Thursday, March 15, 2007

Rich Pay More, Poor Pay Less Taxes


According to tax return data released this week by the IRS (data above are from Table 5), the share of federal income taxes paid by the top 5% of taxpayers reached a 19-year high of 57% in 2004 (see bottom graph above). During the same period, the share of income taxes paid by the bottom 50% of taxpayers reached a 19-year low of 3.3% in 2004, compared to 6.5% in 1986 (see top graph above). Note: Federal income taxes include taxes on salary and wages, dividend and interest income, and income from capital gains.

Measured by the share of federal income taxes paid, the 2003 tax reform was a "tax cut for the poor" and a "tax hike for the rich."

BTW, the Democrats on the Senate Budget Committee just muscled through a budget bill on a party-line 12-11 vote this afternoon that would pretty much guarantee the demise of Bush's tax cuts, which expire at the end of 2010.

30 Comments:

At 3/15/2007 9:22 PM, Anonymous Victor said...

Is this more evidence that the rich are getting richer... the poor are getting poorer... I know, I know... the rich are the ones that pay taxes the lion's share of the tax burden. The poor (like me) don't pay taxes. I can easily see the differences. I guess that some of the benefits that I receive from the rich are that they pay for my roads, pay for my school, pay for my children's school, pay to keep my family healthy, fire protection, police, jails, etc, etc, etc...

Have there been any studies of just how much of the services that the government provide are worth to the average person. If I were a rich person watching my money fly quickly out the window into the government’s pocket, I would love to know how the people around me benefit from my contribution.

With all the money that they pay in, it is easier to see why politicians might listen to the people with the deep pockets, instead of the ones with holes in their pockets... Just a different thought...

 
At 3/15/2007 10:25 PM, Blogger Berlin Brown said...

Both the democrats and the republicans have lost this war. The democrats have constantly fought against the Bush tax cuts and harped upon 'the rich' and the wealth gap. In fact, now universal heathcare is going to start to see the light of day. Yet, it has been proven time and time again that the private sector outclasses government sponsored programs and organizations. Look at the Walter Reed situation, that is what universal healthcare will look like.

Now, on the republican side; the Bush administration has spent an insane amount of money on the war that in turn gets recycled to a handful of defense contractors. That 5% probably is made up of Haliburton employees, former Enron employees, etc.

 
At 3/15/2007 11:05 PM, Blogger Ben Yates said...

Universal healthcare outside the U.S. doesn't look anything like water reed. Also, does this data include payroll taxes?

 
At 3/15/2007 11:41 PM, Anonymous Anonymous said...

If you have one guy worth $1,000,000, paying tax at 10%, and 100 guys worth $10,000 paying tax at 20%, the rich guy pays a third (33%) of all taxes.

If, the folowing year, the rich guy is worth $1,500,000, and pays taxes at 7.5%, while the others don't change, the rich guy now pays 36% of all taxes.

The numbers are deceptive...

 
At 3/16/2007 3:02 AM, Blogger Brian said...

I think this is really very biased because there is not a graph of income vs time. If we assume that the tax rates have stayed constant, then these graphs mean that the top 5% are making more money than ever, and the poor are making less! You can't just put two graphs up here and expect us to swallow whatever opinion you push us. For someone with a PHD you really don't analyze the situation beyond your own biases.

 
At 3/16/2007 8:54 AM, Anonymous Bob Wright said...

brian:

ad hominem attacks are no substitute for reasoned arguments.

You cannot "assume that the tax rates have stayed constant" because they haven't.

Tax rates were changed most recently in 2003. That was the point of the graph.

 
At 3/16/2007 9:12 AM, Anonymous Bob Wright said...

Why is it that

"The government doesn't confiscate my money via taxation"

somehow equates to

"The rich get richer"?

In this Alice-in-Wonderland world, me being able to keep MY money is unjust.

 
At 3/16/2007 9:44 AM, Blogger Jonas said...

I think what is deceptive about this is that it's only income tax, which is just a piece of tax income for the government. I don't think we learn much at all from this graph.

 
At 3/16/2007 10:00 AM, Anonymous Anonymous said...

"You cannot 'assume that the tax rates have stayed constant' because they haven't."

Nor can you assume that income distribution has remained constant, because it hasn't. Which was the "reasoned argument" that Brian was making, but you somehow managed to miss.

Can you provide a link to a primary source for the data for your graphs, and the dataset you used to produce the graph?

Your graph is pretty, but the only thing it shows is that the progressive tax scheme works as intended, the rich who benefit most from the stable environment for capitalism that government provides pay more than those that benefit less. Let's see a comparison of tax paid to disposable income, and then we can talk about "fairness".

 
At 3/16/2007 10:14 AM, Blogger Mark J. Perry said...

I added a link in the post to the IRS data, here it is here as well: http://www.irs.gov/pub/irs-soi/07winbul.pdf

Data in my graphs are from Table 5.

 
At 3/16/2007 10:15 AM, Anonymous Walt G. said...

There's probably no fair AND effective way to tax, so I will stay out of that one. I also don’t care for the soak the rich mentality; too much envy and emotion are involved and not enough logic.

About your comment, Professor Perry: If the Democrats pushed through a possible end to the Bush “tax cuts,” and the "tax cuts" resulted in an increase in tax share for the upper income taxpayers per your graph, why aren’t the upper income taxpayers (and the Republicans) ecstatic about the repeal?

Perhaps there are monetary savings in Bush’s tax cuts that more than makes up for the increased income tax share. Accordingly, this would not appear on your graph. Anyone have any clarifications on this point?

 
At 3/16/2007 10:28 AM, Anonymous alec said...

Could you also give us information about income disparity between these years?

 
At 3/16/2007 11:05 AM, Blogger shiva said...

"Measured by the share of taxes paid, the 2003 tax reform was a "tax cut for the poor" and a "tax hike for the rich."

You forgot the words "federal income" before "taxes paid". Surely there are many other tax changes you ought to have looked at before concluding that the 2003 reforms constituted a cut for the poor and a hike for the rich.

You could have tried to account for FICA taxes, capital gains tax, tax subsidies in savings accounts, all of which are comparatively much more regressive.

Why didn't you? You must have been aware that these other taxes exist, and were changed in 2003. If you simply found an easy set of data to analyze, and could not go through the trouble of more difficult research, I completely understand. But why weren't you at least more careful about qualifying your conclusion that the 2003 reforms as a whole were a cut for the poor and a hike for the rich when you only looked at a portion of the tax burden?

I ask that you please edit your post, or submit a more careful reply. A responsible blogger, especially one with such reputed credentials, should take more seriously his responsibility to _accurately_ inform the public.

 
At 3/16/2007 11:51 AM, Blogger Mark J. Perry said...

I'll make a few changes to my post as you suggest. To clarify: the IRS defines "Total Income" to include salaries and wages, taxable interest income, dividend income, alimony, and net amounts from such sources as business income, rents and royalties, and sales of capital assets (capital gains and losses). Therefore, the "shares of taxes paid" by different income groups WOULD include the effects of tax changes in 2003 on dividend income and capital gains. The IRS calculates the shares of total income taxes paid by different income groups, but does NOT, as far as I know, do the same analysis for the shares of payroll taxes paid by income groups. Also, please note that these IRS data are released with a 2-year lag, and were just released this week for 2004.

 
At 3/16/2007 12:21 PM, Anonymous Walt G. said...

A look at Table 6 in Professor Perry's link (p 55) tells a story. In 1986, the Bottom 95% of the taxpayers had 75.89% of the Adjusted Gross Income (AGI): in 2003, 68.82%; and in 2004, 66.55%. In other words, the Top 5% of the taxpayers now have roughly 1 out of every 3 dollars of AGI instead of 1 out of every 4 dollars in the 18-year period (1986-2004). That’s a percentage change of -12.30% in AGI for the Bottom 95%.

At the same time, the Bottom 95% had a income tax share decrease from 57.43% to 42.87%, or percentage change of -25.35%.

So, the Bottom 95% of the taxpayers lost AGI, but their income tax share decreased, too. What’s all this mean? I don’t know. You be the judge. I happen to think we all pay too much in taxes.

 
At 3/16/2007 6:07 PM, Anonymous Anonymous said...

One commenter repeated the common saying about reducing taxes to "keep more of MY money". I only have one question (previously said by someone far wiser than all of the rest of us combined): Whose pictures and whose names are on your money? Render under the United States what belongs to the United States....

False analogy? Oh...You didn't print the money, you don't have an army and court to protect the money, etc.

We all owe a lot of gratitude to the Americans who came before us and to the Americans today in public service who continue to make "MY" money worth more than the paper it is printed on.

Taxes are a bargain.

Now, we can all argue about where the taxes come from and where they go--as long as we remember the millionaire has withdrawn much greater value from the American system than the poor person who works for the millionaire.

 
At 3/16/2007 7:42 PM, Anonymous William Jorgensen said...

A fairly ludicrous assumption all round.
EVERYONE PAYS TAXES!
The wealthy pay the least and the poor the most. It was always thus and always will be. ALL income tax is directed straight to the Federal Reserve Bank and pays the foreign debt owed, with not a penny going towards "schools, police, jails, fire protection etc".These community costs are born by state and county taxes!
If you can afford it you should use off-shore tax-havens like every other well-off individual or institution, or, enjoy the reductions in capital gains afforded to the lobbying wealthy. It's not what you know, it's how much you've got, and then "who you know". George Bush, when addressing the wealthiest Americans at a fund-raiser, said, "... here is my real base, the haves and the have mores.". Nothing changes except perceptions!

 
At 3/17/2007 2:26 AM, Anonymous Anonymous said...

Wow. Did Santa Claus leave a lump of coal in your stocking last Christmas?

 
At 3/17/2007 6:29 AM, Blogger Dirk said...

If the division between the income owned by the poor 50% and rich 5% diverts quicker than the trend in the IRS data then then redistributive trend of the data is offset.

 
At 3/17/2007 8:41 AM, Anonymous Anonymous said...

How long would the rich keep their wealth outside the stable society their taxes provide for? Not long, I'll bet.

 
At 3/17/2007 10:17 AM, Anonymous Walt G. said...

Here's for Alec:

123,983,518 # of Bottom 95% filers
6,525,448 # of Top 5% filers

130,508,966 Total filers with positive AGI

Source: IRS Table 8, page 59 (Professor Perry's source)

So, approximately 6 1/2 million people have 1/3 of the AGI, and the other approximately 124 million taxpayers share the other 2/3 of the AGI.

It's probably best if you eliminate the top and bottom 10% and concentrate on the middle 80% if you really want to study income distribution. The extremes distort reality because you are always going to have your rich and your poor people in any society for whatever reason. Much of the academic, peer-reviewed literature uses the 90/10 demographic study.

 
At 3/17/2007 10:55 AM, Anonymous Walt G. said...

Professor Perry: Are you saying that the Democratic action of repealing Bush's "tax cut" is a positive or negative economic move?

First you title this thread: "Rich Pay More, Poor Pay Less taxes." And next, you attribute the tax increase for the wealthy to Bush's "tax cut."

I'm confused about your position. Could you answer these two questions? Should the tax cut be repealed by the Democrats? Is the tax cut really a tax hike for the rich?

This sure is an active thread!

 
At 3/17/2007 3:39 PM, Blogger Mark J. Perry said...

Walt: The 2003 tax cuts should NOT be repealed in my opinion. That is, I would not support increases in the marginal tax rates above their current levels. In the sense that the top 1, 5 and 10% pay MORE now in taxes as a share of total taxes paid, the 2003 tax reform was actually a "tak hike for the rich."

 
At 3/17/2007 8:32 PM, Anonymous Anonymous said...

"We all owe a lot of gratitude to the Americans who came before us and to the Americans today in public service who continue to make "MY" money worth more than the paper it is printed on."

Ummmm, what makes you think that your paper money is worth anything? It now takes about $20.00 dollars to buy what a 1960 dollar would buy (in big round estimated numbers). And compared to a 1906 dollar, well, don't bother.

Your "dollar" is worth a fraction of a cent, basically. What "value" it has now is strictly an illusion.

I don't recall, exactly, but I think the US is actuarily broke. If they sold every bit of federal land, every building, every piece of furniture, and used every bit of the tax money owed, they couldn't pay off all their debt. It's only a matter of time until the rest of the world notices, by the way. And then your dollar really will be absolutely worthless.

 
At 3/18/2007 1:39 AM, Anonymous Bob Wright said...

You must be careful about what conclusions you draw from tax return information and the well being of people.

Many small businesses are able to show no taxable income yet the owner/operator is able to use the business cash-flow to pay for things that W2 employees pay for with income reported to the IRS. The small business owner's "income" is not captured in the tax data. On paper, the business looks to have very low or no income. The income is invisible to the IRS, yet the business owner enjoys its benefits.

 
At 5/08/2007 6:00 AM, Blogger juandos said...

Someone named Berlin Brown makes the following statement: "Now, on the republican side; the Bush administration has spent an insane amount of money on the war that in turn gets recycled to a handful of defense contractors. That 5% probably is made up of Haliburton employees, former Enron employees, etc."

Hmmm, how come know one complains about the high costs, the continuing costs on the war on poverty...

I'm NOT picking on Brown but the statement has often been bantered about and yet no one ever asks about an exit strategy of LBJ's start of the $8+ trillion extortion of the productive so politicos can pander to the parasitic...

 
At 2/23/2008 4:46 PM, Anonymous Anonymous said...

i luv these two!

"Your graph is pretty, but the only thing it shows is that the progressive tax scheme works as intended, the rich who benefit most from the stable environment for capitalism that government provides pay more than those that benefit less. Let's see a comparison of tax paid to disposable income, and then we can talk about "fairness"."

"Now, we can all argue about where the taxes come from and where they go--as long as we remember the millionaire has withdrawn much greater value from the American system than the poor person who works for the millionaire."

explain to me how you guys believe that the 'millionaires' just magically have 'recieved' more from the american system?

we all have the same 24hrs in a day. some of us make more of it.

 
At 7/11/2008 5:08 PM, Blogger alansanmateo said...

that tax chart is ridiculous - the fundamental premise is flawed. Why is "rich" defined as the top 5% of income earners? Why not the top 1%? A very good argument could be made that it should be even smaller than that, given the % of "wealth" that is controlloed by the ultra rich.

I'd like to see a chart that showed taxes paid by the top .05% and compare that to the rest. My guess is the "rich" who aren't really "rich" are the ones paying the most - the TRUE middle class. "Middle Class" doesn't mean what it used to. Most people in the so called middle class are pretty poor off. They can't afford college, can't afford health care, etc. etc.

Charts like that are designed to pit people who make $250k against people who make $50k, $100k, etc., when the real issue is how much taxes are paid by the guys who make $1M and have $10 M in the bank (never mind the guys who make $1M and have $100M in the bank, etc.....)

 
At 12/27/2008 11:10 AM, Anonymous MarciaC said...

The rightwing that says us real workers make too much money, and the corporate shills can never make enough, just collapsed the economy, thanks to massive deregulation (aka eliminating LAWS), doubling US debt by cutting taxes on those who have the money while spending like drunken sailors on wars that kill 100's of thousands while enriching the war profitteers who get 100's of billions of OUR MONEY to profit from death.

The "small government" right has doubled the size of government and its costs - all of it aimed at enriching the few that demand 38% interest rates on credit cards so they can accumulate more money than they could ever spend.

While the rest of us are losing our homes, our investments, and our retirements.

Thank heavens they didn't get to force us to exchange our guaranteed SS money for the toxic stocks of the richest in the world.

They obviously knew their schemes would end in the destruction of the world's economy and wanted to have us little people to bail them out by buying their dead companies' stocks.

 
At 12/27/2008 11:24 AM, Anonymous Anonymous said...

Victor said...
I know, I know... the rich are the ones that pay taxes the lion's share of the tax burden. The poor (like me) don't pay taxes.

That's not true. In fact most taxes are regressive: the rich pay the same tax rate on the gasoline tax, sales taxes, SS, Medicare, FICA and so on. And because they are so rich, the percent of their income going to those taxes is miniscule compared to someone making minimum wage. Of course they want to get RID of the minimum wage: they say it should be zero, just like in the days of slavery. At least the slaves got free food and a shack to live in.

And rich people pay tax accountants to find endless ways to avoid taxes.

The rightwingers say that a war profiteering company like Blackwater and Halliburton (CHENEY'S old company) can go offshore and pay no taxes of any kind, not even SS for its workers.

That means they hugely benefit from the war that they refuse to pay one cent for its costs.

It's no coincidence that the 'Low taxes for the richest" ideology have created the biggest US deebt in the history of America, and collapsed the economy. A country can't be prosperious if there are a few megarich and the rest of us not making enough money to buy their products. Henry Ford knew that. The current malevolent corporate officers say he was wrong and all the money belongs to them.
The rightwing has told us also that payday loans of 400% interest is a good thing. Al Capone must be jealous.

 

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