The Wall Street Journal

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REVIEW & OUTLOOK

The Top 1% Pay 35%
December 20, 2006; Page A18

Maybe our liberal friends are onto something. They keep saying the rich should pay more taxes, and it turns out the rich already are! That's one of the valuable lessons from the IRS's annual study of income tax data, just released for 2004.

Americans who earned more than $1 million in adjusted gross income paid $178 billion, or an average of $740,000 per filer, in income taxes in 2004. That's up about one-third from 2002, the year before the Bush tax cuts in marginal income-tax and dividend and capital gains rates. The wealthiest 1% of tax filers paid a remarkable 35% of all individual income-tax payments that year.

Yes, we know: Some will claim that this merely shows that the Bush tax cuts made the rich richer. In fact, the Statistics of Income data reveal that there were more Americans filing taxes in every income category from $50,000 and up in 2004. In other words, Americans across income categories were (and are) making more money thanks to the buoyant economy spurred in part by the tax cut.

Here's a way to think of the distribution of current income-tax payments: Imagine a banquet attended by 100 random Americans. If the bill for the meal is distributed like the income tax, the richest person in the room is required to pay one-third of the tab -- or more than all 50 attendees with a below-average income. The three richest people are charged as much as the other 97. And the 30 or so lowest-income people in the room -- those with a family income of $30,000 or less -- pay nothing and eat for free.

This is by any definition a "progressive" tax system. Make that highly progressive. It's true that lower-income workers are also dunned with payroll taxes, but that still doesn't do much to alter the fact that the current tax code really does soak the rich.

The 2004 tax and income statistics also show that reported taxable income rose from 2002 to 2004 despite the cuts in tax rates. Reported taxable income from those in the highest tax bracket rose by 39%; dividend income was up 42%, and income reported from capital gains nearly doubled (up 98%). As for capital gains tax collections, they were roughly 50% higher in 2004 than before the tax cut. Another chestnut of good news is that small business net income surged 24.4% in 2004 from a year earlier. The financial health of these small and often entrepreneurial companies no doubt helps explain the strong job market.

Meanwhile, a separate report that tracks monthly tax collections shows that revenues keep flowing into the Treasury. In the first two months of Fiscal 2007, through November, tax receipts climbed by 9% despite the slowdown in GDP growth. This is on top of the increase in federal tax receipts of nearly 15% in 2005, and another almost 12% in fiscal 2006, which took the federal budget deficit down to 1.8% of GDP -- lower than the average for the last 25 years.

It's true that if the economy hits the skids in 2007, this revenue tidal wave will break. But that's all the more reason to ignore the pleas from our liberal friends to raise taxes. If House Speaker-elect Nancy Pelosi wants to keep revenues flowing to pay for her priorities, the best thing she can do is leave the lower Bush tax rates alone to soak the rich some more.

The Wall Street Journal

COMMENTARY: THE WEEKEND INTERVIEW

Michael Gerson

Mr. Compassionate Conservatism

By:  Naomi Schaefer Riley
October 21, 2006

ALEXANDRIA, Va. -- Amid the cut and thrust of the midterm elections, two questions have frothed up within the recesses of the GOP -- almost as an arcane distraction from the squalid business of holding on to House and Senate: Has compassionate conservatism worked? And should Republicans try it again?

Former House Majority Leader Dick Armey has made his position plain. In a recent open letter from his organization, Freedomworks, he assailed some leaders of the religious right, suggesting that if Republicans lose in November it would be because they have abandoned the principle of limited government in favor of embracing government for supposedly conservative ends. Meanwhile, David Kuo, former deputy director of the Office of Faith-Based and Community Initiatives, has complained in recent interviews and op-eds that the biggest promises of compassionate conservatism, especially the support of faith-based initiatives, have been broken.

Perhaps the best person to sort out this business is Michael Gerson, George W. Bush's chief speechwriter from the beginning of his presidential campaign through the end of his first term, and then White House senior policy adviser until June. Now a senior fellow at the Council on Foreign Relations, Mr. Gerson is plotting a book about the future of conservatism. He has been giving a lot of thought to its history.

Known around the White House as "Mr. Compassionate Conservatism," Mr. Gerson tells me: "I think it's a political truth that one reason we won the 2000 election was that Republicans finally had a message on education and welfare. In 2008, they will have to have something other than a simplistic antigovernment message." In Mr. Gerson's view, "compassionate conservatism is the theory that the government should encourage the effective provision of social services without providing the service itself." It was, in effect, a conservative twofer: limiting the scope of government and empowering faith-based institutions by entrusting to the latter services that had traditionally been performed by the former. Or so the thinking went.

*             *             *

We're in the sparsely decorated living room of Mr. Gerson's modest Alexandria home.  An unassuming man who sits on the edge of his seat and nervously shakes his legs, he is regarded by people on both sides of the aisle as on of the most influential modern speechwriters.  His rhetoric, they say, didn't just describe the president's policies, it helped shape them.

Mr. Gerson acknowledges that the antigovernment impulse "has a lot of intellectual energy" and has produced some "very healthy institutions and smart people with important policy prescriptions." But he is more interested in the strain of conservatism that is drawn from Catholic social thought, which stresses that human beings are responsible for others' welfare, and that the functions of society ought to be performed by the most local authority possible.

Yet Mr. Gerson is an evangelical, not a Catholic. And before being hired by the president, he worked for two other prominent evangelicals, both of whom he counts among the pioneers of compassionate conservatism: Prison Fellowship founder Chuck Colson and Sen. Dan Coats of Indiana.  Mr. Colson plucked Mr. Gerson from Wheaton College (Billy Graham's alma mater) in 1986, where he studies theology.  Wheaton has no Catholics on its faculty, but has led and intellectual charge to get evangelicals to think more about Catholic teachings.  "It's almosst a shame to say, "Mr. Gerson laments, "but evangelicalism doesn't have that rich a tradition, so you look for other sources that represent an authentic Christian witness in society."

Mr. Gerson's debt to Catholic teachings is also apparent on issues such as immigration. I asked him why, when most religious groups lined up this year to support the president's immigration proposals, evangelicals were noticeably absent. "There has been a significant history of Catholic reflection on immigration," Mr. Gerson says. He believes that a more "conspicuously global church" like the Catholic one is more likely to realize "that human beings in every culture and across every border have a radical equality before God." He also believes that evangelicals (and many secular Republicans) have succumbed "to one of the traditional temptations of conservatism": defining our national identity in terms of culture instead of ideals.

Mr. Gerson sees this temptation "reflected in our argument about democracy in the Middle East." Must there be a "democratic culture" before one can have a democracy? Mr. Gerson says that democracy took hold despite Confucianism in Asia, Catholicism in southern Europe and Orthodoxy in Eastern Europe. "All of these," Mr. Gerson notes, "were regarded as cultural impediments to democratic progress. In fact our ideals, the ideals of freedom, turned out to be more appealing than we thought." Mr. Gerson is confident that the same will prove true in Iraq and Afghanistan. "I have a deep belief that liberty improves human life. . . . People eventually find that to be true, but that doesn't mean they immediately find it to be true."

Mr. Gerson looks back on the last few years of trying to spread freedom as "a time of exhausting international engagement on a variety of fronts." And he doesn't see it ending any time soon. But if the war on terror is really going to occupy our focus for the foreseeable future, why should Republicans run on improving education and ending poverty? Did 9/11 spell the end of compassionate conservatism?

Mr. Gerson believes the answer is no; the administration's foreign policy, he says, represents an expansion of the philosophy of compassionate conservatism. Bringing freedom and democracy to other parts of the globe has required military action, but Mr. Gerson is annoyed by Mr. Bush's critics on the left who say the president only uses force to solve global problems. "The administration's increases in foreign assistance have percentage-wise been the largest since the Marshall Plan," he notes.

He is more defensive, though, when it comes to domestic spending. Mr. Gerson justifies the ballooning federal budget in two ways. First, he notes that a lot of the spending has been on security: "I think it's largely and unfairly ignored that much of the spending increases that have occurred took place in the first term as a reaction to 9/11."

But Mr. Gerson also acknowledges that "there is a genuine argument about the role of government that is going on." And he asserts that the president has been nothing if not honest about where he comes down in that argument. "It should not have surprised anyone that President Bush was going to sign on to the Medicare prescription-drug benefit because he campaigned on it in 1999. And it should not have surprised anyone that he was going to define a federal role in education to raise standards because it was one of his main promises as a candidate."

Other proposals, though, like Social Security reform, which would have appeased the party's more libertarian wing, have fallen by the wayside. He suggests that the country's polarization is a significant part of the problem. The war has contributed to this embittered atmosphere, but Mr. Gerson believes that religious divisions in this country are also a factor. "I think religion raises the temperature of a lot of debates, and it becomes a cultural clash." He blames the religious right for "taking Republican policy prescriptions and baptizing them -- making them into requirements of conscience."

Of course, this "baptizing" has helped Republicans, not least the president, to garner votes. But he also observes "an abdication on the part of the Democratic Party, [which has] an almost active hostility to people of faith and religiously informed reasoning in public debate."

           As a young man -- I picture a slightly more awkward and more agitated version of the one sitting before me -- Mr. Gerson was a fan of Jimmy Carter, but he broke ranks over abortion. Still, he believes that Democrats could win back religious folks some day. "There was a time in American history not too long ago where the most prominent evangelical was also the leading Democrat in the country. [William Jennings Bryan] didn't see any inconsistency in those things and I don't, to some extent."

Whatever its benefits for the Republicans, Mr. Gerson believes it is "unhealthy" that one party is secular and one party is religious. "My view" he tells me, "is summarized by Martin Luther King, Jr., who said that the church should not be the master of the state, or the servant of the state. It should be the conscience of the state."

He believes that conscience is especially needed for bioethical questions. He compares the utilitarian arguments of the president's critics -- "they believe that medical research should proceed with very few limits because it will benefit many people" -- with the supporters of popular sovereignty during Lincoln's time.  "Yes we're a democracy," he acknowledges, "but we're a democracy that believes all men are created equal and endowed with certain inalienable rights." 

Mr. Gerson punctuates his speech, the way he punctuated the president's speeches, with biblical references, and he has been accused of making the president speak in a kind of religious code -- indeed, Mr. Kuo recently suggested this. But Mr. Gerson says he isn't trying to hide anything and there are "tens of millions of people" for whom references to the Bible are "very familiar."

*             *             *

But the president's rhetoric has come under fire from the right as well. After the second inaugural, this newspaper's Peggy Noonan criticized what she saw as the president's utopianism: "Tyranny," she wrote, "is a very bad thing and quite wicked, but one doesn't expect we're going to eradicate it any time soon. Again, this is not heaven, it's earth." Mr. Gerson again has little patience for this argument: "There is always tension between the ideals of rhetoric and the messy circumstances of the world." But he argues, as our conversation reaches crescendo, "I have no idea why that would argue that you give up on setting out the ideals."

And here is where you see Mr. Gerson's gift. The president's critics, he knows, decry America's use of power as hypocritical -- that this country claims to look out for the oppressed when really we're the oppressor. In reply, Mr. Gerson picks the Founder many now think of as the biggest hypocrite of all: Thomas Jefferson. "Even though he was inconsistent in his own life, he set out an ideal that improved and motivated and guided American history from that day to this." That, he says, "is the best role of political rhetoric."

Ms. Riley is deputy editor of The Wall Street Journal's Taste page.

The Wall Street Journal

Review & Outlook

Back to the Congressional Future

With a little more than two months to go before midterm elections, the polls show Democrats well positioned by win the House after 12 years out of power.  So it’s not too soon to consider who these Democrats are and how they will govern.

            All the more so because we’ve seen most of these faces and their agenda before.  While Democratic Leader Nancy Pelosi would be a new Speaker of the House, the 19 primary committee chairmen who would dominate hearings, issue subpoenas and write legislation are agents of change only in the sense of going back to the future.  They represent the same liberal priorities that bedeviled Bill Clinton’s attempt to govern as a New Democrat from 1993-94, and before that Jimmy Carter in the 1970s.  To pick one example, 13 of the 19 voted against the welfare reform that Mr. Clinton signed in 1996 and hailed this month as a triumph of “bipartisanship.” 

            Republicans have done little to deserve reelection, and so perhaps voters will ignore Democratic priorities.  But one of the ironies of current politics is that a swing in only 15 House seats would result in a huge ideological shift in the legislative agenda.  Most of the House seats in play are “swing” districts held by political moderates.  The most liberal seats also tend to be the safest and thus are held by Members who can stay around for the decades needed to become chairmen.  Their agenda is not the one those “swing” voters would be endorsing. 

*                      *                      *

            Consider the men likely to run the Judiciary Committee, Michigan’s John Conyers, from the Congressional class of 1964.  He recently made his plans clear in a 370-page report, “The Constitution in Crisis:  The Downing Street Minutes and Deception, Manipulation, Torture, Retribution and Coverup in the Iraq, and Illegal Domestic Surveillance.”  The report accuses the Administration of violating no fewer than 26 laws and regulations, and is a road map of Mr. Conyers’s explicit intention to investigate grounds for impeaching President Bush.

            If you think Republicans have been spendthrift, don’t expect much change from Wisconsin’s David Obey (class of 1969) at Appropriations.  Mr. Obey was one of those Democrats who ripped Mr. Clinton from endorsing a balanced budget in 1995.  Rather than cut spending, his goal would be to spend less on defense and more on domestic programs and entitlements.

            Ways and Means, the chief economic policy panel, would go to New York’s Charlie Rangel (1970), who opposed the Bush tax cuts and recently voted against free trade with tiny Oman.  His committee’s crucial health care subcommittee would be run by California’s Pete Stark (1972), who in 1993 criticized Hilary Clinton’s health care proposal because the government wasn’t’ dominant enough.  Over at Financial Services, the ascension of Barney Frank (1980) would mean a reprieve for Fannie Mae and Freddie Mac, despite $16 billion in accounting scandals.  His main reform priority has been to carve out a new affordable housing fund from the two companies’ profits.  And forget about any major review  of Sarbanes-Oxley.

            Energy and Commerce would return to the untender mercies of John Dingell, the longest-serving Member first elected in 1995, who was a selective scourge of business when he ran the committee before 1994.  The Michigan Congressman would do his best to provide taxpayer help to GM and Ford.  But telecom companies would probably get more regulation in the form of Net neutrality rules, and a windfall profits tax on oil would be a real possibility. 

            Remember organized labor?  Their champion would be George Miller (1974), who as the man in line to run the education and labor committee is the chief sponsor of the “Employee Free Choice Act,” which would make it much easier for unions to organize by largely banning secret elections.  Instead, union operatives would be allowed to publicly hound workers into signing “cards” that are counted as votes toward unionization.  The Californian also wants to raise the minimum wage and fulfill the National Education Association wish to spend more federal dollars on local school construction.

            We also can’t forget California’s Henry Waxman (1974), among the most partisan liberals and who at Government Reform would compete with Mr. Conyers to see who could issue the most subpoenas to the Bush Administation.  And then there’s Alcee Hastings, who, should Ms. Pelosi succeed in pushing aside current ranking Member Jane Harman, would take over the House Intelligence Committee.  Before he won his Florida seat in 1992, Mr. Hastings had been a federal judge who was impeached and convicted by a Democratic Congress for lying to beat a bribery rap.