Who Really Benefited From the Bush Tax Cuts? @PolicyMic | Gary W. Patterson, Jr.

Who Really Benefited From the Bush Tax Cuts?

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PolicyMic

Many believe the Reagan and Bush tax cuts overwhelmingly benefited the wealthy. However, data from the non-partisan Congressional Budget Office (CBO) shows that poor and middle income Americans have benefited more than the wealthy.

In 1979, the poorest 20% of earners paid no income tax. By 2007, that same group had a negative income tax rate of 6.8%. In other words, they took home 6.8% more than they paid in to the federal government. Middle income Americans paid an effective income tax rate (the amount paid after deductions) of 7.5% in 1979. That rate was cut to 3.3% in 2007, a drop of more than 50%.

What about those dastardly one percenters? Back in the days of Jimmy Carter, Americans in the top one percent of earners paid an effective tax rate of 21.8%. The effective tax rate fell all the way to ... wait for it ... 19%.

Even when taking into account all federal taxes, the poor and middle class have benefited more than their wealthy counterparts. In 1979, the total effective federal tax rate (including payroll taxes, excise, capital gains, estate, and corporate taxes) was 8% for the poorest Americans and 18.6% for middle income earners. Thanks to the Reagan and Bush tax cuts, those rates fell 50% and 23%, respectively. The top one percent of earners had their total effective tax rate fall 21% over the same time period.

The tax code has also become more progressive. As indicated above, the top 1% of earners now pay an effective income tax rate of 19%, nearly six times the percent paid by middle income earners (3.3%). In 1979, the differential between the rate paid by the top one percent was less than three times that of middle class earners.

Not surprisingly, the wealthy are also paying more of the tab now than they did 30 years ago. In 1980, the top 5% of income earners paid 37% of all income tax revenue, while the bottom 50% paid 7%. By 2009, the top 5% of earners paid a whopping 59%, while the bottom half of earners paid just 2.25% of the total pie.

The wealthy also pay more than their representative income would dictate. According to the most recent data available from the IRS, the top 1% earned 17% of the total income in 2009.  Meanwhile, they paid 37% of all the taxes paid. The bottom half of earners took in 13% of the 2009 total taxable income, yet paid just 2.25% of the total tax revenue. 

But haven’t all these tax cuts blown a hole in our budget? The answer is no. Despite across the board tax cuts, revenues remained at or near historic levels as a percentage of GDP until the financial collapse in 2007. In fact, tax revenue as a percentage of GDP was exactly the same in 1979 as it was in 2007: 18.5%. With the recession, tax revenue has dipped to 14.9% of GDP, while spending has risen to 25%, which accounts for our widening deficit.

If current tax rates are left in place, the CBO projects that tax revenue will return to historic levels by 2021, while spending will remain well above historic levels, 26% of GDP. The picture gets even worse with time. The CBO predicts spending to reach 34% of GDP by 2035. It would be impossible to collect 34% of GDP in revenue without steep tax increases on all Americans; including the poor and middle class. There simply aren’t enough rich people to pay the bill. To put this in perspective, in order to close the budget gap in 2010 solely on the backs of those making more than $250,000, the two highest tax brackets would have to rise to 132 percent and 142 percent. Of course, it’s impossible to tax individuals more than 100%; even if it were desirable.

In sum, the tax cuts enacted by Reagan and Bush have benefited the poor and middle class more than the wealthy. Their taxes have been cut more drastically than wealthy Americans, and many have been taken off the tax rolls altogether. In 2009, a majority of Americans paid no federal income tax. The poor and middle class also pay a far lower percentage of the total revenue pie now. Despite across the board tax cuts, revenues have remained essentially constant. Unfortunately, our spending has ballooned, and is only projected to increase with time.

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Gary W. Patterson, Jr.

I have a BA in Political Science and Masters Degree in Public Administration from Seton Hall University, followed by a J.D. from New York Law Sch...

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The Bush tax cuts cost nearly $4 trillion dollars in the 10 years since passing. They were financed by borrowing, not spending cuts. To spend is to tax, so these cuts just mean higher taxes later. 66 percent of the tax cuts went to the top quintile. The top 0.1% got a tax cut of $520,000, 450 times what the middle income taxpayer received. The bottom 20% only got 1% of the tax cut. The tax cuts were sold as a way to bring middle class jobs and rising middle class wages. They did neither. Only the wealthiest Americans received pay increases while middle incomes stagnated.

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The problem is the increase in income inequality across the US. If you look at the Gini index, Reagan saw the largest percentage increase in inequality since the index has been tracked. Bush was on track for 2nd place until 2007 with the market crash. Their tax cuts are often cited as the reason.

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5 Replies

  • Gary W. Patterson, Jr. 2 weeks ago They may be often cited, but where&...

They may be often cited, but where's the evidence? Wouldn't the poor have been even poorer if not for the tax cuts? Their federal tax burden was cut in half.

Sure the higher income earners also received a tax cut, but there's no reason to believe their explosion in growth was attributable to the tax cuts. The top 10% of earners had their total federal tax burden fall from 29 to 26%. Do you think that's enough to explain the difference in incomes? I don't think so. Our economy simply changed. Tax policy had little do with it.

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4 Replies

  • David Gray 2 weeks ago The evidence is that the Gini index...

The evidence is that the Gini index rose more when those tax cuts were enacted. Circumstantial? Yes, but the numbers don't lie. Inequality rose substantially more under Reagan and G.W. Bush after their tax cuts were enacted.

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  • Gary W. Patterson, Jr. 2 weeks ago I don't deny that the two even...

  • David Gray 2 weeks ago I am very careful not to state that...

  • David Gray 2 weeks ago BTW, it's also a great tactic ...

I don't deny that the two events occurred contemporaneously. Does that mean one caused the other? That's where we apparently differ.

Let's assume that you're right, the wealthy got exponentially better off b/c of the tax breaks. Does that mean the poor got poorer? No. The poor would have been even poorer if not for the tax cuts. So my question is this: would you rather have the poor and middle class doing worse (i.e.- less after tax income) but have a lesser degree of income inequality b/c the rich didn't do as well; or would you rather have the poor/middle class do better (i.e. more after tax income), but a greater degree of inequality?

Why do I care how much Bill Gates makes? Does his billions make me poorer? Of course not. For simplicity sake: would I rather make 100K/yr, w/ the knowledge that a select few are making a billion; or would I rather make 75K w/ the wealthiest Americans making 100 million. I know which option I would pick.

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I am very careful not to state that X caused Y bc there are too many externalities in the equation. The same can be said about your assertion that the poor and middle class would be worse off if the cuts hadn't had happened. It's a great opinion that might be true, but it is not provable.

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BTW, it's also a great tactic lots of people use (asserting things as 'common sense' even though they have no data to back up the assertion). Not to long ago Ben Stein called out Bill O'Reilly on this: http://bit.ly/AlMoEz

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Sure I can accept your contention that individual tax rates have fallen more for the middle and lower quintiles. However, as Ben mentioned before you failed to see how the decrease in corporate taxes and increase in subsidies benefited the wealthy over everyone else. In addition, the median income in 1970, $47,400, only rose to $58, 400in 2005 compared to income for the wealthiest increasing 5-fold during the same time period, from $2 million to $10 million. Reagan's entire contention with "trickle-down" economics was that the money from the top would flow down throughout the economy however, what we have seen in the last 30 or so years is that the income and wealth has just become more concentrated at the top.

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1 Replies

  • Gary W. Patterson, Jr. 3 weeks ago My point is that it has little, to ...

My point is that it has little, to nothing, to do with tax policy. The poor/middle class didn't advance as quickly as the wealthy b/c of many factors; chief among them international competition.

Even if tax policy had remained the same; the rich would have made more gains than the poor/middle class b/c of the changing economy. In fact, they may have been even worse off b/c they would have had a much higher tax burden; 50% higher in the case of the poor.

Finally, corporate taxes aren't some huge hit on wealthy people as you seem to suggest. TO the contrary, it's the consumers and employees who pay the price of corporate taxes in the form of higher priced goods and lower salaries/benefits. Or, as has been the case over the past few decades, the corporation simply decides to ship its operations overseas where the corp taxes are even less.

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Gary, The one thing you didn't mention is the shrinking corporate contribution to our tax base. The one "personhood" who knows how to garner the system and has the ear of politicians to lower their rate and allow them to move industry and jobs out of the country while not being taxed but accumulating deferred profits only to be taxed upon repatriation as bureaucratic red tape increases in the US.

Our spending is out of control and there is no doubt. Though there are those who still believe that fiat currency and unlimited debt is possible. They are fooling themselves as other nations find out the hard way that there is no such thing as a free lunch. Bonds must be repaid. Interest eventually becomes overwhelming. Entitlements unrealistic.

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We can argue stats till Gingrich jumps over the moon but anyone with access to 1% of their brain knows the bottom line has been an obscene transfer of wealth to the top tier. The issue is not what did or did not cause it; it is whether it needs to be fixed. And that issue is nested in whether we want to be a country or a barony. At the moment we are on a crash course (pun intended) for the latter.
The slide has been somewhat checked by the shift in focus from austerity/deficit to inequality prompted by OWS. Naturally this has cued an increase in the clustering together in selfish defense by those who already have too much but can never have enough. There will be more battles in this so far almost bloodless civil war.

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10 Replies

  • Gary W. Patterson, Jr. 3 weeks ago A "transfer of wealth" im...

A "transfer of wealth" implies that the poor had their money transferred to the wealthy. Money wasn't "transferred" from the poor to the wealthy. The poor/mid income folks just had their wealth increase at lower rates than the wealthy. That's simply b/c there was less demand for their services than the wealthy. International competition largely factored into the equation. If the wealthy were taxed at a higher rate, the poor wouldn't have done any better. In fact, a strong argument could be made they would have done even worse. Certainly, the poor benefited from seeing their federal tax burden cut in half.

The wealthy would have done far better than the poor/middle class regardless of tax policy. The top 20% of earners had their total federal tax bill reduced from 27.5% to 25.3%. Are you really suggesting this 2% drop in taxes caused the disparity? Especially considering the poor/middle class had their tax bill cut much more drastically.

Raising taxes on the wealthy isn't going to result in the poor being more wealthy. It might make them feel better to know that Bill Gates only made 10,000x what they made instead of 50,000x, but that won't help them buy a gallon of milk at the grocery store, or garner them a higher paycheck at work.

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9 Replies

  • Tony O'Doherty 3 weeks ago Gary, what you say is factual but y...

  • Ben Poole 3 weeks ago Tony and Gary, All that you have...

Gary, what you say is factual but your conclusions only makes sense if you regard each individual as a profit center in isolation from the structure provided by national and state governments and the input from countless other institutions, individuals and shared resources.
Wealth is created as a group activity and then distributed to people in the group according to agreed or imposed societal rules. What’s at issue now are those rules and how they are concocted. The reason it is an issue is because of the results we can see all around us from implementation of the current values and rules. If you’re content with the way it is then good for you. But those who are not are entitled to look for resolution.

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6 Replies

  • Gary W. Patterson, Jr. 3 weeks ago "Wealth is created as a group ...

  • Tony O'Doherty 3 weeks ago Ah, the mythical “free market” ...

  • Gary W. Patterson, Jr. 3 weeks ago Your mixing a few different issues....

"Wealth is created as a group activity and then distributed to people in the group according to agreed or imposed societal rules."

What are these "agreed or imposed societal rules"? Are you referring to the free exchange of goods and services? If someone makes a billion dollars b/c they provide a good or service that millions of people enjoy, desire and are freely willing to spend their own money, what's wrong with that? Should the gov't decide how much that person's services are worth? Or how much that person should make in relation to the poorest among us?

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Ah, the mythical “free market” is back in the debate.
Would you be happy for someone who has no law degree or is not a bar member to be free to practice law freely – even if he or she was self-taught and skillful? How about freedom to ignore subpoenas, jury duty and, in your specialty, allow defendants to charge $100,000 a page for discovery documents and take months or years to deliver them? How about freedom for judges to award defendant’s cost to be paid by plaintiffs in failed lawsuits?
These “freedoms” are constrained by some of the agreed or imposed rules that keep the justice industry half-honest and partly functional. Other examples abound in other spheres of human interaction as you well know and profit from, Gary.

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Your mixing a few different issues. I have never argued against gov't maintaining law and order, and protecting private property. Those are the proper functions of gov't; it's what separates us from places like Somalia.

Accordingly, we need to have subpoenas, jury duty and discovery to adjudicate legal matters.

As you may be aware, TX actually has a loser pay system. While I don't think it's a wise policy, it's certainly legal.

As for whether I think people should be able to practice law w/o a degree? Go for it. Doesn't bother me in the least. If you want to pay someone to provide legal services who has no legal training, be my guest. If people are allowed to practice law, and they do a rotten job, they won't be in business very long. The same can be said for myself and anyone who actually went to law school.

In sum, of course gov't has a role to be played here. That being said, they should not be dictating how much one person makes vis a vis another. That should be left to the free market.

If a Steve Jobs devlops techology that makes millions of people's lives better, why begrudge him for making a billion dollars? Why should his wealth be limited to X times what the least among us earn? In the end it won't make the poorest any better off. In fact, the opposite is true.

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OK. So what difference do you see between public funds maintaining law and order and, say, maintaining social security or, for that matter, regulating pizza baking? All are services that don't exist spontaneously so require to be created. Both have value within the jurisdiction of the government and have aspects that overlap. Aren't you back to cherry picking?

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Of course there are grey areas. However, I would say that the purpose of gov't is to provide law and order, protect private property, and perform the functions that a private sector cannot, or will not, reasonably provide.

I guess my point is that it isn't the gov't's role to re-distribute or "transfer" wealth from the rich to the poor. Why? B/c there is no reason to believe the gov't will be any fairer in distributing income than the free market. In fact, the overwhelming evidence shows they won't. Take a look at the former USSR. The wealth was distributed based upon party affiliation, cronyism, back room deals, and bribes.

Is the free market perfect? Of course not. But unfortunately, man has never devised a system that works any better.

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It's the governments role to collect taxes on wealth--16th Amendment. If the market was so "FAIR" in distributing income for our labor, infrastructure (Enumerated Powers to build "Post Roads") and overhead that Biz feeds on to create its wealth, the Constitution wouldn't exist--we'd still be a confederation. According to G. Washington, "NO MONEY" was the problem with the US government under the Articles of Confederation. Georgia paid nothing and no state paid all of their U.S. taxes to support the confederation. The states paralyzed the US government. As proven over the centuries people and free market will not support government without power of law. IYE, how is USSR different than lobbyists and super pacs? FM not free nor responsible!

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Tony and Gary,

All that you have said is mostly true from different perspectives but none of which touch the "why" of the wealth becoming disproportionate towards the upper 1%. Corporations. You act as though an individual is a corporation as in the top 1%. No but they do own sizable ownership and control. They do have many and sometimes most expenses paid for by their corporations thus offsetting any personal taxes. Their net after tax profits can be easily attributed more to wealth accumulation than to availability for consumption as much of their consumption occurs via corporate expenditures which are tax deductible. One reason there has been a huge increase in revenue from the 1% from IRS audits has been from this area.

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1 Replies

  • Tony O'Doherty 3 weeks ago Ben I think Gary and I agree that t...

Ben I think Gary and I agree that the rules of the economic game influence the outcome. Where we differ is on the need to change the rules and, if so, where and how. This is the essence of the national and global debate.
The link I posted earlier addresses how these rules have reduced tax take form corporations while increasing other Federal taxes including significant increases in SS and Medicare tax.
I believe the rules need to be changed to, as I said, prevent this country morphing into a feudal barony to the detriment of everyone living here. An article in today’s LA Times has more on this and is close to my view of the situation.
http://www.latimes.com/news/opinion/commentary/la-oe-brooks-decline-20120201,0,149589.story
(Copy/ paste)

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One of the main arguments proposed by those who disagree is that the rich have benefited disproportionately than the poor. Your defense is that this would have happened regardless of the tax code, and it's true. But I think your first line is where the confusion arises: "...poor and middle income Americans have benefited more than the wealthy."

Yes, everyone has benefited, but the trade-off has been a massive increase in federal debt.

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3 Replies

  • Duncan Graham 3 weeks ago And due to this debt level, many so...

And due to this debt level, many social programs and safety nets are under threat of severe cuts or being defunded entirely. Now, these programs were perhaps unsustainable regardless of tax policy, and wasteful spending is a serious issue. But this increase in debt, which threatens programs targeting the poor and middle-class, is why people look to the tax cuts as bad economic policy.

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  • Duncan Graham 3 weeks ago This is also seems the basis for th...

  • Gary W. Patterson, Jr. 3 weeks ago I can see your point. Perhaps I sh...

This is also seems the basis for the claims that the tax cuts have benefited the rich disproportionately when taken in context.

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I can see your point. Perhaps I should have been more clear in that sentence. What I meant was that the poor received a greater percentage decrease in taxation than the wealthy; and they also ended up paying a lesser percentage of the total revenue pie thanks to the tax cuts. Those are both positive developments for the poor/middle class. Just imagine how bad off they would be today if they also had to pay 50% higher taxes? Their relatively slow wage growth wouldn't have been any stronger if only the rich paid more in taxes. The two aren't related.

As for the debt, the annual deficits were quite modest as a percentage of GDP until the crash in 07. You are correct to point out that everyone has benefited from the tax cuts; the problem is that the spending outpaced revenue. While revenues have been essentially constant; spending has continued to balloon. Why chase the spending w/ higher taxes? Why not try to live within our means? Especially when history has shown us that achieving more than 18% of GDP in revenues has only happened a few times (and never more than 20%) in the past 50 yrs despite much higher tax rates and a booming economy. We're now spending 25%, with projections for 30+ in the future. You could tax all the wealthy at 100% and you still wouldn't be able to afford 30% spending.

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I'm curious about how trickle down works when the trickling is in China--and in bank vaults.

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Since 1979:

Income grew by 275% for top 1%; and by 18% for bottom 20%.

Shares of after-tax income more than doubled for the top 1%, while the bottom 80% saw their after-tax income shares drop by at least 2-3%.

Since 1996:

"Taxes fell for most tax filers in the middle of the income distribution (i.e., the second, middle, and fourth quintiles). Taxes slightly increased for tax filers in quintile 1 by about 2%; the tax increase is due solely to a rise in payroll taxes paid. Total taxes paid by the richest 20% increased by about 15%—less than half the increase in income. The richest 0.1% of tax filers paid 33% more in taxes
in 2006 than in 1996—their taxes rose one-third as fast as their income."

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49 Replies

  • Benjamin Byron 3 weeks ago http://www.cbo.gov/doc.cfm?index=12...

  • Gary W. Patterson, Jr. 3 weeks ago Did I ever suggest that the top ear...

http://www.cbo.gov/doc.cfm?index=12485

http://www.fas.org/sgp/crs/misc/R42131.pdf

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28 Replies

  • Benjamin Byron 3 weeks ago The simple fact is that the Bush ta...

The simple fact is that the Bush taxes cuts (Reagan tax policies are not specifically cited in the article) had a beneficial effect on all tax filers, but had a disproportionately larger beneficial effect on the top tax filers. This is largely due to the changes in capital gains tax rates (dropped from 28% under Reagan to a historic low of 15% under Bush).

Effective tax rates for all filers have fallen, which is generally seen as good tax policy. Yet the result is a substantial increase of after-tax income captured by the top earners. The shift in after-tax transfers from the bottom 80% of income classes to the top income class is direct evidence of a decrease in progressivity, which is determined by net flows of after-tax monies.

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27 Replies

  • Ken Strote 3 weeks ago Benjamin, in case you didn't s...

  • Benjamin Byron 3 weeks ago Yeah, I'm not buying what Thom...

  • Ken Strote 3 weeks ago Benjamin, please explain why househ...

Benjamin, in case you didn't see this, I had posted it earlier:

http://www.youtube.com/watch?v=WrtoSx-NbLQ

Basically though, measuring changes in household income over time is simply an easy way to lie with statistics to serve someone's purposes. The fact is that household sizes have changed substantially since 1979, especially among the bottom 20%, which greatly skews any numbers that try to measure household income. Below is a link that details the argument much better than I can though.

http://books.google.com/books?id=c0meNxet5XYC&pg=PA141

Please read the entire piece as it really debunks household statistics.

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Yeah, I'm not buying what Thomas Sowell is selling. Here's a note from the full version of the CBO study I link above:

"Income is adjusted for differences in household size—specifically, by dividing income by the square root of a household’s size. (A household consists of the people who share a housing unit, regardless of their relationships.)

Income categories are defined by ranking all households by their size-adjusted income. Percentiles (hundredths) and quintiles (fifths) contain equal numbers of people. Households with negative income are excluded from the lowest income category but are included in totals."

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Benjamin, please explain why household income is used versus per capita? Why is household income not simply divided by family size? Why do households include people who share dwellings but who might not file together as a household?

But here is the big question: why do these numbers you present not include all the transfer payments (cash payments) and in-kind payments (e.g. free or subsidized housing). If you read more from the link I posted:

"In 2001...cash and in-kind transfers together accounted for 77.8% of the economic resources of people in the bottom 20%. In other words, the alarming statistics on their incomes so often cited in the media and by politicians count only 22% of the actual economic resources at their disposal."

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The CBO lists three measures of household income:

1. Before-transfer, before-tax;
2. After-transfer, before-tax;
3. After-transfer, after-federal-tax.

The CBO argues that "households typically make joint economic decisions" and "two people do not need twice the income to live as well as an individual living alone." "As a result, assessing economic status on the basis of per capita income (total household income divided by household size) ignores the benefits of shared consumption."

"In this study, CBO adjusted for household size by dividing household income by an adjustment factor equal to the square root of the number of people in the household, counting adults and children equally."

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Benjamin, are you saying that your statistics listed earlier - Income grew by 275% for top 1%; and by 18% for bottom 20% - takes into account all transfer payments?

As for the household adjustment, how does dividing size by the square root properly adjust for the advantages of shared consumption? Doesn't it instead magnify the disparity the higher the per capita income?


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For example, one household of 4 makes $20,000, and another makes $200,000. Using per capita measurements, the $20k household earns $5k per person, and the $200k household earns $50k per person, or a difference of $45k per person.

However using the square root "adjustment", the $20k household "earns" $10k per person, while the $200k family "earns" $100k per person. So the lower income example get's adjusted up 5k and the higher income example gets adjusted up 50k. Now it looks like a gap of $90k per person instead of $45k. That skews the results by a whopping 100%!

The simple fact is that each person in the higher income example does not actually have $90,000 more income at their disposal, so the stats are fallacious.

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Yes, those measures are based on the CBO's third level of tax analysis, the 'after-transfer, after-federal-tax measure. They refer to it as "after-tax income."

From the CBO:
"For example, a household consisting of a married couple with two children with income of $80,000 would have an adjusted income of $40,000 ($80,000 divided by SR[4]) and would have the equivalent economic ranking of a single person with income of $40,000 or a married couple with income of about $56,600 ($56,600 divided by SR[2] is approximately $40,000).

Your scenario is a bit misguided. It is improper to apply per capita judgments to household based data, as the household is considered a single income earner.

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Another way to say that is that per capita judgments only matter in per capita based income. As all of the statistics published by the CBO are household based, they do not suggest anything about per capita earners in households, therefore the results of your adjustment never come into play. The household adjustment makes each household a single entity with a single earned-income total.

The household measure is simply meant to take into account the economies of scale that can occur with the shared resources of a household, even unrelated or non-partner households.

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Benjamin, I fully understand that the CBO measures household versus per capita income, you don't need to make that argument. My argument is the fact that they use household income instead of per capita, and that they adjust it in such a way to make higher earners look even more wealthy compared to lower earners than they are. The statistic is phony and is used solely to amplify disparity rather than control for it. In my previous example (which will work in any example) the adjustment causes the 200k household to look like they are $360,000 better off rather than $180,000. It's a ridiculous measurement.

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"However using the square root "adjustment", the $20k household "earns" $10k per person, while the $200k family "earns" $100k per person. So the lower income example get's adjusted up 5k and the higher income example gets adjusted up 50k. Now it looks like a gap of $90k per person instead of $45k. That skews the results by a whopping 100%!"

In your example, you evaluate the "skewed results" by showing that the newly adjusted household income suggests a larger gap than actually exists. However, the CBO only extrapolates and analyzes the total adjusted household income. There is no per capita gap because there is no per capita statistic used in their analysis.

You claim to get household vs per capita, but your entire analysis is per capita.

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Sorry, can you explain that a different way, I didn't understand any of it. My argument is that measuring income by household is wrong because the results are skewed, and the adjustment formula makes it look worse. Let's use another example that is more extreme to illustrate.

Household 1 - 1 person with total income of 20k
Household 2 - 25 people with total income of 200k

Using the adjustment formula, household 1 has income of 20k, while household 2 is adjusted to 40k. According to the analysis, you would then conclude that household 2 is doing much better, even though each person only has 8k in aggregate available to them versus 20k for the individual living alone. There is no way to justify the difference as an economy of scale.

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"However using the square root "adjustment", the $20k household "earns" $10k per person, while the $200k family "earns" $100k per person. So the lower income example get's adjusted up 5k and the higher income example gets adjusted up 50k. Now it looks like a gap of $90k per person instead of $45k. That skews the results by a whopping 100%!"

OK, the adjustment would suggest that Household A earns $10k total, not per person and Household B earns $100k total. You suggest that, when taking the new adjusted per capita income into account (something the CBO doesn't do), you would see what appear to be skewed figures. However, Household B was always earning more, except now it is adjusted to for economic status.

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So the lower income example actually gets adjusted Down to $3.3k per person and the higher income gets adjusted Down to $25k per person. Both adjust down in proportion to their total income and household size. This is merely a weighted metric. There is no skewing.

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CBO: "In this study, CBO adjusted for household size by dividing household income by an adjustment factor equal to the square root of the number of people in the household, counting adults and children equally. That adjustment implies that each additional person increases a household’s needs but at a decreasing rate."

This seems pretty straightforward.

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Still not buying it. Were you going to also weigh in on my most recent example?

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So, your argument in Example 2 is that, because Household 2's earners only have an average of $8k to draw upon, the value of the $40k household is weighted incorrectly. However, one can infer several things from this: Household 1 is probably paying much more in housing costs, energy costs, and transportation costs, &etc than an individual in Household 2. There are economic benefits to multi-person households that have to get weaned from the measurement. What if HH1 costs $1,000/month in rent and HH2 costs $100/person/month? Economies of scale do and should get factored in.

In what way would per capita measurement be a more honest measurement?

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You are also assuming that each individual in each household is an earner. Children are included in the adjustment. In which case, it is not so clear to determine how income is shared within households. What if 5 of the 25 earn $40k each?

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"What if 5 of the 25 earn $40k each?" According to you, it shouldn't matter one bit, right? Certainly the CBO analysis does not take any of this into account. And I never said there are not economies of scale, I am saying that the calculation is distorted. You cannot tell me that the standard of living in a household with 25 in it earning 200k is better than one with one person earning 20k. And according to the calculation, household 1 is not just a little better off, they are double! Food, clothes, travel expenses, much larger housing facility needed, etc., make the calculation ridiculous. No matter how you look at it, 8k to spend per person per year is a ton less than 20k per person, yet the CBO analysis says that is not true.

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From OECD:

"Using household size as the determinant, equivalence scales can be expressed through an "equivalence elasticity", i.e. the power by which economic needs change with household size. The equivalence elasticity can range from 0 (when unadjusted household disposable income is taken as the income measure) to 1 (when per capita household income is used). The smaller the value for this elasticity, the higher the economies of scale in consumption."

The equivalence elasticity for the 'square root' scale is .50, or halfway between the two "extreme" measures, where per capita household income assumes no sharing of resources and disposable income assumes pure sharing.

The median measurement seems reasonable to me.

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Assuming an elasticity of .50 does not make me feel that the analysis is any more accurate than before. At the very least you need to take into account the diminishing marginal returns of larger families. For example, at some point you would need to buy multiple cars, multiple dwellings, etc, plus the inefficiency of overcrowding, forcing a family to split up, eat out more because the kitchen is too small, wearing out appliances faster. I could go on and on. The point is that making up an "equivalence elasticity" does not solve the problem, which is why per capita income is the closest way to truly measure things. Everything else is conjecture.

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I would appreciate it if your would describe the ways in which a per capita system would be preferable.

Will you admit that your first households example was in error?

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OK, Ken, I've been playing along for a while now, but I have to admit that I have no idea how to decipher this:

"At the very least you need to take into account the diminishing marginal returns of larger families. For example, at some point you would need to buy multiple cars, multiple dwellings, etc, plus the inefficiency of overcrowding, forcing a family to split up, eat out more because the kitchen is too small, wearing out appliances faster."

A dwelling is a household....? This would be subject to separate measures as separate households. You want overcrowding and forcing a family to split up included how? I don't really know what this means in the context of the current discussion.

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Also, reviewing the entirety of our discussion, I realize that your first debunking of household statistics was flawed, as household size is taken into account by the adjustment.

The next critique, that the size adjustment skews the earnings, is also false. Your first earnings example can attest to that.

You have to admit that it is reasonable for aggregate statistics to rely on the median elasticity equivalence of resource sharing, rather than rely on either of the extremes of zero sharing or pure sharing.

I'm just not sure that this discussion will prove constructive if continued further. It seems clear to me that the flaws you cited early and often are pretty overblown and/or nonexistent.

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Benjamin, I will admit that I didn't understand how the calculations worked initially, and built examples with incorrect calculations. That is fixed in the most recent example and still clearly illustrates the fatal problem with the methodology.

As for your stipulation that a dwelling is a household, I can have a very large family who I fully support yet still maintain multiple dwellings to house them. At a certain family size I would have little choice but to do this or purchase a much larger dwelling, which for the sake of this argument would serve the same purposes. A larger house bears larger costs.

You have yet to "debunk" my latest example. How can you justify the analysis that shows HH1 worse off than HH1?

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I will stipulate that in extreme housing situations the adjusted economic status can appear to be skewed. However, these instances are black swans, or outliers, in the statistical measurements. You could make the case in any statistical methodology that outliers skew the results and in most cases they are not used in the final tabulations.

However, I still think there is a fundamental misunderstanding here. The issues you raise in your most recent post are issues that exist outside of determining the economic status of income earnings in households. You cite specific costs and observations like 'standards of living' which are not meant to be part of the historical record of the income structure of the U.S.

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What methodology would be better? How would it account for your criticisms of the adjusted household measure?

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What methodology would be better? How would it account for your criticisms of the adjusted household measure?

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Did I ever suggest that the top earners didn't have their income grow faster than their poor and middle class counterparts?

For those poor people that had their after tax income drop by "2-3%", what would their after tax income be if they still had the tax rates from 1979? Back they their total tax bill was 8%. It was cut in half to 4%.

The rich were going to get rich regardless of the tax code. Notwithstanding, the poor are still better off b/c their tax burden is drastically lower than it would have been w/o the Reagan/Bush tax cuts. How does Bill Gates making a billion dollars effect a poor person's ability to buy a gallon of milk?

Finally, I would point out that despite the tax cuts, the wealthy also pay a much larger portion of the total tax bill now than they did in 1979; more than their representative portion of total income would dictate. Isn't that what all liberals want? The rich pay more while the poor pay less? Their progressive tax policies of the New Deal didn't do as good of job at redistributing the tax burden to the wealthy.

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19 Replies

  • Benjamin Byron 3 weeks ago I guess the point that a good liber...

I guess the point that a good liberal tax analyst would make here is to say that because the after-tax incomes of the top earners grew at ridiculous rates over the last 10 years, the effective tax rates were not optimal in achieving a macroeconomically beneficial after-tax transfer--one that would have reduced the deficit and decreased income inequality. Many conservative commentators are quick to brush such changes, which could be as little as a 3-5% increase at the top levels of income and capital gains, would not amount to much. However, changes in tax rates are not meant to affect economy-wide change over one year, but rather over a period of many years. The effect would have been considerable and good macroeconomic policy.

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18 Replies

  • Benjamin Byron 3 weeks ago Also, the power federal tax transfe...

  • Ken Strote 3 weeks ago So Benjamin, what should be the con...

  • Gary W. Patterson, Jr. 3 weeks ago A few things: The purpose of taxes...

Also, the power federal tax transfers should not be taken lightly. Alan Krueger suggests that the increase in total income captured by top earners from 1979-2007 was a shift of some $1.1 trillion from the 99% to the 1%. Because the top 1% save at a much higher rate than the average, if this $1.1T had instead been earned by the bottom 99%, the effect would have been about a $440 billion increase in consumption over that period, or a 5% increase in GDP.

http://www.whitehouse.gov/sites/default/files/krueger_cap_speech_final_remarks.pdf

More money at the top is not as beneficial to the overall economy as more money throughout, or, why income inequality is an issue to be concerned about for the long-term economic health of the U.S.

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So Benjamin, what should be the confiscatory rate for high income individuals in your opinion? You seem to believe "achieving a macroeconomically beneficial after-tax transfer--one that would have reduced the deficit and decreased income inequality" should be the goal. So what rate is prudent? How much should high earners get to keep?

By the way, your premise that high savings rates are bad and high consumption rates are good is a fallacy, at least for long term growth. Here is a great basic economics book for you to peruse:

http://books.google.com/books?id=BIOMtGClRbcC&pg=PA71

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A few things: The purpose of taxes is to raise revenue to fund necessary gov't functions. In raising that revenue, we as a society have concluded that the wealthy should pay a higher proportionate share than the poor. That being said, the purpose of taxation is not to punish the rich and transfer wealth.

Even if we raised taxes 3-5% on the wealthiest Americans, as you suggest, there would still be a great divide b/w the wealthy and poor. Should we just keep raising taxes until we achieve some arbitrary and subjective notion of fairness, irrespective of how much the gov't actually needs to perform its necessary functions.

"Because the top 1% save at a much higher rate than the average, if this $1.1T had instead been earned by the bottom 99%, the effect would have been about a $440 billion increase in consumption over that period, or a 5% increase in GDP."

What in the world makes you think tax policy could have possibly transferred the wealth gained by rich to the poor/middle class? The money wasn't given to the rich by the gov't. They earned the money in the free market. If the money was confiscated by the gov't, it wouldn't wind up in the hands of the poor/middle class.

The poor and middle class haven't had their income grow as rapidlyas the wealthy b/c of basic economics. The demand for their services hasn't risen as quickly as the wealthy. Many have been replaced by overseas competition. That has nothing to do with tax policy.

Raising taxes on the wealthy wouldn't have caused the poor and middle income to be any more wealthy. And the central point of my article is to establish that the tax cuts that are often pilloried by the left, actually resulted in a much smaller tax burden for the poorest Americans. They now have an effective income tax rate of neg 6.6%! Their total tax bill has been cut in half.

How does it matter to a poor person that Bill Gates is worth billions? Did he take the money out of the poor person's pocket by force?

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Perhaps we should just have a cap? The wealthiest Americans are only allowed to make X times the poorest worker?

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I'm not sure what the exact top rate should be; that is a complex question. I would be partial to modifying the tax code to reduce tax expenditures (credits, exemptions, deductions, etc) for reduced nominal rates. Carried interest should be taxed at nominal income tax rates and the top rate for capital gains should be closer to its historical average. Both of those rates significantly disequalize after-tax incomes and overwhelmingly benefit the richest Americans.

I did not intend to argue a pro-consumption/anti-savings line. Rather, I meant to show the effect that transfers to the wealthiest have on GDP. An argument has been made that the wealthiest are the job creators. I would argue the rich make businesses and hire based on demand.

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Tax revenue funds government operations, which include programs to support a variety of at-risk groups in the lower income brackets. Transfer income is the total of annual payments from the government through programs like Medicare, Medicaid, food stamps, housing assistance, and the like.

The progressivity of the tax system is based on this flow of payments, which has always been largely contributed by the richest Americans to the government and from the government to lower income groups.

And there are specific tax policy changes that have greatly affected the 'disequalization' of the tax code. Carried interest, capital gains, and lower nominal top tax rates have all led to substantial gains in after-tax income for the wealthiest Americns

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Actually, it's funny you should say that.

http://www.nytimes.com/2011/12/19/opinion/dont-tax-the-rich-tax-inequality-itself.html

The authors called it the "Brandeis Ratio", after the eminent early 20th century Supreme Court Judge Louis Brandeis. Rather than taxing the rich, they suggested you tax inequality. Essentially no earner could make more than 36X the median average of the past year.

Looks like the NYT beat you to it!

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What an awful idea. Do you really want central planners dictating how much people earn? Would they be any fairer than the free market? Is that the society you want to live in?

Should Albert Pujols only make 36x the hot dog cart vendor?

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Sure tax revenues fund payments to the "at-risk groups". But guess who is paying more of that tax revenue now than ever before? The wealthy.

"The progressivity of the tax system is based on this flow of payments, which has always been largely contributed by the richest Americans to the government and from the government to lower income groups."

True. Even more so today thanks to the tax cuts. The richest Americans bare a larger portion of that burden than ever in the history of our nation.

Why does it matter what the wealthy make in after tax income? If they were paying 50% of their total income in taxes, but still made a billion dollars after taxes does that mean the gov't should take even more? We don't judge how much should be paid based upon what they have left.

You should first determine how much the gov't needs to provide essential services and then determine how best to pay for those services. Let's say you need $4 trillion to fund the gov't. Find the most equitable way to get to $4T. The wealthy should pay more; and they do- a lot more. You don't go out trying to get $6T for the sole purpose of reducing their wealth, and thus the discrepancy b/w their income and those on the bottom. I've said this repeatedly: How am I better off if Bill Gates is poorer? I am not. He didn't steal my money. I gave it to him freely for goods I valued.

Did you ever think for a second that maybe, just maybe, the money would be better spent in the private sector as opposed to being laundered through a wildly inefficient gov't bureaucracy?

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Me? No. I disagreed with the premise. However, I thought it was a funny coincidence that you floated the idea ironically, given that the NYT had published an Op-Ed proposing nearly the same.

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From CRS:
"Total taxes paid by the richest 20% increased by about 15%—less than half the increase in income. The richest 0.1% of tax filers paid 33% more in taxes in 2006 than in 1996—their taxes rose one-third as fast as their income."

From the CBO:
"By 2005, the share of total after-tax household income received by the 20 percent of the population with the highest income had exceeded the share received by the remaining 80 percent. In 2007, those shares were 53 percent and 47 percent, respectively. In 1979, the top 1 percent received about the same share of income as the lowest income quintile; by 2007, the top percentile received more than the lowest two income quintiles combined."

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My issue is that the rich have been capturing a much larger share of the income and their taxes have not kept up. If we are dead-set on funding the government through taxes on earnings, then we need to change the structure of taxes to reflect where the earnings are going. If we need to pay down deficits it makes sense that we would raise taxes as a part of a deficit-reduction program.

After-tax incomes of the lowest quintiles of earners have decreased while the top quintile has increased, with the top 1% increasing dramatically. If we need to raise revenues (raise taxes), isn't it more judicious to raise it from the pockets of the haves, than from those of the have-nots?

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Benjamin, your premise of the rich are getting richer and the poor are getting poorer is simply not correct. The rich may be getting richer, but the poor are getting richer too and the lowest quintile are being replaced by different people. Even if we take your household statistics as accurate (which I have argued in another thread that they are also misleading at best), progressives never account for the fact that 95% of the poor from 40 years ago are no longer poor. Here is a short video that explains further:

http://www.youtube.com/watch?v=vDhcqua3_W8

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CBO: From 1979 to 2007, the minimum after-tax income needed to move from the 1st to the 2nd quintile of income earners grew from $15,411 to $18,979. The minimum needed to qualify for the top 1% grew from $115,965 to $252, 607.

This shift exhibits the 'richer effect' you are talking about. Sure, the poorest got richer, they just did so at a small fraction of the rate that the rich did.

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So if you agree that the poorest are getting richer, then your previous comment that "After-tax incomes of the lowest quintiles of earners have decreased" is not accurate. I don't think anyone would disagree that the rich are getting richer, but poor are not in worse shape than they were, they just aren't moving up at a rate you would prefer. Still, I would much rather be poor in the United States today than be the King of England circa 1500.

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CRS on '96-'07 shift: "The poorest tax filers (bottom 20%) saw average after-tax income fall by 6% between 1996 and 2006, while those in the richest quintile (top 20%) saw their average after-tax income rise by 38% over the same period. This rise in income is significantly smaller than the rise in income at the top of the income distribution. The richest 1% of tax filers experienced a 74% increase in after-tax income and the richest 0.1% (one tax filer in a thousand) saw their after-tax income almost double (an increase of 96%)."

Also, in monetary history, its a question of purchasing power, not absolute amount. I would much rather be King of England circa 1500, though 1800 would be better from a PP perspective.

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I bet you really wouldn't rather be King in 1500. You would probably have died before you were 40, had to live with some sort of major illness for the last half of your life, you would be sleeping with bugs and probably rats every night, your teeth would have started to rot by the time you were twenty, the odor of you and everyone would else would assail your senses constantly, etc. :)

As for purchasing power, as a poor person in the United States you would have infinitely more purchasing power today than in 1500. Not too many TVs, cell phones, cars, etc available in 1500, even for kings. I'll take today over 1500.

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Purchasing power is based on the relative amount of money to purchase the same basket of goods. Monetary history suggests that the currency of 16th century English Kings was much stronger relative to the dollar today.

Also, you are right to suggest conditions were worse and technology was vastly different, however earlier you suggested that it was monetarily better to be poor today than rich in England in the 1500s. That suggestion is false. I would however prefer to be well-off today than rich in the past, based on the difference in other conditions you bring up.

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"Data" tends to obey a fundamental law of quantum mechanics: You get what you look for--including the data that 450 economists (10 Nobel Laureates) signed a statement urging then President Bush to not enact the tax cuts. We could go on ad nauseum about what the tax cuts did and didn't do. However, it is at least suspicious that the predictions of the 250 plus economists who supported the Bush tax cuts that the plan to create more employment, economic growth, and opportunities for all Americans hasn't materialized into so much as vapor. And it is spectacularly disingenuous to blame Pres. Obama who has a congressional albatross hanging around his neck.

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6 Replies

  • Gary W. Patterson, Jr. 3 weeks ago I wonder if you are among those tha...

I wonder if you are among those that believe the stimulus bill has made our economy better. As I have heard it, the argument goes that things would be much much worse if not for the stimulus. We dubbed the new term "saved" jobs (a metric I never heard of until the Obama Administration).

What's to stop me from arguing that the economy of the 2000's would have been much worse, but for the tax cuts? Unemployment was very low and there was steady growth until the recession hit in the last year of the Bush Administration.

Are you arguing that the economy would have been better if only the gov't took more of our money out of the private sector during the Bush Administration? Try to find an economist not name Krugman who agrees w/ that. notion.

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5 Replies

  • Gary Sanford 3 weeks ago No, I think the stimulus was good m...

No, I think the stimulus was good money after bad but perhaps it staunched the flow of blood from a gaping wound that may yet be fatal. I won't take the bait of who/what inflicted the wound mostly because I don't have time to trade sources. Like I said, to my mind it's a matter of quantum mechanics all day long, for Krugman, too.

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4 Replies

  • Gary W. Patterson, Jr. 3 weeks ago Putting aside whether the stimulus ...

  • Gary Sanford 3 weeks ago It's probably a good idea to s...

  • Gary W. Patterson, Jr. 3 weeks ago You seem to be a little overly sens...

Putting aside whether the stimulus was good, bad or indifferent; how can you claim the tax cuts were ineffective in the 2000's just b/c they didn't achieve the type of you job growth/gdp growth you and others desire? Did you ever stop to think it would have been even worse with higher taxes? That seems to be the more logical conclusion in my opinion.

Btw, the unemployment was low and GDP growth was steady until the crash; which had nothing to do with tax policy.

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It's probably a good idea to stay away from the 2nd person in argument or you run the risk of appearing disrespectful that borders on ad hominem. I did not "claim" anything because "I" understand that politics is a partisan and an agenda-driven argument. I am an Indie and still very much on the learning curve. I do have my "leanings" but very few people know my "desires."

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You seem to be a little overly sensitive. I really don't see how anyone could read my post as the least bit offensive or bordering on ad hominem. I think I was reasonably interpreting your earlier post:

"We could go on ad nauseum about what the tax cuts did and didn't do. However, it is at least suspicious that the predictions of the 250 plus economists who supported the Bush tax cuts that the plan to create more employment, economic growth, and opportunities for all Americans hasn't materialized into so much as vapor."

I certainly didn't mean any disrespect.

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"Suspicious" is not a claim, which is why I used it, and I suspect as a former English teacher I am oversensitive to the use of 2nd person in essay (I forever warned my students to never "you" me), but also because I live in Poland where, like many countries, using the 2nd person is considered too direct and rude unless one is well-acquainted with the person or audience. It's all a matter of preserving respect for PM so that it doesn't spiral into the "teeth gnashing" that I see on other venues where comment is allowed.

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By carefully picking statistics the article seems to suggest that the rising tide generated by the tax cuts lifted all boats but when you factor in all the Federal taxes a different picture emerges. It reveals the significant effect of overall taxation in creating the wide income and wealth disparity we see today.
In particular one sees the decreasing contribution to total revenue from our newly minted people, the corporations, as opposed to the enormous increase in revenue from Social Welfare and Medicare taxes that take a grossly disproportionate chunk of the incomes of middle and lower class individuals. It also shows the tiny minority of working age who actually pay no taxes.
http://www.truth-out.org/tax-issue-yet-again/1327675059

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1 Replies

  • Gary W. Patterson, Jr. 3 weeks ago I gave you all the data from the CB...

I gave you all the data from the CBO and IRS. I wasn't cherry picking. You can look for yourself.

Changes in taxation didn't create the income disparity. The rich were going to do better than the poor regardless of tax policy. By comparison, the tax cut for the wealthy was less than their poor counterparts.

The total effective tax rate (including all fed taxes) for the top 20% fell from 27.5% to 25.1% in 07. Are you telling me that 2% drop in effective rate caused this huge income gap? Meanwhile, the poor had their fed tax burden cut in half.

Yes, SS and Medicare taxes rose. They'd be bankrupt today if not. But even taking that into consideration, the poor's taxes fell by 50%.

As for corp taxes, guess who pays those? The consumer.

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Gary, the article is exhaustively researched and thorough, and the points come across clear and true. By and large, I agree with your evaluations. However, look at this chart:

http://www.cbo.gov/publications/collections/tax/2010/average_after-tax_income.pdf

The after-tax income of the upper brackets has increased at a rate faster than others. This disproportionate increase seems the main argument for higher taxation of the wealthy.

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2 Replies

  • Gary W. Patterson, Jr. 3 weeks ago Thanks for the compliments. I am ...

  • Gary W. Patterson, Jr. 3 weeks ago Finally, raising taxes on the wealt...

Thanks for the compliments.
I am not arguing that the wealthy haven't made more money over the past 30 yrs than the poor/middle class. Of course they have. My point is that they would have made more money than the poor/middle class regardless of the tax code. The nature of our economy changed due to many factors, chief among them global competition.

Would the rich have been marginally less wealthy if the 79 tax code remained? Of course. But that doesn't mean the poor would have done any better. In fact, the poor would undeniably be even worse off if we still used the 79 tax code. Their federal tax burden would double from 4% to 8%. That's real money for people scraping by.

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Finally, raising taxes on the wealthiest Americans isn't going to make the poor and middle class more wealthy. That's a false premise.

If a poor person is more wealthy today than they were 30 yrs ago; why does it matter that wealthy people are disproportionately more wealthy? If a poor person today can buy consumer goods that a wealthy person could only dream of 30 yrs ago, isn't he better off?

Would we have been better off under the 79 code when the poor/mid class paid a much greater percentage of their income in taxes, and a much greater proportion of the total bill; so long as the wealthy weren't doing as well as they are today? Does that make any sense? Of course not.

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Get Real! The rich have taken more money home from the Bush tax cuts than the few dollars that the middle and poor class did. The rich have to realize that consumers make the economy grow by purchasing things and the rich get richer by providing those things. It doesn't matter how high your taxes are, it matters how many things you can sell. We have to TOTALLY change our government.

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  • Gary W. Patterson, Jr. 3 weeks ago Did you bother to read the article?...

Did you bother to read the article? I don't think I ever made the claim that the rich didn't take get to keep more of their own dollars than the poor/middle class secondary to the tax cuts. That would be preposterous. What I am saying is that the poor received a greater tax cut as a % of their own income than the wealthy. The poor have had their effective taxes cut in half..

The fact that the wealthy have done exceedingly well over the past 30 yrs has virtually nothing to do with tax policy. The rich are still paying more than the poor; actually the rich pay more in relation to what the poor pay now than they did in 1979; both in raw dollars (of course); %age of income; and percentage of total revenue. What more can you ask for?

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Blah! Blah! Blah! This is why Romney doesn't excite his base--this is how he addresses problems. It's boring and moot. The richest aren't paying their fair share and the American people believe that to their core. If you want to solve the tax problem and income equality, tie executive pay to workers' pay like Ben & Jerry's does! Then tax all the millionares at 60%, Corporations at 30% and captial gains at 40%! Leave the middle class alone and give even more to the poor. When you correct for <20 % poverty US scores top in education--give the poor the same advantage as the rich. Prevent companies from going overseas by taxing the hell out of them. And you can't use the ACA 2010 as a budget buster--CBO sez it's budget neutral!

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16 Replies

  • Seamus Light 3 weeks ago Even if you seized 100% of the weal...

  • Gary W. Patterson, Jr. 3 weeks ago I am sorry to bore you with facts a...

Even if you seized 100% of the wealth of this nation's billionaires, it would not pay off our debts. However much stealing you're going to promote will never be enough to outpace the massive war and entitlement spending.

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12 Replies

  • Raoul Kleven 3 weeks ago However, if you did disenfranchise ...

However, if you did disenfranchise the ruling class - the people pushing for those wars - you would probably eliminate a good deal of the impetus for the carrying out of an aggressive, imperialistic foreign policy.

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11 Replies

  • Seamus Light 3 weeks ago Here's an easier way to stop t...

  • Raoul Kleven 3 weeks ago Hey, no one mentioned murdering any...

  • Seamus Light 3 weeks ago You mentioned disenfranchising thos...

Here's an easier way to stop the wars other than murdering the successful or any other Bolshevik-style reign of terror:

Vote for genuine peace candidates.

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Hey, no one mentioned murdering anyone. Well, I mean, you did. But you've got an active imagination anyway, if you think that a 'peace' candidate has any chance of becoming President of the US (or really achieving any place of power in the US) and actually changing anything.

Also, 'the successful,' that's a good one. I suppose many of them have been successful at something (although what that is exactly, or how legitimate it is, or if it is outright theft is another story entirely), but perhaps this should be kept in mind: "If wealth was the inevitable result of hard work and enterprise, every woman in Africa would be a millionaire"

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You mentioned disenfranchising those in power - possibly depriving them of their rights. And in the context of the conversation, this might even lead to the taking of property (liberty and life.) But if you simply meant removing immunities, well, what I said following still stands.

You cannot lose hope in the future. Violent revolution must be the last option, only pursued when all peaceful means have been made impossible. And right now, we have a generation of people coming up who believe in personal liberties, don't want another war, and distrust the government. For Christ's sake, there's an ex-Libertarian candidate running for president, and he sweeps the youth vote! And those young people won't forget after this is over.

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Oh, I've got tons of hope for the future, but very little in electoral politics, and almost none in American electoral politics specifically.

I mean, you could have said something very similar in the 70s - look at all these young kids, they're all anti-war, they really want to change the world! And we know what happened there.

Nothing's going to change until the US collapses, either slowly, or all of a sudden. The former would probably be safer for the rest of the world. But I don't think that'll happen anytime in the very near future.

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Those kids were mostly influenced by the Left, and were thus doomed from the start.
They still relied upon television, and were the same kind of entitlement-culture Marxists as many in OWS are now.

The real revolution will come from the libertarians. People who are socially liberal and fiscally conservative.

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Ah, silly me, I forgot about the rich libertarian revolutionary tradition, including such luminaries as:

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But seriously, the reason why they weren't successful is because the US state was still too powerful at that point, and more importantly, once the actual radicals, the black panthers and the others like them were crushed through the application of liberal amounts of violence, the rest of the movement was simply not revolutionary.

Why? Because it was a bunch of privileged white kids, living in the absolute center of the capitalist world, receiving innumerable benefits and (dare I say) welfare because of their position.

If there is a revolution in the US, it will come from the most oppressed sectors of the population - and that doesn't include (excepting certain areas of Appalachia) upset young white people.

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You are correct that there is no correlation b/w wealth and sweat equity. People earn what they earn based upon the principles of supply and demand in a free society. A women in Africa isn't a millionaire b/c there is very little demand for the services she is capable of providing.

Albert Pujols will get $25 million per yr to swing a bat. Why? B/c there are only .001% of the world that can swing a bat and catch a ball like he can, and there are millions of people who are freely willing to fork over their own hard earned money to see him do it.

The alternative to this free market approach is of course a centrally planned society, whereby the gov't determines the value of goods and services. What makes you think they will be any more fair in making these determinations than the free market? History has shown us they are not.

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That timing with Hamrick was perfect! Did you plan that?

Anyway, your dreams of proletariat uprisings have shown time and time again throughout history to be nothing more than the usurpation of power of one political class by another. If violent leftist revolution came to America, it would simply be a case of the intelligentsia (white socialists like yourself) using the labor of poor and minorities before thrusting them back down under a new tyranny. This is what always happens, without exception.

Real revolutions, such as the one which founded this country, are lead by libertarians, Enlightenment-centric philosophers, and secularists. Only those who are not blinded by jealousy or class hatred can see the real goal: protecting rights.

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... luminaries as:
Thomas Jefferson, Thomas Paine, Patrick Henry, Murray Rothbard...

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"usurpation of power of one political class by another"

"Real revolutions, such as the one which founded this country,"

"using the labor of poor and minorities "

Did you forget that the 'revolution' in this country was a struggle between two different classes of white aristocrat? And that the people who won, which you are describing as libertarian (I've never really heard Jefferson or Washington described as a libertarian, but whatever) literally owned black people?

I mean, if the American revolution is your archetype of libertarian revolution, count me out.

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I am sorry to bore you with facts and data. Carry on with your empty rhetoric.

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2 Replies

  • Michael Weiss 3 weeks ago My ideas aren't as vapid as yo...

My ideas aren't as vapid as your numbers!

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1 Replies

  • Gary W. Patterson, Jr. 3 weeks ago Great come back. ...

Great come back.

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The numbers are correct - but they're not all the numbers. They don't present the issue in context.

I had a feeling that this was the case, and I started looking around for analysis of the Bush tax cuts, and what I ended up finding was that this article is presenting the same facts as Ari Fleischer, one of Bush's press secretaries, in the same format, for the same argument.

And then I found a piece directly written to counter Fleischer's claims, and thusly this article as well.

http://economistsview.typepad.com/economistsview/2012/01/should-we-feel-sorry-for-the-wealthy.html

There's also this: http://www.youtube.com/watch?v=SA1f2MefsMM&feature=player_embedded which is based off of the Federal Reserve's figures.

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  • Gary W. Patterson, Jr. 3 weeks ago I never saw the Fleischer tweets. ...

I never saw the Fleischer tweets.
That being said, the article is not intended to suggest that the wealthy haven't done better than the poor over the past 30 yrs. That's a separate argument for another day.

The intent was to dispell the notion that the wealthy disproportionately benefited from the tax cuts; i.e. "tax cuts for the rich". That's just not the case. The fair way to measure this would be the tax cuts' impact on different groups. The poorest among us had their total tax burden cut in half. That's good news for poor people. They are undeniably better off.

Are the wealthy also better off b/c of their less drastic cuts? Sure.

Also, I wanted to point out that the tax code is even more progressive now than in 79.

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Tax cuts help everyone by the simple fact that it's their money, their property, and they have a right to keep it.

Ideally, government spending will be reduced to zero, and mandatory government taxes will be replaced by voluntary transactions.

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19 Replies

  • Michael Luciano 3 weeks ago If you're advocating zero gove...

  • Raoul Kleven 3 weeks ago How can a system where a small grou...

If you're advocating zero government spending, then you're essentially advocating anarchy. Do I have that right?

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5 Replies

  • Seamus Light 3 weeks ago @ Michael Yes, I am advocating t...

@ Michael

Yes, I am advocating the eventual dissolution of all systems which advocate the use of force to rob individuals of life, liberty, and property.

If we can establish a system which protects property rights, and gives people only what they are willing to pay for, we will be at the point at which switching to "anarchy" will be merely a changing of terms.

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4 Replies

  • Michael Luciano 3 weeks ago http://www.youtube.com/watch?v=vxVl...

  • Michael Luciano 3 weeks ago Nice video, but your medical proble...

  • Seamus Light 3 weeks ago Alright. I guess we're done h...

http://www.youtube.com/watch?v=vxVlN-LzIks

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Nice video, but your medical problems are your business.

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Alright.
I guess we're done here, Michael.

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Alright.
I guess we're done here, Michael.

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How can a system where a small group of people own all the shops, factories, and services and the rest who own nothing like that must work or starve ever be based on voluntary transactions?

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12 Replies

  • Seamus Light 3 weeks ago @Raoul That is not how a free ma...

@Raoul

That is not how a free market system operates.

Systems where industries are controlled by a small number of individuals and firms are monopolies, which can only arise and remain in place with the help of government.
Governments create monopolies by granting exclusive contracts and rights, pumping taxpayer money into select industries, and setting up other barriers to entry for competing firms.

A free market ensures such a thing does not occur since any large firm which tries to set prices (high) would be immediately undercut by the competition. Free markets maximize surplus for consumers and producers, encourage trade and cooperation, and are a necessary part of any free society.

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11 Replies

  • Raoul Kleven 3 weeks ago Leaving aside the fact that markets...

  • Seamus Light 3 weeks ago Markets are not created by governme...

  • Raoul Kleven 3 weeks ago Well, yes, they are, they always ha...

Leaving aside the fact that markets are always accompanied by government, and that their creation was the responsibility of ancient states first introducing a money system in order to pay for soldiers - isn't it interesting that 'free markets' have invariably become monopoly markets, without exception in the history of capitalism?

Oh, also: my original comment did not describe a monopoly, it described the situation fundamentally necessary for capitalism to exist at all: that some people own the means of production, and others have nothing to sell but their labor. This process is, again, often the product of the state intervening to create these conditions - see the Enclosure Acts of early capitalist England.

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Markets are not created by governments. Governments can be used to protect property rights, but always destroy economies and prosperity when bureaucrats assume the responsibility of setting prices or supplies. Look at government control in the housing market's interest rates. Look at government control of agriculture in the USSR. More government means a worse market.

Money is a useful tool for when people come together to create and/or sell something. We can sell our product as a team, then each take a share of the profit, and use that to buy whatever we want.

I agree on the idea of governments creating worse conditions for workers. But that's not capitalism. Capitalism means a free market. What you described is corporatism.

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Well, yes, they are, they always have been. I just used the example of the very first markets in history - they were created as a result of ancient (axial age) states, like the Mesopotamian or Greek city-states, which introduced coinage in order to pay their armies. In a very real way, the rise of markets is connected to warfare and pillage.

Anyway, when you say 'capitalism means a free market' can you provide me with one period of history that would serve as an example of that?

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Creation of markets, and coinage of money are two totally different things. The market is us! It's not some imaginary bazaar created by the government. It's not a machine. It's the people.

And warfare hurts markets! The analogy of the broken window was incorrect. When destruction occurs, there is a net loss, and the market is weakened.

Examples of freer/anarcho-capitalistic societies include: Celtic Ireland, medieval Iceland, Rhode Island, various Quaker communities, and the American West.
Otherwise, the freest markets have performed the best, like America prior to the Fed, or Hong Kong.

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Yes, coinage and markets are two different things, but prior to that point in history 'markets' were simply not the normal method of human interaction (something which remained true in much of the world well into the 19th century). Most societies functioned as gift economies or social economies.

Anyway - with the exception of the American West, none of those examples you provided are capitalist systems. And the American West is a terrible example for the point you're trying to prove, given that it was only acquired through warfare and was the sight of non-stop violent expropriation and ethnic cleansing by white settlers and the value extracted from it was largely the result of imported workers, like the Chinese who built the railroads.

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Markets are something that exist wherever humans are. Those in gift economies could be said to be buying prestige or security or whatever would be valuable, even if normally considered intangible. There are no altruists.

A capitalist system is defined as "a system of private or corporate ownership of capital goods." Those examples were thus capitalistic.

The American West (which had lower crime rates than the East) was the cite of ethnic bloodshed because it was the GOVERNMENT sending the cavalry out to destroy populations. Wounded Knee was a GOVERNMENT operation. It wasn't settlers putting Natives on reservations. It was US troops!

You're not making a very good case for statism, Raoul.

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That's simply not true. Leaving aside the many human societies that exist outside of markets, you probably did innumerable altruistic things yourself today, despite residing in a capitalist society. You probably held the door for someone, or maybe you let someone have a cigarette or stick of gum, all without expectation of remuneration. David Graeber calls this 'baseline communism', the sort of small but constant interactions that society is made up of.

Your definition of capitalism including Vikings, feudal Irish kings, and isolated religious communities does not square with anyone's - pro-capitalist or not - history of that social system. Capitalism is universally acknowledged as emerging between the 16th-19th centuries.

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Furthermore, on the matter of the 'American' west, you are mistaken if you think I'm trying to make a case for anything, let alone the strawman of 'statism.'

My central point is that the capitalist exploitation of that territory - and indeed, all of the US and other white colonialist settler states - would be impossible without massive violence on the part of the state. You are ignoring this.

Also the idea that it was only the American state committing the long-running genocide of the native populations is absurd. The settling of the west abounds with stories of private citizens' posses killing, murdering, and raping with the best (worst) of them, in many cases preceding the formal annexation of territory by the capitalist state.

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What you describe as selfless communist altruism etc is merely a manifestation of our "helpful genes." Humans used to live in smaller groups, so you'd naturally expect to have to deal with someone again (so don't cross them), and often have favors returned. We hope to benefit ourselves by helping others. Every action is unavoidably selfish. There's nothing wrong with it. We are individuals.

Vikings were NOT cartoonish barbarians, Irish courts were private, and the religious communities were isolated because the state was infringing on their rights.

And I'll agree that capitalism become more widespread in the 16th-19th centuries (during the decline of absolutist monarchy) but receded again under totalitarianism.

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Furthermore,

You're describing exactly why we need to limit if not totally do away with the state!
You said yourself said that the massive violence would not be possible without the state.

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There can be no distinction between the capitalist state and the economics that accompany it. One can't exist without the other. From the beginning of the capitalist age, in England, the state has opened the way for capitalist exploitation, first by creating a large supply of rootless labor with the Enclosure acts, then by violently destroying competition in India and forcing open China's markets for English opium.

As long as capitalism exists, the capitalist state will accompany it.

Incidentally, I don't know why you are persisting in labeling feudal socieities as 'capitalist'. Do you realize that you are entirely alone in this belief?

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Are payroll taxes - which disproportionately affect poorer people - accounted for here? What role do capital gains have in this analysis? Or the use of the social security surplus to pay for tax cuts and spending? Or the role that interest payments on government debt play in transferring tax money from the poorer to the rich?

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2 Replies

  • Gary W. Patterson, Jr. 3 weeks ago As you know, the Reagan and Bush ta...

As you know, the Reagan and Bush tax cuts mostly effected income tax. Pay roll taxes go toward a defined benefit; or at least so we have been told. That being said, my article points out that the total effective income tax (including payroll taxes, capital gains and every other form of federal taxation) has gone down more for poor and middle class than the wealthy. The TOTAl effective tax rate was cut in half for the poorest Americans, 23% for the middle class and 21% for the wealthiest Americans.

As for interest payment on gov't debt, the deficit is created by spending more than you bring in. As I indicate, revenues as a % of GDP were exactly the same in 1979 as they were in 2007 before the crash. What changed? Spending went up.

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1 Replies

  • Ethan Case 3 weeks ago But more important is the type of s...

But more important is the type of spending. The wars are temporary expenditures that can get paid off eventually, same for the stimulus to be honest. The real issue is the permanent additions to the budget, Obamacare, growing social security, Bush's medicare part D, etc. That's where we get into trouble, because, even if it took 40 years, we could still pay off the wars eventually, provided they end, which they are. But with these entitlements, 43% of our budget in 2010 and only growing, these are getting bigger than our revenue increases every year. its as if your rent went up faster than your paycheck. eventually you get overwhelmed. Whereas a credit card bill gets paid down if you stop using it.

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Political colours aside, the math is solid. Things don't look good.

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2 Replies

  • Raoul Kleven 3 weeks ago The numbers are correct - but they&...

The numbers are correct - but they're not all the numbers. They don't present the issue in context.

I had a feeling that this was the case, and I started looking around for analysis of the Bush tax cuts, and what I ended up finding was that this article is presenting the same facts as Ari Fleischer, one of Bush's press secretaries, in the same format, for the same argument.

And then I found a piece directly written to counter Fleischer's claims, and thusly this article as well.

http://economistsview.typepad.com/economistsview/2012/01/should-we-feel-sorry-for-the-wealthy.html

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1 Replies

  • Gary W. Patterson, Jr. 3 weeks ago A few points on the article you cit...

A few points on the article you cite:

It's noted that the poor and middle class pay a higher portion of their incomes to state/local taxes. I would expect nothing less. However, my point is this: If not for the Reagan/Bush taxes, they would have been paying those same state/local taxes + a 50% higher federal taxes. I struggle to understand how this doesn't actually bolster my argument.

I am not saying the wealthy have had an increase in their tax burden (as suggested by your article). They too have benefited from lower taxes. But their tax decrease has been less as a percentage of their income than their poor/mid class counterparts. In the meantime, they have also picked up a larger portion of the total revenue.

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Gary,
This is not the first time I have read an article addressing the myth that only the rich benefit from the Reagan/Bush tax cuts. Problem is the message gets drowned out by those who disagree.

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Your article is right and I have been wondering how it was I pay so much in taxes when every year we get money back. Without paying any attention to how the Bush tax cuts help the rich, I know that without them I would owe the government tax money every year. Instead, we receive money back. I do believe the gap between rich and poor is vast but I do not believe we are taxed to the heavens as middle class. With that, I do not want to be taxed more than I am now. So, what does that leave me with? The notion that our "entitlement" programs have gotten completely out of hand. Realistically, we cannot continue to fund social security, medicaid/medicare or even unemployment extensions without completely bankrupting our own nation.

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Wow, a piece that suggests earnings and buying power of the middle class has gone up while income disparities in fact skyrocketed and the rich got fabulously wealthier. More and more policymic is staring to look like and sound like Drudge and Fox.

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8 Replies

  • Ken Strote 3 weeks ago Lawrence, Gary does not "sugge...

  • Gary W. Patterson, Jr. 3 weeks ago This isn't an article about in...

Lawrence, Gary does not "suggest" anything as you say in your reply, he has crunched the numbers and shown the facts. If you would like to dispute them, please show us your reasoning. Just saying that "income disparities in fact skyrocketed and the rich got fabulously wealthier" does not make any of it true and is not persuasive to anyone who doesn't already drink that kool-aid. Please explain how you have arrived at your position so we can debate the merits.

For your viewing pleasure though, here is a nice piece that discusses "supposed" growing income disparities:

http://www.youtube.com/watch?v=WrtoSx-NbLQ

Enjoy!

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6 Replies

  • Lawrence Sampson 3 weeks ago In less than a week, neocons have c...

In less than a week, neocons have come to this site and suggested in no particular order:

Climate changs is a myth/conspiracy/lie
Obama is not a citizen/not the legal president/birther crap
Income disparity is a myth/tax cuts weren't aimed at the rich/middle class pay little or no taxes

Its a right wing think tank playbook and its getting ridiculous. All of these have been settled ad nauseum and any six year old could find the details to prove these positions as the falsehoods they are. I have neither the time nor the inclination to rehash these or what will probably be next such as evolution.

This is frankly not worth my time and I had thought up until the last few days beneath policymic's standards.

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5 Replies

  • Ethan Case 3 weeks ago 1. Climate Change has become under ...

  • Lawrence Sampson 3 weeks ago Headline on home page of Policymic....

  • John Giokaris 3 weeks ago Seriously Lawrence? First of all...

1. Climate Change has become under debate again because of an article published by those dastardly neocons at... oh wait, it was NASA, who not only published last week that there has been no temperature rise in the last decade, but that we are heading for a mini ice age. That same report from NASA also disputes the accuracy of the climate models your camp has been basing their argument on for almost 30 years now.
2. Haven't seen any of the birther nonsense.
3. There might be a growing separation between rich and poor, no one is disputing that. What we are disputing is that somehow the Bush tax cuts were for the rich only, when the poor and MC benefited from them much more than the rich did.

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Headline on home page of Policymic.com

"POOR NOT RICH BENEFITTED FROM BUSH TAX CUTS"

The rest is as I said self explanatory. You guys wouldn't believe the Bush tax cuts benefitted the rich or that climate change is real or that Obama is a citizen if God himself/herself came down via lightning bolt and wrote it on the wall in his/her own hand since it doesn't jive with your ideology. That's fine, you have the right to believe as you wish. You even have the right to write what you believe. But when this site gets so inundated with right wing crap as it has the last few days, it might as well be the Drudge Report or a rehash of Fox news. I have no interest in coming to or writing on a site willing to publish so much of this crap.

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Seriously Lawrence?

First of all, liberals far outnumber conservatives on PolicyMic. It's not even close.

Second, so anybody who disagrees with your ideas of what you want tax rates & income distribution to be must all be on the payroll of FOX News or the GOP or the Koch brothers huh? Well then you better include the CBO & IRS on that list too cuz that's where Gary drew his data from.

Maybe there's no global conspiracy here. Maybe, just maybe, when people crunch the numbers, they see what sound economics look like and what models & practices are mathematically unsustainble. And while guys like me & Gary do our research and cite every source & stat that we use, you routinely blow a lot of hot air without providing a single shred of proof.

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Right, no proof. That's enough for me. You guys can have this site and rename it Fox news for all I care. Enjoy it.

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You're joking, right? I have just spent the past 3 days having to argue with people on Policymic that the Korean War was justified, government is not motivated by secret oil cabals, and sanctions are not an act of war... and you think this is Fox News? Stop attacking the poster and start attacking his data. When you have no real counter-argument, ad-hominum and red-herrings don't serve as replacement.

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This isn't an article about income disparity. It's an article about the tax code, and who has benefited the most in real terms. We repeatedly hear that the tax code has become less progressive and the rich have gotten a huge tax cut while the poor got left holding the bag. It's complete and utter nonsense. The facts are all there for anyone willing to open their eyes and read.

Income disparity has virtually nothing to do with our tax policy. If you challenge this claim, I'd appreciate some data as opposed to empty rhetoric.

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For the sake of clarity, all would do well to remember the Bush Tax Cuts did not cause the end of the surplus Social Security produced yearly until 2009. That surplus added to annual budget calculations under Johnson understated the actual deficit in this nation for FOUR DECADES.

The Bush Tax Cuts did not cause Medicare/Medicaid to increase its burden on the general fund to now over $400 Billion annually with premium payments below 25% of Part B costs while contributions no longer cover even Part A expenses.

America truly faces two deficits one relating to Entitlement programs and one relating to all other expenses. The day someone attempts to clarify this fact to America is the day we can begin to address a potential solution

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13 Replies

  • John Giokaris 3 weeks ago Excellent point Richard. Social Sec...

Excellent point Richard. Social Security, Medicare, Medicaid, and Welfare eat up 50% of our tax dollars alone, while defense takes up another 20%. The Obama admin is already cutting $1 trillion from the defense budget without even touching entitlements - the real money hole of our debt & deficit.

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12 Replies

  • Richard Mathews 3 weeks ago If you truly wish to talk about &qu...

If you truly wish to talk about "REAL MONEY" America should be debating,

Refinancing National Debt immediately using new Federally Tax Free Bonds - 1% reduction in interest equals bascally $152 Billion annually - today we are at roughly 2.86% total burden. Fed supports this course of action.

Leasing federal lands for Gas/Oil exploration with the potential for similar annual royalities within five years.

Finally raising Medicare/Medicaid FICA contributions 1% total worth another 85 Billion - most taxpayers' would only pay employee contribution or less than a dollar less a day for $50,000 earner.

Three simple changes could Net the GRAND BARGAIN $4 Trillion in savings searched for in Budget over next decade.

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11 Replies

  • Michael Weiss 3 weeks ago Or we could just eliminate the gene...

  • Douglas Goodman 3 weeks ago Richard, Thank you for mentioning ...

  • Douglas Goodman 3 weeks ago Michael, FICA on capital gains, th...

Or we could just eliminate the generous and ridiculous "carve-out" for the richest people in this country. Depending on income, the rich get a pay raise in the first or second quarter of the year. Additionally, we should require the richest to pay FICA on capital gains.

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Richard,
Thank you for mentioning increasing FICA contributions. The current limit of $106,000 is low. I would prefer to see the cap totally eliminated, but if not, at least raised to $500,000. I also agree with your other two recommendations. You would think refinancing debt would be at the top of the list. Cities and Counties are looking how to refinance bonds, people are taking advantage of low interest to refinance mortgages. Federal govt should do likewise.

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Michael,
FICA on capital gains, that's a new suggestion. How do you define "the richest"? My gut says such a move would be disastrous to investing. How about just removing the cap on earned income as I replied to Richard below?

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Sorry, I couldn't find your comment--this thread is so convoluted! But the richest in my example is $1M and that wouldn't include people's retirement as they extract it at the lower levels of income, where it's taxed at earned income, I think? If it's not that way, that's the way it should be. My point on FICA is that people shouldn't be able to dodge FICA because their income is capital gains, like Romney. It's a dodge. I pay FICA and if I complete my career, I'll never see any of that money--why should he get a pass! I also think we should remove the cushy "cut-out" at whatever the level it is at today--I don't make enough money to know. But why should the rich get a pay raise in the 1st or 2nd Q of their income stream. Where are the -CNP

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rich going to put their money, except in a Swiss Bank Account or Cayman's until they decide to run for President. And how much did Romney and his "Blind Trust" (whose Trustee admitted that he "cooked" Romney's books to get ready for the election) pay in taxes in all the years when they thought no one was looking. Romney's a robber baron and shouldn't be getting all the preferences that he and his kind get from the rest of society. Risk? He's never taken any risk that he didn't have covered by his daddy's money until he had his own and we gave him all those breaks. People talk about the poor being "entitled;" I've never seen anyone as arrogant and entitled than Mitt--he's destroying the party b/c he thinks this is HIS! And no one's seen -CNP

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the economic risk like a person who gives years to a company and then has it and all their entire community raped by robber barons with only our "thanks" for doing a great job and then tax incentives to have enough money to get up the next day and do it all over again. Moreover, Romney hasn't seen the risks of service to his country only to stand silent while a gay Soldier in a war zone gets booed; and to not offer a solution when these Vets get RIFed. Ben & Jerry's ice cream, before they were bought out by the Dutch robber barons, had a living wage for workers and the wage of executives was tied to the profits and a maximum when computed against worker compensation. Executives weren't paid in excess of that quotient. (time lapse d/t drill)

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Just found your comment to Richard--Affirmative!

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Michael,
Thanks. Tax on retirement income depends on source. Military and other pension plans are taxed as earned income. ROTH-IRA are non-taxable, and regular IRAs are taxed as capital gains. Social Security is taxable income; have to either have withholding or plan for estimated taxes. From age 62 to full retirement age you are limited to how much you can have in earned income (wages) before SS benefits are deduced. After full retirement age, that restriction ends.

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Anything below $250K--0 % CG
$250-$1M -- at 15% CG
Over $1M tax-- 40% CG

Do you pay FICA on retirement income?

As you know I'm not an accountant or tax wonk; I'm just a fairness guy.

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No FICA on military retirement as it's not earned income.

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Good. Very few retirees are in the top 10%.

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And yet the wealthiest 1% of Americans have seen their share of income spike to 24%--the highest percentage since 1928, and double what it was during Reagan's first term.

http://www.nytimes.com/interactive/2011/10/26/nyregion/the-new-gilded-age.html

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1 Replies

  • Gary W. Patterson, Jr. 3 weeks ago As I have indicated elsewhere, this...

As I have indicated elsewhere, this article doesn't address whether there is greater income disparity today or 30 yrs ago. We'll leave that for another discussion. The point here is that tax policy has played no role in causing the disparity. The evidence is in the article. The poor and middle class got a bigger tax break than the wealthy based upon percentage change in their own income. They also pay a smaller percentage of the total revenue pie than they did 30 yrs ago.

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Excellent work Gary. You knocked it out the park. It's clearly evident that America is suffering from a spending problem, not a taxing problem. To add more support for your argument, U.S. companies have stocked $2 trillion in cash coffers in the wake of the recession (mainly as a defense mechanism in case the dreaded double dip occurs). The U.S. has also lost out on $337 billion worth of revenue to tax evasion. Even if we could collect all the revenue sitting on the side & hiding overseas today, it still wouldn't be enough to cover 2012's projected spending. The total spending expenditures requested from the Obama admin for the 2012 budget is $3.7 trillion. It would still leave a $1.4 trillion deficit on top of a $15.3 trillion debt.

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1 Replies

  • John Giokaris 3 weeks ago But who's got the time to do a...

But who's got the time to do all the math and research on this? "Tax the Rich!" just sounds so good and easily fits on a bumper sticker. Tell Americans all their problems are the top bracket income earners' fault, make em ignore everything government is doing wrong and has screwed up, and there's your re-election campaign strategy.

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The Bush tax cuts cost nearly $4 trillion dollars in the 10 years since passing. They were financed by borrowing, not spending cuts. To spend is to tax, so these cuts just mean higher taxes later. 66 percent of the tax cuts went to the top quintile. The top 0.1% got a tax cut of $520,000, 450 times what the middle income taxpayer received. The bottom 20% only got 1% of the tax cut.

The tax cuts were sold as a way to bring middle class jobs and rising middle class wages. They did neither. Only the wealthiest Americans received pay increases while middle incomes stagnated.

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35 Replies

  • Gary W. Patterson, Jr. 3 weeks ago First off- tax cuts are not a cost....

  • Gary W. Patterson, Jr. 3 weeks ago Andrew, I also note that you point ...

First off- tax cuts are not a cost. Reduced revenue doesn't "cost" us a dime.

I agree that deficits have been funded by borrowing b/c spending has cont'd to outpace revenues. But, we have cont'd to bring in more revenue year after yr in both raw dollars and as a % of our gdp, which is the best way to measure revenue.

Unless you are claiming we would have brought in historically high revenue as a % of gdp, if not for the tax cuts, your claim has no merit. We weren't bringing in anymore rev as a % of gdp when we had much higher tax rates. The pie grew, and thus we were able to maintain the same relative revenue w/ lower rates.

Finally- if the tax cuts served no benefit to the poor/ mid class would u wish to return to79 rates?

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27 Replies

  • Andrew Hanson 3 weeks ago First, the level of spending is wha...

  • Van Fuller 3 weeks ago Thats right, tax cuts are not a cos...

First, the level of spending is what matters, not the level of taxes. So, yes, tax cuts must be paid for if they're not offset by spending cuts.

The second part is disingenuous. Nearly every economist agrees that the tax cuts decreased revenue by nearly $4 trillion. The fact that revenues were X% of GDP is just handwaving. We would've had higher revenue if the tax cuts were not enacted.

I didn't say the tax cuts didn't benefit the poor AT ALL; I said that the vast majority of the benefits went the most wealthy Americans who have already been doing quite well. Your claim that these were poor/middle class tax cuts is just nonsense.

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25 Replies

  • Ken Strote 3 weeks ago Andrew, you would be better to stat...

  • Ethan Case 3 weeks ago Andrew. you are simply wrong. The m...

  • Andrew Hanson 3 weeks ago Ethan, you are simply wrong. The cu...

Andrew, you would be better to state that "many economists agree...." rather than saying "nearly every economist...." because that is simply false. There is very serious disagreement regarding the net effect of the Bush tax cuts, and it is not limited to just a few rogue economists.

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Andrew. you are simply wrong. The most benefit went to the rich in terms of total amount of dollars saved perhaps, because a 2% cut for them is still bigger than a 100% cut for a poor person. But in terms of actual benefit felt, the rich barely felt it in comparison to a poor person living paycheck to paycheck.

And as other said, the cuts cost us nothing. our increased spending was from 2 wars. 2 temporary expenditures that we could pay back later. Obamacare is not a temporary expenditure, its a permanent addition to our budget, that's the difference. like a mortgage vs renting for the rest of your life.

the deficit doesn't matter if we are capable of paying it off in reasonable time. we can't do that right now.

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Ethan, you are simply wrong. The cuts cost us $4 trillion in revenue. That's not nothing. That revenue would have helped the long-run debt/deficit situation. Did you miss Medicare Part D, or the ballooning discretionary non-defense spending? Have another look at those Bush budgets:

http://www.cato.org/pubs/tbb/tbb-0308-16.pdf

I don't find your argument that rich people didn't "feel" it convincing or relevant. If the rich aren't going to "feel" it anyway, why give them 66% of the tax cut?

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You're right. What I meant was that there's consensus that the tax cuts didn't pay for themselves, i.e., that they decreased revenue over the 10-year budget frame. The number I gave was from the nonpartisan CBO. Bush's advisors will give a smaller number (by estimating a larger economic impact) and his critics will give a larger number, but I don't know of any economist who thinks, as Gary does, that the tax cuts paid for themselves.

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1) Do you accept that revenue as a percentage of GDP was the same in 1979 as it was in 2007?

Assuming the answer to the 1st question is yes:

For your claim that the tax cuts cost us trillions of $'s to be true, you would have to conclude one of two things:

a) GDP growth would have been faster if not for the tax cuts (a laughable claim); or

b) GDP would have grown at the same rate, but we would have miraculously brought in more than 18% of GDP (despite the fact we were only bringing in 18% in 1979, with the higher rates.

Which is it?

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The miraculous one.

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Andrew, I am intrigued. How do you believe that GDP would grow at a faster rate with higher taxes? If you can argue that one, I know a whole lot of politicians who will be knocking on your door for help explaining that something can occur that never has before.

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Gotcha. At least you're honest. I guess I can't argue against miracles.

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Ken, you misread that. I said the "miraculous" one, not the "laughable" one. I don't necessarily think that GDP would have grown at the same rate, but pretty close and that higher taxes would have brought in more revenue in absolute terms and as a % of GDP.

Gary claims this is a miracle, but in fact, there's no such thing as an 18% of GDP ceiling on the amount of revenue a government can bring in. I'm actually baffled that anyone would make such a claim. Do you seriously believe this?

If lower taxes brought in more revenue, we'd have a pretty easy solution to the budget crisis. I don't see how you can take these arguments seriously.

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Andrew you are correct I did misread it. As for why 18% is a magic number, it isn't in and of itself. However, when you look at the average over the past 50 years, that is roughly how much revenue as a % of GDP comes in. If you raise or lower rates, you still tend to get 18% over time. The reason is that individuals will change their activities based upon how much they are taxed. If people are taxed too much, they will find alternatives for their money that will reduce the burden. If they have their rates lowered, they will seek higher potential profits and pay less attention to the tax rate. If you buy into this logic, the smart move is to do what you can to grow the economy so that 18% comes in from a much larger pie.

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As Ken points out, I am not pulling the 18% out of thin air. Fifty years of history shows us that we have never brought in more than 20% of GDP in the history of our nation. Not even back in the "good old" days when marginal rates topped out at 90%. Under Clinton, we touched 20%, but that was only b/c he had the good fortune of a huge tech bubble, together with higher taxes. As soon as the bubble burst, back down to historical averages: 18%. Of course, the higher taxes didn't spur the economy, as some liberal commentators seem to suggest.

Why not just try to live within our means: spend 18% or less of GDP? Is that so crazy?

Btw, these numbers don't take into account local and state taxes. They add to the overall tax burden.

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Ken, the economy grew at 3.7% in the 1990s and 2.7% in the aughts. The tax cuts didn't provide much benefit if any to long run growth. You're mistaking a historical relationship for a causal one. The tax rates on the top margin weren't the only thing that change policy wise over this time period. You're assuming things are constant that haven't been. By your logic, for example, I could argue that high marginal tax rates don't affect the level of economic growth since historically we've had higher growth when marginal rates are high than when they are low. For example, growth rates were much higher in the 1990s than the aughts even though the top rate was increased from 28% to 39.6%.

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Gary, I'm fine with spending 18% of GDP or less. What I'm not fine with is you making a ludicrous argument that these tax cuts largely benefitted the poor and middle classes and that they paid for themselves. Both are demonstrably false.

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Andrew, now you have misread me. I never said anything about the tax cuts stimulating long term growth. We can have a separate debate about that if you'd like. My point is that growing the economy should be the desired outcome, not finding ways to tax more. Besides, tax rates by themselves are not the whole story. You have to take into account current market conditions, regulatory environment, consumer sentiment, etc. Generally speaking though, if you have more dollars in your pocket, you are likely to spend more dollars. Lower taxes gives you more of those spendable dollars. Keynesians actually get this, but they take an illogical next step. They think that creating artificial demand by spending through stimulus will grow the economy.

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Ken, that's a straw man. No Keynesian thinks that. Keynesian's think you should use countercyclical fiscal policy over the business cycle. That's it. There's nothing in Keynesian thought about government increasing the long run rate of growth; it's all about what government and the Fed should do in the short run.

The Bush tax cuts weren't about finding ways to tax more, they are about finding ways to tax less (even though we spent more). Btw, revenues have since gone from 20% of GDP to 15% of GDP. So much for that historic rate.

However, many economists do think the government can spend money on things such as infrastructure, research and development, and education that do increase the rate of long run growth.

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Andrew, I specifically am addressing Keynesian thought regarding the need to create artificial demand. You should get Wikipedia corrected if you believe that no Keynesian thinks that you should stimulate demand artificially:

"Keynes contended that a general glut would occur when aggregate demand for goods was insufficient, leading to an economic downturn resulting in losses of potential output due to unnecessarily high unemployment, which results from the defensive (or reactive) decisions of the producers. In such a situation, government policies could be used to increase aggregate demand, thus increasing economic activity and reducing unemployment and deflation."

http://en.wikipedia.org/wiki/Keynesian_economics

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Perhaps I am misreading you. I took your saying that "creating artificial demand by spending through stimulus will grow the economy" as suggesting that Keynesians think that stimulus alters the rate of long run growth, which is determined by aggregate supply. Instead, Keynesians think that, during recessions, fiscal and monetary stimulus bring idle resources into productive use, affecting short-run growth and unemployment.

So, in the Keynesian view, in the short run, more dollars in your pocket mean you'll spend more and GDP will be higher, but the # of dollars in your pocket doesn't make a difference for long run growth

On a side note, there's no such thing as "artificial demand". That's not an economic term, but does reveal your bias.

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Do you disagree that the poor got a bigger tax cut than the wealthy based upon percentages of their own income?

If so, how can you argue that they didn't benefit more, relatively speaking?

Finally, if we can get 18% of GDP in revenues, as had been the case prior to the crash in 07 (we are projected to return to those levels by 2021 assuming the taxes stay as is) why do we have to raise taxes? Should we be chasing the runaway spending? 25% at present, projected to top 30% in the future? Or should we just cut spending to get to 18% which we have been able to achieve over the past 50 yrs. Why shoot for a number in revenue that has never been achieved, despite radically different tax schemes?

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I'm not sure where to start; we're likely not going to see eye to eye on this. In general, I think it's hard to look at taxes and revenues the way you're looking at them without any kind of economic, demographic, or historical context. You've decided 18% of GDP is what the government should spend and bring in. Well, the government hasn't done that, so now what?

I've got my own ideal system that wouldn't involve the government spending any more than 18% of GDP, but chances are that won't happen. I'll just say what I think everyone knows: once the economy recovers, we should try to raise enough revenue to get the federal debt between 50-70% of GDP and we have to get Medicare and Defense spending under control.

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Andrew, I hate to be critical, but when you say things like "there's no such thing as 'artificial demand'. That's not an economic term, but does reveal your bias," I have no choice but to help teach you a little bit about actual economics. Once again you may want to cry foul to Wikipedia, but here goes:

"Government spending with the primary purpose of providing jobs (rather than deliverying any other end product) has been labelled "artificial demand"."
- http://en.wikipedia.org/wiki/Artificial_demand

And just for fun to help your education:
http://www.american-consensus.org/resources/econ/prereq_economics.html

Perhaps your denial of artificial demand actually reveals your bias, not mine.

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Well, I searched three top economics textbooks and found no definition of it there. I'll also note that the wikipedia page is rather short and doesn't contain any economics or any references to any economists' work. Compare it to the "Aggregate Demand" page for example. And the only other reference you made was the link from the Wikipedia page. Links below:

http://goo.gl/RWMRp
http://goo.gl/J9EVz
http://goo.gl/a3XCn
http://en.wikipedia.org/wiki/Aggregate_demand

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Andrew, google "artificial demand" and you will get 36,000,000 results. That's a lot for a non-existent term, yes? I'm glad you are searching econ books. Amazing how fast you did that......

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Google Books makes these textbooks searchable. It's not a very important point in any case. It's just not part of the jargon is all I'm saying. Economists don't make a distinction between "genuine" and "artificial" demand in anything I've read.

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You made it important by attacking me personally and saying I have revealed a bias. If you would like to retract your statement, I will accept your apology. To help you decide, here are some links to books found in the same manner that you did. By the way, the last link is to a reference of a nobel prize winner in economics, and the first two are referencing none other than F.A. Hayek. There are over 550 references in google books by the way.

http://books.google.com/books?id=OoHbifpFvF0C&pg=PA146&dq=hayek+artificial+demand

http://books.google.com/books?id=IZqWTGr0-IcC&pg=PA77&dq=hayek+artificial+demand

http://books.google.com/books?id=ZJe7xH4ovdoC&pg=PA153&dq=artificial+demand

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I'm sorry if you thought I was attacking you personally. We all have biases. I stand by my assertion that the term "artificial demand" is not a piece of technical jargon in economics discourse. I am not saying that no free market economist has ever said the word artificial before the word demand. That said, I apologize if I offended you in any way. I did not mean to attack you personally.

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Thats right, tax cuts are not a cost. In order for you to believe that they are a cost, or should be paid for, you must first believe that ALL money belongs to the government first. That is simply not the case.

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Andrew, I also note that you point to raw numbers to suggest the wealthy received a greater part of the tax break. I am wondering whether you are also willing to use raw dollars in assessing the amount those very same people pay into the feds vs. their middle class/poor counterparts.

My point is that it is wildly unfair to measure the fairness of tax policy based upon raw dollars. A 2% cut for a Bill Gates is a huge sum of money; while a 50% cut to a poor person (which is actually what happened 8% to 4% in total effective taxes paid) is very little in raw dollars. But which is more meaningful?

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6 Replies

  • Andrew Hanson 3 weeks ago I think it's important to be a...

I think it's important to be aware of both absolute dollars and shares in both cases. The absolute numbers, in this case, serve as an indicator that wealthy persons were already doing quite well and didn't need a tax cut. They also indicate that the vast share of the tax cuts went to the upper class (contra your thesis). The larger point is that the budget was balanced and we had an opportunity to pay down part of the debt. Instead, we passed irresponsible tax cuts (along with spending increases) that we'll have to pay for long-term.

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5 Replies

  • Gary W. Patterson, Jr. 3 weeks ago So we use the raw numbers when they...

  • Ken Strote 3 weeks ago Well, if you don't count the s...

  • Andrew Hanson 3 weeks ago Ken: I don't. There was no goo...

So we use the raw numbers when they look good for your claim, but ignore them otherwise? I think it's more intellectually honest to use the same metric for both. We'll have to agree to disagree.

The budget was balanced for a passing moment, when all the stars aligned. As soon as the tech bubble burst, revenues fell back below 20% again. As such, even if we kept the Clinton rates (which were still lower than the Carter rates), we were going to be running a deficit. Moreover, the deficits as a % of GDP under Bush were actually quite small, in contrast to our current standing.

We agree on this much: don't spend more than you take in.

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Well, if you don't count the surplus of Social Security revenue during the Clinton years, we didn't have a surplus for the budget then either.

That being said, I do believe that we were irresponsible in not continuing to pay down the national debt once Bush got into office. Republicans did use the excuse of 9/11 to spend more, and they did keep the wars off the books which is ridiculous. However, I find it funny how liberals always decry the tax cuts for upper income individuals but insist that the ones for poor and middle income were essential.

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Ken: I don't. There was no good reason for the Bush tax cuts for any bracket. Democrats will now defend them because "increasing" taxes is politically unpopular for any group except for the top; but they weren't clamoring for tax cuts for anyone—that was a Republican agenda item.

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What about going back to 79 rates? Would the poor and middle class be better off with those rates?

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Ceteris paribus, no.

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Okay, but with stagnant or falling wages for the working class and a "top 1%" whose salaries are 40-80% higher than the average worker and increasing, shouldn't poor and middle income Americans enjoy tax cuts?

As for the Bush era tax cuts not impacting the deficit, every legitimate media outlet I perused offered analyses undermining your conclusion.

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12 Replies

  • Andrew Pasternak 3 weeks ago In support of Daniel's final p...

  • Gary W. Patterson, Jr. 3 weeks ago I am a little confused. The centra...

  • Susan Kraykowski 3 weeks ago Excuse me...shouldn't middle a...

In support of Daniel's final point. http://voices.washingtonpost.com/ezra-klein/2010/11/the_bush_tax_cuts_effect_on_th.html

(look more at the graph and original source)

Regardless of argument on whether or not the tax cuts should be extended or not, it's just about impossible to argue that less revenue will equal no impact on deficit.

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4 Replies

  • Gary W. Patterson, Jr. 3 weeks ago Andrew, How do you counter the unde...

Andrew, How do you counter the undeniable fac that revenue as a % of gdp was exactly the same in 79 as it was in 07?

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3 Replies

  • Andrew Pasternak 3 weeks ago income tax rates are only one facto...

  • Andrew Pasternak 3 weeks ago For graph: http://www.deptofnumbers...

  • Gary W. Patterson, Jr. 3 weeks ago Andrew, your numbers aren't bo...

income tax rates are only one factor in what accounts for overall federal revenue over the long term. Taking out other forms of income tax such as capital gains and inheritence, you still have others such as corporate taxes, excise taxes, fees and tarriffs. Most, important of all, however, has been the growth in payroll taxes. This has helped offset the decline in income taxes, however with future inevitable rises in Medicare/Medicaid and Social Security, they will no longer be able to be a cover for a declining income tax, which of course has had an effect on revenues. It's beyond simplistic to look at the overall number and therefore say lower income taxes has had no effect on government revenue.

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For graph: http://www.deptofnumbers.com/blog/2010/08/tax-revenue-as-a-fraction-of-gdp/

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Andrew, your numbers aren't borne out by facts. The TOTAL effective tax rate (including payroll taxes, excise taxes, capital gains, and every other federal tax) has been cut in half for the poorest Americans. In 1979 they paid 8% of their income to the federal gov't in total taxes. Now they pay 4%. That's real money to poor people. The middle class also saw their total tax bill cut by 23%. That includes pay roll taxes. BTW, if the pay roll taxes hadn't been raised in the 80's they'd be bankrupt already.

I am not just looking at income taxes. The total tax bill has gone down for all Americans; most drastically for the poorest.

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I am a little confused. The central point of the article is that the poor and middle class did get a tax cut; a substantial one- thanks to Reagan and Bush. Their tax cut was also more substantial than their wealthy counterparts. I am not suggesting they shouldn't have gotten a cut, I am attempting to dispell the myth that tax cuts have only benefited the wealthy.

As for the effect on debt, the numbers don't lie. The govt was bringing in the same exact revenue as a % of gdp in 79 and 07.

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1 Replies

  • Ken Strote 3 weeks ago Gary, President Obama agrees with y...

Gary, President Obama agrees with you! In almost every speech he gives these days he talks about how tragic it would be to revert back to the pre-Bush tax rates for the middle class. His problem is that he thinks that raising rates on one group of people (rich) would have no impact while raising rates on another group (middle class) would be catastrophic. If he would be consistent and argue the point one way or another, he could at least be considered genuine. Instead he is revealed as just another class warfare populist who really really really wants to keep his job.

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Excuse me...shouldn't middle and lower income Americans be doing better under this scenario if Gary's right?

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4 Replies

  • Matthew Hipple 3 weeks ago Not if a series of other factors ar...

  • Gary W. Patterson, Jr. 3 weeks ago Thanks Matthew for pointing out the...

Not if a series of other factors are kicking them around. Maybe I bought my car awesome new tires. However, if one of the engine cylinder's isn't firing, I'm not going to go faster.

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Thanks Matthew for pointing out the obvious. There are many factors to explain why the middle class and poor haven't fared better. As spelled out in the article; tax policy isn't one of them.

Cutting the poor's total tax bill in half didn't make them less well off. That's just silly.

I should also point out that cutting taxes on the rich doesn't make poor people less wealthy either.

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2 Replies

  • Matthew Hipple 3 weeks ago The sad thing is I don't belie...

  • Ethan Case 3 weeks ago A second fantastic analogy Matt. ...

The sad thing is I don't believe it IS that obvious. When working policy, everyone throws the blinders on every once in awhile. If you've ever read Michael Chrichton's "The Lost World", the part of the book where the raptors are attacking the abandoned gas station is a great example. Sometimes we start banging the screw harder and harder with the hammer and just assume the issue is with the hammer being of low quality... rather than noticing we're not using a nail.

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A second fantastic analogy Matt.

Susan, the issue between the poor and the rich is less about taxes and more about the way our economy has become divided between specialized industry (engineering/finance/etc) and the low paying service industry.

The middle class level jobs, particularly manufacturing, just aren't there, and the new manufacturing jobs that do pop up are so technical now, that most people aren't qualified to do them. (in fact, many economists now believe our unemployment rate might be structural, meaning the jobs are there but no ones qualified for them).

taxes have nothing to do with this, in fact, a bad tax climate drives companies away, making it worse. we want people to open their factory here, not somewhere else.

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Terrific article, Mr. Patterson.

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