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The rich are like you and me -- but so much richer

NPR's Planet Money posts some IRS data that allows us to compare the 400 richest Americans' income and tax payment:

inctax.jpg

"The Top 400 are considerably more talented than the rest of us," writes Matt Yglesias. "And this decline in their tax rates has created exciting new incentives for them to apply their talents. And that, in turn, is why the 2000s were a so much more economically successful decade than the 1990s, not just for the Top 400 but for the rest of us as well. Thanks to their skyrocketing incomes and falling tax rates, we’re currently all enjoying the fruits of prosperity, rapid growth and low unemployment."

I'd only add that while it's true that we can't solve all our fiscal problems by taxing the rich, we can solve more of them than people realize, as inequality has made the rich a lot richer than people realize. In 2007, the top 1 percent of households accounted for 23.5 percent of the nation's income. That is to say, for every dollar of income in America, the top 1 percent got about a quarter and the rest of us split the other 76 cents.

By Ezra Klein  |  April 16, 2010; 11:42 AM ET
Categories:  Inequality  
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Comments

Ezra, you forgot the interesting part of the story: the graph showing the decrease in the tax rates for those 400 families.

You really should update this blog entry to show BOTH graphs.

Posted by: nisleib | April 16, 2010 12:12 PM | Report abuse

Thanks, Ezra, but can you get this in the hard copy of the WP? Maybe on the front page?

Posted by: racheljl | April 16, 2010 12:20 PM | Report abuse

Smart people always get rich during times of technological advances and from 1990 to the present, it's been computers and the internet.

They get rich by promoting productivity and advancing the well being of those who buy their goods and services.

Here's the *WHOLE* picture and not just what jealous Marxists want to show you.

http://www.ntu.org/tax-basics/who-pays-income-taxes.html

Posted by: WrongfulDeath | April 16, 2010 12:28 PM | Report abuse

Ezra, you don't seem to understand that there is a difference between capital gains income and salary income. Capital gains income requires $'s to be put at risk for a potential loss. That is the fundamental principal of why it should be taxed at a lower rate than wages, preferably not at all. If I invest $100M and earn 10% pre-tax, the $10M may seem like that person should pay 40%, but what about when the investment loses $10 or $15M? You create an assymetric return profile to the downside that will hinder investment, which does have consequences for economic efficiency.

Also your assertion that more of the fiscal problem than realized can be solved from higher taxes on the wealthy needs to be substantiated. The top 400 earned an average of $345 million in 2007 according to your link. That is $138B. What exactly can be solved with that amount? What do you propose?

The blog has lost its direction a bit since the HCR bill passed. The posts were actually grounded in policy specifics during that debate. It has shifted to rather shallow philosophical assertions about how hard some cab driver you had works, therefore, we need a more progressive tax system. It shows a lack of engagement on strengths and weaknesses of POLICY, which the blog is ostensibly about, not sophomoric philosophical musings as a substitute for analysis. Get your game up.

Posted by: cdosquared5 | April 16, 2010 12:29 PM | Report abuse

What cdosquared said. I read this blog to get an intelligent and honest liberal perspective on policy issues. There are countless other lower-quality liberal blogs where I can get "OMG look how much money rich people make we should take more of it!" populist garbage. Stuff like this is beneath you.

Posted by: ab13 | April 16, 2010 12:39 PM | Report abuse

What this illustrates is that you should shut down that secret liberal bloggers' JournoList that means you all write about the same things.

Posted by: AuthorEditor | April 16, 2010 12:49 PM | Report abuse

cdosquared5 - In answer to your question Capital Losses are netted against Capital Gains. There is an annual loss limitation of 3K/year, but excess losses are carried over to future years to be netted against future gains. And you seem to be forgetting that many of the richest people don't make a wage; their income is almost entirely from dividends, interest and capital gains. That is why Warren Buffett can walk into a meeting of hedge fund managers and offer to pay any of them 1 million dollars if they can show that they pay a higher tax rate than their secretaries.

WrongfulDeath - A) your link doesn't work B) judging by the link title your link, I'm guessing, deals with income tax only. That is a very misleading metric to use. Indeed, poor people pay a higher percent of their income in taxes (state, local, sales, real estate, etc.) than rich people, but often don't pay any federal income tax.

Posted by: nisleib | April 16, 2010 12:57 PM | Report abuse

nisleib - I'm not forgetting that most of the income for high earners is capital gains. I am acknowledging that and saying there is a good economic rationale for the rate on capital gains to be lower because it is income of a fundamentally different nature than wage income- there is a risk for loss of capital... that was my purpose in referencing when an investor loses money.

Posted by: cdosquared5 | April 16, 2010 1:56 PM | Report abuse

To expand on nisleib, a person puts their labor at risk as well as capital when trying out new ventures. An investment of an entrepreneur's time and effort also runs the risk of loss. While there are labor situations where this risk is minimized, the same holds true for investments, where one can safely invest in CDs, government bonds, etc.

The fact is that income is income, no matter what form it takes or what its origin may be. Having unequal taxes based on an arbitrary distinction as to the source of that income just encourages rent seeking behavior and profits for the benefit of one group (in this case, investors) at the expense of all other taxpayers.

Posted by: etdean1 | April 16, 2010 1:56 PM | Report abuse

We're running a deficit. We need to cut spending or raise revenue to balance it. We have some of the lowest taxes in the developed world already. Most of the federal government's budget is politically untouchable, especially to the degree required to balance the budget. Which means raising taxes. When taxing, taxing people who have lots of money is generally more effective than taxing people who have no money.

This is really not rocket science. The rich in this country are reaping rewards way in excess of the amount of risk they are supposedly assuming. The person who loses a $25,000 a year job supporting a family of four loses a lot more than a multi-millionaire whose stock portfolio declines by 10%.

Posted by: jessedr | April 16, 2010 1:56 PM | Report abuse

To expand on nisleib, a person puts their labor at risk as well as capital when trying out new ventures. An investment of an entrepreneur's time and effort also runs the risk of loss. While there are labor situations where this risk is minimized, the same holds true for investments, where one can safely invest in CDs, government bonds, etc.

The fact is that income is income, no matter what form it takes or what its origin may be. Having unequal taxes based on an arbitrary distinction as to the source of that income just encourages rent seeking behavior and profits for the benefit of one group (in this case, investors) at the expense of all other taxpayers.

Posted by: etdean1 | April 16, 2010 1:56 PM | Report abuse

nisleib - I'm not forgetting that most of the income for high earners is capital gains. I am acknowledging that and saying there is a good economic rationale for the rate on capital gains to be lower because it is income of a fundamentally different nature than wage income- there is a risk for loss of capital.

Posted by: cdosquared5 | April 16, 2010 1:56 PM | Report abuse

We're running a deficit. We need to cut spending or raise revenue to balance it. We have some of the lowest taxes in the developed world already. Most of the federal government's budget is politically untouchable, especially to the degree required to balance the budget. Which means raising taxes. When taxing, taxing people who have lots of money is generally more effective than taxing people who have no money.

This is really not rocket science. The rich in this country are reaping rewards way in excess of the amount of risk they are supposedly assuming. The person who loses a $25,000 a year job supporting a family of four loses a lot more than a multi-millionaire whose stock portfolio declines by 10%.

Posted by: jessedr | April 16, 2010 1:56 PM | Report abuse

To expand on nisleib, a person puts their labor at risk as well as capital when trying out new ventures. An investment of an entrepreneur's time and effort also runs the risk of loss. While there are labor situations where this risk is minimized, the same holds true for investments, where one can safely invest in CDs, government bonds, etc.

The fact is that income is income, no matter what form it takes or what its origin may be. Having unequal taxes based on an arbitrary distinction as to the source of that income just encourages rent seeking behavior and profits for the benefit of one group (in this case, investors) at the expense of all other taxpayers.

Posted by: etdean1 | April 16, 2010 1:56 PM | Report abuse

To expand on nisleib, a person puts their labor at risk as well as capital when trying out new ventures. An investment of an entrepreneur's time and effort also runs the risk of loss. While there are labor situations where this risk is minimized, the same holds true for investments, where one can safely invest in CDs, government bonds, etc.

The fact is that income is income, no matter what form it takes or what its origin may be. Having unequal taxes based on an arbitrary distinction as to the source of that income just encourages rent seeking behavior and profits for the benefit of one group (in this case, investors) at the expense of all other taxpayers.

Posted by: etdean1 | April 16, 2010 2:07 PM | Report abuse

cdosquared5 says, "there is a good economic rationale for the rate on capital gains to be lower because it is income of a fundamentally different nature than wage income- there is a risk for loss of capital..."

I'm not so sure.

1)Most people get capital gains mostly in their retirement accounts which are sheltered from tax until retirement/distribution of retirement account assets.

2) Many of the people you are talking about are investors. That is their job. Yet they don't pay self employment tax (payroll tax) on that income. To give these people huge tax breaks makes no sense.

3) There are lots of people who risk their lives every day doing their jobs, yet they don't get special tax breaks for it. In my youth I was a commercial fisherman in Alaska, I worked my tail off, earned my college money, and didn't paid taxes at the same rate that most non-investors do. So why is the risk of capital worthy of a tax break yet the risk to life and limb not? Good luck with that arguement.

Posted by: nisleib | April 16, 2010 2:22 PM | Report abuse

wow guys, sorry about the reposts. Comments got a little crazy.

Posted by: etdean1 | April 16, 2010 2:24 PM | Report abuse

etdean1, I think we have reduced the argument to first principles - - "income is income, no matter what form it takes or what its origin may be." Obviously, I don't agree... putting "labor at risk" needs to be elaborated on greatly. 75K salary versus 75k gain on a $200k investment I made two years ago seem to entail very different potential risks. How do you potentially lose $200k of your wealth in a salaried job or why is that not a relevant fact?

Posted by: cdosquared5 | April 16, 2010 2:26 PM | Report abuse

I think the bailout fund should come from a derivatives tax and an transactions tax on day/computer trading/arbitrage (retirement/pension funds and long term (>60 days) investors exempt) along with raising some general revenue to make up for lost revenue caused by wall st driving the economy into a huge ditch. Transaction taxes discourage short term speculation in the markets that really serves no productive purpose in the larger economy, it just enriches hedge funds and large institutional day traders, making money by investing huge sums on tiny differences in interest or exchange rates.

Posted by: srw3 | April 16, 2010 2:49 PM | Report abuse

@ cdosquared5: I think a modest wealth tax on your 275K would obviate the need or at least reduce any capital gains tax you might pay.

Posted by: srw3 | April 16, 2010 2:55 PM | Report abuse

Little minds are always fascinated with other people's money.

Posted by: msoja | April 16, 2010 3:02 PM | Report abuse

Little minds are always fascinated with other people's money.

Posted by: msoja | April 16, 2010 3:03 PM | Report abuse

msoja, little minds defend the powerful against the powerless.

Posted by: srw3 | April 16, 2010 3:16 PM | Report abuse

Someone needs to refurbish the WaPo article delivery system code. An annoyance introduced a couple of weeks ago has grown. Pages here, presently, are hanging on Klein's little sidebar twitters, but there are undoubtedly more problems than that.

Posted by: msoja | April 16, 2010 3:17 PM | Report abuse

The top one percent of earners paid 40.4 percent of all income taxes in 2007, according to the IRS. I think this is the larger problem.

It's unwise for the federal government to get so much of its revenue from such a narrow subset of the population -- for the same reason that it would be unwise for a homeowners insurance company to cover only houses in a particular neighborhood. We need to spread out our risk by broadening the tax base, not narrowing it further.

Debates over tax policy are often framed in terms of rich versus poor. President Obama has somewhat arbitrarily decided that those making over $200,000 annually are "rich" and should have their taxes increase. But anyone below this income level is suddenly insulated from federal tax increases.

Is it really smart to tell 95 percent of Americans - even people making relatively comfortable salaries - that they can have more services without having to pay more money?

Posted by: trooperim | April 16, 2010 3:17 PM | Report abuse

@ trooperim: Let's talk about % of income paid in ALL TAXES, not just income taxes. Poor and middle class people pay a higher (sometimes MUCH higher) % of their incomes in taxes than the rich 250K do or the plutocrats 1000K+ do.

Looking only at income taxes and not total tax burden (payroll, property, sales, and other taxes) simply obscures the issue. As stated above

"That is why Warren Buffett can walk into a meeting of hedge fund managers and offer to pay any of them 1 million dollars if they can show that they pay a higher [effective] tax rate than their secretaries."

"Obama has somewhat arbitrarily decided that those making over $200,000 annually are "rich" and should have their taxes increase. "

There is nothing arbitrary about it. These are the people that got 90%+ of the benefits from the Bush tax cuts. Look at how their net worth and income soared while the deficit ballooned.

Again, a very modest wealth tax along with an income tax increase would balance out the fact that the rich and plutocrats don't pay their fair share of the total tax burden.

Posted by: srw3 | April 16, 2010 3:31 PM | Report abuse

--"msoja, little minds defend the powerful against the powerless."--

I see stupid Henry Waxman has oh so quietly canceled the hearings that a few select CEO's had been "invited" to after their fiduciary types wrote down certain expenses in the wake of the signing of the health care reform fiasco. First he demands hearings, and then he slinks away.

Tell me who has the power in that relationship, and why do you think it intelligent to pretend that the 900 lb gorilla in the cage with you doesn't exist?

Oh, of course, you want to blame "Wall Street" for the country's woes, while ignoring the gorilla again.

Here's the link to Wikipedia's "Subprime crisis impact timeline". See if you can ignore the gorilla.

http://en.wikipedia.org/wiki/Subprime_crisis_impact_timeline

Posted by: msoja | April 16, 2010 3:31 PM | Report abuse

@cdosquared5: "there is a good economic rationale for the rate on capital gains to be lower because it is income of a fundamentally different nature than wage income- there is a risk for loss of capital..."

1) Just saying this is so doesn't make it so. What criteria are valid to determine if one source of income is "of a fundamentally different nature?" Who gets to decide this question?

2) "There is a risk for loss of capital" - maybe; it all depends on the risk itself, and how the capital investment is structured. The most basic aspect, however, is that investment is optional; nobody is forced to risk anything. If they do, that is their decision, and the free market (whatever that is) will prevail.

I find your distinction implausible, and actually feel that the individual effort of getting and holding a job is so fundamentally different, that this should get preferential tax treatment.

Posted by: FactYouAll | April 17, 2010 1:01 AM | Report abuse

@trooperim: “The top one percent of earners paid 40.4 percent of all income taxes in 2007, according to the IRS. I think this is the larger problem.”

Whenever I come across this concept, I’m reminded of the following: we don’t calculate taxes based primarily on the existence of an individual, but on the income (earnings) of the individual. Admittedly, there needs to be an individual involved, but the calculation is, for all intents and purposes, based on the income.

Consequently, comparing number of individuals to the amount of taxes, without ever mentioning their income is ridiculous, and for some people, quite deliberate dishonesty.

I like you example of insurance. Clearly, an insurance company wouldn't offer comparable rates to different homeowners whose property had significantly different values. The rates are based on the risk involved (not that they, for the sake of argument, each have one home. The same goes for income; different levels, different rates.

And as to your last question: “Is it really smart to tell 95 percent of Americans . . . that they can have more services without having to pay more money?”

This is an excellent topic. You see, 95 percent of Americans don’t really use the same level of services as the top 5%. Think of the resources that it takes to become successful. Roads, courts, police and fire protection, public utilities, patent protection, general commerce, freight railroads, air cargo transport, military, and so on. These public services are little used by regular citizens relative to those who have profited well because of their existence. Those who’ve benefited from public investment in government organizations and their “products” should be grateful to fund that which has helped them so much.

Posted by: FactYouAll | April 17, 2010 1:27 AM | Report abuse

@trooperim: “The top one percent of earners paid 40.4 percent of all income taxes in 2007, according to the IRS. I think this is the larger problem.”

Whenever I come across this concept, I’m reminded of the following: we don’t calculate taxes based primarily on the existence of an individual, but on the income (earnings) of the individual. Admittedly, there needs to be an individual involved, but the calculation is, for all intents and purposes, based on the income.

Consequently, comparing number of individuals to the amount of taxes, without ever mentioning their income is ridiculous, and for some people, quite deliberate dishonesty.

I like your example of insurance. Clearly, an insurance company wouldn't offer comparable rates to different homeowners whose property had significantly different values. The rates are based on the risk involved (not that they, for the sake of argument, each have one home. The same goes for income; different levels, different rates.

And as to your last question: “Is it really smart to tell 95 percent of Americans . . . that they can have more services without having to pay more money?”

This is an excellent topic. You see, 95 percent of Americans don’t really use the same level of services as the top 5%. Think of the resources that it takes to become successful. Roads, courts, police and fire protection, public utilities, patent protection, general commerce, freight railroads, air cargo transport, military, and so on. These public services are little used by regular citizens relative to those who have profited well because of their existence. Those who’ve benefited from public investment in government organizations and their “products” should be grateful to fund that which has helped them so much.

Posted by: FactYouAll | April 17, 2010 1:28 AM | Report abuse

Get Medical Insurance for your entire family at the lowest price from http://bit.ly/dqJw9Z

Posted by: MaryJames1 | April 17, 2010 4:50 AM | Report abuse

It's stated above that capital gains are taxed at a lower rate to encourage the risk-taking behavior necessary to produce economic growth in the US. But who is gaining from this growth?

Real average income for the lowest quintitle of Americans grew 1.3% overall from 1979-2005. For the top quintile, it was approximately 51%. For the Top .01% it was about 380%.

To look at the data graphed in Ezra's article in another light, the share of the nation's Adjusted Gross Income for the Top 400 "earners" grew by over 200% from 1992 to 2007. The share of the nation's tax receipts grew by less than half that over the same period. That's the trend that's worrisome.

More dissection of this and other related data can be found at:

http://voice.sierratangowhiskey.net/2010/02/income-inequality-introduction.html

Posted by: SierraTangoWhiskey | April 17, 2010 2:50 PM | Report abuse

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