Federal Taxes in Perspective

There is an interesting sleight of hand to be found in various threads popping up in this forum (and indeed in newspaper articles etc.). It runs as follows. The top percent of tax payers pay too much, then the figures are given. For example:

"Top 1% pay more than bottom 90%"

Now, this is most likely true, but the problem is that this sleight of hands fails to mention two highly important facts. First off, it neglects to put those figures into line with income shares:



Now, the figures seems less shocking but we still notice a large degree of progressiveness in the tax code.

The second trick is leave out mention of TOTAL taxes paid. When we include these figures then the level of progressiveness falls massively:



and



Now, when we take these into account we have a new picture of effective tax rates:



As you can see the tax code is not wholly progressive as the wealthy pay less taxes than the middle class but for the most part remains so.

So, if one wants to reform the tax system then one should include all taxes and not selectively pick the most progressive tax as only using those figures is downright dishonest. As it stands the progressiveness of the federal income tax barely contenances the regressiveness of other taxes and so any reform has to include all (or most) of taxes. To repeat, to say otherwise is dishonest. Here is a good report with more up to date figures.

http://sixthragnarok.blogspot.com/
http://www.ctj.org/

I somehow doubt this will have any impact......

 

Unfortunately I think the people posting the threads you speak of know this.
They just don't care.

 

I reckon about 20% do but it didn't occur to about 80%. Perhaps I am being optimistic however. At the very least it helps to tell others and to be the one starting the thread rather than having to respond everywhere (like myself and yourself have been doing just today for example.)

 

The top 10% of households in the US have average incomes ten times the average income of the bottom 90% so they should pay ten times the income tax in the interest of fairness.

 

If all taxes were to be replaced by a single flat tax (not something I would really agree with), then we have the following:

Top 20%: Pay 59.1% of taxes

Second-Highest 20%: Pay 18.9% of taxes

Middle 20%: Pay 11.6% of taxes

Second Lowest 20%: Pay 7.1% of taxes

Bottom 20%: Pay 3.5% of taxes

So a flat tax would mean that the top 20% pay almost 60% of all taxes.

 

so you support a flat tax rate ?

If I make $1000 and you make $100, a 10% tax rate causes you to pay $10 and me to pay $100. I will have paid exactly ten times the amount that you have paid. That is fair !

 

Seriously? Just glancing at this thread, I couldn't help but notice he explicitly stated he might not.

And what does this have to do with the collective percentage paid by your percentile out of total revenues?

The point is that the argument about the rich paying blah-blah% of all (federal income) taxes is COMPLETELY UNRELATED to what a fair tax is on an individual level (which is completely up for debate).
The collective share of tax argument is hopefully a cynical ploy. Otherwise it is stupidity manifest.

 

I would think hopefully it is not a cynical ploy, as if it is just idiocy then we can educate, otherwise we cannot.

Also, I think squidward was referring to unrealist who said that if someone makes ten times more they should pay ten times as much. I hold that the tax system needs to be progressive, although how progressive is a question for debate.

I am surprised however that we have yet to see the very people who this thread was aimed at. The "Top 1% pay way more than bottom 50%!" people who I mentioned in the OP.

 

his example told a different story

I don't know, I don't use collective percentages as an argument.

the collective share is a ploy.
Only individuals matter.

There is no conceivable need for the federal government to extract 39% of income from individuals who are many, many orders of magnitude less wealthy than the the richest guys in the land.

 

Isn't the opposing argument of "collective share of tax argument" just as big of a ploy? I mean the "rich paying blah-blah%" sounds just as dumb as the rich should be paying "blah-blah% + X%.

I think the best rule of thumb on these discussions is avoid any argument using the word "fair".

 

Depends on context. If someone frames an argument as what percentagethe rich collectively should pay, then yes. I haven't seen this argument too much. Usually the argument for progressive taxes is made based on a mix of individual-based arguments and "we need enough revenue" arguments.
The argument made in this thread was to counter the oft-made conservative argument by showing that a flat tax (which the same conservatives usually call fair) would still result in rich people paying a larger share as a group (the "should" is a matter of what we would expect given a flat tax-- or anything other than a steeply regressive tax, not a moral statement; the implication is that it is not surprising or "unfair" that the rich collectively pay a high percentage-- they make a high percentage collectively!).

I agree. The word is kind of meaningless.
But a world where politicians and pundits don't use meaningless words seems like a big pipe dream.

 

No, I support taxing the people with all the extra money.

My proposal works out like this considering $2Trillion in income tax revenue. The top 1.3million households pay $1.8Trillion in income taxes out of their half of the national personal income and the bottom 130million households pay $200Million out of their half.

 

but you just finished saying that those with ten times more should pay ten times more in taxes, in the name of fairness ?

Now you don't want fairness ?

 

I said

As I explained in my previous post, a 10-1 ratio works out to the top 10% paying about 90% of the income tax, or ten times what the bottom 90% pay.

I consider that fair since the top 10% of households receive half of the national personal income. Paying 90% of the income tax will still leave them with plenty of extra money, about $3.6million per household. This will also leave the bottom 90% with an average after tax household income of about $48,000.

 

group A earns $1000
Group B ears $100

Ratio of income A:B = 10:1

10% flat tax rate

Group A pays $100
Group B pays $10

Ratio of taxes paid A:B = 10:1

 

I read this twice and am not sure what you are trying to say??

The rich make most of the money and pay almost all of the taxes. It is the way it is.

 

There is no "national personal income." It's not like some giant pie from which people get different shares and it's a fixed pie that grows or shrinks at some predictable rate. Those who earn more do so because they either create more wealth or because they have connections to the government that you love so much and benefit financially from those connections.

 

I think one thing to keep in mind is that the top 1 % make a heck of a lot more money then the bottom 90%.

 

That is my point exactly. There is a plethora of threads here with misleading statistics such as "Top 1% pay more than bottom 50%!". These threads do not take into account income earned and total taxes paid and so are deliberately misleading.

That was the point I was trying to make. As above.

 

If the top 5% are paying 57% of the taxes, then how is it that you're saying that they're paying LESS than the middle class when it's MORE than half?

Keep in mind that the 85% that the top 25% are paying INCLUDES the 57% that the top 5% are paying.

 

So what you're saying is that if you go out and put Zero skin in the game and collect a check from a business that you had no hand in creating, my INVESTMENT income where I'm putting MY Capital at risk, should be taxed at the same rate. Is this what you're saying?

If your wet dream became a reality, I doubt anyone would bother taking the risks... for what, any success would be confiscated by the Government?

 

I'm not quite sure how you got that from the post you quoted. Once you finish your whinge please reread. The point is that federal taxes cannot be isolated from state and local taxes as they all contribute to the tax burden and thus the progressiveness or regressiveness of the system as a whole.

 

you are correct.

the disparity between those on the very bottom and those just in the top 1% is but a few hundred thousand dollars, while the disparity within the top 1% is many billions of dollars.

I love it when good little citiznes regurgitate phrases such as "the top 10%", and "90% of the wealth" which are clearly scripted for them by the political whores. It makes them sound so smart.

 

Well yes, that is how a flat tax works but that is not what I am proposing at all. You have based your position on the false and misleading assumption that because individuals in group A earn 10 times more than those in group B a flat tax would result in a 9:1 difference in income tax payments between the groups. Unfortunately you are completely wrong because you have ignored the difference in population between Group A and Group B, which is 1:10. Nice try though, people ignorant of math would certainly believe you were right, and there seems to be a lot of them around here.

Your10% flat tax:
Group A earns 50% of the income and pays 50% of the tax, 10% of their income
Group B earns 50% of the income and pays 50% of the tax, 10% of their income
Individuals in group A pay 10 times the tax as individuals in group B only because group B outnumbers them 10:1. Both groups pay the same amount of tax.

My proposal:
Group A earns 50% of the income and pays 90% of the taxes
Group B earns 50% of the income and pays 10% of the taxes

Ratio of income A to B 1:1
Ratio of population B to A 9:1
Ratio of taxes A to B 9:1

See the difference????

OK then, what would you call the aggregate personal income of everyone in the nation?
National personal income seems like an ideal description, short and concise. In fact it is the description used by the people who keep this sort of statistic.
You can see it yourself at the BEA.

If the national personal income is not a big pie what is is? A cake?

If it is a fixed pie even though it is not a pie at all how does it grow and shrink?
How predictable is that really?

Your statements are, as usual, very confused.

 

Wealth in pure numbers isn't static, that is true. However, with material wealth comes social status, and if you have a high social status (large amounts of material wealth) then that means that someone must be below you. Since humans are continuously fighting to achieve a higher social status, being at the low end in a very hierarchical society can have damaging effects on the human psyche.