Listening to Reich on income inequality is like asking the arsonist for advice on how to put out a fire. Jump to the bottom of the post if you want to see why.
I note that McQ has a great post over at QandO on Robert Reich's misleading piece in support of soaking the rich to pay for costly new government programs. McQ says:
This is easy stuff, folks. Note the premise. The bill, its size or what is on it is not open for discussion. All that is open for discussion is who gets stuck with it. And that is how the Democrats and Reich frame the argument. Imagine going into a restaurant, having a meal delivered to your table which you didn't order and because you look fairly prosperous, finding the bills of 4 other tables added to yours because they're not. Outraged? You bet you would be outraged.Reich's entire premise for new taxes on the rich is that the current system is unfair. But federal tax data continue to confirm the progressivity of the current system. As Bob Bartlett points out:
But we hear basically the same argument here and most of us accept the premise because it probably won't be us footing the bill (just like those 4 tables of diners probably were fine with you picking up their tab).
Fleischer's main point is that a growing percentage of the population is paying no federal income taxes. He said the figure is 40 percent, based on a recent study by the Congressional Budget Office showing that the bottom two income quintiles (20 percent of households) paid no federal income taxes in the aggregate in 2004. This is because the Earned Income Tax Credit offsets all of the tax liability for those who had incomes below $29,400.Bartlett is going easy on the critics, too. Liberals have generally been very wary to change the current payroll tax structure. This is because it is easier to argue that Social Security is a pension plan when all contribute equally to their benefits. If you exempt those at the bottom -- or merely give them a lower rate -- you change the program from a pension plan to a welfare plan, and make it easier to cut benefits. For that reason Democrats have generally opposed plans that change the payroll taxes paid by earners at the low end.
Fleischer was quickly taken to task by liberals like Jared Bernstein of the Economic Policy Institute and Jonathan Chait of The New Republic for ignoring the burden of payroll taxes on those with low incomes. The same CBO data cited by Fleischer show that those in the bottom quintile paid 8.2 percent of their income in payroll taxes and the second quintile paid 9.1 percent.
This is the standard liberal response to data showing that the wealthy are shouldering a greater and greater share of the income tax burden. According to the CBO, those in the top quintile paid 85.3 percent of all such taxes in 2004. In 1979, the first year of the CBO study, this group paid only 64.9 percent.
Inclusion of payroll taxes in the calculation doesn't change the picture that much because the top quintile of households paid 44.2 percent of all payroll taxes in 2004. Overall, this group paid 67.1 percent of all federal taxes -- well above their share of reported income, which was 53.5 percent.
Of course, we have a progressive tax system, and the wealthy are expected to pay more than their proportional share of taxes. The CBO data confirm that our federal tax system is indeed very progressive. Looking at all federal taxes, including payroll taxes, those in the lowest quintile paid 4.5 percent of their income to the federal government in 2004, the second quintile paid 10 percent, the third paid 13.9 percent, the fourth paid 17.2 percent, and the top quintile paid 25.1 percent.
And with regard to income inequality overall, is it going up under Bush -- as Reich claims? Not according to the Census Bureau and Congress' Joint Economic Committee:
According to a key Census Bureau measure, income inequality was essentially unchanged between 2001 and 2006. In response to a request by the Republican staff of the Joint Economic Committee, a statistical test performed by the Census Bureau earlier this week confirms that no statistically significant change in the inequality measure occurred between 2001 and 2006...
“Despite all the discussion about income inequality, the fact is that it hasn’t changed in recent years, according to the Census Bureau measure,” ranking Joint Economic Committee member Congressman Jim Saxton said today. “Congress should consider this fact before acting on the assumption that income inequality is surging.
How does Bush's record compare with the record under the Clinton administration -- when Robert Reich served as Labor Secretary?
However, the rise of the income share of the top 1 percent of tax filers ranked by income during the 1990s is very pronounced. For example, between 1992 and 2000, this share jumped from 14.23 percent to 20.81 percent, a huge increase of nearly 7 percentage points. Meanwhile, the income share of the bottom half of tax filers fell from 14.92 percent in 1992 to 12.99 percent in 2000.
Reich in his piece asserts:
The wealthiest 1 percent of Americans earn more than 21 percent of all income. That's a postwar record.
So under the Clinton administration the share earned by the top 1 percent climbed 6.78%, while under President Bush it has climbed less than 0.4%.
Reich's argument is as full of holes as his credibility on the issue.
Update: I note good arguments on this over at Wake Up America, Sister Toldjah and Protein Wisdom as well.