In a column published in the Star Tribune on Sunday (“Econ 101 is politically conducive — suddenly, selectively”), commentary editor D.J. Tice made the case that progressives tend toward a double standard when it comes to the burdens of economic policies.
President Donald Trump’s “imposition of punishing tariffs (aka taxes) on foreign goods exported to the U.S., notably from China,” Tice wrote, “has abruptly opened the eyes of progressive America to an essential truth about the way taxes work — particularly taxes on businesses — that liberals formerly seemed to have occasional difficulty grasping.”
He cited as an example the tax proposals of Gov. Tim Walz; an analysis of the governor’s budget undertaken by the Minnesota Department of Revenue had found that lower-income Minnesotans would be expected to pay more than the rich as a percentage of their incomes. (Walz let go of a key proposal — a 20-cent-per-gallon increase in the gas tax — as part of end-of-legislative-session agreement that was announced Sunday.)
While Star Tribune Opinion often publishes counterpoints to the work that appears on its pages and website, reactions also can be found elsewhere:
“I wince whenever I hear someone invoke ‘Econ 101’ to answer a question about economic policy,” wrote Louis D. Johnston, a professor of economics at the College of St. Benedict and St. John’s University, in a rebuttal posted Monday at MinnPost. “What they mean by Econ 101 and what an economist means are usually different.”
Using a definition by author James Kwak in his book “Economism: Bad Economics and the Rise of Inequality,” Johnston introduces the concept of economism as the “invocation of basic economics lessons to explain all social phenomena,” and asserts that this is “the game Tice is playing.”
Johnston expands his argument by discussing the cost-benefit nature of tax decisions.
In the interest of robust debate, we invite readers to check out Johnston’s article in full, then return here and consider subsequent responses from both Tice and Johnston.
I thank Prof. Johnston for his spirited response, and for introducing me to a fallacy I’d not heard of before — “economism.” By way of returning the favor, let me caution readers about a fallacy that apparently never goes out of style — the straw-man argument.
I made no assertions in my column that “taxes are bad,” or denigrating the need or usefulness of taxes. Indeed, I wrote explicitly that “None of this means that businesses should not be assessed any taxes,” and explained why I think they need to be.
But one can never be clear enough to be understood by a critic tempted to caricature what one wrote so he can blow it down.
My whole purpose was to emphasize the simple reality that the cost of taxes on businesses are borne by consumers and workers as well as business owners — even when they aren’t Donald Trump’s taxes. Prof. Johnston acknowledges that reality (sort of), but many progressives ignore or even obscure it.
Do the benefits flowing from government programs make many taxes worthwhile — and are some taxes more worthwhile than others? Certainly. But honestly identifying where the costs of particular levies fall is key to making that assessment.
As for basing my discussion of where tax costs fall on some “elegant model” assuming “perfect competition” — well, I just didn’t. I based it on, and cited it to, the “Tax Incidence” studies of the Minnesota Department of Revenue. Those studies constitute an outstanding, tax-supported public service that should be made better use of.
And here's Johnston, with additional comment provided after this article was initially posted:
I am grateful that the Star Tribune found my MinnPost column sufficiently important to devote space to discussing it on their webpage. I further thank Mr. Tice for taking the time to respond and continue the conversation.
I’m happy to acknowledge that, in general, the burden of a tax is borne by both buyers and sellers in a competitive market. I did this, not just “sort of,” when I wrote, “Tice uses this framework to point out, correctly, that in a perfectly competitive world the burden of a tax is borne both by buyers (through higher prices) and sellers (through lower profits). This is true regardless of whether the tax comes in the form of a tariff, as a gas tax, or a fee paid by health care providers.”
This type of analysis is at the heart of the state’s tax incidence study. Appendix B of the latest version describes how the Revenue Department calculates the incidences of Minnesota’s income tax, sales tax, property tax, motor vehicle registration tax, mortgage registration and deed transfer taxes, and excise taxes.
This is the bread-and-butter of public-finance economists, and I join Tice in praising their work. We are fortunate in Minnesota to have this kind of analysis available to citizens and policymakers.
Tice asserts that I created a straw man so that I could him blow down, writing, “I made no assertions in my column that ‘taxes are bad,’ or denigrating the need or usefulness of taxes. Indeed, I wrote explicitly that ‘None of this means that businesses should not be assessed any taxes,’ and explained why I think they need to be.”
Touché. I got carried away by the straw man I saw in his piece: “Progressive America,” whose eyes have been opened “to an essential truth about the way taxes work — particularly taxes on businesses — that liberals formerly seemed to have occasional difficulty grasping.”
Really? Who are these people who are so ignorant of basic economics? My reading of Tice’s column was that if those who can be described as being part of “progressive America” understood Econ 101, they would understand that a tax is a tax is a tax and that the tax increases they are proposing are no better than President Trump’s tariffs. This is economism in its pure form.
Econ 101 is more than being aware of tax incidence. It involves the classic question economists begin with when we teach Econ 101: What are the extra benefits of an action (such as imposing a tax) compared with the extra costs of that action? Tax incidence tells us the costs but says nothing about the benefits. We need information and analysis of both costs and benefits to enact fruitful public policies, and it gets us nowhere to act as if one side understands basic economics while the other side does not.
Readers, your thoughts welcomed below.
“Forwarded with comment” is a periodic, online-only feature of Star Tribune Opinion. The idea is to share and discuss interesting items we encounter in our daily reading but are unable to republish in full.