Competing Tax Plans: Two Perspectives

Here’s an interesting example of how different graphical presentations of the same data can hit the eye differently. First, an explanation of the likely distributional impacts of the McCain and Obama tax plans, from The Washington Post:

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Compare this with the depiction at chartjunk, which presents the same data, but this time with a scale that also emphasizes the number of people in each category:

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It looks like it tells a different story, doesn’t it?

Here’s a third chart that gives emphasis to the total tax paid by each group rather than the number of people in each group. (Note that the numbers here are only approximate.)

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You will surely protest that this scaling exaggerates the importance of the rich, which it does. But if you are concerned about balancing the budget, the rich are very important. The chart above does a useful job of trying to assess whether (and how) each tax plan pays for itself. (This chart would be more useful if it weighted people by their taxable incomes rather than their tax burdens.)

For those who prefer to see the raw numbers, the latest Tax Policy Center analysis was released on Friday, and is available here. (Note that the charts above were based on their previous analysis.) More generally, I highly recommend the Tax Policy Center analysis; it is careful, non-partisan, and broadly accepted by professional economists.


BS

I am in the top 1%. The first year I was in business, I made $5K, the second year $8k....after working 20+ hours a day for 20 years, having everybit of my money and life on the line to build a company, I am now in the top 1%. I employed over 120 people, more than 10% of which made over $100k. I do not deserve to pay more because I put my but on the line. There is nothing patriotic about it.

Charles

The flat tax is such a bad idea. It is a regressive tax and the U.S. has, since the beginning of income tax when society has consistently provided many goods and services including defense for all citizens' benefit,been successful with a progressive income tax. In other words as a person becomes more able to pay more in income tax they do. A flat tax rewards those who do not spend, an increase in savings rate would not be bad but miserly people do not aid our society, and those who make more than they need. If a family of 4 made $60,000 I am sure they spend all their money so they pay the flat tax on all their income. If a family of 4 made $150,000 they would not need to spend all of their money. So if they only spent $100,000 they would shelter $50,000. This would obviously multiple as the income rose to the stratosphere. You could say that the $60,000 income family does not have to spend all their money but in reality they probably do. When I was young the top bracket was 70% and they people on top complained bitterly. Now that the top bracket is what 35% the top bracket still complains bitterly. Don't forget those same people still pay the lower tax for their first income levels. To live in a civilized society there has to be some type of tax. A tax based on income which is progressive in nature is the fairest to all. Where exactly those percentages need to be is open for discussion. Tax is not a bad thing, although we all want to pay only what we are obligated. Taxes are the price we pay for living in a civilized society. Excessive greed is one of our problems in society. I relate the terrorists thought process to this same type of greed. We want what we want and we don't care who we hurt. For our society to work at some point people must think about more than just their own selfish interests. A good note is the movement towards green thinking and even CSR (Corporate Social Responsibility).

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barbiplease

Do the rich become rich through social capital, or through their individual efforts? Two Perspectives: A, or B? Which, to You?

September 16, 2008, 11:36 am

Competing Tax Plans: Two Perspectives

However, to bring the comment above into better context, my initial plan, prior to becoming diverted and side-tracked into a totally unrelated topic against my "will" to topic above, was to inquire about "Joe Plumber" as I was curious to know how it is possible for a plumber to make over $250,000 per year. And if he does, why doesn't he want to pay his fair share of the taxes? It then evolved into an inquiry on whether the wealthy are wealthy as a result of benefits from external forces such as social capital and a system that is possibly geared to benefit the rich or whether they truly deserve their wealth because of their hard work and individual efforts. Understanding this would perhaps require a background in finance or economics to have a truly trans-partisan and integral view of the economic situation to make an accurate assessment.

A:

For example: a common liberal argument is that wealth, poverty, illness, and other fortunes or misfortunes are imposed on an individual by external forces but through no fault or effort of their own. As such, whatever befalls the individual is never fully justified or warranted because he or she is the victim of circumstances beyond his or her control. Hence the social safety net, such as welfare and taxation that is necessary to fund these woefully underfunded social programs which appear to have been comprimised to pay for tax cuts for the rich.

B:

A common conservative argument is that wealth, poverty, illness, and other fortunes and misfortunes are conditions that are self-created and fulfilled by willpower, deliberate life choices, a good work ethic, or morals but are never the products of external forces acting invisibly on the self against his/her "will." Therefore, whatever fate befalls the self is the self's own fault that merits its own reward or punishment in turn: therefore, "you reap what you sew, " and "I get what I deserve, so you can't have any of my money. If you want my money, go find a job like I did and quit waiting around for a hand-out check."

Conclusion: A:

Thus, I can see the merits and holes of both arguments. Yet, I suspect the system is geared to somehow unfairly benefit the rich at the expense of the poor. How else to explain the increasing polarization of wealth between the rich and the poor? We are fast becoming a rich/poor state. The Bush tax cuts must have spoiled the rich to the point of making them greedy and uncaring for others, such as those on Food Stamps.

People on food stamps currently receive $3 per day per person in benefits to pay for their groceries. Most who are on benefits are dirt poor. They eat macaroni and cheese, day after day. The governor of Michigan along with other governers have decided to get on Food Stamps to see what it is like to live on $3 per day on food, or on $1 per meal. Domestic programs have been slashed to pay for tax cuts for the rich, which, as I understand, is significantly contributing to the deficit as well. Meaning, my son and everyone else's children and grandchildren get stuck with the bill in future generations to pay for tax cuts for the rich.

It seems, therefore, that the system is a little out of "whack." Food Stamps require taxpayer funding. So if I were that person making over $250,000 per year, I'd be happy that I were so prosperous be able to contribute my fair share as a good samaritan for the poor at long last, after eight long years of living high on the hog in huge tax cuts. To be any other way would seem heartless and greedy. Is that partisan? I was trying to be trans-partisan and integral about it. It's about human decency really, considering the reality of the situation.

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NEZ

Wow Carrie - such sweeping generalizations.

Check some real statistics - not all socialist countries measure up. Statistics on infant mortality and other other measures of health don't necessarily relate to economic systems, but to things like dietary habits. And how do you measure "happiness?"

The lines between the economic systems on your list are often blurred and each of them can have a tendency to benefit those who have economic and/or political power. If we all behaved better, any of those systems could theoretically help everyone.

Your right - regulated capitalism is the American Way, but that is what we have now, and what we will continue to have whether Obama or McCain is president. The age-old question is who or what do we regulate and how much do we regulate.

Michele

I highly recommend that anyone interested in the debate of 'wealth redistribution' and 'who does more to support the economy' reads 'Atlas Shrugged' by Ayn Rand. I have read that a 1991 survey by the Library of Congress says that it is the most influential book after the Bible. In any case, it presents a very good case that the eventual future of an economy lies in the intelligence, drive, ambition and hard work of the business leaders of a country, without which there would be no jobs for the rest to do (really simplistic summary). The book takes it to an absolute extreme, but whether you agree with it or not, it makes you think.

M Todd Bolin

To: Dartvader

I find it interesting that you see income as each gets a share? The idea that the wealth of this world was divided up into equal shares and the rich have someone else's share does not make since.

There is a simple business principle. The higher the risk or effort the greater the potential pay-off. It also works the other way, the higher the risk the greater the chance of failure.

This country was founded on the idea that in a free market, free people can better themselves. That is the "pursuit of happiness" idea regardless of your station in life. The majority of people who have wealth did something to get it. They did not take someone else's share they created an opportunity for themselves. In many cases they created something out of nothing which not only benefited them but society.

TheRalphinator (PA)

Oh Barbie...the Barbifer...the Barbinator...I suspect you know nothing about Joe the Plumber. Please don't use him in your arguments til you speak with him.

On the rest of your argument, you do leave out at least one factor. Conditions. Let's assume for your sake of argument that I make over $250k, which I don't. For me to be "happy that I'm so prosperous" and give my money to the poor, I would love to know what the poor is going to do with my money? Will they play it smart with my money I'm giving them? Will they really spend it on essentials or will they squander it? Are they as disciplined as I was 10 years ago to avoid buying the wrong things?

I make $104,000. My sister makes $20,000. We grew up in the same household. I chose college and she didn't; I'm no smarter than her and no dumber. I'd consider her fairly poor since she qualifies for many gov't subsidies for her and her child. I sacrificed a ton of 'toys' and focused on my job and my education. Looking back, I made many good decisions. However, in the past several years, I've bailed her out of many a financial situation to the tune of thousands of dollars because she is my sister. During the midst of the bailout, I saw her make many decisions that were incongruent with her financial situation EVEN after my bailout. She wasted alot of what I provided her, she is no further ahead because she continues to be in the same financial situation. Now, Barbster, how do you think that made me feel?? Why would I want to go thru that year after year? It seems entirely reasonable that I tell my sister, hey I'll bail you out but I want to see you be more disciplined, strap down and sacrifice like I did, get educated and focus on a good job. It has to be conditional, Barbie, for me to feel good.

Lastly, I like to have that freedom to decide who I want to help, Barbie. I want to decide where to place my hard-earned money. Maybe I want to invest it in a my business, or someone else's business...but a mandatory tax and a taking from me to give to the poor without me having a say?! Well, Barben-heimer, that's just not reasonable and I'm sure most Americans agree if they haven't be Marxized.

Now, noting this is a times website, I can't wait to hear the far-left liberal responses?

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Guru

This discussion is enlightening... It's interesting to see all of the different ways people can justify taking something from one person and giving it to another.

You say that it's "OK" because they will still have a lot left over - regardless of how much they will still have, how is taking a disproportionately larger amount of something from someone "fair."

The wealthy are the ones that provide the sustenance for charities to thrive in this country, the wealthy are the ones that provide all of your jobs, the wealthy are the ones that drive innovation, and yet you still waste your time and mental capacity despising them... but that is probably what makes you not one of the wealthy!!!

You all need to alter your consciousness - don't look to others to solve your problems, and quit feeling jealous of the wealthy for being successful!!!

Regardless of who wins, Obama and McCain would both screw this country up and i'm sure you all will find new and innovative ways to blame someone else for your own misery.

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Rcs

i don't get it when they say is unfair for rich people to pay more taxes, capitalism is self-destructive, it exacerbates wealth accumulation at the top until everybody is too poor to buy anything from the rich that control production,very high taxes just keep the system balanced.

about capitalism,i fail to see how it can be sustainable if it's ever-expanding, it needs constant growth forever and that just won't happen. natural resources are limited and demand is limited too. plz someone explain...

goDems

nomoretaxes - In a free market prices are determined by supply and demand, not costs. The difference between the price and the cost is profit. This is important to note because during the last economic cycle, corporate profits have been the only measure to show a bigger increase than any of the other cycles since WWII. The other weaker measures are GDP, investment, wages, net-worth, consumption and employment.

If more Americans had enough money (net-worth) to spend more (consumption) or save (investment). Lower taxes on more americans would allow this. Yes paid for by taxing the outsized profits that have done little to improve our economy.

Finally, corporate taxes are currently very low due to all the loopholes available. Yes, the statutory rate is high among other peer contries, but no company is foolish enough to actually pay the statutory rate. It is also said that a hike of 5% on the top marginal rate for dividends will do nothing to impact capital formation (investment and job growth).

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ks in ca

You know, the more I see numbers and plans for the "US taxpayer" the more annoyed I get. I earn a 6 figure income -- I'm rich according to the tax code -- yet I live in a place where the median home price is about $700,000 and a 3 br, 2 ba on a 5000 square foot lot costs $1.3 million. Seriously. I'm pretty much middle class for my geography (SF Bay Area) but get taxed as if I live high on the hog in Mississippi. I'd gladly vote for the first candidate who told me that they were creating a tax code based on "real" dollars, that is, dollars pegged to the cost of living. Sheesh, we make a huge deal about people who live in India on less than $2 a day! But we don't have ANY mechanism to compare living costs across our country.

GoToGuy

I think what the plan misses is the underestimating of Obama's spending plans, especially in regards to health care. Insuring more people who don't actually put up an collateral in return is going to cost WAY more than they claim (ask Massachusetts). The more people visiting the doctor, the more it costs. As the society gets older, the more health care we will consume. Hiding the true costs of every day health care expenses behind "pay for everything" insurance is criminal, and that is what our current system propogates. You can try and tax all the rich people you want, but it still won't even come close to generating enough cash to meet the economic desires of the 38% (well 52% if Obama is elected) of people who will pay nothing (or less than nothing) in federal income taxes.

Roberto Mendoza

Webb, #93

"The Tax Policy Center may be non-partisan but it is a joint project of two left-leaning think tanks, The Urban Institute and the Brookings Institute, and can hardly be considered to be “unbiased.”"

The Brookings Institute a left-leaning think tank? Are you out of your mind, or just a troll? Give me a break!

jimi

To Adam @ #11:

If we are to view the tax not as a percentage of income, but rather of total resources controlled, may I infer that you are strongly in favor of property taxes?

Roberto Mendoza

"What’s deceptive about Obama’s “tax cuts” is that a THIRD of households pay NO income tax. NONE. How will Obama cut the taxes of people whose income tax bill is already $0? By giving them money. Obama’s tax plan is just a wealth-distribution program. Let’s call it what it is: welfare.

— Posted by AK"

Exactly what do you call bailing out irresponsible Wall Street Banks?

Roberto Mendoza

Chris, #24,

You are a bold-faced lier!

It seems like you are an employee of the McCain campaign. Lier! This is what Obama should be calling McCain, a bold-faced lier.

Ahmad

Can someone explain the graphs in more detail.

Does the FAMILY INCOME IN 2008 column in the first graph represent THE GROSS income for a household, or the AGI (adjusted gross income- income after adjusting for deductions, claims, excemptions, etc)?

I have seen the income brackets that are listed in the first graph being referred to as individual income in some other websites, so to confirm, does this column referre to the entire household?

I guess, ultimately for me to consider where I fall into this categaory, do I take my income and my wife's (Gross Income- amount before taxes or any deductions such as 401k, taxes, claims etc) or is there a different combination?

Can someone please explain what part of my income to I combine with my wife's to determine which bracket I fall under?

Thank you

Viveka Weiley

Hi all, I'm Viveka, the author of the second graph (the one on my Chartjunk blog). Thanks for all the interest and feedback :) My little infoviz blog doesn't usually pull such a crowd. I loved freakonomics, so it's all the nicer to be linked from here.

I've had some great feedback from commenters on my blog as well, including the point raised by Doug B - I ought to have a median household income line. Accordingly I've added that line to my graph, and de-emphasised the other lines.

Other commenters came through with more accurate breakdowns of the population of each income bracket, so the chart is now a little more accurate as well. I've been asked for a printable version, so will be putting up a PDF tonight.

I'm also planning to put this data into one of the collaborative online chart-making web apps, so that you can all remix it to your hearts' content.

Regards,

V.

nomoretaxes

First of all....do people really think when Obama raises taxes for corporations that they are not going to pass that cost onto us....get real people!!! He is going to drive us all into financial ruin. We may need to get Angelina and Brad to start a charitable foundation for all of us in America. Vote McCain and Palin!!

Carrie

People here in America seem to think that wealth redistribution is bad...like they think socialism is bad. Think of this then. In countries where socialistic governments force wealth distribution, the populations in those countries are healthier, live longer, have LOWER infant mortality rates and are overall happier than here.

Businesses in the post war 40's and 50's didn't like the government regulating them, they were afraid that America would become socialist. So these businesses (and the wealthy owners) lobbied congress and misled the American public by claiming that socialism leads to communism. That association; socialism leading to communism, is dead wrong as those socialist countries in Europe prove; they haven't changed to communist governments in the past 50 years of their socialism. It was regulated capitalism the big corporations feared so they threw up the smokescreen of communism-socialism to keep the American public riled up while they chipped away at the regulations that were in place. De-regulation has gotten us into this financial mess. We need government to re-regulate businesses and big corporations.

Oh and just as an aside, here's something to think about when looking at Obama's and McCain's tax plans:

Communism helps the beurocracy and government

Socialism helps everyone.

Capitalism helps the wealthy.

Regulated capitalism helps most people and allows for wealth building.

Personally, I like Obama's plan of regulating capitalism. We have seen that trickle down doesn't work, and de-regulation has allowed corporations and the banking industry to do criminal acts with our jobs, our workers, and our money. It is time for regulated capitalism. It's the American way, it worked in the past and it will work again.

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