In rec.arts.sf.composition David Friedman said:I don't know exactly how she defines "the rich." ObviouslyAnd the top ten percent pay a rate of about 18.8%, and the top 1% about
23%. I think those are closer to her "the rich" than the top quarter.
any sharp cutoff will be arbitrary. My point is that if, for
whatever reason, the top quartile pays a true average tax rate
equal to the overall average tax rate, then the rates do indeed
fail to be graduated in practice.
True enough as far as it goes. But Crowfoot was raising aTo begin with, as I pointed out earlier in the thread--perhaps before
you joined it--Ron Paul is running for a federal office, so state taxes
aren't relevant to the question of what he intends to do about fairness
larger issue, and the larger issue is an important one. State and
local taxes are part of the overall system, and if they're not fair
then the overall system is not fair.
It's a pretty important complication. In addition to theThere are some further complications that I have omitted. For one thing,
there is the employer's half of the payroll taxes. The split between
employee half and employer half is fake--if you work through the
economics what matters is the total. But how that total is really
divided between employer and employee is complicated.
payroll tax of 7.65% paid by the employee, there is an additional
7.65% paid by the employer, for a total of 15.3%. As far as I can
tell, there is a broad consensus that the portion paid by the employer
is mostly passed on to the employee. For example, the following
sources agree on that point: http://www.mises.org/story/1350 and
http://www.urban.org/UploadedPDF/1001065_Tax_Units.pdf , even
though they come from organizations with very different political
This will vastly alter the numbers. Let us start with the
income-tax figures at
http://www.taxfoundation.org/news/show/22652.htm and then add a
rough estimate for payroll tax. I will only take full-time
wage-earners into account, so that when I write e.g. "top 50%" I am
referring to full-time wage-earners in the top 50% of adjusted
gross income. The question will be whether true progressivity
exists among this large subset of the population.
I will take an estimated effective payroll tax on employees of
13% up to an AGI of $100,000/yr, which by coincidence happens to be
very close to the cutoff for the highest-income tenth of the
population. The results are as follows:
Total Income Income Payroll Total
AGI taxes tax rate tax rate tax rate
Top 1% 1.591 0.368 23.1 4 27.1
5%-1% 1.092 0.189 17.3 7 24.3
10%-5% 0.804 0.100 12.4 11 23.4
25%-10% 1.582 0.146 9.22 13 22.2
50%-25% 1.475 0.103 6.98 13 20.0
Bottm50% 0.963 0.028 2.91 13 15.9
where the first column is in trillions of dollars. "5%-1%" refers
to taxpayers who are in the top 5% but not in the top 1%, and so
on. The fourth column is my estimate as discussed above.
The total tax rate shown above does still increase for higher
income levels. But it doesn't increase very fast. It seems
possible to me that, after taking everything into consideration, it
won't increase at all. In other words, it seems possible that the
total tax structure isn't progressive at all.
Among the other factors that need to be taken into
1) Number of wage-earners per household. This may vary significantly
between income levels. If there are more wage-earners per household
at the lower levels, then their payroll tax burden will be increased.
2) At the higher income levels, much more income is in forms other than
wages subject to payroll tax. The payroll tax rate estimates of "4"
and "7" above may be overestimates.
3) I suspect that higher-income workers have a bit less of the
employer's share of the payroll tax passed on to them.
4) Sales taxes. Lower income levels may wind up paying a higher total
rate, though I agree the difference is unlikely to be very large.
5) There are numerous legal and extralegal tax dodges, as Crowfoot was
so emphatic about. Taxpayers at the higher levels are likely to make
much more vigorous use of these.
I will agree that the rich almost certainly do pay a higher
total rate than the working poor. The real question in my mind is
whether they pay a higher rate than the middle class, and whether
the upper middle class pays a higher rate than the lower middle
And I should emphasize that I am not being dogmatic. For all
I know, you are right and the overall tax structure really is
progressive at all income levels. I just haven't seen any firm
evidence of it.
I don't understand your point above. Normative statements areI asked her what she meant--whether she was talking about percentage of
income, or whether she had some other standard. I don't believe she ever
answered that question. The problem with "what they ought to pay" is
that it can mean anything, so the assertion stops being a factual one at
_never_ purely factual. They are perfectly meaningful
nevertheless. There is just a need to explain the standards on
which the statement rests.
(Crowfoot)That implication is simply not clear to me. I'll leave it atI think the clear implication was that she thought the rich paid a lower
share of their income--not that they didn't pay as much higher as she
thinks they ought to. You will note that she didn't say "yes they pay
more than proportionally more, but ... " in response to my post.
I believe she was making a statement about the tax system inNot unless you are willing to offer some definition of what a fair
burden is. Crowfoot claimed to be making a statement about the tax
system, not about her own preferences.
light of her own preferences. And that is a perfectly reasonable
sort of statement to make.
This post already has enough number-crunching, so I will just150,000 gets you to about the top 5%, who are paying about 20% (federal
income tax). $30,000 is about the cutoff for the bottom 50%, who are
paying about 3% (ditto). Putting in employee payroll taxes gets that to
about 10.65% and 25%, allowing for the higher income people getting
above the cutoff.
point out that those making $30,000 a year will certainly pay
higher income taxes than the aggregate of all those making less
My starting point is that we should be concerned about theBut since you have taken it up, tell me--how would you decide what was
fair? I can imagine an argument for saying everyone should end up with
the same income. I can see an argument for saying that people should pay
taxes roughly proportioned to benefits received from government--which I
think would result in rich people paying a larger amount but a smaller
proportion than poor. Other than those, on what principle would you base
the rule that led you to conclude that what we have now is "in the
definitely unfair area?"
well-being of the individuals in society. I don't assume that
well-being can be either precisely defined or precisely measured.
It may be the same thing as happiness (i.e., utilitarianism) or it
may be something broader. I do assume that we have a rough
intuitive idea of what it is, and that we can treat it as roughly
quantifiable. We may then ask how well-being depends on income.
My answer is that at low income levels, well-being is a
sharply rising function of income, and then it flattens out at
higher levels. I don't think this should be terribly controversial.
I base my answer on my own personal experience and on what I have
observed about the behavior of others. For what it's worth, it
also seems to be supported by survey data in which people are asked
about the quality of their lives. (That sort of research is
covered by Richard Layard, _Happiness_ and Daniel Gilbert,
_Stumbling on Happiness_.)
It follows that taxes should be very heavily concentrated
towards the top of the income range. Not only are the rich most
able to pay, but they are also the least discomforted by having to
pay. Suppose you have one person who makes $300,000/yr and ten
people who each make $30,000/yr. Let's say you want to obtain
$60,000 in tax revenue from this group. You could get it _all_
from the one rich individual. Or you could get $60,000-x from the
rich individual and get $0.1x from each of the other ten
individuals. Raising x will improve the well-being of the rich
individual by only a tiny amount, while it will produce a
significant detriment to the well-being of _each_ member of a
In short, if the rich are less burdened by a 30% tax rate than
the poor are burdened by a 10% tax rate, then fairness calls for
the rich to pay the higher rate.
There are, of course, plenty of other considerations that
should go into tax policy. You have to worry about incentives for
investment and productivity, the danger of encouraging fraud
further, etc. If not for those other considerations, I would
support a quite steep tax regime indeed--with maybe only income
above $125,000 or so taxable, and that at a high marginal rate.
I don't claim to be an expert on tax policy. I don't know
what _the_ ideal system would be like. The reason I think our
current system definitely needs to be changed is that over the past
twenty years or so, the well-off (roughly the top 5% or 10%) have
done extremely well, while incomes at lower levels have stagnated.
This trend has been well documented. A modest increase in rates on
a relatively small number of taxpayers who can well afford it would
allow tax relief for a much larger section of the population.