The Real Problem with American Taxes? The Top 1%, According to Stiglitz

Discussion in 'Politics' started by ColoradoGuy, Apr 24, 2011.

  1. ColoradoGuy

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    As entertaining as the various threads focusing on taxes, 'eating the rich', and so on are here in the Politics forum, I thought I'd interject a different opinion piece so we can refocus our debate on the real elephant in the room.

    Joseph Stiglitz is a Nobel laureate who published a thought-provoking piece in the May 2011 issue of Vanity Fair titled "Of The 1%, By The 1%, For The 1%". In his article, Stiglitz points out that the top 1% of Americans (in terms of wealth, not income) have steadily improved their lot over the years and usually at the expense of the rest of America.

    Just as it is not 'radical left' to believe taxes should offset the actual cost of governing and operating a republic, it is not 'right wing' to insist that such taxation be done fairly. I think on this much we can agree: taxes are a necessary evil and the only consensus position found in American politics on taxes is to lower them despite the fact that we are enjoying some of the lowest tax rates we've seen in this country in sixty years.

    Stiglitz points out that this very situation contributes to gross inequality in America -- while obvious that such inequality doesn't serve the majority of Americans, he posits it will also ultimately undermine the rich among us. Regardless of your opinions of Stiglitz, read the article and share your views.
     
  2. Cuddler

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    Sad to see no comments on this article, which is much more reasoned than the "Modest Proposal" in another thread. Especially the comments by Tocqueville.

    Does anyone have the statistics on

    • What salary would put you in the top 1% of incomes in the US?
    • What net worth would put you in the top 1%?
     
  3. ColoradoGuy

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    Cuddler - there is a thorough review of incomes in chart format in the WikiPedia from the US Census Bureau, but it's from 2005. There is also a discussion of net worth in the WikiPedia, but it doesn't really answer your question. Net worth is tricky because most studies have to rely on self-reporting... some people like to exaggerate those numbers, but I suspect many wealthy people (with the exception of Donald Trump) under-report their net worth or don't have the ability to fully estimate it. Back to your question, a really excellent study of wealth and inequality can be found here from Professor William Domhoff of UC - Santa Cruz. Although this is an older study, some parts were updated as recently as January of this year.

    I did like this brief review of wealth inequality, also in the Wikipedia, only because it points out that the really awful inequality can only be measured when considering household net worth.

    Regarding the Stiglitz article, it was because of the references to Tocqueville that I decided to post it. I don't agree with everything Stiglitz writes, but he does have a Nobel prize in economics... so he's a little more thoughtful than some of the pundits referenced in this forum. Plus, Tocqueville is a popular resource for many of the tea-bag persuasion; so it's apropos for readers of any stripe.

    Like you, I am surprised my post didn't garner more comments, but I suspect it was because comment without first reading the article was nearly impossible and reading is work! LOL.
     
  4. Cuddler

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    An interesting sentence from the Domhoff article:
    And the top 1% of income earners, who average over $1 million a year, actually pay a smaller percentage of their incomes to taxes than the 9% just below them.
    I knew about the hockey-stick distribution of incomes, so I was expecting the 1% income to be quite a bit more than the 250k at 2%.

    From Wealth in the United States - Wikipedia, we get total US wealth in the US was $56.8 trillion in 2010. From Domhoff, the top 1% had 34.6% of that in 2007. From Demographics of the United States - Wikipedia, the population in the US in 2010 was 308,745,538 residents.

    Some calculations:
    34.6% of $56.8 trillion gives $19.7 trillion owned by the top 1%.
    1% of 308,745,538 gives 3,087,455 individuals in the top 1%.
    So the top 1% have an average net worth of $6.4 million. A family of 4 at that level would have assets, on average, over $25 million.

    But that doesn't give the cutoff point at which one becomes a member of of the top 1%, which must be much less than $6,000,000. This being just 6X the annual incomes strikes me as odd. I was expecting the net-worths to be many more multiples of the annual incomes.

    Tocqueville's views of the nascent US still make interesting reading. His trying to convince the French aristocracy to adapt so they wouldn't fall can be read with today's privileged class in mind. Too bad some just don't get it.

    Too many don't want to think. And reading is hard. :frown1:
     
  5. ColoradoGuy

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    Another possibility for at least a handful of the regulars on this forum is that they haven't 'heard' an opinion on TV yet, so they're not sure what to think.
     
  6. Drifterwood

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    It doesn't surprise me CG. If you look at this File:US Federal Outlay and GDP linear graph.png - Wikipedia, the free encyclopedia you can see that the top 1% have probably had a lot to do with the growth in GDP as leading globalisation of the last 25 years. It therefore doesn't surprise me, as we say in Wales, that money goes to money. Once you get ahead of the game, it's that much easier to stay there.

    We have a CGT bonus system in the UK, that basically uses successful entrepneurs to feed the chain upwards to the big monsters, but I won't bore you with the details. The issue, as rightly posed in the article (I would have posted earlier but there was a Bunny Girl link at the bottom) is what to do with the have nots and can nots in the new global economy as it affects the US. Personally I think that eventually you will have to bite the bullet and move towards a more European redistribution system, but hopefully you will learn from our many mistakes.

    I have posted may times over the years that the US has not been able to tax the profits of globalisation, maybe it didn't want to. Furthermore there is the issue of how you tax the personal wealth of the 1%. The article didn't go there, but it is very difficult and perhaps counter productive to force it out of the country.
     
    #6 Drifterwood, Apr 25, 2011
    Last edited: Apr 25, 2011
  7. lankz

    lankz New Member

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    are these figures and views before or after a plausible austerity cuts package on your deficit as been agreed?.
     
  8. Domisoldo

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    With the recently passed tax filing deadline came a flurry of federal income tax statistics, widely reported by mainstream media outlets.

    Yes, the very top tier commands a disproportionate share of the total income and of the total wealth, but also bankrolls most of the US government.

    The real problem with American taxes is that half of the citizenry doesn't pay any (federal tax income taxes).

    Even full confiscation of the entire income of "The Billionaires" (the 150k doctor married the 100k real estate agent) would hardly make a dent to the 14.5-trillion-dollar debt.

    ...and do you think those people would just wait around for the shake-down?

    Even CNN reported that there weren't enough rich folks to go around.

    In addition, federal taxes are only a portion (if a significant one) of the total taxation picture: state, county and even city taxes add up to it, as do a myriad fees. Those have been on the rise for a majority of the American population.


    Certainly, the low capital gain tax rate is largely to blame for making the relative tax rate of the truly rich (those whose money works for them) much sweeter than that of the merely well-off, who still have to work for a living.



     
    #8 Domisoldo, Apr 25, 2011
    Last edited: Apr 25, 2011
  9. ColoradoGuy

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    And those talking points came from... O'Reilly? Or perhaps The Donald? Read the article... I think you'll note two major themes:

    1. At the beginning, Stiglitz takes great pains to point out the difference between wealth and income. If you read it differently, tell me... but I think he is focusing on wealth: those who have it, those who are influenced by it, and those who benefit from it.
    2. At the end, Stiglitz prognosticates social unrest directed against the top tier (the so-called 1%) if inequality isn't addressed, but he isn't proposing any 'soak the rich' strategy. In fact, he doesn't propose any strategy... he merely suggests that Tocqueville's "self-interest properly understood" be given a little bit of thought.
    Its unfortunate your response contains rebuttals to arguments not even lodged because I was hoping this thread would stay on topic.
     
    #9 ColoradoGuy, Apr 25, 2011
    Last edited: Apr 25, 2011
  10. Cuddler

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    So that's how long it takes.

    Please reserve this thread for comments on the article mentioned in the OP and not drag the "Eat the rich" nonsense into this one.
     
  11. ColoradoGuy

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    Clearly, they are "before" since no plausible austerity cuts package has been proposed nor debated.

    If your point was that there is a 'day of reckoning' to come, you're right. I think many Americans, myself included, hope that each 'big' crisis will be the opportunity to finally acknowledge wrongs, reconcile ourselves to the truth, find consensus on a solution and then press down a different path.

    However, you should read the article because these figures are not the problem -- it's how the resulting inequality shapes our country and its policies and how it might just eventually wreak havoc on the beneficiaries of that inequality.
     
  12. lankz

    lankz New Member

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    (yes psychic peg lol)

    I did read the article.T,V here is all will n kate so dunna bother lol

    my point is/was about finding the right balance as to avoid any future havoc/pain
    as we here are "not sure" as our plans to tackle it here was rushed thru hastily and seems to be more than a tad unequal
     
  13. phillyhangin

    phillyhangin New Member

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    That's probably part of it, but another part is that what he is saying - and has said several times before in his various books - isn't really new; the people who have wealth tend to change the rules of the system to ensure that they continue to accumulate wealth even if it means that someone else loses out. As Drifterwood pointed out, it's not really surprising that "money goes to money" and that "{o}nce you get ahead of the game, it's that much easier to stay there."

    However, as Stiglitz points out here and elsewhere, wealth inequalities (as measured by net worth not income) are negatively correlated with prosperity: the greater the degree of wealth inequality in a society, the more unstable it becomes due to a growing discontent on the part of those who are on the short end of the "equality" stick as it were. In some extreme cases, the discontent can grow to the point where it becomes rebellion, and the people who benefited from the systemic inequalities usually end up being the ones on the chopping block when this happens.

    He is certainly right to include Tocqueville in his discussion: Tocqueville (like Adam Smith) understood that "self-interest" and "greed" are not synonyms; sometimes it is in the self-interest of the wealthy to "share the wealth" if for no other reason than it keeps the peace. Or in simplified terms: Don't be greedy and take too much or the poor will get angry; if the poor get angry enough, heads will roll - which, as it turned out, was what happened about 30 years after Tocqueville's death.

    At any rate, Stiglitz has been warning about wealth disparities for quite some time, but nobody in charge seems willing to listen to him; unfortunately, if things don't improve soon - and not just for the top 1% - the whole situation could backfire on the wealthy, hence the popularity of threads about eating the rich. :wink:
     
  14. Domisoldo

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    You mean I do not 100.00% agree with you and your cherry-picked and less-than-scholarly piece?

    How dare I? :eek:

    You are entitled to your own opinions, but not to your own facts, as they say.

    Yes, even here on LPSG, where everyone to the right of Frank Rich has been banned or bored out of existence.



     
  15. B_VinylBoy

    B_VinylBoy New Member

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    You tried that line before, and that didn't work the first time. Repeating it here on a second thread is not going to help you. Most of the people in this demographic who don't pay federal income taxes are poor. When you put into perspective an actual percentage of yearly income they generate, which is then spent on necessary expenses to survive, they literally don't have anything left to spend or even save. So this notion that the problem is with these people is not only disingenuous, it's flat out wrong.

    Just how do you expect a family of four whose collective income is barely more than the federal poverty limit to pay their share of federal taxes? And do keep in mind, that's roughly $22,000 a year. Please, explain to us how they are supposed to contribute?
     
    #15 B_VinylBoy, Apr 27, 2011
    Last edited: Apr 27, 2011
  16. Domisoldo

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    So let me try to repeat another line:

    You are entitled to your own opinion but not to your own facts:


    1. Half of Americans are not poor, by any stretch of the imagination.
    2. Yes, compared to that of other OECD nations, US income and wealth concentration is very high, probably too high, but so is the concentration of the tax burden, a state of affairs that is not healthful either.
    3. The working upper-middle class pays comparatively far more than the truly rich (roughly those whose assets work for them), because the income of the latter group is far more likely to consist of capital gains, whose tax treatment is quite generous.





     
    #16 Domisoldo, Apr 27, 2011
    Last edited: Apr 27, 2011
  17. Cuddler

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    Ding ding ding ding. We have a winner!
    So, we've identified a big part of the problem. So why all the energy spent on refusing to fix this?
     
  18. Drifterwood

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    The question of why people pay less tax on unearned income as opposed to earned income was posed in one of the other threads. Perhaps whoever asked the question (made the point) can remind us of the reason.

    I was discussing this very point today in a place where there is NO capital gains tax. It really does allow the rich to accumulate assets. I am still considering the long term implications of this.
     
  19. ColoradoGuy

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    Wow, Domisoldo. Everything has to be a conflict for you, huh? Maybe you got beaten a lot as a child... who knows?

    For what its worth, I did not present this piece as a "scholarly" effort and my own post presented no facts; you can lighten up on the snarkiness. I merely provided a link to an article and I asked people to do two things:

    1. READ the article.
    2. Comment WITHIN the confines of the topics of the article.
    [By the way, if creating a Thread in a Forum on LPSG by citing an article is "cherry-picking", then I suppose you should write the Moderators and ask them to shut down any Thread that cites ANY article. Do not be surprised, however, if they tell you that you missed the point of what a Forum is for.]

    What I was complaining about in your original response was that you offered arguments to points not made in this thread. For example:

    • Nowhere does Stiglitz suggest that the rich disgorge their entire incomes to attempt to pay down the country's debt in one fell swoop. That would be a very unique proposal and it does make for exciting reactionary buzz! Maybe you can contact Michele Bachmann's camp and offer that bon mot up to them? It is, however, a very silly proposition and I'm surprised you'd offer it here.
    • Nowhere does Stiglitz mention the country's debt and the issue of inequality in the same breath, except to say that the 1% don't really care about the debt since they'll use their influence to ensure tax rates stay low. The article wasn't about the debt, as readers understood.
    As to your point that the rich are 'bankrolling the government', where are you going with that? That -- because the rich are paying the majority of the taxes -- they should get to make the rules? That it is somehow "right" for the people who pay for this party we call America to determine the guest list, the dress code, the playlist, the well brands, and the closing time?

    I think you seriously need to (re)read the piece, Domisoldo. Maybe you'll understand the basic premise he's making: wealth should not confer extraordinary privilege to control a society. Then, after you're done with Stiglitz, dust off that copy of Democracy in America on the shelf from your American History 120 class and get a feel for what Tocqueville felt were the required elements for a democracy to sustain itself.

    A mind is a terrible thing to waste, Domisoldo, as they say. I think your commentary in this Forum would be so much more germane if you used yours.
     
  20. B_VinylBoy

    B_VinylBoy New Member

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    Trust me, I have plenty of them to use if you care to list anything that remotely reflects a fact yourself. Don't mindlessly quote catchphrases from Laurence O'Donnell and provide nothing relevant here.

    What a way to completely ignore critical portions of my statement to reformulate an incomplete one to disingenuously critique. Again, here's what I said in full detail - Most of the people in this demographic who don't pay federal income taxes are poor. When you put into perspective an actual percentage of yearly income they generate, which is then spent on necessary expenses to survive, they literally don't have anything left to spend or even save. I provided the entire statement for you in bold print last time so there really aren't many excuses you can use to say that you missed it.

    But besides that, by what definition of poor would you like to go by with this faulty assumption of yours? "Not poor by any stretch of the imagination"? Here come more of those facts that you claim that I don't have:

    First, the dictionary definition of the word poor. This is listed because for the sake of this debate we need an actual definition to use and not someone's biased interpretation of the term. From my dictionary widget I get the following - lacking sufficient money to live at a standard considering comfortable or normal in a society. From dictionary.com we get, "having little or no money, goods, or other means of support".

    Next, let's use some recent statistical discoveries regarding poverty in America. Ironically this link is also where you managed to get your bullet points as well -
    Poverty in the United States - Wikipedia, the free encyclopedia

    Poverty in the United States is cyclical in nature with roughly 13 to 17% of Americans living below the federal poverty line at any given point in time, and roughly 40% falling below the poverty line at some point within a 10-year time span. Poverty is defined as the state of one who lacks a usual or socially acceptable amount of money or material possessions. Approximately 43.6 (14.3%) million Americans were living in poverty in 2009, up from 39.8 million (13.2%) in 2008. Gee, that sounds like a lot of people. And you can bet most of these people don't have much money left over to pay taxes on April 15th. Is it really their fault? That's subject to debate, but one we won't diverge into at this time.

    The poverty line, however, isn't the only determining factor as to if a person or family is considered poor in this country as well. Here's a chart from the US Census Bureau that tries to monitor the poverty line with actual persons who live in poverty in this country - File:US poverty rate timeline.gif - Wikipedia, the free encyclopedia

    Roughly 138 Million people in America are tax filers. If we take that number and compare it with the number of Americans who were living in poverty in 2009, we see a potential figure amassing to 31% of people who file their taxes and could be considered poor by the actual literary definition of the word.

    Now, let's look at this from the angle of actual household incomes - Household income in the United States - Wikipedia, the free encyclopedia

    There's a massive chart compiled by the US Census Bureau in 2005 that shows income ranges from zero to $250,000 and above.

    The first section marked as "$0 to $25,000" is at a staggering 28.22%.
    The next section is "$25,000 to $50,000" and that is 26.65%.
    Together, that makes up almost 55% of Americans who make or generate a form of reported income in this country. The National Median is listed at roughly $44,000 a year. Even if we take away the small portion of people who are listed in the second chart as making more than this for the sake of using federal averages, that still leaves the majority of people in this country living below it. That's also evidence to my previous statement.

    I could go on, but I don't think it's necessary. So let me state my argument once more - Most of the people in this demographic who don't pay federal income taxes are poor. When you put into perspective an actual percentage of yearly income they generate, which is then spent on necessary expenses to survive, they literally don't have anything left to spend or even save. Now it's your turn to try and prove that somehow I'm not being factual... if you can.
     
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