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
Kyle Wingfield
July 11th, 2012
1:07 pm
yuze @ 12:29: I disagree. If one group of people is bearing the heaviest share of the load, I don’t care that they might be able to bear even more. They’re already bearing their fair share of the load.
Btw, the OECD is not exactly some bastion of conservative thinking. All I did was apply their methodology.
Gimme Gimme Gimme
July 11th, 2012
1:07 pm
It’s really easy, if you don’t like how this blog is run go somewhere else.
Uh Oh
July 11th, 2012
1:13 pm
Don’t threaten a lawsuit just because we have disagreements on tax policy
td
July 11th, 2012
1:13 pm
Tiberius – pulling the tail of the left AND right when needed
July 11th, 2012
1:04 pm
“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.”
I think most conservatives would agree with you 100%.
Kyle Wingfield
July 11th, 2012
1:13 pm
Uh Oh and Tiberius: I think it’s time for y’all to focus on something other than each other.
How Inciteful Is That!
July 11th, 2012
1:13 pm
Did Kyle say “fair share”. That’s so out of character for one that has previously expressed such contempt for the phrase.
Finn McCool (The System isn't Broken; It's Fixed)
July 11th, 2012
1:14 pm
Hillbilly, what MD is revealing to us is exactly who the true moochers are. Not only do investors get rewarded for their investments with potentially higher earnings (reward for risk), they also need to be rewarded with lower tax rates on their transactions.
Cons are the biggest moochers of all. They have jobs, have their health, and still they want handouts from the guvmint.
I Report (-: You Whine )-: mmm, mmmm, mmmmm! Just sayin...
July 11th, 2012
1:15 pm
Bruno- Ain’t that the truth, only when the air is so heavy you can barely breathe it should it be considered a “marathon.”
REPORT: Pelosi made up to $5 million on Asian investments in 2011…
DNC Chair Whackerman Schulz! Invested in Swiss Banks, Foreign Drug Companies, Bank of India…
Know what I mean?
Why would the libs worry over obozo’s tax hike, their money is, uh, elsewhere.
getalife
July 11th, 2012
1:15 pm
When are we going to focus on jobs?
md
July 11th, 2012
1:17 pm
“The risk is factored in by the higher potential reward.”
Possibly, but folks would have to weigh that risk against a lower roi is taxes are raised…………
The Austrian Brotherhood
July 11th, 2012
1:18 pm
It’s a mistake to call them liberals. They’re Progressives. They can also be called psychopathic, controlling, thieving, megalomaniacal, fascist, tyrannical scumbags.
JDW
July 11th, 2012
1:18 pm
@Tiberius…at this point your inane blather is comical…for example
“No one believed that it was a serious proposal except for the President.”
Hummmmm…now who is the guy in charge of making SERIOUS PROPOSAL’S?
“His first sign in over 3 years of being a pragmatist.”
You sound like Murdock…bipartisanship is when they do it your way.
“Stimulus didn’t work.”
If I may paraphrase another blogger…
You’re a liar, Tiberius, and the worst thing is, you know you’re a liar, but you don’t even care.
How Inciteful Is That!
July 11th, 2012
1:18 pm
I think the ones that take the most have an obligation to return the most. Kyle apparently thinks that those in the lower quintiles are the ones taking the most though while I believe it is the ones in the upper percentile that do the most taking. Take everything that the lowest quintiles have and tell me what you’ve got.
Kyle Wingfield
July 11th, 2012
1:19 pm
Inciteful @ 1:13: I’ve done nothing of the sort. I’ve merely expressed contempt for those people who go around saying one group isn’t bearing its fair share, without a) acknowledging the facts or b) saying how much more would constitute their fair share.
Fred ™
July 11th, 2012
1:19 pm
I paid less than 10% in income taxes this year. It’s nice being rich.
getalife
July 11th, 2012
1:19 pm
If they don’t cut a deal, the bush tax cuts expire.
The senate failed to pass the President’s attempt to keep the middle class tax cuts so we have to rely on congress to act.
Kyle Wingfield
July 11th, 2012
1:20 pm
And you’re wrong about me at 1:18, too, Inciteful.
md
July 11th, 2012
1:20 pm
Get with the program Finn…..changing the roi equation will invariably change behaviors……it’s the reason money moves from vehicle to vehicle in the first place………
Fred ™
July 11th, 2012
1:22 pm
Does the inherent dishonesty of your “chart” ever bother you Kyle?
Tiberius - pulling the tail of the left AND right when needed
July 11th, 2012
1:23 pm
I’m trying Kyle, but this guy is just here to be disagreeable (rule # 1) and won’t stay on topic. I warned him any number of times to stop addressing me in off-topic remarks, and he just keeps it up.
This blog will show that I have posted numerous times regarding the topic at hand, and have suggested the same to others.
Not so with Uh Oh.
Why does he get a free pass when he’s just here to be disagreeable and not even get on topic, let alone stay on topic?
I Report (-: You Whine )-: mmm, mmmm, mmmmm! Just sayin...
July 11th, 2012
1:25 pm
gitmo- obozo has created whole hoards of new drug dealers, food stamp resellers, grant swindlers, community empowerment zone sheisters, health insurance agents, fake voters, lawyers and he has even risen people from the dead to collect unemployment.
What are you whining about?
Aquagirl
July 11th, 2012
1:26 pm
Aqua – spent a million training. Your source for such figures please.
I’ll give you three letters…DLI. Multiply that alone (not even adding in AIT, pay, or anything else) and multiply by three (that I knew of) and a million is a rough estimate.
I’m not sure why you would have considered any gay people in your unit as “social experimentation” unless you were conducting, um, experiments. Not that there’s anything wrong with that.
And I’m really confused by your declaration that teh gay could come flying out in more manly-man dangerous situations. I was obviously never in combat arms but deployed to some questionable places in non-allied countries. Our only concern with butts was getting them home in one piece. If elite all male combat arms guys find combat operations so sexy they can’t control themselves I’ll have to take your word on that. None of the Special Forces guys I knew expressed those opinions, but then they wore pantyhose and Skin-So-Soft on a regular basis. Perhaps they weren’t telling, and I sure as hell didn’t ask.
md
July 11th, 2012
1:26 pm
“Does the inherent dishonesty of your “chart” ever bother you Kyle?”
He posted plenty of links to the source Fred…..do you have some others we need to be comparing it to?
Hillbilly D
July 11th, 2012
1:26 pm
Possibly, but folks would have to weigh that risk against a lower roi is taxes are raised…………
And that’s as it should be, in my view.
The stock exchange creates little or no real investment. Let’s say John Doe buys “X” amount of shares in Coca-Cola, while somebody else is selling. The only people really affected by that are the buyer, the seller and the various brokers, etc. This transaction has zero effect on Coca-Cola, because they sold all their shares ages ago. It’s no different from a poker game.
I’ve never been a gambler and never been to Vegas but from what I understand, if you win big at the Casino out there, you pay taxes on your gain at the regular rate. The two transactions are pretty much the same, in my eyes.
And if you lose, well that’s the price of playing the game. Don’t play if you can’t afford to lose.
getalife
July 11th, 2012
1:29 pm
Kyle,
Do you think congress will act to save the bush tax cuts and big cuts?
What is the gop plan to cut a deal?
Do they have a plan?
Fred ™
July 11th, 2012
1:29 pm
md
July 11th, 2012
1:26 pm
“Does the inherent dishonesty of your “chart” ever bother you Kyle?”
He posted plenty of links to the source Fred…..do you have some others we need to be comparing it to?
+++++++++++++++++++++
Wow, and I didn’t even see Kyle’s mouth move. The “source” isn’t the problem md. I’m sure it’s impeccable. It’s the logic that is faulty though I’m not at all surprised that you fail to see that.
Tiberius - pulling the tail of the left AND right when needed
July 11th, 2012
1:30 pm
JDW, how many long-term negotiations of actual substance (let’s say, over $10 million in value) have you been a part of?
If any, how many of those negotiations proceeded for MONTHS on less substantive issues being discussed back and forth, when suddenly, a great big change in the proposal was dropped on the table for consideration with just days to go before the negotiating deadline.
I don’t know the answer to the first question, but I DO know the answer to the second question – NONE.
No serious negotiation at that late stage of the game has ever successfully concluded when a steaming pile of nonsense gets dropped in the middle of the table. Professionals, and serious negotiators, don’t play those kinds of games.
Politicians, however, excel at them.
Bruno
July 11th, 2012
1:31 pm
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.
td–Outstanding point. Glad you’re here on the WIngfield blog as well.
As has been documented numerous times, single parenthood is a net negative for both the parent and the child across the board. In the “old days”, there was a sense of shame associated with it. Starting in the 90s, it has become not only accepted, but darn near glamorized in the popular media. (16 and Pregnant, anyone). In the end, Dan Quayle was right.
Of course, many of these “single moms” aren’t really single, but have a man lurking in the background. They don’t get married on paper in order to collect more government benefits.
(Ducking from flying objects coming from AquaGirl)
Don't Forget
July 11th, 2012
1:32 pm
I don’t doubt the conclusions here based on the metrics used. But if you look at tax RATES as the metric we are much less progressive than we have been in the past and when compared to other industrialized countries. The reason for this is the change in income distribution which is the rational for a progressive tax rate in the first place. The fact that the upper quintile is paying a greater share of the tax burden seems irrelevent when you consider they are still paying a lower rate of tax on their income. And that is the measure that most people look at when deciding whether their tax rates are excessive. You also have to wonder why the income distribution is so different now. Whether you think it’s more appropriate now or in the past you’re still left with the conclusion that either now or in the past, income distribution is not based on merit/contribution to profit.
Finn McCool (The System isn't Broken; It's Fixed)
July 11th, 2012
1:33 pm
Wow, md. You really don’t have a brain for investing do you? If someone has a percentage of their cash that they don’t mind exposing to risk with it’s potential rewards, you really think they are going to say “oh, no, taxes are 20% IF I ever sell that investment….I think I will just stick it in the bank to earn 2%.”
This is like the crazy argument that if you have industry regulations, people won’t invest their time and money in that market. I’ve known dogs that were smarter than that.
Tiberius - pulling the tail of the left AND right when needed
July 11th, 2012
1:33 pm
“It’s the logic that is faulty though I’m not at all surprised that you fail to see that.”
Rather than complain, Fred, why don’t YOU explain your disagreement with it?
Bruno
July 11th, 2012
1:33 pm
Back to work, but a big Wingfield welcome to Fred!!
md
July 11th, 2012
1:34 pm
“This transaction has zero effect on Coca-Cola, because they sold all their shares ages ago.”
Not quite the case……the stock price has a lot to do with valuation of the company, and thus decisions made both within and outside that company. Interest rates, expansion, capital projects, etc etc are based partly on the current “worth” of the company.
Finn McCool (The System isn't Broken; It's Fixed)
July 11th, 2012
1:35 pm
md would prefer to pay $0 taxes on $0 dollars invested than to earn $1 on an investment and pay 20% on that $1 in taxes.
Tiberius - pulling the tail of the left AND right when needed
July 11th, 2012
1:35 pm
“Of course, many of these “single moms” aren’t really single, but have a man lurking in the background. They don’t get married on paper in order to collect more government benefits.”
Don’t even think I would have gone THAT far, Bruno.
Kudos, though . . .
md
July 11th, 2012
1:36 pm
“Wow, and I didn’t even see Kyle’s mouth move. The “source” isn’t the problem md. I’m sure it’s impeccable. It’s the logic that is faulty though I’m not at all surprised that you fail to see that.”
Typical insulting Fred fashion….too funny.
He basically compared data from two periods of time Fred……not much logic to it.
How Inciteful Is That!
July 11th, 2012
1:38 pm
I don’t care that they might be able to bear even more. They’re already bearing their fair share of the load. – Kyle
Your words don’t bear you out, Kyle. And as for presenting the facts, do you honestly believe that your presentation of taxes borne by subgroups of the population tell the whole story. In 2010, the fed gathered about equal amounts from individual income taxes as it did from payroll taxes. Are those payroll taxes progressive? In the same year, corporate federal income tax receipts were about 1/4 as much as the payroll taxes, yet I see you limiting your words to only talk of those oppressive marginal rates… then there are the Bush tax cut impacts on those earning capital gains and qualifying dividends. Did you know that a couple can earn over $88,000 in capital gains and qualifying dividends and take the standard deduction and personal exemptions and pay zero federal income taxes and zero payroll taxes, regardless of their age. So, there are cherry picked facts such as those you have presented and then there is more of the story. Feel free to continue to fill in the blanks though. Start with telling us just how much someone making $7000 or $15,000, etc., should be paying in federal income tax such that it satisfies your definition of fair share.
md
July 11th, 2012
1:40 pm
“Wow, md. You really don’t have a brain for investing do you? If someone has a percentage of their cash that they don’t mind exposing to risk with it’s potential rewards, you really think they are going to say “oh, no, taxes are 20% IF I ever sell that investment….I think I will just stick it in the bank to earn 2%.””
Your assumptions of what you think I’m referring to does not equate to reality………
Let’s suppose one can find a better deal in another country in this global economy Finn…..with less regulations and less penalty on risk…….you think folks won’t go looking for it as we make changes over here……..
And don’t make up equations and attribute them to me, that just makes you look silly…….
I Report (-: You Whine )-: mmm, mmmm, mmmmm! Just sayin...
July 11th, 2012
1:41 pm
Sigh, gitmo, I thought you like eyeballed CNN all the time, did they not translate?
Overpaid unemployment benefits top $14 billion – CNN
money.cnn.com/2012/07/09/…unemployment-benefits/index.htm
2 days ago – The vast majority of unemployment benefits do go to people in need. … scams involve prison inmates, illegal immigrants or even the deceased.
getalife
July 11th, 2012
1:41 pm
Our President asked those who could afford to pay more taxes to pay but it failed in the senate.
If you can afford to buy health insurance like me, stop mooching and pay up.
Hillbilly D
July 11th, 2012
1:43 pm
Investments are taxed differently, as well.
If John Doe has say $100K invested in stocks, he pays nothing until he sells them and makes a profit. So if he holds a stock 10 years and sells it for what he paid for it. He made no profit and pays no tax.
If John Doe invest $100K, in a piece of rural land, that has nothing on it, “wild land” is the legal definition in Georgia, he pays property taxes on it every year. If this is rural land, it’s a good bet that his land is using $0, in county services. So if he holds it for 10 years and sells it, even at a loss, he’s paid 10 years worth of property taxes.
He had to pay for his gamble every year, while the guy who invested in stocks didn’t.
That’s a holdover from the 19th century when land was the lion’s share of most people’s wealth.
We need to look at fixing that, as well.
Jefferson
July 11th, 2012
1:43 pm
If you don’t watch out the taxes will get crammed down your throat too… look only at rates on income, everything other than that is just trying to look clever.
getalife
July 11th, 2012
1:46 pm
Andy,
Good to see you back up your words but “The vast majority of unemployment benefits do go to people in need. In 2010 alone they helped keep 3.2 million Americans out of poverty, according to the Census Bureau” CNN.
States overpaid too so consider it a bailout for the the middle class and poor.
md
July 11th, 2012
1:50 pm
HD…..and it wasn’t too long ago, that many considered land to be a forever increasing asset. The old saying of “they can’t make more land” was the principle behind that………at least now, folks understand that every transaction comes with risk.
Tiberius - pulling the tail of the left AND right when needed
July 11th, 2012
1:51 pm
Inciteful, corporate tax rates are a non-starter. Corporations don’t pay taxes; the consumer who buys their products pays them. The cost of those taxes are built into the price of the product they sell. The corporation is merely the collector and re-distributor.
Taxes are ALWAYS paid the the end-user.
Fred ™
July 11th, 2012
1:52 pm
Tiberius – pulling the tail of the left AND right when needed
July 11th, 2012
1:33 pm
“It’s the logic that is faulty though I’m not at all surprised that you fail to see that.”
Rather than complain, Fred, why don’t YOU explain your disagreement with it?
+++++++++++++++++++++
Show me the “complaint” Tiberius. I’m not a talk radio listener. I require you be honest and address what I say. i don’t answer baseless accusations that obscure the facts.
Fred ™
July 11th, 2012
1:54 pm
Bruno @ 1:33. Back atcha. LOL You should have seen it yesterday. I got called a “con” at Jay’s………..
Jefferson
July 11th, 2012
1:56 pm
To say corp taxes are not paid by corps is double speak and a lie in fact.
Tiberius - pulling the tail of the left AND right when needed
July 11th, 2012
1:56 pm
“Show me the “complaint” Tiberius.”
This is too easy, Fred.
Fred ™
July 11th, 2012
1:22 pm
Does the inherent dishonesty of your “chart” ever bother you Kyle?”
Perhaps you’d like to “revise and extend” your “baseless accusations” comment?
Hillbilly D
July 11th, 2012
1:57 pm
Fred @ 1:54
Maybe they meant convict.
Over the years here, I’ve been called everything from a Marxist to a Nazi. It’s amazing sometimes how people view what you say, through their own lens. I’ve found oftentimes, people on both sides read things into what I say, that aren’t really there. Goes with the territory. Besides, it’s too much to ask of anybody, to ask them to understand how my mind works.