Summations Only

I accept your correction. But I'd credit any trickling down of wealth that resulted from giving rich people more money as a justification for trickle down (or more accurately "voodoo") economics. But as has been pointed out, there is absolutely no evidence that any trickle down theory works. I am really at a loss to figure out what Percy's point is and I don't want to weigh in until I do understand. Just thought I would have some fun with 77's post in the meantime.

The problem, Percy, which you seem to completely ignore, is that spending does not increase linearly with increased wealth.A person making $30,000,000 does not spend a thousand times as much as a person making $30,000. Yes, he will spend more than a person making $30,000......but a thousand people making $30,000 each will actually spend more in aggregate than a single individual blessed with their total income.If economic activity is measured solely by the flow of money through spending (whether that spending is purchasing goods at the end of the production line or investing in a business at the top), allowing wealth to concentrate in individuals is objectively less beneficial than spreading the same wealth among a larger group of people.You have indeed said this many times, and frankly Percy......it simply reeks of "I've got mine, fuck you" mentality. You're clearly taking the position that taxation is a form of legal theft, whereby "the evil government" steals money from those good wealthy folk to give it to people who didn't earn it.You're being only slightly more subtle than "Atlas Shrugged" here. And if that's not actually the sort of position you see yourself in, perhaps you should try to re-examine your views.In any case, given that it is simple, plain fact that a person making $30,000 annually will always spend a higher percentage of his income than a person making $30,000,000 annually, encouraging investment by lowering relative tax rates for the incredibly wealthy is inefficient in comparison to lowering taxation for the poor and middle-class.There are far, far better ways to encourage investment from the top than by simply reducing relative tax rates such that Warren Buffet pays a lower percentage tax than his secretary. Lowered taxation isn't actually an incentive to do anything at all - it simply allows for those who already have an enormous pool of resources to have a yet larger pool of resources.If your goal was truly to encourage investment that trickles down, you wouldn't support a simple blanket tax reduction on the wealthy.Instead, you'd support things like a tax credit for opening a new business, or for hiring a new employee, or raising the minimum and median wage of your employees, or for providing new employee benefits - all of the things that trickle-down proponents say are the real goals of economic policy. This way the tax decrease is only available for those who actually do the things that trickle down to the rest.Yet curiously the proponents of "trickle-down economics" do not support these things. They support lower tax rates for the hyper-rich, the "job creators," on the basis that the lowered taxes will free up funds to create new jobs and fuel the economy...yet resist any and all attempts to actually tie the tax breaks to those actions such that those who choose to simply swim in their vault of gold should not receive the lowered rates as well.If a way to achieve a stated goal is readily and easily available, yet those who state that goal choose not to achieve it...then clearly their stated goal wasn't really their goal at all.The proponents of lower relative tax rates for the hyper-rich, then, do not actually intend for wealth to trickle down. They may think they do, but they do not; they are rationalizing. Their real position is "Fuck you, I've got mine, you can't have it, it's my money."They've written their conclusion, "...and therefore the rich should pay a lower percentage tax rate," before even starting to consider the problem. Afterwards, they've gone and tried to write clever arguments in support of that conclusion like "if the rich have more money, they'll spend more, and so the poor will get some of it too." But the simple fact is that whether trickle-down policies actually work at improving the lives of the poor and middle-class was not the deciding factor, or even considered.They're arguing from the wrong end. Trickle-down economics is not a conclusion stemming from evidence. It's a conclusion, supported by post-hoc rationalization to sell it to the majority so that they vote against their own best interest.Which is why, even though trickle-down policies do not work (as shown quite clearly even just in this thread) for improving the lives of the poor and the middle-class, the proponents of trickle-down policies will continue to champion their cause.After all, whether it works or not was never the deciding factor anyway.

Hi all!There are a few too many replies for me to respond to them all, so this single response will have to serve.I can see that the way I phrased the question rubbed a lot of people the wrong way. A more neutral way of asking the same question might be, "Would raising taxes on the rich harm or benefit the economy?" Straggler posted this graph in support of the position that it would benefit the economy: But what this graph actually shows is median household income rising and falling in synch with top 5% income. In the early 1980's the slope of the top 5% curve (both upward and downward) increases because the drop in the top marginal rate reduced the motivation for sheltering income, and increased the motivation for increasing income.But that only explains the graph. It doesn't answer the question, and I don't think the data on the graph is sufficient to answer it.--Percy

FTFY.

But it doesn't show that at all. Median household income is the blue line; top 5% incomes are the red. They're nowhere close to each other.The graph is percent change; in other words it's a first-derivative graph. If median incomes rose and fell in sync with top 5% incomes, the lines would track each other. But they're not even close. What tracks is top 5% incomes with total GDP; what doesn't track is median incomes with GDP or top 5% incomes, or minimum wage with growth in productivity.Edited by crashfrog, : No reason given.

The risings and the fallings in median household income and top 5% income are in sync with each other. That means the risings and fallings happen at the same time, not that the lines are close together on the graph. US GDP per capita doesn't even move in the same direction around 2002-2003. Here's the chart again: In order for the chart to be evidence against a trickle down effect, which is how Straggler presented it and which was the point I was addressing, median household income would have to be largely unaffected by rises and falls in top 5% income, but that's not what the graph shows.What the graph does show is that since the Reagan tax cuts top 5% income has risen in rough tandem with US GDP per capita. There seemed to be a strong feeling in many of the replies that if the rich didn't make and keep so much money that the rest of us would be better off, but while related to the question of whether trickle-down economics works, it's a much more wide-open question.By the way, it's not a first derivative graph because it's showing percentage change from a fixed point in time. It's not a graph of the slope of the lines. For example, the median household income line, before being converted to a percentage, was in units of $/year. The first derivative would be Δ$/year. For example, the percentage figure for median household income in 2010 looks to be in the neighborhood of 20%. Obviously median household income did not rise 20% in 2010. All the graph is saying is that median household income was 20% higher in 2010 than in 1965, adjusted for inflation.--PercyEdited by Percy, : Typo.

I don't see the "sync". If median income was in sync with top 5% incomes, then when top 5% incomes rose 20%, median incomes would rise 20%. And since this is a graph of percent change, that means the lines would track each other. Like they do prior to 1980.But they don't track after 1980. When top 5% incomes have risen by 40% in 1990, median incomes rose only 20%. Minimum wage had fallen by 30%. In 2000, median incomes had risen by 30%, the highest growth since the start of the graph; but top 5% incomes had risen a whopping 100% since 1967.They're just not tracking in any intelligible sense that I can see. But that's exactly what it shows, that median incomes are almost completely insensitive to GDP gains, while top 5% incomes are almost completely determined by it.

A rising tide lifts all boatsNo no no.You are both changing the question again and attributing to me a position that I have not advocated in this thread again.What I have said is this - If we are going to cut taxes to stimulate growth should we focus tax cuts on the wealthiest or on the majority? Which will have a better effect on the economy to the benefit of all - Trickle down economic policies or a more Keynesian demand boosting approach? I have suggested the latter as superior.I suggest the latter because the data shows that 30 years of flirting with trickle down policies have blatantly NOT resulted in the benefits for all that are claimed by proponents of trickle down economics. The data shows that the richest have almost exclusively benefited from rises in productivity in a way that exactly contradicts the justification for implementing trickle down economic policies. The US data shows this. And the UK data almost exactly mirrors it.In short the data refutes the claim that trickle down economics works.

I think that Percy is arguing that the rises and falls happen at the same time, although they are far less pronounced in the median income. That includes the dip just after 2000 which is not present in the GDP curve. However, this could easily be due to common causative factors, without trickle-down playing any role at all.I would be cautious of drawing too much from this graph, however, the fact that the income of the top 5% closely tracks median income up to just after 1980, but soars ahead after that date - while median income seems to show about the same level of growth as before -argues against any significant benefit from trickle-down on median income.

Hi Crash,In the first quote in your message you left out the important part: Correlation doesn't mean things track together in roughly the same place on the graph. Lines that rise and fall together (meaning at the same time) are very likely correlated. Rises and falls of 20% on one line corresponding to rises and falls of 5% on the other line that happens consistently is a very, very strong correlation.If you plugged the data into a correlation analysis program it would give very high measures of correlation between the top 5% income line and both the GDP and median income lines. Whether any two lines happen to "track" close together on the actual visual presentation isn't much of a factor, except that maybe it stands out to humans.Cause and effect is much more difficult to establish.--Percy

Who cares if they happen at the same time? Indeed, under what possible situation would they happen at different times, since GDP is going to be a limiting factor on everybody's wage levels?

Who cares? Well, if you want to correctly interpret the data then you should care. As I pointed out, around 2002-2003 GDP doesn't even move in the same direction as income.Visually eyeballing a graph to reach conclusions about correlation has got to be fairly error prone, and that's what we're all doing. Maybe I'm wrong, maybe you're wrong, maybe we're all wrong, we can't know the correlation for sure without the help of an analysis program. But you're not even considering one of the possible correlations because you mistakenly believe that lines have to track visually to be correlated.If it helps with your doubts concerning whether top 5% and median incomes are correlated, all the sine waves in this image are 100% correlated, including the one that's barely moving: Correlation is a measure of predictive power. In this case, if I know the value of a particular sine wave at any point in time then I can precisely calculate the values of all the other sine waves at that time.When I look at the income graph I see that whether top 5% income is rising or falling is very predictive of whether median income is rising or falling. For GDP, still pretty good, but not as good as top 5%.--Percy

Again, I just don't see that at all. It's like we're looking at two different graphs, or something.

Hi Crash,Maybe what you're really looking at is strength of the effect instead of strength of the correlation. Just going visually, it appears that the strength of the effect of changes in GDP is much stronger on top 5% income than on median household income. The rich benefit to a much greater degree than the average household from the effects of increasing GDP, but the average household still benefits. The correlation is not zero, and neither is the strength of the effect. The increasing income of the rich deriving from their efforts within the economy to either manufacture or sell or provide services is a significant contributor to GDP and *does* trickle down. It's right there in the graph.I can tell that many in this thread believe they have less because the rich have more, but this is the kind of "Kill Ivan's goat" thinking (referring back to the joke I quoted in Message 23) that hurts an economy. Taxing the rich more won't necessarily make things better for everyone else, and as I've already argued, the rich are very good at protecting themselves.I'm not just talking through my hat here. The top marginal rate in the US is 35% on income over $400,000, but Romney paid only 15% on income of $20 million. How does that happen?I don't know how many of the rich are paying only 15% on their income, but certainly any who fall into this category are not paying their fair share, and government should fix this, but increasing the top marginal tax rates isn't the answer. Closing loopholes is the answer. But as I've said before, the rich wield considerable political power in congress where loopholes are born, and I wouldn't be optimistic about a solution.--Percy

Isn't that exactly what we're practically interested in? The strength of the effect?Otherwise you're making a correlation = causality mistake, since the purpose of this discussion is about what policies or interventions, if any, would enrich the median income level. But it's not right there in the graph. The exact opposite is right there in the graph - that the median income level is all but insensitive to changes in the top 5% income level. Therefore trickle-down doesn't work. That's what the graph shows - increases in the top 5% income level don't cause commensurate increases in the median income level, because median income level is not correlated with top 5% income levels. And this is for the reason that I demonstrated earlier - the rich don't actually spend that much. Intuitively, you must understand that this is the case. If the rich spent all their money they wouldn't be rich! I've not seen even a single person in this thread make that argument, and I can only take this as another instance of us, somehow, looking at two completely different sources (since I don't think you're a liar.) But it's abundantly obvious that the rich are capturing the bulk of the increase in national GDP since 1980 while at the same time not being particularly responsible for it. The notion that the US economy is somehow grounded on a foundation of Paris Hilton's luxurious largesse is risible. There just aren't enough rich people, and enough hours in the day, to spend the wealth held by the top 1% assetholders. That's all wasted money. Even as an investment it's wasted because it must eventually be paid back to them with interest; the wealth of the rich actually impoverishes everyone else over time as they loan it out. Because you don't understand the tax code. 35% is the top marginal tax rate on wages and salaries, but the bulk of Romney's income is capital gains. Capital gains are taxed at 15% regardless of your income level; there's no "marginal rates" on capital gains, just a flat 15%. But Romney did pay a 35% rate on all his salary income after $400,000, if he actually had that in salary income. It's most likely that he did not (since he's currently unemployed.)If it's so impossible to tax the rich, if they're so much better at evasion than the IRS is at extraction, then why did Romney pay anything at all? Clearly it's not as hopeless as you make it out to be.And, look, who else are we going to tax? Nobody else has any money! Half of Americans paid absolutely no income tax last year because they had absolutely no wage or salary income - they were children, or unemployed, or retirees.Edited by crashfrog, : No reason given.