The L-curve: distribution of income

Great Debates
101

I must confess to a certain confusion myself, such as where you obtained the statistic “someone else becoming 100% richer causes me to become 10% richer, that is a tradeoff I will gladly take any day.” I too, would happily accept such a state, and would not even consider it a trade-off in any way. But the past 20+ years deny that anything like this actually happens! The top richest got much richer; 90% of the population got poorer or stayed the same! I am not disturbed in the least by the existence of the rich. I am disturbed by the ever-increasing concentration of wealth in the hands of the few and fewer, of the shrinking of the middle-class and general increase in poverty. I am disturbed that the uber-rich are not paying their fair and equitable share of taxes, resulting in displacing that burden onto everyone else. We have not even begun to touch on such topics as corporate welfare, and the myriad ways wealth is funnelled to the top 1% through means that are diametrically opposed to the mechanisms of a truly free market.

Expecting the enormously wealthy to pay their fair and equitable share of taxes is not immoral nor is it theft. You have misquoted or misunderstood my position in nearly every sentence of your above paragraph. I have not advocated that “government take their wealth and give it to other people”; that is both a rewording and misconstruing of what I have said. I have advocated increasing the amount that government taxes the super-rich, and decreasing taxes for the rest of the population. If you insist that translates to your interpretation, then I can just as readily reply that I am tired of the government taking away money from the poor, the middle-class, and the “ordinary” rich, and giving it to the super-rich. It comes down to what is the fair and equitable tax burden on these different segments of the population; what tax structure is going to produce the “best” results in terms of having a functional democracy and a pleasant society to live in. The numbers indicate the top 1% is not paying their fair share, and everyone else is paying too much.

I continue to stand by my previous statements, which are:
Implement income tax and estate tax increases that target only that immense vertical spike from the L-curve. Raise taxes on that super-rich 1% of the population, and lower taxes for everybody else. That includes the poor, the middle-class, and even the “ordinary” rich (your average struggling multi-millionaire :).)

The hard evidence of the past 20+ years (the heritage of Reagonomics) is against your claims. Trickle-down economics * did not work*. Look at the numbers; the cites are elsewhere in this thread. It’s simply untrue to say that top 1% of the super-rich “created” all of the wealth they have; many of them inherited it, and sit on the bulk of it; they are not out there using it to create new jobs or new wealth. Many of them truly earned only a portion of it, and coerced the rest from perversions of free market captialism. (e.g., Windows operating system monopolistic market.) There are too many egregious examples, such as the astonishingly prevalent multi-million golden parachutes and compensation given to executives who ran their companies into the ground (Enron anyone?).

You at least admit to the “Tragedy of the Commons”; I fear you are blind to the enormity of its scope and its relationship to these existing massive edifices of wealth. Look at the numbers listed in this thread. The top 1%, and to a lesser extent, the top 10%, got richer the past two decades. Everyone else got poorer! We tried trickle-down. It didn’t work. Real income for everyone decreased, not increased. (except of course for that tiny group at the top). Cut the taxes where it will do the most good–for everyone except that grossly rich 1%. Raise taxes for that top 1% so they pay their fair share, as detailed previously. They’ll still be in the top 1%; they’ll (hopefully, eventually) only control 30% of the nation’s wealth instead of 40% to 50%. But since so much more money will be freed up for job creation by the sectors that are better at it (small and medium-size business), that top 1% might well come out ahead in real terms. (eg, 30% of 1,000 is more than 50% of 550.)

My beliefs are absolutely not a question of personal envy. Without going into too many details of my personal life, I can honestly say that up until about two years ago, I had all the income I wanted, much less “needed.” Then, through no fault of my own, I was hit by a truck. I can hope to one day receive an approximation of the lowest of my pre-truck annual income, when my own insurance (under-insured motorist coverage) is forced to pay for lost future wages alone (I’m not even bothering to claim any pain and suffering, although it was severe.) I carried more coverage than most, but naively did not realize that an attorney would be required to force one’s own insurance company to pay on a large claim no matter how valid. So, I’m certainly can’t come out financially “ahead”. (Unless a miracle randomly occurs, and I can return to my previous or similar vocation. But medically, it’s not likely.) But, oh, that top insurance CEO, who made the policy decision to contest all large claims, no matter their validity; he is rewarded highly for making decisions like this. [sarcasm dripping on]He and his top executive team certainly are creating real wealth, earning it fairly through their own hard work, and in the true spirit of free market principles, by collecting premiums, then denying almost all of their own customers’ valid catastrophic injury claims. [/sarcasm dripping off]

But all that is beside the point. I only mention that for most of my life I have felt quite “rich” myself, in that I literally had everything I really wanted. Whether or not I was rich in someone else’s sense, I felt rich. (Albeit, not to be too Zen, my wants were moderate.) Casting aspersions on my motivations for arguing my points is not only a straw man, (which I have now hopefully knocked over to the satisfaction of all) it is also several other rather nasy little logical fallacies combined.(1) To be clear, I felt strongly about these economic principles long before my up-close-and-personal encounter with the truck; I have typed similar paragraphs before that interlude with twisted metal (although it previously was accomplished considerably faster :slight_smile: ) I do not speak from envy, nor even now from true poverty. I am not disturbed that the ultra-rich exist; 1% owning 30% of the wealth is still ultra-rich. I speak from genuine concern that such grossly lopsided disparity, such enormous concentration of wealth in the hands of so few, is a genuine danger to democracy, and ultimately, not only to the sheer livability, but the actual stability of society. Do you disagree that a society with a large middle class, a relatively larger number of ordinary rich (equivalent to a having few million net worth), fewer poor and those living on the edge of poverty is preferable to a society with the majority of wealth held by only 1% of the population, a smaller and ever-shrinking middle class, and far more living in poverty or teetering on its edge? Is there no percentage of wealth concentration that will finally lead you to say “Enough! This does not make for a healthy society.”?

I have never said anything like pillage the super-rich and distribute the results to buy Cadillacs and large screen televisions for all (which is an inference I’m receiving); I’m saying our current tax structure is not equitable and not in the best interests of having a democratic society with a large middle class and more people who are “regular” rich; with fewer people in poverty or struggling on that brink. Change the tax structure so the super uber-rich become just slightly less so; more taxes for them, and less for everyone else. The overall tax burden would not increase; it would decrease. The vast majority of new jobs is created by small to medium-sized businesses, not that gilded 1%; these proposed tax changes would lower taxes for these businesses considerably, thus allowing far more job creation than from leaving it in the hands of that top 1%, which these small businesses are currently paying in their stead. Yes, I want job creation; that means leaving more tax money in the hands of those actually creating those jobs; the small and medium-sized businesses. Comparatively speaking, that top 1% doesn’t begin to do its fair share of that, either. That top 1% does not create anywhere near 40% to 50% of jobs nor new wealth. That disparity is larger than any of the others we’ve discussed so far.

The free market is not truly free; it’s disparities are real and immense. The Tragedy of the Commons is tragic indeed. Ignoring the real costs that society as a whole is unwillingly made to pay (e.g. filthy air and water, inflated prices through collusion and deception) so that vast wealth can be concentrated in the hands of a very few, then claiming these few truly “earned” all of that wealth is ignoring one of the tenets of the free market–that producers pay the actual costs of production in order to fairly earn their profits. Putting our faith and trust in the super uber-rich to guide our economic destinies for us strikes me as disingenuous. It sounds more like a doctrine for the Divine Right of Kings.

  1. Reference list of common logical fallacies:
    http://www.datanation.com/fallacies/index.htm

P.S. flex727, since I took the time to reply to your aspersions regarding my motivations, perhaps you will respond in kind? I think I have established that I do not speak from a perspective of poverty warped by envy, nor do I subscribe to that angry viewpoint examplified by the motto “Eat The Rich;” would you care to share your hitherto undisclosed motivation/background for your position? Do you agree that some taxation is necessary? If not, do you agree it is unavoidable? Do you think taxes should be lowered even further for the rich and raised for everyone else? Are you satisfied with the current tax structure? If not, what reforms do you think would produce a better result? Do you have any suggestions how to better correct inequities resulting from perversions of free market mechanisms, and the Tragedy of the Commons? I would truly like to know.

102

I have to quickly reply to Scylla’s response to my estimation of wealth at retirement.

Scylla, correct me if I’m wrong but I believe that your point was that even on a poor salary, Mr and Mrs Frugal would be multi-millionaires in real terms by the age of 50. You were saying that this was so regardless of their crappy jobs - it was just a matter of saving.

My counterpoint was to show that even allowing for a reasonable 1% excess of inflation wage rise, Mr and Mrs Frugal will not remotely be even moderately wealthy, let alone millionaires. This is even using your target savings per year.

My point is that the only way for Mr and Mrs Frugal to break out of this is to get jobs of a type that pay considerably more than $10,000 p.a. By remaining in this category of employment then even if we allow them superinflationary wage rises, they are doomed to remain poor.

I refute your message in your initial example that saving alone is enough. That’s all. Saying that I should be adding extras onto the positives is actually making my point for me - if they are to accomplish wealth, they need more than just this income.

pan

103

Oh, and FTR (and because I am nothing if not an egotist), jshore, it was me who introduced the distinction between a meritocracy and a “winner takes all” society.

pan

104

Heavens! In all the confusion I forgot to mention this:

Dal_Timgar’s back?!? Aieeee! We all thought that you were… ahem… obsolete. :wink:

pan

105

gaeila, what an extremely thoughtful, and though-provoking article! I have a long, hard workday ahead of me, but I will get back to you point by point when I have more time this weekend and can carefully consider your excellent points.

Regards,
Flex

106

This argument against the estate tax has been debunked. See http://www.responsiblewealth.org/tax_fairness/Estate_Tax/Estate_Tax_Background.html, and especially the links there on “Estate Tax and Family Business” and “Estate Tax Myths and Facts”. In fact, Republicans in the Senate even killed a bill that would have eliminated this problem for the vast majority of businesses and farms that are currently effected (which is already very small). Apparently, the very wealthy supporting repeal of the estate tax like to have these poster children and foot soldiers in the fight against the estate tax too much to actually consider reforms that would address what they claim to be their major concerns.

Here, by the way, is a quote from an interview with William Gates Sr. where he talks about the politics behind these sorts of claims (http://www.pgtoday.com/PGT/Articles/reflections_on_the_estate_tax_gates_interview.htm):

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he evidence on mobility can be evaluated by a number of criteria.

  1. If income mobility was extremely rapid, so that the population mixed like it was in some sort of blender, then a brief snapshop showing the income distribution at one point in time would be extremely misleading.

There is no evidence that income mobility in the US is this rapid. (Nor has this claim been made here.)

  1. Similarly, one might argue that income mobility increased during the period when income inequality increased. But I know of no evidence for this, at least through 1992.

  2. Finally, evidence on income mobility can be put forward to deny the contention that we live in a rigid class/caste society. Now, this sounds reasonable to me, given the empirical evidence. Indeed, Robert Frank and others who put forward the idea of a “Winner Take All” society avoid such a construction.

108

Well, the above site doesn’t seem to have its facts straight. In consecutive questions the answers are as follows:

Then:

Unless every family business in the country is a farm this isn’t possible.

Also:

Many would argue that capital gains should never be taxed, especially long-term, since the gain is illusory due to inflation.

109

Hmm – a little looking at the site in question makes it clear that they are considering farm assets as a separaet entitiy from fa,ily businesses, rather than a subset thereof. In fact, though, since the actual numbers given on the site are 780 estates with significant business assets and 650 estates with significant farm assets (out of 2.3 million estates in the sample) it would be possible for both 3 out of 10,000 (2.82 rounded up) to be farm businesses while 3 out of 10,000 (3.39 rounded down) were any type of business.

I see nothing to support your statement that the site does not have its facts straight.

As to capital gains, unless you are prepared to argue that no capital asset accumulates value outpacing inflation your argument is flawed as a case for repealing the estate tax (or other taxes on capital gains). It is an argument for taxing capital gains at a lower rate than income.

110

In addition to Spiritus Mundi’s point, I’ll add only that, by your standard, we ought not to tax savings account interest…which is currently not only taxed but, unlike “long-term” capital gains, is taxed at the full income tax rate. And, of course, historically I would venture to say that a much larger fraction of such interest has been eaten up by inflation than is true of capital gains which tends to outpace inflation more handily.

Of course, another problem with this “double taxation” argument is that it is pretty spacious anyway. Money (and other assets) are often taxed several different times as they work their way through our economic system. The idea is that money and assets tend to be taxed at the point where a transaction, or passing of money from one person to another, takes place. Inheritance is such a case. There is no a priori big-principle reason why such a transaction ought not to be taxed.

111

Interestingly, the Wall Street Journal used to advocate taxing long term capital gains at the same rate as ordinary income. That is, they supported that particular provision of 1986 tax reform.

Long term interest rates are believed to make an allowance for future (expected) inflation. So designing an inflation-neutral tax system is trickier than it might first appear.

(Note also that those investing in stocks or real estate benefit from postponing tax payments on the capital gains that they accrue each year, provided they do not sell those assets. Yet another demonstration of the power of compounding.)

112

Okay, now, where’s your cite? I would dispute this strongly. Certainly some actual statistics would be in order here and I’ll see if I can hunt something up.

This bothers me a lot. I think any truly objective person would have to agree that fair would be for every citizen to pay the exact same amount toward support of our government. It wouldn’t be practical, but it would be fair. Granting the practical limitations of funding government services, which should be kept to an absolute minimum out of respect for the requirement that the money is forcibly taken from hard-working people, perhaps it would not be too unfair if every citizen paid an equal portion of their income. This would allow the taking of much greater amounts of money from high income people. Unfortunately, the people (? - not sure when this was enacted) have decided to implement a progressive income tax structure that not only takes more money from the higher income earners, but takes a higher percentage from them. This is getting very far from fair. Still, to people like you, this is not enough. Our income tax structure has gotten more and more progressive fairly steadily over the years. Even GWBush’s tax cut increased the progressivity of the income tax by cutting taxes on the middle & lower income earners more than it cut for the higher income earners on a percentage basis. As it stands now, almost 50% of all people pay no income taxes at the federal level at all. This number is continuing to increase and at the point where the majority of people pay no taxes an interesting thing occurs - I hope you can see what can happen next. Since politicians would be able to raise taxes with impunity to buy votes from those who pay none, destruction of our society would be imminent. Was it Marx who said that democracy will end once the populace discovers they can vote themselves a free lunch?.

Yeah, I’m with you on corporate welfare and I am certainly in favor of a truly free market (although I recognize that many controls are needed for issues pertaining to tragedy of the commons and other certain situations). Most of these problems wouldn’t exist if we the people would insist on limits as written in the constitution instead of relying on government to try in vain to solve all of our problems.

What numbers would those be? Seeing as how the bottom 45%+ do not pay any federal income taxes now, how can you say they are paying too much? At what point do you stop progressivity? What percentage do you think a high income earner should pay? And what makes you think these “super-rich” are going to just sit back and let you take their money away? They have the means to leave - then where will you get the money you covet so dearly?

Even if some inherited it, and if they sit on it, what’s the harm? Somebody, at one time or another, created that wealth. It wasn’t stolen (if it was, that is certainly a different matter). Who are you to say what someone must do with their money. You want money to go to the government? Go earn it and give to them!

Hey, I’m no fan of Microsoft, but all of the money (and it has been substantial) I have paid them for their products was freely given in exchange for products that I found sufficiently useful to entice me to exchange my hard earned money for. You are not forced to use MS products - there are many alternatives - or write your own software.

Ugh! I hate this too, but it is definitely envy. I wish my employer would pay me millions to leave. I would gladly take it. However, they are not doing this with your money - it’s theirs. If they want to frivously hand it over to someone undeserving, that’s their business. I think the same thing about welfare, for the most part, but in that case it is my money.

This is absolute nonsense. The Gross Domestic Product of the US in 1980 was about $2.7 trillion. It is now about $10 trillion. If what you say is true, then the top 10% gained over $7 trillion (more if the rest of us got poorer). In the last 2 decades, the top 90% or more got richer and much richer at that.

I don’t even know where to begin to address this paragraph. When you say “money will be freed up” you imply that there is a limited amount of wealth and that the rich people are keeping it all to themselves. This is so incredibly ignorant, I’m not sure where to start. All wealth is created. Even diamonds must be skillfully mined, cut, and polished to have value.

I can’t argue with this on its face, however, I would argue that the catastrophic extreme result that you fear is not possible in a free market society. It is quite possible in a totalitarian society and is more likely the end result of Socialism than Capitalism. In a free market, people voluntarily give up their personal wealth in exchange for something of value to them and have incentive to work harder to create additional wealth in order to obtain more, or other, items that they value. Anyone who can create goods that are particularly pleasing or valuable to the largest number of people end up with the greatest wealth. But they can’t end up with all the wealth without the coercive power of an intrusive government who can forcibly take wealth from people. You see, a true free market is constant creating and exchanging wealth. People move up and down the economic scale with much liquidity, but the general trend is to gradually acquire wealth with age.

Whatever I believe, I do not think it is for others to decide what a free individual can do with his or her life, or how much wealth is allowed to be acquired, or what must be done with that personal wealth. You want to tightly control the behavior and personal property of others and I consider that to be morally wrong.

I just thought of a slightly crummy analogy, but I’ll lay it out there anyway. Many people would say that it is bad to go too fast in a car as it is dangerous and could kill someone. Is it possible to design a car that will only go 65 MPH? Yes it is, but it would be quite undesirable. Why? Because it would be a crummy car even when running below 65 MPH. It would have limited acceleration and other undesirable, and potentially dangerous, characteristics. You are trying to design a society without rich people. You can do that, but we would all be poorer than we are now. I don’t want that.

What pains me about this statement is that it has been made consistently for the past 60-70 years. We have been making this argument and making the changes you suggest almost continuously for that entire time. Taxation continues to become more and more progressive. I ask you - when is it enough? The argument you make seems so reasonable and it is impossible to argue against without seeming to be in favor of helping the rich and harming the poor. But if taxation has continued its march inexorably toward progressivity and you say the rich continue to enrich themselves at the expense of the poor, how can you possibly believe that this is the right path?

I’m curious, let’s just take it to the extreme and confiscate all of the income of the top 1%. How much of the federal budget would that cover? When you find the correct answer to that question you will understand how futile what you advocate really is.

They’re not obligated to create jobs or do anything else with their money, if you believe in freedom.

Bad, agreed, but tragic? I don’t know, compared to the strife endured by people who were not fortunate to be born in a free society, I have difficulty seeing the relative tragedy.

Air and water are cleaner today that at the turn of the century and certainly cleaner than what results from a socialistic society.

Quite illegal and should be prosecuted.

I have my faith and trust in liberty of man and free market principles. That concept has created the greatest and wealthiest society in the history of civilization.

I am a staunch Libertarian. I believe that some taxation is necessary to fund a very minimal government to provide defense of the country and enforce our constitutional rights. I believe that personal liberty combined with a free economy unleashes the human potential and that has been demonstrated clearly in the US and elsewhere it has been tried. I believe that taxes should be lowered for everyone, but since the rich pay the vast majority of the taxes, they should have their’s lowered the most (that would most certainly not include me). I don’t know how to fix all of the problems associated with the tragedy of the commons and, even though I agree that it is one of the biggest flaws of free market capitalism, I think it is something that should be dealt with case by case.

I would call on you to think it through carefully what happens in a Democracy when a minority of the people pay all of the taxes. It is not hyperbole to state that this results in a sort of slavery of the minority and that when politicians can take money from a small group to give to a majority, who can repay the favor with re-election, you do not have a fair situation.

I would like to say much more, and I wish I could express more clearly what I did say, but I fear this is getting too long. I also realize that I made a number of statements without cites or statistics to back them up. I’m looking for them, but my time is limited. I didn’t intentionally distort any facts to support my beliefs. However, my fundamental driving principle is LIBERTY and you don’t need any statistics to see how much of what you advocate takes liberty away from some in order to ease the burden for others. When done forcibly, I believe it to be very, very wrong. Isn’t that very same reason why you are against slavery?

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It is highly, highly questionable whether this is the fairest method. It in fact seems quite likely that those that earn more also get more from government. Take Bill Gates…He not only benefits from his own education but also from the education of all of his employees. You may recall that when Bush first took office, he met with two bunches of business leaders. The first were from old-guard industries and their main concerns were apparently tax cuts. But, when he met the high tech industry leaders, they apparently expressed much more interest in education than tax cuts. Wonder why?

One (although not the only) concept of fairness that one could use is that each person pays in according to the amount of services they use and benefits they get, but this is completely impossible to calculate.

Another concept of fairness would be to try to maximize “total utility” in which case one would take a much larger chunk (even fractionally) from Bill Gates than from a poor person because that money would make that poor person a lot more happier than Bill Gates.

There are as many concepts of fairness as there are people which is why we collectively as a society must decide what to do about the fruits of our collective labors. There are no easy answers.

You really have to provide cites for statements like this, which you are going to have a hard time doing since it is manifestly incorrect. In terms of income tax rates, the rates were much higher—I believe up to 70%— before Reagan. And, the important thing that those against progressivity in the tax system do when talking about it is to conveniently discuss only federal income taxes. It so happens that state income taxes tend to have little progressivity. The social security tax is a flat tax rate up to a certain income and then cuts out, making it regressive. [For a rather substantial portion of the population…almost half I believe…the payroll taxes take a larger bite than the federal income tax.] Sales taxes are definitely regressive given that the poor spend nearly all of their income (or more!) while the rich have the luxury of saving and investing much of theirs. And, even in the income tax, the lower rate of taxation of capital gains, as well as other loopholes, makes income tax less progressive than it appears.

Considering only federal income tax, which I have pointe out is the most progressive, Benjamin Page and James Simmons [“What Government Can Do: Dealing with Poverty and Inequality”, 2000] conclude:

Maybe Marx did, but then Marx, like libertarians, was rather naive in certain ways. I appreciate that this danger could exist in theory but in practice we seem to victimized much more by the opposite danger…I.e., of the wealthy being able to use their considerable power and influence to get most of what they want. You’ve got a nice theory…it’s just that the data and facts ain’t there to support it.

Well, I am very pleased to hear from someone who actually buys Microsoft products because they enjoy them. I end up buying them because I am pretty much forced to in order to be able to communicate with the rest of the world. If giving the choice between TeX and Word, I’ll choose TeX. This argument that The Market always allows us more liberty and freedom is simplistic in the extreme.

Well, unless you, unbeknownst to the rest of us, live on some sort of desert island and don’t have to use any collective services to get your money, then in fact it is not completely “your money”.

Again, I would argue that this is factually incorrect.

Okay, here’s a rough estimate for you: According to Citizens for Tax Justice, the average income of the top 1% [I believe of “households”, although I’m not entirely sure] is $915,000. If you assume that there are an average of 3 people per household then you get something like 90 million households, so there would be 900,000 in the top 1%. Thus, the income of the top 1% is roughly $800 billion or so. By comparison, the total receipts of the federal government in 2000 was, according to federal budget data, ~1.96 trillion of which $950 billion was from individual income taxes. So your answer in very rough terms is that the combined total income of the top 1% is equal to nearly all of the individual income tax receipts and about 40% of total receipts.

Absolutely true. However, in making decisions on policy of taxation, we are certainly free to consider how people use their money in order to determine the economic impact of these policy decisions.

And I believe that libertarianism is much like marxism…an extreme theory that looks great on paper but works like shit in practice. Markets are great in some ways, but they are far, far from perfect and should not be the only way in which a society can choose to govern itself.

Another problem that I have with libertarianism is that it implicitly seems to assume that the only way people oppress each other is through government. I happen to believe that this is not true and is particularly not true in our country at the moment. (And, to the extent that it is true, the libertarians who I’ve argued with seem to give pretty short shrift to the most dangerous aspects of government such as its corruption by the forces of economic power and wealth to serve their ends rather than to regulate them.)

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By the way, while searching for some web materials on progressivity of taxation (which I didn’t manage to find), I came across the following detailed article on income inequality in the U.S. from the Economic Policy Institute:

http://www.epinet.org/briefingpapers/inequality/inequality.html

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I know you want to bounce the subject around to confuse the issue, but please stay with one thing at a time. If you don’t want to continue to discuss federal income taxation as it relates to the OP, that’s fine, just let me know and I’ll move on. Education funding from the federal level is microscopic relative to the total budget (as it should be).

Well, the two largest pieces of the federal budget are defense and social services. I’d say we all share equally in the benefits of defense and I’d say the poor are certainly the biggest recipients of social services (at least one would hope they are - if they’re not, then we have conclusive proof that welfare, which is unconstitutional IMHO anyway should be devolved back to the states where it belongs). That’s why I say sharing equally is impractical, even though it might be more fair.

Ah, equal pain. That seems reasonable, but somehow doesn’t feel right. I’ll have to give it some more thought.

You see, this is where we differ fundamentally. I think the rights of the individual trump the rights of society. I still say your position defends slavery and allows mass murder by totalitarian regimes.

It seems to me that when you have an extremely complex tax code, that merely looking at a marginal rate table is too simplistic and does not give you the true picture of taxes paid. When RR lowered the marginal rates across the board, he (actually, congress, I guess) also closed most tax loopholes that allowed many very high income earners to avoid taxes entirely. The best indicator of progressivity would be “Total Income Tax Share” as stated by the IRS. Here is a table for the years 1980-1999 that lists this value for the top 1% and the bottom 50% (it also lists top 5%, 10%, 25%, & 50%, I leave those out here to save space, but in general all categories above 50% increase systematically while the lower 50% decreases systematically, even through the Reagan years). You can find this data and more here

Total Income Tax Share (percentage of federal income tax collections paid by each group):

Year Top 1% Bottom 50%
1980 19.29% 7.02%
1981 17.89% 7.42%
1982 19.29% 7.32%
1983 20.73% 7.11%
1984 21.79% 7.27%
1985 22.30% 7.10%
1986 25.75% 6.46%
1987 24.81% 6.07%
1988 27.58% 5.72%
1989 25.24% 5.83%
1990 25.13% 5.81%
1991 24.82% 5.48%
1992 27.54% 5.06%
1993 29.01% 4.81%
1994 28.86% 4.77%
1995 30.26% 4.61%
1996 32.31% 4.32%
1997 33.34% 4.26%
1998 34.75% 4.21%
1999 36.18% 4.00%

I am preferring to focus on federal income taxes for this discussion since a person has options to change state and local taxation by virture of choosing where to live. I can’t do this and remain an American with federal income taxes. Also, payroll taxes should be excluded from this discussion since they are obstensibly an insurance program that returns more than what is put in. It is only appears regressive because it is capped both in benefits as well as payment.

My data table above takes that into account and lays that argument to rest.

Please don’t put words into my mouth. Scroll back and tell me where I said that.

Ah, so you do have a choice, don’t you?

Don’t be obtuse. You know what I am saying. If some portion of my money funds some portion of a service, then I have a say and justification to complain. When a company overpays any employee, it is not using any of my money.

Thanks for the data. I believe your statements above are absolutely correct. And currently those top 1% folks are paying about $350 Billion of that $950 Billion. That’s 1% of people with only 20% of total income paying over 36% income taxes. I call that above and beyond paying their fair share.

If your intent was truly based on economic impact you would want to tax the wealthy the least since it is they who create the jobs for the rest of us. However, your intent is actually to equalize the economic condition for everyone which makes us all poorer.

I don’t dispute the need for certain regulation. I just don’t agree that it is okay to forcibly hurt one group in order to lessen a burden on another. Wealthy people are people too.:slight_smile:

Certainly not the only way, but it’s probably the best and most common way.

Only the government can legally point a gun to your head and make you do their bidding or risk loss of freedom or livelihood (or life if it’s a less benign government). Bill Gates, as much as he desperately wants to, cannot force me to buy any Microsoft product.

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The main thing the government does, and largely the reason we have a government at all, is to create the concept of, and protect, personal property. There can be no ownership without government. Therefore the super rich receive a proportionally greater benefit from the government based on their wealth.

I agree that the rights of the individual are the most important, but I don’t see how that applies here. Slavery and mass murder are about the fundamental rights of life and freedom, which I believe are the rights of every individual. Money is created by society (unless you want to print your own money with your face on it, but it won’t be worth much). Is it incomprehensible to you that a society would create something (money) in order to facilitate the working of that society, and then continually make sure that it is indeed working, rather than putting the right of money above the more fundamental rights of the individual that you profess to defend?

You seem to have two arguments. You say that it is wrong to go against the intrinsic human right of money, even if it would alleviate burdens, and I would argue that if the burdens are of a more fundamental nature than that of hoarding immense wealth, then the more fundamental individual right should prevail. You may agree with me on this, but we may not agree on what burdens are more fundamental. In any case, you say it doesn’t matter because of your second argument, which is that taxing the wealthy actually makes us all poorer because they create the jobs. I don’t know if you really believe this because elsewhere you have said that the super rich have no obligation to create jobs. You were close to the truth when you said that, because jobs are not created out of charity. Jobs are created because they need to be done, because they will generate money for the employer. Giving extra money to the super rich will not create jobs, because they already have enough money to start a business. They can already hire the amount of people that will give them their best profit. To create jobs money needs to be in the hands of people who are looking to start a business, but don’t have enough money, or in the hands of people with lower incomes who spend all their income and more. Given more money they would spend it, thus increasing demand and giving the super rich a reason to create jobs, other than charity, which would make all of us, including the super rich, more wealthy, rather than poorer as you say. It is not lack of money that is causing the super rich to not create more jobs. It is their ability to accumulate such massive amounts of money with what they already have that encourages them to get every last drop from their current situation, even at the expense of everyone else and through the power of bribery, instead of trying anything new or improved.

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Number one in my mind would be national defense. Following that would be protection and enforcement of the Bill of Rights, which would include property rights as you state above. How do you place a value on government protecting your freedom of speech, etc? I think your method of valuing government benefits is more self-serving for the purposes of this debate than anything else.

Well, I consider money to be personal property. You claim that the government can take away a person’s money arbitrarily then where does that leave your argument about benefits to the wealthy expressed in the first paragraph above?

I said they have no obligation, not that they didn’t do it. They most certainly do do it in order to become wealthier (you can never be too rich or too thin, doncha know?). In the process of them becoming wealthier, so do we, though to a lessor degree potentially, depending on how well this guy runs his business.

As I said.

But we’re not talking about giving the rich any money. We’re talking about letting them keep the money they have rightfully earned. I think it’s obvious that they cannot start a business with money that we’ve taken away from them.

That’s what banks and other lending institutions are for.

Your comprehension of economics is somewhat shallow. That same money would be spent anyway, whether by the person who originally earned or the poor person it was given to, or it could be invested by the original person to create a new factory with jobs. This allows the money to multiply and thus we have economic growth. Redistribution of the cash does not cause growth.

Sorry, I’m not following this part.

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Well, I am happy to discuss it, although I don’t think it is useful to discuss only the most progressive tax when discussing inequality. And, I think it is relevant to consider the various benefits that people get from the government too.

Actually, with “social services”, you’ve grouped in social security and medicare which are not going exclusively to the poor by any means. I haven’t been able to find a number for “welfare”, but it is not that huge a hitter. And, in fact, there is also, of course, corporate welfare.

Also, Bill Gates is a lot more dependent on the roads than I am. If the federal highway system disappeared tomorrow, I could probably get by better than Microsoft. Furthermore, is a homeless person living out of a shopping cart benefitting as much from defense spending as Bill Gates who has considerably more property to defend? [Sorry to pick on you so much, Bill, especially after your father has been doing good work in opposing the repeal of the estate tax!] That is not even to mention the extent to which our military spending has been used to further the economic ends of corporate America.

No. I am a strong defender of civil liberties and a longtime contributor to the ACLU. Where we diverge somewhat is on property rights. I believe in them but not to the extent that you do, mainly because I think they are fuzzy lines. In physics, when you have a strongly interacting system such as a superconductor, it no longer makes sense to think in terms of the individual constituents … e.g., the electrons. Likewise, in a complex economic system such as ours, the line between “your money” and “my money” gets pretty fuzzy. It is still useful to draw some sort of line, at least partly so people aren’t always fighting over stuff.

But, libertarians suffer from believing that the line represents some sort of exact objective God-given reality. E.g., every cent you make is yours and ever cent the government taxes they are stealing from you. I think there is some fundamental indeterminancy in how we choose to divide up the money from our collective enterprise of society. If you want to opt out of the society, then I won’t go ahead and stop you, but you got to really opt out … of the benefits as well as the burdens.

Fair point there. It was too simplistic for me to just mention the higher tax rates. In fact, as you note, the changes in progressivity that occurred with the Reagan tax code changes were not nearly what the changes in marginal tax rates would apply because noone was paying anything even close to those higher income rates.

Well, no, this is not the best indicator for one very important reason: If the share paid by the richest 1% increases because the richest 1% are now getting a larger share of the pre-tax income, that does not indicate an increase in progressivity. It just indicates an increase in (specifically pre-tax) inequality. And, in fact, if you look at the link that you sent me to, you will see that this is precisely what happened! Yes, the richest 1% paid 19.3% of the income tax in 1980 and 36.2% in 2000, but if you scroll up just a tad on the link you posted, you’ll see that during that time their share of the total adjusted gross income (AGI) increased from 8.5% to 19.5%. Thus, their percentage of the AGI went up by a factor of 2.3 while their portion of taxes only increased by a factor of a little under 1.9. This, needless to say, does not indicate increasing progressivity. Rather, it indicates the opposite. (Well, at least at the top end of the scale.)

Now, granted the fact that they paid 36.2% of the income tax while having 19.5% of the income shows some progressivity even if it has decreased, but as the book I mentioned before explains (1) with the income tax, we are looking at the most progressive of major tax burdens and (2) some of this may illusionary; for example, AGI reflects incomes after deductions and the rich generally have greater deductions. (There are lots of attempts in the literature to assess progressivity that are discussed in this book. I haven’t gone back to these original sources myself but I can give you the references if you are interested.)

You’re right that this gets complicated. This is discussed in the book I mentioned too. And attempts to assess the overall progressivity of the SS system are complicated by the fact that right now a lot of the surplus revenues are being used to fund general programs. Of course, in the future these are supposed to be paid back. But, at any rate, the point apparently still holds even with benefits considerations that the income tax is the most progressive of the major taxes.

This is sort of a one-sided way to look at things. I could just as easily say that it is the people who buy the goods who create the jobs. I think of the people who buy photographic film as paying my salary not our overpaid CEO (who, I’ll admit, is lower paid than most CEOs of other Fortune 500 companies) or the people who invest in our stock (who mainly just follow the people who buy the film).

There is a quote from Filene, the big Boston retailer, from early in the 1900s who said something like [I don’t have the exact quote]: “I don’t mind if the people take half the money that I make. I took it all from them in the first place.” Unfortunately, now we seem to have progressed to the point where not only do rich people not think they made any of their money from other people, but they actually think we ought to be thanking them and showering them with tax breaks because of all the money that they have created for us! Such is “progess”!

I don’t want to hurt them. Look, I myself am much closer to the wealthy side than the poor side. And, in fact, if I was voting my pocketbook (at least from the point of view of taxes), I ought to have voted for Bush. I hardly think (and in fact rather vigorously oppose the policy) that I need a tax break and I have an extremely hard time understanding why people way way richer than me would need one.

Well, you know, I have heard lots of people give this sort argument and at some level I just have to say, “Well, I guess our views differ on this.” Simply put, I do not find the burden imposed on me by taxation by the government to be very onerous. It’s only freakin’ money for God’s sake! I find much more onerous the sort of burdens I face in everyday life that I trace to companies like Microsoft and GM and … But, hey, that’s just me.

Another point I will throw out is that just because people make a “free exchange” in the marketplace does not mean there is not coercion and very other problems (such as lack of information) involved. As an extreme but illustrative example, if you are drowning in the ocean and I happen by in my boat, I could probably get you to give in to my demand for all your money, most of your properties, half your future earnings, … in return for rescuing you. However, this is not really my idea of a fair bargain even if we do both agree that we benefit from it over the alternative!

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This, in fact, is not true. Economists talk about different multiplier effects for different ways of injecting money into society (or transferring money from one person to another). Admittedly, this is a complicated subject and without further data it is hard to say whether redistributing money from poor to rich is better or worse than redistributing from rich to poor. However, the fact is that most people agree that when the economy is in recession, the fastest way to produce economic activity is to give money (e.g., tax breaks) to people who will spend it rather than to people who will save it. And, the poor spend more of their income than the rich. When it comes to more long-term generation of economic activity, things become more complicated. What one can say with confidence is that certainly the sort of simplistic supply side (“trickle down”) notions promulgated under Reaganomics [whereby you decrease taxes on the rich and end up with more government revenue because the economy expands to more than offset the lower tax rate] have pretty much been proven wrong to all but a few diehard adherents.

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Oh yeah…One other point I wanted to make is that libertarians are very selective in which “rules of the game” they want to start changing. I.e., they want to get rid of “redistributive” schemes like welfare. But, they don’t then start questioning other schemes like corporate law and intellectual property (patent) law, etc. These laws weren’t exactly willed by God and they have huge redistributive impact.

As a concrete example, let’s say we were all put in a big room to found our society and someone said, “Here I am going to propose this corporate law structure and it is going to improve the average standard of living by 14% over the Leading Brand but it is also going to produce a much broader distribution of living standard so that 10% will be way, way better off and 90% will be worse off, many of them considerably worse off.” Now, I would argue that there is no fundamental principle governing whether we should adopt this proposal or not. John Rawls, for example, would say, “No fucking way…I want to maximize the standard of the least well off person.” [I personally happen to think Rawls is too extreme in this direction, by the way.] Others would have different views. Still others might propose that we adopt this corporate law structure but with an amendment to redistribute the income so that we get both a higher average standard of living (which may or may not be as good as the 14% rise mentioned above) and a more equal one.

And so it goes. There is simply no way to selectively open up the Pandora’s Box on income distribution and selectively throw away those things a libertarian would deem to be “redistributive in a bad way” (which often seems to be downward, probably not surprisingly if you were to look at the funding sources for libertarian think-tanks) without also considering those that a libertarian would like (which, I believe, would tend to redistribute upward).