James Pethokoukis

Politics and policy from inside Washington

Where Barry Ritholtz questions my tax analysis

June 3, 2010

Superblogger Barry Ritholtz of The Big Picture takes issue with my claim that America’s wealthy have a high tax burden since they pay such a huge share of U.S. taxes. A bit from his email to me (in his own inimitable style):

All you have proven is that the Rich pay most of the taxes. Duh. But you have failed to demonstrate the rich have a “high tax burden” — indeed, you actually say ABSOLUTELY NOTHING ABOUT THEIR TAX BURDEN. Paying a lot of taxes — even most of the taxes — is not the same as a high tax burden.
You have mentioned that 2010 taxes are higher than 2004 taxes. You stated 1% pay alot of taxes. Again, probably true, but fails to demonstrate your claim.

When you discuss “A high tax burden” you are making a qualitative statement. The tax burden is onerous, difficult, challenging. Its painful, disruptive, counter-productive.

OK, I am intrigued by your claim. So prove it to me.
I think you have raised a very fascinating and fundamental issue — but have not created a convincing case for it.
(It’s easy to sway innumerate nitwits, but I assure that is not what my driver’s license states). My question ultimate boils down to this: Is the tax burden on the rich that high?

Me: The post referenced earlier states a few things: 1) there is research that shows combined taxes on the rich are at the point when higher rates will bring in lower tax revenues; 2) to balance the budget, tax rates on the rich would have to skyrocket; and 3) the top 1 percent of tax returns pay 40 percent of all income taxes (as of 2007.)

Certainly I think if you put all that together it makes the case that forcing the rich pay higher taxes is a self defeating way to restore fiscal solvency. Indeed, there is also research that shows cutting spending is a better way to balance the  budget than raising taxes. (It is less harmful to economic growth.) Moreover, the track record of countries cutting debt though austerity is not good.

Comments

The key word is “burden” — I am not disputing that the wealthy pay a lot of taxes; I am arguing you have not proven this is burdensome.

Posted by Ritholtz | Report as abusive
 

Ritzholtz has also argued that the CRA did not contribute to the subprime fiasco because it was too small and no one can provide him the numbers to “prove it”. However, without the CRA forcing the move into subprime mortgages and Fannie and Freddie creating an enormous number of MBS, then there would have been no sub prime market in the first place.

It is the same thing here. James has pointed out “there is research that shows combined taxes on the rich are at the point when higher rates will bring in lower tax revenues”. Well, if increased taxes causes a decline in total tax revenue, then clearly the taxpayer feels “burdened” and chooses alternatives that result in less taxes. QED

Posted by RickCaird | Report as abusive
 

The more I read from Ritholz, the more I think he’s a loud mouth nitwit.

Posted by creon | Report as abusive
 

The picking of “the rich” might help for about one day, or two. Why not first nationalize the billions in US foundations and charitable trusts. It’ll be their donation for having got rich off the backs of taxpayers but giving little back, and in fact many may actively work against the interests of the United States and at least two were founded with money from organized crime.

Let them go first. Maybe “the rich” will follow, but maybe they won’t have to!

Posted by dizzyfingers | Report as abusive
 

I like Barry Ritholtz, even though I do disagree with his political point of view.

The total tax burden for everyone has increased when you add in all of the taxes we pay. So many focus on just the income tax. The rich are easily way above 50% in some states.

After January, the top rate goes to 39.3%. Then if you’re a Rich self-employed person, you’re paying both sides of Social Security and Medicare. If you live in CA, you’re paying at least 9.3% or higher.

When the government takes away over 50% of people’s money, maybe some folks may decide it’s better to do something else with their time rather than work.

I don’t think we should be providing a disincentive for the high-achievers to work. Especially with high unemployment already, and a looming health care bill about to be thrust on them shortly.

Posted by muckdog | Report as abusive
 

Leaving aside the contempt one registers at the tired old anthem of the Rich being allegedly pitiable, consider this: in any society where only the top 1% may be regarded as “rich” something is so completely wrong, the whole thing needs to be reorganized.

Posted by HBC | Report as abusive
 

I’m going to veer off-topic, just a bit, but follow me here. Two children are born, 30 years ago, both from modest middle-income families. One is a successful entrepreneur, and an overachiever, the other person, complete opposite, still living in his mom’s basement, and working at a car wash, with zero plan to change.

These two people were born in the same hospital 30 years ago, with the same opportunities, today, they even live in the same neighborhood, they both have a nice school district, library, police & fire as well as city-sewer & water, and weekly trash pick-up.

Why is the successful one, that provides good paying jobs for 30+ people at his law firm, (that all also pay taxes of all kinds) the one that is punished? He pays more in income taxes, (city, state, federal), SS, more in taxes on his car, etc.? Sure he makes more, but since when is making money a crime!? They both get the same level of government services.

Having said this, I think government should be vastly smaller, as well as the tax structure, say, similar to SS, you pay up to a point then it stops, like $50,000 cap, everybody would be striving for that number, and everyone would be encouraged to work more and/or continue to work and produce, because they’d be able to keep the money they’d earn.

There is nothing wrong with working at a car wash, I “flipped burgers” for 6 years while in school (H.S & College), but that was the starting line, not the finish. Nobody can live on those wages, and your not suppose to, only as long as you live in your mom’s basement.

Posted by Ed753 | Report as abusive
 

HBC…

I’m not sure how you inferred only 1% of Americans are rich, that’s just the group being used to make the point of income percentage vs. tax percentage. The poorest 10% of Americans are actually quite wealthy compared to much of the population of the world. That is the fruit of a free market capitalism – it’s the only system in the history of the world ever to lift masses of people out of poverty and destitution.

Barry…

Why even argue burden? It’s semantics. Either you believe it is morally right for the government to use the threat of force to take private property from some citizens in order to give it to other citizens or you believe it is morally wrong. It’s certainly not in keeping with the values of the founders of this country and it will certainly do serious harm to the system of incentives that made this country wealthy and powerful in the first place.

You obviously think the benefit to our society of more equal wealth distribution outweighs the reduction of freedom and liberty that comes along with very high taxes. Your approach is unconstitutional and will destroy the system of incentives that drives innovation and wealth creation. Don’t hide behind the word burden, I don’t think you care if it’s a burden on these folks or not, you simply think it’s unfair they finished with more than others.

Posted by MatthewDS | Report as abusive
 

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