Friday, September 23, 2011

Fact Check the Obama/Buffett Rule

It really is hearten to see that the Buffett Rule has made it onto the Obama Campaign website. So, let's add a little bit of advanced math to the "Friday Facts"
0.3%: Americans who would be impacted by the Buffett Rule, all making over $1 million a year.
Hmmm...follow the link to the original article:
The White House said the Buffet rule would apply to the top 0.3% of wage earners, and noted that 22,000 people making more than $1 million a year in 2009 paid less than 15% of their income in taxes.
So clearly, it is not 0.3% of Americans, but 0.3% of wage earners or households. Big difference.

According to the WSJ article, 237,00 tax payers reported incomes over $1 million in 2009. Doing some math (237,000 / 0.003) yields 79,000,000 people. And here, I thought the US population exceeded 290 million. This is questionable math given that there are 142,450,589 million returns filed in 2008, this number is a little weird.

There are other issues in the post, but let's focus on this next one:
276%: Amount the average income of a millionaire grew from 1995 to 2008.
Follow the link. That is not correct. It is the top 400 whose income went up that much.
By 2008 -- the most recent year available -- the aggregate income for the top 400 soared to nearly $66 billion, or more than $164 million in adjusted gross income per return.

That amounts to a 276 percent increase.
It is not even clear if the same 400 people in 1995 as were present in the 2008 sample. Perhaps they are entirely different people. In fact you could bet on it!

So, there is some deception here, and these were the obvious ones. Where else might there be deceptive figures?

Thursday, September 22, 2011

Elizabeth Warren, Same Rhetoric

So, Elizabeth Warren is out there running for the Senate and has people swooning over her rhetorical prowess. This quote is floating around the Interwebs in recent days:

"There is nobody in this country who got rich on his own. Nobody. You built a factory out there -- good for you. But I want to be clear. You moved your goods to market on the roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn't have to worry that marauding bands would come and seize everything at your factory... Now look. You built a factory and it turned into something terrific or a great idea -- ...Keep a Big Hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along."

Let's deconstruct this a little. Warren is implying a few things:

  1. Entrepreneurs don't pay taxes that build schools, roads, pay for police, fire fighters or the military.
  2. There is unequal access to roads, police, fire fighters or military protection.
  3. The students of public schools don't accrue the vast majority of economic benefits of their education through improved economic lives.
  4. The consumer of the products don't accrue the vast majority of economic benefit of the entrepreneur's production.
  5. There are no failed enterprises.

Using Warren's implied assumptions, it then follows that the product of the entrepreneur's efforts are unearned and thus belong to "society" instead of the creator. Of course, she does not say exactly that, providing little guidance about what "a Big Hunk" means. We rarely get an answer about what proportion of the economic benefit should be retained by the creator and what fraction "belongs" to "society". The underlying tone is the entrepreneur took something, so now must pay it back.

Regardless, all these assumptions are flawed. Businesses and entrepreneurs pay taxes that support the building of roads, police, fire fighters and the military. There is equal access to the highways; anyone can put goods on the roads, subject to government restrictions of course. Students who go through schools are the ones who gain the most. The diligent student's income far exceeds the "investment".

As far as where benefits of innovation accrue, economist William Nordhaus estimates:

For the entire postwar period and for the nonfarm business sector, Nordhaus estimates that innovators are able to capture about 2.2 percent of the total surplus from innovation.

I wonder if Warren considers this to be sufficient distribution of benefits (97.8% to society and 2.2% to the innovator). In the case of failed enterprises and capital losses, does the implied expectations that the benefits will be "paid forward" also imply that the losses will be absorbed by "society"?

In the end, Warren is merely peddling the same progressive rhetoric: "You Owe Us" with a healthy dose of "you have it, I want it, hand it over."