The Progressivity of Public Policies
Are the rich paying their fair share? Here from Greg Mankiw are taxes minus transfer benefits as a percent of market income:
Bottom quintile: -301 percent.
Second quintile: -42 percent.
Middle quintile: -5 percent.
Fourth quintile: 10 percent.
Highest quintile: 22 percent.
Top one percent: 28 percent.
Greg comments:
The negative 301 percent means that a typical family in the bottom quintile receives about $3 in transfer payments for every dollar earned. The most surprising fact to me was that the effective tax rate is negative for the middle quintile. According to the CBO data, this number was +14 percent in 1979 (when the data begins) and remained positive through 2007. It was negative 0.5 percent in 2008, and negative 5 percent in 2009. That is, the middle class, having long been a net contributor to the funding of government, is now a net recipient of government largess.
This is very interesting. Thanks for the info
The latter bit isn’t surprising; we’re in the deepest recession since the Great Depression.
Does this include corporate welfare and farm subsidies?
The fact that the middle class is a net recipient of government transfer payments makes sense on one level. Politicians want to buy votes with public resources. To maximize votes, politicians cannot ignore the median voter. Moreover, since the middle class is large, quite a few members of the middle class will fall somewhere in the center just to the left and right of the median voter.
Thus, votes are probably the easiest to buy if making policies that benefit the (large) middle class and appeal to the median voter.
Do you think this will silence Krugman?
As David noted, it went negative when we went into the Great Recession. Not sure you can draw any long term conclusions from this.
Steve
Those are good questions, David. I also wonder if it incorporates social security.
I don’t think these numbers will change much, even after getting out of the recession.
Don’t you just love it when a plan comes together? Soon the 1%’ers will be supporting the 99%’ers and all will be well.