JONATHAN CHAIT APRIL 15, 2010
Today TNR is featuring one of my all-time favorite articles -- "The Mystery Of The Free Lunch" by Michael Kinsley, published in 1981. It's very difficult to describe this piece. The basic argument of the piece is that, while supply-side economics claims that tax rates on the rich play a crucial role in aligning incentives, a massive amount of consumption by the rich is actually tax-free. But this description fails to convey the sheer hilarity of the article.
Kinsley framed much of his article around the lavish, tax-free consumption that surrounded Ronald Reagan's inauguration:
In the three days of January 19, 20, and 21 the Washington Post Style section had no fewer than 36 separate articles about different parties connected with the inauguration. By my conservative count, 14 of these were paid for entirely with BT money, two probably were BT, and another 11 were BT in large part. Only nine seem more likely to have been paid for with the kind of money you use for your night at the bowling alley. ... Ford chairman Phillip Caldwell (1980 losses: $1.5 billion) was quoted commenting with pleasure on the new mood Reagan had brought to Washington: "Hope feeds on itself, just as defeat feeds on itself," Caldwell, however, was feeding on poached steelhead salmon, or, in the other sense, was feeding on the Pepsi Cola Company. He did not feed on himself all week.
Another "definitely BT" affair was a "sumptuous" (said the Post) dinner given by Roy Cohn and his law partner at the Madison Hotel. Cohn, who is innocent of a variety of federal crimes, takes an "I dare you" attitude toward deductions. He told the New York Times recently that his firm pays him a salary of $75,000 to $100,000, but picks up (and deducts, I presume) $500,000 a year of his expenses, including houses in New York, Connecticut, and Acapulco.
I've always found the line "Cohn, who is innocent of a variety of federal crimes..." to be especially inspired. The nub of Kinsley's argument is contained in this passage, which is also a lot of fun:
The Hyatt Hotel Corporation advertises as follows in the February issue of an airline magazine:
FOR YOUR NEXT BUSINESS MEETING
Lake Tahoe the way it was . . . and still is, 460 newly appointed rooms and suites on the North Shore, plus a Regency Club Level with Concierge and a special touch of Hyatt.
2 nearby Robert Trent Jones golf courses and 26 tennis courts close to the hotel. Our own beach for swimming, water skiing and water sports. A heated pool. 6 nearby ski areas, cross country skiing and snowmobiling. Indoor and Outdoor Theme Parties. . . .
Hyatt's notion of a "business meeting" is useful in interpreting another ad Hyatt placed in February, this one in the New York Times, celebrating President Reagan's economic program:
There's a new spirit in America. The nation is charged with a strong new determination; ready to go to work and spur the growth of a new prosperity.
It's back to business. . . .
Business? What do Indoor and Outdoor Theme Parties have to do with business? Where does the enormous amount of lavish living that goes on free of taxation, much of it existing only for that reason, fit into the prevailing mythology that we need to worry less about the have-nots and more about the haves in order to rebuild the economy? There is a conceptual trap awaiting inequality buffs here. If such luxury is considered compensation for services rendered, to specific businesses and to general prosperity, then the money that pays for it should be subject to tax like all other compensation. We can argue about the proper tax rate, as of course we are doing these days, but even the Laffer Curve recognizes that a tax rate of zero is not fiscally sound.
Definitely treat yourself to a full read of the piece.