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Yes, Deficit Hawks CAN Have Their Cake and Eat It, Too

January 10th, 2010 . by economistmom

hawks-eating-cake-webformatDeficit Hawks “having their (deficit reduction) cake and eating it (stimulus) too” by EconomistMom

A couple days ago Catherine Rampell asked on the New York Times’ “Economix” blog:  What does it mean to be a “deficit hawk?”  Her question was motivated by the sometimes puzzling coexistence within any particular “deficit hawk”–me included–of a willingness to address the short-term weakness in the economy using fiscal stimulus and a concern about the longer-term fiscal outlook.  As Catherine puts it, economists like me who believe in an activist role of government and yet care about the federal debt and fiscal responsibility (emphasis added):

…[seem] worried about losing their budget-consciousness bona-fides because they are currently urging legislators to expand stimulus efforts, or at least not to curb them.

But can you really be a deficit hawk who supports deficit spending?

Depends whom you ask, and when. Many Keynesians would say yes, at least during a downturn. And many have complained to me — both on and off the record — that the popular you-either-support-economic-recovery-or-you-support-deficit-reduction rhetoric is a false dichotomy perpetuated by the media (and advocacy organizations like the Peter G. Peterson Foundation).

Last month the Committee for a Responsible Federal Budget, another fiscal policy group who could easily be considered part of those organizations “like” PGPF, responded to Stan Collender’s “break up with the deficit hawks” post with a post of their own that basically said “Huh?  Are you talking about us?!  Since when did we ever say (as you claim, Stan) that we must: reduce the federal deficit at all times no matter what”, or that we are against everything all the time that increases the deficit”?

So in that spirit of defensiveness and on behalf of my employer, the Concord Coalition, let me chime in with my own “Huh?” Certainly the Concord Coalition does not “perpetuate” that “false dichotomy” between the goals of short-term economic stabilization and those of longer-term fiscal responsibility–because we do not believe those goals are mutually exclusive.  As we wrote in a Concord issue brief a year ago (emphasis added):

[T]he Obama administration and Congress should pursue a recovery strategy that combines:

  1. Deficit spending in the short term on policies that will quickly stimulate consumption, create jobs, or provide assistance to cash-strapped households;
  2. Critical public investments over the longer term that will ultimately increase our nation’s productive capacity; and
  3. A long-term fiscal sustainability strategy focused on reforming health care, Social Security and the tax system.

What I think makes the Concord Coalition deserving of Stan’s “substantively based deficit hawk” label is that in recommending short-term deficit spending we don’t mean to suggest that the need for effective short-term stimulus justifies any kind or amount of short-term deficit spending, or that the justification for short-term deficit spending implies that deficit-financing of longer-term policy is warranted, or that either effective short-term stimulus or smart longer-term public investments will get us out of the need to (fundamentally) reform our tax and entitlement systems.  Back to our issue brief:

To do the first effectively [short-term stimulus], deficit-financed policies must have a clearly countercyclical purpose and be effective at producing those benefits during, not after, the recession. To accomplish the second goal [make worthwhile longer-term investments with positive net benefits], deficit financing of longer-term investments should be evaluated through the normal budgetary process and designed to pass a cost-benefit test that accounts for debt service. To do the third effectively [get back to longer-term fiscal sustainability], the long-term cost of government commitments must be scaled back and sufficient revenues must be raised to pay for them.

Fairly early in Catherine’s column, she worries that “making the long-term goal a priority over the short-term goal could undermine both”–just like Bruce Bartlett speculates, in the title of his latest Forbes column, about “How Deficit Hawks Could Derail the Recovery.” But the danger probably runs more in the opposite direction: that excessively large and long-lived deficit spending could send the wrong signals to our global investors and cause a major “credit crunch” for the U.S. government.  As long as the “getting back to fiscal responsibility” part means gradually closing the fiscal gap after the economy is well into the recovery, there’s no contradiction with the short-term stimulus goals; in fact, there would be a synergy between the longer-term and shorter-term goals.

And as Bruce concludes, there’s really no danger that policymakers will try to close the fiscal gap “too soon”:

I’m not terribly worried that Congress will reduce the deficit too quickly; too much of the budget is on automatic pilot or effectively off-limits. Entitlement programs like Medicare will continue to grow for years to come and there is no way that defense spending can be reined in as long as we continue to fight two wars in Iraq and Afghanistan, not to mention the likelihood of new domestic security spending in the wake of an aborted terrorist attack on Christmas day. And it’s far more likely that Congress will appropriate new stimulus measures than cut back on those already enacted.

Moreover, the possibility of a tax increase at this point is very remote indeed. Republicans will fight any such an effort even more intensely than they fought health reform, and it’s hard to see any Democrats leading the fight for higher taxes with the party already looking at electoral losses in November. The administration is even backpedaling on plans to allow some of the Bush tax cuts to expire this year. Yet there is no plausible way of significantly reducing deficits in the near term without higher revenues.

For these reasons, I don’t see any possibility of fiscal tightening beyond that which will occur naturally as economic growth automatically reduces spending a bit, and causes revenues to rise as corporate profits revive.

And both Bruce and Catherine seem to come to the same conclusion: that we need to start at least planning for the gradual shift toward the longer-term goal of deficit reduction, because without such a “game plan” those who really don’t care about fiscal sustainability will continue to blast the dreaded “deficit hawks” as secretly wanting to destroy the entitlement programs–or worse yet, the entire U.S. economy(!)–as a way of torpedoing any proposals that would actually bolster both.  So Bruce urges for “entitlement reforms now that won’t take effect for some years” (I’d add tax reform as well), and Catherine adds “maybe the Conrad-Gregg proposal for a ‘fiscal task force’ will help”–as she declares that (emphasis added):

[Y]ou [as a deficit hawk] can have your cake and eat it too: You can spend money on some things now [fiscal stimulus] to bolster the economy, and cut back spending on other things later on to avoid a major budget crisis a decade from now [deficit reduction]. You just have to have a plan for both.

Ah, there’s the key and the rub:  you just have to have a plan for both. We’ve got our work cut out for us.

25 Responses to “Yes, Deficit Hawks CAN Have Their Cake and Eat It, Too”

  1. comment number 1 by: SteveinCH

    Interesting to me and I think, as in many things political, it’s a question of shades of gray rather than black or white.

    To take the question of whether you can be a deficit hawk and still favor stimulus, the answer almost assuredly is yes. There is still room for substantial debate on the size of the stimulus, the form the stimulus should take, and, where it should be targeted regardless of form.

    On these dimensions, I would largely label the Democrat stimulus of 2008 a failure. It was a government led (spending) and populist led (taxes) package. It was not designed to maximize its impact on the economy and it appears to have failed miserably at stimulating private sector job creation, which, from a long term perspective, is the only sustainable stimulus spending.

    Furthermore, continued uncertainty over administration social proposals (health care, cap and trade, immigration, and tax increases) does have an impact on business planning and investment and the impact is not positive.

    Finally, the administration has articulated nothing that even remotely resembles a plan for fiscal stabilty. Their overly rosy long-term projection from the last budget cycle does not even come close to reaching sustainable deficits and relies on projections that are completely unreasonable (as has almost every projection by every administration in the past to be fair).

    On the more fundamental question of whether you can be a deficit hawk and spend more money, I guess I’d give it a skeptical maybe. Here’s why…

    1. A substantial part of any coalition aiming for increased spending does not actually worry about the deficit with more than 2% of their mindshare. Even the administration falls guilty of this. They crow about jobs saved or created but lack good data on how many, most of what they claim is public sector, and show no ROI on the spending. Hell, I could create 10 million jobs tomorrow if you wanted me to. I would employ an army of consultants to study various things at a cost of $60,000 a year (and $15,000 in benefit). A cost to the taxpayer of $750 billion should suffice. Good ROI? I rather think not but it’s not a question anyone asks.

    2. The government baseline budgets tend to be based off the high deficit baseline. To wit, the administration is going to force discipline (potentially) by going to zero increases in may nondefense discretionary departments. Big flipping deal. Most of those departments saw double digit (some as high as 40% increases) in the FY2009 and FY2010 budget cycle. One year of “austerity” is hardly a hardship or an indication of responsibility.

    3. Long term plans for responsibility almost never come to pass. Responsibility is the ultimate in long-term trumping short term. Politicians are (almost all) short-term thinkers because politics is their profession rather than their passtime and the short-term wins elections (at least it always has). So having a plan to become responsible is woefully inefficient. I do think the spend now pay later crowd has a huge credibility barrier to overcome since the pay later part never seems to happen.

    As for the contention that tax increases are necessary for balance, again I say that is a question of priorities rather than math.

  2. comment number 2 by: Bruce Bartlett

    The reason I didn’t mention enacting tax increases now that wouldn’t take effect until some future date is that experience shows that Congress tends not to allow such things to take effect–witness the perennial mess of the AMT. But the increase in the retirement age enacted in 1983 was allowed to take effect on schedule. So I am more inclined to hope that a further increase in the retirement age is the most doable entitlement cut that could be enacted.

  3. comment number 3 by: SteveinCH

    Bruce,

    That’s a pretty old example. Do you have a more recent one? The ones that are top of mind for me AMT and doc-fix are ones where Congress doesn’t seem to be able to follow through, whether it’s taxes or spending.

  4. comment number 4 by: SteveinCH

    One other not so encouraging note. Christina Roemer was on Meet the Press this morning and reaffirmed Obama’s pledge not to raise taxes on any family making less than $250,000 per year. Another symbolic action that suggests no fiscal balance coming from this administration any time soon.

  5. comment number 5 by: Brooks

    I’m very glad to see Diane’s post. The straw man du jour among many seeking more/greater fiscal stimulus is this fictitious group of “deficit hawks” who are supposedly a bunch of Johnny-one-note / religious zealots insisting on deficit reduction/elimination at all times under all conditions. After reading that strange post by Stan Collender, for example, I had to comment to him, “It seems that you are ‘breaking’ with a group that exists only in your imagination.” http://www.capitalgainsandgames.com/blog/stan-collender/1332/breaking-deficit-hawks-very-personal-story#comment-4990

    As for the “having our cake and eating it, too”, from the very start of all the discussion/debate a big question I’ve had (and to which I’ve found some answers to a limited extent) is whether the justification for deficit-financed fiscal stimulus is just mitigation of current suffering at the expense of greater long-term fiscal imbalance and thus long-term well-being or if the stimulus could/would actually improve the long-term fiscal outlook (the win-win, “have cake and eat it, too” scenario, at least in the aggregate) or be roughly neutral in net effect the long-term fiscal imbalance (debt-to-GDP over time). It seems from the bits of analysis/views I’ve found that it is probably the former (stimulus now brings benefits at the expense of the future), but I’m still not very clear on the answer, and perhaps it’s a function of size and nature of stimulus as well as degree of economic conditions and related forecasts (for whatever forecasts are worth). I’d appreciate any information/views anyone can offer here on this question (unfortunately, I didn’t save links to analyses/commentary I’ve seen, although I know one was a CBO analysis).

  6. comment number 6 by: Brooks

    As follow-up to question in my comment above, this CBO analysis is probably the one I came across http://www.cbo.gov/ftpdocs/100xx/doc10008/03-02-Macro_Effects_of_ARRA.pdf
    It’s an analysis of the American Recovery and Reinvestment Act of2009 (ARRA, Public Law 111-5), which was enacted on February 17, 2009. It estimated:
    Beyond 2015, the legislation is estimated to reduce GDP by between zero and 0.2 percent.

    The above means equal or lower denominator to debt-to-GDP as well as, of course, equal or lower GDP itself. I assume* that CBO is also assuming a higher debt and thus a higher numerator to debt-to-GDP as well. So higher numerator and equal or lower denominator = higher debt-to-GDP, along with their projection of equal or lower GDP itself.

    * I assume CBO is not assuming that the incremental debt is, in effect, paid down by 2019 via incremental deficit-reduction.

  7. comment number 7 by: Brooks

    Correction: I meant to say at asterisk: “paid down by 2015″

  8. comment number 8 by: Jim Glass

    As a pedantic, pointless aside, the original usage was “you can’t eat your cake and then still have it”, or eat your cake and have it too.

    There’s no challenge in having cake and eating it too — in fact it’s pretty much a necessity to have cake when eating it too.

    The switch from “you can’t eat your cake and have it too” to “you can’t have your cake and eat it too” in popular usage is just another example of the slovenly decline of the modern mind and continuing Decay of Western Civilization. There are times when it seems the only sensible option left is to give up.

    Budget politics does not make this any less so.

  9. comment number 9 by: Brooks

    Jim,
    I think you’re putting the horse before the cart.

  10. comment number 10 by: AMTbuff

    Jim and Brooks, I could care less. ;)

  11. comment number 11 by: Bruce Webb

    “there is no way that defense spending can be reined in as long as we continue to fight two wars in Iraq and Afghanistan, not to mention the likelihood of new domestic security spending”

    Well if war fighting and domestic security were the only components of defense spending that might be true. But it is funny how no one is calling for a ” Bi-partisan Weapons Program Cancellation Commission” to get around all the resistance over cancelling the Crusader Artillery System under Rumsfeld or the F-22 Program under Gate or Reagan era programs that have no realistic target. The logic for such a Commission is exactly the same as it was for BRAC. But given the strong historical overlap between budget hawks and defense hawks I don’t expect anything like it today.

    Most of the serious policy people who are pushing back on Conrad-Gregg do not do so because they believe that the PGPF and Concord are one-horse ponies with a single-minded focus on reducing deficts. Quite the opposite. Instead they are afraid they are being set up for a seven stage process.

    One get everyone on board with the problem: the long term debt.
    Two get everyone to agree that there are only three solutions: A, B, C.
    Three: Convene Commission to consider some combination of A, B, C.
    Four: Find reasons why neither A or B are politically feasible.
    Five: Point out that the people who took the brunt of a C based solution in 1983 actually accepted it in the interest of the greater good.
    Six: Recommend C based solution.
    Seven: Tell Congress that the statute doesn’t allow them to revisit A or B and then that NOT voting for a C based solution means denial of Steps 1 & 2
    Eight: Either get a vote for C or run against opponents as ‘Do Nothing Deficit Deniers”

    Because some people have taken the time to read the mission statements of Concord, the PGP Foundation, read the press statements and reports of the Brookings-Heritage Fiscal Seminar (Taking Back our Fiscal Future) and the Peterson-Pew Commission (Red Ink Rising), examined what organizations endorsed and co-sponsored the Fiscal Wake Up Tour on its web-page, and also signed on as endorsers to the release from Congressman Cooper’s announcement of the Cooper-Wolf Safe Commission, which has the same goals and basic makeup of Conrad-Gregg. And in doing so note two things.

    One the main problem listed and often the only problem called out specifically is “Entitlements”. Two although the challenges facing Medicare Part A & B/D are different and quite distinct from those facing Social Security, the latter is always included in the mix. Always.

    Gosh if we could just locate the common element behind this apparent coordination maybe we could figure out the motivation beyond the obvious: Roll Back both the Great Society and the New Deal in the name of deficit reduction.

    “The Concord Coalition is a nationwide, non-partisan, grassroots organization advocating generationally responsible fiscal policy. The Concord Coalition was founded in 1992 by the late former Senator Paul Tsongas (D-Mass.), former Senator Warren Rudman (R-N.H.), and former U.S. Secretary of Commerce Peter Peterson. Former Senator Bob Kerrey (D-Ne.) was named a co-chair of the Concord Coalition in January 2002.

    The Concord Coalition is dedicated to educating the public about the causes and consequences of federal budget deficits, the long-term challenges facing America’s unsustainable entitlement programs, and how to build a sound economy for future generations. The Concord Coalition’s national field staff and loyal group of volunteers cover the country, holding lectures, interactive exercises, conducting classes, giving media interviews, and briefing elected officials and their staffs.”
    http://www.concordcoalition.org/about-us/about-concord-coalition
    Yes they do and it seems the words “defense cuts” and “income tax increases” rarely show in the various press releases or supporting materials. Instead it all seems like a focused attack on two programs that are too popular to attack directly and so have to be handled by trickery.

    Bye Diane, long time no see.

  12. comment number 12 by: Bruce Webb

    “The reason I didn’t mention enacting tax increases now that wouldn’t take effect until some future date is that experience shows that Congress tends not to allow such things to take effect–witness the perennial mess of the AMT. But the increase in the retirement age enacted in 1983 was allowed to take effect on schedule. So I am more inclined to hope that a further increase in the retirement age is the most doable entitlement cut that could be enacted.”

    I would note that ‘doable’ has a second meaning not suitable for a family blog. But fully applicable to an admission that the wealthy will simply refuse to do their share and will pressure Congress to block any tax increases while expecting workers to just stop and pick up the load.

    Now I know how Boxer the Horse felt in Animal Farm.
    http://en.wikipedia.org/wiki/Boxer_(Animal_Farm)
    Odd that two supposed opposite ideological program end up in the same spot their pre-capitalist predecessors did: exploiting labor for the interest of the elites. Makes me think that history degree was worth obtaining.

    Or as Bernanke said quoting Willie Hutton: ‘that is where the money is’. Boy Howdy.

  13. comment number 13 by: SteveinCH

    Bruce,

    What’s the justification for your statement that “the wealthy refuse to do their share”? Please define wealthy and what their share should be if you’re going to make that type of statement.

    Currently, the bottom 50% of households pay 3% of all Fedearl income taxes. Yes the percentage is higher if you include Medicare and SS but the total Federal tax burden in this country is still more skewed than the total income distribution. So once again, I ask you to justify the statement.

    As to your rant against Concord, I don’t get it. If you read this blog even remotely frequently, you’d see that, if anything, Concord favors taxes over almost anything. Go look at the budget exercise, not an entitlement cut to be found but lots of revenue increasers. Diane is almost a broken record on “ending the Bush tax cuts.”

    Finally, to your point on the issues with Medicare and SS being different, allow me to disagree. The issue in both cases is that the government is transfering money from the less well off to the more well off based solely on the age of the taxpayer and the recipient. Taking taxes from dollar one of someone who makes $35k per year and has a negative net worth to give it to someone who has a net worth in the hundreds of thousands is simply wrong.

    As to “exploiting labor for the interest of the elites”, I’d argue a degree in rhetoric might have been more appropriate.

    Have a nice day

  14. comment number 14 by: Jack

    SteveinCH,
    Interesting that your comparison of tax burden compares only the lower 50% with the wealthiest income earners. What happens to that 3%, not truly accurate as you yourself point out, when you include the bottom 98% with the top 2%? And don’t forget to include in your analysis the share of income that those two groups are earning. Include all income while you’re at it, not just the taxable kind which tends to be the greater portion of the 98% group’s income.

    Let’s not get bogged down in rhetoric. How about simply acknowledging that the lower 98% are carrying the ball for the upper 2%. When an elite group, as measured by income share, enjoys a disproportionate share of the results of a nation’s economic activity, that group owes a similarly disproportionate share of the tax requirements of the government that guarantees the safety and structure of that economic activity.

  15. comment number 15 by: bobbyp

    “Concord favors taxes over almost anything….”

    Well, after you get beyond all the scary stuff about the looming deficit disaster, the ticking time bomb that are entitlements, the scary numbers 40 years into the future, and the need to do something like now, they might (parenthetically) mention the need for tax increases.

    But the clear message is always this: taxes are bad, bad, bad, or politically a non-starter. It always, always comes back to “entitlement reform”. Always.

  16. comment number 16 by: bobbyp

    And please, why is the Concord Coalition always referred to by its supporters as a ‘grass roots’ movement? That is an absurd assertion. It is the plaything of a multi-billionaire.

  17. comment number 17 by: Jack

    I’m a bit perplexed by the fact that my first attempt at responding to SteveinCH has “disappeared,” or maybe it just didn’t make it past the screeniing process. I’ll try one more time just in case it was something I did wrong making the post.

    SteveinCH makes reference to “the bottom 50% of households” accounting for only 3% of Federal tax collections. I asked why use only 50%? Why not make the comparison 98% vs 2% of households that pay taxes? That would include the tax burden put on the middle class in comparison to that put on the wealthiest households. It would also be reasonable to ask that such a comparison include the distribution of wealth and income enjoyed by those two groups. Wealth and income are a consequence of government policies and actions. If one group enjoys a disproportionate result from their government’s activities then, I would suggest, that that group owes more to the maintenance of that government.

  18. comment number 18 by: economistmom

    Jack: Your comments were not immediately posted because I had not had a chance to “approve” them over the weekend. Because of earlier “spam” episodes where my spam blocker failed, several months ago I set up a new screening process so that comments are only posted immediately if the commenter has previously had a comment approved on my site.

    But I do not “censor” comments that are negative toward me or my employer, the Concord Coalition, as you can see from “bobbyp”’s comments that I just “approved” (even if I do not agree with them).

    Thanks for posting/participating! –Diane

  19. comment number 19 by: Jack

    Thanks for the note of explanation. I didn’t mean to imply that you would censor based upon ideology. I don’t know that to be the case. I had thought that maybe my words could be interpreted as a rebuke or insult, though I didn’t think so.

    I do agree with bobbyp and Bruse Webb on the SS issue in particular and the general take that people like Mr. Peterson, the benefactor of Concord Coalition. Too much complaint regarding spending that benefits the mass of the US population and not enough focus on the need to raise taxes to support government efforts. Keep in mind that our opriginal Federalist, Mr. Hamilton, was a very aggressive tax collector.

  20. comment number 20 by: SteveinCH

    Jack,

    I’m happy to post the most recent analysis I’ve seen of the distribution of income and tax burden in the US. You can see it here http://www.cbo.gov/publications/collections/taxdistribution.cfm

    If you’d like to peruse the tables, you will note a few things. First, the tax burden in total is heaviliy concentrated on the highest income earners. Second, the effective tax rate is higher on higher income earners, meaning that their share of taxes is higher than their share of income.
    The effective tax rate has varied over time for all groups and has generally declined over time across all groups. Proportionally, the greatest decline in effective tax rate has been in the bottom quintile rather than the top 20, 10, 5 or 1 percent.

    My only point is it actually doesn’t matter how you look at it, tax rates are higher on higher income earners as a share of their income and have been pretty much forever. The relationship between the middle quintile’s effective tax rate (a reasonable description of the middle class) and that of the top quintile, 10, 5 or 1 percent has decreased, meaning on a relative basis, the wealthy are paying more than the “middle class” over time.

    In conclusion therefore, the top income groups (let’s say the top 1%) pay a greater share of total taxes than they earn of total income. I’m not arguing they shouldn’t but the argument that they “don’t do there share” must be predicated on an expectation of their share that is different from their share of income.

  21. comment number 21 by: SteveinCH

    bobbyp,

    I see you make an assertion about Concord but I don’t see a lot of facts. Go back to Diane’s post on the Concord budget calculator and look through the options provided. If you can use that to argue that Concord favors spending reductions over tax increases, I’d love to see you make the case.

  22. comment number 22 by: Jim Glass

    Too much complaint regarding spending that benefits the mass of the US population and not enough focus on the need to raise taxes to support government efforts.

    Let’s be correct. If talking about Medicare and Social Security, a minority is receiving benefit via taxes collect from the masses.

    Also note that due to the massively actuarially unsound nature of these programs, “the masses” who are making these payments to the minority will not recover these amounts when they in turn become seniors, to the tune of tens of trillions of dollars of loss ($15 trillion for Social Security say the Trustees, God alone knows for Medicare). So this is a one-way transfer of trillions of dollars between generations. One’s gain, another’s lifetime loss.

    (Obviously if you raise taxes to increase future benefits you are raising taxes on the latter — and you can’t cover the shortfall to them by making them pay for it!)

    Also remember that over-60 age group is by far the wealthiest age group on the whole (with paid off homes, pensions and retirement plans, lifetime investments and savings, RVs, yachts to sail off into retirement on, etc. — not even counting the value of Medicare and Social Security) while they also have the smallest households to spend upon, and don’t have costs such as raising kids, etc., so they as a group are at the top of the disposable income rankings.

    So these programs are, in a very real way, on the largest scale, a transfer from the younger poorer to the older richer that today’s younger will never be paid back. You know, Warren Buffett’s employees at Dairy Queen paying 15.3% payroll tax, plus income tax, to pay his entitlement benefits — and they are never going to get all that money back.

    SteveinCH makes reference to “the bottom 50% of households” accounting for only 3% of Federal tax collections. I asked why use only 50%? Why not make the comparison 98% vs 2% of households that pay taxes?

    Sure, in 2007 the top 2% paid 48.7% of all tax 27.9% of all reportable adjusted gross income (AGI).

    All the data you can want is right through here.

    Of course, one should remember that reported AGI is only a subset of income, for instance 40-odd million “tax units” don’t have to file at all while they do have income, but not enough to get to the filing threshold, or receive income back from the govt such as through the EIC.

    So the tax system is actually significantly more “progressive” than the above numbers make it look. I.e., the top 2%, are really only the top 2% of the top two-thirds or so.

    Now, working our way “down” to the middle class, those in the top 26%-50% had 19.1% of all income (AGI) but paid only 10.7% of tax. Under the 50% level income tax is negligible (actually negative counting the EIC).

    If one group enjoys a disproportionate result from their government’s activities then…

    Excellent point. If one wants to know how “progressive” a tax-and-spend system truly is, one must look not only at who pays the taxes but also who receives the benefit of the spending.

    The Tax Foundation did this (.pdf) by several different measures.

    For instance, counting both federal taxes paid and federal spending received by households (all of them this time) by income quintile:

    (… hoping this formatting isn’t unreadable …)

    income quintile __ tax paid __ spending received __net __received/tax paid

    lowest ___$1,684 __ $24,860 __ +$23,176 __ 14.8x
    2nd low __$6,644 __ $19,889 __ +$13,245 __ 3.0x
    middle __$13,028 __ $16,781 __ + $ 3,753 __ 1.3x
    2nd high _$22,718 __ $15,502 __ -$ 7,216 __ 0.7x
    highest __$57,512 __ $18,573 __ -$38,939 __ 0.3x

    How about simply acknowledging that the lower 98% are carrying the ball for the upper 2%.

    Hmmm … You really read the data that way?

    Keep in mind that our original Federalist, Mr. Hamilton, was a very aggressive tax collector.

    Indeed he was, in a time when the size of the government he supported with the taxes he collected was trivial compared to today, maybe 5% of GDP.

    If he and the other Founders had ever been told of our time where govt collected 30% of GDP, and directed another 20% or so by regulation, they’d have died of shock.

    Jefferson would have vaporized. Spontaneous combustion.

  23. comment number 23 by: Jim Glass

    To clarify some poor typing:

    … in 2007 the top 2% paid 48.7% of all tax while receiving 27.9% of all income (AGI)….

  24. comment number 24 by: hb

    So the top 2% received about 30% of (adjusted) income (not of course including income in tax-sheltered offshore accounts, personal foundations, & the like)…

    & paid about 50% of the taxes. Sounds like a great deal to me, considering the median wage in the US is about $15/hour.

    The bottom 20% basically has negative income, the next 20% has enough income to keep themselves housed, fed, & driving to work.

    As wealth has risen to the top over the last 30 years, it’s not a bit surprising that the super-rich have paid an increasing portion of (income) taxes, despite paying at a much lower rate.

    The bottom half of the country doesn’t have any money, & if you lived here, you’d know it.

  25. comment number 25 by: SteveinCH

    hb,

    Actually the income of the top 2% includes all sources of reported income. If you think most of those people have tax-sheltered offshore accounts, you are sorely mistaken. Unless you have tens of millions of dollars (which most don’t), the numbers don’t work to set up those accounts.

    Not sure what the median wage has to do with the argument. 2007 median HH income was about 50k or probably somewhere between 20 and 25 per hour depending on how many are working but that’s neither here nor there.

    The bottom 20% do not have negative income, assuming they are working, nobody does. In fact negative income is a strange thing to assert.

    The superrich are paying increasing portion of the total tax burden, which to the point of the original post, is inconsistent with an assertion that they now are “not paying their fair share”.