Tobold's Blog
Tuesday, September 18, 2012
 
The 47 percent

I fully agree with Mitt Romney that it is a problem that 47 percent of Americans don't pay any federal income tax. We just disagree on the nature of the problem. The "median income" is the income somebody has when 50% of his fellow citizens earn more than him, and 50% earn less. If 47 percent of Americans earn so little that they fall under the limit of federal income tax (including legal deductions), it means that the median American income is not far away from the point where the government considers you to be so poor that you don't even need to pay taxes.

For me the solution to that problem would be to create policies that achieve greater income equality. Higher minimum wages, for starters, and limits on the excessive bonuses for people working in finance. I believe that the 47 percent would be extremely happy if they earned enough money to qualify for paying federal income tax.

Comments:
Maybe the reason more people depend on welfare in the US these days is because there is more poverty now (income inequality having increased etc), so people need it to get by.

The thing that gets me is the increasingly number of families where people work AND are in poverty because the jobs don't pay well enough. That's not because they are slackers.
 
ie. basically yeah, I agree with you.
 
The 47 percent don't "depend on welfare", they just don't earn enough that after deductions for child care and such they would still have to pay a federal income tax. Most of them are working, lots of them are pensioners.
 
Or military.
 
Raising minimum wage would only hurt those it's designed to help. If I'm in position to hire an employee to perform general upkeep of my shop, at $7/hr an hour I'm not going to be that selective of who I hire.

But at $13/hr, I'm going to want someone that can do more than empty trashcans and sweep steps.

Furthermore, there's also the hidden paycheck, the money I pay out for insurance, benefits, etc.


 
Mitt Romney is also performing a dodge by only quoting income taxes. There are still Payroll taxes, sales taxes, motor vehicle registration fees, drivers license fees, etc. that are all regressive and that nearly everyone pays.
 
Tocqueville's "tyranny of the majority" - a democracy funded by 40% of the people seems unstable.
------

I don't think the minimum wage idea is nearly that clear cut. It sounds good but there are dwonsides: it keeps people out of the workplace and takes away the lowest rung to getting started on getting more skills/experience. A lot of the motivation is larger, inefficient companies and their workers want to prevent [frequently immigrant] entrepreneurs from competing with half as efficient workers paid a third as much.

In addition to the traditional arguments against minimum wage, I see the technical. Artificially higher wages just mean more self-service, more automation and more imports. To bring it back to MMOs, remember when recently Blizzard fired 600 people and said this was partly due to better automation.




 
America offers equal opportunities not equal outcomes.
 
Higher minimum wages are somewhat immoral, imo. You basically take everyone at minimum wage now, fire a third of them and give the rest a small pay raise.

Limiting ceo pay is tricky, too, since those bonuses are really about the legal fiction that people don't own their own businesses, instead they're employed by the business they built, get low bonuses in bad years, high bonuses in good years. Limiting bonuses would just cause base salaries to increase to even it out, while making the company less flexible in bad years.

Price caps and price ceilings are bad and distort markets. Government shouldn't do it. People should be able to hire and make contracts with each other as they feel is best.

In an ideal world, people would contribute income taxes in proportion to how much income they earn. By that measure, in the US the poor pay well below their fair share, the middle class pay about a fair share, and the rich pay over half again over their fair share.

The US is not in poverty. Even with the recent recession, 95% of Americans have a higher standard of living than 70% of the rest of the world, even adjusted for local prices. Sure, there are some people who genuinely need help, and the gov should help them. But most of that 47% are among the top third wealthiest, most comfortable in the world, and they do not need help, they just want it and feel entitled to it. Poverty in America is worrying about how you can afford both your cell phone bill and your high speed internet bill.

If you eliminated everyone in the top 1% of income earners, income inequality would still look almost exactly like it does otherwise. Half of the increase in income inequality is from demographics shifts. Women have become far more empowered in the past 50-60 years. Women are more likely than they used to be to leave unhappy or unsatisfying marriages, so there are a larger proportion of single parent households than before. Women are also getting college educations, and if so are more likely to marry a guy with a college education, so there are far more two earner households than before. The feminist movement is a good thing, it is good that women became more empowered, but it also is polarizing. The middle position of a man who works and a woman who stays home and takes care of the children is far less represented today than back in the 50's. Households have shifted higher or lower.

The rest of income inequality is complex. A good chunk is caused by progressive taxation. A 5% raise to a poorer worker's salary has a larger impact on standard of living than a 5% raise to a richer worker, because the increase for the richer worker is taxed at a higher rate. Instead, the wealthier worker simply gets higher raises, so to have a comparable increase in standard of living. Compound as necessary, causing inequality.

Another measure is to include capital gains as income. Two workers with the same salary, one buys a car one year, then a pool for his backyard, then has lots of vacations, the other saves it away, earns interest. Exact same salary, apparent income inequality. Blame the more responsible guy! :o

Everyone talks about income inequality, while ignoring how consumption inequality is not spreading nearly as much. People just buy things they cannot afford.

The rest of income inequality is very real, with education the main determiner. I don't know how to fix it, it's a real problem. Sending people to college when there aren't jobs that need graduates, or sending unqualified students for advanced studies only hurts the situation, it doesn't close the gap at all. I don't know, it's a worry.
 
Stogie, I had a friend in High School whose family was very poor. He had to work every day after school to help his family make ends meet. He worked hard at his school work, but didn't get to do a lot of the things a normal kid would do. He wasn't able to network (make friends), study, work, and be a kid all at the same time. After high school he went to a local college despite having good grades, because his parents couldn't afford anything else. I lost touch with him, but I’m guessing his job prospects after college were not as good as someone going to a more well-known school like I did.

You call that equal opportunity?
 
America offers equal opportunities not equal outcomes.

Wrong verb. America doesn't "offer" equal opportunity, it only talks about it. In reality statistics have shown that your level of wealth in America depends more on the level of wealth of your parents than in Europe or several other countries.

If America was offering equal opportunity a bright poor kid should do as well as a bright rich kid, and better than a stupid rich kid. In reality that is not the case.
 
America has always been a land of disparity. At least Dems understand that it is cheaper to give people food stamps than to imprison them for stealing food.
 
Even more Americans don't pay corporate taxes or capital gains. Does that mean those are broken? Hardly. The income tax is merely one part of the revenue stream and to point at it and say "Look here, a statistic! This is everything is broken!" is absurd.

Even worse is that people have a bad habit of making the headline "47% don't pay taxes", when in fact just about everyone is paying state taxes, gas taxes (which get aggregated at the federal level for transportation spending), and payroll taxes.
 
It may not be obvious to folks not living in the US, but there's a large swath of folks on food stamps and other government assistance that attempt to lead a life well beyond their means.

That is to say, they'll use WIC and food stamps for groceries, and any legitimate (or otherwise) income will go to iphones, large televisions, and leased German vehicles to park in front of their rented home.

There's a large segment that wants to live the life without working the work.

If you're intelligent, and willing to work (starting at an entry level), you can and will achieve success in the US. If I can do it - anyone can. The issue is that no one wants to start at an entry level anymore. It also seems that no one wats to make a career of anything, they want to move from one lateral position into another, doing just enough to stay employed.


 
mikejr I think you're drinking from the right wing cool-aid. The fact of the matter is that those people living on welfare are usually there for a reason, and if you removed any support structure they rely on they'd still be destitute and without jobs. If you can't provide employment, then flooding the market with people who are suddenly without income and in all likelihood either unemployable or close to it is going to make things a lot worse in the long run. As for your stance on the minimum wage, I'll tell you what: why don't you go live on $7 an hour for a year or two and get back with me on how you're doing. From business management perspective I'll take one well-trained and responsible employee at a higher wage than 2 or 3 minimum wage employees. Also, and this is another popular right-wing misnomer: a guy working at $7.00 an hour is not automatically a louse, but its convenient to imagine him as such so you can feel justified in stiffing him with a wage rate that keeps him in poverty. I'll make the argument that if you can't manage your business with a responsible wage that justly provides for your employees, then you yourself are the louse and I question both your responsibilities as a businessman and your sense of ethics.

My own business lost a major client recently, which is leading to significant reductions in the workforce. I am in the unenvious task of laying off workers who are looking at the prospect of a 33-50% paycut as a result of this job loss, simply because the market has massively undervalued its employees, especially in the region I'm in. When an efficient and excellent employee of 10 years making $18 an hour has to drop back to $10-12/hour income at a new equivalent job, there's no way to deny that the US is on the primrose path to wage slaves. We're not a democracy anymore, we're turning into corporatist feudalism.

And Tobold: right on, man, totally with you on this.
 
Everyone who works pays payroll taxes, which fund social security, medicare, and workman's comp. They may not technically be 'federal income taxes' but the 47% are certainly contributing their fair share.

The average middle class American actually works almost half the year to pay Uncle Sam, between income tax, payroll tax, and local taxes.
 
"In reality statistics have shown that your level of wealth in America depends more on the level of wealth of your parents than in Europe or several other countries"

Please provide a link or some other proof of this. I was under the assumption that most (i.e. 80%) of current millionaires were not born into their wealth but achieved it during their own lifetime.

http://finance.yahoo.com/news/pf_article_110333.html
 
Here you are! And your Yahoo post only says that 80% of the millionaires didn't inherit their money. They still had well-off parents who sent them to good schools and paid for tutors and such.
 
Tori B,

I can appreciate being in the difficult position of adjustment to a lower level of prosperity, we cut over 100 employees in 2009 at the leading edge of when has turned into a prolonged period of reduced performance. In doing so, we gained a competitive advantage and have largely come through unscathed, and are almost back to running at full roster.

I'm not saying that all of those on government assistance don't need it - what I am saying is that it's becomes a matter of being enabled. It should be a temporary safety net, not a way of life.

Unfortunately I can't look at individual employee performance, but I can look at the big picture. And no, someone earning minimum wage is not automatically a louse, for that matter we have fork lift drivers with engineering degrees. Many of the general material handler jobs in the last year or two have been filled with over-qualified individuals and in the long run, these folks aren't a good fit - but finding people isn't as easy as it sounds.


 
Raising the minimum wage isn't necessarily a good thing. It's just a simple cost/benefit analysis.

If you have to pay someone $X per hour, you need to get at least $X in work out of them just to break even. By raising $X, you exclude the people who lack the skills to be productive enough to produce $X an hour in work.

If I own a fast food restaurant, I am much more willing to take a chance on a high school kid if I am paying $5 an hour than if I have to pay $15. Raising the minimum wage just ensures higher overall unemployment for the people who need it most - those who are lacking job skills.
 
"it means that the median American income is not far away from the point where the government considers you to be so poor that you don't even need to pay taxes."
Wow, that is a HUGE streach to reach that conclusion. Do you even know what the median U.S. household income is? It's $51,914 as per census.gov. I believe that's about #3 on the international list. I'd bet money that no one in Congress said "a family making $40,000 a year is too poor to pay taxes." It was more like "how can I get my constituents to vote for me next election?".

Raising the minimum wage is definitely a good topic for debate. I'd like to see some examples of countries with high minimum wages and how that affected them.

And how exactly would limits on bonuses help the poor? That just sounds like class warfare jealousy.
 
When you include state & local taxes, property tax, payroll tax, sales tax, and other miscellaneous taxes and fees, every tax bracket pays at least 20% of their income in total taxes.

This is because most of those taxes affect lower incomes much more than higher incomes. Most states have a more "flat" state income tax, and payroll tax is a flat rate that stops at around $100k (i.e., someone making $3 million pays the same dollar amount as someone making $200k).

Spending habits affect this as well. Someone in the highest income bracket has a very small percentage of their income that sales tax applies to. On the other hand, someone in the lowest income bracket has nearly all of their income outside of rent and bills being subject to sales tax.

The result is that the middle class is paying by far the highest percentage in total taxes. Someone in the highest income bracket exploiting the "carried interest" loophole (like Mitt Romney) pays a lower total percentage than even the lowest income brackets.

(NOTE: This obviously does not include people with no jobs at all. However, if they have no jobs, they aren't paying federal income tax no matter what you set the rate at.)
 
I believe the verb is correct. Just look at our own president and first lady. They claim difficult childhoods, attained stellar academic qualifications and now lead the US. I myself was born into a poor family, served 4 years in the Marine Corps, went to college and am now a patent attorney. Sure it took me longer but it is there if you try, put the effort in and take the risks.
 
Minimum Wage

There is a common misconception about the function minimum wage (currently) serves. It does NOT serve to dictate hourly wages. Only 4% of hourly wage employees make minimum wage.

The function it serves is to dictate a wage floor, preventing certain businesses in certain situations from taking advantage of workers. You need to prevent this if only for the impact it has on economic/market stability, even if you care nothing about the well being of workers.
 
@Stogie: Anecdotes are not evidence of equality. Just because you or the president lucked out and managed to succeed does not mean there is equality. The possibility for success existing does not mean equality, when the probability is 10% for the poor and 90% for the rich.
 
@Michael

A large amount of what you are saying is not only disingenuous, it is outright class warfare. "Poverty in America is worrying about how you can afford both your cell phone bill and your high speed internet bill." is not only a ridiculously exaggerated anecdote with no evidence whatsoever, but is the type of lie that is spewed by the right in our country in an attempt to delegitimize the needs of the poor. You can't even begin to have a frank discussion when you put forward claims like that.
 
@ Pzychotix

ROFL How is joining the military to go to college lucking out?

I have two very close friends who did the student loan route to go through college. Now they are hoping that Student Loans get changed so they can file bankruptcy and NOT pay them back because they are "to expensive". I told them to join the Army and they would pay them off and they both said they didn't want to do that.

I have another friend who was unemployed and drawing unemployment. I found him a state job that would have turned into a career but it paid less than what he paid on unemployment so he turned it down.

Sure anecdotal evidence... but I know MORE people who went to college and now want their debt erased or they want a $100/yr job but have zero work experience and did zero internships while in school.

Want to go to College and have work experience in the US? Join the military. Don't sit there and say "it's not fair because my parents didn't make as much as yours."
 
The problem is that hard work is getting paid less and less. US wages are at an all-time low as percent of GDP, while companies profits are at an all-time high. People work hard and produce things, but the added value goes to financiers and not to the people making stuff.
 

I have another friend who was unemployed and drawing unemployment. I found him a state job that would have turned into a career but it paid less than what he paid on unemployment so he turned it down.


Usually unemployment benefits are chosen as to provide the minimal support for survival (= you have a roof + you don't starve). How is it even possible (or acceptable) that a job, whatever it it, pays *less* than that?
 
The problem is that hard work is getting paid less and less. US wages are at an all-time low as percent of GDP, while companies profits are at an all-time high. People work hard and produce things, but the added value goes to financiers and not to the people making stuff.

This is only part of the problem. As Samus correctly spells out above, 20%(I would argue more) of total taxes include a majority of things that a good majority of Americans MUST pay, such as yearly property taxes, state income taxes, SPLOST taxes, sales taxes, social security taxes(2 different kinds)yearly tags/title/vehicle taxes, gasoline taxes...ect. Our current system is insane with taxes, fees and whatnot that whittle away at *NET* income on a dollar per dollar basis when spent. The problem is the standard of living that is afforded by the wages one earns, and how much discretionary income is left over after all the above is figured in.

As someone else stated above, I also know people who have college degrees driving forklifts and doing general labor type jobs because of the current job market. This is not anecdotal evidence, as there are plenty of studies proving that a LARGE percentage of Americans
are either unemployed or UNDERemployed.

I dont think that there can be any argument with the fact that when one is spending all of their net earnings to provide just the basics -food, clothing, shelter and possibly transportation, that if the existing economy is counting on them to spend discretionary income that they do not have, then the economy will undoubtedly suffer.

Tobold, take the time to do the math on the US's GDP and seperate the percentage where items are foreign manufactured versus those that are manufactured domestic, and compare this to how much our GDP now relies on the "service" sector versus 25 years ago. I think you'll be quite surprized.
 
To say that somebody with a college degree driving a forklift is underemployed is simplistic. It assumes that there is a lot of work out there that requires his particular skills and training.

Implicitly, it suggests that a college degree (which is made easier and easier over time to get, and is arguably somewhat meaningless these days) should be a passport to a cushy well-paid job, while the plebs get by driving forklifts.

Can work for a while if your society has the asppropriate 'caste system', but these things don't last so long in the modern age...
 
Tobold, take the time to do the math on the US's GDP and seperate the percentage where items are foreign manufactured versus those that are manufactured domestic

Huh? How would that possibly work? By definition GDP only covers domestic, which is what the D in the middle stands for. The only contribution of foreign manufactured goods is in the added value of sales & distribution domestically.

I dont think that there can be any argument with the fact that when one is spending all of their net earnings to provide just the basics -food, clothing, shelter and possibly transportation, that if the existing economy is counting on them to spend discretionary income that they do not have, then the economy will undoubtedly suffer.

Yes, that exactly. A dollar more in the pocket of somebody already rich is a dollar that ends up in savings. A dollar more in the pocket of somebody not so well off is a dollar that is going to be spent and growing the economy. Better wages are not some sort of welfare for the working class, but are essential for a growing economy.

Implicitly, it suggests that a college degree (which is made easier and easier over time to get, and is arguably somewhat meaningless these days) should be a passport to a cushy well-paid job, while the plebs get by driving forklifts.

To me the guy with the college degree driving a forklift can mean two different things: Either colleges are bad at teaching stuff which is of added value for the economy, or the economy is degrading to the point where there aren't enough jobs in which somebody with good education can provide more added value than by driving a forklift.
 
"Join the military" is the most ridiculous source of equal opportunity ever. First off, there is the increased risk of death and injury, both mental and physical, which automatically means that the odds are skewed against those who need that route. Second, it's blatant socialism and welfare, which is, of course, terrifying.
 
You're right working for that government aid rather than getting it for free is socialism.

Is the military really that scary? There are PLENTY of jobs you can take that will never put you near combat.
 
Also as for college people getting lower paying jobs than what most of them thought they would get it boils down to the mentality alot of people had going into college. At our High School we were told by just graduating college we would make X more dollars a year than those that didn't. Fast forward to a job market where most people have degree's but zero job experience. Now job experience in many jobs out weighs a degree. Many of those college kids never bothered to get internships while in school and businesses really don't care that you made coffee as job experience.
 
The smart cover of my beloved iPad says simply:

"Designed in California, Made in China"

My point is this. If you are a designer in California, life is great. If you a "maker" and you are not catering to a specific, recession-proof, local niche market (that's a lot of IFs), your income has suffered in the last 10 years and there's no way it's going to increase. So thank globalization and either find a local niche or start designing.
 
Btw, Jon Stewart has the breakdown of the 47% that pay no income tax:

http://www.thedailyshow.com/watch/tue-september-18-2012/the-millionaire-gaffemaker
 
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