Sunday, April 15, 2012

Tax burden

In most years, individual U.S. federal income tax returns are due today. However, because today is Sunday and tomorrow is a holiday in Washington, D.C., taxes and returns are not due until the 17th.

However, since axes have featured prominently in some Ethical Musings’ posts (e.g., Ethical Musings: Thinking about the income tax 2011, Ethical Musings: Thinking about the income tax 2010, and Ethical Musings: Fair taxation), a post today on taxes seemed especially appropriate.

This chart, from the Wall Street Journal (Andrea Coobes, “Taxes – Who really is paying up,” April 15, 2012), graphically depicts the unfairness of the U.S. tax system:

The tax burden, as I have previously contended, should increase with income such that the higher one’s income, the larger share of the tax burden paid. Instead, that principle only holds true for the bottom 80% of taxpayers. The wealthiest 20% pay disproportionately little in taxes, sometimes close to what the middle 20% pay.

Making the tax system fair is relatively easy: treat all income the same; eliminate all deductions; establish a progressive tax rate structure. This won’t happen. Too many individuals and groups want to use the tax system for multiple purposes, not just funding the government; too many individuals and groups/businesses want to privilege themselves at somebody else’s expense.

However, fairness demands improvement. The top 20% (and that includes me) should pay more in taxes.


A. S. Haley said...

Fr. Clifford, you do not have to post this comment. I would far rather that you change what you have written in your post, because you have completely misunderstood the graphic presented in the article you cite from the Wall Street Journal.

Your post does not acknowledge that, while the graphic's first four sets of bars reflect the figure for each of the first four quintiles of the tax spectrum, the last four bars comprise the last quintile, broken out into four separate bars all by itself. Thus in order to get valid figure for the upper 20% of income earners/taxpayers, you have to add the figures for each of the four separate bars at the bottom of the graphic.

When you do that , you will see that the graph shows the very progressive gradation in percentage of taxes paid in proportion to income which you claim in your post that it does not show. For example, adding up the various bar graph numbers shows that the top 20% pays 63.1% of the total taxes, while earning 59.6% of the total income.

And if you graphed those numbers out as a single bar, your point would be made: that the tax system hits the wealthiest 20% proportionately much more heavily, exactly as it was designed to do.

Your mistake, in other words, comes from looking at each of those last four bars on the bottom of the graphic as a separate quintile, which they are not. It is only when added together that they reflect the top 20%, or a true quintile on their own.

George Clifford said...

A.S. Haley's comment is correct that the top 20% of earners pay 63.1% of all taxes on 59.6% of all income, showing a slightly progressive (actually, relatively flat) tax structure. However, my original point remains valid: the tax code is not very progressive. Within the top 20% of earners, the highest 1% pay only a 0.6% greater share of the taxes than they receive in income; this in spite of the fact that their average income is 20 times greater than the 4th quintile, who pay 0.3% more in taxes than they receive in income. Fairness demands establishing a more progressive system.

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