"From Free Exchange at The Economist:
In the first [paper] Isaac Sorkin of the University of Michigan argues that firms may well substitute machines for people in response to minimum wages, but slowly. Mr Sorkin offers the example of sock-makers in the 1930s, which took years to switch to less labour-intensive machines after the federal minimum wage was brought in. He also explains how this finding squares with other research. Most studies look at past minimum wage increases that were not inflation-proofed. Firms may decide not to go through the hassle of investing in labour-saving machines if the minimum wage will affect them less over time. But they could respond differently to a more permanent increase.Mr Sorkin crunches the numbers, using a model of the American restaurant industry in which companies choose between employees and machines. He investigates the effect of a permanent (ie, inflation-linked) increase in the minimum wage and shows that the tiny short-run effects on employment normally seen are fully consistent with a long-run response over 100 times larger. The lack of evidence for a big impact on employment in the short term does not rule out a much larger long-term effect.In a second paper, written with Daniel Aaronson of the Federal Reserve Bank of Chicago and Eric French of University College London, Mr Sorkin goes further, offering empirical evidence that higher minimum wages nudge firms away from people and towards machines. The authors look at the type of restaurants that close down and start up after a minimum-wage rise. An increase in the minimum wage seems to push some restaurants out of business. The eateries that replace them are more likely to be chains, which are more reliant on machines (and therefore offer fewer jobs) than the independent outlets they replace. This effect has not been picked up before because the restaurants which continue to operate do not change their employment levels, so the jobs total does not shift much in the short run."
Like it or not, the campaign season is upon us, and that almost certainly means somebody is going to try to buy your vote with a tax cut — even though average federal tax rates are already low in historical terms, our tax code remains tilted in favor of the wealthy, and our children, neighborhoods and infrastructure desperately need public investment.I tried to use my imagination and think of how a thoughtful and intelligent liberal like Bernstein might conceive of tax policy. But I could not come up with any scenario under which this statement might be considered true: “our tax code remains tilted in favor of the wealthy.”
The plain fact of the matter is that the federal tax system is highly graduated, or what liberals call “progressive.” Lower-income households pay much smaller shares of their income in taxes than do higher-income households.
In his article, Bernstein uses data from the respected Tax Policy Center (TPC), as I do here. The first table shows TPC estimates of average federal tax rates (total taxes divided by income) for U.S. households (specifically, “tax units”) in five income groups.
Average Federal Tax Rates, 2015
Income Group Income Tax Payroll Tax Other Taxes Total Taxes Lowest -5.0% 6.4% 2.2% 3.6% Second -1.9 7.6 2.1 7.8 Middle 2.9 7.9 2.3 13.1 Fourth 6.1 8.4 2.5 17.0 Highest 15.6 6.0 4.1 25.7Source: Tax Policy Center estimates.The average household in the highest group will pay 25.7 percent of its income toward taxes in 2015, which compares to 3.6 percent in the lowest group. The average household in the middle group will pay a rate about half that of the highest group. I don’t see how this data can be reconciled with Bernstein’s claim.
Data from other sources shows the same tilt in tax burdens toward high earners. Actually, “piling on” on high earners is more accurate than “tilt.” The following screenshot is from Table A-6 in this Joint Committee on Taxation report. I’ve circled the key column. Average tax rates rise rapidly as income rises. The highest earners in 2015 will pay an average federal tax rate of 33.1 percent, which is about twice the rate of those with middling incomes, and many times the rate of people at the bottom.
Perhaps Bernstein meant “tilted in favor of the wealthy” compared to other countries. But we have pretty solid data showing that is not correct either. Tax Foundation summarizes OECD data here showing that the U.S. has the most graduated, or progressive, tax system among the high-income nations.
Bernstein is right that the “campaign season is upon us.” But that doesn’t give him license to tilt tax data upside down to fit his policy narrative."