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
Uh Oh
July 11th, 2012
10:40 am
“The ability of liberals to lie regarding some of our greatest forefathers in order to make false political points is unparallelled in human history.”
And the melodrama of some continues…………..
Don’t sue me, bro
Hillbilly D
July 11th, 2012
10:40 am
Tiberius
One point on Jefferson is that in spite of his much professed reverence for the Constitution, he did an end run around it, so he could pull off the Louisiana Purchase. Like most politicians, he had a bit of the hypocrite in him.
On the subject at hand
I think most, of course not all, would agree the tax system is a mess, no matter where you fall on the political spectrum. In my opinion, we need to start over. Tax all income, earned and unearned, at the same rate, and tax everybody a flat %. Do away with all credits, deductions and subsidies. If two people both make “X” dollars, they both pay “Y” in taxes. Given the mess we’re in now, this would require quite a few years to phase in.
This will, of course, never happen. Too many of the rule makers profit from the status quo.
Tiberius - pulling the tail of the left AND right when needed
July 11th, 2012
10:40 am
“You made my point Tiberius”
How could I when you haven’t even responded to my question, fair and balanced?
Old Timer
July 11th, 2012
10:41 am
Great post .
Lil' Barry Bailout (Revised Downward)
July 11th, 2012
10:41 am
Obozo and his loser sheeple won’t be satisfied until all taxes are paid by those making over $200K.
AmVet
July 11th, 2012
10:43 am
I suggest you read the collective works known as The Federalist Papers, AmVet.
You mean the ones that you cannot even produce a convincing quote from?
OK…
YOU made a statement about Thomas Jefferson completely in opposition to EVERYTHING known about the man, and you expect us to suddenly believe YOUR OPINION?
Actually that “statement” was a direct quote, straight from the man’s own pen and mouth. But maybe you can show us where it is a forgery, written by an alien form Venus!
Try again and this time come up with SOMETHING.
More LOLs…
Rafe Hollister, suffering through Oblamer's ineptocracy
July 11th, 2012
10:44 am
AmVet
As usual, you dodge the question of who are you supporting? I am for Mitt Romney, I wouldn’t ask you to do anything, I am unwilling to do.
Tiberius - pulling the tail of the left AND right when needed
July 11th, 2012
10:44 am
Hillbilly D, no one is perfect, but Jefferson, with all his faults and 18th century habits, is still a darned sight better than every liberal on this planet – combined!
Uh Oh
July 11th, 2012
10:45 am
Rafe
If I am correct, I believe Am as stated that he is a 3rd party guy
Uh Oh
July 11th, 2012
10:46 am
“is still a darned sight better than every liberal on this planet – combined!”
Turning out more drama than a soap opera
Give that man an Emmy
Aquagirl
July 11th, 2012
10:46 am
Which states are upside down in terms of the Fed tax dollars they send to DC vs the funds they receive and which ones are right side up?
The Tax Foundation has a list.
http://taxfoundation.org/article/federal-spending-received-dollar-taxes-paid-state-2005
John Galt
July 11th, 2012
10:47 am
Aquagirl-
You mean the way Georgia subsidizes the mass transit in those states via federal dollars?
Or the way Geogia taxpayers pay more in federal taxes than those states do since they pay higher state and local taxes, and those taxes serve as dedudctions, giving them a lower effective tax rate for the SAME amount of income?
Thought so……
Loganville Resident
July 11th, 2012
10:49 am
As an upper-middle class conservative white guy, there are some numbers in Kyle’s chart that bother me. I am probably one of those living comfortably in the “Highest Quintile” category based off current statistics.
So with that said…
Other occupants of the “Highest Quintile” would include the top 1% and the top 9%. According to Kyle’s chart, the top 1% of those income earners pay 13.4% of their income towards taxes. The top 10% pay 36% of their income towards taxes.
The rest of us “Highest Quintile” group are estimated to pay 50% of our income towards taxes. Given the definition of progressive, please explain to me how that is a progressive tax system.
The overall system may be progressive. However, the system is obviously broken for many of us that make a decent living but aren’t rich OR poor.
Uh Oh
July 11th, 2012
10:51 am
Aquagirl
Thanks. Interesting to see which states are at the top an how they vote
Jeffrey
July 11th, 2012
10:51 am
I agree that it is not the tax codes fault to some degree but how do you explain the 15 percent for investors and hedge funds. How do those guys get that rate while my dad who invests in tools, a truck, his body and mind pays more. I think we are letting these guys have a deal while I worry about the debt that is made up of two wars, huge expansion of govt I.e homeland security and of course Medicare drugs and stimulus. Something’s gotta give, or somebody.
Rafe Hollister, suffering through Oblamer's ineptocracy
July 11th, 2012
10:52 am
Aquagirl
The problem with your rant, and one of Finn’s favorites, about the Red States receiving more tax dollars than they provide to the Fed government is this. How can a state, with a majority population, of people who are unprepared, poorly educated, and unmotivated, produce enough income to pay a significant amount of taxes. The minority of residents in those states have to work doubly hard to just keep their state on the chart.
Uh Oh
July 11th, 2012
10:53 am
Kyle
Please check those calling people liar and not their blog name.
Thank you
Yes I mean you Tiberius. Call him by his blog name. We do not need a stink as was caused last week by whom?
md
July 11th, 2012
10:53 am
“the vast majority of the country agrees with the President on this issue of taxing the rich at a higher rate. Every poll I’ve seen indicates exactly that.”
Pretty sad isn’t it?
The “vote your neighbor to go to work and make more money” ideology……..
It will be the demise of this country along with the ignorance that is breeding from within……one had to love a recent interview with revelers on the 4th when asked “who did we gain independence from?”…….and many had no clue……one even said Russia………
Sad…….
Uh Oh
July 11th, 2012
10:53 am
“You’re a liar, AmVet, and the worst thing is, you know you’re a liar, but you don’t even care.”
See Kyle’s rules from yesterday.
Thank you
fair and balanced
July 11th, 2012
10:55 am
And I assume paying 15% or less on your taxes when you are worth several hundred million is progressive. Of course that percent is going up under Obamacare to fund the excesses of Medicare passed by the Republicans under Bush with no funding source. Unless someone on the right is proposing another funding source? How about a special tax on the elderly for excess use of the healthcare system?
Hillbilly D
July 11th, 2012
10:57 am
Tiberius
The words “liberal” and “conservative” have pretty much lost all their meaning. Back in Jefferson’s day, his belief in government by the people would’ve been considered quite liberal by the standards of the time. The classic definition of both words have pretty well been turned on their heads in the last 100 years or so, in my opinion. That’s one reason I try to refrain from using them.
And on taxes:
The middle class will always pay the bulk of the taxes for the same reason Willie Sutton robbed banks.
AmVet
July 11th, 2012
10:58 am
You’re a liar, AmVet, and the worst thing is, you know you’re a liar, but you don’t even care.
OOPS!
Kyle, I believe that a certain blogger is in egregious violation of your Rule #1 – “Anyone who comes onto the blog with personal attacks and little to nothing of substance to say will be banned permanently.”
Also Known as: Ad Hominem Abusive.
Description of Personal Attack
A personal attack is committed when a person substitutes abusive remarks for evidence when attacking another person’s claim or claims. This line of “reasoning” is fallacious because the attack is directed at the person making the claim and not the claim itself. The truth value of a claim is independent of the person making the claim.
More “statements”…
I believe that banking institutions are more dangerous to our liberties than standing armies. ~Thomas Jefferson
Merchants have no country. The mere spot they stand on does not constitute so strong an attachment as that from which they draw their gains. ~Thomas Jefferson
(Thought those Titans of Criminal Malfeasance and Negligence sure do hide behind that giant American flag at 10 Wall Street, huh?)
Rafe Hollister, suffering through Oblamer's ineptocracy
July 11th, 2012
10:58 am
Loganville
The overall system may be progressive. However, the system is obviously broken for many of us that make a decent living but aren’t rich OR poor.
I agree, but again, for money you go where it is. Your bracket includes most of the people and most of the money. The rich have money, but there are so few of them, that total money collected is insignificant. That is why we need flatter, lower, less deductions, to make things more fair.
Bruno
July 11th, 2012
11:00 am
AquaGirl: Not everyone is a top producer, that doesn’t mean it’s a good thing the guy working 8 ours a day is circling the drain. There’s a vast populace between Bill Gates and the Limbaugh stereotype of your section 8 parasite.
sfd: But I do think the upper incomes should be taxed higher, and I think a minimum wage should be set to enable a person to live decently and independently, if they put in an honest 40 hours a week.
AquaGirl and sfd–There are two basic ways to measure wealth (or anything for that matter). In terms of “relative” wealth comparison, there’s no doubt that those at the top live waaay better than those at the bottom. In terms of “absolute” wealth, however, you’re going to be hard pressed to convince me that those living near the bottom are truly suffering in this country. By any objective measure you wish to choose, e.g. housing quality, food and water quality, access to technology, access to education, the “poor” in our country are living extremely well. As a kid, our family of 7 lived in a small house with one bathroom, one rotary phone, and one small black and white TV, and we were considered lower-middle class. Today, even those who are classified as lower class live better than that.
The bottom line is that relative poverty and absolute poverty are two completely different animals. While the former may bother you on a personal level, I’m more concerned with the latter.
AmVet
July 11th, 2012
11:01 am
People with working brains know you for the intellectually-bereft debater you are.
Too funny. I missed that egregious violations of Rule #1!
Tick, tick, tick…
I smell a red card directly ahead…
Tiberius - pulling the tail of the left AND right when needed
July 11th, 2012
11:02 am
“Call him by his blog name.”
I did. You must have missed it. My OPINION is that he is lying and that he KNOWS he’s lying.
Now, maybe YOU can follow the rules and actually post on the topic at hand, instead of constantly initiating contact with me, Uh Oh. Rules 1, 4 and 7 directly apply to your posting habits.
Hillbilly D
July 11th, 2012
11:02 am
Jeffrey
The reason those guys pay at a lower rate than your dad is that they make the rules. Not the way it should be but that’s the way it is. As long as lawyers and bankers hold the seats of power, and they do either directly or indirectly, things will be slanted to benefit them. It’s human nature for people to think that what benefits them is what’s best for everybody.
stands for decibels
July 11th, 2012
11:06 am
Tax all income, earned and unearned, at the same rate, and tax everybody a flat %. Do away with all credits, deductions and subsidies. If two people both make “X” dollars, they both pay “Y” in taxes. Given the mess we’re in now, this would require quite a few years to phase in.
Just curious–would you fund FICA/Med this way as well? Or would you continue having a separate withholding tax for those programs alone?
(Full disclosure–I used to support a flat tax, for about a month or two, when then-former-gov. Jerry Brown was kicking it around as a Presidential candidate. I don’t any more, but I can understand the appeal.)
Rafe Hollister, suffering through Oblamer's ineptocracy
July 11th, 2012
11:08 am
I can see both sides of the investment income debate. 1) you have to have people willing to buy stocks and invest in business or we have no business, but 2) a plumber described above shouldn’t pay a higher rate on income, when he is trying to grow his business.
Solution in my mind is treat all income the same, with flatter and lower rates and no deductions or incentives.
Gimme Gimme Gimme
July 11th, 2012
11:09 am
When you look at 1979 there are some expenses that didn’t exist back then. You can call them unnecessary but to be a part of society you almost have to have them. Not a tax but an expense is a expense.
Now I pay for Cable TV (basic package), Internet, Cell Phone. I cancelled my land line. In 1979 you were really only paying for a Phone land line.
founding father (aka Abe Linclon)
July 11th, 2012
11:09 am
Given the discussion about President Obama’s desire to raise taxes on “the rich” — i.e., families earning more than $250,000 a year… and then my eyes glazed over. It’s all GWB fault – and btw you are a racist
Loganville Resident
July 11th, 2012
11:10 am
Rafe,
Actually, the top 1% are able to account for almost 1/4 (22%) of ALL income taxes collected by paying only 13.4% of their income. The bottom 10% of the “highest quintile” only account for 16% of all income tax collected while sacrificing OVER 50% of their income.
I’m using Kyle’s numbers here.. If the top 10% pay an average of 36% of their income. This means that the bottom 10% of the highest quintile has to pay an average of 64% to reach an overall quintile average of 50%…
You could bring those numbers closer together and still collect more money… giving relief to the middle class at the same time.
Uh Oh
July 11th, 2012
11:10 am
“My OPINION is that he is lying and that he KNOWS he’s lying.”
You called him a liar. But nice spin.
Tiberius - pulling the tail of the left AND right when needed
July 11th, 2012
11:10 am
I will remind those who continue to focus on someone’s voting habits, and who misrepresent Thomas Jefferson’s beliefs, and center their entire world of blogging around one particular poster, that the topic du jour is posted above by Kyle, and I suggest you people focused on everything else head back to that topic.
So you can follow Kyle’s new rules.
Your attention towards everything else BUT the topic is showing your inability to defend your positions against Kyle’s assertions.
Interested Observer
July 11th, 2012
11:10 am
RE: “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″
Including corporate and excise taxes makes this data supporting the charts above unusable. After all, corporate taxes are NOT ultimately paid by individuals.
This statement, “corporate taxes are ultimately paid by individuals,” is not correct. It mirrors the FairTax argument that taxes are passed on to the consumer in the form of higher prices. If we just lower taxes, the argument goes, then prices will fall.
However, prices are determined by supply and demand, not tax rates. Corporations seek to MAXIMIZE revenues and profits, not sell at the lowest prices possible. Both on the macro and micro levels, tax rates paid by corporations fluctuate constantly without any affect whatsoever on how they prices their goods and services.
By the same token, corporations are not people. They have a lot of benefits that people don’t have and comparing corporate taxes paid with taxes paid by people makes no sense. I’d suggest recalculating this data such that it does not compare apples with oranges. The figures would look dramatically different and the information was be a lot more useful for this discussion.
md
July 11th, 2012
11:11 am
“Government big or small has little to do with the economic conditions of our times, it is the private sector that does.”
Huh? That is so far off the mark it is scary……..if gov’t gets too big in relation to what the private sector can bear, the economy goes absolutely nowhere.
Think of it like this Junior (the private sector) has a good job making decent money and is able to enjoy life to it’s fullest (good economy)…….no major bills he can’t handle, trips, entertainment, etc etc. Then he gets the news that Mom and Pop (gov’t) have decided to retire and move in with him and they have limited funds. Junior suddenly has less disposablle income to work with, and that gov’t that just moved in is very opinionated and bossy. Now Junior (economy) isn’t able to live life quite to it’s fullest because of the new obligations………
After about a month, Junior learns that his broth and sister have both lost their jobs and Mom and Pop have invited them to come live with Junior (economy)…..who is the sole bread winner at this point (economy slowing way down now due to excessive burdens of additional obligations).
A month later, brother and sis invite the cousins to come stay as well, and M&P TELL Junior it is ok, as he still has a job and they do not………..
I hope you now get the point of why too big gov’t absolutely has a bearing on the economy, if not…..
Gimme Gimme Gimme
July 11th, 2012
11:11 am
I would have a blend of the flat tax and a consumption tax. Add a few cents to the sales tax to claim some revenue from the underground economy.
Hillbilly D
July 11th, 2012
11:12 am
sfd
I probably would support the same for FICA/Medicare, even though that isn’t how they were originally intended. Both systems have gotten away from the “pension” set-up. I don’t think my idea, which really isn’t my idea anyway, would be without problems. I think it would serve as a sort of “re-set” and then as shortcomings arose, maybe they could be dealt with. Perhaps we’d see that we needed to put some progressivity back in. I think the major problem with the current tax system is the different rates between earned and unearned income. I don’t really know when the difference started or when they became so big. I’d be interested if anybody knows.
Lil' Barry Bailout (Revised Downward)
July 11th, 2012
11:13 am
Loganville, I think you misread the numbers. Nowhere does Kyle’s statistics provide tax rates by income level. I’ve posted them before, and they show that the higher your income, the higher your income tax rate.
Uh Oh
July 11th, 2012
11:13 am
Quit calling people names
Also stating generic borad brushing such as liberal this, liberals that is not substantive seeing that people of all political stripes come in various shades and no broad brushing will change that or add to the conversation.
Thanks. Now back to the programming at hand
Show all the numbers
July 11th, 2012
11:15 am
The share of after tax income (CBO source linked in article) has gone down for everyone
except for those in the top quintile with with almost all the gains going to the top 1%.
So the top earners may pay a larger percent of the total taxes, but the also take home a larger percent of the total income as well (while everyone else is taking home less).
Anyone feeling trickled on ?
Uh Oh
July 11th, 2012
11:15 am
Kyle
How many individuals would be impacted by a change of those making over 250K?
md
July 11th, 2012
11:16 am
“Corporations are people, my friend.”
Ok Am, I’ll concede your point on one condition…….show me one corporation that does anything……one solitary thing…….on it’s own.
Just one and I’ll concede that one to you………..
Gimme Gimme Gimme
July 11th, 2012
11:17 am
“Anyone feeling trickled on?”
I feel more coming down than I do coming up.
Aquagirl
July 11th, 2012
11:17 am
How can a state, with a majority population, of people who are unprepared, poorly educated, and unmotivated, produce enough income to pay a significant amount of taxes.
Instead of screaming at those people for being fat and lazy you assume they’d rather be productive citizens? I smell nuanced thinking there instead of insane rage about MAH WALLET, careful there Rafe. That’s not fashionable hereabouts.
In terms of “absolute” wealth, however, you’re going to be hard pressed to convince me that those living near the bottom are truly suffering in this country.
I agree, people at the bottom aren’t literally starving unless they’re saddled with other issues like mental illness. But human beings don’t work that way, nor should they. We have a rich society, if you dropped those “job producers” in Somalia their production rate would plunge drastically. People react strongly to the wealth gap in a society. It’s got nothing to do with basic survival.
That’s the cause of unease in the middle class. Those people know they’ve worked hard and telling them “well, never mind you lost your house, your family can live in mom’s basement” doesn’t make them feel much better. Especially when the bank that foreclosed on them gets a bailout and is doing quite well.
stranger in a strange land
July 11th, 2012
11:17 am
Ragnar @ 1039 – are you thinking ‘fair tax’?
then what we would do without all those people in the imperial / industrial tax complex?
Uh Oh
July 11th, 2012
11:19 am
Kyle
Do you have numbers that show average income increases adjusted for inflation over the last 30 yrs for the same breakouts you have in your charts?
zeke
July 11th, 2012
11:20 am
Taxes should never be greater than 10%! All taxes including state, local, federal and state income, property, payroll, everything included should never be more than 10%, and, that on everyone regardless of their income! From the CEO who makes $1 million or more, to the minimum wage earner, everyone should pay a fair amount, everyone pay the same percentage! What is wrong with our current system is that 50% of the population “does not have a dog in the fight” and pay nothing, actually most of those get a payment from the rest of us! SO WHAT DO YOU THINK THEY WILL VOTE FOR? MORE AND MORE SOCIALIST SCUM GIVING THEM MORE AND MORE THAT THE GOVERNMENT CONFISCATES FROM OTHERS!
stands for decibels
July 11th, 2012
11:25 am
taking HD’s post @ 11.12 in reverse order–
I think the major problem with the current tax system is the different rates between earned and unearned income. I don’t really know when the difference started or when they became so big.
IIRC the push for cutting capital gains income came with the supply siders in ascendency, in the 80s, when it was asserted that we were suppressing investment by taxing investment income the same as income produced by actually doing things. I remember a NY republican senator, Al D’amato, made it kind of a personal crusade at the time, anyway.
I probably would support the same for FICA/Medicare, even though that isn’t how they were originally intended.
Meaning, you’d fund them from this general pool? That sounds reasonable, if you’re going for a true flat tax, although like you, I understand this is throwing away the notion of individual buy-in for Social Security that FDR & Co. envisioned, to protect the program from being eviscerated, later.
Both systems have gotten away from the “pension” set-up.
Gotta take issue with you here–focusing on SS, and maybe I’m just misreading you or arguing over terminology, which isn’t my intent of course–actually, that was always intended as a pay-as-you-go old age *insurance* program. The actuaries in the 30s understood life expectancy rate changes and accounted for them, and in the 80s, we took the unprecedented step of collecting money in reserve to pay for the demographic bulge of the late 40s-early 60s births.
I could go on but people get kind of upset when I point out that this money collected from actual workers from actual wages is now called “nothing but an IOU” and fair game by the likes of allegedly sensible, centrist corporatists
(I’m looking at *you*, Simpson and Bowles.)
Uh Oh
July 11th, 2012
11:25 am
zeke
Why don’t you ask the low ranking enlisted personnel, many who have out their life on the line for you, who they are voting for this election?
You do know that many of the low ranking personnel fit the same category you seem to demean, right?