In a recent Newsweek article, Robert Samuelson wrote an article arguing that the fact that the rich have been suffering from the recession is bad for everyone. Not surprisingly, people who are not rich have not been terribly sympathetic to the rich who are not quite as rich as they once were. After all, it is hard to feel the pain of people who are still vastly better off than the overwhelming majority of Americans (and incredibly better off than the vast majority of human beings).
Like most of the non-rich, I have fairly minimal sympathy for those who are merely less rich. After all, it does not make sense for me to feel bad for folks who are still considerably better off than I am, at least financially. My sympathy is reserved for people who are truly suffering, such as the folks who are struggling to make enough money to pay rent and feed their kids. I just cannot feel for someone who is suffering because she has to wear last year’s $10,000 dress to that party at the Hamptons or is dealing with the horror of having to fly first class rather than taking a private chartered flight to a vacation getaway at his fourth house in Cape Cod. Of course, I do have sympathy for people who have been totally ruined, such as those who were deceived by the likes of Madoff.
Of course, the general state of the economy does concern me and it is true that the fact that some rich folks are less rich does impact the economy. Samuelson makes a case for why we should be concerned about the plight of the rich by presenting three considerations.
First, he notes that consumption spending (which is a major fuel for the economic engine of America) is dominated by the rich. Folks who make $100-200,000 make up 14% of the US population, but compose 34% of the spending.
As he notes, they are able to spend so much because they make so much more money. In addition to having more money overall, they also have more income left over after meeting their basic expenses, thus allowing them to engage in more consumption spending on non-essential items. This spending by the rich enables many of the rest of us to have jobs making things for, selling things to, and providing services for the rich.
Of course, they are such a important factor because they have so much wealth. Naturally, if this wealth were spread out (or distributed, to use a word guaranteed to jack up the blood pressure of any Republican reading this) we would still have the same amount of overall spending, only it would not be coming from such a small percentage of the population. Also, if the wealth were more distributed, it would enable more people to enjoy better lifestyles (such as being able to afford health insurance).
Of course, there is the obvious question of why such a broader distribution of wealth would be desirable. One way to argue for this is to use an analogy: suppose there is a party and 14% of the guests consume 34% of the food. This would strike most people as being a rather unfair situation-why should so few people consume so much?
The obvious and stock reply to this is that the analogy is flawed. If the 14% who consume 34% of the food paid for all that food themselves, then they are entitled to that extra consumption.
Of course, the question does arise as to whether or not the wealthy actually deserve such wealth and whether or not everyone has a fair chance of achieving such wealth. Obviously, some people do earn their wealth and some do not. But, more importantly, not everyone has a fair chance of getting wealth. By this, I do not mean an equal chance: not everyone has the abilities, skills, will, and drive to achieve the success needed to be wealthy. A fair chance is like the starting line of a race: everyone has to run the same distance and everyone has to run. Of course, that is obviously not the case. People born into wealthy families get a vast head start and are given additional advantages. People born into poor families are way behind from the start and are generally confronted with ever increasing obstacles rather than given any advantages.
The current economic problem revealed a great deal about how many companies and individuals became wealthy or increased their wealth: scams, “magic money” packaging and repackaging, unearned bonuses, predatory loans, and other morally dubious means.
Of course, there are “rags to riches” tales of people who started in poverty or challenging circumstances and ended up in a mansion (or the White House). But these tales are the very rare exceptions. To say that they show that the current situation provides fair access to opportunity for everyone would be like claiming that most high school/college athletes become pro athletes by pointing to a few examples.
My thought is that while we should be concerned that the rich have less money to spend on consumption, we should be more concerned that so few people have so much more than everyone else and that we have to rely so heavily on them. We should also be concerned about how this wealth was acquired.
Samuelson’s second point is that the rich pay most of the taxes in the US. As he points out, 50% of the 2006 taxes were paid by the wealthiest 10% of the population. Amazingly, 28% of the taxes were paid by the richest 1%.
Part of this is due to the obvious fact that the rich are richer and hence would pay more even if they paid the same percentage of their income in taxes. The other part is due to the fact that the income tax is progressive-the more you make, the higher percentage of your income you pay in taxes.
While this does show that the rich pay most of the taxes, it also raises the obvious worry: why do so few people have so much wealth? Perhaps this is perfectly just: the rich earned their wealth and deserve, if not every penny, at least most of what they earn. If this is the case, then this is obviously just and fair. Obviously, the mere fact that the distribution of wealth is so extreme does not itself entail an unfair system. To use an analogy, I have far more running trophies than most people, but that is not due to injustice. It is due to the fact that I train hard and race hard, thus earning those trophies.
Of course, some of the disparity is no doubt due to unfair factors-just as some athletes win by using steroids and by other unfair means.
One final point here, to borrow from Thoreau, is that although the rich pay more taxes, they tend to benefit more from the government. As such, they should be expected to pay more for what they receive. For the argument, read Thoreau’s essay on civil disobedience.
Samuelson’s third point is that the rich give the most to charity. To be specific, half of the charitable contributions of money are made by the 10% wealthiest Americans. Even more extreme is the fact that 27% of such contributions come from the wealthiest 1.5% of Americans
While it is good that the wealthy give to charity (and presumably they do so not just for the tax breaks or the good PR), it is still worrisome that so few people have so much wealth. It might be noted that if wealth was not so concentrated, there would not be so much need for charity.
Samuelson’s final point is that the wealthy provide money for venture capital. As he points out, about 10% of this money comes from individuals and families.
While venture capital does help companies start up and thus creates more jobs (for someone at least, even if the jobs created are overseas jobs), the rich can do this because they are already rich. Also, they provide such capital in order to become even richer, although perhaps some of them do it out of a concern for helping provide new jobs.
Samuelson’s article does do an excellent job at laying bare how much the economy depends on so few. However, this facts should not inspire us to be worried about the well being of the rich. Rather, we should be dismayed by such an extreme concentration of wealth and consider how this concentration itself helped bring the economy down.
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“. . .although the rich pay more taxes, they tend to benefit more from the government.”
Yes.They benefit from a “government of the people, by the people, for the people.” Not just rich people or poor people. The people.
True, the average man could not have a job were it not for the rich man. But let us not forget that, without an available labor force, the rich man, who may at one time have been a small business owner, would likely never have become rich. Even a small farmer would find it a fairly difficult to build wealth without someone else’s labor. Someone to make the equipment he buys; someone to build the means to get the product to market;someone to sell the product.
Whatever the level of his innovative skills and however manically driven he may be , the rich –or potentially rich– man’s wealth depends even more on others as the production,promotion, and distribution of his product become more complex. Rich men aren’t islands, though their financial position in our society increasingly indicates that they are.
It makes me all warm inside to know, for example, “. . .that 27% of [charitable] contributions come from the wealthiest 1.5% of Americans”. We may see if your (tongue-in-cheek) assumption that their giving isn’t driven by tax breaks etc. is correct, if Obama’s plan to reduce charitable deduction tax breaks for the wealthy gains traction. And I’m not sorry or surprised that “28% of the taxes were paid by the richest 1%”. But, the fact that the top 1% possess more wealth than everyone else in this country combined sort of blunts the edges of both the contribution and the tax issues, doesn’t it?
Quite so. The rich can only become rich because of all the rest of the folks.
There is some worry that Obama’s plan to reduce the breaks for charitable giving will hurt the giving. If this turns out to be true, then it would make it clear why most of the rich give to charity. If they gave for the sake of the cause, they’d still keep giving. Of course, one important question is whether the tax income would be increased enough to pay for what the rich previously provided in terms of charity dollars.
I find government subsidization of charitable giving unacceptable (for want of a word with stronger connotations — but not quite as strong as the connotations of “disgusting” or “puke-making”).
1/ I think it’s fair to say that all charities are not equal. Yet, under the current system, if I want to donate $1,000 to Wiloth Equine Therapy in Lower Lake, California, or Save the Interior Freight Dog Association of Fairbanks, AK, or the Long-Beaked Echidna Foundation in Kendleton, TX, my donation is just as tax-deduction-worthy as a like donation to the Save the Children Foundation. Yet the Rocky Mountain Big Horn Sheep Foundation of Red River, MN and the Ladoras Family Services Inc. of Compton, CA are not eligible. Go figure.I don’t want government to be final arbiter of which charitable giving I can get a tax break for and which I can’t. Better to have no charitable giving deduction at all. And it seems the cost of determining and enforcing eligibility might outweigh any increase in giving such tax breaks may encourage.
2/ Color me old-fashioned, but I always viewed charitable giving as something one volunteered without expectation of return. To “know” that one will receive a break in return for ones “charity” sort of defeats that idea, doesn’t it?
Hey! I’ve got an idea. Let’s drop this charitable-giving-tax-break hooey altogether and shift the resultant government savings to tax changes that will increase the tax break for medical expenses, especially among those earning “less” than $250k.
I do find the idea of taking away the tax breaks for giving to be somewhat appealing. From a moral standpoint, true charity is giving for the sake of the charity (I’m following Aquinas here). Also, as you say, the savings in getting rid of all the bureaucracy might be significant.
Of course, many very good charities rely on the fact that people do get that tax break to keep the money coming. While some folks will give for the sake of giving, I suspect that a significant portion of people do so for the breaks. But, I would very much like to be wrong about this.
If you pay alimony to an ex-spouse, he or she is the one who has to pay income tax on that money. Similarly, the tax should be paid by the charity rather than the giver.
Well, you pay income tax on the money you earn and then give to the ex-spouse. Or is there a tax exemption for alimony costs?
If the charity also paid a tax, wouldn’t that end up being a double tax (once for the person who earned it, then again for the charity)? Of course, sales tax means a double hit-you pay taxes on your income and then are taxed again when you buy something taxable.
“I do find the idea of taking away the tax breaks for giving to be somewhat appealing. From a moral standpoint, true charity is giving for the sake of the charity (I’m following Aquinas here). Also, as you say, the savings in getting rid of all the bureaucracy might be significant.”
I totally agree. Give a flat tax and get rid of 95% of the IRS. Make it simple.
Did you say flat tax or flat earth?
Here you go, biomass: http://www.forteantimes.com/
Sounds pretty progressive to me.
Tax Burden of Top 1% Now Exceeds That of Bottom 95%
by Scott A. Hodge
Newly released data from the IRS clearly debunks the conventional Beltway rhetoric that the “rich” are not paying their fair share of taxes.
Indeed, the IRS data shows that in 2007—the most recent data available—the top 1 percent of taxpayers paid 40.4 percent of the total income taxes collected by the federal government. This is the highest percentage in modern history. By contrast, the top 1 percent paid 24.8 percent of the income tax burden in 1987, the year following the 1986 tax reform act.
Remarkably, the share of the tax burden borne by the top 1 percent now exceeds the share paid by the bottom 95 percent of taxpayers combined. In 2007, the bottom 95 percent paid 39.4 percent of the income tax burden. This is down from the 58 percent of the total income tax burden they paid twenty years ago.
To put this in perspective, the top 1 percent is comprised of just 1.4 million taxpayers and they pay a larger share of the income tax burden now than the bottom 134 million taxpayers combined.
Some in Washington say the tax system is still not progressive enough. However, the recent IRS data bolsters the findings of an OECD study released last year showing that the U.S.—not France or Sweden—has the most progressive income tax system among OECD nations. We rely more heavily on the top 10 percent of taxpayers than does any nation and our poor people have the lowest tax burden of those in any nation.
We are definitely overdue for some honesty in the debate over the progressivity of the nation’s tax burden before lawmakers enact any new taxes to pay for expanded health care.
http://www.taxfoundation.org/blog/show/24944.html
TJ: Don’t ask me why this post popped in among the July 20 comments above when I first submitted it… 🙁 Here goes again.
If only a “fair share” (”fair” is a subjective determination, correct?)could be determined with cold, hard figures, your info. might help to determine what a “fair share” is.
But figures are an objective measure–and we all know the old saying about liars and figures. Example: I’m not sure what it means that 1.4 million of the population pays 40.5 of the taxes. On how much total income? And how much income do “the other 134 million taxpayers combined” make? What I’m saying is, I don’t think we can get from figures to a mutually satisfying understanding of what “fairness” is from here.
Prante, in the “Fiscal Facts” follow-up piece in the link you provided writes:
“This 10 percent of the returns in the top 1 percent amounts to only 141,000 tax returns but accounts for nearly 12 percent of the adjusted gross income earned and approximately 20 percent of the nation’s federal individual income taxes.” One way of looking at this, to give us a different perspective of what might be “fair taxation of the rich” would be to notice that 141 thousand taxpayers out of a total of 134 *million” taxpayers earned 12% of the AGI. That is, . Now, I’m not saying that’s unfair; I’m just saying that I think that means that 99.9%, or about or above 133 million taxpayers combined earned only 88% of the total AGI. To illustrate numbers with bodies: It’s as if the total combined populations (men, women, and children) of our 7 most populous states ( CA TX NY FL IL PA OH) earned 88% of the total AGI while the entire population (men, women, and children)of Sioux Falls, South Dakota earned 12%.
To counteract the claimed ‘objectivity’ of the Tax Foundation report, here’s one counterpoint –a meaningful and somewhat subjective piece by Krugman. Remember as you read that the realm of subjectivity is where the conservative cry for *fair* lower taxes lies and also the realm where the liberal cry for *fair *higher taxes and wages exists.
http://www.rollingstone.com/politics/story/12699486/paul_krugman_on_the_great_wealth_transfer/print
A few bits:
“. . . political corruption only worsens as economic inequality rises. Indeed, the gap between rich and poor doesn’t just mean that few Americans share in the benefits of economic growth — it also undermines the sense of shared experience that binds us together as a nation.”
and
“‘Trust is based upon the belief that we are all in this together, part of a ‘moral community,’ writes Eric Uslaner, a political scientist at the University of Maryland who has studied the effects of inequality on trust. ‘It is tough to convince people in a highly stratified society that the rich and the poor share common values, much less a common fate’.”
What ever happened to the idea that you get ahead by hard work, thrift, and education? Remember the ant and the grasshopper?
The most effective way to get ahead is to get others to do the hard work for you.
That is an awful simple way to look at it Michael. Without the drive, ambition and ingenuity of some of these people or standard of living would be a lot worse.
Yes, you’re right. You look best when all of your students work hard and study the things you tell them to study. Excellent point.
“What ever happened to the idea that you get ahead by hard work, thrift, and education?”
Perhaps that ideal bumped up against too many real-life individuals who squeak through prestigious schools with “C” averages , become rich and powerful by depending on daddy’s wealth and influence, and occasionally get away with perpetrating outright fraud on their fellow citizens.
I can imagine the ant gazing down at the dying grasshopper and, with a supercilious sneer, refusing to help him. Probably does a celebration dance as the ant expires. Doesn’t care that the grasshopper wasn’t programmed or physically equipped to gather and store. Tough **** grasshopper. . .
“Perhaps that ideal bumped up against too many real-life individuals who squeak through prestigious schools with “C” averages , become rich and powerful by depending on daddy’s wealth and influence, and occasionally get away with perpetrating outright fraud on their fellow citizens.”
Especially since these prestigious schools are not stuffed with Liberal professors are are completely objective. They would definitely not give bad grades if you didn’t think just like them.
“Perhaps that ideal bumped up against too many real-life individuals who squeak through prestigious schools with “C” averages , become rich and powerful by depending on daddy’s wealth and influence, and occasionally get away with perpetrating outright fraud on their fellow citizens.”
Yes, and that is always the way it happens with rich parents and C grades. Where did Bill Gates go to college? Did Oprah Winfrey go to a prestigious school? Take a look at the richest people in America and you may be surprised.
Your theory would make a great movie though. I bet people on Welfare would get right into it and all riled up.
Yup, lots of money and power to be had by liberals by cashing in on people’s desire to hear their life is someone else’s fault.
In Afghanistan, that may be true, in America–sorry. Go to school, don’t get arrested, set goals, work hard–succeed. And sometimes Fate will stick a speed bump in front of you–and then you just keep going.
Liberal Formulae for Success: Claim victimhood by those in power or with money and hope some of their power and money get shuttled your way.
Nietzsche was right in at least one thing: Resentment is the morality of the weak.
“The problem with the other origin of the “good,” of the good man, as the person of ressentiment has thought it out for himself, demands some conclusion. It is not surprising that the lambs should bear a grudge against the great birds of prey, but that is no reason for blaming the great birds of prey for taking the little lambs. And when the lambs say among themselves, “These birds of prey are evil, and he who least resembles a bird of prey, who is rather its opposite, a lamb,—should he not be good?” then there is nothing to carp with in this ideal’s establishment, though the birds of prey may regard it a little mockingly, and maybe say to themselves, “We bear no grudge against them, these good lambs, we even love them: nothing is tastier than a tender lamb.” ~Nietzsche, The Genealogy of Morality.
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quite illuminating, thanks
kernunos:
“. . .that is **always** the way it happens with rich parents and C grades.” [my emphasis]
C’mon now. I didn’t say “always”, and you know it. It might be convenient to your argument for you to misinterpret it that way, though, right? Please don’t put words in my keyboard. 🙂
I said “. . .too many real-life individuals. . .” George W Bush is ‘one too many’. A quick run through the higher reaches of the government and many corporations would probably find us one or two more–at least enough to crack that ideal of “hard work, thrift, and education” that TJ referred to. . . .
But why would you say I meant or even implied “. . .that is **always** the way it happens with rich parents and C grades.” Hmm?
“Yup, lots of money and power to be had by liberals by cashing in on people’s desire to hear their life is someone else’s fault.”
Yup. Lots of money and power to be had by conservatives who cash in on people’s desire to feel they’ve got no responsibility to anyone but themselves. Me. Me. Me. No “we the people”. “Everyone for himself.” “Pull yourself up by your own bootstraps.” Which brings me to:
“And sometimes Fate will stick a speed bump in front of you–and then you just keep going.”
Quite simply put. But. . . sometimes the “speed bumps” are more serious than you, apparently, can imagine. Physical and mental limitations are sometimes insurmountable “speedbumps”, even moreso when accompanied by emotional speedbumps. Even in the day of “a pill for everything”-assuming you’re fortunate enough to afford that pill at $40 a pop– there are emotional problems that are insurmountable.
Other “speedbumps”?Being hanged from a tree in 50’s America was a heck of a speedbump. Here’s a more current “speed bump” for you to consider:
http://www.texasmonthly.com/2007-02-01/feature4.php?click_code=951dd85652d91ac65d27cc07182e7bc8
Da*n that hurt:(, right?
“Nietzsche was right in at least one thing: Resentment is the morality of the weak.”
Yes. I’m amazed at the depth of the vehement resentment harbored by conservatives toward elite intellectuals (who, they say are invariably liberal). . . Talk about victimhood. And for a group made up almost entirely of white men, it’s amazing how much victimhood is oozing out of the Republican House of Representatives. What’s with Boehner and his tan, anyway? I sense there might be a tie-in to victimhood here, but I’m not sure what it is. . .
Well, unlike your ilk, biomass–I don’t want your money or power. I’ll make my own way.
For the record, “I don’t want your money or power” either.
But exactly how are you going to achieve your goal? Move to an island by yourself? Otherwise, you know, you’re traveling on highways that were built with “our” money, over bridges built with “our” money, to schools built with “our” money. And streets and water systems are built and maintained with “our” local money You’d have a hard time untangling “our” money from just about any imported object you may purchase since government tariffs collected by “our” government to be used for things like “our” defense are mixed into the final cost.
The issue in this country “of the people” [not person}, in this country of “we the people” [not me the person] is not whether *we* pay taxes–potholes anyone/no water or electricity anyone?
That’s big of you, mag.
Calling John Donne. . .Are you an island, magus71?
Do you live on one? If you live on this continent, next time you drive down that highway or over that bridge or to that school, or next time you use that sewer remember it’s *our* federal and local money that made those luxuries possible. Who pays the salaries of the policemen in your town? And dare I say it, because I know it’ll make your skin crawl, the next time you walk down a street that’s not littered with old, ill,shriveled-up poor people, thank Social Security—even that program too many elderly are living below the poverty line–in a first world/first class country like ours.
And you’d have a difficult time unwrapping those federal taxes that are applied to imports that you likely use in everyday life.*# But, then, I’m sure you’ve eliminated everything from your life that’s imported or contains imported parts. . . 🙂
So you see, we pay taxes collectively to run a government (Article 1, Section 8) that cannot run without money. As you probably know, one reason the Founders replaced the Articles of Confederation with the Constitution was that there just wasn’t any way under the Articles of Confederation to get enough money through taxation for an adequate defense–of the country and its individuals. The constitution then enumerates a few federal responsibilities that require tax monies. State and local constitutions enumerate further functions for which state and local government governments respectively responsible. I frankly don’t know where the idea that some have (not you, but some)that this country could get along merrily without taxation comes from. It baffles me.
The only real issues are not whether we pay tax but how much of *our* money/not *my* money/ we put toward that end ,how we distribute the burden, and how wisely or unwisely that tax is spent.
*#Sure, I know. Furriners pay the tax. But *our* government, paid out of *our* pockets, collects the tax and uses the tax.
Oh–and don’t get preachy to me about speedbumps; I’ve had more than my share and so has my family.
You’ve built an impressive strawman with the me, me , me thing, too.
http://www.realclearpolitics.com/articles/2008/03/conservatives_more_liberal_giv.html
Next time you’re hanged or dragged behind a truck, send me a note and I’ll try to be more sympathetic to your cause. Just remember that, when you do, at least you’re still able to send the note.
If only a “fair share” (“fair” is a subjective determination, correct?)could be determined with cold, hard figures, your info. might help to determine what a “fair share” is.
But figures are an objective measure–and we all know the old saying about liars and figures. Example: I’m not sure what it means that 1.4 million of the population pays 40.5 of the taxes. On how much total income? And how much income do “the other 134 million taxpayers combined” make? What I’m saying is, I don’t think we can get from figures to a mutually satisfying understanding of what “fairness” is from here.
Prante, in the “Fiscal Facts” follow-up piece in the link you provided writes:
“This 10 percent of the returns in the top 1 percent amounts to only 141,000 tax returns but accounts for nearly 12 percent of the adjusted gross income earned and approximately 20 percent of the nation’s federal individual income taxes.” One way of looking at this, to give us a different perspective of what might be “fair taxation of the rich” would be to notice that 141 thousand taxpayers out of a total of 134 *million” taxpayers earned 12% of the AGI. That is, . Now, I’m not saying that’s unfair; I’m just saying that I think that means that 99.9%, or about or above 133 million taxpayers combined earned only 88% of the total AGI. To illustrate numbers with bodies: It’s as if the total combined populations (men, women, and children) of our 7 most populous states ( CA TX NY FL IL PA OH) earned 88% of the total AGI while the entire population (men, women, and children)of Sioux Falls, South Dakota earned 12%.
To counteract the claimed ‘objectivity’ of the Tax Foundation report, here’s one counterpoint –a meaningful and somewhat subjective piece by Krugman. Remember as you read that the realm of subjectivity is where the conservative cry for *fair* lower taxes lies and also the realm where the liberal cry for *fair *higher taxes and wages exists.
http://www.rollingstone.com/politics/story/12699486/paul_krugman_on_the_great_wealth_transfer/print
A few bits:
“. . . political corruption only worsens as economic inequality rises. Indeed, the gap between rich and poor doesn’t just mean that few Americans share in the benefits of economic growth — it also undermines the sense of shared experience that binds us together as a nation.”
and
“‘Trust is based upon the belief that we are all in this together, part of a ‘moral community,’ writes Eric Uslaner, a political scientist at the University of Maryland who has studied the effects of inequality on trust. ‘It is tough to convince people in a highly stratified society that the rich and the poor share common values, much less a common fate’.”