Friday, February 19, 2010

Rich get richer, tax rates fall

This data is for the United States in 2007, at the peak of the boom. The tax writer David Cay Johnston notes:

"In 2007 the top 400 taxpayers had an average income of $344.8 million, up 31 percent from their average $263.3 million income in 2006, according to figures in a report that the IRS posted to its Web site . . . Their effective income tax rate fell to 16.62 percent, down more than half a percentage point from 17.17 percent in 2006."

Nothing new here in terms of the trend, but the piece contains many nugget-like updates, such as:

"Payroll taxes did not add a significant burden to the top 400, not changing the rounding of rates by even one decimal. With payroll taxes taken into account, the effective tax rate of the top 400 would be 17.2 percent in 2006 and 16.6 percent in 2007, my analysis shows -- the same as not counting payroll taxes. As a point of comparison, about two-thirds of Americans pay more in Social Security, Medicare, and unemployment taxes than in federal income taxes.
. . .
Salaries and wages accounted for only 6.5 percent of the top 400's income in 2007.

This piece doesn't make comparisons with people on the poverty line; this is a regular public report on the top 400 taxpayers which was started up in the Clinton years, closed down in the years of George W. Bush, and then started up again under Obama.

In Britain, we also note this today:

"Figures published in 2007 showed that while about 400 people earned more than £10 million a year in Britain, only 65 of them paid income tax."


Blogger Physiocrat said...

"Figures published in 2007 showed that while about 400 people earned more than £10 million a year in Britain, only 65 of them paid income tax."

That is in the nature of income tax. The problem is conceptual, in that "income" is ultimately impossible to define. I seem to recall reading that there is no legal definition of the term. That was a couple of decades ago, but the problem is essentially this. If I do a job for you or give you something and you pay me money, that money is income, which is reasonably straightforwards until one starts to work of the costs of doing the work - tools, raw materials, payments to other people, etc.

But if we barter the goods and services, are both of us or neither of us receiving "income"? And what if we are bartering the goods and services through a LETS scheme? Is it then income? Are LETS schemes a tax avoidance mechanism? Or possibly even a tax evasion device?

Ultimately, all earned income comes through barter in which money is a token of exchange. But of course if the government is taking a cut at each and every exchange, the temptation is go do it off the books.

Then there are those 400 people who are reported to have "earned" more than £10 million. What did they actually do to get this money? It is not, by any chance, economic rent of land, because if it is, "earned" is precisely the wrong word to use.

2:51 pm  

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