Friday, July 29, 2011

Volokh's Todd Zywicki notes that Harvard's Elizabeth Warren, the doyenne of dishonest academics, unwittingly serves up some very interesting data:
“big necessities: mortgages (up 76 percent), cars (up 52 percent), taxes (up 25 percent), and health insurance (up 74 percent).” The problem is that while it is an accurate representation for mortgages, cars, and health insurance, that the expenses increase by that percentage, it is not for taxes. For the other expenses it is the percentage increase in dollars spent on those expenses. For taxes, however, the 25% increase is actually the percentage increase in the percentage of income spent on taxes. So the 25% is not how many more dollars go to paying taxes, it represents the household’s change from paying 24% of its income in taxes to 33% of its income in taxes–a change of 25% in the percentage of income dedicated to taxes, not a change of 25% in spending on taxes.

What this means is that once taxes are converted to an apples-to-apples comparison–percentage change in dollars instead of percentage change in percentage–household spending on taxes actually increased 140%, not 25%. The entire two-income trap, therefore, is actually a two-income tax trap, as I noted in my Wall Street Journal commentary on this awhile back...

In fact, based on their data once the math is done the real conclusions of Warren and Tyagi are inescapable and in fact extremely conservative: the financial problems of the middle class are caused by an astonishing rise in the tax burden on middle class families over the past three decades. Nowhere, however, will one read Professor Warren advocating income and property tax cuts as the obvious policy implication of their book–although that is unambiguously the logical inference.
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