Monday, April 15, 2002

The Rich are Just Like Us, Only More So-Kevin Holtsberry e-mailed this Plain Dealer piece and wanted some feedback. It is true that most people pay more in payroll taxes than they do in income taxes, since they pay 7.65% for FICA (Social Security) and Medicare taxes from dollar one. Since the bottom tax rate is 15%, single people making under about $25,000 will pay more in payroll taxes than they pay in income taxes. The article points out that "two-thirds of families paid more in payroll taxes in 1999 than they paid in federal income tax, while only 44 percent of families did so in 1979." That's due to the high income tax burden on the working poor prior to Reagan's tax cuts and the fact that payroll taxes were 6.13% in 1979. In 1979, the zero bracket was $2300, with a 14% marginal rate on the first 2000 and going up from there. The raising of zero brackets and increase in payroll taxes has made payroll taxes a bigger part of the lower income person's tax burden. The rest of the piece is income-redistribution boilerplate. The Center on Budget and Policy Priorities is a left-leaning think-tank and could be expected to crow on the lack of progressively in modern taxation. They are correct in that many states have shifted away from income taxes and towards sales taxes which are more politically attractive. In Michigan, we saw a shift a decade ago from property taxes to sales taxes as a school financing tool. That does shift the tax burden a bit more downscale.
A regulated capitalist economy is the best economic system that man has thus far concocted, as it can lead to great societal wealth and well-being. But, by its very nature, it can also lead to great concentrations in wealth and income, which can lead to plutocracy and damage democratic values. The increased tax burden on the middle class and decreased tax burden on the wealthy over the last 20 years have occurred while both wealth and income concentration have reached levels not seen since 1929.
Is the American system less democratic today than it was in 40s and 50s? The author implies plutocracy (rule by cartoon dogs the rich) but it is a Mickey-Mouse allegation. The wealthy have always had more influence than the poor, but I think we have a lower percentage of aristocrats in Congress today than in the first have of the 1900s.
For example, the top 1 percent owns about 40 percent of private assets in this country, more than double the 19 percent it held as recently as 1976. Chief executives, on average, earn 475 times as much as the average factory worker today, up from 42 times in 1980. Between 1983 and 1999 - the period that coincides with substantial increases in the payroll tax burdens on the labor income of the poor and middle classes - the richest 1 percent enjoyed 53 percent of the total gain in marketable wealth, while the bottom 80 percent enjoyed a mere 9 percent.
The last two decades has seen the growth of technology that has increased the ability to leverage brainpower and intellectual capital. The smart information-age worker can use his talents on a world-wide basis, as telecommunications, computers and increased efficiency of transportation systems have allowed people to take a good idea worldwide in short order. Such leverage doesn't exist to nearly the same extent to physical labor. It is this leveraging of intellectual capital that has boosted the income of the rich, but it is due to new technology being able to take better advantage of that brainpower.
Perhaps it is not unfair to ask those who disproportionately benefit the most from our regulated capitalist system to disproportionately pay the taxes that are necessary to support such a system. In other words, the right question to ask might not be how taxes should be distributed across income levels but rather how taxes affect the distribution of after-tax discretionary income.
Perhaps. He begs the question that the tax rates are unfair to the rich. He also assumes that the wealthy would work as hard and invest as much if taxes were raised. The right question to ask is to look at the overall wellbeing of society. We could give everyone in the country a $10,000 salary. We'd all be poor, but we'd all be equal. In a free-market system, people with more skills and talent will make more money. We tax the well off to help the poor in order to create a system that maximizes happiness, not minimize income inequalities. Yes, it will be easier for the rich guy to get his bottle of good wine than for Joe Sixpack to get his 10-ounce curls in. However, with lower taxes, the rich guy might be investing his money in Joe's plant rather than buying a bigger yacht, thus giving Joe the factory in which to earn a living. More modest tax rates will encourage the talented and wealth to work hard and to invest, making jobs for other people in the process.

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