Economist's View: "United in Our Delusion" about Taxes

Mark Thoma is a professor of Economics from the University of Oregon who shares camp with Krugman & DeLong, among others.

In a recent post to his Economists View blog (Economist's View: "United in Our Delusion" about Taxes:), he distills the essence of my current angst into such crystal clarity I can do little more than regurgitate it here... except maybe emphasize the thought bubbles [I wish] I had written myself...

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"A quick post between classes:

United In Our Delusion, by David Cay Johnston, tax.com: ...Americans are in a fury about taxes, or so the headlines tell us, with Tea Partiers convinced our president is a socialist wealth redistributor who plots to take from the productive to give to the indolent, tax-eating, illegally resident, and nonwhite.

Angry voters are eager to throw out incumbents wholesale in favor of new leaders who promise to slash their taxes, we are told on the broadcast news shows every day. At the same time, numerous polls that did not make the headlines show that large majorities favor the president's proposal to retain the Bush-era tax cuts on the first $200,000 or $250,000 of taxable income.

When it comes to how wealth is distributed in America, we probably hold radically different views depending on our political affiliation, age, income, and gender, right? ...

Wrong.

We don't think differently. In fact, Americans think very much alike on wealth distribution. Amazingly alike. High-income or low, Republican or Democrat, young or old, male or female, Bush voters or Kerry voters, Americans are united in what they believe is the ideal distribution of wealth. And they are just as united about what they imagine to be the distribution of wealth in America.

The problem is that neither the ideals we broadly share, nor our estimated distributions of wealth today, bear much relationship to reality.

And therein lies the explanation for how our nation became caught up in such a contentious, nasty, sometimes threatening, and potentially violent debate about tax policy. When it comes to wealth and taxes, the vast majority of Americans are modern Know-Nothings. [Bozat says: Pinning the Know-Nothing pejorative on the vast majority is perhaps unkind and impolitic. But the term is one of my absolutely favorite historical political monikers, and so I give Thoma extra slack for putting it back into circulation.] The disconnect between belief and reality is being exploited by those who laugh all the way to the bank with their tax savings and the burdens they have subtly shifted off themselves and onto the rest of us.

The ideal wealth distribution chosen by the 5,522 people who took the online survey has the top fifth of Americans owning between 30 percent and 40 percent of the wealth. That means Americans believe the ideal distribution of wealth is that of Sweden. [Bozat says: Memo to Bonjuman Shinez - See? I am not alone in thinking Sweden has something to offer us, besides just bikini teams!] Moreover, 90 percent of Republicans share that belief. (Actually, 90.2 percent, as the survey coauthor, Prof. Daniel Ariely of Duke University, noted when we met to discuss his work.) ...

What did those surveyed think was the actual distribution of wealth in America? They estimated that the top fifth of Americans owns about 60 percent of the wealth. The reality? Eighty-five percent.

So what about the bottom 120 million of us? Those surveyed said that ideally, the bottom 40 percent would own 20 to 25 percent of all wealth. When asked to estimate the share of wealth actually owned, the collective guesses were between 8 and 10 percent. Reality: 0.3 percent. ...

Mark Mellman, a top Republican pollster, told a radio audience last week that he thought the poll results showed how American culture is innately interested in fairness. Like Ariely, Mellman was most intrigued by the fact that those surveyed got the ownership share of the middle quintile about right in their estimates of actual distribution. Where people got it wrong was at the top and bottom. ...

So why are so many Americans passive in the face of years of stagnating wages, reduced benefits, and mounting anxiety about whether work will run out before retirement benefits kick in? Why are the better-than-average-income Tea Partiers kicking up a fuss and not the actual poor, the 120 million Americans who own a small fraction of 1 percent of our wealth?

Ariely sees this as a form of learned helplessness. What's that? 'Imagine you have two dogs in two rooms,' he said. 'One dog hears a bell followed by an electric shock. This dog has a switch he can press with his paw that stops the shock, and he learns to press it when he hears the bell.'

The other dog does not hear any bell to signal that the shock is coming and has no switch to turn it off.

'So now you move the two dogs and put them in two new rooms where they can move from one side of the room to the other over a low partition,' Ariely explained. 'One of the sides of the new room gives from time to time electrical shocks, but if the dog jumps over the partition to the other side of the room, he can escape the shock. When the shock comes, the first dog quickly learns to jump from one side of the room to the other, but the second dog just lies there and whimpers. This is learned helplessness, because when you cannot make a connection between cause and effect, you become depressed and just take it.'

Ariely's theory fits with what my unemployed brother discovered. Eric went out on his own last week among his blue-collar friends in rural Oregon to talk about the severe lack of jobs there, the low wages without fringe benefits for those who do find work, and their concerns about the future.

'The people I live with and work with and talk to work at McDonald's or as security guards or on a road crew -- they are high school graduates thinking only about paying their bills and have no idea about politics in this country,' Eric told me.

'If you try to engage these people about the state of the economy, just in passing, they have no idea, and they don't care,' Eric wrote. 'They know bad things have happened to them, they know they can barely pay their bills. They are scared, but they don't know why things have gotten so bad, and they don't know how to find out anything. That's what scares me -- they don't want to find out, because they say knowing won't change anything. They say what they know doesn't matter because they can't do anything about it.'

Eric detects a seething anger beneath the surface that the right charismatic figure could ignite. ... [Enter stage left: Boazt the Laughing Prophet! LOL]

The interests doling out money for Tea Party events have hired consultants who are superbly talented at exploiting this politically toxic amalgam of helplessness and lack of knowledge about taxes. Add in the racist elements drawn to the Tea Party, and the armed militias whose numbers Time magazine says have tripled since President Obama's election, and there is reason to worry. Doubt that? Google this: Timothy McVeigh hero. ...

Ariely sees the ideas of Milton Friedman, the late Nobel laureate in economics, as a major source of the thinking underlying this brooding malaise. I agree and see Ronald Reagan as the popularizer of Friedman's smug ideas.

'Friedman ideology has deeply influenced our beliefs,' Ariely said. 'Even Obama's statements show this in how he talks about taxes. Americans have this general belief now that government is bad, taxes are bad.'

These ideas are easier to market than dandruff shampoo. Taxes, bad. Government, bad. Tax cuts, good. Less government, better.

It is much harder to explain that without taxes there is no wealth, that without taxes there is no civilization, that without taxes criminals take life and property with no redress except violence. ...

Taking their cue from Friedman, even if they do not know who he is or why they believe as they do, many people spout as unchallengeable truth that high taxes are the source of our economic woes, that the Bush tax cuts made us all better off. ...

As a nation we now know, thanks to Ariely and Norton, that we are united in our ideals about wealth distribution. We share an important value about how the fruits of our society should be spread. Now we need to debate the effects our tax rules have on wealth distribution piling up at the top and draining from the bottom. We need a debate based on facts that appeals to our better natures.

We will probably get past the efforts to use taxes to inflame rebellion just fine. It is unlikely that we will be torn apart by someone mixing fertilizer and diesel, two useful products never intended to be combined into one, unless the demagogues and the oligarchs promoting tax hatred give away matches as Tea Party favors.

I discussed the results from this poll here in the context of why, if people do not think the income distribution is fair, they still oppose redistributive policies.

- Sent using Google Toolbar"