Monday, October 17, 2011

Horse-Leech Economics

Doug Wilson has a provocative commentary on the #OccupyWallStreet events that are springing up all over.

I am largely ignorant when it comes to politics and economic theory.  If you read his post and you disagree I would love to hear your reasoning.  

9 comments:

Robb said...

Basically, Doug Wilson is arguing against the progressive tax system. During times of normal employment, our country has about 30-35% of filers paying no federal income taxes. Because of the high unemployment during and following the 2007-2009 recession, many households now have much lower incomes. This means that 47% of filers did not pay income tax last year.

This is a misleading statistic though because these filers still pay payroll taxes (~8%), sales tax (0-9%), state income tax, property tax, etc. Is it fair however that in spite of the other taxes they pay, that the 47% paid no federal income tax?

The reason we do this is because the lower your income, the less expendable income you have (whatever is left over after you pay for the essentials of food, housing, transportation, healthcare, etc.). Naturally, the poorer you are, the smaller a percentage of your income is expendable. A tax increase on someone with little to no expendable income will hit them very hard, much harder than someone with a lot of expendable income. On the flip side, the rich pay a big share of the income tax burden because they have more expendable income but also because they have most of the money. There is very clear rationale for this progressive tax system. If Doug Wilson is arguing for a more regressive system, there may be clear benefits to that system, but you can't argue that it will be much harder on people with lower incomes.

I have neither positive nor negative feelings towards the Occupy Wall Street group, mostly because they are not a defined group with a defined message, yet they attract anarchists, socialists, libertarians, and Ron Paulites. But I think it is a bit cruel to point the finger at the 47% and say that they are horse-leeches when many of them are put in this situation through no fault of their own because of lost jobs and pay cuts.

Vitamin Z said...

Robb! I knew this would get a response! :)

So...

The part about what these people want is a good one. How much would be enough? What is the definition of "fair" and who should decide?

Yes, times are tough for some people because of a variety of circumstances but I guess I just don't get how demanding money from other people is really the right solution.

I could be wrong...

Vitamin Z said...
This comment has been removed by the author.
Vitamin Z said...

This might be informative:

http://abcnews.go.com/Business/occupy-wall-street-declaration-york-protesters/story?id=14656653

MTR said...

The argument over who should pay what tax rate would be diminished if government would operate within the realm it was designed to operate in, and not beyond.

Social welfare IS NOT the government's job -- it's the job of individuals, the private sector, and most of all, the Church.

Neither is providing health care or education the government's job.

If the Church and believers would do what it/they is/are called to do: feed the hungry, clothe the naked, take care of widows and orphans, raise and teach their children (and all in the name of Jesus Christ), inherently inefficient government programs would not be needed, nor would the enormous (and growing) revenues required by our failed tax system to sustain them.

Also, we need a flat consumption tax -- where everyone pays taxes, not on income, but on the products and services they choose to buy. I prefer the Fair Tax.

In addition, we need to reform Social Security. When it started, benefits were paid to people who lived 3 years LONGER than the average life span. Since then, the average life span has sky-rocketed (something like 20 years), and the age at which benefits are paid has gone up 3 or 4 years. Ridiculous!!!

Of course we're broke! This is all a joke!

In the OT, when the Israelites wanted a king, God warned them in I Samuel 8:15 that "He will take the tenth of your grain and of your vineyards and give it to his officers and to his servants." Can you imagine the government taking 10% of your property!? (That would be a relief!) And that was deemed bad, according to God! Not only that, but the tenth represented what was supposed to go to God (the tithe) -- so not only does the king take a tenth, but the king "competes" for the Lord's share. Fairly germane to this discussion. We need government functioning the way it was intended, not overstepping its boundaries. And we need LOWER taxes for everyone -- including the wealthy who provide much of the fuel for the economy's engine.

Jeremy said...

The fact that people are unemployed through no fault of their own doesn't seem to be a valid reason for demanding those who have remained employed to pay even more into a bureaucratic system that is woefully inefficient in its operations. In fact, it seems a bit ridiculous to me.

The people arguing for greater taxation of the rich currently have the ability to stand in the parks and voice that opinion because the rich are providing the majority of the funding that protects that American right.

Robb said...

@Zach

Yes, I felt like you linked to this just for me, haha!

Since Doug Wilson didn't talk about any policy proposals and just complained about how unfair the progressive tax system was, I didn't really comment on specific proposals.

As far as what the Occupy Wall Street folks want is a good question. I don't think there ever will be a clear consensus as to what they want because they represent people all over the political spectrum.

As for my recommendations, I would keep the tax rate the same or lower it a bit even to give people a break as the repercussions of the recession are still hitting hard.

But what I do think is fair is to cut back on credits and loopholes where they aren't really helping. For example, our corporate tax rate is on the books at 35%. The average US corporation only paid 26% and financial institutions such as those on Wall Street only paid 20% with some infamously paying basically no taxes. Enforcing the tax code to bring the effective tax rate higher is certainly fair and will not hurt unemployment since payroll and other business expansion expenses are pre-tax.

Another example of unfairness in our system goes to the so-called Buffett rule. For example, the top 400 income-earners paid an average of 17% income tax, less than half of what they are supposed to be paying on the books. This is because it is quite common among multi-millionaires for most of their income to come from special income sources that poorer people generally don't have access to which are taxed at a lower rate. So I think there is room for reform so that millionaires who are taking advantage of these special rules to get absurdly low tax burdens can be paying more in line with what the tax codes say they should be paying. Closing these loop-holes will also not have a negative effect on the economy but that's a longer story.

We already have historically low tax rates across the board, but I think because of the weakness of the economy, we could stand to lower it for most people as long as we also close some of the ways that individuals and companies have been getting away with absurdly low tax rates.

Robb said...

Just to clarify my point about the amorphous nature Occupy Wall Street folks, I still have no idea what they are demanding. Doug Wilson is saying that they are demanding money from some people. What is the source? Who is demanding money (how much?) from whom? I'm sure you could survey people and get specific answers to these questions, but a Ron Paulite will give you a different answer than an anarchist.

Where everyone does have consensus is with the grievances (as seen in the ABC article). The general consensus is that financial institutions are very well sheltered from risk by our government, thanks in part to the "too big to fail" excuse. It's pretty clear from the data that the financial sector is not hurting nearly as bad as other sectors of the economy, but the risky behavior of the financial sector is one of the primary causes of the recession.

That broad message of asking why we are sheltering this slice of the economy at the risk of everyone else has pretty broad support as evidenced by the mishmash of political backgrounds found among the protestors.

Gregg said...

The way I see it the 99% have made the 1% rich by buying the movie tickets, the brand names, the lastest fad. The rich got rich becuase they made something of themselves and the rest of us paid them for it. The only way to change the playing field is the market place. I believe that if we can return to supporting our immediate local economies we can see some changes. Even 99% cannot make the 1% change by being angry. It is all about money, that is how the 99% use it. That is my 2 cents. And I don't pay that in taxes, so who cares.