Tuesday, April 15, 2008

Comments on Metaphors about Grades (and the Bush Tax Cuts)

Note: I blogged back in November about an email that was making the rounds. The email compared grades to income in a lame attempt to make GOP economics look more moral. The comments I've been getting are now longer than the original post and have strayed far from the original topic - the validity of the parable contained in the email. So I decided to bring it up to the front of my blog to make it easier to find...

This is in response to the comment here on April 11 by thecarlsoncrew...

Keeping in mind that this discussion is about whether the parable/fable above is flawed or not…

  • The parable makes it sound as though people make money because they work hard. But you agree with me that while financial success is tied to hard work, it is not directly tied (there are other factors, and that those other factors – like education - may in fact be more important than hard word itself).
  • The parable makes it sound like people are poor because they’re somehow immoral (lazy, stupid, or maybe both). But you agree with me that laziness and stupidity are not the only reasons (or even the main reasons) for poverty and that each individual’s situation is unique.

My question about whether you knew anyone in the $1 million+ a year category was a question about perspective. It usually comes as revelation to people when they realize that they don’t really know anyone that we’re talking about. Most people don’t.

You dispute my numbers. You’re allowed. The Heritage Foundation numbers that you gave show that the family right in the middle of the third quintile saw their income go up by $356 in 2006. My numbers had that family’s income going up by $400 in 2004. Are things getting worse?

You mention poverty rates; I haven’t looked closely at those. You compare poverty at one point in Bush’s term with poverty at another point in Bush’s term, and I’m not sure what the point is. While poverty was down, the change didn’t seem significant to me and it’s not clear either that the change reflects a trend or that poverty is still down two years later (we’ll see, when those numbers get released).

You’ve mentioned unemployment numbers. Unemployment is a slippery concept, but it is basically the percentage of the workforce that does not have a job. Unemployment is a slippery concept for a number of reasons. It doesn’t measure under-employment. But more importantly, the number doesn’t take into account individuals who have been without a job for more than a certain period of time (two years, I think). So, for example, in the county where I teach, the unemployment rate is at about 8%. But about 50% of working aged adults (18-65) are without a job. It takes a national depression for this to happen on the national level, but in a micro-economic setting low OFFICIAL unemployment numbers can be a sign of despair because it means that people have given up and stopped looking for a job. For that reason you will sometimes see a distinction made between real unemployment and official unemployment.

I’m not sure how my numbers are “suspect” – what exactly that means. Maybe you think those numbers are just plain made up. I’ll freely admit that numbers can be juggled. To readers without much background in statistics, using percentages will make the top numbers look smaller than they are and the bottom numbers look bigger than they are; using real dollar amounts for disaggregated groups will make the bottom look smaller and the top look bigger (even given the same data). And neither will actually be inaccurate. If the data doesn’t make your point clearly enough, disaggregate it differently. Looking at tenths of the population instead of quintiles would make the poorest people look even poorer. Examining the top 1% makes the rich look richer (or helps more clearly define just what “rich” is).

We’ve talked about so much that it’s hard to keep track of what we’re talking about.
  • This thread began with the worth of the parable; I think you’ve agreed with me that the parable has flaws.
  • I was taken to task for my view that most wealth is inherited (and that was the point at which you entered the discussion). We’ve agreed that wealth is difficult to quantify and that there aren’t many statistical sources on it. My contention, I suppose, is based on my minor in sociology years (decades) ago as an undergraduate. I’m not prepared to forsake it at the moment, but neither can I support it with data. I’ll have to look around more. It is clear that the number of self-made gajillionaires in the Forbes 400 is increasing; but I’m talking about the richest million or so people in society, not the richest 400. The people on the Forbes 400 list are interesting precisely because they are statistical anomalies…

Now we’re discussing the Bush tax cuts and the fairness (however that’s defined) of taxes today. Presumably we’re having the discussion because we were talking about the relationship between income (and, debatably, by implication wealth) and hard work. Maybe we got to the Bush tax cuts because it’s hard to resist the temptation to talk about taxes whenever we talk about income. Maybe we got to the Bush tax cuts because I think the parable is misleading and I think there’s a lot of similarly misleading propaganda out there about the Bush tax cuts (which would make it my fault) – although I think you brought up the numbers on who pays what percentage of taxes.

So let’s start by talking about the nature of taxes. I like quoting Oliver Wendall Holmes (a Republican, by the way): “Taxes are the price you pay for living in a civilized society.”

I teach elementary school. I specialize in disabilities. I’m never heard an adequate definition of “fair” – one that everyone agrees on in all its details when applied to real life. That said… If we accept the idea of a tax on income (which includes FICA, various capital gains taxes, and all the other things that go onto a 1040 and the forms that accompany it) I would think that “fair” means that if you make 10% of the income you pay 10% of the income taxes and if you make 25% of the income you pay 25% of the income taxes. In other words, we tax income (not people). If we go beyond that as a society, if we decide that we want to be progressive and shift the tax burden so that those who can least afford it pay a smaller relative chunk of taxes than those with the most resources, our current system begins to come into focus. Not that our current system is perfect in its details. But the concept of a tiered system with people at the top paying more (a higher rate) than people at the bottom is the conceptual result. In that context, let’s talk about some of what you’ve said…

You said: …the facts of Bush's tax cuts are that he targeted the middle class more than any other group. The 'rich' still got more money back (dollar-wise), but the percentage was much smaller. I don't understand how this can be construed as unfair, unless you're talking about it being unfair to the 'rich'...

Bush threw everyone a bone. That’s how he got it passed. There are more middle class people than any other economic group in the country (depending on your definition, of course) so it’s easy to say that more people in the middle class benefit from the tax cut than any other group. Easy, but misleading.

I’m going to quote from the NY Times, from a couple of pieces that report on Congressional Budget Office (CBO) reports. I suspect that you’ll say that the NY Times is “left-leaning.” Editorially, I’d agree. But I’d hope that they can’t go too far astray in a news report on a CBO document.
“Families earning more than $1 million a year saw their federal tax rates drop more sharply than any group in the country as a result of President Bush’s tax cuts, according to a new Congressional study” cited in the NY Times on Jan. 7, 2008. “Tax rates for middle-income earners edged up in 2004, the most recent year for which data was available, while rates for people at the very top continued to decline.” The article goes on to say that, “Economists and tax analysts have long known that the biggest dollar value of Mr. Bush’s tax cuts goes to people at the very top income levels. One reason is that two of his signature measures, tax cuts on investment income and a steady reduction of estate taxes, overwhelmingly benefit the wealthiest households.” The article goes on to say that in 2004, middle quintile income earners saved $1,180 on their taxes on average over what they would have paid without the Bush tax cuts. The key here is that they paid less than they would have without the Bush cuts, but according to the article their rates actually went up slightly, so that they still paid more than they did the previous year. By way of contrast, households in the top one percent saw their actual tax rates go down (not just increase less) by about 4.5%. They paid an average of $58,000 less under the Bush tax cuts than they would have without it. In other words, I still paid more in taxes after the Bush tax cuts, while the top 1% paid less. And for every dollar they got out of it, I got two cents.

That’s the Congressional Budget Office (though it’s filtered through the NY Times). Where did your “facts” come from? (Not my college sociology professor, I hope…)

Another NY Times article I found interesting was a December 15, 2007 report on a CBO document that looked at income growth from 2003 to 2005 (right after the Bush tax cuts too effect). The increase alone in the income of the top 1% of taxpayers was more than the entire income of the bottom quintile. While the entire bottom quintile made about $383 billion in 2005, the top 1% made $1.8 trillion. That’s 18.1% of all income earned. And it means that for every dollar a household in the bottom quintile got, a household in the top 1% brought in about $93. I don’t think that either hard work or intelligence are the largest factors in a discrepancy that size.

The NY Times piece said that CBO documents “showed that in 2005 the top 10 percent, top 1 percent and fractions of the top 1 percent enjoyed their greatest share of income since 1928 and 1929.” It added that “On average, incomes for the top 1 percent of households rose by $465,700 each, or 42.6 percent after adjusting for inflation. The incomes of the poorest fifth rose by $200, or 1.3 percent, and the middle fifth increased by $2,400 or 4.3 percent.”

And look at that! There’s my $200 for the bottom quintile, listed in both a real dollar amount and a percentage.

Finally, according to the Times, “The top 1 percent paid 27.6 percent of all federal taxes in 2005…” In the context of the progressive system I’ve described, with the biggest income disparities since before the Great Depression, and in light of the fact that they made over 18% of all income, I don’t think I feel badly about that…

You want to argue that having rich people around benefits the rest of the society and you say it in a way that reminds me of Reagan’s “trickle down” theories. And yet wealth is gradually becoming more concentrated in the hands of a few, not more widely disbursed. I think the rich might pay less than they ought to for their yachts, and there is only one active commercial diamond mine in the U.S. I don’t think many in our middle class make their living off of gem mining here in America.

You said: And, of course, the principle is the same for the middle class as it is for the wealthy - the more money they lose to taxes, the less they have to spend. That means that the more the wealthy are taxed, the less they spend…. Hogwash! They made more than they did last year, after taxes – despite carrying 27% of the income tax burden. The people in the class I’m talking about, that top 1%, are not going to deprive themselves of anything because of the amount they’re paying in taxes. (And I suspect that you have nothing in the way of consumer data to show otherwise.)

Carlson, I’m touched by your invitation to join the wealthy with you, and with your concern for my financial status. I’m doing okay. Like many people, I worry a little about the future, about retirement. No one has a crystal ball. But I’m standing here in the fourth quintile with my three college degrees and, well, life is better this year than it was last year. It’s not hard to predict that it will be better still next year. I live in a moderately nice house that I actually own, have broadband Internet access at home, drive a good SUV without much rust on it, eat fairly well, vacation in the summer, have decent health insurance and even a dental plan, - and I live in one of the most beautiful places on earth (despite the poverty of the region), Central Appalachia. My concern for public policy on this issue is not rooted in some deep seated wealth-envy. I think the current economic environment stacks the deck against economic success for the communities I serve. Personally, I wouldn’t object to being obscenely rich; but I think modest comfort is a more reasonable goal since both my wife and I have chosen careers in public service. But who knows; perhaps I’ll write a book…

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