Sunday, September 11, 2011

40% Flat Tax?

Now with fact-check Add On from another Wise Old Economist ...

I plan to do more research on this, but according to a couple of Boston economists, most everybody in America has a 40% tax rate (give or take):

... In a study for the National Bureau of Economic Research, Boston University economists Laurence J. Kotlikoff and David Rapson have found that our all-in marginal tax rate is 40%, give or take a bit. Yes, you read that right: 40%.

Most workers will pay about that much on each dollar of income when all taxes -- federal and state income taxes, sales taxes, taxes for benefit programs, etc. -- are considered.

As a consequence, a 30-year-old couple earning only $20,000 a year has a marginal tax rate of 42.5%, while a 45-year-old couple earning $500,000 pays at 43.2%. There are some exceptions: A 30-year-old couple earning $50,000 a year, for instance, pays 24.4%, and a 60-year-old couple making $150,000 a year faces a tax rate of 47.7%.

The average marginal tax rate on incomes between $20,000 and $500,000 is 40.3%, the median tax rate is 41.8%, and the standard deviation of all of those rates is 5.3 percentage points. Basically, most of us pay about 40%, plus or minus 5.3 percentage points. ...

In the linked piece above, there's a dandy chart detailing the levels of taxes that different income brackets pay.

Anecdotally, I know people who shell out way below 40%. And of course Warren Buffett claims he pays a rate of 16.5%.

But for most of us mortals, maybe I'm not calculating property taxes, sales taxes, and all the other nicks and cuts everybody gets year after year. (I recently paid a large fine on a "red light camera" ticket that I was subsequently told I didn't have to pay because citations from red light cameras are -- as of January 2011 -- unenforceable in California. Live and learn. So I guess I ended up making a generous donation to the city of San Bernadino. Yippee.)

But I thought the article, although a few years old, was interesting enough to throw up here, even though it's somewhat off our usual track. (But everybody pays taxes, right? So it's not that far off.)

Add On: John Hagens, PhD, weighs in:

Kotlikoff is reliable and I suspect that his conclusion is broadly correct for most, but not for the super rich such as Buffett.

I was wondering why 30-yr-olds with $50k of income have a tax rate of 24%, which is so much lower than every other cell. ... Maybe he is including employer payroll taxes. ...

That 5% is the standard deviation, meaning that 2/3 of people pay between 35% and 45%. 95% of people pay +/- 2x5%, meaning 30% and 50%.

I just noticed one other thing in the table: these are marginal tax rates, not average tax rates. ... Marginal tax rates drop when income goes above the payroll tax ceiling, and then rise when the income tax bracket jumps to 35% for incomes above $200k.

The people who get whacked are the two-earner couples, both with incomes below the payroll tax ceiling – the $150k joint income range for 30 and 45 yr olds. This is the real news in this table! It's the great middle class that is getting the shaft. Did you know that day care for these two-earner families is about $1300 per kid per month? And then, they have to pay back seriously large college loans as well, since many of their folks have stagnant incomes or didn’t save.

So there you have it. Who's getting screwed here in the Land of the Free, and who is not, from three different economists. (Note that there is still, according to the Wise Old Economists, a considerable range: from 30% to 50% for 95% of tax-payers, and 35% to 45% for 67% of tax-payers.)


Anonymous said...

The important part when quoting experts, is to find out who they are and who funds them, regardless of how impressive or official their name sounds:

Anonymous said...

Absolutely. Eliminating competition by the "perceived" leveling out of the playing field is a major goal of corporate communists of the far right wing. We currently have the lowest tax rates in 50 years overall. While the wealthiest forge more and more tax loopholes and breaks to pay less and less taxes and send more jobs overseas.

The Progressive Tax system is still the best. Now let's close those loopholes and tax breaks for any person or business making over $600,000 a year.

Anonymous said...

September 11, 2011, 8:41 AM
The Years of Shame

Paul Krugman

Is it just me, or are the 9/11 commemorations oddly subdued?

Actually, I don’t think it’s me, and it’s not really that odd.

What happened after 9/11 — and I think even people on the right know this, whether they admit it or not — was deeply shameful. Te atrocity should have been a unifying event, but instead it became a wedge issue. Fake heroes like Bernie Kerik, Rudy Giuliani, and, yes, George W. Bush raced to cash in on the horror. And then the attack was used to justify an unrelated war the neocons wanted to fight, for all the wrong reasons.

A lot of other people behaved badly. How many of our professional pundits — people who should have understood very well what was happening — took the easy way out, turning a blind eye to the corruption and lending their support to the hijacking of the atrocity?

The memory of 9/11 has been irrevocably poisoned; it has become an occasion for shame. And in its heart, the nation knows it.

Anonymous said...

"The important part when quoting experts, is to find out who they are and who funds them, regardless of how impressive or official their name sounds:"

Maybe you should do a background check on who Sourcewatch is run by.

Everything is slanted one way or another. Basically, you can't trust anyone.

Anonymous said...

Capitalism has worked around the globe the way it was meant to, and the owners of society 'won' when they threw all their losses back onto the people and their governments. Now, they're sitting on top of piles of capital - but with nowhere to put it and no way to spend it. They are panicking b/c they don't trust anyone with their 'capital.' They are afraid all of their rigged wealth was all for nothing after all. They are right about that.

The owners of society were the ones who undermined the trust of government by deftly sending us all to bankruptcy. Now all they do is spin fear about how the global economy is going to collapse. Like corporations, they are sociopaths.

Anonymous said...

"Everything is slanted one way or another. Basically, you can't trust anyone."

Hogwash. There is bias, and there is propaganda. Trying to lump them into the same category to disregard criticism is exactly the kind of tactic that prompted John Stauber to found the Center for Media and Democracy which publishes SourceWatch.

The article referenced above is trying to redefine marginal tax rate, which properly is "the rate that applies to the last dollar of the tax base". The article is trying to imply that it is something else - a combination of several very different taxes. Certainly they have no problem shifting payroll taxes to "benefits" taxes. It's this kind of language manipulation that muddles the understanding of the issue, and are tactics that unions have seen up close and personal in their own negotiations.

Anonymous said...

I agree with the last poster that this article tries very hard to redefine marginal tax to be something it is not, and is fundamentally deceptive. Whether that deception is self deception (i.e., the writer is naive) or manipulative (i.e., the writer has a hidden agenda) is something I'm not going to bother with, since from my own experience I know that ALL my combined taxes do not come close to 40%, and I know people who make much more than I do who pay an even smaller percentage of total taxes.

That said, an unbiased look at the range of total tax burdens (combining federal, state, employment, self-employment, SS, Medicare, sales, property, car registration, etc., etc.) would be interesting. I suspect it would show that our actual tax system is not only NOT progressive, but that it's REGRESSIVE (the poorer among us paying a higher percentage of their income into various taxes than the wealthier among us).

Anonymous said...

Taxes should just keep going up until everything is fixed! It's all so simple! What's the problem?! The government is brilliant at spending money, but those fatcat business owners just aren't paying their fair share. If only the government had more money to distribute among the people, everything would be fine. It's totally simple: Higher taxes means everything's great! The government has proven time and time again that they are not corrupt and perfectly capable of taking our money and redistributing it fairly! Come ON! What's wrong with everyone?! The only reason we don't live in a utopia is because we haven't effectively funded our poor government to make everything wonderful! Rich people don't deserve so much money. It's not fair. Everyone in America deserves a free house, car, cable TV, and anything else they want. THAT'S WHAT AMERICA IS ABOUT! Rich people got that way by dumb luck and by raping the environment. They deserve to have their money taken. JUST RAISE TAXES ALREADY AND EVERYTHING WILL BE FINE!

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