Our regressive income tax in action
via Yves, bien sûr:
The incomes of the top 400 American households soared to a new record high in dollars and as a share of all income in 2007, while the income tax rates they paid fell to a record low, newly disclosed tax data show.
In 2007 the top 400 taxpayers had an average income of $344.8 million, up 31 percent from their average $263.3 million income in 2006, according to figures in a report that the IRS posted to its Web site without announcement that were discovered February 16. (For the report, see Tax Analysts Doc 2010-3372 .)
The figures came at the peak of the last economic cycle and show that widely published reports in major newspapers asserting that the richest Americans are losing relative ground and "becoming poorer" are not supported by the official income data.
The long-term data show that under current tax and economic rules, the incomes of the top earners rise when the economy expands and contract during recessions, only to rise again. Their effective income tax rate fell to 16.62 percent, down more than half a percentage point from 17.17 percent in 2006, the new data show. That rate is lower than the typical effective income tax rate paid by Americans with incomes in the low six figures, which is what each taxpayer in the top group earned in the first three hours of 2007.
Taxpayers on the 95th to 99th steps on the income ladder paid an effective income tax rate of 17.52 percent, according to calculations by the Tax Foundation, a nonprofit research group that favors less taxation and lower rates. Taxpayers in this category earned between $255,000 and $451,000 in 2007, compared with an average daily income of almost $945,000 for the top 400, who paid lower effective tax rates on average
So of course, we've got to keep those Bush tax cuts in place! Because it's only this encouraging tax policy that makes Americans strive to earn more and more, hoping to enter the net 16% bracket! [\snark]
The President's economic report, issued two days ago, seems to be trying to have it both ways on this matter, at least as reported by the CSM: [my emphasis]
1. Deficit-financed Bush Administration policies are largely to blame. The Bush tax cuts (and AMT relief), the Medicare prescription drug benefit, and the wars were all deficit financed and account for about half of the long-run fiscal gap. (Too bad most of those policies and their deficit financing are continued under the Obama budget.)
2. The Obama Administration asserts it will stick to the President’s campaign promise of not raising taxes on households with incomes under $250,000. This is the policy prescription referred to as “restoring balance to the tax code”–the CEA writes that (emphasis added): “The President has consistently maintained that the tax cuts went too far in cutting taxes for people making more than $250,000 per year and that the country could not afford the tax breaks given to that group over the past eight years.”
3. Even with those high-income tax increases, taxes will still be very low. There are several pages (pp. 152-155) written just to convince us that although the Bush Administration went too far in cutting taxes and although the Clinton Administration’s tax rates weren’t too high, the Obama Administration’s taxes will still be very low–closer to Bush taxes than Clinton taxes.
The Mad Men season 3 first episode had a great scene in which Harry Crane said, paraphrasing (until I have a chance to go back and find the exact quote): it's not even worth taking a pay raise because you would enter a higher tax bracket and so much of it would go to taxes. The top marginal tax rate was, of course much higher at the time, but...