Wednesday, November 16, 2011

Can we find a definition of rich and stick with it?

This morning on NPR, Fresh Air host Terry Gross brought on guest Tim Dickinson who recently wrote an opinion piece in Rolling Stone masquerading as a news article on how American tax policy drives inequality.

Dickinson omitted a few pesky facts that challenged his thesis. Here's part of the exchange:

Terry Gross: "Have taxes become less progressive in the past few decades? And by progressive, I mean the idea that the more money you make the higher level you're taxed?"

Tim Dickinson: "The most important place where that's true is with investment income. In the tax reform of 1986, Ronald Reagan brought the top marginal tax rate down to 28 percent, which is far below where it is today, but he also brought the capital gains tax up to match it."
You see what he did? She asked him if taxes are less progressive, and his answer was to say they are in one narrow aspect. This misleads the listener into believing that taxes are less progressive in all aspects.

Dickinson's answers use a common trick people make when they barrage you with economic data to prove a point: they keep changing the parameters of the concept they are talking about. In this case, it's what group is counted as rich. In my last post, I showed how even when you include capital gains and dividends as income and factor in loopholes, the top 1 percent pays the highest tax rate in the nation, projected at 33.8 percent this year.

The Occupy Wall Street crowd set the line at the top 1 percent, and the interview starts with that parameter, but then Dickinson moves the goalpost to the top 10 percent. Then when he wants to make the point that rich people pay a lower tax rate, he moves it again to the top 400 earners with their tax average rate of about 17 percent.

He's not alone. Sometimes the line is moved to the top 0.1 percent. Irregardless, while there are a few anecdotal examples of rich people that have found a way to pay a lower tax rate, you have to leave out a lot of multi-millionaires to concoct a definition of "rich" that pays a lower tax rate on average. It's no different than holding up a handful of welfare cheats as proof that all people on government assistance are scammers.

The rich have received tax reductions in recent years, but so has everyone else. Some lefties like to point out that the top federal marginal tax rate in 1963 was 91 percent, but what they don't realize is that the lowest tax bracket at that point - the poorest of the poor - had to pay 20 percent. Please don't take my word for it, scroll through the numbers for yourself. You can go back to 1954 and see those same extremes were the same for everyone.

For comparison, In 2001 the lowest tax bracket was 15 percent and the villainous Bush Tax Cuts brought it down to 10 percent.

In the interest of fairness, if you want a further historical perspective, 1913 had 1 percent tax for the lowest and a 7 percent tax for the highest and by 1918 the poor had a 6 percent tax while the highest marginal bracket was 77 percent. Taxes have been all over the place and while one can argue they're not as progressive as they were in 1918, they're certainly more progressive than they were in the last 60 years the spotlight is focused on.

Dickinson must have done a lot of digging through the data, so he knew how much more progressive taxes are today than in the last 60 years. The way he worded his answer shows that he deliberately altered his definition of rich to focus on the top 400 to a prove his point - a point that is completely reversed when the data set is expanded.

1 comment:

  1. I'm happy you've taken on at least some part of Dickinson's article (it's hard to find thoughtful criticism of it). A few points...

    Gross's interview was framed around the current (at the time) discussions of wealth inequality, but this was kind of a distraction from the meat of the piece, which is the story of where the 90s surplus went.

    I think it's inevitable that the biggest gains from globalization are going to go towards a few entities that can best manage resources on that level; in short, I don't see wealth/income inequality as a problem, but I do have a big problem with starving the beast, as this means in practice hurting the lower classes which rely more on safety net spending. State social service programs are already falling apart and the federal situation will only make this worse.

    I see STB as hijacking democracy in a way. It allows a small minority in Washington to gut programs that voters have chosen to be put in place (setting aside the libertarian notion that no federal social program could be constitutional). It also just doesn't work: it has not curbed interventionism nor runaway social spending because the public has not had to pay the tab; it has grown the beast and starved our kids!

    I completely agree that, as Megan McArdle often points out, soaking the richest of the rich won't save the budget, and that the tax code is very progressive (at the federal level at least), but I don't see any serious solutions in the GOP candidate tax plans. Almost all would almost surely drop revenue and some seem to radically shift burden onto the lower classes to give large cuts to the wealthiest (whom I don't see as particularly deserving or in need of large breaks).

    I think *all* the early 2000s cuts need to go.