An article in today’s Washington Times highlighted the fiscal recklessness of the taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. plans of Senators Obama and McCain. It also featured a quote on Obama’s tax plan from Tax Foundation president Scott Hodge and a counter quote from Tax Policy Center Director Len Burman:
Mr. Hodge, citing Congressional Budget Office data, said that the top 1 percent of households paid nearly 40 percent of federal income taxes in 2005. The top 20 percent paid 86.3 percent.
“It is startling to learn how greatly the Obama plan would shift the tax burden further up the income pole,” Mr. Hodge said. “It’s the most ambitious redistribution of wealth in recent memory.”
“Income redistribution through the tax code entails less economic cost than other means of redistributing income, including limiting trade and increasing regulation,” Mr. Burman said. “Almost all the gains of the last 20 years have gone to the top 1 percent, putting enormous pressure on the political establishment to do something about it,” he said.
Burman makes a good point as it relates to the political economy. Taxes are only one way in which redistribution can be accomplished; it is possible that if not done through the tax code, redistribution could be done in a worse way through off-budget means (say regulatory policies like the minimum wage or restrictive trade/immigration policies). But Burman’s quote also hinges on the political economy assumption that people perceive that a greater redistribution is necessary. That may be the case. However, Burman’s other quote (assuming he was quoted properly) can be easily misinterpreted as being the ultimate economic end and adds to the perception that greater redistribution would make society better off. Again, the latter may be true, but…
When it comes to the economic gains over the past 20 years, more than just the top 1 percent have gained (and gained significantly). All economists would agree that the eventual purpose of virtually all income earned is personal consumption and the benefits that flow from those products. Saying that the bottom 99 percent have not had significant gains in terms of the quantity and quality of consumer products (i.e. real income gains) over the past 20 years is just wrong. Even if the nominal income distribution as measured via shares of nominal income has become more tilted to the rich, that still does not mean the non-rich have not had real income gains over the past 20 years when adjusted for the quality of products. If you asked every American, would you rather live today or in 1988, I’d be willing to bet than 90 percent would say 2008.
In 2008, the typical middle-income household can access something called the world wide web on a computer that is not MS-DOS with just 640kb of RAM. In 1988, yuppies were the only ones to have cell phones (if they were lucky). Today, even most poor families have cell phones that can take pictures and send videos to someone across the globe in about 10 seconds. In 1988, there were no iPODs (CD players were new), DVD players, or plasma televisions. And in 2008, there was no Tax Policy Center because the advanced microsimulation models that are TPC’s hallmark would not be possible with the technology of 20 years ago. Here’s more from MSN comparing the technology in 1988 to 2008.
Even beyond digital technology, take a look at 1988 automobiles versus those today or the quality of housing today versus 20 years ago (even for those who are not in the top 1 percent of the income spectrum).
This myth that everyone except for a select handful of rich individuals are worse off today than they were 20 or 30 years ago is total nonsense. If you’re still not convinced, I would recommend going to to eBay to purchase a 1988 Sears Catalog to compare the products (and their prices) to today. By the way, eBay wasn’t here in 1988 either, and Super Mario Brothers I was only two years old. (You can forget Guitar Hero.)
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