Monday, April 18, 2011

A correction to "Why all this deficit stuff actually matters"

In my previous post, I said that only those working in the private sector, paying taxes, can pay off the national debt; there being 108 million people working, and a $14 Trillion debt, that's $129,630 each. A friend has pointed out an error in this calculation.

The error is this: just because you have a job, that doesn't automatically mean that you pay any federal income tax. In fact, with tax breaks and dependents, Nearly half of US households escape federal income tax "In recent years, credits for low- and middle-income families have grown so much that a family of four making as much as $50,000 will owe no federal income tax for 2009, as long as there are two children younger than 17, according to a separate analysis by the consulting firm Deloitte Tax... The bottom 40 percent, on average, make a profit from the federal income tax, meaning they get more money in tax credits than they would otherwise owe in taxes. For those people, the government sends them a payment."

So only the top 53% of wage earners are actually expected to pay back the national debt. If you are one of the 57,240,000 people earning over $50k/year, congratulations! Your share of the national debt is $244,584.


Will Shetterly said...

Uh, not quite. I'm married, filing jointly, no kids. I've only made around $50,000 once. I've always had to pay social security (self-employed), and I forget the point at which I have to pay federal tax, since I've lived simply for the last few years, but I'm pretty sure it's around $12,000 or so. The idea that only people earning more than $50K a year pay taxes is wrong.

Though the idea that the rich pay less and less of their share is accurate.

Joel Monka said...

I was thinking of the normal "married with children" demographic- I, too, have no children, and have never crossed the $50k mark- and like you, I paid taxes at quite a lower figure. But we childless couples are a minority- and to tell the truth, I didn't mind paying more than my brothers who did have kids to raise.

Will Shetterly said...

I'm also cool with there being tax breaks for folks with kids, but I think you underestimate the number of single folks and married childless ones.

Joel Monka said...

I'm not the one who came up with the numbers- that would be Deloitte Tax.

Will Shetterly said...

Heh. I'm guessing they're rich married folks with kids.

DairyStateDad said...

My question is: Is Deloitte using actual data about people's behavior? Or are they simply projecting based on distribution of incomes and other demographic information? To explain (and I am making these numbers up):

A hypothetical person who makes $35,000 a year might qualify for no taxes after all deductions, etc. are taken into account.

A real person who meets all those criteria might not actually claim the deductions he/she qualifies for.

If Deloitte is using projections based on the hypothetical person, they'll miss the reality of the real person.

I don't know (and frankly I don't have the time to look into this now)... I'm just askin'...

Eruonen said...

"Though the idea that the rich pay less and less of their share is accurate."

No, that is inaccurate.

As of 2009:

In 2006, the latest available year from CBO, the top 20 percent of income earners paid 86.3 percent of all federal income taxes, an all-time high.[1] This is an increase of over 6 percent from 2000, when the top 20 percent paid 81.2 percent. During the same period, the bottom four quintiles all saw their share of the federal income tax burden fall sharply:
The bottom 20 percent of income earners' share of federal income taxes fell from -1.6 percent in 2000 to -2.8 percent in 2006;
The next 20 percent's share declined from 1.1 percent to -0.8 percent;
The middle quintile's share dropped from 5.7 percent to 4.4 percent; and
The fourth quintile's share decreased from 13.5 percent to 12.9 percent.

Will Shetterly said...

Eruonen, you're looking at a few years after the rich had grown much richer than the rest of us. Here's Robert Reich: "From the 1940s until 1980, the top tax income tax rate on the highest earners in America was at least 70 percent. In the 1950s, it was 91 percent. Now it’s 35 percent. Even if you include deductions and credits, the rich are now paying a far lower share of their incomes in taxes than at any time since World War II."

Will Shetterly said...

Joel and Eruonen, try this:

Eruonen said...

How about a nice flat tax, no tax breaks for anyone? Fair is fair.
The super rich can hire people to take advantage of the system, just as GE does with corporate taxes...$0. Ah yes, Jeffrey Immelt, Obama's good friend.

The problem is not revenue (which has been increasing for decades), it is spending. Liberal progressive entitlement programs are unsustainable at any level of taxation. The system never was going to be able to make good on its promises, especially with the demographics of fewer and fewer workers supporting more and more retired people.

Too many people pay no tax...when you have no skin in the game you don't care how the government spends other peoples money.

Robert Reich and other neo-Keynesians like Krugman are why we are in this mess. Spend more now is still their theme.

Today, we see the first major sign that our national economic mess is causing potential a downgrade in our national credit risk with Standard & Poor's moving their credit outlook from stable to negative.

Anyway, I realize we hold very different opinions on such matters. All of us are in this mess together and eventually we will have to deal with the hard decisions or they will force our hand in ways none of us want.

Will Shetterly said...

A flat tax is not fair. If I have a loaf of bread and you have a thousand, I'll be left with less than a loaf, and you'll be left with 900.

I'm with John the Baptist: If you have two of something, give one of them to someone who has none.

If you don't like Christianity, here's someone any conservative should respect: "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." -Adam Smith "The Wealth of Nations" 1776

Joel Monka said...

Yes, many people don't realize that Smith was a Christian moralist, as well as an economist. But that's nothing; you should read Thomas Paine's Agrarian Justice. Just the intro has quotes that would shock anyone who doesn't REALLY know their founding fathers.

But you and I have had the tax discussion before... it's not possible to make a fair income tax; we should find other means. I favor consumption taxes, as the poor consume little. I wouldn't object to a wealth tax- how is it fair that accumulated wealth is not taxed at all, while new earnings, the sweat of your labor, are taxed instead? If you make the income tax 100%, that does not touch accumulated wealth, as they are not earnings.

Will Shetterly said...

Joel, I'd love a wealth tax. Done right, it might unite a lot of folks on the right and the left. I should do some googling about the pros and cons.

DairyStateDad said...

We've had a wealth tax. The righties turned it into a "Death Tax" and told us it was horribly mean.

Incidentally, one reason that the Rich pay such a disproportionate share of the taxes even though they have lower rates than they used to is that so much of the middle has been hollowed out. Paradoxically, if incomes were more evenly distributed the tax burden would be more broadly shared as well, even if rates for the rich were higher. Evening out income distribution requires a complex array of policy changes, including but not limited to changes in tax policy...

Joel Monka said...

An inheritance tax is not a wealth tax; inheritance taxes are a one-time only transfer tax. What's the difference? Picture this scenario: you inherit a trillion dollars after taxes. Naturally, you quit your job. Not being interested in more income, you don't invest your money, but put it all in your checking account- hey, you like to see people's jaws drop when they look it up. You have no children, no dependents, and you give nothing to charity. Under our current tax system, what is your annual federal tax bill?


What would it be under Obama's proposed tax plan? What would it be if you eliminated the Bush tax cuts?

Nothing. Not even a penny towards Social Security. Nothing.

You have no income. You have no capital gains. Therefore, you owe no taxes. We tax only the sweat of your brow; we do not tax multi-generational accumulated wealth. Steve Jobs and Bill Gates transformed the world with their innovations, so we tax the Hell out of them, but Sam Walton's kids and grandkids did nothing but get born, so they get a free pass. And what is the only solution offered by the politicians? Hit Jobs and Gates harder still, so that Senator Kerry needn't pay any taxes on his inherited 3/4 billion.

Eruonen said...

Too many people are very comfortable stealing other peoples money. Class envy is not an admirable trait. If you earn more than your neighbor it is not a sin and a situation in need of income redistribution. The flat tax is entirely fair. The fact you have one loaf is your problem. Work harder. If I have 900 loaves and did not steal them then who are you to take 70% of them? Theft. We are not talking about charitable situations.

Will Shetterly said...

Eruonen, full agreement with your first sentence. Alas, it's why the rich get richer and the poor get poorer. When you meet someone with a thousand loaves and someone with none, there are questions that should be asked about how this came to be. Capitalists profit by paying workers less than their work is worth; if they didn't, the business would be a co-op.

Eruonen said...

Adam Smith on Taxes
Budget & Tax News > November 2003

Smith believed taxes should support four legitimate functions: national defense, justice, universal education, and “good roads and communications.”

"Smith was most critical of taxes on wages and profits. Both diverted resources from wealth-creating activities, he pointed out, and raised the prices of manufactured goods by more than the amount of the tax. Taxes on the profits of “stock” were destructive of wealth creation because “stock cultivates land; stock cultivates labor,” and a tax on profits diminishes both “the rent of land and the wages of labor.”

Eruonen said...

"Capitalists profit by paying workers less than their work is worth"

Baloney, who sets worth? If you take a job at x pay you agree to the worth of the job. Free market factors determine the "worth" of the job. Will, obviously you tend to see economics through a socialist or communist view. Both are failed models.

If you earn money from working a farm and invest your profit in a mill and then a bakery and turn out loaves of bread for sale why is that unfair? The man with no bread may be a lazy, unimaginative sloth who prefers to steal other peoples bread. When offered to work the farm at $x amount he can either take the job or stay in his present station. If he agrees to work for $X then that is his worth.
Or, as you say, he can find others without bread and try a communal living arrangement, however, somebody has to work. Such societies have always failed.
Those who are unable to provide for themselves due to various physical and mental conditions are a different story. As a society we need to take care of those who cannot take care of themselves.
That is different from those who "won't" take care of themselves.

Will Shetterly said...

Eruonen, if you compare Europe to the US, it seems pretty clear that socialism is the winning model.

As for your notion that people should be subject to the whims of robber barons, we'll have to disagree.

Have you looked at the unemployment figures lately? The idea that everyone in the US who wants to work can work isn't supported by the statistics.

Joel Monka said...

"worth" is a subjective term in philosophy, but pretty distinct in business and employment: worth is what you get from it, how much money it earns for you, or how much loss it prevents. In theory, EVERYONE in the company, including the president, is being paid less than they're worth, because if you pay out more than they bring in, you're out of business. If your salesman brings in $50k, you can't pay him $60k.

Unfortunately, the government has interfered with the system for years, but most egregiously with the bailouts. In theory, if someone tries to pull off scams like bundling bad mortgages and selling the package as securities, when the scheme falls through, companies go bankrupt, and everyone who was involved is fired, informally blacklisted, and never works in the industry again. But now, in a bipartisan folly called TARP, we bail them out and give them bonuses instead- and the industry learns nothing, no new regulations are passed, and all society suffers.

Same with the auto bailouts. The idea that the recession caused GM's problems is bullshit- a dozen manufacturers, led by Ford, Volvo, et al, made money in the same recession. But we bailed out the bad companies instead of letting them fail as capitalism calls for, and the result? Even with "cash for clinkers" and government subsidized sales, GM is still building cars no one wants to by, and other cars whose steering wheels come off in your hands.

Worst of all, the bailouts are bankrupting ALL of us, not the few decision makers and investors involved. Had the offending banks and car companies been allowed to go bankrupt, and the government made more generous unemployment benefits instead of bailouts, it would have cost far less, and recovery would have been faster.

Joel Monka said...

"Eruonen, if you compare Europe to the US, it seems pretty clear that socialism is the winning model."

Do you mean Greece, Spain, and Portugal by any chance? Hardly seems like winning models to me.

Eruonen said...

Will, I can only do so much educating! None of your last comments make any sense. Socialism is imploding and we are on the same path. Robber barons? What about small businesses who are unable to employ more due to the onerous taxes and regulations?
Employment, well, Obama and the Dems had a glad all of the Keynesian spending put everyone to work.

I don't say you are hopeless but you will have to undertake a rigorous study of economics and reality to see through the collectivist fog. ;)
However, you are in good company as your ideas reflect the average UUA congregant and church officials.

All the best