Tax Day Post - Taxes On Parade

April 15, 2010
Posted by Jay Livingston

Greg Mankiw opened his copy of Parade on Sunday, and he didn’t much like what he saw. It was the “Annual Salary Survey,” and – surprise, surprise – readers saw a lot more rich celebs than they would have seen just by walking around their neighborhoods. Yes Parade was guilty – it “oversampled” the rich and the famous.
about 14 percent of the people in Parade's sample earn more than $1 million a year. In the real world, the actual percentage is about 0.2 percent.

Even worse than Parade’s methodology was its pernicious effect.
There is a common perception in some circles that we can solve all our fiscal problems if only we were willing to tax the rich some more. Yet, in reality, there are not enough rich for this to work. By presenting such a skewed cross-section of incomes, Parade inadvertently feeds an all-too-common misperception.
Now Greg Mankiw is a respected (and rich) economist, and I’m sure he doesn’t go making statements that can’t be supported by evidence. But this one seems awfully vague. These unidentified “circles”– what are they, and how large are they? Just how common is this “all-too common misperception.”

I also wonder how much power Parade has over public perceptions. Mankiw notes that Parade has a circulation of 32 million – all those folks who, just like Greg himself, find it folded into their Sunday newspaper along with the coupons for Pop Tarts and Fabreze. Do we really know what impact Walter Scott and Marilyn and the rest have had in shaping the American consciousness? (Surely someone has done this research. I just wish Greg had linked to it.)

Justin Wolfers at Freakonomics has the more important criticism: when you are deciding who to tax, the important variable is not numbers of people but numbers of dollars. So maybe the “misperception” is not really amiss.
Families earning more than $1 million probably do represent close to 14 percent of total income, and maybe more. By arguing that only 0.2 percent of families are this rich, Mankiw risks distracting his readers from the fact that increasing the taxes paid by the rich can be a big part of the solution to our fiscal woes.

1 comment:

Josh said...

Sorry for the late post, but I've been working on this very subject lately. Going through the literature, I wouldn't be so quick to jump on the "tax the rich" bandwagon. Highly progressive taxes actually constrain the size of the welfare state by limiting the size of the tax base. The European welfare states that many people drool over, such as Sweden, have highly regressive tax structures. It's more or less a redistribution among classes (and sometimes even from lower to upper classes).