David R. Henderson  

Revealed Preference

PRINT
The Respect Motive... Friday Night Video: Privatizin...

"Nobody likes to pay taxes. Nobody wants to raise taxes on anybody."

This is a quote from a newly elected Democratic congressman from Illinois named William L. Enyart. So, unless he considers himself a nobody, would he advocate raises on some people? No, right? Because nobody wants to raise taxes on anybody. That's what Mr. Enyart said. And I bet he doesn't think he's a nobody.

Except that he does want to raise taxes on many bodies. Elsewhere in the New York Times story, Binyamin Applebaum and Robert Geleloff write: "The focus, he [Enyart] said, should be on requiring the rich to pay more." There is one other interpretation that is consistent with Enyart's remark: Maybe he regards "the rich" as nobodies.

All of this reminds me of one of my favorite short economics jokes. In his excellent Price Theory: An Intermediate Text, David Friedman calls it Economics Joke #1:

Two economists walked past a Porsche showroom. One of them pointed at a shiny car in the window and said, "I want that." "Obviously not," the other replied.

It also reminds me of a homemade sign that economist Ben Powell had on his door when he was on the faculty at San Jose State University and a number of faculty were threatening to go on strike. They had professionally made signs that said, "I don't want to strike, but I will." Ben's sign: "I don't want to strike, so I won't."

One other thing to note about the NY Times article, something that economist Greg Mankiw caught. Applebaum and Geleloff do a lot of comparisons of percent of income paid in taxes in 2010 versus 1980. Why is the year 1980 significant? Because high inflation in the 1970s had put many people, including even lower-middle-income people, in tax brackets that had previously been reserved for higher-income people. I remember, as a middle-income person in 1978 making about $23,000 a year and having no deductions other than the standard deduction, paying a marginal federal income tax rate of 32 percent.

So what the reporters are really showing is that people paid less tax as a percent of income in 2010 than they paid in a year in which, for most people, taxes as a percent of income were at all-time high. Surprise!

The more-relevant comparison, which the article doesn't make (I can't look at their graphic without paying, but maybe it's there), is between 1985, when the Reagan income tax rates had fully kicked in and indexing of tax brackets had begun, and 2010. That would be much more informative.


Comments and Sharing





COMMENTS (28 to date)
Silas Barta writes:

This seems kind of a petty criticism. The statement:

"Nobody likes to pay taxes. Nobody wants to raise taxes on anybody"

just means he recognizes raising taxes as a Bad Thing, and a necessary evil only invoked when the alternative is something worse.

One could likewise say, "David_Henderson must really like paying taxes, since he pays them."

Ken B writes:

Or Silas, it means he's lying.
You ever see any 'Make the rich pay!' posters? You hear any rhetoric this election about how the top 1% (or n%) need to pay more?

A petty crticism would be noting that necessary evils are not "invoked" but excuses may be. THAT would be a petty criticism.

John Hall writes:

Funny, but I think the sign "I'm not striking, so I don't want to strike" is more indicative of the revealed preference approach.

MG writes:

Unles Silas is more attuned with this specific congressman's nuanced views on taxation than we are, I agree with Ken B that he is lying. At the top of the congressman's ticket, the call was for wanting not "nobody" but "many bodies" to pay more taxes. (In fact, in a previous campaign, the same leader actually conceded that he did not even care of the "many bodies" paid more in taxes, all that he wanted was to raise their taxes.) Down one slot on the ticket, the view was that people must find paying taxes at least as satisfactory as being patroitic, since not wanting to pay more taxes was the province of the unpatriots.

blsdaniel writes:

Ken,

Gotta go with Silas on this one. David may well be the least petty commentator on the web (I mean that literally!), but this time, it was a silly complaint.

David, I'm sorry I don't come here more and praise you on the other 95% of the time when you're really showing your comparative advantage of being a good-natured person...I should.

But I guess I don't want to ;-)

Methinks writes:

Necessary evil? Necessary for what?

Tax revenue as a percent of GDP has historically remained very stable despite a wildly fluctuating income tax rates.

http://mercatus.org/publication/tax-rates-vs-tax-revenues

The ratio of tax revenue collected per household to median household income has remained remarkably stable despite wildly fluctuating tax rates. Although, we have come to depend on a small number of people with a highly variable income stream for most of our tax revenue. It think the problem with that is obvious.

http://politicalcalculations.blogspot.com/2011/09/why-hiking-top-income-tax-rate-wont-fix.html#.ULkRD4ZYRqM

So, raising income tax rates (particularly on the more flexible and politically connected "rich") might be essential to getting re-elected and essential to fanning the flames of class warfare, but it don't pay da bills.

Brandon Berg writes:

I took a look at total (federal + state + local) tax revenues as a share of national income excluding transfers, which strikes me as a reasonable measure of the overall burden on taxpayers. It increased fairly steadily from 1963 (30%) to 1981 (38%), and since then it's been fluctuating in the 36%-40% range. The overall tax burden was slightly but not significantly higher in 2010 (37.5%) than it was in 1980 (37.1%), and in 2007 (39.3%) was near 2000's all-time high of 39.9%.

Phil writes:

I don't like the joke. I think of "I want that" as meaning, "I would be significantly happier having that than not having it, all things being equal." The joke requires you to assume it means, "I want that more than the alternatives at the same cost."

Tom West writes:

> This seems kind of a petty criticism.

Actually, I'm struck by the fact that David uses the Economics Joke #1 to illustrate the fact that "want" has different meanings to economists and non-economists, so he undercuts his own point, which is a bit silly.

On the other hand, I did laugh at the joke, which in my mind more than makes up for any other flaws in the post :-).

On the more substantive point about tax revenues. Isn't tax *expenditures* a better indication of government involvement? I've always thought that except in exceptional circumstances we needed to have revenues roughly in line with expenditures so that the voter could make an informed choice as to what level of government intervention is appropriate. Want more services (which I do)? See what it will cost you, and then decide.

It's why in a deficit situation I approve higher taxes for everyone in most cases. I like many gov't programs, but I like the concept of deceiving people into thinking they're "free" even less.

Bob Murphy writes:

Guys, Silas isn't naive; he is a huge critic of government doublespeak. All Silas is trying to say, is that David is here basing his whole post on a semantic issue.

E.g. if I said, "Oh man, I really don't want to go to the dentist today for that root canal," and then someone wrote a whole blog post saying I was an idiot, wouldn't that be silly?

So in summary, I think we all agree that this particular politician actually has no problem raising taxes on rich people. It's just that some of us think David might be placing too much weight on the semantic gotcha, which (by itself) would indeed appear petty in other circumstances. E.g., if I said I wanted something and David Friedman said "apparently not," it would be fine for me to say, "Yes, I do. It's just that I want my money more. Are you kidding me?!"

Brandon Berg writes:

I took a look at total (federal + state + local) tax revenues as a share of national income excluding transfers, which strikes me as a reasonable measure of the overall burden on taxpayers.

Actually...did I make a mistake here in subtracting out government transfers? Do calculations of national income already subtract out government transfers from earned income, in order to avoid double-counting?

egd writes:

Methinks writes:

Tax revenue as a percent of GDP has historically remained very stable despite a wildly fluctuating income tax rates.

That's not what the NYT is measuring. Or, at least not what they purport to measure.

"Complaints Aside, Most Face Lower Tax Burden Than in the Reagan ’80s". This isn't a measure of tax revenue as a percent of GDP. This is measuring the tax burden on 'most' people.

I suspect, although I don't have the data handy, that since 1980 the tax burden has shifted to become more progressive. I know it certainly has since the Bush tax cuts were enacted, which ended tax liability for a number of people at the bottom of the pay scale.

Sure, for 'most' people, the tax burden has eased. Only because the tax burden has become more progressive.

Given a fixed Gini coefficient and tax burden as a percentage of GDP I think an optimized 'progressive' tax scheme could be established so that the burden falls on the least taxpayers necessary. This says nothing of fairness.

Methinks writes:

egd,

I was responding to Silas calling taxes (possibly) a "necessarily evil", not anything in the article linked to in the original post.

In fact, taxes have become more progressive and the higher income earners are paying a disproportionate share of the income tax - a much higher percentage than they paid in the 80's. The top 1% pays about 22% of the total income tax collected, while its share of national income is 13%. The bottom 40% earned 14.9% of the income but paid only 4.1% of the total income tax collected. It's 2009 data, but I just don't have 2010 and I don't think it's very different.

http://blog.heritage.org/2012/07/12/cbo-report-confirms-rich-already-pay-their-fair-share/

I don't know what you mean by "least taxpayers necessary", but there is an obvious problem with relying on a small group of people to pay all the taxes. This is particularly true if you're relying on a small, smart, wealthy and politically connected group with far more options than the average person and a highly variable income. High income earners earn a higher income because they take more risk and taking more risk means that income is much more volatile than, say, the income of the middle class.

But, these tax debates are just a side-show at the political circus to distract people from the main act - the destruction of this country. Even if politicians eliminate every dime of "discretionary spending" we're still over $260 billion in the hole on mandatory spending. The gap cannot be overcome with taxes - especially considering higher tax rates don't yield more revenue because people adjust their behaviour. Get ready for the reset. It's coming, the only question is how and when.

egd writes:
I was responding to Silas calling taxes (possibly) a "necessarily evil", not anything in the article linked to in the original post.
Thanks for clarifying. I don't see any point of disagreement remaining.
I don't know what you mean by "least taxpayers necessary"
Maximum progressivity. Imposing the tax burden on the least number of people possible. The simple solution is 100% of all money above $X. But that would change the Gini coefficient.

I'm not saying it's a good idea, just that it is an interesting exercise.

blsdaniel writes:

MG,

In fact, in a previous campaign, the same leader actually conceded that he did not even care of the "many bodies" paid more in taxes, all that he wanted was to raise their taxes.

I don't understand the difference between paying more taxes and having your taxes raised.

And PLEASE tell me that this isn't one of those claims that Obama openly said that he wants to raise taxes on the rich purely out of fairness, even if it lowers revenues.

Because he didn't.

MG writes:

blsdaniel,

I am not sure how else to interpret -- at least as a "subliminal revealed preference" -- his answer to Charlie Gibson in the 2008 Dem debates. (Clarifications and susbsequebt hedging, if produced, don't get him off the hook.) Of course no politician will insist on enacting an income tax while unconditionally accepting that it would categorically lower revenues. They will just find any way to challenge the premise that a tax can lead to reduced growth and thus reduced tax revenues, and they will scourge the earth for evidence that even demonstrably highly tax elastic measures (such as raising cap gains taxes, the subject of the question) do not always result in lost revenues. But this election was different, because all the economic obfuscation was mostly laid aside, and the focus WAS the simple red meat issue of the 1%.

I did not find the prof's post petty because I think it highlights the cynicism (beyond petty semantics) or disingenousness of running an election clearly the issue of "tax fairness" (some call it "class warfare") and now wanting to recast this position as having been about fiscal conservatism. Fiscal conservatism is the last refuge of the class warrior.

David R. Henderson writes:

@John Hall,
Funny, but I think the sign "I'm not striking, so I don't want to strike" is more indicative of the revealed preference approach.
Exactly. That's why I quoted it.
@blsdaniel,
Gotta go with Silas on this one. David may well be the least petty commentator on the web (I mean that literally!), but this time, it was a silly complaint.
Wow, Daniel! I'll just take in the compliment on this one.
David, I'm sorry I don't come here more and praise you on the other 95% of the time when you're really showing your comparative advantage of being a good-natured person...I should.
No problem, again. Still basking. :-)
But I guess I don't want to ;-)
LOL.
@Bob Murphy,
It's just that some of us think David might be placing too much weight on the semantic gotcha, which (by itself) would indeed appear petty in other circumstances. E.g., if I said I wanted something and David Friedman said "apparently not," it would be fine for me to say, "Yes, I do. It's just that I want my money more. Are you kidding me?!"
Agreed. The key words in what you said are "by itself." As Ken B has pointed out, we've heard from a lot of politicians lately, one in particular, who seem to like taxing somebodies. It's like when I was telling somebody, during a discussion of one of the recent wars, that I was "antiwar." He replied, "So's everybody. No one wants war." I don't think that's true. Anyone who thinks that should read a few biographies of Teddy Roosevelt and Winston Churchill.

Jim Glass writes:

"Nobody likes to pay taxes. Nobody wants to raise taxes on anybody."

ISTM you are pushing a point too far.

"Nobody likes to go to the dentist. Nobody wants to go to the dentist".

A person who goes to the dentist while saying this is a hypocrite? I think not.

Ooops, looking upthread I see Mr. Murphy already used this example. But I'm not going to change it because it popped into both our minds for a reason.

Anyhow, anyone wanting to point to abuse of language in politics re taxes can find many far better examples ... for instance, Obama's positively Orwellian...

"All we want to do is ask the rich to contribute a little more..."

... when what he means is ...

We are going to take the money we want via force from somebody, and it is going to be from *them*"

David R. Henderson writes:

@Bob Murphy,
E.g., if I said I wanted something and David Friedman said "apparently not," it would be fine for me to say, "Yes, I do. It's just that I want my money more. Are you kidding me?!"
Of course, he's kidding you. That's why it's a joke.

Mark Bahner writes:
Nobody likes to pay taxes. Nobody wants to raise taxes on anybody.

This reminds me of a great quote from a great movie:

I've sentenced boys younger than you to the gas chamber. Didn't want to do it. I felt I owed it to them.


Silas Barta writes:

Hypothetical David_Henderson: "Nobody likes to pay taxes. *I* don't like to pay taxes."

~~Scandal! Look at these 1040 forms we found! Look whose signature is on them! HYPOCRITE! Revealed preference strikes again! ~~

@Bob_Murphy, for the excellent clarification. Of course that particular politician is probably just pandering, but there's nothing inherently wrong, or in violation of revealed preference to say you "don't like X" and do it, since obviously there can be worse alternatives.

blsdaniel writes:

@MG,

I am not sure how else to interpret -- at least as a "subliminal revealed preference" -- his answer to Charlie Gibson in the 2008 Dem debates. (Clarifications and susbsequebt hedging, if produced, don't get him off the hook.)

His answer to that question, when not conveniently chopped off before he was done, shows him saying that he wants fairness, AND he wants to expand healthcare, AND he wants to invest in infrastructure, AND he wants to invest in our schools, AND he wants to do these things without borrowing. Policies that CONTRACT revenues are counter-productive to increasing spending on healthcare, schools, and infrastructure without borrowing the money to do so.

I'll admit that, tactically speaking, he should have moved his challenge to Gibson's point up sooner in his response, if only to prevent people from chopping that part of his answer off. But he DID challenge it. Given that, and the fact that no one offers up the fact that they want to spend more without borrowing as the reason for doing something that they think will lower revenues, I think you can't watch the full version without coming to the conclusion that he believes he'll get additional revenue if he raises the capital gains tax.

For the full version of his response, see: http://www.youtube.com/watch?v=B3qfjklyfD8

Bob Murphy writes:

David,

Right, and I agree the jokes were funny (especially Ben's sign). I wouldn't have said anything, except some of the commenters above seemed to think Silas was pro-taxation, so I wanted to clarify his point.

Ted Levy writes:

David, I think you are missing John Hall's point:

He said he thinks this reveals preference: "Funny, but I think the sign "I'm not striking, so I don't want to strike" is more indicative of the revealed preference approach."

You responded "Exactly. That's why I quoted it."

But Ben's Powell's sign said: "I don't want to strike, so I won't."

These are not the same statements. One is the near converse of the other. I think that was Hall's point.

David R. Henderson writes:

@Ted Levy,
You're right. I totally missed it. Apology to John Hall, and thanks, Ted.

Ken B writes:

[Comment removed for irrelevance.--Econlib Ed.]

Ken B writes:

I think David is pointing out a little bit of boilerplate humbug and using it as a tie-in to explain an economics point. Is it petty to point out it's humbug? or is it a nice catch, turned to a good purpose?

Is Enyart a class warrior? There's evidence. That doesn't sound like a reluctance to tax some. But the point certainly applies to other politicians.

David R. Henderson writes:

@Ken B,
Thanks for that piece of evidence. I agree that it's highly unlikely, in a political debate, that he would be touting marginal tax rates of 90% (actually 91%) if he weren't advocating higher marginal tax rates.

Comments for this entry have been closed
Return to top