Robert Shiller has lost his damn mind.
After penning a ridiculous op-ed in the New York Times in support of taxing the rich if “income inequality gets worse,” he gave a cringe-worthy interview for Yahoo! Finance. I encourage you to watch the entire video, if you can stand it. Part of the basis for Shiller’s plan is the rampant fear among millionaires and billionaires that their family members will be kidnapped if we don’t solve income inequality, or something, so they support his plan. I’m not kidding. Of course, you don’t have a big list of rich people who are voluntarily making extra payments to www.pay.gov, which is stunning, considering Shiller’s claim, right?
In Shiller’s New York Times op-ed, he argues (terribly) that tax rates on the “super-rich” should be raised now, but only kick in the future if some contingencies are met:
Let’s try not to have another major war. Instead, there are some positive things we can do now. As I said in my 2003 book, it would be wise to start amending the tax system immediately. I suggested this fundamental reform: Taxes should be indexed to income inequality so that they automatically become more progressive — meaning that the marginal tax rate for the highest-income people will rise — if income inequality becomes much worse. Ian Ayres of Yale and Aaron Edlin of the University of California, Berkeley, made a similar argument in 2011 in The New York Times.
There is a practical reason for starting now. If we wait until income inequality is much more severe, we will have a whole class of new superrich who will probably feel entitled to their wealth and will have the means to defend their interest. That’s already gone far enough. We shouldn’t let it become more extreme.
“Entitled” to their wealth? What a loaded phrase. Shiller foolishly presumes that those who are “superrich” (whatever that means) did not earn their money. His presumption is based on the typical leftist theory that those who are wealthy achieved their status only because they exploited their fellow man. Of course, it couldn’t possibly be that the rich earned their money by, say, founding an amazing business or *gasp* through hard work.
There are four major criticisms to Shiller’s New York Times piece which, in my view, obliterate his nonsensical neo-Trotskyite position that taxes should be hiked if income inequality gets worse.
1. Shiller presumes income inequality is bad.
Though Shiller does concede that some level of income inequality is “necessary” in a capitalist society, he fails to articulate exactly why income inequality is a bad thing. I’m sure those who run Google searches all day for George Soros would love to take that quote out of context. But it’s a big problem when Shiller presupposes income inequality is bad without setting forth why it’s a bad thing.
Of course, I would like for everybody to make more money. We actually do that here in America. Compare the “poor” in America to the “poor” (or middle class) of many other nations. We live well here as a society. Not all of us, unfortunately. But our freer economy helps and continues to help with that.
I also happen to believe that wages should be commensurate with productivity–not by government fiat or a ridiculous new government transfer/tax scheme to “fix” income inequality. Work harder, work better, generate more value for your boss (or your business) and reap the reward. That’s how it should work. Minimum wage jobs are not meant to support a family of four. I don’t need to go into why that is, because Amy Otto did so very eloquently here. It’s not the government’s job to mandate higher wages or penalize the “superrich” to subsidize poorer folks.
Shiller’s proposal is absolutely punitive in nature. That’s un-American.
2. Shiller ignores unintended consequences of his policies.
Just like any good leftist, Shiller has no concept (or ignores) the possibility of unintended consequences. If his tax system is improved, it would be a major disincentive to hitting a certain amount of income. Setting a “red line” of sorts would therefore be a disincentive to economic activity. Do we really need to kill economic activity in the name of “fairness?” Did I miss something? Did the millions of Americans who have been unemployed or underemployed for a long period of time suddenly find work? Only those on the far left would be willing to kill legitimate economic activity because some may be making “too much” money, whatever that is, and also cut off chances for people in the lower income rungs to improve their job situation.
3. Will taxing the “superrich,” whoever they are, be enough?
The “superrich” are undefined by Shiller, intentionally so. There are less than 300,000 people who filed taxes in 2011 and earned a million dollars in a year, according to the Tax Foundation. Will Shiller’s new tax affect them? Or is there a higher threshold? Will such a threshold be indexed to inflation?
Just like Social Security, which originally was designed assuming that there would be an ample number of workers supporting each beneficiary, Shiller’s tax plan starts with a low number of “superrich” which are supposed to support a much larger number of beneficiaries. This tax plan would be worse than starting Social Security today, with the low number of workers to beneficiaries.
Finally, the number of million-dollar earners dip during recessions. What would happen to people who are now relying on a new stream of governmental transfer payment income from Shiller’s tax plan if another “Great Recession” hits?
4. Shiller assumes that the government is competent and a good allocator of capital.
The most damning criticism to Shiller’s argument, in my opinion, is his assumption that “all we need is one more tax and we can fix everything!” The income tax was sold as a tax on rich people only. Social Security was sold as a way to make sure widows don’t starve. The War on Poverty was sold as a way to end poverty. All are miserable failures. All have generated massive government bureaucracy, rules, and regulations which cost billions for compliance. What do we have to show for it? Very little.
Anyone who works is entitled to keep the fruits of their labor. Taxes are a necessary evil to fund legitimate government functions, as outlined in the Constitution. Anything beyond that is confiscatory, immoral, and damaging to the economy as a whole.
As always, free markets are better markets.
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Earnings season continues this week, along with jobless claims (projected at 313k), consumer confidence, home sales, the Richmond Fed manufacturing index, and durable goods orders. A lot of data after the slow-ish Easter/Passover week last week.