European Tribune - Community, Politics & Progress.

Set the frame, ignore the fine print

by Jerome a Paris
Fri Mar 30th, 2007 at 07:58:44 AM EST

More numbers coming up that seemingly reinforce the dominant ideas in today's economic discourse: taxes are too high in continental Europe, and globalisation is good for everybody, in particular the poor Indian and Chinese:

Of course, if you actually look at what's written in fine print (and what's not even acknowledged there), you see a different story emerge...

with respect to taxes on wages in OECD countries, they apply only to single earners with no kids. This is clearly the most important category - hook them up when they're young, keep them for a long time (as clients for the Economist, and as ideologically compliant voters). Things like cost of healthcare, cost of schools, even cost of housing will not matter too much to young, single, people - net wages do. And how much of these services are provided by the taxes - and provide real value to most people, can be conveniently ignored. Thus the discourse on what country is prosperous or successful is heavily skewed towards the preoccupations of those people that least need solidarity and public spending.

as to wage increases over the world, that only applies to "administrative, professional and senior management" positions - ultra minority jobs in most emerging countries, but the only one that matters these days. Who cares about factory workers or other low level service sector positions (not to mention agricultural workers)?

and thus the dominant discourse creates the perception of success and prosperity by focusing on selective minority population groups.

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Set the frame, ignore the fine print | 40 comments (40 topical, 0 editorial, 0 hidden)

Links (none / 1)

What you earn
Taxing wages

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (jeromeguillet@yahoo.fr) on Fri Mar 30th, 2007 at 08:06:30 AM EST

Re: Set the frame, ignore the fine print (4.00 / 2)

The second graph shows percentage gains on sums that can hardly be compared - 8% sounds good, but it depends on where you're coming from.

More yet, there's a causal relation between the bottom of that graph and the top. Why aren't real wages progressing in the developed economies?

As for the first, no distinction is made between social contributions paid into specific funds and giving specific rights (most of the French case) and income tax paid into the general national budget (most of the British). Yet the difference may well help to explain why France has a comparatively good health system, for example, while the UK has an increasingly hopeless one.

When locusts move on, they leave nothing behind

by afew (afew(a in a circle)eurotrib_dot_com) on Fri Mar 30th, 2007 at 08:38:43 AM EST

Wage increases (4.00 / 3)

I agree with your comments, but was making a larger point, abour focusing only on qualified workers (the elite, or the upper classes, more or less widely defined) to determine the indicators that are supposed to reflect the general health of an economy.

And of course, price increases for qualified workers in emerging economies simply reflect that productive workers are rare and need to be paid increasingly expensively (to be attracted, or to be trained).

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (jeromeguillet@yahoo.fr) on Fri Mar 30th, 2007 at 08:56:12 AM EST
[ Parent ]

As for economic metrics ... (none / 1)

As well, the news reporting (in the US at least but elsewhere as well) ticks the Stock Market but not unemployment, pollution levels, debt levels (individual, business, government), etc ...

The indices for judging social performance are, overwhelmingly in terms of public discussion, misleading indicators of societal strength and resiliency.

Blogging regularly at Get Energy Smart. NOW!!!

by a siegel (siegeadATgmailIGNORETHISdotPLEASEcom) on Fri Mar 30th, 2007 at 09:57:16 AM EST
[ Parent ]

social contributions (4.00 / 3)

You point about what the social contributions are used for is also what I was focusing on: just like the debate on the "cost" of the presidential programmes in France, this is only disucssed in terms of amounts spent, not in terms of value for money. The real question is - what do you get in return for such taxes and contributions.

This is why thsee tables (and the accompanying discourse) are so noxious:

first, they perpetuate the idea of taxes as money wasted (instead of money used);
second, by focusing on people that are in the categories that benefit less, today, from the transfers promoted by these taxes (education, healthcare, pensions, unemployment benefits), and that can thus see themselves as "losers" in the game, it is even easier to promote all that spending as waste, instead of legitimate for society, for the future, and for the majority of the members of society.

Only what happens to the rich matters, to put it in a few words.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (jeromeguillet@yahoo.fr) on Fri Mar 30th, 2007 at 09:01:06 AM EST
[ Parent ]

Re: social contributions (4.00 / 3)

Your point about the single person without kids is important - ever since Thatcher's Golden Boys we have been invaded by this theme of the young, mobile, easy-learning, ambitious untied-down hard-worker who doesn't ask questions or have complicated issues - who is seen as the reference and the icon for the whole system.

When locusts move on, they leave nothing behind

by afew (afew(a in a circle)eurotrib_dot_com) on Fri Mar 30th, 2007 at 12:17:12 PM EST
[ Parent ]

Re: social contributions (none / 1)

There is nothing we can do about polling, and the redirection of policy according to demographics. It is in the nature of an increasingly refined game.

What we CAN object to, is the extrapolation of decisions based on such statistics. As we all understand, where human beings are concerned, the question you ask defines the answer.

You can't be me, I'm taken

by Sven Triloqvist on Fri Mar 30th, 2007 at 03:58:18 PM EST
[ Parent ]

About income taxes progressivity (4.00 / 6)

There is an interesting new study from our old friends Thomas Piketty and Emmanuel Saez : How Progressive is the U.S. Federal Tax System? A Historical and International Perspective

Here is a graph made with data from this study:

Graph found on the site of The Center on Budget and Policy Priorities

"Ne te courbe que pour aimer..." René Char

by Melanchthon on Fri Mar 30th, 2007 at 12:37:51 PM EST

Re: About income taxes progressivity (none / 1)

Such a thing wouldn't be politically viable without the support of the middle quintile.

"It's the statue, man, The Statue."

by Migeru (migeru at eurotrib dot com) on Fri Mar 30th, 2007 at 12:42:04 PM EST
[ Parent ]

Re: About income taxes progressivity (none / 0)

That and the evisceration of middle class political influence.

you are the media you consume.

by MillMan (millguy at gmail) on Fri Mar 30th, 2007 at 01:26:02 PM EST
[ Parent ]

Re: About income taxes progressivity (none / 0)

the problem is that you really take the incentive out of work with the high marginal tax rates of the '60's and ''70's. I think in the early '60's prior to JFK fixing this, the highest marginal tax rate was 80% or above. So if you were a high earner and made $250,000, that meant that looking at the last $100,000 you made, $80,000 went to the government and you got to keep $20,000. It was an incredible disincentive to going beyond earning $150,000. It was pretty easy to get a bipartisan approach to changing that, and to getting middle class support. Today in the US the marginal income tax rate of earned income in states like California and New York is something like 42.4%--(35% federal+6% state+1.4% medicare,,,,,state is adjusted for income tax credit on the federal return). So the earner gets 58% and the government gets 42%. That is a big difference in the incentive to work and produce. I doubt you would get anything close to a majority to go back to the old days. I think it will be difficult to raise them from where they are, and that will be a battle likely fought in 2010, and maybe to some extent in the upcoming Presidential Election.

by wchurchill on Fri Mar 30th, 2007 at 05:52:48 PM EST
[ Parent ]

Re: About income taxes progressivity (none / 0)

In fact Laurent just provided information in a question I posed on another thread and said the top marginal tax rate in France is 40%. (He may want to chime in to correct if there are other province or social taxes that should be added to that to make the French number comparable to the one I just quoted above.) But if I'm interpretting him correctly, that means the US marginal tax rate is higher than the French rate.

by wchurchill on Fri Mar 30th, 2007 at 05:56:05 PM EST
[ Parent ]

Re: About income taxes progressivity (none / 1)

Let's put this in perspective. The hundredth of a percentile top earners in a developed economy represesents about a couple thousand people in a major economy european economy. The top tenth of the top percentile numbers at a few dozen thousand at most. Who is earning this kind of money? Entertainers, traders, top executives of large firms, and very wealthy capital owners. Those are the people whose taxes are being cut. In today dollars, that represents multi-million dollars of annual revenue. (using 1960's figures just distorts the amount of money we're talking about).

Those people are not "workers" whose productivity wrt to society welfare is very clear, with the possible exception of entertainers. They are not "producing".

Auferre, trucidare, rapere, falsis nominibus imperium; atque, ubi solitudinem faciunt, pacem appellant.

by linca (antonin POINT lucas AROBASE gmail.com) on Fri Mar 30th, 2007 at 08:59:54 PM EST
[ Parent ]

Re: About income taxes progressivity (none / 0)

Yes, let's do put it in perspective.

actually it would be all of the people that have risen to the top in business--the CEO, all of his direct reports which would include staff jobs such as CFO's, all of the division presidents, all of their direct reports such as VP of sales, division controllers, VP manufacturing, the top 20% of the sales force, etc, etc. It would also reach all of those who in their mid '30's had identified themselves as performers and leaders for the future. In other words, it would be the leaders and those reaching peak performance in their careers. It would demotivate those in an economy that have reached their peak performance years. It would cut out the engine of a high performing economy.

by wchurchill on Sat Mar 31st, 2007 at 12:31:26 AM EST
[ Parent ]

Re: About income taxes progressivity (none / 1)

Nope. The top percentile didn't see its tax diminish by much - the hundredth and the tenth of that percentile did.

Those people - CEO's, wealthy capital owners, essentially set their salary. The market doesn't work for setting the salary of the fortune 500.

Workers are the engine of a working economy. Those are essentially decision maker - who got where they are either by inheritance, or by ability to move around in a hierarchy, not by better productivity. The top ring in any administration are filled by those that can navigate in the politics of an administration, not by the productive people.

Auferre, trucidare, rapere, falsis nominibus imperium; atque, ubi solitudinem faciunt, pacem appellant.

by linca (antonin POINT lucas AROBASE gmail.com) on Sat Mar 31st, 2007 at 04:55:00 AM EST
[ Parent ]

Re: About income taxes progressivity (none / 0)

we'll just have to disagree on this one. set CEO's aside, as my remarks covered positions far deeper in business organizations. the top marginal rate kicks in at $330,000 in today's tax code. If you are looking at a sales force in a high technology healthcare field the top 20% of the sales force will be earning over that amount. As will managers 3 or 4 levels down from the CEO into a corporation. These are the leaders and future leaders of American business. Taxing their incremental earnings at 60% or 80% would totally change incentives in American business to the negative. It would also mean that for managers on highly incentivized compensation programs, in the years where they hit it big, they wouldn't hit it big.

but that's fine. we don't need to agree.

by wchurchill on Sat Mar 31st, 2007 at 12:44:57 PM EST
[ Parent ]

You misunderstand me (none / 0)

I'm not talking about raising the marginal tax for the current highest tax bracket. I'm arguing for another tax bracket, setting in much higher, so that it'd hit the top tenth of the top percentile. I don't know the data, but it might set in at a couple million dollars... I'm not aiming for the top thousand workers of a large corporation, but rather the few dozens of highest earners - that's what that tenth of a percentile is made of. Mostly the board, and wealhiest capital owners. If it hits hard twenty person per large company, and we see a thousand such large companies, that's already 20 000 people - most of the people on a salary in the top hundredth of a percentile in America.

Auferre, trucidare, rapere, falsis nominibus imperium; atque, ubi solitudinem faciunt, pacem appellant.

by linca (antonin POINT lucas AROBASE gmail.com) on Sat Mar 31st, 2007 at 07:13:02 PM EST
[ Parent ]

Re: You misunderstand me (none / 0)

Thanks for the clarification, I missed that. but I would still do something different than that. Let me raise a number of points:
First, I don't know if you are already aware of this or not, but the top 1% of earners in the US already pay a huge % of the Federal income taxes--over 36%.

Second, and maybe this could be addressed, but the top 1% includes people that though they have salaries, a hefty percentage of their annual compensation is bonus or income from stock options. So the year to year income variation can be substantial. So the following type of situation happens, and in fact people hope for it--a CEO of a smaller company makes annual cash compensation averaging $750,000 per year. So some years he may make $500,000, other years $1,200,000. This would be someone with a lot of business experience--at least 25 years, worked there way up, outperformed their peers, and often have graduate level degrees. The payout he/she is hoping for is that the company wil grow rapidly, and the stock options end up being worth a whole lot of money. I know of a situation (actually more than one) where this was happening, the growth that is, and then unexpectedly another larger company bought this company. The price was excellent, and the CEO made $30 million, almost all of it being in stock options. If that company is in a high state tax state, the tax rate on that $30 million,,,,depending on what year it occurred over the past 15 years, be 46--51%. So with the current tax code, he/she gets about half of the payout. This is likely the big payout for such a person (maybe not--they may go run another company, or do something else), but basically they have worked hard all their life and are cashing in on the American dream. They would easily be in your 1% that particular year--I'd have to check the income levels, but they are likely in the top 1% in other years as well. Remembering that this is the type of story that American dreams are based on--people work their lives for a shot at this. How would you tax this individual?

Third, if your objective is to raise taxes on the rich, why not use a wealth tax? Why penalize the people working their tails off for these rewards. Why not tax those that have all of the money? and do it directly? I'm not concerned about taking the wealthy, personally, but I'm very concerned about distorting the incentives for performance and results.

I think I had another point, but i forgot and may come back to it.

by wchurchill on Sat Mar 31st, 2007 at 08:00:21 PM EST
[ Parent ]

Re: You misunderstand me (none / 0)

First, I'm not talking about the top 1%, but the top .01%.

Secondly, I'd believe that incentives aren't that different when the payout - 15million or 10million out of 30million that are more or less taxed. This form of payout is like winning the lottery - people don't really look at the actual payout, the only important thing being that it is "really high". The incentive won't be that different for that businessman - he wasn't anyway hoping for a specific sum.

The incentive for earning that much money will either be rid of work for the rest of one's life - and 10 million bucks are enough for that -, social status - if it is measured by money earned, since everybody is paying the same taxes and social status is relative, it won't matter much -, or power through having lots of money - as a democrat (not the political party, but the idea that everybody should have an equal say in the direction society takes) that kind of uneven power distribution is inherently bad.

About wealth tax - I want it too :) But the problems of extreme wealth appear as soon as it is formed ; in a political system where money and lobbying exist, wealth once formed is able to distort policies to preserve itself.

Auferre, trucidare, rapere, falsis nominibus imperium; atque, ubi solitudinem faciunt, pacem appellant.

by linca (antonin POINT lucas AROBASE gmail.com) on Sat Mar 31st, 2007 at 08:15:25 PM EST
[ Parent ]

Re: You misunderstand me (none / 0)

I would like to have a better understanding of how you would tax the CEO who makes the $30 million one year. do you leave the rate at 50ish%, or do you raise it higher?

Then what is your tax rate on the top .01%?

It's hard to react to your proposals without an understanding of what you mean at the top levels. Thank you.

by wchurchill on Sat Mar 31st, 2007 at 08:40:37 PM EST
[ Parent ]

Re: You misunderstand me (none / 0)

I think taxing income above say, 3million at 70% is needed to avoid inequalities. Like it used to be in the 50's :)

Auferre, trucidare, rapere, falsis nominibus imperium; atque, ubi solitudinem faciunt, pacem appellant.

by linca (antonin POINT lucas AROBASE gmail.com) on Sat Mar 31st, 2007 at 08:47:56 PM EST
[ Parent ]

Re: You misunderstand me (none / 0)

thanks, running out to dinner. I'll respond tomorrow. (I'm going to buy a less expensive bottle of wine, now that i've seen your rate.) -:)

by wchurchill on Sat Mar 31st, 2007 at 09:00:55 PM EST
[ Parent ]

Re: You misunderstand me (none / 0)

yes, marginal tax rates were 70% or above in the '50's, in the US, France and other countries. They are now lower than in the '50's.

Maybe this is a great time for France, or other European countries, who have more socialisti views than the US, to set an example for the rest of the world, and return to those marginal rates of 70% or above. If these higher marginal tax rates spur economic growth, pragmatists such as myself will immediately jump on board, and raise marginal taxes in our countries. With the French elections upon us, it should be a great time to put that idea before the people; and the following years will clearly show the results of those policies.

I love it when one country can learn from another, and can only encourage you in France to lead the way on this economic experiment. <seriously, no snark> it is a great opportunity to prove the philosophy, is it not?

by wchurchill on Sun Apr 1st, 2007 at 04:52:27 AM EST
[ Parent ]

Re: You misunderstand me (none / 1)

If these higher marginal tax rates spur economic growth, pragmatists such as myself will immediately jump on board, and raise marginal taxes in our countries.

wc, you know perfectly well that "spurring economic growth" as sole criterion of choice of policy is one of the things most of us here reject. The point of progressive taxation is not to spur economic growth but to reduce inequality and increase social cohesiveness.

When locusts move on, they leave nothing behind

by afew (afew(a in a circle)eurotrib_dot_com) on Sun Apr 1st, 2007 at 05:17:50 AM EST
[ Parent ]

Re: You misunderstand me (none / 0)

I know it is the goal of some onm the site, I would not have guessed most. My view of course is that the goal should be to do both, and I think that is a very reasonable goal. In fact, it is a goal that is accomplished every year throughout Europe. GDP per capita grows, and I believe inequality is improving--I should go back and look more carefully at those measures.

but I think it would be horrible to not dedicate ourselves to improving the lot of mankind worldwide. and historically that has not happened without growth, and I don't think it will in future. I view dedicating oneself to no growth, which I know is literally the goal of what a thought were a few (no pun intended) on the site, will condemn many in the world to a perpetual life of poverty and misery.

Can you point to a period in history where economic growth has been zero, and people have come out of poverty around the world?

by wchurchill on Sun Apr 1st, 2007 at 02:50:17 PM EST
[ Parent ]

Re: You misunderstand me (none / 0)

Fourteenth and Fifteenth century Europe. After the population was divided by two, and general production going down a lot too, salaries shot up and the poor worker was able to eat meat regularly again. There just wasn't enough workers so salary had to go up, and marginal, low-productivity lands weren't laboured anymore :)

More to the point, in the last two decades the more recent points of growth have been achieved without increase in welfare for most, in the industrialized world. The way our society is set up, growth only goes to the pockets of a small class. If we want to increase the general welfare of the population, growth in our current system has shown to be unproductive.

Auferre, trucidare, rapere, falsis nominibus imperium; atque, ubi solitudinem faciunt, pacem appellant.

by linca (antonin POINT lucas AROBASE gmail.com) on Sun Apr 1st, 2007 at 06:50:48 PM EST
[ Parent ]

Re: About income taxes progressivity (none / 0)

also, see question below to afew re: comparison of US and French marginal tax rates.

by wchurchill on Sat Mar 31st, 2007 at 12:48:55 PM EST
[ Parent ]

Re: About income taxes progressivity (none / 1)

I doubt you would get anything close to a majority to go back to the old days.

A majority of whom? The top one hundredth of the top percentile? We all readily understand they wouldn't want to go back... But how do they represent a majority in a democracy?

When locusts move on, they leave nothing behind

by afew (afew(a in a circle)eurotrib_dot_com) on Sat Mar 31st, 2007 at 08:55:48 AM EST
[ Parent ]

Re: About income taxes progressivity (none / 0)

no, a majority of the popular vote. or in the US case, a majority of the vote of the elected representatives. 80% or 60% marginal tax rates would not be accepted.

out of curiosity, since it has been stated in these discussions over the past month or so that the top French marginal tax rate is 40%, and the current American rate is perhaps already higher, why is everyone so hot about raising the american marginal tax rate?

by wchurchill on Sat Mar 31st, 2007 at 12:48:02 PM EST
[ Parent ]

Re: About income taxes progressivity (none / 1)

in the US case, a majority of the vote of the elected representatives.

Perhaps politicians are in hock to money everywhere, but nowhere more than in the States, where you can hardly get elected to anything unless you have a private fortune or a fortune to back you.

When you talk about a majority, let's be clear that it's first and foremost a majority among those who are the wealthiest in the nation (and of those who owe their political position to them), in other words those who have a clear interest in the matter.

As for being hot to raise the marginal rate, whether in France or the US, I think mostly people are not convinced by your view of the essential dynamic role played in the economy by a tiny minority of the extremely wealthy. We've heard this before, we hear it all the time, and we're just not looking at things from the same side of the board.

When locusts move on, they leave nothing behind

by afew (afew(a in a circle)eurotrib_dot_com) on Sat Mar 31st, 2007 at 01:31:07 PM EST
[ Parent ]

Re: About income taxes progressivity (none / 0)

while you are correct and I know I am in the minority here on this--this misstates my view:

mostly people are not convinced by your view of the essential dynamic role played in the economy by a tiny minority of the extremely wealthy

My focus in my discussion of tax rates is on the "wanna be wealthy" group. If you look at the top 1000 to 5000 people ina corporation, you are going to find leaders who come from all kinds of backgrounds, and all kinds of economic backgrounds. these busines leaders do not primarily come from wealth--Jack Welch's, of GE, father collected tickets on a railroad. this leadership group is not a bastion of inherited wealth. Certainly some will have come from wealth, but the hard work and effort required to achieve those positions more often comes from those who are striving for wealth, and have found a business that they love to work in. These are the people that drive American business. Low marginal tax rates are not all that important to the wealthy--certainly they help, but the wealthy are already there. But the already wealthy, the trust fund babies, are generally not going to have the motivation to achieve these positions.

Maybe to back this point up a little more, if the objective was to make the wealthy pay more tax, I would support a wealth tax. (and of course I already support the reimposition of the so-called death tax.) imho, passing down billion dollar fortunes like the Kennedy's, the Rockefellers, the Forbes,,,is not really consistent with the principles of the US. So with the addition of a wealth tax to get the extra tax dollars, a tax that is even more targeted at the wealth group you think should be paying more taxes, and doesn't have the economic disincentives of high marginal tax rates--doesn't this put us on the same side on this one?

and PS: the top 1000--5000 have a wannabe group below them. and their hopes are not going to be helped by 60--80% marginal tax rates. Nor are all of the entrepreneurs that are starting new companies, and the people they recruit to their managment teams.

by wchurchill on Sat Mar 31st, 2007 at 02:55:48 PM EST
[ Parent ]

Re: About income taxes progressivity (none / 1)

I realized you would set the bar lower in terms of income - I was commenting Jérôme's graph up there that is most certainly not talking about the wannabes all down the chain.

You (naïvely?) continue to present a starry-eyed vision of the American way that the rest of us don't see. There's a fundamental myth of the rugged, hard-working individual fighting his way upwards here, combined with the rationalisation that this leads (like the invisible hand of the market) to maximum utility for all, that has a powerful hold on people's imaginations, but doesn't actually produce the goods (ie maximum utility for all). In fact it produces a harshly competitive society with considerable and widening inequality. But then, we'd be back into a debate on inequality, poverty, social mobility, in which neither of us is going to modify their position, isn't that true?

I don't see the problem for the economy of a progressive income tax combining a granular structure - a larger number of income brackets and rates rather than the flattening trend we've seen for a couple of decades - and a higher marginal rate than 40%.

When locusts move on, they leave nothing behind

by afew (afew(a in a circle)eurotrib_dot_com) on Sun Apr 1st, 2007 at 05:44:06 AM EST
[ Parent ]

Re: About income taxes progressivity (none / 1)

It was 91% throughout the fifties and early sixties, then went down to 70% through the seventies, cut to fifty percent and then 28% in the eighties, went up to 39.6% under Clinton and is now down to 35%. Another thing that's changed is the threshold - the 91% applied only to income above $400,000 (couples) which was a hell of a lot money back then. I'm not sure I'd want it back to ninety percent plus, but a seventy percent threshold set at a high income level, plus a sharp increase in capital gains with indexing - yes.

Taxation is a lot less progressive than it is often made out to be due to the lower rates for capital gains and the cap on payroll taxes. Your typical middle class couple is going to be paying a much larger effective top federal marginal rate than the wealthy investor. Compare the 28% income tax rate, plus 15.3% FICA - 43.3% to the 20% capital gains rate or 15% dividend rate. I'll agree with Warren Buffet - there's something seriously wrong when he's paying a much lower rate than his secretary.

by MarekNYC on Sat Mar 31st, 2007 at 01:36:13 PM EST
[ Parent ]

Re: Set the frame, ignore the fine print (none / 0)

the dominant ideas in today's economic discourse: taxes are too high in continental Europe, and globalisation is good for everybody, in particular the poor Indian and Chinese:

I imagine that there are idealogues and MSM pundits that might accept this statement. However I would posutlate the following as closer to what most free market economists and business people would express as the dominant thinking.

Two types of taxes heavily influence the incentives on work vs. leisure and investments in new areas of growth. The marginal tax rate on earned income effects work versus leisure. And the taxes on capital effect the flexibility of capital to move to new growth areas that may have higher risk.
In general, the US and Europe have reached reasonable levels on these taxes (both of which trade off economic growth versus income distribution.) Marginal tax rates on earned income generally range from 40--50% in both areas. Taxes on capital gains are generally 25% or below. (This may need some correcting from some of you that know the different tax structures across European countries better than I. I've surmised the European side of this statement from our discussions and related articles that many of you have linked to.) Though in the same ballpark, the US tax code may tilt more to economic growth than the average European tax code.
The overall tax burden is higher in Europe, due to higher taxes on sales (VAT for example), and taxes on other elements of the economy. This higher level of taxation allows a more level distribution of income than the US model.
In the big picture, globalization is good for the world as a whole. 100's of millions are coming out of poverty. Average earnings per person are climbing rapidly, median incomes are climbing less rapidly.
However there are serious problems and challenges caused by globalization for both developed and less developed. Developed coutry governements need to address these problems with education, retraining programs, and in some cases protecting certain segments of society with tarriffs, that ideally would be gradually removed, as time is given for change. There will be economic disruptions in less developed countries as well. These need to be aggressively managed with economic policies such as tarrifs, so that poverty doesn't become worse in the short term. In the long term (15--50 years) education, training, etc. should allow the loosening of tarrifs, and the country to compete on terms where the comparative advantage is in their favor.
In the less developed countries, there is extreme poverty and very unequal levels of income distribution, both today and historically. Policies to change that can, and should, be put in place as globalization brings a higher level of wealth to the LDC's. Since the political structures of LDC's are often autocratic, this will often happen at a slower pace than desired by most.

by wchurchill on Fri Mar 30th, 2007 at 07:04:06 PM EST

Globalization is good? (none / 0)

If there is a God, a master of the universe, an omnipotent all powerful being I will in fact point out the Satanic evilness of this concept. Let all who spoke it or advanced it's cause be reincarnated as inanimate objects, rocks in a prison yard for example. Imagine, a former billion dollar CEO spending eternity as a rock.

In hindsight perhaps the more benevolent action might have been complete nuclear annihilation during the cold war.

by Lasthorseman (Lasthorseman@comcast.net) on Fri Mar 30th, 2007 at 08:35:55 PM EST

Re: Globalization is good? (none / 1)

It's all down to definition isn't it.

To me the connectivity of individuals with each other that is the key to globalisation is a marvellous thing.

On the other hand, the centralisation and consolidation and growth of inequality we see are just as "evil" in effect as you say.

But I'm an optimist. Help is coming.

The fact that a 19 year old could single-handedly destroy the business model of the entire global music industry by inventing "peer to peer" music sharing gives me hope that all is not lost.

Napsterisation is happening wherever we look, for those with eyes to see.

And it will mean the end of everything negative about globalisation.

by ChrisCook (cojockathotmaildotcom) on Sat Mar 31st, 2007 at 04:27:07 AM EST
[ Parent ]

Re: Set the frame, ignore the fine print (none / 1)

I know it is pointless arguing about some things, but...

The argument that a high marginal tax rate is a disincentive to work is not borne out by any studies I've seen. What is true is that the wealthy will move their earnings and/or wealth to lower tax regions if they are given the chance. This is a failure of governments to properly assess the assets or is part of the system set up to favor the wealthy which permits tax havens and other evasions to exist.
The claim that the super wealthy earn or deserve their wealth is also not borne out by the data. There are a few people (like entertainers or sports stars) who have earned their wealth by means of their own efforts, but they are in the minority. Most wealthy people inherited their money. The Waltons (of Walmart fame) are a good example, the four heirs of Sam Walton are his wife and children. Collectively they are worth $80 billion. Meanwhile their employees are among the lowest paid in the nation.

Why libertarians need to be absolutist to the extent of promoting misleading factoids has always been a puzzle to me. There are many reasons people work and money is usually not the most important once the necessities are taken care. Some (like the entertainers) have a need for public adulation, some (like politicians) desire influence, and some have other motives. Ayn Rand saw only selfishness as the guiding force in human nature and her warped view of economics follows directly from that.

As I've written before wealth inequality has dangerous side effects, especially in democracies where it leads to plutocracy and military adventurism.

If you missed it before, my 2 cents on the issue:
Wealth Distribution

Policies not Politics
---- Daily Landscape

by rdf (robert.feinman@gmail.com) on Sat Mar 31st, 2007 at 02:05:18 PM EST

Re: Set the frame, ignore the fine print (none / 0)

The argument that a high marginal tax rate is a disincentive to work is not borne out by any studies I've seen.

It seems pretty intuitive, from Wikipedia

In economics, marginal tax rates are important because they determine incentives to increase income; at high marginal tax rates, the individual has less incentive to earn more. In theory, if a 100% marginal tax rate existed, the individual would no longer have any incentive to increase earnings,

Some people might work if all of their additional earnings went to the government, and they received no financial benefit. But for most, this would significantly change the decision between work and leisure, and they would not work the extra hours, or cut back hours, if 100% of those additional monies would go to the government.

There has been debate about the extent to which this influences people, particularly at the more moderate marginal tax rates,,,say 25% to 60%. The Laffer curve argues that lower marginal taxes would actually increase tax revenues. I've never heard anyone debate that at the upper levels of taxation--say 90%. But there is legitimate debate at the more moderate marginal tax levels. Will lowering the taxes from 50% to 45% really make as much impact as Laffer claims?

by wchurchill on Sat Mar 31st, 2007 at 04:54:20 PM EST
[ Parent ]

Re: Set the frame, ignore the fine print (none / 1)

You really aren't going to bring up the Laffer curve again are you?

The Laffer curve does not exist. Even the claim (which you hedged) that people wouldn't work at 100% tax rate isn't true. The "dollar a year men" of prior times worked for nothing. As I said above the fact that money is the motivator of behavior is an assumption, not a fact. Quoting Wikipedia proves nothing. If we had a Wikipedia in Galileo's time it would have stated that the Sun was the center of the universe. Sometimes common wisdom is just wrong.

Here's my little essay on what's wrong with the concept of the Laffer curve, if you're interested.

There is no Laffer Curve

However, this is a distraction, the real issue is that wealth maldistribution has bad effects. This is not theory, this is simple observation. Those societies which have the worst imbalances are the ones which suffer more from a variety of ills. These include a disproportionately high under class with all its associated problems of poverty, crime, ill health and poor education and job prospects.

In addition wealth inequality leads to social policies which favor the interests of the rich to the detriment of society as a whole. One can look back at the Sun King as a typical example, but there have been many others from biblical times to Zimbabwe.

Why the libertarian arguments continue to get any notice and why those who don't benefit remain supporters is a continuing mystery. As things stand in the US, for example, if you are earning less than $200,000 and/or have a net worth of less that about $2,000,000, present policies are working against your interests. One can excuse those at the Cato Institute and similar venues, they sing for their supper, but the number of just plain working stiffs who fall for the elitist, authoritarian story of the libertarians is remarkable.

Perhaps they think they are smarter than average and can game the system to their advantage. Perhaps some are, but social mobility has decreased in recent decades and the likelihood of coming out a winner has declined. So being against the estate tax, for example, because you think you might be subject to it when you strike it rich, is just self deception.

As I've said before, some people just need to believe whether it is in religious or economic dogma and arguing with them is futile. Unfortunately for the rest of us when the deceived get into positions of power the results can be disastrous, reality can be ignored, but it can't be denied.

Policies not Politics
---- Daily Landscape

by rdf (robert.feinman@gmail.com) on Sat Mar 31st, 2007 at 05:24:10 PM EST
[ Parent ]

Re: Set the frame, ignore the fine print (none / 0)

If you can't accept this:

In economics, marginal tax rates are important because they determine incentives to increase income; at high marginal tax rates, the individual has less incentive to earn more. In theory, if a 100% marginal tax rate existed, the individual would no longer have any incentive to increase earnings,
Some people might work if all of their additional earnings went to the government, and they received no financial benefit. But for most, this would significantly change the decision between work and leisure, and they would not work the extra hours, or cut back hours, if 100% of those additional monies would go to the government.

Seems to me the statement that "some people might work if all...." pretty clearly covers your $1 a day guy,,,and he clearly would be the exception I was pointing out.

But you certainly have the choice of not believing this.

I won't comment on the Laffer curve because you misrepresent what I said.

Have a good day.

by wchurchill on Sat Mar 31st, 2007 at 06:18:00 PM EST
[ Parent ]

Set the frame, ignore the fine print | 40 comments (40 topical, 0 editorial, 0 hidden)

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