The New Class Envy (Part Deux)

By Pejman Yousefzadeh Posted in | Comments (59) / Email this page » / Leave a comment »

Of course, part and parcel of the new class envy evinced by Kevin Drum in the post below is the belief that since there are so many supposedly undeserving beneficiaries of a so-called new "Gilded Age," something must be done to bring about some semblance of financial equality and economic justice. And that something, naturellement, involves raising taxes on the rich.

To make them pay their "fair share," you understand.

Thank Heavens for Greg Mankiw, who tears this meme apart:

The best source for objective data on the distribution of the tax burden is the Congressional Budget Office. The C.B.O. goes beyond anecdotes and bald assertions to provide hard data on who pays taxes. One can argue about the details of its methods, but there is no doubt that it is nonpartisan and that its tax analysts are some of the best in the business.

The C.B.O.'s most recent calculations of federal tax rates show a highly progressive system. (The numbers are based on 2004 data, but the tax code has not changed much since then.) The poorest fifth of the population, with average annual income of $15,400, pays only 4.5 percent of its income in federal taxes. The middle fifth, with income of $56,200, pays 13.9 percent. And the top fifth, with income of $207,200, pays 25.1 percent.

At the very top of the income distribution, the C.B.O. reports even higher tax rates. The richest 1 percent has average income of $1,259,700 and forks over 31.1 percent of its income to the federal government.

So the top fifth and the top 1% are responsible for over 56% of the nation's tax revenue. Never mind this sentence. I misread. My bad.

"But Warren Buffett complains that his taxes are too low," you exclaim as an argument in favor of higher taxes on the rich. Well, there is a reason for his taxes being low. Here it is.

Read on . . .

One might wonder how Mr. Buffett gets away with a tax rate of only 17.7 percent, while a typical millionaire is paying so much more. Most likely, part of the answer is that Mr. Buffett's income is made up largely of dividends and capital gains, which are taxed at only 15 percent. By contrast, many other top earners pay the maximum ordinary income tax rate of 35 percent on their salaries, bonuses and business income.

The distinction is crucial for understanding how much the rich pay. Indeed, the share of top incomes coming from capital is much lower now than it has been historically. According to Emmanuel Saez, an economist at the University of California, Berkeley, for the richest Americans -- those in the top 0.01 percent of the distribution -- the percentage of income derived from capital fell to 25 percent in 2004 from 70 percent in 1929.

[. . .]

Another piece of the puzzle is that Mr. Buffett's tax burden is larger than it first appears, because he is a major shareholder in Berkshire Hathaway.

When the C.B.O. studies the tax burden, it includes all federal taxes, including individual income taxes, payroll taxes and corporate income taxes. In its analysis, payroll taxes are borne by workers, and corporate taxes by the owners of capital. For the richest 1 percent of the population, 9.3 percentage points of their 31.1 percent tax rate comes from the taxes that corporations have paid on their behalf. The corporate tax would undoubtedly loom large if the C.B.O. were to calculate Mr. Buffett's effective tax rate.

And finally, a passage that if read by fair-minded people, should go a long way towards demolishing the idea of the "undeserving rich" that makes up so much of the new class envy:

. . . the share of top incomes coming from capital is much lower now than it has been historically. According to Emmanuel Saez, an economist at the University of California, Berkeley, for the richest Americans -- those in the top 0.01 percent of the distribution -- the percentage of income derived from capital fell to 25 percent in 2004 from 70 percent in 1929.

If your image of the typical rich person is someone who collects interest and dividend checks and spends long afternoons relaxing on his yacht, you are decades out of date. The leisure class has been replaced by the working rich.

"A--holes," huh? Whatever.

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Capital gains, dividends, interest income don't have an extra 7% social security tax(14% for small business owners) to pay for.
Warren Buffet doesn't pay any more in texes than he has to--he has very expensive and tax deductible lawyers/accountants to see to that. I am sure his inheritable dollars and charitable inheritance will be structured in such a way as to avoid paying any unnecessary "death"taxes.

His children sit on the boards of several charitable entities, their pay is derived from the charity and is in the six figure range for each. It is easy to identify which kid works on which board, because each charitable entity is named after one of his kids, who sits on the board of it.

Basically, he took some favorable tax treatment in life to set up a charity with enough money that his kids will collect very nice pay checks for the rest of their lives.

If you're rich enough to endow chairs, you can give plenty to your kids tax free, however if you're in that wealthy class short of endowing chairs, your kids get a tax bill.

"So the top fifth and the top 1% are responsible for over 56% of the nation's tax revenue."

Where is that number coming from? It doesn't say this in the linked article.

-jb

Your 56% number is nonsensical. You are confusing effective tax rates with shares of total tax burden. The figures you are citing represent the share of each group's income that they pay in taxes, not their share of total taxes paid.

And I corrected the error. Thanks for pointing this out.

"At times one remains faithful to a cause only because its opponents do not cease to be insipid." --Friedrich Nietzsche

Total share of all income taxes paid. (*)

Top 1% -- 36.89%
Top 5% -- 53.25%
Top 10% - 64.89%
Top 25% - 84.60%
Top 50% - 96.70%

h/t - Rush - (membership required)

(*) - Calculated from these IRS tables.

***

“Well, the trouble with our liberal friends is not that they are ignorant, but that they know so much that isn't so.” – Ronald Reagan

Source: http://www.allegromedia.com/sugi/taxes/#Head-1.htm

50% of us pay all the income taxes. 5% of us pay 50% of the income taxes.

It's such a fine line between stupid and clever. - David St. Hubbins

Yes, as Pejman says, Thank Heavens for Greg Mankiw. Let’s also listen to Mankiw when he says the following, so we can stop repeating the talking points baloney about the Bush tax cuts causing the higher revenues and start acknowledging that they have had – and will likely have if extended – a substantial negative effect on revenues.
Gregory Mankiw, former Chairman of George W. Bush’s Council of Economic Advisors. Economics professor at Harvard:
”In the long run, about 17 percent of a cut in labor taxes is recouped through higher economic growth. The comparable figure for a cut in capital taxes is about 50 percent.
… The consensus view is that tax cuts indeed influence national income, but not to the extent that they are fully self-financing.”

http://www.nber.org/digest/jul05/w11000.html

"Let me be perfectly clear here. Tax reductions are generally not self-financing. In the vast majority of cases, the behavioral responses to changes in tax rates just are not high enough to yield that result.http://63.161.169.137/cea/NPressClub20031104.html

Some might say I’m beating a dead horse on this one, but the thing is, the horse ain’t dead. I think in the other threads in which I documented the strong consensus among economists on this point, only one fellow RedStater abandoned the myth that the Bush tax cuts – and ALL tax cuts every time, as many contended – generate higher revenues than would otherwise be received. As I’ve said, there may be legitimate arguments for extending the Bush tax cuts, but higher revenues is NOT one of them.

I realize this comment is a bit tangential -- forgive any quasi-threadjack (I don't intend to debate the point yet again here) -- but my point is that if Mankiw is an economist whose views we should take very seriously (and he certainly IS), we should do so when he delivers unpleasant truths as well.

...back in the barn. Thank you for playing.

-----------
We are all heroes, you and Boo and I. Hamsters and rangers everywhere, rejoice!

Oh yeah...


____
CongressCritter™: Never have so few felt like they were owed so much by so many for so little.

I know I shouldn't respond to a threadjack, but since when is the maximization of government revenue the goal of tax policy? What about the fact that tax reductions cause an expansion of the economy, and result in non-government benefits to a much larger segment of the society?
______________________________________________
"You can't save the Earth unless you're willing to make other people sacrifice" - Scott Adams (speaking through Dogbert)

Straw man alert. I never said or implied that maximization of government revenue should be the goal of tax policy, and that is not my view. I don't want to continue with this topic on this thread, but please don't misrepresent what I said.

When it comes to sin taxes - in particular on cigarettes - the goal of some government entities is more to maximize the taxes collected than it is to minimize the "sinning".

. . . of the government.

The question at issue is whether it should be the goal of the citzenry.

Next 93 said it should not be; and BrooksRob said he had never said it should be. (He had not actually been accused of this, strictly speaking).

Brooks, in order not to prolong the threadjack, why don't you write a blog saying what you think the goal of tax policy *should* be?

It might be something worth exploring. Especially as you are right that some people assume cuts in the tax rate will always and everywhere be self-financing, which is not actually so.

Quentin Langley
Editor of http://www.quentinlangley.net

International Editor of

Thanks for the suggestion re: post.
(As for Next93, his rhetorical question made a clear implication, in effect accusing me of having that position)

Or maybe he was just making a point.

Never forget that in a blog you don't see someone's facial expressions or hear their tone of voice. You do have a habit of jumping to that 'straw man' allegation when it may not be what was meant. It can be irritating. It's irritated me once or twice.

Quentin Langley
Editor of http://www.quentinlangley.net

International Editor of

Quentin, let's apply some common sense here. In response to my comment, Next93 asked rhetorically "I know I shouldn't respond to a threadjack, but since when is the maximization of government revenue the goal of tax policy?" If you don't think that's a clear implication that I was saying that maximization of government revenue should be the goal of tax policy, then I really don't know what to tell you. It was indeed his implication, and it was indeed a straw man.

Sorry I didn't clear this up earlier, I was having computer problems.

What I was pointing out was that justifying tax cuts based solely on whether they "pay for thenselves" only makes sense if the problem you're trying to solve is maximization of government revenue.

How exactly should I have interpreted that?

______________________________________
"You can't save the Earth unless you're willing to make other people sacrifice" - Scott Adams (speaking through Dogbert)

Thanks. I wasn't saying or implying (nor have I ever) that tax cuts should be justified or not "based solely on whether they 'pay for thenselves'", nor that maximization of revenue should be the objective. My point is simply that, as we decide what tax rates should be (e.g., whether or not to extend some or all of the Bush tax cuts), we should not do so based on false assumptions. There is a widespread myth that these tax cuts have a positive net impact on revenues, and we need to dispense with that myth. Everyone from the Heritage Foundation to the Brookings Institution and in between agrees that we are facing a fiscal meltdown in a decade or two due to the retiring baby-boomers unless we change policy now by substantially cutting current spending and promised entitlement benefits and/or raising taxes. How much of each we should do is a matter of political debate over societal priorities and economics, but should be based on realistic assumptions, not feel-good, have-our-cake-and-eat-it-too assumptions. If you want more information, please email me so I don't have to reply on this thread.

Oh please! Not another person who thinks correlation among a few conveniently selected data points constitutes causation! Listen, I really do not wish to continue with this topic on this thread. To anyone who has questions or disagreement with anything I've said here, please email me and I'll be glad to provide useful information.

and no one can make you check other sources if you don't want to, but there are plenty.

lesterblog.blogspot.com

Email me if you wish to be educated on this issue. No more discussion on this thread, please.

If, by lowering tax rates, we increase tax revenues, it also means that, since we lowered the tax rates, the economy is growing at a faster pace yet and that government spending comprises a smaller and smaller part of GDP, thereby reducing the influence of government on the economy. Saying that lowering taxes is bad because it raises government revenue in nominal terms is like saying that our current economic distribution of wealth is bad because the bottom make up less and less of a share of GDP in percentage terms, when they end up making more and more money in real dollar terms.

"The world is filled with violence. Because criminals carry guns, we decent, law-abiding citizens should also have guns. Otherwise they will win and the decent people will lose." - James Earl Jones

You seem to be confused on a number of points. I don't want to continue with this topic on this thread, so if you want me to explain, please email me.

My apologies.

"The world is filled with violence. Because criminals carry guns, we decent, law-abiding citizens should also have guns. Otherwise they will win and the decent people will lose." - James Earl Jones

thanks, no problem.

The main issue is income fairness, not tax fairness.

You think it's unfair that guys like Buffet (and others) make a lot of money compared to the rest of the country? I'll hold back on my ridicule until I'm certain that's your implication...

For all the arguments about the evils of income disparity, I wonder whether any of them addresses the simple fact that different people command different income because they provide different amounts of value to the market. Before you can argue that income inequality is problematic, you have to acknowledge that this means inequality of productivity is problematic- but is it?

There's nothing evil about someone investing a third of their working income and being paid in return. This behavior will result in vastly greater lifetime wealth, and there's nothing evil about that at all. There's nothing evil about working hard, lucking out, taking risks, and reaping the rewards thereof.

No, the evil happens in the hearts of those who say it's evil for different people to have different amounts of wealth.

In a free society, where people make different decisions based on different priorities, the statistical results will be a wide range of financial outcomes. Do we value freedom, or do we value equality more? ...because the only way to enforce equality involves abrogating absolutely the economic freedom of those who are the most productive.

Who said anything about good and evil? Who said anything about making incomes equal? Who said there isn't always going to be persons with different amounts of wealth in any society? The issue is the DEGREE!

If you look at the income inequality (GINI) indices for various countries, you will see that there is little correlation between income disparity and freedom. Some democratic countries have much more income equality than us. Do you want us to be like a Latin American banana republic? They have more income disparity.

You are talking about is economic mobility, not the degree of income inequality/disparity.

I'd say it is pretty simple. People freely pay for services and products in a market. A great many people really enjoy consuming the contributions of Paul McCartney and Tiger Woods. Maybe you consider them trivial. So do I. So what? It ain't my money.

So why is this an issue? You have a problem with people buying the goods and services they want at market prices? I am disappointed in you. I don't have a problem with that.

I do have a problem with every system that has ever been devised to address this non-problem. They all make things worse.

You also really need to take accout of the fact that income is only tangentially related to standard of living. Sounds hard to credit, I know. But the evidence is pretty clear. Income is only ever measured year by year. So who are the 'poorest' people in America, measured by income? Welfare queens in the projects? Nope. Mostly entrepreneurs whose businesses lost money last year.

The poorest man who ever lived? That would be publisher/fraudster Robert Maxwell. His income was minus $3 billion in the last year of his life. Then he died by falling off his yacht. That's right, the poorest man who ever lived had a yacht. And a couple of helicopters.

It is easy to think that people like Robert Maxwell are an aberration. That's true, but only in scale. A few years ago research in Britain showed that half the people in the poorest 10% by income had above average levels of consumption. Most of the people in the bottom 10% are simply not poor. They are rich people having one bad year. Sometimes, they are having one bad year purely for tax purposes.

Even if you measure standards of living by consumption rather than income, you will still get distorted answers. I don't suppose Robert Maxwell bought any new yachts or helicopters in the last year of his life. But his standard of living was still enhanced by the ones he had bought in earlier years.

So my advice is, stop worrying about this problem. Partly because it is not a problem, and partly because we could not even measure it, let alone solve it, even if it were.

Quentin Langley
Editor of http://www.quentinlangley.net

International Editor of

I refer you to Alan Greenspan, hardly a raving leftist, who has stated that increasing income disparity is endangering our democractic society. I don't think Warren Buffet disagrees.

before moving forward with "income fairness"

Here's a start: http://www.mises.org/etexts/Soc&Cap.pdf

The extent of income inequality has nothing to do with the economic system. There is more income inequality in Russia than the U.S.

Wikipedia quotes a survey of 1, 000 U.S. economists in 2004 which states a majority was concerned about income inequality and favored some sort of income redistribution. Were most of these economists, socialists?

Another study showed that the share of income held by the top one percent didn't change between 1928 and 2005. In otherwords, the gains in the 60s and 70s of working or lower middle class persons were erased.

If the lower 50 percent of the income mean pays negligible federal income taxes, what effect do you think that will have on voting patterns? If I don't pay taxes, what do I care about the amount of government spending? Somebody else pays for it. This is the danger of income inequality and having the wealthy pay a large percentage of the taxes. If I am economically mobile, and I might be paying more of these taxes, I am going to be more concerned about the creepiing welfare state

which is but a step along the way to full-blown socialism. Perhaps you can go back to TheSourceofAllHumanKnowledge™ (ie. Wikipedia) and read up on that one also.

Those who advocate income redistribution do indeed adhere to socialist ideals. That's what socialism is all about - robbing from the rich and giving to the poor. The difference between the two (socialism and social democracy) is the degree to which they support it and how much governmental "intervention" is required to force that distribution. In fact, the USA already adheres to some social democrat ideals.

If you're so concerned about what the voting patterns are for those at the bottom of the income scale, what do you think will happen to the voting patterns of those at the top of the scale once the politicians start robbing them blind, all in the name of "income redistribution?" Don't you think that raping them with jacked-up income tax rates might just tick them off a little bit? The fact that you have Buffet begging to have his money "redistributed" hardly reflects a consensus.

harder and smarter to catch up. Otherwise we shouldn't allow them to vote and threaten our democratic society.

Envisioning when all that is Left is the Right.

Democracy requires majority rule. What happens if the the top 1-5 percent can make more and more money relative to everybody else. If the majority of voters make less money and pay less taxes, what do they care about the welfare state? It's not their problem. Under these circumstances, we become more, not less, socialistic, or we have money instead of votes run the country.

That is the weakness when the majority becomes uneducated, ignorant, lazy, immoral drones whose only enlightenment is that they can vote themselves benefits from the public purse.

But, I don't think I am the first to say this.

Envisioning when all that is Left is the Right.

... "A democracy cannot work when the majority of people are fools."

And then there's Twain: "Anyone who robs Peter to pay Paul will always have the support of Paul."

Economic theory (namely the Second Fundamental Theory of Welfare Economics) says that an allocation of resources from the laissez-faire model can still be Pareto efficient (something I'd argue with just due to the short-run multiplier effect of investment, something which a wealthier person has a greater propensity to do with marginal income than a poorer person, who will just increase consumption), but that it's not the place of an economist to say which efficient distribution is best (but rather, if society's objectives are to establish a certain level of welfare, how they could go about doing so). That being said, even if we were to be pursuing our current societal economic welfare goals, we need to re-examine our transfer mechanisms in government to make sure we properly target recipients and are able to make transfers efficiently...

"The world is filled with violence. Because criminals carry guns, we decent, law-abiding citizens should also have guns. Otherwise they will win and the decent people will lose." - James Earl Jones

could threaten our society. But given that those in relative poverty today live better than the average middle class European today and the average American in the 1960's, one would be hard pressed to justify envy (which in all cases is a deadly sin in all events) and anger today. I do think that we could and should pusue policies that would raise the income of those in lower income households. Those policies would need to address out of wedlock births; lack of stable marriages that keep fathers in the home, and educational choice.

But, income disparity alone does not threaten the society. How its responded to could.

Mike Gamecock DeVine @ The Charlotte Observer
www.race42008.com
www.hinzsightreport.com
www.theminorityreportblog.com
"One man with courage makes a majority" - Andrew Jackson

A don't-[over]tax-the-rich Republican was once a loyal Democrat
MIKE DEVINE
Special to the Observer
"They ought to pay more taxes."

Not one day has passed in my lifetime when I couldn't elicit the above statement from most Democrats with respect to "the rich."

No matter how "rich" is defined and no matter the tax rate being assessed at any particular time; that they "ought" to pay more best defines what the Democratic Party stands for. Despite our booming economy and shrinking federal budget deficit, Charlotte's own Rep. Mel Watt, D-N.C., and most of his Democratic colleagues in D.C. are working hard to get taxes raised as fast as they can.

Seduced young

Liberals claim to care more about the poor and define caring more as being in favor of having the "lucky" well-to-do pay more taxes so the government can more equally distribute the wealth to the losers of life's lottery.As a young Democratic activist, I was seduced by their siren song of moral superiority. But I also saw the effect of high tax policies in the 1970s on America's prosperity, especially lower-income Americans. Inflation reduced their wealth and made home ownership impossible.

Then, this Democratic activist got a formal college economics and real-world Reagan education, despite my party's membership requirement that I loathe The Gipper. I grudgingly came to love his policies and the man.

You see, Ronald Reagan lowered taxes on the rich and everyone else. The rest is world economic history. We still live in a Reagan-inaugurated recovery (only slightly interrupted twice for short periods) in which -- for minorities and everyone -- the American Dream-defining home ownership is at an all-time high.

My former party continued to advocate high taxes in spite of the evidence. Donkeys are stubborn.

Elephants never forget. My memory brain cells function. I became an elephant.

The evidence is in

President Reagan, under siege for his heartless Scrooge policies in 1982 by the Democrats, answered their class warfare attacks:

"Now, where do some of these attacks originate? They're coming from the very people whose past policies, all done in the name of compassion, brought us the current recession. Their policies drove up inflation and interest rates, and their policies stifled incentive, creativity, and halted the movement of the poor up the economic ladder. Some of their criticism is perfectly sincere ... .

"Since when do we in America believe that our society is made up of two diametrically opposed classes -- one rich, one poor -- both in a permanent state of conflict and neither able to get ahead except at the expense of the other? Since when do we in America accept this alien and discredited theory of social and class warfare? Since when do we in America endorse the politics of envy and division?"

Twenty-five years later, the evidence is in.

Given the history of economic growth and increased tax revenues from lower tax rates, first from JFK and then from Reagan through George W. Bush, one is hard-pressed to conclude that nothing other than pure, unadulterated envy motivates liberals' preference for higher taxes.

That Mel Watt's party rarely meets a tax hike it doesn't love, despite the evidence that tax increases hurt the poor they purport to care so much about, forces one to explore other possible motives.

Liberals appear to care more about being seen as having a caring heart for the downtrodden than having the downtrodden cease to be downtrodden.

But a verse in the book of Proverbs suggests that the liberals have a much deeper problem: "A sound heart is the life of the flesh: but envy the rottenness of the bones."

I left the party in 2001 due in no small part to this rottenness. I could no longer abide the envy-inspired class warfare policies of liberals that slandered the low-tax conservative policies that result in more employed Americans sheltered in homes they own.

My conclusion

This middle-class son of a railroad carman was cured of class envy when I practiced law with the son of a well-to-do doctor in my hometown. Watching that rich son work harder than me as he struggled with health problems healed my bones and opened my heart to all of God's children, including the rich.

Envy-free, I was left with irrefutable evidence of which policies worked best to allow Americans to pursue and achieve happiness. Given that evidence, I came to a conclusion.

They ought to pay less in taxes.

Mike Gamecock DeVine @ The Charlotte Observer

Mike Gamecock DeVine @ The Charlotte Observer
www.race42008.com
www.hinzsightreport.com
www.theminorityreportblog.com
"One man with courage makes a majority" - Andrew Jackson

Reagan decried John Edwards' "Two Americas" speech 25 years before Edwards gave it.

I'd like to take a quick poke at one of those things that irritates the poot out of me.

The "rich" don't pay hardly any income taxes, ever. Once people are "rich" they can structure their assets and income to avoid giving it to the gov't. At the same time, they are usually the same sorry #$%@#$ who are advocating raising my taxes.

On the other hand, hubby and I are still busting our humps trying to get kids raised, a house paid for, and bills paid. Yet because we make plain old earned income, we take it up the wazoo.

Just another case of rich liberals making rules they don't live by.

I meant what I said and I said what I meant. An elephant's faithful 100 percent.

if he isn't already doing so. There is no law against giving more than your required tax payment, the surprise is that the people who claim the government needs more money fail to volunteer more of their own.

Buffet has been singing this song for years, give Warren, give!

P S I'm still trying to figure out why if someone is making more than me I should be less interested in an entity that is everywhere in our lives, dafedralguvmint. Should I take solace in the fact that my income is closer to the top 3% and not worry about the 1%? Should I put blinders on and think only of the welfare state, as someone does above, and ignore all the other issues? What precisely is the equation that dulls my senses as to both my responsibility and my interests and concerns?

Maybe another coffee will shed some light.

"a man's admiration for absolute government is proportinate to the contempt he feels for those around him". Tocqueville

In Minnesota a year or two ago, a group of 400 VERY wealthy Minnesotans took out a full page ad in the Star and Sickle (oops - "Star Tribune") asking the governor to raise thier taxes. This was in the middle of a big political battle between the Democrats in the State House and a governor who'd campaigned on a "no new taxes" platform.

The governor's response was to have the Minnesota Department of Revenue create a special fund that people could pay into if they felt they were being taxed too little.
______________________________
"You can't save the Earth unless you're willing to make other people sacrifice" - Scott Adams (speaking through Dogbert)

I've seen that sentiment expressed several times in this thread, and I think it's true for the most part. But it's not an absolute, else how do you explain that the Kennedy Klan clan are all millionaires and yet none of them has contributed squat of any value to society for the past 40 years?

...not generating much income.

Municipal bond coupons, etc.

It's such a fine line between stupid and clever. - David St. Hubbins

There are numerous routes, most of them criminal and/or involving sucking taxpayers money out of the government.

For example, when the government bans a product for which there is premium demand, very high profits can be made supplying it. This is true today with cocaine and heroin, and was true in the 1920s for alcohol. This was the source of a good deal of the Kennedy wealth, as far as we can gather.

Another example of parastic income would be Ponzi schemes which, as you know, are illegal except when run by the federal government.

Selling legal services - which many Kennedys do - can be either parasitic or non-parastic.

Then there is the fact that if you inherit large ill-gotten gains, you can invest them. It doesn't take any real talent to turn hundreds of millions into thousands of millions over a few decades. Just get the professionals to invest it for you. This means that Kennedys can earn vast amounts of money, quite legitimately, without having any talent at all. This is real value supplying income, too. Providing money to invest in entrepreneurship is very valuable. It is one way in which the idiot sons and grandsons of entrepreneurs can make themselves useful.

Quentin Langley
Editor of http://www.quentinlangley.net

International Editor of

If the extremely rich consider their tax treatment to be unfair, they just opt out of the system. They hire accountants and lawyers, and failing that, they move. (Just ask the Beatles, ca. 1970.)

We tried a (more) highly progressive tax system once upon a time. The top marginal rate was 70%. The problem was that the effort of the entrepreneurial class was more focused on tax avoidance (via shelters) versus true value-creating economic activity.

Some guy named Reagan changed all that.

It's such a fine line between stupid and clever. - David St. Hubbins

and Bill Gates at 100% would not solve the problems of poverty in any tangible way. While it is often true that the rich get richer and the poor get poorer, the reason that it's true is because the both groups tend to continue the behaviors that got them that way in the first place. This Robin Hood stuff sounds terribly romantic, but it simply doesn't work in real life. Meanwhile, you're punishing the real achievers in our society for no other reason than that they are successful.

Cheers,
Scott in Indy

Yes, Pejman, you are right, as far as it goes. But is it really unreasonable for an American to be concerned when the wealth gap between the top 1 percent and the bottom 50 percent continues to grow? Do you not think that there could be some other valid reason for this concern than envy?

The two purposes of the national economy ultimately should be to provide a generally rising standard of living for the great American middle class plus opportunity for individual enterprise and financial self-improvement. I think that some of us confuse these purposes with the false proposition that whatever end the free market reaches must ipso facto be good. The U.S. economy still provides solid opportunity for individual enterprise, and our ordinary workers still remain among the richest in the world, but some of us sense that the economy begins to tilt toward benefitting the richest to the long-term detriment of the middle class. Such an outcome is not impossible. I think that it is actually happening to some degree.

There is nothing in laissez-faire to guarantee a fair or desirable economic outcome. When laissez-faire happens to produce such an outcome, great; but when it does not, it does not. I think that we need to be more open-minded about this.

RedState is pretty one-dimensional on the topic; especially in the articles you yourself personally author. I recommend that your readers click here for the countervailing conservative point of view, which really does not get an adequate hearing on RedState in my opinion.

The implicit function of progressive taxation is partially to correct a perceived inequity in the outsized rewards our marvellous economy concentrates in the hands of a hard-working but also very lucky few. This is not necessarily a bad aim; and, Pejman, I do not think that it has anything to do with envy.

the link that is. Godawful, so we will favor some citizens over others through a tax better know as a tariff, a tax passed on without benefit to millions of citizens without enough pull to get their own favorite tax dumped on the heads of other citizens. We will then see tariffs raised on our exports and with a bit of luck will return to Smoot-Hawley, the good old days.

We will play this game "to correct a perceived inequity",{your post], thereby removing inequity from mere perception to hard economic reality. I'm not sure I like this.

A national economy in a reasonably free society is not a zero-sum game, the less interference from the obnoxious hand of government, the less likely one persons increase in wealth come at a loss to another. Unlike your link.

Your phrase "benefiting the rich to the long term benefit of the middle class" is the following; unfortunate, untrue, economically vacuous, lends itself to demagogy, and if not envious to and for you, an article of faith to envious millions of others.

Neither you nor I became poorer as the tax code complainer Warren Buffet became richer. And unless on the gravy train of politics neither you nor I will benefit from the hidden tax known as tariffs.

The additional benefit of free trade is that it is free, the actions of free people, both business men and consumers, it is therefore a moral component, a ground for both choice and prosperity, and a bulwark against the sellers and beneficiaries of pull, power, and corruption.

I must sign off for now as other arguments await me on the Internet.

"a man's admiration for absolute government is proportinate to the contempt he feels for those around him". Tocqueville

Thanks for your reply. However, the spirit of the discussion here seems to be that there were only one legitimate side to the question. I do not think that that is right. If there is only one side, then why even bother having the discussion?

Regarding tariffs, I respect your point of view but admit that I feel that the link you don't approve of gives a more balanced perspective. One point made there is that the funds to operate the federal government must come out of the substance of the taxpayer, one way or the other. It is not immediately obvious to me that an income tax is a better way to do this than a tariff---especially since tariffs seemed to work so well as a principal federal revenue source for most of U.S. history (before you dispute this claim, please do your homework).

Regarding Smoot-Hawley, you might re-check your dates. Smoot-Hawley came after the market crash, not before. The canard that Smoot-Hawley caused the Great Depression was recycled as an excuse by Stalinist U.S. academics when the brief recovery of 1934 didn't turn out the way they predicted in 1935. Conservatives should not be caught unwittingly perpetuating such propaganda. Many things about the 1930s differed from anything that had ever happened before, but Smoot-Hawley simply was not one of them.

however if you reread my post you will not discover that I attribute the depression to Smoot_Hawley, therefore no need to check dates or reject canards. I will assert and with other historical references that tariff walls hurt an economy, as S-M hurt and contributed to a continuation of the depression.

Having completed the homework assignment that you suggested, it required about three seconds worth of thought, I ascertained a few different things: a] for that "most of U S history" that your pedagogic insight refers to we didn't have an income tax. Where or when we did it was nowhere near the levels we have now. From this I conclude that tariffs, used as protectionism, combined with sizeable income tax rates, need I add other taxes, are a tad different from what you suggest and both politically and economically detrimental.

b] It is evident to me, if not you, that an income tax does not lend itself to the special pleading of a tariff. This is not to say that an income tax cannot be politicized, only that tariffs are more prone to favor begging and what that entails.

c] Again going back to "most of U S history", given the size of the American federal government and the more active roles of the states a lower tax base was sufficient. The tariffs supplied that base and so there was a legitimate revenue reason for their existence. Just what does that have to do with your first post and link ?

As to the link, it was the "balanced perspective" as you call it that caused, even necessitated, my response. Obviously I disagree with that "balance".

I try my best to respond directly to the points raised by you or anyone I engage with. Need I say that I don't always receive the same in return. Hint !

"a man's admiration for absolute government is proportinate to the contempt he feels for those around him". Tocqueville

That depends on you definition of what is "fair or desirable.'

A friend of mine, when we are spliting a bottle of wine at lunch, considers that, if the bottle contains an odd number of glasses, that it is "fair" that we alternate, from lunch to lunch, who gets the extra glass. He also believes that, since I am not as great a wine lover, that a "desirable" outcome would be that he always gets the extra glass.

Since he is my friend and I enjoy his company more than I would enjoy the occasional extra glass of wine, the solutions was simple and we both think that it is "fair and desirable." He gets to finish the bottle.

What is "fair" and what is "desirable" are a question of opinion. What is seen as "fair" to some may be seen as "unfair" to others. The market's results are seen as both "fair" and "unfair" by people with different desires and goals.

A person or group that wants to make the market more "fair" or its results more "desirable," is dangerous. The markets decisions represent what is possible. It might be that an individual or group believes that it would be "fair" for society or government to correct the inequalities of the market but other individuals or groups will disagree with them and with their objectives. Imagine the scene as various groups seek to impose their version of "fair" and "desirable" on the nation.

And the result? Remember the old joke? What will happen if the Saraha is socialized? Nothing for thirty years. Then sand will be imported.

You are not omnipotent or all-knowing. If you were, then your opinion would matter. Otherwise, it is no better than mine and, quite possibly, worse.

To try to "improve" the market, requires that you understand, fully and completely, the market in all of its ramifications.
Neither you, dmcmurdo, nor any individual or group of individuals has either the background knowledge or market understanding to produce your "fair" and "desirable" results.

The definition IS the key. Even if one uses the magical GINI number to measure income "disparity", who's to say what the right GINI is? Is a low number good, bad, or indifferent? That is entirely subjective, and one's opinion will depend upon their political and/or socio-economic leanings.

Yes, that is the standard argument and I agree with it. However, markets are subject to manipulation by monopolists nearly as much as by governments. E-bay is a familiar example. So is your local power company, which unlike E-bay is regulated (please note: I express no opinion as to whether E-bay should be regulated; I merely observe the fact that it is not). To prevent one form of abuse does not justify another form of abuse.

I think that you have jumped to false conclusions about the point that I am making. Of course government should avoid picking specific winners and losers, but that is a very different matter from providing broadly for market conditions which favor the little guy. There are a thousand ways to do this; none of them is perfect. But, I think that one needs to re-examine the expression of faith that whatever markets happen to produce must itself be fair and desirable. The definition is circular if so.

I do not think that the free market as you envision it, incidentally, actually exists. So much of the market is dominated by monopoly and government contracts. If you want to try to change those aspects, fair enough; but even then it would not make laissez-faire an end in itself. Laissez-faire is a means, not an end.

I did not propose any particular definition of what was fair or desirable, incidentally. I do not think that it helps to deny that the market is sometimes prone to undesirable extremes, but I am not trying to micromanage any aspect of the economy in particular. What I want in principle is more balance. Who decides the balance? The market, under laws (hopefully not especially obtrusive ones) passed by Congress. As always.

Republican economic nationalists are not just going to roll up their sleeping bags and exit the big tent. We need to stop lecturing them for a bit and listen to what they are trying to tell us. These are not Democratic big-government types; they are something very different.

Thanks for the reply. Feel free to give the last word below, at your discretion.

Your background knowledge and understanding of the market is not sufficient for you to form opinions as to the effects that "monopolies and government contracts" have on the market. Also, the idea that a bunch of legislators, with an average market knowledge less than that you claim, will be capable of regulating the market is quite unlikely.

 
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