More data on tax policies

Above is yet another graph, using data from the same source - a simple one just showing the average tax rate in each income bracket: the bottom 20% of the population, the next 20%, and so on, up to the top 0.1%. The famous "Joe the plumber" is just at the around the 95% percentile - at the top end of that long, long range (from about the 40 percentile mark to the 90 percentile mark, $40k/yr to about $170k/yr) where the tax policies of the two candidates are pretty much the same. Or if you prefer, at the bottom of that long range (from $250k/yr to $2,800k/yr and up), where the policies are different.

I find it exceedingly strange that there's so much rhetoric about very small differences (eg for Joe the plumber's tax rate) and so little discussion about the fairly large differences in tax rates for the top end of the range. The idea that tax credits are socialist is just wacky - these have been pushed by conservatives for decades now as an alternative to heavier-weight social programs, and in fact McCain's health care plan is based on tax credits. And both plans are clearly progressive in the sense that higher incomes pay higher tax rates - the difference is only in degree, not kind.

Even if you accept the claim that the very top of the scale for tax rates is important, the difference in top tax rate is also not especially large in a global sense - in particular moving from 29-38% doesn't turn the US from a free-market bastion to a socialistic Sweden wanna-be. In act, it doesn't dramatically change the ranking of the US for top personal income tax rate. Look at this chart (based on 2005 data) from Wikipedia, and imagine moving the top US bracket from 28% or so to 38% or so:

Or if you prefer here are some selected values from the data tables on the WP page that I sliced out and graphed myself against the Obama and McCain proposals. It's clearly a difference...but it's just as clearly not a switch from capitalism to Marxism.

More visual comparisons

From Mark Thoma at The Economists View, here's a pie chart showing earmarks as a percentage of the total Federal budget.



..and here is offshore drilling production, by year, as a fraction of total oil consumption.

What you miss when you go to bed early

Another tragic victim of socialized medicine....

My brilliant idea of the week...

...how about announcing a concert that hasn't happened yet, instead of one that's over? Our next show is a

Musical Open House for Obama featuring folk / blues / ragtime / bluegrass band Smokestack Lightining & friends.

Sunday Oct 26, 7:30 - 9:30pm
at the House of Nick Coles and Jen Matesa
331 S. Fairmount Street, Pittsburgh 15232

No cover - just donate what you can if you appreciate the music!

RSVP at the snazzy Obama-provided event page or listen to some samples on myspace if you're not one of those "low information" listeners.

Visualizing the Long Tail for Tax Policy: Part 2

Above is a corresponding visualization of the Obama plan - but it's a little more complicated. Again, you can click to zoom in.

Obama's plan includes both tax cuts and tax increases. All of Obama's tax cuts go to the bottom 900 people (the poorest 90%). The total cuts for the bottom 90% is much larger than for McCain's plan, but it's also distributed quite differently, as the inset shows.

For the next 90 people (percentiles 90-99%) it's basically a wash - the bottom half of these will get a tax cut, but a very slight one, and the top half of those 90 will see an increase: in terms of field position, they'll take a penalty, and have to move back to the left. How far, you ask? On average across these 90 people, the penalty is about 6 inches each - not enough to see on the gridiron I drew.

For the next 9 people, in the 99-99.9% bracket, the average tax increase is big enough to be visible: about a 4 yards penalty. An offsides penalty, maybe. I drew the approximate shift of each of these 9 people on the graph, with dotted blue arrows pointing from the old to the new position.

For the last guy, the penalty is nearly 22 yards, moving him back to the 70 or 75. Maybe a holding call.

I didn't bother to draw the appropriate-size stack of bills for the tax increases- you'll just have to image it. I didn't draw field-position arrows for the McCain tax plan because nobody moves by more than a foot or so - except for the guy down by the 94-yard line, who just about makes it to the goal.

I should also probably point out (in case it's not obvious) that neither of these plans is likely to be implemented exactly in their proposed form - even if the economy and stock market hadn't implored the last couple of weeks, which has obviously changed things, there's a long process of digestion before any major legislation is produced by congress, and like digestion, what comes out is often quite dissimilar from what goes in. It's probably best to think of this as a statement of what values the candidates stand support, rather than a prediction of how your taxes will change.

So to summarize:

• The Obama plan makes the spread between the highest-paid and lowest-paid Americans noticibly smaller. The McCain plan makes it slightly larger.
• The bottom 50-60% of the country by income do much better under the Obama plan).
• The tax plans are not very different for the 60-95% bracket, between about $70k and $170k per year.
• The 95-99% bracket ($170-$240k) clearly does better under McCain - by a substantial amount in dollars each, but a small percentage (a little more than 2%, actually) in income.
• The top 1%, and especially the top 0.1%, do much much better under McCain.

Go Steelers!

Visualizing the Long Tail for Tax Policy

They say software is hard to understand because it's "invisible" - but aren't so many things? For fun, I downloaded the raw data on Obama and McCain's proposed tax policies from http://www.taxpolicycenter.org - they have it all in Excel form, which makes crunching it convenient and easy - and tried to construct what I considered a reasonable visualization. Their data is broken out to show the effective tax increase or decrease for the first quintile, the second quintile, etc, with the top quintile broken down to partitions of the top 10%, 5%, 1% and 0.1%. I wanted to show the range of salaries in each partition, the number of people in each partition, and the change in tax. I decided that it just can't be done - the ranges are just two broad to see on, without using hard-to-explain constructs like a loglog plot.

Here's a mental image that might help. Think of a football field, 1000 typical Americans, and some big stacks of money in small bills. Specifically, think of $1 and $5 shuffled together and piled up so that each pile contains about equal numbers of $1's and $5's. If I did the math right (they say a US bill is 0.043" thick) then a money stack one foot tall is worth about $10k - so the football field is $3M long and $1.6M wide, I'm about $57k tall, and my waist size used to be about $30k (but with my diet, I lost about $1600 around the middle).

Now to visualize income distribution, let's take those 1000 typical Americans, and let them walk down the gridiron like this: start at one goal line, and for every $10k of yearly income, walk one foot toward the other end zone...so if you make $90k/year, e.g., you'll end up on the three-yard line, and if you make $300k/year, you'll end up on the 10. Subject to that rule, space everyone out as much as you can.

The first 900 of those 1000 people will end up somewhere before the 4 yard line, because about 90% of Americans make about $120k or less.

Another 90 people will end up between the 4 yard line and the 8 yard line - that is, they make between $120k and $240k per year.

Another 9 people will end up between the 8 yard line at the 20 - they make between $240k and $600k per year.

That accounts for 999 out of 1000 people, but this is America, land of Bill Gates and Warren Buffett - so we're not done yet. The last guy will stand, on average, at the 94 yard line - with an average income of $2.8M per year. Remember this is income, not life savings.

Now, for the tax cuts. Let's start with McCain's. EIn his plan, everyone gets a tax cut, and we'll hand it out as stacks of money. McCain has a stack about 9 feet high to be shared by the first 900 people; a stack about 5 feet high to be shared by the next 90 people; another 9.5 foot stack to be shared by the next 9 people; and a final stack about 6.5 feet high - about the height of Ben Rothlisberger - that goes to that one lonely old man (surely, he's old?) down on the 94 yard line.

Above is a picture I drew of this...you can click to zoom in.


This is approximate, and loses some detail - which maybe I'll get to in another post - but it illustrates the main properties of McCain's plan: there is an extremely long tail in income distribution in the US, and as a consequence, an extremely long tail of tax-cut returns. If you imagine the money stacks are all the same (which is order-of-magnitude correct), then

• For the bottom 90%, the per-person tax cut is about 1/10 that of people in the 90-99% bracket.
• For the 90-99% partition, the per-person tax cut is about 1/10 that of people in the 99-99.9% bracket.
• For the 99-99.9% partition, the per-person tax cut is about 1/10 that of people in the top one-tenth of one percent.

"I shot a moose once"

And now, an informational message, for those who may not fully recognize the intricacies and dangers of moose hunting.