Wednesday, February 05, 2014

Hey look: The whole Federal tax system is progressive

We know that the Federal income tax is progressive, while the payroll tax is regressive, and that these are the main two sources of Federal tax revenue (around 81% in 2012).

The TPI has some interesting stats about the overall progressivity of the Federal tax system.

First, the lowest quintile (20%) of earners pay almost no Federal taxes. Their average income tax rate is negative and almost completely offsets their payroll tax rate. They earn around 4% of income and pay around only around 0.2% of Federal taxes.

Second, the highest quintile of earners earn around 53% of total income and pay around 68% of all Federal taxes.

Before seeing these numbers, I would have said that the regressive nature of the payroll tax makes overall Federal taxes much less progressive than the income tax. But it turns out that the overall Federal tax burden is (too my mind at least) still pretty progressive.




7 comments:

Brandon Berg said...

There's also the fact that payroll taxes are more or less returned to the taxpayer during retirement, whereas the money we pay in income taxes is gone forever. The correct way to look at is taxes paid net of any government spending received. When you take spending into account, the system looks much more progressive.

Andrew H., aka "Mindles H. Dreck" said...

May I submit my own tiem series analysis of the income tax? http://andrewhofer.com/blog/2012/12/18/on-progressive-tax-changes/

Andrew H., aka "Mindles H. Dreck" said...

rather my own TIME series analysis.

Unknown said...

That's what happens when the top quintile makes so much more money than everyone else...

Andrew H., aka "Mindles H. Dreck" said...

...but the time series I posted shows that the tax share for the top 0.2%ile to 5%ile grew faster than their income share.

Anonymous said...

Why not a truly progressive income tax. You get the first 15,000 and then starting at one percent for the next 15,000, two percent for the following and so on until you reach 15% maximum, no matter how you earn your income,with no other deductions, married filing jointly, or deductions of any kind? Now virtually everyone except the very poorest becomes an income taxpayer, and all the money collected goes to run the government with no more credits or deductions.

We would have a lot of accountants, lawyers, and IRS folks who might have to find other jobs.

As to the payroll tax, that is the government forcing people to set aside for retirements and the businesses who use their services providing an equal share. That reduces the totally indigent and goes back to those who pay with interest when they retire.

Anonymous said...

I agree that the federal income tax system is very progressive. But to the partisans on the left it will never be progressive enough. If you raised the highest rate to 60% and the next week they would be banging the drums to raise it again.