USA fact of the day

by on October 12, 2017 at 7:24 am in Current Affairs, Economics, Law | Permalink

The top 0.1 percent of earners projected to pay more to the IRS than the bottom 80 percent combined. This year, official government data show, the top 20 percent will pay 95 percent of all income taxes.

And:

Not just that: It’s hard to cut tax rates on moderate-income people without simultaneously benefiting the rich. That’s because everyone pays the same marginal tax rates on, say, their first $50,000 in income, regardless of how much they make in total. So cutting, for example, the 15 percent tax bracket helps the poor and rich alike.

That is all from Brian Faler at Politico.

1 Anonymous October 12, 2017 at 8:08 am

Doesn’t this all rather heavily presume that a tax “cut” is what’s needed?

The US suffers from an idea that “tax cuts” can be a permanent policy.

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2 TMC October 12, 2017 at 8:37 am

At 38% of GDP (all govt), yes, tax cuts are in order. Not until we have spending and the debt under control though.

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3 Anonymous October 12, 2017 at 8:46 am

Even if I thought 38% could be judged as just a number, as too much, I would demand a comprehensive tax and spending plan, with a designated debt glide path.

It is governmental incompetence, or abrogation of fiscal responsibility, to simply (time and again) cut taxes while pretending that spending, or debt, will take care of itself.

Btw, check the link below. No one experiences 38% as an actual net tax burden.

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4 MOFO October 12, 2017 at 9:25 am

It is governmental incompetence, or abrogation of fiscal responsibility, to simply (time and again) increase spending while pretending that taxation, or debt, will take care of itself.

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5 Anonymous October 12, 2017 at 9:29 am

Sure. Politicians definitely play a game. They know what they are doing when they debate tax and spending months apart. They want you to think that just one is the problem. If you are animated by tax, that will be your issue, but maybe you won’t be as animated at budget time. Someone else vis versa.

But if you demand your tax cut separate from a spending cut, you are falling for that game, yet again.

6 Anonymous October 12, 2017 at 9:40 am

Oh, and let us not forget the obvious. The average voter might “want” incomparable tax and spending levels. By separating the two, politicians “let” them have incompatible levels.

It is never really framed as a tax/benefit tradeoff.

7 Anonymous October 12, 2017 at 9:41 am

Darn it, incompatible not incomparable.

8 Harun October 12, 2017 at 11:18 am

This is why the real answer is a Swiss Debt Brake.

9 Anonymous October 12, 2017 at 11:26 am

It sounds very good, though it does require some rigor:

“The cornerstone of the debt brake consists of a simple rule: expenditure may not exceed receipts over an economic cycle. The annual expenditure ceiling is linked to the amount of receipts, which are adjusted using a factor that takes the economic environment into account (cyclical factor). When the economy is booming, the expenditure ceiling is lower than receipts and the Confederation generates a surplus. Conversely, the formula tolerates a deficit in times of recession. Balanced finances are achieved over the entire economic cycle. The rule acts independently of the amount of the tax burden. It permits tax hikes as well as tax cuts. According to the rule, a tax reduction has to be accompanied by expenditure cuts.”

10 Anonymous October 12, 2017 at 8:50 am

Oops, wrong 38. Sorry. But still, I want the comprehensive plan.

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11 Tanturn October 12, 2017 at 10:27 am

Real number is 26%.

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12 Boonton October 12, 2017 at 12:05 pm

US taxes are low relative to those in other developed countries. In 2015, US taxes at all levels of government represented 26 percent of GDP, compared with an average of 34 percent of GDP for the 34 member countries of the Organisation for Economic Co-operation and Development (OECD).

http://www.taxpolicycenter.org/briefing-book/how-do-us-taxes-compare-internationally

The Federal Gov’t’s receipts have ossciliated around 15-17% since the 1950s
https://fred.stlouisfed.org/series/FYFRGDA188S

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13 Potato October 12, 2017 at 5:25 pm

Is there any other developed country where 45% of the population pays essentially no federal taxes?

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14 Anonymous October 12, 2017 at 7:02 pm

How should we normalize to compare? Does any other country make the same payroll/income tax distinction? Does any other country divide national/provincial taxes the same way?

Does 45% really not contribute to things like tariffs and excise taxes?

15 PaulD October 12, 2017 at 10:05 pm

Germany, for example, has separate income and payroll taxes (the latter covering pensions and health insurance) as well as state-levied taxes.

16 Boonton October 13, 2017 at 7:47 am

No Federal taxes? You forget that payroll taxes are paid by almost anyone with a job even min. wage part time. The rhetorical trick here is that people talk about who pays ‘income taxes’ ignoring the fact that payroll taxes are technically not income taxes even though they come out of your paycheck just like income tax withholding.

17 BC October 12, 2017 at 9:04 am

The point is about how to judge distributional impact of tax changes. If we cut all taxes equally, say reduced taxes by 10% across the board, then that would be by construction distributionally neutral. However, 95% of the “benefits” would go to the top 20% simply because they pay 95% of the taxes. The correct way to judge distributional impact is tax cut as a percentage of *taxes paid* by income group, not percentage of overall tax cuts received by income group.

Using the latter is completely disingenuous. Suppose person A pays 100% of the taxes and person B pays 0. For any tax cut, 100% of the “benefits” would go to person A. Does that mean that the tax burden is being redistributed from A to B? No, A continues to bear the entire tax burden; B continues to bear none.

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18 Anonymous October 12, 2017 at 9:12 am

I reject this framing.

I am old enough (joke, this was only a couple months ago) to remember serious people in Washington talking about approximately revenue neutral “tax reform.”

Now look at you all, dancing to the new (and irresponsible) tune!

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19 Pshrnk October 12, 2017 at 9:15 am

+1

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20 Jeff R October 12, 2017 at 10:15 am

+1

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21 Al October 12, 2017 at 10:22 am

+1

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22 Paraguayan October 12, 2017 at 10:23 am

The trick is to make you think of tax cuts as a given, and then fight over them like chickens.

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23 yinyang October 12, 2017 at 11:12 am

The other side of the equation that is missed here, is that B who pays no taxes presumably is the beneficiary of some form of welfare / government assistance. So, B may be affected by a tax cut by a reduction in handouts received.

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24 karl October 12, 2017 at 12:16 pm

Bad presumption. Unless you count EITC as government assistance, most no-tax payers do not receive federal help.

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25 John Hall October 12, 2017 at 1:40 pm

“Correct” is privileged 😉

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26 Dan October 12, 2017 at 3:07 pm

That is what we’d get if we cut the federal income tax equally. If we cut all taxes equally then we’d get something very different.

The federal income tax is much more progressive than the rest of the tax system, so if you shrink the fraction of taxes that come from the federal income tax then you make the tax system more regressive.

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27 Troll Me October 13, 2017 at 1:51 am

You also have to consider distributional impact related to spending.

If you cut taxes by 10% across the board, presumably in the long run that implies a similar sized decline in spending. So it’s not just benefits accruing to the wealthy whose total tax bill declines by most, but it’s also losses faced by lower income groups who would lose more from reduced availability of public services (some of which may more provide those services more effectively and/or efficiently than the market for reasons including difficulties to prioritize 30-year planning for people who aren’t sure where rent is coming from in a month or three).

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28 GoneWithTheWind October 12, 2017 at 11:32 am

The formula for success is simple; Tax what you want to get rid of and subsidize what you want more of. If you want successful citizens tax them less. If you want unsuccessful citizens subsidize (welfare and zero tax) them more.

There should be two personal income tax brackets: 10% of your income regardless of the source of that income (everyone pays some tax) and 25% of all income above $50K. There should be zero tax on businesses/corporations within the U.S.

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29 chuck martel October 12, 2017 at 1:15 pm

” If you want successful citizens”
How is “successful citizens” defined?

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30 GoneWithTheWind October 13, 2017 at 11:43 am

A successful citizen is simply one who can be provide for himself and his family. Conversely an unsuccessful citizen is one who must be supported. taken care of and subsidized by the successful citizens.

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31 kevin October 13, 2017 at 1:43 pm

This is a taughtology if I’ve ever heard one. We don’t *need* to support anyone. Get rid of welfare and you’ve immediately made all of our citizens successful according to your definition. Never mind that these successful citizens are dying in the street from hunger and basic medical needs.

(Also you can’t tax someone who doesn’t make any money as you suggest we do)

32 Troll Me October 13, 2017 at 1:57 am

The state has a much stronger ability than most individuals to subsidize activities which tend to improve over economic capacity, not to mention basic notions of justice which involve a degree of redistribution to those who have been less fortunate for whatever reason.

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33 GoneWithTheWind October 13, 2017 at 11:50 am

“The state has a much stronger ability than most individuals to subsidize”
True! They can buy votes by taking money from me at the threat of incarceration and giving it to the lazy unproductive class in exchange for votes.

“basic notions of justice which involve a degree of redistribution”
Surely you jest! How is that “justice” in any form to take from me by force and give it to a crony. What you have described is the definition of “social injustice”. But even worse it encourages and enables exactly the personal irresponsibility and failing lifestyle that creates the problem you claim to want to fix.

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34 Troll Me October 14, 2017 at 8:19 pm

They can also subsidize post-secondary education because the government can accept a return in 20 years time through future taxes that the youth may not accept over that timeframe. Also, in this case, it’s sort of like risk pooling because the individual can never be sure that education will pay off, but the government can deal with averages in a way that an individual cannot.

35 A Truth Seeker October 12, 2017 at 8:16 am

“The top 0.1 percent of earners projected to pay more to the IRS than the bottom 80 percent combined. This year, official government data show, the top 20 percent will pay 95 percent of all income taxes.”

So that is what America has become: a place where all Americans live under the boot of a rapacious minority of plutocratic feudal lords. Let me ask you: “Is life so dear, or peace so sweet, as to be purchased at the price of chains and slavery?”

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36 marris October 12, 2017 at 8:41 am

Are these the same feudal lords who go to the office, pull 12 hour days, and get the privilege of paying for your food, shelter, healthcare, and education? Devious folks indeed.

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37 prior_test3 October 12, 2017 at 8:48 am

‘and get the privilege of paying for your food, shelter, healthcare, and education’

Any idea how to find one of these patrons? Everywhere I have worked, the person paying their employees is not paying for anything of their employees but money in exchange for labor. (And education? Really?)

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38 marris October 12, 2017 at 2:29 pm

Yes, just become a recipient of government aid. Any “serf” can sign up for Medicare to get a healthcare patron. For education, you can apply for tuition aid.

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39 A Truth Seeker October 12, 2017 at 9:05 am

How do they pay for my food, shelter and education?! I pay for all it. Before that, my parents did. My education was paid by my parents and the Brazilian state. Let’s be blunt: America has become a society of castes where a minority os superrich people cornered all productivity gains while the poor get poorer as the Americanneconomy gets hollowed out by greed businessmen, who outsource jobs to Asia and fund Red China and Japan’s fascist war machines.

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40 Jeff R October 12, 2017 at 10:15 am

We like it that way.

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41 A Truth Seeker October 12, 2017 at 10:57 am

So do Americans like systematic racism, instititional oppression, international gangsterism, oligarchic rule, fascism, hopelessness and social decay?

42 Ricardo October 12, 2017 at 1:59 pm

Obviously not as much as Brazilians…

43 A Truth Seeker October 12, 2017 at 2:21 pm

Brazil has little of those problems. Under President Temer, corrupt people are being jailed, the stocks are skyrocketing, the economy is strong and the State of the Union is awesome.

44 IVV October 12, 2017 at 2:44 pm

Things are looking up, in Brazil, like the Gini coefficient!

45 A Truth Seeker October 12, 2017 at 4:13 pm

The aituarion is improving. As the economy improves and the unemployment rate plummets, welth distribution will take care of itself. As we sy, one must grow rhe pie before partitiong the pieces.

46 marris October 12, 2017 at 2:32 pm

Trust levels in Brazil are lower than the US. https://ourworldindata.org/trust

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47 A Truth Seeker October 12, 2017 at 4:39 pm

Yet, Americans are at one another’s throats.
Why would it be so?,

48 sirram October 12, 2017 at 11:17 am

Are these the same feudal lords who go to the office, pull 12 hour days…

I’m skeptical that the 0.1% are doing that except by choice. The top 0.2%-10% I can believe. That’s the upper-middle class and bottom end of the upper class. The 0.1% are the truly rich–the owner class.

If they’re pissy about paying all the taxes, then they should start thinking about ways to enable the bottom 80% to pull more of the weight. But, that requires investment, either directly through hiring and training people for jobs or indirectly through financing education, infrastructure, and civic society. Unfortunately, the 0.1%–in aggregate–don’t seem all that interested in doing that except at a very, very targeted micro-level.

More broadly, the right-wing 0.1% range from delusional, libertarian utopians to misanthropic social Darwinists while the left-wing 0.1% only really care about working people in other countries.

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49 Harun October 12, 2017 at 11:24 am

“If they’re pissy about paying all the taxes, then they should start thinking about ways to enable the bottom 80% to pull more of the weight.”

Classic!

I thought this was government’s job. You know: education and all.

Nope – now people want the employer class to also think of ways to help poor people, too, you know in their spare time after working 80 hours a week, stressing about financials, creating new products, spending time with their CPA on their taxes,, etc.

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50 sirram October 12, 2017 at 11:59 am

I thought this was government’s job. You know: education and all.

…hence my use of the phrasing “…that requires investment, either directly…or indirectly through financing education, infrastructure, and civic society.” That indirect financing includes paying taxes for government services.

Nope – now people want the employer class to also think of ways to help poor people, too, you know in their spare time after working 80 hours a week, stressing about financials, creating new products, spending time with their CPA on their taxes,, etc.

Sigh.

The “they” I was referring to are the 0.1%. The 0.1% are wealthy enough that they don’t have to work for a living. If they’re pulling 80 hours a week and over-stressed, it’s because they’ve voluntarily chosen to do so. And, yes, the 0.1% are in a better position to improve things than the rest of the population because they have something the rest of the population doesn’t: wealth, which is a form–perhaps the only true form–of power. If they’re pissed off that they pay most of the taxes and are either too incompetent and/or too obstinate to use their power to enable the rest of the population to pull more of the weight, then, yes, they are whining about a problem they refuse to lift a finger to solve, and, therefore, that’s on them, not the rest of the population.

The people you’re talking about are not the 0.1% The people you’re talking about are the upper-middle class i.e. top end of the labor class. Worker bees who make enough and live just high enough to convince themselves they’re nouveau riche and not simply better-paid versions of the working-class peons they look down upon.

Switch to decaf, and learn to read better.

51 Troll Me October 13, 2017 at 2:03 am

If opportunity for more people could be achieved, then the overall tax burden to provide those services could become lower as a share of total income, which would benefit the rich.

The ultra rich have much interest in the opportunities of the less fortunate, and not only due to the potential cost savings to the public purse (and thus the aggregate tax burden), but also due to the possibility that accessing such opporunity will result in more dollars to spend and thus more profit, not to mention the possibility that some of these ultra-rich people would like the companies they own shares in (etc.) to have easier access to more talent, which necessarily involves more people having more access to more opportunity.

52 chapman October 12, 2017 at 9:33 am

Basic human justice demands that different Americans pay much different tax rates for the same Federal Government services (?)

Also, the term “income tax” as used above… is highly deceptive. “Payroll Taxes” are legally income taxes & actual income taxes in reality — lower income workers pay high “Payroll Taxes” (income tax) on the very first dollar they earn.

Ignoring the full scope of income taxes greatly distorts the analysis.

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53 Slocum October 12, 2017 at 10:16 am

But lower income workers, on average, get more back from Social Security than they pay in payroll taxes. They’re net beneficiaries of the payroll tax/Social Security system.

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54 Boonton October 12, 2017 at 4:56 pm

So by that logic what do you do with the CEO of a major defense contractor? Do you try to figure out what his company would pay him if they didn’t have defense contracts? What about the top executives of a major agribusiness firm? Back out crop subsidies and protectionism they might enjoy?

Does a doctor who makes $1M a year back out the income he gets from Medicare/caid patients?

How do you avoid double counting here? The doctor will say low income people get the benefit of his services…the defense contractor will say the poor and middle classed are protected from foreign invasion by his weapons.

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55 Milo Minderbinder October 12, 2017 at 11:30 am

Ignoring the “Refundable” EITC which lessens the payroll tax burden on lower-income families also distorts the analysis.

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56 Boonton October 12, 2017 at 4:58 pm

The EITC is around $60B or so per year. The Federal gov’t collects maybe $3600B per year. In terms of tax revenue the EITC barely alters things by 1.6%, in terms of GDP it’s hardly a factor.

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57 Potato October 12, 2017 at 5:38 pm

Now we’re talking in circles.

If an almost majority of the population does not pay anything in federal taxes aside from SS, and SS is a large positive NPV investment for that population, then we’re comparing apples and oranges.

If my social security payroll taxes guaranteed a 10% return I wouldn’t count them as taxes. Obviously.

EITC is tiny as a % of taxes because the system is already progressive. You won, the war is over.

What you’re looking for is EITC as % of federal taxes collected from the bottom 30%. Or 40%, whatever.

And I bet it’s high.

58 Boonton October 13, 2017 at 7:54 am

You have no idea if your social security taxes are a net positive for you. If you die a day before retirement they are all just taxes you paid. If you live to be 120 but have massive medical costs then you have a nice return on your social security and medicare taxes. (BTW keep in mind ‘your social security taxes’ also include the portion your employer pays so you probably should double the amount you see coming out of your paycheck).

The guy with a huge mansion paying income taxes may end up with a nice return if the gov’t awards his company a massive defense contract or if FEMA gives him a sweetheart loan to rebuild his house after a massive hurricane because he’s lucky enough to live in a state that voted for Trump.

You either are going to play checkers here or you’re going to play chess but you can’t play a game halfway between the two. The question of who pays taxes is a very simple one to have, but you have to have it. Don’t pretend we’re going to switch in the middle of things and not count half the taxes people pay because you think ‘they get it back’. There is no reason to ignore payroll taxes and just focus on income taxes anymore than there is a reason to pretend the only taxes are capital gains taxes or estate taxes and ignore income and payroll.

If you want to have a discussion about who benefits more from gov’t activity then that is a much more complicated question which not only draws in direct benefits (gov’t sending you a check) but indirect benefits and the hugely complicated question of figuring the incident of taxation (example, gov’t restricts trade that benefits your industry and the taxes your company is paying is really just passing them along to consumers)

59 Kristian October 12, 2017 at 8:16 am

«It’s hard to cut tax rates on moderate-income people without simultaneously benefiting the rich. That’s because everyone pays the same marginal tax rates on, say, their first $50,000 in income, regardless of how much they make in total»

Djeez. Lower rate for first 50 while increase the rate for the next 50, 100 or whatever. Not hard (to think of a solution, though legislating may be hard).

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60 Borjigid October 12, 2017 at 8:55 am

+1

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61 Mark Thorson October 12, 2017 at 10:11 am

If the top 20% really do pay 95% of the income taxes, why not just bring the tax rate for the bottom 80% to zero? I’m sure the bottom 80% would be willing to give up the ACA and a bunch of other stuff not to have to do income taxes anymore.

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62 mavery October 12, 2017 at 2:18 pm

Better question: Why the constant fixation on income taxes? Payroll taxes are (1) a direct tax on income from labor and (2) regressive due to the upper limit.

If you want more people to work, stop taxing work. Raise income taxes across the board to make up the difference.

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63 Dan October 12, 2017 at 10:41 am

I am not sure why it even matters that “richer” people save on the first few thousand of taxes… I mean wouldnt that be more meaningful the further down the income scale, and to more people? What is the measurement that this is even being judged by? Almost makes me want to read the linked article… 😉 nah

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64 Dick the Butcher October 12, 2017 at 8:18 am

JFK: “Life is not fair.” Bill Clinton, “It depends on the definition of the word “fair.”

The US government suffers from too much spending, not too little revenue.

Thank God, they can print money.

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65 rayward October 12, 2017 at 8:22 am

Of course, high earners pay most of the income tax because they receive most of the income. In addition, this ignores the payroll tax. Over two-thirds of families pay more in payroll taxes than income taxes. But payroll taxes are just prepayments of future benefits, right? Since the 1980s, the government has collected almost $3 trillion more in payroll taxes than has been paid out in benefits. So where is the $3 trillion surplus? It was spent, on everything from wars to farm subsidies. The distinction between income taxes and payroll taxes is a political distinction. In addition, the payroll tax is a flat rate tax applied to gross income, not net income (after deductions) as is the case with the income tax. The payroll tax rate is roughly 15%. By contrast, the income tax rates are progressive, with higher incomes taxed at rates up to 39.6%. However, capital gains and dividends are taxed at a maximum rate of 20%. It’s certainly true that the income tax is a progressive tax, but once payroll taxes and state and local taxes are taken into account, the American tax system is not progressive; hence, most families, whether low earners or high earners, pay roughly the same percentage of their incomes in “taxes”.

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66 msgkings October 12, 2017 at 8:28 am

Other than the usual no paragraph breaks, this is a rare solid rayward post.

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67 Anonymous October 12, 2017 at 8:34 am
68 Vivian Darkbloom October 12, 2017 at 9:42 am

Indeed, it does not appear to me from the right hand column of the table at that link that ” most families, whether low earners or high earners, pay roughly the same percentage of their incomes in “taxes”.

Lots of assumptions being made there and elsewhere in comments here, though, about the incidence of various tax levies.

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69 TMC October 12, 2017 at 8:40 am

Yes, solid post, but payroll taxes are progressive on the back end, at payout. The higher income you are ROI falls to into the negative.

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70 Benny Lava October 12, 2017 at 9:22 am

Is that why conservatives are always trying to phase it out?

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71 Vivian Darkbloom October 12, 2017 at 10:22 am

While it is not clear what you mean by “trying to phase ‘it’ out”, most serious “conservative” proposals I am aware of would increase the progressive nature of SS and Medicare payouts through some form of additional means testing. For example, here’s Andrew Biggs:

“But over several decades, the maximum Social Security benefit would be scaled down so that eventually every retiree will receive the same flat dollar benefit from the government. For the bottom third of retirees, benefits would increase, but for middle and upper income Americans, benefits would decline relative to currently promised levels. This makes sense. At any given time, higher-income Americans are less dependent upon government than lower-income households. As incomes rise over time, Americans should gradually become less dependent on the government for income in retirement and more able to build their own savings.”

Read more at: http://www.nationalreview.com/article/426546/social-security-reform-conservative-plan-andrew-g-biggs

“Progressivity” can be introduced both on the taxing and spending ends (or both, as in the case with the current program).

Also, it was that famous arch-progressive Ronald Reagan who introduced the taxation of SS benefits for higher income taxpayers in the 1983 OBRA, thus making the program more “progressive”. That formula was made even more progressive in 1993 under the arch-conservative Bill Clinton.

Not only did these reforms make SS even more “progressive” than previously, they helped continue the program’s financial viability.

72 Benny Lava October 12, 2017 at 11:05 am

“It is not clear what you mean by “trying to phase ‘it’ out”

It is not clear because you are a retard.

https://www.google.com/amp/amp.timeinc.net/fortune/2016/11/15/trump-paul-ryan

73 Vivian Darkbloom October 12, 2017 at 12:01 pm

Classy comment.

74 Benny Lava October 12, 2017 at 1:56 pm

At least my comment was full of information. Something your retarded ass seems to lack.

75 Anonymous October 12, 2017 at 10:54 am

I wonder if progressivity is still true once you take into account the dual earner penalty? (aka. couples w/single earner pay on 1 income but get 1.5 benefit. couples who are both working pay on 2 incomes and get 2 benefit – they lose the bonus 0.5 benefit.)

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76 Thor October 12, 2017 at 11:25 am

Agreed. Wish this good post was the Rayward norm.

3 trillion spent on everything from wars to farm subsidies. Appalling…

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77 Potato October 12, 2017 at 5:43 pm

Rare miss.

It’s not even remotely true that most Americans pay the same % in taxes.

A large percentage of Americans pay an effective negative rate in taxes. And that percentage is growing.

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78 BC October 12, 2017 at 8:47 am

“The top 1 percent — about 1 million families earning at least $379,000 — will pay 45 percent of all individual income taxes collected this year, and almost *one-third of taxes overall, including corporate, payroll, estate and excise taxes*.”

The top 1 percent pays $33 in taxes for every $1 that the average person pays. The seems plenty progressive.

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79 Hwite October 12, 2017 at 9:40 am

Familiarize yourself with what “progressive taxation” means.

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80 spencer October 12, 2017 at 2:02 pm

But if you include all taxes, state & local, social security, excise taxes, etc.
in 2016 the top 1% received 21.5% of all income and paid 23.5% of all taxes.

When you look at all taxes the percent of taxes each quintile pays is roughly proportional to each quintiles share of income.

http://www.ctj.org/who-pays-taxes-in-america-in-2016/

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81 Pshrnk October 12, 2017 at 9:19 am

Just wondering: Why do so many blue cities have such high, regressive sales tax rates?

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82 Anonymous October 12, 2017 at 9:23 am

This is still the best answer I’ve read. Wagner’s Law.

https://niskanencenter.org/blog/cant-make-government-smaller/

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83 celestus October 12, 2017 at 9:30 am

Because consumption taxes are efficient (see Europe), wring some money out of nonresidents visiting the blue cities, and are harder to avoid by using residency gymnastics than income taxes. Those benefits are hard for a New York City or Cook County to ignore.

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84 maros October 12, 2017 at 9:32 am

This, thousand times this. It really infuriates me when pundits and journalist swallow this bait and “forget” to mention payroll and sales taxes.

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85 chapman October 12, 2017 at 9:50 am

“Of course, high earners pay most of the income tax because they receive most of the income.”

… but high earners get only the same government services for their much higher IRS taxes. Can you not see any injustice in that? Everyone is supposed to be treated equally under the law.

___\

“But payroll taxes are just prepayments of future benefits, right?

Totally Wrong. SCOTUS has repeatedly ruled that payroll taxes (like Social Security) are legally just income taxes — with no legal requirement for the government to pay future benefits. Congress could legally abolish Social Security tomorrow… and not pay a dime in benefits to anybody ever again.

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86 efcdons October 12, 2017 at 10:48 am

“but high earners get only the same government services for their much higher IRS taxes.”

No they don’t. They get much more valuable services than the poor. Just the basic framework of society is more valuable to a rich person because they have more to lose if it were to go away.

Plus the rich get lots of government services the poor don’t use or need. The poor don’t own IP. The poor don’t own equities (or they own a tiny, tiny amount). The poor don’t engage in interstate commerce thus needing the services of the federal courts. The poor don’t own assets overseas which need to be protected from nationalization. That’s just a tiny example of the services the government provides to the rich which aren’t used by the poor.

High earners pay more because they benefit more and use more services than the poor.

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87 Engineer October 12, 2017 at 12:03 pm

That’s not obvious.

One could say that the poor benefit much more from taxpayer provided basic government services – water and sewer system, roads, education, public safety, etc., not to mention social security and medical care, because they would be unable to provide these services themselves, while the rich would be able to (and in fact do to a considerable extent) provide them privately.

For a demonstration, look at the services and environment available to the poor in the third world, say Lagos or Jakarta, vs. LA. I’d say its clear that the poor benefit very disproportionately from public expenditures.

There is a reason no poor person from the US moves to India or Cameroon.

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88 efcdons October 12, 2017 at 1:15 pm

Physical infrastructure isn’t the only government benefit. The wealthy depend on the social norms and structures, like the protection of private property, which depends on state violence as well as acceptance by the vast majority of people. If the norms underlying private property broke down then the state wouldn’t be able to reassert the institution of property even with violence. The rich wouldn’t be able to provide that protection with private force.

The most basic government service is vastly more beneficial to those who own the most “stuff”. The poor would arguably benefit more from being able to just take what the rich claim is theirs rather than the current system of allowing the rich to give up a tiny amount of property in exchange for a secure society.

We all benefit from a secure, relatively safe, orderly society. The rich just benefit the most.

89 Bob from Ohio October 12, 2017 at 2:31 pm

“The poor would arguably benefit more from being able to just take what the rich claim is theirs rather than the current system of allowing the rich to give up a tiny amount of property in exchange for a secure society. ”

For one year maybe.

Then they would be worse off.

90 poorlando October 12, 2017 at 4:38 pm

“The poor don’t own IP.”
To obtain IP (trademark or patent), you have to pay fees. The Patent and Trademark Office collects enough fees to fund itself. You don’t need to tax people to fund the patent office.

“The poor don’t own equities”
So what.

“The poor don’t engage in interstate commerce thus needing the services of the federal courts.”
Federal court jurisdiction goes way beyond interstate commerce. Anyway, to go to court, you have to pay court fees. Probably not enough to have the courts be self funding, but I don’t see why we couldn’t have a fee based court system that did not rely at all on taxes.

“The poor don’t own assets overseas which need to be protected from nationalization.”
How does the federal government now protect overseas assets from nationalization?

The whole canard about “rich people benefiting more from government services” is totally false. American government is mostly a redistribution machine, taking money from the productive and giving it to the nonproductive.

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91 FUBAR007 October 12, 2017 at 12:24 pm

chapman: Congress could legally abolish Social Security tomorrow… and not pay a dime in benefits to anybody ever again.

And then they’d be wiped out en masse in the next election.

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92 Slocum October 12, 2017 at 10:25 am

“Since the 1980s, the government has collected almost $3 trillion more in payroll taxes than has been paid out in benefits.”

But even so, lower-income workers remain net beneficiaries. And since 2010, payroll taxes have not covered payouts (e.g. payroll taxes are now too low). This imbalance is growing and the ‘trust fund’ generated by the past ‘excess’ payroll taxes is currently scheduled to be exhausted by 2034:

http://money.cnn.com/2017/07/13/news/economy/social-security-trust-fund-projection/index.html

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93 prior_test3 October 12, 2017 at 8:44 am

So, if we just raised the minimum wage to the point that someone earning it would have to pay income taxes, balance could be restored to the numbers. As it is, a person working 40 hours a week for 52 weeks a year earns 15,080 dollars with the federal minimum wage at $7.25 per hour.

The minimum amount of income required for filing is 20,700 dollars for a married couple filing jointly, by the way – https://www.thebalance.com/are-you-required-to-file-a-tax-return-3192868

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94 Al October 12, 2017 at 10:32 am

You are on to something. Heck, all prices are injust. Why should a steak cost more than a ear of corn? Is this, in anyway, fair to the corn farmer? I say no. Abolish the unfair, injust, and racist practice of “prices” today.

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95 marris October 12, 2017 at 8:46 am

> Camp — who was also trying to avoid disproportionately helping the wealthy as part of his own tax reform plan — created a particularly onerous tax on the rich that dunned everything from their retirement contributions to their health care benefits.

Interesting. If we assume that Trump is using the same “no one gets what they were promised” strategy that he’s used so far, we can expect that his tax cut will *raise* taxes on the wealthy. Ironic.

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96 James Liu October 12, 2017 at 8:58 am

Payroll taxes. The Social Security Trust Fund is a figment of accounting imagination. The money just goes to fund ongoing gov’t expenses anyway.

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97 Matt October 12, 2017 at 1:06 pm

You could even cut the payroll tax rate if you eliminated the cap…

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98 Jan October 12, 2017 at 9:34 am

Oops, they forgot to mention all the other taxes that even poor people pay.

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99 JFA October 12, 2017 at 9:35 am

Waiting for liberals to take up the issue of tax inequality any minute. Bear in mind that the top 10% of income earners make 45% of the income and pay 81% of income taxes.

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100 efcdons October 12, 2017 at 10:51 am

You’re going to be waiting a lot of minutes. Being “rich” isn’t some unfair, immutable quality which is an improper basis for different treatment by the government. A rich person can easily stop shouldering the unfair burden of paying federal income taxes. Just stop being rich.

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101 Harun October 12, 2017 at 11:27 am

I was born with the genes that prefer work and thrift to leisure and spending.

I don’t see why this wouldn’t work if sexual preference is also genetic, why not this?

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102 efcdons October 12, 2017 at 1:17 pm

You can choose work and thrift and still not be rich. No one is forcing the wealthy to be paid for their work. Volunteering is still allowed. Good try though.

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103 Matthew Young October 12, 2017 at 9:48 am

In the process of paying 95% of the taxes, the .1% also get the first seats in the debt machine that pushes the paper. At first position, they earn 7% on their money, easily. Here is how.

The reason government interest payments are made is because Goldman-Sachs, the debt advisory committee,and the debt issuance schedule are all worked out ahead of time and the rich adjust their portfolio to invest in enough debt to keep volatility low. AT low volatility, the PE ratio tends toward the one year rate. But the rich, being at the head of the table, are informed, before hand, what the expected volatility will be, so they are guaranteed a return on the market for the rest of their portfolio.

The entire system is managed by Goldman-Sachs. Look at GIN, for example. Distribution gets very unequal as the debts from the last presidential regime become due in the next presidential regime. Hence, at the end of the cycle, when bills are too much for the senate, we get a short burst of inflation then crash. It is the presidential recession cycle brought to you by the Senate and goldman-sachs.

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104 wb October 12, 2017 at 9:56 am

Wouldn’t you need to know what % of total US income the top x% are making in order for those figures to have any meaning?

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105 JFA October 12, 2017 at 11:39 am

The information is provided in the link in the quotation provided by Tyler. I have also pasted it here: https://www.treasury.gov/resource-center/tax-policy/tax-analysis/Documents/Distribution-of-Tax-Burden-Current-Law-2017.pdf

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106 Chip October 12, 2017 at 10:02 am

The top 1% or 5% is not the same people every year. As this MR post from 2014 shows, a tax cut affecting the top 5% will eventually be a cut for 4 in 10 people:

“It turns out that 12 percent of the population will find themselves in the top 1 percent of the income distribution for at least one year. What’s more, 39 percent of Americans will spend a year in the top 5 percent of the income distribution, 56 percent will find themselves in the top 10 percent, and a whopping 73 percent will spend a year in the top 20 percent of the income distribution.

Yet while many Americans will experience some level of affluence during their lives, a much smaller percentage of them will do so for an extended period of time. Although 12 percent of the population will experience a year in which they find themselves in the top 1 percent of the income distribution, a mere 0.6 percent will do so in 10 consecutive years.”
http://marginalrevolution.com/marginalrevolution/2014/04/mobility-in-and-out-of-the-top-one-percent.html

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107 EMichael October 12, 2017 at 10:28 am

I wonder where the income of the Top 10% comes from?

Are they buying stuff from each other?

And I am trying to figure out how some people love to spout these kind of numbers without looking at the net. If you had a choice of paying no income taxes and taking home $600 a week or you had a choice of paying $500K a year of income taxes and taking home $23 gs a week which would you choose?

Let me know when you find someone that picks Door Number 1.

Living the life and crying all the way to the bank.

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108 JFA October 12, 2017 at 11:41 am

Given that income tax rates are marginal, no one is in that position.

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109 EMichael October 12, 2017 at 11:47 am

geez

A quick estimate. Make the tax what you want. The income what you want. The numbers are not that much different.

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110 Troll Me October 13, 2017 at 2:16 am

I learned something important from that counterargument.

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111 Albigensian October 12, 2017 at 10:57 am

“They’ve dropped plans to cut taxes on capital gains …”

1. Is there a good reason (other than demogoguery) why the tax due on long-term capital gains does not allow the gain to be adjusted for inflation? Why should one pay tax on a “gain” that, when inflation is taken into account, is actually a loss?

2. For that matter, shouldn’t something similar be done when taxing interest? If a savings account pays a munificent 1% interest when inflation is 2%, then the owner of that account actually earned a negative real interest rate on it. What is the point of taxing a negative real interest rate?

2. Is there any reason to tax capital gains that are immediately (OK, within 60 days) rolled over into a new investment? Doing so encourages investors to keep money in investments that are not performing well (to avoid the tax hit), and what is the public benefit in that?

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112 harpersnotes October 12, 2017 at 11:30 am

Always a hot-button sort of issue as it at the heart of the psychology of deservingness heuristics. -Ability to pay (kin/family/tribal) versus calling on equal sacrifice (more distant kin/ strangers/ risk-taking in war.) But to see what is happening at the economic level it is useful to ask different sort of questions. If you tax higher incomes more will the more mobile capital and intangible assets tend to end up being in other countries? If you shift taxes toward lower income streams and to less mobile assets (land/fixed-equipment) will it have less of a detrimental effect on the overall economy in the long run? (My sense is this is much of the logic in the rise of the social security / payroll taxes over the decades.) If you clarity values and goals then you can ask the questions about the trade-offs of the distribution of tax burdens in a way that leads to useful answers.

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113 The Other Jim October 12, 2017 at 11:31 am

I think it’s critical that when you mention that very few people pay virtually all of the US Federal income taxes, your overriding sentiment should be “… and obviously it would be awful to even consider changing that.”

Impressive bonus: Adding that we shouldn’t consider letting less-successful people keep more of their money either, because doing that might help the successful ones a microscopic amount? Pure gold, big guy.

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114 Glenn Hefner October 12, 2017 at 11:46 am

GOP argument” proof that the rich pays WAY TOO MUCH in taxes!!

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115 philip crawford October 12, 2017 at 12:13 pm

“So cutting, for example, the 15 percent tax bracket helps the poor and rich alike.”

Um, no. The utility of a dollar for poor people is greater than that for a rich person. So the absolute magnitude from a tax cut might be the same, but that’s not even close to “helps the poor and rich alike.”

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116 A Truth Seeker October 12, 2017 at 12:17 pm

Malefactors of great wealth control the American regime!

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117 CorvusB October 12, 2017 at 12:40 pm

Two points, that have been alluded to, but not directly made yet. A lot of the stratification of the tax payments is due to the stratification of wages. It is very simple. When you have a very large wage differential, you will have a very large difference in how much tax is paid. (Assuming a relative constant tax rate. And the tax rates have been given thorough shift in previous comments).
Secondly.
Are these the same feudal lords who go to the office, pull 12 hour days…

I’m skeptical that the 0.1% are doing that except by choice. The top 0.2%-10% I can believe. That’s the upper-middle class and bottom end of the upper class. The 0.1% are the truly rich–the owner class.
I can refine that somewhat. Based on my experience in the workplace, I would have to say very few of the top 2% are putting anything much over 40 hours a week, although some would have you believe so (falsely). The real question is, “by whose choice”. Even in the top 2% some do not have choice over how many hours are required by unreasonable bosses. The idea that, as one moves higher in the wage scales, one moves towards more control over the amount of work one puts in, has uneven representation in reality. Many blue-collar employees are forced to accept part-time positions, sometimes with good hourly wages (good ~ >25 hourly), because the employer has forced that labor structure. They end up working 80 hours a week, at two jobs, to make ends meet. And they will never see their wages in the top 2 percent. I would guess not even the top quartile, although I don’t have the numbers.
And some managers accept annual salaries (non-hourly) that only seem good when compared to the wages reporting to them, and then are forced by management to work 80 hours a week to produce the results required of them. The latter situation is frequently found in fast-food establishments. The manager’s “hourly” compensation can be well below that of their employees.

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118 mpowell October 12, 2017 at 1:59 pm

I’m not sure what point you think you’re proving and it would be nice if someone could provide any data to back up their claims. I doubt anyone making a good hourly wage is working 80hr weeks at multiple jobs. There are certainly people at the bottom of the income distribution who are struggling and end up working long hours. But it is completely preposterous to compare the top 1% or 0.1% to the experience of the bottom half or bottom 20% of the income distribution. The capability of the top 1% is so much vastly higher than these people, of course they will earn much more per hour. The more relevant comparison for the top 1% or 0.1% is to the rest of the top 10%. I would speculate that the top 1% and top 0.1%, to a large degree, have both much greater capability and willingness to work long hours than the rest of the 10%. This is going to be what is required in a big company to climb the managerial ladder. There are, of course, stories of abusive bosses forcing long hours out of their line level employees, but this is not what I have observed as a general pattern. This isn’t data though.

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119 Bob from Ohio October 12, 2017 at 2:26 pm

No “blue-collar employee” works “80 hours at multiple jobs”. He is just making it up.

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120 Every Person Ever October 12, 2017 at 3:22 pm

The REAL problem kicks in with people just above my income level.

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121 Boonton October 12, 2017 at 2:10 pm

Not just that: It’s hard to cut tax rates on moderate-income people without simultaneously benefiting the rich. That’s because everyone pays the same marginal tax rates on, say, their first $50,000 in income, regardless of how much they make in total. So cutting, for example, the 15 percent tax bracket helps the poor and rich alike.

Keeping it simple, let’s ignore deductions, exemptions etc. and assume the bottom bracket is 15% starting at $0 and going to $100K. Above $100K the tax rate is a flat 30 A tax cut that cut the bottom bracket from 15% to 13%.

For someone making $100K, the tax cut saves $2K or 2% of their income.

Someone making $1M, their previous tax burden was $285,000 while their new burden is $283,000. They only saved 0.2% of their income. In contrast if the top braket was cut from 30% to 28%, his bill would become $267,000 and the cut would have saved him almost 1.8% of his income.

Cuts in the bottom brackets do help all taxpayers but to the rich they are relatively meaningless while the same cut in terms of points on the top turns into massive savings.

But in terms of what Trump ran on, the rich already do very well in the current system. Supposedly it is the bottom that is being discouraged and the evidence, supposedly, are metrics like lower labor force participation rates, adult children living in parents’ houses, opiod addiction among working age adults etc. If there’s any merit to this then that would argue for a bottom centered tax cut.

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122 Troll Me October 13, 2017 at 2:23 am

“Cuts in the bottom brackets do help all taxpayers but to the rich they are relatively meaningless…” – which is why progressive taxation naturally makes sense.

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123 Bob from Ohio October 12, 2017 at 2:22 pm

“the top 20 percent will pay 95 percent of all income taxes.”

Makers and takers.

No wonder the government spend like drunken sailors, most people get “free” stuff.

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124 Boonton October 12, 2017 at 2:50 pm

http://www.npr.org/sections/money/2014/05/05/308380342/most-americans-make-it-to-the-top-20-percent-at-least-for-a-while

Most Americans will be in the top 20% at least a few times. This is hardly a class war where the peasants have no expectation of ever being in the big house so they don’t care what happens to those that are there.

But more importantly, the phase ‘all the income taxes’ ignores payroll taxes which are clearly income taxes since you pay them if you earn income from working. It’s a nice rhetorical trick to talk about who pays income taxes compared to government spending, but if you wanted apples to apples you would back out gov’t spending covered by payroll taxes before you make that comparison OR you would consider all taxes paid to the gov’t whether they are coming out of your paycheck under the header ‘income tax’ or ‘payroll tax’.

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125 poorlando October 12, 2017 at 5:15 pm

“Most Americans will be in the top 20% at least a few times. This is hardly a class war where the peasants have no expectation of ever being in the big house so they don’t care what happens to those that are there.”

Really? I thought the leftist bleat was that economic mobility was dead in the US.

“OR you would consider all taxes paid to the gov’t whether they are coming out of your paycheck under the header ‘income tax’ or ‘payroll tax’.”

TOTAL share of federal tax liability, including payroll tax, is 0.8% for the bottom quintile and 3.9% for the second quintile (2013 data). Yes, everyone pays payroll tax, but the bottom 40% as a whole gets income tax credits that offset some or almost all of their total federal tax obligations.

See Table 2
https://www.cbo.gov/sites/default/files/114th-congress-2015-2016/reports/51361-supplementaldata-2.xlsx

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126 Boonton October 13, 2017 at 8:10 am

Using the share of income after taxes from your site, the top 20% have nearly 50% of income after taxes. It’s not surprising then that the top 20% pays something like 95% of *income tax*. Payroll taxes cut off after you hit an upper middle class level of salary/wages so beyond that point in income the only taxes you pay are income taxes with the payroll portion shrinking to almost irrelevancy. Certain types of income like capital gains or business income are not even included in payroll taxes so in those cases you would only have ‘income taxes’.

What you’re harping on is roughly like saying it’s amazingly unfair that almost all the gas taxes are paid by people who own vehicles or that non-smokers pay almost no tobacco taxes. Shocking.

Also why do you keep using ‘federal taxes’? “Federal taxes” would be any tax payable to the Federal Gov’t, that would include payroll taxes, income taxes and less common taxes like tariffs and excise taxes. Why this bizarre exercise to try to pretend only income taxes exist?

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127 Brian Donohue October 12, 2017 at 3:18 pm

From each according to ability… up to a point anyway.

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128 Ahmed October 12, 2017 at 5:08 pm

@ Mr. Cowen,

Economists are fond of talking about corporate tax incidence but you never hear them talking about personal tax incidence.

Raise taxes on doctors or lawyers and you instantly see them raise their fees, passing that cost along to their patients and clients in the form of higher prices. Which tells us that it was their patients and clients who were paying those costs all along.

So, just like in the case of corporations, we have to make a distinction between those who remit taxes and those who actually bear the burden of taxes.

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129 Tom Warner October 13, 2017 at 11:22 am

This article uses a very slanted presentation of the US tax system to make a silly, illogical argument that taxes can’t be cut for the middle class without benefiting the wealthy. Of course there could be a middle class tax cut that didn’t cut taxes for the wealthy, if the Rs wanted it. The amount of tax the wealthy would save on lower rates on their first $100k in income as an unintended side-effect of a middie-class tax cut is small and could be easily compensated with slight tax rate increases on the upper brackets.

Comparing dollar amounts paid per decile (or 0.1%) and focusing just on federal taxes is very misleading. The appropriate measure of a system’s progressiveness is the total tax paid, federal and local, as a percentage of income. In my opinion one needs to also adjust the data with an estimated amount of property taxes paid by renters (and a corresponding adjustment to landlords’ payments). The real picture for the US is more complicated. The lowest income pay little in taxes – they pay substantially negative rates if you count the social benefits paid out through federal and state tax returns. The middle income brackets pay a wide range of tax rates, depending on income and home value. The heaviest tax burden is on the higher end of the upper middle class and the moderately wealthy. Tax rates fall again for the truly rich, a subset of the top 0.1%.

Moreover, Faler is sloppy and doesn’t get all his facts right. He writes that “the top 0.1 percent of earners projected to pay more to the IRS than the bottom 80 percent combined.” To back this up he links to a Treasury projection for 2017 which shows that the top 0.1% are projected to pay $520.8 billion to the IRS (total federal taxes excluding excises and customs) while the bottom 80% are projected to pay $633.6 billion.

Probably Faler meant to write that the top 0.1% will pay more than the bottom 80% in personal income taxes. In which case he could have written that the top 0.1% will pay more ($372 billion) than the bottom 90% ($282.6 billion). But that’s because personal income tax returns are now used as a means of delivering social benefits to the low income. The bottom 50% are expected to collect a total of $117.6 billion in personal income tax returns net of payments.

The projection that Faler links to is here: https://www.treasury.gov/resource-center/tax-policy/tax-analysis/Documents/Distribution-of-Tax-Burden-Current-Law-2017.pdf

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130 Cooper October 13, 2017 at 2:31 pm

“Not just that: It’s hard to cut tax rates on moderate-income people without simultaneously benefiting the rich. That’s because everyone pays the same marginal tax rates on, say, their first $50,000 in income, regardless of how much they make in total. So cutting, for example, the 15 percent tax bracket helps the poor and rich alike.”

This framing is nonsense. It’s just a rightwing talking point.

It’s very easy to cut taxes on moderate income people without giving 70% of the benefit of the tax cut to the top 1% as the Trump tax plan does.

Just cut the 15% bracket to 10% and do nothing else. The top 1% wouldn’t get 70% of the benefit from a tax change like that.

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