Friday, April 15, 2005

"Punish the rich" ideology

If you are reading this blog, you probably are already well-versed in the massive unfairness of the current U.S. tax code - i.e., the "rich" get soaked while the "poor" pay next to nothing. Rush Limbaugh's homepage has the gory details.

A "news" article from the Christian Science Monitor today argues that the Bush tax cuts are producing a de facto flat tax by giving more tax breaks to the dreaded rich. Regardless of whether the tax burden is "flattening" or not, this paragraph at the beginning of the article caught my eye:

"Ever since the introduction of the modern income tax in 1913, US policy has been guided by the notion that the rich should pay a larger (sic) of their income in federal taxes, since they arguably owe something extra to a government that protects their greater wealth, and to a society that has helped them prosper."
Ok, assuming this rationale is true it says absoultely nothing about the difference between a larger percentage and a larger absolute value. Under a flat tax, the rich will pay more absolute dollars in taxes - the same percentage of a larger amout is larger. Hence, even if they owe something "more" to society for creating more wealth than less productive people (sorry, I just can't help putting the facts straight) they do pay "more" with a flat tax and the CSM article has no point.

The unanswered question is - how much more do the productive (er, "rich") "owe" to society? Notice how the CSM article leaves out a word after "larger." Was this intentional?

Allow me to give a lesson on how the media use statistics to lie about the tax code. The deception is easy because it simply entails mixing up percentages with absolute values.

Let's suppose a "rich" person makes $100,000 per year in taxable income and a "poor" person makes $10,000, again in taxable income. Under a flat tax - say, 20% - Mr. Rich will pay $20,000 in taxes while Mr. Poor will pay $2,000. Now suppose a Republican President and Congress cut the flat tax rate to 15%. Mr. Rich will pay $15,000 while Mr. Poor will pay $1,500. What will the media say?

- Mr. Rich got a tax cut ten times larger than Mr. Poor ($5,000 compared with $500), or
- Mr. Poor's tax cut was only 10% of Mr. Rich's.

That is the most typical type of distortion because it is the easiest, and reporters as a group are not known for their math skills. Here's another deception, used mainly by liberal interest groups (i.e., where someone has more than rudimentary math skills):

Assume the same facts. The media can report the size of the tax cut in multiple ways. They may say it's 5% (20% - 15% = 5%). They may say it is 25%. (Both Mr. Rich and Mr. Poor are paying only 75% of what they would otherwise pay without the tax cut.) Both are mathmatically correct. The deception here is to mix these two. The media ofter report this as Mr. Rich got a 25% tax cut while Mr. Poor got only a 5% tax cut.

Just repeal the Sixteenth Amendment.


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