Wednesday, April 19, 2006

Taxing the Poor

There's this oft repeated sentiment that we can't overtax the wealthy. I agree whole-heartedly with that. But are we, in fact, overtaxing the wealthy? What about wage growth, is it uniform?

First, taxation. The California Budget Project has a new report out. They note an interesting, though pretty well known fact for those who follow this issue:
Measured as a share of family income, California’s poorest families pay the most in taxes. The poorest fifth of the state’s non-elderly families, with an average income of $11,100, spent 11.3 percent of their income on state taxes in 2002. In comparison, the wealthiest 1 percent, with an average income of $1.6 million, spent 7.2 percent of their income on state taxes.
A reason for this is that state taxes on food, clothes or whatever are very regressive taxes that disproportionately burden the poor. But no one is complaining about that (well, there are some people). Another important, but again, unsurprising factoid:
In 2003, the most recent year for which data are available, 380,075 taxpayers reported incomes of $200,000 or more. However, 1,659 of these households paid no California personal income tax.
Darn those class warfare types who want to tax the wealthy, right?

What about incomes? Well, Kevin has a nice run down:
The reason for this is obvious: our economy has grown 52%, but that doesn't mean everyone's income has grown 52%. It means that the incomes of the super-rich have grown 100% while the incomes of average schmoes have grown only 25%. And average schmoe incomes haven't risen a penny since George Bush took office.

In other words, the rich are taking most of the money and leaving little behind for anyone else. And then, to add insult to injury, they whine about having to pay taxes on that vastly increased income.
If you read Perfectly Legal by David Cay Johnston, you can find out many more interesting facts about the tax system. I like to consider myself analytically inclined, but even I get lost in all the intricate ways in which creative tax attorneys get the wealthy out of paying much in taxes.

Postscript: I realized this post probably comes off as dismissive of many people who don't follow tax issues. That's not what I intended. Rather, I wanted to emphasize that these issues have been reported before but are often minimized or ignored. Reagan, despite his anti-tax reputation actually raised taxes after he initially cut them because he realized government was not sustainable without those revenues. People like Grover Norquist want us to build massive deficits (or have bond debts) so that we have no other choice but to end social services. Not only is that morally disgusting, it also won't happen without an ugly fight. To secure services in the future we have to think long term and deal with a little hurt now instead of massive hurt in the future. A visionary leader will have to realize this and adequately convey this to the people. There is little way around this.

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