Two Sensible Observations on Tax Policy from the Washington Post (Mixed with Typical Bad Analysis)

It’s presumably not controversial to point out that the Washington Post (like much of the media) leans to the left. Indeed, the paper’s bias has given me plenty of material over the years.

As you can see, what really irks me is when the bias translates into sloppy, inaccurate, or misleading statements.

• In 2011, the Post asserted that a plan to trim the budget by less than 2/10ths of 1 percent would “slash” spending.
• Later that year, the Post claimed that the German government was “fiscally conservative.”
• In 2013, the Post launched an inaccurate attack on the Heritage Foundation.
• In 2017, the Post described a $71 budget increase as a $770 billion cut.
• Later that year, the Post claimed a spending cut was a tax increase.
• In 2018, the Post made the same type of mistake, asserting that a $500 billion increase was a $537 billion cut.
• This year, the Post claimed Bush and Obama copied Reagan’s fiscal conservatism.
• Also this year, the Post blamed smugglers for an energy crisis caused by Lebanese price controls.

But, to be fair, the Washington Post occasionally winds up on the right side of an issue.

It’s editorialized in favor of school choice, for instance, and also has opined in favor of privatizing the Postal Service.

And sometimes it has editorials that are both right and wrong. Which is a good description of the Post‘s new editorial on tax policy.

We’ll start with the good news. The Washington Post appears to understand that a wealth tax would be a bad idea, both because it can lead to very high effective tax rates and because it would be a nightmare to administer.

Ms. Warren’s version of the wealth tax, which calls for 2 percent annual levies on net wealth above $50 million, and 3 percent above $1 billion, very rich people would face large tax bills even when they had little or negative net income, forcing them to sell assets to pay their taxes. …huge chunks of private wealth tied up in real estate, rare art and closely held businesses are more difficult — sometimes impossible — to assess consistently. …Such problems help explain why national wealth taxes yielded only modest revenue in the 11 European countries that levied them as of 1995, and why most of those countries subsequently repealed them.

I’m disappointed that the Post overlooked the biggest argument, which is that wealth taxation would reduce saving and investment and thus lead to lower wages.

But I suppose I should be happy with modest steps on the road to economic literacy.

The Post‘s editorial also echoed my argument by pointing out that ProPublica was very dishonest in the way it presented data illegally obtained from the IRS.

ProPublica muddied a basic distinction, which, properly understood, actually fortifies the case against a wealth tax. The story likened on-paper asset price appreciation with actual cash income, then lamented that the two aren’t taxed at the same rate. …ProPublica’s logic implies that, when the stock market goes down, Elon Musk, whose billions are tied up in shares of Tesla, should get a tax cut.

Amen (this argument also applies to the left’s argument for taxing unrealized capital gains).

Now that I’ve presented the sensible portions of the Post‘s editorial, let’s shift to the bad parts.

First and foremost, the entire purpose of the editorial was to support more class-warfare taxation.

But instead of wealth taxes, the Post wants much-higher capital gains taxes – including Biden’s hybrid capital gains tax/death tax.

Fortunately, legitimate goals of a wealth tax can be achieved through other means… This would require undoing not only some of the 2017 GOP tax cuts, but much previous tax policy as well… The higher capital gains rate should be applied to a broader base of investment income… President Biden’s American Families Plan calls for reform of this so-called “stepped-up basis” loophole that would yield an estimated $322.5 billion over 10 years.

The editorial also calls for an expanded death tax, one that would raise six times as much money as the current approach.

…simply reverting to estate tax rules in place as recently as 2004 could yield $98 billion per year, far more than the $16 billion the government raised in 2020.

Last but not least, it argues for these tax increases because it wants us to believe that politicians will wisely use any additional revenue in ways that will increase economic opportunity.

The public sector could use new revenue from stiffer capital gains and estate taxes to expand opportunity.

This is the “fairy dust” or “magic beans” theory of economic development.

Proponents argue that if we give politicians more money, we’ll somehow get more prosperity.

At the risk of understatement, this theory isn’t based on empirical evidence.

Which is the message of a 2017 video from the Center for Freedom and Prosperity. And it’s also the reason I repeatedly ask the never-answered question.

P.S. To make the argument that capital gains taxes and death taxes are better than wealth taxation, the Post editorial cites research from the Paris-based Organization for Economic Cooperation and Development. Too bad the Post didn’t read the OECD study showing that class-warfare taxes reduce overall prosperity. Or the OECD study showing that more government spending reduces prosperity.

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Image credit: Jon S | CC BY 2.0.