Nine Charts That Explain Taxes In America

While taxes remain on many Americans’ minds, click here to view nine charts from Vox.com that explain the vagaries and little-known facts about the U.S. tax system.

For an even more extensive guide to taxes — such as how federal income taxes work and why payroll taxes differ from taxes on investment — click here.

How Machines Will Conquer The Economy

From Zeynep Tufecki over at the New York Times:

But computers do not just replace humans in the workplace. They shift the balance of power even more in favor of employers. Our normal response to technological innovation that threatens jobs is to encourage workers to acquire more skills, or to trust that the nuances of the human mind or human attention will always be superior in crucial ways. But when machines of this capacity enter the equation, employers have even more leverage, and our standard response is not sufficient for the looming crisis.

Machines aren’t used because they perform some tasks that much better than humans, but because, in many cases, they do a “good enough” job while also being cheaper, more predictable and easier to control than quirky, pesky humans. Technology in the workplace is as much about power and control as it is about productivity and efficiency.

This is the way technology is being used in many workplaces: to reduce the power of humans, and employers’ dependency on them, whether by replacing, displacing or surveilling them. Many technological developments contribute to this shift in power: advanced diagnostic systems that can do medical or legal analysis; the ability to outsource labor to the lowest-paid workers, measure employee tasks to the minute and “optimize” worker schedules in a way that devastates ordinary lives. Indeed, regardless of whether unemployment has gone up or down, real wages have been stagnant or declining in the United States for decades. Most people no longer have the leverage to bargain.

I can think of no better a justification for implementing a guaranteed basic income than this trend. How much longer until we run out of sustainable employment to support our population? Already, in the United States and elsewhere, most fast-growing sectors are low paying service jobs like fast-food and retail; even the professions that should ostensibly pay well, such as those requiring degrees or experience, increasingly do not.

Most people are already running out of alternatives for liveable, meaningful work — and now mechanization and automation threaten to undermine what comparatively little remains. I think this says a lot more about the social, economic, and moral failings of our society than it does about technology.

Why should everything be hyper-efficient at the expense of workers — who are also consumers and thus drivers of the economy? Why should we have a business culture, or indeed an economic and social structure, whereby those at the top must ruthlessly undercut the leverage and well-being of everyone else, whom they nonetheless depend on? If we want to optimize production and cost-effectiveness, which are of course not bad aims, then why not do so while providing some alternative means of survival for those who get displaced?

How we respond to this trend will speak volumes about our values, priorities, and moral grounding.

A Vivid Visualization of Inequality in America

The rise of wealth and income inequality is a (thankfully) widespread topic in media and public discourse, so by now most readers will no doubt be familiar with the various charts, videos, and graphs that translate it for our viewing pleasure.

But the Washington Post, citing an NPR column, presents an even more dramatic approach to showing the growth of inequality in the United States:

Source: Quoctrung Bui/NPR

Columnist Matt O’Brien breaks down what the data mean and the context of this sobering development:

It compares how much, in inflation-adjusted 2012 dollars, average households in the bottom 90 and top 1 percent have made each year. Now, it’s hard to tell because everyone was making less back then, but inequality really was high during the 1920s. The bottom 90 didn’t make much progress then, while the top 1 rode the, well, roaring stock market to even higher highs. All that was erased, though, during the Great Depression. The top 1 got wiped out when stocks fell almost 90 percent, and the bottom 90 did too when unemployment shot up to 25 percent. It was a bad time to be rich or poor, but mostly poor.

But the New Deal set the stage for a new society. FDR made it easier for workers to unionize, and started taxing the rich at confiscatory levels. It didn’t hurt that first the war and later the baby boom put everyone back to work. The result, as you can see above, was the creation of the American middle class. Between 1940 and 1970, the bottom 90 percent went from making, on average, $12,000 to $33,000. The top 1 percent, meanwhile, were stuck making “only” $300,000 this whole time. It’s what economists call the “Great Compression,” and it was a story about workers having the bargaining power to ask for higher wages and the rich not having much reason to ask for higher wages themselves. That’s because top marginal tax rates were so high—at their peak, 94 percent—that it wasn’t worth it for CEOs to pay themselves that much more. Besides, that was just something executives didn’t do back then. George Romney, for example, turned down a $100,000 bonus in 1960—and those are unadjusted dollars—because he didn’t think anyone needed to make that much more.

This didn’t last. It all started to unravel in the 1970s. Inflation ate up everyone’s pay, so that incomes for the top 1 and bottom 90 percent both stagnated. But it wasn’t just a monetary problem. It was an educational one, too. Starting in the 1930s, America had led the way with universal high school, but by the 1970s this progress had petered out. Making matters worse was that the rest of the world was already catching up—especially Germany and Japan—and forcing our workers to compete against theirs.

Ronald Reagan’s answer to all this was to cut taxes for the rich and deregulate the economy. The idea was to give the top 1 percent the freedom and incentive to work more and invest more, which was supposed to make the economy grow more—and, yes, trickle down to everybody else. It didn’t. Now part of that was because U.S. workers had to compete against even more low-wage workers overseas after the Berlin Wall came down and billions of people joined the global economy. Another was that new technologies like the internet helped the people at the top more than those at the bottom by creating winner-take-all markets. But a big part of it, like we said, was policy. Wall Street, in particular, went from being a relatively sleepy sector to a wheeling-and-dealing one where a couple of good bonuses could make you set for life. Indeed, more than 60 percent of the increasing share of income going to the top 1 percent came from CEOs and financiers who make most of their money in the markets.

It turns out, though, that even if a rising tide lifts all boats, most people can’t afford a boat. The bottom 90 percent, in other words, haven’t done much better the last 30 years, even as the top 1 percent have created a second Gilded Age. The only exception was the late 1990s—highlighted in yellow—when a tight labor market gave workers the bargaining power that unions used to. But other than that, it’s been a tale of two economies. There’s the financial one, where the top 1 percent have tied their fortunes to the booming stock market, and the real one, where everyone else is struggling not to fall behind. Now it’s true that the picture isn’t as bleak if you account for the fact that, as people marry later and have fewer kids, households aren’t as big as they used to be. And it’s also true that government benefits from Social Security to Medicare to food stamps and unemployment insurance help out the bottom 90 percent too. But it’s also true that even with these caveats, a growing economy hasn’t really translated into growing incomes for median households the last 15 years.

The change in fortunes between the bulk of society and a relative handful of families could not be more stark.

U.S. Leads Developed World in Child Poverty

Over the past six years, America’s wealth expanded by over $30 billion — a growth rate of 60 percent — despite the weak recovery. During the same span of time, another metric grew by that percentage: the number of homeless and food insecure children.

As Raw Story reports, despite its vast and ever-growing wealth, the world’s richest country by a considerable margin lags behind most other developed nations in measurements of child poverty.

America is a ‘Leader’ in Child Poverty

The U.S. has one of the highest relative child poverty rates in the developed world. As UNICEF reports, “[Children’s] material well-being is highest in the Netherlands and in the four Nordic countries and lowest in Latvia, Lithuania, Romania and the United States.”

Over half of public school students are poor enough to qualify for lunch subsidies, and almost half of black children under the age of six are living in poverty.

$5 a Day for Food, But Congress Thought it was Too Much.

Nearly half of all food stamp recipients are children, and they averaged about $5 a day for their meals before the 2014 farm bill cut $8.6 billion (over the next ten years) from the food stamp program.

In 2007 about 12 of every 100 kids were on food stamps. Today it’s 20 of every 100.

For Every 2 Homeless Children in 2006, There Are Now 3

On a typical frigid night in January, 138,000 children, according to the U.S. Department of Housing, were without a place to call home.

That’s about the same number of households that have each increased their wealth by $10 million per year since the recession.

The US: Near the Bottom in Education, and Sinking

The U.S. ranks near the bottom of the developed world in the percentage of 4-year-olds in early childhood education. Early education should be a primary goal for the future, as numerous studies have shown that pre-school helps all children to achieve more and earn more through adulthood, with the most disadvantaged benefiting the most. But we’re going in the opposite direction. Head Start was recently hit with the worst cutbacks in its history.

Children’s Rights? Not in the U.S.

It’s hard to comprehend the thinking of people who cut funding for homeless and hungry children. It may be delusion about trickle-down, it may be indifference to poverty, it may be resentment toward people unable to “make it on their own”.

The indifference and resentment and disdain for society reach around the globe. Only two nations still refuse to ratify the UN Convention on the Rights of the Child: South Sudan and the United States.

Aside from the obvious immorality of allowing so many millions of children to suffer during their most formative years, this abysmal performance in child well-being will leave a lasting legacy of social ills, poor children are increasingly more likely to remain poor for the rest of their lives (especially given the declining social mobility for which the U.S. was once famous).

Why Do The Poor Buy Luxury Goods?

From Tressie McMillan Cottom at TPM

Why do poor people make stupid, illogical decisions to buy status symbols? For the same reason all but only the most wealthy buy status symbols, I suppose. We want to belong. And, not just for the psychic rewards, but belonging to one group at the right time can mean the difference between unemployment and employment, a good job as opposed to a bad job, housing or a shelter, and so on. Someone mentioned on twitter that poor people can be presentable with affordable options from Kmart. But the issue is not about being presentable. Presentable is the bare minimum of social civility. It means being clean, not smelling, wearing shirts and shoes for service and the like. Presentable as a sufficient condition for gainful, dignified work or successful social interactions is a privilege. It’s the aging white hippie who can cut the ponytail of his youthful rebellion and walk into senior management while aging black panthers can never completely outrun the effects of stigmatization against which they were courting a revolution. Presentable is relative and, like life, it ain’t fair.

In contrast, “acceptable” is about gaining access to a limited set of rewards granted upon group membership. I cannot know exactly how often my presentation of acceptable has helped me but I have enough feedback to know it is not inconsequential. One manager at the apartment complex where I worked while in college told me, repeatedly, that she knew I was “Okay” because my little Nissan was clean. That I had worn a Jones of New York suit to the interview really sealed the deal. She could call the suit by name because she asked me about the label in the interview. Another hiring manager at my first professional job looked me up and down in the waiting room, cataloging my outfit, and later told me that she had decided I was too classy to be on the call center floor. I was hired as a trainer instead. The difference meant no shift work, greater prestige, better pay and a baseline salary for all my future employment.

….

At the heart of these incredulous statements about the poor decisions poor people make is a belief that we would never be like them. We would know better. We would know to save our money, eschew status symbols, cut coupons, practice puritanical sacrifice to amass a million dollars. There is a regular news story of a lunch lady who, unbeknownst to all who knew her, died rich and leaves it all to a cat or a charity or some such. Books about the modest lives of the rich like to tell us how they drive Buicks instead of BMWs. What we forget, if we ever know, is that what we know now about status and wealth creation and sacrifice are predicated on who we are, i.e. not poor. If you change the conditions of your not-poor status, you change everything you know as a result of being a not-poor. You have no idea what you would do if you were poor until you are poor. And not intermittently poor or formerly not-poor, but born poor, expected to be poor and treated by bureaucracies, gatekeepers and well-meaning respectability authorities as inherently poor. Then, and only then, will you understand the relative value of a ridiculous status symbol to someone who intuits that they cannot afford to not have it.

How Wealth Perpetuates Itself

It goes without saying that those who are born into rich families are more likely to remain rich themselves, and so on and so forth. But The Atlantic puts this in stark display with the following chart from The Wall Street Journal:

The rich spend far less on basic necessities like food and health care and far more on pensions and insurance, which can be left to children through trust funds and the like.

The article explains the relevance of this disparity:

When you have money, you spend less on the stuff that ensures you survive the day and more on the stuff that ensures that you (and your children, and your possessions, and your estate) survive and thrive for many years. Poverty is a chaos that screams in the present tense, and the anxiety of having no money forces poorer families to direct their attention to immediate concerns. As a result, the poor spend relatively more on what will keep them alive, because they must. And the rich spend more on what will keep them rich, because they can.

It’s boring to point out that having more money affords you more food, more clothes, more housing, and more cars. But the richest families actually spend less on food, clothes, housing, and cars than the poorest families as a share of their income. The real difference between the rich and the poor is that the rich spend a larger share of their much larger income on insurance, education, and, when you drill into the housing component, mortgages—all of which are directly related to building wealth, preserving wealth, and passing it down in the form of inheritance of direct investments in the lives of their children.

In other words, most people are in a paradoxical situation whereby you need wealth to have wealth, whether it is seed money for a business, money to afford an education, or valuable assets you can invest into your children. Many people are unable to realize their potential or that of their children because they simply lack the material resources, and no longer have access to the well-paying, socially mobile jobs — nor any sort of viable safety net — to help them along.

Heck, even if the wealthy did not spend a lot on education — and as the chart shows, in relative and absolute terms, they spend slightly less than the poorest Americans — they would still have the advantage by virtue of the other perks that wealth brings (and recall that wealth entails both income and assets like property, stock, etc.)

But the danger of setting inequality and immobility in opposition is that they’re not in opposition. Matthew O’Brien has written eloquently on “opportunity hoarding,” the idea that rich people are talented at doing all the right things you need to stay rich and make sure your kids get rich, too. Rich couples live in richer districts, read more to their kids, send them to better schools, hook them up with better internships, slide them into better entry-level jobs (or, better yet, into the family business), and finally pass down their insured and well invested wealth. Even education, the great American equalizer, makes for a poor equalizer. And it’s not only because wealthy teenagers are more likely to go to school. Young people born to rich families who don’t go to college are 2.5 times more likely to end up in the richest quartile than young people born to poor families who do go college. Wealth sticks, and nothing enriches like richness.

As long as economic opportunities remain scarce for the majority of the population, we can expect this cycle to continue: a small cohort of the population that becomes an entrenched neo-aristocracy (joined by the few who get lucky or somehow manage to break into higher income) and the majority that, being deprived of such access to assets, better paying jobs, and other means of sustainable wealth, remain in lower standing in relative terms.

This is not to say that everyone need to be rich to be happy and enjoy good well-being. Some of the most successful societies in the world are broadly middle-class in their makeup. The issue is when most people are unable to get beyond paying for the basics to enjoy decent healthcare, education, stimulating activities, and leisure. Then of course there is the problem of having an enduring elite class with the wealth and networks to influence government policy to serve their own interests — which often include shutting out as many opportunities for others as possible.

Why College Tuition in the U.S. is So Costly

Despite the comparatively larger public investment in higher education across most states and the federal government, American students are saddled with higher tuition costs than ever. Where is all that money going if not to reduce the costs of attending universities? To hire more qualified educators at least?

The New York Times highlights one major and often understated factor in this odd equation:

Interestingly, increased spending has not been going into the pockets of the typical professor. Salaries of full-time faculty members are, on average, barely higher than they were in 1970. Moreover, while 45 years ago 78 percent of college and university professors were full time, today half of postsecondary faculty members are lower-paid part-time employees, meaning that the average salaries of the people who do the teaching in American higher education are actually quite a bit lower than they were in 1970.

By contrast, a major factor driving increasing costs is the constant expansion of university administration. According to the Department of Education data, administrative positions at colleges and universities grew by 60 percent between 1993 and 2009, which Bloomberg reported was 10 times the rate of growth of tenured faculty positions.

Even more strikingly, an analysis by a professor at California Polytechnic University, Pomona, found that, while the total number of full-time faculty members in the C.S.U. system grew from 11,614 to 12,019 between 1975 and 2008, the total number of administrators grew from 3,800 to 12,183 — a 221 percent increase.

By my understanding, this trend also contributes to high healthcare costs, as hospitals and other healthcare facilities increasingly employ, or are administered by, highly paid individuals with little to no medical background.

What are your thoughts and reactions?

Hat tip to my friend James for sharing this article.

Articles of Interest: Mercenaries and Fragmented Forests

How private military contractors are changing the future of warfare…

The private military industry allows you to fight wars without having your own blood on the gambling table. And drones just do that as well. If you think about this as an arms-control issue, both [drones and private military companies] should be part of the same category, because they allow national governments to get involved in fighting without actually having citizens do it. And that creates moral hazard for policymakers, because it lowers the barriers of entry into conflict.

Technology allows [private armed groups] to punch above their weight class. And technology’s ever cheaper, ever more available, and so drones and other types of technologies—weapons systems, night-vision goggles—that’s all on the open market as well. So we’ve got an open market for force, swishing around with these markets of technologies. Supply and demand are going to find each other, and that allows a very small group of people to do some big damage.

Forests are fragmenting, at great cost to biodiversity…

[M]ore than 70% of remaining forest is within just 1km (about 0.6 miles) of an edge, while a 100 metre stroll from an edge would enable you to reach 20% of global forests … In Europe and the U.S., the vast majority of forest is within 1km of an edge – some of the most “remote” areas in these regions are a stones throw from human activity.

If you want remote forests on a large scale you’ll have to head to the Amazon, the Congo, or to a lesser degree, central and far eastern Russia, central Borneo and Papua New Guinea.

[B]y drawing together scientific evidence from seven long-term fragmentation experiments, Haddad and colleagues show that fragmentation reduces biodiversity by up to 75%. This exacerbates the extinction risk of millions of forest species, many of which we still don’t know much about.

The survival of large, carbon-rich trees – the building blocks of any intact forest ecosystem – is reduced in smaller and more isolated forest fragments. These patches thus fail to maintain viable populations, which over time are doomed – an “extinction debt” yet to be paid.

There is nothing wrong with technology in the classroom…

Students who have adapted to and now rely on using technology shouldn’t be cut off from this resource in the classroom. Many students use technological tools to overcome learning differences, to organize information, to engage in discussions that help them think through material. And they are more successful because of it. Some students with learning challenges have adapted to using technology without having to report a disability and announce that disability to their classmates or professors. Professors might not know that students in their classrooms are dealing with learning disabilities and are succeeding because of assistive technology. These students may not be registered with the “Office of Disability Services”, they might not be “diagnosed”, and have their learning differences medicalized — but then again, why should they have to in order to use the tools that help them?

Where the world’s economic elites live…

London is on top, besting New York City, which fell to fourth place. San Francisco, previously number four, has fallen out of the top 20 entirely. Singapore rises into the top 10, to number three, and Hong Kong is up three spots from 2013, to five. The top 10 also has two new European entrants: Frankfurt has the sixth most ultra-high-net individuals, and Paris has the seventh. Osaka, Beijing, and Zurich round out the top 10.

The dominance of Asian cities illustrates a larger trend. For the first time, Asia overtook North America as the region with the second-largest growth in ultra-high-net individuals. The wealthy in Asia also now hold more money overall than those in North America: $5.9 trillion compared to $5.5 trillion. However, Europe still reigns supreme, with the greatest growth in the number of super-rich and with the wealthiest super-rich overall. Europe’s high-net individuals hold $6.4 trillion.

[Adjusted for population,] smaller cities dominate. Geneva tops the list, with 144 super-rich individuals per 100,000 residents, followed by Swiss counterpart Zurich, with 71. Home to fabled Swiss banks, these cities have long been the favored locations of global plutocrats. As the table below shows, Singapore and Hong Kong retain their high placement, ranking third and fifth, respectively. London drops to eighth, New York to 19th, Paris to 24th and Tokyo to 32nd.

Apple Nation

The rise of Apple Inc as a dominant global force in the 21st century could not be better pronounced than with the news that it is currently worth an incredible $700 billion, with $178 billion in profit as of the latest quarter. If the company were a country, it would be the 55th richest in the world, on par with New Zealand and bigger than Vietnam, Morocco, and Ecuador (nations that together have well over 120 million people).

The Atlantic, my source for this news, puts this into perspective:

These sort of comparisons help underscore just how much money Apple has, but they’re not entirely nuanced. For instance, although Apple has made history with its earnings, there have been countries just as rich—and richer—once you adjust for inflation. In that case, Apple still hasn’t hit Microsoft’s high-water mark in 1999. (Microsoft was worth $620 billion then; which would exceed $870 billion in today’s dollars.) But what does that tell us, really, other than how quickly tech fortunes can change? After all, Apple today is worth more than twice as much as Microsoft ($349 billion). In 1999, though, Apple was perhaps notable for making colorful iMacs that dotted high-school computer labs, but not much else.

It is astounding that a private company could accrue enough wealth to rival entire nations, or to give every American $556. I see it as a troubling development, insofar as it is indicative of a wider trend of global inequality, with more wealth becoming concentrated among a small cohort of the population — mostly the shareholders, executives, and financiers involved in the trading and investing of these big companies.

Apple’s beleaguered workers, namely those subcontracted in the developing world, certainly deserve some sort of bonus for helping to make these record-breaking profits possible. If such compensation is a way to reward success, and to encourage productivity and performance, as businesspeople alleged, than does that logic not apply to average people? Or are only the rich who helm the top of these companies entitled (or apparently in need of) such motivation?

It is scary to think that this is hardly an unprecedented development either:

No modern tech company has approached the value of trading companies of the 1700s, though, and the Dutch East India Company trumps them all. The shipping juggernaut was the world’s first publicly traded company. At its height,according to several estimates, it was worth the equivalent of more than $7 trillion in 2015 dollars. That’s a seven with 12 zeros after it—or Apple’s valuation today 10 times over.

The Dutch East India Company was ultimately undone, at least in part, by the weight of corruption and venality among its personnel. It seems a common fate for institutions that become swept up in unchecked growth and the subsequent expectations for more and more. This is not a sustainable model for any organized system, whether it is a government or a tech firm.

The Poor Have It Easy In America

That is a sentiment that appears to be widely held by the nation’s wealthiest citizens, according to a recent Pew survey reported by the Washington Post.

The center surveyed a nationally representative group of people this past fall, and found that the majority of the country’s most financially secure citizens (54 percent at the very top, and 57 percent just below) believe the “poor have it easy because they can get government benefits without doing anything in return.” America’s least financially secure, meanwhile, vehemently disagree — nearly 70 percent say the poor have hard lives because the benefits “don’t go far enough.” Nationally, the population is almost evenly split.

Here are the results in visual form; note the large minorities of poor and middle-class people that agree with this view.

Unsurprisingly, the report also found that those who identify as conservatives — around 40 percent of the most financially secure groups — are more likely to believe the poor have it good thanks to the government, and that the poor do not work hard enough. Another Pew report confirmed that around 75 percent of conservatives in general feel this way about the poor, regardless of income.

So in essence, if you are wealthy or conservative — but especially both — you are likely to take a dim view of America’s least fortunate — and conversely, to believe that wealthy people have it harder, due to perceived higher taxes, onerous government regulations, and the usual bugbears of the right.

As columnist Christopher Ingraham points out, such a perception of America’s poor is greatly at odds with reality:

But I have a hard time understanding how you could read about the experience of families relying on food stamps to eat, or those trying tomanage chronic conditions with Medicaid, and conclude that these people somehow have it easy. For context, here is a brief and wildly incomplete list of the ways life is “easy” when you’re poor:

Of course, it is no coincidence that those who think the poor have it easy also think the poor do not work hard enough and just live off the government (and by extension, live off the hardworking taxpayer). If you think that poor people get what they deserve for their laziness and irresponsibility, no amount of data demonstrating their difficult circumstances — and by contrast how much better the wealthy are doing — will sway the wealthy’s sympathy; nor will any of the evidence showing the role that external factors — from low wages to unstable business cycles — have contributed to growing and persistent poverty.

Moreover, with many of these same wealthy Americans having a disproportionate influence on our media and politics, it is little wonder that more is not being done to address the mounting socioeconomic conditions faced by a growing proportion of Americans.

As for how so many wealthy people can retain such callous views of the nation’s poor, that can be attributed to a range of factors. Richer people are increasingly holing up in gated communities or gentrified areas where poor people are largely absent. They are more likely to interact with and know only other well off or at least middle-class people. Some evidence even suggests that wealth accumulation itself contributes to an empathy gap with those who are not rich.

Whatever the cause, it goes without saying that this arrangement is not sustainable. No society has ever endured such a wide and growing gap between rich and poor without ultimately subsiding into sociopolitical instability — including revolution. While the U.S. may not necessarily go the way of 18th century France or Bolshevik Russia, it will certainly experience the same sort of underlying tensions and political problems that tend to bode ill for long-term prosperity.

It is time we start caring about the least vulnerable in America and doing more to help them, namely by promoting a more sustainable and equitable economic system. If more companies paid their employees better (perhaps by tapping into those record-breaking profits), that alone would go a long way. Of course, viewing the poor as people that deserve dignified wages and treatment would be the natural place to start — it is a shame that even needs to be a lesson to learn.