Monday, August 01, 2011

My Thoughts on Fair Taxation

So, I’ve recently seen once again this statement: “The top ten per cent (income) of Americans pay 55% of all taxes. Let them pay 65% instead.” The point that the author wanted to make was that increasing that to 65% would still not meaningfully address the deficit. It’s at least a different point than is usually made with such a statement.  Usually, the suggestion is that the top 10% are paying more income tax than they should, that in a fair tax structure, collected taxes would somehow be more evenly distributed across all income classes.

I have found myself wondering about those statements, and similar statements I’ve seen (all with varying numbers, but with much the same point).  So, I did a bit of searching, and found this paper, titled “Wealth, Income, and Power.”  The author is William Domhoff of the University of California at Santa Cruz.

The article is illustrated with some very helpful tables and charts.  For example, a chart on wealth distribution indicates that in 2007 households above the 90th percentile (90% of households had lower net worth) controlled 83% of financial wealth.  So, one could argue that instead of paying 55% if all taxes collected, they should be responsible for 83% of taxes. 

But, we don’t tax wealth.  We tax income.  So, let’s look at income distribution.  In 2006 more than 41% of all income received in the United States was received by only 20% of those who received income.  A different table from Citizens for Tax Justice indicates that this group above the 80th percentile of those receiving income received 59% of all income, and paid 64% of all taxes.  Now, that seems pretty even, doesn’t it?  But while it may look “equal” in some sense, it’s impact is not equally felt.  Those above the 80% pay roughly 30% of their income in taxes.  Those between the 60th and 80th percentiles pay about 29%, and those between the 40th and 60th percentiles pay about 25%.  Those below the 40th percentile pay 20% or less.  It looks progressive for a moment.  But, think about how this impacts standard of living.  Those above the 80th percentile receive in income $100,000 and up.  Those below the 40th percentile receive in income $25,000 and less.  30% of even $100,000 ($100,000 minus $30,000 leaves $70,000) has much less impact on purchasing power and standard of living than 20% of $25,000 ($25,000 minus $5,000 leaves $20,000).  $30,000 sounds like a lot of taxes; but $70,000 is still a pretty good discretionary income.  $5,000 sounds like a lot less; but it represents a lot of groceries for folks who are already living pretty close to the margin.

It seem pretty clear that the reasons to tax those who have more in a greater measure than those who have less are first and foremost that they have the wealth in the first place; and second, that they have benefited much more from this economy that we share than most of us.  And after all, they can afford it.  The one person in America whose name is more associated with paying taxes than Grover Norquist is Henry Bloch, the “H” of H & R Block.  He wrote an editorial that appeared in the Kansas City Star  His closing comments were, this past Saturday.


Those of us earning more than $250,000 a year are very fortunate. We have an obligation to help our nation overcome this challenge. While I don’t look forward to paying more taxes, it must be done. And it’s a small price to pay for living in this wonderful country. Responsible change that promotes good public policy and tax fairness is to be welcomed.

So, here are a couple of ways to think about what might make for “fair” taxation.  We could tax wealth, and set it up so that those who own 83% of the wealth are required to provide 83% of taxes paid (instead of 55 or 60%).  Or, we could figure out how to tax so that those at the top have their purchasing power reduced as significantly as those at the bottom.  See, it’s not whether those at the top pay more taxes than those at the bottom.  It’s whether those at the top pay enough more taxes that their lives are proportionally affected as much as those at the bottom.  That might be a truly progressive tax plan.

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