Wednesday, September 24, 2008

CUTTING TAXES, FALLING POVERTY

Art Laffer and Stephen Moore offer a brilliant evidence on how lower tax rates expanded income increases (here):

"The new Census Bureau data on income and poverty reveal that many of the economic trends in this country are a lot more favorable than America's detractors seems to think. In 2007, overall real median family income increased to $50,233, up $600 from 2006. The real median income for intact families -- mother and father in the home -- rose to $78,000, an all-time high. Although incomes fell sharply in the U.S. after the dot-com bubble burst in 2000 (and still haven't fully recovered), these latest statistics reflect a 25-year trend of upward economic mobility. More important, Barack Obama is wrong when he states on his campaign Web site that the economic policies started by Ronald Reagan have rewarded "wealth not work." Based on this false claim -- that the rich have benefited by economic growth while others have not -- he intends to raise tax rates on high-income individuals. To be sure, there has been a massive amount of wealth created in America over the last 25 years. But tax rates were cut dramatically across the income spectrum, for rich and poor alike. The results?
When all sources of income are included -- wages, salaries, realized capital gains, dividends, business income and government benefits -- and taxes paid are deducted, households in the lowest income quintile saw a roughly 25% increase in their living standards from 1983 to 2005. (See chart nearby; the data is from the Congressional Budget Office's "Comprehensive Household Income.") This fact alone refutes the notion that the poor are getting poorer. They are not...Looking at the last two business cycles (first year of recovery to first year of recovery), this low-income group experienced a 10% rise in their inflation-adjusted after-tax incomes from 1983 to 1992 and then another 11% rise from 1992 to 2002). Roughly speaking, the Reagan and Clinton presidencies were equally good for them. Income gains over the last 30 years have been systematically understated due to several factors. These include:
- Fall in people per household. The gains in household income undercount the actual gains per person, because the average number of people living in low-income households has been shrinking. On a per capita basis, the real income gain for low-income households was 44% from 1983 to 2005, about 22% from 1983 to 1992 and about 18% from 1992 to 2002. These are excellent numbers by any measure. Earned income tax credit effect. The Earned Income Tax Credit (EITC) is a government payment to low income people who work. It was instituted on a small scale in 1975. In 1986, 1990, 1993 and 2001, Congress expanded the program ...Over time the EITC has multiplied the number of poor households that fill out tax forms each year and are thus counted in government income statistics. That's because to be eligible to receive the refundable EITC, a tax return must be filed ...Official tax return data show that in 1983, 19% of returns had zero tax liability; that percentage has climbed steadily, reaching 33% in 2005. (The Tax Policy Center estimates that in 2008 nearly 40% of filers will have no income tax liability.) Thus, we are now statistically counting more poorer families today than we used to. This is a major reason that median and poor household income gains appear to be a lot smaller than they have been in reality. Income mobility. In the U.S., people who had low incomes in 1983 didn't necessarily have incomes as low a decade later. People in this country have long moved up over time, and this income mobility continues to be true. While some people do remain in the lowest income group, they are the exception ...One way to quantify income mobility is to examine how many people remain in the same tax bracket over time. We compared the returns of tax filers in the lowest tax rate bracket (zero) in 1987 with their returns in 1996. Only one third of the tax filers were still in the zero tax bracket, but 25% were now in the 10% bracket, 32% had moved up to the 15% bracket and 9% were in the 25%, 28%, 33% or 35% brackets. And that was following them for a decade, not a generation ... From 1996 to 2005, we have the income mobility data for income quintiles. Of those filers who were in the lowest 20% in 1996 and who also filed in 2005, 42.4% remained in the bottom 20%, 28.6% were in the next highest quintile, 13.9% were in the middle quintile, 9.9% were in the second highest quintile, and 5.3% were in the highest quintile ...What is also striking about the data is that the poor today are, in general, not the same people who were poor even a few years ago. For example, the new Census data find that only 3% of Americans are "chronically" poor, which the Census Bureau defines as being in poverty for three years or more. Many of the people in the bottom quintile of income earners in any one year are new entrants to the labor force or those who are leaving the labor force. Obviously, there is also a significant core of truly poor people in this group, but that core is drastically less than 100%.
The data also show downward mobility among the highest income earners. The top 1% in 1996 saw an average decline in their real, after-tax incomes by 52% in the next 10 years.
America is still an opportunity society where talent and hard work can (almost always) overcome one's position at birth or at any point in time. Perhaps the best piece of news in this regard is the reduction in gaps between earnings of men and women, and between blacks and whites over the last 25 years ...Census Bureau data of real income gains from 1980 to 2005 show the rise in incomes based on gender and race. White males have had the smallest gains in income (up 9%), while black females have had by far the largest increase in income (up 79%). White females were up 74% and black males were up 34%. Income gaps within groups are rising, but the gaps among groups are declining. People are being rewarded in today's economy based on what they know and what they can do, not on the basis of who their parents are or the color of their skin ...There are of course Americans who live in poverty, as there are very affluent Americans with $25 million yachts and $10 million homes who hold ostentatious $200,000 birthday parties. But the evidence is plain that all groups across the income distribution have made solid gains during the last generation ... Taking from the rich through much higher tax rates in order to help the poor and middle class makes no sense intellectually and has seldom worked in practice. Reducing rates, on the other hand, does increase the share of taxes paid by the highest income-earning group. For example, in 1981, when the highest tax rate on the rich was 70% and the top capital gains tax rate was close to 45%, the richest 1% of Americans paid 17% of total income taxes. In 2005, with a top income tax rate of 35% and capital gains at 15%, the richest 1% of Americans paid 39%.
We suspect that Mr. Obama will discover that when you put "tax fairness" ahead of economic progress, you produce neither."

2 comments:

Ryanaldo said...

the majority of americans have been getting poorer.

Read the value of a dollar by Scott Derks:
http://www.amazon.com/Value-Dollar-Prices-Incomes-1860-2004/dp/1592370748/ref=pd_bbs_sr_1?ie=UTF8&s=books&qid=1222611350&sr=8-1

It is simply records of the cost of things by year throughout American history, including various labor and professional services. you will see that the cost of education, medicine, healthcare, and housing has increased dramatically relative to the wages of most vocations and professions.

Inflation isn't doled out uniformly. It is doled out in a way to subsidize some sectors of the economy.

The Laffer Curve is also a fraud. it works up to a point. most often, lowering progressive income taxes from over 60 percent to between 40 and 50 percent.

Most of America's economic growth in the last 28 years has been in suburban sprawl, rising education and healthcare costs, and accumulating a shitload of debt. the sprawl sure was fun, but now we're in the middle of our second oil war in 20 years. I've noticed that in most wars in american history, progressive taxes were raised, not lowered. this sure is innovative. it is important to use the word "innovative" frequently.

lansing-zhou said...

"I'm not green, but I could be," reads one. Others have similar messages printed on them, "My Bag", "Use Me and Re-use Me".

Since the Chinese government issued its June 1 ban on free plastic bag handouts, retailers in China have found themselves in the midst of a "green" phenomenon.

They're anxious to turn fashion-conscious customers into eco-aware shoppers.

Under the new regulations, free plastic bags are banned and shopkeepers are required to charge shoppers for plastic bags. The prices vary, but range from 0.2 yuan ($0.03) to 1 yuan ($0.14) depending on the size of the bag.

But, a plain bag is far from satisfactory for the China's fashion-conscious - and this mindset is pushing the country towards a "green revolution" in the closets.

"It is cool to carry a simple colored eco bag to go with my Levi's jeans and sneakers," says 21-year-old Huang Min. "It is a direct way to contribute to environmental protection. And, it is a popular vision for saving the planet."

The Beijing college student wears her new eco bag proudly on her shoulder. It is an important part of her outfit - and has a statement to make.

Eco bags are increasingly being seen as fashionable as more and more celebrities appear on "green issue" magazine covers with the reusable bags matching their outfits.

"Going green" appears to be a growing trend. Stars as big as Madonna have even dazzled "green-oriented" magazines. The artist was chosen to dazzle the cover of Vanity Fair's third annual May 2008 Green Issue.

As environmental issues spill into the fashion world, the "green shopping bag" campaign seems to be a win-win solution for all those involved.

Companies can adopt the bags as a brand-building tool. Consumers see it as an iconic statement against throwaway plastics - which have previously been given away in the billions annually. The "green movement" has been seeping on to fashion runways and marketing strategies - so why not on shopping bags and totes?

Muji, a Japanese lifestyle store established nearly 30 years ago, launched its own version of "My Bag" when it opened its first Beijing store in Joy City this March. The simple yet stylish bags made from linen and cotton threads have sold well over the past few months in the capital, according to Muji staff. Initially, they sold bags ranging from 5 to 100 yuan, but now they only have bags priced from 24 to 100 yuan remaining.

"People of different ages love the bags because they are light, simple and convenient," says one of the shop's workers Chen Weimi.

"To reduce waste and conserve resources, we encourage our consumers to use 'My Bag'," says the store's manager Akita Toru.

Other well-known international brands are also striving to set the eco trend in Beijing. Diesel, Marc Jacobs and DKNY have also released low-priced eco bags made of organic cotton.

And, apart from the big international names, young designers based in Beijing are also working on the green bags.

"Young people in China are aware of the environment and want to do what they can to protect it, especially when it is becoming a trend," says 30-year-old designer Peng Haofeng, from Yunnan province.

Together, with two other friends, the three opened a green-themed store, Kidults, or Tong Huo in Chinese, last November on Dongsi Street. The company aims to promote the green fashion concept among the Beijing people.

According to the store's marketing manager, Gou Chenglong, many people were unaware of the eco bag concept when the store first opened last year.

"People, especially the older generation would not accept the idea because they didn't think about the simple green bag value that much. But, half a year later, more and more people here are becoming aware of the eco-bags or eco-fashion trend, especially when the government issued the ban on plastic bags at supermarkets in Beijing. It is a good start."

With handmade pictures on them, the bags look trendy and self-expressive. The bags generally contain no dyes and are known for their creative trims and decorations made from wood or bamboo.

"The price is normal and acceptable for students and office workers," says 26-year-old Zhou Fei, as she rifled through the bags at Kidults ranging from 15 yuan to 100 yuan. "I am a frequent buyer of green bags and T-shirts."

"It would be fashionable to carry beautifully designed cloth bags rather than monotonous white plastic ones down the street."

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