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Mankiw and the moochers

from David Ruccio

Greg Mankiw found the latest numbers from the Congressional Budget Office both “illuminating” and “surprising” because they showed that “the effective tax rate is negative for the middle quintile.” The implication was that the middle-class had joined the ranks of those getting more than they contribute, that is, the tax-and-transfer moochers.

Actually, all the CBO numbers demonstrate is that the federal tax and transfer system is mildly progressive. As readers can see in the chart below (which is based on numbers from the same table—supplemental table 7— whence Mankiw obtained his numbers), while the average incomes after taxes and transfers for the first three quintiles is higher than their market incomes, the incomes after taxes and transfers for the top two quintiles are slightly lower.*

And Nancy Folbre does a good job dismantling, step by step, Team Republican’s moocher argument. Here’s her conclusion:

Stepping back from these particulars, the larger point is that most government transfers take the form of social insurance against risks related to health, unemployment and poverty. As with private insurance, people shouldn’t expect the premiums they pay to equal the benefits they receive. What they should expect — and appreciate — is reduced risk of an economic shock that could turn their lives upside down.

It follows that people who receive more in government benefits than they paid in taxes are not moochers. Those who break or bend eligibility rules for private gain are — along with those who evade their taxes or shelter their income in offshore bank accounts set up for the express purpose of minimizing their tax liability.

*Plus there’s the additional issue, which Mankiw notes in an update, that “the CBO’s transfer data includes state and local transfers, but the tax data includes only federal taxes. If state and local taxes were included, or if state and local transfers were excluded, the middle quintile might well turn positive, though the CBO does not provide the data to establish that conclusion definitively.”

  1. August 6, 2012 at 6:24 pm

    It could be added to these figures the rent collected by the few from the interest on T-bills, both directly (around 200 billion dollars last year) and indirectly, from the yield of the stock of financial capital thus accumulated since 1940, which must at least be at the 6 trillion dollars level (80 billion dollars in 2011?).
    Gerson P. Lima

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