January 2011

1919. The first full year of peace after the World War was a restless one. It saw the advent of Prohibition and the Black Sox scandal. The Communist Labor party of America was founded, while the Socialist party leader Eugene Debs went to jail. The U.S. Senate refused to ratify the Treaty of Versailles.

1919. The first full year of peace after the World War was a restless one. It saw the advent of Prohibition and the Black Sox scandal. The Communist Labor party of America was founded, while the Socialist party leader Eugene Debs went to jail. The U.S. Senate refused to ratify the Treaty of Versailles. And in the American theater, it was the year of the actors’ revolt, when performers across the country went out on strike to win a standard employment contract and recognition for their union, the Actors’ Equity Association.

John Steele Gordon replies: B. Z. Miller says that the corporate income tax is a consumption tax because the customers pay it. In fact economists simply don’t know how the corporate tax is distributed among customers (in higher prices), employees (in lower wages), and stockholders (in decreased return on investment). Figure out how to determine this reliably, and you probably have a Nobel in economics bagged.

As for Adil Sayeed, in a perfect world, there would be no such things as corporate income tax, precisely for the reason given above: We don’t know who pays it. Instead the tax on the profits should be paid by the stockholders personally, with the corporation merely withholding the money, as they do the taxes due on wages a corporation pays. This is how the taxes on partnership profits are paid. Why should corporations be any different?

Last summer, while I was driving my daughter and son from Williamstown, Massachusetts, to Chatham, New York, we passed a billboard with an ad, Crayola red, blue, and yellow, announcing the arrival of a circus. My daughter, who is eighteen, has seen the Ringling Bros. and Barnum & Bailey Circus at Madison Square Garden, and both kids have been to the Big Apple Circus. In the early 1950s, I went to Ringling Bros., when it still set up tents in fairgrounds.

I was thrilled at the prospect of sitting under a big top and watching acrobats. My kids shrugged and tried to change the subject.

“Don’t you like the circus?” I asked.

“It’s okay, ” my daughter said.

“Okay?” I was flabbergasted. “Okay? But—”

It’s amazing that an author as knowledgeable about history as John Steele Gordon should understand so little about public policy. Toward the end of his article, he asserts that under a flat tax “the guy down the block who is making more money [will pay] not only more taxes but a higher percentage.”

John Steele Gordon is an excellent historian, but when he ventured beyond history and into policy advocacy—particularly his advocacy of a flat income tax (no good just calling it a “flat tax,” Mr. Gordon; we know you mean a tax on income)—he missed his mark, especially when he dismissed the notion of a sales tax as inherently regressive.

He is wrong, for (at least) two reasons: First, people with greater incomes and greater net worth spend and buy more than poor or middle-class people, so they will automatically pay more of a national sales tax. And when purchases are taxed, then the tax reaches not only those with high reported incomes but also those with hidden incomes and high net worth.

Second, and more important, Mr. Gordon has forgotten the purpose of taxation. The real value of any tax is (or should be) that it acts as a disincentive to whatever activity is being taxed.

I found Mr. Gordon’s conclusion about the merits of a flat tax on income to be a bit misleading.

While he does not make clear exactly how a flat income tax would apply to corporate income, I can only presume that he has in mind a tax similar to proposals made by the Republican presidential candidate Steve Forbes, the House Majority Leader Dick Armey, and the economists Robert Hall and Alvin Rabushka. It is not true to say that such a tax would tax “all income but. . . only once.” These flat-tax proposals envision levying a “cash flow” tax at the corporate level with immediate and full deduction of all capital expenses. As a result, most income from capital would not be taxed. For most individuals, over the course of a lifetime the Hall-Rabushka/Armey/Forbes flat tax would be equivalent to a tax on wages and salaries. In fact, the proposed personal exemption would provide the only real difference between the flat tax and a consumption-based tax.

Toward the end of his excellent article “American Taxation” in the May/June issue, John Steele Gordon places insufficient emphasis on the fact that the corporate income tax is a consumption tax. The financial performance of any corporation is measured by its stockholders on the basis of after-tax income. The consumer pays the added cost of corporate income tax along with cost of manufacture, sales, overhead, and of course after-tax profit. The concept promoted by politicians and social engineers that the corporate income tax is borne solely by the wealthy stockholders is completely false.

WHEN HE WAS SEVENTY, ALBERT MURRAY SCUTTLED AROUND MANHATTAN with the energy of a far younger man. A decade later, two spinal operations having cruelly diminished his orbit, Murray needs one of those four-pronged aluminum canes to inch down a sidewalk, bitter punishment for a naturally impatient man. Albert Murray’s big, handsome grin, which turns a listener into a co-conspirator in whatever iconoclasm he is hatching at the moment, gets flashed less often now. Still, Murray keeps his pique pretty much under control (there is too much to do). One day last summer, he journeyed to a lower Fifth Avenue show room. Since Murray spends most of his time in chairs, a good one is vitally important. “Something,” he said, disarming the suave salesman with that smile, “something that’ll let me write two, three more books.”

King Henri IV of France was a great king. He was also, perhaps, the world’s first real politician—for in the course of his ten-year battle to secure the French throne for the Bourbon dynasty he began deliberately enlisting public opinion and even invented the political slogan to help him do so. Instinctively knowing the shortest route to his people’s hearts, he told them, “I want there to be no peasant in my kingdom so poor that he is unable to have a chicken in his pot every Sunday.”

WHAT! I CAN’T BELIEVE IT! Chickens? What do they have to do with anything. Chickens!”

This was Elisabeth Aulepp, whose job is to sell advertising for American Heritage, and who evidently didn’t think our chicken feature would make it any easier.

“I mean, I’m going to go to Rolex and tell them we’re doing a story on chickens?”

To hear her, you’d think she actually knew some chickens, those curiously unwinning birds: Betty MacDonald titled one of the chapters in her tremendous 1945 bestseller The Egg and I “I Learned to Hate Even Baby Chickens.”

“Well,” I temporized feebly, “it isn’t likely to be the cover story.”

“Thank God for that,” said Elisabeth, who then went for lunch at her favorite local place, Kenny Rogers Roasters, where you can have a fine chicken dinner for about the cost of a Big Mac.