Real Tax Numbers
The WSJ always has the best op-eds on economics and taxes. When you just look at the plain tax numbers you can see how unfair the tax system is.
<a href="http://www.opinionjournal.com/editorial/feature.html?id=95001783"; target="_blank">A Rich Tax Debate
Hide your wallet, Ted Kennedy's in town.</a>
Sunday, January 27, 2002 12:01 a.m. EST
The sage of Hyannisport, Senator Ted Kennedy, has received media hosannas for daring to propose a tax increase, especially on "the rich." And we have to admit his timing was perfect, because his proposal arrived along with the latest Internal Revenue Service data on who actually pays taxes.
This offers what Teddy's Harvard tutors would have called a teaching moment--maybe even for the Senator, if he cared to learn, but at least for American taxpayers who are too busy making a living to follow the details. So here are the taxing facts, courtesy of Congress's Joint Economic Committee, which coaxed the data for 1999 out of the IRS.
Start with the richest of the rich, the top 1% of all earners. In 1999 they earned 19.5% of all adjusted gross income reported to the IRS. Yet they paid 36.2% of all federal income taxes that year. You read that correctly: The superrich pay in taxes nearly double their proportion of national income.
It gets even richer. The top 1% of tax filers are also paying a much higher share than they used to: About 20 years ago they paid only 19% of all federal income taxes. By 1991, thanks to the progressive impact of the Reagan tax cuts, that share had climbed to 24.8%, and by 1999 it was above 36%. The story is the same for the merely filthy rich, the top 5% of filers, who paid 43.4% of all taxes in 1991 but by 1999 paid 55.5%.
[code]
Who's Paying Taxes
In 1999
Percentiles* \tTotal Share of AGI \t% of Federal Personal Income Tax
Top \t1% \t\t19.5% \t\t36.2%
Top \t5% \t\t34.0% \t\t55.5%
Top \t10% \t44.9% \t\t66.5%
Top \t25% \t66.5%\t\t83.5%
Top \t50% \t86.8% \t\t96.0%
Bottom \t50% \t13.2% \t\t 4.0%
Source: IRS
*Ranked by adjusted gross income (AGI)
</pre><hr></blockquote>
There's a word for this kind of tax system (see the nearby chart). It's called progressive, not to mention confiscatory. What more do liberals like Teddy want? He already has a tax system in which a mere 5% of all earners pay more than half of all taxes, and he wants to soak them some more? This is progressive pig heaven.
And it is getting more confiscatory all the time. From 1989 to 1999, the share of total taxes paid by the entire top 50% was largely unchanged. But the share paid by the top 10% of filers jumped by 19%, the share paid by the top 5% leapt by 26%, and the share paid by the top 1% soared by more than 43%.
The Kennedy and Tom Daschle Democrats describe President Bush's tax cuts as a huge drain on the Treasury. But in reality they were so modest--cutting the top income tax rate to 35% from 39.6% but not until 2006--that they'll barely make a dent in Teddy's soak-the-rich paradise. The Bush cuts are the minimum needed to offset the economic forces and tax policies that have been raising American tax burdens to record levels. The last time we looked, the federal tax share of GDP was 20.7%, the highest since World War II.
It starts with economic growth kicking more and more taxpayers into higher and higher tax brackets. This is known as bracket creep, and all the Bush tax cut does is offset its inexorable grip on ever more taxpayers. Targeted tax breaks--the personal exemption or itemized deductions--are also phased out as income grows. This is a double-whammy: Each new dollar of income is taxed by the ruling marginal rate and taxed again by the reduction of credits, exemptions and deductions. The result is even higher marginal rates. (The Bush tax cuts don't eliminate these phase-outs until 2009.)
And, by the way, what does Mr. Kennedy mean by "wealthy"? According to the 1999 IRS numbers, all you had to earn to be among the top 25% of all tax filers was a whopping $52,965. (And your reward as an income class for working that hard was to pay 83.5% of all taxes.) To be among the top 50%, you had to earn only $26,415. The 27% marginal tax rate kicks in for single taxpayers at only $27,050 of income.
Many of those average Joes and Janes are tomorrow's "wealthy." According to an analysis of the University of Michigan's Panel Study of Income Dynamics, from 1975 to 1991 more than 80% of the families who started at the lowest one-fifth of the earning population had moved to middle-class incomes (earning an average in 1991 of $22,304) or above. About 30% had increased their income to become the top one-fifth of all earners.
Kennedy liberals prefer to ignore this truth about income mobility because it means their main political claim is false. They want voters to believe that the only people being taxed at these rates are the Trumps and Rockefellers. But what really happens is that the higher rates end up soaking essentially middle class people whose incomes rise during their careers until they end up paying the same tax rate as the Kennedys, though they still can't afford to sail off Cape Cod.
Mr. Kennedy knows what he's doing, of course. By calling for a tax hike, he hopes to shift the national debate to the left and make it that much harder to cut taxes any further. Which is all the more reason for tax cutters to point out how much the government soaks both rich and middle class alike.
[ 01-27-2002: Message edited by: Scott H. ]</p>
<a href="http://www.opinionjournal.com/editorial/feature.html?id=95001783"; target="_blank">A Rich Tax Debate
Hide your wallet, Ted Kennedy's in town.</a>
Sunday, January 27, 2002 12:01 a.m. EST
The sage of Hyannisport, Senator Ted Kennedy, has received media hosannas for daring to propose a tax increase, especially on "the rich." And we have to admit his timing was perfect, because his proposal arrived along with the latest Internal Revenue Service data on who actually pays taxes.
This offers what Teddy's Harvard tutors would have called a teaching moment--maybe even for the Senator, if he cared to learn, but at least for American taxpayers who are too busy making a living to follow the details. So here are the taxing facts, courtesy of Congress's Joint Economic Committee, which coaxed the data for 1999 out of the IRS.
Start with the richest of the rich, the top 1% of all earners. In 1999 they earned 19.5% of all adjusted gross income reported to the IRS. Yet they paid 36.2% of all federal income taxes that year. You read that correctly: The superrich pay in taxes nearly double their proportion of national income.
It gets even richer. The top 1% of tax filers are also paying a much higher share than they used to: About 20 years ago they paid only 19% of all federal income taxes. By 1991, thanks to the progressive impact of the Reagan tax cuts, that share had climbed to 24.8%, and by 1999 it was above 36%. The story is the same for the merely filthy rich, the top 5% of filers, who paid 43.4% of all taxes in 1991 but by 1999 paid 55.5%.
[code]
Who's Paying Taxes
In 1999
Percentiles* \tTotal Share of AGI \t% of Federal Personal Income Tax
Top \t1% \t\t19.5% \t\t36.2%
Top \t5% \t\t34.0% \t\t55.5%
Top \t10% \t44.9% \t\t66.5%
Top \t25% \t66.5%\t\t83.5%
Top \t50% \t86.8% \t\t96.0%
Bottom \t50% \t13.2% \t\t 4.0%
Source: IRS
*Ranked by adjusted gross income (AGI)
</pre><hr></blockquote>
There's a word for this kind of tax system (see the nearby chart). It's called progressive, not to mention confiscatory. What more do liberals like Teddy want? He already has a tax system in which a mere 5% of all earners pay more than half of all taxes, and he wants to soak them some more? This is progressive pig heaven.
And it is getting more confiscatory all the time. From 1989 to 1999, the share of total taxes paid by the entire top 50% was largely unchanged. But the share paid by the top 10% of filers jumped by 19%, the share paid by the top 5% leapt by 26%, and the share paid by the top 1% soared by more than 43%.
The Kennedy and Tom Daschle Democrats describe President Bush's tax cuts as a huge drain on the Treasury. But in reality they were so modest--cutting the top income tax rate to 35% from 39.6% but not until 2006--that they'll barely make a dent in Teddy's soak-the-rich paradise. The Bush cuts are the minimum needed to offset the economic forces and tax policies that have been raising American tax burdens to record levels. The last time we looked, the federal tax share of GDP was 20.7%, the highest since World War II.
It starts with economic growth kicking more and more taxpayers into higher and higher tax brackets. This is known as bracket creep, and all the Bush tax cut does is offset its inexorable grip on ever more taxpayers. Targeted tax breaks--the personal exemption or itemized deductions--are also phased out as income grows. This is a double-whammy: Each new dollar of income is taxed by the ruling marginal rate and taxed again by the reduction of credits, exemptions and deductions. The result is even higher marginal rates. (The Bush tax cuts don't eliminate these phase-outs until 2009.)
And, by the way, what does Mr. Kennedy mean by "wealthy"? According to the 1999 IRS numbers, all you had to earn to be among the top 25% of all tax filers was a whopping $52,965. (And your reward as an income class for working that hard was to pay 83.5% of all taxes.) To be among the top 50%, you had to earn only $26,415. The 27% marginal tax rate kicks in for single taxpayers at only $27,050 of income.
Many of those average Joes and Janes are tomorrow's "wealthy." According to an analysis of the University of Michigan's Panel Study of Income Dynamics, from 1975 to 1991 more than 80% of the families who started at the lowest one-fifth of the earning population had moved to middle-class incomes (earning an average in 1991 of $22,304) or above. About 30% had increased their income to become the top one-fifth of all earners.
Kennedy liberals prefer to ignore this truth about income mobility because it means their main political claim is false. They want voters to believe that the only people being taxed at these rates are the Trumps and Rockefellers. But what really happens is that the higher rates end up soaking essentially middle class people whose incomes rise during their careers until they end up paying the same tax rate as the Kennedys, though they still can't afford to sail off Cape Cod.
Mr. Kennedy knows what he's doing, of course. By calling for a tax hike, he hopes to shift the national debate to the left and make it that much harder to cut taxes any further. Which is all the more reason for tax cutters to point out how much the government soaks both rich and middle class alike.
[ 01-27-2002: Message edited by: Scott H. ]</p>
Comments
Seriously, though, the top 1% of tax payers hardly ever pay out this money any way. There are tax shelters, tax deductable donations, etc. for them.
The other thing that should concern the American people is President Bush planning on increasing the budget for the military to the highest levels in over 20 years (when we were in the Cold War), not to mention his proposed $10 Billion + increase for the Border Patrol. Right now, the Democrats aren't the ones doing the spending; it's Bush.
If taxes aren't going to go 'up', where is this extra money coming from? What programs are going to be cut? We don't know yet, and that should concern a lot of people.
A lot of people still don't understand that the tax 'refund' they got already this year came out of the tax returns they are calculating now. It was just an 'advance', and it was an expensive one at that.
Now that the surplus is a thing of the past, how can the government think about lowering taxes even more? Where is this money going to come from?
The 'super rich' mentioned are just that: super rich. After all of the donations, tax shelters, etc. they don't feel much of the rest of that money going to the government.
If they really are that wealthy, then their lifestyle isn't going to change because of these taxes.
On the other hand, increasing the taxes of the lower tax brackets to compensate would really hit the pockets of the people of our country that are really on the lower end of the economic scale.
The people with the most money pay the most taxes. That's the way the system works, and it can't work any other way, unless you pay no taxes at all.
<strong>Seriously, though, the top 1% of tax payers hardly ever pay out this money any way. There are tax shelters, tax deductable donations, etc. for them.</strong><hr></blockquote>
Fran these are real tax numbers. It's how much money the IRS took from whom in 1999. It's real. Not theory. Top 1% paid 36%.
[ 01-27-2002: Message edited by: Scott H. ]</p>
The problem with this is that it includes the top 1% (which pays 36.2%), the top 2-5% (which pays 19.3%), the top 6-10% (which pays 11%), and the top 11-25% (which pays 17%).
The true middle class plays 12.5%. To say that the middle class pays 83.5% of all taxes is wrong.
In the same sense, the 'working class' pays 4% of all taxes, but a lot of these people are barely above the 'poverty line'. It is these two lower 'classes' that need the tax cuts more than the rich classes do. These two classes (middle and working) will see a much more dramatic benefit from tax cuts then the rich will.
Unfortunately, tax cuts usually result from cuts in programs that benefit them any way.
<strong>
The problem with this is that it includes the top 1% (which pays 36.2%), the top 2-5% (which pays 19.3%), the top 6-10% (which pays 11%), and the top 11-25% (which pays 17%).
The true middle class plays 12.5%. To say that the middle class pays 83.5% of all taxes is wrong.
In the same sense, the 'working class' pays 4% of all taxes, but a lot of these people are barely above the 'poverty line'. It is these two lower 'classes' that need the tax cuts more than the rich classes do. These two classes (middle and working) will see a much more dramatic benefit from tax cuts then the rich will.
Unfortunately, tax cuts usually result from cuts in programs that benefit them any way.</strong><hr></blockquote>
I think their point is that the top 25% are considered "wealthy" (those earning more than 53k). And that "wealthy" groups pays 83%.
<strong>Yeah, let's have a flat tax.
So people who are earning $10,000 a year pay $2000 in taxes, and people earning $1,000,000 a year pay $200,000 in taxes.
That way more rich people can buy the extra yacht and those stupid, lazy poor people can live on the streets like they deserve.</strong><hr></blockquote>
Yea that's the whole point. The "take home" message.
Of course some see the tax code as an instrument of social justice and others see it as a method to fund the operation of the government.
1. The WSJ has followed Bush's line (I added the 'n') that Kennedy is proposing a tax increase. In reality, he's proposing that we shouldn't enact all of Bush's future tax cuts, just part of them. Sorry, but that's not a tax increase.
2. This article suggests that the rich are being soaked. But over the past 20 years, the average after-tax income of the top 1% has increased by over $400,000, while the income of the bottom 20% has decreased by $100. <a href="http://www.cbpp.org/5-31-01tax.htm"; target="_blank">That's from this study.</a> Bush's plan would probably widen the gap even more. So the rich have been doing just fine over the past two decades, and will be doing just fine in the future.
But then again you are bring social engineering into the picture. The tax code is not there to fix disparities in income between the rich and poor. It's there to fund the government in a fair way.
<strong>
That way more rich people can buy the extra yacht...</strong><hr></blockquote>
Well, the best way to soak the rich is to get them to buy a boat. Those suckers are money pits.
<strong>But why isn't it fair? They have the most money, and can still live without a change in their rich lifestyles even with the 'high taxes'.</strong><hr></blockquote>
Your argument isn't about fairness. It's about envy and your justifications for using government to take money from someone else.
LOL. That couldn't be further from the truth. The truth is that to fund our government, the super rich have to pay more taxes than the lower 'class' because the lower class can't pay the amount of taxes that the rich can. Taking even more from them would push more than a few of them below the poverty line. On the other hand, the rich aren't as affected. Look at tonton's example as 'proof' on a smaller scale.
The taxes on Bill Gates' income alone is probably more than the combined taxable income of the 1600 people in the company I work for. He seems to be doing ok.
From my experience, it's the middle to upper middle class family with two working parents that get hurt the worst. Especially if one of them trys to be self employed.
I just have a hard time feeling sorry for millionaires and billionaires (athlete's anyone?) who have to pay large taxes on the interest they're living off of. Ask these guys what percentage of taxes they pay and they'll spout it off, ask em how much a loaf of bread or a dozen eggs cost and they'll defer you to their maid.
<strong>So a 'rich' guy isn't phased by making 400k more a year, but he's pissed that he pays 400k a year in taxes?
The taxes on Bill Gates' income alone is probably more than the combined taxable income of the 1600 people in the company I work for. He seems to be doing ok.
From my experience, it's the middle to upper middle class family with two working parents that get hurt the worst. Especially if one of them trys to be self employed.
I just have a hard time feeling sorry for millionaires and billionaires (athlete's anyone?) who have to pay large taxes on the interest they're living off of. Ask these guys what percentage of taxes they pay and they'll spout it off, ask em how much a loaf of bread or a dozen eggs cost and they'll defer you to their maid.</strong><hr></blockquote>
Once again... the tax system is there to fund the government. Not exact justice on those no good rich people. You may feel that it's unfair that some have so much and others so much less BUT IMO it's not the job of the tax code to fix that.
<strong>The tax code is not there to fix disparities in income between the rich and poor. It's there to fund the government in a fair way.</strong><hr></blockquote>
So if a tax plan were to increase the disparities between rich and poor, would that be wrong too?
<strong>
So if a tax plan were to increase the disparities between rich and poor, would that be wrong too?</strong><hr></blockquote>
I guess it would.
<strong>
So if a tax plan were to increase the disparities between rich and poor, would that be wrong too?</strong><hr></blockquote>
Good point Bertrand. Personally, I would get rid of the IRS altogether, but I like your logic. Your point being that tax policies by their very nature impact on social conditions.
Also, kudos to Scott H. for conceding the point. Amongst so many rants it's nice to see dispassionate, reasoned arguments.
My thoughts-
1. Disparities between the rich and poor aren't as important as the mean quality of life. Has this increased or decreased in the last, say 20 years?
2. The IRS tax code is too complex for any one, or even several, people to know in full. More people are employed in handling tax related matters than all the factory workers in America. (I could go on about what a money-sucking abyss the IRS is, but that's a given). Should we really be in a situation where the average citizen needs professional assistance to do their taxes and so much productivity is wasted managing this bureaucracy?
3. Is a progressive income tax the only means to effect the social changes that are desired by those who which to employ it as such?
4. On the spending side- What should taxes be spent on? I know this usually divides people into liberals (anywhere that it might help) and psuedo-libertarians (defense, paving roads, fighting drugs, nothing else). Personally, I try to think in terms of return on investment. That is, show me that it will improve my life in the long run and isn't negated by the costs of bureaucracy (leaving me somewhere in the middle of these two extremes).
[ 01-28-2002: Message edited by: Nordstrodamus ]</p>
Personally, I would get rid of the IRS altogether, but I like your logic.</strong>
What do you mean? Anarchy
Sales tax could work, though I have to put some more thought into how it impacts society.
<strong>1. Disparities between the rich and poor aren't as important as the mean quality of life. Has this increased or decreased in the last, say 20 years?</strong>
Quality of life has a direct correlation with wealth (in the generic statistical way). There are exceptions of course, but wealth will typically buy better education, better health care, and better living conditions. Whether one is happy may not be applicable to the question.
<strong>2. Should we really be in a situation where the average citizen needs professional assistance to do their taxes and so much productivity is wasted managing this bureaucracy?</strong>
I don't think the tax situation is that bad, ie, that the average individual needs professional help. If an average person needs it, they aren't trying hard enough or they are getting duped into thinking they need it.
But I would agree the tax code is abysmal.
<strong>3. Is a progressive income tax the only means to effect the social changes that are desired by those who which to employ it as such?</strong>
If the funding required is more than a flat tax or sales tax would give, it's obviously a yes.
But I'm not sure I understand the question. How but asking the question backwards. Is a large income gap dangerous to a society? With the presumption that the lower class, consisting of the great majority of the population, lives at or below the poverty line, I don't think it's good for the society and a progressive tax would be needed. If the class below or at the poverty line is a great minority, then no.
<strong>4. On the spending side- What should taxes be spent on? I know this usually divides people into liberals (anywhere that it might help) and psuedo-libertarians (defense, paving roads, fighting drugs, nothing else).</strong>
1. Science and Technology
2. Law enforcement
3. Infrastructure
4. Education
5. Aid programs
x. Defense
If the object of the government is to protect a society, then I believe its main responsibility is to ensure the society's survival. Science and Technology advancements, 99% of the time, directly translate to economic and military power. (GWB gets a failing grade here). Defense depends on the state of the world, hence the variable "x".