Tag Archives: 99%

Everything I Need To Know About Economics I Learned In Kindergarten

So I’m sitting here listening to people on the radio rant about Class Warfare In America.

Uh-huh.

I know about class. I may carry a US passport, but they didn’t take away my British one, and that’s where I grew up. Class is not about income. Class is about hierarchy and exclusion. If you’re not perceived as being from the same class as someone else (upper, lower or middle) you are never trusted by the groups you don’t belong to, and you are looked down upon if you try to get out of that group (to be fair, the UK culture is such that you’re mocked pretty much constantly for anything you do, but it’s all ‘just a joke’ so you’re not supposed to get upset about any of it, but that’s a different rant…)

In the US there are social strata tied to income, no doubt, but if you can claw enough money out of the economy to buy the big house and pay the country club fees, you’ll be accepted on your merits and your behaviour and that’s all there is to that. If you fall to the bottom of the heap, there is a prevailing mood that, hey, we might not like you but it will be because of what you do, not where you come from (until we tip into issues of immigration and race. But that’s not about class either.).

Of course, these are wild generalizations and it’s never that clear cut, but whatever the Occupy movement is talking about, it’s not Class Warfare.

Call it Income Equality, call it Socialism if you must, but it’s not class warfare.

No-one in the US is talking about redistribution of wealth to the point where everyone lives in a state-run apartment complex and receives equal wages for an equal number of hours worked. That would be Communism and I think we’ve all realised that that’s not a perfect system anywhere. It’s ridiculous to even worry about something like that in a country of rampant consumers (where people are, to my frugal horror, actually told to go and Buy More Things when money is scarce. Eh?!).

Some Truths About Income Equality

1. It is harder to live on not-very-much money than it is to live on slightly-less-than-you-used-to-get-excess-wealth.

In a time when people are jobless and hopeless, it’s hard to look at people with ridiculous excesses of money and not feel like maybe things are a bit unfair. Especially when the system is set up to make it easier to save and accumulate money if you have pots of the stuff to begin with, and don’t mind pretending you have less money than you have, so that the government can’t take away more of it for things like libraries and medical care for the poor – things that might help your family claw their way out of poverty.

2. The tax system is kinder to the rich than to the poor.

When our family’s joint income was half of what it is now, we couldn’t afford a house, we had no investments or savings of any kind, and we often made up the short-fall in our income by carrying a credit card balance, complete with outrageous interest accumulation. We paid the standard tax rate for our income bracket, no deductions, no discounts: every penny in our possession (however briefly) was subject to federal, state and local tax.

Now that we are much, much more comfortable (complete with house and children we wouldn’t have had if we hadn’t had a generous medical benefits package thanks to the husband’s good job), we get to take a chunk of that extra income that we no longer need just to feed and clothe ourselves, and — before our tax rate is calculated — we get to hide some of that money in a pre-tax investment scheme. (Sure, we’ll pay tax on it when we withdraw it, when we’re older, but the whole system is set up to let us cheat: don’t pay tax now, when you’d be in a higher tax rate. Pay it when you’re older and have no income, and avoid paying as much tax on it. Nice for us. Not so nice for the social schemes that might have used the money to help everyone in society.)

So we do, because we can. And by hiding that money, we can, potentially, stay out of a higher tax bracket.

We get to deduct our mortgage interest from our taxable income figure too (although that might have gone away, but we did get that benefit for ten years). We also get deductions because we have children. We also, because we can afford to sock away some money at the start of the year, get to put money, tax-free, into a medical spending plan, which means any prescriptions and our vast expenditure on eyewear decreases our taxable income figure. This would not have been the case fifteen years ago when we really could have used the help.

If you’re rich enough to be on the borderline of going into a higher tax bracket, you can bung some money to a charity, and claim a deduction on your taxable income there, too. Who cares if the charity is actually doing any good? As long as they meet certain accounting criteria, you get your deduction. Hooray!

This how people like us, who aren’t living off investment income like Warren Buffet, still pay less as a percentage of total take-home pay, than we did when we were living off credit cards (the interest on which is never tax-deductable).

It’s Not That I WANT To Pay More

I’m just saying that taxes represent something totally different to a rich person and an, ahem, less rich person. 25% of a $50,000 paycheck is very much different from 33% of $370,000, especially when that $370K is probably fiddled down so that they’re only really paying 33% on , say $200K. You can live on $310,000 and still feed your family. It gets substantially harder when that figure is $37,000.

Calling this a bit unfair, is not a call for class warfare.

(And if you have never lived on overdrafts and credit card debt, then you would have to have super-human insight and empathy to be able to understand what a huge, grinding difference it makes to your life. I know, because I’ve been there, and I still forget.)

What The Solution Isn’t

I don’t know what the solution is. But I know what it isn’t: pretending that people who question the reasons for the income gap are waging a class war. That’s not a solution. That’s obfuscation. It’s insulting and it’s harmful because it precludes reasonable discourse on the issues.

The real issues are:

  • Poverty vs. wealth and whether or not we live in a society that is OK with leaving the poor to flounder and the rich to dispense charity (or not) as the mood takes them.
  • Whether we want to offer a safety net and who pays for it.
  • Whether or not we’re happy with society in which the tax code institutionalizes the idea that it’s OK to cheat as long as everyone else (that matters) is doing it.

If that’s class warfare then put me in the class that says it’s not all right to cheat; that it is desirable to share with people who don’t have as much as you; where it’s great to succeed but it’s no sin to fail; where we help each other up when we fall down; and where, when one person is sad, everybody cries.

Oh yes. That would be Kindergarten.