Taxes…who pays them
Everyone is up in arms. The left says: “The rich are getting richer and the poor are getting poorer.” The right says that the Federal government is taking more and more. The facts, as I read them indicate that both arguments are overblown.
My take, after the analysis below is:
- Every group, from the top 0.1 % to the lowest 50% has been paying a lower percentage their income in taxes from 1986 (after the Reagan tax reform) to 2008 (the last year for which I have found data)
- The rich are getting richer, but the poor are not getting poorer. The poorest are improving slightly; the wealthier you get, the bigger is both your absolute and your percentage improvements.
- All groups have reduced the Federal taxes that they pay by 1-3% except for one—the top 0.1 of income producers, who have reduced their effective tax rate by nearly 6% since 2001 (This segment is not reported before that)
Here’s my analysis, with the data that I have used cited.
The percentage of income paid by all segments of the economy are down, not up, since 1986 when the tax code was revamped by Reagan. Using the tables in reported here by the Tax Foundation which cites the original source at the IRS here, we seen that taxes on the 1% earning the most have gone down from 26% to 23%; the highest earning 5% down from 22.1% of AGI to 20.70%; for the top 25% down from 16.6% to 15.68%; for the top 50% down from 14.6% to 13.65% and for the bottom 50% down from 5.09% to 2.59%. The biggest gain is the top 0.1%. While rates on the the top 1% dropped by 2.5% over 20 year, the top 0.1% dropped by nearly 6% over just 8 years (the IRS did not segregate data for this group previously)
Slate makes the argument that inequities are growing in this article.
The top-earning 20 percent of Americans -- those making more than $100,000 each year -- received 49.4 percent of all income generated in the U.S., compared with the 3.4 percent earned by those below the poverty line, according to newly released census figures. That ratio of 14.5-to-1 was an increase from 13.6 in 2008 and nearly double a low of 7.69 in 1968.
The tax foundation makes this argument about inequities:
While the U.S. tax system is progressive, the distribution of government spending makes
the overall fiscal system more progressive than is apparent from tax distributions alone.
Using a microdata model we estimate the distribution of federal, state and local taxes and
spending between 1991 and 2004. We find households in the lowest quintile of income
received roughly $8.21 in federal, state and local government spending for every dollar of
taxes paid in 2004, while households in the middle quintile received $1.30, and
households in the top quintile received $0.41 Reference here.
It does seem that the rich are paying more taxes and getting less for. But it’s also true that the rich are taking a bigger and bigger hunk of the economic pie. They are paying more dollars to the government, and getting less for it, but if you combine lower taxes with a greater percentage of national income they have little, if anything to complain about.
This image shows the picture more clearly and over a longer time span. The source is this article:
The lowest two deciles of income producers seem to be doing a little better in percentage terms, but not much better in dollar terms; and each successive income tranche is doing better in both dollar terms (to be expected) and percentage terms (not to be expected).
Tax foundation slices the numbers differently than Salon here, showing the top 25% rather than top 20%. The number for % of for the top 25% is higher than Slate’s for the top 20% (of course it should be) and some trends are interesting. First, the top 20% made 86.24% of all income in 2008, up from 73% in 1980. Both the current number and the trend seem shocking. But also interesting is that dollar cutoff for the top 25% in 2008 was only $67K. The top 10% was $160K. The top 5% was $160K. And in 1980 the cutoff was $23,606. Does inflation explain the change?
Apparently it does not. This inflation rate calculator (needs to be vetted, of course) says that $23K in 1980 dollars is $61K in 2008. So it sounds like the top 20% has fewer people. But it does not. In 1980 the top 25% consisted of 23,000 people; in 2008 it had gone up to 34,000—and those 34,000 made more money per person than in 1980.
In 1990 the top 1% made 8.42% of all Gross Income. In 2008 it was up to 20% with an increase to 12.99% (4.5%)during the Reagan and Bush years, to 20.81% (7.8%) during the peak of the Clinton years, and essentially flat during the Bush years (partly because of a bad start due to 9/11). Meanwhile the percentage made by the bottom 50% has steadily dropped, through all administrations, from 17.68% down to 12.75%.
When the wealthiest were taking a bigger percentage of the country’s income they were also paying a proportionately bigger chunk of the country’s taxes. When income percentage went from 8.42% to 20%, tax percentage went from 19% to 28%. Meanwhile taxes on the poor dropped disproporatioately. At 17.78% of income they paid 7.05% of taxes; and at 12% (1/3 less, roughly) they paid 2.7% (3/4 less).
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