The Super-Rich, Round II Posted by: Dale Franks
on Thursday, June 16, 2005
Pulitzer Prize-Winning journalist David Cay Johnston is not happy with my critique of his class article in the New York Times, which I fisked here a few days ago.
Let's get the important stuff out of the way, first.
Franks does not even manage to spell my name correctly.
I spelled it "Johnson" in the original post, instead of "Johnston". Well, I imagine that I would be miffed if the NYT spelled my last name as "Francs", too. Quite apart from anything else, it would appear to be a somewhat French name, which would be irksome. So, despite the fact that Mr. Johnston's family is clearly unable to spell "Johnson" properly, he deserves to have his name presented in its proper form. I've changed it in the original post, too.
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 mean, really, do I have to explain the concepts of humor, satire, sarcasm, and hyperbole to a New York Times writer who's won two Pulitzer Prizes? Or is that you think the use of such devices in polemical writing is inappropriate? If so, you must despise seeing Maureen Dowd on the Op/Ed page.
I, on the other hand, do not write for the NYT. I don't care to, either. I'm not a reporter. I'm a polemicist. I've been a reporter, and pretty decent one, too. I prefer blogging, however, if for no other reason than because I can use humor and satire to make a point. Moreover, since I'm writing about economics, a subject that immediately causes eyes to glaze over in the general readership, I prefer to do it with something other than dry recitations of statistics.
Humor, of course, is subjective. If you don't get it, it doesn't mean you’re a bad person. If you don't think it's funny, well, that's OK, too. But complaining about the use of humor does kind of make you sound like a pompous ass.
It's called a sense of humor, Mr. Johnston. Maybe you should crack one open.
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.
Actually, he described it as "wonderfully snide", which was pretty much the effect I was going for.
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 [sic] 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 [sic] 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.
Translation: How dare some insignificant little blogger question me?
Well, sorry for disagreeing with you, there Othello, but, even if I grant that your statistics are correct, which, in the main, I think, I did, the meaning of those statistics, as you point out, are in dispute. And clearly, my side in that dispute is different than yours.
Your resume, as fascinating as it is, is simply irrelevant. The discussion is not whether you are a good reporter, or have put the requisite number of CEOs in jail. The only question at issue is the meaning of your NYT report on class. Everything else is beside the point.
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.
Yeah, but here's the thing. All those non-taxpayers consume that income, too. So the total number of people among whom that income is shared is relevant to the question of income distribution. They don't just go away because you wish to ignore them.
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.”
Technically, this is correct. I meant to write "if income rose rapidly enough"
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.
Oh, you can do so. I just deny that has happened. Certainly, the share of income for the lowest quintile has dropped from 4.3% in 1980 to 3.4% in 2003. So the lowest quintile gets 0.9% less of national income. Unless you're positing a fantastically small growth rate in total income over that same period, a smaller piece proportionally of a larger pie still translates to a larger piece in absolute terms.
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.
Well, I'm not too sure I'm comfortable with those figures. Not because I think they're incorrect, but because I'm not sure we can draw any conclusions from the average income for the lowest 90%, for a number of reasons.
Again, let's go back to the Census Department's income figures
Income Changes 1980-2003 (In Constant 2003 Dollars)
Percentile
1980
2003
Increase
10th
$9,515.00
$10,356.00
8.8%
20th
$15,977.00
$17,984.00
12.6%
50th
$37,447.00
$43,318.00
15.7%
80th
$67,028.00
$96,967.00
44.7%
90th
$86,692.00
$118,200.00
36.3%
95th
$108,894.00
$154,120.00
41.5%
So, the median income is up by 15.7% in the same period. Even at the low end, the threshold for the 10th percentile is up by 8.8%. So, clearly, there's a discrepancy between rising incomes at the threshold levels and an average that's flat.
The average hides a lot of data. The "average" could be flat if incomes among the lower half of the 90th percentile rose while the incomes of the upper half fell. The average doesn't actually tell us what's happening at the different income levels. It just lumps them all together to draw a picture of stagnating incomes. Yet, when we look at the table above, we clearly see that threshold incomes are rising, albeit slowly for the lowest percentiles.
See, here's the thing about the average income statistic. Let's say that more people are working, but doing so at lower wages. That will bring the average down. But then, the problem isn't really one of income distribution, but a more systemic problem with the economy as a whole. Either we aren't creating high-paying jobs, or, we're in a recession, and more people are unemployed, thus lowering income. Or maybe it's not a problem. Maybe higher-income people are just working less, because they want more leisure time. Or, maybe spouses are re-entering the work force in part-time retail jobs. The average might be useful if you assume that, over time, all variables are the same except for income levels, which are stagnating. In other words, if the same people are working at the same jobs for less money, then the average of all incomes is a useful statistic. If there are other demographic changes, then the average income doesn't really tell you much about why incomes are changing.
And, of course, we have the whole social dimension. What about increases in legitimacy? Changes in divorce rates? What about the fact that half of the people in the lowest decile aren't employed at all? I see no controls here that account for poverty resulting from bad personal decisions, about which our tax code can do little.
And, let's look at this passage a little more closely:
Had I used 1979 as the base year, it would have shown 2002 income that was $1,383 LESS than in 1979.
Well, I've decided to use the years 1983-2000. Now, average income—for what it's worth—increased from $24.293 to $26,848, an increase of 10.52%. Recent drops reflect nothing more than a temporary decline caused by the late recession.
Wow. That was easy.
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.
I'm not trying to be panglossian, I just reject the contention that the government has a responsibility for setting income levels, or that the stagnation in incomes, such as it is, going back to 1975, is the result of a particular set of government policies that should be changed.
I think that what economists of all stripes would agree on is that wages for the top income earners have increased much more rapidly than wages for lower-paid workers. I think there is substantial disagreement that income for most Americans is falling or stagnant, per se. Although, that really depends on the definition you put on the word "stagnant". If a 9% rise in real incomes for the bottom decile is "stagnant" income growth, well, then I guess you're right.
I also suspect, without actually scrounging around for the data, that much of the reason for increases in hours worked may have something to do with women entering the work force in increasing numbers since the 1970s. We can, of course, fix that by keeping our womenfolk pregnant and barefoot in the kitchen at all times, but I hardly think that's a policy solution Mr. Johnston would endorse. Moreover, I think a colorable argument can be made that wage growth has been slowed by the fact that a workforce made larger by the increasing participation of women holds wages down by increasing the supply of labor relative to its demand
And while we're on the subject of demographics, how about the fact that the baby-boom bolus began entering the work force in 1966 and reached their peak earning years in the 1980s and 1990s? Could that have anything to do with the reason why the average wage peaked in the mid 70s, and began to decline after that? Quite apart from the fact that we managed to create jobs for all of them, which is pretty impressive, did this huge increase in the available work force have any effect on wages? And when they begin to retire in 2006, will the resulting shrinkage in the work force have any effect on income? I merely ask for my own information.
I think that the whole issue of income is far more complicated, and affected by far more social and personal variables and demographics than can be explained by George Bush's tax policy, or since the income drop in average incomes began I the 1970s, Gerald Ford's Jimmy Carter's, Ronald Reagans, George H.W. Bush's, or Bill Clinton's.
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).
Oh, come on! Now that was just funny. I mean, I guess Mr. Johnston didn't think it was funny, but everybody else did.
But, I wrote it because I didn't think the language in the original article was reportorially neutral, and here's why:
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 [sic] 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.
What the offending sentence said was:
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.
That "but" just really bothers me. The use of the word but implies, to my mind, that the benefits to the rich outweigh the fact that everyone making under $40k gets off scott-free on income taxes. It implies a negative judgment about Mr. Bush's tax policies. "But" almost always implies that a counter-argument follows. Using the word "and", rather than "but" would've been more neutral. Presidents Reagan and Clinton got the "and" treatment, but George Bush got the "but".
But, now that Mr. Johnson has explained it more fully, I note with interest that he didn't see fit to highlight the fact that the result of Mr. Clinton's policies 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". Somehow, that point got missed. Instead it was higher taxes for the rich, and tax breaks for the working poor, with capital gains cuts snuck in the middle without an explanation of how the rich benefited, with Mr. Clinton's approval.
Franks also quotes one paragraph I wrote to assert that I have some anti-Bush bias...
I didn't assert anything. I merely implied it.
...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.
Ah. I see we're back to the whole "share of tax revenues argument" which I don't find compelling at all, for the reasons stated earlier.
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”.)
Well, then what Mr. Johnston is really arguing is that, because the tax system isn't perfectly progressive for the top 1/1000th of taxpayers at the highest income levels, then it isn't a progressive system of taxation.
For those of us who don't particularly care for progressive income taxation, we could hardly be less bothered. For those of us, like me, who believe income taxation to be wrong in principle, we really could be less bothered.
But, as I pointed out earlier, the super-rich have a multitude of ways to avoid taxes, mainly because the tax code is fraught with loopholes, and even if it wasn't, the super-rich could merely hie themselves off to some country with a more friendly tax code. Making the super-rich do anything they don't want to do is problematic.
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.
But, since throwing in payroll taxes makes the numbers look even better, to bolster a particular viewpoint, we'll use them anyway.
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.
Well, we are not only supposed to be a democratic society, but a free society as well. And it's difficult to see how a free society can confiscate the wealth of some members because we simply want some of it, and still call itself free. Mr. Greenspan is a wonderful economist. Being an economist does not imbue his opinions about the the proper nature of a free society with any more relevance than mine.
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.
Which is as good a reason as I can think of for slashing the size and scope of the federal government.
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.
Yes, income distribution is affected by government policies. Which, again, is as good an argument for eliminating those policies as I can think of. A free society doesn't make arbitrary determinations about who deserves their income.
Democracy was born of these very issues. Indeed, taxation based on ability to pay is arguably the most conservative principle in Western Civilization.
I'm not a conservative, so I'm not really impressed by long-standing conservative principles.
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.
Well, actually, democracy came out of the Hellenistic social structure of a free yeomanry. Democracy was decidedly not a result of tax policy. If anything, the reverse was true. In any event, I'm hardly one to ascribe to the idea that progressive taxation is a good idea, because that's what Pericles did.
One also notes that the Athenians built up a fairly tyrannical empire of their own, too.
So let’s focus on the facts, instead of demonizing the reporter with wild and irresponsible claims such as imagined mass murder.
Geez. You really just don't get the whole humor/sarcasm thing, do you?
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.
Well, I haven't been comfortable with things as they are for a number of years now, but it's not because rich people are rich. It's because the government is too big, taxes are too high at all levels, and income taxation is an affront to a free people.
Look, the bottom line here is that income distribution is a horrifically complicated subject. Trying to bifurcate out one particular factor, such as tax policy, and lay the blame on it for the "problem" of income distribution in very hard to do.
Tax policy, regulation, etc. can certainly influence income distribution. But in a dynamic labor market, it's very hard to pin all the blame on fical policy. I find the analysis.
As I said previously, you can certainly enforce a greater measure of income distribution. If you want, you can simply levy a 100% surcharge on all incomes above some arbitrary level.
But, again, look at the European model: Very little class mobility, very high taxes, very high rates of unemployment. Mr. Johnston is right that there is no free lunch. Enforcing a stricter distribution of income isn't free either. It comes with its own costs, and looking at countries that do enforce a more equitable level income distribution strikes me as a fairly accurate way of learning what those costs are.
UPDATE:
And another thing...
What follows comes from the Bureau of Labor Statistics, but unfortunately, the BLS method of generating statistics doesn't allow you to directly hyperlink to the relevant data, so you have to run the numbers yourself.
Let's assume that the average income statistics discussed above are more or less accurate. With the same caveats discussed above when it comes to large aggregates on money income, the BLS reports that changes in real earnings for nonsupervisory workers since 1980 look like this:
Now, this is a bit confusing, but when you add all the changes together, real earnings, measured in 1982 constant dollars, have increased by 0.1% since 1980. So, there's your argument that incomes are stagnating. Wages are static.
But that isn't a problem confined to the 1980s and 1990s. Thge BLS provides earning data all the way back to 1964. When you extend the data all the way back to 1964, real earnings, measured in 1982 constant dollars, real earnings have increased by 0.44% in 40 years. So, then that gets us back to the "average income" argument, trying to find out why real earnings and average income show this disparity, which we can also add to the disparity between the average income and the rising incomes for the quintile thresholds.
Ah, but let's turn away from wage measurements, and take a glance at the BLS statistics for Total Compensation, which include not only wages, but benefits. The BLS only goes back to 1982 with their data, but let's take a look at a few things.
There's more to work than simple wages. Total compensation also includes the value of benefits, which now make up about 30% of the average worker's compensation. When you look at the year-over-year percentage change, total compensation looks like this:
As inflation declined in the early 1980s, the rate of increase in total compensation also declined, bottoming out at 2.7% in the third and 4th quarters of 1996, but rising to stay above 3.5% since 2000. So, it looks like the average for total compensation has risen consistently higher than the rate of inflation, even if we accept that the average salary has remained the same.
When looking at the income data, one wonders if, since the data is coming from tax returns, the income statistics discussed in the original post includes the income that goes into 401(k) and other defined contribution plans. If not, then it underestimates income by up to 15%, i.e., that portion of income that workers,by choice, divert into pension plans, IRAs, 401(k)s, etc. And in any event, measurements of pure money income still don't count the total compensation.
It looks to me that what is happening is that companies are shifting much more compensation into non-cash benefits, that simply don't show up in estimates of money income, but are certainly real, and have a definite value.
So, are you confused yet?
Good. Because this is confusing, and extraordinarily complex. Again, too complex to point to the tax structure for a nice, answer that conforms to your ideological preferences.
How dare you criticize your betters, Dale! This man is making the streets safe for ignorant knuckle-draggers like myself. I mean, how many "murdereds" have YOU caught? Hmmmmmm?
I thought the "champagne-dispensing blondes... miserable little proles" line was hilarious and evocative of the snobbery to come from Mr. JOHNSTON. I’m hoping he can use his not inconsiderable clout to sway the Federal Income Distrubution Center to re-slice my portion of the national "income pie" so that it is larger. All this hard work is for SUCKERS, man.
[DALE FRANKS] Actually, "murdereds" are easy to catch. ’Cause, you know, they’re pretty much just lying around.
BuzzFlash: We were reading a Forbes interview you did. You’re a reporter, of course, with The New York Times, and yet you take a position as an individual: You believe that taxes are an important part of government. And I’ll quote from the Forbes interview: "Taxes are the means by which we decide how we’re going to finance maintaining our democracy, who pays how much, how the burdens are distributed."
David Cay Johnston: It strikes me that that’s the most fundamental, classic conservative statement you could imagine making about taxes. All civilizations have taxes. All civilizations that have lost their tax systems no longer exist. The Founding Fathers understood the importance of taxes. It’s in Article I, Section 8, of the Constitution: "Congress shall have the power to lay and collect taxes." And except for three minor nits, one of which we’ve removed, the power to tax is virtually unlimited because the Founding Fathers understood that this was a political matter that needed to adjust with the times.
Let me just carry one further on that. You know, Athens was a tyranny at one time. And when it was a tyranny, it had a flat tax. Everybody paid the same tax. When the Athenians went to a tax based on ability to pay, democracy flourished. Your taxes are absolutely at the core of our democracy, and without taxes, there is no democracy. And I think that’s a very classic, conservative observation.
And this:
David Cay Johnston: Most Americans believe we take from people at the top to benefit those below. And what I show in the book from the data is that’s not the case. Our national myth—and I use that in the classic sense of the word "myth"—is wrong. We take from people who make $30,000 to $500,000 to give relief to those, who make millions, or tens and hundreds of millions of dollars a year.
And at the end of the interview:
BuzzFlash: One could argue that the second system you describe, with the moat around the currently wealthy, does not promote economic stimulation. It leads to economic stagnation.
David Cay Johnston: I agree. That’s exactly what it does. In fact, one of the reasons for the French Revolution was that because of trusts, all of the wealth and opportunity to get ahead was tied up. There was no movement. There was no ability to get rich unless you already were rich. And we have this current notion that if I work my whole life and I make a fortune, that my children and grandchildren and great-grandchildren should also have that fortune. That’s not how it works. I made the fortune. I’m entitled to it. But my children and grandchildren are not entitled to it and if we want future children to grow up and, by dint of their hard work, make new fortunes we have to create a system that allows that. Fortunes come and go. A tax system that says once you have your fortune the government will help you keep it forever by making it harder for others to build their own fortunes is a system that will, in the long run, destroy America. And that is the worst possible tax policy.
In the Mad Proofreader Category: Well, I’ve decided to use the years 1983-2000. Now, average income—for what it’s worth—increased from $24.293 to $26,848, an increase of 10.52%.
Should the . in $24.293 be a ,? Granted I was never a math major and my eyes had somewhat glazed over at that point, but an increase from $25ish to $26,848 is, uhm (divided by ... carry the three ... uhm ..) more than 10.52%
Look Dale, the guys middle name is Cay... so you should cut him some slack right there ;-)
taxation based on ability to pay is arguably the most conservative principle in Western Civilization
That’s a conservative value? Hmm, sounds like Marx to me.
...$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).
Yeah... but 20% of 174 million is a LOT of coin.
And finally Dale, this line Oh, come on! Now that was just funny. I mean, I guess Mr. Johnston didn’t think it was funny, but everybody else did. caused me quite the fit. Spit my drink right onto the screen when I read that one :)
And we have this current notion that if I work my whole life and I make a fortune, that my children and grandchildren and great-grandchildren should also have that fortune. That’s not how it works. I made the fortune. I’m entitled to it. But my children and grandchildren are not entitled to it...
That’s... wow. Perhaps on Planet Johnston that’s how things work, but here on Earth, providing for our children and wanting them to have a better life than we do, is literally (and I hate when people misuse that word) one of the most basic human instincts we have.
I often see people with different views from me, and that’s great... I just assume they’ve thought about it and come to a different conclusion than I have. Yay free will, and all that. But that statement is totally alien to me.
Here’s what always gives me fits of frustration...the refusal to say what a "fair share" should be. From a Forbes interview with Johnston:
How high would the top rate be in your tax system?
Again, I don’t know. What we do know is that relatively lower marginal rates reduce tax cheating, but for them to work, we have to broaden the tax base. We only tax about half of income each year. So if we tax all income, clearly we could significantly lower rates on everyone.
I particularly enjoyed this question and answer:
You direct numerous barbs at the "super-rich," whom we at Forbes like to celebrate as wealth-creators. Do you think the tax system should be designed to prevent the amassing of great fortunes?
The tax system should be encouraging prosperity and wealth, and making sure those are as widespread as possible. But what the government’s data show is that we are taxing away the ability of the middle class to save, and damaging their prosperity. And by radically lowering the effective tax rates of the highest-income Americans, we are concentrating wealth and income very, very, very narrowly.
So here’s some of what we know based on Johnston’s comments:
The hyper-rich "pay virtually the same percentage of their income in income and payroll taxes as" the middle quintile.
It is a myth that "we take from people at the top to benefit those below"
Our tax policies "mak[e] it harder for others to build their own fortunes"
Heirs are "not entitled" to the wealth of their parents.
It seems to me that Johnston is using a definition for "top" that is different than we are used to. If those thousands of hyper-rich taxpayers are paying an effective tax rate that is a few percentage points lower than the upper two quintiles, that still means they are paying a lot of money to the government. I don’t mind quibbling about what a "fair" rate would be, but Johnston’s other comments make it sound like the rest of us can’t earn wealth because several thousand multimillionaires only pays taxes in the low 20s. Not only that, but we’re not really helping the lower quintiles with our tax system because it helps the hyper-rich.
There’s more to work than simple wages. Total compensation also includes the value of benefits
We could also consider what your income enables you to purchase and how that has changed over the past decades. As science and technology have advanced, so has our ability to buy products and services that were initially very expensive or non-existent. Even if income has "stagnated," what products or services can a person in the mid to lower quintilies buy today that they couldn’t a few years ago? A better comparison might include a measure of purchasing power and quality of goods and services.
The hyper-rich "pay virtually the same percentage of their income in income and payroll taxes as" the middle quintile.
It seems to me that Johnston is making a dishonest point here. The reason the "hyper-rich" pay virtually the same percentage in income and payroll taxes as the middle quintile is that a larger share of their total income is from capital gains and dividends. But the capital gains, while taxed at a lower rate, are not indexed to inflation, which makes it possible to have a taxable gain on paper while actually losing money in real terms (though this isn’t as likely anymore, since inflation has been pretty low for the past several years). Also, the "hyper-rich" tend to have more income in tax-exempt investments, such as municipal bonds. Investing in cities is a public good.
Johnston bemoans the taxation percentage but offers nothing to remedy it. I would bet that if we changed the top income bracket to 90%, the percentages wouldn’t be much different. The rich would simply shift more of their investments into lower-taxed areas.
(Dale has probably made these points before, I didn’t read the original post.)
I agree that using income levels and their grwoth rates as a proxies for quality of life is misleading in this day and age in which you can buy a good microwave oven for $50, good television sets are available for $200-300, low end Dell desk top computers cost $400, low end automobiles cost less in real terms than they did in the 60’s and 70’s and are infinitely more reliable and safer (airbags and anti-lock brakes), IKEA furniture is ridiculously cheap, etc. All of that means that the bottom 10% of wage earners have a lot more in material terms than their predecessors at that income level.
From 1999 through 2004, I was part of a tutoring program in LA where we worked with kids in homeless shelters all over LA. I’ve been in dozens of shelters that primarly served families (i.e. women and their children). It isn’t very politically correct, but I was struck by how every shelter I was in had really good kitchen facilities with modern appliances (new stoves, refrigerators with ice makers, microwave ovens and dishwashers). Several of the shelters even provided private bathrooms for each family with nicer facilities than the apartment that I was living in at the time. One even had a donated computer with a first generation Pentium processor but it was good enough to surf the web with the shelter’s internet access. I thought how there are billions of people in the Third World who would kill to live as well as the residents of most of these homeless shelters in LA. I am not minimizing the difficulty that those families were facing, I am just pointing out that in many ways they have a quality of life that exceeds my parents’ quality of life when I was born in the 1960’s. Income levels don’t tell the whole story.
GIGO. Garbage in, garbage out. I work a second part time job as a bartender in a busy, local saloon. Not a lounge, not a cocktail club, but a used car salesman, carpenters, small businessmen, cooks, landscapers, plumbers, Hell’s Angeles , professional drinking, heavy pour saloon.
Anyways, It is astounding the percentage of workers and tradesmen who work totally for cash. I’m thinking 25%. One day I had three guys, all skilled workers, who didn’t come in together, all hadn’t paid any income taxes in five years, one never in his whole life. I see entire home remodels who work for cash. Mechanics who rent bays, put up a sign and the race is off. I know of restaurants that only half the full time employees are on the books.
One of the new wrinkles for employees that are legit, is that during the busy season they don’t get paid time and a half, however in the off season, they are “laid off” and collect unemployment, yet in reality the are still working but getting cash and the unemployment.
Mr. Johnston, to answer your legitimate question: No, it does not bother me that a person earning $100m/year pays the same percentage in taxes as someone earning $70k/year, nor do I believe it hinders me from becoming wealthy in any way. The fact that someone earning $500k/year has a higher marginal rate than a $500m/year earner is not a threat to democracy. As several posters have already shown large holes in your arguments, I won’t repeat them (immigration, boundless upper quintile, lifestyle choices, actually growing incomes, increased purchasing power), but I will note that you clearly have an agenda and you should not be foisting it on the hapless readers of the NYT. What the NYT needs is a good ’rejoinder section’ to counter the assumptions and errors in your articles.
Well, there’s one thing you rich guys got all OVER everyone else. Your scarasm is second-to none, proving your claim to ’love thy neighbor, as thyself’.
How refreshing to read Mr. Cassini’s thoughtful post.
Clearly we make choices that affect our incomes. As I posted here (or at the related discussion) my brother played and and now he lives in a modular home while I worked hard and live in one designed by an architect. We both got our just desserts.
NOTHING in my report said anything contrary to the points Mr. Cassini makes about how many factors affect incomes, such as immigration policies. Indeed, my article noted the "remarkable transformation" of our economy in the past quarter century and cited key factors like globalization and tax cuts and it also took note of the "critical role" of "strivers and innovators" in economic growth.
Have you noticed that the Bush Administration, which certainly has not hesitated to complain about news articles it finds flawed, has voiced no complaint about mine? They found the computer model we relied on to be reasonable and reliable. They considered our results UNsurprising. They had lots of time to ponder what we found and their feedback prompted deeper inquiries on my part, as did those of the many people I interviewed who are not named because space in the actual paper is limited.
The few published criticism from the right have been wild-eyed if not downright crazy, like Larry Kudlow speculating that I want a Germanic government and to shoot rich people. And Alan Reynolds of Cato making what, for a professional economist, are stunning factual errors.
But I worry just as much about some of the left wing Americans who, in our era of shoutshow faux journalism, have trumpeted what they claim is proof in my piece that the rich are stealing from everyone else. That is just as Unfactual. It is crazy.
I expect people to come to different conclusions about what the data mean. And I know that I write about hot button issues.
For sure there are plenty of doctrinaire people on the left who want compression in income distribution. Other Americans do not care at all about income distribution. Some people who get paid to think about these issues believe that unlimited expansion at the top is of no concern if all incomes are rising or government policy is not holding some people’s incomes down. Some worry about political instability if incomes at the bottom stagnate or fall while those at the top soar.
And wages at the bottom have fallen sharply, being made up for by working more hours (5.5 months for the typical family with children compared to 1970, which means much less parental care and surely will have some kind of effect on our nation’s future). But that is another story. My June 5 work was about the very best off Americans relative to everyone else, not the bottom.
Since the posters here are libertarians of several stripes I am a bit surprised that they do not seem to like my noting that government policy does affect incomes. It does. We do not live in a world of pure contracts. And even if we did we would have rules—rules set by government. Baseball has rules that affect the game. Change the strike zone and some batters gain while others lose, for example. Change the economic rules and the tax rules and it affects who prospers and who does not.
It does not determine these things, but it affects them.
We ought to know all we can about how our economy is working and not working. We ought to know what turns out to be sand in the gears and what turns out to be fine oil. Sometimes it is not what we would imagine.
And I believe that we ought to stop, when we read something that disagrees with what we believe to be so, and ponder it seriously when it is presented in a serious way.
That is what rationale discussion is about and without thoughtful examination of issues our liberties will not endure.
How refreshing to read Mr. Cassini’s thoughtful post.
Clearly we make choices that affect our incomes. As I posted here (or at the related discussion) my brother played and and now he lives in a modular home while I worked hard and live in one designed by an architect. We both got our just desserts.
NOTHING in my report said anything contrary to the points Mr. Cassini makes about how many factors affect incomes, such as immigration policies. Indeed, my article noted the "remarkable transformation" of our economy in the past quarter century and cited key factors like globalization and tax cuts and it also took note of the "critical role" of "strivers and innovators" in economic growth.
Have you noticed that the Bush Administration, which certainly has not hesitated to complain about news articles it finds flawed, has voiced no complaint about mine? They found the computer model we relied on to be reasonable and reliable. They considered our results UNsurprising. They had lots of time to ponder what we found and their feedback prompted deeper inquiries on my part, as did those of the many people I interviewed who are not named because space in the actual paper is limited.
The few published criticism from the right have been wild-eyed if not downright crazy, like Larry Kudlow speculating that I want a Germanic government and to shoot rich people. And Alan Reynolds of Cato making what, for a professional economist, are stunning factual errors.
But I worry just as much about some of the left wing Americans who, in our era of shoutshow faux journalism, have trumpeted what they claim is proof in my piece that the rich are stealing from everyone else. That is just as Unfactual. It is crazy.
I expect people to come to different conclusions about what the data mean. And I know that I write about hot button issues.
For sure there are plenty of doctrinaire people on the left who want compression in income distribution. Other Americans do not care at all about income distribution. Some people who get paid to think about these issues believe that unlimited expansion at the top is of no concern if all incomes are rising or government policy is not holding some people’s incomes down. Some worry about political instability if incomes at the bottom stagnate or fall while those at the top soar.
And wages at the bottom have fallen sharply, being made up for by working more hours (5.5 months for the typical family with children compared to 1970, which means much less parental care and surely will have some kind of effect on our nation’s future). But that is another story. My June 5 work was about the very best off Americans relative to everyone else, not the bottom.
Since the posters here are libertarians of several stripes I am a bit surprised that they do not seem to like my noting that government policy does affect incomes. It does. We do not live in a world of pure contracts. And even if we did we would have rules—rules set by government. Baseball has rules that affect the game. Change the strike zone and some batters gain while others lose, for example. Change the economic rules and the tax rules and it affects who prospers and who does not.
It does not determine these things, but it affects them.
We ought to know all we can about how our economy is working and not working. We ought to know what turns out to be sand in the gears and what turns out to be fine oil. Sometimes it is not what we would imagine.
And I believe that we ought to stop, when we read something that disagrees with what we believe to be so, and ponder it seriously when it is presented in a serious way.
That is what rationale discussion is about and without thoughtful examination of issues our liberties will not endure.
