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Amy Traub

Expensive Drinks Are No Substitute for Progressive Taxation

In Friday's New York Times business section, columnist Floyd Norris informs us that the $350 dollar minimum liquor charge at one fancy New York nightclub is not an outrage, but in fact "a classic example of private enterprise stepping in to fill a void left when the government no longer fills a role it once did."

The federal government used to redistribute income through progressive taxation, Norris explains. But these days, the top income tax rate is down drastically, capital gains and dividends are taxed less, and the estate tax is will actually go away completely in 2010 (although it will return in 2011 unless policymakers foolishly roll it back). So at least those of us who aren't obscenely wealthy can attempt to make a living catering to the desires of those who are. We can get jobs as personal trainers, divorce financial analysts, and of course, bartenders at really expensive clubs. In other words, the market itself will redistribute wealth.

To his credit, Norris never quite says that the market redistributes wealth as effectively as good old progressive taxation. To those who read carefully, the column contains no endorsement of the discredited notion of trickle-down economics. But Norris also avoids discussing the consequences of relying on the market to redistribute wealth: namely the yawning inequality that makes us feel so uncomfortable about drinks priced at $350 minimum in a nation where nine million children lack health insurance.

The most dispiriting part of Norris' column is his assertion that, even if we build the political will to reinstate a more progressive system of taxation, it may be too late. "Capital is too mobile," he insists. "Companies and individuals can shift income overseas." So we might as well look for jobs serving fancy beverages.

But not so fast. Just as Norris neglects to mention the consequences of inequality, he omits an analysis of how capital became so mobile, so able to shift overseas at will. The free flow of capital across borders is not a naturally occurring phenomenon but the result of international treaties approved by our elected government, which can be amended. The U.S. could even use its tremendous economic power to negotiate new treaties reining in overseas tax shelters. It beats trying to build an economy around pouring pricey champagne.

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Posted at 6:55 AM, May 12, 2007 in Progressive Agenda | Tax Policy
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