Wednesday, April 05, 2006

Data on wealth and taxes

This New York Times article has all sorts of information about the effects of the Bush tax cuts on income, and some sweet accompanying graphics. Here's a summary of what the tax cuts did:

"There have been three tax cuts for individuals under President Bush.

The top tax rate on compensation was trimmed twice and is now 35 percent, from 39.6 percent when President Bush took office. Most compensation also faces a 1.45 percent Medicare tax, which is matched by the employer, making the effective federal tax rate on high earners 37.9 percent.

Then, the top rate for most investment income was reduced to 15 percent in 2003, from the 39.6 percent for dividends and 20 percent for profits on asset sales that were in effect when Mr. Bush took office.

A result is that the wealthiest Americans now pay much higher direct taxes on money they work for than on money that works for them."

The most interesting figure in the graphics is the "effective tax rate," which is as follows:

Income in 2003/Effective Tax Rate:

Less than $50,000: 2%
$50,000 to $100,000: 9%
$100,000 to $200,000: 14%
$200,000 to $500,000: 21%
$500,000 to $1,000,000: 25%
$1,000,000 to $10,000,000: 26%
$10,000,000+: 22%

This is NOT income tax--this is the overall tax rate on everything, including income, property, stocks, bonds, investments, asset sales, etc.

Is this fair? What should the top income tax rate be? Should the tax on dividends and asset sales be the same, more than, or less than the income tax rate?

Taking these numbers as gospel, here's another chart I made from the data:

Income group/Total Tax Paid to Government:

Less than $50,000: $43,652,296,248
$50,000 to $100,000: $172,714,138,947
$100,000 to $200,000: $162,310,472,683
$200,000 to $500,000: $120,868,503,424
$500,000 to $1,000,000: $60,214,014,360
$1,000,000 to $10,000,000: $97,087,072,902
$10,000,000+: $35,413,952,676

The 6,236 members of the elite $10 million+ income group paid the government $35 billion in 2003, nearly as much as the 92 million members of the less than $50,000 group.

Total tax paid: $692 billion.

Unfortunately, the data don't break up tax bills by type, so I can't vary investment tax rates against income tax rates to see what we would come up with if, say, we made income tax flat at 20% and investment taxes flat at 30%.

So, if we go to a flat tax of 15% on everything, we get $931 billion in revenue. Good. Now, it seems grossly immoral to me to tax households making less than $50,000 at all, so let's drop them. Without them, we still have $661 billion in revenue, $31 billion less than our revenue from the convoluted mess above. Awesome, right? Much more fair, right? A few cuts here and there, and we have a fairer system and a balanced budget! Well, yes, except that the effective tax rate on the 30 million tax payers who make between $50,000 and $100,000 a year just DOUBLED.


At 1:43 PM, Blogger StandingOutInTheCold said...

I don't see why its immoral to tax households that make less than $50000 a year. I make less than that, should I be exempt from taxes? I know a lot of young professionals that make less. In fact, $50,000 is really really high for a starting salary for most fields. Its also more than enough for one or two people to live off of for a year comfortably, especially if there is a job with benefits included. The case is different if its a family of seven with a net income of less than $50000 and no benefits because both parents work two full-time jobs at McDonalds or something like that. So I think that dropping all households under $50000 is too strict a criterion. Perhaps you should drop all households under $20000 or $25000 and those with so many dependents under $50000 or something like that. I know we don't have the data to show that, but it might make back a good chunk of that missing $31 billion, or maybe help reduce the increase on that middle portion.

At 1:49 PM, Blogger StandingOutInTheCold said...

After thinking about it some more I think that income alone should not make someone exempt until its really low. I make something like $12000 a year and I pay taxes (nearly 20%!) and I'm comfortable. I have enough for a decent apartment, good food, car and health insurance, and my student fees. Its just enough, but its enough. Now if I had a wife or children things would be different, and that's why I think that income alone shouldn't be the criterion. Single people making $20000-$25000 can afford to pay taxes. Families cannot.

At 1:56 PM, Blogger CharlesPeirce said...

Absolutely--I shouldn't have said what I did without qualifying it. If you're single and making $48,000 a year you should pay taxes. You guessed correctly that when I SAID "people" I MEANT "families with seven dependents."

At 5:17 PM, Anonymous dadman said...

Not to disagree with either standing or charles, but this kind of bargaining is exactly what starts to do away with the flatness of the flat tax. It's a slippery slope, gentlemen.

At 5:46 PM, Blogger Jackscolon said...

20%? really?! I just finished my taxes today and I paid $530 out of $10,200- or 5%, and that is without being able to take a student credit because I'm still a dependant...

At 6:57 PM, Blogger StandingOutInTheCold said...

20% is after state tax, medicare, and SS

At 10:24 AM, Blogger RedHurt said...

I'd put the bar lower, at around 25 or 30k a year, and maybe qualify that with dependents. Has anyone ever tried finding the average income a person in America ought to have regardless of age etc. and then qualifying the income tax based on that? I'm not saying it's a good way to do taxes - just wondering if anyone had tried.

I used to be in favor of the flat tax, but then Chuck ran me the numbers, and now I like it better this way.

At 11:03 AM, Blogger Jackscolon said...

Does these numbers include corporate tax paid? Where does the 10 billion in income tax paid last year by Microsoft and Walmart alone fall into these numbers?


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