Comments on: How progressive are our taxes? Follow-up

By: benamery21

benamery21 — Wed, 14 Jan 2009 04:56:27 +0000

Publius: Why does this seem fair analysis when considering the imputed value of Medicare and cash value of employer contributions to healthcare but not, for instance, the value of natural resources harvested from public lands by the licensed or the reduction in property losses by the propertied from natural disasters due to public services or the reduction in losses from bank failure by the monied due to gov’t intervention? I understand that the analysis is difficult, but there is a presumption here that only those receiving transfer payments are receiving value from the spending of their government. This is demonstrably untrue.

By: benamery21

benamery21 — Wed, 14 Jan 2009 04:47:37 +0000

Yes, the definition of “income” in the CBO report includes a great many things that aren’t normally considered income — such as employer contributions to healthcare plans and both employee/er contributions and retiree withdrawals from tax-deferred savings plans and “imputed taxes” that is, taxes paid by others that would fall on individuals if they didn’t fall on others (the simplest example is employer FICA contributions). This definition is actually substantially broader than typical measures of “total compensation.”

By: Sven Brendel

Sven Brendel — Sun, 11 Jan 2009 03:45:28 +0000

Norman,

“Social Security taxes should be progressive not regressive because there is no LOCK BOX.”

I couldn’t agree more. I hope Obama follows through on his promise to apply to payroll tax to incomes in excess of $150k. That would at least be a step in the right direction.

By: Norman

Norman — Fri, 09 Jan 2009 21:04:20 +0000

1) It matters not how we get progressivity, taxes on income or with transfers included, we have progressivity.

2) These gross tax rates leave an important economic incentive aspect of taxes to still be known: the marginal tax rate. SocSec taxes of 12.4% stop at $106,800 so income earners past this point get a reduction from this but then the income tax rate goes up. It means that the lower income people are not properly incentivized to work as too much of their income is taxed away. Social Security taxes should be progressive not regressive because there is no LOCK BOX.

By: Publius

Publius — Fri, 09 Jan 2009 12:43:52 +0000

Fred,

Figuring for cash flow seems to be fundamentally different than judging the progressiveness of tax rates, but maybe I’m wrong.

I’ll go back to my final example, would that mean you think the most revealing analysis should show Familes A and B to pay the same?

By: Sven Brendel

Sven Brendel — Thu, 08 Jan 2009 21:00:20 +0000

Well, the top tax rate does a little to redistribute. The share of household income held by the top 1% before taxes is ca. 20%, and 15% after taxes. But yes, most redistribution occurs through the welfare state. Which is why I’m hope Obama comes through in his promises to increase the EITC.

By: Fred Thompson

Fred Thompson — Thu, 08 Jan 2009 20:39:52 +0000

This is common practice in fiscal analysis. Willem Buiter, for example, expresses the solvency constraint of a jurisdiction subject to the “no-Ponzi game” condition as: PV of exhaustive spending ≤ {(assets – debts) + PV (taxes – transfers)}, where PV denotes the present value of a cash flow.

By: Publius

Publius — Thu, 08 Jan 2009 18:43:37 +0000

Lane, Thanks for rerunning the data. I like having both sets of numbers here.

I do have a question about the first chart — it just seems very funny to me that the most representative depiction of the relative tax burden of Americans would have the 2nd poorest quintile paying more than the lowest quintile.

I suppose what chart is most telling depends on what question we are trying to answer:

Do we care about the tax burden/outtake of the individual relative to his financial standing/intake (e.g., all incomes, including transfers)?

Or, do we care about the tax burden of the individual relative to his intake from wages and investment income particularly?

I understand that Lane prefers the the latter because it preserves the purity of the tax rate assessment, but this rings a little hollow for me. The fact that some income is guaranteed and tax free (gov’t transfers) doesn’t seem enough to merit exclusion from the denominator. To me, this appears to be systematically excluding a type of income that deliberately augments a group’s income without forcing them to pay taxes on it.

So, once again, do we care about the relative tax burden on dollar EARNED or dollar ACCUMULATED?

Put specifically, if Family A makes $10, gets $5 dollars in government transfers, and pays $2 in taxes, should we say that his effective rate is lower or higher than Family B, which makes $12, gets $0 in transfers, and pays $2.40 in taxes.

They pay the same 20% effective tax rate given Lane’s preferred model. In the second model, the first family pays 13%.

The second characterization seems more fair to me, but I’m open to persuasion.

By: Elwood Anderson

Elwood Anderson — Thu, 08 Jan 2009 17:16:41 +0000

Who needs a flat tax? We’ve already got one!