Nominal tax rates are simply an ideological signaling device

Seeing this,

Last year, for the first time on record, the 400 wealthiest Americans paid a lower total tax rate than any other income group. https://t.co/i9thIFaCRJ

— David Leonhardt (@DLeonhardt) October 6, 2019

I have to wonder whether it is even worth clicking on. All economists know that the important issue is effective tax rate (total taxes/total income) rather than nominal rate (as shown here). Is this (A) a glitzy and misleading graphic simply that? A device to exploit the reader? Or is it (B) a hook to get to the real point (effective tax rates)?

Goes and looks.

Ladies and gentlemen, the answer is . . . A.

The article is The Rich Really Do Pay Lower Taxes Than You by David Leonhardt. It is actually an opinion column constructed by mining information from a new book, The Triumph of Injustice coming out soon by Emmanuel Saez and Gabriel Zucman.

Leonhardt does not distinguish effective versus nominal tax rates and the information he uses is confusing and contradictory to what is known. Since the book isn't out yet, it is impossible to know whether the fault lies with Leonhardt or the authors. Or both.

I am guessing, based on his final paragraphs, that it is both. From his comments as he summarizes their argument, the new book is an anti-market, pro-government polemic.

In their book, Saez and Zucman sketch out a modern progressive tax code. The overall tax rate on the richest 1 percent would roughly double, to about 60 percent. The tax increases would bring in about $750 billion a year, or 4 percent of G.D.P., enough to pay for universal pre-K, an infrastructure program, medical research, clean energy and more. Those are the kinds of policies that do lift economic growth.

One crucial part of the agenda is a minimum global corporate tax of at least 25 percent. A company would have to pay the tax on its profits in the United States even if it set up headquarters in Ireland or Bermuda. Saez and Zucman also favor a wealth tax; Elizabeth Warren’s version is based on their work. And they call for the creation of a Public Protection Bureau, to help the I.R.S. crack down on tax dodging.

I already know what some critics will say about these arguments — that the rich will always figure out a way to avoid taxes. That’s simply not the case. True, they will always manage to avoid some taxes. But history shows that serious attempts to collect more taxes usually succeed.

Saez, Zucman, and Leonhardt apparently believe you can suspend the laws of supply and demand, and the laws of incentive structures.

One of the give-away tells is that weak link in every such argument, the appeal to authority. Sometimes it is "So and so expert says . . ." sometimes it is "Science shows . . .". In this instance it is "History shows that . . ." as in "History shows that serious attempts to collect more taxes usually succeed." It shows no such thing. With sufficient coercion, you can take the money from the rich without their consent, but you can't make them like it. Either they flee (see France) or they fail and then everything collapses (see Venezuela).

A much clearer explication of effective tax rates is Taxes on the Rich Were Not That Much Higher in the 1950s by Scott Greenberg.

Effective tax rates don't change a lot or quickly over time. Nominal tax rates are simply an ideological signaling device.

And the New York Times just wasted my time.

UPDATE: Some real reporting from Michael R. Strain in The Rich Really Do Pay Higher Taxes Than You. In contrast to Leonhardt, Strain is clear, factual, and accurate.