Saturday, November 05, 2011

Taxes paid and income made in the US, by quintile

Recently, I created a boring graph tracing the federal tax burden over a 15 year period by income quintile. The story has been and will likely continue to be steady as she goes. There are no intended polemical points in that post or in this one--they're just outgrowths of my ignorance and curiosity.

The following table shows the share of federal tax burden as a percentage of total money income (defined here, a couple of pages down) by quintile in 2010. The bottom quintile, for example, pays 1.1% of all federal taxes and 'earns' 3.3% of total income, for a tax-share-as-a-percentage-of-income-share of 33.3%:

Quintile
Tax:Income
Bottom
33.3%
Second
60.0%
Third
70.5%
Fourth
82.1%
Top
127.7%

Tax planning aside, the federal income tax is still clearly an extremely progressive one in absolute monetary terms. For it to be regressive, the ordering by income quintile would have to be exactly reversed, which would require a seismic shifting in the current tax code that is almost unimaginable. Even a truly "flat tax", where tax burdens and income shares are perfectly aligned, is contemporarily unthinkable.

2 comments:

Anonymous said...

I am having difficulty understanding how a "progressive" income tax is not a "regressive" income tax. When people in the highest quintiles pay at a high rate disproportionate to income, does that not create a drag on economic activities, and create disincentives to economic activities? In a similar vein, when people in the lowest quintiles are taxed at a low rate disproportionate, does that not also create a drag on economic activities, and create disincentives to economic activities? Or, am I missing something?

Audacious Epigone said...

Anon,

"Progressive" in the sense that as one moves up the income ladder, one also moves up the taxation ladder, I guess. In our Hegelian world, "progressive" does sound like it has a positive connotation and "regressive" a negative one, though.