Two Studies Prove Our Tax System Is Highly Progressive

Misconceptions and Realities About Who Pays Taxes, by Chuck Marr and Brian Highsmith, CBPP: Executive Summary A recent finding by Congress’ Joint Committee on Taxation that 51 percent of households owed no federal income tax in 2009 [1] is being used to advance the argument that low- and moderate-income families do not pay sufficient taxes. Apart from the fact that most of those who make this argument also call for maintaining or increasing all of the tax cuts of recent years for people at the top of the income scale, the 51 percent figure, its significance, and its policy implications are widely misunderstood.

* The 51 percent figure is an anomaly that reflects the unique circumstances of 2009, when the recession greatly swelled the number of Americans with low incomes and when temporary tax cuts created by the 2009 Recovery Act — including the “Making Work Pay” tax credit and an exclusion from tax of the first $2,400 in unemployment benefits — were in effect. ... Both of these temporary tax measures have since expired. In a more typical year, 35 percent to 40 percent of households owe no federal income tax. In 2007, the figure was 37.9 percent. [2]
* The 51 percent figure covers only the federal income tax and ignores the substantial amounts of other federal taxes — especially the payroll tax — that many of these households pay. As a result, it greatly overstates the share of households that do not pay any federal taxes. Data from the Urban Institute-Brookings Tax Policy Center show only about 14 percent of households paid neither federal income tax nor payroll tax in 2009, despite the high unemployment and temporary tax cuts that marked that year.[3]
* This percentage would be even lower if federal excise taxes on gasoline and other items were taken into account.
* Most of the people who pay neither federal income tax nor payroll taxes are low-income people who are elderly, unable to work due to a serious disability, or students, most of whom subsequently become taxpayers. (In a year like 2009, this group also includes a significant number of people who have been unemployed the entire year and cannot find work.)
* Moreover, low-income households as a whole do, in fact, pay federal taxes. Congressional Budget Office data show that the poorest fifth of households as a group paid an average of 4 percent of their incomes in federal taxes in 2007 (the latest year for which these data are available), not an insignificant amount given how modest these households’ incomes are — the poorest fifth of households had average income of $18,400 in 2007. [4] The next-to-the bottom fifth — those with incomes between $20,500 and $34,300 in 2007 — paid an average of 10 percent of their incomes in federal taxes.
* Even these figures understate low-income households’ total tax burden, because these households also pay substantial state and local taxes. Data from the Institute on Taxation and Economic Policy show that the poorest fifth of households paid a stunning 12.3 percent of their incomes in state and local taxes in 2010.[5]
* When all federal, state, and local taxes are taken into account, the bottom fifth of households paid 16.3 percent of their incomes in taxes, on average, in 2010. The second-poorest fifth paid 20.7 percent. [6] ...

* The fact that most people who do not pay federal income tax in a given year do pay substantial amounts of other taxes, and also are net federal income taxpayers over time, belies the claim that households that don’t owe income tax will form bad policy judgments because they ostensibly “don’t have any skin in the game.”
* The federal tax system is progressive overall, but state and local tax systems are regressive and undo a significant share of that progressivity. There is nothing wrong with having one part of the overall tax system shield low- and moderate-income households, who pay substantial amounts of other taxes and who generally pay federal income tax as well in other years. ...

I think the above proves that the American tax system is highly progressive, dispelling the myth that the rich aren't paying their fair share. In fact, a recent study by the OCED found that the American tax system was the most progressive of all of the countries studied including those in Europe.

http://www.taxfoundation.org/blog/show/23856.html

But a new study on inequality by researchers at the Organization for Economic Cooperation and Development (OECD) in Paris reveals that when it comes to household taxes (income taxes and employee social security contributions) the U.S. "has the most progressive tax system and collects the largest share of taxes from the richest 10% of the population." As Column 1 in the table below shows, the U.S. tax system is far more progressive—meaning pro-poor—than similar systems in countries most Americans identify with high taxes, such as France and Sweden.

As noted, the discussion has been mainly focused on income taxes, not on other types of taxes. The reason is that proponents of tax increases want to raise INCOME taxes, and claim that the current income tax structure is not progressive enough. It is natural, therefore, for opponents of income tax increases to point out the facts as laid out by the Joint Committee on Taxation along with the OCED.

What is often overlooked when discussing income tax rates are the numerous other types of taxes that must be paid in addition to income taxes. With State and local taxes already taking 12.3% of income from the bottom fifth, rates for the other four fifths are no doubt higher meaning that those who are in the top tax bracket pay more than 50% of their income when all taxes (gasoline, utility, etc.) are accounted for.

The level of taxation for all citizens is shocking in this country and needs to be decreased, not increased. While the Bush tax cuts reduced taxation for ALL income tax payers, I suspect this has been more than offset by increases in state and local government taxes along with property taxes and the like. No wonder there is backlash on the state and local levels. Ultimately, we have to ask, are we getting good value for the taxes we pay? I think the answer is a clear NO.

Our New Economic Future

We are in a global economy today and in a huge adjustment period which is causing weakness in the US economy. The addition of developing countries along with their billions of citizens to the global capitalist marketplace has created shifts in production based on comparative advantage. They are not yet rich enough to buy American goods in bulk, but will be though that will take a decade or more.

What America "manufactures" has also changed. We now create a lot of intellectual and information goods such as movies, drugs, and processes that have no physical basis. However the international legal protections and recognition of these new goods are still being formed and so we are not receiving the full benefit of our production.

We are moving into a world where tangible products are cheap and plentiful. However, humans will always need entertainment and information. Whether the manufacturers of those products will be compensated is the question, fortunately we seem to be moving in the right direction although enforcement is still very sparsely seen. If other countries would pay for all the software, movies, etc. that they use, the United States will be in good shape and those sectors could grow, but we need to do better at getting others to enforce and pay for what we produce, otherwise the US economy will be sunk as that is our future.

Reason Why Deficit Reduction Must Include Medicare

The discretionary budget is much smaller than the non-discretionary entitlements part which includes Social Security, Medicare, and Medicaid. Of those three, Medicare and Medicaid spending are projected to grow the most. So in order to "fix" the budget and get us to where we can run sustainable deficits of approx. -4%GDP, I see no way out other than to tackle Medicare and Medicaid.

I support ending subsidies for corporations including the green subsidies that are so favored right now along with all farm subsidies, but that's just a drop in the bucket.

I also support reducing the defense budget and eliminating costly weapons projects that deal with an enemy we don't have and won't get into a war with, such as Russia and China. Both have nuclear weapons and a war would end in mutual destruction. Due to the proliferation of nukes amongst high tech nations, conventional weapons such as fighters, bombers, and so forth are unlikely to be ever used so there is no need for them. Cutting defense spending would be a help in reducing the deficit, but again, not enough.

At least Ryan made a proposal. It's time for Democrats and President Obama to likewise, make a serious proposal that would reduce the deficit to manageable means. Constantly bashing Ryan's proposal gets us no further towards a solution, there has to be an alternative for the discussion to move forward and we haven't seen it yet. And to cut off the usual cries of tax the rich, that won't be enough either if Obama sticks to his promise that no one making under $250,000 will see a tax increase.

Some Health Care Logic

The problem is that SOMEONE has to pay for the cost of providing sick people health care. By logic alone, not everyone can pay less than the health care they consume, some people have to pay more in order for insurance to work. It doesn't matter if government runs it or if its single payer, the funds have to come from somewhere be it taxes or premiums.

Recently, Health and Human Services announced that, "The provision of the law that permits young adults under 26, long the largest uninsured demographic in the country, to remain on their parents’ health insurance program resulted in at least 600,000 newly insured Americans during the first quarter of 2011." Now how much more are these healthy young adults paying (or their parents) into the system? If insurance companies only increase premiums by the amount of expected costs to treat these healthy people, then it makes no difference. This is what I suspect has happened.

Right now, it seems that no one wants to pay more for health care, but that's an impossibility. For costs to drop for some people, others HAVE to pay more because the aggregate costs have to be accounted for. Either that or health care services need to be rationed (the death panel model) in order to reduce total costs. There is no way around it folks, it's time to face reality and choose from REALISTIC options, not ridiculous and totally impossible outcomes such as lower costs for everyone without any reduction in quality or quantity of care.

Greece Will Default

The biggest problem with Greece is that they are not competitive within the Eurozone. Iceland did not suffer as much because they were able to devalue their currency, making themselves competitive again. Greece has the Euro, so their only option is to undergo a long and sustained deflation until their wages and productivity become in-line with the rest of the Eurozone.

According to http://www.uncwlibertarians.com/2010/06/greek-public-sector-employment.html

"Approximately one million people, or one out of four working Greeks, is employed by the state. More than 80% of public expenditure goes toward the wages, salaries and pensions of these public-sector workers."

These workers only work 37.5 hours a week and the average retirement age is 61. It's not only that these public sector workers are unproductive, they also received massive wage and benefit increases within the past decade as Greece was able to reduce its debt interest payments costs thanks to joining the Euro.

http://www.telegraph.co.uk/news/worldnews/europe/greece/7646320/Greece-why-did-its-economy-fall-so-hard.html

"Greece went on a spending spree, allowing public sector workers' wages to nearly double over the last decade, while it continued to fund one of the most generous pension systems in the world. Workers when they come to retire usually receive a pension equating to 92 per cent of their pre-retirement salary. As Greece has one of the fastest ageing populations in Europe, the bill to fund these pensions kept on mounting."

http://www.bbc.co.uk/news/10099143

"The government is planning a pay freeze for all public sector workers.

Some pay cuts will also be implemented, and public sector contract workers are set to lose their jobs.

This follows several years of continuous increases in pay, with salaries rising by an average of 30% since 2006.

Annual bonus payments - paid as 13th and 14th month salaries - will also be scrapped for high earners and capped for lower earners."


This crisis didn't just come out of left field, it arose due to years of overspending and pay increases for an already under-productive government workforce. A 100% increase in wages over a decade without a corresponding rise in productivity is a recipe for disaster. Austerity, meaning a cut to reasonable wages and benefits is definitely called for.

However it will take time for Greece to restructure its economy and time is what they don't have. They dug a hole so deep that it's just not possible for them to continue on with the debtload that they have. I believe that they will have to default (restructure in PC speak). Another round of loans from the EU will just delay the inevitable, Greece needs economic growth to reduce their debt/GDP ratio, but it takes time for laid-off public sector workers to transition into the private sector. At this point, austerity measures will only decrease GDP making things worse. Unless Greece can get a large enough EU bailout that will finance all their needs for the next decade, they will have to default.