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Omnibus Libertarian Reply Post

I'm not sure how much interest you all have in following my running debates with the libertarian world, so I'm trying to wrap a couple of these threads up here in one place. 

A while ago, Will Wilkinson argued that the fact that people like Peter Orszag can take lucrative private sector jobs after working in government a "potentially fatal tension within the progressive strand of liberal thought." I replied that it's more of a minor annoyance. Wilkinson is flabbergasted:

I must say I'm dazzled by the audacity of Mr Chait's claim that the "private capture of public functions" is rare. My reading of the economic and political history of the United States is that regulation is very, very, very often turned into (or originally fashioned) as a weapon of business power. ...
Mr Chait's regulatory-capture denialism is especially notable when the matter at hand is the Washington-Wall Street nexus, as the case for a significant degree of coprorate control over financial regulation is extremely compelling.

I'm flabbergasted that he's flabbergasted. Wilkinson is a libertarian. He thinks that regulation of business is generally perverted into the opposite of its intended effect. Okay, fine. Why would he expect that anybody who's left of center might agree with him?

His reference to my post as "regulatory-capture denialism" is a fairly aggressive misreading of what I wrote -- to wit, "this phenomenon seems like the exception rather than the rule." That's absolutely not denying that it happens, it's just denying that it happens as often as Wilkinson thinks. My belief is that regulation generally serves at least some facsimile of its intended purpose. Granted, I can't prove it. I agree that regulatory capture happens. But when I think of regulation, my mental model is episodes like:

1. Liberals propose a law requiring seat belts in cars

2. Conservatives and libertarians insist this will destroy the auto industry and possibly capitalism itself

3. The regulation works fine and everybody eventually  forgets about it.

Now, it may be that I just happen to focus more on episodes that fulfill my expectation of how regulation works. But it's just as likely that Wilkinson is doing the same. If he has access to some study showing that regulation usually, as a rule rather than the exception, become s a weapon of the powers it was intended to regulate and winds up serving the opposite of its intended purpose, then I'm willing to listen. But if his only argument is "look at all of Tim Carney's articles," then no, I'm not persuaded, and and not many people outside the economic libertarian world are going to be, either.

Meanwhile, the team of Nick Gillespie and Veronique de Rugy strike back. (I don't mean to lump Wilkinson in with them -- Wilkinson is pretty knowledgeable.) Gillespie writes, "For [Chait], to believe in balancing budgets with revenues equal to 19 percent of GDP is evidence of "debilitating pathologies." Obviously I wrote nothing of the kind. Of course you could balance the budget with revenue at 19% of GDP if you had the votes. For that matter, you could balance the budget with revenue at 0% of GDP. Knock yourself out! Gillespie's latest reply launches yet another diatribe against government, again missing my objection, which is purely arithmetic. They want to balance the budget in 2020 while keeping all the Bush tax cuts in place. Okay, fine. I wrote that it would require a 24% cut in spending, but that was too small, because their baseline assumes the expiration of the tax cuts on income over $250,000 a year, and it ignores debt payments, which you can't cut. The real figure is closer to 30% of the budget. You can't imply this can be done just by trimming a bit of fat. And you can't imply, as Gillespie does in his video, that you simply need to take a tiny nick out of each year's budget, because their plan would require progressively deeper cuts each year until the final result was a 30% cut.

Meanwhile, Gillespie's co-author Veronique de Rugy defends her claim that "the main impact the [Bush] rate reduction had in the first place was to make the rich pay an even bigger share of taxes that they paid before." She now says that her argument was simply that the Bush tax cuts caused the rich to pay a higher chare of the tax burden because they lowered tax rates for the non-rich more than for the rich:

The primary reason for the increase in the share paid by the rich after the tax cuts isn’t that they made more money than before, a thought unbearable to Chait. Rather, it is that the Bush-era tax cuts reduced the taxes paid by middle- and lower-income families across the board and even kicked a lot of people at the bottom of the income distribution off the tax rolls altogether — it’s bad economic policy, but it should be something that Chait appreciates. In other words, the main reason why rich people were paying a bigger share of the total income tax is that fewer people at the bottom were paying it — the overall number of people paying little or no income tax increased, hence the share of the burden on those paying taxes, especially at the top, grew.

Sorry, that's not true, either. The Bush tax cuts provided a disproportionately large cut to the highest-earning 1% of taxpayers, decreasing their share of the federal tax burden. However, the pre-tax share of income earned by the richest 1% rose over that period (as it rose in the decade prior as well):

The net result of these two factors was that the rich paid a higher share of the federal tax burden. The growing share of pre-tax income going to the rich cancelled out the lower share of the tax burden.

So de Rugy's claim that "The primary reason for the increase in the share paid by the rich after the tax cuts isn’t that they made more money than before" is simply false. That's the entire reason the share of taxes paid by the top 1% rose.