revenues climb despite tax cuts

The New York Times reported last week that tax revenues were proving surprisingly high, resulting in a deficit about $100 billion smaller than anticipated a few months ago. The biggest surprises were in corporate tax receipts and individual taxes on stock market profits and executive bonuses, which were substantially higher than predicted. No equivalent changes were recorded in other tax payments.

Higher tax receipts--especially from high-income people--are among the many things in life that can be interpreted in different ways. On the one hand increased revenues seem to support conservatives who argue that tax cuts will spur more economic activity and thereby pay for themselves. On the other hand the rich may be paying more taxes simply because they are getting richer. In tax policy parlance, one is faced with an efficiency gain at the cost of a potential loss in equity, or (perhaps) a short-term gain tax gain at the cost of a broader, more long-lasting social problem.

The current tax debate calls to mind Louis Eisenstein's book, "The Ideologies of Taxation," based upon a series of lectures the author gave in the early 1960s. According to Eisenstein, tax policy was characterized by a series of formulaic arguments on behalf of higher taxes (which were said to enhance equity) or lower taxes (which were said to improve economic incentives) that changed remarkably little over time. The beauty of these arguments, he suggested, was that they could be adopted to any circumstances: even a 1 percent tax could be said to inhibit some economic activity, while even a 70 percent tax allowed some inequality to remain in place. Eisenstein also famously suggested that people who had an economic interest in their ideology, whether as taxpayers or their representatives, might still believe in that ideology no less and perhaps more than those who believed themselves driven by purer motives. Plus ca change . .