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One thing that is important to understand is that the income tax only makes up about 50% of federal revenue. The next major source of revenue? Payroll tax. In

by curtis 8y ago

One thing that is important to understand is that the income tax only makes up about 50% of federal revenue. The next major source of revenue? Payroll tax. Income tax is a progressive tax. Payroll tax is definitely not progressive. According to this source [1] in Fiscal Year 2016 income tax made 47.3% of federal revenue and payroll tax accounted for 34.1%. I don't know what the exact numbers are if you take both taxes into account, but I do know that the headline [2] is at best grossly misleading because so many people are going to forget about payroll taxes. [1] https://www.taxpolicycenter.org/briefing-book/what-are-sources-revenue-federal-government https://www.taxpolicycenter.org/briefing-book/what-are-sourc... [2] "Top 3% of U.S. Taxpayers Paid Majority of Income Taxes in 2016"

rayiner 8y ago
It's not "grossly misleading." Payroll taxes are a form of forced saving--in theory, you get that money back when you draw from Social Security/Medicare when you retire. (In reality, most people will get out more than they put in.) In that way, they're qualitatively different than the income tax. Looking at tax rates in isolation is pretty academic in any event. The real question, I think, is: what are our competitors (France, Germany, the U.K., etc.) doing? Those countries tend to lean even more heavily on regressive taxes like mandatory insurance and retirement contributions, VAT, etc.
- trobertson 8y ago
  > (In reality, most people will get out more than they put in.) Up until it runs out, at which point nobody gets anything. And for whichever generation gets shafted (guess), they will be looking at a big negative when they see they get nothing for all the taxes they put in.
  - asdfasgasdgasdg 8y ago
    In all likelihood, that generation will simply raise taxes to the point where they can pay for the benefits. The odds that old people are going to be like, "Welp, I guess we have to just die now," are basically zero. They, whoever they are, will simply vote for whichever party promises most sincerely to fix the situation by taxing everyone else to pay.
    - miscreanity 8y ago
      People are already moving from high tax states to ones with no income tax. They won't stick around to simply die, so where will the taxes come from when the population is dwindling and there's no incentive to stay with rising tax rates? There's a reason places with little to no taxation are flush with funds.
      - quxbar 8y ago
        That's funny, I moved from TX to NY, I remember my public high school couldn't afford enough books. Somehow the lack of taxation didn't help with that.
        miscreanity 8y ago
        No other factors are provided: were you in an affluent area? What other demographics influenced your school? Is there a high ratio of homeschooling or private schools to public schooling? Your anecdote is one data point, nowhere near enough to draw conclusions about the entire state.
      - asdfasgasdgasdg 8y ago
        > There's a reason places with little to no taxation are flush with funds. Places with little to no taxation are not flush with funds. https://www.taxpolicycenter.org/statistics/state-and-local-tax-revenue-capita https://www.taxpolicycenter.org/statistics/state-and-local-t... The generally red, generally low tax southeast and southwest states have about half the revenue per capita of the generally blue, generally high tax states in the northeast and far west. Where did you get this funny idea that collecting few taxes leads to collecting lots of taxes?
        miscreanity 8y ago
        It seems you assume I was taking about tax collection and government being highly funded - I'm referring to the economy as a whole, of which government is only one component; preferably a shrinking one. Investment is accelerating in low and no-tax countries or regions while it is waning in high-tax locations. There is a growing realization that silicon valley is not all it's cracked up to be. Simple incentive structures explain a great deal of capital movement.
  - derekp7 8y ago
    Social Security will never "run out", due to the nature of it. The taxes from people currently working are what directly pays those who are currently retired and drawing on it. Now what could happen is one of two things. Either the benefits get cut to match the tax revenue at that time (estimates I've seen is that SS can drop to about 70% of what it is now), or that payroll taxes will increase, and the cap raised or eliminated.
    - miscreanity 8y ago
      You could also eat less to save money on a declining income but eventually you'll be eating so little that you won't have the energy to get up and eat. Such actions have been attempted by empires throughout history - Julius Caesar attempted to do something very similar and was assassinated for it.
briHass 8y ago
True, but at least in theory, the FICA (payroll) taxes fund programs that directly benefit the employee: medicare, social security, and unemployment benefits. The reason these appear more regressive than income taxes is due to how Social Security pays out an amount proportional to your contributions, while also having a cap on the max you can receive and be taxed for.
- nickik 8y ago
  An lets be clear. Only in theory is this true.
tmarman 8y ago
It's also misleading and intellectually dishonest to discuss the amount of income tax paid in the context of rate while ignoring the underlying income. E.g., "The top 1 percent paid a greater share of individual income taxes (37.3 percent) than the bottom 90 percent combined (30.5 percent)." Ok, except this ignores the amount _earned_ by the top 1% (avg $678,359) vs. the bottom 90% (avg $35,083). [1] And of course, higher wage earners are also likely to have disproportionately more wealth, as it's a lot easier to save, invest and otherwise maximize growth and minimize tax exposure when you have more cash available. [1] https://www.epi.org/blog/wages-rose-for-the-bottom-90-percent-in-2016-as-those-for-top-1-percent-fell/ https://www.epi.org/blog/wages-rose-for-the-bottom-90-percen...

by curtis 8y ago

rayiner 8y ago

It's not "grossly misleading." Payroll taxes are a form of forced saving--in theory, you get that money back when you draw from Social Security/Medicare when you retire. (In reality, most people will get out more than they put in.) In that way, they're qualitatively different than the income tax. Looking at tax rates in isolation is pretty academic in any event. The real question, I think, is: what are our competitors (France, Germany, the U.K., etc.) doing? Those countries tend to lean even more heavily on regressive taxes like mandatory insurance and retirement contributions, VAT, etc.

trobertson 8y ago
> (In reality, most people will get out more than they put in.) Up until it runs out, at which point nobody gets anything. And for whichever generation gets shafted (guess), they will be looking at a big negative when they see they get nothing for all the taxes they put in.
- asdfasgasdgasdg 8y ago
  In all likelihood, that generation will simply raise taxes to the point where they can pay for the benefits. The odds that old people are going to be like, "Welp, I guess we have to just die now," are basically zero. They, whoever they are, will simply vote for whichever party promises most sincerely to fix the situation by taxing everyone else to pay.
  - miscreanity 8y ago
    People are already moving from high tax states to ones with no income tax. They won't stick around to simply die, so where will the taxes come from when the population is dwindling and there's no incentive to stay with rising tax rates? There's a reason places with little to no taxation are flush with funds.
    - quxbar 8y ago
      That's funny, I moved from TX to NY, I remember my public high school couldn't afford enough books. Somehow the lack of taxation didn't help with that.
      - miscreanity 8y ago
        No other factors are provided: were you in an affluent area? What other demographics influenced your school? Is there a high ratio of homeschooling or private schools to public schooling? Your anecdote is one data point, nowhere near enough to draw conclusions about the entire state.
    - asdfasgasdgasdg 8y ago
      > There's a reason places with little to no taxation are flush with funds. Places with little to no taxation are not flush with funds. https://www.taxpolicycenter.org/statistics/state-and-local-tax-revenue-capita https://www.taxpolicycenter.org/statistics/state-and-local-t... The generally red, generally low tax southeast and southwest states have about half the revenue per capita of the generally blue, generally high tax states in the northeast and far west. Where did you get this funny idea that collecting few taxes leads to collecting lots of taxes?
      - miscreanity 8y ago
        It seems you assume I was taking about tax collection and government being highly funded - I'm referring to the economy as a whole, of which government is only one component; preferably a shrinking one. Investment is accelerating in low and no-tax countries or regions while it is waning in high-tax locations. There is a growing realization that silicon valley is not all it's cracked up to be. Simple incentive structures explain a great deal of capital movement.
- derekp7 8y ago
  Social Security will never "run out", due to the nature of it. The taxes from people currently working are what directly pays those who are currently retired and drawing on it. Now what could happen is one of two things. Either the benefits get cut to match the tax revenue at that time (estimates I've seen is that SS can drop to about 70% of what it is now), or that payroll taxes will increase, and the cap raised or eliminated.
  - miscreanity 8y ago
    You could also eat less to save money on a declining income but eventually you'll be eating so little that you won't have the energy to get up and eat. Such actions have been attempted by empires throughout history - Julius Caesar attempted to do something very similar and was assassinated for it.

briHass 8y ago

True, but at least in theory, the FICA (payroll) taxes fund programs that directly benefit the employee: medicare, social security, and unemployment benefits. The reason these appear more regressive than income taxes is due to how Social Security pays out an amount proportional to your contributions, while also having a cap on the max you can receive and be taxed for.

nickik 8y ago
An lets be clear. Only in theory is this true.

tmarman 8y ago

It's also misleading and intellectually dishonest to discuss the amount of income tax paid in the context of rate while ignoring the underlying income. E.g., "The top 1 percent paid a greater share of individual income taxes (37.3 percent) than the bottom 90 percent combined (30.5 percent)." Ok, except this ignores the amount _earned_ by the top 1% (avg $678,359) vs. the bottom 90% (avg $35,083). [1] And of course, higher wage earners are also likely to have disproportionately more wealth, as it's a lot easier to save, invest and otherwise maximize growth and minimize tax exposure when you have more cash available. [1] https://www.epi.org/blog/wages-rose-for-the-bottom-90-percent-in-2016-as-those-for-top-1-percent-fell/ https://www.epi.org/blog/wages-rose-for-the-bottom-90-percen...