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The Federal Tax System is still Progressive
Posted by: Jon Henke on Sunday, December 17, 2006

Progressive taxation and the progressivity of our tax system. It's a very important subject to liberals. Larry Summers recently proposed "restoring the progressivity of the tax system". Wes Clark pledged to "restore progressivity to the tax code". Warren Buffett complained to Ben Stein that, due to tax benefits, "the rich class [was] winning" class warfare. Democratic Congressman Frank Weiner proposed a plan to "restore progressivity to the tax code", and new Democratic Congressman Keith Ellison has demanded the same thing. The Center For American Progress has proposed their own "reforms that would restore progressivity to the tax code".

So, exactly how un-progressive is our tax code? Well, it turns out, we have recent data on that. Our tax code is effectively progressive, all the way to the top .1%. The Tax Policy Center uses two different income definitionseconomic income and cash income — and I'll show the tables for both.


Current-Law Distribution of Federal Taxes
By Economic Income Percentiles, 2006
Economic Income Percentile Share of Total Economic Income Share of All Federal Taxes Effective Total Federal Tax Rate
Lowest Quintile 2.6% .3% 2.2%
2nd Quintile 6.6% 2.5% 7.2%
Middle Quintile 11.2% 8.0% 13.4%
4th Quintile 18.6% 17.6% 17.6%
Top Quintile 61.2% 71.3%21.7%
Top 10% 46.7% 56.1% 22.4%
Top 5% 36.1% 44.4% 23.0%
Top 1% 20.6% 27.3% 24.7%
Top .5% 16.4%22.2%25.3%
Top .1% 9.8%13.4%25.5%


Current-Law Distribution of Federal Taxes
By Cash Income Percentiles, 2006
Economic Income Percentile Share of Total Economic Income Share of All Federal Taxes Effective Total Federal Tax Rate
Lowest Quintile 2.4% .4% 3.5%
2nd Quintile 6.2% 2.1% 7.2%
Middle Quintile 11.1% 7.5% 14.3%
4th Quintile 19.5 17.0% 18.6%
Top Quintile 61.2% 72.8%25.3%
Top 10% 45.7% 57.7% 26.9%
Top 5% 34.6% 45.8% 28.2%
Top 1% 19.5% 28.2% 30.7%
Top .5% 15.5%23.0%31.6%
Top .1% 9.2%14.4%33.2%


Bear in mind, these are the effective tax rates — the average rates that each quintile actually pays. Progressivity does not need to be "restored" to the system; the tax system is already progressive.

[Cross-posted at the Club for Growth]
 
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Previous Comments to this Post 

Comments
And why is it important for the tax code to be "progressive"?
 
Written By: Mark A. Flacy
URL: http://
Actually, I have three answers for that:

1) Apathy: take it up with the people who insist that it should be. I’m more interested in equal treatment and minimal invasiveness than in some ’inequality’ construction.

2) Practicality: if the lowest quintile is taxed at 20%, we’re eating into survival income.

3) Efficiency: to some limited extent, there are good economic reasons for taxing money where you find it in abundance, rather than trying to eke the same percentage of water from a stone and a river.

All three answers pretty much come down to the same thing, though. Taxes should be as efficient, equally applied and minimally invasive as possible.
 
Written By: Jon Henke
URL: http://QandO.net
This just shows how far away we are from something more "fair" like a flat tax. Conservatives and libertarians are playing defense in a game constructed by leftists. If you believe in a flat tax or something even less invasive (that would do away with the IRS) then arguing that the curent system is "progressive enough" and doesn’t need to be made MORE progressive just concedes defeat and shows that the battle is already lost. Sad.

The only "equally applied" tax is a head tax. I don’t think there are very many people on either side of the aisle that really desire a tax that is "equally applied".
 
Written By: DS
URL: http://
Comments
"And why is it important for the tax code to be "progressive"? "

Because it is important that the rich do not just pay more taxes than the less rich, they must pay MUCH more. God hates rich people and we must punish them.


 
Written By: timactual
URL: http://
DS wrote:
The only "equally applied" tax is a head tax.
Well, no. Any tax applied equally to what is taxed is "equal". A tax on income that treats each dollar alike is equal too.

Given what I judge to be the current state of the electorate, I’d be happy with a tax only as progressive as this; one deduction per person and a flat rate thereafter for all realized income (dividends are income, an increase in stock proce is not).
then arguing that the curent system is "progressive enough" and doesn’t need to be made MORE progressive just concedes defeat and shows that the battle is already lost
I don’t think there is any shame, delusion, or lack of judgement is viewing the situation as being that we need to get back to the 50 yard line before we make a touchdown.

Yours, TDP, ml, msl, & pfpp
 
Written By: Tom Perkins
URL: http://
"judgement is viewing" /= "judgement in viewing"
Yours, TDP, ml, msl, & pfpp
 
Written By: Tom Perkins
URL: http://
The table says it represents "all federal taxes." I doubt that’s true, since it probably doesn’t include various excise taxes, etc. But my main question is does it include FICA and the Medicare tax or is it just an income tax table? That would make a considerable difference in the progressivity analysis.

And to DS:

Get over the fanatasy. No tax system, fair, flat or otherwise, is going to eliminate the tax collection and enforcement agency.
 
Written By: Steven Donegal
URL: http://
The table says it represents "all federal taxes." I doubt that’s true, since it probably doesn’t include various excise taxes, etc. But my main question is does it include FICA and the Medicare tax or is it just an income tax table? That would make a considerable difference in the progressivity analysis.
If you click on the "economic income "link, you’ll get an expanded table that includes: individual income tax(3), payroll tax(4), corporate income tax, estate tax, and all federal taxes(5). The numbers reference these notes:

(3) After tax credits (including refundable portion of earned income and child tax credits).
(4) Includes both the employee and employer portion of Social Security and Medicare tax.
(5) Excludes customs duties and excise taxes.
 
Written By: err
URL: http://
Well, no. Any tax applied equally to what is taxed is "equal". A tax on income that treats each dollar alike is equal too.
Let me get this straight: So as long as an inanimate object, a dollar in this case, is treated equally there is no requirement that actual people be treated equally in order for a system to be "equally applied"?

This explanation falls under the same category as "it depends what the meaning of is is".
 
Written By: DS
URL: http://
Let me get this straight: So as long as an inanimate object, a dollar in this case, is treated equally there is no requirement that actual people be treated equally in order for a system to be "equally applied"?
Yes.

For example, the religious concept of "tithing" treats all Christians equally, demanding 10% from everybody. The police are also supposed to treat everybody equally, despite the fact that they don’t send an officer to every single persons home whenever there is trouble.

Context is important.


 
Written By: Jon Henke
URL: http://QandO.net
For example, the religious concept of "tithing" treats all Christians equally, demanding 10% from everybody.
So what? Some people like licorice, others think Kevin Federline is talented, what’s your point?
Context is important.
Context is by its very nature subjective and subjectivity is the antithesis of rule of law. Once you start down the road of applying laws by context, i.e., subjectively, you remove any concept of objectivity. Being objective by its very nature is removing context from the decision making process because "context" is truely in the eye of the beholder. Facts have no context, theories and opinions most certainly do.

This is precisely why tyrrants abhore the rule of law because it takes away their subjective decision making process that allows them to make law based on "context", i.e., their own opinion.

If you want rule of law you have to give up contextual, "it depends on the situation" arguments. A law either applys always to everyone, equally, regradless of situation, race, religion, etc.,etc.,etc. or its doesn’t.

The bottom line is if you tax two people differently based on their hair color, their shoe size or their income level it is, by its very definition, not equally applied. How is this even up for debate? A head tax is the only equally applied tax: each person is taxed the same amount, regardless of any subjective and arbitrary third-party evaluation of their individual circumstances, and without moral judgement by anyone. No proportional or progressive tax meats any of these criteria. There isn’t any grey area here.

If you don’t want taxes equally applied that’s fine, but don’t try to make some tortured argument that "is" only means "is" in some cases, in others it doesn’t.

Call it what it is: An unequal tax that is designed to redistribute income from one group to another. That’s what it is, that is the sole purpose, and if that’s what you believe in come out and admit it in the open. Its OK, lots of people believe this kind of thing, most people will think you’re swell guy for believing in such a thing.
 
Written By: DS
URL: http://
Context is by its very nature subjective and subjectivity is the antithesis of rule of law.
What a very dense packet of Bull$hit. I’m astonished it didn’t fall right out of the ’Net into a singularity that, unlike a black hole, actually does consume information with an assurance of permanence.

The very basis of the rule of law here is that what a supermajority subjectively decides is just for government to undertake, a majority can subjectively settle the details thereof.

Where’ve you been since 1775? Under a rock?
"The bottom line is if you tax two people differently based on their hair color, their shoe size or their income level it is, by its very definition, not equally applied."
And were people to be taxed on the brownness of their hair, and people with an identical hue and albedo paying different taxes, it would be an unjustly assessed tax. And it would be a silly tax besides, one for which I cannot imagine a rational basis.

However, it being the purpose of taxes to raise money from the populace to permit government to not bounce its checks, and taxes being implemented by laws and one of the principles of just laws being that the populace subject to them is able to comply...

...then revenue raising bills should be neither progressive nor progressive, but should assess taxes in proportion to the ability to pay, not by the headcount.

After all, regardless of the ability to pay, everybody has one head, making the per capita basis a very unjust one.
"How is this even up for debate?"
Because what you are claiming is utterly and completely nonsensical, outside the experience of virtually everyone currently living, and unknown to the founders of the country to be a good idea.

I suspect you make entirely too much of the requirement in the Constitution that the federal government assess taxes from the states on a per capita basis. It was the expectation of the founders that poorer states exercising their two per advantage in the senate would restrain the taxing impulse that might otherwise be evident from richer states—in no way does it inherently disparage the justness of taxes which are not "per capita".

A precondition on a tax on income being just is if it treats every man’s dollar alike, a tax on the value of property is likewise just if it treats every dollar value of property as being equal.

Why are we even having such a discussion?

Yours, TDP, ml, msl, & pfpp
 
Written By: Tom Perkins
URL: http://
The very basis of the rule of law here is that what a supermajority subjectively decides is just for government to undertake, a majority can subjectively settle the details thereof.
No, what you are describing is majority rule, not rule of law. The Founding Fathers wrote the Constitution mainly with the idea of limiting such a tyrrany of the majority by placing roadblocks to subjectively applied laws.

But you are right, the Consititution and the concept of rule of law have been so utterly destroyed since 1787 (that was the year the Constitution was written, not 1775) that it may appear that these concepts came from "under a rock".
Because what you are claiming is utterly and completely nonsensical, outside the experience of virtually everyone currently living, and unknown to the founders of the country to be a good idea.


You are aware that the taxation of income was Unconstitutional until 1913, right? The Constitution had to be amended to allow such a thing. The "Founding Fathers" of this country most certainly did not believe taxation of income and most certainly not the progressive taxation of income, to be a "good idea".

 
Written By: DS
URL: http://
No, what you are describing is majority rule, not rule of law.
Read Article V, DS. That’s what I’m describing. The constitution as it actually is, not what you imagine it to be.

The rule of law is whatever a supermajority subjectively decides it ought to be, and then a the subjective whim of a mere majority settles the details of the implementation.
You are aware that the taxation of income was Unconstitutional until 1913, right?
For the feds, yes. For the states, no.
The Constitution had to be amended to allow such a thing.
What I just said.
The "Founding Fathers" of this country most certainly did not believe taxation of income and most certainly not the progressive taxation of income, to be a "good idea".
I haven’t said anything different yet, have I?

Read, DS. Read what wrote, not what you wished and assumed I wrote.

Jeez.

Yours, TDP, ml, msl, & pfpp
 
Written By: Tom Perkins
URL: http://
You are aware that the taxation of income was Unconstitutional until 1913, right?
Oh, and just to pound it right into your head, that amendment occurred because in the subjective judgement of a supermajority large enough to cause it to pass, the amendment was a good thing. And even though it resulted from the subjective judgement of so many people, it was still the rule of law.

Yours, TDP, ml, msl, & pfpp
 
Written By: Tom Perkins
URL: http://

 
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