Over at the American blog last year, Andrew Biggs of the American Enterprise Institute responded to the usual argument that while the federal income tax may be progressive, the rest of the tax system isn’t, particularly the payroll tax, since Social Security taxes are capped. He wrote:
Social Security taxes, as Krugman may or may not be aware, fund a thing known as Social Security benefits. Analysts of this system consider them together in order to determine whether the program is or isn’t progressive.
One way they do it is by calculating what’s called the “net tax rate”—that is, the statutory 12.4 percent Social Security tax paid by workers minus the benefits they receive from the program. If you receive benefits equal to your taxes, then your net tax rate is zero. If you pay more in taxes than you receive in benefits, your net tax rate is positive; likewise, if you receive more benefits than taxes your net tax rate is negative.
Here is a chart that shows his results:
I suspect that things aren’t that different this year. Now there is the issue of state and local taxes. State sales taxes are regressive, while state income taxes are relatively flat and property taxes are progressive. It looks like overall state taxes are much less progressive that the federal ones but of course that varies between states. I am going to look into this issue more this week.
I talked about some of these issues on Bloomberg last week. One thing I find quite striking is that most of us have a fuzzy understanding of what high income earners make. For instance, only few in the top ten percent of income earners make over a million dollar a year (I call them millionaires for income tax purposes) but when you ask people around they assume that the top 10 percent is mainly made of millionaires (again the term is unclear because it could mean to make a million a year or to own a million in assets). Maybe more interestingly, most people in the top income bracket don’t realize how well off they are compared to other people. These tow issues are somewhat related and I suspect have a lot to do with the fact that in the top 10 and 1 percent of income, Americans who are the richest in this bracket are so much richer.
This chart shows the "net tax rates for recent retirees." As Mme de Rugy plainly knows, those of us currently paying 12.4% payroll tax will NOT be receiving such "benefits." And there is no "system" into which we're paying, such revenue that's all mixed together to pay for our monstrous federal government. It is grossly misleading to say that payroll taxes are not taxes because of "net benefits."
If we are gonna go down the "net benefit" route, let's add the net benefit to the richest--ALL of whose property depends on the provision for the common defense. If so, they pay NO taxes.
State tax policies vary GREATLY. California's Personal Income Tax (PIT) scheme is even more income-progressive than the federal system. California relies on PIT to generate more than half of the state's General Fund. The majority of PIT income (94%) is paid by an electorally-insignificant 33% of taxpayers.
The Oppressive Progressive Income Tax: California Edition External Link
Of course, California also relies on a variety of other taxes as well, most of which are some of the nation's highest. Not surprisingly, this gives California one of the lowest ratings for business tax climate and among the nation's highest unemployment. External Link
Whether a tax system is flat, progressive or regressive, it negatively impacts the poor more than it does the rich for the simple reason that the rich will always have more assets than the poor. I'm pretty sure that this point is not lost on any of the analysts out there, which is why discussions about taxation eventually end up with both conservatives and liberals arguing how much taxes should the poor "not" pay and how much more should the "rich" pay.
Personally, I have never heard a good reason why the poor shouldn't pay more taxes. As Veronique's chart shows (and what I've noticed through my anecdotal observations while working at TurboTax) is that the poor receive far more in benefits than they will ever pay in. If I can get more than I pay in then I will always vote Democrat. However, if we increase the amount that the poor has to pay in and reduce the amount they can take out, I MAY vote Republican. These things are never so simple.
>"This chart shows the "net tax rates for recent retirees." As Mme de Rugy plainly knows, those of us currently paying 12.4% payroll tax will NOT be receiving such "benefits."
That's true, the situation will get worse in the future.
But the bottom line is still clear - the poor are big net consumers of government funds. Importing more poor people is fiscal suicide.
I don't pretend to be an economist, but how can state sales be regressive but property taxes be progressive? Except for the tautology that only richer people can afford to buy a house, a mortgage payment bites a poorer person more than a richer person. In California, its a pure 1% property tax, regardless of cost of the house. To me, that's essentially regressive in the same way a sales tax is.
By the way, I am entirely in favor of flat percentage taxes, regardless of income. I don't care whether they are regressive or not. All money should be taxed equally. Its a scandal of epic proportions that half the country feeds at the trough of the government and votes accordingly.
"I don't pretend to be an economist, but how can state sales be regressive but property taxes be progressive?"
And thus you have observed the inanity of the Left's argument regarding a flat tax. Since it is applied without prejudice to a person's income, and by definition since a poor person has less income than a rich person, it is "regressive", even though the amount of tax paid by the poor is LESS than the amount paid by the rich. How can you win against such logic?
Some people have to resolve every issue down to their pet peeve. For some it's that this country allows people who don't look like them in.
Instead of fixing the welfare system, they want to keep the welfare system intact for their own benefit, but make sure no one else can get on the gravy train.
Veronique's argument gets fuzzier and less compelling (even on its face) with each iteration.
Reply to this commentLinkReport AbuseThis chart shows the "net tax rates for recent retirees." As Mme de Rugy plainly knows, those of us currently paying 12.4% payroll tax will NOT be receiving such "benefits." And there is no "system" into which we're paying, such revenue that's all mixed together to pay for our monstrous federal government. It is grossly misleading to say that payroll taxes are not taxes because of "net benefits."
If we are gonna go down the "net benefit" route, let's add the net benefit to the richest--ALL of whose property depends on the provision for the common defense. If so, they pay NO taxes.
Reply to this commentLinkReport AbuseState tax policies vary GREATLY. California's Personal Income Tax (PIT) scheme is even more income-progressive than the federal system. California relies on PIT to generate more than half of the state's General Fund. The majority of PIT income (94%) is paid by an electorally-insignificant 33% of taxpayers.
The Oppressive Progressive Income Tax: California Edition
External Link
Of course, California also relies on a variety of other taxes as well, most of which are some of the nation's highest. Not surprisingly, this gives California one of the lowest ratings for business tax climate and among the nation's highest unemployment.
Reply to this commentLinkReport AbuseExternal Link
Whether a tax system is flat, progressive or regressive, it negatively impacts the poor more than it does the rich for the simple reason that the rich will always have more assets than the poor. I'm pretty sure that this point is not lost on any of the analysts out there, which is why discussions about taxation eventually end up with both conservatives and liberals arguing how much taxes should the poor "not" pay and how much more should the "rich" pay.
Personally, I have never heard a good reason why the poor shouldn't pay more taxes. As Veronique's chart shows (and what I've noticed through my anecdotal observations while working at TurboTax) is that the poor receive far more in benefits than they will ever pay in. If I can get more than I pay in then I will always vote Democrat. However, if we increase the amount that the poor has to pay in and reduce the amount they can take out, I MAY vote Republican. These things are never so simple.
Reply to this commentLinkReport Abuse>"This chart shows the "net tax rates for recent retirees." As Mme de Rugy plainly knows, those of us currently paying 12.4% payroll tax will NOT be receiving such "benefits."
That's true, the situation will get worse in the future.
But the bottom line is still clear - the poor are big net consumers of government funds. Importing more poor people is fiscal suicide.
Reply to this commentLinkReport AbuseI don't pretend to be an economist, but how can state sales be regressive but property taxes be progressive? Except for the tautology that only richer people can afford to buy a house, a mortgage payment bites a poorer person more than a richer person. In California, its a pure 1% property tax, regardless of cost of the house. To me, that's essentially regressive in the same way a sales tax is.
By the way, I am entirely in favor of flat percentage taxes, regardless of income. I don't care whether they are regressive or not. All money should be taxed equally. Its a scandal of epic proportions that half the country feeds at the trough of the government and votes accordingly.
Reply to this commentLinkReport Abuse"I don't pretend to be an economist, but how can state sales be regressive but property taxes be progressive?"
And thus you have observed the inanity of the Left's argument regarding a flat tax. Since it is applied without prejudice to a person's income, and by definition since a poor person has less income than a rich person, it is "regressive", even though the amount of tax paid by the poor is LESS than the amount paid by the rich. How can you win against such logic?
Reply to this commentLinkReport AbuseSome people have to resolve every issue down to their pet peeve. For some it's that this country allows people who don't look like them in.
Instead of fixing the welfare system, they want to keep the welfare system intact for their own benefit, but make sure no one else can get on the gravy train.
Reply to this commentLinkReport Abuse