Mark this day down on your calendars. I agree with Matt Yglesias:
Chris Paul is in the one percent, but he’s also a kid from a working class background who’s spent his entire career being structurally underpaid and victimized by cartels. By contrast, even substantially lower-paid (and there’s lots of room to be both lower-paid than Chris Paul and very highly paid) folks working on Wall Street are making a living in an industry that’s systematically dependent on implicit and explicit government guarantees. Making a living as a patent troll is totally different from making a living as a genuine innovator. Dentists enriching themselves by blocking competition from independent dental hygenists and tooth whiteners aren’t the richest people around, but their income represents a healthy share of ill-gotten gains
After that, of course, he wanders off into the weeds. The key point here is that tax rates are blunt instruments. They don’t make distinctions like the ones that Matt is making above. Trying to jigger the tax code so that it does make such distinctions is a) more likely to benefit the “malefactors of great wealth” than it is the “people who are just paying higher tax rates because of the declining marginal utility of income” and b) creates an industry of people who i) try to influence the writing of the tax code to their benefit and ii) earn big incomes by giving advice on the ins and outs of the tax code. For all of these people the essential structure of the tax code is a matter of life and death. They will defend it with all their might (which is considerable).
While I’m on the subject of making distinctions get a load of Gallup’s findings on what Americans think about who’s rich:
Americans say they would need to earn a median of $150,000 a year to consider themselves rich. However, 30% say less than $100,000 would be enough, including 18% who would consider themselves rich if they made less than $60,000 a year. On the other hand, 15% say they would need to earn at least $1 million per year before thinking of themselves as rich.
or, said another way, the overwhelming preponderance of Americans a) define themselves as “not rich” whatever their incomes are and b) define anybody who makes more than they do as rich. By those standards nearly all physicians and dentists are rich, police officers are rich, plumbers are rich, lots of school teachers are rich. Populism doesn’t consist of taxing the .1% of income earners, those who are truly rich, earning incomes around $2 million a year. It consists of taxing the top three income quintiles more.
If that money were going to be distributed to the needy there might be a point to it. But it won’t. It will be redistributed among the top three income quintiles. That’s lunatic. And creates enough deadweight loss that it reduces the number of jobs that will be created. producing yet more dissatisfaction and envy.
Michael Kinsley makes a similar comment about Obama’s distinctions:
“My problem with Obama’s speech is that the president muddles together a variety of very different categories. There are out-and-out crooks and shysters. There are clever financiers who manipulated the rules and took advantage of loopholes — and ought to be thoroughly ashamed of themselves — but did nothing illegal. There are the very, very rich — the notorious 1 percent, or 1 percent of 1 percent — who have benefited from changes in the economy that they may or may not have had any control over. Then there are the affluent — annual income of $250,000 or more a year is as good a benchmark as any — who, before the recession, were doing better and better for reasons no one was entirely sure of. ”
For me, too much of what is being categorized as popularism is about trying to raise taxes on the third group by conflating them with the first or second group, which will ultimately dead end IMHO as the categories reveal themselves. Meanwhile, whats being done about the second group?
I meant raising taxes on the third and fourth group.
I’m most concerned about the first group which appears to have been given a pass.
Besides the problem of incentives with the strategy of raising taxes as one’s sole strategy for reform, there’s a math problem with it as well. You just can’t get far enough without diving into the fourth quintile.
I don’t know that the first group exists. How would we know?
For example, Corzine appears to be unique in presenting a possible criminal issue, theft of customer accounts. That is in addition to bad risk-taking. It seems quite plausible to me that the financial crisis could have arisen entirely from shameful, legal activities.
“there is a math problem”
A point I make repeatedly in this or other contexts. You can claim to be the one who “cares” and such and call for the heads, or at least the money, of the “rich,” but you simply cannot resolve our budgetary issues with class warfare and cheap feel good political stunts when the numbers just simply – not just don’t add up- but are overwhelmed like a sunami. It’s spending. Stuff about taxes. It’s a fool’s errand. It’s spending. And Obama is driving us over one of those beautiful Hawaiian cliffs.
“It’s spending.”
Right, we need a lot more. More spending, more tax cuts, bigger deficits. As for those who’ve gotten rich from rent-seeking and illegality, it’s much more important to take away their ability to continue looting the middle class and poor than taking more of their income. Make Blankfein and Dimon operate on a level playing field without government support and sell tickets to the huge failures they’ll become, because many of the wealthy are natural born losers that won’t last long in a truly competitive environment.