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  • Useful Analysis

    Posted by Ginny on October 22nd, 2008 (All posts by )

    What happens when the voter in the exact middle of the earnings spectrum receives more in benefits from Washington than he pays in taxes? Economists Allan Meltzer and Scott Richard posed this question 27 years ago. We may soon enough know the answer.  Paul L. Caron

     

    13 Responses to “Useful Analysis”

    1. Shannon Love Says:

      Fortunately, the middle-class will not stay unlooted for long.

      The tax system that Obama envisions is something like the income tax between 1945 and early 60’s in which most people paid no income tax. That soon ended. The built-in incentive for politicians to sell tax breaks combined with the leftist hubris that they can use targeted tax breaks to steer investment and the economy combined to create a complex tax code that favored the wealthy. By the 1970’s, it got so bad that Malcomb Forbes, then the richest man in world, paid zero income tax for three years. The politicians greed is their undoing. They won’t be able to prevent themselves from sticking it to the middle-class.

      Most of the “tax breaks” targeted at the middle-class are fairly hit or miss. The attempt to target them by definition means that they will go to people doing something that most people are not doing (If they were, there would be no reason for the tax breaks/welfare).

      This is not to say we won’t see a rough 10-15 years, but I don’t think well see a sort of tipping point where in we slide inevitably down to a socialist state.

    2. Ginny Says:

      Shannon,
      I’d like to add my two cents:
      A) The lowest wage-earner in America should pay taxes (this is the same reason if the draft comes back there should be no deferments and women should be drafted). We should think of ourselves as all being in it together – I know that isn’t what some on the left think, but then they are wrong. Warren Buffett isn’t more or less of an American than I am – nor is the recovering alcoholic at a minimum wage job more or less an American than I am.
      B) It is all great and fine for you to see a tipping point 15 years down the line. I’m in great health, would rather work than not, and actually enjoy what I’m doing a fair part of the time. But I was also hoping to have some years between retirement and death. For us cutting edge boomers, an economy that takes another twenty years to straighten out isn’t as attractive as it might be to you young whippersnappers.
      C) What do we mean when we say “middle class” – if more than half the people aren’t paying anything, it isn’t the middle class that’s paying anyway. Surely people that should be considered by any reasonable definition of “middle” middle class are, in such a system, getting a free ride. Those that aren’t are still paying very little.

    3. Shannon Love Says:

      Ginny,

      I don’t disagree with anything you said, I was merely addressing the idea that a situation in which a minority pays taxes creates and unstoppable feedback loop that causes the looting of the tax paying minority.

      I think that politicians greed will drive them to tax the people they need for political support of taxes.

    4. Ginny Says:

      I didn’t disagree with you, either. I just like to talk – probably should have added to the quote. Well, of course, I do assume you have less sympathy for my generation than yours. And I still don’t understand how the “middle class” is somehow above the middle – but guess that’s one of those floating ambiguous campaign terms.

      And of course it is difficult to overestimate a politician’s greed.

    5. Shannon Love Says:

      Ginny,

      Conventionally, we divide income in quintiles so that the bottom 20% is poor, the next 20% is the lower-middle class, the next 20% the middle-middle class, the next 20% the upper-middle class and the remaining 20% the wealthy.

      The basic problem occurs when 50% or more of the electorates grows heavily dependent on the government. At that point, more people have an incentive to raise taxes than to keep the low.

    6. Ginny Says:

      Shannon,
      Yeah. This isn’t an argument but further observations.

      I’ve seen the quintiles – but more than half the quintile that is “middle middle” would not be taxed nor would any of the “lower middle.” However you define it, over 50% includes a lot of the middle. We tend to think we are middle class – unless we’re at the bottom of that first quintile; most of the people in that top quintile describe themselves to others and sometimes to themselves as middle. Politicians pander, knowing the vagueness of the concept.

      Joe the Plumber thinks realistically – the quintile walls aren’t all that high and most people in their lifetimes move back and forth among them. And he was looking at his future – not at the green grass next door now but the future he intended to create himself. Obama’s response assumed envy and passivity as an appropriate response to another’s success. (People like Obama always imply Christian charity leads them to spread the wealth; the low rate of charity giving by liberals indicates they give themselves too much credit.)

      Envy is human, but so are a lot of our not so attractive traits. It can energize us to act – but Obama’s response encourages the sullen response of the guy that sold you the bicycle. It isn’t just productivity that goes down in such a world – it’s also happiness.

      Of course, there is little reward to thinking in the long term if the playing field keeps getting redefined. How many people were late with their mortgage payments last month? Their rents? They wondered if they could get a “deal.” If nationalization of your company is always a possibility, you don’t build for the future, but milk it for what you can in the present.

    7. Chris Says:

      Unfortunately, I know people who had sworn never to vote for a Democrat again, who are voting for Obama strictly because they *hope* this happens…hoping for a complete collapse to teach people a lesson and teach conservatives a lesson for nominating McCain.

      Why do the left believe that letting a wealthy person keep 70% instead of 60% of what they earn is “giving” them money, and giving money from the tax revenues to a person who paid no taxes to begin with is a “refund”? How does that work?

      I agree with Ginny on the taxation. Buffet or indeed any other wealthy person does not use more public services than the average person, more police services, more fire services, more state augmented hostpital services…and in a good many ways probably uses much less if you looked at the dollars involved, so why should they pay more? A flat tax is already too socialist in my view because extrememly wealthy pay way more than the average joe in taxes…taxes are about paying your share….and your share isn’t 100 times the next guy just because you make 100 times more than him. That being said, I would gladly accept a flat tax over the progressive tax we have now. Does anyone else look at their pay stubs and think that paying anywhere in the neighborhood of 2 to 4 out of every 10 dollars you earn to the government is pretty amazing when you think about it?

      Liberals, and I’m afraid even some of the common Americans are starting to think that “equality” means outcome and not opportunity in our country.

    8. Chris Says:

      One additional point about the taxation services…and indeed if they do have better police and fire services it’s because they live in an area where they pay local taxes to support it in most cases…but everyone pays those higher taxes.

      I guess national parks or highways would have been a better example….

    9. Tyouth Says:

      “teach conservatives a lesson for nominating McCain.”

      Could someone who voted for McCain in the primary possibly BE a conservative?

    10. jdm Says:

      The lowest wage-earner in America should pay taxes […] We should think of ourselves as all being in it together

      I think your wish (so to speak ;-) will be granted a la Shannon’s comment (October 22nd, 2008 at 4:22 pm).

      My understanding is that in Denmark (and probably, more or less, the rest of Europe) that the tax burden is much more evenly spread out. Problem is it’s much higher too.

      And it’s not so much the classic redistributionism (as expressed by O!), but simply to cover all the “freebies” now available to everyone – whatever their class. College tuition, medical care… I can’t even remember all the goodies we got. And I know it’s worse (or better) now than 20-some years ago.

    11. anomdebus Says:

      Question: would the middle class of the 40’s to 70’s have received as many benefits as they do now?
      That might make a difference in how they respond.

    12. Shannon Love Says:

      Anomdebus,

      Question: would the middle class of the 40’s to 70’s have received as many benefits as they do now?

      Considering the ratio of taxes to benefits, they probably received more benefits for every dollar in taxation.

      I don’t have the numbers at hand but I recall that as late as the 1960’s most people classified as middle-class did not pay any income taxes, Income taxes where originally only imposed on the very wealthy and started as war time measure. They gradually percolated down to the lower middle-class as the scope of government grew. So, for roughly 30 years, say 1933-1963, most people payed little or now income tax. Government exploded during the 60’s while at the same time the wealthy gamed the system to reduce their tax burden. The progressively of the tax system decayed badly and the government began taxing more and more people.

      I don’t think most people will see benefits from Obama’s tax scheme. You only get most of the benefits if you do certain things which at any given time, most people will not be doing.

    13. Mike Drew Says:

      This is just the tipping point for the socialist illuminati reform that the liberal party is creating. Once over half the nation is no longer taxed at a burden then we will have what will truly be class warfare. Its a very slippery slop that we are progressing towards.