Now, this was surprising to me. David Altman may write for the NYT, but he’s pretty far from a liberal. And he’s done some research, ending up in this:
Obviously, the poor still pay a lower amount of total taxes overall. But this chart, which seeks to take into account ALL taxes, does away with the idea that they pay a significantly lower percentage of their income in taxes than the strict income rate would suggest. And this, of course, is without considering tax loopholes that disproportionately affect the rich.
The picture is, of course, more complicated than that, because lifetime incidence is very different. Chatterbox at Slate explains this phenomenon pretty well: http://slate.msn.com/id/2077294/
So, the question is, is this a fair way of presenting the data? Obviously, it doesn’t include who benefits from various sorts of social spending, entitlement programs, etc. But then, few of the figures we’ve ever bandied about in these debates included those things in the first place. Is this stuff new? Does it change anyone’s idea of how to think about these issues?
The article also rightly ponits out that the hub-bub around how bad “double taxation” is, is a little disingenuous. In fact, many things are double, triple, even quadruple taxed… but no one is looking at THOSE supposed travesties. Nor are they comparing the things that really matter: the severity of the marginal impacts of various tax effects.
I think this IS a fair way to present the data, as far as it goes. However, it’s an incomplete basis for policy decisions, without a corresponding chart showing the government benefits people receive as a percentage of income. I have seen such figures, but I don’t have them at hand right now.
My guess is that the top quintile might get back less than 5% of thier income in benefits compared to the 19% that they pay. I would guess that the lowest percentile might get over 200% of income in benefits, compared to the 18% that they pay.
This seems about right. Remember that a big reason for the progressive income tax is to overcome the regressive sales and property taxes at the state level.
december, do you have any suggestions for quantifying receipt of government benefits? Remember, taking into account only direct benefits would be just as incomplete as taking into account only income taxes. We’d also have to try and quantify usage of government services and indirect enablers such as professional licensing and certification, zoning laws, public law enforcement, etc.
Could you tell me how you know the final sentence is true? I did not see it in the article, and doubt if it is.
Actually the article quotes from a study by a Laurence J. Kotlikoff which factored these into account. Summary:
Which is exactly what I would have expected - the middle (or lower middle) class is the hardest hit.
One crucial aspect to all these political battles is how you define rich and poor. Frequently Democrats and liberals will go on and on about how much of the tax cuts will go to super-rich people, but turn around and favor helping only the super poor - the middle class gets stiffed in any event.
Part of the problem is the Willie Sutton Effect - that’s where the money is. The vast majority of people are in the middle class or somewhere thereabouts, so the effect of reducing taxes on this class is far costlier than on other classes of people.
Fundamental difference. The other examples given are things that are taxed by multiple entities, or are taxed as they pass from one person or company to another. The big issue with dividends is that the corporation is a fictitious entity, when distinguished from the owners of the corporation (i.e. the shareholders). The double tax issue here is that the money is considered to have been “earned” twice by the same people, once when the company earns it and once when it is transferred to the shareholders.
One other point: I think you could make a case that including Social Security is skewing the numbers. Ostensibly SS should be viewed as a retirement plan, albeit a mandatory one run by the government. There’s no reason to expect it to be anything other than regressive.
Right. 'Cause only the super-poor use Medicare/Medicaid, public education or college grants.
Ostensibly SS should be considered a special purpose tax which exists because the government must fund SS benefits. However, the money you pay for SS doesn’t go directly into a growth fund; it goes into the federal budget and could (theoretically mind you, though it would be politically impossible) be used by Congress for any expenditure they want.
I have seen economic studies like this. They even debated how to allocate the value of military defense and public safety. Is the value the same per person? Is the value proportional to the amount of owned property being protected?
I do not have any of these studies at hand, nor do I have any cites.
Thanks, *december; I didn’t know if any such studies existed. -I really didn’t want you to have to dig up any cites; my point was just that relative benefit is a much tougher determination to make in any area than relative cost.
Well you are focusing on specific examples. Actually I think Medicaid is only for the super poor. Medicare and public education are obviously not - I don’t know about college grants.
But in general, I don’t recall any great Democratic initiatives out there to help the middle class, nor have I found this class to be a priority for them. YMMV.
As I said, “you could make a case”. The exact relationship between what goes in and what comes out is vague - obviously there are not segregated accounts. But the general gist is that people are funding for their own benefits.
Actually Congress does use the money for whatever purpose they want - the SS Trust Fund is a fiction - a point I seem to recall Al Gore harping about during the election. I suppose you mean that Congress could theoretically abolish SS benefits and keep the tax. Of course - Congress can do pretty much what it want in these matters. But they would have lied to the people in doing so. What we are discussing is the moral issue of progressive taxation, so what is at issue is how the program was intended and is perceived.
Well, OK, but I thought the issue was whether progressivity actually exists at all in our tax structure, in which case I don’t see SS as skewing the numbers. Regardless of perception, it’s a tax.
We might be quibbling about the meaning of the word tax here. If you define tax as any mandatory payment to the government then its a tax. But then there’s no reason for any mandatory payment to the government to be progressive.
Suppose the government began a new program of subsidizing car purchases. Every citizen was required to give $1,000 to the government, and received a new Cadillac in return. I guess you could view it as a tax as well - after all the government could decouple payment from benefit. But it would not make sense to view it as a “regressive” tax, even if it took a higher percentage of the income at lower levels.
Here’s some stuff from the SS Administration about the history of SS, and the relationship of payments to benefits (emphasis added):
Izzy, we seem to be quibbling about more than the word “tax” now. I don’t understand why a tax which takes “a higher percentage of the income at lower levels” shouldn’t be considered regressive.
Because the standard justification for a progressive taxation doens’t necessarily apply (consider my Cadillac example). So it is misleading to dump it in with cases in which it does apply.
Right. So, what you are saying is that in a society with no government, Bill Gates would be almost as rich as he is now…Government has only helped him a little bit whereas the poor person just getting by has been helped a lot more. This doesn’t seem very logical to me!
The amount of benefit that the rich get from a few simple things that the government does, like enforcing contracts, protecting property (including intellectual property), allowing the setup of corporations, … is simply immense!
And, yes, I know that the government did not simply give Bill Gates his fortune but rather just gave him the opportunity and environment in which to create it.
However, that does not reduce the huge debt that Gates owes our society. Or, to put it another way, let’s say we went back in time and gave Gates two choices:
(1) No government and no tax. (Or maybe government but, say, without the laws allowing for the creation of corporations.)
(2) Government and a highly progressive tax structure.
Which option should he choose?
The reason I think this is relevant is that the creation of corporations is said to be advantageous in allowing the creation of large amounts of wealth, however it also causes this wealth to be spread very unevenly…i.e., to be highly concentrated. My personal opinion is that if someone presented me a contract for society in which they had written in corporate law but had then written out the opportunity to do anything to change the distribution of wealth that results, I would simply refuse to sign. Or to put it another way, for me along with the creation of the current capitalist economic structure comes the implicit decision not to accept the distribution of resources that results from this structure as somehow Willed By God!
I didn’t mean to make any sort of hypothetical statement about a society with no government.
I entirely agree. The economic approach that I recall allocated benefits based on the money spent in that area. So, defense, e.g., was presumed to be a huge benefit. Enforcing contracts, which might be just as valuable, was counted as tiny because the cost is relatively small.
If an ecomonist set out to allocate value, there would be a lot of subjectivity.
Yeah…My point goes beyond what specific government functions cost to the choices we make in setting up the system the way we do. As I mentioned, to me a corporate-dominated capitalist economy simply isn’t the system that I want unless there are means in place to address the issues of inequality, of political domination by wealth, and so forth.
This is the point I make in all these threads…All the decisions we make in setting up our society have distributional impacts. That’s why I think it is so artificial when people start talking about “redistribution” as if the distribution of the system as we have just happen to have set it up is Willed By God (Or The Market, which is apparently one and the same). I mean, we have decided to create a very unstable system prone to great excesses of wealth and poverty. Having made that conscious choice, in my mind, precludes artificially cutting off of any choices in how we then modify its effects. And, even figuring out how much each person owes to the system is difficult because it involves not only the direct benefits they receive from the services rendered but the indirect benefits they have derived from having the laws set up the way that they are.
—The big issue with dividends is that the corporation is a fictitious entity, when distinguished from the owners of the corporation (i.e. the shareholders). —
It seems as if corporations are purely ficticious when it suits one interest, and very real and important when it suits another. But that’s another question. There isn’t, as I see it, any real difference between the double taxation here (where in many cases it is just as ficticious as the corporation itself, being as they don’t always pay one of the taxes in the first place) and double/triple/etc taxation anywhere in the economy. The same thing is going on: taxes are being imposed at different points in the productive process. That may or may not be a bad way of doing things (as I noted in another thread, two taxes create two potentials for inefficient incentives, where a single, larger tax might not create as much distortion alone as two separate taxes do together), but it certainly doesn’t change the moral case any. If there IS a legitimate difference between the two tax points, then it’s no different than other double/triple tax schemes. If there is no legitimate difference, then there isn’t anything to cry about as far as “double taxation” goes in the first place. (in my opinion, the former is true, not the latter)
—Well, OK, but I thought the issue was whether progressivity actually exists at all in our tax structure—
Be very careful here. Progressivity itself is not at issue. That’s why I emphasized the percentage part. The tax is still progressive simply because the rich pay a larger total amount of taxes. While we could hold a very deep discussion about marginal utility of income as you get richer and richer, the fact remains that even if the percentage take is the same, the government still asks for more money from some people (those that make more income) than it does others. The question is: why do people have an extra obligation to society simply because they potentially have more to give to it?
This is a non-standard definition. The usual one is that for whatever proxy for economic position you care for (income, lifetime income, consumption) a tax is progressive if tax rises as a proportion of the proxy, proportional if it is a constant and regressive if it falls. Even quite regressive taxes typically involve people on higher incomes paying more tax.
IzzyR and december have talked about a “fiscal exchange” view of tax. Most of time this is ignored in tax debates because the attribution of benefits is just too damn hard, for reasons you can see in this thread. IzzyR has also mentioned the parallel problem in tax incidence regarding your payroll tax. The question of to what degree your payroll tax is a tax rather than an insurance premium is a much debated issue in the literature. It’s probably a bit of both (I don’t know much about it because neither our payroll tax nor our social security system works like this).
But it’s a legitimate point, and one that complicates working out where the real burden of taxes lie. In Australia, for example, it is frequently argued (wrongly IMPO) that business bears the burden of payroll taxes. Given that the real burden of taxes frequently lies on people other than those who are obligated to pay the tax (land taxes, for example are arguably mainly paid for by people now dead and buried), it’s hard to work out what the overall impact of the tax system is. But a conclusion that the system is roughly flat overall is about the median opinion of economists. In incidence studies in Western economies, the tax system is mainly flat, with the second-to-bottom decile paying slightly less in terms of income, and the top decile paying a bit more.
Hey, what was that refreshing breeze that just came through the thread…? Why, it must’ve been actual economic expertise.
(Thanks, hawthorne.)
Ah! Thanks for the clarification, Apos. I would add to your ultimate question “…and potentially gain more benifits from it.” I think any moral equation can seem more unbalanced than it actually is if specific terms are disregarded.
