Well. The Beginning of the End?

[ymarkov]

"Bread and Circuses is the cancer of democracy, the fatal disease for which there is no cure. Democracy often works beautifully at first. But once a state extends the franchise to every warm body, be he producer or parasite, that day marks the beginning of the end of the state. For when the plebs discover that they can vote themselves bread and circuses without limit and that the productive members of the body politic cannot stop them, they will do so, until the state bleeds to death, or in its weakened condition the state succumbs to an invader--the barbarians enter Rome." - Lazarus Long in To Sail Beyond the Sunset by R.A. Heinlein

Tax Burden of Top 1% Now Exceeds That of Bottom 95%

by Scott A. Hodge

Newly released data from the IRS clearly debunks the conventional Beltway rhetoric that the "rich" are not paying their fair share of taxes.

Indeed, the IRS data shows that in 2007—the most recent data available—the top 1 percent of taxpayers paid 40.4 percent of the total income taxes collected by the federal government. This is the highest percentage in modern history. By contrast, the top 1 percent paid 24.8 percent of the income tax burden in 1987, the year following the 1986 tax reform act.

Remarkably, the share of the tax burden borne by the top 1 percent now exceeds the share paid by the bottom 95 percent of taxpayers combined. In 2007, the bottom 95 percent paid 39.4 percent of the income tax burden. This is down from the 58 percent of the total income tax burden they paid twenty years ago.

To put this in perspective, the top 1 percent is comprised of just 1.4 million taxpayers and they pay a larger share of the income tax burden now than the bottom 134 million taxpayers combined.

Some in Washington say the tax system is still not progressive enough. However, the recent IRS data bolsters the findings of an OECD study released last year showing that the U.S.—not France or Sweden—has the most progressive income tax system among OECD nations. We rely more heavily on the top 10 percent of taxpayers than does any nation and our poor people have the lowest tax burden of those in any nation.

We are definitely overdue for some honesty in the debate over the progressivity of the nation's tax burden before lawmakers enact any new taxes to pay for expanded health care.

Note the dip in the top 1%'s share of taxes in 2000-2001. I think that this represents the fall-off in capital gain realizations and decreased self-employment income during the recession. This suggests that we will see another dip in the 2008-2009 data... but the trend is there, all right. - YSM

Comments

[dlevey.livejournal.com]

It would be interesting to see the corresponding numbers in the % of wealth in each group's hands, and the % of income. While I understand your concern, it is also possible that the top 1% of taxpayers pay so much because they have vastly more money than that tier ever had before.

[ymarkov.livejournal.com]

(http://www.taxfoundation.org/news/show/1941.html)
Source: Internal Revenue Service, Tax Foundation calculations.

Many reporters have settled on $200,000 as the income threshold for being “rich.” Whether this is true or not, it turns out that the $200,000-and-over crowd is the only income group to have its share of the nation’s income shrink while its share of tax payments grew.

---

According to this (http://www.cbo.gov/showdoc.cfm?index=1545&from=4&sequence=0), the top 1% makes 15% of the nation's income. Wealth matters less to me, because much of it (at those levels) isn't liquid.

---

Of course the top 1% has more, by definition. But the dynamic that worries me works no matter why it has it, or how much more vast it is (as long as the bottom 10% lives the way it does, rather than in abject poverty).

[dlevey.livejournal.com]

I'm assuming that by "total income" taxes, these numbers include not only income, but dividends, capital gains, and the like. Certainly such a combination would make the argument more powerful.

I'm not completely sure how to interpret that second graph (and am curious at the downturn that seems to happen at the $2 million mark). From what I'm seeing at the linked page, those making more than $10 Million are making approximately 4% of all income. That's not what I'm asking, though. The original graph talked about the top 1% of taxpayers. Is their bottom line $10 million/year, or $20 million? Where is the split? The second graph is certainly interesting, and compelling, but I don't know that it is *alarming*.

[ymarkov.livejournal.com]

assuming that by "total income" taxes, these numbers include not only income, but dividends, capital gains
You assume correctly. The total tax on line 61 of your 1040 is the total tax on every form of income, less all credits. The picture gets even starker once you add state and city income taxes.

I suspect that the downturn at the $2 million mark reflects a high share of income from tax-exempt municipal bonds. These securities are disproportionately held by mutual funds and high-net-worth individuals. The lower capital gains rate also plays a big role.

Another thing to remember is that the income categories are highly fluid. IIRC the top 5% has about a 20% annual turnover - it's not the same people year after year.

Where is the split?
Just found some 2007 data: "Including all tax returns that had a positive AGI, taxpayers with an AGI of $160,041 or more in 2007 constituted the nation's top 5 percent of earners. To break into the top 1 percent, a tax return had to have an AGI of $410,096 or more, the first time that this threshold has exceeded $400,000."
http://www.taxfoundation.org/publications/show/250.html includes the tables showing the entire distribution. You and I and a lot of our friends living in this high-cost, high-income area are probably in the top 10%, easily.

The second graph... I don't know that it is *alarming*.
It is not. The first one is, to me. The Bush tax cuts benefited everybody, but they significantly reduced the number of people paying federal income taxes, decreasing the number of stakeholders potentially interested in control of federal spending. I wonder if Obama/Congress will let that part expire, too?

[zatakt.livejournal.com]

"We rely more heavily on the top 10 percent of taxpayers than does any nation and our poor people have the lowest tax burden of those in any nation."

But poor people here also have the lowest benefits in any OECD nation , right? (health services, education, unemployment, etc.)

[ymarkov.livejournal.com]

Unemployment benefits last less here, true, and vacations are shorter (both are among the reasons that this country is the economic engine it is). But I'd wager that Medicaid is no worse than the British NHS, for example. And public education is the same for everybody.