Sorry, Obama: The tax code is already more progressive than pre-Reagan
Given the discussion about President Obama’s desire to raise taxes on “the rich” — i.e., families earning more than $250,000 a year — it’s rather convenient that the Congressional Budget Office yesterday published its latest look at earnings and taxes paid by income level. It tells us a couple of worthwhile things.
First, as I mentioned in a comment yesterday evening, it tells us the U.S. tax code is already rather progressive. Here are the numbers I posted yesterday in chart form; note that “federal taxes paid” includes not only income taxes but social-insurance taxes, corporate taxes (which, after all, are ultimately paid by individuals) and excise taxes for 2009, the most recent year the CBO has examined:
So, even when we include the payroll taxes for Social Security and Medicare, which disproportionately hit lower-income workers, the U.S. tax code is already sharply progressive. What liberal/progressivists have yet to tell us is exactly how much more progressive they think it should be.
Well, sort of. We do have an idea of what they think it should be, at least for starters, in the form of Obama’s raise-taxes-on-the-rich proposal. Part of his usual argument for raising taxes on the rich is that we’ve been going down the wrong path for the past three decades — which is shorthand for: since Ronald Reagan was elected and sharply lowered marginal income-tax rates.
Conveniently, the CBO’s report includes data going all the way back to 1979. So, how did things change over the course of 30 years?
One of the ways the Organization for Economic Cooperation and Development (or OECD, the Paris-based club of industrialized nations) measures tax-code progressivity is by calculating the ratio of the tax burden to income earned for each income group. For example, if one quintile earns 20% of the income and pays 10% of the taxes, its ratio would be 10/20, or 0.50. The higher the ratios for the upper-income groups, and the lower the ratios for the lower-income groups, the more progressive the tax code. By this measure, the OECD has determined the U.S. has the most progressive tax code in the industrialized world.
When we compare the 2009 ratios for these income groups to the 1979 ratios, this is what we get:
So, by this measure used by the OECD, the U.S. tax code has gotten significantly more progressive, from top to bottom, since the days of Jimmy Carter.
For another comparison, I looked at 2000 (the peak of the Clinton years) and 2007 (the peak of the Bush years). Despite the Bush tax cuts, the ratios for 2007 were almost identical to those of 2000: just three-thousandths of a point less progressive for the top 1%, and more progressive for all the other income groups.
If there is a problem with income inequality in this country, it’s not the tax code’s fault.
– By Kyle Wingfield
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565 comments Add your comment
Lil' Barry Bailout (Unexpectedly Revised Downward--Again)
July 11th, 2012
7:34 pm
I’m not against gays getting married. As long as they aren’t perverting the real meaning of marriage by thinking it’s possible to marry someone of the same sex. That’s not a marriage. Gays are free to marry members of the opposite sex, just like everyone else. I also have no problem with civil unions.
Permitting irresponsible people to murder their unborn children isn’t freedom. It’s murder.
Hillbilly D
July 11th, 2012
7:35 pm
The nonpartisan Fraser Institute reported that 46,159 Canadians sought medical treatment outside of Canada in 2011
Out of 30+ million Canadians, that’s really a pretty small number or as we say on the baseball blogs, a small sample size.
md
July 11th, 2012
7:37 pm
“They told me that if you sell the land, the conservation agreement is nullified”
I bought a tract awhile back where I had the option to continue……but we wanted to use it so the seller paid the back taxes.
Uh Oh
July 11th, 2012
7:38 pm
Barry
Thanks. I knew that “freedom” word would get a little constrained if not just defined by your ideology. That was an easy bet
Have a great night
md
July 11th, 2012
7:39 pm
“What Kyle’s table and arguments carefully avoid is that in comparison with the other countries with “less progressive tax codes,” most of those countries spend much more than the US on social programs.”
Yes, because they piggy back off their NATO ally who spends some money on defense knowing we will come to their defense……..again.
td
July 11th, 2012
7:46 pm
MarkV
July 11th, 2012
6:52 pm
td @6:50 pm
Greater percentage of GDP.
How many of those countries would you consider to be European social Democrats?
Fred ™
July 11th, 2012
7:47 pm
Kyle Wingfield
July 11th, 2012
4:31 pm
Fred @ 4:24: I wasn’t “pulling” any comments — I was publishing them out of moderation (which, again, applied to all commenters that day). It’s actually against AJC policy for me to delete a comment. The website gremlins sometimes eat people’s comments — it happened to me once today — but why did you choose to assume the worst?
++++++++++++++++++++++++++++
Because I am a pessimist.
I just read that last comment I made and it was extremely negative. I’m sorry. I didn’t mean for it to be. I ragged the hell out of you and you haven’t done anything to me for me to do that. Again, my apologies. Hope you see this lol. If not maybe I’ll try to relay the message a different day. I don’t read you much. I don’t read Bookman much either. You fanatics just seem to hack me off any more and I can’t be civil even though I try. When I go back and read I see I fail lol.
oh well.
marko
July 11th, 2012
8:08 pm
Gosh Kyle that explains why Mitt won’t release his tax returns . Obviously he doesn’t want us feeling sorry for him.
native
July 11th, 2012
8:11 pm
Mr. Wingfield,
Your analysis is wrong, and your figures prove nothing about the progressivity of our tax system. Rather, they are a reflection of the increase in income inequality in our country. Your chart claiming to demonstrate increased progressivity are based on the percentage of taxes paid by each income group.
Here is the flaw: If my tax rate decreases by 10%, but my income doubles, I will end up paying taxes of 2(x*.9) of my previous income, or 1.8x times as much as before.
Let’s use arithmetic. I made $1000 at a 10% tax rate and paid $100 in taxes. Now I make $2000 at a 9% rate and pay $180 in taxes. My tax rate went down, my taxes rate went up, and, in isolation, it really shows nothing either way about the progressivity of the tax code.
Dusty
July 11th, 2012
8:57 pm
Is it moderation time yet?
————–
I heard from Mr. Olivett today.
If you want to know what’s true,
Then read THE NATIONAL REVIEW.
Mr. Olivett is A-OK!!
bu2
July 11th, 2012
10:18 pm
The scary part is if it gets much more progressive, the 60-80% will want to lower taxes on themselves and put it all on the 20%. It will be taxation without representation. Its why so many wealthy Brits moved to the states back when the taxman was taking 99% over there.
Question Man
July 11th, 2012
10:40 pm
KW: Have you opined on whether Romney should fully disclose his tax returns, as suggested by the NYT and others?
http://www.nytimes.com/2012/07/11/opinion/mitt-romneys-financial-black-hole.html?hp
Lil' Barry Bailout (Revised Downward)
July 12th, 2012
7:34 am
Actually, it would be more accurate to say that Obozo and his loser parasite base want representation without taxation.
Now THAT is a free-rider problem that needs fixing.
You win
July 12th, 2012
9:12 am
We should get rid of the socialist progressive tax system created by the Bush tax cuts and go back to the flatter, fairer, less progressive rates created under the Clinton model
Show all the numbers
July 12th, 2012
9:50 am
So, by this measure used by the OECD, the U.S. tax code has gotten significantly more progressive, from top to bottom, since the days of Jimmy Carter.
That’s only if you use the 2009 number. the 2007 number the tax rates are lower than the 1979 numbers. In fact, several of the numbers (actually all of the numbers except for 2009) from the 00’s are lower than the 1979 number.