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Balancing Budgets: The Government is Nothing Like a Family

One side effect of the constant bickering over federal debt-related issues is a proliferation of snappy, yet ultimately meaningless, slogans and phrases. “If my family has to balance my budget, the federal government should too” comes to mind. The phrase is short, simple, and scores quick political points by appealing to listeners’ “common sense.” After all, why should the government escape belt-tightening when all of its citizens are forced to make difficult choices with their household budgets?

Yet, as one quickly learns when studying economics, simplistic “common sense” is often wrong. And, given today’s economic circumstances, the family/government budget comparison is dangerously wrong. On one level, it should be obvious that the federal government is really nothing at all like a family, and that this is a comparison of apples and oranges. Imagine trying to fight World War II with a balanced budget. Mobilization and the war effort took high debts from the ongoing Depression and sent gross federal debt skyrocketing past 100 percent of GDP. Top marginal tax rates, above 90 percent, failed to balance the budget — only booming economic growth in the post-war period helped to achieve that.

But put aside the difficulties of comparing two extremely different things for a moment, and focus only on the economic issue at the heart of the comparison: should the federal government be forced to balance its budget during a recession? In a word, no. The explanation is a bit more complicated.

Let’s start off with a quick refresher on Keynesian economics. In a nutshell, John Maynard Keynes, whose book The General Theory of Employment, Interest and Money shaped modern economic thinking, would say that a government should run a surplus during booms and a deficit during busts. That is, it should take in more money than it spends when times are good (raising taxes and cutting spending and the debt), and spend more money than it takes in when the economy tanks (cutting taxes and spending more).

Keynes viewed proper government policy as counter-cyclical, trying to smooth out the economic cycle by putting the breaks on an over-heated economy and speeding up a stagnant one. An economy is powered, essentially, by spending. People use their paychecks to buy goods and services. The money charged for those goods and services help pay for another person’s paycheck. The cycle continues. Savings, too, are channeled into spending, through loans and investments. This further grows the economy as businesses expand and productivity and technological gains are made.

But, during a recession, spending falls precipitously. Businesses lay off workers, and households cut their spending, blowing a huge hole in the economy. If the government were to likewise suddenly balance its budget, it would amplify this damage.

There are two ways a government can balance its budget in any one year:

  1. Cut spending
  2. Raise taxes

Or it can pursue some combination of the two. Either way, these policies would have dragged the economy down deeper into recession, perhaps even into a full-fledged depression, had they been implemented back in 2008, and could derail the economy today.

Consider what would happen if the government cut spending immediately. It will need to lay off government workers (meaning they will have less to spend), halt contracts and projects that help employ private sector workers (meaning they will have less to spend), and cut back on programs that encourage or sustain spending. Social safety nets are a good example — food stamps and unemployment benefits are very stimulative because beneficiaries usually spend the money soon after it is received, generating economic activity.

Tax increases to address budget issues have a similar effect, by taking money out of citizens’ pockets instead of encouraging them to invest and spend to get the economy started again.

The result is that trying to balance a budget during a recession or a fragile recovery can actually lead to greater debt and deficits. This is because the state of the economy dictates how much a government will take in in taxes. When the economy is tanking, the government will take in less money in taxes because of falling incomes. When you have a lower income (due to being laid off, having hours cut, having pay cut, etc…) the amount of money you pay in taxes falls.

If the government tries to deal with this fall in revenue levels by raising taxes and cutting spending, it will send the economy down even further, blowing a new hole in the economy, necessitating further cuts and tax increases, etc…

Tax increases and spending cuts are needed as solutions to address debt and deficit issues once the economy is growing steadily again (and then, cuts should usually outnumber tax increases by a 3:1 or 2:1 ratio), but such austerity during the crisis could drive an economy deeper into a recession or derail a fragile recovery.

We only need to look as far as the Great Depression for evidence of this. The idea that governments should always balance their budgets, and that doing so would spur investment and recovery, was widespread before and during that period. Both President Hoover and President Roosevelt raised taxes early in the Great Depression, hampering economic recovery. Increased spending by President Roosevelt (and, more importantly, the stabilization of the nation’s banks and removing the United States from the gold standard) helped the nation begin a fragile recovery.

However, insistence that America balance its budget led to cuts in spending and tax increases that derailed the economy in 1937, plunging it back into recession. This is especially relevant for Americans today, as we debate deficit reduction.

The best policy options for dealing with the current budgetary outlook would be to sustain short-term tax cuts and well-placed spending increases (like on infrastructure projects and extending unemployment benefits), while also laying out a long-term plan addressing budgetary issues (including future tax increases and spending cuts, but mainly restructuring Social Security, Medicare, and Medicaid to make them more sustainable).

The riskiest and worst policy the government could pursue would be balancing its budget “like a family.”


Fact Check: Who Commits Domestic Terrorism?

President Obama recently got into an off-the-cuff debate with Tea Party activists in Iowa. Most of this back-and-forth focused on Vice President Biden allegedly saying Tea Party Republicans “acted like terrorists” in holding the credit of the United States hostage during the debt deal. The video is below:

However, we’re going to focus in on another, brief point that was brought up by the female Tea Party activist around 47 seconds into the video.

She said this:

“You do realize that 90 percent of the domestic terrorist attacks are done by the left-wing environmental radicals and not people like me.”

The number — a whopping 90 percent — seemed a bit high. So I did some fact-checking. I do not know which source she is quoting (and would be interested to find out), but all evidence I’ve reviewed pointed to one conclusion. Namely:

Status: False, with bits of truth.

Before I begin, let me clarify my analysis of this claim as false: the woman that made this statement is right when she says terrorist attacks are not done by people like her. She seems to be a political activist (from what little I can tell from the video), not any sort of terrorist. I am not, in any way, implying that she or anyone in the Tea Party, are terrorists. I am not, in any way, equating right-wing terrorists with right-of-center ideals. Neither am I, in any way, equating left-wing terrorists with left-of-center ideals.

I am simply analyzing her claim that “90 percent of the domestic terrorist attacks are done by the left-wing environmental radicals.”

And while environmental radicals perpetrate a huge number of domestic terrorist incidents, I find no evidence to back up such a high estimate as 90 percent. Two other points provide necessary context that her assertion is lacking. The first is that right-wing terrorism has seen a marked rise in recent years. The other is that left-wing and environmental terrorist groups generally target property, while right-wing terrorism often targets human beings.

–DEFINING TERRORISM–

First, we should define terrorism, to make sure everyone is on the same page.

  • Terrorism

    U.S. law defines“domestic terrorism” according to several points. Domestic terrorist acts:(A) involve acts dangerous to human life that are a violation of the criminal laws of the United States or of any State;
    (B) appear to be intended—
        (i) to intimidate or coerce a civilian population;
        (ii) to influence the policy of a government by intimidation or coercion; or
       (iii) to affect the conduct of a government by mass destruction, assassination, or kidnapping; and
    (C) occur primarily within the territorial jurisdiction of the United States.

    The FBI provides a more succinct definition of terrorism as “the unlawful use of force or violence against persons or property to intimidate or coerce a government, the civilian population, or any segment thereof in furtherance of political or social objectives.”

So, terrorism is an inherently political or ideological act. But let’s focus our definitions further, to differentiate different types of terrorism. We’ll use definitions found on the FBI’s website:

  • Left-Wing Terrorism

Generally profess a revolutionary socialist doctrine and view themselves as protectors of the people against the “dehumanizing effects” of capitalism and imperialism.

  • Right-Wing Terrorism

Primarily in the form of domestic militias and conservative special interest causes…Right-wing extremists champion a wide variety of causes, including racial supremacy, hatred and suspicion of the federal government, and fundamentalist Christianity.

  • Single Issue (Or “Special Interest”) Groups:

Single-issue extremists attack targets that embody distinct political issues like environmental degradation, abortion, genetic engineering, or animal abuse.

One problem is immediately evident. The woman in the video (Stacey Rogers) described “left-wing environmental radicals.” According to the FBI’s definitions, however, left-wing terrorists are distinct from single issue terrorist. We can probably safely assume that in her statement, “left-wing” is only a descriptor, and that the true focus is on the “environmental radicals” aspect.

But even so, special interest terrorism, as a category, seems to cut across ideological lines. It contains both left-wing single issue causes (environmentalism, animal rights) and right-wing (abortion). FBI classification lumps environmental terrorists in with other special interest terrorists, making it a little harder to isolate environmental terrorists from the other special interest terrorists in our analysis.

This would seem to suggest that the 90 percent claim is wrong on its face. After all, if environmental radicals were responsible for 90 percent of all domestic terror attacks, would they really be lumped into a category with several other terrorist causes? That would leave only 10 percent of all terrorist attacks to be divided not only among the various causes in the special interest category, but also among the two other categories the FBI lists alongside special interest terrorism.

–WHO COMMITS DOMESTIC TERRORISM?–

One of the initial difficulties we run into when fact checking this statement is that it doesn’t describe any particular period. And terrorism, like anything else, changes over time. For instance, an FBI report notes that right-wing terrorism dominated the interwar period:

In the period between World War I and World War II, the domestic threat primarily came from right-wing groups, like the Ku Klux Klan, which often adhered to principles of racial supremacy or embraced antigovernment and antiregulatory beliefs in favor of individual freedoms.

So it is important to observe, for the sake of context, that terrorism and terrorist ideas evolve and change along with the times. However, it is obvious that  Rogers is not describing the interwar period. Why would she? We can safely assume she is describing some sort of recent history — but what period should we include?

To provide context (and reach a more accurate conclusion) we will consider most of the post-war period (the late 1940s to today), with a concentration on the past decade. As we shall see, certain shifts have occurred in the targets and perpetrators of domestic terrorism.

According to an FBI report, left-wing terrorism generally dominated the post-war period, with such groups as the Weather Underground.

Beginning in the 1950s, the most serious domestic terrorist threat shifted to leftist-oriented extremist groups that generally professed a revolutionary socialist doctrine and viewed themselves as protectors of the people against the adverse effects of capitalism and U.S. foreign policies.

The decline of this type of left-wing terrorism seems to have been caused both by law enforcement and the collapse of the Soviet Union “depriv[ing] many of these groups of their ideological foundation and patronage,” according to that same report.

I use the term “this type of left-wing terrorism” because left-wing terrorism continued in the 1990s and 2000s, but in a different form.

With respect to domestic terrorism, left-wing political groups and special interest terrorism—that is, terrorism committed by extremists who use violence to compel society to change its attitudes about specific causes—asserted themselves during the 1990s… The majority of domestic terrorism incidents from 1993 to 2001 were attributable to the left-wing special interest movements the Animal Liberation Front (ALF) and the Earth Liberation Front (ELF).

The vague statistics I’ve been able to dig up support this. Another FBI report breaks down the numbers of terrorism incidents from 1980 to 2001 (domestic and international).

Terrorism Statistics. Original chart found on the FBI website.

Terrorism by Group Class 1980 – 2001 Total 482

International 164

Left-Wing 130

Right-Wing 85

Special Interest 81

Individual 14

Unknown 8

If I’m reading this chart correctly, then the 318 terrorist incidents not classified as “International” are domestic. Now, we are trying to analyze what percentage of these terrorists are “environmental radicals.” Problem is, this is a sub-group within the special interest category, and we can’t separate them out. So, instead we’ll just take the percentage of special interest terrorism as a whole, knowing that it will include other categories like animal rights terrorism and anti-abortion terrorism.

About 25 percent of listed incidents from 1980-2001 were special interest terrorism incidents. And since this category contains various groups, the number for environmental terrorism incidents is surely less. That falls far short of 90 percent.

But Rogers did characterize these movements as “left-wing,” so let’s take a look at the left-wing numbers too. Left-wing terrorism made up about 41 percent of all domestic incidents (defined as incidents not labeled in the chart as “International”) from 1980-2001. Still short of 90 percent.

Combining both left-wing and special interest terrorism still only brings us up to about 66 percent. This is obviously a huge percentage. But only a portion of it includes environmental radicals. Furthermore, some right-wing groups are included in this 66 percent, like anti-abortion terrorists. And more importantly, it is 24 percentage points short of 90 percent.

And, significantly, these numbers are only through 2001. The 1990s, as noted, saw a rise in environmental terrorism. But have any notable shifts occurred since then?

An FBI report looking at the period between 2002 and 2005 said that 24 recorded terrorist incidents happened in this period, and 23 of them were domestic. Of these 23 incidents, all but one “were committed by special interest extremists active in the animal rights and environmental movements.” But, in the next paragraph, the report says that “eight of the 14 recorded terrorism preventions stemmed from right-wing extremism, and included disruptions to plotting by individuals involved with the militia, white supremacist, constitutionalist and tax protestor, and anti-abortion movements.”

So, even though almost all domestic terrorist attacks were perpetrated by environmental and animal activists, the slim majority (eight of 14) of all preventions were of right-wing terrorist threats.

Why is this? While I did not see any explanations in this report, allow me to offer a theory. The same report notes that although left-wing terrorism remains pervasive, right-wing terrorism is more dangerous. This seems counter-intuitive. All terrorism is dangerous, how can one be more dangerous than another. The answer to that is in what the two brands of terrorism target.

In short, left-wing terrorists tend to target “materials and facilities rather than persons.” Right-wing terrorists, however, often targets human beings. The report observes:

Right-wing extremism, however, primarily in the form of domestic militias and conservative special interest causes, began to overtake left-wing extremism as the most dangerous, if not the most prolific, domestic terrorist threat to the country during the 1990s. In contrast to the ALF and the ELF, which have pursued a philosophy that avoids physical violence in favor of acts of property damage that cause their victims economic harm, right-wing extremists pursued a qualitatively different method of operation by targeting people.

This shift of right-wing terrorism overtaking left-wing terrorism as the more dangerous extremism seems to have started in the 1990s, according to an FBI report from 2002.

A South Poverty Law Center report notes that right-wing terrorist threats in the form of militias seemed to die down during the early 2000s, but then began appearing again toward the late 2000s.

In 2009, the Department of Homeland Security issued a report warning about a resurgent right-wing terrorist threat, caused by racial tensions, economic hardship and the expansion of social programs.

–CONCLUSION–

I’m not quite sure where Rogers got her information. I certainly could not find any evidence to corroborate her claim that “90 percent of the domestic terrorist attacks are done by the left-wing environmental radicals.” The only information that even approached validating this statement was the report on terrorist activity between 2002 and 2005, which said that all but 1 of domestic terrorist attacks during that period were perpetrated by environmental and animal rights extremists.

But that ignores the fact that plotted incidents prevented by authorities were a majority right-wing. Furthermore, her claim is stripped of any and all context. Right-wing terrorism is, generally speaking, more dangerous to individuals than left-wing terrorism. That is because right-wing terrorism generally targets people, while left-wing terrorism mostly targets property and materials.

Finally, the comment implies an absolute, and ignores the fact that terrorism patterns shift. Such a shift seems to be upon us right now, with right-wing terrorism currently on the rise. The statement does not indicate any of this.

Her general point about the pervasiveness of left-wing — and, in particular, environment — terrorism is correct. It is the more pervasive form of domestic terrorism. Though, stripped of context, and using a number that seems (at best) misleading and (at worst) incorrect, I rate her claim false.

–SOURCES–

http://www.huffingtonpost.com/2011/08/16/obama-tea-party-video_n_928025.html

http://www.fbi.gov/news/testimony/the-threat-of-eco-terrorism

http://www.fbi.gov/stats-services/publications/terrorism-2002-2005

http://www.fbi.gov/news/testimony/the-terrorist-threat-confronting-the-united-states

http://www.splcenter.org/get-informed/publications/splc-report-return-of-the-militias

http://www.fbi.gov/stats-services/publications/terror/terrorism-2000-2001

http://www.fas.org/irp/eprint/rightwing.pdf

http://www.politico.com/news/stories/0811/60421.html

http://www.fbi.gov/albuquerque/priorities

http://www.law.cornell.edu/uscode/18/2331.html


Band-Aid Plan To Fix Health Care Won’t Work

(Published in the Main Line Times and the Delco Times)

As the attempt to reform our health-care system crescendos, it is difficult to pinpoint exactly where the debate lost its way. Perhaps it never truly began in the right direction.

Between the fear-mongering and the screaming, it seems some of the most pressing issues – medical inflation and warped incentives – have been sidelined. And why? Perhaps because they are more complex. These issues require quite a bit of explanation and historical context, which doesn’t always fly too well in a sound-bite culture.

One of the main problems regarding our health-care industry is its lack of any organization. There was no grand design in its creation; it is a Frankenstein monster, cobbled and patched carelessly together since its birth in the wage controls of the World War II era, with little regard for consequences.

Yet, any grand design is practically doomed from the beginning, as the only two viable options – a single-payer system or a complete overhaul of incentives and the creation of a truly free market – are both met with opposition. Consequently, we receive a bill that is the worst of both worlds.

True, the House bill does work at creating a marketplace in the health insurance exchanges (an important, but underplayed, provision), but it also includes a public option. Supposedly, the public option is meant to control prices by adding a more virtuous competition into the marketplace, but when you look at the details – its limited eligibility, and the fact that prices will be set by negotiations with health care providers – it doesn’t seem as if it will control prices at all. After all, medical inflation has not left Medicare and Medicaid, two government plans, unscathed.

So, who is to blame? The Democrats or the Republicans? Both. To their credit, the Democrats have actually gotten the ball rolling on health-care reform and have put forth a bill, though their proposal remains flawed.

The Republicans, on the other hand, are too busy trying to give President Barack Obama his “Waterloo” (this can be seen in the misnomer “Obamacare,” which would be more accurately titled “Congresscare”) and preaching about fictional provisions such as nonexistent “death panels” to actually provide legitimate criticism and a legitimate alternative.

Both accept money from the big health insurance and pharmaceutical giants and allow them to actively craft the bill as well.

We, the citizens, are also to blame. We are too easily led by the talking heads to one particular conclusion. A single-payer system is not the devil, and it does not ration care any more than our current system does. Any system we adopt will require a give-and-take.

A single-payer system will cover everyone, unburden businesses that pay for employees’ health care (and thus help small businesses). It will purge the system of waste, but everyone will be required to pay through taxes and waiting lines — secondary, optional care will be a bit longer (though primary care may very well be shorter, as it is in Britain).

Remember, the government is already inextricably involved in our health-care system. A complete rebuilding of the health-care free market, hand in hand with other reforms (like tort reform), can control prices through innovative market forces and reshaped incentives. Both plans are bold and both have their strong and weak points. What we can’t afford is another plan that simply slaps a Band Aid on the issue and kicks it along to the next generation.


What You Need to Know About the House Health Care Bill

The House of Representatives passed their version of the health care reform bill last night. But what does it all mean? The media coverage on the issue has been decidedly mixed. I’ll try to boil down for you the most important points on the House bill.

The first thing I should probably spend some time on is clarification. With all this debate over the validity of so-called “Obamacare”, many people may not realize that there are various versions of health care reforms bills floating around, and that none of them were authored by Obama (hence the irony of the name “Obamacare”).

Here are the details of the House version of the bill: (a good source of information are the NYTimes, and an NPR podcast entitled Health Care Legislation Deconstructed)

How the House Bill Expands Coverage to Uninsured Americans

  • Projected to cover 96% of legal residents under age 65.
  • Provides subsidies for individuals up to 400% of the federal poverty level $88,000 for a family of 4)
  • Expands Medicaid to 150% of federal poverty level ($16,000 for an individual; $33,000 for a family of 4)
  • No denial of coverage or higher premiums due to pre-existing conditions

How the House Bill Effects Businesses

  • Most employers will be required to provide health care for employees or pay a penalty of up to 8% of payroll.
  • Businesses up to $500,000 in payroll a year are exempt.
  • Penalties are phased in for businesses from $500,000 to $750,000
  • Small businesses are provided with tax credits to help them purchase health care

The House Bill’s Public Option

  • No state opt-out
  • Negotiated Rates — the public plan will talk to hospitals, doctors, and health care providers to negotiate a state-level payment rate

Costs of the House Bill

  • Gross Cost $1.1 trillion over ten years.
  • However, the Net Cost is $894 billion because of revenue raisers.
  • Revenue will come from surcharge on high income earners (taxes on individuals that earn above $500,000, or on couples that earn above $1 million  – projected to raise $460 billion)
  • Penalties for businesses who don’t provide health care (up to 8% of payroll)
  • Penalties for individuals who don’t buy health care (2.5% of income — but can apply for hardship waivers if can’t afford)
  • Medicaid/Medicare cuts
  • Corporate taxes/ fees

Health Insurance Exchange

  • The Exchange is essentially a marketplace where people can go to shop for health insurance. Currently, with our employer-based system, you can only really choose from the plan(s) your employer offers. Going out and buying your own insurance is expensive and messy. The Exchange creates a market of insurances options and allows you to choose which plan you want, allowing market forces to take their toll — the better plans will thrive and the uncompetitive ones will die.
  • Would begin in 2013.

Lobbyists’ Role in the Bill

  • Why was there no large-scale campaign launched against this reform by insurance industries, drug companies, and the like? Because this time around, they were brought into the fold. Yet, with lobbyists winning, the biggest loser stands to be — in many instances — the consumer. The pharmaceutical industry has lobbied for amendments, like one that would grant 12-year exclusivity to biologics, instead of 5. Read the article in TIME for more on that, but basically, it means that instead of allowing generics onto the market after a shorter waiting period (say, 5 years), it will now take 12 years for this to happen, when concerning biologics, which is rapidly growing. The downside to this is that generics help control costs by offering similar solutions for much less money. Essentially, this monopolizes the market for 12 years for each new biologic.

There was a Republican alternative to the House Bill, which included:

  • No public option
  • Individual mandate
  • State high risk pools
  • Not having language barring pre-existing conditions
  • Businesses can combine resources and buy health insurance across state lines
  • Reforms to control costs


Checking the Facts on Glenn Beck’s “Arguing With Idiots”

Glenn Beck’s recent “Arguing With Idiots” video (made to promote his book by the same title) promotes itself as “truth for those who care to look” (in its opening theme song). But how much ‘truth’ does it actually contain? First, give the video a view.

Done? Good. Let’s break down the all of the claims into individual chunks and see which hold water.

  • Claim: “In 2006, the top 1 percent paid almost 40% of the country’s income taxes.”
    Status: True, but misleading.

Why is it misleading? Let’s see. The same set of data Beck uses also lists the top 1 percent’s share of the entire country’s wealth at a whopping 22.06 percent, more than a fifth of the entire country’s income. The reason for the discrepancy between high income earners paying a higher percentage of all income taxes is the progressive nature of the income tax system (higher tax brackets are taxed at higher levels). This is the inequity that Beck is railing against.

But two things stand out. The first is simply an observation that Beck’s argument, stripped of the national income share numbers as context, distort how the numbers are viewed. Consider this: even had the numbers been more in line with percentage of national income earned, it still would have sounded lopsided. Imagine that the numbers for 2006 had been that “1 percent paid 20 percent of the country’s income taxes.” This would actually be less than fair, given that the top 1 percent earned 22.06 percent of national income — yet it sounds lopsided.

The other point that stands out is that these numbers distort perceptions of tax contributions by only including the income tax. There are various kinds of taxes that Americans face, at each level of government (local, state, and federal). By picking a particularly progressive tax, Beck is able to manipulate the data to say what he wants.

If I wanted to make the case that American taxes are regressive (that is, the lower your income, the higher a percentage of your income is paid to taxes), I could do so quite easily through Mr. Beck’s strategy. By focusing only on the payroll tax, I could demonstrate that, since this particular tax is capped above a certain amount, it affects low income earners more than high income earners. Indeed, the effective tax rate for Social Insurance Taxes (payroll taxes) is 8.5 percent for the lowest fifth of Americans, but only 1.6 percent for the top 1 percent. Those aren’t shares, they’re tax rates. See how easy that was to cherry-pick data to make a point?

This this New York Times blog blog post has a good breakdown of the payroll tax:

Officially known as a “contribution,” the Social Security tax brings in almost as much revenue as the individual income tax, and is catching up. By June 2009, annual revenues for the payroll tax collections had reached almost 90 percent of individual income tax collections.

The Social Security part of the payroll tax is about 12 percent of the first $106,800 of employee earnings in a year. The Medicare part is about 3 percent of all payroll earnings (regardless of whether and how much employees make over $106,800).

As a result, people earning over $106,800 pay a lesser percentage of their earnings in payroll taxes than do people earning less than $106,800.

The highest-earning third of United States households pay more individual income tax than payroll tax. But the other two-thirds are paying more payroll tax than income tax.

Higher earners are still responsible for a disproportionate fraction of total taxes, but their share becomes less disproportionate as payroll taxes grow and individual income taxes shrink

The only way to get an accurate picture of the distribution of tax burdens across American society is to consider national income share compared to total tax burden, not only the income tax. So how much of total tax burden do the richest Americans shoulder? Well, according to this New York Times blog, which cites the liberal organization “Citizens for Tax Justice“:

 in 2008 the share of total federal, state and local taxes paid by each income group was relatively close to the share of income that that group brings in, at least as compared to  comparable 2006 numbers for effective federal tax rates:

(Horizontal axis shows the income group. Taxes include all federal, state and local taxes (personal and corporate income, payroll, property, sales, excise, estate, etc.). Incomes include cash income, employer-paid FICA taxes and corporate profits net of taxable dividends.)

So, this chart attempts to balance all taxes (not just federal) that the various income groups paid against the share of the total income each group holds. Does the top 1% pay more, according to this chart? A bit, yes, but it is much more comparable to their income share than Beck’s focus on the income tax would have you believe. Why is this? Well, basically, because although federal taxes are mostly progressive (with some exceptions), state and local taxes are often regressive.

From a New York Times blog:

State and local taxes tend to be more regressive if they rely more heavily on sales and excise taxes, do not have a broad-based personal income tax, or have a personal income tax that is structured in a less progressive way (e.g., a flat-rate income tax).

So, when including state/local taxes (which vary according to area — some states do have progressive tax systems while others have a flat tax rate), total tax rates are generally in line with total tax burden.

And, as noted above, some federal taxes are still regressive, most notably the Social Security tax (payroll tax). Also, although high-earners pay less of their income in Social Security payroll taxes, they often make out better in Social Security than lower-income workers. From “Putting Our House In Order: A Guide to Social Security and Health Care Reform” by George Shultz (a former Secretary of State under Ronald Reagan, and a Secretary of the Treasury under Nixon) and John Shoven:

Social Security discourages long careers because its system, which is designed to help low-income Americans, winds up helping high-income workers who have short careers. An individual who earns just above the minimum wage over the span of a long career will be correctly identified by the Social Security system as having low lifetime earnings. However, an individual with relatively high earnings per year over a short career span would also qualify as a low average earner by Social Security calculations. This inconsistency occurs because Social Security figures out average earnings on the basis of the highest thirty-five years of earnings, which would include zeros for those years in which an individual had no earnings.

So high-income earners get to retire years ahead of low-income earners, and still receive the benefits, though since they are not working anymore, they’ve stopped contributing to the workforce. Whether or not this is fair or unfair, you’d expect to hear healthy debate about the issue. But you don’t. And why is that? Because it is easier to cherry-pick data about income tax distribution in order to rile people up about ‘unfair’ tax burdens.

  • Claim: “The top 50% of earners paid 97% of the entire income tax bill.”
     Status: True, but misleading, for the same reasons outlined above. Also, the same data Beck cites also states that the top 50%’s share of the income is 87.49%.
  • Claim: The middle class only paid 3% of the tax burden.
     Status: False.

First, we need to define what the middle class is. It’s kind of an amorphous term, so stick with me. FactCheck.org gives a lengthy discussion of what the middle class may be. Take a look:

 It’s possible to come up with a definition of what constitutes “middle income,” but it will depend on how large a slice of the middle one prefers. If we look at U.S. Census Bureau statistics, which divide household income into quintiles, we could say that the “middle” quintile, or 20 percent, might be the “middle” class. In 2006, the average income for households in that middle group was $48,561 and the upper limit was $60,224. But we could just as reasonably use another Census figure, median family income. In 2006, the median – or “middle” – income for a family of four was $70,354. Half of all four-person families made more; half made less…

But others could have different definitions. Baker interviewed a man who earned about $100,000 a year and a woman who made $35,000, both of whom said they were middle class.

Public opinion polls show how slippery the term can be. An Oct. 2007 poll by the Kaiser Family Foundation, Harvard School of Public Health and National Public Radio asked 1,527 adults what income level makes a family of four middle class. About 60 percent said a family earning $50,000 or $60,000 fit that description. But 42 percent answered an income of $40,000 and 48 percent said $80,000 were both middle class…

Republic candidate Mitt Romney…defines “middle class” as anyone with an adjusted gross income of under $200,000…

Here, you can see a thinker from the conservative Heritage Foundation arguing that people with $250,000 incomes aren’t wealthy. Does that make them middle class?

So there’s a lot of debate on who, exactly is middle class. The site notes that politicians often change the term to fit their needs. Because of this, and because $200,000 seems a bit high, let’s bypass Mr. Romney’s definition. In fact, let’s give Mr. Beck the benefit of the doubt. Let’s find the lowest number there, and we’ll use that to define the floor of middle class. $35,000 looks like the lowest number up there to me. We’ll use that as the floor. So, in our definition, you need to make above $35,000 to be middle class.

Well, according to the data Beck uses, the top 50% (that non-middle class portion he’s talking about that pays 97% of America’s taxes) begins at $31,987. Which is below one of the lower figures we used to define middle class. Needless to say its much below some of the other proposed figures up there (notably those of Mitt Romney and the Heritage Foundation).

Now let’s take a look at tax brackets. If you make $31,987 or up and are filing singly, you’re either in the 25%, 28%, 33%, or 35% tax bracket. That’s right, out of the 6 tax brackets, you could be in 4 of them, depending on how much you make.

Some of what Beck says is true. Some is not. But pretty much all of it is misleading.


Observation: Broad Street, Election Night.

An observation I wrote the night of the 2008 Election, at Temple. Printed in the next week’s “Main Line Times”:

            Cheering, hugging, honking.  I was getting ready for the run to City Hall when I realized something – we won the World Series last week. Of course, in the streets now, no one would be able to tell the difference. Crowds of screaming people emerging from houses, some with alcohol, embracing each other in the middle of Broad Street while hapless officers resigned themselves to the sidewalk to watch the screaming mob yell “We won!” and enjoy the fireworks that were inevitable to follow. Last time I had remarked to a friend, “Isn’t it amazing how this kind of thing only happens with sports teams?” Or – at least – used to. This time around, there were no Phillies jerseys, only Obama ones.

            It was there, in the wet night wearing “I Believe In Harvey Dent” tee shirt in support of a fictional character, that the absurdity of the situation rushed over me. What was I doing? Fifty-six elections and, somehow, this was the one that would change the course of history? What does “We won” even mean? What defines “We? Am I one of them? I’d sure hate not to be. Was I really witnessing the election of a political figure, or was this something else entirely?

            Just as the Phillies had become the city of Philadelphia’s warriors, defeating the enemy horde in great and awesome battle, so had Barack Obama become our glorious and triumphant leader. But the story of the Phillies (for now) ends there, swept into the anonymity of the off-season. For Obama, it begins right here on the streets of Philadelphia, and similar cities across America, with the near-deification of a political figure.

It has no longer become an issue of whether Obama would make a good president, but rather what the reaction will be like when people realize that he is not Superman, only Clark Kent. That there is no magic wand that will suddenly end the financial crisis, the war in Iraq, and eliminate institutionalized racism.  There are no quick fixes to these most prominent issues that have plagued both the Democratic and Republican campaigns. There is only a long healing process that will last more than four years. Once the American people begin to realize this, they can work toward supporting a President instead of expecting a savior. To believe otherwise is to set oneself up for a fall of epic proportions.