Tax cut magic

[southsider2k5]

http://www.americanshareholders.com/blog/2...i-dont-think-so

 

 

Now lets consider the chart at the top of this posting which compares the percentage of income taxes paid by different income shares in 1996 and 2004. You would think all this tax cutting for wealthy people would mean they are also paying less in taxes than everyone else. Well that is wrong.

 

The top 1 percent of income earners in 1996 paid 31.6 percent of all income taxes in 1996. By 2004 the top 1 percent paid 35.6 percent.

 

The top 5 percent of income earners in 1996 paid 50.4 percent of all income taxes in 1996. By 2004 the top 5 percent paid 56.2 percent.

 

The top 10 percent of income earners in 1996 paid 62 percent of all income taxes in 1996. By 2004 the top 10 percent paid 67.6 percent.

 

The top 25 percent of income earners in 1996 paid 81 percent of all income taxes in 1996. By 2004 the top 25 percent paid 84.4 percent.

 

The top 50 percent of income earners in 1996 paid 95.6 percent of all income taxes in 1996. By 2004 the top 50 percent paid 96.6 percent.

 

So the amount of income taxes paid by each income share above 50 percent went up despite these enormous tax cuts. And as you climb down the income scale the spread between 1996 and 2004 narrows which suggests the income tax burden has actually shift more toward the wealthy.

 

Now consider the bottom 50 percent:

 

The bottom 50 percent of income earners in 1996 paid 4.4 percent of all income taxes in 1996. By 2004 the bottom 50 percent paid 3.4 percent.

 

So the portion of taxes paid by the bottom 50 percent of income earners declined during this time and as our friends at the Tax Foundation warn 44 million Americans are paying no income taxes.

[FlaSoxxJim]

Tax magic is right.

 

The authors knew how to ask/answer the right question. The critical missing bit of information, of course, is how much more are the top income earners worth now compared to 1996? If the top earners are worth more than 5% or so than they were in 1996 then they are giving the government a lower percentage of their income than they were in 1996, regardless of whether that total paid by the rich is 5% more than it was in 1996. And if that is the case, I would guess the tax breaks have a lot to do with it.

[southsider2k5]

I kinda figured that would be the reply. The article is pretty techinical and statistical, but it makes the points in detail with tons of sources.

 

http://www.cato-unbound.org/2007/02/07/ala...ution-heresies/

 

Card and DiNardo found that wage inequality did not increase from 1988 to 2000.

 

Johnson, Smeeding and Torrey found that a Gini coefficient for a broad measure of consumption, from the Survey of Consumer Finances, fell slightly from 0.283 in 1986 to 0.280 in 2002.

 

Kopczuk and Saez found that the top shares of wealth were stable during the 1990s. The top 1 percent’s share of wealth was also stable from 1995 to 2004, according to more recent estimates from Arthur Kennickell.

[StrangeSox]

Stolen from Limbaugh's site:

 

"Top 5% pay 53.25% of all income taxes (Down from 2000 figure: 56.47%). The top 10% pay 64.89% (Down from 2000 figure: 67.33%). The top 25% pay 82.9% (Down from 2000 figure: 84.01%). The top 50% pay 96.03% (Down from 2000 figure: 96.09%). The bottom 50%? They pay a paltry 3.97% of all income taxes. The top 1% is paying more than ten times the federal income taxes than the bottom 50%!

 

And who earns what?

The top 1% earns 17.53 (2000: 20.81%) of all income.

The top 5% earns 31.99 (2000: 35.30%).

The top 10% earns 43.11% (2000: 46.01%);

the top 25% earns 65.23% (2000: 67.15%),

and the top 50% earns 86.19% (2000: 87.01%) of all the income."

 

It doesn't seem so disproportionate once you realize that those paying 96% make 86% of the money.

[kapkomet]

Tax magic is right.

 

The authors knew how to ask/answer the right question. The critical missing bit of information, of course, is how much more are the top income earners worth now compared to 1996? If the top earners are worth more than 5% or so than they were in 1996 then they are giving the government a lower percentage of their income than they were in 1996, regardless of whether that total paid by the rich is 5% more than it was in 1996. And if that is the case, I would guess the tax breaks have a lot to do with it.

Those evvvvvvvvvvvvvviiiiiiiiiiiillll rich bastards! REDISTRIBUTE! NOW! GIVE ALL YOUR MONEY TO THE GOVERNMENT! Equal pay for equal mindless drones! YES!

 

OK, my response is a little over the top, but this argument is always the same.

[FlaSoxxJim]

Those evvvvvvvvvvvvvviiiiiiiiiiiillll rich bastards! REDISTRIBUTE! NOW! GIVE ALL YOUR MONEY TO THE GOVERNMENT! Equal pay for equal mindless drones! YES!

 

OK, my response is a little over the top, but this argument is always the same.

 

As is the response.

 

I'm not faulting anybody for being successful. And I'd like nothing better than to go the Fair Tax route rather than the current system, modified with some sort of voucher system to address its regressive nature and the burden it would otherwise impose on the poor.

[kapkomet]

As is the response.

 

I'm not faulting anybody for being successful. And I'd like nothing better than to go the Fair Tax route rather than the current system, modified with some sort of voucher system to address its regressive nature and the burden it would otherwise impose on the poor.

No, I hear you, and with your additional comment tagged at the end, I agree with you, in principle. However, you don't do it with a voucher system.

[Balta1701]

I kinda figured that would be the reply. The article is pretty techinical and statistical, but it makes the points in detail with tons of sources.

 

http://www.cato-unbound.org/2007/02/07/ala...ution-heresies/

Card and DiNardo found that wage inequality did not increase from 1988 to 2000.

I'll grant that I don't understand roughly 2/3 of the things cited in that paper, but at least the simplistic numbers I do have seem to disagree with their conclusion. For a citation, I can give recently released numbers from the IRS that cover through the year 2005.

 

The data behind that graph, and a more detailed graph showing the stagnation of wages for the bottom 99% over the last 30 years and the effects of adding in Capital Gains can be found in the spreadsheet above. I'm too lazy to copy all the graphs myself.

[FlaSoxxJim]

No, I hear you, and with your additional comment tagged at the end, I agree with you, in principle. However, you don't do it with a voucher system.

 

Maybe not a voucher system. How about waiving the tax across the board for groceries and certain other essentials?

[Balta1701]

Maybe not a voucher system. How about waiving the tax across the board for groceries and certain other essentials?

I don't see how that winds up being any different from the mess we've already got of lobbyists...to my eyes it might even make it worse. Suddenly you have lobbyists who can cut the price of a good by 75% simply by getting it moved into a different tax classification.

[jackie hayes]

I kinda figured that would be the reply. The article is pretty techinical and statistical, but it makes the points in detail with tons of sources.

 

http://www.cato-unbound.org/2007/02/07/ala...ution-heresies/

That's crap.

 

For discussion of income taxes, maybe looking at income would be a good idea. Card and DiNardo come closest to that, but they look at wages, not overall income, and more importantly, they use the CPS, which topcodes top incomes (ie, for incomes higher than x dollars, they just put $x -- it seems to now be topcoded at $150k). In other words, virtually NOONE in that top 1% is even included in their sample. Consumption is a terrible proxy and notoriously difficult to measure. Wealth is not income, nor a good proxy itself, and you shouldn't expect to see changes in income distribution reflected in wealth immediately -- and hoping to see changes in wealth within 4 years (the study ends in 2000) while using Kopczuk and Saez's method (an extrapolation from estate tax data) is lunacy.

 

Is it just because there are no good data for income? Hardly -- it's because the data don't say what Cato hacks want it to say. Look at Piketty and Saez or Dew-Becker and Gordon. Piketty and Saez find that the share of overall market income excluding capital gains accruing to the top 1% increased from 14.1% to 16.1% from 1996-2004 (and further increased to 17.4% in 2005). (Including capital gains, the numbers are 16.7% in 1996, 19.8% in 2004, and 21.8% in 2005.) This is using IRS micro-files, so no topcoding. Or look at median income growth (0.5% annually) compared to average income growth (3.2% annually) from 1996-2004.

 

It's not reasonable disagreement, it's mere dishonesty to deny that income inequality has gone up in the US. If you want to argue causes, fine, have at it, but the facts are crystal clear.

 

Edit: The median income data are wrong. After I posted, I knew it couldn't be that large of a difference. I was using the wrong column for mean income -- it's more like .5% compared to .9%, which is still quite significant, just not absurdly so.

Edited March 16, 2007 by jackie hayes

[FlaSoxxJim]

I don't see how that winds up being any different from the mess we've already got of lobbyists...to my eyes it might even make it worse. Suddenly you have lobbyists who can cut the price of a good by 75% simply by getting it moved into a different tax classification.

 

OK, how about just tattooing "POOR" on the foreheads of the lowest 25% of earners?

 

And none of the Fair Tax projections I've seen are predicting a 75% tax rate.

 

Edit to add: OK, how about re-purposing a leaner IRS to process tax refunds for the lowest 25% of earners? It It wouldn't have to require filing for anybody who gets a W-2 at least, and only a little bit of work to file an annual income disclosure in other cases.

 

OK, I'm out of ideas.

Edited March 16, 2007 by FlaSoxxJim

[southsider2k5]

As is the response.

 

I'm not faulting anybody for being successful. And I'd like nothing better than to go the Fair Tax route rather than the current system, modified with some sort of voucher system to address its regressive nature and the burden it would otherwise impose on the poor.

 

I'll say this as clearly as I know how... This is the fairest individual tax system you will ever find. There are loopholes that need to be closed, and much more so on the corporate side, but all in all, the system works pretty well. The only thing I would like to see is another simplification of the code, and the reduction of the IRS, but that is another story.

 

The poorest taxpayers, are not taxpayers at all. In fact they actually come out ahead because of tax credits like the EIC. I have sited the link a bunch of times, usually when this very topic comes up, so it should be at least a memory to most people. The lowest quintile of tax payers, has a net negative tax rate, and the second to lowest quintile has a tax effective rate of zero. You can't get a much better situation than the bottom 40% of taxpayers paying nothing.

[Balta1701]

And none of the Fair Tax projections I've seen are predicting a 75% tax rate.

 

Edit to add: OK, how about re-purposing a leaner IRS to process tax refunds for the lowest 25% of earners? It It wouldn't have to require filing for anybody who gets a W-2 at least, and only a little bit of work to file an annual income disclosure in other cases.

So, where did I come up with that 75% number...pretty simple. Made it up. But here's the facts as I see them...most of the estimates I've seen say that to do a national sales tax, you'll wind up needing to push the tax rate to something like 20-30%. Give or take. Then...you start making exemptions. And with every little exemption you make...the tax rate on something else will need to go up. And therefore, a company gets a huge benefit in cost if it can get the tax rate reduced on its good...thus pushing the tax rate higher on everything else. What happens when some Administration decides to declare that the auto industry is very important to American survival, and offers up a tax rate decrease on certain American brands? The rest of the rates go up. Or we decide to encourage domestic oil production and offer up tax bonii there. And so on. And as we keep raising the prices on some goods, the purchases of those goods would be naturally driven down, thus requriing even higher taxes in order to stay in some sort of equilibrium. If you jump the price of a yacht by 50%...they just sell less yachts. And so on.

[FlaSoxxJim]

I'll say this as clearly as I know how... This is the fairest individual tax system you will ever find. There are loopholes that need to be closed, and much more so on the corporate side, but all in all, the system works pretty well. The only thing I would like to see is another simplification of the code, and the reduction of the IRS, but that is another story.

 

The poorest taxpayers, are not taxpayers at all. In fact they actually come out ahead because of tax credits like the EIC. I have sited the link a bunch of times, usually when this very topic comes up, so it should be at least a memory to most people. The lowest quintile of tax payers, has a net negative tax rate, and the second to lowest quintile has a tax effective rate of zero. You can't get a much better situation than the bottom 40% of taxpayers paying nothing.

 

I agree that it works now for the poor, but if it doesn't work for the higher earners and if something migt be done in the future to correct that then I'm tr4ying to figure out a way basically keep the poor in that same tax-free situation while giving the top 60% something better.

 

Not that anybody's going to be asking my opinion.

 

And that's probably a pretty good thing.

 

[NorthSideSox72]

A lot of this argument could be eliminated nicely if we went away from income taxes entirely, and went to use taxes. Even better, make those use taxes proportionate to two dynamics - level of need (i.e. clothing and groceries should have lower tax rates than entertainment), and total cost impact (i.e. as pollution gets worse and our dependence on oil gets more dangerous, taxes on gas should go up).

 

Use taxes put the tax ball entirely in the court of taxpayers and their decisions. And as for the forthcoming argument that this takes much of the highest earners' income out of the system, I do think you need to keep capital gains and interest taxation in the puzzle, at least for now. Just don't raise those under any circumstances.

[southsider2k5]

I agree that it works now for the poor, but if it doesn't work for the higher earners and if something migt be done in the future to correct that then I'm tr4ying to figure out a way basically keep the poor in that same tax-free situation while giving the top 60% something better.

 

Not that anybody's going to be asking my opinion.

 

And that's probably a pretty good thing.

 

 

My honest answer would be this, the only way to lessen the total tax burden would be to make the government a more effecient place. Things like making it hard to add spending measures as riders to bills, the line item veto, figuring out a way to streamline and eliminate duplicate and ineffecient government agencies etc., are the types of steps we need. Taxes are only a function of how big the government wants to be. You have to cut spending to really stop the taxes for the real taxpayers.

 

 

A lot of this argument could be eliminated nicely if we went away from income taxes entirely, and went to use taxes. Even better, make those use taxes proportionate to two dynamics - level of need (i.e. clothing and groceries should have lower tax rates than entertainment), and total cost impact (i.e. as pollution gets worse and our dependence on oil gets more dangerous, taxes on gas should go up).

 

Use taxes put the tax ball entirely in the court of taxpayers and their decisions. And as for the forthcoming argument that this takes much of the highest earners' income out of the system, I do think you need to keep capital gains and interest taxation in the puzzle, at least for now. Just don't raise those under any circumstances.

 

Any usage based tax would be a tax increase for the lowest tax payers.

[NorthSideSox72]

Any usage based tax would be a tax increase for the lowest tax payers.

Not if you do it right its not. I understand the idea that if they are paying virtually no income tax anyway, that would be hard to do. Frankly, it would require a re-working of how sales and use taxes are done across the board, at all levels of goverment. And becuase of that, it will probably never happen. But it COULD be done in such a way that it is not a tax increase for the lowest earners, who do already pay sales and use taxes.

[southsider2k5]

Not if you do it right its not. I understand the idea that if they are paying virtually no income tax anyway, that would be hard to do. Frankly, it would require a re-working of how sales and use taxes are done across the board, at all levels of goverment. And becuase of that, it will probably never happen. But it COULD be done in such a way that it is not a tax increase for the lowest earners, who do already pay sales and use taxes.

 

If you are looking at that, you are talking about more than just IRS codes, you are talking about municipal, county, and state codes, which is pretty much impossible. Overhauling the tax code would be bad enough, let alone involving literally every single governmental entity in the entire country.

[Texsox]

I'll say this as clearly as I know how... This is the fairest individual tax system you will ever find. There are loopholes that need to be closed, and much more so on the corporate side, but all in all, the system works pretty well. The only thing I would like to see is another simplification of the code, and the reduction of the IRS, but that is another story.

 

The poorest taxpayers, are not taxpayers at all. In fact they actually come out ahead because of tax credits like the EIC. I have sited the link a bunch of times, usually when this very topic comes up, so it should be at least a memory to most people. The lowest quintile of tax payers, has a net negative tax rate, and the second to lowest quintile has a tax effective rate of zero. You can't get a much better situation than the bottom 40% of taxpayers paying nothing.

 

And I always wind up agreeing with you on this. Overall the system is as good as it gets. The little rate tug of wars hardly make a difference with what always amounts to minor rate changes. The problem is the complexities that cause average filers to need professional assistance.

[kapkomet]

How sad. :bigcry: