Over a half-century ago, General Motors CEO Charles Erwin
Wilson was nominated by
newly-elected President Eisenhower to be Secretary of Defense.
During his confirmation hearings, there was a controversy whether
he'd be able to deal impartially with his old company. Sure, said
… but added that he could not conceive of such a situation "because for years
I thought what was good for the country was good for General Motors and
vice versa." Later this statement was often garbled when quoted,
suggesting that Wilson had said simply, "What's good for General Motors
is good for the country."
Ironically, the misquote took off as an indicator of damnable corporate
greed. Al Capp introduced a ruthless capitalist character
Bullmoose into his "Li'l Abner" comic strip; the General's
memorable motto was "What's good for General Bullmoose is good for
the USA!" Johnny Mercer and Gene De Paul included the motto in a catchy
tune for the 1956 Broadway musical based on
the strip. Even today, "good for General Motors" gets 37900
hits at the Google.
So all that was brought back by a recent editorial in the New York
Times bemoaning "A Dearth of Taxes" here in the USA.
President Bush considers himself a champion tax cutter, but all the
leading Republican presidential candidates are eager to outdo him. Their
zeal is misguided. This country's meager tax take puts its economic
prospects at risk and leaves the government ill equipped to face the
challenges from globalization.
Oh no! "Meager!" That's terrible!
According to a report from the Organization of Economic Cooperation and
Development, a think tank run by the industrialized countries, the taxes
collected last year by federal, state and local governments in the
United States amounted to 28.2 percent of gross domestic product. That
rate was one of the lowest among wealthy countries — about five
percentage points of G.D.P. lower than Canada's, and more than eight
points lower than New Zealand's. And Danes, Germans and Slovaks paid
more in taxes, as a share of their economies.
noted the OECD report in an article by (longtime
high-tax cheerleader) David Cay Johnston here
and I'll steal their spiffy graphic:
The Times claims that our low position on this graphic totem pole
shows that we're "ill equipped to face the
challenges from globalization." But how many countries
in positions 1 through 16 on that chart are in better economic
shape that the US? It's arguable, of course, but by one
measure, only two of them are just slightly better off:
Norway and Ireland, both arguably very special cases. That's certainly
no evidence for the Times'
thesis that high tax takes are a general recipe for prosperity.
Also, of course, that 28.2% figure is a fraction of the biggest GDP in
the world. Is that really the best measure?
Could it be that government revenue need not rise
in direct lockstep proportion to GDP? I'd bet that's true, but exploring
such subtle nuance
is apparently beyond the powers of the editorial writer.
Continuing with the editorial:
Politicians on the right have continuously paraded the specter of
statism to rally voters' support for tax cuts, mainly for the rich.
I think Times
editorial writers have their word processors
set to automatically append "mainly for the rich" every time they type
the phrase "tax cut".
As for "the specter of statism", let's be clear: the above graph is
all about the fraction of each country's economy under
control of the state as opposed to under the
control of individuals and private
institutions. The Times is advocating that we move up on the
chart: in other words, to take decision-making for a bigger share of the pie
out of private hands and put it into the state's. And then all kinds
of wonderful things will allegedly happen.
That's not "the specter of statism": that is statism. The
Times should be honest enough to drop the rhetoric and admit it.
the meager tax take leaves the United States ill prepared to compete.
From universal health insurance to decent unemployment insurance, other
rich nations provide their citizens benefits that the United States
government simply cannot afford.
There's been more than enough discussion about the "universal health
insurance" angle over the past few weeks and months, so we'll skip that.
But what the
calls "decent unemployment insurance" mainly buys more
unemployment. For example, let's look at
from the above chart,
Financial Times article
from last year pegs its unemployment
at 15%, with a gloomy outlook for the future. Is that the kind of
"competitiveness" the Times
wants the US to emulate?
But now we come to the paragraph that triggered the Charlie Wilson
The consequences include some 47 million Americans without health
insurance and companies like General Motors being dragged to the brink
by the cost of providing workers and pensioners with medical care.
I can't improve on
Greg Mankiw's on-target
Employer-provided health insurance is just a form of compensation that
happens to be provided in kind rather than in cash. What the Times seems
to be saying is that because companies like General Motors have promised
levels of compensation too large to make them competitive in the
international marketplace, we should shift the responsibility for some
of that compensation from the companies to the taxpayer.
In other words, the Times
is trying to say what Charlie Wilson
actually didn't: what's good for General Motors is
good for the USA.
But, as Greg points out, there's no "free lunch": while a government takeover
of GM's medical expenses might rescue the company from the consequences
of its historical poor decisions, Joe Taxpayer would have less in
pocket to (for
example) buy that spiffy new Impala. There's no evidence that this would
make GM more competitive on the world stage, either.
Back to the editorial:
President Bush and his tax-averse friends extol the fact that the tax
haul has risen over the past two years as evidence of the wisdom of his
tax cuts. But if anything, the numbers underscore the
economy's weaknesses—mainly its growing inequality.
I'm compelled to point out that the writer skates dangerously close
to supply-sidism here:
the previously-derided tax cuts for the rich
a bigger "tax haul" from the rich
. (Of course they blame
"inequality." Go figure.)
Indeed, the growth in tax revenue since 2004 is due mostly to the
spectacular increase in corporate profits, which have grown at the
expense of workers' wages. Moreover, it's proving ephemeral. As economic
growth has decelerated, corporate profits are losing steam and the
growth of tax revenue has begun to slow. This pretty much guarantees
that the revenue will prove too low to face the challenges ahead.
… and the Times
can't quite come to grasp its own
logic here. Taxes raised via inequality-driven
high incomes and corporate profits are "ephemeral" so … how are
going to accomplish their stated goal of moving the US up the
Right. The Times would like to hide behind its eat-the-rich
rhetoric, and crocodile tears about "workers' wages"
but they're really talking about getting a bigger
fraction of income from "workers": (probably) you and (certainly) me. Again,
it would be nice if they just said that.
It's possible that the political winds will move in the Times'
direction and we will move up the chart to some tax burden number
enlightened thinkers deem more proper. In that case, I have a fearless
prediction: not only will the fraction
of the pie handled by politicians be bigger, the pie will actually
be smaller than it would have been. That will make the Times feel
better, but I hope it won't fool anyone else.
[Update: The Amazing Megan also comments.]
Don Boudreaux shares with us
his letter to the Times in response to the "jaw-droppingly dumb"