Wednesday, October 5, 2011

How progressive is the U.S. federal tax code?

Greg Mankiw posted this link a few weeks ago, in the middle of the discussion started again by Warren Buffett, which shows how progressive the U.S. federal tax code is, and the breakdown into different tax categories.  The numbers the Urban Institute/Brookings Tax Policy Center.  They don't make explicit all of the necessary tax incidence assumptions behind these numbers, but there is enough consensus on those that it is probably not a source of controversy.

There are a number of tax misconceptions that we could correct with these numbers.  One is that the super rich pay less in taxes than the middle class or moderately wealthy.  On average, this is not true, even if we look only at the income tax.  The regressive nature of the payroll tax is also made explicit here, which is interesting, and the incidence and small magnitude of the estate tax is also worth noting.

1 comment:

John Tiemstra said...

There are a lot of high income people who pay little income tax because of the preferential rates on capital gains and dividends, as well as other tax breaks. Here is the summary of a Congressional Research Office report by Thomas Hungerford:

The results of this analysis show that the current U.S. tax system violates the Buffett rule in that a
large proportion of millionaires pay a smaller percentage of their income in taxes than a
significant proportion of moderate-income taxpayers. Roughly a quarter of all millionaires (about
94,500 taxpayers) face a tax rate that is lower than the tax rate faced by 10.4 million moderateincome
taxpayers (10% of the moderate-income taxpayers).

The estate tax needs to be strengthened. The resistance to it comes from the neo-feudalist movement among the rich. A strong estate tax is an essential part of a capitalist economy.

John Tiemstra