Quote of the Day: Plutocrats!
When you have a progressive tax system, especially when there are surcharges on people making seven-figure incomes, you also have a system where for any given level of national income, the greater the inequality, the greater the government's tax revenues. And indeed federal revenues have been rising faster than median wages for decades now, thanks to the rich getting ever richer.
Given the government's insatiable appetite for cash, it's only natural that it would prefer to tax plutocrats, spending some of that money on poorer Americans, rather than move to a world where poorer Americans earn more (but still don't pay that much in taxes), and the plutocrats earn less, depriving the national fisc of untold billions in revenue.
The government's interests, then, are naturally aligned with those of the plutocrats — and when that happens, the chances of change naturally drop to zero.
This is true. But it's not very true. To see why, take a look at how progressive the federal tax system is. The chart on the right is from a 2004 paper by Piketty and Saez, and it shows the total federal tax rate (income tax, payroll tax, etc.) for various income groups.1 As you can see, it's progressive, but it's not that progressive. And that makes a difference.
Here's why: although the top 1% (the four richest groups in the chart) has a lot of income, the 60-80th percentile has about the same amount. That's because although their incomes are a lot lower, there are a lot more of them. So what happens if that group loses, say, 10% of its income and it goes instead to the very tippy-top earners? Answer: total revenue to the government goes up about 1%. The same is roughly true for the other income groups as well.
In other words, the federal government doesn't have much of an incentive to maintain lots of income inequality. Not much fiscal incentive anyway. For the most part, the political incentives swamp the fiscal ones, and unfortunately they aren't very closely balanced. Pursue policies that raise middle class wages, and the effect is so diffuse and so slow that hardly anyone notices. Pursue policies that benefit the rich and you get immediately showered with oceans of campaign contributions. That's mostly what motivates our political economy, I think, not tiny changes in the total tax take based on changes in income inequality.2
1The chart starts at the 60th percentile because, basically, there's hardly any income to tax below that. This is mostly an argument about the middle class vs. the rich.
2Plus, of course, the fact that the rich basically control the country and have an entire political party dedicated to their interests. But that's a whole different post.
Comments
I'm confused. 60% of the
I'm confused. 60% of the country earns virtually no income?
Isn't that Salmon's point then? That if we moved more money down to the bottom 60%, it wouldn't be taxable anymore, while if the same money is concentrated up at the top 1% we can tax the crap out of it.
Actually, the chart shown is
Actually, the chart shown is hardly relevant, as those are not corporate income tax rates. Because there is probably not a single one of the top 10 percentile of people that declares a substantial share of his/her income personally, so government revenues could increase while improving distribution. Rich people only need to personally declare a tiny fraction of what they make (which is what they spend), and a large chunk of their spending is done through their companies to boot.
Kevin Drum explains American
Kevin Drum explains American politics in a nutshell: "Pursue policies that benefit the rich and you get immediately showered with oceans of campaign contributions."
That pretty much explains it, and follows the first rule of investigations: follow the money. Unfortunately this basic and obvious point doesn't get nearly enough attention, either in this blog or elsewhere.
With due respect Kevin,
With due respect Kevin, today's QOTD surely is coming from Ben Bernanke.
I sure hope Paul responds directly to what Bernanke said today.
Because with friends like Bernanke, the American People don't need enemies.
Politicians interests aren't the sane as governments.
While government revenues might respond in a particular manner, politicians respond to other things -such as big money special interests, and sometimes even to popular demand. Tweeking things to maximize government revenue is not something that motivates politicians -and they are the ones making the decisions.
We've reached the point where
We've reached the point where middle class and above lose 35% of their income to just the income tax. Think about that: Take somebody in NYC, making an upper middle class income of $200,000 or so. Between federal income tax, state income tax, city income tax, social security tax, medicare tax and sales tax, she is quite likely forced by the threat of imprisonment to turn over half her income to the government. Effectively, the person is forced to toil for the government through January, February, March, April, May, June, and a bit beyond, and then they are permitted to start earning for themselves. At the point where most of your income is taken from you by force*, are you even a free citizen any more? Our tax system is turning the middle class and above into serfs, while the poor vote themselves endless benefits.
*Taxation is a legitimate function of government, but all taxation is ultimately done at the barrel of a gun. Your choices are to either pay up or not to pay up. If you don't pay up, and the government is aware of this, they will come and either fine or imprison you. If you don't pay the fine, then they'll imprison you. If you attempt to regain your liberty, the guards will use force against you, quite possibly lethal force. Taxes are therefore ultimately extracted under a death threat. The modern tax code therefore uses death threats to force people to turn over more than half their income. It's sickening.
"At the point where most of
"At the point where most of your income is taken from you by force, are you even a free citizen any more?"
Such citizens have a clear choice. They can reduce their incomes, become poor, and vote themselves endless benefits. I wonder why more upper middle class people don't do that?
As a matter of strict
As a matter of strict cost-benefit analysis, she may very well be better off doing so. The only thing preventing that is a strong work ethic in many cases.
Of course. On a strict
Of course. On a strict cost-benefit basis it makes sense to give up job where you only make $100k after taxes, and take one where you can keep $15k a year after taxes, plus get food stamps.
You're failing to factor in
You're failing to factor in how high stress and high effort the jobs are, and that people who hold them tend to have high student loans, at least early in their career. If you're working 80 hours a week and losing half of your income to the government, another couple thousand a month to student loans, a significant chunk more to the costs of maintaining the job itself (professional clothes, dry cleaning, continuing education, licensing, etc.)... well, your hourly wage isn't really that great compared to somebody who dropped out of high school and started working retail. $200,000 divided by eighty hours a week divided by fifty weeks (allowing for two weeks of vacation a year) divided by half for taxes is the princely sum of $25 an hour, before factoring in the aforementioned expenses and student loans. It's a far closer question than you give it credit for.
LOL, the princely sum of $25
LOL, the princely sum of $25 an hour adds up to $100,000 annually. $50,000 annually if you only work a 40 hour work week. A lot of people would agree that's good money regardless of how stressful you believe your white-collar job is.
For instance, I doubt your stress could compare to a meatpacker, where screwing up your job can mean permanent mutilation. And they make the princely sum of $11 an hour!
Oh, $11*80*50= $44,000. If you only work a 40-hour week, it's $22,000. And yes, that's before taxes. Are you actually pretending that's the same as a take-home pay $100,000?
And on the low end, a meatpacker makes $8.24 an hour. Are you seriously pretending $100,000 after taxes is comparable to $33k/$17k before taxes?
I love this idea that people who earn $200k+ a year are totally victimized compared to poor people, yet because we're much better people we don't choose to follow our economic self-interest. Yes, it's SMARTER to be poor, only we're so moral and hard workin' we just choose not to be.
I'll happily agree that people earning $200,000 pay way more than their fair share of taxes compared to guys like Warren Buffet, for instance. (Warren is still waiting to pay out his $1 million dollar bounty to any fortune 500 CEO who can prove he pays a higher percentage of his annual income in taxes than his secretary does).
But sorry, people earning $200k are in paradise compared to the person who works the slaughterhouse floor. And they sure get a lot more benefit from the status quo than that poor guy, who also pays taxes to support the status quo.
Who are kidding?
She receives services for her taxes. She is kept safe by the police, she might send her kids to public school, commute on the subway, enjoy eating in safe restaurants, etc.
And if she doesn't think she is getting value for her taxes, she is free to move somewhere else. No one is stopping her. She is absolutely free to move anywhere in the world that will have her. Serfs, if you read your history (which I doubt), were bound to the land.
No she can't. The US will
No she can't. The US will tax you no matter where you live, even overseas, and even if you renounce your citizenship there's an Orwellian "exit tax." The US is one of the few countries with both of those provisions.
Your example gave someone who
Your example gave someone who lived in a high tax muni. If she doesn't like it, she can go live in Alaska with the caribou. Some people make that choice. That's why they aren't serfs.
If she doesn't like ther Fed taxes, she can vote. If she still isn't satisfied, she can move to a low-tax paradise like Somilia and renounce her American citizenship. I'm sure the exit tax is no small price to escape "tyranny." Good riddance, I say.
As we saw, though, even
As we saw, though, even somebody who avoids state income tax can still have 35% of their income taken by the government. And, again, nobody with significant assets gets out without paying the Orwellian exit tax. And the men with guns come for anybody who doesn't play along. The tax police state is worse than anything Bush ever did.
People making 200,000 a year don't "toil"
Waah! I have to make due on 140,000 a year after taxes. What will become of me!
Only an idiot would fail to see that the middle class and the poor are being turned into serfs by the excessive wealth of the rich, a condition ensured by our current tax system. No people can be free in the context of such an immense disparity in wealth. Only taxation of this excessive wealth can return freedom to these shores and return control of the government to the people.
So
um, you are saying that taxation is an symptom of freedom? So if I go off and live on another planet by myself but there is no one else there to tax me then I am not free? Quite confused here.
"Our tax system is turning
"Our tax system is turning the middle class and above into serfs, while the poor vote themselves endless benefits."
What?? Can I be a serf? Oh, I"m such a lucky ducky that I don't pay any taxes. My endless benefits have ensured that there's not much of a tax burden at the food bank.
Good grief, people. The top
Good grief, people. The top tax rates in the U.S. are where they were in the Reagan and Clinton years, which as I recall, were pretty good years for the economy, and laughably below top tax rates in the 40s, 50s, 60s and 70s. Those years also coincided with some mighty worthwhile public service and infrastructure projects that kept employment high and everybody happy. And I never heard as many well-off people bitch about taxes in those years as I do now.
Alejandro You Jest!
I doubt that higher wage jobs have that much more stress than lower wage jobs. In fact, it might be just the opposite in many cases. I know I'd rather work as a professional than as a menial laborer, even if the pay were the same...
I'm sorry, but this just
I'm sorry, but this just can't be said often enough: the poor/middle class pay tax on their income (generally, their salaries/wages). The rich and the super rich pay tax on a number. That number, in general, has absofucking-lutely-nothing to do with what they actually earned in the year. Why? Because they generally have overpriced tax accountants (like me), that spend all day manipulating that number, on which they pay tax.
So, no: if you take a general tax payer's salary of $100 dollars and you transfer it to the super rich, it will just simply be structured in such a way as to turn it into $10 of income, and tax will be paid on that amount.
It is just meaningless to discuss "Income Groups" when all the tax-planning work goes towards manipulating the "Income" number, not the tax rate.
(That's not to say that's an argument against shifting tax to the uber-rich, so much as it's an argument that the rich should be paying MUCH higher rates than they're currently paying).
This analysis ignores economic activity
The income of the poor is immediately spent and then spent again and again in quick succession, each transaction contributing to both federal income tax revenue and local and state sales tax revenue. What money the rich do not sit on more often finds itself invested in speculations and fraudulent money games that contribute nothing to the overall economic activity of the nation, and that's when it doesn't go to China or India. Furthermore, the rich have available to them loopholes that allow them to shield much of their income from taxation. A cursory look at the tax table is insufficient analysis to reveal these dynamics, as I'm sure that plutocratic propagandist Salmon well knows.
You undermine
your entire post by slipping in a gratuituos personal insult in your last sentence.
"The income of the poor is
"The income of the poor is immediately spent and then spent again and again in quick succession, each transaction contributing to both federal income tax revenue and local and state sales tax revenue. What money the rich do not sit on more often finds itself invested in speculations and fraudulent money games that contribute nothing to the overall economic activity of the nation, and that's when it doesn't go to China or India."
Awesome analysis. The rich don't spend a dime on food, clothes and shelter. They just park their money in offshore accounts and don't pay a dime in taxes.
Your analysis is nothing short of asinine.
Look, Einstein, when it comes to income taxes, the poor don't pay any. Not a dime. The rich do. And the rich buy food and clothes and houses just like poor people do. They also pay a lot more in taxes, taxes that the poor don't see. Estate taxes, business taxes, capital gains taxes, property taxes, etc. So don't try to convince anyone that the rich just hoard their money and don't do anything to pay taxes or help the economy. The only way you can keep your money from helping the economy is if you keep cash under your mattress.
You can tell the rich to go screw themselves. That is your right. But you can't blame them for not wanting to lower their tax burden. When you step up and propose to be first in line for paying their tax burden, then you may have something. But you won't. No one wants to pay taxes. But almost everyone wants the benefits of some government program.
Welcome to the real world.
the poor poor poverty challenged...
What is capital gains other than income you don't have to do physical work for , and the tax rate drops down to 15%, the same as the lowest taxed income bracket has.
I think this is a law kept on the book from the days of slavery, where a free man or an irishman didn't own the product of his labor, and would be paid less than slave labor was, because it went to the slave owner.
It's neoslavery.
I think Felix Salmon is a
I think Felix Salmon is a smart guy and then he says something like this, and I think he's idiotic.
All I can figure is that he looked at politicians as executives of a business, and figured that by analogy board members (donors) and shareholders (voters) would get pissy if they saw earnings sucked, so the path of least resistance to juicing earnings is to funnel more GDP to people who pay high tax rates. But that "let's check the quarterly financials" attitude is simply not AT ALL the mindset of American political life.
Plutocrats are powerful. Making them happy means they do good things for you. They give you money to get re-elected. They give your staff jobs. Trips, perks, access to other powerful people for you and your family forever. They are nice to you, which flatters your ego. The newspapers they own say nice things about you and your political party and philosophy. There's a bazillion reasons you should want to make plutocrats happy that have nothing to do with progressive taxation. And, uh, all of them make a lot more sense when you think of politicians' real motivations.
So, one of the things politicians do to make plutocrats happy is they lower marginal tax rates and deficit spend instead! This puts money directly in plutocrats' pockets!
It's simply not a coincidence that the party which says "unions are teh suck" is also the party opposed to the estate tax and which lowers marginal tax rates. They are not eliminating these things out of some complex desire to make our nation less dependent on funneling money to rich people to balance budgets. It is because money in rich people's pockets makes rich people happy.
It's Occam's razor, here.
So, sure, progressive taxes could theoretically create an incentive for a politician to funnel more money to plutocrats in order to balance the budget. The same way the existence of prisons could theoretically create an incentive for a sociopath to commit crimes so he can test out his sociopathic theory of how to get his fellow inmates to murder guards.
But really, I don't think that's what's going on here. Sociopaths don't murder people so they can go to prison, and Republicans don't lower marginal tax rates so they can make rich people poorer.
Party
Although you do not bother to state the obvious, it might not be clear to all that when you state "the fact that the rich basically control the country and have an entire political party dedicated to their interests" you are refering to the Democrat Party. By a large margin, that is the party to which the richest slice of Americans belong. The average joe working at the Mercedes plant in Tuscaloosa, Alabama, on the other hand, sends their money and votes to the more populist Republican Party. ( Though it is hard to imagine today, the Republican Party at one time was considered the party of the rich and elite).
Bob in Alabama
data manipulation?
Unfortunately, I can almost see both arguments (sort of). Unfortunately, because both arguments are flawed. Salmon's because of an assumption that politicians will act logically to oversimplified economics. Drum's because of some patchy data.
Were I cynical, I'd be tempted to say the lower end of the tax chart was conveniently left off. (Also, in addition to tax rates, another chart showing the actual revenue from each income range would have been beneficial.) Reading Salmon's post, I did not come to the same conclusion as Drum, that "This is mostly an argument about the middle class vs. the rich."
talking at cross-purposes
Unfortunately, I can almost see both arguments (sort of). Unfortunately, because both arguments are flawed. Salmon's because of an assumption that politicians will act logically to oversimplified economics. Drum's because of some patchy data.
Were I cynical, I'd be tempted to say the lower end of the tax chart was conveniently left off. (Also, in addition to tax rates, another chart showing the actual revenue from each income range would have been beneficial.) Reading Salmon's post, I did not come to the same conclusion as Drum, that "This is mostly an argument about the middle class vs. the rich."
(sorry if this double-posts)
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