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Thursday, April 5, 2012

Top 1% Reduced Taxes in Last 3 Years but Probably Gained Income Share

Citizens for Tax Justice came out with a nice report today showing that the overall U.S. tax system is just barely "progressive," which is to say that as your income goes up, so does your tax rate. While the federal income tax is progressive in this sense, many state and local taxes, such as sales and property taxes are regressive in that lower income people pay higher percentages of their income than do higher income people. The following table from CTJ makes this crystal clear:

As the right-hand portion of the table shows, as income rises federal taxes (individual and corporate income, estate tax, etc.) increase as a percentage of income, from 5.0% of income for the lowest 20% of earners to 21.1% for the top 1% of taxpayers. Meanwhile, state and local taxes move in exactly the opposite direction, from 12.3% of income for the lowest 20% to 7.9% for the top 1%. As CTJ further points out, for every income group the share of total taxes they pay is extremely close to their share of total income (in fact, the biggest difference is 1.7 percentage points).

We already knew, thanks to Emmanuel Saez, that in 2010, the top 1% got 93% of all income gains. With the new 2011 data, we find that the top 1% has continued to make out like gangbusters. As I reported in August, using data from the conservative Tax Foundation, in 2008 the top 1% earned 20.00% of all income. As we see in the table above, just three years later that has grown to 21.0%. Considering that the 2011 data is estimated, perhaps this change is not too significant. But what is really striking is that the top 1% paid only 21.1% of its income in all federal taxes in 2011, whereas in 2008 it paid at a rate of 23.27% for personal income tax alone. Since the top 1% gets an even more disproportionate share of corporate income and taxable estate income than it does of personal income, this is solid evidence that it's a real reduction we are seeing. I hate to sound like a broken record, but it's really true that there is one tax system for the 1% and another one for the rest of us.

1 comment:

  1. So much for that annoying rhetoric that the poor don't pay any taxes and that the rich bear all the burden.

    Another interesting point is that the redistribution system as a whole (after accounting for transfers) may be less progressive here than in most other countries.

    A few questions though:

    What have been the main drivers behind the decline in progressivity since the 60s? Can we decompose this decline into its driving factors?

    Glancing at Picketty/Saez data it looks like it's largely the death of the Estate Tax, but that's just conjecture based on a snapshot of 1960 and 2009.

    How much of the decline in progressivity has been due to changes in the mix of income types that households declare and how much of it has been due to changes in the tax rates on various types of income?