Monday, November 28, 2011

Richard Epstein on Inequality and High Taxes

Richard Epstein is off a bit when he says the rich don't have extra influence over the political process. They all don't, but the Jamie Dimion's and Warren Buffett's sure do. And, I am not so rah, rah on Epstein's cheering of 1950's government highway infrastructure programs (See Walter Block's Privatization of Roads and Highways) Beside that, Epstein is pretty solid in this clip.



  1. I saw this when it aired. Yes, I am a cheap bastard who doesn't have cable (I don't really watch TV too often), but I often turn on the TV when I am getting ready for bed-- for some reason I tend to watch either the "Newshour" or the "NBR".

    Anywho, I too tended to agree with a lot of what he said, but I also saw the same things that you did, as well as noting that his delivery was going to rub some the wrong way.

    Boy, was I right! When I saw this video pop up on both youtube and news/blog articles the ensuing weeks, you could not believe some of the tripe that people were spewing forth. These people had absolutely no concept of what he was talking about. Sure, I make a lot of mistakes or stupid comments; I at least make the effort to learn.

    The crap that I saw in the comments sections of certain sites clearly showed that none of the people commenting had ever cracked an economics book in their life, and if they had, they read it wrong.

    I would have responded, but I knew that it would be like beating myself in the head repeatedly with the big, black, steel-toed boot of funky foot-smell idiocy. So, I went to sleep instead.

  2. These videos never work on the iPad and that's primarily the way I read this site. Can you fix this somehow? Or give a link in the article. Thanks.

  3. I know most Austrians are all about privatization of roads, parks, and all public property basically. I just can't envision it. It seems like we'd all be completely land-locked. The beaches, the ocean, all the rivers, all privately owned. I guess it could work. I mean I'm for privatization of mass transit, so it's just one step further. It's hard to imagine is all.

  4. Andy, I'm going to go out on a limb and say this video might require Flash support in order to view it. That being said, there are alternative web browsers available for the iPad and iPhone (look in the app store) that will allow you to watch Flash video (ie like the ones on the Daily Show site).


  5. Regarding video, time to adopt HTML5.

  6. @deft:
    Roads, beaches, schools, parks, etc. are services that people want to use. The only difference is now if you pay taxes- and that is a strong if- you pay for these things whether you utilize them or not.

  7. Epstein is right. Not all inequality is bad and not all equality is good. It is the underlying processes that matter. Prisoners can be equal and tyrants can rule in splendour.

    Since the opening of the Chinese economy inequality in China has greatly increased but this has been matched by a massive increase in the economic wellbeing of the Chinese masses, perhaps the greatest advance in human material wellbeing ever witnessed.

    Epstein's discussion of fundamentals, including his great response to the question about the rich dominating democracy, and using mortgage tax deduction examples, is excellent. Also his discussion that the mix of public expenditure between infrastructure and transfer payment spending has some validity. I'd prefer to see private sector provision of infrastructure, as well as education and healthcare, to public sector provision. However even public infrastructure provision is generally superior to transfer payments.

    It was a shame Epstein didn't get into the issue of how much revenue the upper end of high marginal tax rates in the past actually delivered, or more correctly, didn't deliver.

    In a recent issue of the UK "The Spectator" Arthur Laffer had this to say:

    "This paradox — lower rates, but higher yield — has been demonstrated time and time again, the world over. Between 1980 and 2007, the US cut tax rates on every form of income, the highest, the lowest and all those in the middle. The result was that the rich paid more, even if their tax levels were reduced. Let’s take the top 1 per cent of earners. Over this 27-year period, their contribution to the income tax collected in America doubled from 19.5 per cent to 40 per cent. The same dynamics applied in Britain: when the top rate of income tax was lowered to 40 per cent in 1988, the share of income tax collected from the richest 1 per cent rose from 14 per cent then to 27 per cent last year. Raising tax rates on the rich is about as bad an idea for the UK as I could imagine."

    Another issue Epstein could have touched is the rarely mentioned and poorly understood 'social deadweight loss' from tax. A loss of a dollar of revenue from the government does not automatically equal a dollar of gain for the taxpayer. Especially when high marginal tax rates and a diverse range of tax shelters exist. (There is an introduction here.)

    So there are a lot of positives in Epstein's comments. On the negative side however he failed to address the income effects of the bailout, corporate socialism, of increasing public sector employment rolls (Washington DC has highest paid workers in the US.) and - almost never talked about -the income inequality effects of military spending.

    Still despite these weaknesses his contribution to the debate is much stronger than the usually pathetic arguments made by those who confuse entitlement for equality.

  8. @Joseph, the dishonesty or perhaps ignorance in the tax debate that is going on today is the complete misrepresentation of the pre-TRA86 higher marginal rates in the old '53 code. Sure the marginal rates were insane, but the underlying tax code was rife with loopholes that a good tax planner (I was one) could exploit to get a persons effective tax rate as low or lower then it is today. Those loopholes are no longer part of the tax code which is a good thing as they encouraged investors to invest in projects that had no economic viability other then the income sheltering effect they created.

    What else is ignored in the conversation is the fact that there was a massive amount of tax fraud at all income levels under the old code. It was so bad and so common that most people took pride in telling others how they cheated on their taxes. When I was practicing it was quite common for us to pick up clients that had owned businesses that had grown into large enterprises that cheated extensively on their income taxes sometimes for decades. Usually the only reason this ever got exposed was due to the owners wanting to sell or go public.

    Today it would be very hard to get away with significant tax fraud for very long and the current code does not offer very many ways to legally shelter income, so a marginal tax rate of 70% would probably produce an effective tax rate on the top 5% of at least 45-50% which would be more then double double what the effective rate was under the old tax code. Thus, if we were to go back to those insane marginal tax rates, we would be crossing into a level of taxation never seen in this country.

  9. What's bad isn't equality, what's bad is -forced- equality.