Five false myths that make liberals feel good
1. The U.S. has a progressive tax code
Actually, no. Not when you include all kinds of taxes. From this Economist column, which states “The fact of the matter is that the American tax code as a whole is almost perfectly flat.”
2. The U.S. is a land of opportunity
Actually, the mobility of the U.S. is worse than Canada’s or anywhere in Western Europe. From the NY Times article:
Despite frequent references to the United States as a classless society, about 62 percent of Americans (male and female) raised in the top fifth of incomes stay in the top two-fifths, according to research by the Economic Mobility Project of the Pew Charitable Trusts. Similarly, 65 percent born in the bottom fifth stay in the bottom two-fifths.
3. The bailout worked
Actually, the bailout is still happening, as we see from monthly discoveries such as this recent back-door bailout, and it hasn’t worked for the majority of the people it was intended for, namely people stuck with unreasonable mortgages (people forget this sometimes, but the first half of TARP was for the banks, the second half was for mortgage holders). From a NY Times Op-ed by Elizabeth Lynch (emphasis mine):
So a lender can forgive a second mortgage — which in the event of foreclosure would be worthless anyway — and under the settlement claim credits for “modifying” the mortgage, while at the same time it or another bank forecloses on the first loan. The upshot, of course, is that the people the settlement was designed to protect keep losing their homes.
4. Our private data is protected by our government
Although on the one hand the CIA recently admitted to full monitoring of Facebook using fake personas (h/t Chris Wiggins), the U.S. government does not in fact take great pains to protect the data they collect about its citizens. Moreover, government workers who complain about the porous data protection are punished instead of protected, as is explained in this Times piece. My favorite quote is this bit of common sense:
Susan Landau, a Guggenheim fellow in cyber security, privacy and public policy, says companies and agencies are unlikely to improve data security without the threat of penalty.
“What are the personal consequences for employees who allow data breaches to happen?” Ms. Landau asks. “Until people lose their jobs, nothing is going to change.”
5. We are recovering from the great recession
From 2009-2011, the top 1% captured 121% of all income gains (h/t Matt Stoller).
Who says you can’t perform at 121%? Turns out you can if other people are actually losing income while you’re getting increasingly rich.
Don’t get me wrong, corporate profits have done even better – a 171% gains since we’ve had Obama. But I’d go by things that matter to the 99%, so payrolls and jobs. Payrolls are flat and we still have 5 million fewer jobs, so I’d say it’s not much of a recovery.
mathbabe 
“Poor people pay little or no tax” and “Everybody who’s willing to work has an equal shot in this great land of opportunity” are much more likely to be heard from a conservative than from a liberal, surely.
LikeLike
I’m just telling it like I hear it on NPR!
LikeLike
HI MathBabe:
I am with you on #s 3, 4, and 5, but I must pick nits with #1. It is no myth that the US tax system is (quite) progressive, even after adjusting for Social Security and payroll taxes. The CBOs study from a few years ago did just this and continues to find such progressivity: http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/98xx/doc9884/12-23-effectivetaxrates_letter.pdf
I note that the CBO study does not include regressive or otherwise flat taxes such as sales taxes, and there the Economist column has a point. Moreover the cap on Social Security taxes at 110k is regressive. Remove the cap, I say.
What the Economist article fails to incorporate, and it is significant, is the effect of transfers which creates even more progressivity. Taxes are collected in part to generate transfers such as those illustrated on pg 5 of the following: http://www.taxpolicycenter.org/UploadedPDF/901508-Marginal-Tax-Rates-Work-and-the-Nations-Real-Tax-System.pdf
To recognize the effect of taxes without its corresponding effect of transfers does not make sense.
Also I suspect some double counting in the supporting chart (http://ctj.org/images/taxday2012table.jpg) where the federal tax % includes in the denominator an estimate of corporate profits minus taxable dividends. This could be double counting, as when those profits are realized as income they will at that point (ie a second time) show up in the denominator again. This is my cursory reading and I am open to accept more evidence to the contrary.
I urge you to reconsider your #1.
LikeLike
Not counting flat taxes like sales taxes is a serious omission. In some parts of the US these reach to 10%.
State run lotteries should also be considered taxes.
LikeLike
The Tax code table you point to, shows what the “estimated” obligation is, up front. It doesn’t point out the loop holes and how much of that money is thus not paid and it doesn’t point out the amount of money that each taxpayer income level holds in the entirety of the taxable “income”. Those two things would probably show that there are in fact a couple of segments of the population who are not paying their “share” of the taxes.
LikeLike
Still, 121% of “all” just sounds like a math-o.
LikeLike
dear mz mb…since your heading to commentary on the economy and banking(good for you )
please check out the blog ……… zerohedge……best there is keep up your fine work.j
LikeLike
I don’t know a single liberal who believes the U.S. is a land of opportunity. That’s a mantra of the GOP.
I don’t know ANYONE who believes our private data is protected by our government.
When liberals say the bailout worked, they’re mostly referring to the auto industry, not the mortgage industry. Every liberal I know understands the banks willfully fucked everyone.
One more thing; as demonstrated by the graphic, 17% and 29% do not translate to “flat”.
I don’t know what your point is here, but your attempt to misrepresent liberal positions has failed.
LikeLike
I often hear variations of some or all of those myths from friends who are still believing Dems. In fact I’d add another, the canard that the federal government “made money”, “showed a profit”, from the bank bailouts.
It’s dismaying how many liberals give Obama & the Dems a pass for policies that are perfectly in accord with Republican ideology, yet would have raised howls of outrage if they’d been crafted by the Bush/Cheney gangsters.
LikeLike
Regarding 2: I’m going to need to hear more than that one statistic to rebut (or, for that matter, confirm) such a broad idea as that the US is “a land of opportunity”.
And why is opportunity being equated with social mobility? The idea that the rich don’t get poorer very often won’t keep me up at night, I’m afraid.
A possibly more relevant question: do immigrants to the US generally make more money and have a higher standard of living after their immigration than before? I confess that I would be mildly surprised if the answer were “no”.
LikeLike
Wait, fully 35% of people born in the bottom income quintile end up in the median quintile or better? That’s actually a lot more mobility than I was expecting.
LikeLike
See #5 proves #3! Oh, you mean for the 99%? Not so much.
LikeLike
“Who says you can’t perform at 121%? Turns out you can if other people are actually losing income while you’re getting increasingly rich.”
You have an fantastic ability to turn off your rational thinking when you feel you are sticking up for the little guy, it’s sickening and scary, and the reason that while I admire your (increasingly rarer) maths posts, I just have to laugh at most of the naive political output.
If you really can’t see how meaningless and utterly inane the 121% i’ll post the obvious explanations, but how about you even think for a few minutes cynically about it first ? It’s nothing but a soundbite.
Btw, i’m not even close to the top 1% and the biggest unwanted hand in my pocket is governmental taxes, i get to choose not to buy overpriced macs and ipads but I don’t get to choose what a very significant proportion of my income is spent on. I don’t care how rich other people are really, we don’t get richer as a society by pulling money out of other peoples pockets.
LikeLike
It’s the other way around. The rich are getting richer as a direct consequence of the policies of Obama’s people. It’s not that I want to take money out of their pockets, it’s that I want to stop stuffing their pockets with extra money.
LikeLike
The rich get richer any time the economy improves because they have such a large direct stake in it, regardless of anyones policies. Sad but true. From the guys own paper, from 2007-2009 the richest 1% had an income drop of 36.3% compared to 17.4% for the “bottom 99%” (what a ludicrous concept btw, the “bottom 99%”). Did the resulting decrease in inequality make the world a more wonderful place ?
I surmise that if you want the “bottom 99%” to be richer in the longer term, the best thing that can be done is to encourage them to become larger stakeholders in the economy – thats a long term solution rather than just whining about those who already have a large stake benefiting from it, and that things would be much better if only the economic benefit they had reaped was removed from them and spent by The Handicapper General.
LikeLike
None,
You are obviously deep into Ayn Rand mythology. Yes personal success depends in large part on personal drive, work and talent. But many other factors come into play. When it comes to very rich people, other factors become central. There are positions in society where one profits from externalities or transaction spillovers in ways that are totally unbalanced with the level of involvement that person has. These positions are not open or subject to social mobility. They are intrenched positions of social privilege. There is nothing fair about that. The moral thing to do is to tax these people and reinvest the wealth in society. You say “We don’t get richer as a society by pulling money out of other peoples pockets.” That is a blatant fallacy. First you put it as if society was stealing from them. It’s not. No wealth creation can ever be viewed as strictly private or personal. It is the community of wealth that allows for personal success, roads, schools energy grids, cultural wealth, democracy (or whats left of it), natural resources to name a few. There is a synergy at play and some people benefit unfairly from what could be compared to feedback loops in complex systems. Second, yes wealth redistribution makes everyone richer. The new deal era showed this eloquently. Again, it is absolutely moral to intervene as a community to redistribute the wealth. And no, this is nothing even close to soviet style socialism (another favorite myth from the right) .
LikeLike
“You are obviously deep into Ayn Rand mythology.”
You are obviously deep into making uninformed statements. Although I’ve heard the name and am aware she wrote Atlas Shrugs, I have never read anything by her.
“They are intrenched positions of social privilege. There is nothing fair about that”
I don’t get it. What is your aim here, to get everyone onto the same income level, so things are “fair” ? I’d rather everyone was getting wealthier, and don’t care in the slightest if there is some mega superrich subsection of the population, as long as they are not getting superrich on something i dont want and am forced to pay for.
“The moral thing to do is to tax these people and reinvest the wealth in society.”
Laughable. For you it’s all about the money, for me it’s all about the people. Could you imagine for a moment that it’s the higher tax levels that are stopping more of society becoming richer ? Families who made a fortune decades ago did it at a time when tax levels were low, this gave them an opportunity to build assets at a time when it was easier to do so. Now they have these assets producing money, anyone else seeking to establish a similar sized asset would have to earn 10 times as much (finger in air figure) because they’d lose the compounded growth effect on the much higher taxes they had paid. Any increase in taxes, well, the producing assets just put up their prices and the sheeple must pay because a competing asset would then cost even more to assemble with these new increases in taxes added. We’ve had higher taxes for decades and the result has been a decrease in social mobility (largely for the above reasons I expect) and a decrease in income equality, yet the call is for more taxes ? Absurd.
LikeLike
You haven’t read Rand but you are still deep into her mythology. There is a whole cultural movement inspired by her thought and similar ones and one doesn’t need to read the book to be into it.
“What is your aim here, to get everyone onto the same income level, so things are “fair” ? ”
Absolutely not. If you work more or better you should get more and better. I have no trouble with that. The question is a far more. Beyond a certain level, personal wealth isn’t about lifestyle and luxury. It’s about power. A billionaire doesn’t buy better cars than a millionaire, but he will have a disproportionate power in deciding how policies are made. That is bad for democracy and for the market (yes oligarchy is bad or the market). The super rich needs a positive social environment to stay rich. We all pay for that. It is fair to collect that share of the wealth and reinvest it into a more positive social environment. And you can do this and still have a rich upper class enjoying the fruits of their talent and hard work.
” I’d rather everyone was getting wealthier, and don’t care in the slightest if there is some mega superrich subsection of the population”
The ‘rising tide lifts all boats’ myth has long been debunked.
“We’ve had higher taxes for decades and the result has been a decrease in social mobility”
Your whole last paragraph is false. And that particular sentence explains why. Tax have been low for the last decades not high.
Google images for “us tax rates over the years” and you’ll see. Corporate and maximum personal tax rates have been low since the Reagan years. The results are direct: higher inequality and higher deficit. Growth was much better in the 50’s and 60′ when when the richest paid up to 90% and corporations paid much more than now.
LikeLike
Sorry you can’t be deep into a mythology if you don’t know anything about it.
Remember my point is that its the lower/middle classes who have been prevented from growing their finances by a historically high level of tax (and I don’t mean high as in now compared to 40 years ago, I mean high as in the past 50 years to the previous 50). You don’t disprove this by pointing out that the high income earners have had a drop in tax. A small increase in tax on the middle/lower incomes hits disproportionately hard because they have a smaller amount of disposable income with which to build their assets.
“The super rich needs a positive social environment to stay rich. We all pay for that.”
They pay more than you, and yet you think they are oppressing you and want them to pay more. It’s scary seeing people on a moral crusade to relieve other people of their possessions.
LikeLike
I’m pretty sure that if you took a look at the massive chain of regression-based simulations that go into the claim that our tax code is flat, you would not endorse calling it “The fact of the matter…” Might be true, but it sure ain’t fact — any more than the AAA ratings your chums used to stick on equity tranches of subprime mortgage backed security justified “The fact is, they were as safe as Treasury bond…”
Methodology available at http://ctj.org/ITEP/about/itep_tax_model_full.php
LikeLike
Re: #3
I was under the impression that the goal of the bailout was not to keep people from losing their houses. The argument I recalled hearing for the bailouts was that: (1) There was a real risk of a depression level economic collapse. (2) Bailouts would reduce that risk.
LikeLike
I’m not a liberal (in the American sense) by any strech of imagination, but have a problem with all 5 topics. Nevertheless, I’ll let it slide: if you get your information from The NYC and our friend Democrat, oops, Democracy in America from The Economist, you’re bound to have a warped view of the world.
On item number 2, however, the stats you reported suggests that 38% of the people in the top quartile slide 2 quartiles or more in just one generation, while 35% of those in the bottom quartile rise by 2 quartiles or more. This sounds remarkably mobile to me since, after all, this is not a random game – personal achievement and parenting/nurturing play an important role in those outcomes. What percentages would you feel comfortable with? And, in your view, should the State undermine the efforts from parents to prepare their offspring for a competitive world?
BTW, congrats on the blog. You appear to be at the other end of the political specter from where I stand, but your posts are insightful and I need to read stuff I don’t agree with.. Keep on truckin’!
LikeLike
Good News! For those of you who hate the rich, regarding the 120% income rise for the mega rich:
“An earlier version of this column stated, incorrectly, that only millionaires experienced the recovery in 2011. In fact, the biggest average gains were experienced by those within the one percent who earn a little more than half a million or less. Multimillionaires earning more than $8 million, on average, actually lost income in 2011.”
So the really mega rich actually lost income in 2011 ? Break out the champagne!? Haha. Talk about lying with statistics!
Get on the blower to get the government. we must clamp down on those “rich but not mega rich” renegades. We must have their income (increases) redistributed!
LikeLike