Asymmetrical Information

Man, I was beginning to wonder where Krugman Watch had goner off too. Glad to see it back.

No idea on reliability, but CTJ has a study here showing the rich paying at 8%, the middle class at 10%, and the poor at 12.5% for state and local taxes.

Amusingly, Washington, the land of liberals, leads the list in regressivity.

I have no empirical data to back up Krugman, but anecdotally, our dear old home town (NYC) and the State in which it rests are BOTH banking on the tobacco tax (the State by trying to borrow against future "tobacco settlement" tax revenues); I don't have the data, but I'm quite certain that smokers are disproportionately at the bottom end of the economic ladder. This would support Krugman's thesis. (The City is ALSO planning on raising the real property tax, which goes the other way, but is not all that much in terms of dollars collected.)

A lot of states have eliminated the most progressive tax of all-- estate taxes (in conjunction with, or ahead, of, the federal government's phase out of these; some states, like Florida, rely VERY heavily on this particular source of revenue, and sharing portions of the federal revenue stream). More support to Krugman.

As a number of states (not that many) have no income taxes, they will HAVE to raise money from the "usual sources", which is usually the sales tax, which is generally regarded as regressive. Of course, this is noted in the post.

But I do agree that other than these factors (which I honestly DO think will represent most of the tax actually collected!), there is nothing intrinsic requiring states to otherwise increase regressive taxation. They will also have to reduce spending, and states tend to spend heavily on education, prisons, medicare/medicaid, and some social welfare programs; the effect of spending cuts would, hence, likely to be regressive.

Politically, its unfortunately often easier to increase taxes on those least able to afford them, which is what I suspect will happen, and what I suspect Krugman was hiting at. It would be better of Krugman to document this, but to me, anyway, his argument seems (anecdotally) to have some merit.

It would be nice if, on closer inspection, Paul Krugman could be shown to have merely "simplified" so many of the questionable things he puts in his column - instead of just getting them hopelessly wrong.

In this column, for example, he makes the preposterous claim that nobody (apparently, except him) seems to thought about what happens to the oil market if Venezuela and Korea erupt at the same time - a topic which has been the subject of rather extensive, public international discussion. In fact, Saudi Arabia gave express public assurances on the point only days before the Krugman column appeared.

Nor do his observations about retail sales make a lot of sense - since they ignore recent developments in end-of-year retail performance.

And on and on and on.

Given the demands of his job, I really think you're expecting too much out of the guy, Megan. Back up his Cassandra-like assertions with reeal-life evidence? Please...then how could Paul manage to fulfill his editorial obligations to pander to the guilt of latte-drinking Upper East Side liberals?

Well, I got this far:

> Since Washington shows no interest in helping,

but then I was laughing so hard I couldn't finish. How simple does Krugman think we are, really? The Federal government is so darned _efficient_ at collecting taxes that it's far, far better to let them do it and then parcel out the results to the incompetent states, is that it? Sheesh!

Why does EVERY tax have to be "progressive" (talk about a loaded word)? If progressive taxation is the goal, isn't the goal measured by examining the entire overall tax burden on the individual taxpayer?

Every citizen should pay some tax. The federal income tax has become far more progressive over the last 20 years. It actually serves as a source of income for many. These people would pay no taxes at all if every tax was as progressive as the federal income tax.

For thousands of years we have all paid taxes. The "poor" in the US today have a higher standard of living than 99% of the people who have ever walked the earth. For any citizen to be a fully functioning participant in civic life and a responsible voter, he needs to pay something in taxes. Otherwise he is merely scamming the system.

There is no such thing as a free lunch. When government tries to pretend otherwise, it ultimately leads to disaster.

"talking dog," I'm not sure why you think it's always politically easier to raise taxes on the poor. After all, there are more poor than rich, although most people think of themselves as middle class anyway. Voting plays a big role; certainly it seems easier to argue to "soak the rich" than the poorer. The problem is that only so much can be raised from the rich; you really have to tap the middle class to take in a lot of funds in most states. In any case, there are interest groups and voting blocs for all groups, including the poor and rich.

You are certainly correct that it seems to be politically easiest to raise sin taxes or have a lottery, which do seem to disproportionately affect the poor.

Then again, in the states I'm familiar with (like NC) it's the Democrats who want to raise taxes on tobacco and have lottery, and the Republicans who oppose it. It was the Democrats who opposed lowering the state tax on food, and who put it in the first place.

Is a sales tax really so "regressive"? Rich people tend to spend a lot more on cars, yachts, jewelry, fine wines and travel, all of which are heavily taxed, than the poor. And most sales tax regimes have exceptions for food and some clothing. In Florida, firewood is free of sales tax (!) Perhaps gasoline is the only commodity necessary to American everyday life that the poor have to buy as much as the rich do. I've heard, though, that your average Rolls Royce gets very poor gas mileage. And a 1988 diesel Ford Tempo can get 50 mpg. Cigarettes and beer and fast food are taxed, but if you're poor, aren't you supposed to be watching your pennies and giving up luxuries? Oh, that's right, you don't think you should have to. Hmm. Maybe that's why you're poor!

Perhaps if the government had someplace to invest surpluses they would not go through the cycle of having money and having to spend it, then having to raise taxes to keep spending at the same level when income drops? Or more likely not, it would be painful to "sit on" a surplus with people screaming for expenditures.

Robert Speirs, yes sales tax is very regressive. Jay Leno has a dozen or more cars and a number of motorcycles and I'll lay odds that altogether they cost him less percentage-wise than my one - and he can only drive one at a time. As far as I know, Bill Gates has four cars. And everything except food (sometimes books - how did they slip through) is taxed, even food if served at a restaurant (Massachusetts calls it "old-age tax", but it is a sales tax).

On the other hand, Jay and Bill get hit with the "progressive" income tax as well. This has inequities of its own: I can remember my father getting an eight-dollar-a-week raise (circa 1955) and ending up with ten dollars less in take-home.

The "rich" are not just Leno and Gates. What is the percentage of sales tax paid by all upper-income earners, for most of whom a Lexus or a boat is a substantial slice of their income or resources? Also, the exempt items, food and clothes and firewood (!) make up a tiny percentage of spending for the rich, so they get less "tax benefit" than the poor. And, as an earlier post pointed out, why should the percentage be the determining factor as to whether a tax is regressive or not? I would bet the "rich" pay more total money and more money per person than the "poor", if you draw the rich/poor line at a reasonable level. So how is the sales tax regressive? Let's see, didn't Clinton - or was it Carter? - impose a "luxury tax" on just those goods the rich were likely to buy? And then it had to be repealed when the feckless politicians realized that rich people don't work making boats and luxury cars, and that the tax was putting employers into bankruptcy, therefore putting "poor" people out of work and reducing tax revenues from the sales tax on luxury items. A lot of this is guesswork, I admit, but it seems likely that sales tax revenues, like all tax revenues, come largely from the prosperous. The drop in sales tax revenue increases may also be related to the lack of inflation in the last few years. When prices don't go up, neither do sales tax revenues. But the hunger of government bureaucrats for funding increases never dies.

I suggest we abandon the use of the word "progressive" for income taxes. It has too many positive overtones for a policy that discriminates against the successful, hurting everyone. How about "confiscatory"?

In response to John Thacker, there are two answers why it is (usually) easier to raise a tax on the poor than on the rich.

The easy answer is that the rich (which can include business interests) are in a position to hire lobbyists to oppose taxes they don't like; poorer people may be in a position to vote, but they tend not to-- and its very rare an election comes down to "raise the poor's taxes vs. raise the rich's taxes". Also-- taxes on the "rich" tend to be quite direct-- income taxes, or property taxes.

The other answer is that the state comes up with creative ways to tax the poor, such as disproportionate taxes on liquor, cigarettes, gasoline, or STATE LOTTERIES, none of which raise all that much noise (except for gasoline) because, well, its VICE, right? Legal vice for which the poor pay disproportionately, of course.

Here are two points about sales taxes that deserves some thought. First, they are taxes on what people take out of the economy, unlike income taxes or payroll taxes, which are taxes on what people put into the economy. (There are some exceptions on each side I haven't thought of.)

Second, they are generally regressive because poor people save less than the rich, on the average. A poor person who saves at a high rate, like many immigrants from South Korea, for example, will pay less, proportionately, than a wealthy wastrel who is going through the family fortune. Individual choices make them regressive, not something inherent in the laws.

There are some regressive tax schemes that I object to, like the lotteries and the ultra-high taxes on tobacco, but I see less objection to a general sales tax, especially if it excepts food.

Jim, I believe it is the sales tax that forces the poor and middle class to wait longer to save to buy those high ticket items then what they would otherwise. In New York State, we pay a 8.5 percent taxe on goods, and for say, a 25 thousand dollar car, Your going to pay a additional 2,125. Now, thats if you pay everything up front. If not, and your paying through a loan, it'll be even more because of the interest. I wouldn't mind it being reduced to 1-2 percent, to allow people to need less time to save to buy, and buy more frequently.

And frankly, I can't care less about the state lotteries and whether its regressive or progressive. Nobody forces you to buy those tickets.

P.S. Has anyone did a check on how much the "rich" SPEND on "lobbyists" to oppose those socialistic legislation, and compare it with how the said legislation would have cost them on the average?

did = done

> Robert Speirs, yes sales tax is very regressive. Jay Leno has a dozen or more cars and a number of motorcycles and I'll lay odds that altogether they cost him less percentage-wise than my one

So? The fact that he pays less of his income via sales tax on cars comes from the fact that he spends less of his income on cars than you do.

I'll bet that he's buying things that you're not, and paying sales tax on those.

Unless he's spending more of his income on things not taxed, he's paying the same sales tax rate that you are. (I'd be very surprised if he spends an interesting fraction of his income on not-taxed food, so he's probably paying a higher effective rate on food than most of the rest of us.) You can't know whether or not that's happening by looking at his cars.

Sales taxes are definitely more regressive on the lowest tier, since those people pretty much spend all their income; they save nothing. Whether it's more regressive for the middle class than the rich is open to argument.

"I would bet the "rich" pay more total money and more money per person than the "poor", if you draw the rich/poor line at a reasonable level."

Of course they pay out more, and why not? If I had more, I'd bloody well spend it. If I had more than I could spend, I'd invest. Either way, the money gets spread around.

"I'll bet that he's buying things that you're not, and paying sales tax on those."

Absolutely. And so what? Look, I do not want to tax Mr. Leno, or even Mr. Gates, down to my level. And I do have problems with the "progressive" income tax as well as with the "regressive" sales tax. But with the sales tax, if they and I were to buy the same things, and under the flat-rate sales tax, which of us is going to feel more of a hurt?
When Mr. Gates trades in a car for a new one, he pays the same sales taax, registration fee, excise tax and so forth as I do. But money is not taken out of his pocket at the same rate, even though we pay the same tax rate because it is a "flat rate" tax rather than a "progressive rate" tax. Mr. Gates pays perhaps two hours workig time for a car, I pay well over two THOUSAND hours of working time.

On the other hand, if Mr. Gates filed only a 1040 tax, no loopholes and with profits counted same as wages, his annual break-even would probably be late October vs my early May.

Before someone else points it out, I talked about the whole cost of a car in my previous post. So, cut it down to the taxes: I pay perhaps a hundred hours working-time to pay the tax, Mr. Gates one or two minutes.

That he buys several cars and ends up paying more total tax is hardly the point. And while I envy that, I also admire it and do not want to limit his choices any more than my own.

Jane, deleting responses is not nice.

I asked you to back up what you say about krugman and you delete it becasue you can't?

Talking Dog, all the lobbyists alive and revived couldn't force Washington to edge down the 39% bracket to a reasonable level. Even the Bush administration is tiptoeing around dismantling our tax code's repugnant progressivity.

I don't see why those who meet success and continue to invest in America (and others' success) ought to be punished for it and taxed more than little fellas like me. Krugman, Broder - insert your favorite leftie columnist here - is anyone as tired of shameless class warfare as I am?

GT, I posted my policy on comments. If you call me names, I delete the post. Re-write it without the ad hominems and the post will be left up.

Incidentally, I have no idea what you were talking about -- is there an email I missed? I was off in the boonies for a week and a half without internet access, so it's possible I missed it in the flood. Or have you been posting comments in my archives? If it's off the main page, I don't read it.

But if any comment contains accusations that I'm a liar, a cheat, or a fraud, or associated sarcastic barbs, I'm going to delete it. Whether they're directed at me or any other poster. You're free to ridicule people's ideas, but I'm not permitting even nascent flame wars any more. Which is why I stopped responding to you when you continued to imply that I was a beknighted fool who was unable to understand my economics professors when they expressed their unfavorable opinion of Card and Krueger's work, once you found out that my credentials were insufficiently poor to be ridiculed directly. Now, if you can make your argument without resorting to personal comments, I'm sure we'd all like to hear it.

Cripes, can you even dig up a economist that'll tell you the sales tax is anything but regressive? Why on earth is this argument even occurring?

I don't know how bad it is elsewhere, but here in California we are facing a major catastrophe. It appears our state budget has a modest $32 billion deficit. It is easy to see how this happened. For the last 4 years Governor Gray Davis and the Democratic controlled Legislature have spent every dime the state has brought in for the purpose of buying votes. Every special interst group has gotten its bribe.
Now the bill comes due and just like every time before, the politicians demand we pay for their spending spree. Raise taxes, cut services, and blame the economy.
I have seen this before. Schools will not be built or repaired. Roads will not be maintained. Parks and libraries will be allowed to fall into disrepair. Police and Fire services willbe starved. Not a penny of pork will be touched. All taxes, progressive and regressive alike will rise.

Not a penny of pork will be touched.

Ok: suggest an alternate, balanced budget for California with pork removed. Good luck.

Not a penny of pork will be touched.

Ok: suggest an alternate, balanced budget for California with pork removed. Good luck; pork is amazingly difficult to find when you actually go looking for it in the budget.

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