RSSComparison of Share of Income to Share of Income Taxes Paid
This chart combines the data from the Summary of Income Taxes Paid and the Summary of Income Reported charts to illustrate the progressive structure of the federal income tax system, as seen in the percentages shown in the center column. A relatively small proportion of the U.S. population pays a disproportionately large percentage of federal income taxes. For example, in 2005 the top 10% of taxpayers paid 69.7% of the total income taxes collected by the federal government.
50 Responses to “Comparison of Share of Income to Share of Income Taxes Paid”
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October 29th, 2008 at 11:36 pm
I would like to see Newt’s 17% flat tax on corporate America happen. I think it would spur more companies coming back to the US.Also we need to tax imports so much that it isn’t worth their time to make them. Free Trade is not always good. I know why Bill did it at the end. He said he would for his constiuents and he knew it wasn’t good so he waited till the end to do it.
October 11th, 2008 at 1:00 am
re: Simplifying taxes
I’m a big supporter of simplifying taxes. I have an idea that will help spur congress into action.
MAKE IT A LAW THAT CONGRESS HAS TO DO THEIR OWN TAXES.
Rules:
1) Congress will meet in session to do their individual taxes. They are not allowed to leave until it is accurate to $5.00
2) They are not allowed any assistance. Cell phones and PDA’s are prohibited. They cannot make outside calls. They
cannot call their accountants.
3) Cots and catered food will be provided free of charge
Optional: Put the proceedings on reality tv so we can watch!
September 27th, 2008 at 1:23 pm
Great site!
Your team are wizards at making simple that which we should all know to be effective citizens and voters.
It would be interesting to see the “Whole Picture”. By “Whole Picture” I mean a chart that shows how each income segment’s “Per Capita Service Cost $” compared with it’s “Per Capita Tax Contribution $”. When you compare tax contributions with service expenditures you quickly see that most people over $50K/yr are not receiving as many services as they pay for. In may ways it shows more clearly why our aging tax base is such a huge problem. More and more people moving below the income line where 70% of the population pays less than 15% of the taxes. >90% of retired people, the fastest growing tax segment, fall in the bottom 15% of tax revenues. Even more alarming is that an ever larger % of those paying the 80% of taxes are rapidly retiring from the top tax brackets into the bottom tax brackets.
The bottom line seems to be that we continue to raise expectations, expenditures and mandates. As we have done so we have raised them above the capability of more than 70% of our population to contribute the costs of those programs during their working life!
We have elected Politicians who see votes in every new mandate they write into law as they preside over the four largest transfers of wealth the world has ever seen. 1) Government deficit spending financed with foreign bonds. 2) deficit personal finances used to buy foreign goods back by foreign banks. 3) government deficit spending financed by transferring the taxes from an increasingly smaller percentage of tax payers to an increasingly demanding % of taxpayers who’s lifetime tax contributions do not cover the programs and services they demand. 4) the flight of capital from a system where it sees the inevitable increase in taxation and resulting economic stagnation that occurs when you spend the countries precious capital needed for growth and reinvestment on ever increasing socialist entitlement programs.
Safety nets are one thing.
But no net is strong enough to hold 70% of the population over their lifetime.
July 25th, 2008 at 11:59 pm
Note from Perot Charts:
Dr. Robert Reich served as United States Secretary of Labor under President Bill Clinton from 1993 to 1997. He is currently a professor at the University of California, Berkeley’s Goldman School of Public Policy.
Posted by Bruce Barnes:
To understand how to improve the economy one must define the problem. Dr. Robert Reich has a good grasp of the problem.
I found this on: http://robertreich.blogspot.com/
Friday, July 25, 2008
The Heart of the Economic Mess
The Federal Reserve Board’s “beige book” for June and July offers a clear explanation for why the economy has slowed to a crawl. It shows American consumers cutting way back on their purchases of everything from food to cars to appliances to name-brand products. As they do so, employers inevitably are cutting back on the hours they need people to work for them, thereby contributing to a downward spiral.
The normal remedies for economic downturns are necessary. But even an adequate stimulus package will offer only temporary relief this time, because this isn’t a normal downturn. The problem lies deeper. Most Americans can no longer maintain their standard of living. The only lasting remedy is to improve their standard of living by widening the circle of prosperity.
The heart of the matter isn’t the collapse in housing prices or even the frenetic rise in oil and food prices. These are contributing to the mess but they are not creating it directly. The basic reality is this: For most Americans, earnings have not kept up with the cost of living. This is not a new phenomenon but it has finally caught up with the pocketbooks of average people. If you look at the earnings of non-government workers, especially the hourly workers who comprise 80 percent of the workforce, you’ll find they are barely higher than they were in the mid-1970s, adjusted for inflation. The income of a man in his 30s is now 12 percent below that of a man his age three decades ago. Per-person productivity has grown considerably since then, but most Americans have not reaped the benefits of those productivity gains. They’ve gone largely to the top.
Inequality on this scale is bad for many reasons but it is also bad for the economy. The wealthy devote a smaller percentage of their earnings to buying things than the rest of us because, after all, they’re rich. They already have most of what they want. Instead of buying, the very wealthy are more likely to invest their earnings wherever around the world they can get the highest return.
This underlying earnings problem has been masked for years as middle- and lower-income Americans found means to live beyond their paychecks. But they have now run out of such coping mechanisms. As I’ve noted elsewhere, the first coping mechanism was to send more women into paid work. Most women streamed into the work force in the 1970s less because new professional opportunities opened up to them than because they had to prop up family incomes. The percentage of American working mothers with school-age children has almost doubled since 1970 — to more than 70 percent. But there’s a limit to how many mothers can maintain paying jobs.
So Americans turned to a second way of spending beyond their hourly wages. They worked more hours. The typical American now works more each year than he or she did three decades ago. Americans became veritable workaholics, putting in 350 more hours a year than the average European, more even than the notoriously industrious Japanese.
But there’s also a limit to how many hours Americans can put into work, so Americans turned to a third coping mechanism. They began to borrow. With housing prices rising briskly through the 1990s and even faster from 2002 to 2006, they turned their homes into piggy banks by refinancing home mortgages and taking out home-equity loans. But this third strategy also had a built-in limit. And now, with the bursting of the housing bubble, the piggy banks are closing. Americans are reaching the end of their ability to borrow and lenders have reached the end of their capacity to lend. Credit-card debt, meanwhile, has reached dangerous proportions. Banks are now pulling back.
As a result, typical Americans have run out of coping mechanisms to keep up their standard of living. That means there’s not enough purhasing power in the economy to buy all the goods and services it’s producing. We’re finally reaping the whirlwind of widening inequality and ever more concentrated wealth.
The only way to keep the economy going over the long run is to increase the real earnings of middle and lower-middle class Americans. The answer is not to protect jobs through trade protection. That would only drive up the prices of everything purchased from abroad. Most routine jobs are being automated anyway. Nor is the answer to give tax breaks to the very wealthy and to giant corporations in the hope they will trickle down to everyone else. We’ve tried that and it hasn’t worked. Nothing has trickled down.
Rather, the long-term answer is for us to invest in the productivity of our working people — enabling families to afford health insurance and have access to good schools and higher education, while also rebuilding our infrastructure and investing in the clean energy technologies of the future. We must also adopt progressive taxes at the federal, state, and local levels. In other words, we must rebuild the American economy from the bottom up. It cannot be rebuilt from the top down.
posted by Robert Reich | 5:16 AM
July 23rd, 2008 at 4:20 pm
America should adopt a tax system based on net worth for the following reasons.
1. A tax on net worth has the largest tax base. The net worth of this country is larger than the income system, about $7.7 trillion, and the consumption system, less than 70 % of the gross domestic product, (GDP) about $14 trillion. The individual assets of $55 trillion and business assets of about $60 trillion is over 10 times larger than the consumption system.
2. Income is not a measure of being rich, net worth is. The wealthiest 1-percent of households have more assets than the lowest 95%, $18 trillion. Since the total individual assets are $55 trillion. The wealthiest 5 % own about 67% of the individual net worth in the USA. The biggest 1-percent of corporations own 80 % of the business net worth.
3. Taxes should be based on ones ability to pay. A tax on net worth is the fairest tax to all. Net Worth is the measure of ones ability to pay.
4. Taxes on net worth have the lowest percentage. America’s budget is about $3 trillion. A consumption system requires a sales tax of over 30%. A net worth tax would be less than 3%.
5. A tax on net worth is the most versatile. Besides a flat tax of 3% for individuals and businesses, there are other possibilities. Some people say we have double taxation. We could tax only people at 6% or only businesses at 6%. Since businesses can’t vote and they pass there cost on to their customers, that is the best way to go. Next is the progressive path. The first $1 million could be tax-free and increase by 0.1 % for each $1 million up to 5% after $50 million.
6. A tax on net worth is the simplest to file. Take what you own minus what you owe. Our present tax system is 63,000 pages of loopholes. Example: a person leases a car. The lessee does not own the car, so no tax. The leasing company owns the $25,000 car, but has a $10,000 loan. The company is taxed on $15,000. ($25,000 minus $10,000) The loan entity has $10,000 of assets so it pays tax on $10,000.
7. A tax on net worth is the easiest to enforce. Since this is a property rights country, all assets are traceable. Taxing only the most prosperous 10 % of businesses and people is the most efficient tax system.
8. Like the consumption tax, all of our present taxes could be replaced, Individual income tax, corporation income tax, employment taxes, gift tax, and estate tax. Plus the excise tax.
9. Guarantees funding for all budget items like social security and Medicare by eliminating use taxes. User fees or tolls are another way for the wealthy and businesses to avoid paying taxes. Budget items come out of general funds.
10. A tax on net worth promotes transparency. When a company shows an annual report with a book value of $1 billion and only $10 million in taxes, they aren’t paying their full taxes.
11. A tax on net worth promotes free trade. Money, inventory, buildings, etc. are all assets so everyone can move assets around for the best effect.
12. Eliminate inflation. Dr. Milton Friedman said to end inflation, stop printing money. By increasing the tax rate 1%, the national debt of $9 trillion could be paid off in 10 years.
13. We start collecting 100 percent of our earnings in every paycheck. We all get virtual raises, since payroll taxes are no longer siphoned from our checks.
14. Reducing taxes on the poorest 90% will raise revenue. When people have more money to spend, they buy more goods, which means more profit for businesses and the wealthiest 10%. Money flows up, water trickles down.
15. A tax on net worth promotes jobs. Employees cost companies less since the employment taxes are repealed and therefore employees become more competitive in the global market.
16. A progressive tax on net worth levels the playing field. Small companies that create the most jobs become more competitive with large companies.
17. A tax on net worth removes some incentive to move plants overseas. Taxes are based on assets no matter where they are located. What you own minus what you owe.
July 20th, 2008 at 10:41 pm
President George W. Bush, 192 Representatives 41 Senators has made a pledge to Grover G. Norquist and “Americans for Tax Reform” to “oppose any and all efforts to increase the marginal income tax rates for individuals and/or businesses.” This is, in effect, a pledge to support big business and the super wealthy.
Since the national Taxpayer Protection Pledge was started in 1986, the marginal income tax rate has declined from 50 % to 35 % and has exacerbated the growing inequality of income and wealth to the point that the wealthiest 1 % has more wealth than the bottom 95 %. Only the wealthy have benefited from these tax breaks. The general public, who must pay higher taxes, lose public services, or be responsible for big future debt burdens, have been deceived by their representatives. The national debt has doubled in the last seven years to $9.5 trillion. Our infrastructure is in disrepair, New York had a sinkhole, bridges fall down, levees break, and many parts of the country are running out of water.
If republicans wanted to reduce taxes for working people they could eliminate the payroll taxes or give a personal exemption for the first $15,000 of wages. The Center on Budget and Policy Priorities states that three-fourths of taxpayers pay more in payroll taxes than they do in income taxes, while the rich are limited to the first $102,000. Reduction of the payroll taxes can prevent the welfare trap. The welfare trap theory asserts that taxation and welfare systems can jointly contribute to keep people on social insurance. This is also known as the unemployment trap or poverty trap.
This pledge has limited the Republican response to critical government problems, which has curtailed the roll of government and distorted social views to conform to the pledged goal. This pledge undermines confidence that no one can beat the system and the system is fair for all. To build an inclusive society, Congress must structure the tax system to do the greatest amount of good for the largest number of people, not just big business and the super wealthy. Every Republican nominee since Ronald Reagan has made this commitment, as well as over 90 percent of incumbent GOP House and Senate members. As long as Republicans insist on serving Mr. Norquist, the American people can expect the rich to get richer and everyone else to get poorer. Mr. Norquist, a native of Massachusetts, has been one of Washington’s most effective issues management strategists for over two decades. Mr. Norquist claims to represent all taxpayers. Did he ask you?
July 18th, 2008 at 9:42 pm
TL,
I appreciate the tax summary in response to my questioning of Buffett’s comments on the 60K income earner being taxed at 30%. If indeed he was including FICA, he was then, as I stated before, dramatizing the example by including payments that, at least in theory, will be returned, at least partially, in the form of social security payments, Medicaid, and Medicare. I am no fan of governmental programs designed to provide welfare, since they are so poorly run (Medicare was recently bilked of $77M by fraudulent criminals.) I do, however, think that Buffett was doing a little grandstanding, as is common with him. He works the system just like everyone else.
More importantly, though, I am seeing more and more posts from people who seem to think that the “rich” should pay more. What is lost in this argument about this is that the “rich” could also be called “employers,” they tend to invest in areas that contribute to GDP growth, which leads to job creation. The one thing I hate about class warfare is that people seem to think that you are either born one or the other, like you have no choice. One poster actually referred to them as “priviledged.” If that’s true, then why is it that all estimates you read put the number of inherited millionaires at less than 5% of the total? It obviously does not make sense to punish the other 95%. If it did, the economy in the 70s would have worked. Instead, it failed miserably, with Jimmy Carter getting the majority of the blame, though his administration had made some moves to correct it before he left office. Kennedy and Reagan understood this concept better than anyone, and the economy flourished under their leadership as a result. Under Clinton taxes went up again, and correspondingly the economy started into a recession 6 months BEFORE he left office, well before 9/11, a point often lost in politics. This was with $40 oil and no mortgage crisis, mind you. Certainly no one is advocating that you raise taxes on the poor, but it is also a mistake to punish the other extreme, because they help supply jobs to the economy. In fact, it is a mistake to think that the way to increase government revenue is to increase taxes. It is a fact that if you promote business growth, you actually end up increasing tax revenue. Google Hauser’s Law. Hauser’s Law states that tax revenue as a % of GDP has not changed in 50 years, despite the fact that the top tax bracket has been lowered from 90% to 35%. So, you simply have to ask yourself the question, “Does raising taxes encourage or discourage GDP growth?” The answer seems obvious to me. That is why changing the game completely, like the Fair Tax suggests, seems like a good idea. Release corporations and the middle class-and-up from their incredible tax burden, and we will flourish.
July 15th, 2008 at 9:35 pm
I thought the republican backed consumption tax was dead, but after reading the comments on this blog, it seems that not everyone got the word. To understand what the consumption tax is one must at least read the plain English summary of the act, The Fair Tax Act of 2007 – HR 25/S 1025 plain English summary, that can be found at:
http://www.fairtax.org/PDF/PlainEnglishSummary_TheFairTaxAct2007.pdf
One of the first things to notice about the act is that the consumption tax will increase the tax on households by about 66.7 %. Instead of individuals paying 60 % of taxes, they will pay 100% of the budget. That is 40/60 x100 or 66.7% increase in personal taxes. Under the “Fairtax plan,” businesses do not pay taxes.
The second thing to notice is that a retail business computes its national sales tax liability by multiplying the rate of 23 percent times the monthly gross payments received. A retail business will need to multiply the sales price by 30% in order to pay this tax. Therefore, the national sales tax is 30 %.
People receiving government assistance will have to pay a 30 % sales tax. To be fair government services will have to go up 30 % to pay for the sales tax and since the government also has to pay the sales tax (Section 703), the cost of an aircraft carrier will also go up 30 %.
Third: Taxable property is what most of the people have. Intangible property which is not taxable is what the wealthiest people have the most of.
From the “FairTax” definitions:
“Taxable property – any property (including a leasehold of any term or rents for such property), but excluding intangible property and used property.
Intangible property – an asset that is not physical and not real property. It includes copyrights, trademarks, patents, goodwill, financial instruments, securities, commercial paper, debts, notes, and bonds.
Taxable property or services purchased from a seller for a business purpose in an active trade or business, or for export from the United States for use or consumption outside the United States are not taxed.
Purchases by consumers are taxed.
Investments (property purchased exclusively for purposes of appreciation of income or the production of income) are not taxed.
Used property – defined as property on which the federal sales tax has been collected already, and property that was held for other than a business purpose on December 31, 2008 (the day before the sales tax became effective). The term “used” relates to whether or not the sales tax has been paid previously, and not just to whether or not the item has been sold previously.”
It appears that almost all tangible property will be taxed for the first few years.
Without consumers who want to buy a product, there’s no point in making it. This gets us to the real problem. Most consumers are at the end of their ropes and can’t buy more. Real incomes are no higher than they were in 2000, while food and energy and health care costs are all rising faster than inflation. And home values are dropping, which means an end to home equity loans and refinancing.
Most of what’s being earned in America is going to the richest 5 percent, but the rich devote a smaller percent of their earnings to buying things than the rest of us because, after all, they’re rich — which means they already have most of what they want. Instead of buying, the rich invest most of their earnings wherever around the world they can get the highest return.
Add all this together and there’s just not enough consumer demand out there to keep the American economy going. We’re finally reaping the whirlwind of widening inequality and ever more concentrated wealth. Supply-siders who want to cut taxes on corporations and the rich just don’t get it. A 30 % sales tax is the last thing we need to encourage consumer demand.
Income is not a measure of being rich, net worth is. Taxes should be based on ones ability to pay, not what one makes or spends. The supporters of the consumption tax are trying to convince you to vote for the well being of the wealthy and businesses.
There are many more reasons not to support the consumption tax, but I will only mention one more. The “FairTax people” claim that the IRS will be eliminated but the bill does not say that. Instead the Fair Tax Act of 2007 spreads out the duties of the IRS to different government agencies.
Will the IRS really be gone? The IRS is uniquely qualified to administer the Fair Tax with people, computers, and facilities in every state and major city. The FairTax Act will phase out appropriations for the Internal Revenue Service and then spend billions recreating bureaus to administer the Fair Tax. Does a rose by any other name still smell as sweet?
When there is no policeman on the beat the greatest beneficiary is not the taxpayer who is relieved of the cost of maintaining that police officer, but the thief.
July 12th, 2008 at 1:20 am
Is the Payroll Tax a Tax?
The Federal Insurance Contributions Act (FICA) tax is a United States payroll (or employment) tax imposed by the federal government on both employees and employers to fund Social Security and Medicare—federal programs that provide benefits for retirees, the disabled, and children of deceased workers. Social Security benefits include old-age, survivors, and disability insurance (OASDI); Medicare provides hospital insurance benefits. The amount that one pays in payroll taxes throughout one’s working career is directly tied to the social security benefits annuity that one receives as a retiree. This has led some to claim that the payroll tax is not a tax because its collection is directly tied to a benefit. No other country uses the word insurance in the business sense, which means to spread risks. The business sense of insurance includes the concept of examining clams to see if they fall within the contractual boundaries for payment.
For 2008, the employee’s share of the Social Security portion of the tax is 6.2% of gross compensation up to a limit of $102,000 of compensation (resulting in a maximum of in $6,324 total tax amount). This limit, known as the Social Security Wage Base, goes up each year based on average national wages and, in general, at a faster rate than the Consumer Price Index (CPI-U). The employee’s share of the Medicare portion is 1.45% of wages with no limit. The employer is also liable for separate 6.2% and 1.45% Social Security and Medicare taxes, respectively, making the total Social Security tax 12.4% and the total Medicare tax 2.9% of wages. In 2007, the payroll tax represented over 30 percent of the budget
In one theory, each employee builds up a Social Security account each year. The maximum contribution to this account would be $12,648 ($102,000 x 12.4%) in 2008, for example. These funds go into a special Social Security fund and benefits are paid out of this account according to how much was paid in. In another theory, these funds are pooled together as premiums and then paid out as insurance benefits according to how much is paid in.
Because we tie Social Security and Medicare insurance to employment, this system is making us less competitive in the global economy. That is because no other country taxes employers for each employee they have on their books. Everywhere else this cost is part of the national ledgers just like the cost of police, education, and lifeguards.
The most widely accepted theory is that Social Security and Medicare taxes are a “social insurance” program. While some nations refer to their plans as insurance, they mean that in the political sense. The Supreme Court has twice declared that the payroll tax is a tax imposed by the congress and congress can treat the revenue just like any other tax, i.e. income tax. Each year the payroll tax is collected to pay for the benefits of that year and the remainder is used as general funds by the government before borrowing from the general public to balance the budget. The funds are also used for the disabled and others unable to care for themselves. It is the duty of our government to insure domestic tranquility and promote the general welfare. To further this duty, the government collects revenue from workers to provide services to all citizens. This is the purpose of taxes.
The Center on Budget and Policy Priorities states that three-fourths of taxpayers pay more in payroll taxes than they do in income taxes. The FICA tax is considered a regressive tax on income (with no standard deduction or personal exemption deduction) and this tax is not imposed on investment income (such as interest and dividends). It should be criminal that through capital gains breaks and FICA taxes, we pay more taxes on the money we earn through work than on passive investment income.
The first thing this country needs to do is to decide which theory is correct or will best benefit society. The solutions will then present themselves. The next election may determine the outcome.
If each employee builds up a social security insurance account to purchase an annuity benefit, then government could simply require workers to purchase a minimum private annuity like IRAs and 401 k plans. All other benefits (including benefits for non-workers) would then be supplied by income taxes since it is the duty of government to promote the general welfare and not just the duty of employers and employees.
If these payroll taxes are pooled together as premiums and then paid out as insurance benefits according to how much is paid in, then government should establish a benefit fund like is required of private insurance companies to cover all claims and establish policies to examine clams to see if they fall within the contractual boundaries for payment. The premiums for non-workers would then be supplied by income taxes since it is the duty of government to promote the general welfare and not just the duty of employers and employees.
If the payroll tax is a tax, then its benefits should be equal for all. A poor man should receive as much in Social Security as a rich man no matter what they paid in just like income tax where each person pays according to what they make. If the payroll tax is a tax and is retained, there should not be a cap on gross compensation but there should be a personal exemption on the first dollars of earned income just like the income tax.
Taxpayers deserve to know what they are paying for. If politicians cannot define what a payroll tax is, then the payroll tax should be repealed and all benefits should be paid from the general fund. So what should our government’s policy on payroll taxes be?
P.S.
The fastest and strongest fiscal stimulus would be an exemption of the first $15,000 of income from payroll taxes.
July 10th, 2008 at 10:54 pm
It is funny how displaying numbers in a particular way, you can make certain values seem very extreme. Take for instance, the statement that the “Top 10% of taxpayers are paying 69.7% of the total income taxes collected” sounds extremely lopsided, and sounds like the top 10% are being very unfairly taxed. In addition, when you here that the top income tax brackets are 38%-39%, it sounds very unfair. However, when you look at the numbers another way, you see that it is not as drastically lopsided as it sounds. The total income (from 1995 tax returns) is $7.7 trillion, and the total tax paid (also from 1995 tax returns) is $935 billion. The total number of individual tax returns is 132,710,734. In the top 10%, there was $3.7 trillion in income (48.1% of total income), $651 billion in taxes (69.6% of total taxes), and 13,273,073 taxpayers. Divide income by taxpayers and you get an average income per person of $278,769 (the top 10% range accounts for incomes over $106k). Divide tax paid by taxpayers and you get an average tax paid per person of $49,047, which calculates to an average tax rate of 17.6%. If you calculate in the Social Security and Medicare burdens ($7206 at ceiling of $94.2k in 2005), you end up at 20.2% for the average tax rate in the top 10% income bracket. By comparison, when you look at the bottom 50% bracket (earning less than $31k), you see the average income was $15,068, tax was $452, and with the Social Security and Medicare burdens($1153), the average tax rate for the bottom earners is 10.7% which provides about $13,456 for living expenses, (less once state taxes are deducted). It is easy to understand that every penny of the low earner gets turned back into the economy via basic-living commodities, so any additional tax burdens would only negatively affect the economy.