The Cox Box and The Middle Class Dilemma

Let’s talk about taxes. Everybody has an opinion on taxes. It’s probably save to say that most people who pay taxes think they pay too much for what they get from their governments. Depending on their political persuasion, people have different ideas of what is “fair”, when it comes to taxes. On the subject of federal taxes, many conservatives/libertarians promote that idea of a “Flat Tax” where everybody would pay the same percentage of their income in federal taxes. Liberals, on the other hand, have a different (contorted) idea of what “fair” means. They promote of a “Fair Tax”, whereby, more and more is taken from the earners and given to those that didn’t earn it, which is a way of redistributing income so all people are more equal in their results; i.e., communism.

We know, for example, that the top 10% earners pay 71% of the federal taxes. Does that seem fair? The other day I read an article in which a billionaire was suggesting that votes should be tied to the federal taxes they pay. He said that those that pay $1 in taxes would get one vote and those that $1 million in taxes should get a million votes. In other words, only those with skin in the game get to vote and the more skin one has in the game the more votes one has. This is not a new idea. Even Thomas Jefferson believed that voting rights should be restricted to land owners. Some on the Right might go along with this billionaires idea except we know that many very rich people and corporations practice what we call “crony capitalism”, whereby, they are able to influence the laws and regulations that are passed in way that gives them a competitive edge over those who don’t have that kind of influence.

So, if the rich pay the lion’s share of federal taxes, why do some well-known super rich folks advocate for paying even higher taxes? That seems counterintuitive, doesn’t it? The average Joe looks at the chunk of his paycheck that goes to the federal government and sees it as an out-of-pocket expense for which he receives little or no benefit, That part of his wages is gone and he’ll never see it again. Maybe the super rich see their taxes paid not as an out-of-pocket expense or cash outflow; but as part of their personal cash flow cycle. Think about it this way. The rich pay a lot of taxes to the federal government. What happens to all that money? Obviously, the government spends it. The government spends for the legitimate things they do for us like national defense and foreign relations and they spend it on a lot of things that aren’t so constitutionally legitimate. Everybody who works for the federal government; from the Army private to the highly lawyer at the IRS and the hundreds of thousands of bureaucrats get paid. After paying all of their employees and contractors, most of what is left goes pay for various social programs: Social Security, Medicare and Medicade, and finally there are a number various welfare recipients that get paid. And, what do all these people do with that money? Well, they spend most of it on the goods and services sold by the companies owned and/or operated by the super rich. You see, much of the money paid by the rich in taxes returns to them. That doesn’t happen with the taxes you pay, does it?

The Cox Box

Jim Cox is an economist and associate professor of economics. To be precise, he is an Austrian economist and he has written an article for Mises Institute. Cox talks about “Tax Payers” and “Tax Consumers”.( Your humble observer of the asylum we all have to live in likes those terms because they fit nicely with the concept of “Players” and “Payers” described in the About page of Asylum Watch.) The professor has developed a simple graph the he calls the Cox Box, which shows the relative taxes paid by income group and the income groups that consume taxes. Mr. Cox tells us:

….higher-income earners using their political connections to arrange money flows to themselves. At the same time, ideological pressures result in a political buying off of the desperate lower income groups who have been shut out of opportunities to better their circumstances via licensing costs, minimum wages, regulations and more.

And

Cox Box analysis will reveal a different mix of taxpayers and consumers at different income and wealth levels in different societies, times, and places. In the modern United States, however, we find an economy in which those at the income extremes appear to most easily take advantage of taxpayer-funded benefits while those at the middle income levels are increasingly called upon to finance the expenditures.

And, his Cox Box clearly demonstrates how the Middle Class gets the shaft:

In summary, the Cox Box shows us what we intuitively knew all along. The lowest income folks pay no federal taxes but the consume much of what the taxpayers pay. The rich pay a lot of taxes, but they have found ways to also consume much of the taxes that they pay. But, the Middle Class, which pays 30% of the federal taxes, receives little opportunity to consume their share of taxes paid.

The Cox Box shows clearly why we a simpler and flatter tax code and why we term limits on our politicians. As long as politicians have influence to peddle, there will be people with money willing to buy it. And, as long as politicians can buy votes by promising the low information voters a free lunch, nothing is going to change in our country. Wake up Middle Class! You have the votes to stop screwing you’re getting.

Well, that’s what I’m thinking. What are your thoughts.

Advertisements

9 thoughts on “The Cox Box and The Middle Class Dilemma

  1. Completely understandable and basically an understatement for those who have even a cursive understanding of the hosing the middle-class is taking from the rich, the poor, the government. That being said, at least 50% of the population is still fixated on the Red Hot Chili peppers going topless.

  2. Either a flat tax OR a national sales tax (which would mean we could abolish the IRS) is the solution. As far as voting. If you’re on the dole–straight handouts–not a system you may have paid into like SS, unemployment and medicare–you don’t get to vote until you’re off the dole.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s