Johnston's Take

JOHNSTON’S TAKE (C) Tax Analysts 2011. All rights reserved. does not claim copyright in any public domain or third party content. tax notes® A Cosmic Visitor’s Take on Tax But there it is, number one. Because we devote so much to tax, we must love taxes, right? Or at least By David Cay Johnston what taxes buy. Either that or we are crazy because it doesn’t make sense to put first that which you hate. Yet our focus as a society is on far smaller David Cay Johnston re- components of our economy. ceived the Pulitzer Prize for Take profits. Profits are Lilliputian compared his coverage of tax policy with the gargantuan size of tax. Interest is only The New York Times while at about three-fourths the size of profits and virtually and now teaches at Syracuse University College of Law. unknown as a source of income to those below the He is the author of two top 2 percent of earners. books about taxes, Free Or consider new vehicle sales, a giant business Lunch and Perfectly Legal. whose total domestic revenue when you count both His next book, The Fine cars and light trucks equals less than four months of David Cay Johnston Print, will be out at the end federal income taxes, which in turn are less than a of the year. fourth of all taxes in America. In this column, his last for Tax Notes, Johnston Yet anyone taking the measure of America or the suggests fresh ways to think about tax policy. world from popular media, be it television or magazines, would think tax was nothing and auto- mobiles were huge. Indeed, from the ads in print It is a human tendency to assume the world we and on the air, one could easily be misled into are born into is as it should be — a Panglossian thinking that beautiful people with costly orna- assumption that colors our understanding of the ments rank very high in importance, while taxes are abstract, like tax policy. unheard of. To get grounded in what is, without assuming it This results in a series of paradoxes: is natural, let’s try a thought experiment. Imagine 1. Humans devote the largest single part of you are a researcher from a distant planet, part of a their economies to taxes, yet generally hate team sent to stealthily observe and report your taxes and avoid thinking about them in seri- findings. Telemetry has revealed the watery and ous ways. volcanic nature of our planet, so you focus on the organized activities of Earth’s top sentients. Your 2. The countries with the highest overall taxes protocol requires you to identify the biggest com- tend to be better off and report the highest mon enterprises first and then work your way degree of happiness, but there is a global trend down. to reduce taxes. So what would lead your report? What is the 3. Washington is full of claims that high taxes biggest human enterprise? Industry? Digital activ- are killing business, yet manufacturers rush to ity? Military? Healthcare? Food production? No, leave America for a high-tax country called the biggest enterprise, by far, is tax. China. Tax accounts for close to 30 percent of economic These contradictions are, with apologies to Win- activity in the United States, 40 percent or more in ston Churchill, a riddle wrapped in a mystery much of the modern world, and in some countries inside an enigma. more than half the economy. When words and deeds are so far disconnected, Not being from another planet, it may come as a it suggests a kind of craziness. And craziness does surprise to you that tax is number one. After all, tax not beget rationality or good decisions. And an has become a vile word in America, an epithet and amalgam of irrationality and bad decisions is a a feared label. And because it’s a vile word, rational prescription for a very bad economic headache. discussions about tax and how to get the most Now let’s ponder where taxes come from, geo- benefit for the least levy are about as likely as a graphically speaking, and where wealth is held, team of extraterrestrials conducting stealth re- although not necessarily made. Imagine your report search. back to the home planet includes hologram-type TAX NOTES, July 4, 2011 83 COMMENTARY / JOHNSTON’S TAKE three-dimensional images of Earth, virtual globes America with all of its greatness, its freedoms, and with spikes and valleys to show the contours of its potential, is, like democracy itself, the child of (C) Tax Analysts 2011. All rights reserved. does not claim copyright in any public domain or third party content. economics. tax. The world of wealth would include vast flat Two centuries of debate and thoughtful consid- expanses — Africa, Siberia, large parts of Australia eration by the ancient Greeks gave us the moral and Brazil — and lots of spikes at Bermuda, the basis for progressive taxation and, in turn, the Caymans, and cities like London, Beverly Hills, radical ideas that people could govern themselves Calif., Zurich, and Monaco. and that just because a man had money he was not Even in a nation as wealthy as America, the entitled to a larger voice in the body politic. spikes would stand out against a mostly flat land- Seven years under a central government without scape, wealth being highly concentrated not just in the power to tax or regulate commerce destroyed a relatively few hands, but in a relatively few the first American republic and created the need for places. Lower Manhattan would be a sharp spike the second, with its strong powers of tax and rising far above the planet, while vast areas of regulation. Appalachia, the South, Midwest, Rockies, and the We are abusing our child — which is to say we western parts of New York state would be mostly are abusing America — with all of the hate-filled, flat. Wyoming would be as flat as Kansas, except for nonsensical, demagogic talk about tax that domi- the sharp spike rising from Jackson Hole. nates one of our political parties and intimidates the A parallel hologram of where taxes are paid, other. however, would not look the same. Even if the We have forgotten the wise words of Edmund globe scales were proportional to global shares, the Burke, the founder of modern conservatism, who in tax globe would not rise nearly so high in its spiked his 1793 letter made the telling observation that places. ‘‘the revenue of the state is the state.’’ The Caymans and Monaco would be spikes on We seem to think we can raise generations to hate the wealth globe, flat on the tax globe, although tax, when hate is never a good emotion. We spread both would be flat on a third virtual globe showing tax illiteracy, with no regard for how it undermines population. America, the liberties of the people, and the very How much does our crazy, disconnected debate idea of self-governance. If you doubt that, just about taxes have to do with the mismatch between remember the total disconnect between what the these twin three-dimensional images of where Boston Tea Party was about and what modern Tea wealth resides and taxes arise? How much does it Partiers say is their cause. have to do with the fact that Kiplinger’s, Money, Tax is not a pleasant subject and never will be. Smart Money, and dozens of other magazines oper- Neither are the responsibilities of child care, like ate from an antitax bias, as shown by their focus on calming bedtime fears about imagined monsters how to cut your individual taxes rather than on lurking in the shadows. Parents who perform these taxes as a whole? How much does it have to do with duties, showing their love by their actions, make for policies that have made a growing minority of productive adults, while those who shirk the un- Americans exempt from federal income taxes, al- pleasant realities of parenting often discover what a though that portion of the populace will shrink nightmare a child can grow up to become. some starting next year? We need to nurture America. We need to do the There is an old truism that what you think about hard work of changing our tax system to fit the is what matters to you. The same is true about your times, of comforting those afflicted by change, and money. Taxes must matter, or else why would we conquering the imaginary monsters perpetuated by spend so much time on them? politicians consumed by anti-tax ideology and the Yet we treat taxes and public finance like a pursuit of power. We need to remember all six noble reliable and familiar spouse ignored in favor of the purposes in our Constitution’s preamble, and we excitement of an illicit affair, our hearts and minds need to take care of our common property, forget- focused on the baubles and not the substance of life. ting neither our purposes nor our investments in In three years of writing this column, I have the commonwealth. enjoyed the time and reason to think deeply about Without taxes there is no America. Taxes are the the role of tax in life, in sustaining our democracy, foundation of the commonwealth, of the goods and and about the growing mismatch between our services that make society work, and on which debased national debate on taxes and how we make private wealth is built. Unless we build a sturdy society work.

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