U.S. Tax System is Most Progressive in the World (But Still Not Progressive Enough for Progressives)

U.S. Tax System is Most Progressive in the World (But Still Not Progressive Enough for Progressives)

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Let’s see how the pro-tax left spins this.

William  McBride of Tax Policy Blog writes in Maybe the Rich Can Afford to Pay More Tax, But Should They (emphasis is mine):

Bruce Bartlett says the rich are paying less income tax than they used to:

The larger question is how much the well-to-do should pay. According  to the IRS, in 2008, those in the top 1 percent of the income  distribution, with incomes over $380,000, had an effective tax rate of  23.3 percent. In 1986, a year when the real gross domestic product grew a  healthy 3.5 percent, their effective tax rate was 33.1 percent. It has  been much lower every year since.

Indeed it has.  In 1987 the effective tax rate dropped to 26.4  percent and in no year since does it get above 28.9 percent.  It seems  1986 was a fluke year in this data series, which begins with 1986.

The Tax Policy Center, which Mr. Bartlett respects, uses CBO data to calculate effective tax  rates by household income quintile, over the years 1979 to 2007.  As the  following graph shows, in 2007 those households in the highest income quintile (the top 20 percent) had an effective tax rate of a little less  than 15 percent.  This has changed very little since 1986 or anytime in  the 1980s.

Contrast that with the lower income quintiles, which all pay  dramatically less tax now than they did in the 1980s.  The trend is most  pronounced among those in lowest income quintile, which had an  effective rate of about zero up until that magical year 1986, and  thereafter a more and more negative rate.

In 2007, those in the lowest  income quintile not only paid no tax, they got paid at the rate of 6.8  percent of their income!  Starting in 2002, the effective rate for the  second lowest income quintile goes negative as well. This means that  the bottom 40 percent of households are now getting paid through the  income tax code.

This is why the OECD finds that the U.S. has the most progressive income tax system in the industrialized world.

That means the rich in the U.S. pay a greater share of income taxes than in any other OECD country. The top 10 percent pay about 70 percent of income taxes.  Mr. Bartlett’s argument that the rich should pay even more doesn’t hold water.

Mr. Bartlett says the rich should pay more taxes simply because they can afford to pay more taxes.¹

This is, of course, absurd. If everyone were left with only what he or she absolutely needs for survival (i.e. food, shelter and clothing), everyone – not just the rich – would be required to pay more taxes.

The question Mr. Bartlett should be asking is whether or not it is morally acceptable to confiscate the surplus wealth of the so-called rich – which surplus is to be determined by an elite government cabal – for redistribution to others whom that cabal has determined to have a deficiency in wealth.


¹   In Shakespeare’s King Lear, the King’s evil daughters, Goneril and Regan, keep reducing the number of attendants they will allow the King to have. Finally, Goneril says that the King, because he has relinquished his Kingdom, doesn’t need any attendants, to which Lear replies:

    O, reason not the need: our basest beggars
    Are in the poorest thing superfluous:
    Allow not nature more than nature needs,
    Man’s life’s as cheap as beast’s.

Yes, Mr. Bartlett, the rich have more than they need, but that is hardly a sound basis for determining who amongst us should be taxed and at what rates. If we increased taxes on everyone who can afford to pay more, we would increase taxes on everyone who owns a television, an automobile, an iPod and a Netflix account.

About Peter Pappas

Peter is a tax attorney and certified public acccountant with over 20 years experience helping taxpayers resolve their IRS and state tax problems.

He has represented thousands of taxpayers who have been experiencing difficulty dealing with the Internal Revenue Service or State tax officials.

He is a member of the American Association of Attorney-Certified Public Accountants, the Florida Bar Association and The Florida Institute of Certified Public Accountants and is admitted to practice before the United States Tax Court, the United States Supreme Court, U.S. District Courts - Middle District of Florida

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  1. This is what happens when people cherry pick statistics. The OECD data shows that the US has virtually the highest degree of income inequality of all the nations surveyed (PPP based Gini coefficient), so it’s natural that INCOME TAX collected by quintiles will appear to be progressive. Include all taxes, and the US is pretty much average, in the middle of the pack.
    The US tax system is in sore need of repair, but the problem is not it progressivity.

  2. Oldfart,

    Good point, but the solution to income inequality is not to take surplus wealth from one class and give it to another class.

  3. The big reason IMHO why the lower sector pays so less, on average: the child tax credit, that big giveaway of one grand per kid. That skews the whole thing. It’s not a rich/poor thing, but something pressed mostly by *Republicans* to reward “families” and make childless people subsidize children of families making more money than them, all the while increasing demand pressure on resources, commodities etc.

    Peter: you’re right, better to arrange system for the lowers to get paid more to begin with.

  4. I see another weakness here: “federal tax rate” does not include FICA, and I think it’s poor semantics to say it isn’t really a “Federal tax” because you do have to pay it, and it’s not at the State level. In any case, people end up short that amount in the short term, it’s “a tax” for them in practice – and they pay more compared to higher earners, ramping up their relative burden.

    “Fine minds make find distinctions.”

  5. Neil,

    I expected this kind of spin from the class warfare left. Weak minds disregard facts they don’t like.

  6. Ah, the old “FICA” argument. When someone proposes cutting Social Security payouts, they scream “You can’t! We paid for them!” as if FICA is some separate investment in oneself, not a regular tax (which is how it was originally sold to voters). But when we talk tax fairness, suddenly FICA is a tax again. Wait – is the ObamaCare mandate a tax or a penalty this week?

    Even if you include FICA, the numbers are terribly progressive.

    And as expected, the argument is twisted to “income inequality”. What no one realizes is that our progressive tax code CAUSES income inequality. The poverty trap – poor people find that increasing income costs them money because it disqualifies them from aid – has been proven to exist in this country for many people. Complexity in the tax code naturally favors the smartest – who were already rich.

    Liberal economic policies are attempts to solve the problems caused by liberal economic policies.