
You Can't Soak the Rich - epi0Bauqu
http://online.wsj.com/article/SB121124460502305693.html
======
cia_plant
The Wall Street Journal needs to have its statistics license taken away. Every
editorial manages to commit some sort of statistical fallacy.

 _highest_ marginal tax rate is charted against _total_ revenue as a percent
of GDP. Absolutely worthless. Total revenue as a percent of GDP happens to be
flat, so we can take any statistic we care to blather about, chart it against
this line, and say: see? You can't get money from (fuel taxes | tariffs |
mandatory minimum sentencing | software piracy).

~~~
ivankirigin
The most heavily debated tax issue is the rate that the richest pay.
Progressives argue that they should pay much higher percentages than they
currently do. They fail to account for the added incentive to avoid such taxes
and subsequent loophole creation and usage.

So the core issue of tax policy has been the marginal tax rates verses total
revenue. It isn't the WSJ.

~~~
sdurkin
The argument is over what point we're at on the Laffer Curve, as well as the
specific shape of the curve (i.e. is the right side so steep that we can tax
at whatever rate we want up until revenues collapse entirely?), and about how
tax enforcement policy can affect the shape of the curve.

"They," meaning progressives, don't fail to account for anything. They just
disagree with your analysis.

Finally, the reason nobody knows or cares about this particular research is
that most tax cuts were made with an eye toward maintaining revenue at a
constant percentage of GDP. That is, the graph is a self-fulfilling prophecy.
It doesn't predict what would happen with subsequent changes in the tax code.

Furthermore, this isn't even in any way connected to MTRs for the rich. All
that this graph reflects is that as taxes were decreased for the upper %1 over
the past half century, they were increased on everybody else. It doesn't
illustrate increased collection rates, just increasingly regressive tax
policy.

Brief mathematical analysis of what this article said:

TaxRateforRich x RichEarnings + TaxRateEveryoneElse x EveryoneElseEarnings =
TotalRevenue

Then they told you that as TaxRateforRich dropped, total revenue remained
constant, and thus concluded that the amount of earnings reported by rich
people (RichEarnings) must have risen. What they ignored was a rise in
TaxRateEveryoneElse.

~~~
ivankirigin
"All that this graph reflects is that as taxes were decreased for the upper %1
over the past half century, they were increased on everybody else."

False.

We have a dynamic system where the incentives of the top 1% have a
disproportional influence on GDP. Further, tax rates of the top 10% account
for the majority of revenue. So I not only deny your claim but put forth that
your rhetoric is emotionally manipulative - pitting the rich ("them") versus
the rest ("us poor little everybody else").

The "rich", the top 1%, are the prime drivers of wealth creation. They are the
reason GDP grows faster than population growth. The incentives on the top 1%
heavily influence GDP growth.

Also, the percentiles used are very misleading. The top and bottom quintiles
today are not the same people in the top and bottom quintiles 20 years ago. So
most stats we track about poverty and wealth are fairly useless because they
follow that faulty assumption.

Just in case anyone isn't clear on this: if you're a founder of a tech
company, you're in the top 1% - perhaps not in income today, but in wealth
generators and life-time taxes paid and to-be-paid.

~~~
sdurkin
""All that this graph reflects is that as taxes were decreased for the upper
%1 over the past half century, they were increased on everybody else."

False."

I have to disagree. The Tax Reform Act of 1986 (as well as the cut of 64)
disproportionately affected the lower income brackets. As a matter of record,
tax rates are higher for the lower income brackets, and lower for higher
income brackets than at any other point in US history.

To cite wikipedia:
[http://en.wikipedia.org/wiki/Tax_Reform_Act_of_1986#Income_t...](http://en.wikipedia.org/wiki/Tax_Reform_Act_of_1986#Income_tax_rates)

"The top tax rate was lowered from 50% to 28% while the bottom rate was raised
from 11% to 15% - the only time in the history of the U.S. income tax (which
dates back to the passage of the Revenue Act of 1862) that the top rate was
reduced and the bottom rate increased concomitantly."

"The "rich", the top 1%, are the prime drivers of wealth creation. They are
the reason GDP grows faster than population growth."

Anyone who has capital gains from the labor of others. It is misleading to say
that they are responsible for this growth themselves. Their wealth is invested
in those in other income brackets, and used to drive up GDP. There's nothing
morally wrong with this system.

I agree that incentives for the upper %1 have a disproportionate effect on
GDP. That said, from an economic perspective, I happen to believe that the
Laffer curve has a very steep right side, and that we are to the left of the
peak. This means that by raising rates, more revenue can be collected. For
example, the 1981 tax cut did not improve revenue collection.

I believe that we should raise rates in order to pay for progressive social
programs. The upper %1 have benefitted from not only their skill and ability
to drive wealth creation, but also a good deal of luck.

Progressivism is a form of social insurance. It is an acknowledgment that
perhaps, through no fault of my own, I might have been born poor, or with
skills not suited to the modern economy. It is the understanding that in the
richest nation on earth, no one should want for food, shelter, or healthcare,
no matter what their ability to contribute.

This is not rhetoric. It is a judgement of values, and an assertion of a
logical argument.

Think of it in terms of human capital. Those born into poverty today lack the
access to crucial resources, such as education, to contribute to the economy
to their full potential. It is a colossal waste of human resources to allow
these conditions to continue. Imagine if Bill Gates had been born in Compton
instead of Seattle.

~~~
ivankirigin
"It is a judgement of values"

The fundamental disagreement between libertarians and progressives is that
libertarians do not find the values of a mob/majority justify violence upon a
minority.

I used the word violence carefully: you don't pay your taxes, an armed man
will come to put you in a pen for years.

The problem with asserting positive rights, versus freedom from oppression, is
that they come at a cost to someone else. For example, asserting a right to
health care is asserting the right to take from a health care provider.

"As a matter of record, tax rates are higher for the lower income brackets,
and lower for higher income brackets than at any other point in US history."

Tax rates are still higher for higher income earners.

They make more, and a flat percentage would proportionally cover their wealth,
but you insist on a _higher_ percentage. That is pretty hard to justify,
especially considering the benefit of government is diminished proportional to
increased income.

~~~
sdurkin
Ah, now we've come to the point of it.

"The fundamental disagreement between libertarians and progressives is that
libertarians do not find the values of a mob/majority justify violence upon a
minority."

The power of the state rests upon the willful consent of the governed. The
constitutional structure protects minorities from the tyranny of the majority,
and as such, when it is in the good of society, that force can be used,
including to collect taxes.

"The problem with asserting positive rights, versus freedom from oppression,
is that they come at a cost to someone else. For example, asserting a right to
health care is asserting the right to take from a health care provider."

Here's the fallacy. Its not a zero sum game, and the market isn't an
omnipotent distributer of goods. For example, asserting a right to health care
provides more output for the society, as it takes away from the costs of
untreated illnesses. Some things are common to all, and ensuring that everyone
has access enhances total welfare. Surely you must see that defense spending
is justified?

"They make more, and a flat percentage would proportionally cover their
wealth, but you insist on a _higher_ percentage."

This is a form of social insurance. Just as defense spending insures us
against risk of attack, social programs insure us against the risk of bad
luck. Imagine yourself behind the veil of ignorance, before you were born,
before you knew that you would occupy that top %1. Now design a tax system.

You have to take into account the decreasing marginal utility of income. $100
additional dollars to a person making several million a year has far less
utility to them than $100 additional dollars to a person making twenty
thousand a year.

Not to mention the political folks tell me that inequality is the chief cause
of revolution. If we look at this from a practical perspective, we see that
times of extremely low taxation and large amounts of inequality caused a
breakdown in the market system. Those who accumulate most of the wealth become
a law unto themselves and ensure oligopolistic control over industry. Too much
of this and in Russia the farmers get their pitchforks and the mob takes to
the streets. Here you get the New Deal. Some socialism is necessary to stave
off communism.

~~~
ivankirigin
"The constitutional structure protects minorities from the tyranny of the
majority, and as such, when it is in the good of society, that force can be
used, including to collect taxes."

You just said: 'the minorities are protected, and that means force can be used
on them.' It's a clear contradiction.

What kind of government program isn't justified by that reasoning? Why doesn't
the government start controlling or "guaranteeing" super markets, car
dealerships, or house construction?

You take an unprincipled approach that scales to tyranny.

"For example, asserting a right to health care provides more output for the
society, as it takes away from the costs of untreated illnesses"

That is complete unvalidated. Where is the evidence? Keep in mind, the
comparison is to health with government management and with individual
decision making (and not government coverage vs. none). One huge fallacy
specific to health care is that health does not equal medical treatment. So
you can't equate a dollar paid for medical treatment and a dollar improved in
value of health.

"Some socialism is necessary to stave off communism."

And some sex is necessary to keep your virginity. Corporations that accumulate
government power usually do so because of unprincipled approaches to what the
government should and shouldn't be doing. Look up the history of railroads in
the US, and specifically the rise of the Interstate Commerce Commission. A
government entity went out of it's bounds to "protect" the people, and the new
power was taken over by the rail companies. It's exactly what I mentioned
before: What kind of government program isn't justified by that reasoning? And
then who do you think is going to control it? Our benevolent senators? Or the
people with a $$$ interest?

For health coverage, lots of policy decisions make much more sense if you just
consider the AMA the largest and most powerful union in the US. They act for
the benefit of themselves, and not their patients, often doing so with
government force. One example, two words: drug war.

~~~
sdurkin
"You just said: 'the minorities are protected, and that means force can be
used on them.' It's a clear contradiction."

This is the basis of constitutional government. Just holding a minority
opinion doesn't necessarily mean the majority can't constrain your behavior
with force.

For example, if I hold the minority opinion that "killing people for no reason
is fine," then it isn't a violation of my freedom for the non-homicidal
majority to arrest me.

Constitutional government includes a series of guarantees about what can't be
done to minorities, and also usually includes checks and balances on the
majority's power to prevent rash action.

"What kind of government program isn't justified by that reasoning?"

The answer is that all governmental programs are justified as long as they
improve the public welfare. Those you have listed would not.

The fundamental difference is that in the progressive model the market is not
the be-all-end-all of politics, it is just a means used to accomplish an end.
The economy exists to serve the people, not the other way around.

""Some socialism is necessary to stave off communism." And some sex is
necessary to keep your virginity."

Pretty much everyone on either side of the left-ride divide agrees about the
need for the modern welfare state, even if they disagree about the extent.
Communist orators used to draw crowds of tens of thousands before the New
Deal.

"You take an unprincipled approach that scales to tyranny."

Your pure libertarianism scales to a far more direct form of tyranny, and
doesn't come with the niceties of constitutional protections. What's the
market rate on a police force? An army? A life?

~~~
ivankirigin
"This is the basis of constitutional government. Just holding a minority
opinion doesn't necessarily mean the majority can't constrain your behavior
with force."

It's the exact opposite. A constitutional republic maintains that holding the
majority opinion does not justify force.

If you don't understand this, you don't understand anything about the US.

Your examples are ridiculous. Stopping violence is not violence.

"Pretty much everyone on either side of the left-ride divide agrees about the
need for the modern welfare state, even if they disagree about the extent"

You really don't know anything about this, do you? Who exactly do you think
you're talking to if not someone who disagrees with that sentiment?

This thread is over.

~~~
sdurkin
"Your examples are ridiculous. Stopping violence is not violence."

If you don't like the previous (perfectly valid) example, how about one that
doesn't involve violence on the part of the perpetrator? Perhaps theft, or
public nudity.

The point is that _everything_ a state does is ultimately based on force. The
whole point of preventing tyranny of the majority is to ensure that the only
actions are taken are taken for the good of everyone, rather than a specific
sect. It has nothing to do with denying the legitimacy of taxation.

It seems to me you don't understand the basic concept of a constitutional
state. Reread On Liberty and Federalist #10.

"Who exactly do you think you're talking to if not someone who disagrees with
that sentiment?"

I was pointing out exactly how far outside the terms of legitimate debate you
actually are.

Now the thread is over.

------
run4yourlives
Huge beefs here:

1\. To suggest taxing the rich at a higher rate is the sole reason for a drop
in GDP is simply ludicrous. Being that government spending is a part of the
GDP equation, it's much too complex to attribute to a single cause. For
example, given that the public's appetite for taxing the rich would increase
in hard times, it would also stand to reason that governments are reducing
spending concurrently, and that is the reason for the stagnation.

2\. The implicit suggestion that GDP increases are inherently good and GDP
decreases are inherently bad is outdated. You could get a GDP increase by
dropping a nuke on LA. The US doesn't even use GDP to measure economic health
anymore, but rather GNP.

3\. I would love to see a graph that uses the total net revenue as an adjusted
dollar amount, and leaves the GDP equation out of it. I'm pretty sure the
results would be rather different.

------
edw519
"Raising taxes encourages taxpayers to shift, hide and underreport income"

Uh, let's not forget about finding legal tax shelters and using wealth to
influence lawmakers to define what actually is a legal tax shelter.

It's a pity that the article never explores the difference between income and
wealth. Does anyone honestly believe that wealthy individuals haven't long ago
figured out how to avoid paying the top rate?

------
sanj
By my read, this means that we should raise the top marginal tax rate to 90%.
Why? If it doesn't matter, then you might as well make the unwashed masses
(like me!) happy that the rich are "doing their fair share".

Hauser fails to see that savvy political policy does not flow from "rational"
economic policy.

~~~
wmf
Read more carefully. If you increase the marginal tax rate, GDP probably
decreases and thus tax revenue decreases.

~~~
dreish
Except it didn't. GDP grew faster in the fifties, with a 90% "millionaire's
tax", than it did in the eighties, as top marginal rates were being cut to
their lowest levels.

Numbers from here:

<http://www.economagic.com/em-cgi/data.exe/var/rgdp-qtrchg>

But this is something I noticed around 16 years ago.

~~~
Spyckie
Thanks, finally someone is pointing to real data rather than just waiving a
magic wand in the air.

------
wallflower
Reminded me of this old article about how the effective tax rate in the U.S.
can be argued to be virtually 40%:
[http://articles.moneycentral.msn.com/Taxes/Advice/YourRealTa...](http://articles.moneycentral.msn.com/Taxes/Advice/YourRealTaxRate40.aspx)

~~~
eru
And flat!

------
dejb
The article doesn't even seem to acknowledge the existence of economies other
than US. If you are trying to propose an economic 'law' then you really need
to look at more than one country. In fact there are many other succesful
economies that have a higher percentage Tax/GDP ratio than 19.5%

------
fallentimes
It's a shame small government is long gone from the US.

~~~
jshen
yeah, we'd be much better off if all these programmers we hire from state
schools weren't able to afford an education.

~~~
fallentimes
Nice strawman argument.

~~~
jshen
How is it a strawman? I'm beginning to think your curt answers veil an
inability to deal with the complexities of reality.

~~~
fallentimes
And perhaps your strawman argument veils an inability to debate the topic at
hand. I never said anything about doing away with public education. Small
government != the doing away of all social programs.

"yeah, we'd be much better off if all these programmers we hire from state
schools weren't able to afford an education."

Your comment superficially sets up an argument I never made, which is the
definition of a strawman.

Anyways...

I'm all for government sponsored programs that work along side the private
industry (and force competition) in order to contribute to the general
welfare, which is what the constitution states. For example: defense,
infrastructure and education among others.

However, I'd love to rid our government of all the pet projects, pork,
worthless organizations (and employees) and general waste that rape our
income.

It's near impossible to fire a government worker, which is a crime in and of
itself. Our government is so inefficient that consulting firms are rolling out
in mass "staff augmentation" programs that take over the responsibilities of a
given agency/department.

Think about that...you hire government workers to do job X. They are so
incompetent at job X you hire high priced consultants to complete job X while
not firing any of the workers. The end result? Job X is completed at two -
three times the original cost. Ridiculous. If you ever want a first hand look
at how inefficient the government is, live in DC for a few years.

~~~
krschultz
Except that the constitution doesn't state anything about education, and
defense accounts for nearly 50% of the federal budget. Cutting all the fat and
inefficiency does not address the root problem, health care costs and defense
spending. If you don't want huge taxes you can't have a military this size,
and I haven't a clue on how to fix health care.

~~~
helveticaman
I agree, but want to underline that the military is pretty efficient. You CAN
get fired from the military if you screw up, and compared to the armed forces
of other empires, the US armed forces do a pretty good job of kicking ass when
there's ass to be kicked, and doing pretty good research (ARPANET, jet travel,
Manhattan project).

~~~
jshen
um, have you ever been in the military? I was in the army for 4 years, you
can't really get fired. You have to do somethign way over the line to get
kicked out. Out of many hundreds of people I knew only a handful got kicked
out. The vast majority of those failed drug tests, usually twice. One guy got
kicked out for sexually abusing a few women (sneaking into their rooms at
night while they were sleeping and ...). And I think I knew one that got
kicked out for being too fat (but I knew a lot of people that were too fat and
never got kicked out.

Now let's address this efficiency claim. Do you want to know what we did most
of the time? Absolutely nothing. We hung out, did some cleaning, hung out some
more, played some play station, hung out some more, took a nap. Yeah, that was
my usual day.

We can also attack this efficiency claim from another angle. The U.S. spends
almost as much as every other nation combined for military purposes. No
company that did such a thing would be considered efficient.

------
tocomment
Finding laws in Economics reminds me of Psychohistory. I wonder if we'll ever
have that field.

~~~
ntoshev
Psychohistory can work in a society very different from ours (and certainly
not the one Azimov described). In our society randomness plays too big of a
role. Some of the current sources of uncertainty (like technological progress,
or the personal freedom we have) may disappear in 1000 years, but this is
purely a speculation.

------
rw
"Economists of all persuasions accept that a tax rate hike will reduce GDP
[..]"

No.

------
epi0Bauqu
Interesting regardless of your politics.

Summary chart: [http://s.wsj.net/public/resources/images/ED-
AH556B_ranso_200...](http://s.wsj.net/public/resources/images/ED-
AH556B_ranso_20080519194014.gif)

~~~
chris_l
Ok, maybe I missed something, but what exactly does the blue curve show?

~~~
epi0Bauqu
The top marginal tax rate.

Yes, it was 90%+ for a while: <http://www.truthandpolitics.org/top-rates.php>

~~~
chris_l
Wow, that's some variation there. As a foreigner I always saw the US as a
country of low taxes, I guess that's not the whole story.

------
helveticaman
I think this is statistically relevant, as rich Americans pay a big part of
taxes:

 _During Fiscal Year (FY) 2006, the IRS collected more than $2.2 trillion in
tax net of refunds, about 44 percent of which was attributable to the
individual income tax. This is partially due to the nature of the individual
income tax category; containing taxes collected from working class, small
business, self employed, and capital gains. Of the Individual Income Tax, the
top 5% of income earners pay 60% of this amount. [8] [9]_

[http://en.wikipedia.org/wiki/Internal_Revenue_Service#Tax_co...](http://en.wikipedia.org/wiki/Internal_Revenue_Service#Tax_collection_statistics)

The top 5% pays 26.4% of tax receipts, and changes in the marginal tax rate
for the top bracket usually affect tax rates of lower brackets. I'd say this
news is pretty relevant.

------
tarkin2
"What happens if we instead raise tax rates? Economists of all persuasions
accept that a tax rate hike will reduce GDP, in which case Hauser's Law says
it will also lower tax revenue. That's a highly inconvenient truth for
redistributive tax policy, and it flies in the face of deeply felt beliefs
about social justice."

And the Nordic countries, with a highly redistributive state, and some of the
highest GDP per capita rates in the world?

------
anamax
Under the "who should pay for govt?" question is another question - is it good
for a large fraction of the population to have essentially no role in paying
for govt?

Suppose that we could get all of the tax revenue from 1000 people, should we?
How about 1%?

~~~
nazgulnarsil
people who don't pay taxes shouldn't vote. this would actually be an
interesting opt out clause to experiment with. you can forgo taxes if you give
up suffrage.

~~~
nazgulnarsil
it would be self balancing in a supply demand curve too. the more people that
opted out the more power the remaining votes would have until equilibrium was
reached between money and votes.

------
anaphoric
Even if the article were true, I still believe in 'bubble up' rather than
'trickle down'.

If you transfer money to the poor, then tend to be happier and thus cause less
social problems (e.g. less crime, fewer beggars, etc.). The rich can afford
it. Soak 'em :-)

~~~
nazgulnarsil
what is this garbage? the poor tend to be happy when you give them money? you
have zero basis for this. people tend to be happy when they earn success.
people who are given money tend to be unsatisfied and lazy.

~~~
anaphoric
I said 'happier'. Besides what you do is not give (so much) money to the poor
and middle class, but rather tax them less and tax the rich much more. The
poor and middle will be happier as they keep more of their earnings and the
rich, well, they will be alright.

~~~
nazgulnarsil
well of course the bottom 5th income wise shouldn't pay tax as they contribute
less than 1% of tax revenue and receive on average much more in government aid
than they pay in taxes. seems like a silly little loop for the money to go in
when you could just not tax them. warren buffet has advocated this program.

------
tlrobinson
The top tax bracket was _90%_ in the 1950's?!

~~~
Prrometheus
Yes, but it didn't kick in until your income got up over $1 million or so.
This was actually common around the globe before the Reagan/Thatcher
revolution. Remember the Beatles song "Taxman"?

"I'll tell you how it will be/ that's one for you nineteen for me/ 'cause I'm
the Taxmaaaan!"

The Beatles were actually paying 19 out of every 20 cents to Her Majesty's
government, for a top rate of 95%.

~~~
nazgulnarsil
well, they paid 19 cents out of every 20 after the first million dollars.

~~~
Prrometheus
It's still obscene, ugly, wrong, and basically slavery.

~~~
Agathos
Please explain how it's slavery.

~~~
llimllib
As I understand the libertarian argument (I can't promise that this is what
Prrometheus means), a sketch looks like this:

Money is your property

Your body is your property

Slavery is foreign control of your body

Taxes are foreign control of your money

Thus, by the transitive property, taxes are like slavery

~~~
Prrometheus
I wasn't even going that far. I can see how people consider it hyperbole to
call taxes "slavery" when someone is taking 40% of your earnings from you. You
still have more than half of what you earned to do with as you will. But 95%?
You're basically working solely for the good of whoever is stealing from you.
It's true that they're not forcing you to work, but you either give over
almost all your earnings or go without any benefit from your labor at all.

I'm not the first to make the comparison, you know. I believe Frederick
Douglas compared income taxes to slavery in his autobiography. Unfortunately,
I listened to it on CD so I can't pull up the exact passage at the moment.

~~~
llimllib
> But 95%? You're basically working solely for the good of whoever is stealing
> from you.

I don't disagree, and I'm a person of libertarian leanings. Although I grant
I'm not as fully given over to it as you seem to be.

I really was just trying to elucidate the sense in which I see many
libertarians compare taxes to slavery.

------
nazgulnarsil
taxes wouldn't be an issue if the government adjusted spending to reflect
taxes instead of adjusting taxes to reflect spending.

------
chasingsparks
Who is John Galt?

------
logjam
Executive summary: newspaper of the rich arguing for lower taxes for the rich.

~~~
learneconomics
1\. They are doing it with logic. 2\. Do you consider the New York Times, or
Washington Post, or any other major daily to be the newspaper of the poor?
Give me a break.

------
tphyahoo
Uh, what if taxes sort of trend up everywhere?

And there's hostility towards tax havens? They get cut off from wires, and you
have to smuggle in cash / diamonds in suitcases, and it's a total pain in the
ass and you become a social pariah?

Not saying that _should_ happen, but it could happen.

Dumb article.

------
Antiglobalism
The problem is not rich people, the problem is rich people who ability-wise
are slaves. Class is a stupid idea, caste is a better one.

