Monday, January 31, 2011

RE: The Rich Do Not Pay High Taxes

Welcome to JacobSpinney response blog #2494831. You can find his video attached as a response to my Trickle Down Apologists video. Much like with the Anarchy arguments, it’s clear that the more video time one dedicates to arguing anything that so much as pinches the rich financially (like a 3% tax hike), the more clean-up duties one will plague oneself with in the form of video replies. Seeing as how I already dedicated a combined total of 55 minutes to this topic with my 2 videos, I will be addressing additional arguments here. I also want to avoid any further “enough already” comments from those already in firm agreement with me. On January 3rd I posted a 23 minute video explaining why the correlation =/= causation complaints do nothing in the way of discrediting the initial video wherein I utilized relevant data to highlight the many instances in which implementation of supply side / trickle down policies failed to deliver the outcome successfully sold to a good number of lower/middle class Americans. Jacob replied to my January 3rd video with the following:

He began by pointing out that I started my video upset over the counterarguments dismissing empirical data as a sufficient tool used to falsify theories and said “that’s just plain wrong”, despite the fact that this is exactly what some of the commenters were saying to me. He believes that this only applies to instances where the data at hand is half-assed. Problem being is that the excuse-makers whose comments I was addressing weren’t capable of admitting even that much. This renders his assertion to be a false assumption of exactly what it is that I began my video arguing against. I received stubborn comments refusing to accept that data can and does play a vital role in falsification, stressing unspecified intertwining contaminants as the deal-breaker when it comes to any data based measurement of efficiency. Jacob on the other hand (at least in this video) seems somewhat willing to accept that data can play a role, but finds the particular data I used to be unsatisfactory. He’d be correct to assert “wrong” had I been addressing him at the time, and not the arguments of actual trickle down ideologues in the comments. He didn’t post any comments on the first video I did, so I don’t know why he felt that I was targeting his argument here. As for the variables, I will reiterate that there is nothing unfair about analyzing the effects of top bracket tax cuts by focusing on the correlation-coefficient pinning GDP, Job Creation, Hourly Wage Growth up against (you guessed it) top bracket tax cuts. If these tax cuts have a history of failure when it comes to competition with externalities, one would assume that even the loudest proponents of trickle down economics would at some point wise up and recognize that dreadful externalities aren't just going to magically vanish upon implementation this time around. But instead, for some strange reason, there’s always the belief that in this particular instance, it’s going to be different. Why? What reason is there to assume that all the necessary outside forces are going to sway from their standard operating procedure and just play along, just this once? If I assured everyone that I was perfectly capable of walking a tightrope and urged them to bet money on my success, without bothering to mention to them that the slightest effect of wind is more than enough to tip me over and cause my fall, all the while remaining silent as I stand by and observe the tightrope being set up in front of a wide range outdoor area with a hurricane fast approaching, who should be held responsible here? The poor saps who naively bought into my shifty promise, or me? It would be me. I’d be the one who deliberately danced around the vital information. I'd be the one selling snake oil. Just like with the tightrope analogy, advocates of trickle down policies continue to conveniently ignore any potential contaminate factor prior to the implementation of the tax cuts they argue for, while pointing fingers at nothing but the external factors after the results fail to deliver as advertised. Show me one trickle down advocate who, while proselytizing, points out how a particular externality may prevent the desired outcome, and thus calls for the mandatory elimination of that externality, stressing that the top bracket cuts he’s arguing for will have the inverse effect unless variables x, y and z play along. Point me to an example of somebody who does this prior to the tax cuts taking effect. I’m all ears. In light of the absence of any such examples, it’s perfectly reasonable to apply the above specified correlation-coefficient variants without placing a magnifying glass on every other possible mover and shaker. Constantly measuring every last move of every last trickle is a courtesy never extended to other data-based examinations of policies. Despite this, we still accept that other examinations do a fine job of measuring what’s effective and what isn’t. Why draw the line at trickle down? I asked this question in my video and received no replies yet. Also, to what lengths are we obligated to go to in order to meet the arbitrary “all necessary variables” line? At what point do the variables cease being necessary and start being otiose? Prevalent advocates of top-down neoliberal economics who wish to wash their hands clean of its history of failure must have the foresight to warn their constituents (or their assorted keyboard warriors) of the importance of particular variables when it counts instead of just pointing fingers to them once the policy is already in effect (and is causing the inverse effect, no doubt to their satisfaction). So for the last time, the onus does not fall on the skeptic to invoke any given externality outside the top bracket policy range, since the skeptic is attempting to analyze the impact (or lack thereof) stemming from nothing but these very tax cuts.

He says that the best way of discrediting a proposition of this nature is by way of deductive reasoning, and that pointing to track records of failure takes a back seat. In addition to the statistics, I did point out the simple fact that the richest Americans don’t need the extra breathing room in the way of tax cuts in order to be left with more than enough capital for the purposes of job creation. The individuals in the top tax demographic who will continue to benefit from the ongoing 36% rate, are by and large well above your average Ma n' Pa income range. Believe it or not, there's a distinct disproportion of big business and small business in that top 2% range, and I'll let the reader figure out which side is vastly outnumbered. If you're going to gripe about the ill effects of Corporatism you ought keep in mind that the top 2% of income earners are not the ones in desperate need of costly tax relief for this n' that. They are for the most part the very recipients of the Corporate Welfare you purport to despise. Consult my plutocracy graph to see just how far away the top 2% have gotten from their former upper-middle class range neighbors. The lack of these 3% cuts didn't result in any uprising from the rich during the mid to late nineties. The reason being is that these are excessive luxury oriented tax cuts, not keep the economy afloat oriented tax cuts.

I brought up a few analogies to this argument, one of them being God, in order to demonstrate why the burden of proof does not fall on trickle down skeptics. According to him, it makes sense to lack a belief in God only because the existence of God is logically unfeasible. The fact that we've never actually seen the slightest bit of evidence for God's existence is a non-factor, apparently. In the context of my entire point revolving around onus, of course it's highly relevant to point to the total lack of a single concrete example of God's existence. The claim that tax cuts for the preposterously wealthy are needed so that they can trickle down to the remainder of the population, is in the range of being almost as logically absurd as the idea that the universe must have had a creator. At least with the universe we are to this day still left pondering how the first ever effect took place without its preceding cause. With the utter lack of evidence pertaining to the long promoted trickle down fairy dust, we need not worry about such gaps in knowledge. Also, my rock-lifting-to-find-God verbiage was just a joke meant to mock the extent to which theists will go to in order to try pulling a switcheroo (or if they're agnostics, a 50/50 not-quite-complete-switcheroo) when it comes to the all important onus factor.

I brought up the lack of sting at the hands of loopholes in other nations in order to remind people that it's entirely possible for progressive taxation to work without excessive side-effects stemming from any loophole related root, especially when we’re talking about a measly 3% hike. I know that pointing to other nations while analyzing data from the States can seem like comparing apples and oranges, but I never meant to compare the data in the charts with the fact that loopholes in Europe don't allow for nearly as much Corporate thievery. I'm merely proposing that something can get done in the States so to emulate the European system which successfully restricts loophole driven malpractice. Even when countering in the loophole effect enabling the richest Americans to avoid paying the rate listed on paper, lowering taxes on top of this will not make the loophole effect go away and will only result in the rich paying even less. If the loopholes had the capacity to render a 3% hike to be free of any effect, or even worse, to have the opposite effect by allowing the rich to pay even less, as suggested by some of my detractors, then the Republican Party wouldn't have lost their collective feces over the proposal of the 3% hike in the first place. Everyone knows that Republicans’ reactions to the 3% tax hike proposal only mirrored the reactions of the richest Americans whose interests the Republicans are looking out for, first and foremost. In light of these reactions, it becomes patently clear that raising taxes on the rich doesn't actually backslide them into paying less in taxes, with or without the loopholes. It just means that they don’t necessarily end up paying the exact percentage they're listed as paying on paper. There are exceptions to this, as noted in my graph, but it obviously takes place all too seldom. Had it been frequent, the Republicans would have sat back and welcomed the tax hikes.

He manages to turn even this argument into one about practical incentive. Once again, this is about a 3% hike proposal on the top two percent of income earners. We're talking about people with enough money to last them and their extended families a dozen lifetimes, and that's not even countering in the perks of investment through guaranteed savings accounts which they will undoubtedly still have at their disposal. I refuted this incentive stuff many times in the past and will unfortunately have to continue doing so in the future, because it's clearly falling on deaf ears. He illustrates his deductive reasoning argument against my argument that raising taxes on the top 2% won't stagnate anything, by drawing an analogy to hourly wage earners, suggesting that if people were to be paid less and less per hour as their shifts drone on daily, they’d be more inclined to accept a job without a built in contract providing less pay as the shift progresses. Where do I start with this? Firstly, it’s not a proper analogy, in more ways than one. A proper framework by which to measure whether or not progressive taxation is counterproductive towards worker productivity, is one that focuses on how often people turn down promotions because of the progressive tax factor. It has nothing do to with some imagined nonsense about a decrease in hourly wages as the shift goes on. We have real life examples where people overwhelmingly accept promotions for positions that they're fully aware will result in them paying higher taxes at the end of each day. Despite knowing that they’d be taxed more once accepting the promotion, most are nonchalant about the tax aspect, and are ecstatic to accept promotions to positions which will still result in higher pay for them. This has always been the case, even when tax rates were much higher in accordance to income. People in general are not as stingy about higher taxes when they still obtain a larger paycheck despite the higher tax. But regardless, let’s look at his example of reduction in the form of hourly wage as each working day carries out, which is apparently an apt comparison to draw to the top 2% bracket's burden when it comes to a 3% hike. Anyway, workers would still know what they rake in at the end of each day, so if they’re satisfied with the overall end-of-day amount, to the point where they accepted and maintained the position at hand, why would they risk losing that entire job by performing poorly just because the hourly wage shrinks as hours go by? It’s the same job, and it still pays them the same amount at the end of the day, and more importantly at the end of the two week pay period. If they’re still satisfied with the total amount they earned when it’s all said and done, the fixed hourly reductions will not prompt anything, much less increased slacking off time. And of course if an hourly wage worker is offered two jobs with one job paying more than the other, the worker will take the higher paying job. This would be a fitting point to make only when the progressive tax at hand is of such nature that it results in the promoted worker now grossing a higher income, finding out that he/she is left with a lower net income than he/she would have earned had the promotion been turned down. Luckily, that's not the kind of progressive taxation anyone is advocating here. On so many levels, his analogy does a complete disservice to the current circumstance and debate in the States. It's not an argument for why we cannot raise taxes on the super rich, it's an argument for why middle class earners are especially prone to earning as much as possible, because they truly need every penny of it. Billionaires like Warren Buffet and Bill Gates on the other hand, are in such a comfort zone to the point where they're perfectly capable of being more philosophical when it comes to how much they're taxed. Gates, Buffet and many others have gone on record and urged having the current administration tax them higher, and not just by a mickey mouse 3% hike either. There are many others, like Joy Behar, who aren't even near Buffet's and Gates' playing field, but are in a healthy upper-middle class range, who have also gone on record stating that they'd welcome a 3% hike on them as well, instead of just calling for one on the top bracket exclusively. Hell, I'm not in the upper middle class by any means income-wise, but I'd have no issues with paying 3% higher for the time being, or even more. I know it's hard for some people to believe, but there are plenty of wealthy people who are perfectly capable of looking at the bigger picture and ridding themselves of the clutches of purely nepotistic agendas and narrow self-involved outlooks on life. That's not to say that there are absolutely no people who turn down promotions despite the fact that accepting those promotions would result in more net income for them. For some people, the simple fact that a promotion leads to a higher tax bracket, is enough of a deal-breaker in the incentive department. Luckily, these people are very few and far between. It's like saying people on welfare have no incentive to get off of welfare, because welfare provides them with more than enough money to eek out an existence, when in fact it provides them with less and keeps them on their toes just fine with a tiny minority of recipients being the exception, due to their incredibly low living standards. Point being, don't begrudge the entire neighborhood because of a few crazies living in the nut house down the street. Anyway, to answer his "Please explain to me how it's wrong to say that the less you make due to taxes, the less incentive you'll have to produce in the first place" question, I'll simply reiterate that progressive taxation does not lead to a lower net income, and if it did, the incentive argument would be a valid one to make, just like it is currently when it comes to wage earners and excessive overtime. But that's a another topic for another time.

He said that rich people putting their money into savings accounts allows that money to trickle down to the lower/middle class. One shining example of how this works that he didn't bring up is the mortgage bubble crises, where lower/middle class earners get duped into borrowing this very money because of the fine job predatory lenders did of luring them in through the artificially low interest rates. We saw how that turned out. It's not all sunshine and roses. Now, part of the blame should be placed on the idiots who were irresponsible enough to fall for the scam. You don't just buy a home without knowing what the hell you're signing up for by failing to read every single last dot of ink on those snake oil contracts. Their lack of cautionary insight however, does not excuse the malicious intent and practice perpetrated by the filthy rich who simply wanted to get filthily richer. There are also applicants who lied about their income in order to get approved for a loan, so I do feel the need to make it clear that I oppose any tax payer money being spent to help dig those people out of the hole they dug for themselves. This still doesn't alleviate the banks of any guilt, since the applicants only lied about the level of their income, and not their profession. I doubt a mortgage broker or bank ever believed that working 40 hour weeks at footlocker results in earning anything even remotely approaching a hundred thousand dollars per year, let alone well over. The overseers knew these people lied, they just didn't care. Pay stubs and tax returns? Who needs to see those when talking loans and investment?

He says if the rich burn their money it will create deflation and result in lower prices of all consumable goods in the economy. I don't see why he thinks that that's a point I'd argue against, or if it results in any of my earlier points being discredited. They can burn their money if they see fit to do so, I won't protest. He then brings up the fact that a rich person has to hire and pay construction workers if he/she desires a mansion. Indeed that's true. You can't build a mansion without construction workers. Now, please explain where I advocated taxing people who are on the brink of having a mansion built for themselves but will no longer be able to do so because a tax hike will financially devastate them? If they want a mansion, they're going to get their mansion. You know why? Because they're not just barely squeezing by thanks to the generous 36% rate. Besides, he brought up mansions in order to illustrate that no matter what the wealthy person does, the money he/she spends will make its way into the pockets of the peons. The problem lies in the fact that this is no different than pointing out how any money spent by any member of any class will ultimately find its way into the pockets of someone else. Everytime a poor person buys a can of coke, they are putting money into the pockets of the CEO of Coca-Cola. Yes, money is going to circulate due to purchasing. Nobody has a problem understanding that. What is problematic, is suggesting that the richest people in the world won't be able to afford having mansions built for themselves because of tax hikes. History proves that one wrong. Also, investments that result in a decrease of unemployment can be undertaken without one rich person financing them. There are many examples throughout history where people of modest means banded together and pitched in to invest for large projects where the final product would be collectively owned by everyone in accordance to how much they pitched in respectively. There's no writing on any stone proclaiming that projects have to be funded by one rich person. Unfortunately, the psychology of the average person of modest means is so owned by economic conventionalism, to the point where the prospect of anyone other than a wealthy man undertaking these large scary tasks, doesn't even enter into the equation. Us middle class folk ain't smart enough for them complicated investment things. We need the rich man, whose one brain is superior to the combined efforts of a dozen brains. Individualism at its finest.

He responded to my argument towards his assertion regarding the Fed being the cause for the necessity of regulation, by saying that he didn’t say the Fed was the cause for the necessity of regulation, he just said that it was a cause. At 05:33 of his first video reply to my graph video, he said "We would not need to regulate the amount that a bank is able to overleaverage itself with if we did not have the moral hazard of, let's say, Fractional reserve banking, which allows a bank to overleaverage itself...". This is the only thing he provided for me to argue with, so that's why I brought up nothing but that. He then said that the wealth transfer started to blossom after the Formation of the Fed, around the 1920s. As mentioned in my last video, the wealth transfer was in effect as early as the late 1800s, well before the Fed was formed. All one needs to do is read up on the Panic of 1907, also known as the 1907 Bankers' Panic in order to learn all about how a lack of regulation played a pivotal role in causing financial crisis well before The Fed came along. The panic began with a stock manipulation scheme to corner the market, exacerbated by bucket shops and side bets, all wholly unregulated. If anyone is interested in more pre-Fed examples where regulation would have been welcomed, feel free to PM me and I'll provide you with the info. As for when the transfer got out of hand and why, you can consult the Deregulation Causes Surge In Financial Services Wages chart at the 16:53 mark in the graph video. It provides additional insight and showcases how regulation concretely stabilized things.

He then cites the guise of regulations in the interest of consumer safety as another cause of wealth disparity since it stifles competition. I've danced this dance before, but it's clearly another one which isn't going away anytime soon. If you can't keep up with reasonable regulations, it's a good sign that you have no business competing in the first place. What specific regulations are too confining and overprotective of the consumer? It's a genuine question as I'm not familiar with every last regulation in effect in the States, both currently and throughout history. If there are genuine examples, I'll advocate loosening things up when it comes to those examples. Unfortunately, this to me smells like another "abolish the minimum wage so that more people can work" line of thought, which I've refuted more times than I can count. Also, CEOs have preposterously high salaries primarily because they have immunity, not because of a lack of competition. I almost wish that we could just get rid of regulations so that we can see Ma n' Pa fail to compete with Corporations, without the finger being pointed at regulations. But it wouldn't matter, because they'd just point the finger at something else. Then if we were to get rid of something else, they'd latch on to something-something else to point to, and so on. There's no real way to get the last word in arguments with them, because they'll always come back with some single-villain fallacious excuse. I really wish that States didn't claim ownership of a bunch of land in the middle of nowhere, so that they can have their deregulation experiments without regulation advocates being harmed in the process.

Alright, that took me a while to finish. Busy month.



  1. I'm sorry that it took you quite a while to write this. But I honestly feel this is one of your weaker responses to my points. I don't want you to feel like I'm trolling you. So let's just simplify this into one single issue, which was the main point of your original video. . .
    Is it or is it not true that the rich ACTUALLY DID pay those high taxes in the past? If they did not, then any observation we can make of these fake high taxes that were never paid are NOT giving a true reflection of what would happen if they actually did pay those high taxes, I hope you would agree . . . ?

  2. @Jacob

    I never thought you were trolling.

    The main point of the original video was that raising taxes on the rich isn't going to hurt the lower and middle class, especially not in the context of the current debate in the States. I mentioned in both the video and in this blog that there are loopholes which result in a differentiation when it comes to the effective rate paid. I didn't explicitly stress this throughout the entire video because I couldn't fathom that anyone would actually point to that as the dealbreaker. The main thing to keep in mind is that the actual effective amount paid still rises as the stated rates rise. If there are exceptions, they're extremely rare based on everything I've examined so far:

    Nobody believes that the rich paid 91% of everything they earned during that time, but this doesn't undo the fact that loopholing your way out of a 91% rate still leaves more to tax when it's all said and done than loopholing your way out of the lower rates.

    I replied to your comment on the previous blog as well.

  3. I explained the main loophole that happens. They keep their money tied to corporate assets during times of high taxes (so that they don't pay them) and then cash out at times of low taxes.
    If you agree that this is true, then you HAVE to admit that the statistics you gave were bogus in so far as trying to make the point that high taxes don't reduce gdp or wages . . . Because in the statistics you gave, and you seem to admit this, those high taxes were never actually paid. Thus making your statistics completely null and void in attempting to back your argument, since they DID NOT show what happens when the rich ACTUALLY DO pay those high taxes.
    It would be the same as me offering you statistics showing how lower wages do not increase income and concluding that therefore higher wages do not increase income either. I did not offer statistics that show the cause and effect of higher wages, and thus trying to derive a conclusion from the irrelevant statistics I offered is logically invalid.

  4. Loopholing high taxes on the rich can depress wages only when (as is the case) the deficit is made up on the backs of working taxpayers who do not have the benefit of loopholes (EIC being a major exception which the Bush-era cutters are trying to close.) The deficit is also made up by higher sales taxes. In fact, those trying to abolish the IRS are offering sales taxes as their solution, which will jack the price of goods so high that it would seriously disrupt the consumer economy in total.