Monday, August 02, 2004

The NeoConomists

Mention the virtues of a progressive tax code, and you're inevitably accused of embracing socialism. Issue an impassioned defense of Social Security, and you can count on hearing the term "Marxist" flung your way. Dare to point out the mounting evidence that the Bush team's economic policies are disparately impacting the middle and lower classes, and invariably you will face the charge of engaging in class warfare.

My question is, when do these policies themselves count as class warfare? Why is it class warfare to make an empirical argument that the radical changes to the tax code have greatly favored the wealthiest tax brackets at the expense of the rest, but not class warfare to usher in such a regressive redistribution of wealth in the first place? Reminds me of an oft quoted line by billionaire Warren Buffett, "If there is class warfare, my class is winning."

In a piece appearing
on, Daniel Gross examines Bush's economic policies using two recent books as a background. The first is Daniel Altman's new book, Neoconomy, which if nothing else, has bestowed upon us the gift of lexicon that is "NeoConomists," a term used to describe the economic counterpart to the brash foreign policy theories espoused by the Neo-Conservatives. Here is Gross on Altman's book:

The Neoconomists, led by the dour supply-sider Lawrence Lindsey and the more cheerful (and shameless) Glenn Hubbard, possessed of "a revolutionary mindset," used the forecasts of a surplus as an excuse to restructure the tax code. Their goal was to eliminate or sharply reduce taxes on savings and investing and instead finance government activities by taxing wages. So marginal tax rates were cut on the wealthy, the estate tax was slated for elimination, and taxes on dividends and capital gains were slashed. The result: hundreds of billions of dollars of the Social Security surplus spent, hundreds of billions in extra debt, subpar job growth, and structural deficits as far as the eye can see.

And they're not done yet. If the Neoconomists have their way, Altman concludes, "All your income from working would be taxed" while "none of your income from other forms of saving would be taxed." That's a huge relative advantage for those with enough assets to invest and live off of savings and a huge relative disadvantage for people who haven't yet made it. Two Americas, anyone?

Perhaps this inherent inequity led Buffett and other billionaires such as George Soros to speak out against the tax cuts, even though they stood to make millions by the changes. Buffett also objected on the basis that much of the tax savings would be captured by foreign nationals that own substantial stakes in dividend yielding stocks. So these foreign interests would no longer have to pay dividend taxes, and the slack would have to be picked up by the American worker.

The second book Gross discusses is from yet another lifelong conservative disenchanted with the Bush team's extreme measures. In his book, Running on Empty: How the Democratic and Republican Parties Are Bankrupting Our Future and What Americans Can Do About It Peter G. Peterson, former Nixon Commerce Secretary, Concord Coalition founder (a deficit hawk think tank), and Blackstone Group co-founder (an investment firm), issues a "bitter denunciation of Republicans—and somewhat less bitter denunciation of Democrats."

Gross identifies some great quotes in Peterson's work: "No matter which taxes are reduced, and no matter how far, Bush's economic team is inclined to believe—and of course his political team agrees—that reducing them till further will ultimately raise more revenue. ... This tax cut ideology is not fact-driven. It is faith-driven."


"In sum, this administration and the Republican Congress have presided over the biggest, most reckless deterioration of America's finances in history. It includes a feast of pork, inequitable and profligate tax cuts, and a major new expansion of Medicare that is unaccompanied by any serious measures to control its exploding costs."

These are not just theories and groundless speculations. The evidence in the form of economic data supports these assertions. As I included in a prior post, many financial analysts, appearing in the Wall Street Journal and other respected financial tomes, have observed these trends:

"To date, the [recovery's] primary beneficiaries have been upper-income households," concludes Dean Maki, a J.P. Morgan Chase (and former Federal Reserve) economist who has studied the ways that changes in wealth affect spending. In research he sent to clients this month, Mr. Maki said, "Two of the main factors supporting spending over the past year, tax cuts and increases in [stock] wealth, have sharply benefited upper income households relative to others."

I close with yet more questions: Who exactly is waging class warfare, when was the first shot fired? More important, which side is winning?

<< Home

This page is powered by Blogger. Isn't yours?