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
Bruno
July 11th, 2012
12:11 pm
There is NOTHING in ANY of his writings to suggest that he favored the power of Government over the power of the Individual, nor that he would use Government for anything other than it’s Constitutional intent.
Ti–To be fair, Jefferson was ultimately a practical leader. Though he vehemently argued for strict construction in his writings, ultimately he did what was necessary to keep things running well and keep the necessary tax revenues flowing into the Federal Govt. while he was President. For example, in spite of all his public opposition to a national bank and federal tariffs, he continued both policies while President.
http://en.wikipedia.org/wiki/Presidency_of_Thomas_Jefferson
Uh Oh
July 11th, 2012
12:11 pm
“Why is it that some posters cannot stay on the SUBJECT at hand, yet continuously deflect towards asking what another posters PERSONAL information is (Tiberius, that means YOU)”
see your 12:06 then read your 11:43.
Irony goes great on anything. Salads, cereal, toast
But I digress
I’m out
md
July 11th, 2012
12:13 pm
“The real interesting thing about that list is that of the top 25 “Parasites States” 19 voted Republican in 2008. Hummmmmm…..”
Another that may want to research a bit further…………start with medicare payments……
Uh Oh
July 11th, 2012
12:13 pm
What is a “libtard” and how is that relevant to the discussion?
Kyle Wingfield
July 11th, 2012
12:14 pm
Interested Observer @ 12:06: From the CBO’s explanation of its methodology:
“Far less consensus exists about how to allocate corporate income taxes (and taxes on capital income generally). In this analysis, CBO allocated 75 percent of the burden of corporate income taxes to owners of capital in proportion to their income from interest, dividends, adjusted capital gains, and rents. The agency used capital gains scaled to their long-term historical level given the size of the economy and the tax rate that applies to them rather than actual capital gains so as to smooth out large year-to-year variations in the total amount of gains realized. CBO allocated 25 percent of the burden of corporate income taxes to workers in proportion to their labor income.” (emphasis added)
The lack of consensus applies to how the corporate-tax burden is allocated to individuals, not whether corporate taxes are ultimately borne by individuals in some way or another: Lower wages, higher prices and/or lower returns on their investments. Clearly, the CBO attributed the corporate tax burden to individuals in its analysis.
How Inciteful Is That!
July 11th, 2012
12:15 pm
The tax code is not the cause of income inequality but it can certainly be utilized to either reduce or increase the effect, much like regulations.
JDW
July 11th, 2012
12:16 pm
@md…”Another that may want to research a bit further…………start with medicare payments……”
Why is where the money goes an issue? A dollar spent is a dollar spent whether it is on Medicare or military bases. Fact is states that get more than they spend consistently elect Republicans to line their pockets.
Lil' Barry Bailout (Revised Downward)
July 11th, 2012
12:16 pm
You can google “libtard” if necessary, and will instantly understand its relevance. Unless you’re a libtard.
Tiberius - pulling the tail of the left AND right when needed
July 11th, 2012
12:16 pm
“Personally I think we need a combination of cuts and tax increases. ”
Actually, most people do as well.
The PROBLEM is that no one believes that Congress is capable of making real, sustainable CUTS, but they know that Congress has no problem increasing taxes and spending the new money on other things.
CUT spending FIRST. Prove to us that you can do that.
After a minimum of two years of lower spending, THEN, and only then, will I be willing to discuss tax increases.
Uh Oh
July 11th, 2012
12:17 pm
Barry
Cease the name calling, NOW
Lil' Barry Bailout (Revised Downward)
July 11th, 2012
12:19 pm
I don’t believe I’ve called anyone a name.
Now mind your own business.
Kyle Wingfield
July 11th, 2012
12:20 pm
Regarding Tiberius’ earlier post:
The “intellectually bereft debater” line is clearly intended as nothing more than an insult, and I removed the comment for that reason. The part about “liar,” however, I see differently. If two people are having an exchange and one accuses the other one of lying, that relates directly to the debate. The accused is of course free to demonstrate why the comment in question was not a lie. While I think it preferable to say the comment was a lie, or to say the person was lying, I am not inclined to treat “you’re a liar” differently.
Now, make sure you all read this: One of the unintended (though not unforeseen) consequences of the new rules is that several of you think you’re supposed to spend a great deal of time tattling on each other. This is exactly the kind of juvenile behavior I’m trying to eliminate. If you think a comment is out of bounds, my email address is posted in the right-hand rail of my blog. Email your complaint to me. At some point soon, I’m going to treat the tattling and “gotcha” stuff the same way as the insults.
Uh Oh
July 11th, 2012
12:21 pm
“Unless you’re a libtard.”
What the heck is that? It is not relevant to anything except shallow bs that you are known for time and time again.
If you mean Democrat, liberal, progressive, etc than keep the conversation above the table and say so.
Uh Oh
July 11th, 2012
12:22 pm
Kyle
10-4
That is a deal
AmVet
July 11th, 2012
12:22 pm
Well, it would appear that I have gotten my answer from Mr. Wingfield.
In the form of a non-answer.
My bad, I thought he was serious about cracking down on the miscreant behavior – in the form of unprovoked, malicious, personal insults – here.
Damn the torpedoes! Full speed ahead!
Aquagirl
July 11th, 2012
12:23 pm
The point being, just looking at those charts that show what states give and get are meaningless if one doesn’t know how the expenditures are distributed.
True, but your dispensation of a pass based on what you think is “good/deserved” federal spending has no basis in anyone else’s reality. The list is notable because most of those net taker states are dominated by the GOP, and specifically the GOP wing that shrieks about the eeeevil imperial federal gub’mint.
Sarah Palin’s ruggedly independent Alaska is probably not in the top 5 because retirees flock to frozen tundra.
Tiberius - pulling the tail of the left AND right when needed
July 11th, 2012
12:23 pm
“To be fair, Jefferson was ultimately a practical leader.”
I agree. Nothing like a cantankerous Congress to make you one. It takes a wise leader to understand that, which is why I get so frustrated with Obama for being so ideological when he should be pragmatic. If he were the latter, we might not have seen the 2010 electoral debacle and we’d still be saying “Speaker Pelosi” (shudder). If he would just move anywhere off of his hard-line positions, he might get enough Republicans in the Senate to go along with a bill of his. Jefferson understood that. Which proves that Obama is no Thomas Jefferson.
Lil' Barry Bailout (Revised Downward)
July 11th, 2012
12:24 pm
Do you need a Venn diagram, Uh Oh?
Move on already.
AmVet
July 11th, 2012
12:24 pm
Kyle. re your 12:20 and my 12:22.
Mea culpa.
Thanks for the clarification.
And I REALLY hope that I never email you!!
LOL..
Uh Oh
July 11th, 2012
12:25 pm
Barry
Leave it alone
Dusty
July 11th, 2012
12:26 pm
Lots to read here today (could not even post last night . Snafu?)
First–someone is using @@’s ID and that is truly reprehensible.
Second-mathematics has never appealed to me but Kyle leads us to fairness with his figures. The rich are citizens awarded fair treatment by our constitution. Unfair to “ream” them for money when the government shows no signs of definite cutting, the real way to remove debt.
As to what is fair when supplied by the government, I remember scenes too well from the movie “Dr. Zhivago”. Doctor Z returned to the home of his wealthy relative, another doctor, and it had been “acquired” by a horde of poor people who said they “deserved” it. They graciously allowed the owner a couple of rooms That mentality seems to be the same for liberals. How easily compassion slips into communism.
As Bruno noted, the “poor” of America are hardly poor when compared to many. The wretched state of millions in Africa is a refuee tragedy in the news almost every day. Perhaps we should keep our compasionate sights on such as those who have no chance in life while Americans have our established course of freedom to success or fail as our choice.
Anyway, good to have Bruno and all our fine conservatives here. And thanks, Bruno, for the “God’s particle” review. And… I always appreciate your plea for self reliance. It is a principle conservatives never forget.
Uh Oh
July 11th, 2012
12:26 pm
Amvet
Same here
Some street are one way and others are two way. It is all a perspective thing
With that said, I will work within the parameters provided
Lil' Barry Bailout (Revised Downward)
July 11th, 2012
12:28 pm
I note that no one has refuted the CBO numbers showing that the higher your income the higher your tax rate.
Facts are difficult things, eh?
Kyle Wingfield
July 11th, 2012
12:28 pm
Dusty @ 12:26: You may have missed it in this post, but all comments will be going through moderation between the hours of 7 p.m. and 7 a.m. It’s a drastic step that nonetheless became necessary in light of the comment fights that were breaking out after hours.
Thulsa Doom
July 11th, 2012
12:29 pm
So it looks like the rich are paying “their fair share” after all.
Brother Bruno- hallelujah! Great to see you on Kyle’s blog. I intend to be on here a lot more. You sure are missed buddy.
yuzeyurbrane
July 11th, 2012
12:29 pm
Kyle, you keep trying to do economic analysis. . . and failing. Stay to politics and you are on firm ground. I guess I am puzzled by this seemingly masochistic tilt against the windmills of rational thought. As to the merits of your argument, you know you are comparing apples and oranges. The issue is not what % of the taxes are paid by the wealthy but what % of their income. By that measure, which is the one most commonly used by economists (and not just your nemesis, Krugman), the burden has been shifting more and more onto the backs of the middle class. Additionally, what happens to your figures when you add all the state and local taxes which have dramatically increased while the Federal tax burden has decreased? For example, one noteworthy omission in your analysis is the sales tax, which in this country is state and/or local, which is the largest such tax and which is the most regressive.
Bruno
July 11th, 2012
12:30 pm
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 see many, including my blog idol, HD, have weighed in on the disparity between ordinary income taxes and capital gains taxes. Two obvious points have been overlooked in explaining the disparity in the rates: (1) Capital gains investment money has already been previously taxed (2) There is a significant risk of loss when making an investment. In my mind, it is only fair to offer a lower rate of taxation for capital gains. Even though my own investments are meager compared to the “wealthy”, I also benefit from the lower rate and therefore remain in favor of it.
Bruno
July 11th, 2012
12:36 pm
They don’t do that any more (or don’t seem to–maybe they’ve changed more recently) and not to sound like a snob, but I’d prefer to be nearer the front than with the more casual folks. (I mean, as long as I’m capable of doing a sub 50 or sub 55 qualifier, that is.)
sfd–I actually had a good number this year based on last year’s finishing time, but had to start in Group 9 ( sub-group Y) with PB. It was either that or sleep in the doghouse for the next two months.
The worst part by far is having to push through all of the walkers. By mile 4, about 90% of the folks out there had given up running.
I have a great chance of “running my age” now that I’m in my early 50s. Good job on the sub-50 minute times!!
A bit off topic, but why do they run a 10k race in the middle of the summertime in one of the hottest places in the nation? Other places do their marathons in much cooler weather.
Wimps!!
Thulsa Doom
July 11th, 2012
12:40 pm
“The issue is not what % of the taxes are paid by the wealthy but what % of their income.”
If near 50% of the nation isn’t paying any federal taxes outside of FICA then what % of their income are they paying vs the rich? Seems to me if you’re not paying anything then you’re % is pretty much zero.
As for the super wealthy like Romney they do seem to be paying a disproportionate amount of income in lower capital gains taxes of 15%. However, I have looked at capital gains tax rates on a historical basis compared with govt tax revenues and the fact of the matter is that the higher the capital gains tax rate the less tax revenue the govt brings in. The reason is simple- the super wealthy just quit engaging in risk taking behavior because the after tax risk reward ration isn’t worth it and they just put their money into tax free munis. We know this going all the way back to IRS tax tables from the 1920s.
Bruno
July 11th, 2012
12:41 pm
One of the unintended (though not unforeseen) consequences of the new rules is that several of you think you’re supposed to spend a great deal of time tattling on each other.
Ti, Am and Uh-Oh to the Principal’s office immediately!!
Bruno
July 11th, 2012
12:45 pm
Brother Bruno- hallelujah! Great to see you on Kyle’s blog. I intend to be on here a lot more. You sure are missed buddy.
TD–Great to see you also. This is my new blog home. A much healthier environment for me and PB.
BTW, spread the word that Bruno is here now. I’d love to see Adam, Joe Mama, Normal and some of the other intelligent Libs over here also. Kyle does a good job, and deserves a bigger audience. As I mentioned to him, I didn’t spend much time here in the past because I’d rather take the Devil on directly than spend time preaching to the choir. If we can get more Libs over here, it will be a better challenge.
Tiberius - pulling the tail of the left AND right when needed
July 11th, 2012
12:45 pm
I do not believe that re-informing the offenders of the rules and reminding them to get back on topic while not complaining at all to the host about these offenders today comprises “tattling”, Bruno.
Now as to the actual offenders . . .
md
July 11th, 2012
12:46 pm
“Why is where the money goes an issue? A dollar spent is a dollar spent whether it is on Medicare or military bases. Fact is states that get more than they spend consistently elect Republicans to line their pockets.”
It should be self explanatory……….military bases are not in every state, but they benefit all…….and what control does a red state have if a blue state pays out on a citizen that moves from said blue state to a red state?
Finn McCool (The System isn't Broken; It's Fixed)
July 11th, 2012
12:47 pm
If two people are having an exchange and one accuses the other one of lying
pistols at dawn?
You think I’m joking? Does the AJC have an empty parking lot we can use? This will “take it to the next level”, so to speak.
a dad
July 11th, 2012
12:47 pm
Aqua – spent a million training. Your source for such figures please. OBTW, just so you know, I am retired career Navy. Career involved numerous assignmentsthroughout the world in critical, extremely senstive billets and was well-decorated for same. As for DADT reference, it seems to make Amvet go away for a while. personally, don’t care so far as nothing interferes with combat readiness, which judging from your moniker (the “girl”) you have zero experience in. A cover team going expecting a hot reception is not the place to instigate social reforms or place a “crusader” of any means, and please spare me the tired old argument about blacks in the Navy. I’d prefer to argue back and forth using current situations if that’s ok with you. Now, let’s get back to the topic shall we? Will check back in about 3 hours or so.
md
July 11th, 2012
12:48 pm
“True, but your dispensation of a pass based on what you think is “good/deserved” federal spending has no basis in anyone else’s reality. The list is notable because most of those net taker states are dominated by the GOP, and specifically the GOP wing that shrieks about the eeeevil imperial federal gub’mint. ”
Why those dollars are spent is the reality…………..
And Alaska has 9 military installations……Delaware has 1……CT has 1………it makes a difference.
Thulsa Doom
July 11th, 2012
12:51 pm
Bruno,
I agree. I like the cleaner rules- keeps the focus on the issues which I believe gives the conservatives a big edge. Some of the liberals have some good points here and there but generally the rhetoric and emotional arguing degenerates into insults. If they can’t win on substance they shout louder and say the Rs “they want dirtier air, they want dirtier water” as I saw Obama say in a clip yesterday. The cleaner rules will keep the debate focused on the issues. I’ll let the others know.
JDW
July 11th, 2012
12:52 pm
@Tiberuis…”If he would just move anywhere off of his hard-line positions”
HORSE HOOHEY
-Using the Republican notion of an Individual Mandate is NOT a hard line position
-Offering a debt ceiling deal of $4 in cuts to $1 in revenue increases is NOT a hard line position
-Rolling over on the Bush tax cut extensions is NOT a hard line position
-Offering a $700 billon stimulus package instead of the truly needed $1.2 trillion package is NOT a hard line position
I could go on and on but you get the idea. Now these on the other hand ARE hard line positions.
-”The single most important thing we want to achieve is for President Obama to be a one-term president- Mitch McConnell
-What I’ve said about compromise and bipartisanship is I hope to build a conservative majority in the United States Senate so that bipartisanship becomes Democrats joining Republicans-Richard Murdock
-After a minimum of two years of lower spending, THEN, and only then, will I be willing to discuss tax increases.-Tiberius
Hillbilly D
July 11th, 2012
12:54 pm
Capital gains investment money has already been previously taxed
The capital gain is the profit that results from the investment. The money for the original investment has been taxed but not the gain.
Uh Oh
July 11th, 2012
12:55 pm
While not complaining to the host………
WOW. Guess running to the AJC and Kyle is not considered the host
But again I digress and will play within the rules to the extent possible
md
July 11th, 2012
12:55 pm
“(1) Capital gains investment money has already been previously taxed (2) There is a significant risk of loss when making an investment.”
I’d be in favor of higher cap gains taxes……….as long as my losses are covered on the back end. But that part of the equation is never addressed………
A bit like the cap on SS taxes…….they never want to raise the back end cap when it’s brought up.
getalife
July 11th, 2012
12:56 pm
It failed in the senate so it is over.
md
July 11th, 2012
12:58 pm
“The capital gain is the profit that results from the investment. The money for the original investment has been taxed but not the gain.”
But the risk has to be factored in as well…….and that is compensated through a lower tax. Otherwise, why bother investing in the riskier ventures……just stash that money in a safe haven if one wants to pay the same tax.
td
July 11th, 2012
12:59 pm
I have read at least a 20 comments about “income inequality” on this blog today but with the questions All the talk about taxes or fairness or plutocrats for the inequality. Kyle has debunked the myth about the rich are hosing us with the tax system.
If you libs really want to address and study where the wealth inequities have appeared to rise then you really need to look at the consequences of the single parent families. If you have two people in the home making minimum wage ($7.25) then the household is bringing in $32,000 per year and are in the top 60% of wage earners. $7.25 per hour for one person puts you in the bottom 10%. $7.25 is a beginning wage for people with no job experience and no skills. Two parents by the time they have worked for 5 to 10 years with no skills should be making $10 per hour. This would put the household into the top 40% of households.
What are the chances an unskilled/no education single parent household is ever going to make $20 per hr or more? Even a person with a college degree (in most fields) is going to max out around $20 but if there was another person in that household making $20 or even $10 per hour then the household is in the top 25%. Here is your permanent underclass.
stands for decibels
July 11th, 2012
12:59 pm
By mile 4, about 90% of the folks out there had given up running.
Yeah, that would be my fear. Of course, if you’re in the 9th wave, I guess you’re going to have to plan for that. Like I said, Peachtree isn’t where you run a personal best!
yuzeyurbrane
July 11th, 2012
1:02 pm
Thulsa, I basically agree with most of what you say on % of income. As to 0% tax for low income people, that is income tax and does not speak to the regressively high percent of their income they pay in sales and similar taxes. However, because they have zero Federal income tax and the wealthy pay a reduced % for interest and dividend income, that is why to I referred to an ever increasing tax burden on the middle class.
Tiberius - pulling the tail of the left AND right when needed
July 11th, 2012
1:04 pm
JDW, once again you miss the point.
CUT SPENDING FIRST. Prove to us that you can. Make it stick for a MINIMUM of two years, and then I’ll gladly talk about tax hikes in certain areas. And please provide any instance where a Congress / administration didn’t spend the extra revenues they received in higher taxes, except maybe the GOP Congresses of the 1990’s. Make the case that you can cut spending, and not the rate of increase, and I’ll listen to your increased taxes proposal. Go ahead, JDW.
Now to debunk your re-written history, his debt ceiling “offer” had no substance to it (and as we learned later, neither side was serious about actually cutting spending), and was thrown at the wall to see if it would stick with about 2 weeks to go before the limit needed to be acted upon. No one believed that it was a serious proposal except for the President.
And yes, he got his Bush (now Obama) tax cuts extended, but he also got unemployment benefits extended as well. His first sign in over 3 years of being a pragmatist.
Stimulus didn’t work. Why do it again? How about some deregulation to go with it before asking to double down on failure?
Nice try, JDW, but another epic failure on your part.
Jefferson
July 11th, 2012
1:05 pm
So why sell out the White House to Romney ? He will think he can buy anything with his un-American off shore accounts, used to hide or avoid paying his share. Rather traitorous. Why kind of person would support such a scoundral ?
Hillbilly D
July 11th, 2012
1:05 pm
But the risk has to be factored in as well…….and that is compensated through a lower tax.
The risk is factored in by the higher potential reward. You may lose but with more risk, if you win, you win bigger. That’s what gambling is all about. Tax policy has no place in that, in my opinion.
Tiberius - pulling the tail of the left AND right when needed
July 11th, 2012
1:06 pm
Uh Oh continues to display a shocking insistence on not staying on topic and not posting anything of substance.
Why is he still here?