Obama's Sanctimony Proves Who the Real Scrooge Is

Dec. 5 (Bloomberg) — As right as Dickens. That's what U.S. President Barack Obama suggested about his tax plan when he recently used "A Christmas Carol" by Charles Dickens to frame his case for rate increases.

A "Scrooge Christmas" is what the country will get if lawmakers won't go along with the Obama plan to raise rates on topmost earners, Obama warned. The urgent reference was to the stinginess of Ebenezer Scrooge, who at first didn't realize the need to share with those who were poorer or less advantaged around him, such as the clerk Bob Cratchit or Cratchit's son Tiny Tim.

The theme of "A Christmas Carol" is that economic redistribution, sharing more of your shillings, is the only move for a rich man to make.

Obama admonished the uncooperative Republicans for not joining him, telling the public that all he needed was "a few" House Republicans to get his law passed. Working the "Christmas Carol" theme for all it's worth, Obama talked about how the general automatic tax increase that would result from Republicans' refusal to go along with his plan would result in a dark Christmas, where Santa handed out a "lump of coal" to individuals. The president even traveled to the closest thing the U.S. offers to a Victorian Christmas stage set, a toy factory, to make his rate-increase case.

Moral Unanimity

What stood out about Obama's argument was his claim of moral unanimity. Obama treated those who endorse a flat tax as a solution to current tax woes as so out of touch with the zeitgeist that they don't warrant mention. The president assumed that Americans, especially more vulnerable ones, love economic redistribution as much as they love the greats of literature.

That is not what the evidence suggests.

The ambiguity starts with that essential tool for such redistribution, the progressive rate structure. Under a progressive structure, tax rates rise steeply, like stairs in Scrooge's house. The first dollar earned is subject to the lower rates, the last dollar to the top rate to which they are subject.

From 1913, when the code was introduced, tax scholars assumed people endorsed progressivity. Studies showed that many said they did. In the 1950s, for example, 71 percent of pastors surveyed disagreed with the proposition that a "steeply graduated income tax violates the moral principle that man is entitled to the fruit of his labor."

Early on, however, scholars also found something disconcerting: Many Americans who endorsed progressive taxation couldn't define it. "A popular error under our personal income tax is to confuse the marginal rate on the last increment of income and the effective rate on the total income and to conclude for example that a taxpayer who reaches the 70 percent bracket is taxed at 70 percent on his total taxable income," as authors Harry Kalven Jr. and Walter Blum reported in 1953.

If people mixed up the average rate with the marginal, they were showing automatic attraction for the flat tax, where the two are the same. And, in any case, if people can't understand a tax, they can't quite be said to endorse it. Kalven and Blum deemed the case for progressivity "uneasy."

A more recent study, from 2007, found that some 59 percent of those polled approved of progressivity as a concept. As the authors Ruben Durante and Louis Putterman reported, 41 percent of those surveyed held a different view. The minority thought either that "people who make more money should pay a smaller percent in income in taxes," or that there should be no correlation between rates and income levels at all.

Opposing Progressivity

An additional finding surprised Durante and Putterman. The assumption in "A Christmas Carol," and of Obama, is that the most vulnerable members of society, the Cratchits, want Scrooge to cough up a little extra. It turned out that less-educated Americans, those least likely to earn the kind of income subject to top rates, endorsed progressivity less often than more educated Americans.

What the economists Durante and Putterman found clashed directly with the anti-plutocrat "Christmas Carol" ethos: Educated or less educated, Democrat or Republican, Americans overwhelmingly opposed the taxing of bequests. The poorer the respondents were, the more they supported estate-tax abolition. These Cratchits didn't want Scrooge's money.

What this material tells you is that when it comes to taxes, Americans are as subtle and varied as Dickens's cast of characters. There is no moral unanimity. The president may be correct when he claims that a majority of voters seem to want redistribution. Yet he oversteps in suggesting that all do and in claiming moral high ground. His election to a second term wasn't a benediction.

Obama's sanctimony seems especially out of place given the ungentlemanly fashion in which he is pressuring the Republicans on Capitol Hill. He would force Republicans to take the blame for all tax increases if they refuse to join his progressivity crusade. In his preacherly insistence on taking tax reform and indeed the international capital markets hostage, the president himself prevents consensus.

This is typical of the self-righteous character, as a writer once noted: "Some people likened him to a direction-post, which is always telling the way to a place, and never goes there."

The name of the author who described the moralizer? Charles Dickens.

(Amity Shlaes, a Bloomberg View columnist, is director of the Four Percent Growth Project at the Bush Institute and author of the forthcoming "Coolidge." The opinions expressed are her own.)

© Copyright 2012 Bloomberg

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