The Greedy Hand: How Taxes Drive Americans Crazy and What to Do About It - Hardcover

Shlaes, Amity

Hardcover

ISBN 10: 0375501320 ISBN 13: 9780375501326

Publisher: Random House, 1999

Synopsis

The Greedy Hand is an illuminating examination of the culture of tax and a persuasive call for reform, written by one of the nation's leading policy makers, Amity Shlaes of The Wall Street Journal.
        
The father of the modern American state was an obscure Macy's department store executive named Beardsley Ruml.  During World War II, he devised the plan for withholding taxes from your paycheck, thereby laying in place a system that allows the hand of government to reach into your wallet and take what it wants.
        
Today, taxes make up more than a third of our economy, the highest level in history outside war.  We live in the nation revolutionary father Thomas Paine foresaw when he wrote of "the Greedy Hand of government thrusting itself into every corner of industry." This book is a cultural examination of the way taxes influence our behavior, how they force us into an arbitrary system that punishes families and individual enterprise.
        
Amity Shlaes unveils the hidden perversities of our lifelong tax experience:  how family tax breaks do little to help the family, and can even hurt it.  She demonstrates how married women pay a special women's tax rate, higher than anybody else's.  She shows how problems that engage and enrage us--Social Security problems, or the things we don't like about schools--are, at heart, tax problems.  And she explains why the solutions Washington offers merely accelerate a vicious cycle.
        
Finally, Amity Shlaes shows us a way out of this madness, endorsing a number of common-sense reforms that will give all Americans a fairer and simpler tax system. Written with eloquent compassion for working Americans and their families, The Greedy Hand makes the best case yet for rethinking our tax code. It is a book no tax-paying citizen can afford to ignore.

About this title

About the Author

Amity Shlaes is the youngest member of the Wall Street Journal's editorial board, where she is an editorialist on tax policy. Her writing has also been published in  Commentary and The New Yorker.  She is the author of Germany: The Empire Within.  A magna cum laude graduate of Yale University, she lives in New York City with her husband, Seth Lipsky, and their three children.

From the Inside Flap

eedy Hand</b> is an illuminating examination of the culture of tax and a persuasive call for reform, written by one of the nation's leading policy makers, Amity Shlaes of<i> The Wall Street Journal</i>.<br> <br>The father of the modern American state was an obscure Macy's department store executive named Beardsley Ruml. During World War II, he devised the plan for withholding taxes from your paycheck, thereby laying in place a system that allows the hand of government to reach into your wallet and take what it wants.<br> <br>Today, taxes make up more than a third of our economy, the highest level in history outside war. We live in the nation revolutionary father Thomas Paine foresaw when he wrote of "the Greedy Hand of government thrusting itself into every corner of industry." This book is a cultural examination of the way taxes influence our behavior, how

Reviews

In a furious and furiously argued look at the effects of taxation on American life, Shlaes (Germany: The Empire Within), a Wall Street Journal editorial writer on tax policy, argues that a progressive tax structure merely acts as a brake on those who are moving up the ladder of success. She notes that American taxes?overt, hidden, intrusive, ubiquitous?once touched only a 12th of the average person's annual income but now bite into close to 40%. In place of today's byzantine tax code, Shlaes suggests either a flat tax or a simplified tax structure with lower rates and no home mortgage deduction (the latter change, she surmises, would very likely bring down interest rates for mortgages). She also calls for privatizing Social Security and favors abolition of the estate tax (arguing that the latter is a major killer of family businesses and that the rich find loopholes to avoid paying it anyway). Shlaes has nothing good to say about Medicare and, indeed, relates some awful horror stories about its shortcomings. In a chapter on school funding, she contends that the move by states to centralize school financing (as opposed to the old system whereby local property taxes funded local schools) has not brought equitable spending or improved academic performance. Whether or not readers agree with Shlaes's reform proposals, her informal, colorful report elucidates the often subtle ways taxes affect citizens' lives, from child rearing to the decision to marry, women's careers, the quality of day care, consumers' shopping habits and retirement. Agent, David Chalfant at IMG Literary; Conservative Book Club main selection; author tour.
Copyright 1999 Reed Business Information, Inc.

Taxation is the function of government that everyone loves to hate. And here the Wall Street Journal's editorialist on tax matters adds to the hallowed and estimable tradition of grousing about it. Shlaes (Germany: The Empire Within, 1991) doesn't assail the Internal Revenue Service. She realizes instead that the IRS only does its assigned job. Rather, it's the legislators and lobbyists who create the tax monster that scares us all. The author despairs that the power to tax is bandied about in the name of sporadic public policy. Her text demonstrates the tangled result by revisiting the histories of representative tax law changes. Wage withholding, instituted during WWII, was just an insidious trap, she says. She rightly describes Social Security as a Ponzi scheme. Shlaes also thinks the estate tax stinks. The well-publicized marriage penalty is no laughing matter, either, she contends. Fueled by outrage, her exegesis of some parts of the Internal Revenue Code tends to become a tad muddled. (For example, though legally separated taxpayers may, under certain circumstances, file as separate taxpayers, there is simply no tax law concept of ``married, but unmarried for tax purposes.'') She decries change for rules she approves of (like the treatment of sales of residences). Then she calls for more change. Not confining herself to federal tax law, she complains about local school taxes and activist courts. And indeed, Shlaes offers a clutch of cures: Simplify and reduce taxes, forget about progressive taxation, and privatize Social Security. Such targeted fixes may have a nice ring, but they surely would bring unintended and problematic results if actually enacted. Cleverly crafted, exasperated invective on a popular theme, well timed for tax season and the cruelest month. (Author tour) -- Copyright ©1999, Kirkus Associates, LP. All rights reserved.

Shlaes, an editorialist on tax policy for the Wall Street Journal, has produced a short polemic against taxes. She devotes her chapters to ten types of taxation, including job, marriage, house, baby, and death taxes, and how they affect our lives. As a fiscal (though not social) conservative, she decries taxes as taking an ever-increasing percentage of our income, as an agent of social engineering (or wealth transfer), and as unpredictable?and she's surprised that there has not been a general tax revolt owing to these problems. Shlaes saves her short list of recommendations for her summary chapter, though her case against progressive tax rates is unconvincing. Like most good Journal reporting, this book is nonscholarly and understandable to the general reader, and Shlaes has liberally interspersed interesting examples and insights throughout. An optional purchase for public libraries.?Patrick J. Brunet, Western Wisconsin Technical Coll. Lib., La Crosse
Copyright 1999 Reed Business Information, Inc.

Excerpt. © Reprinted by permission. All rights reserved.

SHOPPING TAXES

What's the biggest tourist destination in america? Disney World and the Epcot Center, in Florida? The Grand Canyon? Graceland, perhaps?

The answer is none of the above. The nation's proudest leisure-time travel destination is a seven-year-old collection of square footage in a second-ring suburb of Minneapolis-St. Paul. It is the Mall of America, a megamall so huge its developers once referred to it as the Ninth Wonder of the World. Visitors come from neighboring states like North Dakota and Iowa. They also come, and in great number, from Illinois, New York, and California. They even fly in from Winnipeg, Amsterdam, London, and Osaka. Every year the Mall of America gets nine times as many visitors as the entire population of Minnesota. Its traffic of 42 million a year makes the Mall of America a larger attraction than the Big Three of tourism combined.

In some ways, the Mall of America is any mall. It has Macy's. It has B. Dalton. It has Sears. It has a teenager problem, at times so bad that one year it had to institute a special policy of "escorted kids only." Like most modern malls, it cocoons shoppers from the harsher elements. Its air temperature is "seventy degrees, all the time," an advantage not to be dismissed in an iceland like Minnesota in February.

But the Mall of America also has things no other American mall can compete with. It has more stores than any other American mall, 520 of them. It has an amusement park called Knott's Camp Snoopy, where parents can park their children to play on a million dollars' worth of equipment, including a roller-coaster (the rate is $6 for infants, $7 for bigger kids). It has UnderWater World, a 1.2-million-gallon walk-through aquarium that takes visitors on a simulated trip of the nation's waterways. It has Golf Mountain, an eighteen-hole miniature-golf course. It has novelties like the Rainforest Cafe, where real mist sprays into the air over lunchers and thunderstorms--complete with lightning--happen every twenty minutes. And it has one other, powerful attraction: the Mall of America is a tax haven. Minnesota charges no sales tax on clothing.

At Play with the Greedy Hand

Tax shopping is a national pastime in this country, a game we take up frequently and sometimes seriously. Economists have all kinds of labels for this behavior--they call it things like "tax arbitrage" and build charts around it. In reality tax shopping depicts something simpler: citizens at play with the greedy hand. Governments, in this case state and local authorities, try to pretend the hand isn't there and that it isn't greedy--what's a 6 percent levy here, a little 1 percent charge there? People for their part don't fight with government head on: you rarely see a crowd picketing against a sales tax. But they do dodge and duck, dancing away from the Greedy Hand to shop where it can't reach. And their faces do show a trace of satisfaction: "I'm here to get something, and I'm getting it now. This is my turn."

These days, this play often seems lighthearted. Americans don't evade sales taxes on anything like the scale Europeans do. There a punitive sales tax called the value-added tax, a tax with rates of 17 percent, 18 percent, and more, has converted the tax fun to an out-and-out war. A black market in everything from autos to plumbing services thrives on the Continent. But there are plenty of signs, signs that show up in our tax shopping, that Americans too are ready to break the law--to have some real fun--the moment we decide that Paine's hand is intruding too far. It was not for nothing that the Boston Tea Party was called a party.

Our national game starts with the states, towns, and counties, the levels of government that control most sales taxes. These governments set their tax rates--often rates that differ from one another's. And shoppers respond--by surveying their options and buying at the best price--the price with the lowest tax. Every day purchasing decisions are made on the basis of tax shopping. Americans look for low taxes for the same reasons they wait for sales or transport themselves to outlet malls in rural backlands or buy products that come with cash rebates. They want to save a few pennies. Saving a few pennies along the way makes them feel a little better about the decision to shop that they made in the first place. Not all the tax shopping in this country involves such extravagant excursions as a pilgrimage to the Mall of America. From Florida to Alaska, American citizens regularly cross town, county, and state borders in the name of saving on taxes when we shop.

How important are these decisions? Taxes are rarely the main reason Americans name for choosing to shop how they do. But they are always a factor, a factor that places like
the Mall of America have proven can be worth hundreds of millions of dollars. Indeed, tax shopping has grown so much in recent years that businesses that didn't have a tax advantage--in this instance, retailers in high-tax states--felt the need to send an ambassador to Washington to warn the House Committee on Small Business that the tax-free world was growing so fast it soon might kill off that most American thing, the old-fashioned, full-tax retail mall.

Among consumers, the American tax-shopping game has distinct winners and losers. Take the examples of Washington State and Oregon: Washington has no income tax, and Oregon has no sales tax. Citizens of Washington's border towns, therefore, drive over the Columbia River to Portland, Oregon, to do their shopping, avoiding both levies. They have their tax cake and eat it too. The losers in that equation are Oregonians. The reverse trip up Interstate 5 gains them nothing, except the opportunity to pay Washington sales tax along with their home income tax. In Illinois and other old, industrial states, the losers are city dwellers--cities like Chicago and New York tend to charge urban shoppers an extra penny or more in sales tax on their consumption. In Louisiana the losers are Louisianans: the state offers a rebate on sales taxes to foreign visitors, but locals must pay the full levy. In Florida the losers are people with weak bladders. Gas taxes change from county to county, and the fixed-income crowd tend to pick their rest stops accordingly.

Part of the challenge confronting the players of the tax game is that the tax-scape doesn't stay the same. From time to time lawmakers will change the rules--often, it seems, just to amuse themselves. But the pleasure of victory for tax shoppers is important to them, so important that they willingly fight back by traveling farther, or altering their habits yet again, just to keep their tax breaks.

The Mall's Story

To see the full extent of the shopping-tax game, it helps to look at a place like the Mall of America. For starters, it is no accident that the mall, which could be sited anywhere, chose Bloomington for its site. When they were ready to build, the mall's developers did some some tax shopping of their own. They obtained various tax favors to undertake the project, a daring one given its scope and the fact that, at the time, America lay mired in a recession. The mall got tax breaks on $100 million in financing from Bloomington to help it build its parking decks and transit station where public buses arrive.

Minnesotans themselves don't gain any advantage on clothing tax by driving to Bloomington--they don't pay tax on clothing anywhere in the state. But if they choose to eat at the Mall of America, they get a break. That's because the Mall of America doesn't have a restaurant tax, whereas the Twin Cities, for example, have a 3.5 percent levy. Minnesotans' overall tax load is high: when the Tax Foundation, a Washington think tank that charts tax burdens, compared Minnesotans' total tax load with that of citizens of other states, it found that Minnesotans' burden was the sixth-heaviest in the nation--only tax hells like New York or California were worse. So some citizens of Minneapolis-St. Paul notice that they are saving when they choose to show relatives a good time at the Rainforest Cafe.

When it comes to out-of-state shoppers, the tax game at the Mall of America gets serious. Wisconsin, Iowa, North Dakota, and South Dakota all have a 5 percent tax on clothing. The fact that Minnesota has none is an accident of the state's progressive Northern European heritage. State lawmakers long held that taxing necessities like clothing and food put an unjust burden on the poor. Today Minnesota's progressivism is fading, but the progressives' work is still in place. Clothing--all clothing--is tax-free. You have to wonder whether the state's fathers, doubtless stuffy fellows all, actually envisioned young women converging from four states to slither into tax-free camisoles in the dressing rooms of the mall's two Victoria's Secret shops. But that's what happens.

Indeed, Minnesota's clothing-tax advantage ensures that the Mall of America is a regional shoppers' mecca. When time comes for a spree, many of them hop into one of the shuttle flights Northwest Airlines operates to Minnesota and the Mall of America. Northwest WorldVacations, the tour operator for Northwest Airlines, saw a 47 percent increase in package passengers to Mall of America from North America cities in the first quarter of 1998 over 1997.

Miles as Money

The savviest of the tax shoppers don't pay for such flights. They use another tax advantage--their "miles"--to get to Minnesota. Frequent-flier miles are a marketing phenomenon, a trick airlines and now credit card companies have learned to use to build customer loyalty. But, in their way, miles are also a form of tax shopping. Many people build up their miles while working. When their employers let them keep the miles, they are giving the employees something of value--something that neither employer nor employee pays tax on. In this sense, miles really are tax-free money, which escapes the greedy hand altogether.

Then there are the international tax gamesters, more than t...

Edition details

• Publisher: Random House
• Publication date: 1999
• Language: English
• ISBN 10: 0375501320
• ISBN 13: 9780375501326
• Binding: Hardcover
• Edition number: 1
• Number of pages: 255