Those poor, persecuted rich people

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Adam T
Those poor, persecuted rich people

Good article, I have just one comment to add to it, and one  mild criticique.

 

Comment: I find it amusing those on the right wing who find the increase in the percentage of income tax paid by the top 1-2% in the last 20 year or so in the United States horrifying.  For some reason they never mention that the primary reason the top 1-2% pay so much more is because they've chosen to take so more much of the 'pie' for themselves.  I always respond to them "if they want to stop paying so much in taxes they can choose to pass on some of their earnings to their employees."

 

 Criticism: Similarly, (top) U.S. marginal tax rates were above 90 per cent in the 1950s -- a decade of strong U.S. economic growth.

 

This is actually a myth.  The 1950s were actually a decade of pretty much stagnation in the U.S.  The wonderful website www.meaursingworth.com has a calculator that shows growth rates.  Real GDP per capita measured a rather weak 1.22% from 1951 to 1960.

 

However, Linda McQuaig's point is still correct though.  Even after Kennedy lowered the top marginal tax rate it was still 70% and growth was very strong in the 1960s.  According to measuring worth Real GDP per capita grew at a robust rate of 3.13% from 1961-1970. 

Sharon
RevolutionPlease RevolutionPlease's picture

Need more of this.

Sven Sven's picture

About 36% of all Americans who will file an income tax return for 2008 (i.e., people who actually had income in 2008) will pay zero federal income taxes.  Under Obama, that percentage will be closer to 50%.

Does anyone know what the analogous figure is for Canada?  

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Eleutherophobics of the World...Unite!!!

DrConway

Um, no

I looked in the back of my macroeconomics textbook (McConnell, Brue, Barbiero) back when I took the course in 2002 and right there in plain black and white the GDP growth rate in almost every year from the 1950s right up to about the 1970s circled 5 percent per year.

You can also download the NIPA tables from the BEA for the comparable US figures and do some simple math in Excel and you will, indeed, find that the US economy grew 4% per year in the 1950s and 4.4% per year in the 1960s. Even in the 1970s the growth rate was a hefty 3.2% per year.

GDP growth per capita tends to be a bit misleading because the 1950s and 1960s were a time of higher population growth than the 1970s onwards, so what looks like weak GDP growth on a per capita basis is partly due to all those babies that got born.

I might point out that in the 1950s and 1960s it was possible for one person to work and pay for the expenses of a family of four.

Do that today and you need something like over half again as much income after adjusting for inflation.

 

Fidel

If anything, I think GDP growth rates since the birth of financial capitalism, with derivatives and such since 1987 or so, have been exaggerated. One commentator described it like this. He likened the new economics to a US capitalist who imports a manufactured widget from China costing a dollar, and then sells it for $10 dollars. This capitalist's official contribution to US GDP growth rises 90%. Meanwhile, nothing about the widget is made in America.

Sven Sven's picture

DrConway wrote:

I might point out that in the 1950s and 1960s it was possible for one person to work and pay for the expenses of a family of four.

That's more than a bit of a canard.  The standard of living in the 1950s was pretty basic.  When I grew up, my dad (a school teacher) and mom (a stay-at-home mom) had four kids.  We camped for family trips (and our "trailer" to haul our stuff was an old row boat covered with a tarp).  We never ate out at a restaurant (actually "never" is too absolute; we probably ate out five times in all of the years I grew up).  None of us had a car as a kid (I didn't get my first car until after I graduated from college).  My graduation gift from high school?  A Webster's dictionary.  The amount of money I got from my folks after graduating from high school?  A grand total of $200.

So, yeah, most people could and did live on one income.  But, that wasn't because they could afford nice vacations, eating out, spending the equivalent of thousands of dollars carting their kids all over hell and back for school activities and all of the other bullshit stuff that families "need" to have today.

_______________________________________

Eleutherophobics of the World...Unite!!!

DrConway

You could argue that those sorts of extra 'frills' aren't even necessary and are a product of the ultimately-culturally-toxic 'keep up with the Joneses' attitude permeating society since the 1980s.

That $200 you got in probably the 1970s is the equivalent of getting $1000 today. Not chump change, but definitely enough to pay for a kid's first basic car out of high school (or half of one semester's tuition).

Try not to be purposely misleading by ignoring the fall in the value of money, by the way.

 

Adam T

The 50s don't look great comparitively no matter how you look at the numbers.  You do make a good point though with the surge of the baby boomers in the 1950s.

 

I don't know what source you have but this is from www.measuringworth.com.  I don't know why the numbers you have might be different.

1951-1960: Real GDP per capita (growth rate): 1.22, Real GDP: 3.01

1961-1970: Real GDP per capita: 3.13 Real GDP: 4.40

1971-1980: Real GDP per capita: 2.12, Real GDP: 3.17

 

So, it's the worst of the 3 decades, even with all the problems in the 1970s.   

 I see our numbers match up for the 1960s and 70s, check your 1950s numbers again. 

 

DrConway

I did the same numbers and got average 3.42% growth per year from 1951-1960. Using your website's numbers, by the way, not the tables from the BEA.

What really cracks me up is this sort of attempt at historical revisionism to try and make the 50s and 60s look worse than they actually were.

Just for your info, the 1980s clocked in at 2.8% per year and from 1991 to 1995 the growth rate was a miserable average of 1.8% per year and was only saved by the spike to over 4% from 1996-2000.

 

Sven Sven's picture

Sven wrote:

About 36% of all Americans who will file an income tax return for 2008 (i.e., people who actually had income in 2008) will pay zero federal income taxes.  Under Obama, that percentage will be closer to 50%.

Does anyone know what the analogous figure is for Canada?  

DrConway wrote:

Um, no

Obama considers that millions of people who pay ZERO federal income taxes are paying TOO MUCH in taxes.  So, he's giving those millions of "taxpayers" a "tax credit" (generally, a tax credit is a credit against taxes otherwise owed).

_______________________________________

Eleutherophobics of the World...Unite!!!

Adam T

"Obama considers that millions of people who pay ZERO federal income taxes are paying TOO MUCH in taxes.  So, he's giving those millions of "taxpayers" a "tax credit" (generally, a tax credit is a credit against taxes otherwise owed)."

 

Yes, because they PAY federal PAYROLL TAXES.  It is a new right wing lie to suggest that only income taxes counts as federal taxes.  This is an amazing strategy actually because the Republicans have succeeded in getting millions of low income earners to vote for them based on social issues.  Essentially calling them leaches who pay no federal taxes because they don't pay income taxes (again, ignoring the payroll taxes) and therefore don't deserve a tax break hardly seems like a way to keep getting their vote. 

Sven Sven's picture

Adam T wrote:

"Obama considers that millions of people who pay ZERO federal income taxes are paying TOO MUCH in taxes.  So, he's giving those millions of "taxpayers" a "tax credit" (generally, a tax credit is a credit against taxes otherwise owed)."

Yes, because they PAY federal PAYROLL TAXES.  It is a new right wing lie to suggest that only income taxes counts as federal taxes.  This is an amazing strategy actually because the Republicans have succeeded in getting millions of low income earners to vote for them based on social issues.  Essentially calling them leaches who pay no federal taxes because they don't pay income taxes (again, ignoring the payroll taxes) and therefore don't deserve a tax break hardly seems like a way to keep getting their vote. 

It's not a "lie" to say that 36% of people with income did not pay any federal income taxes (and that that percentage will increase significantly under Obama).  Why?  Because it's true!!  The implication is that tens of millions of people make no contribution to the running of the federal government.  About 98% of those with income who pay ZERO federal income taxes have incomes of $40,000 per year or less.  The maximum marginal tax rate for federal income taxes paid by those who do pay federal income taxes is nearly 40%.

The federal payroll taxes are about 6.5% for Social Security and about 1.65% for Medicare/Medicaid.

_______________________________________

Eleutherophobics of the World...Unite!!!

Adam T

1.Where did I attempt 'historical revisionism' to try and make the 60s look bad?  In my initial post I said something like "growth in the 60s was very strong"

 I have no real problem with Linda McQuaig's article at all (I said I just had the one minor quibble), I'd just like to get the record on the 1950s corrected. 

2. I see where our difference in the 1950s numbers comes from. I made a mistake and ask the measuring worth calculator to calculate GDP growth from 1951-1960, which is from the end of 1951 to the end of 1960 and got 3.01%.  Calculating correctly including 1951 does end up with 3.42%  However, that suggests to me a mediocre decade with one great year.

1951  7.75% real GDP growth rate

1952 3.83%

1953 4.59%

1954 -0.68%

1955 7.14%

1956 1.94%

1957 2.01%

1958 -0.95%

1959 7.11%

1960  2.48%

Calculating from the end of 1953 to the end of 1960 produces a Real GDP growth rate of just 2.63% per annum. 

Certainly these aren't terrible numbers, but given the growth in the size of families in the 1950s they suggest those families were barely keeping their heads above water.  This contrasts with the myth that the 1950s were a boom decade.

 3. As to the other point you made regarding the need for only one person in the family to work rather than two, I think you both made valid points. That gets at income distribution rather than just overall GDP growth. Measuringworth has figures for the growth of 'unskilled' wages (not inflation adjusted, but you can get the inflation figures as well).

Obviously to the degree that only one person in the family had to work (and I actually don't know if that is true or not, it is just another thing that seems to have become a truism), it might suggest that the  1950s were a decade of well distributed income growth.  The reality is always more complex than a handful of statistics.  Clearly there is a lot of nuance here. However, in terms of overall GDP growth in the U.S, it was poor compared to the 1960s and poor compared to most periods from 1954 to the end of 1960.  

Adam T

Payroll taxes don't go to running the government?  That's a pretty novel definition.  Even if you insist that 'social security' is somehow not part of government operations, the social security 'account' is in surplus and is raided by the government to pay for general operations.

 An 8% or so payroll tax on a person earning $40,000 is around $3,200. That's hardly 'no tax'. 

 Again, if you think that Republicans should argue for raising taxes on those making $40,000 or less, go and suggest it to them.  

 

"The maximum marginal tax rate for federal income taxes paid by those who do pay federal income taxes is nearly 40%."

As I said in my initial post, if the top 1% want to stop paying so much at the top marginal rate, they can reduce their earnings and pass it on to their employees instead.  Then they'll pay less tax and their employees will pay more.  Win-win. 

Adam T

This Washington Post article is mostly decent:

http://www.washingtonpost.com/wp-dyn/content/article/2009/03/14/AR2009031401823.html?wprss=rss_politics

 It covers the attempt to bring in 'card check' unionization.

It fits here because of one quote:

Anne Layne-Farrar, an economist with the consulting firm LECG who produced a study predicting job losses if the bill passes, said in a conference call organized by employers that increased productivity had not resulted in larger wage gains in recent decades because the growth was mostly the result of technology. "If the productivity of labor went up, then the wages of labor would go up," she said. 

To be sure, she is just one person and doesn't necessarily speak for all business, but the comment is astounding.  First of all, it's entirely meaningless. What does she expect, that workers would work faster and faster?

Workers get more productive primarily because of improvements in technology.  The deal is 'supposed' to be that investors supply the new technology and the workers learn how to use it properly and both share in the wealth produced by the productivity gains.

That an industry mouthpiece would attempt to justify workers not getting any of the gains of GDP growth is astounding to me. 

 

DrConway

Also, 3200 divided by 12 is $270-ish a month. That's a pretty substantial chunk of change for a family running a house; suppose both parents work for $20k a year, gross; they've got to pay for cars, babysitters (if they can afford such), the occasional takeout meal when they're too tired to cook, and so on.

Considering that a typical home electric bill can run about $100 a month ( mine did when I lived in the bottom level of a three-level house, but I suspect most of that was the hot water heater being a bit annoyingly wonky), freeing up that $100 a month out of the payroll tax would be a pretty nice easing of the burden.

(a married couple taking home $40k gross pays approximately 15% tax on all income above some threshold, even factoring in the EITC. Arbitrarily I'll assume the Canadian thresholds apply because I'm too lazy to figure out the American ones. ;) The basic threshold is almost $10000, so each person only pays 15% on the next $10k. That's $1500 right off the top for each person. Social security and Medicaid is $1600 each. So add it all up and EACH PERSON is paying almost $3000 in tax.)

Wow, it's worse than I thought, the $40K family is actually losing almost $600 a month in taxes.

Of course, depending on the vagaries of the US tax system, they might be paying less or paying more. Meh.

 

DrConway

Re WaPo article.

Said economist has probably also ignored the fact that productivity growth in the USA has been uniformly positive since the 1930s. 

remind remind's picture

Not going to get into all the fancy equations and text book shit, but in my first job, outside my family's businesses, I made 1.77/hr m. My rent was 70/month. Nowadays, min wage is 8.50 and rent for a basement suite is about 800/month, I was better off in the 70's, than I would be now in the same circumstances.

ElizaQ ElizaQ's picture

Adam T wrote:

Payroll taxes don't go to running the government?  That's a pretty novel definition.  Even if you insist that 'social security' is somehow not part of government operations, the social security 'account' is in surplus and is raided by the government to pay for general operations.

 An 8% or so payroll tax on a person earning $40,000 is around $3,200. That's hardly 'no tax'. 

 Again, if you think that Republicans should argue for raising taxes on those making $40,000 or less, go and suggest it to them.  

 Well the latest argument to come out of right world isn't necessarily a direct statement that those taxes should be raised but whether it's fair for people who don't pay income taxes to have representation. 

Seriously.  

 edited: Oops. Here's a link.  Representation Without Taxation

Sven Sven's picture

DrConway wrote:

The basic threshold is almost $10000, so each person only pays 15% on the next $10k. That's $1500 right off the top for each person. Social security and Medicaid is $1600 each. So add it all up and EACH PERSON is paying almost $3000 in tax.)

Wow, it's worse than I thought, the $40K family is actually losing almost $600 a month in taxes.

Of course, depending on the vagaries of the US tax system, they might be paying less or paying more. Meh.

Most people making $20,000 in the U.S. will generally pay no federal income taxes and about $1500 in Social Security and Medicare/Medicaid taxes.  Add back the tax credit and they might pay a grand a year in federal income and payroll taxes.

_______________________________________

Eleutherophobics of the World...Unite!!!

Sven Sven's picture

Adam T wrote:

Again, if you think that Republicans should argue for raising taxes on those making $40,000 or less, go and suggest it to them.

Actually, I'm not in favor of raising the taxes on low income.  For the working poor, I think little or no income taxes is appropriate.  But I'm in favor of lower taxes for all and lower spending.  The federal budget under Obama is $3.7 trillion (with an average household of 2.2 people, that's nearly $30,000 in spending per household).

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Eleutherophobics of the World...Unite!!!

DrConway

Linda McQuaig's basic point is that high marginal tax rates on the rich have, on the historical face of it, not killed economic growth as the Republican mythology would have it.

To look at the 1960s in the US, growing at 4.4% per year on average when the top rate was 70% (even higher for a few years in the decade), that alone puts the lie to the Republican claim.

Dick Armey once famously claimed the Omnibus Budget Reconciliation Act of 1993 (Clinton's centerpiece budget that raised taxes on the rich to a marginal rate fo 39.6%) would kill jobs and kill the US economy.

Instead, the tech boom occurred.

I'm sorry, what was that again, Dicky boy? 

Noah_Scape

Concentration of wealth in the top 5% of the population doesn't help grow the economy - investing can and does come from "many people putting their money together" and not from one very wealthy person. So it is a myth that we need extremely wealthy people.

At least that is true now... in the earliest days of the USA union the founding fathers stated that "we will collect taxes from the many and put it in the hands of a few to grow our industry".

That quote also shows that the wealthy are beholden to the masses, for giving them their start, with all our little taxes put together for them.

 Taxing it back through taxes seems reasonable. Or, maybe give the wealthy 5% a choice to form a group that loans money out when the banks cannot loan money [due to the heavy load of toxic debt].

Diogenes Diogenes's picture

Plucking the chickens, Apr 2nd 2009, The Economist print edition

"America's Internal Revenue Service publishes figures showing the proportion of income-tax receipts paid by different segments of the population. Back in 1986 the top 1% of taxpayers were responsible for 25.4% of all income tax paid; by 2005 their share had risen to 38.4%. The IRS also has figures for the top 400 American taxpayers. In 2006 their incomes averaged more than $263m, compared with $214m the year before. On those incomes they paid tax at an average rate of just 17.2%, well down from a peak of 29.9% in 1995; 31 of those 400 paid less than 10% in tax."

As I recall, our own Conrad Black pocketed $80 million tax free not that long ago.

In 2000, I was in the 68% tax bracket.  Oh, rich guy you say...

Well no, actually.  About 3 weeks before the Christmas of 1999 I was sacked by one employer a couple of weeks after I had requested that I be paid for overtime instead of time-off in-lieu-of.  They paid me my overtime. WinkI had a period of unemployment and collected EI after my severence ran out and before I began employment at Westjet Airlines.

At the time, after 3 months of employment at Westjet, employees could buy company shares and the company would match that purchase for up to 20% of an employees salary.  I believed in WJA at the time and I signed up for the maximum 20%. Tax law requires that tax be paid immediately on shares that the company buys on your behalf, so I was paying tax on income that was 120% of my salary and collecting only 80% of it before taxes

This gets a little crazy. To give you an idea, my last 2 week paycheck in 1999 was a little over $1800. My take home pay $680. I sheltered as much as I could but I ran out of room.  I had to arrange a healthy line of credit just to meet expenses.  I reluctantly sold some of the WJA shares I had purchased at the IPO price because I was so strapped for cash.  They were the only shares I could sell because the other shares sat in escrow for a year.  I never had the opportunity to take advantage of the $100,000 lifetime capital gains exemption granted the conservatives and removed by the liberals,  but I did have the honor of paying tax on 75% of that capital gain, the highest ever inclusion rate.  (They have since reduced the inclusion rate to 50%)

My gross income for 2000 was a little over $50K.  I had a marginal tax rate of 68% because of a clawback on the EI income I had received that year.  The Employment Insurance program in Canada is a fraud on the same scale as the Bernie Madoff Ponzi scandal. The $50 billion surplus of premiums collected over benefits paid over the last 10 years is only a notional surplus.  The day of reckoning has come now.

In the end I did okay with those WJA shares but not with the employer.  I left Westjet in disgust (low cost also means cheap) and did not get my last bit of profit sharing until more than 2 years later after a very nasty court battle.  Some of last shares I purchased went into my RRSP.  On Sept 1, 2000 WJA shares were $12.31.  Today thay are trading at $11.99.  Back then, Clive Beddoe had just sacked Steve Smith in a very public spectacle and took over as president and CEO.

Me and Clive are on a first name basis though the names though we use for each other are not the ones are mothers gave us. I can say with some authority that he belongs in the CEO hall of shame for his performance at the helm. He rewarded himself handsomely nonetheless.

My apologies for going all over the map here. I do believe in capitalism but I have seen it's dark underbelly.  I don't think anyone should be taxed at over 50% but the rich seem to pay far, far less than that.

The first book I read by Linda McQuaig was "Behind Closed Doors, How the Rich Won Control of Canada's Tax System and Ended Up Richer" (1987).  I still have it. She is a great writer and it is wonderful to have discovered her blogs and this web site.

There, I did have a point after all.  Having finally found it, I will bid adieu.

Hoodeet

Sven wrote:

DrConway wrote:

The basic threshold is almost $10000, so each person only pays 15% on the next $10k. That's $1500 right off the top for each person. Social security and Medicaid is $1600 each. So add it all up and EACH PERSON is paying almost $3000 in tax.)

Wow, it's worse than I thought, the $40K family is actually losing almost $600 a month in taxes.

Of course, depending on the vagaries of the US tax system, they might be paying less or paying more. Meh.

Most people making $20,000 in the U.S. will generally pay no federal income taxes and about $1500 in Social Security and Medicare/Medicaid taxes.  Add back the tax credit and they might pay a grand a year in federal income and payroll taxes.

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   A friend of mine who receives under $500 in Social Security now has about $90 taken out for Medicare.  She doesn't have supplementary med. and pharma insurance because she's a Canadian resident.  If she had to pay for that additional coverage her deductions would run 28-30% of her income.  So even if she doesn't have to pay any income tax on Social Security, the fed. gov't sucks back a handsome sum to pass on to for-profit corporations without negotiating their rates.

Query:  By payroll taxes do you mean Social Security and Unemployment Insurance or just the latter?