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July 24, 2008

Comments

Just when I'm hitting the top quintile. Guess I have to be a republican now. Burn the poor!

sorry - didn't see yours when i posted.

this chart does tell a lot though -- i remember seeing a similar one at while back at Ezra's place and the relative distribution really drove home just how different substantively the two parties are.

it's a continuing fascination of mine how and hwy americans tolerate policies that are explicitly intended to conentrate wealth at the top (which is what bush's tax cuts did and WERE DESIGNED TO DO).

publius:
You are so right. Why do you think there has been an explosion of CEO compensation. Look at how much higher taxes were under Ray-gun. The rich seemed to survive pretty well during his presidency.

i have been reading your site and a.s. silently for a while but i have got to say that this post takes the cake. analysis comes and goes but this one took my breath away, shredded the curtain, and drove home the difference between the parties. for a while i have taken at face value the republican line about being the low taxes national security party. iraq disabused me of any faith in their acumen as national security experts--they really have no idea what they are doing, not that the dems are much better but iraq was an abomination and to rephrase colin powell its their fiasco they own it, but taxes? boehner was parading this one around on an american spectator conf . call yesterday, bk here again i am beginning to think, because of your post, that they do not mean or know what they are talking about. up til now i had thought that yes we pay more taxes with dems but at least we get something in the bargain but now i am not sure that is true. your post changed my mind and in the ceaseless echolalia of the blogosphere that is saying something. thanks

A couple of issues with this… Can you really conflate Social Security taxes with income taxes? I mean, at least in theory, Social Security taxes don’t go into the general fund. I think it’s fair to lump them together when discussing the tax burden on different quintiles, but not when discussing revenue collected. And how can you discuss revenue collected without discussing spending? The total revenue results in a gain or a loss depending on spending…

(I’ll skip making the argument that lower taxes on the top quintiles results in more revenue IMO as that’s going nowhere in this venue. But they make no attempt to even consider it.)

Cross-posted at Andrew Sullivan.

OCSteve: I’ll skip making the argument that lower taxes on the top quintiles results in more revenue IMO as that’s going nowhere in this venue. But they make no attempt to even consider it.)

Why should they? The "trickle-down theory" - that letting the rich pay less taxes means they make more and more money and that somehow magically benefits the less and less rich - has been solidly and thoroughly disproved by practice, all over the world.

Can you really conflate Social Security taxes with income taxes? I mean, at least in theory, Social Security taxes don’t go into the general fund. I think it’s fair to lump them together when discussing the tax burden on different quintiles, but not when discussing revenue collected.

Why not?

Jes: If a front pager wants to put up a post on that IRS data I’ll dive in. I think that the only bearing in this thread is that the authors didn’t even come near the question in their analysis.

I just found the report to be based mostly on assumptions (which the authors readily admit), they conflate Social Security taxes with the rest, they don’t get into spending (IMO discussing revenue is meaningless without talking about spending), and they don’t broach the subject of whether increasing taxes could actually result in less revenue. I think that their treatment of the two candidates was relatively balanced, but I think that their conclusions are built on a house of cards and thus fairly useless.

Why not?

The mystical lock-box. It makes no sense to include payroll taxes when discussing what revenue may be collected as that money can’t be spent on other things. It only makes sense including it when discussing the overall tax burden on individuals.

IIRC upping the cap on SS collections does approximately zero to any budget, on- or off-. Unless, as I've said before, you cap the outlays. IOW, you'd have do a little fancy footwork with the books, because post-retirement outlays are, unless I'm woefully short of understanding, tied to revenues for each person.

(I’ll skip making the argument that lower taxes on the top quintiles results in more revenue IMO as that’s going nowhere in this venue. But they make no attempt to even consider it.)

As a general rule, when it comes to the WSJ editorial page's opinions on taxes and the rich, you're far more likely to be correct if you believe the opposite of what they say is true.

As to this specific editorial, let's see where the sophistry comes in. First, they refer to income taxes, which excludes payroll taxes, which is the bulk of taxes paid by those in the lower income groups. It also ignores the various excise taxes, such as the gas tax, which also impose a disproportionate burden on those in the lower income groups.

Also, muni bond interest is not included in AGI, for one thing, and thus the vast majority of which doesn't show up in the WSJ statistics on what constitutes "income". The bulk (if not the vast majority) of this income goes to the top 1% (See, e.g., the income tax returns of Cheney, Dick).

Let's see what other stupid crap they say in the editorial:

We also know from income mobility data that a very large percentage in the top 1% are "new rich," not inheritors of fortunes.

Except that "inheritors of fortunes" do not have income when they inherit their fortune, so they wouldn't show up at all (they might mean income earned on the fortunte after it is inherited, but they don't bother to specify).

There is rapid turnover in the ranks of the highest income earners, so much so that people who started in the top 1% of income in the 1980s and 1990s suffered the largest declines in earnings of any income group over the subsequent decade, according to Treasury Department studies of actual tax returns.

This has nothing to do with tax rates or the % of income taxes the upper 1% pay. This almost has to be true for any particular period as a matter of simple math.

The idea that this has been a giveaway to the rich is a figment of the left's imagination. Taxes paid by millionaire households more than doubled to $274 billion in 2006 from $136 billion in 2003. No President has ever plied more money from the rich than George W. Bush did with his 2003 tax cuts.

So what? In order to argue that the Bush tax cuts have not been "a giveaway to the rich" they would have to compare what they paid in 2006 under the Bush cuts to what they would have paid had no such cuts been made. I'd bet my house that they would have paid more had the 2003 cuts not been made.

If the Bush tax cuts "plied more money from the rich" than anyone evah!, where were the complaints from that set of "Oh Noes! Don't lower my tax rates I will pays much mores in taxes!" in 2003. Oh, there were none, as everyone understood the tax cuts were a boon for them.

The very groups like the Congressional Budget Office and Tax Policy Center that wrongly predicted that the 2003 investment tax cuts would cost about $1 trillion in lost revenue are now saying that repealing those tax cuts would gain similar amounts.

The only thing in the editorial that supports the statement that CBO & TPC were "wrong" is the simplistic "tax rates were cut and revenue went up, thus lower tax rates increase revenues, hooray!" Which assumes that the only thing that affects revenues is tax rates. This is demonstrably false.

All that said, I'm not a big fan of Obama's tax plan, particularly his proposal to lift the cap on soc sec taxes (with or without the donut hole), but the argument that "The way to soak the rich is with low tax rates" is fncking ridiculous.

I had to come over here to see what the populists and class warriors would have to say about all of this. I suspect that none of the current posters actually own a business, much less one that it has taken 25 years or more to bring to the level where the owner's income penetrates the top marginal tax rate. I have some news for you folks: the Center for Tax Policy notes but does not analyze the tax avoidance strategies that a significant increase in marginal rates is likely to produce. Further, the Center's analysis does not touch on Obama's promise to add additional FICA tax to combined incomes over 250K a year.

Many of us who earn, i.e. we work our asses off and no one at my shop puts in more hours or loses more sleep than me, the kind of money that Obama wants to tax even more heavily than we are now taxed (as an employer, I pay over a dozen discrete state and local taxes in addition to matching FICA and my own taxes) have the option of retirement or, in my case, cutting back and still making a good living. If I cut back--and I surely will if my marginal rate goes over 40%--I will reduce my staff by 50% and I will personally work about 75% of the hours I currently work. Revenues will drop by about 600K a year and I will pay substantially less tax. Higher earners tend to be older and tend to have savings and investment income they can fall back on. Most of us stay active because we like what we do and we get to keep roughly 2/3's of what we make after federal taxes (state and local grabs another 10% or so of our incomes). Tax us too heavily and we just quit. That means we quit hiring class warriors who produce little other than hot air. Have a nice day.

OCSteve, I genuinely don't understand the principle of cutting off payroll taxes into a little box and not "counting" them for anything except "tax burden".

What I hear from people like mckinneytexas is that they have no respect either for the work they do or for the staff they employ to do it: their own personal income has become their only motivation. It's sad and strange that someone would spend 40 years building up a business without any intrinsic respect or enjoyment for the work or for the workers, but it's ironic that someone who believes so strongly in class warfare that they are prepared to fire half their employees rather than pay 5% more taxes, should refer to us as "class warriors". If every word you wrote is true, mckinneytexas, you are a class warrior of the most strident kind.

There is no question that large tax increases on the affluent reduce work effort at some point. I am a 57 year old Wall Street multi-millionaire, and if Obama succeeds as President in passing large tax increases, I'll simply retire next year. There is no reason for me to work 65-hour weeks under intense pressure if my after-tax income is not sufficient to substantially add to my net worth. Many people, including my own relatives who have 9-5 public sector jobs, have no idea how hard those of us in the top 1% work for those incomes and the pressures we work under. It is annoying that every 4 years, the Democratic Party stirs up unsuccessful people to vote for much higher taxes on the successful.

Art, I know it only looks like I am rubbing my thumb and forefinger together, but in actuality I am playing "My Heart Bleeds For You" on the world's smallest violin, because I am certain no garbageman, tanner, roofer or sewage treatment worker would ever trade places with your terribly pressuring lifestyle.

OCSteve: I’ll skip making the argument that lower taxes on the top quintiles results in more revenue IMO as that’s going nowhere in this venue. But they make no attempt to even consider it.)

Tinkle Down Economics has never been shown to work in this country without massive associated deficit spending, both from a reduction of taxes and an increase in spending.

Here's a chart from the Heritage Foundation (not exactly liberal) that shows the Reagan and Bush II, the kings of Tinkle Down, rammed spending up. Supply-siders have a strong knack for ignoring the stimulus effect of billions upon billions of dollars in runaway spending.

Here's another chart showing deficit vs. GDP. Note the enormous deficits of the supply-side presidents. Why did the deficit start to reduce in the late Reagan years? Because he jacked up Social Security taxes which are included in this chart.

Even Greg Mankiw, not exactly a wild-eyed liberal, stated that the BEST anybody could hope for in tax cut revenue recovery would be about 50% and, as we know, no gov't program has ever gotten the best result.

I am a 57 year old Wall Street multi-millionaire, and if Obama succeeds as President in passing large tax increases, I'll simply retire next year.

And this would be a bad thing ... why?

Art, you work in a field that produces nothing, creates wealth from nothing, pushes up values via hype, creates volatility, and is currently responsible for crushing economic conditions brought about by dishonest dealing and valuations. Do you really think the economy would suffer if half the brokers "playing" in the market today just walked away?

Wall Street's record is not exactly glowing, though many people have certainly gotten themselves wealthy, even in incompetence.

The ignorance and rigidity of leftist class warriors is on a par with religious fundamentalists. For those of us who do work very, very hard and who do actually employ people (at good salaries and with full benefits), but who must work 60-70 hours a week to earn precisely those dollars Obama wants us to pay the highest taxes on, at some point we have to ask ourselves whether busting our asses is worth it.

I've employed plenty of people over the years who felt like they were doing me a favor by showing up more or less on time and not leaving early and if they only extended their lunch hour by 10 or 15 minutes. These are people who, when asked to do something new or different, tell me 'it's not my job' or 'I'm too busy.' These are the same people who gladly vote for the Obama's of this world who are going to make those rich bastards pay more money.

I also have and have had many, many fine employees, who come in early and stay late. These people get regular raises and their annual bonuses equal or exceed a month's pay, depending on how the business has performed for the year. They don't resent the fact that, after many years effort, my wife and I are doing well. We are a small shop, less than 15 total employees. My wife is office administrator with no pay other than what we earn off of the business.

If I am taxed to the point where the effort of making the next dollar outweighs the pleasure of time off and enjoying life a bit, my best employees will still have work and those with a chip on their shoulder will have to find work elsewhere.

"It is annoying that every 4 years, the Democratic Party stirs up unsuccessful people to vote for much higher taxes on the successful."

Having a disability, and being near-homeless, or being homeless, and barely being able to afford potatoes and ramen noodle, or seeing most of one's small income spent on food, because of insufficient income, or no income at all, or being in any kind of impoverished situation, while perhaps supporting a family, or perhaps while being elderly, is kinda annoying, too.

I think most such people might be willing to trade for the burden of your annoying situation. Undeserving though they may be, since they're unsuccessful.

They don't resent the fact that, after many years effort, my wife and I are doing well.

But you resent them enough that if you have to pay 5% more taxes and they don't, you'll fire their asses.

If I am taxed to the point where the effort of making the next dollar outweighs the pleasure of time off and enjoying life a bit, my best employees will still have work and those with a chip on their shoulder will have to find work elsewhere.

If they are taxed to the point where the effort of making the next dollar outweighs the pleasure of time off and enjoying life a bit, your employees will still have to work for a living. Because that's what most people have to do.

That you're in a position to be able to fire hardworking employees because they have "a chip on their shoulder" and to work part-time, is nice for you. That you expect the government to rearrange its tax plans to appease your outrage at the notion that people with more money should pay more taxes, is class warfare taken to an extreme.

"I've employed plenty of people over the years who felt like they were doing me a favor by showing up more or less on time and not leaving early and if they only extended their lunch hour by 10 or 15 minutes. These are people who, when asked to do something new or different, tell me 'it's not my job' or 'I'm too busy.'"

Profit-sharing might help with that. Or not. But usually if people understand that a particular approach benefits them, they're apt to be open to engaging in that approach. If not, exploring what their reasons are might be educational.

FWIW, I have no personal desire, nor do I think it would be particularly wise, under non-emergency circumstances, for marginal rates to go over 40%.

"For those of us who do work very, very hard"

Some folks don't work hard; some folks just don't take responsibility, for any number of reasons, bad or good -- that's true. But lots of people who aren't "successful," or very successful in terms of earning lots of money, work very very hard, as well. They simply don't get rewarded remotely as well, or much at all, in many cases.

And for the record, I don't disagree with any of the rest of your points; I simply think that they're not the only points that are relevant.

I also don't think that name-calling by anyone about anyone's POV is helpful. "Class negotiation" is a better way than "class warfare."

It's useful to acknowledge that there are economic classes of people, with mobility for many, but not for all, and that people's circumstances vary, sometimes as a result of poor decisions, or bad attitudes, or a lack of taking individual responsibility, but often as a result of matters out of their control -- and often the poor decisions and bad attitudes result from some combination of lack of education, lack of growing up with role models to teach them otherwise, or lack of knowledge as to what tools they need to get to where they need to be to be productive and functional in a way we all, I think, desire everyone to be.

Blame towards anyone, well-off or poor, doesn't seem helpful to solving any of these problems, does it?

"Firing hard working employees" who "have a chip on the shoulder." I don't have any of those. I have 'hard working employees' and then I have employees with a chip on their shoulder. The hard workers are amply rewarded. And we do profit-sharing in the form of bonuses, raises and 401K matches. And the tax increase isn't 5% in any meaningful way. It is a a 14% increase in taxes--from 35 to 40 is 14%. Forty percent, on top of matching FICA, an added 2.9%, self employment tax (12.4%) plus state and local taxes is too damn much. We are already at the tipping point on what makes working so hard worth it.

For those of us who do work very, very hard and who ... work 60-70 hours a week

Speaking of class warfare, I'll bet you I can throw a rock and hit someone who works just as hard as you do for just as long. Giving yourself airs in this manner deeply, deeply undercuts whatever point you were trying to make.

Also, this:

These are the same people who gladly vote for the Obama's of this world who are going to make those rich bastards pay more money.

is just dumb.

LFC, that is just silly to say that investment banks produce nothing of value. My industry intermediates between providers of capital (investors) and users of capital (corporations who issue debt or equity, mortgage borrowers, credit card borrowers, etc.) I am not a broker, I am head of a fixed income research group. Every OECD country has an investment banking industry, including all the European social democracies, since those who need capital find it impossible to have direct relationships with many thousands of providers of capital. The market-making function of investment banks reduces volatility, it does not increase it; we are ready all day, every business day, to immediately deploy our capital to take the other side of investors' trades. Without us, an anxious seller could not necessarily get an immediate bid for his bonds, nor an anxious buyer an immediate offer.

Art, true-believers don't have time for the complexities of commerce or for comprehending that the risk-takers who spend their lives building a business need to get a reasonable rate of return on their efforts or the efforts just aren't worth it and that when we quit working, the fall out lands hardest on those who cannot employ themselves. And, apparently, it is offensive for you or I to establish our bona fides and point of view.

And, apparently, it is offensive for you or I to establish our bona fides and point of view.

If your point of view is "I work harder than you and if you disagree with me on tax policy, you're a lazy bum," then yeah, it's offensive. But if no one taught you this when you were five or so, you're not about to take my word for it.

I think that the only bearing in this thread is that the authors didn’t even come near the question in their analysis.

They also didn't say that lowering taxes on the upper 1% causes polar bear attacks. Should they have addressed every debunked theory in the article.

===================

Many people, including my own relatives who have 9-5 public sector jobs, have no idea how hard those of us in the top 1% work for those incomes and the pressures we work under.

Boo-frickin-hoo. If you listened to the 9-to-5 relatives, they'd make your job (in which you voluntarily work 25 extra hours) sound like a walk in the park. How many of them have a spouse who works and/or work a second job (either over 25 hours, I'm sure) and don't have a rate anywhere near yours?

But they don't work hard, do they?

My industry intermediates between providers of capital (investors) and users of capital (corporations who issue debt or equity, mortgage borrowers, credit card borrowers, etc.)

And a damn fine job you've been doing lately, I must say. Heckuva job, Art.

"Art, true-believers don't have time for the complexities of commerce or for comprehending that the risk-takers who spend their lives building a business need to get a reasonable rate of return on their efforts or the efforts just aren't worth it and that when we quit working, the fall out lands hardest on those who cannot employ themselves."

Cite?

Or, in other words: this comment seems to contain no substance, but merely derogation of nameless people. Cite to whom on this thread it is in regard to?

Not that you'd indulge in any class warfare, to be sure. Can we stick to discussion of what is and isn't good policy, or is your purpose here purely emotional and to vent against unnamed Bad People?

"And, apparently, it is offensive for you or I to establish our bona fides and point of view."

Cite?

Meh. Some people work long hours and get paid a lot, some people work long hours and get paid a little. Some people work damn hard 9-5 jobs that I would never do in a million years and get paid less than half what I do for working longer hours, but I wouldn't call what I do "hard-work" compared to those people. But all this "who works harder than whom" is just a bunch of crap.

People make choices of what they want to do, how hard they want to work, etc. Sometimes those choices are forced upon them, sometimes people have no choice, sometimes people get lucky, sometimes people don't, sometimes people fall through the cracks by no fault of their own.

I'm not going to sit here and tell someone that what they do "produces nothing of value," since, if it did, I don't know why people would pay them to do it.

But all that is beside the point. The question is how to fund the federal government, which has certain jobs do to and has made certain commitments and promises, both explicit and implicit. And the fact is that marginal income tax rates were much higher throughout the 1990s, on both ordinary income and capital gains, and I don't recall commerce grinding to a halt.

If a return to those rates causes Art to retire at 57, well, lucky him. I'm sure his investment bank will find someone else to head up fixed income research who will be willing to do the same job at a higher federal marginal income tax rate, they might even pay that person a little less due to his/her relative lack of experience, which will inure to the bank's bottom line.

And mckinneytexas, I'm glad to hear that you apparently are running a successful small (medium?) business, though I'm a bit puzzled at how an increase in the top federal marginal (marginal, not effective) tax rate will cause you to cut back on work time by 25% and drop $600K in revenue, especially if your income just "penetrates the top marginal tax rate." But you have access to your finances and I don't. Were you working many fewer hours in the 1990s?

GF--my reference was to LCF (investment bankers don't produce anything of value) and the general thrust of posters who seem to think that the people who pay top rates won't react when those rates go higher, i.e. they don't understand commerce.

I am not touting my hard work as being superior in any way to anyone else's hard work. I am saying that the only way I make the kind of money that I do is by working a lot harder than I would like and if the government tips the scale by making the marginal dollar too much trouble to pursue, I am going to cut back and if I do, people will lose their jobs. I do not look forward to letting people go--I would rather we all stay fully employed, but I am 54 and the long hours don't sit so well these days. My work has a very high stress factor, particularly with the extended days.

No one who works long days and weekends has it easy. For most of the last 25 years, I didn't have any choice in the matter, just like a lot of other people have and had no choice. Now, I do have a choice, if push comes to shove, and if the choice is to cut back, unfortunately, others will lose their jobs.

Ugh--fair question. I can produce, depending on how hard I work, 200-300K a year without employees. I can double that number, but it takes a base of 10-12 employees to produce the difference and my work load goes up by about a third up to 40%. So, by cutting everyone loose, or cutting my staff in half, I take a pay cut, gross revenues drop by at least 600K, but I still make more than enough to live on and to live well. The point I am trying to illustrate does not seem all that complex to me: the marginal dollar one earns is the hardest dollar to earn. If the percentage the government takes from that marginal dollar reaches point X, a lot of us for whom that marginal dollar is optional and not essential will opt out of the economy at that level. The government will lose the revenue off of our marginal dollar and the employee base we use to produce that marginal dollar will be reduced or eliminated. Thus, and this is the main point, a static tax analysis that assumes a 14% increase in the tax rate will produce a 14% increase in income is fundamentally flawed because the taxpayer on whom the increase falls will adjust his/her behavior to reduce or otherwise avoid the effect of the tax increase.

mckinney: I don't assume that anyone will be entirely unaffected by changes in his or her marginal tax rate. That said, I also think that we need to do something to get the deficit under control. That means, I think, that I don't just get to say: for any group of people, that group would rather not pay more taxes (which is surely true). I have to ask instead: given that I do not think that we can get the deficit under control through spending alone, what seems to me the fairest way to increase revenues? If we hadn't just been through a long period in which taxes were cut overwhelmingly on the wealthiest people in this country, I might answer this question differently. As things stand, however, I support Obama's plan.

The main point, though, is that I don't think it's enough to point to the fact that raising taxes on some group might produce some bad effects. You need to show that there is a better alternative.

mckinneytexas is leaving out a more crucial economic factor: under the Obama plan as analysed by the Center for Tax Policy, most people have more after-tax income, hence more discretionary spending. Assuming that mckinneytexas is manufacturing popular widgets (and not e.g. yachts), demand for said widgets is likely to go up. So even if mckinneytexas decides to kick back and relax, hungrier competitors will presumably be glad to hire the experienced employees who are being laid off.

Hilzoy--
Premise No. 1--we can't cut the deficit through spending controls alone. I disagree, but its a hypothetical point since it hasn't been tried. Every year, in nearly every category, spending goes up. Every budget has a built-in rate of increase. We haven't even begun serious budget cutting. Seemingly, every federal dollar spent is essential.

2. Premise No. 2--'taxes were cut overwhelmingly on the wealthiest people in this country.' Clinton raised the marginal rate 30% and imposed an additional tax on every earned dollar of 2.9% (Medicare Tax), for a marginal rate of of 42.5%, with a total rate of increase of 37%. Bush cut that rate by 11%, i.e. by a piddling one third, and still the top 5% of taxpayers pay over half the income taxes collected in this country and the bottom half of the employed in this country pay no income tax. I would say that the tax burden already lies overwhelmingly on the highest wage earners (who are not necessarily the wealthiest, simply those whose incomes exceed 350K) and that it is impossible to cut the marginal rate, by definition, without cutting the rate on the highest wage earners.

Is there a better alternative? Yes, and it begins with cutting spending--reduce the built-in spending increases by 50% for the next five years. This is doing what the private sector and individuals do--live within one's means. A line item veto that can pass constitutional muster is a thought. A lower flat tax with zero deductions so that business and individuals operate rationally instead of in tune with a tax code that defies understanding is another thought.

I didn’t know this was still kicking over here. I couldn’t have made any better points (nicer maybe) than mckinneytexas, and I don’t have the personal experience to make it real.

That’s the kind of example I always try to give in this argument but come up short. It really seems that simple to me. Up to a point people will complain about it but pay their taxes. Past that point they’ll simply change their behavior – reduce their effort, seek more tax shelters, etc.

mckinneytexas - thanks for the further details.

This is doing what the private sector ... [do]--live within one's means

ROTFLOLOOMA!!!!! Chrysler. Bear Stern. Airlines. etc. etc. etc.

You fail.

Mckinneytexas, thanks for laying out your points. While spending cuts are important, given that (iirc) the large majority of US spending is military and/or non-discretionary, spending cuts on the things I think you are thinking of are not going to have as big an effect as you think they will. There are folks around here who probably know the numbers better, so I hope they will chime in with some links and figures.

Is there a better alternative? Yes, and it begins with cutting spending--reduce the built-in spending increases by 50% for the next five years.

Which increases are you talking about? Why do you think that doing so is politically feasible? It is very very easy to point and say "just fix the problem" without explaining how to do so and without explaining why you think your plan is feasible. But, you know, feasibility actually matters.

I mean, do you think that Congressmen are really going to cut large chunks of the defense budget and imperil jobs in their districts? Why would Boeing or Lockhead tolerate that without raising a political firestorm? There's a reason that a piece of the B-2 bomber is made in every congressional district in this country and it has nothing to do with efficiency.

This is doing what the private sector and individuals do--live within one's means.

Generalizations this vague generally have no content, but I think the classic airline industry strategy -- declare bankruptcy and renege on your obligations -- isn't really one that the government should attempt.

A line item veto that can pass constitutional muster is a thought.

So why don't we have one now? Do you think that no President ever thought "huh...a line item veto that was legal would be awesome...maybe I should try to get one..."?

A lower flat tax with zero deductions so that business and individuals operate rationally instead of in tune with a tax code that defies understanding is another thought.

I think you may not appreciate the fact that many many people really really like deductions. I mean, do you think homeowners are going to be happy about losing the home interest mortgage deduction? While everyone hates deductions that they can't take, there are very few people who take no deductions whatsoever (and who also pay significant federal taxes). People aren't rational and if you tell them that you'll trade elimination of their cherished deductions for a lower overall tax rate, they will still cling to their deductions. But you can't really offer them a lower overall rate on average, can you? I mean, if you're starting from the proposition that the wealthy pay too large a share of taxes and that spending is frozen, then you have to raise effective tax rates on the majority of tax payers. So the plan you're offering to taxpayers is: lose all your cherished deductions AND pay a higher effective tax rate. Do you understand why voters might not react favorably to this brilliant plan? Frankly, I don't see much benefit in discussing plans that are politically infeasible, but YMMV.

"I am saying that the only way I make the kind of money that I do is by working a lot harder than I would like"

I coudl be wrong, but it's my strong suspicion that most people feel that way, including those working at minimum wage, or just above it.

Personally, I'd rather feel that way at, say, 2-3 times minimum wage, or even higher, then at under, say, $10/hr, or $12-$15/hr, and I have less sympathy with those who make considerably more than that but still feel put upon, but that's only my own emotional bias, and I try to keep it from affecting my policy views, though I'm sure it does.

"investment bankers don't produce anything of value" -- for the record, I don't agree with that.

"My work has a very high stress factor"

Most people's does, and I'm not under the impression that the stress tends to be less when one adds to it dire worry about being able to pay one's rent, or have enough food, or pay one's medical bills, or otherwise be one or a couple of paychecks away from existential disaster.

"If the percentage the government takes from that marginal dollar reaches point X, a lot of us for whom that marginal dollar is optional and not essential will opt out of the economy at that level."

I disagree with that premise not at all. And, as I said, I'm of the view that higher than 40% would be, in other than an emergency, undesireable.

But I don't think it's the worst crisis facing Americans. I do have more concern for the unemployed, the uneducated, those without medical care or insurance, and those in actual dire need, which is to say, tens of millions of Americans, most of whom seem to be invisble to so many middle class and upper class Americans.

These folks:

Poverty in the United States is cyclical in nature with roughly 12% to 16% living below the federal poverty line at any given point in time, and roughly 40% falling below the poverty line at some time within a 10 year time span.[1] While there remains some controversy of whether or not the official poverty over or understates poverty, the United States has some of the highest absolute and relative pre and post-transfer, poverty rates in the developed world.[2][3] Overall, the U.S. ranks 12th on the Human Poverty Index.[4]

[...]

The official poverty rate in the U.S. increased for four consecutive years, from a 26-year low of 11.3% in 2000 to 12.7% in 2004, then declined somewhat to 12.3% in 2006. This means that 36.5 million people were below the official poverty thresholds in 2006, compared to 31.1 million in 2000[10], and that there was an increase of 5.4 million poor from 2000 to 2006 while the total population grew by 17.5[citation needed] million. [11] The poverty rate for children under 18 years old increased from 16.2% to 17.8% from 2000 to 2004 and had dropped to 17.4% in 2005 and 2006.

Call me a bleeding heart.

"...and still the top 5% of taxpayers pay over half the income taxes collected in this country and the bottom half of the employed in this country pay no income tax."

Is that a bad thing? If so, why?

"Yes, and it begins with cutting spending--reduce the built-in spending increases by 50% for the next five years."

There are doubtless some places we might agree on cutting spending: farm subsidies are a popular choice with most of us who don't have tons of Archer Daniels Midland stock, or aren't farmers. But discretionary spending is a small percentage of the federal budget -- here is a nice pie chart -- and no, I'm not all that interested in cutting spending on Social Security or Medicare, so the question becomes where will the massive savings come from, exactly?

[...] Social Security, Defense, and Medicare/Medicaid spending are the main spending categories, at roughly 20% of total expenditures each.
Want to chop those, or [fifth link to another pie chart chopped, sorry; will add to next comment] where? Only 18% of the budget is "discretionary."

Pie.

"A lower flat tax with zero deductions so that business and individuals operate rationally instead of in tune with a tax code that defies understanding is another thought."

These two things are non-sequiturs. A tax code with no deductions would certainly get rid of the complexity, and that's all that would be required. Of course, that'll never happen, because people won't want to give up their mortgage deduction, or their health insurance deduction, or a thousand other desireable deductions, and every industry and interest group in creation is more interested in preserving or creating their deduction than anyone else is in getting rid of that specific deduction.

Beats me what to do about this, which I certainly agree is a Huge Honking Problem.

How many tax brackets we have, though, has nothing whatever to do with this question. It just tends to get stuck in by people whose ideology is that well-off people have it as hard as impoverished people, and looking at their situations as if there were any significant difference is "unfair" and, of course, "class warfare."

OCSteve: Up to a point people will complain about it but pay their taxes. Past that point they’ll simply change their behavior – reduce their effort, seek more tax shelters, etc.

I agree. The "point" happens when people can afford to pay really good tax accountants. Up to that point, people complain but pay: after that point, they don't so much change their behavior (no one has ever been able to show that there's a "reduced effort" out of the very rich because they have to pay more taxes) as pay the tax accountant to try to legally* avoid as much of the additional tax as possible.

*The people who illegally avoid paying taxes are a different story...

mckinneytexas: I would say that the tax burden already lies overwhelmingly on the highest wage earners (who are not necessarily the wealthiest, simply those whose incomes exceed 350K)

In 2004, the number of households in the US whose income exceeded 250K was 1,699 000. (Census data) The people whom mckinney feels such terrible compassion for, on account of they're struggling by on such heavy taxes, represent the wealthiest 5% of the population (approximately).

The other 95%, mckinney apparently feels, should pay more taxes....

My point remains limited--raise the marginal rate too far and you will get the opposite of what you desire. I am not calling for a pity party for those who do well, but those who diminish the efforts of the top 5% do so in ignorance. Assuming that you can abuse the minority who pay the freight ad infinitum is a bad assumption and raising rates on a minority just because you outnumber them smells bad no matter how much word salad you put on the plate. Like it or not, the private sector provides 100% of the tax revenue and most of the jobs in this country. You can have higher taxes or you can have better, more secure jobs at market rates, but you can't have both. If the employers' income is reduced by taxes many will pass that reduction along to employees by stagnating wages/benefits or they will cut their costs to increase profits. In almost any business, the single highest expense item is labor costs and it is the easiest to cut. Proponents of high taxes deceive themselves and others by pretending tax increases come at no expense to the 95% of the people who are thought to be unaffected. And those who say spending cannot be cut are simply wrong, and farm subsidies is surely one place to begin. For sure, one way to avoid the need for additional taxes is to not add any new spending programs, but that notion is a sure nonstarter on this thread (and don't think I am not aware that Bush hasn't spent the last 8 years bribing us with our own money or that McCain isn't doing the same thing).

One technical correction--a flat tax and elimination of deductions would only work on the person income side. I inserted 'business' into my statement without giving it adequate thought.

"If the employers' income is reduced by taxes many will pass that reduction along to employees by stagnating wages/benefits or they will cut their costs to increase profits. In almost any business, the single highest expense item is labor costs and it is the easiest to cut."

Which is why the increase in tax rate for the top brackets caused such a drop in wages and benefits in the 90s:

"The examination of real wage trends—that is, wages adjusted for inflation—is the best way to track the impact of the weak job market on living standards. But because inflation is driven by many other forces—such as rising oil prices or health care costs that are not directly related to labor market conditions—to most directly gauge the impact of labor market conditions on wages, nominal wages (i.e, actual wages without any inflation adjustment) must first be examined.

Figure 1 shows the annual growth in the nominal weekly earnings of full-time workers (see the data appendix for more detail) as well as the growth in inflation from 1994 to 2003. Real wage growth is the difference between these two factors for each year. Starting around 1996, wage growth accelerated sharply from 2.3% to 5.0% in 1999. Note that wages grew far faster than prices in these years, resulting in significant real wage gains in the 1997-2000 period.

Thereafter, the rise in unemployment that began in 2001 and the labor market slack that persists to this day adversely affected wage growth. In 2001, wage growth slowed to 3.6% and then fell sharply to 1.8% in 2002. It grew at about this rate in 2003 as well, generating two years of historically slow wage growth. But because inflation grew by 2.3% in 2003, the 2.0% growth in median weekly wages meant that wages fell slightly in real terms in 2003 for the first time since 1996.

........

Figure 2 provides another look at the slowing of wage growth over the past year, comparing the annual growth of real earnings by gender over two time periods, 1995-2002 and 2002-2003. The first set of bars in the graph is uniformly positive, as real weekly earnings grew at each percentile for both men and women. But in 2003, real earnings fell for middle- and low-wage men, and they were stagnant for women in the bottom half of the wage scale. Only high-wage women saw continued gains, though at less than half the rate of the 1995-2002 period."

cite: http://www.epi.org/content.cfm/issuebriefs_ib196

mckinney: I am not calling for a pity party for those who do well

Then you should have quit typing right there, rather than calling for a pity party because omg it's abusive for people in the top 5% to pay proportionally more of their income in taxes than do people in the bottom 20%.

You can have higher taxes or you can have better, more secure jobs at market rates, but you can't have both.

Actually, while this is WSJ-meme standard, it isn't based on any observed reality anywhere in the world. Indeed, higher taxes on the very wealthy are invariably combined with better, more secure jobs at market rates. Neat, isn't it? Rich guys suffer for the good of all.

Oh well, if it's really so terribly awful being in the top 5%, they always have the option of becoming poorer.

I'll just say--this is a system. The health of one part affects the health of all.

Yes, an Obama plan makes things tougher on the upper brackets. But if the middle and lower parts of the economy can't make it, the upper brackets aren't going to make it anyway. The system WILL fall--and you're stupid to ignore that.

(Conversely, too much burden on the upper brackets will affect the system, too, but a) there's more stasis than a collapse, and b) there've been higher burdens in the past and no evidence that increases of the sizes proposed will affect the system AS A WHOLE adversely).

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