Our Imaginary Friends

It seems I'm becoming superfluous, because now Megan McArdle is providing both sides of her debates, liberal and conservative. That saves me some time, but unfortunately with the responsibility also comes the power, and instead of hearing real liberal argument we hear McArdle's Imaginary Liberal Opponent arguments. Her ILO seems to be a child of average intelligence who learned everything she knows about the government from picture books. Let's call our liberal Shirley, after the little mop-topped movie star. It helps if you add a cute little lisp or inability to pronounce her r's.

Liberal Named Shirley: Gee willikers, Megan, it sounds like you think the rich are special people who need help!

McArdle: I'm afraid I gave the impression yesterday that I thought the fate of Manhattanites makes $200K+ was infinitely more tragic than the fate of single mothers making $20K. Not so. The point wasn't that beleaguered Manhattanites are particularly worthy of our sympathy--though there really is a disconnect between the lifestyle being taxed in Manhattan and Omaha at similar levels of income. Rather, it's that almost no one, including people who are quite affluent, seems to have realized that they're on the hook for the spending they support.

Shirley: (Giggles) Gosh, I never thought that if people had to pay taxes, I'd have to pay taxes too!

McArdle: Look at our current deficit. There's a reason that most countries do not attempt to fund large welfare states with a very progressive income tax, the way we do*. The income of the wealthy is fungible, mobile, and volatile. These are not strengths from the vantage of the tax system.

Paying for a huge new entitlement which will, at best, grow steadily during downturns, should not be done with a tax that will plummet the way progressive income tax revenues seem to during a depression. See: California, State of.

Shirley: I don't understand. Does that mean that taxing rich people is bad?

McArdle: But at any rate, I was in no way trying to argue that it's unfair to raise taxes on wealthy people. Only that a) doing so seems to raise shockingly little revenue and b) fairly wealthy people seem to be getting a nasty surprise from this, and I expect that the surprises will get nastier as the administration is forced to dip into lower income quintiles who were told to expect a tax cut.

Shirley: Oooh! Oooh! You are a mean, nasty lady who makes me just squirm with anger! Rich people can too afford more taxes--after all, the top 10% of rich people have 71% of the nation's wealth!

McArdle: * (Yes, yes, I know the liberals are squirming in their seats, waiting until they can tell me that it is a MORAL OUTRAGE that I called our system progressive. "Progressive" is a slippery term with many meanings, but in this case, I merely mean that our tax system collects a vastly disproportionate share of its income from the wealthier members of society. The individual income tax, which is the largest single source of revenue, collects 75% of its money from the top 10% of taxpayers. FICA is regressive in incidence, but still collects most of its income from the higher quintiles, for the unsurprising reason that higher quintiles have more income subject to the tax. Calculating corporate income tax incidence is functionally impossible, but one hopes it falls more heavily on the rich than the poor--if it doesn't, we ought to get rid of it.

Shirley (sobbing with frustration): I really want to say something but I'm afraid of such a mean lady!

McArdle: "You are missing the point!!!" you want to say, but for this purpose I am not. I am not making a normative argument about the justice of American tax distribution. I am making a positive argument about the dependence of American tax revenue on the income of the upper quintiles.)

Poor Shirley, who makes such bad arguments and has such an immature attitude. I'm surprised that McArdle can bear to live in a world filled with such imaginary people.