Trickle Up Economics?

[LC]

https://www.journals.uchicago.edu/doi/abs/10.1086/701424

 

This paper investigates how tax changes for different income groups affect aggregate economic activity. I construct a measure of who received (or paid for) tax changes in the postwar period using tax return data from NBER’s TAXSIM. Variation in the income distribution across US states and federal tax changes generate variation in regional tax shocks that I exploit to test for heterogeneous effects. I find that the positive relationship between tax cuts and employment growth is largely driven by tax cuts for lower-income groups and that the effect of tax cuts for the top 10 percent on employment growth is small.

 

[LC]

Great news for the uber-wealthy out there:

 

You officially pay the lowest taxes in our entire country!

 

 

https://www.nytimes.com/interactive/2019/10/06/opinion/income-tax-rate-wealthy.html

 

 

[RuleNumberOne]

Article is misleading. It focuses on the "400 richest households" and the "sharp change from the 1950s and 1960s".

 

Those "400 wealthiest" people can live anywhere in the world - that too is a "sharp change from the 1950s and 1960s". Their tax rate is capped by what other countries like France and Germany would tax them (30% capital gains tax rate.) Europe was bombed out in the 1950s.

 

As it is the US cannot afford the promise of unlimited quantities of the best healthcare. Those authors say

we need to tax the top 400 and spend it on universal pre-K.

 

The article evades talking about how much the upper middle class pays. But it can be inferred - they say the middle-class and poor tax rates are flat compared to the 1950s. That can only mean everybody else other than the top 400 pays more.

 

 

Great news for the uber-wealthy out there:

 

You officially pay the lowest taxes in our entire country!

 

 

https://www.nytimes.com/interactive/2019/10/06/opinion/income-tax-rate-wealthy.html

[RuleNumberOne]

When France's President put in his "millionaire tax" in 2014, France's richest man moved to Belgium.

 

Elizabeth has a 40% exit tax, but can she make it retroactive?

 

[Guest Schwab711]

The article evades talking about how much the upper middle class pays. But it can be inferred - they say the middle-class and poor tax rates are flat compared to the 1950s. That can only mean everybody else other than the top 400 pays more.

 

That's the point of the article?

 

The article isn't evasive. It's just an article and it can only be so long before it's readership drops off due to length. You have to have a focus? Not every article you don't like is biased or wrong.

 

The issue is the tax scheme and the lack of tax enforcement. The IRS has stated numerous times in recent years that they don't have enough personnel/resources to enforce tax laws, especially against rich folks. The wealthier you are, the less likely you are to be audited at the moment. That makes no sense from a simple ROI point of view. The CBO put out a study in 2018 saying that if $20b was spent on tax enforcement over 10 years, it would generate $50b in additional, uncollected tax revenue. It's a concerted effort to under-staff the IRS and allow tax dodging.

[LC]

https://www.theguardian.com/inequality/2017/nov/20/if-you-tax-the-rich-they-wont-leave-us-data-contradicts-millionaires-threats

 

The data indicates: No, generally the rich do not leave jurisdictions based on taxation.

 

Also, up until the 1980s the wealthiest paid the most taxes. And up until 2018 did the wealthiest pay more than the poorest. So why didn’t we see mass migration from the 70s through the 2000s?

 

Going back to a tax regime from the 80s (which when represented graphically, looks exactly how a progressive scheme should appear) would generate probably 500-600B, which could go a long ways to upgrade infrastructure and put a dent in rising inequality.

 

 

[stahleyp]

I think all the wealthy people leaving is fear mongering. They have their business here, friends, family. Seriously, is your life going to be better if you have $100 million and no close friends or family near by in a culture you're not familiar with vs $75 million (or whatever) and with your current set up?

 

I don't agree with some of Warren's policies (like free college or loan forgiveness) but I do like higher taxes.

[Tim Eriksen]

Great news for the uber-wealthy out there:

 

You officially pay the lowest taxes in our entire country!

 

 

https://www.nytimes.com/interactive/2019/10/06/opinion/income-tax-rate-wealthy.html

 

I would love to see the data to support this claim.  Their graphic I saw on twitter showed the bottom 10% of income paying over 20% federal, state and local taxes.  I find that very hard to believe.  The bottom half pay no federal income tax.  Did they use income or Adjusted Gross Income?  The bottom 10% of filers have a negative rate due to EITC and Child Tax Credit.  I suspect these were ignored.  The bottom 10% get additional subsidies (food stamps, Sec. 8, school lunches, heating assistance, Pell grants, etc.).  Likely also ignored.  The bottom 10% get much more from Social Security than they put in (if they even contribute due to EITC), but they conveniently ignore that part.  The bottom 10% do not pay for Medicare but will collect that too.    The bottom 10% typically do not own a home.  Did they attribute property tax to renters or property owners?   

[Guest Schwab711]

Here's the paper:

https://www.brookings.edu/wp-content/uploads/2019/09/Saez-Zucman_conference-draft.pdf

 

They don't go in to detail on the math but it says "all federal, state, and local taxes included". It seems like they aren't including tax credits, to your point (though that makes you wonder what "all" taxes means then).

 

I'm guessing excise taxes, flat tax schemes in many states, and sales taxes/negative savings rates are an overwhelming factor here. There has to be double counting of property taxes and/or adjusting social security income, right? It seems really hard to reconcile these results with other studies that have far lower estimates of all-in tax rates for the lowest quintile.

[LC]

https://gfycat.com/fakecandiddungbeetle

 

This is the progression of tax rates per income group from 1950-2018.

 

"All federal, state, and local taxes are

included. Taxes are expressed as a fraction of pre-tax income"

 

This should exclude tax credits.

 

The source is: source is Piketty, Saez, and Zucman 2018 updated

estimates

 

Which I believe is this:

https://eml.berkeley.edu/~saez/PSZ2019datafile.xlsx

[Guest Schwab711]

https://gfycat.com/fakecandiddungbeetle

 

This is the progression of tax rates per income group from 1950-2018.

 

"All federal, state, and local taxes are

included. Taxes are expressed as a fraction of pre-tax income"

 

This should exclude tax credits.

 

The source is: source is Piketty, Saez, and Zucman 2018 updated

estimates

 

Which I believe is this:

https://eml.berkeley.edu/~saez/PSZ2019datafile.xlsx

 

Excellent, thank you!

[LC]

Yes and to be fair - tax credits push down the left side of the curve.

 

I am not sure what the reason for using pre-tax income vs. effective tax rates is. Perhaps for (1) consistency of comparison or (2) data availability.

 

But, we can generally envision the outcome of introducing tax credits into these charts:

 

The left side of the curve will drop as the lower income groups claim the highest percentage-benefit of tax credits (i.e. the standard deduction of $12,000 drops your taxes by 30% if you make 40k/year but only 3% if you make 400K).

 

And I'm being quite conservative by assuming billionaires are taking the standard deduction and not itemizing millions of tax deductions.

So while tax credits will drop the left side of the curve, it will not increase the right side of the curve - and this is where the major problem lies:

 

While those living in poverty went from paying 20% taxes to 5-10% effective taxes, those living in the stratosphere went from paying 50-60% taxes to 20-25% effective taxes.

 

 

[RuleNumberOne]

Schwab711,

 

That Guardian article was a deceptive article produced by a crooked mind. Three dirty tricks employed in that article:

 

1. The average of 2.4% was computed across all states. We need the numbers for CA alone, not CA averaged with zero-income-tax or zero-capital-gains-tax states.

 

2. It says 84% of billionaires lived in their countries of birth. The question to be answered is how many billionaires lived in high-tax countries of birth.

 

3. We really need the stats for CA after 2011 - when CA introduced the 13.3% tax.

[RuleNumberOne]

I personally know several people who left CA for zero-tax states or the country itself after getting wealthy.

 

Charlie Munger says he knows a lot of people who left CA because of the high taxes and that it was very stupid of CA to lose such people.

 

Should I believe my own eyes or some devious and envious journalist?

Should I believe Charlie Munger or some devious and envious journalist?

 

[LC]

Schwab711,

 

That Guardian article was a deceptive article produced by a crooked mind. Three dirty tricks employed in that article:

 

1. The average of 2.4% was computed across all states. We need the numbers for CA alone, not CA averaged with zero-income-tax or zero-capital-gains-tax states.

 

2. It says 84% of billionaires lived in their countries of birth. The question to be answered is how many billionaires lived in high-tax countries of birth.

 

3. We really need the stats for CA after 2011 - when CA introduced the 13.3% tax.

 

While I think it is admirable to be naturally skeptical, unless you have the research at hand to disprove the claims from a certain article, perhaps we should not be so quick to throw around words like 'crooked' and 'deceptive'

 

For example on your item #3 above, i.e. the marginal Californian millionaire's response to tax increases, analysis has already been done using (1) the 1996 tax cut in California, (2) the 2005 Mental health tax which imposed a tax of 1% on taxable income above 1MM, and (3) the 2011 tax hike which you refer.

 

https://inequality.stanford.edu/sites/default/files/media/_media/working_papers/Varner-Young_Millionaire_Migration_in_CA.pdf

 

Below are the conclusions from the initial study (done in 2012 on items 1 and 2)

 

2. Using difference-in-differences models, which compare migration trends of the group

experiencing the tax increase to a group of high-income earners not facing a tax change, neither

in-migration or out-migration show a tax flight effect from the introduction of the 2005 Mental

Health Services Tax. In fact, out-migration has a “wrong-signed” estimate: out-migration

declined among millionaires after the tax was passed (both in absolute terms and compared to the

control group). In other words, the highest-income Californians were less likely to leave the state

after the millionaire tax was passed.

 

4. The 1996 tax cuts on high incomes likewise had no consistent effect on migration. There

was a small effect for those experiencing the small (0.7%) tax cut, but no effect at all for those

experiencing the large (1.7%) rate cut. While we are planning to analyze the 1996 tax cut in

greater detail, the overall picture is one of no clear effect.

 

This paper was updated in 2018 to include the 2011 tax hike which you refer:

 

https://inequality.stanford.edu/sites/default/files/millionaire-migration-california-impact-top-tax-rates.pdf

 

Again the abstract conclusion:

 

We examine three waves of tax reform affecting top earners:

two “millionaire taxes” passed by voters via the proposition system in 2004 and 2012, and a tax

cut passed by legislation in 1996. We emphasize non-parametric, graphical analyses that reveal

the evidence with as few assumptions as possible and analogous regression models that confirm

the non-parametric results. Both in absolute terms, and compared to sensible control groups, we

find little migration response to changes in top tax rates

 

 

So when you ask the following question:

I personally know several people who left CA for zero-tax states or the country itself after getting wealthy.

 

Charlie Munger says he knows a lot of people who left CA because of the high taxes and that it was very stupid of CA to lose such people.

 

Should I believe my own eyes or some devious and envious journalist?

Should I believe Charlie Munger or some devious and envious journalist?

It seems you are in fact the one being devious by not including a third option: the actual immigration and income tax data.

[RuleNumberOne]

What you are claiming is not logical.

 

If the Federal tax rate is 60% and the state tax rate is 13.3%, someone can move out of CA and get a 50% increase in their after-tax income.

If AOC becomes president and the Federal tax rate becomes say 74%, someone can move out of CA and double their after-tax income.

 

The Stanford study you reference specifically talks about immobility for skilled people. It does not address the obvious mobility of capital gains income. What happens when there is a bust and the skilled people are out of work? Another big spike in the CA state tax rate?

[LC]

Authors response to methodology criticism:

 

“Zucman countered that his and Saez's analysis considers the EITC and other credits like it as transfers of income, akin to food stamps or jobless benefits, rather than tax provisions.

 

"If you start counting some transfers as negative taxes, it is not clear where to stop," he said via email. "Do you treat the EITC as a negative tax? Veterans' benefits? Medicaid? defense spending? . . . There's no clear line, and the results become arbitrary."

[rukawa]

19 century had close to zero income tax and it was and remains the single most innovative period of American history by far. Its also a period when there was an enormous increase in living standards and income.

 

What exactly are the taxes buying us? A behemoth bureaucratic government? A welfare state breeding criminals, , mass shootings, single mothers, gangland shootings and municipal decay and dysfunction. When you have a bad product/service why in the hell would you want to buy more of it.

[RuleNumberOne]

LC,

 

Lying Liz has hired dishonest advisers (Saez, Gucman who are the authors you corresponded with) who are as Evasive as herself. Bloomberg did the calculation you were looking for. Were Saez and Gucman dishonest to begin with or did they become that way after Elizabeth hired them?

 

I am fine with the bottom 20% paying a negative tax rate (or even the bottom 70%). Just pointing out that both Elizabeth and her advisers are dishonest. Elizabeth is proposing a short-term capital gains tax rate for California of 69%. Pre-Trump it was 57.4%, right now it it 54.1%.

 

NYT suppressing Hunter Biden corruption and trumpeting evasive tax data from evasive researchers.

 

https://www.bloomberg.com/opinion/articles/2019-10-10/the-rich-really-do-pay-higher-taxes-than-you

 

"For Democrats, the Overton window — the range of ideas that are not considered extreme — has shifted markedly to the left in the last few years. It now seems that the window for discourse about economic reality is moving as well.

 

Take the headline on David Leonhardt’s recent New York Times column, summarizing the research of economists Emmanuel Saez and Gabriel Zucman, who are advisers to Elizabeth Warren: “The rich really do pay lower taxes than you.”

 

If you subtract these payments from federal taxes paid, the tax rate for the top 20% of households (including the top 1%) is unchanged, as those households don’t receive means-tested benefits. The tax rate for households in the middle 20% drops considerably, from 14% to 9%. And the rate for the bottom 20% of households plummets to minus 70%. Those households receive $49 in transfer payments for every $1 they pay in federal tax.

 

Saez and Zucman train much of their focus on the 400 wealthiest Americans. This group makes up 0.0003% of households. Characterizing features of the tax system based on a few hundred individuals is silly."

 

Authors response to methodology criticism:

 

“Zucman countered that his and Saez's analysis considers the EITC and other credits like it as transfers of income, akin to food stamps or jobless benefits, rather than tax provisions.

 

"If you start counting some transfers as negative taxes, it is not clear where to stop," he said via email. "Do you treat the EITC as a negative tax? Veterans' benefits? Medicaid? defense spending? . . . There's no clear line, and the results become arbitrary."

[RuleNumberOne]

Elizabeth's interview questions when she hires economics advisers:

 

1. Give me examples of your dishonesty.

 

2. If somebody probes deeper, show me how evasive you can get.

 

3. Here are some numbers. Twist, hide and lie to fit the conclusions.

 

LC,

 

Lying Liz has hired dishonest advisers (Saez, Gucman who are the authors you corresponded with) who are as Evasive as herself. Bloomberg did the calculation you were looking for. Were Saez and Gucman dishonest to begin with or did they become that way after Elizabeth hired them?

 

I am fine with the bottom 20% paying a negative tax rate (or even the bottom 70%). Just pointing out that both Elizabeth and her advisers are dishonest. Elizabeth is proposing a short-term capital gains tax rate for California of 69%. Pre-Trump it was 57.4%, right now it it 54.1%.

 

NYT suppressing Hunter Biden corruption and trumpeting evasive tax data from evasive researchers.

 

https://www.bloomberg.com/opinion/articles/2019-10-10/the-rich-really-do-pay-higher-taxes-than-you

 

"For Democrats, the Overton window — the range of ideas that are not considered extreme — has shifted markedly to the left in the last few years. It now seems that the window for discourse about economic reality is moving as well.

 

Take the headline on David Leonhardt’s recent New York Times column, summarizing the research of economists Emmanuel Saez and Gabriel Zucman, who are advisers to Elizabeth Warren: “The rich really do pay lower taxes than you.”

 

If you subtract these payments from federal taxes paid, the tax rate for the top 20% of households (including the top 1%) is unchanged, as those households don’t receive means-tested benefits. The tax rate for households in the middle 20% drops considerably, from 14% to 9%. And the rate for the bottom 20% of households plummets to minus 70%. Those households receive $49 in transfer payments for every $1 they pay in federal tax.

 

Saez and Zucman train much of their focus on the 400 wealthiest Americans. This group makes up 0.0003% of households. Characterizing features of the tax system based on a few hundred individuals is silly."

 

Authors response to methodology criticism:

 

“Zucman countered that his and Saez's analysis considers the EITC and other credits like it as transfers of income, akin to food stamps or jobless benefits, rather than tax provisions.

 

"If you start counting some transfers as negative taxes, it is not clear where to stop," he said via email. "Do you treat the EITC as a negative tax? Veterans' benefits? Medicaid? defense spending? . . . There's no clear line, and the results become arbitrary."

[cameronfen]

I am usually on their side, but I would take the Zucman, Saez, and Piketty school of research on inequality with a grain of salt.  Obviously they are some of the biggest names, but even though they do try to be transparent (so this is not really a knock on them), some of there results have gotten some pushback from other academics.  This is not really my field so I don't know which papers are the most criticized, but, for example, their methodology for calculating effective tax rates is called into question by a decent number of people. 

 

edits: clarity

[LC]

I am fine with the bottom 20% paying a negative tax rate (or even the bottom 70%). Just pointing out that both Elizabeth and her advisers are dishonest.

I too think it's quite appropriate that the poorest 20% pay zero tax and/or receive net government benefits. That seems reasonable to me.

 

But your point on dishonesty is simply unsubstantiated. A point was made by another poster that liberals perceive Trump through black-tinted glasses - i.e. every action is interpreted in the most negative light. I'd argue you are doing the same in this situation. For example:

 

If you subtract these payments from federal taxes paid, the tax rate for the top 20% of households (including the top 1%) is unchanged, as those households don’t receive means-tested benefits. The tax rate for households in the middle 20% drops considerably, from 14% to 9%. And the rate for the bottom 20% of households plummets to minus 70%. Those households receive $49 in transfer payments for every $1 they pay in federal tax.

 

One argument for not including these items is the problem with attribution of benefits. I notice you only include certain benefits in your criticism. But let's example military spending and law enforcement. Now who receives the most marginal utility from these government expenditures - me, or Warren Buffett?

 

Even taking social security/medicare - What benefit does the healthy person receive for not living in a community of sickness and poverty? Now certainly it is not as beneficial as to the actual sick person receiving treatment, but it is also not zero. So how is this attributed?

 

This is why when the author stated "If you start counting some transfers as negative taxes, it is not clear where to stop", you glossed over this point, hence my observation of  black-tinted glasses.

 

Saez and Zucman train much of their focus on the 400 wealthiest Americans. This group makes up 0.0003% of households. Characterizing features of the tax system based on a few hundred individuals is silly."

Now on this, I think it's perfectly legitimate considering 1% of households own 40% of national wealth. And the major tax change over the past 50-60 years within that group vs. all other groups is simply astounding, particularly in the context of the economic inequality discussion.

[RuleNumberOne]

The fact is, these "evasive researchers aka Elizabeth advisers" and NYT "journalists" deliberately bait-and-switch between the top-400 and the top-1%.

 

The top-1% would be 1.2 million households that are paying an average of 33% Federal tax. The top-400 are paying 24%.

 

Another evasive tactic is to ignore the state income tax and property tax rates. They have been going up everywhere over the last 50-60 years. High-cost areas with high-priced homes have high property taxes.

 

If CA rates go up to 69% as Elizabeth plans, and incentivize the top-1% to move out of CA to escape the 13.3% CA state tax, who will pay the CA state expenses?

 

For example, mental health. Who will pay for CA mental health if the state-tax burden becomes half the after-Federal-tax income?

 

I am fine with the bottom 20% paying a negative tax rate (or even the bottom 70%). Just pointing out that both Elizabeth and her advisers are dishonest.

I too think it's quite appropriate that the poorest 20% pay zero tax and/or receive net government benefits. That seems reasonable to me.

 

But your point on dishonesty is simply unsubstantiated. A point was made by another poster that liberals perceive Trump through black-tinted glasses - i.e. every action is interpreted in the most negative light. I'd argue you are doing the same in this situation. For example:

 

If you subtract these payments from federal taxes paid, the tax rate for the top 20% of households (including the top 1%) is unchanged, as those households don’t receive means-tested benefits. The tax rate for households in the middle 20% drops considerably, from 14% to 9%. And the rate for the bottom 20% of households plummets to minus 70%. Those households receive $49 in transfer payments for every $1 they pay in federal tax.

 

One argument for not including these items is the problem with attribution of benefits. I notice you only include certain benefits in your criticism. But let's example military spending and law enforcement. Now who receives the most marginal utility from these government expenditures - me, or Warren Buffett?

 

Even taking social security/medicare - What benefit does the healthy person receive for not living in a community of sickness and poverty? Now certainly it is not as beneficial as to the actual sick person receiving treatment, but it is also not zero. So how is this attributed?

 

This is why when the author stated "If you start counting some transfers as negative taxes, it is not clear where to stop", you glossed over this point, hence my observation of  black-tinted glasses.

 

Saez and Zucman train much of their focus on the 400 wealthiest Americans. This group makes up 0.0003% of households. Characterizing features of the tax system based on a few hundred individuals is silly."

Now on this, I think it's perfectly legitimate considering 1% of households own 40% of national wealth. And the major tax change over the past 50-60 years within that group vs. all other groups is simply astounding, particularly in the context of the economic inequality discussion.

[LC]

I see. You ignore the attribution of all tax benefits, ignore the legitimacy of reviewing the top 400 US households, ignore the fact that studies do not show a link between state tax rates and state migration. Enjoy arguing with your straw-men.

[RuleNumberOne]

The state tax rates and state migration were with lower rates, not with Elizabeth's proposed rates. Who wouldn't migrate for a doubling of after-tax income?

 

Bait-and-switch between the top-400 and the top-1%, evasiveness, is an incurable Dem disease.

 

Dishonest candidates hiring dishonest advisers, supported by dishonest media. You can review the top 400 all you want, but then you apply the conclusion to the top-1%.

 

 

I see. You ignore the attribution of all tax benefits, ignore the legitimacy of reviewing the top 400 US households, ignore the fact that studies do not show a link between state tax rates and state migration. Enjoy arguing with your straw-men.