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Thursday, September 23, 2010

Wealth and Taxes

Here is a breakdown of taxes and income for CY 2010, from our old friends, the Tax Policy Center, via Greg Mankiw's blog, which I actually don't read - this is what sometimes happens when you rely on TEH Googly.

Since I don't read  Mankiw, and he offers no commentary, it's far from clear what his point might be - maybe just general information.  And, since I see only a table at the TPC page, it's probably Mankiw's graph.
How they managed to assemble data on CY 2010 by Aug.24 of the subject year is a bit mysterious, but we'll just go with it.

You often see or hear that the top whatever percentage pays some god-awful amount of the taxes.  Sure enough, the top 5% of the population bear over 40% of the tax burden.  That 5% and 40% look oh, so askew.  Until you realize that they bring in over 30% of the income.

The reasons for this number combination are two-fold.  First, we have progressive taxation, so the tax percentage paid by the top is above their income percentage by design.  This is a feature, not a flaw.  Second, the lowest 20% pay no federal taxes, at all, because they make less than $1500 per month - not enough to qualify as tax payers.  That's about $9.38 per hour for a 160 hour work month.  Actually, it's  a bit less on an hourly basis, since most months have more than 20 work days. Further, since the next quintile only makes enough to pay a total of 3.1% of the tax total, it simply falls out of the math that the percentage has to be made up somewhere.

So if anyone tells you we are soaking the rich - show them this graph, courtesy of Prof. Mankiw.

Another thing to think about is that those who make the most will also get the greatest benefit from retaining the middle class tax cuts.

Bet you didn't know that part!

1 comment:

Suzan said...

And, of course, you are factoring in that most of the upper layer of so-called taxpayers pay no taxes at all due to legal (and illegal!) writeoffs.

Imagine the chart corrected for the real figures.