"Lawyers and Accountants"

Mark Tushnet

I'm afraid that I couldn't resist the allure of a return appearance on something with some modest legal connection.

Has anyone else noticed the -- um-m-m -- tension between two positions George W. Bush is taking on taxes, tax cuts, and restoration of prior tax rates? (1) The tax cuts he proposed and got enacted were very important in producing (whatever degree of) recovery we've experienced from an economic downturn generated by things other than his policies. (2) Restoring the tax rates on those making more than $200,000 would be ineffective (and would lead to tax increases on those making less, to pay for Kerry's programs) because the rich have lawyers and accountants (who will devise strategies that allow the rich to "evade" the higher tax rates). [Nice bit of bashing the rich there, incidentally.]

Now, did the rich not have lawyers and accountants before the tax cuts? If they did, the tax cuts didn't make anything available to them they didn't have before the tax cuts (except, maybe, what they saved in payments to lawyers and accountants). And if that's so, how could the tax cuts have helped generate recovery from the economic downturn? (Maybe the tax cuts for the less-than-rich were the cuts that mattered for the recovery, but then restoring the prior tax rates for the rich wouldn't have bad economic consequences in itself.)

One possibility I've thought of is that Bush is a devotee of behavioral economics, and thinks that there's an endowment effect (or something like that): Prior to the tax cuts, the rich were resigned to paying taxes, and didn't think they could engage in avoidance activities by hiring lawyers and accountants. After the tax cuts, they "have" something they didn't have before, and are willing to devote resources to preserve it even though they weren't willing to devote resources to getting it when they didn't have it.

There is, of course, a more parsimonious explanation.
Posted 4:25 PM by Mark Tushnet [link]