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Tuesday, December 11, 2018

MORE THOUGHTS

Yesterday, I discussed an extremely important essay by Piketty, Saez, and Zucman.  Today, I want to quote several passages, and comment on their significance for American politics.  [By the way, I had no recollection of having read it before and having linked to it on August 31 of this year!  Clearly, I am losing it.  I mean, it is amusing when I discover in my files something I wrote thirty years ago and have since forgotten I wrote, but this is ridiculous.  Maybe it is not such a bad thing that I am in an old people’s home.]

Here are three passages, each from the last pages of the essay.

(1)  p. 601   “In 2014, payroll taxes amount to 11.3% of pretax income, significantly above the next largest items—federal and state income taxes, 6.6% of pretax income, and sales taxes, 4.7%.  Although payroll taxes finance transfers—Social Security and Medicare—that go in part to the bottom 50%, their increase contributes to the stagnation of the posttax income of working-age bottom 50% Americans.”

So in effect, the payroll taxes paid by the lowest waged half of the population are going to subsidize the improvements experienced by the better off half.  In short, this is massively regressive taxation.

(2)  Also from p. 601 “Transfers. One major evolution in the U.S. economy over the past 50 years is the rise of individualized transfers—monetary and more importantly in-kind.  While public goods spending has remained constant around 18% of national income, transfers— other than Social Security, disability, and unemployment insurance, which are already included in pretax income—have increased from about 2% of national income in 1960 to close to 11% today. The two largest transfers are Medicare (4% of national income in 2014) and Medicaid (3.4%); other important transfers include refundable tax credits (0.8%), veterans’ benefits 0.6%), and food stamps (0.5%).  Overall, individualized transfers tend to be targeted to the middle class. …  Despite Medicaid and other means-tested programs which entirely go to the bottom 50%, the middle 40% receives larger transfers than the bottom 50% Americans, in particular because Medicare largely goes to the middle-class. In 2014, the bottom 50% received the equivalent of 10.5% of per-adult national income, the middle-class received more—14%—and the top 10% received less—about 8%.”

(3)  p. 603  “The middle class appears as the main winner of redistribution: while it receives growing individualized transfers, its effective tax rate has remained stable at around 30% since the late 1960s. Transfers have played a key role in enabling its income to grow in recent years.  Without transfers average income for the middle 40% would not have grown at all from 1999 to 2014. In fact it grew 8%, thanks to an increase of 32% in transfers received excluding Social Security. Tax credits—the 2008 Economic Stimulus Payments, the American Opportunity Tax Credit, the Making Work Pay Tax Credit, and Health Insurance Premium Assistance Credits (in the context of the Affordable Care Act)—played a particularly important role during the Great Recession. Without transfers the average income of the middle class would have fallen by 11% between 2007 and 2009; thanks to transfers the decline was limited to 3%.  In contrast, given the dynamic in their pretax income, transfers have not been sufficient to enable bottom 50% incomes to grow significantly.”

Read these three passages carefully and then think about the rhetoric and the policy priorities of the Democratic Party in the last several election cycles.  Democratic candidates talk incessantly about “the Middle Class,” and their policy proposals deal with the sorts of transfer payment programs that have benefitted the 50th to 90th percentiles of the American population.  Their efforts have been successful, as the statistical analysis of this essay demonstrates, both in making possible increases in real posttax income for that 50-90% income group over the past two generations and, equally important, in cushioning the blows of economic downturns for the same group.   No one in American politics has been looking out for the bottom half of the population.

All of this long predates the faux populism of Trump and, unless there are major changes in existing transfer programs, will continue unaltered after he passes from the scene.  The Democratic Party has survived, and perhaps is even flourishing, essentially by pursuing policies that help that “middle” group from the 50th to the 90th percentile, while being visibly non-racist and non-sexist, which brings to its support millions of Americans who are not actually very much helped economically by its policies.

Limiting ourselves to the politically possible, as opposed to the ideologically desirable, what policies might the Progressive wing of the Democratic Party embrace in an effort actually to help the bottom 50%?  It is not hard to think of some, in fact.  Here are four:

Raise the wage limit on social security taxes and use the additional monies to decrease the tax on the first 30 or 40 thousand dollars of earned income.

Dramatically raise the minimum wage so that, adjusted for inflation, it at least recaptures what it has lost to inflation over the past thirty years.

Medicare for all, with the cost means tested so as to constitute a transfer payment from the top 50% to the bottom 50%.

Cancel the recent tax decreases for the rich and impose new inheritance taxes to pay for the rise in transfer payments to the bottom 50%.

If we are serious about our socialist longings, we need to take Piketty, Saez, and Zucman to heart and shape our policy priorities accordingly.

6 comments:

Jim said...

Speaking of Piketty, has anyone seen this in the Guardian a mere two days ago?: https://www.theguardian.com/world/2018/dec/09/eu-brexit-piketty-tax-google-facebook-apple-manifesto

I mean, at least they are trying to do something...anything.

Michael S said...

RE your recent post about observing the norms following an ex-president's death - I was curious whether you had an opinion regarding what's going on in my country (the UK), the possibility of a second referendum on Brexit.

I read your Anarchism book a long time ago, so I can't remember if you had anything to say in that, about the pragmatic realities of direct democracy. (I'm sure there a bit literature on it, as there seemingly is on everything, but I haven't read it.) Lots of very smart and properly liberal-democratic thinkers/writers are arguing for a second referendum; the arguments for it include:

- irregularities in the process (russia, finance, lies in the campaign etc.)
- it was too long ago, now
- the question wasn't specific enough at the time

Now, as much as I think Brexit would likely be economically a very bad idea, and as always, the pain is going to land on the poorest; and as much as, right now, for all one's 80's/90's/00's scepticism about neoliberal-globalism, one really probably should be on the other side from the nationalists; I do not think there should be a second referendum.

Procedure matters (in one form, it's the rule of law; in another, perhaps, respecting norms of mourning). Almost any argument for discounting the result of a referendum seems to me to be disingenuous. As often happens, if the people vote 'the wrong way', they'll get asked again; which obviously shows the whole thing was a sham in the first place.

Personally, I'm not an anarchist, or a direct-democracy supporter; but if you have a referendum, or an election, or a rule-based liberal-democratic process of any sort, you better respect it. It seems to me, anyway. Because just imagine being on the other side; and it seems even more important now to keep norms, laws, principles, procedure, etc. (I guess the most natural analogy in US Politics would be the blocking of court appointments).

Anyway, would be curious to know if you had any thoughts on the subject. One reason is that you've written a few things in the past which means I don't know which way you would go: (crudely...) ultimately, it's only about winning, it's pragmatic, all the way down, there's no transcendentally-right point of view; but you're also a negative-capability anarchist-democrat.

Unknown said...

Re Michael S:
Why would you think a referendum is due more than legislation? A second referendum does not look to me to be about sore losers trying for a replay. Circumstances have changed. But maybe that is missing your point...

David Auerbach said...

Why not a referendum on whether there should be a referendum on Brexit.

RobinMcDugald said...

Back to the topic (though I, a sort of Lexiter who doesn’t agree with Varoufakis’s ‘stay in the EU and change it’ approach, happen to have quite strong views on Brexit):

What strikes me about the Piketty et al. definition of “middle class”—which seems now to be RPW’s definition too—is that it runs counter to the definition which has been operative in the US for at least half a century, namely that almost everyone is middle class. As I understand it the Democrats were simply using the latter definition, a definition which matched the self identification of most Americans.

I’m not disputing that the policies the politicians put into effect have for the most part benefitted the roughly upper 50 percent of that self-defining middle class. And I’m in favour of terminology which mirrors the actual socio-economic differences rather than concealing them, for I take it that a self identification that corresponded to reality would be a factor in a politics aimed at turning things around.

But what are we to call the roughly 50 percent of the self-defining middle class which has not benefitted? Are we the “Lower Class”? Many of us would reject that as self demeaning. Are we “The Left Behind”? That seems to imply that the system as it is can somehow be modified a little to our benefit. (I’m not disagreeing with RPW’s list of practical proposals; I am, however, at the same time, concerned with how we should think about our place in the larger scheme of things over the longer term.) Are we the “Working Class”? That’s a term with a lot of antiquarian baggage to it which would surely also require a great deal of critical development to fit the less industrial economic system we now supposedly inhabit. Who/what class in broad terms should we demand the politicians to work in behalf of? What class should we want a significant proportion of our politicians to belong to and identify with?

Stumped for a name.

s. wallerstein said...

The term "precariat" is sometimes used, although it does not fit everyone.

Then there's "lower middle class", but that generally implies a certain culture or way of life, which people like me (my income is in the lower half of the scale) don't think of ourselves as belonging to.

I guess that you don't need to give everything a name, especially when you're talking about a human group which includes a very very diverse population.