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Amity Shlaes  The Greedy Hand: How Taxes Drive Americans Crazy and What To Do About It   

Review by Mark Webster  

          For some reason the best recent books about the ineffectiveness of government have come from young female writers such as Susan Lee, Heather Mac Donald, Virginia Postrel and Amity Shlaes.  Shlaes is a member of the Wall Street Journal’s editorial board and an author of a previous book about Germany.   

          The title of Ms. Shlaes’s book comes from Thomas Paine’s Rights of Man:  “[W]e still find the greedy hand of government thrusting itself into every corner and crevice of  industry and grasping the spoil of the multitude.”    

          Prior to World War II, the federal income tax was a “class tax” on high  income earners.  After Pearl Harbor, Congress raised income taxes and began taxing lower income workers.  The “class tax” became a “mass tax.”  Few Americans, however, could save enough to make their annual payments.  Many simply refused to pay despite government insistence that it was the taxpayer’s duty to fund the war effort. 

          Enter Beardsley Ruml, a former treasurer at Macy’s Department Store, a former chairman of the board of directors of the Federal Reserve Bank, and an advisor to President Roosevelt.  He came up with a most efficient and silent way the greedy hand could insinuate itself into the pocket of every American earning a paycheck: “pay as you go” through paycheck withholding.  Taxpayers who agreed with this theft would be forgiven taxes not paid in 1942.  The plan started in 1943, and the pilferage still goes on. Shlaes calls this “the most ambitious bait-and-switch plan in America’s history.”  

          This was not an entirely novel idea: Employers had been withholding Social Security payments for over six years.  Employers therefore became the tax collectors for the greedy hand.  Wages were diverted to the government before the working suckers could put the money in their hands.  Although the scheme has been attacked for years, this is just another government program that became permanent even though the war ended half a century ago.  Of course, the additional pilfered money financed all sorts of additional “wars” and federal fiascoes.     

          Shlaes gives specific examples of the hardship this sly theft has caused.  Young workers at McDonald’s today pay 7.65% in payroll taxes,  more than the 7% rate millionaires paid in 1913.  In 1902, the average American had to work until January 31 to meet the annual tax obligation.  By 1998, workers had to slave to May 10, over a third of the year, to grease the greedy hand.  

          Shlaes demonstrates the greedy hand is not only invisible, it is omnipresent.  Eleven dollars out of the average $40.00 restaurant dinner goes to taxes.  In 1997, Americans spent over 30% of the gross domestic product on federal taxes and levies, the highest level since World War II.  The tax code has become so large and complex that not even the government knows what it contains or how to apply it fairly.  Shlaes quotes former Treasury Secretary Simon as saying  “The nation should have a tax system which looks like someone designed it on purpose.”  Both political parties eschew an overhaul of the tax law in lieu of symbolic return of wages to special groups like low earners, the “family,” and the elderly.  

          All the above information comes from the first chapter alone!  In the subsequent chapters, Shlaes shows how taxes affect the price of your clothes, your marriage, your home, your baby, your school, your accountant, your success, your retirement, and your death.  Her concluding chapter is cleverly entitled “Your choice.” She suggests the following remedies: 1) make taxes visible again,  2) simplify taxes, 3)tax for revenue,  not for social good,  4) lower taxes, 5) eliminate progressive taxes because lower rates on the rich produce more revenues from the rich, 6) privatize social security, 7) let local governments tax for local problems, such as schools, welfare, and health care, and demand the federal government get out of the way, and 8) lock in tax changes so Washington can’t backslide on its own tax reforms.    

          Shlaes does not propose a national sales tax, because a sales tax usually comes in addition to an income tax, not in lieu of an income tax.  Instead of a flat tax, Shlaes proposes simpler rates that apply to all in a consistent way.  She calls for a constitutional amendment to limit federal taxes, including social security,  to no more than 25% of income.  She believes most Americans agree with Roosevelt’s statement that taxes are “the dues we pay for organized society.”  She also suggests an alternative maximum tax which would permit Americans to use the current system or pay a flat tax of up to 25%, whichever is lower.  It is her hope that such changes would eventually slap down the greedy hand of government. 

Light side:   If con is the opposite of pro, is Congress the opposite of progress?