Tax Progressivity Update
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Some new federal tax progressivity data from the non-partisan Urban Institute:
(Click to enlarge.)
So the question becomes: When malcontents lament that "the rich don't pay their fair share," perhaps they would be so kind as to state, specifically, what "their fair share" means? Forty percent? Fifty? Ninety? And why? Be specific or be silent. Simply saying "more," without more, is not responsible statecraft but class warfare.
On the other hand:
Remember also that the wage cap rises significantly each year, so the "regressive" nature of Social Security taxes diminishes with each passing year, and will be essentially gone in a decade or two. Keep that in mind the next time a faux reformer proposes eliminating the wage cap — it's already being done.
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*And to the extent that "all else is not equal," the unfairness of Social Security becomes even more pronounced — different life expectancies (including along gender and racial lines), the discriminatory exclusion of gays from the spousal benefit, etc. A program so complex and so deceptively packaged cannot help but treat some people unfairly. All the more reason to begin the gradual, partial dismantling of it.
Overall, the federal tax system is highly progressive: On average, households with higher incomes pay taxes that are a larger share of their income. The 2007 average effective federal tax rate — tax paid as a percentage of cash income — rises from 3.4 percent for the bottom quintile — or fifth — of the income distribution to 25.9 percent for the top fifth. Within the top quintile, average rates climb from 30.4 percent for the top 1 percent to 32.8 percent for the top one-tenth of 1 percent.These data incorporate all federal taxes — income, payroll, corporate (i.e., capital gains) and estate.
(Click to enlarge.)
So the question becomes: When malcontents lament that "the rich don't pay their fair share," perhaps they would be so kind as to state, specifically, what "their fair share" means? Forty percent? Fifty? Ninety? And why? Be specific or be silent. Simply saying "more," without more, is not responsible statecraft but class warfare.
On the other hand:
In sharp contrast, payroll taxes for Social Security and Medicare are regressive. The average rate rises from 7.3 percent for the bottom quintile to 10.8 percent for the fourth quintile, but it then falls to 6.9 percent for the top fifth.It's unfortunate that UI allows itself to fall into this trap. "Social Security" is not a tax — it is a program, comprising both taxes and entitlements. Social Security may be a regressive tax, but it is a highly progressive redistributionist program: An individual who, all else equal,* pays twice as much Social Security tax over her career earns far less than twice as much in entitlements. That is a progressive redistribution scheme, and it utterly swamps the "regressive" nature of the tax side of the equation.
Remember also that the wage cap rises significantly each year, so the "regressive" nature of Social Security taxes diminishes with each passing year, and will be essentially gone in a decade or two. Keep that in mind the next time a faux reformer proposes eliminating the wage cap — it's already being done.
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*And to the extent that "all else is not equal," the unfairness of Social Security becomes even more pronounced — different life expectancies (including along gender and racial lines), the discriminatory exclusion of gays from the spousal benefit, etc. A program so complex and so deceptively packaged cannot help but treat some people unfairly. All the more reason to begin the gradual, partial dismantling of it.
Posted by Kip on
10 July 2007
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