Source: OECD Factbook 2008. http://titania.sourceoecd.org/vl=4937052/cl=16/nw=1/rpsv/factbook/
Friday, September 26, 2008
SDI and Average Annual Productivity Growth in North America, "Old" Europe, and Oceania, 1980-2006
Source: OECD Factbook 2008. http://titania.sourceoecd.org/vl=4937052/cl=16/nw=1/rpsv/factbook/
SDI and Intergenerational Mobility
The only countries for which the right data were available were:
UK {0.502, 0.001}
USA {0.300, 0.087}
France {0.623, 0.258}
Germany {0.482, 0.515}
Sweden {0.821, 0.658}
Canada {0.456, 0.887}
Finland {0.681, 0.915}
Norway {0.687, 0.944}
Denmark {0.784, 1.001}
x = SDI 2.0
y = Intergenerational Mobility (Scaled)
Source: http://www.economicmobility.org/assets/pdfs/EMP_American_Dream.pdf, p. 9.
Note: scaled scores are derived from each country's relative mobility statistic (i.e., the extent to which one's parents earnings predict one's own earnings). The scaling formula is [(country's statistic - minimum statistic)/(maximum statistic - minimum statistic) + 0.001]. 0.001 is added to each scaled score to avoid scores of zero, which screw up the nonlinear regression equations.
Tuesday, September 23, 2008
Saturday, September 20, 2008
"Red" States = "Welfare Queen" States
Source: Tax Foundation, http://www.taxfoundation.org/research/show/266.html
Note: Ratios are for 2005. I excluded DC, Virginia, and Maryland due to their abnormally large amounts of Federal spending due to the location of the Federal government.
Wednesday, September 17, 2008
Wednesday, August 27, 2008
Revenge of the Naderians II: This Time, It's Personal
Call me blinded by incandescent rage, but my other senses are in tip top shape and I detect the sharp tang of the Naderians in the current raucous incoherence of the PUMAs (Party Unity My Ass; a small step down in class and a considerable step down in patriotism from SEIU (Suck Eggs, Iococca. USA!)). As before, the commitment to empty principle over the well-being of actual, living human beings threatens to land the country in the Republican lap. McLoin's lap. As noted earlier in this blog, better is better than worse. Almost by definition, in fact. Holding out for the perfect and uncompromised manifestion of one's principles is a long wait in a democracy.
Although, in fairness to the dewey-eyed Naderites, they voted their (I would argue, unconscionable) conscience; the current crop of PUMAs don't seem limited to Nader-style rigidity. Some of them are apparently just Republicans with a strong sense of gender loyalty:
"The Hillary Democrats are moving on---to John McCain. You see, this is what the Obama coalition of rich white liberals and racist blacks doesn't understand: the Hillary Democrats don't subscribe to the crackpot social causes of the new left; they never did. They're FDR Democrats, not LBJ Democrats. They have no interest in placating racist blacks, illegal immigrants, Islamists, gay activists, environuts, etc. They're in it for good jobs, for fair taxation of the wealthy, for healthcare, and for proper regulation of industry."
Passing lightly over what fair taxation for the wealthy means here, I struggled to split the hair between African-Americans' support of an African-American being racism, while women's support of a woman is simply a laudable effort to shatter the glass ceiling. The way I was able to do it was to look closely economic and sociological data to reassure myself that there are no barriers to upward movement for African-Americans. This comforting conclusion, coupled with a reminder that historically African-Americans have never really faced the kind of systematic discrimination women now face (women only make 77 cents on the male dollar! Never in history did African-Americans face that kind of inequality!) and a close look at my income bracket, finally allowed me to wipe the tears of frustration from my cheeks and vote Republican.
It's about time I was fairly taxed. And that goes double (metaphorically, of course) for my capital gains.
Although, in fairness to the dewey-eyed Naderites, they voted their (I would argue, unconscionable) conscience; the current crop of PUMAs don't seem limited to Nader-style rigidity. Some of them are apparently just Republicans with a strong sense of gender loyalty:
"The Hillary Democrats are moving on---to John McCain. You see, this is what the Obama coalition of rich white liberals and racist blacks doesn't understand: the Hillary Democrats don't subscribe to the crackpot social causes of the new left; they never did. They're FDR Democrats, not LBJ Democrats. They have no interest in placating racist blacks, illegal immigrants, Islamists, gay activists, environuts, etc. They're in it for good jobs, for fair taxation of the wealthy, for healthcare, and for proper regulation of industry."
Passing lightly over what fair taxation for the wealthy means here, I struggled to split the hair between African-Americans' support of an African-American being racism, while women's support of a woman is simply a laudable effort to shatter the glass ceiling. The way I was able to do it was to look closely economic and sociological data to reassure myself that there are no barriers to upward movement for African-Americans. This comforting conclusion, coupled with a reminder that historically African-Americans have never really faced the kind of systematic discrimination women now face (women only make 77 cents on the male dollar! Never in history did African-Americans face that kind of inequality!) and a close look at my income bracket, finally allowed me to wipe the tears of frustration from my cheeks and vote Republican.
It's about time I was fairly taxed. And that goes double (metaphorically, of course) for my capital gains.
Wednesday, August 13, 2008
In Case Anyone Didn't Catch It
Perhaps you all have caught The Loin's new advertising campaign. Its theme is: "Obama is an oblivious rich elitist (though of course he has a mere fraction of The Loin's wealth) who wants to raise taxes on hardworking middle-income Americans." Obviously, this is not true.
Estimated Effect of Obama and The Loin's Tax Plans by Income Cohort
Original source here.
Estimated Effect of Obama and The Loin's Tax Plans by Income Cohort
Original source here.
Tuesday, August 12, 2008
Startling New Poll
Let me first start by saying this post is only marginally related to socialism, in that it demonstrates compelling reasons for forcing all citizens to pay into the kitty in order to pay for accurate and sustainable poll sources.
That said, I recently returned from a road trip with my two dogs to the east coast, and the 14-16 hours in the car each way enabled me to conduct, by far, the most extensive poll of bumper stickers east of the Mississippi. Although I would be happy to detail my methodology, I know that Ryan simply prefers to publish nice graphs, and so I will do just that.
Before viewing, know that my sample size was 12, which is obviously significant at all levels. Also, the first column is negative because I saw one sticker that said "Republicans for Voldemort" which, as we all know, is McCain's middle name (though he spells it SVoldemort).
So, without further adieu (clik for larger view):
In all seriousness, I saw no McCain stickers all across the states of Indiana, Ohio, Pennsylvania, New York, New Jersey and Hogwarts (except for the one). It certainly doesn't actually indicate anything about the race, but I thought it was interesting.
Once again, apologies to Ryan for hijacking his blog for utterly useless political commentary. I promise to return to socialism soon.
That said, I recently returned from a road trip with my two dogs to the east coast, and the 14-16 hours in the car each way enabled me to conduct, by far, the most extensive poll of bumper stickers east of the Mississippi. Although I would be happy to detail my methodology, I know that Ryan simply prefers to publish nice graphs, and so I will do just that.
Before viewing, know that my sample size was 12, which is obviously significant at all levels. Also, the first column is negative because I saw one sticker that said "Republicans for Voldemort" which, as we all know, is McCain's middle name (though he spells it SVoldemort).
So, without further adieu (clik for larger view):
In all seriousness, I saw no McCain stickers all across the states of Indiana, Ohio, Pennsylvania, New York, New Jersey and Hogwarts (except for the one). It certainly doesn't actually indicate anything about the race, but I thought it was interesting.
Once again, apologies to Ryan for hijacking his blog for utterly useless political commentary. I promise to return to socialism soon.
Saturday, August 2, 2008
For All of the Howling, U.S. Taxes Not Overwhelmingly Progressive
As an Obama presidency looms, we will all have to suffer through an onslaught of crooning about how an Obama administration would somehow tax the rich into virtual servitude. If only we could be so lucky.
Before we get too excited about what may happen in the future, it's good to get an idea of where we stand now. To get a baseline estimate of the present overall distribution of the country's tax burden, I found data on the percentage of income paid by each quintile (as well as the 80th - 94th percentile, the 95th-99th percentile, and the top 1%) in all Federal (i.e., the income tax, corporate tax, estate and gift tax, payroll taxes, and all other miscellaneous taxes) and all state and local taxes. You will notice that while the Federal tax system is quite progressive (though inadequately so, especially as to the very very rich), state and local taxes are, on balance, quite regressive. The result is that the U.S. tax regime, taken in its entirety, is progressive but not overwhelmingly so. Does it seem right that households making between $37,258 and $65,634 a year should pay an average of 25% of their income in all taxes while households making $601,907 and up should pay an average of 35%? That's an awfully modest increase in percentage tax burden for a ~10-fold or potentially much, much greater increase in income (to get an idea of the spread at the very top, hedge fund manager John Paulson made $3.7 billion in 2007).
I could not obtain state and local tax data for the top 0.1% (which starts at a household income of about $2.9 million a year), but the Federal tax burden of the top 0.1% (31.6%) shows that the percentage of income paid in Federal taxes increases very slowly as taxpayers' income increases dramatically. I'd be willing to wager serious bones that the overall percentage tax burden begins to decline as we move up the income ladder into the absurdly wealthy (i.e., households that make hundres of millions of dollars a year and therefore that will pay a negligible percentage of their income in state and local taxes and will receive most of their income in the form of capital gains taxed at the lower 15% rate under the Federal income tax code). I am not alone (read this and this) in this view.
Total Taxes Paid as a % of Income by Income Group
Am I wrong that this (i.e., the fact that the Federal tax code appears to have the potential to be somewhat fair while the state and local tax regimes do not) is another argument in favor of abolishing federalism? Just to speculate here, might it be the case that jurisdictional competition between states to attract higher income residents (or, more maliciously, to chase away lower income residents) is driving down the relative state and local tax burden on the well off? Higher earning New Yorkmen can move to Jersey or Connecticut or Chicagokaaners can move to Indiana to try to lower their state or local tax burden. But it's a little harder to leave the country 'cause your miffed at the tax burden (besides, where would you go? Seoul? Guadalajara?). I really struggle to see the benefits of our federalist system.
Note: The Federal data is for 2008, while the state and local data is for 2002. There probably are some minor comparability issues, but I seriously doubt that anything has changed very dramatically since 2002, or that there is any massive methodological difference between the two reports significant enough to alter the overall picture.
Also Note: The Federal tax burden percentage for the 80th - 94th percentile and the state and local tax burden percentage for the top 20% are estimates based on the percentages given for the most similar available income groups.
Before we get too excited about what may happen in the future, it's good to get an idea of where we stand now. To get a baseline estimate of the present overall distribution of the country's tax burden, I found data on the percentage of income paid by each quintile (as well as the 80th - 94th percentile, the 95th-99th percentile, and the top 1%) in all Federal (i.e., the income tax, corporate tax, estate and gift tax, payroll taxes, and all other miscellaneous taxes) and all state and local taxes. You will notice that while the Federal tax system is quite progressive (though inadequately so, especially as to the very very rich), state and local taxes are, on balance, quite regressive. The result is that the U.S. tax regime, taken in its entirety, is progressive but not overwhelmingly so. Does it seem right that households making between $37,258 and $65,634 a year should pay an average of 25% of their income in all taxes while households making $601,907 and up should pay an average of 35%? That's an awfully modest increase in percentage tax burden for a ~10-fold or potentially much, much greater increase in income (to get an idea of the spread at the very top, hedge fund manager John Paulson made $3.7 billion in 2007).
I could not obtain state and local tax data for the top 0.1% (which starts at a household income of about $2.9 million a year), but the Federal tax burden of the top 0.1% (31.6%) shows that the percentage of income paid in Federal taxes increases very slowly as taxpayers' income increases dramatically. I'd be willing to wager serious bones that the overall percentage tax burden begins to decline as we move up the income ladder into the absurdly wealthy (i.e., households that make hundres of millions of dollars a year and therefore that will pay a negligible percentage of their income in state and local taxes and will receive most of their income in the form of capital gains taxed at the lower 15% rate under the Federal income tax code). I am not alone (read this and this) in this view.
Total Taxes Paid as a % of Income by Income Group
Am I wrong that this (i.e., the fact that the Federal tax code appears to have the potential to be somewhat fair while the state and local tax regimes do not) is another argument in favor of abolishing federalism? Just to speculate here, might it be the case that jurisdictional competition between states to attract higher income residents (or, more maliciously, to chase away lower income residents) is driving down the relative state and local tax burden on the well off? Higher earning New Yorkmen can move to Jersey or Connecticut or Chicagokaaners can move to Indiana to try to lower their state or local tax burden. But it's a little harder to leave the country 'cause your miffed at the tax burden (besides, where would you go? Seoul? Guadalajara?). I really struggle to see the benefits of our federalist system.
Note: The Federal data is for 2008, while the state and local data is for 2002. There probably are some minor comparability issues, but I seriously doubt that anything has changed very dramatically since 2002, or that there is any massive methodological difference between the two reports significant enough to alter the overall picture.
Also Note: The Federal tax burden percentage for the 80th - 94th percentile and the state and local tax burden percentage for the top 20% are estimates based on the percentages given for the most similar available income groups.
Friday, July 25, 2008
So, About This Minimum Wage Thing...
As you may be aware, the Federal minimum wage was scheduled to increase to $6.55 yesterday. Today I had a Facebox e-debate of sorts which I think has helped me refine my position on the issue of income support for poor workers. I am very interested in other people’s take on my position on the issue.
Standard neoclassical economic theory tells us that a legally mandated minimum wage, if it is above the market clearing wage, will reduce employment, especially for the most marginally employable workers. The microeconomic rationale for this is pretty straightforward; if you forbid employers to pay any wage under $X/hr., they will fire or not hire employees who are worth any amount less than $X/hr. So the guy who is worth only $7/hr. loses (or never gets) his job when the minimum wage is increased to $7.50/hr. As always, the standard economic theory is plausible. But, also as always, it must be empirically supported to form the basis of informed policy-making. The magical curves and lines don't always get it right.
When I took a labor economics class in college, this study was relatively new and represented kind of a coup d'etat. The Krueger and Card study compared the effect of an increase in the minimum wage on employment in the fast food industry in one state with the level of employment in the fast food industry in an adjacent state that did not increase its minimum wage. Surprisingly, the study found that employment had actually slightly increased (relatively) in the state that had increased its minimum wage. Naturally, this sparked a great gnashing of teeth and back-and-forth debate within the economics profession
So today, a right-wing Facebox-friend of mine posted something to the effect that any increase in the minimum wage is an "inane" policy. In response, I drew his attention to the Krueger and Card study. He, in turn, posted a link to this study, which provides a pretty comprehensive survey of the minimum wage literature. The study found that almost 2/3 of the studies it surveyed, and 85% of the studies it found "most credible," showed a negative, "but not always statistically significant" effect of minimum wage laws on the number of people employed and/or hours of employment. The majority of the studies appear to have found that a 10% increase in the minimum wage leads to a roughly 1% to 3% reduction in the employment of low-skill workers, with significantly stronger negative effects on teenagers and young adults and much weaker negative effects on adults 25 and older.
The study appears pretty thorough and I think I buy its conclusion – i.e., there’s generally a small, negative effect of a minimum wage increase on the employment of low-skill workers. But it's important to bear these results in perspective. A 1% to 3% reduction in low-income employment is not the end of the world, particularly if we had an adequate social welfare state to provide for the subsistence of the unlucky 1%-3% (which, unfortunately we don't, but many other countries do). But it is a significant downside effect that we should take into account when thinking about income support issues. Interestingly, left-leaning economist Paul Krugman appears to share this concern ("...the centrist view is probably that minimum wages 'do,' in fact, reduce employment, but that the effects are small and swamped by other forces.").
I have proposed a fairly radical solution to all of these employment and income support issues (see #'s 1 and 6). But it's probably safe to assume that that's not going to happen any time soon. In the meantime, I think it's helpful to look at the issue the way right-of-center Harvard economist Gregory Mankiw does: as a tax on employers of low skill workers which directly funds a subsidy to low skill workers. Looking at it this way raises the obvious question - why should the employers of low skill workers bear the whole burden of this subsidy? Surely, income support of poor workers is more of a general social responsibility than the exclusive responsibility of poor workers' private employers, just as medical insurance and care is a general public and social responsibility (even if, in this country, it is an abdicated one) and should not be regarded as the particular responsibility of workers’ employers. Therefore it would be fairer and more efficient to simply increase taxes (disproportionately on high earners and very disproportionately on very high earners, of course), and then to use the proceeds to significantly increase the Earned Income Tax Credit (the EITC, or "negative income tax") for poor workers.
With respect to the relative efficiency of using a negative income tax policy instead of a minimum wage policy, consider this CBO report which found that a hypothetical increase in the minimum wage in 2005 from $5.15 to $7.25/hr. would have given an additional $11 billion overall to workers making somewhere between $5.15 - $7.24/hr. (of which, startlingly, only 18% were actually members of poor families in 2005, at least according to the notoriously low Federal poverty guidelines), only $1.6 billion of which (or about 15%) would have gone to workers in poor families. On the other hand, an increase in the EITC with the same overall income effect as the minimum wage increase would have cost the Federal government a total of $2.4 billion, $1.4 billion of which would have gone to poor families. If these estimates are reliable, the minimum wage is a very blunt instrument for supporting the incomes of poor workers.
So it seems to me getting rid of the minimum wage and drastically increasing the EITC (along with providing payments at least on a bi-weekly basis and not in one lump sum at the end of the year so the whole thing doesn't end up going to H&R Block or payday lenders) is the way to go, at least before we can push for anything more ambitious. The effect of this would be to allow employers to hire whomever they want at whatever price the employee will agree to, but to use the additional public revenues raised by a big progressive tax increase to bring everyone up to (at least) the poverty level. This way we fund the income support subsidy through the proceeds of a broad based progressive tax system rather than specifically punishing employers who happen to operate in low-skill industries by forcing them to pay for the whole burden, and a much higher percentage of the proceeds will go to workers who are actually in low income families. And of course then we would avoid the whole negative employment effect of the minimum wage (especially since, as we know, increases in tax rates generally have negligible effects on labor supply).
The bottom line for me is that the income support of the poor (ideally to the point where they are no longer “poor”) is a fundamental social responsibility, but that this responsibility would be fulfilled in a much fairer and more effective manner if the government (relying on high, progressive tax revenues) were to provide direct subsidies to poor workers rather than forcing private employers to serve as surrogate welfare agencies.
Standard neoclassical economic theory tells us that a legally mandated minimum wage, if it is above the market clearing wage, will reduce employment, especially for the most marginally employable workers. The microeconomic rationale for this is pretty straightforward; if you forbid employers to pay any wage under $X/hr., they will fire or not hire employees who are worth any amount less than $X/hr. So the guy who is worth only $7/hr. loses (or never gets) his job when the minimum wage is increased to $7.50/hr. As always, the standard economic theory is plausible. But, also as always, it must be empirically supported to form the basis of informed policy-making. The magical curves and lines don't always get it right.
When I took a labor economics class in college, this study was relatively new and represented kind of a coup d'etat. The Krueger and Card study compared the effect of an increase in the minimum wage on employment in the fast food industry in one state with the level of employment in the fast food industry in an adjacent state that did not increase its minimum wage. Surprisingly, the study found that employment had actually slightly increased (relatively) in the state that had increased its minimum wage. Naturally, this sparked a great gnashing of teeth and back-and-forth debate within the economics profession
So today, a right-wing Facebox-friend of mine posted something to the effect that any increase in the minimum wage is an "inane" policy. In response, I drew his attention to the Krueger and Card study. He, in turn, posted a link to this study, which provides a pretty comprehensive survey of the minimum wage literature. The study found that almost 2/3 of the studies it surveyed, and 85% of the studies it found "most credible," showed a negative, "but not always statistically significant" effect of minimum wage laws on the number of people employed and/or hours of employment. The majority of the studies appear to have found that a 10% increase in the minimum wage leads to a roughly 1% to 3% reduction in the employment of low-skill workers, with significantly stronger negative effects on teenagers and young adults and much weaker negative effects on adults 25 and older.
The study appears pretty thorough and I think I buy its conclusion – i.e., there’s generally a small, negative effect of a minimum wage increase on the employment of low-skill workers. But it's important to bear these results in perspective. A 1% to 3% reduction in low-income employment is not the end of the world, particularly if we had an adequate social welfare state to provide for the subsistence of the unlucky 1%-3% (which, unfortunately we don't, but many other countries do). But it is a significant downside effect that we should take into account when thinking about income support issues. Interestingly, left-leaning economist Paul Krugman appears to share this concern ("...the centrist view is probably that minimum wages 'do,' in fact, reduce employment, but that the effects are small and swamped by other forces.").
I have proposed a fairly radical solution to all of these employment and income support issues (see #'s 1 and 6). But it's probably safe to assume that that's not going to happen any time soon. In the meantime, I think it's helpful to look at the issue the way right-of-center Harvard economist Gregory Mankiw does: as a tax on employers of low skill workers which directly funds a subsidy to low skill workers. Looking at it this way raises the obvious question - why should the employers of low skill workers bear the whole burden of this subsidy? Surely, income support of poor workers is more of a general social responsibility than the exclusive responsibility of poor workers' private employers, just as medical insurance and care is a general public and social responsibility (even if, in this country, it is an abdicated one) and should not be regarded as the particular responsibility of workers’ employers. Therefore it would be fairer and more efficient to simply increase taxes (disproportionately on high earners and very disproportionately on very high earners, of course), and then to use the proceeds to significantly increase the Earned Income Tax Credit (the EITC, or "negative income tax") for poor workers.
With respect to the relative efficiency of using a negative income tax policy instead of a minimum wage policy, consider this CBO report which found that a hypothetical increase in the minimum wage in 2005 from $5.15 to $7.25/hr. would have given an additional $11 billion overall to workers making somewhere between $5.15 - $7.24/hr. (of which, startlingly, only 18% were actually members of poor families in 2005, at least according to the notoriously low Federal poverty guidelines), only $1.6 billion of which (or about 15%) would have gone to workers in poor families. On the other hand, an increase in the EITC with the same overall income effect as the minimum wage increase would have cost the Federal government a total of $2.4 billion, $1.4 billion of which would have gone to poor families. If these estimates are reliable, the minimum wage is a very blunt instrument for supporting the incomes of poor workers.
So it seems to me getting rid of the minimum wage and drastically increasing the EITC (along with providing payments at least on a bi-weekly basis and not in one lump sum at the end of the year so the whole thing doesn't end up going to H&R Block or payday lenders) is the way to go, at least before we can push for anything more ambitious. The effect of this would be to allow employers to hire whomever they want at whatever price the employee will agree to, but to use the additional public revenues raised by a big progressive tax increase to bring everyone up to (at least) the poverty level. This way we fund the income support subsidy through the proceeds of a broad based progressive tax system rather than specifically punishing employers who happen to operate in low-skill industries by forcing them to pay for the whole burden, and a much higher percentage of the proceeds will go to workers who are actually in low income families. And of course then we would avoid the whole negative employment effect of the minimum wage (especially since, as we know, increases in tax rates generally have negligible effects on labor supply).
The bottom line for me is that the income support of the poor (ideally to the point where they are no longer “poor”) is a fundamental social responsibility, but that this responsibility would be fulfilled in a much fairer and more effective manner if the government (relying on high, progressive tax revenues) were to provide direct subsidies to poor workers rather than forcing private employers to serve as surrogate welfare agencies.
Monday, July 21, 2008
Social Democracy and Political and Civil Liberty
"That government is best which governs least”
-Henry David Thoreau
There is a long thread in American political thought that associates "big government" (presumably a government financed by relatively high taxes and which controls certain markets and extensively regulates most others) with a decrease in the civil liberties (also known as "negative rights") enjoyed by its people. Though always influential, the theory has enjoyed a renaissance since the beginning of the Reagan era. But, beyond the simple “power will be abused” mantra, does the “small government” crowd have anything harder to point to (besides, obviously, comparisons to dictatorial communist regimes like North Korea and Cuba which no one advocates anymore)? To put the question more concretely, are decreases in the economic and regulatory prominence of the government associated with decreases in civil and political liberties in OECD countries?
The SDI index that I have proposed in earlier posts corresponds well with what most people would call “big government” – high and progressive taxes, high social, health, and education expenditures, strong organized labor and legislative labor protections (although organized labor is not itself a feature of the state, its strength often depends on state support and enforcement of the laws of union organization and collective bargaining). So we can try to answer this question by seeing if there is a correlation between SDI and various indicia of civil liberties (or the lack thereof).
In an attempt to provide a single figure to represent the degree of political and civil freedom enjoyed by the citizens of a particular country, I have calculated an “Authoritarian Regime Index” (ARI). The figure is comprised of scaled scores of the following:
30% - Incarceration Rate
30% - Law and Order Expenditures as a % of GDP
15% - Degree of Restriction of the Press calculated from Reporters Without Borders Ratings
25% - (-1) * The Economist Intelligence Unit's Index of Democracy
Note: Complete data was only available for:
Austria
Belgium
Czech Republic
Denmark
Finland
France
Germany
Hungary
Italy
Netherlands
Norway
Poland
Portugal
Slovakia
Spain
Sweden
UK
US
Therefore, only these countries are used in the analysis. I do not think this sample set presents any obvious problems in terms of comparability nor do I think it leaves out any country which would significantly tip the scales in one direction or the other. If anyone thinks otherwise, please let me know.
I have given the Economist's democracy index only a 25% weight because its criteria may overlap somewhat with the other three variables I use. Of course, there is certainly an amount of arbitrariness in this and all indices. But since I do not have the appropriate raw data available myself, I am giving both the Economist (an economically center-right publication) and Reporters Without Borders (more left-leaning, I think) the benefit of the doubt. And on the whole I think my weighting represents a fair balance of the criteria relevant to the level of political and civil "freedom" the people of a country enjoy.
ARI - 18 Country Sample (higher = authoritarian)
So, on to the big question. What is the relationship between SDI and ARI? If the R is positive, then "bigger" government is correlated with a decrease in civil and political liberty, as the "small government" people would predict. If it is negative, "big government" is instead correlated with greater civil and political liberty, and the "small government" crowd has a real empirical mystery to account for.
SDI and ARI
R = -0.788 (where 0.5 is the cutoff for a "strong" correlation)
Surprise, surprise. Using the countries I looked at, those countries with "bigger" government actually tended very strongly to be "freer," at least as I defined "free." As always, I would be very interested to hear any critiques or objections to my methods. But with a result this strong, it is virtually unimaginable that any suggested change would materially alter this clearly observable relationship.
-Henry David Thoreau
There is a long thread in American political thought that associates "big government" (presumably a government financed by relatively high taxes and which controls certain markets and extensively regulates most others) with a decrease in the civil liberties (also known as "negative rights") enjoyed by its people. Though always influential, the theory has enjoyed a renaissance since the beginning of the Reagan era. But, beyond the simple “power will be abused” mantra, does the “small government” crowd have anything harder to point to (besides, obviously, comparisons to dictatorial communist regimes like North Korea and Cuba which no one advocates anymore)? To put the question more concretely, are decreases in the economic and regulatory prominence of the government associated with decreases in civil and political liberties in OECD countries?
The SDI index that I have proposed in earlier posts corresponds well with what most people would call “big government” – high and progressive taxes, high social, health, and education expenditures, strong organized labor and legislative labor protections (although organized labor is not itself a feature of the state, its strength often depends on state support and enforcement of the laws of union organization and collective bargaining). So we can try to answer this question by seeing if there is a correlation between SDI and various indicia of civil liberties (or the lack thereof).
In an attempt to provide a single figure to represent the degree of political and civil freedom enjoyed by the citizens of a particular country, I have calculated an “Authoritarian Regime Index” (ARI). The figure is comprised of scaled scores of the following:
30% - Incarceration Rate
30% - Law and Order Expenditures as a % of GDP
15% - Degree of Restriction of the Press calculated from Reporters Without Borders Ratings
25% - (-1) * The Economist Intelligence Unit's Index of Democracy
Note: Complete data was only available for:
Austria
Belgium
Czech Republic
Denmark
Finland
France
Germany
Hungary
Italy
Netherlands
Norway
Poland
Portugal
Slovakia
Spain
Sweden
UK
US
Therefore, only these countries are used in the analysis. I do not think this sample set presents any obvious problems in terms of comparability nor do I think it leaves out any country which would significantly tip the scales in one direction or the other. If anyone thinks otherwise, please let me know.
I have given the Economist's democracy index only a 25% weight because its criteria may overlap somewhat with the other three variables I use. Of course, there is certainly an amount of arbitrariness in this and all indices. But since I do not have the appropriate raw data available myself, I am giving both the Economist (an economically center-right publication) and Reporters Without Borders (more left-leaning, I think) the benefit of the doubt. And on the whole I think my weighting represents a fair balance of the criteria relevant to the level of political and civil "freedom" the people of a country enjoy.
ARI - 18 Country Sample (higher = authoritarian)
So, on to the big question. What is the relationship between SDI and ARI? If the R is positive, then "bigger" government is correlated with a decrease in civil and political liberty, as the "small government" people would predict. If it is negative, "big government" is instead correlated with greater civil and political liberty, and the "small government" crowd has a real empirical mystery to account for.
SDI and ARI
R = -0.788 (where 0.5 is the cutoff for a "strong" correlation)
Surprise, surprise. Using the countries I looked at, those countries with "bigger" government actually tended very strongly to be "freer," at least as I defined "free." As always, I would be very interested to hear any critiques or objections to my methods. But with a result this strong, it is virtually unimaginable that any suggested change would materially alter this clearly observable relationship.
Wednesday, July 16, 2008
Complements of Bruce Lee
A friend of mine from law school posted this link on Facebox (sorry if you've already seen it on there). The graphs are not merely nice. They are delicious.
Wednesday, July 9, 2008
SDI 2.0 and Economic Performance - Pt. 1
"Countries with low taxes, limited regulation, and open trade grow faster, create more jobs, and enjoy higher standards of living than countries with bigger, more centralized governments and higher taxes."
-President George W. Bush's "Tax Plan"
In my last post, I proposed a metric for evaluating how generally left-leaning (in the economic sense) a country is so that we can make informed comparisons between countries' attributes and their economic policies. I have adjusted that metric somewhat, and I now apply the following formula:
Taxes, Progressivity, and Redistributive Spending - 45%
30%: Tax burden/GDP
7.5%: Income tax/Taxes on goods and services
3.75%: Social spending as a % of GDP
3.75%: Social spending as a percentage of tax receipts
Labor - 25%
15%: Union density
5%: Employee dismissal protections (scaled average of OECD rating)
5%: Annualized minimum wage/GDP per capita
Health Care - 15%
7.5%: Government health care expenditures as a % of GDP
7.5%: Government health care expenditures as a % of total healthcare expenditures
Education - 10%
5%: Government education expenditures as a % of GDP
5%: Government education expenditures as a % of total education expenditures
Note that for health care and education, I gave equal weight to the amount of money the government spends (as a % of GDP) and the relative prominence of the government role in that area (by taking government expenditures/total expenditures). I think doing it this way captures the two distinct aspects of government involvement in these policy areas - one is how much government taxes and spends to provide certain services, and two, how much control the government wields over the overall "market" for that service. Similarly, for social spending I took the ratio of social spending to GDP and social spending to total tax reciepts. Here are the new results:
SDI 2.0
It's not surprising that SDI is strongly correlated (R = - 0.731) with lower income inequality:
SDI and Income Inequality
But what about economic performance? If Bush is right, countries with high SDI ratings should perform relatively poorly economically. One way to evaluate this claim is to look at the correlation between SDI and GDP per capita. It turns out that SDI is moderately-to-strongly positively correlated (R = + 0.481 where 0.5 is considered "strong") to GDP per capita.
SDI and GDP per capita
But this could simply mean that countries that have already acquired great wealth tend to take on more social democratic characteristics later on. In other words, it does not demonstrate that social democracy is the cause of these countries' economic success. So consider, instead, the average annual increase in GDP per hour worked from 1980-2006 (i.e., the rate of productivity increase since the beginning of the Reagan/Thatcher era). For the OECD 30 (excluding Turkey, for which data was unavailable), SDI is moderately correlated (R = +0.368) with faster productivity growth.
Note: the relevant data for former Eastern Bloc countries is not available for the Communist years, so productivity growth figures for the Czech Republic, Slovakia, Hungary, and Poland do not reflect the years before the fall of the Soviet Union.
SDI and Average Annual GDP per Hour Worked Growth, 1980-2006
Interestingly, this relationship becomes significantly stronger when you restrict the sample set to reflect only more "mature" economies like the U.S. and Canada, "Old Europe," (the non-ex-Communist countries, excluding the recently relatively poor Western European countries like Greece, Spain, Ireland, and Portugal) and Oceania (Australia and New Zealand). If we only consider this set of countries - an arguably more appropriate set for comparison given the greater economic similarities between these countries - the R = +0.527 (strong). This indicates a marked positive correlation between social democratic policies and recent produtivity growth in mature economies.
SDI and Average Annual GDP per Hour Worked Growth, 1980-2006 for "Mature" Economies
Once again, it is theoretically possible that this association reflects some alternative mutual cause, but no such cause springs to mind. The correlation is strongly suggestive of a positive relationship between SDI and economic performance, and it certainly gives the right (who do not seem to shy away from using comparative data nor suggesting that correlations directly imply causation) some serious explaining to do.
In later posts, I will try to use more data to shed some light on why it might be that high-SDI countries enjoy such strong economic performance and productivity growth.
-President George W. Bush's "Tax Plan"
In my last post, I proposed a metric for evaluating how generally left-leaning (in the economic sense) a country is so that we can make informed comparisons between countries' attributes and their economic policies. I have adjusted that metric somewhat, and I now apply the following formula:
Taxes, Progressivity, and Redistributive Spending - 45%
30%: Tax burden/GDP
7.5%: Income tax/Taxes on goods and services
3.75%: Social spending as a % of GDP
3.75%: Social spending as a percentage of tax receipts
Labor - 25%
15%: Union density
5%: Employee dismissal protections (scaled average of OECD rating)
5%: Annualized minimum wage/GDP per capita
Health Care - 15%
7.5%: Government health care expenditures as a % of GDP
7.5%: Government health care expenditures as a % of total healthcare expenditures
Education - 10%
5%: Government education expenditures as a % of GDP
5%: Government education expenditures as a % of total education expenditures
Note that for health care and education, I gave equal weight to the amount of money the government spends (as a % of GDP) and the relative prominence of the government role in that area (by taking government expenditures/total expenditures). I think doing it this way captures the two distinct aspects of government involvement in these policy areas - one is how much government taxes and spends to provide certain services, and two, how much control the government wields over the overall "market" for that service. Similarly, for social spending I took the ratio of social spending to GDP and social spending to total tax reciepts. Here are the new results:
SDI 2.0
It's not surprising that SDI is strongly correlated (R = - 0.731) with lower income inequality:
SDI and Income Inequality
But what about economic performance? If Bush is right, countries with high SDI ratings should perform relatively poorly economically. One way to evaluate this claim is to look at the correlation between SDI and GDP per capita. It turns out that SDI is moderately-to-strongly positively correlated (R = + 0.481 where 0.5 is considered "strong") to GDP per capita.
SDI and GDP per capita
But this could simply mean that countries that have already acquired great wealth tend to take on more social democratic characteristics later on. In other words, it does not demonstrate that social democracy is the cause of these countries' economic success. So consider, instead, the average annual increase in GDP per hour worked from 1980-2006 (i.e., the rate of productivity increase since the beginning of the Reagan/Thatcher era). For the OECD 30 (excluding Turkey, for which data was unavailable), SDI is moderately correlated (R = +0.368) with faster productivity growth.
Note: the relevant data for former Eastern Bloc countries is not available for the Communist years, so productivity growth figures for the Czech Republic, Slovakia, Hungary, and Poland do not reflect the years before the fall of the Soviet Union.
SDI and Average Annual GDP per Hour Worked Growth, 1980-2006
Interestingly, this relationship becomes significantly stronger when you restrict the sample set to reflect only more "mature" economies like the U.S. and Canada, "Old Europe," (the non-ex-Communist countries, excluding the recently relatively poor Western European countries like Greece, Spain, Ireland, and Portugal) and Oceania (Australia and New Zealand). If we only consider this set of countries - an arguably more appropriate set for comparison given the greater economic similarities between these countries - the R = +0.527 (strong). This indicates a marked positive correlation between social democratic policies and recent produtivity growth in mature economies.
SDI and Average Annual GDP per Hour Worked Growth, 1980-2006 for "Mature" Economies
Once again, it is theoretically possible that this association reflects some alternative mutual cause, but no such cause springs to mind. The correlation is strongly suggestive of a positive relationship between SDI and economic performance, and it certainly gives the right (who do not seem to shy away from using comparative data nor suggesting that correlations directly imply causation) some serious explaining to do.
In later posts, I will try to use more data to shed some light on why it might be that high-SDI countries enjoy such strong economic performance and productivity growth.
Wednesday, July 2, 2008
Tax Burden and Economic Performance
So I changed my sample set to reflect only those countries in the OECD for which the relevant information was available. Then I messed around with nonlinear regression equations and came up with some higher correlation coefficients. Here are the results:
OECD 30 Tax Burden as a Share of GDP
Tax Burden and GDP per capita.
_15948_image001.gif)
R = +0.384 (medium strength)
Tax Burden and Average Annual Growth in GDP per Hour Worked (one measure of productivity), 1980-2006.
R = +0.388 (medium strength)
Tax burden is given as a percentage of GDP. Data available here.
GDP per capita is provided in 2007 USD (PPP). Data available here.
Annual growth in GDP per hour worked data here.
So a higher tax burden has a moderately strong positive correlation with both overall income per capita and the rate of productivity growth since the beginning of the Reagan/Thatcher era.
OECD 30 Tax Burden as a Share of GDP
Tax Burden and GDP per capita.
_15948_image001.gif)
R = +0.384 (medium strength)
Tax Burden and Average Annual Growth in GDP per Hour Worked (one measure of productivity), 1980-2006.
R = +0.388 (medium strength)
Tax burden is given as a percentage of GDP. Data available here.
GDP per capita is provided in 2007 USD (PPP). Data available here.
Annual growth in GDP per hour worked data here.
So a higher tax burden has a moderately strong positive correlation with both overall income per capita and the rate of productivity growth since the beginning of the Reagan/Thatcher era.
Sunday, June 29, 2008
Good Wages = Good Business
This is just an interesting article I read in Slate about the CostCo vs. Wal-Mart saga. The article does a good job summarizing the differening strategies.
The bottom line is that while CostCo. has not shown the high profit margins of Wal-Mart, it clearly has demonstrated a "slow but steady winsthe race" attitude, as the article mentions CostCo's long-term stock performance as solid and theoutlook is even slightly more optimistic than Wal-Mart's.
This comparison serves as an excellentexperiment and I actually think it provides evidence that government regulations that mimicked CostCo's benefit structure would not cause businesses to shut its doors or significantly hamper economic growth. (I don't have the graphs to prove it, but I think Ryan's graphs indicate precisely this point.)
The bottom line is that while CostCo. has not shown the high profit margins of Wal-Mart, it clearly has demonstrated a "slow but steady winsthe race" attitude, as the article mentions CostCo's long-term stock performance as solid and theoutlook is even slightly more optimistic than Wal-Mart's.
This comparison serves as an excellentexperiment and I actually think it provides evidence that government regulations that mimicked CostCo's benefit structure would not cause businesses to shut its doors or significantly hamper economic growth. (I don't have the graphs to prove it, but I think Ryan's graphs indicate precisely this point.)
Gas Prices Abroad
Chris can probably testify directly to this, but the New York Times ran the above piece today about gas prices in the U.S. as compared to both oil producing countries and the nations of Europe. Ryan and I had been talking briefing about how Europeans have been used to paying over 4 dollars for gas for a while, and this chart indicates why. At least nearly half (and often more) of a gallon of gas in Europe is government tax.
Now, far from bringing these economies to a halt, this tax appears to have provided a steady revenue stream while at the same time encouraging conservation rather than consumption. And with continued (and obvious) evidence that higher gas prices increase reliance on public transportation, a higher gas tax seems like a double bonus. Whereas European citizens benefit from the tax by consistent, substantial investment in public transportation, the problem in the United States is that as oil compaies rake in the profits, they eventually push people people in the right direction (public transportation) but leave those people at the mercy of systems that generally are not adequately funded.
I hadn't intended to bring this around to Barack Obama, but I shamelessly will. The whole story reinforces the incredible short-sightedness of McLasik's plan to have a "gas tax holiday." Obama definitely scores a point on this one. The really ballsy position would be to reccommend a phased increase in the federal gas tax to match European levels. As gas prices will significantly rise anyway, all citizens should benefit from well-funded, viable transit alternatives rather than continue to be simply "taxed" by the oil companies.
Now, far from bringing these economies to a halt, this tax appears to have provided a steady revenue stream while at the same time encouraging conservation rather than consumption. And with continued (and obvious) evidence that higher gas prices increase reliance on public transportation, a higher gas tax seems like a double bonus. Whereas European citizens benefit from the tax by consistent, substantial investment in public transportation, the problem in the United States is that as oil compaies rake in the profits, they eventually push people people in the right direction (public transportation) but leave those people at the mercy of systems that generally are not adequately funded.
I hadn't intended to bring this around to Barack Obama, but I shamelessly will. The whole story reinforces the incredible short-sightedness of McLasik's plan to have a "gas tax holiday." Obama definitely scores a point on this one. The really ballsy position would be to reccommend a phased increase in the federal gas tax to match European levels. As gas prices will significantly rise anyway, all citizens should benefit from well-funded, viable transit alternatives rather than continue to be simply "taxed" by the oil companies.
Thursday, June 26, 2008
Just a Little Statistics Refresher
The Wikipedia article on statistical correlation cites this book Cohen, J. (1988). Statistical power analysis for the behavioral sciences (2nd ed.) Hillsdale, NJ: Lawrence Erlbaum Associates which suggests that, in psychological research, these guidelines apply to interpreting correlation coefficients (i.e., the strength of the relationship between two variables):
Small: +/- 0.1 - 0.3
Medium: +/- 0.3 - 0.5
Large: +/- 0.5 - 1.0
The correlation coefficient is the square root of the coefficient of determination (R-squared), which is the number that appears on each of the graphs I have posted in the two previous posts. So for the following regressions, the correlation coefficients are:
Tax Burden & HDI: +0.432 (Medium)
Tax Burden & GDP/capita: +0.327 (Medium)
Tax Burden & Income Inequality: -0.582 (Strong)
Tax Burden & Absence of Social Mobility: -0.523 (Strong)
Income Inequality & GDP/capita: -0.440 (Medium)
Income Inequality & HDI: -0.422 (Medium)
Income Inequality & Absence of Social Mobility: +0.646 (Strong)
I think it's valid to use the psychology guidelines to help us interpret these results. So a high tax burden is highly correlated with social mobility and income equality and moderately correlated GDP/capita and HDI. Income inequality, in turn, is highly correlated with the lack of social mobility, and moderately negatively correlated with GDP/capita and HDI.
So I may have understated the strength of these relationships. They are actually quite strong.
Small: +/- 0.1 - 0.3
Medium: +/- 0.3 - 0.5
Large: +/- 0.5 - 1.0
The correlation coefficient is the square root of the coefficient of determination (R-squared), which is the number that appears on each of the graphs I have posted in the two previous posts. So for the following regressions, the correlation coefficients are:
Tax Burden & HDI: +0.432 (Medium)
Tax Burden & GDP/capita: +0.327 (Medium)
Tax Burden & Income Inequality: -0.582 (Strong)
Tax Burden & Absence of Social Mobility: -0.523 (Strong)
Income Inequality & GDP/capita: -0.440 (Medium)
Income Inequality & HDI: -0.422 (Medium)
Income Inequality & Absence of Social Mobility: +0.646 (Strong)
I think it's valid to use the psychology guidelines to help us interpret these results. So a high tax burden is highly correlated with social mobility and income equality and moderately correlated GDP/capita and HDI. Income inequality, in turn, is highly correlated with the lack of social mobility, and moderately negatively correlated with GDP/capita and HDI.
So I may have understated the strength of these relationships. They are actually quite strong.
Wednesday, June 25, 2008
"It's Just Human Nature"
This is some amazing stuff. I'm not sure about you guys, but I find the original report a little mind-blowing, so here is a link to a more comprehensible synopsis. According to the latter report:
"In setting up this study the researchers wanted firstly to explore whether equity or efficiency was stronger to our sense of justice, and secondly, they wanted to find out how big a role emotions played in resolving such questions"
...
"The results showed that participants overwhelmingly chose equity over efficiency. 'They were all quite inequity averse,' said Hsu, who explained that the findings support other research that suggests people are fairly intolerant of inequity."
So which side has the upper hand in the "human nature" debate again?
"In setting up this study the researchers wanted firstly to explore whether equity or efficiency was stronger to our sense of justice, and secondly, they wanted to find out how big a role emotions played in resolving such questions"
...
"The results showed that participants overwhelmingly chose equity over efficiency. 'They were all quite inequity averse,' said Hsu, who explained that the findings support other research that suggests people are fairly intolerant of inequity."
So which side has the upper hand in the "human nature" debate again?
Twiking the System
A professor at the U. of I. has one of these. They look kinda awesome. Maybe we should ban all automobile traffic in the city besides emergency vehicles, cargo trucks, and buses, but allow these things (in addition to all those other things) on highways and in rural areas. The article is poorly written but the information is really interesting. Apparently they are classified as motorcycles for DOT purposes, so it's legal to drive them on the roads, and you can charge them in a standard electrical outlet. They can reach top speeds of 50-55 mph.
Tuesday, June 24, 2008
Such Prescience
I mostly approve. These things could always be done a little better, but I like the direction they're taking. It would be even more helpful here.
Two Deceptive Arguments
I've been hearing the following two conservative arguments quite a bit recently. I’d like to show that, while the factual assertions involved are true, they simply do not support the proposition they purport to.
Argument 1: The Rich Already Pay More Than Their Fair Share in Taxes (here and here)
Both articles purport to establish that our country's tax burden is already distributed progressively enough – indeed, perhaps excessively so. Both use an argument that goes something like:
“The top X% of income earners are responsible for over Y% of total Federal income tax receipts, while the bottom Z% are responsible for only 0.0003% (or some such low number).”
These facts, by themselves, do not say anything meaningful about the progressivity of the U.S. tax system. They do not reflect the distribution of any of the other taxes Americans pay, many of which are highly to moderately regressive (e.g., payroll taxes, sales taxes, gasoline taxes, tolls, property taxes, utilities taxes, vice taxes, service fees, etc.). Federal income tax receipts constitute only 45% of Federal revenues, while Federal taxes historically constitute about 2/3 (roughly 18% out of roughly 27%) of tax revenues collected at all levels of American government. That means that Federal income tax revenues constitute only about 30% of the country's total tax revenues, and the Federal income tax is one of the very few major progressive tax regimes (the Federal corporate tax, estate and gift tax, and state income taxes being the others).
In fact, 2/3 of Americans pay more in payroll taxes than they do in income tax. Social security taxes are assessed only on labor income and constitute a flat 6.2% on all income up to $102,000 (in 2008), while all capital income and wage income beyond that threshold amount are not subject to the tax. The Medicare tax is imposed on 1.45% of the full amount of a taxpayer's wage income. Once all taxes are properly included into the analysis and tax burden is represented in terms of a percentage of income instead of total dollar amount, this is what the U.S. tax distribution looks like.
This should be sufficient to establish that these numbers do not demonstrate anything meaningful about the U.S. tax system. But let’s go one step further, because there is another important flaw in this analysis. Even if we were to ignore all other taxes besides the Federal income tax, the figures would still prove nothing. Here’s why. Consider a "fictitious" society called the Reagan Republic comprised of A, B, C, D, and E. This society is characterized by enormous concentration of wealth and an explicitly regressive tax burden:
A makes $2 million a year and is taxed at 15%; A will pay $300,000
B makes $200,000 a year and is taxed at 20%; B will pay $40,000
C makes $75,000 a year and is taxed at 25%; C will pay $18,750
D makes $45,000 a year and is taxed at 30%; D will pay $13,500
E makes $20,000 a year and is taxed at 35%; E will pay $7,000
This society will pay a total of $379,250 in taxes. Despite the fact that the tax code is explicitly regressive, the following statements are true:
The top 20% provide 79.1% of government revenues
The top 40% provide 89.7% of government revenues
The bottom 60% provide 10.3% of government revenues
The bottom 40% provide 5.4% of government revenues
The bottom 20% provide 1.8% of government revenues
So even under a regressive tax code, the well-off can pay the vast majority of tax revenues. But as you can see, this is not because the rich bear a higher proportionate burden, but simply because their incomes are so much higher. So this argument essentially allows conservatives to leverage a major failure of the economic policies they support – the extreme economic inequality they have helped create (see Figures 1-8D)
– to support the proposition that the U.S. tax system is already progressive enough. This is ironic to say the least.
And while the numbers in my example were cherry-picked to prove my point, perhaps my assumed numbers are not so far off (see this and this and this and this).
Argument 2: The U.S. Economy Displays an Amount of Social Mobility Consistent with the Idea That It Is A “Meritocracy” (also see this)
The WSJ editorial relies on the findings of a Treasury Department study to try to show that “social mobility is alive and well” in the United States. The study used the following method:
“[It] examined a huge sample of 96,700 income tax returns from 1996 and 2005 for Americans over the age of 25. The study tracks what happened to these tax filers over this 10-year period. One of the notable, and reassuring, findings is that nearly 58% of filers who were in the poorest income group in 1996 had moved into a higher income category by 2005. Nearly 25% jumped into the middle or upper-middle income groups, and 5.3% made it all the way to the highest quintile.”
These findings are not particularly robust to begin with. But they're even less useful than they appear.
First, look at the way the study was conducted. Consider a college educated business major still making $28,000 at 26 at a company in Champaign IL, but who later gets an MBA and makes $200,000 at 45 as a VP of Marketing in Chicago. Or a 28 year old who works at Starbucks before figuring out that what they want to do is to get a masters in education and teach in a North Jersey school district (where they may start at >$50,000, and can go up to as high as $100,000). Or a son of privilege who does not work between 25 and 35, but rather lives off of the support of his parents or a trust (both of which would be counted as gifts and therefore not included in income) but later gets a gig as a token board of directors member on his father’s company’s board and earns dividends and capital gains off of inherited financial assets. Or a law student who has an adjusted gross income of $14,000 at the age of 27 but whose income will increase substantially once he starts working next fall (i.e., me). All of these people could very plausibly be counted in the lowest quintile during their low income years, and in the highest quintile during their later higher income years. But this isn’t “social mobility” at all. It merely reflects individuals' earnings life-cycles. All of the hypothetical people given above may be, and most likely are, the children of middle class (or higher) families.
Consequently, it is more appropriate to gauge the level of social mobility by comparing a group of people’s socio-economic status to that of their parents. Studies (1, 2, 3) that use this method consistently show that the United States exhibits a low level of social mobility relative to its first-world peers, countries which invariably have stronger welfare states and more "socialist" policies. Thus, conservative “meritocrats” must somehow account for the strong empirical implication that social democracy is more conducive to social mobility than free market capitalism.
A few more points should be made. The study only counted tax filers. Many very low income people (including the domestic chronically poor and immigrant laborers) do not file income tax returns (Table 3). These people are not counted at all, so the study totally ignores some people at the very bottom – people for whom we know the prospect of social mobility is the most far-fetched (p. 27). This feature will also bump down people whose income may not seem extremely low (like the hypothetical people I mention above) into the “lowest quintile” group, the group whose subsequent earnings form the crux of the study’s supposed implications. Furthermore, the statement that “the after-inflation median income of all tax filers increased by an impressive 24% over the same period,” paints a very misleading picture of reality. Overall median income growth has stagnated over the last 40 years (an average annual growth rate of about 0.54% from 1967-2008) despite significant increases in total family hours worked (an average annual growth rate of a little less than 0.75% from 1979-2002). Moreover, mobility may not necessarily represent the workings of a meritocracy. Indeed, some annual earnings variation may in fact reflect an undesirable degree of volatility in people’s incomes that it is attributable not to meritorious behavior (or the lack thereof), but instead the result of unforeseen financial disruptions. See Jacob Hacker’s The Great Risk Shift.
Perhaps it is fruitless to point out these (somewhat distressingly obvious) errors in reasoning of the WSJ editorial writers, but I do encounter these arguments frequently, and it will be handy for me to have this post on hand to counter them.
Argument 1: The Rich Already Pay More Than Their Fair Share in Taxes (here and here)
Both articles purport to establish that our country's tax burden is already distributed progressively enough – indeed, perhaps excessively so. Both use an argument that goes something like:
“The top X% of income earners are responsible for over Y% of total Federal income tax receipts, while the bottom Z% are responsible for only 0.0003% (or some such low number).”
These facts, by themselves, do not say anything meaningful about the progressivity of the U.S. tax system. They do not reflect the distribution of any of the other taxes Americans pay, many of which are highly to moderately regressive (e.g., payroll taxes, sales taxes, gasoline taxes, tolls, property taxes, utilities taxes, vice taxes, service fees, etc.). Federal income tax receipts constitute only 45% of Federal revenues, while Federal taxes historically constitute about 2/3 (roughly 18% out of roughly 27%) of tax revenues collected at all levels of American government. That means that Federal income tax revenues constitute only about 30% of the country's total tax revenues, and the Federal income tax is one of the very few major progressive tax regimes (the Federal corporate tax, estate and gift tax, and state income taxes being the others).
In fact, 2/3 of Americans pay more in payroll taxes than they do in income tax. Social security taxes are assessed only on labor income and constitute a flat 6.2% on all income up to $102,000 (in 2008), while all capital income and wage income beyond that threshold amount are not subject to the tax. The Medicare tax is imposed on 1.45% of the full amount of a taxpayer's wage income. Once all taxes are properly included into the analysis and tax burden is represented in terms of a percentage of income instead of total dollar amount, this is what the U.S. tax distribution looks like.
This should be sufficient to establish that these numbers do not demonstrate anything meaningful about the U.S. tax system. But let’s go one step further, because there is another important flaw in this analysis. Even if we were to ignore all other taxes besides the Federal income tax, the figures would still prove nothing. Here’s why. Consider a "fictitious" society called the Reagan Republic comprised of A, B, C, D, and E. This society is characterized by enormous concentration of wealth and an explicitly regressive tax burden:
A makes $2 million a year and is taxed at 15%; A will pay $300,000
B makes $200,000 a year and is taxed at 20%; B will pay $40,000
C makes $75,000 a year and is taxed at 25%; C will pay $18,750
D makes $45,000 a year and is taxed at 30%; D will pay $13,500
E makes $20,000 a year and is taxed at 35%; E will pay $7,000
This society will pay a total of $379,250 in taxes. Despite the fact that the tax code is explicitly regressive, the following statements are true:
The top 20% provide 79.1% of government revenues
The top 40% provide 89.7% of government revenues
The bottom 60% provide 10.3% of government revenues
The bottom 40% provide 5.4% of government revenues
The bottom 20% provide 1.8% of government revenues
So even under a regressive tax code, the well-off can pay the vast majority of tax revenues. But as you can see, this is not because the rich bear a higher proportionate burden, but simply because their incomes are so much higher. So this argument essentially allows conservatives to leverage a major failure of the economic policies they support – the extreme economic inequality they have helped create (see Figures 1-8D)
– to support the proposition that the U.S. tax system is already progressive enough. This is ironic to say the least.
And while the numbers in my example were cherry-picked to prove my point, perhaps my assumed numbers are not so far off (see this and this and this and this).
Argument 2: The U.S. Economy Displays an Amount of Social Mobility Consistent with the Idea That It Is A “Meritocracy” (also see this)
The WSJ editorial relies on the findings of a Treasury Department study to try to show that “social mobility is alive and well” in the United States. The study used the following method:
“[It] examined a huge sample of 96,700 income tax returns from 1996 and 2005 for Americans over the age of 25. The study tracks what happened to these tax filers over this 10-year period. One of the notable, and reassuring, findings is that nearly 58% of filers who were in the poorest income group in 1996 had moved into a higher income category by 2005. Nearly 25% jumped into the middle or upper-middle income groups, and 5.3% made it all the way to the highest quintile.”
These findings are not particularly robust to begin with. But they're even less useful than they appear.
First, look at the way the study was conducted. Consider a college educated business major still making $28,000 at 26 at a company in Champaign IL, but who later gets an MBA and makes $200,000 at 45 as a VP of Marketing in Chicago. Or a 28 year old who works at Starbucks before figuring out that what they want to do is to get a masters in education and teach in a North Jersey school district (where they may start at >$50,000, and can go up to as high as $100,000). Or a son of privilege who does not work between 25 and 35, but rather lives off of the support of his parents or a trust (both of which would be counted as gifts and therefore not included in income) but later gets a gig as a token board of directors member on his father’s company’s board and earns dividends and capital gains off of inherited financial assets. Or a law student who has an adjusted gross income of $14,000 at the age of 27 but whose income will increase substantially once he starts working next fall (i.e., me). All of these people could very plausibly be counted in the lowest quintile during their low income years, and in the highest quintile during their later higher income years. But this isn’t “social mobility” at all. It merely reflects individuals' earnings life-cycles. All of the hypothetical people given above may be, and most likely are, the children of middle class (or higher) families.
Consequently, it is more appropriate to gauge the level of social mobility by comparing a group of people’s socio-economic status to that of their parents. Studies (1, 2, 3) that use this method consistently show that the United States exhibits a low level of social mobility relative to its first-world peers, countries which invariably have stronger welfare states and more "socialist" policies. Thus, conservative “meritocrats” must somehow account for the strong empirical implication that social democracy is more conducive to social mobility than free market capitalism.
A few more points should be made. The study only counted tax filers. Many very low income people (including the domestic chronically poor and immigrant laborers) do not file income tax returns (Table 3). These people are not counted at all, so the study totally ignores some people at the very bottom – people for whom we know the prospect of social mobility is the most far-fetched (p. 27). This feature will also bump down people whose income may not seem extremely low (like the hypothetical people I mention above) into the “lowest quintile” group, the group whose subsequent earnings form the crux of the study’s supposed implications. Furthermore, the statement that “the after-inflation median income of all tax filers increased by an impressive 24% over the same period,” paints a very misleading picture of reality. Overall median income growth has stagnated over the last 40 years (an average annual growth rate of about 0.54% from 1967-2008) despite significant increases in total family hours worked (an average annual growth rate of a little less than 0.75% from 1979-2002). Moreover, mobility may not necessarily represent the workings of a meritocracy. Indeed, some annual earnings variation may in fact reflect an undesirable degree of volatility in people’s incomes that it is attributable not to meritorious behavior (or the lack thereof), but instead the result of unforeseen financial disruptions. See Jacob Hacker’s The Great Risk Shift.
Perhaps it is fruitless to point out these (somewhat distressingly obvious) errors in reasoning of the WSJ editorial writers, but I do encounter these arguments frequently, and it will be handy for me to have this post on hand to counter them.
Help me out here...
This NY Sun lidblower is a bit confusing. Solomont is rather misleading from the jump here. How can it be said that the "vast majority of drug development takes place within the private sector" if one of the co-authors of the study describes government-backed researchers and their counterparts in the private sector as "highly complementary" and with FDA Agent Pitts saying, "it would be hard to say which sector's work was more important."
Also, do the study's authors claim that there is something inherent in the private sector that gives it an advantage in drug development? Or is the advantage simply a result of the private sector's outspending of government funded research?
Update!!: Whoops! It seems we have a serious bias problem here. While trying to track down the actual study, I came across a hardhitting, fact-fucking blog to which Zzwycker is a contributor. Check out this entry from May 1, 2008: Alas, work has piled on, the usual array of office crises has intervened, and the defense of capitalism this year has proven more burdensome than even my rare and finely-honed bemused cynicism envisioned.
The Study!
Zzzzwycker's co-authors are from the Tufts Center for the Study of Drug Development, which was founded by a Dr. Louis Lasagna. I'm sure that's an alias.
Also, do the study's authors claim that there is something inherent in the private sector that gives it an advantage in drug development? Or is the advantage simply a result of the private sector's outspending of government funded research?
Update!!: Whoops! It seems we have a serious bias problem here. While trying to track down the actual study, I came across a hardhitting, fact-fucking blog to which Zzwycker is a contributor. Check out this entry from May 1, 2008: Alas, work has piled on, the usual array of office crises has intervened, and the defense of capitalism this year has proven more burdensome than even my rare and finely-honed bemused cynicism envisioned.
The Study!
Zzzzwycker's co-authors are from the Tufts Center for the Study of Drug Development, which was founded by a Dr. Louis Lasagna. I'm sure that's an alias.
Friday, June 13, 2008
Obama's Plan to Save Social Security
Republicans will soon be warming up their "soak the rich" talking points after Obama's statement recently regarding the Social Security payroll tax.
Rather than raise the cap, currently at $102,000, Obama wants to reinstate social security payroll taxes for individuals who earn more than $250,000 a year. He calls it a restart level.
Although this isn't a perfect solution, because the plan only affects the top 3 percent of earners, it is at least a step to solidify funding for Soc. Sec. into the future. Also, because I don't have numbers to figure out how much revenue Obama's will bring in, as opposed to a plan which raises the cap to, say, $250,000, I don't know which is really the better approach. I do know that this plan, complete with the so-called "doughnut hole," is obviously more politically feasible.
If anyone has numbers on what different plan would bring in, please let me know. I'd love to take a look.
Link to article on MSNBC is here: http://www.msnbc.msn.com/id/25143640/
Rather than raise the cap, currently at $102,000, Obama wants to reinstate social security payroll taxes for individuals who earn more than $250,000 a year. He calls it a restart level.
Although this isn't a perfect solution, because the plan only affects the top 3 percent of earners, it is at least a step to solidify funding for Soc. Sec. into the future. Also, because I don't have numbers to figure out how much revenue Obama's will bring in, as opposed to a plan which raises the cap to, say, $250,000, I don't know which is really the better approach. I do know that this plan, complete with the so-called "doughnut hole," is obviously more politically feasible.
If anyone has numbers on what different plan would bring in, please let me know. I'd love to take a look.
Link to article on MSNBC is here: http://www.msnbc.msn.com/id/25143640/
Monday, June 9, 2008
Thursday, May 29, 2008
Would You Cash Our Check? And You Will Do It.
So I drove down to Fear’s Cape with my dad in a U-Haul this weekend to move a bunch of heavy furniture. I generally like to use drive time with my dad to bounce some of my political ideas and beliefs off him to a.) judge how crazy I am, and b.) try to gently nudge him leftward. The topic of the day was health policy.
Here were my proposals. First, I suggested that the government offer everyone a voucher to buy a gym membership at qualifying gyms (i.e., gyms that meet certain sensible requirements in terms of facilities and availability of a wide range of exercise programs, etc.). Regular exercise can obviously go a long way towards reducing the prevalence of very costly and highly unpleasant chronic conditions such as diabetes, heart disease, and cancer. Judging by personal experience, it has a noticeable effect on mental health as well. The government could very feasibly make the money spent on the vouchers back (especially if we had a single-payer health system where the government was on the hook for all the medical care that would later have to be provided) in reduced chronic care costs down the road. But even in the (unlikely, I think) event that it didn’t quite make its money back, it would still probably be worth it, as it would surely significantly improve the quality of life for many people. After all, one of the functions of government should be to spend money in such a way as to improve the life of its citizens. If we’re out a few bones preventing heart attacks and strokes I’m ok with that.
The question then becomes – if it’s such a good idea to make widespread exercise a policy priority, why not just make it mandatory? Even under the voucher system, you’d probably have to keep track of how often the voucher recipient actually goes to the gym and assess penalties for people who never go – otherwise the government would be just wasting its money paying gyms for nothing. So we’re already taking attendance and penalizing absenteeism. And any time you rely on subsidies to induce people to voluntarily do something that’s for their own good, you’ll still get some people who, for whatever reason, just don’t do it. It’s analogous to one of the problems with Obama’s “no mandate” health plan – under that plan we can still expect that a good number of people will simply act irrationally and not take advantage of the subsidies. Does it not make sense just to make these people do it? It will, on balance, make their own lives better and most likely reduce the costs of health care for all of us.
This may strike people as kind of authoritarian (sorta like mandatory gym class for our entire lives, with Mr. Burdsall scolding full-grown adult slackers). But if the benefits are as large as I suspect they may be, it still may make sense. And who knows, maybe by forcing the population into regular exercise we could develop USSR-style global athletic dominance. That’s gotta count for something. Winning a FIFA World Cup, a world rugby championship, and a world cricket title (on top of our dominance in traditional U.S. sports) would establish us as the Greatest Nation in History.
My second proposal was that we subsidize certain health care procedures. The idea dawned on me when I read that the French health care system (very sensibly) charges no co-pay or deductible for 30 kinds of preventative care services. But colonoscopies, prostate exams, and gynecological exams are still highly unpleasant, despite their absolute medical necessity. Some people avoid these procedures even when their insurance covers them completely. So “free” probably isn’t good enough to establish complete compliance. Maybe it would be worth it to give people a $50-$100 subsidy for such necessary exams. Once again, this is the way to go if we are committed to the idea of getting people to do things intended for their own good voluntarily through subsidies. We could always just make them do it and assess fines for failure to do so.
What do people think? I tend to lean towards the authoritarian method, but I could be convinced otherwise. And yes, I know the authoritarian method would be totally politically impossible. So would absolutely everything else I advocate on this Blague. I’m more interested in the question of what would be best in a political vacuum.
Here were my proposals. First, I suggested that the government offer everyone a voucher to buy a gym membership at qualifying gyms (i.e., gyms that meet certain sensible requirements in terms of facilities and availability of a wide range of exercise programs, etc.). Regular exercise can obviously go a long way towards reducing the prevalence of very costly and highly unpleasant chronic conditions such as diabetes, heart disease, and cancer. Judging by personal experience, it has a noticeable effect on mental health as well. The government could very feasibly make the money spent on the vouchers back (especially if we had a single-payer health system where the government was on the hook for all the medical care that would later have to be provided) in reduced chronic care costs down the road. But even in the (unlikely, I think) event that it didn’t quite make its money back, it would still probably be worth it, as it would surely significantly improve the quality of life for many people. After all, one of the functions of government should be to spend money in such a way as to improve the life of its citizens. If we’re out a few bones preventing heart attacks and strokes I’m ok with that.
The question then becomes – if it’s such a good idea to make widespread exercise a policy priority, why not just make it mandatory? Even under the voucher system, you’d probably have to keep track of how often the voucher recipient actually goes to the gym and assess penalties for people who never go – otherwise the government would be just wasting its money paying gyms for nothing. So we’re already taking attendance and penalizing absenteeism. And any time you rely on subsidies to induce people to voluntarily do something that’s for their own good, you’ll still get some people who, for whatever reason, just don’t do it. It’s analogous to one of the problems with Obama’s “no mandate” health plan – under that plan we can still expect that a good number of people will simply act irrationally and not take advantage of the subsidies. Does it not make sense just to make these people do it? It will, on balance, make their own lives better and most likely reduce the costs of health care for all of us.
This may strike people as kind of authoritarian (sorta like mandatory gym class for our entire lives, with Mr. Burdsall scolding full-grown adult slackers). But if the benefits are as large as I suspect they may be, it still may make sense. And who knows, maybe by forcing the population into regular exercise we could develop USSR-style global athletic dominance. That’s gotta count for something. Winning a FIFA World Cup, a world rugby championship, and a world cricket title (on top of our dominance in traditional U.S. sports) would establish us as the Greatest Nation in History.
My second proposal was that we subsidize certain health care procedures. The idea dawned on me when I read that the French health care system (very sensibly) charges no co-pay or deductible for 30 kinds of preventative care services. But colonoscopies, prostate exams, and gynecological exams are still highly unpleasant, despite their absolute medical necessity. Some people avoid these procedures even when their insurance covers them completely. So “free” probably isn’t good enough to establish complete compliance. Maybe it would be worth it to give people a $50-$100 subsidy for such necessary exams. Once again, this is the way to go if we are committed to the idea of getting people to do things intended for their own good voluntarily through subsidies. We could always just make them do it and assess fines for failure to do so.
What do people think? I tend to lean towards the authoritarian method, but I could be convinced otherwise. And yes, I know the authoritarian method would be totally politically impossible. So would absolutely everything else I advocate on this Blague. I’m more interested in the question of what would be best in a political vacuum.
Tuesday, May 27, 2008
Obama: Secret Skull and Bones Cold War Dictator
Geez it's amazing what kind of crap is out there... this from the blog of an ex-spook who fervently supports Clinton because Obama is an "African Arab."
http://www.lulu.com/content/2325554
http://www.lulu.com/content/2325554
Saturday, May 24, 2008
Bk. Hussein Ob.: Moderate Liberal Christian Muslim Fundamentalist
Not to get into the thankless and fruitless task of arguing with Hannity-ites, but this is kind of funny. My mom got an e-mail last night from one of her whack-job Republican cousins that quoted Obama as saying this in Audacity of Hope:
"I will stand with the Muslims should the political winds shift in an ugly direction."
Of course it does not provide a page citation, because then you would be able to look it up. But I found the offending quote, and here's what it really says:
"... mostly [immigrants] want affirmation that they, too, are Americans. Whenever I appear before immigrant audiences, I can count on some good-natured ribbing from my staff after my speech; according to them, my remarks follow a three-part structure: 'I am your friend,' '[Fill in home country] has been a cradle of civilization,' and 'You embody the American dream.' They're right, my message is simple, for what I've come to understand in that my mere presence before these newly minted Americans serves notice that they matter, that they are voters critical to my success and full-fledged citizens entitled to respect.
Of course, not all my conversations in immigrant communities follow this easy pattern. In the wake of 9/11, my meetings with Arab and Pakistani Americans, for example, have a more urgent quality, for the stories of detentions and FBI questioning and hard stares from neighbors have shaken their sense of belonging. They have been reminded that the history of immigration in this country has a dark underbelly; they need specific assurances that their citizenship actually means something, that America has learned the right lessons from the Japanese internments during World War II, and that I will stand with them should the political winds shift in an ugly direction."
(p. 261). Wow, what an insane and radical observation: law-abiding, pro-American immigrant communities would like to know that a candidate for political office will support them and recognize them as legitimate Americans. But of course people merrily forward the distorted version along without going a milimeter out of their way to find out whether its true or not (you can find out the real quote with a simple google search of the misquote in about 5 seconds - this isn't rocket surgery).
Anyway, F them. Shit like this helps me get over my left-wing Obama trashing. Let's get psyched up for the probable Pax Obama.
"I will stand with the Muslims should the political winds shift in an ugly direction."
Of course it does not provide a page citation, because then you would be able to look it up. But I found the offending quote, and here's what it really says:
"... mostly [immigrants] want affirmation that they, too, are Americans. Whenever I appear before immigrant audiences, I can count on some good-natured ribbing from my staff after my speech; according to them, my remarks follow a three-part structure: 'I am your friend,' '[Fill in home country] has been a cradle of civilization,' and 'You embody the American dream.' They're right, my message is simple, for what I've come to understand in that my mere presence before these newly minted Americans serves notice that they matter, that they are voters critical to my success and full-fledged citizens entitled to respect.
Of course, not all my conversations in immigrant communities follow this easy pattern. In the wake of 9/11, my meetings with Arab and Pakistani Americans, for example, have a more urgent quality, for the stories of detentions and FBI questioning and hard stares from neighbors have shaken their sense of belonging. They have been reminded that the history of immigration in this country has a dark underbelly; they need specific assurances that their citizenship actually means something, that America has learned the right lessons from the Japanese internments during World War II, and that I will stand with them should the political winds shift in an ugly direction."
(p. 261). Wow, what an insane and radical observation: law-abiding, pro-American immigrant communities would like to know that a candidate for political office will support them and recognize them as legitimate Americans. But of course people merrily forward the distorted version along without going a milimeter out of their way to find out whether its true or not (you can find out the real quote with a simple google search of the misquote in about 5 seconds - this isn't rocket surgery).
Anyway, F them. Shit like this helps me get over my left-wing Obama trashing. Let's get psyched up for the probable Pax Obama.
Thursday, May 22, 2008
L'CHAIM! McCAIN!
Here's another big fat reason why I am not reassured by polls putting Obama ahead of McBain.
Oh, Florida. How many leftist hopes can you dash?
Oh, Florida. How many leftist hopes can you dash?
Wednesday, May 21, 2008
You have an urgent message from GERONAMI!
He doesn't have the oratory power of Cobra Commander, but the format is the same.
And like many on The Blogggg, he has serious misgivings about Barack Obama.
And like many on The Blogggg, he has serious misgivings about Barack Obama.
Tuesday, May 20, 2008
Who Is the Real Reverend Klein?
This guy has a nice take on the FagTax. His overview of the lack of assertiveness on the part of the left in tax policy is interesting as well.
But what you guys really need to read is his early take on Obama's health care plan. I think he is highly correct.
But what you guys really need to read is his early take on Obama's health care plan. I think he is highly correct.
To Be Fair
Obama's tax plan appears to be slightly but noticeably better than Klinton's. He expressly proposes increasing the capital gains rate to 28%, which is not good enough but is a start. And as the article states, he seems to want to concentrate on using tax provisions to give lower working class people a boost. Klinton's plan appears to focus on creating a bunch of kinda goofy tax incentives for the middle class.
Cops Gone Wild
Thank goodness. As we hashed out quite thoroughly in e-debates past, I am no police-hater. Far from it. But the Philly PD needs to make a strong statement here. This kind of crap just plays into all the nonsense "don't snitch" crap. The PD cannot do its work effectively if it loses its political legitimacy by doing this kind of thing.
A Ban on Cluster Bombs
Since this is sort of my own pet issue and future career, I thought I would draw the blogggg's attention to the fact that representatives from many of the world's governments are now meeting in Dublin to adopt a ban on cluster munitions.
For an interesting video on the subject, check out this link:
http://www.hrw.org/campaigns/clusters/video2.htm
For more-than-necessary details on the status of the convention and the primary documents, click here:
http://www.clusterprocess.org/
And to find out which countries are part of the minority who refuse to participate and/or have come out strongly against banning cluster bombs, just look out your window (if you live in the US, Israel, Russia, China, India, or Pakistan).
For an interesting video on the subject, check out this link:
http://www.hrw.org/campaigns/clusters/video2.htm
For more-than-necessary details on the status of the convention and the primary documents, click here:
http://www.clusterprocess.org/
And to find out which countries are part of the minority who refuse to participate and/or have come out strongly against banning cluster bombs, just look out your window (if you live in the US, Israel, Russia, China, India, or Pakistan).
Monday, May 19, 2008
Strategic Politics is No Excuse
See this. See especially #s 41, 48, and 49. Clearly, Obama and Klinton's sellout plans are a nod to the insurance lobby, not the electorate. This study was done in 2003, and if anything, the climate would be more favorable now.
Besides, the debate over this whole election seems to be more about symbolic and cultural politics ("why doesn't Obama wear an American flag pin?", "it would just be so great to finally have a black president.") rather than policy differences. There's no other way to explain the amount of rancor between the Obama and Klinton camps - two candidates with relatively small policy differences. If that's the case, how could Obama or Klinton possibly think that they could lose voters if they proposed a real health care plan? I doubt most Americans are even aware of the difference between Obama and Klinton's plans and a single payer system.
Once again, there's no excuse. None at all.
Besides, the debate over this whole election seems to be more about symbolic and cultural politics ("why doesn't Obama wear an American flag pin?", "it would just be so great to finally have a black president.") rather than policy differences. There's no other way to explain the amount of rancor between the Obama and Klinton camps - two candidates with relatively small policy differences. If that's the case, how could Obama or Klinton possibly think that they could lose voters if they proposed a real health care plan? I doubt most Americans are even aware of the difference between Obama and Klinton's plans and a single payer system.
Once again, there's no excuse. None at all.
Obama: The False Prophet
The Blogg Is Back.
The links below are old news, but interesting to note. For all the silly cultural wedge politics about Obama being a left-wing nut/Second Coming of Progressive Politics, on one key issue (maybe the key issue), he is substantially more centrist than Klinton.
http://www.nytimes.com/2008/02/04/opinion/04krugman.html
(this guy is a well-respected center-left economist)
http://www.huffingtonpost.com/rose-ann-demoro/sen-obama-please-no-mor_b_49920.html
(old and shrill in tone, but I think its underlying point is right)
I didn't necessarily recognize it right away, but the mandate thing seems to be an important difference. Maybe the West Virginia hicks weren't so stupid after all.
Now mind you, I will most certainly vote for Obama against McCain. Many times, if possible. But I think it's important to stay clear-headed about what he represents and what he does not. He is a centrist democrat, which is fine if that's what you support. But Obama is totally unsatisfactory from a social-democratic perspective, and I don't think he has any business enjoying the kind of rabid support from young left-wingers that he does.
Of course many people try to defend him on the grounds that "he needs to say this stuff to get elected." But I don't buy this. The Republicans don't seem to hesitate pushing for what they truly believe in, and it hasn't seemed to hurt them too badly in the post-Reagan era. If Obama believes in more left-wing policies then his policy recommendations should reflect that. He could compromise later on down the road if he had to. Besides, he's gonna get ripped up and down by the right-wing for "nationalizing healthcare" even under his current mushy pro-insurance industry plan, so he might as well throw something real out there.
Mike's Reply:
"I have to disagree slightly, of course. An important note in the second article is that Obama has already said that a single-payer system would be ideal. He would certainly support that plan. But, regardless of how outspoken or up front about it he is on that point, it is far from a political winner at the moment. Maybe after the election it will be a different story. (Hopefully with greater Dem majorities in both houses.)
Also, the mandate of coverage is the primary (only?) difference between the two plans, and Clinton's plan is no less a rearranging of the "deck chairs" than Obama's plan because it too still primarily relies on private insurance to cover everyone. Thus, to say that Obama's plan is "more centrist" is not necessarily true.
Republicans haven't been afraid to push their beliefs because for whatever reason the country has been behind them, and because their issues are generally the easy way and simple-minded solutions. (i.e. - "lower my taxes") Democrats generally have nuanced positions, and which require people to sacrifice things (such as tax dollars) that people are less willing to support. There is one big exception to this in current times. With respect to the Iraq War, although the solution is not necessarily simple-minded, the notion of "Get Out Now" is simple, and a majority of the country already backs it. Yet, "centrist" Dems have a point that there are logistical and possibly human rights issues that would have to be addressed, and makes their policy position (which requires a longer stay that the left would find unacceptable).\
My point is that Obama coming out strong for a single-payer system doesn't move the ball forward at all, especially if he isn't going to have a Congress that would pass it. I'm sure he's polled the issue, and right now it's probably a loser. It does no sense for him to grab on to an issue that issue going to allow him to win. However, once he gets into office, the House and Senate can put forth incredibly leftist plans that are closer to single-payer, and he can use the bully pulpit to drum up support for those plans."
My Reply to Mike's Reply:
Noting that "a single payer system would be ideal" is not a fair equivalent of "supports" or "proposes." What he truly believes in his deepest heart's soul is not a terribly relevant consideration with respect to his palatibility as a candidate for political office. His likely policy proposals and bill signings while in office, as predicted by his Senate term and his campaign proposals, are the only relevant considerations.
Klinton's plan sucks too, no question. Anything less than a hard push for a single-payer system is a nearly unforgivable offense for a Democrat in my book. But even if Klinton's mandate is the only difference, it is a significant difference both in terms of the likely effectiveness of the plan and how "left" or "centrist" it is. According to the research Krugman cites, Klinton's plan would cover more people at a greater overall cost (but at a lower cost per person) than Obama's plan. Advocating a public policy that delivers less public services to less people at a lower cost in terms of total public funds, as Obama does, is the very definition of "more centrist," at least as I understand the concept. Obama's mandate-less plan also allows better health risks (i.e., young and healthy workers) to opt out of the system and therefore put more pressure on the rest of the risk pool (i.e., "adverse selection"). The notion that better risks should have the right to opt out of a social insurance system (like, say, allowing high earners to opt out of Social Security) is a fundamentally anti-redistributive and conservative idea. Finally, the idea that the consumer is ultimately sovereign and should have the right to decide that buying healthcare is not in his or her best interest is a fundamentally conservative, free-market idea. Obama's plan observes this fiction while Klinton's "mandate" does not.
And I think it's a real chicken-and-egg thing with the whole "the American electorate just won't buy progressivism" thing. If it had been seriously pitched in the last 30 years by a charismatic, legitimate candidate with the whole might of the Democratic Party behind them, who knows where we'd be now? The fact is that the Republicans have effectively marketed a right-wing ideology for the last 30 years and the Democrats have poorly marketed a centrist ideology during that time. This was not inevitable, and there's no reason to just assume it couldn't be reversed if the will were there. If the polling doesn't support real social democratic policies right now then the Dems need to get out there and pound the pavement more, or else what's the point of having the party if it's just a mirror reflection of current polling numbers? Polling numbers probably support prayer and anti-evolution teaching in schools, banning gays from the military, and maybe even outlawing abortion, but you don't see Dems just conceding those issues. They push for them, as they should for a single payer plan do if they valued the policy goals and philosophy that support it. Besides, we all know it's the insurance lobby and not the polling numbers that provides the limit on healthcare policy.
Once again, the Democrats will be called anti-American socialists no matter how centrist they get. They might as well make proposals with some teeth if they really value social democratic policy goals. Bottom line for me: Obama's plan is both more centrist than, and inferior to, Klinton's plan, and the Democrats have no excuse for being so centrist that I'm willing to accept.
The links below are old news, but interesting to note. For all the silly cultural wedge politics about Obama being a left-wing nut/Second Coming of Progressive Politics, on one key issue (maybe the key issue), he is substantially more centrist than Klinton.
http://www.nytimes.com/2008/02/04/opinion/04krugman.html
(this guy is a well-respected center-left economist)
http://www.huffingtonpost.com/rose-ann-demoro/sen-obama-please-no-mor_b_49920.html
(old and shrill in tone, but I think its underlying point is right)
I didn't necessarily recognize it right away, but the mandate thing seems to be an important difference. Maybe the West Virginia hicks weren't so stupid after all.
Now mind you, I will most certainly vote for Obama against McCain. Many times, if possible. But I think it's important to stay clear-headed about what he represents and what he does not. He is a centrist democrat, which is fine if that's what you support. But Obama is totally unsatisfactory from a social-democratic perspective, and I don't think he has any business enjoying the kind of rabid support from young left-wingers that he does.
Of course many people try to defend him on the grounds that "he needs to say this stuff to get elected." But I don't buy this. The Republicans don't seem to hesitate pushing for what they truly believe in, and it hasn't seemed to hurt them too badly in the post-Reagan era. If Obama believes in more left-wing policies then his policy recommendations should reflect that. He could compromise later on down the road if he had to. Besides, he's gonna get ripped up and down by the right-wing for "nationalizing healthcare" even under his current mushy pro-insurance industry plan, so he might as well throw something real out there.
Mike's Reply:
"I have to disagree slightly, of course. An important note in the second article is that Obama has already said that a single-payer system would be ideal. He would certainly support that plan. But, regardless of how outspoken or up front about it he is on that point, it is far from a political winner at the moment. Maybe after the election it will be a different story. (Hopefully with greater Dem majorities in both houses.)
Also, the mandate of coverage is the primary (only?) difference between the two plans, and Clinton's plan is no less a rearranging of the "deck chairs" than Obama's plan because it too still primarily relies on private insurance to cover everyone. Thus, to say that Obama's plan is "more centrist" is not necessarily true.
Republicans haven't been afraid to push their beliefs because for whatever reason the country has been behind them, and because their issues are generally the easy way and simple-minded solutions. (i.e. - "lower my taxes") Democrats generally have nuanced positions, and which require people to sacrifice things (such as tax dollars) that people are less willing to support. There is one big exception to this in current times. With respect to the Iraq War, although the solution is not necessarily simple-minded, the notion of "Get Out Now" is simple, and a majority of the country already backs it. Yet, "centrist" Dems have a point that there are logistical and possibly human rights issues that would have to be addressed, and makes their policy position (which requires a longer stay that the left would find unacceptable).\
My point is that Obama coming out strong for a single-payer system doesn't move the ball forward at all, especially if he isn't going to have a Congress that would pass it. I'm sure he's polled the issue, and right now it's probably a loser. It does no sense for him to grab on to an issue that issue going to allow him to win. However, once he gets into office, the House and Senate can put forth incredibly leftist plans that are closer to single-payer, and he can use the bully pulpit to drum up support for those plans."
My Reply to Mike's Reply:
Noting that "a single payer system would be ideal" is not a fair equivalent of "supports" or "proposes." What he truly believes in his deepest heart's soul is not a terribly relevant consideration with respect to his palatibility as a candidate for political office. His likely policy proposals and bill signings while in office, as predicted by his Senate term and his campaign proposals, are the only relevant considerations.
Klinton's plan sucks too, no question. Anything less than a hard push for a single-payer system is a nearly unforgivable offense for a Democrat in my book. But even if Klinton's mandate is the only difference, it is a significant difference both in terms of the likely effectiveness of the plan and how "left" or "centrist" it is. According to the research Krugman cites, Klinton's plan would cover more people at a greater overall cost (but at a lower cost per person) than Obama's plan. Advocating a public policy that delivers less public services to less people at a lower cost in terms of total public funds, as Obama does, is the very definition of "more centrist," at least as I understand the concept. Obama's mandate-less plan also allows better health risks (i.e., young and healthy workers) to opt out of the system and therefore put more pressure on the rest of the risk pool (i.e., "adverse selection"). The notion that better risks should have the right to opt out of a social insurance system (like, say, allowing high earners to opt out of Social Security) is a fundamentally anti-redistributive and conservative idea. Finally, the idea that the consumer is ultimately sovereign and should have the right to decide that buying healthcare is not in his or her best interest is a fundamentally conservative, free-market idea. Obama's plan observes this fiction while Klinton's "mandate" does not.
And I think it's a real chicken-and-egg thing with the whole "the American electorate just won't buy progressivism" thing. If it had been seriously pitched in the last 30 years by a charismatic, legitimate candidate with the whole might of the Democratic Party behind them, who knows where we'd be now? The fact is that the Republicans have effectively marketed a right-wing ideology for the last 30 years and the Democrats have poorly marketed a centrist ideology during that time. This was not inevitable, and there's no reason to just assume it couldn't be reversed if the will were there. If the polling doesn't support real social democratic policies right now then the Dems need to get out there and pound the pavement more, or else what's the point of having the party if it's just a mirror reflection of current polling numbers? Polling numbers probably support prayer and anti-evolution teaching in schools, banning gays from the military, and maybe even outlawing abortion, but you don't see Dems just conceding those issues. They push for them, as they should for a single payer plan do if they valued the policy goals and philosophy that support it. Besides, we all know it's the insurance lobby and not the polling numbers that provides the limit on healthcare policy.
Once again, the Democrats will be called anti-American socialists no matter how centrist they get. They might as well make proposals with some teeth if they really value social democratic policy goals. Bottom line for me: Obama's plan is both more centrist than, and inferior to, Klinton's plan, and the Democrats have no excuse for being so centrist that I'm willing to accept.
Saturday, May 3, 2008
Faulty Contract Work in Iraq Kills Troops
I just can't wrap my mind around this:
At least a dozen military personnel have been electrocuted in Iraq, many due to faulty wiring done by contractors like KBR, and many more have been injured.
Here's the full article:
http://www.nytimes.com/2008/05/04/world/middleeast/04electrocute.html?ex=1367553600&en=4b51a4db27685780&ei=5124&partner=permalink&exprod=permalink
At least a dozen military personnel have been electrocuted in Iraq, many due to faulty wiring done by contractors like KBR, and many more have been injured.
Here's the full article:
http://www.nytimes.com/2008/05/04/world/middleeast/04electrocute.html?ex=1367553600&en=4b51a4db27685780&ei=5124&partner=permalink&exprod=permalink
Wednesday, April 30, 2008
National Brownout
Things have gotten so bad I find myself learning from, nodding along with, and enjoying one of Thomas Friedman's columns, this one on using fiscal policy to influence energy policy:
http://www.nytimes.com/2008/04/30/opinion/30friedman.html?ex=1367294400&en=0588e238277893d6&ei=5124&partner=permalink&exprod=permalink
http://www.nytimes.com/2008/04/30/opinion/30friedman.html?ex=1367294400&en=0588e238277893d6&ei=5124&partner=permalink&exprod=permalink
Après moi, le déluge
I don't know whether to file this under the Bush Administration not giving a shit about black people, or not giving a shit about education, or both.
But there's a message of hope, and it should at least interest Lombard:
http://www.nytimes.com/2008/04/30/us/nationalspecial/30orleans.html?ex=1367294400&en=9e0660c1c1b21a8e&ei=5124&partner=permalink&exprod=permalink
But there's a message of hope, and it should at least interest Lombard:
http://www.nytimes.com/2008/04/30/us/nationalspecial/30orleans.html?ex=1367294400&en=9e0660c1c1b21a8e&ei=5124&partner=permalink&exprod=permalink
Wednesday, April 23, 2008
Screw healthcare, give our forces in-inventory lethality against land combat vehicles NOW!
Most of your 40 points about quality healthcare and education, clean air, safer streets, offices, and classrooms are just nowhere near as important a priority as this:
http://www.youtube.com/watch?v=OdR0rA9VBrI&feature=related
PS We learned in class that these self-destruct mechanisms designed to "reduce collateral damage" work about as well as the Popcorn function on your microwave.
http://www.youtube.com/watch?v=OdR0rA9VBrI&feature=related
PS We learned in class that these self-destruct mechanisms designed to "reduce collateral damage" work about as well as the Popcorn function on your microwave.
Monday, April 21, 2008
They Can Have my Car When They Pry it from my Cold Dead Hands
Not much action on the blog of late. Are you guys all at the MTV beach house for Spring Break or what?
With regards to gun control in America, I uncovered an interesting bit of info today while researching how to get a truck driver's license in Europe:
Until 1913, beginning with New Jersey, people in the US were not required to pass any tests or have a license to operate a motor vehicle.
Public outcry over the number of fatalities associated with unlicensed drivers eventually forced all states to adopt laws requiring licensing. And guess which countries were held up as examples of statutes successfully ensuring roadways and eventually used as a models for stricter American "auto control" legislation?
That's right, good old France and Germany...
With regards to gun control in America, I uncovered an interesting bit of info today while researching how to get a truck driver's license in Europe:
Until 1913, beginning with New Jersey, people in the US were not required to pass any tests or have a license to operate a motor vehicle.
Public outcry over the number of fatalities associated with unlicensed drivers eventually forced all states to adopt laws requiring licensing. And guess which countries were held up as examples of statutes successfully ensuring roadways and eventually used as a models for stricter American "auto control" legislation?
That's right, good old France and Germany...
Psy Ops Conducted on US Citizens
This article in the NYTimes goes back to my post a few weeks ago regarding US TV news' instrumental role as Pentagon propagandists.
Very interesting take-away: in addition to obviously having a pro-military bias as former soldiers, many of the "retired generals" that appear as commentators on FOX or CNN whenever we bomb somebody are actually on the payrolls or boards of leading US defense contractors and weapons manufacturers.
Now do you suppose when the Pentagon pays for their flights to observe US forces in action in order for them to narrate indirect advertising for Lockheed Martin on CNN, that counts as government intervention in the marketplace?
http://www.nytimes.com/2008/04/20/washington/20generals.html?ex=1366516800&en=3ee97594863f8a01&ei=5124&partner=permalink&exprod=permalink
Very interesting take-away: in addition to obviously having a pro-military bias as former soldiers, many of the "retired generals" that appear as commentators on FOX or CNN whenever we bomb somebody are actually on the payrolls or boards of leading US defense contractors and weapons manufacturers.
Now do you suppose when the Pentagon pays for their flights to observe US forces in action in order for them to narrate indirect advertising for Lockheed Martin on CNN, that counts as government intervention in the marketplace?
http://www.nytimes.com/2008/04/20/washington/20generals.html?ex=1366516800&en=3ee97594863f8a01&ei=5124&partner=permalink&exprod=permalink
Wednesday, April 16, 2008
A Poll for the Choir
Just out of curiosity, I am interested in your opinions (or statistical backup) on to what the Democratic candidates owe their supposed sure-fire victory this November.
Is it merely dissatisfaction with Iraq and the economy combined with identity politics and hype surrounding the first realistic female and black contenders?
Or does anyone want to make the case that the election of either of those two is proof of the beginning of a shift to the left among certain groups, potentially as blowback from "mistakes made" with Bush?
I'm not trying to prove a point (I haven't one), I am interested in a back-home perspective, and Lord knows I can't ask my parents.
Is it merely dissatisfaction with Iraq and the economy combined with identity politics and hype surrounding the first realistic female and black contenders?
Or does anyone want to make the case that the election of either of those two is proof of the beginning of a shift to the left among certain groups, potentially as blowback from "mistakes made" with Bush?
I'm not trying to prove a point (I haven't one), I am interested in a back-home perspective, and Lord knows I can't ask my parents.
Monday, April 14, 2008
McRibb Revisionism
This is pretty cool. Apparently McCain is all about drawing parallels between the current economic crisis and the Great Depression, but the solution this time (as apparently back then) has got nothing to do with government and/or a certain president best known by his FDR'ing initials.
http://blogs.tnr.com/tnr/blogs/the_plank/archive/2008/04/14/mccain-to-america-quot-i-care-quot.aspx
http://blogs.tnr.com/tnr/blogs/the_plank/archive/2008/04/14/mccain-to-america-quot-i-care-quot.aspx
The Gay Tax
This is totally gay. Apparently we make gay domestic partners pay an extra tax surcharge.
Curiosity doesn't kill Jersey cats. US 155mm shells do.
If this isn't proof that we've ruffled some feathers with this blog. They're hitting closer and closer to home:
http://edition.cnn.com/2008/US/04/13/artillary.cat.ap/index.html
http://edition.cnn.com/2008/US/04/13/artillary.cat.ap/index.html
Saturday, April 12, 2008
The Final 400
Check this out. "Punishing the rich" my ass. Apparently our substantially (but inadequately) progressive tax regime falls off the map once you get to the very, very top of the economic pyramid.
The top 400 taxpayers in this country paid taxes, on average, equal to 18% of their reported income in 2005. They paid 30% in 1995, and they have gotten much richer since then - they now make on average 235% of what they made in 1992. And in 2005 a third of the top 400 taxpayers actually paid less than 15% of their income in taxes. The comparatively small cut taken from the rich has apparently led Progressive Plutocrat Warren Buffet to extend the offer of a $1 million bet to every Fortune 400 member that they cannot show that members of the Fortune 400 pay, on average, a higher percentage of their income in taxes than their receptionists do.
This reduction in tax burden is largely a result of the steep cuts in the capital gains tax since 1997 (28% before 1997, 20% until 2003, 15% since). About 54% of the income of the top 1% comes from capital gains - the percentage is almost certainly much higher for the richest 400. The dividend tax cut obviously didn't help either. The result of these policies is that, since 1995, the annual tax burden of the very wealthy has decreased by $25 million per filer. That's a federal revenue loss of $10 billion annually. That's even enough to fund the war for 25 minutes.
Raw data here.
Interestingly, according to that bastion of left-wing thought, the Heritage Foundation, total federal tax revenue is just over 18% of GDP. That means the hideously wealthy bear an average federal income tax burden that is slightly less, as a percentage of their average income, than total federal government revenues as a percentage of total national income (GDP). Of course there are other significant federal taxes to consider in evaluating the burden any income group bears in financing the cost of the federal government, like payroll taxes and the estate and gift tax. But including these taxes isn't likely to change much. The extremely rich pay a comparatively miniscule percentage of their income in payroll taxes since so much of their income is not from work and the social security payroll tax exempts any work income over $101,500. And the estate and gift tax is tiny in terms of its effect and the amount of revenue involved. (1% of federal revenues vs. 35% for federal payroll taxes). Not to mention, it can be largely avoided with a modest amount of tax planning.
So it would appear that the average federal tax burden borne by the hyper-wealthy as a percentage of their income isn't much more than the burden borne by the economy overall, and it is almost certainly much lower than the tax burden imposed on most of the middle class. This is because anyone who earns all of their income from work pays 7.65% of their gross income in payroll taxes; so if you don't have any capital income and you pay more than 10.35% of your gross income in income taxes, you will end up paying a higher percentage of your income in federal taxes than people in the top 400. In other words, a single person (or a married person who files separately) who earns all of his or her income from working, makes more than about $61,500 a year, and takes only the standard deduction pays a higher percentage of their income in federal taxes than the average person in the top 400 does.
(Note: My analysis does not include the indirect burden of the corporate tax on the very wealthy. Including this amount in the analysis would increase the percentage burden borne by the very rich, especially since financial wealth is so heavily concentrated among the very wealthy. But I really don't think including it would change my analysis very much, since the corporate tax is only 10-15% of federal revenues and my suspicion is that the very very rich earn a disproportionate amount of their income from investments in exotic hedge funds and private equity funds, which are usually organized as partnerships and therefore not subject to the corporate tax. And I really have no feasible way of including it either.)
The top 400 taxpayers in this country paid taxes, on average, equal to 18% of their reported income in 2005. They paid 30% in 1995, and they have gotten much richer since then - they now make on average 235% of what they made in 1992. And in 2005 a third of the top 400 taxpayers actually paid less than 15% of their income in taxes. The comparatively small cut taken from the rich has apparently led Progressive Plutocrat Warren Buffet to extend the offer of a $1 million bet to every Fortune 400 member that they cannot show that members of the Fortune 400 pay, on average, a higher percentage of their income in taxes than their receptionists do.
This reduction in tax burden is largely a result of the steep cuts in the capital gains tax since 1997 (28% before 1997, 20% until 2003, 15% since). About 54% of the income of the top 1% comes from capital gains - the percentage is almost certainly much higher for the richest 400. The dividend tax cut obviously didn't help either. The result of these policies is that, since 1995, the annual tax burden of the very wealthy has decreased by $25 million per filer. That's a federal revenue loss of $10 billion annually. That's even enough to fund the war for 25 minutes.
Raw data here.
Interestingly, according to that bastion of left-wing thought, the Heritage Foundation, total federal tax revenue is just over 18% of GDP. That means the hideously wealthy bear an average federal income tax burden that is slightly less, as a percentage of their average income, than total federal government revenues as a percentage of total national income (GDP). Of course there are other significant federal taxes to consider in evaluating the burden any income group bears in financing the cost of the federal government, like payroll taxes and the estate and gift tax. But including these taxes isn't likely to change much. The extremely rich pay a comparatively miniscule percentage of their income in payroll taxes since so much of their income is not from work and the social security payroll tax exempts any work income over $101,500. And the estate and gift tax is tiny in terms of its effect and the amount of revenue involved. (1% of federal revenues vs. 35% for federal payroll taxes). Not to mention, it can be largely avoided with a modest amount of tax planning.
So it would appear that the average federal tax burden borne by the hyper-wealthy as a percentage of their income isn't much more than the burden borne by the economy overall, and it is almost certainly much lower than the tax burden imposed on most of the middle class. This is because anyone who earns all of their income from work pays 7.65% of their gross income in payroll taxes; so if you don't have any capital income and you pay more than 10.35% of your gross income in income taxes, you will end up paying a higher percentage of your income in federal taxes than people in the top 400. In other words, a single person (or a married person who files separately) who earns all of his or her income from working, makes more than about $61,500 a year, and takes only the standard deduction pays a higher percentage of their income in federal taxes than the average person in the top 400 does.
(Note: My analysis does not include the indirect burden of the corporate tax on the very wealthy. Including this amount in the analysis would increase the percentage burden borne by the very rich, especially since financial wealth is so heavily concentrated among the very wealthy. But I really don't think including it would change my analysis very much, since the corporate tax is only 10-15% of federal revenues and my suspicion is that the very very rich earn a disproportionate amount of their income from investments in exotic hedge funds and private equity funds, which are usually organized as partnerships and therefore not subject to the corporate tax. And I really have no feasible way of including it either.)
Friday, April 11, 2008
Noah Chompkins Interview
So I got the chance to ask Chompkins a question or two on my friends' radio show. It was cool. I will add a link to this post if the interview becomes available online. He made a few points that are pretty basic, but very true and bear repeating.
1. Exploiting "comparative advantage" through free trade policies is not, in fact, how countries have actually successfully developed throughout economic history. They have developed through the use of high protective trade barriers and massive government intervention, subsidization, and direction.
2. The globalized, liberalized capital markets we have today actually move massive amounts of speculative capital all over the place rather than finance productive investment to any significant degree. They are a destablizing rather than productive force.
3. Most important technological developments that form the basis of our high standard of living have involved significant amounts of government research and financing.
4. Globalized capital markets also have had a huge hand in promoting global inequality. They allow investors to work as a "virtual senate," by withdrawing capital from a country en masse whenver they don't like that country's economic policies. If you look at the period in our history when we had some social democratic policies, it was during a period when we, and the rest of the world, had significant capital controls in place.
5. Economic growth since ~1975 was slower than between 1945-1975, and post-1975 growth has been highly inegalitarian. Income for the middle and bottom of the income distribution has stagnated and even fallen since 1975, while it has increased immensely for the wealthy during that period. Furthermore, economic growth from 1945-1975 (which was egalitarian) was correlated with improving social indicators (infant mortality, life expectancy, health metrics, etc.), while economic growth since that time has actually accompanied the deterioration of such social factors.
Overall I was struck by how moderate-social democratic Chomsky came off. I agreed with him on just about everything he said.
1. Exploiting "comparative advantage" through free trade policies is not, in fact, how countries have actually successfully developed throughout economic history. They have developed through the use of high protective trade barriers and massive government intervention, subsidization, and direction.
2. The globalized, liberalized capital markets we have today actually move massive amounts of speculative capital all over the place rather than finance productive investment to any significant degree. They are a destablizing rather than productive force.
3. Most important technological developments that form the basis of our high standard of living have involved significant amounts of government research and financing.
4. Globalized capital markets also have had a huge hand in promoting global inequality. They allow investors to work as a "virtual senate," by withdrawing capital from a country en masse whenver they don't like that country's economic policies. If you look at the period in our history when we had some social democratic policies, it was during a period when we, and the rest of the world, had significant capital controls in place.
5. Economic growth since ~1975 was slower than between 1945-1975, and post-1975 growth has been highly inegalitarian. Income for the middle and bottom of the income distribution has stagnated and even fallen since 1975, while it has increased immensely for the wealthy during that period. Furthermore, economic growth from 1945-1975 (which was egalitarian) was correlated with improving social indicators (infant mortality, life expectancy, health metrics, etc.), while economic growth since that time has actually accompanied the deterioration of such social factors.
Overall I was struck by how moderate-social democratic Chomsky came off. I agreed with him on just about everything he said.
Taxation of Business Income
Sorry all, but I have another dry tax policy post. This post is in part to respond to some previous comments and in part to make some comments about the proper tax treatment of business income.
Brother Vorms had an interesting take on the dividend tax. I don't disagree with his conclusion, but when we're talking about dividend tax rates we have to remember that the tax code imposes an entity level tax on corporations (i.e., the corporate income tax). Bear with me here.
Federal Tax Treatment of Business Income
Dividends
Say Corporation X made pre-tax profits of $100 last year, and would like to distribute this amount to its shareholders in the form of a dividend. The tax consequences are as follows. The $100 in profit will be taxed at the corporate level at a rate of 35%. The amount left over for the dividend is therefore $65. There is no corporate tax deduction available for a dividend paid to an individual. The $65 dividend payment will then be taxed to the individual recipient at a rate of 15%, leaving a total after-tax payment of $55.25 (65 – [.15 * 65] = 55.25). This gives an effective tax rate of 44.75% on the dividend.
Interest
Say the same corporation has $100 in pre-tax profits before taking into account the payment of interest on debt. Further assume the corporation is closely held, and it owes the debt to the owner. Finally, assume the corporation owes $100 in interest to the owner in the current year.
The interest payment (if the debt is considered bona fide, which is a whole issue unto itself) is a deductible expense to the corporation. So the corporation will face no tax on the $100 of pre-interest profits ($100 in gross income offset by a $100 interest deduction). The interest income is then taxable to the individual owner at ordinary income rates. Assuming the owner is the highest marginal tax bracket (35%), the income will be taxed one time only at a 35% rate. The total effective tax rate is therefore 35%.
This same analysis applies to interest paid to bondholders. Interest on deposit accounts, savings accounts, CDs, money market accounts, etc. is also taxable only once, to the individual payee (i.e., at a maximum rate of 35%). Investors may be able to make more after-tax money by investing in high-dividend stocks than savings accounts or CDs, but this is because the pre-tax rate of return is higher for corporate stocks, not because the overall effective tax rate is lower.
Capital Appreciation
Assume again that Corp. X has $100 in pre-tax profits. Assume that in this case, however, the corporation decides to retain the earnings. The corporation is now holding onto $65 extra in post-tax dollars (remember, a corporation’s profits are subject to the corporate tax), so the value of its market capitalization should theoretically be worth $65 more (not necessarily a true assumption for a large publicly traded corporation, but it is probably true for closely held corporations. Anyway, the assumption is for simplicity’s sake and does not alter the analysis).
Say the owner of Corp. X’s stock (assume there is only one) wants to liquidate his interest after the corporation’s stock increases in value by $65. When he does so, he will face a 15% capital gains tax on the $65 increase in value (in addition to any previous appreciation in value). Concerning the increase in value of $65, he will owe capital gains tax of $9.75 (or a reduction of capital loss worth the same amount), again ending up with $55.25. Just like in the case of a dividend, he will face a total tax rate of 44.75%.
Although the treatment of capital appreciation (in the context of corporate stock appreciation only) and dividends is similar, there are some very important differences from a general policy standpoint. First, the capital gains tax is only imposed upon realization, so in the case of capital appreciation, the taxpayer gets the benefit of deferring the tax until he cashes out (i.e., the time value of the deferred tax amount). Taxes will be due immediately upon receipt of the dividend. So in present value terms, the tax burden on the capital appreciation is lighter. By the same token, however, capital gains can be washed away before the taxpayer cashes out. Dividends are cash in hand. So capital gains may be less desirable in some contexts because the gains are subject to future capital risk. But this is a matter of finance, not tax treatment. Strictly speaking in terms of the government's take, the tax treatment of capital gains is more generous than the treatment of dividends because of the deferral issue.
But the main difference between the two as a matter of general tax policy is that most capital gains are not in the form of appreciated corporate stock. An absolute majority of capital gains are in the form of appreciated real estate. A lot of capital gains reflect appreciated partnership interests or various other noncorporate investments as well. So most capital gains do not reflect income that has already been subject to tax (and recall from my previous post that most capital gains are not taxed at all). Dividends, on the other hand, are by definition (under the tax code, anyway) paid out by an entity that is in fact subject to the corporate tax first. So the reduction in the rate of dividend taxation is far more justifiable than the capital gains preference from the standpoint of ameliorating the “double taxation” distortion (i.e., the tax at the corporate level and then again at the individual shareholder level).
Partnerships, LLCs, and S-Corporations
Partnerships, LLCs, and S-Corps are not subject to an entity level tax. Items of income are allocated directly to partners, members, or stockholders. Therefore, X LP or X, LLC or X, Inc. (subject to subchapter S) will pay no direct tax on the $100 of income. The tax items “flow through” to the partners or shareholders, who will (again, assuming a 35% rate) once again face a total tax rate of 35%. And when an owner of an interest in any one of these entities sells the interest, any resulting gain (which, remember, was not subject to any entity level tax) will be taxed at the 15% capital gains rate.
Economic Distortions
So you can see that dividends are actually the least favorably treated form of business income, even with the 15% tax rate in effect. This is as a result of the separate imposition of tax at the corporate level. Now granted, this analysis is simplified for the purposes of demonstration. It assumes away evasion, mischaracterization, tax-exempt forms of income, and special deductions and credits. As a result of some combination of these factors, along with the fact that of course some corporations do, in fact, have no income in any given year, only 1/3 of all corporations pay any corporate tax at all in any given year. But this fact doesn’t change much.
Say a corporation successfully avoids tax at the corporate level by posting an artificial tax loss, and therefore any dividend payments will only be taxed once, at the 15% rate. But the same thing would happen in the context of capital appreciation: the $100 of income would only be taxed once, at a 15% rate, when the owner cashed out. And of course an S-Corp, LLC, or partnership can just as easily hide or legally exempt income as a traditional C-Corp can, so any income from these investments would never be taxed at all to the individual owners. The only difference is for interest payments, which would still be taxable to the individual recipient at the ordinary income rate (maximum of 35%) whether the corporation had a loss or not. And of course interest paid from a savings account or CD is always taxable at ordinary rates as well. But as long as the corporation paying the dividend has taxable income greater than or equal to the amount of the dividend for the year (which you would think it usually would if it’s going to be paying out a dividend), the dividend faces the highest effective tax rate. Furthermore, if the corporation didn't owe tax on the profits it used to pay out the dividend because the income was tax exempt interest on municipal bonds, the shareholder could have avoided tax altogether by just investing in tax exempt bonds directly.
So the tax code actually creates an artificial distortion against dividend income, not in favor of it. Interest payments are deductible in full by a corporation, while dividends are not; this creates a distortion in favor of debt and against equity. Some commentators say this leads to excessively high debt/equity ratios among American corporations. The taxation of both corporate income and dividends also creates a distortion in favor of corporate retention of earnings, since capital appreciation is not taxable until realized. And because income from corporations is subject to two levels of tax (the corporate level, and then the dividend or capital gains tax), the tax code creates a distortion in favor of partnerships, LLCs, and S-Corporations and against investment in traditional C-Corporations.
It’s interesting to note, though, that for all the howling about the burden of “double taxation,” the difference in tax burden is by no means in a 2:1 ratio; rather it is 44.75% / 35%, or 1.28:1. This is not “double” in terms of the actual tax bite. The use of the term always bugs me for that reason.
For what it’s worth, I personally think an ideal tax world would have no tax at the business entity level, and would simply allow each item of income to “flow through” to the individual owner(s). That said, I would subject such income to very high, progressive, and uniform rates of taxation – regardless of whether it is capital gain, a dividend, or interest, and regardless of whether the entity that paid it is a corporation or an LLC. This would eliminate arbitrary differences in effective tax rates. But since we live in a world that is very far from ideal, and since the corporate and dividend taxes are among the most progressive taxes in town (they only hit the people that own stock), I support the maintenance of both. The top 1% own something like 50% of the total value all outstanding corporate stock, so for now we should keep corporate and dividend taxes as high as possible if we value progressivity over economic purity (which of course I do). The only problem is that under current law we’re letting massive private equity and hedge fund partnerships totally off the hook by not requiring them to pay any entity level tax at all. If we’re going to stick to an entity level tax regime, this makes no sense.
And Vorms is totally right about the timing issue. Rich people do cash out capital gains en masse whenever rates are lowered. Sometimes right-wing economists use the increase in capital gains tax revenue immediately following a capital gains tax cut to support the idea that lower rates actually increase income. This is obviously ridiculous, because the increased revenue just reflects the fact that people have held off to cash out until the lower rates take effect.
Brother Vorms had an interesting take on the dividend tax. I don't disagree with his conclusion, but when we're talking about dividend tax rates we have to remember that the tax code imposes an entity level tax on corporations (i.e., the corporate income tax). Bear with me here.
Federal Tax Treatment of Business Income
Dividends
Say Corporation X made pre-tax profits of $100 last year, and would like to distribute this amount to its shareholders in the form of a dividend. The tax consequences are as follows. The $100 in profit will be taxed at the corporate level at a rate of 35%. The amount left over for the dividend is therefore $65. There is no corporate tax deduction available for a dividend paid to an individual. The $65 dividend payment will then be taxed to the individual recipient at a rate of 15%, leaving a total after-tax payment of $55.25 (65 – [.15 * 65] = 55.25). This gives an effective tax rate of 44.75% on the dividend.
Interest
Say the same corporation has $100 in pre-tax profits before taking into account the payment of interest on debt. Further assume the corporation is closely held, and it owes the debt to the owner. Finally, assume the corporation owes $100 in interest to the owner in the current year.
The interest payment (if the debt is considered bona fide, which is a whole issue unto itself) is a deductible expense to the corporation. So the corporation will face no tax on the $100 of pre-interest profits ($100 in gross income offset by a $100 interest deduction). The interest income is then taxable to the individual owner at ordinary income rates. Assuming the owner is the highest marginal tax bracket (35%), the income will be taxed one time only at a 35% rate. The total effective tax rate is therefore 35%.
This same analysis applies to interest paid to bondholders. Interest on deposit accounts, savings accounts, CDs, money market accounts, etc. is also taxable only once, to the individual payee (i.e., at a maximum rate of 35%). Investors may be able to make more after-tax money by investing in high-dividend stocks than savings accounts or CDs, but this is because the pre-tax rate of return is higher for corporate stocks, not because the overall effective tax rate is lower.
Capital Appreciation
Assume again that Corp. X has $100 in pre-tax profits. Assume that in this case, however, the corporation decides to retain the earnings. The corporation is now holding onto $65 extra in post-tax dollars (remember, a corporation’s profits are subject to the corporate tax), so the value of its market capitalization should theoretically be worth $65 more (not necessarily a true assumption for a large publicly traded corporation, but it is probably true for closely held corporations. Anyway, the assumption is for simplicity’s sake and does not alter the analysis).
Say the owner of Corp. X’s stock (assume there is only one) wants to liquidate his interest after the corporation’s stock increases in value by $65. When he does so, he will face a 15% capital gains tax on the $65 increase in value (in addition to any previous appreciation in value). Concerning the increase in value of $65, he will owe capital gains tax of $9.75 (or a reduction of capital loss worth the same amount), again ending up with $55.25. Just like in the case of a dividend, he will face a total tax rate of 44.75%.
Although the treatment of capital appreciation (in the context of corporate stock appreciation only) and dividends is similar, there are some very important differences from a general policy standpoint. First, the capital gains tax is only imposed upon realization, so in the case of capital appreciation, the taxpayer gets the benefit of deferring the tax until he cashes out (i.e., the time value of the deferred tax amount). Taxes will be due immediately upon receipt of the dividend. So in present value terms, the tax burden on the capital appreciation is lighter. By the same token, however, capital gains can be washed away before the taxpayer cashes out. Dividends are cash in hand. So capital gains may be less desirable in some contexts because the gains are subject to future capital risk. But this is a matter of finance, not tax treatment. Strictly speaking in terms of the government's take, the tax treatment of capital gains is more generous than the treatment of dividends because of the deferral issue.
But the main difference between the two as a matter of general tax policy is that most capital gains are not in the form of appreciated corporate stock. An absolute majority of capital gains are in the form of appreciated real estate. A lot of capital gains reflect appreciated partnership interests or various other noncorporate investments as well. So most capital gains do not reflect income that has already been subject to tax (and recall from my previous post that most capital gains are not taxed at all). Dividends, on the other hand, are by definition (under the tax code, anyway) paid out by an entity that is in fact subject to the corporate tax first. So the reduction in the rate of dividend taxation is far more justifiable than the capital gains preference from the standpoint of ameliorating the “double taxation” distortion (i.e., the tax at the corporate level and then again at the individual shareholder level).
Partnerships, LLCs, and S-Corporations
Partnerships, LLCs, and S-Corps are not subject to an entity level tax. Items of income are allocated directly to partners, members, or stockholders. Therefore, X LP or X, LLC or X, Inc. (subject to subchapter S) will pay no direct tax on the $100 of income. The tax items “flow through” to the partners or shareholders, who will (again, assuming a 35% rate) once again face a total tax rate of 35%. And when an owner of an interest in any one of these entities sells the interest, any resulting gain (which, remember, was not subject to any entity level tax) will be taxed at the 15% capital gains rate.
Economic Distortions
So you can see that dividends are actually the least favorably treated form of business income, even with the 15% tax rate in effect. This is as a result of the separate imposition of tax at the corporate level. Now granted, this analysis is simplified for the purposes of demonstration. It assumes away evasion, mischaracterization, tax-exempt forms of income, and special deductions and credits. As a result of some combination of these factors, along with the fact that of course some corporations do, in fact, have no income in any given year, only 1/3 of all corporations pay any corporate tax at all in any given year. But this fact doesn’t change much.
Say a corporation successfully avoids tax at the corporate level by posting an artificial tax loss, and therefore any dividend payments will only be taxed once, at the 15% rate. But the same thing would happen in the context of capital appreciation: the $100 of income would only be taxed once, at a 15% rate, when the owner cashed out. And of course an S-Corp, LLC, or partnership can just as easily hide or legally exempt income as a traditional C-Corp can, so any income from these investments would never be taxed at all to the individual owners. The only difference is for interest payments, which would still be taxable to the individual recipient at the ordinary income rate (maximum of 35%) whether the corporation had a loss or not. And of course interest paid from a savings account or CD is always taxable at ordinary rates as well. But as long as the corporation paying the dividend has taxable income greater than or equal to the amount of the dividend for the year (which you would think it usually would if it’s going to be paying out a dividend), the dividend faces the highest effective tax rate. Furthermore, if the corporation didn't owe tax on the profits it used to pay out the dividend because the income was tax exempt interest on municipal bonds, the shareholder could have avoided tax altogether by just investing in tax exempt bonds directly.
So the tax code actually creates an artificial distortion against dividend income, not in favor of it. Interest payments are deductible in full by a corporation, while dividends are not; this creates a distortion in favor of debt and against equity. Some commentators say this leads to excessively high debt/equity ratios among American corporations. The taxation of both corporate income and dividends also creates a distortion in favor of corporate retention of earnings, since capital appreciation is not taxable until realized. And because income from corporations is subject to two levels of tax (the corporate level, and then the dividend or capital gains tax), the tax code creates a distortion in favor of partnerships, LLCs, and S-Corporations and against investment in traditional C-Corporations.
It’s interesting to note, though, that for all the howling about the burden of “double taxation,” the difference in tax burden is by no means in a 2:1 ratio; rather it is 44.75% / 35%, or 1.28:1. This is not “double” in terms of the actual tax bite. The use of the term always bugs me for that reason.
For what it’s worth, I personally think an ideal tax world would have no tax at the business entity level, and would simply allow each item of income to “flow through” to the individual owner(s). That said, I would subject such income to very high, progressive, and uniform rates of taxation – regardless of whether it is capital gain, a dividend, or interest, and regardless of whether the entity that paid it is a corporation or an LLC. This would eliminate arbitrary differences in effective tax rates. But since we live in a world that is very far from ideal, and since the corporate and dividend taxes are among the most progressive taxes in town (they only hit the people that own stock), I support the maintenance of both. The top 1% own something like 50% of the total value all outstanding corporate stock, so for now we should keep corporate and dividend taxes as high as possible if we value progressivity over economic purity (which of course I do). The only problem is that under current law we’re letting massive private equity and hedge fund partnerships totally off the hook by not requiring them to pay any entity level tax at all. If we’re going to stick to an entity level tax regime, this makes no sense.
And Vorms is totally right about the timing issue. Rich people do cash out capital gains en masse whenever rates are lowered. Sometimes right-wing economists use the increase in capital gains tax revenue immediately following a capital gains tax cut to support the idea that lower rates actually increase income. This is obviously ridiculous, because the increased revenue just reflects the fact that people have held off to cash out until the lower rates take effect.
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