The 1% myth
The conventional "wisdom" is that the top 1% of wage earners earn over 16% of the income in this country. However, as Alan Reynolds writes in the Wall Street Journal (subscription required) that is a myth of epic proportions. (HT Poor and Stupid who posts the entire article).
"As many others have done, Virginia's Democratic Senator-elect Jim Webb recently complained on this page of an "ever-widening divide" in America, claiming "the top 1% now takes in an astounding 16% of national income, up from 8% in 1980." Those same figures have been repeatedly echoed in all major newspapers, including this one. Yet the statement is clearly false. The top 1% of households never received anything remotely approaching 16% of personal income (national income includes corporate profits). The top 1% of tax returns accounted for 10.6% of personal income in 2004. But that number too is problematic.
The architects of these estimates, Thomas Piketty of École Normale Supérieure in Paris and Emmanuel Saez of the University of California at Berkeley, did not refer to shares of total income but to shares of income reported on individual income tax returns -- a very different thing. They estimate that the top 1% (1.3 million) of taxpayers accounted for 16.1% of reported income in 2004. But they explicitly exclude Social Security and other transfer payments, which make up a large and growing share of total income: 14.7% of personal income in 2004, up from 9.3% in 1980. Besides, not everyone files a tax return, not all income is taxable (e.g., municipal bonds), and not every taxpayer tells the complete truth about his or her income."
One of Mr. Luskin's astute readers points out that which is obvious to all fiscal conservatives.
"1. The top 1% are the people who make the pie larger (and life easier) for all, NOT people who steal others' share of the pie,
2. Taxes on INCOME hurt those still TRYING to get rich, NOT the ALREADY-rich anyway,
3. Politicians who want to keep (and/or make) their constituents as poor and dependent as possible are morally no better than dictators who want to keep their subjects from escaping their countries. and
4. Appeals to, and the deliberate provoking of, hatred masked as envy are evil, in the objective sense of that term."
It is insightfull commentary and a must read if you are at all effected by tax policy (which we ALL are).
Which leads us to a simple method of breaking it down tax policy and just who those tax cuts "for the fich" really hurt.
Suppose that every day, ten men go out for dinner and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this: The first four men (the poorest) would pay nothing. The fifth would pay $1. The sixth would pay $3. The seventh would pay $7. The eighth would pay $12. The ninth would pay $18. The tenth man (the richest) would pay $59. So, that's what they decided to do.
The ten men ate dinner in the restaurant every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. "Since you are all such good customers," he said, "I'm going to reduce the cost of your daily meal by $20 " Dinner for the ten now cost just $80. The group still wanted to pay their bill the way we pay our taxes, so the first four men were unaffected. They would still eat for free. But what about the other six men - the paying customers? How could they divide the $20 windfall so that everyone would get his 'fair share?' They realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being paid to eat their meal. So, the restaurant owner suggested that it would be fair to reduce each man's bill by roughly the same amount, and he proceeded to work out the amounts each should pay. And so: The fifth man, like the first four, now paid nothing (100% savings). The sixth now paid $2 instead of $3 (33% savings). The seventh now pay $5 instead of $7 (28% savings). The eighth now paid $9 instead of $12 (25% savings). The ninth now paid $14 instead of $18 (22% savings). The tenth now paid $49 instead of $59 (16% savings). Each of the six was better off than before. And the first four continuedto eat for free.
But once outside the restaurant, the men began to compare their savings. "I only got a dollar out of the $20," declared the sixth man. He pointed to the tenth man," but he got $10!" "Yeah, that's right," exclaimed the fifth man. "I only saved a dollar too. It's unfair that he got ten times more than me!" "That's true!" shouted the seventh man. "Why should he get $10 back whenI got only two? The wealthy get all the breaks!" "Wait a minute," yelled the first four men in unison. "We didn't get anything at all. The system exploits the poor!" The nine men surroundedthe tenth and beat him up. The next night the tenth man didn't show up for dinner, so the nine sat down and ate without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of thebill!
And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start eating somewhere that the atmosphere is friendlier.
Now that particular piece has been around the internet a time or two and it's authorship is questioned, but the math of the story (based on our current tax system) has not. Those tax cuts may seem to be "more beneficial" to the rich, but when you don't pay taxes (or you pay minimal taxes) you really should not expect to receive the lions share of the tax cuts. 10% of $0.00 is and always will be zero. There is no disputing the math. 10% of something will always be greater than 10% of nothing whether that something be $100.00 or $100,000.00.
"As many others have done, Virginia's Democratic Senator-elect Jim Webb recently complained on this page of an "ever-widening divide" in America, claiming "the top 1% now takes in an astounding 16% of national income, up from 8% in 1980." Those same figures have been repeatedly echoed in all major newspapers, including this one. Yet the statement is clearly false. The top 1% of households never received anything remotely approaching 16% of personal income (national income includes corporate profits). The top 1% of tax returns accounted for 10.6% of personal income in 2004. But that number too is problematic.
The architects of these estimates, Thomas Piketty of École Normale Supérieure in Paris and Emmanuel Saez of the University of California at Berkeley, did not refer to shares of total income but to shares of income reported on individual income tax returns -- a very different thing. They estimate that the top 1% (1.3 million) of taxpayers accounted for 16.1% of reported income in 2004. But they explicitly exclude Social Security and other transfer payments, which make up a large and growing share of total income: 14.7% of personal income in 2004, up from 9.3% in 1980. Besides, not everyone files a tax return, not all income is taxable (e.g., municipal bonds), and not every taxpayer tells the complete truth about his or her income."
One of Mr. Luskin's astute readers points out that which is obvious to all fiscal conservatives.
"1. The top 1% are the people who make the pie larger (and life easier) for all, NOT people who steal others' share of the pie,
2. Taxes on INCOME hurt those still TRYING to get rich, NOT the ALREADY-rich anyway,
3. Politicians who want to keep (and/or make) their constituents as poor and dependent as possible are morally no better than dictators who want to keep their subjects from escaping their countries. and
4. Appeals to, and the deliberate provoking of, hatred masked as envy are evil, in the objective sense of that term."
It is insightfull commentary and a must read if you are at all effected by tax policy (which we ALL are).
Which leads us to a simple method of breaking it down tax policy and just who those tax cuts "for the fich" really hurt.
Suppose that every day, ten men go out for dinner and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this: The first four men (the poorest) would pay nothing. The fifth would pay $1. The sixth would pay $3. The seventh would pay $7. The eighth would pay $12. The ninth would pay $18. The tenth man (the richest) would pay $59. So, that's what they decided to do.
The ten men ate dinner in the restaurant every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. "Since you are all such good customers," he said, "I'm going to reduce the cost of your daily meal by $20 " Dinner for the ten now cost just $80. The group still wanted to pay their bill the way we pay our taxes, so the first four men were unaffected. They would still eat for free. But what about the other six men - the paying customers? How could they divide the $20 windfall so that everyone would get his 'fair share?' They realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being paid to eat their meal. So, the restaurant owner suggested that it would be fair to reduce each man's bill by roughly the same amount, and he proceeded to work out the amounts each should pay. And so: The fifth man, like the first four, now paid nothing (100% savings). The sixth now paid $2 instead of $3 (33% savings). The seventh now pay $5 instead of $7 (28% savings). The eighth now paid $9 instead of $12 (25% savings). The ninth now paid $14 instead of $18 (22% savings). The tenth now paid $49 instead of $59 (16% savings). Each of the six was better off than before. And the first four continuedto eat for free.
But once outside the restaurant, the men began to compare their savings. "I only got a dollar out of the $20," declared the sixth man. He pointed to the tenth man," but he got $10!" "Yeah, that's right," exclaimed the fifth man. "I only saved a dollar too. It's unfair that he got ten times more than me!" "That's true!" shouted the seventh man. "Why should he get $10 back whenI got only two? The wealthy get all the breaks!" "Wait a minute," yelled the first four men in unison. "We didn't get anything at all. The system exploits the poor!" The nine men surroundedthe tenth and beat him up. The next night the tenth man didn't show up for dinner, so the nine sat down and ate without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of thebill!
And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start eating somewhere that the atmosphere is friendlier.
Now that particular piece has been around the internet a time or two and it's authorship is questioned, but the math of the story (based on our current tax system) has not. Those tax cuts may seem to be "more beneficial" to the rich, but when you don't pay taxes (or you pay minimal taxes) you really should not expect to receive the lions share of the tax cuts. 10% of $0.00 is and always will be zero. There is no disputing the math. 10% of something will always be greater than 10% of nothing whether that something be $100.00 or $100,000.00.
posted by The Lady Logician at
5:45 PM
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