Why It's Time for a More Progressive Income Tax

Via Paul Krugman:

Even more gilded: With everything else going on, the latest inequality numbers from Emmanuel Saez, now updated to 2007, didn’t get much attention. But they’re truly amazing:

That means that the top 1-10,000 of the American income distribution receives 6% of pretax household income--meaning that their average income is 600 times that of the average.

Time for a more progressive income tax, is what I am saying.

The curious thing is that Emmanuel's office is only 7 doors north down the hall, yet I have to find out about this via a loop to New Jersey.

Comments

[traineeinve...:]

Given that 2.3% of the population pay more than 60% of federal income taxes, it is past time to either reduce government spending or to broaden the tax base.

Increasing taxes during a time of economic difficulty is a good way of making a bad situation worse.

Aug 14 04:37 AM

[One Eyed Guide:]

Brad is incorrect in asking that the tax system be made more progressive. Brad should ask that the current tax system be made more neutral, at least for middle income earners versus the wealth who make sure that their earnings are in the form of capital gains which are taxed at very low rates, 15% now, 20% in 2011 versus 35% for income. This is suppose to encourage capital investment but, with a sophisticated financial system, income is income and taxing capital gains at lower rates actually causes negative distortions in investments that lower the growth rate of the USA (but it does help China.)

Traineeinv... misses the point of the chart: The 2.3% wealthiest pay 60% of the taxes (I have not verified these numbers) because they have the money. As wealth concentration increases, their portion of the tax will increase because they have more money. You can't broaden the tax base when income concentration is increasing because everybody else has relatively less money.

Aug 14 08:28 AM

[John Galt:]

50% of something is better than 100% of nothing.

At some point, Atlas will Shrug.

Aug 14 09:08 AM

[TCK:]

Why not just make 99%. See how that works ?

At some point higher tax rates fail to raise additional revenue.

Aug 14 11:36 AM

[Gregman2:]

According to the Wall Street Journal, the top 1% are paying 40% of the total income tax revenue. Now, even though the WSJ has become a Murdoch rag, that's still a hefty number.

Aug 14 11:41 AM

[CautiousInv...:]

In 2007, the top 1 percent of those who filed tax returns paid 40.4 percent of all federal individual income taxes and earned 22.8 percent of adjusted gross income.

Putting this inconvenient fact aside, the role of government should be to develop and implement policies and regulations that best serve our collective interests; it should not be in the business of managing outcomes. Disparities are inherent in any economic system and the state should not take on responsibility for micro managing the distribution of income.

In my mind a progressive tax would be a flat tax or consumption tax that would do away with much of the IRS, tax returns, record keeping, deductions, accountants, tax specialists and others who profit from this mutant monstrosity.

Aug 14 12:05 PM

[Socialism c...:]

All confiscatory taxation is ANATHEMA to Liberty!!! The most progressive tax is a consumptive tax on discretionary goods. This is the direction we must move: abolishment of ALL confiscatory taxation, replacing with consumptive, and coupled with drastic cuts to size of government. Freedom and property rights beget prosperity; Theft and abrogation of rights in a faux spirit of "progressiveness" beget decreased incentive and disparity.

Aug 14 05:16 PM

[Pat C:]

I'm starting to believe that we need to consider some changes on the tax code. Given that employment drives up tax receipts and government deficits down wouldn't it make more sense to provide tax incentives rather than disincentives (employment taxes) for businesses that provide employment? Passive income isn't doing much for us now. We should encourage retained earnings and employment innovation.
Is patriotism dead?

Aug 14 05:30 PM

[Steve in Gr...:]

The statistic (that the top 10k households earn 6% of income) might mean something if it was the same 10k households from year to year.

But it isn't. Households move into and out of the top 10k from year to year.

So the statistic doesn't mean anything.

Aug 14 08:06 PM

[THofler:]

Bravo Steve,
I made $200+K one year & only one year. The year I sold all of my tech stocks 1998. Can I get some of that huge tax payout back now that my income is a small fraction of that year?

Aug 15 01:54 AM

[Steve in Gr...:]

Thanks, TH. I wonder about people like this author and his idol Paul Krugman. Are they really economists or just polemicists?

But your idea about recovering your income tax due to a high income year has merit. There used to be a concept in U.S. income tax law called 3-year income averaging. (From answers.com)

"...Method of computing personal income tax whereby tax is figured on the average of the total of current year's income and that of the three preceding years. According to 1984 U.S. Tax legislation, income averaging was used when a person's income for the current year exceeded 140% of the average taxable income in the preceding three years. The Tax Reform Act of 1986 repealed income averaging."

On Aug 15 01:54 AM THofler wrote:

> Bravo Steve, I made $200+K one year & only one year.

Aug 15 05:20 PM

[Christopher...:]

I'm a finance major in college. I work part time and I'm in the 15% income bracket. My goal is too start my own bank/forex firm. I plan on becoming disgustingly wealthy. So if I go out and work my ass off and become "rich" why should others benefit at my expense.

Aug 15 11:47 PM

[Christopher...:]

Their is no such thing as personal responsability in the this country anymore. We don't work for ourselves. The rich work for the poor. The government takes from Peter to pay Paul. WE NEED TO ABOLISH THE INCOME TAX ALTOGETHER.

Aug 16 11:52 AM