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Go Home Sympathy for the Level

POLITICS OCTOBER 27, 2010

Sympathy for the Level

BY JONATHAN CHAIT

View Jonathan Chait and TNR Executive Editor Richard Just as they chat about the Republican Party and tax cuts for the wealthy at The New Republic's Livestream channel.

Not long ago, House Minority Whip Eric Cantor, considered something of an “ideas man” among Republicans in Washington, was asked to sum up his party’s philosophy. Here is how Cantor boiled it down:

It’s about providing an even playing field for opportunity, not the government sitting here saying, “This person here’s too successful, this one’s not, I’m gonna take from this one and give to that one.” That’s the principle.

Note that Cantor did not  define his party’s philosophy as opposition to big government. He defined it as opposition to redistribution from rich to poor. In that sense, he was admirably straightforward in articulating the modern GOP’s flaccid commitment to shrinking government and its unshakeable commitment to opposing redistribution.

That principle lies at the heart of the next big legislative fight, over the extension of those parts of the Bush tax cuts that only benefit families earning more than $250,000 per year. In the Republican mind, President Obama’s opposition to those tax cuts is nothing more than a punitive measure against the rich. “The administration believes that we ought to pit one group of people—those who have less—against those who have more and vilify those who have been successful,” said Cantor. Since many people actually seem to believe that liberals favor higher tax rates on the rich primarily as a form of punishment, let me explain the actual rationale for progressive taxation.

Some liberals believe that income inequality is intrinsically problematic. Studies suggest that rising inequality tends to fuel financial crises—the middle class borrows beyond its means in a frantic race to keep pace with the rising living standards of the rich. Note that this argument says nothing about the rich being un-virtuous or deserving of punishment. It does, however, imply that, against a backdrop of rising inequality, reducing the income of the rich is useful, regardless of how you use the revenue.

And yet, you don’t need to argue for pulling down the rich in order to justify progressive taxation. The more durable rationale is utilitarian. It would be nice if nobody had to pay taxes. Given that we do, though, shifting a greater share of the burden onto the rich causes less hardship. (Raise Paris Hilton’s taxes by 1 percent and that’s one less vacation home for her grandchildren; raise her maid’s taxes by 1 percent, and her kids are sweltering because they can’t afford air-conditioning.) Now, at some point, you can pile the tax burden on the rich so high that you impair economic growth. But recent evidence suggests the Clinton-era tax rates proposed by Obama would have minimal economic impact.

The key thing about this rationale is that it’s premised on the government needing money to finance its programs. Unfortunately, the tax debate tends to treat the social justice question as entirely separate from the fiscal needs of the federal government. A recent Washington Post news story revealed this tic of conventional thought. “For months, President Obama has stressed the budgetary rewards of eliminating tax breaks for the wealthy,” reported the Post. “But many Democrats see a more fundamental reason to let the Bush-era tax cuts expire in January: narrowing the growing divide between the rich and everyone else.” These needn’t be separate issues.

The government does not have enough revenue to finance its spending. (And this would be true even if the Republicans’ proposed unspecified spending cuts were enacted in toto.) Raising taxes on income over $250,000 may cause some pain for the highest-earning 1 percent, but raising taxes on those earning less would cause even more pain. This logic, after all, was the original justification for progressive taxation.

Conservative rhetoric tends to treat the question of taxing the rich as unrelated to the demands of funding government. Republicans do this because polls show that the trade-offs required by lower taxes for the rich—higher taxes for the non-rich or reduced spending on government programs—are wildly unpopular. And so they proceed as if no trade-offs are required at all.

Presenting higher taxes for the rich as a punitive measure is a way of concealing such trade-offs. Republicans, the Post article noted, maintain “the correct response to income inequality is not more taxes on the wealthy but greater opportunity for those at the bottom of the income scale.” But of course the question isn’t whether to increase taxes on the rich or provide “opportunity”—generally unspecified—for the non-rich. It’s whether lower taxes for the rich are worth the cost of higher taxes or lower benefits for everyone else.

The moral principle expressed in opposition to progressive taxation by Cantor, and many other conservatives, holds that charging the rich higher rates is discriminatory. This would imply that, out of fairness, we must charge all taxpayers the same rate.

Well, it’s a principle. It does not, however, appear to be the Republicans’ principle. The most specific explication of the GOP governing agenda is the “Roadmap” authored by ranking Budget Committee member Paul Ryan. Few Republicans have openly endorsed the “Roadmap,” on account of its many unpopular provisions, but it is widely understood to represent the party’s policy beau idéal, with the only objections centering on political feasibility.

Ryan’s “Roadmap” would slash taxes on the rich and raise them on the poor and middle class. Under his plan, people in the middle of the income distribution would pay 18 percent of their income in federal taxes. Upper-middle-class taxpayers in the eightieth to ninety-fifth percentiles would pay 23 or 24 percent of their income in federal taxes. Above that level, tax rates would plummet, to the point where the richest 0.1 percent of taxpayers would pay an average federal rate of less than 11 percent.

Conservatives may object to a tax code that transfers resources from the rich to the middle class, but they thrill to the prospect of a tax code that does the opposite. The easiest way for them to escape the contradictions of their hypocrisy is to let them frame the issue as an isolated question of what tax rate the rich deserve to pay. They should instead have to answer: compared to what?

Jonathan Chait is a senior editor at The New Republic. This article ran in the November 11, 2010, issue of the magazine.

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55 comments

I don't accept a tax system based upon a moral or patriotic duty of the wealthy to pay more taxes or that large accumulations of wealth are an evil that needs to be addressed by our tax system. Instead, collection of revenue should require the least amount of government enforcement to fund the government. Lower tax rates on dividends and capital gains, for example, raises the tax rates on wages and business earnings. Leaving large accumulations of income untaxed requires more enforcement to collect from other sources. More enforcement, such as more audits, more penalties, more levies, more investigations, more litigation and more government power is an inevitable result of low rates.

- Nusholtz

October 26, 2010 at 8:47pm

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I don't disagree with Chait's point, but I do disagree with the premise: that upper income folks are being "punished" by our tax system; we already have essentially a flat tax system, but one highly regressive in the middle. At the bottom end of the income scale, the marginal federal tax rate is about 30%*; for the lower middle ($40,000 to $90,000), the marginal federal tax rate is about 40%; for the upper middle ($90,000 to $140,000), the marginal federal tax rate is a blended rate of about 43%; for the lower upper ($140,000 to $250,000), the marginal federal tax rate is 36%; and for the upper upper (above $250,000), the marginal federal tax rate is 38%**. Why are the marginal rates highest in the middle? For the same reason thieves rob banks: that's where the money is (i.e., the bulk of income is in the middle - because there are so many people in the middle). We may disagree about the fairness of a tax system that imposes higher marginal rates in the middle than it does at the top (and a marginal rate at the very top that is only slightly higher than the marginal rate at the very bottom), but one thing is clear: upper upper income folks are not being "punished". * This includes both the regular marginal income tax rate (15% at the bottom) and the flat payroll tax rate (about 14% on incomes up to about $108,000, and about 3% above that amount). Some folks argue that payroll taxes are not really taxes but "savings" to be returned upon retirement (social security benefits) or for health care (Medicare benefits). If that's true, why did the federal government spend over $2.5 trillion of collected payroll taxes over the past 25 years for everything but retirement and health care benefits. Also, some folks argue that employers (not employees) pay half of the payroll taxes. Most economists believe (including those at CBO) that employees actually bear most if not all of the employers' share of payroll taxes (in the form of reduced compensation and benefits). ** The marginal rate for income taxes is for regular income. As we know, capital gains and dividends are subject to a maximum income tax rate of 15% and are not subject to any payroll taxes, and upper income folks realize most of the capital gains and dividends. Hence, the upper income folks actually pay a much lower marginal federal tax rate than indicated above.

- rayward

October 27, 2010 at 8:11am

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I disagree with Chaitt's point. There's no hypocrisy here, or at least not where he thinks it is. The working poor pay proportionally more taxes, figuring in local and state, sales, and other payroll taxes (SSI, Medicare) than the middle classes, and are recipients of much less lavish benefits over their shorter lifespans. The middle class should pay more taxes because it receives the most benefits from the government. Means testing, raising retirement age, and more individual responsibility in health care is the way to go. At the top, I trust guys like Bill Gates and Warren Buffet to do a better job of distributing their wealth than would be obtained by sinking it into the swamps of the Potomac.

- Robert Powell

October 27, 2010 at 8:35am

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"At the top, I trust guys like Bill Gates and Warren Buffet to do a better job of distributing their wealth than would be obtained by sinking it into the swamps of the Potomac." Or maybe we could plant magic beans and steal gold from the giant.

- Fishpeddler

October 27, 2010 at 9:49am

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Where's the equal opportunity? I was born to a construction worker and his non-working wife. I swept floors in my polyester blazer and pants to get the same swanky, private-school education as my Brooks Brothers classmates. Every dollar I have earned is a result of my own W-2 efforts. My kids will benefit from the inheritance I will leave them. They'll be much better off than I was, or most of their classmates will be. Why did I have to start the race a mile behind the others? Why do my kids get to start the race a mile ahead?

- Mikelawyr22

October 27, 2010 at 9:53am

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Mr. Powell expresses well the attitude I know from my rich employers. It is an American viewpoint and religious based and extrememly local. "We give to all the local charities, that is our responsibility as Christians. These things are best done on a local basis. We send deserving children to college." Sounds good, but falls apart under analysis. The neighborhoods they live in are wealthy, the guy who stands in for the poorer-- is actually middle-class. It certainly helps the individuals, but is hardly doing anything about the wider problem. "Charity begins at home" is what I always here and "I'd rather help the kid who mows our lawn" than "sinking it into the swamps of the Potomac." Or, they argue that their state is very good about helping out the poor, but why should our money end up in "Alabama"? And besides "50% of them don't pay Federal taxes"--no trickle down after thirty years? Ryan's roadmap and Cantor's explanations are vile and besmirch the spirit of America.

- kras

October 27, 2010 at 9:59am

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Chait, you have a few duplicate paragraphs in the article. Looks like cut/paste error. At the end if the day, if the top 10% are earning 34% of the income, and paying 45% of the taxes, how is this not more than fair?

- seattleeng

October 27, 2010 at 10:38am

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Why does the top tax rate begin at 250K? If the purpose of raising taxes on the rich was to cause minimal economic hardship while providing the most money for the federal coffers, that figure should be more like 5M. Jonathan mentions that for Paris Hilton to pay 1% more in taxes one of her grandchildren would not get a summer home. By adding that 1% to every dollar over 5 million, the direct economic impact would be neglible. Ask those making 300K a year... Do they think twice about the cost of vacations? Yes Is college tuition a burden for them? Yes Do they fly first class? No Ask these same questions to someone making over 5 million and you will get the opposite response. Bottom line!! The 250K benchmark is outdated and too low. By raising it to 5 million you will not hurt the federal coffers and at the same time those caught at 250K mark will not be hurt that much.

- yehuda1984

October 27, 2010 at 10:52am

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"At the top, I trust guys like Bill Gates and Warren Buffet to do a better job of distributing their wealth than would be obtained by sinking it into the swamps of the Potomac." And yet both Gates and Buffet have repeatedly called on Congress to impose substantially higher taxes on the wealthiest Americans such as themselves. Ultimately, tax policy should be based on two considerations: Revenue efficiency and republican virtue. Nusholtz speaks well to the former, and on those grounds I'd personally prefer moving away from income taxation back to revenue tariffs and VAT (though I admit that's a wholly theoretical, pie-in-the-sky preference not much more connected with reality than rightwing gold-standard idiocy). As to the latter, one of the very few constants across the recorded history of human societies everywhere is that material wealth and political power cannot long be separated. When one comes to be concentrated in the hands of a group that lacks the other, a revolution in either social or political institutions must result. In cases of the concentration of wealth in the hands of a very few, either the wealthy minority seizes political power, or the poorer majority seizes wealth. In neither case can a republican form of government survive. Our system of self-government requires that wealth not be greatly concentrated into the hands of any elite few, and that such concentrations as do inevitably exist not be perpetuated hereditarily. Thus tax policy should be aimed at preventing the republic's descent into either aristocracy or Jacobinism.

- rhubarbs

October 27, 2010 at 11:05am

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Rhubarbs, you write as if there has been a dramatic shift in wealth. There has not. The modern middle class has posted big gains over the middle class of 10, 30 and even 50 years ago. The poor today live like the middle class of the 50's. Are you upset that the upper 5% has seen their wealth grow faster? Considering the top 5% probably created much of that wealth is that not to be expected? And considering that many of our chronic "bad choice makers" live in the bottom 50%, is that not to be expected? Bad choice #1--the one thing that will statistically commit you to a life of poverty unless you have a lot of education--is having a child out of wedlock.

- seattleeng

October 27, 2010 at 11:57am

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Seattle, given your concern about the bad choices that the bottom 50% make about out-of-wedlock births, I presume that you are a big advocate of legalized abortion, right?

- wildboy

October 27, 2010 at 12:46pm

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raywards analysis is correct. The wealthy are not being punished... and to those who more is given, more should be expoected (if you want an ethical argument). However, for some others who propagate conservatiove talikng points (Seatlle, powell): If you want an economic argument, increased taxes on the wealthiest (especially in a liquidity trap) do NOT hurt the economy. If you want other realities: Buffet, bankers and others of the weathiest class don't necessarily know better.. and Government can often do a better job of creasting useful jobs and spending money than the private sector.There's no stone tablets that say otherwise.

- drofnats1

October 27, 2010 at 1:29pm

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I have long wished for a tax bill which would separate for each taxpayer, the amount of his tax payment going to finance public goods and services from that which used for redistributive `equalization' purposes. (Of course Mr. Chait regards wealth redistribution as a `public good'. But that doesn't make it so.) Rich people don't really care about tax rates since they have so much money it doesn't matter; and poor people don't care, because they pay no taxes. The middle class is still where the money is. (thankfully). The real class war will be between the lower middle class and the upper middle class. Wait until we start talking about redistribuing income from those who make $150,000 a year to those who make $75,000 a year - and make no mistake, it WILL come to that if folks like Chait have their way.

- rvogel

October 27, 2010 at 1:34pm

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I disagree that Warren Buffet and Bill Gates do a better job of wealth redistribution (which isn't to say that they don't do good work), because there is a difference between individual assistance (philantropy) and nationwide social improvement which requires a certain amount of political authority. Only governments can commission infrastructural building. The big problem we have now is that, in the case of national transport infrastructure, private wealth can't, and public authority won't, address the challenge of longer-term needs. Shifting more wealth from the middle class to the rich will not take care of repairing and refurbishing what all Americans use.

- ironyroad

October 27, 2010 at 1:42pm

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Here's a table of international tax rates from 2005 on average households. http://en.wikipedia.org/wiki/Taxation_in_Canada Germany, which had one of the highest tax rates, is doing fine now and has a top rate of 45%. also see here: http://en.wikipedia.org/wiki/Tax_rates_around_the_world In 2005 Greece was in the middle and we were toward the bottom. The top rate in China is now 45%. See Here: http://www.worldwide-tax.com/china/china_tax.asp Where is the evidence that higher taxes will put a damper on the economy?

- Nusholtz

October 27, 2010 at 1:48pm

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wildboy writes: "Seattle, given your concern about the bad choices that the bottom 50% make about out-of-wedlock births, I presume that you are a big advocate of legalized abortion, right?" Not a big advocate, but I believe the option must be there.

- seattleeng

October 27, 2010 at 1:50pm

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Nusholtz, and the bottom of the first wiki link you sent, notice the tax rates in germany on those earning the average wage: 36% (51% if you don't have kids) The average wage earner in germany is paying a staggering 36% of their income in taxes. You call that "doing fine"? In the US, that figure is 12%. This is why our tax system in the US is so progressive. We tax our wealthy harder than other countries, and we don't tax our middle class at all compared to other counteries. In Germany, the top 10% get 29% of the income. In the US, they get 34%. In Germany, the top 10% pay 31% of the tax bill. In the US they pay 45%. See how much progressive our tax system is compared to Germany? Today, a family making $50K pay a tax bill of about $5500. If we brought Germany's tax system here, our wealthy would see their tax bills drop by 10%, and the middle class would see their $5500 tax bill climb to $15000. Would you really want see Germany's tax structure brought here? And see taxes on wealthy decline and taxes on middle class triple? Really? Seriously? Are you kidding? This is progress to you?

- seattleeng

October 27, 2010 at 2:01pm

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Yes but for the umpteenth time, seattle, in Germany they GET something for what they pay: (a) a functioning public education system that up to the end of high school is effective in preparing kids for a number of career paths, (b) a health care system that means people don't have to worry that a serious illness will ruin them and that the uninsured don't throw themselves on the emergency room for everything, and (c) a pretty impressive infrastructural robustness in both basic stuff (roads etc) and in communications technology. It's not like they are ponying up and seeing nothing for it. Ask any German of any income bracket whether they'd like to swap their deal for ours, especially in respect of health care.

- ironyroad

October 27, 2010 at 3:15pm

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With all due respect to the income distribution fans out there, let's just look at who pays for what. Really rich people don't need social security, Medicare, and etc.--the things that are driving our current debt crisis--and yet they pay for a disproportionate amount of it. There aren't enough of them to make much difference anyway. LOTS of people who could easily pay for at least some of their own retirements, medical insurance, nursing care, and etc. are collecting from the working class via the Feds for these things, and screaming bloody murder that they might have to pay a bit more for it. Who gets the most should pay the most.

- Robert Powell

October 27, 2010 at 3:41pm

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Rob Powell, it is a rather debatable proposition that the middle class receives more benefits from the government in proportion to their earnings than the wealthy do. This may be true to the extent that government expenditures on national defense or basic services such as fire, water, etc. provide equal protection to all income levels and, thus, proportionately more to a middle class taxpayer than to a wealthy one. On the other hand, the wealthy taxpayer probably employs more people than the middle class taxpayer, travels more and farther, imports and exports goods (or consumes imports and exports) at a greater rate than the middle class taxpayer and has direct investments in goods or services closer to the point of production than to the point of consumption. In all those ways, the wealthy taxpayer benefits more from government spending than the middle class taxpayer. I may get indirect economic benefit from the fact that my housekeeper has a publicly-funded high school education (that taught her some basic skills useful in her job that she would not otherwise have had, such as the ability to read labels on cleaning products) and is able to use publicly-funded roads to come and clean my house once a week with little additional cost passed through to me. Bill Gates gets a lot more indirect economic benefit from Microsoft's thousands of publicly-educated workers traveling on publicly-funded roads and using publicly-funded telecom infrastructure to make money for him.

- wildboy

October 27, 2010 at 3:42pm

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I find that much of this discussion, including Chait's argument, misses the point. The purpose of progressive taxation is to save the rich from themselves while allowing those on the bottom an opportunity to join the rich. Left alone (i.e., if everyone is taxed at a flat rate), money and power tend to settle at the top and poverty at the bottom. Hence the growing of income inequality, periodic financial crises as the rich use their wealth and influence to further game the system, and eventual civil strife. With modest progressive taxation (and some reasonable inheritance tax), money that would settle at the top and show up in the form of gated communities and private roads available only to the wealthy is redistributed in the form of common goods such as police forces and public highways available to all. It provides schools that all can use and public spaces that all can enjoy, even as it still allows the very rich to send their children to private schools and own large plots of land for their own enjoyment. Recycling wealth to a modest degree, on a modest scale, preserves the very capitalism that made the rich rich, and provides the opportunity for the non-rich to reach for the brass ring if they choose. It is the pig-headedness and greed of some (though by no means all) of the rich that makes them generalize from their own particular ("If I got rich, then anyone can do it.") even as they forget the circumstances--a capitalist system moderated and stabilized by modestly progressive taxation--that allowed them to get rich in the first place.

- timteeter

October 27, 2010 at 4:48pm

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"The purpose of progressive taxation is to save the rich from themselves..." Absolutely. Progressive taxation wasn't the result of some sort of money grab by the masses, it was agreed to by an elite that for a period of time in U.S. history had the wisdom to recognize that it was in EVERYONE'S best interest for the wealthy to bear more than their 'fair share'. Our relative insulation from civil discord has allowed the rich, and their libertarian enablers, to miss (or willfully ignore) one of the crucial lessons of human history.

- Fishpeddler

October 27, 2010 at 5:12pm

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I cannot see who benefits (incl most of the rich) from an economic system with such income inequality that most Americans, perhaps the vast majority, are underwater. Where does the demand in the economy come from? As has often been said, in the Eisenhower years the top marginal tax rate was over 90%, Kennedy 70%, Clinton down to less than 40% yet economic growth was much stronger than with the Bush rates we have today.

- NR027810

October 27, 2010 at 5:27pm

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There is a reason for that, NR. The skewed distribution of income saps demand and produces asset bubbles. It is not just bad luck that Bush economics produced the disaster from which we have not yet recovered. They are the reason. More equal after-tax income had a great deal to do with our past prosperity. The notion that we need a lot of income in the hands of the rich to drive innovation or anything else is a plutocratic fairy tale.

- roidubouloi

October 27, 2010 at 5:35pm

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To add some historical perspective, Adam Smith (in the "Wealth of Nations") said: "It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion." In a time where there is much wailing and gnashing of teeth about excessive compensation and bonuses in the financial sector, a much better remedy to regulation (or useless posturing) would be to introduce higher tax brackets for those well above the $250K threshold. Let bankers, actors, athletes, investors make what the market (or their own fortunate circumstances) allow, but make some social good out of the deal by financing America's future in education, transportation, scientific research, and health. Financing for infrastructure and high-risk or fundamental research in science just doesn't come from the private sector, obsessed with short-term interests. Progressive taxation is the only way to finance large-scale efforts. All Americans will profit from such investment, but (just as defense expenditures in the Cold War built the telecommunications grid and the web) ultimately the investor class will profit the most (despite the usual bellyaching about taxes now.)

- stanalama

October 27, 2010 at 5:47pm

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ironyroad: "Ask any German of any income bracket whether they'd like to swap their deal for ours, especially in respect of health care." And ask our middle class if they'd like "free" health care for an extra $10K per year, or 20% of their salary. I think we know the answer: "Screw you, I'd rather have my boat. Besides, I already have health care." And indeed, 85% of them do. Do you really think our middle class would take the German system if it meant they paid an extra $10K per year? Really? Seriously?

- seattleeng

October 27, 2010 at 6:13pm

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stanalama writes: ""It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion." And indeed we already do that. The top 10% in the US earn 34% of all the income, and they pay 45% of all the taxes. That's more progressive than France, Canada, UK, Germany, Japan, Finland, Sweden. In fact, the OECD found there is not a single country out there that has a more progressive tax system than the US. So tell me, if the top 10% earn 34% and pay 45%, what would be "fair" in your mind? 55%? Would that make it until the next financial downturn? At which point you'd want 65%? There's really no end to this always wanting more, is there? That's because it's driven by envy, and not fairness.

- seattleeng

October 27, 2010 at 6:18pm

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What Roid said. PS - envy, Seattle? Yeah, I guess I envy the rich the right to a long and happy life, a roof over the head...food... Let me ask you this, oh smug and happy rich guy: what do you think America will be like with a permanent class of poor and a permanent class of (largely undeserving) rich people? Oh wait...looks like we have that - and we are going down the tubes, fast.

- Sophia

October 27, 2010 at 6:27pm

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Roid writes: "More equal after-tax income had a great deal to do with our past prosperity." Nope. The top 15% have had the same share of income since 1947. Roughly 26%. That also means that gains the top 1% have made have really come at the expense of others in the top 10 or 15%. Not at the expense of middle class. Right? http://www.stateofworkingamerica.org/tabfig/2008/01/16.jpg This text it to make sure the link doesn't get eaten. This text it to make sure the link doesn't get eaten. This text it to make sure the link doesn't get eaten. This text it to make sure the link doesn't get eaten. This text it to make sure the link doesn't get eaten. This text it to make sure the link doesn't get eaten. This text it to make sure the link doesn't get eaten. This text it to make sure the link doesn't get eaten. This text it to make sure the link doesn't get eaten. This text it to make sure the link doesn't get eaten.

- seattleeng

October 27, 2010 at 6:29pm

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sophia writes: "et me ask you this, oh smug and happy rich guy: what do you think America will be like with a permanent class of poor and a permanent class of (largely undeserving) rich people?" You assume I'm rich because I argue against higher taxes? Odd. I just got a new car. My old one was--no kidding--11 years old. My wife's car is 9 years old. This is the hallmark of a wealthy person in your mind? I just showed you data that shows the top 15% have the same share of income that they had in 1947. And I previously showed you data that the top 10% in this country earn less of the total income than the top 10% in Italy, about the same as the top 10% in Poland, UK and Canada, and a few % more than Germany and Japan. Sophia, look at the data. Before you push "send" ask yourself "Can I find data to support my assertion, or is this simply what I believe in my heart?" We get smarter by overturning what our hearts tell us. Now, look at the data from the State of Working America link, and answer "yes" or "no": Does the top 15% take a significantly larger piece of the income today than they did in 1947? The answer is "no". And remember, this data is from a leading progressive economist...

- seattleeng

October 27, 2010 at 6:40pm

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Seattle, it's easy to find a more detailed breakdown of tax vs income, for example (2001 CBO), http://en.wikipedia.org/wiki/Taxation_in_the_United_States The top 1% pays a farily large share of total tax (including Soc Sec), 22.7%, on 14.8% of all income. This means that (on average) they are paying about 50% higher rates than the average over the whole population. If you look lower down, the earners in the 2% to 5% bracket pay only 15.8% on 12% of the total income, and the 6%-10% earners only pay 11.5% on 10.1% of the total income. So, except for the top 1%, the current tax system is barely progressive.

- stanalama

October 27, 2010 at 6:51pm

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Question got SeattleEng: Where do you get your data? Does it incorporate social security taxes (worker portion or employer portion). I used data from IRS statistics of income (2007: tax generated, SOI Bulletin: http://www.irs.gov/taxstats/indtaxstats/article/0,,id=133521,00.html) and assumed that households making less than 100K pay 14.3% of income to social security taxes and persons making over $100,000 pay $21,450 per household to social security taxes. Using these assumptions I calculate that household with income over $200,000 make 40.39% of personal income and pay 37.5% of taxes. This does not seem like a highly progressive tax structure. Of course you can argue with my assumptions, but what are yours?

- dmresnick

October 27, 2010 at 8:38pm

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Let's be fair to Mr. Powell, who says "[t]he middle class should pay more taxes because it receives the most benefits from the government". That's clearly the case, if you measure the relative benefit by the ratio of income earned and government transfer payments (including social security) received. But is that an accurate measure of the "benefit". Of course, I could cite the extreme case of the bankers who imploded the economy and then received billion dollar bonuses funded in part with TARP funds. Now they received one hell of a benefit, certainly much more than the retiree in Florida living on social security. Or more indirectly, I could cite those wealthy Americans with stock in, for example, WallMart whose profits (and the dividends distributed to the wealth Americans) depend on the lower and middle income folks who spend their earnings in Wallmart. My point is that we are all connected, rich and poor, and as much as some wish to pretend otherwise, those at the top and those at the bottom, are neighbors, about which someone long ago said they should love one another.

- rayward

October 27, 2010 at 8:40pm

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Meant to say "Question for"

- dmresnick

October 27, 2010 at 8:40pm

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stanalama writes: "Of course you can argue with my assumptions, but what are yours?" No assumption. Just repeating hard core analysis from a team of economists at the the OECD. Yes, the same OECD that ranks our health care system below that of Cuba :) They note the top 10% in the US pull in 34% of the income, and pay 45% of the taxes. They compare it to other countries. The table of the study is in the link below. http://www.taxfoundation.org/blog/show/23856.html

- seattleeng

October 27, 2010 at 9:04pm

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Stanalam writes: "So, except for the top 1%, the current tax system is barely progressive." Barely? In the data you show, the 95-98 grab 12.7% of the income, but pay 20.8% of the taxes. The 90-94% grab 10.1% of the income, but pay 12.5% of the taxes. Each of these is well north of progressive. The 80-89% aren't wealthy by the standards of many in this country. What % over your income share do you think would be fair for someone that is in the 90-100%?

- seattleeng

October 27, 2010 at 9:27pm

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Sophia, this question is still hanging out there for you: "Does the top 15% take a significantly larger piece of the total income today than they did in 1947?"

- seattleeng

October 27, 2010 at 9:30pm

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But seattle, if our system is so great, then others should be queuing up to follow suit, right? But they aren't. And a lot of people here would like to do something about the health care costs/access crisis, right? So there is, or was, a potential debate over solutions, if only the Republicans had joined in. Two things might be worth noting: 1. In Germany, people have boats too. 2. If someone bellows "I'd rather have a boat and anyway I have health care," he is tempting fate, because the job can go and, the way things are now, the health care with it, not to mention the boat. What does the guy say who loses his job, his boat, and his health care to boot? Screw those Germans anyway, those bastards only lose two of the three! One doesn't have to recreate Germany to find a better system for the U.S.

- ironyroad

October 27, 2010 at 10:01pm

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Seattle, I don't know about percentages in 1947. But I'm sure I can find out. What I do know is this: real income is probably lower, vis a vis cost of living, than it was in, say, the 1950's when a parent could support a family on ONE income. In 1971 my first full time job grossed $125/week. My large apartment cost $90/month. Utilities were what - $20? $30? You know what that same apartment would cost today? Probably in the neighborhood of a grand/month and - that same entry level clerical job would not pay well over $4K month now would it. Electricity is in the $200 range for something that size in a major city. A car? Not that I have such a device but a good new car can easily run over $20,000 - that's more than people paid for houses and no, there is simply no way incomes have kept pace (except for the top tier of course!) So the claim that the poor are living better than the middle class did in the 1950's is sheerly bogus. Also, as rayward said, we are all connected. People cannot simply go their merry way and assume, because they are well-to-do, that they are effectively living on another planet from the rest of us. In some senses, yes - the things that even middle class people take for granted are beyond an increasing number of Americans. What some people take for granted - health care - unbelievably expensive - and simply owning a home - that's really a remote dream for more Americans than many of you want to realize and many who thought they DID own a home are finding out that what they own is worth less than their mortgage so even if they can sell it they might well owe six figures to the bank. In short: the class system is hardening - it's something that needs to be acknowledged and addressed. Otherwise we should just stop pretending we are a "democracy" and announce The Oligarchy For Which We Stand. The other totally bogus aspect of all this, of course, is the linkage between "right wing" and "Christian," and that should also be part of this argument, because it truly does not make any sense. On the other hand big chunks of the Left don't make sense any more either. So arrrggghhhhhhhhhhhhhhhhh.

- Sophia

October 27, 2010 at 10:18pm

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Also, one other thing that deserves more space that it gets: the core of the American system is upward social mobility -- everyone gets a chance to make it, even in a modest way, right? But the signs are there that even that crucial American plank is very creaky -- you have a better chance, if you are born to relatively poor parents, of entering the middle class in Sweden (Sweden!!) than in the United States. This is less visible than wide income divergence and constricted health care options, but it's dangerous nonetheless.

- ironyroad

October 27, 2010 at 10:45pm

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Seattle: You've misquoted the numbers in my post. The 95-98% get 12% of income, and pay 15% of taxes. But, why talk about the distribution function, which lumps together lots of different incomes (what range of incomes are in the 95%-98% range anyway?) and is harder to visualize for specific income levels. Marginal rates for the top earners are much lower than almost any time in US history, and much lower than other countries (45% in Germany, for instance.) The de facto tax rate is even lower because of the 15% capital gains rate and the capping of the "payroll tax". The US has neglected investment in the public sector (infrastructure, transportation, education, research) for a generation. Lower marginal rates on very high incomes has not reinvigorated American industry, and has not led to the kind of investments in new technologies that will provide good jobs for American workers, but instead in dangerous and destructive financial games. Government cannot effectively prohibit all irresponsible economic behavior, but a government with adequate financial resources can compensate for some of the abuses by providing a safety net to those who lose their jobs and good education to ensure equal opportunity. It is reasonable, practical, and morally satisfying that the most fortunate members of society pay the greater share of this cost; as Adam Smith wrote, they suffer the least from economic downturns and profit the most from the protections and actions of government.

- stanalama

October 27, 2010 at 10:57pm

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Stanalama, marginal rates don't matter much. What matters is effective rates. When marginal rates were 90%, nobody paid them. There were so many loopholes. You can go look at tax returns of Nixon and FDR to see this. In 1968, Nixon earned $736,000 (well over a million today), and he paid just $72K in tax. 10% effective rate. Today, the top 1% are paying an effective rate of 33%. That was in the 60s, when everyone thinks the wealthy were paying more than 50%. Hardly. So the well to do today are paying about 3X more today than Nixon did. How about FDR in 1937? He earned $93K (about $1.3M today) and paid just $15K in taxes. That's an effective rate of 16%. Don't be confused by marginal rates. The important thing to remember is NOBODY paid those. A quick review of historical tax returns we confirm that. Now, the CBO did a study for congress not too long ago in whcih they looked at effective tax rates going back to 1979. Back then, the top 0.5% were paying a few % higher than they are today. And the top 0.01% were paying 10% more (effective) than today. But those are people earning more than $35M a year. But I don't think anyone here is talking about just socking it to the $35M/year earner. They are talking about socking it to the $250K earner. http://www.taxhistory.org/www/website.nsf/web/presidentialtaxreturns

- seattleeng

October 27, 2010 at 11:49pm

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ironyroad: "But the signs are there that even that crucial American plank is very creaky -- you have a better chance, if you are born to relatively poor parents, of entering the middle class in Sweden (Sweden!!) than in the United States" You are right that sweden has demonstrated better mobility that the US at times. What is sad about income mobility in the US is that it is swift and effective for immigrants. But the same folks keep getting left behind. Chinese immigrants can come here, and in a single generation move to the top quintile, while families living in Appalachia or the inner city are stuck in the same place year after year.

- seattleeng

October 27, 2010 at 11:55pm

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Sophia writes: "Seattle, I don't know about percentages in 1947. But I'm sure I can find out." It is in the link I provided pointing to the book The State of Working America. It shows the top 15% have held about the same share of the salary since 1947. I have repeated the link at the bottom. The top 15% have 27% of all income today, versus 25.5% of all income in 1947. If there is roughly $8T in income, that means that is an extra $120B they have grabbed from the other classes. If we gave that back, that'd be $120B split between 85M families, or $1400 per family. In other words, if the top 15% got together and paid every family (not person, but family) $1400, then they could say that the top 15% are WORSE off today than in 1947. But I can promise you all the social ills we have today would still exist. The problems we have today are not due to $1400 per family. So, you really should be looking for another boogeyman. Claiming the rich have siphoned the money away from the middle class isn't it. The numbers don't support it. http://www.stateofworkingamerica.org/tabfig/2008/01/16.jpg

- seattleeng

October 28, 2010 at 12:02am

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We should try to leave the myths behind here. In the first place, we have the richest society in world history--poor people here have cars, cable tv, air conditioning, and access to free government services in areas like healthcare and education undreamed of in most of the world. With all due respect to Germany and Sweden, this is the place with the longest line at the "in" gate, by far. This is not accidental. In the second place, the enormous size of our middle class means that this is where most of the spending is going, and where most of the money comes from. We don't have a fiscal crisis because we have to pay for Warren Buffet's Medicare. And as obnoxious as those bailout bonuses were, they're not the reason either. Any discussion of taxation has to address where the money goes, and it's clearly to the middle class. Means testing and raising the retirement age would go a long way towards addressing the problem, and in my book both are eminently fair. Raising taxes not so much.

- Robert Powell

October 28, 2010 at 4:21am

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Why doesn't Chait address some other facts, like the top 2% pay 40% of federal income taxes; and nearly 45% of the population pay none (excluding payroll taxes)? Most conservatives do not want anyone's taxes to increase (although everyone should have some skin in the game); they believe that across the board cuts are the best "stimulus" the government can enact, and that the fiscal balancing efforts must be on the expense side, especially controlling the insane levels of entitlement spending. Revenue will increase with better growth. These facts should be considered with the others Chait notes, but then his fairness argument falls apart.

- SSciaretta

October 28, 2010 at 9:56am

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All of that is absolutely true Jonathan and self evident but it only looks at half of the debate. Republicans don't just consider who should fund government, they also argue about it's scale, which Democrats often refuse to even consider in an ever expanding Keynesian loop. Robert Powell has a point. Most of the benefits of that taxation accrues to the middle class; Child Benefit, for example, in our own country, is going to be gutted in the November budget because the middle class refuse to means test it, which would be the much more progressive and socially efficient law. Maybe govt does need to be scaled back? I work in an economy that has the highest paid public servants in Europe...and I don't live in Germany. Recession? We're going to close hospitals, schools, cancel vital infrastructure projects because the govt has agreed to no pay cuts for the public service during these desperate times. Pay and Pensions for our public service account for 70% of all tax revenue (up from 40% only 10 years ago) and all this despite needing to find Billions upon Billions in cuts over 4 years, cuts that will have to come from only 30% of the budget. All to fund the highest paid public service in Europe while the republic suffers 14% unemployment and negative equity as far-as-the-eye-can-see. For the first time in my life, I can't vote Labour and I won't. We now have a public service politburo served by a mass of private sector proles. I don't know. It's a bit trite to say Republicans would rather the maid pay instead of Paris; maybe they want both to pay and the bill to be a little less. Sounds progressive to me.

- IggyPop

October 28, 2010 at 3:43pm

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These "debates" between seattle, on the one side, and sophia et al on the other remind me of a tennis match where the "partners" show up, but then each play hit-back with the wall. All the while, they have a stilted conversation, mostly in order to hear themselves speak. Much gets said, but there isn't the give-and-take of a true debate. Not trying to insult, its just that real debate is almost impossible via a comments section.

- RobertC

October 28, 2010 at 4:10pm

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seattleeng: Sorry, the assumptions are very important. The Social Security Payroll tax is large and highly regressive. Without knowing if it is used in the computation (I suspect it is not), it is impossible to judge whether the statistics are a reasonable interpretation of the actual situation. Yes you have sent us a link but can you point us to any documentation describing the methodology or even what is meant by the statement "Source: Computations based on OECD income distribution questionnaire?" What questionnaire are they referring to and who completed it.

- dmresnick

October 28, 2010 at 5:00pm

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dmresnick: "Sorry, the assumptions are very important. The Social Security Payroll tax is large and highly regressive. " SS is not highly regressive. That's a far left talking point. SS is a retirement fund. It's like a pension at work. I contribute the same amount as Bill Gates every year. He and I get the exact same benefit in return. That is 100% fair. Someone earning $50K contributes less, and they get less in return. How is that not fair? If SS were considered an investment, at retirement both Bill Gates and I would see that as a rate of return somewhere around 3%. A person earning $30K/year at retirement would see a rate of return on their SS contributions and 6-8%. Yes, they get much less than Bill and I, but they put in much less. Their additional ROI, though, is 100% redistributive. Now, if means testing in the future decides that Bill Gates and I don't get SS benefits, then suddenly it will become a massive tax for me, roughly an extra 10-15% retroactively applied to my life's earnings. And then SS becomes even more redistributive. Very unfair. SS administration has done the ROI calcs in detail. http://www.ssa.gov/OACT/NOTES/ran5/an2004-5.html Don't eat the link. Don't eat the link. Don't eat the link. Don't eat the link. Don't eat the link. Don't eat the link. Don't eat the link. Don't eat the link. Don't eat the link. Don't eat the link. Don't eat the link. Don't eat the link. Don't eat the link. Don't eat the link. Don't eat the link. Don't eat the link.

- seattleeng

October 28, 2010 at 8:50pm

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RobertC: "Not trying to insult, its just that real debate is almost impossible via a comments section." No insult taken. My goal is and always has been to plant readily verifiable seeds that refute the long-held beliefs of the fiscally progressive. My hope in this discussion is that everyone leaves knowing that the top 15% have really no more today than they did in 1947. That data point is sourced from a well known progressive author. I think 90% of the population would doubt that data point: it just doesn't seem possible given what our politicians always tell us. that is why it's so interesting. Hell, 3 years ago I wouldn't have believed that data point.

- seattleeng

October 28, 2010 at 8:57pm

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seatteeng: "At the end if the day, if the top 10% are earning 34% of the income, and paying 45% of the taxes, how is this not more than fair?" Because if you define "fairness" as "those making 34% of the income should pay 34% of the taxes," then you're essentially advocating a flat tax, which no one I've met really believes in--not even the flat tax guru Steve Forbes. Just about everyone (including Forbes) seems to think that people who are earning barely enough to get by shouldn't pay income taxes at all. Well, that's a progressive system: 0% up to an exempted amount, and some kind of rate above it. And if inability to pay or an disproportionate burden of paying is what justifies different rates, then there's little reason not to have a graduated system. As Chait points out, the tax system exists not to maximize government revenue but to fund programs the people say they want. There are many different concepts of "fairness" one could apply, but one of them is to equalize the unpleasantness of that funding. Taxing a middle-income family $1,000 is obviously more burdensome than taxing a wealthy family $1,000, so differential treatment can be justified on that basis. Even taxation on a percentage basis is more burdensome on lower income households than those with higher incomes; a 20% tax limits a family making $50,000 far more than one making $5 million. What those marginal rates should be can be debated. But at present, we're not paying our national bills. Republicans want to cut rates on the wealthy, but every dollar not paid for by the wealthy will have to be made up elsewhere, so what do they propose: tax the middle class and the poor more? How realistic, or "fair," is that? I know conservatives will argue that cutting taxes for the wealthy will spur growth and so we won't have to raise taxes on anyone. I think the economic results of Clinton's tax hikes and W's tax cuts should give pause to that assumption. But even if it were true, it would not answer the question as to how to "fairly" apportion the costs of government, whatever they happen to be.

- dsimon

October 29, 2010 at 11:41am

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dsimon writes: " Taxing a middle-income family $1,000 is obviously more burdensome than taxing a wealthy family $1,000, so differential treatment can be justified on that basis.".... "As Chait points out, the tax system exists not to maximize government revenue but to fund programs the people say they want. " Of course. But having a large group pay NONE of the federal income tax causes them to think of the country as an ATM. They don't vote for what is right, they vote for what willl give them the most stuff. And there will always be a political leader to tell them it's no problem to get even more stuff for free, and that the top earners have taken their money anyway. Which, as we have covered, is not true. The middle class in Europe pay 3X more federal taxes than the middle class in the US. A middle class earner in the US pays about $4K in taxes, in Europe he pays $14K. You will have a tough time convincing me our middle class is paying enough. If our government needs more money (debatable), then let's crank taxes up on everyone. Let's hear the rich AND middle class scream that they are paying waaaaaay too much in tax. And then talk about it.

- seattleeng

October 29, 2010 at 11:59am

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"But having a large group pay NONE of the federal income tax causes them to think of the country as an ATM." Not if they're paying a lot in other taxes, which they do. When you total up all taxes, our system is surprisingly flat. State taxes are a part of "the country" too, and those taxes tend to be regressive which contradicts the claim that lower income groups somehow have managed to use their voting power get the rich to pay for their government services. http://www.prospect.org/csnc/blogs/ezraklein_archive?month=04&year=2009&base_name=why_do_state_and_local_taxes_h Again, those who think the wealthy are paying too much need to make up the revenue somewhere. Given that the progressive income tax is one of the few things keeping our system from being regressive as a whole, and that a flat tax is more burdensome on the poor and middle income groups, I have a hard time believing that the wealthy are paying too much.

- dsimon

October 29, 2010 at 2:22pm

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But the 14K taxpayer in Europe knows that he/she gets something for that money -- a functioning universal health care system, a coherent law enforcement, public transit networks, and (in many different forms) a functioning education system. The Europeans don't have to think about being ruined by certain standard human events, and thus in a subjective way regard themselves as being better off than us. Now maybe we don't want that system -- that's debatable -- but what's not accurate is the crude comparing of tax rates as if our countries were identical and our governments did identical things.

- ironyroad

October 30, 2010 at 8:24pm

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