Tim,
Thanks for your points, many of which I agree with.
I don't have it at hand but I have seen analyses which suggest that the near rich pay less or about the same as a percentage of income in taxes than the near poor. Intuitively it makes some sense that this might happen under the present system. The trick is, you have to include sales taxes and social security taxes, and also adjust for the impact of itemizing deductions, the higher proportion of sales taxes paid by poorer people with little savings, and for things like property taxes and mortgage interest. A relatively well off person making, say, 150K but with a sizable mortgage and a decent amount of savings each year might well pay a lower percentage of gross income in taxes than someone making 40K, spending every dime, and renting.
Here's why:
Out of the 40K, if all of it is spent, that is as much as $3,600 on sales taxes (using Chicago's 9 percent sales tax as the rate....acknowledging that some items are exempt so it might be a little lower).
Another $3,060 goes to the Social Security taxman, a full 7.65%.
Federal taxes on that amount are $7,626 for single people if there were no deductions.
State taxes (using Illinois as an example) are a flat 3 percent, which on 40K would be around $1200 (a little less due to personal exemption).
That totals $15,486. As a renter, some portion of the rent is really a pass through of the landlord's property tax, so let's add another $1,000 (conservatively) for that. That comes to $16,486 out of $40,000, which is 41.2 percent.
Now let's look at the 150K earner. Let's assume he saves 20K a year, and therefore does not pay sales tax on that. That leaves sales tax on 130K, which at 9 percent is $11,700. His social security tax (but not the Medicare portion) phases out partially at 84,900, so the actual tax paid on 150K in earned income is around $7,500.
His federal income taxes if you assume 30K in deductions (for mortgage interest, state income taxes, and property taxes) would be approximately $31,000. State taxes here in Illinois would be $4,500. Property taxes might be $3,000 (these vary widely by county).
That comes to a total tax burden on the near rich person of around $57,700, or 38.5 percent.
Are these numbers off a little? Probably...it's just a quick sketch. At a glance, I see that I left out the standard deduction for the 40K guy, which would adjust his rate to slightly below 40 percent. And of course, the richer guy is paying some taxes for investments (though those taxes are not directly income based).
The overall point is that the combined effects of the patchwork of taxes we have in the U.S. is usually not anti-affluent. It often results in something that is pretty close to a flat tax, but without the benefits of simplicity. |
