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Saturday, October 17, 2015

The Looting is Strong with the NYT

In oblivious pursuit of its quest to prove once again that socialism works so long as someone has some money somewhere for the government to shovel into heaps and set on fire, the NYT sets about that increasing taxes on the rich would provide free dosh.

The NYT must issue its writers with a macro that generates sentences like this:

When it comes to paying taxes, most Americans think the wealthy do not pay their fair share.

One wonders if most Americans, or the author of this article, referred to this chart:

Wealthy pay more in taxes than poor

From it, one thing should leap right off the screen: the top 3.8% of income earners pay more income tax than the other 96.2% combined. Apparently, for the socialists with dollar signs in their eyes, this just isn't enough.

So the NYT spends a thousand words or so explaining why there is Free Money for Everyone! It's simple, according to economists like Nobel Prize winning Joseph Stiglitz (whose prize clearly isn't in the category of knowing what you are writing about, but rather, like the NYT, in Advanced Looting.)

It is “absurd” to argue that most wealth at the top is already highly taxed or that there isn’t much more revenue to be had by raising taxes on the 1 percent, says the economist Joseph E. Stiglitz, winner of the Nobel in economic science, who has written extensively about inequality. “The only upside of the concentration of the wealth at the top is that they have more money to pay in taxes,” he said.

Here the NYT treats us to a chart that shows two things, both predictable enough. Our tax system is already quite progressive, and that people who earn more have more after tax income. It also engages in some NYT-strength deception. How so? The graphic shows average tax rate — that is, the tax paid over pre-tax income. But as everyone knows, or at least should, US income tax rates are arranged in brackets (why not a continuous curve is beyond me, but that is a subject for another day).

This isn't nit picking.

To get the most accurate picture possible, throw in all the scraps of income, from the most obvious (like wages, interest and dividends) to the least (like employer contributions to health plans, overseas earnings and growth in retirement accounts). According to that measure — used by the Tax Policy Center, a joint project of the Urban Institute and the Brookings Institution — the top 1 percent includes about 1.13 million households earning an average income of $2.1 million.

Raising their total tax burden to, say, 40 percent would generate about $157 billion in revenue the first year. Increasing it to 45 percent brings in a whopping $276 billion. Even taking account of state and local taxes, the average household in this group would still take home at least $1 million a year.

Notice what is going on here. With scarcely a nod, the NYT includes that which isn't currently taxed — employer contributions to health plans. Whether they should be is a topic for another time. However, I can't help but notice a glimmering of economic sanity that typically eludes both the NYT and the Social Security Administration: employers don't "provide" anything to health plans or Social Security; it is all in lieu of income.) Then it piles on that which is already taxed elsewhere, and what is taxed later.

About that last bit. The reason people put money into retirement accounts is to shield it from top marginal rates during earning years, then paying the typically lower tax rate when it is withdrawn during retirement. So what, among other things, this exercise in progressive innumeracy means is that growth in retirement savings will be taxed along the way, meaning less growth over time, then taxed again as it is withdrawn in retirement.

Do you see that mentioned anywhere in the article? I don't. Whether through stupidity or mendacity, well, that is a heck of a choice.

The vig?

Raising their total tax burden to, say, 40 percent would generate about $157 billion in revenue the first year. Increasing it to 45 percent brings in a whopping $276 billion. Even taking account of state and local taxes, the average household in this group would still take home at least $1 million a year.

Left unmentioned: how much does the top bracket have to change in order to bring the total tax burden to 45%? It isn't a simple 12% increase (to go from 33.4% to 45%), because of the lower brackets. In order to bring the total tax burden to 45%, the top bracket would have to go from 40% to roughly 52%.

In other words the tax increase in the top bracket would be 30%, and that is ignoring all the other sources that the looters have their eyes on. Which, also unmentioned, launches no small number of people into the highest bracket.

Raising their total tax burden to, say, 40 percent would generate about $157 billion in revenue the first year. Increasing it to 45 percent brings in a whopping $276 billion. Even taking account of state and local taxes, the average household in this group would still be allowed to keep at least $1 million a year.

After this para follows a laundry list of all the free stuff that would flow from this largesse: free college! free child tax credit! repealing the Cadillac Tax on high cost health plans! (wait, what?) free highway repair!

What doesn't follow is a list of all the government programs that turn people's hard earned income into smoke, or worse. Or the IRS's inability to protect its data, or stop sending out billions in fraudulent tax refunds. Or, for that matter, the rampaging incompetence of federal agencies, for which no one is ever held accountable. Never mind the costs of excessive regulation.

In short, why does it never occur to looters to go some distance towards putting the ravenous beast on a diet, before demanding to feed it more?

More fundamental questions remain untouched. In the quest to demonize the well off, the article fails to address fundamental questions.

Having already paid $700k in Federal taxes, the average amount for the top 1%, how much more before it becomes theft? The argument for a progressive tax system is easy enough to make, but that argument doesn't extend to infinity. That $700k is already well in excess of what those taxpayers get in return; what amount is too great?

More fairness. Picketty, the pole star for extortion minded collectivists, abundantly makes (IMHO) the mistake of confusing characteristic with composition. To him, all the wealthy are CEOs. However, every player in major professional sports, for just one example, are in the top 1%. Yet they don't stay there for very long, and their presence in that top 1% is due to their effort, skill, and risk. The kid from Compton, who plays left tackle for 5 years: how much more does the government get to take from him?

The article asserts that such an increase "[would not do] serious damage to the economy … The big question is how much is too much, because at some point higher tax rates would discourage extra investment and work." That is a very blinkered view; after all, higher taxes do more than just discourage extra effort.

That extra bite, roughly $30,000 per year per average taxpayer in the top 1% (and who thinks the bite would stop there?), goes to the government rather than to the economy in the form of consumption or investment. One wonders what collectivists have against, say, workers on the Cadillac assembly line. The point should be clear: it only makes sense to take more in taxes if the government can spend that money better than individuals can. If it can't — and one would have to have a Pollyannaish view of government to reach that conclusion — then extracting more taxes will make the economy worse, regardless of the impact on individuals knowing that they are working for less than half-pay.

Yes, it is easy to make an argument for progressive taxation. Won and done. When 3.8% of people are paying 54% of taxes (and that is just at the federal level), one suspects that many Americans, if made aware of that fact before Pew asks its questions, might, just might, think progressive is verging on punitive. Beyond that, though, the goal of collectivism, crystal clear here despite misdirection and innumeracy and immune to fairness or cost, is this: gimme.

10 comments:

Clovis e Adri said...

Skipper,

Now fast forward your discussion 30 years, after the robots took half the jobs available.

How high will the taxes be to feed all those unemployed people? And more importantly, why will the rich want to pay for that then, if they don't want to pay more now?

Harry Eagar said...

Sob.

We could tax capital gains as ordinary income. Why not?

erp said...

er... probably because capital gains isn't ordinary income.

Hey Skipper said...

[Harry:] We could tax capital gains as ordinary income. Why not?

Oh, geee, I dunno. Maybe because it has been taxed already? Maybe because taxing capital gains as ordinary income completely misses the loss risk involved with investment? Maybe because taxing capital gains as ordinary income will result in a heck of a lot less capital investment?

This article came from the straight news pages of the NYT, not the OpEd section.

IMHO, it is, journalistically speaking, a VISTA.

You were a journalist. What's your take?

Hey Skipper said...

Looks like I beat Taranto to the punch.

Although I can't help but noticing a couple things: he writes way better than I do, and he makes a heck of a lot more money.

Gimme.

erp said...

Taranto article not available to non-subscribers.

Hey Skipper said...

Apologies to Taranto:

Thy Neighbor’s Assets
Envy as economic policy.

By JAMES TARANTO
Oct. 19, 2015 10:20 a.m. ET

“When it comes to paying taxes, most Americans think the wealthy do not pay their fair share,” observes the New York Times’s Patricia Cohen. The Democratic candidates for president agree. In last week’s debate, Bernie Sanders railed: “Let me tell you, Donald Trump and his billionaire friends under my policies are going to pay a hell of a lot more in . . . taxes in the future than they’re paying today.” Inevitable nominee Hillary Clinton put it more gently: “Right now, the wealthy pay too little, and the middle class pays too much.”

Cohen means to assure her readers that a policy of punishing the rich would serve other ends as well:

But what could a tax-the-rich plan actually achieve? As it turns out, quite a lot, experts say. Given the gains that have flowed to those at the tip of the income pyramid in recent decades, several economists have been making the case that the government could raise large amounts of revenue exclusively from this small group, while still allowing them to take home a majority of their income.

It is “absurd” to argue that most wealth at the top is already highly taxed or that there isn’t much more revenue to be had by raising taxes on the 1 percent, says the economist Joseph E. Stiglitz, winner of the Nobel in economic science, who has written extensively about inequality. “The only upside of the concentration of the wealth at the top is that they have more money to pay in taxes,” he said.

That sounds more covetous than practical-minded, doesn’t it? And Cohen provides data that belie Stiglitz’s first assertion: The tax system is quite progressive, with the overall federal burden rising from 3.6% for the lowest income quintile to 7.8%, 13.7%, 17.0% and 25.7% for the top quintile. The trend continues within the top quintile, for whom the burden ranges from 20.0% for the second decile (i.e., the bottom half of the top quintile) to 33.4% for the top 1% and 34.9% for the top 0.1%.

...

Hey Skipper said...

...

Still, the burden could be heavier. And for those who aren’t quite as zealous as Stiglitz about punishing the rich, Cohen offers a payoff:

Raising [the top 1%’s] total tax burden to, say, 40 percent would generate about $157 billion in revenue the first year. Increasing it to 45 percent brings in a whopping $276 billion. Even taking account of state and local taxes, the average household in this group would still take home at least $1 million a year.

If the tax increase were limited to just the 115,000 households in the top 0.1 percent, with an average income of $9.4 million, a 40 percent tax rate would produce $55 billion in extra revenue in its first year.

That would more than cover, for example, the estimated $47 billion cost of eliminating undergraduate tuition at all the country’s four-year public colleges and universities, as Senator Bernie Sanders has proposed, or Mrs. Clinton’s cheaper plan for a debt-free college degree, with money left over to help fund universal prekindergarten.

A tax rate of 45 percent on this select group raises $109 billion, more than enough to pay for the first year of a new $2,500 child tax credit introduced by Senator Marco Rubio, Republican of Florida.


How is this any different from enviously imagining what you would do if you got your grubby paws on your wealthy neighbor’s money? And Cohen doesn’t stop with the top 1%. The next paragraph begins: “Move a rung down the ladder and expand the contribution of those in the 95th to 99th percentile . . .,” and imagines raising their overall federal tax burden to 30% from the current 25.2%. The average income in this class is just over $400,000.

There’s an enormous practical problem with this exercise as well. Early in her piece, she observes that for all their talk about “raising taxes at the top,” the Democrats “have not been very specific about how they would do so.”

But neither is Cohen. She imagines an increase in various income classes’ overall federal tax burden, but that is not how taxes are actually assessed. As she acknowledges, the total figure “takes into account the entire menu of taxes—including income tax, payroll taxes that fund Medicare and Social Security, estate and gift taxes, excise and custom duties as well as investors’ share of corporate taxes.”

Hey Skipper said...

...

Exactly what tax laws would one change in order to ensure that the top 1% (or the top 0.1% or the top 5%) gets gouged without harming the middle class? The question is unanswerable—it can’t be done. And as Cohen eventually acknowledges, high-income taxpayers have ways of defending themselves against covetous officials. Example:

Aided by a phalanx of lawyers and accountants, the rich have become adept at figuring out ways to shift earnings that would normally be taxed at the top 39.6 percent rate on ordinary income into capital gains, said the economist Gabriel Zucman of the University of California, Berkeley, who is researching the link between widening inequality and tactics—legal and illegal—used by the wealthy to sidestep taxes.

Naturally Cohen suggests raising the tax on capital gains to match that for ordinary income, but she doesn’t seem much worried about the disincentive effect on investment. (It’s reminiscent of Barack Obama’s assertion in 2008 that he favored raising capital-gains taxes “for purposes of fairness,” even if revenues went down as a result.)

Meanwhile, the main expert she cites calls for new tax breaks to encourage the sort of investment he favors:

“Why give a blank check to all of these guys?” Mr. Stiglitz, the liberal economist, asked. He pointed out that current tax law makes no distinction between, say, investing abroad, speculating in land or building a new factory. A better approach, he said, is to say: “We’ll give you generous deductions if you invest in America.”

The wealthier the taxpayer, the better equipped he is to take advantage of tax-code complications like the “generous deductions” Stiglitz proposes here.

A caption on a chart accompanying Cohen’s piece states: “Taking all federal taxes into account, the richest taxpayers contribute, on average, about a third of their income to the government. But they still enjoy after-tax incomes far higher than those of other Americans.” In other words, wealthy people are wealthier than less-wealthy people. The politics of envy rests on a rejection of that simple logic.

Clovis e Adri said...

Well, Skipper, I disagree he writes better than you. Your post was a lot more fun, beginning with the title - a reference to Star Wars takes extra points, even though Taranto biblical reference was good enough.