Economic Discussion - Income Inequality

[Kitsune]

I think this is best in politics but might not be the right place

Hoping that somebody can help where might be a good place to go from here?

My statement:

The biggest reason why one can put higher taxes on the wealthy is simply because they can afford it. . . .
If you make 25 K a year, you might need 20 K to survive due to simple bills
A person who makes 250 K can live far better than the person who makes 25 K on a much lower percentage of their income.
Even living in a nice home and owning new expensive cars, they might spend 50 K a year on survival.
Even if we assume that they need 100 k, they have 150 K to "play with" while the 25 K person has 5 k.
Without those 25 K workers, they also could not live and make 250 k a year so they do have a debt to the society generally.
It is not about punishing the rich but who can afford a bit more without being forced to live on the streets and not eat.

Response:

"The biggest reason why one can put higher taxes on the wealthy is simply because they can afford it. . . ."

Bollocks. You're playing an infantile zero-sum game, as if the economy is like a pizza: less for me means more for thee. Balderdash.

The wealth you want to confiscate from the successful won't magically add itself to the incomes of the middle class, or the working class, or the poor. It is simply capital, which otherwise would create more wealth, being drained from the productive sector and fed into the rapacious maw of government. Before you can even talk about dividing up the tax burden, you have to address how heavy the aggregate tax burden is: way too high. The government is draining the life out of the economy like a tapeworm.

I'll quote Walter Williams: "Here's my definition of 'social justice': you keep what you earn, and I keep what I earn. Do you disagree? Then tell me how much of what I earn belongs to you, and why."

Where might I go from here?

[spaceviking]

I would respond by showing that the U.S in the past 50's and 60's had much higher taxes on the highest tax brackets. This is a time when NASA achieved great things, infrastructure (roads and what not) was improved, and people were improving their standard of living.

Libertarians want all the advantages of the welfare state but none of the costs.

[TimothyC]

I would respond by showing that the U.S in the past 50's and 60's had much higher taxes on the highest tax brackets. This is a time when NASA achieved great things, infrastructure (roads and what not) was improved, and people were improving their standard of living.

Libertarians want all the advantages of the welfare state but none of the costs.

Liberals want all of the benefits of a welfare state, but with someone else paying for the costs (or so the young, poor liberals seem).
The only problem is, even under those higher tax brackets, We didn't see much more of the GDP come into the treasury.
Oops.

If you want to make an argument for increased government spending, you need to point to situations where the spending has net positive multipliers for the economy even when you remove the inefficiencies induced by transfer payments (situations where $1.00 of government spending produces enough GDP growth (say 12%) to offset the losses (say 10%) induced by pulling it into the government in the first place (note, numbers are rectal extraction, but are there for a point).

[Kitsune]

Don't forget that we are at historically high levels of income inequality

[Dominus Atheos]

3 words: Government Spending Multiplier.

The vast majority of dollars the government does actually increases GDP by more then a dollar. Furthermore, while it's true that even a private citizen's spending can have a multiplier effect, the government is in a unique position to do it extremely well.

The CBO estimates that the "Purchase of goods and services by the federal government" has a multiplier of at minimum .5 and at most 2.5. Even "Transfer Payments to Individuals", just straight giving money to people for no reason, has an effect of .4 to 2.1. Meanwhile, while it doesn't say exactly what effect a tax increase would have on the economy, it does talk about Tax Cuts: "One-Year Tax Cut for Higher- Income People" increases GDP by 0.1 to 0.6 dollars for every 1 dollar spent.

But those ranges might be too big, and stupid people will just concentrate on the parts where it's less then 1.0. Let's get financial giant Moody's Corporation's take on some solid numbers:

Fiscal Bang for the Buck
One-year $ change in real GDP per $ reduction in federal tax revenue or increase in spending

Tax Cuts

Nonrefundable Lump-Sum Tax Rebate 1.02
Refundable Lump-Sum Tax Rebate 1.26

Temporary Tax Cuts

Payroll Tax Holiday 1.29
Across the Board Tax Cut 1.03
Accelerated Depreciation 0.27

Permanent Tax Cuts

Extend Alternative Minimum Tax Patch 0.48
Make Bush Income Tax Cuts Permanent 0.29
Make Dividend and Capital Gains Tax Cuts Permanent 0.37
Cut Corporate Tax Rate 0.30

Spending Increases

Extend Unemployment Insurance Benefits 1.64
Temporarily Increase Food Stamps 1.73
Issue General Aid to State Governments 1.36
Increase Infrastructure Spending 1.59

Source: Moody's Economy.com

So it's nearly impossible to argue that the government taking money from rich people and then spending it is worse for the economy then letting rich people keep their money.

[Simon_Jester]

Also, extensive spending on infrastructure and education (which I suspect has even higher multiplier effects than infrastructure) thus tends to increase GDP yet further, creating a virtuous cycle even if we accept the "Treasury can't receive more than 20% GDP" rule as valid.

Come to think of it, while the historical observation that percent GDP going into the treasury is constant may be true empirically, until I see better reasons of theory to support it, I'm not going to assume it's the way things must be. That may hold for reasons that have nothing to do with what President Bush would have said, which would go something like:

"If you raise taxes above 20% of GDP, the economy automatically contracts until the things you are taxing have died off, and you're only bringing in 20% of GDP again."

If THAT is true then yes, raising taxes on millionaires will 'kill the goose that lays the golden eggs.' Although in that case you're hoping that freeing up the resources that goose consumes will, say, allow for the rise of twenty hens that lay silver eggs instead.

But it's still quite possible that the explanation is "it's just a coincidence." I don't think the null hypothesis can be rejected safely here.




EDIT: The fact that further tax cuts have multiplier numbers significantly less than one tends to disprove the "if you tax at over 20% GDP, the economy will shrink" argument.

For example, imagine that lowering the tax rate by 1% means giving up 100 gigabucks of revenues and causes only 50 gigabucks of GDP growth. If so, even if we accept the Laffer curve, we can still assume that the GDP-versus-tax curve is roughly linear for short distances.

So if lowering the tax rate by 1% sacrifices 100 gigabucks to gain 50 gigabucks, then raising the tax rate by 1% would bring in (roughly) 100 gigabucks of revenue and sacrifice (roughly) 50 gigabucks of GDP.

In which case we are a very long way from the point where increased Treasury receipts cause us to hit diminishing returns, because that (roughly) 50-gigabuck decrease in GDP corresponds to a 10-gigabuck decrease in Treasury receipts (assuming taxation to the level of about 20% GDP). The Treasury still comes out 90 gigabucks ahead.

You'll know you're approaching diminishing returns when tax cuts have multiplier effects significantly higher than one. For example, if you're taxing to the level of 33% GDP, and a tax cut has a multiplier effect of about 3.0, then you've hit the peak of the Laffer curve.

Trying to stay on the peak of the Laffer curve exactly, the place where d(revenue)/d(tax rate) equals zero, is of course challenging and unsafe. It would be more conservative (and better economic engineering) to stay slightly on the low side of the Laffer curve, so that nothing will go badly wrong if taxes increase slightly or if changing conditions cause the curve itself to shift for our country.

But even if we play it conservatively, there is no way that we are anywhere near the peak of the Laffer curve if tax cuts have a multiplier effect of 1 or less.

[Kitsune]

Does anybody know any reasonably conservative sources that argue that trickle down economics don't work?

[madd0ct0r]

Paul Krugman, New York Times?

http://krugman.blogs.nytimes.com/2013/0 ... ckle/?_r=0

[Raj Ahten]

Krugman is not a conservative by any stretch of the imagination. At least not an American one.

[Alyrium Denryle]

"The biggest reason why one can put higher taxes on the wealthy is simply because they can afford it. . . ."

Bollocks. You're playing an infantile zero-sum game, as if the economy is like a pizza: less for me means more for thee. Balderdash.

No. It is not a zero sum game. If Person A has ten dollars and Person B has 100, and they need 20 dollars for a group project that will make them both better off directly or indirectly, the person with ten dollars is harmed more--that ten dollars is all he has to live on--than the person with 100. In other words, each dollar is more valuable to the person with 10 dollars than 100. Therefore, if we want fairness, the twenty dollars should come out of each of their allotted budgets such that the marginal harm (the harm done by taking the next arbitrary increment, perhaps cents in this case) is the same.

This project MUST be done. And each of them might have more or less in the future, but decisions can only be made on the basis of current decisions.

Taxation and what comes out of it is that group project. The stuff everyone needs. Roads, schools (even if you send your kids to private schools, you benefit from having those around you and working for you, or working for those who work for you being well educated), police, a military, and a safety net in place in case something goes horribly horribly wrong. Yes. safety net. Because people who are in poverty because they got laid off in a fiscal collapse have a tendency to turn to various sorts of crime. Everyone benefits by having such a system in place, not just the people on the proverbial bread dole.

The wealth you want to confiscate from the successful won't magically add itself to the incomes of the middle class, or the working class, or the poor. It is simply capital, which otherwise would create more wealth, being drained from the productive sector and fed into the rapacious maw of government.

The rapacious maw of government? You think that money just disappears? No. Where do you think your roads come from? Or the police officers? Or the judicial system? Would you rather your grandmother have invested heavily for her retirement in the private stock market, only to have it collapse through forces she could not predict or control and thus be destitute... or would you like there to be SOMETHING there to make sure she does not become homeless? Would you rather the children of poor people simply die from illnesses that do not care about how much money they have, or would you prefer there be something there that is guaranteed to take care of them?

The goal is not to add those dollars to the incomes of poor people. The goal is to build common social and economic infrastructure that facilitates the growth of the economy, and to provide assistance when people fall on hard times or face expenses (like medical ones, the costs of which are outrageous even with private insurance) that their income and savings cannot possibly cover. The stability provided by systems like this helps the economy grow that is more than the sum of money tossed in. It has a higher rate of return in terms of economic growth than letting the wealthy keep every red cent.

Before you can even talk about dividing up the tax burden, you have to address how heavy the aggregate tax burden is: way too high. The government is draining the life out of the economy like a tapeworm.

No. It isn't. You are the one (this person, whoever they are) who is engaging in an infantile zero sum game. The government does not take a finite amount of money out of the economy that regenerates at a fixed rate, and then tosses it into a well. The government invests in things that an economy driven by for-profit enterprise can't, either because there is no direct profit to be made (though a good number of indirect social and economic benefits) or because the Thing in question is for common use, like public roads and law enforcement, that no one firm can claim exclusive use for and thus has no incentive to create, or because the initial capital expenditures are too high. Even with privatized roads for example, the company does not build the roads. They help defray the costs and pay for maintenance, but the initial capital outlay is done by the government.

I'll quote Walter Williams: "Here's my definition of 'social justice': you keep what you earn, and I keep what I earn. Do you disagree? Then tell me how much of what I earn belongs to you, and why."

You. Are. Not. An. Island. You grew up on the tit of the state. You were educated by the state, you were driven to school on roads provided by the state, protected physically by police and other first responders employed by the state, to say nothing of the military that protects commerce Globally. Your legal rights are ensured by lawyers trained and often employed by the state. Everything you consume be it food, medication, drinking water, paint, and household chemicals was regulated by the state to make sure it would not poison you or give you diseases like cholera. The reason half your siblings did not die in childhood is because the state exists. The reason your workplace and house does not fall over and fire does not engulf the neighborhood is because there are building codes ensuring that some for-profit contractor did not cut corners in construction. The reason you dont breathe poison is because the state ensures industrial emissions are kept to safe levels. For example, coal fired power plants in the US release about the same amount of (combined) radioactive contamination as the Fukushima disaster, it is just more spread out geographically. It would be MUCH worse if the state did not pay firms to keep their shit clean.

And no, the private sector will not self regulate. The chicken industry says they will to avoid regulation and they dont. We know they dont because the Chesapeake is very often a dead-zone thanks to runoff from chicken farming. Before the Clean Water Act of 1974, unchecked chemical dumping set the great lakes on fire.

Someone has to pay for that. We benefit. It is thus US who has to pay for it. Commensurate with ability to pay. Afterall, richer people directly benefit from the system more, AND it causes less harm to them.

[Kitsune]

What are thoughts on Subsidies to large companies?
http://thinkbynumbers.org/government-sp ... tatistics/

[Alyrium Denryle]

What are thoughts on Subsidies to large companies?
http://thinkbynumbers.org/government-sp ... tatistics/

In Theory those subsidies exist to keep prices down or to tamp down price fluctuations. For example, with agriculture the government pays farmers NOT to produce a certain amount in order to avoid flooding the market, which would drive prices down below the per-unit production costs and a shitload of farmers go bankrupt. That is the theory anyway. And i works with agriculture because strings are attached to the subsidy.

In other cases, such as Petroleum... it does no such thing. They have no incentive to lower prices in response to a subsidy, instead they simply record the subsidy as revenue and do not alter prices, thus raking in profits that are the largest in the history of humankind.

Also, that link will not open for me, dont know why. Could you perhaps copy/paste the text?

[Kitsune]

Do my best. . .

That actually is one of my questions. . . .Subsidies on oil is something I am not seeing are worth the money and could be put into social programs.

Government Spends More on Corporate Welfare Subsidies than Social Welfare Programs

Podcast: Download
Corporate Welfare Piggy Bank

Time Magazine, Vol. 152 No. 19
About $59 billion is spent on traditional social welfare programs. $92 billion is spent on corporate subsidies. So, the government spent 50% more on corporate welfare than it did on food stamps and housing assistance in 2006.

Before we look at the details, a heartfelt plea from the Save the CEO’s Charitable Trust:

There’s so much suffering in the world. It can all get pretty overwhelming sometimes. Consider, for a moment the sorrow in the eyes of a CEO who’s just found out that his end-of-year bonus is only going to be a paltry $2.3 million.

“It felt like a slap in the face. Imagine what it would feel like just before Christmas to find out that you’re going to be forced to scrape by on your standard $8.4 million compensation package alone. Imagine what is was like to have to look into my daughter’s face and tell her that I couldn’t afford to both buy her a dollar sign shaped island and hire someone to chew her food from now on, too. To put her in that situation of having to choose… She’s only a child for God’s sake.”

It doesn’t have to be this way. Thanks to federal subsidies from taxpayers like you, CEO’s like G. Allen Andreas of Archer Daniels Midland was able to take home almost $14 million in executive compensation last year. But he’s one of the lucky ones. There are still corporations out there that actually have to provide goods and services to their consumers in order to survive. They need your help.

For just $93 billion a year the federal government is able to provide a better life for these CEO’s and their families. That’s less than the cost of 240 million cups of coffee a day. Won’t you help a needy corporation today?
The Traditional Welfare Queen
Definition: social welfare

n. Financial aid, such as a subsidy, provided by a government to specific individuals.

When one thinks about government welfare, the first thing that comes to mind is the proverbial welfare queen sitting atop her majestic throne of government cheese issuing a royal decree to her clamoring throngs of illegitimate babies that they may shut the hell up while she tries to watch Judge Judy. However, many politically well-connected corporations are also parasitically draining their share of fiscal blood from your paycheck before you ever see it. It’s called corporate welfare. The intent here is to figure out which presents the greater burden to our federal budget, corporate or social welfare programs.

There are, of course, positive and negative aspects to this spending.The primary negative aspect is that you have to increase taxes to pay for it. Taxing individuals lowers their standard of living. It reduces people’s ability to afford necessities like medical care, education, and low mileage off-road vehicles.The common usage definition of social welfare includes welfare checks and food stamps. Welfare checks are supplied through a federal program called Temporary Aid for Needy Families. Combined federal and state TANF spending was about $26 billion in 2006. In 2009, the federal government will spend about $25 billion on rental aid for low-income households and about $8 billion on public housing projects. For some perspective, that’s about 3 percent of the total federal budget.

Note: I do not consider Medicaid to be included in the term “welfare” as it is used in common parlance. Typically, if one states that someone is “on welfare”, they mean that the person is receiving direct financial aid from the government. If we included Medicaid in our definition of social welfare, we would also have to consider any service that the government pays for to be “welfare”. For instance, public roadways to individuals’ homes would also be considered “welfare” under that expansive definition.
TANF (Temporary Aid to Needy Families)

Another negative aspect relates to the fact that social welfare programs reduce the incentive for recipients to become productive members of society. However, in 1996, Congress passed a bill enacting limited welfare reform, replacing the Aid to Families with Dependent Children (AFDC) program with the new Temporary Aid to Needy Families (TANF) program. One key aspect of this reform required recipients to engage in job searches, on the job training, community service work, or other constructive behaviors as a condition for receiving aid. The bill was signed by a man named Bill Clinton, who is much better known for an act of fellatio which, of course, had far greater societal implications. Regardless, the success of this reform was pretty dramatic. Caseloads were cut nearly in half. Once individuals were required to work or undertake constructive activities as a condition of receiving aid they left welfare rapidly. Another surprising result was a drop in the child poverty rate. Employment of single mothers increased substantially and the child poverty rate fell sharply from 20.8 percent in 1995 to 16.3 percent in 2000.

Graph of US Child Poverty Rates by Living Arrangements (1975-2009)


Graph Source: http://census.gov/hhes/www/poverty.html
The Corporate Welfare Queen

Now, let’s consider the other kind of welfare.
Definition: corporate welfare

n. Financial aid, such as a subsidy, provided by a government to corporations or other businesses.

The Cato Institute estimated that, in 2002, $93 billion were devoted to corporate welfare. This is about 5 percent of the federal budget.To clarify what is and isn’t corporate welfare, a “no-bid” Iraq contract for the prestigious Halliburton, would not be considered corporate welfare because the government technically directly receives some good or service in exchange for this expenditure. Based on the Pentagon’s Defense Contract Audit Agency (DCAA) findings of $1.4 billion of overcharging and fraud, I suppose the primary service they provide could be considered to be repeatedly violating the American taxpayer.On the other hand, the $15 billion in subsidies contained in the Energy Policy Act of 2005, to the oil, gas, and coal industries, would be considered corporate welfare because no goods or services are directly returned to the government in exchange for these expenditures.



US Energy Subsidies Infographic by GOOD Magazine & Deeplocal
Infographic Source: http://awesome.good.is/transparency/web ... /flat.html

Tax breaks targeted to benefit specific corporations could also be considered a form of welfare. Tax loopholes force other businesses and individual taxpayers without the same political clout to pick up the slack and sacrifice a greater share of their hard-earned money to decrease the financial burden on these corporations. However, to simplify matters, we’ve only included financial handouts to companies in our working definition of corporate welfare.

Whenever corporate welfare is presented to voters, it always sounds like a pretty reasonable, well-intended idea. Politicians say that they’re stimulating the economy or helping struggling industries or creating jobs or funding important research. But when you steal money from the paychecks of working people, you hurt the economy by reducing their ability to buy the things they want or need. This decrease in demand damages other industries and puts people out of work.

Most of the pigs at the government trough are among the biggest companies in America, including the Big 3 automakers, Boeing, Archer Daniels Midland, and now-bankrupt Enron.
Farm Subsidies

However, the largest fraction of corporate welfare spending, about 40%, went through the Department of Agriculture, most of it in the form of farm subsidies. (Edwards, Corporate Welfare, 2003) Well, that sounds OK. Someone’s got to help struggling family farms stay afloat, right? But in reality, farm subsidies actually tilt the cotton field in favor of the largest industrial farming operations. When it comes to deciding how to dole out the money, the agricultural subsidy system utilizes a process that is essentially the opposite of that used in the social welfare system’s welfare system. In the corporate welfare system, the more money and assets you have, the more government assistance you get. Conversely, social welfare programs are set up so that the more money and assets you have, the less government assistance you get. The result is that the absolute largest 7% of corporate farming operations receive 45% of all subsidies. (Edwards, Downsizing the Federal Government, 2004) So instead of protecting family farms, these subsidies actually enhance the ability of large industrial operations to shut them out of the market.

Graph of Direct Government Payments to Farmers (1990-2004)

Graph Source: http://ers.usda.gov/data
Wal-Mart. Always high subsidies. Always.

The same is true in all other industries, too. The government gives tons of favors to the largest corporations, increasing the significant advantage they already have over smaller competing businesses. If, in the court of public opinion, Wal-Mart has been tried and convicted for the murder of main street, mom-and-pop America, then the government could easily be found guilty as a willing accomplice. Wal-Mart receives hundreds of millions of dollars of subsidization by local governments throughout the country. These subsidies take the form of bribes by local politicians trying to convince Wal-Mart to come to their town with the dream of significant job creation. Of course, from that follows a larger tax base. For example, a distribution center in Macclenny, Florida received $9 million in government subsidies in the form of free land, government-funded recruitment and training of employees, targeted tax breaks, and housing subsidies for employees allowing them to be paid significantly lower wages. A study by Good Jobs First found that 244 Wal-Marts around the country had received over $1 billion in government favors.
The Big Picture

So now let’s look at the big picture. The final totals are $59 billion, 3 percent of the total federal budget, for regular welfare and $92 billion, 5 percent of the total federal budget, for corporations. So, the government spends roughly 50% more on corporate welfare than it does on these particular public assistance programs.

Should we spend less on corporate welfare and/or social welfare programs? Or should we spend even more? It’s up to you. A bunch of people died horrible deaths to make sure this country remained a democracy, so if you feel strongly about this issue you owe it to them to call or write your congressman and senators and give them a piece of your mind.
Some More Sources:

2013 Budget: http://www.whitehouse.gov/sites/default ... budget.pdf

Source: Office of Management and Budget, Budget of the United States Government (Washington: Government Publishing Office), various years; and data from the American Association for the Advancement of Science R&D Budget and Policy Program, various years.

I am extremely appreciative of any corrections or additional info that I left out. Please include hyperlinked SOURCES. I want to update this post with more recent numbers and more expansive definitions of both corporate and social welfare. My ultimate solution to this problem is wiki-izing ThinkByNumbers.org so that good citizens such as yourselves can correct any unfortunate omissions. I hope to have that feature functional in the coming months.
By Bob Butterfield.