[Glenn Hubbard](http://www0.gsb.columbia.edu/faculty/ghubbard/) is the Dean of the Columbia University
Graduate School of Business, and was also a member of Bush’s National Economic Council from 2001-2003. I heard this commentary by him on [*Marketplace*](http://marketplace.publicradio.org/) Monday evening. I was bothered quite deeply by it, and should really have written to the show to express my reaction. But, I didn’t do it in time, Thursday is their letter day, so I lose. So, I’ll have to get out my frustrations here.

The essay is a short argument in favor of capital gains tax cuts. My frustration stems not from the conclusion that was reached, but rather from the weakness of the presentation. The argument is basically:

Working Americans would benefit from elimination of capital gains taxes even if they own no stock. This is because the capital gains tax depresses wages and standards of living. This is fair because the pie will grow for everyone.

If Dr. Hubbard feels that he’s just rehashing “trickle down economics” that I learned about 25 years ago from Ronald Reagan, then ok. His argument only holds if you already believe in trickle-down. He talks as if he were backing up his assertions with sound logic, but the logic is not actually sound.

Walking through a few exerpts:

**You can bear the burdon of a tax even if you don’t write the check to the IRS**

A full 25% of this essay (29 seconds out of 1:57) is spent talking about how Social Security taxes are really paid entirely by the worker. Sure, the employer pays part of it, but “economists agree” (no further argument given) that the employer is taking that out of payroll. I think there’s a case to be made here, I don’t think that the bolded statement above is wrong. However, talking so much about social security is really poor. I admit, I get sucked in to my own examples sometimes, and spend far too much time talking about stuff other than my main point. But if I see it as a weakness in my own rhetoric, I don’t know why I would think it was ok in someone else’s. Just getting off track is bad enough, but in this case, the sidetrack is misleading. Dr. Hubbard is not saying that eliminating capital gains taxes will affect social security. But the presentation hits my ears sounding like “Workers would benefit by eliminating ‘double taxation’, here’s why: imagine you got all the social security money that is sent to the Feds as a result of your employment. It’s kind of like that.” That might be a good way to get people excited about what you’re talking about, but it is not in the least bit convincing to me.

And besides, there’s no reason to think that a particular worker would get all of the social security money if it weren’t going to the government. I’m sure much (if not most) of it would go into executive compensation.

**The corporate tax can also wind up on worker’s shoulders**

I honestly suspect this was an innocent error, but doesn’t “corporate tax” mean the taxes that the corporation pays, not the taxes that its investors pay? This article was originally about doing away with the taxes on dividends and capital gains, not corporate tax. But, really, all of the arguments he makes apply equally to the taxes on the corporation and on the investor, and so it doesn’t much matter. I’m sure he thinks everyone would benefit if instead of being taxed “twice”, this money was taxed zero times. But, still, as a matter of sound presentation, one should really keep arguing in the body of an essay for the same thing one was arguing for in the introduction.

**If savers save less…**

He presents, without argument, the notion that investors will invest less if the capital gains tax is high. If he’s got something to back this up, I’d love to hear it. But he presents no evidence, and the assertion doesn’t make any sense to me. Here’s why:

Say I’m a billionaire. What am I going to do with my money? Keeping it under my mattress is not only awkward, risky, and even dangerous, but it pays me absolutely nothing. Putting it into a savings account pays me a paltry rate like *maybe* 2%, and the interest I get gets taxed as normal income, at a higher rate than capital gains or dividends. CDs, Bonds, etc., pay a better rate, maybe 5%, but still not as good as good investors make from stocks. And they too are taxed at the normal income rate. So, of course, I invest in stocks, either directly or indirectly. I get a better rate of return, and under current law I pay at most 15% on those earnings. Let me say it even more plainly: as things stand right now, the taxes on investment income are lowest on the type of investment that, on average, pays the best return. I’ve never heard anyone say “Oh, I would buy more stock, if I didn’t have to pay 15% of my capital gains in taxes!” And there’s a good reason no one ever says that. Even at my middle-class income, I still pay a much higher rate on my salary than I do on my investments.

So, Dr. Hubbard, why would a saver save more if there were no taxes on dividends or capital gains? The only reason I can think of is that they’d *have* more, because they didn’t pay any to the IRS. OK, but by that argument, *anything* that gives more money to rich people is good for society. There might be a case to be made there, but if that’s your belief, I’d rather you just come out and say that, and then try to back it up. It just doesn’t sound quite as good, though, does it?

**As workers are left with fewer machines, they become less productive. Their wages and standards of living decline.**

If (despite my arguments above) we accept that capitalists would invest more if there were no taxes on investment income, then presumably employers have more money to throw around, so they would buy more machines. All those machines increase productivity (I agree with that, as long as we assume that employers deploy the investment funds wisely). Hubbard then states, again without argument, that this in turn makes people’s wages go up. Over the long run, that’s probably true. However, in the short run, those machines will result in some people losing jobs. The people who learn how to run the machines get better wages, but those who don’t leave and probably take a lower paying job. Now, I am a believer in using technology for efficiency, so I’m not trying to say that this is bad. However, Hubbard’s thesis is that working Americans would benefit from eliminating investment taxes. He’s looking factory workers in the eye and saying “I know you lost your job due to automation, but it was actually good for you!”. He’s ignoring the fact that some of those workers aren’t actually workers anymore, at least not in the way they were before. Again, I’m sure he and I agree that such technological advancements are actually good overall, but if he wants to go on the radio and proclaim that, he should be willing to fess up to the most difficult parts of free-market life and not just tell people that their wages will go up.

Oh, and then of course there’s the fact that if the company makes more money via investments in technology, their natural inclination is not going to be to pay that out in higher wages to workers, but rather to stockholders. Actually, the really weird thing in my opinion is that lots of it will go to executives, whether or not they have much to do with the increased revenues. There’s really no reason for workers to think that companies will say “oh look, we’ve got more money, we should give everyone a raise!” They never do.

**But what about fairness? Would this tax reform increase the share of the pie that goes to capitalists? No**

He proceeds to explain that because there’s more investment, the “size of the pie” increases, so everyone benefits. As I just presented, there’s good reason for a worker to doubt this, but that’s not my real beef. My real beef with this argument is that doesn’t actually conclude with the statement it set out to prove. “Would this increase the share of the pie that goes to capitalists?” No, the pie gets bigger, so we all benefit. Dr. Hubbard, just because the pie gets bigger doesn’t mean that the capitalists’ percentage share of the pie doesn’t get bigger. A ten million dollar pie could become a twenty million dollar pie, but if the investors’ share went from one million to three million, then their share increased. My understanding of business history is certainly that this is the way things typically go. Since companies are motivated by increasing shareholder value and spending as little on payroll as possible, it makes sense in the abstract as well. I can imagine sound arguments that this approach is “fair”, this essay does not actually offer an argument for that assertion at all.

**Workers would find it in their economic interest to vote to reduce taxes on saving, let’s hope legislators catch on too.**

This closing phrase is possibly what really sent me over the edge. It’s just a conclusion, and it’s seemingly an innocent restatement of his main point. But, again, it bothers me as rhetoric. First off, he’s taken by this point to using the word “us” in reference to workers. I’m sure he draws a salary and pays taxes, but I think it’s a bit misleading to refer to himself, as Dean of the Columbia University Graduate School of Business, as a “worker”. But then, this phrase hits my ears something like “all us workers know that this is good for us, if only Congress people weren’t so stupid!” Needless to say, he’s swiping at the Democrats in congress here, since the vast majority of the Republicans in congress right now would certainly support what he’s advocating. At least, in theory. In practice they might be afraid that a bunch of workers might vote them out of office if they go too far with tax breaks to rich people. Which is to say, even if he is right that this kind of tax reform would benefit workers, it is certainly misleading to even suggest that workers, by and large, agree with this. And if his argument were compelling, he wouldn’t need to take a swipe at politicians to try to get people to agree with him.

I have no qualms with Marketplace airing a piece by this commentator. Marketplace airs essays by people from all over the political spectrum, and I think that’s good. But I do think that this particular essay was very poor, and particularly disappointing coming from a college professor. This person’s job it is to think and talk about this subject, and so it’s particularly disturbing to hear this mixture of unsound reasoning and slick rhetoric.