I was talking to a friend today who would describe himself as a “California liberal”, “snob”, and “much smarter and better-informed than the average American.” He lives in a $2 million house in Berkeley and is most passionate about the idea that state and federal tax rates should be roughly doubled so that we can carry out important social programs and pay higher salaries and pensions to government employees, who are doing a great job. He is angry about the persistence California’s Proposition 13, which he believes has kept the state from realizing its potential greatness through increased taxation and has enabled posthumous Republicans to ruin California despite the fact that Democrats in California now hold a “super majority” and can pass any legislation that they wish (In 2010 California collected only 11.2 percent of its residents’ GDP (source)). He had followed the Boston Marathon bombings obsessively, but exclusively in media outlets, such as the New York Times, with a liberal perspective. Here are some of the topics that we discussed:
- Teacher salaries. As we walked by the Cambridge Public High School he estimated that a teacher there would earn $30,000 per year. General media/Google info: the school web site shows that in 2010, a 33-year-old teacher with an online doctorate could earn as much as $86,000 for working nine months/year, plus health care and defined benefit pension; neighboring Boston pays about $93,500 for nine months of work by a 31-year-old with an online PhD (chart). (He could have learned about teacher salaries from this 2009 New York Times article.)
- U.S. corporations pay close to zero percent of their income in tax, which is one reason no American company would ever seek to move to another country for financial reasons. General media/Google info: This Tax Foundation meta survey reports that the effective tax rate is close to 30 percent. A representative study is this one from Price Waterhouse Coopers, which found that the U.S. ranked 6th out of 59 countries in corporate taxes actually collected.
- Tsarnaev brothers versus the police. My liberal friend thought the Tsarnaev brothers had been heavily armed with an arsenal of guns and rifles and the heroic police and FBI shooting at them were generally outgunned. General media/Google info: the Guardian says that the “brothers had a single gun between them, a Ruger 9mm semi-automatic handgun”; the final “shoot-out” at the boat was in fact more like target practice since the remaining Tsarnaev was entirely unarmed (New York Magazine)),
- The police had never had any occasion to investigate the Tsarnaev brothers, who had been model citizens/residents ever since being invited to live in the U.S. by our wise Department of Homeland Security (immigration division). General media/Google info: Tamerlan Tsarnaev was arrested for violence against a girlfriend in 2009 (CNN); Tamerlan Tsarnaev was a close associate of three men who had their throats slit in Waltham, Massachusetts on the 10th anniversary of the 9/11 attacks (ABC; my friend had never seen any mention of these murders, now widely linked to the Tsarnaev family).
Given the facts of which my friend was aware, I don’t think it is surprising that he comes to the conclusions that he does. We need to borrow trillions of dollars immediately and give it to our underfunded schools and government agencies. We should collect additional trillions in tax from U.S.-based corporations, who are currently paying nothing. We should yield more of our civil liberties to the police and FBI, who are infinitely wise. We need to restrict gun ownership so that future angry young men cannot build up a massive arsenal of assault rifles like the Tsarnaev brothers had and use that arsenal to mount a serious challenge to our combined local, state, and federal law enforcement forces. It is no wonder that he states flatly that Republicans and anyone who would vote for them are stupid because indeed one would have to be stupid not to see things his way if one were informed by the above facts.
I’m wondering if a lot of the supposed polarization of American political debate is simply due to the fact that we have more media outlets than formerly. Instead of everyone in one city reading the same newspaper and watching the evening news on one of three networks, a liberal can follow a huge story like the Boston Marathon bombings and learn completely different facts than a person who uses Google News.
Both sides easily do this. It’s pretty obvious to see that what the stereotyped Republican says and does are two completely different realities. You go to any very obviously-biased Republican blog/news site/FreeRepublic (eww), and they’ll spew forth the craziest nonsense you’ll ever read. You may agree with the general concept, but you have to wonder who they’ll convince to their side (they just seem so damn mean) or why they think a Republican *politician* will really do anything smart either. Every comment is just an echo chamber for their own fantasies.
It’s probably why I spend most of my time on very few political websites, like your blog, or listening to podcasters like Dan Carlin, where you’re just as likely to see a post making fun of King Bush II during his years as you would one of Obama currently. This backfires for you guys since you end up pissing nearly everyone off and they go back to their echo chambers.
It probably doesn’t help that even the better news sources are mostly opinion writers who link to their editorial stories of choice whereas you’re more likely to find wire-service news, local paper stories, or primary sources if you use Google News. And god forbid anyone actually read any of the longer-form news magazines.
It would be better if we all had the same news feed.
But who will be the editor?
While the 30+% corporate tax rate is true, companies do play various games to keep from paying it. Apple, for example, keeps roughly 2/3 of its $145B cash hoard outside the US, and actually resorted to borrowing money to buy back its shares, rather than bring the money back to the US to do so.
Did you take the opportunity to avail him of the the facts? Did they go in one ear and out the other, or did they make a difference? (Folks with such strong views either way tend to be immune from the corrosive effects that fact can have on long-cherished beliefs.)
J. Peterson: Your comment is a perfect example of how people with different political views inhabit different worlds! A conservative would read the PWC study that I linked to and learn that it covers the taxes actually paid (and accounted for in their books). But you read the study and learn something different, i.e., that it is about nominal tax rates and that in fact corporations aren’t paying. A conservative would read the meta-analysis from the Tax Foundation and infer that, because all of these studies find a slightly different “effective tax rate”, it must concern taxes paid, not tax rates (which are easily found, e.g., in http://assets.opencrs.com/rpts/R41743_20110331.pdf (Congressional Research Service Study), which says that taking federal and state taxes together, the U.S. nominal rate is about 39 percent (depending on the state)). So it will be tough for a liberal and conservative to agree on corporate tax rates. The liberal thinks the nominal rate is 27% and that clever accountants generally bring it down to 0%. The conservative thinks the nominal rate is 35% federal and about 5% state, but that clever accountants can bring it down to 23-27% for the average big company.
Jeffrey: I did test to see how solid were his beliefs. I quickly Googled the Waltham murders and my liberal friend dismissed any likelihood of a link between Tamerlan Tsarnaev and the three guys whose throats had been slit. After all, Mr. Tsarnaev was not convicted of the crime so it is therefore not reasonable to be suspicious of his involvement. Had he been guilty of the crime, my friend thought that surely the police would have discovered that fact. In any case, the self-described “California liberal” was skeptical of any news that did not appear in the New York Times. He was particularly concerned that a Google search might reveal content on “breitbart.com”, all of which he believed to be false.
Regarding teacher salaries, he has simply ignored New York Times articles (his favorite news source) that conflict with his belief that teachers are paid very little. For example, http://www.nytimes.com/2010/05/20/nyregion/20teachers.html says that the applicant-to-job ratio for a couple of school systems reached 3620:8 and 3010:7 (http://www.manhattan-institute.org/html/cr_50.htm says that teachers are in fact paid more per hour than “the average professional specialty and technical worker” so young people who major in education are not behaving irrationally). Turnover is apparently quite low in the school systems, as well, since the states are on the hook for massive pension obligations. A conservative might look at a job where there are thousands of people trying to get in and hardly anyone getting out and infer “that must be a pretty good job”, but my friend doesn’t make this inference. In any case, part of his belief that higher tax rates will result in linearly higher revenues and enhance a country’s economic performance comes from his belief that people will work just as hard even if 80 percent of their income is taken from them via taxes. “None of the people that I know work for the money,” he said (most of the folks he knows are neighbors in Berkeley, college professors living in $2 million houses). We had just visited a day care center. I asked him if he thought that, absent the potential for a paycheck, the workers there would be inside with the kids instead of outside walking or biking in the sunshine. He said that they were not typical workers.
This might underscore the advantages of political decisions being made at a level where personal knowledge is possible. In a New England town, for example, people who vote on the school budget have a personal acquaintance with town employees. They know what kinds of cars the teachers drive and can comprehend the budget so they wouldn’t refer to a choice of thousands of news sources or think tank papers to help in making a policy decision. As the U.S. becomes more centrally planned and more populous, necessarily voters are ever more distant from any personal connection with the programs being funded by their taxes. When welfare was managed on a per-town basis, for example, citizens knew everyone in the “poor house” that they were funding. But what percentage of federal welfare recipients can a voter today possibly know? So to learn about the lifestyle of the average welfare recipient one is forced to turn to media rather than personal experience.
“They know what kinds of cars the teachers drive and can comprehend the budget”
I can personally confirm this. Every morning I drive past the small fire station at the corner of my street and I see a Lexus (base model price: $70k) parked in the driveway of the fire station. I work in IT, have a very decent income, and I drive a $25k Nissan. Unfortunately there’s not much that can be done in my small and fairly modest New England town, given the voting record of the locals.
Phil,
I think that trying to reason with hardcore liberals is a waste of time. They appear to be driven by feelings, not logic. If it feeeels good, it must be right. The only way leftists will shift their opinions/feelings is via sustained counter-emotional events that neutralize their feelings and open their heads to logic. If the collapse of the Soviet Union, the centrally planned leftist paradise, could not persuade them, nothing short of the collapse of the West will shake their jellied foundations. And, even then, they’ll probably blame it all on Booosh, and the Patriarchy.
And, I don’t see the Republican party as a conservative party. They’re just unprincipled, bigco welfare statists.
Figuring out an “effective” corporate tax rate is an extremly ill-defined problem. What counts as “profit”? It’s not a straightforward problem, not at all.
I’d highly recommend we axe the corporate tax rate (or maybe set it to something very small, like 2%) and then make up for it by taxing all capital gains and dividends at wage income. When rates are ~30%, it makes sense to lobby Congress to get them to create a tax credit for the specific things you are doing if it saves you $3 billion, leaving your competitors paying the high tax rate. When the rate is 2%, it becomes much less of a bother.
(If you are anti-tax, one of the worst possible things for your case is people exempting themselves from the tax rate, since they are no longer on your side. Yet the anti-tax people I know seem to cheer the powerful people who individually manage to exempt themselves while leaving everyone else alone.)
@J. Peterson.
Apple can’t afford to bring it’s billions of overseas holdings into the United States, as much as they might like to invest more in this country.
The Financial Times on May 7 explains why:
“When an American company generates income outside the US, it first pays taxes in the country where the income is generated and then pays the “differential” tax when that income is returned. Consider an example. A company that generates $1bn in income in Taiwan, where the corporate tax rate is 17 per cent, will pay taxes of $170m to the island. It will then have to pay an additional $180m in federal taxes when the income returns to the US, where the corporate tax rate is 35 per cent.
Unsurprisingly, companies often choose not to bring the cash home, instead operating in financial limbo: the money is neither taxed nor used for dividends or investments.”
This is the Lafer curve in action, and is why rational countries don’t double tax their corporations who return money to the homeland.
Dan: Your idea of cutting corporate taxes to 2% is in sync with most economists, many of whom assert that corporate tax should be eliminated in favor of simply taxing investors (at a fairly low rate, in order to encourage investment) on returns. On the other hand, whenever 100 percent of the world’s economists agree on something it generally seems to be rejected by political systems. Nearly every country has a corporate income tax, even those countries run by the smartest people (e.g., Singapore). Can it really be true that politicians all over the world are collectively too dumb to realize that they can have a faster-growing larger economy, and therefore a larger tax base, simply by eliminating corporate taxes as economists suggest?
philg: Regarding the corporate income tax, I’d rather see corporations taxed more and real human beings taxed not at all. Corporations are creatures of the state and so it makes sense that their income should be subject to state confiscation. However, human beings should be free and confiscation of their income smacks of slavery.
I quote from http://www.goldismoney2.com/showthread.php?14659-At-what-stage-did-you-stop-being-a-slave:
In Anarchy, State, and Utopia (1974), Harvard philosopher Robert Nozick recounts what he calls the Tale of the Slave, and invites the reader to consider himself as the slave in the story. The story moves through nine stages.
First: You are a slave at the mercy of a brutal master, who forces you to work for his purposes and beats you arbitrarily.
Second: The master decides to beat you only for breaking the rules, and even grants you some free time.
Third: You are part of a group of slaves subject to this master. He decides, on grounds acceptable to everyone, how goods should be allocated among you all.
Fourth: The master requires his slaves to work only three days per week, granting them the other four days off. They can do as they wish during their free time.
Fifth: The master now allows the slaves to work wherever they wish. His main caveat is that they must send him three-sevenths of their wages, corresponding to the three days’ worth of work they once had to do on his land every week. In an emergency he can force them to do his bidding once again, and he retains the power to alter the fraction of their wages to which he lays claim.
Sixth: The master grants all 10,000 of his slaves, except you, the right to vote. They can decide among themselves how much of their (and your) earnings to take and what outlets to fund with the money. They can decide what you are and are not allowed to do. We can suppose for the sake of argument that the master irrevocably grants this right to the 10,000 slaves. You now have 10,000 masters, or a single 10,000-headed master.
Seventh: You are granted the freedom to try and persuade the 10,000 to exercise their vast powers in a particular way. You still do not have the right to vote, but you can try to influence those who do.
Eighth: The 10,000 grant you the right to vote, but only to break a tie. You write down your vote, and if a tie should occur, they open it and record it. No tie has ever occurred.
Ninth: You are granted the right to vote. But functionally, it simply means, as in the eighth stage, that in case of a tie, which has never occurred, your vote carries the issue.
Nozick’s question is this: at what stage between 1 and 9 did this become something other than the tale of a slave?
Daniel: The ancient Egyptians defined “slavery” as being subject to a 20 percent tax. So the Harvard guy you quote is about 4000 years too late to be called “original”!
rand paul has proposed a flat 18% tax with no deductions or credits because that’s what americans (as a group) actually pay on their taxable income. liberals hate this, but low flat taxes mean less cheating, and would raise rates on people like romney gates, zuckerberg etc.
i say raise the rate to 21%-25% and give every adult, resident, citizen $5k per year ($15k if a long-term married couple with minor kids). dump all other welfare programs. medicare doesn’t work: http://www.thedailybeast.com/articles/2013/05/07/no-really-health-insurance-may-not-make-us-healthier.html
Aki: A flat tax rate doesn’t address a lot of other big issues in taxation. Certainly it doesn’t address the problem that Dan Weber identifies, above, which is that people can’t agree on what a corporation’s “profit” should be. U.S. federal and state governments would love “profit” to be defined as worldwide income for a U.S.-based company, as long as the company could somehow be prevented from expatriating itself. But if a company has a headquarters in the U.S. but most of its operations are in fast-growth economies elsewhere on the planet does it actually make sense to tax those profits that have nothing to do with the U.S.? Back on the individual level, most of Warren Buffett’s or Zuckerberg’s annual “income” is in unrealized capital gains. It is possible for a government to tax those gains via an annual wealth tax (i.e., property tax for stocks and bonds, in addition to houses). If the government taxes dividend payments at a flat, but non-negligible rate (the 25% rate you suggest at the federal level would be supplemented by California, for example, with an additional 10% at least in state income tax), companies and investors can cooperate to work around the tax by having companies buy back shares rather than pay dividends. All of these issues plus the fact that economists think taxes on investment returns stifle an economy have led a lot of countries worldwide to rely most heavily on the value-added consumption tax. But of course they also keep all of the other forms of taxation too!
At the end of the day the workers in a society have to pay for all of the costs of running the government. If the percentage of workers is low and the percentage of GDP spent by the government is high, taxes are going to be high (except maybe for some temporary period where borrowing can make up the gap). Really the best that a government can do is to chop up the bill into several hundred pieces so that people don’t notice as much (sales tax on every purchase, gasoline tax when you fill up your car, property tax twice/year or built into your monthly rent, alcohol tax on Friday night, restaurant meal tax on Saturday night, hotel room tax during your trip to Disney, airline ticket tax, etc.).
[A restated version of the above would be that in a country such as Singapore, where the government can offer standard services, such as police and fire protection, at a low cost, taxes can be low. In a country such as France, where the government spends more than 50 percent of GDP to accomplish the basics plus a few extras, taxes must be high.]
Just FYI, it’s viewers of Fox News who have been the most consistently misinformed group of citizens, see e.g. http://www.thenation.com/blog/167999/its-official-watching-fox-makes-you-stupider , or from http://mediamatters.org/blog/2010/12/20/university-of-maryland-official-fox-news-respon/174561 :
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Those who watched Fox News almost daily were significantly more likely than those who never watched it to believe that:
* Most economists estimate the stimulus caused job losses.
* Most economists have estimated the health care law will worsen the deficit.
* The economy is getting worse.
* Most scientists do not agree that climate change is occurring.
* The stimulus legislation did not include any tax cuts.
* Their own income taxes have gone up.
* The auto bailout only occurred under Obama.
* When TARP came up for a vote most Republicans opposed it.
* And that it is not clear that Obama was born in the United States.
These effects increased incrementally with increasing levels of exposure and all were statistically significant. The effect was also not simply a function of partisan bias, as people who voted Democratic and watched Fox News were also more likely to have such misinformation than those who did not watch it — though by a lesser margin than those who voted Republican.
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AA: Thanks for that link. I looked at a source, http://publicmind.fdu.edu/2012/confirmed/ , and it is interesting that the “smartest” group of Americans that the authors could find got just 1.5 out of 5 questions correct, on average. (Separately, I do think that the study is more or less worthless since it does not try to adjust for the intelligence, education level, or income level of the groups, nor for the number of hours of TV watched per day. On the third hand, most of the time that I’ve seen Fox News running is in pilot lounges, e.g., at Flight Safety where they train jet pilots. And as my Hawker pilot and PhD physicist friend says “Pilots are notoriously stupid.”)
* Most economists estimate the stimulus caused job losses.
What economists “estimate” does not count as much as does reality. The “stimulus” did cause job losses by crowding out businesses. It either starved producers of loans or of funds, then gave those funds to bureaucrats to spend as only bureaucrats know how. John Robb wrote about our centrally planned economy here:
http://globalguerrillas.typepad.com/globalguerrillas/2011/07/journal-central-planning-and-the-fall-of-the-us-empire.html
* Most economists have estimated the health care law will worsen the deficit.
Economics is not a science and native intelligence, logic, and reality count for more than what economists “estimated.” Basic logic suggests that if you make something more difficult or more expensive, people will do less of it. Make hiring or holding on to employees more expensive and businesses will do less of it. Private sector employment is tightly correlated to taxable economic activity. Generally, less tax, more deficit. Additionally, govt meddling always makes products and services more expensive. Obamacare and the entirety of the Sickcare industry exist because of such meddling. Charles Hugh Smith has written extensively about this.
* The economy is getting worse.
Yes, it is. Take your eyes of the PPT-enhanced financial markets and look at the percentage of employed Americans. Add a side of Zero Hedge and Shadow Stats, and the fog will clear.
* Their own income taxes have gone up.
Mine have. Income taxes have not gone up for unemployed Americans so, if you add it all up and apply a sophisticated ensmallenment function, taxes have gone down.
* The auto bailout only occurred under Obama.
In Africa, we would call this a bright red herring but what do we know? The direct bailout crushed bondholders but not unions… once bitten. It also propped up poorly run businesses that should have failed and created govt supported competition for Tesla and other potential upstart competitors. The indirect bailout (Cash for Clunkers) destroyed valuable assets (cars) and small businesses (used car dealers and auto repairers), and placed Americans further in debt for depreciating assets bought at full sticker price.
Why? Because politicians are wiser and cuter and more correcter than the free market.
I do not have time address the rest.