Nation of Beancounters

Krugman goes ballistic OR progressiveness explained

Posted in Explained from Scratch by Navin Kumar on February 11, 2012

Because someone claimed that the tax burden on the wealthy in America [I really should start reading Indian blogs more] has gone up:

Oy. Ari Fleischer is using Twitter to repeat the old zombie lie about how the tax burden on the rich has risen, because they’re paying a higher share of federal taxes than they used to. Mark Thoma handles this fine, no need for me to weigh in. Basically, if the income of the 1 percent has tripled relative to the income of the middle quintile, how are they suffering if their tax burden relative to the middle class rises by a substantially smaller amount?

Let me instead go meta; this is an example of why policy debate is so frustrating, and why I’m not polite. The key thing about how the conservative movement handles debate is that it never gives up an argument, no matter how often and how thoroughly it has been refuted. Oh, there will be more sophisticated arguments made too; but the zombie lies will be rolled out again and again, with little or no pushback from the “respectable” wing of the movement.

In comments and elsewhere I fairly often encounter the pearl-clutchers, who want to know why I can’t politely disagree, since we’re all arguing in good faith, right? Wrong.

Sigh. One of themes of this blog is “stuffs more complicated than you think”. So let me now go meta on his meta. What is progressive taxation? It’s when the rich pay more tax than the poor – that’s obvious. Yet there are two ways of measuring it, neither of them obviously invalid:

1. The rates that the rich pay on their income: what percentage of you income do you send to the government? In the US,  if you’re in the top 1%, the bulk of your income probably comes from investments so you’re paying 15% directly to the government (and also some percentage indirectly due to corporate tax).

2. The fraction of the total tax bill that the rich pay: what fraction of the taxes that the US government collects comes from you? In the US, if I remember correctly, the top 1%  pay 24% of income taxes.

And in the US, these two measures are apparently moving in opposite directions. So if you thing progressiveness should me measured by the rates paid, things are getting “worse” and if you think they ought to be measured by what share you bear, things are getting “better”. Two different measures giving you opposing results isn’t at all unusual in economics, being the messy science that it is.

So which of these is the more reasonable measure? I don’t know! I haven’t come across a single semantics discussion about which of these is superior*. In the US, conservatives use one (the second) and liberals use another (the first). The superiority of their favored measure is assumed, not proven.

This will someday become quite a relevant debate in India, especially as inequalities of income widen.

Yet, listening to Krugman, one would think that it has been proven long ago that rates and not shares are the correct measure of progressiveness. And that anyone would act otherwise is proof that they aren’t discussing things in good faith. Because if you don’t use my yardstick, you must be a mendacious idiot.

*The closest thing I got to an argument favoring shares-as-a-measure is a passage from journalist PJ O’Rourke’s book Don’t Vote, It Just Encourages The Bastards. Paraphrase it goes something like this: The US government will spend $4 Trillion. There are 300 million Americans. Thus everyone gets approximately $13,000 in government services (some good, some bad). For a family of five, that’s $65,000. There are 115 million households in the US. 85-95 million of these have a tax liability less than per capita spending burden.

O’Rourke writes:

That means between one-fifth and one-quarter of American households are shoveling coal in the engine rooms of the ship of state while everybody else is a stowaway, necking with Kate Winslet like Leonardo DiCaprio in Titanic.


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