Fun with US Tax statistics.

[AmateurScientist]

By "income redistribution" I meant its common Bill Oreilly useage that means taxes from the rich being redistributed to the poor. A common argument in these tax debates.

Well, Jesus H. Christ, if you are going to assign special definitions to ordinary words, I wish you would tell me first before I use them.

Since I don't watch or listen to Bill O'Reilly, I have no idea what he means by the term.

When I used the term, I gave it its plain meaning. There was no ideological rhetoric behind my usage. It happens to be an appropriate phrase, although in the example I was responding to, perhaps "wealth redistribution" would have been more accurate. I suspect it would have provoked just as much ire on your part as "income redistribution," however.

Again, I wasn't talking about taxes. I was referring to your example of stealing bread.

Defore 1913 we didnt have 250 mill people, two world wars, an international military, an interstate highwy system etc....

And we still had taxes. Jesus paid taxes, there nothing new.

Nowhere in this thread or elsewhere have I advocated abolishing taxes. You are building strawmen to knock down.

Besides, your complexity argument, as I will call it, isn't a very good one. We certainly fought several wars and provided for the national defense prior to 1913. With fewer people, fewer government services would have been needed. We had a railroad system and we didn't have the Panama Canal for most of that time, so intercontinental travel was much harder and more expensive in constant dollars.

All of these things got financed before the imposition of a federal income tax.

Furthermore, as about 42% of the national budget is for social security, Medicaid, and Medicare payments, yet overall we enjoy a much higher standard of living than those living in 1913 did, this just doesn't make sense. Our country should have needed much more public assistance as a percentage of federal outlays when the standard of living was lesser.

AS

 

[Tmy]

Actually I was using the common definition of "income distribution" when its being used in a rich vs poor tax burden discussion as in this thread.

Sorry if I thought the bread discussion was literal, I thought it was an analogy for taxes. Silly me.

 

[Thanz]

Furthermore, as about 42% of the national budget is for social security, Medicaid, and Medicare payments, yet overall we enjoy a much higher standard of living than those living in 1913 did, this just doesn't make sense. Our country should have needed much more public assistance as a percentage of federal outlays when the standard of living was lesser.

Don'tcha think that maybe, just maybe, one of the reasons for the increased standard of living was increased spending on things like healthcare and social security?

 

[shanek]

Then, if my understanding is correct, nothing short of a constitutional amendment will get rid of the income tax.

Well, no, the Constitution doesn't say they have to run an Income Tax, just that they can. You wouldn't need an amendment to get rid of it...but to keep rid of it, yes, you'd need to repeal the 16th Amendment so that the government would not have the Constitutional authority to run an Income Tax.

I do not know the US constitution amending procedure, but I imagine that it is fairly difficult to get a constitutional amendment (as it should be).

Amendments must be proposed by either two thirds of both Houses of Congress, or by two-thirds of the states calling for a Constitutional Convention. After that, it must pass in the legislatures of two thirds of the states, or three fourths when done by convention (to this date an amendment has never been passed by convention).

They are, however, accepted by most as necessary for the proper functioning of government.

And so the challenge is to get people to realize that the Income Tax is harmful and unnecessary.

So, I think that you really are tilting at windmills when you work to try and abolish income taxes. It just isn't going to happen.

They said that with slavery. They said that with Prohibition.

Slaves did not have the freedom to go to where they would not be slaves.

Doesn't matter. It's still the case that just because something happens to be in the Constitution doesn't make it right.

 

[shanek]

Don'tcha think that maybe, just maybe, one of the reasons for the increased standard of living was increased spending on things like healthcare and social security?

Except, as I've shown before, increases in our standard of living measured as median yearly family income (adjusted for inflation) actualy levelled off a great deal after these measures were put in place.

Note that the programs of the "Great Society" resulted in much lower overall income than would have resulted if the previous trend (projected in the dotted line) had been allowed to continue.

 

[Occasional Chemist]

Note that the programs of the "Great Society" resulted in much lower overall income than would have resulted if the previous trend (projected in the dotted line) had been allowed to continue.

That graph looks like a misuse of a linear curve fit to me. Who says that the median yearly income should grow linearly for all time?

Why stop in the late 40s (edit: Early 50s, perhaps - silly axis labelling)? Wouldn't it be more interesting to stretch the graph back to when the country began?

(Further edit: Is it just my eyes going bad from grading student assignments today, or did a crackhead label the y axis?)

 

[AmateurScientist]

Here's a slightly different way to look at the benefits of government: if you were to hire a private security firm to guard your posessions, the cost of that security would depend rather greatly on how much you were having them defend. Government serves that purpose for most people. It enforces property rights. If you've got more property, you're getting more benefit from government rather automatically. That is the single greatest source of government benefit for the rich, and it's a pretty damn big benefit too.

Well, I can turn your argument on its head. When Germany bombed the hell out of London, Londoners died, rich and poor. The poor lost their possessions, as did the rich. Presumably, rich persons lost more in aggregate property value than poor persons. They weren't compensated by government, so rich persons bore a greater burden of the war than poor persons.

Can't we just say that the nation collectively benefits from national defense and that it is agreed by everyone that it's necessary? Trying to contend that some groups benefit more from the defense of and prevention of the destruction of the country really gets you nowhere.

An individual's private security force, no matter how expensive, is going to be no match for the relatively limitless resources of most sovereign nations that might be realistic threats to national security. Therefore, your argument breaks down right there.

The benefit comes in rather easily, in two ways: first, education lowers crime rate, and therefore indirectly protects your property (real estate and otherwise).

Hmmm. I didn't realize educating residents' kids in my neighborhood would prevent criminals from other neighborhoods from committing crime in mine. Do you really contend this or something similar to it?

Actually, I think you are confusing cause and effect. Schools are placed in neighborhoods when demand (number of kids living there) calls for new ones nearby. The schools themselves do not prevent crime any more than trees do. "Good" schools nearby attract buyers to homes in the area, and thus raise property values. "Good" schools result from having desirable homes and homeowners and desirable neighborhoods, which also means low crime rates.

A neighborhood with a high crime rate will always have "bad" schools in it. "Bad" schools are "bad" because they are located in "bad" neighborhoods and "bad" kids live there and attend them (this has nothing to do with the quality of education one has an opportunity to get there). Property values are depressed in those neighborhoods because fewer parents want their kids to attend those schools and fewer non-parents want to live in the "bad" neighborhoods because of the high crime rate and because of undesirable neighbors.

More directly, if you don't have any children, then when you grow old it will be other people's children you will need to depend upon, even if you're still working (because when you get old, the workforce is going to remain primarily younger people). You will derive benefit from that workforce being well-educated.

The thing that always bugged me about libertarians, and your argument strikes me as being fairly libertarian, is a disregard for the necessity of families. Society depends on families, we can't function without them. Even when you are an adult, EVERYONE benefits from the sacrifices parents make to perpetuate society through their children. So I don't buy into arguments that just because YOU might not have kids you can't be obliged to contribute to this necessary function of society.

Actually, I just asked how an examination of one's usage of government resources approach could be used to justify using property taxes as a basis for funding schools when some of those property owners didn't have kids. I don't think your arguments demonstrate that property owners without kids benefit as much as parents who are property owners. It should be obvious that all other things being equal, my neighbor with a similar property value to mine who has four school age kids in public school will derive a greater benefit from his property tax dollars than I will with no kids.

In short, you haven't convinced me of the equity of the approach. I do agree that the society as a whole benefits from having an educated citizenry. I do not and have not advocated the abolition of public schools or public school funding. I simply asked how the property tax funding was equitable using the benefits derived approach. I think it's a fair question in context.

That's funny, I seem to recall hearing a lot of rich people advocating progressive tax structure. Sure must be a lot of traitors to their own class.

Sure, the Kennedys are one hell of a rich family who all seem to advocate progressive taxes and other liberal Democrat redistribution schemes. We call them limousine liberals. There's lots of 'em in the Democratic Party. Nearly all of the ones who win high elected offices in state and federal government are rich. It never stopped them from engaging in demagoguery or class warfare, did it?

Class warfare is certainly something we should avoid, and the rich shouldn't just be viewed as some tap from which we can extract as much money as we want.
[/B

I agree.

But extreme economic inequality is unhealthy for society as a whole (regardless of fairness, it creates stresses that are harmful to everyone, and that's not a statement of class warfare), and we need to make sure that our society is structured so that economic inequality isn't ever-increasing.

Come on, compared to our own country's past, or compared to most other countries, do we really have "extreme economic inequality?" For God's sake, the vast majority of U.S. households has at least one color TV and an automobile. No one in this country needs to starve. Shelters are freely available in nearly every urban area with a significant homeless population.

Extreme economic inequality on a widespread basis simply doesn't exist in this country. Do we have very rich persons? Sure. What does that have to do with persons on the other end of the economic scale? Nothing.

The reason you had popular uprisings in European countries in the past was because of subjugation of the poor by the rich landowners at the point of an arrow or gun. In contrast, Bill Gates isn't rich because he stole his money from poor people. Rich Americans, for the most part, are rich due to entrepreneurialsm, not oppression.

One way to do that is a progressive tax structure. If you want to go with a flax tax system (and again, you need to make sure that you're not just implementing flat income tax, because that would make overall taxes regressive), you can still keep inequality in check by instituting a rather stiff estate tax (possibly with a high deductible to allow for small family businesses, family farms, etc), so that if you want to be really rich you need to earn most of that money yourself. A steep estate tax is something Andrew Carnegie, for example, was very much in favor of.

This is nothing but Robin Hood in disguise. You are advocating redistributing wealth in order to reduce "extreme economic inequalities." That's Robin Hood.

As for your last sentence, it is nothing but appeal to authority. So? Carnegie was wrong. Estate taxes contribute very little to the national tax revenue compared to other sources. They are little more than confiscatory schemes which discourage entrepreneurial success and encourage bizarre economic behavior (tax shelters) for the sole purpose of attempting to defeat the tax. That's not a desirable thing for any society to encourage.

AS

 

[Suddenly]

I suspect you may mean that the "rich" use a disproportionately greater amount of government resources than the the less rich. I don't understand how or believe that this is necessarily the case.

Nope. I mean they benefit from govenment more in general. The benefits go beyond distribution of resources. Stark example, a homeless person and righ business owner. Who benefits more from the rule of law? The educational system's focus on occupational training? Security regulation?

In the case of national defense, for instance, each individual benefits the same as any other. Each of us, rich or poor, has only one life to lose. In the case of roads, the same would be true, even for those who do not own automobiles, as they can ride with someone who does have one or on public transportation. In either case, they get the same benefit--the opportunity to use those roads. Of course, roads are a different matter because in part they are in fact funded by "user fees" in the form of gasoline taxes. Clearly, poorer persons who do not drive do not pay as much in "user fees" as richer persons who drive gas guzzling SUVs.

Is the user fee thing supporting your argument or mine? Since my premise is that those that benefit most should pay more, so fine. Government defends and protects property rights, so those with more property...

As far as national defense goes, it isn't just about life or death. Who has more to lose when the evil British invade and sell us into slavery? Someone making $6 an hour at Wal-Mart or Bill Gates? Would a Wal-Mart employee notice much difference?

Education is available to all children, rich or poor. If you want to bring equities in benefits derived into the argument, then how is a property tax to fund schools fair to property owners with no children? This is one case where Teddy Roosevelt's argument completely fails.

Are you serious about that first sentence? Maybe available but hardly equal, and that is before we start looking into later job training when industries change and new skills are in demand.

Or if you mean that only the children in school benefit from public education, I'd again disagree. Public schools are to a large extent subsidized occupational training. Heck, schools as job training was part of the stated rationale for _Brown v. Board_. A few years ago my local (at the time) school board reorganized its high school curriculum using what they called "a school to work" model. I was running one of the bigger buisnesses in my town, so I was invited to be on the "transition team" with mostly local representitives from large businesses with local ties. We were basically there to decide how the schools could better train students so they could step out and work for us. Some might call this "innovative practical education." I call it a very significant hidden subsidy and fooling the public into absorbing the cost of business. To some extent everyone benefits by public education, even though I'd like to see more education w/r/t critical thinking and less simple job training, but I benefit in some way nonetheless.

As to the second sentence, again I don't take a narrow view of benefits. I have no kids, nor am I likely to have kids. I benefit because more education equals more oppertunity which equals less chance of crack dealers next door.

The presumption of greater use of government resources business does not justify progressive income tax schemes. Flat rate taxes accomplish the same thing, without shifting a disproportionate burden onto higher income earning taxpayers.

Sorry, but I just don't buy it. It's nothing but class warfare fodder.

AS

What I don't get is how a flat percentage, that results in higher tax payment to the rich is somehow fundamentally different from a progressive payment that does the same thing, just to a larger degree. My beef is more with the concept that the rich should pay no more in total dollars. I'd be cool if with funding the whole shebang through property and estate tax. I'm no fan of the income tax, but I find no fault in theory with those who have more property (real and personal) paying more to support the national interests.

 

[AmateurScientist]

Don'tcha think that maybe, just maybe, one of the reasons for the increased standard of living was increased spending on things like healthcare and social security?

No, and I'll agree with what I presume Shane K's position on this to be, although he can certainly speak for himself.

The government is woefully inefficient in administering large programs like Medicaid, Medicare, and Social Security. Taxes to support such programs act as a huge brake on the economy. If that brake didn't exist, then the standard of living would have increased at a greater rate than it has.

Those in favor of government programs for the less fortunate among us tend to overlook that free markets create jobs and provide valuable goods and services. Those do in fact benefit all of society. When more jobs are available there are fewer unemployed and fewer poor persons in need of handouts. When more goods and services are available for purchase, overall standard of living goes up. That's how we measure standard of living.

I'm afraid you've missed the mark entirely with your sarcastic, rhetorical question to me.

Contrary to your assertion, I think our overall standard of living has increased in spite of the existence of programs like Medicaid, Medicare, and Social Security. I wish very much that those genies could be put back in the bottle.

They will be the eventual ruin of our society as we know it in the coming decades. It's simple demographics. The ever increasing demands upon these programs as our aged population increases in proportion, and the ever diminishing number of persons contributing to them in taxes, yield the inevitable result that they cannot continue as they exist today. They are already a tremendous burden on our ecomony. They will cause it to rupture in the next few decades unless drastic and fundamental changes are implemented.

AS

 

[Suddenly]

That graph looks like a misuse of a linear curve fit to me. Who says that the median yearly income should grow linearly for all time?

Why stop in the late 40s (edit: Early 50s, perhaps - silly axis labelling)? Wouldn't it be more interesting to stretch the graph back to when the country began?

The graph shows no growth in the 80's after Ronnies tax cut and some growth during the Clinton administration after Bush I put in his little tax raise. The anti taxers better hope it's wrong.

I wonder if this exact graph hangs in Reagan's Presidential Library?

 

[AmateurScientist]

Nope. I mean they benefit from govenment more in general. The benefits go beyond distribution of resources. Stark example, a homeless person and righ business owner. Who benefits more from the rule of law? The educational system's focus on occupational training? Security regulation?

Rule of law? Pretty nebulous concept, don't you think? The homeless guy isn't nearly as burdened by OSHA regulations or worker's comp regs or taxes or any number of government requirements placed upon the business owner. Therefore, the homeless guy "benefits" more by being burdened less.

Being protected by police? The homeless guy probably has closer association with the police on the beat because they are more visible to him on a daily basis. Their visibility probably prevents more assaults on him than they do on the business owner who lives 15 miles away in the suburbs. Thus, the homeless guy probably benefits more from police protection, at least to his personal safety, than does the businessman.

See what I mean? You can turn the benefits argument around entirely. I don't like it as a justification for inequitable tax treatment because it's just an academic justification. We could examine how all meat eaters benefit from USDA regulations concerning safe meating handling. Should vegetarians then pay less to account for their non-use? The quibbles could really get ridiculous.

I say better to choose another approach for trying to justify inequitable tax treatment, if you are going to take taxes inequitably at all.

Is the user fee thing supporting your argument or mine? Since my premise is that those that benefit most should pay more, so fine. Government defends and protects property rights, so those with more property...

Only some government services can be regarded as protecting property rights. Street sweeping, garbage pickup, and fire protection, for example, I'll grant you. What about eminent domain? For those adversely affected by it, it's hardly a protection of property rights.

Anyway, I suggested the user fee thing only as a distinction between road use and national defense, because in fact there already is a user fee of sorts in the way of gasoline taxes. I'm not necessarily advocating user fees for all governmental services. That's probably Shane, as far as I know.

As far as national defense goes, it isn't just about life or death. Who has more to lose when the evil British invade and sell us into slavery? Someone making $6 an hour at Wal-Mart or Bill Gates? Would a Wal-Mart employee notice much difference?

Property rights are only one consideration. Our country was founded to secure ideals and freedoms, not just to keep our stuff from the Brits. Slavery involves far more than abolition of property rights. The Wal-Mart guy loses just as much personal freedom to go to a Yankees game when he wants as Bill Gates does when he's sold as a slave.

Are you serious about that first sentence? Maybe available but hardly equal, and that is before we start looking into later job training when industries change and new skills are in demand.

Of course I'm serious. It's the whole premise of public education. All children are afforded the opportunity to be educated from K-12. No one said each school would be equal, and no one in his right mind would try to assert that such a thing is even remotely possible.

Or if you mean that only the children in school benefit from public education, I'd again disagree. Public schools are to a large extent subsidized occupational training. Heck, schools as job training was part of the stated rationale for _Brown v. Board_. A few years ago my local (at the time) school board reorganized its high school curriculum using what they called "a school to work" model. I was running one of the bigger buisnesses in my town, so I was invited to be on the "transition team" with mostly local representitives from large businesses with local ties. We were basically there to decide how the schools could better train students so they could step out and work for us. Some might call this "innovative practical education." I call it a very significant hidden subsidy and fooling the public into absorbing the cost of business. To some extent everyone benefits by public education, even though I'd like to see more education w/r/t critical thinking and less simple job training, but I benefit in some way nonetheless.

As to the second sentence, again I don't take a narrow view of benefits. I have no kids, nor am I likely to have kids. I benefit because more education equals more oppertunity which equals less chance of crack dealers next door.

Please see my response to Ziggurat above. I fully recognize and support the societal benefit derived from public education. That's not what we were talking about. You were asserting that property owners benefit more from public education than non-owners. That may or may not be true. What you cannot show is how a property owner without kids derives the same benefit from his property tax dollars as the property owner next door who has school age kids attending public school.

There is in fact a disparity there when one uses the benefits derived approach to justifying tax treatment.

Look, I fully recognize that this part of the discussion has gotten utterly academic and very far afield from practical solutions or realistic proposals. I'm not terribly fond of beating this into the ground, and I'll bet you aren't either.

AS

 

[Suddenly]

Look, I fully recognize that this part of the discussion has gotten utterly academic and very far afield from practical solutions or realistic proposals. I'm not terribly fond of beating this into the ground, and I'll bet you aren't either.

AS

Pretty much. We are at a point where mostly details are being argued. The only real disagreement is that I want to be really general about the idea of "benefit" and you want specifics as to same. That part of it has nowhere to go but straight into the ground, as part of the reason behind general taxation is that the benefits derived from government are nearly impossible to accurately and completely measure. Very complex, kind of like if I give a homeless crack addict a c-note. Who benefits? The addict? A dealer? The guy who sells really gaudy jewelery? OutKast?

Who knows? At some point it becomes more a philosophical question than a factual one.

I say without government the poor would steal all the rich guy's stuff and leave him with nothing but a barrel with shoulder straps.

You say without government the rich guy will hire thugs to make the poor guy wash the rich guy's socks with his tongue.

And we are both likely right to some extent, and arguing who and by how much is not really likely to result in clairity,

 

[shanek]

That graph looks like a misuse of a linear curve fit to me. Who says that the median yearly income should grow linearly for all time?

Why stop in the late 40s (edit: Early 50s, perhaps - silly axis labelling)? Wouldn't it be more interesting to stretch the graph back to when the country began?

(Further edit: Is it just my eyes going bad from grading student assignments today, or did a crackhead label the y axis?)

[sigh] I really don't feel like explaining the difference between linear and logarithmic scales again... Suffice it to say it is a proper curve, normailzed to a line. Just read about it here:

http://www.harrybrowne.org/articles/RatioScales.htm

As for your other question, 1947 is the earliest year this statistic is available.

 

[shanek]

The graph shows no growth in the 80's after Ronnies tax cut and some growth during the Clinton administration after Bush I put in his little tax raise.

What does the tax level have to do with this? This is income before taxes.

 

[AmateurScientist]

You say without government the rich guy will hire thugs to make the poor guy wash the rich guy's socks with his tongue.

Thanks. That's hilarious.



AS

 

[Suddenly]

What does the tax level have to do with this? This is income before taxes.

Funny. I could have sworn somebody claiming that a lower marginal income tax rate would encourage economic growth. I guess nobody was claiming that lowering taxes on the rich would increase growth then? My bad.

By the way that is a nifty graph showing how the American economy grew quite sharply for twenty years right after World War II. It is almost like most everyone else was rebuilding their industry from some sort of cataclysmic destruction while America had free reign to expand it's commercial reach.

Actually the growth on that chart levels off at the approximate time of my birth. Maybe it is my fault.

 

[Occasional Chemist]

[sigh] I really don't feel like explaining the difference between linear and logarithmic scales again... Suffice it to say it is a proper curve, normailzed to a line. Just read about it here:

As for your other question, 1947 is the earliest year this statistic is available.

Ahh, it's supposed to be a log scale - well, sorta. It'd be nice if they actually labeled it like an engineer would.

Now on to the graph ... what's it supposed to show, really? Are you assuming that some government programs are affecting a trend from a selected group of points in part of the graph?

 

[shanek]

Ahh, it's supposed to be a log scale - well, sorta. It'd be nice if they actually labeled it like an engineer would.

That's how most economists do it. It actually makes better sense of the economic numbers that way.

Now on to the graph ... what's it supposed to show, really?

It's supposed to—and does—debunk the notion that government social programs raise the standard of living.

Actually, the latest Intro/Macroeconomics episode talks about how the standard of living is raised. I'm going to as usual post a partial transcript in the thread when I get it typed. Anyone who understands this will not be fooled by that big government argument again.

 

[Occasional Chemist]

It's supposed to—and does—debunk the notion that government social programs raise the standard of living.

I'm more concerned with this line on the graph. Is it supposed to represent some sort of linear growth in median income? I guess what I'm not so sure of is WHY you expect this parameter to keep rising at the same rate, and blame a government program for leveling it off.

Now as for the programs that seem to have been discussed (social security and health care), why would these be expected to have a great influence on average income?

You'd expect a healthcare program, perhaps, to have more influence on figures like infant mortality or life expectancy, or incedence of diseases, etc.

Also, what's the correlation with income tax?

 

[shanek]

I'm more concerned with this line on the graph. Is it supposed to represent some sort of linear growth in median income?

No, because the graph isn't on a linear scale. It's on a growth scale; a ratio chart. Meaning that we should be able to expect it to grow at the same ratio as it did before. And it wasn't.

I guess what I'm not so sure of is WHY you expect this parameter to keep rising at the same rate, and blame a government program for leveling it off.

The transcript for this week's episode will explain all of that.