How Progressive Taxation Punishes Hard Work

April 2nd, 2011 at 1:04 pm David Frum | 47 Comments |

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My friend Kip Hagopian has a very thought-provoking article in the current issue of Policy Review on the (in)equity of the progressive income tax.

Here is a core point:

The progressive taxation of income from work effort is inequitable. Income is derived primarily from a combination of aptitude and work effort. All things being equal, people with high-value aptitudes earn more than those with low-value aptitudes. Each tier of aptitude (whether there be 100 or 10,000 such tiers) comprises a “mini-society” in which differentials in income between the members are derived almost solely from work effort. Under a progressive tax system, workers whose work effort is above the median in their aptitude tier will pay higher average taxes per hour than those below the median. As a result, at any one point in time, an unacceptably large percentage of the total work force will earn less average, after-tax income per hour than their peers, simply because they worked harder. This is inequitable on its face.

Policy Review does not invite comments, but Kip Hagopian has established his own site, KipHagopian.com, where he invites and welcomes thought and discussion.

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47 Comments so far ↓

  • busboy33

    “Income is derived primarily from a combination of aptitude and work effort.”

    Prove it. This central tenet of the entire thesis is based on wishful thinking, and therefore the entire argument falls apart.

    The coal miner working 60-hr shifts is putting in a damn sight more “work effort” than the banker making 6 figures passing notes around. Did the banker derive the system? Figure out a brilliant way to maximoze money? No — 99.999% of them are just doing what they were told to do. The CEO that runs a corporation into the ground then gets a $100 million golden parachute isn’t getting it because of “work effort” or “aptitude” . . . they are getting that obscene wealth because the rich assume they should be rich.

    My mother is a multi-millionaire. When she passes (god forbid), I stand to inherit myself into the upper-income tax bracket. Will it be my “work effort” or my “aptitude” that fill my coffers? She made that money because my father was trying to dodge taxes by taking salary bonuses as life insurance policies and then unfortunately died of cancer . . . did my mother make her fortune with “aptitude and work effort”?

    I personally know far more hard-working and talented people that make mid-five figure salaries than I do wealthy hard-working, exceptionally skilled people. I know its an article of faith among Conservative economists that hard work = riches, and that therefore riches = proof of being “better” than most . . . but its a sham.

  • TerryF98

    It seems to me the best income stems from being a crook in a hedge fund or a Bankster ripping off taxpayers, homeowners and credit card holders.

  • arvan

    All things being equal, people with high-value aptitudes earn more than those with low-value aptitudes.

    Flawed premise. STEM teachers get paid way less that engineers, even though they require a more advanced degree and better communication skills (and I say this as an engineer). Family doctors get paid way less than anesthesiologists, even though their job is just as difficult and important. Prosecutors and public defenders get paid far less than private defense attorneys. And so on. And let’s not forget about social workers or police or firefighters. All these people choose to take lower paying jobs, despite the inferior pay, because they want to help society. Regressive tax schemes punish that decision.

    Additionally, there’s a difference between income and disposable income. If I make $20k a year, I can’t really afford to pay any taxes. If I make $200k, then I could easily afford to pay half that in taxes and still live quite comfortably. If I make $2 million, I could pay 75% and still live in absolute luxury.

    This article amounts to trying to convince the poor to fight over pennies while the rich make off with gold bricks.

  • Houndentenor

    So what would we do instead? The alternative is to shift the tax burden further down the economic ladder onto those who haven’t had a pay increase in over a decade. No, progressive taxation isn’t ideal, but what would we do instead and how much worse would it be for the vast majority of Americans?

  • Rabiner

    Arvan pretty much makes the real argument for progressive taxes: there is a diminishing returns of utility on income and taking a tax code into account for that makes perfect sense.

    • jamesj

      Exactly Rabiner. The marginal utility of each slice of marginal income is an important factor that should be considered in planning out a society. All of Western Civilization has pretty much come to this conclusion. Adam Smith of course famously agreed with this conclusion and supported progressive taxation. I can only see the small sect of modern day economic pundits who advocate flat taxes or more regressive taxation as extremists who are missing the forest for the trees.

  • SFTor1

    I lived a large part of my life in Norway, a country which had the distinction of levying 100%+ taxes on high earners for a period. This was a combination of taxes on net worth as well as income.

    Guess what? The rich stayed rich.

    I would also mention that the rich typically leverage public infrastructure more to earn their high incomes. That also makes progressive taxation a fair proposition.

  • mickster99

    Well the solution is obvious. We need a regressive tax policy. The less you make the higher proportion of your income needs to be taxed. So those who make the most should actually pay the least. And while you’re at it cut welfare benefits to those poor underachievers.

    Welcome to FrumWorld.

    If this makes sense to you congratulations, you’re a wing nut.

  • ottovbvs

    Obviously the solution is to end taxation for anyone earning over $100,000 a year.

    • indy

      Close…really since they work so much harder, they deserve a subsidy from low income workers. Well, I mean a bigger one than the one they currently get.

    • Nanotek

      “Obviously the solution is to end taxation for anyone earning over $100,000 a year.”

      and triple it for anyone paid less than $100 a year — incentives on steroids

      • ottovbvs

        That’ll teach em to end up in low paying jobs. In fact how about instituting corvee* for anyone working in fast food restaurants. I’ve got some silver I need cleaning. Well at least the worker isn’t owned outright

        *Corvee: labor service for the upper classes

        http://en.wikipedia.org/wiki/Corv%C3%A9e

  • Non-Contributor

    These are the myths people want to believe. I have yet to see any data that shows how much less a UPS delivery person works then say a bond trader. Or how a guy that hangs sheet rock or installs roofing works a lot less than a research scientist.

    But what I find really ironic is that a “smart” guy like David Frum doesn’t even make the slightest effort to understand anything about the monetary system. But maybe he works to hard to take any time to look at how things actually work.

    If David did that the time there are a few facts he would find out about. One is that taxes do not support spending at the federal level. And because of this actual fact the Federal government does have a lot more flexibility in reducing taxing without effecting spending. But our politicians and the policies we have today are so antiquated and utterly useless this fact is incomprehensible.

  • sparse

    obviously, the premise is questionable, and others have addressed this well, but i want to look at the second part of the argument.

    the logic of breaking all taxpayers into 100 or 10,000 “mini-societies”, each of which has a top and bottom half is an interesting approach, and in and of itself it is an interesting way of analyzing things. because the finer you chop things, the closer you come to approximating the real effect of aptitude on earnings, because it lets you compare apples to apples. but this is because the kinds of cases cited by arvan (thanks for your post) do not exist within a micro-society. the difference between a public defender and a private defense attorney are really big– apples and oranges big. so the very trick that lets you see some things more clearly also obscures other, more important things. call it not seeing the orchard for the tree.

    and, completely obviously, tax brackets are not micro-societies. so the top half of one micro-society pays the same tax rate as the bottom half of their micro-society, so those individuals who earned more through harder work still get more. in fact, the top half of any given micro-society is really the bottom half of the micro-society that exists half a step up from the one we chose arbitrarily. only those very very very few individuals who are in the half-a-micro-society just over the threshold of a new tax bracket are arguably penalized for their hard work.

    until we have 10,000 tax brackets, this is a non issue for me.

    i am really kind of surprised at the lack of critical thinking that went into selecting this post. maybe it’s because i am too lazy to read the whole original thing, but finding two serious flaws in the teaser is not an incentive to dig deeper.

  • Arms Merchant

    This article makes no sense. First of all, why should tax policy favor work effort (as opposed to other virtues)? I’d rather have equality of treatment under the law.

    “…differentials in income between the members [of a given "tier"] are derived almost solely from work effort.”

    Hagopian confuses work effort with value created and simply asserts that extra value is a result of effort.

    Certainly, progressive taxation systems disincentivise extra value that one creates for one’s business or employer, as measured in dollars, but it’s regardless of how that marginal value is achieved. The tax system makes no distinction for extra value created due to work effort and extra value created due to working smarter, more efficiently, etc.

    Hagopian is trying to make a point, but it’s lost in his hopelessly muddled thinking. Guess that’s why Frum, a hopelessly muddled thinker himself, likes it.

    • Nanotek

      “This article makes no sense. First of all, why should tax policy favor work effort (as opposed to other virtues)? I’d rather have equality of treatment under the law.”

      my thoughts each time I read it

      equality of treatment is the best preventive of oppressive laws as I glean human history

      but I could be wrong

  • Nanotek

    “high-value aptitude”

    arrogance

    conservatives under Bush II walked into a thriving Clinton surplus economy and eight years later handed Obama a corrupt and collapsing economy losing 750,000 jobs a month, an ongoing trillion dollar war that had been kept off budget and trillions more in unfunded liabilities, after having slashed taxes for super wealthy people. Any secretary at GE pays more in taxes than GE. Using either its taxation or outsourcing schemes, Conservatives seem to enjoy hosing and demeaning working people.

    You still don’t get to drive the bus. You’re still in time out.

  • Houndentenor

    Anyone who thinks that Wall Street executives are the smartest, most talented and most hard-working people in American has never worked anywhere near Wall Street. Confidentiality agreements (and in a couple of cases the Fifth Amendment) prevent me from saying more than that.

    • COProgressive

      You got that right. For the life of me I can’t see where a trader on Wall Street can put down a 2% hedge on a synthetic CDO (referencing someone elses CDO or bond) and when it fails, collect the full numerical value of the other persons CDO or bond. This happened many times in the last few years where Hedge Funds bet on other peoples bonds and collected BIG TIME. One shakey CDO could have 10, 100, 500 hedges against it who all would get paided should the referenced CDO fail. This is what took down AIG and others. All they did was privatize the profits and socialize all the losses.

      All this “virtual” wealth did NOTHING positive for the growth of our country, it was all just “paper” gains, nothing tangible was produced.

      So much for the “value” of working hard.

  • Primrose

    As so many have pointed out, the concept of value is wrong. High-value to whom? Not society.Hard working by what metric. I’m someone who values intellect, strongly, but I’ve done physical labor and its more laborious.

    Also, just because we have more people skilled at doing a job does not mean it is less valuable to society. It doesn’t take a boatload of skills to pick up the Garbage but having people who do it is invaluable to society.

    Not everyone can fiddle with numbers and win the way a Hedge Fund Manager can, or someone who sells short, but if the last one of those disappeared, society would do just fine.

    Kvetching about having to give back more to society when you’ve been very fortunate financially, shows such a absence of perspective, such a failure of the soul, I don’t think your views should get press time.

    After an incident over a cheap plastic toy such as you get at kid’s venues, I began requiring my children to recite 5 blessings (what they are grateful for) before bed, every night. I wish the mother’s of the current crop of ‘poor little rich boys/girls’ had done the same. We all, them included, might be a lot happier.

  • habsfan

    The solution is a flat tax with the removal of tax loopholes. This will strengthen the state revenue stream and ensure that all members pay their fare share.

    In Canada a 20% flat tax would be superb. Someone who makes 1 million pays 200k no exceptions. Someone who makes 20k pays 4K. Accountants will suddenly become the next group looking for employment…..

  • nikhil_gupta

    of all the inequities in our society, this is the one that keeps right winger up at night. The idea that hard work is the only, or even the determining factor in income is something that only goes unquestioned in right wing circles.

    • balconesfault

      which is why, for example, the well paid flacks at AEI and Heritage all believe that they work far far harder than the people who clean their offices each night (usually after working another job during the day)

  • AMurphy

    One of the myths of progressive taxation is that it redistributes, when in fact, progressive taxation is not progressive at all.

    Most very wealthy people get their money from capital gains, not income. Just ask any CPA who deals with wealthy clients.

    • ottovbvs

      Er…no. Just because many wealthy people get their income from capital gains does not mean progressive taxation isn’t either progressive or redistributive. It depends on how capital gains are taxed and the prevailing rate of capital gains tax whose reduction was a key part of the Bush cuts.

  • Rabiner

    habsfan:

    “The solution is a flat tax with the removal of tax loopholes. This will strengthen the state revenue stream and ensure that all members pay their fare share.

    In Canada a 20% flat tax would be superb. Someone who makes 1 million pays 200k no exceptions. Someone who makes 20k pays 4K. Accountants will suddenly become the next group looking for employment…..”

    Except a flat tax is puts the most strain on the lowest income earners. That 4k in taxes a person who earns 20k would pay is far more valuable to him than 200k that a person who earns 1 million would pay. The difference in living off of 16k instead of 20k is a bigger difference when you take into account the types of costs that cannot be avoided versus a person living off of 800k since they paid 200k in taxes.

    • Nanotek

      what about a % fee of the value from a public asset, like air wave licenses or courts to enforce contracts?

  • mc419

    It is a thought provoking article, but inaccurate. Income CAN BE derived primarily from a combination of aptitude and work effort. And all things are, by nature, not equal. I make this point to friends who work for huge corps all the time (all of whom are devoted to the GOP). Anyone who derives their primary income from an equity stake in the corporation which employs them automatically enjoys an economic advantage over other consumers. This is because they can use the purchasing power of their company to fulfill (read cheat, but everyone does it) their personal needs (food, housing, supplies, transportation). That way they can intentionally pay themselves a pittance (everyone from McDonald’s owners to financial advisors do this) to avoid paying taxes on both business and personal income. I think the article makes some great points and is on the right side, but I disagree with its maudlin sympathy for “the productive capitalist”, otherwise known as the Jean de Arc of FOX News.

  • Primrose

    Rabiner exactly right.

    In addition to what I said earlier, even if it was “unfair” it is not as unfair as someone earning less money for a job that has more social utility. Or someone not being given by nature the kind of aptitude that would permit them to earn high-value salaries. We can’t fix that problem (not without entering into a Vonnegut parody), but those whom natured favored can at least be grateful for their gifts, instead of trying to squeeze every last drop of privilege out of them.

  • ram6968

    it would seem to me the author sits down to write what he feels is a coherent message, pats himself on the back for his command of the english language and hopes others will admire his work….I personally give him an “E” for effort, and then the letter after “E”

  • oldgal

    Until someone comes up with a fair way to distribute the resources of this earth among the inhabitants, I think everybody should just get over the fairness issue. Rewarding aptitude is just as arbitrary as rewarding eye color.

    • ram6968

      as far as natural resources go…a recent study stated, for all people in the world to have the same standard of living as americans…it would require the resources of 6 planet earths…

      • busboy33

        @oldgal:

        Derfinition of aptitude:
        1. An inherent ability, as for learning; a talent. See Synonyms at ability.
        2. Quickness in learning and understanding; intelligence.
        3. The condition or quality of being suitable; appropriateness.
        http://education.yahoo.com/reference/dictionary/entry/aptitude

        If rewarding aptitude is hypothetically just as arbitrary as any other metric, fine. But nowhere in that definition do I see “super-rich” as an attribute or defining characteristic of “aptitude”. The world’s most natural snake charmer has a clear “aptitude”, but most likely ain’t making the big bucks.

        Not too sure how you’d measure “aptitude” as a reward metric. How do you measure sheet-rock hanging aptitude, or working the assembly line at a factory? What’s the distinction between someone who has a God-given inherent feel for the work, and someone that doesn’t have that natural aptitude but works extra hard to produce the same quality of work as the savant?

        Its very dificult to measure “aptitude”. However, its fairly easy to measure bank accounts.

  • Paleocon

    It seems to me that this article shows high earners today to be exceptionally lazy people! There were plenty of high earners in the 60′s, 70′s, 80′s and 90′s that worked exceptionally hard even though our top tax rates were higher then. I guess todays ‘high aptitude’ people are more into woolgathering.
    Also, doesn’t this article make the argument to jack up capital gains taxes? If we want people to work more and harder, we should trim the capital gains profits with taxes which would cause the ‘high aptitude’ people to have to labor more and focus less on investing. This solves the authors’ problem the best.

  • JosephP

    The essay made several assumptions that are nonsense:

    1. It was assumed that the three brothers had identical earnings prospects, and the only thing that resulted in their different incomes was personal decisions, such as how many hours to work and whether or not the brother’s wives work.

    2. It was assumed that the desired improvements (security fence, lighting) would benefit each of the brothers equally.

    In reality, those assumptions are not true.

    The CEOs on Wall Street making 300 times the salary of their company’s workers are not working 300 times as hard, nor are they 300 times smarter.

    And government expenditures do not benefit all Americans equally—for instance, one could argue that the Iraq war is protecting the interests of the oil companies that got big contracts in Iraq following the overthrow of Saddam Hussein more than the interests of ordinary Americans that were under threat of terrorist attack from Saddam’s (imaginary) weapons of mass destruction projects.

    Our country needs to raise taxes by taxing income. And we have made a decision that those that can afford it the most should pay the most. It’s as simple as that. As Willy Sutton said, “That’s where the money is.”

    Historically, our country was doing the best when we had the highest tax rates. During World War II, we had a top tax rate of over 90%! That’s what it took to fight and prevail against both the Germans and the Japanese. And even having just gone through a historic depression, the U.S. emerged from the war not just the strongest country in the world, but the strongest economic power that had ever been in world history!

    And all this hand wringing and agonizing ab0ut the unfairness of the progressive tax system is completely discredited by the facts: In the last decade the wealthy have seen unprecedented increases in their wealth, where the middle class has stagnated and the ranks of the poor have exploded. The top 400 richest people in the U.S. now have as much wealth as the entire bottom 50% of all Americans! Not since the days of the robber barons has there been such wealth inequality.

    In light of this historic wealth inequality in the U.S., the whole premise of this essay (that the progressive tax system is unfair) is outrageous.

    • karsten.erzinger

      “for instance, one could argue that the Iraq war is protecting the interests of the oil companies that got big contracts in Iraq following the overthrow of Saddam Hussein more than the interests of ordinary Americans that were under threat of terrorist attack from Saddam’s (imaginary) weapons of mass destruction projects.”

      It would be a very poor argument seeing that there are only, what, 2 American oil companies currently operating in Iraq.

      Sidenote, Saddam had materails necessary to create those weapons; its estimated that he could’ve had weapons produced within 2 years if he started his program again. After 9/11, I dont blame the government for being a little paranoid and going after him…

      • JosephP

        “It would be a very poor argument seeing that there are only, what, 2 American oil companies currently operating in Iraq. ”

        Yes, and those two companies are ExxonMobil and Chevron, the largest and fifth-largest corporations on the Fortune 500 respectively.

        And my argument didn’t mention oil services companies like the ubiquitous Halliburton. Huge unprecedented no-bid government contracts to Halliburton helped push former CEO Dick Cheney’s net worth to over $100 million. Remember that Halliburton returned the no-bid favors granted by U.S. taxpayers with a kick in the teeth by moving its headquarters to United Arab Emirates.

        I don’t think there is any honest way that someone could argue that all Americans benefited equally from the Iraq invasion. Clearly large companies with ties to Republicans (Halliburton, KBR, Blackwater) made out like bandits (in fact were literally bandits considering the fraud and waste uncovered), whereas ordinary Americans paid the price of the war by shouldering the exploding debt that occurred (after being left a surplus from the Clinton administration) and by being required to serve or have sons and daughters serve in the war.

  • jamesj

    “Income is derived primarily from a combination of aptitude and work effort.”

    No. This statement is false. The marginal aptitude and marginal work effort required to generate each marginal chunk of income decreases dramatically as income rises. There are limits to the amount of stress one man can endure, to the amount of effort one man can exert, to the amount of positive output one man can produce for the world. Why is this realistic viewpoint lost on so many modern day economic pundits? One man can easily find himself making hundreds or even thousands of times the income of his average countrymen, but it is almost impossible to imagine one man exerting a hundred or a thousand times the work effort exerted by his average countrymen or taking on a hundred or a thousand times the risk/stress endured by his average countrymen. Think about it. One only needs to think about it to realize the deep truth here. There should be upsides to working harder and being smarter than your neighbor… but should the upsides be unlimited while the downsides are clearly limited?

    Hagopian is spinning an unrealistic utopian vision of how income relates to the sweat of one’s brow. If we want to truly understand the way the world works in order to craft Conservative policy that has a positive influence on human well-being, we need to first come to terms with the reality of markets. We need to get beyond fanboy glorifications of free markets and tax cuts and get to a realistic (more nuanced) view of how markets work.

    I hate to say it, but the more mature view I am describing is basically the view I see most “left wing” politicians taking these days in the USA. Of course, these “left wing” American politicians are fairly Conservative by historical standards and certainly Conservative when compared to the rest of Western Civilization. A few generations ago American left wingers were devoid of realistic economic policy while American right wingers brought sanity to the table. Times have changed.

  • FSC

    Ahem … has anyone looked at the date of the essay referenced in this post? Click the link and go to the bottom of the essay…

    • JosephP

      I wish it was an April Fool’s joke, FSC.

      But unfortunately, the sentiment of the wealthy that they are overtaxed is a real one, crazy as it may seem in light of historical low current tax levels and the unprecedented upward transfer of wealth that has occurred in the last decade.

  • Frumplestiltskin

    Here is Jonathan Chait from TNR: This long attack on the unfairness of progressive taxation from the Hoover Institution by Kip Hagopian usefully embodies a lot of right-wing delusions about income inequality. It argues that a person’s income is determined by three things:

    America’s free enterprise system provides an environment in which the substantial majority of its citizens can realize their fullest earnings potential. Within that environment, individual economic outcomes are the product of a combination of three elements: aptitude, work effort, and choice of occupation.

    Aptitude. For the purposes of this essay, aptitude is broadly defined as the capacity to produce, or to earn income. For the most part, it comes from circumstances of birth and is distributed unequally. Aptitude may be derived from innate talents (cognitive, musical, artistic, athletic, etc.) or physical attributes (appearance, dexterity, possession of senses, etc.). Or it may be acquired from lessons learned from parents and other life experiences. Aptitude emanating from circumstances of birth (either innate or acquired) can be significantly enhanced by individual effort applied to strengthening one’s skills (see “Work Effort” below). Aptitude is measured from low to high in accordance with the monetary value placed on it in the marketplace. This is a measure of earning power and is not in any way an indication of an individual’s intrinsic worth as a human being. For most people aptitude is the most significant determinant of income. But it has to be understood as capacity; aptitude does not produce income until it is combined with individual effort.

    Work effort. For any given level of aptitude and occupation, work effort plays the decisive role in determining income, and in many cases may result in persons with lower aptitudes earning more than their higher-aptitude peers. For the purposes of this essay, the term “work effort” includes not only the number of hours worked, but also the intensity of the effort applied during those hours. As noted above, it also includes work effort applied to strengthening one’s skills.

    At every level of aptitude and in every profession, whether the pay is in salary or hourly wages, there are workers who outperform their peers in each hour worked. They do this by performing tasks more quickly; focusing on the tasks more intently; finding and completing additional tasks that need to be done; and using some of their leisure time practicing or training to become more skilled. These people get more raises, larger bonuses, and more promotions than their peers. Thus, greater work effort can produce higher income whether the person is paid by the hour or earns a salary.

    In addition to producing higher income in its own right, work effort applied to strengthening one’s skill — resulting in “learned” or “enhanced” aptitude — can make a substantial contribution toward increasing income. The “rough” carpenter who spends nights and weekends developing the skills necessary to qualify as a more highly valued “finish” carpenter will move up the wage scale by doing so. Professional athletes, musicians, singers, and other performers can enhance their innate aptitudes substantially through extensive practice, and a great many are renowned for having done so. A classic example is Hall-of-Famer Jerry Rice, who is generally recognized as the best wide receiver in nfl history. He was one of the highest paid players in pro football for twenty years, an achievement largely credited to his intense practice and workout regimen. Perhaps the most effective way of enhancing aptitude is through increased study in school. Whether it is grade school, high school, vocational school or college, for any particular tier of aptitude, those who study the most almost always get the best grades, matriculate to the best colleges, and secure the best jobs.

    Choice of occupation. Choice of occupation is also important in determining income. Had Bill Gates decided to finish Harvard and become a high school math teacher, he almost certainly would have been successful, but he would not have become a multi-billionaire.

    Earned income is determined by a mix of the three factors described above, and the relative contribution of each varies by individual.

    This is obviously written to minimize the role of luck. It acknowledges that Bill Gates made more money by choosing to become a software mogul than by choosing t be a high school math teacher. But, of course, Gates (as he has acknowledged) benefited enormously not just from his family situation but from the timing of his birth, which put him in the work force at a moment when computing technology was set to explode. If he had been born a decade or two earlier, he probably would have been an anonymous lab geek if he had followed his mathematical inclinations, or perhaps the owner of a successful grocery store chain if he had pursued his entrepreneurial instincts.

    What’s more, it is demonstrably not the case that income levels simply reflect aptitude and effort. Now, obviously being from a richer family affords all sorts of advantages, including physical, emotional, and cultural development. But factor all that out of the equation and assume that it’s just fair for all those things to translate into higher academic performance and higher earnings.

    Even assuming that, there are massive advantages inherent simply in being born rich (and disadvantages in being poor.) My favorite example, simply because it’s so dramatic, is that a child born into the lowest-earning quintile who manages to attain a college degree is less likely to be in the highest-earning quintile than a child born into the top quintile who does not attain a college degree. This is all the more remarkable when you consider that making it to, and through, college is far harder for poor kids than rich kids even at a given level of aptitude. (Two thirds of the kids with average math scores and low-income parents do not attend college, while almost two-thirds of high-income kids with average math scores do.)

    How would Hagopian explain this? The lower-income kids managed to beat the odds by graduating from college, yet they make less money than the rich kids who beat the odds in the other direction by not going to college. By any measure, the former group has more aptitude and greater work ethic. Now, clearly right-wingers in general, and wealthy right-wingers in particular, like to think aptitude and effort and choices determine how much money you make. (Hagopian is the co-founder of a venture capital and private equity firm.) You see this from Greg Mankiw, Arthur Brooks, and on and on. The right-wing worldview is based on a moral premise about the relationship between merit and wealth that is demonstrably false.

    • JosephP

      Excellent post, Frump.

      And I think it can be summed up by a single one of your many good points:

      If Hagopian’s beliefs about people’s earning potentials were correct, then a college graduate from a disadvantaged family would always earn more than a high school dropout from a privileged family.

      But we all know that this is rarely the case. A privileged upbringing brings its own advantages, such as connections, access, a support system, etc. These intangibles are often more important than the idealistic factors of hard work, education, intelligence, and drive claimed by Hagopian.

      In other words, despite the self congratulatory claims of the rich and successful, it’s frequently just bum luck.

  • Frumplestiltskin

    The funny thing is the author looks like a manchild, sloped shoulders, glasses, baby face, he looks like he hasn’t picked up so much as a hammer in his life. I guarantee you that he would not survive a week in the state of nature, would shriek at the notion of plucking and cooking a chicken, or is capable of any more than the most rudimentary survival skills. The whole premise is essentially “the nerds revenge”
    When I was in college some jocks were rude to a friend of mine, a very bright guy and he came back to me smiling saying those guys would be mowing his lawn someday.
    I work in my own office, and when I used to work in a Printing company made twice as much as the factory workers and with zero exertion outside of picking up my pen or typing into a computer, even then I did far less of that than the secretaries. In no way do I consider that I was somehow inherently better than the factory workers though I was perfectly happy to take the higher pay I never once thought it was equitable.
    This is a difference between Kip and I. I feel no need to justify pure bullshit in terms of morality.
    You start talking about morality than you run up against the buzzsaw of Christ demanding people sell all of their possession and give them to the poor, or how a camel has an easier time passing through the eye of a needle (the needle referred to an arch, an overburdened camel could never pass through) than for a rich man to enter heaven. Might I suggest Republicans leave aside such terms as equity or morality, they are absolute losers. Just go with what works best. How freaking hard is that?

    All this said, personally I would favor a flat tax above a high exemption, with money to cover the budget entire each year. Rich people would end up paying a far higher share so it will never happen (the reason they would is that there would be no more deficits, which is a tax on children)

  • shediac

    America has the perfect solution, everyone has a gun and when the folks get hungry they will eat the rich.

  • Mitch Evans

    Wow, there is a lot of stupid in that article. For instance:

    “A proportionate or “flat” tax, which would tax each dollar of income at a single rate. Embodied in virtually all proportionate tax proposals is a substantial broadening of the tax base through the elimination of most tax deductions, credits, and preferences, which has the benefit of simplifying the tax code and reducing the cost of compliance. The purest form of this system is a single-rate tax levied on all earned income from the first dollar, but different variations on this theme have been proposed.”

    The bold part is a nice myth. The current tax code of umpteen thousand pages has about a page and half dedicated to rates. Reduce those to a single rate, and you still have all the other provisions. Most of the tax code is aimed at defining what counts as “income” subject to the rates on the first couple pages. Under a single rate, the determination of income (i.e., deductions, credits, fringe benefits, etc.) becomes more important, not less.

    Put another way, what would be the appropriate flat tax rate in a world of zero deductions? How much should a business pay on its gross revenues?

    “B-b-b-but businesses should only pay income tax on profits!”

    Fine, where do you draw the line between profits and revenues? Hint: in reams of tax regulations.