Are Taxes Progressive?

Lane Kenworthy says people should tell the full story about tax progressivity. What has been presented attempts to defend the wealthy against the charge that they don't pay their fair share, but "it doesn’t make much sense":

How Progressive Are Our Taxes?, Consider the Evidence: Steven Dubner has a post on the “Freakonomics” blog titled “The next time someone tells you that taxes are not progressive…” He relays information from a new Congressional Budget Office (CBO) report, via Greg Mankiw, which lists effective federal tax rates for households at various points in the income distribution. The rates are higher for those with larger incomes. The implication is that our tax system is quite progressive.

But it doesn’t make much sense to look only at federal taxes. State and local taxes account for about a third of total tax revenues, and they tend to be less progressive than federal taxes.

If we take into account all taxes — federal, state, and local — the effective tax rate for the well-to-do is only a bit higher than for the poor. Here is one way to see this, based on data from the CBO and the Tax Foundation.

Comments

[Patricia ShannonP]

Thanks for posting this.
I saw a similar study a few years ago, but have lost the article. State and local taxes don't just tend to be less progressive than federal taxes. They tend to be outright regressive, because they often rely heavily on sales taxes.

[ScentOfViolets]

There is also the matter of who those taxes benefit. Suppose Jack and Jill go to lunch. Jack has steak as well as desert and three martinis. Jill has iced tea and salad. When the bill comes, Jack owes $70 and Jill owes $7. But Jack is short, and puts the touch on Jill for an extra ten-spot. Later, Jack complains to his friends that when he and Jill went to lunch, he 'paid for most of it'; technically true, but the fact is, he also didn't specify who ordered what, which would cast a different complexion on the affair.

I think this is a fair analogy for what happens in real life with the federal budget. The fact of the matter is, vast chunks of it benefit neither me nor thee, but only a certain small slice of the electorate. I'd like to see the budget for the military halved, or even quartered, for example. Certainly those tremendous expenditures do not bring me much benefit, ditto various subsidies to agriculture, or tax breaks to 'incent' certain favored businesses. And of course, there's that trillion-dollar war in Iraq, the trillion-dollar bailout of the financial industry, etc.

Maybe I don't pay as much percentage-wise as someone in the top 0.1%(though as Mark Thoma points out, the differences aren't all that great). But I am quite sure I don't benefit from government one-tenth as much as that canonical 0.1%er.

[Vince]

For total effective tax rate, this analysis should really include payroll taxes. Medicare is an additional 2.9% of gross compensation, and Social Security is 12.4% UP TO $106,800, AND ZERO ABOVE THAT. This is the definition of a regressive tax.

And don't argue you get back what you pay into it. Higher lifetime earners receive back less than contributed, and it's not like the money is invested - it's paying off current seniors.

says...

Don't forget the regressive inflation tax, as well as price increases caused by needless lobby driven regulations.

[DW]

Well, if I had a couple tens of millions, I would happily pay the rest in taxes. Why the really rich bitch at all is beyond me to understand.

[ScentOfViolets]

I suspect, DW, it is exactly because it is that sort of personality quirk that got most of them rich in the first place. Don't we all know someone who bitches and moans about not being treated according to their due, that the last piece of cake really should go to them? That they really shouldn't have to do the dishes? Or set the table? And don't we, usually, just give it to them rather than endure the incessant complaints?

[Qingdao]

Am I missing something? Is this second graph not "progressive"?

says...

Yes, you are missing something. Those are not tax rates, they are percentages of the overall burden (share of income versus share of taxes).

The bars going up as you move to higher quintiles show how income is skewed upward, not that taxes are progressive.

[datadave]

I saw Greg M's link before and it didn't make sense. Apparently the 'wing-nut' at the Fed made calculations including 'benefits' paid out to the "poor" (1st and 2nd quintile) and subtracted them from their federal payroll taxes (if they are working..although many in the 1st quintile aren't) and also dubiously engaged in subtracting social security benefits as a negative reverse 'tax' so that people in the lowest sectors are only paying single digit taxes. BS! They have to pay at least 7 percent to 15 percent just on payroll taxes (which the wealthy are immune to). But by saying those social security checks are surpluses from the taxes to the recipients reducing their payroll taxes if they work is a fake number. A lot of what Greg Makieu does is fake from what I can see, just like his false concerns about social security blowing up like next year or something...maybe in 2044, but not next year.

remember larry kudlow was also an employee of the Fed. And just as wingery nutty.

[mmckinl]

If you really want the goods on personal taxes including income tax and capital gains read :

~Perfectly Legal: The Covert Campaign to Rig Our Tax System to Benefit the Super Rich - and Cheat Everybody Else ~

~ Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (and StickYou with the Bill)

Both by David Cay Johnston ~ a true American hero ...

Johnston received the 2001 Pulitzer Prize for Beat Reporting "for his penetrating and enterprising reporting that exposed loopholes and inequities in the U.S. tax code, which was instrumental in bringing about reforms." He also won the Book of the Year award from Investigative Reporters & Editors.

[Alex Tolley]

And the government believes that it has a true measure of income from the wealthy - how? The naivety is stunning.

[Icarus]

A flat tax would solve this conversation. Paying more than 50% of your income to a central state is already highway robbery.

Maintaining and building wealth, and evading taxes are one in the same. Tax strategies dominate the minds of many economic actors, and this is a waste of time. A low corporate tax rate, and a low total tax rate would be an incredible boost to the US economy. It would even become more hospitable for economic activity, and as well the location of mobile capital.

Libertarians are right on this one...

Those that want the wealthy to pay more in taxes are usually not concerned with actual fairness, but instead with helping the plight of the poor. This is a noble cause, but an imprudent path.

The poor need to 'trained' to succeed...not given handouts of scraps.

If I make $200,000/year, and pay a 20% total tax rate, I am paying 4x more than someone making $50,000/year. That's progressive enough. My extra contribution pays extra for the police, roads, schools, and every other social good it is allocated to.

The poor need to pay some federal income tax as well...as they pay, they will be further represented, and further involved.

[Lord]

One cannot define income without identifying the expenses of generating that income and this is the faulty part of the entire argument. If those at the bottom truly identified all those costs and could deduct them, if they did not have to pay more for less, if they had healthcare and pensions, they would have no true income and would not be paying any tax. The rich get very nervous at the thought of this, that a large number of people that pay no taxes would have no objection to raising them. To circumvent this, they tax them on income they don't actually have, only to subsidize them and complain about having to do it, to persuade them to oppose taxes on themselves while telling them they are on their side and support them through those subsidies. It is all a shell game played through the tax code and other spending.

[mmckinl]

Icarus ...

It's not so simple my friend. I suggest you read Perfectly Legal by David Cay Johnston.

The myriad of tax laws that favor the wealthy and the corporations are sometimes very complicated. These are for incomes well in excess of $200,000 whereby the Treasury loses milllions sometimes tens of millions at a pop.

ie ~ Hedge fund managers getting a 15% tax rate on income for the share they own they never paid for.

[reason]

Nobody seems to have noticed that the upper middle are being screwed relative to the very rich (especially Icarus seems to have missed this).

By the way Icarus is there anything that you don't think that the Libertarians are right about?

[Icarus]

Reason,

http://famguardian.org/Subjects/Taxes/FalseRhetoric/DavidJohnstonGovInf-040325.htm

A nice little article on the problems with Johnston's ideas/tactics. The concept this writer invokes is the "Tax Police State"...it may have some resonance.

[reason]

Icarus,
why are you addressing this to me, I wasn't saying anything about Johnston.

[reason]

And Icarus,
I followed that link and it is very, very, very poor (no facts, examples or references, just aggessive rhetoric).

[gordon]

Prof. Thoma posted on the Federal part of this issue back in 2006 ("How Progressive is the U.S. Federal Tax System?", quoting an NBER paper by Piketty and Saez. I wonder if this is the paper that Patricia Shannon remembers.

From P.&S.'s abstract: "The progressivity of the U.S. federal tax system at the top of the income distribution has declined dramatically since the 1960s. This dramatic drop in progressivity is due primarily to a drop in corporate taxes and in estate and gift taxes combined with a sharp change in the composition of top incomes away from capital income and toward labor income."

And from the conclusion: "These large reductions in tax progressivity since the 1960s took place primarily during two periods: the Reagan presidency in the 1980s and the Bush administration in the early 2000s. The only significant increase in tax progressivity since 1960 took place in the early 1990s during the first Clinton administration".

[gordon]

It's also interesting to note the following from a Business Week article of Mar. 31, 2003: "In 1940, companies and individuals each paid about half the federal income tax collected; now the companies pay 13.7% and individuals 86.3%".

Also this (same article): "In 1965, U.S. corporate taxes amounted to 4% of gross domestic product, according to the Organization for Economic Cooperation & Development which includes local, state, and federal income and capital-gains taxes in its calculation. By 2000, that figure had dropped to 2.5%. That's the reverse of the OECD nations as a group, which saw aggregate corporate tax receipts climb from 2.2% of GDP 38 years ago to 3.6% in 2000".

[Reader]

I don't read it, but I had assumed that Freakonomics was reasonably honest. Now I find otherwise. Depressing.

"The concept this writer invokes is the "Tax Police State"...it may have some resonance."

It does not.

[Jay Bookman]

One of the right-wing’s favorite talking points is the claim that 50 percent of American households don’t pay income taxes. From that claim flow a couple of other points: First, it’s impossible to “cut” taxes for those households because they don’t pay any tax in the first place; second, those households are somehow less deserving of respect or even a voice in politics because they aren’t paying their own way.
That claim is bogus both in its details and its general charge.
The actual figure of “taxable units” who don’t pay the standard income tax — a taxable unit being a couple filing jointly or a person filing — is somewhere around 38 percent. Even that number is grossly exaggerated, because it excludes what people pay through the payroll tax.
That tax, in total, amounts to 15.3 percent of earned income up to a gross income ceiling that this year is $102,000. Above the ceiling amount, a taxpayer pays only 2.9 percent. (Employers technically contribute half the 15.3 percent, but economists classify the entire amount as a tax burden on the worker because it is a tax on their labor. If you’re self-employed, you have to pay that entire 15.3 percent yourself.)
Because of that income ceiling, high-income workers end up paying the tax only on a relatively small part of their income, while poor and many middle-income households pay it on everything they earn, so the payroll tax is to some degree a surtax on the poor and middle-class worker.
How much does the payroll tax amount to? Well, last year the standard income tax brought in $1.17 trillion, while the payroll tax brought in $873.4 billion.
Technically, payroll tax receipts are supposed to be reserved for paying for Social Security and Medicare, which is what allows some people to claim it is not an income tax. However, in practice that distinction was abandoned long ago. For decades now, the payroll tax has been bringing in a lot more revenue than needed for Social Security, and the excess has been siphoned off for general fund use like any other government money.
Last year alone, $190 billion in payroll tax receipts was diverted to general fund use, paying for everything from Iraq to the salaries of park rangers.
As of 2007, a total of $2.25 trillion of payroll tax money paid into the Social Security and Medicare trust funds had been diverted to general fund use and replaced with government IOUs. In effect, the trust funds are an illusion. Payroll taxes and income taxes go into the same pool of money and are withdrawn from that same pool of money to fund government.
And for that reason, the claim that 50 percent, or even 38 percent, of Americans pay no income tax is flat out wrong.

[calmo]

What Lord said...but that I no longer have the patience to say...it B true, I am turning into an old crank who can no longer even turn that old wheel about preclusions...I am just so past it...can I B distracted into one last time (for Lucy's sake Charlie Brown...she needs to feel empowered...and only you can bestow it...B magnanimousey...U can so do it...give yourself a kick in the ass!) Those orphans, with blood on their hands, pled their case once more...after stabbin their lawyer...that they were now not only orphans but orphans without counsel...and if the judge could not see it their way and acquit them, they might soon B ...even without judgment. But calmo, these people might not even know who Charlie Brown is. They better.

[John V]

Jay Bookman,

Whatever the merits or demerits or usefulness of discussions about TOTAL taxes vs. income taxes and Federal taxes vs. Fed-State-Local taxes, your post above doesn't make any point that is relevant to the complaint you posit about "Right-Wing Talking Points".

You make these claims as "Right-Wing Talking Points" that you wrap together as one claim: (in your own words)

1. 50 percent of American households don’t pay income taxes.
2. it’s impossible to “cut” taxes for those households because they don’t pay any tax in the first place.
3.those households are somehow less deserving of respect or even a voice in politics because they aren’t paying their own way.

1. and 2. are not only "talking points" but they are also true when expressed properly...which is to say that the 50% HARDLY pays any income tax. THAT is what they say. So, when you switch out that absolute negative and put in "hardly", the "talking point" is now accurately conveyed...and it also happens to be truthful as a statement.

3. Three is bogus indeed...as you say. But it's bogus because it's not a talking point at all. I read official Left and Right Wing talking points all the time and that claim doesn't appear as Right Wing Talking Point. It's only a talking point on the Left, if at all, as part of a description of a "so called" right wing talking point that isn't real...just like how you used it.

But as for 1. and 2., you claim they are not true in detail or in a general sense. Well, like I said, once you clean up the language and use "hardly", it's true in both senses. And you seem to know this because you are aware that 38% pay no income tax at all. And since you are aware of that stat, you surely must know then that the bottom 50% pay about 3% or so of income taxes.

Then you switch the rules in mid-argument by claiming that that 38% is exaggerated because payroll taxes are "income taxes", which they are not. They are payroll taxes for SS and Medicare as you say. They are not income taxes.

Now, you want to complain that surplus payroll taxes are being siphoned off and being used for general spending? Go ahead. I'm with you there. But that doesn't change the nature of what those taxes were made to do. The fact that government can't restrain itself from pretending that that money is free to be used for anything it wants is another matter.

You want to complain that payroll taxes are regressive? Go ahead. I'm with you. They are. But that's what they are. They were made to be that way over the years. And as incomes rose, the tax began to be a lower and lower percentage of total income for those with the rising incomes. But that is nobody's fault. It wasn't a ploy.

[Shabadoo]

So the poor pay HARDLY any income taxes, yet the absence of paying income taxes is not sufficient enough stimulus for them to earn more money? Interesting.

[ccm]

This is what I posted over at Naked Capitalism on this issue.

Just in case no one else noticed, the Mankiw data is pretty funny. This is an amusing economist's exercise in which the taxes paid by corporations are imputed to the shareholder households. Thus, hardly to anyone's surprise a full 14% of income of that .01% of the ultrawealthy is paid as taxes by the corporations they "own". (See page 10 of the CBO doc Mankiw links to.) By any normal metric the top .01% pays just 17% of their income in taxes.

See the problem here is that a huge segment of the economics profession still hasn't come to terms with the fact that when a state permits the creation of a new legal entity with limited liability, that entity should be taxable just like the rest of us. Because economists deny the existence of these independent legal entities, they have this habit of confuting them with their owners -- which, of course, would only make sense if their owners didn't have limited liability. (Remember when lawyers want to refer to a human being, they can't just say "person", they have to say "natural person". Corporations are persons under the law.)

Anyhow that's the story for how these numbers have been generated.

[ccm]

I just realized that there is a huge inconsistency in that CBO document: it imputes taxes to shareholders of corporations, but does not impute corporate income to shareholders of corporations (unless it is distributed as dividends).

Here is the quote on their methodology: CBO
assumes in this analysis that ... corporate income taxes are borne by owners of capital in proportion to their income from interest, dividends, capital gains, and rents. Therefore, the amount of those taxes is included in household income, and the taxes are counted as part of a household’s tax burden.

Needless to say, if the CBO wanted to do the analysis correctly it would have to impute corporate income (not just the taxes paid on that income) to owners of corporations. The failure to do this makes the meaning of the CBO's numbers far from clear.

[ScentOfViolets]

1. 50 percent of American households don’t pay income taxes.
2. it’s impossible to “cut” taxes for those households because they don’t pay any tax in the first place.
3.those households are somehow less deserving of respect or even a voice in politics because they aren’t paying their own way.

1. and 2. are not only "talking points" but they are also true when expressed properly...which is to say that the 50% HARDLY pays any income tax. THAT is what they say. So, when you switch out that absolute negative and put in "hardly", the "talking point" is now accurately conveyed...and it also happens to be truthful as a statement.

Sigh. So much to cover here. That word 'Hardly' or in your nomenclature, 'HARDLY' would be more appropriate if you actually attached some figures; figures like before- and after-tax income. Further, why can't income taxes be negative? It's been proposed before, and I'm sure you've heard of it. But pretending it can't be done is indeed a right-wing talking point. As is:

3. Three is bogus indeed...as you say. But it's bogus because it's not a talking point at all. I read official Left and Right Wing talking points all the time and that claim doesn't appear as Right Wing Talking Point. It's only a talking point on the Left, if at all, as part of a description of a "so called" right wing talking point that isn't real...just like how you used it.

So, why don't you tell us what talking point on the right is being inaccurately paraphrased here? I've got a good guess, but I'll let you offer your own version.

Then you switch the rules in mid-argument by claiming that that 38% is exaggerated because payroll taxes are "income taxes", which they are not. They are payroll taxes for SS and Medicare as you say. They are not income taxes.

Are they taxes calculated on the basis of income, or aren't they? No, they are not the 'income tax', but they are a tax on income. I think this was a fairly obvious reading of what was said. Try not to misunderstand in the worst possible way.

Now, you want to complain that surplus payroll taxes are being siphoned off and being used for general spending? Go ahead. I'm with you there. But that doesn't change the nature of what those taxes were made to do. The fact that government can't restrain itself from pretending that that money is free to be used for anything it wants is another matter.

I see. Don't go with reality. Just pay attention to the theory. More on this in a bit.

You want to complain that payroll taxes are regressive? Go ahead. I'm with you. They are. But that's what they are. They were made to be that way over the years. And as incomes rose, the tax began to be a lower and lower percentage of total income for those with the rising incomes. But that is nobody's fault. It wasn't a ploy.

This is just bizarre, and about par for the course. The passive voice 'They were made to be that way over the years' sure takes a beating, don't it though? Yeah, nobody ever pushed for this, no particular group or groups of people, just purely by chance this is what happened.

But since it 'just happened', according to you, then nobody would object to raising the cutoff limit on those taxes, right? That's according to you. I'm going to go with my theory, and say that raising the cap would seriously discommode a bunch of fairly well-off people.

Finally, I will again note that 'progressivity' doesn't mean bupkis unless it's matched to expenditures. If I pay 10% of my income in taxes and someone else pays 20%, but for every dollar in taxes I contribute I get back fifty cents and they get back $1.50, it hardly makes a difference how 'progressive' those taxes are. That putting money into the general fund? That money is not going to benefit me. It's going to pay off trillion-dollar war debts. It's going to pay for trillion-dollar bail-outs of the financial sector. It's going to pay for 'farm subsidies' to Agribusiness.

Not much of it is going to benefit me or mine that I can determine. Or indeed, any of the regular income tax I do pay.

[John V]

SOV,

Not sure how or why you find so much to argue with.

The data is easy to find. I don't see you chasing others for references. It's pretty easy to verify. Go ahead. BTW, I did mention it was about 3% for the bottom 50%.

Further, why can't income taxes be negative? It's been proposed before, and I'm sure you've heard of it. But pretending it can't be done is indeed a right-wing talking point.

I never said they couldn't be negative. But that wasn't part of the discussion. That comment sort of came out of nowhere.

So, why don't you tell us what talking point on the right is being inaccurately paraphrased here? I've got a good guess, but I'll let you offer your own version.

None that I'm aware of. The only point I've seen made on occasion (not sure if it's a talking point) is that the non taxable ceiling should not be lifted too high...say to around $30,000 per year...because it is thought by some that it removes a sense of consequence to the advocacy of raising taxes. IOW, some small level of income tax should be kept on income above the poverty level to KEEP people somewhat sensitive to tax discussions with something at stake in the matter. I'm not sure I agree with it but it is what I've heard on occasion.

No, they are not the 'income tax', but they are a tax on income. I think this was a fairly obvious reading of what was said. Try not to misunderstand in the worst possible way.

I'm not misunderstanding. I get it. The point was that one should not try to falsify/criticize a claim by changing what is meant in that claim. It would have been more honest to say: "While that talking point may be true, it obscures or diverts attention away from the affects of other taxes....which are more important in my opinion". And I agree somewhat.

What was that you said about not trying to misunderstand in the worst possible way?? sheesh.

I see. Don't go with reality. Just pay attention to the theory. More on this in a bit.

No. I'm simply trying to separate different complaints rooted in different problems.

Again, what was that about misunderstanding...?

This is just bizarre,...fairly well-off people.

It's not bizarre. Like It's the result of political actions that were taken to shore up future shortfalls. I'm not really sure what the problem is. My point is that the idea wasn't to "screw the poor". The system was set in place and adjusted at a later date, in bi-partisan fashion, to "fix it". I'm not here to defend that action or condemn it. It's simply what happened. But yes, the part about it becoming a smaller burden on the more well off truly wasn't by design. The percentage and limits were set in place and income continued to rise thereby lowering the burden on those people.

And no, I don't object to raising the limit but I don't overtly support it either. I don't have much to say on it. But my approval/disapproval wasn't really the point. I was just making an observation.

I sense a strong tone that you want to make more out of what I said than is there.

Finally, I will again note that 'progressivity' doesn't mean bupkis unless it's matched to expenditures. If I pay 10% of my income in taxes and someone else pays 20%, but for every dollar in taxes I contribute I get back fifty cents and they get back $1.50, it hardly makes a difference how 'progressive' those taxes are.

Does that represent the way things are as you see it?

As I see it, the poor and lower classes directly benefit a lot more from taxes than they pay. Again, I'm not saying they benefit too much. Not at all. But they DO benefit directly more than they pay. Is it enough? That's another matter. I'm not really sure and don't have a strong opinion. Do certain entrenched and well off interests benefit more than they pay? Sure: Ag interests do. Military Industrial Complex surly does. Big Oil does too...depending on how you look at. I happen to think they may. I'm not exactly a supporter of any of that...to put it lightly. And on that point, I do have a strong opinion. I am opposed.

Not much of it is going to benefit me or mine that I can determine. Or indeed, any of the regular income tax I do pay.

Agreed. Doesn't do much for me either....which why I oppose it...along with the power to do it in the first place. It is the unavoidable nature of government with so much discretion over money to act this way.

But as long as the issue is a tug of war for the use of government power instead of its restraint, people will always be left disappointed with the results.

[Phantom]

Yes, it is regressive.

Just look at Upper Middle and Top Quintile.

Upper Middle (those who get tax collected from payroll) have no escape, while the trully wealthy can afford to hire specialists to find them tax loopholes.

[Fred Thompson]

If we are going to talk about how federal taxes have become less progressive (and less burdensome, especially at the top and the bottom of the income distribution) over the past 25 years; it also makes sense to talk about how state and local taxes have become somewhat more progressive (and more burdensome) as they now depend more on personal income taxes and user fees and relatively less on sales taxes. The effect is pretty much a wash IMHO. Moreover, how all this plays out depends on where one lives. Oregon's effective state and local tax rates, for example, are more progressive than the federal government's; Washington's are actually regressive.

If you are concerned about tax progressivity, look closer to home.

As for treating transfers as negative taxes, that is pretty standard fare in fiscal analysis.

[Patricia ShannonP]

Lord, good points.

Gordon,
Thank you for the reference.
I'll look at it tomorrow. I'm about to leave for a song-writing group.

I believe the article I was thinking about was in the NY Times. It was an analysis that found that when federal, state, and local taxes were considered, people at various levels of income paid about 1/3 of their income in taxes. As mmckinl pointed out, the ultra rich may pay even less, because of hidden income.

[Patricia ShannonP]

In states like Alabama, which rely heavily on sales taxes, the poorer you are the LARGER a percentage of your income you pay in state and local taxes.

Is that clear enough for everybody?

[TStockmann]

Fred:

Calling a user fee a tax is not necessarily accurate, assuming the user fee does not exceed the pro rata share of providing the service. It is more akin to not providing or not fully subsidizing a service than imposing a tax despite the fact that money changes hands.

says...

There is nothing wrong with the CBO's methodology. Unless corporate profits are distributed to shareholders in dividends or other means, those profits are unavailable for shareholder use. If shares are sold, then capital gains are taxed.

Corporate profits distributed to shareholders are double taxed either through dividends or capital gains taxes. The rich have to pay yet another layer of taxes which is incredibly progressive. What we see here is envy and greed. As long as some people are better off than others, detractors will never be satisfied, it's pure envy and greed. The stats speak for themselves.

The payroll tax is not supposed to be a redistributionary tax. Yes it's regressive, but it can't be cut because the same whiners won't allow changes to Social Security. What we have here is a blatant attempt to reshape Social Security and payroll taxes into just another welfare tax. The Left can't have it both ways. If Social Security is a retirement savings plan, then we can't include payroll taxes into our discussion. People will get back what they put in. However if Social Security is not a retirement savings plan but just another welfare program, then we have to discuss whether this program is needed, effective, or efficient.

There is no need to go over Social Security, but supporters should come out and say that SS is not a tax to redistribute wealth and should not figure into such discussions. In any case, even if included there is no doubt that the rich pay more in taxes as a percentage than their share of the income as evidenced by the graph above.

BJ Feng

[Julio]

Icarus:

"The poor need to 'trained' to succeed..."

Why in God's name?

The poor, by definition, make almost worthless contributions to the social pot. If they were productive, they would be rich.

So you're not making any sense -- why aren't you proposing we 'train' the rich instead? E.g.

Announce that income taxes on the richest will gradually increase, every year, until they hit oh, say, 80%.

Watch our most talented and productive individuals run, not walk, to their workplaces and work more and more hours every week.

The rest, whose efforts are marginal anyway, can try to join them. Or not. Makes little difference anyway.

Everybody wins.

[Julio]

B.J.Feng,

While hoping not to start yet another thread on SS, I want to address your

"The payroll tax is not supposed to be a redistributionary tax. Yes it's regressive, but it can't be cut because the same whiners won't allow changes to Social Security. What we have here is a blatant attempt to reshape Social Security and payroll taxes into just another welfare tax. The Left can't have it both ways. If Social Security is a retirement savings plan, then we can't include payroll taxes into our discussion."

First of all, the "whiners" were never offered the option of just cutting SS taxes, with no other changes in SS. If it were, we'd see which of Edwards' "two Americas" is the real nation of whiners.

As to SS being a redistributionary tax: it did become one, when Reagan and Greenspan created a long-term surplus, and subsequent Congresses failed to reduce the taxes once the fund was solvent for the following few years. At that point, it did become redistributionary -- upwards.

(To add salt to the wounds, we used that money to pay for tax cuts for the rich. But that's a separate issue, though it does tie in to the "redistributing upwards" theme).

[ScentOfViolets]

SOV,

Not sure how or why you find so much to argue with.

The data is easy to find. I don't see you chasing others for references. It's pretty easy to verify. Go ahead. BTW, I did mention it was about 3% for the bottom 50%.

Sigh. Perhaps, John, it's your use of the word 'HARDLY'. It's meaningless. As is your figure above. Not even a second's thought is necessary to see why. Do you see it? If not, why are you commenting?

Further, why can't income taxes be negative? It's been proposed before, and I'm sure you've heard of it. But pretending it can't be done is indeed a right-wing talking point.

I never said they couldn't be negative. But that wasn't part of the discussion. That comment sort of came out of nowhere.

Rather than being aggressive right from the start, would you mind taking the time to read your talking points? Claim 2 was, in your own words,"2. it’s impossible to “cut” taxes for those households because they don’t pay any tax in the first place." Well, yes, you can cut taxes for these households; you can have them pay a negative income tax. You could also cut other taxes. Before saying some comment came out of nowhere, think.

So, why don't you tell us what talking point on the right is being inaccurately paraphrased here? I've got a good guess, but I'll let you offer your own version.

None that I'm aware of. The only point I've seen made on occasion (not sure if it's a talking point) is that the non taxable ceiling should not be lifted too high...say to around $30,000 per year...because it is thought by some that it removes a sense of consequence to the advocacy of raising taxes. IOW, some small level of income tax should be kept on income above the poverty level to KEEP people somewhat sensitive to tax discussions with something at stake in the matter. I'm not sure I agree with it but it is what I've heard on occasion.

So you're saying this is just made up out of whole cloth? I've heard 3) or something very similar to it from some of my relatives. And who also claim to have heard it from that Rush fella, he makes a lot of sense. Iow, the very most you can say (assuming you're being completely honest) is that it's one that you haven't heard.

[ScentOfViolets]

No, they are not the 'income tax', but they are a tax on income. I think this was a fairly obvious reading of what was said. Try not to misunderstand in the worst possible way.

I'm not misunderstanding. I get it. The point was that one should not try to falsify/criticize a claim by changing what is meant in that claim. It would have been more honest to say: "While that talking point may be true, it obscures or diverts attention away from the affects of other taxes....which are more important in my opinion". And I agree somewhat.

What was that you said about not trying to misunderstand in the worst possible way?? sheesh.

Uh, John? That's exactly what he was saying. So what you're doing - at best - is misunderstanding what he wrote, then opining on what he should have wrote, not realizing that he was doing exactly what you say he should have done. That's at best.

I see. Don't go with reality. Just pay attention to the theory. More on this in a bit.

No. I'm simply trying to separate different complaints rooted in different problems.

This doesn't make any sense to me at all. The original observation was quite straightforward: while in theory the payroll tax is used for one thing, in reality, it is also used for another. Since the original question was about who pays how much of what, this is quite pertinent. Accordingly, I really have no idea what you're trying to get at with the above; it looks like a complete non sequitur.

This is just bizarre,...fairly well-off people.

It's not bizarre. Like It's the result of political actions that were taken to shore up future shortfalls. I'm not really sure what the problem is. My point is that the idea wasn't to "screw the poor". The system was set in place and adjusted at a later date, in bi-partisan fashion, to "fix it". I'm not here to defend that action or condemn it. It's simply what happened. But yes, the part about it becoming a smaller burden on the more well off truly wasn't by design. The percentage and limits were set in place and income continued to rise thereby lowering the burden on those people.

I repeat, this is just bizarre:

February 16, 2005
Raising the Social Security Payroll Tax Cap Does Not Fix Social Security
by David C. John
WebMemo #667

Is a fix for Social Security even worth discussing if it would only delay the system’s inevitable shortfalls by six or seven years? Groups such as AARP think so and have proposed raising the payroll tax cap to make the wealthy pay their “fair share” for Social Security.

Or how about this:

Wednesday, April 06, 2005

White House Aide Discusses Raising Payroll Tax Cap

Congress returned from recess this week, during which House Republicans alone held 550 events on Bush's plan to overhaul Social Security. Despite all this talk of privatization accounts, even White House aides are saying that perhaps other reforms should be considered.

On April 5th, Chuck Blahous, an economic advisor to Bush and the administration's top aide on Social Security policy, said that raising the $90,000 cap on wages subject to the Social Security payroll tax would delay the onset of the long term Social Security shortfall. Blahous did not rule out White House support for proposals to raise the cap, but many GOP congressmen are opposed to the idea, including House Majority Leader Tom DeLay (R-TX). Others such as Sen. Graham (R-SC), have been criticized for supporting such an idea.

Or how about this:

Currently only the first $90,000 of wages is subject to the payroll tax. Opponents of the president’s plan for personal accounts argue that Social security’s looming financial problems could be fixed if that cap were raised or eliminated. But, while soaking the rich may be a politically popular approach, the reality is that this enormous tax hike would seriously damage the U.S. economy while doing very little to save Social Security.

Eliminating the cap on payroll taxes would be, by far, the biggest tax hike in U.S. history, more than $1.3 trillion in new taxes over the first 10 years alone. As bad as that would be in the aggregate, it would be even worse for individual workers. A worker earning $100,000 per year would pay $1,240 more in taxes each year.

Gee, you think that maybe certain people worked rather hard to make sure the cap was not raised? Sheesh.

And no, I don't object to raising the limit but I don't overtly support it either. I don't have much to say on it. But my approval/disapproval wasn't really the point. I was just making an observation.

An 'observation' that was not backed by any cites or facts - what people like me call an 'opinion' - and in fact, was just plain wrong.

I sense a strong tone that you want to make more out of what I said than is there.

I would say that many people think that of you. A lot of people.

Finally, I will again note that 'progressivity' doesn't mean bupkis unless it's matched to expenditures. If I pay 10% of my income in taxes and someone else pays 20%, but for every dollar in taxes I contribute I get back fifty cents and they get back $1.50, it hardly makes a difference how 'progressive' those taxes are.

Does that represent the way things are as you see it?

As I see it, the poor and lower classes directly benefit a lot more from taxes than they pay. Again, I'm not saying they benefit too much. Not at all. But they DO benefit directly more than they pay. Is it enough? That's another matter. I'm not really sure and don't have a strong opinion. Do certain entrenched and well off interests benefit more than they pay? Sure: Ag interests do. Military Industrial Complex surly does. Big Oil does too...depending on how you look at. I happen to think they may. I'm not exactly a supporter of any of that...to put it lightly. And on that point, I do have a strong opinion. I am opposed.

I'm pointing out that, given the skimpy and selective data used to back up claims about progressivity, those claims are not to be trusted. As the chart up above shows rather convincingly, I would think.

Not much of it is going to benefit me or mine that I can determine. Or indeed, any of the regular income tax I do pay.

Agreed. Doesn't do much for me either....which why I oppose it...along with the power to do it in the first place. It is the unavoidable nature of government with so much discretion over money to act this way.

But as long as the issue is a tug of war for the use of government power instead of its restraint, people will always be left disappointed with the results.

Again, this doesn't make a lot of sense, given that this is true of just about any conceivable government I can think of.

[don]

ccm -
What a hodge-podge of economics and politics.
First off, the economists are exactly right - only people pay taxes. The arguments about corporations being 'persons' is simply dumb.
Secondly, the people who pay taxes (tax incidence in the jargon) often are not the same people who make out the checks to the government. For instance, a very repectable economic hypothesis is that workers end up paying the bulk of the corporate income tax (in terms of lower wages). This is almost certainly true for state and local corporate income taxes, and more likely than not true for corporate income taxes at the national level.
Mankiw knows this stuff very well, so it really surprises me that he attributes the corporate tax burden to shareholders. It all epends on the assumptions, but he seems to have chosen some particularly questionnable ones.

[gordon]

Julio: "The poor, by definition, make almost worthless contributions to the social pot. If they were productive, they would be rich".

Well, somebody obviously thinks the efficient markets hypothesis is alive and well and hiding out in the labour market.

[John V]

SOV,

Sigh. Perhaps, John, it's your use of the word 'HARDLY'. It's meaningless. As is your figure above. Not even a second's thought is necessary to see why. Do you see it? If not, why are you commenting?

This point seemed so simple. What happened?

Jay said:

One of the right-wing’s favorite talking points is the claim that 50 percent of American households don’t pay income taxes.

I said the more way of putting it is that they HARDLY pay any income taxes...about 3% of the total income tax collected.

On the negative income tax:

Cutting taxes and paying a negative income tax don't really strike me as the same thing. Yes, there's little or nothing to further CUT. Paying a negative income tax is different.

But if you want to group them as the same action, by all means, go ahead.

Uh, John? That's exactly what he was saying.

Didn't seem that way to me.

Iow, the very most you can say (assuming you're being completely honest) is that it's one that you haven't heard.

Must be. BTW, I don't listen to that Rush Fella...in case you were curious. I actually don't listen to poly talk radio (or cable news shows) and haven't for quite a few years. I find it annoying. Probably because I'm not very "political" in that sense.

On theory and reality:

This doesn't make any sense to me at all.

It does to me. Sorry (honestly).

[Icarus]

What spin..."negative income tax"...it's called Welfare. It's great to see the purported regressive left (on this blog) continue to look for welfare as a cure. Is this any different than begging on the streets?

[reason]

Icarus
Yes and negative income tax IS NOT exactly the same as welfare (ask advocate Milton Friedman) - it avoids "poverty traps" (high effective marginal rates for low earners). Would you really prefer lots of beggars on the streets?