A Strong Response to Anti-Tax Hackery's Invasion of the Classroom
[Note to readers: Earlier today, Verdict published my latest column: "A Fourth Tragedy of Political Violence." In it, I extend my discussion of the Trump rally shooting this past weekend. Here, however, I return to my renewed desire to talk about "boring" policy issues, because we all need a break from existential dread. Enjoy.]
A conservative, anti-tax think tank has decided to package some teaching materials -- what it calls "a comprehensive crash course ready for the classroom" -- so that high school social studies teachers can tell their students that taxes are bad. I will explain more about that in a moment, but the good news is that Darien Shanske, a tax professor at UC Davis Law, recently put together a response to that barely disguised indoctrination program, and I joined more than seventy colleagues in the tax world by signing Professor Shanske's open letter warning educators that the materials "are not fit for use."
The Shanske letter included some pointed examples of the think tank's extreme slant, and I will get into the weeds of all of that below. Before getting there, however, I can offer some possibly enlightening background about the sophists who created this propaganda. As it happens, I referred to that think tank in my Dorf on Law column two days ago. There, I decided not to go into detail about that group, because it was only a sideshow to the larger point of that column. Here, however, it is front and center.
Readers of Tuesday's column will recall that I described a new click-baity listicle that happened to have quoted me. The list in question was the "Most & Least independent US states," an inherently undefinable -- and completely unquantifiable -- idea that was designed to determine which states and citizens were most dependent on others and which were proudly standing on their own two feet. I tried to be nice, but the methodology behind the list was so arbitrary and silly that I ended up calling it "unserious," which was probably a bit too kind.
Rather than go back over what I wrote there, I will add another fundamental criticism to show how utterly confused the listicle's authors' definition of independence is. They wrote a lot about dependence and independence, but they betrayed no awareness of the concept of interdependence. Interdependence is, after all, what society in general is all about; and more to the point, it is very much the essence of capitalism. Adam Smith's metaphor of the Invisible Hand, to note one rather famous source, was designed to show that (within strict limits, which Smith's admirers conveniently ignore) people acting greedily can interact in ways that make everyone better off than if a social planner tried to force everyone to act for the greater good.
Indeed, the unavoidable fact of interdependence in economic transactions is a core notion behind the win-win nature of market economies. Every interaction is a contract, and contracts involve both sides giving and both sides taking. That idea is nowhere to be found in the listicle. When it says, for example, that states with people who borrow relatively large amounts of money are "dependent," they are uncritically assuming that being a debtor puts a person uniquely at the mercy of another person. The lender is Strong and Independent because the borrower is Weak and Dependent.
But that is simply not how market transactions work. If I loan money to someone, I am doing so because I have no current need to spend that money, and I want to "put my money to work" by having someone pay interest to me (and eventually to repay the principal). That unavoidably means, however, that I am depending on someone else to make me richer. If they do not pay the money on which I am depending, I am harmed. The borrower's decisions can make me or break me. Sure, I can try to sue someone for breach, but I am sure as heck hoping that I will not need to waste time and money going through that process.
This is not quite an old saying, but it is familiar to people in finance: "If I owe a bank $100,000 and can't pay, I'm in trouble; if I owe a bank $100 million and can't pay, the bank's in trouble." The numbers are lower for individual lenders, but the idea is the same. And this is true of people who invest in stocks as well, because passive investors are the classic example of someone who puts in no work and depends on others to expend the effort and skill to be able to pay dividends or generate capital gains. The net savers -- those who lend their money or buy stocks -- are very much dependent on those with whom they have contracted.
In short, the listicle's underlying assumption of what it means to be dependent (bad) and independent (good) is hopelessly incoherent. When people deal with other people, everyone is vulnerable to the possibility that someone will harm them. Insuring against bad outcomes is an option, but that is another form of reliance on others that is merely dependency in another form.
But what about that anti-tax think tank? In the listicle, a very big element of the method for deeming a state to be independent is to measure that state's "tax freedom day." As I noted in my column, Florida's #3 position on the most-independent list is (as the listicle's authors themselves note) because of the Sunshine State's high ranking for so-called tax freedom. The problem is that Tax Freedom Day is a sham. As I put it in Tuesday's column:
The entire notion of a "tax freedom day" is infamously a conservative public-relations ploy that has somehow caught on in the mainstream press over the years. The idea is that people are "free" of paying taxes on a specific day of the year, which depends on how much money the state's government collects.
As I was writing that column, I was sure that I had written about this nonsense several times over the years. When I searched later in the day, however, I discovered that I had only critiqued that particular bit of inanity once, in a Verdict column ten years ago: "Freedom, Taxes, and Forced Labor: A Strange Brew of Libertarianism and Marxism." As I showed there, the further one pushes the whole notion of tax freedom, the more obviously absurd it becomes. Even the basic idea, however, is ridiculous on its face.
What, after all, does tax freedom mean? It is a made-up number that takes the average citizen's total tax payments and divides it by their total pre-tax income. If my only income is $100,000 from a salaried job, and if my total payments to all taxing authorities add up to $20,000, then I have an average tax rate of 20 percent. Simple enough, but where does tax freedom come in, and how can we put it on a calendar? Well, 20 percent of the 365 days in a year is 73 days. So if we imagine that you first work to pay all of your taxes and only after that are allowed to keep "your money," then you are supposedly free from tax on March 14, the 73rd day of the year. Q.E.D.
One might defend this framing by saying that it is not literally accurate but is only designed to illustrate in an intuitive way what it means to pay taxes to governments. That would be disingenuous, however, because as soon as we describe why it makes no sense to divide the calendar into blocks of paying-everything-in-taxes and paying-nothing-in-taxes, it all starts to fall apart. It makes sense to pay taxes over time because governments provide benefits over time. Americans benefit from water and sewer infrastructure every day, and providing those services costs money every day. Having access to expert weather forecasts and analysis is valuable every day, not just during the first X days of the year.
Why does that make the entire story fall apart, as I asserted above? The answer is simply that Tax Freedom Day focuses only on costs while completely (and deliberately) ignoring benefits. Once one notices that governments are not simply tax collection agencies but that they in fact turn around and use that money to do the things that they are legally required to do for their citizens, it makes no sense to ask: On what day shall I be free of this? In my 2014 Verdict column, I quoted a colleague from an email: "Why not have a Food Freedom Day, when we’ve completed enough workdays to pay our costs for a year’s worth of food? Or, to meet ideology with ideology, how about a Big Oil Freedom Day or a Big Pharma Freedom Day?"
This all matters to this column because the organization that pulled off the utterly improbable public relations coup of getting the mainstream press to buy into the Tax Freedom Day nonsense -- this think tank succeeds every year in planting stories in media outlets across the country to announce the specific date that they have computed for the year -- is a well funded group of ideological hacks with the boringly anodyne name The Tax Foundation (TF). Were it not for its success in getting gullible journalists to buy into the tax freedom ruse, TF would be an obscurity (if it even existed at all).
And it is the Tax Foundation that has now decided to take its circus act into the nation's high schools, hoping to lure overworked teachers (who, like most people, surely feel uninformed about the tax system) to use TF's prefab political advertisements as an easy way to cover some civics lessons. Reactionary anti-tax ideology is the core of the exercise, but TF evidently hopes that no one will notice.
This is hardly the only time that conservative ideologues have tried to dress up their dogma as neutral principles. As I wrote in a Dorf on Law column a few years ago: "I had a colleague tell me once that the only things we should hope that our students will remember five years after taking our courses is that 'printing money is inflationary, and minimum wages cause people to lose jobs.'" I can add here that that colleague (in an economics department) was in the process of creating "free educational materials" to be used in his state's high schools. He earnestly said that we should only teach the things that "everyone agrees about," but it just so happened that his two preferred examples were at best grossly misleading (and in most cases simply false).
How bad is the TF material that Professor Shanske analyzed? Very. He notes in the first paragraph of his letter that the material is being marketed with gauzy, feel-good statements like this: "Among the stated goals for this package are to give 'teachers the tools to make students better citizens.'" His assessment (with which, again, I and seventy-three colleagues agreed):
The following few pages present excerpts from TaxEDU alongside passages from some widely used educational materials pertaining to tax policy. One consistent theme across these comparisons is that, relative to the more mainstream materials, TaxEDU offers a particular perspective on complex and controversial issues without offering any competing views.
Note that very careful phrase: "a particular perspective." Professor Shanske is much more measured than I am, and it was in any case important to use understated phrasing in that letter to emphasize the point. My assessments that the TF product is "propaganda," "indoctrination," "hackery," and so on are my own, and I do not attribute my word choices to Professor Shanske or any of the other co-signers of his letter. But the side-by-side comparisons that he provided make the case for me, even if I had not opted for my default level of bombast.
Professor Shanske uses as his baseline the bestselling book, Taxing Ourselves, by Professors Joel Slemrod and Jon Bakija (SB). Based on what little I know about those authors, they are probably economic centrists; but whatever their personal views, their book (first published in 1996) is about as straight down the middle as one could find in this field. Importantly, therefore, the Shanske letter is not a "here's what the right says, and here's what the left says" comparison. Instead, he compares a neutral source to whatever it is that TF is peddling.
The very first example in the letter makes the point powerfully. SB's assessment of the costs and benefits of the tax system includes this accurate summary of the state of empirical knowledge among tax scholars:
If empirical evidence showed a strong positive relationship between saving and its after-tax rate of return, the economic costs of our income tax and the economic benefits of switching to a consumption tax could be quite large. However, the available evidence does not readily reveal any such relationship.
Note that Professor Shanske chose a quote from SB that acknowledged that an income tax could have negative effects under some circumstances. Are income taxes good or bad? Not only does it depend on what you mean by good or bad, but under any definition, SB says "it depends." They do not say that the income tax is definitely good or even that it is categorically better than a consumption tax (which is the regressive alternative tax system that groups like TF have long touted). Students who are exposed to SB's work would thus come away with something like this: "There are no simplistic answers."
And the TF's "tool[] to make students better citizens"? Here is what they call a "primer" on the income tax:
Individual income taxes are applied to wages and salaries, business income from pass-through businesses like sole proprietorships and LLCs, and investment income. High marginal tax rates, the amount of additional tax paid for every additional dollar earned as income, reduce individual incentives to work and business incentives to invest. That means individual income taxes also have a negative effect on the economy.
Even more jawdropping was this question and answer from TF's "worksheet": "True/False Question: Individual income taxes have a negative effect on the economy. Answer: True." Simplistic answers rule!
Interested readers can look over the remainder of the examples that Professor Shanske provided in his open letter. Again, however, this is not a close call. The people that brought you the sophistry of Tax Freedom Day now want your high schoolers to know that there is a correct answer to the question of whether income taxes harm the economy, and that unambiguous answer just so happens to support the American right's longstanding agenda.
My compliments and thanks to Professor Shanske for doing this important work.