US senate candidate Elizabeth Warren wants wealthy Americans to pay more tax. The Bush administration put the country into a hole, she says. Tax cuts for the rich, two wars it put on a credit card, and an unfunded medicare drug program that poured money into the hands of drug companies. And now when wealthy Americans are asked to help out, they cry ‘class warfare’. Warren’s not having it :
There is nobody in this country who got rich on his own. Nobody.
You built a factory out there? Good for you. But I want to be clear: you moved your goods to market on the roads the rest of us paid for; you hired workers the rest of us paid to educate; you were safe in your factory because of police forces and fire forces that the rest of us paid for.
You didn’t have to worry that marauding bands would come and seize everything at your factory, and hire someone to protect against this, because of the work the rest of us did.
Now look, you built a factory and it turned into something terrific, or a great idea? God bless. Keep a big hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along.
As Will Wilkinson says: "This is precisely the sort of rhetoric Democrats need to perfect in order to hold ground in the next round of national elections." And that’s probably why Warren’s speech is driving libertarians and conservatives nuts.
At the American Thinker, Mercer Tyson is "deeply offended that she shows little appreciation for the wealthy people in this country who provide the capital that makes everything work." NRO’s Rich Lowry argues that since the top 10 percent of earners contribute 70 percent of all income tax revenue, rich factory owners have already contributed.
Perhaps what they want to say to America’s middle class is: "Think not what rich Americans can do for you, but what you can do for rich Americans."
Its a fun spiel but no more accurate than the Tyson/Lowry responses. I am not sure you can manufacture a case for higher taxes on the rich on the basis that they (alone?) benefited from public goods and equally you cannot justify the current tax regime by the view that the rich already pay lots of taxes and that increasing them will reduce economic efficiency.
Its more accurate to recognise an efficiency/justice tradeoff and then try to set out the implications of this. Different countries resolve this tradeoff in different ways but in the case of the US almost all of the income gains from the last 20 years of growth have gone to the mega rich. The US has chosen an extreme point on this tradeoff.
The typical US worker has not seen his or her wage grow. Partly this is due to increased competition from labour in rapidly growing developing countries. But the dramatic growth in incomes of the mega rich suggest something more than that. This group have been able to buy political power and control of the media. The non-traded goods sector incomes have taken off in areas such as finance that seem to be little more than socially-sanctified gambling with familiar dire costs accruing those who fund the gambles. Its an agency-based market failure.
I agree with the implications of Warren’s argument but not the argument itself.
hc, you might be right about the point that her thinking does not necessarily justify tax increase, but it does two things:
1). It changes the focus from ‘class warfare’ and ‘boo hoo’ the socialists are pitting American against American, sob’, to enable the question,
2). Well how much tax should the wealthy be paying? Is the amount they are paying now fair, considering what they are receiving?
Here’s Paul Krugman on Elizabeth Warren and the social contract:
She is correct on what you would to to balance the budget BUT unemployment is around 9%.
Only complete economic illiterates would attempt fiscal consolidation now.
As we observe in Europe these attempts fail and make both the deficit and debt worse.
Wait until the economy recovers and then consolidate.As usual Australia is showing everyone how to do it and when to do it.
Observe the last quarter national accounts in both the US and Australia.
in both Countries the public sector was reducing growth.
In Australia that makes sense in the US it makes nonsense.
Really? Is Krugman aware that a very large number of sub S corporations that file tax returns as individuals are currently paying an effective tax rate of 44.5 and go over 50% with obamacare? Krugs must have forgotten to mention that.
The lucky ones are the 55% that don’t pay tax.
Harry says:
Really? Did Australians experience that as well? I suggest you and other ought to be looking at the elephant in the cupboard; 12 million illegals that has impacted on the bottom 25 million Americans incomes. While the capacity to create those extra jobs has been astonishing over the last 25 years, it has had an impact on real wages, especially in the bottom quintile.
You are confusing income with wealth. Warren Buffet ( Mr Integrity) did not grow rich from drawing down that famous $100,000 a year in salary. He grew wealthy from investing in some great stocks and letting compounding take its course. Is that the sort of “income” you’re thinking about? It’s not is it?
Fair dinkum Harry, is there anything you don’t categorize as market failure? Everything you personally don’t like is market failure.
Banking helped fund, either through lending or capital raising global GDP growth for the last 25 years. It’s been an astonishing ride for the world.
Without going into into the reasons for the banking failure, total losses as a result of the 2008 crisis has been estimated by Morgan Stanley to be around $1 trillion. Bank failures and balance sheet recessions have been part of our history even before the Industrial revolution. There’s nothing new in that.
Here’s Bank of America’s last quarter’s 10Q. Please show us where all the gambling is taking place in the income statement. Go ahead, as I’d be really interested in your analysis.
Elizabeth Warren wasn’t confirmed as the head of a consumer banking regulator because she’s off her head. If she had her way banks would not be allowed to earn any fees and consumer laws would mean the banks would lose in almost every single legal dispute. One of the few good things to occur was that she wasn’t confirmed by the Senate and the Democrats didn’t even fight for her, as she was far too extreme. Even Treasury Secretary Geithner thought she was an extremist nutcase and agitated for her removal at the new regulator.
Despite all of that it wouldn’t shock me in the least if she was elected in the People’s Republic of Massachusetts.
Fifty five percent of Americans don’t pay tax? Here’s how Howard Gleckman explains the numbers on TaxVox:
Don
Everyone pays FICA, but that isn’t supposed to be a tax, as we were often reminded by both sides of politics. It was supposed be a “pay in” to fund our pension and medicare on retirement for the most part. Talk to the Federal government why they treat it as part of general revenue.
Under Ronald Reagan in the 1986 tax act Warren Buffet’s tax rate was at least the same as his secretary.
This changed under Bush.
Buffet could just pay himself what he’s worth, rather than collect it as dividends and capital gains. Nothing stopping him, and pam, that great weight of iniquity would be lifted from his shoulders and he would pay a higher rate than his secretary, for ever and ever amen.
Salvation sometimes truly is closer than we think.
Also, while he’s in full epiphany he could instruct Berkshire Hathaway’s tax department to be more honest, per note 15 on pp. 54-56 of the latest annual report
Now, personally, I think that there is nothing necessarily wrong with taking a different view to the IRS. But it’s a hell of an odd position for Buffet to be taking in this particularly hypocritical phase of his life.
Mr. Integrity’s Berkshire Hathaway has never paid a dividend, Patrick. *Ever. Mr. Integrity is compound interest obsessive.
He believes a company shouldn’t pay divs (he’s possibly right). He says let the return accumulate at the tax free compounded rate and if a stockholder needs money s/he can sell a certain number of stocks and only pay the cap gains tax on exist, otherwise divs are treated as ordinary income in the US and attract a higher tax rate. That’s what he’s said in the past anyway.
He’s so compound return obsessed the bugger has lived in the same house since the 60’s, otherwise he’d would’ve had to pay cap gains tax on the sale, which would have interfered with the compound return.
*Go the the chart.. click “all” period and take a look. There’s no D for Div at the bottom of the chart.
OK, so he gets only capital gains. I guess if you can, why not?
But I’m not sure what you mean by a tax free compound rate – the company pays tax on interest too? It surely isn’t different to you getting a dividend and investing the money?
Oops, apart from the double tax on the dividend (in America at least), but after that you are both in a pretty good position except you’ve paid the double tax pre-‘compounding’ rather than post (on the compounded amount).
What Buffet was saying is that a firm shouldn’t pay divs, as the money is notionally reinvested at the company’s growth rate. Yes you’re right, strictly speaking the firm is still paying the corp tax, but divs are double taxed over there so you can avoid tax on the divs if you don’t need the money and only pay at the cap gains if you require money and sell stock. It does make sense if a company is growing the bottom line.
Before he started to get into the business of being an insider investor avoiding the traps of the hoi polloi, what was staggering about his investments was just what sort obvious well known companies they were. Not obvious in he sense that any investor could prick them, just that they don’t do anything startling.
He’s owned Proctor and Gamble (P&G) since forever. To us mere mortals it’s a boring soap detergent maker, right? How the hell do you make decent money out of that if you stumble on it.
Look at the chart… He probably has a weighted average purchase on the stock of around one buck and change, as I think he’s owned this stock since the 60’s. It now trades around 60 bucks. Since the 80’s it’s had 5 2 for 1 splits. So even if you say took his holding in PG since the 80’s when the stock was trading at 2.50 , factored in the 5 splits, 1000 shares ($2,500) of PG with the splits would be worth $456,000 since 1981. That’s an astounding 11,300% return or 19% compound pa for 30 years. No wonder he loves compounding and is obsessive about it over oceans of time.
Elizabeth Warren is a Harvard Law Professor, spent lots of time in & around government. She’s unable to break the umbilical cord. She is a grant-monkey, who has never worked out how to make a quid on her own.
This is why she speaks such rubbish on economic policy.
As opposed to publicans whose rich life experiences qualify them eminently to pontificate on economic policy and who never need to rely on ad hominems to make a point.
How about dealing with her claims Steve?
I’d more trust a publican’s “rich life experiences” than Warren’s understanding of banking Harry and yours too if you support her.
Harry (More on the Banks are gambling schtick)
You accuse banks of gambling, yea? What’s your descriptor for what’s happening in Europe where banks holding “risk free” government bonds could possibly take down the entire Western Banking system?
Lets recall that banks are forced to hold bonds in order to meet regulatory required liquidity ratios.
Would you suggest that in such a case (where the Western banking system goes down the toilet) the banks aren’t gambling and it’s just bad luck? You know, if the state is the cause, well that’s okay then.
On Warren
Megan McArdle suggests peer review seemed to have failed in properly analyzing and picking up what appears to be spurious claims by Warren in a study aggressively peddling higher bankruptcies. My interpretation: Warren lied and made it all up.
Here’s McArdle
That’s a pattern I see over and over in her work. In her (in)famous paper on medical bankruptcies in 2001, Warren and her co-authors defined anyone with $1000 worth of medical bills as having a medical bankruptcy, and used that figure to imply that rising medical bills were pushing people over the financial edge. Now maybe they are, but you sure couldn’t prove it with that metric. I hope to hell that no lawyer (Warren is a law professor) would advise a client with no debt but $1,000 worth of medical bills to declare bankruptcy, because doing so would be malpractice*.
Relating to her arguments in the vid. Warren is attacking a strawman and surprised she hasn’t been picked up on it.
The fact is that the wealthy in America pay far more than their fair hare. So the rich are more than paying for roads, cops and firemen Warren brings up in her spiel. Furthermore the costs she mentions are state issues. Warren even seems to be confused whether she’s running for state or Federal office, as these expenditures are state in the US, not Federal.
We haven’t heard arguments from the rich that they want to pay less and the difference should be slogged to the lower income earners. All they want is not to be slugged for higher taxes and seem to be quite happy paying more than their fair share for roads, cops and firemen than lower income earners. Warren’s is bad argument because the facts to even come close to what she is suggesting. It’s populist poppycock.
No wonder Geithner didn’t want a thing to do with her and helped diss her appointment at the consumer bureau. She’s a nutcase. And Geithner hardly comes from the right wing of the Republican Party last time I looked.
(McArdle does a two part series on Warren that is worth reading).
This is the Warren study, published in the peer reviewed AMJMED
More from AJMMED
To accept the McArdle proposition you would have to also accept that everybody is lying.
What a lying scumbag. Anyone who by definition doesn’t prepay for surgery is bankrupt. A complete and utter academic fraud. Whoever called her a nutcase was right.
My mother and father have been “bankrupted” multiple times, despite never having actually been bankrupt, and retiring comfortably and debt free.
This charlatan won’t be remembered for long.
The utter cowardice of this blog that lets “Sally” continue to slander me without a right of reply. Why do you allow that kind of behaviour?
You are simply enablers.
‘The utter cowardice of this blog that lets “Sally” continue to slander me without a right of reply. Why do you allow that kind of behaviour?’
the irony is rich
Homer,
When you have the right of reply, you end up boning yourself as you can never keep your story consistent.
It’s for your own good that you get cut off.
Says the person who always bones himself.
Try looking up projection Marky.
Everything you complain about is in the mirror
“which misses the point that all of us live in and benefit from being part of a larger society.”
I never understand why people think this a good argument. People get rich from selling things to others in the larger society. Yes, absent the society they could not get so rich, but if the society delivers a certain level of profit through market operations then why should there be any requirement for a further reduction in the profit level relative to other members of society?
The people shopping at Walmart also benefit from the roads delivering their goods, so the Walmart company is not receiving any extra benefit from the commons.
Arguments about education spending don’t really wash either. The most you can fairly say is that anyone who gets a free or subsidised education ought to pay the cost of that from future taxes, but that is not an argument for paying to educate the dope next door.
I can see an argument on pragmatic grounds, but the moral argument is really the just the preference of A’s opinion over B’s.
I suppose you can’t make the same claims about Warren’s income because it is not market determined.
Pedro
Warren is a law professor at Harvard, so I would guess her income is market determined.
Pedro @25:
“I never understand why people think this a good argument. People get rich from selling things to others in the larger society.”
Yes, but no – Warren’s point is that society provides the social and physical infrastructure needed for the effective operation of ever-larger and more complex markets. And anyone who knows a bit of economic history will grant it.
Don,
good points. I fully agree with them. For the life of me, I cant see why Harry Clarke would want to disagree with the basic argument that the successful business person uses a disproportionate amount of public goods (the bigger the business, the more roads, harbours, education, etc. they will use). Whilst there are many other arguments one can make for why the rich should pay more taxes (equity, efficiency, expediency), the argument that they are major beneficiaries of public investments and hence owe the rest of society some of their gains seems perfectly valid.
Paul, to use an extreme example… would George Soros. a well known fund manager use more or less in public resources in terms of what you have in mind?
Peter W: Doh! I thought she was a senator.
Dan, umm, I recognised that, but everyone benefits from the infrastucture, including the welfare queen or king who drives to Walmart to get snapped by security cameras and posted on the people of walmart website.
“I cant see why Harry Clarke would want to disagree with the basic argument that the successful business person uses a disproportionate amount of public goods (the bigger the business, the more roads, harbours, education, etc. they will use).”
Paul, don’t those rich people ship their goods to shops and ultimately consumers, who therefore are equally using the roads etc? Goods are sent to where a demand exists. Also, the extent you use the commons is not related to the amount of profit you make. For the claim to have an moral force it implies a proportionality between wealth and benefit from the commons, but you cannot show that proportionality.
Efficiency and expediency can be arguments for all sorts of things that are ethically hard to justify. The equity argument for progressive tax is not qualitively different to the equity argument for a poll tax.
As if the head of a multinational is not deriving orders of magnitude more benefit, commercially and thus personally, from public infrastructure, than Mr Everyman.
Not to mention earning far beyond his ability to spend.
I have no ethical problem whatsoever with coming down on the rich hard, and day by day the rich are coming out saying the same thing (today it was an ex-senior Google guy).
Pedro,
I would turn the question around: who would still be earning what if there was no public sector?
Paul, how does that question get you from a poll tax to a progressive tax?
Dan, but maybe those people are also investing and creating jobs? But they are not making orders of magnitude more money because of the public sector, its because of their efforts and ability. And still, every widget travels the road or rail to get to its buyer.
Paul
Do you as an individual have a choice about having a public sector, or what parts you want and don’t?
Much of her thinking, if you could even call it that assumes there is no value in private exchange, or that it’s simply one sided. How about the benefits derived by consumers from exchange?
Lastly the things she talks about are more than paid for by taxes. If only people were asked to pay through taxes the things she mentions, the deficit would move into surplus and there would be room for substantial tax cuts too.
All Warren is doing is going after a minority which for the American left is always fair game….eat the rich.
Pedro: if they were investing and creating jobs, there’d be no problem at present. They ain’t.
As for the second thing you asked: I disagree – but in any event it’s missing the main point. How did they *get* to be where they are? What sorts of institutions need to be in place for others to achieve their economic potential?
Dan, do you think that the prosperous capitalist system that we all love so much ante or post dated the welfare state?
As for the necessary institutions, they surely provide an opportunity for all, so why should the people who’s higher talents, effort and thrift lead to great wealth have to pay more for the equal opportunity available to all? By the way, I think the number of necessary institutions is considerably less than we actually have. I think your argument boils down to: “just because”.
Yes, people might not be investing so much at the moment, but will higher taxes change that?
Actually, the welfare state predated capitalism. It first existed under Bismarck.
And of course under “primitive communism,” which is a fair description of many hunter-gatherer/early agricultural settler societies, as Engels and anthropologists from Morgan to Reed have shown, all people were materially provided for equally in what were probably matriarchal societies (where lineage was traced through the female line and (relatedly) women held a revered position because of their unique and pre-eminent role in reproducing the species and in creating the means for new life through horticulture – which women probably invented).
If you think that equal opportunity is available to all, you’re from a different planet.
Laissez-faire was seen to be a failure pretty much as soon as it emerged. Heck, the *capitalists* of day knew a race to the bottom when they saw one. Let alone other social thinkers.
As for investment: if someone earns, say, $5bn which he plans to save (because confidence is down), and the government takes $1bn and employs, say, 2,000 people, that sounds like a great outcome to me.
Sally: WoN published 1776, Bismark’s reforms 1880s, Sally having a clue …?
Dan, depends on whether you are the one or one of the 2,000. How would you feel if the 2,000 people just took the money by force, and how is that different? This is not an argument about govt or no govt, just the limits.
I might be on a different planet, but the commons you assert are the justification for progressive tax and redistribution are available to all. Through no fault of the rich, some people fail, and some people are unable, to take full advantage.
Of course, I expect there would be less squealing about progressive taxation if the money was only being used for the common welfare, but the big spend in on individual welfare. I don’t think Gerry Harvey gets more rich if money is taken from him in taxes and then given to a pensioner who, among other things, buys a TV from his shop. So I don’t see how anyone can claim that the rich ought to pay more for welfare because their super profits are benefits of the welfare system.
What do you think are the fetters that should be placed on govts taking property, toil or treasure for the general benefit?
Free and fair elections. A free and diverse press. Government accountability and transparency mechanisms.
On the other hand, I think the *mandate* that should be placed on governments levying taxes are: Do we live in a decent society? Insofar as we can collectively afford it, are people having their basic needs met?
So conscription would be ok, if by a democratically elected govt? Or the repeal of the Native Title Act?
I suppose a difficult question is the definition of basic needs. A second question is whether a decent society is the result of the many extracting money from the few with threats of violence.
I think the reason people who favour redistribution look for justifications is that the concept otherwise looks a bit ordinary. This discussion started with the assertion that the rich owe high (in fact higher) taxes because of the disproportionate benefit they get from society, but that clear and proportional connection is not easy to make, so we are left with competing visions of the decent society, with the difference essentially depending on different weights given to the individual and the mass.
Each no doubt thinks that hiding behind the other’s veil is a “just because”. But I really do think that the argument for the primacy of the individual is the far easier to make, and once accepted, redistribution has to justified by pragmatism and not sentiment.
Poor people – the very poorest, the sick and infirm, and mentally ill ones – are individuals too, of course. I think it’s good to have a comprehensive system of social insurance for them (and so did Hayek, who I’m paraphrasing).
I *don’t* think you’re hiding behind a “just because” – and neither am I. I genuinely think you have trouble seeing what economic power is, how it is exercised, and why the winners win and the losers lose.
“I think the reason people who favour redistribution look for justifications is that the concept otherwise looks a bit ordinary.”
Uhm, this argument kind of implodes. Of course if there weren’t justifications for redistribution, it wouldn’t be justified.
Dan, Pedro is not the brightest star in the far right firmament. But he tries, we must give the poor old boy that.
In Pedros wonderful libertarian world everybody has perfect teeth, hair and a body to die for.
Sally: Yes…
rog: Not just Pedro. Haven’t these people ever met a hardworking poor person who can’t seem to get a break? There’s plenty out there.
Well Warren, howsabout we have an ANWT for the top end of town? Did I hear someone mention ‘rent’ around here? That way we could get rid of income and payroll tax and the like on the real ‘workers’, coupled with a further shift to fossil fuel and resource taxing in general. You know, the stuff the wealthy rentiers really chew up in abundance while taking advantage of the thorny old problem of measuring income temporally.
Nope! We’ll just have even more taxes naturally, but a heap more regulations to up all those rents-
http://www.adelaidenow.com.au/news/south-australia/legislation-to-end-urban-sprawl-in-barossa-valley-and-mclaren-vale/story-e6frea83-1226149319399?from=public_rss