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Monday, August 06, 2012

'Important Reasons to Challenge Professor Mankiw'

You will be shocked by this. Greg Mankiw, in an attempt to serve his political interests, said something misleading on his blog:

Measuring Mooching, by Nancy Folbre, Commentary, NY Times: ...Gregory Mankiw .... called attention to a recent Congressional Budget Office report showing that government transfers, net of federal taxes, were greater than market income for the bottom three quintiles of all households ranked by market income in 2009.
Professor Mankiw concluded that the lowest 20 percent of families were receiving $3 in government benefits for every dollar they earned and that the middle quintile “having long been a net contributor to the funding of government, is now a net recipient of government largess.”
This is not the same as calling the middle class moochers, but some might interpret it that way. Here are some important reasons to challenge Professor Mankiw...:
First, a ranking of households by market income puts households with retirees, young children, the sick and disabled at the bottom. We shouldn’t be surprised that net government transfers to these groups exceed their market income. As the C.B.O. report points out, almost two-thirds of the benefits received by the bottom quintile came from Social Security and Medicare. ... Calculations of “government largess” should be based on what people receive over their lifetimes. Retirees receiving Social Security and Medicare have paid taxes into the system in previous years. ...
Second, earnings were low in the bottom quintiles largely as a result of involuntary joblessness. ... People shouldn’t be faulted for unemployment when no jobs are to be had. ...
Third, the C.B.O. estimates do not provide entirely accurate measures of net government transfers. They are based on calculations of the difference between total transfers (including those from state and local government), and federal, but not state and local, taxes.
Indeed, an estimate of state and local taxes paid by the middle quintile in 2009 ... comes to $2,858 — enough to nudge their average total taxes paid ($10,558) above the value of the government transfers they received ($10,400).
In response to a reader’s comment..., Professor Mankiw posted a correction...

This captures an essential point (see here too):

Stepping back from these particulars, the larger point is that most government transfers take the form of social insurance against risks related to health, unemployment and poverty. As with private insurance, people shouldn’t expect the premiums they pay to equal the benefits they receive. What they should expect — and appreciate — is reduced risk of an economic shock that could turn their lives upside down.

    Posted by on Monday, August 6, 2012 at 10:32 AM in Economics, Politics, Taxes | Permalink  Comments (54)


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