Saturday, November 04, 2006

Taxes and inequality

I don't have a link for the following data, it came in an investment advisory called the Gartman Letter. You can read this data in two ways: as an indication of the extreme concentration of wealth and income in the US, or (if you like Ayn Rand) as an indication of how a small fraction of the population produces most of the value for society :-)

The newest data released by the Joint Economic Committee of Congress is really quite enlightening. Firstly, the top 1% of the nation's wage earners paid in 34.3% of the total taxes paid. The top 5% paid in 54.4%; the top 10% paid in 65.8%; the top 25% paid in 83.9% and the top 50% of the nation's wage-earners paid in 96.5% of the total taxes. The bottom 50%, however, paid in only 3.5%. To have made the grade and be counted amongst the nation's top 1% of wage earners, one had to have an adjusted gross income of $295,495 [Ed. Note: We need to make clear that these figures are all from taxable 2003, and that is in fact that most recent year for which the data is fully available.]. To have made the top 10%, one's adjusted gross income had to be $94,891. The cut off to make the top half was $29,019.

In '01, the top 50% paid in 96.0% of the total taxes. In '02, they paid in 96.5%, and the 96.5% again last year as noted just above. The bottom 50% paid in 3.97% of the total taxes in '01; 3.5% in '02 and the same 3.5% (rounded to the nearest 0.1%) in '03. We note that '99, according this time to the Tax Foundation, the top 1% of the nation's wage earners paid in an even greater portion of the total taxes: 36.2%. The top half of the nation's wage-earners then paid in 96% of the total tax revenues earned by the government, while the bottom half paid in 4%. So since '99, the top 1% are paying a bit less, but so too is the bottom 50%; the remaining 49% are paying more. Oh, and to have made the top 1% of all wage earners in '99 one had to have an adjusted gross income of "only" $293,415. The bottom 50% had an AGI of $26, 415.


Anonymous said...

Don't have time to double-check now, but I'm pretty sure that I've seen this breakdown before, and that it's for Federal income tax only, and therefore quite misleading as to how the overall tax burden distributes. Since Federal income tax collections total only about $1 trillion but Federal expenditures exceed $2 trillion, they are less than half the tax burden.

Mere inclusion of regressive taxes such as Social Security, excise taxes, etc. substantially changes the picture.

Since the true level of taxation is the level of government expenditures, not that of nominal "tax collections", a full analysis of tax burden distribution would need to include an analysis of how the distribution is affected by the various forms of "non-tax taxation".

(posting as 'anonymous' only because Blogger prevents me from using 'jm')

Steve Hsu said...

See below for breakdown of individual, corporate, SS tax components:

Not sure how re- or pro-gressive the goods and services taxes are. But you are right that the total tax burden isn't quite the same as represented in the post.

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