There Must Be a Pony (12K)

Max Sawicky sawicky at epinet.org
Tue Oct 13 13:54:08 PDT 1998


This will be my third post today, so to further replies, I'm not ignoring you, I'm out of town, and to the ill-mannered among you, when I get back I'll resume ignoring you.

Speaking of whom, Remick says:

Re Max's: "Bottom line is that the rich will not finance socialism, social-democracy, or even national health insurance. Not even close."

Well, that's it. Max has just "proved" this list is a waste of time and we can all go home. Doug, you want to turn out the lights?

-----------

For some it could well be a waste of time, relative to in-line skating.

A major illusion of the left is that it thinks it can sell socialism by claiming that somebody else will pay for it like a Christmas present, and the working class to its credit knows better.

============================

CR again: Re Doug on Max's vaunted numeracy: "Not even close? You studying up for a job at Heritage?"

"Sucking up" for a job at Heritage is more like it -- "studying" denotes too much intellectual rigor.

---------

For someone with your "explanation" of why capitalism must crumble, I wouldn't push rigor or numeracy too hard. Better to go with moronic abuse.

============================================

Doug:

They won't finance it voluntarily, of course, but Max, you're surely not arguing that the rich don't have money, are you?

Personal income for the first half of the year was about $7 trillion. Applying the Census income distribution shares, we can estimate that the richest 5% of the population claims about $1.5 trillion in pretax income, and the next 15% just under $2 trillion. So the top 20% of the population has about $3.5 trillion, or half of total pretax personal income. The top 1%, according to CBO numbers, claims about 13% of pretax income, and pays just 18% of personal income taxes right now. That could finance a lot more than national health insurance.

Not even close? You studying up for a job at Heritage?

-------------------

Sure the rich can be taxed more. The question is how much more. The government can't or won't tax NIPA "personal income." For instance, PI includes the imputed rent to owner-occupied housing. It also includes transfer payments financed by income taxes, so it reflects double- counting. And etc.

The statutory tax base is much smaller than the economic aggregates. (See Steuerle, "Taxes, Loans and Inflation," or Joe Minarik.) I use the IRS data, as you will see in the piece. If you find a hole in the logic, fire away.

The other basic consideration is political; the poorest person in that five percent group would not commonly be considered rich, though you and i could agree on that. That goes quadruple for the bottom of the top quintile. I'll send you the draft of the complete article, and if you want to post it, feel free.

Note: national health care expenditures are approx $800 - $900 billion annually.

============================

Paul R:

. . . Putting things into historical perspective, this shows that a much higher federal tax burden was compatible with a period of much more robust economic growth and much broader sharing of wealth. . . .

-----------------

The fact that the economy could easily sustain somewhat higher taxation of the rich is true but not what is at issue. Financing what most folks here (and me) take to be a minimally-adequate social-democracy is.

===========================

Jim B:

. . . How about, for starters, cutting some of the overt subsidies to the rich - most pentagon spending, mortgage deductions, state and local corporate givaways. Remove the cap on SS, and reduce the rate. Practice confiscatory taxation above say, $2,000,000 (I'm a Huey Long fan, but with inflation and all...) Institute a wealth tax. Raise gas taxes, move the money into mass transit. You could get your extra $500b or more without breathing hard. . . .

--------------------

Much of the items in the first graph go far beyond taxing "the rich." The spending item is beside the point of the discussion altogether. My paper goes into the details.

The wealth tax is a different matter. It deserves more discussion than I have time for, so I'll just throw out one nugget to get your dander up: If the nominal rate of return on assets is six percent and the inflation rate is two percent, then a two percent wealth tax is equivalent to a capital income tax of 50 percent (on top of existing income taxes). A five percent tax is a 125% income tax. When you tax wealth, you are really taxing income generated by that wealth. When you approach a point where paying the tax requires liquidation of the asset, you are getting into expropriation, not taxation, under which circumstances a wealth tax would soon find itself with very little to tax.

==========================

Hey, in the 1950s the top marginal income tax rate in the US was well over 90%. Barkley Rosser

----------------

Hey do you think that's the answer? Run around calling for a 90 percent top rate? Even LBO wouldn't consider that a news story.

What matters is how much revenue was raised in the 90% bracket. I would bet the answer is damn little. Again, the question is how much income is up there that can be taxed.

=============================

Mike:

And the tax burden is flat up the scale from this. Grieder I believe in the same book makes the point that if the Federal Government was "fee for services", the very rich would have to pay more do to the fact that it is the benficiary of the majority of government services. Its good there was

-----

That the rich are the beneficiary of "the majority" of government services is totally unfounded, insofar as Greider's assertion has any clarity at all. ('majority' of what?: spending, benefits provided, programs, what?)

-------

Mike again:

. . . Suppose we took the income of the top 1% and capped it at $75,000 per year transferring all the income to the bottom of the socio-economic distribution so that the mean income below a certain point was flat, what would that income be? . . .

----------------

It's fine to speculate on what happens if you cap income at $75K a year, but my interest flags significantly once we get beyond the remotely possible. The extent of my own marginalization reflects badly on the gamut of suggestions proposed here. Of course, maybe you folks could do a much better job than we pedestrian bean-counters in D.C. By all means, go to it and best of luck.

=========================================

Brett:

I think you should be a little more careful. We may not be able to finance social democracy from corporate profits, but what if we combine corporate taxes with income and wealth taxes instead?

Say we raid the corporate coffers for another $25 billion or so - a significant increase, but not outrageous.

Now, if you could implement a 0.5% wealth tax on the richest 1%, you get 0.005 times 6 million (roughly the avg. net worth of the top 1%) times 2.5 million for another $85 billion.

That's about $300 billion from the rich. Over half the way to a social democracy. Sure, the rest of us would have to pony up some cash too, but there is quite a bit of money at the top. Now, getting the rich to pay up is a separate issue...

-----------------------

You're really asking about the magnitudes, about which, see my article. My point is that if we define "a lot" in terms of minimal social- democracy, that is very much compared to plausible proceeds from taxing the rich.

Note that whenever you talk about taxing wealth or income, there is always less of the second once you tax the first. It goes with knowing how to count.

====================================

Charles:

Isn't Max alleging that the rich don't have enough money to pay for these ? That the rich are too poor to pay for the masses' socialism ? In other words, there isn't enough money for socialism , et al., period ? Sort of rederiving scarcity theory.

One question is : Do the Commerce Department categories of profit etc. hide large amounts of surplus value, such as the profits of control that economist Victor Perlo analyzes in _Superprofits and Crises_. ?

-----------------------

I'm alleging that the masses are going to have to pay for a good bit of their own socialism. This would be so, incidentally, even with the power of expropriation. Scarcity is not at issue. Output reserved for real capital investment cannot be used for consumption without reducing future output. This remains true in a "green" accounting framework. Nor can the existing capital stock -- the foundation of "wealth" -- be liquidated for consumption purposes without reducing output in subsequent periods. The only really free resources, in terms of use-value, are "excess" (politically defined) consumption by the "rich" (ditto), and under some circumstances, some of the resources in in the public budget for military, corrections, CIA-NSA-etc. Note that you can find private consumption to be wasteful, but in this case you are chaning the composition of personal consumption, not financing new and better consumption with somebody else's money.

DoC has a different accounting framework than Marxists do, so any hiding is not witting. An exception is that GDP does not include capital gains, though when you tax this, you are still diverting output in the conventional sense (e.g., nobody can eat the increase in a stock's share price.) Oddly enough, the exclusion of capital gains seems an indirect bow to Marxian value theory; I've heard neo-classical economists defend it on the grounds that a change in capital values is not a gain in real output. So much for microeconomics.

===========================================

Sol: I'm glad Mike Cohen finally made the point that data about tax burden are based on declared income, and thus ignore the extent of both (illegal) evasion and (?legal) avoidance of tax. This is a major issue, which the left ducks all too often. Since deduction at source was introduced for employment income (I think only during WW2), the burden falls much more directly on waged and salaried people, while those who receive income from capital have far more opportunities for tax 'planning'. Largely due to this, high marginal tax rates became nominal, and many countries have been forced into reducing them while trying also to reduce tax breaks and opportunities for avoidance. As I understand it, the US tax code is riddled with breaks, even after the attempt at reform in 1986? Germany has been trying to introduce source taxation of bank interest for some years, and each time there is a massive outflow of bank deposits to Luxembourg.

------------------------

Evasion and avoidance would persist and undoubtedly grow under higher tax rates. Which doesn't mean they can't be raised by some amount to some good effect. Everything else you say is true and is testimony to the difficulty of taxing NIPA income, much less some of the measures suggested above.

================

I'm flying West to commune with my brothers in Christ, so I must lay down my burden until Saturday, unless the weather is nice enough to play golf.

Peace be with you,

MBS



More information about the lbo-talk mailing list