The Sovereign Mind

Free thought on politics and real life

Posts Tagged ‘George Bush

Reagan and the “Stinking Rich”

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In my last post I explained that the Bush tax cuts did not disproportionately favor the rich, as it commonly believed. The rich are paying a greater share of the total tax burden than they were before the Bush tax cuts, even when adjusting for the increase in their total share of wealth over the same period of time.

But it’s worth looking further back to see how the tax burden has shifted over time. So, I’ll do the same analysis going back to 1979. I’d go back further, but the numbers from the Congressional Budget Office only go that far. In any case, 1979 was just before the Reagan tax cuts which drastically reformed the tax code and greatly reduced the marginal tax rate on the highest income bracket. Therefore, we would expect for the Reagan tax cuts to have favored the rich by shifting more of the tax burden away from the rich to the middle and lower classes. But, before we investigate whether that’s true, it’s worth noting that there is a difference between the marginal tax rate and the effective tax rate. The effective tax rate is the portion of income that is actually paid in taxes. The amount that someone pays in taxes depends on the tax rate and brackets, but that is only part of the picture. If the tax brackets and rates were all the mattered in the tax code, it wouldn’t be several thousand pages long. I think we can agree that what really matters is what taxes people actually pay, not what taxes they theoretically would pay according to their tax bracket’s marginal rate. So, even though Reagan reduced the marginal tax rate on the rich, that doesn’t necessarily mean that the rich are paying less taxes.

I won’t go through the details of my process like I did last time. Here are some graphs representing how the tax burden and income are distributed, and how that has changed since 1979. Click on the graph to view a larger version.

Not coincidentally, the two graphs look very similar. The interesting thing to note is that the rich are paying a much greater share of the tax burden, but they also are making a greater share of the income. We have to adjust the tax share by the income share to determine if the Reagan tax cuts increased or reduced the tax burden on the rich. Here is the resulting graph:

This is a bit more interesting than the graph when looking at the Bush tax cuts that I discussed in the last post. The tax burden picture actually hasn’t changed very much, but there are some small changes. Firstly, the poor and most of the middle class (up to the 60th percentile) are paying a smaller share of taxes than before Reagan. Secondly, the upper-middle class and most of the rich (up to the 99.5th percentile) are paying a greater share of taxes. Lastly, the super-rich, those in the top half percentile, are paying a smaller share of taxes than before. These are the millionaires, or the “stinking rich” as Timothy Noah refers to them.

So, what can we conclude from this? First, that the Reagan and Bush tax cuts made the tax structure more progressive for the vast majority of the population, contrary to the prevailing wisdom that the opposite is the case. The exception, though, is that the super-rich benefited from Reagan’s cuts. With this in mind, it is interesting to note that Democrats may be backing off of the fight to let the Bush tax cuts expire on those making over $250,000, and are setting their sites on the millionares instead:

Part of the hesitancy with hiking taxes on the rich, I think, stems from the birth of this “lower upper class.” Americans do really want to soak the rich. But a household headed by a well-paid nurse and a police chief might make $250,000 a year, the income point at which President Obama wants to let taxes rise by letting the Bush tax cuts expire. My guess is that most Americans want to raise taxes on these guys, but not on that nurse and police chief, whose wealth seems reasonable and attainable.

Politically speaking, that sounds about right to me. And it also may be the right way to go in terms of “correcting” the trend that Reagan put in motion.

Again, the caveat to all of this is that “correcting” the trend is not the only way to look at the issue. We haven’t made the case, for example, that the trend needs “correcting” in the first place. There are many arguments for and against extending the tax cuts to the rich. I’m only addressing one angle of the argument: the one that argues that we should tax the rich more because they have gotten too good a deal over the past few decades. My conclusion is that this argument is overblown since the share of taxes that most families making over $250,000 has actually gone up, not down. However, the argument does make some sense when applied to the super-rich–those bringing in an income in the seven digits.

(For data tables and calculations used in this post, see here: incomeinequalityFrom1979)

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The Bush Tax Cuts for the Middle Class

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Since my last post on chart-truth was such a hit, I thought I’d come back for more and do another spin-off of Timothy Noah’s series on income inequality. Again, from the fifth installment, he dismisses the argument that tax policy is a contributing factor in the great divergence:

Reagan lowered top marginal tax rates a lot, but he lowered top effective tax rates much less—and certainly not enough to make income-tax policy a major cause of the Great Divergence….

The larger point is that you can’t really demonstrate that U.S. tax policy had a large impact on the three-decade income inequality trend one way or the other.

With the Bush tax cuts set to expire at the end of the year and politicians scrambling to figure out how to extend some or all of them, tax policy is bound to be a central issue in the coming months. I thought it was time to examine the question a little more.

Republicans want to extend the tax cuts for everyone, while Democrats want to extend them for only households making less than $250,000 and let the rest of the cuts expire as scheduled. Democrats say that the rich don’t need a tax cut; they aren’t paying their fair share. Republicans counter that the rich are already paying more than their fair share. We can’t investigate this question objectively, since the concept of “fair share” is a matter for philosophers, not economists or statisticians.

However, we can investigate the validity of certain specific claims. The one I wish to focus on is the claim that the Bush tax cuts disproportionately favored the rich, and so we should correct this injustice by not extending the tax cuts on the rich. The epitome of this claim is when the tax cuts are referred to as the “Bush tax cuts for the rich”, which implies not only that the cuts favored the rich, but that the rich were the only ones who benefited. Of course, this is a purposeful exaggeration intended to promote the view that the tax cuts disproportionately benefited the rich.

But, hyperbole aside, the question remains: did the Bush tax cuts disproportionately favor the rich? In other words, did the Bush tax cuts make the tax code more or less progressive? (For those who aren’t up with the lingo, a “progressive” tax simply means that the rich pay a greater portion of their income in taxes than others, and a tax is more progressive if the difference between the portion that the rich pay and the portion that everyone else pays is greater.) Republicans think that the tax code has become more progressive and therefore doesn’t need correcting to make it even more progressive. To support their position they point to numbers that show that the rich are paying an increasingly greater share of the total tax burden. This is true, as this graph based on numbers from the Congressional Budget Office shows:

(Here’s a little help on reading this graph and the subsequent graphs in this post: on the left I’ve charted the share of the tax burden for each income category over time. This chart gives a good overview of how the tax-burden pie is cut. But, it can be difficult to see how each individual slice is changing over time. So, I’ve also included the graph on the right which shows exactly how much each income category’s share of the tax burden has increased or decreased over the same period of time.)

On the surface, it seems like a straight-forward rebuttal: since the Bush tax cuts took effect, the rich have been paying an increasingly greater share of the total tax burden. The share of taxes paid by those in the top 5% has increased, while the share of taxes paid by the bottom 90% has decreased. Therefore, Republicans would argue, the Bush tax cuts must not have favored the rich. In fact, it appears they favored the poor and middle class at the expense of the rich. In other words, they made the tax code more progressive, not less progressive as Democrats argue.

But there is a problem with this analysis. Tax policy is not the only thing that can cause one income group to start paying a greater share of taxes. If that income group starts to gather a greater share of income, logically they will pay a greater share of taxes also, even if tax policy stays the same. As we know from reading Noah’s series, the income of the rich is increasing faster than the income of the poor and middle class, so it makes sense that they would also be paying a greater share of the taxes than before. Therefore, we must investigate whether the increase in taxes that the rich are paying is a result of the change in tax policy known as “the Bush tax cuts”, or the change in income distribution.

First, let’s see how the income distribution has changed since 2000:

The graph shows some increase in income inequality over this period, although it’s not as large as it has been in the past. Recessions tend to hit the rich hard in terms of the percentage of income lost, since the rich tend to get more of their income from fluctuating investments. The recession of 2001 was no exception and mostly explains why the rich didn’t get much richer through this period. The average income for the top 0.01% was cut almost in half between 2000 and 2002, but then rebounded by 2005. Still, there is some widening of the gap with the top 20% gaining income and the lower 80% mostly losing income.

So, we can conclude that this widening of the gap in the income distribution contributed to the widening of the tax burden gap. But we don’t yet know exactly how much. To get a picture of how tax policy affected the distribution of taxes, we have to adjust for the change in the distribution of income. In other words, we want to answer this question: If the income distribution had not changed, would the rich be paying more or less of the total share of taxes as a result of the Bush tax cuts? I won’t get into the details of that calculation (see attached document at the end of this post), but here is the result:

The graph shows that the distribution of taxes, when adjusting for the distribution of income, has changed in the direction of more progressivity, as Republicans argue. The top 5% are paying a slightly greater share of taxes and the bottom 90% are paying a slightly smaller share of taxes, even when adjusting for changes to the income distribution.

So, the Republicans ultimately are right about this, even if their argument is incomplete. The argument that the Bush tax cuts disproportionately favored the rich doesn’t hold up. This will be important to remember as the tax debate rolls on, but remember that this is just one part of the debate. You can still make arguments that rich should be paying more or less, independent of how the Bush tax cuts affected the distribution.

In fact, it may be worth doing this same analysis but going all the way back to 1979, before the Reagan tax cuts, to see how the tax distribution has changed since then. Has the tax code become more or less progressive since the days of Jimmy Carter? I’ll answer that another day, but here’s a hint: it’s a trick question.

(For data tables and calculations used in this post, see here: incomeinequalityFrom2000.pdf)

Written by Mike

September 16, 2010 at 9:49 pm

What If It Were Bush?

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I’m not fond of the the “What if it were Bush” syndrome–the perpetual need to point out how unfair the critics of Bush were, considering the praise for the Obama administration. But I couldn’t pass this one up.

Presidential Historian Doris Kearns Goodwin on Meet the Press:

We’ve learned that he somehow shapes his own day. I mean, I think it’s great that he gets up in the morning, has breakfast with the kids before going to the Oval Office. Ronald Reagan did the same thing. He said–not with the kids, but he got to the Oval Office later. Somebody said, “There’ll be a national security adviser there at 7:15. You’ve got to be there, Mr. President.” He said, “That guy’s going to be waiting a long time. I’m going when I want to…. If you can find ways to sustain your spirit and maintain a sense of normalcy, the fact that he goes out and he has dinner in the White House–I mean, in the, in the Washington, D.C., area, that he goes on ESPN, all of that frees up, I think, your energies to replenish yourself and allow you to become a good president.

If Bush had been showing up at the office late and spending time “replenishing himself”, do you think he would have been praised for that? When it was Bush taking “vacations*”, he’s lazy. If it’s Obama taking some down-time, he’s struck a good work-life balance.

* (I put “vacations” in quotes becomes everyone except those with Bush-derangement syndrome would agree that presidents don’t go on vacation. They might be located in a different place and spending some time with family, but the idea that he was just chilling-out for days at a time is ludicrous.)

Written by Mike

April 28, 2009 at 10:04 pm

Posted in politics

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Obama’s Inheritance

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When speaking to the nation about his budget, President Obama made sure we all remembered that he inherited the deficit. It was not of his own making. Of course this is true, except for the almost trillion dollar spending package, but even that can be argued was the necessary result of previous policies. So I don’t blame Obama for not wanting to take blame for the massive deficit we find ourselves in.

For a few years, the financial policies of the Bush administration seemed to be working. But the seeds of recession, planted long ago, were quietly being cultivated. Then, the weeds sprung up all at once. Now it’s up to Obama to clean it up, and he’s right to remind us that it was not his mess.

But fast forward to today, when President announced his plan to withdrawal troops from Iraq:

The situation in Iraq is the opposite of the situation with our economy. There is no doubt that the Bush administration made mistakes in Iraq. But then we changed course. Bush replaced the leadership and came up with a new plan, and had the audacity to urge us to have more patience with him, our troops, and the Iraqi people. Amid the apparent chaos in Iraq was being sown the seeds of freedom and peace that started to emerge as Bush’s time faded. While I wouldn’t go so far so say that the rose has bloomed, President Obama inherited that bud just as much as he inherited the thorns in the economy.

But did Obama go out of his way to thank President Bush for this inheritance? Did he thank him for sticking up for the plan he knew was best for the nation–the plan that Obama opposed? If he did, wouldn’t that have been a refreshing change from the politics of the past?

He didn’t, but I will. Thank you, President Bush, for giving our troops and the Iraqi people a chance. You left us with plenty of problems to deal with, but I’ll give credit where credit is due.

Written by Mike

February 27, 2009 at 8:29 pm

The Death of Skepticism?

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…or is it just seriously ill?

A few days ago, the video of President Bush entering the stage at the G20 conference became viral. In case you haven’t seen it, here it is:

The media and bloggers fell over themselves to comment on how sad it was that Bush has lost so much credibility, or how arrogant the other leaders were.

I knew my position would be unpopular, but I went on record urging caution. I felt 10 seconds of video taken out of context were not enough to come to such sweeping conclusions about what was going on the minds of the word leaders or Bush. As I expected, the response to my comment was that it was “nonsense”.

My point is not to toot my own horn (OK, maybe it is partially. I’m not right all that often, so I need to milk it while I have the chance), but it turns out I was right to be skeptical:

I’m glad at least CNN had the integrity to correct their error, although I don’t think it will undo the damage and they should be ashamed of their previous coverage. And also kudos to Donklephant for actually posting a follow-up when it became clear the previous story was not accurate.

Now that that’s straightened out, we can get back to business as usual, right? Wrong. This is just a symptom of the problem. The media, bloggers, and even the public in general is forgetting the virtue of skepticism. And I believe this is a real problem. This is not the first time this has happened, although it can take on different forms.

The most glaring examples come from the latest presidential election. Why is it that politicians are so willing to make obviously false statements in order to promote their own candidacy? It’s because the public, including media, bloggers, and everyone else, won’t question them. This is why Obama got away (relatively) with accusing McCain of wanting to continue to war in Iraq for 100 years. Sure, there was some critique, but in my opinion this sort of misrepresentation is inexcusable. On the other hand, McCain got away, for the most part, with confusing Obama’s tax policy proposal. They had some grounds to criticize Obama on past votes or on the wisdom of raising taxes on the rich, but they implied that Obama was proposing to increase taxes on the middle class, which was false and inexcusable.

In my perfect world, these sorts of purposeful distortions of truth should cause a campaign to go down in flames. Instead, we give them a slap on the wrist and look the other way, and so they continue to use these tactics, knowing that 90% of the people that hear their words will not have the skepticism to do the research for themselves to find out that what they are saying is not exactly true. Is it because we think politicians are always truthful? Of course not, we all know politicians lie and distort. I think what it means is that we’ve become so accustomed to it that we are content to be lied to, as long as our political ideologies are in agreement. So I don’t only blame the politicians for the mud-slinging that happens. I also blame the media and the people for letting it happen and not holding them accountable.

But election coverage is only one example of the lack of skepticism. I’m also troubled by the assurance that people seem to have that they are right. Toward the end of the election, I heard numerous people say that they couldn’t see how anyone could be undecided unless they were uninformed. But there was another reason to be undecided other than ignorance: humility. I see many examples of people who are persuaded by one point of view and then fail to ever consider any counter-arguments. For example, I am generally a free-market advocate, but I see in other free-market advocates a sort of cult-like following. They refuse to see any down-sides to the free market, a few of which I’ve outlined before. Before we stake out a position on an issue, few people take the time to step back and say “I don’t know. I’ll have to think about it.”

Saying “I don’t know” is seen as a sign of ignorance, but in reality it is the first step to wisdom.

So, dear reader, if you’ve made it this far, make it worth your time. Next time you hear a story, whether it supports your world-view or not, remember the virtue of skepticism. There might come a time for you to take a stand, but take the time to think and maybe do a little research. To those in the media, or those who have taken upon yourself to blog in the public sphere, this is a lesson I shouldn’t have to be teaching you.

Written by Mike

November 23, 2008 at 10:07 am

Posted in politics, society

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