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
JDW
July 11th, 2012
2:48 pm
@Tiberius…”I accept your surrender, JDW.”
Declaring victory only fools yourself…
Middle of the Road
July 11th, 2012
2:48 pm
Well, to reduce the deficit we need to increase revenue or cut spending. Duh. The political parties can’t agree on where or how to do either. Spending is always wasteful when it’s a program you don’t like and vice versa. While I believe everyone should feel some small portion of the pinch I for one think the military should be slashed. Big time. We already spend more than 41% of the world’s military budget. Let’s stop being the world’s policeman. Let’s stop invading countries that don’t need invading. Let’s stop occupying Germany and Japan with huge numbers of standing troops; I think they realize they lost the last world war. Heck, we now count them as allies. Even after serious cuts we’d still be the mightiest country in the world and would hardly be defenseless.
But that’s just my opinion. Panic has already set in over a modest 8% cut in the military budget over the next ten years caused by the jointly agreed upon Budget Control Act. Senator McCain has lamented that this is a “budget-driven defense policy.” Well yes, so what’s your point?
As for increasing revenue… well increasing the highest tax rate by letting the highest tier of the so-called Bush Tax Cuts expire will help. A little. I think small businesses should be exempt and only wealthy individuals should be affected. The latter will still be enjoying the tax cuts in the other brackets anyway. This isn’t a matter of fairness but common sense. They’re the ones who can best afford such a hit. But this is only a drop in a very large bucket.
The ultimate fix? I don’t know and I hardly believe anyone here in this forum is qualified to have all the answers either. One thing I’m sure of, any solution will require everyone regardless of party affiliation to be unhappy. We’re all going to have to make sacrifices. All of us.
Tiberius - pulling the tail of the left AND right when needed
July 11th, 2012
2:48 pm
Out for a bit of commerce. Maybe later.
Donna
July 11th, 2012
2:50 pm
RE your statement: “So, even when we include the payroll taxes for Social Security and Medicare, which disproportionately hit lower-income workers, …”
You do realize the purpose of the Earned Income Credit was to relieve the low income earners of the burden of paying these taxes. It was expressly to reimburse them for those taxes they paid–it has over the years gone beyond that.
Lil' Barry Bailout (Revised Downward)
July 11th, 2012
2:53 pm
We’re all going to have to make sacrifices. All of us.
——–
Those of us already paying the freight anxiously await sacrifice by the folks, nearly all Democrats, who are getting a cut of our income and do nothing but demand more.
The productive already ARE sacrificing.
Fred ™
July 11th, 2012
2:55 pm
Tiberius – pulling the tail of the left AND right when needed
July 11th, 2012
2:47 pm
Fred, YOU’RE the one arguing tax RATES, when Kyle was arguing tax PAYMENTS.
Maybe you should understand that basic difference first, son.
+++++++++++++++++++++++++++++
No “son’ I’m showing you the wool being pulled over your eyes. But you just don’t get it. Like I said, I never thought you would.
Bless your heart.
Uh Oh
July 11th, 2012
2:56 pm
Fred @ 2:15
Great break down and analysis for those caught up in the charts provided
Fred ™
July 11th, 2012
2:58 pm
Middle of the Road: It’s pretty easy. We need to cut spending WAY down and raise taxes SOME.
Unfortunately the Republicans don’t want to cut spending OR raise taxes. They want to cut taxes on the rich, just like the Irish did. (Remember how all the talk show hosts were holding out Ireland as the ‘perfect” model for business? We see how THAT worked out lol).
Kyle Wingfield
July 11th, 2012
2:59 pm
Inciteful @ 1:38: As stated more than once in the OP, these figures include payroll taxes (a.k.a. social-insurance taxes) and the incidence of corporate taxes (i.e., the burden of those taxes as it falls on individuals). You have to look at the whole picture, which is what we have here thanks to the CBO.
Don't Forget
July 11th, 2012
3:02 pm
Bruno, as to Higgs Boson, oy. Other than a brief and fairly superficial introduction to subatomic physics I really haven’t kept up. It seems to me that the subatomic arena is so different that it’s difficult to trust my thoughts since I don’t spend enough time thinking about it. In other words, it’s so different from the world we experience that if you’re not contemplating it all the time you are likely to make false assumptions. Everything is so small and so fast that time and for that matter space are inappropriate concepts. I’d agree that the name God particle is really unfortunate and invites unnecessary controversy.
Fred ™
July 11th, 2012
3:03 pm
Thanks Uh Oh.
Dusty
July 11th, 2012
3:03 pm
Well, Hillbilly D,
So, to be exact, you have 80,000 broilers living next door. Amazing! I believe most of them are blogging here today. Never saw so much clucking,crowing, scratching and ruffling of feathers!
Would you mind going next door and opening the doors? I think the whole crowd needs to get out and cool off. One can’t stay tender when hot and bothered.
Uh Oh
July 11th, 2012
3:07 pm
Fred
Both sides play slight of hand. It is not that their statistic and analysis isn’t correct, it is how it is presented and what is being analised and left unsaid that is the issue.
Kyle Wingfield
July 11th, 2012
3:07 pm
AmVet @ 2:19: I don’t consider it putting the onus on the accused. If the accuser says nothing more than “you’re a liar,” I don’t expect too many people to be persuaded.
Uh Oh
July 11th, 2012
3:08 pm
analyzed
by bad
a dad
July 11th, 2012
3:08 pm
Aqua – your use of military acronyms I’m not familiar with, i.e., DLI, etc. I’m Navy girl, and yes, we used whatever we dang well please. As for an all-gay or whatever company, again you’re not reading correctly. What I was simply saying was I’m against anything that might negatively effect combat readiness, and there re plenty out ther who want to do “social experiments” (and I can’t believe you’re that dense that you mistook that along the lines of your response), especially when it’s not their tush at risk. I would have thought you’d thrown out the integration of coloreds into the armed forces argument in response. Kudos for not resorting to something that old.
But question, if DADT got rid of a lot of people, how would not having to pay them, give them COMRATS, per diem, etc., cost the DoD money. And as you can see, once DADT comes up Jamvet tends to move on to other avenues.
But enough before Kyle chastizes us for having at one another rather than sticking to the topic, which was the progressive tax rate. Wanna bet I pay more in the progressive tax rate than you do (ok, if you’re in the 28% bracket we’re tied).
Thulsa Doom
July 11th, 2012
3:09 pm
AmVet,
Let the fun begin? I’ll second that. I like the new rules but I will miss seeing you call someone “meat”. And we all know that Fred can get quite temperamental in a hurry. Though I enjoy Fred’s hellraising I just hope it doesn’t get him any trouble on here.
Kyle Wingfield
July 11th, 2012
3:11 pm
Interested @ 2:32: Should I also take down the comments that refer to “Repugs” and such?
I’m trying to cut down on the personal nastiness. If I have to crackdown further, I will.
Uh Oh
July 11th, 2012
3:14 pm
Kyle @ 3:11
I say yes.
Republican, Democrat, liberal, conservative, con, libs etc gets the point across to say the least.
Uh Oh
July 11th, 2012
3:22 pm
Kyle
My point earlier is that if wages have stagnated when adjusted for inflation for the bottom 80% (that is an example and not meant to be a factual number) and the top 20% (ex. again) have went up, isn’t it logical that they would be paying more of the overall burden?
Not saying that is right or wrong, but seems logical, if in fact my overall assertion is correct in regards to wages.
Throw if Fred’s quick example and it does appear that while your numbers are correct, the entire picture is not being put into a correct perspective. With that said, anyone can twist a number. Both sides do it every day
Kyle Wingfield
July 11th, 2012
3:22 pm
Wait, is this the same Fred who, last week when all comments were going through moderation, was ranting about his unpublished comment for hours after I published it? That Fred?
Btw, sport: Ireland’s recent problems aren’t because of its tax structure. They owe to a housing bubble — brought on because so many people were making so much money (after corporate taxes were cut, fyi), and unfortunately too many of them decided to sink too much of it into real estate — combined with the government’s foolish decision to guarantee all their banks’ liabilities at the height of the financial panic.
Lil' Barry Bailout (Revised Downward)
July 11th, 2012
3:26 pm
Republicans tried to get the Senate to vote on extending th Bush tax cuts for all Americans
———-
“But Mr. Reid objected to the request, saying he didn’t want to have the vote on the GOP’s legislation.
“It’s the help Paris Hilton legislation,” he said. “It would give people like her a tax break for doing nothing — $46 billion of the American people’s money to help Paris Hilton and others.”
———-
So why not vote on it?
Senate Democrats: Two-faced cowards.
Bruno
July 11th, 2012
3:28 pm
And as you can see, once DADT comes up Jamvet tends to move on to other avenues.
dad–If it sets your mind at ease, I’ve partied with AmVet a few times, and am certain that DADT doesn’t apply. The man is a veritable chick magnet.
Uh Oh
July 11th, 2012
3:28 pm
Kyle @ 3:22
To a degree can’t the same be said for a portion of the US woes at this time. Not blaming Republicans, Bush, Clinton, but in general in regards to our bubble and the snowball effect it had on the economy.
Dusty
July 11th, 2012
3:28 pm
Let the fun begin? Please, and do it over at our neigbor’s blog. They miss your “two step” (lies & loose lips)
There was a time when blog instructions were not posted here on the hour. Alas! What lib litanies hath wrought!
Kyle Wingfield
July 11th, 2012
3:29 pm
Uh Oh @ 3:22: That, I believe, is one reason OECD looks at the ratio between taxes paid and income earned. If the ratio increases over time, as it did for the top quintile, then the share of taxes paid rose faster than the share of income earned. If the ratio decreases over time, as it did for the other four quintiles, then the share of income earned rose faster than the share of taxes paid (or the share of taxes paid fell more quickly than the share of income earned).
Again, the purpose of posting these charts is not to argue anything about income inequality, except to say the tax code is not part of any problem.
Don't Forget
July 11th, 2012
3:29 pm
Can we say “delusional lickspittle” here?
Uh Oh
July 11th, 2012
3:30 pm
Barry
If it makes you feel better, both Dems and Repubs block legislation today in regards to their version of that same issue.
Let’s at least bring it all on the table.
Kyle Wingfield
July 11th, 2012
3:30 pm
Uh Oh @ 3:28: Of course.
Dusty
July 11th, 2012
3:31 pm
Bruno, 3:28
AmVet should live near Hillbilly. 80,000 chicks next door!
Uh Oh
July 11th, 2012
3:33 pm
Kyle @ 3:29
Understood and get the point, however the stagnation of wages for the bottom 80% for whatever reason will directly impact those charts if the top 20% has seen a sharp increase in earnings.
I’m not at all demeaning the top 20%. I do pretty well myself, but it will impact the data, will it not?
I could be missing something, but I can’t see how those variables have no impact on the numbers you presented. Again, not arguing the numbers. I’m sure they are valid.
Erwin
July 11th, 2012
3:34 pm
The Excel spreadsheet shows top 1% paid a 35.9% rate in and now pays 28.9%. That’s more progressive? 81st through 90th quartiles dropped from 23.5% to 18.8%. And corporate tax rates dropped from 11% to 5.2%. (And note that pre-tax income generally doesn’t include things like municipal bond interest, which often constitutes a big chunk of income of the highest groups and would lower their tax rate even more.)
Kyle Wingfield
July 11th, 2012
3:39 pm
Btw, I just remembered someone asked a long time ago why the numbers for the quintiles don’t add up to 100 in either column. The answer is: I don’t know. I took them straight from the CBO data. I suspect it has to do with rounding effects, but I can’t say for sure — and the extra 1.5 percentage point for 2009 pretax income would be one heckuva rounding error.
Kyle Wingfield
July 11th, 2012
3:51 pm
Erwin: We are talking about the share of taxes paid, not the rate, per the OECD’s common methodology.
That said, the average rates arguably are more progressive now than before, relative to one another. The average rate of the second quintile was 79% of the top quintile’s in 1979; in 2009, it was 65%. The same is true, and even more pronounced, for the lower three quintiles. What’s more, the average rate paid fell the fastest between 1979 and 2009 for the bottom quintile, followed by the fourth quintile, the middle quintile, and so on.
Lil' Barry Bailout (Revised Downward)
July 11th, 2012
3:51 pm
Uh oh, I have not found any stories about the GOP blocking either Obozo’s bill or their own to extend Our President Bush’s tax cuts. I look forward to your link.
Tiberius - pulling the tail of the left AND right when needed
July 11th, 2012
4:10 pm
“Should I also take down the comments that refer to “Repugs” and such?”
If you did that, Kyle, there’d be maybe two liberals left on this blog who could legally post.
Don't Forget
July 11th, 2012
4:10 pm
But Kyle, the top marginal rate currently applies to those making more than 250K. If you adjust for inflation that is much lower than most of the historical cutoff’s. There are many ways to look at how progressive a tax system is and that is one of them.
Tiberius - pulling the tail of the left AND right when needed
July 11th, 2012
4:14 pm
“It would give people like her a tax break for doing nothing — $46 billion of the American people’s money to help Paris Hilton and others.”
When did MY money become “the American People’s money”, Harry Reid?
getalife
July 11th, 2012
4:17 pm
Sorry kyle:” Under Obama, Taxes Hit A 30-Year Low”
http://thinkprogress.org/economy/2012/07/11/514384/taxes-30-year-low-obama/?mobile=nc
Uh Oh
July 11th, 2012
4:18 pm
Barry
We can arguing semantics and I did hear somewhat incorrectly on the radio earlier, but here you go
http://abcnews.go.com/blogs/politics/2012/07/senate-democrats-block-a-vote-on-president-obamas-tax-plan/
So I was not exactly right but you can check out the link and it will talk about the Democrats as you stated as well as the games that Republicans in the Senate are playing with the same issue
Lil' Barry Bailout (Revised Downward)
July 11th, 2012
4:20 pm
It’s reported that Nancy Pelosi made $5 million from investments in Asia. Why is Pelosi sending jobs overseas and hiding her money in offshore accounts?
Lil' Barry Bailout (Revised Downward)
July 11th, 2012
4:22 pm
Republicans want to vote on Obozo’s tax plan. Democrats do not.
Very curious indeed.
I honestly don’t know why Dems would be ducking the vote.
Tiberius - pulling the tail of the left AND right when needed
July 11th, 2012
4:23 pm
getalife, arguing oranges does not win you the apples argument.
@@
July 11th, 2012
4:23 pm
Hillbilly:
The land owner can pay considerably less in property taxes if the land is in conservation use.
A little something I learned during my search for land. 10+ acres zoned agricultural? Put it in the conservation use program. It was initially a way to discourage land owners from selling to developers. Just about every piece of land we’ve looked at has been assigned a conservation use permit.
Fred ™
July 11th, 2012
4:24 pm
I see you waited until AFTER I left to post your drivel Kyle………
Just kidding. Although on your first post, it WAS drivel. I know the jedi mind trick works on lock step rushbot republicans, but I’m an independent. When MY post is in moderation I can see it. It says awaiting moderation. You can see it, but no one else can. When you PULL that post I can no longer see it because it isn’t there. That is what I refered to the other night. Lie to the others Kyle, but don’t lie to me. I was fooling around with computers since before you were born. I pre-date the PC.
Also, nice spin on the Ireland thing. Dr. Goebbels would be proud of you, you took an aside comment i made and pretended like it was the “meat’ of the argument. That’s really sad. But typical of the breed.
Are you going to argue the definition of the word is next there “sport?”
Fred ™
July 11th, 2012
4:25 pm
Tiberius – pulling the tail of the left AND right when needed
July 11th, 2012
4:23 pm
getalife, arguing oranges does not win you the apples argument.
++++++++++++++++++++++++
talking to getaclue is a useless proposition. Haven’t you figured that out yet? It’s like wrestling a pig. When you wrestle a pig you have to roll around in pig crap. And the pig likes it…………….
Fred ™
July 11th, 2012
4:25 pm
Lil’ Barry Bailout (Revised Downward)
July 11th, 2012
4:20 pm
It’s reported that Nancy Pelosi made $5 million from investments in Asia. Why is Pelosi sending jobs overseas and hiding her money in offshore accounts?
+++++++++++++++++++++++++++
So Republicans will love her.
Uh Oh
July 11th, 2012
4:27 pm
@@ 4:23
Interesting. What are the rules and regulations that allow a piece of property to be considered “conservation”?
Steve
July 11th, 2012
4:27 pm
Ther middle class has shrunk so much since the GOP war in it, that’s why it shows a lower percentage for their quintile. There was a time when the welthy paid a much higher percentage of their income in taxes than they do now. So maybe if you didn’t just use “some” facts, you’d sound intelligent
getalife
July 11th, 2012
4:29 pm
ti,
I thought you left the blog for the first time.
Just using your debate style.