I'm so sick of hearing the theory (usually people present it as fact) that keeping tax income margins down, corporate taxes low, and capital gains tax low contributes to economic growth. All the data from the past 40 years shows very clearly that the vast majority of the growth goes to the top and I think we've reached a point where it's not sustainable. At some point that 95% of people who do all the work and buy all the things are too tired and too poor and it's gonna go the other way. Nevermind that its a shit thing to do, maybe we focus less on economic growth for growth's sake and more on the well being of our people. That stat Kathryn posted that half of households bring in 47k or less is wild.
Thanks for another concise analysis of where our politicians are missing the mark when it comes to providing for all of their constituents rather than just those who can contribute the most!
I’m on your side but I have to say you missed the biggest issue. The issue is WEALTH vs INCOME. No matter how progressive income tax brackets are, INCOME taxes are inherently regressive because they tax the means of the poor, the middle class, and even the pretty rich people without touching the means of the truly rich - which is through their ownership of capital which grows in ways that are tax advantaged and may never be taxed in any way at all. Lots of the richest people in the US pay nothing or next to NOTHING in income tax, FICA, or any other type of tax at least relative to their wealth or even their growth in wealth.
This sort of income gulf without even the barest of social services highlights the fact thar the ability for anyone in the bottom 40% has approximately zero chance for advancement regardless of work ethic. An expenses rise to meet income, work harder pay more will kill work ethic. Thank you for your very clear outline of the issue.
I appreciate your reminder right up front that the FIT doesn't paint the whole picture. Include payroll taxes, and it's even worse. Using IRS data from 2020, I calculated average tax rates (FIT plus FICA) for wage income, self-employed earnings (Sch. C) and unearned income. At every level up to $160,000 per year, people whose income is entirely from interest and dividends pay less than workers. For example, at $40k, the average rates are 8% for unearned, 13% for wages, and 19% for Sch. C. At $160K, it's 18%, 24%, and 25%, respectively. With such a clear preference for unearned income (not even taking lower capital gains taxes into account), it's no wonder income inequality is growing. We should fund Social Security and Medicare from income taxes (eliminating the payroll tax) and eliminate most tax expenditures (deductions from taxable income) to give workers fair and equal treatment.
Thank you for this explainer and analysis. It clarifies for me one reason why my conversations and debates around this topic feel more and more like just talking past one other. The "pay their fair share" slogan that has so often defined the language boundaries of these debates is actually not what I am arguing for--I am arguing for "earn their fair share." It will be interesting to see if changing that framing makes space for more constructive conversations.
I just discovered this Substack and really appreciate the clear explanations and graphs. I would be very interested in commentary on https://freakonomics.com/podcast/ten-myths-about-the-u-s-tax-system/ even though I didn’t listen. I skimmed the supporting material which basically says that raising taxes on the rich won’t work because it’s insufficient to make an impact. I’m already suspicious but trying to keep an open mind.
Thank you again, Kathryn for your thorough and lucid analysis. I hope one day you will apply the same level of analysis to the distribution of wealth, not just income. I assume the income numbers you show here are derived from tax filings. If so, as bad as they show income inequality to be, the situation might be a whole lot worse, as the highest income people have significant tools and resources to hide income from taxes. And what happens with all that unspendible income at the highest income level? It's stored in increasingly large asset wealth. Perhaps even more wildly out of whack with average wealth? Am I out to lunch on this? Your insights would be greatly appreciated.
I'm so sick of hearing the theory (usually people present it as fact) that keeping tax income margins down, corporate taxes low, and capital gains tax low contributes to economic growth. All the data from the past 40 years shows very clearly that the vast majority of the growth goes to the top and I think we've reached a point where it's not sustainable. At some point that 95% of people who do all the work and buy all the things are too tired and too poor and it's gonna go the other way. Nevermind that its a shit thing to do, maybe we focus less on economic growth for growth's sake and more on the well being of our people. That stat Kathryn posted that half of households bring in 47k or less is wild.
I love this graph because it shows how terrible income inequality has gotten since Regan era tax policy took over. I Just wish there was more recent data. https://aneconomicsense.org/2015/06/20/concrete-measures-to-address-real-income-stagnation-of-the-poor-and-middle-classes/
Thanks for another concise analysis of where our politicians are missing the mark when it comes to providing for all of their constituents rather than just those who can contribute the most!
Really kind words, thank you!
I’m on your side but I have to say you missed the biggest issue. The issue is WEALTH vs INCOME. No matter how progressive income tax brackets are, INCOME taxes are inherently regressive because they tax the means of the poor, the middle class, and even the pretty rich people without touching the means of the truly rich - which is through their ownership of capital which grows in ways that are tax advantaged and may never be taxed in any way at all. Lots of the richest people in the US pay nothing or next to NOTHING in income tax, FICA, or any other type of tax at least relative to their wealth or even their growth in wealth.
Great points
This sort of income gulf without even the barest of social services highlights the fact thar the ability for anyone in the bottom 40% has approximately zero chance for advancement regardless of work ethic. An expenses rise to meet income, work harder pay more will kill work ethic. Thank you for your very clear outline of the issue.
Thanks for reading!
Thank you for providing the talking points! Great to have available to (try to) shed some light.
Happy to!
I appreciate your reminder right up front that the FIT doesn't paint the whole picture. Include payroll taxes, and it's even worse. Using IRS data from 2020, I calculated average tax rates (FIT plus FICA) for wage income, self-employed earnings (Sch. C) and unearned income. At every level up to $160,000 per year, people whose income is entirely from interest and dividends pay less than workers. For example, at $40k, the average rates are 8% for unearned, 13% for wages, and 19% for Sch. C. At $160K, it's 18%, 24%, and 25%, respectively. With such a clear preference for unearned income (not even taking lower capital gains taxes into account), it's no wonder income inequality is growing. We should fund Social Security and Medicare from income taxes (eliminating the payroll tax) and eliminate most tax expenditures (deductions from taxable income) to give workers fair and equal treatment.
A brief explanation of this proposal (including charts) is in one of my essays on A Moral Economy here: https://medium.com/@stevenoenerichardson/the-right-tax-3ad97ab4a4ab.
Thank you for this explainer and analysis. It clarifies for me one reason why my conversations and debates around this topic feel more and more like just talking past one other. The "pay their fair share" slogan that has so often defined the language boundaries of these debates is actually not what I am arguing for--I am arguing for "earn their fair share." It will be interesting to see if changing that framing makes space for more constructive conversations.
Good luck!!
Always appreciate your content!! Thank you!
Cheers!
I just discovered this Substack and really appreciate the clear explanations and graphs. I would be very interested in commentary on https://freakonomics.com/podcast/ten-myths-about-the-u-s-tax-system/ even though I didn’t listen. I skimmed the supporting material which basically says that raising taxes on the rich won’t work because it’s insufficient to make an impact. I’m already suspicious but trying to keep an open mind.
I really like your TikTok on this
Oh thank you!!!
Thank you again, Kathryn for your thorough and lucid analysis. I hope one day you will apply the same level of analysis to the distribution of wealth, not just income. I assume the income numbers you show here are derived from tax filings. If so, as bad as they show income inequality to be, the situation might be a whole lot worse, as the highest income people have significant tools and resources to hide income from taxes. And what happens with all that unspendible income at the highest income level? It's stored in increasingly large asset wealth. Perhaps even more wildly out of whack with average wealth? Am I out to lunch on this? Your insights would be greatly appreciated.