Friday, October 24, 2008

Bush tax cuts for the rich

have been transferring the tax burden from the rich to the poor, allowing the fat cats to get away without paying their fair share while hurting the poor and middle class. Right?


Here are the actual percentages of the total federal income taxes paid (last year figures are available for is 2006):

The top 1 % of wage earners
2000 37.42%
2006 39.89%

The top 5 % of wage earners
2000 56.47%
2006 60.14%

The top 10 % of wage earners
2000 67.33%
2006 70.79%

The top 25 % of wage earners
2000 84.01%
2006 86.27%

The top 50 % of wage earners
2000 96.09%
2006 97.01%

The bottom 50 % of wage earners
2000 3.91%
2006 2.99%

(figures from the The Tax Foundation They also have links to the raw data from the Internal Revenue Service)

Under the Bush tax cuts, the bottom 50% have seen their share of taxes paid cut by 25.5%, while every taxpayer in the upper 50% have seen their share increase. Not that it matters, of course- the real issues in this race are Palin's wardrobe and Biden's Botox injections.


Anonymous said...

It is good to see a bit of analysis as to the actual outcomes of the tax cuts like this.

However, in this format the data seems a bit lacking and quite potentially entirely misleading. Specifically, how does this compare to the breakdown of share of total earnings? Indeed, this seems to be the case as indicated in this here:

As indicated the top 1% saw a single year income increase of 4.5% compared to the bottom 90% which saw a 1.4% increase. Thus, the share of income earned by the top 1% increased substantially more than accounted for by the share of income taxes paid.

Jess said...

It's not that the tax cuts have transferred the burden to the poor, it's that they have allowed the rich to get exponentially richer and the poor to get poorer. More people at the bottom are paying less taxes, or none at all, because they're earning less money.

These percentages are seriously misleading. Since income tax is based on a percentage of income, of course the lowest incomes are going to pay the least amount of the total tax burden. Even if we had a flat 5% income tax, the top tier would still pay more of the total tax burden compared to the lowest tier, due to simple mathematics.

Concretely, though over-simplified:

5% of $1,000,000 is $50,000.

5% of $50,000 is $2,500

So it takes 20 people making $50,000 a year to equal the tax burden of one person making $1,000,000.

All this to say, your logic is flawed. The percentage of the total tax burden is pretty meaningless.

Joel Monka said...

Jess- those percentages I listed do not, of course, reflect the complete story; no single stat could- which is why I included the link. Had you read just the introduction to the tables provided, you might have read this: "The top-earning 25 percent of taxpayers (AGI over $64,702) earned 68.2 percent of the nation's income, but they paid more than four out of every five dollars collected by the federal income tax (86.3 percent). The top 1 percent of taxpayers (AGI over $388,806) earned approximately 22.1 percent of the nation's income (as defined by AGI), yet paid 39.9 percent of all federal income taxes. That means the top 1 percent of tax returns paid about the same amount of federal individual income taxes as the bottom 95 percent of tax returns."

Thus, your flat-tax example does not reflect the actuality, which is that the top 1% are paying in taxes nearly double the percentage that they earn of the GDP. Those numbers are also higher than they were in 2000... which was exactly my point, that the Bush tax cuts did not let the rich off the hook, and that they are in fact paying a higher percentage than they paid before.

jess said...

My point is that the top tier of incomes will always pay a higher percentage of the tax burden, mathematically speaking, and so that figure is simply a red herring. I went to the flat tax example because the math is easier.

I did read the linked article, and I found it ridiculous because it ignores the reality of the household budgets of 95% of this country. There is simply no comparison between someone complaining that they had to pay $50,000 in taxes when they still have $1,000,000 in the bank, and someone stretching to pay $2500 in taxes when they're living check to check (using simplified math of course, but the concept is clear). Even if the percentages were equal, the burden would be too high on lower incomes compared to higher ones.

That's why we have a progressive tax system in the first place, where yes, the rich are taxed at a higher rate, because they can afford it. What Republican tax policies have done is to try to end run around the intention of such a system, creating all kinds of loopholes to exclude income from taxation. So when you're looking at the AGI of someone in the top 1% of earners, you're not actually seeing their whole income but rather just what is taxed.

No, the system isn't perfect, and no, tax cuts and refundable credits for lower incomes won't solve the whole problem, not even getting into the regressive burden of payroll, self-employment and sales taxes, but it doesn't seem unreasonable to expect those with more to pay more.