Political Animal

Blog

March 03, 2013 12:26 PM “Historically high” tax rates for the rich expected? Good.

By Samuel Knight

According to the AP, Brookings’ Tax Policy Center is predicting that this year, the rich will pay some of the highest tax rates since the Congressional Budget Office began keeping track of the data in 1979.

The top 20 percent and 1 percent of earners will pay average rates of 27.2 percent and 35.5 percent respectively.

Meanwhile, the middle 20 percent of the income distribution - households averaging $46,600 - will be paying an average rate of 13.8 percent.

It’s oh so difficult to feel even a subatomic iota of sorrow for the rich here for so many reasons: 1979, of course, marks two years before the start of the Reaganite consensus on executive worship and corporate tax cuts; much of the rich’s income is derived from “unearned” rent-seeking; the elites should be happy to help pay for a society that has helped them prosper; and, due to offshoring and the weakness of organized labor among other factors, lower income workers’ wages haven’t kept pace with their productivity explosion over the past few decades. In short, the wealthy have the money to comfortably pay these “historically high” tax rates — lower still than the high marginal rates that were commonplace throughout the rapid growth post-war era.

Moreover, high tax rates might actually spur growth, in the words of John Judis, by discouraging “the wealthy from rerouting their savings into the kind of speculative activity that helped create the Great Recession,” and, in the words of one small business owner, by encouraging businesses to reinvest their profit before the end of the year.

Samuel Knight is a freelance journalist living in DC and a former intern at the Washington Monthly.

Comments

  • golack on March 03, 2013 1:09 PM:

    Sounds like focus on income tax and not total federal nor total overall tax burden. With Payroll taxes included, middle 20% tax rate will be way up, upper end tax rate almost unchanged...and probably less than the overall 1979 tax rate. Why to I say this? The top 20% of income is now so much higher than the cut off for social security taxes, that those taxes are much less of a relative burden now then when the top 20% were making amounts closer to that cut off.

  • Rick B on March 03, 2013 2:07 PM:

    Very few of the "wealthy" are earners. They are mostly rent-seekers who use the power of their wealth to force those who create real wealth to give them a share of the wealth they create.

    Rent-seekers should NOT have a tax advantage! They create nothing of value to anyone else and are social parasites. But wealth bestows social power, and they have used that power to get favored treatment from the government by electing their toadies like Ronald Reagan.

  • Richard W. Crews on March 03, 2013 2:14 PM:

    If low taxes created jobs, we'd be awash in jobs. More jobs than people, but No! Look around at our economy; there are plenty of toasters of every kind in stores; what's missing is not another foreign toaster factory, but someone with a job able to buy said toaster.

    To push corporations into being better citizens, and more involved, I propose a 100% corporate income tax. First, what is a corporation for? It's an investment vehicle and a mechanism for delivering product/service ideally with a profit. The corporations operate unimpeded; deducting all costs including business taxes, expenses, and employee pay and ancillary costs. They can pay their CEO anything they want, and pay any dividend they want. Then allow a 5 year tax-free revolving unlimited cash 'slush” fund that hopefully would be used for growth/infrastructure/investment. Whatever is left is taxed 100%.
    This pushes cash out into our economy. Money spread out by expense, pay, dividends, and taxes are the power that our economy needs. Give the businesses a 5 year strategic reservoir, then push the rest out into our economy. If they hate taxes, the companies could either pay out more in wages and/or dividends, or lower prices.

    Republicans always talk about the “job creators”. Well, how about them job creators? American corporations are making more money than they ever had, and are paying their CEOs a huge amount – beyond reason. Yes, beyond reason. Does $150 Million in one year sound like a fair earned amount?

    Corporations are sitting on over $2Trillion dollars, and not doing anything constructive with all that cash. Stock buy-backs don't make jobs or GDP growth; same with cash hoarding. The country is sinking, over half of it going broke while the corporations and the upper 5% have never had it so good.

  • troglodyte on March 03, 2013 2:59 PM:

    Just a technical point. The first comment blasts the upper 20% of the US income distribution for not paying their full share of the Social Security payroll tax. This criticism would be true if all households in the top 20% were single-income. However, a two-earner household with equal $100K salaries would pay the full payroll tax and have a household income safely within the top 5%.

    see
    http://catosdomain.com/wp-content/uploads/2012/09/us-income-distribution-2010-1210x7201.gif

    There are lots of two-income households. Ask yourself how many of the affluent families you know have a single breadwinner. Though I dont know the percentage, its fair to speculate that far fewer than 20% of US households are getting a big break on the payroll tax.

  • FlipYrWhig on March 03, 2013 3:09 PM:

    So this encourages you, but in the Kerry-goes-to-Egypt piece you characterized increased tax collection as an "austerity" measure. Something isn't adding up.

  • exlibra on March 03, 2013 3:33 PM:

    These are "historically high" taxes only if your history is short, and your memory even shorter.

  • c u n d gulag on March 03, 2013 3:47 PM:

    I read somewhere that if we taxed ALL income for FICA, we could actually give ALL SS recipients a raise - for the rest of their lives.

    FICA is a very regressive tax. Something that people above the $113,700 level, no longer have to pay on income beyond that level - and those who live off of investment income, don't pay at all.

    Another way to look at taxation, is NOT to tax "income," but to tax "wealth."
    You can lower income taxes for everyone, spurring economic growth.
    But above a certain level, people are also taxed on their overall wealth.
    But that tax makes too much sense - and the people who have that kind of money, don't mind spending some of it to buy off politicians, to keep it from happening..

    Right now, we're taxing the very people we need to grow the economy, and don't tax those who just sock it away - whether it's in the USA, Switzerland, the Cayman's, or wherever.

    Our tax system, like our health care system, is too stupid for words.

  • Joe Friday on March 03, 2013 4:13 PM:

    "According to the AP, Brookings' Tax Policy Center is predicting that this year, the rich will pay some of the highest tax rates since the Congressional Budget Office began keeping track of the data in 1979."

    Keep in mind that this applies only to the portion of their income that is actually taxable.

  • Joe Friday on March 03, 2013 4:29 PM:

    troglodyte,

    "a two-earner household with equal $100K salaries would pay the full payroll tax and have a household income safely within the top 5%."

    Wrong.

    "its fair to speculate that far fewer than 20% of US households are getting a big break on the payroll tax."

    Wrong.

    ~~~

    Oh, and BTW, "Household Income" is not a measure of ANYTHING. Worse yet, it incorrectly and badly distorts economic reality. It is less than a useless metric.

  • troglodyte on March 03, 2013 4:46 PM:

    Joe Friday,

    If you can tell me how I can rebate my spouse's SSN withholding so that we dont pay any of it past the $113K threshold on our combined wage-based income, Id like to know the trick.

    Just saying "Wrong" doesnt constitute an argument.

  • golack on March 03, 2013 5:28 PM:

    troglodyte is correct for those just entering the top 20% bracket. But the median income for the top 20% is >200K, and they control >80% of the total wealth of our country. Though a lot of that is at the upper end of the upper end.

    The top 20% is defined in terms of people, not total wealth.

    Extend the payroll tax on the business side to cover all income, and use some of that increase in revenue to both lower the tax rate to cover a smaller raise in the medicare/medicaid tax rate.

  • troglodyte on March 03, 2013 6:06 PM:

    Golack,

    Im on your side, but you have got to be more careful with your statistics or else you should leave the pitchforks to others. Click the link.

    http://catosdomain.com/wp-content/uploads/2012/09/us-income-distribution-2010-1210x7201.gif

    For 2010 the 90% percentile of household income, which is the median income of the top 20%, is less than $140K. A few years' inflation doesnt bring that up to >$200K. That is median, not mean. The *mean* income of the 20% was higher than that because the distribution of incomes has a very long tail of very wealthy households.

    Krugman has a good graph that shows how much income inequality is driven by the top 1%, with the remaining 19% of the top 20% treading water.

    http://krugman.blogs.nytimes.com/2011/11/03/inequality-trends-in-one-picture/

    Obama's original proposal to repeal the Bush tax cuts for the household incomes over $250K only would have affected a few percent of the US population.

  • Doug on March 03, 2013 6:47 PM:

    "Moreover, high tax rates might actually spur growth..."

    Certainly seemed to work for the period 1938-1975, and that includes, I believe, two triplings of the price of oil.

  • Joe Friday on March 03, 2013 10:55 PM:

    troglodyte,

    "If you can tell me how I can rebate my spouse's SSN withholding so that we dont pay any of it past the $113K threshold on our combined wage-based income, Id like to know the trick."

    What the hell does that have to do with the price of eggs in Singapore ?

    "Just saying 'Wrong' doesnt constitute an argument."

    I wasn't making an "argument". Merely stating a fact.

    "...you have got to be more careful with your statistics..."

    Look whose talkin'. The graph you keep citing is useless.

    According to David S. Johnson, who is the chief of the Housing and Household Economic Statistics Division at the Census Bureau, actual real wages and salaries declined while the "Household Income" metric was rising. The problem is it is a variable aggregate.

    An example is of a guy with an original income of $100,00 annually, and his spouse was a homemaker. He lost his job, and his new one only pays $75,000 and his wife now works full time earning $45,000 annually. "Household Income" up, real wages per hour worked down, Standard of Living down.