Monday, 6 December 2010

Poor Americans

This chart shows how lobbyists working for business and the rich have screwed ordinary Americans over the last half-century. Funny how no-one over there seems to notice.

Has anyone got the same chart for the UK?


Hey Skipper said...

Who pays business taxes?

What portion of federal taxes to the top 5% of income earners pay?

Gaw said...

Those questions may have been just as relevant sixty years ago. But whatever the answers are, the shift in the tax burden is clear and it appears to be to the benefit of the rich - for instance from profit taxes to employment taxes.

It's not just tax either. I used to work as an investment banker but nevertheless I think certain parts of the financial sector have been gouging from the rest of society both here and over there. In addition, CEO remuneration is so clearly a racket.

It's one of the scandals of our era. I favour free markets but I'm not blind to the fact that they can be manipulated (and not just through straightforward, conscious conspiracy).

Hey Skipper said...

After some thought, I'm calling shenanigans on that chart and its interpretation.

If one wants to talk about various revenue sources with respect to each other (which the author does), then plotting them with respect to GDP is simply, grotesquely, wrong: no taxes are assessed with respect to GDP.

Which leads to the next shenanigan: Federal taxes are the lowest in 60 years, which gives you a pretty good idea of why America’s long-term debt ratios are a big problem. If the taxes reverted to somewhere near their historical mean, the problem would be solved at a stroke.. Federal taxes as a portion of GDP are essentially the same now as in 1950 -- 15%. The historical mean cannot be any higher than 18%. A long term debt ratio problem cannot be explained by a 3% decrease in the total tax rate over three years.

Shenanigan number three: There is no mention of government spending as a portion of GDP. Discussing debt without mentioning spending is nonsense.

Shenanigan number four: Putting GDP into play, then leaving it out. Lets say that, in a stroke, US GDP and employment levels returned to those of 2007. What happens to the deficit?

Shenanigan number five: There aren’t any wealth taxes, but the closest thing we’ve got—estate and gift taxes—have shrunk to zero, after contributing a non-negligible amount to the public fisc in earlier decades. Non-negligible being defined here as a number so close to zero that it is scarcely visible on the chart, and that the author could not be bothered to mention.

But whatever the answers are, the shift in the tax burden is clear and it appears to be to the benefit of the rich - for instance from profit taxes to employment taxes.

In US law, employment taxes are a consequence of FDR's Social Security Act. It is a pay-as-you-go system that transfers income from workers to retirees; therefore, its rate is critically dependent upon total lifetime fertility, not anything lobbyists have done.

I happen to agree that the financial sector seems to be excessively compensated, and that CEO remuneration appears to have very little relationship to performance.

But that is an entirely different discussion than tax rates, about which this bodged up chart does far more to hide than reveal.

Gaw said...

Skip, to take your points in turn.

- Taxes are assessed with respect by GDP by economists making international comparisons and, most pertinently right now, by the sovereign bond markets. They're talking of little else right now in the Eurozone.

- Your next three points I pretty much agree with. My point was not to do with the deficit where I agree Felix Salmon is on unsteady ground. Cutting spending is just as, if not more, important in my view. I wanted to highlight burden-sharing.

- Gift and estate taxes only appear non-negligible during the '60s and '70s. But they do appear totally negligible in the '50s. But I think the broader point remains: they had been non-negligible (if not across the whole period) and they're now negligible.

- Your point about employment tax is one I don't really understand: 'total lifetime fertility'? But regardless of 'why' the increase remains. And, in any event, the decline in the corporate tax take is striking.

- My point about remuneration is that the tilt in the playing field in favour of the rich is not an isolated phenomenon; it's part of a consistent social trend. The extension of the Bush tax cuts for those earning more than $250k is part of this. And yet many in the squeezed middle class are preoccupied with culture wars...