July 17, 2012

"The Progressivity of Taxes and Transfers."

From Harvard econprof Greg Mankiw:
Because transfer payments are, in effect, the opposite of taxes, it makes sense to look not just at taxes paid, but at taxes paid minus transfers received. For 2009, the most recent year available, here are taxes less transfers as a percentage of market income (income that households earned from their work and savings):

Bottom quintile: -301 percent
Second quintile: -42 percent
Middle quintile: -5 percent
Fourth quintile: 10 percent
Highest quintile: 22 percent

Top one percent: 28 percent

The negative 301 percent means that a typical family in the bottom quintile receives about $3 in transfer payments for every dollar earned.

The most surprising fact to me was that the effective tax rate is negative for the middle quintile. According to the CBO data, this number was +14 percent in 1979 (when the data begin) and remained positive through 2007. It was negative 0.5 percent in 2008, and negative 5 percent in 2009. That is, the middle class, having long been a net contributor to the funding of government, is now a net recipient of government largess.
And by "now" he means 2009. It's now 2012. What is it now?

ADDED: Had to correct "lawprof" to "econprof." I know he's an econprof. I'm like Obama the other day saying that the people fainting in the crowd could be helped by "paralegals." Once you get law in your head, it seeps in everywhere, often inappropriately!

64 comments:

Jay said...

This is crazy.

No wonder large segments of the population fall for the class warfare rhetoric.

Oh, and I guess this shows how much Obama 'cut taxes'!

wyo sis said...

Could this have to do with the increasing numbers of baby boomers who are reaching retirement age?

Diogenes of Sinope said...

When Obama talks about the redistribution of wealth in the USA you get the idea that there is very little "sharing" going on. But the fact is we already live in a highly Socialistic society. Problem with Socialists, there is never enough equality of results. Socialists would rather we all live as slaves then we all have more and some have even more.

rhhardin said...

It's mathematically nuts.

If you earned a dollar and got social security of $12000, it's -1200000 percent.

If you earned zero, it's minus infinity.

Don't divide by anything that can approach zero, but he's an economist or something.

Richard Dolan said...

As for what it is now, I suspect that the middle quintile is receiving less in transfer payments than it did in 2009(assuming unemployment insurance is the main variable) since the unemployment numbers are marginally improved from the really awful state they were in then.

The larger point is that the federal tax system is already steeply progressive, while total tax burden is even more so especially in the deep 'blue' states.

Thorley Winston said...

While it’s probably not the point that Greg Mankiw was hoping to make, it does relate to something that I’ve been a proponent of for years with regards to entitlement programs – means testing by cutting off benefits for “the wealthy.” There have been a number of people on the other side of the ditch who have called for higher taxes on “the wealthy” in order to sustain programs like Medicare and Social Security. It seems to me that it would make more sense to simply say at whatever point someone qualifies to be classified as “the wealthy” that they no longer need to keep more of their own money should be the point at which they don’t need to receive more of someone else’s.

Original Mike said...

"This is crazy."

Crazy, yes.
Surprise, no.

We are no longer helping the poor. We're "helping" most people. No wonder we borrow 40 cents on every dollar. It can not continue, and most likely will end badly.

cubanbob said...

As the French are no starting to learn the really wealthy have options: they can leave and be welcomed with open arms elsewhere, what are the class warriors going to do when the wealthy get out of dodge leaving them with no one to cash their checks?

edutcher said...

Translation:

Even if the Lefties get their Cloward-Piven, the society collapses anyway.

Go straight to the Weimar Republic, take a hard left at (Godwin Alert), and hope whoever wins the war and wants to rebuild you and not obliterate you.

Marshal said...

"cubanbob said...
As the French are no starting to learn the really wealthy have options: they can leave and be welcomed with open arms elsewhere, what are the class warriors going to do when the wealthy get out of dodge leaving them with no one to cash their checks?"

Why do you think they want supranational government?

Competition is the bane of socialism. If they control everything you have nothing to point to as an example, and nowhere to go.

holdfast said...

Cubanbob - the same thing they always do, tax the snot out of the hard-working upper middle class. The ones who can't run, who need to keep working hard to pay the bills and who get paid in W-2 money so they can't hide it. The sames ones who already get screwed by the AMT and the Marriage Penalty.

The ones who are eventually going to just give up, and accept a meaner lifestyle in return for a reduced tax burden. Too bad for all the service workers they won't be paying any more. They can all go on SSDI or welfare, now that the SCOAMG has illegally rolled back all the 1990s welfare reform.

AJ Lynch said...

We can't even tabulate these payments accurately. Every govt benefit check should be tied to an individual's social security number and the govt should be required to issue a Form 1099 for the amt of that benefit so we can start to track accurately- then we'd see the egregious examples where the single Mom has total disposable income including govt benefits of $59,000.

Bob Ellison said...

I have thought for a long time that America would benefit from realization of our very progressive tax systems. If the electorate knew the truth, I thought, they would vote for honesty.

The counter-argument is that once the average voter is a taker and not a giver, he/she will just continue to vote for taking. The end is real class warfare.

I hope American culture will fight that counter-argument. We do still aspire to rise in class, right? and not to be free-loaders and thieves?

rcocean said...

I guess this makes sense to a law professor - I doubt many finance people will.

rehajm said...
This comment has been removed by the author.
Michelle Dulak Thomson said...

I don't know why we don't just include wealth transfers of the EBT &c. kind in income stats. I mean, it's money; you can spend it. Granted that EBT you can spend only on food; but you were planning to eat something today, right?

wv: dustoreA 51. Area 51, with dust. And yes, I just put the Swiffer down, and yes, I need to pick it up again.

Shanna said...

The most surprising fact to me was that the effective tax rate is negative for the middle quintile.

Did they do this for people with dependents versus those without? I bet it's not net negative for single people.

rehajm said...

And by "now" he means 2009. It's now 2012. What is it now?

Do you mean to imply he's cherry-picking the data here? I believe there's just a long lag to what the CBO publishes...

That said unemployment rolls are down since 2009, though still higher than the pre 2007 level Mankiw notes. And in the last three months, more people have joined the disability system than found jobs. Can Obama hang the 'mission accomplished' banner now?

West Town said...

When did Mankiw become a Lawprof?

Curious George said...

"Thorley Winston said...Medicare and Social Security. It seems to me that it would make more sense to simply say at whatever point someone qualifies to be classified as “the wealthy” that they no longer need to keep more of their own money should be the point at which they don’t need to receive more of someone else’s."

Uh, "someone else's money." Wow.

rehajm said...

Did they do this for people with dependents versus those without? I bet it's not net negative for single people.

That may be true, jut as I'm certain it's not net negative for those households near the top of the middle quintile. Mankiw is trying to make the point that uniquely, as a group, those in the middle income range (middle class) are net takers, not contributors.

wyo sis said...

Means testing for Social Security would be OK if we could be sure it would work to exclude payments only to those who clearly don't need them. The problem is that it never stops where it's supposed to. If the government sees a way to appropriate the money of the so called rich then means testing becomes just another way to take stuff from those "rich" guys.

Social Security has become the only retirement plan a whole generation of people can rely on after experiencing huge personal savings losses in the economic "downturn." They should be able to rely on it, they paid into it in good faith. If it had been left alone instead of the government treating it as if it were a cash cow it would be solvent.

Harsh Pencil said...

Note that means testing all government benefits will just further increase the marginal tax rate on the upper middle class. In fact, it would probably end up something like a wealth tax, not an income tax. (If your wealth is over $x, you can't get benefit y.) Wealth taxes are horrible tax policy because they discourage saving (accumulating wealth). We already have a huge wealth tax in this country although it masquerades as means testing: college financial aid.

wyo sis said...

By those "rich" guys I mean the ever lowering level at which the line is drawn. At first we were far from the "rich" Obama talked about, but it's getting closer and closer to our income. Soon "rich" will mean those making more than $100 thousand a year.

Michael K said...

" It seems to me that it would make more sense to simply say at whatever point someone qualifies to be classified as “the wealthy” that they no longer need to keep more of their own money should be the point at which they don’t need to receive more of someone else’s."

The LBJ era government decided that social peace required that the wealthy be allowed to collect SS and Medicare because they paid into them. Their payments are capped and the benefits are, as well.

The fact that Congress looted SS and Medicare (by adding categories like disabled children and dialysis patients) when they were in surplus, is far too little understood. That is where the Clinton "surpluses" came from.

Original Mike said...

"Why do you think they want supranational government?"

There's always Mars.

Marshal said...

"wyo sis said...
By those "rich" guys I mean the ever lowering level at which the line is drawn."

This is exactly right. First they propose a millionaire tax.

Then they write a 250,000 tax.

Then they reform a 150,000 tax.

Then they amend a 100,000 tax.

Then they adjust a 50,000 tax.

And then they do it again.

Michael said...

wyo sis: bad idea to means test Social Security. I would rather that people who don't "need" their own money get to keep their own money. And frankly, I trust those to don't "need" their own money to deploy it more sensibly in the economy.

bagoh20 said...

Hug a one percenter today - he's supporting your ass.

Obama should be calling them heroes, but that would really piss off Cedarford.

AJ Lynch said...

Michelle- that is the point I was trying to make too.

I suspect we'd be shocked at how un-poor we are if we looked at the hosuehold income data after it had been adjusted upwards for the amount of govt benefits people get.

Michelle Dulak Thomson said...

wyo sis, Marshal,

Exactly. It's just like the hissy-fits over the AMT. "That was supposed to affect fat-cat tax evaders, not middle-class people like little old me! Fix it already!"

bagoh20 said...

Have you noticed that almost all the problems we discuss around here involve government sticking it's nose into our lives, and consequently our wallets? Even though the lefties think they want more of that, they still have lots of problems with the way it does it.

If you don't like the way it does things, or don't want it doing them at all, the one solution that would help both is to shrink it.

bagoh20 said...

In addition to "your/your're", I don't care how you spell "it's/its.

Michelle Dulak Thomson said...

AJ Lynch,

The proper primary stat for household economies is probably what gets spent, rather than what gets earned. We don't, unfortunately, have any good way to track that.

buwaya said...

Mankiw is always interesting.

I wouldn't take these numbers as being entirely accurate.

Calculating and allocating ALL transfer payments would be quite difficult, as many of these come from States and local authorities also, somehow or other Federally funded. Gets very complex, lots of hairsplitting. And then there are allocations of direct services that should really be in the mix like Medicare and Medicaid.

Still, even using a limited number of easily tracked payments, the trend is striking. I guess the big change is the result of reductions in the labor force/labor force participation, thus reductions in employment taxes, plus increses in unemployment payments.

I would like to see the details of this.

Marshal said...

P.S.

Forgot to use "eliminate loopholes".

Michael K said...

Boy, over at TPM just now and the alarm bells seem to be going off all over Obamacountry.

He really got himself in deep this time. The "You didn't build that business" is going over like a uranium balloon.

Marshal said...

bagoh20,

Most of them make their income off the government one way or the other. They expect to to make up the tax with income growth, not to mention the job security. You can't use the tax argument with people who consider taxes income.

They're never going to see it like the rest of us. It's like trying to convince someone their job isn't worth going to because they have to pay to get there.

Alex said...

bagoh - you didn't build your business, Obama did it.

Michelle Dulak Thomson said...

bagoh20,

In addition to "your/your're", I don't care how you spell "it's/its.

Well, I do. How hard is it to get that right? And would even you have passed "your're" if you'd looked at it for a second? For crying out loud, that isn't a word in any known language.

Sorry. But one of my sidelines is editing. And there are limits.

DADvocate said...

We do still aspire to rise in class, right? and not to be free-loaders and thieves?

Only a minority of us. There are lots of people who think they should be able for rise in class by free-loading or thievery.

I fit slightly below the middle of the middle quintile. I get nothing from the government and wouldn't have it any other way, even though I am a head of household with a dependent child. I suspect you have lots of retirees getting SS and others in the bottom part of the middle quintile getting some sort of benefits.

Remember, this is for households. I could be getting disability or SS of $30,000 and my spouse, if I had one, earning $30,000 per year each. That would put us in the middle quintile with 50% of our income from transfers.

A man I know gets disability for heart problems. They get a payments for their daughters also for being the child of a diabled man, plus one daughter is retarded thus disabled, thus another payment. Plus, his wife works probaby makeing $10-$15 an hour. They live better than I do. New cars, above ground pool, four wheelers, etc.

bagoh20 said...

Michelle, I was testing you. It's part of a new diagnostic tool I've developed. Please make an appointment with your're proctologist.

DADvocate said...

I wouldn't take these numbers as being entirely accurate.

These numbers come from the Congressional Budget Office. Probably as accurate as you going to get. The biggest thing is the numbers are a couple of years old. It's probably worse now.

bagoh20 said...

"bagoh - you didn't build your business, Obama did it."

I know, but what I can't figure out is: why me?. I'm a racist teabagger, and I don't even like the guy, but he gave me one anyway. I just woke up one day and there it was.

I don't know what the rest of you did to piss him off, but it must have been pretty awful.

rehajm said...

buwaya said...
I would like to see the details of this.


Here's the details of this/copies of the tax returns. Critique away!

paul a'barge said...

Yep.

Look at the trend. Move lots of folks from tax payers to net recipients of transfer payments and you then pwn their asses.

We tried to warn you about this back in 2008. Now see what you've gone and done? By "you", I mean the folks who voted for Barack Hussein Obama. You know who you are.

chickelit said...

bagh2O wrote: If you don't like the way it does things, or don't want it doing them at all, the one solution that would help both is to shrink it.

I second that. I travelled to DC a couple times last year on business and was struck by what an economic bubble it was. I think even the journalists (especially the youngish ones) who live there are caught up in it and don't want to admit it because they too have shared in the largesse.

Pricking the DC bubble is a number one priority we should all get behind. If this sounds at all resentful, it's because they act like they built DC.

Michelle Dulak Thomson said...

bagoh20,

Please make an appointment with your're proctologist.

Well, I placed a call to my proctologist, and he asked whether there was a stick actually protruding from my ass. I said no, and he said no need to come in, just be careful about sitting on large protruding objects in future, and let him know if one gets lodged in my rectum.

Nah, actually I did a round of vacuuming and dusting, and came back to type this.

Skookum John said...

Go straight to the Weimar Republic, take a hard left at (Godwin Alert), and hope whoever wins the war and wants to rebuild you and not obliterate you.

If it ever gets to such a pass, and the Left abandons normal politics and the rule of law to declare a revolution, I will do my damnedest to ensure they are as obliterated as thoroughly as Carthage. What a plague on humanity they have been for the last hundred years.

Rusty said...

Michelle Dulak Thomson said...
bagoh20,

In addition to "your/your're", I don't care how you spell "it's/its.

Well, I do. How hard is it to get that right? And would even you have passed "your're" if you'd looked at it for a second? For crying out loud, that isn't a word in any known language.

Sorry. But one of my sidelines is editing. And there are limits.

No shit?
My wife did that for a living. She won awards.
She can't correct they way I spell either.
So go fuck yerself.




(I'm messin widya.)

Paco Wové said...

"In addition to "your/your're", I don't care how you spell "it's/its"."

Bagoh20 - the rules of orthography - you didn't build them. Somebody else, probably a benevolent government entity, made them happen. Government uses lots and lots of words, and so it undoubtedly had a big role in determining where those apostrophes go. Remember, when we communicate successfully, it's because we all agree on these rules, and use them together. Not on our own. Just stop it!

Michelle Dulak Thomson said...

Paco Wové,

I retire from the field. I cannot top that.

83 rsuhfo

jimbino said...

The worst thing about rampant socialist policies is that they destroy the human spirit and poison people for generations.

Once a single mom with two kids, for example, earns above some minimum like $20,000, she will find herself in an effective 80-100% tax bracket (because of termination of many welfare entitlements) while working next to a person in a 15% bracket. That besides having to pay day-care for her kids. She would have to be brain-damaged to take such a "good-paying" job. Even worse, her kids will learn the welfare lesson.

buwaya said...

Thank you rehajm,

It seems to include local spending items like Medicaid and local assistance payments, but lacks similar local taxes such as property, state/local income and sales taxes. And of course an allocation of secondary effects of these (as in higher rents and other prices).

So this may overstate or understate the case as far as the net tax burden goes. It depends on the details of course.

This is not a bit simple; the CBO does have the raw numbers but not all of them, nor are allocations straightforward.

Eric said...

It seems to me that it would make more sense to simply say at whatever point someone qualifies to be classified as “the wealthy” that they no longer need to keep more of their own money should be the point at which they don’t need to receive more of someone else’s.

I watched a segment of Charlie Rose years ago with Sen. Daniel Patrick Moynihan. Rose asked him whether or not Social Security should be means tested, and he said "Absolutely not. If we do that people who aren't getting benefits will say 'Those people should have saved like I did' and the program will lose political support. Look what happened to welfare."

I expect to get some significant fraction of my money back, whether or not I need it. That was the understanding when I paid in. If not, then we can just do away with the program and the idiots who didn't save for retirement can live with their children.

bagoh20 said...

"Remember, when we communicate successfully, it's because we all agree on these rules, and use them together. Not on our own. Just stop it! "

I'm a progressive now, you fossils need to get on the right side of history. Spelling is theft.

WV is just one of the ways we will subvert you. Keep practicing.

Eric said...

That said unemployment rolls are down since 2009...

How much of that is just because peoples' benefits ran out?

Here in CA if the UE rate drops below some threshold they cut the number of weeks you can draw benefits, on the theory it shouldn't take as much time to get a job.

But once you get dropped off the UE rolls you don't count as unemployed, so the UE number goes down. It's a positive feedback loop.

Shanna said...

earns above some minimum like $20,000, she will find herself in an effective 80-100% tax bracket (because of termination of many welfare entitlements) while working next to a person in a 15% bracket.

We talked about this in labor economics. If they are going to have stuff like that available, it probably shouldn't be a hard cut off for the exact reason you mentioned. Someone posted something a while ago (maybe on Ace?) that was a chart that showed between about 30k and 60k you might lose money by getting raises. That is a terrible, terrible system.

ken in sc said...

Losing money by getting raises was how it was in the early 80s. I was supervisor of a word processing center then and could not get anyone to work overtime when needed because it would mean their taxes would go up and they would lose money. I had people in another division turn down promotions for the same reason. Ronald Reagan solved that problem.

Dante said...

I don't think this makes much sense.

Looking here: http://www.cbo.gov/sites/default/files/cbofiles/attachments/43373-AverageTaxRates_screen.pdf

They state that middle income earners 14.7% of their earnings federal taxes, yet Social Security makes up roughly 14.4% alone for 2009. That means that many middle earners are either state employees exempt from Social Security, or there are many middle quintile earners who aren't working. As in retired, etc, pushing down the tax rate, yet still getting an average mid-tier income of $67K.

Kirk Parker said...

bagoh2o,

"Obama should be calling them heroes, but that would really piss off Cedarford."

OK, so what would be the downside?

kentuckyliz said...

We are a half and half country: politically, where election results are within the standard error of measurement, and tax-wise--only half of adults pay taxes, the other half doesn't.

So half the population keeps voting to steal the other half's money for themselves through the power of government.

Constitutional amendment: only taxpayers get to vote.

Michael The Magnificent said...

Excuse the cross-post.

I'm a radical, because I believe that the federal budget should be paid for, equally (in terms of absolute dollars) by each able-bodied adult.

You want everyone to pay their fair share? Well, the lower 50% who pay only 3% of all tax dollars today would pay their fair share of 50%.

Just because someone is able to pay more should not obligate them to pay more than anyone else.

Joe said...

If there is an earnings cap on FICA deductions, then payouts should be means tested. I say remove means testing, but also remove the cap.