Inequality in the USA (also, we have a flat tax system)
Conservatives are fond of citing how much of the tax burden is carried by the rich. These usually consider only income taxes, not including payroll taxes. A wonderful example is provided in “An Obama Gift for K Street“, Robert J. Samuelson, Washington Post, 15 December 15, 2008 — Excerpt:
Sure, the wealthy extract privileges from government, but mainly they’re its servants. The richest 1% of Americans pay 28% of federal taxes, says the Congressional Budget Office. About 60% of the $3 trillion federal budget goes for payments to individuals — mostly the poor and middle class. You can argue that those burdens and benefits should be greater, but if the rich were all powerful, their taxes would be much lower.
The New York Times provides a more complete picture in this graphic. It deserves attention. Here are a few items of interest, combining both income and payroll taxes (it does not appear to include the 1/2 of payroll taxes “paid” by employers).
- Households in the top 1% of income collect 18% of total income in the US.
- The top 10% collect 44% of total income.
- The top 20% collect 60% of total income.
What fraction of their income do people pay in taxes as income rises?
- Everyone (on average) with income over $100,000 pays aprox the same fraction of income: 21 – 22%.
- Those with income of over $10 million pay a slightly lower fraction than those in the $100-200 thousand range 20.1% vs. 20.6%.
- The top 400 taxpayers pay even less: 17.5%.
For more on this I strongly recommend these three posts by Ezra Klein at The American Prospect:
(1) “THE WEAK AND THE RICH“, 15 December 2008 — Excerpt:
So over the same period of time that the tax rates on the top 1% have fallen dramatically, their share of the national income has skyrocketed. The rich may not be “all powerful,” but it’s quite a leap to say that they are somehow cowering before the might of Robert Greenstein and the Center for Budget and Policy Priorities. Indeed, over the same period, they managed to (at least temporarily) eliminate the “estate tax,” which was a key tax on the rich. And if you don’t believe that was the rich flexing their political power, then you haven’t read this.
(2) “MORE TAX AND INEQUALITY WONKERY!“, 16 December 2008 — How tax burdens have changed by time for the average taxpayers (flat) and the top 1% and 0.1% (down a lot). Excerpt:
For the rich, effective federal tax rates fall throughout the century. The top 1% was paying around 45% in 1960, and that’s fallen to around 37%. But the real action has been in the subgroups above the top 1%: The top hundredth of a percent was paying above 70% of their income, and now they’re only a touch above 40%. But using Piketty and Saez’s paper on the progressivity of the US tax system, we can break that down even further…
As they say, “The contrast between the progressivity of federal taxes in 2004 and in 1960 is striking.” And a lot of the change has come in the top slivers of the income distribution. “The current federal tax system is relatively close to a flat tax rate within the top 1%,” write Piketty and Saez, and that’s no small statement. In 2006, the top percentile made around $380,000. The top hundredth of a percentile made around $5,000,000 a year, and controlled 9% of the nation’s income. But they’re not bearing a significantly heavier tax burden, as they would have been a few decades ago. Indeed, their burden has decreased. That’s a serious reduction in progressivity.
(3) “MORE, MORE, MORE ON PROGRESSIVE TAXATION!“, 16 December 2008 – Excerpt:
And one more note on how Samuelson presented his data. “The richest 1% of Americans pay 28% of federal taxes, says the Congressional Budget Office,” he wrote, as if that meant something. But the question with the top 1% is not simply how much they pay, but how much they make. If they make 50% of the national income, paying 28% of taxes is paying very little. If they make 2% of the national income, then their tax burden is heavy indeed. What they pay only makes sense if you know what they make. And this is true for historical comparisons too.
You often hear conservatives argue that the rich pay a larger percentage of national taxes than they did in the 1970s, and that shows the system’s progressivity. But the rich make much more money than they did in the 70s. The question is whether their share of the national income increased faster or slower than their share of the federal tax burden.
In 1979, the top 1% brought home 9.3% of the national income — which is to say, for every $100 paid in wages, $9.30 went to the top one% — and paid 15.4% of federal taxes. The ratio of tax share to income share was 1.65. Their tax burden was 1.65 times larger than their income share. In 2005, they brought home 18.1% of the national income — it had doubled — and paid 27.6% of federal taxes. The ration was 1.52. In other words, it has gone down. The rich pay less taxes as a share of their income than they did in the 1970s, and they control much more of the nation’s wealth.
This is worse than it even looks on first glance (and it looks quite bad). …
Other articles about income inequality
- “Have we fallen behind our parents?“, Katharine Mieszkowski, Salon, 14 May 2008 — “Author Nan Mooney argues that the middle class is slipping, and fixing it is going to take more than cutting out lattes.”
- “Income inequality and poverty rising in most OECD countries“, OECD, 21 October 2008
For more information from the FM site
Reference pages about other topics appear on the right side menu bar, including About the FM website page. Of special relevance to this post:
Other posts about income inequality on the FM site:
- A sad picture of America, but important for us to understand, 3 November 2008
- America’s elites reluctantly impose a client-patron system, 5 November 2008
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