This week we are moving to the examination of normative theories on the distribution of social goods and the allocation of social burdens. I am posting this op-ed by Economics Nobel laureate Paul Krugman, which appeared last week in the New York Times, just in case we do not have time to discuss it in class. Enjoy it! And remember to integrate the facts of the matter with what we learn in class!
NYT - September 19, 2010
The Angry Rich
By PAUL KRUGMAN
"Anger is sweeping America. True, this white-hot rage is a minority phenomenon, not something that characterizes most of our fellow citizens. But the angry minority is angry indeed, consisting of people who feel that things to which they are entitled are being taken away. And they’re out for revenge.
No, I’m not talking about the Tea Partiers. I’m talking about the rich.
These are terrible times for many people in this country. Poverty, especially acute poverty, has soared in the economic slump; millions of people have lost their homes. Young people can’t find jobs; laid-off 50-somethings fear that they’ll never work again.
Yet if you want to find real political rage — the kind of rage that makes people compare President Obama to Hitler, or accuse him of treason — you won’t find it among these suffering Americans. You’ll find it instead among the very privileged, people who don’t have to worry about losing their jobs, their homes, or their health insurance, but who are outraged, outraged, at the thought of paying modestly higher taxes.
The rage of the rich has been building ever since Mr. Obama took office. At first, however, it was largely confined to Wall Street. Thus when New York magazine published an article titled “The Wail Of the 1%,” it was talking about financial wheeler-dealers whose firms had been bailed out with taxpayer funds, but were furious at suggestions that the price of these bailouts should include temporary limits on bonuses. When the billionaire Stephen Schwarzman compared an Obama proposal to the Nazi invasion of Poland, the proposal in question would have closed a tax loophole that specifically benefits fund managers like him.
Now, however, as decision time looms for the fate of the Bush tax cuts — will top tax rates go back to Clinton-era levels? — the rage of the rich has broadened, and also in some ways changed its character.
For one thing, craziness has gone mainstream. It’s one thing when a billionaire rants at a dinner event. It’s another when Forbes magazine runs a cover story alleging that the president of the United States is deliberately trying to bring America down as part of his Kenyan, “anticolonialist” agenda, that “the U.S. is being ruled according to the dreams of a Luo tribesman of the 1950s.” When it comes to defending the interests of the rich, it seems, the normal rules of civilized (and rational) discourse no longer apply.
At the same time, self-pity among the privileged has become acceptable, even fashionable.
Tax-cut advocates used to pretend that they were mainly concerned about helping typical American families. Even tax breaks for the rich were justified in terms of trickle-down economics, the claim that lower taxes at the top would make the economy stronger for everyone.
These days, however, tax-cutters are hardly even trying to make the trickle-down case. Yes, Republicans are pushing the line that raising taxes at the top would hurt small businesses, but their hearts don’t really seem in it. Instead, it has become common to hear vehement denials that people making $400,000 or $500,000 a year are rich. I mean, look at the expenses of people in that income class — the property taxes they have to pay on their expensive houses, the cost of sending their kids to elite private schools, and so on. Why, they can barely make ends meet.
And among the undeniably rich, a belligerent sense of entitlement has taken hold: it’s their money, and they have the right to keep it. “Taxes are what we pay for civilized society,” said Oliver Wendell Holmes — but that was a long time ago.
The spectacle of high-income Americans, the world’s luckiest people, wallowing in self-pity and self-righteousness would be funny, except for one thing: they may well get their way. Never mind the $700 billion price tag for extending the high-end tax breaks: virtually all Republicans and some Democrats are rushing to the aid of the oppressed affluent.
You see, the rich are different from you and me: they have more influence. It’s partly a matter of campaign contributions, but it’s also a matter of social pressure, since politicians spend a lot of time hanging out with the wealthy. So when the rich face the prospect of paying an extra 3 or 4 percent of their income in taxes, politicians feel their pain — feel it much more acutely, it’s clear, than they feel the pain of families who are losing their jobs, their houses, and their hopes.
And when the tax fight is over, one way or another, you can be sure that the people currently defending the incomes of the elite will go back to demanding cuts in Social Security and aid to the unemployed. America must make hard choices, they’ll say; we all have to be willing to make sacrifices.
But when they say “we,” they mean “you.” Sacrifice is for the little people."
(you can find a link to the original piece here... with 1319 comments in response!)
This article looks to the rich to be the solution to a problem that appears to be caused by the poorer masses. I recently read that the top 50% of wage earners pay approximately 97% of the income tax revenue. How can that be fair? While I agree that a very small proportion of americans are making far to much money, there is also the upper middle class that is getting punished with that top tier. There are plenty of families who make it into that top bracket because of their hard work.
ReplyDeleteEconomic growth is the only proven way to spread the wealth and raise the quality of life for all americans. The upper tax brackets create the most economic growth. Yet the government continues to try and undercut the rich, and give to the poor.
A utilitarian would agree that allowing the rich to get richer would create more happiness for those in the lower class as they ride the economic shirt tails of the highest tax bracket. Proponents of distributive justice should see that the lowest class is, in many cases, failing to give their fair share to society. While the exact amount that is fair for the upper classes will always be debately, the fact that the lower 50% is only giving 3% is obviously not a fair distribution of burden.
The idea of stealing from the rich and giving to the poor was once seen as noble in fairy tale stories of prejudice and tyranny, but in the economic recession that we currently live in, i must question the ethics behind taking an individuals hard earned money simply because he or she has been labeled as "wealthy." In times of economic hardship, Obama has turned to the rich when no other solution could be found, taxing these individuals at higher and rather absurd levels to relieve some of the pressures on the struggling lower and middle classes. But who is to say that the wealthy do not also struggle? Sure they could definitely go without the fancy cars and lavish homes, but should the distribution of their income be decided by the government? I completely support the notion of donating to charity and helping out relief efforts, but the question of how much to donate should be left solely in the hands of the individual, who has a greater understanding and grasp of their own financial situation. I cannot find Justice in the act of punishing an individual for being successful.
ReplyDeleteI, respectfully, disagree with what has been said so far.
ReplyDeleteAllow me to explain. In today's world and economy, no one person can rightly claim all credit to all the successes in their fortune. The fact of the matter is, we all live interdependently of each other in a community composed of intricate social and technological infrastructures.
In the united states, both public and private sectors are co-dependent of each other. One example out of many would be education. Education is largely financed publicly, and is very much responsible for many of the success stories of the modern day. Would anyone like to guess where Warren Buffet went to school as a child? Innovation is also tied closely to education, such that today's are built off of the foundation of what is taught today. Education also provides for the labor that many entrepreneurs uses to be well-educated. The relationship is simple. Smarter workers produce more efficiently. I could go on for days, but the simple fact is, this is basic economics.
To claim that the affluent are solely responsible for their wealth is far too individualistic and blind to the way the in which this globalized world works.
From the Liberalism side making the rich pay even more goes against the free market ideal. Why should we punish those who are successful only to reward those who are not? Poverty is not suppose to be comfortable and if you make it comfortable people will want to stay poor. I believe that a rawlson view would argue for a flat tax where everyone pays the same percent. It would be the most fair in that case. However, the utilitarian’s would want to super tax the rich and completely redistribute it to the masses eliminating the class structure. For Nozick a regressive tax would be in place because those who have less are more dependent on public services, use them more and to be fair should pay for the services received instead of passing the bill to someone else. Trace the services to the payer and in the reverse.
ReplyDeleteKrugman's argument in this article ties into the utilitarian idea of "the greatest amount of good for the greatest amount of people". Thus, as Joseph C also stated, a utilitarian would want the wealthiest class to be taxed the most so that the money could be distributed to lower classes.
ReplyDeleteA Libertarian would disagree with Krugman because heavy taxing of a particular class would comprise the free market ideal and the ability for people to "live as much as possible free from the interference of others" (Boatright 72).
I also agree with Joseph C in his idea that Rawls would want everyone to pay a flat, fixed tax rate because it would be the most fair option. If this were the case, it would relate to Rawls' idea of a "veil of ignorance" because everyone would be paying the same amount of money to the government despite their class/financial status.
I understand Krugman's argument in this article, however I believe that the concept he promotes is unfair. America is a nation of opportunity, not entitlement. It is a country where each person reaps what he or she sows. It is a country of free choice: to work hard and earn money, or not. Each of us must bear the consequences of what we do. It is not a country where the government's job is to bail us out of the consequences we cause in our lives. Therefore, I think it is illogical and inefficient for those who have earned their money through generations of hard work to have to pay more taxes to help those who do not try to help themselves.
Another interesting idea to consider is that Krugman ignores the undeniable fact that those who have money are the people who hire others to do work and thus earn a living for themselves. If we heavily tax the wealthy business owners, then we strip them of their ability to hire people who need work and everybody loses. Surely a utilitarian would agree that this result does NOT exhibit the greatest amount of good for the greatest amount of people.
-Claire Smith
No, the progressive tax rate model - the one the US employs now - is actually the Rawlsian model (under which, remember, property rights is not the prevailing virtue, but justice and fairness with equal opportunity). Let me give you two examples of why a Rawlsian would never employ flat taxes. Under the Original Position and "veiled with ignorance," you would have a chance to draw a position of affluence making $500,000/year, but FAR more likely, you would draw a position somewhere around Average Joe lies. As Joe, you make $60,000. For argument's sake: flat tax rate is 25%. The STANDARD OF LIVING, however, is $50,000. As Joe, you pay $15,000. You now cannot afford to eat. Or pay for shelter. However, if you are the afore-mentioned wealthy, you now can only afford 2 homes instead of 3.
ReplyDeleteNow, being of the original position, one would see that the progressive tax rate is the most fair, not only because equality in and of itself and of opportunity, along with justice and fairness are preserved. This is also due to the concept of marginal utility. As a lower or middle class, the value of a dollar would be MUCH higher than if you are part of the elite, which allows you to be less effected by taxes.
-Jonathan AuYeung
I disagree with the idea that a utilitarian would support super taxing the rich as some have mentioned. This would lead to a society where being rich would be too burdensome to enjoy. Thus, people would not try to earn more than is necessary, and enjoy the handouts taken from those who have. The utilitarian, concerned with the inevitable outcome of the funds drying up due to lack of motivation, would understand this.
ReplyDeleteI also disagree with the idea that one person cannot claim responsibility for their successes. While the circumstances we are born into are all based on (for lack of a better term) luck. It is what we do with our innate abilities that sets us apart. Jon's example of education really only goes so far. Yes the first 18 years of our lives can be spent in the public schooling system. But, unless you are a ward of the state, your parents paid for that schooling in taxes. Public doesn't mean free. And if your in the highest tax bracket, you probably not only covered your children's education, but arguably most of the kids in his/her class as well. It is the college years and graduate level education that really creates the skills needed to succeed in our globalized world. The people that spend all this time and money expanding their education, innovating and changing the world around them, and working hard to see it through, earn their wealth. Those who don't are the ones looking for the handouts.
While I agree that the progressive tax rate model is a good idea, it is simplified far to much for our modern economy. The idea that a Doctor making $400,000 is being taxed the same rate as someone making a couple million dollars playing baseball, is practically insane. The tax brackets need to be expanded more. The Rawlsian model would not only agree that the graduated income tax needs to be tweaked to be more fair, but also that one can take credit for their successes. There are plenty of opportunities that level the playing field (until we are 18). Public schooling, scholarships, grants, need and race based awards etc all exist to help one climb the social ladder. They reward the hard worker by giving them chances to continue to improve their circumstances. Yet many don't attempt to take advantage of these, and instead treat them as handouts to be enjoyed. Also, in contemporary society, no one can really be forced to do anything. Just because I needed those 10 men to build my business doesn't mean that I can not take credit for it. I compensated them fairly for their labor, and that should be enough. Both parties get to enjoy the fruits of their labor.
The common denominator in all my personal successes and failures has been nobody but myself. We all have influences, but unless I plagiarized it or someone guided me step by step through it, I created it.
-Tom Dennis
I disagree with the idea that a utilitarian would support super taxing the rich as some have mentioned. This would lead to a society where being rich would be too burdensome to enjoy. Thus, people would not try to earn more than is necessary, and enjoy the handouts taken from those who have. The utilitarian, concerned with the inevitable outcome of the funds drying up due to lack of motivation, would understand this.
ReplyDeleteI also disagree with the idea that one person cannot claim responsibility for their successes. While the circumstances we are born into are all based on (for lack of a better term) luck. It is what we do with our innate abilities that sets us apart. Jon's example of education really only goes so far. Yes the first 18 years of our lives can be spent in the public schooling system. But, unless you are a ward of the state, your parents paid for that schooling in taxes. Public doesn't mean free. And if your in the highest tax bracket, you probably not only covered your children's education, but arguably most of the kids in his/her class as well. It is the college years and graduate level education that really creates the skills needed to succeed in our globalized world. The people that spend all this time and money expanding their education, innovating and changing the world around them, and working hard to see it through, earn their wealth. Those who don't are the ones looking for the handouts.
While I agree that the progressive tax rate model is a good idea, it is simplified far to much for our modern economy. The idea that a Doctor making $400,000 is being taxed the same rate as someone making a couple million dollars playing baseball, is practically insane. The tax brackets need to be expanded more. The Rawlsian model would not only agree that the graduated income tax needs to be tweaked to be more fair, but also that one can take credit for their successes. There are plenty of opportunities that level the playing field (until we are 18). Public schooling, scholarships, grants, need and race based awards etc all exist to help one climb the social ladder. They reward the hard worker by giving them chances to continue to improve their circumstances. Yet many don't attempt to take advantage of these, and instead treat them as handouts to be enjoyed. Also, in contemporary society, no one can really be forced to do anything. Just because I needed those 10 men to build my business doesn't mean that I can not take credit for it. I compensated them fairly for their labor, and that should be enough. Both parties get to enjoy the fruits of their labor.
ReplyDeleteThe common denominator in all my personal successes and failures has been nobody but myself. We all have influences, but unless I plagiarized it or someone guided me step by step through it, I created it.
-Tom Dennis
TD, I agree, a utilitarian would not advocate “super-taxing” the rich, but this is on the grounds of being economically unfeasible, based on the simple logic that given by the famous Laffer Curve, but that is a whole other class entirely. However, to claim that being rich would ever be “burdensome” is empirically untrue. Under the Truman Administration, the top marginal tax rate was 71%, while under Eisenhower’s it was 92%; economically, as I stated, these were horrible decisions, but the quality of living for the affluent remained virtually unchanged. The trickle-down theory in which you are trying to advocate also empirically fails. As noted by another one of Paul Krugman’s articles, Where’s My Trickle, following the Bush tax cuts, “Corporate profits rose 72 percent from the second quarter of 2003 to the second quarter of 2007. The real income of the richest 0.1 percent of Americans surged by 51 percent between 2003 and 2005,” while “Wages, adjusted for inflation, have stagnated: the real hourly earnings of nonsupervisory workers, the most widely used measure of how typical workers are faring, were no higher in July 2007 than they were in July 2003.”
ReplyDeleteYou have also missed the point of my post entirely. My claim was that for one person to claim 100% of their successes. Certainly, your innovation and business savvy should justly be credited to you, but the common denominator for your success is not SIMPLY you, but the social institutions that are around you. Things such as how healthy your workers are as determined by institutions of public health, how intelligent and capable your workers are to handle what you need them to do is determined by education, the value of the dollar that you hold determined by a successfully run and stable economy, the interest rates set by the central bank which effects your ability to borrow and invest – which also effects levels of unemployment which goes right back into how stable the economy is, the very laws which the government institutions upholds to allow you to safely conduct your business, etc., etc., etc., I could go on, once again, for days, but the ultimate point being it is not only you that is the factor, but the society in which you grew up in. For one person to claim all of their successes, and to not give back to the social structure around you – it is not the others who are then looking to be handed out to, it is you who becomes the freeloader.
These Lockean and Libertarian principles that you are attempting to uphold are just as unjust and unrealistic as this so-called “welfare queen” image that you are trying to conjure. This is why contemporary American society looks to the Rawlsian model for nearly all things, not simply in taxation policies. However, as we are talking of taxes, and not of other things, I am advocating these taxes be raised as just because in this day and year, we have a budget deficit in excess of 1.2 trillion. This, as I’m sure you know from economics, is bad for everyone.
I would write more, but as of now I have two midterms to study for. Good luck to you on yours and everyone else on theirs!
-Jonathan AuYeung
While Jonathan has definitely explained my position very thoroughly, there are still some elements to the arguments he was engaging that I feel need to be addressed.
ReplyDeleteThe idea that the rich do not benefit as much from the poor from modern society's largesse is entirely untrue. Their bank deposits are insured by FDIC, their investments are monitored by the SEC, and their prescription drugs and food are inspected by the FDA. Their fortunes are kept in their hands by a system of law that effectively makes mob justice and violence impossible. Their multimillion dollar companies make use of the poor as labor and in many cases as customers, while transporting their goods on federal highways and getting financing for their activities on government-maintained securities markets. The rich could not make their money without the society to which they belong, and the idea that they are only being held back by the government is completely false.
Also, at times we encounter the idea that the private charity of individuals will, over time, help us towards a more equal society. The case could be made that these charitable organizations and equalizing opportunities are really holding us back, however. By treating the symptom of the problem (socioeconomic inequality) instead of the cause (a society that distributes its rewards in a complex but essentially unjust manner), we are in effect, only prolonging the issue and entrenching the faults in our societal setup.
In regards to our current tax arrangement, a utilitarian would have no problem taxing people who are very, very financially comfortable to feed and provide for the basic happiness of a far larger majority of people. Rawls' egalitarianism would be much more concerned with the plight of the poor than the relative tax burdens of those benefiting from society in manifold ways.
I highly disagree that the rich or the top of the economic class should pay the majority of the taxes. It does not seem fair or just that people who earn more than others, unreasonably have to pay more just because they have it. Everyone should have the same rights and entitlements and it should not be that the rich are made to pay more because they have more money. In our current economy and recession, everyone is struggling; therefore for someone to pay substantially higher taxes is definitely a big burden.
ReplyDeleteThis is not an ethical decision to treat people differently in today's economy. As Joseph said, this goes against a free market ideal. People should not be "punished" in a way for being more successful or making more money. In today's market, most people are struggling, including the rich. Therefore I think that the decision to have different tax burdens on different classes (the rich and poor), is simply not right or ethical.
-Kevin Linnane
While I do not have the time presently to rebut many of the very good counter arguments made, I would just like to stress my main points.
ReplyDeleteThe tax system is flawed. The tax brackets should be divided into more just divisions. 40% of 500,000 is not the same as 40% of 5,000,000.
Also, the system needs to start taxing the bottom 47% of wage earners, even if it is 1000$ or less. As a whole they use more of the public systems and facilities in place. As you said Jon, we have a budget deficit in excess of 1.2 trillion. This, as I’m sure you know from economics, is bad for everyone. So lets have everyone contribute to reducing this deficit. What if the bottom half contributed within their means instead of nothing at all?
http://www.usatoday.com/news/opinion/editorials/2010-04-16-editorial16_ST_N.htm
A significant misconception that a number of people have when dealing with the issue of progressive taxation is that once you enter a certain tax bracket, you pay that rate on all your income. However, in the bracketed system, taxpayers only pay a higher rate on the dollars that exceed a certain minimum.
ReplyDeleteFor example, if we raise the rate for the $250,000+ bracket to 75%, and you make $300,000 you will only be paying 75% on that last $50,000. The reasoning behind this is that taking a tax dollar of marginal income from a person making $300,000/year does not harm that person as much as taking it from a person making $15,000.
A progressive tax code does in fact seek to create an equality of burden. It's just that it strives for a real equality of burden, and not just a nominal one. If we are in fact serious about reducing the deficit, we need to raise taxes on the rich. Everyone might be struggling, but they are not suffering equally.
Also, TD, I wrote in my first comment to address the idea that the bottom wage earners "use more of the public systems and facilities in place." That is simply untrue. I can understand the idea, because for the most part the poor benefit directly, while the rich benefit indirectly. Regardless, the rich benefit more, for the reasons I described above.
This article examines the Utilitarian belief in providing the most good for the greatest amount of people. By making the rich pay higher taxes than the poor, the government is able to receive the necessary revenue. However, in simple terms, this is stealing from the rich. I find such an act to be unethical because by enforcing this, the government is indirectly stating that it is okay to take away the hard earned earnings of an individual simply because they make more money than the rest of the tax payers. Yes, one can clearly comprehend the struggles of the lower/middle classes. However it is the right of individual to decide based on their financial situation, what amount of money they will be willing to give away. Imposing a tax bracket on people clearly goes against Kant’s belief of the autonomous nature of every individual. While a tax bracket would provide the greatest amount of good, it is unethical in ever sense of the word for the aforementioned reasons.
ReplyDelete