July 11, 2012 at 2:45 pm #165976
An interesting article in today’s Washington Post cites Congressional budget analysts as saying that “Federal tax rates hit a 30-year low in 2009” — that is, shortly after President Obama assumed office.
According to the article, based on a report from the non-partisan Congressional Budget Office (CBO):
e data show that people were sending the smallest proportion their income to the federal government since 1979…During Obama’s first year in office, the average tax rate paid by all households fell to 17.4 percent, down from 19.9 percent in 2007, according to the CBO. The 2009 rate was significantly lower than the previous low of 19.4 percent in 2003 and well below the 30-year average of 21 percent.”
So much for the anti-tax hype of the Tea Party and some right-wing extremists.
The article continues:
“The lowest fifth of earners benefited the most, sending just 1 percent of their before-tax income to the federal government in 2009, compared with 5.1 percent in 2007. The top fifth of earners paid 23.2 percent, compared with 24.7 percent in 2007.”
“The average federal income tax rate also reached a new low, settling at 7.2 percent in 2009 — two points lower than in 2007, the CBO said. Although detailed data are available only through 2009, the CBO said more recent estimates suggest that effective tax rates remained at historically low levels in 2010 and 2011.”
This all begs the questions:
Are Americans being taxed to much, too little, or just about right?
(Credit: Washington Post/CBO)
* All views and opinions expressed herein are those of the author only.
July 11, 2012 at 2:46 pm #166028
Shouldn’t the rich and super rich — billionaires and multi-millionaires with money to burn (literally) — pay their fair share of taxes for the greater good of America during these times of economic turmoil? If not, why?
July 11, 2012 at 9:33 pm #166026
The CBO report also contained some other interesting information —
The top 1 percent of earners’ pre-tax income dropped 36 percent between 2007 and 2009, while the four lowest quintiles saw a loss of only about 5 percent, according to the Congressional Budget Office. During those years, the average pre-tax income for all earners dropped.
The top 20 percent of earners — the top quintile — bore 67.9 percent of the federal tax burden in 2009. The middle quintile paid 9.4 percent, while the lowest paid .03 percent of the federal tax burden.
So if paying 67.9 percent of the federal tax burden compared to 9.4 and .03 percent does not qualify as paying their fair share, what does?
July 12, 2012 at 3:08 am #166024
Thanks for the comments, Peter, you raise some good points and I see where you’re coming from. However, I would argue that you’re comparing apples to oranges when you consider the ultra-rich and rich on a level playing field with the middle class and the poor regarding tax rates and wealth.
I would ask the top 1% of earners to pay the overwhelming majority of taxes since they control nearly all of the nation’s wealth. I’m referring to those earners who have hundreds of millions or billions of dollars at their disposal. Thus, the richest of the rich can certainly afford to spare some of their “chump change” (so to speak) while they’re out yachting, jetting and setting up fake coporations in the Caymen Islands in order avoid paying other U.S. taxes.
The next highest rate would be the top 5% of earners, then the top 10% and 15%, with progressively lower tax rates on down. I think it’s a bit disingenuous to lump the top 20% of earners together with their combined tax rates. Rather, I would separate them out as noted above — top 1%, 5%, 10%, 15%.
I can’t say for sure how much the top brackets should be taxed, as I’m not a budget anaylst or economist — although I did work a stint at OMB, albeit as a press aide, when Leon Panetta and Alice Rivlin were the White House Budget Directors. My point is that the percentages of taxes paid by the wealthiest of wealthy Americans is deceiving because they have so much money to burn — and hide away.
Thus, even what sounds like a very high tax rate would only make an infinitesimal dent in their wealth (so small to be almost meaningless). That’s my general take. Thanks for your valuable input on this discussion. Hopefully, others will chime in too.
July 12, 2012 at 11:03 am #166022
The overall tax burden for individuals ( Federal, State, and local combined ) is at it’s lowest point in 50 years. How anybody can say with a straight face that any segment of American society is over-taxed is simply astonishing. Also, the top income tranches enjoy a grossly disproportionate share of total income and wealth. They should be taxed at a much higher rate than they are currently.
July 12, 2012 at 4:15 pm #166020
Nicely put, John, I couldn’t agree more!
Also, the U.S. Government needs to coordinate with other countries to investigate and prosecute offshore banking used by the super-rich to evade U.S. tax law — which has been business-as-usual for far too long. It is not uncommon for the wealthiest of wealthy Americans to successfully set up fake companies overseas as tax shelters to hide away major amounts of money that result is untold billions of dollars in lost U.S. tax revenue. New micro-targeted enforcement actions by IRS and DOJ would be similar to the U.S.-Swiss crackdown on banks like UBS and others which secretly sheltered away mountains of money for ultra-wealthy American tax cheats. In that case, an amnesty period was first provided for the super-rich tax cheats to voluntarily come clean. The smart ones did. See http://www.washingtonpost.com/wp-dyn/content/article/2009/11/17/AR2….
Thanks again for commenting, John.
July 15, 2012 at 4:21 pm #166018
FYI — Excellent article in August issue of Vanity Fair on Mitt Romney’s many offshore bank accounts and gaming of the U.S. tax system.
According to the article, among many other eye-opening points:
“Romney’s personal tax rate is a particular point of interest. In 2010 and 2011, Mitt and Ann paid $6.2 million in federal tax on $42.5 million in income, for an average tax rate just shy of 15 percent, substantially less than what most middle-income Americans pay. Romney manages this low rate because he takes his payments from Bain Capital as investment income, which is taxed at a maximum 15 percent, instead of the 35 percent he would pay on “ordinary” income, such as salaries and wages. Many tax experts argue that the form of remuneration he receives, known as carried interest, is really just a fee charged by investment managers, so it should instead be taxed at the 35 percent rate.”
July 18, 2012 at 11:33 pm #166016
Quoting D. Gabaldon: “Oh, surely everyone is interested in taxes. … Or don’t you believe that taxes are what we pay for a civilized society? Though … perhaps ….. the level of civilization isn’t quite equal to the level of taxation?”
On the other hand, my Deity who provides the Universe and everything in it, only requests 10% (whether its being paid by the Widow who has but a Mite or Mr. W. Buffett). This is effectively a flat tax rate …..
My issue with Warren B. is that he coincidentally seems to lobby Congress to make certain changes to the tax code that benefit his business yet says he’s paying too little —- did he miss the part of the tax form where he can donate additional moneys to the Federal Treasury? Because I see this part of the tax form every single year I’ve filed.
July 18, 2012 at 11:39 pm #166014
I would posit that as soon as you pass such a law, the ‘super rich’ will move elsewhere.
E.g., Bono of U2 who lobbied Ireland to send tax money to Africa, found that Ireland passed such a ‘soak the super rich’ law and, surprize! Mr. Bono is now living in France, having moved kith, kin and “kattle” there. So, Ireland which funded his pet charity is taxing others for his ideas BECAUSE the ‘super rich’ are highly mobile and can move themselves and their possessions to other jurisdictions……
July 19, 2012 at 3:42 am #166012
Thanks for your thoughtful comments, Ramona. I would point out the following (please note that all figures are adjusted for inflation):
1) Today, the federal income tax rate for the richest Americans — 35% on income of about $388,000 or more — is half the tax rate top earners paid throughout the 1970s and 1980s, when the highest rate was 70%.
2) During most of the 1990s through the early 2000s, top earners making $250,000 or more were taxed at a rate of nearly 40%, before the highest rates dropped to 35% where they have remained.
For a history of federal income tax rates, see http://taxfoundation.org/article/us-federal-individual-income-tax-r…
3) If the super-rich want to renounce their U.S. citizenship and move to another country then they are certainly free to do so. However, my personal opinion is that such action is unpatriotic. Regardless, it is doubtful the wealthy will flee America since our nation’s economic capitalism still highly favors the rich and super-rich, despite all the hype about being over taxed. This is especially true when all of the countless corporate tax loopholes are factored in, as well as loopholes for the richest Americans to claim lower tax rates by listing earnings as investment income. That’s how super-wealthy folks like Warren Buffett and Mitt Romney, for example, pay a lower federal tax rate (15%) than that of their hired help. So why would the richest Americans leave the country when they may just as easily hide away their liquid assets in the Cayman Islands and Bermuda?
4) Twice the number of Americans polled by Pew Research last week say the rich should be taxed more due to growing economic inequality and to help the struggling economy for the greater good of America — which one may argue is a patriotic duty.
July 19, 2012 at 10:24 pm #166010
Thanks for the additional comment, Ramona. Did you know that the United States boasts the highest number of millionaires worldwide with 5.1 million Americans earning at least one million dollars and up? That’s 5 million people out of hundreds of millions. Thus, raising the federal income tax on those millionaires from 35% to at least 50% or higher would likely generate tens of billions of dollars of much needed revenue to help dig America out of the deep fiscal ditch George W. put us in when he returned to his mega-million dollar sprawling Texas ranch.
Regarding the flat tax, I’m not a big fan because it disproportionally hurts the poor and middle class — who can least afford to pay — thus increasing the already gaping divide of income inequality. Also, a key aspect of the U.S. tax system is progressive rates. Moreover, for a flat tax to be even minimally effective, the Government would first have to close the countless numbers of tax loopholes which Corporate America and the super-rich still use to evade U.S. tax law. If you’re a multi-millionaire, why pay more taxes when you can avoid the law altogether by sheltering mountains of money in Bermuda and the Caymen Islands, for example? Oh yea, that’s illegal — which is a small footnote to the super-rich.
Further, the rich and super-rich also avoid paying taxes by reporting earnings as investment income — which is taxed at a 15% rate rather than the current rate of 35% for the highest earners. The flat tax seemed to fall flat when championed by some of the recent GOP Presidential nominees, like Herbert Cain, Rick Perry and Newt Gingrich. The prior Presidential run of Steve Forbes also pushed the flat tax to new levels of public awareness, but to no avail. Regarding Warren Buffet, I agree that he — and other super-rich citizens — should donate money to the U.S. Treasury if they are serious about generating additional revenue. So at least we agree on that point.
July 19, 2012 at 10:45 pm #166008
Also, Ramona, I suggest reading the following op-ed articles by expert economists on the flat tax:
By Robert H. Frank, an economics professor at the Johnson Graduate School of Management at Cornell University. He writes in the New York Times:
“The flat tax would do nothing to make filing tax returns any simpler. But, more important, it would greatly exacerbate longstanding growth in income inequality.”
By Alan Blinder, professor of economics and public affairs at Princeton University, and a former vice chairman of the Federal Reserve. He writes in the Wall Street Journal:
“Eliminating the biggest deductions and exclusions is extremely unlikely, and flatter rates alone won’t make the tax system any simpler. It would, however, make it far less progressive.”
By Holley Ulbrich, economics professor emeritus and senior fellow at the Strom Thurmond Institute at Clemson University. She writes in U.S. News & World Report:
“A flat tax would shift tax obligations from the rich to the poor, and especially the middle class, and eliminate desirable tax incentives for retirement savings, home ownership, and charitable contributions. Simple? Yes. Efficient and equitable? Not so much.”
July 20, 2012 at 6:43 pm #166006
Daniel Mitchell is another economics expert and is cited in the Ulbrich article as having a counter article: http://www.usnews.com/opinion/articles/2010/04/12/eliminate-tax-brackets-and-complicated-forms-with-a-flat-tax
I note that you also do not cite the Laffer-Khaldun curve in your arguments for raising tax/es on the super/rich. However, I do agree that changing one’s citizenship to avoid paying more in taxes is economic treason and it’s certainly more available to the super/rich than the working poor/wage dependent.
July 23, 2012 at 5:15 pm #166004
POVERTY ON TRACK TO REACH 46-YEAR HIGH
July 23, 2012 at 5:44 pm #166002
Yes, Ramona, there are many divergent views when it comes to issues of taxes and economic policy. However, my recollection of the Laffer curve is the Supply-Side theory of “Trickle Down Economics” of the Reagan-Bush years. But what trickled down to the middle class was higher debt spending and increased budget deficits by the US Government, among other negative outcomes. It’s the same old story: the rich became richer, the poor became poorer, and the middle class stagnated or fell into poverty.
July 23, 2012 at 7:07 pm #166000
US POVERTY RATE TO BE HIGHEST SINCE 1960s, Census Bureau projects.
August 10, 2012 at 7:39 pm #165998
The New York Times reports today that six of the nation’s most wealthy Americans — the “Super Rich” — PAID NO TAXES! This is truely disgraceful and disrepectful to our nation, especially during times of fiscal uncertainty in the public and private sectors — not to mention world markets. According to the Times:
“It so happens that this summer the Internal Revenue Service released data from the 400 individual income tax returns reporting the highest adjusted gross income. This elite ultrarich group earned on average $202 million in 2009, the latest year available. And buried in the data is the startling disclosure that six of the 400 paid no federal income tax.The I.R.S. has never before disclosed that last fact.”
August 10, 2012 at 7:49 pm #165996
The NY Times says of the the wealthiest earners in America:
“Many of them have tax rates that are lower than 15 percent because much of their income is from capital gains and dividends, which are taxed at lower rates than ordinary income.”
Another reminder that the richest Americans among us pay a lower tax rate than the average middle-class earner or the low-wage earners employed by the super-rich. Aren’t they rich enough already without avoiding or evading the U.S tax system? I suppose an average annual income of over $200 million just doesn’t cut it for today’s richest of the rich — and that’s just an “average” income figure. Disgraceful.
August 13, 2012 at 10:30 am #165994
Everyone should pay the same rate
August 13, 2012 at 11:29 am #165992
My heart agrees but my head keeps insisting a flat rate system would not work.
It simply does not make sense to tax the lower and middle income levels at the same rate as the upper end. Any tax system which leaves lower or middle income individuals with less after tax income than needed to meet their basic needs will simply push them into public assistance programs. At the very least the tax code should be structured so that no individual ends up with an after tax income of less than 150% of the poverty level as a result of paying taxes unless they are listed as a dependent on someone elses tax return.
We need to recognize there will always be a conflict between what is fair and what is practical. No it is never fair to punish high income earners merely for being successful. But it is often the least bad alternative in an imperfect world. Willie Sutton once pointed out that he robbed banks because “that’s where the money is”. Government’s use progressive tax systems targeted at highly productive contributors to society for the same reason. There is nothing fair about it and society should approach the process with a certain degree of apologetic humility which recognizes they are demanding (I’ve never heard of the IRS “asking’) tax revenues from one group which are far greater than any benefit that group will recieve in return while providing government services to other groups of far greater value than those groups will ever be asked to pay.
Nevertheless, I know of no other alternative from the FAIR tax to the VAT to the X tax etc that does not ultimately squeeze the top 10-20 perecent of income earners. The simple fact is they can afford it the most and until governments around the globe stop blowing money out the door like a firehose, the revenue to pay for all that spending has to come from somewhere.
August 13, 2012 at 2:27 pm #165990
Elizabeth Fischer LaurieParticipant
Some great points David. I think it is also important to keep in mind that moving within the EU (i.e., to another EU country) is very easy. Leaving the US for another country is a whole lot harder and requires a lot of paperwork. Thus, I think you are right that the rich and super rich are less likely to leave.
August 13, 2012 at 3:47 pm #165988
This is a really interesting and important discussion. As a nation, we are long over due for some serious discussions on tax reform. The path we are treading is dangerous – we’ve already seen local governments going bankrupt, structural deficits, the inability to raise enough revenue, the prospects of draconian tax cuts…The tax code is so complex, but I think the first step is having open and reasonable discussions on tax reform. Sadly, there is so much self-interest tied up in the tax code, the prospects of reform seems like a pipe dream.
I enjoyed reading through this thread. What do people think about taxing capital gains? What about the home mortgage interest deduction? It’s an interesting discussion, that lends itself for us to start thinking about how can we broaden the tax base, but retain a progressive structure? It would be nice if the solution to the deficit and financial crisis was to either raise or lower taxes, but it encompasses so much more is and such an intricate and complex process. We get the sound bytes on TV, but when you start to dig a little, you realize the complexity of the tax reform.
A colleague of mine just wrapped up co-authoring the paper below. It was a good read, and pretty relevant to this discussion:
This paper examines the tradeoffs among three competing goals that are inherent in a revenue-neutral income tax reform—maintaining tax revenues, ensuring a progressive tax system, and lowering marginal tax rates. As a motivating example, we estimate the degree to which individual income tax expenditures would have to be limited to achieve revenue neutrality under the individual income tax rates and other features advanced in presidential candidate Mitt Romney’s tax plan, and how the required reductions in tax breaks could change the distribution of the tax burden across households. (We do not score Governor Romney’s plan directly, as certain components of his plan are not specified in sufficient detail, nor do we make assumptions regarding what those components might be.)
August 13, 2012 at 5:03 pm #165986
Thanks for the comments, Elizabeth. Also, the super-rich have many of their holdings invested and based in U.S. companies — many of which they own. This may pose another problem for denouncing one’s citizenship to move abroad strictly due to alleged unfair U.S. tax policy. Moreover, while many in this nation likely don’t not realize it — especially those who are brainwashed by conservatives to think the rich and super-rich are taxed too much –America provides much more tax shelters, tax cuts, economic opportunities, and LOWER TAX RATES as a percentage of Gross Domestic Product (GDP) than other developed nations — as well as other monetary/fiscal incentives for the super-rich to remain U.S. citizens.
If people here knew how much more taxes are paid by European countries and others, then this debate would be more objective and the American tax system would likely be viewed as too favorable for the rich and super-rich (see below). While the figure below are a bit dated, they still drive home the point:
According to the Tax Policy Center of the Urban Institute and Brookings Institution:
“U.S. taxes are low relative to those in other developed countries. In 2008 U.S. taxes at all levels of government claimed 26 percent of GDP, compared with an average of 35 percent of GDP for the 33 member countries of the Organization for Economic Co-operation and Development (OECD).”
August 13, 2012 at 5:32 pm #165984
Thanks for the comment, Jeff. I a lot of people believe a flat tax is a good idea due it’s simplicity and purported fairness — and who could blame them with the complexity of the U.S. tax code. However, a flax tax would disproportionaly hurt the middle class — the backbone of our country — and the poor who are struggling to become lower-end middle class. If most Americans believed in the efficacy of a flat tax, then Steve Forbes would have been elected President, and Herman Cain would be the current GOP nominee.
August 13, 2012 at 5:41 pm #165982
My goodness, Peter, is that really you? I’m pleasantly surprised to read your convincing comments — assumingly convincing to progressive and liberal economic thinkers, that is. Hopefully, someone didn’t hack into your computer and write those comments on your behalf (lol).
It’s all about assessing the validity, options, and reality of the situation, and then making the “best of bad choices” as you might put it.
Thanks again, Peter, for your always thoughtful and sharp analysis. Your important feedback is most appreciated!
August 13, 2012 at 11:27 pm #165980
Thanks for the awesome comments, Pat. Your friend’s paper is quite interesting. I agree that any radical revamping of the U.S. tax code and system generally will be a high hurdle to scale. Why? I think mainly due to the entrenched and powerful special interest groups that lobby Congress incessantly. The banking industry, the insurance industry, the gas and oil industries, etc.
Regarding what we can do to tinker deeper around the edges, I say raise rates for the rich to at least 40% (where they used to be), cut tax rates for the middle class, and provide incentives for the poor to return to the labor force — no more free welfare and food stamps. If poor Americans want to receive govt handouts, then they should at least be making an effort to find gainful employment — whatever it may be. I worked for the Clinton Admin when it’s signature Welfare to Work program was enacted. That’s a good example that should be emulated.
Regarding capital gains tax cuts, I say cancel them! Although such a tax cut helps the middle class to an extent, the main beneficiaries are the rich and super-rich. Regarding the home mortgage interest deduction, I say maintain it for the middle class and elimate it for the rich and super-rich. There’s a long list of other actions to take leading to a more fair and progressive tax code, but Congress needs to show some backbone and shake off the stanglehold of the special interests that bankroll their campaigns and unduely influence their policy positions, etc. Thanks again for great feedback, Pat!
August 19, 2012 at 6:55 pm #165978
“Why won’t Romney release federal income tax returns?” (08/18/12)
You must be logged in to reply to this topic.