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The President’s Fairness Fiction

Posted by WARREN MOSLER on April 12th, 2012

President Obama’s ‘Fairness’ Vision Would Bankrupt Nation

April 11 (IBD) — Economy: In two recent high-profile policy speeches, President Obama has struggled to make a case for his big-government, high-tax vision for the economy. But his comments reveal just how bankrupt his vision is.

Last I read, he’s actually reduced govt head count for maybe the first time in history, and spending as a % of GDP is up only because of transfer payments due to the recession, with taxes as a % of GDP reaching extremely low levels as well.

It’s ironic that President Obama would make two speeches this week in Florida about “fairness,” sandwiched as they were between $10,000-a-plate fundraising dinners. But that’s the level of hypocrisy coming from the White House these days.

To be polite, most of the comments Obama makes these days about the economy, taxes and, especially, “fairness” stretch all credibility. Hearing the large number of outright falsehoods and partial truths he uses to support his argument, it’s impossible not to believe it’s simply a ploy to get votes from those who envy the rich and the successful.

A full unpacking of Obama’s whoppers would require a much larger space than we have here. Here are just a few examples:

“I believe the free market is the greatest force for economic progress in human history.”

If he believed that, he would not have signed the $787 billion stimulus bill.

That helped the private sector and ‘free markets’ even though I didn’t like the details.

He wouldn’t have imposed onerous new green regulations on businesses.

Without federal pollution regulation the states get into a race to the bottom where whoever allows the most pollution gets the most businesses.

He wouldn’t have taken over the auto and banking industries.

Banking with FDIC deposit insurance makes banking a 90/10 public private partnership. And he didn’t take over banking in any case.

Nor would he seek massive new tax hikes on businesses, or use the frightening power of government — including thousands of new IRS agents to enforce ObamaCare — to pursue his utopian vision of “fairness.”

First, I’m against corporate taxes in general. But even so, he cut payroll taxes for business and the proposed increases were about closing loopholes. And Obamacare took 500 billion out of medicare to give to insurance companies- hardly pro govt/anti business.

If Obama truly believed in the free market,

And remember, there is no ‘free market’ as by definitions markets operate only within institutional structure including contract law and enforcement.

he’d eliminate Fannie Mae, Freddie Mac, the EPA, the Energy Department and many other federal departments and agencies that distort free markets.

All govt and all taxation necessarily distorts markets. All govt works on coercion. Nor are there competitive markets when there is limited competition and monopoly power, which means some form of govt regulation is required.

He would roll back thousands of costly, ineffective regulations that estimates say cost the U.S. $1.8 trillion a year.

I’d have to see the specifics, which the rest of this article makes me doubtful of.

“The gap between those at the very, very top and everybody else keeps growing wider and wider and wider and wider.”

In fact, the top 1% have a lower share of total household income than they did in 1920 — just after World War I.

So maybe 1920 was a particularly high year because of the war? Don’t know his point, except pointing to 1920 is a smokescreen to disguise the fact that the share of income has been rising dramatically for a long time.

Though the top 1% have recently boosted their share, that’s largely due to the tech boom of the 1980s, 1990s and 2000s, which made all Americans richer.

I thought it was the financial sector??? But even so, a tech boom doesn’t necessarily do that to income distribution. It doesn’t explain why the football coach earns $10 million while the professor who cured cancer gets $100,000. It’s all about institutional structure.

Even so, the so-called Gini Coefficient — the federal government’s own measure of income inequality — is today lower than it was during the Clinton era.

“At the beginning of the last decade, the wealthiest Americans got two huge tax cuts, in 2001 and 2003.”

The rich, with everyone else, did get their top tax rates cut. But the actual taxes they paid rose sharply.

Right, because their incomes rose that much more. This is out of context writing throughout, laced with lies of omission.

Don’t believe it? Just before those tax cuts were passed, the top 1% earned 18% of all adjusted gross income and paid 34% of all federal taxes.

Only because they conveniently don’t include FICA when they talk about taxes like this. But they do include it when it’s going up or down- tax cut or tax hike. And it’s something approaching half of all federal income taxes.

By 2009, the last full year for which there are data, the top 1% share of AGI had fallen to 17%, according to IRS data. But they paid 37% of all taxes.

Not including FICA

As for the bottom 50% of income earners: In 2009 they took home 13% of income but paid less than 3% of federal income taxes. And today, nearly half of all Americans don’t pay taxes at all.

Not including FICA which is 7.6% of income from dollar one, with a cap at something like $105,000. Including FICA it could be something like 30% paid by lower income earners.

In short, during the 2000s, top earners took home a smaller share of the income pie but paid a larger share of the taxes. Is that what Obama means by “fairness?”

Does leaving out FICA count as fairness?

As for the so-called Buffett Rule that Obama wants, it would impose a minimum tax of 30% on millionaires to make them pay their “fair share.” It’s premised on investor Warren Buffett’s assertion that he pays a lower tax rate than his secretary.

Nonsense. Those with incomes over $1 million pay about 30% in taxes on average, about twice the average for those with middle incomes, like Buffett’s assistant.

Not counting FICA.

Simply put, this is class warfare. The tax would only raise $47 billion over the next decade — a drop in the bucket compared to the $45 trillion in spending and $9.6 trillion in deficits under Obama’s budget.

And just under $1 trillion per year of FICA taxes

Unfortunately, by raising the capital gains tax from 15% to over 30%, it would kill millions of American jobs and send small business creation into a tailspin.

Any tax hike can reduce aggregate demand. And not having income taxes and cap gains at the same rate merely causes income to shift to the lowest taxed category, and provide massive fees for the accounting firms and financial sector as well.

Who would that help?

“We tried (free market economics) for eight years before I took office. … We were told the same thing we’re being told now — this is going to lead to faster job growth, it’s going to lead to greater prosperity for everybody. Guess what? It didn’t.”

Obama has repeatedly suggested all the economy’s problems are due to President Bush.

But Bush, like Obama, entered office during a recession. Not only did he take over after the biggest stock market crash since the Depression, but the Fed had more than doubled interest rates, killing growth.

The Fed doubled rates from very low levels after the economy started growing from the combo Bush proactively expanding the deficit and from the up leg of the sub prime adventure. It ended with the shrinking of the deficit and the down leg of the sub prime adventure.

Worse, within eight months of entering office, the U.S. was hit with the 9/11 terrorist attacks — the first on the American homeland since World War II. Within the space of just 90 days, a million jobs were lost.

Jobs were lost because private sector credit expansion ended after being stretched past it’s limits during the late 90′s, with the govt budget surplus draining off hundreds of billions of dollars of net financial assets as well.

Obama’s right. President Bush did cut tax rates. What was the result? We had 52 straight months of job growth, with 8 million new jobs over six years.

Propelled by the larger deficit and the expansion phase of the sub prime adventure.

For Bush’s entire presidency, the unemployment rate averaged 5.3%. Under Obama, it’s not been below 8%.

Yes, because the deficit is too small, and both sides want to make it smaller. Good luck to us…

Real after-tax income per person rose more than 11% under Bush, while real GDP from 2000 to 2007 grew $2.1 trillion, or 17%. In 2007, the deficit fell to $162 billion — roughly 1% of GDP.

Yes, not large enough to support aggregate demand after support from the sub prime expansion phase ended.

Does Obama really want to compare himself to that? Since he’s entered office, we’ve lost 1.7 million jobs, and unemployment has averaged over 8%.

His deficits have averaged $1.4 trillion — about 8% of GDP, a record. On his watch, debt has soared from $10.7 trillion to $16 trillion. America now has more debt than the entire euro zone and Great Britain — combined.

And still not nearly enough to restore aggregate demand.

Under Obama spending has surged. The federal government now accounts for 25% of the economy, vs. the long-term average of 20%.

Due mainly to automatic counter cyclical transfer payments, not expanded regular spending.

Through his big-government policies, Obama took a bad recession and made sure our recovery would be the worst ever — and then blamed it on everyone but himself.

Meanwhile, get ready for “taxmageddon” — the $494 billion tax hike that hits in 2013 as the Bush tax cuts expire, something Obama is doing nothing about.

Wasn’t it the opposition trying to not allow the extension this year?

Our economy, in short, will never regain its old vitality until a new president is elected, and Obama’s top-down, government-centered policies are laid to rest.

I’ve been a harsh critic of Obama’s policies all along, but this is all a pile of intellectually dishonest propaganda.

74 Responses to “The President’s Fairness Fiction”

  1. Inoculated Says:

    Nicely served. It’s a good thing we have our mainstream news networks to help you highlight these careless misinterpretations…

    And of course the rest of the well educated money types to question the integrity when they read a piece like that

    Reply

  2. Dan Kervick Says:

    Maybe these comments need to be an op-ed. CNBC?

    Reply

    Jon Bubs Reply:

    @Dan Kervick, I could see Kudlow, or Santelli doing the narration.

    Reply

    Monica Smith Reply:

    @Dan Kervick, The comments are great. Unfortunately, it really isn’t possible to argue with liars. But, that they feel the need to regurgitate the whole kit and caboodle suggests that the “fairness” argument is seen as a real threat.
    The thing about the instinct-driven is that they see themselves in other people, but without recognizing themselves. So, for example, they ascribe envy to the poor when, in fact, it is the filthy rich who yearn for every lucre they don’t yet have. “Enough is enough” simply doesn’t compute in the obsessive mind.

    Reply

    roger erickson Reply:

    @Monica Smith,

    > isn’t possible to argue with liars

    Especially when they lie even to themselves, with fairness. That’s rampant in politics. Plausible deniability means even self-deception can be later be recanted as honest delusion.

    Groups must protect themselves from the self-deluding beliefs .. by PRACTICING adequately distributed feedback. The alternative is social insanity. We can’t explore group options with out sampling group feedback. So no need to belabor individual delusions … just safeguard against their impact.

    Reply

  3. SteveK9 Says:

    Thanks. Occasionally I need reassurance that, in fact, there are some intelligent rational people left in the US (Virgin Islands counts, right?).

    Reply

    Art Patten Reply:

    @SteveK9,

    Hey now…we have plenty of rational folks on mainland USA. They’re just not politicians or editorialists. :)

    Reply

  4. Jonf Says:

    There is much to criticize on Obama, can’t argue there. But this is just too far. But it makes some very happy. Thanks for your response.

    Reply

  5. Dave Begotka Says:

    Good one Warren!

    You know the reasons they lie are what scairs me……

    2012……aliens……chicken doodoo……lol

    Reply

  6. Art Patten Says:

    IBD’s editorial page would make Margaret Thatcher blush.

    By this, “seek massive new tax hikes on businesses,” they probably mean the potential impact of marginal income tax hikes on pass-through entities like partnerships? If anything, he’s indicated he’s for lower corporate rates (as long as the ‘base is broadened,’ of course).

    Reply

    Jon Bubs Reply:

    @Art Patten, Con mouthpiece, nothing more, nothing less.

    Reply

  7. Alex The Great Says:

    Obama is correct and the concept is very simple. Every citizen should pay the same rate of tax.

    A corporation is NOT a citizen and should pay a much higher rate of tax or lower based on what monetary policy the citizens desire.

    In American, the wealthy, hedge funds, bankers, and other make INCOME off capital gains, dividends and such and so pay very low and unfair tax rates comparing to hard working people that earn a wage for a days work.

    It is EXACTLY this type of unfair taxation that resulted in the American Revolution in the first place. Amazes me how ignorant Americans are and how little they know even of their own history…

    …sad.

    Reply

    WARREN MOSLER Reply:

    corporate taxes are passed through to consumers making them, in general, highly regressive.
    and the compliance costs, also passed through to consumers, add insult to injury.

    there are more progressive and far less costly ways to skin the cat

    Reply

    Jonf Reply:

    @WARREN MOSLER, Corporations also use much skill to avoid paying taxes, like transfer pricing or producing in low tax rate countries. Much corporate cash is outside the US so they don’t have to pay taxes on it. If there were no corporate tax, none at all, the gamesmanship would end. And we might even see more work here at home and the money kept overseas could be brought home. BTW, we should also stop with the payroll tax on employers. That would make them more,competitive.

    Fixing the tax mess would require two political parties who were not at,each othe’s ideological throat 24/7. Not going to get fixed anytime soon, I expect.

    Ps sorry about typos, this I pad is…..not made for thick fingers.

    Reply

    djp Reply:

    @Alex The Great,

    “Obama is correct and the concept is very simple. Every citizen should pay the same rate of tax. ”

    Alex, are you implying you think Obama agrees with that second sentence?
    It’s hard to find a progressive in favor of a flat tax, which is what you are advocating in the second sentence. (I’ve never seen any interpretation of flat tax that wasn’t referring to the rate being flat, not the payment. The latter is usually referred to as a head tax.)

    I don’t think Obama advocates a flat tax at all, nor do most of the posters here. I would be quite happy with one.

    Reply

  8. Charles Hayden Says:

    Hey Warren, I’m about to go the OD GA on Saturday to finalize Occupy Dallas’ official recognition of the June 23rd event. MMT is taking off in our group. I’ve got folks reading the 7DIF!

    I plan to incorporate new MMT signs in future bank protests.

    We demand Narrow Banking! We demand Public Purpose! Give us Aggregate Demand! Austerity is Deficit Stupid! etc., etc.

    Just trying to see if we could narrow down a possible time for your speech?

    Also, I’ve been talking to Mike Norman about a post on his blog about the OD petition and your visit to OD, but I don’t think he’ll post about it until it’s verified and not just the word of one Occupier.

    Anyways, just checking in…..

    As always, thank you for delivering us all from rampant, virulent ignorance, and for offering your time to speak with my Occupy brethren.

    P.S. I’m trying to get UTD faculty to attend the event.

    Your friend in Dallas

    MMT-OWS unity!

    Reply

    WARREN MOSLER Reply:

    Not to forget,

    ‘Deficit Myths are Killing the 99%!’

    ‘We Demand Aggregate Demand’

    ‘Members of Congress: Regulate Your Banks!’

    ‘All We Owe China is a Bank Statement- Get Over It!’

    ‘People are the Public Purpose!’

    ‘Let My People Work!’

    Acting like we could be Greece is turning us into Japan

    will keep working on it.

    Reply

    Jonf Reply:

    @WARREN MOSLER, The government is not like your daddy’s bank account. It never runs out of money. And it never goes bankrupt. Tell them something about money.

    Reply

  9. Jon Bubs Says:

    Taken down point by point, I love it.

    Reply

  10. Mario Says:

    I’ve been a harsh critic of Obama’s policies all along, but this is all a pile of intellectually dishonest propaganda.

    perhaps a revision of the title 7DIF to “7 Deadly GUILTY Frauds”??? You are sounding to me more skeptical of the powers that be than I’ve ever heard before. It would seem more and more of America is waking up to how ridiculously inept so many high-powered professionals are in this society of ours. It really is shocking and usually due to “snow drifts” in certain people’s consciousness. To quote Thoreau from Civil Disobedience:

    In short, as a snow-drift is formed where there is a lull in the wind, so, one would say, where there is a lull of truth, an institution springs up. But the truth blows right on over it, nevertheless, and at length blows it down.

    http://books.google.com/books?id=_qgS71I5704C&pg=PA747&lpg=PA747&dq=thoreau+turth+snow+drift+institution&source=bl&ots=cDHxoKqEv5&sig=q-bR9Ulw3_nA8drNbtv004wZwts&hl=en&sa=X&ei=9cCHT8j0FOnTiAKVtdShBA&ved=0CCMQ6AEwAA#v=onepage&q&f=false

    Reply

  11. Mario Says:

    the levels of ineptitude are really quite incredible. First we have a President giving us blatantly false information about our economy and how to solve our problems. Then we have writers and editors giving us false accounts of what the President actually says, adding more false information and spin onto already false and spun information to begin with. And then of course the writer or editor spins their work towards another set of ideas and approaches that are also false, mis-informed, and inaccurate. There are spins within spins within spins!!!!! And who said Post-Modernism wasn’t applicable to society today!?!?!

    Reply

    Chewitup Reply:

    @Mario,
    You need to watch “The No Spin Zone”. They say it’s fair and balanced. ;- )

    Reply

    Ed Rombach Reply:

    @Mario,

    Unfortunately, human nature hasn’t changed much in 10,000 years.

    Reply

    Chewitup Reply:

    @Ed Rombach,
    You’re very right Ed. When things are going well and people are generally prosperous, we don’t care what politicians say or do. Weeks go by without even a thought about government.
    Now when things slow down and prosperity becomes austerity, the pendulum swings to the other side. Now we criticize semantics and syntax along with the subject when politicians spew forth.
    What a species!

    Reply

  12. Monica Smith Says:

    Instinct-driven people are very concrete and apparently have little use for adjectives. Consequently, when they employ a phrase, such as “free market,” the adjective doesn’t actually modify the noun. Rather, they’re talking about two separate entities, “free goods” or resources, which are available to the public and taken to market for private profit. While the conversion of public assets into private wealth is, I think rightly, perceived as detrimental to society as a whole, it’s what our instinct-driven friends expect. Similarly, they don’t perceive the cost/benefit equation, where one side bears the cost and the other gets the benefit, as a problem. Goods are there for the taking. If someone is thereby deprived, that’s their problem, which the instinct-driven simply do not perceive, because they can’t see things from another person’s point of view.
    “Fairness” is a threat, because they literally do not know what it means. “Equality” is bad enough, because it means they never get enough. “Fairness” suggests that they get nothing because others are to get something.
    The “all or nothing” mentality is very literal. And it doesn’t know about taking turns, perhaps because the sense of time as a sequential process is missing.
    I would love to know if some of these cons find it difficult to be on time. I think it would tell us a lot about their perception of reality.

    The use of the word “vision” is also telling, I think. Remember George Bush the First and “the vision thing”? What the instinct-driven see seems very limited — essentially, to what’s directly in front of their noses. “The vision thing” refers to the future, to what one can expect. But the instinct-driven are limited by their superficial optics (as a friend of mine describes it). So, when a Condi Rice, for example, says “nobody could have expected,” that’s a literal statement from someone who does not expect. To preempt may be an effort to compensate for not being able to expect or anticipate with any kind of accuracy.
    Remember Plato’s allegory of the cave? That’s what it’s about — people restricted to their superficial optics, only what they see in front of their noses. It’s as if the other senses weren’t engaged. The result is a lack of common sense.

    Reply

  13. ESM Says:

    “Last I read, he’s actually reduced govt head count for maybe the first time in history, and spending as a % of GDP is up only because of transfer payments due to the recession, with taxes as a % of GDP reaching extremely low levels as well.”

    Quite a lot of things wrong with this sentence.

    First, you’re giving Obama credit for reduction in state and local govt head count. Federal head count is most likely up. Second, there have been significant reductions in federal govt head count many, many times in the past, even outside of military head count which fluctuates dramatically. Third, there are other reasons spending as a % of GDP is up – the average non-growth of GDP over the last 3.5yrs perhaps being perhaps the main one. There was also a fairly large stimulus package enacted in 2009 in case you forgot. Most importantly, laws have been implemented which have not yet kicked in, which will increase the federal government’s role in the economy significantly over time.

    “I’ve been a harsh critic of Obama’s policies all along…”

    Really? Haven’t seen it myself.

    Reply

    WARREN MOSLER Reply:

    http://www.moslereconomics.com/wp-content/graphs/2012/04/change-since-obama-start.png

    Reply

    MRW Reply:

    @WARREN MOSLER, What do the numbers represent, Warren?

    (Sorry for the dumb question. Probably perfectly obviously to everyone else.)

    Reply

    WARREN MOSLER Reply:

    govt head count hasn’t been growing as claimed

    djp Reply:

    @WARREN MOSLER,

    That’s your rebuttal?
    I like many of the ideas you bring about in other threads, but it seems a little odd that you’ll dissect a not very well thought out or well written column, complain about misleading or cherry-picked data (by far one of the things that annoys me most about many opinion pieces) and then use the BB (looks like BB) employment data as your rebuttal.

    ESM was pointing out the difference between FEDERAL and general GOV employment. The standard headline employment figures are for the latter (which includes state and local gov, not just federal). I’m pretty sure you know that, and there’s no way Karim doesn’t.

    For any interested readers, the following is a relevant discussion of the difference:
    http://www.politifact.com/truth-o-meter/statements/2011/jul/11/paul-krugman/paul-krugman-says-government-jobs-have-fallen-half/
    Referencing one of the most notorious cherry-pickers around.

    Or you can go to the source:
    http://www.opm.gov/feddata/HistoricalTables/TotalGovernmentSince1962.asp
    You can see that each category is flat to increasing except judicial/legislative (which is basically flat).

    I would say politico would’ve rated ESM as True and your rebuttal as False.

    *********************************
    ********************************
    To reiterate, in general I’m totally in agreement with you on the principle that people should lay out the truth, the whole truth, and not try to omit things to keep their opponents at bay. If the only way you can make your argument, is by hiding the facts, then you must not have a very good argument.

    That said, I agree FICA and other taxes should be accounted for when discussing real tax rates (burdens), but I think it cuts both ways a bit. I think just mentioning FICA isn’t enough, you should really get the numbers down. I’d be pretty surprised if including FICA would bring total taxes paid by the lower 50% of income earners anywhere close to 30% — which appears to be what you are suggesting here:
    “Not including FICA which is 7.6% of income from dollar one, with a cap at something like $105,000. Including FICA it could be something like 30% paid by lower income earners.”

    If I could search this blog better I’d reference back to a similar discussion where we straightened out a similar issue…

    Reply

    Gary Reply:

    @djp,

    regarding taxes. I find the whole argument very strange.
    I understand the “upper income earners” complaining about taxes. Who want’s to pay them?
    So their argument is that the poor are not paying enough.
    For me this just shows that people arguing that are living in some bubble. No grasp of reality whatsoever.
    They are comparing their “hardships” (which boat to buy, which car is more prestigious, how to avoid the poor etc) with the hardships of the “lower income earners” (should I buy medication or food, how am I going to pay for my child’s education, how to pay rent and not become homeless etc) – and they find those equivalent.
    Those people really lost their minds.

    ESM Reply:

    @djp,

    @Greg:

    The evil, greedy, emploitative Rethugs/Repugs aren’t arguing that poor people should have higher taxes. They’re arguing that fairness arguments are at least just a wee bit subjective and oftentimes dishonest when those arguments ignore the fact that almost half of the population pays almost nothing in the way of federal taxes (except for FICA whose supporters always strenuously argue is a mandated old age pension and health insurance plan rather than a tax to support the functioning of the federal government).

    I perfectly well understand what FICA is and what it isn’t, and I actually think it is eminently fair to leave it out of the discussion as to how the federal tax burden is allocated. Reasonable people can disagree. However, it is quite likely that our SS and Medicare system would unravel over time into a vulnerable welfare program for the elderly poor if politicians admitted that FICA was just a tax and had absolutely no connection to the benefits paid out to seniors.

    Finally, Aristotle warned over 2K years ago that democracies become unstable when 51% of the population realizes it can vote itself benefits that come from the other 49%. I think it is a dangerous thing for a significant number of people to pay zero tax. Everybody should feel the sting of forced government takings of their property, if only to recognize that increasing tax burdens is not something to take lightly.

    WARREN MOSLER Reply:

    now how about one of those rants i recall you made way back on all the other taxes people pay- sales, real estate, etc. direct and indirect, etc. and toss in how regressive those are while you’re at it…

    and don’t you think medical care for those doing the actual work, while not a marginal cost of production, is some kind of real cost of production and therefore a matter of public infrastructure? And how institutional structure, like the tsy security market, etc. is a massive case of a govt distortion that ‘misdirects’ income, etc?

    And i agree these things are better addressed at source.

    and don’t forget taxes serve to regulate aggregate demand,
    and if there’s some kind of moral hazard and taking care of our seniors i sure don’t see it.

    and, best I can tell, Aristotle was wrong on human nature. At least so far…

    Alan Rhodes Reply:

    @djp,

    When I checked out the linked source, I found the latest federal employment numbers are for the year 2010: 4,443,000, up from the previous year, 2009, by 13,000. But, there is a footnote stating that the 2010 number includes temporary census employees. It turns out the number of temporary census employees exceeded 500,000. http://2010.census.gov/news/releases/jobs/temp-workers.html So apparently the number of federal employees dropped substantially in 2010.

    ESM Reply:

    @djp,

    @Alan:

    I don’t think your census adjustment is reasonable. If you look back at prior years whose numbers were affected by temporary census workers, there does not appear to be any discontinuity. So I suspect the effect is small and certainly not anywhere near 500K. More importantly, the Politifact article djp linked to has more recent data (through June 2011), and the article claims Federal employment was up from Jan 2009 at that point in time. I’m not sure where on the BLS site they got their numbers, but I’m sure you could dig up something better than the 2nd link if you spent a 10 minutes clicking around.

    And most important of all, Warren made the mistake of conflating bigger government with larger numbers of government workers. “Bigger government” means a more powerful, more intrusive federal government, which might have no correlation to the number of federal government employees, and may even have a low correlation to official spending as a % of GDP. For example, the government doesn’t count a tax credit as spending, but it can have the same effect as spending, e.g. more economic distortion and more government control. New regulations do not show up in the budget numbers either.

    WARREN MOSLER Reply:

    Bigger govt. also includes new agencies like homeland security, and intrusive govt. includes drone assassinations that don’t require specific congressional approval.

    not to mention allowing banks to do more requires more bank regulators and supervisor, etc.

    djp Reply:

    @djp,

    @Gary

    Gary, my post is about getting facts straight, and not making lies of omission while criticizing others lies of omission.

    I think the lead article of this post is pretty poorly thought out, and not worth a rebuttal. But, I find it aggravating that the rebuttal is also not up to snuff.

    When that latter thought is then laid down on the blog, the rebuttal is even weaker. I like many of Warren’s ideas, and think that when he gets all the information straight he often has something intelligent to say. But I also think that this blog sometimes invites poor fact-checking, because so many of the posters see what they want and don’t question the facts.

    I’m not sure where the idea that anyone wants to raise taxes on the poor comes from. I’d be happy to have almost everyone’s taxes lowered, though I do think that everyone should be paying something, it helps bond you to society.

    MMT right now says we should do some combination of (i) lowering taxes (ii) decrease spending.
    I favor much more of (i) for several reasons. One, I think government is a poor resource allocator. Two, I think turning (i) on and off might be easier than turning (ii) on and off, and MMT says you really DO need to have the flexibility to change (i) and (ii). Lowering taxes now to help solve our problems would likely mean it would be a lot easier to raise them back up some when the time warranted. I’m worried about the cycle of increasing spending now, while also raising taxes. To me this means later on there will be calls for raising taxes even more when MMT says you should be (iii) raising taxes and/or (iv) reducing gov spending.

    I also don’t think that the gov is the only resource for helping the poor. The gov did a great job of crowding out private organizations that helped the poor over the last 50-60 years, but that doesn’t mean that if gov backed off, private citizens wouldn’t step back in and possibly deal with the problem more effectively.

    WARREN MOSLER Reply:

    typo, I think, should be ii increase spending.

    and, depending on how you define it, institutional structure is largely responsible for creating the ‘poor’

    Alan Rhodes Reply:

    @djp,

    @ESM

    I’m not experienced at digging into the source that Politico says they used, The Bureau of Labor Statistics, but I did find this: http://www.bls.gov/news.release/empsit.t17.htm
    Here they give the Federal employment at 2,861,000 for March 2011 and currently at 2,810,000 for March 2012! I hope you can accept those numbers. Personally I’m not inclined to trust Politico more than my own eyes.

    Whether the government is larger and more intrusive is of course another matter. There is another conversation entirely, and one that all Americans should have, about what exactly we want to do with *our* government. Unfortunately,I think, we are bogged down with debt and deficit paranoia.

    WARREN MOSLER Reply:

    I was commenting on another article, not writing my own, and pointing out they conveniently left out a $trillion tax (approx) paid largely/disproportionately by lower income earners. And not just this article. The mainstream press and Republicans continuously state that the lower income earners pay no income taxes, and the Democrats don’t disagree.

    ESM Reply:

    @djp,

    @Warren:

    “now how about one of those rants i recall you made way back on all the other taxes people pay- sales, real estate, etc. direct and indirect, etc. and toss in how regressive those are while you’re at it…”

    Don’t remember that, and it doesn’t sound like me in any case. My beef has always been with the income tax, which I think is the worst form of tax by far.

    “and don’t you think medical care for those doing the actual work, while not a marginal cost of production, is some kind of real cost of production and therefore a matter of public infrastructure?”

    No.

    “And how institutional structure, like the tsy security market, etc. is a massive case of a govt distortion that ‘misdirects’ income, etc?”

    Just because the effect of institutional structure is unavoidable doesn’t mean we should just throw up our hands and allow ill-thought out “remedies” to be implemented without justification. From another comment, you write:

    “… institutional structure is largely responsible for creating the ‘poor’”

    Poor people are invariably those who either cannot or will not work productively. This has little to do with insitutional structure, assuming that you restrict institutional structure to something practical that actually enhances the average standard of living. I suppose you could set up a structure where people who sit on the couch and watch TV all day are highly valued, but that wouldn’t be a very useful structure, would it?

    Come to think of it, one of the main differences between conservatives and progressives is that progressives think welfare programs compensate people for the “harm” wrought by institutional structure and help reduce the number of poor people. Conservatives think that welfare programs create a trap which increases the number of poor people. To the extent that conservatives are correct, you may be right as well.

    “and if there’s some kind of moral hazard and taking care of our seniors i sure don’t see it.”

    The moral hazard is that seniors who are perfectly capable of continuing to work and contribute to society are discouraged from doing so.

    WARREN MOSLER Reply:

    I suspect you’re being a touch argumentative but in any case
    the way I read it my points remain and so I’ll move on.

    Gary Reply:

    @djp,

    my point was merely this:

    taxes have to be paid. Sure, they can be lowered, but they still have to be paid.
    So the question is – who will pay them?
    Nobody wants to pay them. So they try to offload it to others – and in this case “the others” are in other income bracket.
    Also – the whole philosophy of government spending less, so taxes would be less is related to this. That is very nice idea – except that seems be applied applied only to spending on the poor. Also, once this will be implemented, soon government spending will have to be increased again – only this time to protect the rich from the poor.

    So the question then becomes – who SHOULD pay them? In my view – people who are already struggling to afford the necessities – should not be taxed, while people who have excess – should be taxed.
    It is obvious that the system benefits the most those who live in luxury, and not those who struggle to survive.

    Of course, there is the whole theory of “moral hazard” developed, as well as philosophy of hard working rich and lazy poor. But one has to be naive indeed to believe that.
    If there is “moral hazard” – it would apply to the rich first. Also, there is physically impossible to be so many times harder working, as the inequality displays. And finally – it is enough to simply open the eyes and look: who are doing all the work? And then – who are collecting all the money? (Hint: they are not in the same income bracket).

    djp Reply:

    @djp,

    @Alan Rhodes
    Getting hard to get the replies right…
    “I’m not experienced at digging into the source that Politico says they used, The Bureau of Labor Statistics, but I did find this: http://www.bls.gov/news.release/empsit.t17.htm
    Here they give the Federal employment at 2,861,000 for March 2011 and currently at 2,810,000 for March 2012! I hope you can accept those numbers. Personally I’m not inclined to trust Politico more than my own eyes.”

    Great reference. I think this is in line with Politco’s observation that if you separate the US Postal service from the rest of the gov (which your link also conveniently does!) then you see that the rest of the Federal gov increased.

    Thanks for the reference!

    djp Reply:

    @djp,

    @Warren
    “typo, I think, should be ii increase spending.

    and, depending on how you define it, institutional structure is largely responsible for creating the ‘poor’”

    Thank you! Yes, a typo.

    I’m not sure I understand (agree?) that the poor are created by institutional structure. Depends on why they’re poor. If I live to be 150 I’m pretty sure I’ll be poor, and likely won’t be too frustrated by it. If I valued leisure time more than I do, I might be poor and might be angry about it or not — depending on whether I realized why I was poor. I don’t think those categories are what you are referring to. I think you’re referring to the MMT issue, and yes that’s a problem, but some of the issue is also redefining what it means to be poor — put me in the Walter Williams camp on that one, we keep redefining it and our “poor” are nothing like the real poor in other countries.

    WARREN MOSLER Reply:

    yes, it depends on the definition of ‘poor’ as well.

    djp Reply:

    @djp,

    @Gary

    Also – the whole philosophy of government spending less, so taxes would be less is related to this. That is very nice idea – except that seems be applied applied only to spending on the poor.

    What? No way, there’s plenty of other stuff to be cut too.


    Also, once this will be implemented, soon government spending will have to be increased again – only this time to protect the rich from the poor.

    The poor are going to be very unhappy with their “achievement” if they revolt. The REAL secret is that you (as a society) really can’t store much of value. We really do depend on the later generations. I have more faith in our society.


    So the question then becomes – who SHOULD pay them? In my view – people who are already struggling to afford the necessities – should not be taxed, while people who have excess – should be taxed.

    Let’s redefine necessities, and I’ll agree. But there’s a problem. You can define necessities so low that no one would choose to be poor, and most of our society is uncomfortable with defining it down that far (I am as well). We feel bad about someone living that “poorly”. But, as you raise the level you will start finding people who are happy to “choose” to be in that category, because they value leisure differently than you or I. Then, if you layer on horrific incentive programs and subsidies that distort real incentives so that the “poor’s” marginal tax rate becomes 80-90% you capture them down in the quagmire. I assure you I would not work if my choices were between receiving the baseline poor or baseline poor +5% more — these are the people I feel for the most, the ones who truly want to work and do better, but find that the incentives are set up to keep them on the dole.
    So I guess in this case I understand what Warren and ESM meant by institutional structure leading to increased numbers of “the poor”.


    It is obvious that the system benefits the most those who live in luxury, and not those who struggle to survive.

    Depends on your definitions of luxury and struggling. Here’s an interesting anecdotal story — there was a great WSJ article that determined most people feel it would be unfair to tax lottery winnings of $1M-$100M higher than about 10-15%. Yet many of these same people believe you should tax “higher income” folks “more”, that they aren’t paying their fair share. Even in this thread, someone mentioned that a fair tax was a flat tax, and they were clearly not arguing in favor of lower taxes on the wealthy.
    How about this, we send everyone a check each year for $5000-$7000, then we have a flat tax, no tears. Maybe you add in some exceptional benefits for the truly disabled, impaired, and elderly, but that’s it.


    If there is “moral hazard” – it would apply to the rich first.

    How so?


    Also, there is physically impossible to be so many times harder working, as the inequality displays.

    Nuh uh. It’s always difficult to know the correct etiquette for responding to subjective statements that have been proffered as a statement of fact.
    I’ll admit that we may not think that those deserving of the rewards are the ones that receive them. It’s hard to think that a Zuckerberg, Gore or Obama deserve the wealth and privilege they receive, but I do think that there are people who have advanced society “so many times more” than others. Newton comes to mind, and imagine Shakespeare’s wealth if he could’ve gotten the present value of the royalties due.


    And finally – it is enough to simply open the eyes and look: who are doing all the work? And then – who are collecting all the money? (Hint: they are not in the same income bracket).

    So we agree, we should shrink the size of government!
    While we’re at it, we should do away with all gov pensions and any benefits after retirement. Let’s have a real comparison of gov pay to private sector pay.

    Gary Reply:

    @djp,

    Regarding spending cuts – I would like to see the funding to the government force structures to be cut, instead of Social Security, Medicare, etc.
    Do you think that is likely?

    I was not talking about the revolt by the poor – but crime.
    In any case – the state’s force structures are there to protect the rich. That is why they would not be dismantled – no matter how much austerity would be demanded.

    How do you define luxury and struggling? I did not mean anything exceptional.
    Flat tax would work fine if everybody had the same income.

    What is “moral hazard”? The idea is that if you have money – you will not want to work. So then – why are the rich considered so important to society? According to that idea – they should just relax and enjoy the laziness and moral decay. Yet – far from that – they are lauded as examples of productivity and hard work deserving every hard-earned penny (the same penny that would morally corrupt the poor).

    So Shakespeare and Newton are your examples of hard working rich, which justify all other rich being taxed at a low rate?

    Rhetoric aside – I also do not think taxing away all incentives to larger income is productive or wise.
    However, it is much more unwise to tax the people who are poor (unless the idea is to grind them down) – for that makes the whole society divided and weak – and it eventually crumbles either from inside or outside.

    But maybe that is the idea? Maybe the new society will be neo-feodalistic with many gated estates with their own private armies, collecting food and servants from countryside. Maybe that is preparation for the post peak-oil and post water-shortage and post climate-change world?
    Hopefully not :)

    ESM Reply:

    @djp,

    @Greg:

    “…why are the rich considered so important to society?”

    They’re not. What’s important to society is that everybody believe that it is possible to keep a significant portion of the fruits of their labor, foresight, skill, luck, and risk-taking and not have to worry about the government (or anybody else) expropriating it on a whim. Essentially, that’s what separates developed countries from Bangladesh or Zimbabwe.

    It’s important also to keep in mind that wealth creation isn’t a zero-sum game. Suzanne Collins just got rich from writing one ok book and two really crappy books, and nobody was hurt by it except for those who actually wasted time reading the two crappy ones. Her newfound wealth did not come at the expense of the poor.

    In fact, wealth transfers in the private sector are almost always win-win because transactions are entered into freely without coercion. It is only when the government gets involved that such transfers are zero-sum, at best.

    And this whole fairness crap is just a cynical election ploy by the Democrats. There are three truths about the unequal distribution of wealth and income in the US: 1) it is as inevitable as the sun rising in the East; 2) it has nothing to do with the economy being crappy; and 3) there is nothing the government can do to remedy it short of destroying wealth via a Harrison Bergeron-type solution.

    WARREN MOSLER Reply:

    the upper income people worked about just as hard when the distribution wasn’t nearly as skewed as today.

    nominal wealth transfers aren’t nearly the concern to me as the distribution of the consumption of real goods and services.

    yes, it’s inevitable under current institutional arrangements. My proposals would both increase real wealth and eliminate the more problematic bits of income distribution

    djp Reply:

    @djp,

    @Gary,

    Regarding spending cuts – I would like to see the funding to the government force structures to be cut, instead of Social Security, Medicare, etc.
    Do you think that is likely?

    Not sure how likely. But I agree, we should abolish the Dept of Education.


    How do you define luxury and struggling? I did not mean anything exceptional.
    Flat tax would work fine if everybody had the same income.

    Luxury, as we used to know it in film, would probably mean about $700k-$1M per year without working. That’s luxury.
    Struggling is making $8/hr after diligently working to excel, it is not being content to live on the dole — that’s not a struggle for some.
    Really, if everyone had the same income? And people wonder why I think there are socialists roaming around here.


    What is “moral hazard”? The idea is that if you have money – you will not want to work. So then – why are the rich considered so important to society? According to that idea – they should just relax and enjoy the laziness and moral decay. Yet – far from that – they are lauded as examples of productivity and hard work deserving every hard-earned penny (the same penny that would morally corrupt the poor).

    Not at all. Different strokes for different folks. Different people have different risk aversions and will want to save different amounts. But that’s beside the point, it’s really about productivity. There really are people who can make use of extremely powerful tools to do things vastly more efficiently than before — I want those people to do their thing as much as they can, we’re all better for it. I do not want to encourage them to work 1/4 of a year and go on holiday for the rest because they’re in a high bracket. Encourage them to produce more, and you can consume more.


    So Shakespeare and Newton are your examples of hard working rich, which justify all other rich being taxed at a low rate?

    No! They are hopefully very clear examples of people that undeniably did something you think is impossible. Produce something so much more valuable as to be worthy of some enormous multiple of the average person’s wealth. I would argue they didn’t get the monetary rewards the deserve, but did get some amount of privilege. This by no means should be interpreted as “these are the only two examples I could think of.”


    Rhetoric aside – I also do not think taxing away all incentives to larger income is productive or wise.

    Agreed. So what are we discussing?
    I’m surprised that paying everyone X and then imposing a flat tax is so offensive. It is a progressive tax then. So what would you X be? From some of your comments I think it’s \infinity, but that’s ludicrous, why would anyone work?

    djp Reply:

    @djp,

    @ESM


    What’s important to society is that everybody believe that it is possible to keep a significant portion of the fruits of their labor, foresight, skill, luck, and risk-taking and not have to worry about the government (or anybody else) expropriating it on a whim. Essentially, that’s what separates developed countries from Bangladesh or Zimbabwe.

    Well said.

    What keeps me working is the idea that I can save enough to take care of myself. Then I discovered MMT, then I started thinking about fiat currency vs real goods and services, and finally I realized that a society can’t really store goods and services very effectively (there are a few examples where we can). The best we can do is create a system of governance that promises to allow us to create a store of value that we can push into the future without too high a cost of carry. We seem to have one that sort of works. But if everyone all of a sudden wakes up and realizes that no matter how much they try to save (and make) they’ll never be any better off then they’ll just stop doing anything. I believe that a LOT of production is due to savings desires, and if you remove the ability for people to store their wealth effectively, they won’t want to work as much.

    Also, in the modern world an awful lot of the exchanges are for things that society should really consider luxury goods. I don’t care what some OWS dude says, no one has a “right” to a cell phone or free internet. If Suzanne Collins makes $50M for selling some books and then pays 50 people $1M each to go write something she wants to read, or to make a paper hat sculpture then who is that hurting? And I KNOW that no one on this site would have a problem with her buying $50M in gold and burying it in the ground. In that sense, why should we care whether she consumed more real services? If society has all basic needs met, then everything else really is luxury goods? Further, who should even get to decide what the basic needs are?

    Gary Reply:

    @ESM,

    @ESM

    “What’s important to society is that everybody believe that it is possible to keep a significant portion of the fruits of their labor, foresight, skill, luck, and risk-taking ”

    So you would agree then that workers taking ovnership of factories is the right thing to do?
    Otherwise – what do you mean by “keeping siginificant portion”?
    Do you think somebody working for a minimal wage is keeping anything significant?
    What I think you mean – is that government should ensure that the rich are taking their spoils safely home. Otherwise they would need private armies to do that.

    “wealth creation isn’t a zero-sum game”

    That’s true. But why do you assume that society with extreme social inequality can create wealth?
    Nice example with writer writing books (how much production can be accomplished by somebody producing it alone?). But even she had to publish them – and that was done with the help of some business – the structure of which in terms of wealth distribution was something like inverse pyramid, while the job distribution is equivalent to that.

    “In fact, wealth transfers in the private sector are almost always win-win because transactions are entered into freely without coercion. ”

    Well, the “freely without coercion” bit may be valid if we all lived in tropical islands on a common land and fed on bananas. However, in the real world – there is always coercion. It is called need of shelter, food, clothes, etc.
    The only ones that can live without coercion are those who can afford to do that – and they make sure that they appriopriate enough, while also making sure that enough people do not have enough – so they would serve them.

    Gary Reply:

    @djp,

    @djp

    “Really, if everyone had the same income? And people wonder why I think there are socialists roaming around here.”

    Socialists are everywhere. Those are the people who believe that society can take care of its members.
    What is so unnatural about that?
    Is it more natural to demand that some would have way too much, and some would die destitude?
    That seems quite perverse to me.
    There is no need to imply that having a just society means taxing everything and enforcing equality.
    That has been tried and it does not work.
    However, requiring the other extreme is just as stupid.

    “There really are people who can make use of extremely powerful tools to do things vastly more efficiently than before”

    I am sure that there are such people. Like software developers maybe?
    However, the people who take home the profit are usually those who are in corporate positions of power, or who just happen to have capital provided to them by posterity.
    Sure, there are exceptions, and those are the one tabloids write about. But, first of all – how many of them correspond to your example of “productive people”, and secondly – how often does social mobility happen.

    “Encourage them to produce more, and you can consume more”

    Exactly: ecourage THEM to produce, so YOU can consume. I mean – those who produce not necessarily are the same people who consume.

    “So what would you X be? From some of your comments I think it’s \infinity, but that’s ludicrous, why would anyone work?”

    I am not set on some particular level of tax. I think tax should be a tool to ensure that society functions well.
    In the current state of society in the US – more progressive taxation is needed, for the rich are running rampant, while the proportion of the poor is groving and their condition is deteriorating.
    Once society is wealthy and healthy and is getting too complacent – sure, introduce the flat tax, make it more dynamic.

    Gary Reply:

    @ESM,

    FIXES (sorry, was in hurry to write, made mistakes):

    But why do you assume that ONLY society with extreme social inequality can create wealth?

    the structure of which in terms of wealth distribution was something like inverse pyramid, while the job distribution is NOT equivalent to that.

    ESM Reply:

    @djp,

    @Greg:

    “Do you think somebody working for a minimal wage is keeping anything significant?”

    I don’t believe in the Marxist labor theory of value. Your labor is worth what other people are willing to pay for it without coercion, and the product of your labor is worth whatever people are freely willing to pay for that without coercion. The two are not necessarily related. An unskilled laborer might toil away in a field all day and create $10 worth of wheat, or he might toil away in a factory all day and create (because of the infrastructure provided by evil capitalists) $1,000 worth of iPads. I think in both cases, he will be and should be paid based on supply and demand for his labor in the labor market.

    This is not to suggest that we shouldn’t allocate some resources to low productivity people (or tp poor negotiators) in order to keep them out of extreme poverty. But to execute this allocation at the level of the privately negotiated wage creates an inefficiency which will destroy wealth. The same goes for creating artificial caps on profits.

    “But why do you assume that ONLY society with extreme social inequality can create wealth?”

    I don’t assume that. I just think that there is a tradeoff between enforced equality and wealth creation. I do think there is a point of no return, however, where if you do too much redistribution, you end up like Zimbabwe. Still, there are many points in between. European countries generally have a different model, and they have more equality and less wealth. Reasonable people can disagree about which model they like. Personally, I prefer the US model. Also, I think the European model works better than it ordinarily would for two reasons: 1) the presence of the free-wheeling US market drags everybody’s wealth upwards; and 2) it is easier for a population to accept redistribution when the population is racially, culturally, and religiously homogeneous.

    “However, in the real world – there is always coercion. It is called need of shelter, food, clothes, etc.”

    I am supportive of a social safety net which guarantees everybody shelter, food, and clothes. As pointed out by djp, however, progressives keep raising the bar in terms of what is a necessity, so it’s a bit subjective.

    The more important point, however, is that it is not necessary to increase the progressivity of our already progressive tax system in order to provide the necessities (however reasonably defined) to the poor. I think MMT has taught us that much. So there is no point in increasing progressivity except to enforce redistribution out of a sense of envy.

    To djp, in reference to enforcing equality, you wrote “However, requiring the other extreme is just as stupid.”

    The difference between our views is summed up in the word “requiring” that you chose to insert. Inequality is not required and is not enforced. It just happens to be a natural consequence of the operation of a free market. There are people who like to work and save. There are people who like to play and spend. There are people who make magic with the tools of a modern world that are available to all, and people who if given a fancy computer would use it as a footrest while they’re watching TV. Yes, there are people who are born with “unfair” advantages, just as there are people who are born smarter or better-looking or stronger or faster or harder-working. The world is unfair. No doubt about that. But using the government to try to remedy what are perceived as “unfair” advantages (a rather subjective metric as you will no doubt concede) leads us down the path towards Kurt Vonnegut’s Harrison Bergeron.

    WARREN MOSLER Reply:

    your labor is worth what someone is willing to pay for it, which is largely a function of current institutional structure.

    djp Reply:

    @djp,

    @Gary

    So I’ll grant that you don’t really want everyone to have the same income. Or at least it sounds like that’s the case. You’re not looking for total equality.
    However, I don’t think you should be allowed to redefine the word “socialist”. Otherwise I’m going to redefine Republican to be the set of people who don’t believe you should slit the throat of every puppy or baby. That’s just ludicrous.

    I think ESM and I have both stated very clearly that neither of us is advocating letting people starve in the streets. That is not at all what inequality in the US is about, and to suggest otherwise is equivalent to resorting to puppy throat-slitting hyperbole. So it’s a bit odd that this is where the conversation keeps going.

    Then again, you agree we can’t tax everyone to equality and that pure socialism has a long track record of misery. Or at least that’s my reading of the notion that you can’t tax everyone to equality.

    So, maybe a couple of toy examples might clarify things.
    Example 1:
    I have a geologist friend, he spent $300k of his own money trying to figure out where there’s a good place in Alaska to mine for gold. He thinks he’s figured it out. Now he goes off and hires some relatively low-wage workers to help him extract the gold — he’ll even pay them a bonus if they’re successful, but he’s not going to give them a flat percentage, because he knows what the going rate for that labor is. Question, if it would cost him $600k to hire these guys to randomly move dirt around in a less productive area, then how much should it cost him to have them do it for him and extract $5M in gold? What if instead of $5M he was able to extract $30M? In all cases the workers are doing the same work. In your world it sounds like you think the workers should unite and take over the mine.

    Example 2:
    There’s this dude. He’s amazing, really amazing. He can do some relatively unpleasant task for 30 minutes and generate enough power to run a small city for a month. It’s an unpleasant task. If you tax him at 30% for all proceeds over $1M and 50% above $10M he’ll refuse to do this task more than once a year, it’s just not worth it. It’s really unpleasant. Yes, I want to encourage this guy to produce MORE so that I can consume more. I will be able to consume more, not because I’m stealing from the workers, but because the magic dude will be lowering the cost of energy for everyone. In your world it sounds like you would have him just work 30 minutes a year. I would encourage him to work more. What would you do?

    As for social mobility, please see Thomas Sowell and Walter Williams who have far more to say on the topic than I do.

    Finally, as amusing anecdote:
    You asked why is it only a society with extreme social inequality that can create wealth. I think ESM addressed this well. And it’s not at all clear that the US is “extreme”. I googled around and found lots of noise about how the inequality in the US today is pretty much what we had during the peak of the Roman empire. Two things I found amusing about this.
    First, several people seemed to think this was a clear indication that we’re in a bad position. This was really puzzling. There’s no indication of any causality, why should we be afraid that our Gini coefficient (I think it should be modified to separate out subsistence) is as high as it was during the “peak” of the Roman Empire. Should we be worried about what happened later?
    Secondly, it led me to this: http://www.youtube.com/watch?v=ExWfh6sGyso

    In closing (maybe):
    It really does seem to me that the answer lies in where you think X and r should be in a tax system that consists of a credit of X and a flat rate of r for all income above X.

    Do you think people are better off than they were in the 70′s? 80′s?

    Gary Reply:

    @ESM

    “I don’t believe in the Marxist labor theory of value. Your labor is worth what other people are willing to pay for it without coercion, and the product of your labor is worth whatever people are freely willing to pay for that without coercion.”

    the coercion is the key, I think. If the labor buyer is facing no coercion, why labor seller should? Otherwise that creates a bit one sided situation, don’t you think?
    So then – labor sellers should have an option not to sell labor, just as labor buyers have not to buy it.
    For that – there should exist a support level for people to survive without working – which of course is non-sense: society cannot survive without people working – unless it forces other societies to work for it.
    So what do we have: people have to work to survive, but they are revarded for their work only as much as those who control the access to resources please to reward them – because work sellers have no choice, while work buyers have a choice – which in no small part is because they always take care to control the means of coercion – in this case – coercion by money control.

    There is nothing magical about wealth creation. It was being created since humans learned to use tools.
    Dynamic is a bit different when some humans coerce others to produce more wealth for them, so they don’t have to do it themselves.

    So what is the natural state of human society? Sharing or coercion?
    You seem to think it is coercion.

    Regarding US model: so you do not see any influence of US military superiority, and international financial dollar loan system on the US wealth? You do not see any influence of the fact that US had a luxury to develop on a separate continent, with abundand natural resources and ability to offer free land? You attribute it all to perceived larger inequality in the US? By the way, I think it stands to be proven that US was developing faster than Europe because of its larger inequality (first I doubt it had larger inequality when it was developing faster – except war effects).

    “not necessary to increase the progressivity of our already progressive tax system in order to provide the necessities (however reasonably defined) to the poor. I think MMT has taught us that much”

    That’s true. There is no need to increase tax progressivity, if the reasonably defined necessities are taken care of with government spending.

    “Inequality is not required and is not enforced. It just happens to be a natural consequence of the operation of a free market”

    well, that would be true, if the “free market” was something that was arranged for each generation. So each generation starts a new – all have equal claim on resources, all have equal opportunities, etc.
    But that is the fantasy.
    Really – inequality is something that is passed down from generations, and propagated by ensuring that opportunities remain where they were.
    Sure, there are some opportunities even to the disadvantaged – and they are lauded as if it was a general rule – but that is false.

    Sorry, if I sound divisive – that is because I lack time to reply in full.

  14. Ivan Says:

    Warren…the data is out there inclusive of FICA and it doesn’t change the argument in a meaningful way. If you want FICA to be included in the argument, the president can try a little intellectual honesty and acknowledge that Social Security is nothing more than welfare for seniors and should be on budget and won’t go broke. Instead of taking on a magazine line by line, why don’t you take on Obama…lie by lie…

    You can start with his statement that the Buffet rule will grow the economy. It’s negative for the economy and will cause municipal bond rates to move sharply higher, forcing an increase in property taxes and a reduction in services for everyone across the economic spectrum.

    With Obama, it’s all about selling the flawed concept that the “rich” don’t pay their fair share, convince the voters that this is true since most are not “rich” and won’t be directly hit by his tax hikes, and then use this nonsense to win an election. Pathetic.

    Reply

    WARREN MOSLER Reply:

    FICA represents about $1 trillion out of about $2.5 trillion in annual Federal ‘revenues’

    ‘Instead of…’ and not ‘In addition to…’??? ;)

    Reply

    Ivan Reply:

    Half paid by employers, also called “the rich”!

    Reply

    Jonf Reply:

    @Ivan, SS should be paid out of general revenue.

    dave Reply:

    @Ivan, but where do employers get it? from their customers.

    Ivan Reply:

    @Dave…and where to their customers get it…from their employers! Circular reference.

  15. Alan Rhodes Says:

    Warren Mosler writes, polite to a fault: “..this is all a pile of intellectually dishonest propaganda.” I’d say it is a pile of another well known substance.

    Ivan:

    FICA is not the best kind of tax, but it arises from, and is based upon the amount of actual workers’ income. When discussing income tax revenues,(under the present tax structure)it is appropriate to include both halves of FICA, and it is improper and misleadingly dishonest to not mention FICA taxes in this context.

    Reply

    djp Reply:

    @Alan Rhodes,

    Is it also “misleadingly dishonest” to not mention tax credits ?

    Reply

    Ivan Reply:

    I agree but it doesn’t meaningfully change the fact that the average person making 750k-$1mln pays well more in percentage terms than the secretary making 50k-100k inclusive of FICA. I believe it’s about 26% to 9%.

    Reply

    Ivan Reply:

    Sorry…29.1% to 15% including FICA.

    Reply

    WARREN MOSLER Reply:

    yes, but lower income earners as a whole pay a higher % of total taxes paid as well.

    And don’t forget the larger point- ‘labor markets’ discount after tax income in the allocation of workers.

    djp Reply:

    @Ivan,

    @Warren

    “yes, but lower income earners as a whole pay a higher % of total taxes paid as well. ”
    I’m guessing you mean higher than is stated by not including FICA?
    Or are we redefining lower income?
    Maybe that’s a miscommunication?

    Using:
    http://www.taxfoundation.org/news/show/250.html#table8
    For incomes and tax rates, and filling in FICA, it’s still going to be the case that the lower 50% only pay 20% and the top 5% pay 27% and that’s using the most generous assumptions possible — namely everyone in the bottom 50% makes the threshold high for being in the bottom 50% and no one makes more than the threshold needed to be in the top 5%. These are very generous assumptions.

    From left field, I’m also really confused why you think real-estate taxes are regressive (same thread, different comment). Most places I know of it’s either flat, or flat with an exemption up to some level, or graduated.
    Never heard of a regressive version.

    WARREN MOSLER Reply:

    note that 20% is a lot higher than ‘the lower 50% pay no income taxes’ etc.

    I got the 30% from the rough idea that total federal taxes were about 2.5 trillion, and FICA was about 1 trillion, with the business portion paid by consumers.
    But it was just a rough guess. And I won’t argue here whether you consider the business half of FICA a tax on business or consumers.

    when david walker was asked about it he said in a silly logical disconnect that he didn’t count fica as a tax because it’s not enough to pay for future benefits.

    by that measure we shouldn’t count any taxes if they total less than spending.

    djp Reply:

    @Ivan,

    @Warren


    note that 20% is a lot higher than ‘the lower 50% pay no income taxes’ etc.

    Agreed.

    I was generous in all assumptions, including a full 15% for FICA and I’m not sure the tax foundation correctly figures in all benefits handed out by the gov — if you’re going to be fair, you should include benefits too.

    In general, I think it is best to consider the whole picture, it’s the only way to see what’s really going on.

    Thanks

  16. bob Says:

    Not a fan of Obummer at all. But, the only other “side” of the argument comes from rabid idiots.

    This post is beautiful. It shows how much effort has to be put into discrediting even one sentence. In “tv time” it would take twice as long to rebut these views as it would to state them.

    Also, on TV, you have the shrill voice of the rabid idiots trying to talk over you the whole time, bringing up any ancillary “facts” to further derail intelligent argument.

    “What about solyndra?”

    Reply

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