woody_zimmerman_118_2007One of the things clever politicians do is use a common term, while modifying its meaning. Listeners think the pol is talking about a familiar concept, while he really is talking about something else entirely. Take the word investment. Most voters think they know what that is. Webster defines it as –

“the outlay of money usually for income or profit : a capital outlay…”

An investment can be made in a small business or enterprise by an individual: in cash, directly from personal funds; or by an expenditure of his time. In other cases, companies accumulate earnings and plow them back into the business in order to expand or improve it. And, of course, individuals and organizations commonly invest by purchasing shares of ownership in companies, or bonds (that actually amount to business-loans), through formal securities exchanges.

All of these investments are entirely volitional. No one compels them in any way. Nor do businesses dun their employees or their customers to invest in the company’s expansion or to prop up the company when it is short of cash. Investment is a voluntary act at the very heart of capitalism. The smart money goes to businesses that can make money for their shareholders. Fools put their money into failing businesses.

Smart politicians have now modified the term investment to mean something different from its classical meaning. In contemporary political parlance, “investment” now means collecting money from taxpayers and putting those funds into infrastructure improvements (e.g., highways, bridges, schools), or into local police forces or teaching staffs, or into marginal businesses that certain politicians favor in furtherance of a political agenda. Often these lack the market viability that would attract conventional investment: e.g., so-called "green" businesses.

Naturally, voters are confused when they hear politicians declaiming about investment. The term evokes thoughts of private businesses growing and expanding, making money for their shareholders, and paying taxes. But the times are a-changin’. Government’s “wise men” have poured billions down rat-holes. Taxpayers – whose money that was – will see little of it again. Yet politicians charge onward, preaching the importance of investment – confident that most taxpayers will continue to be misled.

Fair share is another term that has much currency (so to speak) in contemporary politics. Politicians use it to confuse voters who have no real clue as to the facts of higher incomes and the taxes paid on those incomes. Demanding that certain individuals pay their “fair share” in taxes has been part of the Democrat Party’s shtick for over a century. It shows no signs of disappearing from the liberal playbook.

Modern Democrats (is that a non sequitur?) – President Obama chief among them – are again in full cry about “millionaires and billionaires” not paying their fair share. What that share should be, in order to be fair, is never defined, but pols assure us that “the rich” have lower tax rates than the rest of us. Even zillionaire Warren Buffet has mounted the Obama-bandwagon by claiming that his secretary pays taxes at a higher rate than he does, with all his zillions. This was by way of Mr. Buffet asking the president to raise the taxes of high-income people.

We’ll leave aside, for the moment, the question of why Mr. Buffet doesn’t simply pony up the extra taxes he thinks he should be paying. (There is provision in the law for individuals to make such “gifts” to the government.) Seeking to ingratiate himself with high-tax liberals, however, Mr. Buffet demands that others pay more taxes, too – strictly in the interest of “fairness,” of course. Mr. Obama immediately jumped on this as vindication of his call for higher taxes on everyone with an income exceeding $200,000 a year ($250,000 for couples).

Democrats call these people “millionaires and billionaires,” although many possess wealth at nowhere near these levels. Indeed, economists point out that many people with these higher incomes are owners of small businesses who channel all their business expenses and income through their personal tax-returns. This makes an individual’s income look high, but the income alone gives a false picture. Much of that income is offset by expenses of the businesses.

But the Buffet Tax-request is really a diversion from the core questions of what is “fair” taxation at various income levels, and how much tax-revenue can be produced by those higher taxes. These questions receive very little media attention, although lately I have seen some discussion of what share of total national income is earned by people at these high levels, and what share of total taxes they pay.

To clarify these matters, I furnish a table (below, taken from official government data) which quantifies shares of taxes paid and income earned in the USA, by “quintile” – i.e., five slices, each representing 20% of all households, ordered by income. Quintile I contains the 20% of households with lowest incomes, and Q-V contains the 20% of households with highest incomes. The table shows that the highest quintile pays 86% of all income taxes, while the lowest two quintiles pay no taxes, but actually receive government payments amounting to 3.3% of all taxes paid. The top 20% of households earn 56% of all income, but pay 86% of all tax, producing a tax-to-income ratio 1.54. Final entries in the table show the same data for the top 10%, 5% and 1% of earners, respectively. The top 1% of earners pay 2/5 of all taxes, while the top 10% pay nearly 3/4 of all taxes.

2007

Quintile

% all taxes paid

% all income earned

Ratio

I

-3.0

4

-0.75

II

-0.3

8

-0.04

III

4.6

13

0.35

IV

12.7

19

0.67

V

86.0

56

1.54

Total

100.0

100.0

 

 

 

 

 

Top 10%

72.7

42

1.73

Top 5%

61.0

32.3

1.89

Top 1%

39.5

19.4

2.04

 

A ratio above 1.00 means families in that stratum pay taxes proportionally greater than their share of income; conversely, a ratio below 1.00 means those families pay taxes proportionally less than their share of income. As shown , all quintiles except V pay taxes proportionately less than their share of income would indicate. This gets at the “fair share” issue. Just how high should that ratio be? My guess is that most people will be surprised at how unevenly taxes are distributed across income-levels, since many politicians (including Mr. Obama) have been pounding the table and misleading the public on this.

In case some of my readers have the impression that high-income earners have been getting an easy ride for the last 30 years – as many Democrats insist – it’s worth looking at a similar chart from 1979. (See below.) It’s obvious that the tax-burden was spread out more evenly in 1979 than it is now. No quintile had a negative ratio then, whereas the two lowest quintiles do have that now. In 1979, the top quintile got a much easier ride, whereas the four lowest quintiles paid more in taxes than now. This belies the argument that the tax-rates have gotten tilted in favor of “the rich” in recent years.

1979

Quintile

% all taxes paid

% all income earned

Ratio

I

2

6

0.33

II

7

11

0.64

III

13

16

0.81

IV

21

22

0.95

V

57

45

1.27

Total

100

100

 

 

 

 

 

Top 10%

40.7

30.5

1.33

Top 5%

29.6

20.7

1.43

Top 1%

15.4

9.3

1.66

 

Compassion is another term whose meaning has been changed by politicians over the last several decades. Compassion has always been an admirable personal trait. Webster calls it…

…a sympathetic consciousness of others' distress together with a desire to alleviate it

This definition still applies. The change has been in the placement of the impulse. Originally, it was an impulse felt and acted upon at the personal level. Now, however, “compassion” is cited by politicians as a pretext for action by others – primarily, the paying of taxes to finance expenditure of public monies in causes that those politicians believe worthy of subsidy.

The whole concept has now been transmogrified into a virtual compassion industry built on the idea of compelling people who may feel no particular personal compassion to pay up, so an elite group can favor “worthy” causes, groups and individuals with public largess. It strains credulity to imagine that such recipients all suffer “distress,” within the meaning expressed in the original definition of compassion (above). Politicians wear their “compassion” as a badge of honor, but it has become the scam of scams in the modern age.

*******

Politicians still tell outright lies – sometimes even whoppers – but the confusion strategy is more subtle. Voters need to be aware of it.