Progressive Nature of Tax Code

[ikubak]

The bottom 90% obviously aren't doing their part to make more money!

 

[Frugality_of_Apathy]

that graph is pretty meaningless because there is a large population that makes no money at all dragging down the average. In 2006 there were only 150.6 million jobs including self employed and unpaid family members, and 298.8 million people in the US. Half the country makes Zero dollars.

 

[HFWR]

Let's get those kids and old people off their duffs, and on the job!

 

[HFWR]

I like the sound of that: "peace dividend".

I think some folks didn't get the memo...

 

[Caroline]

Interesting thread -- lots of sources quoted and charts and graphs going around.

Being from the slow class as I am, I tend to ignore all that and try to simplify such questions whenever possible.

Stipulated: I get taxed a lot on my 6-figure income, while other folks get taxed a lot less, percentage-wise, on their $20-30K per year incomes.

Question: Would I trade my life for theirs?

Answer: No, I would not.

Next question.

 

[Independent]

that graph is pretty meaningless because there is a large population that makes no money at all dragging down the average. In 2006 there were only 150.6 million jobs including self employed and unpaid family members, and 298.8 million people in the US. Half the country makes Zero dollars.

You seem to be assuming the graph is about earned income of individuals. I don't think so.

The text says "tax filers". Most couples only file one return. Children are included with their parents. People who have too little income to file a return aren't included at all. People with only non-earned income (most retirees) who have enough to file a return are included.

If you are looking at the top 1% of tax returns, dividends and capital gains are important sources of income.

You can get similar data here: SOI Tax Stats - Individual Statistical Tables by Size of Adjusted Gross Income Look at Table 1.1 for 1998.

 

[DragoMuseveni]

OHHH, and just to throw in one of my pet peeves.... I still have never figured out that if someone in a previous admin put in a ridiculous high growth rate for some program... and the new prez said, instead of a 10% increase, let's increase it only 3%.... and get accused of CUTTING the program.... that math does not add up for me....

That doesn't account for population growth or inflation. For instance: in year one you spend 10k on a program that covers 1000 people, in year two you might have 1100 people in the program so the amount you spend on it should be increased proportionally. You also need to increase for inflation. If you don't do this then you are in a very real sense cutting the program.

 

[Texas Proud]

That doesn't account for population growth or inflation. For instance: in year one you spend 10k on a program that covers 1000 people, in year two you might have 1100 people in the program so the amount you spend on it should be increased proportionally. You also need to increase for inflation. If you don't do this then you are in a very real sense cutting the program.

Yea..... Let me try to use that logic at work....

Hey... I had a baby this year so because of 'population growth' you need to give me more money or else you are 'cutting' my salary....

Or... hey, that 2% raise is NOT a raise, because inflation is 3%... so you are cutting my salary....


Just bad logic IMO.... and the exact point I was trying to make... and increase is cutting in Washington speak...


Now, you can say that the PER PERSON amount has been cut... or the purchasing power is lower if you do not increase the funds... but you are NOT cutting the spending...

 

[HFWR]

Or... hey, that 2% raise is NOT a raise, because inflation is 3%... so you are cutting my salary....

Sounds like my last employer, and, quite likely, my new employer. I've "lost" money every year since 2000.

So, yeah, they're not "cutting", but the end result is that I'm falling behind...

 

[free4now]

To see how the tax code is becoming less and less progressive, compare the middle class (not those in poverty) versus the rich. The middle class has seen their tax rates stay largely unchanged through the Bush era, and they are getting squeezed with AMT starting to hit them. But the rich have seen significant decreases in ordinary income rates, and huge decreases in cap and div rates.

 

[Spanky]

To see how the tax code is becoming less and less progressive, compare the middle class (not those in poverty) versus the rich. The middle class has seen their tax rates stay largely unchanged through the Bush era, and they are getting squeezed with AMT starting to hit them. But the rich have seen significant decreases in ordinary income rates, and huge decreases in cap and div rates.

Life is good for the rich.

 

[ERD50]

Interesting thread -- lots of sources quoted and charts and graphs going around.

.... I tend to ignore all that and try to simplify such questions whenever possible.

Agree - I don't think the graphs and numbers really inform us of very much. One big problem I have with most of them, is they look at income tax *filings*. So that automatically pulls out the people who don't need to file, and that throws any meaning right out the window AFAIAC.

I'm looking for a simpler metric. Maybe add up total fed, state, and local taxes collected divided by the population, and/or divided by the 'able to work' population? Then maybe compare that to various income brackets?

I'm not sure what to make of the numbers I have seen. I am actually supportive of progressive taxes, but that IRS chart shows that 4.4% of filers (those w/AGI> $200,000) pay over half the Federal Income tax. Throw in non-filers, and that must say that they are 'paying the way' for much more than half the population, right? Five earners paying the way for another 50 (or more)? That is a factor of 10X. When I look at it that way, I think it leads to " Thank you high AGI taxpayers, for paying so much for so many", rather than " Hey - those 'rich' guys should pay more!".

But again, I don't know that those are the right numbers or the right way to look at it.

And I don't know what to make of Ladelfina's graph of the top 1% wage earners. For instance, we don't know how many of those are the *same* 1% from year to year. A business owner could certainly make a lot in one year, and have many dry years ( or maybe only one real good year his/her entire life). If that is a significant portion of that 1%, it means the 'wealth' is being spread across many more people over time. But all we see is 'the 1% rich'.

Stipulated: I get taxed a lot on my 6-figure income, while other folks get taxed a lot less, percentage-wise, on their $20-30K per year incomes.

Question: Would I trade my life for theirs?

Answer: No, I would not.

Next question.

Like I said, I support progressive taxes. So the 'next question' is - at what point do they become 'unfair', and cause resentment or other problems? What if the feds asked for 40% of your 6 figures, or 50%, or 75% ( total, not 'marginal rates)? At 75%, a $100,000 would still keep $25,000, which would be better off than the person who earned $20,000. So this is OK? Or not?

My biggest problem is the complexity of the tax code. All this stuff is based on filings and AGI - what if some super-rich are using loopholes to get around this. There is no way for me to know that, and it could turn everything on it's ear.

-ERD50

 

[ERD50]

To see how the tax code is becoming less and less progressive, compare the middle class (not those in poverty) versus the rich. The middle class has seen their tax rates stay largely unchanged through the Bush era, and they are getting squeezed with AMT starting to hit them. But the rich have seen significant decreases in ordinary income rates, and huge decreases in cap and div rates.

If I am reading these correctly (big *if*), the IRS figures do not seem to bear this out. Do you have better numbers?

http://www.irs.gov/pub/irs-soi/98in11si.xls

http://www.irs.gov/pub/irs-soi/06in11si.xls

Here is what I did - I looked at the percent of fed taxes paid by the 'under $50K group' in 1998 an 2006.

In 1998 the 'under $50K group' paid 17.1% of the fed income taxes.

In 2006 the 'under $50K group' paid 8.4% of the fed income taxes.

Since when is 8.4 > 17.1?

I can only do a course inflation adjustment, as the next gradation is $75K which overstates inflation in that time. CPI went from 163 to 202, a 1.24 ratio. That would make $50K in 1998 seem like $62K in 2006. Still, the wage earners all the way up to $75K in 2006 paid only 17.6% of the fed income tax.

Either I am reading these tables wrong, or maybe you are making generalizations from marginal tax rates and brackets, AMT discussions and so forth, rather than looking at actual collections. Whatever the case, we come to opposite conclusions.

I'm only on my second cup of coffee, please show me any errors.

Thanks - ERD50

 

[OAG]

IMO one problem with these numbers is that while a couple with 2 kids may have file a tax return the tax liability would be 0 on about $40,000 of taxable income. So that is a check under "filed" and a check mark under "0 tax liability" and, I assume, that tends to skew the percentages and the charts and graphs. The $40,000 level has risen over the years and will continue to each year by a rounded number loosely based on the CPI. Another thing that may tend to skew the numbers, charts and graphs is the EITC (Earned Income Tax Credit) where someone may have to file a return but actually get a refund and have net "0" taxable income. There are almost as much manipulation on the lower end than there is on the upper end. We have turned what should be a simple, straight forward and fair system into an artful science of confusion.

 

[Independent]

I'm not sure what to make of the numbers I have seen. I am actually supportive of progressive taxes, but that IRS chart shows that 4.4% of filers (those w/AGI> $200,000) pay over half the Federal Income tax. Throw in non-filers, and that must say that they are 'paying the way' for much more than half the population, right? Five earners paying the way for another 50 (or more)? That is a factor of 10X. When I look at it that way, I think it leads to " Thank you high AGI taxpayers, for paying so much for so many", rather than " Hey - those 'rich' guys should pay more!".

-ERD50

I agree with your comment on complexity. Regarding "progressive", I'll also agree that it's hard to determine where the "best" point is.

I also think that when I see a line like "the top __% of tapayers pay __% of the individual income tax", then I also want to see a line like "and that __% of taxpayers also received __% of the total income". It seems that I need both income and taxes to make sense out of this. Note that the SOI tables you linked to had both individual income taxe and AGI. I understand that AGI isn't perfect, but it's a start.

 

[samclem]

Small recommended edit shown:

I also think that when I see a line like "the top __% of tapayers pay __% of the individual income tax", then I also want to see a line like "and that __% of taxpayers also [-]received[/-] earned __% of the total income".

Whether he toiled in a trench, taught in a university, or put his cash at risk so that others could use it, that individual earned the money he "received." A minor point, but one that is at the philosophical heart of this discussion of tax fairness.

Confusing, and opaque--that's our present tax code.

WARNING: Veering into the SOAPBOX area:

We need something understandable and transparent. Best options:
- National Retail Sales Tax (with "prebate" on expenses up to the poverty line to produce a progressive tax rate).
- A flat(er) tax that covers virtually all income (almost no deductions) and provides a healthy standard deduction.

 

[Independent]

Whether he toiled in a trench, taught in a university, or put his cash at risk so that others could use it, that individual earned the money he "received." A minor point, but one that is at the philosophical heart of this discussion of tax fairness.

I knew that word would get me in trouble. I think there is a different level of "effort" involved in working for your money as compared to putting your money into a passive investment. Maybe "recieved" is too weak. Economists have a non-judgemental "labor income" and "capital income". A couple posters here seemed to think that ladelfina's table had only "labor income", I wanted to make the point that I was talking about both.

In terms of tax policy, I think there are people who believe we should only tax labor income and let capital income go untaxed (or that we should tax labor income at a much higher rate). I disagree with that idea.

 

[Caroline]

Like I said, I support progressive taxes. So the 'next question' is - at what point do they become 'unfair', and cause resentment or other problems? What if the feds asked for 40% of your 6 figures, or 50%, or 75% ( total, not 'marginal rates)? At 75%, a $100,000 would still keep $25,000, which would be better off than the person who earned $20,000. So this is OK? Or not?

I think that's a really good question. But it's less about pure numbers and more about quality of life.

I have a nice house, a new car, access to healthcare, money for international travel every year, a very small pension and a 401(k) that are coming close to being "enough" and allowing me to bail at / before 55 yrs old. Yes, I could complain that the poor or the rich (take your pick) don't pay enough. But why?

There's an Aesop's fable about a dog with a bone in his mouth crossing a bridge over a river. He looks down into the water and sees a dog with what appears to be a BIGGER bone looking back at him. He grabs for the other dog's bone, letting his go in the process, and ends up with nothing -- the "other dog" was only his reflection.

If I made $100K, they took $75, and the remainder was enough to meet my needs and wants then what, at the end of my life, would be the difference?

I cannot figure out why some people who are so BLESSED cannot be happy without spending precious and all-too-limited life energy fretting about the other guy getting more. Me, I'd rather go hiking.

 

[free4now]

If I am reading these correctly (big *if*), the IRS figures do not seem to bear this out. Do you have better numbers?

http://www.irs.gov/pub/irs-soi/98in11si.xls

http://www.irs.gov/pub/irs-soi/06in11si.xls

Here is what I did - I looked at the percent of fed taxes paid by the 'under $50K group' in 1998 an 2006.

In 1998 the 'under $50K group' paid 17.1% of the fed income taxes.

In 2006 the 'under $50K group' paid 8.4% of the fed income taxes.

My analysis is simple:

Tax brackets in 1999 were 28/31/36/39.6
Tax brackets in 2007 were 25/28/33/35
Subtracting the two: 3 / 3/ 3/4.6
4.6 > 3 therefore the rich are getting a better deal.


Another source that says the inequality between the rich and middle class is widening is:


New CBO Data Show Income Inequality Continues To Widen: After-Tax-Income for Top 1 Percent Rose by $146,000 in 2004, 1/23/07


Which says:

Since 1979 — the first year for which the CBO date are available — income gains among high-income households have dwarfed those of middle- and low-income households. Over this 25-year period:

• The average after-tax income of the top one percent of the population nearly tripled, rising from $314,000 to nearly $868,000 — for a total increase of $554,000, or 176 percent. (Figures throughout this paper were adjusted by CBO for inflation and are presented in 2004 dollars.)

• By contrast, the average after-tax income of the middle fifth of the population rose a relatively modest 21 percent, or $8,500, reaching $48,400 in 2004.

 

[haha]

Best options:
- National Retail Sales Tax (with "prebate" on expenses up to the poverty line to produce a progressive tax rate).

I would support this if the constitution were amended to never allow any kind of income tax.

I'll be dead long before this even gets mentioned.

Ha

 

[samclem]

If I made $100K, they took $75, and the remainder was enough to meet my needs and wants then what, at the end of my life, would be the difference?

But, why did you work all those extra days needed to earn $100K if 75K was "enough"? Why, today, don't you give everything above 75K to a charity of your choice? Do you not believe that you are capable of finding a better (more benevolent, capable of bringing more joy, etc) use for that money than the government does? If not, please drop me a PM and I think I can help you find lots of great uses for that money. Even if you just give it to me!

 

[ladelfina]

sam, a good question.. BUT is it possible to run a modern society w/o taxes of any kind? I don't think so. So the minute you institute a tax of even a penny, under whatever regime, you open up discussions of fairness. To some minds, working even one extra day is too much, so where is the appropriate cutoff in your mind? 5%, 10%, 20%, 25%, 30%??

Is a poll tax fair? (everyone pays $Xk/year) Probably not.
Is a sales tax fair? (people who make beyond what they need to spend will get that money tax-free, so that's not fair).
Is a flat tax fair? (everyone pays x%) Maybe, but only if you eliminate all other taxes that are regressive -- remember the conceit above of how the lower-end regressive taxes and the higher-end progressive income tax complement each other.

Whichever way you institute a tax will seem unfair to someone. What gets me is how high earners are still complaining, even now that the tax climate is more favorable to them than in any time in living memory. There's not much perspective.

Because there's no single "right" or "fair" way to tax, a plethora of different taxes crop up like weeds.. some are disguised as "fees", etc. And each one grows to sustain its own regime, from overpaid city workers to overpaid KBR mercenaries. We need more accountability over spending (although, even if spending were 1/2 or 1/4 of what it is, people would still argue over whether they are paying their appropriate slice of the spending pie). But I think if people had more direct input over budgeting they would be less angry about paying taxes in the first place.

I love Caroline's offering of the dog bone fable.

 

[ERD50]

My analysis is simple:

Tax brackets in 1999 were 28/31/36/39.6
Tax brackets in 2007 were 25/28/33/35
Subtracting the two: 3 / 3/ 3/4.6
4.6 > 3 therefore the rich are getting a better deal.


Another source that says the inequality between the rich and middle class is widening is:


New CBO Data Show Income Inequality Continues To Widen: After-Tax-Income for Top 1 Percent Rose by $146,000 in 2004, 1/23/07


Which says:

I'll need to read the article later, gotta run, but... just quoting tax brackets and rates is not, IMO, a good measure. It does not capture how deductions and AMT and a zillion other tax codes have impacted what people actually pay.

-ERD50

 

[Independent]

Because there's no single "right" or "fair" way to tax, a plethora of different taxes crop up like weeds.. some are disguised as "fees", etc. And each one grows to sustain its own regime, from overpaid city workers to overpaid KBR mercenaries. We need more accountability over spending (although, even if spending were 1/2 or 1/4 of what it is, people would still argue over whether they are paying their appropriate slice of the spending pie). But I think if people had more direct input over budgeting they would be less angry about paying taxes in the first place.

I agree, especially with this line: "But I think if people had more direct input over budgeting they would be less angry about paying taxes in the first place."

 

[Texas Proud]

sam, a good question.. BUT is it possible to run a modern society w/o taxes of any kind? I don't think so. So the minute you institute a tax of even a penny, under whatever regime, you open up discussions of fairness. To some minds, working even one extra day is too much, so where is the appropriate cutoff in your mind? 5%, 10%, 20%, 25%, 30%??

Is a poll tax fair? (everyone pays $Xk/year) Probably not.
Is a sales tax fair? (people who make beyond what they need to spend will get that money tax-free, so that's not fair).
Is a flat tax fair? (everyone pays x%) Maybe, but only if you eliminate all other taxes that are regressive -- remember the conceit above of how the lower-end regressive taxes and the higher-end progressive income tax complement each other.

Whichever way you institute a tax will seem unfair to someone. What gets me is how high earners are still complaining, even now that the tax climate is more favorable to them than in any time in living memory. There's not much perspective.

Because there's no single "right" or "fair" way to tax, a plethora of different taxes crop up like weeds.. some are disguised as "fees", etc. And each one grows to sustain its own regime, from overpaid city workers to overpaid KBR mercenaries. We need more accountability over spending (although, even if spending were 1/2 or 1/4 of what it is, people would still argue over whether they are paying their appropriate slice of the spending pie). But I think if people had more direct input over budgeting they would be less angry about paying taxes in the first place.

I love Caroline's offering of the dog bone fable.

I remember reading an cover story in a Reader's Digest years ago... it was a poll taken on what is the appropriate level of taxes... I can not remember if the poll results were 20% or 25%.... (this would be the TOTAL tax burden... income, sales, excise etc.)

BUT... the main surprise was that no matter which subgroup you looked it was almost the same... no difference between Repubs and Dems... ethnicity did not matter... age did not matter...

Maybe someone can spend the time looking for this article