Depends on how you look at the numbers...
Hi Jay,
I don't quite understand the argument that just because you make more you should pay more other than as a linear relationship to what you make.
It depends on how you look at the numbers and what you feel the purpose of the taxes are. If, to take the two extremes, you view taxes as a being like a user fee - everyone pays the same amount to supply the same services - then uniform tax rates make sense. If you view taxes as being a way to make society more equitable, by redistributing some income, then "progressive" tax rates make more sense.
The [link|http://www.census.gov/prod/www/statistical-abstract-us.html|Statistical Abstract of the US (PDFs)] is a good source of information about all sorts of numbers about the US.
Table 740 lists "Mean Taxes Paid..." in 1997.
1997 ............ 95,850,000 Households
$13,077 mean taxes paid (Federal Income, State Income, FICA, Property)
24.9% of mean before-tax income.
If everyone was treated equally (ala Thatcher's Poll Tax (IIRC)), then those families that made slightly more than $13,000 a year would obviously be hurt by an equal tax.
Percentage-based taxes have problems with defining what "income" is. What should be excluded? Insurance proceeds? Investment income? Should all income be taxed the same way? What about capital gains?
What deductions and exclusions should be allowed? Children? That means a higher burden on young single people and the elderly. Food? If so, what about resturants? Medicine? What about vitamins and "herbal supplements"? Medical equipment? What about exercise machines and Rec Club memberships? If you say "No exclusions" to keep the system simple and transparent and minimize abuse, there are also problems. The tax rate has to be rather high to supply the multi-trillion dollars the governments need to do their job. People who are currently paying very low effective rates would be hurt unless there were exceptions and exclusions. But someone has to decide what they are and what fits - leaving the system open for potential abuse by the tax law writers.
Table 745 lists "Share of Aggregate Income Received by Each Fifth and Top 5 Percent of Families: 1970 to 1998"
1998 ....... 71,551,000 Families
Bottom Fifth $21,600 cutoff, 4.2% of aggregate income
Next Fifth $37,692 cutoff, 9.9% of aggregate income
Next Fifth $56,020 cutoff, 23.0% of aggregate income
Next Fifth $83,693 cutoff, 47.3% of aggregate income
Top 5% $145,199 cutoff, 20.7% of aggregate income
Many argue the top 5% people having 20.7% of the US family income means that they can afford to pay more (as a percentage) in taxes than those at the bottom of the income scale. They can't be paying their fair share right now, right?
But if you look at Table 549, "Individual Income Tax Returns ..." you might reach a different conclusion.
Individual Income Tax as percent of Adjusted Gross Income
Income 1995 1997
Less than $1,000 . -0.2 -0.3
$1,000-$2,999 .... 1.2 1.5
$3,000-$4,999 .... 1.0 1.1
$5,000-$6,999 .... 1.3 1.5
$7,000-$8,999 .... 2.2 2.0
$9,000-$10,999 . . 3.0 3.1
$11,000-$12,999. . 3.9 3.6
$13,000-$14,999 . . 4.3 4.0
$15,000-$16,999 . . 4.9 4.6
$17,000-$18,999 . . 5.5 4.9
$19,000-$21,999 . . 6.5 5.9
$22,000-$24,999 . . 7.6 7.1
$25,000-$29,999 . . 8.6 8.4
$30,000-$39,999 . . 9.9 9.6
$40,000-$49,999 . 10.7 10.7
$50,000-$74,999 . 12.1 11.9
$75,000-$99,999 . 14.8 14.5
$100,000-$199,999 18.3 17.8
$200,000-$499,999 25.6 24.6
$500,000-$999,999 30.2 29.0
$1,000,000 or more 31.4 28.8
144,000 individual federal tax returns were filed in 1997 with AGI of $1 M or more.
So, it depends on how you look at it. Our federal income tax is already highly "progressive", at least up to the $500 K or so level.
This isn't a simple problem. Nearly every change to the tax law had good and bad effects.
Cheers,
Scott.
