About that 46%...

One of the points I was trying to make in my last piece is that we have two different kinds of income-related taxes in this country: the one we call “income tax” and the one we call “payroll tax.” The former is putatively progressive, although it is demonstrably not necessarily so. The latter is unquestionably regressive, since it applies only to the first $106,800 of earned income per wage-earner: not only do people making a million dollars a year pay a far lower rate than ordinary folks do, but the kinds of income that tend to be reserved, at least at significant levels, for the wealthiest among us (capital gains, dividends, interest, rent) aren’t taxed at all.

But just as those on the left too frequently conflate Exxon’s or GE’s failure to pay federal income tax with not paying taxes at all, those on the right—Rick Perry being the latest, particularly stupid and/or disingenuous, example of this phenomenon—holler about the 46% of Americans who don’t pay income tax. It’s true, of course, and also a completely conscious fabrication: a family of four making $26,000 in 2010 would indeed pay no income tax. ($26K = 4 exemptions @ $3650, plus the standard deduction of $11,400.) That family would pay $1092 in payroll taxes, however, even at the reduced rate used in 2011. This figure doesn’t count the additional $1612 paid by their employers, which, as Syracuse University professor Len Burman points out in an article on the website of that leftist rag, Forbes, “economists believe is ultimately paid by the employee in the form of lower wages.”

But the fact that virtually any GOP politician you can name is completely and utterly mendacious on this point isn’t news. What I’d like to discuss instead is the underlying truth that goes too often unspoken: the problem with the country isn’t that nearly half the people don’t pay income tax, it’s that nearly half the people don’t make enough money to be taxed. I’m not the first to talk about this, but certainly there are far too few politicians or commentators, even on the left, who make this observation.

Here’s the reality: study after study shows that economic disparity in this country is bad and getting worse. Just a few examples: a study by sociologist G. William Domhoff of the University of California at Santa Cruz shows that nearly 43% of the financial wealth (net worth minus home value) in the country is controlled by just 1% of the population. The top quintile controls 91.3%, the bottom two quintiles combined, 40% of the population, own only 0.3% of the wealth. These figures are very much tied to race, as well; whereas whites (in 2006) had household incomes about 67% higher than African-Americans and 43% higher than Hispanics, their net worth exceeded African-Americans’ by a ratio of over 15.4:1 and Hispanics’ by more than that. But if you take homes out of the picture, the ratios become 87:1 and 109:1, respectively.

Still, while race clearly plays a part in this scenario, the division between rich and poor—or, more accurately, between the ultra-rich and everybody else—is what really matters. The richer you are, the less of your net worth is tied up in your home: an article by Dave Gilson and Carolyn Perot in Mother Jones this spring points out that “The 2007 data (the most current) doesn't reflect the impact of the housing market crash. In 2007, the bottom 60% of Americans had 65% of their net worth tied up in their homes. The top 1%, in contrast, had just 10%. The housing crisis has no doubt further swelled the share of total net worth held by the superrich.”

Particularly interesting in the Mother Jones piece is a chart based on the work of Jacob Hacker of Yale University and Paul Pierson of UC-Berkeley. These two political scientists charted what actually occurred in the generation from 1979-2005 compared with what would have been projected based on the data of the previous few decades. You will not be surprised, Gentle Reader, to learn that the richest 1% fared quite well over that period, raking in some $673 billion (nearly $600,000 per family) per year more than would have been predicted. The hardest hit in percentage terms, of course, were those at the bottom, but the biggest losses in dollar terms came from those at the very center: families in the third quintile made over $10,000 a year less than would have been predicted.

Finally, let’s look at how America compares to other countries in terms of wealth equity. Hint: it ain’t pretty. There’s some complicated mathematics that goes into figuring the Gini index—I won’t attempt to explain it here, but basically there are two things you should know: it’s an objective number rather than an analysis of any kind, and the lower the number, the more equitably a nation’s wealth is distributed among the population. According to the CIA, the most recent number for Sweden is 23; Hungary, 24.7; Slovakia, 26; Canada, 32.1; the United Kingdom, 34. The United States: 45 in 2007, up from 40.8 a decade earlier. True, that’s not as bad as Swaziland (50.4), Honduras (53.8), or Namibia (70.7), but are those really the economies we want to be comparing ourselves to? We’re behind the likes of Albania (26.7), Bangladesh (33.2), and Yemen (37.7). The European Union as a whole: 30.4. China: 41.5. India: 36.8.

Another metric would be the ratio of the average income of the top 10% to the average income of the bottom 10%. Using this statistic, Japan has the most equitable economy at a ratio of 4.5:1; Bolivia is the worst of those surveyed, at nearly 94:1. The United States, at 15.9:1, is behind every other first-world country, not to mention the likes of Bosnia and Herzogovenia, Tanzania, and Liberia.

Of course, having a high degree of income disparity is neither the full measure of an economy nor an inherently bad thing: I’d rather have our economy that Greece’s or Ethiopia’s, even though they both beat us in both the metrics listed above. That said, however, Domhoff’s statistics are revealing:

Americans from all walks of life were also united in their vision of what the "ideal" wealth distribution would be…. They said that the ideal wealth distribution would be one in which the top 20% owned between 30 and 40 percent of the privately held wealth, which is a far cry from the 85 percent that the top 20% actually own. They also said that the bottom 40%—that's 120 million Americans—should have between 25% and 30%, not the mere 8% to 10% they thought this group had, and far above the 0.3% they actually had. In fact, there's no country in the world that has a wealth distribution close to what Americans think is ideal when it comes to fairness.

There’s an outstanding graph that originally accompanied an excellent article by James Fallows in The Atlantic last fall about a study similar to Domhoff’s, this one by Michael Norton of Harvard Business School and Daniel Ariely of Duke. The chart, which I put on the Curmudgeon Central Facebook page last September, shows that whereas there are perhaps predictable variances between people who voted for Bush as opposed to Kerry, or who make more than $100K a year as opposed to less than $50K, literally every demographic both underestimated the existing disparity and believed that there should be more equity. Those making over $100,000 a year, for example, predictably showed the highest “ideal” percentage of wealth to be controlled by the top 20%. But their ideal would be 40%. They thought the reality was 62%. The actual reality: 84%.

So there seems to be some interest in a more balanced economy in which the gaps between the top and the bottom are less pronounced. This is true in theory, anyway—whether there’s actually as much egalitarian spirit as the subjects surveyed in either of these two studies seem to pretend is another matter. But the studies do highlight both the central flaw in the right-wing rhetoric in logical and ethical terms, and indeed the reason this spurious argumentation is effective. If, as the populace believes, those not paying income tax account for even the 15% of so of the nation’s wealth, that’s a fair amount of money not to be drawing any tax revenue at all. Trouble is, that bottom 46% make less than 3% of the income and have well under 1% of the wealth.

And so we’re back to where we started: if the right wants to make a big deal out of “nearly half” of the population not paying taxes (there were also a few thousand millionaires who didn’t, either, but that doesn’t bother them so much), then the appropriate response is not merely to point out that virtually everyone with a job of any kind pays payroll tax. It’s also to ask what the GOP is going to do to raise people up economically to the point where they’re going to be called upon to pay taxes. How do you do that, Governor Perry? I’ll give you a hint: it’s not by leading the nation in minimum-wage (and sub-minimum-wage) jobs.

The GOP and Unemployment

Chances are, you wouldn’t be reading this blog if you didn’t make at least some attempt to keep up with the news. It’s likely, then, that you’ve already heard, or at least heard about, Senator Jon Kyl’s latest attempt to wrest the coveted title of Arizona Wackadoodle of the Year from the stiff competition presented by Jan Brewer. I’m talking, of course, about that moment when Chris Wallace of Fox News Sunday lapsed briefly into journalistic mode and actually asked a tough question of a Republican.

Noting the Republican opposition to expending unemployment coverage to millions of Americans currently out of work is grounded in a pious concern for deficit reduction, that increased expenditures must be counter-acted by concomitant cuts elsewhere, Wallace wanted to know what was going to be cut in order to accommodate the extension of the Bush tax cuts for the wealthiest Americans. We’ll forgo the enumeration of the obvious evasions and outright misrepresentation in Kyl’s response, and concentrate on a single sequence near the end of the interview (it starts at about the 6:23 marker on the linked video):

Wallace: How are you going to pay the $678 billion just on the tax cuts for people… making more than $200,000 a year?

Kyl: You should never raise taxes in order to cut taxes. Surely Congress has the authority, and it would be right… if you decide we want to cut taxes to spur the economy, not to have to raise taxes in order to offset those costs. You do need to offset the costs of increased spending, and that’s what Republicans object to, but you should never have to offset the costs of a deliberate decision to reduce tax rates on Americans.

Really. He said that. You see, reducing taxes on rich people without either cutting spending or finding alternative sources of income doesn’t add to the deficit. Providing a little more safety net to people thrown out of work by a recession caused largely if not exclusively by those same fat-cats whose tax breaks Kyl is defending: that increases the deficit, and therefore cannot be allowed. I should also note here that pre-emptive wars in West Asia and preventing the government from making the people responsible for the worst single man-made ecological disaster of all time pay the full cost of cleaning up their mess (the part you can put a price-tag on, at least): no effect on the deficit whatsoever. These statements are true in the parallel universe in which up is down, black is white, and Jon Kyl has an IQ above room temperature. In Celsius.

Kyl’s inanity was, if nothing else, good business for left-leaning bloggers and commentators. Rachel Maddow’s evisceration of Kyl’s argument may be taken as exemplary. Maddow pointed out that the deficit is indeed a function both of money coming into the system and money going out. I’m not sure her gin-and-tonic (without the gin part) metaphor was as effective as it was snarky, but her analysis is cogent and persuasive.

But there are still some things unsaid. First is the unchallenged assertion that tax cuts for the wealthy in fact “spur the economy.” This has been Republican gospel since the Reagan administration, which, of course, doesn’t come close to making it true. An article by John Tamny on Forbes.com—hardly a socialist bastion!—points out that “the top income tax rate was 91% in the 1950s, but the S&P 500 rose 245%. On the other hand, the combined federal tax on income and investment during the presidency of George W. Bush was lower than at any time post-World War II. Despite the relatively low tax burden, the S&P fell 36% on Bush's watch.” Wow, how bad must the rest of Bush's economic policy have been if all those “stimulative” tax cuts produced those results?!?

Indeed, there are those who argue that the effect of such cuts is so stimulative that revenues actually increase. While this theory isn’t quite as preposterous as it might seem on its face, it’s still kind of a reach: the logical extension of this line of reasoning, after all, is to say that the way to maximize government revenue is to eliminate taxes altogether. More to the point, recent history simply puts the lie to this canard: Reagan cuts taxes, revenue plummets; Clinton introduces targeted tax increases, revenue increases; Bush II cuts taxes, revenue sinks like a stone.

Here's a graph based on Congressional Budget Office numbers, demonstrating this fact. (I pulled this from a web post entitled "Do Tax Cuts Increase Revenue" by Robert Ricketts, who holds an endowed chair in taxation at the Rawls College of Business at Texas Tech University.) It is worth noting here that this chart shows both income and outlay numbers as a percentage of GDP, not in dollars per se. This formulation makes sense to me; more importantly, it obviously makes sense to someone with a lot better credentials in this area than either my own or (I strongly suspect) those of the overwhelming majority of people likely to be reading this essay.

Moreover, helping the wealthy in particular is as macroeconomically problematic as it is ethically bankrupt. In an ideal world in which rich people see themselves as part of a larger society, perhaps, the whole “trickle down” concept might work. Might I humbly suggest, however, that fundamental amorality and the sense of entitlement evinced by the good folks at Goldman Sachs or BP doesn't suggest that they're much interested in anyone but themselves? Use their extra liquidity to help the economy? Why would they want to do that when there's an offshore account with their name on it?

In contrast, the further down the economic ladder one finds oneself, the more likely one is to want to spend rather than save the extra cash a tax cut might precipitate. And while Republicans would have us believe that jobs are created by the sainted owners of Small Business, Inc., the fact of the matter is that demand for goods and services really drives the economy. If everyday people want to buy more widgets and have the wherewithal to do so, that creates jobs: for the widget-makers, the construction workers who expand the plant, the truckers who schlep the widgets from the factory to the store, the gas station operators who supply the fuel for those trucks, and on and on. Saving, though often an admirable thing to do, doesn't do that.

We might also note this graph, showing that since the Johnson administration, every Democratic president has increased revenue more than spending, and every Republican president has increased spending more than revenue. Thus, debt as a percentage of GDP declined fairly steadily after World War II... until it spiked under Presidents Reagan and Bush I. It then fell again during the Clinton administration, only to start climbing again during Bush II. So all this concern for the deficit is, to be kind, rather a new-found creed for Republicans.

But, really, this blog isn't about Republican hypocrisy on the deficit. That point has been made repeatedly by many people with far better economic credentials than mine. Curiously, neither the Corporate Media nor even the Democratic Party seems particularly interested in disseminating this data, but it's readily available. What I want to discuss is a different kind of radical inconsistency in Republican rhetoric. I hasten to note that some of the opinions expressed below are espoused by only a handful of Republicans, but 1). they're either former leaders of the party, elected officials, or the party nominee for significant state or federal office and 2). their positions have not—as far as I have been able to determine, at least—been repudiated by party leaders in either sense of that term (i.e., by Michael Steele on the one hand, or John Boehner, Mitch McConnell, et al., on the other).

I refer here to the practice of demonizing the unemployed. The most recent round of this process can probably be traced to this February, with Senator Jim Bunning's absurd but effective one-man crusade against extending unemployment benefits. To be fair, Bunning's opposition was at least initially advanced on prodecural grounds: that such a bill shouldn't have been presented for unanimous consent. To say that I don't understand the arcane rules whereby a single Senator (other than the majority leader, perhaps) can hold up important legislation is to err on the side of understatement. But it's equally true that I fail to comprehend how the Democratic leadership lacks the political will and/or parliamentary expertise to circumvent the obstructionist tactics of a single crackpot.

Anyway, while as far as I can determine Bunning made no assertion that the unemployed deserve what they get, his defenders did. Our friend Jon Kyl suggested on the Senate floor in early March, for example, that “continuing to pay people unemployment compensation is a disincentive for them to seek new work.” He does immediately claim that “I'm sure most of them would like work, and probably have tried to seek it.” A couple days later, former House Majority Leader Tom DeLay included no such qualifiers. Here's part of his exchange with CNN's Candy Crowley on State of the Union.

CROWLEY: ...people are unemployed because they want to be?

DELAY: Well, it is the truth. And people in the real world know it.

Most recently, Tom Corbett, the Republican nominee for governor of Pennsylvania, told radio reporter Scott Detrow that “The jobs are there. But if we keep extending unemployment, people are going to sit there and—I’ve literally had construction companies tell me, I can’t get people to come back to work until… they say, I’ll come back to work when unemployment runs out.”

And then, of course, there's Sharron Angle, who is running against Senate Majority Leader Harry Reid. Here's my personal favorite sequence from her interview with John Ralston of Face to Face:

RALSTON: You think that a bunch of people are sitting out there saying, “You know what, this is great! I got my unemployment check coming in, I'm not going to go out and look for a job?”

ANGLE: No, they're not.

RALSTON: But that's what you're implying.

ANGLE: It's not what I'm implying. What I'm implying is that there are some jobs out there that are available. Because they have to enter at a lower grade and they cannot keep their unemployment they have to make a choice. We're making them make a choice between unemployment benefits and going back to work and working up through the ranks of that job and actually building up a good wage again and building up some seniority in that job. And what we need to do is make that unemployment benefit go down, not just completely remove the safety net from them while they go out and look for a job.

RALSTON: So you're saying if people lose their jobs through no fault of their own, as many have during this recession, Sharron Angle's solution is to cut their unemployment benefits so low so they're somehow gonna go out and find jobs that don't exist? How does that make any sense?

ANGLE: There are jobs that do exist. That's what we're saying, is that there are jobs. But those are entry-level jobs.

First off, of course, unemployment benefits are already indeed only a percentage—usually about half—of what a worker could make at a job in his or her trade. So Angle really has no idea what she's talking about. Moreover, her solution to the problem is to take that unemployed accountant or dental hygienist or machinist and make 'em work at Mickey D's. If they apply themselves, they might make assistant manager in only a few months.

By now, you'll have spotted a trend. In what is becoming, apparently, mainstream Republican thinking, the real reason we shouldn't extend unemployment benefits isn't really the deficit at all. It's that the unemployed are lazy, unmotivated, and probably unethical: cut their benefits and they'll find a job fast enough.

Be it understood: I have no doubt that there are those who really are lazy bums, who scam the system, who remain out of work not because they'll make as much on unemployment as on the job, but because the difference between a paycheck and an unemployment check might be small enough to make staying out of work more attractive. But surely these people are a small minority, and the overwhelming majority of people currently out of work are in fact trying desperately to find employment: indeed, according to a very interesting article by Heather Boushey, Christine Riordan, and Luke Reidenbach, writing for the Center for American Progress and the National Employment Law Project:

At the end of May, nearly half of those unemployed (46 percent) have been out of work and actively seeking a job for at least six months, a post-World War II record high. Currently, there are nearly five workers actively searching for work for every job available, compared to just one and a half job searchers per job opening before the Great Recession began.

That people would prefer to seek employment in a field for which they have training and experience—provided that their skills are both current and relevant—doesn't strike me as an unreasonable desire. Perhaps some additional safeguards against abuse might be appropriate (I'm not necessary advocating this; I just don't know), but the whole foundation of unemployment compensation is that the only people receiving it are those who have been part of the work force but for reasons beyond their control are temporarily out of a job. That the current economic malaise means that more people are in this situation longer strikes me as self-evident.

Yet the entire Republican Party seems to be gravitating en masse towards this curious and frankly rather distasteful blame-the-victim mentality. It is long overdue for the leaders of the GOP to go on the record to suggest that Americans currently out of work are, as a group, neither unmotivated nor unethical: and that means a frank repudiation of the likes of Kyl, DeLay, Corbett and Angle. If the RNC and the minority leaders of the two houses won't do so out of ethical necessity, then they should do so out of self-interest. After all, if the unemployment numbers are created by sluggishness not in the economy but in the workforce, they can't very well be blamed on Obama and the Democrats, can they?

Be it noted: I am not so naïve as to think that the GOP won't try to have it both ways, but they'll sacrifice any credibility they might have had. Or such, at least, is the consummation devoutly to be wished.