Tax Burdens By Quintile
Earlier this week, I published the breakdown of tax burdens that has been making the rounds:
Lowest quintile: 4.3 percent
Second quintile: 9.9 percent
Middle quintile: 14.2 percent
Fourth quintile: 17.4 percent
Percentiles 81-90: 20.3 percent
Percentiles 91-95: 22.4 percent
Percentiles 96-99: 25.7 percent
Percentiles 99.0-99.5: 29.7 percent
Percentiles 99.5-99.9: 31.2 percent
Percentiles 99.9-99.99: 32.1 percent
Top 0.01 Percentile: 31.5 percent
Andrew Sullivan provides the flip side of the coin: After-tax income.
Lowest quintile: 15,300
Second quintile: 33,700
Middle quintile: 50,200
Fourth quintile: 70,300
Percentiles 81-90: 96,100
Percentiles 91-95: 125,500
Percentiles 96-99: 200,500
Percentiles 99.0-99.5:413,300
Percentiles 99.5-99.9: 830,100
Percentiles 99.9-99.99: 3,191,600
Top 0.01 Percentile: 24,286,300
UPDATE: My initial analysis of this was based on a misrecollection of what the first set of numbers represent; they’re “total effective federal tax rates for 2005,” not percent of the federal tax burden. My apologies.
I’m not really sure what the second set of data tells us, other than that income operates as something like a standard distribution and that it’s therefore incredibly skewed at the ends. At the bottom, obviously, it’s bounded at zero whereas it’s unbounded at the top. That rich people remain rich even after handing a third of their earnings over to the Federal Treasury isn’t any more surprising than that low income earners still don’t have a lot of money even after getting to keep essentially all of it.
I think you are confusing percentage of income paid as taxes and percentage of total taxes paid. Otherwise, adding up the numbers in the first column, all of our taxes are paid more than twice over.
I think the first set of numbers are the percentage of their income they pay in taxes, not the percentage of all taxes they pay.
Yes, you’re both right. Post corrected.
Both of the commenters above beat me to the punch.
I wish that rather than lining up along partisan lines or hiding behind slogans we’d have a real national dialogue about what sort of society we’d like to be, how the means we’re advocating relate to the ends we’re seeking, and what the philosophical basis of it all is. Hypothetically, that’s what elections are but I doubt that national elections have been about that since Jackson’s time, if ever.
Occasionally, there are glimmers of that. The Lincoln-Douglas debates were such a glimmer.
I’ll start. I think that we’re a rich enough country that we should be willing to exert substantial efforts to see that none of its residents are seriously in want. I define seriously in want as starving, dying of exposure, bleeding to death for lack of care, and the like. To my mind not being able to afford everything you might want does not fit the definition.
I don’t think that some people paying more taxes than others or paying a higher proportion of their income than others is wrong. I think people who are well-to-do receive substantial benefits from the country and, frankly, you can’t operate a modern society without some sort of progressive tax. I think that confiscatory tax rates are imprudent, counterproductive, and encourage evasion (and, consequently, diminish respect for the law).
I think that the values that underlie my view of a decent society are partially utilitarian in that you have a more peaceful and more orderly society. However, I acknowledge that I don’t believe that an entirely utilitarian case can be made for such a decent society. Ultimately, I think you need to rely on transcendent values of one sort or another.
Who was it said that the rich and the poor never seem to have enough money?
Dave, the bit of dialogue from “West Wing” that I appended as an update to the last post is about right on that score:
I’m making far less than $400k but the wife and I are doing well, even adjusted for DC. I fully expect to pay more, even as a percentage, than those at the very bottom of the wage scale. But, as you say, the ends to which those funds are allocated is an issue.
There’s an old Russian saying: We all want to be equal…. with the rich.
First, to Dave’s point, I DO think government trying to make all outcomes equal to be a wrong, both in a moral and fiscal sense. The easiest demonstration of this is the current fiscal problem brought on by the singularly bad fiskcal and immoral to reduce the cost of housing for the benefit of ‘the poor’. And the upcoming healthcare debacle, for that matter. In both cases, we’re dealing with government trying to wave a magic wand over something and change reality.
What you’re needful of, in those events, is charity. Government isn’t charity. Taxes are not charity. Taxes are confiscation.
Let me illustrate that point just a bit. I wrote last Christmas:
That point aside, by what right do you remove my money, goods, and services, to give to someone who isn’t as successful, or doesn’t share my work ethic, or my talent? There’s a word for that kind of thing; it’s called “theft”.
It also in the end is counter productive to society.
I guess this begs for a definition of what is serious want, and can we reduce it to some level of income?
For example, is is say…$5,000/person? If so, maybe we should consider revamping our “social safety net” to ensure that every person gets $5,000/year and nothing more (at all, ever). Thus a family of 4 would get $20,000/year.
I imagine this might be alot cheaper and easier than trying to make sure that said family of 4 gets just the right amount of this, that and the other thing. Let said family make their own decisions on how to spend that income.
We could even make it so that it “pays to work”. If you earn say, $1,000 then the per person stipend is reduced by an amount less than $5,000.
There are a couple of important ingredients missing from the discussion here thus far, to wit, incentives and risk. You cannot assume people will keep just acting the same way as you disincentivize them or increase their risk without the opportunity for commensurate rewards. This is where progressivism in all its flavors falls apart, because people just won’t act the way they are supposed to once you read the fine print of the utopian schemes.
Dave, you say we are rich. Well, how did we get that way? Isn’t that particularly relevant to what we choose to do going forward? I hate to be tedious about it, but these conversations also frequently tend to conflate wealth and income when they are not even close to the same thing. A lot of wealthy people will show no income for 2008 because of market losses. This means I will be probably be paying more in taxes for 2008 than a lot of people who are much more wealthy than I. Is that fair? Why or why not?
Did those more wealthy eat any less better than I or live any less better than I or take fewer exotic vacations than I in 2008? How about 2009? And yes, I realize this is a very strong argument for a consumption tax rather than an income tax.
Rant over, for now.
The West Wing quote is very telling – local taxes are what pay for firemen, and those are far less progressive.
Yes, rich people do indeed get a hell of a lot more benefit out of government than do poor people. Ask yourself how easy it is to be rich in a country without the rule of law sometime.
That’s a public good consumed by all equally. Most upper middle class folks have zero interaction with police or the courts, aside from the occasional traffic ticket.
That’s not what I meant, James. Without the rule of law (from things like patent protection to the fact that you don’t need to pay bribes, usually, to the fact that rich people don’t have to have large forces of bodyguards here), rich people suffer more than poor people do.
Quite so, Steve. Thomas Sowell adresses this point rather well. In part:
(read the whole thing)
Me neither. I would go one step further. I don’t think that people at the lowest ends of the income stream should pay any income taxes. I don’t think it is moral for the government to tax income needed to make ends meet.
The poor pay taxes, some of which are regressive, some of which they have less ability to avoid, and some of which effectively burden the working poor, like the payroll tax.
The taxation line is subject to debate, but should rest on fiscal prudence. We cannot, for instance, exempt a majority of Americans from taxation and have a sufficient tax base for government to function.
(I am opposed to the earned income tax credit, aka/ fast food subsidy, but I think that ship has probably sailed)
Ask youself instead how easy it is to be middle class in a country without the rule of law. Last time I checked, every country in history had rich people and poor people regardless of the level of law and order that existed there, but the middle class ceases to exist where there is no law and order.
charles, that’s nonsense — you get a few warlords in a place like Somalia (rich in relation to their peers), but no true ‘rich’ people by our standards – precisely because it’s impossible to become and/or stay rich there.
The vast majority of ‘rich’ people in this country wouldn’t be able to hold on to most of their wealth if we suddenly lost the rule of law. They’d spend most of it on bodyguards and generators and additional servants and still end up losing the rest.
James has already pointed out that the rule of law is a public good. Let me define a public good:
pure public good: any good where consumption of said good by one consumer does not reduce the ability of another consumer to consume the good as well in lesser, equal or greater protions and where consumers cannot be excluded.
public good with congestion: any good where consumption by any consumer can or cannot be excluded, but where additional consumers use of the good reduces that ability of later consumers to consume an equal amount of the good.
Note that health care, housing, and food are NOT public goods by definition. If I eat a sandwhich nobody else can then eat the sandwhich.
Additionally, while in general markets tend to under provide public goods in a theoretical free market experimental and behavioral economis suggest that this under provision is subject to context. Thus, while a public good may be a necessary condition for government intervention in the economy it may not be sufficient.
Personally, I’d prefer a necessary and sufficient criterion for government intervention.
Actual some anarcho-capitalists have argued that the Old West characterized, to a large degree, a stateless society where “law enforcement” was often privately provided (e.g. Pinkertons). Murray Rothbard argues that Pennsylvania fell into anarchism and was not a period of endless violence with Mad Max roaming the roads in the last of the V8s.
Nonsense? What exactly does rich mean except wealth in relation to ones peers? So you’ve figures out that you can’t apply US standards to Somalia? Color me unimpressed.
The fact is that every society that has ever existed has had supremely privileged people and supremely unprivileged people. What you want to call them is irrelevant. The great success of Western Civilization has been in making it possible for most of the population to fall somewhere between these two extremes.
I agree. If you look at most of history, without even the semblance of anything resembling a court system or law-and-order in a “large” society (small groups, like towns of under 500 people, don’t generally count because you still have some of the small-group-conformity mechanisms like shame and the like working), what you basically get is some form of feudalism. That can range from actual feudal lords in “agreements” with their subjects to provide security in exchange for a usually large share of their economic output, to modern mafia-style arrangements where the “protection” usually bleeds over into extortion.
I’d question the relevance of the late 17th century example, Steve. Virtually everything about that era was different, ranging from much more of the population farming and/or living in small communities, to the slow on-land transit times (AKA horse-and-cart), and the customs that sprung up around them. Can you imagine that working in a modern society, where problems cross thousands of miles, most of the population live in large towns or cities with at least tens of thousands of people in the populations, and both transit and communication are rapid?
How about stating it this way?
Perhaps we get ahead of ourselves.
Before we decide questions like law being needed for the good of society, perhaps we’d best re-examine the purpose of “society” and “good”? Seems to me the only way to determine what the law should be to attain those goals.
At it’s most basic, what is the purpose of society, and how does the individual factor into that? Does society operate to service and better the individual, or is the reverse true?
I wouldn’t say it’s an either-or decision – many would argue that things that help the individual are good because they help society as a whole, and vice versa. If I had to pick one, though, I would say that society has a duty to operate for the best welfare of the greatest aggregate of its citizens in the long-term (usually mean intergeneration-ally). Usually, I think that takes a form of what I’ve heard called “Rule Utilitarianism”, which says that groups set up rules designed to promote greatest happiness for the greatest number (as distinct from simple Act Utilitarianism).
I’d say it’s more that the restrictions are out in the open, on paper, and backed up by officially set-up mechanisms with unofficial support and assent by most of the population. Individuals in smaller or less advanced groups generally had plenty of restrictions on their freedom to act, but they were usually a combination of culture, belief, and the forces of conformism that work to keep the small groups that characterized human society for tens of thousands of years before the current ten thousand years together.
And that, I insist, goes to the individual. When the focus is on supporting the rights of the individual, society invariably benefits. When we focus on “the greater good” the individual suffers, and ultimately the entire society suffers. So it was in the Soviet Union for example.
Which, I should add, in an effort to tie this back to the original post, there’s very heavily on tax policy. Does a progressive tax policy aide to the individual or does it lean forward “the greater good” ?
The rule of law may be a public good, but the rich benefit from it disproportionately. And, no, charles, the ‘rich’ in Somalia aren’t a counterexample – they have to spend so much of their ‘wealth’ on security and other things the rule of law provides for free. Like, to a lesser extent, the rich must do in Mexico.
But if you guys like that kind of society, don’t let the door hit you on the way out.
So, Cuba would be better? After all, they HAVE no ‘Rich” there.
I’d take Cuba over Somalia.
And how are either of them free?