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Lucky Duckies and Class Warfare

October 11, 2012

The phrase “Lucky Duckies” was coined in 2002 by the Wall Street Journal to refer to those taxpayers “lucky” enough not to have incomes high enough to have to pay federal income tax. Class Warfare seems quite in vogue these days, between Occupy Wall Street and the mainstream Republican reaction to it. I think it has more to do with cultural values than economics per se. The liberals’ side is that poor people shouldn’t pay taxes because they are poor. The conservatives argue that without “skin in the game” the poor will favor larger and larger welfare payments. Empirically, the poor don’t have much political sway, so I don’t personally worry about that objection. However, it is morally upsetting to some to see people take from a system they did not contribute to.

Cultural Values
How much control do people have over their poverty? Would conservative values help them? There are things beyond any one person’s control. Poor childhood nutrition and exposure to poisons such as lead paint can lower IQs and lower self control. But overall, it seems like people do have some control over their poverty. The poor have higher rates of dysfunctional behaviors that are unrelated to being poor. While the poor suffer from terrible schools, studying itself is free given the access to tremendous amounts of information and study aids on the internet, which is usually available at a public library. There is a subculture in America that lionizes poverty and the mistakes that lead to it, such as crime and excessive drug use. You know something is wrong with a culture that thinks its better to be a failure than a success. Hard work, discipline, thrift, getting and staying married, and other conservative lifestyle choices would result in a lot fewer poor people over time. It seems to me there is a right side and a wrong side to this issue. Puritanical, Victorian values would do a lot of good for the poor and I think the left should recognize that.

Institutional incentives lead to behavior, and over time, if enough people act a certain way, it becomes entangled in their culture. It’s hard to rely too heavily on this story, because states with high welfare recipients tend to be more against welfare. If welfare really encouraged a culture which depended on it, the pattern would be reversed. Although there may be some people who vote for huge benefits and never plan on paying taxes, I just don’t think it’s a large group. Americans overwhelming think of themselves as middle class, with all the cultural baggage that comes with that. Even the poor like to think that one day, they will be rich too.

Who Pays?
Although it is hard to disentangle how the burden of taxation is actually borne, it is clear at least that the rich pay most taxes in the U.S. Whether it is capital gains tax, income tax, property tax, estate tax, or corporate taxes, most of the assessed taxes hit the rich harder, not only in total value, but also as a proportion of their incomes. The U.S. has a more progressive tax structure than most other first world countries. The rich also have less deductions as a proportion of their income than the lower classes.


Source.

You can’t just look at income tax and say who pays how much tax and if people are “takers”. The various taxes are paid in roundabout ways as well. For example, a poor person who shops at Walmart pays the corporate income tax in the form of higher prices.
Sources of Federal revenue

Who Benefits?
While perhaps the rich disproportionately benefit from the “other” category (I don’t know), it’s pretty clear that most of what the government spends money on is geared toward benefiting the poor. Medicare, Medicaid, Social Security, welfare, and unemployment programs are all designed to help the poor more than the upper classes, and defense benefits everyone equally. While the government does have programs which help the wealthy, such as corporate welfare and financial sector bailouts, they are not the majority of what the government does.

Source.

Where do we go from here?
Middle and lower class incomes have been stagnating for awhile now (see chart below), which is probably driving the demand for more welfare. Most of the countries with larger welfare states have less progressive taxation, more homogeneous populations, and less immigration. I am uncomfortable with class warfare politically, so if welfare needed to be higher to quell the fires, I’d be fine with that.


The U.S. is in the middle of the pack by welfare expenditures

Further Reading:
The Economist on Making and Taking
TC comments.

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