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Go Home Before Sunset

ECONOMY FEBRUARY 3, 2010

Before Sunset

BY NOAM SCHEIBER

One way to judge the health of our political system is to divide the president’s agenda into three categories. First are the items that seem like they’d be hard to accomplish and actually are hard—health care reform and cap-and-trade come to mind. Then come the items that sound easy to the uninitiated but turn out to be pretty hard—like eliminating wasteful farm subsidies or obsolete weapons systems. Lots of presidents have taken on these programs only to find that they have powerful, well-organized defenders. Finally, there are some legislative goals that sound easy to accomplish, and normally are easy, until some unique brand of dysfunction intervenes—say, some senator takes a special interest in an obscure appointment.

A healthy political system will have a fair amount of the first type of issue, whose difficulty arises from its fundamental complexity and genuine ideological disagreement. A healthy system could even have a decent amount of the second issue—it’s tough to have a democracy if interest groups can’t weigh in. But if you start noticing too many entries in the third category, then it’s time to fear for the republic, because it means the country is becoming ungovernable.

Unfortunately, this year’s budget fight includes a whopper of an example here—the effort to phase out tax cuts for the wealthy. These are the tax cuts George W. Bush passed in 2001 and 2003, of course. The first round reduced income taxes for people at all levels. But it dumped gobs of money on the very affluent. This group saw the rate it pays on every dollar above about 300,000 drop from nearly 40 percent to 35. If, for example, you happened to be a banker who makes $10 million per year, this rate cut saved you nearly $450,000 last year—far more than most people’s entire salaries. (Insanely, a hedge fund manager making the same salary owes even less in taxes—far less, actually—but that’s another story.)

Then in 2003 Bush was at it again, sheering back taxes on capital gains and dividend income. Once again, the benefits were overwhelmingly skewed toward the very wealthy, who own vastly more financial assets than the average worker. As Warren Buffett warned at the time, the practical effect of such cuts would be to lower the tax rate paid by his income demographic to a tiny fraction of the rate most Americans face. Which was the way it shook out in practice. According to calculations by Citizens for Tax Justice, the two rounds of Bush tax cuts showered 38 percent of their benefits on the top 1 percent of income earners, and over 52 percent of their benefits on the top 5 percent.

Most congressional Democrats understood this at the time and were deeply skeptical of the tax cuts. That forced the GOP to enact them through reconciliation—the Senate rule allowing passage of budget-related measures with a simple majority rather than a filibuster-proof 60 votes. Bush did manage to win over several moderate and conservative Democrats—people like Ben Nelson, Blanche Lincoln, and Mary Landrieu. But many signed on once it became clear the bill would pass anyway. It’s unlikely Bush would have found enough Democratic takers to break a filibuster had it come to that.

In any case, Democrats only became more united in their opposition to the tax cuts as time went by. Every major candidate in the 2004 Democratic presidential primaries vowed to repeal the portion benefiting the very affluent. (Two of them—Howard Dean and Dick Gephardt—proposed repealing all the Bush tax cuts.) Ditto for 2008. Support for this idea was so uncontroversial that it produced almost no back-and-forth across several dozen primary debates and candidate forums.

Of course, there’s a big difference between promising to repeal a tax cut and having the courage to follow through. No one wants to be labeled a tax-raiser. And rich people tend to get a lot of face time with senators and congressmen, with whom they can wax philosophical about the vast economic benefits of their additional Bentley purchases. But the beauty of the Bush tax cuts is that reversing them doesn’t require anyone to lift a finger. The strictures of the reconciliation process forced Bush to phase them out in 2011. That means the tax cuts just disappear—poof!—unless someone intervenes to save them. 

And yet, in the run-up to Obama’s 2011 budget, a handful of Democrats had begun to lose their nerve. The New York Times reported Sunday that “some centrist Democrats are urging Mr. Obama to spare wealthy taxpayers as well, to avoid raising their taxes before the economy is fully recovered.” Congressional Quarterly had a similar report the following day (not online). But this argument makes no sense. The rich save the overwhelming majority of their income in both good economic times and bad. Preserving their tax cuts would do almost nothing to boost the economy by eliciting more spending—not even on those Bentleys (which the rich can afford with or without tax cuts). For the most part, it would simply pad their bank accounts.

But don’t take my word for it. Last month, the Congressional Budget Office—Washington’s most scrupulously neutral arbiter of tax and spending initiatives—ranked eleven ideas in circulation for stimulating economic growth. Extending the Bush tax cuts finished at the very bottom in potential effectiveness. Worse, extending the upper-income portions would cost about $700 billion dollars over the next 10 years (and that’s before you factor in the effect of higher interest payments on U.S. debt). As Robert Greenstein of the Center on Budget and Policy Priorities puts it, even if we had an extra $700 billion to spend on more stimulus, there are massively more cost-effective ways to spend it.

In fairness, eliminating the upper-income portion of the Bush tax cuts isn’t quite as straight-forward in practice as simply allowing them to expire. Because most Democrats (including Obama) want to preserve the middle-class portion of the cuts, they’ll have to pass new legislation authorizing that extension for people making $250,000 or less (about 98 percent of workers). And since Republicans would filibuster the new bill if didn’t include the upper-income tax cuts, Democrats will have to use reconciliation themselves—something that makes moderates queasy.

On the other hand, as budget expert Stan Collender notes, Republicans are unlikely to be satisfied with merely extending the old Bush tax cuts. They’ll surely demand even more goodies, which will force Democrats to use reconciliation anyway. So there’s really no practical way around it. (In any case, it would be bizarre for these moderates to insist that tax cuts which only required a simple majority to pass under Bush now require a 60-vote majority to phase out.)

For what it’s worth, I don’t think many centrist Dems are pining to lavish another $700 billion on the rich. Nor do I think most of them buy the idea that these tax cuts are critical for sustaining the recovery. Or that this is a particularly good use of $700 billion at a time of unprecedented deficits. Their real concern is getting hammered for raising taxes while running for re-election in a Republican state.

But that’s really the point. If we can’t retire a giveaway that makes no economic or budgetary sense, for which there’s no organized interest-group to speak of (at least none that has influence over Democrats), and which only affects the top 2 percent of income earners at a time when the bottom 98 percent believes the system is rigged for the wealthy, what on earth is the system capable of accomplishing? Unless conservative Democrats can pull it together, I’m afraid the answer is very little.

Noam Scheiber is a senior editor of The New Republic.

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74 comments

It is interesting that you describe allowing people to keep the money that they earned as a "giveaway," money that somehow they were able to earn through hard work and diligence, despite all of the impediments placed in their way by government. Business taxes, nonsense regulations, etc., are dumped on them by local, state and federal governments. Petty bureaucrats (usually underworked and overpaid) are envious of the entrepreneurs and impose additional impediments by arbitrary enforcement and misreading of laws and regulations. You certainly are a fellow-traveler of the wealth-spreader-in-chief (or, as I prefer, the ventriloquist dummy in chief). I have worked since I was ten years old. I performed odd jobs at an even younger age to earn spending money. I worked full time while attending college and have continued to educate myself throughout my entire life to be able to have a comfortable life for myself and my family. I probably give more money to charity than Al Gore (I seem to remember when he was VP, he was quite stingy). I volunteer extensive amounts of my time to community and professional activities (which help others become more educated and productive). I resent having my money (whether taxed or inflated away) used to bail out General Motors, Merrill Lynch, Citibank, and, especially, Goldman Sacks. They are the politically connected rent seekers in society. No matter how much money I earn, I have done so without feeding at the taxpayer trough. I have saved money since I was about 12 years old, only to watch politicians (and the federal reserve is nothing but a political kleptocratic organization) erode the value of my savings through inflation. Inflation is a tax, an insidious tax. Most people blame oil companies and Arabs for inflation but, as Milton Friedman said, it is always and everywhere a monetary phenomenon. Any taxes extracted from me for any purpose beyond protecting life, liberty and property is theft. It is not moral nor is it compassionate. Dale Ogden, Libertarian, Candidate for Governor of California; http://www.daleogden.org http://www.daleogden.net

- dalefogden

February 4, 2010 at 2:30am

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If the Democrats have the courage of their convictions, as I fear they don't, they can pick a convenient time to have the Republicans spend a few weeks filibustering an bill to lower taxes on the bottom 98 percent of the population.

- jonrysh

February 4, 2010 at 2:32am

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The tax dilemma for the Democrats is the result of a dual (or bi-furcated) tax system, one for the wealthy and one for the working class: the wealthy pay income taxes and the working class pay payroll (social security) taxes. Around 80% (it may be even higher) of working Americans pay more payroll taxes than income taxes; indeed, many working Americans pay no income tax at all. For working Americans making about $100,000 per year, the combination of social security taxes and income taxes puts these poor folks in the highest marginal tax bracket (around 40%!), which goes a long way in explaining middle class resistence to tax increases on the "wealthy". How does one solve this dilemma? The obvious solution is to eliminate the dual tax system. Of course, that would mean "funding" social security with the income tax, and that's not going to happen. The other solution is to lower the payroll tax on the working class and/or raise the payroll tax on high income earners (the payroll tax currently isn't imposed on incomes above around $100,000). What's the likelihood of lowering payroll taxes and "risking" grandmas social security. About as likely as imposing the payroll tax on high income earners, including those poor folks who earn around $100,000 per year and already pay taxes at marginal rates above 40%.

- raylward

February 4, 2010 at 8:46am

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Dale, I'm glad that you rely on your reading of human nature from Ayn Rand -- do you care to substantiate her biases about government bureaucrats with some sort of scientific evidence that they are, as a group, envious of entrepreneurs and want to actively cut them down to their own small stature? Or is the inside-out Marxism of the Randians enough for you? Scheiber's assessment is pretty simple -- pretty much everyone agrees that our economy is currently suffering from underconsumption, both by individuals (many of whom are unemployed, fear that they may become unemployed at any moment or have a large amount of household debt that they do not wish to increase) and by businesses (which are either reluctant to make, transport and sell goods for which there is no ready market or which have difficulty obtaining capital to expand operations). You can attempt to use tax policy to fix that lack of consumption, which includes giving tax cuts or other tax incentives to individuals or businesses so that it would be in their economic best interest to spend or invest their money rather than save it. In the case of the wealthiest taxpayers, economic studies cited by Scheiber make it crystal clear that those taxpayers would in fact SAVE the money that they are keeping thanks to the Bush tax cuts. This has no positive effect on the economy, and a very negative effect on the US Treasury's balance sheet as it drives up both long-term and short-term budget deficits -- which in turn makes it harder for the US government to borrow money for any purpose, including national defense and homeland security (which liberatrians like you presumably like). In addition, encouraging saving among the wealthy was not the stated, or even the unstated, purpose of the Bush tax cuts. So why in the world would we want to continue a policy that starves the government of revenue, harms the broader economy and does not even meet the purported purpose for which the policy was enacted?

- wildboy

February 4, 2010 at 11:34am

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The game plan for the Reagan/Bushies was brilliant. Especially Bush II with his built-in trap door for his successors. By locking in the lower rates for the highest brackets and putting in an automatic expiration a la 2011, no subsequent president or congress can allow them to expire without being (honestly) tarred and feathered with the accusation of raising taxes! Then, you couple that with bankrupting the treasury, thereby assuring that no future president can attempt to lower the deficit without 1) slashing government spending on entitlements even more, an unpopular option; or 2) raising taxes to cover the difference, an even more unpopular move. It is the perfect double-edged Sword of Damocles. You pin your successor down in a no-win scenario. No matter what the proposed solution for the fiscal crisis is, you give your opponents a ready-made political issue. You can't escape the trap without being a "taxer" or a "spender" or even worse, both. Never mind the total collapse of the economy. Any action you take to address the issue is either big government, big debt or big taxes. The easist and fairest solution to the payroll tax trap is to lift the Depression-era income cap. Currently, it's around $102,000. This would also play well to that amorphous middle class.

- desertdog

February 4, 2010 at 12:53pm

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So...Democrats who love the Bush tax cuts are on a boat?

- janus

February 4, 2010 at 1:14pm

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So...Democrats who love the Bush tax cuts are on a boat?

- janus

February 4, 2010 at 1:14pm

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Sorry, Evan Bayh -- I pick T-Pain.

- wildboy

February 4, 2010 at 4:05pm

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Democrats are proposing to put the top rate back where it was in the Clinton years - which were damn good years economically, even for millionaires and billionaires. Any Democrat who can't defend that is hopeless. Hell yes, pass it by reconciliation (only a majority required), just as the Republicans did in 2001. Back then, I recall that John McCain criticized the Bush tax cuts as too big relative to our debt, and too tilted to the wealthy. Be sure to quote his remarks from that time. And please, could we stop saying "people making $250,000 or more:? First of all, it's TAXABLE income that counts - that's the amount left over after subtracting various deductions. So an individual would need to be making somewhat more than $250K to have any tax increase. Second, as the Wall Street Journal (news pages, not editorial) noted a couple days ago, for a married couple filing jointly, they could have 350K in taxable income and still receive a tax CUT under Obama's proposal, due to changes in the Alternative Minimum Tax, and expansion of the 28% tax bracket.

- baxterjones

February 4, 2010 at 4:30pm

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Dale. You are running for governor; you are a parasite on government. What you overlook is that Government plays an important role in the capitalist economy. When I ask people whether they would rather have low taxes or a stable economy, they answer a stable economy. When a criminal attorney complains about his tax rates, I ask him how much he pays for the federal court system where he makes a handsome living. I ask the restaurateur how much less he would make if the public did not think his restaurant was inspected by the State and the same of the pharmaceutical companies who have the imprimatur of government approval. (Tylenol lost a fortune when the public thought it's pills weren't safe.) Who would trade in the stock market if they thought it would ruin them because recklessness is permitted? Who would buy life insurance if it wasn't regulated by the state? Businesses have grown up around GPS. And so on.

- Nusholtz

February 4, 2010 at 8:24pm

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Nusholtz, you are really neglecting the fact that all those you cite are dramatically overpaying for what they get in return. A guy in the top 5% of earners has a pre-tax income of about $550K, and he's paying $158K in federal taxes, and perhaps another $10K in state taxes. You really believe he's consuming anywhere near $170K in "services" from the government? Answer: No. Not even close.

- SeattleEngineer

February 5, 2010 at 1:50am

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Engineer. You would have to tell me how he got his income. Was it in the regulated stock market? Was he educated in a State funded university with taxes paid by blue collar workers? Was he drinking clean water and breathing clean air? Will he be saved from a life threatening disease by a government funded cure? Did his parents survive industrial work because of some safety regulation? Did he have a business with customers who were assisted by government in one way or another? Did he ever benefit from a legal proceeding? How much are these things worth?

- Nusholtz

February 5, 2010 at 6:29am

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Actually, Seattle, he his "consuming" way more than what he pays in taxes. His entire net product is dependent on the system. The higher your income, the larger the benefits you derive from government, and there is no reason to believe the relationship is linear. * * * I would say that the country is on its way to becoming ungovernable. We have one party, the Democrats, full of policy wonks who have no idea how to do politics (the transformation in the 70s that I believe accounts for the struggles of the Democrats ever since). We have another party, Brand X, that has completely lost interest in governing. It is solely interested in politics -- in gaining and holding power so that it can deliver resources in every conceivable way to the corporate and wealthy interests that control it. Since the last spasm of progressive legislation in the 1960s, monied interests have dedicated themselves to subverting and coopting the political system, and they have largely succeeded. Government in the historical sense has been rendered impossible. Under the challenges of globalization, an out of control healthcare system, grossly regressive taxes, and the coming environmental pressure, American workers are going under, and eventually the wealthy will feel their pain, one way or the other.

- roidubouloi

February 5, 2010 at 5:09pm

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Nusholtz, the SEC has a budget of $1.23B to regulate $13T of economic activity. Thus, the cost for them to regulate a dollar is $0.00094. To regulate the guy in the top 5% earning a $600,000 salary is $56. That's right, the cost for the government to regulate the flow of $600,000 is $56. The numbers on your other examples are even worse. roidubouloi, your example on the schools is just as flimsy. Why on earth do you believe that people with larger incomes derive more benefits from the government? They might derive more benefits from society. But society is the not the government. If Steve Jobs can coax a huge portion of society to buy his widget, why on earth would you try to give the government some credit for that? They did nothing other than set up and enforced a basic set of rules that applied to all.

- SeattleEngineer

February 5, 2010 at 10:31pm

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Roid, another question for you on this topic... If taxes were raised 5% on everyone tomorrow, who would benefit the most? Are you arguing that the wealthy would benefit from this? Is your argument that more government equals more benefits/prosperity for the wealthy? Clearly it would hurt the poor, but you seem to be arguing that it would benefit the wealthy, since their "power" seems to come from the government. Is that right? I'd argue that nobody would benefit from this. The rich would have less to spend, and the poor would have less to spend. Now, what if we just raised taxes on the wealthiest by 5% and gave it to the poor? It's clearly good for the poor. But are you arguing that it would be good for the rich and that they'd get the most benefit from this? Surely you aren't, are you?

- SeattleEngineer

February 5, 2010 at 10:58pm

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Well, Seattle, no one benefits from taxes. People benefit from government spending. Yes, those with the largest incomes benefit the most, because their incomes are in large measure a result of the particular economic and market rules enforced by the government. Different rules, different winners. Do you think Jobs generated his wealth by himself? Who educated the people who work for him? Who paid for their education? How does his product move? Who fights our wars to protect the trade environment in which he succeeds? What created his patents and copyrights and enforces them? Who enforces his labor agreements, his commercial agreements, protects his plant from theft or vandalism? Jobs wealth is directly the result of a myriad of public goods and public subsidies. There is no means by which one could possibly say that his "share" of the costs of all those subsidies is x, y, or z. It is purely a policy choice based on the society we want to live in. You want to live in one full of people who work hard and have very little. Move to India. You can have your wish. As for "flimsy," you have nothing whatever to back up your claims other than that you think they are self-evident. You think, for example, that the cost of regulating a cash flow is a fixed percentage of it? Why? That is not impossible, but you have no idea where the costs lie or how income would be differently distributed in the absence of some particular regulation. You just make a completely unsupported claim based on your ideology and expect that everyone should bow to it although you have not a single fact, not one, with which to support it. The very point of the claim I made -- equally without a factual basis but with a much firmer logical basis -- is that one can just as freely claim the exact opposite of what you do and stand on ground that is at least as firm. There IS no proper, ordained distribution of the costs of government because the costs and benefits are purely joint. There is no possible means of saying that Steve Jobs unique share of the benefit of road, education, national security, public health is exactly, or even approximately, this number or that number without first having a theory of equity to apply. That is pure social policy. There are no facts to support the "correct" allocation of the tax burden and there never will be. It is impossible. In other words, Seattle, you are just making it up. You want to think that the benefits of government spending are received per capita, or pro rata according to income, because that justifies your notion of fair taxation which is less tax for you and more for someone else -- or to do away with government altogether, except for some minimal public goods, which you imagine would lead to some free-market nirvana. No, it won't. It would lead to a revolution, because the millions of people impoverished in your world would have no reason to tolerate it. The naive notion you seem to carry is that a head tax or a pro rata tax on income would inherently be "fair" because it treats everyone alike. But it only treats everyone alike if you assume your conclusion, that the unit of measure of likeness is one body, or the linear magnitude of income. Why would it not be equally equal treatment to tax everyone the same percentage of the square of their income? Everyone would be subject to the same formula and hence treated identically. You will argue that that is not the same, but there is no universal point of reference to which you can refer. In the end, everyone is subject to the same rules, but the impact of the rules on different people will be different. Thus, there is no possible means of avoiding the decision what that impact should be. Algebra cannot solve the problem. Are you even aware, Seattle, that real wages for working-class people have been stagnant for several decades now? Are you aware that we are now faced with the unprecedented situation of a generation of men who earn less than their fathers did? As the rules have been re-written to shift wealth from the working class to the rich -- having nothing whatever to do with Jobs widgets since the cause of the shift is due to the law, not to the widgets -- the result, as intended by the Republican plutocrats, is being achieved. The wealthy are getting wealthier, enjoying an ever large share of national output, and working people are getting poorer. That will not continue indefinitely, I can assure you. Unless you imagine, as you probably do, that there exists some divinely ordained tax structure that is the "right" one, one must recognize that the structure of taxes is entirely arbitrary, driven only be the question of what final distribution of wealth we want as a society. There is no other there there.

- roidubouloi

February 6, 2010 at 12:29am

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Obama's own money person (Romer) has looked in depth at the benefits of government spending, and it's a lousy way to create a job. You spend $200,000 or so, and one modestly paying job comes out for a year. Not a great ROI. You must admit it's much, much better for the private sector to create and sustain that job. Romer would say so too. Jobs benefited from a level playing field and civil order. That could be achieved with just 5% government spending. WE didn't even have a federal tax before 1913, and plenty of tycoons were able to get a foothold. Your argument is limp. Real wages for working class people have not been stagnant. They have grown at ~1% above inflation. For wealthy people, they have grown at ~2% above inflation. When you consider the wealthy people are probably those that studied their ass off all through high school and went to ivy league schools and are the hyper-achievers, what do you expect? You really expect their annual raise as a percentage to to match that of the guy who has been fired from 6 jobs in a year? Seriously? Of course not. If you believe that someone that works harder than someone else should be given a slightly larger pay raise each year, then congrats, you have just decided the rich should get richer. Because there is always someone who will respond positively to a reward and work even harder. And next year he'll make even more. And then he'll find an employer that will pay him even more, and a few stock options, and he'll switch companies. If you believe slackers should be given the same pay raise as those that bust ass, then congrats, you've just decide to rewards apathy and punish hard work. Which are you?

- SeattleEngineer

February 6, 2010 at 1:50am

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Roid: "That is not impossible, but you have no idea where the costs lie or how income would be differently distributed in the absence of some particular regulation. You just make a completely unsupported claim based on your ideology and expect that everyone should bow to it although you have not a single fact, not one, with which to support it. " You've not cited a single number. Just exhaustive paragraphs. I took the amount of money the government spends regulating finances (our GDP) and divided that by the amount the government spends regulating finance, and arrived at the cost to regulate a dollar. And then I told you how much it costs to regulate a salary of $600,000. You didn't like the number. Fine. Cite your own source. PS. NO matter what rules were put into play, the top 10% would still very likely be the top 10% unless it totally Mad Max and then the guys over 6'5" and 300 pounds would take everything through brute force. We've seen rich people flourish in the new world under a variety of rules and tax schemes, ranging from 0% to 90%. Time and time again, a small percentage take a lion's share. They do it in Sweden. They do it in France. They do it in the UK. You really think there is some other tax system hiding out there that will equalize this? The equalizer here is that some people work their ass off to create something you covet (Steve Jobs), and others can't hold a job for more than 6 months because their boss is always an asshole. No matter what government or tax scheme you propose, Steve Jobs will make a lot of money, and the slacker won't. There isn't a system in the world that even hints otherwise.

- SeattleEngineer

February 6, 2010 at 3:28am

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Roid: "Unless you imagine, as you probably do, that there exists some divinely ordained tax structure that is the "right" one, one must recognize that the structure of taxes is entirely arbitrary, driven only be the question of what final distribution of wealth we want as a society" No. The purpose of taxes is to fund the government. It is not to re-distribute wealth. We have lost sight of that in the US. There is a reason Sweden, France and the UK tax the living crap out of the poor and middle class: It's so they all have ownership in the direction of the country. Our bottom 50% in the US are often treating the country like a rental car, and each election asking "When can I get more stuff???" The entire citizenry must be bought into the role of the government. Our middle class are some of the wealthiest people in the world--top 5%. If a world government decided that the US middle class making $50K/year shoudl pay taxes at a 60% rate and that money would be given to people making $10K in other parts of the world, what would you say?

- SeattleEngineer

February 6, 2010 at 3:37am

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Engineer, Your argument about regulated stock markets is similar to saying I should only pay for the chemical costs of the pills I buy and nothing else because that is all I got when I purchased the pill. Do you mean that after all these years of funding the stock market to make the investors think it is a safe place to invest trillions of dollars, you, or someone like you, comes along, makes a lot of money in the market in one year and insists on paying only your pro-rata share of its cost for the one year? Why don't the people who made money in the IPO's, for example, pay their fair share of the total cost associated with their benefit? I hope you enjoy being such a freeloader.

- Nusholtz

February 6, 2010 at 8:46am

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You completely fail to get the point, Seattle. I don't expect you to accept it as it is contra your ideology, but you should be capable of understanding. First, even if we accept absolutely your notion that taxation should not redistribute wealth, there exists no a priori solution to what constitutes THE fair distribution of the tax burden. Is it per capita, per capita according to the number of family members? Related to age, gender, income, income above a minimum, marginal utility of income? Total wealth? Consumption of particular resources? One can make a facially plausible and seemingly policy neutral argument in favor of distributing the tax burden on any of these bases, and an endless number more. There exists no neutral principle upon which to distinguish them in order to say that THIS ONE is the fair distribution and anything that departs from THIS ONE is therefore redistributing wealth. In the absence of any such principle, the only distinctions that can be made are based on efficiency, our moral sense of equity regarding individuals, and our sense of the type of community we wish to create, the extent to which we want either to foster or ignore social and moral bonds amongst people. Now, as to your claim that taxation is cannot properly be for the purpose of "redistributing" wealth, or more properly income. This suffers from the same fallacy, that there exists some "real" distribution of income from which we depart. But there is no such thing. Whatever distribution that emerges in the course of the process of production and consumption emerges from the particular set of government rules extant at the moment, including the tax rules. There is no redistributing, there is only distributing. Both Marxists and the right-wind suffer from exactly the same intellectual problem. They both believe that there exists some a priori socially and morally correct distribution of income -- in the case of Marx that it all belongs to labor, in the case of the right that it all belongs wherever it would fall if there were no regulation and no taxation -- leaving aside that, in Marx's utopia there would be no capital and the standard of living would be about that of Darfur; in Ayn Rand's utopia there would be no world or wealth, only chaos. The same fallacy of an a priori "correct" result, that is knowable and from which we must not depart, infects the so-called jurisprudence of the reactionary justices of the Supreme Court, Scalia, Alito, Roberts, and Thomas. (Obviously I am thinking about this because of the ruling last week.) But the idea of Original Intent is an outright fraud. What was the Original Intent of the Framers on the subject of personal possession of Stinger missiles, or the regulation of a continental market in the age of jet travel, or of search and seizure in an age of telecommunication? "None," is the only intellectually honest answer. They had no possibility of imagining such things, and even as to the things they could imagine, the surely did not envision the multitude of possibilities. To the contrary, as they were part and parcel of a long common law culture, they understood that the multiple possibilities would be worked out over time by courts employing a particular style of reasoning which was familiar to them. If there were an actual, knowable Original Intent on the questions the confront the Supreme Court (whose intent anyway, were the Framers all thinking the same thing?), there would be no need for a Supreme Court. At most, we would need historians (not the sort of faux historians the Originalists are, inventing facts or plucking from the firmament only those that seem useful for the outcome they wish to achieve). The reason I bring this up is that the claim about "redistribution" has the same political purpose as Original Intent, which is to pretend that the policy outcome favored by the rightwing enjoys some privileged place, an a priori correctness, that makes it possible to avoid discussion of policy implications and "forces" us to accept the privileged outcome. But, in both the case of your argument and that of the Supreme Court, this claim of privilege is a complete fraud because the factual predicates don't actually exist. The Original Intent is a fiction, unknown and unknowable. The Original Distribution is the same fiction, unknown and unknowable. In both cases, the claim serves only the purpose of allowing the claimant to package his or her preferred policy outcome as (1) free of the ideological preferences of the claimant and (2) deserving of peculiar respect. Finally, Seattle, even allowing your premise that that government is redistributing wealth rather than just distributing it in the first place, that is, determining at a macro level the distribution via the rules that it creates for the market and society, you say that the purpose of taxation is not to redistribute wealth? And just why is that? Did God tell you so? The only basis for that claim is ideology, and a peculiar right-wing ideology that likes to pretend that it is oblivious to the outcome of its moral choices but devoted to them only out of high principle. In reality, of course, you just prefer a particular outcome and want to cloak your preference in a claim of principle that, miraculously, just happens to produce the outcome that you believe is congenial to you. i could, with just as much basis as you have, say that the very purpose of taxation is to redistribute wealth and that financing government is but an incidental benefit. How could you possibly prove this wrong? You can't, because the "purpose" of taxation is whatever we choose it to be. If we choose to tax for purposes of achieving a particular distribution of income, then that is its purpose. As much as conservatives want to exempt themselves from the necessity of considering outcomes and deciding through democratic process what outcomes are socially preferred, there is no way to do so. The pretense that conservatives know some a prior morally superior outcome is beyond tedious, it has become a blight that prevents our society from moving forward on urgent policy questions that cannot be safely ignored for long in a world where global competition has become a reality. Conservatives are hobbling our society with arguments such as yours, Seattle, and it is past time that we put you behind us. Now, you might argue that it is both useful to society, as a matter of incentive to effort and creativity, and morally cognizable (meaning of some moral worth, not necessarily to the exclusion of other moral values), that work be rewarded differently with some relationship to the effort involved and to the economic value to which the particular worker contributes (the idea that any output is the product of only a particular person being in almost all instances a myth on the order Original Intent). That is fine and most Americans, including me, would agree with you. But that does not establish that the number that appears as gross income on your tax return represents the pure outcome of a particular individual's effort and creativity (it doesn't, in most cases it is the job that is responsible for the output and the person is just fortunate, or unfortunate, to fill that particular job niche). Nor does it answer the question how much should the individual enjoy rewards and how much should they be shared with the community that makes the rewards possible.

- roidubouloi

February 6, 2010 at 10:24am

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If it helps you, Seattle, think of taxes as the rent you have to pay for the use of the playing field on which you strive for income. You are not forced to rent space on the field. You are not forced pay income taxes. But you cannot use the landlord's playing field without paying the rent the landlord demands. If you don't like it, you have perfect freedom to refrain from income-generating activities and you will owe no income taxes. Just as rich and poor alike are free to sleep under bridges.

- roidubouloi

February 6, 2010 at 11:20am

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Nusholts, enough jabber. Please cite a study that actually goes into the number of the massive benefits you claim someone that participates in the stock market enjoyes. Prediction: you got nothing. Zilch. Zero. Nada.

- SeattleEngineer

February 6, 2010 at 12:32pm

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Roid, again, enough jabber. You've typed for a half hour. Find a credible study that back your thinking. Our wealthy are the highest taxed in the world. More than Sweden. More than France. Find a economist somehwere that agrees with you, and I'lll read his stuff. A state can maintain law and order and create a friendly business environment with just an ~8% tax on its citizens. That is all a Steve Jobs or Bill Gates needs to flourish. Period.

- SeattleEngineer

February 6, 2010 at 12:35pm

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Jabber? Please, Seattle. I accept that you are resolute in your refusal to understand the difference between social policy and economics, but at least get your facts straight. In many cases the overall tax rate on our moderate earners is lower than that on our wealthy. Ask Warren Buffet who noted that his secretary pays a higher tax rate than he does. The claim, which is yours, that the "purpose" of taxation is not to redistribute wealth has nothing whatever to do with economics. Economics can study the alternative distributions that would occur under one particular tax regime or another, but it cannot determine, because it is a distinction without meaning, what constitutes distribution and what constitutes redistribution. You are asking me to prove a negative -- that your views are not economic (although you would like to think so), but political. That is not possible. You either understand the correct categories of things or you don't. Your claim about law and order and a friendly business environment and an 8% tax rate is plausible since until recently government spending was on the order of 20%. But you cannot explain, and hence make no effort to do, how the burden of an 8% tax rate should be distributed. It just seems self-evident to you that some distribution of the burden -- probably a flat-earth tax -- is inherently just and efficient. There is also no reason why the ends of government should be limited to law and order and creation of a friendly business environment, or the flourishing of Steve Jobs and Bill Gates. You state that as if it too is self-evident because you are unable to make any plausible argument in favor of that view. It is so because you say so. Do you really think millions of people should labor so that Steve Jobs flourishes? Actually, you probably do because you appear to be merely another plutocratic sympathizer who imagines himself an economist or a philosopher. You believe what you believe because you believe it -- basically a matter of your right-wing, libertarian religion -- and are unable to give any account of why your belief should be accepted any more than you could justify a belief in the Holy Trinity or the Mother Ship. That's okay, but your confusion between your religious views and objective economics is not.

- roidubouloi

February 6, 2010 at 1:40pm

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Engineer. Companies go public and make millions in the stock market, as does AIG, Kerkorian, Buffet, etc. The point is that starting with when England regulated merchant sea traffic, our government has played a role in our capitalist economy. To wit: compare our economy to a third world country. You feel the benefits from our economy should be paid for pro rata regardless of disparity. Spreading costs evenly throughout the community is socialism. Government taxation based on benefit is essential to its success. You are a socialist?

- Nusholtz

February 6, 2010 at 4:00pm

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Roid, the 8% figure is simply the threshold that is needed for businesses to flourish in my estimation. This provides roads, firetrucks, police, civil order, etc. Most states get by with well under this. So, once we have an 8% tax (regardless of who pays it), the framework is in place for Gates and Jobs to succeed. If you want to argue the government is essential to the success of business, then I will agree UP TO an 8% tax. If you want to argue that climate gets even friendlier towards business at a 60% tax rate, then I think you are wrong. And you probably do to. Are you seriously arguing that higher taxes are good for business and people???? And as of yet, you've not provided a number to state otherwise. So let's not pretend as if your position is awash in data points. And since you've not provided a single number of study, your position is closer to religion at this point.

- SeattleEngineer

February 7, 2010 at 12:36pm

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Nusholtz: As I noted above, some government framework is needed to ensure a business can flourish. But that number is very small. Many businesses flourished before the government collected taxes 100 years ago. The figures we are at right now in terms of government size are far in excess of what is needed for Steve Jobs to make a pile of money.

- SeattleEngineer

February 7, 2010 at 12:39pm

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Roid and Nutz, how about this: 1) What is the minimum size you think a government needs to be to establish root, take hold and flourish? 2) Do you believe a government that is 35% of GDP is better for business in general than a government that is 55% of GDP or 75% of GDP? 3) What % of the tax burden do you feel middle class should carry? What about top 10%? My answers: 1) 5% 2) Yes. 3) Top 10%: 45%. Middle 20%: 15% Not too far off from where we are today. But I'd love to see your numbers...

- SeattleEngineer

February 7, 2010 at 1:02pm

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Seattle, I will endeavor to attach some numbers to my response, but not this minute. Once again, you take it as self-evident that the only function of government is to make sure that business flourishes. I don't nor do most people. Business, the production of goods and services, is not the only thing in life. Nor is the distribution that emerges from the most efficient production of goods and services necessarily good for society. Nor is it very likely that the mass of working people would tolerate a society in which the success of capital was the single objective. That more or less describes early 19th century capitalism and it wasn't going to last very long in its brutal form. It was quickly "socialized" in the US, Britain, and Germany and in places where there remained extremes of wealth and poverty, power and powerlessness, there were revolutions. The mistake you keep making is that you think it self-evident that whatever outcome would be produced by the most extreme laissez faire capitalism is the moral ideal. Hence, you assume that to the extent that we depart from that imagined ideal, the worse things are. Very few people in the society share that point of view. Take away all of the benefits that flow from government other than the "minimum" for business to flourish and what you get is not passive acceptance of a grossly plutocratic society, but revolution. It is one thing that you believe this, a form of secular religious belief. The problem here is that you fail to recognize that this is simply a matter of faith on your part and that there is no particular reason for lots of people who would be disadvantaged to share your faith. Quite simply, you imagine that "Steve Jobs flourishing" is the epitome of a good society. I don't think so, nor do most people. That would indeed by very low on the list for anyone who is not a Randian. Give my any single reason why I should believe that the sole objective of government should be that business flourishes?

- roidubouloi

February 7, 2010 at 4:27pm

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Why should we not want a government whose objective is to see that working people flourish and that supports and encourages opportunity for business only to the extent that it serves that objective? Why are the minority of capital owners more important than the majority of workers?

- roidubouloi

February 7, 2010 at 4:29pm

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Roid, answer the questions. They will take 10 seconds to answer and will help me understand what you ultimately want. I've laid my answers out there. If you can't answer these simple questions, then you really aren't able to clearly articulate your position.

- SeattleEngineer

February 7, 2010 at 5:42pm

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Engineer, You miss the point. Government should be as small as possible. The question is funding. Workers pay taxes at twice the rate (counting social security and hospital insurance) of a capital gains investor who could make millions. We should collect taxes based upon ability to pay, which is justified by benefits obtained. If you don't raise revenue based on ability to pay, you will have many that owe and can't pay and many that can and don't have to. Consequently, more government manpower and fewer individual rights obtain as government audits, penalizes and levies to find funds. Courts comply because of the deficits. Is that the slippery slope what you want?

- Nusholtz

February 7, 2010 at 9:45pm

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Well, Seattle, leaving on a trip tomorrow and it has been a busy day. I needed to look some things up. It seems that these days the top 10% has 50% of national income. I would give them 90% of the tax burden. With government normally about 20% of the economy, that is 18% out of 50%, an average rate of 36%. I would give 10% of the burden to the bottom 90% which would give them an average rate of 4%. What is interesting about this is that the 36% if below the marginal rate for upper earners, which should give you an idea of how much income manages to avoid taxes altogether. I have no idea what the minimum size of government is. I regard it as a meaningless question. The proper question is what tasks should be taken on by government. Similarly with regard to how much of the economy should be public. It depends what the tasks are, and what you mean by public. Some things are financed by government and it is a transfer payment. Other things are done by government directly. You seem to have the same idea as another poster that private industry generates output and the government consumes it. That is not the case. Both generate output and assigning a task to the public sector or the private sector has to do with efficiency and equity.

- roidubouloi

February 7, 2010 at 11:50pm

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I think that the bottom cuts off at $75,000. I would be very happy to see workers with up to $75,000 of income keep most of it.

- roidubouloi

February 7, 2010 at 11:52pm

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Nusholts, the money that went in to earn the capital gains has already been taxed. If I earn $10K from my employer, then I pay $3K in taxes and keep $7K. And then one year I put that $7K in the stock market and lose $3K. I get a very, very small writeoff. The government shared no risk with me. And then the next year I put another $7K in the stock market and earn $3K. And then I pay 0.15 or $450 on that $3K. The government takes a healthy slice of the upset. That's actually pretty fair to me. I could keep the money in a bank, where it benefits nobody except the bank. Or I could make it available as capital on the open market, and take a chance at losing it or improving it. If you set cap gains low, then you encourage that type of investing. If you set it high, then it just sits in the bank. If you just want to whack the ultra wealthy, then go after a consumption tax. A high income tax just doesn't hurt the wealthy because most of them have no income. Neither, really do capital gains. They already have their pile of money. A consumption tax hits them every time they spend.

- SeattleEngineer

February 8, 2010 at 1:52am

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A "progressive" consumption tax is an excellent idea, Seattle. Consumption is the difference between total cash in, including from borrowed money, and cash invested or reinvested. It would actually be relatively easy to administer, although for the lower-end we we need to adjust for major capital purchases and amortize the consumption into taxable consumption. However, it is not really the case that the wealthy don't have income; they don't have a lot of taxable income because the tax code is riddled with exceptions that have the purpose and effect of reducing the effective tax rate on the wealthy. Our tax system is actually regressive with the very surface appearance of being progressive. That is the major reason why it is so politically difficult to balance the budget. Working people are already heavily taxed and the wealthy own our elected officials and fight like hell against the surrender of rules that give them only a modest effective tax rate.

- roidubouloi

February 8, 2010 at 8:20am

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Engineer, Losses may be limited to 3K a year but they carryforward. Even so, there is great disparity in how the government is funded when people unable to pay, owe, and people able to pay, do not. I want the tax laws neutral on everything except collecting revenue with the least pain. Everytime we lard up the tax laws with social or business purposes, it adds another layer of enforcment, less freedom, and higher rates for someone else. Why should the tax code have anything to do with altering the business world? Why should a coalminer who dies of lung disease pay higher taxes than someone who invested in the stock market? Is the coalminer's contribution to the economy worthless?

- Nusholtz

February 8, 2010 at 11:37am

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Roid, someone earning $75K today is at about the 70th percentile in this country. So, 30% of the country make more than they do. The bottom 75% carry about 7% of the individual (non-corp) tax burden. The upper 10% carry about 73% of the individual tax burden. So, if the top 10% were adjusted upwards of 15% to carry 90% of the tax burden you'd be happy???? You have nowhere near the amount required for healthcare with this relatively small adjustment. This means someone at the bottom of the top 10% would be earning $339 (before taxes) and they'd pay $105K in taxes. Today they pay about $90K in taxes. Are you sure this is what would make you happy? A small adder to the status quo? PS. Data from Table 1A, 1B and 1C from IRS tax tables.

- SeattleEngineer

February 8, 2010 at 10:30pm

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Nusholtz, of course a coalminers contribution is not worthless. But you must also agree it's not as valuable as Steve Jobs.

- SeattleEngineer

February 8, 2010 at 10:39pm

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Seattle, you are considering only the income tax burden and ignoring the payroll tax burden. What is singular about payroll taxes is that they do not fund benefits for current earners. You cannot therefore compare the financing for social security and medicare to what can and should be done for universal healthcare. Through a broad swath of the middle, government financed healthcare would be substituting for currently privately financed healthcare. Therefore, the total subsidy-transfer need not be that large, whereas for social security and medicare the subsidy-transfer is near 100%. Per capita healthcare expense is about $8,500. The subsidies for even 30 million uninsured should be on the order of $150 billion, and with real cost controls not more than $100 billion. That represents 0.67% of national income. It would not offend me if this tax were imposed as a flat tax across the board assuming the rest of the system, including FICA and Medicare, were distributed 90/10 between the top half and the bottom half because everyone would be receiving a current benefit healtcare benefit (and if we stopped subsidizing Medicare for those who can well afford it by folding it into a universal tax-financed system, the additional cost might be near zero). Someone earning $20,000 per year would be paying $800 for income tax and another $150 for comprehensive healthcare. That's a total tax of less $1,000. Today, the payroll taxes alone are costing them about $2,400 and they don't have healthcare. So yes, that would make me happy. Like I said above, the only reason it seems that we cannot afford anything is that our tax system is regressive and a great deal of the economic income of the upper half escapes tazation.

- roidubouloi

February 9, 2010 at 12:49am

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Roid, this does include payroll taxes. The CBO note at the bottom says "Individual income taxes are distributed directly to households paying those taxes. Social insurance, or payroll, taxes are distributed to households paying those taxes directly or paying them indirectly", which means they count what you pay AND what your employer pays for you. You can also see this by looking at the effective tax rate paid by by fourth quintile (60-80%, or average for that quintile, which we might call 70%...meaning 30% of the country earned more), and it's 17.4%. This is comprised of 6% income tax, 9.7% social security tax. Are you surprised that someone earning about $75K is only paying 6% income tax? So, effectively, we almost have the tax system you have proposed, right? And we are nowhere even close to getting everything you want in terms of social benefits. Even if you sock it to the top 10% way beyond what you wanted, there's not enough there. Plus our top 10% are already the most heavily taxed in the world (even more than Sweden, UK, France) and you are proposing another 15%...or probably another 30% once you realize we can't afford any more social programs, and our current social programs are all going broke. Now do you see why the EU taxes the living crap out of the middle class and working poor? It's the only way to pay for these programs. This is the pickle Obama is in. He got you all lathered up during the election because he either didn't know or didn't care about the real numbers. HE IS HITTING THE REALITY WALL RIGHT NOW. He's got all the votes he needs if the numbers make sense. If he could raise taxes on the top 10% by 25% and get everything for the entire country, don't you think he would? But the numbers don't work out. So it's the "blame the republicans" mantra. Here's a bunch of CBO info for you to study. The tables I cited were from 2005 data. http://www.cbo.gov/ftpdocs/53xx/doc5324/04-02-TaxRates.htm

- SeattleEngineer

February 9, 2010 at 2:12am

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Engineer, Jobs? Jobs are important. That's what I have been trying to say. Our tax code is tilted in favor of lower rates for capital gains, dividends and higher incomes and against lower income jobs. Double the tax rate for the worker. That makes jobs more expensive. Stock market goes up -- jobless recovery? Why not? It's right in the code!

- Nusholtz

February 9, 2010 at 6:58am

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Nusholts, again, the purpose is to encourage people to make their capital available for others to use. if you set cap gains to zero, you are encouraging more speculation and risk taking. If you set cap gains at 60% (the rate the wealthiest pay today on a next dollar when state and local taxes are factored in), then it's much, much safer to just sit on the money and earn a few % in interesting. Obama understands this, and that's why his proposed increase is very, very small over Bush. Of course, if you increase cap gains by 5%, then the stock market will go down by about 5%. And if you increase cap gains by 20%, then the stock market will go down by 20%.... He knows he has to be very careful.

- SeattleEngineer

February 9, 2010 at 11:14am

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And Nuts, if you want to see jobs get created, then you are going to have to drop taxes on the wealthiest because they are the jobs creators. You are going to have to throttle back on health care benefits, because nobody will hire in the current climate due to uncertainty over what that extra person will mean in terms of benefits cost to their payroll. And cap and trade, etc, etc. Obama has created much uncertainty for small businesses, and everyone's response amidst uncertainty is to maintain the status quo. This is why Obama is so hosed right now. If he does what is needed to create jobs, he'll simply appear as pandering to the wealthy. If the keeps sticking it to the wealthy and scaring everyone with regulations, the jobs will come very, very slowly. Trickle down economics would be nice right about now, wouldn't it? The bottoms up stuff certainly isn't working.

- SeattleEngineer

February 9, 2010 at 11:19am

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Engineer, Clinton raised taxes on the wealthy, we were fine. Bush lowered taxes on the wealthy, we went into shock. The laffer curve, or backward bending supply curve of labor explains this. At the top end, the more you pay people the more they go on vacation. At the bottom end, the more you pay people the more they work. Productivity comes from higher taxes on the wealthy lower taxes on the worker. Bush proved that lowering taxes on the wealthy did not help.

- Nusholtz

February 9, 2010 at 3:10pm

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Clinton and the republican congress' economy took off in 1995 after NAFTA, welfare reform, Greenspan's appointment, and record declines to government spending. Which of those did you like the most? I'd guess none of them. I see. The wealthiest 10% paid effective tax rates of: 1992: 25.6% 1993: 26.8 1994: 27.4 1995: 27.8 1996: 28.0 1997: 28.0 1998: 27.6 1999: 28.0 2000: 28.0 2001: 26.7 2002: 26.0 2003: 25.0 2004: 25.2 2005: 25.5 Are you kidding me? You are claiming Clinton raising taxes by 2 to 2.5% on the wealthiest 10% was a tax hike? When the wealthiest 10% were enjoying the largest run up on the stock market they'd ever experienced? You are right, the rich didn't mind the Clinton tax hike at all. Because it wasn't a tax hike. It was the slightest of tweaks. If that's all President Obama is talking about, then count me in.

- SeattleEngineer

February 9, 2010 at 9:47pm

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Seattle, you need to do a little more work. Don't you run a business? FICA and Medicare come to 15.3%, nominally divided half to the employee and half to the employer. Without deductions or dependents, a single filer earning $75,000 has a Federal tax liability of $12,200 (right off of the IRS tax calculator). If we gross up the $75,000 for the employer half of payroll taxes, you get $80,738 and a total tax bill of $23,675, or a bit more than 29%. It is well understood, however, that for the lower half of earners, payroll taxes are more significant than income taxes. So, of course I am not surprised at that. The total Federal budget, including social security and Medicare, is about 20% of the economy. If, as is now the case, the top 10% earns 50% of national income, there is more than enough there to pay for the entire Federal budget. The top 10% would then have 3/8 of after-tax national income, the bottom 90%, 5/8. Per capita, the upper half would still have 4.32 times the after tax income of the bottom half. So, don't delude yourself that there is "not enough there." There is plenty of income to tax in just the top 10%. The claim otherwise is a standard Republican trope and it is total bs. The fact is that a wage earner at the very bottom of the scale, with a 14.2% effective tax bill for payroll taxes alone (after grossing up for employer's share of payroll taxes), is already very close to the national average of 20%. From IRS tables on tax shares, the bottom have has an average income tax rate of about 3%. Together, you are really close to 20%, which means that Federal taxes are at very nearly a flat rate, with 17% paid by the bottom half of earners and hence 23% paid by the top half. The reason, as I suggested, is that only about half of net national income finds its way into taxable income. Your notion that the elasticity of demand for investment is 1, so that prices of investment assets change so as exactly to offset any change in the tax on investment income is wrong. Just flat-out wrong. And that 60% figure that you claim for marginal capital gains rates for the wealthy is worse. It is simply nonsense. Pure fiction. The lower the market yield on investment, the higher the amount of investment as more investments can then earn the market return. That ought to surprise you even more than the fact that many people of modest means pay more in payroll taxes than in income taxes. Bush's tax cuts did not induce additional investment, they just bid up asset prices -- too much money chasing too few assets. Trickle-down economics is ridiculous. Bottom up is what actually works because it increases demand and hence employment. The rich do not invest more because you give them more money. Investment is driven by consumption because ultimately the purpose of investment is to produce goods for consumption. A good chunk of the stimulus bill last year was wasted on trickle-down tax cuts at the insistence of the Republicans. There is no bottom-up government policy to speak of, other than massive unemployment. That makes it rather difficult to claim that "bottom-up" isn't working Seattle, you are getting your economics from Ayn Rand and The Wall Street Journal, plus a large dose of Republican propaganda and supply-side hooey. It is all wrong.

- roidubouloi

February 9, 2010 at 10:16pm

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I don't know where your numbers come from, Seattle, but the IRS publishes very nice tables of taxes and tax shares. In 2006, apparently the last year published so far, the top 10% had an average nominal income tax rate of 19%. There was about $8.1 trillion of adjusted gross income reported on tax returns, which was about 70% of net national income. 53% of that was reported by the bottom 90%. You can be pretty sure that wage earners didn't get to exclude the difference between national income and adjusted gross income which means the effective average rate for the wealthy was more like 11%. Add back corporate taxes as effectively a tax on the wealthy and you get back up to about 18%. The reported average rate for the bottom 90% was about 7%, which means more than 20% when added to payroll taxes. Like I said, real Federal tax rates are essentially flat when you include both income and payroll taxes. That is a wealthy taxpayers dream. Even better, with all the complaining, they have managed to convince a lot of people, such as you, that their rates are very high. Not so.

- roidubouloi

February 9, 2010 at 10:31pm

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Engineer, I'm not sure where you get your information from but the second column below is the spending by year from the GPO at http://www.gpoaccess.gov/eop/2009/B78.xls. Spending under Clinton went up. So, that shoots your theory. Now what? ...........Receipts Expenditures 1989. 991.2 1,143.8 1990. 1,032.1 1,253.1 1991. 1,055.1 1,324.3 1992. 1,091.3 1,381.6 1993. 1,154.5 1,409.5 1994. 1,258.7 1,461.9 1995. 1,351.9 1,515.9 1996. 1,453.2 1,560.6 1997. 1,579.4 1,601.3 1998. 1,722.0 1,652.7 1999. 1,827.6 1,702.0 2000. 2,025.5 1,789.2

- Nusholtz

February 9, 2010 at 10:54pm

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Nuts, the spending as a % of GDP went DOWN. Under Bush 43 it was going up, and under Obama it is skyrocketing. That fiscal responsibility demonstrated in the 90's was a huge factor in the private sector kicking ass.

- SeattleEngineer

February 10, 2010 at 12:08am

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Roid, I'll take it that since you are refining and increasing your belief in what the rich should be paying that you really had no clue how much they were actually paying and that you are a bit shocked at how much they were actually paying. That's a good thing. Your assumptions are all well and good, but if you look at the CBO tables I provided, you'll see on average that someone earning (4th quintile) $85.2K has $70.3K after all taxes. That's a 17.4% tax rate. Income tax is 6% and SS is 9.7%. And someone earning $58.5K (middle quintile) has $50.2K after taxes. That's a 14.2% effective tax rate. Income tax is 3%, SS tax is 9.5%. Send me the link to the IRS site you are referencing and I'll help you sort through it. As I noted, I linked to CBO data. Can't get much better than that. Here's the link again: http://www.cbo.gov/ftpdocs/53xx/doc5324/04-02-TaxRates.htm Tell me again why a middle class earner in the UK or Sweden should pay almost 40% of their income for all their social programs, but the middle class earner in the US should pay almost nothing for our social programs??? It's odd you want higher-than-EU taxes on our wealthy, and much lower-than-EU taxes on our middle class.

- SeattleEngineer

February 10, 2010 at 12:44am

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Another thought, Roid....The middle class in the US has a disproportionate chunk of the world's wealth. The middle class in the US are in the top few % of the wealthy world wide. The poor in the US have cellphones, cable TV, two cars, often own a home, etc and they too, are in the top 5% of the worlds wealthy. Do you want to tax the middle class and poor in the US at extraordinary rates to help the farmer living in Africa that gets by on $6000 per year? If yes, at least you are consistent. If no, why not?

- SeattleEngineer

February 10, 2010 at 1:14am

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Seattle, am I not writing in English? If anything, I am surprised at how LITTLE the rich are paying. I actually assumed that there was some slight progressiveness to the tax system and am mildly, but only mildly, surprised that there is none. The effective tax rate at both the top and the bottom is about 20%, the government income share. There is, however, a bulge in tax rates in the middle for those whose payroll taxes are still a significant percentage of income (not the case for the rich) but who also pay significant income taxes. In other words, the wealthy in America are really sticking it to the middle class. And, yes, I did know that already. You didn't and apparently still don't. Lets recall how we got here. I noted, correctly, that in the US the top 10% now earn about 50% of total income, leaving 50% to the bottom 90%. You were so convinced that one can simply pull tax rates out of your ass -- as you seem to -- -- that you were impatient that I even bothered to look up that bit of data before answering your question. (I hope you don't behave this way in your profession, making up numbers, and I assume that you don't or your engineering work woult have had some pretty spectacular failures by now.) On that basis, I answered your question by saying that, in my opinion, 90% of the Federal tax burden should be allocated to the top 10% and 10% to the bottom 90%. You then attempted to convince all of us that the wealthy are already paying something approximating that, but you are wrong because payroll taxes represent about 1/3 of the combined income tax and payroll tax burden and payroll taxes are overwhelmingly paid by wage earners. Then you cite to a CBO table that quite clearly excludes the employer share of payroll taxes. This is a purely political choice by whomever built that table as it has no economic reality. The difference between what the employer pays and what the employee receives when the government is done is the employee's tax burden. There is no other way to look at it (and labor economists do look at it this way). Also, the CBO tables is working off of adjusted gross income, a construct of the tax laws that ends up excluding about $3 trillion of net national product. Since most wage earners have only their wages as income, it is a pretty safe guess that the $3 trillion of national income not picked up by the tax system is not going into the pockets of wage-earners. Maybe you are the sort of engineer who uses the same snow-load figures in Minneapolis and Tampa, but you really have to learn how to use economic data before you start making claims. I have no idea how those CBO tables were constructed, but they are at the minimum misleading, or perhaps had another purpose than the one to which you are attempting to put them. What you call my "assumptions" come from the IRS and is primary data, unlike whatever has been done to generate the CBO tables. There is no economic basis for excluding the employer's share of payroll taxes as the distinction between the employer share and the employee share is purely nominal. Sure, if you pretend that that employers and the labor market don't notice the total cost of employment includes both parts of the payroll tax, you get a lower rate. But that is simply a con game, one you of course approve of. It is about like saying that sales taxes are not paid by the people buying goods because they are remitted by the seller. You don't believe that, do you? If you want to try and learn something for a change instead of repeating ad nauseum the nonsense you crib from rightwing rags, go here: http://www.irs.gov/taxstats/indtaxstats/article/0,,id=129270,00.html After you have sorted yourself out, get back to me. As far as comparison to Sweden is concerned, the income distribution there is much, much more level than in the United States. You seem to think that tax rates should be constructed in perfect ignorance of income distribution. I think that is nonsense. The US has among the largest, if not the largest, income disparities in the industrial world. Our tax system should reflect that. US capitalists earn their income from US labor and a system of market support and regulation that are the creation of government in the United States, from roads to education. It therefore makes sense to consider the economic outcome within the US when deciding what would constitute an equitable distribution of the tax burden. You continue, mindlessly, in the same vein of assuming that the distribution of adjusted gross income in the US is divinely given and that any departure from it is therefore redistribution that would be indistinguishable from sending US output to Africa. Whatever the merits of sending aid to Africa might be, the two have virtually nothing to do with each other. The distribution of income in the US is the result of the US system and US labor and it is perfectly sensible for us to consider what we want the final income distribution to be and to shape our laws and tax laws accordingly. All of you Ayn Rand types believe that there exists some unique "moral" distribution of income that we cannot morally depart from. That is a political fiction created to support a particular political-economic outcome. Only a fool (or someone who stands to benefit) takes that notion seriously.

- roidubouloi

February 10, 2010 at 9:55pm

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Thanks for the tax link. I'll study later tonight and report back. Wealth Share of the Top 10% Denmark: 75% Switzerland: 71% US: 70% France: 61% Sweden 58% UK: 55% Norway: 51% Are you surprised the top 10% own more than half the wealth in these countries? 2% of the billionaires in the US live outside the US. 33% of swedish billionaires live outside sweden. Why? If you add those billionaires back in the figures above, then the top 10% of Swedes hold 75% of the countries wealth. See "Narcissism..." page 189. Your assertion that the income distribution in Sweden is much more level is wrong. In fact, it's even more stilted than the US. But nice try.

- SeattleEngineer

February 10, 2010 at 10:35pm

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Let me save you some headscratching, Seattle. The tables you want off of the IRS website are Tables 1 and 5. Among other things, this will confirm that the bottom half has about 10% of aggregate AGI. You will also learn that aggregate AGI is about $8 trillion. A little research and you should be able to confirm that net domestic product (gross domestic product less depreciation) is about $11 trillion in the same period. Where did $3 trillion go? Just not included in taxable income. You will also see that average tax rates are pretty flat. The top 1% has only a 23% average rate. But once you start factoring in the "missing" domestic product, the rates for the wealthy get quite low. The top 50% pays taxes of $993 (biilions) on AGI of $7,105. That leaves the bottom half with 68 of income tax on 736 of AGI, an average rate of 9.2%. Knock that down to 8.5% when you gross income up for the employer share of payroll taxes. Add that to the 14.2% effective payroll tax rate and you have an average rate of approximately 23% for the bottom half -- the same as the average rate for the wealthy. But when you take into account that the effective rate on the other $3 trillion of upper-class income is about 12%, the wealthy have an effective average rate that is clearly lower than that of the bottom half -- Warren Buffet's point about his taxes compared to those of his secretary.. You do the math, Seattle, and tell me you are not surprised when you are done.

- roidubouloi

February 10, 2010 at 10:40pm

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Geez, Seattle, where do you get all that crappy statistical information? Does it come straight out of the right-wing screeds that are trying to prove the earth is flat? As for family income dispersion, see this: http://upload.wikimedia.org/wikipedia/commons/3/34/Gini_Coefficient_World_CIA_Report_2009.png The US has the highest income dispersion in the industrialized world; Sweden and Denmark the lowest. Do yourself a favor and do a little research once in a while instead of just reading ideological garbage.

- roidubouloi

February 10, 2010 at 11:04pm

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The Wiki article you linked to Roid cites similar data that I cited: "Gini coefficients do include investment income; however, the Gini coefficient based on net income does not accurately reflect differences in wealth - a possible source of misinterpretation. For example, Sweden has a low Gini coefficient for income distribution but a significantly higher Gini coefficient for wealth (still low by international standards, but significantly higher than for income: for instance 77% of the share value owned by households is held by just 5% of Swedish shareholding households )[14]. In other words, the Gini income coefficient should not be interpreted as measuring effective egalitarianism." See that? In Sweden 5% of the population owns 77% of the wealth? http://en.wikipedia.org/wiki/Gini_coefficient Note Wiki cites a Swedish Government study for that fact. BTW, the study I cited is here: http://www.iariw.org/papers/2006/davies.pdf I'll let you decide how ideologically driven the authors are. Can you just agree that in Sweden the top 10% own more than they do in the US?

- SeattleEngineer

February 11, 2010 at 1:07am

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So, as I look at your tables (Table 5...06in05.xls) I don't see a discrepancy with what I was saying. I said: The top 10% carry 73% of the federal individual tax burden. Line 182 of your table says 71%. I was right You said you wanted the top 10% to carry 90% of the burden. I said that means the top 10% only need to pay 25% more in taxes to meet that. That is correct based even on your numbers. I said that even if the top 10% paid 25% more, we'd still not be able to guarantee the solvency of current social programs, let alone add many new ones. I think that is still true. I said the top 10% in Sweden own almost as much as they do here. I was wrong, they own a fair bit more than the top 10% do here. According to the Swedish government, anyway.

- SeattleEngineer

February 11, 2010 at 1:40am

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BTW, regarding tax rates, I don't think there's much discrepancy there either. Your table flags the top 10% at 19% tax rate (line 138), and the CBO data I cited 27.4%, and they broke that down into individual (16%), SS (4.8%), corp (6.1%), excise (0.4). So, your numbers are 19%, my numbers are 16+6.1% = 22.1 (since corp are reported on individual returns) which are close.

- SeattleEngineer

February 11, 2010 at 1:50am

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Engineer, I missed this jump page. So, your statement that spending went down has to be modified that it didn't go down but GDP went up? Clinton raised taxes and GDP went up? Bush lowered taxes and spending as a percentage of GDP went down? Again, that proves my point. Raising taxes makes the wealthy work on the top end of the backward bending supply curve and it is justified by the benefits they reap from the economy. Sounds like we agree that taxes are too low on the high end.

- Nusholtz

February 11, 2010 at 7:04am

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Nuts, my statement was "Clinton and the republican congress' economy took off in 1995 after NAFTA, welfare reform, Greenspan's appointment, and record declines to government spending." It doesn't need to be modified at all. I think the Clinton's themselves would claim large declines in spending under Bill Clinton. In fact, I've heard Clinton say it. And he's right. You have yet to provide a link to any credible source that shows these benefits the wealthy get from society. Steve Jobs could be building the iphone with a team of engineers located in Viet Nam and nobody living the US. Again, the wealthy need a very small framework to succeed. Where's a pdf from a economist supporting your view??? PS. We can say you have enjoyed a disproportionate amount of benefit from civilization. You make more than 97% of the people in the world. How about a 75% tax on your earnings so that we can give them to a farmer in Africa. Is that OK?

- SeattleEngineer

February 11, 2010 at 11:24am

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Seattle, I said, "As far as comparison to Sweden is concerned, the income distribution there is much, much more level than in the United States." You insisted that I was incorrect, stating, "Your assertion that the income distribution in Sweden is much more level is wrong. In fact, it's even more stilted than the US. But nice try." In fact, as you now see, Sweden has the lowest income dispersion in the industrialized world and the US the highest. Shouldn't you apologize instead of insisting that you were right all along? Wealth in Sweden is more concentrated than income, although, at least according to wiki, still a relatively low concentration within the industrialized world. I will find the gini index for wealth distribution if I can. However, that is largely beside the point as we are not talking about a wealth tax but about an income tax and how to distribute the income tax burden equitably. For that purpose, income dispersion is far more relevant than wealth concentration. If one compared the after-tax income distribution in Sweden to that in the US, I am confident that the US would still be considerable more skewed. On taxes, you continue to aggregate payroll taxes and income taxes incorrectly. It is fine to cite a number in a table, but you have to understand what the number means. I know you are not going to sort this out yourself, so I will do it for you. But later. I have to do some homework about dynamic optimization in economic modeling.

- roidubouloi

February 11, 2010 at 12:49pm

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Seattle, First you say that spending went down, then you say, it didn't but GDP went up, then retract and say it went down. Now you want me to produce a study that says that a citizen who profits from doing business in the United States benefits from doing business in the United States in an amount relative to the amount of his profit. Well, the Institute for Studies of the Obvious has what you seek; otherwise, I can't find anyone who spent time studying that proposition.

- Nusholtz

February 11, 2010 at 5:43pm

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Nuts, when talking about past budgets its always almost always as a function of GDP. Otherwise it's too hard to compare the numbers. This must be new to you. My original statement implied % of GDP. My second statement clarified that. I've not changed. The study I want you to produce is the one that explains why the wealthy benefit more from government that poor people. You keep asserting it. Show me the data that shows a guy in the top 10% gets more than a dollar back when he pays a dollar in taxes.

- SeattleEngineer

February 11, 2010 at 9:25pm

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Engineer, First, the GPO expresses receipts and expenditures in constant dollars and not as a function of GDP. Second, it makes no sense to say someone cut spending when spending actually increased. Third, Government expenditures haven't fallen because national income has risen. You don't need a study to understand that wealthy benefit more from government. Wealthy benefit more from government than poor people because of the role government plays in the economy and when the economy collapses, in raw figures, it hurts the wealthy more than it hurts the poor. Show me a study that disputes that.

- Nusholtz

February 11, 2010 at 11:07pm

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Nuts, here's someone on the huffpost saying the same thing I'm saying: http://www.huffingtonpost.com/david-paul/some-facts-about-spending_b_132135.html You can see it in a nice picture. Historic budgets are commonly referred to as a % of GDP. That's the way it's done. His entire article is about the budget as a percentage of GDP. Here's a RCP post talking of budget in terms of GDP. http://www.realclearpolitics.com/articles/2010/02/03/obamas_deficits_arent_bushs_fault_100150.html Are you really asserting you've not seen the government expressed as a function of GDP? Ever?

- SeattleEngineer

February 11, 2010 at 11:52pm

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Well, sure, let’s take a moment to concede each other’s point: I’ll concede the income distribution in the US is much more stilted than Sweden. You must concede that the top 10% in Sweden have much more wealth than any other OECD country. And as wiki notes, a GINI income coefficient shouldn’t be used to determine egalitarianism. I mean, if everyone’s a zillionaire except me, who cares if I make as much as everyone else. So let’s reflect where we are: 1) The top 10% in the US pay almost 75% of the individual tax burden in the US. This is higher than any other OECD member country. 2) The bottom 50% pay just 3% of the individual tax burden in the US. This is substantially lower than any other OECD member country. 3) Sweden’s has a wealth concentration much higher than that of the US among the top 10% or 5%. 4) Sweden has a lower GINI Income coefficient than the US (US is 0.37, UK 0.34, Sweden 0.24) 5) Sweden has a higher GINI Index for household net worth than the US (Sweden is 89, US is 81) 6) Raising taxes on the top 10% in this country to the 90% mark would not make our current social programs solvent. Agree? Anything to add?

- SeattleEngineer

February 12, 2010 at 12:01am

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1. Untrue. You persist in excluding the payroll tax burden. Payroll taxes in the aggregate are 50% of income taxes and are paid almost entirely by wage-earners in the bottom half. This means that if wage-earners paid no income tax, the highes that the tax burden on the wealthy could be would be about 67%. But wage-earners do pay income taxes on top of payroll taxes. 2. This is meaningless because it is out of context. The top 50% in the US pays 97% of income taxes but has 87% of the AGI. And AGI does not even count all income. The proper comparison amongs countries is dispersion of disposable income. 3. Largely irrelevant even if true as "wealth" in Sweden does not correlate very well with income. If you capitalized the value of earnings power, then Sweden, with a much lower dispersion of earnings, would show a much lower dispersion of wealth. 5. Not so. The Luxembourg Wealth Study, the most definitive account, pegs the GINI index for household net worth at 77 for the US, 61 for Sweden, 73 Germany, 67 Canada, 60 Italy. 6. Meaningless since we are discussing the distribution of the existing tax burden, not the fact that we are running deficits and have to raise taxes to end structural deficits (cyclical deficits being a different matter). There is more than enough output in the US to pay for social security and Medicare/Medicaid and the Federal operating budget, but since we allow the wealthy to escape most taxation (they have low average rates), the whole government is becoming insolvent. Face it, seattle, the poor don't have much, the middle class is much more heavily taxed than the rich, and the rich are taking everyone for a ride. Our system is regressive when you count all of the taxes. It gets even worse when you include state taxes that rely heavily on sales taxes, a very regressive tax. As for international comparisons, the only one that really makes sense is the distribution of after-tax (disposable) income. Given the dispersion of income in the US and the lack or progressivity of the tax structure, I can assure you that the US is off the charts amongst industrialized nations.

- roidubouloi

February 12, 2010 at 3:50am

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Seattle, Clinton raised taxes and we were fine. You said it was because Clinton had cut spending. You meant to say that after Clinton raised taxes, GNP went up. I responded that that is consistent with the backward bending supply curve of labor. Then you said that spending went down because everybody always talks in terms of GNP. Fine. GNP. Still, higher taxes were still not a problem. Bush lowered them. We had deficits, huge national debt and a recession. It still takes more government power to collect revenue from people who don't have it and the wealthy, who benefit more from government efforts to improve our economy, should contribute relative to their benefits.

- Nusholtz

February 12, 2010 at 9:14am

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I call them "flat-earthers" Nusholtz because their arguments about taxation are as incorrect, as detached from reality, and as impervious to facts as those who believed -- because they believed it -- that they earth was flat. We have back to back examples as you have pointed out - Clinton raised taxes, we went into surplus, we had an economic boom. Bush cut taxes, with an overwhelming tilt to the wealthy, and we ended up with an epic bust. Yet, they will still insist that what we need are more tax cuts and will be ruined by high-end tax increases. At the very least, you would think they would concede that the impact of tax increases or decreases may depend on such things as the business cycle, the trade deficit, and the progressivity or regressivity. But no, no matter what the problem, including no doubt childhood diabetes, the answer is always tax cuts for the wealthy. Like Seattle here, they not only have the tax-cut blind faith, they refuse to notice how taxes are actually distributed in the US, insisting in the face of all the evidence that the wealthy here are heavily burdened by taxes.

- roidubouloi

February 12, 2010 at 10:14am

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Roid, I just think that reckless taxation ruins everything. Beliefs like deficits don't matter and we can cut tax rates and the budget will balance will result in the IRS, the justice department and the courts picking up the slack. Two years after the Reagan tax cuts, the Supreme Court in 1983 took away the Texas homestead right of a widow to stay in her home so they could sell it to pay taxes. 10 months after the Bush tax cuts, (2002) the Supreme Court reversed a long standing rule and took away the right of Michigan women to stay in their homes despite their husband's federal tax debt so the home could be sold to pay taxes. In 1980 Congress investigated the IRS because they increased seizures of taxpayer property by 325% in Detroit and were having competitions to see who could seize the most property in St. Louis. Almost every year the Chief Justice asks for pay increases for judges. How do we expect them to rule in tax cases with a huge national debt and no pay increase in sight? You don't have to be prescient to realize that someone will eventually decide that the answer is a larger IRS and we need to diminish our rights because we are in such a huge hole that the future of the country depends on some necessary evil. I try to point out that even though the low tax people think that low taxes mean weaker government, that's not what's going to happen. That's what I'm talking about.

- Nusholtz

February 13, 2010 at 5:06am

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All very good points, nusholtz. But I think that the high income people who want to get rid of taxes assume that the government will be weaker for them and don't really care much about what happens to everyone else. They want exactly as much taxation as needed to pay for the services they want -- to which they feel entitled as a matter of divine right, be it police, defense, or courts to resolve their commercial disputes -- and not a penny more. Everyone else is expected to labor in their interest and sleep under a bridge. It is astonishing to me in a way that this royalist/plutocratic mentality can persist so unashamedly into the 21st century. What is even more amazing is that these same people manage to gather a following, particularly amongst the lower middle class that they are screwing, by inveighing against "elites." What are the plutocrats if not the "elite?" We have reached a sorry state in which you are part of a despicable elite if you have some education or know something and just one of the people if you are a multi-billionaire paying minimum wages and cheating on your taxes. I have said it here before and I think it worth repeating that we are living the decline of the Roman Empire. We certainly have the circus aspect down, both in the Congress and all day long on television. Our political system is moribund and we face growing competition in the world for everything. It is by no means inevitable that we will maintain our position in the world and right now I would bet heavily against it if one looks from 50 to 100 years out. The only instance I know of of an empire rousing itself from torpor and having a second go is 19th century Britain. By the time this nation wakes up to what the plutocrats have been doing to it, it will likely be too late.

- roidubouloi

February 13, 2010 at 12:31pm

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Roid, My position is that the wealthy must be convinced it is in their interest to fund the government. For example, they might think that they will be unaffected by tax liabilities, but under the laws I mentioned perviously, if you own property with someone else (e.g. a business partner or a relative) and that other person owes taxes, the government can "take" (i.e with just compensation) that property to pay those delinquent taxes. Does the economy do better when there are wide disparities in income? (Certainly not in my neighborhood.) We increase the chances of the new discoveries or cures by increasing the number of well educated individuals.

- Nusholtz

February 13, 2010 at 2:19pm

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