Monday, September 26, 2011

Graph of federal tax liabilities by income quintile

In a post where he presents a table from the CBO showing the share of federal tax liabilities by income quintile in the US from the beginning of the 21st century to a few years into the future, Randall Parker points out how much taxes would have to increase on the top 20% of income earners to close the 2012 federal deficit:
How much would taxes have to increase on the top 20% to balance the budget? For 2012 the projection is for $2.627 trillion total revenue, $3.729 trillion total expenditures, and $1.01 trillion deficit (and I think it will be worse than that due to Peak Oil Recession II). Well, if the top 20% really pay 63.1% of total federal taxes (see table above 2012 column) then they are paying 0.631*$2.637 trillion or $1.66 trillion. Their total taxes paid would have to rise about 66% in order to close the federal budget deficit.
Making the same calculation for the other 80% of the population, we find that their collective tax contributions would have to increase 104%--that is, more than double--to close the single year deficit. That, of course, wouldn't get us out of the financial hell hole (of debt) the country is in, it would just mean we'd momentarily set the shovel down. And, in actuality, such enormous increases in tax liabilities would lead to shrinkage in the private sector, lower incomes, and thus a smaller economic base to tax from.

Randall also comments on how little the tax burden has shifted by income over a decade and a half. Even more apparent than the table he presents makes it, the following graph shows the stasis:

So, the top 20% does most of the vast majority of the heavy lifting. Those in the second quintile from the top, in the 60%-80% range, pull their own weight, and the bottom 60% are dragged along by those earning more than they do.


Anonymous said...

So, the top 20% does most of the vast majority of the heavy lifting. Those in the second quintile from the top, in the 60%-80% range, pull their own weight, and the bottom 60% are dragged along by those earning more than they do.

We could always stop giving the top 20% (actually, the top 5%) such an exaggerated share of income. Then the poor things won't be taxed as much.

In effect they are currently being taxed for other peoples economic contributions - because they are being paid for other peoples economic contributions.

Audacious Epigone said...


That's the way Half Sigma views it as well, and I'm increasingly finding myself intrigued by the phenomenon he calls "wealth transference" (just as he predicted).

Anonymous said...

The problem is conflation of the function (net in-place liquidation value of assets) with the derivative (income, capital gains, value added, sales, etc.).

The result of this conflation is a brain-dead discourse in political economy.

OF COURSE people who have vast property rights should pay more for the existence of the entity that upholds those property rights — just as they should pay more for property insurance.

OF COURSE people who make X dollars a year should have zero tax burden as a result of those CHANGES in their net in-place liquidation value of assets.

Anonymous said...

I have three basic questions for all would be political economists:

1) If physicists conflated velocity with position the way you conflate income with wealth, where do you think technology would be today? Why do you think economic technology would be any better?

2) If the primary function of government is to uphold property rights, then why is government funded by taxing economic activity rather than taxing property rights?

3) Why don’t you ever answer the first 2 questions?

Anonymous said...

Confusing people about the distinction between “wealth” and “income” and then progressively taxing income while claiming to be taxing the “wealthy” is probably the worst single political economic crime possible to commit in public discourse.

“Wealth” is not “income”. “Wealth” is property rights – net assets – the net in-place liquidation value of assets, etc.

Since the primary function of government is the protection of non-subsistence property rights, it is sensible to charge a use fee for those rights. Note, I said “non-subsistence” property rights. The point here is that house and tools of the trade are protected from confiscation under bankruptcy law precisely because they are subsistence assets. Where government does not exist, subsistence properties are typically defended by the occupant, whose life is sustained by those assets. Government brings precisely the property rights we associate with civilization — assets beyond home and tools of the trade.

Failing to charge a use fee or tax for property rights allows the truly wealthy, whose property rights would disappear in an instant in the absence of government protections, to continue to accumulate net assets without limit and without paying the costs of protection of those property rights—shifting them onto the heavily taxed producers.

Anonymous said...

The phenomenon of "wealth transference" that Half Sigma talks about is it an old idea that used to be more common in economics as the concept of "economic rent", "rent-seeking", etc. The Classical economists such as Smith, Ricardo, Mill, Henry George, etc. analyzed it and emphasized its significance. Half Sigma doesn't seem to properly attribute this concept to these older thinkers either out of ignorance or to seem more original than he is. Neoclassical economics has largely obscured or downplayed it.

RS said...

Tyler Cowen thinks it's a notable problem, though far from being a chief cause of the worsening income distribution since '75 or whenev.

It's true, I haven't seen HS credit anyone on this subject, though I haven't read his entire body of commentary on it.

RS said...

And it is very common to rediscover such things independently