10.01.2012

TMQ is Back; Interesting Thoughts on Inequality

Longtime readers may be aware of my appreciation for Gregg Easterbrook. From time to time I have sourced stories from his posts on various sites, including his old Reuters column and my personal favorite regular sports column, TMQ (for Tuesday Morning Quarterback). While the latter is ostensibly a football column, Easterbrook manages to include some fascinating political, scientific and cultural insights into his pieces. His latest TMQ was no exception and included the following gem:

Good News Ignored No. 1: Conditions in the United States are much better than anyone's election rhetoric would suggest -- international tensions and world military deaths at historic lows, all forms of pollution except greenhouse gases in decline, most disease rates declining, education levels rising, middle-class income stalled but middle-class purchasing power (considering falling real-dollar prices and smaller households) at a historic peak. Unemployment is the clear worst problem, trailed closely by poverty. Poverty, in history's richest nation, is an outrage.

This commentary contends that while all politicians talk about unemployment, most don't really care -- most of the poor don't take the time to vote, and those without college degrees don't make political donations. So why care?

The smart commentary by Stephen Carter shows that poverty is a far more serious problem than the rising opulence of the 1 percent. Aside: Carter's new novel, "The Impeachment of Abraham Lincoln," is a fascinating read. In this "what if" fiction, Lincoln survives the assassination attempt, then is faced with an impeachment coalition of bitter Confederates and Radical Republicans who are furious that he won't do more to punish the South.

Lately the poverty rate has been in the news with the national average at 15.9 percent; the rate is higher in many states. But poverty statistics do not take into account benefits such as food stamps and the Earned Income Tax Credit, which mails checks to many who pay no taxes. Federal benefits have increased dramatically in the last generation. This new Brookings Institution study shows that when rising government benefits are taken into account, the poverty rate drops to only about a third what it was in 1980 -- meaning tremendous progress.

If poverty is easing and federal benefits are a main reason, why don't liberals generally, and Barack Obama specifically, roll the drums for this? Reduction of poverty is among the leading government accomplishments of the postwar era. But because liberals generally, and Barack Obama specifically, like to cry doomsday about inequality, they don't seem to want to highlight evidence that federal programs are working. After all, if federal programs are already working, why have more federal programs?

Any poor person would rather have cash income from work than increased government benefits. But as this commentary shows, claims about runaway inequality become much less worrisome when increased federal benefits are taken into account.

Now think about what happens when the Affordable Care Act goes into full force in 2014. It is not universal health insurance, which the United States needs. It is, rather, an income transfer program -- taxes on the well-off will rise so average people who currently pay for their health insurance instead will receive it free or very cheaply. That's income transfer. But because the transfer will be noncash -- average people no longer having to pay for something they now must pay for, rather than receiving higher wages -- the ObamaCare benefits will not show up in arguments about inequality.

Under the Affordable Care Act, many families will be better off by thousands of dollars annually. But leftists will make the same claims about rising inequality. Will Obama acknowledge that his own plan reduces inequality?

3 comments:

  1. Anonymous1/10/12 18:28

    "But poverty statistics do not take into account benefits such as food stamps and the Earned Income Tax Credit, which mails checks to many who pay no taxes."

    Permit me to rant.

    The "pay no taxes" phrase is a misstatement, based on a twisting of words that has become too accepted. People who receive the Earned Income Tax Credit often pay no "Income Taxes," but of course they pay, through FICA, "Taxes" on their "Income."

    This word-twisting has become so accepted that even smart bloggers don't always stop to question it. Sometimes smart bloggers even conflate "pay no income taxes" with, here, "pay no taxes."

    My quibble is not so much with the understandable typo in omitting "income" from "pay no taxes," and more with the enduring twisting of words that pretends a tax is not a tax--not a REAL tax--because it is not INCOME tax. Hogwash.

    Of course everyone paying FICA is paying taxes, because FICA is a tax on wages, though earmarked for benefits programs under which the taxed person MIGHT one day receive benefits themselves. And every single person who receives the Earned Income Tax Credit pays FICA. These are the working poor, and they support the solvency of social security and medicare with what is, for them, a substantial portion of their wages. In a few cases, the tax credit may exceed even this amount. But the majority DO pay taxes, though they can ill-afford them, and it's wrong that our language is so easily contorted to make them seem like "takers."

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  2. Hi Anon, thanks for stopping by.

    Allow me first to address two inferences I believe you made; one, that I am a smart blogger, and two, that despite being one, I blindly (or at least unthoughtfully) accepted Easterbrook's assertion. If the former inference was intended, many thanks. If the latter, I can assure you that there have been a number of times in my life where I was scraping by below the taxable minimum yet still felt the sting of FICA withholdings. FICA certainly felt like a tax, and I didn't consider it to be anything less.

    That said, yours is a well-stated point that perhaps isn't made often enough in the 'who pays taxes' dialogue. If I recall correctly, you weren't the only one to pick up on what was possibly a rhetorical twist; I think (without going back to check) that some commenters at Easterbrook's orginal post made the same point. Your argument was also very forcefully made in the comments of a recent article I read which suggested that roughly half of Americans (again, off the top of my head on this one) were not paying taxes. Of course the term 'income' was omitted there; of course its omission was fully intended in an example of the phenomenon you note in your comments.

    Despite all of this, Easterbrook's clever point which I was trying to highlight still stands. That is that politicians would cut off their nose to spite their face on many issues. In Easterbrook's example, that would be the idea that they, through the passage and funding of programs, have significantly improved the lots of many of the working poor (in very general terms), but fail to make this part of the dialogue as it doesn't jive with the current party line that inequality is rising - and no one from the President's party wants to abandon that rallying cry while Mitt Romney, he of unfathomable (to most) wealth is the foe du jour.

    Perhaps I should have called out Easterbrook, failing to do so in a lazy moment of extremely liberal borrowing. Perhaps one could quibble with an assertion that I have taken for granted (that things are better for the very poor now than they were thirty years ago). However, Easterbrook's broader point, that politics often means sacrificing 'wins' at the altar of expediancy holds.

    Thanks again for stopping by. It is a pleasure to have such careful readers providing thoughts.

    Josh

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