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Taxes: who gets and who pays (response to donnernv)



June 08, 2009 – Comments (10)

So first things first. I am not going to refute the numbers in that post by donnernv, or bother to check them. The numbers look believable, and it's quite enough for me. 

What I don't agree with is his reading of those numbers.

Let me put forth some objections.

1. Donnernv assumes that the "intangibles" provided by the government are distributed equally among the population. I don't think that's the right way to think about it. In my opinion, the one who has more more assets at stake, receives more benefits from such services as "law and order" and "legal system" than the one with no assets. Let's take some example. Suppose that shareholder rights are not protected by the government, and one fine morning Warren Buffett reviews the shareholder roster and doesn't find his name there. I will barely notice any difference, on the other hand, Mr. Buffett will lose some $40 bln. Would it then be approprtiate to say that Buffett "gets" more benefits from government spending on police, SEC, etc., than the average Joe Schmuck, and wouldn't it be natural to request that Buffett should also contribute more? Protection of property rights is very important. If we assign to it a monetary value equal to the actual government spending, then the distribution of benefits will approximately mirror the distribution of assets, with the top 1% getting about half of the total.

2. One can make a case that much of the military spending should also be put in that category. Really, I don't see how these imperial ambitions make me richer. You cannot deny that the only beneficiaries of the Irak adventure were Cheney, Halliberton, defence contractors, and, with any luck, the shareholders of defence companies, and everyone else was left holding the bag. Irak is just one obvious case in point, but quite generally, most of that spending is done in the interests of a very narrow group, maybe the top 0.1%. I also feel that the entire budget of the Department of the State should be paid by BAC, GS, JPM, and other banksters as I can't see anybody else benefitting from it (well, maybe some of their employees and shareholders - but they are surely in the upper 50%).

3. Much of infrastructure spending also benefits the top 50%. For example, in America, government pays for the airports, and most of us benefit from it to some degree, but which income group do you think travels more frequently? Or when it spends for those "green" programs, who benefits more - the one who rides the subway or the one who drives a Hummer?

4. Much of what donnernv believes to be "social spending for the poor" are really corporate welfare programs in disguise. How about grants for college students to help them pay ridiculously overpriced tuition that would be 50% cheaper if these grants were not provided? Or welfare programs to help recipients pay the amount of rent that landlords are only able to charge because government is pouring money into the system? Or healthcare spending that only helps inflate prices along with profits of HMOs? Our corporate welfare types are very adept at moving money from their left pocket to their right pocket, and representing it as some charity activity, which it is not.  

5. Donnernv does not mention the inflation tax, which is paid by the lower classes (assets tend to go up with inflation, shielding the top 50%). 

6. The government's efforts to support asset prices clearly benefit the top 50% more than the bottom 50%. Government-supported asset bubbles date all the way back to the 1980s and are by no means a recent phenomenon. As for the recent bailouts, I don't even need to mention them - I am already tired of counting the number of trillions given out to banksters.

So remember that while donnernv's numbers are important, you should also pause to think what these numbers mean.  

10 Comments – Post Your Own

#1) On June 08, 2009 at 12:40 AM, portefeuille (98.75) wrote:

I am not going to refute the numbers in that post by donnernv, or bother to check them.

the link

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#2) On June 08, 2009 at 1:43 AM, alstry (< 20) wrote:

Good Work

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#3) On June 08, 2009 at 1:47 AM, awallejr (40.29) wrote:

There is much truth in point 1 above.

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#4) On June 08, 2009 at 2:24 AM, Donnernv (< 20) wrote:


You gnarly dude.  I cannot respond in exquisite detail to each of your objections, so I'll simplify.  I apologize if I've lost the nuances of your objections.

To simplify: "People who have more to protect should be "charged" more for the costs of protecting them".  For example, the military, police, firemen, SEC, et al.

OK.  To first order, I agree.  But I frankly was thinking of the primary function of the police, military, keep your butt from being shot to hell by drug-crazed doofuses, or to keep your butt from being occupied by nuts from China or Russia, or to keep your house from burning down from a lightning strike.

If you wish to assign a higher benefit to those who have more to lose...feel free.  It's all opinion.  But I don't think it changes the fundamental conclusions of the analysis.  Do you?

I think you are arguing details from a panoply of value assignments.  But I shan't disagree.  I don't wish to get into a value judgment argument.

I don't think you've discredited the fundamentals of the analysis.

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#5) On June 08, 2009 at 3:01 AM, awallejr (40.29) wrote:

I think it does Don.  You are trying to put hard dollar figures on tax and cost of services.  There really are intangibles to be considered as well, which Zloj was pointing out.  All those royalty figures that got their heads chopped off during the French Revolution might concur in "hindsight."

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#6) On June 08, 2009 at 3:04 AM, starbucks4ever (92.94) wrote:


I am afraid you're exaggerating the importance of these primary functions. I am not afraid that some commies from Russia and China will swim across the ocean to take my bank account. This is nothing more than a story for Hollywood. If your account reaches $1 billion or more, that's when you get paranoid and start worrying about Red Dawns and Red Octobers, so let those who are paranoid finance military adventures and spread democracy on Mars if they are so inclined. And your lightning stike example actually brings up an excellent point. If my house is a decrepit 100-year-old cabin, I don't lose much when it burns to cinders. McMansion dwellers, however, is a different story. So the same firefighter is protecting me from a very small loss, and my rich neighbor from a large loss, and yet you want both of us to pay the same amount to the fire department.  

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#7) On June 08, 2009 at 4:38 AM, alexxlea (64.36) wrote:

The thing I tell people that complain about taxes here is this. Live in a favela or a poor urban neighborhood in America for a year or three then and report back to me to complain about being rich in a stable part of America.

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#8) On June 08, 2009 at 10:27 AM, AbstractMotion (< 20) wrote:

I disagree with a lot of what you're asserting here zlog, if you reduce everything to a dollar denominated amount then the rich will always benefit more from privacy property protection, but that's about the only area.  


1.  If we took your example of robbery and changed it murder who's family would benefit more from social services?  The rich mans who is likely insured and will inherit his vast property, or the poor man's who requires a salary to get by month to month?


2.   Military spending is a drag on the economy for just about everyone who isn't employed or invested in the miltary industrial complex, this is nothing new.  It benefits the machinst and engineers at boeing as much as it does the stock holder.


3.  I doubt you'll find many wealthy people routinely using the subway, bus or amtrak either.


4.  You can't just shove money into a system without increasing the supply of a good and expect prices not to inflate.  Why would the rich want to pay for this anyways, even if they're heavily invested in the area the gains they make from it would likely be taxed several times over anyways and they'd be better off keeping their money.  The government does a poor job of spending money on things most of the time, oddly enough this is why a lot of people feel that the solution isn't just to give them more money.

5.  Wages are payed more regularly then dividends, one could argue anyone who relies heavily on a large amount of dollar denominated savings suffers more here.  The guy living paycheck to paycheck probably cares a lot less about inflation then the one holding onto millions worth of treasuries.


6.  I doubt the bulk of the rich will benefit as much from propping up housing prices as a lot of them do not use it as their primary investment.  Bank stocks are mixed at this point and personally I still think there's some pain ahead for them.  I don't know what other assets you'd see as being supported at this point.


The absolute fact of the matter of the is that the rich see less money dollar for dollar then they pay into the system.  I don't think this is really a bad thing, but people tend to deny that fact.  This ultimately isn't a war on money though, it's a war on acquiring wealth.  With discount brokerages and the internet there's really not much to stop someone from investing in assets these days, the main limits tend to be the lack of time or knowledge.   I doubt most are going to want to after this mess anyways though.  A lot needs to be done to restructure assistance programs so they don't drive prices up, I'd definitely agree with you there.  But the idea that rich always benefit more from anything is half baked at best.



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#9) On June 08, 2009 at 10:46 AM, outoffocus (23.70) wrote:

Zloj: Great Analysis

alexxlea Great Point!


3.  I doubt you'll find many wealthy people routinely using the subway, bus or amtrak either.

You apparently have never been to New York or DC

  I doubt the bulk of the rich will benefit as much from propping up housing prices as a lot of them do not use it as their primary investment.  Bank stocks are mixed at this point and personally I still think there's some pain ahead for them.  I don't know what other assets you'd see as being supported at this point.

Rich people benefitted in numerous ways from the housing bubble.

1.  The value of their properties went up.

2. Rich people were in a much better position get rich from the housing bubble by "flipping" houses.  Alot of millionaires were created during that bubble. So can you imagine how many got richer during the bubble?

3.  Lets not forget the stock market bubble that accompanied the housing bubble. Rich people are more likely to benefit because they are more likely to have their money is stocks. 

So Zloj's assessement that the top 50% benefit most from inflation rings true.

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#10) On June 08, 2009 at 12:41 PM, AbstractMotion (< 20) wrote:

Outoffocus, I live right outside of D.C as a matter of fact.  Just about anyone who can afford to commutes from the suburbs, the super rich from places like McClean and Great Falls.  Sure a few people do, I imagine more so inside the district itself.  The point here is they don't make as heavy use of these services as people will lower income tend to.

Regarding the second point, I'm refering to the government intervention in light of the housing/market collapse.  Still I don't think it's accurate to say the wealthy got a lot more out of it then anyone else.  Assets rose, but they were probably less likely to borrow against ever rising housing values and so forth.  Likewise they probably didn't need much help getting credit or ridiculous loan packages that enabled some people to live far outside of their means.  The whole flipping statement is totally hypothetical and easy credit made it almost as easy for someone without a lot of capital to attempt it with.  A lot of people who chose to invest in a 401k saw great gains as well as recent losses too, but I concede that the wealthy are more likely to be invested in stocks.


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