The Tax Foundation and Neil Downing on Income Tax Progressivity
This year’s numbers show that both the income share earned by the top 1 percent and the tax share paid by the top 1 percent have reached all-time highs. In 2005, the top 1 percent of tax returns paid 39.4 percent of all federal individual income taxes and earned 21.2 percent of adjusted gross income, both of which are significantly higher than 2004 when the top 1 percent earned 19 percent of AGI and paid 36.9 percent of federal individual income taxes.I’ll also add this: if the high-tax ideologues out there believe that the primary purpose of the income tax is to level incomes, rather than to pay for government services, then they’re going need to advocate a very draconian system to reach their goal, since the already progressive system we have doesn’t seem to be doing the job they want.
The IRS data also shows increases in individual incomes across all income groups (see Table 3). Just as the highest earners lost the biggest percentage of their incomes during the recession of 2001, so they have prospered the most as the economy has continued to rebound. For example, from 2000 to 2002, the adjusted gross income (AGI) of the top 1 percent of tax returns fell by over 26 percent. In that same period, the AGI of the bottom 50 percent of tax returns actually increased by 4.3 percent. However, since 2002, as the recession has ended, AGI has risen by 61 percent for the top 1 percent and 10.7 percent for the bottom 50 percent.
Also, in today’s Projo, business columnist Neil Downing notes that income-to-tax ratios in Rhode Island’s state income tax data are similar to the national figures…
For 2005, the latest period for which figures are available, the overall Rhode Island income tax totaled about $961 million. Of that, $392 million was attributable to those with incomes of $200,000 or more.Finally, I came upon the original Tax Foundation item via Instapundit, who adds these thoughts worth considering…
In other words, the state’s highest-income taxpayers are responsible for about 41 percent of Rhode Island’s overall income-tax burden — even though they represent only about 2 percent of all income-tax returns filed.
You can quibble with those numbers if you like. For example, the report I looked at doesn’t make clear whether the income-tax figures I’ve listed above are before or after taking credits into account.
But look beyond those numbers, because they’re limited in scope. They focus only on income tax.
They don’t reflect what higher-income people pay in local property taxes, or what they wind up paying — one way or another — as a result of Rhode Island’s death tax (also known as the Rhode Island estate tax).
So no matter how you slice the numbers, the overriding point is indisputable — although higher-income Rhode Islanders represent only a tiny portion of all taxpayers, they carry a huge chunk of the state’s overall tax burden.
I think that everyone should pay at least some tax, and it should vary each year with how much the government spends, and should be enough to give people an incentive to care….A reader emails: “The optimal tax code for the political class is one where more than 51% of the voters pay no taxes at all and where the politicians and their friends receive exemptions from most of the taxes. Explain how this differs from the current system.”