Social Welfare Resources

December 17, 2019

The recent publication of The Triumph of Injustice: How the Rich Dodge Taxes and How to Make Them Pay by Emmanuel Saez and Gabriel Zucman is noteworthy for several reasons.

The provocative headline of their work is the conclusion that the wealthiest Americans pay lower tax rates than the least wealthy. The work is the basis of several subsequent articles on taxes and wealth distribution. It is also noteworthy because the authors are advisors to Senator Warren and are the architects of her wealth tax proposal. 

Although both writers are professors of economics at the University of California, Berkeley, their book is far more than a body of dispassionate academic research. It is also, as its title reflects, a highly political manifesto in its conclusions. The tone and attitude throughout their work leaves the reader to wonder if the research drove the writers’ conclusions or if the politics of the writers influenced the research. Since its publication, several economists have taken issue with their approach. See “Measuring the 1%” in the November 30 Economist.

The writers make a crucial and highly debatable assumption that supports their conclusion about tax rates.They assume that all taxes are paid by individuals, even when the actual tax payment is made by the individuals’ employer. As a result, payroll taxes paid by the employer are attributed to the individual, resulting in a significant increase in the individual’s tax rate. In addition, they make an estimate of sales taxes paid by individuals and add this to the individual rate. Since payroll taxes phase out with income and sales taxes are a smaller percentage of the income of the wealthy, the inclusion of both pushes the rates of lower-income people to higher levels. Furthermore, when you recognize that wealthier people have less earned income and more investment income taxed at lower dividend and capital gains rates, the pattern continues. 

Their political philosophy enters into the formulation of their response. They propose raising the marginal rates on the wealthy until marginal taxes collected begin to decline. They estimate this tipping point to be an average rate of 60% of income. The purpose of the additional wealth tax proposal is to redistribute the wealth of those whose wealth is in the form of capital versus ordinary income. 

But for this single assumption, there is no basis to their overall argument. The assumption overlooks an important distinction, however, and that is that payroll taxes represent forced savings in the form of Social Security. Everyone has an individual account and the amount you get in retirement has a relationship to the amount you pay in, whether you call it a tax or savings. In fact, Social Security replaces in retirement a far larger percentage of low-income earnings than high-income earnings, suggesting that this so-called “tax” is a far more important savings vehicle for the least wealthy. 

May 15, 2019

It is human nature to attribute our personal successes to our own virtues of hard work, intelligence, and ambition. Conversely, it is tempting to assume that these qualities must be absent in those who are less “successful.” By doing so, it is easy to overlook the many advantages that we have had, to which we contributed our own hard work and ambition. 

Why is this an important point to consider? It is important because if we overlook the advantages that we have had, we are also likely to overlook the disadvantages those less fortunate than us have had. And if we look at life in this way, we are unlikely to be sympathetic to the argument that those less fortunate than we are would benefit from a helping hand.

 Chuck Collins, in his book Born on Third Base: A One Percenter Makes the Case for Tackling Inequality, Bringing Wealth Home, and Committing to the Common Good, provides useful insight into this issue. Experiencing in the first person the advantages of inherited wealth, Collins helps us appreciate the many government programs that contributed to wealth creation and the narrowing of opportunity in America. When we reflect on our own lives, is it possible that our parents benefited from the GI Bill? Perhaps an ROTC scholarship? Might they have built their first house with a VA mortgage? Gone to a public university with subsidized student loans? Benefited from a farm or ranch subsidy? Possibly a tax-deductible mortgage and savings plan? Were they able to afford to relocate their young family in search of the best public school, as mine did? Were they able to save for college so that we could go without borrowing, as mine did? The list is long and enlightening.

 Collins, however, is not on a rant. His objective is more productive. He tries to open our eyes to these realities so that we will react, and he provides no shortage of public policy ideas to pursue. 

February 21, 2019

For many of us who were blessed to be born and raised in middle-class affluence in America, with the resultant benefits of a good education leading to good jobs and financial security, the struggle of those less fortunate is often an abstraction that we do not observe directly. Thankfully, several writers in the recent past have done an outstanding job of illustrating the reality of life for far too many of our fellow Americans.

One of those is Evicted: Poverty and Profit in the American City, by Princeton sociologist Matthew Desmond. In this powerful work, Desmond gives an intimate portrait of the lives of several families in the poorest neighborhoods of Milwaukee struggling on the brink of homelessness. We witness firsthand the poverty, unacceptable living conditions, unsafe neighborhoods, shelters, and impact of evictions that so many Americans endure every day.

Even when blessed with the security of a stable home, life has many challenges for all of us. Evicted leaves us with a profound appreciation of how those challenges are amplified for Americans who do not enjoy such luxury.