Freeman

BOOK REVIEW

The Greedy Hand: How Taxes Drive Americans Crazy and What to Do About It

When the State Wants Money, It Takes It

JULY 01, 2000 by SHELDON RICHMAN

The word “greedy” is so hopelessly vague that it is virtually useless. But if anyone can be said to be greedy, it’s those who run the government. For them the word is appropriate both for how much money they want and how they get it: taxation, confiscation, fiscal force. Aside from a few freelance criminals, if the rest of us want more money, we go out and earn it. When the state wants money, it takes it, under color of law.

Amity Shlaes, a member of the Wall Street Journal editorial board, has written an enlightening book about the thousand cuts—big and small—inflicted on each of us by the U.S. tax system. Alas, some of us are so inured that we don’t notice them—which may explain why taxes aren’t the hot issue they ought to be. How many people know that the government’s aggregate take is at an all-peacetime high?

Shlaes’s title comes from the introduction to the second part of Thomas Paine’s great book, Rights of Man. Paine noted, “If, from the more wretched parts of the old world, we look at those which are in an advanced stage of improvement, we still find the greedy hand of government thrusting itself into every corner and crevice of industry, and grasping the spoil of the multitude. Invention is continually exercised, to furnish new pretenses for revenues and taxation. It watches prosperity as its prey and permits none to escape without tribute.” Little that has been written since is as perceptive.

Shlaes ranges far in her survey of the tax landscape. She covers the income tax, including the clever withholding system and the cost of compliance; Social Security and Medicare payroll taxes; the death tax; sales taxes; and the marriage penalty. She details the daunting harassment of taxpayers who work for themselves or who hire nannies for their children. She shows the ways the state tries to influence our behavior through taxation.

The author’s recurrent theme is that the system punishes success. The code writers are like smirking sadists, sticking out their legs to trip up ambitious Americans as they feel their way through darkened rooms. Those who already have made their fortunes can afford the expertise it takes to illuminate the treacherous tax code. Woe betide the self-employed who come to the attention of the Internal Revenue Service; they soon learn what it means to be serviced by that agency of the state.

What’s remarkable is that although the wealthy are in a better position to contend with the labyrinthine tax laws, they still end up paying a horrendous amount of money. The top 5 percent of earners pay half of what the personal income tax takes in. (Shlaes does not mention that fact.) The bottom 50 percent of earners pay only 4 percent of the revenue. On the other hand, the less affluent are hammered by the payroll tax. Social Security and Medicare take more than 15 percent of incomes up to about $70,000; for many people, it’s the highest tax they pay. That rate is more than twice the top income-tax rate imposed in 1913 !

Readers of this magazine will be cheered to see Shlaes invoke Frederic Bastiat. She quotes his insight on the “fatal illusion” that the tax burden can really be shifted to the rich. Rates and punitive measures perhaps intended only for high-income people eventually bite the middle class. Moreover, we’d all be hurt even if high taxes were imposed only on the rich, because they are the ones who save and invest the most. The income tax itself stands as a gargoyle-adorned monument to Bastiat’s insight.

Shlaes has most of the facts and figures you’ll need to appreciate the fix we’re in (although there are no endnotes and in places details are scant). Considering the monumental proportions of this fix, her proposals are weak: make taxes visible, simple, as local as possible, and for revenue-raising purposes only; privatize part of Social Security. This is moderation to a fault.

For someone writing a book on taxes, Shlaes is strangely Pollyannaish: “We started the welfare state and then, when we saw it wasn’t working, successfully ended it. . . . Thinkers left, center, and right agree: we don’t need a nanny state.” I recognized America from her description of the tax code. But those last statements made me think she was talking about some other place.

ASSOCIATED ISSUE

July 2000

ABOUT

SHELDON RICHMAN

Sheldon Richman is the former editor of The Freeman and TheFreemanOnline.org, and a contributor to The Concise Encyclopedia of Economics. He is the author of Separating School and State: How to Liberate America's Families.

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