Two Americas?

[fintstone]

A noted economist and educator takes on the issue:

Income inequality
Walter E. Williams

September 8, 2004

Last month, the U.S. Bureau of the Census reported its findings on income and poverty. Median real income remained constant between 2002 and 2003 at $43,000; the official poverty rate rose slightly from 12.1 percent to 12.5 percent for a total of 36 million Americans; poverty rates by race remained unchanged at 8 percent among whites, blacks 24 percent and Hispanics 22 percent. Dr. Daniel H. Weinberg, Bureau of Census division chief, added that income inequality remained unchanged with the lowest 20 percent of households ($18,000 and below) earning 3.5 percent of national income and the highest 20 percent ($86,900) about 50 percent.

The poverty report gives vice-presidential hopeful Sen. John Edwards a little fodder for his "Two Americas" stump speech. That's the one where he says, "(There's) one America that does the work, another America that reaps the reward. One America that pays the taxes, another America that gets the tax breaks." This is demagoguery and unadulterated dishonesty that can only appeal to the misinformed and ignorant.

Let's look at who doesn't pay taxes. According to a study done by Scott Hodge, president of the Washington, D.C.-based Tax Foundation, and his colleagues, 41 percent of whites, 56 percent of blacks, 59 percent of American Indians and Aleut Eskimos, and 40 percent of Asians and Pacific Islanders will have no 2004 federal income tax liability. The Tax Foundation study concludes, "When all of the dependents of these income-producing households are counted, there are roughly 122 million Americans -- 44 percent of the U.S. population -- outside of the federal income tax system."

Who does pay federal income taxes? The top 20 percent of income earners pay 80 percent, and the top 50 percent pay 96.5 percent of total federal income taxes. Given these figures about who does and does not pay federal income taxes, what are we to make of John Edwards' stump speech? He's right in one sense. One group of Americans -- those at the top -- work and pay virtually all federal income taxes, and another group -- those at the bottom -- work and pay little or no federal income taxes.

There's another issue about income inequality. If it's your vision that out there somewhere there's a pile of money to be divided among Americans, the reason the top fifth of Americans have much more than the bottom fifth is that they got to the pile of money first and took an unfair share. Justice, of course, would require that their ill-gotten gains be confiscated and redistributed to their rightful owners. But in a free society, income is mostly determined by one's ability and willingness to produce goods and services that satisfy his fellow man.

The top fifth of income earners (earnings greater than $84,000) are not only more productive and have higher skills and education than the bottom fifth of income earners, they work more hours and have more people in their household working.

There's something else that gets little attention. There's considerable income mobility in our country. According to Internal Revenue Service tax data, 85.8 percent of tax filers in the bottom fifth in 1979 had moved on to a higher quintile, and often to the top quintile, by 1988. Income mobility goes in the other direction as well. Of the people who were in the top 1 percent of income earners in 1979, over half, or 52.7 percent, were gone by 1988.

Here's my question to you. What are we to make of politicians, and other charlatans and quacks, who are knowingly dishonest and use the politics of envy to exploit American ignorance for political gain? It's immaterial whether you're for George Bush or for John Kerry winning the White House -- do you think politicians running on the politics of envy bodes well for the future of our country?

[Dantilla]

That should be required reading for every high-school student in America.

[fintstone]

It would seem that the only ones who would want to increase taxes on the "rich" or in other words, the 50 percent who already pay 96.5 percent of federal taxes.....would be those, who plan to never be in that position. Obviously those who plain to fail ultimately will...and why not?...the more productive group will always bear the burden of their sloth.

[fintstone]

More straight talk from another noted economist:

Jobs and snow jobs
Thomas Sowell

September 9, 2004

Jobs have become a big issue in this election year -- which means that it is optimistic to expect a rational discussion.

Nothing is discussed more irrationally than "outsourcing." It is obviously completely misleading to discuss how many jobs American companies are sending to other countries without even mentioning how many jobs foreign countries are outsourcing to Americans.

Yet those who are making the most noise about outsourcing seldom say a word about the in-sourcing of jobs from other countries. But it is the net balance that matters.

Maybe those statistics are hard to get. But you certainly won't get them if you are not even looking for them and avoid even mentioning them.

Official statistics published last March in the Survey of Current Business showed an increase of 2.8 million jobs outsourced by American-owned multinational corporations during a quarter of a century ending in 2001. Over that same span of time, there was an increase of 4.7 million jobs outsourced to Americans by foreign-owned multinational corporations.

These numbers go back and forth over time. But they don't even exist in the rhetoric of those denouncing outsourcing.

Any laws passed to stop the outsourcing of American jobs to other countries are almost certain to bring laws in other countries to stop the outsourcing of jobs to Americans.

We had something like that during the Great Depression of the 1930s, when international trade restrictions were imposed in order to save jobs during a period of record unemployment. Countries around the world did the same thing, with the net result of a sharp reduction of international trade and a needless prolonging of the depression.

Many policies designed to "save jobs" have effects that are the opposite of their intentions. Germany has some of the strongest job protection laws in the world -- and double-digit unemployment rates are common in Germany.

Job protection laws add to the cost of labor. These laws may save the jobs of those who already have jobs but the passage of time brings new young job applicants into the labor market and the high cost of labor means that employers have incentives to get their work done by substituting machines for workers or by shifting to producing products that require less labor.

Countries in the European Union as a whole have stronger job protection laws than the United States -- and higher unemployment rates because their rate of job creation is much slower.

On the other end of the spectrum, there has probably never been any place with a more unrestricted labor market than Hong Kong when it was a British colony. Unemployment rates of one or two percent were common in Hong Kong then. After China took over Hong Kong, it created various new benefits for workers -- and unemployment rates hit 7 percent, not high by European standards, but a multiple of what it had been for years.

What all this says, in various ways, is that there is no free lunch -- not even during election years.

Senator John Kerry says that he would create 10 million jobs if he were President. But Presidents don't create jobs.

The most a President can do is have policies that allow private employers to create jobs. Foolish policies can destroy jobs and prolong a recession or depression but Presidents cannot "grow the economy," no matter what political rhetoric says.

Of course the government can hire more people or favor a particular industry in one way or another, and thereby cause employment to be greater in that particular industry. But the government has no money of its own, and the money that it takes from the private economy to increase its own hiring or to promote hiring in some favored industry reduces the money available to hire people elsewhere in the economy.

President Bush's tariffs on imported steel may have saved some jobs in the steel industry but estimates are that the higher price of steel that resulted cost several times as many jobs in industries that use steel.

With jobs, as with anything else, it is the net result that counts -- and there is no free lunch, not even in election years.

[Superman]

We've been over this before. These figures are cooked. I'm not saying they're fake, but they're tailored. For example, I think they exclude payroll taxes, which hit low income folks like a sledgehammer, and leave many higher-income folks untouched. Certainly the high income folks who do not earn a wage at all. Having been a statistician, I'm probably entitled to tell this joke:

Three accountants are interviewed for the position of CFO. Each candidate is independently asked to add 2 and 2, and give an accurate answer. The first candidate performs multiple calculations, concluding that the answer is 4. The second, is more experienced and simply blurts out the same answer. The third candidate closes the CEO's door, looks around and, with his hand near his mouth, quietly asks "What do you want it to be?"