IMF-tax the rich

[carepov]

Yes, this was quite clear above, but the U.S. invariably becomes part of the mix, even when it does not apply. In the U.S., real (inflation adjusted) income for all quintiles has increased since 1967:

Interesting graph. My take is that, since 1967, the rich have doubled their income, upper-middle class inomes have had minuscule growth while the incomes of the working class and poor have been stagnant. All incomes have declined since 2000 - why is that?

How does a household in the US survive on on $11,490 per year - $1000 per month, or less?

[eyeball]

How does a household in the US survive on on $11,490 per year - $1000 per month, or less?

With a compliant sense of patriotic gratitude, preferably.

[bush_cheney2004]

Interesting graph. My take is that, since 1967, the rich have doubled their income, upper-middle class inomes have had minuscule growth while the incomes of the working class and poor have been stagnant. All incomes have declined since 2000 - why is that?

Most would point at the U.S. recession in 2001 after the dot com bust and 9/11 attacks. Other events like the Iraq War and Hurricane Katrina were also in play. Nevertheless, income began to ramp up again until the 2008 crash. Here is the source for that chart and quintile analyses:

http://www.advisorperspectives.com/dshort/updates/Household-Income-Distribution.php

How does a household in the US survive on on $11,490 per year - $1000 per month, or less?

Through various tax credits and government programs for health care, food, rent subsidies, etc., particularly when dependent children are involved. Some income is also off the books...for instance....my brother has lived in a one room studio apartment in midtown Manhattan for 30 years with no visible means of support (rent control is his friend)). Also, the cost of living in some parts of the U.S. is very low compared to some other places, and certainly less than in Canada.

Regardless of the numbers, the standard of living has increased for nearly all Americans (and Canadians) since 1970, rich or poor.

Edited March 4, 2014 by bush_cheney2004

[carepov]

Most would point at the U.S. recession in 2001 after the dot com bust and 9/11 attacks. Other events like the Iraq War and Hurricane Katrina were also in play. Nevertheless, income began to ramp up again until the 2008 crash. Here is the source for that chart and quintile analyses:

http://www.advisorperspectives.com/dshort/updates/Household-Income-Distribution.php

Thanks, I am familiar with Doug Short's excellent graphs.

Through various tax credits and government programs for health care, food, rent subsidies, etc., particularly when dependent children are involved. Some income is also off the books...for instance....my brother has lived in a one room studio apartment in midtown Manhattan for 30 years with no visible means of support (rent control is his friend)). Also, the cost of living in some parts of the U.S. is very low compared to some other places, and certainly less than in Canada.

Regardless of the numbers, the standard of living has increased for nearly all Americans (and Canadians) since 1970, rich or poor.

True, for the most part, life has been steadily improving and we need to keep this in mind. Nevertheless, improvements in the quality of life in some countries/regions has clearly outperformed others. Why?

One answer is in the IMF report:

"On average, across countries and over time, the things that governments have typically done to

redistribute do not seem to have led to bad growth outcomes, unless they were extreme. And

the resulting narrowing of inequality helped support faster and more durable growth, apart

from ethical, political, or broader social considerations."

http://www.imf.org/external/pubs/ft/sdn/2014/sdn1402.pdf

In other words: "Tax the rich (moderately more than we are now)"

As an aside, it is wonderful to see all the "progressive" organizations trumpeting an IMF report. Is the IMF now a progressive institution? Or is it (still) an imorral-neoliberal-loan-shark?

http://www.globalexchange.org/resources/wbimf/oppose

[bush_cheney2004]

....True, for the most part, life has been steadily improving and we need to keep this in mind. Nevertheless, improvements in the quality of life in some countries/regions has clearly outperformed others. Why?

One answer is in the IMF report:....

But the growing problem for all these "improvements" is deficit spending and total debt service at the local, provincial, and federal level. Taxes can help reduce or even eliminate the deficits, but total debt (and debt service) looms large. As many here have stated before, there are not enough "rich people" to tax at confiscatory tax rates. There must be reductions in entitlement programs to bend the cost curve.

[carepov]

But the growing problem for all these "improvements" is deficit spending and total debt service at the local, provincial, and federal level. Taxes can help reduce or even eliminate the deficits, but total debt (and debt service) looms large. As many here have stated before, there are not enough "rich people" to tax at confiscatory tax rates. There must be reductions in entitlement programs to bend the cost curve.

No, we are not talking about increased spending, we are talking about re-distribution. For example, increase taxes for the rich and lower taxes for the poor.

In the long term, the best way to fight the debt is faster and more durable growth, therefore narrowing inequality helps slay the debt.

[bush_cheney2004]

No, we are not talking about increased spending, we are talking about re-distribution. For example, increase taxes for the rich and lower taxes for the poor.

In the long term, the best way to fight the debt is faster and more durable growth, therefore narrowing inequality helps slay the debt.

The poor have never been richer for standard of living, due to entitlements that continue to grow for all income classes. Supply side solutions can only support so much debt service before it becomes unsustainable. Income inequality is a political problem far more than an economic problem.

[carepov]

The poor have never been richer for standard of living,

Yes probably, but in Canada and most other OECD countries the lot of the poor has improved much faster and has surpased the standard of living of the poor in the US.

...due to entitlements that continue to grow for all income classes.

I am not sure that this is the main reason, but there are certainly also other reasons for the improvement.

Supply side solutions can only support so much debt service before it becomes unsustainable.

Again, you are falsely equating reduction of inequality to an increase in debt, according to the IMF the opposite is true.

Reduced inequality = increased economic growth = reduced long term debt

Income inequality is a political problem far more than an economic problem.

Yes it is both.

[bush_cheney2004]

Yes probably, but in Canada and most other OECD countries the lot of the poor has improved much faster and has surpased the standard of living of the poor in the US.

No, I think that is debatable depending on measured attributes. The "poor" and lower class in the U.S. have a higher standard of living than in several OECD nations. Poor people in the U.S. actually have a larger base of available government and private services than in Canada (varies by state).

Again, you are falsely equating reduction of inequality to an increase in debt, according to the IMF the opposite is true.

Reduced inequality = increased economic growth = reduced long term debt

The correlation is undeniable, as spending for the social welfare state, labour law, regulation, etc., has led to many such reductions. Indeed, many still refer to such programs as the War on Poverty. Perhaps you do not consider government programs as "income" in the very technical sense. We cannot grow our way out of long term structural debt.

Edited March 4, 2014 by bush_cheney2004

[Michael Hardner]

Yes probably, but in Canada and most other OECD countries the lot of the poor has improved much faster and has surpased the standard of living of the poor in the US.

Can I have cite for that ?

[carepov]

No, I think that is debatable depending on measured attributes. The "poor" and lower class in the U.S. have a higher standard of living than in several OECD nations. Poor people in the U.S. actually have a larger base of available government and private services than in Canada (varies by state).

Fine let's debate. How about we compile a list of attributes that quantify the "stadard of living of the poor"? Then we can try to compare these metrics for different countries over time.

We can also compare different states. In what states do the poor enjoy the highest standard of living? Why?

The correlation is undeniable, as spending for the social welfare state, labour law, regulation, etc., has led to many such reductions. Indeed, many still refer to such programs as the War on Poverty. Perhaps you do not consider government programs as "income" in the very technical sense. We cannot grow our way out of long term structural debt.

There was another key point in the paper: "First, more unequal societies tend to redistribute more."

Again you have it backwards, the more equal the society, the less the government needs to spend on entitlements.

[carepov]

Can I have cite for that ?

For starters, compare the incomes, and more importantly the trends over time, of the bottom 20% in Canada and US in the above graphs provided by Stats Can and the US Census.

[bush_cheney2004]

For starters, compare the incomes, and more importantly the trends over time, of the bottom 20% in Canada and US in the above graphs provided by Stats Can and the US Census.

But income in the U.S. translates into a higher standard of living than in Canada for a given amount. Poor people in the U.S. get more for their money, and I suspect, more from their government programs (dole / pogey).

Edited March 4, 2014 by bush_cheney2004

[bush_cheney2004]

There was another key point in the paper: "First, more unequal societies tend to redistribute more."

Again you have it backwards, the more equal the society, the less the government needs to spend on entitlements.

I'm not convinced, as some "more equal societies" (OECD) are also accruing debt for the social welfare state, mostly due to demographics. "Tendenices" are not a strong enough indicator to make actual policy that is politically acceptable or unacceptable.

[carepov]

I'm not convinced, as some "more equal societies" (OECD) are also accruing debt for the social welfare state, mostly due to demographics. "Tendenices" are not a strong enough indicator to make actual policy that is politically acceptable or unacceptable.

Do you agree that, if a society, such as the USA, would reduce inequality by increasing taxes on the rich with a revenue neutral tax cut for the poor, growth would increase?

[bush_cheney2004]

Do you agree that, if a society, such as the USA, would reduce inequality by increasing taxes on the rich with a revenue neutral tax cut for the poor, growth would increase?

Not necessarily, as growth also increased in the USA when marginal tax rates were cut (e.g. JFK, Reagan). The poor pay a combination of progressive and regressive taxes based on circumstances and lifestyle. Equality of incomes has never been an objective or guarantor of strong economic growth. Historically, the U.S. economy has soundly outperformed many others with less "income inequality".

[carepov]

Not necessarily, as growth also increased in the USA when marginal tax rates were cut (e.g. JFK, Reagan). The poor pay a combination of progressive and regressive taxes based on circumstances and lifestyle. Equality of incomes has never been an objective or guarantor of strong economic growth. Historically, the U.S. economy has soundly outperformed many others with less "income inequality".

Yes, all good points, however, historically the USA that outperformed many others, was a much more equal than the USA today and had significantly higher tax rates. Perhaps the Bush tax cuts went too far?

[bush_cheney2004]

Yes, all good points, however, historically the USA that outperformed many others, was a much more equal than the USA today and had significantly higher tax rates. Perhaps the Bush tax cuts went too far?

Again, "more equal" is a relative term and the US has a history of income inequality trends for good times and bad. The so called gini ratio for U.S. individuals is rather flat compared to household incomes going back to 1960. Despite all the political rhetoric and angst over President Bush's tax cuts (with resulting growth), President Obama retained most of them for lower marginal rates, and doubled down by reducing payroll taxes for social security (with much less economic growth). Note how income inequality continued to grow for households during President Clinton's tenure as well, when taxes were raised (1993) and lowered (1997).

[kimmy]

The data is adjusted for inflation, that is what 2011 constant dollars means.

That's certainly not an exact science. How to adjust for inflation is a controversial and highly political topic (since some social programs have built-in adjustments for cost-of-living.)

Inflation adjustments tend to be based on Consumer Price Index methods that reflect what a typical consumer might spend in a typical month. But there isn't such a thing as "the typical consumer". There are a number of different "typical consumers", and there are a number of CPI measures.

One of the major controversies in calculating a CPI is how to measure housing costs. Mortgage? Rent? As I understand it, CPIs tend to use something called "rent equivalent", which would be either your rent or your mortgage payments and property taxes. As a result, the CPI failed to accurately reflect the effect of rising housing prices on families, because while mortgages got bigger, mortgage payments didn't because of the advent of new longer-term mortgages. So the monthly "rent equivalent" payment might reflect the change in rent/mortgage payments over time, it doesn't reflect that the largest purchase most people makes costs far more money and takes far longer to pay off.

Another item that isn't in the typical CPI "shopping cart" is college tuition.

So while the inflation-adjusted numbers account for changes in monthly income and outgo, it doesn't accurately reflect that two of the biggest expenses for most families cost far more than they used to and take much longer to pay off.

-k

[bush_cheney2004]

U.S. and Canadian economic growth parallel each other despite reported differences for income inequality and mobility. Yes, the two economies are highly integrated, but the relationship of income inequality to better economic performance is not demonstrated. IIRC, Canada faced a major crisis in the 1990's because of escalating debt for various federal programs and transfers to provinces (e.g. health care spending), which was curtailed by Chretien/Martin to balance budgets and stop the bleeding with the late 1990's boom (as did the USA).

Edited March 5, 2014 by bush_cheney2004

[bush_cheney2004]

Fine let's debate. How about we compile a list of attributes that quantify the "stadard of living of the poor"? Then we can try to compare these metrics for different countries over time.

This has already been done....here is an example from Forbes, which has been presented before:

http://www.forbes.com/sites/timworstall/2013/06/01/astonishing-numbers-americas-poor-still-live-better-than-most-of-the-rest-of-humanity/

[carepov]

That's certainly not an exact science. How to adjust for inflation is a controversial and highly political topic (since some social programs have built-in adjustments for cost-of-living.)

Inflation adjustments tend to be based on Consumer Price Index methods that reflect what a typical consumer might spend in a typical month. But there isn't such a thing as "the typical consumer". There are a number of different "typical consumers", and there are a number of CPI measures.

One of the major controversies in calculating a CPI is how to measure housing costs. Mortgage? Rent? As I understand it, CPIs tend to use something called "rent equivalent", which would be either your rent or your mortgage payments and property taxes. As a result, the CPI failed to accurately reflect the effect of rising housing prices on families, because while mortgages got bigger, mortgage payments didn't because of the advent of new longer-term mortgages. So the monthly "rent equivalent" payment might reflect the change in rent/mortgage payments over time, it doesn't reflect that the largest purchase most people makes costs far more money and takes far longer to pay off.

Another item that isn't in the typical CPI "shopping cart" is college tuition.

So while the inflation-adjusted numbers account for changes in monthly income and outgo, it doesn't accurately reflect that two of the biggest expenses for most families cost far more than they used to and take much longer to pay off.

-k

Despite your very real concerns Canadians are still better off today than 30-40 years ago. The increase in housing costs is more than offset by decreases in food and clothing:

Average share of household spending on major items 1969

Food - 18.7 per cent

Shelter - 15.2 per cent

Clothing - 8.1 per cent

Transportation - 13.1 per cent

Personal taxes - 13.5 per cent

2009

Food - 10.2 per cent

Shelter - 19.8 per cent

Clothing - four per cent

Transportation - 13.7 per cent

Personal taxes - 20.2 per cent

http://www.cbc.ca/news/canada/food-eats-up-less-of-our-spending-but-costs-us-more-1.1054574

[carepov]

This has already been done....here is an example from Forbes, which has been presented before:

http://www.forbes.com/sites/timworstall/2013/06/01/astonishing-numbers-americas-poor-still-live-better-than-most-of-the-rest-of-humanity/

Again, "more equal" is a relative term and the US has a history of income inequality trends for good times and bad. The so called gini ratio for U.S. individuals is rather flat compared to household incomes going back to 1960. Despite all the political rhetoric and angst over President Bush's tax cuts (with resulting growth), President Obama retained most of them for lower marginal rates, and doubled down by reducing payroll taxes for social security (with much less economic growth). Note how income inequality continued to grow for households during President Clinton's tenure as well, when taxes were raised (1993) and lowered (1997).

Thank you for the links and graphs.

IMO, you are right, the plight of the poor in the US is not as bad as most countries and is overhyped in the media.

However, there are poor people suffering in the US including poor children. And it looks like both the severity of their poverty and the number of poor people has not improved in at least 15 years. This is not the case in Canada where the bottom 10% have a significantly higher socioeconomic status

http://www.economist.com/blogs/graphicdetail/2013/05/daily-chart-17?Fsrc=scn%2Fgp%2Fwl%2Fdc%2Fbetterlifeindex

Poor people cost money and generate little revenue. It seems obvious that reducing poverty is a clear win-win for the poor and for the overall economy including debt reduction. It also seems obvious that reducing poverty is best done through increased economic growth. Now the IMF is saying that reducing inequality will help economic growth.

It also seems obvious that government policies and their annalists should be targeting results 5-10+ years out - not the next budget crisis or election...

[Michael Hardner]

IMO, you are right, the plight of the poor in the US is not as bad as most countries and is overhyped in the media.

I agree with you, and probably B_C here, but standard of living can be measured a lot of ways. The two measures I'd want to ensure are included would be health and security.

[bleeding heart]

I sense a slight strawman, however, and am not sure why it needs be acknowledged it as a "good point"....presumably for the sake of a civil and polite debate (which is fair enough).

But the fact is that I've never heard anybody claim that the plight of the poor in the US, or in Canada...or hell, in Brazil for that matter--is "as bad" as the plight of the poor in many more troubled economies and societies. I've never heard it implied, in fact, that I can remember.

It appears that if any of us have some issue or other with freedom of speech, for example, the topic is a non-starter....because in many countries the issue is far less, well, free.

Rape? Come on, not a serious problem....have we not heard about the horrible stats elsewhere, which suggests how much better it is here in this regard?

Murder? Well, it doesn't even have to be said what the stats are in various places.

That is....are we to preface every remark with a "could be worse" qualifier?