Wednesday, April 14, 2010

Taxing the Rich, Over Time

April 13, 2010, 8:56 pm

If we had good numbers on the distribution of state and local taxes, the picture would be even more pronounced. These taxes tend to be less progressive [aka "more regressive"] than federal taxes, in part because sales taxes are a larger part of state and local revenue. And sales taxes take a bigger percentage out of a middle-class family’s income than an affluent family’s income.

With all this being said, it is also true — as you often hear — that the wealthy are paying more in taxes than they used to. The top 0.01 percent paid 6.5 percent of all federal taxes in 2005, up from 2.7 percent in 1979. More broadly, the top 1 percent paid 27.6 percent of federal taxes in 2005, up from 15.4 percent in 1979. (You sometimes hear larger numbers, but they tend to apply only to income taxes, rather than to all federal taxes.)

So what’s the full story? In brief, tax rates for the wealthy have fallen more than for other income groups. Tax rates for the very wealthy have fallen more than they have for the merely wealthy. Incomes at the top have also increased much more quickly than incomes have for other groups.

Add it all up, and you can see why the wealthy are paying a greater share of federal taxes even though they are paying less tax on each dollar they earn. They’re simply making many more dollars than they used to.


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