April 15th has come and gone, but taxes are still very much in the news these days. The passage of a new $3.5 trillion budget (and the projected $1.75 trillion deficit) has a lot of people talking about the taxes we’ll need to pay all of this money back. In that vein, I was checking out the website of the Congressional Budget Office when I ran across some surprising numbers about the taxes we already pay (or don’t pay).
Yeah, Jessica Alba doesn’t have anything to do with this, but I thought a whole post on tax rates might be kind of boring.
The April CBO report breaks down the percentage tax rates that Americans at different income levels are paying. We pay a variety of taxes, of course, like sales taxes, Social Security taxes, and everyone’s favorite: income taxes.
What surprised me was that almost half of all households actually have a negative income tax rate. That’s right, negative. The bottom quintile’s (note: quintile is a fancy word for “fifth”) individual income tax rate is -6.6%, and the second quintile’s rate is -0.8%. This doesn’t really make sense at first, but the negative rate is due to tax credits and deductions. And according to the IRS, 45 million households didn’t owe any federal income tax in 2006.
(It’s important to note that this figure only includes income tax, and the government does take money for other things, like paycheck deductions for Social Security benefits.)
The way the numbers break down, 20% of households pay about 86% of total income taxes (which I guess makes sense, as that 20% includes Bill Gates, etc.) But I was surprised again to learn that a single person earning $71,200 is actually part of the “top 20%” that is apparently supposed to pay for the federal deficit. Someone making $71K, particularly here in D.C., isn’t exactly diving into a pool of gold coins every morning.
Anyway, the CBO report is worth a look.
One Comment
20% of households pay about 86% of total income taxes
OK, but why, when this kind of discussion comes up, do the people citing this statistic never, ever, even once, note how much money those people have, to say nothing of how much wealth overall, and what other kind of taxes they (mostly don’t) pay? Whether or not they’re paying the right level of taxes depends on how much they have to tax.
The top quintile earns about 53% of all income and pays about 83% of federal personal income taxes, but only about 63% of total federal taxes including Social Security (2001 data). They also have 47% of disposable income (2005 data), and 93% of all financial wealth and 85% of all net worth (all assets) (2004 data).
In other words, they pay higher taxes because they’ve got all the money! Their aggregate income tax is barely higher than their aggregate income, and only by the narrow definition of “income” (which leaves out capital gains and other non-wage income). Even that is hardly surprising: in a fair, properly progressive tax system, those with vastly higher marginal income should pay a higher income tax rate than those income is barely at the sustenance level.
The real question is not why a population that controls 2 1/2 times as much income per capita, and over 4 times as much net wealth, as average, pays per capita taxes 1.2 times higher than average. It is rather why the lowest 40% of the country controls only about 12% of all income, year after year. One might go on to ask what would be the appropriate tax rate for a group that earns only 1/3 of the national average income per capita, 1/3 third of whom are actually below the already abysmally-low official poverty definition? How much of the debt incurred to rescue Wall Street, and Detroit, and the international bank chains, would be that group’s fair share?
As for a $71K income being in the top 20%, what you’re looking at is income stratification. First, $71K is a decent living, even in an expensive city (and especially for one person); and on a household-average basis (not single earner), the top-quintile cutoff is $90K (2005 data). Barely 5% of the population earns above $150K. We’ve been so mesmerized by rich assholes demanding $100 million bonuses for destroying other people’s retirement funds that we forget only a tiny fraction of the population gets paid like that. But in a population in which 12-15% are consistently below poverty level, and 95% earn less than $150K per family, then, yes, a family with $90K is top-quintile.
If your point is that they don’t have the excess income to pay down the debt accumulated by the top 1% who ruined the economy and stuck us with the bill, you may be right – hopefully we can get some of it back by taxing the snot out of the assholes who did it after we’ve saved them by mortgaging our futures to do so. But that says nothing about whether or not the bailout was necessary – it only illustrates the magnitude of the disaster. As for the groaning burdens of the upper class, I’ll be happy to switch to a flat tax if we assign it to wealth, not wage income.