Sometimes, a Tax Cut for the Wealthy Can Hurt the Wealthy, NY Times

[Coastie for Truth]

WHEN market forces cause income inequality to grow, public policy in most countries tends to push in the opposite direction. In the United States, however, we enact tax cuts for the wealthy and cut public services for the needy. Cynics explain this curious inversion by saying that the wealthy have captured the political process in Washington and are exploiting it to their own advantage.

This explanation makes sense, however, only if those in power have an extremely naïve understanding of their own interests. A careful reading of the evidence suggests that even the wealthy have been made worse off, on balance, by recent tax cuts. The private benefits of these cuts have been much smaller, and their indirect costs much larger, than many recipients appear to have anticipated.

On the benefit side, tax cuts have led the wealthy to buy larger houses, in the seemingly plausible expectation that doing so would make them happier. As economists increasingly recognize, however, well-being depends less on how much people consume in absolute terms than on the social context in which consumption occurs. Compelling evidence suggests that for the wealthy in particular, when everyone's house grows larger, the primary effect is merely to redefine what qualifies as an acceptable dwelling.

So, although the recent tax cuts have enabled the wealthy to buy more and bigger things, these purchases appear to have had little impact. As the economist Richard Layard has written, "In a poor country, a man proves to his wife that he loves her by giving her a rose, but in a rich country, he must give a dozen roses."

For example, deficits have led to cuts in federal financing for basic scientific research, even as the United States' share of global patents granted continues to decline. Such cuts threaten the very basis of our long-term economic prosperity. As Senator Pete Domenici, Republican of New Mexico, said: "We thought we'd keep the high-end jobs, and others would take the low-end jobs. We're now on track to a second-rate economy and a second-rate country."

A very good read about how the Bush budget cuts (Science, Medical Research, Research Generally, Infrastructure, Disaster Response) are beginingt to hurt the "commons" or "commonweal" in a way that will hurt the rich - perhaps in ways to subtle for the "Bush base" to appreciate until it is too late.

Robert H. Frank has taught introductory economics at Cornell University since 1972. He is co-author, with Ben S. Bernanke, of "Principles of Microeconomics."

[Cha]

1. They know nothing about

nothing. When you're trying to stick it to people it comes back to bite ya..it's called Karma.

[bahrbearian]

2. I weep for Bill Gates,

[flamin lib]

3. marking for retrieval nt

[Martin Eden]

4. The old saying goes:

They know the price of everything, and the value of nothing.

[porkrind]

5. slash and burn

it's the old tragedy of the commons.

[Coastie for Truth]

7. Tragedy of the Commons - that's what it is.

We both "obviously" listen to Mark Papantonio and Bobby Kennedy on Air America Radio.

The point is - as the commons is wasted - the "fancies" (my wife's term) in the exurbs won't have the highways and airports, etc. that they need.

[acmejack]

6. "With the economy at full employment"

Wonder where he lives...

[Coastie for Truth]

8. Having suffered through enough economics courses

that is the old line

How many eggs can we pack into a crate of given size?

Well! If we assume a cubical egg...

[Hailtothechimp]

9. Worth a read.

In the print version of the Times, there was a lead that said something like "a pothole can swallow up both Fords and Porsches" and in the article it points out that fixing a busted tire on a Porsche is much more expensive than on a Ford.

It was in the business section, but it could have found a place on the op-ed page as well.