Do The Wealthy Pay Their Share?

Having linked last week to some discussion on whether the US is really becoming “Of the 1%, by the 1%, for the 1%”, I was struck by this chart, which I saw a link to this morning, over at Carpe Diem, showing top marginal income tax rates versus percentage of income tax paid by the top 1% of earners since 1980.

However, I thought it would be a lot more interesting if the chart showed the percentage of total income earned by the top 1%, and also showed the total federal tax liability (including Social Security and Medicare) rather than the just the income tax. Luckily, all this information is available easily on line. (Percent of taxes paid. Percent of total income. Historical tax tables.)

Here’s the chart I produced with that data:

The blue line is the share of total federal tax liability paid by the top 1% of households by income. It doubled between 1980 and 2007 from 14% to 28%.

The green line is the share of total adjusted gross income earned by the top 1% of households. It increased by 2.7x from 1980 to 2007, from 8% to 23%.

Whether this means the wealthy are paying “their share” or not probably depends a lot on one’s point of view. On the one hand, the share of income earned by the very wealthy has increased more than their share of total tax liability. On the other hand, their share of total tax liability remains greater than their share of income. Personally, I would tend to think that this represents the right balance, but there are sure to be those who think this means the wealthy are not paying enough (their income grew faster), and others who think it means they are paying too much (their share of tax liability is greater than their share of income.

Perhaps another way to look at the extent to which our tax system is adjusting for growing inequality is to look at the share of total federal tax liability for the bottom quintiles (A quintile is a 20% range, so the bottom three quintiles of income distribution are 0-20%, 20-40%, 40-60%) versus the share of total adjusted gross income earned by the bottom 50% of households. (I don’t have this by quintile in the above sources, but I think the bottom 50% should compare moderately well if we look at all three bottom quintiles, representing, in sum, the bottom 60% of earners.)

The result is as follows:

The share of adjusted gross income earned by the bottom 50% of households went down by about a third from 1980 to 2007, from 18% to 12%.

During that same period, the percentage of total federal tax liability (including Social Security and Medicare) went down by over half for the bottom quintile, from 2% to 0.8%; by a third for the second quintile, from 7% to 4.4%; and by nearly a third for the third quintile, from 13.3% to 9.2%.

Finally, it’s perhaps worth noting that the main “drag” on the progressiveness of the US tax system at this point are is the pair of “universal” programs (Social Security and Medicare) which tax all income up to ~110k at the same rate and then provide all citizens (rich and poor) with benefits. If those programs were made to work more like a welfare program and less like a fixed benefit pension, the solvency of these programs would no longer be in question and the tax burden on the poor and middle class would be lighter.

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  1. Medicare does not have a cap — but it’s only about a third of what SS withholding is, so the amount of payroll tax on income above the SS cap is pretty low. (I should have been clearer on that.)

  2. Employers (small businesses/rich people) match-pay employees’ SS taxes, probably also medicare taxes. Is that in the lines above?

    Here’s a tax where the (evil) wealthy are not paying their share: food/fuel inflation.

    Bastiat: “All taxes ultimately fall on the consumer.”

  3. I don’t think 2.9% (Medicare tax) is pretty low. it may be relatively low, as compared to the 12.4% (10.4 in 2011) for so-called social security (OASDI), but it is still substantial. I am using the full amount, employee and employer confiscations, because that is the only honest way to look at it – this is the total cost of confiscation, whether or not it shows up on a paycheck or not.

    That is significant. There is absolutely no moral stance in charging people different rates for any reason. This is blatant discrimination! It is an outrage. It does not respect diversity. It is totally intolerant. it is unfair, unjust and just plain mean. In other words, it is the antithesis of the stated, so-called ‘liberal’ (progressive) dogma.

    When you go to a grocery store do they ask for your citizen identification number, aka SSN? Do the want a disclosure of your income, assets, liabilities, etc.? No. They don’t care. All they want to know is do you have $4 to purchase a gallon of milk or not. They don’t change the price or anything else based on your quintile. They just charge for the milk and if you want to leave with it, they expect the same exact payment they would from anyone else. Fair, non-discriminatory.

    If government is necessary, if it is good, if it is just, then it should cost us all the same. A flat fee, not a percentage.

    Does that mean I think the wealthier should not contribute more to their communities and for the benefit of those less materially fortunate than they? No. But that is Charity and not state taxation.

    So, do the wealthy pay their share? Some pay WAY MORE! Others, through political manipulation, like George Soros and Barack Obama, pay much less than they appropriate. Thieves can be very wealthy and even very poor, either way, they are violating God’s commandment against appropriating someone’s private property.

  4. The top 1% of earners pay 40% of Federal income taxes. It seems some believe the top 1% steals 18% of aggreagte national income from undocumented migrants; poor, unwed mothers with three to six half-brothers/sisters who never met any one of their three to six fathers; ex-convicts; et al.

    You may gain graces through charitable (Corporal Works of Mercy) works paid with your money and your time. You may not gain graces by confiscating/taxing someone else’s money and giving it to your dependent voting blocs, sanctimonious Robin Hoods.

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