Sobering thought for the day: how many earn $250K?

When people believe that a tax cut is going to benefit 1 in 5 or 6 families when in fact it’s only going to benefit 1 in 40 or 50 families, is it possible that they might just vote differently with respect to politicians who are for or against that tax cut?

A recent USAmerican survey found that most respondents vastly overestimated how many families in the US earn more than US$250,000 a year, guessing that it was about 17% of families when it’s actually 3%. The cutoff for the top quintile (20%) of USAmerican households is actually only US$92,000.

US$250,000 is an important number because this the income level where the about-to-expire Bush tax cuts (that have got the Tea Party so energised) kick in, and these are the tax cuts that many people say are motivating their intent to vote Republican at the mid-term elections that will be held today. Yet so few of those nominating these tax cuts as a deciding factor for their vote will actually benefit directly from them. Have they been taken in by the Just So scenarios pictured in ‘trickle-down’ economic theories of indirect benefits from tax cuts for the wealthy? There’s zero evidence that tax cuts actually result in any increases in key economic indicators such as GDP growth or income growth or wages growth or job creation – so from where are those benefits supposed to trickle down exactly?

For comparison, the income cutoff for the top quintile of Australian households is only A$86,000 per annum, and only 1% of Australian individuals earn more than A$200,000 (I couldn’t find a direct household income > $250K comparison). How many of you are surprised by how few people are at this income level, when you think of some of the political rhetoric around taxation? I bet a lot of people would be. And what are the longer term consequences of such inequalities?

“Rising inequality strains the social fabric in a way where you suddenly have a particular group of people who are able to take themselves out of the public sector in many different contexts – they’re able to use private schools, private hospitals, in some cases relying on private security forces rather than calling the police,” [Andrew Leigh] said.

“So in that sense they sort of come to occupy a different portion of Australia.

“It’s a risk that we might split into two Australias and so that’s I think the main concern that we need to worry about when thinking about this rise in inequality.”

Those who retreat from the public sector to private alternatives tend to get strident about contributing towards the public sector programs that they’re not personally using, and then demand even more tax cuts, which only accelerate the decay of infrastructure and program budgets so that the non-wealthy get even less benefit from a revenue-shrunk public sector.

Governments (and those politicians who want to form future governments) have a vested interest in the majority of their voters not realising the full extent of income and wealth inequality (how many politicians ever even mention Gini coefficients or Lorenz curves?), because it means that they can spin regressive fiscal policies as being fairer than they really are, and paint progressive fiscal policy proposals as not just unnecessary but harmfully naive. It shouldn’t be this easy for them to get away with it.

Categories: economics, ethics & philosophy

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2 replies

  1. This post from Echidne teases out some of the issues as to why USAmericans in particular so drastically underestimate disparity and are over-optimistic about social mobility.

  2. I don’t understand people who say that they’re not using facilities and services provided by the public good, so why should they contribute to them. To give a totally self-absorbed example, I want my coffee shop server to have access to good healthcare and support services so they don’t feel obligated to come into work when ill. Another self-absorbed example – I want good basic preventative dental care for everyone, so people aren’t relying on emergency care only, so those emergency care facilities are available when I need them. If I have kids, I want my kid’s teachers to have access to good healthcare so they’re not grumpy or short-tempered through being exhausted and/or in pain all day.
    Even if you’re not directly using such things, the availability and quality of publicly-provided facilities and services have an effect on you, through all the people you deal with every day, and all the people in THEIR lives. So saying cuts to such things won’t affect you is willful ignorance, in my book.

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