PLACES LIKE NEW YORK CITY AND THE BAY AREA always will be more expensive than other places in the country. It is easy to see why: Both New York and the Bay Area are global economic powerhouses, because they are international finance, media and technology hubs. Given the level of economic activity and talent in the Bay Area, this always will be a place that charges a premium to live here. I completely understand that.
That said, it has occurred to me more than once that one of the things that makes Manhattan so much more expensive than Cleveland, or the San Francisco Bay Area so much more expensive than Indianapolis — in other words, something that partly explains the size of that premium — is our income tax structure.
One of the objections to higher marginal tax rates I hear from lots of folks, on both the left and the right, is that “a generous salary that will buy a house and car for a family of four in Cleveland, Ohio will barely feed a single person living in a studio apartment in NYC.”
But again, why is that true? Why is New York that much more expensive than Cleveland? As I already acknowledged, it is always going to be more expensive — but why is the gap so big?
As I’ve mentioned before in this column, for roughly 35 years after World War II (including under Republican President Eisenhower) income tax rates were much, much more progressive than they are now. The top marginal rate (paid on the highest proportion of rich people’s income) hovered between 91.5 and 94 percent during Ike’s presidency, and rarely dropped lower than 70 percent until Ronald Reagan was elected in 1980. Even considering deductions and tax shelters, it was not worth it for executives to pay themselves obscene salaries and bonuses since taxes would eat up a huge amount of the excess.
This contributed to what economist Paul Krugman and others have called “The Great Compression”: Wages were “compressed,” meaning there was a far smaller gap separating the country’s fattest and leanest paychecks than there had been before the Great Depression, and a far smaller gap than there is now. It is worth mentioning that there was no special exemption for residents of the New York, San Francisco or Los Angeles areas.
A consequence was that places like New York were not as expensive relative to the rest of the country as they are now. Taxes ate up so much of richer peoples’ incomes that you couldn’t sell two-bedroom apartments in NYC for the 2014 equivalent of $2 million — the market wouldn’t bear it. After taxes, not enough people were clearing enough to pay for such extravagances.
Lots of attention has been paid to the gap between the pay of CEOs and their lowest-paid employees; less to none has been paid to the gap between rich states, or regions within states, and poor ones.
Look at a county-by-county breakdown of the 2012 presidential election results. See all that red? I see that as a worrisome problem. Yes, Obama won, and convincingly — but blue islands in a sea of deeply alienated red is not a recipe for the survival of the United States as a cohesive whole.
Progressives need to give the folks in that sea of red a reason to vote for the “D” on the ballot, or the U.S. will sooner or later cease to be viable as a unified entity. Ohio Sen. Sherrod Brown was asked once why people in Southeastern Ohio stopped voting for Democrats. His answer: “Because we stopped talking to them.”
Which brings up an awkward situation for many coastal folks who describe their politics as progressive or liberal: It is time that, purely in economic terms, they recognize that they are actually members of the elite. If you are raising a couple kids in relative comfort in Manhattan, Walnut Creek or suburban Maryland, you are, in fact, a member of the economic elite.
The fact that you are pro-choice, drive a Prius and are a vegan does not change the fact that you are members of that elite. The fact that you agitate for single-payer health care doesn’t change the fact that you are members of that elite.
What would change that fact is to show in your advocacy that you are willing to make sacrifices, and substantial ones, to ensure that America becomes a more just and equitable nation as time goes on. Unions need to be strengthened, the minimum wage needs to be raised, and the tax system needs to become far more progressive than it is now. And the government needs to use those extra tax revenues to provide opportunity to the bottom of the income scale.
Not only that, but rural communities across the country need comprehensive help.
All of the poorest counties in the United States are more rural ones. As a logistical matter, alleviating their suffering would be a nearly trivial matter, simply because of those places not having very many people in them.
You advocate for those things, and — and this is the hard part for elites, whether they be titans of Wall Street or a radiologist’s family in Danville — you sacrifice some relative economic status in order to live in a more just and equitable, more liberal, more progressive America, and you gain an America that the Democratic Party of Franklin D. Roosevelt, Harry Truman, a million union organizers and my immigrant, welder grandfather would be proud to call their own.
I keep saying this, and I will say it again: An America of plutocrats and rabble is not a sustainable place. Just look at other places in the world where these conditions obtain, and you also see things like Maoist insurgencies and repressive, autocratic governments.
But an America of coastal elites who are out of touch with supposedly benighted rednecks in the hinterlands is not sustainable in the long run, either.
Matt Talbot is a writer and poet, as well as an old Benicia hand. He works for a tech start-up in San Francisco.
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The problem Matt is that when the government wants to take your money, they are never satisfied. They always want more. And more is never enough. Eventually you run out of other peoples money.
The reason that you see so much red on the map and islands of blue is that most of America wants to be left alone and have government keep their stinking noses out of their lives. Those in the blue islands are just typically much more reliant upon government services. Those realities also account for a lot of other things too; like how people think about and vote on issues having to do with gun control for example. An interesting map would be one that would also show the number and concentration of people on government assistance by geographic area. I would bet that you would find that there is a strong concentration of folks on the government dole in the blue islands and less so in the rest of red America.
What you espouse does not and will not work. We need to stop thinking about ways to make for more government revenue and start thinking about less government spending. Keep dreaming.
Matt –
What is your current marginal tax rate?
What do you think is a fair and equitable tax rate for your income level?
Would your personal fair and equitable marginal tax rate change if you lived in SF instead of Benicia? If you lived in Augusta, GA?
What is your actual effective tax rate (total federal taxes paid divided by total income)?
If your effective tax rate is too low and is lower than your marginal tax rate, what exemptions, deductions and credits that you receive are you willing to give up?
Tom – If you could pay more taxes, and as a result reduce poverty to levels similar to those that obtain in western Europe, would you do so? According to the linked article, the child poverty rate in France was 8% in 2005. In the same year in the United States, the child poverty rate was around 18% (source)
Matt –
Since nobody is taxed at 100% we can all pay more in taxes. How much more are you willing to pay? After all, you’re the one advocating for higher tax revenue.
Is the 8% child poverty rate in France acceptable? What is?
Tom – If you’re asking if I’m willing to make substantial sacrifices to vastly improve the situation of America’s poor, the answer is a resounding “Yes!”
What would your sacrifice be Matt. Lets hear your sacrifice, not just words.
Taxes do to benefit poverty people, they benefit government.
As a nation we pay more in taxes than ever before, yet the average income of Americans is down $7500 since 2009. During this time, 7 out of 10 richest counties surround Washington DC.
Raising taxes benefits government and little trickles down to people. This is the worst form of trickle down economics.
Matt,
Way back in Mr. Dunphy’s high school econ one course he taught us about the Law of Supply and Demand.
NY’s Manhattan is an island, SF is a narrow peninsula, some of which is land fill (Marina District, SOMA), demand exceeds supply; prices go up.
Is that the only reason…No. Is that a major contributor to prices………yes.
Is it naïve to ignore that factor………yes.
All the above comments are right on. I will go a little further and say I see a hint of Marxism and for sure Liberal,Progressive Socialism in Matts thinking. What Matt does not see is that in places like Manhatan you are taxed at a much higher local rate than any where else. There is a tax or fee for everything. High property taxes, city and state taxes. It is not at all as you wish Matt. Again you want to redistribute the wealth. Very typical of Marxism.
“I keep saying this, and I will say it again: An America of plutocrats and rabble is not a sustainable place. Just look at other places in the world where these conditions obtain, and you also see things like Maoist insurgencies and repressive, autocratic governments.
But an America of coastal elites who are out of touch with supposedly benighted rednecks in the hinterlands is not sustainable in the long run, either.”
We can yammer on and on about tax rates being fair, govmint taking everything and wanting more, socialism, Marxism (which this is NOT, please, please read Karl Marx, people!) but the final two paragraphs of this piece are the absolute bottom line. If we learn nothing from the histories of Rome, China and the eastern European countries than the fact that they, historically, went the way we are going, we might, just might, be able to save the America we all want. Otherwise, as we move closer and closer to a plutocracy which is often driven by silly religious pandering, we are doomed.
jfurlong stated:we might, just might, be able to save the America we all want.
I would question who the “we” is in that sentence, as the America desired by many is a very different America then that authorized in the Constitution 400 years ago.
The author of this piece is a Statist who advocates confiscation of wealth by force of law to distribute said wealth in a manner as determined by the political leaders who believe that such wealth as been obtained by nefarious means.
Sorry, but there is no singular “we” that can define what America should be or can be.
I have also suggested to the author (the point was expectedly ignored) that I would favor a 90% taxation rate under the same tax policies in place at the time those rates were in effect..
Which would mean that the 90% rate would apply to amounts over about $7,000,000 (in todays dollars) and we would eliminate such BS as the “earned income tax credit”. It also means that everyone would pay a minimum amount on all earnings (less limited deductions).
Dennis –
The author of this piece is a Statist who advocates confiscation of wealth by force of law to distribute said wealth in a manner as determined by the political leaders who believe that such wealth as been obtained by nefarious means.
Well, what you’re describing is income taxes and government spending. I realize it’s fun to use loaded words like “confiscation” and :”force” to make the ordinary seem ominous and autocratic, but commies like Nixon and Reagan had no problem with taxation per se, and were even ok with redistribution – the earned income tax credit was signed into law by President Ford and expanded under President Reagan, after all.
That said: we’ve had a progressive income tax for around a century. The debate these days is how progressive it ought to be. I’m arguing for more progressivity. I’d like to put my government to work helping my less-fortunate fellow citizens. None of that is unconstitutional or a rejection of our traditions.
Matt said:I’d like to put my government to work helping my less-fortunate fellow citizens.
You say that as if they are not already doing so. Consider:
In the fourth quarter of 2011, 49.2 percent of Americans received benefits from one or more government programs, according to data released Tuesday by the Census Bureau
55% of our budget goes to various entitlement programs:
Social Security: 22%
Medicare, Medicaid, and CHIP: 21%
Safety net programs: 12%
Gerald Ford and the Earned Income tax Credit as originally intended looks nothing like the EITC that exists today, specifically the “refundable” portion of the law.
Your comments lead me to conclude that you feel I am opposed to all taxes and all social welfare programs. That is not the case at all.
Fair and reasonable taxation as well as support for the needy are both entirely acceptable. But taxation for the express reason of equalizing outcome is just plain wrong. And that is what you seem to be advocating along with 0bama.
I would like to see my government offering assistance to the needy and not encouraging government dependency for the expressed purpose of assuring reelection of those who want to increase said dependency, which is exactly what the Democrats are doing today.
not encouraging government dependency for the expressed purpose of assuring reelection of those who want to increase said dependency
That seems to be the Republican line, but there is very little evidence to support that interpretation. Government aid programs are motivated by some combination of altruism, aristocratic self interest (keeping the rabble’s minds off of torches and pitchforks), and Keynesian support for final demand in the economy.
Oh my Matt, you really do not have a clue.
In Florida, a food-stamp recruiter deals with wrenching choices
it is Nerios’s job to enroll at least 150 seniors for food stamps each month, a quota she usually exceeds. Alleviate hunger, lessen poverty: These are the primary goals of her work. But the job also has a second and more controversial purpose for cash-strapped Florida, where increasing food-stamp enrollment has become a means of economic growth, bringing almost $6 billion each year into the state. The money helps to sustain communities, grocery stores and food producers. It also adds to rising federal entitlement spending and the U.S. debt.
Further info in support of what I stated previously:
Welfare voter push has GOP crying foul
From the above piece:
The state has mailed out voter registration letters to nearly 500,000 welfare recipients, in a push sparked by a group led by former ACORN bigwigs that critics say is a naked bid to boost Democrats at the polls in November.
The chairman of the Foundation ( funded by George Soros) running this vote scheme is Amelia Warren Tyagi, daughter of Elizabeth Warren.
Dennis: you wrote: “encouraging government dependency for the expressed purpose of assuring reelection of those who want to increase said dependency, which is exactly what the Democrats are doing today.”
Thye links you posted here do not support that assertion.
From the first link:
“In fact, it is Nerios’s job to enroll at least 150 seniors for food stamps each month, a quota she usually exceeds. Alleviate hunger, lessen poverty: These are the primary goals of her work. But the job also has a second and more controversial purpose for cash-strapped Florida, where increasing food-stamp enrollment has become a means of economic growth, bringing almost $6 billion each year into the state. The money helps to sustain communities, grocery stores and food producers. It also adds to rising federal entitlement spending and the U.S. debt.”
Nothing in there about using welfare to make poor people vote for democrats.
And your second link says the Republicans are unhappy that activists are registering poor people who will tend to vote for people who represent their interests. There’s no causal link I can find in that article establishing that aid for poor people are intended to, as you put it, “encouraging government dependency for the expressed purpose of assuring reelection of those who want to increase said dependency, which is exactly what the Democrats are doing today.”
You haven’t made your case.
You haven’t made your case.
LOL
You cannot be serious.
Are you so ignorant of the purposes of ACORN, Alinsky, Cloward-Piven, Community Organizers, SEIU and others, as to be thus utterly ignorant as to what they are actually doing and why?
My god, I am stunned by the depth of utter denial in which you exist.
Dennis – are you going to make an argument supported by evidence, or just spew ad hominum? If it’s the latter, I can’t really see the point in continuing the discussion.
You give people free stuff, then you’ll get their vote, everybody knows that
RKJ: everybody knows that
One would think so as the logic and truth in your comment is remarkably simple. Yet there are those so blinded by what they want to believe that they deny the reality that is in front of them
Matt — arguing with trolls like Dennis Lund:
http://24.media.tumblr.com/1f2a79de17ba1c56534fcbf90dd44778/tumblr_msz4lxgsTm1sxwwlzo1_400.gif
Dennis – are you going to make an argument supported by evidence
I’ve led you to water, I cannot make you drink.
Twice I have given you the names of two books to read regarding FDR, did you even spend five minutes to consider reading them?
Have you ever read Howard-Cliven? or Rules for Radicals?
It appears you have never challenged yourself, but instead only read that which reinforces what you already believe.
But all that comes as no surprise.
Who’s Howard-Cliven?
Hey Matt, I have some real estate for sale just east of Miami. You might be interested.
You own land in the Bahamas? Way too rich for my blood!
“IMF WARNS INCOME DISPARITIES CAN HURT ECONOMIES”: http://bigstory.ap.org/article/imf-warns-income-disparities-can-hurt-economies
“The International Monetary Fund warned Thursday that wide income inequality can slow economic growth and is proposing ways to reduce it.
Its recommendations include: Raising property taxes. Taxing the rich more than others. Raising the eligibility age for government retirement programs.
Similarly, a survey by The Associated Press late last year found that a majority of economists think income inequality in the United States is weakening its economy. Middle-income consumers are more likely to spend extra income than wealthier households are. As a result, stagnant middle-class income can depress consumer spending and overall growth.”
Its (IMF) recommendations include: Raising property taxes. Taxing the rich more
Brilliant solutions. I am stunned no one has thought of increasing taxes before. Those guys at IMF are very forward thinking people.
Nasa-funded study: industrial civilisation headed for ‘irreversible collapse’?:
http://www.theguardian.com/environment/earth-insight/2014/mar/14/nasa-civilisation-irreversible-collapse-study-scientists
“A new study sponsored by Nasa’s Goddard Space Flight Center has highlighted the prospect that global industrial civilisation could collapse in coming decades due to unsustainable resource exploitation and increasingly unequal wealth distribution.”