How is the U.S. tax system different?

Clive Crook reports:

A new report by the Organization for Economic Cooperation and Development shows that in the middle of the last decade — i.e., after the Bush tax cuts were introduced — the U.S. income tax was about as strongly redistributive as income taxes in Canada, Denmark, Finland, the Netherlands and Sweden. You might have noticed that the CBO report on top incomes was widely quoted, but one finding got less attention: Between 1979 and 2007, “the federal individual income tax became slightly more progressive.”  [TC: note that this last sentence can mean a number of different things/]

The awkward truth is that the U.S. income tax system is anomalous not because it taxes the rich lightly but because it taxes everybody else lightly.

Comments

The other difference is that US benefits and payments more strongly go to the middle (and upper middle, and even upper) class than in other OCED countries. Programs for the aged are most of this, but there's also a lot of other programs that are heavily subsidized or free that might be charged for in Europe that are aimed at the middle and upper middle class, from NPR to DC's museums to symphonies and high speed rail and so forth.

And obviously farm payments are huge, and there's all we spend on defense...

We could learn quite a bit from Australia in that regard.
http://inside.org.au/how-fair-is-australia%E2%80%99s-welfare-state/

The problem with Australia's extensive means testing is that people on lowish incomes face ridiculously high effective marginal taxation rates, plus it encourages gaming/cheating the system as far as declared income goes because nobody wants to loose their benefit payments. Couple that with the feeling of many on 200k plus incomes that they pay for everything and get nothing from the government, and you have pretty strong reasons why I am always hearing the upper-middle class characterize low income earners as leaching slackers. From my everyday life I see aussie's becoming more divided with every means tested payment or tax exemption that gets introduced.

Yep. Australia's system needs a modest increase in (lower-) middle class welfare to smooth out the effective tax rates. Although even there it could, in principle, be funded out of existing (upper-) middle class welfare (private health insurance rebate, medicare-for-the-rich, baby bonus, home buying subsidies etc.) Of course such reforms would anger the middle classes even more and are unlikely to make much progress.

As far as I understand, America has even more middle class welfare that could be cut.

That's a very important point. One of the untruths that is repeated by both sides of the political debate in America -- and that prevents real progress on long-term budget issues -- is the belief that the middle is being squeezed or the "disappearing middle class": the only difference is that the left like to blame the top-1% fat cats and the right like to blame the poor. The truth is almost exactly the opposite: middle-income Americans pay very low taxes in OECD terms, and yet the of social spending goes to the same middle-income people, who also benefit from America's low relative cost of living and the relative absence of indirect taxation.

In a sense, America currently gets the worst of both worlds -- a vast government, growing out of control with almost limitless future liabilities, without decently looking after the actual poor, since most of the money goes to people who ought to be looking after themselves.

All correct, but let's put it in perspective. It comes down to saying (a) that the comfortable middle classes are the majority and (b) policy is driven by the interests of that majority. So it seams like America's disease is just the mark of a successful democracy.

I agree with kiwi Dave. I try to drill into family and friends heads that you cannot really subsidized those with above median income and so it is foolish to try.

Also lets not forget that along with SS and Medicare, schooling is one of the biggest attempts to subsidize the middle-class and rich. This includes k-12, state universities and financial aid. IMO we should charge middle class and rich people directly for each child they put in Government schools and we should phase out financial aid at lower levels that we do now.

IMO the best we can do with SS give all retirees the same amount. Medicare is more difficult but IMO it should pay for less care of questionable value and squeeze providers more.

Um, middle class people do pay for schooling, mainly via property taxes and since the richer you are the pricier your real estate is likely to be, this is approximately pro-rated to income. Even renters like myself are paying for the schools indirectly in our rent.

What middle class welfare is there? Let's exclude elder benefits because a lot of middle class people would cease being middle class and become destitute if they didn't have Social Security and Medicare.
I suppose we could count tax expenditures like the mortgage interest deduction and the health insurance deduction, but I have trouble thinking of programs that actually write a check to working age middle class people.

Let’s exclude elder benefits

that's like saying "other than that, Mrs. Lincoln, how was the play?"

Given that SS + Medicare makes up about 35% of the federal budget and close to 45% of non-defense spending (and this number is projected to go way, way up), it alone dwarfs all other federal spending. Put it another way: the feds spend almost twice as much on health care for old people regardless of wealth (i.e., overwhelmingly middle class people) than they do on health care for people who can't afford to look after themselves and for poor kids (Medicaid + SCHIP). This makes no sense, and, frankly, should be just as offensive to people on the left as it is to people on the right.

University education is a big exception--the education of middle and upper class students in other OCED countries is much more heavily subsidized than in the U.S.

True, although many (most?) of the middle and slightly-upper-middle send their kids to State U and pay heavily-subsidised in-state tuition -- while European countries have mostly moved away from free higher education.

Many of the students that manage to get college-aid in the US would never have a chance to step into a European university.

yes, the us subsidizes a lot more kids in college. Wear-as most of europe just subsidizes wealthy's education.

Don't other countries have publicly funded retirement systems analogous to Social Securuity? And all other first world nations have universal healthcare systems shower their benefits on the middle class and even the rich.

Yes, and those countries—most of which are in the EU—are falling apart even faster.

Yes. All this talk about the "Bush tax cuts for the wealthy" ignores the fact that the changes made when Bush was president made the tax system more progressive, not less, because taxes were cut even more for the non-wealthy. Not that this was necessarily a good thing. It seems to me to be somewhat unhealthy to have a system in which some half the people don't pay any income tax at all, and yet face what are, in effect, extremely high marginal tax rates because of phaseouts of various benefits like food stamps, the earned-income credit, etc.

Clive Crook is correct so far as he goes; between 1979 and 2007, “the federal individual income tax became slightly more progressive.” The obvious caveat is that one effect of reducing federal income taxes was to increase the relative weight of other taxes (payroll and state and local taxes) in the overall tax system. Since these taxes are on balance mildly regressive, the effect of the Bush tax cuts was to make the overall tax system of the US slightly less progressive. Even so, the US tax system is more progressive than the tax systems of most OECD countries, including the social democratic nations of N. Europe. It might seem paradoxical, but it is also true that transfers are more focused on the needy in the US than in most OECD countries. The reason our social democratic brethren end up with less after tax inequality than we do is implicit in Crook’s bottom line: they tax everybody more and they make more transfers across the board.

Of course many of those payroll taxes are actually insurance premiums for future benefits and are expressly set up that way.

Shh. Don't tell anyone.

They most certainly aren't insurance. But I know what you mean more than the politicians know what you mean.

...Awkward.

According to the Big Book o' Left-Wing Talking Points, when the topic under discussion is whether Social Security and Medicare are welfare, then FICA taxes are actually insurance premiums. When the topic is how progressive our tax system is, then FICA taxes are actually taxes.

But now both topics are under discussion simultaneously. Things just got weird.

Brandon, Are you sure YOU have it right. The message is that it is a unified budget when it comes to entitlements (which are funded by paychecks) and deductions. That's why some folks can offer budget proposals that "fund" tax cuts through "entitlement reform". You can't have it one way for one purpose and another way for another purpose (that is, fica isn't a tax).

So you're saying, then, Bill, that Social Security and Medicare are welfare? I don't particularly care one way or the other, as long as you pick a side and stick with it.

Brandon Berg:
If they are welfare they should be means tested.

It gets awkwarder and awkwarder. The rich owe their fortune to the government providing society (sic). And somehow in the US, the developed nation with low government/GDP (sic) the rich are somehow richer. We should be amazed at the ultra competence of our government to be able to do so much more with so much less.

SS is a welfare program that was disguised as a Ponzi scheme to get the American public to go along with it.

"SS is a welfare program that was disguised as a Ponzi scheme to get the American public to go along with it."

No, it's not a welfare program, though it does have a limited welfare component. And it's certainly not a Ponzi scheme. It's a pyramid scheme. A Ponzi scheme is a subset of pyramid schemes that specifically involve misleading the investors and concealing important financial aspects. SS is very upfront that it is a pyramid scheme.

I'm not sure why you assume that those who complain about Bush's tax cuts for the wealthy are ignoring the other cuts he made, especially when in the debates over this Democrats were specifically calling for retention of the cuts to rates for low earners and the expiration of the cuts for high earners. Does this mean that Democrats wanted an increase in the progressivity of the tax code relative to pre-Bush tax levels? Yes. Does it mean they wanted this unwittingly? No, clearly not.

Are you talking about cap gains and dividend rates? I don't see how they reach a wage earner making $40k.

I don't really follow the spirit of your question.

If what you're asking is, 'what cuts did Democrats want to retain,' well, as far as income taxes specifically goes I believe it was something like this:

Retain: 10% bracket, drop in the 28%, 31%, and 36% brackets.
Let expire: drop in the 39.6% bracket.

Not sure what they were saying about cap gains and estate tax changes.

The cap gains and ordinary dividend rates are retained, still making the AGI change still a large change for the upper 1%. It's just that people ignore the composition of income and how that drives portions of the income to a 15% rate. Of course, these people also overlook the fact that these are marginal rates, so that a person in the 39% rate DID receive rate reductions in the lower categories, just like everyone else.

I wasn't talking about what was retained, but about what people wanted retained. I doubt many on the left were especially excited about retaining cuts to cap gains, though that may very well have been part of Democrat policy.

I'm not really sure who 'these people' who allegedly don't understand marginal tax rates are. People critical of Bush tax policy generally seemed to want to increase the progressivity of the income tax code by letting the highest marginal rate expire and retaining the cuts in lower brackets. Of course the effective income tax rate is not simply the last marginal rate you paid. That doesn't change the fact that letting the highest rate increase would increase the effective income tax rate for those who fall in the highest bracket.

The point is really quite simple - people seem to like alleging things to the effect of, 'these people don't understand marginal rates and they don't realize Bush also cut taxes for the poor and really they're just stupid and don't know what they're talking about,' when the policy positions people (as opposed to whoever 'these people' are) espoused acknowledge Bush tax cuts on the lower marginal rates and in general did not need to pay any attention to the fact that we're talking about marginal rates since the goal was just to increase the relative effective income tax rate for the very rich, which the lobbied for policy would have done.

Liberal policy in the US has always had more to do with punishing the rich than actually helping the poor. It is mind-boggling that we actually let liberals get away with controlling the narrative in the way that they do.

Damn, you're on to us, Danny.
We need to get smarter.

Yep.

None of the group interests are being served. Our defense sucks at anything other than starting wars. The poor we still have with us. The economy stinks.

Hmmm, maybe there's something else we could try. I wonder what that could be.

free markets?

No, that can't be it, the NYT keeps telling they've been utterly discedited.

Obviously the way forward to prosperity is massive gov't spending.

Re: Our defense sucks at anything other than starting wars.

Last I checked we haven't had any great khans, lord high holy emperors or dear leaders of the people marching armies across our borders to sack our cities, enslave our women and children and seize our territoies. Our defense does keep us from foreign conquest. It just happens to do a whole more than that, or than it needs to do.

Also, the Atlantic and Pacific oceans help.

I don't believe income equality is a question of taxes. At least in the US it's because the high income earners are seeing their incomes rise while the rest doesn't. Over the last 30 years the country has been splitting up in 2 groups. The ones whose work is valued and see income increases and some who are just seen as a cost factor are not deserving of increases. Unfortunately the second group seems to be growing.

Raising taxes on the wealthy may change inequality a bit but in the end it's a cultural issue. Is it OK for one group to maximize their income without any regard to how the rest of the country does?

What "one group?" Have the wealthy unionized, joining forces to keep the rest of us down?

No employer wants to pay more if they can pay less and get the same results, just like no consumer wants to pay more when they can pay less and get the same quality.

Of course it is okay for each person to get the highest possible income for themselves. They have no control over other peoples' incomes anyway, there is no mechanism by which they could transfer their pay raises to other people. Turning down pay raises would just make them poorer and not help anyone.

But it doesn't mean that the rich would suddenly all move away, withdraw their investments and never spend anything in the US any more if you taxed them a wee bit more.

Correct, it doesn't mean that. What it does mean is that the middle class and the poor can also afford to pay more without withering away and dying off. On the contrary, if we ever desire to actually have the social infrastructure that other nations have (such as universal health care, high speed rail, comprehensive/effective welfare, education, etc), that we would need to fund it the exact same way that they do: by taxing everybody. Americans may desire those things in the way that I desire a 50m yacht, but given a choice between funding it properly by using broad-based tax increases and not funding it at all, they always choose to not fund it.

If you believe the Great Stagnation (as I do), higher taxes on the middle class affects real wages much more than on the wealthy.

My statement is not a normative statement, it is a positive statement. If we want more, we will have to pay more across the board, not just at the top. Revoking the bush tax cuts for just the top 2% would make a measly 5% impact in our current budget deficit...nowhere near the point where we could actually afford to provide more services. Even if the peak of the Laffer curve was in the range of 70%, and we politically could achieve taxing them at that rate, we would still have a very tough time covering the deficit alone, before moving on to actual increases in spending.

If we want more, it has to come from everybody, regardless of how much pain is allocated to whom.

Or we could just stop allocating pain to others, and take money from the Department of War. Oh, er, sorry, Defense.

Although it is a good political move, extending the Bush tax cuts is seen as a way to stimulate the economy and isn't really being proposed as a permanent solution by the Dems. Making the richest earners pay what they did in taxes before Bush isn't really going to have much of an impact stimulus-wise, as they probably wouldn't spend that money anyway. It isn't huge, but the government could still use that additional revenue. But yes, in the long run, taxes for everyone except the poorest do need to rise.

Yes, but currently the US House is controlled by a group of people who absolutely refuse to raise taxes. Those same people also like to cry class warfare any time you bring it up.

the deficit is 2.5 times the size of the military budget. No, that will not fix the problem, git.

Which deficit is 2.5 times military spending? The deficit varies much more drastically than military spending as a % of GDP, which is markedly more consistent in its variation (and military spending is much more than 40% of even the rather high recent 2011 deficit of 1.3 trillion or projected 2012 deficit of 1 trillion). DoD spending is a projected 700 billion. Defense-related spending stands at 1.1-1.4 trillion.

Simply compare US deficits as a percent of GDP (ranging from surpluses of a few percent to recent highs of 10% from 1960 on) to US defense spending as a percent of GDP (ranging from 10% of GDP to 5% of GDP from 1960 on). Future deficits (up to 2016) are projected to be lower than future outlays on defense as a percent of GDP.

Of course the DoD isn't just going to be eliminated, but bringing costs in line with other OECD countries, which spend closer to 1.5%-2.5% of GDP on defense, as opposed to our 4.5%+, would drastically reduce our deficits.

I wonder why so many Americans are obsessed with high-speed rail. It only makes sense in densely populated areas of some particular size, and it is still very expensive.

It might make sense in California, but precisely California can't afford it, having spent all its fortune and going into debt on generous public worker pensions etc.

The geography of California between LA and SF is really quite unsuitable for HSR, with many steep grades. The practicality of it doesn't really matter, though - when you come out in favor of HSR, you're really saying that you wish Bakersfield and Fresno were more like Amsterdam and Copenhagen, which is a doubleplusgood thought.

wonder why so many Americans are obsessed with high-speed rail

They're not. A small but vocal number of Americans, mostly on the left, who tend to fetishize European ways of living, are obsessed with high-speed rail. Most Americans don't really care much about it.

I don't fetishize, but vastly prefer it to air travel whenever possible.

vastly prefer it to air travel whenever possible

As long as someone else is paying most of the cost of your ride.

No, but many more are going to get much more interested in pay plans that make more of their income look like capital gains for tax purposes.

Disingenuous as ever, since the point was never about our income tax rates but our capital gains tax which forms the overwhelming majority of 1 and especially 0.1 percenters earnings, and which have fallen almost in half from 28% in the 80's to 15% after Clinton and Bush, whereas it continues to be 30% in Sweden.

Since there's nothing difficult about explaining or understanding this, the only explanation for all the journalistic repeat offenses on the subject is intentional misleading, also known as lying. But what else is new.

http://elsa.berkeley.edu/~saez/course/Saez%20et%20al(2010).pdf

This paper is forthcoming in JEL. See figure 2 for income of top .1% over time by income type. The game changing nature of the '86 act can be seen pretty clearly.

Uhu. Except that the stock market was at the same level in 1999 as in 2011.

The rich don't own "the market." They own high growth companies or millions of options in companies whose stock need only appreciate a few dollars to realize incredible returns. Think the founders of Google are in the same place as they were in 1999? Hey, how about Robert Nardelli? He took home $210 million in severance even though Home Depot's stock went sideways.

Apparently the rich follow Will Rogers' advice on buying stocks. If they don't go up, don't buy them.

Other way around. You didn't own stock in a high-growth company because you are rich, you became rich because you owned stock in a high-growth company.

The disingenuous one is you Mark. Another typical tax and spend liberal who hasn't bothered to do the math.

In Sweden the statutory corporate tax rate is 28.0%, in the US its 39.3%. In addition in Sweden as in all other civilized countries besides the US, corporations are not taxed on overseas income.

Even disregarding that if a company makes $1 in pre-tax income, and it accrues in the form of capital gains, then in the US a shareholder sees $0.51595. In Sweden the same shareholder sees $0.504. However this assumes that said shareholder lives in one of the few states without income tax like Texas or Florida.

Let's assume that said shareholder lives in high-tax California or New York. In both states capital gains are taxes as ordinary income and top marginal rates are above 10%. In either of these states a shareholder only sees $0.455. Nearly 10% less after tax income as Sweden.

You are right about disenguity.

You can prove it by asking a simple question: What percentage of Adjusted Gross Income for the top 1% before and after the Bush tax cuts.

What's your guess.

Prior to the Bush tax cuts, the top 1% paid 27% of AGI in taxes; after the tax cuts 20-21% of AGI. It is not necessarily the marginal rates, but as others stated, the 15% OI rate on dividends and 15% rate on cap gains.

Doug, Disengenuity begins with focusing on RATES, and not net taxes after deductions.

Why? Wage income is fundamentally different from capital gains or dividends, there is no reason they should be taxed at the same rate.

I've often heard people say there's some good reason to treat the two differently, but I've never had that difference clearly explained to me. Money is fungible; income is income.

Money is money: a scalar without any dimensional qualities other than magntitude. One form of income is the same (in fundamental nature) as any other.

It's all the deductions, not the nominal corporate tax rate, that matters.

I can't let that deceptive statement pass unanswered. I'm not saying that you intended to be deceptive....

If the issue at hand is what percentage overall is paid, then yes, the nominal corporate rate is what matters. That is basically a tautology.

If the issue at hand is incentives, then it is the headline rate that essentially is what is important, because it is marginal tax rates that matter for each new dollar that is or isn't invested.

It can be confusing thinking in terms of corporate taxes, because most of us aren't privy to the particulars of various deductions involved. Instead imagine we are talking about personal income taxes. You are rich, and itemize all your deductions thanks to your tax lawyers and/or accountants. Imagine you deduct your home mortgage, as you wisely should. This is a fixed dollar amount, which matters when thinking about your effective personal income tax rate. If you have a $x deduction with a $1,000,000 gross income, your percentage deduction is twice of what it would be if you had had a $2,000,000 gross income instead. But thinking in terms of whether or not it is worth it to expend the work effort needed to earn that extra (i.e. marginal) dollar, your home mortgage deduction has long since ceased to be relevant. What matters to you now is your headline personal income tax rate, not your effective tax rate....

In short, the headline corporate tax rate is indeed stupidly punitive in the US, and it hurts those of us who are less in demand due to the lesser investment in the US that occurs as a result. The headline rate is what matters for marginal incentives once fixed sum deductions become sunk costs.

Damn this site for not having a "post preview"option. The following:

If the issue at hand is what percentage overall is paid, then yes, the nominal corporate rate is what matters. That is basically a tautology.

should read as:

If the issue at hand is what percentage overall is paid, then yes, the effective corporate rate is what matters. That is basically a tautology.

Happy, Referring to anything as "headline" is deceptive, just as referring to a "manufactured suggested price" is deceptive. What matters is what you pay and what your effective rate is. And, the top 1% percentage of AGI declined from 27% to 21% with the Bush tax cuts.

So what you are saying Bill, is that tax cuts result in cut taxes?

Sorry, couldn't resist. But I wonder one thing. I wonder about an inflation and increased earning tax cut provided to the top bracket combined with the inflation tax increase taken from the lower brackets. What we might have is ill-conceived tax cuts (a la Bush) as a ham-fisted band-aid for bracket creep.

Ah, but the corporate tax code is a bit different.

Most tax expenditures on the individual side tend to try to encourage what are perceived as social goods--charitable giving, home ownership, etc. If you're decision is over whether to work an extra hour (or save an extra dollar instead of consuming), then the deductions do not change that decision, so the marginal rate is what matters.

For the most part, the corporate tax expenditures tend to encourage investment--accelerated depreciation, etc. If we consider the decision margin to be whether or not to invest, then we SHOULD consider the nominal rate as adjusted by the relevant deductions.

Mark, You are correct. You cannot look at rates. You have to look at net taxes after deductions and look also at the composition of income (wage income v. dividends and capital gains) Since the composition changes based on income level, if you reduce cap gains to 15% and grant 15% OI rate on dividends, it is not have to see that the percentage of AGI paid on taxes declined from 27% to 21% due to the Bush tax cuts.

No, No No! net taxes after deductions includes the market distorting effects of the deductions.

"The awkward truth is that the U.S. income tax system is anomalous not because it taxes the rich lightly but because it taxes everybody else lightly."

That sentence is not quite right. The second part should be
"because it taxes everybody lightly" instead of everybody else. People interested in social policy have known for a good amount of time that countries achieve more equal income distributions not by having more redistributive tax systems, but by having more redistributive transfer systems.
Lane Kenworthy has long been the go to guy on that, his thoughts (and, more importantly, data) are in a couple of articles and papers and nicely summarized on his blog here: http://lanekenworthy.net/2008/02/10/taxes-and-inequality-lessons-from-abroad/

More explicitly, the populist issue of progressive taxes vs regressive taxes is grossly ignorant. If the goal is using the coercive force of government to help the bottom at the expense of the top, then tax policy should be structured in terms of most efficiently raising revenue (i.e. being as little destructive as possible), while it should be spending policy that should be progressive.

Both the "poor" and the "rich", not to mention the middle class, are all better off when any intended progressiveness is done on the spending side instead of on the tax side. The Swedish left largely understands this, which is why they have very high consumption taxes and low corporate tax rates, while the US left is largely clueless, which is why they are so opposed to consumption taxes (which are highly efficient as taxes go), and so enamored of high corporate tax rates which heavily hurt the poor and middle class.

Looking at the data, I can't say I agree that "the U.S. income tax was about as strongly redistributive as income taxes in Canada, Denmark, Finland, the Netherlands and Sweden." The OECD report clearly shows in Figure 9 the redistributive effect of income taxes. The difference between redistributive effects of income taxes in the US and the countries mentioned is not enormous, but the effect is clearly very much larger in Denmark and Finland (and measurably larger in Netherlands and Sweden) than it is in the U.S. The average effect of the income taxes in OECD countries is pulled way down by a couple of outliers, like Korea and Switzerland.

The top .1% and 1% of earners in the U.S. receive a much larger share of all income than they do in other countries (See table 5: http://piketty.pse.ens.fr/fichiers/public/AtkinsonPikettySaez2009a.pdf). So perhaps it would be appropriate if our income tax system were actually more redistributive than the other OECD countries? We have more to redistribute and our public programs and research infrastructure desperately need the resources.

Research infrastructure, eh? Let a thousand Solyndras bloom!

Less corporate welfare and more NIH. You know, trying to cure cancer and doing all the bench work that drug companies aren't these days.

あなたはマグロですか? hehehe

If I were to try to come up with a bad government research program I couldn't do better than Solyndra. But why do the politicians seem to prefer this kind of thing. It's almost like they enjoy the gambling.

Well, it might be because Solyndra had such good connections to the White House.

The top .1% and 1% of earners in the U.S. receive a much larger share of all income than they do in other countries (See table 5: http://piketty.pse.ens.fr/fichiers/public/AtkinsonPikettySaez2009a.pdf).

But the bottom 99% and 99.9% of earners in the U.S. receive only a modestly smaller share of all income than they do in other countries. The bottom 99% in the U.S. receives only about 6% less of all income than the bottom 99% in Norway, for example. So let's not have any more nonsense about how income distribution in the U.S. is massively skewed towards the very rich.

And of course income accounts for only part of GDP. There's an enormous amount of redistribution of wealth through government spending anc charitable enterprises that is not reflected in income statistics.

Sorry, but it is massively skewed toward the rich. Because that top 1% is a very small number of people who are receiving the 6% more of all income. That is a massive imbalance, not nonsense.

Government spending as a proportion of GDP is much higher in most OECD countries than it is in the U.S. And government spending in the U.S. is made up of much more defense spending and less programs that directly benefit people than other OECD countries. So, relatively speaking, there is no "enormous amount of redistribution" through gov spending.

There is no imbalance at all, only different levels of relative income. There also is an enormous amount of redistribution in the U.S. You may mean that some European countries redistribute through spending much more?

Because that top 1% is a very small number of people who are receiving the 6% more of all income. That is a massive imbalance, not nonsense.

But that's just your spin. One could say that the 99% is a very large number of people who are receiving only 6% less of all income. The income of the 99% is only modestly lower than it would be if the distribution were the same as in Norway. How is that "massive imbalance?" The fact that you focus on the consequences for the top 1% rather than the bottom 99% betrays your true motive, which is resentment of the rich rather than concern for the non-rich.

Government spending as a proportion of GDP is much higher in most OECD countries than it is in the U.S. And government spending in the U.S. is made up of much more defense spending and less programs that directly benefit people than other OECD countries. So, relatively speaking, there is no “enormous amount of redistribution” through gov spending.

Nonsense. Just because the redistribution in the U.S. through government spending is less "direct" (if that's even true) doesn't mean it isn't redistribution.

We have more to redistribute and our public programs and research infrastructure desperately need the resources.

But research infrastructure are such a small part of Government spending we could increase them considerably and not have much effect on the deficit and taxes.

"If anything, rich Americans contribute a greater share of taxes than do their peers in other industrialized nations. The top 1 percent of U.S. taxpayers paid 40 percent of federal income taxes in 2007. The top 1 percent of British taxpayers paid 24 percent of the corresponding total."

California incomes taxes are even more skewed "progressive", where 4% of people in the state pay two thirds of the income tax.

To quote again the sentence to ponder Tyler linked to on Dec 26, the US must, " ...redefine the safety net as a means of making the poor more independent rather than making the middle class less so"

“If anything, rich Americans contribute a greater share of taxes than do their peers in other industrialized nations. The top 1 percent of U.S. taxpayers paid 40 percent of federal income taxes in 2007. The top 1 percent of British taxpayers paid 24 percent of the corresponding total.”

The UK has markedly higher marginal tax rates for high-end earnings than the U.S. The reason the richest 1% in the UK paid a lower share of total income taxes is simply because our rich are way richer than their rich. Our multi-millionaires have mo' dough coming in to tax.

So you're saying that the UK collected less tax revenue from the rich than we did despite having markedly higher marginal rates?

He's saying the UK collected less tax revenue from the rich than we did because their rich are markedly less rich than our rich.

Or, to be rather more specific, in the UK the top 1% earns ~14% of all income and owns ~20% of all wealth, while in the US the top 1% earns ~20% of all income and owns ~40% of all wealth. It's completely obvious that the UK 1% would pay less of all UK income taxes than the US 1% would pay of all US income taxes even if UK income taxes are more progressive.

Well, if you are a very high income person why would you stay somewhere where you are taxed at over 60% (london) when you can earn the same amount being taxed at ~50% (New York)

Because people are irrational. No, wait. Because they value living in London over New York.

Pathetic. What portion of income taxes the 'top 1 percent' pays is irrelevant without considering what portion of income the 'top 1 percent' earns.

And focusing solely on income taxes obscures the overall tax burden of various quintiles, anyways.

As it stands, the bottom 60% earn about 22% of income and pay about 16% of federal taxes (income and otherwise), while the top 20% earn about 60% of all income and pay about 64% of all federal taxes. The top 1%, who earn about 20% of all income, pay about 40% of all income taxes, but only about 4% of, for example, federal payroll taxes. Their effective federal tax burden is closer to 25%.

Or, in sum, the answer to the question 'who pays how much income taxes' is irrelevant without also answering 'who earns how much income,' and 'who pays how much taxes, income or otherwise.'

Why is it irrelevant? The top 1% are footing the bill for the lower percentiles. You may think they *should* do so, but there's no need to hide from the fact that they *are* doing it with name calling.

marris, Quick question: When you say the top 1% is footing the bill for others, do you know what percentage of total income the top 1% have. What the top 1% have in wealth. Leaving a space below for your answer.

How are your questions relevant?

I didn't call anyone any names. I did say that trumpeting around this meaningless red meat talking point (the top 1% pay 40% of taxes!) is pathetic, which it is. It's an incessantly repeated bit of sophistry thrown out as red meat to the conservative base. Perpetuating it is something of which any self-respecting person should be ashamed. Willfully attempting to elide the fact that taxes are rates is disgraceful. The share of income tax paid only makes any sense if compared to the share of income earned.

The top 1% could earn 80% of income and pay 40% of income taxes, or they could earn 40% of income and pay 40% of income taxes, or they could earn 20% of income and pay 40% of income taxes. The implications of each of those situations are very different, but anyone who knowingly trumpets the 1%/40% line is acting as if they were all the same.

One could argue that the tax system is too progressive (or, even further, that taxes should be flat or even regressive), but in order to do that one needs to know the percent of income people earn and the percent of income people pay in taxes in total, not simply through income taxes.

If you'd like to suggest that government should be run through a system of payment based on equal (or progressive or regressive) lump amounts (some sort of 'citizen's fee, I guess) rather than progressive (or equal or regressive) rates, well, I guess one could even do that, though that would strike me as a rather ridiculous proposition to defend in the 21st century.

I did say that trumpeting around this meaningless red meat talking point (the top 1% pay 40% of taxes!) is pathetic, which it is. It’s an incessantly repeated bit of sophistry thrown out as red meat to the conservative base. Perpetuating it is something of which any self-respecting person should be ashamed. Willfully attempting to elide the fact that taxes are rates is disgraceful. The share of income tax paid only makes any sense if compared to the share of income earned.

In that case, trumpeting around meaningless red meat progressive talking points about income distribution (the top 1% get X% of all income!) is pathetic. It's an incessantly repeated bit of sophistry thrown out as red meat to the left-wing base. Perpetuating it is something of which ... ashamed ... disgraceful ... blah, blah, blah.

Except even if relative position, and hence income inequality, is not an important thing to be concerned about, 'progressive' statistics about income inequality actually tell you something meaningful about income inequality, which is their intended purpose.

Contrastingly, saying 1% pay 40% of income taxes, which is supposed to be a point about taxation inequality, tells you nothing about inequality of taxation, because it doesn't give you any information about what the actual tax rate is. In other words, it's casuistry.

Compare the two statements:

I don't like income inequality: the income distribution in the US is very unequal.
I don't like highly progressive tax rates: The rich pay a much larger lump amount of taxes than the poor.

The question of the progressivity of tax policy may be an infinitely more important thing to talk about than inequality of income. Nonetheless, the first statement actually tells you something about income inequality, while the second statement tells you absolutely nothing about tax progressivity. Rather, the second statement merely suggests that incomes are unequal.

Contrastingly, saying 1% pay 40% of income taxes, which is supposed to be a point about taxation inequality, tells you nothing about inequality of taxation,

Huh? Of course it does. It tells you that the top 1% pay a vastly disproportionate share of income taxes.

If it's "sophistry" to cite income tax shares without also citing income shares and tax rates, then it's also "sophistry" to cite income shares without also citing productivity shares and income amounts. Yet "progressives" routinely do the latter. Progressives are guilty of the same kind of out-of-context statistical game-playing that you accuse conservatives of.

*Sigh*

When we talk about the proportionality of taxation, the relevant metric is the proportionality of tax rates. If you are talking about the proportionality of tax receipts, you are no longer talking about taxes as if they were taxes (i.e. percentage rates), but as if they were fixed, per capita fees. Do I really need to explain to you that a discussion of tax policy is concerned with (taxes paid/income earned), not (taxes paid/per person), and that accordingly what needs to be 'proportionate' is the rates people pay, not the amounts they pay, which reveal nothing about the rates they pay?

As to your insipid attempt to make an analogy, sorry, it fails. Income is not simply a function of productivity, either factually or by the norms of progressives. So there is no reason to substitute data about inequality of productivity for data about inequality of income if one is talking about inequality of income. That income should simply reflect productivity is a normative argument - one with which progressives disagree (which is not to say that they don't think some portion of income should reflect productivity).

Contrastingly, I am unaware of any serious conservative who argues that we should replace taxes, with per-capita fixed fees ("Oh, you'd like some government? That will be $2,500 dollars, please.").

When we talk about the proportionality of taxation, the relevant metric is the proportionality of tax rates.

No it isn't. The phrase "proportionality of taxation" may refer to several different measures of proportionality regarding taxes. Tax RATES is just one of them.

Income is not simply a function of productivity, either factually or by the norms of progressives.

No one said it is. The point is that progressives typically complain about income shares without paying any attention to productivity shares. They know that if the higher income shares of the rich reflects higher productivity by the rich, it drastically undermines their claims that the higher income shares are unjust.

It's one thing to assert what progressives believe. It's another thing for progressives to actually believe it.

I'm not aware of any progressives who think income has nothing to do with productivity. I'm aware of plenty of progressives who think that many of those with high incomes aren't as productive as their incomes suggest, or that certain income levels are not justified no matter how economically productive someone is.

As to discussion about taxation not only being about tax rates, please direct me to any serious policy debate that we should replace tax rates with lump sum taxes. I did admit this possibility in my initial post, I simply dismissed it as prima facie absurd. If you're aware of any defenses of such a highly regressive tax system, I'd love to see them. (I'm aware of the Pigouvian qualities of a lump sum tax, I am not aware of anyone who argues those qualities are enough to justify basing an entire tax policy on lump sums.) Debates on tax policy in the US are about the relative regressivity, flatness, or progressivity of tax rates. They are not at all about lump sum taxes.

It’s one thing to assert what progressives believe. It’s another thing for progressives to actually believe it.

Progressives often complain about the share of income received by the top 10% or the top 1% or the top 0.1% without addressing the share of productivity of these groups. If you don't believe this, I don't care. I think most readers of this blog have probably seen these complaints.

I’m aware of plenty of progressives who think that many of those with high incomes aren’t as productive as their incomes suggest, or that certain income levels are not justified no matter how economically productive someone is.

Are you? So what?

As to discussion about taxation not only being about tax rates, please direct me to any serious policy debate that we should replace tax rates with lump sum taxes.

I don't know why you want me to do that. I don't see how the fact that tax policy and tax distribution is about more than just tax rates implies that we should replace tax rates with lump sum taxes. Your capacity for nonsequitur is astonishing.

If a progressive does not bring up productivity when complaining about income inequality, perhaps you should ask them why they do not bring it up, rather than assuming they do not bring it up because they think it has nothing to do with income inequality. I would think it would be trivially obvious that progressives think either a. not all income is a result of productivity or b. productivity is not the only relevant determinant of income.

While certain taxes are not discussed in terms of rates, discussion of income taxes are, by definition, always discussed in terms of rates. And the point of my supposed 'non-sequitor' is that discussion of overall tax burden and tax justice is pretty much always discussed in terms of rates, not lump amounts, and no one would seriously suggest that we evaluate the justice of the tax system as a whole by comparing the lump amount each household or individual pays without regard to something other than their head-count, which is what the initial claim in this thread attempts to do.

The point, which you seem determined to keep missing, is that the stated complaint about income shares completely ignores differences in productivity. If the top 1% is much more productive, why shouldn't they get much more income?

which is what the initial claim in this thread attempts to do.

No it doesn't. You keep arguing against positions that no one has taken.

Excuse me? Please read the post at the start of this thread.

It makes the following argument:

Premise 1: the top 1% of Americans pay 40% of federal income taxes
Premise 2: the top 1% of Britains pay 24% of income taxes.
Premise 3: the top 4% of Californians pay 66% of state income taxes
Conclusion: In terms of how progressive the income taxes are, California > US > Britain.
Implication: being very progressive is unjust.

First, let's note that 'Progressive' and 'Regressive' are used to describe the character of tax rates, and don't make any sense unless used to describe some sort of ratio - like, say, ratios to income.

Second, let's note that the data given is, as I said, a description of income tax share per head, and so the original post does, as I said, 'evaluate the justice of the tax system as a whole on the basis of the lump amounts each household pays in income taxes'

My point is, was, and will continue to be, that one can say nothing about how 'progressive' an income tax is, let alone a tax system, given the information provided in the initial post.

As to your attempt to make this about the productivity, it's simply a red herring. I have no problem understanding the 'point' that 'penalizing' the 'productive' is unfair.

I do have a problem engaging in a discussion about whether we are penalizing the productive through highly progressive tax rates when we have no idea how progressive the tax rates are, and are using incomplete data to infer that they are 'skewed progressive' when we can infer no such thing from the facts presented.

Excuse me? Please read the post at the start of this thread.

I did. It doesn't compare "the lump amount each household or individual pays," as you falsely claimed. It compares shares, not amounts. And it also doesn't make comparisons "without regard to something other than their head-count." It makes comparisons with regard to income. That's two separate ways in which you have misrepresented the post.

As to your attempt to make this about the productivity, it’s simply a red herring.

I'm not "making it about" productivity. I'm pointing out that progressives generally ignore productivity when comparing income shares because including productivity differences in their comparison would undermine, and perhaps completely destroy, their claim that the income distribution is unjust.

I wrote more, it follows below, but the main point is this:

1. The post in question provides data only on shares of income tax receipts.
2. With that information, we know next to nothing about relative income or income. (we can only infer that, assuming the tax rate is progressive, share of income is <40%)
3. With that information, we know next to nothing about relative tax rates or tax rates.
4. With that information, we know next to nothing about relative productivity or productivity.
5. With that information, we know next to nothing about the relative progressivity or regressivity of income, income tax rates, tax rates, or productivity across countries, or shares, or average individuals, or anything else, let alone their actual income, income tax rates, tax rates, or productivity.
6. Because all those things are true (they are), the post is a "pathetic," "disgraceful," 'shameful,' 'casuistic' piece of "sophistry." (To use my own vitriol, which I continue to believe is warranted.)

"It makes comparisons with regard to income."

No, Major, it does not make comparisons with regard to income. It makes comparisons with regard to income tax receipts. It says nothing about income. Rates could be highly regressive and the 1% could earn 99.9% of income or they could be highly progressive and the rich could earn 1.1% of income. Can't tell from the information given.

"It doesn’t compare “the lump amount each household or individual pays""

Yes, it does, and this is easily demonstrated by some very simple algebra. 40:1 / 60:99 = 66:1 If you want that units, that's 66 shares of income tax paid by the average 1%er for every 1 share of income tax paid by the average 99%er. (Each share is an equal lump amount).

" It compares shares, not amounts"

It compares a population share's share of an amount. A population share allows us to speak of the average share per head. Given two shares (1% and 99%) we can talk about the ratio of the average amounts per head.

Let's take the statement made in the initial thread and my proposed corrective and spell out their implications:

Erik's Statement (1): 1% of the population pays 40% of the income taxes. (99% pay 60%)

What can we deduce from this? The top 1% have it 66 times as bad as everyone else. Or, to vindicate myself, per capita, the average 1% pays 66x the lump sum the average 99%er pays. Ratio of average-lump-sums-per-head.

GiT's Statement (2): 1% of the population earns 20% of the income and pays 40% of income taxes. (99% earns 80% and pays 60%)

What can we deduce from this? The top 1% have it 8/3 times as bad as everyone else. Or, to spell it out, the average 1%er is taxed at 2.67x the rate of the average 99%er. Ratio of average-rates-per-head.

How do you produce this difference in rhetorical effect (66x worse vs 2.67x worse)? By eliding the fact that the average member of the top 1% earns 24.75 times as much as the average member of the 99%.

What do you lose in producing this rhetorical exaggeration? Everything I stated at the beginning of the post.

But look, by INCLUDING that information we can also start discussing what you would like to discuss as well- the relative 'productivity' of the rich. Now, we can assume that productivity is perfectly explained by income and conclude that the average 1%er is 24.75x more productive than the average 99%er, and they are made to pay to 66x as much in income taxes, because their average tax rates are 2.67 times those of the average 99%er. Oh no! We're penalizing productivity! Isn't that funny? If you were to actually acknowledge my point, you would be able to talk about what you'd like to, but by denying my point, you aren't. Funny how ideological partisanship works.

Now, as to your delusion about progressives...

"I’m not “making it about” productivity. I’m pointing out that progressives generally ignore productivity when comparing income shares"

Yes, you are making it about productivity. We can infer next to nothing about productivity from income tax receipts alone, because those receipts alone tell us nothing about income. Taking income as an adequate proxy for productivity, If the tax rate is highly regressive, productivity of the 1% is overrepresented. If it is highly progressive, it is underrepresented. Assuming a progressive tax, the degree to which it is underrepresented is completely opaque, especially across state and national comparisons, which the original comment attempts to make. So even given knowledge that the tax system is progressive, and hence share of income is <40%, we know nothing about how this compares to other countries and states, which was the whole point of Erik's post - to decry how 'progressively skewed' California tax rates are compared to Britain and the US.

Income tax receipt shares don't tell us a thing about productivity, unless we have data on either average income tax rates or income shares.

I agree with your desire to discuss the relation between productivity and income, because I agree that whether or not productivity and income are mutually determinative - if everyone is compensated for what they produce and if everyone produces that for which they are compensated - is very important for justifying, or critiquing, redistribution and taxation.

But, from the post I was strongly critiquing, we have no way of even starting to address the issue, because we don't even have the relative income half of the equation, let alone the relative productivity half.

"If anything, rich Americans contribute a greater share of taxes than do their peers in other industrialized nations. The top 1 percent of U.S. taxpayers paid 40 percent of federal income taxes in 2007"

Maybe. But this might be misleading, as, for instance, explained here: http://abcnews.go.com/blogs/business/2011/10/warren-buffett-reveals-billionaire-friendly-tax-return/

These arguments always start out wrong. What if the high income earn not with regard to what the government does, but primarily what the government doesn't do? Then this would turn the equation on its head. In short, they wouldn't owe anyone anything.

And for the high income who make their money due to government-sponsored rent-seek opportunities, taxation doesn't fix corruption.

"the U.S. income tax was about as strongly redistributive as income taxes..."

The key word here is income tax. Income tax is less than half of total federal revenues. The bulk of the rest is payroll tax, which is flat or regressive. The overall federal tax burden is considerably less redistributive than the income tax alone.

Yes, flat % taxes and better at generating revenue.

But those are barely taxes. See above. Redistributive and progressive are not synonymous. Progressive is asking the higher earners to pay more for the government. Redistribution is asking the higher earners to pay lower earners. The payroll taxes are correctly flat because they are construed as safety net programs. Asking the rich to pay more to build a bridge is progressive.

"Asking the rich to pay more to build a bridge is progressive"

Most of all it is fair and social, since virtually no rich person would be rich w/o the hard work of a lot of less fortunate (yes) people.

How does that make it fair or social? No one would be where they are without the hard work of a lot of less fortunate people. None of us would even be alive without a lot of less fortunate people doing hard work that made them better off. Does that have any relevance whatsoever to taxation? Does Bill Gates owe a % of Microsoft to the person who built his parents' garage? Would that be fair and social? Do I owe money to the guy who came over and pooped on my lawn without my asking him to, thereby fertilizing it? Would that be fair and social?

The rich have already paid their employees for their work, and they've given their customers goods and services in exchange for the money they've received. The accounts have already been settled prior to any government redistribution.

But the payroll taxes go directly to progressive retirement benefits. Is the comparison to other countries fair overall is the question.

The comparison referred to here related only to *income* taxes. It makes little sense in comparing tax regimes across borders to restrict one's attention only to one element of how a particular country raises revenues. In fact, if one were to consider other aspects of the US tax system and tax systems used by European "social democratic" counterparts, the outcome would likely be even more astounding; that is, the US system would be shown to be even more "progressive" than systems in Europe. This is particularly true when one considers how much revenue is raised in Europe through value added tax levies. The United States also raises comparatively more income through real estate taxes, which are related to value, and indirectly wealth.

"Progressive" American voters seem to be obsessed with the idea that they would like to be "more like Europeans". This obsession likely arises from nostalgic vacation trips to Europe, where they take in the marvels of the past rather than the present (except perhaps that cup of expresso at the Cafe de Flore). That is, of course, a matter of personal choice; however, I am always amazed at the level of ignorance that exists as to where the money comes from (or doesn't) to support the European model. In fact, the primary characteristic of the European model is not that it entails a greater redistribution of income. Rather, it is based on the principle of paternalism, that is, European countries take a much greater percentage of income from lower quintiles than the US does, only to give more of that back in the form of social benefits. The revenue side of the ledger is something progressive politicians are loathe to admit to their constituents.

It gets even more fun when you look at per-capita entitlement spending.

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