves abandoning using the code to push industrial policy or other social objectives and for both political parties to work together.

Since entitlements represent two-thirds of federal spending, fixing social security, which Blinder didn’t mention, is an imperative.  The 1986 Bi-partisan Commission on Social Security represented a good start but it is clear that without another effort, both the national debt and deficit will continue to grow until our economic wellbeing is undermined.

People like Blinder and his colleague Paul Krugman should be using their professional talents and analytical rigor to address real fiscal problems instead of marketing partisan hobgoblins.

 

 

Author: billo38@icloud.com

Founder and president of Solutions Consulting which focuses on public policy issues, strategic planning, and strategic communications.

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