The United States of Inequality

[MillTownCath]

So?

The fact that we have a “new” faction called the Tea Party, which exists almost entirely to whine and complain about “high” taxes, is a joke. Taxes are at their lowest point since 1950. usatoday.com/money/perfi/taxes/2010-05-10-taxes_N.htm

And yet, a supposedly liberal President, included more tax cuts in his stimulis bill.
politifact.com/truth-o-meter/statements/2010/jan/28/barack-obama/tax-cut-95-percent-stimulus-made-it-so/

And even though we have a massive debt, for some reason we feel that laying off government workers is better for the economy than raising revenue by closing loopholes, etc.
Here in Minnesota, we did the same thing. We balanced the budget on the backs of the middle class instead of raising revenues by taxing millionaires and billionaires. You know what happened? The City of Minneapolis had to layoff 10 fire fighters because of the budget cuts. Nice Job creating.

What a joke this country’s political system has become.

 

[estesbob]

So - it’s not a good thing when prosperity isn’t growing for the majority of Americans. Everyone wants at least a shot at doing better, but those opportunities are becoming increasingly rare. It’s a tough problem, but I don’t think it’s something than requires a heavy-handed, government-mandated redistribution-of-income solution.

I think a lot of the inequality comes from a shift in the sources of wealth creation, from those which require many hands, such as manufacturing, to those which require fewer hands (at least fewer domestic, skilled hands), such as financial activities and entertainment. The wealth is still being created, but fewer people share in creating it.

In the past, a visionary like Edison or Ford would come up with an idea for some new or better product, then build an enterprise to make and sell it, creating jobs at all skill levels. The entrepreneur profited the most, of course, but he needed a lot of people to realize his vision, and they all benefited too.

Today, the execution of that new and better idea is likely to be offshored, cutting out many of the middle-level and even highly-skilled jobs such as engineering and software development which formerly would have been done in the US, leaving only the low-paid bottom of the pyramid, like retail clerks. This “hollowing out” of our once-vibrant manufacturing economy has wiped out a lot of jobs and closed off a path to advancement for many.

It is a “bad” thing only if the Govt tries to “fix” it.

 

[TedDC]

It is a “bad” thing only if the Govt tries to “fix” it.

No, it is a bad thing regardless - what’s good about fewer and fewer Americans prospering?

But government trying to fix it by redistributing income is also bad.

 

[Monte_RCMS]

The fact that we have a “new” faction called the Tea Party, which exists almost entirely to whine and complain about “high” taxes, is a joke. Taxes are at their lowest point since 1950. usatoday.com/money/perfi/taxes/2010-05-10-taxes_N.htm

And yet, a supposedly liberal President, included more tax cuts in his stimulis bill.
politifact.com/truth-o-meter/statements/2010/jan/28/barack-obama/tax-cut-95-percent-stimulus-made-it-so/

And even though we have a massive debt, for some reason we feel that laying off government workers is better for the economy than raising revenue by closing loopholes, etc.
Here in Minnesota, we did the same thing. We balanced the budget on the backs of the middle class instead of raising revenues by taxing millionaires and billionaires. You know what happened? The City of Minneapolis had to layoff 10 fire fighters because of the budget cuts. Nice Job creating.

What a joke this country’s political system has become.

There are a number of issues with your links:

For one thing, since the Democrats took over Congress in 2006 elections, the economy has deteriorated:

denaliguidesummit.blogspot.com/2010/08/flation-fait-accompli-imo-see-it-here.html

These are merely the indicators.

You need to be careful about which numbers you use. So, my posts that follow suggest some questions for your consideration.

 

[Monte_RCMS]

Here is a useful set of questions and answers:

“Since government spends 100 pct (or more) of collections [more like 200% of collections], and government spending is a component (30 pct-ish) of GDP,
wouldn’t the technically correct way to present the data be
collections vs. GDP ex-government portion?”

Yes. The vast increase in federal government expenditures masks the additional tax burden when measuring taxes against GDP. You’ve hit on a major reason why this chart is misleading. We need to separate the “real” portion of the economy from the artificial portion (gov’t borrowing and spending). It is humorous – and sad – to watch the gov’t so focused on GDP numbers that it simply borrowed and spent (or printed and spent) until the GDP went back up to the GDP number it wanted, and then declared the recovery in progress.

“If corporate taxes are raised, how much of that extra expense
will come out of profits and how much will come out of higher
prices? Do corporations really pay taxes or just collect them?”

I believe the data show that corporations merely collect taxes and pass them on in higher prices. Since some of the buyers are in foreign countries, a small portion of the total U.S. tax burden is paid by foreigners. Eliminating the corporate income tax and creating a small tariff on exported goods would get the same results, theoretically. Eliminating the corporate income tax would save our country the economic waste of the 40%-50% collection cost of corporate taxes (i.e., tax planning and compliance).

The charts for taxes as a percentage of GDP are interesting, but what would be more interesting is seeing taxes as a percentage of household income or per capita income. The tax burden wouldn’t look so consistent or benign. The average household income is pretty much flat (or down if we use true CPI numbers) over the last decade, but federal government expenditures have doubled (or more, if we count the backdoor Fed handout/money printing).

 

[Monte_RCMS]

Back of the envelope calculation:

If corporate taxes decrease from 4% of GDP to 2% of GDP, that amounts to a decrease of approximately $280 billion in revenue for 2010, based on the 2010 GDP of approximately $14 trillion. This is a little more than 20% of the projected budget deficit of $1.2 trillion.

It would be interesting to calculate how much less the national debt would be if we had maintained the corporate rate at 4% of GDP throughout the 60 years of the chart (assuming the same level of spending during that period).

The challenge is when you change the tax rate / deductions / exemptions / subsidies, you change the corporate behavior — we dont know what the GDP would have looked like after those (hypothetical) changes

Since government spends 100 pct (or more) of collections, and government spending is a component (30 pct-ish) of GDP, wouldn’t the technically correct way to present the data be collections vs. GDP ex-government portion?

That method would scale numbers to the real economy, and also factor in tax revenue (GDP) borrowed from future receipts.

“It would be interesting to calculate how much less the national debt would be if we had maintained the corporate rate at 4% of GDP throughout the 60 years of the chart (assuming the same level of spending during that period).”

I suspect we would then be asking how much less the national debt would be if we had maintained the corporate rate at 6% of GDP throughout the 60 years of the chart.

Other good charts would be annual tax revenue as a percentage of total national debt, as a percentage of annual debt payments, and as a percentage of annual interest accrual.

Then compare those figures to the growth in tax revenue and GDP.

I’ve tinkered with those figures and it is understandable why people freak out regarding the deficit.

Another quick calculation:

Comparison of revenues from corporate taxes from 4% of GDP over 6 decades minus actual rate (% 0f GDP) over 6 decades is approximately $6.5 trillion. That is roughly half of the total national debt of $12 trillion. Thus, had we maintained our spending at the actual levels, and collected corporate taxes at the 1950-1970 level, our total national debt would be half of what it is now.

Methods:
GDP data from usgovernmentspending.com
National debt data from treasurydirect.gov
Percentages of GDP collected as corporate taxes estimated from graph. An average for each decade was estimated and rounded to nearest 0.5%.

Check my numbers and let me know if I miscalculated. If I’m correct, the numbers are striking.

 

[MillTownCath]

There are a number of issues with your links:

For one thing, since the Democrats took over Congress in 2006, the economy has deteriorated:

denaliguidesummit.blogspot.com/2010/08/flation-fait-accompli-imo-see-it-here.html

These are merely the indicators.

You didn’t actually respond to my main point, which is our revenue stream, if anything, is far too low to ensure a debt-free and well structured/maintained nation.

We spend too much on wars, and allow the super rich and corporations to pay little or nothing in taxes, despite the fact that they use our roads/public safety/educated society etc.

As billionaire Warren Buffet says “My friends and I have been coddled long enough by a billionaire-friendly Congress. It’s time for our government to get serious about shared sacrifice.”

Darn right.

 

[Monte_RCMS]

You didn’t actually respond to my main point, which is our revenue stream, if anything, is far too low to ensure a debt-free and well structured/maintained nation.

We spend too much on wars, and allow the super rich and corporations to pay little or nothing in taxes, despite the fact that they use our roads/public safety/educated society etc.

As billionaire Warren Buffet says “My friends and I have been coddled long enough by a billionaire-friendly Congress. It’s time for our government to get serious about shared sacrifice.”

Darn right.

blogs.marketwatch.com/fundmastery/2010/07/02/does-hiking-tax-rates-raise-more-revenue/

Good article … read this.

Buffett profits because when people flee high tax rates, they sell to him at distress prices.

 

[estesbob]

You didn’t actually respond to my main point, which is our revenue stream, if anything, is far too low to ensure a debt-free and well structured/maintained nation.

We spend too much on wars, and allow the super rich and corporations to pay little or nothing in taxes, despite the fact that they use our roads/public safety/educated society etc.

As billionaire Warren Buffet says “My friends and I have been coddled long enough by a billionaire-friendly Congress. It’s time for our government to get serious about shared sacrifice.”

Darn right.

How does raising taxes alleviate the so called income equality? What keeps Buffet from giving as much money as he wants to the Govt?

 

[Monte_RCMS]

You didn’t actually respond to my main point, which is our revenue stream, if anything, is far too low to ensure a debt-free and well structured/maintained nation.

We spend too much on wars, and allow the super rich and corporations to pay little or nothing in taxes, despite the fact that they use our roads/public safety/educated society etc.

As billionaire Warren Buffet says “My friends and I have been coddled long enough by a billionaire-friendly Congress. It’s time for our government to get serious about shared sacrifice.”

Darn right.

What do you mean by revenue stream? The stream of tax collections? Tax collections tend to stay the same. The article posted above shows that we do not have a problem with tax collections … we have a problem with government spending.

The government takes in roughly $5 Billion per day in taxes. It spends roughly $1 Billion per day for interest on the debt; $1 Billion per day for Social Security and $1 Billion per day for Medicare. That leave $2 Billion per day for everything else. AND that amount was fine until Mr. Obama became president. We had been spending somewhere around $5 Billion to $7 Billion per day … but President Bush II got the deficit down to $1 Billion per day. Until that phonied up Fannie and Freddie financial crisis. Under the Democrat Congress that was in control from 2006 on, spending soared … and under President Obama it reached $10 Billion per day … and is headed towards $13 Billion per day.

Based on all the graphs, the U.S. will only produce a certain percent of GDP in tax revenues regardless of how you punish the people of the country with higher taxes.

And that amount is right around $5 Billion per day … maybe a little higher.

We do not have a tax collection problem; we have a government spending problem.

Military spending by the U.S. as a percent of GDP and as a percent of total Federal outlays is at a low … in fact, it is so low that our preparedness is suffering and it shows.

You may look at the total dollars of military spending and say it is too high, but hardware costs money and the salaries and training of military personnel cost money.

Since 1940 only three times has military spending been this low: 1940, 1950 and 2000 … just prior to the Japanese attack on Pearl Harbor, just prior to the North Korean invasion of South Korea and just prior to the 9/11 attacks on the Pentagon and the World Trade Center. What this means is that by our lack of preparedness, we are displaying weakness and are inviting an attack by our enemies … and we DO have enemies.

If you raise corporate taxes, then corporations will move out of the United States in greater numbers. If that is what you want to do: drive companies [employers] away, then go ahead and raise taxes.

 

[Monte_RCMS]

blogs.marketwatch.com/fundmastery/2010/07/02/does-hiking-tax-rates-raise-more-revenue/

Good article … read this.

Buffett profits because when people flee high tax rates, they sell to him at distress prices.

Read this article. It is excellent. And it has really great graphs showing trends over long periods of time.

Here is an excerpt … I do not know if the graphs will paste:

Don’t confuse tax rates with tax revenues

As you can see from the next chart produced by the conservative-leaning Heritage Foundation, we have not had tax revenues of more than 20% of GDP for any length of time since at least 1960. This is true even though w have had much higher tax rates in earlier years, in fact, we once had a marginal rate of 91%. Despite higher tax rates, tax revenues still tended to trend around the level of 18% of GDP. There were short periods when revenues went up to 20% of GDP. So, we can safely state that the long-term average for actual tax revenues is 18% to 20% of GDP.

Higher tax rates can raise revenues to a point until taxpayers change their behavior and then revenues fall back to the long-term trend line.

Source: Heritage Foundation

The gray vertical line separates actual spending and tax revenues from projected spending and revenues. The red horizontal line shows spending and the gray horizontal line shows tax revenues. The percentages for spending and revenues are shown as percentages of gross domestic product (GDP).

As you can see, tax revenues have fallen lately. This is largely due to economic weakness from the recession of 2007-2009 plus the downturn in real estate and stocks. The 2001 and 2003 tax cuts also contributed, but to a lesser extent. When the economy improves, tax revenues will go up from the current level of 15% of GDP, but that will happen naturally.

Taxpayers adapt to higher rates

How does this work? Well, it should be no surprise to readers of this blog, that when you raise tax rates, investors and taxpayers change their behavior accordingly. For example, when capital gains tax rates go up, investors slow down realization of gains. So, despite a higher capital gains tax rate, the actual revenue received from capital gains taxes may not go up much. Conversely, when capital gains tax rates go down, investors speed up realization of gains thus increasing tax revenues. Is there a correlation? Yes there is.

It’s important to remember that investors have some control of when and if they will realize a gain on a sale of stocks, mutual funds, real estate or a business. And, this is not just an issue for the ‘rich.’ In recent years, many households reporting capital gains have been under $100,000 in annual income.

The next chart appeared in the Wall Street Journal a few years ago. It shows steady tax revenues versus the significant changes that have occurred in the highest marginal tax rates.

Source: Wall Street Journal

The clear message from the Wall Street Journal chart is that the gold line (tax revenues) has been pretty steady at about 18-20% of GDP for 60 years even though the other line (tax rates) fluctuated from a high rate of 91% to a low of just under 30%. Despite changing tax rates, the actual tax revenues as a percentage of GDP really have not changed much.

Even though the percentage of tax revenues compared to GDP has not changed much since 1965, the actual revenues in dollars have tripled:

Source: Heritage Foundation

Why did revenues triple despite lower tax rates? I think it is fair to say that economic growth resulted in higher tax revenues. While tax rates were falling over this period, 1965 — 2010, tax revenues tripled. Do you think there is a correlation between higher levels of economic growth and lower levels of taxation?

 

[Monte_RCMS]

No, it is a bad thing regardless - what’s good about fewer and fewer Americans prospering?

But government trying to fix it by redistributing income is also bad.

If you want higher tax collections, … more dollars … then grow the economy.

And if you raise tax rates to “share the pain” then the economy will shrink.

The government is not a productive sector.

The government just syphons money out of the economy.

 

[Robert_Sock]

Can’t we live in a society where everybody’s basic needs are met? Is that too much to ask for in this technologically “advanced” society?

 

[MillTownCath]

If you want higher tax collections, … more dollars … then grow the economy.

And if you raise tax rates to “share the pain” then the economy will shrink.

The government is not a productive sector.

The government just syphons money out of the economy.

The government employs people who buy things. The government builds things. The government creates an atmosphere where businesses can exist (roads, schools, police, health).

Want to see an economy without any real government regulation? Go to Mexico.

Austerity measures + higher revenues = lower debt (right now we are going through austerity measures, and that is why our economy is starting to hurt again)

Lower taxes + government spending = helps the economy. (Basic economics 101)
This is exactly what the stimulis package was. (No it didn’t solve the economic crisis, but it did turn it around so we started gaining jobs and losing less)

 

[estesbob]

Can’t we live in a society where everybody’s basic needs are met? Is that too much to ask for in this technologically “advanced” society?

We do

 

[Oruwaith]

So - it’s not a good thing when prosperity isn’t growing for the majority of Americans. Everyone wants at least a shot at doing better, but those opportunities are becoming increasingly rare. It’s a tough problem, but I don’t think it’s something than requires a heavy-handed, government-mandated redistribution-of-income solution.

What is your definition of “prosperity”?

 

[TedDC]

What is your definition of “prosperity”?

Income, wealth, standard of living. And these days, I guess I shouldn’t omit the obvious: employment!

 

[nosmelc]

And yet, the United States of INEQUALITY continues to be a nation which huge amounts of folk risk everything to immigrate to.
Do you think THOSE folk are in search of greater inequality?
Or just maybe…they realize that MOST low income Americans are better off than most average income citizens of other nations.
Compare the contents of a low income American’s fridge with the contents of people’s fridge in other nations sometimes.
In America a low income American usually gets free food from the govt, drives a used car, rents a decent home, and can get 10-20 dollars an hour in panhandling.

How do you think that compares with with “low income” in most other countries.

How many people on the planet do you think would love to be a low income American?

Unfortunately globalization is bringing an end to all that. As businesses move to poorer counties and outsource jobs a balance of income is slowly developing and we are on our way down. The real question is whether we want to squeeze the blood out of the middle class to help the rich while we sink, or should we try to maintain decent treatment of our workforce for as long as we cn.

 

[St_Francis]

Can’t we live in a society where everybody’s basic needs are met? Is that too much to ask for in this technologically “advanced” society?

No, we can’t, because the definition of basic needs constantly changes. I know single mothers whose entire income is from government handouts who have Blackberries, others who have paid-for tv (cable, satellite), still others who drive surprisingly new cars.

Forty years ago, they would have been considered poor because they didn’t have a phone at all, didn’t have color tv, drove real clunkers.

As the quality of life goes up for working people, so do expectations. One is expected, in these day and age, to have a cell phone, for example. Kids in college are expected to have a computer and DSL.

Forty years ago, medical costs were a fraction of what they are now, the rules were different, and there wasn’t a lot that could be done about a lot of things. Now the state insurance supplies poor children with braces which those just outside the boundaries for getting state insurance cannot afford for their own children.

And there will always be that gap where the people do not qualify for government benefits and do not have enough money to pay for what the benefits provide for the poor, so we will always have poor people.

Oh, and guess what? Section 8 landlords pay to have the lawns mowed and the costs are rolled into the rent. Forty years ago my dad was still mowing the lawn of our rented house with a non-motorized lawn mower.

 

[Oruwaith]

Income, wealth, standard of living. And these days, I guess I shouldn’t omit the obvious: employment!

Thank you.