Centerfield

Your first clue that Kenworthy is exercising polemic is the use of the subjective word "fair" in what should be an empirical argument. He also shifts between the emotive argument, the government revenue argument, and the economic growth argument without delineating the shifts, so that you're left confused as to what he's actually saying. Without wasting my time digging through the data for a point-by-point (which would require making his polemic empirically coherent enough to make the rebuttal unconfusing) I would note:

His analysis of the growth argument is at best misleading and simplistic and mistaken, and betrays at best and most charitably an ignorance of basic theory. At least charitable, it'a active prevarication.

He ignores the camel in the tent, namely that the total share of all taxes paid by the top tiers has risen pretty continuously up the income scale since 1983. The "rich" (top quintile) may be paying at lower "book" rates than in the past, but they are paying a bigger and bigger share of the total tab, while those in all lower quintiles are paying a smaller and smaller portion of the entire tab, and at decreasing rates. Doesn't exactly square with that "fairness" claim, does it?

Using his own cited data source [PDF] I would urge that you review the extended Tables 1A and 1B if you want to work with actual data rather than some agendized academic's fuzzy-logic emotive polemic.

Changes in total share of ALL FEDERAL TAXES as paid by quintile from 1983 to 2005 (last year of stat): 1st quintile, 63% reduction in share paid. 2nd quintile, 35% reduction. Middle quintile, 30% reduction. 4th quintile, 22% reduction. 5th (top) quintile, 23% increase.

If you run effective tax rates instead by quintile, you get similar results. The top quintile pays roughly the same effective rates or higher, the bottom four quintiles pay lower effective rates than in the past, with larger reductions in those effective rates the lower down in income you go.

In other words, Kenworthy's "fairness" argument is dishonest money-hungry eat-the-rich suckage. Reduced to real data, it's a call to accelerate an already-existing trend of total taxes loading increasingly upward--a trend that persisted even through tax cuts.

Thanks for indulging me Tully. Obviously if the top quintile has been paying a greater share for that long, that's an unsustainable trend. 83st percentile folks aren't yacht owners, right?

And obviously fair is a loaded word. I'm not that interested in fighting that battle. I'm only interested here in functional effect.

Just let me make sure I'm clear about your criticism, since Kentworthy doesn't talk about quintiles, and that's what you've focused on. He's only talking about the top 1% insofar as I can tell. I'm most interested in your take on whether it actually is possible, as Kentworthy claims, that taxes could be raised on the top 1%, and this would lead to a useful increase in the effective rate and an increase in actual government revenue.

Again, I'm not making any claims about whether or not it's nice or right or wise to raise rates op the top 1%. I only wonder about whether the government actually could get more revenue from raising the top rate, since I've so often heard that past a certain point rate hikes tend to have a counterproductive effect, that they suppress economic activity so that the gov't ends up with a greater share of a pie that has grown to a smaller size than it would have otherwise.

I'm happy to concede that the moral rectitude of such an increase is eminently debatable. Here's the thing I'm trying to understand though. If the marginal rate on the top 1% is raised but there's no increase the effective rate and thus on actual revenue, well then there's no point in raising the rate. Right? It won't work. That much sb uncontroversial for non-morons. If we raise the rate but don't get more money...

But are you saying that you think Kentworthy is wrong when he says it's possible that raising the marginal rate on the top 1% could increase actual gov't revenue

It might, it might not, but even if it did there are major inherent drawbacks. The problem there is several-fold. The top 1% are those who can best find ways to avoid taxes--which would hurt growth by lowering capital flows. They're the best situated to wait out an administration or two on profit-taking from investment to get a lower rate. See capital turnover. We don't know where the "knee" is in the Laffer curve at any given time, and boosting top-end rates could push past it and LOWER revenues.

The top 1% is almost by definition as a group the most financially savvy, the most internationally mobile, and so on. We live in an increasingly global economy, and raising rates inspires capital flight (which is absolutely killing Venezeuala's "stabilization" plans right now). Just as cities compete for business employment with national companies, nations compete for investment from wealthy citizens. Boost tax rates, and they go elsewhere--or at least their money does. You lose not only the resulting tax revenues but the "local" investment and resulting revenues as well.

Another consideration is that the more "progressive" (I hate that word, it lies) and top-end focused a tax structure is, the narrower the tax base is, the more resulting government revenue is subject to high volatility in response to changing economic conditions. When markets decline, the top end suffers a higher proportional movement in incomes, and tax revenues are accordingly MUCH more volatile than they are in a broader-base structure. You get the upside too, but you PAY for it on downturns. BIG time.

Thanks again, amigo.

Like I said before, my two fold purpose here was finding out whether it was possible to get some more revenue from such a change, and to hip another soul or two to the idea that the tax increase bone isn't always connected to the revenue increase bone.

I hear you on those other objections, two. Folks who just blindly want more tax revenue for expensive new programs really don't get the built in limits of the revenue pyramid.

On top of the weasely skill of the top 1% in keeping their ox ungored, there's the relative scarcity of such oxen. Much of what you're saying just above probably goes along way to explaining why that top quintile has been getting cornholed. Not enough oxen to gore in the top 1%, and fewer stupid ox owners.

Can you tell me the income at the bottom of that top quintile, and whether it's gross or net or net taxable or whatever? That'll help folks reading this understand who we're talking about.

Obviously the people in the top 1% are the filthy rich MFs, but as you head toward the bottom of the top quintile it's just folks who have done well and have a nice house and a fancy car and yeah they can probably afford to a couple kids to a really nice college. Right?

Comfortable, but not burning cash for heat.

Thanks again, amigo.

Like I said before, my two fold purpose here was finding out whether it was possible to get some more revenue from such a change, and to hip another soul or two to the idea that the tax increase bone isn't always connected to the revenue increase bone.

I hear you on those other objections, two. Folks who just blindly want more tax revenue for expensive new programs really don't get the built in limits of the revenue pyramid.

On top of the weasely skill of the top 1% in keeping their ox ungored, there's the relative scarcity of such oxen. Much of what you're saying just above probably goes along way to explaining why that top quintile has been getting cornholed. Not enough oxen to gore in the top 1%, and fewer stupid ox owners.

Can you tell me the income at the bottom of that top quintile, and whether it's gross or net or net taxable or whatever? That'll help folks reading this understand who we're talking about.

Obviously the people in the top 1% are the filthy rich MFs, but as you head toward the bottom of the top quintile it's just folks who have done well and have a nice house and a fancy car and yeah they can probably afford to a couple kids to a really nice college. Right?

Comfortable, but not burning cash for heat.

One thing I think needs to be considered when discussing what portions of the total taxes collected are being paid by people in the five quintiles is how the quintiles themselves are changing. (I'm not in a position to do that, but I know they aren't fixed in terms of actual income and depend on how income is distributed among the population.)

Actually, I am in a postion to do that! It's in the PDF Tully linked, towards the end. It's easier to read in the PDF, but I pasted it here anyway.

Share of Income (Percent)
Pretax Income
1979 5.8 11.1 15.8 22.0 45.5 100.0 30.5 20.7 9.3
1980 5.7 11.0 15.7 22.1 45.8 100.0 30.6 20.7 9.1
1981 5.5 10.9 15.9 22.2 46.0 100.0 30.7 20.7 9.1
1982 5.2 10.6 15.7 22.2 46.7 100.0 31.1 21.1 9.6
1983 4.9 10.3 15.5 22.2 47.7 100.0 32.2 22.2 10.3
1984 5.0 10.3 15.4 22.0 48.0 100.0 32.6 22.6 10.9
1985 4.8 10.1 15.2 21.9 48.6 100.0 33.4 23.4 11.5
1986 4.5 9.6 14.7 21.2 50.6 100.0 35.8 26.0 14.0
1987 4.4 10.0 15.3 22.1 48.9 100.0 33.5 23.4 11.2
1988 4.3 9.7 14.9 21.6 50.3 100.0 35.3 25.4 13.3
1989 4.3 9.8 15.1 21.6 49.9 100.0 34.8 24.8 12.5
1990 4.6 10.0 15.1 21.6 49.5 100.0 34.4 24.3 12.1
1991 4.7 10.0 15.4 21.8 49.0 100.0 33.7 23.6 11.2
1992 4.4 9.7 15.1 21.5 50.0 100.0 34.9 24.7 12.3
1993 4.5 9.8 15.0 21.6 49.8 100.0 34.6 24.4 11.9
1994 4.4 9.8 15.2 21.6 49.8 100.0 34.6 24.5 12.1
1995 4.6 9.7 14.9 21.3 50.2 100.0 35.2 25.1 12.5
1996 4.3 9.4 14.5 21.0 51.5 100.0 36.5 26.5 13.8
1997 4.3 9.1 14.2 20.4 52.6 100.0 37.8 27.8 14.9
1998 4.3 9.0 14.1 20.2 53.0 100.0 38.4 28.5 15.7
1999 4.2 8.9 13.8 19.9 53.8 100.0 39.4 29.6 16.7
2000 4.0 8.6 13.5 19.6 54.8 100.0 40.6 30.7 17.8
2001 4.3 9.2 14.2 20.8 52.3 100.0 37.5 27.4 14.7
2002 4.3 9.3 14.5 21.2 51.5 100.0 36.5 26.3 13.5
2003 4.2 9.1 14.3 21.0 52.1 100.0 37.2 27.0 14.3
2004 4.1 8.9 13.9 20.4 53.5 100.0 38.9 29.0 16.3
2005 4.0 8.5 13.3 19.8 55.1 100.0 40.9 31.1 18.1

I did a quick comparison of total income share for the top quintile in 1979 versus 2005 and federal tax liability portion for the top quintile in 1979 versus 2005.

income share
1979 45.5
2005 55.1
21% increase

total federal tax liability share
1979 56.4
2005 68.7
22% increase

Same thing for the top 1%

income
1979 15.4
2005 27.6
79% increase

tax
1979 9.3
2005 18.1
95% increase

Ooops! That last comment has the precentages for tax and income switched.

income
1979 9.3
2005 18.1
95% increase

tax
1979 15.4
2005 27.6
79% increase

Yep. Even paying more in taxes and a greater share of the tax burden, the rich do get richer.

I have no problem with the rich getting richer, but the generational transfer of wealth is a somewhat different subject.

Wealth is generally a different matter, one that often gets overlooked. It ain't the same thing as income.

Absolutely not--but entrenched wealth is what really counts in social stratification pathologies. Income is temporary.

Thanks for carrying the weight for me here, guys.

I looked over the PDF as well. I'll try to give folks out there an idea of who we're talking about in the quintiles.

Here are the pretax income figures for the average income of each quintile, for 2005. For the unfamiliar, each quintile represents 20% of the households reporting

bottom $15,900
2nd $37,400
3rd $58,500
4th 85,200
top 231,300

So, the average of 4th quintile is 85k, for example. And it doesn't say exactly what the borders are between quintiles, but it's probably safe to say that if your houshold is in the low 6 figures, you're close to or in that top 20%.

One ambiguity remaining for me is the "pretax income" figure. I am guessing that this is not the same as your gross income, which is the total amount of your income before anybody touches anything. More likely it's your reported taxable income, the number they use to determine your fed tax bill after deductions. But knowing the govt,, it'sprobably not quite that either.

Care to help me out again here Tully or anyone else?

When in doubt, read the fine print and footnotes in the document!

Comprehensive household income equals pretax cash income plus income from other sources. Pretax cash income is the sum of
wages, salaries, self-employment income, rents, taxable and nontaxable interest, dividends, realized capital gains, cash transfer
payments, and retirement benefits plus taxes paid by businesses (corporate income taxes and the employer's share of Social
Security, Medicare, and federal unemployment insurance payroll taxes) and employee contributions to 401(k) retirement plans.
Other sources of income include all in-kind benefits (Medicare, Medicaid, employer-paid health insurance premiums, food stamps,
school lunches and breakfasts, housing assistance, and energy assistance). Households with negative income are excluded from
the lowest income category but are included in totals.

Wow, clear as mud. No wonder I didn't find that, it was in the footnotes for table 1A, and I was looking at table 1C.

What I'm still trying to do is find a way to allow folks to figure out where they really fit in these quintiles. I think it's the word pre-tax that is still confusing me. It sounds from that footnote like these figures of pretax income are basically the sum of all your gross income, before anything has been taken out _and_before you've been allowed deductions and exemptions but then they also add in the stuff no regular person actually considers....

So suppose my household has a total of salary income of 80,000 from 2 salaries and that's it (suppose for the sake of argument) I keep my money in my mattress and have no investments whatsoever so no interest or rental income or capital gains).

So they take that 80,000, and then they add all this stuff:

1)The half of my social security tax that my company paid

2)medicare contributions made by my employer because they employ me

3)fed'l unemployment insurance contributions made by my employer because they employ me

Those I think I get. Then I get confused:

4)it also says "employEE 401k contributions" which confuses me since that would have come out of my gross income(wages or salary) which I thought they said they are already counting. Presumedly that only gets counted once. I can only guess they meant "employER." Unless that's what they mean by "cash transfer payments made by businesses." In which case maybe they're just emphasizing that your 401k contributions count for this chart

What they mean by the reference to corporate income tax, I have NO idea. I'm afraid to speculate, I'd likely be wrong.

So to sum up, it sounds like if my household has that 80,000 in salary income and a little interest income, let's say 1000 to keep it even. Then my income for purposes of this chart is 81,000 PLUS another 10-20%.... 6.5% for SS and at least another few percents each for medicare and unemployment, and if they count employer matches in 401k, another few points there.

Am I guessing even close now? Anyone?

I recall hearing that a rule of thumb is: the cost to a business of employign someone is double their salary. On that basis, I suspect you could get close to your salary contribution to what they call your "pretax cash income" by just taking your gross salary...and doubling it. If true, that makes "pretax cash income" a total mislabeling -- since a big chunk of it is cash you never see.

Right, wj...but it's misleading in the sense of regular folks being unlikely to understand what it is...that's why I'm trying to see if we can arrive at the point where we can place ourselves in the quintiles.

I've heard that rule of thumb too, but I don't THINK that the footnote suggests that the government is counting ALL of a company's related expenses...it makes sense to me to count the 401k and healthcare cpntibutions, because we all actually enjoy those, and it makes marginal sense on the unemployment and medicare contributions, too. I'm hoping someone who knows can tell us, maybe someone besides Tully because he got stuck doing the heavy lifting for the moron me.

In the meantime, I'm holding onto my guess based on half-assed understanding that we're talking about a bump in the one fifth to one third range. If I knew the percents for the unemploymewnt and medicare, i could do better, but all I really know is that companys contribute half your SS which is 6.5%, and I can ballpark that in the upper 2 quintiles, folks put away about 5 to 15% of their income into 401ks, and receive a match usually in the 3 to 6% range.

You see that cash, just not until you retire. SS checks, retirement funds, health care under Medicare....but it's still real money credited to your name somewhere.

Corporate income tax applies to the corporate tables in the document, not to the household income tables, except as passed through in dividends received by households and so on.

Employee 401k contributions are also part of your pay, but have to be derived from different sources. EmployER contributions come out of business expenses and are deducted out in the corporate figures. They don't show up in YOUR figures until you start drawing down those accounts, when they re-appear as cap gains realized, interest income, etc. As do SS/Medicare--but note that YOUR SS/Medicare deductions get deducted back out of the income tables for the annual NET household income figures as taxes paid. You get it back later as transfer payments, and it once again becomes gross income.

The figures are lifted from the national income accounting used for GDP purposes. Knowing that helps--if you understand the derivations and purposes of national income accounting.

Which is why I made sure to mention wealth, as contrasted to income, and which goes back to growth and investment. Savings versus consumption, ya know.

To clear up a bit--YOUR 401k contributions are already accounted for in your pay figures, so they don't get added in twice. The employER portion is being transferred from them into YOUR ownership, so it's counted as income to you at the transfer. When you collect that 401k, only the K-gains and interest show in the national accounting, as the rest was already accounted for.

Using the business rule of thumb is wrong when approaching the national measures. The figure is different for each business depending on their own policies. The "floor" there is salary plus the SS/Medicare match plus the incremental UI insurance cost plus incremental job support costs. That latter depends entirely on the business and its policies and benefits, and sometimes local taxations.

So can you give folks any sort of way to estimate in terms of that "percent-added to salary" thing. To help folks figure where they'd sit within the quintiles.

The SS added is 6.5%, and then everyone's match, while different, is within a fairly narrow range, as well as a known quantity for folks.

Are employer medicare and UI contributions, done on a percent of salary/wage basis, or on some other basis (like x dollars per employee) ?

Are we trying to figure out if we're in the top 1%? (snicker, snicker)

So can you give folks any sort of way to estimate in terms of that "percent-added to salary" thing. To help folks figure where they'd sit within the quintiles.

No rule of thumb because of the benefits differential. If you can't decipher the definition and figure out how it applies to your own employment/benefits situation, I can't help you. Your 1040 AGI with your employer's 401k contributions included is a semi-reasonable proxy for household income measure, but only if your finances are uncomplicated.

Just figure if you're not making $300K/yr+ in household income, you're not in the top 1%.

Are employer medicare and UI contributions, done on a percent of salary/wage basis, or on some other basis (like x dollars per employee)?

Medicare contributions are income-capped just like SS so they quit applying after you hit the income ceiling--which IIRC is 50% higher for Medicare than for SS or something like that. In addition, Medicare premiums are higher for folks over 65 with incomes over $100K or so who are already on Medicare--a very reasonable means-testing surcharge thing, IMHO. Your UI is a state thing, I can't answer that.

You can check out the "Effective Social Insurance Tax Rate" tables, though. Once again, read the footnotes. (That also applies to analyzing corporate reports, BTW. All the good stuff is in the footnotes.)