Numerical Illiteracy

Robert Waldmann

Jonathan Chait has a very good article on Paul Ryan in The New Republic. In it he displays striking confusion on simple arithmetic.

It’s worth keeping in mind that the current tax system in this country is only very slightly progressive. State and local taxes are regressive, federal taxes are somewhat progressive, and the net effect redistributes income, very slightly, from the rich to the not-rich:

It is true that the tax system is only very slightly progressive. It makes no sense to talk about whether the tax system redistributes income from the rich to the non-rich. The tax system redistributes income from the rich and the non-rich to the public sector. To assess redistribution from the rich to the non-rich one has to look at what the public sector does with the money. Even if one assumes that the public sector provides no valuable services (not I think Chait’s view or even, for that matter, Ryan’s) much of the money is sent right back as old age pensions, disability pensions and some more as unemployment insurance, housing vouchers, and even a tiny bit of TANF,

The standard model of redistribution used by lazy economists is a flat tax which finances an equal grant to all citizens. According to Chait, there is no redistribution since the tax code is not progressive at all. It is not very hard to calculate what the effect of the public sector on income inequality would be if pre-tax and transfer income were unaffected by taxes and transfers (this is not an interesting calculation but it isn’t very hard). Here one finds a much larger effect of the central government tax and transfer system in Europe than in the USA even though the US federal tax system is more progressive. The amount of redistribution has a lot to do with the scale of taxes and transfers and, across developed countries, very little to do with progressiveness.

Chait should check with his fan Matt Yglesias who vastly overstates the importance of this simple fact.

Speaking of whom, a commenter recently wrote that Yglesias was “mathematically illiterate.” I was puzzled and replied that I thought he was very good with numbers. I’m not going to search through threads to find the exchange and so just let me apologize here. After reading this

“three countries in Western Europe (Sweden, France, Denmark, and Austria)”

I must admit that I was wrong.

By the way, I remain wildly enthusiastic about increasing the progressivity of the US tax code. This is partly because I am partisan and increased progressivity is very popular. It is also partly because, other things equal, increased progressivity implies increased transfers from the rich to the poor. It’s just other things aren’t zero.