Percentiles

by John Quiggin on October 14, 2011


One of the most striking successes of the Occupy Wall Street movement has been the “We are the 99 per cent” idea, and more specifically in the identification of the top 1 per cent as the primary source of economic problems.


Thanks to #OWS, the fact that households the top 1 per cent of the income distribution now receive around 25 per cent of all income (up from 12 per cent a few decades ago) has been widely disseminated. The empirical work on tax data that produced this evidence, done most notably by Piketty and Saez, has been slowly percolating into the mainstream consciousness, but “We are the 99 per cent” has hammered it home with surprising speed.


Even more surprisingly, the analysis as it relates to the 1 per cent has been almost unchallenged by the organized right. Having spent decades denying the obvious growth in inequality, and of the wealth and power of the super-rich, the right has implicitly conceded to reality on this point.


Their response to ‘We are the 99 per cent’ has been the snarky claim that ‘We are the 53 per cent’. This line is based on the lame and long-refuted  WSJ ‘lucky duckies’ talking point, that low-wage workers ‘pay no income tax’. It is, of course, true that many workers don’t pay the tax called the Federal Income Tax’ , but they do pay the Social Security payroll tax, which is a tax on wage incomes, not to mention sales taxes and many others. By contrast, capital gains, the preferred income source of the ultra-wealthy, are not subject to payroll tax and attract only half the standard rate of the Federal Income Tax.


What’s more interesting to me is the 53 per cent number, redolent of the Buchanan-Nixon plan to ‘tear the country in half and take the bigger half’. It stands in stark contrast to the hypocritical complaints of Republican politicians about class warfare and turning Americans against each other. The fact that anyone could see this slogan as clever politics is an indication of the costs that are eventually incurred in the creation of a hermetically sealed thought bubble like that of the US right.

Coming back to reality, I’d like to think a bit about the relationship between the 1 per cent and the remaining 19 per cent of the population in the top quintile (that is 20 per cent). Most if not all of the bloggers here at CT fall into the latter group. Given our lamentable lack of market research, I can’t say much about readers, but a reading of the comment section suggests that most of our readers also belong to this group.


 The top quintile as a whole commands the great majority of US income, and virtually all financial wealth – few households outside this group own much beyond their homes and perhaps some money in a pension fund. It follows that any significant improvement in public services, or in the position of the unemployed and poor, must be funded by higher taxes on the 1 per cent, the 19 per cent or both.


The 19 per cent also have a disproportionate political weight, since they are much more likely than Americans in general to register, vote and engage in political activity. So, it makes a big difference whether, as as implied by ‘We are the 99 per cent’ their interests are aligned with the mass of the population or with the top 1 per cent.


Until quite recently, I would have (and did) argued against this view. The top quintile as a whole has done very well over the past few decades, and (despite some silly claims to the contrary), high-income earners have mostly voted Republican, in line with their economic interests. Certainly there are plenty who don’t vote their interests, but that is also true of many people in the top 1 per cent, not to mention bona fide billionaires like Buffett and Soros.

There was always an argument in terms of enlightened self-interest or class-interest, that it was better to give up a bit of (pre-tax and post-tax) income to maintain a stable and relatively egalitarian society. But in an individualistic society like that of the US such arguments don’t go very far.


As far as policy is concerned, my implicit assumption, formed in a relatively egalitarian society, was that taxes imposed only on the very rich might be satisfying but couldn’t raise a lot of money. So, for example, I dismissed Obama’s focus on ending the Bush tax cuts for incomes above $250k (roughly, the top 2 per cent). In the ‘Trickle Down’ chapter of Zombie Economics, I looked mainly at the top 20 per cent (or sometimes 10 per cent) of the income distribution rather than the top 1 per cent.


I’m now much more sympathetic to the ‘99 per cent’ analysis. First, a closer look at income growth figures suggests that, while the 19 per cent have enjoyed rising incomes, they’ve only barely maintained their share of national income. The redistribution of the past three decades has gone from the bottom 80 per cent to the top 1 per cent.


That suggests the possibility of a policy response in which the main redistributive thrust would be to reverse this process.  This would almost certainly involve higher tax payments, but this would be offset by the restoration of public services, which are in economic terms a ‘superior good’, valued more as income rises. The top 1 per cent can buy their own services, and are largely unaffected by public sector cutbacks, but that’s not true of the 19 per cent.


Another important factor is the growth of economic insecurity. The myth of the US as a land of opportunity for upward mobility has been replaced by Barbara Ehrenreich’s Fear of Falling (another good source on this is High Wire by Peter Gosselin). Even if people in the top 19 per cent are doing well, they are less secure than at any time since the 1930s, and their children face even more uncertain prospects.


Finally, there is the alliance of the 1 per cent with the forces of rightwing cultural tribalism. The 1 per cent can only rule by persuading lots of people to vote against their interests, and that requires a reactionary and anti-intellectual agenda on social, cultural and scientific issues. As a result, educated voters have increasingly turned against the Republican Party.


I don’t want to make too much of this last point. As Allan Grayson said during his memorable takedown of PJ O’Rourke recently, the 1 per cent own the Republican Party outright, but they also own much of the Democratic Party, and can rule satisfactorily through either. Also, having a college degree isn’t the same as being educated – Tea Party supporters are more likely than the average American to have a degree, and college-graduate Republicans are even more prone to various delusional beliefs on issues such as climate change.


Nevertheless, taking account of all the factors listed above, even the most comfortably affluent members of the professional class, looking at the alliance of plutocrats and theocrats arrayed to defend Wall Street could reasonably conclude that it was in their own interests to support the 99 per cent and not the 1 per cent.


We are therefore (surprisingly to me) suddenly back in a situation where a progressive movement can reasonably claim to act in the interests of a group that is (I’m quoting Erik Olin Wright from memory on the Marxist conception of the working class0
(a) the overwhelming majority of the population
(b) responsible for nearly all the productive activity (as against the 1 per cent’s incomes drawn from a parasitic financial sector)
© economically desperate or at risk of becoming so.


Can all of this be sustained? I don’t know, any more than anyone else. But #OWS has already achieved things that most people would have regarded as impossible a month ago, and for the moment at least, the momentum is still growing.

(Hopefully links to come when I get a bit more time)

{ 155 comments }

1

Rich Puchalsky 10.14.11 at 12:57 am

“Most if not all of the bloggers here at CT fall into the latter group. Given our lamentable lack of market research, I can’t say much about readers, but a reading of the comment section suggests that most of our readers also belong to this group.”

Isn’t the 80% level somewhere around $90,000/year household income in the U.S.? I don’t think that’s a good assumption. Many of the untenured in the academic system are dirt poor, and many of your commenters don’t to me seem as well off as you say the posters are.

I’ve been involved in a local Occupy group for a little while, and the only outright hostility (other than a shout of “Go back to Cuba!” from a car, which could have come from anyone) tended for us to be poorer people angry that the middle class were protesting even though they had so much more than they did. Even if the professional class decides to support “the 99%”, I don’t see any reason to assume that the majority of the 99% actually will.

2

Sandwichman 10.14.11 at 12:57 am

I only read the top 53% of this post, John. Just kidding.

3

Andrew F. 10.14.11 at 1:29 am

Respectfully skeptical.

It follows that any significant improvement in public services, or in the position of the unemployed and poor, must be funded by higher taxes on the 1 per cent, the 19 per cent or both.

Well, no it doesn’t. Those things might require higher revenue, but higher revenue doesn’t require higher income taxes on some portion of the top 20%. What about economic growth, or higher taxes on a variety of things other than income?

And how much of a tax increase on the top 1% would it take, in a nation as large as the US, to make a significant difference in public services that would affect the top 19%?

Let’s also remember that for the upper percentiles of that top 19%, many of them have reasonable expectations of breaking into that top 1% bracket. Some of them will marry within the same economic class, and double their household earnings overnight; others will simply continue to augment their income with promotions and steady investments.

But #OWS has already achieved things that most people would have regarded as impossible a month ago, and for the moment at least, the momentum is still growing.

What are those achievements?

4

John Quiggin 10.14.11 at 1:38 am

Note to commenters: I’d like a serious discussion here, so please don’t respond to trolling like #3

5

Harold 10.14.11 at 1:47 am

6

SamChevre 10.14.11 at 1:53 am

And how much of a tax increase on the top 1% would it take, in a nation as large as the US, to make a significant difference in public services that would affect the top 19%.

This, I think, is a key point. One of the major features of US politics in my lifetime (last 40 years, roughly) has been a significant redistribution from the 4th quintile to the 1st and 2nd quintiles. (I’m inclined to think the Civil Rights movement was a good thing, but it made the top end of the working class–the unionized white workforce–worse off and the low end–the black non-industrial workforce–much better off.) The top 1% have gotten much much better off–stipulated: the gap between 40th and 80th percentiles has closed a lot as well, and it’s hard to see (e.g.) public universities serving the 80th percentile as well as they did in the 1960’s, regardless of tax rates on the top 1%.

7

Harold 10.14.11 at 1:56 am

I don’t see how the Civil Rights movement did that.

8

EM 10.14.11 at 2:18 am

Just checking in as a lowly graduate student, that’ll be “less than 25K” in your market research checkbox.

I’m interested in whether the movement can be successfully branded as “extreme leftist” in the national media or not. I think there are still a lot of people (as Chomsky describes) who fall into the “apathetic” or “no more left than CNN” categories, that aren’t feeling the pinch yet, and would feel alienated by words like “marxist” and “socialist” which are being bandied around.

Interesting times.

9

spyder 10.14.11 at 2:33 am

The NYT graph highlights one point that i think needs to be reiterated. Currently, all the living former Presidents (and the current one) are in that <99.8%, in terms of income and wealth. A significant part of the Congress (2/3 of the Senate and no less than 40% of the House) are also in that <99.8%. Two-thirds of the members of the SCOTUS are in that <99.8% (and the other three are in the <99.1%). We are governed by the 1%. Any changes to the systems (tax, regulatory, price controls etc.) require a decision by those in the 1%.

That means that there needs to be a huge amount of pressure brought to bear on them, to act against their own individual interests. I really don't see this happening. More likely, we will keep getting tiny incremental bumps of illusory support and massive amounts of rhetoric. I am beginning to think we really are on our own, even those in the upper 19%.

10

James Reffell 10.14.11 at 2:34 am

Top-quintile-but-not-1% reporting in.

My political sympathies would be with the Occupy folks no matter what, but I’ve been struck quite a bit lately by the public services bit, in very concrete terms. For reference, I live in California, so I’m thinking about the combined Federal/State/local tax vs. service thing as one general mishmash.

Let’s take public schools. My daughter is in kindergarten. In order to provide the sorts of things that I had by default as a child in a roughly equivalent school, the PTA has to raise a shitload of money. (Think art, science, equipment, library, etc.) There are enough parents at this school that can afford to donate said money (with the assistance of relatives, neighbors, etc.) that we can do this, with some effort. Other schools across town can raise basically no money (immigrant families w/ two jobs and no time or extra cash); other schools across town in the other direction can raise $400K without breaking a sweat, and do. Presumably they rent trained elephants, or something.

What a waste! It would be more fair, of course, to do this through taxes (can’t, CA, prop 13, etc.) and have it be redistributive so the schools in the poor neighborhoods didn’t get hosed. But my school would probably have about the same stuff we do now … but with a reduction of hundreds of hours of effort on the parts of the PTA. Frees those folks up to do more productive things with their life than mimic would should be the proper function of the government.

11

BubbaDave 10.14.11 at 2:35 am

I’m a single guy making $80k+ per year, so if I ain’t in the top 20% I’m definitely in the top 25%. And I want to be paying higher taxes because I’m one of those goofy liberal Christian types who actually thinks I (and we as a society) have an obligation to those whom Someone described as “the least of these.”

Just as soon not be spending quite so much on flying killer robots, though, kthxbai.

12

Cranky Observer 10.14.11 at 2:35 am

> Certainly there are plenty who don’t vote their interests, but that
> is also true of many people in the top 1 per cent, not to mention
> bona fide billionaires like Buffett and Soros.

It is interesting that Warren Buffet’s argument (also made by Bill Gates) that it _is_ in his best interest to vote/lobby for the amount of taxes and government that assure a stable and prosperous society and economy so that his investments can make more is no longer accepted as self-evidently true. Or even accepted as possible by many people.

Cranky

Just to take one example is Buffet’s investment in the Burlington Northern Railroad. The transcontinental railroads would not have been possible, and their even larger descendents could not continue to exist today, without a stable government, rule of law, and an overall society prosperous enough to need large quantities of heavy things moved from place to place.

13

ScentOfViolets 10.14.11 at 2:56 am

Two comments:

and more specifically in the identification of the top 1 per cent as the primary source of economic problems.

You could be more charitable as well as more sure of the direction of your causal arrow if you were to allow as that it was the top 1 percent who actively obstructing any solutions to our economic problems, whatever their source.

It follows that any significant improvement in public services, or in the position of the unemployed and poor, must be funded by higher taxes on the 1 per cent, the 19 per cent or both.

See my first comment above. But I keep harping on this one because it keeps getting glossed over: taxation is not only about who pays, but who benefits. Those so-called 1-percenters might justifiably complain that they pay, say, 60% of all taxes collected at the federal, state, and local levels. But this figure by itself means nothing; for example. if they pay 60% of all taxes but get 80% of all federal, state and local benefits then it is the poor who are effectively paying for the rich, not vice versa.

And if you look at all spending, I strongly suspect that this scenario is indeed the case.

Iow, when people reflexively object to paying taxes on the grounds that it’s going to “those people”, whoever they may be, what they’re really saying is that they never seem to get much back in terms of benefits. This seems to me to be a rational complaint – and a well-justified one.

14

MPAVictoria 10.14.11 at 3:08 am

“See my first comment above. But I keep harping on this one because it keeps getting glossed over: taxation is not only about who pays, but who benefits. Those so-called 1-percenters might justifiably complain that they pay, say, 60% of all taxes collected at the federal, state, and local levels. But this figure by itself means nothing; for example. if they pay 60% of all taxes but get 80% of all federal, state and local benefits then it is the poor who are effectively paying for the rich, not vice versa.”

I…
Completely agree with all of that. What is happening to us SoV?

I am probably a member of the 19 percent and I definitely see my interests as being more with the 80 percent below me then the 1 percent at the top.

15

Watson Ladd 10.14.11 at 3:10 am

spyder, did you mean to flip around those inequality signs? Naturally US revenue can be increased, and there are cuts that can be made to improve the quality of social services (Part D is the best law George W. Bush ever passed. That says something about the rest of them.) But that’s not going to really affect the hollowing out of the working class. In a world where your participation in society is your participation in labor, receiving handouts is always going to lead to a question about whether you are truly part of society. Expect to see marginally attached work become descriptive of a generation.

16

Steve LaBonne 10.14.11 at 3:27 am

Watson, the government should use a bunch of the increased revenue to create more public jobs. Not make-work jobs- there’s tons of genuine work that’s not getting done, starting with repair and upgrading of vital infrastructure that’s been neglected for decades. Instead, the 1% have declared war on public employees.

17

ScentOfViolets 10.14.11 at 3:34 am

Completely agree with all of that. What is happening to us SoV?

It’s not you, it’s me :-)

Another way to look at the distribution game is this: from 1975 to 2010 U.S. inflation-adjusted GDP slightly more than doubled. In 1975, the median inflation-adjusted household income was about $43 K/yr. So if all other things had remained equal, median household income should now be almost $90 K/yr. Instead, last time I looked, it hasn’t even cracked the $50 K barrier.

Yeah, admittedly that’s a very rough calculation with no nuances allowed for changing demographics and changing household composition. All that and more is stipulated. But that calculation is still a pretty good one when it comes to bringing it home to the average joe how badly things are awry in the U.S. in terms of a hard numeric figure he can grasp with his gut. He can look at people who are making that $90 K/yr right now and all the stuff they have that he doesn’t, when by all that’s sane and rational and good about the U.S. and what he’s been told all his life he should .

18

anon 10.14.11 at 4:06 am

OWS is really great political theater.

But until Progressives can win power in the House and Senate along with the Presidency little if any of this will be enacted. And that which does get passed and signed into law will be only window dressing.

The President is governing just slightly ‘left of center’. The Senate Majority leader is currently just slightly ‘right of center’. The House would love to pass bills ‘to the right
of John Birch’ but doesn’t seem to be able to do much more other then say “NO!”.
(Groucho Marx in Horsefeathers singing “”Whatever It is, I’m Against It” comes to mind :-})

No wonder that (here is another percentage) some 80% of Americans think the country is headed in the wrong direction.

And what is even WORSE is that the most likely outcome of the next election is a going to be a lurch – and perhaps an extreme one – to the right.

So, while all the above percentages make sense, and all the policies are seemingly the correct ones, nothing is going to improve here in the US until 2014 at the very earliest. I sure hope there is something left by then.

19

nnyhav 10.14.11 at 4:52 am

Wasn’t there a survey a few years back in which 19% of respondents reported themselves to be in the top 1% income-wise?

20

Lemuel Pitkin 10.14.11 at 4:53 am

This post seems right on target to me. Which means I don’t have any interesting response to it. :-)

I do think it’s important to emphasize the moral and identity-formation aspects of this. It’s one thing to calculate that over some particular policy space, the interest of the 19% are more closely aligned with the 80% than the 1%. It’s another thing for people in the 19% to actually feel themselves part of the 99% — to even be a little ashamed, hopefully, at any suggestion that they are or want to be really rich. Before you can ask what are our interests, or what should we do, you have to establish who “we” are and by its nature that’s not something that can be subject for rational debate. Liberals sometimes overlook this, but I think it’s one of the most useful parts of the #OWS phenomenon — a visible assertion and concrete experience of a new political “we”.

By the way, the census puts the 20th percentile at just over $100,000, for those wondering if they qualify.

21

Meredith 10.14.11 at 5:10 am

I want to second Cranky and SoV: the wealthy (1%, next 19%) ARE acting in their own interest when they support higher taxes on themselves. (But, to complicate things….)

That’s assuming that the concept of “our” extends to children and grandchildren (literal or figurative). Maybe it’s also assuming a sense of “ourselves” as Americans or as Brits or as Australians or as Liberians or Cambodians, people who live and work and die in a place, in an intimate nexus (which includes a national government). Globalization, global investment, the very wealthy owning houses on several continents (to which they fly on private planes), and even among some of that 19% (including many academics) the phenomenon of cosmopolitanism: the top 1% and some in the top 20% can afford to watch much of the world turn to rubble, perhaps, so long as they and their families and friends can retreat to their well-protected fortress paradises, or secure neighborhoods and fine schools, or their healthy retirement portfolios. (Think banana republic cosmopolitanism.) What do they care if bridges crumble in Ohio and other parents’ kindergarteners go without in California? Their markets and investments are elsewhere now, as are their imaginations about their “place” in the world (and maybe their physical homes).

Back to thinking as if my previous paragraph didn’t matter. The top 20% should pay more federal income taxes (and SS), not just the top 1%. The funds are needed, that whole bracket has benefited, and it should contribute more to the system from which it has benefited more. But, one caveat, or rather, honest query: how many people in that 19% group are, say, 55 or older? How many of them have been in that category for only a few years? How many of them recently lost a significant percentage of their retirement portfolio? I’m thinking that it’s possible (given boom demographics) that a significant percentage of that 19% may only recently have entered that bracket and are too old now to reap many benefits from their recently larger salaries, not to mention too old to make up easily for the losses in their retirement investments — and who therefore could be actually hurt by much higher taxes, which might only force them to retire at 75 (if they live long enough) rather than 70. Really, an honest query. I’d like more information about the demographics of the 19%.

22

nnyhav 10.14.11 at 5:55 am

Answering myself @19, not really:

In a New York Times op-ed piece (Brooks 2003), columnist David Brooks interpreted this survey [Time/CNN/Yankelvich 2000 poll] to say the “nineteen percent of Americans say they are in the richest 1 percent and a further 20 percent expect to be someday.” Genauer’s (2003) interpretation was similar. In fact, the question did not ask respondents to place themselves in the American income distribution. Rather, it asked “As you may know, Al Gore has claimed that George W. Bush’s proposed tax cut will largely benefit those with high incomes, who he claims are the top 1%. Thinking about your own situation, do you think you will be in this group that will benefit in the future, or do you think you will not benefit from Bush’s tax cut.” The question defines the “top group” as those who would benefit from Bush’s tax cut, and incidentally notes that Gore thinks the group that will “largely benefit” is the top 1%. A respondent can know he is not in the top 1% (or even the top 10%) while still beleiving that he is or will be in the “topgroup that would benefit” from Bush’s proposed tax cuts, and thus respond affirmatively to the question.

footnote in Thomas A. DiPrete, “Is This a Great Country? Upward Mobility and the Chance for Riches in Contemporary America”, Nov 28, 2005 http://www.ssc.wisc.edu/soc/faculty/docs/diprete/riches112805.pdf

23

Felix 10.14.11 at 6:14 am

I find this site unexpectedly moving.

24

Henri Vieuxtemps 10.14.11 at 6:16 am

Bringing the top quintile into this, I think it is mistake, big mistake. Look at the graph linked in 5.

Or this old webpage: http://www.lcurve.org/ :

Some doctors and lawyers and professional people, with incomes over a hundred thousand dollars may feel “rich”. They may have nicer homes and cars, and they may have attitudes that separate them from the masses. But they still must work for a living and are primarily consumers of their earnings. Whether they recognize it or not, they actually have more in common with the people at the bottom than they do with the people in the top 1/2%.

The guys with personal jets are the opponents, not doctors and software developers; and this is not so much about income and income taxes as about accumulated wealth, redistributing the wealth. Don’t muddy the water, I believe 99% is exactly right.

25

shah8 10.14.11 at 6:18 am

I read threads like this, and just feel like…

Some of y’all need to watch the classic Chris Rock skit about being rich, and being wealthy. I think the OWS stuff is cute, but a dead end. Wealth and opportunity needs to be redistributed, not precisely cash or jobs. We need government to actually fix stuff like electrical grid and bridges and regulate stuff like CO2 emissions. The money for this sort of thing is not going to come from millionaire taxes. It will come from higher gas/sin taxes. It will come from internal devaluation–i.e., prison guards, docters, and stock brokers won’t see higher taxes so much as that their fields shrink in employment or their pay halved–driving personnel and opportunities to more productive endeavors.

Tax jihadism is all about corralling off opportunity for the exclusive benefit of you and your friends, because you know, as Elizabeth Warren states, you didn’t get there by yourself. So fighting off the attempts to lift the ladder by the Clarence Thomases of the world (think about it) is about understanding that low taxes is about starving people you don’t like of the services they need to succeed.

So nuance is pretty important. It is not about morality or fairness. People care about unfairness, because it’s not enough that they succeed, but that other people fail, and notably favorable taxes are a Veblen good. Getting caught up in the language of scoundrels! is to concede the mortality of the movement. This movement should *not* be about raising taxes to some “fair” level on some “lucky” group. Even if you get those tax raises, you in no way impede inequality, because the growth in inequality is about unequal opportunities, not unequal pay.

26

Lemuel Pitkin 10.14.11 at 6:22 am

ow many people in that 19% group are, say, 55 or older?

55-64: 22.9%
65+: 10.7%

For the population as a whole, it’s

55-64: 18.4%
65+: 21.4%

27

Lemuel Pitkin 10.14.11 at 6:25 am

I find this site unexpectedly moving.

I don’t. Rich people suck, even when they feel sorry for us. You want moving, go here.

28

Tim Worstall 10.14.11 at 7:21 am

Not convinced that the top 1% can be made to pay for everything.

So, top 1% get 25% of all income. All income is around $9 trillion?
$2.25 trillion going to top 1%. On which they currently pay 20% average tax rates.

$450 billion. So, let’s move their average tax rate to 50%.

An extra $675 billion in tax revenues: assuming no Laffer effects at all from getting average (as opposed to marginal) tax rates up to 50%.

$675 billion doesn’t even close the budget deficit let alone pay for new public services.

Even if we say the top 1% are getting 25 % of the national income, $3.5 trillion of $14 trillion, this doesn’t change the numbers all that much.

Taxing that top 1% more might well be a good idea: but it just won’t pay for lots of new lovely public services. Because that top 1% just don’t have enough money in aggregate to pay for all the lovely public services.

So yes, an expansion of public services would indeed require the top 20 % to be contributing more, not just the top 1%. Could be that everyone needs to pay more in fact: there are good reasons why large governments and redistributive economies (like, say, the Nordics) generally finance themselves from consumption taxes, not income ones.

29

Walt 10.14.11 at 7:22 am

I think the key word there is “unexpectedly”.

30

Walt 10.14.11 at 7:25 am

Tim is right. We need to tax wealth.

31

Khan 10.14.11 at 8:26 am

Okay. My first CT post, and it’s gonna be a long one. Here goes.

Background: I’m currently an engineering graduate student / research assistant. Most of my peers count our stipend as paltry, but even so I’m just above the 50th percentile for single payers (as listed in that TPC table linked via the NYT chart). If you count my tuition waiver towards income, I’m all the way up at the 66th percentile. If I decide to put a higher priority on “income” than on “interesting field of study” when I begin my career, I’ll almost certainly reach the 95th, and quite possibly the bottom rung of the 99th percentile.

And yes, I do “support the 99 percent”. And yes, I do agree that tax rates on the top 20% should be increased. Even if the increase in income inequality wasn’t primarily the result of government policy (and it wasn’t), policy should still adjust to account for that inequality.

But there’s a larger point I want to make: it is possible to support OWS from the political center, and still get pissed off at comments like #27.

I call myself a “progressive libertarian” – libertarian because I want to live in the world libertarians describe, where personal outcomes are solely dependent on talent and dedication; progressive because I do not believe we actually live in that world today. The practical result is that I always vote Democrat, and cheer for the likes of Paul Krugman. (And read CT!)

However, even when viewing things from the perspective of my inner Ayn Rand, I’ve always thought that the Tea Party-fueled response to the Great Recession has been incredibly foolish. The creation of a permanent underclass (the long-term unemployed and their children) will in time have political consequences. It might take decades, but the pendulum will eventually swing in the other direction – possibly too far in the other direction. Americans aren’t supposed to hate the rich simply *because* they are rich – instead, we long for the chance to become rich, ourselves. I believe if that paradigm permanently changes – if the dream dies, and the rich and poor begin a cycle of mutual antagonization – then we as a country are truly screwed.

Right now, I criticize the political status quo from the left; however, I’ve been saying for two years that in a couple decades, when the children of today’s unemployed come into power, I’ll be doing the same thing from the right … without ever actually changing my opinion. Some of the comments on this thread make me reconsider that timetable.

Here’s my plea to liberals in general, for what little it’s worth: Don’t make OWS about hating the rich. Hate those who are selfish, if you must. Hate those who mislead and manipulate the less fortunate, and I’ll join you. But if you turn “the 99 percent” into a rallying cry for the downfall of capitalism itself, you will lose most of your support, and the movement will fail. Please, don’t let that happen.

32

J. Otto Pohl 10.14.11 at 8:40 am

I just want to note for the statistics that I make less than $17,000 a year and pay 20% in income taxes each month to the national government here which comes directly out of my paycheck like US ss tax. I will also note that this is the highest paying job I have ever had in the over four decades I have lived. I also have a Ph.D. from a British University, (SOAS, University of London). So even if all the ultraleftist Crooked Timber bloggers with their tenured positions make $200,000 or more a year, my income should bring the average a little closer to the reality of most people. But, yes I agree that people like the Crooked Timberites and Zizek are way overpaid compared to most working people doing similar and comparable work without the ultraleftism.

33

ajay 10.14.11 at 9:25 am

An extra $675 billion in tax revenues: assuming no Laffer effects at all from getting average (as opposed to marginal) tax rates up to 50%. $675 billion doesn’t even close the budget deficit let alone pay for new public services.

Faulty assumption: that, in the middle of a depression, the US needs to close its budget deficit first and only then think about improving public services. This is wrong, of course. It’s going to be a lot easier to close the deficit in times of prosperity when the extra taxes on the top 1% will be bringing in still more (as will the already-existing taxes on the other 99% for that matter), and public services spending will be much lower.

34

zamfir 10.14.11 at 9:54 am

I’d say power should not be forgotten in the story. Rich people are especially problematic when they can and will make decisions that screw our lives.

Concentrated wealth is partly a symptom of such power, partly a source. But there are even in the top 1% people who are getting a good deal, but not necessarily much power to harm. Extent that to the 20%, and you end up with a of group in which most people benefit from the status quo, but aren’t really causing it.

35

David Littleboy 10.14.11 at 10:30 am

I agree with #32 (especially with long-term interest rates near zero), but I think that the 19% need to pay more taxes, too. The payroll taxes are horrifically regressive (especially for the self employed) and at least need to have the cap lifted, rates lowered, and maybe a “19% surcharge added”. Trying to run a family of four with 2 cars on US$60k to 80k has to be real hard, but those folks see a higher incremental tax rate than much of the 19. (My income is minimal, but I have no cars and no kids, so I _feel_ like I’m in the 19%.)

36

Pete 10.14.11 at 10:38 am

Tim, arguing that raising $675bn in tax won’t solve all possible problems and therefore shouldn’t be done is quietism of the worst sort.

37

roger 10.14.11 at 11:50 am

I think the right has given a gift to us with the 47 percent talk. Because we should be talking about what went wrong with income tax – why is it taxing at least 27 percent more people than it should have or was designed to.

The last time we had an income skew – not to mention a wealth skew – like we have today was in the 1920s. The income tax was relatively young, then. In Brownlee’s history of the income tax, he summarizes the WWI era as follows:

“The Democratic tax program, which was implemented in the
wartime Revenue Acts, transformed the experimental, rather tentative
income tax into the foremost instrument of federal taxation.
The Revenue Act of 1916 imposed the first significant tax on personal
incomes, doubled (to 2 percent) the tax on corporate incomes,
and introduced an excess profits tax of 12.5 percent on munitions
makers. It rejected a broadly based personal income tax—
one falling most heavily on wages and salaries—and focused on
the taxation of the wealthiest families. Among the provisions of the
1916 legislation was the elimination of the personal exemption for
dividends. Thus, the act deliberately introduced the double taxation
of corporate earnings distributed as dividends. In effect, the
1916 legislation embraced the concept of using the corporate and
personal income taxes as two different means of taxing the rich.
The architects of the Revenue Act of 1916 intended to implement
on one hand, through the personal income tax, an “ability-to-pay”
philosophy and on the other hand, through corporate taxation, a
“benefit” theory of taxation.”

The effect of this worked out as follows”

“In 1918, only about 15 percent of American families had to
pay personal income taxes, and the tax payments of the wealthiest
1 percent of American families accounted for about 80 percent
of the revenues from the personal income tax. Even without taking
into account the incidence of the corporate income tax on the rich,
this wealthiest 1 percent of taxpayers paid marginal tax rates ranging
from 15 to 77 percent and effective rates averaging 15 percent,
having increased from 3 percent in 1916.”

Something, however, shifted in the 1920s, when the GOP ran the executive branch. The composition of federal revenues shifted to income tax income – away from tarriffs, consumption and corporate taxes. But even then, according to Brownlee, the GOP passed legislation that deduced the first 3,000 dollars of income – which means that the income of the average American family wasn’t taxed at all.

Interestingly, the rate of growth of government in the 20s at the national and state level was pretty high – as Brownlee points out – just as the old source of revenue, tariffs, were collapsed. Free traders seldom talk about tarriffs as anything else but impediments to free trade, but, in fact, they were mighty generators of government income at the time. They were replaced by income taxes. Even though the GOP did not go as far as the modern GOP in increasing non-progressivity, still, the GOP favored cutting taxes on investments and corporations and shifting the tax burden to individuals.

The current income tax would be a much better thing if income up to the 80 percent level – up to 120 thousand, I believe – were simply exempted, corporate taxes were raised, tarriffs were reconsidered, and the tax on the wealthiest doubled.

This was the background to the 20s, when the GOP ran the executive branch.

38

Marc 10.14.11 at 12:02 pm

People should remember that the median *household* income is 50,000 USD here in the States. That means that your salary and that of your partner need to be added together. 2 x 50,000 = top 20% (which is 100,000 USD according to the census tables that I read, at least in 2009.)

One of the supports for the current system is that the people who are currently doing well, even outside the top 1%, face real risks from a disruption of the status quo. People earning 100K/year are not poor. Many benefit to a secondary degree from the current system – for example, the millions of people employed by health insurance companies and the financial sector. (Or, in a related problem, the huge number of people employed in the energy extraction sector, and the problems that causes for dealing with climate change.) They may only be getting a small portion of the spoils, but they will be collateral damage if we do what we should do – for example, reign in the looting in the financial sector.

39

Barry 10.14.11 at 12:09 pm

Khan: “However, even when viewing things from the perspective of my inner Ayn Rand, I’ve always thought that the Tea Party-fueled response to the Great Recession has been incredibly foolish. The creation of a permanent underclass (the long-term unemployed and their children) will in time have political consequences. It might take decades, but the pendulum will eventually swing in the other direction – possibly too far in the other direction. Americans aren’t supposed to hate the rich simply because they are rich – instead, we long for the chance to become rich, ourselves. I believe if that paradigm permanently changes – if the dream dies, and the rich and poor begin a cycle of mutual antagonization – then we as a country are truly screwed.”

The first and foremost thing to remember about the Tea Party is that it’s a lying fraud. A bunch of Republicans started protesting *after* they lost the Presidency and Congress. While Bush & Co. were gleefully abusing power and looting like third-world kleptocrats, they were supporting him. And even in the 2008 election, McCain got 47% of the vote. Considering increased youth and minority turnout, and (assuming) that the GOP was really hurting with actual independents, it’s clear that GOP voters turned out quite enthusiastically to vote for their man – there were virtually no Republicans who had lost faith with the party due to the corruption which they’d be allegedly protesting against three months after Obama was sworn in. We’ve seen that before (the militia movement in the early 90’s), and will see that again in the 2020’s. The Tea Party was astroturf from the beginning, seemed to be made up of people who both didn’t have jobs and had enough money to go around protesting, and was warmly received by the elites. Compare WSJ editorials, Tea Party vs. OWS, and of course Fox News was basically a sponsor.

“The creation of a permanent underclass (the long-term unemployed and their children) will in time have political consequences. It might take decades, but the pendulum will eventually swing in the other direction – possibly too far in the other direction. “

The political consequences have been very, very good for the GOP. They thrive on this, and seem to suppress votes enough to keep going. Even in 2008-present, they took only a very temporary set-back, and succeeded in blocking a lot of stuff by being sheer *ssholes, in public, with the backing of the elites.

Wall St pretty much got away with it, with only minor casualties, who both don’t matter, and whose property the winners bought for a government-subsidized song.

At this point, a serious, successful, violent and massive backlash *might* restore the balance.

40

Barry 10.14.11 at 12:10 pm

Sorry, continuing – in the sense that the right might be trimmed back to a more reasonable position. Unless and until this happens, the right will continue to profit handsomely by trashing the country.

41

Colin Reid 10.14.11 at 12:24 pm

The real issue politically isn’t the 99% vs the 1%, but those who think they will ‘win big’ versus those who are more realistic or pessimistic about their future (not just in terms of earnings, but in terms of future health problems and other unexpected liabilities). Perhaps the individualistic optimism, the feeling that ‘one person can achieve anything if he tries hard enough’ that is ingrained in US culture carries a big share of the blame, and more pessimistic, fatalistic people would vote for a more sensible welfare state and would be more willing to acknowledge the debt the super-rich owe to luck and to the contributions of others. In effect, the oligarchs can and do sell their model of society to the American public in the same way that people sell pyramid schemes.

On the culture war, here’s a question for CTers: how would you feel if the Democrats shifted towards not just the economic interests of the average American worker of limited education, but also her/his cultural attitudes towards religion, science, gender roles etc? Would you be happy to ally with the less enlightened among the 80% in order to achieve your economic goals, as the oligarchs have done? (I doubt that the top 1% as a whole are as socially conservative as the current Republican party, except for a shared reverence for the cult of the alpha male.)

42

Ben 10.14.11 at 12:28 pm

Surely much depends on where they get their money?

If the top 1% get their money by controlling the polictical process to divert the spoils to themselves, then it is certainly true that they don’t deserve it. So Solyndra, bank bailouts, etc. point in this direction. So does the “privatise the gains, socialize the losses” view of bankers as “banksters”, LTCM etc…

But that makes it false that increasing government power is going to help at all. “The government is corrupt and needs to be made more powerful.”

If it’s the case that the 1% are rich because they are powerful (rather than the other way about) then tackling the problem is basically impossible.

I think your analysis is flawed from the get-go because you are considering wealth and income both as exogenous and disconnected from the actions of those who have them.

“It’s obviously unfair that some have more than others… how can we make the rich pay for stuff?”

Except…. it isn’t obvious, is it?

43

Rich Puchalsky 10.14.11 at 12:46 pm

“If I decide to put a higher priority on “income” than on “interesting field of study” when I begin my career, I’ll almost certainly reach the 95th, and quite possibly the bottom rung of the 99th percentile.”

I think that you’re deluded. Links like this one, for instance, put good engineering jobs at $80-100K. According to the figures that Harold linked to earlier, 95th income percentile is $200K. 99th is $500K.

But I think that this whole post is kind of wrong, too. As Walt writes above, what’s important is wealth, not income. You might object that if you tax wealth, it may not be a permanent source of taxes. But that’s OK. This is really a political problem in a much more immediate sense than it’s a tax-base problem. The basic problem is that the 1% control politics. Why, for instance, can the U.S. do nothing about global warming? It’s because we’ve been captured by 1% interests to a much greater degree than other countries.

44

Steve LaBonne 10.14.11 at 12:57 pm

On the culture war, here’s a question for CTers: how would you feel if the Democrats shifted towards not just the economic interests of the average American worker of limited education, but also her/his cultural attitudes towards religion, science, gender roles etc?

That would indeed be an unpleasant dilemma, but I don’t see why you think this would be necessary. The salience of the culture-war stuff would diminish markedly if the Democrats were serious about economic justice (the Obama of “Bittergate”, once upon a time, appeared to understand this). And they would not have to win over more than a fairly modest minority of currently Republican 80 percenters to win elections with considerable regularity.

45

John Quiggin 10.14.11 at 1:02 pm

@Rich Bear in mind that this is household data, and that two incomes are the norm in the top quintile (a reversal of the old days when wives of upper-income men were the least likely to work). I see Marc already made this point, but I’ll repeat it.

On taxing wealth vs income, I’m not clear why you would say “the whole post is wrong” (assuming you were referring to the OP and not the comment). The OP was about wealth just as much as income. In any case, the intersection point here is capital gains. Eliminating the concessional treatment of capital gains (only a decade or so old) would have a big impact, and would be much easier to implement than a new wealth tax. The other big measure would be to restore the effectiveness of inheritance taxes. Ideally, we should treat inheritances as income, perhaps allowing some kind of amortization over time.

46

SamChevre 10.14.11 at 1:03 pm

Just a few numbers, to help clarify what “median” is:

US per-capita GDP: $47,000
Median individual income(P7): $26,000
Median household income(H06): $46,000
Median employed worker income(P36): $45,000 (weighted M/F average)
Median family 2-or more children under 18 (F09): $58,000
Median married couple income (F07): $72,500
Median married couple with at least 1 child under 19 (F10): $78,000

All figures except per-capita income fromCensus data, rounded to nearest thousand, labeled with the table number (P tables are under “people”, H tables under “households”, F tables under “Families”.

47

Henri Vieuxtemps 10.14.11 at 1:20 pm

Politics of the Netherlands can probably provide some answers to the ‘social attitudes’ question. They have one of the most socially liberal and most socially conservative population groups in the world, and yet somehow it all works out.

48

SamChevre 10.14.11 at 1:22 pm

Here’s what makes median tricky: a one-income family can have an earner at the 90th percentile of individual incomes, and a family income below median.

49

bianca steele 10.14.11 at 2:02 pm

@Rich
Might be true if the emphasis on making money extends to jumping at management positions and abandoning a strictly engineering/scientific track as quickly as possible. Looking for jobs suited to the top 1%, and avoiding those that only involve “an interesting area of study,” will probably actually lead to an income in the top 1%. That’s how I interpreted the post. Good engineering jobs with a Ph.D., right now, probably start a little higher than $80K but not $250K in many fields. When people say engineering is a good field if you want to make money, they mean being solidly in the top 25% or so (assuming you pass your courses and get a job). But accounting is probably a safer bet if you can stand the boredom.

50

Steve LaBonne 10.14.11 at 2:11 pm

Might be true if the emphasis on making money extends to jumping at management positions and abandoning a strictly engineering/scientific track as quickly as possible.

Which is what I am advising my engineering-student daughter to plan on doing. She has the verbal and people skills to pull it off.

51

MPAVictoria 10.14.11 at 2:52 pm

“how would you feel if the Democrats shifted towards not just the economic interests of the average American worker of limited education, but also her/his cultural attitudes towards religion, science, gender roles etc? Would you be happy to ally with the less enlightened among the 80% in order to achieve your economic goals, as the oligarchs have done? “

No. Hopefully if the economy improves these individuals will start to care less about culture war issues. Besides in the long run these battles are already won.

52

mpowell 10.14.11 at 3:13 pm

This is a great post which aligns closely with some observations I have made elsewhere. It is important to emphasize the degree to which Republican policies have never benefited even the upper quintile as much as those of the Democrats. Frankly, I’m not even sure they benefit the upper 1% in the medium/long term unless you happen to be the recipients of corporate government hand outs (say you are a private contractor making huge sums of money by overcharging the government and keeping the scam going through political bribery… or a banker/CEO). Getting people to realize this is the most important aspect of the OWS movement. Definitely more important than any list of specific demands which can be reneged on at any time in the future if a permanent voting coalition is not maintained. And, amazingly, I think it might actually be working.

And while taxes on the upper quintile need to go up, the thing to remember about the current government deficit is that we are at 9% unemployment. No sane tax policy is going to balance the budget in that state. A policy of soaking the richest 1% while modestly bumping taxes on the upper quintile would do just fine, I think. If you want public provision of health insurance, the tax increase needed will be larger, but then that’s a pretty big benefit you’d be getting in return.

Many people will bemoan the state of American politics- even the Democrats are plutocrats. But their policies have always been less inegalitarian than the Republican’s and better for the economy as a whole. The first step is for people to come to some appreciation of the absurd bias in our political class’s governing inclinations and after some elections to see if the Democratic party is prepared to tackle this problem. I think the biggest obstacle to progress is the Senate. A 55 member Democratic senate is achievable and could probably do some pretty interesting stuff. With the filibuster you are just asking for too much of the voting public to change things.

53

Rich Puchalsky 10.14.11 at 3:13 pm

“Bear in mind that this is household data, and that two incomes are the norm in the top quintile (a reversal of the old days when wives of upper-income men were the least likely to work). I see Marc already made this point, but I’ll repeat it.”

Yes, but…. if you’re planning to get a $100K/year job, then in order to be at the 95th income percentile, your spouse also needs to have a $100K/year job. How likely is that, really? Going into management from engineering may get you into the upper income categories. But in that case, why not just start with a business degree? It’s useless to actually know how to do anything if you want to make the real money. The whole aspirational “I’m a grad student right now but I’m almost surely going to be 95th percentile” thing seems to me to be not very realistic, and depends on a lot more luck than the poster seemed to think it did.

Maybe I misread the original post, but it did seem to focus on income distribution, not on wealth, and on income distribution as a way to support public goods. But the real public good would be getting the undue influence of wealth out of politics. I don’t think that raising the capital gains tax is going to do it.

54

michael e sullivan 10.14.11 at 3:21 pm

family composition is huge also. If you are a median household with two earners both working full time year round, then your family is around the 80th percentile for household income. Because of course, large percentage of households do not have two earners working full time year round.

55

Matt McIrvin 10.14.11 at 3:37 pm

Henri, I don’t think the point is that people should be demonizing the 19%; the point is more that the well-paid-professional-class 19% are just starting to realize their economic interests are not really in common with the 1%, or with the 0.01%, but more with the other 80%. And that the “we are the 53%” shell game is a ploy to muddy those waters.

But I’m not personally so sure it’s weak. I think the “lucky duckies” line about income tax is a dishonest but powerful attack, which is why they keep using it.

The first time I saw it in the wild was several years ago. There’s this American nonprofit called “Econ4U” that claims to be promoting public economics education, but in practice everything they do is slanted to promote right-neoliberal or libertarian ideas. They were running little multiple-choice quizzes in the slideshow of ads preceding the feature in movie theaters. One of the questions was exactly the lucky-duckie factoid, showing the percentage of households paying no federal income tax (excluding FICA, of course). The answer flashed up, 47% or something like that, and somebody in the audience shouted at the top of his lungs: “WHY AREN’T THEY PAYING ANY TAXES???” Direct hit!

56

Felix 10.14.11 at 4:24 pm

I find this site unexpectedly moving.
I don’t. Rich people suck, even when they feel sorry for us. You want moving, go here.

Yes, I’m familiar with that site and also have been attending my local Occupy Everywhere events when I can make time between my responsibilities as a broke single parent, my low-paying nonprofit job, and my volunteer work with marginally housed and homeless people. And I still find it moving when people with power and privilege can see how that power and privilege causes harm, and for little personal benefit, are willing to give that power and privilege up, or at least question it.

I feel the excitement of a moment when people at different points on the power pyramid are actively sharing a goal of making things better, not just for themselves, but for the society as a whole. It’s OK to have a little optimism now and then.

57

Barry 10.14.11 at 4:32 pm

Rich P: “…thing seems to me to be not very realistic, and depends on a lot more luck than the poster seemed to think it did.”

And especially with this economy, the likelihood of yet another downturn and the continuing probability of an actual second crash. Then factor in a world which has far faster depreciation of intellectual knowledge, companies locking in IP so that it’s harder for an employee/contractor to move elsewhere, and a global labor market. A $20/hr worker has strong pressure on wages; a $100k/yr worker has even stronger.

58

Lemuel Pitkin 10.14.11 at 4:48 pm

It’s OK to have a little optimism now and then.

Oh, I have plenty of optimism.

“Poor people are gonna rise up, and take what’s theirs.” Not rich people are going to bend down and give it to them.

59

Miracle Max 10.14.11 at 5:12 pm

Taxing the rich plus putting a hatchet to the defense budget could finance the current U.S. public sector. It could not finance social democracy. If you want the latter (I do), then Obama’s no taxes for those under $250K schtick should be criticized.

Did numbers on this a while back, in here:

http://www.amazon.com/Political-Economy-Contemporary-Capitalism-Perspectives/dp/0765605309

60

L2P 10.14.11 at 5:18 pm

“Yes, but…. if you’re planning to get a $100K/year job, then in order to be at the 95th income percentile, your spouse also needs to have a $100K/year job. How likely is that, really?”

That really is more a function of where you live than what you do. If you live in LA, that WILL HAPPEN if you just don’t get laid off. If you live in Tennessee, things will need to work out just right or it won’t.

IMO the median income stuff is very, very misleading. You want to be in the top 95th percentile? If you’re a cop, and your wife’s a nurse (or vice versa), and you live in LA, congratulations. You’re in the 95th percentile. Are you both teachers with PHD’s teaching summer school and coaching? Getting really close there – you can be making ~150/160. I’ve always thought that drives a lot of the “rich blue state” stuff on the coasts. That’s a very different sort of “rich” person. The guy fixing my roof right now (not the contractor, the roofer) tells me he makes $80k a year.

61

bianca steele 10.14.11 at 5:34 pm

Maybe what’s needed is some kind of consciousness raising for people in the top 20%–like that cop/nurse couple–about the way things really are and why they should think of themselves instead as “bottom 99%” and why they should want to work to make things better for the bottom 99%.

62

Tim Worstall 10.14.11 at 5:35 pm

“Tim, arguing that raising $675bn in tax won’t solve all possible problems and therefore shouldn’t be done is quietism of the worst sort.”

That’s not actually what I said. Rather, that only taxing the top 1% won’t get John Q to where he said he would like to be. Therefore other people are going to have to be taxed too.

“Taxing the rich plus putting a hatchet to the defense budget could finance the current U.S. public sector. It could not finance social democracy. If you want the latter (I do), then Obama’s no taxes for those under $250K schtick should be criticized.”

Given my non-Americaness whether I desire it for you or not is irrelevant. But it is the same point that I was making. You can’t have the big government social democracy thing (ie, the Nordics) by only taxing the rich. There just aren’t enough rich people and they don’t have enough money in aggregate to pay for it. You have to tax a lot more people than just the rich.

63

Steve LaBonne 10.14.11 at 5:37 pm

Maybe what’s needed is some kind of consciousness raising for people in the top 20%—like that cop/nurse couple—about the way things really are and why they should think of themselves instead as “bottom 99%” and why they should want to work to make things better for the bottom 99%.

Well, Republican troglodytes like Kasich and Walker are certainly helping to raise the consciousness of the cops. Ohio cops and firefighters are fighting mad about the anti-union Senate Bill 5 and hopefully will assure its downfall on the ballot next month.

64

J. Otto Pohl 10.14.11 at 5:40 pm

Looking at the difference in salaries between myself and most commentators. I think I might be in the bottom 1% here. Which is okay, I do not particularly care about money. But, $100,000 is more than I have ever earned in my entire life. To earn it every year seems ridiculous to me. What on earth do these people spend this money on?

65

Henri Vieuxtemps 10.14.11 at 5:49 pm

Mortgages, mostly.

66

SamChevre 10.14.11 at 5:58 pm

But, $100,000 is more than I have ever earned in my entire life. To earn it every year seems ridiculous to me. What on earth do these people spend this money on?

Well, I’m fairly close if you count in health insurance through my employer and employer’s share of FICA. My wife and I have 3 pre-schoolers.
Health insurance: about $15,000 a year
Rent and utilities (in a city that’s near the median): about $20,000 a year.
Transportation (gas, bus fare, vehicle maintenance): about $5,000 a year.
Taxes (remember I’m counting both sides of FICA): about $15,000 a year.
Retirement savings: about $5000 a year.
Saving for random stuff that might go wrong: $10,000
Food, clothes, household stuff: $15,000

It’s enough to have a bit left over, but it’s not a huge amount when you start looking at the expenses for a family.

67

J. Otto Pohl 10.14.11 at 6:06 pm

That sounds like a bad use of funds. But, how much is the average mortgage? I always thought it was cheaper than renting a comparable place long term. Are people really paying over $10,000 a month on mortgages for reasonably sized houses in middle America? That is more expensive than rent in London.

68

ScentOfViolets 10.14.11 at 6:07 pm

Henri, I don’t think the point is that people should be demonizing the 19%; the point is more that the well-paid-professional-class 19% are just starting to realize their economic interests are not really in common with the 1%, or with the 0.01%, but more with the other 80%.

The best quote I’ve heard on the difference between being wealthy and merely being well off is still this one:

“Rich is when your money works for you not when you work for the money, and we work hard for the money.”

Claire Huxtable, of course. My impression is that up until about 2007 you saw a lot of smug professional types who liked to go on about their “investments” and since the market was going up they might have thought with some justification that they were one of the “wealthy” – or would be shortly. Since then they’ve seen their fortunes decline of course, and they are now very much aware that their investments in no way shape or form make them “wealthy”. In fact, that might be a better definition of wealthy for these sorts of discussions: you know you’re rich when the market crashes and you make money off of it.

That’s the big difference and that’s the appropriate point to place the wedge. That is, not between the top 20% and the rest of us, or the top 10 percent and the rest of us (the top 20% with depressing regularity seem to think they’re in the top 10% or even top 5%) , but between the top 1% and the rest of us. The ones who have their money working for them rather than them working for the money.

69

Miracle Max 10.14.11 at 6:12 pm

#62 Tim, I was agreeing with you, dude.

My broken record on this: the U.S. left, unlike those in Canada or Europe, have a fixation on progressive taxation, rather than progressive fiscalism (the impact of spending and taxes combined). It’s a defensive posture, along the lines of “we need more taxes, but you won’t have to pay them. It’ll be those other guys.” Big, not necessarily progressive taxes, including big VATs, finance social democracy everywhere but in Sweden. The latter has big income taxation, among other goodies.

70

Rich Puchalsky 10.14.11 at 6:18 pm

“IMO the median income stuff is very, very misleading. You want to be in the top 95th percentile? If you’re a cop, and your wife’s a nurse (or vice versa), and you live in LA, congratulations. You’re in the 95th percentile. “

Um, what? Not to get on anyone’s case, but there seem to be a lot of myths about what people make here. The annual salary for a police officer in Los Angeles is $46,583 to $78,154. A registered nurse in Los Angeles makes an average salary of $76,000. That’s not $200K/year. And that assumes a stable marriage, stable health so that neither of you loses your job, and so on.

It’s easy to say that the statistics are wrong somehow, but I think that really only 5% of households have an income at the 95% level or better, and no that doesn’t include every married couple with jobs in L.A.

71

4tankistaysobaka 10.14.11 at 6:27 pm

2 points:

1) how many top-20%s think they are only doing well because the top-1%s are doing so well? obvious examples: corporate lawyers, high-end doctors and psychologists, various art world ppls, and so on.

2) i think a lot of top-20%s are more egalitarian on wealth than on power/respect. in today’s world, they have a privileged position, but if they look out at the OWS crowd, and a little voice inside them says “i am not sure these people care that i went to dartmouth.”

72

J. Otto Pohl 10.14.11 at 6:34 pm

#66 I see part of the problem is that you appear to have no benefits in addition to your base salary. My health care, housing, and transportation are all provided as part of my benefits package. I pay about $5,000 a year for food, clothes and household items and $3,500 a year in taxes. This is an argument not for bigger salaries, but for more social benefits from employers or the state.

73

Bruce Wilder 10.14.11 at 6:35 pm

The policy of the 1% is economic cannibalism, but they are chewing from the bottom up, so if you are in the 19%, it is not you and yours, who are being eaten alive at the moment. Unemployment rates are not especially high among the 19%, and wages and household incomes remain fairly stable; it is still possible to have health insurance, and some prospect of retiring someday in something other than abject poverty.

There’s a lot of talk about the polarization of politics, about people adopting radical rhetoric and radical positions, but it is not the polarized radicals and name-callers, who have paralyzed our politics, all the synthetic made-for-cable-news Obama v. the House Republicans drama notwithstanding. The paralysis is in the combination of the complacency of the self-satisfied among the 19% and the extremely shallow discomforts of those, who still have a lot, but feel a bit of slippage, without having much of a diagnosis handy.

The weakness of progressive politics has long been the combination of its instinctive revulsion for political solidarity, with the lack of an institutional agenda. Liberals always suspect racism, when they hear expressions of political solidarity. And, then there’s the class condescension in attitudes toward, say, unions, or country music. At best, well-off liberals want a politics of “empathy”, which implies a certain distance from the afflicted, both socially and in the abstract.

It isn’t just a matter of kindling a bit of a feeling of political solidarity between the 80% and their sympathetic betters among the 19%, although that would be nice. The problem is that the 19% have an extremely shallow view of their predicament; their institutional agenda, such as it is, remains basically preservationist. Krugman — and I like Krugman a lot — Krugman exemplifies the spoken desire to avoid structural remedies, or even a real admission of structural problems. His call for fiscal stimulus carries the clear message that it doesn’t matter what is done to change the status quo.

I read the “We are the 99%” as being about solidarity, or a wish for a solidarity, which would entail the elite serving the whole, instead of themselves. It is not my thought that it involves a reliance on redistributive tax policy (although I, personally, favor a top rate of income tax of 70% or higher and corporate income tax rates of 50%). Like shah8 @25, it seems to me that the main issue is a fair society and a distribution of opportunity. The present policy of the 1% of cannibalistic disinvestment disguised as “austerity” deserves a more cogent critique from the 99% or the 19%.

74

Rich Puchalsky 10.14.11 at 6:43 pm

I’m not really sure if I like making fun of random people, but at least this is funny:Actually, you’re the 47%. Maybe the people who are really confident that they are actually part of the upper percentiles without, you know, actually making that much money, should look at it.

75

Meredith 10.14.11 at 6:46 pm

J. Otto Pohl: people spend their money on rent or mortgage (which both also involve local property taxes), food, clothing, medical and dental bills, maybe things like daycare, soccer cleats or piano lessons for children, or a gym membership for themselves, or even the occasional concert or night out to dinner. We’re not talking yachts here.

A lot depends on where you live. My daughter and her partner (who don’t make anywhere near $100,000! in fact, they’re living on student loans) spend more each month on a teeny one-bedroom apartment in Brooklyn ($1400, and that’s considered “a steal” — they bargained it down from $1700 when NYC real estate suffered right after the quasi-crash, though now the landlord wants to make it $1700 again) than my husband and I do for the mortgage + property taxes on our house — and we pay a lot more on this house in Massachusetts than we would pay for it in, say, Alabama or Oregon (most locations), though a lot less than if we lived in the Boston or NYC area.

Remember, too, that $100,000 before taxes is a lot less after federal income taxes, SS…. Probably more like $70,000-$75,000 net. Though there are built-in advantages to most hirer salaries. Probably most people (certainly individuals; couples, this will vary) grossing $100,000 a year have jobs that have some good benefits, especially good health plans with the employer contributing a lot toward them. Still, medical insurance and such: a lot of money.
Btw, a lot a lot a lot of my husband’s income and mine in the last fifteen years has gone not only to college educations for our children (we’re still paying for that, actually) but to helping them out as grad/professional students or in emergencies. (Just yesterday: my daughter learned she needs some medical tests that her law student medical plan won’t cover. She has no money for them — so, there goes $700.00 we would have liked to put toward our ever-receding retirement.)
I’m truly not complaining! We’re doing fine — far better than I ever imagined when I went into academics. And my daughter is fortunate that she can turn to us, and we are fortunate that we can help her out. Just saying, it’s no mystery where a combined salary of $100,000 can go in a year.
Given the range of individuals/couples/families grossing $100,000 or so: even though I believe federal income taxes on the 19% do need to be hirer at some point, emphasizing the 99% does make more sense.
I do hope Khan will pick up your general attitude, J. O. P., and pursue the area of engineering that interests him rather than going after the big bucks.

76

ScentOfViolets 10.14.11 at 6:48 pm

Maybe what’s needed is some kind of consciousness raising for people in the top 20%—like that cop/nurse couple—about the way things really are and why they should think of themselves instead as “bottom 99%” and why they should want to work to make things better for the bottom 99%.

I suspect that what we’re looking at here is not so much consciousness raising as it is deprogramming.

77

Rob in CT 10.14.11 at 6:49 pm

My household is at roughly the 95th percentile and we’re solidly liberal, because of what we see as our enlightened self-interest.

“There was always an argument in terms of enlightened self-interest or class-interest, that it was better to give up a bit of (pre-tax and post-tax) income to maintain a stable and relatively egalitarian society.

That exactly. It’s not charity. I figure I’m buying something valueable (if rather intangible) with that money.

I’m absolutely furious at those morons at my general income level and above who have drunk the Randian cool aid. They’re going to blow up something that works really freaking well for us. IDIOTS. These are people who think FDR was awful. The New Deal & the like saved American capitalism and made their lives possible. But no, they hate him.

78

Meredith 10.14.11 at 6:49 pm

I do know how to spell “higher.”

79

Henri Vieuxtemps 10.14.11 at 6:55 pm

Big, not necessarily progressive taxes, including big VATs, finance social democracy everywhere

This is silly. Before advocating this, please make sure you already have something that looks like a ‘social democracy': socialized medical care, free childcare, free higher education, at least 2 years of unemployment benefits with free professional training, etc.

But since no one promises any of that, this suggestion that ‘everybody should pay more taxes to finance social democracy’ rings a little hollow. In reality, most likely you’re going to be paying more to blow shit up in far away places.

80

ScentOfViolets 10.14.11 at 6:58 pm

Looking at the difference in salaries between myself and most commentators. I think I might be in the bottom 1% here. Which is okay, I do not particularly care about money. But, $100,000 is more than I have ever earned in my entire life.

I think a lot of us are in the same boat. I saw a fair number of freshly-minted PhD’s complain that there just wasn’t any work to be found[1] – by which they meant tenure-track positions at a fairly large institution doing mostly research while their assistants would handle the grubby details of grading homework.

Picture their fury and frustration when they did not find those jobs and had to settle for less, in fact had to settle for working in private industry at a salary twice what they could ever reasonably expect to make as a full professor, say as an actuary deployed by a large insurance company.

[1]Sort of the converse of employers who complain that they can’t find the people to hire for various positions vital to the welfare of their company – by which of course they mean they can’t find the people to hire at the salary they’re offering. These sorts of unspoken but universally understood qualifiers are everywhere on both sides of these sorts discussions nowadays.

81

Steve LaBonne 10.14.11 at 7:10 pm

But since no one promises any of that, this suggestion that ‘everybody should pay more taxes to finance social democracy’ rings a little hollow. In reality, most likely you’re going to be paying more to blow shit up in far away places.

Thank you for the dose of reality. This chicken / egg problem makes it extremely hard to get from where we are to social democracy. So in my opinion we should be focusing on jobs, inequality, and social mobility rather than on expanding the welfare state. For example, while I believe that socialized medicine gives by far the most care for the buck, I’d happily settle for the largely private Swiss system which, though expensive by world standards, is still much less so than the mess we have now.

82

ScentOfViolets 10.14.11 at 7:10 pm

Btw, a lot a lot a lot of my husband’s income and mine in the last fifteen years has gone not only to college educations for our children (we’re still paying for that, actually) but to helping them out as grad/professional students or in emergencies. (Just yesterday: my daughter learned she needs some medical tests that her law student medical plan won’t cover. She has no money for them—so, there goes $700.00 we would have liked to put toward our ever-receding retirement.)

Story of mine and my daughter’s mother’s life. I can live quite frugally. Not so my only child, who now drives a newer and more expensive car than mine or her mother’s. And also like yours, has some medical problems, some throat scarring that is costing a fair amount to fix and rehab even with insurance. But that’s okay. Getting one’s kids raised up properly takes some serious jack these days. And takes longer to boot, too. I’d say that, oh, maybe half our income goes towards offspring in various ways; she starts college next fall and has had lots of offers from some fairly prestigious institutions . . . none of them cheap or shy about asking for money. Not like in the elder days of my youth, say 1970 or thereabouts, when students lived in cinder block dorms, as God intended.

83

Omega Centauri 10.14.11 at 7:22 pm

Well I’ve been close to 95%ile (sinking downwards a bit post middle age). But, being rich is having enough savings/investments to know you’d be Ok without a job -not there yet, interest/dividends are less then 20% of salary (ugh). So where does it all go?
Housing. In my case paid for, but sunk a lot of capital.
College fees. Three kids in college. Two are in state schools, but in California that will soon catch up to private schooling costwise.
Transportation. Basic car commuting, nothing fancy.
Rainy day funds. What if one -or more of the kids can’t make get a job, and needs help? What if the job ends, and can’t be replaced? That also means finding health insurance…
Retirement. I’m fortunate to have a 100% match for 401K, so I’m sinking the max (matchable) $16.5K into it. Of course market returns the past decade have been dismal, roughly breaking even.

So, yes even those in the upper half of the 19%, are building some wealth. But its hard to build enough to feel secure.

84

J. Otto Pohl 10.14.11 at 7:25 pm

If you gross 100,000 a year and you only pay 1,400 a month in mortgage that leaves you with a lot of money left over even assuming a 30% tax rate. If health insurance is provided by your employer than the only necessity left is food. Last I checked food was still cheap in the US. So that leaves about $50,000 left a year. If the house hold income is $200,000 then you should have $100,000 left. So there is plenty left over to send the kids to expensive universities. But, back when my parents went to college, state universities were close to free for in state residents. So really there is a privatization of benefits that used to be public to a small (5%) portion of the population. I do think a lot of Americans spend far more than they need to on housing, food, transportation, and entertainment. I am willing to bet that every person claiming that they need $100,000 a year just to live could live quite well off of $20,000 a year. That is they would not go hungry, suffer malnutrition, or sleep on the street. Most people in the world live off of $2 a day. So $100,000 a year is still impossible for me to imagine outside of living in too big a place in too expensive of an area, being chronically ill and having to pay your own medical costs or sending children to college. I think the last two should be government funded social benefits. As for housing. It is too expensive in the US. But, I lived in a one room, not one bed room, think studio, flat in Bishkek with my family, a wife and three kids for nearly four years. Americans are spoiled and want to have huge houses in the middle of overpriced urban areas. Rent or mortgage would not eat up $100,000 a year if people lived in one room flats no matter what city they inhabited.

85

J. Otto Pohl 10.14.11 at 7:45 pm

79 I think your wrong. I applied for over 300 positions in the US including adjunct positions and did not get a single interview after I got my PhD in 2004. I had two scholarly books and a number of peer reviewed journal articles at the time. A few rejection letters basically told me I would never get a job in the US because I had no teaching experience and no amount or quality of publications could overcome that disability. At this point I am happy to remain overseas. I like Ghana. It is much more morally advanced than the US.

But, in my case there quite literally are no jobs for me at US universities even though I had done what all the experts say which is get lots of publications. It turns out publications count for absolutely nothing. The only things US universities care about is teaching experience, having a US degree (mine is from SOAS at the University of London), and being ideologically correct. The whole emphasis on publication turned out to be a bold faced lie. If I have gone to a US university, been a TA, had no publications, and been a support of some faddish left wing ideological trend I would have gotten a job in my home country. But, then again I am probably a lot happier in Africa then I would have been if I had pursued that track.

86

Bruce Wilder 10.14.11 at 7:51 pm

I know two men in their 40’s, with kids, who have fallen out of the middle class with great suddenness, as a consequence of the continuing economic crisis. The emotional pain of failing their families and of feeling helpless is excruciating to watch.

87

Miracle Max 10.14.11 at 7:51 pm

#78 Monsieur Vieuxtemps, the dilemma for citizens of the U.S. (and indirectly for everyone else) is that more dough for social programs and more for blowing shit up in far away places go hand in hand in U.S. history. All suggestions for remedies welcome.

88

JW Mason 10.14.11 at 7:56 pm

. You can’t have the big government social democracy thing (ie, the Nordics) by only taxing the rich. There just aren’t enough rich people and they don’t have enough money

Did you read the post? Specifically the part that says, “households the top 1 per cent of the income distribution now receive around 25 per cent of all income, up from 12 per cent a few decades ago.” Seems to me that 10 percent of GDP would buy quite a bit of social democracy.

89

Rob in CT 10.14.11 at 7:58 pm

“If health insurance is provided by your employer than the only necessity left is food.”

A quibble: typically the employee pays 30% of the insurance premium. If I didn’t have to go pick up my car at the shop right now, I’d look up mine for you.

But yeah, $100k-$200k/yr in household income is a lot (even here in relatively high cost-of-living Connecticut) and you should be able to save a bunch of money over time.

90

Meredith 10.14.11 at 8:12 pm

J.O.P.: a couple of things to straighten out. First, the distinctions between an individual, a couple, and a family bringing in $100,000. I don’t think anyone would suggest that a single person with no children or parents or (say) disabled siblings to support was doing anything but extremely well on that (pre-tax) income. Then, number of expenses, especially when you have children. SamChevre@66 does a nice accounting job for you. Utilities and transportation, for instance, you entirely overlook (and I forgot to mention them earlier), yet those costs are very high for most people in the US. (Very few people can just walk to work, the way I do; my husband, though, drives 5 miles to work. He takes a bus, in a pinch, but that can take him over an hour.) Btw, when employers contribute well to employees’ health plans, that means maybe 50-70%, not the whole cost of the plan. And you may not have heard, but healthcare costs in the US are the highest anywhere in the world — even the cheapest plans are not cheap.
I have no doubt that many Americans are spoiled, though I don’t think that’s because most imagine ever having a huge house in the middle of overpriced urban areas (btw, the urban areas where most of the jobs are) or because they’d prefer not to live in a world of one-room flats for families of four. That’s considered poverty just about anywhere in the world, and I would hope we can figure out ways to minimize poverty everywhere.

91

JW Mason 10.14.11 at 8:34 pm

As others have said, family expenses are the big thing. I’m down at the bottom end of the distribution with J. Otto, but without kids it’s fine.

Smug liberals who think that the social democratic project is finished have obviously never thought about the immense work of social reproduction performed by unpaid household labor. A few years ago, it seemed like the next big fight for progressives might be over the extension of family leave/paid sick days/public child care. Obviously sidelined for now, but in the long run real social democracy is going to mean that a lot of child-raising (the costs and risks first, but a big part of the actual work too) moves out the private sphere.

92

Miracle Max 10.14.11 at 8:59 pm

#88 Hi JW. Under Clinton, the average Federal tax rate on the top 1% was 33.4, under Obamian socialism, it would go up to 35.3. How much higher do you think it could go?

http://www.taxpolicycenter.org/numbers/displayatab.cfm?Docid=3211&DocTypeID=2

I hate to say it, but this from NRO is more or less on target, though I would quibble with their non-quantified terminology (“not much”):

http://www.nationalreview.com/corner/262053/how-much-money-do-rich-have-robert-verbruggen

In 2008, before the deluge, if we doubled taxes on those making $200K a year and up, we would add less than 4% of GDP to Federal revenues. Big compared to the deficit, not big compared to the distance between the U.S. and Euro social-democracies.

93

Henri Vieuxtemps 10.14.11 at 9:01 pm

Well, Mister Sawicky, with all due respect, sorry, but I don’t see “hand in hand”. There is no “guns and butter”, it’s either guns or butter. Nor do I see a “chicken / egg problem” here. Explain to me how I benefit from paying taxes, item by item; what will I be getting for paying more? Am I getting more predator drones, more bank bailouts? Well, thanks but no thanks. All that vague rhetoric about ‘financing social democracy’ and ‘the price we pay for civilization’ – that’s just insulting.

94

Christiaan 10.14.11 at 9:13 pm

First they came for the 70%,
and I didn’t speak out because I wasn’t in the 70%.

Then they came for the 80%,
and I didn’t speak out because I wasn’t in the 80%.

Then they came for the 90%,
and I didn’t speak out because I wasn’t in the 90%.

Then they came for me
and there was no one left to speak out for me.

95

Meredith 10.14.11 at 9:15 pm

Reading various comments here, I’m struck by how askew things are. When SoV refers to dorms as cement blocks in the 70’s, I think, yes, whatever happened to the idea of a dorm room as a version of the scholarly monk’s cell? Less money invested in dorms that are like luxury apartments (I won’t even raise the perennial complaint about # of administrators) could mean more teaching positions from which people like J.O.P. might benefit, overworked current faculty (and most are overworked) might benefit, and most of all, our students might benefit. In today’s NYT a story about how hard it is for accomplished Indian students to find a place in an Indian university, so more are coming to US schools. Meanwhile, SoV and I probably had to do well in high school to get into a good college (with bare-bone dorms) back in the day, but the competition was nothing like what it is today, for the same reasons (if on a smaller scale) that Indian students can’t find enough places in Indian universities today.
And this is just a glance at a slice of the well-educated.
Production of wealth is one thing. Its allocation and distribution are another. We (the US, certainly) are very good at the former, inept at the latter.
Massive reorientation of our thinking and approaches is needed. Of what we dream for (but with lots of ambitious dreaming, still). As some have suggested above, a lot of the problem in the US lies with basing so much of our “common” wealth collection on employers and individual income.

96

Miracle Max 10.14.11 at 9:27 pm

#93 Much more revenue is a necessary condition for S-D, not a sufficient one. Sure higher taxes could buy more crap, they often do. If and how we get to where we want to go is beyond me. My approach has been to make the case for public spending that is so great that you (the average person) would actually want to pay for it. That seems to me the necessary political plateau to reach.

97

John Quiggin 10.14.11 at 9:30 pm

Max, to spell out the argument of the post with some numbers, suppose we
(a) take 5 per cent of national income from the top 1 per cent (they currently get about 25 per cent of all income) and give them nothing back (I assume they’ve mostly gone private as regards health, education and so on)
(b) take 5 per cent more from the next 19 per cent (they currently get around 30) and give them better public services in return
then we have a package that would transform the economy, but leave only the 1 per cent substantially worse off, and the 80 per cent much better off.

And of course, there’s no reason to accept that we have to take guns along with the butter. There’s another 2 per cent or so of income to be had from reducing the US war budget to the levels prevailing in more normal countries.

98

LFC 10.14.11 at 9:47 pm

J.O. Pohl @84:
Most people in the world live off of $2 a day.
That’s false. Very roughly, iirc, about a billion or so people live on $1 day or less, another billion-plus on $2/day, for a total of 2.3 or 2.5 billion or so. Bad figures, yes, but not “most people in the world.”

99

stubydoo 10.14.11 at 10:47 pm

First off, I’ll give John Q his market research assistance: I fit very squarely into the 19%, though like a lot among we fortunate 19%, I have spent the majority of my working life in the bottom 80%. (also: for J Otto’s question about what we spend it on – in my case I don’t spend it, my stack of money just keeps on growing).

Now, for my opinions, such as they are: There are poor people. They could benefit from some downward redistribution of resources, in various ways. Downward distribution can be a good idea, as the wealthy don’t need all of the resources. If you are in the 19%, then DOWNWARD MEANS AWAY FROM YOU.

Sure, John Q has made some nods here in the direction of public policies that burden the 1% while leaving the rest of the top 20% OK, but even to the extent that the details could theoretically work out that way (something of which I am not satisfied), there simply isn’t anywhere near enough curiosity about such details in movements like OWS for policies that thread that needle to have any hope of implementation.

Social justice is better served if the 99% vs 1% meme is treated as the literary metaphor it really always was. Trying to squeeze in a literal interpretation will throw it off the rails and end up preventing progress on assisting the truly needy. You either accept expansion of the pool of people to bear the costs, or you fail.

100

Matt McIrvin 10.14.11 at 11:24 pm

There’s change over time. Surely many people who are now in the top 20% realize they won’t be when they get older, and may well be skirting the poverty line (“too old to work and too young to retire” is a phrase I hear a lot these days).

101

Harold 10.14.11 at 11:50 pm

97 Isn’t it true that there aren’t enough people 1n the 1 % to make a difference whether we give nothing back or something back? It may mean little or nothing to them, but they are citizens and why not let them have the same access to public services as other citizens.

102

Khan 10.15.11 at 12:21 am

Sorry for the very late reply to an old comment; I think the time zones are working against me.

@39 – My apologies, I should have made this clearer: I think the current Tea Party, etc, push by the right is foolish *on the part of the puppetmasters*. Or, at least, on the part of those who care about outcomes 20 years from now. I’m sure many of them could care less what the country turns into, as long as they get their bigger slice now. In that sense, I’m in complete agreement: the current GOP is closer to Ayn Rand’s vision of a “looter” than the majority of the Democratic Party. However, in the process, the GOP is ensuring a deep-set resentment in the younger generation (such as myself), which will one day blow up on them. (e.g., Just look at the age demographics of the TP and OWS.) But, what I was trying to convey in my original post wasn’t so much that a massive political over-correction would be bad for the Republican Party*, but bad for the national identity, the economy, and the future as a whole. Capitalism has many, many flaws – but we should try to mitigate those flaws (and there, I essentially agree with John Q’s numbers in 97), not throw out the whole system.

* In point of fact, considering how often they already betray their so-called core ideals in favor of power, I wouldn’t be at all surprised to see the GOP ride out the backlash by mutating into something even more grotesque.

“At this point, a serious, successful, violent and massive backlash might restore the balance.”

I agree with every word in that sentence except “violent”. I hope you didn’t mean that literally, but I think you really did. First, use of violence will almost certainly delegitimize any leftist American movement – and, as I said in the first post, I want OWS to succeed. (Define success as, say, a hefty financial tax, capital gains counting as normal income, and massive mortgage debt relief, for starters.) Second, the only universe in which a violent movement succeeds is one is which we’re already at the “massive over-correction” stage I was afraid of.

103

Khan 10.15.11 at 12:24 am

@43, @49, @53 – First, I was looking at the “Single” column of the tax policy center’s table, linked via that chart – I have no idea what kind of salary my hypothetical future spouse might make, so including married couples in the calculation makes no sense. And in that column, 94th percentile is 77k; 95th is 87k; 99th is 193k. Second, I should also mention that I’ll have a PhD in Aerospace Engineering, specializing in a relatively new and high-demand sub-field, and that the 99th figure is only reachable if I go into business for myself (or, yes, management) — but I keep meeting Aero PhDs who have done just that, and make significantly more than 200k. My own academic advisor has repeatedly floated the idea of going into business for ourselves, just to market an algorithm I’m currently developing. (I think it’s a pipe dream, for the record, but it still makes me optimistic about future opportunities.)

Granted, if the aerospace/defense sector gets cut significantly (until recently, a laughable notion), most of the high-paying options will be severely curtailed. Moreover, I’m not crazy about working in that sector due to my own political tendencies, which is why I make a distinction between money and interest. For me, the “interesting field” would be the space sector, or pure academic research. (And at the risk of going way off-topic, here’s the *really* unrealistic dream I have: I want to help make commercial space transport a profitable endeavor. It seems to be the only way to ensure a permanent human presence in space. Maybe I could make money of my own in the process, maybe not, but I’d still like to help.)

Oh, and in the spirit of the sub-thread spawned by J.O.P.: It’s probably because I come from a lower-middle-class family in Montana, but I live very frugally by the standards of my peers. Up until 2 months ago, I saved 50% of my R.A. stipend. Since then, I’ve moved to a studio apartment within walking distance of campus, which cuts my savings in half … but still.

Beyond all this hoopla about money and realism, I can generally agree with the sentiment from 43 that the biggest problem is the power held by the rich, not their income or wealth per se.

104

Barry 10.15.11 at 1:10 am

Khan, what I fear is that the GOP is very, very good at riding disaster and policies which f*ck the majority. The lingering resentment thing is a factor, but the GOP can probably divert half of it into hatred of Evul Libruls and the government oppression of the poor rich people Galtian Job Creators. A servile mass media, churches which are basically GOP temples, billions in lobbyist money and control of the oppressive mechanisms can quite likely do the rest.

105

Watson Ladd 10.15.11 at 3:56 am

Miracle Max, what’s the point of taking peoples money at gunpoint to spend it on things they want anyway? Redistribution or efficiency are the two reasons for the state to provide services I can think of.

106

LFC 10.15.11 at 4:10 am

@71
how many top-20%s think they are only doing well because the top-1%s are doing so well? obvious examples: corporate lawyers, high-end doctors and psychologists, various art world ppls, and so on.

The mention of “various art world ppls” gets at the point that private wealth currently funds a fair amount of general cultural activity in the US. So the professional interests of a museum curator or theater administrator, e.g., may be tied to the fortunes of the top 1% even though they themselves are not in it. OTOH some downward redistribution from the top 1% would still leave those at the top w/ sizable pots of dough with which to buy art, fund theaters, etc.

107

Meredith 10.15.11 at 4:35 am

@71 and @106: Do these observations help explain the political quietude of many academics and many in the arts since the 80’s — however progressive, vocal, and active they may be especially on issues like gay rights — on economic issues? Both the dependence on the donations of the 1% to the institutions that sustain professors and artists, and the sweet savor of proximity to the glamor of the lives that the 1% lead, from swank openings at a gallery to dinner with a trustee or hopes of getting funded to attend that conference near Lake Como? Insidious co-optation?

108

Felix 10.15.11 at 8:59 am

Probably not a big deal but I want to take a moment to put in a word for nurses here.

Having met and worked with a lot of them, my somewhat informed guess is that as individuals they tend to fall on the Clinton Democrat continuum. More importantly as a mass they represent, by US standards, a very progressive political force. The California Nurses Association/National Nurses United has been a major force for organizing for causes like single payer health care. They chased Schwarzenegger around the state to more than 40 fundraising events to protest his many idiotic positions. Why do folks in this thread seem to think nurses are uninformed or regressive?

?? There has been no previous reference to nurses in this thread, and no suggestion I can find anywhere on CT that they are uninformed or regressive – JQ. No further replies on this one

109

Tim Worstall 10.15.11 at 10:33 am

“Big, not necessarily progressive taxes, including big VATs, finance social democracy everywhere but in Sweden. The latter has big income taxation, among other goodies.”

Well, not really so much. VAT is 25% on almost everything (even 21% on food, ofeten unrated elsewhere). Income taxation is high and corporate and capital low. Lane Kenworthy has pointed out that the tax system there (note, the tax system, not the tax and benefit system) is less progressive than it is in the USA.

“Did you read the post? Specifically the part that says, “households the top 1 per cent of the income distribution now receive around 25 per cent of all income, up from 12 per cent a few decades ago.” Seems to me that 10 percent of GDP would buy quite a bit of social democracy.”

Sure I did. Tax as % ge of GDP in the US is around 30%, a bit under maybe. In Sweden is more like 50%. An extra 10% of income (not GDP) doesn’t close that gap.

Which is all I’m saying, as Max is. You cannot buy Nordic style social democracy just by taxing the rich. For there aren’t enough rich people and they don’t have enough money to pay for it all.

110

Andrew F. 10.15.11 at 11:15 am

John @97: (a) take 5 per cent of national income from the top 1 per cent (they currently get about 25 per cent of all income) and give them nothing back (I assume they’ve mostly gone private as regards health, education and so on)

Reread the sentence you’ve quoted, and you’ll see that your subsequent analysis is all wrong. Rather than have the thread derailed by attempts to correct it, I’ve deleted it. In general I tolerate trolls, but for this topic I want to keep things to good faith discussion. JQ

111

Henri Vieuxtemps 10.15.11 at 11:18 am

Look, once you introduce meaningful welfare-state programs, financing them won’t be a problem; even the two skimpy American ones, Medicare and Social Security, are surprisingly hard to kill. And those are weak ones: if I’m 35, or even 45, do I really care what’s going to happen to me when I’m 67? The trick is to enact these programs, financing will come naturally. But the 1% guys will not let you enact them; their think-tanks and media channels work hard to scorn the “culture of entitlement” and promote “individual responsibility”.

112

Matt McIrvin 10.15.11 at 12:39 pm

And those are weak ones: if I’m 35, or even 45, do I really care what’s going to happen to me when I’m 67?

What? Of course I do. Maybe not when I’m 19, but closer to middle age, I think this is actually one of the biggest worries people have. Financial planners in the US get great mileage out of telling 35- and 45-year-old people that Social Security is about to disappear so it’s all the more important for them to sock away as much money as possible in their 401(k)s and IRAs. In more traditional societies, this is one of the primary reasons people want to have lots of children.

113

Henri Vieuxtemps 10.15.11 at 1:08 pm

In more traditional societies, this is one of the primary reasons people want to have lots of children.

True, it is the primary reason, but not for 67. They need help when they are 40.

114

Andrew F. 10.15.11 at 1:37 pm

John @110: I did misread it, though it’s possible to correct a misreading without calling someone a troll. So let’s re-do the numbers.

5% of total personal income comes to 627 billion dollars for 2010. For both (a) and (b), then, we get a total of 1.254 trillion dollars. A very significant figure.

To do this, and correct me if I’m wrong, you’d have to increase effective income taxes by roughly 25% on the top 1%, and about 15% on the next 19%.

If we were to poll the top 20%, and ask them whether they’d favor a 15 to 25 percent bump in their effective income taxes along with a 1.254 trillion dollar increase in federal spending, I suspect the number in favor would be extremely low even if we included a description of postulated benefits in our polling question. For the United States, imho, this isn’t a politically feasible policy for the foreseeable future.

115

bianca steele 10.15.11 at 2:16 pm

@1o6, @107, etc.:
There seems to be a lot of focus in these discussions about whether the 19% do, or should, “identify” (in a cultural, not economic, sense) with the 1% and their tastes. That seems peculiar to me. I have to guess it is different in, say, England. (Look at the socioeconomic breakdown for the UK in Wikipedia, for example.)

Along the same lines, on the USIH blog there is a discussion of the word “bourgeois.” I remember being surprised in history courses to come across the idea that, for example, we only have the thoughts of middle class women in the nineteenth century, because they are the ones who kept diaries, and that “middle class” was defined as the daughters of doctors and lawyers–my college friends whose fathers were doctors and lawyers did not use the word this way.

There seems to be excessive room for confusion.

116

LFC 10.15.11 at 3:22 pm

bianca @115
There seems to be a lot of focus in these discussions about whether the 19% do, or should, “identify” (in a cultural, not economic, sense) with the 1% and their tastes. That seems peculiar to me.

I think it’s not primarily a question of culturally identifying with a set of ‘tastes’, or in any case such identification has to be considered in a broader economic context. I think if you re-read 106 and 107 you’ll see that what’s being suggested, at least in part, is that if X’s professional existence — as, say, a museum director or a university president — is tied in some substantial part to sizable donations from wealthy people, then X may be a bit less likely to sit down and write an op-ed about the need to increase taxes on the wealthy. (Warren Buffett can write such an op-ed, but Buffett is a multi-billionaire. If you are a university administrator whose institution depends on donations from multi-millionaires who are rich but not quite as rich as Buffett, you may be a bit reluctant to join in the cries for higher taxes on multi-millionaires. Note that these considerations would affect administrators more directly than professors, although if prof X is hoping for a endowed chair funded by millionaire Z, then that might influence the prof.) Perhaps as an analysis this is too crude — people do vote and write against their ‘interests’ as has been noted above — but I would be hesitant to write it off as completely wrong.

117

Meredith 10.15.11 at 3:51 pm

“There was always an argument in terms of enlightened self-interest or class-interest, that it was better to give up a bit of (pre-tax and post-tax) income to maintain a stable and relatively egalitarian society. But in an individualistic society like that of the US such arguments don’t go very far.”

I’m think arguments like that can go far in the US, and have done so, historically, in response to the excesses of Galtian individualism (think the Gilded Age and the age of reform that followed, think Hoover and FDR). One of the great disappointments of the Obama administration since its earliest days has been its failure to lead in reform and in educating a public ready to be educated. Instead, he praised Rep. Ryan.

On the whole, Americans do believe passionately in the virtues of a stable and relatively egalitarian society. (Commenters like James Refell@10 and Rob in CT@77 are not, I believe, unrepresentative.) Americans also tend to believe that ours already is such a society, even when it’s not. But as more and more people can’t help but face the reality of our economic inequalities today, they get angry and can be roused, as the generally favorable response by the public to OWS shows.

118

Meredith 10.15.11 at 3:58 pm

(Btw, by way of example, there was a reference to a nurse (and a cop) @70. I think if someone spends a lot of time with nurses, who politically probably tend to be Democrats, even progressives, and who work incredibly hard on behalf of others for not exactly Dimon-like recompense, that person might be forgiven a strong response.)

119

Bruce Wilder 10.15.11 at 5:32 pm

AF@114, JQ@97 et alia

With Reagan, the U.S. began a significant experiment in economics: reducing marginal income tax rates, particularly “at the top” and on capital income. There’s a detailed history to this experiment, which includes the decision to increase marginal rates on the bottom, through the increases to FICA (Social Security wage taxes), and to systematically eliminate the economic rents available to unions, by direct assault on labor unions and by de-regulation of transportation and liberalization of trade. De-regulation of banking aimed at destroying the savings and loans (aka thrifts). So, I don’t want to pretend for a moment that the reduction in income tax rates was some bloodless abstract policy, affecting only “after-tax” income, and with no cognizance of other policies to affect the distribution of income, “pre-tax”.

With our eyes open to the overall policy context, then, let’s consider for a moment the effects of radically reducing marginal income tax rates and rates on capital income. The classic argument, made by conservatives — notably Arthur Laffer and the WSJ editorial page crew — was that reducing marginal rates reflected simple truths of economics. The “marginal principle” proved that reducing “punitive” marginal rates would unleash additional effort, and, therefore growth. Laffer lent his name to the exaggeration that reducing rates would actually result in so much additional effort and growth, that government revenue might actually increase. A corollary generalization was pushed through the propaganda mills, to the effect that a tradeoff existed for a society, between the legally enforced equality of socialist oppression with its tendency to economic stagnation and the freedom of the free market with its prospect of wealth creation and high growth and opportunity.

Liberal economists, already mostly neo-liberals in the spirit of Charles Peters, offered a very weak rebuttal. They endorsed free-trade and de-regulation in principle, with no significant qualification. Most noticed the time-bomb in S&L deregulation only after it had gone off. They contented themselves with noting that the Laffer Curve was a bit of an exaggeration.

Now, thirty years later, reality has returned its rebuttal, and it has considerably more force than the idiot stylings of neoliberals like Brad DeLong.

Shall we roll tape? Shall we now apply our critical thinking skills to evaluating the outcome of the experiment? Shall we notice?

With typical weak-mindedness, the neo-liberals, rather belatedly have acknowledged the facts, say, of Piketty and Saez. In the abstract, they are willing to acknowledge that inequality of income and wealth have increased. With Hacker & Pierson, they can kinda, sorta penetrate to the insight that increasing risk is being imposed on the working and middle classes to support this re-distribution upward.

Where’s that tremendous economic growth, though? It’s in India and Brazil and China, and its benefits are flowing to the top of the food chain in corporate America and Wall Street. If Detroit is a wasteland, we are supposed to celebrate that China is no longer backward, and, of course, no one is to begrudge a billionaire his billions.

In the 19th century, the classical economists developed an analysis of the distribution of income, which focused on the concept of economic rent, the portion of factor income in excess of what was required to bring the factor into use. They lived in a Europe, whose economies, and politics, were still dominated by landed aristorcracies, whose incomes were, literally, rent. The dynamics and fundamental injustice of such arrangements were a felt reality. The idea that economic rents could be taxed — should be taxed, and heavily — without much affecting incentives and useful production was widely understood.

The immediate subject, though, is top marginal income tax rates. What is it, with the benefit of 30 years of hard experience informing us, we should expect from low marginal tax rates on very, very high earners and on capital income?

What does it mean for someone making $300,000 a year to work harder in order to earn $400,000 a year? What does it mean for someone receiving capital income of $2 million a year to make the effort to make a capital income of $5 million a year? What are their opportunities? What are their options? And, does the general public have any interest in seeing those opportunities taken?

I would suggest that the concept of economic rent is useful here, in several respects. First, it is a moral rebuttal to the libertarian claims of a Robert Nozick. Wilt Chamberlin’s income as a basketball player is mostly an economic rent, and only incidentally a matter of individual talent or effort.

Second, the possessors of large incomes, which is to say, the possessors of large rents, have an incentive to act conservatively in politics, even in the most pernicious causes. Witness the effects the skyrocketing rents enjoyed by the Koch brothers, whose fortune has multiplied in the shadow of peak oil, has had on our politics generally, or the politics of responding to global warming in particular. It is not quite as vivid a moral crime as that of the English landlords, who starved 2 million Irish peasants to death in the Potato famine — the event that prompted the repeal of the Corn Laws, an attack on their economic rents — but it may prove even more fateful.

Third, consider what a corporate executive can do with his power, to increase his income, when taxes do not make those efforts self-defeating. The CEO is not a superman, able to add hours to his day in response to lower marginal tax rates. But, he has great political power in a political machine, a bureaucracy running on the economic rents of a great franchise. What can he do? He can cheat. He can lie. He can screw the other stakeholders.

We don’t have to theorize. We can look to thirty years of experience with the effects of low top marginal rates. We can look at corporations, where rising CEO compensation sets off a vicious Klingon tournament, in which executives compete to have possession of the throne, even for a short period — and at rates of compensation running into the tens of millions per annum for CEOs, you can become independently wealthy in only a short period. Or, consider the joys of so-called “private equity” investments, in which a takeover is financed by heavy borrowing, the firm is stripped of value and the other stakeholders are left with nothing. These are the effects of low top marginal rates of income tax.

I submit that a top marginal rate of 70% or more is urgently necessary. Not just to finance more spending on infrastructure or social insurance or other public goods, but just to quell rampant abuse of private power.

When the 1% take 25% of national income, they are not doing good, to “earn” that money. There just are not many honest ways to make $10 million, let along $100 million, in a year.

120

Henri Vieuxtemps 10.15.11 at 6:19 pm

With Reagan, the U.S. began a significant experiment in economics

I disagree that this is an “experiment in economics”; it’s a natural process. Once in a while they get scared and decide that, to survive in turbulent times, they have to share the loot, but the the pressure to do the opposite is constant. It was the Kennedy and Johnson administrations that cut the top marginal rate by 20%, from 90 to 70; was that a part of the experiment?

121

Bruce Wilder 10.15.11 at 7:17 pm

HV@120

My calling it “an experiment” is a fictitious framework, of course, while yours is more of an organic argument. Even within an organic framework, though, there isn’t a single source of pressure, nor is the pressure constant. The predator-prey cycle is a more exact analogy, I would think, and that shows all kinds of dynamics.

You might think it somewhat ridiculous to call the sheep to arms, but the job of calling the wolves is tenured and already filled.

122

Harold 10.15.11 at 7:24 pm

Top marginal tax rate should be about 65%
http://www.angrybearblog.com/2010/12/top-marginal-income-tax-rate-should-be.html

Excerpt: To maximize real economic growth in the United States, the top marginal income tax rate should be about 65%, give or take about ten percent. Preposterous, right? Well, it turns out that’s what the data tells us, or would, if we had the ears to listen.

http://www.presimetrics.com/blog/?p=268

123

stubydoo 10.15.11 at 7:46 pm

Harold, the top marginal tax rate (federal + state + local) already is roughly 65%.

124

Henri Vieuxtemps 10.15.11 at 7:59 pm

It seems to me that, without a doubt and without any data, the top marginal rate should be 100%. John Paulson, hedge fund manager, made over $5 billion for himself in 2010; and $4 billion a few years before that. Taxed, I imagine, at 15%.

Which means that 3-4 thousand of ordinary people will spend a lifetime each working for Mr. Paulson. 100% rate seems like the only rational response.

125

Bruce Wilder 10.15.11 at 9:10 pm

Would you like to show your arithmetic on that one, stubydoo?

Cause I find it hard to get much above 50% and even if I throw in 10% or so for sales taxes, that still wouldn’t get much of anyone to your 65%

This is what I get in high-tax California:

Federal rate (top bracket, >379,150): 35.0%
California State (maximum rate): 9.3%
California mental health services*: 1.0%
FICA (employee +employer) 2.9%
Grand Total: 48.2%

*applies to incomes over $1 million

Federal rate middle bracket: 28%
FICA (employee) 5.65%
FICA (employer) 7.65%
California State 9.3%
Grand Total: 50.6%

State sales tax rate (Los Angeles county): 8.75%

So, basically, I get combined income tax rates maxing out around 50%. Interestingly, the peak in marginal rates is somewhere in the middle — for a wage earner who is still subject at the margin to Social Security taxes, but who clears the threshold for a 28% Federal income tax rate.

If I throw in sales taxes, maybe I can get an argument going for that top marginal rate scraping a 60% ceiling, but that’s really stretching the argument, I think.

Of the roughly 235,000 federal income tax filers for 2009, who reported $1,000,000 or more in adjusted gross income, 1415 paid no federal income tax at all! The average tax rate was less than 25%

126

Bruce Wilder 10.15.11 at 9:14 pm

HV@124

Re: John Paulson

Not only did he make an obscene amount of money, he made that money, essentially, making the housing bubble and financial crisis worse for others. His was a kind of confidence game on a huge scale, which included operations, which had the effect of increasing the financing of home loans at the peak of the bubble.

127

Henri Vieuxtemps 10.15.11 at 9:28 pm

Would you like to show your arithmetic on that one, stubydoo?

What they do now, even in federal tables, is counting the mythical 35%, that corporations (legal persons) supposedly pay, as a tax paid by stockholders. This is how they fake progressivity of the tax code.

128

stubydoo 10.15.11 at 10:17 pm

Bruce,

If I use 39.6% as the federal rate (under current law the rate will revert to that), and substitute the state and local for where I live (New York City, 3.87% city + 6.85% state), that gets me to about 54%. As has been noted, there are various ploys out there (mostly silly) to get even higher numbers. I didn’t read enough of the linked paper to see whether it would hold that 65% is still the right rate on income even when there is additionally sales tax.

(btw, the most awesomely audacious measurement of marginal tax incidence was from Greg Mankiw – by declaring that his relevant margin passes through his children’s inheritance, he got 98%).

129

Bruce Wilder 10.15.11 at 11:15 pm

Mankiw is famous for hackilicious and self-obsessed meditations on the awesome power of teh marginal rates to motivate behavior. It’s really bad economics. If teh marginal mattered in the way, and to the extent, he imagines, Harvard wouldn’t be paying him a salary, would it?

130

Matt McIrvin 10.16.11 at 12:13 am

1) how many top-20%s think they are only doing well because the top-1%s are doing so well? obvious examples: corporate lawyers, high-end doctors and psychologists, various art world ppls, and so on.

My household is, just barely, in the top 20%. For most of my career I’ve worked on making consumer and small-office products. If the 80% are hurting, that’s really bad for me, because who’s going to buy this stuff? I’d hope others in my situation realize this.

131

SamChevre 10.16.11 at 12:13 am

De-regulation of banking aimed at destroying the savings and loans (aka thrifts).

No, this is just wrong; the thrifts were already insolvent by 1980 (due to locked-in long mortage rates as inflation and short rates sky-rocketed.) The deregulation was an attempt to get around the existing problem without spending money, which failed disastrously.

132

mpowell 10.16.11 at 3:37 am

Keep in mind that state and local taxes are deductions from your federal tax obligations so if you are paying 13.2% to local jurisdictions, then you are paying 35% on 86.8%, not 100. Your total marginal rate is going to be 43.58%. Just an FYI.

133

Meredith 10.16.11 at 6:03 am

mpowell: in what country do you get to deduct state and local taxes? not in the US! not for a while now.

134

Tim Worstall 10.16.11 at 6:23 am

“What they do now, even in federal tables, is counting the mythical 35%, that corporations (legal persons) supposedly pay, as a tax paid by stockholders. This is how they fake progressivity of the tax code.”

Well, yes, any tax results in the pocket book of some live human being having less money in it. Who for which tax is the interesting question (s) that follow.

Attributing all of the corporate income tax to shareholders is almost certainly wrong: some of it (how much being something argued about very loudly) comes from hte workers in the form of lower wages.

135

Walt 10.16.11 at 6:56 am

Tim, don’t you work for a corporation? And you think that a corporation is a passive vehicle for passing profits on to shareholders? For real? For really real? Like, you’re not kidding?

136

Henri Vieuxtemps 10.16.11 at 7:32 am

Well, yes, any tax results in the pocket book of some live human being having less money in it.

Well, why is it suddenly so important to attribute it to live human beings in this case? If a corporation goes bankrupt, its live human beings shareholders are not going to pay the debt; they will point out that the corporation is a separate entity. So, when it comes to corporate taxes, why are they allowed to have it both ways and characterize it as accounting fiction?

137

fairleft 10.16.11 at 8:47 am

“In any case, the intersection point here is capital gains. Eliminating the concessional treatment of capital gains (only a decade or so old) would have a big impact, and would be much easier to implement than a new wealth tax. The other big measure would be to restore the effectiveness of inheritance taxes.”

To create a prosperous and egalitarian society, to un-do the last 35 years of redistribution upward to the wealthiest 1 to 10% (an empirical matter where the line is drawn), you have to have a voracious one-time wealth tax. Somehow I think, in the context of Occupy Wall Street, that proposals ‘possibly do-able in Congress someday under our present rules for campaign contributions,’ are not what the discussion should be about. What if we had campaign finance rules preventing a now legal form of bribery? Isn’t that reform the baseline that creates any realistic possibility of egalitarian redistribution, such as ‘radical but possibly very popular’ proposals like a big wealth tax?

138

roger 10.16.11 at 10:14 am

@134 – hmm, I’ve heard this argument about the money taken from the pocketbook before. It has a beautiful sound which anyone can relate to. Both the poor man and the rich man have wallets!
And yet, I am wondering if the cash they fit into the wallet represents the same percentage of cash each truly possesses.
So let’s look at a typical plutocrat’s pocketbook. Let’s use the nice jetsetting Tommy Hilfinger Trifold Wallet. And lets, for the sake of old fashioned industry, let the plutocrat be Exxon
s s CEO in the 2000s, Lee Raymond, who, according to this NYT article: (http://www.nytimes.com/2006/04/15/business/15pay.html?hp&ex=1145160000&en=a1bc7978beba066b&ei=5094&partner=homepage) was bringing home the bacon to the extent of being paid $144,573 per day during his tenure, including Saturdays and Sundays. In fact, with that compensation, he was paid more for his visits to the bathroom in an average day than the janitors in the Exxon building were paid for six months of labor. But that it is because he was a genius! He figured out how to make the largest oil company in the world show a profit! Such are the miracles of upper management life.
Anyway, to get back to the pocketbook problem – to stuff 144,573 dollars into a trifold pocketbook is very, very difficult. The largest denomination American bill at present is the 100 dollar bill, although in the past there were gold notes worth up to 100,000. Thus, he’d have to fit into his pocketbook 1445 100 dollar bills per day. I myself think that he couldn’t do it, not in a trifold wallet.
Thus, I’d guess we would not be removing much money from Mr. Raymond’s pocketbook if his company was zapped with the same corporate tax rate that they once paid under Wilson, or Eisenhower, or Kennedy, or Nixon. That is because the money he carries around in his pocketbook represents – perhaps – less than 1 percent of his takehome pay.
Which leads to the simplest tax system: we tax by the number of trifold wallets it takes to contain all of one’s total compensation. Surely a simple number will suffice – say, we don’t tax up to 1000 cash stuffed wallets, and we take the rest for the government. This seems eminently fair. The janitor who works for Exxon would simply not pay any taxes. Whereas after the 1000th pocketbook, I am thinking that we could extract perhaps 100,000 more pocketbooks from Mr. Raymond. Talk about being able to pay for our military interventions on behalf of oil companies in the Middle East1 Surely a win win situation all the way around.

139

Pith Helmet 10.16.11 at 11:04 am

I had to look it up, so here’s a link to the Allan Grayson/P.J. O’Roarke takedown:

http://videocafe.crooksandliars.com/scarce/econ-101-alan-grayson-schools-pj-orourke

140

Tim Worstall 10.16.11 at 11:14 am

“Tim, don’t you work for a corporation? “

No, sole trader.

But this idea that companies don’t pay the tax, some combination of shareholders, customers or workers do is hardly unusual or something out of right field.

An introduction to the idea:

http://en.wikipedia.org/wiki/Tax_incidence

The footnotes lead to a couple of decent further explanations. And again, this isn’t something odd, entirely mainstream economics. First pointed out by Seligman all the way back in 1899.

141

Walt 10.16.11 at 11:20 am

Oh, so then you don’t know how they work, then. That makes sense.

142

Steve Williams 10.16.11 at 11:27 am

Roger, I love your idea! My only fear though, is that the Exxon CEO’s will simply build refinery-sized pocketbooks 。 。 。

143

ScentOfViolets 10.16.11 at 5:47 pm

My calling it “an experiment” is a fictitious framework, of course, while yours is more of an organic argument.

Well, the last thirty years of economic policy wherein taxes have been reduced on the rich, regulations weakened and so on and so forth has been very much a test of a certain class of economic theorizing. So I think it’s entirely appropriate for you to call what happened an experiment.

And you’re also right in saying that we now have direct observations to show those theories just don’t hold up. Where your description goes off the rails I think is that the proponents of those theories never had the slightest intention of abiding by the results of those experiments.[1] I find this one particularly infuriating. I think we’ve talked about this one before, where back in ’93 prominent Republicans and conservative “intellectuals” of the day went on public record saying that if passage of the Omnibus Reconciliation bill – “the biggest tax increase in history” – didn’t cause a recession and/or systemic economic hardship they’d know their ideas were wrong and accordingly would resign from public life. Putting your money where mouth is, as it were, and a sound sentiment which I heartily approve. And it certainly sounded as if these guys were operating within the framework of some sort of experimental methodology (I had a much higher opinion of conservatives and libertarians back then).

Well, we know what happened with that one, don’t we? What we got instead after the bill was passed (I’m not claiming any causality here) was some of the best economic growth we’ve had in a long, long time. And – whadda surprise! – instead of following through on their stated convictions and shutting the hell up, these same “intellectuals” advanced elaborate after-the-fact rationales to show that those happier times were really a vindication of Reagan’s ideas and his actions in office. Oh, and that anybody who thought otherwise was free to try and prove them wrong. And that anyone pointing out how this was yet more theorizing in face of direct observations to the contrary was just being small, spiteful and petty, and almost certainly a hippie to boot. Same as it ever was :-(

[1]I think we’ve also talked about this one before, the discussion over at Angry Bear a few years back concerning Mike Kimel’s research showing that by just about every metric you could think of and despite any elaborate arguments about delayed causality to the contrary, Democrats have been better for the economy than the Republicans over the last 70 or so years. That research ultimately ended up in book form, Presimetrics. Thanks, Cactus :-)

144

mcarson 10.17.11 at 3:21 am

The biggest thing OWS did through their ‘we are the 99%’ statement is this : showed people that the economic anxiety and sense of ‘not getting anywhere’ were true. All kinds of people have seen the charts showing that family income hasn’t increased significantly since 1980. Most of the Right-Wing, no tax, no immigrants taking OUR JOBS faction was reacting to the flat-lining of income and attributing it to the government and higher taxes.

Now that we know, and can show, that what happened was not ’caused by the government’ in the they taxed us too much sense, we can see that it was ’caused by the government’ in the let business get away with murder sense.

To me the most telling statistic was that right before the crash of 2008 ‘Financial Services’ accounted for about 40% of ALL corporate profits. In the 1970’s or 1980’s it was about 13%. That 27% skim was the money not available to the workers, no matter how hard we worked.

It won’t take a lot more taxes if you get rid of the skim. For example, Social Security is solvent IF income changes after 1980 were the same as before 1980. But with so much of the total income of the country not subject to SS withholding, the fund is in trouble. With unemployment at 5 % rather than almost 10% much of the deficit vanishes, just from that 5% paying in rather than taking out in unemployment and food stamps.

Anyone can look at their total tax due and figure out what 5% more would be. It really isn’t that much, even if you make 1 million a year. It won’t change anyone’s life unless they dwell on it. They’ll still go to work, go home, eat dinner and plan their vacations.

All the Republicans have to sell is fear. If we took a page out of the Brit WWII poster, ‘Keep Calm and Carry On’, we’d all do fine.

145

Tim Worstall 10.17.11 at 10:30 am

“Oh, so then you don’t know how they work, then. That makes sense.”

Eh? When considering a complex technical point I should not rely upon a century of study of said complex technical point but purely on personal experience?

That I have/have not had an electric shock personally has an impact on how the National Grid should be run for example?

146

Rob in CT 10.17.11 at 2:25 pm

mpowell: in what country do you get to deduct state and local taxes? not in the US! not for a while now.

Umm…

I distinctly recall deducting our state & local taxes before calculating our AGI. What are you talking about?

147

Rob in CT 10.17.11 at 2:27 pm

Ah, I see. If you take the standard deduction you don’t deduct local/state taxes. If you itemize, which we do, you deduct those things.

148

the.Duke.of.URL 10.17.11 at 4:04 pm

John, when you say, “It follows that any significant improvement in public services, or in the position of the unemployed and poor, must be funded by higher taxes on the 1 per cent, the 19 per cent or both.”, this is not necessarily true. From an MMT perpsective, the govt funding of public services does not need to be underwritten by taxation. It can be created as part of the public debt, as Roosevelt did with some of his programs.

As for the redistributive function of taxation, yes indeed, this should happen, but the 20%, or a substantial part, will resist to the end. Kaldor suggested a kind of expenditure tax in the mid-’50s which seems to have gained favor among some commentators, which he thought could replace the income tax.

149

John Quiggin 10.17.11 at 4:19 pm

MMT doesn’t really say that you can finance public expenditure without taxation. It says you should work out how much expenditure and how much net money creation you want, and set taxation as a residual. But it’s still true, having done that, that more spending means more tax.

You can also finance current expenditure by debt, and sometimes that’s a good idea. But debt has to be serviced and eventually repaid or rolled over.

Right now, these constraints aren’t very tight because interest rates are near zero and the economy is in a liquidity trap. But that’s only because we haven’t done what both MMT and standard Keynesianism say we should do under current circumstances. Once we get the necessary expansion, we’ll be back to the situation I describe.

150

Asher 10.17.11 at 9:14 pm

http://ghanaweb.com/GhanaHomePage/NewsArchive/artikel.php?ID=167767

For 85 who thought Ghana is more “moral” than the US there’s a nice little article about child rape in Ghana

151

Asher 10.17.11 at 9:40 pm

As someone who grew up in a rather dangerous neighborhood I would submit that my primary economic concern is insulating myself from the criminally-prone underclass. I do not see how this discussion incorporates that very pressing concern. I pay a good portion of my income just for the privilege of not having to reside in proximity to the demographic environment in which I was raised.

152

JW Mason 10.17.11 at 10:04 pm

State and local taxes are deductible: http://www.irs.gov/taxtopics/tc503.html

It may be that Meredith is in the 1%, and is subject to the alternative minimum tax. State and local taxes are not deductible from the AMT.

153

Meredith 10.18.11 at 5:57 am

Boy, so I was tired of grading (of the yes! I can grade that! sort) and came here. Wish I were in the 1%! No, I don’t, in fact. I have zero interest in that kind of wealth. Or in much less than that kind of wealth. All I know is that our modest local tax accountant scoffs at all the receipts we dutifully produce at tax time (usually April 14 — we’re very bad).
I do know that there was a time (maybe 25 years ago) when, if you were insane enough to save all your sales tax receipts, you could take a deduction somewhere.
The interesting question — I’ve thought about this in non-fraught contexts: when middle class folks still did their own taxes, including without benefit of TurboTax and the like, they actually learned a lot and could counter politicians’ blather with their own hard-earned tax-prep knowledge.

154

JW Mason 10.18.11 at 9:15 am

Oh, ok, you’re talking specifically about *sales* taxes. Rob in CT was talking about state/local income taxes.

155

Michelle 10.19.11 at 9:45 pm

Based on my lower, but probably fair, salary I am in the 80%. No matter what I do with deductions, I still pay 20% of my income in income tax. This seems ridiculous to me knowing that the rich have the ability to come up with deductions that I can only dream of and the poorer just pay nothing. I would love to see a flat tax, 10-15% for everyone. It can come right of of paychecks and transactions (capital gains/stock pay outs, etc) which would eliminate the need to file an income tax form. We could virtually eliminate the IRS; and most of us middle classers would stop feeling like we are shouldering the burden for the richies and the poories. Damn my good work ethic! I sometimes wished I had tried harder to live off the man or went to work at wall street. I could have done either, but neither seemed very unshameful at the time.

Comments on this entry are closed.