Tuesday, March 13, 2007

The "Tax Hike for the Rich" of 2003

The IRS just released data for tax year 2004 that includes the tax shares paid by different income groups. As the charts above show (click to enlarge), the top 1% of taxpayers paid almost 37% of all federal income taxes in 2004, an increase from 34.27% in 2003. The top 5% paid more than 57% of all taxes in 2004, up from 54.36% in 2003; and the top 10% paid 68.19% in 2004 compared to 65.84% in 2003.

Conclusions:

1. What were largely denounced as "tax cuts for the rich" in 2003, actually turned out to be "tax hikes for the rich," since their share of total taxes paid increased significantly from 2003 to 2004 in the wake of the changes in tax rates.

2. U.S. income taxes are highly progressive, and actually become more progressive after the tax reform of 2003 - "the rich" now pay even more as a share of total taxes than at almost any time during U.S. history. The share of income for the top 1% was 19% in 2004, but they pay almost 37% of all taxes.

3. For the top 5%, their share of total taxes paid is at an all-time historical high of 57.13% in 2004.

4. The top 1% paid an average of 32.75% of all taxes during the Clinton years (1993-2000), and have since paid an average of 34.69% during the Bush years (2001-2004). Therefore, the "tax burden on the rich" has been higher under Bush than Clinton.

5 Comments:

At 3/13/2007 10:16 AM, Anonymous Victor said...

Did their income go up by 15 or 20% and the percent of the total tax collected went up by 2%? Something tells me that you can make statistics tell you anything that you want to. Even though they paid more of the tax bill, did they actually suffer more because of this extra payment?

 
At 3/13/2007 12:09 PM, Anonymous Walt G. said...

The top earners get a break when it comes to Social Security withholding, though. After $97,500 the 6.2% SS portion of the SS/Medicare tax is not collected anymore.

I'm not sure there is both an efficient and fair way to tax people, but I believe that people should be monetarily awarded for their efforts and abilities. If somebody wants to watch television after work, and I go to night school after work, why shouldn’t I be compensated for that?

Victor: You can always look at the tables and draw your own conclusions. You can’t objectively quantify "suffer" in a table. Economics is cruel like that sometimes.

 
At 3/13/2007 12:50 PM, Anonymous Wes Fontana said...

Victor- no one is arguing that the rich should suffer more. What kind of sense does that make? The point is that the tax cuts are a win-win that EVERYONE benefits from: upper income earners earn more and keep more of what they earn (which they spend or invest which drives the economy and creates jobs for the other classes) and the Treasury collects greater amounts without raising taxes from the lower a middle classes- which it uses to provide services or pay down debt which both benefit the lower and middle classes. That’s the problem with this mercantile, zero-sum point of view- there doesn’t have to be losers.

Walt- when you choose to goto night school you're compensation will be in the form of higher pay or a more rewarding job after you complete the training. You are trading current leisure for whatever reason you chose to goto night school for (future leisure, higher income, ect.)

 
At 3/13/2007 1:38 PM, Anonymous Victor said...

I guess I was wondering if the upper 1% of people are taxed a higher percentage of income, or a lower percentage of income. I understand the win-win facts of lower taxes. Did the upper 1% of people have a higher tax burden or a lower tax burden? Did they pay 30% of their income or 29%?

In 2003...
%30 * $100M = $30M paid in taxes
after tax cut...

In 2004...
%29% * $120M = $34.8M paid in taxes

The tax cut lowered the percentage paid and increase the total amount paid. Is this aspect a tax hike???

I am just trying to understand the concept that the rich had a tax hike instead of a tax break.

 
At 3/13/2007 2:04 PM, Anonymous Walt G. said...

There’s always a problem with aggregated data. You can’t obtain specifics from generalities. Some people might have had a higher tax burden, and some people might have had a lower tax burden in the same group (say the 1% group).

 

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