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Pet Peeve: Margin of Error

Normally this would roll off my back, but given the political season, there is an abundance of news coverage on polls.

First off, I'll say that I apologize to Joe Scarborough -- I am focused on this example as it was the one that set me off, but he is far from alone in making this mistake.

Check out this video, starting about the 3:35 mark.

Joe Scarborough: "This is the second poll that shows Mitt Romney behind outside the margin of error in Ohio."
Mika Brzezinski: "The poll shows the President leading by a slim five point margin, 49 to 44, among likely voters..."

Here's a screen capture from the video.

morning joe

Notice, at the bottom, it indicates "+/- 3%" - that is the "margin of error".

The mistake made is that, in order to be "outside the margin of error, the difference between the two numbers (in this case, five percentage points) needs to be greater than two times the margin of error (in this case, three percentage points).

Without going too deep into the weeds explaining the math, it is easiest to look at an example.

In this case, President Obama's support could be as low as 46% (49% less 3%) or as high as 52% (49% plus 3%).

In this case, Governor Romney's support could be as high as 47% (44% plus 3%) or as low as 41% (44% minus 3%).

In short, Governor Romney could be ahead by one percentage point, 47% to 46%, and accordingly, the results are not outside the margin of error.

For interest, the original Time article mentioned in the video is located here.

The Romney Plan on Middle Class Taxpayers

There is a guest blog on ThinkProgress.org by Seth Hanlon, the Director of Fiscal Reform at the Center for American Progress Action Fund.

In it, he presents an argument for the tax impact of a hypothetical Romney tax plan on a hypothetical taxpayer.

First, Romney has not indicated that no individual middle class taxpayer will be impacted, but rather, that the middle class, as a whole, will not be impacted. In addition, it's understood that pretty much anyone can create a hypothetical of a hypothetical to make one's point, but that's not what I take issue with.

Let's simply stipulate, for purposes of this discussion, his assumptions that the Romney tax plan will precisely mirror a Congressional Joint Committee on Taxation (JCT) 2006 report, and the income/expense numbers of the hypothetical individual. Mr. Hanlon shows that, under this scenario, the taxpayer's income tax will increase by some $6,054.

What is the core issue with this calculation? Mr. Hanlon presents the information as the calculated tax liability in 2012. Well, my guess, though I hate to speculate, is that Mr. Romney will not be President nor will the JCT tax plan be implemented for calendar year 2012.

No. Mr. Romney, if elected, will be President in 2013.

Why does this matter?

It matters as the appropriate comparison is the income tax in 2013 if Mr. Romney is not elected and the JCT plan is not made into law.

Why does this matter?

It matters because the calculation of 2012 income taxes is based on a number of provisions which are set to expire as of December 31, 2012.

First and foremost is the American Opportunities Tax Credit (AOTC), which accounts for the $5,000 tax credit in Mr. Hanlon's example. With that expiration, the difference in scenarios drops from $6,054 to $1,054.

Next are the Obama tax cuts (aka "Bush era tax cuts"). If those, in fact, fully expire, the tax rates will go up. At this point I haven't done a full computation, but to some extent, that will further erode (possibly fully) the remaining $1,054.

So what we have here is that, in 2013, under either existing law or a hypothetical Romney law, taxes will go up for this taxpayer by somewhere around $6,000.

One may argue, as it appears Mr. Hanlon does, that President Obama supports an extension of the Obama tax cuts and AOTC, so the use of existing law is appropriate. But that is tenuous, at best. President Obama has indicated a willingness to let the tax cuts expire, and many education supporters, including those on the Left, support the elimination of the AOTC due to its inefficiency and tendency to benefit the wealthy. Regardless, comparing President Obama's stated support to a proposal is like saying that, since he supports a balanced budget, any budget not in balance is solely attributed to the candidate proposing it -- it just doesn't hold up under scrutiny.

The article is misleading, as clearly it's objective is to show how a Romney tax plan will hurt the middle class. By using inappropriate years for the comparison, and accordingly inappropriate tax laws, Mr. Hanlon is able to create this strawman.
The above titled report, issued by Sean F. Reardon and Kendra Bischoff in November 2011, has recently gained some press attention, perhaps most notably from the New York Times who, not surprisingly to me, use this as another hammer in the income inequality battle.

Indeed, the report abstract states the following.

"As overall income inequality grew in the last four decades, high- and low-income families have become increasingly less likely to live near one another. Mixed income neighborhoods have grown rarer, while affluent and poor neighborhoods have grown much more common. In fact, the share of the population in large and moderate-sized metropolitan areas who live in the poorest and most affluent neighborhoods has more than doubled since 1970, while the share of families living in middle-income neighborhoods dropped from 65 percent to 44 percent."

Assumptions

There are some critical assumptions used in the report.

For example, the authors restrict their study to those “metropolitan areas…with total populations of 500,000 or more in 2007”.

In addition, since the authors stated purpose is “in children’s experiences”, they analyze the income segregation of families and exclude all other households (e.g., unrelated adults, singles).

These two assumptions have the combined effect of ignoring any analysis of approximately 50% of the population.

In addition, by excluding smaller metropolitan areas, the study overstates the degree of family income segregation as the authors note (if footnote 4 on page 7) that “income segregation was lower and grew less from 1970 – 2000 in small metropolitan areas than in large ones.”

Perhaps the most notable assumption is, rather, the extension of an assumption.  From the report:

"Income segregation may lead to inequality in social outcomes…This suggests that income segregation will lead to more unequal outcomes between low- and high-income households than their differences in income alone would predict because households are also influenced by the incomes of others in their community.

"There are a number of ways in which income segregation may exacerbate the economic advantages of high-income families and the economic disadvantages of low-income families. The quality of public goods and local social institutions, such as schools, are affected by a jurisdiction’s tax base and by the involvement of the community in the maintenance and investment of these public resources. Higher-income neighborhoods often have more green space, better-funded schools, better social services, and more of any number of other amenities that affect quality of life. Income segregation creates disparities in these public goods and amenities across high- and low-income communities, meaning that low-income families have decreased access to such resources. This limits opportunities of low-income children for upward social and economic mobility and reinforces the reproduction of inequality over time and across generations (Durlauf, 1996). Conversely, greater dispersion of high-income households throughout a region (i.e., lower income segregation), is likely to lead to greater public and private investment in broadly accessible social services, public goods, and neighborhood amenities. This would lead to more equal patterns of opportunity, particularly for children, for whom neighborhood context and local institutions (such as schools) are particularly important." [Emphasis added]

While the basis for these statements is no doubt correct, the subtle issue introduced is the extension of these concepts to “neighborhoods”. The study is based on census tracts to define neighborhoods, which are not generally taxable jurisdictions. Indeed, a taxable jurisdiction may have dozens of census tract “neighborhoods” at differing income levels. So, regardless of the income level within that taxable jurisdiction, all citizens are afforded the same “quality of public goods and local social institutions, such as schools”. Indeed, as the authors note in their study (Footnote 3 on page 6), “Census tracts are small subdivisions of a county. They usually have between 2,500 and 8,000 persons and are designed to approximate neighborhoods.”

Another assumption to be mindful of is the authors’ personal definition of income gradients. For example, “A typical metropolitan area in 2007 had a median family income of roughly $75,000; in such a metropolitan area, a poor neighborhood (by our definition here) would be one in which more than half the families had incomes below $50,000; an affluent neighborhood would be one in which more than half the families had incomes above $112,500.” While many people may question defining a family income of below $50,000 as “poor”, even more problematic is the authors’ own acknowledgement “that it may confound changes in income inequality with changes in segregation. If every family stayed in the same neighborhood but income inequality grew (high-income families’ incomes rose while low-income families’ incomes declined), we would observe an increase in the number of poor and affluent neighborhoods, simply because median incomes would rise, on average, in higher-income neighborhoods and decline in lower income neighborhoods.”

Last, rather than using a single baseline for income, the authors use a moving baseline. In other words, if incomes grew in real terms by 10%, but median real incomes grew by 20%, in order to remain “not Poor”, your income would need to follow the 20% growth, not 10% growth. In 1970, median family income was $9,870, which if inflated to 2010 would result in about $55,000 in 2010, yet the authors note that “A typical metropolitan area in 2007 had a median family income of roughly $75,000”. So rather than calculating the “Poor” as those with incomes below $37,000 (the 1970 level indexed for inflation), the authors have raised the bar to define the “Poor” as those with incomes below $50,000.

The Results
Table A1 from the report shows the following.



This led to the authors concluding, “By this measure, income segregation grew significantly from 1970-2007. Moreover, family income segregation grew in every decade from 1970-2007.”

But notice some interesting things.

Most of the increase in the “Poor” category occurred in the 1970s. While the “Poor” category more than doubled, from 8.4% to 17% (an 8.6% point increase), 5.9% points, or 69%, of that occurred during the 1970s. Alternatively, while the “Affluent” category also more than doubled, from 6.6% to 14.1% (a 7.5% point increase), only 0.5% points, or 7%, of that occurred during the 1970s.

From 1980 forward, the “Low-Middle Income” plus “High-Middle Income” categories went from 56.5% to 43.5%, a decline of 13% points. But where did they go? Over that same time period, the “Poor” plus “Low-Income” categories went from 24.6% to 28.1% (a 3.5% point increase), while the “High Income” plus “Affluent” categories went from 18.9% to 28.4% (a 9.4% point increase).

Next, Figure 2 is presented, which represents a relative measure of segregation.



This “H” index is a relative measure, which according to the study, “In a hypothetical metropolitan area in which the income distribution among families within every census tract was identical (and therefore identical to the overall metro income distribution), the index would equal 0, indicating no segregation by income. In such a metropolitan area, a family’s income would have no correlation with the average income of its neighbors. In contrast, in a hypothetical metropolitan area in which each tract contained families of only a single income level, the index would equal 1. In such a metropolitan area, segregation would be at its absolute maximum; no family would have a neighbor with a different income than its own.”

But note how relatively close to zero (no segregation by income) many of these numbers are. The maximum value for all families is 0.143. And this is where graphing becomes important, more specifically, the choice of values to be used on an axis.

While the authors don’t provide specific numbers for categories other than “All Families”, I have estimated those numbers from Figure 2, and instead of selecting a narrow range for the Y-axis, I use the full range of possibilities: 0.00 to 1.00.



This chart gives a different view of the situation, in my opinion. First, it becomes apparent how much closer to zero (no segregation) the situation is than one (complete segregation). In addition, the decade to decade change is not as pronounced.

Suggestions
1. Rather than use a “neighborhood” concept, use a tax jurisdiction concept as it is the tax jurisdiction which provides the social atmosphere (schools, open spaces, etc.)
2. Use an inflation adjusted poverty figure rather than one based on current median income.
3. Focus on what occurred during the 1970s to cause the changes during that decade.
4. Widen the population to include more geographic areas.
5. Explore how much of the issue is social/cultural versus more purely economic (e.g., the decline in families as a percent of total households, and the simultaneous increase in single-parent household).
David Cay Johnston's October 19, 2011 story is titled, "First look at US pay data, it's awful".

Mr. Johnston states, "There were fewer jobs and they paid less last year, except at the very top where, the number of people making more than $1 million increased by 20 percent over 2009."

Unless Mr. Johnston claims that those making $60,000 or more is "at the very top", he's simply wrong.

There was, as Mr. Johnston notes, a reduction of more than half a million jobs from 2009 to 2010.  Every income group, however, over $60,000 saw an increase in the number of jobs.  Heck, if I wanted to be a partisan hack, I could make the statement that there was a net job gain of 118,000 for all income groups over $30,000.  But I'm not a partisan hack, so I won't ignore the fact that for those with incomes between $30,000 and $60,000 there was a reduction of 494,000 jobs.

Mr. Johnston also states, "While median pay — the halfway point on the salary ladder declined, average pay rose because of continuing increases at the top."

Again, "at the top" is pretty broadly defined in Mr. Johnston's world. If you take out $1 million plus earners from both years, the average pay increased from $37,856 to $38,490.

Last, Mr. Johnston states, "Not only has no jobs bill been enacted since January, but the House will not even bring up for a vote the jobs bill sponsored by President Obama. His bill is far from perfect, but where is the promised Republican legislation to get people back to work?"

I guess he conveniently ignores not only proposals the Republicans have made but also the resistance his bill has had among Senate Democrats, including Majority Leader Reid.

Let me be clear: there are certainly enormous challenges facing the U.S. these days.  I submit that the best way to address these issues is with a clear-headed analysis and nonpartisan way.

Source of data:
2010: http://www.ssa.gov/cgi-bin/netcomp.cgi?year=2010
2009: http://www.ssa.gov/cgi-bin/netcomp.cgi?year=2009

David Cay Johnston Deceptions

David Cay Johnston has a new article, titled, "Beyond the 1 Percent", which includes the following graph.


The title of the chart is "Middle class jobs generate majority of income taxes".

It is captioned "Middle class workers paid far more in taxes than the top one percent, with the 15 percent bracket alone generating more revenue than the top two brackets plus capital gains combined".

He even highlights rates at 28% and below as "Middle class tax brackets" and those above 28% as "Highest tax brackets".

Where is the deception? His definition of "middle class" is pretty darned loose.

In his "Middle class tax bracket" of 28%, fully 82% of the tax is paid by those with AGI of over $200,000.  This includes taxpayers with AGIs over $10 million.

In his "Middle class tax bracket" of 25%, fully 80% of the tax is paid by those with AGI of over $100,000 (and again, the bracket includes taxpayers with AGIs over $10 million).

Even in the "Middle class tax bracket" of 15%, over 40% of the tax is paid by those with an AGI of over $100,000 (and yes, yet again, the bracket includes taxpayers with AGIs over $10 million).

When you're counting those with AGIs of $500,000 to over $10 million "middle class", something has gone astray.


Source of data: IRS, Table 3.5 for 2009 (direct link opens an Excel spreadsheet)

Red/Blue Paradox?

The August/September version of Reason has an article by Veronique de Rugy titled "The Red/Blue Paradox - Why do liberal states give while conservative states take?".

Ms. de Rugy discusses possible reasons for the apparent paradox that states that are "Red" (voted Republican in the most recent Presidential election) tend to be net recipients of Federal tax dollars while states that are "Blue" (voted Democratic in the most recent Presidential election) tend to be net payers of Federal tax dollars.

In thinking about this subject, I am left wondering if the comparison is a false one. I lean, as I suspect many do, conservative on fiscal issues but liberal on social issues. I tend towards Republican candidates at the Presidential level, but Democratic at the local level. In between, at the State level, I'm fairly neutral.

The reason for this is that what is most important to me varies going from the Presidential to State to local levels. At the Presidential level, I have four main concerns driving my decision, as follows.
•National security
•General economy
•Business regulation
•Social issues
Agree with me or not (it's not part of this discussion), I believe that the Republican party tends towards addressing those issues in a better manner than Democrats.

At the State and local level, though, priorities change. I am more interested in, well, State and local affairs and accordingly, become more concerned with social issues such as education, judicial system performance, drug laws, and so on.

So on the one hand, I may vote for the Republican candidate for President, but a Democratic Senator or Representative as the Democratic congressman may better reflect my values in terms of infrastructure funding, education funding, and social issues.

Given that, is a Presidential preference for Republicans a good point of comparison for how a person may feel with regards to Federal spending? My guess is that it is not.

I then wondered what the data would show if, instead of Presidential voting, we looked at Senate voting.

As of now, of the fifty States, 15 have two Republican Senators, 17 have one Republican and one Democrat, and 18 have two Democrats. My first observation was how relatively close those numbers were: 30%, 34% and 36%, respectively.

Then I compared the ratio of Democratic Senators to Republican Senators (either 0%, 50% or 100%) to whether a State was a net recipient ("Recipient") or net donor "Donor") of Federal tax dollars. A few findings are as follows.
•Of those States with 2 Democratic Senators (18), ten States were Donors and eight States were Recipients
•Of those States with 1 Democratic Senator (17), six States were Donors and eleven States were Recipients
•Of those States with no Democratic Senators (15), one States was a Donor and fourteen States were Recipients
•Of the thirty-three Recipient States, 14 (42%) had no Democratic Senators, 11 (33%) had one Democratic Senator and 8 (24%) had two Democratic Senators.
•Recipient States had 39 Republican Senators and 27 Democratic Senators
•Donor States had 8 Republican Senators and 26 Democratic Senators
•Alternatively, 27 Democratic Senators were in Recipient States while 26 Democratic Senators were in Donor States

While this data still shows the apparent "paradox", it is substantially less obvious than the Presidential analysis. In short, the U.S. is much more balanced in terms of Senatorial power than the Presidential elections would indicate. The following graphic from Wikipedia visually represents the 30%/34%/36% split mentioned above.



In summary, it is my opinion that a comparison of Presidential voting by "carried state" is not the best measure of analyzing patterns of voting compared with Federal funding receipts.

Notes:
1.There are two Independent Senators (Sanders and Lieberman) who I have classified as Democrats as they both caucus with the Democrats.
2.I have used the most current Senatorial membership. I suspect that using the 2008 Senate membership may have swayed the argument even further away from the "Presidential" argument as the Democrats lost six seats. Arkansas (Recipient) went from 100% Democrat to 50% Democrat; Illinois (Donor), North Dakota (Recipient), Pennsylvania (Recipient) and Wisconsin (Donor) went from 100% Democrat to 50% Republican while Indiana (Recipient) went from 50% Democrat to 0% Democrat.

Sam Harris - "How Rich is Too Rich?"

I was recently directed to a blog post by Sam Harris titled, "How Rich is Too Rich?".


Harris's background is in philosophy and neuroscience, and it shows when he discusses economic topics.


Let's deconstruct Harris's posting.  Harris's comments from the article above are in italics.



I’ve written before about the crisis of inequality in the United States and about the quasi-religious abhorrence of “wealth redistribution” that  causes many Americans to oppose tax increases, even on the ultra rich.


Well, quite the start for the first sentence.  You see, Mr. Harris is an atheist and like many outspoken atheists, any time they disagree with something they bring religion into the discussion.  Here Mr. Harris claims "many Americans" oppose tax increases out of an abhorrence of "wealth distribution".  Never mind the fact that Social Security and Medicare are some of the most popular programs in the United States.  You see, he uses the phrase "many" without defining it, so what is "many", Mr. Harris?  Ten?  Ten thousand?  So the first tactic he uses is to create this straw man.



The conviction that taxation is intrinsically evil has achieved a sadomasochistic fervor in conservative circles—producing the Tea Party, their Republican zombies, and increasingly terrifying failures of governance.


"Intrinsically evil"?  Really?  Can you provide any support for this claim, such as a respected poll?  Didn't think so.  Tactic two:  create another straw man.  Oh, and less importantly, demonizing:  I mean really, Mr. Harris -- "zombies"?  Was that part of your PhD program in neuroscience?



Happily, not all billionaires are content to hoard their money in silence. Earlier this week, Warren Buffett published an op-ed in the New York Times in which he criticized our current approach to raising revenue.  As he has lamented many times before, he is taxed at a lower rate than his secretary is. Many conservatives pretend not to find this embarrassing.


Ah, a true statement!  Quite refreshing.


Mr. Harris is correct -- Warren Buffett is not "content to hoard [his] money in silence".  He does seem content, however, to hoard his money while being outspoken.


What is embarrassing to many fiscal conservatives is that Mr. Buffett is free to not take advantage of tax loopholes he finds unfair.  Yet he doesn't.


One of the beauties of economics is that you learn to ignore what people say and instead, watch how they behave, for that is the true indicator of where their values are.



Conservatives view taxation as a species of theft—and to raise taxes, on anyone for any reason, is simply to steal more.


Clever wording here, using the term "species".  The only way I have heard of taxes being referred to as "theft" was with the qualifier "legalized".  For those like Mr. Harris, this means that those using this phrase don't really believe it is "theft" (after all, how can you have legal illegal behavior?) but instead, use it as a rhetorical device (you are an author, Mr. Harris, n'est pas?).  So now we have straw man number three.


Time to knock them down.



Of course, this is just an economic cartoon.


Well yes, you have just created a cartoon.



But even in the ideal case, where obvious value has been created, how much wealth can one person be allowed to keep? A trillion dollars? Ten trillion? (Fifty trillion is the current GDP of Earth.)...Bill Gates and Warren Buffet, the two richest men in the United States, each have around $50 billion...And there is no reason to think that we have reached the upper bound of wealth inequality, as not every breakthrough in technology creates new jobs. The ultimate labor saving device might be just that—the ultimate labor saving device. Imagine the future Google of robotics or nanotechnology: Its CEO could make Steve Jobs look like a sharecropper, and its products could put tens of millions of people out of work.


Now we are getting to the heart of the matter for Mr. Harris:  the inequality of wealth.


While his fantasy of a trillionaire is far-fetched, let's use Mr. Gates as a baseline to extrapolate.


According to Mr. Harris, Mr. Gates is worth $50 billion.  In order to be a trillionaire, you would need to amass twenty times that much wealth.  In Mr. Harris's cartoon creation, he imagines this Twenty-Times-Gates individual amassing such wealth through job destruction -- not creation -- and not just any job destruction, but one that "could put tens of millions of people out of work."  Somehow Mr. Harris neglects the fact that the Microsofts of the world provide substantial employment -- that even intellectual property companies still need to produce something, and oh, by the way, the higher the technology, chances are the higher the employee compensation as well. 


As of June 30, 2011, Microsoft employed over 90,000 people. Average employment over the past ten years has been in excess of 70,000 people.


So using a simple extrapolation, Mr. Twenty-Times-Gates may end up employing twenty times that, or 1.4 million.  Over the course of years.  Just consider for a moment the wealth generated for those 1.4 million. 


Now somehow Mr. Harris wishes you to believe this fantasy hypothetical of putting "tens of millions of people out of work."  Currently, as bad as the U.S. economy is, we have 13.9 million unemployed.  How Mr. Harris gets to "tens of millions" goes unsaid -- he just wishes you to believe it (on faith?).  For the CEO of Project Reason, I would expect a little more scientific rigor in an economic analysis.



How many Republicans who have vowed not to raise taxes on billionaires would want to live in a country with a trillionaire and 30 percent unemployment? If the answer is “none”—and it really must be—then everyone is in favor of “wealth redistribution.”


Yes, it must be, Mr. Harris. Another article of faith, as you (of course) provide no substantiation for how we may arrive at your imaginary scenario.  No, instead you simply deduce this from your own thought processes and declare it as true.  Just "imagine".


Quasi-religious, indeed.


Let's ask more questions, since you enjoy setting up straw men.


How many people would want to live in a country with no millionaires and 30 percent unemployment?


How many people would want to live in a country with a trillionaire and 0 percent unemployment?


Mr. Harris has an interesting addendum to his article, in part:



The federal government should levy a one-time wealth tax (perhaps 10 percent for estates above $10 million, rising to 50 percent for estates above $1 billion) and use these assets to fund an infrastructure bank.


Just how does Mr. Harris propose these individuals come up with the cash to fund this one-time wealth tax?  Does he think that Mr. Gates or Mr. Buffett has $25 billion of available cash just laying around idly?


No, Mr. Harris is suggesting that the wealthy divest themselves of their assets in order to pay for this tax.  The top 100 billionaires are worth approximately $837 billion, so a 50% tax would be in excess of $400 billion.


Note this $400 billion would not go towards deficit reduction in Mr. Harris's fantasy, nor reduction of debt, but instead to a infrastructure bank.


The U.S. spends approximately 2% of its GDP on infrastructure per year, or currently about $300 billion.  So Mr. Harris's grand plan would advance infrastructure building by all of about 1.5 years.


I will leave for the more rational thinkers to contemplate the absolutely devastating effects such a divestiture would have not only on the United States, but the world.  A few questions to ponder:


  1. How much wealth will disappear merely due to the mass liquidation of investment holdings?

  2. How many jobs would be lost due to the mass loss of investment?

  3. How large would the negative impact on citizens' investment holdings be due to the impact of item #1 above?

  4. What would be the impact on the organizations funded by the tens of billions of dollars the richest Americans donate to charitable organizations?

Notes:

  • An interesting read on the practical difficulties in becoming a trillionaire are addressed in this article.  Mr. Harris does not address any practical difficulties, but just wishes you to imagine a world with a trillionaire.

  • In 1999, Wired magazine had an article providing theoretical estimates of when Bill Gates may become a trillionaire.







Rachel Maddow and The Hoover Dam

The MSNBC ad featuring Rachel Maddow discussing the Hoover Dam had me thinking.




I've been researching the issue, and in that time, I've been beaten to the punch by the folks over at Big Journalism.

In short, the Hoover Dam was built with non-union labor with management breaking union strikes, over 100 workers died due to safety conditions, and the Colorado River has had lasting environmental damage because of the Dam.

Would Maddow support a large infrastructure program today that used non-union labor, waived worker safety rules and caused lasting environmental damage?

Jeffrey Sachs, Economist and Director of the Earth Institute, Columbia University, wrote the subject article on the Huffington Post.

 

In it, he puts forth some of the usual false arguments in the current tax debate.

He writes:

"Conservatives point out that the richest 1% receives around 20% of personal income yet pays 38% of total federal income taxes...Yet things are not so simple. The rich have enjoyed an unprecedented boom in their incomes in recent decades. Globalization has been exceedingly kind to them. Stock markets have boomed since the 1980s and investment and profits earned abroad have soared. The wages of American production workers have stagnated, under the pressure of labor competition from Asia. Lower wages of production workers have led to record corporate profits, while manufacturing jobs have been shed by the millions."

But they are so simple, as the whole list of arguments he puts for regarding the "unprecendented boom" and so on are already reflected in the statistic he mentions (income tax only), or the wider "all Federal taxes" measure which shows that the top 1% earn around 19.4% of the income yet pay 28.1% of all Federal taxes (and that includes Social Security, which I argue should not be included).

Then, he pulls out the false marginal tax rate argument.

"Despite much bellyaching about their high federal income-tax burden, the rich have actually enjoyed a declining average tax rate. In 1980 they paid 34.5% of their incomes in personal income taxes, and this fell to just 23.3% by 2008. The rich are certainly not suffering under an arduous tax burden. On the contrary, the average federal income tax rate paid by the rich has not been so low since the eve of the Great Depression! "

As I addressed in my blog post "Do Marginal Tax Rates Matter", despite rates ranging from 28% to 92%, the effective tax rate has operated in a very narrow range.  Also, since 1979, the Federal tax system has become more progressive, not less.

His next argument is that "[m]any conservatives believe that raising tax revenues as a share of GDP would utterly cripple the economy."  He then puts forth two reasons why this is incorrect.

"First, the federal government can (and should) raise considerable added revenue by closing tax loopholes."
 
Note this is a policy prescription, not an argument supporting the contention that raising tax revenues as a share of GDP wouldn't cripple the economy.  In addition, he doesn't explore the impact on the economy of closing those loopholes.  For example, the proposal, if enacted, of eliminating the home mortgage interest deduction would likely put downward pressure on home sales prices.
 
"Second, and contrary to the claims of the supply-siders, the US economy would not be harmed by higher marginal tax rates. The economy thrived in the 1950s and 1960s when top marginal tax rates were over 90% in the 1950s and 70% in the 1960s."
 
Note again the false argument regarding marginal tax rates.  The harm to the economy, over the mid to long term, would be the inefficient allocation of resources as taxpayers adjusted their behaviors -- likely resulting in no more substantial tax revenues -- as the evidence of the effective rates show.  In addition, to claim, with no consideration of how the world has changed (especially with regards to globalization), that things would be just like they were then, is tenuous at best.  Money is much more fluid now and there is less financial related friction in moving funds world wide in a heartbeat.

I would like to hear some new arguments supporting raising taxes / raising taxes on the rich that don't rely on misleading statistics and false pretenses.

 

"Zombie Tax Lies" - Krugman

Paul Krugman wrote a piece in the April 22, 2011 New York Times Opinion Page titled, "Zombie Tax Lies".

At first, I chuckled, thinking that he was self-referential.

Oh well.

In the continuing debate about the appropriate level and progessivity of Federal Income Taxes, Krugman trots out first a strawman ("The claim that only rich people pay taxes is a zombie lie — something that keeps coming back no matter how many times it’s killed by evidence.") and then uses the most frequently used, and deceptive, measures to respond, and takes it up a notch.  Good job, Paul.

The most frequently used (and deceptive) way to respond is to incorporate Social Security taxes.  It's a discussion for another day, but suffice it to say that the Social Security system is quite progressive, not regressive.  Folks like Krugman can only make it look regressive by including just one side of the equation -- the tax on employment wages -- while ignoring the money received back (which is skewed in favor of the lower incomes).

But here's the problem.  Even including Social Security taxes, the CBO has reported that the U.S. Federal tax system, overall, is still highly progressive and the progressivity has increased over time.

In order to overcome this inconvenient truth, he has to raise the deception a notch by incorporating (by way of Citizens for Tax Justice) state and local taxes as well!

Now, try to explain justifying the level of Federal income taxation based on what states and localities do with their tax system!  It may be true that state and local systems are less progressive / regressive, but that has no bearing on a discussion about Federal income taxes and the funding of the general obligations of the U.S. Federal government.

Zombie tax lies.  Indeed.