Deinonychus antirrhopus

Get ready for the fustercluck of other taxation being thrown into the topic.....always happens.

You're copy of the table is missing a bit on the labels, I had to refer to the source to make sense of the AGI, for example. Please fix the table labels by including scale factors and probably by prefixing "Total" before AGI and Income Taxes Paid.

The Tax Foundation's sources were probably the IRS, who publishes statistics on income taxes, many of which are on the IRS web site: link. Lots of good information here. In particular, their data probably came from this spreadsheet: link

Hmm... the URLs got eaten, lets try that again:

www.irs.treas.gov/taxstats/index.html
www.irs.treas.gov/pub/irs-soi/01in03ts.xls

Good post.

As a tax nerd, I'm compelled to note that charitable contributions don't reduce AGI. They are itemized deductions, which are deducted from AGI in computing taxable income.

An important point, Joe, the difference between before and after AGI.

Sam,

Fixed your links.

Joe,

Good point, thanks. I'm not a tax nerd, it is too depressing doing my own taxes so I don't into it that much.

Ricky,

No kidding. But I hopefully addressed that point to head that objection off, and threw it back in the faces of those who do use such a tactic. If these other taxes are so onerous...why not get rid of them? Imagine a fish out of water.

One question I have:

Regarding the "upper bracket" and their "unfair" tax burden ---

Could you address the subject matter of their "accummulated wealth" that is not taxed at the same percentage of base wage earners? For example, what are the "tax shelters" open to salaried persons vs. tax shelters open to higher tax brackets, and/or their use of corporations? And what, inherently, is more deserving of sheltering of the income derived by the upper class as opposed to the lower classes? i.e., please define at what level taxation (and which taxation) is "too onerous."

cj,

I don't know if I'd call these things tax shelters, but many salaried workers have access to dependent care reimbursement accounts, health care reimbursment accounts, and 401ks. Typically all of these are funded with pre-tax dollars which lowers you're tax burden.

For example, if you put say, $1,000 in the dependent care reimbursment account and then you spend $1,000 on dependent care you submit a claim for $1,000. If your tax rate is 10% this would $111.11 in taxes. The savings is derived by the fact that your income that is subject to being taxed is decreased, so you aren't paying for the care with after tax dollars. Or another way of thinking about it is, you'd need to earn $1,111.11 to have $1,000 after taxes are taken out.

A single person, IIRC, can put $2,5000 in both the dependent care account and the health care account. The 401k is dependent on a number of other factos, but I bet you could probably go as high as 10%-15% of your base pay. So there are ways to save on your taxes if you are a salaried worker and still get a considerable amount of consumption.

As for the rich person, that depends on what you mean by rich. For example, in terms of AGI many couples were both partners work in CA they'd fall in the top 10% and up catagory. A lineman working for a utility would also qualify if he worked a lot of overtime (maybe even the 5% group). But you have to factor in the cost of living as well. I've argued before that making $150,000 in So. Cal. is not the same as making $150,000 in Kentucky. A "typical" house in So. Cal. can cost you $250,000 easy. Put it near the ocean and in a good neighborhood and you could easily get to $500,000 for something like a 2,000 square foot house. The same house in Kentucky would cost what...maybe $50,000 if that? Suddenly that lineman isn't looking so rich, more like middle class. These guys probably use the same accounts as above. Although you could ask this guy to see what kind of tax burden reducing schemes he uses...he is undoubtedly rich enough.

Now if you mean the "super rich" where salaries and wealth are really large then I don't know at all because I'm not "rich" enough to have to worry about them. Personally, I'd like to see a simplification of the tax code along with a reduction in rates. This would have at least two benefits. First, there would probably be less of an adverse impact on tax revenue by closing "loop holes". Also, there'd be less money spent on exploiting loop holes.

As for "too onerous", frankly I don't know. I do know that taxes reduce economic activity and introduce distortions into the economy. Some of these distortions and reductions in economic activity are probably necessary for funding of various public goods such as national defense, but for other things I'd like to see the government get out of providing them. Such as health care. That is a private good and government provision of such goods can have serious distorting impacts (ignoring the impact of the taxes to fund such expenditures). Could it be that one reason health care costs are way up is because the government subsidizes the consumption of such resources by those who consume the most?

Check out this post of mine that suggests a negative income tax. One of the problems I have with things like rent support/cheap housing programs is that contractor often lobby for it. Is it something benevolent to help the "little people" or is it government pork? What about WIC programs? Do grocery chains and dairy farmers support that? A helping hand or government pork? With a negative tax you get a minimum level of income even if you don't work, and working always pays. So it would really help reduce poverty, and also help get rid of a considerable amount of government bureaucracy.

First, wealth all by itself is not subject to taxation. Inheritence of wealth is, and income from that wealth is. I feel it's important to point out, too, that that wealth is being put to work in any case where that accumulator of wealth doesn't accumulate in by stuffing said wealth into a mattress. Which is important unless you dismiss the value of investment on the economy, which is a whole 'nother subject.

Now. Steve, I find myself objecting to your language. Sales tax is regressive? Since when? I'll buy that Social Security (which, BTW, isn't strictly a tax) is regressive because of the $83k (or whatever it is this year) cap), but sales tax is flat. It may be effectively regressive because it taxes a larger percentage of lower-bracket income per head of lettuce, but that's contorting the language a bit too much for me.

And you might make a case for "flat" state taxes being regressive, because people with higher incomes tend to have more itemization, which reduces the percentage of income pays as tax.

My interpretation of the "regressivity" of the sales tax was always that people in the lower income areas tend to spend a larger share of income not only things covered by sales tax, but also on things that are consumed more quickly (cheaper clothes, appliances, food, etc.), so it becomes, per force, a regressive tax because of the incidence. It's an effect rather than an explicit design of the policy. A similar but opposite issue can be seen in the "food tax" when eating out in DC (I think it's something like 10%). It's fairly obvious who eats out the most in DC proper, so the progressivity of such a tax is a "byproduct" rather than an explicit purpose (though, it could have been part of the argument for such a tax; I don't know when it started or how it was debated).

Which I this is also cited as one of the major problems with a "flat" income tax rate since most proposals tend to ignore changes to other taxation issues.

But then, I'm most definitely not an expert on taxation.

Er...make that "Which I THINK is also..."

Nice use of preview, Ian.

What I find amazing is the effect of education. For about 10 years my wife and I were grad students (with second and third jobs) and were comfortably in the bottom quintile of income. Then both of us finished and found jobs. This year, evidently, we hit the to 10% (took about 3 years). That mobility is the result of the hard work of realistic education, *and* a willingness to take whatever useful job appeared that we could now perform.

As a side note, my brother, the 30+ year state cop, made enough last year in salary and overtime to put himself in the top 10%. It's not just moguls, you know. (Also, after a quick check, I see that _every single principal and supertintendent of our local school system (more than a dozen)_ would be well above the mark for the top 10%!

It would be interesting to crosscheck, if possible, and see where the income originates, no?

It may be effectively regressive because it taxes a larger percentage of lower-bracket income per head of lettuce, but that's contorting the language a bit too much for me.

That is it exactly Slart. A person who makes $15,000 is going to spend almost all of it. Thus if the sales tax is 10% (for simplicity sake) 10% of his income will go towards the sales tax. A guy who makes $50,000 and spends on $40,000 will have 8% of his income going to the sales tax.

A flat income tax has less of a problem here. Using the above incomes, both people will pay 10% of their income under a flat income tax. One problem with that is that is may not be an "optimal tax". The name "optimal tax" is a bit of a misnomer in that the "optimal tax" still imposes an inefficiency (a deadweight loss) it is just that the taxes are structured in an attempt to minimize such inefficiencies. Anyhow, the idea behind the optimal tax is that different goods are taxed at different rates. Is all labor the same? If not, then taxing all labor income the same would be less inefficient than allowing for different tax rates.

Of course, the optimal tax does not have to imply a progressive tax structure.

Ok, let's be completely clear, here. Can we all agree that a taxation scheme that takes a fixed percentage of AGI, with no deductions, is not regressive? And that, therefore, payroll taxes, provided they are flat as detailed above, are not regressive?

I'd really like to beat the living daylights out of this "regressive" tax nonsense. If a tax is indeed regressive, fix it. Don't bitch about how the progressive federal income tax is actually regressive. IOW if something is fucked up, why isn't it better to fix it, instead of fucking something else up to compensate?

Oh. Because then there'd be no one to point fingers at. Never mind.

Slart,

My thoughts exactly. Okay, so the sales tax ends up being regressive in effect, the payroll taxes are also regressive. So why not fix them vs. tinkering with a completely differeing tax? Don't hold your breath waiting for an answer, though.

Heck, why don't we also throw the net effect of corporate taxes into the mix? Of course if we do that, we'd need a little data...

Still, I think that the effect of many corporate taxes will wind up being regressive, because nearly everything one needs to survive has corporate taxes wrapped up in it, to varying extents.

I could be wrong, but I'd be completely in favor of scotching corporate taxes altogether, and augmenting the US income tax to compensate so that it's revenue-neutral. Again, could be up to the F line in shit, but I think the net effect would be reduction in cost for nearly all consumer goods, counterbalanced by 10% increase in income tax payments.

If the Dems would stop talking about tax giveaways to the rich (when they're not talking about actual giveaways to the poor) and start doing things to actually ease the tax burden on low-income people

cj, there are few "tax shelters" remaining in the tax code these days compared to pre-1986 days. The ones that exist are there because Congress wants to get people to invest in things that are not good investments otherwise.

The old can of worms.

First: Is FICA regressive because of the $83K cap on OASDI (not Medicare) and that it does not touch "unearned" income.

Maybe. Problem here is that FICA has some elements of a tax and some elements of a manditory insurance scheme. The manditory insurance scheme is tilted so that it provides more coverage (disability, life, pension) to younger and lower wage workers. To the extent that the actuarial value of the benefits accrued equals or exceeeds the FICA payment it is not a tax at all. OTOH, for a rich old fart like me, with minimal benefit accruals (maybe losing coverage as my children become adults) its a tax.

It would take actuaries and economists far smarter than I to be able to put numbers on that pup and teach it how to sit up and beg.

Second: Sales tax. Steve gave the following example above:

"A person who makes $15,000 is going to spend almost all of it. Thus . . . 10% of his income will go towards the sales tax. A guy who makes $50,000 and spends on $40,000 will have 8% of his income going to the sales tax."

Not so fast Steve. Most sales taxes do not apply to food (at least grocery store food), rent or public tranportation. Since these will most likely be the largest items in Mr. $10K's budget, he may pay very little in the way of sales tax.

Third. Tax burden vs. tax payment. The classic story was the luxury yacht tax a few years back. The theory was admirably direct a tax aimed only those wealty enough to buy really big boats, in the form of an excise on their purchase. What happened was an illustration of the best laid plans of mice and men. The rich stopped buying boats in the United States and hundreds of craftsmen lost their jobs. The tax was repealed.

Fourth. I think that after more than a century of trying it is time for us all to admit that a tax system cannot be a central plank in a system of social justice. No tax system in any western country has had a decernable effect on the distribution of wealth or income and it is time to stop trying. The criteria for tax systems should be simplicity, ease of enforcement, and cost of compliance. The best maxim of taxation is to pluck the most feathers from the goose with the smallest amount of hissing.

To hell with income tax! Every communist, Marxist, socialist, IRS agents, and supporters of income tax should buy a copy of Karl Marx's Communist Manifesto and shove it up their buttocks! The income tax must be abolished NOW! The federal government officials have used income tax to oppress fellow Americans, suppress dissent, eliminate their opponents, establish poverty, and destroy our freedoms and our property. Ever since income tax was "legalized" by 16th Amendment, Democrats and Republicans in Washington D.C. have engaged in racketeering, extortion, robbery, fraud, and grand theft against we the people.

Every Americans should boycott income taxes once and for all. We should dump income tax forms into the ocean. Also, we should never report how much money we earn to government officials; it is none of the government official's business anyway!! And we should never sign any paper that forces us to report our earnings! Finally, every American should send a strong message to IRS agents, Democrats, Republican socialists, and Marxists by desecrating the British "Union Jack" flag and Soviet "Sickle and Hammer" flag and burning the portraits of King George III, Ho Chi Minh, Josef Stalin, Vladimir Lenin, and Karl Marx on every April 15 and July 4.

Any IRS agents who want to violate our life, liberty, and property should go to Britain and kiss Charles the First's buttocks and kiss King George III's buttocks.