Free Markets, Free People

Welfare Statism Update

I showed you the chart yesterday – here are the numbers and trends behind it:

The top 1 percent, those earning over $410,000, consists of 1.4 million taxpayers, while the bottom 95 percent contains 134 million.

In 2000, before the 2001 and 2003 tax cuts that some claim disproportionately benefited the rich, the top 1 percent paid less than 38 percent of income taxes while the bottom 95 paid almost 44 percent. Since the tax cuts, the top 1 percent’s share increased over 2 percentage points while the bottom 95 percent’s share decreased 5 percentage points. Those that argue the tax cuts solely benefited the rich are mistaken.

President Obama plans to raise the top 2 marginal tax rates on those making over $250,000 a year, and Chairman Charlie Rangel (D-NY) wants to slap a 6 percent surtax on top of that to partially pay for a government take over the health care system. These tax hikes, in addition to damaging the already badly weakened economy, will further shift the burden of the income tax to the highest earners.

In contrast, the bottom 40% of taxpayers pays no income taxes on average. In fact, they get money from the tax code well above anything they paid in because of refundable credits. And President Obama’s Make Work Pay credit, passed as part of the stimulus, will increase the money redistribute to these non-taxpayers.

So you have 1.4 million paying more in income taxes than the bottom 134 million. And 40 million of those 134 pay nothing and, in fact “get money from the tax code well above anything they paid in”, which, of course, would be any withholding.

Fair? Of course not. Additionally Democrats are interested in increasing the marginal rate by 2% on those making $250,000 a year (can you even begin to imagine how many small businesses that will impact?) with Rangel all for piling another 6% on top of that.

And yet the economic picture is looking up?

I’m emphasizing this story because of the impact it has on this obvious movement from less freedom and more welfare statism. This is directly out of that playbook. Like the old saying goes, the problem with, in this case welfare statism, is at some point you run out of other people’s money.


21 Responses to Welfare Statism Update

  • While it’s framed as “President Obama’s Make Work Pay credit”, I think much of it is President Obama’s “Make Work” Pay credit.

  • You answer the question “Fair?” with “Of course not.”   That is your opinion, but one could also argue that those who are wealthy have benefited the most from the stable culture, legal system and infrastructure that the country provides, and thus should pay a much higher portion.   Whose who pay high taxes also afford vacation, expensive homes, cars, etc.  The bottom 134 million probably have  a much worse lifestyle.   So the question “fair” has no objective answer, it’s a matter of opinion.   That’s why we have a legislature.

    • Unfortunately, Scott, that legislature in no  way reflects the taxpayers.  It reflects the tax takers.  That is why populism is such a threat.  Little do the tax takers understand they could kill the golden goose.

    • It’s not the role of the government to right the “injustices” of the social class hierarchy, but to provide a few essential services to the citizenry. Taxes are needed to run that government, and in a free society, they should be levied in the fairest manner possible. What’s so hard to understand about this? With a fair tax, richer people would still pay more than poorer. Graduated taxation is just an analog of punitive taxation. Funny you should bring up the legislature in a debate about “fairness”. You think that Congress fairly represents the interests of the American people?

    • You really are amazing in your obtuseness.

  • Without spawning a whole Randian lovefest, I can’t help but think that at some point the high earners (i.e. the producers of the world) will go on strike and flat out refuse to play in game where they are constantly being penalized.
    And remember everybody,  Scott Erb does not exist.  It is a psuedonym construct which allows some libertarian to play devil’s advocate.  My evidence:  no one could be that ridiculous in real life.  So if you get into debates with that poster, please realize it is probably just McQ (pretending to be the magical Erb) having some fun.

  • those who are wealthy have benefited the most from the stable culture, legal system and infrastructure that the country provides, and thus should pay a much higher portion.
    Nonsense! Unequal outcome is not always indicative of unequal opportunity, as much as you would like to believe it does. Most people look at a successful person and see something to strive for. You see a successful person and believe them to have cheated, “How DARE someone be more successful than I! They MUST have taken advantage of the lowly, less educated masses” Everyone benefits from our stable culture, legal system and infrastructure. Some play the cards right and make it to the top, most dont, but that is no reason to punish those who have.

  • The *only* purpose of higher taxes on the wealthy is to reduce the gap between rich and poor. And please note that such a purpose is completely indifferent to whether any particular group does better or worse, or how much money government takes in.

    We know this because we’ve already tried soaking the rich. The result was less money collected in future years and less growth in income for all groups. When Reagan removed those high tax levels (including a peak marginal rate of 70%), all groups benefitted through high, steady, long-term growth, and the government even ended up taking in more money (which of course the Democratic Congresses of the time gladly spent, teaching the Republicans who came after them the same bad habits). Those experiments were also done in welfare state Britain, in Sweden, and other places, and the outcome was always the same, and they all eventually retreated from their extreme soak-the-rich tactics because they have such bad effects in the long run. Just take a look at this chart to see how pervasive the trend of cutting high marginal tax rates has become.

    The only could-be-construed-as-negative consequence was that it allowed people like Gates and Buffet to end up with unprecedented amounts of money. Leftists hate that. I don’t know why they feel such overpowering envy for such people. I don’t envy Bill Gates, for example. I’ve met him, and I wouldn’t change places with him for anything. And I’m really happy he got rich by creating a company that allows me to make a pretty easy living developing software. (I’ve done manual labor. I know what a blessing it is to have the work I do.)

    But it’s an axiom of leftist thought that income disparity is bad, bad, bad, one of the prime evils. They give little or no thought to actual income levels or opportunities for the poorest groups. Hey, just keep ’em fed and housed, and they’ll become dependent wards of the government and guaranteed votes in every election. (I don’t know if that is the primary purpose for leftists, or if it’s just a bonus as far as they’re concerned.)

    So the left will gladly take less growth and less opportunity for *everyone*, and even accept less government revenue, just to assuage their envy of the rich. That’s a sick attitude, and I have never understood it.

  • For a great paper on income inequality, read Wilkinson’s “Thinking Clearly about Economic Inequality“.
    BTW, does anyone have the stats on what portion of the total income is earned by each income group, e.g., top 1%, top 5%, top 10%, top 20%, etc.? And then we could compare that to the figures above of what portion each income group actual pays.

  • Who decides what the role of government is?  A lot of people assert contradictory things, we do have a constitution, but it allows a lot of leeway for defining the role of government.

  • I’m not sure about that, Rick.   I think lobbies and big business have far more clout in government than do ‘tax takers.’  Also, the poorer one is, the less likely one is to vote.   Also, everyone is a tax taker to some extent — if you take into accounts all the government spends for things other than social welfare costs, and consider what people would have if they didn’t have these things, it becomes more complicated.   Also, one could argue that government welfare spending dramatically decreases the change of revolt or strikes.
    The fundamental questions though remain:  what is fair?   What is the role of government?   Readers of this blog tend to have one perspective, but other blogs and groups take different perspectives.   Is it just whatever one decides to believe?    Is there an ideological answer, or pragmatic?

    • Erb: “Also the poorer one is, the less likely to vote.”

      Whose fault is that?

  • I don’t know anyone on the left who “hates” the wealthy.   In fact, most people I know on the left have a lot of respect for Buffett (one of Obama’s advisors) and Gates.   Almost everyone on the left believes competition is necessary, and communism proved that trying to achieve equal outcomes is disastrous.  It’s a caricature — and a silly one that that — of the left to say they “hate” wealthy people.   Ridiculous!  However, the question is whether everyone gets a real opportunity to succeed.   Without education, health care, decent food and shelter, the opportunity set for someone in poverty to get out is constrained (though not eliminated).    Most on the left want to make sure all can have the basics and have an opportunity to make something of themselves without having the deck stacked against them, in favor of those who already “have.”   Then those who have good ideas and are willing to work hard will get wealthy, while those who are lazy and uncreative won’t.  Opportunities need to be real; outcomes should be diverse.    Also, both left and right put too much emphasis on money.    Real happiness is just as available to lower class person than a wealthy person.   The fetish with money causes too much pain on all sides of the political spectrum.

    • The governments job is to ensure equal protection for all under the law.  It is NOT the governments job to make sure everyone has a pony.    It is not the governments job to make sure that everyone has the same amount or even similiar amounts of money at their disposal.
      Your arguments are always based on some kind of static society that came into existence yesterday and that you can and should now manipulate to achieve your concept of fairness.
      Take this statement for example – ” Most on the left want to make sure all can have the basics and have an opportunity to make something of themselves without having the deck stacked against them, in favor of those who already “have.”
      You never trouble yourself to ask how those who “don’t have” now managed to achieve that particular state, or how those who “do have” managed to achieve that state.  You stroll in as if the world is a room that you can arrange the furniture in to your liking without any thought as to how the furniture, or even the room, came into existence.   The ‘haves’ who may have struggled, and scraped, and saved, are now supposed to subject themselves to your whim to hand the fruit of their labors and possibly their parents labors over to the ‘have nots’ when the ‘have nots’ may in fact have spent their lives not doing a thing to improve their lot.
      In your view the ‘haves’ somehow cheated to get what they have, they must have exploited the system to get there and now ‘the left’ will enforce redress upon them for the good of society.  Talking of how the deck was stacked against them in favor of those who ‘have’.  A crass generalization, the only fact in evidence presented for your conclusions being that some people NOW, at this instant in time, HAVE more than others.  Uninterested in how choices led to outcomes you will now cause the redistribution to occur.
      One observation I have about the left, and people like you is you don’t expect to actually sacrifice YOUR stuff to achieve this lofty goal.  It is for ‘others’ to be made to sacrifice to achieve your goals.  Think how far Ted Kennedy could go if he gave up ALL his wealth and earnings personally and redistributed them!  How far could the Heinz-Kerry’s go towards improving the plight of the common poor?  Al Gore?  All those millions he plans to make  on carbon trading given to help the poor.  Soros, the Pelosis, the Boxers, the Feinsteins.  Why is it these influential and well to do people don’t give up that wealth and move to modest homes in the suburbs on Joe Normal street?  They clearly are ‘HAVES’, why are they not giving their stuff freely to the have nots before they demand others do so?   Why do they send their kids to private schools and the best colleges?  Receive the best in medical care and treatment?
      How is it fair that they have more wealth than I do Scott?

  • Yep, no one on the left hates people because of their riches.  Take Rupert Murdoch for example.  Oops – wrong example. 

    I guess those on the left don’t hate the rich so long as the rich agree with those on the left.

  • I don’t hate anyone, but obviously there is a difference between those who “hate” others because of wealth, or because of politics.   Frankly, I think people on all sides have become too unreflective of their politics — in a field where there is inherent uncertainty and contestability (political philosophy, values, etc.) people tend to act like they are certain their particular belief is the only possible valid one.  And then I guess it makes sense to “hate” those who disagree — they are a threat to that belief.  I just hope people on both the left and right really don’t sink to that level.

    • Instead, just hate facts, those things really challenge beliefs. If we could all learn to just ignore facts as well as Erb, everybody’s beleifs would be respected equally and the world would be a happier place.

  • You’re dead wrong.  Scott Erb is a real live communist teaching at the University of Maine.  Don’t even think about trying to ignore him.  He is your deadly enemy.

  • Scott, have you read Sowell’s The Quest for Cosmic Justice? It’s a pretty good explanation of how your definition of “fair” is incongruent with liberty, and may explain why your worldview is so at odds with those of the neolibertarians on this blog. You appear willing to give up more of your own liberty (and that of others) to move toward your view of fairness. The book also demonstrates how true fairness as your define it can never actually be achieved without near-total subjugation, another probable point where worldviews conflict.

  • I can’t help but think that at some point the high earners (i.e. the producers of the world)

    The high earners of the world are its producers ? Dear oh dear…

    • I know this is trollish…but I just have to wonder – Blewyn is that pronounced ‘Blew in” by any chance?