Contrary to the claims of Democrats and other folks who argue that we have taken progressivity out of the tax system, a quick examination of the actual data shows something else.

The best source for objective data on the distribution of the tax burden is the Congressional Budget Office. The C.B.O. goes beyond anecdotes and bald assertions to provide hard data on who pays taxes. One can argue about the details of its methods, but there is no doubt that it is nonpartisan and that its tax analysts are some of the best in the business.

The C.B.O.Â’s most recent calculations of federal tax rates show a highly progressive system. (The numbers are based on 2004 data, but the tax code has not changed much since then.) The poorest fifth of the population, with average annual income of $15,400, pays only 4.5 percent of its income in federal taxes. The middle fifth, with income of $56,200, pays 13.9 percent. And the top fifth, with income of $207,200, pays 25.1 percent.

At the very top of the income distribution, the C.B.O. reports even higher tax rates. The richest 1 percent has average income of $1,259,700 and forks over 31.1 percent of its income to the federal government.

This does, however, take into account the fact that a good chunk of the taxes paid by the wealthy are paid indirectly, by corporations that pay taxes on profits before dividends are paid to stockholders.

When the C.B.O. studies the tax burden, it includes all federal taxes, including individual income taxes, payroll taxes and corporate income taxes. In its analysis, payroll taxes are borne by workers, and corporate taxes by the owners of capital. For the richest 1 percent of the population, 9.3 percentage points of their 31.1 percent tax rate comes from the taxes that corporations have paid on their behalf.

So, as the article points out, when you get a Warren Buffett claiming that he pays only 17.7 percent of his income in taxes, that doesn't count the indirect tax burden carried by the companies in which he hold stock (interestingly enough, the bottom 1/5 of wage earners actually pay less than the amount of their social security taxes due to the EIC and other refundable tax credits -- subtract the employer's portion of the payroll tax and you will see that they actually have a negative tax rate!).

As you can see, the wealthiest Americans actually pay very close to 1/3 of their income in taxes when one uses the CBO statistics. Here's the question to be asked of any candidate or officeholder who objects to "the Bush tax cuts for the rich" -- how much above 1/3 of their income do they believe "the rich" should pay?

Posted by: Greg at 08:59 AM | No Comments | Add Comment
Post contains 465 words, total size 3 kb.