The Internal Revenue Service has released 2003 data on income tax returns. The numbers show that, despite all the histrionics about the phantom “Bush tax cuts,” the federal income has become even more progressive than in previous years:
(Click to enlarge.)
Some hasty stitches regarding these numbers:
–The idea that “the rich don’t pay their fair share” is ludicrous. People who want to raise taxes on higher-income households should be pinned down: Exactly how much more progressive should taxes be? Give specific percentages — what exactly should this table look like in your “fair share” paradise?
–On the other hand, the upper tiers of this table (but not the lower 50% who pay no income tax) will shift quite a bit in the coming years as the Alternative Minimum Tax freefalls into the middle class. For details see my previous post. Those who are comfortable with such high progressivity should be the most vocal champions of abolishing the AMT, which will greatly reduce progressivity while raising overall tax burdens.
–For the most part, state and local income and property taxes only make this chart even more progressive on a government-at-all-levels, taxes-at-all-levels basis.
–Those who blame our federal budget deficit woes on the phantom “Bush tax cuts” are misguided. The problem is not that people are taxed too little, but rather than government spends too much.
–Of course, most of those filers in the “tax-free” lower half of returns are only free of income tax. They are not exempt from Social Security taxes. The rich are oppressed by income taxes; the working poor are oppressed by Social Security taxes. Therefore, those who champion the working poor ought to be less interested in income tax reform and more interested in Social Security reform. Indeed, they ought to be the most ardent advocates of Social Security reform, including voluntary partial privatization. Go figure.
Hat tip to Government Bytes; prior year data here. Other thoughts at DefCon:Blog.
UPDATE: A far better presentation of the data available here, including a debunking of the assertion by Tom in the comments that the distribution of federal income tax burdens merely replicates the distribution of income (see Table 5) — higher-income filers pay a higher percentage of tax receipts than they receive in income. That’s progressivity, folks.
3 responses so far ↓
Link john pike // Oct 9, 2005 at 10:54 pm
I can't wait for all of the idiots to declare you wrong, "facts be damned!". That is what I get every time I post similarly on this subject (again, armed only with inconvenient facts).
Bush just HAS to be screwing the poor…he just HAS to be!!
Link Tom Chatt // Oct 10, 2005 at 12:56 pm
I've seen these sorts of "statistics" put out often in this argument, and unfortunately, these stats don't tell me how progressive the tax is. It would be enlightening to add the missing column in this table, which is percentage of total income, and then we'd have a better picture of progressivity. I strongly suspect that the tax would be revealed to be progressive but substantially less so than this table suggests. (Unless of course your notion of "progressive" includes even a completely flat tax, and anything other than a *per capita* tax.)
[Kip replies: This is an extremely intelligent observation, which unfortunately is 100% wrong. The distribution of income in the U.S. is far less skewed than the tax burden. For example, the top 5% of households receive something like 20% of total income, but pay over 50% of the total tax burden. Also keep in mind that these percentages are for tax returns filed, not households, so those who are so low-income that they don't even file a tax return aren't even counted as the "lower half" in this table, so the progressivity is even greater than one might initially think. Still, I appreciate the comment.]
Link doinkicarus // Oct 13, 2005 at 4:02 pm
Nice angle on Social Security — I've read a bit of your work before and that seems to be a common thread. I have to agree though, that the Social Security reform is likely to benefit the "working poor" much more than a change in the income tax (which they don't pay).
Social Security/FICA whatever it's called drains something like 13% out of your check. Which, for someone earning $24,000/year is just over $3k/year. That's a nice car payment; a lease, no doubt, with warranty. On the other hand, they already get back nearly (if not) all of the "income tax" they pay, so lowering the income tax rate isn't likely to benefit them in any noticeable way.
Keep up the good work.