About The Growing Income Divide

[Toro]

No you haven't. if you accepted the notion that people have a considerable amount of control over their income growth, you would no be presenting the data you are presenting. because if people have control then people have choice. The data then become pointless because people can change it whenever they want.

I'm not saying that people have no control and I'm not saying people have no choice.

To apply the simple analogy of an individual with choice does not apply to an economy of 220 million or so workers.

Then if I am to understand that the relative part refers to the percentage than you are still not entirely correct.l

If you had looked at the link I had provided you would see quite clealy what the percentage break was for each income bracket. The loweest received a 5% break, 2nd bracket a 13% break, 3rd bracket a 6% break. The top two brackets, 36% and 39.6% were combined into one bracket and reduced to 33% for a break of 3% and 6.6% respectively. The 2nd lowest income bracket recevied the largest relative break, the 2nd highest income received the lowest. The difference in the extreme ends is 1.6% in favor of the top earners. I would guess, haveing been in said bracket that had the tax rate been reduced anymore for the lowest income earners they basically wouldn't have been taxes at all after rebates and all.

Do you mean this link?

http://www.whitehouse.gov/news/reports/taxplan.html

Those graphs do not include the effects of capital gains taxes, dividend taxes and The Paris Hilton Tax, aka The Estate tax.

The simple fact is the wealthier you are, the less reliant you are on wages and labour for income and savings accumulation and more so on the generation of income from capital, i.e. dividends and capital gains. Taxes on dividends and long term capital gains are 15%. So if you receive $50,000 in income from dividends, you are taxed at a lower rate than someone earning $50,000 in wages. The biggest marginal tax cuts were not income taxes but taxes on income from capital.

That's why I posted this graph.

This graph includes not only income taxes, but also capital gains tax, tax from interest, tax from dividends, The Paris Hilton tax, etc., etc. It includes all taxes paid.

So draw your finger up to where it says '00, and you will see that at the kink in the line for all income groups, the steepest decline is for the top 0.01%, the top 1% and the top 20%.

And I'll ask again, Why? Why is it that the people who have benefited the most over the past one and three decades were given the largest proportional - not absolute, "proportional" - tax cuts?

 

[Care4all]

No you haven't. if you accepted the notion that people have a considerable amount of control over their income growth, you would no be presenting the data you are presenting. because if people have control then people have choice. The data then become pointless because people can change it whenever they want.



Then if I am to understand that the relative part refers to the percentage than you are still not entirely correct.l

If you had looked at the link I had provided you would see quite clealy what the percentage break was for each income bracket. The loweest received a 5% break, 2nd bracket a 13% break, 3rd bracket a 6% break. The top two brackets, 36% and 39.6% were combined into one bracket and reduced to 33% for a break of 3% and 6.6% respectively. The 2nd lowest income bracket recevied the largest relative break, the 2nd highest income received the lowest. The difference in the extreme ends is 1.6% in favor of the top earners. I would guess, haveing been in said bracket that had the tax rate been reduced anymore for the lowest income earners they basically wouldn't have been taxes at all after rebates and all.

But didn't the 15% tax bracket get no reduction in their bracket other than the first 8k or there abouts reduced to the 10%? It was the only income bracket that did not get a full tax bracket reduction, all others did?

Care

 

[Bern80]

But didn't the 15% tax bracket get no reduction in their bracket other than the first 8k or there abouts reduced to the 10%? It was the only income bracket that did not get a full tax bracket reduction, all others did?

Care

Read the link again. Every income bracket recevied a tax cut.

 

[Bern80]

I'm not saying that people have no control and I'm not saying people have no choice.

To apply the simple analogy of an individual with choice does not apply to an economy of 220 million or so workers.

of course it does. Those 220 million are also 220 million individuals. Stop makeing excuses for them.

Do you mean this link?

http://www.whitehouse.gov/news/reports/taxplan.html

Those graphs do not include the effects of capital gains taxes, dividend taxes and The Paris Hilton Tax, aka The Estate tax.

The simple fact is the wealthier you are, the less reliant you are on wages and labour for income and savings accumulation and more so on the generation of income from capital, i.e. dividends and capital gains. Taxes on dividends and long term capital gains are 15%. So if you receive $50,000 in income from dividends, you are taxed at a lower rate than someone earning $50,000 in wages. The biggest marginal tax cuts were not income taxes but taxes on income from capital.

I suppose all I can say is, well. DUH. I still fail to see the problem. Of course the rich are going to get tax breaks on those things. It's an attempt to compare apples to, well, nothing. You can't make a justified comparison as to the big break the rich are getting based on capital gains estate tax etc. because there's nothing to compare it to. the poor don't have estates or capital gains.

And I'll ask again, Why? Why is it that the people who have benefited the most over the past one and three decades were given the largest proportional - not absolute, "proportional" - tax cuts?

Lots of reasons 1) you can't cut something from essentailly nothing, which is essentially what the poor pay in taxes. You want to talk about relativeity, fine. relatively speaking the poor pay basically nothing in taxes.

Here's another crazy idea. THEY DESERVE IT. Contrary to popular opinion most people with large sums of wealth worked for it. Most people who are in the poor house are there by their choosing. So you can see why it galls the rich to that are 'rewarded' for their efforts by haveing to pay more taxes than those that refuse to put forth the effort.

In terms of income tax you're realitive argument was essentally false The lower middle class received the largest relative break of all. Now you want to interject this combined taxes notion again as if their is some conspiracy afoot with regard to giveing the rich breaks. I repeat. Economically that's what makes the most sense. Tax breaks for the poor are nice and all but they do nothing for the economy. You need give those with lots of money to inject into the economy the incentive to do so. Take away the estate tax and capital gains (or double taxation) are legitimate ways of doing that.

 

[Toro]

of course it does. Those 220 million are also 220 million individuals. Stop makeing excuses for them.

Powerful, broad-based economic trends are not "making excuses" for people. I don't think you'd find an economist on the planet who would say that the opening of China and the economic pressures put on wages provides more opportunity and choice for wage earners in America.

I suppose all I can say is, well. DUH. I still fail to see the problem. Of course the rich are going to get tax breaks on those things. It's an attempt to compare apples to, well, nothing. You can't make a justified comparison as to the big break the rich are getting based on capital gains estate tax etc. because there's nothing to compare it to. the poor don't have estates or capital gains.

Sorry, Bern. This is absolutely dead wrong. Of course you compare all sources of income and all tax cuts. That's like saying you should only focus on one source of expenses while ignoring all other expenses. Its like focusing only on your food expense in your monthly budget but ignoring costs for heating, for gas for your car, for health care premiums, and so on.

And why do you say "of course the rich are going to get tax breaks on those things?" Why is it "of course?" This is no "of course." This was a conscientious political decision that did not have to happen.

Lots of reasons 1) you can't cut something from essentailly nothing, which is essentially what the poor pay in taxes. You want to talk about relativeity, fine. relatively speaking the poor pay basically nothing in taxes.

But the middle class do. Here is the graph again.

And relatively, the middle class received a small tax cut while the debt - future taxes on your children - continues to rise.

But again, going back to the OP and why inequality is rising, this is one reason.

Here's another crazy idea. THEY DESERVE IT. Contrary to popular opinion most people with large sums of wealth worked for it. Most people who are in the poor house are there by their choosing. So you can see why it galls the rich to that are 'rewarded' for their efforts by haveing to pay more taxes than those that refuse to put forth the effort.

Well, its good then that we agree that taxes are causing widening inequality, which was the topic in the OP.

In terms of income tax you're realitive argument was essentally false The lower middle class received the largest relative break of all. Now you want to interject this combined taxes notion again as if their is some conspiracy afoot with regard to giveing the rich breaks. I repeat. Economically that's what makes the most sense. Tax breaks for the poor are nice and all but they do nothing for the economy. You need give those with lots of money to inject into the economy the incentive to do so. Take away the estate tax and capital gains (or double taxation) are legitimate ways of doing that.

Yet, the economy did pretty well taxes were raised in the 1990s, better than this decade. So what makes "most sense" from an economic perspective is highly debatable.

Relative levels are hardly "false". If relative levels are "false" then what must be true are absolute levels. If this is the case, then the United States is more an of economic basket case than Zimbabwe because the US has more debt, or that GE is less financially sound than Countrywide Financial because GE has more debt. As any economist or financial analyst will tell you, its not the absolute that matters, it is the relative that matters.

 

[Bern80]

Powerful, broad-based economic trends are not "making excuses" for people. I don't think you'd find an economist on the planet who would say that the opening of China and the economic pressures put on wages provides more opportunity and choice for wage earners in America.

Of course not, but it isn't something that is out of people's control either. My guess is those that are successful are those that have been able to recognize such economic changes and adjust accordingly. To expect that most anybody has the ability to do that isn't unreasonable.

Sorry, Bern. This is absolutely dead wrong. Of course you compare all sources of income and all tax cuts. That's like saying you should only focus on one source of expenses while ignoring all other expenses. Its like focusing only on your food expense in your monthly budget but ignoring costs for heating, for gas for your car, for health care premiums, and so on.

And why do you say "of course the rich are going to get tax breaks on those things?" Why is it "of course?" This is no "of course." This was a conscientious political decision that did not have to happen.

Point taken. However I still think it is an attempt (not by you) to cast the rich in an unfavorable light. It is meant to invoke a reaction out of people that suggests somehow it is unfair that the rich get tax breaks of the kinds described. I simply don't see any other course of tax policy that makes much sense (under our wonderful current tax code anyway). You think of all the combinations of things you could do to the tax brackets and it is hard to come up with many other scenarios that make sense.

The lower middle income got the best deal it could possibly have gotten. It got a double digit reduction in income tax. The highest of any group. Now how that group had any other taxable income they would have got the break on those things too, just like the rich. What more do you really want out of a tax cut? Should those lower tax brackets have been cut even more? Consider the ramifications of that. Would have preferred that taxes for the rich went up instead in some feigned attempt to show the poor that the politicians are on their side? What does that practically accomplish?

But the middle class do. Here is the graph again.

And relatively, the middle class received a small tax cut while the debt - future taxes on your children - continues to rise.

First of all that this debt is going to cause issues in the future is highly unlikely. While it would look nice to not have one, it isn't going to cause this catastrophic taxation on the children. How long has this country run a debt anyway? Are you feeling the sting of the debt that existed under your parents?

As to the middle receiveing a small tax cut, this where you graph works againsts your argument. How would seriously suggest evening this small tax cut out? What would be your tax plan to show that the middle class received this huge tax cut they suppossedly deserve compared to a say a small one for the rich? Would such a plan make any sense?

Yet, the economy did pretty well taxes were raised in the 1990s, better than this decade. So what makes "most sense" from an economic perspective is highly debatable.

Then the question would be, why despite haveing less disposable income did the economy do well (assuming it actually did)?

Relative levels are hardly "false". If relative levels are "false" then what must be true are absolute levels. If this is the case, then the United States is more an of economic basket case than Zimbabwe because the US has more debt, or that GE is less financially sound than Countrywide Financial because GE has more debt. As any economist or financial analyst will tell you, its not the absolute that matters, it is the relative that matters.

Again the debt is a non-issue. It isn't somehting that is going to come back to bite us. it hasn't yet in the many, many years since this country has run one? We bring up the national debt in hopes people will think it's a bad thing. I found this excellent analogy.

http://www.well.com/user/argv/debt.html

 

[Annie]

What I was trying to convey was that for an average kid, where you come from matters. She won't get a scholarship, and because of her lack of income, she doesn't have as much of a chance as those who come from well-to-do backgrounds.

A brilliant A+ student from a poor neighborhood may very well end up making more of herself than the lazy-ass, C-, cocaine-snorting son of a multi-millionaire.

When was a scholarship denied because of low income? You misread me, my claim is that barring a 1m donation or other substantial contribution, the C+ student from the 'ghetto' is much more likely to gain a free ride than certainly the A student from the middle class.

 

[Toro]

When was a scholarship denied because of low income? You misread me, my claim is that barring a 1m donation or other substantial contribution, the C+ student from the 'ghetto' is much more likely to gain a free ride than certainly the A student from the middle class.

That may be, but most students don't get a free ride. Most students pay. And those in the poor neighborhoods do not have as much in which to pay for their education.

 

[Annie]

That may be, but most students don't get a free ride. Most students pay. And those in the poor neighborhoods do not have as much in which to pay for their education.

Actually most successful students from the 'ghetto' do get a free ride. On the other hand, check out what happens to those white kids in rural areas, with no enrichment and no money. Even the top students get zilch.

Now I'm not saying that farmers kids should get a break. I'm not saying crack mommie's kids shouldn't. I'm not saying the middle class should get any break, just sayin'.

 

[Toro]

Point taken. However I still think it is an attempt (not by you) to cast the rich in an unfavorable light. It is meant to invoke a reaction out of people that suggests somehow it is unfair that the rich get tax breaks of the kinds described. I simply don't see any other course of tax policy that makes much sense (under our wonderful current tax code anyway). You think of all the combinations of things you could do to the tax brackets and it is hard to come up with many other scenarios that make sense.

Don't get me wrong. I certainly agree with you that the Left often portrays the wealthy as an exploitive class. I certainly don't see the world that way. I generally admire the wealthy, and, for the most part, work with them. Nor do I necessarily disagree with, at least from an economic standpoint, lower taxes on income from capital. I make my living as an investor, after all. And, I don't think they should not have been given a tax cut if everyone else had as well.

My contention, however, is that there are very broad and powerful forces at work in the global economy that have by happenstance benefited a certain group of people and pressured many others. In this case, the benefits have accrued to the wealthiest and pressured most everyone else. That is not because the rich are nefarious or bad or anything like that. Rather, it just is. And because of it, dislocations in the economy are now manifesting in the political arena, particularly the election of mainly anti-free trade Democrats, I find alarming. To counter this, I believe we have to structure our policies to both soften the dislocations from and adapt to these powerful forces most people in this country have never seen before. And I believe that though tax cuts were at least part of a correct policy response to the previous recession and somewhat effective, the design of the tax cuts were both inefficient in the near-term and not necessarily the best policy for the intermediate term to deal with these dislocations.

First of all that this debt is going to cause issues in the future is highly unlikely. While it would look nice to not have one, it isn't going to cause this catastrophic taxation on the children. How long has this country run a debt anyway? Are you feeling the sting of the debt that existed under your parents?

You will find some alarmists on the Internet - and I imagine on this forum - that will say America is on the verge of collapse, the debt is $9 trillion, the dollar is worth nothing, etc., etc., etc. I am not one of those. The total US debt relative to the economy is ~65%-70% of GDP. That puts America something like 11th highest in the 28 or so members of the OECD, and is far below Japan at ~150% and Italy at ~125%. It is also well below where America was at the end of WWII, which was somewhere around 120%.

Having said that, understand that there are two kinds of debt - the kind you use to consume (short-term debt) and the kind you use to invest (long-term debt). Its like taking out debt so you can go on an expensive vacation or buy your third HDTV, or taking out debt to pay for your college tuition or buy a house. Its the difference between running up your credit card to buy whatever you want now and borrowing to invest in a rising asset.

When governments take out debt to consume, that debt should be paid off over an economic cycle. So the government went into debt at a rate of 4% of GDP in 2002 and 2003 when it cut taxes and the economy was in recession. That's fine. That's what a government is supposed to do during a recession. However, with the economy growing at the historical average of 3% the past few years, the government still continues to run a deficit of 1.5%-2% of the economy. Now, that would be okay if that deficit was being used to fund investment (long-term debt). It generally is not. The direct result of recent deficits and its secondary and tertiary effects went primarily towards increased consumption (short-term debt), the war in Iraq and to feed the housing bubble (long-term debt, but mal-investment). There has been below average capital expenditure by both the government, which is not understandable given the dislocations in the economy, and corporations, which is understandable given the credit crunch in 2001-2002 resulting from over-investment over the late 1990s.

Now, if government had been running up debt to increase investment and future economic growth, a rise in debt would be fine. But that's not what has been happening. The rise in debt has been to feed consumption. It is akin to a rising credit card balance to buy consumer stuff. And the reason why that matters is because without the future earnings that derive from increased investment, the amount of tax dollars which are dedicated towards paying down debt is rising, which means the amount of marginal future economic growth generated is falling. And it might not be so bad if all that debt was held by Americans, but it is not. It is held offshore. The interest payments to fund our consumption spree that goes to foreigners has been rising at a rate, I believe, that is the fastest in our history.

Finally, the other effect of rising debt is rising interest rates. That isn't a problem now because there is capacity slack in the economy, and the market thinks we're about to go into a recession. But because the government has to go into the debt markets by an ever-increasing amount, the competition from the government increases the cost of debt for all other borrowers, i.e. mortgage holders, corporations, consumer credit, car loans, etc., especially when capacity in the economy becomes tight.

 

[Toro]

Actually most successful students from the 'ghetto' do get a free ride. On the other hand, check out what happens to those white kids in rural areas, with no enrichment and no money. Even the top students get zilch.

Now I'm not saying that farmers kids should get a break. I'm not saying crack mommie's kids shouldn't. I'm not saying the middle class should get any break, just sayin'.

And I'm merely making a statistical observation that the average student from a poor demographic regardless of race is less likely to attend a post-secondary institution than an average student from a demographic that isn't poor, regardless of the scholarships made available.

 

[Annie]

And I'm merely making a statistical observation that the average student from a poor demographic regardless of race is less likely to attend a post-secondary institution than an average student from a demographic that isn't poor, regardless of the scholarships made available.

And that has what to do with what the discussion was? You claimed first that a C+ student from lower economic stata was destined to the trash heap, while the mediocre, (equivalent grade wise), whose Daddy contributed 1m to Harvard, got a ride.

I subsequently argued that the poor kid did better than any whose Daddy was unable or unwilling to pony up. I guess that is your reply?

 

[Toro]

And that has what to do with what the discussion was? You claimed first that a C+ student from lower economic stata was destined to the trash heap, while the mediocre, (equivalent grade wise), whose Daddy contributed 1m to Harvard, got a ride.

I subsequently argued that the poor kid did better than any whose Daddy was unable or unwilling to pony up. I guess that is your reply?

This is my reply

Actually most successful students from the 'ghetto' do get a free ride. On the other hand, check out what happens to those white kids in rural areas, with no enrichment and no money. Even the top students get zilch.

Define "successful."

What I'm saying to you is that the student with the average grades to get into college - not the best grades, just average - coming from a poor background - regardless of race -

And I'm merely making a statistical observation that the average student from a poor demographic regardless of race is less likely to attend a post-secondary institution than an average student from a demographic that isn't poor, regardless of the scholarships made available.

is less likely to attend college than average student from a non-poor background.

I'm sure there are anecdotes about the C+ ghetto student who gets into Harvard, but from a broad population, statistically, the kid from the suburbs, let alone the rich kid, is much more likely to end up going to college.

 

[Annie]

This is my reply



Define "successful."

What I'm saying to you is that the student with the average grades to get into college - not the best grades, just average - coming from a poor background - regardless of race -



is less likely to attend college than average student from a non-poor background.

I'm sure there are anecdotes about the C+ ghetto student who gets into Harvard, but from a broad population, statistically, the kid from the suburbs, let alone the rich kid, is much more likely to end up going to college.

I'm getting dizzy. While I was saying the lower class overall cut a break, you were arguing something else, I think. I'm unsure. Enlighten us, because the above does not add clarity.