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The Super-Rich (Those Bastards!)
Posted by: Dale Franks on Tuesday, June 14, 2005

Jon emailed me today with some correspondence he's been exchanging with Pulitzer Prize-winning New York Times journalist David Cay Johnston. I'll let Jon fill you in on the substance of that correspondence, if he so chooses, but the matter has drawn my attention to Mr. Johnston's recent contribution to the New York Times' ongoing series about class in America, a significant portion of which concerns income distribution. I've written about this recently, but apparently, there are cases where it never hurts deliver a few more manful thwacks to this dead equine. Although, it's really more like the Horse of the Living Dead.

Mr Johnston is, by the way, the author of Perfectly Legal: The Covert Campaign to Rig Our Tax System to Benefit the Super Rich - and Cheat Everybody Else, which makes him the perfect candidate to write the Times piece entitled, "Richest Are Leaving Even the Rich Far Behind".

Apparently, Mr Johnston has a point.
The people at the top of America's money pyramid have so prospered in recent years that they have pulled far ahead of the rest of the population, an analysis of tax records and other government data by The New York Times shows. They have even left behind people making hundreds of thousands of dollars a year.

Call them the hyper-rich.

They are not just a few Croesus-like rarities. Draw a line under the top 0.1 percent of income earners - the top one-thousandth. Above that line are about 145,000 taxpayers, each with at least $1.6 million in income and often much more.

The average income for the top 0.1 percent was $3 million in 2002, the latest year for which averages are available. That number is two and a half times the $1.2 million, adjusted for inflation, that group reported in 1980. No other income group rose nearly as fast.
Yes, they're sipping champagne from the slippers of hot blondes, while you go about your dreary workaday life, you miserable little prole.

Wouldn't it be great to be one of them? Isn't it great to live in a country where you too might someday rise to blonde-fondling champagne sipper?

Apparently not. Apparently, these people are a problem.
The share of the nation's income earned by those in this uppermost category has more than doubled since 1980, to 7.4 percent in 2002. The share of income earned by the rest of the top 10 percent rose far less, and the share earned by the bottom 90 percent fell.
So, the reason you don't have a yacht is because some rich plutocrat in Martha's Vineyard has it. They are taking a larger piece of the national income pie. But one notes that Mr. Johnston is speaking about the share of income, here. Not actual incomes themselves. The rich are getting a larger slice of the income pie, but, if the pie is getting larger, doesn't that increase income for everyone? It certainly may mean that income for the poor is rising slower than income for the rich, but it doesn't necessarily mean that the poor are getting poorer.

That seems kind of important, because if income rose rapidly, that means everyone's income rose, even if the super-rich's income rose faster. And, lo and behold, when we look at the census bureau's figures on income, we notice that, since 1985, the household income for the 10th percentile, in constant 2003 dollars, rose from $9,583 to $10,536 in 2003. That's an increase of 10%. And the 10th percentile, by the way, is one in which fully half of the people in it are unemployed. Similarly, if we look at the mean income for the lowest quintile (20%) over the same period, mean income has risen from $9,452 to $9,996, a 6% increase. So, everyone is getting a little bit richer, because per-capita income in the US rose by 40% in the same period, from $25,447 to $35,669 (measured in constant 2000 dollars).

It might also help to look at the numbers of people we're talking about, too. You see, income quintiles do not contain equal numbers of people. The Census Bureau divides income by households, not individuals, so the number of actual people in each quintile might be radically different. As it happens, the top quintile contains slightly more than 24% of the population, while the bottom quintile contains a bit less than 15% of the population. So, you know, maybe the fact that there are 65% more people in the top quintile than in the bottom quintile skews those income share figures a little bit. More income is going to the highest income quintile, at least in part, because the highest quintile contains signifigantly more people.
Next, examine the net worth of American households. The group with homes, investments and other assets worth more than $10 million comprised 338,400 households in 2001, the last year for which data are available. The number has grown more than 400 percent since 1980, after adjusting for inflation, while the total number of households has grown only 27 percent.
So, more people are getting rich at a faster rate than ever before. And this is a bad thing, because...?
The Bush administration tax cuts stand to widen the gap between the hyper-rich and the rest of America. The merely rich, making hundreds of thousands of dollars a year, will shoulder a disproportionate share of the tax burden.
So, instead of having three Lexuses in the driveway, they'll only be able to have two Lexuses and an Acura. My heart bleeds. Meanwhile, the hyper-rich will have three Hummers. And the real ones, the gas-hogging H1s, not the puny little H2 Baby Hummers, which I wouldn't walk across the street to spit on.

But that brings up another problem with income comparisons. You see, the top group of income earners, no matter how you slice it, is the only group with no top end. There's no upper limit to the “top incomes" so how you single them out, as Mr Johnston does here to the top 0.01%, really makes no difference.

So, one guy making infinity dollars would really screw up the numbers. But, in that cast, at least we'd be able to afford every social program we can imagine, not matter what his tax rate was, as long as it was greater than 0%.
The analysis examined only income reported on tax returns. The Treasury Department says that the very wealthiest find ways, legal and illegal, to shelter a lot of income from taxes.
Huh. Imagine that. The hyper-rich can shelter income. If I hadn't read it in the New York Times, I hardly could've believed it.

But, you can't get around the fact that the ultra rich will always be able to shelter income, hire tax attorneys and accountants, hide money in overseas accounts, and generally wreak havoc on tax enforcement. And if they can't, they can always move to Bermuda, or some other tropical hellhole with a good Club Med, sandy white beaches, cool clear lagoons, and champagne-dispensing blondes. You can never reliably tax the ultra-rich, because they have too many resources for avoidance. If you try, then, as the British found out in the 60s and 70s, you just turn them into tax exiles.

Hmm. Maybe we should just kill them.
President Ronald Reagan signed tax bills that benefited the wealthiest Americans and also gave tax breaks to the working poor. President Bill Clinton raised income taxes for the wealthiest, cut taxes on investment gains, and expanded breaks for the working poor. Mr. Bush eliminated income taxes for families making under $40,000, but his tax cuts have also benefited the wealthiest Americans far more than his predecessors' did.
Or, to put it alternatively, Bill Clinton, despite some cosmetic tax breaks, heartlessly continued to extract money from the working poor through the cruelty of unfair taxation, while the compassionate George W. Bush liberated the working poor from paying any federal income taxes at all, although, unfortunately, this also provided benefits to rich Americans as well.

How you phrase things can be...suggestive of your biases.
The Bush administration says that the tax cuts have actually made the income tax system more progressive, shifting the burden slightly more to those with higher incomes. Still, an Internal Revenue Service study found that the only taxpayers whose share of taxes declined in 2001 and 2002 were those in the top 0.1 percent.
So what? This is another dodge, like the "share of income" deal a couple of paragraphs ago. The share of taxes paid means nothing in isolation. There's all sorts of things that could cause the share of revenues to change. If everyone in the lowest 50% of taxpayers got a salary increase of $100,000 per year, the share of taxes paid by the hyper-rich would fall, too, because “the poor" would have so much more taxable income that they would pay much more of the tax bill than they do now. Again, so what?

The way we judge whether a tax system is progressive is by the amount of taxes paid by an individual relative to his income. In other words, by effective tax rates. For a tax system to be progressive, then one's taxes must rise as one's income rises. That's all progressivity means. It has nothing to do with this idiocy about percentage of federal taxes paid. According to the Urban Institute/Brookings Institution joint Tax Policy Center's Tax Facts Database, the effective federal tax rates, i.e., the percentage of income that people actually pay in taxes, the numbers look like this:

QuintileTax Rate
Bottom4.6%
Second10.8%
Middle14.4%
Fourth18.7%
Top26.1%
Top 10%27.9%
Top 5%29.5%
Top 1%32.7%


That, my friends, is progressive taxation. One gets the sense that it isn't as progressive as Mr. Johnston would like. But that's an argument of normative, not positive, economics. And let's compare this, by the way, to the real effective tax rates under Bill Clinton, in The Year of Jubilee, 1999:

QuintileTax Rate
Bottom6.1%
Second13.3%
Middle16.9%
Fourth20.5%
Top28%
Top 10%29.7%
Top 5%31.2%
Top 1%33.5%


The real effective federal tax rate for the top 1% of incomes was slashed—slashed, I tell you!—by 0.8% under the plutocrat-friendly reign of Smirky the Shrub! I'm surprised the republic hasn't collapsed under the weight of this unfairness.

Finally, Mr. Johnston exits his piece with this passage:
The central question is mobility, said Bruce R. Bartlett, an advocate of lower taxes who served in the Reagan and George H. W. Bush administrations. "As long as people think they have a chance of getting to the top, they just don't care how rich the rich are."

But in fact, economic mobility - moving from one income group to another over a lifetime - has actually stopped rising in the United States, researchers say. Some recent studies suggest it has even declined over the last generation.
Ah. Well. If researchers say it, it must be true. But I'm wondering: what researchers? Who are they? Where can I find their research? How do I access those unnamed studies? Unfortunately, Mr. Johnston didn't se fit to provide us with those answers. We'll just have to take him on faith.

Or, rather, we would if the research wasn't publicly available at places like the House of Representatives Joint Economic Committee web site. But, since it is, we might as well at least glance at it. When we do, we find that "the new figures show that between 1987 and 1996, 66.2 percent of tax filers exited the bottom tax bracket (as defined by the 2001 tax law). Over the same period, 76.0 percent exited the 28 percent bracket as defined by 2001 law, while 50.9 percent exited the top tax bracket. Similar degrees of mobility can be reasonably expected over the next decade."

Huh. Now I really wonder what "researchers" Mr. Johnston is referring to. Because all that JEC stuff is based on the economic report of the president's Council of Economic Advisors. Administration hacks, the lot of them.

So, could he, perhaps, be referring to the Census Bureau, who are generally the go-to guys when it comes to income statistics? Apparently not. They report that of all the households in the bottom quintile in 1996, 26.1% had moved into the second quintile, 8% had moved into the middle quintile, 2.7% had moved into the fourth quintile, and 1.2% had moved into the top income quintile by 1999. That's a lot of movement in three years. Interestingly, of those in the top income quintile in 1996, 4.3% had moved into the bottom quintile by 1999. I thought Chimpy McBushitler and his sidekick Haliburton Boy were supposed to make things nice for their corporate fat-cat friends, not send 1 in 20 of them to the poor-house.

As far as I can see, though, things in the world of income distribution still seem fairly mobility-ish to me.

But, Mr. Johnston says "researchers" say otherwise, and he is, as Marc Antony would say, an honorable man.

Divider

Mr. Johnston seems to be perpetuating a fallacy about the Bush economic program—such as it is—which is that it is designed to benefit his rich friends. That's just paranoid lunacy, quite frankly. The purpose of the Bush fiscal policy is to reduce government activity in the economy, in order to promote economic growth. As a secondary effect, however, increasing market freedom almost always leads to greater inequities in wealth and income. But we pay that price, and we do so gladly, because economic growth increases the wealth and incomes of all persons. Yes, it lets some people become fantastically rich, but it spreads benefits to the economy as a whole. The poor become less poor. The middle class thrives.

The government can, of course, reduce income equality. But to do so, it necessarily distorts markets and reduces economic growth. All you have to do is look across the pond at the moribund economies of France and Germany. They've done a marvelous job at reducing great disparities in income. And it only costs sub-2% economic growth, huge levels of taxation, and a structural unemployment rate of 10%+. Maybe they're happy with that deal, but I certainly wouldn't be.

Apparently, Mr. Johnston would.
 
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Your wonderfully snide analysis doesn’t take into account another problem with the reasoning of Johnson and his ilk: the fact that the membership of different income groups is not constant over time. A significant fraction of the lower income quintiles is, in fact, young people who will over time earn more. (In my twenties, I was in the lowest income quintile. Now, I am not.) Also, you have older people whose income is low, but have a great deal of wealth accumulated over a lifetime of work. And people who are temporarily out of work. (Again, to use myself as an example, I dropped a quite a bit on the scale last year because I was unemployed for half the year.) The income distribution stats are just a snapshot.

To be sure, there are people who are poor and who stay poor. But the the stats for low income exagerate that number. The fact that there is a discrepancy between the incomes of the high end and low end of the scale does not mean that there are rigid class boundaries in this country.
 
Written By: buckethead
URL: http://perfidy.org
Nicely done, Dale. But may I point out that this goes far deeper than the tax code,and the numbers provided? The underlying meme here is how the rich are cast, morally. Clealy... and may I say it, more clearly than usual with this ilk, the goal here is so that nobody TRIES to get to that super-rich stage or, for that matter even the ’rich’ stage... and why, as you point out?
So, more people are getting rich at a faster rate than ever before. And this is a bad thing, because...?
Because the writer considers being rich to be immoral.

Clearly, he’s been reading his Marx.




 
Written By: Bithead
URL: http://bitheads.blogspot.com
I’d like to echo buckethead. I’d be really interested to see a transition probability matrix for the income quintiles for an individual over time. To suggest an extreme scenario, what if you had a population of two people. Let’s call them Rich Guy and Penny Less. Say in 1985 Mr. Guy was making 25k and Ms. Less was making 15k, both in 2005 dollars. Say in 2005, Dick was making 30k and Penny was making 75k. The sort of analysis we’re reading would describe this as "the rich" rate of income increasing by 200% ((75/25 - 1)), compared to "the poor" income increasing by only 100% ((30/15-1)). But is this evidence of "the rich getting richer?" Of course not. Is anyone aware of a resource for this sort of information?
 
Written By: Tim Higgins
URL: http://willgolfforfood.blogspot.com
I had another question as well - as I was reading Dale’s post (have not read the NYT artiicle yet)I was thinking about the following statement -

Above that line are about 145,000 taxpayers, each with at least $1.6 million in income and often much more.

Where do professional athletes fall in this scenario? I know they are not the biggest group in the bucket, but there have to be 10,000 or so. My point is those guys and gals are making a bundle of cash for one year of work because the longevity ain’t there. Think about the 1,000 baseball players (or for a smaller group take the Yankees - 200 million this year for 25 players). The group that has that income this year is going to be a different group than the one that had it 4 years ago or 4 years from now.

And can I ask what Mr Johnson thinks all these evil RICH people do with their money? It is either in a bank somewhere being used as a loan for Joe Bagadonuts new 80K ranch, or it’s being spent so Joe Bagadonuts has a job building yachts. Or does Mr. Johnson think these evil RICH people just hoard the cash and have exclusive parties where they roll around in it and look down on the honest workin’ man?
 
Written By: meagain
URL: http://
If we can’t be equal, people like him want us all to be equally miserable.....
 
Written By: shark
URL: http://
I’ve updated the article to include the stuff about income mobility. I was gonna forget it, because Mr. Johnson only covers it in a single sentence, but, since you guys asked, here you go.
 
Written By: Dale Franks
URL: http://www.qando.net
hoard the cash and have exclusive parties where they roll around in it

Swimming pools of coins.
 
Written By: kevin
URL: http://
Cocaine. They blow it allllllllllllllllllllll on cocaine. They make humongous piles of yayo on a table like Tony Montana, and hoover that shizzle...

j/k

 
Written By: b-psycho
URL: http://psychopolitik.blogspot.com
I agree that income disparity is a much abused indicator of economic health.

The measure of mobility within the brackets is much more useful. There are ways of increasing mobility without income redistribution through progressive taxation. Reform of penal code to eliminate prosecution for consensual crimes (drugs, prostitution) that are almost solely prosecuted against low earners. A reduction of copyright/patent protection period to allow for new innovations on same sooner.

 
Written By: Unaha-closp
URL: http://
Johnson reports
The Bush administration says that the tax cuts have actually made the income tax system more progressive, shifting the burden slightly more to those with higher incomes.
Yep: Distribution of EGTRRA Tax Cut (Economic Growth and Tax Relief Reconciliation Act of 2001)

 
Written By: JWG
URL: http://www.qando.net
qando, what the other 99% of us feel about the super-rich is not envy, as you suggest, but disgust. paris hilton and the waltons are nasty, and i wouldn’t be them for ten times the money.
 
Written By: jami
URL: http://stophernow.blogspot.com
qando, what the other 99% of us feel about the super-rich is not envy, as you suggest, but disgust. paris hilton and the waltons are nasty, and i wouldn’t be them for ten times the money.
You don’t read this blog much, do you? For instance, there is no one who posts here called "qando".
 
Written By: Dale Franks
URL: http://www.qando.net
So now that I’ve looked at the link you supplied for income mobility, it appears that approximately half of all households ended the three year period 1996-1999 in the same quintile that they began it, and half changed. What’s more, about one in eight households changed by more than one quintile. I’d be curious to hear what these doomsayers would consider adequate income mobility, because this sounds pretty good to me.
 
Written By: Tim Higgins
URL: http://willgolfforfood.blogspot.com
I’d be curious to hear what these doomsayers would consider adequate income mobility
Of course, you never will...just like we never hear what a "fair share" would be when it comes to taxes.
 
Written By: JWG
URL: http://www.qando.net
what the other 99% of us feel about the super-rich is not envy, as you suggest, but disgust. paris hilton and the waltons are nasty, and i wouldn’t be them for ten times the money.
You ought to be a libertarian. We believe the government shouldn’t try to make you one of them!
 
Written By: Jon Henke
URL: http://www.QandO.net
Note the sly claim that economic mobility "has actually stopped rising", meant to insinuate that there isn’t any more of it left. In fact, it seems fairly obvious that mobility cannot rise without limit, so Mr. Johnson is attempting to muster envy by pointing out that things are as good as ever.

There is a possibility that income mobility is decreasing, as a result of the eugenic experiment of letting smart girls go to college: more here.
 
Written By: sammler
URL: http://stonecity.blogspot.com
You guys are forgetting the socialist definition of "Rich"....
"Anyone who makes dollar one, more than I do."

 
Written By: Bithead
URL: http://bitheads.blogspot.com
I dont think class is entirely irrelevant. I think concerns over middle-class erosion, getting more people into the middle-class, etcetera... are all perfectly legitimate concerns. It is, afterall, the foundation of the American success story.

I have no sympathy for the class warriors who simply want to take the rich down a notch, just because they can... You can usually tell who these types are. I will relate two anecdotal examples that I think outline this difference, in terms of labor unions and workers.

The US Airways workers complaining about the executive salaries, the golden parachutes, and the like... all the while they continue to get screwed over time and time again? Legit complaint. Too many CEOs getting multi-million dollar severance packages after driving a company into the ground and leaving. Fair enough.

On the other end of the spectrum are the greedy class-envy types. The Pennsylvania Tollpike Workers strike last Thanksgiving highlights this perfectly. Management offered them large pay increases, to the point where the top earners of [b]tollbooth workers[/b] could make $50,000 a year. Full healthcare coverage, several [b]weeks[/b] of paid vacation time, the works. This was what was offered before they went on strike, and that wasnt enough for them. They wanted a bigger pay raise (double digit percentages wasnt enough apparently), they wanted more vacation time. They went on complaining about the management who got paid too much.

In that case, the attacks on the management (ie: the "rich") were entirely unfounded. They were getting the deal of a fucking lifetime to do the most unskilled labor in existance, and the greedy bastards wanted more. They acted like the management was stealing the food out of their mouthes, even when they were getting fed with silver spoons.

I think these two anecdotes outline the difference between those concerned over legitimate class concerns (some rich people/companies *do* screw over the little guy) and those with a huge case of class envy who want to see the rich brought down a notch no matter the cost.

The former, we should listen to carefully. The latter? Fuck em’.
 
Written By: Jamie Rosensteel
URL: http://www.qando.net
I agree that per-capita income gives a much better view of overall advancement of wealth, but the household wealth analyses are still important. That said, I think the NY Times simplistic look at household numbers over time neglects some important overall trends and data collection difficulties.

First, the definition of household is problematic. The detailed income data is from tax returns - so if Mary and John live together, but are not married, they count, in the treasury methodology, as two households. (http://www.ustreas.gov/ota/ota85.pdf). An effect of the increases in housing costs is to increase co-habitation of all sorts, leading to skewed data and skewed conclusions. If a parent or child lives with you, but is not a dependent for tax purposes, they’re separate households. I see no mention of compensating for these trends in the analysis - yet obviously many of these phantom households will disproportionately fall in the lower quintiles.

A similar concern is the apparent assumption, on the part of the Times, that increased overall wealth will have no impact on household makeups. Let’s take divorce as an example. As overall wealth increases, the economic ’cost’ of a divorce decreases - at low income levels, Carol and Ted may choose to stay together because their overall quality of life separated may be too dire to contemplate. If Carol and Ted make enough to go ahead, instantly they might migrate from being a mid quintile couple to two low quintile couples. In effect, some portion of the population will choose behavior that is less economically advantageous, for quite legitimate reasons.

Lastly, any look at households over the last few decades needs to take into account the demographics of the baby boom. Ones income level is likely to be more unstable at the start and end of ones adult lives, and the chances of shifting quintiles is higher then. For example, the simple fact that there were many more people in their 40’s in the 1990’s than there were in the 1970’s would naturally lead to some reduction in the volatility of income. This is not a bad thing, just a reflection of peoples’ appetite for risk at different ages.

So, without correcting or compensating for these overall demographic trends, the comparison graphs in the Times are just laughable - I’d guess that the effects of the demographics outweigh and quite possibly reverse the ’rising inequality’ trend that they see.

Sorta similar to looking at a boat in the water. Just because I’m lower doesn’t mean I’m sinking - it could just mean that I’m not on top of a swell any longer.

DD
 
Written By: Data Dog
URL: http://
I thought Chimpy McBushitler and his sidekick Haliburton Boy were supposed to make things nice for their corporate fat-cat friends, not send 1 in 20 of them to the poor-house.

Perhaps those 1 in 20s were "limousine liberals." If so, I would say that Bush did them a favor by removing the source of their angst.
 
Written By: Liberty Dog
URL: http://onebillion.blogspot.com
What a pleasure that was to read. Just extremely well done. Bravo.
 
Written By: Ron C
URL: http://
I thought Chimpy McBushitler and his sidekick Haliburton Boy were supposed to make things nice for their corporate fat-cat friends, not send 1 in 20 of them to the poor-house.

When a high earning person retires their income falls, I think this is the driver for this statistic. It seems unfair to criticise Bush based on this.
 
Written By: Unaha-closp
URL: http://
There’s immigration too, as mentioned. Really poor people from other countries come here and become wealthier than they were in their home country, but still drag down the lowest quintile here for a while. It would still be crazy to shut the door.

Another reason is the increasing percentage of people going to college and post-graduate education. Going to graduate school (or any professional school) means taking several more years making poverty-level income, much less than you could make in the workforce, in exchange for years making more when you get out than you otherwise would. In other words, you’re increasing the income inequality between years of your life, between your 20s and your 30s and 40s. Since everybody is in a different stage of their own life, the collective effect of more education is to increase income inequality.
 
Written By: John Thacker
URL: http://

I hope that we have a vigorous national debate about the rich vein of new facts that my June 5 article and the accompanying charts present. And I hope we can do it while focusing on the facts, without the kind of demonize-the-messenger post of Dale Franks.

Nothing in my report supports Franks’s inflamed rhetoric about “sipping champagne from the slippers of hot blondes, while you go about your dreary workaday life, you miserable little prole” or that, of the richest Americans, “maybe we should just kill them.” Such language inflames, but does not inform. It is irresponsible.

I will attempt to address some of the logic errors, misused data (resulting in invalid conclusions or comparisons) and other off-point analysis. Franks does not even manage to spell my name correctly.

Anyone who wants to check my work can see the original source documents, which I had linked at nytimes.com/class. I took great care to use reasonable examples and to present rounded data based on reasonable facts.

For example, I calculated back to 1920 income growth ratios by decade, double decade, 22-year period and rolling periods BEFORE writing my article.

The ratio of income growth for the very top fractile to the bottom 90 percent has gone from $162 to $1 in 1950-70 to $18,000 to $1 in 1990-2002, a shorter period.

In the last 25 years the incomes of the bottom 90 percent (more below) have stagnated. My story EXCLUDED extremes like a recent period when the income growth ratio was $66,000 to $1.

One responding poster above described as Franks’s post as “snide.” Perhaps we can have a civil discussion on the facts and maybe learn some new insights.

In nearly 40 years of investigative reporting I have learned that the facts uncovered on close examination often run counter to what I had assumed to be so, to our cultural myths or to what is contained in routine news reports.

I have always taken on tough subjects and written powerful people such as Presidents, Senators, Governors, Attorneys General, Police Chiefs, Judges, CEOs and others who had resources to defend themselves and disprove my work if I made any significant error or was unfair.

My work has been the subject of grand jury investigations, Congressional hearings, lawsuits and challenges by competing organizations.

CEOs have lost their jobs, dishonest TV and radio news operations taken off the air, several tax cheats now serve long prison sentences, hundreds of millions of dollars bequeathed to poor children were saved from diversion by an heir, hundreds of billions (note that B) of dollars of tax dodges were shut down and many lives saved because of my work. I once hunted down a murdered whom the police had failed to catch.

My work has stood up to scrutiny because I am careful to do thorough research using hard facts which I can thoroughly substantiate. I use reasonable examples. I do this because my work often comes as a shock to many people because it shows that things are not as our myths (in the classical sense of that word) prompt us to believe.

Those who have not yet read my article should know that, as I reported, the findings were shared well in advance of publication with the Bush Administration and with the appropriate experts at a wide variety of organizations—ranging from the Cato Institute to the Heritage Foundation to Citizens for Tax Justice. All of them and others found the data reasonable and reliable. As we noted, the facts (which Franks challenges) are not in dispute, only their meaning is. And I gave readers a synopsis of those disagreements over meaning.

Franks makes much of the fact that quintiles “might be radically different” numbers of people. Look at the main chart with my article. Franks evidently missed the chart line showing the number of TAXPAYERS (a term defined in the article) for each quintile, decile and fractile. The variance in the number of taxpayers, the data line shows, is modest, not radical.

On a more substantive point, Franks wrote:

**The rich are getting a larger slice of the income pie, but, if the pie is getting larger, doesn’t that increase income for everyone? It certainly may mean that income for the poor is rising slower than income for the rich, but it doesn’t necessarily mean that the poor are getting poorer. That seems kind of important, because if income rose rapidly, that means everyone’s income rose, even if the super-rich’s income rose faster.**

The answer to the first question above is NO. And the last sentence above is based on faulty logic. It simply does not follow that “if income rose rapidly that means everyone’s income rose.”

A rising tide indeed lifts all boats – except those tied to the dock with short ropes. The phenomenon of stagnant or falling incomes for the bottom 80 percent or so of Americans is well documented. I even quoted Alan Greenspan on this and on his concern that the concentration of income growth at the very top is not good for democracy. (More on this below.)

The economic pie has indeed grown, as Franks wrote. My article reported this and cited high up on the “remarkable transformation” or our economy since 1980 and, lower down, the critical role of “strivers and innovators” in generating economic growth.

So there is more economic pie. But the slices have changed. And even though the pie is much larger many people have the same pie – they did not share in the growth. Some people have less pie or would if they had not increased their working hours significantly, very significantly. You can upgrade from a medium pizza to the largest size and still slice it so that you or someone else gets less pizza.

Let’s look at the bottom 90 percent of Americans, from the tax return data I cited in my June 5 work and which can be examined from the links I posted. In the years 1980-2002 the AVERAGE INCOME of the bottom 90 percent of Americans was flat (see the link for Saez and go to Table A6, column 7). By the way, Professor Saez is currently at the Hoover Institution.

In inflation-adjusted terms the average annual income of this group rose after these 22 years by $128 to $25,646 from $25,518, a total after 22 years of just a half of one percent.

Had I used 1979 as the base year, it would have shown 2002 income that was $1,383 LESS than in 1979. The peak income year for the bottom 90 percent was 1973 and from that year to 2002 average income for this group fell by 11.5 percent, from a base of $28,252 in 1973. Table A6 shows data all the way back to 1920.

Now this does NOT mean that everyone in the bottom 90 percent had stagnant income.

The threshold for entry into the top 10 percent rose by 14.7 percent during the years 1980-2002. However, that is an increase of much less than one percent per year, which is well below the overall increase in the economy. (If we go to 1979 as a base the increase is 11.2 percent, while since 1973 the increase is just under 9 percent after 29 years.)

If the average income of the bottom 90 percent was stagnant after 22 years and the threshold for being in the top 10 percent rose by 14.7 percent then for some people in the bottom 90 percent incomes had to be flat or falling if the overall group result was stagnation. Put another way, those on the 90th rung of the income ladder gained the most among those in the bottom 90 percent; other income classes gained not at all or lost ground.

Among economists of all political stripes who study these issues there is no disagreement about these fundamental facts: incomes at the top have been rising sharply while for a majority of Americans incomes are stagnant or falling. And even after the fallback from 2000 income growth remains highly concentrated at the top. (The fact that incomes fell most after 2000 for those with the highest incomes was a story I broke in 2003, drawing out the details from IRS statistical tables.)

Further, those in the bottom 80 percent have made up for falling wages by working more hours. On average families with children do about 820 hours MORE paid labor now than they did in 1970. That is more than five months of additional work.

There is no free lunch.

A society that depends on many hundreds of hours of paid labor from families with children (for statistical purposes a year as 2000 hours of work) gets a benefit in terms of income, but it also pays a price. Those extra work hours mean that overall Americans spent significantly less time with their children, as well as on personal pursuits, religious devotion, volunteering, citizenship activities, etc. Those issues were not addressed in my June 5 article, but are relevant to some of the criticisms in the Franks post, which strikes me as a litte Panglossian.

Franks also wrote:

** Bill Clinton, despite some cosmetic tax breaks, heartlessly continued to extract money from the working poor through the cruelty of unfair taxation, while the compassionate George W. Bush liberated the working poor from paying any federal income taxes at all, although, unfortunately, this also provided benefits to rich Americans as well.**

My article, in the neutral language of serious reportage, noted that President Bush eliminated taxes for families with incomes up to $40,000 (requires two children, assumes standard deduction).

Under President Clinton the earned income tax credit (a form of negative income tax derived from a Milton Friedman idea and championed by President Reagan) was expanded to provide modest benefits to singles and childless couples among the working poor. But while Clinton famously persuaded Congress to raise taxes on the highest wage earners, he also signed the Republican-sponsored 1997 capital gains tax cut.

The net result of the Clinton hikes and cuts was that the tax burden on the 400 highest taxpayers FELL by more than a quarter from 29.9 cents of each dollar of reported income in 1993 to 22.2 cents in 2000, which is hardly cosmetic. (The Bush administration has barred the IRS from releasing 2001 and 2002 data on the top 400, but I calculated the effect of 2004 tax rules on their 2000 incomes and the findings are in the charts.)

The tax buden of everyone else rose until the Bush tax cuts, which reduced the tax burden, but the Bush cuts were financed entirely with borrowed money, meaning the taxes were simply deferred with interest to the future.

Franks also quotes one paragraph I wrote to assert that I have some anti-Bush bias, but ignores other things I wrote that disprove his claim. Those who read my article will see that the Bush Administration acknowledges my finding that the system is less progressive if your measure is the very top incomes, say $1.6 million and up. The administration says its measure is the top 40 percent (incomes at $80,000 and above). Give a little thought to that and what it means in terms of shifting burdens. Then look at the two charts, paying close attention to the details. Look at which groups pay a larger or smaller share of taxes over time and look at the relationship of income share to tax share.

Franks wrote:
** The way we judge whether a tax system is progressive is by the amount of taxes paid by an individual relative to his income. In other words, by effective tax rates.**

Exactly right.

Franks then uses data from the Tax Policy Center, the same organization that, pro bono, did much of the computer modeling that I relied on.

Please look at the more recent and more refined data in my article, which shows that by the measure Franks cites the system, is no longer progressive.

The administration, with whose officials and spokesmen I had many conversations over a period of months, acknowledges that if the measure is the very highest income Americans the system losses progressivity. (See paragraph with the words “Griffin Taylor”.)

The charts in The New York Times show that Americans making $50,000 to $75,000 pay virtually the same percentage of their income in income and payroll taxes as those making an average of $174 million (the difference is a tenth of a percentage point).

For those who may think it is unfair to lump in payroll taxes, the facts are these: Americans who make $500,000 to $10 million pay a significantly larger share of their incomes in federal income taxes alone than those making more than $10 million. That is not, by definition progressive.

The analysis also shows that the shares of taxes paid by the poorest Americans and those in the 80-99 percentile will rise under the President’s 2006 Budget while the top 1 percent falls. That is shifting the burden down. This means that the share findings are consistent with the progressivity findings.

Franks also challenges my brief mention near the end of my article on mobility, mocking me with these words:

** Ah. Well. If researchers say it, it must be true. But I’m wondering: what researchers? Who are they? Where can I find their research? How do I access those unnamed studies? Unfortunately, Mr. Johnson didn’t se fit to provide us with those answers. We’ll just have to take him on faith.**

One does not need to take what I wrote on faith. It is all there for you to read and when the reprint and then the book come out it will all be there, too.

The answers to those questions were all addressed in the first installment of our Class Matters series. The first installment even includes a reading list on mobility posted at nytimes.com/class.

For me to retread that ground would be redundant. The brief mention I gave is consistent with more than 100 years of practice in journalism so I think Franks’s criticism is without merit.

Readers may also be interested to know that The Wall Street Journal got wind of our project, which has been in the works for more than a year, and quickly produced their own competing series. It has much the same findings.

At the top of this post I said there would be more on Alan Greenspan’s concerns about increasing concentration of incomes at the top. "For the democratic society, that is not a very desirable thing to allow it to happen,” Mr. Greenspan told Congress a year ago, as I reported June 5.

Our federal government is a fifth of the economy and we bear heavy taxes to finance it. We have been under a wartime tax regime for more than six decades. Our government has continued to grow, regardless of which party is in power.

Income distribution is influenced by government rules and policies, as Franks’s post shows by implication.

Tax distribution is, by definition, government policy.

That makes these issues important policy matters that we must understand, debate and act on if we are to remain a free people.

Democracy was born of these very issues. Indeed, taxation based on ability to pay is arguably the most conservative principle in Western Civilization.

When Athens was a tyranny 2,500 years ago every citizen paid the same tax. It was an onerous burden on the poor, a trifle to the rich. The Athenians pondered this and concluded that they had tax burdens upside-down. The Athenians devised a new moral principle: those who received the greatest economic benefit from living in a society had a moral duty to bear the heaviest burden of taxes to maintain that society. Out of that moral principle came democracy.

The fact is that income growth in America has become highly concentrated in the past quarter century and a major shift in income distribution has taken place with important economic, social and other effects.

The fact is that tax policy has played some role in this and that going forward the law in effect this year and the proposals advanced by President Bush will tend to further these trends because of the design of his tax cuts.

Nothing I wrote argues for or against any specific tax policy. What I did was to articulate, with facts that the Administration considers reasonable, what has taken place and will take place. It is clear from Franks’s post and the published commentaries of many others that the facts I dg out and made accessible to people who are not economists were news, defined as that which is important that you did not know.

So let’s focus on the facts, instead of demonizing the reporter with wild and irresponsible claims such as imagined mass murder. Let’s debate and ponder whether the new facts should cause us to draw comfort in things as they are or to consider whether public policy should be changed and, if so, how, that our democratic form of government will endure.

David Cay Johnston
The New York Times
212-556-3605




 
Written By: David Cay Johnston
URL: http://nytimes.com/class
Wow, that’s a thread-killing comment. The more appropriate course for Mr. Johnston would be to get himself a blog, where he could justify posts of this length.
 
Written By: sammler
URL: http://stonecity.blogspot.com
I’d like to look more closely at one part of Mr. Johnston’s comment:
"The Athenians devised a new moral principle: those who received the greatest economic benefit from living in a society had a moral duty to bear the heaviest burden of taxes to maintain that society. Out of that moral principle came democracy."

First, the concluding claim—that progressive taxation is the root of all democratic government—is both grandiose and implausible, and I would like to see a little more substantive support for it. At present there are no grounds for admitting it to the argument.

Second, the new moral principle means only that the rich should pay a larger absolute amount of taxes than the poor, which they certainly continue to do. The attempt to conflate nonzero marginal taxes with increasing marginal taxes is sly, but far from convincing.
 
Written By: sammler
URL: http://stonecity.blogspot.com
Mr. Johnson is guilty of a nice twisting of arguments, here;
When Athens was a tyranny 2,500 years ago every citizen paid the same tax. It was an onerous burden on the poor, a trifle to the rich. The Athenians pondered this and concluded that they had tax burdens upside-down. The Athenians devised a new moral principle: those who received the greatest economic benefit from living in a society had a moral duty to bear the heaviest burden of taxes to maintain that society. Out of that moral principle came democracy.
Seems clear to me that the underlying implication he’s trying to insert here is a flat tax as proposed by many today, isn’t any good. But in the case he cites, each person paid the same monetary amount, not the same percentage. The adjustment the Athenians made was in reaction to THAT unfairness.. it wasn’t an attempt to use the tax system to make all incomes equal. Mr. Johnson’s statement here is tatamount to arguing against Chicken for dinner because you don’t like Limberger Cheese.

And even exclusive of that, the situation we have now is nowhere near the situation he cites of the ancients.
Nothing I wrote argues for or against any specific tax policy.
Oh, I’ll admit you made an unconvincing argument for soaking the rich, but the fact was and remains, that you made one. Your response here was even moreso.

And let’s ask a basic; By what moral right do you confiscate the money of those who have more than average? By what justification do you conclude that someone’s making too much money, and that government needs tostep in and re-distribute it?

Mr Johnson, I submit to you that most damning of all is your claim that progresive taxation is the basis of democracy. That’s only true if you assume as Ben Franklin did that democracy is two wolves and a sheep voting on what’s for dinner.

Now, were you to claim that progressive taxation was the basis of Democracy... note the capital "d", there.... then we might actually and more fully agree with each other on that point.

 
Written By: Bithead
URL: http://bitheads.blogspot.com
Poster Sammler, who cannot even spell my name correctly, admits that he knows nothing of Athenian history, but dismisses what I wrote as implausible. Truly amazing as a combination of ignorance and arrogance.

Perhaps Sammler will read Charles Adams, a foe of taxation who wrote a terrific, innovative and well-researched history of Western Civilization through taxes called "For Good or Evil."

Also, President Bush says he believes that the tax system should be progressive and asserts that he has made it more so. I hope Sammler will go look at the facts and educate himself about the statements of the administration in my piece.

Also, I don’t write in implications, but in direct language. NOTHING I wrote was about the flat tax. However, based on the rest of Sammler’s post I am sure he does not actually understand what the flat tax is.

Strange but true fact to ponder: the genesis of the flat tax was a 1972 campaign speech by George McGovern.

Second strange but true fact: The flat tax grows out of a European socialist tax policy.

Likewise, poster bithead writes from an admitted lack of knowledge. He wrote:

**By what moral right do you confiscate the money of those who have more than average? By what justification do you conclude that someone’s making too much money, and that government needs tostep in and re-distribute it?**

"You" is the wrong word here. Our government imposes taxes. Article 1, Section 8 of the Constitution gives Congress nearly unlimited power to tax. The Federalist Papers discuss the morality of taxation and as do the writings of Aristotle, Plato, Adam Smith and others who came long before Ben Franklin.

Bithead, who also cannot spell my name correctly, also wrote:

**Mr Johnson, I submit to you that most damning of all is your claim that progresive taxation is the basis of democracy. That’s only true if you assume as Ben Franklin did that democracy is two wolves and a sheep voting on what’s for dinner.**

Truth is not what you wish it to be, bithead. Taxation based on ability to pay is indeed the concept that gave birth to democracy and anyone who wants to learn the facts can easily find them. Adam Smith, the father of capitalism, favored high tolls on the carriages of the rich because that would promote commerce and thus was a good. Go look it up in The Wealth of Nations, still in print after 229 years.

Retreating to the comfort of our prejudices does not advance self-government, the basis of our liberty. That you dislike a fact does not make it goes away. Ignoring new facts can, over time, make your liberty go away, however.

I reported MANY significant new facts on June 5. The Bush Administration knew about them well in advance and found them reasonable.

Again, instead of demonizing the reporter who dug up the new facts how about focusing on the facts themselves and what they mean. And that kind of line should stimulate thoughtful discussion, sammler, not kill it.

David Cay Johnston
 
Written By: David Cay Johnston
URL: http://nytimes.com/class
One responding poster above described as Franks’s post as “snide.” Perhaps we can have a civil discussion on the facts and maybe learn some new insights.
He called it "wonderfully snide" and it was not a swipe at Dale and certainly not a defense of your position. Imagine: a journalist selectively quoting something to bolster their credibility. Unheard of.
Nothing in my report supports Franks’s inflamed rhetoric about “sipping champagne from the slippers of hot blondes, while you go about your dreary workaday life, you miserable little prole” or that, of the richest Americans, “maybe we should just kill them.” Such language inflames, but does not inform. It is irresponsible.
It is HUMOROUS and evokes interest in what is an otherwise dry topic. You could learn something here. Pay attention.
My work has been the subject of grand jury investigations, Congressional hearings, lawsuits and challenges by competing organizations. CEOs have lost their jobs, dishonest TV and radio news operations taken off the air, several tax cheats now serve long prison sentences, hundreds of millions of dollars bequeathed to poor children were saved from diversion by an heir, hundreds of billions (note that B) of dollars of tax dodges were shut down and many lives saved because of my work.
One time I rode a garbage truck for a day to see what it was like. You win.
Poster Sammler, who cannot even spell my name correctly...
Bithead, who also cannot spell my name correctly...
The nerve! Undermines their entire argument!
I once hunted down a murdered whom the police had failed to catch.
Oops! Don’t worry, I know a 24-hour glass repair service that can fix your house. This, of course, does nothing to diminish your superhero crime-fighter status.

I have no desire to discuss your research, figures or even your conclusion, because...
Income distribution is influenced by government rules and policies, as Franks’s post shows by implication.
What you have is incurable. Income is not distributed, it is EARNED. If the basis of your logic is that the government has the largest role in determining who will earn how much, it is pointless to discuss this with you, other than to thank you for your tireless efforts at exposing evil corporate corruption, crooked politicians and of course, tracking down those vicious "murdereds" that the bumbling police can’t put their mitts on.

Thanks for the laughs, Mr. Johnston. See, I spelled it correctly!
 
Written By: Jeff
URL: http://
You" is the wrong word here. Our government imposes taxes.
Gee, that’s funny; I thought you are part of said government. Wasn’t that one of the basics of democracy? And that does nothing to mitigate the drum-beating you’re doing tor the concept of soaking the rich.
Adam Smith, the father of capitalism, favored high tolls on the carriages of the rich because that would promote commerce and thus was a good.
But in my reading, I never quite got the impression that his definition of HIGH was not quite so high as yours. Indeed, I suspect that rumbling sound I’ve been hearing is Smith himself, and indeed, Hamilton, and Jay spinning like tops in his grave at the very idea that you should take their meaning so far out of context.

I can come to only one of two conclusions;

* You don’t know what the hell they were on about.
* You DO know what they were on about, but like most leftists citing their work, you’re trying to twist their meaning for your own collectivist ends.

In either event, you operate from the idea that the government has first dibs on any income, ....clearly having missed that part in ’wealth of nations"... and therefore, I say to you; you’ve done nothing to alter the reputation of the NYT.





 
Written By: Bithead
URL: http://bitheads.blogspot.com
I said "Johnston" and Bithead said "Johnson"—I would’ve thought one of us was bound to be right. Perhaps Mr. Jhonston can clarify. I would think that Bithead, whose name was misspelled as "Sammler" in the response on flat taxes, would be better positioned to complain.

I was somewhat taken aback by the vigor of Mr. Jonston’s reply. I pointed out that
those who received the greatest economic benefit from living in a society had a moral duty to bear the heaviest burden of taxes to maintain that society
says only that marginal taxes should not be zero. Somehow this betrayed not only my ignorance about both Athens and the flat tax, but also my unfamiliarity with Bush administration policy.

Perhaps the explanations so far have not been clear enough for Mr. Johntson. Let us review. For the rich to pay more taxes than the poor, it is not necessary that they pay a higher portion of their income. These things are easier to understand with a concrete example, I imagine. Suppose the income tax is $1000 plus 10% of income. Then the worker earning $10000 pays 20% of his income, while the plutocrat earning $1000000 pays only 10.1%. This satisfies the "moral duty" as you presented it. Are you now claiming that your presentation was inadequate?

Finally, as to "I don’t write in implications." I can only deduce from this that you truly do not understand the argument above. I gave you credit for the intelligence to see the difference between taxes whose absolute amount increases with wealth, and taxes whose proportion of wealth increases with wealth; thus I assumed that you were arguing by implication in bringing the former into a discussion on the latter. I apologize for having thus defamed you.

Don’t respond in a hurry, Mr. Jonson—take a minute to try to figure out what your interlocutors actually wrote. Time, it appears, is one thing you have in abundance.
 
Written By: sammler
URL: http://stonecity.blogspot.com
I’d like to look more closely at one part of Mr. Johnston’s comment:
"The Athenians devised a new moral principle: those who received the greatest economic benefit from living in a society had a moral duty to bear the heaviest burden of taxes to maintain that society. Out of that moral principle came democracy."

First, the concluding claim—that progressive taxation is the root of all democratic government—is both grandiose and implausible, and I would like to see a little more substantive support for it. At present there are no grounds for admitting it to the argument.

Second, the new moral principle means only that the rich should pay a larger absolute amount of taxes than the poor, which they certainly continue to do. The attempt to conflate nonzero marginal taxes with increasing marginal taxes is sly, but far from convincing.
 
Written By: sammler
URL: http://stonecity.blogspot.com
I’d like to look more closely at one part of Mr. Johnston’s comment:
"The Athenians devised a new moral principle: those who received the greatest economic benefit from living in a society had a moral duty to bear the heaviest burden of taxes to maintain that society. Out of that moral principle came democracy."

First, the concluding claim—that progressive taxation is the root of all democratic government—is both grandiose and implausible, and I would like to see a little more substantive support for it. At present there are no grounds for admitting it to the argument.

Second, the new moral principle means only that the rich should pay a larger absolute amount of taxes than the poor, which they certainly continue to do. The attempt to conflate nonzero marginal taxes with increasing marginal taxes is sly, but far from convincing.
 
Written By: sammler
URL: http://stonecity.blogspot.com
Sammler:
First, the concluding claim—that progressive taxation is the root of all democratic government
Someone forgot a capital "D"...

 
Written By: Bithead
URL: http://bitheads.blogspot.com
Responding to this blog is certainly an eye-opening experience. It is not the practice of many journalists to engage, but because throughout my career I have always made myself available to readers and made my contact information readily available I decided to experiment with engaging this kind of forum.

The results, so far, are disheartening.

The emotional tone of many of the posts—flippant and uncivil —gives me pause. I believe that a significant requirement to make our individual liberties endure is to understand facts as best we can so that we can come to informed decisions about governing ourselves. Rational debate means engaging on the facts and looking at their merits, not dismissing them because one has assumptions about the messenger, especially when the assumptions are not supported by reality.

I am coming to appreciate, from the time I have spent here, Richard Hofstadter’s political theory of the early days of the Republic.

What astounds are the assumptions that posters bring to the table. The degree to which emotion rather than rational intellect seizes people in this blog and the few others where I decided to engage is, well, disturbing.

First, to bithead. I misread the placement of signatures in this new-to-me blog and took the name from the wrong end of the post that I thought was from Sammler. My apologies to both of you.

Bithead writes that there are only two possible conclusions from my posts. False dichotomy.

Bithead also posts “you operate from the idea that the government has first dibs on any income.” Not so.

That you think such is true, but it is not true as a matter of fact. Your writing here is a good example of being doctrinaire. Might we call it faux libertarianism? And instead of being flippant in another post I hope you sit down and do some serious reading and think through more deeply that which you indicate you believe.

Our Constitution says that Congress has almost unfettered power to lay and collect taxes so, yes, government can legally take some of your substance. But how much and from whom is a political matter, as the Federalist papers clearly show was the intent of the Founders. Stating those facts does not equal what bithead assumes, wrongly.

Poster Jeff misreads and then leaps to erroneous conclusions before announcing he has closed his mind. Of course, Jeff, income is earned and I have never written otherwise.

The word "earned," by the way, appeared nine times in my June 5 package, which I wish people who respond would take the time to read, along with the charts, at www.nytimes.com/class (click on hyperrich). The original source documents are also posted under “About The Data.”

In economic terms, by the way, not all income is earned. But that is only marginally relevant to the issues here. For someone to get income they did not earn someone else surely had to earn it.

The fact is, Jeff, that the distribution of incomes is a standard economic measure widely used by economists and studied by many of them, including those who do market research for corporations. Indeed the federal government does all sorts of studies of income distribution, as poster Dale Franks’s citation of Census Bureau data shows.

You can like or dislike the fact that the government, corporations and academics gather and report data on how incomes are distributed, but to write the post that you did is astonishing.

Jeff, do you really think that the way incomes are earned in this country is entirely the result of a free market with no influence by government policy?

Government has all sorts of policies that affect incomes. Congress, the states and even some cities set minimum wage rates and overtime rules. There are rules to how many hours truckers can drive and pilots can fly. There are rules on bid and no-bid contracts. Government influences the availability of education (a critical determinant of income earning power), the location of factories and other centers of production. It sets rules on commissions. There are antitrust laws that shape the market. There are rules on worker compensation, nondiscrimination, age limits to start and end some occupations and on who has eligibility for fringe benefits. There are child labor laws. The very fact that fringe benefits are not taxable to the participant affects income distribution. Government rules affect union organizing and who can sit on corporate compensation committees that set the pay of CEOs. The list is very, very long.

So what is there to cure, Jeff? Your note seems emotional, not serious.

I am astonished that some posters above leap to wild and ridiculous conclusions about the reporter—all of them wrong.

I do not want everyone to have the same income. I do not want everyone to be miserable. I do not envy people who have yachts and I find it laughable that anyone would connect me to Marx for using well established economic facts to show significant trends. Good grief, President Bush believes in progressive taxes!

My brother lives in a modular home because of his life choices. I live in one designed by an architect. I worked, he played. We each have our just desserts.

Indeed, I have written extensively on how our nation, our political economy and its rules, has made our society stunningly rich. My June 5 piece quotes a Heritage economist on this very point and I noted high up the "remarkable transformation” of the economy in the past quarter century and cites the critical role of strivers and innovators in economic growth.

The poster who wrote about changes in lifetime income is right, but only in a limited sense. The child of a highly paid doctor who spends years in medical school and training at low wages and then earns a high income as a doctor is not an example of mobility, which is inter-generational.

The data, reported in the first part of our series (and similar findings were reported in the Wall Street Journal’s competing series) show that income mobility has slowed very significantly and perhaps virtually stopped as a statistical measure. Unequal education opportunities including changes in how higher education is financed appear to be a major factor in this, as Alan Greenspan among others have noted. Readers who want to know more can read the overview piece, the charts and go to the reading list posted at nytimes.com/class.

The Marxist comment is outrageous. It adds nothing to the issues.

I also laughed out loud at it, as would anyone who actually knows me.

I have always, as a reporter, considered myself a small businessman. I sell investigative pieces. I get a retainer (in the form of a salary) from my base customer and fees and royalties from my purely entrepreneurial sales of articles, lectures and books.

The retainer-salary is because the friction of negotiating each deal is too great. The market does not properly price this kind of transaction on an item-by-item basis, as any freelance writer can tell you. It is one of many imperfect markets.

A retainer minimizes my downside risk on pricing and efforts that do not pan out and must be abandoned while maximizing my freedom to pursue these risky ventures. And when you write about people with power, private or government, who can destroy your career if your facts are off just the slightest, you take big risks. I know plenty of ex-reporters whose lifetime of work ended because of one foul-up that made them unpublishable or who know cover minor beats.

I pitch editors, not the other way around, nearly all of the time. It is a freedom I earned through performance. (Many reporters prefer to get a note in their typewriter or computer and are assigned work. That is perfectly legitimate and necessary, it just does not work for someone who is enterprising..)

I have thought this way since my first reporting job at age 17.

I recall telling this to the then-CEO of Arco at dinner one night many years ago and how he immediately, in horror, turned to one of his top executives and asked if anyone at Arco thought that way.

I am also a rich man from my own enterprise. I grew up the son of a 100% disabled WW2 vet , went to work at 10 and fulltime at 13 and set out on my own literally without a cent in my pocket at 17, helping support my parents until they died while raising my own eight children. I went to college part-time on the G.I. Bill. Trust me, I know how hard it is to prosper. I have met payrolls. And I am example of the mobility that, the studies we cited show, is significantly less today than when I was growing up.

I hate paying taxes as much as anyone. I also recognize that without taxes there is no civilized society. And without civilized society there is no widespread wealth, which depends not just on hard work, enterprise and luck, but on rules that allow one to earn and keep the rewards of enterprise, to enforce contracts, to title property and to have markets and mechanisms that work on trust.

My point here is not to do anything but show the reasons that assumptions about the messenger lead us astray from the issues, especially when they are dead wrong. Seek not comfort in beliefs, but explore new facts no matter where they go.

Posters have also jumped to the conclusion that I favor higher taxes on the rich. Not anywhere in the hundreds of thousands of published words by me on taxes will you find me calling for raising taxes. One can read my words that way, but one can also read them as favoring lower taxes. How? See example below.

What I did in my June 5 article was report new facts on the distribution of incomes, the distribution of tax burdens and the long-term trends in top income shares with data back to 1920.

The Bush Administration acknowledged in my piece that its measure of progressivity is the top 40 percent and that if the measure goes to the top one percent the system that progressivity falls off. People come to their own conclusions about what this means – and they have abundant new facts and details in the charts to ponder this. But the facts as laid out in this paragraph are not in dispute.

One way to provide for continuing progressivity all the way to the top would be to lower taxes on those who make less. (See what I mean about wrongful assumptions?)

You can like or not like the distribution of tax burdens (government policy) and incomes (affected by government policy), but at least you now have lots of new information to understand how our government is acting. To think that what we have is as it should be, regardless of what it is, does strike me as Panglossian.

Some of the posters here, I suspect, would embrace the crazy Larry Kudlow column suggesting I want to shoot the richest Americans and adopt German government policies.

I do have a position and I have always been up front about it since I pioneered a different way of reporting on taxes more than a decade ago:

Instead of writing what politicians SAY about taxes and tracking official pronouncements, I set out to understand tax on the level of theory and principle so that I could show how the tax system ACTUALLY WORKS. Understand the principles and the mechanics are easy to grasp was my theory. It is a lie that the tax code is incomprehensible and is too subtle and complex for serious newspaper coverage.

I was surprised by much of what I found because it was not consistent with our national myth (in the classic sense of that word).

I focus on what happens after the laws are passed. I focus on the distribution of tax burdens, on loopholes both intentional and manufactured by tax lawyers, on abusive tax avoidance schemes and on the quality, level and competency of tax law enforcement.

I have written about when the I.R.S. comes down hard on people who did little or nothing wrong and when it ignores people who boast about breaking the tax laws.

I examine the relationship between what politicians said they would do and what they actually did. I turn dry statistics and arcane concepts into plan English, just as Vatican II took the mass out of the language of the high priests and made it comprehensible to parishioners.

And in the process I have shown, I think, that regardless of stated intent, each time we add another element to our Rube Goldberg tax system it produces unintended or unexpected consequences. I have written that our tax system is out of whack with the new economic realities and is damaging our economy, rewarding the movement of assets and jobs overseas.

I don’t believe that Congress intended, for example, to raise income taxes on people who get cancer or other costly maladies – but it does for many of them. More than 100 members of Congress have denounced this since I exposed it six years ago, but the law remains.

I believe President Bush when he says that he wants to make the tax system more progressive; the question is whether he has achieved that result or something different.

I don’t believe Congress means to let people thumb their nose at the law and boast about actions that could be prosecuted as felonies, but I do examine whether Congress is taking serious steps to fund tax law enforcement or hamstrings law enforcement.

I have shown that our tax system treats different types of taxpayers differently in terms of disclosure, timing, third-party reporting, enforcement, collections and discharges, among other issues.

Our government is a vast enterprise and for more than 60 years we have financed it with wartime level taxes. The federal government is a fifth of the economy. Add in state and local governments and you have, net, about a third of the economy tied up in government.

How that massive level of government is financed – how we split up the bill—is by definition government policy. It should be seriously covered by reporters.

In a nation increasingly drawn to glitzmongers offering faux news about celebrities, I have done serious work on a very difficult topic and broken major new ground. So I get a bit ticked off at the dismissive attitude of people who make false assumptions about me to justify avoiding the new facts—solidly reported, rounded and well-sourced new facts that are not in dispute.

When governments adopt tax laws they are deciding, in part, who will prosper and who will not. No serious economist would dispute that. Whether the tax system is regressive or progressive is a core issue for a democracy. So is how we spend tax dollars.

Here are some questions that people who have actually read my article and studied the charts might want to ask themselves:

For what reasons should those who make less be taxed more heavily than those who make more than they do? What moral principle justifies this? What is its practical effect?

Does it matter if those who make vastly more (say the equivalent of a lifetime income for most Americans each week) are taxed at equal or lower effective rates than their not so well off fellow citizens?

Is that fair? Is it productive? Is it smart? What public policy goal does it achieve? How does it achieve any such goal?

What does it mean for society that someone who makes $500,000 per year (enough to put them in the top 1 percent) in income taxes alone about 12 FEWER cents per dollar in taxes than someone who has that much in income every day?

What is the long-term effect, if any, on who accumulates wealth under such disparate tax rates? If so, for what reasons? And, if not, for what reasons? And what, if any, relevance does the fall-off of progressivity for those making $10 million and up have for political stability and thus for whether our nation and our liberties endure?

Does it make sense to exempt 55 million of the 145 million taxpayers from income taxes? Does it make sense to have a system where 70 percent of people pay who pay income taxes pay more in Social Security taxes, especially when a significant portion of SS is being used to fund general government operations?

Again, is this fair? Is it productive? Is it smart? What public policy goal does it achieve? How does it achieve any such goal?

The many new facts that I dug out and reported in a way that people who are not economists can understand, would, I had hoped, cause people to think and debate. I am as disheartened by the doctrinaire responses here as I have been at some posts at blogs whose participants have decidedly different views and are just as doctrinaire.

I am going to watch to see if there is some SERIOUS discussion here, which probably requires that some posters examine their own assumptions in light of new facts. I am not hopeful.


 
Written By: David Cay Johnston
URL: http://nytimes.com/class
to correct a bollixed sentence near the end of my long post:

What does it mean for society that someone who makes $500,000 per year (enough to put them in the top 1 percent) PAYS in income taxes alone about 12 MORE cents per dollar in taxes than someone who has that much income every day?
 
Written By: David Cay Johnston
URL: http://nytimes.com/class
Responding to this blog is certainly an eye-opening experience. It is not the practice of many journalists to engage, but because throughout my career I have always made myself available to readers and made my contact information readily available I decided to experiment with engaging this kind of forum.

The results, so far, are disheartening.
Translation: The ’journalist’... (whatever happened to "Newsman?)... the "ournalist in question doesn’t like having his work seriously questioned, and thus do they tend to work in isolation, without feedback.
Our Constitution says that Congress has almost unfettered power to lay and collect taxes so, yes, government can legally take some of your substance. But how much and from whom is a political matter, as the Federalist papers clearly show was the intent of the Founders. Stating those facts does not equal what bithead assumes, wrongly
Do you normally, make jusgements outside of context like this? Consider the size and scope of federal taxation back in the day. Do you really consider that they were arguing in their writings for the size and scope of what we’re burdened with NOW?
The Marxist comment is outrageous. It adds nothing to the issues.

I also laughed out loud at it, as would anyone who actually knows me.
I tend to doubt they’ve read your work, then.
I have always, as a reporter, considered myself a small businessman. I sell investigative pieces. I get a retainer (in the form of a salary) from my base customer and fees and royalties from my purely entrepreneurial sales of articles, lectures and books.
Well, let’s consider who you’re selling your product to, for just a moment. What are the basic politics of the people buying your work? When you get that whole process recalculated, get back to us.
Bithead also posts “you operate from the idea that the government has first dibs on any income.” Not so
You’ve never dealt with the IRS, then. You’ve never noticed the amount of money your check doesn’t have in it when you get it.

Tell me; have you ever been able to turn off those government demanded withdrawals from your paycheck, in an event of needing that money to pay for something else? Are you aware of that ever having been done? Here’s a job for you, Mr. Reporter... find such a case happening, and document it.
Three bets:
1: You’ve not heard of such
2: You won’t be able to find such
3: If you did, you can bet your ass the NYT would never print it

And here’s the bonus question:
Do you have no objection to this of the government making my expenditure choices for me... AND you?? Then it’s as I said; The goevrnemnt has first dibs on our income... and you support such.






 
Written By: Bithead
URL: http://bitheads.blogspot.com
The post above by Bithead, evidently a fellow Rochesterian in Western New York, is really disheartening in its willful blindness.

Bithead attributes to me the EXACT OPPOSITE of what I posted. How can there be rationale discussion with such craziness?

Bithead posts that I do not like having my work seriously questioned. Just what did my post actually state (emphasis added)?

** It is not the practice of many journalists to engage, but because throughout my career I HAVE ALWAYS MADE MYSELF AVAILABLE TO READERS and MADE MY CONTACT IN FORMATION READILY AVAILABLE I decided to experiment with engaging this kind of forum.**

I have ALWAYS made myself available—since 1966 when I was 17 years old and did my first investigative report, on cost overruns at the new Santa Cruz County, Calif., courthouse.

For almost four decades my stories have been the subject of city council, school board, special district, legislative and Congressional hearings as well as grand jury proceedings, lawsuits, prosecutions, and articles by competitors eager (but unable) to knock down my work.

When 500 people denounced me in Los Angeles in 1986 for exposing the misuse of hundreds of thousands of dollars by the local United Way. I showed up and engaged them in an auditorium. Talk about having my work seriously questioned !!!

As for bithead’s flippant opening, I routinely describe myself as "a reporter."

My reference to "journalists" was to convey a broader group—editors, photographers, producers, anchors, newsreaders, etc.—few of whom engage readers, listeners and viewers. I think they should.. Many of them think posting at places like this is a foolish waste of time. More on that below.

Bithead asserts that I would never report on, and The New YorkTimes would never publish articles on, certain tax issues. He should read the many FRONT PAGE articles in The New York Times under my byline on these issues.

I have also exposed, as I posted, the I.R.S. coming down way too hard on people who did little or nothing wrong, exposing heavy-handed, unfair and unprofessional law enforcement, as well as wasting taxpayer funds.

One story chronicled years of harassment of a family of school teachers. Another told of a Colorado woman whose son’s business was destroyed because she made a flippant remark to an I.R.S. auditor about the auditor’s hair do. Those outrageous were just two of many I reported.

Likewise, I broke many stories about the I.R.S. ignoring flagrant law breaking by individuals and corporations, surely a strange thing for a law enforcement agency to do.


Bithead wrote:
** You’ve never dealt with the IRS, then. You’ve never noticed the amount of money your check doesn’t have in it when you get it. **

Now that line is, frankly, stupid.

Of course a big chunk of my pay never gets to me. I notice every single dollar that is taken. And I deal with the I.R.S. almost every workday. Like many taxpayers I get incomprehensible I.R.S. notices in the mail.

I have sat in the office of the commissioner of the I.R.S. and grilled him on how and why his agency was not doing its job well. I have cross-examined senior I.R.S. people in public forums. I have written tough stories about the I.R.S. that got results. Some proof? Congress has passed many laws in response to my work, including five in the past two years based on what I exposed in my best-selling and national-award winning expose of the I.R.S. and our tax system.

Our tax system is a big reason there are lots of people like bithead, who express irrational hatred of the government and anyone who simply reports on it.

At least I have done something about it by seriously reporting on what our government actually does. I have devoted more than a decade of my career to seriously examining how the tax system ACTUALLY operates so people would see what it is our tax system is doing.

I hoped this would result in thoughtful, reasoned examination of our tax system so we would get a better one.

So who does bithead lash out at? Me. And who am I? Why, I am the very guy who is exposing what ticks him off. Bizarre.

I find this disheartening. I really do.

But, as I wrote in an earlier post, responding here is an experiment in another way to engage readers, as I have done for 39 years, contrary to bithead’s crazed posts. And the thing about experiments is that until you test you have no idea what the results will be.

Thank goodness the other discussion line at qando.net and thoughtful debates at other blogs.

David Cay Johnston
 
Written By: David Cay Johnston
URL: http://nytimes.com/class
Bithead posts that I do not like having my work seriously questioned. Just what did my post actually state (emphasis added)?
That you’re "disheartened" with operating in light of feedback. You make it sound, for all of your protests t the contrary that actually opening yourself up to critical words is a new experience for you.
As for bithead’s flippant opening, I routinely describe myself as "a reporter."


Admirable, but would be more so if you actually filled that description.
Bithead wrote:
** You’ve never dealt with the IRS, then. You’ve never noticed the amount of money your check doesn’t have in it when you get it. **

Now that line is, frankly, stupid.

Of course a big chunk of my pay never gets to me. I notice every single dollar that is taken. And I deal with the I.R.S. almost every workday. Like many taxpayers I get incomprehensible I.R.S. notices in the mail.
So, the government does have first dibs on your income. Funny thing; isn’t that what I said?
I have sat in the office of the commissioner of the I.R.S. and grilled him on how and why his agency was not doing its job well.....

Our tax system is a big reason there are lots of people like bithead, who express irrational hatred of the government and anyone who simply reports on it.


Frankly, this is naught but diversion from the point.

Refocus:
The point I’m bringing up is a basic one. I’m not concerned nearly as much with what they do with my money, past the fact that they steal it, and in fact they take it before I get it.. thinking they have the right to do so.

You’ve been side-skirting the more basic issue, David. You seem quite willing to discuss morality is terms of the AMOUNTS of taxation on each income group. HOwever, your ability to deal in moralistic plattitudes falls well short when dealing with THIS basic moral issue:

By what moral right, does the government feel it has has first fruits of my labor?



 
Written By: Bithead
URL: http://bitheads.blogspot.com

 
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