MARGINAL THINKING DEPT: Boo-hoo! Walker made state taxes fairer for everyone, insists apologist for the wealthy | WisCommunity

MARGINAL THINKING DEPT: Boo-hoo! Walker made state taxes fairer for everyone, insists apologist for the wealthy

Except for its Sunday edition, the Milwaukee Journal Sentinel is cutting in half the space it devotes to opinion, the most deleterious effect of which will be to reduce the number of independent community voices commenting on issues of the day. But one feature that won't be affected is a column by Christian Schneider, former conservative political operative who is the newspaper's most prolific, resident thinker.

"Thinker" might be putting it generously. Schneider seldom hits the mark, except in the narrow context of regurgitating right-wing talking points. He did it again in a recent column (linked below) complaining that politicians to his left unfairly paint Scott Walker's state income tax cuts as going mostly to the wealthiest ten percent or so among us. As, ahem, they indeed are.

Breaking no new conservative ground, the column wouldn't be worth reviewing except that it follows the right wing's increasing tendency to reveal what its policies really are all about -- not so much a matter of candor as of arrogance. In this case, Schneider says he is going to ignore the actual value of money -- what economists call the "marginal utility" of it -- and focus simply on tax rates. Which neatly demonstrates Benjamin Disraeli's 19th Century dictum that, "There are three kinds of lies: Lies, damned lies, and statistics." Schneider writes:

Everyone in the state received a tax cut; for the state's top earners, the income tax dropped from 7.75% to 7.65%. On the other hand, the state's lowest earners received a tax break six times as large, as the lowest bracket dropped from 4.6% to 4%.

This hasn't stopped Democrats from decrying Walker's "tax cuts for the rich." Gubernatorial candidate Mary Burke, herself a millionaire, hammered Walker for favoring the state's top earners. Recently, Assembly Minority Leader Peter Barca complained that "twelve times the tax breaks were for people making over 350 grand than the average middle-class person."

But Barca's talking point is misleading. It is true that top earners would get a larger break when measured by a raw dollar amount, but their tax break is comparatively smaller than everyone else's. In fact, the top 1% of wage earners in 2013 paid 22.9% of the state's income taxes. So obviously, when you give everyone a tax break, the people who actually pay the largest amount in taxes are going to benefit the most.

Yet new numbers actually show that with Walker's tax cuts, the state's wealthiest taxpayers are now picking up more of the total share of taxes collected.

For shame! Schneider ignores the fact that wealthy elites in Wisconsin and across the nation have accumulated a greater proportion of all existing wealth. OF COURSE they pay a greater share of taxes, both when tax rates don't rise and even to a great extent when taxes decline. That's because they HAVE more. Not just more, but MORE of more. As a society we are back, in fact, to the 1920s and the Gilded Age that preceded it, where corporations and a fairly tiny knot of wealthy individuals control most of the nation's wealth, and where the other 90-plus percent of us increasingly are made to fight over the shrinking remains of what's left. But in Schneidernomics, there's nothing of consequence to say about that.

And note the column's supply-side side-stepping. Schneider's argument is utterly meaningless in terms of real dollars and buying power, not to mention the comparative effort involved in earning those dollars. Consider two fictional taxpayers who earn $10,000 and $1 million a year, and assume for simplicity's sake that the wealthier person pays a full two times the tax rate of the lower income person, say 5 percent versus 10 percent. The low-income worker pays $500 and the millionaire pays $100,000. Sounds unfair to millionaires! Until you realize that the millionaire is still pretty much a millionaire while the low-income guy might now be unable to afford to put new tires on his decade-old car.

You see, the way Schneider and other conservatives view it, in tax policy it's the rates that matter, not what actual effort various income groups are making. Which is to say our regressive tax system (where lower income taxpayers put in more effort relative to the value of their money) is not regressive enough for rich folks. Indeed, many conservatives keep proselytizing among middle-class and under voters about the joys of implementing "flat" tax schemes where everyone top to bottom would pay the same exact tax rate. Wouldn't that be fair and just? Well, no, which is why regressive taxation is economically damaging compared to progressive taxation. Flattening tax rates takes no account of the value of the first dollar earned, versus the tenth, the hundredth, the thousandth or the millionth.

For lower-income people, every dollar is precious and many dollars must be spent meeting basic needs, like food and shelter. Whereas for wealthy people, money becomes increasingly valueless because there is so much of it around. To these people, every earned dollar is extremely valuable and is often ear-marked toward fundamental goods and services -- including taxes. Yet they realize that charity is important, given what they themselves experience of the world, which is why, according to consistent research, lower-income people consistently put greater effort into charitable giving than do people at the top rungs of the economic ladder. For the lower income groups, it's a big but worthy sacrifice to share with others. On the other hand, for too many (although not all) rich people, helping the less fortunate is nothing other than rewarding laziness or failure.

Over at, economist Roger Kay explained it this way:

When I was in grad school at what is now called the Booth School of Business at the University of Chicago, there was a theory, in vogue at the time, about the marginal utility of money.  For those of you not familiar with the vocabulary, the margin is the edge, like the edge of a piece of paper that doesn’t have writing on it, and marginal utility is the value or usefulness at the edge.

From a practical standpoint, the august professors were talking about the value of that last dollar, the one at the top of a potentially very high stack that you might possess... .  

The story in the curve is, the more money you have, the less useful another dollar is.  That is, the gain in utility is ever-so-slightly smaller with each additional dollar.  The chart makes perfect sense in Maslovian terms. The first dollar you obviously use for food, the next, for shelter, then clothing, and so on.  By the time you get to your millionth dollar, you are presumed to be spending it on a Maserati, and at your billionth, you might be outfitting a nice boat or snapping up an island the way Larry Ellison, CEO of Oracle, has done.  The idea is, those marginal dollars are less needed.  I mean, how many boats can you sail?

... The $1,000 hotel room isn’t really 4x better than the $250 one.  The $5,000 bottle of wine isn’t 100x better than the $50 bottle of wine.

Economist David further explains:

Marginal utility is the difference between the utility of 1 orange and none, between 2 and 1, and so forth... .

You are deciding how many oranges to consume. If the question is whether to have one orange a week or none, you would much prefer one. If the alternatives are 51 oranges a week or 50, you may still prefer the additional orange, but the gain to you from one more orange is less. The marginal utility of an orange to you depends not only on the orange and you, but also on how many oranges you are consuming. We would expect the utility to you of a bundle of oranges to increase more and more slowly with each additional orange. Total utility increasing more and more slowly means marginal utility decreasing ... as the quantity of oranges increases ... . There may be some point ... at which you have as many oranges as you want. At that point, total utility stops increasing; additional oranges are no longer a good. Their marginal utility is zero.

As long as one of the things we can do with oranges is throw them away, we cannot be worse off having more oranges; so oranges cannot be a bad. If it were costly to dispose of oranges (imagine yourself buried in a pile of them), then at some point the marginal utility of an additional orange would become negative--you would prefer fewer to more. Figure 4-2 shows your total and marginal utility for oranges as a function of the quantity of oranges you are consuming, on the assumption that it is costly to dispose of oranges... .

Yes, when the basic necessities of life have been met by the first few dollars stored in their Scrooge McDuck money bins, wealthy people tend to begin consuming in relatively wasteful ways, using the rest of their wealth disposably. Sometimes -- as in the case of the right-wing, billionaire Koch brothers who take advantage of increasingly lax campaign finance regulations -- they spend hundreds of millions buying elections and distorting the democratic, electoral process upon which the nation was founded.

After all, these uber-consumers have got all the oranges and yachts they want, but not all of the power they want, nor all of the additional money they'd like. And in their very strong view it should not be the business of government to try to recover some of those dollars and put them to uses that benefit the entire public, from whence their billions derived. Which is why they're intent on controlling and marginalizing government, in the name of the little people but really for themselves.

As if to describe this, Roger Kay at Forbes offered up a relevant quote from a forgotten source: "Money is something that you use to try to persuade someone to do at least some of what you want them to do.”

But Schneider ignores all this underlying truth, going on to regurgitate the Scott Walker line that Wisconsin doesn't need to provide relatively more help to our lowest income workers, say for instance by raising the minimum wage. Rather, the state simply needs more rich people! Because then those rich can better suppport the less wealthy by creating jobs! And through their supposedly (and I use that word advisedly) generous contributions to the public coffers.

Schneider doesn't write this, but from the above point forward it's a short path to the idea that the best way for poor people to get ahead might be to urge them to invest more in the state lottery, which, compared to striking it big in a well-paying career, offers a roughly equal chance of climbing out of a paycheck-to-paycheck lifestyle. Remember billionaire investor Warren Buffet's observation that his effective tax rate was lower than that of his secretary.

Underlying his words, Schneider does seem to realize that in sheer economic terms, the wealthiest few percent of Wisconsinites can well afford what they pay in taxes, compared to people with far less money. Still, he does not fail to make it sound unfair that those income elites are now apparently paying a slightly greater percentage of all state income taxes than before Walker's tax "cuts." However:

* Those elites can hide much of their wealth through various tax dodges and much of it isn't even taxable as income in the first place, since it represent earnings on investments.

* As a group, the wealthy continue to acquire more and more money relative to everyone else, in many cases far more than is reflected in the proportion of taxes they pay.

* Much of that extra income has derived from government policies that have centered on "trickle-down" theories. So you'd think rich folks would be pleased to contribute (via taxes or charity) a bit more of the income they have enjoyed as a result. Even doing that, they'll in many cases still keep a lot more of their additional earnings, if only because there is so much more of it.

* The reason the "lower" 90 percent of us pay slightly lower taxes isn't just because Walker lowered their rates slightly; it's mostly because many of us earn less, relative to inflation or in concrete terms. And anyway, those lower state taxes are overwhelmed by increasing costs of government fees, sales taxes and property taxes, the last's rise driven by Walker's decision to cap state revenue sharing support to public schools and localities.

Schneider derisively regards people with less money -- and the Democrats who tend to pay more attention to those people than do Republicans -- as merely upset about their "relative deprivation" compared to wealthier people. In this mindset, which you've heard expressed before from the political right, everyone in America is really rich, compared to, say, a primitive society where no one had a car or a television set. Schneider insists that less wealthy people feel poor only because they see what rich people have. They're not really poor. It is, you see, all relative.

Yes, I guess if more of us were forced to set up housekeeping in caves or homeless tent villages, we'd have a more legitimate, less 'relational" complaint about our deprivation. Well, just wait around awhile. Schneider's reasoning, made concrete by lawmakers like Walker, ensures that will happen, just as it did after the financial crises of the 1980s, abetted by austerity government policies from Ronald Reagan on down.


December 9, 2014 - 1:26pm