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More tax charts!

Last week, I posted a graphic showing how many dollars various income groups would save under the Bush and Obama tax plans. The basic takeaway was that the middle class would do a bit better under Obama's plan and the rich would do a lot better under Bush's plan. But wait!, some of you said. That graph doesn't show the percent of taxes both groups pay!

Well, of course not. The percentage of taxes both groups pay is neither here nor there in a direct distributional comparison of the two tax plans. The fact that the rich pay more in taxes than the poor doesn't mean they should get a larger tax cut than the poor. Nor does it mean they should get a smaller cut. The distributional comparison is a fact about the plans. What you think about that fact is up to you.

But here at Klein Industries, we aim to please. So here's a chart (pdf) from Brookings's Adam Looney (thanks, Jon Chait!) which compares the value of the Obama and Bush tax plans as a proportion of after-tax income. That way, it's adjusted for the size of each group's total income. Click on it for a larger version.

bushtaxcutsincomepercent.png

What you can see there is that even in percentile terms, the Bush tax cuts do much more for the incomes of the rich than the poor, and the Obama proposal would do a lot more for the poor than for the rich. Make of this what you will.

By Ezra Klein  |  August 18, 2010; 1:41 PM ET
Categories:  Taxes  
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Next: Mitt Romney's got a plan

Comments

More tax cheats, i.e. Timothy Geitner, Charlie Rangle, Chris Dodd, Maxine Waters....err wait, Chris Dodd and Maxine Waters just took kickbacks. Sorry. My mistake.

Posted by: FastEddieO007 | August 18, 2010 2:30 PM | Report abuse

Whenever prosperity it is unevenly distributed to the poor.

There is no way to dramatically increase this nation's prosperity with out increasing it more dramatically for the rich.

The real important underlying question is: "are our leaders interested in creating prosperity or not?"


Posted by: FastEddieO007 | August 18, 2010 2:33 PM | Report abuse

Whenever prosperity it is unevenly distributed to the poor.

...meant to say, Whenever prosperity is created it is unevenly distributed to the rich more than the poor. Money begets money as it is an asset in and of itself.

The real important underlying question is: "Are your leaders interested in creating prosperity or not?"

Posted by: FastEddieO007 | August 18, 2010 2:45 PM | Report abuse

To the extent our policy-makers in Washington are erecting obstacles to prosperity for the rich, it is erecting obstacles to prosperity for our nation.

If the government were to deprive Bill Gates to access of half of his wealth, Bill Gates would employ half as many people.


Do we like a "fairer" system or a prosperous one?

Posted by: FastEddieO007 | August 18, 2010 2:48 PM | Report abuse

Wrong chart... Not surprising an anti-individual rights, pro-statist like Klein would not understand why we were asking to show the cuts as a percentage of taxes paid. Many of the lower income groups do not pay taxes, so they are essential receiving an infinite percent cut in their income taxes through Obama's make work pay cut, bush child credit, all that bs being called a tax cut but essentially welfare payments for the masses.

But if your world-view is that the state has a rightful claim to all earnings and you are anti-choice, then your chart is appropriate and the bottom earners are getting a raw deal.


Just curious, did you wet your pants when you first read Rawls?

Posted by: cdosquared5 | August 18, 2010 2:55 PM | Report abuse

I make of it a very misleading statistic.

The top 1% of earners pay 40% of total Federal Income taxes, more than the bottom 95%. The bottom 50% of earners provide less than 3% of the total. So, any cut in tax rates is going to have a greater effect on those that provide most of the revenue from Federal Income Taxes.

Of course, neither those figures, nor yours, factor in the "payoll tax", which is nominally supposed to be going to pay for Social Security and Medicare and other government run insurance schemes (but may turn out to be a Ponzi scheme for some of us.)

Ezra's point is equivalent to saying a 20% off coupon at Target unfairly benefits the rich because they can buy TVs for 20% off while the poor only get 20% off of a T-Shirt.

Posted by: staticvars | August 18, 2010 3:02 PM | Report abuse

Tax policy as dictated by Journolist....

They're very, very good at dictating, the Journolist are.

Disgusting prigs.

Posted by: TECWRITE | August 18, 2010 3:18 PM | Report abuse

Drop the Bush tax cuts and taxes go up on anyone that pays taxes, "Oh My" that includes the people making less than $250000, the ones that Obama said over and over and over would not pay one dime more in taxes. Learn this lesson, judge people by what they have done not by what they say!. A Politician will say anything to get your vote and then do what they want. Even liberals should know that. The only person you can really trust is yourself, so learn the character of who you vote for.

Posted by: sambird | August 18, 2010 3:21 PM | Report abuse

staticvars: "I make of it a very misleading statistic.

"The top 1% of earners pay 40% of total Federal Income taxes, more than the bottom 95%. The bottom 50% of earners provide less than 3% of the total. So, any cut in tax rates is going to have a greater effect on those that provide most of the revenue from Federal Income Taxes."

I don't see why that makes the chart misleading. As Klein explicitly says, "The fact that the rich pay more in taxes than the poor doesn't mean they should get a larger tax cut than the poor. Nor does it mean they should get a smaller cut. The distributional comparison is a fact about the plans. What you think about that fact is up to you."

(By contrast, I find the "top X% of wage earners pay Y% of the taxes" statistic potentially very misleading because it may say more about wage distribution than it does about tax rates. If only 20% of earners made above the exempted amount, then they'd pay 100% of income taxes even if that rate were only 1%. More information is needed to judge whether the system is "fair," even though it's in the end a subjective judgment.)

And as this particular chart points out, the wealthy still do better even on a percentage basis of their own after-tax income if all the cuts are allowed to expire. So it's not like getting 20% off whatever item you can afford; it's like having the absolute value of the coupon depend on how much you make, with a bigger percentage break if you're in the top 1% of wage earners.

Posted by: dasimon | August 18, 2010 3:58 PM | Report abuse

"There is no way to dramatically increase this nation's prosperity with out increasing it more dramatically for the rich."

FastEddie, then why don't you send your spare money to some rich person. Just think how much richer YOU will then become.

Better yet, send me $100 and I will send you a little bean that, after it is planted and watered, will result in a beautiful tree upon which twenty-dollar bills will blossom in profusion year after year after year.

Posted by: lauren2010 | August 18, 2010 4:26 PM | Report abuse

"So it's not like getting 20% off whatever item you can afford; it's like having the absolute value of the coupon depend on how much you make, with a bigger percentage break if you're in the top 1% of wage earners."

Yeah, I realize I was a little off on that, it's a like 2% off coupon for the first $100 of the price of the item, and 5% coupon for the remaining cost of the item over $100. (thanks to the marginal rate system) Meanwhile, Obama wants to reverse it so that

The point remains are paying very little Federal Income tax to begin with- and some of them happen to be the ones asking for greater amounts of our collective money to be sent their way.

My personal payments topped $100,000 this year, and I am not considered rich by anyone I've ever met (not in the top 5% at least), just running a business with on paper profits. I am certainly willing to pay more to the government than other folks, since one could argue the property rights system is protecting more of my income, but when most of my federal tax is transfer payments to others (often richer than me) and to a military that seems to be used primarily to dive into hornet nests that make us less safe, I question why I should pay so much more for that. These were things I didn't wonder when I was only paying $700/year.

Posted by: staticvars | August 18, 2010 4:58 PM | Report abuse

@lauren2010 - I'm just a middle class schmuck...and engineer....lets say I have an idea for a new computer that is a break through...but to leverage that idea effectively I need to get my hands on about $50 million of venture capital...guess what---though at the end of the day I may find myself a new millionaire, chances are those folks kind enough to believe in my idea and invest in me---well they are now billionaires.....


That is the American way.


Obama and Pelosi's grand vision of penalizing these rich folks for their ability to leverage their assets to make more money than I ever will ONLY HURTS ME!!!

It doesn't touch them!

Don't you get it? You either believe in capitalism or you don't. But capitalism has unquestionably delivered more prosperity than any other system that society has found for bartering resources and skills.

Its time for you to wake up and decide if you want to continue USA's 250 legacy or end it!

Posted by: FastEddieO007 | August 18, 2010 5:20 PM | Report abuse

"when most of my federal tax is transfer payments to others (often richer than me) and to a military that seems to be used primarily to dive into hornet nests that make us less safe, I question why I should pay so much more for that."

Well, I'm not going to disagree with you on the military spending. It's not sustainable.

As for the transfer payments, I'm not sure what you're referring to. Though Social Security isn't funded through income taxes, I'd be glad to means-test it along with other entitlements. But I'd also think that most people getting these transfer payments are not paying taxes of $100,000 or more. (Indeed, median US household income is about $50,000, though I can't say what the median income of those getting "transfer payments" are, or how big those payments are.)

I appreciate your comment that perhaps those who have more should be willing to pay a higher percentage of earnings since society is protecting that property. But I also think your observations go more towards the overall tax burden, not as to how that burden should be fairly distributed. If we spent less (and putting our debt problem aside for the moment), does that mean only top income earners should pay less? Or maybe we should raise the income tax exemption level? Or what kind of combination? We shouldn't conflate the claim that spending/taxes are in general too high with the problem of apportioning the costs of whatever we do agree to spend through our government.

Posted by: dasimon | August 18, 2010 5:45 PM | Report abuse

I have a different comment. By comparing the Bush v. Obama "tax cuts." you seem to assume that there will actually be a tax cut. In fact, as I understand it, there will be no actual tax reduction for anyone, but increases for higher income people (I know that technically the Bush tax cuts expire and the Obama plan will then actually be a tax cut, but that is not how most people will actually experience it). So therefore, how much more will various income groups actually pay on average?

And since we are also talking about the deficit, can we compare how much the deficit will be affected under the various scenarios? e.g., entire Bush tax cut expires vs. Obama plan v. extend all Bush tax cuts?? I can't recall seeing that comparison anywhere.

Posted by: juliecon | August 18, 2010 6:00 PM | Report abuse

FastEddie: "You either believe in capitalism or you don't."

Fasteddie, there's lots of room on the continuum between the unfettered free market (which, as you may recall, nearly collapsed the entire world economy just recently) and total government economic control.

"Obama and Pelosi's grand vision of penalizing these rich folks for their ability to leverage their assets to make more money than I ever will ONLY HURTS ME!!!"

FastEddie, are you saying that the difference between capitalism and not-capitalism is the difference between a top marginal income tax rate of 35% and one of 39.6%? Were we not capitalists under Clinton, when the top rate was 39.6%

Also do you recall how the economy did during the Clinton years and the years after the Bush tax cuts? We had terrific growth across all income groups with the marginally higher rates during Clinton, even discounting the tech bubble. We had anemic growth during Bush, and what growth there was went largely to the wealthy; median income barely budged.

It would be nice if, just once, you would back up your claims with actual evidence. Otherwise, it's too easy to believe whatever you want to believe regardless of the facts.

Posted by: dasimon | August 18, 2010 6:33 PM | Report abuse

"If the government were to deprive Bill Gates to access of half of his wealth, Bill Gates would employ half as many people."

Eddie, Microsoft is a publicly-traded corporation (where Bill Gates is no longer working), and his wealth is derived from the stock that Gates controlled as its co-founder. If we imposed greater taxes on his (or anyone's) wealth, Microsoft would employ just as many people. The business will employ as many people as it should in order to generate profits for the owners.

The workers, Eddie, are a crucial part of what makes any operation successful and profitable (thus generating wealth to the shareholders) in the first place, and that remains true no matter what the maximum rate on the highest bracket of taxpayers happens to be.

By the way, the Gates family has strongly supported a ballot initiative in Washington state to raise state revenues by imposing new income taxes on millionaires (Washington I-1098). Look it up, dude.

Posted by: Patrick_M | August 18, 2010 7:06 PM | Report abuse

In 2006 Warren Buffett, the world's third richest man, paid about 0.2% of his income and investment gain in total taxes (federal, state, and local combined)!!! (That's based on tax figures he released when he was arguing the taxes of wealthy people like him are much to low.) A middle-class working family earning about $70,000 a year pays total taxes of about 28% of the wages they earn, a rate 150-fold higher than Mr Buffett's.

How can this be? Firstly, investment earnings are taxed at lower rates, thanks to the Bush tax cuts. Secondly, unrealized capital gains of the very wealthy represent most of their earnings, but are not taxable under our current tax system. Because the very wealthy need never cash in ("realize') these earning, they continue to grow tax free until they are passed along tax-free in a trust to the next generation. This is why the top 1% now owns 40% of the nation's wealth.

The advantages our tax system gives to wealthy investors distorts market forces, leads to the demand for investments outstripping the supply of worthy investments..investment prices rise...investment bubble...bubble bursts...recession... and all but the the very wealthy are at risk for losing their jobs, their homes, and their retirement savings. The last 50 years shows again and again our economy does best with high GDP and low unemployment when the wealthy investors are not given favored tax treatment and pay their fair share of taxes.

For much more and a proposal to fix our broken tax system see http://fairsharetaxes.org

Posted by: PeteG2 | August 18, 2010 10:54 PM | Report abuse

"Fasteddie, there's lots of room on the continuum between the unfettered free market (which, as you may recall, nearly collapsed the entire world economy just recently) and total government economic control."

This kind of stuff drives me nuts. It wasn't the unfettered free market. Government through Fannie and Freddie encouraged banks to make subprime loans for the sake of putting people in houses. This gave banks an implicit agreement that it crap hit the fan govt would be behind them. When banks started making these loans it made it impossible for banks lending responsibly to compete so they too had to make risky loans.

That isn't the unfettered free market. Without government interference the banks would not have engaged in that activity.

Posted by: TysonBam6 | August 19, 2010 5:17 AM | Report abuse

"That isn't the unfettered free market. Without government interference the banks would not have engaged in that activity."

Banks and markets have repeatedly crashed throughout history without government interference, so if you don't like that example many others can be provided.

Moreover, no one told banks to buy securities whose contents they weren't sufficiently aware of, and Fannie/Freddie had nothing to do with banks leveraging themselves by over 30:1, or to plunging into credit default swaps.

"When banks started making these loans it made it impossible for banks lending responsibly to compete so they too had to make risky loans."

No, they could have just said no and waited for the other banks to blow up. J.P. Morgan didn't get as involved as the other banks and came out far better than its peers as a result. And smaller banks have been making subprime loans for ages and done just fine--because they actually knew whom they were lending to.

As Slate's Daniel Gross put it, "There was a culture of stupid, reckless lending, of which Fannie Mae and Freddie Mac and the subprime lenders were an integral part. But the dumb-lending virus originated in Greenwich, Conn., midtown Manhattan, and Southern California, not Eastchester, Brownsville, and Washington, D.C. Investment banks created a demand for subprime loans because they saw it as a new asset class that they could dominate. They made subprime loans for the same reason they made other loans: They could get paid for making the loans, for turning them into securities, and for trading them—frequently using borrowed capital." http://www.slate.com/id/2201641/

In any case, my original point remains: there's a lot more room on the economic spectrum than "you believe in capitalism or you don't," and the unfettered free market can and sometimes does lead to economic collapses--which most people think is a bad result for capitalists.

Posted by: dasimon | August 19, 2010 10:03 AM | Report abuse

If one defines "poor" with the official definition, then the Obama plan does less for the poor than for the richest 0.1%. Now I agree that one can be poor without being below the poverty line, but the Obama plan does the most *proportionally* for the upper middle class.

I'd have thought you were too young and new to Washington to have adopted the weird perspective such that the 90th percentile is middle class just like the 40th (or do you consider the 40th percentile to be "poor").

If you pick to families at random, it is much more likely than not that Obama proposes giving more *proportional to the income* to the richer family.

I think the problem is discussing Obama only relative to the Republicans.

Posted by: rjw88 | August 19, 2010 4:34 PM | Report abuse

rjw88,

I agree that the tax structure can and should be more progressive. I guess the political question is whether there is a snow ball's chance that Obama and the lame duck Congress could come together on a wholly revised set of tax brackets, as opposed to leaving in place the current Bush cuts going up to incomes of $250k, and returning Clinton era rates for those at a higher level.

I'd like to see sweeping reform of the tax code before Obama leaves office, but I expect that until we get better economic growth, the best we'll get see on tax policy is a "patch" of this sort that is more difficult for the Republicans to obstruct.

My advice to Democrats would be to end the filibuster at the start of the next Congress and get truly bold with policy in 2011-2012.

Posted by: Patrick_M | August 19, 2010 11:18 PM | Report abuse

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