Tax Day
Posted by
tgirsch
Today is tax day, and that means that we’re bound to be “treated” to all sorts of anti-tax libertarian blog posts today about how horrible it is that the government rapes us, steals our money at gunpoint, takes “half” our money, etc., etc., whine whine whine, bitch bitch bitch. Now the part that these taxophobes don’t ever want to talk about is that while everyone hates paying taxes, people generally like most of the things that taxes pay for (unpopular wars aside). But I’ll let someone else write about that aspect. What I want to talk about, instead, is how horribly the anti-tax crowd exaggerates how much we’re actually taxed.
To counter that, without revealing too many personal details, I’m going to post a summary of my tax situation, and challenge the anti-tax folks to do the same. No specific numbers, just the generalities that I’m listing here.
To that end, for the tax year 2007: (Below the fold)
- We filed as “married filing jointly”
- We claimed 2 exemptions (no children)
- Our combined household income from all sources puts us in the top 25% of household incomes nationwide
- Almost all of our income for the year — taxable or otherwise — came from our salaries; capital gains were negligible
- We own a home
- We did not itemize our deductions — we took only the standard deduction
- We took a small HOPE & Learning credit
- Our only other tax benefits: pre-tax health insurance; a very small pre-tax flexible health spending account; and 401(k) contributions for the year of roughly 10% of pre-tax income
With that information in mind, the question becomes: how much was our effective rate of federal income taxation? Adding up gross income from all sources (not AGI, which isn’t really gross income, and not taxable income, but ALL income from ALL sources), and comparing against the total tax we paid in 2007, our effective rate of taxation clocks in at right about 12%. Nowhere close to the 35-50¢ on the dollar type rates that the anti-tax pinheads like to bleat on and on about.
Of course, that’s just income tax. Let’s humor the anti-tax folks and try to paint the most pessimistic tax picture possible. Factor in FICA taxes (for Social Security and Medicare), that still only puts the effective rate at under 20%. So add in the employer-paid portion of FICA (which libertarians like to do when it suits them, but ignore when they’re complaining about low-income people who “pay no taxes”), and we’re still only up to 27%. Add property taxes, and you’re up to a little less than 29% — getting closer, but still not good enough. Now let’s assume, just for giggles, that we spent every penny of our after-taxes-and-deductions income inside the City of Memphis, and paid 9.75% sales tax on all those purchases. Even with all that, we barely manage to make it to 35% of our total income paid for taxes of all kinds paid to all levels of government — city, county, state, and federal.
So to recap, my real-world example is a top-25% household income with almost no tax-avoidance strategy whatsoever, with an effective federal income tax rate of a scant 12%. Factor in all taxes paid to all sources, both by us, and by our employers on our behalf, and grossly overestimate things like sales taxes paid, and you’re still barely hitting 35%. The more realistic figure — with less-aggressive estimates of sales tax paid, and not including the employer-paid portions of FICA — works out to around 26%. Still a lot of money? Sure it is. But hardly the oppressive burden the taxophobes make it out to be.
So, this tax day, if you’re a libertarian or other anti-tax type wanting to bitch about how horrible taxes are, go right ahead. But if you’re going to do it, why not sprout a pair, and disclose what your effective rate of taxation is when you do it? I expect that most won’t, because most of them take much more advantage of various tax avoidance strategies; I further expect that many of them will have a lower effective rate of taxation despite having higher incomes.
For what it’s worth (not much), the last time I did this calculation, I paid something more like 16%, real gross, in federal income tax, not 12%, and at that time my federal and state (NY) taxes came out to 29% of gross. This year, I paid almont 20% on federal income tax, but haven’t run the full numbers. I think you’re missing the fact that singles pay more than couples, often. Using your generous accounting here, I’d probably end up paying something like 40-45% of my gross income in all forms of tax, but that’s a guess.
Comment 4/16/2008
I’d be interested to see the calculation (not in a public forum, of course). When making it, a lot of people use the numbers from Box 1 of their W2 to reckon income, and that’s not really gross income, because it doesn’t include pre-tax income like 401(k) deductions, medical insurance premiums, etc. It can be pretty substantial. It also wouldn’t surprise me if the net percentage wound up being higher for those with lower incomes, those who are single, etc.
Comment 4/16/2008
Medical insurance premiums are not directly tax deductable.
The highest marginal tax rate (federal) is 35%. When in that bracket, payroll deductions from gross income can quickly become a negligable percentage of gross.
Assuming you and your spouse earn the same amount, the federal tax rates for single and married are identical.
Comment 4/16/2008
Hm… I happen to know a teenager’s numbers. Despite an AGI of ~11,000, no benefits, a boatload of various deductions (which weren’t worth filling out). That’s only ~8% Federal before refund, and ~7% Federal afterward, but between that, sales tax, both sides of social security, Medicare, special taxes (gas, ammo), state taxes, and local sales taxes (including internet sales purchased from elsewhere, thank you Ohio), it ends up being pretty damned high.
That’s avoiding places like Xenia, Ohio, and its extra (and, given Xenia’s ethnic makeup, racist) income tax. It really doesn’t do wonders even at that low rate.
Hispanic kid, smokes pipe tobacco, family history of cancer and a few other fun diseases. Yeah, he’ll see a lot of benefit from Social Security, playing the odds.
He’s a dependent, and going to school, but it’s still a remarkably perverse set of incentives when he’d be better off economically to avoid working or reduce hours, between taxes and the cost of gasoline, than to continue as things go.
For mine? A newcomer to the network administration market can pretty reliably get somewhere around 60,000 USD/year in total pre-tax income, and just taking those taxes ends up with a ~11,400 USD or 19% tax to start with — add in the other costs and it gets painfully close to 40%. Again, speaking of a newcomer, you’re not going to see anyone married, with dependents, with a lot of donated goods, or any particularly amazing deductions. I’ve got a good few, the biggest under work stuff I was never paid back for, but I’d still be hard pressed to get it under 16% without committing some pretty nasty tax fraud.
I’m not opposed to Iraq or Afghanistan, nor has he stated opposition, but I can sure as hell think of a good number of ‘public services’ that can go straight to hell. 760 United Nations Plaza, New York City, would be a good starter, as would any involving the Senator Larry Byrd Memorial Toilet Seat. And while Medicare and Social Security have some half-decent ideas behind them, they’re also implemented in some horribly screwed up ways, Medicare especially.
I’m conservative, but not one of the nuts that thinks I’d be dropping even a full 10% out. That said, even a few decimal points of a percent couldn’t hurt, and could be pretty easily taken.
And let’s not get started on folk running their own business or otherwise self-employed.
Comment 4/16/2008
Ted:
Depends where you get your medical insurance. If you get it through your employer, odds are the premiums are being taken out pre-tax, meaning that the income you used to buy your insurance doesn’t even count toward your reported gross income. Ditto for 401(k) deductions. From that perspective, it’s actually even more beneficial than a tax deduction.
gattsuru:
I used to own an S-corp, so I’m pretty familiar with the tax structures that come into play there. In that case, they’re even more beneficial, because while you’re paying both the employer and employee portion of FICA, you can pay yourself a relatively small salary and thus avoid FICA taxes for a large portion of your actual income (most of your money comes in the form of “dividends”). Now if you’re a sole proprietor, then you’re pretty much screwed on the self-employment tax, yes.
As to the entry-level network admin, I dispute your figures. With a $60,000 pre-tax income and JUST taking the standard deduction ($5,350) plus one exemption for self ($3,400), that leaves a taxable income of $51,250; for a single filer, the federal income tax owed on that income is $9,243, or 15.7%. And that’s the worst case for that income. If that same taxpayer has pre-tax health benefits, 401(k) contributions, student loan interest deductions (which don’t require itemizing), etc., that effective rate of taxation gets lower.
My larger point was that for most taxpayers, federal income tax rates are actually remarkably low, all things considered. The other taxes do start to add up, but people often have an unrealistically high idea of what they pay in income tax.
Comment 4/17/2008
If you’re going into the network administration field at that price range with significant student loans, you screwed up big time somewhere along the line, or weren’t able to work while at college. Likewise, my estimate of 60k included all ‘income’, whether that be in the form of a government job at 50k with great health and benefits or a 60k job without any.
Sorry for getting the standard deductions off by a bit, but I think my point stands after 0.3%, or even 1%.
If 12% to 15.7% of your income is actually remarkably low, all things considered, I’d hate to see your definition of high.
I really, really don’t see that as being a common argument. There are a few random crazed jackasses complaining about just the income tax, but I doubt the average libertarian would find these taxes more preferable if they were simply split up into 1% chunks and given a few dozen different names.
Comment 4/17/2008
If 12% to 15.7% of your income is actually remarkably low, all things considered, I’d hate to see your definition of high.
Look at any other westernized nation outside of the United States, and get back to me. Our rate of taxation is quite low, comparatively speaking.
but I doubt the average libertarian would find these taxes more preferable if they were simply split up into 1% chunks and given a few dozen different names.
I’m not so sure. Libertarians are all about “use taxes,” remember? When they piss and moan about “taxes,” they’re speaking almost exclusively about income taxes. Things like sales tax and the gas tax and tolls and so forth are the things they say we should be doing.
Comment 4/17/2008
Well, if we’re just talking income tax, I could look at Malta, Ireland, Australia, New Zealand and get similar average income tax numbers.
But I get your general gist, given that a few of the above places tend to hide higher total taxes and that socialist meccas like Germany bounce around. I’m still missing your general point, though. When it comes to lost nuclear material, we’re doing much, much better than Russia. That still doesn’t make total number of nuclear fuses going to the wrong location low on an objective scale, only a subjective one.
I’m not a libertarian, and I don’t even play one on TV, but that seems pretty dramatically opposed to the folk claiming libertarian status that I encounter. A google search on libertarian AND “use taxes” didn’t show up anyone particularly well-spoken on the matter, or dedicated to the causes for reasons of fairness or particular rightness.
There’s a lot of support for FairTax-like stuff, but that’s more due to the decreased cost and complexity of such system as compared to the current IRS nightmare, and demonstrating exactly what the typical price of the damned thing really is (along with getting the 16th amendment nutcases to shut the fudge up). I guess you could call that better from a getting 16th amendment nutcases to shut up viewpoint, but that’s not a necessary result of splitting up taxes into smaller chunks but instead falling back to a focus on excise taxes.
Still, looking through instapundit, geekwitha45, saysuncle, or the Reason folks, they’re more interested in Tax Freedom Day coming earlier.
Comment 4/17/2008
The “fair tax” actually doesn’t show the true cost of the thing, because if it did, it would be higher, but also would get even less support than it currently has. For starters, they list the percentage in a misleading way, making the tax seem lower than it is. For another thing, the tax is too low to really be “revenue neutral.”
As for the Reason folks and their ilk, they’re the worst. They care only about lowering taxes — they don’t give even two squirts of piss about whether or not their numbers even add up. In fact, many of them are specifically aiming for a bankrupt government and financial collapse, because they view that as being the only way they’re ever going to kill off popular government programs that they don’t like. They know they can’t do the democratic thing and convince others to join the cause and get rid of them. So they instead feed us supply-side bullshit, pretend we can have our cake and eat it, too, and watch the debt grow at unsustainable rates. If I sound bitter about these assholes, it’s because I am.
But again, you’re making my point a lot more complicated than it’s intended to be. The point is simply that (using a generalized “you”) you don’t pay as much income tax as you think you do. For someone with the median income, and a worst-case tax situation (standard deductions only, absolutely no pre-tax income, and absolutely no non-payroll income) has federal “tax freedom day” coming in the second week of March.
(Another tax-related point that I often try to make is that getting rid of the programs [generalized] you are willing to get rid of doesn’t save nearly as much as you think it does. But that’s for another day.)
Comment 4/17/2008
Not to defend the drug-crazed pr0n pau1 fanatics at Reason, but I think you’re assuming motivations a bit more crude that are realistic.
Beyond that, I still don’t see a libertarian call for use or excise taxes on anything near the same scale that I see a call for reduced total taxes, really wasteful spending, and
And I don’t think that’s really accurate a statement. I used TurboTax, so they print out a pretty good statement of precisely what amounts are going into each slot, and most other tax preparation stuff tends to do so, as well. The very reason this sorta conversation always gets brought up on April 15th isn’t because it’s easier to mislead people about what amount of percentage of their income went into income taxes, but because the general feeling of butthurt tends to be a bit more omnipresent that particular day (although ‘first paycheck’ is another fun one).
Er… I don’t follow your math. Correct me if any of the following around wrong, but I get 15.7% of 365 is 58 days, Employee FICA is supposed to be something on the order of 6.2% (or 22.6 days) for SSI and 1.45% (or 5.3 days) for Medicare. That’s March 25th, and it ignores other side of the FICA. Including those brings you pretty far into April, although I can understand if you wanted to leave those out for data sanctity issues.
Well, it doesn’t really have to be that much to have a non-trivial effect, and I think you’re pretty heavily understating how big of a difference it could make. Just the soft earmark cuts over the last few years probably took out a good 20 billion USD worth of governmental spending. Actually aiming for government waste or stupid provisions can get further along. That’s not much, in the 4.4 trillion USD scale of things, but it’s still a good part of a percentage point.
Comment 4/17/2008
Crap, missed the ‘median income’ part of the calendar stuff. In that case, your numbers are correct, but I have to dispute the utility.
Comment 4/17/2008
Without identifying what the median income is, how can you guys compute such precise results? The standard deduction is fixed, so its percentage of income will vary depending on what income level you are choosing.
Also, while the marginal rate is fixed within each bracket, the actual rate is not given the contribution of the tax from the lower brackets (the “fixed” part of the equation) will vary as a percentage of the total.
(Forgive me if a median income level was previously established in this thread and I missed it.)
Comment 4/17/2008
Ted:
I didn’t explicitly list median household income, but it’s around $50,000 — I didn’t have 2007 figures so I did a generous extrapolation from the 2006 figure, which was around $48,000.
I plan on doing a follow-up post where I list four or five hypothetical taxpayers and just how much they pay.
gattsuru:
We seem to be working from a different definition of non-trivial. If you eliminated all earmarks from the 2008 federal budget, 0.6% of the federal budget. To put it into perspective, it’s just a fraction over 58¢ per hundred dollars of taxable income. For the aforementioned median-income taxpayer, that comes to a little more than $61.40 for the year. And again, that assumes that every penny of earmark spending is unjustified and gets eliminated. Maybe $1.18 per week isn’t exactly “trivial,” but it’s pretty damn small, in the grand scheme of things.
Let me be clear on this, though: I’m not trying to defend wasteful spending, not even remotely. It’s just that when “taxpayer advocates” go after waste, they tend to obsess about the little fish (like earmarks) while completely ignoring the big fish (like excessive military spending, inefficiencies and corporate protectionism in Medicare, etc.). If you want to meaningfully cut spending, you don’t start with earmarks. That’s swatting at gnats.
Comment 4/17/2008
Note that earmarks are not incermental budget items. They are specifications of how already budgeted money is to be spent. I think I’m right on that one…
Comment 4/17/2008
Ted:
It’s not quite that simple.
Comment 4/17/2008
OK, so the add-on earmarks increase the budget; the other two classifications do not. My point being earmarks have even less impact on the amount of government spending than your comment implied.
Which is not to say they are not often used for pork…
Comment 4/17/2008
Ted, the census released information on the median income a good while ago. Wiki has a good breakdown, and the numbers are more than close enough to tgirsch’s assessment to be accurate. I’m not a particular fan of median income as a metric, for a wide variety of reasons, but I can’t dispute it on a matter of actual fact, only utility.
A good number of earmarks are technically revolving around the distribution of previously approved funds, but just as many or many more go through secondary methods.
It’s also a politically viable way to swat at gnats that need to be swatted, and one that demonstrates rather aptly how little removing those taxes negatively effects very few people.
I bring it up because it’s an easy one to get people to agree on, and a good starting point. Other aspects do need to actually be debated, considered, and contemplated, obviously, but demonstrating that a good portion of earmarks are waste reveals that a portion of other things might well be.
Comment 4/17/2008
gatt:
What would you suggest as a more useful metric, as opposed to median income? Surely not mean income! As I mentioned to Ted earlier, I’m pondering doing another post where I use a hypothetical income from each of the five quintiles, but I don’t know that it would be that much more useful, other than for the purpose of pointing out that the effective rate of federal taxation is a lot closer to flat than one might otherwise think.
Comment 4/17/2008
Mean income is a horrible metric, I’ll admit. It’s horribly polluted by the rare superrich. But median income has a similar related issue; it’s counting the ~16% that make less than full time minimum wage, and they’re not really useful in a discussion on the income tax. They’re not exactly making up a large amount of income compared to the GDP in the first place, and most people wouldn’t even think about them from a tax viewpoint. I should not need to explain to adults exactly how easy it is to pick up a minimum wage full time job in today’s market.
Sticking to just people who have income at or over a minimum wage full time job, we see the median income pop upward over 7,000 USD. Even with that adjusted number, we’re holding a lot people that should only pay a pittance in income taxes. I don’t think they’re likely to seen as the average or general You for this particular discussion.
I’m not sure there is a good metric. The ones that are actually relevant, like you or my or the ’staff’ of Saysuncle’s returns, have a bit of a data sanctity issue. Past that point, we’re looking at overall numbers that don’t really reasonably mimic the viewpoint of libertarians or their followers or even normal viewers of this site, outside of the most fantastically hypocritical ones.
Er, good luck with that, but short of assuming a hell of a lot of deductions or capital gains for the higher quintiles, what fooling around I’ve done with the numbers really suggests otherwise. The Levy Economics Institute, far from an opponent of the current tax structure, accidentally pointed out that the top 10.1% to 49.99% income group paid 29% of federal income taxes, while the bottom half paid a whole 3.3%. That’s a 8.78 times more taxes paid with 80% of the people.
Given that 10.1% richest hits just at low-to-mid 60,000USD range, and that the personal exemption + standard deduction to move any non-dependent under 9,000USD into the near-0 income tax range, I think it’s evident that it’s nowhere near flat.
Those numbers came from a Levy research trying to associate income taxes with general wealth (since the Tax Foundation already demonstrated how progressive they were on the matter of income a long time before), so I think the values are pretty well-known.
It’s not the 10% - 35% of income gradient, and no one with a functioning knowledge of the system would claim otherwise. There are some regressive taxes out there (FICA, for example, and some types of property taxes), although strangely enough Libertarians tend to get kinda irritated about them too.
But income as a whole is a fairly progressive tax, and the more regressive nature of FICA doesn’t kick in until the top 5% range. That’s not a bad thing on its own; while I personally opposed the pre-Reagan 70% level of progressiveness, I don’t personally see anything inherently wrong about a progressive tax.
Comment 4/18/2008
That’s sort of why I used median income. It does a much better job of canceling out the top and bottom ends of the spectrum than mean would, and is a good starting point for discussion. In any case, I think things cancel out better than you might think. If you ignore the bottom quintile, you’re ignoring the sub-full-time-minimum-wage group you object to. And if you ignore the top quintile, you’re only effectively ignoring the six-figure-salary types. So median income still falls smack in the middle of the third quintile, and quintiles 2-4 effectively make up what we generally call “the middle class.”
The Levy Economics Institute, far from an opponent of the current tax structure, accidentally pointed out that the top 10.1% to 49.99% income group paid 29% of federal income taxes, while the bottom half paid a whole 3.3%.
Even if I’m reading that correctly (and I’m not entirely sure that I am) it’s still a useless statistic without also knowing what percentage of the total income those two groups have. Nonetheless, it wouldn’t surprise me to learn that the middle class pays a higher share than anyone else, since pretty much every tax cut from Reagan on has been focused at the high and low ends of the spectrum. That shifts a larger share of the tax burden onto the middle class. I suspect if you were to plot it out, the effective rate of income tax gradually gets progressively larger as you work your way through the middle class, but then starts to go down again when you get into the upper class, where less income (as a share) comes from salary and more from things like investments and capital gains.
One more note: the regressive nature of FICA kicks in to benefit the top quintile, and even for some at the top of the second quintile.
Comment 4/18/2008
The regressive nature of FICA should only kick in above the 102,000USD of income or higher, if I remember correctly. Only 5.63% of individuals have incomes that high. It shouldn’t affect a good portion of the top quintile, nevermind the second quintile.
The problem is that you’re ignoring the full quintile in both cases, even though the portions aren’t equal. If we’re looking at individuals, 80% of the bottom quintile is made up the sub-full-time-minimum-wage, while only 28.15% of the top quintile is made up by six-figure-salary types.
I pointed out the average income those individuals made in the next sentence, and it should be pretty easy to parse together the total income from that result. You can’t get exact results without going through the fine details of the IRS data reports or but having the average top 10-50 range pay 10.975 times the amount of taxes per average individual as the bottom 50, while even the person at very top of the 10-50 range is making 64,000USD per year and individuals under 9,000USD shouldn’t be paying much if anything, should demonstrate a significant *gap*.
You can push the exact numbers through Wiki’s Personal Income, in which case the median of high tax payers, or the 25th highest percentile, falls around 55,000USD. Meanwhile, the bottom 25th percentile falls around 13,000USD. From an individual viewpoint, that’s a 4.2 times the income in exchange for 10.975 times the amount taxes.
That’s still a rather guesstimate method, but as such things go, it’s a pretty easy one to pull out of a hat and demonstrate, and it remains a useful demonstration that a bunch of deductions don’t magically fall out of the sky.
Comment 4/18/2008
According to 2007’s statistics, the bottom end of the top quintile was a little over 97,000, so that’s pretty damn close to six-figure territory, if you ask me.
But you’re right about FICA, though; I was reading the figure as AGI instead of gross income, and that makes a difference.
From an individual viewpoint, that’s a 4.2 times the income in exchange for 10.975 times the amount taxes.
Or a factor of progression of about 2.6. But what you fail to mention here is that someone with $13,000 USD income isn’t very much over the poverty level (and that assumes they’re an individual [not married], with no dependents), so I’d expect them to pay a whole lot less, if one is willing to grant that a progressive income tax is a good idea. The more useful measure to me starts at about $20K USD of income, which conveniently enough is about the bottom of the second quintile.
Frankly, I think that using a range of $20K to $95K works quite well for such discussions, as you’re going to pick up the vast bulk of what we’d consider to be “ordinary” taxpayers, and the entirety of the middle class.
Comment 4/18/2008
By the way, these figures are much more current than what Wiki has.
Comment 4/18/2008
gatt, can you explain what you meant by “I should not need to explain to adults exactly how easy it is to pick up a minimum wage full time job in today’s market.”
Comment 4/18/2008
tgirsch
I’m not saying it’s a bad thing that these numbers are the case, but it doesn’t change that the results are pretty remarkably progressive, and on a similar level as what most people think.
I’m using numbers for individual income, rather than household income, to eliminate a lot of the different internal biases household numbers get. For individual income earners, 13,000USD is above the bottom line of the second quintile.
Using household income should give something along the lines of 33,000USD for the bottom 25th percentile and 69,000USD for the top 25th percentile, but that’s just scratchpad estimate and using a different metric from the Levy Research Institute work. I thus can’t really advise heavy use of any resulting figures from a policy viewpoint, nor can I find tax values that I’d trust to do so.
Ted
Between my own personal experience, the experience of teenagers and young adults that I helped, the experience of teenagers and young adults that the colleges I’ve worked with helped, getting 40 hours a week of work is not difficult. I can understand why many or most people might not want to do so — the vast majority isn’t work in the library or even Wally World, and I can honestly say that I’ll be quite glad to never do dishes or construction work professionally again — but the work is out there.
I don’t think focusing on or bending toward those individuals is practical or useful. They’re not exactly paying a lot of income tax currently, few people would suggest that they should pay a lot of income tax, and I doubt they make up a significant part of the populace that opposes or even notices the current income tax.
Comment 4/18/2008
As long as you understand that there are disabled people, mentally ill people, people with drug addictions who can not pass a drug test, people with prison records, single parents with young kids who would pay more in child care than a minimum wage job pays, people in rural areas with no transportation and thus no means to get to a job (which might be 25 miles away), etc. My point being there is a small but non-zero percentage of the population that have a great challenge finding employment.
This point is tangential to the discussion of taxes, but I found your throwaway line about how easy it is for anyone to get a job profoundly out of touch with the reality that exists for significantly disadvantaged people.
Comment 4/18/2008
gatt:
The problem with using individual income figures is that you run into even more problems than you do with household income figures. The household figures correlate a lot more closely — though by no means perfectly — to how people actually file and pay taxes than individual figures do.
Anyway, for giggles, I looked up some tax statistics (from 2005, the latest year I could find), and the numbers essentially confirm my suspicion. If you take federal income tax paid as a percentage of reported adjusted gross income (not the best metric, but what was available), it progresses from 5.8% at the $20-25K mark to 7.9% at the $40-50K mark (where the median lives) to 9.7% at the $75-100K mark. After the 100K mark is where the progression starts to get dramatic (although the ranges get a lot bigger, too): for $200-500K, it’s up to 20.2%, and by $1-1.5M, you’re up to 24.6% — but then, as I suspected, it starts to go back down again. For taxpayers reporting $10M or more — all 13,776 of them — it’s back down to 20.9%, roughly on a par with the $200-500K earners.
And remember, that’s based on AGI — when you look at real income as opposed to AGI, those numbers skew even further, especially at the higher end of the spectrum.
In review, from $20-75K it’s gently progressive; it gets more dramatically progressive from $75K-$1M, at which point it flattens out almost completely, and then starts to drop again after about $5M. But across the entire spectrum, the group that gets hit the hardest by federal income taxes is still paying less than 25%, on average. For the overwhelming majority of taxpayers (89.4% of them, according to those stats), the average federal income tax paid is less than 13.3% of AGI. Cut out the $75-100K folks and the sub-$10K folks, and you’ve still got 62.8% of taxpayers — nearly two thirds of them — and that group is paying, on average, an effective rate of between 3.4% to 8.6%.
Distill all of this, and you’ll see that my personal example — an effective income tax rate of about 12% — is actually at the high end of what can fairly be described as “typical.” Many people see that they’re in the “25% bracket” or the “28% bracket” and think that equates to them paying 25 or 28% of their income in federal income taxes, and that’s simply not even remotely close to being the case.
Comment 4/18/2008
Ted:
[tgirsch bites on tangent]
When you factor in the single parents who would pay more for daycare, I don’t even think that number is particularly small. Gatt’s throwaway also misses the fact that just because a job is available and someone is willing to take it, doesn’t mean that the person in question will get the job. Even minimum wage jobs turn away a not-insignificant portion of their applicants. If you’ve got someone who’s poorly educated, or who lacks reliable transportation, for example, most employers would rather not deal with the hassle of hiring them.
Further consider that an unemployment rate of 4% to 6.4% is considered to be “full employment” in our economy. When you then realize that the unemployment rate only includes people who are actively seeking work but not finding it, and ignores those who have completely given up on finding work, you’re dealing with a pretty substantial group of people out of work even in what we consider a “good” economy with “full” employment. Given all of this, I agree with you that gatt’s remark about the ease of finding work doesn’t really pass the sniff test.
Comment 4/18/2008
As Gatt’s original statement specified “full time” job, a percentage of the minimum wage jobs don’t even qualify. Some large employers get around benefits requirements by limiting low wage employees to less than full time hours.
Comment 4/18/2008