The Tyranny of Dead Ideas: Letting Go of the Old Ways of Thinking to Unleash a New Prosperity, by Matt Miller (Times Books, 2009) $25.00.
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Things are bad and getting worse, according to Matt Miller, a senior fellow at the Center for American Progress. Today's economic crisis is serious, threatening the employment of millions and the prosperity of everyone else. But the United States faces even bigger, if more diffuse, threats from global economic competition and rapid technological change.
"The next decade will bring a collision of forces that threaten to disrupt U.S. society, sink the middle class, and call into question the political and business arrangements on which our prosperity and stability have rested for decades," Miller warns.
And worse yet, Americans are utterly unprepared to meet this challenge. As a nation, we are in thrall to an array of old ideas badly out of step with new realities, Miller argues in his recent book, The Tyranny of Dead Ideas. Until Americans free themselves from the grip of this outmoded thinking, they will remain victims rather than victors in the coming global shakeout.
Dead ideas, according to Miller, are "the tacit assumptions and ingrained instincts broadly shared by business executives, professionals, policy makers, media observers, and other opinion leaders regarding the way a wealthy, advanced economy like the United States should work." Dead ideas afflict a range of policy issues, including healthcare, retirement security, and trade. But some of the deadest ideas, according to Miller, are about taxes.
Americans are broadly convinced, Miller contends, that "Taxes Hurt the Economy and They're Always Too High." This idea is dead, Miller says, done in by fiscal realities apparent to any honest observer. (Actually, I think Miller is arguing that this idea, like the others in his book, aren't so much dead as undead; they're zombie ideas, wandering mindlessly through the land of the living, wreaking destruction all around them. But let's set aside that quibble: The Tyranny of Zombie Ideas was probably a no-go with serious publishers.)
Like most dead ideas, the antitax notion has a constituency. "This idea, which in various forms has recurred throughout human history, is born in the self-interest of the small number of people who typically control most of the resources in a society, because, given the choice, they would prefer to avoid sharing those resources with others," Miller says. All of which may be true. But it doesn't explain the dominance of it, even in the face of growing inequality.
Miller is perhaps too sanguine about the popularity of taxes among lower- and middle-income American voters. He suggests, at one point, that "the broad middle will happily tax itself for services it comes to want." That may be true, when people are asked by pollsters whether they would be willing to pay more taxes in exchange for better schools, roads, healthcare, etc. But as several observers (like Princeton political scientist Larry Bartels) have pointed out, Americans don't always believe that higher taxes will be used to pay for promised public goods. The antitax idea is fueled by a lack of trust in government. It represents a breakdown in civil society, a fraying of the social compact that makes good government possible.
According to Miller, the responsibility for this civic tragedy belongs to the modern Republican Party. GOP leaders "deftly separated the idea of taxes in the American mind from the popular things (health care, pensions, schools) that taxes paid for," he writes. "This schizophrenia was a stunning conservative achievement."
The antitax idea was loosely consistent with the economic realities of the 1970s and 1980s. But as Miller emphasizes, it has no connection to the world we inhabit today. Spending is going up, and Americans are in no mood to make the sort of draconian cuts necessary to change the dismal trajectory of the federal budget. As a result, taxes are going up too, dead ideas notwithstanding.
This is no tragedy, in Miller's view. He rejects the notion that higher taxes will impede prosperity. Citing several experts, he insists that "history and current experience show that social spending and the taxes that fund it have not materially weakened economic incentives and growth." Part of the explanation lies in the tax mix. "It turns out that high-spending welfare states have tax structures that are more pro-growth than those of the lower spending, lower tax countries" like the United States, Miller says. He has in mind, of course, the global popularity of value added taxes.
Most Republicans stubbornly resist those facts, Miller says. They vividly recall the antitax heyday of the 1980s, and they can't face the ineluctable realities of the pro-spending 2000s.
So what's the live idea that everyone needs to grasp about taxes? Miller suggests an eclectic approach to tax reform, lifting elements from both the GOP and the Democratic agendas. To boost competitiveness, he endorses lower corporate income taxes. To help relieve the struggling lower and middle classes, he calls for reduced dependence on payroll taxes as a financing tool for social welfare programs. To help reduce global warming and alleviate other problems resulting from excessive energy use, he supports some sort of broad energy tax. And finally, to help pay all the nation's looming bills, he proposes a value added tax.
All very reasonable, all very moderate. Most of Miller's book reads like an indictment of modern Republican orthodoxy, but he takes the occasional shot at Democratic platitudes, too. The corporate income tax is a prime example. "Democrats often act as if these taxes are somehow a 'freebie,' paid by impersonal entities, not real people," he points out. "That conceit is false. 'Corporations' don't pay taxes, people do."
Of course, which people pay the corporate income tax is less than clear -- economists have been debating that question for a century or so, and the answer makes a big difference, especially in the political arena. But Miller is right when he suggests that Democrats are too quick to assume that the corporate income tax is a fat cat's burden.
Miller's book is not exactly brimming with new ideas. In fact, most of his proposals -- whether for tax reform, school financing, or anything else -- have been debated for decades. But taken as a whole, they have a distinctly "postpartisan" flavor, in the overworked Obama sense of the term. I, for one, don't believe the postpartisan hype -- party conflict is fundamental to the American political system.
But I do believe in compromise. Trading corporate tax reduction for an array of consumption taxes seems reasonable. And maybe even possible, given the imperatives of our long-term economic and political challenges.
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Joseph J. Thorndike is a contributing editor for Tax Notes.