Dan Marcucci: ‘Thanks for that idiotic thing about ten men going to dinner. It is truly idiotic. The part of the story that really grates is the premise that all ten men are eating the same dinner. In reality, the first four men receive a crust; the last man, a feast.’
☞ Also grating: the premise that four of the ten pay nothing for their meal. In reality, they pay sales tax, payroll tax and property tax (either directly or through their rent), gas tax, alcohol tax, phone tax and what is in effect the ‘lottery-ticket tax’ – a tax on hope.
Michael Axelrod: ‘The thing missing when analyzing the story and the tax system is the concept of ‘utility.’ There is general agreement that the marginal utility of income decreases the more you earn. [To a starving man, $4 for a sandwich has enormous utility; to a rich man, virtually none.] This is the justification for a graduated income system. The idea is to have every taxpayer give up at least approximately the same amount of total utility in taxes. But there is no general agreement on what utility function to use. So politics determines the tax system.’
And speaking of politics . . .
Kevin Rasmussen: ‘The story should include the rich guy’s making a contribution to the owner’s re-election fund, giving him far more clout in determining the distribution of the $20.’
Jonathan Levy: ‘Point #1: We are hardly in a situation where our $100 dinner now costs $80. It is more like the restaurant was firebombed a couple of years ago and now has to charge $120 for dinner in order to pay for the extra security. If we ever find ourselves in a situation where the government needs 20% less money to do the same job (maybe the day we are free from interest payments on the extra $3 trillion in debt run up under Reagan/Bush?), sure, let’s look at cutting taxes on everyone. Point #100 (since there must be 98 in-between): The stated threat is that if the rich feel too abused they are going to pack up and leave. Fair enough. This country was built by people who got fed up and quit other countries over economic conditions or oppression. Anyone who feels it is unbearable to be wealthy in the U.S. has a complete right to quit this country and become a citizen of another (assuming it is for real and not just a paperwork trick to get out of taxes). That is a basic human right but one that, so far, few wealthy Americans seem to have felt a need to exercise.’
Randy Woolf: ‘The ‘dinner analogy’ is hopelessly flawed. The main problem for me is: in the story, the diners are presented with a special $20 bonus, or ‘surplus,’ i.e. cheaper food. But the U.S has a deficit now, not a surplus. Also, in a real society, our fates are all bound together, and the well-off suffer when the poor become ‘too poor.’ A better analogy would be more along these lines: the 10 people are employees in a restaurant. A new restaurant [China] has opened with much lower prices. The 10 employees at our restaurant agree to take a pay cut so the restaurant can compete. The highest paid employees say everyone should share the pain, not just them, so everyone’s pay is cut 20%. This results in the subsistence workers’ being paid below subsistence. So the lowest paid employees are now too addle-brained from lack of food to do their jobs well. Some of them have caught infectious diseases, but cannot afford to go to the doctor, and are spreading these diseases to the customers. All the educated employees who could do so went elsewhere, so the remaining ones are too illiterate to read the health department sanitation signs. A few of the customers get sick and die from e. coli. When the place gets robbed, the security guard decides this pay is not worth risking his life for, and runs away. Business gets worse, and the highest paid decide they must lower prices – and pay checks – a further 20% to attract customers!’
☞ And soon the entire world collapses. But if you think Randy may have gone a little over the top to make his point, how about this. How about imagining that we’re all part of an enterprise called America, Inc., and that business these days is not so hot. It isn’t terrible, by any means, but we’re dipping into the red. And we have some capital equipment – like our schools – in pretty sore need of investment. So, sporting a high credit rating, we determine to borrow $2 trillion over the next few years (by running deficits) to get us over this rough patch. Interestingly, we decide not to invest in the schools. And we decide not to help bail out our 50 subsidiaries, most of which are having severe financial difficulty. Instead, in our wisdom, we decide to use the borrowed money to give our employees pay hikes (for isn’t that what an income-tax cut effectively is? a hike in take-home pay?), but only to our higher-paid employees. Those at the bottom will get no raise. The preponderance of the trillions we borrow will go to the 5% who are already earning the most – with a very special emphasis on the top 1%.
The trick is to get people to think this is (a) fair and (b) a good deal for them personally (so they will circulate stuff like that idiotic thing about the 10 men and the $100 dinner).
So we tell them: ‘These tax reductions will bring real and immediate benefits to middle-income Americans. Ninety-two million Americans will keep an average of $1,083 more of their own money.’ (I bold this statement because it is an actual quote from our commander-in-chief.) We do not tell them that the $1,083 is an average, and that because the top 5% get most of the benefit (Bush: an estimated $44,000 a year; Cheney: an estimated $327,000 a year; Gates, an estimated $40 million a year), most Americans will get much less – yet all will be saddled with their share of the extra trillions we’ll be borrowing to do this.
When I added that comment last week, Kevin Clark felt I had gone too far. He wrote:
That ‘average savings of $1,083’ has been bothering me too. I chalked it up to the usual political hyperbole, but it is misleading. Good for you (and others) for pointing it out. But it was a little disappointing to see you then turn around and do the same thing in the opposite direction. I refer to your saying ‘most of those 92 million families would . . . be saddled with their share of the trillions in new national debt all this is leading to.’ I’m sure you know that half of all taxpayers pay virtually nothing in taxes. So it seems to me that most taxpayers aren’t being saddled with anything, much less their share. If the debt ever gets paid back it’ll be from taxes on the ‘rich,’ so it seems more accurate to say that current rich people are saddling future rich people with debt. I don’t know that that’s smart or necessary, but that’s a separate question.
Well said, but I believe lower- and middle-income families do bear much of the burden when we add trillions to the national debt:
- Big deficits make a country’s currency weaker than it would otherwise be. That makes prices higher than they otherwise would be. It costs more to buy clothes from China or TVs from Korea or fruit from Mexico if the dollar is weak than if it is strong. Higher prices don’t much hurt the family that just got a $40,000 tax break, but they do hurt the family that is just scraping by.
- Big deficits likely lead, sooner or later, to higher inflation and interest rates. That’s bad news for those who owe and borrow, not such bad news for those who own and lend. Those getting the bulk of today’s tax cuts will be unaffected by higher auto loan rates. We buy our cars for cash. Those of us who already own nice homes won’t mind terribly if inflation drives their prices higher. Those less fortunate will only see their rents rise.
- Big deficits crowd out the possibility for other things, like smaller classroom sizes and a prescription drug benefit for seniors. Not an issue if you can afford to send your kids to private school and are covered by a top-notch health insurance plan, but a very big issue for those “fortunate” four out of ten who “pay nothing” for their dinner in that idiotic story about the 10 men who go out for the $100 dinner.
So I disagree with those who believe that we need to tilt the balance further toward those already best off.
And I am in awe of the Republicans’ skill at persuading so many folks who don’t earn $300,000 or $3 million that huge tax cuts for the best off are something we should go deeply into debt to provide.
How much deeper into debt do the borrow-and-spend Republicans have to bury us before that moniker – “borrow-and-spend Republicans” – finally catches on? Another $3 trillion? Another $6 trillion?
Quote of the Day
[It would be splendid if someday] economists could manage to get themselves thought of as humble, competent people, on a level with dentists.~John Maynard Keynes
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