Phillip W. Magness and Stephen C. Miller report on new data from the Internal Revenue Service on effective tax rates in an op-ed in the Wall Street Journal:
The new IRS numbers now provide reason to doubt Messrs. Saez and Zucman’s entire narrative of a regressive U.S. tax system designed to favor the rich at the expense of the poor. The IRS reports effective income-tax rates on the adjusted gross incomes of different groups of earners. That’s the percentage of income that people actually pay to the government, as distinct from the statutory tax rate.
According to the IRS, the top 0.01% of earners—those with incomes above $10 million—paid a 24.8% effective federal income-tax rate in 2018. This isn’t very different from the 25.3% the group paid in 2017, and is higher than the average rate of 22.5% on the same group during the George W. Bush administration. As these rates only encompass federal income taxes, most filers can expect to add another 8% to 12% of income from other forms of taxation, placing their total burden well above the Saez-Zucman numbers.
How does that affect the claims of regressivity? It’s true the remainder of the top 1% (those with incomes between roughly $500,000 and $10 million) paid a slightly higher effective rate, at 26.5%, than the top 0.01% did. But tax rates drop rapidly from there, with filers in the $50,000 to $75,000 reporting bracket (approximately the median U.S. family income) facing an average federal income-tax rate of 8.4%.
People who earned between $15,000 and $40,000 paid an average federal rate of merely 4% of their adjusted gross incomes in 2018. And thanks to the earned-income tax credit and others like it, the poorest earners paid very little if any federal income tax at all.
In short, the federal income-tax structure still places the unambiguous bulk of its burden on the highest earners. The Trump tax cut hasn’t changed that. In 2018, the top 1% of U.S. earners paid roughly 37% of all federal income taxes. The top 5% paid around 58%.
I think the complaints about the rich not “paying their fair share” is more like the reason that Willie Sutton robbed banks—it’s where the money is—than any sense of fairness or just. The reality remains that if you want to greatly increase the amount of federal spending for any reason whatever you’re either going to just “print more money” i.e. issue ourselves more credit, borrow, or tax the two top quintiles of income earners, i.e. taxing everybody earning incomes over $78,000 more. There are a lot of public employees, physicians, and lawyers in that group. Chicago public school teachers earn a median income over $80,000/year. Chicago cops and firefighters have a median income (including overtime) into six figures.
But what makes our federal tax system less progressive than it otherwise would be isn’t that folks with seven figure income don’t pay high enough effective tax rates. It’s the payroll tax.
I don’t know that it’s true, but people in the lower half of earners that I talk to, typically don’t believe they pay those rates at all. “They ” being the .01% “earners”. Plenty of offshore havens and write offs and whatever their tax accountants dream up to divert the money.
https://www.cnbc.com/2019/02/25/warren-buffett-and-bill-gates-the-rich-should-pay-higher-taxes.html
The most egregious example of unfair federal income-tax policy is the pro-natalism represented by the tax breaks and tax credits given to the breeders and especially the married breeder.
A single, divorced or widowed child-free Amerikan pays a much higher marginal rate than does his breeding counterpart. The same holds for property taxes, the lion’s share of which go to support the breeders’ brood.
This universal tax practice put a lie to the V and XIV Amendments, not to mention the “pursuit of happiness” promised to the single and child-free Amerikan.