USC law & business professor latest to pretend rich pay enough taxes in the United States

Reading Professor Edward Kleinbard’s opinion piece titled “Don’t Soak the Rich” in the New York Times reminds me of Mark Twain. Not that Kleinbard can write fluently and passionately in a variety of styles and dialects. No, Kleinbard makes me think of America’s greatest novelist because in Twain’s expression, “Figures never lie, but liars figure,” Kleinbard would be the liar.

I’m not accusing Kleinbard of telling out-and-out fibs, at least not more than maybe one. What the good doctor does is use figures to lie.

Kleinbard, a professor of law and business at the University of Southern California, manipulates statistics and gives only part of the facts to make his case, which is simple:  Government spending is the key to reducing inequality and social welfare programs help the economy, but we should finance them like they do in Europe, by raising everyone’s taxes, not just the taxes of the wealthy. Kleinbard reports that here in the United States, we pay on average 22% of our taxes, whereas in economically strong Germany, people pay 41%. He proposed funding more needed government programs by raising our average to match Germany’s. He never gives a reason why rich folk shouldn’t pay more than others except to say that a chief executive officer earning 200% more than her employees does not get 200 times the benefit from our investments in highways, which is a back-handed argument that the rich should pay less of a percentage of their income in taxes than the poor and middle class do.

It all seems to make sense if you look at his words uncritically. But take a closer look and you can quickly recognize four types of lies he tells to make his case:

  1. Kleinbard lies by omission: He advocates more government spending on social services and infrastructure without raising taxes on the wealthy, while forgetting to mention that we used to have a pretty good social service net and a wonderful research, development and infrastructure investment program back in the days when the rich were paying more in taxes than they do now. The two super trends of the last 35 years of Reaganomics are lower taxes on the wealthy and less government spending.  By not mentioning this history, Kleinbard can pretend that we have a clean slate and are trying to figure out how best to fund an increase in government spending.
  2. Kleinbard tells a straightout lie: Kleinbard’s explicit whopper is to assert that a CEO who makes 200 times what her employees does not get 200 times the benefit of government spending.  Dear Dr. Kleingloss—I mean Kleinbard—do you think that a CEO doesn’t benefit every time a consumer, employee or vendor drives to her facilities on a road paid by government spending? And do you think the CEO’s benefit is not greater than the employees who take a smaller piece of the wealth pie created by that economic activity? How about the spending on security that not only protects customers, but gives them the confidence to venture out and shop?  We only see a law of diminishing returns in benefits from taxes if we look solely at the individual and ignore, as Kleinbard does, the benefit derived by the individual through benefits to other individuals. As an economist, Kleinbard should understand this concept, which I why I believe he is fibbing when he avers that the CEO does not get 200 times the benefit from tax spending that her employees do.
  3. Kleinbard lies by his use of hypothetical numbers: As noted, in building his weak case for keeping taxes low on the wealthy, Kleinbard compares the income made by a hypothetical CEO to what her employees make. The problem is the 200 to one ratio is so far off the mark that it constitutes a lie because it makes us think that 200 to one is close to the truth. But it’s not. Recent surveys compute that U.S. CEOs make on average from 331 to 345 times what their average employees make, and CEOs of the l00 largest public companies make 774 times the minimum wage. By the way, in Germany, CEOs make 142 what their average employees make; in Spain it’s 127 and in Switzerland, it’s 147. Most readers will assume that Kleinbard’s 200 to one is realistic, when in fact it’s a gross underestimate of the enormous difference in earning capacity between those at the very top of the heap and everyone else in the United States.
  4. Kleinbard lies by making an incomplete comparison: Kleinbard compares the 22% that we all pay in taxes in the United States to 41% in Germany. But he neglects the other part of the comparison—that German (and other Western European and Japanese) executives get a smaller part of the income pie to begin with. You can’t just compare the apples to apples, you also have to compare the oranges, and when you do, it should rapidly become apparent that we can’t raise everyone’s tax load to 41% unless we also split the income pie more equitably so that CEO’s make a smaller multiple of their average employees.

To his benefit, Kleinbard never tries to make the disproven case that you have to have low taxes on (rich) job creators, so they can do their thing. But the case he does make—just raise taxes on everyone—is full of logical holes that he tries to cover with his multiple deceptions.

On second thought, Kleinbard’s essay reminds me less of Twain than of the French writer Julien Benda, who wrote “The Betrayal of the Intellectuals” in which he bemoaned the fact that so many intellectuals in western Europe in the 19th and early 20th centuries went against what their expertise told them was true so they could support false notions such as racism held by the ruling elite. Kleinbard is one of a large number of mediocrities who prefer to propose specious arguments that support the 1% than to address our real economic challenges.   It’s the 21st century betrayal of the intellectuals.

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