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Wednesday, August 22, 2012

Niall Ferguson’s Laughable Tax Lie

NewsweekSalon op-ed: Niall’s Most Laughable Lie, by Paul Campos (Colorado):

Of all the wrongheaded claims in Niall Ferguson’s much-mocked effusion of trite right-wing talking points, this is my favorite:

Welcome to Obama’s America: nearly half the population is not represented on a taxable return—almost exactly the same proportion that lives in a household where at least one member receives some type of government benefit. We are becoming the 50–50 nation—half of us paying the taxes, the other half receiving the benefits.

In fact, America has a barely progressive tax system, in which rich, poor and middle-class people all pay roughly comparable percentages of their income in taxes.  As this study illustrates, last year people who had an average income of nearly $1.4 million (the blessed 1%) paid almost the same percentage of their income in taxes as the bottom 99% of the population. ...

[W]hat can be done to combat the constant barrage of nonsense people like Ferguson emit on the subject of taxes? I have a modest proposal, which draws on insights from what in behavioral economics is known as prospect theory. Prospect theory reveals that people are far more averse to giving up what they think of as something they already own than they are to not getting something they think of as not yet theirs. This is known as the “endowment effect.” ...

[W]e should have a system in which, to the extent possible, Americans pay no “taxes” at all; instead, our wages should simply be lower, while a portion of what we previously thought of (rather absurdly) as “our” money goes directly to the government.

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Comments

(i) why is it "absurd" to regard tax money paid to the government as "our" money? It IS our money, and we should all be interested in how the government chooses to spend that money; (ii) Ferguson is talking about income tax, and his point is, broadly, that there is an increasing number of people who pay very little income tax, yet are in receipt of government entitlements, and that once you have enough people in that position, reform of entitlements becomes effectively impossible. Nothing Campos says refutes this point.

Posted by: Jonathan W | Aug 22, 2012 12:12:39 PM

The true measure of progressivity is taxes paid less benefits received. Looking at taxes paid in isolation would be correct if, for example, you were to presume that no Social Security benefits would ever be paid out to the person paying Social Security tax. If instead you presume some nonzero estimated value of Social Security and Medicare benefits you need to net that estimate against the taxes paid.

Posted by: AMTbuff | Aug 22, 2012 12:22:29 PM

i'm not sure if it is wrongheaded or not, but it is correct

see Joint Committee on Taxation, “Information on Income Tax Liability for Tax Year 2009”

see also http://www.theatlantic.com/business/archive/2011/05/51-of-americans-pay-no-federal-income-taxes/238329/

"Half of American tax payers owe no federal income tax, and most of those filers actually net tax benefits from federal income taxes, according to analysis from the Joint Committee on Taxation in a letter to the Republicans on the Senate Finance Committee."

Posted by: xxx | Aug 22, 2012 12:25:21 PM

Paul, Niall Ferguson has responded to this, and his other critics: http://www.thedailybeast.com/articles/2012/08/21/niall-ferguson-defends-newsweek-cover-correct-this-bloggers.html.

Posted by: Peter Terranova | Aug 22, 2012 12:28:24 PM

Campos says: "Just as profit is what remains after the expenses that make profit possible are incurred, individual wealth is what remains after the social costs that make individual wealth possible have been paid."

Let's play "what is wrong with this picture?" 1. Business managers have operational control over business costs, while taxpayers have none over social costs. 2. Those authorizing business costs have a vested interest in the success of the business, while those authorizing social costs have a vested interest only in their own re-election. 3. Businesses run on the profit motive, so costs must be less than revenues, while governments run on I'm not sure what with no motive at all to keep social costs less than tax collections.

Posted by: MochaLite | Aug 22, 2012 12:41:33 PM

CTJ is a propaganda outfit and the cited study fits their usual mode of operation.

Payroll 'taxes' are predominantly Social Security 'taxes'. These earn a corresponding direct benefit for that taxpayer, as opposed to all other taxes, which get added into an undifferentiated pool. There is a redistributive component built in, so that lower-paid workers receive backas direct benefits to themselves as individuals more than they pay in, so are not net taxpayers at all. In effect it's a forced 401(k)-style program in which they receive a government match, and CTJ is representing their contributions as if it's money down the drain. Thoroughly dishonest.

And naturally CTJ adopts the usual dodge of counting taxes paid by someone else, by lumping employer-paid Social Security and Medicare taxes in with taxes paid by workers. Only to boost the apparent amount paid in taxes of course: note 2 helpfully explains that these amounts are not counted in the figures for average cash income. In other words, these payments are only counted to the extent that they further the narrative.

Trash!

Posted by: No-no-no | Aug 22, 2012 1:30:35 PM

from NF's response at http://www.thedailybeast.com/articles/2012/08/21/niall-ferguson-defends-newsweek-cover-correct-this-bloggers.html

3. NF: Nearly half the population is not represented on a taxable return--—almost exactly the same proportion that lives in a household where at least one member receives some type of government benefit.

MO’B[Matthew O’Brien]: It is true that 46 percent of households did not pay federal income tax in 2011.

In other words, my fact is true. Because I specifically said “taxable return.” You don't tend to record your sales tax payments on those.

Posted by: daniel | Aug 22, 2012 1:42:59 PM

What is laughable is your premise, Mr. Campos. You are including payroll taxes which is a future benefit while income taxes are used to pay for wasteful government programs that primarily benefit those who don't pay income taxes.

Posted by: Shotgun | Aug 22, 2012 3:21:32 PM

The last sentence of Ferguson's quoted statement is mathematically correct. It is an artifact of refundable credits more characteristic of welfare benefits being administered by the Internal Revenue Service as a refundable tax credit.

The social value of these credits can certainly be argued, but piggy-backing on the tax system is probably the most efficient distribution process available.

Ferguson isn't really attacking the tax system, it's the welfare aspect that is his target.

Posted by: Jay Wiedwald | Aug 22, 2012 10:49:50 PM

"You are including payroll taxes which is a future benefit"

But if the congress defaults on SS obligations or at the least means test SS recipients or cuts benefits which they most assuredly will have to do to make up for the shortfalls coming to SS in the future, these "future benefits" may not actually materialize for a sizable amount of taxpayers.

Posted by: Steve | Aug 23, 2012 7:09:29 AM

These types of articles used to get a rise out of me, but no longer. Every single day we are bombarded with them, so much so that it has essentially become unnoticeable white noise.

Posted by: Lt. Dangle | Aug 23, 2012 9:34:25 AM