Populism and Patrimonialism

by John Quiggin on October 17, 2015

Nuance is nearly always appealing to academics. For a long time, that was true of my approach to economic issues, particularly including income distribution. When presented with simplistic populist solutions to inequality like “Make the rich pay!”, I was inclined to responses along the lines of “It’s more complicated than that”.

A big problem with “Make the rich pay!” is that with the kind of income distribution that prevailed in the mid-to-late 20th century, any change to income tax that would raise significant revenue would have to apply to the top quintile (20 per cent) of the income distribution. People in the top quintile of the income distribution mostly derive their income from (typically professional or para-professional) employment, don’t think of themselves as rich, and aren’t, in general, seen this way by others. So, the slogan didn’t match the implied policy.

But with the rise of the patrimonial society, that’s largely ceased to be the case. The top 1 per cent of the US population now get more than 20 per cent of all pre-tax income, considerably more than the total revenue of the Federal government. Within that group, the top 0.1 per cent have done better than everyone else, and the top 0.01 per cent even better.

So, taxing the 1 per cent more makes sense. I responded a little while ago to a piece trying to argue increasing the top marginal tax rate would make no difference to inequality. And while I was drafting this post, the NY Times came out with an article that reached broadly the same conclusion as mine.

There’s nothing inherently ludicrous in the suggestion that the very rich should pay most or all of the costs of sustaining a system that benefits them so greatly[^1]. And, as in the 1920s, the very rich are different from everyone else. Their wealth is derived primarily from capital, or from control over capital (as business owners or from the financial sector). And, while most of the current cohort of ultra-wealthy did not inherit large fortunes, that’s an inevitable consequence of the fact that there weren’t many large fortunes to inherit until recently. As Piketty demonstrates, a society dominated by large accumulations of wealth will inevitably one in which inheritance, rather than effort, education or talent, determines life outcomes.

Similar points arise in relation to proposals for a large increase in the minimum wage,say to $15 an hour. In the mid-to-late 20th century, a lot of minimum wage jobs were filled by teenagers, who often came from relatively well-off families and could expect to earn middle-class wages in the future. Moreover, the minimum wage was substantially higher in real terms than it is now, so that poverty was primarily a problem for those who were not working. So, it made sense to focus attention on other policies.

Again, things are different now. Teenagers from high-income families are increasingly less likely to work, particularly in minimum wage jobs that do nothing for a resume. More importantly, as the real value of the minimum wage has fallen, the number of “working poor” or near-poor households has risen.

Finally, the argument that higher minimum wages would greatly reduce employment has been refuted by empirical studies, beginning with the work of Card and Krueger. Although controversy remains active on this, the mainstream view has clearly shifted to the position that employment effects of minimum wage increases, over the range being debated at present, are likely to be small.

Unlike attempts to reverse the decline of unions, or to push for a more expansionary fiscal policy, the demand for a higher minimum wage is simple to campaign for, and easy to implement in legislation. Unsurprisingly, it attracts strong support across the political spectrum. In particular, it’s the kind of policy that could peel off a lot of non-college educated[^2] white voters from the Republican Party.

So, it’s time for populism. A program based on taxing the rich much more heavily and raising the minimum wage is not only politically saleable but economically sensible.

[^1]: I’m hoping no one here is silly enough to bring up the debating point that the top 1 per cent pay a large share of Federal income tax. If you’re tempted to do so, try Google first. Or read the NY Times article, which shows that the average tax rate of the very rich (33 per cent) is only moderately higher than that of the top quintile (26 per cent) which in turn is only moderately above the average for the population (20 per cent).

[^2]: In a lot of US political discussion, the term “working class” is often implicitly defined as “non-college educated”. This is misleading – there are plenty of business owners without college degrees for example. Still, there are plenty of current Republican voters who are working class by any definition, and would benefit from higher minimum wages.

{ 63 comments }

1

bad Jim 10.17.15 at 7:52 am

Start with me. I’m only sort of rich, but I don’t pay much in taxes. 10% for dividends, I think. Preferential treatment for capital gains? What sense does that make? I’ve seen the ways my fellow capitalists contort themselves to minimize their contribution to the common welfare.

In settling my mother’s estate, the lawyers and accountants regarded the prospect of taxation as something between a sin and an abomination. I went along with them.

One’s a sinner either way; the difference between the disdain of high-minded liberals and hard-nosed accountants is lots and lots of money for down payments on houses and college expenses and setting up deadbeat nephews in business. (Kid’s on the way, baby shower at Uncle Jim’s house next month!)

The idea that taxes are pernicious is pervasive and pernicious. I attended Berkeley for free; it’s now far from free, and that’s atrocious. Public education and public transportation are not private goods, but our discourse now usually assumes that only students and riders benefit from them.

2

Mr Art 10.17.15 at 10:31 am

If you’re going to pick one or two issues, wouldn’t increasing housing supply be more appropriate? Rent in many cities swallows an enormous fraction of a minimum wage level income, and a lot of that rent is just scarcity.

It’s also totally non-controversial among economists.

3

derrida derider 10.17.15 at 10:37 am

Before people start here it is important to bear in mind that the US really is exceptional – and not in a good way. In no other developed country – possibly no other country full stop – do the 0.1% fare so well compared with everyone else. John’s claim that there is really serious money to be got from soaking the rich is likely to be much more true in the US than in most other countries..

Probably the only one that comes anywhere near it is the UK. I suspect that’s for the same basic reason; an overmighty finance sector that’s all about appropriating rents rather than optimally directing investment. As Keynes said “when the capital allocation of a country becomes a by product of the operations of a casino, the job is likely to be ill done”.

If that’s so, you may be able to get big reductions in inequality while improving the growth and stability of your economy simply by regulating the bejesus out of that sector to make banking boring. Financiers should be deathly boring people in suburban bungalows, not charismatic wankers in penthouses and mansions. Ennui, not cocaine, should be their occupational hazard.

But that’s about as politically feasible as 82% income tax rates on the top 1% (Diamond and Saez’ estimate of what it should be for optimising social welfare in the US).

4

Peter T 10.17.15 at 11:23 am

Higher taxes would be a good start. But what most people really want is a reasonable degree of control over their lives (this, of course, includes enough means to be free of unreasonable demands). That is what strong unions, strong labour laws and a more equitable distribution of property deliver. A politically-delivered increase in income without these is subject to either constant political attack or to the imposition of endless niggling demands (see what the unemployed or the single parent have to put up with).

So taxes would only be a start – a signal that power had shifted enough to pursue a more radical program.

On the US and UK – both sit at the top of global pyramids of wealth extraction. New York, LA and London are where the rents flow to. A greater emphasis on local production and exchange would go far to diminish their power. Current policy flows the other way.

5

Phil 10.17.15 at 11:28 am

Populism, like so many political terms, means something slightly different in the US, so I may be off target here. But ISTM that the problem with populism is that it generally involves hostility to the entire political sphere, & very often goes along with the elevation of a charismatic leader who demonstratively stands apart from same. And, given the amount of money needed to make a dent on conventional politics (in the absence of a really huge grassroots movement), this means that populism is actually rather a poor fit with opposition to patrimonalism; if anything it goes better with a positive celebration of patrimonialism, rich-man’s-table style. See Berlusconi*; see also (perhaps) Trump.

*Edited quote: “Berlusconi’s populism underpins his patrimonial approach to power; popular support grants him unfettered control, over his own assets and those of the state. … Berlusconi’s economic power in turn underpins his populism … [his] success as a rogue capitalist makes him an icon of asocial individual freedom – and damns his opponents as envious or ungrateful.”

6

Ze K 10.17.15 at 11:33 am

“A big problem with “Make the rich pay!” is that with the kind of income distribution…”

In my understanding, the common meaning of ‘rich’ has to do with wealth, not income.

Redefining ‘rich’ to protect the rich – this is a big problem.

7

C Ward 10.17.15 at 11:55 am

Populism? And not Nationalism?

All those Chinese dollars chasing real estate in California and Denver — I would support any candidate who found a way to put American real estate out of the reach of overseas wealth.

Both my kids in Denver make oodles of money… but it’s not enough. They are taxed to death and priced out of the Real Estate Market.

I vote that you may not own American Real Estate unless you are an American… or a huge annual tax is imposed.

Nationalism…. and populism are coming to a theater near you.

My credentials for this apocalyptic vision are a life time of Main St. commerce – and watching as the sociopaths of Wall St and the 1% – divvy up the planet at the expense of every bee and butterfly.

8

Lynne 10.17.15 at 1:15 pm

These are a start. Next, a decent old age pension for all.

9

Layman 10.17.15 at 1:21 pm

“In my understanding, the common meaning of ‘rich’ has to do with wealth, not income.”

I imagine there’s a lot of overlap between the wealthiest 1% and the highest-earning 1%, probably enough so as to make little difference. And, if you tax dividends and capital gains at the same rates as earned income, the difference probably vanishes…

10

Anarcissie 10.17.15 at 2:34 pm

I think it might be well to remember that much of the wealth of the rich is fictional and that the dollar figures quoted for it do not represent the possibility of real goods and services, but rather vast imaginary quantities based on very liberal credit. This consideration might become important if one were going to try to deliver increased amounts of the goods and services to the lower orders. On the other hand, their access to mostly positional ‘goods’ like real estate and education might be improved in spite of the fiction, I suppose.

11

Ronan(rf) 10.17.15 at 2:37 pm

I agree with where Mr art is coming from, but I’m not an economist so I’ll offer it as speculation rather than a definitive point. Minimum wage increases should obviously be part of it, but How far does that get it ? And how much space is there for meaningful increases in minimum wages in a service economy where profit margins are much tighter?
Would greater investments in things such as housing, healthcare , childcare, nursing homes etc do more of the work ? All those things that eat into people’s incomes (especially women who, afaik, are disproportionately more likely to live in poverty/ work in low paying jobs) Also, surely, expansion in all of those areas would increase employment in (1) jobs more likely to be done by women , and also (2) presumably construction, on the house building part.
What could you do through the welfare system to top up people’s incomes or relieve costs? Or move towards something approaching a ubi ?

12

Bartleby the Commenter 10.17.15 at 2:45 pm

I could point out that the Nordic countries provide us with a good model and link to a great article showing how well it works:

http://www.demos.org/blog/10/14/15/united-states-vs-denmark-17-charts

I could do this but I would prefer not to.

13

Bruce Wilder 10.17.15 at 3:52 pm

Higher taxes on the rich and a higher minimum wage are a good start on a populist program.

A three-legged stool is steadier than two, though. Measures to truncate the predation and parasitism of financial capitalism would be welcome. I’d begin with usury laws.

There’s no reasonable defense of payday lending, which can drain away the income of people working near the minimum wage. There’s little excuse for high credit-card interest rates plaguing the middle-class.

This is a long and winding road I propose to start down, of course, but these first steps are simple and straightforward. What follows, such as a fairer bankruptcy code, will be murkier, but one must start.

14

brandon 10.17.15 at 7:31 pm

Populism, like so many political terms, means something slightly different in the US, so I may be off target here. But ISTM that the problem with populism is that it generally involves hostility to the entire political sphere, & very often goes along with the elevation of a charismatic leader who demonstratively stands apart from same.

I came across this article earlier today which goes into greater if not perhaps complete depth along these lines (the main gist: “populism” is about separating the “true” people from the actual mass of people in the country; ok, but, to the extent that elites might betray/ usurp their fellow citizens, is such a cleaving necessarily unjustifiable & on balance undemocratic?) – still, an interesting read.

15

Roger Gathman 10.17.15 at 8:00 pm

Actually, the income tax was never meant to tax anyone but the wealthy. Brownlee’s history of the income tax is the source to go to for evidence of this. By terms of the revenue act of 1916, the indirect taxes that had financed the federal government – particularly the tariff – began to fall, to be replaced by a soak the rich income tax and corporate taxes. During WWI corporate taxes were increased, with a surcharge on excess profits. Originally, the exemption from the income tax was set at 3,000 dollars for the individual. That meant that more than 80 percent of the population was exempt from paying any income tax. Out of a population of 106 million in 1920, only 7 million 256 thousand filed returns. This wasn’t a bug, this was a feature that was always supposed to be there. The progressives rejected consumption taxes and spreading the federal tax onto middle class households. As Brownlee puts it, the people around Wilson considered these options and explicitly rejected them. When the rich complain that 47 percent of the American population don’t pay income taxes right now, they are complaining about their incredible victory. It should be 80 percent.

16

Stephen 10.17.15 at 8:28 pm

Heavily taxing the extremely rich, and substantially increasing the minimum wage, have obvious populist appeal. But how are you going to get the first to pay for the second? If you can’t, who does pay for the second?

Also: if you substantially increase the minimum wage, what will that do to the difference in wealth between workers and the unemployed?

17

que_es 10.17.15 at 8:32 pm

” There’s little excuse for high credit-card interest rates plaguing the middle-class.”

Yes, when did the usury laws disappear? Let’s have ’em back please.

18

cassander 10.17.15 at 8:48 pm

According to the CBO, the top 1/5 make about half of the income in the country and pay 70% of federal taxes. They pay 93% of income taxes. the top 1% make 14% and pay 24% According to the OECD, US taxes are the most progressive in the OECD. This should not be suprising considering that most OECD countries rely on VAT, not income, taxes to fund themselves.

If you want to change the income distribution in the country, the answer isn’t taxes, where the US is already exceptional, it’s how you spend the money. the US welfare state doesn’t transfer money from rich to poor, but from young to old. There is one presidential candidate promising to change that, but his name is chris christie.

19

Piquoiseau 10.17.15 at 9:38 pm

@Mr Art: “wouldn’t increasing housing supply be more appropriate?”

It’s not either/or, of course. But the politics of increasing housing supply are frustrating. Homeowners have good reason not to support a policy that aims to lower the price of the housing stock, landlords like higher rents, and settled residents view any increase in density and congestion as an affront. All three constituencies have sway with local governments, while those who would benefit from more housing supply have little. The antidote would seem to be public housing projects financed by the feds, but approval of any specific project would still run into the same obstacles.

20

John Quiggin 10.17.15 at 10:18 pm

Cassander @18 You should reread the post, and get some up to date talking points.

You may find this harder than in the past given the intellectual collapse of AEI, Cato, Heritage, Heartland and the rightwing intellectual apparatus in general. I blame climate change.

21

Landru 10.18.15 at 2:08 am

A point raised in an earlier thread, and certainly worth bringing up again:

1. Confiscatory/redistributional taxation could be a very positive step, compared to where we in the US are now.

2. But better, really much better in many dimensions, would be to repair the system generally, so that money doesn’t flow so much to the wrong places to begin with, and thus won’t need to be “clawed back” as a fairly crude, later fix.

Bruce Wilder at 13: “Measures to truncate the predation and parasitism of financial capitalism would be welcome. “

3. Yes! but that’s only the bare beginning. In concert with 2 above we (badly) need a new economic system view, to break the old orthodoxy that if someone gets a whole bunch of income, it simply must be true that they created a corresponding amount of new wealth. After all, if they hadn’t produced anything, then no one would have paid them, right?

To be implemented solidly and non-violently, measures to reduce inequality must be IMO be honestly describable as an increase in essential fairness, and not simply mob rule.

22

liberal 10.18.15 at 2:48 am

It’s the rents, stupid.

23

cassander 10.18.15 at 3:11 am

@John Quiggin

Insults don’t make facts go away. The US already has an immensely progressive tax system, the most progressive in the world. I wasn’t going to nitpick, but now you’ve forced me to it.

>There’s nothing inherently ludicrous in the suggestion that the very rich should pay most or all of the costs of sustaining a system that benefits them so greatly1.

they already do.

>Their wealth is derived primarily from capital, or from control over capital (as business owners or from the financial sector).

not according to the CBO, which attributes only 1/3 of the richest 1%’s income to capital sources.

>And, while most of the current cohort of ultra-wealthy did not inherit large fortunes, that’s an inevitable consequence of the fact that there weren’t many large fortunes to inherit until recently.

Yes, i remember how those hard scrabble kennedys came from nothing! This is sheer nonsense, you should be embarassed to make such claims.

>As Piketty demonstrates, a society dominated by large accumulations of wealth will inevitably one in which inheritance, rather than effort, education or talent, determines life outcomes.

he demonstrates no such thing because he completely ignores the fact that people die and fortunes get divided. If he were right, every kennedy today would be richer than joe. In reality, none of them are anywhere near as rich.

>Finally, the argument that higher minimum wages would greatly reduce employment has been refuted by empirical studies, beginning with the work of Card and Kreuger.

I assume, then, that you advocate raising the minimum wage to 1000 dollars an hour so we can all get rich? If not, then stop making such absurd claims and admit that at some point higher minimum wages will result in higher unemployment or inflation. To butcher a phrase, that we know what you are, we’re merely haggling over the price.

>More importantly, as the real value of the minimum wage has fallen, the number of “working poor” or near-poor households has risen.

Not according to the BLS which says it’s fallen in 3 of the last 4 years. And let us not forget context, shall we. Fewer than 3% of workers make minimum wage or less and of those half are under the age of 25. And of those households in poverty, nearly 2/3s don’t have any workers at all, according to the census. Hiking the wage certainly won’t help them, nor will raising taxes to pay for a welfare state that gives 4/5s of its money to the elderly.

So how about instead of populism, you do something that might actually help the people you claim to want to help? You know, something like adopt rand paul’s tax plan, which would largely eliminate taxes on those making less than 50k a year. Or Chris Christie’s social security plan, which would stop transferring money from the working poor to the retired rich. Or do you prefer ineffectual policies that make you feel good for advocating to actually helping people?

24

J. K. 10.18.15 at 3:36 am

Something you wrote in your posting caught my eye:

“There’s nothing inherently ludicrous in the suggestion that the very rich should pay most or all of the costs of sustaining a system that benefits them so greatly”

… which, when framed that way, sounds very sensible. In fact there is not anything inherently ludicrous in that suggestion – nothing about it violates any kind of sensibility that I know of.

However, when you consider that top marginal rates are very close to 40-50% (for income, at least) that means an increase in rates (for income) would push the tax rate above 50%.

And I *do* think there is something inherently wrong with that.

I am not naive – I know very well what top tax rates were 60-70 years ago and I know what they are in other countries, etc. – and I believe that taxing income at a rate higher than 50% is inherently wrong. I recoil from it in a way that you suggested we might not.

So again, I think you’re right *in general* but I hope that your sentiment would be applied to capital gains taxes as a target for raises and *not* for income, since we’re quite close to that 50% mark.[1]

[1] … and as a CA resident, I’m already over it, unfortunately.

25

Chuck 10.18.15 at 4:05 am

The “problem” is not with the Federal income tax. It is pretty aggressive, the income average tax rate paid by the top 1% is twice that of that of the median household. The thing that stops our tax system from being pretty progressive is that payroll taxes (social security, medicaid etc) bring in as much revenue as the income tax. On top of that these systems re only taxed up to a maxiumum. The biggest of these is social security. It is actually politically infeasible to make the system progressive. Why? Because it survives by being sold as a pension plan and not a redistribution system. Of course it is a large redistribution system. It benefits the working poor, those who live longer, those who are married, etc.
Given the marginal tax rates in place for the rich, to raise significant revenues through the income tax system would require damagingly high marginal tax rates. Small changes to the income tax system like increasing the EITC would be good, but meaningful reform has to come through payroll taxes.

26

Bill Murray 10.18.15 at 4:43 am

J.K.,

why do you think there is something inherently wrong with marginal tax rates greater than 50%? As far as i know there is no mathematical reason for this although I suppose half is a number so could be considered mathematical.

Personally I think it is inherently wrong for mentally ill people to have to live on the streets rather than get the treatment they need, that we keep the unemployment rate high by design to keep wages lower and increase profits and many other things we should do but don’t because we don’t tax enough, particularly the highest incomes.

27

J. K. 10.18.15 at 5:27 am

#26 (Bill Murray) said:

“why do you think there is something inherently wrong with marginal tax rates greater than 50%? As far as i know there is no mathematical reason for this although I suppose half is a number so could be considered mathematical.”

I think when you pass the halfway mark (the state is taking more than half of what one earns) you lose a lot of buy-in and create a lot of disconnect. Imagine working X hours and paying more than half of that in taxes ? I also think you’re drifting into bad governance. If you can’t keep the homeless of the streets with (up to) half of what people earn, the problem is one of execution – not dialing up the rate higher and higher.

When you speak about not taxing enough “particularly the highest incomes” I think you’re thinking of capital gains taxes, etc., which are *nowhere near* this halfway point I object to. I am only speaking about income taxes, which are just about there.

FWIW, I also think it is inherently wrong for mentally ill people to have to live on the streets rather than get the treatment they need.

28

adam.smith 10.18.15 at 5:42 am

See cassander:

I assume, then, that you advocate raising the minimum wage to 1000 dollars an hour so we can all get rich? If not, then stop making such absurd claims and admit that at some point higher minimum wages will result in higher unemployment or inflation.

and from JQ originally, right below the bit you post, my emph:

Although controversy remains active on this, the mainstream view has clearly shifted to the position that employment effects of minimum wage increases, over the range being debated at present, are likely to be small.

that’s why people tell you to re-read things… (@JQ — if you’d fix this to Card & Krueger in the OP, that’d be lovely)

29

adam.smith 10.18.15 at 6:05 am

@J.K. — you’re entitled to your recoil, but the claim that

I think when you pass the halfway mark (the state is taking more than half of what one earns) you lose a lot of buy-in and create a lot of disconnect.

doesn’t seem to hold empirically. I know we’re getting a bit Denmarked-out these days, but they do have a 60% marginal tax rate for the highest bracket, combined with very high tax morale and levels of trust in government. Quality of government services does matter, of course, in keeping that trust high and increasing quality of governance while also increasing its scale in the US would seem like quite the challenge to me.

More generally, I find JQ’s argument that what he calls patrimonialism offers an alternative to the nordic model (which is tax broadly, redistribute broadly) interesting, but in the end I don’t buy it.
I’m not convinced by the politics and by the political economy: there’s a certain resilience to a broad social system funded by the whole population rather than almost exclusively by the economic elite.
But more importantly, as e.g. Martin and Thelen argue (ungated, pdf), a larger public sector by itself can exert a significant effect in lowering inequality.

30

John Quiggin 10.18.15 at 6:22 am

@Cassander 33 per cent is not “all or most”, which is why I suggested rereading the post. I stopped there, but I see Adam Smith has picked up more reading failure on your part.

31

js. 10.18.15 at 7:09 am

I think when you pass the halfway mark (the state is taking more than half of what one earns) you lose a lot of buy-in and create a lot of disconnect. Imagine working X hours and paying more than half of that in taxes ?

Well, the state is not taking away “more than half of what you earn” because they’re marginal tax rates. The 50+% would only apply to what you earn beyond certain amount; everything below that gets taxed at a lower rate.

But ultimately, I’m with adam.smith re the Nordic model.

32

UserGoogol 10.18.15 at 8:45 am

js: To be technical, people with a very high income would have their rate of taxation asymptotically approach the marginal rate of the highest tax bracket, as more of their income falls into that bracket. So for example, if you make hundred million dollars in a year and the top bracket is 60% of income over a million, then the fact that your first million is taxed at a lower rate is less important, you’re still going to pay over 59% of your income in taxes. So the George Harrisons of the world would certainly complain.

But I mean, it still seems a bit silly to get hung up on the 50% number. Manifestly it is something that does upset rich people sometimes, but people can be upset about all sorts of things, I don’t think it’s a unique psychological barrier. And more philosophically, the whole logic kind of valorizes pre-tax income which is intuitive but questionable.

33

Marc Pascal 10.18.15 at 8:55 am

To create the legal-accounting fiction of money-currency, a sovereign entity only has to create it and distribute it. Taxes do not pay for US Federal spending, they only reduce dollars within the entire system. Taxes redistribute income/wealth indirectly. However in an economy where more than 100 million adults do not have any jobs to create adequate incomes, there probably has to be a basic income instituted. However since the 1% Oligarchy control most of the Federal Government and state governments, getting such tax and spend policies instituted are highly unlikely. Fortunately people can act collectively, legally, ethically and quickly for the mutual best interests without begging governments to help them, if they understand money, finance, income, debt and a host of legal fictions by visiting the new educational and advocacy website of the WGO here: http://www.i-globals.org.

34

Ze K 10.18.15 at 10:28 am

The US is different from Denmark in that the US is an empire. Most of the public funds is consumed by the military-industrial complex, wars, creating, maintaining, and guarding various puppet regimes world-wide, undermining defiant regimes, etc. – instead of domestic social programs. Thus the lack of support for adam.smith’s “broad social system funded by the whole population”.

This lack of support is perfectly rational. Forget 50%, why would I agree to pay any federal tax at all if I don’t see any return?

Unless, of course, I buy into the rhetoric of the evil enemies (come allies come enemies again, a-la 1984) that can only be defeated militarily, at a great sacrifice, and so on…

35

Ronan(rf) 10.18.15 at 12:47 pm

Brandon @ 14. That links a good read

36

Lynne 10.18.15 at 1:57 pm

Ze K has a good point. I’ve never minded paying high taxes because I see the results every day, from new roads to health care. As I get older, though, I do mind because neither my husband nor I have an employment pension plan. We feel we have to save-save-save because we might live to be ancient and feeble and need years of care in an old age home. Frightening.

37

Oxbird 10.18.15 at 2:11 pm

Income inequality is significantly a function of the income tax structure and rates but the income/wealth distribution we now see is the result of many different policies only some of which are directly related to taxes. As an example of the latter (but not directly rate related): It was not that many years ago that as a professional I could put about 25k tax free into certain savings accounts. A few years ago that jumped to about 90k and more recently increased substantially again. Over a working lifetime, that makes a real difference in the wealth accumulated from earned income.

Trade policies favoring a strong dollar and putting workers, but not professionals, in direct competition with low-paid rough equivalents in other countries is a non-income tax related policy that greatly impacts earnings and wealth. Very substantial increases in what receives, and the term of, patent and copyright protection is another example. In considering the potential results of a broad populist program on income/wealth these and many other examples of government policy and intervention that favor the rich would have to be considered.

38

Layman 10.18.15 at 4:16 pm

Ze K @ 34, though I have much sympathy for your point (and though I think it is far too much still) only about 1/5th of public funds are spent on defense. Spending on safety net programs (redistribution, such that it is) is more than 3 times that.

39

Ze K 10.18.15 at 4:58 pm

I’ve seen estimates of empire-related expenses (including things like veterans care, interest on the debt incurred as a result the arms race in the 1980s, DoS and the foreign aid, DoE, homeland security, etc.) going well above $1 trillion. So, I’d say, maybe a about a half of the federal spending excluding the Social Security.

That’s about $4K/yr for every person, $16K/yr for a family of four. I’m sure there must be some shared benefit too (or is there?); but I don’t know how to figure it out.

40

cassander 10.18.15 at 5:13 pm

@JQ

@Cassander 33 per cent is not “all or most”, which is why I suggested rereading the post. I stopped there, but I see Adam Smith has picked up more reading failure on your part.

You said all or most “of the cost of the system they benefit from” not all or most of how much they make. The top 1/5 pay for 70% of that system, which most definitely constitutes most.

And am I assume by your refusal to even address your other factual errors that you’re conceding those points?

@adam.smith

I am aware of that passage, that’s why it’s so sad that JQ can’t bring himself to not utter nonsensical pieties like “the argument that higher minimum wages would greatly reduce employment has been refuted by empirical studies” only to equivocate later. Perhaps you should read where I said “To butcher a phrase, that we know what you are, we’re merely haggling over the price.”

@Ze K

>Most of the public funds is consumed by the military-industrial complex, wars, creating, maintaining, and guarding various puppet regimes world-wide, undermining defiant regimes, etc. – instead of domestic social programs. Thus the lack of support for adam.smith’s “broad social system funded by the whole population”.

This is sad. the US military budget is about 1/5 of federal spending. maybe you get up to a quarter if you include anything foreign policy related, including stuff like the state department and foreign aid. That’s not even close “most” even before considering that the states and localities raise and spend about 50% of what the feds do entirely on domestic matters.

@Chuck 10.18.15 at 4:05 am
The “problem” is not with the Federal income tax. It is pretty aggressive, the income average tax rate paid by the top 1% is twice that of that of the median household.

the top 1/5 of the US population pays 93% of income taxes, the top 1% nearly 40%. That’s a bit more than pretty aggressive.

>The thing that stops our tax system from being pretty progressive

It’s the most progressive in the world, including payroll taxes.

41

J. K. 10.18.15 at 5:55 pm

#29 (adam.smith) said, (re: Denmark):

“doesn’t seem to hold empirically. I know we’re getting a bit Denmarked-out these days, but they do have a 60% marginal tax rate for the highest bracket, combined with very high tax morale and levels of trust in government. Quality of government services does matter, of course, in keeping that trust high and increasing quality of governance while also increasing its scale in the US would seem like quite the challenge to me.”

I have been to Denmark and the other nordic countries, and I have a fairly decent understanding of how they work, as you’re describing…

And I think they’re great. I’ve often thought I’d like to live in Denmark (or at least, it gets a second place after Switzerland).

The problem with the comparison is, the United States is tremendously more diverse than any of the nordic miracle countries and contains a great deal more political (and class, and racial) strife. It’s easy to support wealth redistribution when the recipients look like you and their last name is Hanson, just like yours.[1]

I really think smart folks need to move past the “nordic countries” trope. Our situation is considerably more complicated.

[1] Which we do actually see, in some small fashion, in Minnesota and their history of DFL democrat progressivism … the recipients were blonde haired farmers named [John|Ander|Han|Lar]-son so it was all very easy.

42

Ronan(rf) 10.18.15 at 6:33 pm

“I really think smart folks need to move past the “nordic countries” trope. Our situation is considerably more complicated.”

I agree with this. Afaik, the central point of the ‘varieties of capitalism’ literature is that societies develop their political economies in specific, historically contingent and in some ways unique contexts. As such, you can learn a bit from ‘how other countries do it’, but cant really replicate.

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adam.smith 10.18.15 at 6:33 pm

@J.K. The homogeneity of the Nordic countries (and Minnesota, for that matter) has been greatly exaggerated. But even if we’re going to accept that for the argument’s sake–if the argument is “rich people can’t pay more than 50% marginal taxes if too much of it goes to those people, I’m just not willing to let xenophobia/racism/whateveryouwanttocall it determine public policy.

@Ze K — fair enough, but we’re in a rather hypothetical world here anywhere. If I can think of a situation where the tax quota in the US goes up to somewhere around 50% overall (or where we tax the top 1% of income earner twice as much or more as we do now as per JQ’s proposal), I can certainly also make part of that scenario that all additional revenue goes into domestic public services.

@cassander — I don’t think taking individual sentences out of context constitutes “reading,” no. And slippery slope is a fallacy, not an argument. The 1,000$ minimum wage argument is the counterpart to the small government= Somalia argument.

44

js. 10.18.15 at 8:19 pm

UserGoogol — Sure, that’s fair. Still seems to me the comment I was responding to was making a more elementary error, which I wanted to correct. In any case, I agree that it’s weird to get hung up on the 50% figure.

45

Anders Widebrant 10.18.15 at 9:07 pm

> I really think smart folks need to move past the “nordic countries” trope. Our situation is considerably more complicated.

Nonsense. America is a normal European country in every way but size. It’s neither particularly diverse nor particularly dysfunctional, and there’s no obvious reason at all it couldn’t come to a broadly social-democratic political equilibrium.

46

UserGoogol 10.18.15 at 9:13 pm

js – They probably were, I mostly just wanted to make a “to be fair” comment which as I thought about the numbers more I got a bit more detailed about than perhaps was necessary.

Still, even though it’s worth reiterating marginal != average over and over again, people making eight figure incomes or more are precisely the ultra-rich that Quiggin is talking about. But by the same token, they are really really rich. Having to give most of your income to the IRS sounds bad. Doing so when you still get to keep tens of millions of dollars sounds less bad.

47

John Quiggin 10.18.15 at 9:21 pm

@Cassander Try re-re-reading, really carefully this time.

48

JW Mason 10.18.15 at 11:02 pm

The problem with the comparison is, the United States is tremendously more diverse than any of the nordic miracle countries and contains a great deal more political (and class, and racial) strife. It’s easy to support wealth redistribution when the recipients look like you and their last name is Hanson, just like yours

Thus explaining why the most extensive public services, supported by the most progressive taxes, in the US are found in New York and California.

Norway and Sweden both have higher foreign-born shares of their population than the US, also.

49

John Quiggin 10.19.15 at 12:50 am

The real problem with the Nordic comparison is the one I discuss in the OP. With strong unions and other institutions promoting a relatively egalitarian distribution of market income, you need to tax a substantial section of the population to pay for high-quality services. So, you want to persuade them that this is a good deal.

In the US context, the object is not to persuade the 1 per cent (except for the handful of public spirited types like Buffett) but to mobilise enough popular support to overcome their political apparatus.

50

Ze K 10.19.15 at 7:24 am

” That’s not even close “most” even before considering that the states and localities”

Fine, I won’t insist on ‘most’ (although I do strongly suspect it is), but it’s your estimate (quarter of the federal spending) that’s “not even close”. For the last 10-15 years, with two major wars with the price tag of at least 5-6 trillion – half sounds like a fair, conservative estimate.

By the way, that the state department is just “foreign policy related” is another understatement. Haven’t you read about them shipping hundreds of brand new Toyota trucks to brave mujahideen in Iraq, Syria and Libya?

51

bad Jim 10.19.15 at 7:33 am

The reality is that unearned income is not heavily taxed. No payroll tax. Dividends? 10% Capital gains? Maybe 25%. Interest income is complicated; I think tax-free bonds are priced with assumptions about expected interests and tax rates, but I’m not sure the ones I own are a good deal for the people paying me interest.

We already have a general understanding that we fund our roads and bridges through gas taxes, and that these are in terrible shape, yet there does not seem to be a consensus that we need to raise taxes to fix them. With respect to infrastructure, or for that matter global warming, we exhibit a pre-apocalyptic mentality: the world’s about to end and there’s nothing we can do about it.

The general sentiment is that taxes are a bad thing, a punishment suitable for the greedy rich, rather than something as necessary as the mortgage or insurance. This is a reasonable way to view American defense spending, perhaps. Since our modern aristocracy is no longer required to serve as armored cavalry, perhaps it would be equitable to expect them to fund the Pentagon.

The rest of us can pay for everything else. The experience of nearly every other country suggests that we’d be willing to pay for decent health care and excellent infrastructure.

52

Hey Skipper 10.19.15 at 10:59 am

I’m hoping no one here is silly enough to bring up the debating point that the top 1 per cent pay a large share of Federal income tax … read the NY Times article, which shows that the average tax rate of the very rich (33 per cent) is only moderately higher than that of the top quintile (26 per cent) which in turn is only moderately above the average for the population (20 per cent).

Cassander 33 per cent is not “all or most”

Or you could look at a chart that NYT article links to.

The top 3.8% of earners pay 55% of Federal Income taxes; the top 15% pay 78%. That sounds like a pretty large share to me.

Quantity and rate are two different things. You object to the rate, but the quantity the rich pay amounts to a small amount of people paying most of Federal income taxes.

There’s nothing inherently ludicrous in the suggestion that the very rich should pay most or all of the costs of sustaining a system that benefits them so greatly.

But there is something inherently ludicrous in the looting reflex. The average top 1% earner pays $700k per year in taxes. How much is enough? By how many multiples does a taxpayer have to exceed the benefits received before the looters decide that is enough?

Also, there is something ludicrous in the implicit assumption that the very rich don’t benefit the system. I have a friend who is a very good, and very successful, anesthesiologist. According to you, because he is rich, the system benefited him. Perhaps, though, it is the other way around: he is rich because he benefited the system.

Lost in your discussion is the difference between characteristic and composition: you focus entirely on a single characteristic, high income. However, you ignore the composition of the group. Virtually every player in major professional sports is in the upper 1%. Many of those players come from poor backgrounds, and will likely remain in the upper 1% for no more than 5 years. Given that none of the rest of us have their talent, took their risks, nor put out their effort, maybe asking for more than half their top marginal income is being a bit greedy.

And then there is a larger question: in terms of the economy, who spends and invests money better, individuals, or the Federal government?

Yes, there are some problems for which collective solutions are the only answer, but it would be easy to find examples where the Federal government has gone well beyond that, and has become a bloated monster that has become far too adept at setting money on fire.

Unlike attempts to reverse the decline of unions, or to push for a more expansionary fiscal policy, the demand for a higher minimum wage is simple to campaign for, and easy to implement in legislation.

Instead of trying to repeal the law of supply and demand, why not eliminate the minimum wage and campaign for a guaranteed income instead?

++++

cassander @23: Brilliant!

++++

FWIW, I am much more critical of the NYT article here.

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J. K. 10.19.15 at 3:09 pm

“Nonsense. America is a normal European country in every way but size. It’s neither particularly diverse[1] nor particularly dysfunctional, and there’s no obvious reason at all it couldn’t come to a broadly social-democratic political equilibrium.”

Forgive me, but I question the contrast between the diversity of the US vs. the diversity of Switzerland (highlighted in your link[1]) based on the different European languages that the Swiss speak in their various cantons.

I own a business in Zurich and am there frequently. I really can’t agree that there is anything even remotely approaching US cultural/racial/ethnic diversity there.

54

J. K. 10.19.15 at 3:10 pm

“Nonsense. America is a normal European country in every way but size. It’s neither particularly diverse[1] nor particularly dysfunctional, and there’s no obvious reason at all it couldn’t come to a broadly social-democratic political equilibrium.”

Forgive me, but I question the contrast between the diversity of the US vs. the diversity of Switzerland (highlighted in your link[1]) based on the different European languages that the Swiss speak in their various cantons.

I own a business in Zurich and am there frequently. I really can’t agree that there is anything even remotely approaching US cultural/racial/ethnic diversity there.

[1] https://en.wikipedia.org/wiki/Languages_of_Switzerland

55

steven johnson 10.19.15 at 3:25 pm

The widow’s mite was a negligible part of the Temple’s income. Any random publican paid much more. Obviously, by cassander’s moral values, the publican’s gift was much more acceptable to God.

56

hix 10.19.15 at 3:44 pm

Whos to say Sweden would not also benefit a lot and get an even nicer country by targeting the ultra rich to pay some taxes. Im rather doubtfull that the Wallenbergs and Kamprads are makeing Sweden a better place with the influence they have through their fortunes (both pretty much untaxed? At least the Ikea tax situation is a shame).

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John Quiggin 10.20.15 at 1:03 am

Hey Skipper @52 Even with a warning you go straight ahead and mess up! I guess it’s my fault for hoping for sensible rightwingers. As everyone commenting but you is aware (even Cassander), Federal income tax is not the only federal tax on incomes. I suggest you inform yourself about that before wasting any more of our time and your own.

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Hey Skipper 10.20.15 at 1:58 am

Hey Skipper @52 Even with a warning you go straight ahead and mess up! I guess it’s my fault for hoping for sensible rightwingers. As everyone commenting but you is aware (even Cassander), Federal income tax is not the only federal tax on incomes.

From your footnote one:

I’m hoping no one here is silly enough to bring up the debating point that the top 1 per cent pay a large share of Federal income tax.

From the NYT’s cited article on income tax distribution, the top 15% pay 78% of Federal Income Tax.

Now, if you want to add Medicare and SS taxes in, by all means. But keep in mind the rationale for those taxes is distinctly different: they are pay-as-you-go taxes to fund health care and a pension. Raising, for instance, the SS tax on high earners would be looting, pure and simple.

Give us a bunch a dosh, and we will give you a little bit back.

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John Holbo 10.20.15 at 2:18 am

“Give us a bunch a dosh, and we will give you a little bit back.”

This just reinforces my suspicion that Hey Skipper is really Phlannel Boxingday, from the Adventure Time episode “Lemonhope Part 2”. Since Phlannel Boxingday is really Princess Bubblegum in disguise, that makes it even better.

As you were.

60

John Quiggin 10.20.15 at 3:05 am

I was thinking more of Wimp Lo’s “face to fist” style in Kung Pow!

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js. 10.20.15 at 3:54 am

This “diversity” thing is kind of bizarre, and well backwards. The thought seems to be something like: there’s more diversity here (i.e. in the US) than in other places, which leads to special kinds of problems, which is why we can’t have nice things. But it seems to me what’s really going on is this: we (in the US) have lots of very particular kinds of problems, we have chosen to call these problems “diversity!”. The particular, historically grounded problems is indeed why we can’t have the nice things people in Denmark, but diversity isn’t the cause, “diversity” is just the label.

(Sorry this is horrifically obscure; maybe someone else will want to spell it out.)

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js. 10.20.15 at 3:58 am

Also, when I say “particular, historically grounded problems”, I mean things like enslavement, illegal land grabs, genocide, things like that—and the historical overhang of those events and processes. These things, needless to say, are not “diversity”.

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Hey Skipper 10.20.15 at 11:23 am

[Quiggin @57:] As everyone commenting but you is aware (even Cassander), Federal income tax is not the only federal tax on incomes. I suggest you inform yourself about that before wasting any more of our time and your own.

According to the CBO in 2011 the top quintile of earners paid 69% of all Federal taxes.

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