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Subject: Taxes... income share, tax share- and ... why so much heat? rss

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Mac Mcleod
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Here's a breakdown of income share and tax share by the heritage foundation.



Okay, so it looks like only the top 5% pay more of a share of the total national income than they earn. And really, it's only the top 1%.

Yet there is an incredible amount of heat and time on all news media ("liberal" and "conservative") arguing that the bottom 50% should pay their share (12% vs 2%).

However, if we allow any personal exemption (currently about $3400) then many people in the bottom 50% are not going to owe taxes or will have their taxes reduced tremendously. On the 1040ez, essentially, you owe no taxes if your income was under $10,000.

The average income for the bottom quintile is $11,490 dollars. A third of these people are 65 or older.

My point is to both put a human face on the low income people "who pay no taxes" and to highlight that we get a lot of heat over the tax issue which is probably via propaganda pushed by the media which is owned by the top 1%. I know I see pro wealthy propaganda on "liberal" networks like MSNBC and CNN and it's the major claim to fame for the "conservative" FOX network.

The actual tax RATE paid by the top 10% averages 20% - not 70%.

We are putting our country through a lot of chaos and one of our major parties is basically acting in the interests of this one group- favoring 1 to 10% of the country over the other 90-99% of the citizens.

I don't see taxing the poor or the elderly as reasonable or even practical or even safe in terms of civil unrest. If we had just a little wave of civil unrest, the costs of law enforcement would skyrocket.

Mainly- just counteracting some of the "talking" points put out by the wealthy with some facts.



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Rich Shipley
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Does this only include earned income?
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Damian
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The 10%-25% spike seems odd. It's like people who are wealthy enough to hit higher tax brackets but not wealthy enough to get the best tax shelters.
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Tom McVey
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It'd be more interesting to see what the breakdown is of taxation of wages/salaries versus unearned income on investments.
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Tom McVey
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damiangerous wrote:
The 10%-25% spike seems odd. It's like people who are wealthy enough to hit higher tax brackets but not wealthy enough to get the best tax shelters.


Probably getting over the cap on Social Security contributions is a big part of it.
 
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Christopher Seguin
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Interesting graphs.

Does the Heritage Foundation define the "earned this share of all income" category?

That is, does "earned this share of all income" include or exclude any of the following "non-earned" or "non-taxable" income items:

1.) non-taxable interest income
2.) dividend income (qualified and non-qualified)
3.) social security income
4.) alimony
5.) deductions to arrive at AGI

(that's just a small list of what could be included or excluded, as there are many things that might be used to arrive at what the Heritage Foundation considered "ALL INCOME").

You brought up an interesting point about "65+ aged individual account for 1/3rd of the botton quintile." Many of those people could possibly be receiving social security, which, depending on whether they have other income sources such as a pension or retirement plan, may actually receive $20,000+ in social security benefits of which none is taxable. If a septegenarian has a $15,000 pension and $20,000 in social security, that's $35,000 of tax-free income. Where would that put him in the brackets? I am sure there are probably many people out there whow would love to "earn" $35,000 per year and not pay a dime in income taxes (and probably won't pay any state taxes, at least not in Ohio).

The US Tax Code is kind of weird by itself - when taken out of context with fancy looking graphs and charts, you can kind of make it do whatever you want it to do, as long as it fits your agenda. Not saying that they (Heritage Foundation) have an agenda, but EVERYTHING can be potentially misleading when it comes to presenting it to the general public. Especially when they don't define "all income".
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Christopher Seguin
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tmcvey wrote:
damiangerous wrote:
The 10%-25% spike seems odd. It's like people who are wealthy enough to hit higher tax brackets but not wealthy enough to get the best tax shelters.


Probably getting over the cap on Social Security contributions is a big part of it.


Don't kid yourself - Social Security contributions are not "federal income taxes". They are "ponzi" taxes, as I like to call them.
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Isaac Citrom
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I'm not sure I understand the point being made here. Of course those at the lower end don't pay their "fair" share of taxes. They're not meant to. Isn't that exactly what progressive taxation is all about; not simply about paying one's fair share, rather about paying what one can afford to pay. Don't forget to include in the thinking, disposable or "affordable" expense. A hundred dollar expense is not the same to a $20,000 earner as it is to a $200,000 earner nor as it is to a $2,000,000 earner.

I'm not speaking to the moral rightness, economical correctness nor social choice of progressive taxation. I'm just pointing out that I always thought that progressive taxation was about those at the lower end not paying their proportionate share. So, what's the surprise, then?
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Mac Mcleod
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rshipley wrote:
Does this only include earned income?


This appears to include income from all sources including passive income and investment income.
 
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Mac Mcleod
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tmcvey wrote:
damiangerous wrote:
The 10%-25% spike seems odd. It's like people who are wealthy enough to hit higher tax brackets but not wealthy enough to get the best tax shelters.


Probably getting over the cap on Social Security contributions is a big part of it.


The graph is labeled "Federal income tax" so it should not include social security.

Social security drops out at $106,000 per year (last I heard). Most of the top 10% are paying a miniscule percentage of income in social security taxes. And the benefits they receive from social security will be a miniscule proportion of their income (unless they get madoff'd).
 
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Rich Shipley
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maxo-texas wrote:
tmcvey wrote:
damiangerous wrote:
The 10%-25% spike seems odd. It's like people who are wealthy enough to hit higher tax brackets but not wealthy enough to get the best tax shelters.


Probably getting over the cap on Social Security contributions is a big part of it.


The graph is labeled "Federal income tax" so it should not include social security.


Then I'm not sure it would include capital gains either. Since this is from Heritage, I assume it paints the picture they want it to.
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Mac Mcleod
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chrisnd wrote:
Interesting graphs.

Does the Heritage Foundation define the "earned this share of all income" category?

That is, does "earned this share of all income" include or exclude any of the following "non-earned" or "non-taxable" income items:

1.) non-taxable interest income
2.) dividend income (qualified and non-qualified)
3.) social security income
4.) alimony
5.) deductions to arrive at AGI

(that's just a small list of what could be included or excluded, as there are many things that might be used to arrive at what the Heritage Foundation considered "ALL INCOME").

You brought up an interesting point about "65+ aged individual account for 1/3rd of the botton quintile." Many of those people could possibly be receiving social security, which, depending on whether they have other income sources such as a pension or retirement plan, may actually receive $20,000+ in social security benefits of which none is taxable. If a septegenarian has a $15,000 pension and $20,000 in social security, that's $35,000 of tax-free income. Where would that put him in the brackets? I am sure there are probably many people out there whow would love to "earn" $35,000 per year and not pay a dime in income taxes (and probably won't pay any state taxes, at least not in Ohio).

The US Tax Code is kind of weird by itself - when taken out of context with fancy looking graphs and charts, you can kind of make it do whatever you want it to do, as long as it fits your agenda. Not saying that they (Heritage Foundation) have an agenda, but EVERYTHING can be potentially misleading when it comes to presenting it to the general public. Especially when they don't define "all income".


It looks to me like these are in it
1.) non-taxable interest income
2.) dividend income (qualified and non-qualified)
3.) social security income (or else you'd have a lot of seniors with 0 income in the lowest quintile)

This would be a rounding error at any level and seems like non-sequitur.
4.) alimony

Could you clarify this? And basically, I'm not sure.
5.) deductions to arrive at AGI

---

It's possible the heritage foundation is using a squirrelly definition for "all income" but I don't think so. I grant a conservative bias to them, of course, but they seem pretty straight to me within that context. They have a pro-wealthy bias and potentially a pro-korean bias.

The original article is here:
http://www.heritage.org/federalbudget/top10-percent-income-e...

I'll see if I can find a validation for these numbers.
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Mac Mcleod
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rshipley wrote:
maxo-texas wrote:
tmcvey wrote:
damiangerous wrote:
The 10%-25% spike seems odd. It's like people who are wealthy enough to hit higher tax brackets but not wealthy enough to get the best tax shelters.


Probably getting over the cap on Social Security contributions is a big part of it.


The graph is labeled "Federal income tax" so it should not include social security.


Then I'm not sure it would include capital gains either. Since this is from Heritage, I assume it paints the picture they want it to.


Even given their bias, wouldn't capital gains be income in the year they are realized?

I'm sure unrealized capital gains are not in the totals- is that what you meant?


Interesting..

http://www.forbes.com/sites/robertlenzner/2011/11/20/the-top...

So essentially, most of the reason our capital gains laws are the way they are is probably to benefit .01% of the citizens (at the expense of the other 99.99% of the citizens).
 
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Rich Shipley
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maxo-texas wrote:
rshipley wrote:
maxo-texas wrote:
tmcvey wrote:
damiangerous wrote:
The 10%-25% spike seems odd. It's like people who are wealthy enough to hit higher tax brackets but not wealthy enough to get the best tax shelters.


Probably getting over the cap on Social Security contributions is a big part of it.


The graph is labeled "Federal income tax" so it should not include social security.


Then I'm not sure it would include capital gains either. Since this is from Heritage, I assume it paints the picture they want it to.


Even given their bias, wouldn't capital gains be income in the year they are realized?


It depends on the definition being used. I assume they would us the one that paints the picture they want to.

Quote:
I'm sure unrealized capital gains are not in the totals- is that what you meant?

Interesting..

http://www.forbes.com/sites/robertlenzner/2011/11/20/the-top...

So essentially, most of the reason our capital gains laws are the way they are is probably to benefit .01% of the citizens (at the expense of the other 99.99% of the citizens).


Pretty much. And then they use Heritage to put out misleading charts that hide this fact.
 
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Les Marshall
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The utility of this graph is made even more suspect when you consider the disparate impact of non federal taxes. State and local taxes against sales (fuel/goods/services) and property take a sizable chunk out of low wage income. At the lowest income level, folks tend to have little or no disposable income for savings or investment.
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Mac Mcleod
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Koldfoot wrote:
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If only the debate was framed as the gov't spend too damn much money, where should we cut. But no, the debate has devolved into class warfare over who pays what. No dis intended to the op, it's just that he is falling into a trap that obscures the meaningful debate, and intentionally puts people at odds when there is really a lot of common ground when it comes to gov't budgets.


I think I'm one of the few people here who is for the sequestration.

I think we have a lot more slack in the military budget than most fiscal conservatives. But once that is cut, I can see cutting social safety net budgets. But... I'd do it by means testing- so once again that puts me at odds with any wealthy fiscal conservatives.

I can't see cutting a person's income from $11,000 to $10,000 and another person's income from $71,000 to $70,000 as fair. Sure the second person has two pensions and $20,000 a year from investments and the 401k. But the person living on $11,000 is probably ALREADY eating dog food and living a miserable life.


AND, I do think spending is too high BUT... taxes are too low. Just rolling back the bush tax cuts would only cut about 1/3 of the deficit. So let's do that and match it with a 1/6 cut in defense and a 1/6 cut in benefits.

---

I'm well aware of the average 11%-12% state and local taxes (from "Who pays Taxes: A distributional analysis.pdf") paid by the poor and the .03% paid by the top 1% (and about 3-4% for the top 2-5% bracket).

But there are so many moving parts, you miss the fact right up front that it's just not possible to tax the bottom 50% high enough to cover the full 12% because it would leave them starving to death and prone to civil unrest. I wanted to focus this post on that fact. So I set aside the state tax argument.

Also- if so few are effected- why does it get so much media attention? Propaganda by the wealthiest. They can literally afford to spend several million dollars per year to save even 1% on their taxes. They'll still come out with more money in their pocket. Why do poor conservatives give up control of their party- slit their own throats (esp the middle class conservatives who are getting reamed by the wealthy conservatives)- when it benefits this group of wealthy individuals? Constant repetition on Rush and Hannity and Fox news and by the conservative institutes set up to create studies is certainly a primary reason.

I haven't heard ANYONE say "flat tax with no deductions for everyone". If you are saying that, then you are saying you are willing to seriously hurt (and probably even kill some of) 20-30% of the nations citizens to avoid a minor inconvenience of higher taxes to the top 5%.
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Ken
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rshipley wrote:
Does this only include earned income?


This. I'll lay odds that this is W-2 income and not stock options, capital gains, interest income, etc.

Defining income in these types of studies is a really big deal. My "income" on a W-2 basis is a much larger percentage of total income than it would be for Bill Gates (well, when he was working), Warren Buffet, John Chambers, etc.
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Ken
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I can't find the study text, but a search for "heritage foundation tax study" turned up this: http://www.heritage.org/federalbudget/top10-percent-income-e...

If that's the same study (and the graphic that they use for the thumbnail is the same as the one Mac used), then this isn't "all income." It's Adjusted Gross Income. Which means that it only includes realized capital gains, for example.

I'll keep poking for the text, but AGI isn't the best measure around. It will tend to inflate W-2 earnings at the low end and deflate non-W-2 at the high.
 
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damiangerous wrote:
The 10%-25% spike seems odd. It's like people who are wealthy enough to hit higher tax brackets but not wealthy enough to get the best tax shelters.


I think it might have more to do with the structure of earned income. If it's all coming from wages and only some investments then they pay a higher proportional tax rate than you would on dividends and capital gains, which are by far and away the main drivers of the top 1%.
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Mac Mcleod
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perfalbion wrote:
rshipley wrote:
Does this only include earned income?


This. I'll lay odds that this is W-2 income and not stock options, capital gains, interest income, etc.

Defining income in these types of studies is a really big deal. My "income" on a W-2 basis is a much larger percentage of total income than it would be for Bill Gates (well, when he was working), Warren Buffet, John Chambers, etc.


I don't think their salary income would comprise 19% of the total income of the united states.

And their tax rate would be higher if it was all w2 income. Their tax rate is 20.46%. For example, some of the wealthiest people may have no salary or only a few hundred thousand in salary.

I think it's total income just as the heritage foundation says. Probably not unrealized capital gains-- but you know unrealized capital gains can vanish without much warning.

If I bought apple stock at $400, I had $300 unrealized capital gains when it was at $700 and $100 unrealized losses when it was $300.

 
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J
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isaacc wrote:

I'm not sure I understand the point being made here. Of course those at the lower end don't pay their "fair" share of taxes. They're not meant to. Isn't that exactly what progressive taxation is all about; not simply about paying one's fair share, rather about paying what one can afford to pay. Don't forget to include in the thinking, disposable or "affordable" expense. A hundred dollar expense is not the same to a $20,000 earner as it is to a $200,000 earner nor as it is to a $2,000,000 earner.

I'm not speaking to the moral rightness, economical correctness nor social choice of progressive taxation. I'm just pointing out that I always thought that progressive taxation was about those at the lower end not paying their proportionate share. So, what's the surprise, then?
.

You're exactly right, but this isn't the way it is usually justified. It is better politically to justify it by pretending that the rich aren't paying their fair share. I support progressive taxation for the reasons you point out but I reject the false narrative typically offered as justification for it.
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tmcvey wrote:
damiangerous wrote:
The 10%-25% spike seems odd. It's like people who are wealthy enough to hit higher tax brackets but not wealthy enough to get the best tax shelters.


Probably getting over the cap on Social Security contributions is a big part of it.

CaffeineBot wrote:

I think it might have more to do with the structure of earned income. If it's all coming from wages and only some investments then they pay a higher proportional tax rate than you would on dividends and capital gains, which are by far and away the main drivers of the top 1%.

I believe you're all over-thinking this.

There is a spike in that range because it includes a larger percentage of the population. This is not income per person/household in the range, rather it's total income for everyone in the range if I understand it correctly. The 10-25% category is more people than the top three categories combined. I would expect to see a higher value.
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jarredscott78 wrote:
tmcvey wrote:
damiangerous wrote:
The 10%-25% spike seems odd. It's like people who are wealthy enough to hit higher tax brackets but not wealthy enough to get the best tax shelters.


Probably getting over the cap on Social Security contributions is a big part of it.

CaffeineBot wrote:

I think it might have more to do with the structure of earned income. If it's all coming from wages and only some investments then they pay a higher proportional tax rate than you would on dividends and capital gains, which are by far and away the main drivers of the top 1%.

I believe you're all over-thinking this.

There is a spike in that range because it includes a larger percentage of the population. This is not income per person/household in the range, rather it's total income for everyone in the range if I understand it correctly. The 10-25% category is more people than the top three categories combined. I would expect to see a higher value.


The heritage graph indicates that the top 10% earns 45% of the total income and pays 71% of the total federal income tax.

The bottom 90% earns 55% of the total income and pays 29% of the total federal income tax.

The bottom 50% earns 12% of the total income and pays 2% of the total federal income tax.

If you ignore the bottom 50%-- because they basically can't afford to pay much federal income tax (half of them earn an average of $11,400 a year)-- then you are left with.. The top 10% earns 45% of the income and the 65% below them earns 43% of the income and pays 27% of the federal income tax.

If you ignore the fact that state taxes and social security taxes take a huge proportion of their income (close to 20%) then, it would be "fair" for them to pay about half of the income tax and the top 10% to pay about half of the income tax. But again- if you give every a standard deduction (and another deduction for kids), you are going to lower that 65%'s taxes enormously with a fixed deduction.

Regardless of deductions, you are looking at increasing taxes on 65% of the voters significantly or really gutting government by close to 33%.

With the howls over a quasi but not really 10% sequestration cut, there is no way a cut of 33% is going to fly. I don't see you raising taxes significantly on 65% of the voters-- god-- I remember the moaning and groaning over restoring the 2% social security tax.


 
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Les Marshall
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Koldfoot wrote:
shake

If only the debate was framed as the gov't spend too damn much money, where should we cut. But no, the debate has devolved into class warfare over who pays what. No dis intended to the op, it's just that he is falling into a trap that obscures the meaningful debate, and intentionally puts people at odds when there is really a lot of common ground when it comes to gov't budgets.


Excellent point. Too much reductionism and dichotomous rhetoric. Government needs more efficient spending AND tax reform. Unfortunately the skill set for a tax technocrat who could trim the sails well isn't very sexy among voters.
 
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Rich Shipley
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Rulesjd wrote:
Koldfoot wrote:
shake

If only the debate was framed as the gov't spend too damn much money, where should we cut. But no, the debate has devolved into class warfare over who pays what. No dis intended to the op, it's just that he is falling into a trap that obscures the meaningful debate, and intentionally puts people at odds when there is really a lot of common ground when it comes to gov't budgets.


Excellent point. Too much reductionism and dichotomous rhetoric. Government needs more efficient spending AND tax reform. Unfortunately the skill set for a tax technocrat who could trim the sails well isn't very sexy among voters.


The closest we've had lately was probably Al Gore.
 
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