The Monkey Cage

By “misleading” I gather you mean fatal.
Greg Mankiw’s blog does not permit comments.
Blog blunders that do not permit comments are doomed to repeat.

Greg changed the phrase because he knows that the data doesn’t include payroll taxes. According to thispost By June 2009, annual revenues for the payroll tax collections had reached almost 90 percent of individual income tax collections.

Greg Mankiw is often intentionally misleading in his blog.

I feel sorry for students stuck with his textbook…

Feel sorry for me. Krugman’s latest edition of macro still isn’t shipping to the UK, whilst Mankiw stares me in the face in Waterstones.

You want to draw attention to the difference. So what? I think you are the one being misleading by suggesting it will significantly affect the conclusion.

Federal government revenue (from all sources) is roughly three and a half times what states collect through taxes, so weight the impact of local taxes proportionately.

45% of the Federal government’s revenue is from income tax. 48% is from payroll and corporate income taxes. (4% is from excise taxes, 3% from all other sources.) Payroll tax might somewhat reduce the progressivity of personal income taxes, but only if you — unlike most liberals — count it as a tax on the employee rather than on the business.

It is not clear at all that the difference between income tax burden and overall tax burden changes the general conclusion. If you count the various local taxes, it may be that the top 1% pay more in income, sales, property and other taxes than the bottom 90% (instead of the bottom 95%). If you allocate business income and payroll tax by business ownership, maybe the 90% goes up. Does that have a substantially different moral?

I would readily swallow my opposition to our ridiculous federal income tax scheme if those who pay no federal income tax would agree to forego future benefits they receive from government. It’s hard to contest an electoral majority that unconsciously continues to vote for getting something for nothing.

Ned: I wasn’t trying to say that Mankiw was intentionally misleading. It seems more likely to me that he just read and copied the quotation quickly without fully processing it. And the author of the original piece may not have been intentionally misleading either—I can easily imagine slipping from “income tax burden” to “tax burden” without noticing.

Michael: I think the payroll tax is 1/2 on the employee and 1/2 on the business. As you point out, taxes on business are indirect taxes on individuals, and ultimately there is no precise way to allocate the burdens, so in that sense all these calculations are approximate.

In any case, I think it’s misleading (even if not intentionally so) to imply that income tax burden = tax burden.

William: I don’t think this would work. For one thing, people’s incomes vary from year to year. You might pay no income taxes at the age of 21 but pay a lot at the age of 30. Also, I don’t know why you say “unconsciously” in your last sentence. My impression is that “getting something for nothing” is often a popular idea.

Michael (commenter #2)

The “tax burden” includes state and local taxes a large portion of which are sales taxes that are far more regressive.

You inserted the word “federal” in the discussion where Mankiw and the tax foundation left it out.

[Too bad we can’t have this discussion in the comments section of Mankiw’s blog of lies and half truths.]

Andrew,

It’s good of you to give Mankiw the benefit of the doubt.

However, Mankiw’s modus operandi is to drop data points like this which always happen to reinforce rather than challenge his worldview. It’s a big exercise in confirmation bias and has become quite boring for me as a reader. Why should I read his blog if I can always guess the conclusion? The lack of comments just further suggests that he doesn’t want contribute to a real dialog.

Compare to Tyler Cowen, Brad Setser, Econbrowser, Calculated Risk, Yves Smith, Felix Salmon, who in contrast all appear to be thinkers who test their own assumptions rather than simply proselytize their preconceptions. That is much more interesting to read, far more educational, and intellectually honest.

In case anyone’s curious: a quick google search yielded that richest 1% earning 22% of all income in the US (as of 2006). So, to me, the more interesting statistic is that their income tax burden is roughly twice that of the other 99%, which doesn’t seem particularly progressive to me.

See this study by CTJ (Citizens for Tax Justice)
We appear to have reached a flat tax position.

Is “Tax Day” Too Burdensome for the Rich?
The U.S. Tax System Is Not as Progressive as You Think
Many politicians, pundits and media outlets have recently claimed that the richest one percent
of American taxpayers are providing a hugely disproportionate share of the tax revenue we
need to fund public services. New data from Citizens for Tax Justice show that this simply is
not true. CTJ estimates that the share of total taxes (federal state and local taxes) paid by
taxpayers in each income group is quite similar to the share of total income received by each
income group in 2008.
# The total federal, state and local effective tax rate for the richest one percent of
Americans (30.9 percent) is only slightly higher than the average effective tax rate for
the remaining 99 percent of Americans (29.4 percent).
# From the middle-income ranges upward, total effective tax rates are virtually flat across
income groups.

This whole discussion rests on the false assumption, laid bear by Thomas Nagel & Liam Murphy in ‘The Myth of Ownership’, that we can assess the justice of a system of public goods by the proportion of pre-tax income that individuals pay. Instead, as they argue, the distribution of income in society depends on how we organize the system of public goods (e.g., from the shape of property rights to public education). This system (and the holdings it instantiates) can only be said to be legitimate insofar as it brings forth a just pattern of distribution in society. Given this, when we ask whether or not a society is fairly distributing benefits and burdens, we should focus on the outcome of the system rather than the burden of pre-tax income shared by different groups. After all, the well off - to a great extent (perhaps over-estimated by N&M?) owe their position in the pre-tax distribution of income to this system of public goods. What we need to know is whether that system is legitimate in that it has brought forth a level of efficiency and fairness that is tolerably just. Thus, I do not see reasons of fairness to be concerned about Mankiw’s statistics.

[Murphy & Nagel’s book, by the way, is a great example of how good normative analysis can help social science be more useful and, more generally, clarify discussion on important political issues.]

First, they may be paying a lot of the taxes, but that may also be because they’re making all of the money. What we really need is someone to look at tax burden as a percentage of income.

Secondly, it’s a well-known fact that income taxes are progressive while payroll taxes are regressive. Poor people pay most of their taxes in payroll taxes while rich people pay more in income taxes. Looking solely at income taxes is misleading.

And regarding his sly substitution of the more suggestive term, tax burden, I’d advocate a return to the language the nonpartisan Congressional Budget Office uses, tax liabilities.
http://www.cbo.gov/ftpdocs/88xx/doc8885/Appendix_wtoc.pdf