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October 16, 2008

Comments

More directly, if I am to believe Governor Dean, Bush's tax cuts resulted in states having to raise or enact taxes.

Actually, many people have pointed out that it is probably wrong for McCain to have even brought up the subject, as a lot of people saw "wealth" spread to banks and not to them and they may want some of the wealth spre3ad to them.

Getting back to Joe's comment and Obama's response. Based upon the way you wrote it, hilzoy, Joe said the company he wanted to buy had $250 thousand in revenue, which is drastically different than $250 thousand in income for Joe. So actually, Obama missed the boat on that one by not explaining that Joe was getting a cut anyway.

a lot of people saw "wealth" spread to banks and not to them and they may want some of the wealth spread to them.

The wealth is indeed being spread to the banks. Contrary to popular opinion, I don't believe that we are seeing our banking and financial sectors being 'socialized' at all.

We are seeing the U.S Treasury become privatized.

Joe said the company he wanted to buy had $250 thousand in revenue, which is drastically different than $250 thousand in income for Joe.

It is remarkable and infuriating how widely this is misunderstood. Obama proposes to raise taxes on incomes >250K. As John Miller says, this affects a small business owner only if the profits are greater than $250K. Not the revenues, the profits. A company whose profit is 10% of revenue is doing quite well, so we're talking about revenues of $2.5 million or more.

Further, many small businesses have more than one owner. They are partnerships or LLC's or the like. In those cases profits may substantially exceed $250K without affecting the taxes of any of the owners, provided their individual share is <$250K.

This whole "damaging small business" idea is utterly bogus.

Incidentally, John McCain is on Letterman, finally, tonight, which might be... interesting.

This whole "damaging small business" idea is utterly bogus.

Of course it is, particularly if you can do a little math.

Of course, innumeracy afflicts a good part of America these days (which is how all those poor people and their rather modest homes could cause this trillion dollar financial crisis.....)....

Wassila doesn't have more people than Delaware?

Has anyone else seen the McCain speech from the Alfred E. Smith dinner that people (including Rachel Maddow) are saying was so funny. I'm watching it on the Maddow rerun, and I must just be too bitter, because a lot of it seems as mean-spirited as I'd expect McCain to be.

A company whose profit is 10% of revenue is doing quite well, so we're talking about revenues of $2.5 million or more

Actually these days in some branches of our service sector (e.g. retail sales) 10% would be a not too shabby figure for the gross profit, i.e. the difference between revenues and the cost of goods sold. By the time you take out expenses the actual income made by the owner(s) would be a good deal less than that.

It would not be terribly out of line to have the sole owner of a $10 million annual revenue business taking home just barely enough to get clipped by Obama's >250k tax increase.

And yes, margins really are that thin. Another gift of globalization.

I'm not sure that a business with a little over 250,000 in revenue actually qualifies anyway. I know several friends with businesses with revenues as such is 500,000 but overall once you take out payroll, deductions, and the routine business expenses allowed by law( much of what are personal expenses in reality), you wack off a good part of that income I don't see most of those tax benefits disappearing if the business is in this country and employing US citizens, so I would guess most businesses effected would be have a revenue of much larger that 250,000 to actually be affected.

Changing the tax code in such a way that the proportional burdens of different groups of people also change is not socialism. It's just a change in tax policy.

Absolutely. Progressive taxation exists because capitalism is a regressive system. I'm not sure it's possible maintain a viable democracy in a capitalist economy without redistributing wealth through taxation.


"Capitalism is an entirely uncontroversial term, like magnetism: civilization is impossible without it. There is no such alternative as capitalism versus socialism: the issue is between plutocracy and democracy. . . . This letter is for your consideration, not for argument, and needs no answer."
— George Bernard Shaw


KCinDC,
I saw the Smith dinner speeches earlier, and I thought they were both pretty funny. She showed the first part of McCain's speech last, because they cut in late, and I found the first part of his speech to be rather mean-spirited (at least, more so than the last part).

I said capitalism is a regressive system, and I'm not sure that makes any sense. I mean that capitalism distributes wealth upwards.

See bizstats for some averaged figures for margins of various businesses. I'm guessing return to the owner is about 23 to 33% of sales, so for a plumber, you'd have to be grossing over $750K to be affected by Obama's plan (and that's without considering if you want to plow some of that back into the business....)

I mean that capitalism distributes wealth upwards.

Compared with what?

Pre-capitalist agricultural economies were pretty good at doing this too. The peasants who labored under Qin Shih Huang Ti might have been willing to swap places with the exploited classes of today, given the chance.

Compared with what?

I'm not sure of your point, TLT. Why should that statement need to be qualified with a comparison to some other system?

Why should that statement need to be qualified with a comparison to some other system?

Because it reads like an indictment of capitalism.

I'm asking to what extent a tendency to concentrate wealth upwards is associated with capitalism specifically, rather than more broadly being a feature of all post-neolithic economic systems, and to what degree the shape of the income pyramid is a function of the economic system specifically rather than other aspects of society (such a tolerance for legalized slavery and other forms of bonded labor, or centralization of political power).

Pandering a bit are you: the top 50% income
wise of taxpayers paid 97% of all tax collected in '06, so the bottom 50% pay only
3%. Really hard to do much for the bottom
50% except just hand them a check. FWIW
other numbers: the top 1% in income pay 40% of income tax collected in '06 and
taxpayers in the top 10% (above $109k AGI)
paid 71% of income tax collected from individuals. Top 1% is income above $390k,

Or to put it another way: income distribution in the US is dramatically different from what it was in the 1950s and 1960s. I don't see that as being a result of us being "more capitalist" today than we were back then. Instead there have been dramatic changes in our system of taxation and structural changes in the US economy (a shift from manufacturing to services, the advent of globalization and hence global wage arbitrage). Those things I see as being mostly orthogonal to the question of how "capitalist" our economy is.

So saying "capitalism concentrates wealth upwards" is a statement that while true has little semantic content that I see as being relevent to our present predicament. The question I think we need to ask is not "Should we be less capitalist?", but rather "How can we adjust the capitalist system we have to produce less income inequality, using tools (like progressive taxation) which are perfectly compatible with a capitalist system?"

Does that make sense?

Because it reads like an indictment of capitalism.

It is not an indictment of capitalism. I was speaking to the necessity of progressive taxation to maintain a healthy democracy. I believe we presently fall quite short of the required progressivity.

I believe we presently fall quite short of the required progressivity.

Oh, then we are talking past each other due to a confusion of terms, while actually agreeing.

Thanks for the clarification.

Ok, it looks as though we agree. I may be wrong, but you may have missed putting the 'capitalism disributes wealth upwards' statement back in the context of the post above it I intended to clarify.

I just finished watching the Good Morning America bit with Joe The Plumber, and he either just is fiercely against progressive taxation or, I wonder, might not understand how marginal tax rates work. I really think someone needs to infiltrate the AEI or whatever and propose regressive marginal rate income taxes; after all, it's the logical extension of moving from progressive taxation to flat taxation, and I bet those folks would lap it up. One the above question of whether capitalism is naturally regressive, I think the answer is obviously that it depends on regulation, worker organization, taxation, etcetera. Capitalism inherently contains inequality, but the inequality only means injustice if its slopes are steep and nearly insurmountable. In the last ten years or so, the proportion of the total wealth owned by the top one percent doubled, thereby making society by that one metric twice as regressive; but going back in time you see an equally capitalist society, more or less, but with less income inequality. Capitalism doesn't have to be economic nature, red in tooth and claw, it's just that one of our parties is dominated by ideologues who don't believe any actions can ever have consequences and so embrace widening inequality despite the chance it might lead to social crisis; and the other party is no band of social-democratic angels either.

Sch, your statistics, even if true, are meaningless without accompanying statistics about the percentages of the nation's income that go to the same slices of the population.

I think questions about whether capitalism is inherently regressive might be besides the point. The total tax burden people face includes a great deal more than federal income taxes, and most of that burden is rather regressive. When Warren Buffet talks about how he pays a much lower total tax rate than his secretary, we don't have to look at capitalism in general, we just have to look at our federal and state tax codes.

Also, sch, people pay taxes besides income tax, so talking exclusively about income tax is misleading. Augment your statistics with social security and payroll taxes and we'll talk.

Sch, a couple of points: (1) I'm pretty sure your numbers only count income tax, and not payroll tax, and I don't know what percent of the total tax burden is income tax. (2) what proportion of the nation's wealth is controlled by the top 1%? If memory serves (and it might not), it's not far off that 40% percent number; and, again, a whole lot of people pay more in payroll taxes than in income taxes. Also, given that wealthy people every year have a more disproportionate part of the nation's wealth than the year before, you'd be hard-pressed to prove that the wealthy are getting the short end of yhe stick.

Joe the Plumber makes more money than most of us do just for showing up at my house.

So does Joe the electrician.

Check out Joe the furnace guy and Joe the roto rooterer.

Hilzoy the ethicist would show up at my house for maybe less, being an ethical person, unlike your normal tradesmen.

I'm all for the proletariat making lots of money and bypassing the Revolution.

I'm happy to pay.

But when do I get to charge them for whining during election season?

No doubt Joe the spinal surgeon is up in arms too about Obama's tax plans.

Maybe he'll he'll feel put upon and give up his practice and become Joe the garbageman.

Whining from a cheaper tax bracket.

Shut up and pay your taxes.


The U.S. social stratification chart (and its change over time) really deserves to be taught in school. And updated at public expense.

It charts wealth as well as income; the wealth section is a challenge to depict on a reasonably sized sheet because of the distance between the top and the bottom.

"Joe the Plumber makes more money than most of us do just for showing up at my house."

How much would most of us make just for showing up at your house, John?

I heard "Joe" the "Plumber" interviewed on NPR this afternoon.

He is simply rabidly against progressive taxation.

He openly admits that he'd get more of a tax cut under Obama's plan given his present income. But feels that it's unfair to "punish success."

So, like so much else from the McCain campaign, this is a bait-and-switch. You're supposed to think "Joe's just a working guy, yet he'd pay higher taxes." But Joe isn't just a working guy, and he wouldn't pay higher taxes.

In fact, he's just a marginally more acceptable messenger for the argument that the rich shouldn't pay higher taxes than the poor.

I would be much more respectful of McCain's and the RW's "but that's SOCIALISM!" horror at taxing Joe the Plumber to help Jane the Waitress, if McCain and the RW's weren't anxious to tax Joe AND Jane and then spend that money blowing up people who didn't attack us. All the while enriching their CEO buddies, of course.

They (McCain and the RW) think of themselves as brave golden-browed freedom lovers, when they are only crappy little militarist fascists.

Their horror at "spreading the wealth" is not principle, simply that the wealth doesn't get spread to the right folks.

As a sometime libertarian, if I have to choose between spreading the wealth to my neighbor Jane the Waitress, or to Mr. Fat "Let's Start a NEW War" Cat, I'm going for the Jane option, thanks very much.

Oh, and Gobama.

If socialism is OK for bankers, oilmen, corporate farmers, and CEO's, why is it not good enough for the rest of us?

Socialism sounds OK by me.

"A Year With Obama", Great Read!

http://www.newstatesman.com/north-america/2008/10/voters-obama-clinton-mccain

Most small businesses are sole proprietorships -- that is, there is only one owner, and the income from the business is treated as his income. It is not uncommon for sole-proprietorships to make more than $250,000 in a year. I grew up in a small town in Virginia, and my father's sole proprietor business made more than that in the high years. That was in an area with a low cost of living, and no unions to jack up prices.

We already have a social welfare system in the USA. We don't need to take more money from people who because they work hard become successful and give it to people who are not as successful. Welfare already exists for people who can't afford necessities, like food and health care. Americans should not have to provide them money for anything except necessities, therefore Obama's program is an unnecessary redistribution of wealth. It is socialism.

Jon, I think you are mistaken about the difference between income and revenue. If your father was running his own business, especially in a small town in VA, and cleared $250,000 in income (i.e. money that went into his pocket, after covering expenses and debt from the business), then your dad was rich. No if, ands, or buts about it.

Now if your father's revenue was $250,000 and after he decducted expenses and paid off any creditor, he was left with less, could claim those expenses as a business expense and deduct some of that on his taxes, and was in a lower tax bracket. I don't think you fully understand the issue at hand.

And the jump in your discussion from the evils of a more progressive tax structure to welfare makes absolutely no sense.

I just finished watching the Good Morning America bit with Joe The Plumber, and he either just is fiercely against progressive taxation or, I wonder, might not understand how marginal tax rates work.

Can't it be both?

Hey, Jon, what do you suppose will happen when nobody can afford to solicit goods and services from these abundant sole proprietorships, even though these people work hard but are NOT successful? Maybe soon we can ALL be on welfare! Yaaaaaaay!

This makes a whole lot of sense given the current state of the Republican Party. Right now, its is abundantly clear that the person they have chosen to be the new "face" of McCain's economics package:

a) doesn't know the difference between profit and revenue and
b) doesn't understand how tax brackets work.

No wonder they're so hopeless right now.

Right now, its is abundantly clear that the person they have chosen to be the new "face" of McCain's economics package:

a) doesn't know the difference between profit and revenue and
b) doesn't understand how tax brackets work.

I expected as much, and notice Jon made the same mistake with gross revenue versus earnings. (See 1040 Schedule C for sole proprietorships: if Jon's dad has been doing his taxes completely wrong, I think he can correct the last 3 years at least.) If they had picked Joe the Accountant clearing $250K, who obviously doesn't have a lot of expenses, then it wouldn't have sounded so bad.

The average person has a pretty crappy understanding of taxes and finance in general, and a worse idea of the federal budget. Which suits the Republican party just fine.

Jon, we do not have a social welfare program in any real sense. The rules for Medicaid are bizarre and complex, and less that half of Americans below the poverty line are covered. Some states, such as Texas, are very successful in discouraging eligible people from getting coverage.

Food stamps has been cut way back, and I volunteer for several local charities that provide free food to people who don't get enough. Even in the ultra-liberal San Francisco Bay Area, where I live, we don't get food to everyone who needs it. Not all areas have that kind of charity, or a public will to contribute to them.

Remember the Unitarian Universalist church shooting in Knoxville? Apparently the shooter was pushed over the edge because his food stamps were cut and he didn't feel he could survive on what he would get after the cut. (Strangely, he blamed that on liberals getting all the good jobs.)

Let's not criticize Jon too much.

I've seen this mistake made by lots of critics of Obama's tax plan. I even stumbled on a Limbaugh article that very explicitly does this.

So the confusion is out there, some, I think,spread deliberately, and some just due to a general lack of understanding of how business taxes work.

"We already have a social welfare system in the USA."

In fact, in many states, if you are a male who isn't disabled, over 18, and under 65, you get no help at all, beyond, if you qualify, food stamps. That's the "social welfare" available. Beyond that, you get no medical help, no "welfare," no nothing.

Someone might say: but Bush's tax cuts didn't raise anyone's taxes, so he can hardly be expropriating anything. This is wrong: by increasing the deficit, Bush's tax cuts will cause us all to pay more later, and will also lower our standard of living over time. There is no free lunch.

Not only that, but according to James Livingston, the tax cuts gave back to the wealthy money that they promptly used to invest in the questionable mortgage backed securities and derivatives that are behind our present mess.

http://hnn.us/articles/55614.html

"So the Bush tax cuts merely fueled the housing bubble—they did not, and could not, lead to increased productive investment. And that is the consistent lesson to be drawn from fiscal policy that corroborates the larger shift to profits, away from wages and consumption. There is no correlation whatsoever between lower taxes on corporate or personal income, increased net investment, and job growth.

The responsible fiscal policy for the foreseeable future is, then, to raise taxes on the wealthy and to make net contributions to consumer expenditures out of federal deficits if necessary."

In other words, take the money from the jackasses who invest it in the equivalent ponzi scheme, and give it to workers who actually use it to buy real products that other real workers make, thus bolstering the economy.

We don't need to take more money from people who because they work hard become successful and give it to people who are not as successful.

Lots of people work hard.

The difference we're talking about here is 3% of your income above $250K. If you make, for example, $300K, the difference in your income tax is $1500. That is one half of one percent of your income.

If you make $500K, the difference in what you pay is $7500, or one and one half of one percent of your income.

It ain't nothing, but it's also not going to really cripple anyone financially.

21% of the 2008 federal budget goes to social security, which is funded by an extremely regressive payroll tax. Your high earner is getting a free ride there.

Of the balance, Department of Defense and Medicare is about 40%. Welfare, unemployment, and similar programs are about 11.2%.

So, your $500K earner is paying 11.2% of one and one half percent more to the kind of transfer payments you're upset about.

That's about $840.00.

Money is money, and every little bit counts, but $840.00 on a $500K income is noise. It is 15 one hundredths of one percent.

If you're making that kind of dough, you've had a good ride for 8 years. Time to pony up.

Thanks -

xanthippas, thanks for the Livingston link! I came to the same conclusion (see my comment about an hour and a half after yours, on the Deficit Spending thread), but without economics training or math I didn't have much confidence in my opinion. Still, it made sense intuitively: why try to increase the money available for investment, in 2000? There was no shortage of investment dollars -- couldn't be, as we were collectively well off, money was highly concentrated in the top few percent, and there was no tax disadvantage to investment as such. Anything worth investing in could find a backer. Bush's cuts merely grew the market for stupid investment schemes. Lots of froth, lots of dollars chasing dollars, no creation of wealth.


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