The Oft-Repeated Lie About Warren Buffet’s Secretary’s Tax Rate

Wednesday, January 25, AD 2012

For last night’s State of the Union Address, President Obama invited Warren Buffet’s secretary, Debbie Bosanek, to sit in the First Lady’s box during the speech and specifically promised in that speech to support tax changes in order to mend the injustice Buffet claims occurs allowing him to pay the lowest tax rate of anyone in his office, including his secretary. This line of attack is doubtless partly designed to pave the way millionaire Barrack Obama to make populist attacks on multi-millionaire Mitt Romney during the upcoming presidential campaign. Romney is, after all, very, very rich, and his income comes primarily from investments.

David Leonhardt at the NY Times asks both right-leaning economist Greg Mankiw and the left leaning Center on Budget and Policy Priorities to comment on this alleged tax injustice. Mankiw makes a fairly reasonable case that the reason capital gains are lower is that investment income is based on corporate profits and corporate profits have already been taxed. Companies would have more profits to pass on to investors (either as dividends or in the form of being worth more) if they didn’t pay corporate taxes, and so the tax on investment income is set lower to avoid this “double taxation”. Chuck Marr of the Center on Budget and Policy Priorities must know the facts aren’t on his side, because instead of answering the question he provides a canned response about income inequality and how tax rates are lower than in the ’70s. The column is worth a read.

However, there’s another issue here which I think is worth pointing out. Progressives writing on this issue usually act as if billionaire investors such as Warren Buffet are all paying right around 15% (the capital gains rate) in taxes — Buffet claims that he pays 17.4% — and that “middle class Americans” are paying the top marginal income tax rate of 35%.

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40 Responses to The Oft-Repeated Lie About Warren Buffet’s Secretary’s Tax Rate

  • I am tired of hearing about the rich paying “their fair share” when almost 50% of the country pays nothing in income taxes. I am all in favor of everyone doing their fair share and, in my mind, that obviously means setting a minimum tax. Even if it is just $100 a year, everyone should throw something in the pot. We should also stop administering welfare through the income tax system. It encourages people to accept benefits they would never dream of going to the welfare office to get.

  • Darwin,
    As a tax lawyer I must say your post is spot on correct. And I would add a few more points.

    * Capital gain rates should be lower in order to accomodate the fact that some gain is illusory inflation gain. A person buying shares of Company X in 1980 for $10,000 may well be able to sell those shares for $20,000 today, but much of the nominal $10,000 gain is just inflation and does not represent income in a true economic sense.

    * Capital gains are only taxed when they are recognized as a consequence of a sale. Selling investments is usually a matter of choice, and capital gains taxes act as a toll charge on a a voluntary sale. Accordingly high rates serve to encourage investors to stay “locked in” rather than liquidate their investments. In fact all tax scholars agree that high rates will result in reduced tax revenue for this very reason, but what they do not agree on is the tipping point. Personally, I think that there is some room to raise the rate without revenue loss, but I do not believe that one can remotely raise the rate to match with current ordinary rates without actually losing revenue. It would be a lose/lose — investors would be locked into unwanted investments while the government would get less tax revenue — all in the name of fairness.

    Buffett is a hypocrite. He can and should pay himself a high salary taxed at ordinary rates, but instead deliberately keeps his gains in his investments in order to benefit from lower capital gain rates.

  • Jenny,

    For a very long time I agreed with the point you make about everyone paying at least some taxes, but I think I’ve been gradually modifying my views on it.

    Part of my reason for change there is that (as the CBO numbers I linked to point out) basically everyone has some degree of federal tax liability, if they work at all, it’s just that they may have a negative income tax liability (a subsidy) which reimburses them for some of the payroll taxes that they pay for social security and medicare. Even for the bottom 20% of earners, they end up paying some positive amount of federal taxes. One could “solve” this weird appearance by scaling the payroll taxes instead of having them be a flat rate, but that’s comparatively hard to do, so instead we end up with this weird thing of charging some people payroll taxes while “giving back” money on their income taxes.

    Another element is that it seems to me that one of the things which conservatives have (rightly) won a lot of support for is lowering people’s taxes — and it seems to run totally counter to that to turn around and say that we should raise taxes on the half of people who pay no income taxes currently.

    Finally, and this is the thing I feel most mixed about, giving people subsidies through tax credits is a very “clean” way of trying to help out those who earn less. On the face of it, it seems like we shouldn’t throw money at people who don’t ask for it, and I find that argument persuasive in some ways. But on the flip side, the various forms of subsidy that people go down and apply for often end up reinforcing bad behavior and penalizing the hard working poor who don’t ask for help. They also lend themselves to all sorts of nanny state interference where bureaucrats say, “We’ll help you buy food, but only if you buy these things,” etc. In this sense, if we’re going to help people through financial subsidies, it seems to me that doing so through something like the earned income tax credit or the child tax credit in some expanded and more frequent form would actually be more conservative and less prone to government abuse than most of the other modes of assistance which are pushed.

  • I have heard that the idea behind the earned income tax credit was to reimburse lower income workers for their payroll tax contributions. It is a reasonable goal, but I do not believe we should completely erase a citizen’s entire tax obligation. I think it changes the relationship between the citizen and the government in an undesirable way.

    I also question if it is really true that most everyone actually has a tax liability. I know that my anecdote is not data, but for tax year 2010 I paid $0 income tax, ~$2900 payroll tax, and received ~$6200 in a “tax refund.” Now we have three children and one income, so that might change the math, but I do not consider us low income. We do not have a lot of budget leeway, but we are definitely not poor. If I make as much as I make and still get that kind of money from the government, how much more are other people getting?

    We also qualify for reduced lunch at school, but I do not take that government money. I can afford to feed my daughter lunch! The difference is to receive that benefit, I would have to fill out a form that basically declares I need the government’s help to feed my children. That declaration would be a falsehood so I do not fill out the form and no one requires me to do it. However I am required to file taxes, so, even though I do not *need* the money, I take all the deductions and credits I am allowed and get a fat check. It definitely feels like dirty money, and yet I take it anyway. I’m not sure what that says for my moral fortitude.

    I agree it is politically untenable. I hear folks calling the talk shows complaining about those ‘no-goods’ that don’t pay taxes and I wonder how many of the complainers actually pay income taxes themselves. Odds are that 50% do not.

    I understand your thought that the earned income tax credit helps the people who would not ask for help. I am a prime example of that logic. I would be more sympathetic to it if the country were not driving off the debt cliff. It is a moral hazard to set up government assistance through programs–be it from manipulative citizens or nanny state bureaucrats–but we cannot afford to allow 50% of the country to free ride anymore.

  • I hear what you say, Darwin, but don’t think I fully agree. Social security is basically a pay as you go defined benefit retirement plan. Folks receive retirement benefits imperfectly based on what they contributed to the pot during their working life. In truth the plan is a hybrid — part retirement plan and welfare plan since those who pay in the maximum get a bad deal while those who pay in smaller amounts (i.e., low and moderate income earners) get a good deal. I don’t think these taxes can fairly be characterized as contributions to the common good, which is a different pot altogether, except perhaps in part the taxes paid by those who consistently contribute the maximum since they are subsidizing others.

  • Mike,

    Fair point. I guess I tend to look on Social Security as being more of a welfare program conveniently masquerading as a defined benefit retirement plan — but I readily admit this is in part a result of my own crank-iness.

    In all honestly, I’m not sure I fully buy the “tax credit as reimbursement for payroll tax” argument, especially as there’s not a fixed relationship between the two. Few people end up getting more subsidy via income tax then they pay in payroll tax, but I’m sure that some do, and my support for the idea of using refundable tax credits in place of other forms of subsidy isn’t necessarily related to the amount of subsidy being less than one has paid in payroll taxes. On the other hand, I think one of the problems with this approach, though it appeals to me in other ways, is that offends people’s common sense. And that’s not something to be taken as lightly as many policy wonks seem to think.


    Fair points. I don’t remember comparing how much I got back via income taxes to my payroll taxes, but I do definitely recall that 7-8 years ago when we had two kids and our family income was under 50k we got back about a thousand dollars on our tax return more than we’d paid in. And I think the child tax credits are higher now than they were then. Things were tight (given we lived in California and paid the sort of rents one can expect there) but I certainly didn’t consider us “poor” and would never have applied for government aid.

    This, actually, is my main source of self questioning as I’ve come to see the refundable tax credit as a better way of applying government subsidies than traditional welfare programs: it’s simple and fair, sure, but back when I actually qualified for that kind of thing it drove me up the wall and I was firmly in the camp of thinking that everyone should pay at least some taxes. I’m not really comfortable with the fact that this is something I’ve only come to like the idea of as my income has increased, though I’m not sure if this is the result of cause and effect or just that I’ve got into reading a lot of economic policy analysis over the last decade.

  • I agree it is politically untenable. I hear folks calling the talk shows complaining about those ‘no-goods’ that don’t pay taxes and I wonder how many of the complainers actually pay income taxes themselves. Odds are that 50% do not.

    Some numbers here. 47% of households have no “liability”– they can claim deductions sufficient to only be paying SS and Medicare tax; those who hit the black when you include their side of the payroll taxes is half that. (still depressing, but not as much)

    Things to keep in mind is that this is a matter of HOUSEHOLDS– from memory, being married and being a bit older are both things are associated with being conservative, and one of the major causes of poverty in children is being a single mother; it’s very believable that those calling in are paying taxes, contributing, etc, even if the “50%” statistic would imply otherwise.
    Oh, that reminds me– some of those “households” might be college kids of the sort that I went to high school with– they’re on every program possible, are supported by their parents and get part-time jobs while they’re in college basically so they can game the system. (I didn’t really realize this until one mentioned the free birth control program for Washington State was being “threatened.” Guess I should’ve known, almost everyone at the school was on reduced lunch, even though my family was one of the lower income ones!)

  • I will attribute your changing opinions to reading economic policy rather than the pity you have for us down the income chain. 😛

    If our goal is to help those who would not normally ask for help, we could keep the credits if we dramatically cut the income requirements to get the credits. For tax year 2011 you can still get a credit with an AGI of $50,270. That’s adjusted income higher than the country’s gross median. This is pure insanity.

    I do not mind government subsidies helping the poor and even those teetering on the edge, but that is not our current policy. We are throwing money at solidly middle class people who would never ask for the money on their own. We cannot afford to do it anymore.

  • I will attribute your changing opinions to reading economic policy rather than the pity you have for us down the income chain.

    Thanks. 😉 I guess what makes me mildly suspicious of myself is that I’m pretty sure that my 25-year-old self would have thought my 33-year-old self is just out of touch. And while having five kids and large old house adds a lot of responsibility, compared to two kids and a tiny new house, I can’t help wondering if my 25-year-old self was right at a gut level.

    I do not mind government subsidies helping the poor and even those teetering on the edge, but that is not our current policy. We are throwing money at solidly middle class people who would never ask for the money on their own. We cannot afford to do it anymore.

    There I think you get at the heart of the matter. Middle class voters turn out much more reliably, so I think both parties have been a party to buying off the middle class by cutting taxes very, very low for many of them, without actually helping those desperately in need all that much. To the extent this has resulted in virtually putting the middle class on welfare, that’s a big problem. That kind of help should be reserved for those who desperately need it. (Perhaps part of the problem is that a lot of these beltway types imagine that making 50k is “poor” when it fact it’s the median income out here in real America.)

  • Excellent comments, Darwin and Jenny.
    It seems to me that one persistent theme, even if perhaps somewhat subtextual, is the unwillingness of our elected officials to be truthful about the *character* of government benefits. It is true that social security is in part a welfare program. As long as its dominant characteristic, however, is that of a defined benefit retirement program, the welfare component remains disguised. Many Americans are comfortable with this, including those who don’t want to admit that they are receiving welfare (i.e., those whose payouts compare favorably to their contributions) as well as those who view welfare as social *justice* rather than taxpayer *charity* — the latter frankly bristle at the word.

    When we employ tax credits, especially refundable tax credits, all too often they are not properly understood as welfare when they may well be exactly that . This is particularly true of refundable credits to compensate for social security contributions that are conceptually and financially necessary to fund future retirement benefits. This is no accident. Politicians do not want to wound the pride of their voting base. Truth is the victim.

  • St. Warren’s secretary’s tax rate is huge but not because we evil rich S.O.B.’s don’t pay a high enough taxes.

    St. Warren’s virtuous, long-suffering secretary’s taxes are about to become even more onerous. And, he will not raise her salary to cover the harsh increases in food and fuel prices he (profiting for the keystone denial) and Obama (raising fuel costs to get green votes) are laying on working class Americans.

    At least he hasn’t laid her off, yet.

  • In my view, the “everyone should pay some taxes” idea leads inevitably to bigger government for two reasons:

    1) If everyone had to pay something in taxes, the poor would have to rely more on welfare programs like food stamps, Medicaid, etc.

    2) To be politically viable, marginal rate cuts have had to be coupled with rate cuts across the board. But if you aren’t allowed to cut anyone’s taxes to zero, then you very quickly end up with a situation where you can’t cut taxes for a large segment of the American population. So no more tax cuts.

  • Thank you Darwin Catholic!!

  • BA,

    I think it is wrong to tax away anyone’s necessities or ability to pay for necessities. To the extent what we call the “poor” includes this group then I think we should not tax them. If we accomplish this by taxing and then paying rebates, that is fine with me — such an approach arguably has the virtue of greater transparency — i.e., truthfulness.

    The idea that almost one-half of American households should not contribute to the common good is untenable. Aside from those whose necessities are at stake, all should contribute to the common good, even if in varying amounts computed at graduated rates.

  • Annual income = $27K
    Taxes (state + local) = 29%
    Single tax rate

  • St. Warren is correct! Among Obama aides, 36 owe $833,000 in back taxes.

    Taxes are for the little people.

    Salary of St. Warren’s secretary: $200,000 to $500,000.
    Her second home with pool in AZ: $144,000.
    Playing prop for Obama lies: Priceless!

  • Why not ditch the income tax all and all? One of the things I like about the flat tax is that it removes the gov’ts power to tinker on income, and– in theory– would cut down on the amount of work needed to keep track of all that information.

    Total pie-in-the-sky, since the entire setup is built around federal knowledge of exactly how much and where your money comes from, but I can dream….

  • Foxfier,

    I accept your point about the audience make up of conservative talk shows, but it is likely that many getting welfare tax refunds do not realize it is happening. It is easy with tax prep software and companies do think that your refund is just a refund. Unless you are knowledgeable about the tax code or do the math by your own hand, you may not realize you are getting back more than you paid, and I wonder how many of those are complaining.


    Here is the spot that your 33-year-old self has forgotten about your 25-year-old self:

    When you realize you are getting welfare from the government, it makes you feel poor. When you know you are not poor, but either someone else thinks you are poor or is trying to buy your vote, you get angry. When your finances are such that, even though you don’t really need it, it would be very foolish to turn down the money, you feel worthless.

    So you are now far enough away to see the wisdom in the overall policy without feeling the sting of having bribe money waved in your face.


    You are probably right that making everyone pay taxes would make more people dependent on government programs. Perhaps the real problem is the qualifications for these programs. The income requirements need to be severely cut back. The argument made by the current administration that nearly 50% of the country is poor and in need of assistance is laughable on its face.

  • Dulce taxatio inexpertis.

  • Worse yet. Consider Buffett’s motives for promoting a new tax on high income earners. He owns a significant stake in life insurance companies, which offer tax sheltering and avoidance strategies for the rich. The end result of his proposal? More clients, more revenue, more profits. And he’s since structured his assets that he wouldn’t even be effected. Just call him what he is: a corrupt crony capitalist lobbying for a law that he will substantially benefit from

  • Jenny-
    Maybe if you have a company where you just drop off your paperwork and they do it, but I just filled out our taxes this morning (With H&R Block! /advertisement) and blocks 2, 4 and 6 are really obvious– “Tax withheld.” When you look at the return before filing it, it lays it out: Federal withholding, EIC, additional child credit. The first one, natch, matches the “tax withheld” total.

    I’d be really, really hesitant to suggest that someone did not notice that they’re getting more back than they paid in; folks respond poorly to implications that they’re stupid.

    The argument made by the current administration that nearly 50% of the country is poor and in need of assistance is laughable on its face.

    Not half of the country– half of the households that file taxes. If I’m reading this right, the average individual income is $45,559. (I know, average, not median– yell at them!)
    I know I keep beating that same drum, but given how many more single-adult households there are these days, it’s important….

  • Foxfier,
    I don’t know about stupid, but certainly ignorant and lazy. Many people, including the college educated, are completely flummoxed about income taxes. This is exactly why outfits like H&R Block are in business. The vast majority of the returns the prepare as so simple a cave man could do it — but we live in a nation of people who don’t know the difference between income and a bank account — and that is just a fact.
    Ask any VITA volunteer.
    This is not to say that our income tax rules could not be made easier, but the complications are not really related to low income earners.

  • Mike-
    I helped do taxes when I was in the Navy; NONE of those folks were unaware of the difference between the amounts of their withholding and refunds, whatever way it tilted. True, that’s a select group– but so is the “Low-Income, Elderly, Disabled and Limited English” population! I’d suggest that the average IQ person does sort of what I did– used H&R because they make it so incredibly painless to do your taxes, even making efiling a matter of clicking the “next” button twice. (/advertisement)

    No volunteers needed.

    Heck, even my moron, thug former-brother-in-law could figure this stuff out, although he was gloating about “free money.”

  • Foxfier,

    I did not imply that people are stupid. I flat out said they do not pay attention. Since we are exchanging work experiences, I worked at a bank in the era before direct deposit for tax refunds became widespread. The rapid refund loan checks outnumbered treasury checks probably four to one. It is not hard to imagine that those people had no idea how much money they had actually paid in taxes.

    I’m not sure what you are suggesting by pointing out the average employee income is $45,559. Are you saying that is poor or not poor?

  • Jenny-
    You keep talking about “half the country” when you’re talking about tax paying households instead of individuals. I didn’t say it was poor or not, since income divorced from all other factors is a pretty cruddy way to figure out “poor”– what’s poor in Coronado, CA is not poor in, oh, Reno NV. I did find it interesting that the average individual income was so close to the median household income, which may hint at the root problem.

    You said:
    I accept your point about the audience make up of conservative talk shows, but it is likely that many getting welfare tax refunds do not realize it is happening. It is easy with tax prep software and companies do think that your refund is just a refund. Unless you are knowledgeable about the tax code or do the math by your own hand, you may not realize you are getting back more than you paid, and I wonder how many of those are complaining.

    I am not knowledgeable of the tax code, nor did I do my tax-math in my own hand, I just looked over the form as required and am not so dumb that I notice a thousand dollar difference. When you’re getting to that level of cash in your own pocket, it’s beyond “not paying attention.”
    As for treasury checks vs “rapid refund” ones, it’s hardly surprising that people are willing to pay to get money faster– especially with the well-known speed of government!
    I don’t know what the tax code was like for real households, but I remember when I first started working, I adjusted my deductions so that I didn’t get a check at the end of the year. If a dumb high school kid knew to do that, it probably wasn’t odd for adults who actually have to live on the money to do it.

  • Foxfier,

    I bring up the rapid refund checks not to point out that they wanted the money faster, but to say it is likely that these people indeed went to “a company where you just drop off your paperwork and they do it.” I understand that you are supposed to look over the return before signing, but a lot of people do not, which is why the ‘innocent spouse’ provision exists. We are also supposed to read the ‘terms and conditions’ on websites, but most people do not. It is in our nature to trust and accept what is presented to us at face value. And you do not give yourself enough credit for adjusting your withholdings in high school to avoid a refund. A lot of people prefer the check from Uncle Sam, not understanding it is a loan without interest.

    So, approaching half of tax filing households do not pay income tax and have been deemed ‘poor’ by the government. Is this a precise enough statement for you? Does it seem reasonable to you that half of tax filings are from poor households? I think the point you are making is that a married couple making 80K is counted as one household, but a divorced couple each making 40K is counted as two households. It does tip the numbers in the wrong direction.

    My argument is that 40K is not poor in the majority of the country and should not be treated as if it were. If the average individual income is ~45K in the richest country on earth, it would seem that 45K is not poor and yet our current government policy is that it is.

  • It isn’t being treated as “poor”– the IRS site says that the EITC is supposed to encourage low to moderate income folks to work; the child tax credit is for households that have under 100k/year to defray child costs.

    Basically, they’re not charity type things, they’re just straight social engineering– we want people to have kids, buy houses and have jobs. (Possibly vote buying too, but that’s neither here nor there.) I vaguely remember the EITC was partly because they figured out people had stopped working because going over some amount would leave them with less in their pocket. Nobody wants to take away a tax break, so there are layers and layers of incentives… no wonder the “burn it all and build over” approach is getting so popular.

    Speaking of being deemed poor by the gov’t, I’m sure you’ve seen those surveys on what the average “poor” have… the government is simply not set up to effectively figure out what constitutes poor, even before you look at the whole twisted incentives thing!

    I think the point you are making is that a married couple making 80K is counted as one household, but a divorced couple each making 40K is counted as two households.

    And a woman who is not married and gets either formal child support or under the counter support (what’s it called, the “gray” economy?) is going to have low on-paper income, and both parents in a divorce are going to have less chance to make money– it’s more likely to be something like an $80k household becoming two $35k households, or even less if it’s a nasty split and the non-custodial deliberately avoids making money to keep from being dinged for more.

  • I am very much in favor of burning it down and starting over, but I do not see much chance of that happening as long as the government promotes the idea that 45K is ‘low-income.’ It may be driven by social engineering goals, but we cannot afford these delusions any longer.

  • Oh, goodie, yet another yard-stick– median income for a family of four. $67k for ’08.

    Assuming that the definition of “low income” is constant, low income is 60% of the state median or 150% of poverty, whichever is higher. The bottom third is a defensible definition of “low income”….

    That said, the USAToday article looks like a re-heating of this sort of thing, with an amazing unwillingness to wonder why nobody is hiring when it became more expensive to do so and there’s the whole unknown upcoming regulations factor….

  • Darwin – Where is the exact quote that you are calling a lie? Did Warren Buffett state that he paid a lower tax rate than the average tax rate of the middle class? And did he also define middle class in terms of a dollar income range? It is not at all unbelievable that the secretary to the richest man in the world (she probably is a well paid secretary but still arguably in the middle class) would pay a tax rate higher than 17%. We don’t know what rate she paid so how can you say he is lying?


    Buffet himself declares that he pays a 17.4 percent rate on taxable income. His staff, like Bosanek, pay an average of 34 percent. The IRS publishes detailed tax tables by income level. The 2009 results show that the average taxpayer paying Buffet’s 17.4 rate earns an adjusted gross income between $100,000 and $200,000. But an average taxpayer in Bosaneck’s rate (after downward adjustment for payroll taxes) earns an adjusted gross income of $200,000 to $500,000. Therefore Buffett must pay Debbie Bosanke a salary well above two hundred thousand.

  • Thanks for the article Foxfier. I don’t see a lie here. Even if the secretary does make between 200k and 500k it still speaks to the point Obama is making. Warren made AGI of $62 million and paid 17% tax rate and the secretary made up to 500k and paid a higher tax rate. Why can someone who lives off of his great-great-grand-daddy’s fortune pay a lower rate than someone who actually works? (I undertand Warren actually made his fortune but his kid didn’t and his great-great-great grand kids wont be able to say the same.)

  • Toll:

    Buffett’s secy paid a tax rate becuase unlike Buffett she could not elect to not pay herself and cash in long term capital gains.

    Buffett paid taxes on the long term capital gains rate, which is 15%. He elected to not be pay himself a salary of $6,000,000 because he knew he would pay 39% income tax on most of it. Buffett has control over his company pay. His secy does not.

    It’s the tax code and Buffett playing with it.

    In fact, Buffett’s companies are in tax court because he refuses to pay billions in federal taxes. Buffett’s LT cap gains are the chief profiteers in Obama’s ban of the Keystone oil pipeline.

    Pharaoh and Buffett are lying. And, you, Toll, are a pharaoh-worshiping ignoramus.

  • John Toll,

    What I’m calling a lie here is comparing two completely different tax rates: the top marginal rate and the effective tax rate.

    Buffet it talking about his effective tax rate, which given that he pays himself a salary well below market rates for a successful CEO and takes most of his income in the form of long term capital gains instead (a tax dodging tactic which certainly belies his claim to be concerned about the rich not paying their share). He’s probably also throwing in his payroll taxes, which don’t amount to much since they only apply to his salary and not to his millions in investment income. This is how he gets his effective tax rate of 17.4%. He is not, however, including the impact of corporate taxes on his investment income. Arguably, he should, because corporate taxes come out of corporate profits before profits are distributed to investors, and corporate taxes reduce the profitability of a company and thus reduce it’s market capitalization. If you looked at the effect of corporate taxes on his income, his effective tax rate is arguably more like 30-40%.

    Now comes what I very strongly believe is straight up deception: Obama claim’s that while Buffet pays 17.4% in taxes, his secretary pays 35.8% in taxes. Here’s the thing: the top income tax rate is 35%. There is absolutely no way that she can be paying an effective income tax rate of 35.8% percent, because no one pays that much in income tax.

    Now, the way I think they’re getting to this deceptive number is by taking her top marginal income tax rate which could be anywhere from 25% to 35% and adding to that some amount of her payroll taxes.

    However, her actual effective tax rate is doubless below Buffet’s. According to Congressional Budget Office data (linked to in the post) the top 5% of earners pay an average effective income tax rate of 17.9%. Those are people earning $326,100 to $457,400. So even if Buffet’s secretary is making 300k+, he effective tax rate is no higher than his. It is absolutely not 35.8% as is claimed, that’s pretty much impossible. Even if she had no mortgage, no kids and no charitable donations and made over a million a year, her effective tax rate (even including payroll taxes) could not total an effective rate of 35.8% of her gross income. It’s just not possible.

    And it’s because Obama (and Buffet) and choosing to be so blatantly deceptive in their claims that I’m calling it (accurately, I think) “a lie”.

  • It would not surprise me if the President was unaware of any deception. I doubt he is a detail man.

  • I agree the phAresident is not being deceptive. He is fabricating that which supports the agends.

  • Hit “enter” my accident.

    I meant, “For the pharaoh, The truth is that which advances the agenda.”

  • In for a penny, in for a pound. Planting seeds of confusion and mistrust in the minds of his people he swore a oath to serve, he tends the growth of evil.

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Increasing Inequality and Winner-Take-All Economics

Friday, June 3, AD 2011

One of the mildly worrying economic trends of the last thirty years has been the increasing gap between rich and poor in the US. Many policy analysts conclude that this is the clear result of not following whatever policies they advocate, and thus demand quick action. However, as a recent OECD study shows, most countries have seen increases in inequality since 1980:

Given that countries as varied as Israel, Germany, New Zealand, Sweden and Finland have all seen increases in inequality of similar or greater scale (though not to the same absolute level, since they started lower) to that of the US over the last 30 years, it seems hard to imagine that it is simply a matter of US tax or social safety net policy which is the cause of the trend.

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2 Responses to Increasing Inequality and Winner-Take-All Economics

  • Very few people are successful entrepreneurs in export industries, so one might posit that that phenomenon would influence a observation of the most affluent 2% or so or the wealthiest 2% or so having an improved position vis-a-vis the remainder, but not any observed improvement in the relative position of salaried workers (bar the corporate elite) over wage-earners.

    Couple of alternative hypotheses:

    1. Assortive mating. About a third of the labor force in 1957 was female. One might suppose that married women working in 1957 were intensely concentrated among impecunious wage-earning families and doing a good deal of shift work. The relationship between social stratum and women’s working hours now has cross-cutting influences and is not straightforward, with a great many married women in professional- managerial posts where you saw only a few spinsters 50-odd years ago.

    2. Common mindsets arriving accross a range of countries, leading to similar policy shifts (as regards income tax rates, &c.).

  • Very few people are successful entrepreneurs in export industries, so one might posit that that phenomenon would influence a observation of the most affluent 2% or so or the wealthiest 2% or so having an improved position vis-a-vis the remainder, but not any observed improvement in the relative position of salaried workers (bar the corporate elite) over wage-earners.

    Maybe I’m over-extrapolating from personal experience, but it seemed to me that a lesser degree of the same effect might well apply to the whole top 20-30%.

    So, for instance, since hitting a decent salary level and leaving hourly work behind, I spent a number of years working at a consumer electronics company which sourced it’s parts and eventually whole products overseas, and sold in multiple countries, though my segment of the company only sold to North America. I’d tend to assume that resulted in the company as a whole being more profitable, and probably helped drive my salary up in a way that would not have happened without the global supply chain and the IT which allowed me to do analysis or set prices on large numbers of products for the whole continent (and take advantage of the higher price elasticity made possible by the communications medium of the web.)

    Or my current job deals with US sales only — but modern technology allows my role to deal with price optimization for over a thousand stores across hundreds of products, something which software simply didn’t exist fore 30+ years ago.

    So while I and salaried workers who do the type of work that I do for large companies may not be “winners” who take all, scale, global supply chains and technology do certainly make our work very productive compared to what it might have been 30, much less 60, years ago.

    That said, I see a fair amount of explanatory power in your two points as well, particularly 2.

Do The Wealthy Pay Their Share?

Monday, April 25, AD 2011

Having linked last week to some discussion on whether the US is really becoming “Of the 1%, by the 1%, for the 1%”, I was struck by this chart, which I saw a link to this morning, over at Carpe Diem, showing top marginal income tax rates versus percentage of income tax paid by the top 1% of earners since 1980.

However, I thought it would be a lot more interesting if the chart showed the percentage of total income earned by the top 1%, and also showed the total federal tax liability (including Social Security and Medicare) rather than the just the income tax. Luckily, all this information is available easily on line. (Percent of taxes paid. Percent of total income. Historical tax tables.)

Here’s the chart I produced with that data:

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6 Responses to Do The Wealthy Pay Their Share?

  • I thought only SS had a cap. Medicare does too?

  • Medicare does not have a cap — but it’s only about a third of what SS withholding is, so the amount of payroll tax on income above the SS cap is pretty low. (I should have been clearer on that.)

  • Employers (small businesses/rich people) match-pay employees’ SS taxes, probably also medicare taxes. Is that in the lines above?

    Here’s a tax where the (evil) wealthy are not paying their share: food/fuel inflation.

    Bastiat: “All taxes ultimately fall on the consumer.”

  • I don’t think 2.9% (Medicare tax) is pretty low. it may be relatively low, as compared to the 12.4% (10.4 in 2011) for so-called social security (OASDI), but it is still substantial. I am using the full amount, employee and employer confiscations, because that is the only honest way to look at it – this is the total cost of confiscation, whether or not it shows up on a paycheck or not.

    That is significant. There is absolutely no moral stance in charging people different rates for any reason. This is blatant discrimination! It is an outrage. It does not respect diversity. It is totally intolerant. it is unfair, unjust and just plain mean. In other words, it is the antithesis of the stated, so-called ‘liberal’ (progressive) dogma.

    When you go to a grocery store do they ask for your citizen identification number, aka SSN? Do the want a disclosure of your income, assets, liabilities, etc.? No. They don’t care. All they want to know is do you have $4 to purchase a gallon of milk or not. They don’t change the price or anything else based on your quintile. They just charge for the milk and if you want to leave with it, they expect the same exact payment they would from anyone else. Fair, non-discriminatory.

    If government is necessary, if it is good, if it is just, then it should cost us all the same. A flat fee, not a percentage.

    Does that mean I think the wealthier should not contribute more to their communities and for the benefit of those less materially fortunate than they? No. But that is Charity and not state taxation.

    So, do the wealthy pay their share? Some pay WAY MORE! Others, through political manipulation, like George Soros and Barack Obama, pay much less than they appropriate. Thieves can be very wealthy and even very poor, either way, they are violating God’s commandment against appropriating someone’s private property.

  • The top 1% of earners pay 40% of Federal income taxes. It seems some believe the top 1% steals 18% of aggreagte national income from undocumented migrants; poor, unwed mothers with three to six half-brothers/sisters who never met any one of their three to six fathers; ex-convicts; et al.

    You may gain graces through charitable (Corporal Works of Mercy) works paid with your money and your time. You may not gain graces by confiscating/taxing someone else’s money and giving it to your dependent voting blocs, sanctimonious Robin Hoods.

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Responding to Stiglitz on Inequality

Tuesday, April 19, AD 2011

There’s a Vanity Fair piece on income inequality by Nobel Price-winning economist Joseph Stiglitz, “Of the 1%, by the 1%, for the 1%”, which has been cited again and again in the commentariat lately, and it’s a frustrating piece because of the extent to which is makes logical leaps or simply distorts reality. Scott Winship of The Empiricist Strikes Back does a good job of going through the piece and addressing it point by point, including taking on a few of the talking points which are increasingly becoming things “everybody knows” in the wonk community but which don’t actually mean what they seem to.

One of the problems with our modern society’s fixation on “data” is that people, even very educated people who should know better, often fixate on a given metric (for example, the claim that “While the top 1 percent have seen their incomes rise 18 percent over the past decade, those in the middle have actually seen their incomes fall. For men with only high-school degrees, the decline has been precipitous—12 percent in the last quarter-century alone.“) without taking the time to dig into what we can discover of the realities that underlie that measure. Sometimes those realities do not fit with the ideological picture which makes the original metric so appealing. (Winship’s responses to the just quoted claim, both in the main article linked above and in this older one, are fascinating.)

Definitely worth a read.

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3 Responses to Responding to Stiglitz on Inequality

  • Wait, the map isn’t the place?

    Amused to see that they did use one of the tricks I expected– bet they use some of the other ones, like counting gross income instead of net with small businesses (by that measure, ag makes BIG bucks, and so do jewelry shops) and not accounting for the effect of single parent families, worker choice, folks being restricted from working (disability, retirement, too young– being paid for not making over X is rolled in here to keep it short) and utterly ignoring the under-the-counter economy. (Illegal aliens, folks barred from working doing cash jobs, etc)

  • (to be clear, haven’t got time to read it as it deserves; wanted to get a comment in so I’ll get comments in my email to remind me)

  • I think it is called “data mining.” Employing data mining one can fabricate “facts” which bear no semblence to the truth, not even the iota found in a lie.

Inequality, Heritability and the American Dream

Tuesday, March 8, AD 2011

Ever since people finished identifying “the American Dream” — the idea that in the US in particular and the New World in general somehow allowed people to escape the hidebound social structures of the Old World and better themselves via their own efforts — people have been worried that it is on the point of dying. Americans continue to show an an unusual degree of belief in the ability those who work hard to better themselves by their own efforts. For instance, in the 1999 International Social Survey, 61% of Americans agreed that “people get rewarded for their effort”, whereas only 41% of Japanese agreed, 33% of British and 23% of French. This belief has actually increased in recent decades. In 2005 the New York Times reported that while in 1983 only about 60% Americans agreed that “It is possible to start out poor, work hard and become rich” by 2005 nearly 80% of Americans agreed with that statement.

And yet, those who study inter-generational income mobility have been increasingly worried in recent decades that despite American’s belief that people can work hard and get ahead, that it is becoming increasingly difficult for people to actually achieve this in the US. In a lengthy report by the liberal think thank Center for American Progress, Tom Hertz of American university brings together a number of the recent studies on intergenerational income mobility in the US as compared to other countries, showing how people who are born into the lower income quartiles in the United States are less likely to reach the top levels of income than in other countries such as Germany, Sweden or Denmark.

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7 Responses to Inequality, Heritability and the American Dream

  • “This may reflect the effects of discrimination in the labor market, but may also result from factors such as the difference in the quality of schooling acquired by blacks and whites. Note also that while we have controlled for a long list of parental personality variables, we have not been able to
    control for that same list among the children. It is thus possible that given ostensibly comparable family backgrounds, African American and white children develop different attitudes towards economic success that are then reflected in their family incomes.”

    This seemed interesting given that mobility for Latinos was not significantly affected by their race. (It would also have been interesting if Asians were included.) One might hypothesize that schools are generally poor for Latinos as well as African-Americans. If that is the case, then increasing quality of education would not be as useful as improving “attitudes towards economic success.”

    This conclusion is supported by this which shows that increasing expenditure on schools does not necessarily improve outcome:

  • As it turns out, heritability of IQ can explain only about 5% of the correlation between parent/child income (in other words, controlling for heritability of IQ reduces the parent/child income correlation from .42 to .4). The reason for this is that while IQ does appear to be substantially heritable, the correlation between IQ and income is fairly weak (.27).

    Granted, IQ is only one trait which is both potentially heritable and correlated with income. Things like willingness to work hard, for example, may be partly heritable. However, these traits are presumably also present in other countries where the parent/child income correlation is a lot lower.

  • Blackadder,

    GNXP seems to be down at the moment, so I can’t follow your link, though I did find this someone interesting EconLog post linking to the same GeneExpression post:

    I don’t have a particular dog in the IQ fight — I have an inherent dislike for the IQ concept, have never had mine measured, etc. That said, it seems to me that we have a couple of pretty basic conceptual issues to sort out here:

    – People in the US tend to want to believe that “anyone” can succeed, and so that success correlates, to a great extent, with the extent to which people have striven to “get ahead”.

    – Additionally, people tend to want to believe that through some constellation of factors (genes, education, instilling “values”, etc.) they can prepare their children to have success equal to or greater than their own.

    Now, either one or both of these are totally false, or else one would expect, after a certain period, a country to become fairly “sorted” and to find that many people achieve success moderately similar to their parents — not necessarily because there are nefarious forces keeping their parents from succeeding, but because their parents success is a measure of their parents effort and their parents have been moderately successful in passing on the characteristics (whatever they are) that allowed their own success.

    Certainly, you’re right that the degree to which humans tend to inherit the characteristics of their parents is likely to be consistent across countries, and there is a good deal of variation across countries in regards to the degree to which parental income correlates with child income. However, that could potentially be the result either of the country being less sorted (and thus people’s parents abilities having less correlation to their incomes than is the case in the US) or to some difference in cultural attitudes and drives.

    The perception that success is primarily the result of chance is much more prevalent in some of those countries with lower correlations of parent to child income — and the lower correlation of parent to child income could, depending on what assumptions one makes about the heritability of whatever traits it is that result in success could in fact be the result of greater randomness rather than greater correlation of ability to reward.

  • As I think about it further, there are really three beliefs which, like many Americans and classical liberals, I find myself strongly attached to:

    1) People are all fairly equal — there is not some “peasant class” which is inherently fit only for inhabiting the bottom levels of society.
    2) Hard work, saving, etc. will result in “getting ahead”.
    3) By bringing your kids up right and teaching them well, you can make it pretty likely that they’ll all do as well or better than you.

    The thing is, these three beliefs are not really compatible. If it’s true that via effort and ability one can “get ahead”, and if by bringing your kids up well you can assure that most of them will do the same or better than you, then necessarily people are not all that equal (as shown by the fact that not everyone “gets ahead”.

    As a result, people necessarily end up de-emphasizing at least one of these three in order to try to make some sense of the thing. (Or else mindlessly asserting all three without thinking about the contradictions.)

  • Darwin, your three beliefs are logically incompatible only if you assume all parents are bringing up their children right and teaching them well, and that is demonstrably false. I am reasonably confident in the accuracy of your first belief as long as “fairly” is underscored. Most people with multiple children observe remarkable aptitude variances notwithstanding the same gene pool. The second is most certainly true as a generality. The last belief is problematic. Children of achievers seldom equal or surpass the achievements of their parents. There are several reasons for this, which are reasonably obvious upon modest reflection. Nonethless, like most Americans achievers share (or at least want to share) your last belief, but the odds are they will be disappointed even assuming sound child-rearing. But it is certainly true that good parenting produces better results than poor parenting, but that is a different point.

    In the end, the real debate is over the role of luck. Even assuming away dogmatic biological materialism, liberals tend to over-estimate its importance and conservatives tend to under-estimate it. It is a very important factor (indeed being born into a loving family and with a brain wired for aptitudes the market values is luck), but ordering a society around the assumption that luck is the dominant if not dispositive factor (which at bottom is what many liberals would like to do) is extremely pernicious in that it will fail to reward prudent behavior and punish imprudent behavior thereby making society much worse off for all.

  • I agree with your three points, Darwin. Point number 2 is the funny one. Some people will tend to balk at that statement, reading into it a cold and (dare I say) Calvinist worldview. As Mike pointed out nobody denies the presense and influence of “luck”, it’s a matter of to what degree it plays a part. Clearly people of our mind allow for good fortune and misfortune, but the exception prove the rule.

    As a test we can ask the question of the naysayers: how far do you suppose someone will get in life if they don’t work hard or make no effort to save or at least limit discretionary spending? The answer to me is self evident and I suppose it would have to be to them as well. I also think you can rework point 3 that way too. I doubt you would get many people to disagree with point 1, but unfortunately I think there are a number of people who subscribe to it in practice. Oddly enough they’re likely to be the same people who have no use for points 2 and 3.

  • Oops, that should be “people who don’t subscribe to it in practice”.

Is The US Destroying the Middle Class?

Monday, October 11, AD 2010

With a certain frequency, commentators see fit to worry as to the extinction of the US middle class. One among these, it seems, is one Edward Luce, who composed a piece on “The crisis of middle-class America” for the Financial Times. The piece profiles two families making about $70k/yr each, and worries as to the future of them and families like them. Both are, by coincidence, families of loyal Democrats, and the piece sports the requisite concerns about the potential dangers of tea party barbarians howling at the gates of the US order.

I feel myself in an odd position in regards to such stories. The particular definition of “middle class” picked for the story is a family income threshold which five years ago was frustratingly above our families income, and which now is embarrassingly below it. In this regard, I recognize myself to be uncharacteristically fortunate. However, having recently made a good deal less than this (and coming from a family which never exceeded such a total, even adjusting for inflation) I feel that I have some familiarity with the sort of middle class world being discussed — while I can’t escape the feeling that this seems a very squalid and foreign world to the Financial Times writer.

Added to this sense of class conflict is that Luce seeks to build up his story with juxtapositions of facts which sound like they mean more than they do.

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8 Responses to Is The US Destroying the Middle Class?

  • Has Elizabeth Warren’s _The Two Income Trap_ come up here before? There’s a good hour-long Youtube lecture with all you need to know about it. It’s quite relevant, especially in light of the article’s reference to the wife’s housewife mother.

    Warren notes how two incomes push up the price for major purchases while also diverting family resources into supporting the second income.

    If memory serves, the Catholic social teaching of Rerum Novarum regarded the inability of an honest working man to support his wife at home as a sign of unjust inequality. Working from this view, the feminist business model has generated profound economic inequality in the name of gender equality.

    Among the other facts the writer is thatn that male wages especially have stagnated or declined since the 1970s. People are right to wonder why their fathers or grandfathers seemed so much better off economically. They generally were.

  • To say that anyone is better off “economically” than another does not really make sense except in a popular and common misuse of the term “economy.” I think you mean to say that our fathers and grandfathers were better off financially.

    Economics deals with the use and/or allocation of scarce resources, which is pretty much all resources. Someone can be very well off financially and be an economic mess (about a dozen celebrity musicians and athletes immediately jump to mind).

    In that context, I would dispute the blanket generalization that our fathers were better off either financially or economically. After all, those days led to these days. Did those men who earned such great union wages set aside money and resources to provide for a time when such work might not be available? Or did they spend it on microwaves, designer jeans, station wagons and lava lamps? Crass conumption has been a proud and common feature of American life from the bottom to the top for as long as I can remember. Whose fault is that? The people who designed and sold the goods, or the people who consumed them with no thought toward tomorrow’s rainy weather? The answer, of course, is both. Not one among us is innocent.

    The FT piece sounds like typical Eurotrash America-bashing. Ask Greece how great “universal health care” (a nonsense term) and a fully unionized labor force is, if you can dodge the flaming trash cans being lobbed through their streets as their economy crumbles long enough to have a civil conversation.

  • People are right to wonder why their fathers or grandfathers seemed so much better off economically. They generally were.

    My grandfathers both were at the mid-point of their lives in 1930, at a time when the per capita income of the United States was about a quarter of what it is today. Somehow, I doubt their contemporaries were better off than my contemporaries in a brutely material sense. My father was at the mid-point of his life in 1954, when the per capita income of the United States was about 40% of what it is today, so, same deal.

  • I think a lot depends on where you live and how you define middle class. I think that the media tends to represent “the middle class” with examples from the very top and the very bottom of the income bracket, but ignores the vast swath in between the extremes.

    Our income is in the lower 40s with a family of five. From this perspective, 70K borders on being rich. From someone making six figures, 40K is a very small amount of money indeed. What is the reality?

    In our home, money is closely budgeted and we have no debt besides the mortgage. We have two cars, own a house, have cell phones, cable TV, unlimited long distance, broadband internet, a microwave, a dishwasher, and even go out to eat every once in a while. Is that poor?

    A closer look at our reality would reveal that we live far from work (40 miles), so as to afford our house. The ‘new’ car is five years old; the old car is 16. Our cell phones date from the early 2000s — nobody is going to steal those puppies. The TV is from the 90s. Most of our savings cushion comes from our pre-children stash. We put enough in the 401K to make the company match, but our monthly savings is meager and mostly gets eaten periodically by car maintenance. We have zero expectation of Social Security and the college fund is just two or three thousand dollars. Is that sustainable?

    We could cut back on lifestyle a bit to up the savings, but we do have the expectation of making more in the near future. But, to tell the truth, I thought we’d already be making more than we do. How long do we hold out?

    We could become a two-income household, but we do not want to outsource the raising of our children and add the expenses associated with not having an adult run the household. At what point do our ideals and aspiring middle class lifestyle undercut our financial security?

  • I share the same concerns of Jenny… The topic of this post is related also to these posts and the comments contained in them:

    The Next Great Depression

    The Federal Reserve

  • I had a reasonable middle-class income when I was working. Did everything right – saved the max I could into my 401(k), stayed 33 years in a job that I didn’t love or hate too badly – it provided a needed security and income (from $7,500 to $60,000 over the 33 years), and since it was a government job, guaranteed a reasonable pension for life. No fancy cars/vacations/eating out, etc. I was looking forward to a nice reasonable middle-class retirement. Until my parents who had only SS income for their retirement moved in (they paid tens of thousands to send their 3 kids to Catholic schools). Worked okay until they both started getting health problems. Then everything went to pieces. My last year of work I was taking care of 2 disabled parents alone, had to borrow heavily on credit cards just to live and keep the house in working order, had to buy a new car I did not need to accommodate the wheelchairs, had to move because Mom/Dad couldn’t walk and do the stairs. Now, on paper, with Dad’s SS and my pension, and 401(k) withdrawal, we’re making a middle-class wage. But all of his SS is used to pay back the money we owe, ditto my 401 withdrawal, and we are living pension check to pension check – not what retirement was supposed to be. In 2 years, the 401 will be completely gone, Dad will probably be dead (Mom died last year), and my $30,000/year pension is the only thing that will keep me from starving. And oddly, compared to many who used to have middle class jobs and now have no jobs, I’m doing well. I now rent in a retirement community where most people did have the middle-class life while they were working. These are folks who made a living in good paying blue-collar/white-collar middle class jobs, and still have decent SS and/or pension income so they can enjoy their retirement years (until they get sick, then forget it). Unfortunately, I think that for years to come, they’ll be the last of their breed. Many middle-class jobs are being outsourced and disappearing, and retirement plans are rapidly becoming 401(k)s where one is forced to gamble on uncertain stock/money markets. We now have executives who vote themselves lavish retirement plans for life and salaries that are 400 times their employees’ salaries. College graduates are living with Mom and Dad because their potential jobs have gone out of the country to maximize the corporate profits. Millions of people are hurting, yet the corporations are sitting on over $1 trillion in cash and not hiring people. And yet many politicians are crying about the poor yacht owner having to pay a luxury sales tax on his million-dollar yacht, and not caring that they are cutting aid to families caring for disabled parents/children. What seems to be missing in the mindset of those in charge is something that was obvious as long ago as Henry Ford of Model T fame – pay your employees a living wage so they can afford to buy your product. America’s wealth was built not on the few rich, but rather on the middle-class who could afford the houses/cars/computers, etc, that they produced – a middle-class that was until recently was growing or holding its own. Now, the rich are getting still richer, and the middle-class is becoming poorer. And neither Obama (a nobody politician who in a sane world would never have come near the presidency) and his abortion-on-demand Democrats nor the no-tax Republicans (unless they pay for unnecessary wars or buy elections – oh, wait – no taxes ever, we’ll let the grandkids pay) have the guts to do something about about it.

  • Profile: 27 yr old male that has a Undergrad and soon a master’s education. My first job out of college was making 50k. The average salary in my area for a family of four is 51k and about 30k single. That year I moved into a house after only six months at my parents. I saved roughly 10,000 for my house that is about 97k. My fiancee is a medical student. We do not have children, but we have two dogs.

    In the last 4 years some events in our own lives made us realize how people such as Jenny and EMS live. Both parties are the problem for example after one your I was laid off that job taking another job about 80 miles from my home. For a while that was fine because I was allowed to work from home on some days. Then they got acquired by HP. In the first year I noticed people leaving that were with the company for over 5 years and replaced by those nice VISA carriers. Those in the website and others point the finger to unskilled working being taken by illegals, but this is happening to skilled work as well, but legal slavery if you see how these workers live. At my job I say 2 guys replaced with 5-6 foreigners that made probably as much as the two people that was laid off. They lived in a house next to my co-worker all 6 of them with there families to afford the housing. Later that year, the company changed the terms of my employment to be that I had to come into the office everyday. At that point I decided to leave and go back to school fulltime.

    I understand many people do not have the ability to do this because of the risk to the family. As well we live in a house we know if i lost my job we can still afford it. Then came the forecloses and discounts to purchase just after we purchased our own meager house. We both felt screwed because we did the right thing and saw some friends job into houses they would have never afforded before, yet did not buy a house they could afford without these subsidies. So we live in a middle to lower middle class home and they live were my parents live that took them a decade of savings to move there so I can have the education I was able to receive. ( But life is not fair I guess )

    After I left work my dogs got sick and my fiencee broke her leg from falling down some ice stairs at the grocery story. We now have to spend over 1,000 for her leg and about the same amount for your does going to the vet. Turning around to real people. How do you handle paying 2,000 in one month for these random expenses? Do you have the means to leave your employer. As I said before we got a house that could be paid for if I lost my job using only my fiencee’s loans. As we both see it as her income until she becomes a doctor. So taking that she only makes 20,000 dollars a year in loans ( she was lucky to have a scholarship to pay for all medical school tuition and books. ) We almost missed the mortgage that month if it wasn’t for me always saving over 20% of my income we would have been already behind in our house payments.
    It is scary we do need change that is why I voted for obama. McCain had the same policies as bush, but I see obama and he has the same policies so it seems from clinton. We need new politicians I hope to see people voting not for one issue in the future. To be honest same-sex marriage and abortion should not be in the political discussion never should have gone past the states. I don’t care what you call yourself we all can agree that America and the American Dream is slipping way from both Dem and Republicans. I think we need to first come together as Americans to see what we both agree to be a problem and come up with mutual solutions. It seems that we lost that and our politicians have lost that was well. Why does the republicans say no to everything and also the democrats and make this show for all of us? Why can’t we find some middle ground ever. why are we in a America that one party needs to almost take complete control in order to pass laws that are needed? I think we both can agree we need some change and it starts with the left like myself speaking to many of you that are from the right side of the world to start talking before we expect or elected officials to do the same.

    In the end I think most people want to live with no fear. That takes a good income doesn’t need to be 1 million dollars a year but it is certainly not less than 50k for a family in this country.

Inequality: Can't Live With It, Can't Live Without It

Tuesday, July 13, AD 2010

In my last post I looked at the question of how to calculate the just or living wage, using figures from Father Ryan’s classic text A Living Wage brought up to date by adjusting for inflation. Commenter Restrained Radical, however, thinks that in merely adjusting for inflation I was being too stingy:

Adjusting for inflation isn’t necessary the best way to adjust Fr. Ryan’s figures. Real GDP per capita grew faster than inflation. In other words, Americans got wealthier. Using Fr. Ryan’s figures today adjusted for inflation would be appropriate if real GDP per capita was stagnate for 89 years. In 1919, GDP per capita was $805. If you only adjust for inflation, that would be $9,897 today. That’s somewhere between Cuba and South Africa. So $6.15/hour would be an appropriate living wage for a family of 5, in Cuba.

If instead we adjust for unskilled labor wage increase (4.24% annualized since 1919), $1,400 to $1,500 then would be $56,388 to $60,416. That’s probably closer to what Fr. Ryan had in mind.

In 2008, median household income in the United States was $52,029. If Restrained Radical’s interpretation is correct, then it would seem Father Ryan was advocating a kind of Lake Wobegon society, where everyone has the right to an above average income.

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0 Responses to Inequality: Can't Live With It, Can't Live Without It

  • Many countries use some percentage of median household income as a measure of poverty. That’s workable but arriving at an appropriate percentage is difficult. Ideally, we’d ask everyone, “Assuming you have no assets and receive no government assistance, at what income level would you consider yourself poor?” Then adjust for geography, household size, assets, and maybe age to determine who to help.

  • LOL. I’ve known people who had next to nothing and would never consider themselves poor, and I’ve known people who consider themselves in horrible financial distress because they cannot pay private college tuition. I really doubt that there is any practical room for subjectivity in the analysis.

    I think the real point of Blackadder’s cogent essay is that there is a difference between attacking income inequality as such versus attacking poverty. There is a far greater political consensus in favor of the latter than former, and it is exceedingly difficult to attack the former without making making the latter problem worse.

    I have often proposed this simple thought experiment. Posit a world with three families, the Kings, the Queens, and the Princes: This world can organize itself into two different societies with two different outcomes. Assume the rules of neither society involve slavery, coersion, dishonesty or other intrinsic evil. In the first society the standard of living outcome is Kings 100, the Queens 15, and the Princes 10. In the second society the standard of living outcome is 5 for each family. Which society is preferable? In my experience the responses are revealing.

  • I’ve known people who had next to nothing and would never consider themselves poor, and I’ve known people who consider themselves in horrible financial distress because they cannot pay private college tuition. I really doubt that there is any practical room for subjectivity in the analysis.

    So very true Mike. It was a heartening thing to hear my kids talk about helping the poor, especially when we would drop off bags of clothes and toys at St Vincent de Paul. However, they never made any connection to our shopping there.

    Really, our nation is probably too wealthy for its own good. As Catholics we customarily say grace before meals. It’s a good and an ancient practice. Gratitude for life and every little blessing *should* permeate our souls. I fail at it and I’m confident others do too, though how wrong headed is it of us as a society to not only be ungrateful for things like food, clothing and shelter – presuming their existence and availability – and then debating whether a cell phone is a real necessity. We can’t even be grateful for little technological gadgets in their own context. We assume they are core to our existence. We are so friggin’ spoiled…

  • One small additional note.

    Please keep in mind that income and wealth are not the same thing; and that income and productivity aren’t quite the same thing although they’re more closely related than income and wealth.

    At one point Restrained Radical said, “Real GDP per capita grew faster than inflation. In other words, Americans got wealthier.” This is not quite right; Americans started producing more, and presumably their income increased by some amount also although it needn’t be exactly proportional. And if their cost of living didn’t increase at the same rate as their income, then their wealth increased, in proportion to the degree that their disposable income was disposed in liquid or illiquid forms.

    Anyhow, a failure to appreciate these distinctions can lead to distortions in the conversation about “living wage.” A person with zero income can live quite nicely — ask Teresa Heinz Kerry, for example; at the time of the 2004 elections she’d been able to report tiny income and no “wages” for several years running — if they have sufficient liquid wealth to live off of.

    Indeed, the term “living wage” itself contains the distortion to some degree by focusing on “wage” rather than something like “wage plus net wealth divided by remaining life expectancy.” (Not exactly a phrase which rolls trippingly off the tongue!)

    Of course, the difference between one region’s cost of living, and another’s, comes into play. And there is the problem of determining what, exactly, constitutes the “living” of which one is measuring the cost, and how accurately one can gather information about wealth and income.

    In the end, the topic is sufficiently complex that subsidiarity comes into play: It is better that people closer to the problem (and, especially, people not insulated from the consequences of the policy decisions they make) be the ones who make policy on such issues. And it is preferable that their policy affect only a small group of persons on the same “level” of organization as they, but that they be free to observe the consequences of alternative policies on other peer groups implementing those policies, allowing all groups on a given level to make informed decisions about which policy is best. This, of course, was the fundamental truth (and thus, the Catholic truth) behind American Federalism…back when it still existed in a robust way.

    It is because of this subsidiarist logic that I am nearly libertarian about federal policy, a mainline conservative about state policy, a moderate or centrist about county-level or metropolitan-area-level policy, a mild authoritarian about township- or neighborhood-level policy, and a benign but occasionally totalitarian divine-right monarch within the bounds of my household.

    But I am digressing. My main point is: The topic is complicated enough as it is. Subsidiarity helps with that at a systemic level; but in the meantime, watch out you don’t make it more complicated by conflating productivity with income or income with wealth.

  • “You will always have the poor among you.”

    – God

    Smart post, BA.

  • RC, you’re right which is why consumption may be a better measure of poverty than income. Though, with the poor, the two are usually fairly closely correlated.

    Re subsidiarity: I’d agree to the extent that local government can and does fulfill its obligations. Many towns cannot or will not either because they don’t have the finances or they don’t have the political will. That doesn’t automatically mean that welfare should be a federal program but it does mean that the federal government needs to play a role.

  • I know people who have excess wealth, and it can almost be a curse at times. Their lives become so occupied with money.

    There should reasonable help from the state/federal governments for people who need assitance, like housing, food, etc. But, charaties for instance, do a lot of good, our parish is always helping the poor. Helping poor people should not be solely a government issue…if you want a healthy society.

  • In any event, government at whatever level should supplement, not displace, private charity.

    Otherwise it is another instance of “bad money crowds out good money”; with the problem of neediness in no way helped, but with good and morality-reinforcing means replaced by questionable and corruptive means.

    Sadly, I believe that government assistance to the needy does, in fact, crowd out private assistance, at very nearly a one-to-one proportion when exercised at the federal level. I suspect that proportion improves at the lowest levels, when the folk being helped can personally meet on the streets the persons who are helping them.

    If I am right about that, then having the federal government get involved when there is a failure of local government provision (which failure itself should only occur when there is a failure of local private provision) is counterproductive: It crowds out not only the remaining good local private money and any possibility of private money from adjacent communities, but also crowding out local government money, which is the least-corruptive type. As with nearly every other occasion when government acts outside its core mission, it fails to solve the problem while creating new ones.

    That, of course, is a generalization. But it’s the kind of generalization which makes the safest starting-point for the consideration of policy.

  • Jasper:

    You state: “Helping poor people should not be solely a government issue…if you want a healthy society.”


    Or, well, no, I take that back. What you said is a very good start, but it could be amplified, and the principle clarified, as follows:

    If you want a healthy society, helping needy people is not primarily or even secondarily a government issue.

    It is primarily an issue to be addressed by those who know the needy person in question, including their church.

    It is secondly an issue to be addressed by their local community government, as a source of assistance to their family, friends, and church.

    It is thirdly an issue to be addressed by the government of the county or metropolitan area in which they reside (providing backup assistance to family, friends, church, and community)…in the minority of cases that the problem wasn’t adequately handled at the community level or lower.

    It is fourthly an issue to be addressed by the state in which they reside (providing a tiny additional layer of backup to the family, friends, church, community, and county/metro area)…in the rare cases it couldn’t be handled at the county/metro-area level or lower.

    It is, fifth and least importantly, and with the least burden and the least control, a responsibility of the federal government to provide some additional assistance, should all the other levels of assistance somehow, in very rare cases, fail to get the job done.

    Over the course of fifty years, if one were to keep track of all charitable handouts given in a particular neighborhood, one ought to find that fully half of the assistance was provided by friends and family and church; another 25% by the community, another 10% from the county or metro-area, another 6% from the state, and the last 4% from the federal government. Or some such numbers, anyway: Those precise numbers would vary, but I offer them in order to exhibit the general principle.

  • Sadly, I believe that government assistance to the needy does, in fact, crowd out private assistance, at very nearly a one-to-one proportion when exercised at the federal level. I suspect that proportion improves at the lowest levels, when the folk being helped can personally meet on the streets the persons who are helping them.

    If government ceased all assistance, private assistance isn’t going to pick up anywhere near 100% of the tab. You may get a better ratio at the community level, but I don’t think there will be much difference between higher levels of government. Given the same rights and obligations, a state as large and diverse as California won’t act very differently from the federal government.

    Is it more in keeping with subsidiarity for private institutions to ration goods and services or to provide cash and leave the allocation decisions to the individuals and families? Is it better to give someone a can of corn or to give him a food stamp to buy whatever food he needs? I think it’s clearly the latter. Private institutions are well suited to offer goods that people want to get rid of (second-hand goods and surplus goods). They’re also good at providing services run by volunteers. But cash assistance is preferable to the provisioning of marketable goods and services.

    If we’re giving the poor cash, the cheapest cost avoider when determining who needs cash and how much is the entity that has access to income, asset, and consumption records which is always the government (usually the state is the lowest capable level in this regard though even the state would probably need higher level cooperation to keep track of interstate commerce). That still doesn’t necessarily mean the government needs to be the distributor. I suppose private institutions can hand out checks if the governments makes its records available to private institutions but then there’s the privacy concern. On the one hand, we may not want to disclose such information. On the other hand, the shame may incentivize the poor to work their way out of poverty. If privacy, is a concern, the government should also be the distributor of financial assistance.

  • RR:

    Oh, I don’t doubt that there are obvious advantages to using government; e.g., that they know about people’s incomes.

    And, in fact, if one is using government to centralize the collection on voluntary donations, which are then turned over to the poor under the banner of “the generosity of your fellow citizens,” then some of my concerns go away.

    But government usually does not collect voluntary donations; it levies taxes. It does not grant unexpected gifts identified as the extraordinary kindness of other persons; it allows persons to claim their “entitlements” from a government controlled by the politicians for whom they may later vote.

    This has an altogether different “vibe” from the anonymous contribution slipped under the door by a neighbor.

    A person who gives voluntarily increases in charity and grace and magnanimity in the process; he learns to love. A person from whom his daughter’s potential college savings are taken by a guy for whom he didn’t vote learns no love in the process.

    The charity worker who collects voluntary donations sees the goodness of human beings reflected in every dollar. The taxman sees that human beings will do pretty much what you tell them to do, when you point a gun at them.

    The charity organization is founded by people on a mission to love others, whose message to potential donors awakens the donors’ consciences. The government is filled with politicians who see political advantage whenever they can wring money from people who won’t vote for them anyway, and send it to their home constituents in order to purchase their immediate gratitude and their eventual re-election vote.

    The recipients of voluntary charity learn humility and gratitude and the fact that their fellow men aren’t all bad…and if that charity comes through a church ministry, they learn on a visceral level to associate provision with the body of Christ. The recipients of “entitlements” learn that if you vote for the right guy, that guy will take a nightstick to some people you don’t know, and you can get those people’s money. They also often learn that it’s other people’s responsibility to subsidize their bad decisions, and that when they’re in need, it’s because the world owes them and isn’t paying up like it ought. And they often lose self-respect while not learning humility, because leeching off others is very different from benefiting from the generosity of others.

    In countries where the Church is the primary or only source of assistance, the Church is therefore central in the life of the community, and everyone can think of a time when they, or a relative, owed much to Christians. In countries where the state is presumed responsible for most or all assistance to the poor, the Church is an inexplicable and irrelevant sidecar to society with no obvious purpose or role.

    So I think that one of the problems when government gets too involved in this stuff is that it’s bad for the soul of the taxpayer, bad for the soul of the taxman, bad for the soul of the politician who organizes all of it, bad for the soul of the guy who voted him in, bad for the soul of the recipient, and tends to undermine the Church’s rightful position in society, which is bad for society in the long term.

    Whatever the advantages of government knowing people’s incomes, then, I think these disadvantages probably outweigh them.

    And, really, if I had a choice between a private firm (required by law to respect my privacy) knowing my income, and the government (required by law to respect my privacy) knowing my income, I might be happier with the private firm. After all, if they decide to violate my privacy, I can sue the pants off them. Their deep pockets might make it difficult, but those same deep pockets might bring me a lot of relief, if I win.

    But suing the government can be trickier, if they decide to change the law in a way that violates my privacy: Sovereign immunity may apply. Bringing a lawsuit over the content of the laws against the guys who make the laws is rather like assaulting a mental hospital with some bananas and a package of mixed nuts.

Income Gap Narrowing

Thursday, September 10, AD 2009

A year into the economic downturn, the much decried income gap has narrowed.

The deepest downturn in the U.S. economy since the Great Depression may finally shrink the gap between the very best-off Americans and everyone else.

If so, it won’t be by lifting up the bottom. It will be by pulling down the top.

Over the past 30 years, chief executives, Wall Street bankers and traders, law-firm partners and such amassed ever-greater incomes, while the incomes of factory workers, teachers, office managers and others in the middle grew much more slowly. In 2007, the top 1% of U.S. families accounted for 23.5% of all personal income in the U.S., according to economists Emmanuel Saez of the University of California at Berkeley and Thomas Piketty of the Paris School of Economics. That was a level not seen since the Roaring Twenties.

The top 1%’s share appears to be falling fast. Mr. Saez and other economists expect income going to the top 1% of taxpayers — currently, those with about $400,000 a year — will drop to somewhere between 15% and 19% of all income by 2010. That still would leave income distribution more top-heavy in the U.S. than in many other countries.

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8 Responses to Income Gap Narrowing

On The Question of Inequality

Friday, April 17, AD 2009

There’s been some discussion of inequality in posts and comments here recently. I have ambitions to write a series of the particular challenges I believe our country is facing in regards to inequality in a modern high-skill-based economy, but given recent discussion I’d like to open with something fairly open-ended.

John Henry pointed out that the Catechism of the Catholic Church addresses the question of equality to some extent in its section on Human Solidarity:

1935 The equality of men rests essentially on their dignity as persons and the rights that flow from it:

Every form of social or cultural discrimination in fundamental personal rights on the grounds of sex, race, color, social conditions, language, or religion must be curbed and eradicated as incompatible with God’s design.40

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15 Responses to On The Question of Inequality

  • You are missing a core aspect of Church teaching, best enunciated in paragraph 303 of the Compendium:

    “The economic well-being of a country is not measured exclusively by the quantity of goods it produces but also by taking into account the manner in which they are produced and the level of equity in the distribution of income, which should allow everyone access to what is necessary for their personal development and perfection. An equitable distribution of income is to be sought on the basis of criteria not merely of commutative justice but also of social justice that is, considering, beyond the objective value of the work rendered, the human dignity of the subjects who perform it. Authentic economic well-being is pursued also by means of suitable social policies for the redistribution of income which, taking general conditions into account, look at merit as well as at the need of each citizen.”

  • This presupposes the notion that the sheer competency of church teaching extends to matters such as these (i.e., with respect to even economy).

    To my mind, I would think that the competency of the Church lies strictly within the realm of Faith & Morals and does not actually extend to even matters of economic system.

  • Well, no, of course it extends to the economic system. Even the most cursory review of the OT shows that economic injustice is something God cares about (as in a matter of sins crying to Heaven for vengeance).

    So, MM is right to cite that section and the Church is certainly right to give a rip about whether the economic system is just.

    Or should She have just shut up about communism?

  • Of course, the tricky part is whether a particular economic system fails to measure up to the concerns laid out in section 303, and whether or not “mere” numberical inequity is implicated by that.

    But, let’s just say I’m more than a little receptive to concerns about the “objective value of work rendered” when we consider a financial system that seems to have rewarded greater and greater levels of chicanery and obfuscation over the past generation.

  • “We see similar injustices in the world today on a much larger scale, especially as we have entered a period in which (contrary to the entire history of the world up to this point) nearly all hunger is the result of politics rather than lack of resources.”

    Not only politics, but reckless greed.

    “There is now wide agreement that speculation in food was the major cause of the skyrocketing food prices that led to the 2008 global food crisis.

    Though commodities prices are down, some investors are already betting on a rebound by the third or forth quarter. Despite low prices now, all the ingredients of 2008’s toxic, speculative bubble are still with us today.”

    Speculation is condemned as a sin in more than one of the social encyclicals, too. This is my problem: when, in the name of “freedom” people are allowed to do things such as this, that have a combined and cumulative effect that threatens the very lives of others.

  • I agree with MM that economic well being can’t be measured simply by the amount of goods it produces. A country where almost all the wealth is concentrated in the hands of a few is not necessarily better off than a country where there is less wealth overall but it is more evenly distributed. I don’t think, though, that this contradicts anything in Darwin’s post.

  • There is now wide agreement that speculation in food was the major cause of the skyrocketing food prices that led to the 2008 global food crisis.

    Wide agreement among whom? Certainly not among economists.

  • Thoughtful post Darwin – you’ve done lots of great work lately!

    To MM’s quote from the compendium I would reply (hastily): An equitable distribution of income implies that income will not be equal. Justice obliges us to give to unequals unequally, and we are certainly created very unequally. (How bland life would be if we weren’t!)

    As to redistribution according to need – sure – but what does the Church teach that we really need?

  • Dale Price,

    Apologies, but where exactly does it state either in Scripture or in Tradition that the Church teaching even on matters of economic systems is actually infallible?

    To my mind, if the Church’s competency extends even to this, that even (what should rightfully be considered) her opinion concerning what type of economic system entire nations should subscribe to is actually indeed infallible, then I take it only marvelous Utopia awaits us all if only the World were wise enough to yield to the Church’s financial expertise (although her own balance sheets would have me skeptical even in that regard, but at any rate…) and have her impose upon the rest of the world’s populace the kind of economic system that She would have us all follow.

  • Wow, e, I scanned my previous post for phrases touting the Church’s economic thought as the immanentization of the economic eschaton, but came up empty. Perhaps my lack of rest, occasioned by a hit and run on our minivan, a bout of explosive nausea, and a barfing toddler who managed to call 911 and summon the police to our humble abode this morning have all managed to cloud my reading skills, but I still don’t see it. I’m inclined to call “straw-man,” but I’m really pooped at the moment.

    As a rule, I don’t look for the Infalli-label in Church teaching. By that logic, I could contracept.
    Playing the “But is it infallible?” card grates, to put it mildly. Supporters of women’s ordination do it all the time.

    Look, either the Church is a teacher, or she is not. She may not be the clearest teacher at times, to be sure.

    But treating her like an oracle on, say, theft, but like the crazy aunt who needs to be shuffled back up to the attic posthaste when she starts talking about paying a worker a just wage strikes me as a staggering exercise in special pleading, if not quite completely schizoid.

    Bluntly, you seem to be ignoring that there is a moral dimension of economic life. Again, by your logic, the Church’s warnings about communism could be just as airily dismissed.

    It at least behooves you to consider the body of informed teaching that has issued forth under the Popes since Leo XIII. Which, as it turns out, is quite open to free enterprise and hostile to statist collectivism. It is the furthest thing from imposed–snarf. If it is, it’s about as well “imposed” as Humanae Vitae, with similar consequences for our moral lives.

  • Dale,

    She have just shut up about communism?

    Communism/socialism is incompatible with church teaching because it explicitly rejects the true dignity of man, capitalism does not in it’s essence oppose the Church but must be bounded by limits to protect the common good. This is apples and oranges.

    I don’t look for the Infalli-label in Church teaching. By that logic, I could contracept.

    you’re in serious error on this. The Church infallibly teaches that every act of contraception is intrinsically evil.

    Supporters of women’s ordination do it all the time.

    And they are in serious error here as well, this teaching is clearly enunciated as infallible.

    You don’t further your argument with wildly inaccurate analogies.

    I do have concerns about the translation and interpretation of this article of the “Compendium of the Social Doctrine” (there are many compendiums, let’s not lend this one any more weight than the Church grants it). I’d like to know what is the original authoritative source for this paragraph.

    Regarding the food crisis… the politics which leads to it are more to do with African dictators and Islamic-fascism than with price speculation.

    Interesting to note that the US vessel captured by Islamic-fascist pirates last week was carrying food aid to the starving of Africa, and so was the vessel attacked subsequently.

  • MM,

    I’m not clear that the section you quote from the Compendium of Social Teaching says anything beyond the sections of the Catechism that I already quoted, nor does it depart from my point. From the section you quoted:

    the level of equity in the distribution of income, which should allow everyone access to what is necessary for their personal development and perfection.

    From this it seems pretty clear that sufficient equality that all members of society has access to what is necessary for their personal development and perfection, but it is not at all clear to me that it is an element of such personal development and perfection that one have the satisfaction of knowing that no one has significantly more than you do.

    Again, the point that I’m trying to be clear on is: inequality becomes a serious moral problem when it means that some in society lack either basic human dignity or the basic needs of life while others enjoy excess. However, it is not at all clear to me that it is an injustice for others to have a thousands times more wealth than I, so long as I have the basic necessities for life and human dignity.

  • Dale,

    “It is the furthest thing from imposed-snarf.”

    I don’t think you quite caught the gist of that comment.

    What I was trying to express is that if you should happen to believe that the kind of economic system that the Church conceives as ideal is actually infallible and, in all actuality, an efficacious remedy to the plight that has historically plagued mankind, then presumably a nation following such an economic system conceived ideal by the Church would ultimately result in only positive success & properity for all.

    However, given the reality of the world, I highly doubt that.

  • Darwin,

    I do agree with your main point; I have no desire myself to be extremely wealthy and I don’t look at anyone else’s extreme wealth as an offense against me.

    But there is a) the problem of inequality on a global scale, which I do believe deprives many of the necessities of a dignified life (simply existing as an organic life form is not necessarily an existence worthy of a human being), and b) the problem of political inequality – those with great wealth can and often do manipulate the political system to their advantage.

    A rough equality, falling at least in a range of highs and lows, would seem to be necessary either way.

  • Joe stated: “the problem of political inequality – those with great wealth can and often do manipulate the political system to their advantage.”

    Gee, I wonder why is that? That is, if what you would so happily desire is the kind of monstrously bloated leviathan state, then this is exactly what you’ll get as this oligarchy is but an unavoidable inevitable consequence!

    The Rich Pay for the Federal Government