Fair Share?

tme:

We finally agree on something other than the fact that Salma Hayek is a babe.

Lumpy:

FYI, 39% of all individuals pay no income tax, according to Joint Tax Committee data. And we aren’t talking about that top quintile either…

This is interesting – note that the estimates for intake per household do not even come close to measuring tax expense per household – subsidies, which raise prices for consumers, need to be factored in. And, as should be obvious from the above thread, “average” per household in no way means “typical.”

April 15, 2004, 8:50 a.m.
After the File
You?ve paid your taxes. Here?s where the money?s going.

By Brian Riedl

Frustrated taxpayers dutifully completing their 1040s frequently ask themselves an understandable question: Where is all this money going? And they deserve an answer.

The federal government is projected to spend $21,671 per household in 2004 ? the most since World War II and $3,500 more than in 2001. Tax revenues will reach $16,981 per household through a combination of the income tax, payroll tax, gas tax, estate tax, and assorted business taxes typically passed on through higher prices and smaller investment returns. The remaining $4,690 represents the deficit per household.

Here is a breakdown of where that $21,671 goes:

Social Security and Medicare: $7,165. The 15.3 percent payroll tax, split evenly between employer and employee, covers most of these costs. Contrary to popular belief, an individual?s contributions are not set aside for his own retirement, but used to fund the benefits of current retirees. Although there were once 15 workers per retiree, the retirement of the baby boomers will leave only 2 workers to fund the benefits of each retiree. By 2030, the added costs of that burden are projected to reach what, in today?s economy, would be $5,200 per household. In 2050, that additional tax would climb to $13,500 per household. The unpredictable costs of the new Medicare drug benefit could add thousands more to each household?s tax bill.

Defense: $4,240. The defense budget covers everything from military salaries, to operations in Iraq and Afghanistan, to the research, development, and acquisition of new technologies. Lawmakers drastically cut defense spending throughout the 1990s. The 9/11 attacks reversed this trend. The $1,300 per household increase since 2001 has returned defense spending to its historical levels.

Low-income programs: $3,479. Nearly half of this spending subsidizes state Medicaid programs that provide health services to poor families. In line with economy-wide health care trends, Medicaid costs are rising 10 percent per year. Other low-income spending includes: Temporary Assistance for Needy Families (TANF), food stamps, housing subsidies, child-care subsidies, Supplemental Security Income (SSI), and low-income tax credits.

Interest on the federal debt: $1,460. Washington is $7 trillion in debt. It owes $4 trillion to the public that owns its bonds and the rest to other federal agencies. Record-low interest rates have reduced the interest payments by $1,000 per household over the last six years. As interest rates climb back to normal levels, so will these costs to taxpayers.

Federal employee retirement benefits: $835. This funds the retirement and disability benefits of federal employees, including the military. Interest from federal trust funds covers part of this spending.

Health research and regulation: $619. Health-research spending has doubled since 1998, and nearly all of that spending growth has been concentrated in the National Institute of Health. This category also includes the Food and Drug Administration and dozens of grant programs for health providers.

Education: $583. Primarily a state and local function, 8 percent of education spending comes from Washington. Federal education spending has surged 76 percent since the 2001 enactment of the No Child Left Behind Act. Most federal dollars go to low-income school districts, special education, and college student financial aid.

Veterans benefits: $565. The federal government provides income and health benefits to veterans. Spending is up 34 percent since 2001.

Unemployment benefits: $451. Unemployment costs fluctuate based on the number of unemployed Americans. Recent costs have ranged between $220 per household in 2000 (when unemployment was low) and $526 per household in 2003 (when unemployment was higher). This year, unemployment costs are decreasing as job growth continues.

Highways and mass transit: $400. Most highway and mass-transit spending is financed by the 18.4 cent per-gallon federal gas tax. Per-household costs have increased from $254 in 1998 to $400 this year, and the current highway reauthorization bill in Congress would boost them substantially.

Justice administration: $389. Justice spending includes federal attorneys and prisons, as well as law-enforcement grant programs. New homeland security costs have added $100 per household to justice spending.

International affairs: $320. This includes foreign economic and military assistance, operation of American embassies abroad, and contributions to organizations such as the United Nations. International spending has doubled since 9/11.

The programs listed above cover $20,506 per household. The remaining $1,165 is allocated to all other federal programs, including farm subsidies, environmental programs, space exploration, air transportation, and community development.

Taxpayers themselves will have to answer a final question: Are they getting their money?s worth?

? Brian Riedl is Grover M. Hermann fellow in federal budgetary affairs in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.

If you think corporations pay any taxes, then you are deluded. Not one corporation pays ANY taxes.

The cost of tax is passed on to the consumer in the price of the goods or services. Taxes are just another business expense to be figured in when calculating selling price. The end consumer always pays the corporate tax.

If the top 20% of people pay 84% of the taxes, then maybe that 20% should get the most say in how the government is run.

If you’re not paying any taxes at all, why do you think you should get to tell the government what to do?

No tax, no say. Now THAT would be fair.

[quote]If you think corporations pay any taxes, then you are deluded. Not one corporation pays ANY taxes.

The cost of tax is passed on to the consumer in the price of the goods or services. Taxes are just another business expense to be figured in when calculating selling price. The end consumer always pays the corporate tax.[/quote]

That is a very interesting take. It makes some assumptions on the elasticity of the goods produced, sensitivity of share price to net income, etc. etc. but let?s go with that.

I would be interested to hear a response from either Lumpy or someone else in favor of higher taxes for corporations, about the increase in price levels that result from an increase in corporate taxes.

Not only is the consumer forced to pay a higher price for goods with an increase in corporate taxes, but what about the corresponding loss of employment as firms either go out of business, off shore, or move their corporate headquarters to places like Bermuda.

I think it’s very easy to try and take pot shots at corporate America, but I have yet to hear a solution that favors an increase in corporate taxes that would actually benefit the consumer, employment, and economic growth in the long run.

It is a proven fact that an increase in taxes has a negative effect on the goods market. Anyone who has taken Macro Economics will recall the Keynesian Cross model and a shift in the IS curve to the left, decreasing output.

Further, it has also been proven by the Kennedy tax cut of 1964, as well as more recent tax cuts, of the boom tax cuts have on the economy.

My personal view is that a decrease in federal spending would be much healthier for consumers, despite some reduction in output. I would be interested to hear an articulation of an arguement that says otherwise.

For Lumpy:

What’s Wrong With Paternalism?
by Arnold Kling

“My training is in physics, so I hesitate to make pronouncements about economics; but it seems obvious to me that for the government to spend a dollar on public goods affects total economic activity and employment in just about the same way as for government to cut taxes by a dollar that will then be spent on private goods. The chief difference is in the kind of goods produced by the economy – public or private. The question of what kind of goods we most need is not one of economic science but of value judgments, which anyone is competent to make. In my view the worst problem facing our society is not that there is a scarcity of private goods – food or clothing or SUVs or consumer electronics – but rather that there are sick people who cannot get health care, drug addicts who cannot get into rehabilitation programs, ports vulnerable to terrorist attack, insufficient resources to deal with Afghanistan and Iraq, and American children who are being left behind.”

–Steven Weinberg

This is a powerful challenge that is commonly issued by people on the left. How can we justify leaving wealth in private hands, where it is used to buy SUVs and electronic gadgets, instead of raising taxes and spending more on health care and education? Looking at it this way, what’s wrong with paternalism?

There are three layers to the argument against paternalism. The first layer is purely libertarian, which says that government compulsion of individuals is always wrong. The second layer is utilitarian, which says that, contrary to the intuition of Steven Weinberg and others on the left, we are better off with a larger private sector and a smaller public sector. The final layer is what in economics is known as Public Choice Theory, which says that it is unrealistic to expect government officials to be wise and benevolent, given that they themselves are mere mortals with human desires and human flaws.

Pure Libertarianism

Pure libertarianism argues that freedom and dignity of the individual is of paramount importance. Pure libertarians would say that it is wrong to tax the rich to pay for health care for the poor. If Bill Gates and Warren Buffet want to contribute to charities that help the poor, that is fine. But if they want to spend their wealth on other goods and services, who are we to compel them to do otherwise? What gives “society” the right to redistribute wealth? What gives one citizen a right to goods and services that are paid for by someone else? It is not up to me to override my neighbor’s choice to buy an SUV. Who am I to claim that I know better than he what is in his interest, or what is in “society’s” best interest?

I personally find pure libertarianism hard to swallow. I believe that there are instances in which individual behavior ought to be regulated. For example, a pure libertarian might argue that I should have the right to sell you meat that is packed under unsanitary conditions. It should be your responsibility to choose a reputable meat-seller.

If there were no government meat inspectors, then perhaps a private-sector alternative would emerge. Inspection firms could provide certificates to meat packers whose plants are found to be sanitary. However, what would stop an unscrupulous meat packer from labeling meat with a phony certificate of approval? What would stop the private-sector certification company from issuing approvals without really conducting inspections?

At some point, a government authority needs to enter the picture. It is not necessarily the case that government must inspect meat plants. However, government must have some enforcement power to ensure that meat labels are honest. As Todd Seavey wrote for Reason about the Food and Drug Administration, “There is no avoiding some sort of legal constraint on food and drug sales, unless we want a modern version of the 19th-century free-for-all that poured mislabeled opium and disguised wood chips down the gullets of the ignorant. That’s not freedom. That’s fraud.”

All that having been said, I believe that it is good to have a strong presumption in favor of individual liberty and for keeping regulation to a minimum. In the case of the FDA, there may be a middle ground between 19th-century lawlessness and contemporary regulation. For example, the FDA might not have to be the decision-maker concerning which drugs are allowed in the market. It might be sufficient to require that all drugs be labeled accurately. It would then be up to consumers to select drugs whose labels indicated that they have been tested well for safety and efficacy. It would be legal to sell ineffective drugs; the crime would be falsely labeling drugs concerning test results.

Utilitarianism

The utilitarian argument for a minimal public sector is that markets lead to better outcomes. For example, in The High-Cost Producer, I listed the various ways in which public education is inefficient. It uses wasteful methods, because there is no competitive pressure to do otherwise. It eliminates the wisdom and discipline that come from consumer choice. Finally, the taxes collected to fund public education cause economic friction, reducing the level of overall output.

Friedrich Hayek would say that government officials are missing the local knowledge of consumers and educators. Local knowledge, mediated by the mechanism of the market, outperforms central planning.

Steven Weinberg seems to be confident that people do not need SUV’s or electronic gadgets, and that the government is the best provider of education. What about a nurse who needs to get to work during a snowstorm? What about a freelance journalist who needs to get out a story with a photo? What about the many liberals, including school teachers, who choose private schools for their own children? Perhaps Weinberg’s intuition is not always superior to individuals’ local knowledge.

Joseph Schumpeter would point to the process of “creative destruction” as a source of progress. Private firms go out of business when they fail to meet consumer expectations for results and economy. Government-run schools, which are insulated from market signals, can be ineffective indefinitely.

Government has a very difficult time shutting down obsolete programs. In this context, it is interesting that Weinberg denies that food is a scarce good. If that is the case, then why does government maintain the food-stamp program?

In my local grocery store, I began noticing a few years ago that the people who pay with food stamps did not appear to lack for food. Since I began to pay attention, I have not seen a single person use food stamps who was not severely obese.

I am not denying the poverty of people on food stamps or suggesting that we cut off their assistance. However, I am raising the possibility that subsidizing their food consumption may be a misguided priority. Perhaps if they were given cash instead of food stamps they would make bad spending choices. But my guess is that many of them would actually make better decisions.

Public Choice Theory

Earlier this month, the Washington Post happened to juxtapose two op-ed columns on the same page. One piece, by Robert Novak, detailed some of the “pork” contained in the latest highway spending legislation: “Construction of ‘Renaissance Square’ in Rochester, N.Y., including a performing arts center. $7 million…A new parking building in Oak Lawn, Ill. $4 million…A series of improvements for the Blue Ridge Music Center in Galax, Va. $2.5 million…” Novak concluded that “it’s becoming clear the erstwhile Republican reformers are also super-sizing what they once condemned.”

The other piece, by Sebastian Mallaby, described the way that the Bill Gates Foundation had filled a gap in vaccine production for Africa: “Because of governmental unreliability, vaccine companies stopped making long-term investments in production facilities, and manufacturing capacity dried up…In 1999 the Gates Foundation plunked down $750 million to buy vaccines, enough to tell manufacturers that if they invested in production there would be a buyer. Manufacturers have duly responded: Now, when UNICEF puts out a tender for hepatitis B vaccine, for example, there are 12 firms ready to bid, up from three in 2000. In a little over four years, the Gates-backed vaccine fund has reached 35 million children, saving perhaps 300,000 lives.”

What these two stories illustrate is that private individuals sometimes spend money on public goods, while public officials sometimes direct public money toward private goods. This would come as no surprise to economists familiar with what we call Public Choice Theory.

Human beings are human beings. Just because you move from the private sector to the government does not mean that you instantly lose your self interest and become a benevolent social engineer. A friend of ours who works for the Food and Drug Administration just returned from a conference in Japan. Obviously, attending the conference was not a pure act of sacrifice on his part. He saw it in part as an opportunity to visit a country he had never seen. So did his wife.

My friend, like most government workers I know, is in fact a very conscientious worker. I have written before that we are extremely fortunate to have a government in which a strong public service ethic prevails. I am not particularly outraged by occasionally combining personal and business travel, or by pork-barrel spending, for that matter. Those government abuses are much less costly than what one finds in many other countries.

The point to keep in mind is that there is no automatic mechanism to ensure that tax revenues are funneled to such worthy objectives as providing health care to the poor or aid to Afghanistan, as Weinberg idealistically assumes. In the real world, Congress finds it much easier to spend more on the already-affluent and well-subsidized than for the goals that Weinberg exalts. It is difficult to imagine Congress voting for a program with the target beneficiaries and effectiveness of the Gates Foundation’s vaccine effort.

The Case Against Paternalism

I have listed three types of arguments against paternalism. They are the libertarian argument, the utilitarian argument, and the public choice argument.

Steven Weinberg’s statement that “The question of what kind of goods we most need is not one of economic science but of value judgments, which anyone is competent to make” could be used to reinforce the pure libertarian argument. By implication, a rich person is as competent to make value judgments about how his or her money could be used to benefit society as is Steven Weinberg. The fact that all of us are competent to make value judgments is a justification for liberty, not paternalism.

Weinberg is correct that both government and private spending can generate employment. However, the utilitarian argument is that the private sector is more productive and economical. The government suffers from inefficiency, a disconnect from consumer choice, lack of local knowledge, and the absence of innovation and trial-and-error learning as disciplined by “creative destruction.”

I might share some of Weinberg’s spending priorities. However, there is no assurance that our priorities are correct. Even if the correctness of our priorities can be verified in some way, public choice theory reminds us that the incentives of government officials are not aligned with those priorities. First and foremost, the incentive of government officials is to maintain and expand power.

Individually, none of these arguments is decisive. However, together, they undermine the left’s presumption that those of us with a moral outlook should be rooting for more taxes and bigger government. Under close examination, the case for more paternalism is not nearly as strong as it might first appear.

Best argument I ever heard was on “The West Wing” where Rob Lowe’s character, Sam Seabourn, explains that when he worked for a huge law firm he paid annual taxes that were 14x the average. Essentially, he says “I paid my fair share, and the fair share of 13 other people. Don’t tell me I wasn’t doing my part.”

I do not disagree completely with the above post, but:

" I have not seen a single person use food stamps who was not severely obese."

-Bullshit.

“subsidizing their food consumption may be a misguided priority. Perhaps if they were given cash instead of food stamps they would make bad spending choices.”

-Give poor people cash? That’s called welfare. We have enough of that.
If you want to ensure malnutrition in a greater number of poor children though, that would be a great place to begin.

Sonny –

I agree that not all people with foodstamps are fat. However, I’ve been wondering myself lately why all the homeless people I see in downtown Boston are fat. How does one get to be a fat homeless person? Also, I’ve definitely read that obesity levels are inversely correlated to income, which means there could be something to the observation.

Now, as to the concept of cash handouts in and of themselves, I agree they need to be minimized. However, if the choice is between foodstamps and cash, it becomes a more interesting question. To begin with, people already game the system by using foodstamps to by liquor, beer, cigarettes and other things that are technically banned – all they need are compliant store owners, which are not in short supply. However, with cash the abuses would not even need to be gamed – people could just buy whatever they wanted. There are problems with both models.

The best idea is to make all aid programs temporary and attempt to move people toward employment – but as to how that should be done, I’m not certain anyone has come up with a perfect answer yet.

25% of all T-mag posters make up stats to create 90% of their argument.

Poor people are fat?

Without a shred of evidence or support I’d wildly guess that they don’t feel good about themselves and have an out of whack hormone situation going on…

The only fair solution is for a Flat Tax to be put into place, that way, everyone pays the same percentage! And if you are rich so what, you should not be punished and have to pay a greater percentage of your income!

Reignman- LOL !!

BB- "I’ve been wondering myself lately why all the homeless people I see in downtown Boston are fat. How does one get to be a fat homeless person? Also, I’ve definitely read that obesity levels are inversely correlated to income, which means there could be something to the observation. "

-As you may recall, I lived in Boston 2 yrs. And while there aren’t many homeless compared to NYC, where I live now, I have seen quite a few, (esp since I used to work at the Ritz) and in no way did I ever notice them to be fat.

In fact, many homeless are drug addicts and they tend to not be worried about food and shelter as much as their next fix, making them very skinny (and dirty). Poor bastards.

Poor people being fat is easy enough to explain. Fast food outlets are at a higher density in poor areas and on top of that their prices are cheaper (and their serving sizes are quite big) than grocery store food so poor people are going to eat it more often. Also, poor parts of cities don’t have as much area to exercise in or people percieve the area as dangerous so they don’t go out as often. I don’t live in the USA though so I don’t know if food stamps change the explanation.

Well, I think being poor and fat or rich and healthy has to do with personalities, too.

Poor people are generally poor because they’re losers and make poor decisions. So they’re losers with their bodies and make poor decisions with diet and exercise.

Rich people are generally rich because they’re winner and make good decisions. So they seems to be winners with their bodies and make better decisions with diet and exercise.

MUSCLEROB: Then again, you could spin that line of thinking around.

You could as well say that the cream rises to the top because it has the stuff (genetics, family, resources) to do so. And that includes looks and fatness.

As some cant handle the pressure of high levels of achievement, some cant live in conditions that do not allow the fullest realization of their potential. Who was it that said:Those who can will not, and those who will cannot.

Life eventually pinspots you in your right place, top or bottom.

Biggest problem is that, even if you try to explain it, its only for your own beliefs. It wont change a thing, explanation or not. What is, is.

My reply: Read Atlas Shrugged.

Ayn Rand, unfortunately, is just an idealist.

When was the last time you saw something she said/wrote implemented?

I find it ironic, at best, that Ayn Rand`s stuff has never changed anything since it got printed.

We`re in 2004, irrationality is still the norm. Expect the future to be as stupid, if not more, than it was in the past. When the going gets tough, the Crowd gets stupid. And cries even more to politicians.

“Those who can will not, and those who will cannot.”

-How Zen

“Life eventually pinspots you in your right place, top or bottom.”

AHAHAHAHA! So what’s the point of trying? This isn’t the pre-industrial era. We don’t have to accept our station in life. Its OK for us to aspire to move up in class, wealth, achievement and education.

THat’s what the AMerican Dream is all about. Jeeezz, where did you come up with this?

I know it’s a little off topic, but while we’re talking about welfare, I’m not sure why we give money away for nothing in the welfare system. I don’t know how they are in the parts of the country where everyone else is from, but here, you can drive up the interstate and see trash along side the roads, etc, so I don’t see why can’t just allow food stamps, and then when they put in 40 hrs of work, cleaning up along side the roads or other non-skill based jobs that don’t get done as many places as they should (or in the classroom if they’re working toward a GED/College degree) they get a check. I don’t know, I’ve had quite a few ideas on stuff like this, the biggest problem with our budget isn’t as much the politicians or the tax brackets, it’s people abusing the system. I know more “disabled” people than healthy anymore.