FROM THE NEW YORK TIMES SUNDAY BOOK REVIEW:

‘The Myth of Ownership’: Challenging the Rhetoric of Tax Cutting

By DAVID CAY JOHNSTON

THE MYTH OF OWNERSHIP
Taxes and Justice.
By Liam Murphy and Thomas Nagel.
228 pp. New York: Oxford
University Press. $25.

When President Bush, promoting tax cuts, says people’s incomes belong to them and not the government, the authors of this book say he is using fuzzy logic.

Liam Murphy and Thomas Nagel, professors of law and philosophy at New York University, argue in the ”The Myth of Ownership” that Mr. Bush’s rhetoric is emblematic of a tax debate that focuses on the wrong issues because it lacks a moral foundation.

They assert that a naive philosophy of ”everyday libertarianism” infects American politics with a ”robust and compelling fantasy that we earn our income and the government takes some of it away from us.” This popular myth ”results in widespread hostility to taxes, and a political advantage to those who campaign against them and attack the I.R.S.”

This fantasy grows from the acceptance by all sides in the tax debate that gross, or pretax, incomes are presumptively just and therefore the proper moral base line to begin debate. The authors say pretax incomes are morally insignificant, an idea they confess is hard to sell. They argue that ”individual citizens don’t own anything except through laws that are enacted and enforced by the state,” because without government there would be anarchy, an endless war of all-against-one that would diminish incomes and wealth, not to mention life itself. Thus it is after-tax incomes that people are entitled to own. These ideas will encounter a hostile reception from partisans in the debate of the past quarter-century, in which the prevailing political rhetoric characterizes taxes as sheer waste, an unfair drag on the most productive people and an evil.

The thoughts in this book deserve examination, especially the views of Nagel and Murphy on the self-interest each taxpayer reasonably has in the social justice purchased by hard-earned
money….

The practical problem here is that gross incomes are commonly seen as just

rewards for one’s commitment
to work, as well as one’s willingness to take
investment risks. But that
belief assumes that the market rewards each endeavor

according to its value,
an assumption that collapses under scrutiny, as the

manipulations at Enron and
Global Crossing remind us. Government enacts rules on

employment, influences interest
rates, allows widely different qualities of

education in school districts
and imposes countless policies that distort

distribution of pretax incomes
— compared with what they might be in a

libertarian world of voluntary
contracts and no government. Pretax incomes are

presumed just, the authors
posit, for the same reason slavery was once the law

of the land: pervasiveness
makes legal inventions appear to be natural law.

Murphy and Nagel say using
pretax incomes as the basis of debate defies logic,

since ”one can neither
justify nor criticize an economic regime by taking as an

independent norm something
that is, in fact, one of its consequences.” To them,

acceptance of pretax income
as a moral base line means that ”serious public

discussion of economic justice
has been largely displaced by specious rhetoric

about tax fairness,” resulting
in a ”radical climate” of tax proposals

favoring the rich.

Taxes, they write, need to
be examined in the context of government spending so

that one sees both costs
and benefits. The constitutional mandate to ”promote

the general welfare” should
guide tax policy, not theories about lowering

marginal tax rates and favors
for savers. They even argue that it may be

reasonable to tax people
with similar incomes differently if that achieves a

social good. The measure
of justice and fairness in tax, they emphasize, should

be the outcomes of tax policy,
especially whether each newborn gets enough of

society’s resources to have
a fair shot at success in life. They argue that

poverty is bad for rich
and poor alike, and that the poor, especially when it

comes to educating children,
have one of the strongest moral claims on tax

dollars.

They object to a myopic focus
in the tax debate on how tax burdens are

distributed among income
classes. In this they ignore a simple truth: for the

public such measures are
much easier to assess than is determining government’s

success in promoting the
general welfare.

The authors call the current
policy of forgiving capital gains at death ”an

outrage.” When combined
with other tax breaks for those with assets, it is,

they say, ”an egregious
injustice in the current tax scheme,” because it

perpetuates inequity and
lavishes rewards on those who are fortunate in their

ancestry but may contribute
nothing useful to society. Their solution would be a

fundamental reform: make
recipients of large inheritances and gifts pay taxes,

just as wage earners must.

Nagel and Murphy give too
little attention to the role of taxes in creating

wealth. Peace is a boon
to hoteliers, Conrad Hilton pointed out in his will.

Without vast taxpayer investments
in keeping the peace, as well as in building

roads and airports, his
fortune would have been much smaller. Many modern

billionaires owe much of
their wealth to the taxpayers for investing in

education, and the scientific
advancements on which their products depend.

Murphy and Nagel do not
examine whether it would be just to look on such big

economic winners as successful
investments of tax dollars, and then taxing these

winners to insure that society
has sufficient resources to invest in each new

generation.

Murphy and Nagel offer ideas
that would improve the national debate over how we

should tax ourselves, even
if their views never gain popular acceptance….

David Cay Johnston, a reporter
for The Times, won a Pulitzer Prize last year for

his reports on inequities
in the American tax system