Wednesday, March 11, 2009

economic cause-and-effect in Obama's worldview

From a 12-page section in the 140-page Obama budget, "Inheriting a legacy of misplaced priorities" (hat tip: Blue Oregon)...

For the better part of three decades, a disproportionate share of the Nation’s wealth has been accumulated by the very wealthy. Technological advances and growing global competition, while transforming whole industries—and birthing new ones—has accentuated the trend toward rising inequality....

This is an interesting choice of time frame, poetically stated-- but inaccurate, and perhaps intentionally so. We can be more precise: this trend started in the early-mid-1970s-- as a function of the economic trends to which the report points. Beyond that, there are vast social changes-- the large-scale self-destruction of families-- which are important to the statistics. (Consider what happens when you divide a middle-class home by divorce into two, poorer households.)

The accompanying graph in the report is quite specific and intentionally misleading. It pinpoints 1980 as the start of this trend-- because their desire is to lay blame on President Reagan, and in particular, his tax policies in concert with an overwhelmingly Democratic House and a Republican Senate. (The causation does not hold-- and not even the correlation works, so they selectively play with the data.)

Yet, instead of using the tax code to lessen these increasing wage disparities, changes in the tax code over the past eight years exacerbated them. According to the Internal Revenue Service, the Nation’s top 400 taxpayers made more than $263 million on average in 2006, but paid income taxes at the lowest rate in the 15 years in which these data have been reported. In constant dollars, the average income of the top 400 taxpayers nearly quadrupled since 1992.

Two interesting and important statistics. Along with that, one should note that the wealthy are paying a far higher proportion of income taxes than in the past.

It’s no surprise, then, that wealth began to be ever more concentrated at the top. By 2004, the wealthiest 10 percent of households held 70 percent of total wealth, and the combined net worth of the top 1 percent of families was larger than that of the bottom 90 percent. In fact, the top 1 percent took home more than 22 percent of total national income, up from 10 percent in 1980 (see Figure 9, Top One Percent of Earners). And these disparities are felt far beyond one’s bank statement as several studies have found a direct correlation between health outcomes and personal income.

Key word: "then" (in bold above). Obama seeks to connect the tax policy with the concentration of wealth. Shouldn't it follow that lower and middle-income taxpayers should be far better off since they're paying a lower proportion of taxes?

There is nothing wrong with people succeeding and making money. But there is something wrong when the opportunity for all Americans to get ahead, to enter the middle class, and to create a better life for their children becomes more and more elusive. That is what has been happening: The ladder into the middle class and beyond has become harder and harder to climb....

Key word: "But". When someone says "but", it undermines the first part of the sentence/claim-- often, completely so. For example, "I don't want to be a jerk, but..." can often be translated "I'm about to be a jerk..."

And again, there is an effort to connect the plight of the middle class (such as it is) to tax policies that reduced their taxes-- and ignores far more important policies such as education.


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