Inequality and the Bush Tax Cuts
Martin Wolf of the Financial Times draws attention to a key finding by Raghuram Rajan: “of every dollar of real income growth that was generated between 1976 and 2007, 58 cents went to the top 1 per cent of households…This is surely stunning.” It is indeed stunning. The story of the last 30 years is basically that the rich did spectacularly well, the middle class stagnated, and the poor faced greater dislocation. I think we can all agree that this does not accord with Catholic social teaching.
This should clearly be the nail in the coffin of the supply-side nonsense (that, plus the fact that supply side reforms did not unleash any higher productivity as promised). Keep this in mind when considering the debate over whether the Bush tax cuts should expire or not. See the chart for who would gain:
Do we really want the super-rich to keep getting more and more?
Comments are closed.
No, we all do not agree. Any proposed alternative is far worse and even further out of sync with Catholic teaching.
Excuse me?
Do we want the super-rich to have more? Well, I don’t know — envy is one of the 7 deadly sins, so it seems rather dangerous to spend too much time fretting about other people who have more than me.
I would think that Keynesians ought to oppose repealing the Bush tax cuts as being anti-stimulative (responding by saying that government spending is more stimulative is a cop out; a new spending stimulus is not in the cards politically, whereas extending the Bush tax cuts is).
Sheesh! It’s too early in the morning to abandon all hope. But comments like that opener make it hard to maintain it.
JD – Catholic social teaching calls for a just distribution of resources, and even argues that the distribution of wealth matters more than the accumulation of wealth. It flows from solidarity and the preferential option for the poor. The notion that the rich deserve their rewards is decidedly Calvinist.
Considering the wealthy aren’t investing their money, taxing it and spending it makes sense from a Keynesian perspective.
Blackadder -
A couple of points:
First, most forecasts see a return to growth and employment in 2011, so a good Keynesian would call for withdrawal of stimulus next year.
Second, if we think that the insufficient size of the current stimulus means that a double dip recession is on the cards, then we use something that will actually stimulate the economy. If you think that more spending is infeasible (although spending money on means of killing people remains popular) then the only logical course of option is to follow Obama’s course of action – extend the tax cuts except for the very rich. This has the three benefits – it targets stimulus on those who will spend it, it is good for fiscal sustainability, and it promotes fairness. In other words, there are really no good arguments against, and only bad Calvinist ones about the rich deserving their rewards.
responding by saying that government spending is more stimulative is
a cop outdevastating to my caseFixed that for you, BA.
The notion that the rich deserve their rewards is decidedly Calvinist.
I don’t say they deserve their rewards at all. They most certainly don’t — but me getting mad because someone else got an undeserved amount of money is just envy. Tiger Woods didn’t deserve to be so good at golf, but that doesn’t mean it’s spiritually healthy for me to sit around resenting him for it.
“No, we all do not agree. Any proposed alternative is far worse and even further out of sync with Catholic teaching.”
ANY proposal at all?
I can’t believe the comments by KY and JD. Simply cannot believe them.
…me getting mad because someone else got an undeserved amount of money is just envy.
Think it’s possible that “getting mad” about it might come from somewhere else other than envy? I mean, you may just know yourself really really well and that’s fine. But don’t assume that others are as envious as you. They might be motivated by a sense of justice.
And your Tiger Woods “analogy” is not only ridiculous but offensive. Did you listen to the gospel reading today?
I have no resentment of the rich. I just want them to pay their fair share of taxes. I don’t approach this from the liberal-charity angle but from that of justice-equity. The simple matter is that the rich benefit from government spending more than the middle class. Half of the income tax revenue is spent on defense. Just as one pays a higher fire insurance premium on a mansion that what one does on a simple tract house, our military protects a lot more valuable property of the rich than of the middle and working classes. Let them pay for it.
MM,
I’m not clear why you frame this in terms of repealing the Bush tax cuts, when the graph you’re showing deals with either keeping the Bush tax cuts, or going with an Obama proposal which deepens the Bush tax cuts for most Americans while making a symbolic tax increase on those making more than 200k (mostly on those making more than a million.)
In regards to the poor, the Obama’s proposed tax plan is identical to Bush’s — indeed it simply goes a little further down the same road. His plan may be a bit more fiscally responsible as it “pays for” the cuts to those making less with increases on the rich — but like the Bush cuts it is pimarily a benefit to the middle class with a sop to the poor to make people feel virtuous.
MZ,
Considering the wealthy aren’t investing their money, taxing it and spending it makes sense from a Keynesian perspective.
If the wealthy are not investing their money, what exactly are they doing with it? Are they spending it all, thus turning it over to those who they buy things from? (And thus having the same effect as government stimulus.)
I’m unclear what they’re imagined to be doing which wouldn’t have a roughly similar effect to government stimulus — withdrawing it as gold coin and sitting on piles of it like dragons?
Let me be clear: I have no principled objection to the Obama plan which MM is applauding here, unless it’s that the middle and upper middle class should probably not be getting tax breaks right now.
But it does strike me as odd to present this as somehow being more beneficial to the poor than Bush’s tax cuts, and I’m unclear what the argument from social justice is for a tax adjustment which gives the following benefits:
$400 to a single parent with one kid making $25k/yr and the
$400 to a single person with no kids making $60k/yr
$800 to a two income, married family with two kids making $150k/yr
This is social justice?
“Do we want the super-rich to have more?”
What one man/woman has has nothing to do with me unless they took it from me or is willing to give me some of it. I try not to envy people for what they have.
The presumption here is that when one is “super-rich” they are that way at the expense of others. The idea that wealth is a big (and shrinking) pie and if you have a bigger piece your taking some of someone else’s pie is one I don’t subscribe to. History shows us, more pie can be made. Although that doesn’t mean we shouldn’t share a bit more.
The question of taxation shouldn’t be about taking more from people we consider less deserving for less than “Catholic” reasons. It should be about creating the best system for the overall welfare of the common good and the individual person.
Kapustin Yar says:”No, we all do not agree. Any proposed alternative is far worse and even further out of sync with Catholic teaching.”
Morning’s Minion says:”Excuse me?”
Why the indignation? Even if you don’t agree there are those that can reasonably, if not rightfully, argue that increasing taxes in an economic downturn will increase the social strife already so rampant and the people who are hurt most by taxing the “wealthy” are those who are employed by the “wealthy” or provide goods and services to this allegedly undeserved wretches. I could be wrong though. Being dogmatic about economics is folly (a point both sides of this debate should remember) which is why I think the Church tries to not command the implementation of particular economic systems.
“JD – Catholic social teaching calls for a just distribution of resources, and even argues that the distribution of wealth matters more than the accumulation of wealth.”
That is certainly true. Credit to this blog for being so determined to hammer this point home. However, where I think we can have plenty of room to disagree is the
by which distribution of wealth is done. I think the Federal Government’s role in that distribution should be somewhat limited. How limited? I dunno. But then again, neither do you I’d bet.
“The notion that the rich deserve their rewards is decidedly Calvinist.”
That’s name-calling, and silly at that. Even if it is Calvinist, who cares? It’s more important why this notion is wrong. I have no ability to judge who “deserves their rewards”, I’m just not that smart, unless there is evidence of injustice in acquiring those vast and disgusting rewards. I do know plenty of people you might consider wealthy who I would have a hard time finding cause to determine the life they lived does not deserve rich rewards. But then again, I’m not the judge of that. The constant drip of class conflict chatter in this venerable blog is decidedly 19th century.
“I can’t believe the comments by KY and JD. Simply cannot believe them.”
Michael, given your long history of contributions to these pages I think you can find a way to believe these comments, even if you disagree. Is it okay if we disagree? I really hope so.
“Considering the wealthy aren’t investing their money, taxing it and spending it makes sense from a Keynesian perspective.”
Bravo. If somebody were to ask me to show them the perfect example of this blog’s commonly engaged penchant for sweeping generalizations and unsupported (if not flat-out false) assertions characterizing a vast swath of unrelated people, I would say, “THAT’S A BINGO!!!”
“I have no resentment of the rich.”
GREAT! More of that please.
“I just want them to pay their fair share of taxes.” Me too. How much is that though? I think that’s where we ALL can have a reasonable disagreement and not call each other un-Catholic.
“The simple matter is that the rich benefit from government spending more than the middle class.”
Explain that one a bit more. Maybe you’re right but it’s a big fresh to me.
“Half of the income tax revenue is spent on defense…”
Maybe that part is true, however, more people “benefit” from that fact than just the wealthy. Wouldn’t you say that much of that defense spending goes to pay salaries to people of low to moderate income, and, well middle class defense contractor employees, military officers, and Defense civilian staff? Let me clarify that I’m not making any statements about the justice of this sort of spending.
I now wait holding my breath for moderation of my comment where I look forward to ingenious attempts to make me look silly by editing it to bits and pieces, if it gets posted at all. I know I’m being petulant. It’s a well-earned disposition though. I hope that the departure of a certain member of Vox Nova might mean a brighter future in this regard.
The idea that wealth is a big (and shrinking) pie and if you have a bigger piece your taking some of someone else’s pie is one I don’t subscribe to. History shows us, more pie can be made. Although that doesn’t mean we shouldn’t share a bit more.
You are correct. But we should soend some time thinking about what causes the pie to expand. Do we believe that the gains in productivity in the last generation have come exclusively from the rich working harder and smarter? And that middle and working class Americans have contributed less by their efforts?
“Half of the income tax revenue is spent on defense…”
Maybe that part is true, however, more people “benefit” from that fact than just the wealthy. Wouldn’t you say that much of that defense spending goes to pay salaries to people of low to moderate income, and, well middle class defense contractor employees, military officers, and Defense civilian staff?
Those people do a job in exchange for their pay. That is the exchange.
The exchange for the rich and defense protection is the payment of taxes. I think those with vast wealth get a pretty good deal if one compares the taxes they pay and the property losses they would suffer from a Marxist insurgency.
I would further suggest that most of the benefit of the programs of the Departments of Commerce, Energy, Homeland Security, Justice, State, Treasury and Veterans Affairs fall in the same boat.
Add to that those functions needed so that businesses can have an able workforce and the ability to move goods to market — Education and Transportation.
Then you have two more departments — Agriculture, which I would argue excessively benefits rich farm owners over family farmers and Interior, which does run national parks for the benefit of those who can afford vacations but also gives away mineral rights at far below market value.
That leave three cabinet agencies (HHS, HUD and Labor) that might benefit those who are not paying taxes at high levels.
Talk about “ingenious attempts to make me look silly by editing it to bits and pieces, if it gets posted at all.” M.M. wrote:
which has turned into
These questions look similar, but they are not the same and they express different beliefs about the development of wealth distribution. I think JD gave his own interpretation of M.M.’s original question, and that’s fair enough. But it’s not right to quote his version of the question, rather than M.M.’s original, and then complain that the moderator (presumably M.M.) mis-edits comments.
The exchange for the rich and defense protection is the payment of taxes. I think those with vast wealth get a pretty good deal if one compares the taxes they pay and the property losses they would suffer from a Marxist insurgency.
Given that most countries that actually have Marxist insurgencies still have uber-rich (they just buy bullet-proof SUVs and hire private security and spend a lot of time vacationing in the US and Europe when they’re not busy extracting money from their own country) while the poor there are far, far worse off than the poor in the US, it seems implausable to me that it is the rich who benefit most from a lack of Marxist insurgencies. Nor does it strike me as remotely plausable that the US would have a successful Marxist insurgency at any point in the forseeable future.
How about if we just stick with the common sense explanation that it makes sense to tax the middle class and the rich more than the poor because those are the groups that have money while the poor are the ones who need money. Indeed, we should probably have a tax system in which the majority of taxes are paid by those in the top 40% of the income spectrum — kind of like we do now. :-O
Frank-
I pulled from the wrong line. For that I apologize but it was an honest mistake. I don’t really see much of a difference in the statements and certainly wasn’t trying to manipulate the thought in any nefarious way. However, to try equivocate what bloggers here (not M.M. so far, thankfully) have done to others and me with editing comments before posting would be laughable if it wasn’t so insulting. It seems you’re just looking for a reason to be indignant but I’ll just assume you’re unaware of instances of the practice and therefore couldn’t understand why this is so silly.
Kurt said: “You are correct. But we should soend some time thinking about what causes the pie to expand. Do we believe that the gains in productivity in the last generation have come exclusively from the rich working harder and smarter? And that middle and working class Americans have contributed less by their efforts?”
GREAT QUESTION! No not necessarily. If we ask what causes the pie to expand we must also ask how do we continue to expand this pie and keep it from contracting all the while doing our best to ensure justice? While ensuring social justice is vital, do our methods actually have the unintended consequence of shrinking or stunting the pie growth. By taking from wealthy to redistribute we could run the risk of creating that ugly thing called “deadweight loss”(see: http://en.wikipedia.org/wiki/Deadweight_loss) and/or/which runs the risk of disincentivizing the innovations that leads to more pie making.
Also we have to consider how the wealthy became that way. Some may have inherited their wealth. Some may have stolen it. But I would say there is a significant amount of those people who EARNED it. Many of the wealthiest people in the country invested their time and hard labor with risky start-up ventures or small businesses. They grew that business with fortitude, perseverance and a great deal of good providence or luck. They took great time and sacrifice to get where they are. They employed people fairly by the invention of their work. At least the few wealthy people I have known in my life did it that way. I’d have a hard time telling them they have more than they deserve. I’m sure there are plenty of those who may not be worthy of the blessings they bear. I’m just not wise enough to distinguish between these folks. I also get nervous around people who claim to have that needed wisdom.
Once again I could be very wrong. But my point is, there is plenty of room to find disagreement within the limits of Catholic Social teaching and it’s better we avoid being dogmatic about economic policy with respect social justice. Rather, we should look to create economic systems with the goal of seeking social justice first. But believing a system that skews to the capitalist or socialist side does that the best does not make one un-Catholic. As to which belief is valid, I’m going to have to remain a bit agnostic.
to clairfy, when I said, “No not necessarily” I was responding directly to your question (agreeing with you), Kurt.