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January 9, 2012
40 Years: Jasinowski Responds to Debunking of Tax Mythology

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by Jerry J. Jasinowski

To the Editor:

I am flattered by the serious scrutiny you gave my recent article in The Nation, "Mr. Nixon's Tax Mythology." Unfortunately, your criticisms do not accurately reflect the article and miss the mark of debunking the alleged "rhetoric and mythology of tax reform." Since your ostensible purpose is to aid the media in understanding tax issues, and most of your readers will not have had an opportunity to read my article, I request that you print the following brief comments:

First, you fault the article for "spouting hyperbole to the effect that we don't have a progressive tax system now." This is a straw man that is a bit too obvious because no one in his right mind would say that the Federal income tax is not progressive. What I did say is that spokesmen for the Administration have attempted to halt the growing tax revolt by minimizing the extent to which wealthy individuals escape paying their taxes. The issue was what effective tax rate do individuals with incomes in excess of $200,000 a year pay? I concluded that: "Adding in what is missing from the adjusted gross income measure, for example, Pechman and Okner estimate that taxpayers with incomes in excess of $200,000 a year pay an estimated rate of about 30 percent, 14 percent less than Cohen's [Treasury] estimate, and 40 percent less than the IRS maximum for this bracket." The facts remain that the present Treasury methods for measuring the effective tax rates for wealthy individuals overstate those rates. When criticized on just this point before the Joint Economic Committee, Treasury Under Secretary Edwin S. Cohen acknowledged, as I reported in the article, "I could not agree more that the use of adjusted gross income as a measurement here has great defects."

Second, you inaccurately quoted me as saying that Treasury was "deliberately misleading" in simply reporting the tax savings of various special provisions by income class. In fact, I simply reported that the Tax Reform Research Group had characterized the Treasury presentation with those words. My own feeling is that these words are a bit too harsh in view of the fact that Treasury presentation was, as far as I know, the first such public effort to present a distributional analysis of most special income tax provisions.

Nonetheless, I did go on to argue that the Tax Reform Research Group emphasis on measuring the distribution of special tax benefits by individual taxpayer was a useful idea. While there are several conventional ways that you can measure distributional impacts, each with its own merit, one cannot dismiss the benefit-per-taxpayer measure with comments that this is not the way students of public finance have done it in the past. The benefit-per-taxpayer measure is useful because it shows the amount of subsidy per-unit and reveals the upside-down effect of providing a subsidy through the deduction mechanism. Moreover, the way to deal with this problem is to substitute credits for deductions, or to direct subsidies, not, to use your words, "by restricting the availability of deductions to the poor and middle class."

Third, you imply that my criticism of Treasury's discussion of corporate tax burden is no better than their presentation. My criticism was that "the absolute dollar technique is a sham as a measure of corporate tax burden. Among other deficiencies, the absolute amount of corporate income taxes collected may increase while corporate income tax rates are declining. If a meaningful judgment of what has happened to income tax burdens is to be made, the focus should be on what proportion corporate income taxes are of pretax profits, or what proportion corporate income taxes are of all federal revenues. As a percentage of pretax profits, the effective corporate income tax rate has declined from about 41 percent in 1970 to 37 percent in 1972, with projections that it will drop to less than 36 percent by the end of 1973. Not too surprisingly, corporate income taxes are also declining as a share of federal revenues."

I believe this criticism of Treasury still stands and your failure to acknowledge the deficiencies in the absolute dollar measure does not serve to raise the level of debate about tax reform.

The above comments do not mean that my article was perfect or that your criticism did not show some genuine insight. Perhaps some aspects of the article oversimplified too much and perhaps some of the language was too harsh. But your criticisms do not persuade me that, with some notable exceptions among past and present Treasury personnel, "the Administration has arranged the facts to fit the point of view that the tax system serves the average citizen so admirably that cries for reform are ill conceived."


                Jerry J. Jasinowski,
                Staff Economist
                Joint Economic Committee
                Nov. 22, 1972

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