More on the Distribution of Benefits

From my home blog, this chart, which shows the average benefit for the bottom 80%, the median benefit for the bottom 80%, and the benefit for the top 1%, under Bush's plan and under Grassley's plan (for more on Grassley's plan, see this post). As you can see, Grassley's plan isn't progressive, per se, but compared to Bush's proposal, it's a plan Eugene Debs could endorse.

Note how I had to add the labels indicating the savings for the median tax payer in the bottom 80%--without the labels, you can't even see it.

AB

NOTE: I should clarify that the $2.50 median figure is a best guess that is much more likely to be zero. All other numbers are real--derived from the Waxman report, the CNN report on Grassley, and some algebra. How did I get $2.50? For the first time ever, in 2001 the number of stock holders exceeded the number of non-stock holders. So a bit more than half of the U.S. population now owns stocks, meaning that 40-something percent do not own stocks and therefore do not receive dividend income at all and thus have a (direct) benefit of zero from a dividend tax cut. The median of the 0% to 80% range is the 40th percentile of the overall income distribution. If stock ownership increased one-to-one with income, then the median benefit would be zero. But then I figured that some (but a distinct minority) of the 40th percentile (income of $33,314) might hold a few shares of the biggies, ATT, Coke, GE, and the like, so I guessed that dividend income would average out to about $2.50 (averaging a bunch of zeroes, and a few numbers in the hundreds of dollars and then multiplying by the 20% tax rate for that bracket).

Around the Econoblogosphere

Dwight Meredith of PLA joins the discussion on Warren Buffet's dislike of Bush's tax cut plan: Is this what W means by "faith-based initiative?"

Max Sawicky at MaxSpeaks is talking healthcare costs around the world and the private sector. Guess where the US stands?

James R. MacLean of The Watch on how real economist's celebrate Mother's Day.

And I've been talking unemployment a lot over at Wampum. Jobless claims decreased this week, but the number of people eligible for unemployment insurance has dropped significantly over the past year. More on that this weekend over here at ISTE.

More on the Dividend Tax Cut

The picture first appeared in Henry Waxman's study of Bush's proposed dividend tax cut, then appeared on gorilla-a-gogo, which Off the Cuff then linked and copied, which CalPundit then also posted ,with attribution; then I put it up on Angry Bear. If you still haven't seen it, here it is (for those unclear on the regressive concept, I've identified which bar applies to you, unless you make over $374k per year):

This graph is a great example of why (at Angry Bear) I was able to state with confidence that "[Grassley's] proposal is not Bush's plan; it's just the best Bush can get without Snowe, Voinovich, Collins, and Chafee (Zell Miller can only sell out once). Were Bush's plan implemented, I assure you it would be regressive."

How would things look under Grassley's plan? The rich would get to exclude $500 of dividend income, which would otherwise be taxed at 38.6% (2003 rate), for a savings of $193; the bottom 80% would get an average saving identical to that in Waxman's graph, $29.50. Even that figure overstates the benefit--the $29.50 stems from a relatively small number of upper middle class (70th-80th%) getting a benefit well above $29.50 and the majority of the middle and lower class getting 0. Seriously, would it be so hard to identify the mean and the median benefit of the various tax programs? In this case, the median benefit to those in the bottom 80% would be the benefit to the person in the 40th percentile, which I suspect would be very close to zero--maybe $2.50 in tax savings.

Whenever the average of X is well above the median of X, you know that the distribution of X is skewed upward. Suppose you and ten friends are in a room and that the average income in the room is $50k, which is also the median (half make more than $50k, half make less). Now take your wealthiest friend and replace him with Bill Gates, who makes $1 billion per year. The average income becomes $104.5 million, but the median remains unchanged at $50 thousand. More to come.

AB

P.S. Why all the emphasis on attribution? See this post.

More Buffet

As reported below by Matt Stoller, Warren Buffet recently came out strongly against the Bush tax cuts, going so far as to say "I don't think enough of it [federal revenue] comes from people like me and too much comes from people who work in our shoe factories."

Is Buffet just some rich old guy with outdated opinions? Consider his track record. In the late 1990s tech boom, Buffet took a lot of heat from Berkshire shareholders over his refusal to involve Berkshire Hathaway in the tech boom. From 2000 onward, he had many grateful shareholders. Buffet also has long argued for the expensing of stock options, arguing that burying those expenses allows companies to inflate earnings and that the options are granted disproportionately to top management. While not the same as the fraud at Enron, not expensing options is similar in spirit and in effect to more nefarious methods of inflating earnings. Also, Buffet's salary is only $100,000k per year, though he stands to make substantially (i.e., hundres of millions) more if the company he operates, Berkshire Hathaway, does well--and to lose equally large amounts if his company does poorly. The point: the man knows business, and unlike another recent newsmaker, he practices what he preaches.

AB

X-Posted at Angry Bear

Must be time for more tax cuts

CNN/Money has a special feature up, Jobless in America. I'll have comments after I have time to read it (the day job is getting in the way), but in the meantime, here's some titles of the stories in the feature:

• News: Job cuts soar
• Job-search hell
• It's the jobs, stupid
• TODAY: Discouraged workers

For now, I'll point out that the 6% number does not count discouraged workers--the unemployment rate is the number of active job searchers divided by (# active job searchers + # of employed people).

More importantly, I'll also point out that tax cuts really do not benefit the unemployed. Sure, they may be stimulative and someday create growth and thus more jobs, but over the next few weeks and even the next few years, that effect is trivial. The long run benefits of tax cuts must be weighed against the costs of higher deficits and the concomitant expectations of future inflation. While any possible trickle down benefits of a tax cut accrue at some unknown point in the future, the recessionary effects of expectations of future deficits occur now.

AB

X-Posted at Angry Bear

James McLean of The Watch on the [sinking] US dollar (links are bloggered):

This posting was inspired by Brad DeLong's site. Some of you, especially those who travel a great deal, might be wondering what is happening to the US dollar. Well, of course it is sliding against currencies like the euro; in 2001 the dollar was worth 1.17 euros, and now it's something like 0.87. The dollar has also slide against the pound, and a little less against the yen. Weighted for trade (that is to say, measuring the exchange rate of the US dollar relative to those with which we conduct the most international trade), the US dollar has actually stayed fairly steady.

The latter point is not terribly reassuring to those who normally watch currency movements. It's something a "calm-down" writer can nearly always pull out of his sleeve: the US conducts a huge share of trade with third world countries whose currencies are always sliding against themselves--currencies like the real (Brazil) or the peso (of practically anywhere). This is not meant to be snide--there are much more important priorities for economic managers in the third world than fighting inflation--and it's not really meant as a gratuitous slam of our own trading patterns, either. It's just that the US dollar looks like it's sliding unless you measure it against the currencies of countries that normally have rather high inflation--or, in short, the US dollar is sliding. [more]