New CBO study shows that ‘the rich’ don’t just pay their ‘fair share,’ they pay almost everybody’s share
The Congressional Budget Office (CBO) just released its annual report on “The Distribution of Household Income and Federal Taxes” analyzing data through 2011 on American household’s: a) average “market income” (a comprehensive measure that includes labor income, business income, and income from capital gains), b) average household transfer payments (payments and benefits from federal, state and local governments including Social Security, Medicare and unemployment insurance), and c) average federal taxes paid by households (including income, payroll, corporate, and excise taxes). Some of the key findings of the CBO analysis are displayed in the table above, with the data organized by household income quintiles. The data in the first five rows above appear in the CBO report (from Tables 1 and 4), and rows 6-8 above have been calculated separately based on data from the first four rows in the table.
The CBO report received attention and commentary this week from John Merline at Investor’s Business Daily (“New CBO Report Explodes Tax Fairness Myths”), Reason’s Nick Gillespie (“3 Charts About Income Inequality, Transfers, and Taxes”), AEI’s Jim Pethokoukis (“Here is what’s really happening to middle-class incomes and inequality”), Heritage Foundation’s Curtis Dubay (“The Richest 1 Percent of Americans Pay 24 Percent of Federal Taxes”) and former economist Paul Krugman (“Why the One Percent Hates Obama”).
Some additional analysis and commentary will be provided here that reveal a yet-to-be discussed major implication of the CBO report – almost the entire burden: a) of all transfer payments made to American households and b) of all non-financed government spending, falls on just one group of Americans – the top one-fifth of US households by income. That’s correct, the CBO study shows that the bottom three income quintiles representing 60% of US households are “net recipients” (they receive more in transfer payments than they pay in federal taxes), the second-highest income quintile pays just slightly more in federal taxes ($14,800) than it receives in government transfer payments ($14,100), while the top 20% of American “net payer” households finance 100% of the transfer payments to the bottom 60%, as well as almost 100% of the tax revenue collected to run the federal government. Here are the details of that analysis.
The figures in Row 6 in the table above (and displayed in the graph above) show the amount of federal taxes paid by the average household in each income quintile minus the average amount of government transfers received by those households in 2011. For each of the three lower income quintiles, their average government transfer payments exceeded their federal taxes paid by $8,600, $12,500, and $9,100 respectively, and therefore the entire bottom 60% of US households are “net recipients” of government transfer payments. Averaged across all three lower income quintiles, we could say that the lowest 60% of American households by income received an average transfer payment of about $10,000 in 2011. And because the government has no money of its own, where did those transfer payments come from to finance the “net recipient” households? Where else, but from the top two income quintiles, and realistically almost exclusively from Americans in the highest quintile.
Specifically, the average household in the fourth quintile paid slightly more in federal taxes ($14,800) than it received in transfer payments ($14,100) in 2011, making the average household in the second-highest income quintile a “net payer” household in the amount of $700 in 2011. Basically, households in the fourth income quintile paid enough in taxes to cover their transfer payments, and then made a minor contribution of $700 on average to help cover the transfer payments of the “net recipient” households in the bottom 60% and make a small contribution to the federal government’s other expenditures.
But the major finding of the CBO report is that the households in the top income quintile are the real “net payers” of the US economy. The average household in the top one-fifth of American households by income paid $57,500 in federal taxes in 2011, received $11,000 in government transfers, and therefore made a net positive contribution of $46,500. The second-highest income quintile basically just barely covers its transfer payments, so it’s really the top 20% of “net payer” households that are financing transfer payments to the entire bottom 60% AND financing the non-financed operations of the entire federal government.
Here’s another way to think about the burden of the “net payer” top income quintile. The average household in that income quintile made a contribution net of transfers in 2011 in the amount of $46,500. That would be equivalent to the average household in the top quintile writing four checks: 1) one check in the amount of $8,600 that would cover the average net transfer payments of a household in the bottom quintile, 2) another check for $12,500 to cover the average net transfers of a household in the second lowest quintile, 3) a third check in the amount of $9,100 to cover the average net transfer payments to a household in the middle income quintile, and 4) then finally writing a check for the balance of $16,300 that would go directly to the federal government, which for the households in the quintile as a whole would have covered almost 100% of the non-financed federal government spending in 2011. So except for a small contribution net of transfers in the amount of $700 from the average household in the fourth quintile, the highest income quintile is basically financing the entire system of transfer payments to the bottom 60% AND the entire operation of the federal government. And yet don’t we hear all the time that “the rich” aren’t paying their fair share of taxes and that they need to shoulder a greater share of the federal tax burden? Hey, they (the top 20%) are already shouldering almost the entire federal tax burden along with almost the entire system of entitlements and transfer payments! And that’s not “fair” enough already?
The chart above shows another way that the CBO data reveal an extremely unequal distribution of government transfer payments and federal taxes by displaying the ratio of “dollars received in government transfers per dollar paid in federal tax revenues” by income quintile in 2011 (these data are from row 8 in the table above). The average household in the lowest quintile received $9,100 in government transfer payments in 2011 and paid only $500 in federal taxes, for a ratio of $18.20 in transfer payments for every $1.00 paid in federal taxes that year. In contrast, the average household in the top income quintile received $11,000 in government transfers in 2011, but paid $57,500 in federal taxes, for a ratio of 19 cents in government transfer payments per dollar paid in federal taxes. This analysis is a further illustration that the bottom three quintiles are “net recipient” households that received more than $1 in government transfer payments for every $1 paid in federal taxes in 2011, while households in the fourth quintile were minor “net payers” in 2011 and received slightly less than a dollar in transfer payments on average ($0.95) for every $1 paid in federal taxes. “Net payers” in the top quintile received only $0.19 in government transfer payments per $1 paid in federal taxes in 2011.
This final chart shows average tax rates by quintile in 2011, both before and after government transfer payments. The blue bars in the chart show the average tax rates by income quintile from the CBO report (Table 4) and are also displayed in the top table above in row 5, calculated by dividing federal taxes paid (row 4) into “Before Tax Income” (row 3, Market Income + Government Transfers). Adjusting for government transfers received, the brown bars in the chart are calculated by dividing “federal taxes paid minus government transfers received” (row 6 in the table) into Before-Tax Income (row 3), and show average tax rates by income quintile after government transfers. For example, the average “net recipient” household in the lowest income quintile received a “negative tax” payment of $8,600 in 2011, had an average before-tax income of $24,600, for a negative tax rate of 35%. Reflecting their “net recipient” status, all three lower income quintiles had negative average tax rates in 2011, and only the “net payer” households in the top two income quintiles had positive after-transfer tax rates of 0.7% for the second-highest quintile and 18.9% for the top quintile. This further demonstrates that after transfer payments, households in the bottom 60% are “net recipients” with negative income tax rates, while only the top two “net payer” income quintiles had positive tax rates after transfers in 2011.
Bottom Line: We hear all the time from President Obama, Warren Buffett, Robert Reich, and various other Democrats and liberal pundits that “the rich” aren’t paying their fair share and need to be taxed more. For example, last year Obama reiterated his belief that the wealthiest Americans still aren’t paying their “fair share” of taxes. He said “Obviously, there is still more to do when it comes to reducing our debt. And I’m willing to do more, as long as we do it in a balanced way that doesn’t put all the burden on seniors or students or middle class families, but also asks the wealthiest Americans to contribute and pay their fair share.”
The CBO study released this week provides ample evidence that the richest Americans are paying their “fair share” of federal taxes. In fact, the richest 20% of Americans by income aren’t just paying a share of federal taxes that would be considered “fair” — it goes way beyond “fair” — they’re shouldering almost 100% of the entire federal tax burden of transfer payments and all other non-financed government spending. What’s probably not so fair is that the bottom 60% isn’t just getting off with a small tax burden or no tax burden – the bottom 60% are net recipients of transfer payments from the top 20% to the tune of about $10,000 per household in 2011. So maybe what the CBO report shows is that we should be asking whether or not the bottom 60% are paying their fair share when they’re not paying anything – they’re net recipients of transfer payments that come from “the richest” 20% of American households. When the top 20% of US households are financing almost 100% of the transfer payments to the bottom 60% and financing almost the entire non-financed operating budget of the federal government, I’d say “the rich” are paying beyond their fair share of the total tax burden, and we might want to start asking if the bottom 60% of “net recipient” households are really paying their fair share.
HT: I owe the inspiration for this post to Morgan Frank, who provided the original idea, discussed the development of the main ideas, and also suggested several of the charts above.
Update: As Morgan points out in the comments, it’s important to note for the discussion here that the US has the most progressive tax system among all OECD countries, see the Tax Foundation president Scott Hodge’s article “No Country Leans on Upper-Income Households as Much as US.” Specifically, the top ten percent of American households pay 45.1% of all income taxes (both personal income and payroll taxes combined), which is the highest of any of the 24 countries in the OECD and far above the 31.6% average. Adjusting for the income share of the top ten percent, the US has the highest ratio of tax share (45.1%) to income share (33.5%) for the top decile of 1.35 times, compared to the OECD average of 1.11.
Rich Americans tend to be urban Americans, and they are shouldering the federal tax bill.
The federal government heavily subsidizes rural areas—but rural states have two Senators despite minuscule populations, so don’t look for any change soon.
Money will continue to be sucked out of rich urban America for poor rural America.
Side question: Do these tables take into account FICA taxes? I see no explicit mention of FICA taxes.
The real issue here is what is your definition of “fair”? For instance, what is the percentage of children in the household of the lowest quintile? Is $25,000 annual income for a family of 6 fair? An analysis of your findings involves more than just dollars and cents.
Maybe if you can only make $25k/yr you shouldn’t be having 4 kids. Just sayin.
So should we regulate sex? We certainly won’t offer free birth control for those who can’t afford to have children, (who would also be the same group that can’t afford birth control). I am always curious how to stop people who can’t afford to have children from having children. It is an easy thing to say but it offers no actual solution.
Health Departments have been giving away free condoms for ages. People just have to pick them up and then apply them for effect.
you could not be promiscuous whores (male and female, white and black, shit idc if ur purple) why are you out screwing around when you are broke ?! foolish…either WRAP IT UP or DONT USE IT…it’s called self control
Free “Voluntary” sterilization?
No, we shouldn’t regulate sex, and we shouldn’t offer free birth control. Those people need to learn to make smart decisions. For example, if you can’t afford kids, THEN DON’T RISK HAVING THEM… Their idiot move doesn’t mean it’s our problem. They screwed up, their problem, their consequences.
” I am always curious how to stop people who can’t afford to have children from having children.”
Stop subsidizing them. Make them live with the consequences of their behavior, sir.
Under Obamacare, birth control is free. This changed last summer. You can get a prescription for birth control pills, go to your local drug store and you will not be charged a dime.
Condoms are a few dollars, if that. Come on, have another go!
We can’t regulate sex, but we could tax the hell out of families choosing to have more than two kids; and I’m ok with that.
Pulling out is free….. I don’t understand this need to provide people subsidized birth control. I mean come on, trusting someone to take a little pill every damn day? That’s risky biscuits.
Why not? The Libs want to control what you eat, drink, your healthcare, and now the internet…just to mention a few.
Really, it’s none of the government’s business about your sexual desires as long as you you’re not hurting anyone.
But, why should the government (which means the taxpayers) support a persons lifestyle?
Why not? You lefties regulate everything ELSE! If you can’t afford kids, then we should sterilize you.
Rachel I assume your pro abortion, leftie.
That is really your response, how can we prevent poor people from having kids? here’s a thought; how about a little personal responsibility…..you know, if you know you can’t afford to have kids, wait until you can. or only have as many as you can care for.
it’s called being responsible, or being a PARENT!! you really think the government should step in and do something to/for these people?
Regarding kids (since I have the dubious honor of being number 8 child in an extremely disfunctional, 13 child family) the federal government should put huge efforts in developing a reversible, mandatory birth control, which is only reversed after one demonstrates financial responsibility and attends, and successfully completes, a 1 year parenting program which includes a psychoanalysis evaluation of a person’s ability to provide The emotional and psychological needs of a child. The the “antidote” is administered for a single child. If another child is desired the process repeats.
They have to make “smart decisions”? Well how about stopping all this abstinence only education crap in the bible belt… which also happens to be the area with the most teenaged pregnancy, STDs and use of “rich people’s resources”.
Here’s the thing though, Americans aren’t having many babies…at least not the native citizens anyway. Our country’s birth rates have dropped below much of Europe and other similar nations(though many of these have dropped precipitously as well), and only through immigration are we at replacement. Even for our crummy sex ed programs and lack of providing access to birth control, teen pregnancies have dropped to the lowest levels since the 1940s. Of course back then too a woman could actually stay at home with the kids and still households earned on levels comparable or even slightly more than today with one worker instead of two.
Really though, no one should have children besides the rich and the government shouldn’t promote as they’re just too expensive. Good thing we’re starting to extract everything out of them with their educations too and shackling with a lifetime of debt; kids should have to pay dearly for being born! All the welfare and benefits of the country should go to the wealthy first, followed then by the elderly who as it is now, stand to reap on average a third or more than what they paid in for Social Security, or with Medicare nearly 3 times the amount they contributed during their lives! Sellout the present and future to pay for the past is what I say; that’s the Republican way!
everyone can afford birth control… it’s much cheaper than the alternative, so please spare us.
Most county health departments will give free birth control to those with low income and Medicaid will also cover the cost.
Soooo, what happens when you have 4 kids and THEN your 50K/year income vanishes..?
Get a second job, go learn a better trade. Stop expecting your neighbors to bale you out. It’s getting OLD.
Wait, are you saying that anyone can have as many kids as they want, and that if they can’t afford it then others need to pay?
I was not talking about the parents. I was talking about the children. Oh wait do they not count because they can’t vote.
the kids are in the filer’s household which receives the benefits and pays the taxes, or not in most of these cases. obviously we need more to document millions of illiterate mexicans to balance this equation.
So your answer to Dave was a not very cleverly disguised “Yes.”
You clearly believe it, why not show the strength of your commitment to redistribution of others’ incomes to the irresponsible by standing up for yourself and saying it?
ding, ding, ding…..welcome to being a liberal. “it’s not my fault I made bad decisions….someone should bail me out….the government should fix my problem for me….look at those evil rich people that made good decisions with their money, it must be their fault…..except for those rich liberals in hollywood, they play poor people on tv so they know what it’s like…”
NAILED IT! Tired of everyone waiting for someone else to provide for them. There was a time when people were ashamed to have to put their hand out. I’m all for helping those in need, but not entitled idiots.
“? For instance, what is the percentage of children in the household of the lowest quintile? Is $25,000 annual income for a family of 6 fair? ”
Of course it’s fair, or people wouldn’t do it.
Great posting here Dr. Mark!
jerry says: “For instance, what is the percentage of children in the household of the lowest quintile? Is $25,000 annual income for a family of 6 fair?“…
So what are you trying to say jerry, that someone else should be covering the fool with a family of six?
Why should that happen? Why should the government extort more from a productive citizen than a non-productive citizen?
My thoughts exactly
Exactly. And what does it do to the motivation of those with higher income to have their own kids, given that they have to pay for other people’s kids first?
I totally agree, in fact we should take their kids and force them to fight to the death in gladiatorial arenas for our amusement. Talk about revenue stream!
Been to the Bronx lately?
What is not fair is a couple that makes only 25K yet they chose to have 6 kids. Responsible people CHOOSE not to have children they can’t afford. I know, this is a cold way to think, I am not compassionate . . . to that I call BS. We are the only country where the poor people have multiple automobiles and some even own their homes. That’s poor? Seriously . . .
Maybe we should redistribute excess children from those who have more than their fair share?
hahaha!! Great idea, Dean!
But they are already redistributed Dean … The are distributed among the rich but never relocated …. they just remain in the house they were born in … and paid for by the rich … In other words a rich man has kids he’s never met …
That would be putting kids up for adoption, just like people used to do a hundred years ago. If you were poor or a single parent who couldn’t care for your kids, you could find someone who could, like a relative or maybe through an orphanage. It was common a century ago. I have relatives who were raised by their aunt and uncle after their mother died young and father was busy working. There were no subsidies back then or daycare, so a working parent was hard pressed to care for small children, especially one that was still nursing and whose mother died in childbirth. Now there are government programs to support parents who never even had a spouse, so they can stay home and care for the kids they shouldn’t have had in the first place.
Keep it in your pants and you won’t have so many mouths to feed. You expect ME to pay for all the kids you can’t afford? Try being responsible and acting like an adult instead of a leech!
Man shutup as a child of five in a 30k income family you can make shit happen by just working hard. My Dad has been supporting us and my Granny well. I know for a fact he’s not getting any child benefits any more either cause most of us are over 18 and my youngest brother is 17. So if you want more kids just make your self a budget and get your ass to work
According to table 1 in the CBO report:
Federal taxes include individual income taxes, payroll taxes, corporate income taxes, and excise tax.
FICA taxes are included – they are cited in the report as being done as follows:
The FICA taxes for both employee and employer shares are in taxes (the earned income tax credit is also there as a negative tax effect, which is why it looks like the math must be off on the lowest quintile)
The FICA taxes paid by the employer are included in the income line.
SS & Medicare payments are most of the transfer payments as well, which makes the author’s interpretation messy as one has to look at these as a form of deferred income.
So “The FICA taxes for both employee and employer shares are in taxes . . . The FICA taxes paid by the employer are included in the income line.”
But whose taxes and whose income?
The key question here is the employer’s largely fictional contribution to FICA. If the employer’s contribution is counted as additional income to the employee, but then the full FICA payment is also credited to the employee, then that’s about right. But if the employers’ contribution is being charted here as an actual tax imposition on the employer, then this is distorted.
When I go to the CBO report itself, I don’t see any indication that the fictional nature of the employers’ contribution is compensated for. On the contrary, payroll taxes are treated very credulously as something paid equally by employer and employee, except for the brief FICA holiday of a few years back. Normally, AEI is quick to tell us (and rightly so), that if an employer has 100 dollars to spend on an employee, and FICA wants to take 30, it really doesn’t matter to employee or employer if the employer “pays” 15 or lets the employee pay all 30, the employee gets 70 and the government gets 30 and the employer is out 100 (a cost of employment but no tax on him at all.) But it makes a big difference in this chart if the credit for paying half the tax goes to the employer and not the employee.
YES. Thank you for noting this.
Urban Americans are fed by rural Americans. Don’t know what kind of transfer payments are going to everyone else in my small town slice of America, but as a non-farmer, non-welfare, no-EBT card middle income American, I don’t see a whole lot of transfer payments to me.
Amen – well stated.
What the heck is a transfer payment? I don’t make much money, but certainly haven’t seen a transfer payment from the government.
I wonder if it’s income tax return? You can get it as a direct deposit into your bank account. Maybe it also includes welfare, soc security checks, WIC…
That’s just the first thing that came to mind.
Exactly. I’d really like to see the data to drill down these numbers. I’m squarely average income, and I get nothing in terms of assistance, and pay in a good sum.
Also, I don’t believe sales taxes are included in these figures, and those are the most regressive taxes of all.
That is because this article is about FEDERAL taxes. Sales tax is a state based tax.
“Assistance” means everything from Earned Income Credit, Child Credits, Education Credits, etc, etc, etc.
So you’re saying you give away food for free, or at least reduced from market value? That’s a shame.
Transfer payments is government speak for anything the government spends that you might benefit from. So this includes things like stop signs, highways, anything.
Incorrect. Those things are covered by state taxes, which are not at all referenced in this chart. Transfer payments would be things like medicaid, medicare, food stamps, tax exemptions, blah blah.
transfer payments are another way of saying distribution of wealth.
from wikipedia (with sources noted in the article)
“In economics, a transfer payment (or government transfer or simply transfer) is a redistribution of income in the market system. These payments are considered to be non-exhaustive because they do not directly absorb resources or create output. In other words, the transfer is made without any exchange of goods or services.[1] Examples of certain transfer payments include welfare (financial aid), social security, and government making subsidies for certain businesses (firms).”
See first paragraph definition of taxes – it includes payroll taxes
“c) average federal taxes paid by households (including income, payroll, corporate, and excise taxes)”
What is not included and appears to be a mismatch is that transfer payments from state programs are included, whereas taxes paid at the state level are not.
The article is in fact false.
When you include everything – all taxes, all transfers, the US is slightly progressive, but nearly flat. This is what most studies find.
Davidw
“When you include everything – all taxes, all transfers, the US is slightly progressive, but nearly flat. This is what most studies find.”
Could you cite a couple of them? If you don’t like the CBO, who would you believe?
FICA, state, local, and sales taxes should always be a consideration. To just roll out the ONE tax which hits a specfic group is not a good representation of the facts.
It demonizes taxpayers by saying “pay your fair share” without giving them credit for what they are actually paying.
Well, this is a federal representation of tax allocations. To do state, would require breaking down each state one at a time, since no state has the same means of taxation.
Subsidizes RURAL areas ?? Show me.
Do you know what the Senate is or why is was created? The House was made for representation per population, not the Senate. Why would we have two governing bodies that are exactly the same? Read up, buddy.
Levi, the Senators were appointed by the State Legislature as well until 1913 with the passing of the 17th Amendment to The Constitution of These United States.
First paragraph says that the tax information includes all household taxes including payroll taxes which should refer to FICA.
Joe, I don’t know how you made this into a rural versus urban thing, but most of the hardcore welfare families I know of are in urban areas. There is a reason so many of our cities have areas of decay. However, if you’d like to have NYC and LA become city-states and separate from the US, then I’m game. Oh, and did you know Warren Buffett is from and lives in Nebraska?
The definition of transfer payments is critical. Milk, corn, wheat price supports should have a place here, as should SNAP funds for employees of employers paying below a living wage, as these are subsidies of the rich. Interstate highways, patent and trademark enforcement, and banking system support primarily benefit the 1%, without which they would not be the 1%.
You must be a Liberal. No one else would capable of this level of distorted thinking.
That’s exactly right! Also no mention of Medicare taxes nor factoring in government contract, interest payments etc., that the government pays to the top percentiles. The bottom line is that this is a CBO report done by the Rescumlican controlled House and reflects their ideological bias.
The CBO is non-partisan. It isn’t controlled by either party.
FICA taxes are payroll taxes.
Joe B, Yes. Federal taxes include all federal taxes, including payroll taxes.
You make a good point, but you miss the forest for the trees.
When people say that the “rich are not paying their share” they are not talking about the top quintile. They are talking about the top 1% – who could indeed be paying more.
with great irony, no, it is you who are missing the point.
what percentage of the taxes paid by the top quintile do you think are paid by the top 1%?
the top 1% pay about 25% of ALL federal taxes in the US.
that implies that they are paying about 45% of the taxes in the whole top quintile.
you COULD be paying more too. the fact that either you or they could pay more is not synonymous with saying you ought to be paying more or that your current share is too low.
much of the top 1% pay more in taxes in a year than you will pay in your life. what exactly are they getting for it? more protection from the army? a better FAA and FDA? special lanes on the highway? just how it is fair that they pay 100 times what you do in tax and get the same things back for it?
you are trying to disguise greed and entitlement as fairness.
I agree.
Imagine if ALL Americans went to the store and paid for items BASED on income… ie:
Gallon Milk
Poor= free
Middle Class= $1.00
Rich= $50.00
Gallon Gas
Poor= free
Middle Class= $5.00
Rich= $500.00
… would THAT be “Fair”?
I support FLAT Tax zero deductions.
That is all.
If you explained it in rational understandable terms I bet a vast majority of Americans would agree to a flat tax with no deductions. Along with that you could eliminate the IRS and reduce the size of government
I support flat taxes, also. If higher income is taxed more, there is less incentive to make more. One year my father received a $50 Christmas bonus from his employer. That amount bumped him into the next higher tax bracket and he paid $16 more in taxes, then when I filed to see if I could get state assistance for college, his income was $25 over the amount that got the minimum assistance of $50. So he got a bonus of $50 and ended up $16 in the hole for it. That was long enough ago that the amounts seem small, but they stuck in my mind. Flat taxes and reasonable costs for college. Why should college costs have tripled in the last
four decades?
As someone in the top half of the top quintile I’ll tell you I don’t particularly want more/special things because of the outragous total on my annual tax bill. But it would be nice if someone said “Thank you” every once in a while. Instead I am painted as a selfish, unethical, money grubbing spawn of satan.
C’mon Sue, I’ll bet you’re only supporting a couple dozen people. Surely you can squeeze a little more out. For the children. No, not yours.
Thank you! 🙂 I don’t think your spawn of satan either I promise. Haha
Thanks Susan 🙂
I will say it, “thank you Susan.”
I am in the middle of the third quintile and pay in about $20K a year and receive zero transfers. Some day I may receive some SS benefits if the government does not go bankrupt but I expect I will only receive a fraction of what I paid into the system.
Thank you.
Amen sister! I am right there with you!
I find it funny to see someone who claims to be in the top half of the top quintile complaining about having to pay more in taxes. no its not fair that u have to pay more but at the same time u probably make 100x more than people in the lowest quintile. do u really need that money to survive? NO regardless of the number of children a person has, and no I don’t agree with the gov’t giving money to people to help them survive, as most of them are not truly in need just lazy freeloaders, it is at the same time wrong to think that u NEED all that money to survive. I work hard for what I have and I don’t complain, I enjoy what I do. But the people in this country getting billion dollar bonuses for sitting behind a desk, that say it is hard work is laughable. You make more u pay more. You will never spend what u have made in ur lifetime and still u say u will draw SS. and that is what is wrong with America.
Shawn, you have just identified yourself as a communist. “From each according to his ability. To each according to his need.”
Susan negotiated her compensation legally. She provides services to her employer which he/she values sufficiently to pay her the level of compensation she is receiving. Need has no place in this equation.
Because her employment and compensation is an agreement between consenting parties, what she gets paid BELONGS TO HER. It is called ownership, private property.
I am sure if we went through your house, we could find things that you don’t need. Perhaps we should just go in and start confiscating your property. Unless you want to start living at a subsistence level, stop making judgements about other people.
Morganovich, Morganovich, if you’re talking about Federal income tax you are living in the past, buddy. Get with it, this is the Obama era. Latest figures I’ve seen (2011) show that the top one percent pay 35.06. Those damnable tightwads!
http://taxfoundation.org/blog/top-1-percent-pays-more-taxes-bottom-90-percent
severely-
i was using a more inclusive metric of “all federal taxes”.
income tax is just one part of that and, as payroll taxes are capped, someone earning $500k pays no more more in payroll tax than someone earning $110k.
thus, to look at overall tax burden, you have to look at more than income tax.
fwiw, the total tax burden on the top 1% is well up from 2011.
the CBO estimates they paid 32% in 2013.
Amen!!
That’s always my thought, too. How is it fair to charge the wealthy more when they get the same benefit as everyone else in regards to protection, road services, etc? They shouldn’t be penalized just because they made good life decisions.
good life decisions now that is laughable u made good life decisions because ur parents were wealthy and could afford to send u to a good school buy u ur first house keep u out of debt and u have never had to really truly know what real work is. yet u have the audacity to complain about paying more in taxes than someone who u make 25x more than when u could never possibly spend the trust fund ur parents left you much less the money u make from the “job” u work so hard at. from behind the desk. the country was built on the backs of the WORKING class of which u are not a part
Wow. You have absolutely no clue. I too am in the top half of the top quintile. No one, NO ONE paid for anything for me. I did not have wealthy parents (in fact, mine both died when I was 7), I did not have a trust fund, no one paid for my college education except for me (worked in a fast food restaurant from 6 am to 2 pm and then took classes until 9 pm). Most people in this top quintile are exactly like me….worked their a***s off for years, started a business with their own money and a lot of prayer, did not go out and buy the latest car or big house or technological gadget, or giant TV, saved for their retirement and their kids education, and now, NOW I am supposed to support those who made poor choices???? Give me a break.
The top quintile are not paying more taxes to get better things from the government, they are paying more taxes, because (1) they make more money thus just by math, pay more. (2) They pay more to save their lives.
At issues is not the thought of being rich, it is when economic resources are so imbalanced that more and more people have less and slowly build resentments that previously may not have existed. Not everyone can be the King, or even lords so most folks find a level of contentment in doing well enough to enjoy life. Take vacations, buy gifts, engage in hobbies. Now squeeze those people, destroy their industry (Textiles/Steel) or out-source their jobs (IT, Tech Support) and do so for the benefit of a few, you start to build societal pressures that first create negative thoughts, but can ultimately lead to negative actions.
The Russian and French revolutions, the ouster of King Lugwig in Germany had in their roots the economic imbalance by a ever restricted lower class. To put it bluntly, when people have little to live for, what compels them to respect your life? Our own revolution came about from the same stance of feeling squeezed by the very powerful. People who make money may not like to pay taxes, but the alternative, chaos, anarchy, or revolution are worse options. Instead of the top 1% or 5% complaining about how their taxes are paying for those “slackers” they could use those prestigious minds to figure out how to get more people working as more than indentured servants. What’s yours is yours until a desperate society decides to take it violently.
Jason
“The top quintile are not paying more taxes to get better things from the government, they are paying more taxes, because (1) they make more money thus just by math, pay more. (2) They pay more to save their lives.”
(1) What? Where did you learn math? Is it obvious that you pay twice as much as I do for a hamburger just because you earn twice as much as I do?
(2) So the lives of those in the top quintile are worth more than the lives of others? Wow. That’s a new one. Actually wealthy people get about the same amount of life saving service for their taxes as everyone else.
If you mean the ability to pay more, don’t you think wealthier people can and do choose on their own how to buy their own protection, without needing the one-size-fits-all remedies provided by the state?
The rest of your comment had little to do with economics, but instead seems like a warning to the wealthy to pay protection money if they know what’s good for them.
The top 1% pay about 25% of all federal taxes annually, but they control roughly 35% of all wealth in the country. By that measure, they are paying less than their fair share of taxes, particularly when all forms of tax (sales taxes being among the most regressive) are included.
So, if you spend everything you earn and also all you can borrow while I save and invest then at the end of a year/lifetime I control more wealth than you. And you think it is fair to take mine too? That is simple greed at its worst!
There IS a disparity between poor and rich in this country… And it doesn’t have anything to do with money! Everything to do with how one thinks!
It isn’t necessarily the top 1% in income as defined by this study or maybe it is 5 or 3 percent but it is a very small percentage of the population that enjoys a very large percentage of this nations great WEALTH. For that amount of obscene wealth there should be a comparable amount of obscene taxes to the country that provided the environment that allowed for the accumulation of such wealth. There is no definition of the word fair for someone in this position compared to someone who struggled to get buy for 40-50 years and now relies on SS, Medicare and a small pension which they still have to pay taxes on. Susan, do you thank the hard working employees who produce the high ROR in the companies you have your money invested in? We should all appreciate each other.
so the top 1% are said to pay 25% of the nations taxes…. what is that, about 1% of their income? (if even that). I am taxed at about 10% of MY paltry income.
Why is it always the taxpayers that are expected to pay more and when they don’t want to they are greedy? How about the always hungry blob known as the gov’t learn a way to take less? Why is it that every year the budget grows BY RULE regardless of the amount of revenue it takes in? When are we going to discipline the greedy demanding little child our federal government has become? No it is the fault of the rich.
Actually, its YOU who obviously missed the entire point of this article that you are nonetheless commenting on. Why should YOU get to decide what someone else makes? Especially since that someone else made what you can’t and therefore can’t conceive of.
well duh! Does anyone think the poor pays the country’s bills? Here’s a clue bat for yah, they can’t cause they’re poor! The question isn’t whether the 1% are paying the bills. The question is why they seem to think they shouldn’t be.
Oh, and it is more than a little dishonest to include Social Security in the equation. But hey, honesty isn’t a part of the conservative agenda is it?
The data for this article was provided by the CBO, one of the few non-partisan offices remaining. You may not like the data, but that doesn’t make it part of the “conservative agenda.”
How was the transfer amount calculated? Did they include subsidized flood insurance for the beach homes of the rich? Did they include navigational aids for their yatches? You make me f…in sick.
Did you read the CBO report?
Read? Read?
I am having a hard time justifiying these numbers. I have earned less than the amount used for the second quintele but have paid more in Federal taxes then this article states, so if these facts are correct just the Federal taxes are being over charged by $5k???? This does not include all of the other taxes they say are calculated into the numbers as per the article! As a side note Michigan’s Governor posted his Federal tax returns prior to the election this month and boy he and his wife are doing very well compared to my wife and I. As a whole the Governor paid just about the same amount of Federal taxes that we paid, and he is a Millionaire many times over…..
Tempting as it is to express anger in graphic terms, how is that helpful for the debate?
Subsidized flood insurance should go away. Period.It distorts market forces.
OTOH, navigation aids aren’t for yachts. They’re for commercial shipping and Navy vessels, and yachts take advantage of their existence. Sort of like that subsidized GPS in your car. The constellation of satellites used for it are sent up for military vessels, planes, and missiles. You’re freeloading every time you use your GPS. Garmin and Magellen and TomTom make loads of money off satellites they have no direct investment in.
Indirect subsidies as roads, navigation aids, canals, national defense, the post office, and a few other things government does are a benefit to everyone, period. Even the Amish benefit from satellites- though they don’t see it. They read weather forecasts too.
Direct subsidies of any kind benefit only a targeted few. Whether sugar subsidies or flood insurance. And they distort market forces, so everyone ends up paying more to benefit a few.
The same data can be used to make many arguments. It is there argument, not the data, that is being questioned. If the poor have to spend all their money on taxes, they can’t buy what the rich are selling. Rich people won’t be rich for long if nobody can afford what they sell. Unless your suggestion is that we euthanize all poor people, then get a grip on reality. You, sir, are a moron. As are those responsible for the writing and publishing of this article.
Their*
“ If the poor have to spend all their money on taxes, they can’t buy what the rich are selling“…
It seems kind of hilarious andaoming that you apparently are not considering that maybe taxes and the federal government scams the taxes finance could be cut, or am I wrong…
There are all kinds of constitutionally questionable federal scams that could be or should be cut…
Strawman alert:
“If the poor have to spend all their money on taxes…”
No one ever said this. The point is that 80% of the country pays no meaningful share of federal taxes net of transfer payments, when more could and should have *some* skin in the game. Otherwise, economic distortions will eventually destabilize any society. Tocqueville had this figured out nearly two centuries ago.
If productive folks feel that they’re being taken advantage of, they’ll simply become less productive. E.g., Ronald Reagan, in the confiscatory pre-Kennedy tax regime, famously took the rest of the year off after making only two movies. Don’t think that other top-earning folks — especially small business owners and contractors — won’t do likewise when government services for the 80% (or whatever fraction the future brings) become untenable.
Well, they are wealthy morons
why is it dishonest to include SS? it’s a huge governmental wealth transfer and the set up for it is massively progressive.
what is dishonest is the way progressives describe fica taxes as regressive. they are nothing of the sort. they are, in fact, massively progressive.
if i earn $25k and you earn $100k, you pay 4x the fica i do. but, when we retire, we get the exact same medicare. but you paid 4X as much. when we get SS, you may get more than i do, but (and i know this from looking at my own account) you will have gotten a negative nominal return on your money. you will get back fewer dollars that you paid in. i, on the other hand, will get back 2-3 times what i paid in.
the lie about regressive fica is perpetuated by ignoring what you get for it in the back end.
it is NOT including SS that would be dishonest.
how is it honest to ignore one the the biggest wealth transfers in the US when when looking at who pays and who benefits?
To make the point more clear here is the complex formula that social security uses. Determine your wage indexed earnings (up to the ss limit in any year) for the top 35 years of earnings, as a monthly amount.
Then up to (for 2015) for the first 826 a month replace 90% of earnings, then between 827 and 4980 replace 32% of income and between 4981 and up to the current max for fica replace the last at 15%. Here is a link to the formula. It really is not rocket science: http://www.ssa.gov/OACT/COLA/piaformula.html
Thanks, Lyle, but that didn’t make it clearer. 🙂
Ok take 3 cases: One your average monthly earnings are $ 827 for the 35 years you get 745 a month, second they are $4981 so you get the 745 + (4981-827)*.32 =2038 and 3 they are at the top limit where ss taxes occur , The max benefit if you earned the maximum amount ever year in 2014 is 2642 per month. (all these would be at age 66) So for the last 5000 per month in average earnings you get only about 610 a month in benefits. So yes indeed the formula is weighed to the lower earners.
Lyle
I was kidding. I understand it, it just seems overly complex.
Social Security is not hugely progressive. SS taxes are capped, so as a rate it’s actually hugely regressive. The rate is flat through the $100K ( something) ceiling. After that, you don’t pay. I’ll leave you to the math on the percentage that is for someone making $500k
There is a slight redistribution of the taxes paid. It’s better to think of SS as an insurance program. It’s insurance for not having to walk past broke old people on the sidewalk
Social Security is not hugely progressive?
Let’s see – up to $826 a month it replaces 90%, from there to $4,980 it replaces 32% and from there to the current max it replaces 15%
What in God’s name would you consider “hugely” progressive if not that? Tax everyone at the same rate, return 90% to the poorest and 32% or less to the rest….
Let’s not forget that those making only $826 a month will receive various credits on their tax return effectively refunding all of the FICA tax they did pay. So their 90% distribution actually came free and clear.
OASDI – and the last initial stands for Insurance – Insurance against destitution in old age. Your FICA deduction is a premium not a deposit.
no chris, there is a MASSIVE redistribution of the taxes paid.
if you max out SS taxes, you get a negative nominal return on your money. if earn only $25k, you get big positive returns.
if you earn $100k, you pay 4X as much as someone earning $25k but only get back about 1.5x what someone who paid 1/4 what you did does.
that is EXTREMELY progressive.
to use you (inaccurate) analogy of insurance, it would be like you paying $100 for a $10,000 policy and my paying $400 for a $15,000 policy. how much extra money i earn or that that $400 is as a % of my earnings is irrelevant. per dollar of payout, i am paying multiples of what you are. that is the very definition of progressive/subsidy. i get back less than i pay so you can get more. looking only at cost for something with defined benefit to try to call it “regressive” misses the whole point.
SS is not an insurance program at all. it’s a redistributionist ponzi shceme that will be bankrupt long before i ever get mine 23 years from now.
Was it really because he was lazing out or because he wasn’t in such great demand as an actor?
I will begin collecting SS next year. I have contributed $216,000 into the system. That amount will be distributed to me over approximately ten years. That does NOT include any money made by investing this money over the past 44 years. Tell me how I don’t deserve this!
diana-
1. have you ever calculated the rate of return on that? take $216k, invest it for a weighted average of 30 years (which is about right as you will not spend it all when you retire), get 6%, and you have $1.25 million if you had a personal account instead of SS,. you could buy an annuity for that that would pay you multiples of your SS payout. what you do not deserve is to get that sort of hosing.
2. i am only 42. i have already paid more into SS than you have. (owning you own biz means you pay both halves)
i have likely paid multiples of what you have into medicare.
my cash will be paying your benefits.
in 23 years when i am eligible for anything, they system will likely be bankrupt. i will likely get nearly nothing.
even if i do get what i was promised, i will pay 10 times as much for my medicare as you did and will have to live to something like 95 just to break even on what i paid into social security in the incredibly unlikely event they manage to stay solvent and not cut payout under paygo.
do i deserve that?
statistically, i will not even get back 90% of what i paid in.
you look to get back a little more than twice what you paid in.
why is it that i deserve that?
how is a system where i have to get negative nominal returns (which means that after inflation, that payout will be worth maybe 35 cents on the dollar in today’s terms) and you get positive returns fair?
it’s the same investment and risk.
if you deserve twice you money back, then so do i. (and, frankly, i think we both deserve a great deal more than that)
but only you are getting it.
To actually analyze this length of life must be included. I’ve read that the well off live longer than the poor. That factors in to calling it regressive.
the well off also tend to work longer and retire later (which explains some of why they are better off). they also miss fewer years of work.
they can’t cause they’re poor
There are no poor in the US. The US completely eliminated poverty shortly after WWII. To claim that there are people who can’t pay their bills “cause they’re poor” need to look more closely at those bills. The bills those “poor” people have are for cars, TVs, gaming consoles, cell phones, cigarettes, cable, and a whole lot of other modern luxuries.
So poor people should get no “modern luxuries”, like basic entertainment, because we urgently need the mega-wealthy to have more yachts and penthouses??
As I said, there are no poor people, so your comment is a non-sequitir. That people can afford modern luxuries means they are not poor.
2 and a half million children were homeless at some point in 2013. Many inner city children are not adequately fed.
You should look at how those definitions of homelessness are written, as well as the definition of poverty. I’m sure you’ll be shocked to find out that the people you imagine to be in this tabulation are very different from the actual people included in this tabulation.
David
“well duh! Does anyone think the poor pays the country’s bills? Here’s a clue bat for yah, they can’t cause they’re poor!
And they are poor because they have demonstrated their inability to provide much of value to society that others are willing to pay for. Perhaps the poor should be taxed at a higher rate than the rich to compensate for for their lower contributions to the welfare of everyone else.
“The question isn’t whether the 1% are paying the bills. The question is why they seem to think they shouldn’t be.”
Maybe the real question is why anyone believes other people should be forced to pay for things *for* them when they haven’t earned them.
Poor people don’t act they way they do because they are poor; they are poor because they act the way they do. While government over-reach is threatening social mobility, for the most part people in the United States end up where they deserve. Yes, there are always exceptions, but they really just prove the rule. We are in global competition with Russia, India, Brazil, and China, yet liberals still sit around figuring out how to transfer trillions from productive citizens to nonproductive citizens and noncitizens. The US has spent over $22 trillion on means-tested welfare programs since LBJ and we have nothing to show for it except a hardcore underclass and ruined neighborhoods. Think what $22 trillion could have created in the private sector! You can either pay someone to work, or you can pay them not to work, but you can’t do both with the same dollar.
Thank you David.
If Social Security and Medicare payroll taxes were taken out of the equation, this chart wold be even MORE lopsided. Those are pretty much the only Federal taxes the working poor and lower middle class ever pay.
You mean the Liberals agenda.
David – Social Security and Medicare are included in transfer payments, but it’s also included in the “Federal Taxes” line item. If you get rid of one, then you have to get rid of the other – and I don’t think it’s going to make the picture any prettier. Almost all of what the first and second quintile pay in federal taxes is going to be FICA tax because most of them are getting EITC and paying zero income taxes.
Oh right, we are all dishonest…and racist too don’t forget.
All of the proceeds from increases in worker productivity have gone to the top for decades. Should the lower quintiles be taxed as well as robbed of these productivity gains?
@Bob K
> Should the lower quintiles be taxed as well
No one’s income should be taxed.
> as well as robbed of these productivity gains?
People aren’t quintiles. Some of the people you complain about receiving the fruits of their own productivity gains are formerly poor people who made themselves rich.
Hit
“No one’s income should be taxed.”
Bingo!
No income taxes, you say? Well, how do you like roads, fireman and police? The immensity of your idiocy is breathtaking.
@andaoming
There are other forms of taxation, and I don’t like public “fire” services (which actually are mainly used for “medical transport”, not fire).
“No income taxes, you say? Well, how do you like roads, fireman and police? The immensity of your idiocy is breathtaking.”
Can you really not imagine any other way to get those services? Think a little bit – if you can.
You mean, those services paid for by local sales, road/gas and property tax? I’m perfectly happy to locate a state and county whose philosophies and costs related to those things are in line with mine (and I did). If I could opt out of the federal programs and related costs (perhaps by giving up my US citizenship and being a citizen of a seceded Republic of Texas), I would.
In a free society, If you want to pay for roads, firemen, and police, you will not be stopped.
For example, insurance payments could fund firemen. If you didn’t pay for the insurance, then the firemen would work to keep your housefire from spreading.
Federal income taxes don’t pay for local or state police. They do pay for SWAT teams for the Department of Education, but they are not really what we think of by “police” are they.
Well, how do you like roads, fireman and police?
Presumably with the sales and property taxes that the state and local governments that provide those services already charge.
Muh Roads!
You need to look back at history, we had schools and roads and all of the other needed forms of government before income taxes existed
You DO realize the US didn’t even have an income tax until 1913? Yet we actually paid for the Spanish-American war with cash! Its called freedom and no welfare state. There are plenty of tariffs and fees that can fund a small, constitutionally-limited government.
All of the proceeds from increases in worker productivity have gone to the top for decades.
False. And did it even occur to you that most of the increases in worker productivity occurred at the top, while most workers didn’t increase their productivity?
Should the lower quintiles be taxed as well as robbed of these productivity gains?
Why do you say the lower quintiles are “robbed”, when it’s clear they are NOT increasing their productivity and it is further clear they they are robbing the top quintiles?
Bob K
“All of the proceeds from increases in worker productivity have gone to the top for decades. Should the lower quintiles be taxed as well as robbed of these productivity gains?”
I guess the answer to that question would depend on who is responsible for the higher worker productivity.
I often read here how low and middle income Americans are living better than ever before. And that, because of that, they should not envy the higher incomes of the wealthy. Instead they should be grateful that the same system that has produced higher living standards for all has benefitted them so much. Fair enough.
Well, the linked report here shows that the wealthiest Americans are now living far better than ever before in terms of real after tax inflation adjusted income.
Maybe they should stop envying the lower tax rates of the poor and middle class and be grateful that the same system that has produced higher living standards for all has benefitted them so much.
Apparently envy is not limited to one particular income group.
@Greg G
> I often read here how low and middle income Americans are living better than ever before. […] Well, the linked report here shows that the wealthiest Americans are now living far better than ever before
Those are the same people. They start out poor, and then they make themselves rich.
> the […] system […] produced higher living standards
People produce their own living standards.
hitssquad,
>—“Those are the same people. They start out poor, and then they make themselves rich.”
Well then the horrible injustice of it all is substantially mitigated. The very people who pay the most now benefitted from this income smoothing when they were younger and needed the money more.
greg-
your argument sounds an awful lot lie saying “you’re rich, so you do not get to complain about being mugged and then vilified for it”.
just because someone is “living better” does not give you a right to take things from them.
as hit said, people produce their own living standards.
also:
i do not think the rich are “envying a tax rate”.
i think they are resenting having to pay for everyone else while at the same time being vilified.
somehow you have misframed not wishing to be mugged with envy by calling it “envying people whose wallet was not stolen”.
morganovich,
Well, if you want to talk about misframings, you might consider that you are being bizarrely dramatic about this. You characterize a system that (even after taxes) still leaves you among the freest and wealthiest people in all of human history as mugging you. I am well within the top 10% of Americans in terms of wealth and income and I’ve been able to tolerate it quite well so far. Sorry you find it so rough.
The idea that the wealthy are vilified in this country is hilarious. You have a surprisingly thin skin. I doubt there has ever been another culture in all of human history that has put a higher value in economic success than America today.
Look at any magazine stand. Flip through the TV channels. Listen to almost any rap song. Try to understand why Donald Trump is considered by many people to be a suitable candidate for President. This country reveres economic success. I’m actually OK with that. I think it has served us reasonably well overall.
Your view here stands reality on its head. America today is the best place in history to be alive and wealthy no matter how far it falls short of your fantasy world.
Greeg
“ You characterize a system that (even after taxes) still leaves you among the freest and wealthiest people in all of human history as mugging you.”
Yes, I think we all agree that most democracies, especially the US, are kinder, gentler muggers than some other systems.
Absolutely true… and if we want to keep it that way, we need to either spread the tax bill or restrict the vote.
If you aren’t a net taxpayer, what do you care what the tax rate is? “Give me more money from HIS pocket!”
That is the problem we are talking about, and it’s a serious problem. It produces people who think, for example, that ObamaCare is a good idea (as they, personally, benefit from it in the short term, no matter how much damage it does to the system as a whole).
“I am well within the top 10% of Americans in terms of wealth and income and I’ve been able to tolerate it quite well so far“….
Did greg g just toss a BS load out here?
Let me ask you something, if you don’t mind having your wealth stolen and then used by incompetents would you then consider gifting extra to the US Treasury…
juandos,
I am content simply to remain a net payer as I long have been.
Perhaps you would like to become poor to enjoy the benefits of this great deal that you think the poor have.
Greg, You are just another totalitarian wannabe inside. You think you can decide how much people should be allowed to make. The arrogance is breathtaking. If you want to pay more there is Treasury program for that. But you don’t I bet. You probably also don’t give much to charity or volunteer your time. Hypocrisy, they name is liberal.
no greg, it is you who is misframing this.
when your money is taken by force, that’s a mugging. the fact that if someone held me at gunpoint and took $500 from me, it would make no difference to my lifestyle is irrelevant.
the fact that, after being mugged, i am still well off is irrelevant to whether or not it’s a mugging. the fact that you are trying to cloud that is risible and deeply disingenuous.
“The idea that the wealthy are vilified in this country is hilarious. You have a surprisingly thin skin. I doubt there has ever been another culture in all of human history that has put a higher value in economic success than America today”
then you know VERY little about world history and culture or even the past in america.
never has so much tax burden fallen upon so few, and never have more people protested them, more leaders (including the president and the congress) inflamed envy and accused the rich of “not paying their fair share” and so rhetoric about greed and redistribution been so rife.
if you cannot see why, when one pays more tax in a year than most americans pay in their whole lives and is then accused of greed and shirking financial obligations to the country because he is an immoral profiteer is annoying, well, then i don’t know what to tell you.
sure, there are many in the US that do revere success, but there are a great many others who see it as something they must tear down, and our leading politicians are among them.
if this great majority that sees the rich as justly rich and does not want to try to take their wealth exists, how is it we get barrak “you did not build that the rich are not paying their fair share” obama?
you are fixating on a couple trees and missing the forest.
just what was OWS?
your line of reasoning here is totally dishonest.
you just keep saying, over and over, you’re still ok so having your money taken is not an issue.
all you misdirection and emotioal bluster amounts to nothing.
it’s just a rehash of “you are rich so you are not allowed to complain about being robbed”.
wasn’t a valid argument the first time, still isn’t now.
morganovich,
Criticism of the wealthy, especially those in finance and banking goes all the way back. Thomas Jefferson and Andrew Jackson were both very hostile to bankers and financiers.
The William Jennings Bryan style of populism was much more virulent than anything seen today. Over 100 years ago, the Presidential election of 1912 featured three Progressives and a Socialist as the top vote getters. And the fourth place Socialist candidate then got a much bigger percentage of the vote than any Libertarian Party candidate has ever gotten.
FDR used much harsher rhetoric against the moneyed interests than anything we hear today. For most of my life we had vastly higher income tax rates on the highest incomes compared today. Capital gains taxes were higher too.
Today the top 1% has more financial net worth than the bottom 90% and that disparity is growing. It takes a special form of historical ignorance to view today as some kind of high water mark for redistribution and hostility to the wealthy.
I am certainly not saying that you are “not allowed to complain.” You are entirely free to complain. And I am entirely free to disregard your complaints. There has never been a time in America when wealth was more celebrated than today. No need for you to panic over a little bit of criticism. Get some perspective.
Cato Younger,
I don’t know you and you don’t know me.
It is particularly hilarious that you think you know that I don’t volunteer my time to charities. I just returned a few minutes ago after spending five hours today volunteering with a local non-profit. I spend 200 to 300 hours a year volunteering with local charities as do many other people with a wide variety of political views.
You will be relieved to know that I do not think that I should “decide how much people should be allowed to make.” But you will probably be disappointed to know that I think the voters in a constitutional democracy, and not you, should decide about taxes. I believe it’s called taxation with representation.
morganovich,
And, by the way, the last time I checked you were not an anarchist. You think we need a government for the things you want it to do. Here’s a news flash for you: We all want government to stop doing the things we don’t want government to do. This doesn’t make you special.
Every government supports itself through taxes and ever tax is a redistribution of wealth that some of the people paying that tax will object to and have to be coerced into paying. So you are mugger too then, by your own definition.
I don’t think you are an “immoral profiteer.” I just think you are wrong and have a particularly distorted view of history, politics and economics and an inability to see the inconsistencies in your own positions.
As always, Greg G attempts to project nonexistent emotional attributes on his neosocialist target, “the rich,” in the process missing the point of the economic evidence entirely.
And well he should, since elimination of tax progressivity would put neosocialist poverty pimps like Greg out of work.
messedupeconoguy,
I suppose this means I am in for another one of your imaginary cyber beatings at gunpoint.
Oh well. Help! Help!
How about instead you shut your yap, rather than making asinine, irrelevant comments, further cementing your idiocy?
Greg,
I often read here how low and middle income Americans are living better than ever before. And that, because of that, they should not envy the higher incomes of the wealthy. Instead they should be grateful that the same system that has produced higher living standards for all has benefitted them so much.
Maybe [the rich] should stop envying the lower tax rates of the poor and middle class and be grateful that the same system that has produced higher living standards for all has benefitted them so much.
Thank you for an excellent example of the logical fallacy of equivocation. The “system” to which you refer in the first quote are different. The “system” for which the relatively low (only by American standards) income earners should be grateful is free market capitalism. The “system” to which you refer in your second progressive taxation.
Ken,
The system to which I refer is all of it – reality as it currently exists.
You can decide what your own references are referring to.
The system to which I refer is all of it – reality as it currently exists.
By this reasoning the rich are getting richer because of the genocide in Rwanda, since it’s part of the “system” as you define it, right?
Ken,
No. Wrong.
I assumed (incorrectly) that you were smart enough to understand that I meant all of the reality that affects prosperity in America – regardless of your opinion of what that effect is. I’m pretty sure that you do agree that progressive taxation affects prosperity in America even though we probably disagree about what the effect is.
I was not referring to the genocide in Rwanda. I’m glad I could clear that up for you.
assumed (incorrectly) that you were smart enough to understand that I meant all of the reality that affects prosperity in America
Are you saying that the Rwandan genocide didn’t? Because of course it did, as Americans did in fact pour resources into that mess. I thought you were smart enough to know that allocation of resources directly affects the prosperity of America. I stand corrected.
I’m pretty sure that you do agree that progressive taxation affects prosperity in America even though we probably disagree about what the effect is.
Of course it does. This is the “system” to which you referred when talking about the rich, when you equivocated, when in the first sentence I quoted, the “system” to which you referred most certainly was not “progressive taxation”.
Thank you for making it explicit that you were indeed talking about progressive taxation in one of the sentences I quoted above, when referring to the “system”.
Greg
“I often read here how low and middle income Americans are living better than ever before. And that, because of that, they should not envy the higher incomes of the wealthy. Instead they should be grateful that the same system that has produced higher living standards for all has benefitted them so much. Fair enough.”
When you say “system”, may I assume you are referring to capitalism and markets? Surely you wouldn’t suggest that the state somehow provides prosperity… would you?
“Well, the linked report here shows that the wealthiest Americans are now living far better than ever before in terms of real after tax inflation adjusted income.”
Perhaps that’s their reward for providing higher standards of living for everyone. The amount of that reward being determined by people freely voting with their dollars, of course.
“Maybe they should stop envying the lower tax rates of the poor and middle class and be grateful that the same system that has produced higher living standards for all has benefitted them so much.”
I’m sure they are, but it’s possible they resent being forced to pay for things for others who haven’t earned those things.
“Apparently envy is not limited to one particular income group.”
That’s for sure. I’m envious of my neighbor’s Aston Martin Venture, but I don’t seriously believe he should be forced to buy one for me.
Ron,
The “system” that I refer to is our mostly capitalist mixed economy combined with our constitutional democracy as it currently exists.
I do indeed think that having a government that enforces contracts and the rule of law is a crucial part of that. Also crucial to our level of prosperity, in my opinion, is having a government that provides for national defense and a social safety net. Without all that, many people would not take the risks they do that make our economy so prosperous.
As you look around the world, you will find that the countries that are democracies are usually the ones that have the best economies. I am aware that you don’t think there is any causation there. We disagree on that.
You are right though, that it is possible for people to resent the fact that they don’t live under a system that leaves them even wealthier than they are, no matter how wealthy they are. There is certainly abundant evidence of that. We do agree on some things.
just for clarity sake, we live in a democratic constitutional republic. Huge difference considering a straight up democracy is mob rule. We would be totally screwed if we were a straight democracy because the rate of handouts being voted in would increase exponentially.
if you can afford an Aston Martin Venture then you shouldn’t be complaining about the few cents you are spending to provide bus service to someone who can’t afford a car at all to get to work.
“Also crucial to our level of prosperity, in my opinion, is having a government that provides for national defense and a social safety net“…
Well OK then greg you do want to pander to the parasites…
…proving that the wealthy can hire mathematical prestidigitators to tell whatever cockamamie story they desire.
The facts are the tax levies on the wealthy are the lowest in decades and a quarter of corporations pay no income tax at all.
duane-
are you a fool or a liar?
tax rates are up. on cap gains, they are WAY up from a decade ago. (24% vs 15)
average tax rates for the top 1% were 30.4% from 1979-2011.
the CBO estimates it was 33.3% for 2013. unlike pretty much every other group, their tax rate rose. and that’s before netting out transfers.
the % of americans paying no income tax rose from 18% in the 80’s to 47% today.
so, nice try, but you are flat out wrong.
your corporations comment is an even bigger howler.
many corporations are not profitable. thus, they pay no income tax. you need income to pay income tax.
can you possibly think it would be otherwise?
it takes time for a start up to become profitable.
congratulations, you have discovered that business is hard.
The situation on the ground for small business owners is even much worse.
You have 65k in cash flow on 100k in “profit”. Add fed, state, medicare taxes and you are at 50% or 50k of your cash flow. You are effectively in a 85% tax bracket. That is before property tax, gas tax …
This why small businesses are dying. This is why we refuse to add jobs and take risk.
And of the lousy 15% that is left I have to pay myself, invest in the business, and set money aside for employee raises.
I cannot express in civil terms how angry I am about this.
Speaking of cockamamie. How about the canard that corporations can actually pay taxes in the first place. They may be the remitters, but the taxes are actually paid by the company’s customers, employees or owners (usually in that order).
Sam
“Speaking of cockamamie. How about the canard that corporations can actually pay taxes in the first place. They may be the remitters, but the taxes are actually paid by the company’s customers, employees or owners (usually in that order).”
Exactly! Ultimately consumers pays all costs.
The rich have never paid as high a percentage, of the total tax burden, as they currently do. The only sophistry occurring, is the torturing of statistics, to imply they aren’t paying their fair share. Speaking of fair share, how much more do you believe that they ought to pay? Is there a percentage, or is your rote answer- the current percentage+more?
duane says: “The facts are the tax levies on the wealthy are the lowest in decades and a quarter of corporations pay no income tax at all.“…
Well duane why should the person making $250K/year pay even one more penny in income taxes than someone making $25K/year?
Because they can.
On a general note, we need to remember that this is a snapshot in time. This is especially important because the text states that 2/3 of the government transfers are Social Security & Medicare payments. At the extreme, one can postulate a spendthrift couple in the upper quintile who, during their working years, paid taxes, saved nothing and, according to the article, should be thought of as supporting the entire government. They retire to the middle quintile on social security alone (assuming they have maximized their social security), and now have significant transfer payments but pay little in taxes. Given the nature of the transfer payments being related specifically to their earlier working years, I do not think it would be correct to draw the conclusion that they were overtaxed then and undertaxed now. It would be much more interesting to see a life cycle study done to see how this all comes out, if one is to include Social Security and Medicare in transfer payments.
There are a few issues with the details of the report that the author may wish to correct for if possible:
1) Labor income includes health insurance premiums for employees – which are deductible from corporate taxes. The appendix note on the corporate tax burden assigned suggests that the highest quintile is going to be assigned the bulk of the corporate tax assessment (75% is accorded to owners of capital) while the remaining corporate tax burden (25%) is allocated proportional to labor income. Given health insurance premiums do not scale with income, the effect of the lower quintile tax deductions may be subsidizing the corporate tax burden being allocated to the higher quintiles, whereas if employer health insurance was not tax deductible the tax burden would then fall directly along the quintiles in proportion and raise taxes for the lower quintiles vis a vis the higher ones (as well as raise overall taxes, of course).
2) The CBO report text states the federal unemployment insurance tax paid by the employer is included as income. This makes sense only if it was also included in taxes, but it seems not to be. It should be treated just as employer FICA taxes are reported – both in the income section and then again in the tax section.
3) Income includes “amounts allocated by employees to 401(k) plans”. However it also states that “Income includes taxable withdrawals from defined contribution plans, such as 401(k)s”. This means that the income going into the 401K is counted as income, and then when it comes back out it is being counted as income again. Since it is only taxed on the way out, it should likely be neglected on the way in. Proportionately, I would guess this raising the income of the 2, 3rd & 4th quintiles vs the 1st and 5th.
brk-
i think you make a valid and useful point about people shifting quintiles over time. of course, that same argument must then be applied to income. if people are all getting a turn earning big and paying in, then that would seem to explode the argument about wealth inequality that has been so popular among progressives of late.
one cannot have it both ways.
either people are taking turns paying in and taking out and therefore wealth inequality is not an issue because, even if the quintiles have widened, people are moving among them, OR if there is widening inequality because people are not moving among quintiles, then the tax code is grossly unfair with the burden falling entirely upon just a few.
fwiw, there is a great deal of supporting evidence that this is so.
contrary to popular belief, the US actually has the most progressive tax system in the OECD.
http://mjperry.blogspot.com/2011/03/us-has-most-progressive-tax-system-for.html
the percentage of americans paying no income tax has soared from 18% in the 80% to the high 40’s now.
however people are moving around, this seems like unequivocal proof that far fewer people are paying in at any given moment and overall as well.
also:
i do not see how the fact that insurance is tax deductible is relevant. it does not subsidize corporations, it subsidizes everyone. if health premiums were counted as income, then everyone would have to pay taxes on them. thus, it’s a huge tax break for the bottom quintile because this form of compensation is not counted as income for them whereas if they were paid in cash and then bought their own insurance, they would have to do it with after tax dollars. when one nets this all out, it’s likely in favor of the lower quintiles, not the upper.
regarding point 3, to not count 401k contributions as income seems like a bad idea. it IS income. you got paid the money, it made you richer, and you get to keep it. if you put that same $1000 in a bank or a brokerage account, you’d call it income. why is not income just because it was put in a tax deferred account?
you HAVE to call it income on the way in. they are using the taxable part on the way out because that covers appreciation, which is also income.
re point 2: i believe payment for unemployment insurance is a part of corporate tax. why do you think it is being excluded?
Thanks for the very detailed response, morganovich.
I guess maybe I was not addressing my comment so much to the question at hand, which seems to be: “Do the rich pay their fair share?” Truth is I don’t think there is an answer to that, because “fair” is something that is an opinion. One person’s opinion of fair may be that everyone should pay an equal amount of tax as everyone gets the same amount of services, sort of a poll tax. Someone else might say that fair is everyone should pay according to his her or her ability to pay. It is something that the nation as whole must make a collective decision on: what is the proper way to pay for collective needs (and what are those collective needs).
I simply wanted to point out that I didn’t think the using the snapshot to support the argument that the wealthy were paying everyone’s share was valid, because of income mobility and the fact that some of the transfer payments were a form of delayed income and collective insurance. If I were do the graph by age and not income level, someone looking at the snapshot would say that the young/middle aged people are all paying way more than their fair share because the old folks have these big transfer payments coming to them and are paying far less in taxes. But since we know that the young & middle aged today are going to be the old of tomorrow, it doesn’t really support a conclusion that the young & middle aged are paying far too much now, or that the old should be paying more now. Income mobility may not be quite as inevitable as age mobility (and you might even be able to go back and forth between quintiles, unlike age where you get to go only one direction), but I think you have to look at it that way and not as a snapshot. If someone had said “this shows that the rich are not paying their fair share”, I would have had said the same thing – I think you need to examine it as a life cycle study.
The other points are minor and just a search for accuracy.
Unemployment insurance is likely a very tiny factor but while it is actually mentioned in the CBO paper as being part of income and part of government transfers it is not specified that it is part of corporate taxes (or any taxes). At least I can’t find it – maybe you can point it out? If it is part of corporate taxes, then because UI is only on the 1st 7K in wages, the income is being attributed every quintile pretty much equally and transfers are being made very likely mostly to the lower quintiles, but the taxes are being attributed mostly to the upper quintile (see page 14 & 15 of the CBO report on allocation of corporate taxes). More properly the taxes should be treated as the employer FICA contributions are – income in the quintile and then tax in the same quintile.
Health insurance deductibility issues flow from the same treatment of corporate taxation on page 14 & 15. If we assume that every employee covered pays roughly the same premium, then ever quintile gets the same roughly the same health insurance related income. Those payments are all tax deductible to the corporations, thus they reduce the overall corporate tax payments. These tax payments are allocated as described, about 78% to the top quintile, so thus the health insurance income is being attributed to all the quintiles but the tax effect is lowering the taxes paid mostly by the top quintile.
I would agree that what should be done on 401K employee contributions is that they are income in the year they are allocated to the 401K, and then the amount earned in the 401K above the income initially allocated is income when being distributed. However, the CBO paper (page 36 – make sure to read footnote 6) reads that the initial allocation is counted as income and then the entire amount withdrawn (including the initial allocation) is also then counted as income. (Remember 401K’s initial allocations are tax deductible, so taxable income when withdrawn is the entire amount) This double counts the initial allocations, unless they have made the error in the footnote wording and not the calculation.
brk-
“It is something that the nation as whole must make a collective decision on: what is the proper way to pay for collective needs (and what are those collective needs).”
well, this gets a great deal trickier than it sounds on the surface. collective decisions are coercive. 70% decide the “collective interest” is that the other 30% pay and then they force them to do it even if they disagree.
ideas of “fairness” get demolished by public choice theory.
redistributionist democracies are not even trying to be “fair” they are hosting what menken referred to as “an advance auction on goods to be stolen later”.
rights are fair. democracy is nothing of the sort.
the “nation as a whole” cannot make a collective decision. it can just have a majority gang up on a minority.
markets serve the individual, politics serve the majority. not the same thing at all.
to make who pays for what more “fair” i think the way we pay for things needs to be reassessed. inasmuch as possible, we need to move to usage taxes (or as close as we can to them).
pay for roads with gasoline or mileage taxes or tolls.
pay for the FAA with airline tickets.
make social security individual accounts.
make medicare/aid into hsa’s.
using income based tax to fund pools for care and pension is about to fail catastrophically. they are set up like ponzi schemes.
nearly all government services could have usage based even if it’s just paying property tax to get fire department coverage.
anything that cannot be paid with a use tax should have a VERY hard look taken at it as it means (with a few exceptions) that it is not actually money well spent. if they users do not want it enough to pay for it, then it’s not a good use of money.
farm subsidies? gone along with all other subsidies.
we likely need a national tax to pay for a military (though a far smaller one would be fine) and for a court system.
hell, one could even plausibly fund a court system by charging participants the court costs. in a civil trial, loser pays (added benefit of pushing people to settle). criminal may have to be paid for by the state though. conceivably, it might be findable through collection of fines, but this starts to feel a bit like a system of privateers/civil asset forfeiture which has some deeply perverse incentives.
such taxes could be quite small relative to what we pay now and could be a great deal fairer.
if you and i buy a burger and both pay $5.99 for the same burger, we call that fair.
why is, say, paying for an army to protect us any different?
i suppose one could pay for an army with a national real estate tax. levy it evenly on all property. the rich would pay more, but they also have more stuff that is being defended.
that actually seems like the fair way to do it. it would also stop penalizing productivity. taxes on income are taxes on growth and innovation.
also:
i think you are missing the point on health insurance deductions.
if, as you assume, everyone gets similar insurance or a similar value (cost) then we have to add that to their compensation.
it’s not cash, but it is a big lump of untaxed compensation.
let’s say it costs $6000.
it would be 29% of the bottom quintile’s income and would be untaxed.
it’s a huge change for them.
it would be 2% of the top qunitile’s income and barely even register.
you are only looking at half the issue.
corporations see this insurance as a (deductible) cost, but those who get it see it as income. you are looking only at the cost side and ignoring the income.
also note: corporations get to deduct costs before determining taxable income. healthcare is, by no means, unusual. it’s not some special dispensation to corporations.
they also get to deduct your salary, the cost of your office, the cost of your business travel, and pretty much everything they spend to run the business before getting to the taxable income line.
healthcare is treated JUST like everything else. corporations are getting no special break at all.
who IS getting a special break are employees.
your employer deducts your salary from profits. they pay you, and you pay tax on it as income.
your employer does the same things with healthcare, but, in this case, you DO NOT have to pay tax on it.
thus, the idea that it is corporations getting a tax break is wrong. it is individuals who are getting the tax break. it is individuals who get income in the form of valuable health insurance and do not have to pay taxes on it.
you are mistaking a shifting of income from the top tax quintile to the lower ones for a shifting of tax burden.
again, you are looking at only half the story. if the top quintile did not pay for health insurance, they might pay more tax, but they would have more income as well. you are leaving that out.
if they paid it as cash, the bottom quintile would pay more tax, but, because it is healthcare, they do not have to.
thus, this has a far bigger effect on the bottom quintile in terms of reducing tax relative to income than it has at the top.
you seem to be leaving out the key salients here.
Why not have a flat tax of 10%, this only makes sense, (which is exactly why it won’t happen)
Your table does not include SS and other such payroll taxes yet it does include the benefits. The entire table is a pos.
actually, yes it does. it includes all payroll taxes.
it says so in the first paragraph.
“and c) federal taxes paid by households (including income, payroll, corporate, and excise taxes).
it appears theta the POS here is your reading comprehension.
nice try with the zero content drive by trolling, but all you have done is make yourself look like a fool.
What happens to our economy when people who have superior talent at creating wealth feel that they no longer have enough to gain by creating that next dollar of new wealth?
The left, who love to scold the rest of us on the topic of “sustainability”, have seduced the country into an economic structure that itself is clearly not sustainable. Socialism never ends well. Often it involves the shedding of blood.
The question hiding in this comment is what is the motivator of such folks is it only money as is clearly the case in investment banking or something else? (All be it even in that case it might be the thrill of the chase). If you are motivated to do great things, then money is a secondary motivator, not the primary motivator. I recall some corporate training where it has held that only lack of money is a negative motivator, not more money is a motivator.
We see other examples where other than money is a motivator, such as folks who refuse to sell cakes to same sex marriage folks, if money were the primary motivator then they would following the old story of the French toilet tax where the King was given some money from the tax and asked if it stinks.
It’s not about money. It’s about the effort required to get each additional dollar past your current income. Here’s an example- if you currently make $400/week, working 40 hours, but could make $450 working 45 hours, the additional income might be worth the extra 5 hours. If you have to work 50 hours, it’s going to look far less attractive. If you have to work 60 hours, the likelihood that you’ll be willing to work 50% more, to earn an additional $50, is zero. Businesses/entrepreneurs are faced with similar dilemmas. if each extra dollar earned comes at an unacceptably high cost, they’re not going to put in the extra effort (and certainly not, to give it away, through government coercion.)
Why do we care. Can’t we just issue bonds indefinitely to cover all our needs?
No.
To clarify it doesn’t matter how much money people have, if there aren’t enough resources to “cover all our needs”. Money IS NOT wealth. If tomorrow the amount of money in everyone’s bank account doubled, this does NOTHING to increase the amount of food, gas, or anything else.
Deguello,
Why bother with issuing bonds, why not just print money to pay for everything?
It has worked out well for all the other countries that printed their currency into oblivion, why shouldn’t the US do the same (sarc).
@Givemefreedom
The choice of seigniorage rates isn’t limited to zero and infinity. A constant 10% annual addition to the money supply might not be too harmful.
America has been doing it for years.
they print money then issue bonds for the money
the bonds are bought by the banks
the banks then loan money to the gov’t backed by the bonds they bought
then the gov’t taxes the citizens to pay for the bonds
then they print more money
then they raise the debt ceiling
and the cycle repeats
the system is broken and cant be fixed until the citizens of this once great nation rise up and say ENOUGH
until the politicians are forced to look in the mirror and actually see that what they are doing to the people is wrong, nothing will ever change
yet we still vote for the same crooked politicians and keep them in office hoping that this term will be the one where they fix it like they promised
buy did u know that they don’t pay taxes or pay for their healthcare?
did u know they receive a paycheck every year for the rest of their life after serving just 1 term?
did u think this is what our founding fathers had in mind when they founded our once great nation?
definitely not
and they voted in these changes themselves without the public knowing, the American people did not give them these things they took it
and then they ask us to keep them in office so they can help out their rich banking buddies make billions while the rest of us suffer to pay for the money they printed
does printing money still sound like a good idea?
The highest earning quintile will pay most of the $430 billion interest bill on the federal debt for 2014.
By 2020 the highest earners will be paying most of the $ 800 billion interest payment due.
I need a better description and breakdown of “government transfers”.
You can go the CBO study, which I link to in the post and find these descriptions:
1. Government transfers are cash payments and in-kind benefits from social insurance and other
government assistance programs. Those transfers include payments and benefits from federal,
state, and local governments
2. Government transfers include benefits from programs such as Social Security, Medicare,
and unemployment insurance.
No one should complain about high tax rates on high income quintiles because the high income that causes the high tax rate is mobile, so, to cancel out “unfairness,” most people will spend time in the lower income quintiles where the tax rates are lower. Income distributions and income tax tax distributions are the same thing, right?
I’m calling bovine excrement.I’m in that 4th quintile and the only “transfer payment” I’ve received in over 15 years is a slap on the rear when uncle Sam bends me over.No one I’m employed with gets better either. If I do need some of MY TAX MONEY back,they just cut unemployment benefits in my state to max at less than 1/3 of my regular income.In other words,if I COULDN’T FIND A JOB IMMEDIATELY,I’d lose everything I’ve managed to keep thus far.I pay OVER 50% of my check every week,property taxes on land the bank owns,tax on my food that farmer already paid,and a tax on everything I spend a dime on.Add it up.I pay WELL over 60% of what I earn and don’t even have enough deductions to qualify for anything more than the same standard deduction that the subsidized renter eating off EBT gets.If I’m getting 95% return on my tax dollar 100% would rip me open enough to forever eliminate the need to sit down once a day!I would just dribble everywhere I walked.POLITICS.SPIT!Somebody is skewing data.LYING.And AEI is lying by presenting this as fact/
Does the study not differentiate between private sector household income and public sector household income? Is public sector income already a transfer payment? Can one pay income tax if one is paid with taxes? Could it be far worse than this study shows?
Interesting point, but I would argue that most (although at a somewhat lower efficiency) public sector economic activity contributes to the economy (performing functions that lead to products that people would use if they had to pay, such as schools, police protection, etc. — especially since in many instances these are paid for by consumers (private school, security guards, etc). The largest exception, though, would be military spending as this has no real public sector application. In short, the military is just another useless expensive social welfare program.
Just a suggestion: To scale the share of market income as a share of taxes paid, a chart is needed that shows the share of market income for each quintile next to the share of taxes paid for each quintile. One reason the taxes are not evenly distributed is because the incomes are not evenly distributed.
A few pieces of this study jump out. Transfers are calculated using all transfers including state and local sources, yet tax burden is only calculated based on Federal taxes paid. So, the numbers being used are already irrelevant, since most states that have income taxes don’t have a progressive structure, and clearly, they’re not including sales taxes in the calculations.
Unemployment, while partially regulated by federal law, is paid by the state governments out of state treasuries. Also, remember that in 2011, the unemployment rate was 8.9%. Today, it is 5.9%. That is going to reduce the amount of transfers received by the second and middle quintiles (for the most part) and theoretically increase the amount they are paying in taxes (assuming they were able to find employment that pays more than unemployment which, in this economy, is no guarantee).
I’d love to see how these numbers have changed over the last three years. The only thing I know for certain is that the gross and net income of the top quintile have significantly increased.
According to shadow stats, the real unemployment rate is 20% plus. Our government is squeing the data.
http://www.shadowstats.com/
That number is HIGHLY manipulated. If you look at the workforce participation rate, you will see that ENORMOUS chunks of people are not working, but they aren’t included in the unemployment rate, either.
If you held workforce participation rate steady and calculated employment based on that, we have actually been losing ground (as the population has been growing faster than the number of jobs) since The Won was elected.
People aren’t quintiles. A decent % of people spend their early years and later years in a lower quintile, and they move to a higher quintile in their peak earning years. Also if the “rich” (or those at their peak earning potential) are paying more in taxes, it’s because they’re taking away a larger share of national income.
A better analysis would look at % of disposable income captured as taxes, and include state sales taxes (which are quite regressive). Also factor in that wealthy people live longer, and will thus capture more social security/Medicare.
Quintiles?? Really? How about the Distribution of that fifth quintile? This study is irrelevant.
A worthwhile article. Now – it would be appropriate for a Greek God to read it, and then smite American society and its government so that nobody makes more than Pres. Obama’s mystical $250,000/year figure. After-all, that is what Prog.-Liberals tells us repeatedly that they want, a more equal society in which nobody is so rich. – Government would soon find a big shortfall in its collected tax revenue.
@David O.
> that nobody makes more than Pres. Obama’s mystical $250,000/year figure […] is what Prog.-Liberals tells us repeatedly that they want
Really? From Google: “Obamas report $5.5 million in income on 2009 tax return”
$250,000 is the number Obama used for where “rich” started, at least for a good while at the beginning. Haven’t heard him use it recently, though.
This conclusion really shouldn’t come as a surprise to anyone. This is exactly how a progressive tax system is supposed to work.
Shouldn’t we, as a society, be trying to get people in the lowest quintiles moved into the upper ones? Isn’t that what the “war on poverty” was all about? After spending trillions on this “war”, we haven’t made much progress in getting people moved out of the poor status. What we’ve done is moved the bar as to what it means to be poor.
I am in the 5% and I don’t pay taxes to get government services. I don’t begrudge others who use government services. I don’t want fraud. I do want a peaceful society, a powerful military, response to disasters, and a society where all have a fair shot at success. Taxing the poor and rich equally is not going to get what I want.
“I am in the 5% and I don’t pay taxes to get government services. I don’t begrudge others who use government services“…
You’re a California Democrat, eh whitton?
Most people are not suggesting that the rich and poor be taxed EQUALLY. The discussion is about when is enough enough? I believe that everyone should pay SOMETHING and there are far too many people paying NOTHING and living off the backs of those better off. Can you imagine how much better off the country would be if the ‘rich’ paid what they are paying now, but all those people paying NOTHING paid something – even if it is just a small amount.
Question about the household income amounts listed. Are they ceilings, floors or averages?
I.e. does the lowest quintile start at $15,500, is that the average? or is that the ceiling?
Those are averages, and I’ve updated the table to clarify that. In the CBO report their table with those data is labeled “Average Household Income, Transfers, and Taxes, by Before-Tax Income Group, 2011.”
Here’s what’s fair: “From each according to his ability, to each according to his needs.”
Using that logic, the people with the greatest need are those who are lazy, weak, and/or stupid. Therefore they should be the 1% in income and taxed at the lowest rate.
Well, that’s all and good. However, there are statistics and then there are dadgum statistics.
The “rich” pay for every body because they own 87% of the wealth in the USA and more than likely considerably more offshore. And, the inequality has only increased in the since Tarp.
http://en.wikipedia.org/wiki/Wealth_in_the_United_States
While the rest of us folks, do the fighting and dying to protect their wealth and our meager; yet sufficient wealth.
I aint’ griping, I volunteered, showed up to do some fighting, lucked out on the dying part, and got to see the world in a different way than the majority of the rich.
The USA has issues.
However, it’s still the best of all the rest and I like it.
God Bless America and curse all statistical spinners.
Even if we grant you the 87% statistic, they still pay an even higher percentage of the taxes than that.
“I aint’ griping” haha, your entire comment should read “gripe gripe gripe, gripe and gripe”.
You volunteered? Did you get paid? Since when do volunteers get paid?
The problem is the middle quintiles do not pay their fair share. Both parties have pandered to them for their votes to the point they do not pay for the spending to continue the success of America. Economic growth requires investment in education, infrastructure, high risk research, technology and a security system to protect all of us. One can argue about how much of each should we do but currently we are not doing a sufficient level in many of these areas.
how do u figure that the middle doesn’t pay?
I pay 13k in taxes a year then pay more when uncle sam comes calling in april.
I get no money back from the govt.
then on top of that I pay taxes every time I go to the grocery store or buy gas or go out to eat etc.
I know what pay is a drop in the bucket to u but to say I pay nothing based on an article manipulated by the rich to say what they want is ludicrous
The government transfers part of the equation is flawed. As a working individual I and my employers has contributed to Social Security and Medicare for over 40 years. They are paying me my own money back and if I make more than Xxx.xx amount of dollars I will have to to pay federal income tax on the social security even though it was taxed as income when it was taken out for those years.
Ah, but they aren’t paying you back your own money. If it was your money, and you have invested it at anything close to market-level returns, you’d have much, much, MUCH MUCH *MUCH* more.
SS and Medicare are amazingly inefficient, and as “pay as you go” systems, they aren’t creating accounts that pay you from what you put in, the money goes into the general fund (officially, SS “invensts” in T-bills, which is to say, they put the money in the general fund and get some paltry, theoretical return, eventually. Maybe).
SS is just a tax, like any other, with the added benefit that the people like it, because they over-value the supposed product they get at the end. If you read the writings of the people who implemented it, they clearly believed exactly that, and they copied it from existing systems in other countries, implemented for exactly that reason.
The bill comes due a couple of generations later (maybe more, if you’re lucky, as we have been). Those who implemented it and benefited from it are all dead. Apparently, they didn’t really care about their descendants.
I’m sorry nobody ever told you this, but that SS check you get isn’t your money. Congress already spent your money. What you’re getting now is a gift from the current workers of America, and the only reason you’re getting as much as you do is because congress is afraid of you.
Actually, the money in your SS check comes from the paychecks of people who are currently in the workforce.
I believe Jonathan Gruber’s father was in charge of selling social security as simply your own retirement savings account.
In what form do these transfer payments come for the 4th quintile. I make less than the market average and pay HELLA more than 0.7% in federal taxes.
Oh no, those poor, poor, POOR millionaires!!!
Won’t someone think of their excruciating suffering????
So what some people here are saying is this is OK because the poor people (everyone in the bottom 3 quintiles) need this.
There is a vast subculture in America that is either too lazy to work or outright scamming the system (false disability claims, welfare fraud, etc.). For 60% of the people to be net receivers of government assistance is just nuts.
Yes, 60% is “just nuts”. However some of it is “just normal”. When I stop working and start collecting Social Security I will drop from the top quintile to the third or fourth. I’ll be a net collector of government benefits, but I’ll be the same person.
This utterly indefensible mess of a tax code (looting code) has an obvious poison pill: it’s obviously not sustainable. John Galt will see to that.
Wages should be set by the value you add, not the lifestyle you wish to lead.
Why doesn’t anybody ever stop to ask what’s wrong with a system that allows oligarchs to be in the position to pay 80% of the tax bill??
The top 85 families have as much money as the bottom 3.5 billion.
There’s something wrong with that system. And the only sense in which it’s about wealth distribution, is in regard to the mega-wealthy teaming up with government to create so many regulations that the “selfish poor” can never go into business.
We’re living in an evil, dystopian nightmare.
The problem is that these are average dollar amounts in each quintile. Some people (in each quintile) may be paying a lot of money in taxes, while others are receiving a lot of benefits. Otherwise, (since I am paying money, but receiving nothing) I must automatically be int the highest quintile.
A most interesting discussion. Something not covered that I fear may be a most important point. When 60% are net takers and a majority of those stop trying to improve their lives except through political ends this system is doomed to fail. Meanwhile, is it fair to disincentize those at the bottom by creating such a comfortable safety net that they never see the need to make the changes necessarily to produce their own standard of living? I’m sure many will disagree, but these transfers payments given without any incentive for self-improvement or increased productivity are tantamount to stealing one’s feeling of self worth, and long term are downright evil.
Agreed.
Why are there dollar signs on the second chart? If it is a ratio of Dollars to Dollars, it should be unitless. This is confusing when trying to draw conclusions, especially for the 4th quintile, which is very near unity (ratio of what is received vs. what is paid is almost unity).
Why are quintiles used? I would like to see this broken down by very 1%. Actually, why break it down by % at all. Make it a continuous function. Perhaps the details at the high end could be brought out more vividly by making the x-axis a logarithmic scale.
take it up with the CBO.
they do not provide raw data by percentile.
I see this article as misleading. In fact, the “rich” pay no more taxes than you and I. How so?
Let’s consider Mark Fields, the CEO of Ford Motor Company. We will raise his taxes 1 million dollars because, well, income inequality, global warming, RACISM!, etc.
Mr. Fields will decry this tax but a curious thing happens. All the prices of Ford automobiles, parts and services increase. Come April, Mr Fields pays the 1 million dollar tax.
Where did he get this money? He got it from all of us. Who really paid this tax? You & I did. All Mr. Fields has done is collect the money for the government. Rather than paying the tax, he has become a defacto tax collector.
On this basis, I argue that the “Progressive Income Tax” is a so much smoke and mirrors. We actually have a flat tax system. My guess is that the rate is somewhere over 40%.
On one hand, this seems an eminently practical method of collecting taxes without arousing undue ire. The problem is that the high value tax collectors can exert undue influence on the government. In essence, our government depends on these tax collectors and must keep them happy.
jay-
you are missing a number of key salients and demonstrating that you do not understand economics.
if ford could simply raise prices to increase profits, they would have already done it.
but they cannot.
the reason for this is that when they increase the price, fewer cars are sold. some number of people at the margin, decide it costs too much and do not buy a new car.
or, because his price is higher, they buy a honda instead.
only in a world where increasing price does not affect the number of units sold would the strange fairy tale you just spun hold.
in reality, nothing of the sort happens.
Hi Morganovich,
You are correct that my example was simplified. The actual mechanism is much more complex but, just because the sticker price didn’t go up, does not mean you have not paid for it in some fashion. I’ve worked in manufacturing for 40 years. Trust me. You’re paying for it.
My point is that business & business owners are able to pass along their taxation and regulatory costs concealed inside the price of the good or service to their customers. The money to pay these taxes and fund the regulatory efforts can only come from their customers. Even if the government were to ostensibly “pay” the cost of complying with the latest EPA regulation, the government has to take the money from tax-payers who are the customers of the business. If a business cannot pass these taxes and costs to their customers, it either ceases operation or leaves for friendlier locations; mostly the latter.
Because of this pass through phenomena, everything we buy contains some portion of the taxes and regulatory costs paid by the seller. That can of pop you bought at the convenience store contains some portion of the taxes paid by Alcoa, Coca Cola, Ford, Marathon Oil, Speedee Mart, etc. It may seem inconsequential but everything we buy contains these hidden taxes.
That can of pop costs the same regardless of your income. A poor person pays exactly the same amount of hidden taxes as a rich person. I don’t know how it looks to you but my conclusion is that the purchasers of these goods and services are paying a flat tax.
Wow, seems to me these comments demonstrate the govt is winning. So many of us are focused on who pays their fare share vs who doesn’t we lose sight that we are “collectively” getting less for the money paid . . . regardless of who is paying. I’m in line with Byron’s comment on 11/17/14. Govt continues to grow unfettered as our infrastructure and services continue to dwindle. IMHO somehow we need to get our arms around that.
Who cares about fairness – lets fleece these rich bastards. They *convinced* our legislatures to open the borders to free trade – allowing the middle class to be eliminated in a few short decades. So much competition for so few jobs the rich would pay us pennies if they weren’t stopped by that pesky minimum wage.
Anyone who thinks poor people like or want to be poor, has never met a genuinely poor person. Most are poorbecause they were born into poverty. Others are poor because they are sick and cannot provide for themselves or their families. Yes, a fraction of folks are gaming the system, but that just needs to be fixed by all of the smart rich people who are complaining about it. For those of you complaining about having to kick in a few dollars because a family had too many kids, what would you like to see? Those children suffer, kicked literally to the curb? Where is your compassion? Where is your humanity? What a bunch of pathetic rich crybabies. “There but for the Grace of God, go I.” Try to remember that they next time you are crying your way to the bank.
Oh and by the way, these tables are skewed. Anytime you use dollars to show the difference in taxes, instead of percentages, its a magic trick. Remember that it takes a family of 4 about 60k a year just to make end meet. So everyone pays that. Anything over that is gravy, and should be taxed progressively more. All the way to 90-95%, just like back in the 1950s. Nobody whined then. You know wha has changed? GREED.
if the taxes are %based then the rich pay much less then the middle and the lower quintiles.
while the rich may pay 11% in taxes to the gov’t before figuring in all the money they get to write off of their returns due to “charitable contributions” aka tax shelters the middle class pays 22-25% and doesn’t receive the “write offs” due to the fact that they don’t donate as much because they don’t have as much.
meanwhile the lowest quintile is made up of freeloaders and youth who have not reached their earning potential yet.
the country was founded on the backs of the working class ad the rich make sure we stay there by financing politicians who serve their agendas.
politicians are not here to serve the masses they are here to make sure only a select few benefit from the decisions they make and in the process they are slowly rotting our country from the inside while they amass their own pot of gold for the end of their rainbow.
when this style of economy fails and it is inevitable that it does it will set our already failing country back so far there will be no way to recover
it is up to every citizen to change the way we think and to change the way our gov’t operates
WHAT WE HAVE NOW IS AN ABOMINATION OUR FOREFATHERS NEVER INTENDED.
Does the chart for lower income earnings include welfare recepts in the lower quintile, as earned income? You included all other types of income. This could under mind the total transfer from the higher quintile by a small %.
How will the Obama “care package”, carry weight when the top 3 quintile or top 3 earning brackets, lose the cap. gains tax benifits?
American Enterprise Institute
that sets off red flags, bells and whistles right away….
Those charts contain information that is absolutely not true and heavily slanted
to prove the author’s point in a fallacious manner….
It is absolutely not true that no one pays taxes except the top percentage of the population.
Did you visit Colorado and load up on some legal marijuana before you put this faulty thesis together?!..
And, saying people get social security, disability and other payments back from what they spent a lifetime paying into the government is just intellectually dishonest.
Right wingers are constantly calling insurance benefits paid for over long periods of time by middle class Americans “welfare”…Complete baloney…
Have seen many studies that show many in the top 10% pay little or no taxes and more than 50% of highly profitable corporations pay zero taxes and get huge rebates from the government….
You conveniently left out huge amounts of revenue transfers from government to large corporations and the top 10%..
Therefore, this entire analysis is completely bogus and not worth the
blog it is printed on…
I’m in the top 0.1% by wealth and income. The problem highlighted by this article is not that I do or don’t pay my fair share of tax. The problem is that I am paid too much. The average Fortune 100 company now pays 10% of its EBIT to its top 5 employees. That is presented as performance related but it’s not. Studies show that there is no correlation between pay of the top execs and company performance. The pay of the top 20% of people simply reflects their power to grab more than they contribute in economic value. To preserve a stable society, in which the people who are underpaid can live a tolerable (though not comfortable life) the government has to step in and take money away from the over rewarded to pay “benefits”. This is a ridiculously expensive and distort ice way to correct a problem that should be addressed at source. Shareholders need to exercise their interests and stop executive over pay and increase rewards for lower paid jobs. The current system is a market failure that threatens the whole social economic system.
Just curious. After you realized that you were paid too much and returned much of your salary to the (understandably uninformed) shareholders, what did they say?
The problem is that I am paid too much.
What does this even mean? If people voluntarily pay you your salary, then you are worth it to the buyers. That you wouldn’t pay you what you earn for the labor/services you provide doesn’t mean anything, as it’s obvious other people will.
Ken,
I would actually make the case that it’s *government* failure. A corporation is a legal creature of government, and the creation of perverse incentives due to the limited liability and mythical belief in the idea that shareholders are “represented” by the board. High pay is simply a function of the fact that most of the assets are owned by either senior leadership or “funds” whose leadership is in bed with company leadership.
Eliminate shareholder limited liability and you eliminate a lot of perverse incentives.
Having children is not the discussion its how do we educate those who are having them not to put them selves in a predicament that requires our government and the rest of us to bail them out of. We are all a big village and bare the responsibility of taking care of one another. You can argue who does what but in the end it needs to work for everyone. Their is to much inner bickering when a decisions are made to fix the problem. Those who oppose it never have ideas to fix it! Those who do have ideas to fix it and speak up get crucified by both parties because that’s what we do here in America we debate and make it last longer then it should! We need more simplicity and less politics with quicker results to follow.
We are all a big village and bare the responsibility of taking care of one another.
False.
You can argue who does what but in the end it needs to work for everyone.
Fantasy. There is literally NO POLICY that will “work for everyone”.
Their is to much inner bickering when a decisions are made to fix the problem.
Because arrogant people like you butt into other people’s lives and force them to act as you want, regardless of what they want. Tell you want, mind your business and I’ll mind mine. You don’t get to tell me how I live my life and I don’t get to tell you how to live yours. Deal?
Those who oppose it never have ideas to fix it!
Lie of the universe. The “fix” is obvious. You clearly don’t know enough about other people’s lives, so stop acting as if you do. Freedom and liberty, i.e., people running their own lives as they see fit free from busybodies like you, are far better equipped to “fix” the problems in their own lives.
Those who do have ideas to fix it and speak up get crucified by both parties because that’s what we do here in America we debate and make it last longer then it should!
The debate lasts so long because morons like you think you have the answer for everyone. You think of how you want YOUR life and think everyone else wants the same thing, then like an maniacal dictator, you erect a state apparatus to coerce others into your “utopia”, all the while dehumanizing people and destroying people’s lives.
Yes, it is absolutely true of INCOME distribution with the highest quintile paying the most net and paying almost everyone else’s welfare money. This is probably true of most other “developed” countries with maybe the exception of such libertarian outliers such as Singapore or Switzerland. What is different though is WEALTH distribution. Because once you are wealthy you can then rearrange your income streams to shelter them from these predatory taxes. Do I argue we should tax the wealthy (more)? No. First it won’t work and has never worked. It just drives more capital out of the country. Rather make everyone a little wealthy at least. But that model has broken down lately. Where people would maybe pay off a mortgage when retirement came around, the new generation are now lucky if they manage to pay back their student loans by the time they retire, often because they will have a speckled job history on top of all the other worries.
What a terrible analysis. It’s flawed from the start. Government transfers consist of local, state, and federal sources. You compare that to Federal taxes paid.
Why not include state and local taxes paid so you’re comparing apples to apples?
Oh..that wouldn’t give folks the impression that the rich pay for the poor and middle class to survive.
“Lies, damn lies, and statistics”. What the data is really saying is that retired Social Security recipients are relatively poor. If America had not exported its industrial base abroad and the Treasury issued money in the form of credits (as opposed to private Federal Reserve debits), expanding the money supply based on industrial production, there would be little need to tax people in the first place. Stop blaming 60 percent of Americans for a highly mismanaged economy.
What the data is really saying is that retired Social Security recipients are relatively poor.
The data says no such thing. The reality is that retired people are more wealthy than the average American. In fact, those of the age of 65 are 47 times more wealthy than those under 35. Additionally, you inadvertantly hit the nail on the head when you said “relatively poor” (emphasis added). Of course, since there are no poor people in America, big government advocates lament “relativity”, as if it’s meaningful in the context you use it. It isn’t.
If America had not exported its industrial base abroad
Outsourcing jobs increases Americans’ wealth, in the same way creating automation (which displaces current workers) increases Americans’ wealth. Efficiency is efficiency, regardless of how it’s done.
Stop blaming 60 percent of Americans for a highly mismanaged economy.
Quit being an idiot and thinking that an economy is “managed”.
Actually, if you look at the underlying data, what it shows is that the elderly receive transfers from those who work. Using averages as the authors did is absolutely absurd. If you go to the CBO website and look at the supplemental data, you’ll see that they broke out data by three subgroups – the elderly with no children and nonelderly with and without children. The data is completely skewed at all income levels (except the top) by retirees who get Medicare and Social Security. Those are 2/3rds of the transfers you’re seeing. But saying let’s abolish Medicare and Social Security doesn’t fly as well for AEI. Don’t believe me, download the data yourself: http://www.cbo.gov/publication/49440
Mostly true, and definitely an issue.
But it leaves out the biggest tax of all – inflation, which benefits those with first access to money, and those holding assets – the wealthy.
Some Evidence from Census data:
http://globaleconomicanalysis.blogspot.com/2013/02/reader-asks-me-to-prove-inflation.html
The top quintiles continue to see their incomes rise as inflation rises. The bottom, not so much.
So yes, if you just look at taxes themselves, the rich pay most of them. But if you look at the central bankers inflating the currency, the rich are making out like bandits.
Be careful of the American Enterprise Institute. I thought this was Fox News.
They’re notorious for only quoting half of accounting principles; whether it’s taxes or spending.
“New CBO study shows that ‘the rich’ don’t just pay their ‘fair share,’ they pay almost everybody’s share”
Because they own everybody’s share unless we want to become a Third world country.
“The top 1 percent own more than 40% of the nation’s approximately $54 trillion in wealth. While the top 1 percent own more than 40% of the nation’s approximately $54 trillion in wealth, they earn about 19% of the income. In other words, the rich get richer via stocks, bonds, real estate, etc. which partially accounts for the wealth gap being almost double the income gap. So an increase in the minimum wage being called for now will barely make a dent in this disparity as it stands.
That leaves the bottom 80 percent with a meager 7 percent of the wealth, or, to look at it another way, the wealthiest 400 Americans have the same combined wealth of the nation’s poorest – more than 150 million people, which is almost half the population. So, no matter how you slice it, when it comes to income and wealth in America, the rich get most of the pie and the rest get the crumbs.”
http://www.forbes.com/sites/dalearcher/2013/09/04/could-americas-wealth-gap-lead-to-a-revolt/
Uncle
“ So, no matter how you slice it, when it comes to income and wealth in America, the rich get most of the pie and the rest get the crumbs.”
Has it occurred to you that the rich created the pie? How do you imagine people accumulate wealth?
The rich created the pie the same way the Egyptians created the pyramids.
Dom
I assume you are trying to say that someone was forced to do something?
Not sure what this magic “Government Transfers” thing is. Maybe my name didn’t get on the right list somewhere. However, I would fall somewhere between the middle and fourth quintile based purely on “Market Income” (my salary – no other income). This year I will pay in a little over $8K to federal income tax, and over $15K in total taxes, medicare, and the social security fund from which our government keeps stealing.
Neither poor nor rich here, but 28% of my income disappears before I see it, half of that to pay for our federal government. Take out another 19% for child support, and I live on around 53% of my actual earnings – a small enough amount to prevent the ability to save, make investments, fund my own retirement, be financially prepared for anything more than a tiny emergency, be able to pay the upfront costs of all but the most basic medical care. Were my 10 year-old car not paid for, I wouldn’t be able to afford the modest 2 bedroom apartment in the less than ideal neighborhood in which I live. This is all after working for almost 2 decades in respectable, professional field and paying taxes every single year.