2011 August 20 Saturday
Share of Total Federal Tax Liabilities By Earnings Quintile

Came a Congressional Budget Office web page with some charts about who pays taxes. One of them is especially interesting because it goes to the question of whether the top earners are paying more or less in taxes than they used to. From 2001 projected thru 2014 under current tax law the top 20% have consistently paid over 60% of all US federal taxes. There's been a slight shift of a couple of percentage points from the top 20% to the other groups.

Share of Total Federal Tax Liabilities
 
Lowest
Quintile
1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.4 1.4 1.4 1.5
Second
Quintile
5.0 5.1 5.1 5.2 5.1 5.2 5.2 5.2 5.2 5.1 5.5 5.6 5.6 5.6
Middle
Quintile
10.0 10.3 10.4 10.5 10.3 10.3 10.4 10.4 10.3 10.3 10.6 10.6 10.7 10.7
Fourth
Quintile
18.5 19.1 19.2 19.5 19.0 19.0 19.1 19.2 19.1 19.2 19.1 19.1 19.2 19.2
Highest Quintile 65.3 64.2 64.1 63.5 64.3 64.2 64.0 63.8 64.1 64.1 63.2 63.1 62.9 62.8
 
All Quintiles 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
 
Top 10 Percent 50.0 48.5 48.5 47.6 48.8 48.7 48.5 48.3 48.6 48.5 47.9 47.7 47.6 47.4
Top 5 Percent 38.5 36.9 36.9 35.9 37.3 37.3 37.0 36.7 37.1 36.9 36.6 36.5 36.3 36.1
Top 1 Percent 22.7 21.2 21.1 20.1 21.5 21.3 21.1 20.7 21.1 20.9 21.2 21.0 20.8 20.7
 
Income Category 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Think of it this way: How much would taxes have to increase on the top 20% to balance the budget? For 2012 the projection is for $2.627 trillion total revenue, $3.729 trillion total expenditures, and $1.01 trillion deficit (and I think it will be worse than that due to Peak Oil Recession II). Well, if the top 20% really pay 63.1% of total federal taxes (see table above 2012 column) then they are paying 0.631*$2.637 trillion or $1.66 trillion. Their total taxes paid would have to rise about 66% in order to close the federal budget deficit.

The page has other tables of interest. Note that since the top earners have experienced much larger increases in compensation their tax burdens have declined as a percentage of income.

The fiscal health of the United States government depends very heavily on the earning power of a small fraction of the population. The bottom 40% pay only 7% of total federal taxes. As the size of the lower earning sub-population grows faster than the higher earning sub-population will the burden on the top producers grow to support the lower earners and zero earners?

What I'd like to know: What fraction of the American population are net taxpayers? In other words, what fraction of the population gives the government more in money than it gets in services, money, and other support? I suspect the net taxpayer portion of the population is a shrinking fraction of the whole.

Share |      By Randall Parker at 2011 August 20 11:09 PM  Politics Redistribution


Comments
ASPIRANT said at August 21, 2011 7:34 AM:

With the non-net taxpayer population growing through immigration, it's amazing that the elite have been able to gain any ground at all. Truly impressive.

Gargoyle said at August 21, 2011 8:22 AM:

It's amazing how those Socialist Swedish enjoy abundance and freedom. They have free universal medical care, free universities and they are happier than us...

http://www.youtube.com/watch?v=rxzE8x2pnK4

Gargoyle said at August 21, 2011 8:24 AM:

It's amazing how those Socialist Swedish enjoy abundance and freedom. They have free universal medical care, free universities and they are happier than us...

http://www.youtube.com/watch?v=rxzE8x2pnK4

solaris said at August 21, 2011 10:50 AM:

>"I suspect the net taxpayer portion of the population is a shrinking fraction of the whole"

Probably. But I also suspect that the net taxpayers are *in favor* of big government and their own higher tax rates. After all, their higher tax rates are a function of their higher income. If somebody proposed to you that you'd pay taxes at an 80% rate, but with a ten-fold increase in income, you'd most likely take that deal.

solaris said at August 21, 2011 11:05 AM:

>"The fiscal health of the United States government depends very heavily on the earning power of a small fraction of the population"

That's not entirely true. The tax returns with the the biggest chunk of money come from a small fraction of the population. But it's usually not the case that these individuals are slaving away in solitude. Their high incomes (and hence high taxes) are a consequence of their employing many other people. Absent those other people the current high income individuals would not be high income. For instance, Jeffery Immelt has total compensation of about $15 million per year. (salary + "other") But his compensation is a function of how well tens of thousands of GE employees do their jobs.

People on the right like to say that there's no such thing as a tax on corporations, because that tax is on money earned by many people (the corporation) and passed on to many other people (consumers). And they're essentially correct in this. But by the same token there's no such thing as a tax on corporate officers. That tax is likewise a tax on the fruits of the effort of many people (all the employees of the corporation) and passed on to the consumer. So if you get right down to it, Jeffery Immelt is NOT actually paying more than "his share" of taxes - he's acting as a conduit for the taxes collected from many, many people.

ziel said at August 21, 2011 11:15 AM:

That Bill Maher clip is a nice reminder of what a complete horse's ass he is. And when did we get so retarded in this country that we think that Sweden is a "socialist country"? Sweden is a capitalist country with generous social welfare spending - to call it "socialist" is ridiculous.

"What fraction of the American population are net taxpayers?"

That's a really hard one to measure and has a lot of depends - how do you allocate military spending? Do you count Social Security and Medicare? Only Federal? - What about state and local?

Randall Parker said at August 21, 2011 12:31 PM:

solaris,

Speaking as a net taxpayer I am opposed to a higher rate of taxation on myself.

ziel,

Since the US government is running such a huge deficit the entitlements programs eat up about three quarters of tax revenues and over half of total spending. Even if we leave out all discretionary spending a large fraction (probably well over half) the population are not net taxpayers. The top 2 quintiles are paying 83% of the taxes. How can the 60% who pay 17% of the taxes break even on benefits versus taxes?

Randall Parker said at August 21, 2011 12:35 PM:

Gargoyle,

Sweden was higher ranked in world per capita income leagues before they implemented a social welfare state. The Swedish government doesn't own Swedish industry. Rather, it subsidizes lots of services such as child care and it funds lots of people to not work.

Brenton said at August 21, 2011 12:41 PM:

Speaking hypothetically... just because the government spends, lets say $10k per person each year, doesn't mean each person is getting 10k in benefits. Much of that money could be wasted on things that don't benefit anybody, while the rest is spent benefiting a select few.

Mercer said at August 21, 2011 3:44 PM:

" burden on the top producers grow to support the lower earners and zero earners? "

Many of the highest earners do not produce anything. They make money as Wall Street traders or as lawyers.

The wealthy are the most enthusiastic champions of letting in millions of low skilled immigrants. I think it is perfectly just that their taxes be increased to pay for the consequences of their immigration policies.

solaris said at August 21, 2011 4:38 PM:

>"Speaking as a net taxpayer I am opposed to a higher rate of taxation on myself"

But that does not really tell us anything except the banal information that you want your income to stay the same or increase rather than decrease. What happens if the government proposes to make everybody buy your software, of something like it? Your taxes may increase (to enforce the new requirement) but your income increases even more.

Rates of taxation are not really the issue. Who wins and who loses is the issue. The winners, almost by definition, wind up in higher tax brackets. If you're *really* opposed to higher taxes on yourself, you could simply earn less.

WJ said at August 21, 2011 6:33 PM:

"The wealthy are the most enthusiastic champions of letting in millions of low skilled immigrants. I think it is perfectly just that their taxes be increased to pay for the consequences of their immigration policies."

Precisely. Of all the issues facing the USA that concern me, the issue of tax rates on the wealthy concerns me the least, no matter what their supposed effect on the economy may be, and no matter whether the rates are "fair" or not. The rich fund our political system, and politicians in both parties. They will take care of themselves quite well, thank you. Besides, data from the 80s and 90s, when cap gains rates and GDP growth were both much higher than today, do not seem to suggest that high cap gains rates retard economic growth.

I am concerned about too much immigration, legal and illegal. I am concerned about our wasting money and lives fighting pointless, unwinnable wars. I am concerned about the decline in the quality of public schools. I am concerned about our government's obsession with race, and its need to impose equality of outcome on everyone, including private businesses #except when minorities like Jews and Asians do better, of course#. I am concerned about lots of things. Keeping tax rates low on billionaires is the least of my concerns. And if various billionaires like the Koch brothers DO want me to be concerned about their tax rates they better show a little interest in what concerns me and so many other Americans.

Steve Funk said at August 21, 2011 10:03 PM:

The wealthiest quintile would have to pay an avg of $35,700 per household to balance the budget. We are talking about 28 million households. This quintile currently pays about $59,285 per household. Their effective federal income tax rate would be raised from $28.5% to 45.7%. If the increased taxes were equally borne by all income levels, the wealthiest quintile would have to pay an additional $17,900 per household, increasing their tax rate to about 37.1%.
This doesn't factor in social security. If the cap were removed, this would increase the amount paid by the wealthies quintile by about 10,000 per household. This amount could be put into the general fund in exchange for bonds, and used to reduce other tax obligations of the riches quintile.

This assumes no Laffer Curve in this range of taxation, but heck, if the Laffer Curve was real, the government would have gone broke in the 1950's.
http://www.google.com/search?q=US+Income%2C+upper+fifth&sourceid=ie7&rls=com.microsoft:en-us:IE-SearchBox&ie=&oe=
http://www.econlib.org/library/Enc/DistributionofIncome.html

Okke said at August 22, 2011 2:49 AM:

"This assumes no Laffer Curve in this range of taxation, but heck, if the Laffer Curve was real, the government would have gone broke in the 1950's. "

No, it would merely have taken in less revenue than would have been possible with lower marginal rates.

no i don't said at August 23, 2011 5:27 PM:

I don't think Ziel knows what Socialism means. Just another sad person who thinks Socialism is Stalinism. He's never heard of Democratic Socialism like the one in France during Miterrand -a great example to the world back then- or Spain with Felipe Gonzalez. He thinks Socialism began with Lenin or Marx. He's never even read Rousseau, Diderot, Voltaire and other Enlightenment thinkers.

Sweden has been Socialist whether they don't call themselves so. It's probably the country that better has embraced Socialism in a world now dominated by Fascism. Both West and East used to praise Sweeden for decades. Even Nikita Jrushchov used to openly praise Sweden as an example of real Socialism.

So cheers to Gargoile for the link. And also cheers to Bill Maker who knows what he's talking about.

And cheers to yaw'll cowboys.

Half Sigma said at August 24, 2011 8:56 AM:

"In other words, what fraction of the population gives the government more in money than it gets in services, money, and other support?"

More than half.

More problematical, what fraction of the population gets more money than their TOTAL ECONOMIC OUTPUT (as measured by their pre-tax salary)? Low wage immigrants, for example, are a net drain on the economy and not contributors.

REN said at August 24, 2011 10:13 PM:

It is better to look at it in terms of unearned and earned income. All rich did not get rich in the same way. Most conservatives would agree that those who earned their money should be able to keep it.

Classical economists differentiated between earned and unearned income. Those that earned by rents, monopoly powers, extractive industries and credit money formation usually were taxed at higher rates. During the progressive era the tax on the top earners approached 90%. The objective was to return the unearned income back to the economy by taxing it away. Fiscal policy and monetary policy are flip sides of the same coin.

An example: Suppose you were playing monopoly and the banker got to play too. He gave himself and his friends cheap loans, and they bought up all the property. Pretty soon the other players would instinctively know the game is rigged, and walk away to play another game instead. Only it is not so easy to leave a currency zone, where your wealth can be extracted via depressions, inflations, and manipulations. Our bankers and monopolists do get to play, and they change the laws to suit their industries.

The objective of financial capitalism is to put everyone in debt. The world needs to be a toll booth society where everything is rented from the new fuedal masters. Your credit score needs to be high and you need to be servicing debt...peon. For example, Greece is already under pressure to sell off islands and go into austerity. In Latvia if one has to walk away from their house, they still are on the debt hook to foreign bankers. In Mexico, Carlos Slim has monopoly powers over telecom.

So, it would be good to separate out the type of wealth that is being taxed, but we never talk about that. We just assume that wealthy folks got that way by being innovative and creative. But, of the top 200 wealthiest people in the U.S., more than 1/2 got it through the financial industries. The FIRE sector (finance, insurance, and real estate) is growing relative to the rest of the economy, year on year. They have carved out a rent seeking niche for themselves. Cry me a river if they get taxed at a high rate, when their wealth mechanism is exploitive at its base.

Randall Parker said at August 25, 2011 2:12 PM:

Half Sigma,

More problematical, what fraction of the population gets more money than their TOTAL ECONOMIC OUTPUT (as measured by their pre-tax salary)? Low wage immigrants, for example, are a net drain on the economy and not contributors.

Upon reflection: Since there is an overhead cost to government (IRS, courts, welfare distribution managers, etc) one has to get much less than what one pays in taxes in order to finance the government and support others. In order for a taxpayer to be a net benefit the taxpayer has got to pay some part of defense, overhead costs, and less than they get in benefits.

Since so many people are big sinks the taxpayers who pay more than they get have to pay way more than they get. We need a substantial chunk of highly affluent taxpayers who ask nothing from the government aside from roads to ride on, a fire department, and a few other things.

REN said at August 25, 2011 8:05 PM:

There are three deficits: The private sector, the military, and trade. Military defecit dollars go to overseas bases, cause inflation in the host country, and then return to get locked up as TBills. The host country will keep some of the dollars to prevent their currency from being raided. Those that don't have a military base, and want to buy oil and other commodities, must seek out dollars. To do that, they engage in a race to the bottom to export to the U.S. The U.S. must not raise tariffs because it is the reserve currency of the world. In the end, U.S. mainstreet is hollowed out as the dollar is higher than it should be (supply and demand, and the excess dollars are removed from the supply and locked up as TBills). Mainstreet must also compete in this race to the bottom.

So how are the rich getting rich today. They are shipping industries overseas and stripping American companies. Since China pegs to the dollar, it makes sense to ship whole industries and know how there. In effect, it is labor arbitrage, where the Chinese can become effective workers with U.S. know how and capital, but their wages remain low. The American financiers and captains of industry slice off the labor arbitrage for themselves. The industrial Chinese output can be exported back to the U.S. at low tariff rates. The American citizen is on the hook to insure goods passage via the U.S. Navy.

Internally to the American economy, American companies are stripped by refinancing and putting them into debt. Private equity has cheap dollars (because returning deficit dollar drives interest rates down to buy T Bills), and they borrow these cheap dollars to fund refinancing. During the refinancing, the principles take their slice, and spit out the husk of the company and put it into debt service. So now American workers are having their labor wealth stolen and the future labor wealth put into debt service. This short circuits the ability to put wealth production back into the industry in a virtuous cycle. The output is instead used to service debt.

So, why is the private economy in deficit? The bubble run up in housing created a fake wealth boom. National assets rose up during the bubble, but it was empty calories of housing asset inflation, not real wealth. Again, cheap dollars due to the returning deficit money (trade and military) helped keep rates low. After the bubble collapsed, the balance sheets on banker books were out of whack, and they still haven't corrected. Assets on one side of the ledger dropped down, but the liability side of the ledger stayed high. Now we are in debt deflation, where the debt loads of the middle class and poor, mean that they are paying debt servicing rather than buying goods and services from the real economy. Also, what banker is going to loan to somebody who is upside down, and hence the credit system is locking up. The private economy is hobbled in its ability to create real wealth due to being hollowed out.

So, all of this chicanery and gamesmanship has caused real wealth to vector outside of the actual producers. It is very important to distinguish how wealth is created and where it goes. Many of the people that we think are drains on society would not be a drain if the their actual labor output was allowed to vector back to them. Instead their wealth via money is vectored away. It is probably more correct to think of many in the so called wealthy "productive" class as vampires, and labor as victims.

It is easy to fall into cognitive failure and conflate personal bankbook thinking with the national economy. The national economy doesn't work like our personal bankbook. Regular people are not able to create money from thin air. That ability only is applied to two classes, bankers via credit money (loans), and the government via keyboard entries.

There are wealthy people that are creative and make jobs for the rest of us. But, increasingly, the wealthy are financial sharks, rentiers, and monopolists who do not deserve our respect. Their unproductive slicing and damaging of the real economy should be taxed away from them. These new economic rules are only begining to dawn on people, so much of our current debate is out of date and false.

It is also false to think that the national budget should be balanced. It is bad to deficit spend on trade and military, which allows government money to bounce back as TBills. But, our private economy requires some government deficit spending to offset the impossible contract problem. That is, interest on credit money created in the private banking sector must be serviced. Credit money demands interest, and hence the money supply would shrink were it not countered with deficit spend money from the government level.

Half Sigma said at August 29, 2011 7:08 AM:

There was a typo in my original commment.

What I meant is that LESS than half the people pay more in taxes than they get back in government services, although using the 80/20 rule one can guess that 20% of the population are big money sinks, 60% don't make enough money to pay much taxes, and the 20% at the top fund most of the government because they are the ones making the money.

Half Sigma said at August 29, 2011 7:10 AM:

I should add, ust because the top 20% make most of the money doesn't necessarily mean they create the most value. A lot of the money they make comes from value transference from the middle 60%.

Which is why I don't have a problem with them paying more taxes, because they are paying back what they didn't create themselves.

Half Sigma said at August 29, 2011 8:24 AM:

My above comment is still misleading.

The top 20% of has a lot of value creators, it's the top 1% where most income is value transference income.

Mthson said at August 29, 2011 9:01 AM:

I wouldn't worry about some members of the top 1% not contributing much relative to their compensation. Just enter the top 1% yourself and outcompete/outcontribute them.

Mthson said at August 29, 2011 9:47 AM:

The top 1% mostly live random lives, same as everyone else. Most humans enjoy cognitively simplistic pursuits like travel, Burning Man, recreational sex/romantic relationships with idiots, live music events, recreational cooking, and espousing random beliefs, strongly held.

Randall Parker said at August 29, 2011 10:26 PM:

Half Sigma,

I agree with you about the top 20% versus the top 1%. I know a lot of great engineers and software developers who create a lot of value by solving the problems they solve. But the financial sector in particular gets better at transferring value every year. Rent to own, credit cards with high interest rates, overdraft fees. They've got too many ways to live off the labor of others.

On the bright side: one can wake up and refuse to make choices that enable others to live off you. Never run up credit card debt. Set up to auto-pay credit cards to avoid late fees. Make other choices that avoid feeding parasites.

I'd like to see research into value transference versus value creation. Who does which?


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