Guest post: Top 1% Reduced Taxes in Last 3 Years but Probably Gained Income Share
Guest post by Kenneth Thomas
Top 1% Reduced Taxes in Last 3 Years but Probably Gained Income Share
Citizens for Tax Justice came out with a nice report today showing that the overall U.S. tax system is just barely “progressive,” which is to say that as your income goes up, so does your tax rate. While the federal income tax is progressive in this sense, many state and local taxes, such as sales and property taxes are regressive in that lower income people pay higher percentages of their income than do higher income people. The following table from CTJ makes this crystal clear:
As the right-hand portion of the table shows, as income rises federal taxes (individual and corporate income, estate tax, etc.) increase as a percentage of income, from 5.0% of income for the lowest 20% of earners to 21.1% for the top 1% of taxpayers. Meanwhile, state and local taxes move in exactly the opposite direction, from 12.3% of income for the lowest 20% to 7.9% for the top 1%. As CTJ further points out, for every income group the share of total taxes they pay is extremely close to their share of total income (in fact, the biggest difference is 1.7 percentage points).
We already knew, thanks to Emmanuel Saez, that in 2010, the top 1% got 93% of all income gains. With the new 2011 data, we find that the top 1% has continued to make out like gangbusters. As I reported in August, using data from the conservative Tax Foundation, in 2008 the top 1% earned 20.00% of all income. As we see in the table above, just three years later that has grown to 21.0%. Considering that the 2011 data is estimated, perhaps this change is not too significant. But what is really striking is that the top 1% paid only 21.1% of its income in all federal taxes in 2011, whereas in 2008 it paid at a rate of 23.27% for personal income tax alone.
Since the top 1% gets an even more disproportionate share of corporate income and taxable estate income than it does of personal income, this is solid evidence that it’s a real reduction we are seeing. I hate to sound like a broken record, but it’s really true that there is one tax system for the 1% and another one for the rest of us.
crossposted with Middle class political economist
It is unfortunate that they include “payroll tax” in their calculation, because payroll taxes don’t act like a tax… the money goes directly back to the taxpayer, so it operates essentially as a “savings bank”. it’s a tax because it’s mandatory, but it’s “not a tax” because the money does not go to support “government.”
nor is it clear whether they count the employers share as a tax on the employee… which is what the right claims it is when they want the roi to ss to look bad compared to their imaginary “present value” bank.
but now that the government apparently believes that SS is really a tax on “business” i don’t know if they should be counting it among the “taxes on the rich.”
i guess these comparisons are inevitable, but one should try to recognize that they are likely to be misleading one way or the other.
A problem with this analsis is that it doesn’t have enough income slices at the very top and the picture is not stable there.
Way up within the top 1% are the Romney-like rich, who start paying rates more like the bottom 20%. The NYT had a chart that did go up into those rarified levels showing how the effective rate continued to drop through quite a few smaller slices.
The US total tax system is somewhat progressive across the bottom 99%, then turns regressive. To see that you really need 1% 0.1% 0.01% or so brackets (it does eventually appear to stabalize at around the long term capital gains rate, buffet’s reported rate is about that).
I guess social security and medicare expenditures do not count as spending either.
No matter how loudly you protest, 2 + 2 still equals 4.
Hi Spencer:
Normally I would not challenge you on this topic. To aid Coberly in making his point, SS revenue versus payout is a wash if interest is included. With Medicare, there is still a surplus being collected. In either case and because of the reductions in corporate taxes, capital gains taxes, and even the individual income tax; much of the government expenditures have come to rely on the SS/Medicare revenue to support it. http://research.stlouisfed.org/fred2/graph/?g=3p6
Here is another Tax Policy Center graph which explains what I am saying or attempting to say: http://www.taxpolicycenter.org/UploadedPDF/1001082_federal_revenue.pdf
Cob just did not explain it well.
spencer
SS is off budget. Does that help you understand?
And while SS is a tax in the sense of it is an involuntary payment to a government. It is not a tax in that it is not a payment for the support of government.
Please don’t give me that BS about 2 + 2. If you don’t know what the hell you are adding, or why, saying 2+2 makes four doesn’t make you any smarter than a parakeet.
run
i often don’t explain it well. but something i learned from teaching math to undergraduates is that it doesn’t matter how hard the teacher tries to explain it, if they won’t do the homework, they will never get to understand it.
I could not tell how they allocated taxes paid by organizations, particularly the corp income tax and the employer paid FICA. Do you know?
I think the tax system is modestly progressive. It’s also only a portion of the story because government spending is much more progressive. This kind of chart fails to recognize that a large portion of the income in the bottom three quintiles comes from government transfers and there are further government benefits that don’t run through income that are also progressive. When you look at taxes net of benefits – or benefits net of taxes in millions of cases – it is a much more progressive story.
mark
i hope so. at least i think that’s the way it’s supposed to work. but a better economist than me pointed out that what the Fed does with interest rates moves more money from the poor to the rich, than taxes ever move the other way.
so i wouldn’t get hung up on progressive v regressive… especially as long as liberals with more education than sense keep calling SS a “regressive tax.”
the important thing to look at is how good a job are we doing eliminating poverty… as well as all the other things a government should be doing for us… ourselves.