Taxing

by Don Boudreaux on April 22, 2011

in Taxes

Are the rich not paying their ‘fair share’ (whatever the hell that term means in such a context) of taxes?  And do cuts in top marginal tax rates mean that a larger share of the burden of taxation is shifted onto the non-rich?

Take a look at this telling graph from Mark Perry.

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{ 44 comments }

Bret April 22, 2011 at 12:28 pm

Regarding the second question (“do cuts in top marginal tax rates mean that a larger share of the burden of taxation is shifted onto the non-rich”) it would depend on how you define burden and what time frame you’re talking about.

Don Boudreaux April 22, 2011 at 12:30 pm

“share of the burden of taxation”: the percentage of government’s tax-receipts that you pay.

“time frame”: 1979-2007 – 29 years, inclusive – seems significant to me.

Kevin April 22, 2011 at 3:54 pm

I was surprised that this showed up in the rss feed given your earlier critique of arbitrary windowing of the time frame. This correlation seems to be spurious and the changes in the distribution of income seem to have a higher correlation, see this graph: http://assets.motherjones.com/politics/2011/inequality-p25_averagehouseholdincom.png (sorry about the motherjones link but it was the top google hit). The incomes of the top 1% quadrupled in this time frame while the other 99% incomes only rose modestly. It does not seem surprising that when a group’s share of total income increases by more than 120% their share of income taxes would increase by that amount or more.

If you were to ignore the non-marginal rate changes in the tax code in the tax, perhaps just as significant for the wealthy’s income tax burden, at best you could argue the share income taxes paid by the wealth is insensitive to the marginal rate.

Mao_Dung April 22, 2011 at 12:52 pm

The “burden” of taxation on the rich should be 100%. We should all be so lucky to pay taxes in that case. Since most of you reading this are not rich, you would pay no taxes at all and you would then be richer. Why do you poor slobs insist on being taxed? It befuddles me.

Chris O'Leary April 22, 2011 at 12:59 pm

Standard knee jerk socialism that can only be fueled by jealousy (since the “logic” doesn’t hold up). If you tax the rich 100%, then nobody will have an incentive to work and become rich and things will slow down dramatically. Then you’re going to have to tax the non-rich (or shift the definition of rich). Sticking it to the other guy is not a strategy.

Mao_Dung April 22, 2011 at 1:12 pm

You don’t think that taxing the poor affects them negatively in any way? And you think that taxing billionaires more would affect them quite negatively. Sorry, but your thinking is wrong, backward, and tragically sad.

Sam Grove April 22, 2011 at 1:33 pm

Your thinking is superficial and erronious.

It not about the poor vs the rich, it’s about who must bear the burden of producing what is consumed.

The rich don’t do much laboring to create what is consumed so it is error to suppose that the rich can support society.

The burden must, MUST, ALWAYS fall on those who labor to create what is to be consumed.

Mao_Dung April 22, 2011 at 1:35 pm

You would know something about superficial and erroneous.

Sam Grove April 22, 2011 at 5:03 pm

Whenever I read your comments, I am confronted with superficiality and error,…most of the time.

Emil April 22, 2011 at 1:36 pm

And of course the laffer curve is a pure invention…

Chris O'Leary April 22, 2011 at 3:05 pm

50% of the people in this country don’t pay income tax. But I wouldn’t let the facts get in the way of your narrative.

Ken April 22, 2011 at 4:58 pm

Dung,

What you’re suggesting is that the rich pay for taxes at a rate of 100% and everyone else is taxed at 0%. This results in $0 revenue for tax collectors. Let’s say you set the income division at $250K, then there will be an awful lot of people who make $249,999.

Obviously that won’t work, what if you set the division at say the top 10% of earners. Well then people will work less and less to ensure they are in the bottom 90%. Production falls, poverty reigns and $0 is collected by tax collectors.

“Why do you poor slobs insist on being taxed?”

Why do you insist on other people paying for shit you want instead of you working for it yourself?

I’m truly amazed at your idiocy. Keep commenting though, it’s very entertaining.

Regards,
Ken

Andrew_M_Garland April 23, 2011 at 8:21 pm

To Mao_Dung,

Where are your references? Where are your examples of your philosophy implemented and working, either now or in the past?

All we need are a few examples of wealth and happiness coming from your policies. Then there could be a discussion.

DG Lesvic April 22, 2011 at 12:54 pm

Since disregard for incentive and the profit motive is the essence of socialism and true mark of the socialist, the only difference between outright socialist and the “moderates,” deploring “greed” and tax breaks for the rich, is between the wolves in their own and sheep’s clothing.

Mao_Dung April 22, 2011 at 1:58 pm

A friend of mine inherited a lot of cash, property, stocks, and bonds. She doesn’t work and lives off her late parents investments. Explain to me how the Laffer curve affects her incentive to work? I’ll explain for you. If she were taxed more, she might have to get off her butt and get a job.

Economiser April 22, 2011 at 2:27 pm

“She… lives off her late parents investments.”

Ergo, her capital is working to beget more capital. If she were simply spending accumulated wealth, she would eventually run out.

Capital working is a good thing – it leads to more wealth production. Why should we distinguish between capital working and people working? High taxes discourage capital from working just as much as they discourage people from working.

Chris O'Leary April 22, 2011 at 3:06 pm

Thus my point about jealousy. You’re jealous and want to put her in your position. It’s understandable, but not particularly noble.

Mao_Dung April 22, 2011 at 8:25 pm

Calling me jealous, which is your supposition, is an ad hominem.
http://en.wikipedia.org/wiki/Ad_hominem

Sam Grove April 22, 2011 at 1:01 pm

Taxing the rich is irrelevant to the standard of living of the non-rich.

The burden of government spending (government enabled consumption) must and can only be borne by those that labor to create value.

It can not possibly be otherwise.

Mao_Dung April 22, 2011 at 1:33 pm

When I, a person of modest means, pay $10 for lunch and then have to pay an extra dollar to the State of California for “nothing,” I object. You also confuse real labor with rich people who have to labor to cash their dividend checks while they sail to Tahiti on their yachts.

Ken April 22, 2011 at 5:02 pm

Dung,

“a person of modest means”

Get off your ass and work lazy bones!!

“pay an extra dollar to the State of California for “nothing,” I object.”

If taxation results in nothing, why opine for it at all? Admit it. You just hate the fact that other people are smarter, more entrepreneurial, in general better than you and want to punish them. It’s okay, just let that anger out.

Regards,
Ken

Mao_Dung April 22, 2011 at 8:28 pm

Calling me lazy and angry, which is your supposition, is an ad hominem. I am angry at all the ignorance out there. It’s destroying mother earth.

http://en.wikipedia.org/wiki/Ad_hominem

Sam Grove April 22, 2011 at 5:08 pm

Again, Dung-man with his extraordinary superficial insight regales us with his magnificent economic error.

You keep focusing on the money side of transactions. The burden of taxation, as borne by those who labor to produce goods and services, must result in a lower standard of living for those who perform such labor.

Sam Grove April 22, 2011 at 5:13 pm

That is, the burden of taxation is borne by a reduced standard of living than would otherwise be the case.

Miko April 22, 2011 at 1:44 pm

“Fair share” obviously means that they should pay for the government resources that they consume. Considering the vast majority of the U.S. budget goes to things which either benefit only the rich or which benefit the rich at the expense of the poor, the correct libertarian perspective (assuming that anarchy is off the table) is that the fair share of the rich is somewhere around 200% of the cost of government, with the second 100% being distributed to the rest of the citizens in order to convince them to put up with the horribly destructive government that the rich demand.

JohnK April 22, 2011 at 2:01 pm

The fact that rich people exist is proof that they don’t pay their “fair share”.

Obama said it himself that high marginal taxes are not for the purpose of raising revenue.

They are for “fairness”. (to prevent people from getting rich)

W.E. Heasley April 22, 2011 at 2:40 pm

“Fair”: what you are doing and what the other guy is not doing -or- where you get your pig judged.

Methinks1776 April 22, 2011 at 3:14 pm

Yes. And people will find out exactly what their “fair share” to pay for the bloated monster is once they get rid of the rich who become rich by providing wanted and needed goods and services.

They will marvel at how poor “fair” makes them.

Mesa Econoguy April 22, 2011 at 4:13 pm

Poenitentiam agite, Apostolici

Mao_Dung April 22, 2011 at 8:50 pm

I have no problem with people being rich so long as they pay ALL the taxes. Taxing poor people is really sick.

Methinks1776 April 23, 2011 at 8:57 am

I have no problem paying all of the taxes if If I get to control how it’s spent. I find theft really sick.

Mao_Dung April 23, 2011 at 10:17 am

That Republican “theft” meme of yours is getting old. If you were happy to pay your fair share for your good financial luck, then you wouldn’t be such a miserable grouch.

I took a tax class once where the professor said that Elvis Presley told his tax account not to look for every tax loophole, tax haven, etc. to avoid paying taxes. He apparently didn’t view paying taxes as theft. I consider taxes on the poor and middle class as theft because the impact on them is so negative.

Methinks1776 April 23, 2011 at 3:51 pm

No problem. You pay no taxes. We’ll pay all the taxes. However, you will not get to vote. Problem solved.

vikingvista April 24, 2011 at 1:39 pm

“You pay no taxes. We’ll pay all the taxes. However, you will not get to vote.”

Hey, I’ll take that deal! It’s a bit generous, since I’d gladly give up my vote for a good brunch.

W.E. Heasley April 22, 2011 at 2:38 pm

Can you say Hauser’s Law? Hauser’s Law predicts 18-19% of GDP as tax revenue regardless of mix of tax rates. Hence your choice is 18-19% of a larger/expanding pie with taxes that are incentive based -or- 18-19% of a flat or shrinking pie with disincentive tax rates.

Dan April 23, 2011 at 5:33 pm

While, I do not challenge Hauser’s and have referenced it myself, has anyone here put it to the test? By looking back at the past 100yrs?

puranjoy April 22, 2011 at 4:55 pm

1% of the population paying 39.5% of the total income tax would be fair if the income of that 1% was also 39.5% of the total income. Intuitively a flat rate tax is the fair scheme. However, the situation is muddled a little by tax breaks. Since it seems morally unfair to tax people with very low income (admittedly with very low tax), that disparity has to be paid for by higher marginal tax rates at the upper income levels. Now where is my intuition wrong, for of course it is wrong since I am no economist?

WhiskeyJim April 22, 2011 at 5:12 pm

At first glance, the proportion of taxes paid by the rich would seem to be a primary function of other tax ‘class’ exemption than of tax rates, which Mr. Perry is graphing.

IOW, what happened to all the exemptions in the last 40 years?

Now that we have the king of special interest exemption (200+ corporations exempt from Obamacare and counting), it is appropriate to highlight that our tax base has been shrinking for decades.

RLH April 23, 2011 at 10:08 pm

WhiskyJim touches on my initial reaction to this graph. The “Share of Income Taxes” may or may not be related to Top Marginal Rate. In fact, I can devise a tax code where it’s clearly not. Set the tax rate for the bottom 99% of income earners to 0%. Then the top 1% will pay 100% of all income taxes REGARDLESS of the marginal rate. The graph is meaningless without knowing something about the rest of the tax code.

kebko April 22, 2011 at 5:35 pm

Mark Perry has a nasty habit of creating graphs where the scales don’t match & don’t zero out at the same spot. Here it just serves to exaggerate his point, but in the past I think it has passed the line into deception. Even though I generally agree with his world-view, I have stopped visiting his site for this reason.

KD April 22, 2011 at 7:08 pm

I’d like to see a tax imposed on government revenue.

John April 23, 2011 at 8:21 am

I dome way’s it already is; all government employees’ income is taxes just like your income is. In fact they are more taxes than private sector pay if you work overseas. The government contractors working and living overseas don’t pay federal taxes (or didn’t 25 or so years ago) but the military people they were supporting still did.

John April 23, 2011 at 8:17 am

One of the thing that bother me about these types of discussions, taxes or public spending, is their basic irrationality. If we’re ever going to get out public finances in order, or have meaningful discussions we need to join the taxes side with the spending side.

For example, above people talk about taxing the rich — presumably no one here is that rich — at 100%. This, it’s claimed, will be good as none of us will pay any taxes. Why not?* The assumption must be that the taxation on the rich will be such that it covers all possible public spending. Really? When have politicians been able to leave a surplus alone.

Let’s get away from the general revenue and general spending form of public financing and start connecting the dots — they will help lead us to more rational behavior and discussion.

* I suppose one could also make the assumption “none of us” will pay taxes because we’d be too impoverished but I didn’t want to go down that path this morning.

Political Observer April 23, 2011 at 8:37 am

I have similar concerns as kebko with this graph. While I think the Laffer effect is suppported by the evidence, I am concerned that this particular graph somewhat overstates the impact. In reading the linked article I did not see any discussion about holding the tax base constant (1980 – 2007). As an example under current tax law, nearly half of the income earners pay no income tax. I don’t recall where that cutoff is in household income today. However was the same true in 1980? If I recall there were a lot more federal income taxpayers in the lower income levels then today. Making this adjustment to the graph would provide a more accurate reading of the income tax burdens of top 1% of income earners. I suspect that you will still see an increasing burden but not as steep as what this graph portrays

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