Felix Salmon writes:
Remember too that when you have a progressive tax system, especially when there are surcharges on people making seven-figure incomes, you also have a system where for any given level of national income, the greater the inequality, the greater the government’s tax revenues. And indeed federal revenues have been rising faster than median wages for decades now, thanks to the rich getting ever richer.
Given the government’s insatiable appetite for cash, it’s only natural that it would prefer to tax plutocrats, spending some of that money on poorer Americans, rather than move to a world where poorer Americans earn more (but still don’t pay that much in taxes), and the plutocrats earn less, depriving the national fisc of untold billions in revenue.
The government’s interests, then, are naturally aligned with those of the plutocrats – and when that happens, the chances of change naturally drop to zero.
Whenever there's an MR post categorized under both "economics" and "political science," it's usually pretty brutal.
(Repost?) It’s not clear that Felix’s post is actually true: Fed taxes are progressive but state taxes are regressive, and they basically cancel out IIRC. Also, the progressivity of Fed taxes ends well below the plutocrat level IIRC, meaning that policies which favor to well-off at the expense of the rich would not harm us. We need accurate numbers to make sense of this.
Sam
Who wants to make sense of this? It is just elegant and effective upsetting of sterotypes. On the whole, it works better if it makes no more sense than those sterotypes; more of us get to do some fresh thinking..
MikeS,
Does it really go down? Have you accounted for all the taxes paid on a stream of income, or are you just counting the tax taken at the individual level? It makes a difference.
Actually maybe it doesn’t matter. From the perspective of the politicians a pile of cash is a pile of cash. They don’t care whether the tables are “progressive” except when they have to do some street theater for their constituents. So, maybe all Salmon has to do is replace “progressive taxation” with “progressive revenues.” For this analysis, the republican favored numbers that the top 20% pay 80% of taxes (or whatever it actually is) may be the more valid.
What is super scary is when I look myself up in here and I’m already in the top 4% of households for my area.
http://zipskinny.com/
I’m filthy stinking rich and I’m a grad student! This is a damn fine country when a grad student can be the idle rich.
jminer, if we define the cash flow through government as the “size” of the government, and then say the goal of the government is to maximize its size, it’s not a terrible model (or word usage).
Sam, I’m not aware of any state tax system that is regressive. Some are less progressive than others, but most states have an income tax, and those are always progressive.
reminds me of Douglass North’s quote http://ben.casnocha.com/2009/11/book-notes-from-poverty-to-prosperity.html – “The natural state is a mixture of mutually interdependent economic and political interests that reinforce each other. The economic interests are the elites that produce economic activity. But they tend to support political groups that in turn will protect them from too much competition. The interplay is the elites in the political world protecting the economic elites from too much competition and giving them monopolies, while on the other hand the economic elites provide the funds that support the political elites.” cf. http://en.wikipedia.org/wiki/Mancur_Olson
Jreal, sales tax on essential items are considered regressive insofar as there is a negative relationship between the income share expended on such items and the income of individual consumers. i.e. there is a larger tax burden (relative to income) for low income consumers than there are for the rich with regards to necessity goods.
Same can be said about excise taxes on cigarettes and alcohol.
Well, you can look at states in which the tax code is very progressive. Sweden more plutocratic than the U.S.? I doubt it.
This does seem like nonsense. To follow on jskinner’s takedown, the government is not a profit maximizing firm. The government’s business is remaining in power (or, from the bureaucrat’s perspective, pleasing those that are in power, and who want to stay there). To that end they are concerned with votes. Progressive taxation has the benefit of raising revenues while annoying the fewest people. Government doesn’t “identify” with the plutocrats because they are a source of revenue. They may listen to them to the extent they hold the keys to power.
Money ain’t got nothin to do with it.
Tyler & Alex: Have you guys ever thought of upgrading the comments features in this blog so it’s possible to respond directly to comments rather than just tacking everything on the end?
Jreal: Sales taxes can be regressive is that they almost always apply to goods but not services. Poor households spend higher ratios of their income on goods than wealthier households, so they tend to a lower percentage of their incomes in sales taxes.
Of course, all but a handful of states — 8, maybe? — do have income taxes, so it’s not a huge point.
I wonder why no state (that I know of, at least) applies sales taxes to services.
JReal, please consult your old public econ professor on what progressive and regressive taxes are.
Straight from investopedia.com:”[A regressive tax is] A tax that takes a larger percentage from low-income people than from high-income people. A regressive tax is generally a tax that is applied uniformly. This means that it hits lower-income individuals harder.”
A flat tax on income inelastic goods are regressive!
“Given the government’s insatiable appetite for cash, it’s only natural that it would prefer to tax plutocrats, spending some of that money on poorer Americans, rather than move to a world where poorer Americans earn more (but still don’t pay that much in taxes), and the plutocrats earn less, depriving the national fisc of untold billions in revenue.”
I would like to know how the government could cause this world to come about, where the poor earn more and the rich earn less. Even if the government wanted to do this, what actions could they take, especially given that progressive taxes seem to cause just the opposite?
Is there any country that has a flat tax rate for all income levels? Can we just see how they’re faring? As for the “earnings” of the government – no matter what the earnings are, spending is probably more important. I see no concerted effort to reduce government waste. And yes, payroll taxes are a huge problem. Can’t we just do away with it? What will be the loss to the government if we do? Can’t we make up for that loss by increasing taxes on luxury goods and reducing spending wastes?
http://www.commonsense-isnt.com
@jminer “Further, the argument made here ignores the effect of fewer poor in reducing government spending on redistribution, which would increase government “cash”.
They aren’t trying to maximize government cash, they are trying maximize government spending. It is the spending of tax dollars that gives them power. So, giving to persons or entities earns their loyalty. It may not be the only objective, but it is one of the primary objectives of the resdistributory types to ensure that other people’s money is spent on things that make them feel better about themselves.
I read both Salmon’s post and the Mother Jones post in response and I think both of them are very weak. A better explanation comes simply from simple concepts like the strength of loss aversion as well as the law of large numbers. If a politician takes a lot of money out of a few people’s pockets, to sprinkle that amount in small amounts among many more people, the politician has made enemies for life out of those s/he has taken the money from but the size of the denominator is too large for the doleout to earn him/her enough offsetting friends for life among the beneficiaries.
Time flies when you’re having fun. The Florida 5% service tax was repealed 22 years ago after a very short life.
So, the hypothesis is that by reducing marginal tax rates from 90% to 30% or 15%, and shifting more and more of the taxes to the capped flat tax of FICA, the US plutocracy has been diminished, as the rich pay less of the taxes with the ratio between the corporate manager incomes relative to their employee median wages reduced?
I’d say off hand the hypothesis fails:
Gini indices for the United States at various times, according to the US Census Bureau:
1929: 45.0 (estimated)
1947: 37.6 (estimated)
1967: 39.7 (first year reported)
1968: 38.6 (lowest index reported)
1970: 39.4
1980: 40.3
1990: 42.8
2000: 46.2
2005: 46.9
2006: 47.0 (highest index reported)
2007: 46.3
Of course, one thing that has been a shift in the taxes is the rewarding of pump and dump by driving up asset prices in order to maximize the 15% tax income and doing everything possible to avoid laboring for income which is taxed at nearly 15% from first dollar FICA with added taxes being piled on top of that.
It seems to me the resurrection of the plutocracy has been fueled by the plutocracy gaining the lowest tax rates by wielding their wealth as a political tool.
Hm, I remember the argument that tax cuts in some cases could increase revenue to the government, and wondered why Democrats who tend to like big government aren’t in favor of less taxes if it would grow the government (perhaps they didn’t think the taxes would grow the government by increased revenues), and similarly why Republicans wouldn’t be in favor of larger taxes to keep government smaller, when taxes would decrease government revenues.
Could say that Democrats want relatively greater power over others rather than absolutely greater wealth in government, but less power relative to the wealthy. So Democrats might not want to abstain from taxing wealthy people in one way or another, because those wealthy people had relatively greater power and though absolutely the government wouldn’t have as much wealth it might have more wealth relative to the plutocrats, who would be diminished and weakened by the taxing.
But I’m not sure how that squares with an idea that government both left and right are more or less on the side of the wealthy and that wealthy people want finance campaigns and provide access to wealthy donors or help fund political action indirectly.
And I suppose Republicans might be disinclined to tax to diminish the size of government because, in reality they are also a government party if you take the libertarian sort of angle–they want government big in absolute terms, but are less interested in relative wealth compared to the private sector. A more idealistic angle is Republicans would prefer the private sector to be in absolute terms great even if in absolute terms government is also great.
The Republicans maybe want private sphere to be wealthy on absolute terms and relative to government they don’t mind an absolutely large government as long as the private sector is absolutely larger than it would be with higher taxes but a smaller, in absolute terms, government.
So I guess I am imagining, without a strong sense of its truth, that Democrats want to keep government large relative to the wealthy and powerful outside government, and Republicans want to keep the private sector large in wealth terms absolutely, even if it means a larger government in absolute terms to boot.
An idealistic interpretation of this possible Democrat approach is that government is good relative to the private sector, and so it should be kept relatively stronger, and absolute terms aren’t as important.
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