We Didn’t Want That Half of Our GDP Anyways

Bailout to top $7.76 trillion dollars.

Funny, in comments people ask me to imagine the horror of letting Citigroup die. Then I look at this story.

The money that’s been pledged is equivalent to $24,000 for every man, woman and child in the country. It’s nine times what the U.S. has spent so far on wars in Iraq and Afghanistan, according to Congressional Budget Office figures. It could pay off more than half the country’s mortgages.

Have a nice day.

FILED UNDER: General
Steve Verdon
About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research. He joined the staff at OTB in November 2004.

Comments

  1. markm says:

    The money that’s been pledged is equivalent to $24,000 for every man, woman and child in the country.

    Just slightly curious…what’s that number go up to if you divide the bailout total by the number of taxpayers?. That’s gotta be a frightening figure.

  2. rodney dill says:

    Just slightly curious…what’s that number go up to if you divide the bailout total by the number of taxpayers?. That’s gotta be a frightening figure.

    I think the article is addressing the total bail-out, not just Citi.

  3. Steve Verdon says:

    Think triple as a rough estimate. Might be a bit low though.

  4. And since half of the public will pay no taxes under PE Obama’s tax plans, I think it is safe to double the effective rate of debt-taxation here to $48,000 per man, woman, and child. So that’s $192,000 for my family. This. Year. And what about next year? And the year after that? And the interest? That’s more than all the debt I have including my mortage, car leases, etc. Unbelievable.

    The incentives being established here are perverse. It is going to take more idealism and courage than most people can muster to pay your debts and commitments going forward when the reward for doing so is to be made to make those who don’t whole again. And again. And again.

    Honestly, if someone set out to destroy the country, I don’t think they’d do it as well as out leaders are doing now. How much do you think your dollar is going to be worth five years from now?

  5. Alex Knapp says:

    And since half of the public will pay no taxes under PE Obama’s tax plans

    That’s utter nonsense and you know it. Or are tariffs and federal excises going to magically disappear? And the number of eligible people who won’t pay income tax will remain small.

    At any rate, one thing to note here is that paying $7.6 trillion would be an absolute worst-case scenario. The bailout sucks, but the actual costs won’t come anywhere near that.

  6. My apologies Alex. Half the public wil pay no federal income taxes. Somehow I doubt tariffs and federal excise taxes will ever be able to make much of a dent in the interest payments on this debt.

    Do you think the last person in the bailout line was just handed a sign saying “Closed” to show everyone else who now wants to get in line? That’s the problem with fiat money, once you start giving it away without any clear rationale, there’s not much rationale to ever stop.

    From one Springfieldian to another:
    President Elect Obama: “This is the worst financial crisis in my life.”
    Homer Simpson: “This is the worst financial crisis in your life, so far.”

    All I know is three and a half years from now, when Sarah Palin echoes Ronald Reagan and asks, “Are you better off now than you were four years ago?” President Obama is going to be very uncomfortable.

  7. odograph says:

    My apologies Alex. Half the public wil pay no federal income taxes.

    Serious question: do people play games with payroll taxes and filed income taxes in these claims?

  8. Brett says:

    I was going to bring up the Payroll Taxes issue, too (which have a cap above a certain income). It’s not as if half the population is paying no net taxes.

  9. Drew says:

    The utter nonsense is coming from you, Alex. Tarriffs and excise taxes amounted to only 6% of federal revenues in 2006 (Source: CBO)

    Also, social insurance taxes flow primarily to social security and govt health care programs.

    Corporate, individual and estate taxes comprise almost 100% of the rest. Hence, brand new government bailout obligations will fall on income earning and tax paying citizens. And true enough, the $7.6B number is only a worst case, but how convenient and cavalier of you to spend other peoples money. This “just a teeny-weeny bit more taxation” excuse gets old.

    And can we cut the “every man, woman and child” crap. For those of us in the top 1%/5%/10% of income earners, who will pay 40%/60%/71% (Source: IRS) of the bailout, the number is meaningful, and a disgrace.

  10. Steve Verdon says:

    Charles brings up a good point. If we are going to go with those who pay the bulk of the income tax you are probably talking about, and this is being generous, 1 out of 4 or 5 households. So, multiply that $24,000 by 4 or 5, then by the average number of people in these households. Say $24,000*16 or about $384,000 per household.

    Let me get my check book.

    The point about payroll and excise taxes, sales taxes, and tariffs is a complete red herring. Ignore it. If this money is to be paid back by tax payers it will be paid for via the income tax, not any of the taxes just mentioned.

  11. Serious answer.

    No games, no dancing, no obfuscation. The payroll taxes you speak of are FICA (Social Security and Medicare) and as a small business owner I am intimtely familiar with them. In fact, I get to pay them twice! No matter how fungible money is, FICA contributions, including the half you never see but your employer pays) are not supposed to be general revenue — even if they are treated that way… oops! But that would be the Clinton administration you’d need to take that up with. Gee, remember Al Gore’s Lockbox?

    I have no idea what you mean by filed income taxes. But pretty soon we’ll have 50% + 1 of the people agreeing to gouge the 50% – 1 with impunity.

  12. Drew says:

    Spot on, Mr. Verdon

    Let me get all quantitative on you all. (These are IRS numbers, updated as of July 2008)

    Number of returns with positive AGI: 135.7MM
    Number of the top 25% of earners, obviously: 33.9MM.
    Amount of income tax paid by the top 25%: 86%

    Theoretical bailout number: $7.6 trillion
    Load carried by the top 25%: $7.6T/33.9MM x .86 = $193K per.

    So, yes, Steve, the top 1 of 4 are carrying the lion’s share.

    And who ever believed a government estimates when it came to expense projections??

  13. buermann says:
  14. odograph says:

    Wikipedia:

    Payroll tax generally refers to two kinds of taxes: Taxes which employers are required to withhold from employees’ pay, also known as withholding, Pay-As-You-Earn (PAYE) or Pay-As-You-Go (PAYG) tax; and taxes which are paid from the employer’s own funds and which are directly related to employing a worker, which may be either fixed charges or proportionally linked to an employee’s pay.

    link

    So does the withholding portion get counted in these “no income tax” claims?

    One of the right-wing’s favorite talking points is the claim that 50 percent of American households don’t pay income taxes. From that claim flow a couple of other points: First, it’s impossible to “cut” taxes for those households because they don’t pay any tax in the first place; second, those households are somehow less deserving of respect or even a voice in politics because they aren’t paying their own way.

    That claim is bogus both in its details and its general charge.

    The actual figure of “taxable units” who don’t pay the standard income tax — a taxable unit being a couple filing jointly or a person filing — is somewhere around 38 percent. Even that number is grossly exaggerated, because it excludes what people pay through the payroll tax.

    That tax, in total, amounts to 15.3 percent of earned income up to a gross income ceiling that this year is $102,000. Above the ceiling amount, a taxpayer pays only 2.9 percent. (Employers technically contribute half the 15.3 percent, but economists classify the entire amount as a tax burden on the worker because it is a tax on their labor. If you’re self-employed, you have to pay that entire 15.3 percent yourself.)

    link

  15. odograph says:

    Actually I’m not clear on something … every job I ever had as a regular employee had Federal withholding, separate from SS.

    Is the claim that people put down some high number of dependents to push down the withholding?

    The federal tax tables sure go pretty low, with taxes down to $7,825 income single, $15,650 married.

    I’d assume the IRS isn’t just letting “50%” of tax payers walk on that.

  16. markm says:

    I think the article is addressing the total bail-out, not just Citi.

    Yeah, that’s what I meant as well.

    As for O’s tax plan…me think’s he’s going to be doing the Texas two step on many of his campaign plans. Reality on the ground sometimes sux.

  17. markm says:

    I have a question…all summer the Feds were pumping liquidity into the banking system apparently trying to avert what has happened. Do those funds count in the $7.76T???

  18. Drew says:

    Just do my math, or go to buermann’s link, odograph, and spare us the the false and disingenuous crap about how you don’t understand tax incidence.

    A 10 year old child can understand the figures.

  19. Ha! So are you prepared to quit whining about the low marginal tax rates on the “rich” and accept that my top marginal rate is already 56.3% (35.0% federal income tax + 6.0% state income + 15.3% FICA)? Progressive enough for you?

    Pick one definition and stick to it. And I’m not Warren Buffett where getting to keep 43 cents from every extra dollar my company generates is going to give me the incentive I need to take risks, hire people, and fund your social fantasies. Hell’s bells, going to the casino gives me a better potential return. I just barely qualify as “rich” according to the schemes thrown about by The One and damned if it doesn’t look from here like the whole point is to keep me down, not to pick someone else up.

  20. odograph says:

    OK Drew, explain it to me as a child … if income taxes start at $7,825 income single, $15,650 married, how do 50% not pay?

    Do 50% make less that that? If so we have a real problem.

  21. odograph says:

    Geez louise, “buermann’s link” shows every quintile paying tax! For 50% to pay no tax, at a minimum, you’d have to see zero in the first two quintiles.

  22. When you grasp the difference between income and taxable income this conversation can continue.

  23. odograph says:

    Do you actually believe that 50% of all couples in America make less than $15,650 in taxable income?

    We are a graying society but I don’t think we are that many retired yet, nor that we should have that many at the other end, just starting out.

    I was off reading about Refundable Credits. Wikipedia says: “Almost 21 million American families received more than $36 billion in refunds through the EITC in 2004”

    Not enough there to make 50%. Is there another Refundable Credit as big as EITC?

  24. Alex Knapp says:

    You guys do realize that we’re bailing out rich people, right? The people who are paying those high taxes you seem to find so awful…

  25. Odograph, you are being inconsistent and all over the map so much that there is little point in trying to engage you. Have a nice life.

    Alex, WTF? I am supposedly one of those “rich” people who is going to get a lot of debt, a lot of taxes and zero bailout dollars. Whether it is on principle, selfish interest, or both, I am vehemently opposed to these bailouts. Has that not been clear?

    I read somewhere else that this minor economic downturn looks as though it is going to be used to overturn 200 years of something that has worked rather well by any historical measure.

    Ack.

  26. odograph says:

    Charles, I was seriously reading and learning as I went there. I did not start out understanding the impact of EITC and Refundable Credits.

    It is not something I have sorted out in my mind yet. Did Nixon sign the EITC into law? And did Reagan expand it? I can see it, in the abstract, as a market-friendly compassionate conservatism … but how broad should it be?

    “Almost 21 million American families” seems like a lot, though not enough to make 50% of families income tax free.

    And of course there would be something a little strange, if the EITC were the mechanism, about blaming Democrats for people not paying taxes.

  27. odograph says:

    Shorter: If anyone thinks they understand HOW these 50% of Americans avoid income taxes, explain it.

  28. Drew says:

    Alex observes:

    “You guys do realize that we’re bailing out rich people, right? The people who are paying those high taxes you seem to find so awful…”

    There is actually truth in what you say, but your logic error is in homogenizing groups. To the degree we are bailing out “rich” shareholders and senior execs of Wall Street firms or auto companies I am in total league with you. Bailing them out of their errors is a travesty.

    The fact of the matter is that I’m “rich,” but I am not a Goldman or Citi exec, nor a GM exec. I didn’t create their mess, but I am asked to pay for it? Whutup with that?

    Your invective should be more focused. The “rich” are not evil. The poor managers of the firms being bailed out are the baddies.

  29. Drew says:

    Odo, odo, odo…….you are showing yourself (un-neccessarily) to be a buffoon. And we had such a civil discussion just a week ago.

    Your literal interpretation of income tax incidence can only be described as child-like.

    Here are the figures: Share of income taxes paid (Source: IRS Tables) Top 10%: 71% Top 25%: 86% Top 50%: 97%.

    So I guess you got us….the bottom 50% pay 3%, not zero.

    C’mon odo. I’m not trying to be a prick. But your literalist protestations are just silly on their face.

    Any rational interpretation is that the current tax code is incredibly progressive, and that the “rich” are carrying the load.

    It is what it is. And we can go from there.

  30. odograph says:

    If you aren’t trying to be a prick, you should admit that percent of budget paid is not the same as percent of household income paid.

    I think the 50% “don’t pay taxes” argument (above) is about percent of household income paid.

    Here’s the original quote:

    My apologies Alex. Half the public wil pay no federal income taxes.

    Can anyone actually prove that? Or failing that to even suggest a mechanism by which we might come close?

  31. Drew says:

    “If you aren’t trying to be a prick, you should admit that percent of budget paid is not the same as percent of household income paid.”

    Of course I would, for I have this bad habit: I’m intellectually honest. What you say is simple arithmetic – but of course now you are changing the argument.

    There can be no case made that a small minority of Americans do not pay the majority of the tax load. Its simply in the figures.

    Now, you make the observation that as a percentage of income, the result is different.
    True enough, but as beurmann’s figures show (if we just take the upper 60% vs the lower 40%, just for grins) the ratio is still 2 to 1, as a percentage. And we see that the lower 40% pay 10% of their income. Do you want to make the case that 10% is far too high? Just what is the right number? 5%? Zero?

    Should 1% – 10% – 30% of Americans just give the balance a complete free ride? Can you give me some argument in equity that this makes sense? Can you give me an economic argument that this makes sense?

    Are you one of these guys who think the Boston Celtics should play with 3 guys on 5 just to make it fair?

  32. odograph says:

    Of course I would, for I have this bad habit: I’m intellectually honest. What you say is simple arithmetic – but of course now you are changing the argument.

    Good, you’d never change the argument!

    There can be no case made that a small minority of Americans do not pay the majority of the tax load. Its simply in the figures.

    Holy … you just totally changed the argument!

  33. odograph says:

    The original claim was:

    Half the public wil pay no federal income taxes.

    Make that case if you can.

  34. ew says:

    What really WOULD happen if it failed? I know the lefty illuminati types think it would be Armageddon. But really.. I can’t fathom it being that bad… and so many intelligent people actually thinking this to be in the best interest of our country.