Webs’ Random Ideas

A few things I want to discuss in this post are statistics, economics, and sociology and how these fields are intertwined as we look at tax data.

The following link takes us to Marginal Revolution where the issue of what the rich pay in Federal Taxes is being discussed. The discussion revolves around an inserted graph of which comes from this link on “Historical Effective Federal Tax Rates.” Apparently the source of which is the Congressional Budget Office, but I have not verified this personally.

The Marginal Revolution site has some great examples of Stats not lying, but telling the truth, and people lying. Basically people on that post are drawing all sorts of wild conclusions about a simple graph. Like the one person replying to “Student” saying:

More importantly, one argument that politicians seem to trot out regularly is that taxes on the rich should not be cut because the middle class is being “squeezed.” But the data suggest that the middle class is, if anything, getting a good deal in terms of what they pay in relative to their share of total income.

This is an utterly absurd argument to make. The data only shows that Rich pay more into federal tax. Nothing else. To make a statement like the one above, more data is needed. For as others have suggested, the graph doesn’t show all the other tax data, like payroll tax, etc.

One criticism of Bush’s tax plan was that he is only giving back money based on what people pay into the Federal tax system. But most people in the middle class will end up paying more in payroll tax than in Federal tax. So the argument above is ludicrous at best.

Another absurd notion is that the rich are somehow at a disadvantage because they pay more into the federal system. Ha! It’s a complete crock of shit because the tax break the rich get is absurd when compared at any level. Percentage wise the top 1% get back nearly 50% of what is given back in tax credits… hmm…

Let’s look at tax cuts another way, using simple economics. The richest 1% save over 98% of all money saved in the US as of 2002, and I would imagine that number hasn’t changed much since then, but for now it’s the best number I got. Money saved by individuals does very little to spur economic growth because it doesn’t give incentives for industries or businesses to grow, and it doesn’t spur growth by creating wealth for industries or businesses. Now this isn’t completely true, some investing and savings will spur growth, such as government bonds. But the yield on these are not as high as other opportunities so when a family of four that pulls in a billion a year gets a close to a million in tax cuts, they tend to drop the money in different savings investments, not government bonds.

Plus we also know from any Economics 101 class in college that the lower 50% of the income bracket spend the majority of money spent in the US and that the top 1% spend very little. This makes sense when looking at that savings data. A wise man once said, the rich don’t become rich by spending their money.

Anyways, so knowing this why would one assume that a tax program that gives nearly 50% of all money in the program to the richest 1% would help spur economic growth? The data does not support this assertion.

One reason why I rarely get involved with such forums though is because of comments like the following…

If the so-called “fair-minded”, “egalitarians” really gave a “damn” about “equality”. They’d propose a tax system where the bottom quintile has an effective tax rate of 35% and the top quintile has an effective tax rate of 2.5%. That way they’d both be paying for equal shares of the government.

Another absurd notion, the idea the middle class and poor somehow use and depend on the government more than the rich. It’s an idea that stems from “The World Revolves Around Me” philosophy, also known as Libertarianism. And I have my reasons for disliking Libertarianism. The third link there gets into the issues of the rich.

I’m still not sure what tax system I would implement, but from what I have read progressive systems work better. As in pay based on what you make. I have written before about Flat Tax but there are too many problems and not enough answers for me to support that cause.