Monday, July 21, 2008

Bottom Half of Taxpayers' Share Now Less Than 3%

According to the Joint Economic Committee, the share of total federal income taxes paid by the top 1% of tax filers increased to 39.89% in 2006, while the tax share of the top 5% climbed to 60.14%. The income tax share of the top half rose to 97.01%, according to recent Internal Revenue Service (IRS) data (see chart above, click to enlarge). The tax shares are the highest on record for these groups based on comparable IRS data going back to 1986.

"The latest IRS data show that the share of the income tax burden borne by the top half of tax filers continues to rise and now stands at 97.01%," Congressman Jim Saxton said. "The tax shares of the top 1, 5, and 10 percent of taxpayers ranked by income are the highest in many years. The share of the bottom half of tax filers has fallen to a level of 2.99%.

29 Comments:

At 7/21/2008 7:40 PM, Anonymous Anonymous said...

it is a bit unfair that this is posted without mentioning what is the income tax revenue in the federal, state and local budgets. the poor will pay a decent share of taxes if one adds up sales tax, excise taxes and so on. I believe the taxation should be approached as a whole.

especially that in the end after all redistribution is done the consumption of goods and services between the top and bottom quintile is not that different ( it may be different however qualitatively). also the saving/indebtednes rate may be different.

 
At 7/21/2008 7:56 PM, Blogger BDHumbert said...

Yes they are transfer payments - and I know the difference - but when u are 35 they feel like taxes - think the story would be similar - but not as extreme if FICA and medicare were included - do you know where I could find that data?

 
At 7/21/2008 7:57 PM, Blogger (Z) said...

I'm not sure what conclusion Congressman Jim Saxton wants Americans to come to when he says, "The tax shares of the top 1, 5, and 10 percent of taxpayers ranked by income are the highest in many years." Is he saying that the top 1, 5, and 10 percent of taxpayers ranked by income are carrying too large a tax burden? an unfair portion of the burden?

Is the Congressman suggesting the tax burden be shifted to the bottom half of tax filers?

I suppose if the Congressman wanted to be "up-front" he might have also provided statistics on income shares... (It's been my experience that taxes are linked to income.) The chart "The Top Decile Income Share in the United States, 1917-2006" is on my blog, and can be found in Striking it Richer: The Evolution of Top Incomes in the United States by Emmanuel Saez.

The 2006 tax figures have been out for several months (at least) so Congressman Saxton's release is decidedly stale imo.

 
At 7/21/2008 9:40 PM, Blogger Dave Narby said...

Ah, Taxes... Once again we are faced with the argument the poor pay too little, the rich too much (or just more than their fair share).

Some will argue in general we are taxed too much - some will argue that we are taxed too little. None will argue we are taxed just right. Goldilocks evidently never gets invited to the political
conventions.

Consider this: When you look at pure federal (national)income taxes, we actually have
very low taxes in the US; we are rated 19th in the developed world. Only Greece is lower.
Politicians running for national office normally only talk about this form of taxation, they
rarely bring up all the other ways government takes our money, such as (by no means an
exhaustive
list):

Accounts Receivable Tax,
Capital Gains Tax,
Cigarette Tax,
Corporate Income Tax,
Communications
Tax,
Federal Income Tax,
Federal Unemployment Tax (FUTA),
Food License Tax,
Fuel permit tax,
Gasoline Tax,
Inheritance Tax Interest expense (tax on the money),
Inventory tax IRS Interest
Charges (tax on top of tax),
IRS Penalties (tax on top of tax), Liquor Tax, Local Income Tax,
Luxury Taxes, Medicare Tax, Occupancy Tax, Property Tax, Real Estate Tax,
Road Usage Taxes
(Truckers),
Service Charge Taxes,
Social Security Tax,
Sales Tax, School Tax,
State Income Tax,
State Unemployment Tax (SUTA), Telephone federal excise tax, Telephone federal universal service
fee tax,
Telephone federal,
state and local surcharge taxes, Telephone minimum usage surcharge
tax,
Telephone recurring and non-recurring charges tax, Telephone state and local tax, Telephone
usage charge tax,
Utility Taxes,
Vehicle Sales Tax,
Workers Compensation Tax

And then there are the taxes which are not taxes - which is to say licensees, permits, fees,
fines,| surcharges and all the other ways they tax you by taking your money and hide the fact
that it's a tax. Such as (again, by no means exhaustive):

Building permits, Business licenses (liquor, cigarette, restaurant, kiosk, vendor, repair shop,
dealerships, hospital, clinic, theater, radio station, TV station etc. ad nauseum), Car, truck,
RV, motorcycle, ATV, snow machine, boat, airplane and helicopter registration, Certificates of
Occupancy, Court fees, Court fees and surcharges, Dog licenses, Driver, motorcycle and CDL
licenses, Facilities usage fees (Gov't parks, buildings, etc), Fishing Licenses, Hunting
Licenses, Marriage Licenses, Municipal sewage usage, Pistol permits, Rifle permits (NYC), Septic
tank/leach field permits, Tolls (road, bridge, tunnel and ferry), Traffic Fines, Water
consumption, Watercraft registration, Well permits...

...And every other type of permit or piece of paper they make you buy on threat to take away
everything you own & your freedom at the point of a gun (before you dismiss that last sentence
as coming from a whack-job, you should consider what the Sheriff wears on his belt when he shows
up to repossess your stuff with a court order).

When you consider all that, we are effectively all ready paying a hefty national sales tax (and the average Joe is paying the bulk of it)! But we shouldn't complain too much when we consider what a good job they do managing the money...
But that's something to be addressed in a future column.

So, it seems pretty hard to make the argument that American are being taxed too little. But
what about the top 0.05% of wealthy Americans?

http://www.forbes.com/ceonetwork/2004/02/12/0212chat_transcript.html

 
At 7/21/2008 10:22 PM, Blogger MattYoung said...

1% hold about 35% of the wealth and pay almost 40% of the taxes.

Government, of course, as any advanced economist knows, will attempt to match its own wealth distribution to the aggregate wealth distribution. This is the equilibrium forcing function and it applies to any economic sector which is a valid eigenvector of the economy.

Hence, we would expect income to move along toward equilibrium. In this case, the data seems to indicate that the wealthy over pay by about 6%.

The data is sparse, but if equilibrium forcing holds then we would expect government's share of the economy to reduce below is equilibrium share until this is fixed.

However, I need to look at the data more closely.

 
At 7/22/2008 4:57 AM, Anonymous Anonymous said...

Following up on the income shares, tax progressivity (the ratio of taxes paid to income earned) declined for the top 1% for the fourth year in a row.

The top 1%'s effective tax rate (ETR) declined for the fifth year in a row to 22.79% from a peak of 28.87% in 1996 whereas the bottom 50%'s ETR increased to 3.01% for the third year in a row and is down from a peak of 5.11% in 1989.

 
At 7/22/2008 8:07 AM, Anonymous Anonymous said...

Just another sign that the trough between rich and poor is at a multi-decade high.

 
At 7/22/2008 8:07 AM, Blogger Sophist said...

It appear to me that the income tax system of US is fair because it conforms to Pareto principle (80-20 rule), which reflects the workings of the laws of nature.

From the data, one can see that the top 20% contributed about 80% of the rax revenue.

I would worry if the top 20% contributed 95% of the revenue.

Socialists fool around with Pareto rule and make top 20% to contrinute 95% or more.

 
At 7/22/2008 8:44 AM, Blogger Thomas Blair said...

Personally, I think taxation is immoral and identical to common theft, so I have no qualms about saying everyone is overtaxed, but using only personal income tax statistics is obstinate. As Dave Narby and others already pointed out, there are literally hundreds (and perhaps thousands or tens of thousands) of little taxes and fees in addition to the income tax that must be accounted for to give an accurate picture of the total take of the government. The federal personal income tax is but one (albeit large) tax that accounts for only 47% of revenue at the federal level and significantly less than that when accounting for state and local taxation.

I understand that no explicit suggestion that these data are representative of the total tax picture was made, but please do the argument a favor and use an appropriate data set.

 
At 7/22/2008 10:31 AM, Blogger Walt G. said...

The article presents a suggestion of a false dichotomy. Don’t be fooled by that fallacy when you read it. Just because one group of taxpayers is paying too much does not necessarily mean another group is paying too little. You can’t rule out that both may be paying too much.

 
At 7/22/2008 2:35 PM, Blogger spencer said...

Yes. We obviously have to go back to the tax rates that existed in 2000 to correct this situation.

 
At 7/22/2008 3:01 PM, Blogger juandos said...

The fact of the matter is that there has been no rational rationale offered why those who make more should should be stolen from at a higher rate than those who don't...

The so called, "Pareto principle" is yet another exercise in socialist thinking and still can't offer a reason why those who produce and get paid for it should have more money stolen from them...

The attempt to use Emmanuel Saez and his allusion to the leftist Pathways rag to explain what is called, "progressive" taxation (to ashamed to say stealing?) is nothing short of amazing...

The fact is there is NO rationale of why the rich should pay one more penny in federal and state income taxes than the not rich...

This is just an attempt to try to keep the extremely costly nanny state afloat...

 
At 7/22/2008 3:44 PM, Blogger Walt G. said...

juandos,

Do you mean higher rate or higher amount? They are not the same.

I am not so sure the bottom half pays less as a percentage of total tax and fees/income than the upper half. Most taxes and fees do not change with income. In fact, some are downright regressive (SS). I am aware of your stand on entitlements; nevertheless, they are a reality that must be factored into the equation of whatever someone considers “fair.”

I am not saying that what I suggest is true; however, any rationale analysis cannot stop with federal income taxes alone. There are a lot more fish left after you fry that one.

 
At 7/22/2008 3:50 PM, Blogger OBloodyHell said...

> Is he saying that the top 1, 5, and 10 percent of taxpayers ranked by income are carrying too large a tax burden? an unfair portion of the burden?

The point is that with just over one HALF of the voting population out there able to demand that the other slightly less than half should pay for whatever they demand, the concept of democracy breaks down and becomes the tyranny of the majority. That is very dangerous to the future of a State.

When half the people can demand bread and circusses from the other half, with no repercussions to themselves, what holds them in check from demanding those things?

Let me rephrase that: What holds them in check to prevent them from legally stealing the efforts of the minority at gunpoint? That IS, after all, what taxes are -- mandatory extractions made at gunpoint. If you refuse to pay taxes, the government comes and takes away what you own. If you resist, they will shoot you.

And in the end, how is that different from slavery: "Someone with no concern for your wellbeing, taking the fruits of your labors, for their own benefit"?

Part of the original system was designed to discourage that tyranny of the majority. As time has passed, the checks in place to prevent it have been eroded to the point where they no longer serve to check the majority at all.

At some point, the productive ones (i.e., the ones who *make* all the wealth take their money and LEAVE for somewhere else, where they don't have to be punished for having skill, ability, determination, and savvy.

Sorry -- I've known a fair number of people making six figures -- not a one of them works a forty hour week. Virtually every one is a workaholic, usually working sixty and seventy hours a week.

You start working seventy hours a week, invest your money wisely, work to increase your marketable skills, and see how long it takes you to be making six figures. I'd suspect it would take someone not more than about 15 years -- and that is not atypical of someone making six figures. In the meantime you've given up an additional 20-30 hours out of each week for 15 years. It's up to you to decide if that is worth it to you.

Yes, there are people out there who fell into it because daddy gave it to them -- but there are far fewer of those than you realize, and many of them are in the class which moves downward over time, not upward. No, they probably won't wind up working at Wal-Mart for minwage, but they won't be making six figures for long unless they have a skill and a talent -- either someone will steal it from them, or they will work their way down the promotion chain until they reach a level suited to what they can do. That might not be until daddy passes away and stops shielding them, but thems the breaks.

 
At 7/22/2008 4:04 PM, Blogger OBloodyHell said...

a) Dave: nice.

b)
> Just another sign that the trough between rich and poor is at a multi-decade high.

What the HELL are you smokin'?

How does one thing have ANYTHING to do with the other?

And even there, what difference does such a difference make in the first place, other than to incite greed and envy, and rationalize THEFT?

Here, let me restate your position: "Oooo, he makes too much money, let's STEAL some from him using taxes and go do this thing we want to do!"

Right.

c)
> It appear to me that the income tax system of US is fair because it conforms to Pareto principle

Sophist just read about the Pareto Principle because The Buggy Professor mentioned it about two weeks ago. Now he thinks he understands the whole concept enough to argue based on it. LOL.


d)
> Yes. We obviously have to go back to the tax rates that existed in 2000 to correct this situation.

Actually, I think we ought to go back to the tax rates of 1910, and reduce government services proportionally. I find it difficult to believe that we could not cut the budget and the services back to what they were in *1980* and have a hard time coping with the reduction all around. The economic stimulus of such a move would put the US economy through the roof.

 
At 7/22/2008 4:07 PM, Blogger juandos said...

Hey walt g, the reason I used the words, "one more penny" was to avoid the confusion...

"I am not so sure the bottom half pays less as a percentage of total tax and fees/income than the upper half"...

Hence the reason I used the words, "federal and state income taxes"...

Regarding fees etc. I know there is no difference between what the wealthy and non-wealthy pay...

"they are a reality that must be factored into the equation of whatever someone considers “fair.”"...

walt g, there is no such thing as, 'fair' and whatever it might mean for some there is NO objective standard for it...

"any rationale analysis cannot stop with federal income taxes alone. There are a lot more fish left after you fry that one"...

You meant 'rational analysis', right?

Hence the reason I also included state income taxes...

obloodyhell gets it: "The point is that with just over one HALF of the voting population out there able to demand that the other slightly less than half should pay for whatever they demand, the concept of democracy breaks down and becomes the tyranny of the majority"...

Exactly right!

If people are going to punished for being successful (via the extortion systems of both the federal and state government), what's the point of being successful?

 
At 7/22/2008 5:06 PM, Blogger Walt G. said...

OK juandos. Let's not use the term fair. Let's use an "us" verses "them" conflict scenario that the title of the post implicitly suggests.

Instead of addressing that everyone pays too much in taxes, we are fighting amongst ourselves. That’s a divide-and-conquer technique. I’ve used it myself on occasion as a bargainer over the years. In the meantime, because of the smokescreen, we are not holding our elected officials accountable for ALL of the taxes.

The fact is, people demand services they cannot pay for. We elect people who tell us what we want to hear. And, then we complain.

The root cause of the problem is that we have liabilities we can’t pay for. We should not be discussing who is going to pay for the lobster and steak dinner: Joe who works at the gas station or John the C.E.O of a Fortune 500 company. We should be discussing why we decided to eat something we can’t pay for in the first place.

 
At 7/22/2008 5:32 PM, Blogger juandos said...

Hey walt g, got no argument with this: "The root cause of the problem is that we have liabilities we can’t pay for. We should not be discussing who is going to pay for the lobster and steak dinner: Joe who works at the gas station or John the C.E.O of a Fortune 500 company. We should be discussing why we decided to eat something we can’t pay for in the first place"...

I would start pointing my finger at what passes for (and has passed for over the last forty plus years) education in this country...

Individual property owners whether is a home or a business facility bear the lion's share of local education costs and these folks are basically getting ripped off it seems to me...

How can folks be expected to make intelligent choices in the voting booth if they never had the proper tools to work with?

 
At 7/22/2008 6:48 PM, Anonymous Dr. T said...

The Community Reinvestment Act, though a bad idea, played only a minor role in the subprime mortgage problem. The bigger role was played by two government-created entities: Fannie Mae and Freddie Mac. These mortgage brokers bought iffy loans from banks, which gave the banks more money to loan to more unqualified home buyers. The two FMs held 44% of all subprime mortgages. Now they need taxpayer bailout (hardly a surprise). So, we bail out Bear Stearns, bail out Fannie Mae and Freddie Mac, and bail out individual home buyers who put no money down and could barely meet the low early payments on their subprime adjustable rate mortgages! I'm so happy to support these worthy businesses and people, who helped cause our current economic calamity that lowered the value of my stock portfolio by 20%.

 
At 7/22/2008 6:53 PM, Anonymous Dr. T said...

Sorry, I posted to the wrong blog item.

 
At 7/22/2008 7:59 PM, Blogger Walt G. said...

Here’s some data and a different perspective than the 97% to 3% share-of-taxes-paid comparison. It looks a lot different from this angle:

Table 1
Summary of Federal Individual Income Tax Data, 2006
(Updated July 2008)

The top 50% the taxpayers (6,785,958) had 87.49% of all income and paid 97.01% of the share of taxes: The bottom 50% (6,785,958) had 12.51% of the income and paid 2.99% of the share of taxes.

Source http://www.taxfoundation.org/publications/show/250.html

 
At 7/23/2008 7:29 AM, Blogger juandos said...

Good Morning walt g:

I'm sorry but how does the difference between what one group makes versus another have anything to do with the fact that the one group has much more money extorted from them (in total dollars and cents via state & federal incomes taxes) than the other group?

The simple fact is regardless of how its sliced we as a nation can no longer afford (never could either as any actuary could've told FDR who started this socialist mess) being a nanny state regardless of the alledged good intentions...

Remember this from the linked USAToday article?

'Taxpayers are on the hook for a record $57.3 trillion in federal liabilities to cover the lifetime benefits of everyone eligible for Medicare, Social Security and other government programs, a USA TODAY analysis found. That's nearly $500,000 per household.

When obligations of state and local governments are added, the total rises to $61.7 trillion, or $531,472 per household. That is more than four times what Americans owe in personal debt such as mortgages
'...

I'm fairly certain that only a relativly few people have a half million bucks they can get their hands on to help bail out our indebted local, state, and national government entities that WE are responsible for putting there...

These taxes are job and economy killers... Its the worst sort of government expansion...

Michael Hodges of the Grandfather Economic Report notes also the cost of government regulatory compliance (an after income tax tax levied along with sales taxes and other fees) is something else we have to deal with: federal expenditures on regulatory activity increased 2.7 times faster than economic growth since 1960 - at 14% per year compounded ...

How many decent to good paying jobs is that worth?

 
At 7/23/2008 9:11 AM, Blogger Walt G. said...

juandos,

It's simple. The people at the top have the money. The people at the bottom do not. I know it's a bad and overused cliché, but you can't get blood out of a turnip. Even if those at the bottom paid 100% of their 12.51% of the total AGI reported to the IRS, the expenses for the U.S. cannot be met.

Any way you look at it, all 136 million taxpayers have a mutual problem--not just the 68 million at the top. Pointing fingers by either group will not solve the problem, and neither will failure to place data in context by omitting the rest of the table where the figures for this post were aggregated and derived (http://www.irs.ustreas.gov/pub/irs-soi/06in11si.xls)

You’re right, though, any solution must address entitlements. There’s just no way around that fiscal fact.

By the way, juandos, how do you create your hyperlinks when you post?

 
At 7/23/2008 10:34 AM, Blogger juandos said...

Hello again walt g:

Your comment walt: "Even if those at the bottom paid 100% of their 12.51% of the total AGI reported to the IRS, the expenses for the U.S. cannot be met"...

No argument with that at all...

"Any way you look at it, all 136 million taxpayers have a mutual problem"...

Again, I totally agree...

"and neither will failure to place data in context by omitting the rest of the table where the figures for this post were aggregated and derived"...

Well walt I for one am NOT even hinting that I doubt the data but playing devils advocate, "so what?"...

Consider the following from the IRS which is a pdf of the 2006 1040 EZ form, specifically the pie charts (pg 33 on my display) titled: Major Categories of Federal Income and Outlays for Fiscal Year 2006 and note where the vast majority of taxes are spent on... It seems that 67% of the collected federal income taxes goes to Constitutionally questionable program expenditures...

Something needs to be done because even if rich and poor alike pay every penney they earn and any penny they have saved up to taxes it won't fill the bill today...

walt regading your question: "By the way, juandos, how do you create your hyperlinks when you post?"...

Well walt are you using Windows since that is where I'm coming from with this bit of info?

Being the lazy person that I am I let blogger in a sense do the work for me...

When I'm on the, "Post a Comment On: CARPE DIEM" page I do a right click with the mouse button and get a floating drop down menu and one of the choices is: "view source" which I click on...

Up pops a note pad (ascii) page with all the html coding for the "Post a Comment On: CARPE DIEM" page...

I look for this which is (depending on the numbers of posts) less than 1/5 from the top of the page: "http://mjperry.blogspot.com/"

You'll note that so as not to create a link I didn't put this "less than sign '<'in front of the letter 'a' and this bit here: "href equals (= sign is actually used')" in front of the url in quotoation marks and this "less than '<' followed by a forward slash '/' sign in front of the letter 'a' and a greater than sign '>'" behind the quote marks...

The words CARPE DIEM are indeed all in caps...

I know it looks like a mess the way I described it but its a lot easier to do than it is for me at least to describe it...

So for example your link now would look like this: figures for this post

Where the url for Carpe Diem is I insstead put the url you provided between the quote marks and the text that I want to link to goes where the CARPE DIEM is...

The letter 'b' can be substituted for 'strong' and the letter 'i' can be substituted for the letters 'em' with the appropriate forward slash marks included...

 
At 7/23/2008 11:10 AM, Blogger Walt G. said...

juandos said: Well walt I for one am NOT even hinting that I doubt the data but playing devils advocate, "so what?"...

We are a self-selected sample of bloggers here, so we have a little more economic understanding than the general population. Many folks would be led to believe that the post is saying that the top 50% of the taxpayers have 50% of the income. It is misleading to omit the fact that the top 50% have 87.49% of the money. Even though the disclosure weakens the argument, at least for some people, it should be acknowledged and dealt with in the argument. It’s sneaky to hide stuff like this, and it shows bias that questions credibility.

That’s for the link info. I do everything in Word. I tag it, and then paste it (Blogger will not accept my link tags). I don’t like to make mistakes. You caught me with the “rationale” one yesterday. I’ll try your method when I get the chance.

 
At 7/23/2008 11:54 AM, Blogger juandos said...

Hey walt g:

Let me tackle this first: "That’s for the link info. I do everything in Word. I tag it, and then paste it (Blogger will not accept my link tags)"...

Therein lies the problem, Microsoft's implementation of html isn't what's generally accepted which I found out by using their FrontPage software and the Word software...

Personally I like Word alot!

Hence you should consider using the ascii version (for want of a better description) of html coding...

Not nearly as convient as using Word though...:-(

Regarding your comment: "Many folks would be led to believe that the post is saying that the top 50% of the taxpayers have 50% of the income. It is misleading to omit the fact that the top 50% have 87.49% of the money. Even though the disclosure weakens the argument, at least for some people, it should be acknowledged and dealt with in the argument."...

Hmmm, from where I sit walt it seems that you are trying to excuse people from both doing some critical thinking (yes, question everything one sees, hears, or reads) and doing some homework...

Am I wrong?

 
At 7/23/2008 12:36 PM, Blogger Walt G. said...

juandos,

Wrong? No. Mistaken? Yes. A little friendly wordplay on semantics there.

I write and read a lot. Every bit of writing has to consider the audience foremost if you want current and future credibility. Sure, you can force critical thinking by omission of readily available facts. Full disclosure, however, does not necessarily mean dumbing down the message. The IRS found that information important, so they put it in their table. It does not bolster the argument that the post is attempting to make, so it was left out of that table. The 97% to 3% comparison was purposely designed to conjure up an emotional response to the huge numerical discrepancy in those less sophisticated in analysis.

All I am saying is this: Some people's bullshit indicators simply don't rise as high as others.

Enough said.

 
At 7/23/2008 12:52 PM, Blogger juandos said...

Hey walt g...

Your comment: "All I am saying is this: Some people's bullshit indicators simply don't rise as high as others"...

Exactly!

Ahhh, yet another lesson in life for me...

Alrighty then...

 
At 7/26/2008 11:17 AM, Anonymous Anonymous said...

I believe only those who actually pay income taxes should be allowed to vote. Otherwise we border on taxation without representation.

 

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