I’m surprised that Megan McArdle, writing at Bloomberg, doesn’t include the obvious explanation in her (short) list of explanations for why Bernie Sanders and Hillary Clinton have put a stake at $250,000 as the designation of the upper end of the middle class:
I can propose a couple of answers to this. The first is that Democrats never got over their reputation as the party of tax hikers, and what it did to them in the 1980s. They regrouped, rebranded as “the party of hiking taxes on really rich people who stole it all from the rest of you anyway†and came back to Clintonesque victories. There’s no appetite for trying again to be “the party of taxing everyone, a lot.â€
The second is that those affluent-but-pinched progressive folks in coastal cities may not be a large fraction of the electorate, but they are a huge fraction of two very important groups: the professional political class, and the media. That provides two choke points for any plan to enact the broad and high taxes on the moderately affluent needed to pay for the expanded welfare state that Democrats want.
Try this explanation on for size: they don’t want to start calling a big city cop married to a big city teacher rich. That’s the real third rail of Democratic politics these days. The possibility that quite a few public employees are not exactly middle income any more.
I’ll provide a more benign mathematical explanation: 95% is two standard deviations above normal distribution. Not that either Bernie or Hillary knows that or that income occurs in a standard distribution.
A while back Bernie was advocating increasing the payroll tax substantially, which is as regressive as it gets. So he’s REALLY trying to stick it to everyone. But I guess even he has to bend the knee to someone.
Of note in the Bloomberg article was the following observation:
The emphasized part of that paragraph is so true. As long as you tax the amorphous “rich,” many people are good to go with raising taxes. But, if such a plan slices into their own personal income, they aren’t so happy.
However, the Clinton/Sanders “happy talk” solely promises goodies to the masses, with the obligation of paying for said goodies by those deemed “societal scrooges.”: It’s the classic social progressive theme, pitting a large group of people being politically appeased against a relatively “few” who are continuously labeled as fiscal oppressors, thus assuring a majority vote of being in the bag.
The insidious aspect about these political tactics is that everyone is really effected by such tempting but lopsided approaches to taxation, as it eventually narrows the economic pie for everyone. For instance, yesterday we had a New Year’s Eve lunch, sitting at a family-owned bar at a small wharf near our home there. This place is known for it’s beers, fresh fish and chowder. They used to be open 7 days a week, but have shut down for two of those days because of costs. They also used to have a “taco Tuesday” special. But, when they raised prices 26 cents, there was a noticeable decline in their patronage. We couldn’t believe that people would stop coming because of 26 cents. But the owners daughter/bartender said that’s what happened. It adversely effected their business when they raised prices by mere cents!
“Rich” people have a similar behavior to those less rich, too. Tax them more and they will invest less, work less etc., or simply take their money out of the country. But, Bernie and Hillary are gauging their propaganda-like promises to superficially assuage enough people, not thinking about the unintended consequences of their giveaways, so that they can win the WH. After that, who cares!
““Rich†people have a similar behavior to those less rich, too. Tax them more and they will invest less, work less etc., ”
With a backward bending labor supply curve, people may work less and invest less if taxes are lower. There is also substantial literature showing that if people wish to maintain income, they will work more and/or invest more if taxes rise. If you actually pay attention to how people really behave, you will have seen this. When companies are not doing well and hourly wages are cut, people will look of part time work to maintain income. Goolsbee published a couple of papers on this showing what wealthy people actually did when faced with higher taxes. The worked more to maintain income. When taxes were much higher than they are now, like under Reagan, people still actually worked and invested, believe it or not.
Steve
“…… when faced with higher taxes. The worked more to maintain income.”
Clearly then, the solution to our current output problem is to raise taxes.
I guess people don’t cross state borders to avoid alcohol, tobacco and sales taxes. Business and people dont migrate to lower tax, lower cost states. Why national income tax revenues have remained in a tight band forever despite wildly changing tax and deduction policy. Why people decline overtime unless paid a premium.
But hell, when “just grab them by the balls and squeeze” is your moral compass, it all makes sense. I say just take a short cut and bring back slavery.
I guess it varies. I have personally known people who stopped working when they reached the highest marginal tax rate in the bad old days.
This is shocking, if not impossible. That people didn’t just work harder and more for their cigs defies all logic. They need to call in Mr Goolsbee so they can get that revenue back…….
http://hotair.com/archives/2016/01/02/as-predicted-new-york-managed-to-lose-huge-amounts-of-sin-tax-money/
“Not that either Bernie or Hillary knows that or that income occurs in a standard distribution.”
Oh?
http://theglitteringeye.com/u-s-income-distributiona-chart-to-contemplate/
And in other settled science and dead wrong predictions by “experts”……
http://townhall.com/columnists/stephenmoore/2015/12/29/the-scientific-consensus-has-been-deadwrong-on-oil-n2097757/page/full
Well, Zach, I once saw Hillary and Bernie almost come to blows arguing whether income was distributed in a Weibull function, or a Gamma function.
True story.
“I guess it varies. ”
Exactly. Some people value maintaining income and some people substitute leisure.
Drew- Moore constructed a straw man and then beat the stuffing out of it. There has never been a consensus, as even he notes.
“By the way, this discredited Malthusian belief that we are running out of oil is still widely believed by many scientists and pundits, too. ”
Many is not most. It is not a large majority. He somehow another forgot to cite the paper showing that 97% of petroleum scientists believed we had reached peak oil. Hard to do when it does not exist.
Steve
Well, I think their mistake is trying to define middle class in terms of household income. Under that rubric a single person making $250k a year in Atlanta is the same as a family of five making $250k a year in NYC or DC. Both are
And 97% of scientists who believe in global warming believe in global warming.
You still don’t get it, do you? We can all provide citations or agenda driven “studies” for whatever position we want. It doesn’t mean much. Predicting is hard, especially about the future. (You should search on a youtube video of Friedman and Heller discussing points of agreement and disagreement. Fascinating).
At the end of the day we fool ourselves if we assume too much rigor in studies inherently difficult to, well, study. We have mostly experience and judgment. I’ve been reading about imminent doom on the global cooling/warming/climate change front – only solvable by taxes – for so long I hope you will forgive my skepticism. So far I’m right, and the experts wrong. Good thing they are now pushing out the problem 50-100 years.
And I have a question, an honest question. Is it your position that raising taxes is the road to increased work, productivity and output? Increases in local and real estate taxes, and myriad fees certainly don’t appear to have worked. Are you also prepared to advocate price increases as a way to sell more goods and services as people work harder to pay for them?
Studies of subjects too difficult………that is
“Is it your position that raising taxes is the road to increased work, productivity and output?”
Nope. I have never said that. What I try to point out is that lowering taxes does not necessarily lead to increased work, productivity and output. Sometimes you get the opposite, but mostly there just isn’t that much connection between those variables and tax rates, at least in the range of taxes we live with in the past 100 years or so. The one thing that lowering taxes guarantees is that the very wealthy will be even wealthier. That is the only thing you can count on with tax cuts at the top, which is where you see most of the efforts at tax cutting being done by the GOP.
On the other side tax increases don’t result in Armageddon either. There just isn’t much of a consistent effect. So, I think we should mostly set tax rates so that we can try to pay for government spending. Increasing them or decreasing them temporarily to try to affect demand is also ok with me. (Real Keynes, not the fake kind conservatives talk about.) Guess I should admit that it is very hard to collect taxes from the very wealthy with tax increases. They now control the media, the think tanks and the government at a level I doubt we have seen before.
As to global warming, I strongly suspect you get your information from the WSJ and such, with people like Ridley (LOL) serving as your experts. If you read primary sources even occasionally, it would become clear what i going on. Just an example. The claim that there has bee no warming since 1998. That is one that anyone with a smidgeon of math background, who has ever had to deal with charts on a regular basis, should not fall for.
Steve
In 1960 the highest marginal tax rate (on income above $200,000 for single filers) was 90%. That was 50 years ago. Since 1940 the effective tax rate Americans have paid has been about 22% (you need to add state and local taxes to the info at that link). That’s the reason I persistently make the point that if your plan is to increase the effective tax rate, you need to explain how.
I think there’s a pretty clear relationship between domestic investment and domestic tax rates. However, tax rates aren’t the only factor and maybe not the most important factor.
@steve
Normalizing accurate satellite and buoy data to match the highly inaccurate marine ship data may work for the mathematically or scientifically challenged, but in the summer of 2010, reality, as usual, won out. AGW is dead. The earth needs to reach the CO2 levels of earlier periods, and become a lush green paradise, without the dinosaurs.
Just think, your science is so settled that you now must justify altering reality to fit your fantasy. You can ride it to the bottom, or you can bailout at some point. As I assured you, it is only going to get worse, and it is.
After seven years of 20th century voodoo economic theory, the economy has not responded according to the theory, and applying 18th and 19th century economic theory to a 20th century economic voodoo framework with any expectation of it working is ludicrous.
Even more ludicrous is that the “experts” do not have the foggiest idea that the 18th and 19th century economic theory they peddle was intended to function in sound money environment, but the most ludicrous is that they have no idea of the difference between sound and unsound money. They have no understanding of the impact of this difference. and therefore, it must not exist.
After seven years of voodoo economics, taxes have not been lowered, and yet, there have been trillions of dollars available for investment. It is as if the money were created from nothing, or more correctly, it was borrowed into existence. This does not account for the additional trillions or tens of trillions of dollars below the surface in private (shadow) banking.
In the present economic framework, the concept of government taxing individuals or businesses to pay for the services and goods it provides is not applicable, and the government produces very little of value, and it is not the usual nonsense paraded.
The money whether taxes to the government or kept by the individual will become invested one way or the other, and the investment choice will be made by a private entity. The government chooses where and how to spend government money, and the government chooses who and what private investment areas to encourage money to flow.
Government spending in public companies is not trivial, but as the dotcom boom, the housing bubble, and the present stock madness proves, the private is quite capable of generating substantial sums of money. Create a pool of free standing money, and watch the stampede to invest it at any price.
Now, the government is good at creating the conditions for extremely large pools of free standing money. The government supporters are equally good at being surprised each time the plan goes haywire.
RE: Oil pricing, Peak Oil, Steve Moore
Fracking had nothing to do with breaking the Peak Oil nonsense. He noted sources kept being found faster than they were being used, and that is when the concept was forced to engage with reality. (That reality thing is a bitch, ain’t it. Maybe, President Obama could pass an Executive Order or something.)
Oil pricing does not work according to classical supply and demand. Most oil is purchased on the futures market, and there is a substantial portion purchased by speculators. Many of these speculators live in New York City, and there is not enough room for them to store the oil they purchase. Usually, they sell it before the delivery date arrives, and they never need to actually take delivery of the physical barrels of oil they purchased.
If they have not sold by the delivery date, they can arrange to store the oil and pay a storage fee, but this keeps adding to the cost of the oil, daily. If the speculator thinks the price will rise to cover the growing cost, he can hold out, but there are many things that can go wrong. If he purchased on margin, a margin call might cause him to sell some of it at whatever price he can get.
Presently, onshore storage is filled, and oil tankers are being used. Storage availability, not costs, may be a limiting factor, and this could cause the oil to be sold onto the market at whatever price it can get.
Oil pricing also depends upon the quality of the oil, and the quoted oil prices are for the spot market. If you need a barrel of oil, it will cost that price, but there is a contract price set by the futures market. This price is not as simple as the spot price.
For end users, they can purchase oil and store it at their facilities or purchase storage. The end user needs oil to produce oil based products, and they should have an idea of how much they might need. (Economists are employed to help with these projections.) An end user can purchase from a primary supplier or from a secondary supplier – a speculator or an end user with excess.
In a depressed market, the end user has the advantage. Many of the speculators are driven out of the market, and this lowers the price primary suppliers can get. The secondary market is less risky because there is more upside than down in oil prices. Many of the primary suppliers will need to sell additional barrels of oil for the income, and this will further depress and extend the market downturn.
The oil prices should be depressed for years.