Thursday, September 01, 2011

Ratio Of Takers To Givers Reaches A Tipping Point


Larry Elder has an editorial in today's Investor's Business Daily that starts out by quoting an Irish taxi driver who identified the No. 1 reason for the grim economic situation in Ireland as "too many takers - not enough givers."  The charts above help to graphically illustrate that situation in the U.S.  Read the full editorial here.  

23 Comments:

At 9/01/2011 12:32 PM, Blogger Methinks said...

You mean that doesn't work? Shocking. Anybody mention that to Godfather Obama of the Federal family?

 
At 9/01/2011 1:22 PM, Blogger Junkyard_hawg1985 said...

I think the amount that the government pays in "negative income tax liability" is about $60 billion per year. Gee, you would think spending $600 billion over 10 years might warrant a little discussion by the supercommittee, but I doubt it will. This includes negative income tax payments to rent-seeking corporate welfare queens like General Electric.

 
At 9/01/2011 1:23 PM, Blogger Tom said...

Benjamin - The percentage of Federal spending to individuals says everything about who the check is made out to and nothing about the source of the funds.

For all practical purposes every household in the US pays Federal taxes in the form of gasoline excise taxes.

 
At 9/01/2011 1:33 PM, Blogger juandos said...

Well there's a Wizzard of Id cartoon courtesy of the Cato Institute that does a good job explaining the tipping point...

 
At 9/01/2011 1:35 PM, OpenID voxrationalis said...

This looks like an excellent argument for going back to pre-Bush tax rates.

 
At 9/01/2011 1:40 PM, Blogger Junkyard_hawg1985 said...

Tom,

The problem with your arguement that everyone pays gas taxes is that the taxes are used to pay for work on highways (sort of like an airline security fee). The money raised by the gas tax does not even cover the federal cost on highway spending. .

 
At 9/01/2011 2:33 PM, Blogger Larry G said...

the people who don't pay Federal income tax or actually get money back are parents of kids...in large part - along with those (elderly) who are existing on barely enough to live on.

Perhaps Mr. Perry has posted it before - but I believe a chart showing household income verses Fed taxes paid would add to the discussion.

When you have a single mom with 2 kids - the chances are that she's get everything back that she had deducted in income taxes - and then some with the child credits.

and this does not include food stamps, housing vouchers, medicaid/SCHIPs, subsidized school lunches nor the 10K a year that it costs to educate her kids - that comes from property taxes that she likely pays no where near that amount.

the question is what should be done about this?

would you, for instance, take away the child credits... ?

it would be interesting to see some charts that deal with this demographic in terms of taxes .....

 
At 9/01/2011 3:05 PM, Blogger mjl said...

LarryG:

How about looking closely at:

The 40% of those in poverty who own their own homes?
The 66% who have cable or satellite TV?
The 66% with 2 or more TVs?
The 47% with a home computer?
The 67% with a DVD?

Look at these folks, weed out those who are gaming the system, and then we can talk about your Mom (probably unwed) with kids.

 
At 9/01/2011 3:21 PM, Blogger Mark J. Perry said...

I have posted before on all federal taxes paid (income, payroll, etc.) by income groups here .

 
At 9/01/2011 3:21 PM, Blogger Free2Choose said...

@Juandos.

Brilliant cartoon...lol. Thanks for posting!

 
At 9/01/2011 3:23 PM, Blogger Larry G said...

I accept your point - but trying to account for these things will make the tax code even more complicated.. and convoluted.

but you're not going to get significant taxes out of people near the poverty level anyhow...unless you take away the child credits.

but I would also add that a significant number who get the child deductions are not in poverty just not rich...

People not in poverty, with regular jobs with 2 or more kids and average incomes get significant tax breaks....

this is something the charts don't show.

For better or worse - our culture believes that people with kids are entitled to tax deductions.

 
At 9/01/2011 3:39 PM, Blogger Larry G said...

re: prior posting of rates:

http://mjperry.blogspot.com/2011/08/average-federal-income-tax-rates-by.html

these are RATES... right?

do we have charts on taxes actually paid?

I've done volunteering for taxes and my observations are that no matter what the income rate - that significant exemptions, deductions and credits tend to drive down the actual taxes paid.

the people who get whacked the most are single income earners... even on modest incomes....

newly divorced - the one who doesn't get the kids.. gets creamed...

 
At 9/01/2011 6:07 PM, Blogger Larry G said...

it's worse than that....

Defense-related expenditures:

DOD spending $707.5 billion Base budget + "Overseas Contingency Ops

FBI counter-terrorism $2.7 billion At least one-third FBI budget.

International Affairs $5.6–$63.0 arms sales.

Energy Department, defense-related $21.8 billion

Veterans Affairs $70.0 billion

Homeland Security $46.9 billion

NASA, satellites $3.5–$8.7 billion Between 20% and 50% of NASA's total budget

Veterans pensions $54.6 billion

Other defense-related mandatory spending $8.2 billion

Interest on debt incurred in past wars $109.1–$431.5 billion

Total Spending $1.030–$1.415T

Individual income taxes = 900 billion

In other words all the individual incomes taxes paid barely cover the DOD expenditures....

 
At 9/01/2011 7:00 PM, Blogger PeakTrader said...

Junkyard_hawg, I'd be careful using the term "welfare queen."

According to Paul Krugman's limited model:

"Krugman argues that Ronald Reagan had used the "Southern Strategy" to signal sympathy for racism without saying anything overtly racist, citing as an example Reagan's coining of the term "welfare queen"."

 
At 9/01/2011 7:32 PM, Blogger Benjamin said...

My comments are disappearing!

 
At 9/01/2011 11:22 PM, Blogger Seth said...

As Margaret Thatcher said...you eventually run out of other peoples' money.

 
At 9/02/2011 9:16 AM, Blogger Junkyard_hawg1985 said...

"I accept your point - but trying to account for these things will make the tax code even more complicated.. and convoluted." - Larry G

It is not a complicated tax change to abolish negative income tax rates. If tax credits exceed taxes paid, then you only get back as much as you paid. This puts you at a zero tax liability. Cash back at this point is not a tax cut, it is government spending. We do it to the tune of $60B annually.

 
At 9/02/2011 9:39 AM, Blogger Shane Leavy said...

Just to point out that Ireland had one of the most free market economies in the world when it hit the economic crisis. Ireland was NOT one of the big European welfare states.

...And taxi drivers are not necessarily reliable social commentators!

 
At 9/02/2011 10:19 AM, Blogger morganovich said...

shane-

"Just to point out that Ireland had one of the most free market economies in the world when it hit the economic crisis. Ireland was NOT one of the big European welfare states. "

um, no.

ireland freed up many kinds of investment, but they are a MASSIVE welfare state.

gdp is $165bn
federal expenditures are $109 bn.

if the federal government is 66% of GDP, you are a welfare state.

i just don't see any other way to characterize it.

no amount of free market reform can overcome the government being 2/3 of the economy.

even at the 2006 peak, they had a labor force of 2.15mn in a population of 4.5mn, a 48% workforce/population ratio, which is unsustainably low.

unemployment benefits alone are 17% of GDP.

social welfare (not including health) is nearly 25% of GDP.

if that's not a welfare state, i don't know what is.

 
At 9/02/2011 12:04 PM, OpenID voxrationalis said...

Morganovich - you should be quoting 2007 numbers, since that's the time period Shane mentioned. But I believe you're incorrect in any case - please cite your source.

 
At 9/02/2011 1:25 PM, Blogger Methinks said...

I don't see "2007" anywhere in Shane's post. Also, Shane is wrong that Ireland was not one of the big European welfare states.

In 2003 (well before the economy stumbled on the banking crises and long after Ireland shed its third world status by liberalizing its economy), government spending as a percentage of GNP stood at 43.7%. The average for the EU at that time was 44.3%. Additionally, measures of employment dependency and social dependency on the Irish state in 2003 were in line with the average for the EU. So, on average, despite the Celtic Tiger roaring forward from the backwater, the size of its welfare state was on par with the average in the EU.

In 1985, before liberalization, Ireland stagnated and government spending was 55% of GNP. By 1993, a combination of some minor trimming in government spending and the boost to GNP resulting from liberalization brought government spending to 41% of GNP. In 1996, the government (as governments are wont to do) began spending like a drunken sailor again - increasing spending and growing the welfare state every year thereafter.

For the record, GNP is a much better measure of taxable base and flow of income. GNP runs about 5% lower than GDP in Ireland. So, if Morganovich's % of GDP numbers are correct, it's actually much worse because government spending is a higher percentage of GNP.

So, how does a country go through an economic renaissance and end up with government spending above where it was when it was when the government was choking off all economic growth? Turns out that if you grow fixed costs (government spending commitments) and your variable income (which all income is) declines, you can end with a shockingly high level of spending as a percentage of GNP.

So much for the myth of the small Irish welfare state.

 
At 9/02/2011 1:27 PM, Blogger Methinks said...

Oh, btw...here's one report on Ireland. I like it because it covers the period of major economic reforms and also has stats on the pre-reform economy. The OECD website is also a good resource.

http://tinyurl.com/4xfyq9s

 
At 9/05/2011 10:26 AM, Blogger juandos said...

"In other words all the individual incomes taxes paid barely cover the DOD expenditures"...

A questionable statement (but a possible one nonetheless) since there's nothing to credible to back it up...

Still we pay about 17 cents of every tax dollar on defense BUT over 60 cents of every tax dollar on constitutionally questionable programs...

 

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