http://www.wws.princeton.edu/~pkrugman/soak.html

SOAKING THE RICH? (12/18/02)

Amazing: the campaign to convince the public that tax policies in recent decades have involved a progressive effort to soak the rich is gathering force; rumor has it that it will be a major theme of the next Economic Report of the President.

The good people at CBPP have a sensible report on this. But in a way they're too generous. Comparing the share of income paid in taxes by the top 1% in 1979 and 1997 misses the point that the top 1% has grown far richer; because the tax system is progressive, this would lead other things equal to a rise in that ratio. To get a sense of how the progressivity of the tax system has changed, we should look at is how tax rates have changed at any given level of income.

Here's a quick and dirty chart . I've taken income categories and average tax rates from the CBO study that was one of the major data sources for my NYT magazine article. Here's what we learn. A family with an income of $40,000 in today's dollars paid about 18 percent of income in federal taxes in 1979, slightly less - around 17% - in 1997. A "$400,000 a year working Wall Street stuff, flying first class and being comfortable" (thank you, Gordon Gekko) paid about 37 percent in 1979, only 31 percent in 1997.

Does this look or sound like a tax system that increasingly soaks the rich?

Great stuff Krugman! Keep it coming! Of course, who was President in 1997...? If we're going to elect a Democrat in 2004, could we please make sure he and his advisors are not just substitute Republicans?

Krugman today:

>>Finally, there's economic policy. Fears that the economy would suffer a "jobless recovery" ....
Again, the response has been to do as little as possible. As Congress failed to agree on an extension of unemployment benefits — which means that 800,000 families will be cut off on Dec. 28 — the administration simply stood on the sidelines. <<

Brad DeLong in June of this year:

http://www.j-bradford-delong.net/movable_type/archives/000315.html

>> ...recall that only recently did President Bush agree to extend the duration of unemployment benefits. In the aftermath of any extension of unemployment benefit duration, the unemployment rate tends to rise by half a percentage point or so relatively to what it would have been....<<

Krugman today:

>> It's not even clear what the Bush administration wants to accomplish now that it has full control. Until now the administration has been all politics and no policy; John J. DiIulio tells us that there is a "complete lack of a policy apparatus," that all decisions are made by the political arm. For the past two years domestic policy has consisted of little more than checking off the boxes on a wish list drawn up circa 1999. <<

I seem to remember a story about James Carville drawing a picture of Bill Clinton on a piece of paper and asking his colleagues, "Where's the sacred ground"?

From an interview with Frontline, Dick Morris said:

http://www.pbs.org/wgbh/pages/frontline/shows/clinton/interviews/morris2.html

>> Clinton has always had a staff of two: Al and Hillary. That's his staff. And anything he doesn't do himself, he works with those two on. And about 70 percent of what goes on in his presidency, he does himself--or he has no involvement in. But 70 percent of what the president does, Bill Clinton does himself. And the other 30 percent, he does with Al Gore or his wife Hillary.

>> And his staff was not a staff that he used in the traditional sense of the word, to help him work. They were really representatives, ambassadors to different factions in the Democratic Party. Stephanopoulos was there because he was sort of the ambassador to The Washington Post and the ambassador to Gephardt, on whose staff he'd served. Ickes was there because he was the ambassador to the minority community and the labor movement. Panetta was there because he was the ambassador to the House committee chairmen and the barons in the House and the Senate, from the budget process. Everybody was there as an ambassador to another wing.<<

From the same interview with Frontline:

http://www.pbs.org/wgbh/pages/frontline/shows/clinton/interviews/morris.html

<<-------quote----------
Q: At what point do you get taken into Clinton's confidence, in terms of what's happening politically in the fall of '94?

Morris: Well, in the early days of October '94, he called me and said, "What do you think I should do about the congressional elections?" And I said, "Well, let me take a poll, and give you some advice." Because that's how I usually do it.

So I took a survey with him. And I remember we were preparing the questionnaire, and he's on the phone with me. I figured that the President of the United States wouldn't have much time to fool with the questionnaire. No, he spent an hour and a half on the phone with me, going over each word of each question: "Make sure you ask about this accomplishment," "Make sure you ask about that accomplishment," "No, no, you have here that I created three million jobs; it's really three and a half million jobs." And he's all over that.

--------endquote-------->>

In the aftermath of any extension of unemployment benefit duration, the unemployment rate tends to rise by half a percentage point or so relatively to what it would have been: people take longer to search for new jobs (and on average do manage to get better jobs as a result of taking longer to search.

Why would you leave out the rest of that sentence, Patrick?

In the Clinton White House, everyone had access to the presidental decision making process. In the Bush White House, everyone but the people who know what they are talking about have access to the decision making process.

Pretty funny that anyone would view Morris as a trustable source on anything.

>> people take longer to search for new jobs (and on average do manage to get better jobs as a result of taking longer to search.

>> Why would you leave out the rest of that sentence, Patrick? <<

Because it is irrelevant to Krugman's whine.

>> In the Clinton White House, everyone had access to the presidental decision making process. In the Bush White House, everyone but the people who know what they are talking about have access to the decision making process.<<

No doubt you have as much first hand knowledge of this as you do of hiring employees.

Patrick Sullivan - I have difficulty following you comments. Perhaps you can post them more clearly for the likes of someone not as fully conversant with the arguments. Thanks.

The sadesest thing is that no matter how the undemocratic Republicans screw up we may have another six years suffering under the heel of these plutocratic Texans. the Dems dont have a coherent platfom.
Grouchy

http://www.nytimes.com/2002/12/18/opinion/18FRIE.html

Thomas Friedman has suggestions the Democrats ought to take to heart. we are so much of need of a set of coherent compelling Democratic policy initiatives aimed at the growing needs of middle class America.

Thank you Brad DeLong, Paul Krugman and Thomas Friedman for such important insights.

Andrew B--
I think that's unfair to Clinton. The change between 1979 and 1997 reflects eight years of Reagan, four years of Bush I, and five years of Clinton. IIRC, Reagan slashed taxes on the rich (making up for it by soaking the poor with the payroll tax); didn't Clinton's tax hike make up for that?

If we really want to see the change due to Clinton, we have to start in 1992; of course, Krugman didn't do that because he was responding to the CBPP's misleading numbers, and those were from 1979 to 1997.

That should be "Didn't Clinton's tax hike make up for *some* of that"?

Matt W wrote: I think that's unfair to Clinton. The change between 1979 and 1997 reflects eight years of Reagan, four years of Bush I, and five years of Clinton. IIRC, Reagan slashed taxes on the rich (making up for it by soaking the poor with the payroll tax); didn't Clinton's tax hike make up for that? If we really want to see the change due to Clinton, we have to start in 1992...

No problem with that. Start in Jan 1993 and finish in Jan 2001. And if the rich didn't get a lot richer by much more than the rest of the population, well then I'll eat my - no that's no good - how about, then I'll vote for Hillary? And honestly, I'd have no problem with that, I really do have an open mind on the subject. I'll vote for anyone - Democrat, Republican, or third-party - who is going to tackle the problem of misdistribution of wealth in the U.S. It's just not fair - and not the American way - to have do-nothing CEOs rake in millions while millions lose on their retirement savings. Only don't tell me that the cowardly lions, who are the Democrats we now have in public office, deserve my vote unless they get off their duffs and actually do something.

Andrew--
Probably the rich did get richer in Clinton's administration. That wasn't the original claim (and it's not under direct government control, either), which had to do with tax rates.

Tax rates are under direct government control. I'm not sure how to read the chart Krugman cites--do the rates for 1993 reflect Clinton policy or the last Bush budget? Help, someone who knows.

If, as I suspect, they reflect Clinton's budget, then the tax rate for the top 1 percent plunged under Reagan, held steady under Bush I, and climbed under Clinton (during the 2 years Democrats controlled Congress).

And the data don't go past 1997. Unfortunately, this chart is all in quintiles and percentages; I can't figure out the data for a steady income level of $400k.

Why is it that the usual suspects here, never mention the destruction of the tax shelter industry under Ronald Reagan? With the elimination of many loopholes in exchange for a lowering of the ridiculous top rates, there was no longer any real disincentive to reporting income.

The TRA of 1986 (and the later spending restraints of Gramm, Rudman, Hollings) had more to do with the budget surpluses of the 1990s than anything the Clinton Administration did. The highest marginal tax rate AFTER Clinton's 1993 increases, was still only a little more than half what it had been before Ronald Reagan came into office.

If the tax shelter industry is gone, how is it that CSX manages to pay no taxes in years in which it makes a profit?

As for Gramm-Rudman-Hollings vs. Clinton, I quote the House:
"GRH was a significant departure from previous budget reforms in that it attempted to guarantee a specific budget outcome -- at least in the aggregate -- rather than focusing on institutional relationships or on information provided for the budget process. The deficit, of course, did not come down as promised by the Gramm-Rudman-Hollings legislation. In fact, the fiscal year 1993 deficit (which would have been zero if the law, as revised in 1987, had met its goal) is currently projected by CBO to be $266 billion."

From a $266b projected deficit to a surplus during Clinton's administration. That's why Clinton gets the credit.

John McCain was commenting this weekend on just how inequitable the tax system is. What does it take to know that it is so? Duh.

It seems to me that by limiting the discussion to the "progressive" federal income tax misses some important issues: (1) the super-rich don't care about income tax since most of their wealth is grown through the stock market and other investment vehicles that are taxed a lower rates or might not be taxed at all if the Bush administration has its way (e.g., estate tax -- what person who's net worth is less than $1 million cares about estate taxes?); and (2) state taxes (through sales taxes, etc.) tend to make the overall tax burden on individuals less "progressive."

From a $266b projected deficit to a surplus during Clinton's administration. That's why Clinton gets the credit.

Credit for what? Credit for a stock-market bubble which doped the economy, causing tax revenues to rain down? If you think that's the right idea, let's inflate another bubble soon. Anyone want to buy a tulip?

Look at the states. During the '90s they had no problem balancing their budgets and putting money away in "rainy day" accounts; but now that the bubble has burst, they are almost all having a serious problem living up to their balanced-budget obligations. Which is to say, you should benchmark Clinton against others benefitting from the same economy before concluding he deserves any kind of credit.