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17 December 2007

Comments

Greg Zaller

On the other hand after some google.com research I found that in the period between 1979 and 2005 the after tax income of the bottom 20% went up 6% and the top 20% went up 80%. http://www.cbpp.org/12-14-07inc.htm The bottom 20% earned an extra $900 compared to $76,500. This increase is about what the college graduate cited in the blog earns after ten years! The top twenty percent after tax income increased five times what the bottom twenty percent's earns. Regardless of education the rich are getting richer and the poor are getting poorer. Is this a sustainable way to run a tax system?

Wayne Hullett

Perhaps further research will reveal the the similar probablistic relationship that the harder a person works, the luckier he becomes.

George Rebane

Thank you for the thoughtful comment Greg Zaller. The data you cite underlines the point I am making in the post. The top percentage earners all share a strongly correlated attribute - they are more educated. And as we continue approaching the Singularity, the best educated (with wealth generating skills) will continue to outpace the poorly educated even more. You ask whether a tax policy that allows this is "sustainable" which I presume indicates that a "more progressive" tax schedule that redistributes even more wealth to those not earning it will be more sustainable. History doesn't show that. Social stability has so far been maintained by the fact that the population of the lower earning percentages is very dynamic; only a very small percentage of people in, say, the bottom 10% earning bracket stay there for very long. For almost all of us it primarily serves as the low starting rung on the climb up the economic ladder. The other fallacy that sometimes concerns folks who examine such earnings inequalities is that they think that the top earners are making it so the bottom earners can't earn more, i.e. that the high earners are taking money rightfully belonging to the low earners. This assumes that the economy is a zero sum game which it definitely is not. It is the high earners who have started the businesses and investments that grow the economy and raise the wages of all according to their abilities. Without them, we would be back to what the old USSR or China were or what is going on in North Korea and Cuba today. Even China realized that to increase the wealth of the very poorest, they had to free the smartest to start the wealth generating businesses that is now bringing China into the modern age, but not without tremendous income inequality. The same thing is beginning in Vietnam. The last thing you want to do is impose punitive transfer payments on the producers which basically leads to 'Game Over' where the lowest wage earners get hit the hardest and everyone who cannot escape the system winds up poor (except, of course, the small cadre of government elite).

Finally, in 2005 the CBO reports that the richest 1% paid over 39% of all income taxes, the richest 5% paid almost 60%, and the richest 10% paid 70%. Under Bush2 the wealthy and high earners have had the most money extracted from them. Hazlitt's 'Economics in One Lesson' explains it well. And I wouldn't bet against the probabilistic relationship that Wayne Hullett suggests. gjr

mikey mcd

A cumbersome tax system hurts the lower class ("poor") by way of raping the will to earn more by the wealth generators. Any CPA will tell you about wealth generators that stop hiring/stop growing because they hit a wall where it feels like each additional dollar of profit just goes to the IRS/Franchise tax board.

"In 2005 the CBO reports that... and the richest 10% paid 70%." These facts are ignored by those begging for "equality" it is the wealthy that provide for a higher standard of living for all.

[gjr] Good points mikey mcd. For more on this please visit the SESF website page on Numeracy Nuggets and take a look at NN9.

Greg Zaller

I ended my other comment on this topic the other day by questioning the fairness of the tax system. To what extent is it corrupted, to what extent does it discourage innovation and entrepreneurship and how could it be improved? This is a complex and weighty question with no clear agreement. How can democracy and society be sustained when such decisions are made simply by those who vote in majority and most of them without even a well founded opinion? I think the basic need of the tax system is to encourage education.

If I were to propose a single change to the tax system I wouldn’t be distracted, like so many, by who has the most right to the money. I would approach gathering funds with the intent of not unreasonably discouraging any person from increasing his contribution to the long range benefit of society. I wouldn’t spend this money on “improving” education but on changing it radically and making it feasible and pleasantly challenging for everyone. I would find a way for our schools to teach leadership, free thinking, creative problem solving as well as needed skills. This is easier said than done.

mikey mcd

I have a different box I think inside of. Namely, the box that asks,"Why am I taxed for education." My mother, brother, 2 sisters in law, Aunt all have teaching degrees. I would love nothing else than to have my children educated by such loving and connected (via blood) educators. No, I need to pay taxes to a government that mandates who, what, where, when my children get educated. You certainly cannot find a catalyst for the "free thinking", "creative problem solving", "leadership" goals in the traditional government mandated US education of today. Why not allow you to keep your tax dollars and me mine, and hire our own educators for our children (think little house on the pr airy school houses). Fed gov Education program is just one example of how we are taxed to have our freedoms and liberties stripped from us.

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