The Debate Is Joined

by publius

Obama is starting to get his second wind – for the first time, he’s making aggressive and even openly partisan attacks against the stimulus opponents.  To which I say – it’s about time.  The Obama team has a tendency to be a few days late on tactics, but they’re pretty good when they finally get the ball rolling.

But tone aside, the substance of Obama’s new message is even more important.  In this speech, for instance, he openly attacks the idea that “tax cuts alone can solve all our problems; that government doesn't have a role to play.”  Elsewhere, he says “This isn't some abstract debate.”  Amen to all that. 

Obama’s remarks help bring into focus just how silly and trivial the cable debate has been.  Listening to them, you would think this is all a big game – “Is Obama off-message . . . Does the GOP have new energy. . .”  What you wouldn't realize from listening to this silly back-and-forth is that there's a very serious economic crisis out there causing real pain and anxiety to a lot of people.  Demand is down a lot (accordingly to Obama and others, it’s shrinking in trillions).  And so we need to act and we need to act fast. 

The bill’s not perfect, but this isn’t a normal situation.  Spending a lot – maybe even too much – is the whole point.  That’s why I have the vague urge to dropkick Senators Collins and Nelson.  Cutting state education may make them feel like better and more serious people, but they’re causing pointless delays (and God forbid we provide a bit too much money to cash-strapped states to keep people employed -- that's quite clearly the more urgent danger right now).

Obama is also right to finally call the GOP out on their “false theories of the past.”  It would be one thing if the GOP was joining this debate in good faith about what could actually help our country’s businesses and families.  And to be fair, there are some conservative writers out there who are making substantive objections – objections that should be answered.  After all, there’s no God-given right to get the stimulus passed – it has to be justified.

But those types of good faith arguments are not at all what we’re hearing from the institutional GOP and the idiot media circus these past two weeks.  Let’s be clear – the GOP is proposing to do nothing other than redistribute income to the very wealthy.  That’s it – that’s their plan.

The DeMint proposed amendment – which got 36 Republican votes (90% of caucus) – is a perfect illustration.  (See also Brian Beutler – his regular site is here and should be on your readers and reading lists). 

You might think the DeMint bill is a parody at first – the proposal of someone consciously trying to get chased out of office (think The Producers applied to politics).  Indeed, in a more rational world, the DeMint proposal would be the story of the day – and an object of national ridicule. 

Here are a few highlights of the very serious Jim DeMint’s proposal (borrowed from Heritage), which consists of zero spending and 100% tax cuts:  (1) lower everyone’s marginal rates by 10 points; (2) lower the corporate tax rate; (3) eliminate most of the estate tax and slash the remnants; (4) make the Bush tax cuts permanent. 

Needless to say, these are extremely skewed to the wealthy – almost comically so.  Brookings crunched some numbers years ago on the distributional effects of making the Bush tax cuts permanent – no surprise there.  The other stuff – reducing everyone’s tax rate by 10 points; slashing the estate tax – also disproportionately helps the wealthy.  Even so, the bill won the support of over 90% of the Senate GOP caucus (you know, the more reasonable of the two GOP caucuses -- or is it "cauci"?)

Give more money to rich people.  That's their plan for stimulating our crashing economy.  That's what they’ve proposed and voted for to help millions of out-of-work Americans.

Well, here’s what Senator DeMint and his Senate followers should think about – this stimulus is going to pass.  And while they’ve had their fun on the cable talk shows this week, the reality is that virtually the entire Republican Party is on record voting solely for massive tax cuts for the wealthy in the face of the worst economic crisis in our lifetime.  Halperin may be very impressed by the GOP’s cleverness right now.  But their position is going to look a lot less clever as time goes on.  I predict it will become a big liability.

All in all, it’s a very clarifying moment – and it pretty much shows the state of the modern institutional GOP at this moment in history, and where their priorities lie.

Comments

[Fraud Guy]

Debating in good faith?

That would require from them a debate, instead of absurd claims.

That would require faith.

Than would require good.

All three are sorely lacking from the Republicans and many commentators arguing against helping the economy.

[rook]

I admit I haven't been keeping up with the details on this, but what I really don't get is how tax cuts are supposed to work better. People aren't spending money right now. On top of the fact that disproportionate stimulus in favor of the rich makes no sense, how is giving people more money to not spend supposed to be superior to Government spending that's guaranteed to create at least some jobs?

My most optimistic guess is that it's just posturing for the masses. Demint et al want to show how fiscally responsible they are, even when it's completely irrational. Sadly, a lot of people will buy it.

[d'd'd'dave]

// Let’s be clear – the GOP is proposing to do nothing other than redistribute income to the very wealthy. That’s it – that’s their plan.//

Letting people keep their own money is not redistribution.

[d'd'd'dave]

//reducing everyone’s tax rate by 10 points...also disproportionately helps the wealthy.//

How? The rates now are 10%, 15%, 25%, 28%, 33%, and 35%. DeMint's proposal would change them to 0%, 5%, 15%, 18%, 23%, and 25%. The lower brackets get the greatest proportionate decrease.
10% is reduced 100% to 0%
15% is reduced 67% to 5%
25% is reduced 40% to 15%
28% is reduced 36% to 18%
33% is reduced 30% to 23%
35% is reduced 29% to 25%

This change makes the rates MORE progressive. I wonder if you did the math before you started frothing.

[d'd'd'dave]

Three friends go to lunch. They order chinese and share it family style. They are so busy talking that no one notices who eats what. When the food is gone one is still hungry. The bill comes and it is for $30. Mr. A has $8 in his wallet, Ms. B has $30 in her purse, and Transgender C has $300 in his/her money clip. No one has a credit or debit card. How much should they each pay and why?

[d'd'd'dave]

I'm halfway expecting Publius to say that if Mr. A pays anything at all then a redistribution of wealth to the rich transgender C has occured.

[mattH]

This change makes the rates MORE progressive. I wonder if you did the math before you started frothing.

The purpose of a stimulus bill is to stimulate the economy. Changing income taxes will not do that. Have you ready anything on this site lately?

[Chuchundra]

The whole "income taxes as a restaurant bill" analogy is simple-minded and wrong.

There's a whole lot more on the "bill" than just income taxes. There are more ways to pay it than just with money. And, most importantly, taxes aren't fees paid for service.

Somehow the fairness debate implied in this restaurant analogy doesn't extent to question of why some diners have so much more money than others.

[Hartmut]

I have my doubts about "this stimulus is going to pass". Thre are enough Senate GOPsters (and a certain Joe L and potential blue dogs)) that a filibuster could work.
That's btw another reason why I do not understand the brouhaha about senator Gregg. Even if he was replaced by a Dem, the 60 votes to break a filibuster would be improbable to get.
And the GOP actually discusses to take the Taliban as a role model (AAAAAAArrrrgh!)

[Jesurgislac]

In the restaurant analogy:

One hundred people enter a room with a banquet set for one hundred.

In the modern US, just one person then gets 38% of the food: nine people then share 33% of the food between them: fifty people share 30% of the food: the remaining forty people get 1% of the food to split between them.

D'd'd'dave enters the room and complains that it is unfair that the 10 people who between them got 71% of the banquet are now expected to pay at least two-thirds of the bill, while the "lucky duckies" who got a banquet for one shared between 40, pay a mere 5% of the bill between them.

[Brett Bellmore]

"And, most importantly, taxes aren't fees paid for service."

That's just a way of saying that we've already decided to screw over the guy with deep pockets, so stop talking about what's fair. Fees for service are the definitive model of a tax everybody agrees is fair: You pay for what you get, and get what you pay for. It's departures from that model that have to be justified.

Often by crazy claims that the government is responsible for all wealth, and so any wealth you have is a government service subject to a fee. Just another crazy single factor of production theory of value, only one that out-crazys the labor theory of value.

Let's be serious about this: The DeMint proposal is not skewed towards the wealthy, it is merely moderating slightly a tax system which is wildly skewed against the wealthy. You liberals are insanely hostile to wealth, to the point where, if somebody makes a hundred times as much, you think it's some kind of offense against all that's decent if they only pay a hundred times the tax. (A flat tax.)

And yet, you're not really opposed to concentrations of wealth, you just see private sector concentrations of wealth as obstacles the ultimate concentration of wealth: Government. When it comes to government, the more concentration of wealth, the better, you think.

[cleek]

When it comes to government, the more concentration of wealth, the better, you think.

oh you so-called conservatives and your lame-ass mind-reading. when will you ever learn... ?

Let's be serious about this: The DeMint proposal is not skewed towards the wealthy, it is merely moderating slightly a tax system which is wildly skewed against the wealthy.

no, let's really be serious about this: tax cuts aren't sufficient to address the issue at hand. DeMint is just wanking here.

[Robert Kistner]

Here is a wonderful paradox for you, we (include all senators and congressman) condemn the bank executives and executives from AIG for going on there retreats with rescue money but how about our politians going on retreats during these very difficult times. Are we so asleep or is it that we do not get it, it is our money they are spending in order to enjoy themselves. The first cuts in the budget needs to come from the congress´s budget and the ridiculous amount of money that they spend on themselves. Maybe if there was not so much money being given to these politians we would get people that are humbler and honest in making the decisions that so affect our lives.
Just look at one little example of how it works, AIG got the fastest action because they are the ones who underwrite the Congress´s pension and insurance policies, go figure. Look at the list of people who lost their money with Lehman Brothers, who many politians do you see on the list, ummm!!!

[russell]

This change makes the rates MORE progressive.

Yes, for income tax only. And income tax is, uniquely, about the only progressive tax that folks pay. Most other taxes are either flat or regressive.

Fees for service are the definitive model of a tax everybody agrees is fair

No, everybody does not agree.

Here is what *I* think. I won't pretend that everyone agrees with me, it's just what *I* think.

It costs a certain amount for government to do the things we've decide that it should do. We pay for that with taxes. Period.

Income tax is progressive because (a) that's a good way to raise the most money with the least harmful impact on any given person, and (b) it complies with a basic sense of fairness. Noblesse oblige, dude.

I'll bet you $100 that more folks see it my way than yours.

[Phil]

Fees for service are the definitive model of a tax everybody agrees is fair: You pay for what you get, and get what you pay for.

For certain values of "everybody," I suppose. I mean, I've been paying for a fire department all these years, and my house hasn't burned down once. What a bunch of wasted money.

You liberals are insanely hostile to wealth,

This is the most insanely stupid thing I've ever seen you write, and that's a pretty high hurdle to clear. Why don't you ask noted liberal Bill Gates or Warren Buffett how they feel about wealth.

Jesurgislac is on the money, as it were.

[rook]

Letting people keep their own money is not redistribution.

Fair enough, but the folks who make a lot of money are going to end up with a lot more 'stimulus' per person. Cutting progressive tax brackets equally is regressive. Think of the actual dollars rather than percentages.

[Angellight]

In regards to the Stimulus controversy, some in the media, earning cushy salaries, unaffected by the impending crisis, asks what's the rush? But, thank God, there is a new Sherrif in town as President Obama takes his fight to the people. He understands the American people are hurting and needs help NOW, found here due to greed and neglect!

Republicans' new talking points regarding help to the people in the form of a stimulus - is that the polling shows the American people are against this Stimulus (against help)! What planet do they live on. By the day, Blue and White collar workers are losing thier jobs, homes, cars. They are resorting to food and bread lines; unemployment compensation and food stamps (by the way the GOP calls this Welfare). The American people are hurting and the GOP are playing political games -- let's damage the President, instead of putting their time and care on the crisis looming large for the American people. At least for Once!

Not unexepectedly, the GOP cry loudly, that that is not the way for Pres. Obama to win -- taking it to the airwaves, (however, he tried being diplomatic and nice)! They don't want him to fight -- to Expose their phony objections and impediment to this catastrophe. They don't want light but President Obama believes in transparency, and there is no time to lose in this situation. This patient, the U.S. economy, needs emergency care, now. Thank God, a new Sheriff is in town and President Obama is fighting for You. This country has waited long enough for a blood transfusion, and theres no time to lose!

This is not about Pork, as GOP wants you to believe -- this is about the saving of our economy, our way of life. America is crumbling all around us and the GOP wants to play political games, as usual! As custodians of the people, President Obama assumed that due to the direness of the situation, Congress would Act accordingly and pass a stimulus, not try to Revive their policical party, when the country needs to be revived, for once to act selfless and put others before themselves!

We must remember, that when the GOP were in control they held no oversight hearings on anything, they did not increase the minimum wage, their concern was not about our crumbling bridges or dirty air, water, contimanted food and Ponsy Schemes that robbed people of millions.

We will know what to do in 2010.

[Ugh]

Brett:Let's be serious about this: The DeMint proposal is not skewed towards the wealthy,

Uh. Yes it is. If you want to argue that the tax code as modified by the DeMint's proposal is not skewed toward the wealthy, as compared to some hypothetical flat tax, go ahead. But the way DeMint proposal modifies the tax code as compared to the way it is now is skewed toward the wealthy, and massively so.

it is merely moderating slightly a tax system which is wildly skewed against the wealthy. You liberals are insanely hostile to wealth, to the point where, if somebody makes a hundred times as much, you think it's some kind of offense against all that's decent if they only pay a hundred times the tax.

Then explain to me how the highest 400 individual earners who filed income tax returns in 2006 in the United States paid tax at an effective rate of just over 17%? Tell me how skewed the tax code is against these 400 people, who's average adjusted gross income in 2006 was $263,306,000 and earned 1.31% of all adjusted gross income in the whole of the United States?

[susan]

why are we listening to Republicans anyway? they are the ones that got us into this mess in the first place.

[AnonymousInMA]

To d'd'd'dave (did I get the number of d's correct?) @ 2:27am...(and russell @ 8:41am who conceded the point that this makes the tax scale more progressive).

This argument has hit a personal pet peeve of mine in quantitative analysis. The percent change of a percent MAKES NO SENSE.

The best way to point out the flaw is by example. Let's look at d'd'd'dave's tax rate argument. He looks at the percent reduction in the percent of income that is paid in taxes. Now, suppose instead that I want to look at the percent increase in the percent of income that is kept after taxes.

By simply inverting the question, the percentage of income currently kept by income bracket (lowest to highest) is 90%, 85%, 75%, 72%, 67%, and 65%. Under the proposed changes, the amount kept would now be 100%, 95%, 85%, 82%, 77%, and 75%.

So, what can we say about this change. By d'd'd'dave's logic, the lowest income earners have increased their post-tax income from 90% to 100% of their gross wages. This is an increase of 11%. However, the highest income earners have increased their post-tax income from 65% to 75% which is an increase of over 15%.

Now, who is correct? Is the tax rate made more progressive as d'd'd'dave argues or is it more regressive based on my analysis?

This is a classic example of a bad use of numbers. While there may be contexts where it makes sense to talk about a percent change of a percentage (though I can't really think of any), this is definitely NOT one of them. A 10% change in tax rate is a 10% change for everyone...Simply, the change in the amount of money you have or the change in the amount of money you pay as a percentage of your income is 10% no matter how you slice it.

Sorry if this came off as too much of a scolding rant, but this really is a big pet peeve of mine, and it's used surprisingly often in policy discussions.

[Andrew]

America is crumbling all around us and the GOP wants to play political games, as usual!

Just so. The only viable political strategy for the GOP is to oppose the bill and hope it fails.

If they support the bill, and it succeeds, it is a victory for the Democrats.

If they support the bill, and it fails, they get tarred with the Dems.

If they oppose the bill, and it succeeds, it is a victory for the Democrats.

If they oppose the bill, and it fails, it is the only scenario in which the GOP achieves a political victory.

[JimV]

I think d'd'd'dave makes some quite sound debating points - and yet I agree with publius' position. I justify this to myself as follows. "Rich people", by their nature, have the ability to redistribute other people's wealth to themselves, and only partly due to their innate abilities. In fact, mostly due to things like leverage, economy of scale, and so on. (E.g., Bill Gates had access to a PDP-11 in high school, the other 99.9999% of us at that time and age did not.) Left unchecked, they have a tendency to create monopolies (like Microsoft) and turn the middle class back into serfs. Therefore, doing nothing to counter this tendency is de facto wealth redistribution.

(None of which is on-topic, just one debating point replying to another.)

[long island girl]

President Obama has been quite good on his term. There has just been minimal mistakes but they are solvable. We'll just hope the people that he assigned on the positions will also do their jobs. I can see that he is trying to do his best to make USA better and solve the problems. But problems don't just get solved in a day, week or months. It really takes time and of course he also needs the help of the people around him and our help as well.

[cleek]

If they oppose the bill, and it fails, it is the only scenario in which the GOP achieves a political victory.

correct.

also... recently, many conservatives pundits and bloggers have been saying that we need a good deep recession to lower wages, weed out the bad loans, reset our expectations, etc.. so, it's not so surprising that someone who thinks a recession will be a good for us, like a nice cleansing hot-coffee colonic, they might be hoping the bill fails and the economy drops even more. they don't like the spending and don't think we need to prevent a deeper recession anyway.

we should just tighten our belts and ride it out.

[jdw]

" After all, there’s no God-given right to get the stimulus passed – it has to be justified."

yes, and I think the point of obama's speech was to show the congressional numbskulls how to do it. obama is only *one* person. the bill was written by *congress*. there are 255 dems in the house and 56 in the senate. where the hell have they been?

[GoodOleBoy]

The problem with anonymousinMA's argument is that progressivity in taxation is not commonly viewed in terms of what percentage of income a taxpayer keeps (since it is their money) but rather in terms of what percentage they pay.

[John Miller]

cleek, to add to your thought about some conservatives thinking we need a good deep recession. When confronted with the individual suffering it entails, they will respond that some sacrifice and suffering is needed (though of course the wealthy really aren't doing either) and there is a sense I get from some that those who are suffering the most somehow deserve it.

I am not saying they come out and say that directly, just that it is a sense I got.

AnonymousinMA pointed out the fallacy in dave's argument quite well.

And nobody has yet answered my question as to how tax cuts, rebates, credits will provide a jolt to the economy.

[Phil]

Hey, look, here's another crazy liberal who's opposed to wealth: Reed Hastings, CEO of Netflix. His company posted gross profits of $419 million for FY08, so he clearly hates wealth. What does he have to say?

I’M the chief executive of a publicly traded company and, like my peers, I’m very highly paid. The difference between salaries like mine and those of average Americans creates a lot of tension, and I’d like to offer a suggestion. President Obama should celebrate our success, rather than trying to shame us or cap our pay. But he should also take half of our huge earnings in taxes, instead of the current one-third.

Then, the next time a chief executive earns an eye-popping amount of money, we can cheer that half of it is going to pay for our soldiers, schools and security. Higher taxes on huge pay days can finance opportunity for the next generation of Americans.

Clearly, the efforts over the past few decades to control executive compensation haven’t accomplished much. Improved public disclosure was supposed to shame companies into lowering salaries, and it obviously hasn’t worked. In 1993, President Bill Clinton changed the tax law to effectively cap executives’ salaries at $1 million a year, but that simply drove corporate boards to offer larger bonuses and stock options to attract and keep talent. More recently, “say on pay” proposals would have shareholders opine on their boards’ compensation decisions, but “say and pay” won’t change the fact that luring a top executive away from another company is never easy or cheap.

The reality is that the boards of public companies hate overpaying for anything, including executives. But picking the wrong chief executive is an enormous disaster, so boards are willing to pay an arm and a leg for already proven talent. Putting limits on the salaries at public companies, or trying to shame them into coming down, won’t stop this costly competition for talent.

Of course, it’s galling when a chief executive fails and is still handsomely rewarded. But with the concept of “tax, not shame,” a shocking $20 million severance package would generate $10 million for the government. That’s a far better solution than what we have today, not least because it works with the market rather than against it.

Another advantage is that it would also cover the sometimes huge earnings of hedge fund managers, star athletes, stunning movie stars, venture capitalists and the chief executives of private companies. Surely there is no reason to focus only on executives at publicly traded companies.

This week, President Obama proposed imposing a $500,000 compensation cap on companies seeking a bailout. It’s a terrible idea. We all want the taxpayers’ money returned, and capping compensation at bailout recipients will just make it that much harder for those boards to hire and hold on to the executives who can lead their companies to compete and thrive.

Perhaps a starting place for “tax, not shame” would be creating a top federal marginal tax rate of 50 percent on all income above $1 million per year. Some will tell you that would reduce the incentive to earn but I don’t see that as likely. Besides, half of a giant compensation package is still pretty huge, and most of our motivation is the sheer challenge of the job anyway.

Instead of trying to shame companies and executives, the president should take advantage of our success by using our outsized earnings to pay for the needs of our nation.

So, doesn't like the compensation cap, but thinks incomes over $1 million should be taxed at 50%. Also supports russell's recent comments that most execs do it for the thrill of the game, not the compensation.

Crazy liberals.

[GoodOleBoy]

Would anyone here argue that the liberals have not prevailed or succeeded in their preference for an income tax system that is progressive? Maybe rather than always objecting to any reduction in the tax paid by those who actually pay the taxes, the liberals should actually state outright what levels of taxation each potential taxpayer should pay. Then we could debate.

[jonnybutter]

Fees for service are the definitive model of a tax everybody agrees is fair: You pay for what you get, and get what you pay for.

Asoundingly simple minded. I mean, even in the rugged individualistic Wild West of yore, this conception wouldn't have worked. No, everyone doesn't agree. In fact, in the real world almost NO ONE agrees.

It is a very great luxury to adhere to a philosophy which is, strictly speaking, impossible. Frankly, it's also fatuous.

If I believe (really truly, sincerely believe, a la Jiminy Cricket) that if everyone in this country thought about certain angels at the exact same nanosecond every day for a month, we could all levitate, you couldn't ever definitively prove me wrong, could you?

For god's sake, there's a time to suffer fools and there's a time not to. (Put me down as very impatient with Team Obama.) Although it cuts both ways, you can say that at least Brett really seems to believe in this foolishness, which is not the case for all the Republicans in the Senate.

[d'd'd'dave]

// Cutting progressive tax brackets equally is regressive. Think of the actual dollars rather than percentages.//

So, thinking of taxes rather than food and using the pocketbooks of the lunch companions as an example, C would pay the first $70 until he/she had only $30 left. Then C and B would split the next $44 between them equally, leaving each of the three with $8 apiece.

C will have paid $92, B will have paid $22, and A would've paid $0.

And you believe this model is 'fair'?

I sincerely wonder how you come to this belief? When you were a child and two friends came over did you divide your toys in thirds and let them each take a third home? When you went to a friends house and saw they had more than you did you take a share from them to equalize it all? I'm not joking here. I'm seriously trying to figure out how one goes from real life experiences and arrives at this view of 'fair'? Please don't answer by pointing at what others have experienced - I understand there is tragedy in the world. I want to know how you've arrived at it from your personal experience. And I want to know how you live that theory of 'fair' in your own life with your own time, your own money and your own money. Do you come home every day with as much money in your pocket as the poorest one you saw that day? If not, why not?

[Ugh]

GOB: Would anyone here argue that the liberals have not prevailed or succeeded in their preference for an income tax system that is progressive?

How progressive is an income tax when the top 400 individual taxpayers pay tax at a 17% rate? Which is just above the 15% rate for people making between $8k and 32.5k per year, and 8% below the 25% rate for people making between 32.5K and 78.8K per year.

[Phil]

I'm seriously trying to figure out how one goes from real life experiences and arrives at this view of 'fair'? Please don't answer by pointing at what others have experienced - I understand there is tragedy in the world. I want to know how you've arrived at it from your personal experience.

Wait, so the only way one can form an opinion is by experiencing something personally? I guess we can ignore away your opinion on anything you haven't experienced personally then, right?

[3legcat]

If they oppose the bill, and it fails, it is the only scenario in which the GOP achieves a political victory.

incorrect

oppose the bill, and it...doesn't matter. declare it a failure, start now and continue for seventy years.

[Ugh]

I do like how (some) conservatives/republicans all love to point to economics when arguing that high marginal tax rates discourage work, and then forget all about other aspects of economics, such as the marginal utility of income, when arguing for what's "fair."

[ScentOfViolets]

This is sheer nonsense at best, malicious innumeracy at worst:

10% is reduced 100% to 0% 15% is reduced 67% to 5% 25% is reduced 40% to 15% 28% is reduced 36% to 18% 33% is reduced 30% to 23% 35% is reduced 29% to 25%

This change makes the rates MORE progressive. I wonder if you did the math before you started frothing.

Posted by: d'd'd'dave

And AnonymousInMA is correct with this:

This is a classic example of a bad use of numbers. While there may be contexts where it makes sense to talk about a percent change of a percentage (though I can't really think of any), this is definitely NOT one of them. A 10% change in tax rate is a 10% change for everyone...Simply, the change in the amount of money you have or the change in the amount of money you pay as a percentage of your income is 10% no matter how you slice it.

Sorry if this came off as too much of a scolding rant, but this really is a big pet peeve of mine, and it's used surprisingly often in policy discussions.

Posted by: AnonymousInMA

Speaking as a teacher of mathematics, this too is a peeve of mine. You cannot in general take averages of averages, percent changes of percent changes, etc. You can make yet another argument invoking differing amounts of taxation on the same amount of income: you can 'cut taxes in half' by cutting a 10% rate to 5%, a 20% rate to 10%. On $50,000 this works out to a difference of $2,500 in the first case versus %5,000 in the second. In no way are these two figures comparable. And there is yet another way to make the comparison: raise taxes from 0% to 1% on $20,000, and from 10% to 90% on $200,000. The person making $20K pays a $200 difference, the person Making $200K pays $160,000 difference. But the first person had an infinite tax increase, the second a mere 800%! (That's a hint as to what's going on here).

The only way to compare rate changes that is consistent - for very good reasons - is to use percentage differences, not percentage ratios. This is covered in elementary statistics classes, so either this Dave character is simply regurgitating talking points with no sense of how absurd they are, or he knows damn well just how nonsensical it is, but is hoping someone will swallow the bait.

[Phil]

dave, what's your opinion on the death penalty, based only on what you've experienced personally?

[Jesurgislac]

ScentOfViolets: so either this Dave character is simply regurgitating talking points with no sense of how absurd they are, or he knows damn well just how nonsensical it is, but is hoping someone will swallow the bait.

Say... you're new around here, aren't you?

(Which is to say: well, yeah, but we never know which is which.)

[d'd'd'dave]

//We must remember, that when the GOP were in control they held no oversight hearings on anything//

Really? Between 1994 and 2006, the house held no oversight hearings?

//contimanted food and Ponsy Schemes//

[Ugh]

dave, what's your opinion on the death penalty, based only on what you've experienced personally?

or, what's your opinion on the estate tax, based only on what you've experienced personally?

I would also note that the so-called party of life is incentivizing people to die by lowering the estate tax. Hypocrites.

[d'd'd'dave]

According to wikipedia "A progressive tax is a tax by which the tax rate increases as the taxable amount increases."

The rates now are 10%, 15%, 25%, 28%, 33%, and 35%. DeMint's proposal would change them to 0%, 5%, 15%, 18%, 23%, and 25%. The lower brackets get the greatest proportionate decrease.

If you plot these on a curve you will see that the second set of rates rises more steeply.

AnonymousinMA says:

//This argument has hit a personal pet peeve of mine in quantitative analysis. The percent change of a percent MAKES NO SENSE.//

and //Now, who is correct? Is the tax rate made more progressive as d'd'd'dave argues or is it more regressive based on my analysis?//

Mr/Ms Anonymous, you sir/ma'am are incorrect.

//Sorry if this came off as too much of a scolding rant, but this really is a big pet peeve of mine, and it's used surprisingly often in policy discussions.//

Apparently you are wrong 'surprisingly often in policy discussions."

[Fraud Guy]

Also re taxes:

Let's make payroll taxes progressive; take off the cap on SSN/Medicare taxes, so that any income has to pay the same % of these as a portion of their income.

However, since these items are a safety net, and not meant for a posh retirement, keep the maximum payout at the current levels. Just in case, say, an ex-top 400 ends up penniless, so they don't have to subsist on failed investments. How much would this add to SSN/Medicare funding?

[d'd'd'dave]

JimV

// Left unchecked, they have a tendency to create monopolies (like Microsoft) and turn the middle class back into serfs.//

Microsoft is a bad example for you to use IMHO. Despite their monopolism, they did more to advance the productivity and value of the common man than nearly anyone. Their software facilitated the spread of computers to the common man which vastly improved the common man's ability to accomplish things.

[...now I try to be amused]

The stimulus, if it works, will be the first part of the second New Deal. The original New Deal rendered the GOP irrelevant for decades, so it's no wonder they're against it.

Perhaps President Obama should give the American people a 1933 history lesson.

[d'd'd'dave]

//AnonymousinMA pointed out the fallacy in dave's argument quite well.//

Fcnhing math illiterates can't even count and they want to lecture on economics!

[KCinDC]

Dave, who is arguing for taxing everyone to the point that after-tax incomes are equalized? The answer of course is "No one", so how are you doing anything but being disruptive by bringing up such idiocy?

[KCinDC]

Despite their monopolism, they did more to advance the productivity and value of the common man than nearly anyone.

You're assuming that without the monopolism there wouldn't have been other companies doing the same better. I thought conservatives were supposed to believe in the virtues of competition.

[d'd'd'dave]

//How progressive is an income tax when the top 400 individual taxpayers pay tax at a 17% rate? Which is just above the 15% rate for people making between $8k and 32.5k per year, and 8% below the 25% rate for people making between 32.5K and 78.8K per year.//

Ugh. You've mixed apples and oranges here. You are comparing the 17% effective rate on all income earned to the 15% and 25% marginal rates on some income earned.

If you compare effective rates on all income earned for all income strata you'll see that the effective rates are indeed progressive.

Another, fcnking math illiterate.

I've got to head to a meeting now or else I would post a link a chart that shows this.

[Phil]

Let's see . . . a guy who claims to be a math teacher says AnonymousinMA is correct. Another guy who claims to own trailer parks says he is not. Someone help me decide who to listen to!

[Madrocketscientist]

Why is there so much resistance in Congress to the stimulus? Maybe because the people are speaking and the elected ones are listening.

http://www.cnn.com/2009/POLITICS/02/04/voter.anger/index.html

[cleek]

Maybe because the people are speaking and the elected ones are listening.

yes yes, Grover Norquist has a list of people who are eager to call and whine about whatever topic he wants. BFD.

[AnonymousInMa]

I probably shouldn't respond/engage, but:

d'd'd'dave said:

"The rates now are 10%, 15%, 25%, 28%, 33%, and 35%. DeMint's proposal would change them to 0%, 5%, 15%, 18%, 23%, and 25%. The lower brackets get the greatest proportionate decrease.

If you plot these on a curve you will see that the second set of rates rises more steeply."

Really?? While there are certainly non-euclidean geometries where this may be true, for most of us, adding an offset doesn't change the slope of a curve. It, surprisingly, just adds an offset.

Also, to clarify, in case it wasn't clear...I was not making the argument that the DeMint proposal is regressive - I was simply making the point that the two complementary analyses lead to exactly opposite conclusions which suggests that the analysis is at fault. In fact, it should be clear that the DeMint proposal doesn't make the tax code more or less progressive than it already is. It simply reduces everyone's tax burden by 10%.

That being said, I would be quite interested to see d'd'd'dave actually defend his math rather than simply posit that several of us are math illiterate.

[fledermaus]

Maybe because the people are speaking and the elected ones are listening.

What a bunch of damned fools they be. It's going to be entertaining watching the country tear itself apart in the coming years over shortages on just about everything except worthless dollars. It's not what you don't know that gets you, it's what you know that ain't so.

[Phil]

The rates now are 10%, 15%, 25%, 28%, 33%, and 35%. DeMint's proposal would change them to 0%, 5%, 15%, 18%, 23%, and 25%. The lower brackets get the greatest proportionate decrease.

If you plot these on a curve you will see that the second set of rates rises more steeply.

O RLY?

Call us all math illiterates some more, dave. It's funny.

[GoodOleBoy]

fledermaus,

I can see what you describe some distance in the future, but at present are we not facing a serious demand destruction resulting in a shortage of nothing except jobs?

[Ugh]

If you compare effective rates on all income earned for all income strata you'll see that the effective rates are indeed progressive.

Another, fcnking math illiterate.

The effective federal rate of someone who makes $100,000 working for his employer is 22%. 5% less than the top 400.

[GoodOleBoy]

Would you try that again, Ugh?

[Bernard Yomtov]

The DeMint proposal is not skewed towards the wealthy, it is merely moderating slightly a tax system which is wildly skewed against the wealthy. You liberals are insanely hostile to wealth,

I'm not hostile to wealth. What I am hostile to is the creation of a hereditary aristocracy that has extremely low tax rates. That's exactly what proposals like DeMint's, and other Republican ideas, tend to create.

This isn't hard. Reduce or eliminate estate taxes. Reduce or eliminate taxes on investment income. What do you think the consequences are? I suppose next we'll see a Constitutional amendment allowing for the creation of dukedoms and whatnot.

[GoodOleBoy]

Bernard,

Why shouldn't everyone have extremely low tax rates?

[Larv]

If you compare effective rates on all income earned for all income strata you'll see that the effective rates are indeed progressive.

Care to provide a cite for that last assertion? I think you're confusing effective average tax rates with effective marginal rates. The effective average tax rates are more regressive, because the highest earners take a much larger proportion of that income in capital gains than do people lower on the totem pole. Capital gains are taxed at a considerably lower rate than standard income, so the more capital gains as a percentage of total income, the lower the average tax rate. At least, this is my laymans understanding. Any of the resident tax experts care to comment?

[Phil]

Because some of us don't want to live in feudal Europe?

[fledermaus]

but at present are we not facing a serious demand destruction resulting in a shortage of nothing except jobs?

That's just the start of things. I perfectly willing to be wrong on this but I just don't see it. Naturally it goes without saying that I'm a fan of Dmitry Orlov, who theorizes that the US is about to go thought the same thing that happened to the USSR - the only difference being that the Russian people were better prepared to deal with the collapse.

[GoodOleBoy]

Larv is correct. A good reason to treat all income the same and tax it at an extremely low rate.

[KCinDC]

GOB, Ugh is saying that someone making $100,000 pays 25% of that in federal income tax, whereas the 400 richest American taxpayers (who average $263 million a year) are paying 17%. Dave's claim that "the effective rates are indeed progressive" is not true.

[Brett Bellmore]

Then explain to me how the highest 400 individual earners who filed income tax returns in 2006 in the United States paid tax at an effective rate of just over 17%? Tell me how skewed the tax code is against these 400 people, who's average adjusted gross income in 2006 was $263,306,000 and earned 1.31% of all adjusted gross income in the whole of the United States?

It's really quite simple: Those 400 people didn't enjoy significantly more in services than any random 400 people. Why the heck should they pay more than any random 400 people? Because they've got it? That's just Willie Sutton's reasoning: You rob the bank because that's where the money is.

Forget all these rationalizations for progressive taxation: It's really nothing more than a vote buying strategy: Politicians buy votes by handing out largess, they lose votes by taxing, so they optimize the yield of votes by taxing as few as possible to pay as many as possible. The only reasons the tax system isn't even more 'progressive' is that politicians have learned not to kill the golden goose by pushing rates too high, and the wealthy have means of pressuring politicians besides voting against them.

And do some wealthy people support high rates of taxation? Yup: They've got it made, they want to pull the ladder up behind them.

[Rich G]

Wow, all the libral blogers here really are showing their wealth envy at every post here. It is the wealthy that spend money, create jobs and build corporations. I have never received a paycheck from a poor person. What the President and dems are doing is nothing more than fear mongering again. Trying to scare the American people into choking down this 900 billion dollar elephant, complete with all the earmarks and special interest projects the Dems have been trying to pass for the last 20 years. Frisbee parks, museums, re sodding the lawn at the national mall. etc. What a bunch of bunk, that has no stimulus effect. These do not create jobs or business. They simply put people to work to do a individual, non repeating job... then what? This has been tried before. The result was small help to the economy, then back to the same deficit. These are thing that are NOT economically stimulative.
Want to pass this? Take out all the pork and programs included that do not spend out (30-40% of this package) until the 3rd or 4th year (hmmmm...election time, really convenient).
The President wants to complain about the deficit he inherited. Let's be clear he inherited a 700 billion dollar deficit from Bush and now wants to pass a bill that costs over a trillion with interest. And yet another pork laden bill to follow!Garbage.

[GoodOleBoy]

KCinDC,

I'm not quarreling with what Ugh is trying to say but with what he, in fact, said. Read his post again.

[fledermaus]

but at present are we not facing a serious demand destruction resulting in a shortage of nothing except jobs?

Curses, last comment got eated. This is just the start of things. Things are going to get far, far worse. We don't make anything in this country and the stuff we do have is made to break a few years down the road (planned obselesence).

Naturally it goes without saying that I a fan of James Kunstler and Dmitry Orlov who theorizes that the US is about to undergo the same thing that happened to the Russia when the soviet empire fell. The only difference being that the US is not a prepared as the Russians were.

[cleek]

all the libral blogers here really are showing their wealth envy at every post here.

WTF is "wealth envy" ?

It is the wealthy that spend money, create jobs and build corporations. I have never received a paycheck from a poor person.

if you squint, you can almost see the excluded middle between "wealthy" and "poor". almost.

These do not create jobs or business. They simply put people to work to do a individual, non repeating job... then what?

then all the money the workers have earned and spent on supplies goes into the economy. do you think they're just going to bury the cash under the new sod?

[Ugh]

KCinDC - I did screw up comparing marginal vs. effective rates in that comment (but I would still expect the effective rate of someone making $263,000,000 to be higher than the marginal rate on someone who made $33,000).

GOB - per the cite I link above, if you make $47,000 in ordinary income, your effective rate is 17.22%, equal to someone who makes $263,000,000, or more than 5,500 times as much. Something is seriously wrong with that picture and, as you note, Larv put his/her finger on it.

[Phil]

Those 400 people didn't enjoy significantly more in services than any random 400 people.

I'm going to need a cite for this, because I bet they did.

And do some wealthy people support high rates of taxation? Yup: They've got it made, they want to pull the ladder up behind them.

Yeah, if not for our tax rates, you'd be the CEO of Netflix, or chairman of Berkshire Hathaway.

You can move to Liberia or Zimbabwe anytime you want, you know.

[cleek]

And do some wealthy people support high rates of taxation? Yup: They've got it made, they want to pull the ladder up behind them.

more of that fantastic conservative mind-reading!

[Phil]

Why the heck should they pay more than any random 400 people?

Why the heck should 0.000133% of the US population pay more for consuming 1.31% of all AGI? Is this a serious question?

[gwangung]

And do some wealthy people support high rates of taxation? Yup: They've got it made, they want to pull the ladder up behind them.

This gets it backwards.

I would in fact argue that higher rates of taxation for the rich promotes economic mobility; they are arguing the exact opposite of pulling up the ladder--they're making it easier for the lower class to move to the middle, the middle to the upper. As a result, the upper have to worka bit harder to stay where they are.

[Ugh]

Brett: It's really quite simple: Those 400 people didn't enjoy significantly more in services than any random 400 people. Why the heck should they pay more than any random 400 people?

Even granting your premise, how, exactly, are we to suss out what someone who made $263,000,000 enjoyed in government services? Presumably they made a good chunk of that cash by selling stock in a corporation, which itself certainly enjoyed a considerable amount of services, can I attribute those services to the individual? What value do we place on the services the individual would have received if, e.g., he/she had to go to court to enforce the stock option contract that provided him with the millions of dollars in gains in the first place? Etc. etc. etc.

[russell]

OK, it's time to run the voodoo down.

Yes, taxes in the US are moderately progressive. If you think they are more than moderately progressive, you need to look at any OECD nation other than us, and/or our own historical marginal rates.

We have a moderately progressive income tax.

Here is the argument for a progressive income tax:

You need money to run the normal operations of government. That money is raised through taxation. You need to find a way to allocate the taxes such that enough money is raised, and not too much pain is caused.

For poorer people, each dollar of tax levied is more likely to come from some essential item -- food, clothing, shelter. Ouch! Painful.

For richer people, each dollar of tax levied is more likely to come from some non-essential item -- luxury goods, vacations, etc. Not so painful.

So, you tax richer people at a somewhat higher rate.

Bonus points for anyone who knows where that argument first appears in modern economic literature. Hint: it isn't Karl Marx.

The reason we don't have very low taxes is because we have an expensive government. The reason we have an expensive government can be answered quite briefly:

Social Security
Medicaid
DOD and the GWOT
Debt service

Those items taken together are about 60% of the federal budget. Every other damned thing the government does, good bad or indifferent, is funded from the other 40%. Don't believe me, go look it up.

If you want a less expensive federal government, get rid of those things. Everything else is nibbling around the edges. To get rid of these things, you will have to convince a pretty solid majority of your fellow citizens that they, too, should want to get rid of those things.

That will be a very, very tough sell. The entitlements are very popular programs, and not because we are a nation of dependent weaklings. They're popular because they are useful, helpful programs. The DoD budget will be hard to cut because of the phenonemal number of people in this country who are, directly or indirectly, employed by the the defense industry, and because we're all afraid of the bad, bad Muslims who want to cut our throats in our sleep.

We can't cut debt service or the Chinese will turn out the lights.

So, if cutting the size of government is your goal, good luck to you.

If you don't want to, or cannot, get rid of those things, pony up. If can do so graciously, all the better. If not, you're gonna have to pony up nonetheless.

The only question -- the one and only question -- that is worth asking about DeMint's proposal is whether reallocating money from the government to private use via taxes will result in a greater stimulus to the economy that doing so through spending.

I believe that question has been answered, and the answer is "no".

[Eric Martin]

Bonus points for anyone who knows where that argument first appears in modern economic literature

Adam Smith.

Dirty Pinko that he was.

[GoodOleBoy]

Regardless of whether some conservatives are expressing themselves awkwardly regarding the need for a recession and why it is to be expected, some of the numbers do indicate we are in an environment not experienced before.

Since during the boom, savings rates in the US were negative (except in the eyes of those who thought their investment equity represented savings) when we went seriously into the downturn we had several groups. Those who had no savings could not spend a reserve to help them get through these hard times because they had no reserve. Those who have real cash savings and are unemployed are spending at a lower level. Those who are employed (whether they have real cash savings or not) are saving at a higher rate and spending less. This set of circumstances works against pulling out of the recession. It is the opposite of what has occurred historically because people in the past had reserves to spend when times got bad. So we need a stimulus.

[Nombrilisme Vide]

GOB:

The problem with anonymousinMA's argument is that progressivity in taxation is not commonly viewed in terms of what percentage of income a taxpayer keeps (since it is their money) but rather in terms of what percentage they pay.

Right, exactly! This is why few people bother applying for tax credits. After all, these aren't going to do one solitary thing to reduce the amount of taxes they owe, so why should they care? So what if they get to keep more of their income... the amount of taxes levied on that income hasn't changed hasn't changed!

[GoodOleBoy]

When we get through arguing about the relative effects of tax cuts and stimulus spending for job creation and jump-starting the economy and, I hope, get the economy going again, we will have a lessons learned session.

Those of us who had investment equity and liquid savings at the start of this downturn will probably have a less devastating experience on average than those of us who had neither or those of us who had investment equity but no liquid savings.

For more years than I can remember financial advisors have been lamenting the lack of savings ethic in the US to little avail. In fact, I know many people, mostly much younger than I, who 'had' substantial investment equity (real estate or other) before the start of the housing downtown, but don't have much now. If they still are gainfully employed, they may be getting by. If not, they are probably in the group that is really suffering.

These recessions generally must be experienced by those who will never accept the advice of people who actually have experience. This is one of the benefits of getting old.

[John Miller]

GOB: "So we need a stimulus." Hey we are actually agreeing on something.

GOB: "When we get through arguing about the relative effects of tax cuts and stimulus spending for job creation and jump-starting the economy"

The problem here is that nobody is arguing about the effects of tax cuts as a stimulus. Some have said tax cuts is the way to go, but I could just as effectively say "have everybody hold their breath for 5 minutes" is the way to go."

I still haven't seen one argument based on factual data that says tax cuts or rebates or credits is the better way to go. Arguments have been made, based upon factual data, icnluding from CBO, that spending is the better way to go.

Regarding savings, I agree. This country has always lagged behind other countries in personal savings. Okay, always is an exaggeration. But particularly in the past several years, with income having actually decreased, that has become even more of a problem. Providing some incentive for personal savings (as opposed to investing) who possibly help, once people actually have money to save. Some countries do not tax interest on personal savings. perhaps that would help.

I do not pretend to have an actual answer to that.

[cleek]

For more years than I can remember financial advisors have been lamenting the lack of savings ethic in the US to little avail.

our financial-planner-invested investments are down 35% over last year. it's not his fault, of course - my own self-directed 401k is down almost 50% (and i'm sure everybody else has similar numbers). still, i'm glad we declined to invest the cash we had sitting in CDs, as he asked us to. it's not much cash, but it's ever-so-slightly more cash today than it was a year ago.

about the only good thing to come from the stock market deflation is that it put a giant red stake through the heart of the GOP's privatized Social Security nonsense. hell, the current market makes even the 401k scheme look silly.

[Phil]

By the way, did everyone notice that Brett -- who, again, got his dudgeon all up when publius accused Republicans of acting in bad faith -- stated early on that "liberals hate private wealth," then was confronted with several extremely wealthy liberals who think their taxes should be a lot higher, so accused them of . . . arguing in bad faith?

[ThatLeftTurnInABQ]

Providing some incentive for personal savings (as opposed to investing) who possibly help, once people actually have money to save.

Maybe being able to earn a return on savings on the high side of 2 percent (rather than the low side) would give people a bigger incentive to save.

It is going to be very hard to create structural incentives to save so long as we have an economy where consumption is 70 percent of aggregate demand and our monetary policy is geared towards keeping that up. Until such time as we restructure our economy so consumption doesn't completely dominate GDP, the only thing which will encourage people to save is pure fear.

Also, regarding the whole tax rate debate, what russell said at 1:04pm

[GoodOleBoy]

ThatLeftTurninABQ,

Would you be arguing for a consumption tax instead of an income tax?

[KCinDC]

Well, the Democrats' earlier abject groveling to Lieberman was certainly worth it. On the stimulus, he's voting with them less than Snowe and Collins are, and this is a domestic issue not related to "homeland security" -- which means he's supposedly not outside the Democratic mainstream on it. Is the guy really planning to run for reelection?

[Lewis Carroll]

One of the main reasons that the savings rate in the US has been so miserable is that real wages for most of the population have been stagnant for the past 30 years while the typical consumer's costs for things like education, energy and health care have soared.

So setting aside the moral/ethical arguments for progressivity in the tax code, there is an important practical reason for some redistribution of wealth through taxation/government expenditure: it keeps the market economy functioning. The lower and middle classes not only don't have the money to save more, they don't have the money to consume more either, unless they go into huge debt, as they have been for the past 5-10 years. At least in the absence of labor law more tilted toward labor against management/capital they don't.

The deleterious effects of vast disparities in wealth are not limited to the occasional sense of injustice felt by the lower and middle classes. There are huge macroeconomic imbalances that result from huge wealth disparities in demand economies. Here is Marriner Eccles, FDR's Treasury Secretary, reflecting on what he saw as the cause of the Great Crash and Depression:

------------------------------------

"As mass production has to be
accompanied by mass consumption, mass consumption, in turn, implies a distribution of wealth -- not of existing wealth, but of wealth as it is currently produced -- to provide men with buying power equal to the amount of goods and services offered by the nation's economic machinery.

Instead of achieving that kind of distribution, a giant suction pump had by 1929-30 drawn into a few hands an increasing portion of currently produced wealth. This served them as capital accumulations. But by taking purchasing power out of the hands of mass consumers, the savers denied to themselves the kind of effective demand for their products that would justify a reinvestment of their capital accumulations in new plants. In consequence, as in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped.

That is what happened to us in the twenties. We sustained high levels of employment in that period with the aid of an exceptional expansion of debt outside of the banking system. This debt was provided by the large growth of business savings as well as savings by individuals, particularly in the upper-income groups where taxes were relatively low. Private debt outside of the banking system increased about fifty per cent. This debt, which was at high interest rates, largely took the form of mortgage debt on housing, office, and hotel structures, consumer installment debt, brokers' loans, and foreign debt. The stimulation to spend by debt-creation of this sort was short-lived and could not be counted on to sustain high levels of employment for long periods of time. Had there been a better distribution of the current income from the national product -- in other words, had there been less savings by business and the higher-income groups and more income in the lower groups -- we should have had far greater stability in our economy. Had the six billion dollars, for instance, that were loaned by corporations and wealthy individuals for stock-market speculation been distributed to the public as lower prices or higher wages and with less profits to the corporations and the well-to-do, it would have prevented or greatly moderated the economic collapse that began at the end of 1929.

The time came when there were no more poker chips to be loaned on credit. Debtors thereupon were forced to curtail their consumption in an effort to create a margin that could be applied to the reduction of outstanding debts. This naturally reduced the demand for goods of all kinds and brought on what seemed to be overproduction, but was in reality underconsumption when judged in terms of the real world instead of the money world. This, in turn, brought about a fall in prices and employment.

Unemployment further decreased the consumption of goods, which further increased unemployment, thus closing the circle in a continuing decline of prices. Earnings began to disappear, requiring economies of all kinds in the wages, salaries, and time of those employed. And thus again the vicious circle of deflation was closed until one third of the entire working population was unemployed, with our national income reduced by fifty per cent, and with the aggregate debt burden greater than ever before, not in dollars, but measured by current values and income that represented the ability to pay. Fixed charges, such as taxes, railroad and other utility rates, insurance and interest charges, clung close to the 1929 level and required such a portion of the national income to meet them that the amount left for consumption of goods was not sufficient to support the population.

This then, was my reading of what brought on the depression."

-----------------------------

It sounds plausible to me. It also sounds eerily similar to the conditions that have been developed over the past 20-30 years.

[cleek]

Lewis - great comment.

[ral]

Excuse me, I have to rant now.

The notion that taxes on wealthy individuals are too high and the way to avert an economic disaster is to decrease them further is insane. We have seen the result of a policy of low taxes on the wealthy and a laissez faire approach to economics and it is not pretty. Does anyone besides Dick Cheney even believe there actually was a "Bush boom"? 2005 was OK, not great. Now we are staring into the abyss. C'thrugman is eloquent on this subject and he is no longer a voice in the wilderness.

Bernard Yomtov: What I am hostile to is the creation of a hereditary aristocracy that has extremely low tax rates.

And what did they do with all that tax cut money? Create productive economic activity? No. People wanted guaranteed high returns with no risk. How did Bernie Madoff convince people to give him money to "invest?" Why did Wall Street invent "sure thing" derivatives that nobody understood but yielded great growth and big bonuses for the financial geniuses?

George W. Bush is the exemplar of this attitude, a man who never made an honest living in his life. He was proud of his ignorance, his C average, his failed businesses.

Except for destroying Social Security, President Bush and the GOP got every thing they asked for and we are now holding the bag.

[hairshirthedonist]

Second that on Lewis' comment. What seems to missing from the Math Wars is a discussion of what tax rates will actually work to prevent or mitigate the scenario described in Lewis' post. It's not that I personally hate wealth. It's that I think an over-concentration of wealth is bad for everyone because it's bad for the whole system. No one I've read here is advocating marginal rates approaching 100%, and certainly not exceeding 100%. That seems to be lost here. If you make more money, you still make more money. Why would wealth-haters advocate such a thing.

[hairshirthedonist]

And if I hated wealth so much, why would I waste my periods when I could use cheaper question marks.

[GoodOleBoy]

George W. Bush did stand up and tout the concept of an ownership society and he promoted the so-called American dream of home ownership, but, the fact is, most of what he did about this was talk. It took plenty of others to facilitate the process that led to the bubble in residential real estate, which fed the credit cycle, that then burst and started this meltdown.

We can make a list, and name names, and it will include people of all political persuasions and all walks of life. Anyone posting here will probably not have to stray far from their workplace or home neighborhood to find examples of the behaviors that got us where we are.

[rook]

I'm seriously trying to figure out how one goes from real life experiences and arrives at this view of 'fair'?

d'd'd'dave, your scenario doesn't match the situation at hand, but others have addressed that. And russell did a nice job above of explaining the practicality of a progressive system. You're wondering how I came to believe that it could be fair for the haves to provide for the have-nots, based on personal experience.

Well, in MY life, when I was a child and couldn't provide for myself, my parents provided for me. Everyone who survived infancy experienced that horribly unfair scenario. If you want an adult monetary example, when I was in college I got Pell Grants -- that money was WAY more valuable to me then than it is now. Then, it was tuition so I could get an education -- now it'd be a nicer TV or more savings.

Regarding the math, both sides are right. But the move would be regressive because you're cutting more tax dollars for the rich than for the poor. The remaining set of tax rates is still progressive (arguably more so, as the ratio of income taxes paid by the rich will increase), but the CUT is regressive. As I said before, think in terms of dollars - John the Dishwasher will save about $1,000 while ARod saves at least $2,000,000.

[Eric Martin]

George W. Bush did stand up and tout the concept of an ownership society and he promoted the so-called American dream of home ownership, but, the fact is, most of what he did about this was talk. It took plenty of others to facilitate the process that led to the bubble in residential real estate, which fed the credit cycle, that then burst and started this meltdown.

This is not really an accurate accounting of recent history.

The problem was not people seeking to facilitate home ownership. Some questionable loans were made to people without the means to pay for them, but they were a small fraction of the foreclosures.

Further, the real meltdown came from credit default swaps, CDOs and other forms of securitization of mortgages that had almost zero to do with promoting an ownership society and everything to do with making a quick buck on the back of a reckless scheme that soon became a frenzy.

[GoodOleBoy]

Come now, Eric. Just what is it that makes a mortgage backed security trading in the marketplace lose its value?

[GoodOleBoy]

Eric,

I can agree with you in this way. If secondary mortgage market facilitators like Fannie Mae and Freddie Mac had not accepted high risk mortgages and then packaged them into mortgage-backed bonds, which then became instruments the speculators on Wall Street could go crazy with, then we might not have this big of a meltdown.

When a local mortgage lender makes a high risk residential loan, whether that lender is a mortgage broker, mortgage banker, or a depositary institution, if they are not able to sell it at close to par because of the high risk, then they will not be able to repeat this behavior over and over.

[Eric Martin]

Come now, GOB, the impact of foreclosures would be mildly painful but really just a hiccup were it not for the $600 trillion (yes, that's the actual dollar amount) in mortgage backed securities obligations that are floating about the marketplace.

$600 trillion.

And, no, Bush's ownership society gimmik had zero to do with the decision to securitize them. That was the glimmer of fools gold to a whole bunch of bankers.

And, also completely unrelated to Bush's ownership shtick, the ratings agencies decided to give a whole bunch of the worst of that lot AAA ratings. And then take the worst of the newly classified junk and give THAT AAA ratings.

So, basically, no.

The pain from some mortgage defaults would be really just a drop in the ocean ($1.2 trillion for the lot of em). A standard, cyclical economic event. Painful, sure, but not cataclysmic.

It's that $600 trillion that's got the whole world's attention. The one that threatens a global depression.

(PS: The vast majority of mortgage's that have been defaulted on are held by middle class and wealthier homeowners, not the putative targets of the ownership society, but those already "in the own," so to speak.)

[ScentOfViolets]

I probably shouldn't respond/engage, but:

d'd'd'dave said:

"The rates now are 10%, 15%, 25%, 28%, 33%, and 35%. DeMint's proposal would change them to 0%, 5%, 15%, 18%, 23%, and 25%. The lower brackets get the greatest proportionate decrease.

If you plot these on a curve you will see that the second set of rates rises more steeply."

Really?? While there are certainly non-euclidean geometries where this may be true, for most of us, adding an offset doesn't change the slope of a curve. It, surprisingly, just adds an offset.

Posted by: AnonymousInMa

And Dave reveals his fundamental innumeracy; from his phrasing, it's clear that he's confusing rates with changes in rates. Yes, it's true that there is a relationship between velocity, which is a rate, and acceleration, which is a change in rate. But in general, the velocity of an object doesn't really have much of anything to do with it's acceleration. You can have high velocity and low acceleration, low velocity and high acceleration (think of a=v^2/r), or any combination and anything in between.

Dave, stop trying to lay a charge of innumeracy on others. It makes you look like an idiot - as AnonymousInMA has already demonstrated with his comment about 'offsets' (y-intercepts). Oh, I teach at UMC, btw, if it makes a difference.

[Eric Martin]

GOB: The Freddie and Fannie loans are only a small part of even the foreclosure story - let alone the securities behemoth.

Your perspective is skewed.

[hairshirthedonist]

Just what is it that makes a mortgage backed security trading in the marketplace lose its value?

Anything traded on a market can be subject to a bubble. People buy because the prices are rising or the returns are good. Sometimes the prices are rising and the returns are good because people are buying. It's not a Ponzi scheme, but it works sort of the same way. The tulip bulb bubble didn't pop because people defaulted on their mortgages, if you're implying something of that sort about the current problems we're having, which go beyond the housing market, anyway. Moral hazard, speculation, over-leveraging, complex derivates and probably lots of other stuff I can't think of off the top of my head fed this whole thing. There's a reason people aggressively pushed bad loans on people who wouldn't be able to pay them off. You can blame the borrowers all you like, but no one put a gun to the lenderss heads, either. And they're the ones who are supposed to be the experts on loaning people money, not the borrowers.