I think Digby and others have properly identified the biggest problem with the deal Obama and the Repukes worked out to extend UI and prevent the Bush tax increases. The rest of it is awful as well, but I think progressives would accept the package - with plenty of grumbling, to be sure - if it didn't pose a danger to Social Security. But there is no reason to think that the economy will be doing significantly better in 13 months, or that Democratic politicians will be any more competent at messaging and negotiating. So the 2pp payroll tax cut will be extended in January 2012. And again in 2013. And again, until people realize that it's permanent, and SS benefits will have to be cut, or means-tested. Either way, Republicans end up making a huge step towards their goal of ending Social Security.
On top of that prize, Republicans also got a good deal on the estate tax, plus an extension of the separate and much lower income tax rate on dividends and capital gains. In return, Obama got money to extend unemployment insurance benefit eligibility to 99 weeks, and a slew of small-bore tax cuts of dubious value. Taken together, the stimulus value is lousy, though it's still better than nothing at all. But, to me, the long-term danger to Social Security doesn't seem worth the gains. Yes, that's easy for me to say, because I'm not on UI. However, Social Security has been the cornerstone of the United States rather weak safety net for decades. Undermining it is a line that should not be crossed. That's why I think Democrats should reject this deal despite the repercussions and harm that will result.
Update 2010/12/18: This is the clearest statement of the deal's problems that I've seen.
Tuesday, December 7, 2010
Sunday, December 5, 2010
There Has Never Been a Better Time to Soak the Rich
A total of six deficit reduction plans have now been released (1, 2, 3, 4, 5, 1a) to varying amounts of fanfare - high for the conservative plans and low for the liberal plans, naturally. I might have something to say about them later, but right now I want to examine income tax rates a bit.
The most important concept to know with respect to the US income tax system is that it uses marginal rates. That is to say, only the portion of income higher than the bracket cutoff gets taxed at the higher rate. An example will illustrate the slightly confusing language. Imagine a system where there are two income brackets, one from $1 to $50,000 and another from $50,001 to infinity. The rates are 20% and 50% respectively. If person A earns $40,000, their tax bill at the end of the year would be $8,000 ($40,000 * 0.2). If person B earns $80,000, that tax bill would be $25,000 ($50,000 * 0.2 + $30,000 * 0.5). Person B's tax bill would not be $40,000 ($80,000 * 0.5). Most discussions about tax rates and brackets make it sound like person B would have to pay the higher amount. (I'm guilty of this, too, though I've tried to keep the language correct in this post.) For instance, the current discussion about preventing the Bush tax increases on people earning more than $250,000 gives the impression that if they increases aren't prevented, high earners would face higher taxes on their entire earnings. That's not true; the tax on the first $250,000 would stay at the old lower rates. Only the portion of income above $250,000 would be subject to a higher rate.
There are a couple of reasons why a tax system with brackets and increasing rates, which is called a progressive income tax, is used. The first is that the marginal utility of income declines as it goes up. Another way of putting that is the first dollar a person earns is more important than the last dollar. Some more examples to illustrate. A person making $10,000 per year needs just about every penny to get by. Food alone would use up about a quarter of that amount. Housing would use almost all of the rest, leaving very little for even dining out, let alone a vacation. A person making $100,000 per year would still have plenty to spend with if the government took 30%. That person could afford to spend $30,000 on housing, $10,000 utilities, $10,000 on transportation, leaving them with $20,000 to spend on non-necessary items or save. A person making $1,000,000 would still have a tremendous amount to spend even if the government took half. That person might want to have more to spend in order to impress their peer group, but in no way would they need it. They would probably end up saving at least half. The second reason for a progressive income tax is that people who earn more benefit more from the current system, and have a lot more to lose if breaks down.
Enough of that. Time to geek out with some numbers.
As you can see from this chart, the top marginal rate rose substantially once FDR took office, but the bottom of the top bracket also rose to a very high amount in constant 2005 dollars. The cutoff for the bracket was then reduce dramatically once World War II spending ramped up in 1942.
In the postwar era, both the top rate and the cutoff drifted down and then bottomed out in the late 1980s. That happened despite - many argue it partially caused - a very substantial change in income shares. Both the near-rich - call them the upper middle-class or the working wealthy - and the rich received larger portions of the nation's total income. But it was the rich - the top 1% that people talk about - who captured most of the nation's increased income.
This is yet another of my confusing charts. I tried to show both marginal rates and cutoffs for all brackets, but the rates are hard to see. Note that the dollar amounts are for married couples filing jointly. 2010 isn't included because the CPI factor isn't available yet.
Here's the same chart using constant dollars. The brackets have been essentially level since the late 1980s.
The charts lead me to several questions:
One way of going about it would be to set the cutoffs according to income percentiles - 10% for the bottom 10% of the population, 15% for the next 30% of the population, etc. Unfortunately, I can't do that well because the data from the Census doesn't break down the top quintile into sufficiently fine divisions.* The bottom of the 95th percentile was $180,000 in 2009, which is lower than the current top bracket. Without knowing what the top 2%, 1%, 0.1%, and 0.01% are making I can't confidently configure the top bracket and rate.**
Another way of setting the brackets would be to tie them to the minimum wage. An advantage of this method would be that dollar amounts are more readily comprehensible than a set of percentiles. Using this method, brackets could be set at 3 times, 7 times, 500 times, etc., the gross annual earnings of somebody who works full time the minimum wage. That amount is currently $15,080 (2080 hours at $7.25). The method also doesn't require inaccessible data.
I chose to set the brackets at 1, 3, 5, 10, 20, 100, 1000, and 5000 times the minimum wage. To the left is a copy of the first chart with my proposal tacked onto the end. Both the top rate and bracket would go back to levels similar to those in the 1930s.
The new brackets completely screw up the second chart, but it still illustrates just how high the new upper brackets would start.
Here's the same chart using a logarithmic scale. The bottom bracket, which starts at $0, is not shown so the upper brackets would be spread out more.
So, as you can see, there is a good case for raising the taxes for the rich substantially. The current top rate is low compared to the rates in force from the 1940s though the 1970s. The bottom of the bracket has gone down in real terms to the point that many people that are very well-off, but are still salaried employees and go to work on a daily basis, are taxed at the same rate as bankers and traders. That makes no sense. But most the most important reason for raising taxes on the rich is that average Americans just can't afford to pay more.
Postscript: While writing this post I came across this chart via BI which
shows all of the rates and brackets better than the third chart above.
* I know that several people have reconstructed the highest percentiles, but I haven't looked at their data recently.
** I realize I'm flipping between household income and the brackets for married couples filing jointly, as well as gross income and adjusted gross income. The items don't line up nicely, and precise numbers aren't the point of this post.
The most important concept to know with respect to the US income tax system is that it uses marginal rates. That is to say, only the portion of income higher than the bracket cutoff gets taxed at the higher rate. An example will illustrate the slightly confusing language. Imagine a system where there are two income brackets, one from $1 to $50,000 and another from $50,001 to infinity. The rates are 20% and 50% respectively. If person A earns $40,000, their tax bill at the end of the year would be $8,000 ($40,000 * 0.2). If person B earns $80,000, that tax bill would be $25,000 ($50,000 * 0.2 + $30,000 * 0.5). Person B's tax bill would not be $40,000 ($80,000 * 0.5). Most discussions about tax rates and brackets make it sound like person B would have to pay the higher amount. (I'm guilty of this, too, though I've tried to keep the language correct in this post.) For instance, the current discussion about preventing the Bush tax increases on people earning more than $250,000 gives the impression that if they increases aren't prevented, high earners would face higher taxes on their entire earnings. That's not true; the tax on the first $250,000 would stay at the old lower rates. Only the portion of income above $250,000 would be subject to a higher rate.
There are a couple of reasons why a tax system with brackets and increasing rates, which is called a progressive income tax, is used. The first is that the marginal utility of income declines as it goes up. Another way of putting that is the first dollar a person earns is more important than the last dollar. Some more examples to illustrate. A person making $10,000 per year needs just about every penny to get by. Food alone would use up about a quarter of that amount. Housing would use almost all of the rest, leaving very little for even dining out, let alone a vacation. A person making $100,000 per year would still have plenty to spend with if the government took 30%. That person could afford to spend $30,000 on housing, $10,000 utilities, $10,000 on transportation, leaving them with $20,000 to spend on non-necessary items or save. A person making $1,000,000 would still have a tremendous amount to spend even if the government took half. That person might want to have more to spend in order to impress their peer group, but in no way would they need it. They would probably end up saving at least half. The second reason for a progressive income tax is that people who earn more benefit more from the current system, and have a lot more to lose if breaks down.
Enough of that. Time to geek out with some numbers.
- How are bracket cutoffs set?
- How are rates set?
- Why is everybody who earns above ~$350,000 treated the same?
One way of going about it would be to set the cutoffs according to income percentiles - 10% for the bottom 10% of the population, 15% for the next 30% of the population, etc. Unfortunately, I can't do that well because the data from the Census doesn't break down the top quintile into sufficiently fine divisions.* The bottom of the 95th percentile was $180,000 in 2009, which is lower than the current top bracket. Without knowing what the top 2%, 1%, 0.1%, and 0.01% are making I can't confidently configure the top bracket and rate.**
Another way of setting the brackets would be to tie them to the minimum wage. An advantage of this method would be that dollar amounts are more readily comprehensible than a set of percentiles. Using this method, brackets could be set at 3 times, 7 times, 500 times, etc., the gross annual earnings of somebody who works full time the minimum wage. That amount is currently $15,080 (2080 hours at $7.25). The method also doesn't require inaccessible data.
* I know that several people have reconstructed the highest percentiles, but I haven't looked at their data recently.
** I realize I'm flipping between household income and the brackets for married couples filing jointly, as well as gross income and adjusted gross income. The items don't line up nicely, and precise numbers aren't the point of this post.
Monday, November 29, 2010
Premature Capitulation
Obama really needs to get some desensitizing lotion or learn to think about last night's box scores whenever the concept of pleasing Republicans pops into his mind. The proposal to freeze government workers' pay would save about $2 billion in FY2011, which represents about 0.18% of the projected deficit. And Obama made the offer out of the blue, not at the negotiating table where the other side might offer something in return. It was a moronic move.
ETA: As multiple commenters at BJ point out, the worst aspect of this proposal is what it does to the narrative. Instead of talking about jobs, we're talking about budget deficits. And instead of talking about defense spending or health care spending, we're talking about the pay of those evil commie government workers. Which, in the scheme of things, just doesn't matter that much, because total civilian wages and salaries add up to about $250 billion. Not paying federal workers at all for a year would cover only about 1/4 of the projected FY2011 deficit.
ETAA: DDay makes a good point about the cost of ethanol subsidies vs. the pay freeze.
ETA: As multiple commenters at BJ point out, the worst aspect of this proposal is what it does to the narrative. Instead of talking about jobs, we're talking about budget deficits. And instead of talking about defense spending or health care spending, we're talking about the pay of those evil commie government workers. Which, in the scheme of things, just doesn't matter that much, because total civilian wages and salaries add up to about $250 billion. Not paying federal workers at all for a year would cover only about 1/4 of the projected FY2011 deficit.
ETAA: DDay makes a good point about the cost of ethanol subsidies vs. the pay freeze.
Sunday, November 28, 2010
Flat-out Sucking
While the heyday of making fun of Tom "Suck on this" Friedman has come and gone, the good friend of deeply insightful cabbies around the world still holds forth undaunted from his perch at Speakers Corner on the New York Times Op-Ed page. In this week's effort, he flogs the dead horse of flatness once again in a column that could really do without it. He also works in a lament to lost high-wage industrial jobs, and spices it up with a reference to kids texting. But the main tactic of the column is to stir parental fears using some almost nativist rhetoric. The yellow menace is coming for your kids' jobs! The HindoChiComs are going to drink their milkshakes! Run for your lives PTA board!
Please. Stoking fears about how Our Children Are Falling Behind dates back at least to the 60s, when we the Soviets were going to bury us, and also had another heyday in the 80s, when the Japanese were going to buy us. In neither case was it true. On the other hand, it is true that the students in a lot of countries are catching up to American children. That shouldn't be a cause for alarm. The U.S. became a mature industrial society long before most other countries, and as other countries become wealthier, it's entirely natural for their children to become better educated. This isn't to say that the U.S. education system doesn't have problems, but many other issues are more important right now.
The column is annoying for a number of reasons beyond tired cliches and fear-mongering. Friedman blithely calls for more resources from the "U.S.G." Of course, one of the reasons we can't easily allocate more resources is that we wasted hundreds o f billions on a unnecessary war that he backed to the hilt. He also fails to mention precisely where the expanded resources for eduction should come from. Should taxes be raised? Spending cut in other areas? It's terribly easy to say the government should Do Something Now, but in the current politi-cultural climate Americans aren't even willing to pay for the government services they already receive. So it's very unlikely that the federal government will provide more. Friedman also calls for more resources from parents, which is easy for a very wealthy writer that doesn't have fixed hours or a 40 minute commute to say. Most of the country doesn't live in an upper class suburb, and Friedman doesn't seem to be able to imagine what the lives of the poor are like in America.
Friedman asserts that a "triple whammy" of globalization, job outsourcing, and falling education outcomes "is one of the main reasons that middle-class wages have been stagnating." Those issues have something to do with it, though they actually affect the blue-collar middle-class much more than the white-collar middle-class. But another, arguably more important reason median wages have been basically flat for a couple of decades is that most of the economic gains are going to the top 10%, and especially the top 1%. Friedman makes no mention of this trend, which is odd because reports about it are regularly in the news. Here's one article on the topic from some organization that calls itself the NY Times. And another. The normally execrable Slate produced an excellent series on inequality back in September. A little searching would certainly locate dozens more.
There's more to dislike about the column, but it's somewhat pointless to carry on because there doesn't seem to be any kind of accountability for pundits once they reach a certain level. The NY Times isn't going to fire him, and Friedman is either unaware of his colossal lameness or immune to criticism. The best thing for everyone to do is to make sure your friends and family don't read him.
Update 2010/12/13: It seems the great unwashed masses have a better grasp of the problems with the schools system than an overpaid pundit. Surprise - not.
Please. Stoking fears about how Our Children Are Falling Behind dates back at least to the 60s, when we the Soviets were going to bury us, and also had another heyday in the 80s, when the Japanese were going to buy us. In neither case was it true. On the other hand, it is true that the students in a lot of countries are catching up to American children. That shouldn't be a cause for alarm. The U.S. became a mature industrial society long before most other countries, and as other countries become wealthier, it's entirely natural for their children to become better educated. This isn't to say that the U.S. education system doesn't have problems, but many other issues are more important right now.
The column is annoying for a number of reasons beyond tired cliches and fear-mongering. Friedman blithely calls for more resources from the "U.S.G." Of course, one of the reasons we can't easily allocate more resources is that we wasted hundreds o f billions on a unnecessary war that he backed to the hilt. He also fails to mention precisely where the expanded resources for eduction should come from. Should taxes be raised? Spending cut in other areas? It's terribly easy to say the government should Do Something Now, but in the current politi-cultural climate Americans aren't even willing to pay for the government services they already receive. So it's very unlikely that the federal government will provide more. Friedman also calls for more resources from parents, which is easy for a very wealthy writer that doesn't have fixed hours or a 40 minute commute to say. Most of the country doesn't live in an upper class suburb, and Friedman doesn't seem to be able to imagine what the lives of the poor are like in America.
Friedman asserts that a "triple whammy" of globalization, job outsourcing, and falling education outcomes "is one of the main reasons that middle-class wages have been stagnating." Those issues have something to do with it, though they actually affect the blue-collar middle-class much more than the white-collar middle-class. But another, arguably more important reason median wages have been basically flat for a couple of decades is that most of the economic gains are going to the top 10%, and especially the top 1%. Friedman makes no mention of this trend, which is odd because reports about it are regularly in the news. Here's one article on the topic from some organization that calls itself the NY Times. And another. The normally execrable Slate produced an excellent series on inequality back in September. A little searching would certainly locate dozens more.
There's more to dislike about the column, but it's somewhat pointless to carry on because there doesn't seem to be any kind of accountability for pundits once they reach a certain level. The NY Times isn't going to fire him, and Friedman is either unaware of his colossal lameness or immune to criticism. The best thing for everyone to do is to make sure your friends and family don't read him.
Update 2010/12/13: It seems the great unwashed masses have a better grasp of the problems with the schools system than an overpaid pundit. Surprise - not.
Monday, November 22, 2010
Can't Fight the Seether
A few months ago Kevin Drum, currently my number three blog read, turned noticeably more grumpy. But it turns out he's more than grumpy; he's positively seething. And we all should be, because 10% unemployment (17% using the broad measure) is a crisis. High long-term unemployment wastes human capital and contributes to government budget problems at all levels. Conservatives would have you believe that deficits are the cause of the current economic problems, but it's just not true. Some conservatives are positively giddy over the prospect of forcing through cuts in Social Security if the Republican-created crisis continues. The country's situation has some columnists sounding like pesky bloggers.
But what is to be done other than raise the shrillness to ear-piercing levels? Republicans are in control of the House, conservatives (Republicans plus the likes of Landrieu and Nelson) are in control of the Senate, and Obama's team seems to be in the last stages of wagon-circling. The media environment remains as hostile to reality as it has ever been. And single-issue groups are still stuck on their signature issues.
I think there are two ways forward for progressives. One is to wait until Republicans fuck up, which they will eventually. The primary problem with that approach is that the Republicans could inflict terrible damage on the country and the globe before American voters get off their asses and vote them out. I don't think we can afford to suffer through a repeat of the Bush years.
The other approach is to double down on organizing and get-out-the-vote operations. With no remedies to the Citizens United decision likely in the near future, Democratic politicians will be drowned out on the airwaves during the 2012 cycle. The lack of disclosure requirements means corporations and other large donors have no reason to hedge their bets by contributing to some Democrats. All of the money will go to supporting Republicans (specifically, to tearing down Democrats). Progressives have no option but to switch all of their attention to grassroots organizing.
I'll have more on the specifics in a future post.
But what is to be done other than raise the shrillness to ear-piercing levels? Republicans are in control of the House, conservatives (Republicans plus the likes of Landrieu and Nelson) are in control of the Senate, and Obama's team seems to be in the last stages of wagon-circling. The media environment remains as hostile to reality as it has ever been. And single-issue groups are still stuck on their signature issues.
I think there are two ways forward for progressives. One is to wait until Republicans fuck up, which they will eventually. The primary problem with that approach is that the Republicans could inflict terrible damage on the country and the globe before American voters get off their asses and vote them out. I don't think we can afford to suffer through a repeat of the Bush years.
The other approach is to double down on organizing and get-out-the-vote operations. With no remedies to the Citizens United decision likely in the near future, Democratic politicians will be drowned out on the airwaves during the 2012 cycle. The lack of disclosure requirements means corporations and other large donors have no reason to hedge their bets by contributing to some Democrats. All of the money will go to supporting Republicans (specifically, to tearing down Democrats). Progressives have no option but to switch all of their attention to grassroots organizing.
I'll have more on the specifics in a future post.
Monday, November 15, 2010
Misoverinterpretation
In the middle of this vague but slightly encouraging report about ending the filibuster at the beginning of the next Congress, I found this quote from Amy Klobuchar:
But I want to comment on the first of the three, the message of "bipartisanship." It's something the DC-based chattering classes talk about a lot more than the population at large. In the context of the SCLM, it basically means Democrats should shut up and accede to whatever Republicans demand. When "the people" say it, I think they mean something entirely different. In that case, bipartisanship means, "I want the noise to stop and technocrats to implement policies I like." People don't want to have to wade through the claims and counterclaims to figure out what is really going on. It's work. Hard work, in fact, because so many in the media are either stenographers or charlatans. And the work is not done once the truth is discovered. Politicians need to be called, advocacy groups joined, donations made, letters written, etc., etc. All that takes time - time people either don't have or would rather spend watching re-runs of Hogan's Heros. Essentially, indicating a desire for bipartisanship is the adult equivalent of a kid sticking his fingers in his ears and saying "La la la la la" really loud.
The people of this country want more bipartisanship. They want the government to run better. They want us to help the private sector create jobs. That was the message out of the election, and we'd better heed it.Putting words in the mouth of "the people" is a standard rhetorical trick that bugs me because the words so rarely reflect anything like what "the people" are be saying. For this election, the polls I've seen indicate the people were sending only the third of the three messages in Klobuchar's list.
But I want to comment on the first of the three, the message of "bipartisanship." It's something the DC-based chattering classes talk about a lot more than the population at large. In the context of the SCLM, it basically means Democrats should shut up and accede to whatever Republicans demand. When "the people" say it, I think they mean something entirely different. In that case, bipartisanship means, "I want the noise to stop and technocrats to implement policies I like." People don't want to have to wade through the claims and counterclaims to figure out what is really going on. It's work. Hard work, in fact, because so many in the media are either stenographers or charlatans. And the work is not done once the truth is discovered. Politicians need to be called, advocacy groups joined, donations made, letters written, etc., etc. All that takes time - time people either don't have or would rather spend watching re-runs of Hogan's Heros. Essentially, indicating a desire for bipartisanship is the adult equivalent of a kid sticking his fingers in his ears and saying "La la la la la" really loud.
Sunday, November 14, 2010
It's All Fun and Games Until Somebody's Taxes Get Hiked
Via several blogs, I've come across this interactive graphic entitled "Budget Puzzle" from the NYT. It's somewhat buggy (sometimes allowing both mutually exclusive items to be selected) but it is also much more comprehensible than the other budget calculators I've played with. Most others only give results for the next year, but the NYT version shows results at two different points in the future, which is much more useful. My solution used early withdrawals from our land wars in Asia, efforts to slow the growth rate of medical expenses, an end to the giant tax holiday the rich have enjoyed over the past 7-9 years, and new taxes on carbon and the banksters.
ETA: Klein has links to some other budget calculators.
ETA: Klein has links to some other budget calculators.
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