I wrote yesterday about the problems of cognitive bias and motivated reasoning. It’s important to fight these things in your own life and not just complain about their existence among your adversaries. A good example of how to do this arose yesterday when I read a Ross Douthat column that I strongly disagreed with that also contained the odd factual assertion that the median income for a family of four is $94,900. I didn’t know the right number off the top of my head, but I was sure that was wrong.
Lots of other people noticed the error and denounced Douthat with various degrees of vehemence, oftentimes assuming nefarious motives and dishonesty on his behalf. I’ve known Ross a long time, disagreed with him for a long time, and never known him to be someone who would think it’s a good idea to misrepresent a number like that. So I thought I’d see if he had a reasonable response. And on this point, it turns out he does:
My column today includes an estimate, taken from this Congressional Budget Office report, of what a median-income family would pay in taxes over the next few decades under the “current law baseline” — a scenario in which tax rates rise fast enough to cover the budget deficit without any kind of entitlement reform. The median income figure the C.B.O. used (see Table 4-4 on p. 65 of the report) is $94,900 for a family of four, which (as a number of readers have noted) seems much higher than the usual estimates for median income in a four-person household. It turns out that I didn’t catch a crucial footnote in the C.B.O. document: “All income is assumed to be from compensation, which includes employment-based health insurance and the employer’s share of payroll taxes.” That is to say, the $94,900 in income includes the estimated value of the median family’s health care plan as well as their salary, which is not what most people think of when they hear the term “median income.”
We still disagree, but now we’re learning! On the one hand, Douthat misstated the number which he rightly concedes. On the other hand, now that I understand where this number comes from I have to say that it’s a lot higher than I would have guessed. The figure “$94,900″ doesn’t represent the “median income” of four-person households in the United States but it does represent the total compensation of such families and it’s a pretty high figure. The fact that so much of the labor compensation in the United States takes the “hidden” form of employer-provided health insurance is an important part of the landscape.
As for the overall issue, the shape of the river is this. We have certain sectors (most notably health care and education) that the state has traditionally played a large role in financing, and the costs in those sectors are rising at a disproportionate rate. That means that to continue having the state play it’s traditional role will require taxes that are higher than they’ve traditionally been. To read that and conclude that deviation from the traditional level of taxation is impractical and unworkable strikes me as odd, especially when faced with the fact that America is an unusually low tax country. We ought to seek policy measures that lean against the inflationary tendencies in the health and education sectors, but we should accept that these sectors will nonetheless grow relative to the rest of the economy and that this means somewhat higher taxes. The alternative of completely repudiating traditional commitments to health and education is, to me, what’s really impractical and unworkable.