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Old 07-10-2011, 07:40 AM   #21
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This feedback/homeostatic mechanism ain't gonna work when 50% of the voting public pays just 2.7% of the federal income tax burden (and pays just 2.6% of their income in FIT (link, 2008 numbers)). They get far more in services than they pay, and it is rational for them to vote for more services, subsidies, transfer payments, etc. When someone else is paying my tab in the restaurant, I don't much care how efficiently the place is run--but I'll have another piece of pie, thanks.
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Old 07-10-2011, 10:29 AM   #22
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Originally Posted by samclem View Post
This feedback/homeostatic mechanism ain't gonna work when 50% of the voting public pays just 2.7% of the federal income tax burden (and pays just 2.6% of their income in FIT (link, 2008 numbers)). They get far more in services than they pay, and it is rational for them to vote for more services, subsidies, transfer payments, etc. When someone else is paying my tab in the restaurant, I don't much care how efficiently the place is run--but I'll have another piece of pie, thanks.
It's a false dichotomy. Everyone* votes "rationally" to increase their services, regardless of whether they pay taxes or not. In other words, everyone's asking for a third piece of pie (because, goshdarnit, I paid for it!). Look at the "I'm entitled to my SS" arguments on this forum. The contributions wouldn't support an annuity at their pay-out.

The Economist had an article about city pensions and, specifically, Atlanta's underfunded liabilities. The Mayor fought the civil servants tooth-and-nail and finally won concessions. The alternative, of course, was defaulting on city pensions in ~5 years. We may face this scenario nationwide in a few weeks.



*Not 100% everyone but nearly everyone. It's why we're in this mess in the first place.
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Old 07-10-2011, 11:28 AM   #23
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You're ignoring that those people are also paying FICA, Medicare taxes, gas taxes, corporate income taxes whenever they buy goods, etc. Income taxes only make up about 42% of the Federal government's revenues, but people keep pretending that they are the whole story.

You are also ignoring that most states have a regressive tax burden. The middle class generally pays a higher percentage of their income in state and local taxes than the wealthy do. Sales and property taxes are generally pretty regressive. Sin taxes are extraordinarily so.

Just about everyone who works has a decent amount of skin in the game. Even when I worked at McDonald's in high school, I noted how much smaller my takehome pay was than my gross pay.

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This feedback/homeostatic mechanism ain't gonna work when 50% of the voting public pays just 2.7% of the federal income tax burden (and pays just 2.6% of their income in FIT (link, 2008 numbers)). They get far more in services than they pay, and it is rational for them to vote for more services, subsidies, transfer payments, etc. When someone else is paying my tab in the restaurant, I don't much care how efficiently the place is run--but I'll have another piece of pie, thanks.
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Old 07-10-2011, 11:40 AM   #24
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Sales and property taxes are generally pretty regressive. Sin taxes are extraordinarily so.
I don't think your terms here are correct. AFAIK, sales and property taxes are a "flat tax", as are "sin taxes".

It might be true that a low-middle income earner spends a higher % of their income on these things - but the tax itself is still flat. They don't change the tax rate based on income.

And then there are fixed taxes (sometimes call a "head tax"), like the sticker for my car, the connect fee I pay the (monopoly) utility company, etc. Same amount regardless how much I use the product.

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Old 07-10-2011, 12:59 PM   #25
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I'm pretty sure that is the commonly understood definition of a regressive tax.

When people talk about the "Fair tax" (a national sales tax), even proponents talk about using rebates to counteract it's regressive nature.

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It might be true that a low-middle income earner spends a higher % of their income on these things - but the tax itself is still flat. They don't change the tax rate based on income.
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Old 07-10-2011, 01:39 PM   #26
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It might be true that a low-middle income earner spends a higher % of their income on these things - but the tax itself is still flat. They don't change the tax rate based on income.
There are no US taxes that I can think of were a lower income person pays a higher rate than a higher income person.

But it's not a bad idea, that might get 'em voting to lower expenses, though on a strictly in and out basis, the lower income would likely still be $$ ahead to vote for any redistribution that they can, as so much of what they gain will be non taxable anyway.

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Old 07-10-2011, 02:18 PM   #27
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There are no US taxes that I can think of were a lower income person pays a higher rate than a higher income person.
Social security taxes % of total wages. The rate is flat but then goes to 0. That is a extremely regressive. Payroll taxes are not included in the tax analysis linked earlier, otherwise they would lead to a different conclusion, one not favorable to higher income earners.
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Old 07-10-2011, 02:54 PM   #28
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I don't think your terms here are correct. AFAIK, sales and property taxes are a "flat tax", as are "sin taxes".

It might be true that a low-middle income earner spends a higher % of their income on these things - but the tax itself is still flat. They don't change the tax rate based on income.

And then there are fixed taxes (sometimes call a "head tax"), like the sticker for my car, the connect fee I pay the (monopoly) utility company, etc. Same amount regardless how much I use the product.

-ERD50
Sales tax is generally considered regressive because lower income people spend a larger portion of their total incomes, and therefore have a higher effective rate. Sin taxes are as well, but because people are not compelled to consume in this category, it is more difficult to frame a moral argument. Property taxes aren't clearly regressive or flat because of assessment and zoning, but because housing consumption rises in line with income they are generally considered "flat".
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Old 07-10-2011, 03:35 PM   #29
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There are no US taxes that I can think of were a lower income person pays a higher rate than a higher income person.
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Social security taxes % of total wages.
Yes, SS is what I would call a mathematically 'regressive' tax system.

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The rate is flat but then goes to 0. That is a extremely regressive.
Of course, this gets complicated because the payouts for SS are highly progressive, with lower income earners taking a higher % of relative to what they put in, so IMO, when you consider input and output, it gets muddy. That amount that the high earners do not pat in isn't going towards any benefit either, so it's all a bit fuzzy.


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Sales tax is generally considered regressive because lower income people spend a larger portion of their total incomes, and therefore have a higher effective rate.
I see what you're saying, and the dictionary definitions I glanced at use that approach also. However, it seems to me that renders the term almost useless, because it all depends on the individual (although some trends would be strong). Whereas my definition holds based on the math. A tax is either progressive, flat, regressive or a 'head tax', based on how it is levied, rather than how it fits in an individuals personal budget.

Clearly, some wealthy people spend a higher % of their income on expensive wine and scotch than some poor people do (tea totalers, or very light drinkers). So a sin tax isn't always regressive. But mathematically, it is always 'flat'.

I guess it just makes for odd math to try to measure a tax in terms of income, unless it is a tax levied on income. Just seems like apples-oranges to me. But, my thinking seems to be at odds with conventional usage - not the first time!

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Old 07-10-2011, 04:51 PM   #30
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It's a false dichotomy.
Please point out the dichotomy--I didn't pose one (false or valid).
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Old 07-10-2011, 05:17 PM   #31
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This is why I included the word "generally" in my description. Sales and sin taxes are generally, but not universally regressive.

It's remarkably challenging to pin down exactly how regressive. The studies I've seen for Minnesota put the middle class as paying somewhere around 12% of their incomes in state and local taxes, while the top 1% are paying about 9%.

From a practical standpoint, there is really no way around this. If you are extremely wealthy, it is pretty easy to establish residency in a state with no income taxes.

I'm not sure that the studies have measured the number of people living in one state but claiming "residency" in a different state to avoid income taxes.

This is one reason that the Federal tax system should remain progressive.
It's a lot harder to cut ties with the country than a state (although I think this may become an issue in the future).

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Clearly, some wealthy people spend a higher % of their income on expensive wine and scotch than some poor people do (tea totalers, or very light drinkers). So a sin tax isn't always regressive. But mathematically, it is always 'flat'.
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Old 07-10-2011, 05:30 PM   #32
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But, my thinking seems to be at odds with conventional usage - not the first time!
So you give yourself special credit for being daring and unconventional, and all because you misused a term?
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Old 07-10-2011, 05:55 PM   #33
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You're ignoring that those people are also paying FICA, Medicare taxes, gas taxes, corporate income taxes whenever they buy goods, etc. Income taxes only make up about 42% of the Federal government's revenues, but people keep pretending that they are the whole story.
- I wrote "income taxes" for this reason.
- Corporate taxes: Yes, they are ultimately "regressive" for poor people, I cannot imagine why folks who claim to represent the poor continue to champion higher corporate tax rates--it simply represents the triumph of demagoguery over facts.
- Let's disaggregate the whole federal revenue picture to see why voters won't put the brakes on spending. For this discussion, it's important to remember that the median AGI on US income tax returns for (2008) was $33k. "Median" = just as many returns (and, for our purposes here, voters) below this number as above it.
-- SS/Medicare payroll taxes (40% of federal revenue): Almost all the money now taken in for these programs is also spent on these programs. Those below the median income receive a very good "return" (expected benefit) for every dollar they pay into SS and Medicare. The overall return is highly progressive. Those above this level receive a progressively worse deal. And yet, the talk today, when it concerns increasing SS payroll taxes, is all about how we can extract still more money from those who earn in the upper quintile. The lower 50% of earners cannot be expected to argue for lower SS or Medicare expenditures in the present environment, not when they pay far less than $1 for every dollar in benefits they receive. So, no homeostatic pressure here--those below the median income will vote for more pie.
-- Individual income taxes: 42% of government revenues. The 50% of people below the median paid almost none (again, on average it was less than 3% of their earnings). These taxes pay for all types of benefits received disproportionately by the 50% of voters below the median income: EITC, the upcoming huge health care subsidies, block grants that pay for services to the poor, food stamps, etc. So, no homeostatic pressure here--those below the median income will vote for still more pie and higher taxes--for others to pay.

-- Corporate taxes (9% of revenues): As above, these pay for disproportionate benefits for those below the median income, but unlike the above, those below the median income pay a large portion of these taxes (indirectly). Again, logic alone cannot explain why the poor, and their advocates, do not appear to be pushing for lower corporate tax rates.
-- Other revenues (excise taxes, customs, etc) 9% of revenues: Effectively below the radar in our national debate.
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Old 07-10-2011, 06:16 PM   #34
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I think that you need to separate this out a little further. The people paying these taxes are not the ones receiving the benefits currently. A large portion of the people paying into these systems are not real confident that they are going to see any return at all for their money.

I suspect that support of these programs breaks down more by age than by income. The older a person is, the more likely it is that they will actually receive benefits from these programs. Obviously, if someone is already receiving benefits, they will generally be opposed to cuts in benefits, regardless of how much income they made when they were paying into the system. Likewise, the young working poor probably don't care about cuts to SS and Medicare, because they won't receive those benefits for decades, and have pretty much accepted that the people in charge now will eat the seed corn long before they get a chance to collect.

You're worried about the working poor voting themselves extra benefits. I'm worried about the non-working elderly doing so.

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-- SS/Medicare payroll taxes (40% of federal revenue): Almost all the money now taken in for these programs is also spent on these programs. Those below the median income receive a very good "return" (expected benefit) for every dollar they pay into SS and Medicare. The overall return is highly progressive. Those above this level receive a progressively worse deal. And yet, the talk today, when it concerns increasing SS payroll taxes, is all about how we can extract still more money from those who earn in the upper quintile. The lower 50% of earners cannot be expected to argue for lower SS or Medicare expenditures in the present environment, not when they pay far less than $1 for every dollar in benefits they receive. So, no homeostatic pressure here--those below the median income will vote for more pie.
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Old 07-10-2011, 06:27 PM   #35
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You're worried about the working poor voting themselves extra benefits. I'm worried about the non-working elderly doing so.
As you note, I didn't make any distinctions by age, only by income. I think we are both right--those receiving benefits for which they pay nothing (or very little) will vote to increase those benefits. If their number exceeds 50% of voters, then we have no effective mechanism to restrain this spending. That, in my opinion, is the fundamental "political/architectural" problem that underlies our present budget crisis and government spending orgy.

It's easy to find a hundred heartfelt emotional reasons to argue for a more "progressive" tax system. The situation above highlights the objective rationale for a less progressive tax system (or, even more controversially, a voting system weighted by taxes paid--but let's not have that discussion here).
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Old 07-10-2011, 06:31 PM   #36
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States that vote for Democratic presidential candidates pay more in taxes and receive less in benefits, while states that vote for republican candidates pay less and receive far more. You can cut and dice the numbers to show anything, especially when you start with the conclusion and work your way back into the data.

This whole argument about who pays and who benefits is a red herring. People and companies in the US add more value and create more wealth that anywhere else in the world. We are productive and well educated, have a fantastic legal system and judicial process, the best universities in the world. We also have the biggest and best physical infrastructure. People before us paid for all that and we benefit. If they focused as much on who pays and who benefits as people do now we would probably be suffering a lower standard of living today.
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Old 07-10-2011, 08:08 PM   #37
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States that vote for Democratic presidential candidates pay more in taxes and receive less in benefits, while states that vote for republican candidates pay less and receive far more. You can cut and dice the numbers to show anything, especially when you start with the conclusion and work your way back into the data.
I agree with the bolded portion, and cite the balance of your post as an example. Your red state/blue state hypothesis suffers from data aggregation errors and is effectively countered by the study synopsis here. In part (emphasis added):
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For decades, Democrats have been viewed as the party of the poor, with Republicans representing the rich. Recent presidential elections suggested a reversal in this pattern, with Democrats performing well in richer "blue" states of the Northeast and West Coast, and Republicans dominating a central swath of poorer "red" states in the South and Midwest.
To reconcile this paradox, Park and his colleagues examined more than four decades of data on income and voting patterns and compared trends at the individual, county, state and national levels. Results shed light on what's really behind the seeming shift in rich-poor voter affiliations and debunk a number of common misconceptions about current political realities.
'Gross oversimplification'
"Our results suggest that the popular journalistic image of rich latte-drinking Democrats and poor NASCAR Republicans is a gross oversimplification," Park says. "Income varies far more within states than average income does between states, and it is these with-in-state variances that explain national voting patterns."

The bottom line, the study suggests, is that little has changed in terms of income's general influence on individual voting patterns: in every presidential election since 1952, the richer a voter is, the more likely that voter is to vote Republican, regardless of ethnicity, sex, education or age.
What's changing, the researchers argue, is how differences in income are playing out at the county and state levels. A key finding is that relative income is a much stronger predictor of voting preferences in poor states than it is in rich states.
And the reverse: The poorer a voter is, the more likely the voter will vote Democratic. And to the degree poor people receive more benefits than they they pay for, and to the degree Democrats are more likely to favor increasing these benefits, my previous point is supported.

The whole idea that "Blue states vote for X" obscures the point that the state "votes" for whoever a majority of their voters choose. It's those voters, not the states, who are apparently voting for their economic self-interests.
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Old 07-10-2011, 08:15 PM   #38
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I would say that our voting system is currently being weighted to a large degree by the wealth people have.

Money buys ads, and ads to a large degree determine who wins elections.

People in general are not voting based on some well-thought out analysis of their economic well-being, as you suggest.

To a large degree, they vote for whoever the TV tells them to.


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It's easy to find a hundred heartfelt emotional reasons to argue for a more "progressive" tax system. The situation above highlights the objective rationale for a less progressive tax system (or, even more controversially, a voting system weighted by taxes paid--but let's not have that discussion here).
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Old 07-10-2011, 08:31 PM   #39
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People in general are not voting based on some well-thought out analysis of their economic well-being, as you suggest.
I'd welcome any evidence you've got. I'd also agree with the general point that perhaps the only counterweight to a "tyranny of the majority" is the ability of those above the median income to make their position known through political speech--which they fund. This is another reason that campaign contribution limits and other barriers to the free speech are dangerous.

I'm guessing you won't agree.
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Old 07-10-2011, 09:27 PM   #40
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This is why I included the word "generally" in my description. Sales and sin taxes are generally, but not universally regressive.

....


This is one reason that the Federal tax system should remain progressive.
It's a lot harder to cut ties with the country than a state (although I think this may become an issue in the future).
Fair enough, but I just feel it lessens the meaning of the word - it just gets fuzzy. And I'm also in favor of a progressive tax system. I think it just makes sense on many levels. What the slope should look like is a big question.

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So you give yourself special credit for being daring and unconventional, and all because you misused a term?
Special Credit? I dunno, but I'll stand by what I said - my definition remains consistent under all circumstances, the 'conventional' definition does not - that appears to be factual to me (mathematically correct). IMO, there should be two different terms used, but I certainly don't expect Websters to adapt to my view. But I can still point out the inconsistency, no?

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