Tax Wonkery
Alex Tabarrok presents evidence that “the rich pay for the Federal Government.”
While he makes no explicit claim of unfairness based on these figures, he does consider them to be “remarkable”, and is undoubtedly aware that these statistics are often used by the anti-tax crowd to clain that the rich pay an unfairly high amount of taxes. A commenter named Colin makes the point explicitly:
So the bottom 40% pay about 5% of all federal taxes paid. Of course this is in large part due to the fact that so many people have no tax liability at all. No wonder there isn’t an outcry for tax relief in this country.
So I thought it would be interesting to add a couple of columns (highlighted) that Tabarrok did not include, but that can be easily calculated based on the data provided:
The fact that the top 20% pay 68% of total Federal taxes doesn’t seem so unfair once you realize that they take in 54% of total national income. Colin’s point could easily be turned around: given that the bottom 40% only make about 12% of total income, it’s surprising that there’s not more outcry for income redistribution.
The last column, the ratio of tax share to income share, is a measure of the ‘flatness’ of our tax system; or if you will, the “soak-the-rich ratio”. With a perfectly flat tax and constant revenue, the value would be 100% for the entire column.
So how badly are the rich getting squeezed? The long-suffering top 20%, who on average make nearly five times as much as the rest of the nation, only pay 27% more than they would under a flat tax. And the truly rich, with an average income of one and a half million dollars a year, only pay 50% more than they would under a flat tax.
Doesn’t sound unreasonably progressive to me at all.
P.S. Tabarrok only included the Federal Government in his analysis, so I did the same, but of course state revenue generally includes regressive sales taxes, so a complete picture would be even flatter than above.