Citing Jonathan Chait’s stinging takedown of a remarkably silly assertion by Larry Kudlow that it’s good to have a government run by the super-rich, because the super-rich, already satiated with wealth, are immune to the blandishments that might corrupt the merely rich or upper middle-class, Paul Krugman also skewers Kudlow for a deeper inconsistency in his world-view and that of other devotees of supply-side economics.
What Chait doesn’t note is the special irony of seeing this argument from Kudlow, or indeed any right-wing advocate of supply-side economics. Remember, their whole worldview is based around the claim that cutting taxes on rich people will work economic miracles, because of incentives: let a plutocrat keep more of an extra dollar in income, and he’ll innovate, create jobs, lead us to an earthly paradise in order to get that extra income.
To belabor what should be obvious: either the wealthy care about having more money or they don’t. If lower marginal tax rates are an incentive to produce more, the prospect of personal gain is an incentive to engage in corrupt practices. You can’t go all Ayn Rand/Gordon Gekko on the importance of greed as a motivator while claiming that wealth insulates a man from temptation. . . .
But what’s more interesting and revealing, I think, is the way people like Kudlow for whom incentives are supposedly all suddenly say something completely different when it comes to conflicts of interest.
And this is telling us something significant: namely, that supply-side economic theory is and always was a sham. It was never about the incentives; it was just another excuse to make the rich richer.
I understand why Krugman is annoyed with Kudlow and other supply-siders. Kudlow is clearly being inconsistent. But Krugman forgets that he is a partisan advocate, so, like all advocates, he tailors his arguments to support the momentary interest and needs of the political party, and candidates, and causes with which he has aligned himself. And, like any advocate, he searches for whatever arguments he can find to support his side at a particular moment, without caring too much whether the argument he is making today is consistent with another that he made yesterday, or, for that matter, one he made 5 minutes ago. So it’s certainly fair to conclude that Kudlow doesn’t really understand what he is talking about, or that, lacking intellectual scruples, he will say whatever he thinks will advance the interests of his “team.”
But you can’t infer from Kudlow’s lack of intellectual scruples that everyone who favors reducing marginal tax rates is simply trying to make the super-rich even richer. There is a prima facie plausible argument to be made that reducing marginal tax rates would enhance economic efficiency. So the charge that everyone who advocates reducing marginal tax rates is doing so for venal and reprehensible motives just strikes me as, well, implausible.
I mean is it so hard to imagine that an intelligent person could believe that low marginal rates of taxation would promote economic efficiency and enhance productivity? Not for me at any rate, because I used to share that belief myself. If I hold a different view now than I used to, I don’t think it’s because I have become a better person than I used to be (though I hope I have); it’s because I now have serious doubts that low marginal rates of taxation are necessarily efficiency-enhancing. Those doubts result from my having realized that a lot of income — especially in the highest income brackets — is generated by activities whose private benefits greatly exceed their social benefits — the gains to some reflecting interpersonal transfers rather than increased output — so that low marginal income tax rates may, on balance, reduce overall economic efficiency.
Given the lack of research, or my lack of knowledge about the research, on the gaps between the private and social benefits from a lot of very highly remunerated activities, like various forms of financial trading and speculation, research and development aimed at creating intellectual property, and other forms of investment in winner-take-all activities and enterprises, I have no idea what the socially optimum marginal tax rate really is. I therefore have no definite position either for or against changing marginal tax rates.
But I do understand why someone with a perfectly innocent state of mind could believe that not only the super-rich, but even the least well-off members of society, could potentially benefit from reduced marginal tax rates. If you want to disprove or debunk that belief, the right way to do so is to explain what’s wrong with the straightforward — possibly simplistic — reasoning that says that lowering marginal tax rates enhances economic efficiency; it is not by asserting that such a belief could be held only out of venal motives.
As I said, I do understand, and share, Krugman’s frustration with Kudlow, but I still don’t believe that every supporter of low marginal tax rates is lacking in intellectual scruples. And not only is impugning the motives of everyone that disagrees with you unfair, it degrades an already low level of public discourse even further, and may not even be an effective rhetorical strategy.