This should go without saying

But indeed, it hasn't, since I've already said it, and no one has noticed. I am not fighting for the Bush tax cuts; I'm fighting the notion that people who are in favor of tax cuts are all a bunch of liars or loonie tunes. Politicians in favor of tax cuts are all liars, as are all the politicians against tax cuts; in politics, lying is, sadly, the stable equilibrium. But most politicians are not loons; and most of their economics advisors are sober and intelligent fellows.

Apart from the capital gains tax cuts, of which I am in favor and stand foursquare in favor of continuing, I don't particularly care about the tax cuts one way or another. Economically, I don't think they made much difference either way; socially, I think the contribution to increasing either income or consumption inequality will end up being trivial (since the rich will eventually pay whatever tax increases are necessary to pay off the relevant bonds); personally, I'd like to pay lower taxes; ideologically, I think the government spends to much money on things it shouldn't; but morally, I think that once we've voted for spending, we've already got the tax, and having created the tax, we ought to do the manly thing and pay it ourselves.

Overall, I'm mildly in favor of ratcheting back the Bush tax cuts, starting with the income breaks for the wealthiest brackets, until we hit budget balance. But on my list of policy priorities it's somewhere around "What shall we do about France?"

I expect that we will get a Democratic president in 2008, and (s)he will raise taxes, which will be fine, except (s)he will also play with the capital gains tax, which won't be fine, and will furthermore spend the money on programs I dislike, which won't be fine at all, instead of reducing our national debt or further closing the budget deficit or doing something about our future entitlement problems. And unless that president takes on something like a gas tax, or serious tax simplification, or (on the negative side) promises a zillion stupid tax credits, I will have about the same level of interest in their tax policy as I do in George Bush's, which is not overmuch. It's spending I care about.

Comments

Megan,

If you care about the spending, how do you restrain it? Democrats seem to have a winning political strategy: offer plenty of new spending, knowing that most of their voters won't have to pay for it, since they aren't net income tax payers. How do you beat this Santa Claus strategy politically?

Posted by Fred | September 6, 2007 6:38 PM

You wrote: "I'm fighting the notion that people who are in favor of tax cuts are all a bunch of liars or loonie tunes."

Thats great. But it should be noted that Chait, Yglesias, Ezra, and Nyhan were not arguing for that position.

Posted by Rickm | September 6, 2007 6:42 PM

It's going to be fun at TPM next week.

Posted by P O'Neill | September 6, 2007 6:54 PM

OK, now I'm confused. We are in an economic environment that is equivalent or superior on every measure to that which prevailed under the Clinton Administration, which we were told /ad nauseam/ by the media was The Greatest Economy of All Time.

We are experiencing this *despite* a mild downturn, post-dot-com, which was exacerbated by 9/11, and we've also considerably increased Government spending.

If Bush's tax cuts aren't what have produced the current favorable economic climate, what has?

Posted by David Hecht | September 6, 2007 6:55 PM

David Hecht,

You are absolutely right--you are confused.

Posted by Rickm | September 6, 2007 6:58 PM

David Hecht wrote: If Bush's tax cuts aren't what have produced the current favorable economic climate, what has?

How about recovery and stabilization of the economy, bumped slightly higher than normal by a small real-estate bubble?

If you ever look at a graph of the major economic indices from the late 1930s onward, the growth trend is pretty stable. There's the ocassional bubble and subsequent overcorrection, but these are generally minor hills and dips on a large mountain. The only exception is dot-com, which comprises an enormous bubble and a severe recession, the latter of which was starting to even out when 9/11 came and drove it much lower.

The present state of the economy is about where it would be if the tech bubble and recession had been much smaller or never hit at all. Meaning, neither Clinton's balanced budget using tech bubble tax revenues, nor Bush's tax cuts and deficit spending, have made any huge screaming differece in what the US economy is like today. Nor will any president's policies make a huge difference (4-8 years is a pretty short time horizon) unless s/he happens to be very special, and that kind of special is a death spiral.

Authoring the death and status quo of a giant economy are both easy; creating abnormal-but-sustainable growth is hard and almost never happens.

Posted by anony-mouse | September 6, 2007 7:10 PM

So your position is, politicians always lie, so the centrality of the "supply side" lie to the Republican politics of the last 25 years isn't worth discussing.

Posted by Bill | September 6, 2007 7:11 PM

Its mostly the spending I care about as well (at least until you get to the point where you have a large and/or sustained government surplus), but I'm still strongly against increasing taxes (and "rolling back the tax cuts" is increasing taxes).

The deficit is trending down. So a claim that we need new taxes or increased taxes because of the extra spending isn't correct IMO. You just need some restraint on future increases.

Raise taxes and I do believe the even better budget balance (possibly moving to surplus esp. if we pull out of Iraq and get rid of that spending, as the Dems would advocate), and you allow for more spending .

Whether you get a smaller deficit, a balanced budget or an actual surplus I think you will create more demand (or less resistance to the demand) for more spending, and in particular (and in my opinion particularly bad) new government programs. New things for the government to do are often worse than just a bit more spending on the old things because new programs create pressure for government spending to grow over time, and if they get initated because of surpluses they are not likely to get killed when we move back in to deficits. This is esp. true about any new entitlement programs.

I recognize that "starve the beast" doesn't work very well. Cut taxes and spending is still likely to grow. But I disagree with the idea that it doesn't work at all. Its just a smaller and slower effect than most of its supporters said it would be.

Posted by Tim Fowler | September 6, 2007 7:14 PM

anony-mouse: "If you ever look at a graph of the major economic indices from the late 1930s onward, the growth trend is pretty stable. There's the ocassional bubble and subsequent overcorrection, but these are generally minor hills and dips on a large mountain. The only exception is dot-com, which comprises an enormous bubble and a severe recession, the latter of which was starting to even out when 9/11 came and drove it much lower."

The 2001 recession wasn't "severe", and neither was the one a decade before it. The one a decade before that, however, was the worst since the Great Depression.

Posted by Bill Woods | September 6, 2007 7:28 PM

But indeed, it hasn't, since I've already said it, and no one has noticed. I am not fighting for the Bush tax cuts; I'm fighting the notion that people who are in favor of tax cuts are all a bunch of liars or loonie tunes

You're slipping into a fallacy of equivocation here, Megan. Chait's book and the subsequent discussion are not about tax cuts in general, they are about the specific tax policies of the Bush Administration and the Republican Party. There are, at times, sound economic arguments for specific tax cuts. There are, as I have repeatedly noted, no such arguments in favor of the specific policies of the Bush Administration.

Posted by Jestak | September 6, 2007 7:48 PM

Bill Woods wrote: The 2001 recession wasn't "severe", and neither was the one a decade before it.

By whose measure, I wonder?

"Severe" as compared to the overall trendline of the economy, possibly not; I haven't looked at that indice graph in a while. Severe by comparison of where we had been at the peak of the bubble, most definitely. The magnitude of the change is not an inconsequential variable, at least for the people experiencing it.

Posted by anony-mouse | September 6, 2007 7:49 PM

Fred produces a whopper:"Democrats seem to have a winning political strategy: offer plenty of new spending, knowing that most of their voters won't have to pay for it, since they aren't net income tax payers." Fred, do cite, please, anything that backs up your astonishing claim that most Democrats "aren't net income tax payers." Methinks you dreamed it up, or heard it on Rush Limbaugh, or read it on Instapundit. None of those things equal a fact though.

And this follows Megan's equally goofy, "We will get a Democratic president in 2008, and (s)he will raise taxes... instead of reducing our national debt or further closing the budget deficit." How soon the Bushies forget--or how easily they fall for propaganda. Clinton did plenty to close the deficit, and Bush has done nothing but let it balloon. What facts, or policy statements, or campaign press releases, can you point to, Megan, that back up your prediction? And, again, reading it on Instapundit doesn't count.

There was a day when The Atlantic produced thoughtful, well written material. That day has passed, sadly.

Posted by Charles Giacometti | September 6, 2007 7:56 PM

"Nor will any president's policies make a huge difference (4-8 years is a pretty short time horizon) unless s/he happens to be very special, and that kind of special is a death spiral."anony-mouse

Most of the time I agree with what anony-mouse writes, but not this time, not completely at any rate. I think Ronald Reagan's policies had a significant positive impact on the economy. Milton Friemdan explained why Reagan was so important in an interview:

INTERVIEWER: How important was President Reagan's support for Volcker's policies?

MILTON FRIEDMAN: Enormously important. There is no other president in the postwar period who would have stood by without trying to interfere, to intervene with the Federal Reserve. The situation was this: The only way you could get the inflation down was by having monetary contraction. There was no way you could do that without having a temporary recession. The great error in the earlier period had been that whenever there was a little contraction there was a tendency to expand the money supply rapidly in order to avoid unemployment. That stop-and-go policy was really what bedeviled the Fed during the '60s and '70s. That was the situation in 1980, in '81 in particular. After Reagan came into office, the Fed did step on the money supply, did hold down its growth, and that did lead to a recession. At that point every other president would have immediately come in and tried to get the Federal Reserve to expand. Reagan knew what was happening. He understood very well that the only way he could get inflation down was by accepting a temporary recession, and he supported Volcker and did not try to intervene. Now, you know, there is a myth that Reagan was somehow simpleminded and didn't understand these things. That's a bunch of nonsense. He understood this issue very well. And I know -- I can speak with, I think, authority on this -- that he realized what he was doing, and he knew very well that he was risking his political standing in order to achieve a basic economic objective. And, as you know, his poll ratings went way down in 1982, and then, when the inflation seemed to be broken enough, the Fed reversed policy, started to expand the money supply, the economy recovered, and along with it, Reagan's poll ratings went back up.

INTERVIEWER: And the economy has been pretty solid ever since. [As of the year 2000.]

MILTON FRIEDMAN: Yes, absolutely. There is no doubt in my mind that that action of Reagan, plus his emphasis on lowering tax rates, plus his emphasis on deregulating ... I mentioned that the regulations had doubled, the number of pages in the Federal Register had doubled, during the Nixon regime; they almost halved during the Reagan regime. So those actions of Reagan unleashed the basic constructive forces of the free market and from 1983 on, it's been almost entirely up.

Posted by Isocrates | September 6, 2007 7:57 PM

This comment deleted for trolling

Posted by Some guy | September 6, 2007 8:07 PM

Isocrates,

The threads move are moving too quickly for me to keep up, and thank you for responding.

But yes an earned income tax by definition excludes taxes on savings. Which I think means that you are conceeding the argument you had on the previous website, rather than claiming I am ignoring something.

Tom G

Posted by Tom G. | September 6, 2007 8:11 PM

Tom,

I disagre. An earned income tax taxes all earned income up front (both what goes to savings and what goes to consumption). And that is not equivalent to a consumption tax. An earned income tax that allows for unlimited deductions for savings taxes only that portion of earned income that is not saved--so that is really equivalent to a consumption tax.

Posted by Isocrates | September 6, 2007 8:29 PM

"OK, now I'm confused. We are in an economic environment that is equivalent or superior on every measure to that which prevailed under the Clinton Administration. . ."

Res Ipsa Loquitur.

(That's not in English, Megan. Maybe you can ask your nanny to translate. . .)

Posted by tydanosaurus | September 6, 2007 8:34 PM

"I will have about the same level of interest in their tax policy as I do in George Bush's, which is not overmuch. It's spending I care about."

Pretty much sums up the dilettantish foolishness of this post. Might as well add "And a pony" to this one.

It's nice that those taxes don't matter to you. I'm not going to bother going into all the many, many ways taxes kinda, ya know, matter to the less privileged. Less ignorant and more empathetic bloggers might look into it.

Posted by tydanosaurus | September 6, 2007 8:44 PM

Seeing that "progressive taxation" comes straight from the Communist Manifesto:

Here are the 10 measures the proletariat will use to bring about the full realization of the communist utopian dream, once they have the political power:

1. Abolition of property in land and application of all rents of land to public purposes.
2. A heavy progressive or graduated income tax.

from: http://www.lewrockwell.com/orig/keller5.html

Shouldn't we, rather, be wondering why that scheme is smack in the middle of our Economy?

Posted by Mark E Hoffer | September 6, 2007 8:48 PM

This comment deleted for profanity and trolling

Posted by Some guy | September 6, 2007 8:52 PM

This comment has been deleted for trolling

Posted by Some guy | September 6, 2007 9:04 PM

Some dude,

I'll give you clue: "From each according to his ability to Pay" -- Wasn't penned by Jefferson, nor Hamilton.

Posted by Mark E Hoffer | September 6, 2007 9:05 PM

Isocrates,

Thanks for clarifying. I misunderstood. We do still disagree.

Here's an example of my thinking. I earn $100 this year. With an earned income tax of 20%, I have $80 to spend over this year and the next. With a consumption tax of equivalent value, I have $100 to spend over this year and the next, but prices are $20 higher. How is my incentive to save impacted? Either way I have effectively $80 to spend over multiple periods.

Tom

Posted by Tom G. | September 6, 2007 9:21 PM

Fred said: "Democrats seem to have a winning political strategy: offer plenty of new spending, knowing that most of their voters won't have to pay for it..."

Statements like this are asinine, and one telling reason why Libertarians get heaps of ridicule and little respect: it's categorically, patently false.

Reagan increased government spending more than Carter; Clinton spent less than Reagan (balanced budget ring a bell?); Bush dramatically increased spending over Clinton. Government spending increases more under REpublican presidencies than Democratic ones.

Posted by scudbucket | September 6, 2007 9:24 PM

I'll give you clue: "From each according to his ability to Pay" -- Wasn't penned by Jefferson, nor Hamilton.

The original wording of this "ability to pay" principle was slightly different:

The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities

And you're correct, Mr. Hoffer, it wasn't written by Jefferson or Hamilton, but by Adam Smith in The Wealth of Nations (Book V, as I recall).

Posted by Jestak | September 6, 2007 9:40 PM

How is my incentive to save impacted?

Well, a consumption tax increases the incentive to save--since saving more allows you to avoid, or at least defer, the taxes. An earned income tax does not increase the incentive to save, since all earnings are taxed up front.

Also, your example seems to assume that all earnings are spent. It's true that if the saving rate is zero the earned income tax and the consumption tax are the same. But if some people save a high fracion of their income, they will be payine much lower taxes under a consumption tax than they would under an eaned income tax.

Incidentally, I think your numbers are slightly off. The ratios should be the same. So since 80/100 = 100/125, I think you mean that prices wil be $25 higher. But that is not very important.

Posted by Isocrates | September 6, 2007 9:42 PM

Well, Megan's wrong about some of the Democrats... many of them are rich demagogues. On the other hand, the working class types that the Democrats love to appeal to don't pay very many taxes.

Looking at the figures from 2004, the bottom 50% had an average tax rate of about 3% while the top 50% had an average tax rate of 13.5%. The top 10% pad almost 70% of the total Income Tax receipts.

Rich already pay the vast majority of the taxes. Poor people pay a very small amount.

EI

Posted by Earnest Iconoclast | September 6, 2007 9:44 PM

Shorter Megan: "Politicians lie. Everything is permitted."

Posted by Jeffrey Davis | September 6, 2007 9:49 PM

Jestak,

I hear you about A. Smith, though, Try this:
"From each according to his ability, to each according to his needs."-- Karl Marx

from:
http://chatna.com/author/marxkarl.htm

Posted by Mark E Hoffer | September 6, 2007 9:57 PM

"Everybody does it" is the most pathetic excuse in the book, and, notably, it's generally false.

Politicians in favor of tax cuts are all liars, as are all the politicians against tax cuts; in politics, lying is, sadly, the stable equilibrium. - McMegan

"I'm going to have to raise taxes. So will he. The difference is, he won't tell you about it. I just did." -- Walter Mondale

And it was true.

Reaganite supply-side economics introduced into American political discourse a level of brazen lying which had not before been attempted, certainly not in the post-war period. It's set the tone for Republican political discourse ever since.

Posted by brooksfoe | September 6, 2007 9:57 PM

Guess the author:
"The necessaries of life occasion the great expense of the poor. They find it difficult to get food, and the greater part of their little revenue is spent in getting it. The luxuries and vanities of life occasion the principal expense of the rich, and a magnificent house embellishes and sets off to the best advantage all the other luxuries and vanities which they possess. A tax upon house-rents, therefore, would in general fall heaviest upon the rich; and in this sort of inequality there would not, perhaps, be anything very unreasonable. It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion"

Posted by Dan S. | September 6, 2007 10:10 PM

Looking at the figures from 2004, the bottom 50% had an average tax rate of about 3% while the top 50% had an average tax rate of 13.5%. The top 10% pad almost 70% of the total Income Tax receipts.

Does "EI" stand for "economically illiterate"? The bottom 60% of US taxpayers had an effective tax rate of 8.4% in 2007. The "about 3%" figure you quote may refer to the bottom quintile of taxpayers -- that is, the bottom 20% -- who had an effective federal tax rate of 3.4% in 2007.

The top 10% of taxpayer pay most of the taxes because they have most of the money.

Posted by brooksfoe | September 6, 2007 10:17 PM

Dan, guess who wrote this:

"In the midst of all the exactions of government, capital has been silently and gradually accumulated by the private frugality and good conduct of individuals, by their universal, continual, and uninterrupted effort to better their own condition. It is this effort, protected by law and allowed by liberty to exert itself in the manner that is most advantageous, which has maintained the progress of England towards opulence and improvement in almost all former times...

"It is the highest impertinence and presumption, therefore, in kings and ministers, to pretend to watch over the economy of private people, and to restrain their expense... They are themselves always, and without any exception, the greatest spendthrifts in the society. Let them look well after their own expense, and they may safely trust private people with theirs. If their own extravagance does not ruin the state, that of their subjects never will."

and said this:

"Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice: all the rest being brought about by the natural course of things."

Posted by Isocrates | September 6, 2007 10:26 PM

I gotta give Megan credit: the comment threads prompted by her writing are definitely the most spirited of the Atlantic's Voices. No echo chamber here.

Posted by Jasper | September 6, 2007 11:13 PM

Dan S. y Isoc,

The results have been counted, thankfully, not by Diebold, and A. Smith took the nod on all three (maybe those dreaded 'spammers' are Responsible(?))

Posted by Mark E Hoffer | September 6, 2007 11:24 PM

Looking at the figures from 2004, the bottom 50% had an average tax rate of about 3% while the top 50% had an average tax rate of 13.5%. The top 10% pad almost 70% of the total Income Tax receipts.

Does "EI" stand for "economically illiterate"? The bottom 60% of US taxpayers had an effective tax rate of 8.4% in 2007. The "about 3%" figure you quote may refer to the bottom quintile of taxpayers -- that is, the bottom 20% -- who had an effective federal tax rate of 3.4% in 2007.

The top 10% of taxpayer pay most of the taxes because they have most of the money.

For 2005, the bottom 49.5% of households filing returns had a mean rate of 4.1% of AGI less deficit. Median was about 4.7%. The top 50.5% had a mean rate of 9.8% and median rate was about 8.6%. Top 10.6% paid 71.6% of total individual income taxes. Bottom 60% had mean rate of 4.6%, median of about 4.7%. Bottom 18.8% had mean rate of 2.7%, median about 2.9%.

Posted by Kwyjibo | September 6, 2007 11:45 PM

To elaborate on Isocrates' consumption tax observations: Indeed, savings will increase. But what is very interesting is how current income classes are likely to benefit by using a broader tax basis that captures past wealth, as well as current earned income. Witness (and this is taken from research on THE consumption plan that's gaining visibility - FairTax - by Prof.'s Kotlikoff and Rapson (10/06):

"...the FairTax imposes much lower average taxes on working-age households than does the current system. The FairTax broadens the tax base from what is now primarily a system of labor income taxation to a system that taxes, albeit indirectly, both labor income and existing wealth. By including existing wealth in the effective tax base, much of which is owned by rich and middle-class elderly households, the FairTax is able to tax labor income at a lower effective rate and, thereby, lower the average lifetime tax rates facing working-age Americans.

"Consider, as an example, a single household age 30 earning $50,000. The household’s average tax rate under the current system is 21.1 percent. It’s 13.5 percent under the FairTax. Since the FairTax would preserve the purchasing power of Social Security benefits and also provide a tax rebate, older low-income workers who will live primarily or exclusively on Social Security would be better off. As an example, the average remaining lifetime tax rate for an age 60 married couple with $20,000 of earnings falls from its current value of 7.2 percent to -11.0 percent under the FairTax. As another example, compare the current 24.0 percent remaining lifetime average tax rate of a married age 45 couple with $100,000 in earnings to the 14.7 percent rate that arises under the FairTax."

Elsewhere,

"...once one moves to generations postdating the baby boomers there are positive welfare gains for all income groups in each cohort. Under a 23 percent FairTax policy, the poorest members of the generation born in 1990 enjoy a 13.5 percent welfare gain. Their middle-class and rich contemporaries experience 5 and 2 percent welfare gains, respectively. The welfare gains are largest for future generations. Take the cohort born in 2030. The poorest members of this cohort enjoy a huge 26 percent improvement in their well-being. For middle class members of this birth group, there's a 12 percent welfare gain. And for the richest members of the group, the gain is 5 percent."

Note: The effective tax percentages that would be paid are calculated by crediting the monthly "prebate" (rebate of tax on necessities) against all likely spending that citizen families (sized 1-member, and greater) are likely to spend. (Dept. of HHS would serve as the basis upon which prebates would be calculated. A single person might receive ~$200/mo. A family of four might receive ~$500 - in addition to receiving their whole paycheck, that is to say, without Federal tax withholding. States tax withholding notwithstanding.)

Posted by Ian | September 6, 2007 11:51 PM

I don't want to be or appear to be patronizing, but I must say that my fellow liberals are too harsh on this young woman trying to find her voice. Give her a chance, people.

Posted by gregor | September 7, 2007 12:04 AM

"The "about 3%" figure you quote may refer to the bottom quintile of taxpayers -- that is, the bottom 20%"

Brooksfoe,

The bottom quintile of taxpayers actually have negative effective federal income tax rates (i.e., through grants such as the EITC, they receive more transfer payments from the federal government than they pay in taxes). The bottom 50% of tax payers collectively pay about 3.3% of federal income taxes.

Going back to my previous comment about most Democrats not being net federal income tax payers, consider those bottom two quintiles. Who's in them? What demographic gets the highest EITC payments? Unwed mothers, particularly those with more than one child. How do you think the party affiliation skews with this demo? Democrat, no? What ethnic groups tend to have the lowest incomes in this country? Blacks and Latinos, right? And we know how those groups skew in terms of party affiliation.

So it would seem pretty obvious that the majority of non-net income tax payers in the bottom two quintiles are Democrats. Do I need to connect the rest of the dots for everyone, or do you see who this leads to a majority of Dems not paying net federal income taxes?

Posted by Fred | September 7, 2007 12:07 AM

Fred, you are inventing this whole cloth. You have no real fact here. Find a real citation that says, conclusively, what you claim. Otherwise, you are just making it up.

Posted by Charles Giacometti | September 7, 2007 12:20 AM

And, by the way, a lot of the low income folks are likely retired, and who knows what their race or ethnicity or party affiliation is. But I am guessing, and so are you.

Posted by Charles Giacometti | September 7, 2007 12:25 AM

The 2004 and 2006 exit polls showed a clear, positive correlation between income and Republican vote. Also, Democrats had about a 20% lead in the bottom quintile in 2004 and about 30% in 2006. I didn't realize this is controversial.

Posted by Kwyjibo | September 7, 2007 12:38 AM

There was no difference in the presidential vote between over and under 65 in 2004. In 2006, over 65 was even and under 65 was +10 Dems.

Posted by Kwyjibo | September 7, 2007 12:45 AM

What's "controversial" is not the simple demographic of income level and party affiliation but Fred's further claim that net income is also closely tied to receiving certain government grants and also to party affiliation. He is trying to stitch a few facts together to support his assertion that, "Democrats seem to have a winning political strategy: offer plenty of new spending, knowing that most of their voters won't have to pay for it, since they aren't net income tax payers." Then he throws race and ethnicity into the mix as well. I am surprised he didn't further suggest they are right-handed or left-handed. Sorry, I am not buying it.

Besides, Democrats are not alone in offering new spending like "Santa Claus." Bush has driven spending higher and higher while cutting taxes. Who is Santa Claus in this case?

Posted by Charles Giacometti | September 7, 2007 12:52 AM

Exit polls can be checked for correlations between voting preference and income, race, and marital status. Census and ACS data can be checked for correlations between income, race, marital status, etc. One can induce from that. Is there a nationwide survey where people staple a census questionnaire to a 1040 and also say how they voted last time? I doubt it, if that's what you're looking for.

Posted by Kwyjibo | September 7, 2007 1:09 AM

"Can be checked." "One can induce from that." "Can be checked."

Or, as in Fred's case, he can simply invent the correlations out of thin air.

Sorry, not buying it.

Posted by Charles Giacometti | September 7, 2007 1:18 AM

OK Kwyjibo, enlighten me:

For 2005, the bottom 49.5% of households filing returns had a mean rate of 4.1% of AGI less deficit. Median was about 4.7%. The top 50.5% had a mean rate of 9.8% and median rate was about 8.6%.

Why are these figures dramatically different from what the CBO publishes as "effective federal income tax" rates? And why is it that every figure I've seen for taxes as a percentage of GDP is in the range of 18-20% (much like the federal budget), while these work out to, what, 6.9%?

The bottom 50% of tax payers collectively pay about 3.3% of federal income taxes.

That, obviously, means something completely different from saying that the bottom 50% of taxpayers had a tax RATE of 3.3%. Their tax rate could have been 20%, if their share of total income was small enough.

Posted by brooksfoe | September 7, 2007 1:23 AM

There is a lot of Conservatove disinformation being spewed in this thread. You guys love quoting taxes from income figures, anyone who knows anything about taxes knows that you need to include payroll taxes, which are regressive.

Posted by Eric K | September 7, 2007 1:30 AM

Charles,

"Fred, you are inventing this whole cloth. You have no real fact here."

Here are some facts for you. First, take a look at the last chart from this report from the Pew Research Center. Look at the party affiliations by various income groups. Those making less than $20k skew Democrat 43% to 18%; those making between $20k and $30k skew Dem 37 to 24; those making between $30k and $50k skew Dem 34 to 30. On the other hand, those making between $50k and $75k and those making more than $75k skew Republican by 35 to 29, and 39 to 28, respectively.

Next, according to Congressional Budget Office data (see the chart on p. 5 of this PDF), the bottom 40% of households don't pay any net federal income taxes (in fact, they have negative effective federal income tax rates). In 2004, the bottom 40% of earners were those making about $36k or less (also according to CBO data).

Now, taking into account the Pew Center data on party affiliation by income group and the CBO data, it appears that the 40% of households that pay no net federal income taxes skews heavily Democratic. It also appears that the top 60% of earners who do pay income taxes skews Republican.

For you to believe that my original statement (that most Dems don't pay net federal income taxes) was false, you would need to believe that the number of Democrats in the top three quintiles (where Republicans have the plurality) is greater than the number of Democrats in the bottom two quintiles (where Democrats have the plurality). The data, and common sense, suggest otherwise.

Posted by Fred | September 7, 2007 1:47 AM

Why are these figures dramatically different from what the CBO publishes as "effective federal income tax" rates? And why is it that every figure I've seen for taxes as a percentage of GDP is in the range of 18-20% (much like the federal budget), while these work out to, what, 6.9%?

They are quite in line with the CBO's effective federal income tax rates. Your 8.4% is the effective tax rate for all federal taxes. For individual income taxes, the CBO reports that it is actually -4.1% for the bottom 60%. I was looking at IRS statistics. You will also see from the OMB budget tables that individual income taxes are 8% of GDP. The total individual income tax rate is 13.6% of AGI less deficit.

Posted by Kwyjibo | September 7, 2007 1:48 AM

There is a lot of Conservatove disinformation being spewed in this thread. You guys love quoting taxes from income figures, anyone who knows anything about taxes knows that you need to include payroll taxes, which are regressive.

Why? I thought OASDI/HI are intertemporal insurance programs, or mandatory retirement and health saving schemes. If so, it makes sense to segregate them from income taxes. But if they are just redistributionary welfare schemes without any meaningful future liabilities, then yes, let's combine our rates.

Posted by Kwyjibo | September 7, 2007 1:51 AM

Another thing: if we decide to include a calculation of which government spending programs are likely, as a practical political matter, to actually be cut, we'd be looking at all the programs that disproportionately benefit the poor. We all know the defense budget won't be cut; too much of it goes to Boeing, Lockheed, GM and so on for that to happen. Agriculture subsidies will continue to be funneled to ADM. Highway funding will continue to flow to contractors. And so on.

What will be cut is federal educational funding, WIC, Medicaid...you know, all that stuff "we" just can't afford.

Posted by brooksfoe | September 7, 2007 1:52 AM

Eric K said

anyone who knows anything about taxes knows that you need to include payroll taxes, which are regressive.

Those are not taxes per se they are funding that persons future government retirement and medical benefits.

Posted by TJIT | September 7, 2007 1:52 AM

Note that the answer to this question should also, if you are consistent, determine if the federal debt is $8.5 trillion or $4.8 trillion.

Posted by Kwyjibo | September 7, 2007 1:53 AM

Brooksfoe:

"And why is it that every figure I've seen for taxes as a percentage of GDP is in the range of 18-20% (much like the federal budget), while these work out to, what, 6.9%?"

Because individual income taxes aren't the only taxes the federal government collects.

"That, obviously, means something completely different from saying that the bottom 50% of taxpayers had a tax RATE of 3.3%."

The effective federal income tax rates for the bottom three quintiles in 2004 (see page 5 of this CBO PDF) were -6.2%, -0.8%, and 2.9%, respectively.

Posted by Fred | September 7, 2007 1:56 AM

Eric K.,

"anyone who knows anything about taxes knows that you need to include payroll taxes, which are regressive."

My original comment was about new spending programs the Democrats can promise. Since payroll taxes are used to fund specific existing social insurance programs (e.g., Medicare and Social Security), they aren't available to pay for new spending programs. In fact, the current portion of the payroll tax designed to fund Medicare covers less than half the cost of it now.

Although payroll taxes are regressive, grants such as the EITC mitigate this. Also, the benefits from the programs these payroll taxes fund are progressive.

Posted by Fred | September 7, 2007 2:08 AM

the benefits from the programs these payroll taxes fund are progressive.

Not particularly, in the case of Social Security. The more you pay in, the more you get out.

On the other points, is the EITC the only reason why low-income taxpayers would have a negative tax rate?

Posted by brooksfoe | September 7, 2007 2:55 AM

Megs (as a fellow libertarian I can call you Megs, right?) didn't all of this arise in response to Chait's new book? I'm currently reading it (advance copy bought for eight bucks at Half-Price Books, natch). And I'm pretty darn sure that he's not saying that all conservatives are loony supply-siders. He makes a pretty strong exception for Mankiw, for example, and when describing what a sensible conservative approach would look like, he pretty much says the exact same thing you do above - that tax cuts do stimulate the economy, but not by much (especially when you're cutting income tax rates already below 40%), and that a prudent approach is to match it with spending cuts and hope it boosts tax revenue a little bit afterwards. That's me-paraphrasing-Chait, not me-paraphrasing-you - but it might as well be.

Now I know considering the venue you're probably getting disgruntled with all the ascerbic liberal commenters who are perfectly willing to lump thoughtful conservatives in with the loonies and the cynics. But you must admit that certainly from the outside-the-beltway perspective, there's very little voice for accessible and thoughtful conservative economic ideas out there. Supply-side is simple, it's sellable, it keeps the Norquists and the Murdochs of the world happy, and so the Republican pols and pundits have become addicted to it. Conservative insiders and policy advisers may know supply-side isn't sound policy, but they don't make the soundbites and they don't create demand from the party base. In the end they have had very little effect on the broad scope of Republican fiscal policy, which is clearly supply-side and has been for a long time now.

Sure, some conservative Senators gave some proper credit to the idea of spending cuts to match the Dubya tax breaks, but at the end of the day the Republican leadership simultaneously increased spending instead. There's no way a pre-Reagan Republican Congress would have ever done such a thing, because it's blatantly irresponsible. But for a supply-sider it's perfectly OK, and that's what Republicans have heftily delivered. Right? So why be so contentious about the idea that supply-side theories have been given waaaay too much credence by the "conservative" party? It's sad but true. Obviously true.

Oh, and that White House rationale for Dubya's tax cuts you linked to earlier? It doesn't address how the tax cuts would be paid for. Not once. Instead it goes on and on about how tax cuts are great and all. Well sure, and everyone likes ice cream and puppies too. But where's the spending cuts? No answer. That's a pretty wussy rationale by any ideological standard, right? And a typical level of concern with deficit spending that you'd associate with a supply-side mentality, no?

Posted by James Tanner | September 7, 2007 5:12 AM

Your longwinded post notwithstanding Fred, you are still inventing correlations out of thin air. That works with Rush Limbaugh listeners, but it doesn't work with me. I already noted that the simple demographics you stated are just that, but the connection you are trying to make--that certain Democrats, by virtue of representing the lower income brackets in greater numbers, means they are receiving more of the government programs you fret about it. Plus you threw in race and ethnicity with absolutely no basis. I mentioned one variable--age--that likely throws your whole assertion out the window.

Nothing you said backs your assertion. You may want to believe this, but you aren't proving it.

Besides, your man Bush is spending like a drunken sailor while cutting taxes. No one is feeling any pain from this yet--just the sort of "Santa Claus" approach you railed about. You see demons on the other side, but can't back up your assertion with real facts, and you ignore the behavior on your side. Again, worthy of Rush Limbaugh, but at the end of the day completely worthless in terms of real argumentation.

Posted by Charles Giacometti | September 7, 2007 8:01 AM

TJIT:

"Eric K said:

anyone who knows anything about taxes knows that you need to include payroll taxes, which are regressive."

You state: Those are not taxes per se they are funding that persons future government retirement and medical benefits.

You're kidding, Yes?

Those payroll taxes fund nothing but Current expenditures, they are nothing but massive inter-generational Transfers of wealth, a true "Pay-as-they-went" Schema.

Maybe we need to study/learn more abot the operations of our vaunted Government, before we get get all twisted around the axle of "Who's an evil Supply-Sider"..

Posted by MEH | September 7, 2007 8:29 AM

For those interested, a short article on the common fallacy shared by Adam Smith & Karl Marx

http://blog.mises.org/archives/007085.asp#comments

"Adam Smith and Karl Marx's basic and monumental (in consequences) error"

Posted by Mark E Hoffer | September 7, 2007 9:33 AM

Anony-mouse: I have to disagree that Presidents have little effect on the economy. I would agree that most Presidents have little *positive* effect. But I think it's clear that Presidents can gave a severe *negative* effect.

If you go back to the 1970s, it's perfectly clear that high inflation combined with high unemployment ("stagflation", as we called it) was a phenomenon produced by bad economic policies (primarily, a belief that the economy could be "fine-tuned" by a combination of fiscal and monetary policy). Now, admittedly, these policies were followed by pretty much every president from Lyndon Johnson through to Jimmy Carter, but that simply magnified the effects, it didn't change their direction.

ISTM that the most we can hope for is that Presidents and indeed Congress and the Fed will establish and maintain a stable and reasonably predictable macroeconomic environment.

But I guess my larger point was, if Presidential economic policies don't really affect anything, then presumably tax cuts are as good public policy as anything else, as they then can no longer be attacked as "bad for the economy".

Posted by David Hecht | September 7, 2007 10:38 AM

the 2001 recession was the mildest in recent history and for those of you who bother to check, did not even produce 2 consecutive quarters of negative GDP growth (the non-NBER measure of a recession)

Anony-mouse should get some historical perspective of what a severe recession looks like vs. the hiccups in 1991 and 2001-02 (If he has any capacity to be honest)

To Megan, don't be wimpy, yes I am more concerned about holding the line on sepnding at this point as well, but to reverse the Bush tax cuts would be an economic disaster especially as we are nearing what appears to be the end of a very strong expansion (2002-2007)

If tax cuts are repealed: Capital investment would fall, the value of dividend paying stocks would fall, and the returns on investment would simply decline. Not a good way to grow the economy, unless you follow the lib/left view that the government should simply hire people or spend more on "social" programs

Posted by Jozef | September 7, 2007 10:57 AM

The idea that Presidents have little effect on the economy is similar to the response that Congress is bad: people rarely mean THEIR Congressman is bad. It's those other guys. The people who talk down, say, Clinton's influence, will boost Reagan's. The ones who talk down both only do it in "mixed company". Among friendly listeners, for example, Reagan-worship is unsettling. Whose ox and all that.

Posted by Jeffrey Davis | September 7, 2007 11:00 AM

anyone who knows anything about taxes knows that you need to include payroll taxes, which are regressive.

Well, no, not in this context. Nobody's proposing an increase in payroll tax rates. The proposal is to increase or remove the cap on income subject to Social Security taxes. And with income taxes, it's pretty much a given that any increase is going to be confined to the upper brackets. No one's talking about rolling back child tax credits or the 33% reduction in the rate for the lowest tax bracket.

The bottom line is that, regardless of who pays what now, any tax increases will be borne almost exclusively by those making more than $50-75k--a demographic that leans heavily Republican.

But, for the record, here's the CBO on effective federal tax rates, including payroll taxes.

Posted by Brandon Berg | September 7, 2007 11:08 AM

The CBO answers the question "Is Social Security Progressive" with a yes:

"For people with lower than average earnings, the
ratio of the lifetime benefits they receive from Social Security to the lifetime payroll taxes they pay for the program is higher than it is for people with higher average earnings. In that sense, the Social Security system is progressive.

For people in the bottom fifth of the earnings distribution, the ratio of benefits to taxes
is almost three times as high as it is for those in the top fifth.The benefits paid to retired workers, which account for about three-quarters of total benefits, are also progressive, but less progressive than Social Security benefits overall. The Social Security benefit formula is designed to provide beneficiaries who had lower life-time earnings with monthly benefits that are higher, as a percentage of their lifetime average earnings, than those received by higher-earning beneficiaries. That progressivity in the benefit formula is only partly offset by the fact that higher-earning individuals tend to live longer and thus collect benefits longer."

I tried to calculate an IRR from my statement of benefits, and it came out negative unless I lived past 90 or so. I'd have to make 110 to get the risk-free rate. Partly offset indeed.

The above analysis doesn't even take into effect the progressive taxing of social security benefits when received.

Posted by "Mindles H. Dreck" | September 7, 2007 11:23 AM

Charles Giacometti,

You complained that I didn't cite facts, so I provided you with relevant data from the CBO and the Pew Research Center, and I explained why these data suggest that the majority of Democrats are not net income tax payers. Rather than challenge or refute any of these facts, you toss around Rush Limbaugh's name and bring up non-sequiturs. Moving on...

Brandon Berg,

I've posted that CBO link two or three times already on this thread. Don't expect the lefties here to click on it. The reality that our federal income tax system is already so highly progressive that the lowest two quintiles have negative effective federal income tax rates seems to disturb some of them.

Posted by Fred | September 7, 2007 11:27 AM

It's is also a lie that tax cuts don't pay for themselves.

So long as a tax cut results in an increase in growth, at some point revenue will increase beyond what it would have been and eventually also eventually cover previous lost revenue.

Posted by aaron | September 7, 2007 1:07 PM

At 3% GDP growth, if taxes are reduced from 28% to 26% results in .25% additional growth, after 30 years the fed begins taking in more money than at 28%.

Posted by aaron | September 7, 2007 1:30 PM

On the Fairtax, there's one small issue with the idea of "effective tax rates": they're calculated post-Fairtax as if you're going to be receiving your full pre-income tax check. You won't be - chances are you're going to be receiving something far closer to your old post-tax check (the simplest way to explain it is that current salaries are drawn up with taxes in mind, and are input that contribute to the costs of a product; if the Fairtax is to remain revenue and price-neutral, as its authors promise, you can't keep paying the full salaries you were before and embedding a promised 30% tax).

So, if you earn $40,000 a year and take home $28,000, you're now going to be taking home $28,000 still. The Fairtax only works if it's a literal one-for-one replacement of everything (it won't, because it proposes to also replace numerous fees and taxes that have nothing to do with income, whether business or personal).

It's an awful idea, and that's just one of the many reasons why.

Posted by Starscream | September 7, 2007 1:36 PM

And the nation is 8% wealthier.

Posted by aaron | September 7, 2007 1:38 PM

"Politicians in favor of tax cuts are all liars, as are all the politicians against tax cuts; in politics, lying is, sadly, the stable equilibrium."

Are the politicians against tax cuts liars? I'm sure they lie about some things, but are they lying about tax cuts? What I hear from them is that they want rich people to pay more taxes, and poor people to pay the same. They say this will reduce the deficit. Is that not true? Are they saying more than this?

Posted by Njorl | September 7, 2007 1:57 PM

It's is also a lie that tax cuts don't pay for themselves.

So long as a tax cut results in an increase in growth, at some point revenue will increase beyond what it would have been and eventually also eventually cover previous lost revenue.

Aaron, this is true only if tax cuts result in a permanent increase in the long-term rate of economic growth. And they don't.

Posted by Jestak | September 7, 2007 2:03 PM

Jestak,
For some reason italics tags only do one paragraph. When italicizing multiple paragraphs you might want to use "preview" and fiddle withthe tags until you get what you want.

"Aaron, this is true only if tax cuts result in a permanent increase in the long-term rate of economic growth. And they don't."

In addition, the growth must compensate for the interest on the difference in revenue. In the case of a nation in debt, which we will be for the forseeable future, government indifference to debt can actually deter growth.

During Clinton's term, tax increases may very well have resulted in enhanced growth. It may seem irrational, but one must remember that 10-20% of the electorate cast completely irrational votes for Perot for president based on his hype about the deficit. Whether it was real or not, millions of people heard a giant sucking sound.

Posted by Njorl | September 7, 2007 2:23 PM

Jestak, no, it is still true, but the time horizon is longer.

Posted by aaron | September 7, 2007 2:28 PM

They don't? So sure?

If that's the case, you can simply increase the taxes once the growth rate has regressed to the mean (or its equilibrium or steady-state growth rate may be more accurate) and recoup the missed revenues even sooner, as raising taxes there will not harm the growth rate. I seriously doubt that's true though, the increase in growth is likely permanent, just not as large as the initial stimulous.

Posted by aaron | September 7, 2007 2:42 PM

the increase in growth is likely permanent,

A cure for future recessions!

Posted by Jeffrey Davis | September 7, 2007 2:50 PM

Interest is in the budget. We pay it for the most part.

Barring a recession or significant slow down(admittedly likely), we'll be seeing a surplus by 2009.

I believe the interest rate is also lower than GDP growth, so it's a non-issue.

You assume the less revenue means more deficit. No need for that to be true.

Posted by aaron | September 7, 2007 2:51 PM

Jeff, very cute!

Unfortunately a general increase in growth doesn't mean we get rid of variance.

Sigh.

Posted by aaron | September 7, 2007 2:53 PM

I show Fred specifically that his facts do not back up his assertion. His response? "You asked for facts so I gave you facts." Nope. I asked for a real correlation between a few facts and the wild assertion he started the thread with.

Then he snivels that I have brought up Rush Limbaugh's name, claims to have won the argument, and "moves on." This is precisely what a dittohead Rush listener does. All bluster, no real rationale, and then changes the subject.

It's pathetic that The Atlantic Monthly would host a forum where such rhetoric is accepted. As I said in another thread, raise your game, brother. The Bushies here don't know how to make a real argument.

Posted by Charles Giacometti | September 7, 2007 3:17 PM

Charles, you falsely accused me of being a dittohead and Bushie in that other thread. Accusing your opponents of being a dittohead or telling them to grow up is not a valid argument. You make a lot of assertions that you claim are facts but you have not proven your point as well as you think you have.

You need to raise your own game above the ad hominems and stick to the facts.

EI

Posted by Earnest Iconoclast | September 7, 2007 5:53 PM