A Man Needs A Fish Like A Woman Needs a Bicycle
Wednesday, November 02, 2005
WHY PAYING THE MOST INCOME TAXES IS NOT A WINNING ARGUMENT: I am having a gentle and very civil conversation with a couple of regulars at TAIR, concerning economic issues in the current administration, and the issue of the tax cuts came up. The tax cuts were a fair recompense to wealthy folks. The observation raised was:

"Therefore, my assertion is that if an income tax cut is done, the people who actually PAY the income taxes should get the money, as opposed to giving more of the money that wage earners pay to non-wage earners. In other words, taking MY money that I work for, and giving it (in the form of refundable tax credits, etc.), to give them an effective Negative Income Tax Rate, is no better than theft - Robin Hood with a badge."

I agree that the rich pay most of the taxes. But it doesn't necessarily follow that they then deserve big tax cuts. I say this because the other side of that story--the fact that they also get the lion's share of the benefits is usually not mentioned.

To make sense of this, consider what has happened to wealth holdings for the US as a whole over the last twenty years or so. In this period, total income and wealth went up in this country in absolute terms. After the first Reagan cuts of the early 80s, we saw real tax increases for the rich. It would seem to suggest that one consequence of this action would be a redistribution of wealth from wealthy to poor folks (on the arguments advanced above).

These are the facts:
Quintile 1947 to 1979
Real Growth in Income
Top 1% + 86% (actually top 5%)
Top 20% + 99%
Middle 20% + 111%
Bottom 20% +116%

1979 to 1998 Real Growth in Income
Top 1%+ 106% (> $260,000 per year)
Top 20%+ 38% (> $83,699 per year)
Middle 20% + 8% ($37,700-$56,000 per year)
Bottom 20% - 5% (up to $21,600 per year)

Distribution of Wealth:
1976 1998
Top 1% 19% 38%
Next 9% 30% 33%
Bottom 90% 51% 29%

We can see that income increased for the top folks in this country at a startling rate (and that advantage kicks in at fairly low levels (if you make more than approx $125,000, you are in the top 10% of income earners). And most folks saw their real income basically stay stagnant.

And even with punitive taxes, as we are so often told, the wealthy not only got better off in terms of net worth, absolutely, but also concentrated more wealth into fewer hands, relative to the rest of the country.

So, how did they do it, if they are being taxed to death? A clue...

Federal Spending on Various Programs in 1997
Corporate Subsidies $69.2 billion
Corporate Tax Breaks $60 billion
Tax Breaks for Top 1% of Households $40 billion
Mortgage Interest Payments Deduction to Top 20% $28 billion
AFDC (Welfare Payments) $16 billion
Housing (Low Cost) $19.5 billion

The last two are welfare payments--coming in at $40 billion. The rest is corporate and wealth oriented pork. It comes in at $180 billion a year. That is how the rich get wealthier even with higher tax rates. These are figures for BEFORE Mr. Bush became president. The situation is far more skewed now.

Other issues: tax evasion, but that is for another time... (though we focus most resources in auditing on poor folks trying to grab a $1,000 from the EIC, most losses in evaded tax come from... well, you can guess...

Source: Economics as If People Mattered (based on census data).

Summary: Whilst it is true that the rich pay most of the taxes (whilst also evading a lot), it is also the case that the rich also get buukko dollars out of a system that they have a huge say in running. Is this really a surprise?

For me, that concentration of wealth is a danger to this republic. And that is a post for another time...
Comments: Post a Comment
Thoughts on What One Experiences These Days

01/01/2004 - 02/01/2004 / 02/01/2004 - 03/01/2004 / 03/01/2004 - 04/01/2004 / 04/01/2004 - 05/01/2004 / 05/01/2004 - 06/01/2004 / 10/01/2004 - 11/01/2004 / 11/01/2004 - 12/01/2004 / 01/01/2005 - 02/01/2005 / 02/01/2005 - 03/01/2005 / 03/01/2005 - 04/01/2005 / 05/01/2005 - 06/01/2005 / 07/01/2005 - 08/01/2005 / 09/01/2005 - 10/01/2005 / 10/01/2005 - 11/01/2005 / 11/01/2005 - 12/01/2005 / 01/01/2006 - 02/01/2006 / 02/01/2006 - 03/01/2006 / 05/01/2006 - 06/01/2006 /


Blogs I Read


Mike Spenis

Megan McArdle

Juan Cole

Joshua Micah Marshall



Emperor Misha I

Andrew Sullivan

Bob Somersby

John Quiggin

John Rogers


Powered by Blogger