For Republican Senator Phil Gramm – A Ph. D. in Economics Shows He Has Forgotten Just About Everything

And Can Not Longer Write Coherently on Taxes

Former Texas Senator Phil Gramm has written a tax reform article for the Wall Street Journal, and because of his background as a professor of economics it attracted our attention.  The attraction was to see if Mr. Gramm could discuss reasonable proposals for tax reform.  What we got was pretty much as expected, pretty disappointing.

Here, for example is Mr. Gramm on taxing capital gains for hedge fund managers.

Republicans should require all similarly structured firms be treated the same. If sweat equity is taxed as a capital gain for a mechanic who opens a garage with a financial partner, it should be treated the same for a hedge fund or private-equity manager who shares in the gains of his investors

No, we don’t know what that means either.  Sweat equity, the personal time one spends building a business is not taxed at all, and exactly how a mechanic who opens a garage with a financial partner is the same as a private equity manager is also beyond us, and probably beyond Mr. Gramm’s comprehension also.  What this is likely to be is a plea to make sure hedge fund managers and private equity folks don’t pay income taxes on their earned income.

And it looks like that despite his education Mr. Gramm has no idea of what the term “progressive tax” means.

under no circumstances should Republicans agree to make the tax system even more progressive than it already is, or to increase the number of people who do not pay income taxes. In 1980, the top 1% and 5% of income earners in America paid 19.1% and 36.9% of total federal income taxes. Today, the top 1% and 5% pay 37.4% and 59.1%. Meanwhile, 41.6% of American earners now pay no federal income taxes.

A progressive tax is one where the effective rate rises as income rises, not where the amount one pays of total taxes rises as income rises.  But since the U. S. system has become much less progressive in recent decades, and since Republicans don’t want a real progressive system people like Mr. Gramm must pretend (we hope he is not this ignorant) that the definition of a progressive tax system is not what it really is.

But of course Mr. Gramm as a conservative Republican really wants to cut taxes on corporations.

 tax reform should move toward the elimination of taxes on the foreign earnings of American companies, whose profits are already taxed abroad. Other countries recognize that the competitiveness of their companies would be severely damaged if they had to pay higher taxes than their competitors in foreign markets and do not impose domestic taxes on foreign earnings.

Is he really this clueless as to the practice that large companies with intellectual property undertake to move income to jurisdictions with little or no taxes?  Does he really think all of Google’s income is generated in Bermuda?  Maybe so.

Mr. Gramm’s proposals and analysis are not all bad, it would be impossible to write on taxes and be totally wrong on everything.  But it is ignorant enough to expose what is truly the problem with trying to engage conservatives in serious issues like tax reform. They just don’t know what they are talking about.