The Reality-Based Community

Well, you can't say he isn't trying hard to provide incentives to all Americans to become wealthy, in order to enjoy those generous tax cuts.

In Bush's America, we can ALL be in the top quintile.

"The poorest quintile gets 4% of income but pays -2% of federal income taxes—negative because most qualify for the Earned Income Tax Credit. The top fifth garners 53% of income but shells out 80% of the income tax. And the richest 1% of taxpayers (average income of $1,016,000) receives about 16% of income but pays one-third of federal income taxes. "

http://www.dollarsandsense.org/archives/2002/0902dollar.html

Any connection you think? That those who pay the most in taxes get the most benefit from tax cuts?

Anonymous: On the poorest quintile, you are no doubt right that it would be difficult to give them a large volume of of tax cuts; you would need to have large net transfers.

However, you are clearly wrong to think that the regressive impact of the Bush tax cuts is a necessary outcome of the mildly progressive tax code. If you are cutting tax for Keynesian reasons (fiscal stimulus), a raising of the lowest threshold benefits all taxpayers: high-rate payers benefit more because their marginal rate is the highest, but the benefit ratio would be probably 2:1 or 3:1 between the second and top quintiles, against the actual 10:1. Raising the lowest threshold but steepening the slope (with a slightly higher top rate) allows you to target cuts more efficiently on lower-income taxpayers.

No, the regressiveness is quite deliberate. If you look at the table, you will see that the average rate of tax is now pretty flat for the top decile and indeed absolutely lower for the top 0.1% than for the merely rich; at the top, the US tax code is no longer progressive at all. Daniel Bernoulli's St. Petersburg Paradox might as well never have been published. http://en.wikipedia.org/wiki/St._Petersburg_Paradox

"The poorest quintile gets 4% of income but pays -2% of federal income taxes—negative because most qualify for the Earned Income Tax Credit."

Gee, I wonder if that piddly 4% has anything at all to do with the ridiculous minimum wage.....and wouldn't it be better that they earn their wages from those profiting from their labor, rather than get part of their pay from the rest of us taxpayers who aren't even getting the benefit of their labor?

Forcing the rest of us to SUBSIDIZE the labor costs of tightwad employers should be illegal.

«"The poorest quintile gets 4% of income but pays -2% of federal income taxes—negative because most qualify for the Earned Income Tax Credit. The top fifth garners 53% of income but shells out 80% of the income tax. And the richest 1% of taxpayers (average income of $1,016,000) receives about 16% of income but pays one-third of federal income taxes.»

Still the idea that those who earn 16% of income pay only 32% of just income tax does not strike me as very progressive. Their tax rate is only twice that of the ''average''. The same paper says also:

«But the redistributive impact is mild—and it’s milder still since last year’s tax reform. The top quintile starts out with slightly more than half of all pre-tax income generated by the U.S. economy, and ends up with just under half of all after-tax income. The poorest fifth begins the game with just 4% of income and ends up with less than 5%.»

But income tax is just one of the various taxes, and raises a minority of federal and state revenues (some states don't have income taxes at all). The tax system extracts more revenue from earned income and consumption etc. than from capital income and investments, and of course the wealthy usually consume a lot less of their income than the poor, and invest a lot more of it.

If one includes highly regressive sales and payroll taxes the result becomes that total tax paid is more or less a flat percentage of income; for example because the bottom 20% more or less has to spend everything they earn, while the top 1% invest most of what they earn, and then pay very modest capital gains tax, which are a largish part of their income. The same paper that you quote adds:

«Social Security taxes, excise levies, tariffs, and other duties are regressive—their effective rates decline as income goes up. When these other federal taxes are added in, the tax burden on lower-income groups increases significantly.»
«If we were to add all of these taxes together, we would almost certainly find that the U.S. tax system, as a whole, is not progressive at all.»

Indeed some recent paper claims that the total tax rate on the top 10% or so of incomes is slightly lower than that on the bottom 10% (from memory).

Blissex wrote, The tax system extracts more revenue from earned income and consumption etc. than from capital income and investments, and of course the wealthy usually consume a lot less of their income than the poor, and invest a lot more of it.

Not to mention that the working poor are forced by the government to pay tolls to landowners.
http://geolib.com/essays/sullivan.dan/royallib.html

Pretty cute how that guy mentions income tax and omits the regressive payroll tax, FICA tax, and sales tax. Wanna guess what quintile he's in?

The Tax Policy center table than I graphed includes quite a lot of things beyond federal income tax: estate, corporate and capital gains taxes - the things Bush changed. The average federal tax column, the one that's flat for the top decile, includes Medicare and Social Security as well. These strike me as sensible choices. I don't entirely see the relevance to federal tax policy of state sales taxes which are as you say regressive.

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