Pissing Down Your Leg

Thoughts on Economics and Economic Policy

Archive for the ‘Class warfare’ Category

Republican “Intellectuals” View Life as a Game

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Alec MacGillis writes about Mankiw’s defense of the tax treatment of carried interest. At the end he (doesn’t) link to Matt O’Brien who links to a Mankiw blog post saying the exact opposite.

This is what I mean when I say that those academics and other public intellectuals on the right view this whole thing as a game. It’s not about doing what’s right and it’s not even about doing what you believe to be true. It’s about confusing the issue so that your masters can do what they want.

But it’s not a game. Allowing hedge fund managers to pay 15% in federal income taxes instead of 35% robs the Treasury of much needed revenue, putting a burden on current and future tax payers. It also increases inequality in a way that simply didn’t happen fifty years ago.

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Written by Liam C Malloy

March 6, 2012 at 1:01 pm

The CBO Makes the 99%’s Point: They’re Eating Our Pie!

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The CBO very thoughtfully made what I believe is the main point of the OWS protesters. The main income growth over the last 30 years has gone to only the top 1 percent of the income distribution, leaving everybody else only marginally better off than we were three decades ago.

The growth in (after-tax!) income by quintile is striking:

Growth in Real After-Tax Income from 1979 to 2007

Source: Congressional Budget Office

The first four quintiles have seen less than 50% growth over 30 years, or less than 1.4% per year. And as you can see that’s much smaller for the bottom 40% who have seen income grow less than 1% per year. Meanwhile the top 1% has seen after tax income grow by 270% over the same time period, or 3.6% per year.

That means that every group except the 1% have seen their slice of the American pie shrink between 1979 and 2007.

Shares of Market Income, 1979 and 2007

Source: Congressional Budget Office

I’m just glad that the 99% is finally waking up and demanding that we do something about it. So while I’m no protester (I’m much to soft and squishy), here are a few suggestions:

  • Increase the marginal tax rates, especially on the top 1% (my next post will expand on this).
  • Put a Tobin tax on financial transactions, say $0.05-$0.10 per share (or the equivalent).
  • Pass a constitutional amendment that says all federal elections are to be financed with only public funds.

Growth in GDP per capita comes from the entire economy. It comes from businesses competing for your dollar and coming up with new products and better ways to make old products. It can be strong when the top marginal tax rate is 90% (as it was in the 1950s) or when it is 39% (as it was in the 1990s). It can come when the top 1% is getting 7% of the national income and when it is getting 15% of the national income. We simply have to choose which world we want to live in.

I believe the three suggestions above will slow the growth of the top 1 percent’s income, reduce the size of the financial sector, and make the government more accountable to voters rather than those who donate. That’s the world I want to live in.

Written by Liam C Malloy

October 27, 2011 at 9:45 am

Three Cheers for Eric Schoenberg!

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Eric Schoenberg has an article at the HuffPo about how little he paid in federal taxes for 2010. Out of his income of $207,415 he was able to deduct $155,466 plus another $14,600, leaving him with only $37,349 in taxable income. His federal taxes then amounted to $2,173 for a tax rate of 1.0%. His take: Thanks a lot, but this is insane. Under my proposal he would have paid $43,147 in taxes, for a tax rate of 20.8%. Now, if that were the case he might be writing a different article (Why Are My Taxes so High?), but at least we would be paying the bills.

Now, there are a few problems with my tax proposal. The main one I’ve been thinking about, is that doesn’t take state (or local) income taxes into account which can lead to a higher marginal tax rate. Ideally, the maximum marginal rate would be 50% (half for me, half for the society once you get above a fairly high threshold), so maybe I should reduce the top rates somewhat. Of course, perhaps simply allowing the deduction for state and local income taxes takes care of that.

However, the more I think about deductions, the less sense they make, especially from a libertarian point of view. A deduction (outside of deductions for other taxes) is basically the government saying, “I approve of how you spent this money so you don’t have to pay income on it.” You bought a house? Great, don’t pay taxes on the interest. You pay for someone to take care of your young child? No tax on that. You spend a lot on medical bills? Let me just reduce your taxes for you. Why should the government have any business telling us (or at least influencing us on) how to spend our money? It doesn’t make sense.

I wouldn’t normally describe myself as a libertarian. I believe in the glue and benefits that society provides. In order to make it a society in which I want to live, a society that takes care of its poor, elderly, and unlucky, I’m willing to pay taxes and make my fellow citizens pay them as well. But I’m still an economist. I still believe that people should, for the most part, be able to decide to spend their money how they would like to.

But in order to do that we need to make sure that our higher income people, like Eric Schoenberg, pay their fair share. I’m glad he was willing and able to use his own example to show that the rich often don’t pay their fair share.

Written by Liam C Malloy

April 27, 2011 at 2:53 pm

Class Warfare

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Whenever the working class bring up the exorbitant salaries of the rich, they are accused of engaging in class warfare. The rich seem to have decided that the best defense is a good offense, and rather than try to justify their unjustifiable incomes, they accuse the plebs in the bottom 90% of fighting a class war.

Steven Geenhouse, over at the NYT Economix blog, links to a site from the AFL-CIO that points out that the average salary of 299 CEOs at S&P 500 companies averaged over $11 million in 2010. I’m sure that pointing this out will lead to claims that the AFL-CIO is engaging in class warfare.

As I’ve pointed out before, the income for the top 1% and the top 0.01% has been growing out of control for the last 30 years. The most obvious thing to do would be to tax all of that income at a fairly high rate. That will either bring pay down (to levels from the 1950s-1970s when the American economy was strong and growth was shared) or it will raise a lot of tax revenue that can be spent on education and infrastructure that should support growth in the future.

The major problem is the top 1% (and top 0.01%) which has increased its share of (non-capital gains) income from 8% in 1981 to almost 18% in 2008. Those numbers are 0.7% in 1981 and 3.3% for the top 0.01% (all of about 15,000 households). But the whining of those in the top 5% (say percentile 95-99) also pisses me off. These are the people who have an average income of around $200,000 (almost twice the income of my family, and I realize I’m rich almost every day) and complain that they’re not really rich.

Catherine Rampell (also at the NYT Economix blog) notes that 2/3 of people earning over $250,000 think their taxes are too high. Well this group has increased its income share from 12.9% in 1981 to 15.7% in 2008. The real average income for this 4 percent of the population increased from $130,000 to over $200,000 during that time period. Meanwhile the average income of the bottom 90% went from $30,199 to $30,981, a whopping $782 per year (“Yeah! We can take that vacation to the movie theater this year!”).

The comments on Rampell’s post just make me want to puke. Here’s my favorite of the one’s I read from JH:

What is “rich?” I wouldn’t say someone is “rich” unless they have significant discretionary income. When you say “rich” people think of Donald Trump, and they would certainly be right. But, unfortunately, under this columnist’s definition of rich, a lot of very hard working people who have very little discretionary income are being caught in that net. And that’s unfair. As another poster noted, 250K is one thing in a place like Cincinnati, another in Washington, DC or San Francisco. My wife and I both work, have three children to support, have a nice but modest home in a nice neighborhood in DC, have two cars, and we try to go on vacation once a year. We make about 250K. We get nailed by the alternative minimum tax every year. After we take care of expenses – mortgage, utilities, car payments, education and day care, insurance, and of course, taxes, guess what? We have nothing left. There are probably millions like us. We are paying taxes through the nose and they are going up everywhere we turn. You want to bash us for being rich? Fine. We’ll vote Republican then. But we ain’t rich. The Democrats are making a BIG mistake if they think families who make 250K are rich!!!

Ok, maybe JH and his wife couldn’t earn the $250k they do if they lived in Cincinnati (I can’t help but wonder if either of their jobs is related in any way to the Federal government and the taxes he hates to pay). But I know a little bit about this area, and they could live very well on $250k a year if they so chose. If they want to send their kids to public schools, I would recommend Silver Spring or another town in Montgomery County. They could have a reasonable house for the five of them for under $500k. If they wanted to live like kings, just move over to Prince George’s County (Greenbelt is very nice and quite affordable). True, the public schools are fairly stinky there, but I know a great private school for only $8k a year.

My only point is that the top 5% doesn’t seem to know how the bottom 90% lives. Or maybe these people do know how the others live and want nothing to do with it. But when you earn $250k a year you are rich, no matter where you live. You are very close to the richest 1% of all Americans (threshold income in 2008 was $340k). Could you have more money? Yes. Would you enjoy more money? Yes. Do you need more money? Most definitely not.

Our family income puts us right at the 90th percentile. Like everybody else, we would like more. And because of the spending decisions we’ve made we don’t have much extra from month to month. But that was a choice. We live in a nice town in a nice house. We drive decent cars and send our kids to nice schools. But just because we can’t afford that vacation to France or even California doesn’t mean we aren’t rich. We are and we know it.

Maybe it’s time to remind those in the top 10% or top 5% or top 1% how rich they are. Maybe if the bottom 90% is going to be accused of class warfare it should actually engage in some class warfare. Maybe it’s time for some political candidates to run on a truly progressive platform of taxing the rich, spending it on public goods, and making America as strong as it was 50 years ago.

I’m not going to hold my breath.

Written by Liam C Malloy

April 19, 2011 at 10:03 pm