Tuesday, March 1, 2011

Rand Paul on Letterman, part 2

My example of why Rand Paul's argument should be taken with skepticism, to put it mildly, was really not strong enough. I intentionally made it as simple as possible. My example had the median income at 5 and the top amount earned at twice that number or 10. The unfortunate fact is that the median income statistic we have is $52,029   http://quickfacts.census.gov/qfd/states/00000.html   Think of that as my "5" in the example. My "10" in the example would be around $104,000.  That is, in my example we were excluding a great deal of people making hundreds of thousands of dollars, or millions or billions, which would only serve to make my example more skewed towards the rich paying a greater and greater percentage of the taxes. You see, this would happen anyway. Yes, Mr. Paul, the middle class and the rich would pay much of the taxes.... fairly, even without progressive rates. Progressive rates have generally been pretty popular in the past. Regressive taxes like sales taxes also exist. I'd like to think that when Mr. Paul says "all" of the taxes, he neglected to say "Federal taxes" in the excitement of the moment, rather than to guide us to some odd conclusion.

My example also assumes an even distribution of amounts, when actually the distribution falls on a bell curve of sorts. That is there are more middle class than poor, and more middle class than rich.Rand Paul: "The top 50 percent -- those who make $70,000 and above -- pay 96 percent of the income tax, so the middle class and above are paying all of the income tax." Why does he choose $70,000? If we want to say 50 percent above and 50 percent below, we must use the median income not an average or whatever figure he used. I've looked everywhere for this 70,000 figure. I can't find it. That inflated figure coupled with a statistic calculated from a lower figure of 52,000 just makes it seem like rich people are paying more, I guess. I'm really not sure about this seeming deception.  If $70,000 and above paid 96%, imagine how much more of that bell curve you could use to boost that 96%  figure upwards assuming the real median income or 52,000. At that rate, the word "all" might be close to accurate. Smell something funny? Here I am channeling David Letterman. I don't know where the figure came from even after research. Letterman: “I think there's something wrong with those numbers. I don't know what it is exactly, but I'm pretty sure there's something wrong with them.”

Regardless about the funny business, as we have seen, median incomes can be tricky to work with. I could have weighted my example, it could have been:

Lower 50 percent:
Person 1: income 1 dollar, tax 30 cents
Person 2: income 1 dollar, tax 30 cents
Person 3: income 1 dollar, tax 30 cents
Person 4: income 1 dollar, tax 30 cents
Person 5: income 1 dollar, tax 30 cents

Upper 50 percent:
Person 6: income 1 dollar, tax 30 cents
Person 7: income 1 dollar, tax 30 cents
Person 8: income 200 dollars, tax 60 dollars
Person 9: income 200 dollars, tax 60 dollars
Person 10: income 200 dollars, tax 60 dollars

Median income 1 dollar
Percent of tax paid by lower 50 percent: 1.2%
Percent of tax paid by upper 50 percent: 98.8%

Believe me, using the average figure of $60.21 wouldn't help much in Rand Paul's statistical palace using this example. The downside for those bottom 50 percent is, at most, 0. The upside on those in the top 50 percent is endless. These are just examples I remember from economics classes in the late 70's. I made them up based on my memories of my business statistics teacher's blackboard.

Did Rand Paul just make a mistake being so far off when he quoted the median income? Did he have a different source? Does it matter anyway? Consider this chart that shows how much richer the rich have gotten:

Inflation adjusted percentage increase in after-tax household income for the top 1% and the four quintiles, between 1979 and 2005 (gains by top 1% are reflected by bottom bar; bottom quintile by top bar.
Source: http://en.wikipedia.org/wiki/Income_inequality_in_the_United_States
Now I'm not all that bright but I know these statistics have been around for a while. Unless the Tea Party is composed entirely of the top earners in our country, why wouldn't Americans be a little upset that their paychecks have basically gone nowhere, while the upper 1 percent have... well, look at the chart. I didn't make that up nor go on a talkshow with it. So why wouldn't we want these elites who got their money through elite methods (such as selling mortgages with teaser rates) available only to them? When they go broke, why shouldn't the top 1 percent bail themselves out? Some of them made and still hold fantastic sums of money that they made in their shell games with teaser rates on mortgages for the poor and middle class. Is the principle of fairness so important to our economic system that it rules out common sense. We have been fair enough to the rich and look what they did with it. Let these guys pay for bailing out our car companies and banks. Yet, unprecedented astronomical executive compensation  with cut rate taxes continues for them.

Why do a majority of the bottom 99% vote with the upper 1% despite what has been done to the country by the elite scam artists of the financial trade?

Long ago in college my government teacher pointed out that racism was the main factor in Alabama for the rich persuading the poor whites to ignorantly vote with the rich and against their own pocketbooks. I hope that is not the founding principle of the Tea Party, but the incendiary origins of the party would open this to question. I'm sure there are plenty of nonracist Tea Party people who just see an easy answer, are infuriated with the Republicans, and grab for the easy answer. It seems like a hunt for some simplistic ideology that they can understand. However, easy answers that actually work are harder and harder to come by, believe me.